Tesco contracted with an internet firm to manage third party websites (affiliates) in order to increase their internet sales. Under this system affiliates earn commission based on sales on Tesco’s websites by the traffic driven there by the affiliate.
The defendant company, Elogicom Ltd, contracted to be an affiliate and, as part of the process, registered with the management company two websites: Avon4me.co.uk and Avonlady.co.uk. Tesco checked and approved both Elogicom and its two websites.
For some time all seemed to be going smoothly. Tesco was paying Elogicom approximately £75 every month in commission until suddenly, in May 2005, this commission jumped drastically to nearly £27,000. Something was clearly amiss. Tesco reported their concerns to the management company whose investigations revealed that Elogicom was exploiting a loophole in their affiliate system.
Unbeknownst to Tesco, Elogicom had registered a number of other domain names linked with its Avon4me and Avonlady websites which remained invisible to Tesco. Of particular concern to Tesco, and the reason this became a trade mark dispute, is that these new domain names incorporated the word “tesco” including tesco2u.com, tescodiet.com and tescodiet.co.uk.
Elogicom directed the traffic received by these tesco domain names not to Elogicom’s own avon websites but instead straight to Tesco’s legitimate website. However, as all the tesco domain names were registered to the affiliate programme, Elogicom received the related commission.
Tesco’s lawyers got involved once the scheme had been identified. Attempts to settle failed and proceedings were issued for an order requiring Elogicom and/or its managing director and shareholder Mr Robert Ray to hand over the tesco domain names and to pay damages. Elogicom counterclaimed for the unpaid £27,000 commission. Earlier this month the court rejected Elogicom and Mr Ray’s defences and granted summary judgment in favour of Tesco.
The Issues
The novel aspect of this action was whether the defendants’ use of the tesco domain names amounted to use in the course of trade which is a legal requirement if the court is to find trade mark infringements. The defendants were not, after all, using these domain names to direct traffic to their own websites nor were they using them to sell their own goods or services.
The defendants argued that as they were affiliates, they had Tesco’s consent. Whilst superficially appealing, the judge, who recognised that the defendants honestly believed they were acting lawfully, saw their activities for what they were describing them as “fishing” for persons browsing the internet who might be searching for goods or services provided by Tesco.
The judge went further. He held that: “the use of internet domain names is itself a service offered to the public” and “allowing speedy access to … [a] website is itself a “service” in the form of provision of “assistance” relating to viewing and purchasing of goods on [the internet]”.
The judge found that Elogicom and Mr Ray were taking unfair advantage of the Tesco brand reflected in its registered trade marks with the object of earning commission in the process.
He rejected the defence that they were merely engaged in a form of comparative advertising by enabling individuals to have direct access to Tesco’s own website because he found that “trading without Tesco’s consent on Tesco’s own goodwill and by reference to Tesco’s own trade marks in order to generate business for itself, and commission payments to it from Tesco” was not an honest practice (a legal requirement for comparative advertising).
Conclusions
This interesting case gives rise to the following thoughts:
- Unauthorised use of a trade mark within a domain name can amount to a service offered to the public and therefore meets the use in the course of trade requirements for trade mark infringement.
- Unauthorised fishing for “type-in” internet traffic with a view to generating income (whether commission or not) also amounts to use in the course of trade.
- The otherwise efficient domain name dispute resolution services offered by various bodies including WIPO and Nominet are not always appropriate. This case was about more than just the transfer of the tesco domain names, a remedy available in the non-judicial dispute resolution systems. Importantly, Tesco also required injunctive relief, damages for trade mark infringement and for passing off and an order that its legal costs be paid: none of which is available in the dispute resolution systems.
- This case also highlights the importance of the sensible and, as far was possible, consensual approach by Tesco. Their lawyers allowed the defendants a decent period to respond to their initial demands and then encouraged pre-action settlement going so far as to offer to accept that the defendants transfer all of the tesco domain names on a drop hands basis with Tesco offering to pay the registration costs of £170. Although not clear from the judgment it is likely that the defendants’ failure to agree to this sensible proposal will cost them heavily in costs.