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Initial interest confusion in internet search results allowable

04 May 2018 - By Kate Duckworth

The New Zealand Court of Appeal appears to have allowed initial interest confusion to occur in search engine results in National Mini Storage Ltd v National Storage Ltd [2018] NZCA 45 (12 March 2018).

The facts

In 2016 National Mini Storage, an Auckland-only storage company, sought an injunction to stop National Storage, an Australian company, entering the Auckland market as “National Storage”. National Storage had not yet offered facilities in Auckland, but had done so in other parts of New Zealand since 2014. The trial was heard in the High Court in 2017 and the injunction was refused. National Mini Storage appealed to the Court of Appeal and the decision was released in March 2018.

Evidence of consumer internet behaviour

The crux of National Mini Storage’s claim was that consumers would be misled when they use word searches on the internet to find storage facilities. National Mini Storage brought extensive evidence of how consumers behaved on the internet and also specifically how they behaved when searching for storage facilities and for National Mini Storage:

  • The percentage of customers who came to hear of it by internet or email;
  • Google AdWords data and the click-through rate;
  • What consumers were entering as search terms, what results were being produced and what consumers did when presented with those search results; and
  • Google’s algorithm learned to distinguish between the two firms, so that National Storage dropped in organic ranking when searches were undertaken for “national mini storage”.

The Court of Appeal’s findings

The conclusions based on the evidence were that:

  • Searches for “national storage”, excluding “mini”, were a small proportion of all of the searches that led to customers clicking on an advertisement linking to National Mini Storage’s website;
  • A significant number of consumers look for National Mini Storage using “mini” as part of the search terms. National Mini Storage had heavily emphasised “mini” in its branding and National Storage had undertaken not to target that word;
  • Consumers are used to being presented with links to the websites of multiple providers and expect to distinguish among them as competitors in a marketplace;
  • Clicking through to websites may indicate, not that consumers are confused about supplier identity, but that they are evaluating offerings and seeking contact details;
  • The likely level of confusion from imperfect recollection is very low, and the number of customers at risk is not sufficiently substantial to justify characterising National Storage’s conduct as misleading or deceptive. Such confusion is the consequence of National Mini Storage’s descriptive or generic name; and
  • When a consumer clicks through to the websites of National Mini Storage or National Storage any confusion is likely to be dispelled.

Initial interest confusion

Initial interest confusion arises when an infringing product, service or premises initially attracts a customer’s interest because of its similarity to another. Courts have typically found that the fact that the customer’s interest is piqued is sufficient to justify legal relief, regardless of whether the customer subsequently realises that the infringing product, service or premises is not the one he or she was initially wanting: Trust Bank Auckland Ltd v ASB Bank Ltd [1989] 3 NZLR 385 (CA).

An illustration of a computer

Trust Bank Auckland is authority for the proposition that any sort of operative confusion that has an effect on how consumers behave is actionable. In respect of the Fair Trading Act, the Court of Appeal held (at 389):

“There seems to us to be no reason why s 9 should not protect the public from being led into business premises by being misled as to the ownership of the business. Once a prospective customer has entered, he or she will often be more likely to buy.

[T]he effect of the statute is that members of the public have a right not to be misled about with whom they are dealing.”

The Court of Appeal in National Mini Storage held that it need not discuss initial interest confusion. Yet, by holding that when a consumer clicks through to the websites of National Mini Storage or National Storage, any confusion is likely to be dispelled, it appears to be ruling that a level of initial interest confusion is acceptable.

Other cases where internet searching has caused confusion

The High Court and the Court of Appeal also distinguished earlier cases where internet searching had caused confusion. The courts in these cases were said to have intervened where a name had been appropriated by a rival that had acquired the name, or words very close to it, for Google advertising purposes:

  • In Intercity Group (NZ) Ltd v Nakedbus NZ Ltd [2014] NZHC 124 the defendant used the word “intercity” on its website and targeted “inter city” and similar keywords as part of a Google AdWords campaign when the plaintiff’s name was “Intercity”;
  • In Victoria Plum Ltd v Victorian Plumbing Ltd [2016] EWHC 2911 (Ch), [2017] Bus LR 363 the defendant changed marketing tactics and began targeting keywords such as “Victoria Plumb” that were clearly associated with the plaintiff; and
  • In Vancouver Community College v Vancouver Career College (Burnaby) Inc. 2017 BCCA 4 the defendant used the mark “VCC”, the official branding of the plaintiff, in its internet advertising and in its domain name with nothing to distinguish the defendant’s name from the plaintiff.

Acquiescence

National Storage also relied on the defence of acquiescence because the two firms had met and discussed National Storage’s interest in buying National Mini Storage. National Mini Storage had not raised any concerns about National Storage’s name. National Storage was materially prejudiced by the passivity over its name because it had commenced business in New Zealand without any awareness that it might need another name in the Auckland region.

Lessons

The case highlights the price to be paid for descriptive trade marks, as well as a reasonable level of discernment among internet users in general. The way the Court of Appeal dealt with initial interest confusion is likely to be controversial, and may signal that a different approach to confusion and deception is required between the cyber and bricks and mortar worlds.

Kate Duckworth is an intellectual property lawyer with over 15 years’ experience in intellectual property law. She can be contacted at www.kateduckworth.co.nz or kate@kateduckworth.co.nz.

Last updated on the 4th May 2018