When trademarks become geographic names: a breeding ground for unfair competition?

Portugal

The Algarve is a region in the south of Portugal whose economy is based mainly on tourism and related activities. In such a tourism-driven environment, the following phenomenon has repeatedly taken place: trademarks registered to identify luxurious tourist complexes located in areas where not much else existed have become associated with that particular place, becoming increasingly diluted over time in such a way that, eventually, the trademark/resort owner can no longer prevent others from using the trademark, as the latter has become, to a certain extent, the name of that geographic area.

Such a phenomenon, or something very similar, has happened (or is currently happening) in at least three areas of the Algarve - Torralta, Vale do Lobo and Quinta do Lago - and, to a certain extent, in another area that is currently the object of judicial proceedings.

In all the above cases, tourist complexes engaged in significant promotional and marketing efforts to ensure that their trademark (which identifies the development) becomes well known and associated with high standards of quality and services. However, such efforts had an adverse effect, as people - especially those living in the area at issue - started to identify the trademarks with the geographic area to which they related. In particular, the public beaches adjacent to these tourism developments - probably one of the most important points of attraction for tourists - started to be called by the trademark (eg, 'beach of Torralta', 'beach of Quinta do Lago' and 'beach of Vale do Lobo').

Therefore, even if a considerable amount of consumers still associate the trademark exclusively with the services/products offered by the trademark owner, competitors can still benefit from the confusion created in the mind of certain consumers.

A very similar situation arose in a case which was recently heard by the Portuguese Intellectual Property Court. The court issued its decision in the injunction proceedings on August 2 2013.

Little over a decade ago, the geographical name at issue in this case was virtually unknown to the public, as the area - as well as the beach at issue - was almost deserted. Then a company - the claimant in the proceedings - built a tourist complex and engaged in extensive international promotion efforts via its main trademark, which identified the resort as a whole, and other trademarks which all included the term that would become associated with that geographic area. As a consequence of these efforts, the name and trademark grew in popularity, as did the resort.

Subsequently, a competitor came into play and started using a sign that contained the term that was both the claimant’s trademark and the name by which the area had started to be known. The claimant sought an injunction against the competitor, claiming that:

  • the term at issue was a registered trademark and, therefore, it had exclusive rights to use it; and
  • the defendant was engaging in unfair competition insofar as, without having made any promotional investment, it was benefiting from the confusion created in the consumers’ minds between the parties' services.

In the injunction proceedings, the court decided with regard to the first claim that the trademark also corresponded to a geographic location, as the area is currently known by that name, in particular among locals. However, as to the second claim, the court ruled that there was indeed a situation of unfair competition, thus upholding the claimant's argument.

In February 2004 a very similar decision had been issued by the Évora Court of Appeal, which decided that, even though the trademark had become diluted, there was still a situation of unfair competition. According to the court, even if 'Vale do Lobo' is a geographic name, the fact remained that the claimant was the first to use the words 'Vale to Lobo' to designate its services; thus, when a competitor registered a domain name including the same words to promote a similar business, thereby benefiting from the image of quality associated with the Vale do Lobo resort, the defendant had engaged in unfair competition. 

What is interesting about these cases is the reason why the defendants were able to create confusion between their services and those of the claimants: even though the areas were known by the trademark among the locals, a considerable proportion of consumers associated that name with the claimants’ trademarks, and thus with their products and services.

In the case at hand, the main proceedings are currently taking place, and the court still has to issue a final decision. However, based on the elements referred to above, the outcome of the case is fairly certain: even if the court recognises that the mark has become diluted due to its widespread use among the locals as a geographical indication, it does not necessarily mean that the trademark owner will not be able to exercise its rights. Where a certain geographic area has become known mainly due to the trademark owner’s investment and efforts, the latter may protect its trademark rights by asserting a claim of unfair competition.

Manuel Lopes Rocha and Carolina Leão d’Oliveira, PLMJ - AM Pereira Sáragga Leal Oliveira Martins Júdice E Associados - Sociedade De Advogados - RL, Lisbon

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