Trademarks

In the Supreme Court	CA 7996/11
Sitting as a Court of Civil Appeals

 

 

Before:	Justice E. Rubinstein Justice Y. Danziger Justice Z. Zylbertal
The Appellants:	1. Safecom Ltd 2. David Zilberberg
v.
The Respondent:	Ofer Raviv
	Appeal against the Haifa District Court's judgment of August 28, 2011 in CF 542-04-09, given by His Honor Judge Dr. A. Zarnakin
Date of session:	Cheshvan 6, 5774 (October 10, 2013)
On behalf of the Appellants:	Adv. Nahum Gabrieli
On behalf of the Respondent:	Adv. Tamir Afori

JUDGMENT

 

Justice Y. Danziger

 

This is an appeal of the judgment of the Haifa District Court (His Honor Judge Dr. A. Zarnakin) of August 28, 2011 in CF 542-09-09, dismissing the Appellants' claim against the Respondent for the infringement of copyright in their technical drawings.

 

Factual Background

 

1.         Appellant 1, Safecom Ltd (hereinafter: "Safecom"), develops and markets products for the electrical backup of cable TV broadcasting systems, and the Appellant 2, David Zilberberg (hereinafter: "Zilberberg") is its manager and one of its shareholders. Zilberberg became acquainted with the Respondent when the latter sought to market Safecom's products to a company for which he worked, and he also connected Zilberberg to an American company, Innovative Solutions 21, Inc. (hereinafter: "the American company"), which led to the marketing of Safecom products in the USA. On June 18, 2002, an agreement was made between Safecom and the American company according to which the American company would be the exclusive distributor of Safecom products (hereinafter: "the Agreement"). The Agreement provided that ownership of all copyright, patents and other intellectual property rights connected with the products, including graphics, sketches and models, that were developed by Safecom would be retained by it. The Respondent had no formal status in the American company, but he was involved in the technical matters associated with marketing Safecom's products in the USA, and, in that context, he also took part in the preparation of technical drawings of Safecom products. In May 2005, the Agreement was terminated by Safecom, and in 2008, it learned of the filing of a patent application in the USA by the Respondent together with the American company's president, which concerned a voltage backup system for cable systems. In view of Safecom's complaint that the drawings underlying the patent application infringed its copyright in the drawings of its products, it filed suit in the District Court. By consent of the Respondent, the court awarded a provisional injunction. An objection filed against the registration of the American patent registration was dismissed.

 

2.         Safecom asserted that the Respondent had copied 14 original drawings that Zilberberg had prepared as part of a presentation for the Safecom products, which was furnished to the Respondent in 2003, when the agreement was still in force. According to it, the drawings that Zilberberg prepared were protected by copyright and owned by it, while the Respondent's drawings were absolutely identical and had been copied "one to one" and, as such, constituted an infringement of its right of reproduction. In order to emphasize the copying, Safecom pleaded that its drawings contained a mistake in the presentation of the switch box, and that mistake had been copied by the Respondent.

 

3.         The Respondent, for his part, asserted that the claim was governed by American law because the alleged infringement had been committed in the USA, and since that law had not been proven, the claim should be dismissed. According to him, under American law the claim would be dismissed because of the applicable American rules of fair use. In regards the very infringement, the Respondent pleaded that since the act was governed by the Copyright Act, 1911 (hereinafter: "the Old Law") it was first necessary to prove that the alleged infringement also constituted an infringement under the Copyright Law, 5768-2007 (hereinafter:  "the New Law"). According to him, under section 21 of the New Law, the copying of a work that is deposited for public inspection constitutes permitted use and no infringement is therefore involved. As regards the alleged copying, the Respondent pleaded that there was no relevant similarity between the Safecom drawings and his drawings, either visual or substantial. According to him, there are approximately 32 elements in the patent application drawings, while in the presentation there are only 19. This is because of the difference between the technology used in order to manufacture Safecom's products and that presented in the patent application. The Respondent further pleaded that the similarity between the drawings lay in their common functionality in a manner that does not afford protection. The Respondent also pleaded that he was party to making the drawings and therefore had a right of ownership in the Safecom drawings, and that the Agreement did not apply to him because he was not an employee of the American company. The Respondent also filed a counterclaim, but since no appeal has been brought in respect of it, we need not refer to it here.

 

The District Court's Judgment

 

4.         The District Court first dismissed the Respondent's claim that the matter is governed by American law. The court held that the Respondent had received the presentation in Israel.  It was therefore reasonable to assume that the act of copying had also been performed in Israel, and it had not been proven otherwise. In any event, the court held that the Respondent did not dispute the court's jurisdiction to try the matter in accordance with domestic law when the provisional injunction application had been considered, and he was therefore estopped from pleading the same. As regards Israeli law, the court held that the Safecom drawings do indeed amount to a protected work, according to both the Old Law and the New Law. The court dismissed the Respondent's claim that the use he had made was permitted use under section 21 of the New Law since the section treats of  the use of works that have already been deposited for public inspection and not use which itself constitutes deposit for public inspection.

 

5.         As regards the alleged copying, the District Court first held that the Respondent was not a joint owner of the rights in Safecom's drawings, because, even if he was not one of the American company's formal officers, he did substantially function as such and the agreement should therefore be applied to him. The court nevertheless dismissed Safecom's claim that the Respondent had admitted copying the drawings. The court emphasized that the Respondent's claim with respect to the difference in the number of elements between Safecom's drawings and the drawings in the patent application had not been rebutted, and a visual similarity had therefore not been established. The court dismissed Safecom's claim with respect to copying the mistake in its drawings because, according to it, no mistake was in fact involved. Finally, the court held that because of the great functionality of the Safecom drawings, some similarity was obliged between drawings that sought to present a similar product, and Safecom's drawings, or a substantial part of them, had therefore not been copied.

 

            Hence, the appeal.

 

The Grounds of Appeal in Brief

 

6.         The Appellants – through their attorney, Adv. Nahum Gabrieli – argue that the District Court erred            when it held that there had been no copying in the instant case. According to them, they did not have to adduce direct evidence of copying the drawings because the law makes it possible to suffice with circumstantial evidence to prove copying. The Appellants assert that the access that the Respondent had to the drawings, which is not in dispute, together with the substantial similarity between their drawings and his, leads to the sole conclusion that there was copying. The Appellants emphasize the identical elements between their drawings and those of the Respondent that do not derive from the functional presentation of the products, like the same twists and turns in the lines that are shown on them. According to them, the Respondent himself admitted that there are many ways to draw the products concerned, and he even showed example drawings of similar systems that were different from the drawings in the instant case. Moreover, in principle it cannot be held that when functional technical drawings are involved, copying cannot necessarily be inferred. The Appellants add that the finding that the similarity between the drawings was not the result of copying is inconsistent with the relationship between the parties, as described above. Finally, the Appellants aver that the court was mistaken when it reviewed the substantial similarity on the basis of the number of elements appearing in each of the drawings, rather than a general impression of the substance of the part copied, which according to them, obliged the conclusion that there had been prohibited copying.

 

The Respondent's Reply in Brief

 

7.         The Respondent – through his attorney, Adv. Tamir Afori – argues that the District Court rightly distinguished between proving a visual similarity and establishing a substantial similarity. According to him, in the instant case there has not been copying, as a matter of fact, because even if it were established that he had access to Safecom's drawings, the court found, as a matter of fact, that there was no visual similarity between the works. According to him, in order to establish such a similarity, the Appellants should have produced an expert opinion insofar as the matter concerns a technical drawing. In any event, the Respondent asserts that there had been no copying of a substantial part that was original to the Appellants, and that the copying of parts of the work that are not original in any event does not amount to copying and to an infringement of any right of the work's owner. According to him, in the instant case works are involved, only parts of which are original, and it is necessary to carefully analyze whether the original parts that were copied constitute a substantial part of the Plaintiff's work. Since, in the instant case, functional works are involved, the respondent argues that only the identical copying of original parts should be regarded as an infringement of copyright. The Respondent emphasizes that after filtering out all the non-original parts of Safecom's drawings, what remains is at most a "copy" of curved lines that do not constitute a substantial part of the work.

 

8.         The Respondent adds that it was inappropriate to deny his rights in Safecom's drawings since he was a joint author of them because of the Agreement between Safecom and the American company to which he was not party, and it should therefore be held that he is a joint owner and joint author of the Safecom drawings. Furthermore, the Respondent asserts that it was inappropriate to hold that the law governing the infringement is Israeli law since the Appellants had not established that the infringement asserted by them was committed in Israel, and that burden rested with them. According to him, his agreeing to the award of a provisional injunction does not attest to his agreeing to conduct the principal case in accordance with Israeli law. Finally, the Respondent argues that even if he is not the owner of the Safecom drawings, he is still their joint author, and the use that he made of them is therefore a permitted use under section 27 of the New Law, which permits the author of an artistic work to make works that constitute a partial copying or derivative of it, even if he is not the owner of the right. Moreover, according to him, the use that he made of the drawings is also protected by virtue of section 20 of the New Law because it was done in legal administrative proceedings or, in the alternative, it was fair use under section 19 of the New Law.

 

9.         In the hearing before us an attempt was made to bring the parties to an overall understanding that would make the need for our ruling unnecessary, but that attempt was unsuccessful.

 

Discussion and Ruling

 

10.       This appeal raises questions at the very heart of copyright law, and that, essentially, address the foundations upon which the protection of works is based, and in particular, the matter of the author's originality; the distinction between idea and expression; and infringement of the right to copy the work. These questions are highlighted with regard to the protection of functional works, and they require elucidation and clarification. Having read the parties' summations and listened to their oral arguments in the hearing before us, I have reached the overall conclusion that the appeal should be allowed and the case should be remanded to the District Court in regard to the matter of relief. I shall also recommend that my colleagues do the same.

 

The Basis of the Protection of Works – Originality

 

11.       The requirement of originality has been recognized by this Court as a threshold for the existence of copyright in a work [for more on the originality requirement, see: Michael Birnhack, “The Requirement of Originality in Copyright Law and Cultural Control,” 2 Alei Mishpat 347, 352-355 (2002) (Hebrew) (hereinafter: "Birnhack")]. The development of the requirement in Israeli case law has been based on the provisions of the Old Law, despite the fact that the Hebrew version did not mention "originality", whereas the binding English version provides, in section 1, that copyright will be granted in respect of:

 

            "every original literary, dramatic, musical and artistic work…" [emphasis added  – YD].

 

            The requirement of originality was anchored in the New Law in section 4(a), which provides:

 

            "Copyright shall subsist in the following works:

            (1) original works that are literary works, artistic works, dramatic works or musical works, fixed in any form"  [emphasis added – YD].

 

12.       This Court reviewed the case law relating to the elements underlying the requirement of originality at length in CA 8485/08 FA Premier League Ltd v.  Israel Sports Betting Regulation Council (March 14, 2010) (hereinafter:  the Premier League case) [http://versa.cardozo.yu.edu/opinions/fa-premier-league-v-israel-sports-b.... It was held that the requirement of originality is analyzed on the basis of two main criteria – investment and creativity.

 

            In the scope of the investment criterion, the author must have invested certain labor in the work in order to gain the right to its rewards, similar to the theoretical basis for recognizing the right to "corporeal" property [see: the Premier League case, para. 26; CA 513/89 Interlego A/S v. Exin-Lines Bros SA, IsrSC 48(4) 133, 164 (1994) (hereinafter referred to as the Interlego case)]. This criterion is based on the labor approach and the theory of natural rights based on the teachings of the philosopher John Locke as theoretical justification for the grant of property rights generally and copyright in particular [for a broader discussion, see: Birnhack, pp. 373-375; Guy Pesach, “The Theoretical Basis for the Recognition of Copyright,” 31 Mishpatim 359, 386-391 (2001) (Hebrew) (hereinafter: "Pesach"); Justin Hughes, “The Philosophy of Intellectual Property,” 77 GEORGETOWN L.J. 287, 297-98, 302-10 (1988); Wendy J. Gordon, “A Property Right in Self-Expression: Equality and Individualism in the Natural Law of Intellectual Property,” 102 YALE L.J. 1533 (1992)].

 

            In the context of the creativity criterion, which is based on the rationale according to which the purpose of copyright law is to enrich the creative world and the range of expressions available to the public, the nature of the investment, independently of its quantity, must be considered in order to show that it contributes to that purpose [see: Premier League, para. 27; Interlego, pp. 164-165]. This approach is based on a more social concept of copyright but, nevertheless, also on a utilitarian-economic approach, according to which a balance should be made between the cost – the incentive to be given to the author in the form of the monopoly granted to him in respect of the use and control of his work -- and the benefit of safeguarding the public domain for future work [see: Pesach, pp. 361-374; William M. Landes & Richard A. Posner, “An Economic Analysis of Copyright Law,” 18 J. LEGAL STUD. 325 (1989)].

 

            I would add that, in my opinion, in the scope of the originality requirement three subordinate elements should be identified, and in addition to the investment criterion and the creativity criterion, the origin criterion should be analyzed. By this I mean a requirement that the work should originate in the author and that it should not be based on another work – or in the words of my colleague Justice E. Rubinstein "original, meaning independent" [see: CA 3422/03 Krone AG v. Inbar Reinforced Plastic, IsrSC59(4) 365, 378 (2005); CA 360/83 Strosky Ltd. v. Whitman Ice Cream Ltd., IsrSC 40(3) 340, 346 (1985) (hereinafter: the Strosky case). For further on originality as origin, see Birnhack, p. 355-372].

 

13.       This Court has also considered the question of the nature and quantity of the originality requirement's elements that suffice to realize it. In respect of the investment criterion, it has been held that all that needs to be proven is a minimal investment of some human resource [see: Interlego, p. 173; Premier League, para. 34]. On the other hand, a quantitative definition of the requisite creativity is somewhat more complex and it appears that this Court has not yet fashioned a single formula for its realization.  Nevertheless, the definition of the requisite creativity for the protection of a work has been delineated in case law by a process of elimination. Thus, it has been held that the creativity criterion does not impose a particularly high threshold for the author, and that slight and even worthless creativity might sometimes suffice [see: Interlego, p. 173; CA 23/81 Hirschco v. Orbach, IsrSC 42(3) 749, 759 (1988) (hereinafter: the Hirschco case); CA 2687/92 Geva v. Walt Disney Co., IsrSC 48(1) 251, 257 (1993) (hereinafter: the Geva case)]. It has also been held that the work need not be novel in comparison with existing works in the same sphere [see Strosky, p. 257; Geva, p. 257].

 

14.       Because of the lack of any cohesive definition of the creativity requirement, and because of the absence of any controversy with regard to the definition of the investment necessary for the protection of a work, the possibility has been raised that a substantial investment in a work can compensate for a lack of creativity in such a way as will meet the requirement of originality and establish protection for the work. However, that approach was rejected by this Court long ago in Interlego, in which the approach of American law was adopted, as expressed in the American Supreme Court's judgement in Feist Publications, Inc. v. Rural Telephone Service Company, Inc., 499 US 340 (1991) (hereinafter: the Feist case), according to which mere investment is not sufficient for the copyright protection of a work [see: Interlego, p. 165, 169; Premier League, paras. 36-38].

 

15.       To sum up the foregoing, the case law laid down by this Court is that for the grant of copyright protection in respect of a work, it must be established that an original work is involved, three subsidiary elements being analyzed – the origin criterion, the investment criterion and the creativity criterion – the existence of only one element being insufficient for the purpose of establishing originality.

 

The Protected Part of the Work – The Idea/Expression Dichotomy

 

16.       Before I move on to discuss the originality required for the protection of functional works, I wish to consider another basic rule concerning the copyright protection of works – the distinction between idea and expression. A basic principle of copyright law is that the idea that underlies a work will not be protected by the right, and that the protection is afforded only to the way in which it is expressed. This rule is embodied in section 7B of the Copyright Ordinance, which governs the instant case, and was subsequently anchored in section 5 of the New Law, which provides:

 

            "Copyright in a work as provided in section 4 shall not extend to any of the following, but copyright shall apply to the way in which they are expressed:

 

            (1)       an idea …"

 

17.       This Court has consistently emphasized the said distinction in its case law [see, for example: CA 10242/08 Mutzafi v. Kabali, (October 10, 2012), para. 24 (hereinafter:  the Mutzafi case); CA 2173/94 Tele Event Ltd. v. Golden Channels & Co., IsrSC 55(5) 529, 544 (2001) (hereinafter: as the Tele Event case); Strosky, p. 346; CA 139/89 Harpaz v. Achituv IsrSC 44(4) 16, 19 (1990)]. This distinction is based on the concept that the grant of protection to mere ideas would frustrate one of the major purposes of copyright law – the encouragement of creation and leaving sufficient "raw material" in the public domain [see: Tony Greenman, Copyright, vol. I, 75 (second ed., 2008) (hereinafter:  "Greenman")]. The distinction between idea and expression, in the context of textbooks for example, has sometimes led to the conclusion that the author's right has been infringed because of the fact that the expression of the method of study created by him (which constitutes a mere idea) has been copied [see, for example: Hirschco], but also sometimes to the opposite conclusion that all that has been "copied" is the actual idea that underlies the work [see, for example: Mutzafi].

 

18.       The rule that an idea is not protected and only the way in which it is expressed is protected overlaps the rule that facts per se are not protected. This rule finds expression when compilation works are involved, and it has been held that such works will only be protected insofar as the choice and arrangement of the raw materials – which constitute unprotected facts – meet the requirement of originality (see: Interlego; CA 2790/93 Eisenman v. Kimron, IsrSC 54(3) 817 (2000); Tele Event]. This requirement is  expressed in section 4(b) of the New Law, which provides:

 

            "… originality of a compilation means the originality of the selection and arrangement of the works or of the data embodied therein".       

 

            However, in view of the rising status of the creativity requirement and the determination that investment does not suffice to prove originality, it has been held that, in certain cases, a "compilation work" will not be sufficiently original and will therefore not gain protection [see: Premier League, paras. 51-54]

 

19.       We can see that the distinction between idea and expression is of major importance in copyright law, and that, in certain senses, it also overlaps the requirement of originality that underlies the copyright protection of works. The overlap between these two basic principles of copyright law is particularly relevant when functional works are involved, as will be explained below.

 

The Merger Doctrine and Functional Works

 

20.       Having regard to the distinction between idea and expression, the concept has developed whereby, insofar as a particular idea can be expressed in only a single way, then protection will not be given to a work that constitutes that expression. This concept has been called the "merger doctrine". The merger doctrine has received little reference in the case law of this Court [see: Geva, p. 262; CA 2682/11 Petach Tikva Municipality v. Zissu (May 20, 2013), para. 49]. The doctrine originates in American law, and its application in modern case law is based on the judgement in Baker v. Selden, 101 US 99 (1880) (hereinafter: the Baker case). In the Baker case, consideration was given to whether a book that presents a new method of bookkeeping and also includes blank forms that make it possible to implement the method, grants its author an exclusive right to use the actual method. The American Supreme Court laid down a rule in that case for use in analyzing works, the only or main use of which is utilitarian. The Court in that case held that:

 

            "… where the art it teaches cannot be used without employing the methods and diagrams used to illustrate the book, or such as are similar to them, such methods and diagrams are to be considered as necessary incidents to the art and given therewith to the public" [ibid., p. 103].

 

            The federal courts in the USA have relied on this statement in order to develop the merger doctrine. The best-known judgment, which most broadens that doctrine, is Morrisey v. Procter & Gamble Co., 379 F.2d 675 (1st Cir. Mass. 1967) (hereinafter: the Morrisey case). In that case, it was held that when a single idea has a very narrow range of possible expressions, a work that constitutes one of the expressions is not to be granted copyright protection (ibid., pp. 678-679)]. Numerous federal courts have supported the rule in Morrisey, but dissenting opinions have also been aired [see: Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 2.18[C] (2002) (hereinafter: Nimmer)].

 

21.       Baker and its development in case law have been strongly criticized [see: Nimmer, § 2.18[C]. Firstly, it has been argued that in Baker itself, the American Supreme Court restricted the rule cited above solely to the right to use the method or idea given expression in the work, and that the use of the expression in order to present the method will constitute an infringement of the copyright, or in the words of the American Supreme Court:

 

            " The use by another of the same methods of statement, whether in works or illustrations, in a book published for teaching the art, would undoubtedly be an infringement of copyright" [ibid., p. 103].

 

            Secondly, it has been argued that the distinction between copying the expression for the purpose of using the method (or idea), compared with copying the expression for the purpose of showing the method (or idea) is artificial. It has therefore been proposed to determine that copying for the purpose of using the idea will also constitute copyright infringement, and that all that should be permitted is the use of the method or idea for functional needs [see: Nimmer, § 2.18[C]-[D]]. This proposal is based on the understanding that copyright does not preclude reliance upon a work that constitutes a certain expression of an idea and presents a particular method in order to turn the method into a product. Such protection is only granted by patent law. For the purpose of demonstration, let us assume that a company manufactures a particular electrical product that is not per se protected by copyright. For the purpose of manufacture, the company produces drawings that constitute a protected work (as detailed at length below). In view of the proposition presented above, a competing company will not be able to copy the drawings, but assuming that the product itself is not protected by a patent or design, the competing company will be able to manufacture the product on the basis of the drawings without infringing copyright. I would immediately say that I accept this latter distinction, and in my opinion, it should be adopted.

 

22.       Despite the criticism that has been presented, it does appear that when there is a complete merger between the idea and its expression, and when there is only one way to express the idea, a consensus does exist that the work that gives expression to that idea will not gain copyright protection [see: Greenman, p. 83; Nimmer § 2.18[C][2]; Paul Goldstein, Copyright § 2.3.2 1 (1989)]. However, opinions are divided on the question when there are just a few possibilities of expressing the idea. According to one approach, as held in Morrisey, in such a case, copyright protection should also not be granted, but according to another approach, the work will be granted copyright, but it will only be infringed when there is absolute or almost absolute similarity between the works [see: Greenman, p. 83; Geva, p. 262]. This controversy is relevant, because, in the instant case, it is asserted by the Respondent that Safecom should have proven exact copying because its drawings constitute an idea that can only be expressed in limited ways (para. 12 of the Respondent's summations). In order to decide this controversy, in my opinion, reference may be made to the fundamental rule of copyright law presented above – the requirement of originality.

 

23.       Issues concerning the merger doctrine arise in many cases in respect of certain types of work. Thus, in the modern era, the question arises in respect of computer programs [see: Greenman, p. 81]. In addition, it has been asserted that the courts in the USA are expanding the application of the doctrine to visual works [for more on this, see: Michael D. Murray, “Copyright, Originality and the End of the Scenes a  Faire and Merger Doctrines for Visual Works,” 58 BAYLOR L. REV. 779 (2006)]. Another area in which the work, by its nature, raises issues concerning the merger doctrine is that of functional works. The instant case involves a functional work that is also a visual work. In fact, the merger doctrine can be well understood not only on the basis of the distinction between idea and expression, or to be more accurate, the merger between them, but also on the basis of the originality requirement, in particular insofar as it concerns functional works.

 

24.       In Interlego, President M. Shamgar considered at length the difficulties that the requirement of originality raises as regards functional works. One of President Shamgar's most important findings in this respect was that, in principle, a work is not to be denied copyright protection merely because it is functional [ibid., p. 160]. Nevertheless, President Shamgar held that in respect of these works the Old Law applies a filter in addition to the requirement of originality, which he called "the artistry criterion" [ibid., p. 173]. I would immediately explain that President Shamgar based the reference to that criterion on section 35(1) of the Old Law, which defines artistic work as works of painting, drawing, sculpture and artistic craftsmanship, and architectural works of art, and engravings and photographs [emphasis added – YD]. In the instant case, Safecom's drawings meet the exact definition of a "drawing" as an artistic work in accordance with section 35(1) of the Old Law, and on the face of it, the artistry criterion therefore does not apply to them directly. However, in my opinion, inspiration may be drawn from that criterion in order to interpret the application of the merger doctrine to Safecom's drawings, and to analyze their originality as a functional work.

 

25.       In Interlego, the difficulty that functional works pose for the requirement of originality was described in a way that very much brings to mind the principles of the merger doctrine. In President Shamgar's words:

 

            "When the form is dictated by the function, namely when the function limits the possible forms in which the product can be designed, then there is no justification for granting copyright to the form that is a product of functional-artistic judgement, since the protection that is given protects the function, not the author's original choice of the specific form. This is a circumstance in which the product's form is determined because of its functional task" (ibid., p. 177) (emphasis original – YD).

 

In fact, the words "function" and "form" can be substituted for the words "idea" and "expression". In order to resolve this problem, President Shamgar proposed six possible criteria for identifying the "artistry" of a work: the choice criterion; the author's intention criterion; the public acceptance criterion; the public's willingness to pay criterion; the minimal aesthetic standard criterion; and the art for art's sake criterion (ibid., p. 179). After a detailed discussion, President Shamgar proposed the "choice criterion" as the test appropriate to the examination of whether or not a work's expression derives solely from its functionality. He defined the criterion as follows:

 

            "The choice criterion: one of the characteristics of art is that it reflects the ability to express an idea in a variety of ways. As far as we are concerned here, this is a very broad criterion since it will be fulfilled whenever the creator of the functional product has the ability to choose between several options (ibid., p. 179).

 

            And following:

 

                        "It appears that in view of the purposes of copyright as indicated, and in light of the principles for the solution as formulated, the choice criterion should be regarded as a proper one in the context of examining the final product. That is to say, as long as the form obtained is one of several alternatives. The alternatives should be effective. An effective alternative is one that not only performs the functional task of the product but also meets the limited options of form existing in respect of future works deriving from the connection between function and form. There should be alternatives which, in addition to the functional task, meet the restriction of form that derives from the product's functional task or in other words, there should be several alternatives that all meet the restrictions of form that derive from the functional task" (ibid., p. 181).

 

26.       Applying the choice criterion can be of help in determining the proper protection of work regarding which it is asserted that its great functionality limits the ways for expressing the idea it represents. According to the choice criterion, the function or purpose for which the work is intended should be sought and an examination made as to whether the form of presenting that purpose – the expression – is accompanied by the author's choice from among several options that could achieve the same purpose. The application of this criterion might certainly lead to different conclusions with regard to different elements of the work. One can think of a functional work, some of the elements of which constitute essential expression of the purpose for which it has been created and therefore do not require the author to choose from alternatives when creating them, while at the same time, other elements are not dictated by its purpose, and it is clear that the author had a large range of possible choices with respect to the mode of expression. In view of this, one can again enquire into the controversy existing with regard to the relevance of the merger doctrine. As aforesaid, in my opinion when there is a solitary option for the expression of a particular idea, it is inappropriate to grant protection to that solitary mode of expression. However, when there are several possible expressions of a particular idea, even if they are very few, then in my opinion, having regard to the choice criterion, the author does have a choice among those possible expressions, and it is therefore inappropriate to deny copyright protection to the expression chosen. Nevertheless, I am willing to accept the approach that in such cases, when the number of options is very limited, then in order to prove copyright infringement, it will be necessary to apply the copying criteria strictly, and require that the work that is alleged to be an "infringing work" be almost absolutely the same as the protected work [see: Geva, p. 262; Strosky, p. 357; Greenman,  p. 83].

 

Copying a Functional Work

 

27.       The question of the criteria for copying in copyright law is an elusive one. Nevertheless, in the early 1970s, this Court laid down standards for the test in CA 559/69 Almagor v. Godik, IsrSC 24(1) 825 (1970) (hereinafter:  the Almagor case). The standards that were laid down in Almagor are still in use and were recently summed up by Justice Y. Amit in Mutzafi as follows:

 

            "(–)     It has to be proven that the defendant copied real and substantial parts of the plaintiff's work, the quality rather than the quantity being decisive.

            (–)       Copying can be inferred when the defendant had access to the plaintiff's work and the similarity between the works is of such an extent that it is unreasonable to suppose that it is the hand of chance.

            (–)       The accumulation of points of similarity is of importance. The more there are, the greater the concern that copying is involved.

            (–)       The question whether the similarity between the two works is sufficient to determine that copying of a real and substantial part is involved is one of fact and degree. The answer to the question should be given not on the basis of a mechanical comparison of a number of words or lines that are similar in the particular works, but in accordance with the judge's impression of the works as a whole" (ibid., para. 26).

 

28. Do these standards change when the protected work is a functional one? In my opinion, that question should be answered in the negative. As I have described above, functional works raise various difficulties at the stage of analyzing the requisite originality for the purpose of recognizing them as copyrighted works. However, once a functional work has passed the originality requirement stage and the choice criterion, it is a protected work in all respects, and substantial parts of it may not be copied. In this respect, even if only some of the elements that make up the functional work have passed the "choice filter", that does not affect their being work protected against copying.

          The only consequence of a work being functional concerns the standard for the analysis of copying when the protected elements constitute an idea that can only be expressed in a limited number of ways.. In such a case, a higher threshold will be necessary to establish copying, and almost absolute similarity between the protected elements and the allegedly copied elements will be required in order to establish that substantial similarity.

 

 

Were Safecom's Drawings Copied?

 

29.       Having considered the elements necessary to establish the protection of a work and prove its protection when the emphasis is on functional works, I shall now analyze whether, in the instant circumstances, Safecom's drawings amount to protected works, and whether the use that the Respondent made of them amounted to copying in infringement of the copyright.

 

30.       Firstly, it should be noted that drawings do generally meet the definition of an artistic work under section 35(1) of the Old Law, and, in any event, the Respondent does not assert that Safecom's drawings do not fall within the scope of the works to which protection is granted. Consequently, an analysis has to be made of whether the drawings meet the requirement of originality and, in such event, because they are functional works, whether they also meet the choice criterion. It is not without reason that it is said that a picture is worth a thousand words, and I shall therefore first present one of the parties' drawings as they appear in the comparative table that the Appellants filed (Exhibit 1 of their exhibits).

 

*  On the left – the Safecom drawing; on the right – the respondent's drawing

 

            The Safecom drawings portray an electrical product whose purpose is to provide electrical backup when there is a malfunction. The drawings show an illustration/photograph of the product with boxes at its sides in which there is text that expresses some electrical function, each of the drawings showing – on the product and between it and the boxes – lines and arrows that describe the electrical function that the drawing seeks to describe by visual expression. I would first state that I accept the Respondent's argument that the boxes, per se, like the text within them, do not amount to protected works. I also accept his argument that his drawings show a photograph of a product that is different from Safecom's, and that it is therefore not a copy. Nevertheless, that does not suffice as regards the question of the drawings' originality and the question of copying.

 

31.       It should first be noted that even if each of the elements of the Safecom drawings does not, per se, amount to an original work, that does not negate the possibility that the combination of the elements into a single visual work does amount to a compilation that affords protection to the way in which the elements are arranged, as opposed to the protection of each element individually [see: Greenman, pp. 119-124]. Nevertheless, even without finding that the Safecom drawings amount to an original compilation, in my opinion it can be found that they do constitute a sufficiently original artistic work.

 

32.       From looking at Safecom's drawings there appears to be no doubt that their purpose is to demonstrate the electrical process and the functions performed by the product that it manufactures. For the purpose of that demonstration, there is no doubt that it is necessary to use predefined expressions, such as the text that describes common electrical functions and such as showing the actual product to which the text relates. Together with that, Safecom's drawings also include lines and arrows that demonstrate the flow process described in the drawing. From looking at the drawings, it appears that this demonstration, which has a functional task, can be expressed in a large number of ways that can achieve the purpose, while Safecom chose a particular means of expression according to which the lines and arrows would be of a certain length and certain thickness, taking a winding course appropriate to the way in which it chose to position the product and the text boxes on the drawing. It is my opinion that Safecom's said choice affords it copyright protection in respect to the particular visual element that seeks to "correspond" with those elements that do not amount to a protected work.

 

33.       Having found that some of the elements of Safecom's drawings do amount to copyrightable artistic work, it remains to determine whether the Respondent's drawings constitute a reproduction of its drawings. I stated above that when a functional work is involved, insofar as there is a limited number of ways in which to express the underlying idea, it will be necessary to show that the work that is allegedly an infringement is almost completely the same as the protected elements in the functional work. I am prepared to assume, for the purpose of the discussion, that whether Safecom's drawings in whole constitute a protected compilation, or whether some of the elements are protected separately as an artistic work, the number of ways to give expression to a demonstration of the product's electrical process is limited. Nevertheless, even working on that assumption, from a comparison between Safecom's drawings and the respondent's drawings it appears that as regards the drawings marked Fig. 2 to Fig. 13, and Fig. 15 and Fig. 16 (Exhibit 1 of the Appellants' exhibits), the Respondent did make an identical (or at least almost identical) copy of the protected elements of the Safecom drawings in the form of the lines that describe the flow process.

 

34.       The Respondent asserts in this regard that filtering out the photograph of the product that was not copied and the elements that are not protected in the form of the boxes and the text on them, "at most what are left are… certain curved lines that describe the connections between the parts of the system. Curved lines in a drawing are not a 'substantial part' of the work. Real de minimus is involved" (para. 14 of the Respondent's summations). I cannot accept that argument. The fact that certain elements of the work are not copyrighted, whether because they are unprotected works, mere ideas or a complete merger between idea and expression, leaves those elements in the public domain and thereby permits their free use by anyone so desirous. However, when other elements of the work are copyrighted, it cannot be said that the fact that other elements of the work are not protected makes copying them insubstantial. Such a finding would negate the very protection of those elements, and that cannot be accepted. In my opinion, specifically when substantial elements of the work do not gain copyright protection and remain in the public domain, then copying all those protected elements will attest to the copying of a substantial part of the work, a fortiori when there is absolute, or almost absolute, similarity [on the substantiveness of the reproduction having regard to the amount of the copying, see Mutzafi, para. 91). This is especially so since there is no dispute that the Respondent did have full access to Safecom's drawings. It should be borne in mind that the Respondent could have made use of those unprotected elements of Safecom's drawings and added different visual descriptions to them that demonstrate the functionality of the drawings, and he could also have arranged the elements of the drawing differently, which would have achieved the functional purpose as well. Since the Respondent made exact use of Safecom's protected visual resources, he infringed its copyright in those elements.  Justice's Netanyahu's statement in Strosky is apt in this regard:

 

            "A general inverse relationship equation may be appropriate inasmuch as the less originality and intellectual effort in the work, the more exact the copying that is needed for its copyright infringement. According to this equation, it can be said that the originality and effort in the sign are modest, while the copy is almost exact. That suffices for infringement" (ibid., p. 357).

 

Permitted Uses

 

35.       Having found that the Respondent did infringe Safecom's copyright in its drawings, it remains to discuss the Respondent's arguments that his actions and the drawings that he made constitute permitted use according to the New Law and therefore do not amount to infringement. The Respondent bases his arguments on section 78(c) of the New Law, according to which an act that does not constitute an infringement of copyright in accordance with that Law will not constitute an infringement of copyright under the Old Law, despite its application in the circumstances. In view of that argument, it should first be determined whether the use of the work, in accordance with the uses that are defined in chapter four of the New Law as "permitted uses", constitutes copyright infringement. In my opinion, the answer to that is in the negative. In CA 5097/11 Telran Communications (1986) Ltd v. Charlton Ltd. (September 2, 2013) (hereinafter referred to as "Telran"), my colleague Justice Z. Zylbertal expressed the opinion that use in accordance with the uses defined in chapter four of the New Law cannot amount to a contravention of that law (ibid., paras. 28-30). That opinion is based both on the wording of the Law and on the perception that there are certain uses that, according to the purposes underlying copyright, amount to a right of the user and not merely a defense against contravention of the Law [for further, see Niva Elkin-Koren, “Users' Rights,” in Michael Birnhack & Guy Pesach, eds., Copyright (2009) 327 (Hebrew)]. I accept this position both as regards the finding that permitted use, as defined in chapter four of the New Law, does not constitute a contravention of the law, and as regards the finding that permitted use in fact constitutes a right that is granted to the user to make certain types of use of a work. I am conscious of the fact that this position is contrary to the holding of Deputy President E. Rivlin in CA 9183/09 Football Association Premier League Ltd. v. Anonymous (May 13, 2012) (hereinafter: the Anonymous case), para. 18 of his opinion, and in view of the existing disagreement, the time may have come for an extended bench to address this issue.

 

36.       Having found that permitted use does not amount to a contravention of the New Law, consideration should be given to the types of permitted use that are asserted by the Respondent in the instant case.

 

            Firstly, the argument Respondent raises avers that his use of Safecom's drawings is permitted use under section 20 of the New Law, which permits the use of a work in legal administrative proceedings to the extent justified having regard to the purpose of the use. I cannot accept that argument. I am prepared to assume for the purpose of the discussion that using the work for the purpose of presenting it to the registrar of patents in a particular country does constitute use in legal administrative proceedings, despite the fact that such a finding is not free of difficulties. However, the main element of this permitted use is the extent of the use, having regard to its purpose. In the instant case, the purpose of using Safecom's drawings and presenting them to the American Registrar of Patents in the patent registration application was the registration of a patent in respect of a product that competes with the one that Safecom markets. My opinion is that such use by a direct competitor, using the copyrighted work for the purpose of direct competition with the owner of the work, cannot amount to permitted use under section 20 of the New Law.

 

37.       Secondly, the respondent raises an argument that the use that he made of Safecom's drawings amounts to fair use, as defined in section 19 of the New Law. Section 19(a) of the New Law comprises an open list of types of use of protected works that will be permitted and fair. Section 19 (b) of the New Law enumerates four non-exclusive factors that are to be considered in order to determine whether a particular use amounts to fair use, including:

 

            "(1) the purpose and nature of the use;

            (2) the nature of the work of which use is made;

            (3) the extent of the use, qualitatively and quantitatively, in relation to the work as a whole;

            (4) the effect of the use on the value of the work and its potential market".

 

            This Court has held that "these are not essential or cumulative factors but a non-exhaustive list of parameters that might indicate the fairness of a particular use that is made of a protected work" [Anonymous, para. 19 of the opinion of Deputy President Rivlin].

 

            The four subordinate criteria listed in section 19(b) of the New Law are based on the subordinate criteria that have been laid down in the American Copyright Act [see: 17 USC § 107]. Empirical research that has been conducted attests that although the fourth subordinate criterion – the effect on the potential market – is most often mentioned as the decisive factor regarding the fairness of use, the first subordinate criterion – the purpose and nature of the use – does in fact have the most marked effect on the decision, the most influential factors being the commerciality and transformativeness of the use [see: Barton Beebe, “An Empirical Study of US Copyright Fair Use Opinions,” 1978-2005, 156 U. PENN L. REV., 549 (2008); Neil Weinstock Netanel, “Making Sense of Fair Use,” 15 LEWIS & CLARK L. REV. 715 (2011)]. It appears that these factors were also the most influential in this Court's ruling in Anonymous [ibid., para. 20].

 

            In the instant case, it appears that the use that the Respondent made of Safecom's drawings did not meet the standard of fair use. Thus, in the scope of the first subordinate criterion, it is clear that the Respondent's use was commercial because its whole purpose was to bring about the registration of a patent in respect of his product that competes with Safecom's product. Moreover, on analyzing the question of transformative use, it does not appear that the Respondent's use of the Safecom drawings led to the creation of a new expression, different from the original expression embodied in them. As regards the third subordinate criterion – the extent of the use – I have already found above that the Respondent made an exact, or almost exact, copy of Safecom's drawings, and the extent of the use is therefore full. Finally, having regard to the fourth subordinate criterion, it is clear that since the product marketed by the respondent directly competes with Safecom's product, there is no doubt that the use affects the potential market for Safecom's drawings.

 

            Incidentally, I would mention that I cannot accept the Respondent's argument that the American Patent Office has expressed its opinion that the use of a protected work for the purpose of a patent application amounts to fair use. From studying the opinion (which was annexed as Appendix J to the Respondent's volume of supporting documents), it appears that the American Patent Office means that the use of protected works that the Office itself makes in its relationship with those filing patent applications amounts to fair use [see: United States Patent and Trademark Office, USPTO Position on Fair Use of Copies of NPL Made in Patient Examination (January 19, 2012)].

 

38.       Thirdly, the Respondent contends that the use that he made of Safecom's drawings is permitted in accordance with section 27 of the New Law. Section 27 of the New Law provides:

 

            "Making a new artistic work which comprises a partial copying of an earlier work, or a derivative work from an earlier work, as well as any use of the said new work, are permitted to the author of the said earlier artistic work even where said author is not the owner of the copyright in the earlier artistic work, provided the new work does not repeat  the  essence  of  the  earlier  work  or  constitute  an  imitation thereof".

 

            In order to fall within the scope of the section, the Respondent must show that he was at least a joint author of the Safecom drawings. The District Court found that the Respondent had waived his rights in the drawings in favor of Safecom in the scope of the Agreement. The Respondent argues in this connection that even if he had waived his rights in the drawings, as regards the New Law he is still the first joint author of them. In my opinion, there is no need to rule on this issue because even if the respondent is a joint author of Safecom's drawings, section 27 of the New Law does not work in his favor in this case because the use that he made of Safecom's drawings amounts to an absolute, or almost absolute, copy of them. It cannot, therefore, be said that "partial copying" of Safecom's drawings, or a work deriving from them, is involved, and it can easily be found that the Respondent's drawings "repeat  the  essence  of  the  earlier  work  or  constitute  an  imitation thereof".

 

39.       Before concluding, I shall briefly consider the Respondent's argument concerning the law governing this case. According to the Respondent, copyright law is naturally territorial, as is the application of the Old Law. Since Safecom's drawings were copied in the USA, the Respondent asserts that the law governing the case is American law, which was not proven by the Appellants, and the appeal should therefore be dismissed. The District Court considered the Respondent's said argument and held that the drawings were not only copied in the context of filing the patent, but that the Respondent had received the presentation containing Safecom's drawings in Israel and copied them on the computer at his home in Israel. Consequently, the District Court held that Israeli law could be applied to the case. Those findings of the District Court are findings of fact, in which I have not found it appropriate to intervene at the stage of appeal. I would merely state that even were it appropriate to find that this case is governed by American law, that would not necessarily lead to the dismissal of the appeal in the absence of proof of the foreign law. This is particularly so when a sphere is involved that is regulated by numerous international conventions, which lead to relatively great conformity among the different state laws [see, for example: CA 169/94 Werner v. Amorim, IsrSC 50(3) 119, 124 (1996); CA 1227/97 Red Rock Quarry and Stone Works Ltd. v. Ibrahim IsrSC 53(3) 247, 259 (1999); CA 7687/04 Sasson v. Sasson (February 16, 2005), para. 10].

 

40.       In conclusion, I would recommend to my colleagues that we find that certain elements of Safecom's drawings amount to protected work, that 13 of the Respondent's drawings amount to an absolute, or almost absolute, copy of Safecom's drawings, and that the use that the Respondent made of the drawings does not amount to permitted use. I would also recommend to my colleagues that we remand the case to the District Court for ruling on the appropriate relief in respect of those infringements, and that the Respondent pay the Appellants' costs in the amount of NIS 40,000.

 

 

 

Justice Z. Zylbertal

 

            I concur.

 

 

 

Justice E. Rubinstein

 

A.        I concur in the illuminating opinion of my colleague, Justice Danziger.

 

B.        My colleague gave thorough consideration to a broad picture of copyright law, with regard to originality as a condition for the protection of a work, the protection of the way in which an idea is expressed, as opposed to the idea itself, and the criteria concerning works of a functional character, which is a complex matter in itself.

 

C.        I would like to add another criterion to all these – the common sense criterion, which might sound too broad because it can be said that common sense should guide us in every case, and on the other hand it is not necessarily the same for everyone in individual matters. However, by saying "common sense" in the instant case, I mean the accumulation of all the overall facts before the court.  When a work is involved, appearance or the sight of the eyes ("better is the sight of the eyes than the wandering of the desire", Ecclesiastes 6:9) is also acknowledged to be a significant parameter in intellectual property law (and see: CA 3422/03 Krone v. Inbar, IsrSC 59(4) 365, in respect of drawings as well. See also, inter alia, CA 7125/98 Mipromal v. Kalil, IsrSC 57(3) 702, 710 et seq.). Incidentally, the expression "the criterion of common sense" (in a slightly different sense) can be found in case law. See the statement by then Justice Grunis in ALA 5454/02 Taam Teva v. Ambrosia, IsrSC 57(2) 438, 453 (2005) citing this criterion per the learned commentator Seligson (Trademarks and Similar Law, (5733), 80-81 (Hebrew)) as regards the comparison of a conceptual message. And in the instant case, in preparing the file, when we – the bench – inspected the drawings involved, in our eyes there was a great similarity that was immediately conspicuous. Consequently, as I see it, the result that we have reached was required not only by common sense but also by the sight of our own eyes.

 

D.        Intellectual property law does, indeed, in many cases involve subtle nuances in respect of which it is frequently difficult to separate the wheat from the chaff, and much has been written about the difficulties of litigation in this sphere (see: D. Freiman, Patents (second printing, 2008) 7); but in my opinion, the case before us is not one of the difficult ones and anyone looking at the drawings that my colleague presented in his opinion (para. 30) needs no arcane language and can take them at face value, almost like the well-known definition by US Supreme Court Justice Potter Stewart concerning pornography, who said that it is perhaps difficult to define but "I know it when I see it".

 

E.         As aforesaid, I concur with my colleague's review, together with his cataloguing and arrangement of the matter.

 

F.         Before concluding, I would mention that Jewish law, especially in its modern embodiment, but even long ago, has considered the matter of intellectual property rights; see my opinion in CA 9191/03 V&S Spirt Aktiebolag v. Absolute Shoes, IsrSC 58(6) 869, 888-892, which also discusses (at p. 890, para. 18(3)) the Jewish law foundations of enforcement in intellectual property matters, and I would here emphasize the approaches of Jewish law that concern a another’s craftsmanship, trespass and theft, and more; in Krone, supra (at p. 379), I also considered the matter of a graphic pattern (or drawings) as a cause of action in Jewish law, and also see my opinion in ALA 7774/09 Weinberg v. Weisshof (2012) paras. 9 to 12 and the authorities cited there.

 

 

 

            Decided as stated in the opinion of Justice Y. Danziger.

 

Given this 15th day of Kislev 5774 (November 18, 2013)

 

 

 

Justice

Justice

Justice

 

 

 

 

 

            

CA 563/11

ADIDAS SALOMON AG

 

v.

 

1.    Galal Yaasin

 

2.    State of Israel – Customs and V.A.T. Branch  - Formal

 

 

The Supreme Court Sitting as the Court of Civil Appeals

[15 February 2012]

 

Before Vice President (Ret) E. Rivlin, Justices E. Hayut, E. Rubinstein

 

Appeal of the judgment the Tel-Aviv Jaffa District Court of 13.12.2010 in CF 2177/05 handed down by Hon. Judge M. Agmon-Gonen.

 

Israeli Legislature Cited

Trademarks Ordinance, s.1

Commercial Torts Law 5759-1999, s. 1

Unjust Enrichment Law 5739-1979

 

 

Israel Supreme Court Cases Cited  

 [1]  LCA 5768/94 ASHIR  Import, Export and Distribution v. Forum for Fixtures and Consumption Products Ltd [1998] IsrSC 52 (4) 289.

[2]  (LCA 9307/10 Adidas Salomon A.G. v. Yaasin (not yet reported,21.12.2010).

[3]  C.A. 715/68 Pro-Pro Biscuit v Promine Ltd [1969], IsrSC 23 (2) 43.

[4]  CA 3559/02 Center for Toto Zahav Subscribors v. Council for Regulation of Gambling in Sport [2004] IsrSC 59 (1) 873.              

[5]  CA 9191/03 [2004] V & section Vin Spirt Aktiebolag v. Absolute Shoes, IsrSC 58 (6) 869

[6]  CA 18/86 Israel Glass Factories Venice Ltd v. Les Verrcies De Saint Gobain, IsrSC 45 (3)  224

[7] CA 11487/03 August Storck v.  Alfa Intuit Food Products Ltd. (not reported, 23.3.2008);

[8]. CA 5792/99 Tikshoret Religious-Jewish Education Family (1997) Ltd "Family" Newspaper v. S.B.C Publication, Marketing and Sales Ltd - Mishpacha Tova Newspaper[2001] IsrSC 55 (3) 933. 

[9] CA 3581/05 Shehana'al Mat'ima Ltd v. ADIDAS-SALOMON (not reported – 7.7.2005).

[10]  LCA  3217/07 Brill Footwear Industries Ltd v.  ADIDAS SALOMON A.G. (not reported, 16.8.2007).

[11] HCJ 144/85 Kalil Non-Metallic Steel Industries  Ltd. v. Registrar for Patents and Designs and Trademarks[1988] IsrSC 42 (1) 309.

[12]    LCA 5454/02 Ta'am Teva (1988)  Ltd v. Ambrozia Sofharb Ltd [2003] IsrSC 57 (2) 438, 450 (2003), IsrSC 57 (2) 438,

[13]  C.A. 9070 Tali Dadon Yifrach v. A.T. Snap Ltd  (not yet reported, 12.3.2012).

[14]  CA 261/64 Pro-Pro Biscuit v. Promine Ltd [1964] IsrSC 18 (3) 275.

[15] CA 4116/06 Gateway Inc. v. Pascul Advanced Technology Ltd  (not reported, 20.6.2007) 

[16] CA 10959 Tea Board India v. Delta Lingerie, S.A. OF Cachan (not reported, 7.12.2006).

[17] CA 8441/04 Unilever P v Segev (not reported, 23.8.2006)

[18] LCA 2960/91 Wizzotzky Tea and Co. (Israel) Ltd v. Matok (not reported, 16.1.1992).

[19]  LCA 6658/09 Moltilock ltd v. Rav Bariah(08) (not  yet reported, 12.1.2010).

[20] LCA 1400/97 Picanti Food Industries  (Israel) Ltd v. Osem Food Industries Ltd [199]] IsrSC 51 (1) 310.

[21] CA 8981/04 Avi Malka - Avazei Hazahav Restaurant v. Avazei Shechunat HaTikva (1997) Restaurant Management Ltd (not reported, 27.9.2006).

[22] 210/65 Iggud Bank Ltd v. Agudat Yisrael Bank Ltd [1965] IsrSC 19 (2) 673.

[23] CA 3975/10  Phillip MORRIS PRODUCTS S.A נ' AKISIONERNO DROUJESTVO (not yet reported 21.10.2011)

[24] CA 6181/96 Kardi v. Bacardi and Company Limited [24], IsrSC 52 (3) at p. 276.

[25] LCA 10804/04 Prefetti Van Melle Benelux B.V. v. Alfa Intuit Food Products Ltd  (2005) IsrSC 59 (4) 461.

[26] 6025/05 Merck and consideration. Inc v, Teva Ta’asiot v. Teva Pharmaceutical Industries Ltd (not yet reported, 19.5.2011).

[27] (CA 945/06 General Mills Inc. v. Meshubah Food Industries Ltd (not yet reported, 1.10.2009)

[28] LCA 371/89 Leibovitz v. Etti Eliyahu Ltd [1990] IsrSC 44 (2) 309.

[29]  CA 588/87 Cohen v. Zvi Shemesh [1991] IsrSC 45 (5) 297.

[30]  FHC 10901/08 Beizman Investments Ltd v. Mishkan Bank Hapoalim Mortgages Ltd (not yet reported 17.7.2011)

[31] CA 2287/00 Shoham Machines and Dies Ltd v. Shmuel Harar (not reported, 5.12.2005)

[32] see CA 347/90 Soda Gal Ltd v Spielman [1993] IsrSC 47 (3) 450.

 

For the appellant — Adv. Eitan Shaulski; Adv. Inbal Nabot-Eizenthal.

For the respondent — Adv. Israel Sadeh; Adv. Amir Freedman

 

JUDGMENT

Justice E. Hayut

       This is an appeal against the decision of the Tel-Aviv Jaffa District Court (Hon. Judge M. Agmon – Gonen) of 13 December 2010 which dismissed the action filed by the Appellant against Respondent 1 for a violation of trademark, passing off, damage to good will, and unjust enrichment.

Factual Background

The Appellant, ADIDAS-SALOMON A.G. (hereinafter: Adidas or the Appellant) is a company engaged in sport products, footwear and clothing and the owner of a trade symbol registered in numerous states around the world, including Israel. Adidas owns three trademarks in Israel that are relevant to this appeal: Trademark No. 45237, Trademark No. 33479 and Trademark No. 118277, all of them in category 25, consisting of three parallel diagonal stripes on the sides of sports shoes, simple comfortable shoes, athletic shoes and every day shoes (hereinafter – “Three Stripes Ossiman trademark”).

Respondent 1, Mr. Galal Yaasin (hereinafter: the Respondent) deals in the importing of shoes to the area of the Palestinian Authority.  In 2005 the Respondent imported sports shoes from a factory in China and  per his order the shoes featured four stripes with the name “SYDNEY” embossed on them in three different places (hereinafter: the shoes, or the Respondent’s shoes). The consignment of shoes arrived in the Ashdod port and at the end of August 2005 a notification was sent to Adidas by Respondent  2 – the Customs and V.A.T. Authority (hereinafter: the Customs Authority) stating that it was delaying the consignment because according to the appearance of the shoes, the Respondent was prima facie infringing its intellectual property rights.  As against the deposit of a bank guarantee the Authority personnel gave the Adidas attorney the details of the Respondent and one sample shoe from the consignment (in his cross examination the Respondent confirmed that the shoe is representative of the other shoes in the same consignment).  Adidas was of the opinion the appearance of the shoes was similar to the extent of being misleading to the shoes that it produced, and that it therefore constitutes an infringement of its trademark. The Respondent on the other hand, claimed that the shoes he had imported did not infringe the registered trademark of Adidas, but for the sake of compromise he proposed to Adidas to make a certain change in the design of the shoe so that a fifth stripe or the mark X would be added to the four stripes, and that this addition would be made at in the precincts of the port.

Adidas rejected the Respondent’s proposals, and the Authority therefore continued to delay the shoes in its storerooms. Moreover, on 4 September 2005 Adidas filed an action against the Respondent in the Tel-Aviv Jaffa District Court, petitioning for a permanent injunction that would prohibit the Respondent from making any use of the shoes that without authorization featured its trademark or a mark that was similar to it, including upon shoes featuring four parallel, diagonal marks on the sides. In addition, Adidas petitioned for an order to destroy the Respondent’s shoes and for a remedy of damages, and for a detailed accounting regarding the actions and transactions that had been done in relation to these shoes and similar products. It bears mention that in the wake of the application filed by the Customs Authority concerning the matter, the parties agreed that the storage costs and the responsibility and cost of destroying, to the extent that the court gave an order to that effect, would be born by Adidas or by the Respondent, in accordance with the results of the action, and the Customs Authority was also added as a formal respondent to these proceedings.

The Decision of the Trial Court

2.    On 13 December 2010 the Trial Court rejected the action and ordered the Customs Authority to release the shoes from its storerooms and to deliver them to the Respondent, and that the latter would be permitted to sell them. The court likewise ordered Adidas to bear all of the costs occasioned by the delaying of the shoes and their storage in the storerooms of the Customs Authority.

First, the Trial Court considered the analytical basis and the purposes of trademarks law, as well as their development over the years. The court ruled that the principal purpose of these laws was the prevention of unfair competition that stems from the misleading of consumers with respect to the source of the product they had chosen to purchase. Accordingly, in the absence of any misleading, it could not be ruled that there had been an infringement of a trademark.

In the case at hand, the Trial Court rejected Adidas principled claim that the mere use of an emblem comprising four diagonal stripes, even though the shoes did not feature any other sign or elements that resembled those of Adidas or an embossment mentioning its name, constitutes an infringement of the three stripes trademark. In this context the court ruled that the decision on whether there was a “confusing resemblance” was a normative (and not an empiric) decision, and its purpose was to  identify cases which posed a threat to fair competition and an attempt to benefit from the good will of others.  In our examination of whether there is a "confusing resemblance" as stated, between the Adidas trademark and the design of the Respondent's shoes, the Court applied the "three way test" established in case law in this context: the test of appearance and phonetic sound, the test of the class of merchandise and circle of customers, and the test of the remaining circumstances.  For purposes of the application of the first test, of appearance and sound, the Court examined in shoes in its entirety and determined that in view of the embossment of the name "SYDNEY" on three different places on the shoe, and given the use of four stripes (and not three) there was no fear in the current case of the misleading of the consumer public.  In this context the court rejected Adidas' claim that the comparison should only be between the "signs" that appear on the shoe and that the shoe should not be related to as a whole. In applying the second secondary test that relates to the class of merchandise and of clients, the Court gave consideration to the class and brand of the product, and ruled that since Adidas shoes are marketed as an expensive brand name whereas the Respondent's shoes are sold at a minimal price in the markets, there is no danger of confusing between the products on the consumers’ part. The Court further ruled that the fact that the three stripes sign is so well known and identified with Adidas removes any concern that consumers will make a connection between it and a shoe with a different number of stripes. As such, the Court ruled that a person who purchased the Respondent's shoes at all events had no intention of purchasing an Adidas shoe and even had he wanted to purchase a shoe resembling that of Adidas, this in itself attests to the fact that there was no misleading.   The Court further ruled that there were no grounds for protecting the proprietary and commercial interest of the owner of the trademark - Adidas- at the expense of the freedom of occupation of the principal business competitors, in the absence of any attempt to benefit from Adidas good will and in the absence of misleading.  This is especially so given that even if the business of the Respondent disturbs the Adidas business; it constitutes regular business competition and not unfair competition.  Accordingly, the Trial Court ruled that there had been no infringement and emphasized that for as long as the consumer is not deceived with respect to the product that he is purchasing there are no grounds for the limitation of his freedom of choice and his freedom of expression, while extending the protection of trademarks, and in its own words: 

'The public should be allowed the choice of purchasing a cheaper product, even though, or perhaps even because of the fact that there is certain similarity between it and the brand name product, provided that it is not deceived regarding the origin or the class of the product that he is buying”

3.         The Trial Court further rejected the Appellant's claims that the importing of the shoes constitutes the civil tort of passing off, in accordance with section 1 (a) of the Commercial Torts Law, 5759 (hereinafter - Commercial Torts Law). The Court noted that the tort of passing off has two foundations: good will, and the reasonable concern about misleading, and that it is intended to prevent unfair competition.  The Court further ruled that it is undisputed that Adidas has extensive good will in the area of sports footwear in Israel and around the world, and that accordingly the question to be examined in our case is whether there are reasonable grounds for the fear of misleading consumers.  The Court answered this question in the negative, pointing out that the tests for whether there is a “confusing resemblance” as far as it concerns passing off, are identical to the tests applicable in this context to the infringement of trademark.  However, whereas with respect to the infringement of trademark the examination relates to whether there is deceptive resemblance between the marks, regarding the tort of passing off, the question is whether the person’s actions in their entirety caused misleading in relation to the origin of the product.  In the case at hand, it was ruled that there is no fear of misleading regarding the origin of the product even in accordance with the tests applicable to the tort of passing off and the Appellant’s claims in this respect were likewise rejected.

The Court further rejected the alternative claims of the Adidas to the effect that the Respondent, in attempting to benefit from its own good will had become unjustly enriched at its expense, even were it to be ruled that he did not infringe the trademark registered in its possession. Regarding this, the court ruled that in LCA 5768/94 ASHIR  Import, Export and Distribution v. Forum for Fixtures and Consumption Products Ltd [1]  at p. 289 (hereinafter: ASHIR ) did establish a narrow opening for establishing the grounds of unjust enrichment in cases in which there was no infringement of the laws of intellectual property, but noted that the rule did not apply in this case, because even within the framework of unjust enrichment there must be an examination of the conflicting values in the concrete case. In that context the court’s view was that the use of the four stripes mark does not harm Adidas and the Respondent’s acts are not irregular, outrageous or such as give rise to unfair competition. The Court further noted that under the circumstances it was actually the filing of an action by Adidas that was outrageous, and that expanding the protection granted to Adidas under the grounds of unjust enrichment would damage competition and have a “chilling effect” upon manufacturers and merchants.

Finally, the Trial Court rejected Adidas’ claims concerning theft and the dilution of good will. In this context, the Court ruled that the Respondent had not made any unfair use of Adidas’ reputation, and that the central reason for the use of the four stripes could be the “creation of a market for designer sports shoes for a population that lacks the means of buying brand name sports shoes”. The Court noted that there was no tort of unfair exploitation of good will and hence any remedy under those grounds could only be given by force of unjust enrichment, and regarding that grounds that the Court had already concluded that Adidas cannot claim it. The Court further ruled that there can only be dilution of good will when there was use of a registered trademark other than in a field of the same “description” (within the meaning s.1 of the Commercial Trademarks Ordinance [New Version], and since it is undisputed that the Respondent did not use the registered trademark (three stripes) or that he used a name or another recognized feature of Adidas, then this grounds too was not proved.

It was for all of these reasons that the District Court concluded that no proof had been brought for misleading and unfair competition on the Respondent’s part, or an attempt on his part to benefit from Adidas’ good will. The Court further held that given the aforementioned situation, whatever is not considered to be included in the trademark should remain within the class of a public asset, and in its own words:

‘In order to ensure a competitive market with products from the entire range of prices and qualities, those with brand-names and without brand-names, in order to prevent harm to consumers that stems from costs related to trademarks and from the chilling effect as it touches upon manufacturers and small tradesmen, and in order to ensure the public assets, protection should be given by way of the trademarks law in accordance with their original purposes, which is the prevention of unfair competition, No protection in excess thereof should be given’

Accordingly, the Court dismissed the claim, and ruled that the shoes were to be released from the storerooms of the Customs Authority and that the Respondent should receive the shoes and be allowed to sell them “and in doing so to maintain a market of designer, non-brand name sports shoes, at a price payable by all of its consumers”. The Court further ruled that Adidas would bear the costs stemming from the delay and the storage of the shoes and it was also ordered to pay for the Respondent’s costs and legal expenses, for the sum of NIS 85,000 + V.A.T. 

4.  Adidas refuses to accept this result, and hence the appeal.

Notably, before filing the appeal, Adidas filed an application to stay the execution of the decision, arguing that the release of the shoes from the Customs Authority storerooms would irreversibly impair the right of appeal granted to it by the decision. The Court initially refused to rule on the application, inter alia in view of Adidas’ failure to pay the court costs imposed upon it under the ruling, and against that background, Adidas filed an application for leave to appeal to this Court (LCA 9307/10 Adidas Salomon A.G. v. Yaasin [2]. On 21.12.2010 the Court ruled (Justice Hendel) that the execution of the decision would be temporarily stayed until the Trial Court’s decision on the application to stay execution, and he further added an order to pay the legal costs to the respondent (it bears note that the payments were not finally paid by Adidas until 9 January 3022, and only after additional decisions that the Trial Court was forced to give regarding the matter). On 2 February 2011 the Trial Court ruled on the application for a stay of execution, ordering the attorney for Adidas to receive the shoes in trust, and that Adidas alone should bear the storage costs, including with respect to the period in which they were stored in the Customs storerooms, but that this sum would be returned to it by the Respondent should it win the appeal.

The Claims of the Parties

       5.         Adidas claims that the Trial Court failed to apply the rules determined by this Court with respect to the manner of examining an infringement of a trademark and passing off, and that its examination in this respect was novel and mistaken. It further claims that the decision of the Trial Court has far reaching implications for the trademarks law in Israel and that it creates uncertainty with respect to the scope of rights vesting in owners of such a mark.  Adidas maintains that contrary to the ruling of the Trial Court, the comparison should be drawn between the registered trademark and the mark appearing on the allegedly infringing mark, and not the overall appearance of the products on which the marks appear, in accordance with the initial impression that they evoke. Its claim is that the Trial Court applied these tests mistakenly when comparing its own trademark with the overall appearance of the respondent’s shoes, and it stresses that as distinct from its determination, the marks should be compared separately from the product.  Adidas claims that application of the current test - that was determined as the central test in this context and which stresses the test of appearance and phonetic tone - leaves no room for doubt that the infringing mark is confusingly similar to its own mark and it claims that in the past courts in the world and in Israel have ruled in that vein. Adidas further rules that the Trial Court conducted a particularly specific comparison between the products, placing one next to the other, and accordingly ruled that there was no confusing similarity based on the fact that the respondents’ shoes had four stripes and not three. According to its approach the sample of the Respondent’s shoes contains the Adidas trademark in its entirety with the addition of one stripe and that infringing mark should have been viewed in that manner, given that the consumer does not “count stripes” but rather will identify any number of diagonal stripes on the side of the shoe with its own shoes. Adidas further claims that the Trial Court applied the test of the class of clients in a mistaken manner and that its ruling that there is a distinction between the public that purchases Adidas shoes and the public that purchases the Respondent’s shoes is unfounded and mistaken.

Adidas further claims that the Trial Court ignored the proprietary protection conferred by the Trademarks Ordinance and in case law to a registered trademark against the use of marks resembling a registered mark. As such, it claims, preventing the use of a four stripe mark is not a matter of policy or of an extension of a vested protection, as determined by the Trial Court, but rather a simple application of the statutorily determined protection. Adidas stresses that it is not attempting to entirely prevent any marking of shoe products with a stripe, but rather their marking with stripes, number and style that are confusingly similar to its own trademark.  Likewise it claims that its trademark does not consist of a simple geometric shape, being rather a combination of marks, of which an exact copy was made by the Respondent, but with the addition of one more stripe, and as such these are not weak marks that merit less protection. In this context Adidas stresses that even a mark which the consumer is liable to view as a variation of an existing trademark, infringes a protected trademark.

6. In addition, Adidas claims that the Trial Court erred in its examination of the tort of passing off.   It argues that the examination should be of the overall appearance of the products, with emphasis on the faulty memory of the client, as distinct from making an exact comparison. It adds that insofar as the tort of passing off confers broad protection, it suffices if the consumer is liable to think that there is some kind of connection between the product and Adidas, or that no justified reason was given for the use of a design that resembles a trademark, in order to establish the concern for misleading required for the proving of this tort. Furthermore, Adidas alleged unjust enrichment on the part of the Respondent stressing that as opposed to the decision of the Trial Court, the acts of the Respondent are outrageous and constitute unfair competition.

With respect to stealing and dilution of good will, Adidas claims that the Court erred in ruling that the Respondent did not attempt to build itself on the basis of its good will despite its additional holding which acknowledged the possibility of the shoes having been designed in a manner that would make them somewhat similar to its own shoes. The Appellant especially emphasizes that the Trial Court’s holding to the effect that the purchasers of the Respondent’s shoes “would be able experience the feeling of wearing shoes with four stripes which are somewhat reminiscent of Adidas shoes” demonstrates that this is case of exploitation of good will, impairing and dilution of good will, and it claims that the marketing of shoes that provide an experience of Adidas shoes is illegitimate.  Furthermore, Adidas claims that the Respondent’s shoes were marked with four stripes purely out of economic considerations, and that the Respondent knows that the consumer’s eyes would be attracted to shoes that resemble the general appearance of its own shoes, without investing in advertising.  Adidas also claims that there are also grounds for dilution of good will, because it suffices that there was use of a trademark or a mark similar to it in order to establish grounds, without having to prove the foundation of misleading, Finally, Adidas claims that it was denied the right to present its claims in the Trial Court because the latter devoted considerable parts of its judgment to issues that were not even raised by the parties and in respect of which no claims had been made, while establishing factual findings for which no evidence had been presented and in areas that were not in purview of its judicial knowledge.

7.    The Respondent, on the other hand, affirms the decision of the Trial Court and argues that the decision is based on a firm factual foundation and upon   reasoned and detailed legal analysis that leaves no grounds for intervention. The Respondent claims that Adidas did not present any evidence for the alleged fear of misleading, and argues that there is no justification for interfering with the Court’s ruling that no grounds can be laid for similarity between the footwear imported by the Respondent and Adidas shoes.  The Respondent adds that it was proven in the Trial Court that one can easily find footwear of other companies which feature varying numbers of stripes and accordingly it cannot be argued that he attempted to benefit from the goodwill of Adidas or that a reasonable consumer would mistakenly think that he was actually marketing Adidas footwear. The Respondent claims that Adidas widespread fame and its three stripe mark does indeed it confer it with an absolute protection of that mark, but it is precisely for that reason that no consumer would think that the Respondent’s footwear was produced by Adidas. This is especially so given that the footwear is sold in shops or stands located in the markets of the Palestinian Authority and not in the shops that sell Adidas footwear, and also in view of the numerous visual differences, such as the commercial name “SYDNEY”, and the element of the four stripes.  The Respondent further   argues that the claim that the mark should be compared directly against another mark for purposes of examining the question of the trademark infringement is only correct for purposes of registration of the mark in a registration record and not when the mark appears on a product, where the mark should not be removed from its context. Furthermore, the Respondent claims that the four stripe mark is not confusingly similar to the three stripe mark, even if when directly comparing one mark to another, especially due to the extensive advertising of the three stripe sign, as stated. 

The Respondent further claims, affirming the Trial Court’s decision, that absent the fear of unfair competition or an attempt to benefit from the goodwill of Adidas, he cannot be said to have infringed its trademark, and he emphasizes that Adidas only has a proprietary right with respect to a three stripe mark, and that the protection conferred to this mark should not be extended.  Furthermore, the Respondent claims that Adidas is attempting to attain a monopoly over the actual use of stripes. In this context he notes that given that our concern is with a decorative mark, it is a “weak mark” with a limited protective scope and which does not cover the use of a different number of stripes.  Furthermore, the Respondent claims that Adidas’s claim concerning passing off should likewise be rejected, arguing that the according to the Court's factual finding there was not, nor could there be any mistake concerning the identity and the origin of the footwear that he was attempting to market, and that there is no confusing similarity between a mark consisting of three stripes and a mark consisting of four stripes. The Respondent further claimed that the Adidas claim regarding stealing or dilution of goodwill should likewise be rejected and in this context he stresses that his footwear intentionally distinguishes itself from any other footwear by way of his trade name “SYDNEY” which appears on the shoe itself in three places, as well as on the box in which the shoe is sold. Moreover, the Respondent claims that as opposed to Adidas's claim, it acted in absolute good faith, and hence its claim regarding unjust enrichment should likewise be rejected.

Deliberation

8.    The central question for our deliberation is whether the registered trademark of Adidas - the three stripes mark – was infringed in this case, by reason of use of an embossment of four stripes on the sides of the footwear that the Respondent seeks to market, and whether in this context his act establishes actionable grounds under any of the laws intended to protect Adidas’ intellectual property.  By way of introduction I will say that like the Trial Court, I too am of the opinion that the Respondent’s shoes do not infringe the three stripes mark and that the action should likewise be rejected with respect to the other grounds argued for by Adidas. All the same, I do not think that the reasons of the Trial Court should be endorsed and in what follows I will explain the reasons for my conclusion. 

 

 

Trademark

 

The principal legislative arrangements relevant for our purposes and treating the issue of trademarks are unified in the Trademarks Ordinance,  s.1 of which defines the following terms:

 

      “mark” means letters, numerals, words, figures, or other signs, or the combination thereof, whether two dimensional or three dimensional;

“trademark”  means a mark used, or intended to be used by a person in relation to the goods he manufactures or trades;

“registered trademark” means a trademark registered in the Register of Trademarks under the provisions of this Ordinance, and which is a national trademark or an international trademark registered in Israel;

The institution of trademarks originated in the need to distinguish between the products of one trader and those of his competitor, and in this context, to protect the interests of both the trader and the consumer. The trader enjoys the protection of his good will and reduces the fear that the consumer will confuse his product with that of another trader.  The consumer will have an easier time in identifying the particular products that he wishes to purchase and is protected from misleading with respect to the source of the goods. To attain these goals, s.46 of the Ordinance confers the proprietor of the registered trademark “the right to exclusive use” to use the mark in every matter relating to the good in respect of which his mark is registered” (see C.A. 715/68 Pro-Pro Biscuit v Promine Ltd [3] (hereinafter: (Pro - Pro ) at p. 48; CA 3559/02 Center for Toto Zahav Subscribors v. Council for Regulation of Gambling in Sport [4] (hereinafter – Toto ruling) at p. 888 .

The law of the trademarks and the protection it provides to the owner of a registered trademark is one branch of a broader field of law – the laws of intellectual property – that confer protection to an intellectual product that may be of economic value. It is similarly important to mention that the right to intellectual property, like any other property right, is one of the "privileged" rights enjoying constitutional protection in the law and Basic Law: Human Liberty and Dignity instructs as not to violate it (s.3 of the Law).  However, the protection of intellectual property, by its very nature clashes with another constitutional right – the freedom of occupation and the right to free competition deriving therefrom.  (see CA 9191/03 V & S Vin Spirt Aktiebolag v. Absolute Shoes [5] at p. 877 (hereinafter: the Absolute ruling). Similarly, granting a broad monopoly to the owner of intellectual property to makes exclusive use of his property may impede the existence of a free and varied market of products which assists in the development of the economy and commercial life. In sketching the borders of the protection of a trademark, an effort must be made, to strive wherever possible to strike a balance between the protection required for the registered trademark and the “abrogation” of any other mark, irrespective of the level of resemblance between them, from the public realm.

The Unique Nature of the Three Stripes Mark

9.    As mentioned, the trademark is intended to aid the consumer in distinguishing between the products of one merchant and those of competing merchants.  To that effect, in order for it to be eligible for registration, it must have a "distinctive nature".  In other words, it must be ascertained that the mark does in fact enable the desirable differentiation from the goods of the mark owner of the mark and the goods of his competitors (regarding the requirement of a distinctive nature see s. 8 of the Ordinance). The distinctive nature may consist of the inherently distinctive nature of the product from the time of its creation. In most cases, the concern in this context is with marks that are the product of imagination and as such are unique, original, or non-foreseeable, and bearing no natural connection to the type of product which  it marks, so that the connection between the mark and the product is arbitrary. An example of this is the arbitrary use of the mark "Apple" as the mark of the computer company. However, even in cases in which the mark does not possess any inherently distinctive character the mark may also acquire secondary significance by dint of its extensive use, so that the consumer public will associate it with goods from a particular source. This is known as a mark with an acquired distinctive nature (this distinctive nature was also defined by case law in other contexts as "secondary" as opposed to "principal" meaning.  See CA 18/85 Israel Glass Factories Venice Ltd v. Les Verrcies De Saint Gobain [6] at pp. 234-235  (hereinafter - Venice) ;  CA 11487/03 August Storck v.  Alfa Intuit Food Products Ltd [7]. par.8 (hereinafter - Alfa  Intuit).  As for the distinctive nature of names, see CA 5792/99 Tikshoret Religious-Jewish Education Family (1997) Ltd "Family" Newspaper v. S.B.C Publication, Marketing and Sales Ltd - Mishpacha Tova Newspaper [8] at pp. 943-946  (hereinafter - Family ). Thus for example, the marks of Office Depot or General are marks with an inherently weak distinctive nature because they are descriptive signs that are neither arbitrary nor imaginative and their connection to the cars manufacturer or the shop selling office products is a natural one.  Even so, over the years these marks acquired a distinctive character to the extent that today that there is almost not a single consumer in the world who would come across then and not connect them to those particular companies (on the distinction between inherent distinctive nature  and acquired distinctive nature see also in the  Alfa Intuit [7] matter, para. 8). Even more precisely, the acquired  meaning supplements the inherent meaning of the mark and does not replace it, and their combination establishes the extent of the protection given to the trademark against its infringement (see  Amir Friedman, Trademarks - Law, Case Law, and Comparative Law, 211, 214) (third edition, 2010) (hereinafter:  Friedman).

10.  The acquired distinctive character attests to the demand and the popularity of the merchandise and to the good will that it accumulated from the day of its "birth" as a result of marketing and advertising efforts made by and on behalf of the patent owner.  For our purposes it is undisputable that the Adidas trademark - three diagonal stripes of identical breadths and spaces between them on the side of the shoe - is today absolutely identified with the company all over the world and constitutes a distinctive sign by which its footwear is identified.  Accordingly, there is no question of whether this trademark has an acquired distinctive character. However, in my view the decision is not as simple regarding the inherent distinctive nature of the mark.  This mark, which Adidas chose as one of the trademarks that identifies it with its products, consists as mentioned, of three stripes but  for a person not previously familiar with it might be viewed exclusively as one of the shoe’s design components (as distinct from a trademark).  It seems difficult to claim that if not for Adidas’s choice of this mark, no other shoes would have been manufactured with stripes on their sides (compare to the trademarks identified with the competing footwear companies such as "Reebok", "Nike", "Puma" and others. A comparison should also be made to the Patent Registrar Decision No. 129015 Nike v. Shai Mecher Sachar (1996) (26.8.2008)). Accordingly, I accept the Trial Court's decision according to which the inherent nature of the three stripe mark is weak (regarding the appropriate scope of protection in a request to register a three dimensional trademark with aesthetic value, compare to Alfa Intuit  [7], paras, 10 - 12.

It bears mention in this context that this is not the first time  that Adidas has filed a claim in Israel for an alleged infringement of the three stripe mark, following the use of a similar mark, two or four stripes (see CA 3581/05 Shehana'al Mat'ima v. ADIDAS-SALOMON [9] (hereinafter -Shehana'al Mat'ima); LCA  3217/07 Brill Footwear Industries Ltd v.  ADIDAS SALOMON A.G. [10] (hereinafter – Brill) and in the District Courts see e.g. Civ.App (District, Tel-Aviv) 15544/05 ADIDAS SALOMON v. Sh.I. Klipp Import and Trade Ltd. Proceedings in these  cases all ended without any decision on the merits)  (See also C.A (District - Tel-Aviv - Jaffa) 2326/07 ADIDAS SALOMON v. Gentom Shoes Ltd,  in which Adidas’s claim was accepted following the Defendant's failure to submit evidence on its behalf). In other states too Adidas filed suits concerning the infringement of its three stripe trademark, in view of manufacturers' use of two or four stripes on their products and a quick search shows that dozens of suits have been brought in courts at various levels all over the world. A large portion of Adidas’s claims all over the world ended without a decision on the merits, similar to those in Israel, but in the proceedings that were decided on the merits, Adidas' position  was for the most part accepted (see for example, in the decision of the District Court in Oregon, U.S. (No. CV 01 – 1665-KL) Adidas America, Inc. v. Payless ShoeSource, Inc and also adidas-Salomon A.G. v. Target   Corp.,228F Supp. 2d 1192 (D. Or. 2002) as well as the decision in Corp and the decision of the Court of Appeal in Athens, Greece, Decision Number 5749/2009 Adidas Salomon A.G. v. Alysida A.E.B.E . On the other hand, see the references in the matter of Shehan'al Mat'ima [8[ para. 3. But see also  in  the decision of the High Court in Capetown South Africa,: adidas A.G. v. Pepkor Retail Ltd (1 A11 SA 636 (WCC) (5 December 2011);  the decisions of the -European Court of Justice: adidas-Salomon AG V. Fitnessworld Trading LTD., Case C-408/01 (23 October 2003); adidas AG v. Marca Mode CV, Case C-102/07 (10 April 2008).   All the same, it is important to remember that that each case is different and hence any attempt to draw analogy should be done with the requisite caution. 

11.  The weak nature of the inherent distinctive character of the three stripe mark affects the scope of the protection that it should be awarded.  On the one hand, the fact that the three stripe mark has, as noted, attained a powerful distinguishing nature points to the need for maximum protection (see s. 46A of the Ordinance which relates to “well known trademark” and see and compare to the matter of Absolute [5] which relates to the scope of protection for such a mark). However, the weakness of the inherent distinctive nature justifies protection that will be limited to the trademark itself and to its derivates that are particularly similar to it. In other words, granting a monopoly to Adidas to two stripes and to four stripes (or, naturally, to any different number of stripes) would be problematic because it would mean the removing the designing of stripes from the public realm and would prevent other manufacturers from using this kind of design for their footwear. Our intention is not that Adidas' investment in advertising and in marketing did not create a situation in which the design of stripes became popular and in demand, but one cannot infer from that fact that any use of stripes by an Adidas competitor is a prohibited use (compare to HCJ 144/85 Kalil Non-Metallic Steel Industries  Ltd. v. Registrar for Patents and Designs and Trademarks [11],  

Having considered the nature of trademarks in general, and having examined the nature of the trademark forming the subject of the appeal specifically and the appropriate scope of protection deriving therefrom, we will proceed to examine whether the trademark of ADIDAS was actually infringed.

Infringement of a Trademark

"infringement means the use by a person not entitled thereto

 (1)  of a registered trademark or of a mark resembling such a trademark in relation to goods in respect of which the trademark is registered or to goods of the same description .... (addition added).

     12.  Section 1 does not explain the nature of the similarity between the marks required for it to be regarded as an infringement of a registered trademark. However, case law has noted on more than on occasion that in this context the test to be applied is the one appearing in s. 11 (9) of the Ordinance that sets forth the manner of examining the mark for purposes of its registration, and according to which a mark "identical with .....or so resembling such a mark as to be calculated to deceive" is not eligible for registration.  The consideration of two factors are at work here: protection of the public from misleading and protection of individual title and his acquired goodwill (see e.g. LCA 5454/02 Ta'am Teva (1988)  Ltd v. Ambrozia Sofharb Ltd [12] (hereinafter - Ta'am Teva). Accordingly, where it concerns use made of a similar mark as opposed to a use made of an identical trademark, a plaintiff claiming infringement must prove that one mark resembles the other to a degree that may confuse the public, and the examination in that context   relates to "people with regular common sense, who conduct themselves with reasonable caution"). (See Ta'am Teva[12], at p. 450). The requirement for resemblance between the two products is at a threshold that exceeds that of a "connection" alone (compare to s. 46 A(b) of the Ordinance and the matter of Absolute [5], at p. 885).  It has already been held that the act of copying as such does not necessarily attest to the intention to mislead clients and that even the intention to mislead does not does not dictate the conclusion that there is a fear of actual misleading (see C.A. 9070 Tali Dadon Yifrach v. A.T. Snap Ltd [13] para. 11which concerns the tort of passing off). 

The accepted test for the existing of a confusing resemblance is the "three part test" which was discussed by the Trial Court, consisting of the test of visual and phonetic similarity; the test of the type of customer and class of goods; and test of the other relevant circumstances (see CA 261/64 Pro-Pro Biscuit v. Promine Ltd [14], at p. 278). The manner of implementing these tests in each case is not a function of uniform standards and is influenced by the distinctive character of the registered mark and the appropriate degree of protection it merits (see CA 4116/06 Gateway Inc. v. Pascul Advanced Technology Ltd [15] para.16). The weight to be given to each of the tests is similarly not uniform, changing in accordance with the circumstances (see CA 10959 Tea Board India v. Delta Lingerie, S.A. OF Cachan [16] (hereinafter:  Tea Board).  It bears note that along with the three part test, there cases in which case law also applies the "common sense test" particularly when it is necessary to examine whether the trademarks have a shared ideological message (see CA 8441/04 Unilever P v Segev [17] at para. 9 (hereinafter Unilever ); Ta'am Teva [12] at p. 453 and Tea Board [16] at para. 10).  It further bears mention that in most of the cases involving the determination of confusing similarity the trial court has no particular advantage over the appellant forum because the appellant instances, in general has at its disposal the same tools as the clarifying instance (see LCA 2960/91 Wizzotzky Tea and Co. (Israel) Ltd v. Matok [18].

13.  In our case, both parties agree that the Respondents' shoes are the same kind of goods in respect of which the Adidas trademark was registered- sports shoes, or at least they are goods of the same description, in other words, from the same "commercial family" (for elaboration on the meaning of the word "description" in the Ordinance, see Toto [4] at pp. 894-895). Furthermore, all are agreed that in our case the issue does not concern footwear designed with a mark that is identical to a registered trademark. As such, there has been no attempt at the forging of shoes and hence there must be an examination of the similarity between the shoes, and a determination on whether there is indeed a "confusing resemblance" between them. As mentioned, the acquired distinctive character even when particularly powerful as in the case before us, does not obviate the need for an inherently distinctive character. As such, even if the strong distinctive nature acquired by the three stripes compensates to a certain extent for its weak inherent nature, given that the consumer public today is aware of the connection between the trademark and Adidas, one cannot ignore the weakness of the inherent distinctive nature when applying the three  part test.

14.   At the stage of applying these tests, it should be remembered that the comparison must be between the trademarks in their entirety and not between specific parts thereof  (See Ta'am VaTeva [12] , at p. 451; LCA 6658/09 Moltilock Ltd v. Rav Bariah [19] at para. 8 (hereinafter: Moltilock), and the examination should focus on the existence of a confusing resemblance between the trademarks themselves, as opposed, for example, to the tort of passing off, in which all of the particular acts of the infringer are examined (see LCA 1400/97 Picanti Food Industries  (Israel) Ltd v. Osem Food Industries Ltd [20] at p. 313 (hereinafter: Picanti). Hence it was held., for example, that when verifying the infringement of a registered trademark, "lesser weight should be ascribed, or in certain cases no weight at all, to the degree of resemblance in the appearance of the goods or their packaging” (the case of Teva Ta'am [12] pp. 450 - 451). In the case at hand, however, it seems that one cannot examine the trademarks - the three stripe sign of Adidas as opposed to the four stripe sign of the Respondent -  in absolute isolation from the goods on which they appear.  First, even if the consumer doesn't stand with both products in his hand, making a comparison between them in all their details, it cannot be presumed that he disassociates the marks from the shoes themselves  and examines the marks in isolation from the shoes  (for a similar approach in American law, see for example, Filipino Yellow Pages, Inc. v. Asian Journal Publications, Inc., 198 F.3d 1143, 1150 (9th Cir. 1999); ; Goto.com, Inc. v. Walt Disney Co., 202 F.3d 1199, 1206 (9th Cir. 2000); Entrepreneur Media, Inc., v. Smith, 279 F.3d 1135, 1144 (9th Cir.2002). Second,  the rule whereby the comparison should be restricted to the marks themselves was articulated in decisions that were concerned with verbal and not visual signs, such as in the case before us,  (see also CA 8981/04 Avi Malka - Avazei Hazahav Restaurant v. Avazei Shechunat HaTikva (1997) Restaurant Management Ltd [21], para. 28  (hereinafter - Avazei).  This distinction is important since whereas it is easier and even more reasonable to separate phonetic trademarks from the product they  mark, especially where it concerns phonetic marks used for purposes of advertising and marketing the product (for example the mark of "bamba" that was used in Picanti [20]), the absolute severance of the visual trademark from the product upon which it is imprinted, especially when it can be construed as decorative element, as in the case before us, is both an artificial and a problematic severance.   Accordingly, the manner of applying these tests must be adjusted to the unique circumstances of the case at hand, and having consideration for the circumstances of this case, it seems that even though "the entirety of the defendant's acts" are not to be examined, as is the case with the tort of passing off, the shoe itself must be examined in its entirety.

I will preface by saying that it has not escaped me that in applications for leave to appeal on decisions for temporary relief (in the cases of Shehana'al Mat'ima [9] and Brill [10]his Court (Justice A. Grunis, as per his former title) accepted the prima facie conclusions of the hearing forum regarding the similarity to the point of confusion between shoes with four parallel stripes and the shoes of Adidas, following a comparison of the two marks conducted in isolation from the shoes on which these signs appeared. However, as the Trial Court noted, those decisions were given in applications for temporary relief and at that stage, as opposed to our case, the court was only required to be convinced of the existence of a prima facie similarity, without conducting, in the framework of those proceedings, a thorough hearing  of the various claims of the parties. And at all events, given the reasons I mentioned above, my view is that in our case the trademarks should be examined together with the shoes on which they appear and not in detachment therefrom, as was the case in the intermediary proceedings mentioned above.

15.  The required examination will be conducted, as mentioned, in accordance with the three sub-tests that I referred to above, that were determined for purposes of locating a confusing similarity

       (a)          The test of appearance and sound.  This is the most central of the three sub-tests (see Ta’am Teva [11] at p. 451 and at this stage of the examination the appearance and the sound – when relevant – of the two marks should be examined in order to determine the degree of similarity between them.  In this test the emphasis is on the initial impression gained from a comparison of the marks, having consideration for the fact that the average consumer’s memory is not perfect.

Apart from the clear difference between the Respondent’s shoes and Adidas shoes, which stems from the fact that the Respondent’s shoes feature four and not three stripes, the comparison also indicates other clear and blatant differences. The name “SYDNEY” appears on Respondent’s shoes in two prominent places – at the back of the shoe and on its tongue.  In addition, the name “SYDNEY” appears on the inner tongue of the shoe, and this name bears no similarity, neither in design nor in sound to the name Adidas or to any trademark registered in its name. To a large extent this removes the concern of misleading the consumer public, as correctly held by the Trial Court (see and compare to CF (DIS-Tel-Aviv) 2554/01 Buffalo Boots v. Naalei Loxie 2000 Import and Marketing Ltd,  at  para. 3 (b) (hereinafter – Buffalo). 

    (b) Test of the type of customer and class of goods. This test is concerned with the influence of the class of goods on the danger of confusing consumers.  Regarding the test of the class of goods, it has been held in the past that where it concerns expensive products or particularly important services, it may  reasonably be presumed that the consumers would conduct a more thorough scrutiny prior to executing the transaction which would lessen the chances of confusion (see Ta’am Teva[12] at p.453; CA 210/65 Iggud Bank Ltd v. Agudat Yisrael Bank Ltd,[22]at p. 676. The test of the type of customers examines two complementary matters. The first is whether the same type of customer would take an interest in both of the products; and the second is how the particular characteristics of the relevant type of client influence the chances of confusion. Hence for example it was held that where there is a difference between the prices of the products, but the difference is not great, it will not lead to the conclusion that each one of the products has its own distinct circle of clients in a manner that prevents the chance of confusion, especially insofar as the allegedly infringing product is only slightly cheaper than the second product, in which case it may reasonably be presumed that the client will prefer to pay the lower price without enquiring into the nature of this price (see: CA 3975/10 Philip Morris Products v. Akisionerno Droujestvo [23]para. 8)

A comparison of the two categories of merchandise in this case shows that indeed both cases concern sports shoes, but belonging to entirely different price categories (the difference in prices being significant). Adidas shoes are marketed as a successful brand at prices ranging between medium to high in select sports shops all over the country, whereas the Respondents’ shoes are intended for marketing at low prices and primarily in the stands at the markets, as determined by the Trial Court in its ruling. I find no reason for interfering with these factual determinations, and this difference in the price and the manner of marketing, in my eyes, significantly reduces the danger of confusion among clients, not because the Adidas consumer is a “specific consumer” but rather because it is unlikely that a consumer seeking to purchase a simple, cheap shoe would mistakenly think that the shoes sold at a low price in the market are Adidas shoes. On the other hand, it may be presumed that the consumer seeking to purchase high quality shoes from a reputed company and who is prepared to pay a price accordingly, would examine the shoe before buying it.

(c) The Test of the Remaining Circumstances.  This test accompanies the previous tests and takes the specific circumstances of the case into account, to the extent that they were not examined in the framework of the two previous tests (see Ta’am Teva[12]  at p. 453. In this case no special circumstances were presented which might have been relevant.

16. The conclusion flowing from application of the aforementioned tests, having consideration for the preliminary normative determinations with regard to the appropriate scope of protection for the triple stripe mark, is that the Respondent’s shoes do not give rise to the fear of deceiving the public and as such do not infringe the Adidas trademark. To be even more precise, our ruling that there is not fear of misleading does not mean that there is no similarity between the shoes of the Respondent and the shoes of Adidas (compare to Yifrach [13], but rather that as a matter of the policy to be applied in this case the similarity is of a kind that does not constitute an infringement of the trademark,

Passing of

17,  The tort of passing off in s. 1 of the Commercial Torts Law, states as follows:

(a)        A dealer shall not cause the asset he sells or the service he offers to be mistaken for the asset or service of another dealer or related to another dealer.                                                            

       The tort of passing off has two foundations, the proof of which rests with the party claiming the commission of the tort against him. The good will that he has acquired in the asset or the service that he offers, and the fear of misleading the public into thinking that the asset being offered by defendant belongs to the plaintiff (see Avazi [21], para. 12, Mishpaha [8] p. 942; Venice [6] at pp. 232 – 233). The requirement for the simultaneous proof of both foundations balances the trader's proprietary interest with other interests such as freedom of occupation of competing manufacturers and the desire to encourage free competition and to prevent the creation of a monopoly that is harmful to the market.   Regarding this it has been held that “misleading concerning an asset or service in respect of which the  plaintiff has not proved that he acquired good will in respect thereof does not come within the purview of the tort of passing off…. similarly, an imitation of an asset with good will where it was not proven that there was a chance of confusion, is likewise not within the purview of the tort (Yifrah [13], para. 8). Notably, despite the similarity between the tests for establishing an infringement of a trademark and those for the tort of passing off, this does not dictate an identical result in all  cases. Occasionally the ruling must be that a trademark was infringed but that the tort of passing off was not proven. For example, when a manufacturer uses a mark that is identical to a registered trademark, but where there are other features of the product that distinguish it from the products of the trademark owner (see Buffalo [ ]).  And vice versa too - occasionally the entirety of the manufacturer's acts lead to the conclusion that he committed the tort of passing off, even if he did not infringe the registered trademark relating to that matter.

18.  There is no dispute over Adidas' reputation and its trademarks in the areas of sport shoes in Israel and around the world. In our case the first foundation exists and the focus must be on the second foundation of the tort, the fear of misleading. In examining the existence of this foundation with respect to the tort of passing off, as mentioned, there must an examination of the entirety of the defendant's actions and conduct. This examination does not yield a conclusion that differs from our conclusion regarding the absence of any fear of confusion in relation to the trademark. The reason for this is that the Respondent's actions in our case further reduce the fear of confusion, including the attachment of a label to the shoe, featuring the name "SYDNEY" in large letters, and the packaging of the product in a box on which that name also appears quite clearly. It therefore seems that under these circumstances there is no fear of confusion. The matter of Yifrah [13], which was handed down recently, concerned a perfect replica of a product that was sold cheaply alongside the original product, and it was held that it does not establish grounds under the tort of passing off because a label was attached bearing a different name, the products were presented separately in the shop and when the sellers were asked about the price difference they explained that it was an imitation (paras. 11- 12). In that case the good will the was proven was actually far weaker than that of Adidas, but on the other hand the circumstances of the case were more extreme given that unlike the case at hand, the similarity of the products was absolute (see also in the Buffalo [  ]case, where it was held that almost identical shoes at a lower price and with another trade name does not deceive the public and the plaintiff does not have any grounds under passing off. Accordingly, I accept the conclusion of the Trial Court according to which in the case before us it has not been proved that the Respondent committed the tort of passing off against Adidas.

Dilution of Good Will

19.  As noted by the Trial Court, the doctrine of dilution of good will is relevant to a situation  in which:

"A powerful trademark is used without the consent of its owner and without creating confusion, leading to the erosion and blurring of the unique, quality image that the mark conveyed to its clients.... the erosion of the image of the mark among the consumer public also diminishes the commercial value of the trademark, in wake of the decrease of its selling capacity (or power)" (Yaakov and Hana Kalderon Commercial Imitations in Israel 189 (1996). On the adoption of the doctrine according to this definition, see CA 6181/96 Kardi v. Bacardi and Company Limited [24],.

This description indicates that the doctrine of dilution of good will does not require proof of the fear of misleading consumers. However, it seems to me that the cases in which it may be appropriate to determine a dilution of good will even when no misleading is proved are the exceptional cases in which the absence of confusion was the result of the fact that the product is of an entirely different description (as was the case when this doctrine was applied for the first time in Eastman Photographic Materials Co. v. John Griffith Cycle Corp 15 R.P.C. 105 (Eng. 1898), (hereinafter - Kodak), and at all events, this doctrine should not be applied as a default option for every case in which confusion of consumers was not proved  - as in the case before us.

As mentioned, the doctrine has its source in the  Kodak case, where it was held that when a bicycle company uses the name of  the Kodak photography company it does not confuse the consumers but does dilute the company's good will (see also in the matter of Tea Board [16]). The conclusion is that the doctrine seeks to protect the positive good will and image attaching to a well known trademark and provides a quasi proprietary protection to the good will itself against unlawful attempts of traders to build themselves up on the good will of the mark owner by creating a misrepresentation of having supposedly acquired a license, authorization, sponsorship, promotion or any other connection between the product with the good will and their own product (Friedman, p. 121- 127). Indeed, as claimed by Adidas and as mentioned above, to establish grounds based on dilution of good will it is not necessary to prove confusion. However, this does not obviate the need to prove the erosion and blurring of the good will acquired by the registered mark as a result of  the use of the other mark, by reason of creating some kind of link between the allegedly infringing product and the product of the party claiming damage. This conception also receives expression in section 46A (b) of the Ordinance, which establishes the unique use of “well known” trademark which is a registered trademark, also for products not of the same description. Concededly, the section does not require proof of confusion and suffices with use that "may indicate a connection between the goods" alone, but it makes this protection contingent upon it being proved that the "owner of the registered mark may be harmed as a result of the said use" (see regarding this the application of the doctrine in the matter of Absolute [5] pp. 878-879, 887). On the other hand, where our concern is with the use of a mark for products of the same description and to the extent that there is no confusing similarity between the products or  the marks and there is a distinction between them, it would seem that it cannot be claimed the mark owner’s good will, will be diluted (see Civ. App. (District - T.A) 35447/99 Super Farm  v. Blue Square Network [  ] where it was held that there was a likelihood of confusion, and further on it was held that there was a dilution of goodwill, and see also in Unilever [17] at para. 24). In our case, in view of the holding that it was not proven that the average consumer would be confused into thinking that the Respondent's shoes were manufactured by Adidas, there is no likelihood that the consumer would link the quality of the Respondent's shoes to the Adidas company, and by extension, there are no grounds for the claim of dilution. It bears note that in the absence of the likelihood of confusion, there is  likewise no grounds for Adidas' claim regarding the theft of its good will or harm to it (see LCA 10804/04 Prefetti Van Melle Benelux B.V. v. Alfa Intuit Food Products Ltd [25] at  p 466 (hereinafter  Prefetti).

 Unjust Enrichment

20      The leading decision on the issue of the relations between the laws of intellectual property and unjust enrichment is the decision in the matter of ASHIR [1].  That case concerned three instances in which the respondents had not registered a patent or sample for the disputed product.  Likewise, the Trial Court rejected the claims made by those respondents concerning the tort of passing off, and the common question in the appeal forum was whether under those circumstances there were grounds for granting the respondents relief in accordance with the Unjust Enrichment  Law, 5739-1979 (hereinafter - Unjust Enrichment Law). In two of the three cases considered in the ASHIR [1] matter it was decided unanimously to overrule the decisions of the district court and the remedies given by it on the grounds of unjust enrichment, and in the third case the court decided, by majority, to reject the appeal and to leave intact the decision rendered by the district court. The path taken by the four majority justices (Justice T. Strasbourg-Cohen, President A. Barak, Justice T.Or and Justice Y. Zamir) in reaching their conclusion was not uniform, but it seems that the rule deriving from the  ASHIR [1] case received exhaustive expression in the ruling of Justice T. Strasbourg-Cohen, who stated that “the individual’s interest in the non-copying of a work that he created and in which he invested his time, his energy, his thoughts and his resources is in principle worthy of protection within the framework of the laws of unjust enrichment and the application of such an interest cannot be ruled out a priori just because it is not an “established right” under the laws of intellectual property” (ibid, at p. 417).  All the same, in the ASHIR [1]  case it was held that applicatory scope of the laws of unjust enrichment was dependent upon the question of the extent to which the specific law that applied constitutes a comprehensive arrangement that negates the intervention of any law external to it; that the condition for grounds under the Unjust Enrichment Law is that the enrichment of the beneficiary be “by unlawful cause”. In other words, that the copying or imitation must be supplemented by another foundation of a negative nature; and that prior to awarding compensation by force of the laws of unjust enrichment, it must be ascertained that there is no double compensation, and that by force of unjust enrichment it is possible to grant, when necessary, remedies that also include injunctions, despite the fact that these remedies are not mentioned in the Unjust Enrichment Law (ASHIR [1], at pp. 337, 363-365, 417, 486; LCA 6025/05 Merck and consideration. Inc v, Teva Ta’asiot v. Teva Pharmaceutical Industries Ltd [26] para. 30)(hereinafter;  Merck  case)). As mentioned in one of the three cases heard in ASHIR [1] (LCA 5614/95) the majority view was that the respondents indeed had grounds for claim under the Unjust Enrichment Law, given that the applicants in that case had executed a “complete imitation” of the product by way of “Reverse Engineering” and given that the respondents had invested a protracted effort in the development of the product, which was not a simple, standard product.

21. The current case differs in a number of aspects. First, Adidas owns a registered trademark and its action is based primarily on the infringement of that trademark, notwithstanding that in addition to that ground it also raised other grounds, including passing off and unjust enrichment. The question which arises is whether in a case in which it was held that the foundations that confer protection to the owner of a mark under the laws of intellectual property were not established,  and where it was further established that under the circumstances there were no grounds for the tort of passing off, the plaintiff should be allowed to raise alternative grounds of unjust enrichment. The majority judges chose to leave open the question of whether in a case in which the plaintiff was entitled to sue on the basis of intellectual property he should also have he option of suing simultaneously or alternatively on the basis of unjust enrichment (see ibid [1]  at pp. 418, and 455). In other cases that came before this Court after the handing down of the ASHIR [1] ruling, the court opined that where the plaintiff had failed to prove the infringement of a registered trademark and not being entitled to proprietary protection in the form of an “institutionalized right”, he should not be given a remedy under an alternative grounds in reliance on the Unjust Enrichment Law, and in the words of the court in the Absolute [5]   case “In the case of  registered trademark, the appellants were able to take the high road of the laws of intellectual property, whereas in that decision ASHIR [1], there were no registered rights of intellectual property, Once the high road had not been successful,  the side roads too would not be successful “ (ibid [4], p. 888; see also Prefetti [25], at p,466; Friedman, 1989 -1090; Miguel Deutch, Commercial Torts and Trade Secrets pp. 50 – 51 (2002). However, even if we assumed for argument’s sake that the dismissal of the claim concerning the infringement of a trademark does not ipso facto preclude the alternative grounds of unjust enrichment, it seems indisputable that such a dismissal should carry significant weight in determining whether there are foundations for the alternative grounds, especially in view of the holding concerning the absence of misleading. In our case the Respondent used the sign of four stripes on the sided of the shoe (as distinct from the three stripes of Adidas), and, most importantly, the word SYDNEY was embossment in two prominent places in the shoe, as well as in the inner sole). In my view these data make this case significantly different from the case considered in ASHIR [1] which concerned, as mentioned, a “complete imitation” of the product, by way of “Reverse Engineering” and a product comprising development and invention, (as opposed to the use of the element of the stripes, which as mentioned,  is weak in terms of inherent distinction).

This Court reached a similar conclusion in rejecting a claim of unjust enrichment (even in the absence of claims concerning the infringement of intellectual property laws, apart from the tort of passing off) in another case in which it did not find that there had been a “complete imitation” of the Apropo snack. In that regard the court stated further that:

‘[G]ranting protection against partial copying of the product may spread the protective umbrella of the laws of unjust enrichment over a large number of cases. Hence, for example, acceptance of the appellant’s position could lead to an almost blanket prohibition on the use of a hollow cone in the designing of snacks. Protection of this kind involves a grave impingement on the freedom of competition and this carries significance in the balancing of the considerations (CA 945/06 General Mills Inc. v. Meshubah Food Industries Ltd [26], para. 20

For all of the reasons set forth above, my view is that Adidas’s claims regarding unjust enrichment were rightly dismissed.

22.  After writing my opinion, I read the opinion of my colleague, the Deputy President (Ret.) E. Rivlin, and notwithstanding my argument with his conclusion on the matter of unjust enrichment, I wish to note that I too do not concur with the District Court’s approach to the effect that it is a “legitimate goal” to enable a person lacking sufficient means to “experience the feeling of wearing shoes with four stripes which are somewhat reminiscent of Adidas shoes”  However, as opposed to my colleague I think that our case does not concern the giving of such an experience, by reason of the significant differences between the shoes, chief among them being the specification of the word “SYDNEY” in no less than three places on the shoe.

Final Word

23.  In view of which I propose to my colleagues to dismiss the appeal and to order Adidas to give the Respondent the shoes that he imported, and which are in its possession. For the removal of all doubt, it will be clarified that Adidas will bear all of the costs involved in the storage of the shoes in Customs, and in its own possession, as per the decision of the Trial Court and its decision in the application for a stay of the execution of the decision. Likewise, I propose to my colleagues to obligate Adidas to pay to the Respondent attorneys fees in the appeal for the sum of NIS 25000.  The suggested sum of expenses has taken into account the significant sums of expenses that were already awarded against Adidas in the Trial Court.

 

JUSTICE

 

Justice E. Rubinstein

            A.                    After consideration, I concur with the decision of my colleague Justice Hayut. I confess, that I consented after some hesitation, which also found expression in the hearing before us, and having read the decisions of Justice (former title) Grunis in LCA 3217/07 Brill  v. Adidas [ 10  and his decision in LCA 3581/05 Shehana'al Mat'ima v. ADIDAS-SALOMON [9] (not reported).  At a first blush, the shoe produced by Respondent 1 may remind one of the Appellant’s shoes in accordance with a comparison of the pictures in the file. This is the case even without having consideration for the decisions of courts around the world with respect to the Appellant’s trademark. Furthermore, in the matter of Shehana'al Mat'ima [9], Justice Grunis stated that “when examining the existence of a resemblance for purposes infringement of a registered trademark, the comparison must be conducted between the registered mark and the mark alleged to be infringing, and not between the products on which the mark appears” (para. 3).

B.    However, at the end of the day I accept my colleague’s approach, that in our case “one cannot examine the trademarks…. in absolute detachment from the goods on which they appear” (para. 14). However, it would not be amiss to mention (further to the comments of my colleague (ibid), that even the decision in Ta’am Teva [12], which is relied upon in the decision in Shehana'al Mat'ima [9], deals with a phonetic trademark, regarding which there is almost no escape from examining it in detachment from the product to which it relates.

C. In examining the shoe itself, from close up, even though as stated it may be reminiscent of the Appellant’s shoes, it seems doubtful whether anyone would mistakenly think that he was actually holding an “Adidas” shoe, even though it bears a connection of some kind to the Appellant. Indeed, our concern is with stripes, but both on the surface of the shoe in the back and on its tongue, there appears the inscription of “SYDNEY” and inside it too. Furthermore, the price of the shoe is not in the same categories of that of the Appellant’s shoes, and they are evidently intended for a different public, even without giving consideration to broader societal observations, which, with all due respect, I do not agree with in their current form, and which emerged from the decision of the Trial Court.  Against this background, the use of the four stripes pattern would not cause clients coming to buy the shoe, upon taking a second look at the shoe as it is, to mistakenly think that it was one of the Appellant’s shoes (and hence it does not answer the requirement of passing off). There would seem to be no reason for thinking that these clients would think that the Respondent’s shoes, even though featuring stripes, are connected to Appellant (and hence there is no dilution of good will), in as much as the word SYDNEY is embossed on them.

D.   My approach is also based on my colleague’s point of departure with respect to the weak inherent character of the trademark, and her assessment, which I accept, that “It seems difficult to claim that had Adidas not chosen this mark, that no other shoes would have been manufactured with stripes on their sides” (para. 10). This is my position even though I cannot but mention that my assumption is that the respondent did not chose the stripes in vein. In this context one should remember that words of Justice Nethanyahu in the Kalil[11] case:

The registered marks of Kalil (ibid – the stripes on the samples that serve for identification – E.R) are indeed limited to three stripes, but a monopoly on any particular number of stripes would prevent many others from using stripes because of the restriction on the possible number of stripes dictated by the breadth of the profile” (HCJ 144/85 Kalil No-Steal Metals Ltd v. Registrar of Patents and Samples and Trademarks [11] at p. 323)

       This is the rule even though the metal stripes industries is not the same as stripes on shoes in terms of their frequency and their visibility. Examples of stripes on pieces of clothing are at least as old as the Bible, “Now Israel loved Joseph more than all his children, because he was the son of his old age; and he made him a coat of many stripes” (Genesis 37:3. The same is true of Tamar the daughter of David, who, as the practice for daughters of kings, wore a striped coat (11 Samuel 13, 18). Extreme care is therefore required in conferring absolute exclusivity in this context, which may, unintentionally disrupt the delicate balance between the protection of intellectual property and the protection of freedom of occupation and free competition (see my comments in the matter of CA 9191/03 V & section Vin Spirt Aktiebolag v. Absolute Shoes [5]  , at  pp, 877, 884)

E.  After all this, we received the judgment of my colleague, the Deputy President (Ret) Justice E. Rivlin, in which he seeks, in a manner which, undeniably, possesses a certain charm, to broaden the protection in the field of trademarks, by enlisting the grounds of unjust enrichment. In his view, there should be a broadening of the rule determined in ASHIR [1], according to which in a case in which the rules of intellectual property do not apply given the absence of registration, it should be possible to recognize the grounds of unjust enrichment. According to my colleague, in our case the consumer is purchasing an imitation those benefits from the good will of the manufacturer – Adidas, for a cheap price, and the imitator (Respondent 1) benefits from the manufacturer’s efforts without giving consideration. My colleague’s view is that this subject is not adequately regulated in the trademarks law, and a remedy should therefore be granted against the imitation of a registered trade mark. and contrary to the view of the Trial Court enabling the cheap purchase of shoes “that are somewhat reminiscent of Adidas shoes” should not be regarded as a legitimate goal. As mentioned, I am not a partner to the societal conceptions to the extent that they work at Adidas’s expense. However, I am doubtful as to whether the ASHIR [1] rule can be of assistance in the case at hand. The rule is intended for cases in which the laws of intellectual property are inadequate, not because matters of substance but rather because of the absence of registration, and hence a certain protection is offered based on the laws of unjust enrichment. The question however is whether the law provides a protection to a quasi-intellectual property for cases in which the laws of intellectual property were indeed examined, but not infringed, as in the case before us, and where it was unanimously decided that Adidas does not have trademark protection, notwithstanding its registered mark?  In the ASHIR [1]case the imitation was complete and the question was whether the laws of unjust enrichment should apply. However, this did not happen in the case before us. On the level of the desirable law, my heart is with my colleague, the Deputy President. But is this the existing law?  Indeed, the case is not similar to the aforementioned ruling in Absolute [5], which concerned the differentiation between shoes and vodka, whereas our case concerns the difference between one shoe and another. However, my colleague seeks to construct a protection for cases in which the law gives no protection, and in this sense differs from the ASHIR [1] rule, and even, so it would seem, from the minority opinion in that case. Summing up, I am not certain that the grounds of unjust enrichment can supplement the laws of intellectual property in cases in which they do not apply by reason of an internal, substantive reason, and not just because of an external procedural one, such as the absence of registration,  as was the case ASHIR [1]. Even if the notion that my colleague has attempted to develop was commendable on its merits, and even were we to adopt the path of my colleague, is it sufficient to "assume" that Adidas was harmed by the "enrichment".  Perhaps such a case would be governed by what is referred to in Jewish law as "He benefits and he does not lose" (Talmud Bavli, Bava Kamma, 20a). Isn't there a need for a firmer evidentiary basis, showing that the person who purchases a cheaper product of the Respondent would have purchased “Adidas” shoes had he not come across  the Respondent's shoes, or that the good will built up by Adidas is what caused the consumer to buy the Respondent's shoes, even though one look at the name "SYDNEY" suffices to make it clear that that it is not the same shoe.  And at all events, the question is whether, in order to come within the purview of the ASHIR  [1] rule, it is sufficient to prove – assuming that it was actually proved - that the association with the Appellant's shoes is what caught the eye of the consumer.  I am not certain that this is the case. Indeed the question of the slippery slope may arise here, but at the end of the day the solution provided in the domain of trademarks is generally expected to provide the answer, without locking the door upon future development of the law in accordance with the circumstances.

 

JUDGE

 

Deputy President (Ret) E. Rivlin

1.    I have read the judgment of my colleague Justice E. Hayut in depth, and while I share her position regarding the grounds of the infringement of trademark, were my opinion to be heard, we would accept the appeal with respect to the grounds of unjust enrichment.

2.    Trademark law has a dual objective: On the one hand, protection of the consumer against a mistake in the identification and purchase of a product that differs from his original intention; and on the other hand, protection of the manufacturer’s good will and title in the trademark (see for example, LCA 5454/02 Ta'am Teva (1988)  Ltd v. Ambrozia Sofharb Ltd [12] at p. 450). It bears emphasis that the protection of the manufacturer’s property does not just consist of the indirect protection granted to him by the very fact that the consumer seeking to purchase his goods will be able to identify them. The protection of the manufacturer’s interest in the trademark is also a direct one, stemming from its being an independent purpose of the law (and not just a means of protecting the consumer). This direct protection finds expression, for example, in the fact that misleading is not a necessary foundation of the infringement. For example, an infringement under s. 1 (1) of the Trademarks Ordinance [New Version] 5732-1972 is defined as follows:

"infringement means the use by a person not entitled thereto -

(1)  of a registered trademark or of a mark resembling such a trademark in relation to goods in respect of which the trademark is registered or to goods of the same description .... (addition added).

In other words, when use is made of a mark that is identical to a registered trademark (for purposes of goods defined in the aforementioned s. 1 (1)) an infringement occurs even if the infringing use does not mislead the consumers. For example - were shoes to be sold with a trademark identical to the Appellant’s registered trademark, we would not even consider the question of whether there was a danger of misleading potential consumers,  even in the absence of such a danger, i.e. where the consumer had received precise information regarding the identity of the manufacturer on the packaging,  It may be presumed that if the trademark rule was intended exclusively for the protection of the consumers, then the element of misleading would be required as one of the foundations of the grounds of action. In fact, in certain cases protection is given to a trademark even in the absence of misleading, and in such a case the grounds serves primarily for protection of the manufacturer’s title and his goodwill.  In this way, inter alia, the grounds of trademark infringement is distinguished from the tort of passing off. Whereas misleading is one of foundations of the tort of passing off, in the framework of the grounds of trademark infringement, misleading is only relevant for purposes of determining what constitutes a “mark resembling" a registered trademark.   

3.    The examination of the existence of the danger of misleading both in the framework of the grounds of infringement of trademarks and in the framework of the tort of passing off, is done by way the "three part test" expounded upon at length by my colleague, Justice Hayut.   Even so, it was held in the past that the subject to be examined for each of these grounds is different. In the framework of the tort of passing off, the misleading is examined in relation to the entirety of the defendant's acts, whereas with respect to the ground of trademark infringement, the subject of the examination is the marks themselves (see Ta'am Teva [12], at p. 450).  My colleague, Justice E. Hayut opined that in the case before us, the marks should not examined in isolation from the shoes on which they appear, also having consideration for fact that the law according to which the comparison should be between the marks themselves, was formulated in the framework of decisions that concerned phonetic trademarks as opposed to visual ones. I concur with this position, and in fact it flows naturally from the nature of the "three part test". Two of the secondary tests included therein are the test of the "type of customer and class of goods"; and test of the "other relevant circumstances". These tests, as indicated by their names, instruct us to examine the circumstances accompanying the use of the mark. For example, in the matter of Ta'am Teva [12] it was written that:

'Is the phonetic resemblance sufficient to satisfy the requirement of resemblance specified in the definition of "infringement"? This depends on the individual circumstances of each particular case, and the degree of concern about misleading and confusion among the consumers notwithstanding the different appearance of the marks... For this purpose consideration should be given to the methods of marketing, and advertising of the products for  which the trademarks are intended. In this context there must also be an examination of the possible results of the confusion (ibid pp. 455- 456).

       The additional circumstances to be examined are for example: the costs of the products: capacity for discernment on the part of potential customers; and the degree of overlap between the circles of customers for both products.  Indeed, the types of circumstances to be taken into account in the framework of the "three part test" are numerous, a factor which may also be derived from the very existence of a secondary test referred to as "all the other circumstances of the matter").   In practice, this leads to a situation in which within  the framework of the infringement of trademark too, just like in the tort of passing off, the assessment relates to the defendants' conduct in the broad sense, and is not limited to the comparison of the marks themselves (even though the comparison between them continues to be a relevant consideration). It is difficult to say that the entire complex of circumstances is relevant but that the general appearance of the product upon which the mark appears cannot be taken into account. The appearance of the product on which the mark is embedded is certainly closer to the "mark itself " and more influential upon the way it is perceived than, for example, the price of the product or the manner in which it is marketed.  Naturally, the weight attaching to the appearance of the product will change from case to case, and there are cases - for sample in Ta’am Teva [12] in which its importance is minor. All the same, one cannot rule out having reference to general appearance of the product in cases in which such attention is inevitable, such as in the case before us. Accordingly, I concur with the conclusion of my colleague, that in the case before us the marks should not be examined in isolation from the shoes upon which they appear and that the "three way test" leads to the conclusion that there is no confusing similarity (in terms of consumers) between the Respondent's shoes and the registered trademark of the Appellant, and it cannot sue on the grounds of trademark infringement.

4.    Matters differ however with respect to the grounds of unjust enrichment, for which the Appellant has grounds.

In the decision in LCA 5768/94 - ASHIR [1] it was held that there is no impediment in principle to recognition of the grounds of unjust enrichment (which will be hereinafter be referred to for the sake of brevity as: enrichment) in a case in which the laws of intellectual property are also applicable.  In accordance with the criteria outlined there, recognition of these grounds is possible in our case both because the law of trademarks does not establish a negative arrangement in this particular subject and because a right arises under the “internal law” of enrichment.

5.    The matter before us is this. A person wishes to use a mark that resembles (in the regular sense of the word )the registered trademark of another person, in respect of whom it is not disputed that he acquired extensive and significant goodwill.  The consumer prefers the resemblant product over the product that carries the registered trademark. because of the high price of the latter (inter alia due to the good will that he has acquired). In other words: The consumer is aware of the fact that the product that he is purchasing is a copy, and precisely because of that he prefers this product. The imitator and the consumer both benefit from this situation. The imitator benefits from the advantage of selling a product that resembles a well known product in demand and with a brand name, while benefitting from the good will built up by the manufacturer by the investment of effort and resources.  The consumer benefits from an experience that closely resembles that of purchasing a well known product that is in demand, without having to pay a high price for it.  In such a case harm is caused to the manufacturer and to the good will that he created for himself. This harm may take various forms: The imitator enjoys the investment made by the manufacturer in the development and the advertising of the brand-name (one of its expressions being the registered trade mark); the consumers (or at least some of them) would not have been interested in the copy and would not have derived the same amount of pleasure from it were it not for the efforts invested by the manufacturer in the promotion of the original product, but at the same time they pay no consideration to the manufacturer. Presumably at least some of the consumers would have been prepared to purchase the original product for a high price had they not had the possibility of purchasing an imitation at a cheapened price. And finally, the existence of an "imitations market" may, in some of the cases, harm the prestige of the original product and the commercial value of the registered trademark.

6.    Trademarks law today does not regulate this subject -  of imitations purchased by the consumer intentionally and not mistakenly – insofar as it protects against  harm suffered jointly by the manufacturer and the consumer, and not just against harm suffered by the manufacturer, and which the consumer is a party to.   Even more precisely, this is not the regular case in which there are no grounds for trademark infringement given that the resemblance between the products does not reach the level of "confusing similarity". One could argue that indeed there is a confusing similarity, but not with respect to the consumer but rather with respect to third parties who perceive the consumer as having purchased the original product.  The non-applicability of the grounds of trademark infringement in relation to cases of "classic" imitation (in other words products that are clearly an imitation, where even the consumer is aware of their being an imitation) does not reflect a policy decision in accordance with which the "imitations market" is desirable in the legislator’s eyes.   Were this the case it is clear that a complete imitation as well of a trademark would be permitted, provided that it did not involve the misleading of the consumer (this situation can transpire when "external circumstances" such as packaging, price and manner of marketing, indicate that it is an imitation). Our concern is therefore, at the very most, with a lacuna in the law of trademarks. It should further be remembered that this lacuna is the product of the formulation of the law by the courts, who applied the "three part test" for defining an infringement of a trademark by way of a "similar" mark, and it is not necessarily dictated by the language of the law.  The formulation of the law in this manner was not intended in the first place for protection against the "imitations market". Hence for example, the following words were written in relation to this context already about twenty years ago.

'the imitation of a product by another, as such, is not prohibited in Israel for as long as it does not constitute the offense of passing off, or is not contrary to the statutory provisions that protect intellectual property, such as the laws of copyright, trademarks, patents and designs, or any other law.

A separate question is whether the imitation of a product is desirable.... regardless of our position on that question, for as long as the plaintiff has not proved that he has a legal right  that allows him to prevent the copying of his product by another person, this court will not offer him any remedy (comments of Deputy President M. Elon, in CA 18/86 Israel Glass Factories Venice Ltd v. Les Verrcies De Saint Gobain [6 ] at pp. 253-254 ) .

I think that the time has come, following the establishment of the law in the ASHIR [1] case, for the Israeli law to offer a remedy against imitation, at least where it concerns the imitation of a registered trademark, the entire purpose of which is to benefit from the good will of another, when the latter even took the trouble to legally register the trademark that is bearer of good will. I am not a partner to the approach expressed by the District Court, according to which it is a "legitimate goal" to enable one who cannot afford it to purchase Adidas shoes and to  “be able experience the feeling of wearing shoes with four stripes which are somewhat reminiscent of Adidas shoes". This goal is totally illegitimate. The experience of wearing Adidas shoes has no independent value or social benefit other than the value conferred to it by Adidas, and accordingly I do not think that the existence of an imitations market is a positive phenomenon.  It will be clarified that there can be no doubt regarding the tremendous value of competition in the footwear market, so that potential consumers are offered a variety of shoes of a variety of qualities and prices. However, free competition can exist without the abuse of another's person's good will.

7.    It further bears mention that the comments made in C.A. 9191/03 V &S v. Absolute  [5] and which were cited by my colleague in para. 21 of her opinion, do not lead to a different conclusion. In that case the owners of the registered trademark named "absolute" (a category of alcoholic drinks - Vodka and a category of bar-restaurant services) attempted to prevent a network of shoe stores from using the name "absolute shoes".  Their suit was dismissed, primarily due to the fact that the word "absolute" is a descriptive, dictionary word, the use of which cannot be excessively restricted, and its confusion potential when combined with a word from a totally different realm from that of beverages, is particularly low. Accordingly, in that case there were substantive policy considerations that negated the protection of the laws of intellectual property and hence it was not an appropriate case for applying the enrichment laws.  It cannot be argued that the laws of intellectual property did not regulate the subject of using descriptive terms, whether in framework of the same category or other categories, and in that sense "the appellants were able to take the high road of the laws of intellectual property" which if not successful - then "the side road too would not be successful" (ibid at p. 888). The matter before us, on the other hand, has not been substantively regulated in the framework of the laws of intellectual property, and hence it cannot be said that the high road of the laws of intellectual property was open to the Appellants before us.

To sum up: In terms of the laws of intellectual property there is no impediment to the recognition of a grounds of claim based on enrichment in relation to the imitation of a registered trademark regarding which there is no "confusing similarity" insofar as the consumer is aware of its being an imitation.

8.    The next stage is the examination of whether the Appellant has grounds for claim under the laws of enrichment themselves. It is known that this ground has three foundations: the first condition is the existence of enrichment; the second condition is that the enrichment came to the beneficiary from the benefactor; and the third condition is that the enrichment was received by the beneficiary "without legal cause" (see LCA 371/89 Leibovitz v. Etti Eliyahu Ltd  [28] (hereinafter Leibovitz) at p. 321; CA 588/87 Cohen v. Zvi Shemesh [29] at p. 320; FHC 10901/08 Beizman Investments Ltd v. Mishkan Bank Hapoalim Mortgages Ltd [30] para. 34 of Justice  Naor's decision. In the matter of ASHIR [1] it was held that enrichment “without legal cause” for our purposes means enrichment which has "an additional foundation" of inappropriate conduct.  The majority judges were disputed regarding the essence of this foundation but still,  the majority opinion was  that conduct in bad faith or unfair competition would constitute “an additional foundation”  and there were those who were even prepared to suffice with a lower threshold. For a review of the various positions, see ASHIR[1] , at p. 431 (the judgment of Justice Strasbourg-Cohen), at pp. 450, 473-480 (judgment of President A. Barak), at p. 488 (judgment of Justice T.Or), at p. 493 (judgment of Justice Y. Zamir) and p. 499 – 500 judgment of the Deputy President S. Levin).  In CA 2287/11 Shoham Machines and Dies Ltd v. Shmuel Hadar [31] (hereinafter = Hadar)I dwelt on the more specific criteria that had crystallized in relation to the subject considered in ASHIR [1], which concerned the imitation and design of a product that was not registered as a patent or design.  Where a person attempts to copy a trademark that enjoys good will with economic value, with the aim of benefitting from that good will in order to sell his products, following the original manufacturer’s investment of resources and effort in the development of his good will in that mark, while the imitator benefits from them without having been compelled to invest a similar effort – it becomes unfair competition, and in bad faith. I find it difficult to locate a real difference between use of the  trade mark that is actually registered,  regarding which it was explicitly declared that it is an imitation (so that the owner of the registered trademark will merit protection) and the use of a trademark which is highly similar to it, while declaring that it is an imitation (in which case the owner of the registered mark will not be protected by the  trademark rule). The negative element of a complete imitation of a trademark continues to exist even where a minor change was made in that mark).

This is the case before us. The addition of one stripe,  retaining the colors of the registered trademark and using only one color for the stripes, while placing them in the same direction, in the same location on the surface of the shoes and with an identical breadth and distance between them – all amount to a substantial and bad faith resemblance to the registered trademark of the Appellant.  And in fact, the District Court also held that purchasing the Respondent’s shoes serve the consumers’ goal of having “the experience” of wearing shoes similar to those of the Appellant. The shoes in their current form were clearly designed so that they would resemble the Adidas shoes of the Appellant in order to enhance their attractiveness in the eyes of consumers.

9.    The existence of the first two foundations is essentially a question of fact, which must be proved in each and every case. In the case before us the Respondent’s profits from the sale of the shoes (had he been given the opportunity to do so) would have generated enrichment. This enrichment would have been “at the expense” of the Appellant, because presumably the sales of shoes resembling Adidas shoes would be higher than the sales of shoes that are not similar to any known brand. Likewise, it may be presumed that at least some of the consumers of the Respondent’s shoes would have purchased original Adidas shoes had they not had the possibility of purchasing a cheap imitation. The case is similar to the case discussed in the matter of Leibovitz [29], concerning the adjudication of an action brought by a pens distributor against someone who imported the same pens in “parallel import”. In that case it was held that the first two foundations of the grounds of unjust enrichment were satisfied (even though the third foundation was not satisfied):

‘In the circumstances of this case, it may prima facie be presumed that the appellant received a benefit that came to him from the respondents. The benefit consisted of the profits derived by the appellant from the sales of the products under discussion here. By these sales the appellant benefitted from the market created by the respondents for the said products. In that sense, the respondents were the source of the benefit and it can be argued that it “came” from them (see Leibovitz [29], at p. 321).

This is also applicable to the case before us, in which the Respondent is attempting to benefit from the market developed by the Appellant and the good will created for its trademark.

10.  Having reached the conclusion that the Appellant can make a claim on the grounds of unjust enrichment, the question arises regarding the relief to which he is entitled in that framework. It is known that the court has the authority to grant  injunctive relief in the framework of the grounds of unjust enrichment (see CA 347/90 Soda Gal Ltd v Spielman [32], IsrSC 47 (3) at p. 479; ASHIR[1] at p. 484; Harar [31] para. 27 of decision).  In the case before us, the Respondent suggested that the Adidas make certain changes in the shoes by adding a fifth stripe, or adding an X sign on the four stripes.   The introduction of such a change would diminish the resemblance between the mark on the shoe and the trademark of the Appellant. Accordingly, were my opinion to be accepted I would propose the issuing of a permanent injunction that would prohibit the Respondent from marketing or distributing the shoes in dispute, in their current design.  This order will remain in place until one of the changes suggested by the Respondent is done, in which case the shoes will be given to the Respondents. As mentioned, the parties agreed that the storage costs would be imposed upon one of the parties according to the results of the suit, and so, in accordance with my position, it would be proper for these to be imposed on the Respondent. Under these circumstances I would also recommend not making an order for expenses.

                                                                                                       Deputy President (Ret)

It was decided in accordance with the decision of Justice E. Hayut.

Handed down this day, 9^th Elul  5772 (27.8.2012)

 

 

In the Supreme Court

Sitting As a Court of Civil Appeals

CA 5365/11

CA 5489/11

 

Before:			His Honor, Justice E. Rubinstein His Honor, Justice Z. Zylbertal Her Honor, Justice D. Barak-Erez
The Appellant in CA 5365/11 and the Ninth Respondent in CA 5489/11:			ACUM – The Association of Composers
v.
The Appellant in CA 5489/11 and the Ninth Respondent in CA 5365/11:			EMI Music Publishing Ltd
v.
The Respondents:	1. The Director-General of the Antitrust Authority
	2. The Association of Restaurants in Israel
	3. Partner Communications Company
	4. The Association of Function Hall & Garden Owners
	5. Golden Channels
	6. Matav Cable Communication Systems
	7. Tevel Israel International Communications
	8. Anana Ltd
	9. EMI Music Publishing Ltd

 

Appeals against the judgment of the Antitrust Tribunal in Jerusalem on June 2, 2011 in AC 513/04 by Her Honor Judge N. Ben-Or

 

Date of Session:	Nisan 3, 5773 (March 14, 2013)
On behalf of the Appellant in CA 5365/11 and the Ninth Respondent in CA 5489/11:	Adv. Uri Sorek, Adv. Assaf Neuman
On behalf of the Appellant in CA 5489/11 and the Ninth Respondent in CA 5365/11:	Adv. Michelle Keynes

 

 

On behalf of the First Respondent:	Adv. Uri Schwartz, Adv. Yael Sheinin, Adv. Elad Mekdasi
On behalf of the Third Respondent:	Adv. Eyal Sagi, Adv. Amir Vang
On behalf of the Fourth to Seventh Respondents:	Exempt from appearance and representation
On behalf of the Eighth Respondent:	Adv. Ronit Amir-Yaniv, Adv. Ido Hitman

 

JUDGMENT

 

Justice D. Barak-Erez

 

1.         Which principles should guide the activity of ACUM with regard to the management of copyright in musical works in Israel? This question has been presented to us in full force against the background of the finding by the Director-General of the Antitrust Authority that ACUM’s activity creates a cartel, in order to review the conditions prescribed for the approval of the cartel in a way that will balance the rights of authors with the general interest of works being used in public.

 

Background and Previous Proceedings

 

2.         “The Association of Composers, Authors and Publishers,” known as ACUM, is a corporation that operates in order to manage the copyright of its members – lyricists, composers, arrangers, translators, and others – in Israel. ACUM members transfer their rights in their works to it, whilst ACUM acts on their behalf in order to license the use of those works in consideration for royalties that it collects for its members. Ordinarily, the licenses that ACUM grants are sweeping licenses ("blanket licenses") that permit licensees to make use of the whole repertoire of works managed by ACUM (mainly by making them accessible to the public in various ways). In addition, ACUM is bound by agreements with foreign copyright collective management entities (hereinafter "affiliates"), by virtue of which it administers in Israel the rights that are managed by the affiliates abroad.

 

3.         On April 30, 2004 the Director-General of the Antitrust Authority (hereinafter "the Director-General") published a ruling pursuant to section 34(a)(1) of the Antitrust Law, 5748-1988 (hereinafter "the Antitrust Law" or "the Law") according to which ACUM’s activity involves the creation of cartels (both between ACUM members and between ACUM and the affiliates) and a declaration under section 26(a) of the Law that ACUM’s activity as a cartel creates a monopoly in the market of managing copyright in musical works (or more precisely, with regard to management of  broadcasting, public performance, copying, recording, and synchronization rights in those works). The decision was made by the then Director-General, Mr. Dror Strom. However, it also reflects the position of the officers who have succeeded him, Ms. Ronit Kan and currently, Prof. David Gilo, as detailed below. Reference to the position of the Antitrust Authority will henceforth be made without specifically referring to those successors, using the general title – the Director-General.

 

4.         At that stage, ACUM instigated legal proceedings before the Antitrust Tribunal (hereinafter "the Tribunal") – an appeal against the determination of the Director-General that its activity involves cartels (AT 512/04) or, alternatively, an application for the approval of a cartel in accordance with sections 7 and 9 of the Antitrust Law, on the grounds that the cartel's approval is necessary in the public interest (AT 513/04). Both proceedings were heard together. Subsequently, to ACUM’s request, the appeal it filed was withdrawn, leaving only its application for approval of the cartel. The Director-General did not oppose the cartel's approval considering the public importance involved in ACUM's activity, as explained below, but the Tribunal was moved to set conditions to the approval so as to protect not only the public interest but also the individual rights of authors.

 

5.         To make its continued activity possible until completion of the litigation, ACUM filed a request for a provisional permit for operation of the cartel. The Tribunal granted the request and on December 28, 2004 it granted a provisional permit for ACUM’s activity subject to certain conditions (hereinafter "the Provisional Permit"). As detailed below, those conditions regulated, inter alia, situations in which authors could exclude rights in certain works from ACUM’s management so that those authors, rather than ACUM, would themselves deal with granting licenses to exercise those rights (hereinafter "the Exclusion Mechanism"). Over the years the Provisional Permit was extended from time to time based on of the Director-General’s recommendation, various amendments and modifications introduced to its terms. The last of those provisional permits (before the Tribunal's judgment), granted on February 24, 2009, introduced several significant changes, including making the Exclusion Mechanism "tougher," as detailed below.

 

6.         In addition to the position of the Director-General, oppositions to the cartel's approval were filed to the Tribunal by several other entities, including the Association of Function Hall & Garden Owners, Partner Communications Company (hereinafter "Partner"), the Association of Restaurants in Israel, and several cable companies – Golden Channels, Matav and Tevel (hereinafter "the cable companies") (whose activity has since been consolidated).

 

7.         At a later stage, an application to join the proceedings was made by two publishers that represent authors, the publishers themselves being members of ACUM – Anana Ltd (hereinafter "Anana") and EMI Music Publishing (Israel) Ltd (hereinafter "EMI Israel"). Those applications, like the time when they were made, were explained by the changes that had been made to the Provisional Permit’s conditions on February 24, 2009 as regards the Exclusion Mechanism. On December 1, 2009, the Tribunal partially allowed the applicants to join the proceedings in the sense that it permitted each of the two applicants to file a brief document with reference to the conditions that were acceptable to them and to make summations without extending the existing factual basis of the discussion.

 

8.         In its decision of January 25, 2009, the Tribunal stated that by consent of the parties it would rule based on the parties’ summations and supplemental oral arguments, without hearing evidence. The decision further stated that all of the parties agreed to ACUM's approval as a cartel, and took issue merely with regard to the terms of that approval. Consequently, the conditions of the Provisional Permit of February 24, 2009 (hereinafter "the Provisional Conditions") would serve as point of reference for the parties' positions. Accordingly, each of the parties filed its reservations regarding the Provisional Conditions in such manner that enabled the Tribunal to decide which of the conditions would be adopted as is within the permanent conditions, and which would be modified.

 

9.         On June 2, 2011 the Tribunal approved ACUM’s activity as a cartel, subject to a series of conditions (hereinafter "the Permanent Conditions"), which would remain in force for five years from the date of their approval. The Tribunal stated that the basic premise for reviewing the parties' arguments with regard to the conditions was that the anticipated benefit from the cartel substantially exceeded the damage likely to be caused by it, as required by section 10 of the Antitrust Law. In this context, it was explained that ACUM’s activity benefited not only its members – copyright owners (hereinafter "the authors") but also the general public who uses the works it manages (hereinafter "the users"): on the one hand, the sweeping licenses permit the users to make use of the whole repertoire of works that ACUM holds, thereby sparing the public from having to locate the owners of various rights and to negotiate individually with each of them; on the other hand, the sweeping licenses also benefit the authors since they streamline (and, to a great extent, enable) collection of royalties and enforcement of their rights.

 

10.       Since all parties agreed on principle to the approval of the cartel, the Tribunal hearing focused on the nature of the conditions to which the approval should be subject in order to dispel concern as to its abuse with regard to authors or users. The point of departure for the hearing was, as aforesaid, the Provisional Conditions, some of which were agreed upon by all parties, whilst others were in dispute. The disputes on which the appeal before us focuses pertain to the conditions prescribing the extent of the duty owed by ACUM to appoint external directors and the extent of ACUM members’ ability to exclude their rights from its management, as detailed below.

 

11.       Other controversies, including those concerning the definition of acts that would be construed as an abuse of ACUM's position and the way in which ACUM should act in taking legal action against users, were ultimately not considered by us since only few of the arguments concerning them were raised within the written appeal, while the arguments before us did not in fact concentrate on them.

 

12.       The appointment of external directors – the position of the Director-General was that a condition should be added to the Permanent Conditions to the effect that ACUM should appoint external directors in a proportion of no less than one third of the total members of its board and those directors would be responsible for the internal plan to enforce antitrust law that ACUM is obliged to implement (in accordance with section 10 of the Provisional Conditions). ACUM objected to this requirement, on the grounds, inter alia, that it is not a public company where the appointment of external directors is necessary in order to protect minority rights, and in any event ACUM's articles of association ensure due representation for each category of its members, and even guarantee numerical balance between the categories.

 

13.       The Tribunal accepted the Director-General's position on this matter, noting that a corporation for the collective management of copyright naturally raises concern as to the abuse of power against the authors themselves. Appointing a substantial number of external directors and entrusting them with the internal enforcement plan, it was held, would help deal with that concern, especially considering the fact that the corporation's members are dispersed and lack management expertise. The Tribunal also attributed importance to the fact that from ACUM's position in the proceedings it appeared that ACUM itself acknowledged the need to appoint external directors and was willing to do so even before the Tribunal’s judgment in order to reinforce the "managerial, professional, economic character of ACUM's board of directors".

 

14.       The extent of ACUM members’ ability to exclude rights from ACUM’s management – the Provisional Permit that ACUM had originally obtained (in 2004) included, in section 2.3 of the Provisional Conditions, a mechanism permitting a member to give notice "at any time, of his desire to assume all or any of the copyright with regard to any of his works, with regard to all users or specific categories of users," such that the works included in the notice would cease to be part of ACUM's repertoire, and copyright ownership would revert to the notifying member (hereinafter "the broad exclusion mechanism"). Underlying this mechanism was the concept that a “liberal” option to exclude any right in a work, even specifically, would intensify competition and increase the authors' power against ACUM. Later on, based on the experience accrued from the implementation of this arrangement, the Antitrust Authority reached the conclusion that the broad exclusion mechanism was not yielding the anticipated results with regard to enhancing market competition, and in contrast was aggravating the concern for abuse of the exclusion ability. For example, it turned out, according to the Director-General, that the broad exclusion mechanism that enabled interested authors, inter alia, to exclude from ACUM's management merely the use of "new media" (such as mobile phones and the Internet) and to leave it with the power to grant sweeping licenses for broadcasting rights only in "traditional media" (like television and radio), might undermine the justification for ACUM's existence as a corporation whose purpose is to reduce the substantial transaction costs involved in individually contracting with each of the authors. Accordingly, in 2009 the exclusion mechanism in section 2.3 of the Provisional Conditions was limited in two ways: first, the Provisional Conditions provided that an exclusion notice could only be given with the consent of all joint authors in a collective work whose exclusion was sought (for example, the lyricist, the composer of the music, and the arranger); second, it was provided that partial exclusion, namely exclusion of some of the uses of the work, could only be done in accordance with four "exclusion baskets" concerning different categories of use (hereinafter "the narrow exclusion mechanism"): presentation of the work in an audio format (for example radio broadcasting); its presentation in an audio-visual format (for example in a television program); copying the work; and recording it. The narrow exclusion mechanism therefore did not permit the author to exclude the work in various formats at his discretion, as specifically chosen by him (for example, excluding the work's use only with regard to mobile phones).

 

15.       The Director-General's position, joined by ACUM, Partner, and the cable companies on this issue, was that the narrow exclusion mechanism should be included in the Permanent Conditions. In contrast, EMI Israel and Anana believed that the broad exclusion mechanism should be adopted with regard to both aspects that distinguish it from the narrow exclusion mechanism and they challenged both the requirement for unanimous consent of all authors of a joint work and the restriction of exclusion according to "exclusion baskets."

 

16.       EMI Israel pleaded that the narrow exclusion mechanism improperly infringed on the constitutional property rights of the authors it represented, both because the predefined "exclusion baskets" limit the prerogative of the right’s owner to permit or prohibit certain uses of his work, and because the vast majority of musical works managed by ACUM are jointly owned by several authors. Under these circumstances, it was argued, making the exclusion conditional upon the consent of the other owners in fact negates the ability of a given author to permit or prohibit the use of his work. EMI Israel further asserted that adopting the narrow exclusion mechanism would compromise the competition among ACUM's members in the sense that only large corporations would be able to afford managing rights outside of ACUM, while individual authors would not be able to bear the financial and logistical burden it involves.

 

17.       Anana pleaded that adopting the narrow exclusion mechanism would lead to infringement on its reliance interest, given the fact that, relying upon the wording of the broad exclusion mechanism, it had already excluded works it managed from ACUM's repertoire with regard to the use of "new media" that it would now have to restore. In addition, it made a series of arguments concerning the restrictions set forth in the narrow exclusion mechanism – a lack of distinction between authors whose contribution to a joint work was significant and authors whose contribution was negligible (who nevertheless obtain a de facto veto right to exclude the work); impairing the ability of authors to maximize their profits; as well as infringing on the moral aspect of the author’s right (in the sense that an author who wishes to preclude the use of his work for religious, image-related, or moral reasons would find it difficult to do so under the narrow exclusion regime). Anana further contended that making the exclusion conditional upon the consent of all joint authors effectively makes it a dead letter since joint authors would frustrate any attempt to reach the necessary agreements.

 

18.       The Tribunal held that the approval should be made conditional upon a narrow exclusion mechanism and in that respect it adopted the position of ACUM and the Director-General (joined by Partner and the cable companies). The Tribunal explained that such exclusion mechanism provided an appropriate answer to the necessary balance between enhancing market competition and protecting the individual author's proprietary right. The Tribunal went on to state that a corporation for the collective management of copyright is in any event not intended to enable its members to realize their rights in full. On the contrary, such arrangement is based upon a waiver of complete and total freedom with regard to the works in consideration for reducing the cost of managing and enforcing copyrights. EMI Israel and Anana, the Tribunal held, were in fact seeking to enjoy the benefits of belonging to a cartel without bearing the costs. The Tribunal further explained that copyright grants an author a monopoly that may harm the general public, a concern which is intensified when authors are incorporated in a cartel. Therefore, there is no reason to avoid subjecting the cartel's approval to conditions that restrict the individual author's proprietary right in his work.

 

19.       As aforesaid, the Tribunal ultimately approved ACUM's activity as a cartel, subject to a series of conditions, including those mentioned above. The two appeals before us – the appeal by ACUM and the appeal by EMI Israel – were filed against its said judgment – as detailed below.

 

The Appeals

                       

20.       ACUM's appeal (CA 5365/11) concerns, as aforesaid, only one aspect of the Tribunal's judgment – the condition regarding the duty to appoint external directors. Its arguments in this respect are directed both against the basic obligation to appoint external directors and against their number.

 

21.       EMI Israel’s appeal (CA 5489/11) originally revolved around several of the other conditions to which the Tribunal made the permanent permit subject, but at the hearing before us EMI Israel concentrated its arguments on the details of the condition regulating the rights exclusion mechanism. It should be noted that Anana, which did not appeal the Tribunal’s judgment, appeared at the hearing as a respondent and in that capacity it presented arguments in support of EMI Israel's basic position.

 

22.       Generally, EMI Israel believes that the narrow exclusion mechanism impairs the protection of the authors' rights and reinforces ACUM's monopoly. More specifically, EMI Israel pleads that implementing the narrow exclusion mechanism would lead to infringement on authors' proprietary rights and would impair the possibility of creating a competitive copyright market. According to EMI Israel, the protection of copyright necessitates both recognition of the power of each author to implement the exclusion mechanism with regard to a work he helped create, even without obtaining the other authors’ consent, as well as authors’ right to exclude their works outside of the "exclusion baskets" that necessitate "crude" and imprecise choices that do not express important distinctions, primarily the distinction between "old" media (like radio and television) and "new" media (such as mobile phones).

 

23.       On the other hand, the Director-General believes that both appeals should be dismissed. He supports the Tribunal’s judgment and emphasizes that the conditions it approved are required in order to protect authors and users against the monopolistic power of ACUM and in order to protect the public interest involved in the use of the works.

 

Our Ruling

 

24.       Having reviewed the parties' arguments we have reached the conclusion that both appeals should be dismissed. We are convinced that, at the moment, the Permanent Conditions, including the conditions against which the appeals have been addressed, are all necessary in order to dispel the concerns raised inherently by a cartel related to the collective management of copyright. These conditions are necessary in order to ensure that the cartel’s benefit to the public will exceed the perceived damage from it. Indeed, as detailed below, reviewing the parties' arguments has made it clear that the distinction between "new" and "old" media within the exclusion mechanism is an evolving issue, the regulation of which should be monitored. However, as noted, the approval and its conditions have been set for a period of five years, of which two have already passed (as the conditions relating to the narrow exclusion mechanism were approved by the Tribunal in June 2011). At the end of that period, it will be possible to revisit the conditions and the way they are being implemented in order to make decisions towards the future. In that sense, our ruling reflects the facts presented in the proceedings, including the experience accumulated in the Israeli market and its existing uses of copyright.

 

The Normative Framework: Between Copyright Law and Antitrust Law

 

25.       Two normative frameworks frame our discussion: copyright law – as a framework that seeks, inter alia, to balance the author's rights in his work and the public interest to enjoy the fruit of the work for the benefit of all, in order to promote culture and knowledge; and antitrust law – which recognizes, inter alia, the possibility of approving a cartel, subject to conditions aimed at protecting the public from the abuse of monopolistic power. Copyright law is currently governed by a relatively new statute – the Copyright Law, 5768-2007 (hereinafter "the Copyright Law"), which replaced the relevant British Mandate statute, while the issues concerning the activity of cartels are regulated by the Antitrust Law.

 

26.       The activity of ACUM should be evaluated and examined according to these two perspectives. As mentioned in the introduction to our judgment, ACUM was established for the collective management of copyright in musical works. From the perspective of copyright, that management should be for the benefit of authors and in the name of protecting their rights, but without neglecting the public's ability to enjoy the works; from the perspective of antitrust law, that management, which constitutes a cartel and monopoly, should be for the benefit of the public and should ensure that public access to the works is not unreasonably denied. More specifically, in order to comply with the provisions of sections 9 and 10 of the Antitrust Law with regard to the approval of a cartel, it has to be ensured that the benefit to the public from such collective management substantially exceeds the damages that it might cause to all or some of the public.

 

27.       In many ways, the controversies that have arisen before us pinpoint once again the dilemmas that underlie copyright law. Recognition of copyright is aimed at encouraging the creation and dissemination of expression but also at balancing this benefit against the costs of limiting access to protected works (cf: Guy Pesach, The Theoretical Basis for the Recognition of Copyright, 31 Mishpatim 359, 410 (2001)). In the words of Vice President (retired) S. Levin:

 

            "In Anglo-American law the basic justification for these laws is perceived as the desire to provide an incentive to the author in order to achieve maximum access to the work by the public at large. This is the heritage of Israeli copyright law" (CA 326/00 Holon Municipality v. NMC Music Ltd, PD 47(3) 658, 671 (2003)).

 

Copyright Management Corporations: ACUM as a Test Case

 

28.       The case before us should be examined not only in light of the general principles of copyright law, on the one hand, and antitrust law, on the other hand, but also in light of the experience accumulated from copyright management through corporations established for such purpose. ACUM is a local corporation that was established back in pre-state Israel (see: Michael Birnhack, Colonial Copyright: Intellectual Property in Mandate Palestine 185-186 (2012)). Nevertheless, more broadly speaking it is merely one of many examples of corporations known as "copyright collection societies" or collective management organizations" (hereinafter "collective management corporations"). Such corporations operate in many countries and thereby provide an answer to a genuine need of authors who cannot routinely manage the grant of licenses to use their works, collect royalties, and enforce copyright law on those who infringe their rights. These corporations manage the rights of many authors collectively and thereby contribute to reducing the costs of negotiating with users and reducing enforcement costs. At the same time, the mechanism of collective management also benefits the public who uses the works because it allows bringing these works to the public on a regular basis. The collective management corporation typically offers users "a blanket license" in relation to the corporation's whole repertoire, thereby saving them the need to negotiate individually with each of the authors of works included in the repertoire. Such users are for the most part broadcasting stations owners, producers, hall owners, and others, through whom the works are made accessible to the public at large (see: Ariel Katz, Monopoly and Competition in the Collective Management of Public Performing Rights, 2 Din Ve'Devarim 551 (2006); Guy Pesach, Associations for the Collective Management of Rights – Another Look at Effectiveness and Fairness, 2 Din Ve'Devarim 621 (2006) (hereinafter "Pesach"); Walter Arthur Copinger, Copinger on Copyright, pp 1790-1794 (16th ed., 2011) (hereinafter "Copinger")).

 

29.       Alongside recognizing the fact that collective management corporations are a well-known and widespread phenomenon, the concern that accompanies their activity is also acknowledged. Collective management of copyright involves a significant challenge from the perspective of antitrust law, considering the fact that it has centralized characteristics and therefore raises the concerns involved in the creation of a cartel, including the concern of acquiring and abusing monopolistic market power, either by demanding high royalties or in other ways. Against those disadvantages, we usually weigh the necessity of such activity for effectively managing copyright and it is therefore common to regard collective management corporations as "natural monopolies" (and, to a certain extent, something of a necessary evil) and to allow them to operate subject to supervisory mechanisms and regulation (see: Ariel Katz, The Potential Demise of Another Natural Monopoly: Rethinking the Collective Administration of Performing Rights, 1 J. Comp. L. & Econ. 541, 544-548, 551-553 (2005) (hereinafter "Katz"); Copinger, pp 1798-1800). It is along these lines that the activity of the two major collective management corporations in the U.S. – the American Society of Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc (BMI) – is regulated by special judicial orders ("consent decrees") as part of antitrust law. These orders, whose conditions are revised from time to time, place collective management corporations under a host of constraints in order to ensure their compliance with the competition criteria set forth in antitrust law (for a discussion of the supervisory mechanisms of collective management corporations in the U.S., see: Stanley M. Besen, An Economic Analysis of Copyright Collectives, 78 Va. L. Rev. 383 (1992).) Similarly, collective management corporations that operate in Europe are under supervision, subject to the antitrust law of the European Union (see: Lucie Gaibault & Stef Van Gompe, Collective Management in the European Union, in Collective Management of Copyright and Related Rights 135 (2nd edition, Daniel Gervias ed. 2010); Copinger, pp 1801-1808).

 

The Conditions in Dispute: Public Directors and the Exclusion Mechanism

 

30.       As already mentioned, the controversy before us does not concern the basic authority for ACUM’s operation as a cartel but rather the conditions that have been prescribed for its activity, or, more precisely, two of these conditions. In that sense, the discussion is based on the accepted notion, explained above, which views collective management corporations as something of a "natural monopoly," the existence of which is essential but their activity necessitates supervision and restraint in order to protect the public from the potential negative effects of substantial market power being accumulated by a single entity. The conditions for ACUM’s operation should therefore express the balance between the proprietary right of authors and the public interest in a market free of monopolistic influences, which acquires a unique aspect with regard to the market of creative works that naturally need to be accessible to the public (albeit for a fee).

 

31.       Ultimately, the hearing in this case revolved around two matters: the requirement to appoint directors, and the scope of the rights exclusion mechanism. Both of these need to be examined from the unique point of view that combines the purposes of copyright law with those of antitrust law, paying attention to the balance that both those sets of laws seek to achieve between individual proprietary rights and economic interests, on the one hand, and the public interest, on the other hand.

 

The Appointment of Public Directors: Between the Public Interest and the Interest of the Rights Owners

 

32.       The first condition that was prescribed for the approval of the cartel was to appoint public directors who will constitute a third of the total number of board members (which in practice means appointing four such directors). As aforesaid, ACUM has objected to this condition both in principle and in practice.

 

33.       In principle, ACUM asserted that it is not a public company and therefore there is no justification to enforce on it a supervisory mechanism appropriate to public companies. In this context, it was further asserted that its board of directors includes a delicate balance between all the sectors ACUM represents, which in itself ensures protection of the public interest (article 30.2 of ACUM's current articles of association provides that the company's board of directors shall consist of nine members that include two lyricists, a writer, two easy listening composers, one composer of concert music, one publisher, and two external directors). ACUM also noted that its corporate governance is dispersed and therefore does not raise an "agency problem" of the type with which the mechanism of external directors is designed to deal. ACUM also asserted that in any event it has in place adequate mechanisms to resolve potential disputes and conflicts of interest, including an internal arbitration mechanism as well as the Permanent Conditions that prohibit ACUM from discriminating between its members. According to ACUM, the appointment of public directors would "dilute" the authors' control over their property rights. In practice, ACUM further noted the costs involved in the appointment of the requisite number of public directors, which lead ACUM to be willing to appoint no more than two public directors.

 

34.       According to the Director-General, the need to appoint public directors stems from two factors: first, it will help ensure that ACUM serves the interests of all its member authors, taking into account the interests of individual authors rather than only the group interests of certain categories of authors. Second, the appointments will ensure that at least some of the directors have professional skills in the area of corporate management.

 

35.       With regard to the proportion of public directors on the board, the Director-General's position is that the requirement that no less than a third of the board would be comprised of external directors is justified, since the need for external directors is specifically greater under ACUM’s circumstances, where the corporate structure is dispersed and lacks a distinct controlling shareholder. In this respect the Director-General went on to explain that, in his opinion, ACUM's members need even more protection than "ordinary" shareholders, considering the fact that their livelihood depends on the corporation and they cannot sell their shares to "realize their profits."

 

36.       Having reviewed all this, we have reached the overall conclusion that ACUM's case in this respect should be dismissed.

 

37.       The appointment of public directors – that is, directors who are not employees or shareholders of the company – is one mechanism which allows supervising the behavior of the company, its managers, and its controlling shareholders and helps dispel the various agency problems involved in its activity (see: Irit Haviv-Segal, Company Law, 429, 438 (2007) (hereinafter "Haviv-Segal")). It can be said that the essential contribution of the public director lies in the "external dimension" that he brings to the board's work – as someone who reviews matters referred to the board from a broad, objective, and balanced perspective that also takes into account the public implications of its activity. The provisions of section 240(a1)(1) of the Companies Law, 5759-1999 (hereinafter "the Companies Law"), according to which a public director shall have professional skills or accounting and financial expertise, ensure that his appointment will add a professional dimension to the company that will contribute to its satisfactory management (see: Joseph Gross, The New Companies Law, 386-387 (Fourth Edition, 2007) (hereinafter "Gross")).

 

38.       The mechanism of appointing public directors is typically operated in the context of the activity of public companies – section 239 of the Companies Law requires a public company to appoint at least two public directors, whilst sections 114 and 115(a) of that Law require a public company's board of directors to appoint an audit committee from amongst its members, on which all the public directors shall serve. In addition, there are laws that impose a duty to appoint public directors to serve on the board of certain corporations whose shares are not held by the public, but whose activity has other public importance. Thus, for example, a mutual fund must appoint at least five directors to serve on its board and the proportion of public directors is the same as required of a public company (see: section 16(a) of the Joint Investments Trust Law, 5754-1994); while an insurance company, as defined in the Control of Financial Services (Insurance) Law, 5741-1981, must appoint public directors who will constitute a third of the total members of its board (see: section 2(1) of the Control of Financial Services (Insurance) (Board of Directors and Its Committees) Regulations, 5767-2007). In addition, the board of directors of a company that manages provident funds is required to appoint an investment committee for each fund it manages, the majority of committee members being qualified to serve as public directors (see: section 11(a) of the Control of Financial Services (Provident Funds) Law, 5765-2005).

 

39.       Having reviewed the case, we are satisfied that the condition concerning the appointment of public directors to serve on ACUM's board is consistent with the purpose underlying the approval of the cartel. Although ACUM is not a public company, it does essentially manage a resource that has clear public aspects. From the point of view of the authors, ACUM provides an essential service, without which it would be difficult for them to produce financial benefit from their works. In many ways, that is also the case from the point of view of the public at large: the protected works belong to the authors (and to whoever has acquired rights in them) but it is important that they are used in such a way that will also benefit the general public. Indeed, these public aspects of ACUM's activity underlie its approval as a cartel. At the same time, ACUM's monopolistic characteristics and its status as a cartel in the domain of musical copyright grant it a public dimension in and of themselves. The requirement to appoint external directors to provide a further layer of supervision over ACUM's activity is therefore called for and inherent to the rationale of the cartel's approval in order to protect both authors and users. It should be noted that making the approval of a cartel conditional upon the appointment of external directors, even when the corporation in question is not a public corporation in the ordinary sense, is not unprecedented. Thus, for example, the approval as a cartel of the recycling corporation that was established as a joint venture of manufacturers and importers of soft drinks in Israel was made subject to a similar condition (see section 4 of the Conditions for the Operation of the Recycling Corporation, as approved in AT (J'lem) 4445/01 Shufersal Ltd v. The Director-General of the Antitrust Authority (November 5, 2001)). The same applies to the approval as cartels of two other collective management corporations: the Israeli Federation of Independent Record Producers Ltd. (hereinafter "PIL") (see section 11.3 of the Conditions for the Operation of the Israeli Federation of Independent Record Producers Ltd., as approved in AT (J'lem) 3574/00 The Israeli Federation of Independent Record Producers Ltd. v. The Director-General of the Antitrust Authority (April 29, 2004)), and the Israeli Federation for Records and Cassettes (hereinafter "IFPI") (see: section 13.3 of the Conditions for the Operation of the Israeli Federation for Records and Cassettes Ltd, as approved in AC (J'lem) 705/07 The Israeli Federation for Records and Cassettes Ltd. v. The Director-General of the Antitrust Authority (February 3, 2011).

 

40.       With regard to authors' protection, there appears to be grounds to the argument concerning the importance of protecting the common interests of ACUM's members, regardless of the “category” to which they belong. Public directors can express "cross-category" interests that concern the benefit of authors generally in their relationship with ACUM, as opposed to the benefit of particular categories of authors. Moreover, without laying out hard and fast rules, it can be said that there is prima facie grounds to the assertion that the importance of the public director institution is in fact greater in a corporation characterized by dispersed ownership, in the absence of controlling shareholders, as is the case with ACUM. The agency problem in companies of this type is characterized by interest gaps between management and shareholders (as opposed to interest gaps between the controlling shareholder and minority shareholders, which are typical of companies that have controlling shareholders). Some view the appointment of public directors as a central mechanism for dealing with such gaps (see Haviv-Segal, pp 438-439). Clear expression of this distinction can be found in the First Schedule to the Companies Law, which contains suggested provisions for the corporate governance of public companies. Paragraph 1 of the Schedule prescribes the recommended percentage of independent directors, distinguishing between companies that do and do not have controlling shareholders. With regard to the latter, the Schedule provides that a majority of the directors should be independent, whilst in the former it provides that it is sufficient for a third of the directors to be independent.

 

41.       Furthermore, even assuming that the present structure of ACUM's board of directors faithfully represents its member authors, that structure does not prima facie guarantee that the protection of authors will also take into account the public interest more broadly. Indeed, a public director's fiduciary duty to the company is no different than that of an ordinary director, in the sense that he too must act for the benefit of the company (see: Gross, p. 406; cf: CA 610/94 Buchbinder v. The Official Receiver, para. 43 (May 11, 2003)). However, the public director will presumably represent a broader, more objective point of view, cognizant of the public implications of the corporation's activity.

 

42.       Moreover, as already explained, the appointment of public directors also has great importance as regards guaranteeing a minimum number of directors with professional managerial skills. In fact, ACUM itself acknowledged the professional advantages of appointing public directors even before the Tribunal's judgment was handed off and the revised version of ACUM's articles of association now require the appointment of two such directors. The fundamental aspect of this controversy has thus somewhat eroded and it has become a matter of extent and degree. We believe that the proportion of directors set forth in the Permanent Conditions – a third of the board members – is not excessive or unreasonable, considering ACUM’s character as a corporation whose ownership is dispersed and especially given the lingering concern of abusing monopolistic power.

 

43.       This discussion, which is "internal" and concentrates on corporate and antitrust law, can be supplemented by an "external" discussion, based on the significance that entities with public aspects have from the perspective of public law. According to this Court's case law, a private corporation whose activity has clear public aspects might be regarded as a "hybrid" entity, which places it under additional duties over and above those it is subject to in accordance with private law. Care must be taken not to overextend the category of hybrid entities in order to avoid eroding the significance of acknowledging a public status and blurring the lines between the public and private spheres. Moreover, under the current circumstances, there is no need to rule on whether ACUM should be regarded as a hybrid entity and a complete discussion of the criteria for the recognition of an entity as hybrid is unnecessary. However, it should be noted that ACUM's activity does entail many of the criteria mentioned in previous case law as characterizing a hybrid entity. Thus, for example, in HCJ 731/86 Micro Daf v. Israel Electric Corporation Ltd PD 41(2) 449 (1987) (hereinafter "Micro Daf"), where the question of hybrid entities was discussed for the first time – in the context of the Electric Corporation's activity – the factors taken into account were the monopolistic aspect of the corporation's activity, the nature of the resource it manages, and the fact that statutory powers have been entrusted to it. These factors were not considered an "exhaustive list" and since then entities which lacked those characteristics, at least to the same extent, have also been recognized as hybrid (see: CA 294/91 Jerusalem Community Hevra Kadisha Burial Society v. Kastenbaum PD 46(2) 464 (1992)). For further discussion, see: Daphne Barak-Erez, Administrative Law vol. 3 - Economic Administrative Law 463-492 (2013)). With regard to ACUM, the monopolistic aspect of its activity is beyond dispute. In Israel, although there are other collective management corporations, including the abovementioned PIL and IFPI, the product they supply – licenses for the broadcasting and public playing of sound recordings – does not substitute the product ACUM supplies. As the Director-General stated in his declaration, ACUM has no direct competitors in its relevant market and although formally nothing stops authors from managing their works themselves, few of them find such course of action practical or worthwhile, so that in fact the vast majority of works for which royalties are paid in Israel are under the management of ACUM. The same applies to the implications that the resource managed by ACUM has on the general public. Although the licenses that ACUM offers are acquired by a relatively small category of users, those licenses feature the right to play the works in public (or make them otherwise available to the public). Hence, they have a very significant effect on public access to the works. In other words, the public aspect of ACUM's activity also derives from the fact that the product it supplies is not in fact the musical works themselves but rather the collective management mechanism, which facilitates (and to a great extent enables) playing those works in public and therefore constitutes a product of clear public importance. Finally, although ACUM does not exercise statutory powers, its approval as a cartel entrusts it with power that derives from a statutory decision established in the Antitrust Law. These characteristics, even if they are insufficient to define ACUM as a hybrid entity in the ordinary sense of the term (and, as aforesaid, we have no need to rule on this issue), do support the basic justification for the Director-General's requirement under the current circumstances. Indeed, the appointment of public directors is ordinarily not imposed on a hybrid entity. However, the fact that ACUM constitutes an entity that owes important duties to the public can serve as a factor in the Director-General's decision to subject a cartel to conditions.

 

The Rights Exclusion Mechanism

 

44.       The other condition at the center of the litigation before us concerns, as aforesaid, the rights exclusion mechanism. Underlying the controversy were two questions: first, is the requirement for the consent of all joint authors of a work in order to exclude it from ACUM's repertoire justified or should that power be held by each of the authors individually? Second, how delicate and precise should the "segmentation" mechanism be with regard to the exclusion ability, as regards the distinction between different types of uses? We shall clarify those questions below.

 

The Rights Exclusion Mechanism: the Consent of All Authors or a Personal Right?

 

45.       The requirement that the exclusion of the work should be conditional upon the agreement of all its authors prima facie imposes a constraint on the right of each of the authors to control the rewards of his work. For that reason it has been criticized by EMI Israel and Anana. In contrast, the position of the Director-General and ACUM is that making the exclusion conditional upon the consent of the other authors is essential to protect both users and authors. The main argument regarding the protection of users relates to the concern that a "liberal" exclusion mechanism that would give an independent exclusion right to each author would impair ACUM's ability to offer sweeping licenses and thereby undermine the basic justification for its existence from the perspective of public interest. With regard to the protection of authors, it is asserted that the ability to exclude rights without the agreement of the other authors would encourage abuse of that power by "powerful" authors at the expense of the other authors of the work. ACUM explained that if each author of a joint work could exclude his rights from ACUM’s repertoire without the agreement of the other authors, it would grant veto power to that author to prevent works from being used by those to whom other authors wish to grant permission. ACUM also emphasized that where the rights in a work are vested in several authors veto power will forever be involved and the remaining question is only which veto power is least damaging: that of an author wishing to prevent the work's exclusion and leave it with ACUM's repertoire, or that of the excluding author to prevent any use of a work contrary to the position of the other authors. According to ACUM, the former is infinitely preferable. Having reviewed the case, we have reached the overall conclusion that we accept the position of the Director-General and ACUM in this respect.

 

46.       We accept as a starting point for our discussion the (reasonable) assumption that the rights in the type of works that ACUM manages are often shared by several authors. This can be illustrated by the typical case of a song. According to copyright law, every song is made up of several independent works, the rights in each of which are vested in different authors – the words of the song are a literary work owned by the lyricist; the music is a musical work owned by the composer. Moreover, there are also cases in which several composers or lyricists collaborate in the process of creating a work and in such cases the circle of rights owners expands even further. Considering this situation, it is easy to understand EMI Israel and Anana's grievances: making the exclusion power conditional upon the agreement of all authors undoubtedly burdens the individual author who seeks to exclude his work. However, this does not suffice. The question before us is whether this burden is justified, considering the purpose of the permanent permit – and our answer to that question is in the affirmative.

 

47.       In order to discuss this question it is necessary to return to the original reasons that led to managing rights through a corporation like ACUM. The most important tool available to ACUM for the collective management of rights is the grant of a sweeping license known as a "blanket license," the advantages of which in terms of transaction costs constitute the basic reason that legitimates ACUM's activity, despite difficulties in terms of antitrust law. Extending the ability to exclude rights from ACUM's management will naturally impair its ability to offer blanket licenses and thereby reduce the public benefit from its operation as a cartel. Over-extending that possibility will impair the public benefit from ACUM’s activity to such extent that it will no longer be the case necessarily that the benefit substantially exceeds the potential damages to the public interest from the cartel's operation. Having considered matters, we are satisfied that the grant of a personal "exclusion right" to each author would amount to such over-extension. Considering the typical ownership structure of musical works, an exclusion mechanism that is not conditional upon the agreement of the other authors effectively means granting authority to a single author, regardless of his part in the work, to exclude the work as a whole from ACUM's blanket license regime. Thus, a user who wishes to make lawful use of the work would have to negotiate with the excluding author in addition to acquiring the sweeping license from ACUM. Such a state of affairs would greatly limit the benefit of the cartel for users to the point of raising doubts as to whether the cartel is indeed "in the public interest," as required by section 9 of the Antitrust Law whenever a cartel is approved.

 

48.       Furthermore – accepting the position whereby the consent of all the authors of a joint work is unnecessary to exclude it would also raise difficulties for the relationship between the authors themselves as it may enable some of the authors – usually the more "powerful" ones – to exploit their exclusion power at the expense of the other authors. This may occur in situations where the user has already acquired most of the rights to use the work by means of a blanket license and merely needs to "supplement" the excluded right. This may give rise to phenomena of "extortion" and "free-riding," so that the remaining owner of the right will demand exceptionally high license fees for his share. We have already discussed the problem of such a state of affairs from the user's point of view. However, in truth, the problem also exists from the perspective of the excluding author making excess profit at the expense of the other authors. This difficulty is intensified in light of the fact that the ability to exclude rights from ACUM's management – given the complexity involved in negotiating with users individually – would essentially be of benefit to powerful rights owners, like large publishers, as opposed to individual, independent authors.

 

49.       It should be noted that we have so far used the expression "joint authorship" in order to describe all the cases in which the rights in a particular song are shared by several authors, although in fact it is prima facie possible to distinguish between two models of joint authorship. One model, of "joint authorship in indefinite shares," relates to two or more authors who collaborated in such way that it is impossible to distinguish the share of each of them in the finished work. In such a case, the work is considered a "joint work" according to section 1 of the Copyright Law. The other model, of "joint authorship in definite shares," involves a finished product, like a song, which is made up of several units, each of which was created by a different author and is a protected work in itself (for example the words of the song, which were written by one author, constitute a literary work; while the music, which was composed by another author, constitutes a musical work). The authors in such a case are not regarded as joint authors according to the Copyright Law, despite the fact that their relationship is substantively founded upon sharing. It is interesting to note that the American copyright law does distinguish between works where the shares of the various authors are inseparable and works where the shares of the various authors are interdependent. Nevertheless, both situations are considered "joint work" (see: Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 6.4 (2002) (hereinafter "Nimmer"). In any event, for the purpose of the present discussion concerning the ability of authors to exclude rights from ACUM’s management we need not consider this distinction. In both cases, splitting the licensing authority would place practical obstacles for using the joint work.

 

50.       In fact, the controversy before us derives not only from the different interests that the various parties represent but also from the fact that the Copyright Law does not expressly regulate the issues to which joint authorship gives rise (see: Michael Birnhack, A Cultural Reading: the Law and the Creative Field, Authoring Rights: Readings in Copyright Law 83, 105-106 (Michael Birnhack & Guy Pesach, Editors, 2009) (hereinafter "Birnhack"); Gilad Wexelman, Corporate Creation and Cooperative Creation, Authoring Rights: Readings in Copyright Law, 167, 177-178 (2009) (hereinafter "Wexelman"). Cf  Margaret Chon, New Wine Bursting from Old Bottles, Collaborative Internet Art, Joint Works and Entrepreneurship, 75 Or. L. Rev. 257 (1996)). In fact, the only arrangement the Law establishes with regard to joint works (as defined in section 1) relates to the period of protection of the work, which is measured according to the age of the surviving joint author, plus 70 years (section 39 of the Copyright Law).

 

51.       Additionally, reference to comparative law does not yield an unequivocal answer, considering the numerous potential approaches to this issue. Thus, for example, subject to certain restrictions, the law in the U.S. vests each of the joint authors with an independent right to permit use of their work even without the consent of the other authors, provided that they are paid their proportional share of the profit produced from the work (see: Nimmer § 6.10; Russ VerSteeg, Intent, Originality, Creativity and Joint Authorship 68 Brooklyn L. Rev. 123, 149-150 (2002)). In contrast, according to the approach prevailing in English law, the agreement of all authors is necessary in order to permit use (see: Copyright, Design and Patents Act 1988, section 173(2). See also: Copinger, p 334.) For the purpose of the ruling before us, we must be cognizant of the fact that the variety of existing approaches regarding copyright management of joint works attests not only to the great complexity of the matter but also to the fact that recognizing authors' proprietary rights does not inherently dictate a particular result.

 

52.       Since there is no specific regulation of the issue of jointly owned copyright within the Copyright Law, we may turn to legislation in other contexts concerning the joint ownership of property rights. Detailed regulation of this sort exists regarding the joint ownership of land in sections 27 to 36 of the Land Law, 5729-1969 (hereinafter "the Land Law"). According to section 9(e) of the Movable Property Law, 5731-1971 (hereinafter "the Movable Property Law"), arrangements concerning joint ownership of land essentially apply to movable property too, "save as may be otherwise provided in a co-ownership agreement." By virtue of section 13(a) of the Movable Property Law, such arrangements also apply to joint ownership of "rights." Nevertheless, reference to the Land Law with regard to the legal regime governing joint authorship should be made with care. As Prof. Michael Birnhack has noted:

 

            "Even if a model of joint authorship is prescribed, the socio-legal institution can be designed in various ways, ranging from management based on the decisions of all owners, through consent-based management, to each author having freedom of use. Selecting the appropriate point on this range should be influenced by an understanding of the law concerning the creative process and the reciprocal relationship between joint authors, between each of them and the work, or anywhere else where the work and its significance are formed" (Birnhack, p 106).

 

Similarly, Dr. Gilad Wexelman has also written:

 

            "A joint work raises problems of a different type, when compared with the joint ownership of tangible resources and applying the doctrines that exist regarding joint ownership of tangible resources to joint authorship is therefore improper and inappropriate. These doctrines do not provide the necessary solutions for joint authorship. The inference deriving from this is that it is appropriate to adopt a broader, different conception of the joint authorship process, rather than a conception influenced by the private property model" (Wexelman, p 178).

 

53.       One way or the other, before we seek to draw an analogy based on the arrangements relating to joint ownership of land, it is important to emphasize that we need not consider the legal regime that governs the relationship between joint authors as an independent issue. The question of joint authorship should be analyzed in the case before us merely in the particular context of a joint work's management by a collective management corporation like ACUM – which naturally goes beyond the default rules that apply to joint authorship. In any case, under the circumstances,  reference to the existing legal arrangements regarding the management of joint rights should serve merely as a framework and a starting point for the discussion.

 

54.       The arrangement prescribed in the Land Law concerning joint ownership is based on a concept of management by majority decisions, except for matters that go beyond ordinary management and use, in which unanimous agreement is required. In this respect, section 30 of the Land Law provides:

 

            (a)       The owner of a majority of the shares in any joint property may determine all matters relating to the ordinary management and use of the property.

 

            (b)       A joint owner who considers himself aggrieved by a determination under subsection (a) may apply to the Court for directions and the Court shall decide as seems just and expedient under the circumstances of the case.

 

            (c)       Any matter outside the scope of ordinary management and use requires the consent of all the joint owners.

 

55.       The joint owners of a land can agree upon a different method for the management of their rights but, as provided in section 29 of the Land Law, this is the arrangement that applies "unless otherwise provided in a joint ownership agreement" (subsection (c)) (see also: CA 810/82 Zol Bo Ltd. v. Zeida PD 37(4) 737 (1983); CA 663/87 Nathan v. Greener PD 45(1) 104 (1990)).

 

56.       At the same time, section 31(a)(1) of the Land Law provides that each joint owner may, without the consent of the other joint owners, make reasonable use of the joint property, provided that he does not prevent another joint owner from conducting such use. In other words, none of the joint owners of land may stop his fellow owners from using the property, so long as it applies to reasonable use.

 

57.       What can be learned from these arrangements for the case in question? Applying the arrangement prescribed in section 30, mutatis mutandis, leads to the conclusion that the requirement of a "unanimous" decision is appropriate insofar as management or use out of the ordinary is involved. It can therefore be argued that the management of copyright through an entity like ACUM is the ordinary, accepted method worldwide for the management of individual authors' rights, and departing from that arrangement therefore constitutes an "extraordinary" decision outside the ordinary realm of rights management. It should therefore be made unanimously, exactly as provided by the conditions that have been approved.

 

58.       Indeed, as stated above, the considerations relevant to joint ownership of land are not necessarily apt with respect to joint authorship. Thus, for example, the arrangement contained in the Land Law can be seen as "hostile" to a state of joint ownership, recognizing that joint ownership of land may burden its efficient management. Section 37 of the Land Law therefore provides that "each joint owner of immovable property is entitled at any time to demand the dissolution of the joint ownership." Yet, joint authorship is not a "pathological" condition. On the contrary, the process of authorship frequently involves collaboration – either direct or indirect – between several authors and dissolving the joint authorship should not be regarded as socially desirable. It is also likely to be more difficult to appraise the value of the work for the purchase of one of the joint authors' shares than severing the joint ownership of land. Consequently, as already mentioned, the analogy from the Land Law should be drawn with all due care. However, even taking into account the difference between joint ownership of land and joint authorship, it does appear that the requirement of unanimous consent for the exclusion mechanism is proper. Particularly because joint authorship is a "natural" condition and typical of many works, it is appropriate to be apprehensive about an exclusion mechanism that is based on each of the authors having an individual right of action, reinforcing the status of strong authors and burdening public access to the works, as explained below.

 

59.       Examining the rule with regard to the reasonable use of jointly owned land also leads, prima facie, to a similar conclusion. By drawing an analogy based on section 31(a)(1) of the Land Law it can be inferred that leaving the work under the management of ACUM constitutes reasonable use, considering the fact that it is the typical, widespread method for the collection of royalties. According to this logic, there appears no justification for adopting an exclusion mechanism that enables a joint author, who so desires, to prevent his fellow author from making reasonable use of the work, by excluding it from the collectively managed repertoire.

 

60.       It should be noted that this Court has previously considered the question of collaboration between joint authors, in CA 1567/99 Sivan v. Sheffer PD 57(2) 913 (2003) (hereinafter "Sivan"). Under the circumstances of that case, we recognized the right of each of the joint authors to terminate a contract that had been made in connection with the use of the rights when the contract was breached. Can it therefore be inferred that it would be proper in the current case to permit each of the joint authors to individually decide on exclusion? Despite the apparent similarity between the situations, in fact they are quite different and the conclusion should therefore be different too. In Sivan the issue was the rescission of a contract due to its breach and ipso facto it was possible to rely on the principle that whosever right has been infringed on is not required to forgive the infringement. This result is supported by considerations deriving from the law of obligations and in particular from the issue of multiple creditors. In contrast, in the case at hand, the question is posed for the purpose of delineating the ordinary rules of management, in the absence of any alleged breach. The relevant considerations are thus different, and so is the result that they dictate. Indeed, in Sivan the Court has made a clear distinction between these two questions. In fact, it noted that it was not ruling on the question of unilateral exercise of copyright in a joint work, which is more similar to the present case, and it went on to state that section 31(a)(1) of the Land Law prima facie makes it possible to adopt a flexible approach in such cases (Sivan p 942).

 

61.       Taking a broader view, it appears that the position presented to us by EMI Israel and Anana does not give proper weight to the effect of high transaction costs and free-riding in the management of multiple ownership resources, a phenomenon referred to as "the tragedy of the anti-commons" alongside the better-known term "the tragedy of the common property" or "the tragedy of the commons" (see generally: Michael Heller, The Tragedy of the Anticommons: Property in the Transition from Marx to Markets, 111 Harv L. Rev 621 (1998); James Buchanan & Yong J. Yoon, Symmetric Tragedies: Commons and Anticommons, 43 J. L. & Econ. 1 (2000)). Indeed, the narrow exclusion mechanism that the Tribunal approved appears more suitable for dealing with these phenomena. In connection with joint authorship, “the tragedy of the anti-commons” is manifested in sub-optimal use of the work as a result of uncoordinated behavior by its owners. In a legal regime where a license to use a particular work necessitates the agreement of all its owners, each of the owners might act to maximize his own profits by claiming a high fee for agreeing to its use, without considering the negative externality that such behavior for the other owners. Ultimately many users will find it difficult to meet the overall price required of them and the work will be used to a lesser extent, thus harming both the joint authors and the public, whose access to the work has been limited. It is common to believe that the solution to this problem is one of the major advantages embodied in the activity of collective management corporations (see: Katz, p 561; Francesco Parisi & Ben Depoorter, The Market for Intellectual Property: the Case of Complementary Oligopoly in The Economics of Copyright 162, 168-169, Wendy J. Gordon & Richard Watt eds. 2003 (hereinafter "Parisi & Depoorter")). Since dealing with the market failings associated with joint authorship is one advantage that justifies the monopolistic activity of corporations like ACUM, great importance is attributed to the design of an exclusion mechanism that will not frustrate that advantage by vesting veto power in each joint author who wishes to preclude use of a joint work.

 

62.       Ultimately, even under the narrow exclusion regime joint authors can agree in advance, contractually, on the scope of their understandings with regard to the work's exclusion from collective management. In fact, the narrow exclusion regime merely provides the default with regard to the inclusion of a joint work in the repertoire managed by ACUM. Insofar as the authors wish to agree on a different decision-making mechanism with respect to the management of joint works, they are at liberty to do so. Presumably such an arrangement, made before any of the parties is in a position for extortion or "free-riding," will help limit the coordination difficulties asserted by EMI Israel and Anana with regard to obtaining the consents necessary for the exclusion of a joint work. In view of the aforesaid, the default mechanism prescribed – according to which in the absence of an agreement between the joint authors to the contrary, the consent of all authors is necessary to exclude the work from management by ACUM – is appropriate.

 

The Rights Exclusion Mechanism: the Degree of Segmentation and the Distinction between New and Old Media

 

63.       As mentioned above, the arguments by EMI Israel and Anana also revolved around the fact that the "exclusion packages" defined in the Permanent Conditions do not distinguish between uses for the purpose of "old media" and uses for the purpose of "new media." In this respect Anana reiterated the case that it made before the Tribunal concerning the impairment of authors' ability to exhaust the full financial potential embodied in their works by excluding the works from management by ACUM solely with regard to "new media," and concerning the damage caused to Anana itself, having prima facie relied upon the previous exclusion mechanism in excluding rights that it will now have to restore to ACUM’s management.

 

64.       In contrast, the Director-General and ACUM argued before us that categorizing the necessary permissions according to types of media will allow ACUM members to abuse their power against users by forcing them to purchase specific uses (for example using the work on a cellular platform) in addition to the general fee for the license awarded through ACUM. In addition, ACUM mentioned that the adoption of a "liberal" exclusion regime enabling a precise "segmentation" of the excluded uses of any work would involve a significant logistic and financial burden on its ability to manage copyright of its repertoire.

 

65.       Deciding between the conflicting positions in this respect has proven to be more complex than the parties' arguments revealed. In truth, as we explain below, both positions are extreme and fail to fully address the difficulties they entail. Consequently, at present, we believe that the exclusion mechanism approved by the Tribunal should be upheld, provided that the question of excluding "new media" – subject to conditions and constraints – will be comprehensively reviewed towards the renewal of the cartel’s approval. We shall explain our said position.

 

66.       The present exclusion mechanism, as expressed in section 2.3 of the Permanent Conditions, enables an author to exclude his rights completely, in respect of all their potential uses. Moreover, the mechanism allows excluding the rights in respect of some of the uses, yet solely in accordance with one of four alternatives – "the exclusion packages" that stand at the center of the discussion. Because of their importance, we shall lay them out in full below:           

 

            "2.3.1  Excluding the rights for audiovisual broadcasting, including synchronization and recording for the purposes of such broadcasting, and including the provision of interactive and/or on demand services and any similar service, including by television, Internet, telephony or mobile phone.

 

            2.3.2   Excluding the broadcasting rights by means of audio, including recording for the purposes of such broadcasting, and including the provision of interactive and/or on demand services and any similar service, including by television, Internet, telephony or mobile phone.

 

2.3.3   Excluding the right of copying. For the avoidance of doubt, it is clarified that excluding the right of copying does not include the right of copying for broadcasting purposes.

 

2.3.4   Excluding the right of imprinting and/or recording. For the avoidance of doubt, it is clarified that excluding the right of imprinting and/or recording does not include the right of imprinting and/or recording for broadcasting purposes".

 

67.       The alternatives at the center of the present controversy are the first and the second (and to a limited extent also the fourth, insofar as the exercise of the right of copying is aimed at integrating a musical work in the soundtrack of an audiovisual work). These alternatives deal with uses that make the work available to the general public – its broadcasting on television or radio, making it accessible by means of "streaming" technology, which enables viewing or listening to content through the Internet without copying it to the user's computer, and the like. The main distinction that the exclusion mechanism makes in this context is between presenting the work by audiovisual means and presenting it by audio only. Thus, for example, given the present situation, an author can be represented by ACUM for the purpose of playing songs on the radio but not for using them in the format of television content.

 

68.       Presumably, maximum protection of the author's rights and his financial interests should have enabled every author to make specific exclusion decisions as much as possible – even with reference to a specific work in a particular use. Along these lines, ACUM's present exclusion mechanism permits, as aforesaid, limited "segmentation" by types of use. However, it has been argued before us that this does not suffice. The dispute revolved around the degree of precision required by segmentation. While the present segmentation mechanism essentially distinguishes between audio and audiovisual uses, EMI Israel (supported by Anana) also wishes to distinguish between "old media" – like television and radio – and "new media" – such as the Internet and cellular phone services. This position was presented to us as warranted by technological progress and the launching of new channels to use works, as well as the protection of the author's prerogative to manage the works he owns. However, as we explain below, this position raises fundamental and practical difficulties and thus cannot be adopted in the format in which it was presented.

 

69.       It should be stated that the question of excluding "new media" should first be considered in light of the two perspectives that fashion the discussion as a whole – that of copyright law and that of antitrust law. However, in this context, it is important to bear in mind another point of view which relates to the interface between law and technology and focuses on the adaptation of the legal framework to technological developments as well as its implications to future technological development, for better or worse (see and compare: Dotan Oliar, The Copyright-Innovation Trade-Off: Property Rules, Liability Rules and Intentional Infliction of Harm, 64 Stan. L. Rev. 951 (2012)).

 

70.       At the outset, we should consider the fact that the ability to exclude "new media" that EMI Israel seeks to adopt relies primarily on a technological distinction between "old" and "new" communication platforms. This distinction is replete with difficulties. The world of communications is characterized by constant, rapid technological development. More importantly, the technological aspect of this area is characterized by a phenomenon sometimes called "technology collapse": with the development of technology the walls that separate various media platforms gradually collapse and different types of technology "collapse" into each other, creating new interfaces. Thus, for example, a movie that is distributed through the Internet is also available for viewing on a smartphone, while traditional radio stations also broadcast songs and programs by streaming technology over the Internet. Given this technological reality, the distinction between "old media" and "new media" is not dichotomous, nor is it permanent or stable. In fact, EMI Israel and Anana did not even explain how these categories should be defined in their view, and settled for giving clear-cut examples (such as using a song as a ringtone), which were insufficient to delineate the boundaries of the distinction. Their case therefore left many practical questions unanswered. For example, no explanation was given as to whether the transmission of television broadcasts through the Internet to be viewed on smartphones would, according to the proposed approach, require a license for "new media" or "old media" or in any event how would this example be classified to one category or the other. The rapid, constant development of new communication technology guarantees that questions of this type will not remain theoretical. In this context, we should note the interesting case of the American company MobiTV, which at the beginning of the 21st century developed technology that enabled receiving satellite or cable broadcasts and viewing them on mobile phones. A dispute (which gave rise to several legal proceedings) arose between MobiTV and ASCAP, one of the two largest collective management corporations in the U.S. The dispute concerned the purchase of a blanket license necessary to legitimate the transmissions, as a result, among other things, of MobiTV's objection to being charged a "new media" rate even though the content it offered its customers was the same as broadcast by traditional means (although ultimately the judgment did not rule on this question directly. See: United States v. ASCAP, 712 F. Supp. 2d 206 (SDNY 2010)). With regard to the controversy relating to the classification of MobiTV's services as "new media," see also its preliminary response in the legal proceeding it initiated (Applicant Mobitv, Inc's Pre-Trial Memorandum at 25, United States v. ASCAP, 712 F. Supp. 2d 206 (SDNY 2010)).

 

71.       Insofar as the distinction between "new media" and "old media" is intended to extend to situations in which the content of radio and television programs is transmitted through the Internet to computer screens or by cellular phone services to mobile phone screens, adopting this distinction is likely to have a "chilling effect" on the use of the works in "old media" too. This is because users would presumably refrain in advance from integrating excluded works in productions intended for "old media," if only given their concern of future marketing constraints in "new media." Thus, for example, when a television program is produced, certain songs might not be included in it – as a cautionary measure – so as not to impair the possibility of broadcasting the program over the Internet too. Such indirect implications are not always clear "in real time" to an author who wishes to exclude his work, but recognizing them might also be weighed against the distinction proposed by EMI Israel and Anana.

 

72.       Another aspect to be considered is the likely implications of the exclusion mechanism on cyberspace users. In their arguments before us EMI Israel and Anana concentrated on institutional and corporate users, such as large communications companies, thereby presenting only a partial perspective on the matter in dispute. However, the exclusion mechanism they sought to adopt is not intended to apply only to such users. In fact, a sweeping exclusion of "new media" uses is likely to lead, without distinction, to difficulties for small website operators, including, for example, Internet radio operators, for which the ability to contract with collective management corporations constitutes a lawful, practical way for making regular use of a wide variety of works (and indeed some believe that the activity of collective management corporations is of especial importance for authorized use of musical works over the Internet. See, for example: Daniel Gervais, The Landscape of Collective Management Schemes 34 COLUM. J. L. & ARTS 591, 601 (2011) (hereinafter "Gervais, Landscape"). For a discussion of the importance of collectively managing works in a digital environment, see also: Recommendation 2005/737/EC on collective cross-border management of copyright and related right for legitimate online music services [2005] OJ L276/54 (hereinafter "the 2005 EC recommendation"); Proposal for a Directive of the European Parliament and of the Council on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online uses in the internal market (July 11, 2012) (hereinafter "the 2012 proposed directive"). See also Copinger, pp 1816-1826).

 

73.       The effects of the requirement to distinguish the use of new technologies on making works accessible to the public should also be considered in view of past experience in similar contexts. Thus, for example, in New York Times Co. v. Tasini 533 US 483 (2001) (hereinafter "Tasini"), the US Supreme Court considered whether a newspaper (the New York Times) could upload articles by freelance writes to a computer database. After lengthy litigation, the US Supreme Court accepted the position of the writers who argued that the license previously given to the newspaper was merely for the purpose of printed publication, as opposed to electronic media. Following the judgment the newspaper had to acquire permission from the writers to publish their articles in the database. Yet, since the newspaper believed that taking such action would not be financially viable, the result in practice was the removal of the articles from the database, thereby denying public access to them. We do not need to go into the merits of the judicial ruling in Tasini insofar as it relates to the understandings between the newspaper and its writers at the relevant times. In fact, the ruling in Tasini is not directly relevant to the technological aspects of the publication format and is instead focused on whether uploading the articles to a general computerized database (of numerous articles from various newspapers and journals) could be construed as a newspaper publication (indeed, in another case of similar circumstances the Supreme Court of Canada held that a newspaper could copy articles published in its printed edition to digital CDs containing articles of that newspaper alone. See: Robertson v. Thomson Corp. 2006 SCC 43 (2006)). Nevertheless, the results of this case embody an important lesson. Taking the broader view it teaches us that an arrangement that does not take into account the dynamic nature of uses might prove to burden and damage the public interest. Taking a forward-looking view, it appears that experience teaches us that it is difficult to base licenses for use on a distinction between technologies as this might subsequently frustrate broad access to cultural assets (see also: Francesco Parisi & Catherine Sevcenko, Lessons from the Anticommons: The Economics of New York Times Co. v. Tasini, 90 Ky. L. J. 295 (2001-2002)).

 

74.       What is the experience of other legal systems regarding the exclusion of "new media"? On the face of it, this is an important question, considering the fact that the challenges of technology in the area of copyright are by no means unique to Israel. However, for the reasons detailed below, the benefit of a comparative study has proven limited at the present stage of developments in the area.

 

75.       Truth be told, reference to legal developments in Europe and the U.S. shows that the exclusion of "new media" is often recognized as possible. Presumably, this reinforces the position of EMI Israel and Anana. However, studying matters in depth indicates that this experience has limited application to the case before us, because, among other reasons, the issue under consideration here is still in the early stages of formulation, trial, and controversy in other systems too.

 

76.       The two major collective management corporations in the U.S. – BMI and ASCAP – recently permitted two of their members (including global EMI) to exclude the rights owned by them from collective management for the purpose of certain aspects of the works' use in "new media" (as detailed on their websites – http://www.bmi.com and http://www.ascap.com). Yet, it is important to note that the ability to do so is embodied in the decisions of the corporations themselves rather than the result of external regulation. Moreover, the American rights management corporations operate in a different way than ACUM in the sense that they manage only one type of rights – public performance rights, which concern the permission to perform the work in public, to broadcast it, or to make it available to the public (but not the permission to copy the works or integrate them in audiovisual productions). That is, the starting point for the exclusion is a market of rights that is more "split" than the market in which users and authors operate in Israel. This background is likely to influence the factors relating to the desirable exclusion mechanism. Subsequently, it should be noted that reference to the exclusion of "new media" from administration by collective management corporations in the U.S. is not made in "all or nothing" terms, and in fact includes certain restrictions. For example, BMI's most up to date announcement on the matter (as published on its website) has clarified that the ability to exclude "new media" is aimed at cases where the work's use necessitates more than one type of license, while ASCAP has emphasized in addition that exclusion is possible with regard to making works accessible to the public exclusively through "new media," and does not apply to users that are broadcasters. Finally, and this is a major point, it cannot be ignored that some of the decisions on these matters are very recent (for example, BMI's announcement, of February 11, 2013, was published long after the litigation between the parties before the Tribunal had ended). It is therefore difficult to draw inferences from other legal systems' sustainable experience in this area. In fact, it can be said that at this stage the secondary effects of the "shock waves" that the new reforms have created for users have not yet been fully clarified, although the existence of such "shock waves" is already apparent. For example, we may point to a new development – lawsuits brought by users against management corporations to reduce the fee charged for a "blanket license," since "the blanket" no longer covers "new media" too (for instance, the claim brought against ASCAP by a large Internet radio company called Pandora at the end of 2012, which is still pending. For reports in the media about the case, see, for example: Don Jeffrey, Pandora Media Sues ASCAP Seeking Lower Songwriter Fees (November 6, 2012, available at http://www.bloomberg.com/news/2012-11-05/pandora-media-sues-ascap-seekin... Ed Christman, Pandora Files Motion to Keep Low Publishing Rates (June 20, 2013) available at http://www.billboard.com/ biz/articles/news/digital-and-mobile/1567890/pandora-files-motion-to-keep-low-publi-shing-rates).

 

77.       In principle, European law permits a rights owner to join a collective management corporation even when he seeks to reserve the use of the rights on the Internet or through CDs (see: Commission Decision of August 6, 2002 in case COMP/C2/37.219 Banghalter/Homem Christo (Daft Punk) v. SACEM. See also: section 5(3) of the 2005 Commission recommendation and the 2012 proposed directive, mentioned above). Nevertheless, it is important to bear in mind that this arrangement is also the result of factors irrelevant to Israeli reality, primarily the desire to reach a standard, coordinated pan-European regulation where there are multiple collective management corporations.

 

78.       Another factor that should be mentioned parenthetically involves the broader context in which the exclusion mechanism is embodied, with regard to the acceptance of the Conditions towards authors' freedom of action and freedom of choice. In this context, for example, it is significant that the Permanent Conditions ensure the right of each of ACUM’s members to contract with users individually and to offer them individual licenses to use certain works alongside the management of those works by ACUM, without excluding them from its repertoire (section 2.4 of the Permanent Conditions). This is similar to the U.S. practice and different from the norm in Europe, where most collective management corporations require exclusivity from their members in respect of all rights in their work (see: Gervais, Landscape, p 598). Indeed, it is possible that this course of action will not be frequently used and it is likely to be significant mainly from the perspective of users who do not require blanket licenses but rather individual licenses for certain works. However, from a more general perspective, this mechanism creates something of a balancing effect on ACUM's coercive power (see also and compare: Parisi & Deporter, pp 170-172).

 

79.       More generally, it can be said that EMI Israel and Anana’s requirement to allow a sweeping exclusion of "new media" uses was based on the assumption that they are entitled to enjoy the fruits of the cartel while realizing the financial potential embodied in the works they manage to its fullest. That is a mistake. Indeed, once ACUM's activity was recognized as a cartel, which raises concern of abuse of monopolistic power against the public, it can no longer be said that ACUM members are entitled to fully exercise their proprietary rights while enjoying the benefits of the cartel. Although the cartel has been approved, its approval was made subject to conditions. Those conditions bear a price that ACUM and its member authors must pay in order to balance the excess benefits such membership confers and to ensure that the public is protected against the concerns involved in the cartel's activity. In fact, what we have previously stated regarding the exclusion of a work without the consent of all joint authors is also appropriate with regard to the issue of segmentation – the adoption of a segmentation mechanism that enables the exclusion of works based on a technological distinction between new and old media, without reservation, might reduce the benefit that ACUM’s activity yields for the public to such extent that may undermine the justification of its approval as a cartel.

 

80.       We can therefore sum up and say that even if the ability to exclude "new media" uses should not be outright dismissed, EMI Israel and Anana have at present failed to lay a substantial foundation for the considerations and details of the exclusion mechanism they wish to adopt, regarding, inter alia, the ability of such a mechanism to provide an answer to the concerns indicated above. For that reason, we cannot accept their position. We should parenthetically emphasize that we have not ignored the possibility that the ability of an author to manage his works independently in the realm of "new media" might prove to be significant for some authors, including "small" or independent ones. The Internet is a flexible technological platform that is far more accessible to private agents than traditional media. It allows direct, convenient, and relatively easy communication between the rights owner and the individual user and thereby yields more direct patterns of consumption, sometimes dramatically reducing transaction costs and thus enabling "small" authors to profit from their works without the assistance of collective management mechanisms (see: Casey Rae-Hunter, Better Mousetraps: Licensing, Access and Innovation in the New Music Marketplace, Journal of Business & Technology Law 7(1) 35, 39 (2012)). However, this is merely one of many considerations and it has not been argued before us. Thus, for example, in contrast, the ability to exclude "new media" might actually be damaging to small authors in particular given the "dilution" it would generate in the value of blanket licenses. Consequently, as a general rule and as already mentioned, the question of "new media" should be revisited comprehensively as part of the cartel's re-approval at the end of the five-year period allotted to it. This is based on the understanding that one cannot rule out in advance the possibility that a delineated and limited format of "new media" exclusion (insofar as such a format is proposed in the future) might enable interested authors greater independence in the management of their works, without impairing the interests of the public at large, to an extent that will undermine the reasons underlying the cartel's approval.

 

81.       In other words, the precise definition of the "exclusion category" sought in respect of "new media" is likely to have a decisive impact on whether the overall exclusion mechanism yields a balanced result. An important, albeit not the only, aspect of this definition relates to the phenomena of "technology collapse" and "content leakage" that we have already considered. As previously mentioned, a sweeping, generalized definition of "new media" regarding the exclusion ability would yield uncertainty in respect of the scope of the excluded uses, might lead to many users being charged double fees (not only by ACUM but also by authors themselves), and would create a "chilling effect" from the users’ perspective, as they might refrain from including an excluded work in productions intended for "old media" based on their concern that new media marketing will be limited in future. In contrast, a narrower definition of excludable uses, particularly a definition that focuses on uses designated for new media (for example the production of a ringtone based on an existing tune) would help reduce the awkwardness that numerous exclusion possibilities yield, moderate the negative effects of "content leakage" between different technological platforms from the users’ perspective, and reduce the damage caused to their financial interests. In this context, we may add that part of the negative experience accumulated from the operation of the broad exclusion mechanism (in the scope of the Provisional Conditions for ACUM’s activity before their 2009 amendment) resulted from the fact that it granted complete flexibility with regard to the exclusion format and did not consider the significance of the term "new media" nor did it regulate the boundaries of the exclusion options related to it.

 

82.       To complete the picture it should be noted that the issue of excluding rights in "new media" from collective management as part of a cartel's approval in Israel has not arisen for the first time in ACUM’s case. As already mentioned, the Tribunal had authorized in the past the activity of two other collective management corporations that were also considered a cartel – PIL and IFPI. In both cases the conditions for the approval regulate the corporation members’ ability to exclude rights from collective management in accordance with a predetermined "exclusion basket," and include several categories concerning various Internet and mobile phone uses (see: section 3.3 of the conditions for the operation of IFPI and section 2.2 of the conditions for the operation of PIL). Recognition of this is prima facie relevant to the discussion. However, we should consider the fact that both those entities deal with the management of producers rights (the owners of sound recordings), an area which is not identical to the area in which ACUM operates (management of composers, songwriters, and arrangers rights). We expected the parties before us to refer to this comparison – one way or the other – but they failed to do so. Each of them clung to the position of "all or nothing" and sided, respectively, either with a complete exclusion of "new media" or an absolute negation of the ability to exclude new media uses. Thus, the option of excluding "new media" and the conditions for it were not fully addressed.

 

83.       What emerges from all the aforementioned is this: reviewing the implications of excluding "new media" shows that it is not necessarily justified to completely negate the option to exclude works for the purposes of "new media." Nevertheless, there are clear indications that this applies only to a limited exclusion mechanism, which concentrates on certain types of "new media" uses and strives to minimize the harm caused to users. Such an exclusion mechanism cannot be based merely on a technological distinction between "old media" and "new media" which allows a sweeping exclusion of all uses of the latter type – as proposed by EMI Israel and Anana. In any event, examining the possibility of another exclusion category concerning "new media" and fashioning the boundaries of that category should be done with care after studying the positions of all interested parties and all the relevant facts. As aforesaid, this matter is for the Tribunal to consider when the extension of the cartel's approval arises. Our position is also supported by the temporary nature of the approval – for only five years. At the end of that period (two years of which have already passed), the Tribunal will revisit the approval of the cartel, at which time it can also reconsider the scope of the exclusion mechanism's "segmentation," on the basis of five years’ experience with the operation of a "narrow" exclusion mechanism. That experience will join with lessons already learned from the operation of an unlimited exclusion mechanism (as part of the Provisional Conditions) and will help the Tribunal evaluate the possibility of adopting a balanced, intermediate alternative that will permit the exclusion of limited uses for the purposes of "new media," without undermining ACUM’s purpose as a collective management corporation. Presumably, by the time the Tribunal considers the extension of the cartel's approval, international experience on this issue will also be established which will enrich the set of facts before the Tribunal.

 

84.       To sum up, our opinion is that the conditions for the permanent approval should be left as they are for the time being, including the issue of excluding works for the purposes of "new media," based on the assumption that the Tribunal will be able to revisit this issue when the current conditions expire. It should be emphasized that this does not express any substantive holding regarding the result to which the Tribunal should reach on this or any other issue, beyond the general statement that the possibility of permitting a limited, well-defined exclusion of "new media" uses should not be ruled out. On the basis of the up-to-date facts laid out before it, the Tribunal will presumably reach a correct decision regarding the proper and most effective way to do so, insofar as it deems fit to follow such path.

 

Conclusion

 

85.       The appeals before us revolved around ACUM’s activity, yet they necessitated a broad discussion with regard to the collective management of copyright, considering not only the complexity of jointly owned works that derive from the talents of several authors but also the complexity of the variety of uses in a constantly changing technological world. At the present time we have reached the overall view that according to the facts before us we should not intervene in the conditions attached to the cartel's approval – from the perspective of balancing the proprietary rights of all authors against the public interest of accessibility to works that are part of the general cultural repertoire and it is therefore important to avoid placing substantial barriers to their use. We have not ruled out the possibility that in future the proper balance between authors’ rights and the public interest might dictate a different result with respect to integrating the distinction between different types of "new media" and "old media" in the rights exclusion mechanism. To a great extent, this issue represents the challenge of collectively managing rights in the modern era with its changing technological and business environment, where the practice of collective management is more essential than ever but also raises more serious difficulties and complexities than ever. The answer to these challenges (both with regard to "the segmentation mechanism" and with regard to other matters discussed before us) lies in a delicate, changing balance between the relevant interests. As we have mentioned, this balance might be affected by changes in technological platforms and business practices, by studying new information, and by lessons derived from ACUM’s activity in Israel and the operation of collective management corporations worldwide.

 

86.       In conclusion, I would suggest to my fellow justices to dismiss both appeals. ACUM would bear the Director-General's costs in the amount of NIS 20,000. EMI Israel would bear the Director-General's costs in the amount of NIS 40,000 and Partner's costs in the amount of NIS 10,000.

Justice Z. Zylbertal

 

I concur.

 

Justice E. Rubinstein

 

A.        I concur with the comprehensive opinion of my colleague, Justice Barak-Erez.

 

B.        Without wishing to gild the lily, I would like to add brief remarks. We are dealing with ACUM, a special entity established in 1936, during the British Mandate, to protect the rights of authors and artists in their intellectual property and it is as though it has always been a fundamental Israeli institution. Indeed, perhaps if we could start over today it would have been possible to think of other ways of organization for this purpose, not necessarily a private company, but such is the situation we are facing, in which we are called upon to have our say. However, even given the current situation, the challenges of dealing with the rights of those in need of ACUM’s services are ever-changing, especially with the dynamic technology, and it is not without reason that my colleague qualified the second part of her opinion with regard to the exclusion mechanism, by looking to the future.

 

C.        With regard to public directors, the Tribunal was indeed right in its decision. In my opinion, the more the better, provided that these directors do their work faithfully as agents of the public and it is to be hoped that this is the norm, in which case the financial expense involved is justified. Regarding their duties, see Prof. J. Gross, Directors and Officers in the Era of Corporate Governance (Second Edition, 2011) Chapter I, p 1 et seq and the references there; and see also Amendment No. 8 to the Companies Law (2008) with regard to the possibility of appointing independent directors; I. Bahat, Companies, 12th edition, 5771-2011, 386. My colleague described in detail the circumstances of this case but also added notes drawn from general public law, namely when a particular entity appears to be hybrid, and as derived from this analysis – the fact that ACUM is similar to that model in view of its duties to the public, without deeming it necessary to rule that it is indeed a hybrid entity. I myself would tend to say that we are indeed dealing with a hybrid entity, whether we take a relatively narrow view of it, through the eyes of its direct beneficiaries, or a broader view of the general population of users; see also my comments in ALAA 1106/04 Haifa Local Planning and Building Committee v. The Electric Corporation (2006), paras. C and D.

 

D.        The author A. Harel in his work Hybrid Entities – Private Entities in Administrative Law (5768) enumerates (pp 118-125) criteria for analyzing the hybrid nature of an entity, including a vital public function, providing a service to the public, not-for-profit activity, a monopoly, the concentration of great power that might be abused, and functional public funding. When dealing with a monopoly, as in the case before us, although ACUM is incorporated as a private company, it is painted in bold colors of hybridity, in particular considering the narrow choice given to individuals (ibid, 115). Indeed, in a rapidly changing world of varied technological possibilities for using works, the interest of authors and artists, as well as the general public, is one of fairness towards everyone; see also D. Barak-Erez, Citizen, Subject, Consumer and Government in a Changing Country (2012), 119, 121, who characterizes an entity as hybrid, when, inter alia, it serves as an actual substitute for government involvement. In the case before us, as implied above, the matter could have presumably been dealt with through a regulatory framework and this component justifies, in my view, a thorough discussion of the issue of public representatives. Indeed, before us is a private company, yet this is merely its framework and shell while its content is significantly broader; even the name attests to its belonging to the public realm – the Association of Composers, Authors and Publishers. ACUM's articles of association (as last approved on July 21, 2013 according to its website) include external directors and the controversy consists merely of their number. According to its website, ACUM presently has approximately 7,500 author members; don’t they deserve extensive protection against a potential clash of interests between various groups within the company?

 

E.         Now a few words on the role of external directors, which is the current legal term, or public directors; as we know, the Companies Law, 5759-1999 refers to an external director (article five, sections 239 et seq) but the literature uses this expression interchangeably with public director, as it was termed in the Companies Ordinance (section 96(b)(c)). Indeed, according to the learned author J. Gross (Directors and Officers in the Era of Corporate Governance (2011) 92), the external director "does not represent the regulator or the general public. He owes a fiduciary duty to the company and to it alone and he only has to bear the interest of the company in mind"; and see also Dr. O. Haviv-Segal, Company Law (2007) 438. However, even if this narrow definition is correct in principle, without going into a comprehensive discussion, the current case involves a special instance of a "private-non-private" company, which does not strive to maximize its profits. In this context, see by analogy the statement by Haviv-Segal, ibid, about the external director’s function in restraining "opportunistic behavior" by a controlling shareholder or management: "in this respect the external director can be regarded as the representative of the public shareholders on the company's board of directors." We should also mention (Gross, p 93) that the external director "brings with him knowledge, experience, and objective judgment and might balance the various views within the company, especially when the board of directors is made up of several cohesive groups"; he is "removed from the shareholders' personal interests… can express objective opinions in cases where differences have arisen between various groups in the company and balance the different interests in the company…". By analogy, this statement is presumably consistent with the present case, despite ACUM's "private" corporate framework. Therefore, the external directors have a particularly important role from the broad, overall perspective of the interests of ACUM's members generally as well as the public at large; see also Hadara Bar-Mor, Corporate Law III (5769-2009) 307-309. Thus, we should not intervene in the ruling of the Tribunal on this matter.

 

Regarding my colleague's remarks concerning the rights exclusion mechanism and old and new media, what can be inferred from them is a lesson in complexity and arbiter humility. We are dealing with money and maximizing authors’ benefit but the question is whether the baby won’t be thrown out with the bathwater. My colleague pointed out the difficulties and her conclusion is that more experience and study is necessary in order to reach a proper balance (see para. 82). My sense is that this appears difficult and challenging; the technological means are constantly changing before our very eyes, along with their implications to the issue before us, and hence solutions are likely to be short-lived. The regulator, the Director-General of the Antitrust Authority, has an extremely important role in this respect since the Tribunal has only what its eyes can see, while the Director-General is equipped with available monitoring tools. Finally, this summer I have had the opportunity to serve as a "secondary partner" in three intellectual property decisions. Their common denominator is the complexity caused by time, complexity of different types, technological and economic. Studying the fascinating collection Copyright – Readings in Copyright Law (M. Birnhack & G. Pesach, 5769-2009) reveals a variety of insights that will concern us a great deal in the future. Apart from the need to plough through the specific material, the constant changes, perhaps more than in any other area of civil law, also place the courts, and equally so – the regulatory entities, under weighty responsibility. The tension between property and competition, and between the long, short and medium term, poses real challenges. The professionalism of the regulators – be it the Patent Office or, as aforesaid, the Director-General of the Antitrust Authority – helps courts in making their rulings but does not relieve them of their responsibility. In these matters comparative law may also be useful. The bottom line is that this judgment ought to be a starting point for lessons to be learned; over, but not done.

 

Held as per the opinion of Justice D. Barak-Erez

 

September 3, 2013 (Elul 28, 5773)

CA 11487/03

 

1.  August Storck KG

2.  Storck Service GmbH

 

v.

 

1.  Alpha Intuit Food Products Ltd.

2.  Hagit Musaif

 

 

The Supreme Court sitting as the Court of Civil Appeal

[23 March 2008]

Before Vice-President E. Rivlin, Justices A. Grunis, E. Rubinstein

 

Appeal on the judgment of the Tel-Aviv-Jaffa District Court in CC 2191/03 from 19 November 2003 handed down by the Hon. Justice Y. Zeft

 

 

Facts: The appellants filed suit against the respondents for violation of a registered trademark and unjust enrichment.  The appellants argued that the marketing by the respondents of a candy with a similar shape to the Tofifee candy that the appellants manufacture and market constitutes a violation of the appellants' trademark.  The District Court dismissed the appellants' claim that their commercial trademark is a three-dimensional mark comprised of the shape of the Tofifee candy and determined instead that the appellants' mark is a two-dimensional mark that does not protect the shape of the Tofifee candy, but rather only the graphic shape as presented in the Trademark Registry's abstract.  It was further held that even if the Trademark Ordinance [New Version] 5732-1972 enables the registration of three-dimensional trademarks, the shape of the product itself cannot be registered as a trademark.  The District Court held that the marketing of a candy similar in shape to the shape of the candy that appears under the appellants' trademark does not constitute a violation of the trademark.  The District Court also compared the packaging of the respondents' and appellants' candy and concluded that the packaging of the respondents' candy does not create a risk of misrepresentation and does not violate the appellants' mark.  The appellants appealed the District Court's decision.

 

 

Held:   The Court held that the three-dimensional shape of a product is not eligible for registration based on its possession of an inherently distinctive character.  However, it is eligible for registration on the basis of its possession of an acquired distinctive character.  The Court further held that to the extent that the shape of the product fulfills a functional or aesthetic role (beyond a negligible role), the trademark will not be eligible for registration even if it acquired a distinctive character in fact.  The judgment of the District Court was overturned, such that the proceeding was remanded to the lower Court for determination of the validity of the appellants' mark according to the rules set out in the judgment.  As to attorneys' fees for the appeal, it was held that they be ordered based on the outcome in the District Court.

 

 

Basic Laws cited:

Basic Law: Human Dignity and Liberty, ss. 3, 8, 10.

 

Legislation cited:

Trademark Ordinance [New Version] 5732-1972 (hereinafter: 'the Ordinance')

Copyright Law 5768-2007

Patents Law 5727-1967

 

Regulations cited:

Trademark Regulations, 1940.

 

Israeli Supreme Court cases cited:

[1]        CA 3559/02 Toto Zahav Members' Club v. Council for Regulation of Gambling in Sports, IsrSC 59(1) 873 (2004).

[2]        HCJ 296/85 Sia Siak How (Anthony) v. Patent, Pattern, and Trademark Registrar, IsrSC 40(4) 770.

[3]        CA 5972/99 Tikshoret v'Chinuch Dati-Yehudi Mishpacha (1997) Ltd -Mishpacha Newspaper v. S.B.C. Advertising, Marketing, and Sales Ltd. -Mishapach Tova Newspaper, IsrSC 55(3) 933 (2001).

[4]        LCA 371/89 Leibovitz v. A. And Y. Eliyahu Ltd., IsrSC 44(2) 309 (1990).

[5]        FHCA 4465/98 Tivol (1993) Ltd v. Chef Ha'Yam (1994) Ltd., IsrSC 56(1) 56 (1994).

[6]        CA 513/89 Interlego A/S v. Exin-Lines S.A., IsrSC 48(4) 133 (1994).

[7]        CA 7125/98 Mifromal Jerusalem Industries v. Kalil Industries Ltd., IsrSC 57(3) 702 (2003).

[8]        CA 3406/96 Sela Cement Products Ltd. v. Akerstein Industries Ltd., (unreported, 1 March 1999).

[9]        CA 3776/06.

[10]      HCJ 144/85 Kalil, Non-Iron Metal Industries Ltd. v. Patent, Design and Trademark Registrar, IsrSC 42(1) 309 (1988).

[11]      CA 4675/97 Rehov v. State of Israel, IsrSC 53(4) 337.

[12]      CA 941/05 Vinegrowers of Rishon L'Zion and Zichron Ya'acov Cooperative Society v. Kerem Company Ltd. (not yet reported, 17 October 2006).

[13]      CA 4030/02 Amichai Trade Ltd. v. Shoris Erkot Navadim Ltd., IsrSC 58(5) 632

[14]      CA 2673/04 Coffee to Go Marketing (1997) Ltd. v. Shaked, (not yet reported, 15 April 2007).

[15]      CA 18/86 Israeli Glass Factories Fenecia Ltd v. Les Verreies De Saint Gobain, IsrSC 45(3) 224.

[16]      CA 5454/02 Ta'am Hateva (1988) Tivoli Ltd. v. Ambrosia Superav Ltd., IsrSC 57(2) 438.

 

 

Israeli Magistrate Court cases cited:

[17]      Ein Gedi Cosmetics Ltd. (unreported).

 

American cases cited:

[18]      Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763 [1992].

[19]      Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 529 U.S. 205 [2000].

[20]      Traffix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 [2001].

[21]      Qualitex Company v. Jacobson Products Company, Inc. 514 U.S. 159 [1995].

[22]      Valu Engineering, Inc. v. Rexnord Corp., 278 F.3d 1268 [2002].

 

Canadian cases cited:

[23]      Kirkbi AG v. Ritvik Holdings Inc., 2005 SCC 65.

[24]      Kirkbi AG v. Ritvik Holdings Inc. [2003] F.C.J. No. 1112 (F.C.A.).

[25]      Thomas & Betts, Ltd. v. Panduit Corp. [2000] F.C.J. No. 11 (F.C.A.).

[26]      Remington Rand Corp. v. Philips Electronics N.V. [1995] F.C.J. No. 1660 (F.C.A.).

 

 

English cases cited:

[27]      Coca-Cola Co., Re [1986] 2 All E.R. 274.

[28]      Reckitt and Colman Products Ltd. v. Borden Inc. [1990] 1 All ER 873.

[29]      Philips Electronics NV v. Remington Consumer Products Ltd. [1999] R.P.C. 809.

 

European Court of Justice cases cited:

[30]      C-456/01, 457/01 Henkel KGaH v. OHIM (2004), sections 34-39 found on the internet site of the ECJ, http://curia.europa.eu/en/content/juris/index.htm

[31]      C-25/05 August Storck KG v. OHIM, sections 25-29, also found on the internet site of the ECJ.

[32]      Philips Electronics NV v. Remington Consumer Products Ltd. [2002] All ER (EC) 634.

 

 

Israeli books cited:

[33]      A.H. Zeligson, Trademark Laws and Related Laws (1972).

[34]      Amir Friedman, Trademarks - Law, Case Law, and Comparative Law (2nd edition, 2005).

[35]      Uma Suthersanen, Design Law in Europe (2000).

[36]      G. Ginat, 'Passing Off' Tort Law -The Various Torts (G. Tadeschi, ed. 1982).

[37]      M. Deutsch, Commercial Torts and Trade Secrets [2002].

 

 

Foreign books cited:

[38]      A. Folliard-Monguiral & D. Rogers, The Protection of Shapes by the Community Trade Mark [2003] E.I.P.R. 169, 178-179.

[39]      David Kitchen, David Llewelyn, James Mellor, Richard Meade, Thomas Moody-Stuart & David Keeling, Kerly's Law of Trade Marks and Trade Names (14th ed., 2005), Chapter 6.

[40]      Christopher Wadlow, The Law of Passing-Off - Unfair Competition by Misrepresentation (3rd Ed., 2004) 663-693

 

Foreign articles cited:

[41]      S. Asschenfeldt, 'Protection of Shapes as Trademarks', IIP Bulletin 2003(found in the internet site of Institute of Intellectual Property (IIP): http://www.iip.or.jp/e/summary/pdf/detail2002/e14_14.pdf).

[42]      A. N. Falkides, 'In Defense of Product Configuration Protection: A Comparison of British and United States Trademark Law', 10 U. Pa. J. Int'l Bus. L. 125 (1988) 158.

[43]      D.W. Opderbeck, 'An Economic Perspective on Product Configuration Trade Dress', 24 Seton Hall Legis. J. 327 (2000).

[44]      J.J. Ferretti, 'Product Design Trade Dress Hits the Wall…Mart: Wal-Mart v. Samara Brothers', 42 IDEA 417 (2002).

[45]      T.M. Barber, 'High Court Takes Right Turn in Traffix, but Stops Short of the Finish Line: An Economic Critique of Trade Dress Protection for Product Configuration', 7 Marq. Intell. Prop. L. Rev. 259 (2003).

[46]      Dana Beldiman, 'Protecting the Form But Not the Function: Is U.S. Ready for a New Model?', Santa Clara Computer & High Tech L.J. 529 (2004).

[47]      M. A. Lemley, 'The Modern Lanham Act and the Death of Common Sense', 108 Yale L.J. 1687 (1999).

[48]      Lars Smith, 'Trade Distinctiveness: Solving Scalia's Tertium Quid Trade Dress Conundrum', 2005 Mich. St. L. R. 243 (2005).

 

 

Other:

[49]      Trademarks Act

[50]      Restatement of the Law Third - Unfair Competition, sec. 16-17 (1995).

 

For the appellants - A. Price; S. Kasher-Hitin

For the respondents - Y. Harkabi

 

JUDGMENT

 

 

Justice A. Grunis:

We have before us the judgment of the Tel Aviv District Court of 19 November 2003 (the Hon. Justice Y. Zeft), which dismissed the suit that was brought by the appellants against the respondents for the torts of violation of a registered trademark and unjust enrichment.

The factual background and the decision of the lower Court

2.  Appellant no. 1 (hereinafter: August), a company incorporated in Germany, is the manufacturer of candies, including a chocolate caramel candy that has been marketed in Israel since 1996 under the name 'Tofifee.'  This is a chocolate and caramel candy whose shape resembles a half-dome, similar to an acorn (this candy will hereinafter be called 'the Tofifee candy').  On 15 April 2003, August filed an application to register a trademark - which included a photograph of three units of the Tofifee candy from three different angles - in the Trademark Registry (hereinafter: the Registry).  On 2 October 2003 the trademark was registered in the Registry (trademark 163894) in relation to the following goods: 'candies, gum not for medical purposes, chocolate, chocolate products, pralines, baked goods, all merchandise above also when manufactured with wine and alcohol; all included in type 30' (the reference is to types of goods mentioned within the fourth addendum to the Trademark Regulations, 1940 (hereinafter: the Regulations)).  Appellant no. 2 was registered in the Registry as the proper holder of the trademark (for convenience, the aforementioned trademark will be referred to below as - 'the appellants' trademark' or 'the trademark').  Respondent no. 1 (hereinafter: Alpha) is a company that deals in the import and marketing of candies.  Respondent no. 2 (hereinafter: Musaif) is the CEO of Alpha and a shareholder in the company.  Alpha imports into and markets in Israel a chocolate caramel candy whose three-dimensional shape resembles the shape of the Tofifee candy.  This candy is marketed in packaging on which the name 'Chocodan's' appears (hereinafter: the Chocodan's candy).  On 21 October 2003 the appellants filed suit in the District Court of Tel-Aviv against the respondents.  In the suit it was claimed that the marketing by Alpha of a candy with a similar shape to that of the Tofifee candy constitutes a violation of the appellants' trademark.  It was further claimed that the packaging in which the Chocodan's candy is marketed also violates the appellants' trademark.  The appellants also claimed that said actions of the respondents constituted unjust enrichment.  The appellants petitioned, inter alia, for a permanent injunction to prohibit the respondents from importing and marketing the Chocodan's candy or any other candy with a similar shape to that of the appellants' trademark.  In addition, the appellants sought monetary compensation.  On the day the suit was filed the appellants also filed a petition for a temporary injunction.  During the hearing on the petition for a temporary injunction, the lower Court proposed to the parties that its decision in the petition also constitute a decision in the primary lawsuit.  Following the parties' agreement to this proposal, the District Court handed down, on 19 November 2003, a judgment dismissing the suit.

3. In its judgment, the District Court dismissed the appellants' claim that their commercial trademark is a three-dimensional mark comprised of the shape of the Tofifee candy.  Instead it was determined that the appellants' mark is a two-dimensional mark that does not protect the shape of the Tofifee candy, but rather only protects the graphic shape as presented in the Registry's abstract.  It was further held that even if the Trademark Ordinance [New Version] 5732-1972 (hereinafter: 'the Ordinance') allows for the registration of three-dimensional trademarks, the shape of the product itself is not eligible for registration as a trademark.  In light of the above, the lower Court established that the marketing of a candy similar in shape to the shape of the candy that appears under the appellants' trademark does not constitute a violation of the trademark.  The District Court then compared the packaging of the Chocodan's candy to that of the Tofifee candy and concluded that the Chocodan's candy's packaging does not create a risk of misrepresentation.  This being so, it does not constitute a violation of the appellants' mark.  Hence the appeal before us.

Summary of the parties' claims and the issues requiring determination

4.  In the appeal before us the appellants claim that their trademark is a three-dimensional mark comprised of the shape of the Tofifee candy.  In this context they object to the determination of the lower Court, according to which the three-dimensional shape of the product is not eligible to serve as a trademark.  Based on this argument, the appellants claim that the shape of the Chocodan's candy - which is similar to that of the trademark -violates their mark.  The presentation of the shape constituting the trademark on the packaging of the Chocodan's candy also constitutes a violation of the mark, according to the appellants.  The appellants further claim that even if their trademark is determined to be two-dimensional, the three-dimensional shape of the Chocodan's candy should be considered to violate it.  On the other hand, the respondents claim that the mark of the appellants is a two-dimensional trademark, and that the marketing of the Chocodan's candy does not violate the trademark.  The respondents rely on the conclusion of the lower Court according to which the three-dimensional shape of the product is not eligible to serve as a trademark.  We will relate first to the issue of the character of the appellants' mark and the effect of this issue on our matter.  Then we will proceed to discuss the question of whether the three-dimensional shape of the product is eligible to be registered as a trademark in relation to goods of the type of the particular product.

The character of the appellants' mark

5.  Section 1 of the Ordinance includes, inter alia, definitions of the terms 'mark' and 'trademark':

"'Mark' - letter, numerals, words, devices, or other signs, or combinations thereof, whether two-dimensional or three-dimensional;

'Trademark' - a mark used, or intended to be used, by a person in relation to goods he manufactures or deals in; ...'"

As said above, the appellants' mark as it appears in the Registry is comprised of a photograph of three units of the Tofifee candy from three separate angles.  The lower Court reached the conclusion that the mark is two-dimensional and protects only the graphic shape presented in the Registry abstract.  This is because, inter alia, the Registry does not include any reference to the mark being three-dimensional and to the products to which the mark relates.  I cannot agree with this determination.  Regulation 15(1) of the Regulations relates to the manner in which the trademark is to be presented in an application to register a trademark:

'15. (1) Any application to register a trademark must contain a drawing of the trademark… and if the mark is three-dimensional a drawing or a picture in the image of the mark will be attached in such a manner that it will be possible to observe the image from all sides…'

We see that with respect to the registration of a three-dimensional trademark, the Regulations require a drawing or a picture of the image of the mark, such that it is possible to observe the mark from all sides.  The photograph of the appellants' mark that appears in the Registry abstract clearly fulfills this requirement.  The Regulations do not include any requirement of a written comment noting that the trademark is three-dimensional.  The fact that it was not noted in the Registry abstract of the appellants' mark that it is a three-dimensional mark does not, therefore, lead to the conclusion that it is not such a mark.  We note that despite the absence of a requirement that it be indicated that the mark is three-dimensional, as a matter of policy it is appropriate for the Registrar of Trademarks (hereinafter: 'the Registrar') to be pedantic in relation to such registration.  This will increase the certainty as to the nature of registered marks and minimize debate regarding this matter.  Indeed, in a circular published by the Registrar in August 2004 (after the filing of the appeal before us) regarding applications to register three-dimensional marks, it was established that the registration of such a mark is conditional upon the addition of a note clarifying that the mark is three-dimensional (circular no. M.N. 38 dated 17 August 2004 (hereinafter: the 'Registrar's Circular')).

6.  Contrary to the determination of the lower Court, the Registry abstract for the trademark specifically noted the type of goods in relation to which the mark was registered.  These goods include, inter alia, candies, chocolates, chocolate products and pralines.  Indeed, in principle it is possible to argue that like most of the trademarks registered in the Registry, the mark of the appellants is also a two-dimensional mark.  However, in light of the fact that the mark is comprised of a simple photograph of three units of the Tofifee candy from three different angles, and that it was registered in relation to goods in the same category as the Tofifee candy, the probable conclusion is that the appellants' mark was registered as a three-dimensional mark which relates to the (three-dimensional) shape of the Tofifee candy.  However, we will add that even were we o conclude that the appellants' mark is a two-dimensional mark comprised of a graphic display of the Tofifee candy, this would not necessarily be sufficient reason to dismiss the argument that the shape of the Chocodan's candy violates the appellants' mark.  It is possible that under certain circumstances it would be established that a two-dimensional trademark is violated by the three-dimensional use of the shape displayed in the mark (see H. Zeligson, Trademark Laws and Related Laws [33] and the references mentioned there; also compare, A. Folliard-Monguiral & D. Rogers, The Protection of Shapes by the Community Trade Mark at pp. 178-179 (hereinafter: 'Rogers'); compare further, section 12(2) and 12(3) of the Copyright Law, 5768-2007 (the Law has not yet come into effect)).  It should be noted parenthetically that the discussion which will follow as to the eligibility of a three-dimensional shape of a product to be registered as a trademark may have implications for this matter as well.  To the extent that it is determined that the three-dimensional shape of a product is not eligible to serve as a trademark, whether in general or under specific conditions, it is clear that it will also be impossible to protect the three-dimensional shape by registering a two-dimensional mark comprised of a graphic display of the shape of the product.  Moreover, it is possible that those same limitations which apply to registering a three-dimensional mark in relation to the shape of the product, also apply to registering a two-dimensional mark comprised of a graphic display of the shape of the product (for support of this position in European Union law, see paragraphs 20-21, below).

7.  We have therefore reached the conclusion that the appellants' mark was registered as a three-dimensional mark that refers to the shape of the Tofifee candy.  In this we have accepted, in fact, the position of the appellants on this matter.  In a suit regarding the violation of trademark, there is nothing to prevent a defendant claiming a lack of validity of the mark, based on its ineligibility for registration.  In light of section 64 of the Ordinance, which establishes that the registration of a trademark constitutes prima facie evidence of the validity of the registration, the burden of persuasion as to this claim will be imposed on the defendant (see CA 3559/02 Toto Zahav Members' Club v. Council for Regulation of Gambling in Sports [1] (hereinafter: 'the Toto case'), 887).  In the appeal before us, the respondents claim that the appellants' mark was not eligible for registration, as it is comprised of the three-dimensional shape of the Tofifee candy.  According to their approach, the registration of the mark has no validity.  This argument raises a legal issue of a general nature: whether the three-dimensional shape of a certain product is eligible to be registered as a trademark in relation to goods of the same category as the product itself.  We will now turn to a discussion of this issue.

The three-dimensional shape of a product as a trademark - presentation of the issue

8.  The traditional purpose of a trademark is to identify the source of the goods in question in such a way that the consumer public, upon seeing the mark, will associate it with a specific source.  It is currently accepted that the mark need not signify for the consumer the exact identity of the source of the goods; rather, it is sufficient that it create a link between the products that carry the mark in such a way that consumers will know that the source of the products is the same. (HCJ 296/85 Sia Siak How (Anthony) v. Patent, Pattern, and Trademark Registrar [2] at p. 777).  The trademark enables its owner to distinguish his products from those of his competitors, and thereby protect his goodwill and prevent consumers being misled as to the source of the goods.  Thus, the trademark makes it easier for consumers to find their way in the relevant market and to identify the specific product they wish to purchase.  In order to achieve these goals, the Ordinance grants the owner of the trademark exclusivity over the use of the mark for those goods in relation to which it was registered (section 46 of the Ordinance).  In other words, the trademark is expropriated, in its commercial context, from the public domain (the Toto case [1], p. 888). The condition whereby in order to be eligible for registration, a mark must have the ability to differentiate ("distinctive character") between the goods of the owner of the mark and those of others is derived from the role of the trademark as a means of identification and differentiation. In this context, two possibilities must be mentioned: first, it is possible that the mark will have a distinctive character by its very nature, which means having an inherent distinctive character.  Thus, for example, marks comprised of words that are the product of imagination and invention, are generally considered to have an inherent distinctive character.  Secondly, even if the mark does not have an inherent distinctive character, it is possible that consequent upon its use, it acquired a secondary distinctive character such that the consumer public associates it with goods of a specific source.  In such a case it can be said that the mark acquired an actual distinctive character, i.e. the mark has an acquired distinctive character (on the distinctive character requirement see section 8 of the Ordinance; on the accepted distribution of names as to their distinguishing character see CA 5972/99 Tikshoret v'Chinuch Dati-Yehudi Mishpacha (1997) Ltd -Mishpacha Newspaper v. S.B.C. Advertising, Marketing, and Sales Ltd. -Mishapach Tova Newspaper [3] at pp. 943-946, as well as Amir Friedman, Trademarks - Law, Case Law, and Comparative Law, pp. 121-152 [34](hereinafter: 'Friedman')).  We will add that a trademark's current period of validity is ten years from the date of submission of the application for registration, but the Registrar may extend the registration for additional periods (sections 31-35 of the Ordinance).  It will be noted parenthetically that when certain conditions exist the Ordinance also grants protection for marks that are not registered (see the definition of the term 'well-known trademark' in section 1 of the Ordinance). 

9.  The definition of the term 'mark' in section 1 of the Ordinance (paragraph 5 supra) is a broad definition that also includes, inter alia, three-dimensional images and symbols.  This means that there is nothing in principle to prevent the registration of three-dimensional marks, assuming that they fulfill the conditions of registration established in the Ordinance.  Indeed, in those cases in which three-dimensional marks are able to represent the product and distinguish it in terms of identifying its source, they fulfill the classic role of a trademark.  From this perspective, they are ostensibly worthy of being registered as a trademark, similar to marks of other types.  One can think of various types of three-dimensional marks (see S. Asschenfeldt, 'Protection of Shapes as Trademarks' [41]).  Thus, there may be marks that are a three-dimensional expression of a letter or a certain shape, and which are entirely separate from the product itself.  A similar and additional type of three-dimensional mark refers to marks which are not part of the inherent shape of the product but constitute an external addition to this shape.  One of the common examples in this context is the type of three-dimensional object that can be found on the hoods of vehicles and which serves to identify the manufacturer.  The appellants' mark, on the other hand, belongs to a different type of three-dimensional mark.  This category consists of marks that are comprised of the three-dimensional shapes of products.  Naturally, most of these marks are registered in relation to goods of the type to which the product itself belongs.  In this context it is common to distinguish between marks comprised of the shape of the product itself, and marks comprised of the shape of its packaging.  The appellants' mark belongs, of course, to the first of these two categories.  The second category, which involves the shape of the packaging, includes marks that are comprised of the shapes of bottles and other containers containing liquid products.  A famous example of a bottle of which we say that its shape serves to identify it, is the bottle marketed by the Coca-Cola Company.  We will return to this example later (at times the term 'get-up' is used in order to describe the outer appearance of the goods as the consumer public expects to see them prior to purchase).  When goods are sold in packaging, the get-up is comprised of the packaging in its entirety (get-up of packaging); when goods are sold without packaging, the get-up is comprised of the shape of the product itself (get-up which involves the appearance of the goods themselves).  We will add that a mark may also be comprised of a combination of a three-dimensional shape with a word, digit, or other two-dimensional figure.  In any case, it should be emphasized that our discussion here focuses on the question of the eligibility of only one out of a number of possible types of three-dimensional trademarks, i.e. a three-dimensional type comprised of the shape of the product itself and which relates to goods of the same category as that to which the product belongs (which is different from the three-dimensional mark comprised of the shape of the product's packaging).

10.  As stated, the owner of a registered mark enjoys the right to the exclusive use of the trademark in relation to the goods that he registered.  The validity of the trademark is indeed limited to ten years, but it can be extended for additional periods.  In other words, when certain conditions are met, the owner of the mark receives a monopoly unlimited in time in relation to the mark.  These provisions exist in order to advance the purposes of trademark law, which we discussed above (paragraph 8 supra).  Consequently, when the trademark is comprised of the three-dimensional shape of the product, this shape is expropriated from public ownership such that only the owner of the mark is entitled to make use of it in relation to the goods for which the mark was registered.  The monopoly that the owner of the mark receives in relation to the three-dimensional shape of the product raises formidable difficulties, due to the basic difference between conventional trademarks, which include two-dimensional marks and symbols, and marks comprised of the three-dimensional shapes of products.  The role of marks of the first type is fully realized by the marking of the source of the product on which they are imprinted. On the other hand, the shape of a product has, in most cases, an independent function which deviates from the function designated for a trademark.  The shape of a product is often dictated by practical considerations, be they functional or aesthetic.  By functional considerations we mean that the shape of a product is designed to enable the correct operation of a product and to achieve a certain engineering outcome.  At times, it is not possible to manufacture a product other than in a particular three-dimensional way.  Thus, for example, a car tire cannot fulfill its function unless its shape is round.  In other cases it is indeed possible to manufacture a product in a number of three-dimensional ways, but the adoption of a specific shape will enable more efficient manufacture of the product relative to other possible shapes.  By aesthetic considerations we mean that despite the fact that a certain shape of a product is not necessary to achieve a given functional result, there is a known preference for that shape over other possible shapes for reasons of aesthetics and the preferences of the relevant consumer public.

11.  We have seen therefore that the three-dimensional shape of a product is in many cases important in both the functional and aesthetic realms.  This fact has ramifications for the discussion of the eligibility of a three-dimensional trademark comprised of the shape of a product.  The registration of a trademark of the shape of a product results in the prevention of the possible use of the said shape by the competitors of the owner of the mark.  In other words, the other players in the relevant market cannot produce their competing product with a shape that is identical to the shape the subject of the trademark or similar enough to it, in such a way that the competing product would be misleading.  Thus, the competitors are denied the functional and aesthetic advantages which are embodied in the given shape.  Such a situation may harm the possibility of effective competition with the owner of the mark. (On the importance of free competition see LCA 371/89 Leibovitz v. A. & Y. Eliyahu Ltd. [4]; FHCA 4465/98 Tivol (1993) Ltd v. Chef Ha'Yam (1994) Ltd. [5], at pp. 77-80 (Justice M. Cheshin, the majority opinion)).  We shall explain by way of example.  Let us assume that a certain three-dimensional shape of an electric shaver is a functional shape, in the sense that it is known to have importance in achieving the desired technical result.  Let us further assume that even if it is possible to achieve the desired technical result via an alternative three-dimensional shape, the cost of manufacture of the product in its alternative shape is higher than the cost of its manufacture in the first shape.  If the registration of a trademark comprised of the said shape is permitted in relation to goods in the category of electric shavers, then the competitors of the owner of the mark will be compelled to manufacture shavers in their alternative, more expensive shape.  It will therefore be difficult for them to compete effectively with the owner of the mark.  The result will be the granting of a significant advantage to the owner of the mark and harm to competition in the electric shaver market.  In cases in which there is no readily available alternative shape for achieving the desired functional result, or where the choice of alternative shapes makes the manufacture of the product significantly more expensive, the registration of the trademark of the shape of the product may completely prevent competition in the relevant market and thereby grant the owner of the mark a monopoly within this market (as to the difficulty in the provision of monopolistic protection of functional shapes in the framework of copyright law, compare CA 513/89 Interlego A/S v. Exin-Lines Bros. S.A. at p. 156-160 [6]).

The above example relates to the registration of a trademark comprised of the shape of a product that has functional value.  However, this same concern arises with regard to the registration of a mark which is comprised of a product shape of aesthetic value.  The shape of a product constitutes a main consideration, or at least a relevant one, in the purchase of many products.  As will be clarified below, this reason underlies the legal arrangement established in the framework of the law of designs.  The shape with greater aesthetic value is expected to enjoy an important commercial advantage over other shapes, as the consumer public will prefer to purchase a product with such a shape over a similar product with an alternative shape.  Registering a trademark in relation to such a shape will prevent competitors from making use of the shape, and will thereby make it difficult for them to compete with the owner of the mark.  In this case as well, the result might harm competition.

12.  The fact that the three-dimensional shape of the product often has functional or aesthetic significance creates a difficulty in another aspect as well.  As stated above, in order for a trademark to fulfill its function as a means of identifying the source of the product, it must possess an inherently distinctive character or an acquired distinctive character (paragraph 8 supra).  Since a product's shape fulfills additional functions that are not related to the purpose of the trademark, the consumers may see an expression of these functions in the shape and not relate to it as an indication of the source of the product.  In other words, the public may think that the shape of the product, even if it is unique, was chosen for functional or aesthetic reasons and is not at all connected to the source of the product.  Thus, the fact that the three-dimensional shape of the product serves purposes which depart from those of trademark law raises real doubt as to the ability of the shape to have an inherently distinctive character.  As will be discussed below, this issue has also arisen in foreign legal systems.

13.  In the framework of the discussion of the eligibility of a three-dimensional shape to be registered as a trademark, it is appropriate to consider also the relationship between copyright law and additional branches of the laws of intellectual property. In this context we refer primarily to patent law and design law.  The purpose of patent law is to grant protection to the technological inventions that contain, inter alia, innovation and inventive progress (see Chapter B of the Patents Law 5727-1967).  The protection granted to a patent is a monopolistic protection that is limited in time.  The patent owner is permitted to prevent others from using the patent without his permission or unlawfully for a period of twenty years (in certain cases, it is possible to extend this period for up to five additional years).  One of the primary purposes of the monopoly granted in the framework of patent law is to incentivize the development of inventions that will come into the public domain upon the conclusion of the period of the patent.  Design law, for its part, was intended to regulate the protection of innovative or original shapes of industrial products, as long as these shapes draw the attention of the consumer and are not of a functional character (definition of the term 'design' in section 2 of the Patents and Designs Ordinance as well as section 30 of this ordinance; see further CA 7125/98 Mifromal Jerusalem Industries v. Kalil Industries Ltd [7]).  The owner of the design also receives a monopoly in relation to the protected shape, for a period of up to fifteen years.  Here too the purpose is to encourage development and creativity by means of providing an exclusive right of usage for a limited period of time, such that at the end of the period the entire public will be able to enjoy the fruits of this creation.  At the basis of the protection granted to the innovative design of industrial products stands the recognition that 'industrial design serves as the initial promoter of the product, the public relations person of the industrial product' (CA 3406/96 Sela Cement Company Ltd. v. Akerstein Industries Ltd. [8]; see also, Uma Suthersanen, Design Law in Europe (2000), p. 1-3).  In other words, design law reflects recognition of the known importance of the shape of the product in the framework of the competition for the hearts of consumers.

14.  We find that both patent law and design law grant monopolistic protection that is limited in time.  As we have said, the purpose is to encourage development and creativity of inventions and designs, in order for these to come into the public domain at the conclusion of the monopoly period.  On the other hand, registering a trademark in relation to the three-dimensional shape of a product is likely to grant the owner of the mark a monopoly that is unlimited in time as to the shape of the product.  This is because the period in which protection is granted to the trademark can, in principle, be extended an unlimited number of times.  The differences, as stated, as to the period of monopoly may incentivize the owners of designs to register the shape of the product as a trademark upon the conclusion of the period of the design's protection, or even earlier.  This, even though their real goal is not the use of the shape of the product to identify the source of the goods, but rather the artificial extension of the exclusive right of usage of the shape of the product. In the same manner, the owners of patents may register a trademark as to the shape of a product that is of a functional nature, and thereby prevent the use of the invention even after the conclusion of the period of the patent.  In this way trademark law may serve as a 'bypass route' for design law and patent law, while upsetting the balance - which is at the basis of these laws - between the desire to incentivize creation and development, and the desire to enable public use of designs and inventions.  The reason cited above constituted the basis of the refusal of the English House of Lords to register the shape of the bottle of the Coca-Cola Company as a trademark, in their decision on this issue on appeal (Coca-Cola Co., Re [1986] 2 All E.R. 27).  In that case, the shape of the bottle was first registered as a design.  After the conclusion of the design period, the Coca-Cola Company applied to register the shape of the bottle as a trademark.  When its request was denied, and the legal objections that it filed were not successful, the matter reached the doorstep of the House of Lords.  The House of Lords was prepared to assume that the shape of the bottle had acquired a distinctive character.  Nonetheless it dismissed the appeal and determined that the shape of the bottle could not be registered as a trademark.  It was determined that the definition of trademark relates only to something that is external to the product, and the product cannot serve as its own trademark.  This judgment indicates that the House of Lords disapproved of the attempt of the Coca-Cola Company to extend the exclusive right of usage of the shape of the bottle after it expired, upon the conclusion of the design period.  In this context it was held that the laws of trademark were not intended for the purpose of granting an unlimited monopoly to the shape of a container (for the change that occurred in English law after this decision was handed down, see paragraph 18 ff.).  Furthermore, the desire to prevent the bypassing of design law via registration of three-dimensional trademarks in relation to the shape of products is at the basis of the limitations established in the Registrar's circular concerning the registration of these marks.  According to the Registrar's circular, the registration of such marks will be considered only in special and exceptional cases, in which it is proven that two cumulative conditions are met: (a) use was made of the requested image to mark the goods and identify the source of the goods; and (b) as a result of such usage, the mark acquired a sufficiently distinctive character  to establish that it does indeed constitute a special and exceptional case (paragraph C of the Registrar's circular; see further the comprehensive decision of the Trademark Registrar on the subject of the registration of three-dimensional marks that are comprised of the shape of the product or the shape of its packaging: Ein Gedi Cosmetics Ltd.[17]; an appeal was filed on this decision which has not yet been decided: CA 3776/06 [9]).

15.  The issue of the eligibility of a trademark with a functional character was discussed in the past by this Court in HCJ 144/85 Kalil, Non-Iron Metal Industries Ltd. v. Patent, Design and Trademark Registrar [10] (hereinafter: the Kalil case).  In that case Justice S. Netanyahu ruled that features which serve any functional purposes are not eligible for registration as a trademark, even if they are sufficient to identify the source of the product.  In order for any mark to be classified as a functional mark, and therefore as one that is not eligible for registration, it is not necessary that the product cannot be used for its designated purpose without it. Rather, it is sufficient that the mark fulfill any functional role.  The reason that was given for this ruling was that the trademark is not intended to protect functional uses that are not protected in the framework of patent law or copyright law (Kalil case, p. 323).  Justice Netanyahu's decision indicates that the fact that the mark is functional is only a bar to registration of a mark with an inherent distinctive character.  However, it is still possible that a functional mark will be registered as a trademark if it has an acquired distinctive character (the Kalil case, p. 324 between the letters F and G; see further CA 941/05 Vinegrowers of Rishon L'Zion and Zichron Ya'acov Cooperative Society v. Kerem Company Ltd. [12] paragraph 18; Friedman pp. 262-264; and see also section 11(10), 11(11) of the Ordinance).  As opposed to what has been stated above, in the framework of the laws of passing off there is no protection for features of a functional nature (CA 4030/02 Amichai Trade Ltd. v. Shoris Erkot Navadim Ltd., [13] at pp. 636-637 (hereinafter: the Amichai Trade case).  The question of whether there is a justification for this distinction, and whether it is justified to determine that a functional mark will not receive protection even if it has acquired a distinctive character in fact, is not simple in my view  (compare CA 2673/04 Coffee To Go Marketing (1997) Ltd. v. Shaked [14] paragraph 23 (hereinafter: 'the Coffee To Go case')).  In any case, and as will be clarified below (paragraph 30), the unique considerations that arise in relation to three-dimensional trademarks of the type we are dealing with lead to the conclusion, at least concerning these marks, that a functional mark is not eligible for registration whether it is of an inherent distinctive character or an acquired distinctive character.

16.  The matter of protection of functional features also arises in the context of the laws of passing off.  These laws, which are commonly considered to be part of intellectual property law, were intended to protect commercial goodwill from misrepresentation (G. Ginat 'Passing Off', Tort Law -The Various Torts (G. Tadeschi, ed. 1982) [34] at pp. 2-8). From this perspective there is a similarity between the purpose of the laws of passing off and the objective underlying trademark law.  Unlike a suit grounded in violation of trademark, in a suit for the tort of passing off the plaintiff must prove that he indeed acquired the goodwill that he seeks to protect (CA 18/86 Israeli Glass Factories Fenecia Ltd v. Les Verreies De Saint Gobain [15], hereinafter: 'the Fenecia case') p. 230-232)).  An additional important difference between the two relates to the manner in which the misrepresentation is examined: whereas in the tort of passing off, it is customary to examine  whether the totality of the actions of the defendant created misrepresentation  as to the source of the product, in a suit for violation of a trademark the examination is directed primarily at the question of whether there is deceptive similarity between the marks themselves (LCA 5454/02 Ta'am Hateva (1988) Tivoli Ltd. v. Ambrosia Superav Ltd. [16]).  It is to be noted that the provision relating to passing off is found today in section 1 of the Commercial Torts Law 5759-1999 (hereinafter: 'the Commercial Torts Law').  In the past a similar provision appeared in section 59 of the Civil Wrongs Ordinance [New Version].  However, the enactment of the Commercial Torts Law did not bring about substantive changes to the previously existing passing off laws (in this context see M. Deutsch Commercial Torts and Trade Secrets pp. 57-61).

17.  In the Fenecia case this Court dealt with the question of whether imitating the shape of a product constitutes passing off where this shape is known to have functional or aesthetic importance.  It was held as follows:

'6. An additional clarification needed in our matter is that we are dealing in this case with the imitation of the product itself, its shape and appearance, and not the imitation of any name, sound or get-up.  This distinction, as we shall see, is significant in terms of the willingness to see the imitation of the product as passing off.  The reason for this is the policy of not harming free competition while at the same time protecting goodwill.  Therefore, even if the plaintiff's goodwill was proven, the imitation of the product, its shape and appearance, is not regarded as passing off, as long as the imitation is of the functional features and not the features which serve to identify the product with the original.  This policy applies with greater force to the product than to its get-up.

…

Only in rare cases is the shape of the product itself, as opposed to its appearance, regarded as a subject for acquiring goodwill and for an injunction.

…

The functional features of the product are not only those which enable its useful functioning from the engineering or technical aspect.  Functional features are also those which impact its purpose and operation…  Aesthetic features can also be considered functional, when it is a matter of a product which is primarily purchased for its aesthetic value…  This is so, for example, with designs of ceramic pots, where the aesthetic characteristic is an important factor in commercial success.  This, as opposed to, for example, a product that has no exhibitory use and whose attractive shape has no significance for the consumer's choice, beyond attribution of the source…' (the Fenecia case, pp. 236-239, and see in particular the references mentioned there.  Emphasis mine-A.G.).

From the above, it clearly arises that the scope of the protection afforded to the shape of a product in the framework of the laws of passing off is significantly limited relative to the scope of the protection which is granted to the packaging of the product or its other aspects.  At the basis of this distinction is the recognition of the great importance of the shape of the product and the necessity of making it accessible to all competitors in order to ensure free and efficient competition.  The distinction between the shape of the product and the shape of the packaging is based on the fact that the shape of the product often embodies practical value - whether aesthetic or functional.  Such value is not generally embodied in the shape of the packaging of the product (in this context see 'A. N. Falkides, In Defense of Product Configuration Protection: A Comparison of British and United States Trademark Law' [40]).  As we will see below, this distinction also exists in the United States.  Now that we have presented, in a comprehensive manner, the matter before us and the various considerations which arise in relation to it, we will move on to examine the way in which various countries have addressed this issue.

The three-dimensional shape of a product as a trademark - comparative law

18.  As stated above, in 1986 the House of Lords refused to recognize the possibility that the shape of the bottle used to market a certain drink, is eligible to be registered as a trademark (the Coca-Cola case, paragraph 13 supra).  At the time, the Trade Marks Act 1938 was in effect.  The judgment did not distinguish between the possibility of registering the shape of the product itself and the shape of the product packaging as a trademark.  It appears that it can be inferred from the judgment that even the shape of the product itself is not eligible for registration as a trademark.  In 1990 the House of Lords established that an imitation of a lemon-shaped container, which was used to market a lemonade drink, constitutes passing off.  This was based on the determination of the lower Court that the plaintiff acquired goodwill in relation to this shape, and the label attached to the defendant's container did not counteract the risk of misrepresentation (Reckitt and Colman Products Ltd. v. Borden Inc.).  In other words, the possibility was recognized that the shape of the packaging of the product would enjoy protection under passing off law.  Lord Oliver, who wrote one of the two major opinions, emphasized that it was not necessary to determine the question of whether the shape of the product itself may enjoy protection under the tort of passing off.  This is because this case dealt with the shape of the container in which the product was marketed, i.e. the get-up of the product (ibid, pp. 884-885).  In relating to the claim that the result of the judgment is the granting of a monopoly unlimited in time for lemon-shaped containers, Lord Oliver noted that the principle according to which a person is not entitled to benefit from another's goodwill by way of misrepresentation is no less important than the principle regarding the prevention of a monopoly as stated (ibid, p. 889).  Lord Jauncey, who wrote the second majority opinion, emphasized that the laws of passing off may protect the goodwill of the plaintiff via the granting of a monopoly in the product's get-up.  On the other hand, they do not recognize a monopoly as to the shape of the product (ibid, p. 890; for a discussion of the issue of protection of the shape of goods or their get-up in the framework of the laws of passing off see, Christopher Wadlow, The Law of Passing-Off - Unfair Competition by Misrepresentation [40]).

19.  In 1994, with the legislation of the Trade Marks Act 1994 (hereinafter: 'the 1994 Act'), trademark laws in England underwent comprehensive changes.  The new Act is based on a directive of the European Union from 1988, which was intended to partially unite the trademark laws in the Union states (First Council Directive 89/104 of December 21, 1988 to approximate the laws of the Member States relating to Trade Marks (hereinafter: 'the Directive')).  We would add that according to the law which applies in the European Union, the possibility exists of registering a trademark of the Union.  Such registration grants protection to the trademark in all the Union states, and it is regulated in the framework of Council Regulation 40/94 of December 20, 1993 on the Community Trade Mark (hereinafter: 'Union regulations'; these regulations were amended comprehensively in 2004. For further details see David Kitchen, David Llewelyn, James Mellor, Richard Meade, Thomas Moody-Stuart & David Keeling, Kerly's Law of Trade Marks and Trade Names, [39] Chapter 6 (hereinafter: 'Kerly')).  Since the relevant provisions of the 1994 Act, the Directive and the Union regulations are identical, we will discuss these three arrangements together (for convenience these three arrangements will be referred to together as - 'the arrangements').

20.  The arrangements explicitly establish that in principle, a trademark may be comprised of the shape of goods or of their packaging (section 1(1) of the 1994 law, paragraph 2 of the Directive and regulation 4 of the Union regulations).  The arrangements establish various limitations to the registration of a trademark (these limitations are included in section 3 of the 1994 law, paragraph 3 of the Directive and regulation 7 of the Union regulations).  We do not intend to specify all the said limitations.  It is sufficient that we mention two of the limitations that relate to our discussion.  First, a mark that is devoid of any distinctive character is not eligible to be registered as a trademark.  Apparently, this limitation refers to an inherent distinctive character.  This is because the arrangements establish that a trademark will not be denied registration in light of said limitation if it acquired a distinctive character.  In other words, the requirement in the arrangements refers to an inherent distinctive character or alternatively to an acquired distinctive character.  This requirement is similar to the parallel requirement which exists in the framework of the Ordinance.  The European Court of Justice (hereinafter: ECJ) has dealt with the issue of examining the inherent distinctive character with regard to a three-dimensional mark that is comprised of the shape of the product or the shape of its packaging.  It was established that the manner in which the inherent distinctive character of such a mark is to be examined is not different from the manner in which the inherent distinctive character of marks of other types are examined.  Either way, the shape of the product to which the mark relates must be capable of creating a distinction between the product of the mark owner and the products of his competitors.  The examination must consider, inter alia, the products in relation to which the mark was registered and the perception of the relevant consumer public. Despite the fact that in principle, the tests for examining the existence of an inherent distinctive character are identical, it was established that there exists, nonetheless, a significant difference in the manner of application of the tests for three-dimensional signs which are comprised of the shape of the product or the shape of its packaging.  In this context it was held that as a rule, the average consumer does not usually view the shape of the product or the shape of its packaging in and of themselves as an indication of the source of the goods.  Therefore, establishing an inherent distinctive character regarding marks of this type is expected to be more difficult than doing so for marks of other types.  The distinctive character of a mark comprised of the shape of the product or the shape of the packaging must be closely examined.  Only a shape that deviates significantly from the accepted shapes of the relevant industry can be considered to be of an inherent distinctive character.  In other words, the examined shape must be so distinctive that the consumer will be expected to perceive it as symbolizing the source of the goods (C-456/01, 457/01 Henkel KGaH v. OHIM (2004), sections 34-39 [30]; see also Rogers, [38] pp. 169-171).  It will be noted that the ECJ held that these rules also apply to two-dimensional marks comprised of a graphic display of the shape of the product (C-25/05 August Storck KG v. OHIM, sections 25-29 [31]).  We will further add that a fairly similar approach was expressed in a decision handed down in Japan (Friedman, [34] pp. 105-106).

21.  Secondly, the arrangements include a limitation which relates directly to marks comprised of the shape of products:

'A sign shall not be registered as a trade mark if it consists exclusively of -

(a) the shape which results from the nature of the goods themselves,

(b) the shape of goods which is necessary to obtain a technical result, or

(c) the shape which gives substantial value to the goods.' 

(Section 3(2) of the 1994 law, paragraph 3(e) of the Directive and regulation 7(1) (e) of the Union regulations.  It will be noted that the version of the introduction that appears in the Directive and the Union regulations is slightly different to the version above, but this does not affect our matter).

Unlike the former limitation, this limitation is not based on the absence of an inherent distinctive character.  Instead, it is intended, inter alia, to prevent use of the trademark laws in order to bypass the restrictions existing in relation to the periods of monopoly in the other branches of intellectual property law.  Even proving the existence of an acquired distinctive character will not overcome this limitation.  In other words, once the mark falls within one of the three alternatives in this limitation, it is not eligible for registration, and the issue of the existence of an inherent or acquired distinctive character is no longer significant (see the decision of the ECJ: Philips Electronics NV v. Remington Consumer Products Ltd. [2002] All ER (EC) 634 [32] (hereinafter: 'the Phillips case')).  Moreover, similar to the prior limitation, this limitation also applies to two-dimensional marks which are comprised of the graphic display of the shape of the product (Kerly, [39] pp. 204-205; for a comprehensive discussion of this limitation see ibid, pp. 201-212).  The first alternative concerns shapes stemming  from the nature of the goods themselves.  In fact, the reference is to the 'natural shape of the goods.'  Thus, for example, a mark comprised of the shape of a banana will be considered as stemming from the natural shape of the goods, to the extent that it is intended to apply to bananas (see Philips Electronics NV v. Remington Consumer Products Ltd. [29] at 820.  The Court of Appeals in England referred this matter to the ECJ).  The second alternative included in this limitation deals with a mark comprised exclusively of the shape of the product necessary to obtain a specific technical (functional) result.  In light of the requirement of functionality included in this alternative, its underlying purpose seems to be prevention of the granting of a long term monopoly to a shape that by its nature might be eligible for registration as a patent.  In the Phillips case, the ECJ dealt with this alternative.  It was determined that in order for a shape to be ineligible for registration as a trademark, it is sufficient that the characteristics of the shape at hand are designed and necessary for any functional purpose. This is true even if it is possible to obtain the same functional purpose by the use of alternative shapes.  As mentioned above, a similar rule was established by this Court in the Kalil case (paragraph 15 supra).  The primary purpose of the third alternative, which deals with shapes that can grant real value to goods, is to prevent the provision of long-term exclusivity for shapes with aesthetic characteristics that can influence the purchase of the product.  From this perspective the alternative was intended, inter alia, to regulate a certain aspect in the reciprocity between the trademark laws and design laws.  It appears that the scope of application of this alternative is not to be limited to goods with a decorative purpose.  Rather, it must apply in all cases in which the shape of the product constitutes an important, if not exclusive factor in the decision of whether to purchase it (Rogers [38] p. 175).

It will be noted that despite the fact that the existing limitations in the framework of the arrangements limit the possibility of registering three-dimensional shapes of goods and their packages as trademarks, they do not create a clear distinction between trademark law and other branches of intellectual property law.  On the contrary, the very possibility of acquiring a monopoly in relation to the three-dimensional shape of a product in the framework of trademark law creates a clear overlap between these laws and design laws (Rogers [38] p. 179).  We will now proceed to examine the current legal situation in the United States on this topic.

22.  The primary legislation in the United States regulating the protection of trademark at the federal level is the Trademark Act (known as the Lanham Act).  This statute is not limited to registered trademarks; when the right conditions are met it can grant protection to unregistered marks as well.  In 1992, the American Supreme Court discussed whether this Act protects a product's get-up in its broader meaning (trade dress), in cases where the mark does not have an acquired distinctive character but only an inherent distinctive character.  This case involved a suit for violation of an unregistered mark, comprised of design characteristics of a Mexican restaurant.  It was held that there is no reason to distinguish between protecting a mark comprised of a product's get-up, and other types of marks.  Both types of marks enable the owner to distinguish his products from the products of his competitors, and thereby contribute to the protection of his goodwill.  Therefore, it is sufficient that the mark comprised of the get-up of the product have an inherent distinctive character in order to be granted protection by force of trademark law, and it is not necessary that it acquire a distinctive character in fact.  This ruling is similar to the requirement that exists relative to the other types of marks, as long as the mark is not of functional value.  Note that it was stated in the judgment that although this was a case of an unregistered mark, the rules that apply are similar to those applying to registered trademarks (Two Pesos, Inc. v. Taco  Cabana, Inc., [18]; hereinafter: 'the Taco case').

23.  In the year 2000, the American Supreme Court once again addressed a similar issue in Wal-Mart Stores, Inc. v. Samara Brothers [19]; hereinafter: 'the Samara case').  The question there was as follows: do the trademark laws provide protection to a mark comprised of a product's design, where the mark did not acquire a distinctive character in fact?  The Court reached the conclusion that the shape of a product cannot, by its nature, have an inherent distinctive character.  This is because, in contrast with marks of other types, in the great majority of cases the shape of a product contains within it a functional or aesthetic value that goes beyond the traditional function of a trademark.  Therefore, consumers do not tend to connect the shape of a product with its source, even where the shape in question is of a unique character and is not common in the industry.  The Court further determined that the protection of the shape of products under trademark law may harm competition.  This is because competitors will be denied the possibility of enjoying the functional and aesthetic advantages embodied in the shape of the products.  Indeed, according to the functionality doctrine, protection is denied to marks of functional value, and in certain cases to marks of aesthetic value as well.  However, even under the functionality doctrine, the very fear of legal proceedings on the part of the owner of the mark is still expected to deter competitors and thereby harm competition.  Furthermore, creating a clear and logical test for the inherent distinctive character of a mark comprised of a product's shape would be extremely difficult.  The Court was aware of the decision in the Taco case, which clearly held that there is nothing to prevent the trade dress of the product from having an inherent distinctive character.  As stated, the Taco case refers, inter alia, to the shape of the packaging of the product.  However, the Court in the Samara case distinguished that judgment in determining that the trade dress of the product, unlike its shape alone, may indeed be perceived by consumers as pointing to its source.  In light of its great importance to our matter we will quote the following excerpt from the Court's reasoning in the judgment:

'In the case of product design, as in the case of color, we think consumer predisposition to equate the feature with the source does not exist. Consumers are aware of the reality that, almost invariably, even the most unusual of product designs - such as a cocktail shaker shaped like a penguin - is intended not only to identify the source, but to render the product itself more useful or more appealing.

The fact that product design almost invariably serves purposes other than source identification not only renders inherent distinctiveness problematic; it also renders application of an inherent distinctiveness principle more harmful to other consumer interests. Consumers should not be deprived of the benefits of competition with regard to the utilitarian and aesthetic purposes that product design ordinarily serves by a rule of law that facilitates plausible threats of suit against new entrants based upon alleged inherent distinctiveness. How easy it is to mount a plausible suit depends, of course, upon the clarity of the test for inherent distinctiveness, and where product design is concerned we have little confidence that a reasonably clear test can be devised.

It is true, of course, that the person seeking to exclude new entrants would have to establish the non-functionality of the design feature… - a showing that may involve consideration of its aesthetic appeal… Competition is deterred, however, not merely by successful suit but by the plausible threat of successful suit, and given the unlikelihood of inherently source-identifying design, the game of allowing suit based upon alleged inherent distinctiveness seems to us not worth the candle.'   

(The Samara case, pp. 213-214; emphasis mine - A.G.)

 

24.  An additional judgment of the American Supreme Court which relates to our matter is Traffix Devices, Inc. v. Marketing Displays, Inc., [19].  In that matter the Court considered the proper test of the functionality of a mark, against the background of prior judgments that dealt with this matter (the term functionality refers both to the importance of the mark for obtaining a certain technical result and to the aesthetic value of the mark).  The importance of this issue stems from the fact that once it is established that a mark is functional, it will not be eligible to serve as a trademark and will not receive protection by force of the trademark laws.  This is the case both with respect to a mark with an inherent distinctive character and to a mark with an acquired distinctive character in fact.  The Court here determined that a mark may be considered functional when one of two alternatives exists: (a) the mark is necessary for the use of the product or achieving its purpose, or it can affect the cost of the product or its quality ('…essential to the use or purpose of the article or…affects the cost or quality of the article'); or where (b) exclusive use of the mark will put competitors at a real disadvantage that is not rooted in reasons related to reputation ('the exclusive use…would put competitors at a significant non-reputation-related disadvantage').  This second alternative is relevant, generally, when the mark is of aesthetic functionality.  The Court further determined that the existence of alternative shapes that achieve similar results to the ones achieved by the shape that is the subject of the mark, is not sufficient to deny the functionality of the mark.  It was further held in the decision that the fact that a given mark was protected in the past under patent law is a strong indication of its functionality (this last issue arose in this Court in the Amichai Trade case, a proceeding that dealt with the tort of passing off, and was left open for further inquiry; as to the importance of the functionality doctrine see further Qualitex Company v. Jacobson Products Company, Inc. [21]).  It should be noted that the American law was amended in 1998 with the addition of a provision to the effect that a mark that is functional in its entirety is not eligible for registration as a trademark.  This amendment was not intended to change the existing law, but merely to be used as a statutory anchor for a rule that had been followed for some time. (15 USCS § 1052(e) (5); on this matter see further Valu Engineering, Inc. v. Rexnord Corp., [22]). 

25.  The question of whether it is justified to recognize the possibility that the shape of a product will be protected under the laws of trademark has been widely addressed in American literature.  According to some scholars, it is not appropriate to rule out, a priori, the possibility that the shape of a product serve as a trademark, even where the shape has not acquired a distinctive character in fact.  These scholars argue that the doctrine of functionality constitutes a proper solution to the concern of harm to competition that might result from the application of trademark laws to the shapes of products (see for example, D.W. Opderbeck,' An Economic Perspective on Product Configuration Trade Dress', [43]; J.J. Ferretti, 'Product Design Trade Dress Hits the Wall…Mart: Wal-Mart v. Samara Brothers', [44]).  On the other hand, other scholars think that it is not justified to protect the shape of products under trademark law.  According to this position, the doctrine of functionality does not provide an appropriate response to the possibility of harm to competition that would be caused as a result of the granting of a monopoly to the shape of products.  This is because, inter alia, the lack of certainty with respect to the question of whether a particular mark is functional or not deters potential competitors and constitutes a barrier against access to the relevant market.  The advocates of this approach claim that in a significant majority of cases, the shape of the product does have functional or aesthetic value, and that only in rare cases does the shape serve to identify its source (T.M. Barber, 'High Court Takes Right Turn in Traffix, but Stops Short of the Finish Line: An Economic Critique of Trade Dress Protection for Product Configuration', [45]; see further Dana Beldiman, 'Protecting The Form But Not The Function: Is U.S. Ready For a New Model?' [46]). A third, intermediate approach exists, situated between the two approaches just mentioned.  According to this approach, there is nothing in principle to prevent the shapes of products from being recognized as trademarks and being protected under trademark laws.  However, such protection will only be afforded in rare cases.  This is because in the great majority of cases the shape of the product does not serve to identify it, and therefore does not serve the purposes of trademark laws.  The primary cause of the great increase in litigation related to marks comprised of the shapes of products stems, according to this approach, from the desire to be awarded a monopoly on the shape without meeting the requirements listed in the other branches of intellectual property law.  Therefore, the question of whether those marks comprised of the shapes of products indeed fulfill the requirement of having a distinctive character, and whether they are not of functional or aesthetic value to the product, must be carefully examined.  Only in those few cases in which the marks meet the requirements mentioned will they be protected under trademark law (M. A. Lemley, 'The Modern Lanham Act and the Death of Common Sense', [47]; for an additional approach see Lars Smith, 'Trade Distinctiveness: Solving Scalia's Tertium Quid Trade Dress Conundrum' [48]; for a general discussion of the issues mentioned, including examples, see Restatement of the Law Third - Unfair Competition, sec. 16-17 (1995)[50]).

26.  Canadian law also regulates the matter of the eligibility of a three-dimensional shape of a product to serve as a trademark.  According to section 2 of the Trade-marks Act, the shape of a product (as also its manner of packaging) that serves to create a distinction and separation between that product and other products, constitutes something of a 'distinguishing guise.'  Section 13(1) of that statute establishes two conditions, which must be met, in order to register a 'distinguishing guise' as a trademark.  The first condition is that the mark has acquired a distinctive aspect in fact as a result of the use that was made of it.  In other words, the shape of the product is not eligible for registration as a trademark on the basis of its having an inherently distinctive character.  In this regard, the legal landscape in Canada is similar to the rule prevailing in the United States regarding the eligibility of a mark that is comprised of the shape of a product (paragraph 23 supra).  The requirement embodied in the second condition is that exclusive use of the mark by whoever is requesting registration is not expected to limit in an unreasonable manner the development of any art or industry ('not likely unreasonably to limit the development of any art or industry').  Section 13(2) of the Act goes on to provide that the registration of a 'distinguishing guise' as a trademark does not prevent the use of any component of the product that is utilitarian ('utilitarian feature').  The purpose of this provision is to prevent the granting of a monopoly over the functional aspects included in a trademark that constitutes a 'distinguishing guise'. Section 13(3) of the Act grants the federal courts the authority to cancel the registration of a 'distinguishing guise' mark. This provision applies where the court concludes that a change has occurred that results in a registered mark limiting the development of any art or industry in an unreasonable manner.  It should be noted that the Supreme Court of Canada viewed subsection 13(2) as a statutory adoption of the functionality doctrine, according to which a mark that is in its essence of a functional character is not eligible for registration as a trademark.  In that same case, the question arose whether a mark which is made of the shape of the upper layer of a Lego brick may be awarded protection by force of trademark law.  This issue was brought up after the patents on the Lego bricks had expired.  Relying on the functionality doctrine, the Court answered this question in the negative.  It ruled that the functionality doctrine is based on the principle that it is not permissible to extend monopolistic rights by means of trademark law if this would involve damage to free competition in relation to goods of the same type (Kirkbi AG v. Ritvik Holdings Inc., [23];  see also the decision of the appeals court on this matter Kirkbi AG v. Ritvik Holdings Inc.[24]; see further Thomas & Betts, Ltd. v. Panduit Corp. [25]; Remington Rand Corp. v. Philips Electronics N.V. [26]).  It is interesting to note that according to the position of the Canadian  registrar of patents, the limitations on the registration of a 'distinguishing guise' apply only to a mark comprised of the three-dimensional shape of a product and which relates to goods from the category to which the product belongs.  On the other hand, these limitations will not apply to a mark comprised of a three-dimensional shape that is not an integral part of the shape of the product, but rather constitutes an external addition to it (Practice Notice: Three-dimensional Marks, dated 6.12.00; on this matter see paragraph 9 supra).  Now that we have presented the various considerations pertaining to the matter of the registration of three-dimensional marks which are comprised of the shape of products as trademarks, and we have reviewed the law in this area in various legal systems, the time has come to make a determination as to the correct interpretation of the Ordinance on the said issue.

The three-dimensional shape of a product as a trademark -Israeli law

27.  As stated above (paragraph 9 supra), the definition of the term 'mark' in section 1 of the Ordinance includes, inter alia, three-dimensional symbols and images.  In any case, the fact that a sign is three-dimensional does not, of itself, rule out the possibility of registering it as a trademark.  However, we are dealing with the eligibility of the registration of a three-dimensional trademark of a certain type - one that is comprised of the shape of the product and which relates to goods of the same category as that to which the product itself belongs.  The definition of the term 'trademark' is also found in section 1 of the Ordinance.  According to this definition, a trademark is 'a mark which is used or is intended to be used, by a person in relation to the goods that he manufactures or trades in.' According to the respondents' claim, the fact that the language of the definition refers to a mark which is used (or is meant to be used) in relation to the goods, indicates that the goods themselves are not eligible to serve as a trademark.  In other words, the definition requires, so it is claimed, that the trademark be something external to the product for which it is to be used.  A similar position was expressed in the past by the House of Lords in the Coca-Cola case.  As mentioned, the English law was subsequently changed (see paragraph 18 supra, and on).  But it was also noted in the Registrar's circular that as a rule, a mark comprised of a three-dimensional image of the goods themselves contradicts the definition of the term 'trademark' in the Ordinance (see paragraph B of the Registrar's Circular).  I cannot accept this position.  I am of the view that the expression 'in relation to the goods' which is included in the definition of the term 'trademark' does not necessitate, in and of itself, the conclusion according to which the three-dimensional shape of the product is not eligible to  be used as a trademark in relation to the product itself.  The text of the definition is sufficiently broad to also accommodate the opposite interpretation, according to which the three-dimensional shape of the goods can be used as a mark as to the goods themselves.  In order to decide between the two interpretations mentioned we must turn, therefore, to considerations which are not based on the language of the definition.

28.  As stated above, the trademark's purpose is to distinguish its owner's product from the products of his competitors, and to thereby protect the goodwill of the owner of the mark.  As the discussion until now has shown, the possibility that a three-dimensional shape of a product will serve as a trademark in relation to the product itself (or in relation to goods from the same category) raises significant difficulties.  At the base of these difficulties lies the fact that the shape of a product often has an independent function from the function of the trademark as a distinguishing characteristic.  In certain cases the shape of the product has a functional role that involves achieving a technical or engineering result, while in other cases the shape is of aesthetic significance.  Two major difficulties stem from this last fact: first, registration of a three-dimensional trademark comprised of the shape of the product grants the owners of the mark a monopoly which is unlimited in time in relation to this shape and prevents its competitors from making use of it.  Thus, the functional and aesthetic advantages which are embodied in the shape of the product are denied to the competitors, and their ability to compete effectively with the owner of the mark is harmed (see in detail in paragraphs 10-11 supra).  Secondly, in light of the functional and aesthetic roles fulfilled by the shape of the product, the public does not generally tend to view the shape of the product as an indication of the source of the product.  This is so, even in cases where the shape of the product is of a unique character relative to other products of the same type.  In other words, the ability of the shape of the product to carry an inherently distinctive character is generally called into doubt (see in detail in paragraph 12 supra).

29.  I am of the view that these difficulties lead to the general conclusion that a mark that is comprised of the three-dimensional shape of a product is not eligible to be registered as a trademark on the basis of its having an inherent distinctive character.  As was noted, in light of the functional and aesthetic roles that the shapes of products serve, it appears that in the ordinary case, there is substantial doubt as to whether the shape of the product can have an inherently distinctive character.  Indeed, even the rules of the European Union - which in principle recognize the possibility of registering three-dimensional marks that are comprised of the shape of the product - provide that the establishment of an inherently distinctive character with regard to this type of mark will be significantly more difficult than the establishment of an inherently distinctive character with regard to marks of other types (see paragraph 20 supra).  Moreover, as the American Supreme Court determined in the Samara case, it is difficult to assume that it will be possible to establish a test that will clearly identify those few cases in which the shape of the product is of an inherently distinctive character.  Given the difficulty of creating a clear test in this context, the concern arises that manufacturers will claim an inherently distinctive character for the shape of a product with the purpose of bypassing the time limitations that apply in other branches of intellectual property law.

Moreover, the concern for damage to competition as a result of granting a monopoly that is unlimited in time for the shapes of products constitutes a strong consideration in support of the conclusion that the registration of three-dimensional trademarks which are comprised of the shape of a product should not be allowed.  Indeed, the rule is that a mark of a functional or an aesthetic character is not eligible to be registered as a trademark according to the category of marks that have an inherently distinctive character (paragraph 15 supra).  It would be possible to argue that this rule negates the concern as to damage to competition because in every case in which it is found that the shape of the product has a functional or aesthetic role, it will be turned down for registration as a trademark.  However, this is not at all a simple matter.  In most cases, the question of whether the product fulfills a functional or an aesthetic role is a complex one that does not yield a simple answer.  Moreover, it appears that the shape of a large segment of all products is dictated, in one way or another, by aesthetic considerations.  Here too, it is difficult to assume that it will be possible to develop a clear test to determine in which cases the aesthetic considerations are central enough to justify making the shape ineligible for registration.  A similar difficulty, though less intense, may arise with regard to functional considerations.  In the absence of a clear test, there is a concern that there will be instances in which the shapes of products will be registered as trademarks despite the fact that they fulfill a functional role or an aesthetic role.  In those cases potential competitors may accept the registration of the mark, inter alia because of the lack of certainty in this area.  In this manner the shapes of certain products will be expropriated from the public and harm to competition will ensue.  When one adds to the concern for damage to competition the empirical fact that it is only in rare cases that the shape of a product will actually have an inherently distinctive character, the inevitable conclusion is that registration of a three-dimensional trademark which is comprised of the shape of the product should not be allowed under the category of marks containing an inherently distinctive character.  It was these very considerations that led the American Supreme Court to a similar conclusion in the Samara case (see paragraph 23 supra).

30.  However, the situation is quite different regarding the possibility of registering a three-dimensional mark that is comprised of the shape of the product according to the alternative category of products of an acquired distinctive character.  When discussing the shape of a product of an acquired distinctive character we are referring to a shape that the consumer public associates with goods from a specific source (paragraph 8 supra).  Once it is proven that the shape of the product has acquired a distinctive character, then the fact that only in rare cases will the shape of the product have an inherent distinctiveness becomes irrelevant.  As mentioned above, this fact is one of the central considerations that lay at the basis of our conclusion regarding the category of products possessing an inherently distinctive character.  Moreover, it would seem that interest in registering the shape of a product in relation to a trademark is greater where the party seeking registration proves that the shape is in fact used to distinguish the product and protect his reputation (acquired distinctive character), than in the case in which he claims that the shape of the product has potential for distinction and protection as stated (inherent distinctive character).  Indeed, the concern for harm to competition as a result of the difficulty in determining clear tests as to the aesthetic or functional role of the shape of the product (paragraph 29 supra) is also relevant for the alternative of acquired distinctive character.  Despite this concern, it appears that the totality of considerations regarding this alternative leads to the conclusion that the possibility of registering three-dimensional shapes of products as trademarks on the basis of the alternative of acquired distinctive character ought to be recognized.  This means that in those cases in which it is clearly proven that the shape of the product is in fact used to distinguish the product, and that the shape does not have a substantial aesthetic or functional role - the shape will be eligible for registration as a trademark.

It will be noted that when the shape of the product is in fact used as a means of identification and distinction, then it fulfills the function of a trademark.  In any event, there is justification for granting it protection under trademark law.  Indeed, it is possible that the shape of the product could have been granted protection in the framework of other branches of intellectual property law, such as design law (or that it has received such protection in fact).  However, because the purpose of trademark law is different from the purposes of the rest of the branches of intellectual property law, this fact on its own does not constitute a sufficient reason to deny protection within the framework of trademark law.  We will further add that we are aware of the fact that the rule is that the functional character of a mark prevents its registration as a trademark only according to the alternative of an inherent distinctive character, and not according to the alternative of an acquired distinctive character.  We also raised the question of whether the difference that exists in this context between passing off law and trademark law is valid (paragraph 15 supra).  Either way, at the very least, to the extent that the matter relates to three-dimensional trademarks that are comprised of the shape of the product, there is no escape from the conclusion that having a functional (or aesthetic) character rules out the eligibility of the mark for registration as a trademark, even if it is proven that it acquired a distinctive character in fact.  Otherwise, the result may be the granting of a monopoly to functional (or aesthetic) shapes that is unlimited in time.  This result could severely harm competition in the relevant market (see paragraph 11 supra).

31.  The conclusion is, therefore, that the three-dimensional shape of a product is not eligible for registration on the basis of the inherent distinctive character alternative.  However, it is eligible for registration on the basis of the acquired distinctive character alternative, provided that the acquired distinctive character, as well as the absence of an aesthetic or a functional role, are proven.  We emphasize that to the extent that the shape of a product fulfills a functional or aesthetic role (beyond a negligible role), then the mark will not be eligible for registration even if it acquired a distinctive character in fact.  Similarly, when dealing with a very simple shape, there may be a greater tendency to determine that this basic form fulfills a functional or aesthetic role (compare, the Coffee To Go case, paragraph 23).  We acknowledge that this solution is not free of difficulties.  These concerns include, inter alia, the difficulty of establishing clear tests as to whether the shape of the product has a functional or aesthetic role, and the ensuing threat of harm to competition as a result of the uncertainty this entails.  In order to entirely negate this concern, it would be necessary for us to determine that a product's shape is never eligible for registration as a trademark.  However, we cannot ignore the contrary interest that where it is clearly proven that the shape of a product in fact fulfills the function of a trademark, it should be granted appropriate protection under trademark laws.  In this context we will mention that none of the legal systems we examined have established a rule absolutely precluding the registration of product shapes as trademarks.  In fact, the solution we adopted is similar to the arrangement that exists in both American law and Canadian law.  We will further emphasize that our conclusion as to the eligibility of the registration of marks comprised of the three-dimensional shape of products does not prevent the protection of shapes of products under the tort of passing off.  One must remember that in the framework of this tort, the plaintiff must prove that the shape of the product that he seeks to protect acquired goodwill in the sense that it is used in fact as a means of identification and distinction.  However, we will reiterate that even within the tort of passing off, protection will not be afforded to the shape of a product of functional or aesthetic character (see paragraphs 15-17 supra).

32.  Three comments in conclusion: first, many of the considerations which were brought above in relation to the three-dimensional shape of a product are also relevant to the three-dimensional shape of its packaging.  It is also important that the tests for the registration of three-dimensional marks be user-friendly to the greatest extent possible, and avoid creating fine distinctions that are difficult to apply.  Despite this concern, there are still certain differences between the two issues.  It would seem that the danger of harm to competition that might result from granting a monopoly by registering a trademark is greater in the case of the shape of the product than in the case of its packaging (in this context see in the Fenecia case, paragraph 17 supra).  I therefore leave for further inquiry the question of whether a three-dimensional mark comprised of the packaging of a product is eligible for registration as a trademark on the basis of the inherently distinctive character alternative.  Secondly, to the extent that the Registrar's circular is not consistent with our determinations here, it is to be updated accordingly.  Thirdly, we have not found it necessary to decide on the application filed by the appellants to submit supplementary evidence, as our decision will not change based on the document that is the subject of the application.

33.  The outcome is that the judgment of the District Court is overturned.  The proceeding is remanded to the lower Court in order to determine the matter of the validity of the appellants' mark according to the principles set out in paragraphs 29-31 supra.  It is clear that if the District Court rules that the three-dimensional mark of the appellants is valid, it will then need to determine whether the actions of the respondents violate the mark.  Attorneys' fees for this appeal, in the sum of 100,000 NIS, will be awarded based on the result in the District Court.

 

Vice-President E. Rivlin

I agree

 

 

Justice E. Rubinstein

I agree

 

23 March 2008

16 Adar II 5768

 

 

CA 3912/90

Eximin SA, a Belgian corporation

v.

Itel Style Ferarri Textiles and Shoes Ltd

 

The Supreme Court sitting as the Court of Civil Appeal

[22 August 1993]

Before President M. Shamgar and Justices E. Goldberg, Y. Malz

 

Appeal on the judgment of the Tel-Aviv-Jaffa District Court (Justice H. Ben-Atto) on 12 August 1990 in Civil File 2093/86.

 

Facts: the appellant bought 3,000 pairs of denim boots from the respondent for a customer of the appellant in the United States. The boots had a pocket on which a letter ‘V’ was sewn. When the boots reached the United States, they were detained in customs because the design violated a trade mark registered in the United States.

The issue in dispute was: who was responsible for ignoring the question of whether the design involved a breach of a registered trade mark?

 

Held: (Majority opinion — President M. Shamgar, Justice Y. Malz) Since both parties knew of the possibility that there might be a registered trade mark, and neither investigated the matter, both parties acted with a lack of good faith. Consequently, liability for the damage should be allocated between the parties.

(Minority opinion — Justice E. Goldberg) Since the appellant (the importer) asked for a change in the boots’ design because of customs problems, the respondent (the manufacturer) was entitled to rely upon the appellant knowing United States law and taking the necessary precautions to ensure it was not infringed. Therefore no lack of good faith should be imputed to the respondent, and full liability for the violation of the trade mark should rest with the appellant.

 

Appeal allowed in part, by majority opinion.

 

Legislation cited:

Contracts (General Part) Law, 5733-1973, ss. 12, 39, 61(b).

Contracts (Remedies for Breach of Contract), 5731-1970, ss. 10, 14(a).

Sale (International Sale of Goods) Law, 5731-1971, Schedule, ss. 1, 52, 52(a), 82, 88.

Sale Law, 5728-1968, ss. 6, 18.

 

Israeli Supreme Court cases cited:

[1]      CA 815/80 Harlow and Jones GMBH v. Adders Building Materials Ltd [1983] IsrSC 37(4) 225.

[2]      FH 36/84 Teichner v. Air France Airlines [1987] IsrSC 41(1) 589.

[3]      CA 338/73 Parcel 677 Block 6133 Co. Ltd v. Cohen [1975] IsrSC 29(1) 365.

[4]      CA 144/87 State of Israel v. Engineer Faber Building Co. [1991] IsrSC 45(3) 769.

[5]      HCJ 59/80 Beer-Sheba Public Transport Services Ltd v. National Labour Court [1981] IsrSC 35(1) 828.

[6]      CA 825/79 Sherbet Brothers Building Co. Ltd v. Schwartzbord [1982] IsrSC 36(4) 197.

[7]      CA 804/80 Sidaar Tanker Corp. v. Eilat-Ashkelon Pipeline Co. Ltd [1985] IsrSC 39(1) 398.

[8]      CA 158/77 Rabinai v. Man Shaked Ltd (in liquidation) [1979] IsrSC 33(2) 281.

[9]      CA 789/82 Ezra v. Mugrabi [1983] IsrSC 37(4) 565.

[10]    CA 714/87 Sher v. Cohen [1989] IsrSC 43(3) 159.

 

For the petitioner — A. Brumer.

For the respondent — D. Blum.

 

 

 

JUDGMENT

 

President M. Shamgar

     1. (a) This is an appeal on a judgment of the Tel-Aviv District Court, which dismissed the appellant’s claim for restitution and damages.

(b) The relevant facts, as determined by the trial court, are as follows: the appellant, a Belgian company, bought from the respondent, an Israeli company, 3,000 pairs of denim boots, for a customer of the appellant in the United States. The boots were of a special design that was popular at that time: the boot appears to be part of the trousers with a pocket on which the shape of the letter ‘V’ is sewn. The respondent manufactured boots like these, before the appellant contacted it, for the local market, and it manufactured boots like these also for export, inter alia to Germany.

The appellant sent the customer six different designs, and it approved one of these designs, with two changes: removing the ‘forza’ mark that was sewn on the design and replacing the neolyte sole with a leather sole. The respondent manufactured the entire quantity of boots in accordance with the order, sent the goods to the United States and received the full price, which was guaranteed by documentary credit.

When the goods reached the United States, it turned out, allegedly, that the design violated a trade mark registered in the United States, and the consignment was therefore detained in customs.

(c) The appellant sued for restitution of the price of the goods, arguing that the transaction failed through the fault of the manufacturer. At a preliminary hearing, the parties accepted a proposal of the court to minimize the damage. The appellant removed the ‘V’ mark from the boots and the customer in the United States bought them at a reduced price. Consequently, the claim was reduced to the difference in the price that represented the appellant’s loss. The trial court ruled that the responsibility for ignoring the breach of the trade mark registered in the United States lay, in this case, with the appellant, and it dismissed the action.

This is the subject of the appeal before us.

2.    The parties raised different and diverse arguments in this appeal, some of which in the abstract, relating to the nature of the transaction and its significance with regard to determining liability, and others in the concrete, relating to the specific relationship that developed between the parties. We will consider the arguments in the order they were raised.

3.    The nature of the transaction and its significance for determining liability between the parties

(a) Article 1 of the schedule to the Sale (International Sale of Goods) Law, 5731-1971 (hereafter — ‘the International Sale of Goods Law’), provides:

‘1. The present Law shall apply to contracts of sale of goods entered into by parties whose places of business are in the territories of different States, in each of the following cases:

(a) where the contract involves the sale of goods which are at the time of the conclusion of the contract in the course of carriage or will be carried from the territory of one State to the territory of another;

(b) where the acts constituting the offer and the acceptance have been effected in the territories of different States;

(c) where delivery of the goods is to be made in the territory of a State other than that within whose territory the acts constituting the offer and the acceptance have been effected.

2.            Where a party to the contract does not have a place of business, reference shall be made to his habitual residence.

3.            The application of the present Law shall not depend on the nationality of the parties.

4.            In the case of contracts by correspondence, offer and acceptance shall be considered to have been effected in the territory of the same State only if the letters, telegrams or other documentary communications which contain them have been sent and received in the territory of that State.

5.            For the purpose of determining whether the parties have their places of business or habitual residences in “different States”, any two or more States shall not be considered to be “different States” if a valid declaration to that effect made under Article 2 of the Convention dated the 1st day of July 1964 relating to an Uniform Law on the International Sale of Goods is in force in respect of them.’

The appellant argues that this law applies to the present case. As the respondent does not contest its applicability, I will assume that the said law does indeed apply. I will add that the International Sale of Goods Law reflects customary international law with regard to sale transactions between countries, even though changes have occurred in customary international law since its enactment: in 1980, the United Nations Convention on Contracts for the International Sale of Goods (hereafter — ‘the Vienna Convention’) was ratified in Vienna, and this in practice replaced the Convention relating to an Uniform Law on the International Sale of Goods that was signed in the Hague in 1964, to which the law referred. I will address the changes that have been made since the law’s enactment, in so far as this is necessary.

(b) Article 52 of the said Schedule provides:

‘1. Where the goods are subject to a right or claim of a third person, the buyer, unless he agreed to take the goods subject to such right or claim, shall notify the seller of such right or claim. Unless the seller already knows thereof, and requests that the goods should be freed therefrom within a reasonable time or that other goods free from all rights and claims of third persons be delivered to him by the seller.

2.            If the seller complies with a request made under paragraph l of this Article and the buyer nevertheless suffers a loss, the buyer may claim damages in accordance with Article 82.

3.            If the seller fails to comply with a request made under paragraph l of this Article and a fundamental breach of the contract results thereby, the buyer may declare the contract avoided and claim damages in accordance with Articles 84 to 87. If the buyer does not declare the contract avoided or if there is no fundamental breach of the contract, the buyer shall have the right to claim damages in accordance with Article 82.

4.            The buyer shall lose his right to declare the contract avoided if he fails to act in accordance with paragraph l of this Article within a reasonable time from the moment when he became aware or ought to have become aware of the right or claim of the third person in respect of the goods.’

This section is similar to section 18 of the Sale Law, 5728-1968, which provides:

‘(a) The vendor shall deliver the item sold free of every charge, attachment or other third-party right.

(b) The vendor shall notify the purchaser immediately of any claim of rights in respect of the item sold, of which he knew, or should have known, before delivery of the item sold.’

The appellant argues that article 52 applies also to a trade mark right held by a third party. In his work ‘The Sale Law, 5728-1968’, in A Commentary on the Law of Contracts, The Harry Sacher Institute for Research on Legislation and Comparative Law, G. Tedeschi ed., 1972, at p. 98, Professor Z. Zeltner points out (with regard to section 18 of the Sale Law) that:

‘The expression “other third-party right” includes, apparently, patent and trade mark rights held by a third party.’

E. Zamir, in ‘The Sale Law, 5728-1968’ Interpretation of the Law of Contracts (the Harry Sacher Institute for Research on Legislation and Comparative Law, G. Tedeschi, ed., 1987), at p. 374, also points out (with regard to section 18) that:

‘The third party’s right does not need to be in the sale item itself. If, for example, the sale item or the transfer thereof to the purchaser involves a breach of an intellectual property right, such as a patent, copyright or trade mark, this is also a breach of section 18(a) in the relationship between the vendor and the purchaser.’

See also footnote 73.

For a comparison of the provisions of contractual legislation and the provisions of the International Sale of Goods Law, see CA 815/80 Harlow and Jones GMBH v. Adders Building Materials Ltd [1], at p. 230.

(c) A more specific provision to this effect may be found in Article 42 of the Vienna Convention:

‘Article 42

(1) The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property:

(a) Under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or

(b) In any other case, under the law of the State where the buyer has his place of business.

(2) The obligation of the seller under the preceding paragraph does not extend to cases where:

(a) At the time of the conclusion of the contract the buyer knew or could not have been unaware of the right of claim; or

(b) The right or claim results from the seller’s compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.’

See also section 2-312(3) of the American Uniform Commercial Code (U.C.C.):

‘2-312 Warranty of Title and Against Infringement; Buyer’s Obligation Against Infringement.

(1) Subject to subsection (2) there is in a contract for sale a warranty by the seller that:

(a) The title conveyed shall be good, and its transfer rightful; and

(b) The goods shall be delivered free from any security interest or other lien or encumbrance of which the buyer at the time of contracting has no knowledge.

(2) A warranty under subsection (1) will be excluded or modified only by specific language or by circumstances which give the buyer reasons to know that the person selling does not claim title in himself or that he is purporting to sell only such right or title as he or a third person may have.

(3) Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that the goods shall be delivered free of a rightful claim of any third person by way of infringement or the like but a buyer who furnishes specifications to the seller must hold the seller harmless against any such claim which arises out of the compliance with the specifications.’

With regard to German Law see: N.M. Galston, International Sales: The United Nations Convention on Contracts for the International Sale of Goods, New York, 1984, at p. 633.

 (d) The accepted interpretation of these provisions is that the seller’s duty to transfer unencumbered ownership also includes the duty to transfer ownership unencumbered by rights such as trade mark rights vested in a third party. This interpretation prima facie supports the appellant’s position.

(e) Attention must be paid to the limitations that appear in the same art. 42 of the Vienna Convention. These are also stated in case-law relating to the other aforementioned sections. In other words, art. 42 is a kind of miniature codification of the qualifications that have been developed over the years with regard to the seller’s duty to transfer ownership free of any third-party claims. Its provisions can therefore also be of assistance, by way of analogy, in the case before us. This is also in keeping with the desire to unify the law, as held in FH 36/84 Teichner v. Air France Airlines [2], at p. 611:

‘National distinctiveness, which is a valuable asset within the confines of a particular legal system, may have problematic results when an event — such as an international flight — transcends borders and becomes involved with several legal systems. This is the reasons for the trend of unification in extensive spheres of law, primarily those relating to international transport and commerce…’

It should be noted that the international norm, in this case, agrees with, and integrates into, the national norm.

Thus, as in the provision of art. 42(1) of the Vienna Convention, the seller will be liable only for a right of which he knew or of which he could not have been unaware (where a standard close to knowledge is intended). See J. Honnold, Uniform Law for International Sales, Deventer, 2nd ed., 1991, at p. 350; this assumes that we are speaking of such a right in the State where the product will be sold (provided, of course, that this State was determined in the contract between the parties) or in any other case, in the buyer’s State.

Similar to the provisions of art. 42(2) of the Vienna Convention, the seller shall be exempt from liability if the buyer knew or could not have been unaware of the right, or if the infringement of the right derives from compliance with specific instructions of the purchaser. It should however be noted that we are referring to conditions that the buyer asked the seller to fulfil, and not conditions left to the seller’s discretion. With regard to conditions left to the seller’s discretion, opinion is divided as to who should be held liable for the infringement of the right (see Galston, supra, at pp. 34-36, and with regard to section 2‑312(3) of the U.C.C., see also J.J. White & R.S. Summers, Handbook of the Law under the Uniform Commercial Code, St. Paul, 2nd ed., 1980, at p. 364). In cases dealing with liability for infringement of a third party right,  the buyer is required to notify the seller within a reasonable time of discovering the infringement, and the notice must state the nature of the right. However the seller may not raise the argument that he was not notified of the infringement if he knew of it.

It should be noted that the parties may contract out of these provisions in the contract between them, whether expressly or by implication.

The question that arises in this case is, therefore, whether there was a restriction to the seller’s liability, or, alternatively, whether it can be inferred from the behaviour of the parties before making the contract that they wanted to restrict the seller’s liability.

(f) It is not disputed that that both the appellant and the respondent knew that the goods were intended to be sent to the United States. Moreover, both of them could not have been unaware of the possibility that a registered trade mark existed. The trade mark is registered by the American company ‘Levis’. This company is not a small, unknown company. This company’s goods are marketed around the world and any sensible person ought to have assumed that such a company would register a trade mark for its products, at least in its country of origin, which is the United States. This assumption is especially valid with regard to the appellant and the respondent, both of which are companies that do business in this field and are aware of its special characteristics. We cannot accept a claim by either of them that it did not know or could not have known about the existence of this registered trade mark. With regard to the respondent, this knowledge can also be inferred from the testimony of Mr Ben-Vered, who confirmed that the respondent knew that denim manufacturers normally register trade marks for their products, and the respondent did its best to make sure it did not infringe them. This is the case, to a greater degree, with regard to the appellant’s customer, who is resident in the United States and does business there in selling products of this kind. It is true that he did not do business directly with the respondent, but only with the appellant, but the appellant cannot claim that its customer did not need to inform it about a registered trade mark. This argument was not even made, and in any case it concerns the relationship between the appellant and the customer, who is not a party in this proceeding. In so far as this appeal is concerned, the appellant acted for the customer, and the knowledge imputed to the customer may also be imputed to the appellant, particularly in view of the customer’s active involvement in the actual transaction.

It transpires, therefore, that, prima facie, the seller’s liability is limited, since the buyer was also aware of the problem with the goods. We will discuss the significance of this qualification for the purpose of determining liability below, but first let us examine the intention of the parties, on the basis of the contract made between them and their behaviour before signing it.

(g) The appellant approached the respondent with a request that it manufacture for it boots of the kind described. I am prepared to assume, in the appellant’s favour, that it chose a design from among those in the possession of the respondent, without submitting any design of its own, since the facts show that six similar designs were sent to the customer in the United States. Sending the designs also makes it clear that the question whether the appellant brought this design to the respondent or not is insignificant. The customer certainly should have known about the existence of a registered trade mark. At least he should have suspected this, and this gave rise to a duty to look into the matter before approving one of the designs. Moreover, not only did the customer approve one of the designs, but he also asked for changes to be made to it. The nature of this request shows the customer’s familiarity with the laws of his country of residence. From the moment that the customer did this, the respondent was entitled to assume that prima facie there was no problem whatsoever with the goods. We say prima facie because in the case of a company like Levis, the respondent should indubitably have suspected the existence of a registered trade mark. What is more, the appellant is correct in arguing that the respondent should have assumed no more than that the buyer examined the fitness of the product’s design merely for his own needs, without examining whether it complied with the law in the United States.

It transpires that even from the behaviour of the parties before signing the contract we can infer that the purchaser accepted, if only in part, the risk that the goods did not comply with certain requirements under American law. In this respect it may be added that the trial court even made a finding of fact, that under United States law the importer-buyer could have obtained permission from the ‘Levis’ company to import these boots. Nonetheless, I am not prepared to accept the unequivocal conclusion of the trial court that the exporter-seller was entitled to rely absolutely on the importer making the necessary preparations, from his point of view, for receiving the goods in the United States. As the party familiar with the special nature of the business and as the party who in principle is supposed to be liable for a breach of a registered trade mark in such a case, it should have ascertained whether the importer acted properly, or, at least, it should have raised the question.

(h) In order to remove all doubt, I will point out that the question whether the transaction was a F.O.B. transaction or a C.I.F. transaction is insignificant. The dispute between the parties relates to a preliminary stage of execution, and the question of liability for infringement of a registered trade mark is not contingent on the type of carriage transaction. The proof of this is that the various sections, whether in the International Sale of Goods Law or in the international conventions, do not refer to this at all.

4.    Determination of liability of the exporter-seller and the importer-buyer

(a) The result of the above is that there is prima facie a qualification to the liability of the seller-exporter; at the least, the behaviour of the parties shows that it is not necessarily the seller who should bear the liability. On the other hand, it appears that the full liability should not be imposed on the buyer-importer.

The parties’ behaviour shows that they did not trouble to cooperate with one another. The parties disagreed about the responsibility for carrying out various actions, and instead of sitting down and resolving the differences, each of them acted, apparently, as he saw fit, ignoring the damage that was likely to be caused and assuming that the other party would be liable for it. Each of the parties, in fact, foresaw the damage but did not trouble to clarify the risk of its happening to the other party, nor did it trouble to disclose it to the other and prevent the damage, even though it was clearly able to do so. Albeit the lack of cooperation (or lack of disclosure) of the type that existed here does not exempt the party who must carry out an action from its duty, but the question is whether it is not sufficient to grant him a partial defence.

(b) The behaviour of each of the parties, as described, amounts to lack of good faith in performing the contract (s. 39 of the Contracts (General Part) Law, 5733-1973 (hereafter — ‘the Contracts Law’), and also s. 6 of the Sale Law), and perhaps even to lack of good faith at the negotiation stage (s. 12 of the Contracts Law). The remarks of Prof. G. Shalev in her book, The Laws of Contracts, Din, 1990, at p. 43, are most pertinent in this respect:

‘The golden path in implementing the principle of good faith is found in a balance between the ethical basis for the principle and the requirements of trade. Following this path dictates proper behaviour in conducting business. The principle of good faith symbolises an abandonment, to some extent, of individualism and egoism, but it does not dictate absolute altruism… the general requirement to act in good faith should therefore be seen as a balanced requirement of consideration for the other party and cooperation with him, for the realization of the purpose of the contract.’

In order to remove doubt, we will point out that the provisions of the Contracts Law also apply to the case before us, if not directly, then by virtue of section 61(b) of the Contracts Law.

Both sides acted in bad faith. This is in fact consistent with the two aspects of the principle of good faith. On the one hand, we are talking about a cumulative requirement, which imposes an additional obligation to the express obligations under the contract, namely the obligation to act in good faith. This requirement is relevant to the duty of the seller-exporter to inform the importer-buyer, even though he knew, for example, that the latter would be liable (in view of the said qualifications). On the other hand, this is also a moderating provision, which in the appropriate case allows a deviation from the requirement to carry out the contract perfectly. This description is relevant to the duty of the importer-buyer, not to sit by idly, even though he assumed, for example, that the exporter-seller would be liable. Prof. G. Shalev says of this in The Laws of Contracts, at pp. 43-44:

‘The joining effect of the principle of good faith is reflected in all those cases in which it was held that the debtor must carry out his existing obligations in good faith, or in which an additional obligation was imposed upon him. The moderating effect of the principle of good faith is reflected in those cases where this principle allows a deviation from perfect performance of the obligation, provided that the performance and the deviation therefrom were done in good faith. In practice, this moderating effect is reflected in transferring the obligation to act in good faith from the debtor to the creditor under the contract, and it is equivalent to the requirement to exercise good faith with regard to rights arising from the contract.’

See in this regard also what was said in CA 338/73 Parcel 677 Block 6133 Co. Ltd v. Cohen [3], at p. 369, about s. 6 of the Sale Law:

‘We will consider here the two aspects of section 6. One aspect is the performance of a contract by the debtor party, who is liable to carry it out in good faith and in accordance with accepted practices. The legislator could not have been referring to the accepted practices among swindlers; rather the debtor must act in accordance with the accepted practices in fair negotiations. The second aspect of that section is the extent of the right of a party claiming a right under the contract; he too is subject to the same rule, which means that the entitled party may not pounce on a word in the contract and abuse it; rather he must exercise that right given to him in accordance with accepted practices among people who conduct their business in good faith and honestly. It should be emphasized that the legislator used the words ‘an obligation that arises’ and ‘a right that arises from a contract’, and significance should be attached to this. These obligations which are stated in s. 6 are additional obligations and rights that are added to what is stated in the contract, and they should be regarded as if they were expressly written in the contract’ (emphasis added).

Prof. M. Mautner says in his book, The Decline of Formalism and the Rise of Values in Israeli Law, Ma’agalei Da’at, 1993, at pp. 58-59:

‘The operation of section 39 is based on the assumption that the legal relationship between two persons is governed by a certain norm, whether contractual or otherwise, which creates an obligation and a right between the parties. Section 39 governs this norm, by expanding the scope of the debtor’s obligation or by limiting the scope of the creditor’s right. The duty imposed in the section is therefore an altruistic duty. The term ‘altruism’ is generally used to describe a situation where a person does not act out of a desire to promote his own interests, but his action is based on an intention to promote the interests of another. Altruism is the opposite of egoism, which in essence is acting while regarding the interests of each individual in society as invariably distinct from those of others. A party who is subjected to the duty of good faith must therefore adopt altruistic behaviour, which means he must act to protect the interests of the other party, beyond what is stipulated in the norm that governs his relationship with that party.’

Incidentally, Prof. Mautner also sought to characterize the duty of a litigant to act in good faith as an altruistic obligation, which means he must act to protect the interests of the other party, beyond what is stipulated in the norm that governs his relationship with that party.

The said duties are also expressed in the laws of international sale, as reflected in article 52 of the Schedule of the International Sale of Goods Law and in article 42 of the Vienna Convention. By virtue of these sections, the first and main duty is the duty of the exporter (the seller) to transfer the right to the importer (the buyer) free of any third-party rights. The other duty is the duty of the importer, if he is aware of such a right, to act himself so that the transaction is not frustrated, or at least to inform the exporter of the difficulty that is likely to arise, so that the latter may act accordingly. Similarly, the exporter too must inform the importer, if he thinks that a difficulty is likely to arise, particularly if he can assume that there is a qualification of his liability. These provisions are admittedly not stated expressly in the said articles, but they undoubtedly arise from them and are required by the very existence of a relationship whose purpose is cooperation between the buyer and the seller for the success of the business relationship between them.

Failure to comply with the requirement of good faith amounts to a breach of contract, and since in our case each of the parties lacked good faith, we are speaking of reciprocal breaches of the contract (see Shalev, The Laws of Contracts, at p. 65). The breach of each of the parties contributed ultimately to the breach made by the other party which resulted in the damage. It can also be viewed as a breach that contributed directly to the damage.

As stated above, the duty of disclosure may already have arisen at the negotiation stage, but as long as it was not carried out, the duty remains, and so if it was also not carried out at the contractual stage, the lack of good faith amounts to a breach. This was held also in CA 144/87 State of Israel v. Engineer Faber Building Co. [4], at p. 778:

‘The duty to act in good faith can also take the form of a duty of a party to the contract to disclose important facts during the contractual period… The question of the existence of such a duty and of its scope naturally vary from case to case… The duty of disclosure during the contractual period exists — or more precisely continues to exist — whenever the duty of disclosure was not carried out by a party at the pre-contractual stage, and the necessity of the disclosure continues to exist also during the contractual stage, and the degree of necessity is such that failure to comply with it amounts to behaving unfairly and not in accordance with accepted practices and in good faith.’

In any case, the question is what is the consequence of a lack of good faith that amounts to a breach by both parties.

(c) Article 82 of the Schedule of the International Sale of Goods Law provides:

‘Where the contract is not avoided, damages for a breach of contract by one party shall consist of a sum equal to the loss, including loss of profit, suffered by the other party. Such damages shall not exceed the loss which the party in breach ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters which then were known or ought to have been known to him, as a possible consequence of the breach of the contract’ (emphasis added).

Similarly, art. 74 of the Vienna Convention provides:

‘Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract.’

In Israel, s. 10 of the Contracts (Remedies for Breach of Contract) Law, 5731-1970 (hereafter — ‘the Remedies Law’), provides:

‘The injured party is entitled to damages for the damage caused to him as a result of the breach and its consequences which the party in breach foresaw, or should have foreseen, at the time the contract was made, as a probable consequence of the breach’ (emphasis added).

The idea underlying the principle of causality is that the person in breach is liable for the damage resulting from his action. Therefore, if two persons caused the damage, neither should be preferred to the other, but the liability should be divided between them so that each shall be liable for his share of the damage.

(d) The finding that each party should be liable for the damage for which he is responsible is also consistent with the requirement to mitigate the damage.

Article 88 of the Schedule of the International Sale of Goods Law provides:

‘The party who relies on a breach of the contract shall adopt all reasonable measures to mitigate the loss resulting from the breach. If he fails to adopt such measures, the party in breach may claim a reduction in the damages.’

Similarly, section 77 of the Vienna Convention provides:

‘A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated.’

Similarly s. 14(a) of the Remedies Law states:

‘The party in breach is not liable for damages under sections 10, 12 and 13 for damage that the injured party could have prevented or mitigated by reasonable measures.’

These sections effectively limit the entitlement of the injured party to damages and constitute an incentive for the injured party to act to prevent and reduce his damage. However, the rule concerning the mitigation of damage comes into effect only after the breach, whereas we are concerned with the ‘mitigation of damage’ at stages preceding the breach or at stage of the breach itself. The use of s. 10 of the Remedies Law (or art. 82 of the Schedule to the International Sale of Goods Law) to achieve this purpose will preserve coherence and contribute to the integrity of the system. For why should we only hold the injured party liable to prevent his damage ex post facto, if he can easily do this ab initio? We used the word ‘easily’, since we are not talking about actual prevention but about not acting to create or to increase his damage. This applies a fortiori to our case, where the injured party is also in breach.

(e) It is true that the court tends to attribute unequivocal and absolute implications to a lack of good faith. Thus, a party’s lack of good faith may deprive him of a remedy or confer a remedy on the other party. In this respect Justice Barak states (in HCJ 59/80 Beer-Sheba Public Transport Services Ltd v. National Labour Court [5], at pp. 838-839):

‘Sometimes the result of non-compliance with a duty is the payment of damages or specific performance. Sometimes the result is that the party in breach is refused compensation or enforcement. Sometimes the result of the breach is that the other party is empowered to do certain acts within the sphere of the contract which otherwise would have been deemed a breach, or that the party in breach is denied a power given to him under the provisions of the contract. Sometimes the result is merely that the action done in breach of the duty has no effect and is invalid…’

The same has also been held with regard to improper behaviour that did not necessarily amount to a lack of good faith. CA 825/79 Sherbet Brothers Building Co. Ltd v. Schwartzbord [6] concerned a memorandum for the sale of land. The parties agreed they would prepare a detailed contract after they agreed the payment terms. But the buyer was evasive and on two occasions did not come to meetings arranged by the parties for preparing the formal contract, which led the seller to believe that the purchaser wished to withdraw from the transaction. Although the law did not regard the buyer’s behaviour as amounting to a withdrawal from the transaction, and the memorandum remained valid, Justice D. Levin nonetheless ruled that the buyer’s claim for damages should be dismissed in full, in view of her behaviour:

‘Although the appellant did not formally cancel the memorandum, and she cannot be blamed for its non-realization, we cannot ignore the fact that her behaviour, as described above, contributed to the complication that ultimately led to this litigation. The transaction was in its initial stages, and on the determined facts, the appellant had not yet altered her situation as a result of the contract. In these circumstances I do not see what damage she can claim, and what justification there is for finding in her favour and awarding her any real damages’ (ibid., at p. 210).

It should be noted that in the other cases described, only one of the parties acted in bad faith or negligently, whereas in the present case, both parties lacked good faith.

Moreover, if it is possible to deny a remedy completely in cases like the aforesaid, then a partial denial of damages is even more possible, and as I shall show below, it is also desirable.

(f) As stated, the accepted premise is that contractual liability is absolute liability, in the sense that it usually arises in full force irrespective of the nature of the breach, the intentions of the party in breach or other circumstances. But even if we accept this premise, it does not mean that we cannot take into account the lack of good faith of both parties to the contract. Both parties in this case are tainted by this behaviour.

(g) It was pointed out in CA 804/80 Sidaar Tanker Corp. v. Eilat-Ashkelon Pipeline Co. Ltd [7], at p. 426, that:

‘There is no a priori jurisprudential understanding of the term “absolute liability”. Its meaning varies with the context in which it appears and the purpose that it is intended to serve.’

With respect to the method of examining the nature of absolute liability, we must refer to the statutory provision (the internal examination), in order to determine whether we can derive the purpose of the absolute liability from it. In this way we can also examine the applicability of defences such as a lack of good faith (of both parties, as in this case) to this provision. We must also consider general legal principles (the external examination). Accordingly, what will determine whether a lack of good faith can be imputed to a party to a contract who is prima facie entitled to compensation for damage resulting from a lack of good faith on the part of the other party, is the purpose of the law: in our case, this means the International Sale of Goods Law and general legal principles.

 (h) The purpose of the International Sale of Goods Law is in effect to establish a standard contract that shall be deemed to be adopted by the parties, unless they make a stipulation to the contrary. The purpose of this contract is to allow the parties to realize their wishes to the maximum, while allocating between them the various risks involved in the transaction. The premise of the law is that the responsibility for performing a particular act in a transaction should be imposed on the party that can perform it in the best possible way.

Performance in the best possible way means, inter alia, performance at the lowest cost, since the presumption in this kind of commercial transaction is that the parties wish to derive the maximum benefit from the transaction. Therefore, the International Sale of Goods Law will not impose liability for doing a particular act on a party that may perhaps be able to do it well, if this will involve a considerable expense that may even negate the benefit that the parties will derive from the transaction itself.

Allocating the risks allows each of the parties to act in the knowledge that the other party will act in a manner consistent with the purposes of the transaction. In other words, the law gives both parties the possibility of reliance, which is one of the main aims running throughout the law of contract.

 (i)   Does achieving the purposes of the law depend upon the existence of absolute liability? Quite the contrary. Like any contract or transaction, the sale transaction is also based on a desire for cooperation between the parties, assuming, of course, that the cooperation will benefit each of them, and both of them jointly. There is no reason to assume that this cooperation ends with making the contract, and in our case upon reaching an agreement whose essence is the applying the International Sale of Goods Law to the relationship between the parties. As stated above, even a duty of disclosure that is not discharged at the pre-contractual stage remains in force at the contractual stage. It is only reasonable that along their joint path the parties will encounter various problems that require some flexibility and even a deviation from what was originally determined. Without doubt, cooperation will also be needed in the future. One aspect of this cooperation is the recognition that damage may be caused to one of the parties as a result of lack of good faith by both parties. ‘Cooperation’ in such a case is reflected in the allocation of liability for damages between the two — an allocation made after the event, which may in fact encourage cooperation from the outset.

(j)    This determination does not conflict with the parties’ reliance, since a party to a transaction who knows of a particular problem involved in it (and in our case it has been proved that both parties could have known) and does not raise it with the other party, knowing that such an act may in fact lead to frustration of the transaction, cannot claim that he relied upon the other party investigating the matter. This very argument contains a large degree of lack of good faith (see also: Dr A. Porat, Allocation of Liability in the Law of Contract (Doctoral Thesis), 1989, 88).

Moreover, it is possible that the very allocation of liability will strengthen the reliance of the two parties to the transaction, for when they know that each of them is under a duty to help the other to act — to a reasonable degree, naturally — their faith in the performance of the transaction will be strengthened and their reliance will be increased. We can also refer in this respect to the remarks of Dr Porat, Allocation of Liability in the Law of Contract, at p. 90:

‘... when the contract obliges both parties to perform somewhat complex obligations towards one another, rather than, for example, the mere payment of money. In such circumstances, each party knows that he is often likely to encounter difficulties in performance, from which the other party can help him to extricate himself easily. If, in his understanding of the legal position, the other party is not obliged to help him even when it does not require an investment of resources, then his confidence in his own ability to perform the contract will be diminished. In any event, his confidence that he will receive, or that he is entitled to receive, the counter-performance of the other party will diminish. If however, in his understanding of the legal position, the other party must help him to a reasonable degree, his confidence in his own performance will increase, while at the same time his confidence that he will receive counter-performance will also increase, and as a result his ability to rely on the contract will increase.’

Prof. Mautner, supra, writes, at p 57:

‘Because it is intended to guarantee the fulfilment of the reasonable expectations of the parties from their legal relationship, the duty of good faith in section 39 is the legal expression of the sociological concept of “trust”. A number of sociologists regard the concept of “trust” as a key concept for understanding the way in which modern society functions. It can be stated simply that trust exists where the individual can assume that another individual or institution, whose behaviour is liable to influence him, will act in a way that can reasonably be expected of persons or institutions of that type… The trust is needed where the activity requires reliance on another, without real knowledge of the details and manner in which he acts… Sociologists who have dealt with this concept think that the degree to which we need to rely on trust has increased greatly in modern times, when many of our actions require reliance on the behaviour of many people, and understanding their ways of acting requires expertise that we do not have. Not only are they beyond our control; we do not even know them. Indeed, these sociologists assume that in the absence of trust in interpersonal relationships and in the absence of trust in the proper function of institutions, the order of modern society will collapse, to be replaced by utter chaos and a regression to a primitive era of self-reliance.

… I believe that there is a firm bond between the concept of trust and the legal concept of good faith. The idea underlying the two concepts is identical: the basis for the sociological concept of trust is the possibility that each individual may rely on the fulfilment of his reasonable expectations of other individuals and institutions to behave as required by their position or function. The basis for the legal concept of good faith is the possibility that each individual may rely on the fulfilment of his reasonable expectations of the legal relationship which he has with another, even if this expectation is not completely protected by the specific legal norm that defines the relationship.’

(k) To the same extent, the determination above does not affect the basic allocation of risks between the parties. The International Sale of Goods Law does not anticipate a situation where both parties can efficiently and cheaply avoid a difficulty that arose subsequently. A risk of this kind is not defined in the law, and consequently there is no initial allocation for it. A subsequent allocation, in accordance with the lack of good faith of each of the two parties, does not therefore conflict with the initial allocation (see also Dr Porat, Allocation of Liability in the Law of Contract, at p. 93).

 (l)   There is of course no doubt that the allocation of liability in our case is consistent with ideas of morality, justice and prevention of unjust enrichment that are the source of Israeli law in general, and the law of contract (including sales contracts) in particular. Where two parties cause damage, it is neither fair nor moral for one party to be liable for the full damages of the other. Why should a party to a contract be entitled to full compensation for damage caused also by his own foolish behaviour and lack of good faith? Moreover, allocating the liability between them will encourage good faith or care on the part of the two parties to the transaction. Recognizing a lack of good faith of a party to a contract does not prejudice the morally binding force of the other party’s promise (in this respect, see: P.S. Atiyah, Promises, Morals and Law, Oxford, 1981). In reply to the question whether a specific promise is also considered to include the element of the consent included therein being irrevocable and therefore morally binding, we can also take into account the lack of good faith of the party to whom the question was addressed (see also: Porat, supra, at p. 122).

Similarly, this recognition does not prejudice the autonomy of the individual’s will and the idea of trust, which underlie the need to keep promises (see in this respect: C. Fried, Contract as Promise, Cambridge, 1981). A person interested in furthering his desire by placing himself in the hands of others to make a mutual profit is not interested in subjecting himself to the arbitrariness of the other party, so that the latter may both contribute to a breach and still insist upon full compliance with the promise. There is no moral value in this. The desire to create relationships of trust between people also does not justify a party contributing to a breach of a promise and insisting, nonetheless, upon full performance thereof. We should emphasize that recognizing the lack of good faith of both parties does not mean that the promisor is released from his promise, nor that it is legitimate to breach a promise. The idea behind it is merely the determination of reduced sanctions because of the lack of good faith of the party who was given the promise. In this respect it should be noted that Israeli law tends to read implied terms and conditions into contracts, which are mainly based, inter alia, on good faith.

In a similar context Dr Porat, supra, at p. 107, says:

‘External intervention in the contents of the contract, whether direct or indirect, both by virtue of a specific statutory provision and by virtue of a provision of a law that gives the court broad discretion, emphasizes the fact that the modern contract should not be regarded as a formal instrument for allocating risk and planning for the future. The external intervention is sometimes not specifically anticipated; this is so where it is done by virtue of general provisions of law, which must be given meaning in accordance with the circumstances or considerations of legal policy. In this way, a price is paid in a decrease in security and certainty, reliance is adversely affected and legal principles are not always clear and obvious. Recognizing a defence of contributory negligence in these circumstances is merely the addition of another external criterion, which is not always consistent with the expectations of the two parties, and the reasons for its existence are first and foremost morality, justice and fairness.’

We can only add that if intervention is possible in a case of a contract written by the parties themselves, how much more so in a case of a contract whose contents are determined by a law and with regard to which it can be assumed that the principles of fairness are the central pillars of the legal system that led to its legislation.

(m) In a situation like the one before us, where in practice both parties contributed by their behaviour to the damage, allocating the liability is the desired result. The plaintiff can no longer claim that he was entitled to rely upon the performance of the other party, since the defendant has an equal right to say this. Similarly, the plaintiff cannot rely on arguments concerning the moral aspect of keeping promises. There is also no difficulty in applying the doctrine, for just as the defendant’s liability for the plaintiff’s damage will be determined, so too will the plaintiff’s liability for the defendant’s damage be determined. Any other ruling would lead to an absurd, since as each of the parties is in breach, we should prima facie impose on each of them absolute liability for the damage caused by the breach to the other party.

The fitting solution in circumstances like these is to allocate liability between the parties. In this respect Dr Porat, supra, at p. 212, says:

‘We are dealing with two sets of behaviour, at the same level, with identical characteristics, where neither has any advantage over the other. The equality described above almost cries out, for reasons of justice and fairness, for equal treatment of the plaintiff and the defendant, i.e., an allocation of responsibility. It is impossible to determine who should be preferred. This is even a situation which would lead to a vicious cycle of claims without any solution.

Any solution, other than an allocation of liability, would be arbitrary and, for that reason, unjust.’

(n) This ruling has an additional advantage in that it unites the principles for compensation in the law of torts and the law of contract. The appeal before us is an example of a case that lies on the borderline between the two fields. This borderline must inevitably be blurred in the appropriate case.

In fact, each of the parties could have argued that the other was negligent or, to be more precise, made a negligent misrepresentation. The compensation claimed would be for damage caused unlawfully. There is no real reason to apply different principles of compensation in the two cases.

There is also no doubt that a case of this sort is particularly suited for an allocation of liability. What reason is there for establishing a different liability in accordance with the drafting of the statement of claim? On the contrary, this would divert the consideration of the case from substantive issues to merely technical issues regarding the nature of the grounds set out in the statement of claim, thereby emphasizing what is trivial instead of what is important (see Porat, supra, at p. 115).

(o) It is interesting to note that in similar cases the court has recognized, even if only tacitly, the possibility of allocating contractual damage in accordance with the degree of culpability of the two parties. This is so in cases where the court considered the revaluation of the contractual price. The court tended to justify the revaluation, or not making a revaluation, inter alia with reasoning relating to the relative culpability of the two parties. In the words of Justice Barak in CA 158/77 Rabinai v. Man Shaked Ltd (in liquidation) [8], at pp. 291-292:

‘In principle, a court asked to make an order of specific performance has three options: the court can refrain from granting the order; it can make an order of specific performance as stated in the contract; it can make an order of specific performance with instructions to revalue the price… In CA 277/57, the court refused… to make an order of specific performance with regard to a contract for the sale of land... where the buyer had delayed in performing it, during which time the price had fallen to less than a fifteenth of the original price. The court adopted the same approach… when it refused to make an order of specific performance with regard to the contract for the sale of land… (emphasizing) that it did so in view of the special circumstances of the case, in which the buyer had shown inflexibility, a fact that reduced the degree of the deliberate refusal of the seller to transfer the asset. In a number of judgments, this court has made an order of specific performance and refused to revalue the price… while emphasizing the deliberate behaviour of the seller, who not only breached the contract but also put off the buyer repeatedly and intentionally refused to honour the contract that he had made... Finally, in a number of cases, this court has made an order of specific performance while partially revaluating the price… Recently… we ordered specific performance of a contract for the sale of an apartment, which the seller had deliberately breached, and it gave instructions that part of the price would be paid with linkage to the increase in the consumer price index’ (emphasis and parentheses added).

This was also the case in CA 789/82 Ezra v. Mugrabi [9], at p. 574, where Justice Bejski held:

‘… in enforcing a contract, the consideration or balance of the consideration payable is revalued as of the date of enforcement… the same applies with regard to restitution in the case of a breach of contract… subject to the court's discretion regarding the degree of revaluation… taking into account the circumstances relating to the nature of the breach, the behaviour of the person in breach, and the circumstances that should be taken into account for this purpose’ (emphasis added).

See also: M. Hork, ‘Adjustment of the Contractual Price’, 8 Iyunei Mishpat, 1981, 88, at p. 112.

(p) Before concluding, I will mention that if we were discussing the breach of the duty of good faith at the negotiation stage, it would have been easier to recognize the doctrine of allocation of liability, since s. 12 does not originate exclusively from the law of contracts, as Prof. D. Friedman and Prof. N. Cohen point out in their book, Contracts, Aviram, vol. 1, 1991, at p. 636:

‘The difficulty existing in a contractual claim does not arise with respect to improper behaviour at the negotiation stage, in view of the fact that the claim is not contractual and in view of the tortious nature of s. 12. This position is consistent with our general approach whereby the section can be supplemented by means of the principles embodied in the Torts Ordinance.’

See also CA 714/87 Sher v. Cohen [10], at p. 164.

However, since it appears to me that the situation before us must be classified as part of the performance stage, since we are concerned with an obligation that derives from the contract (an obligation to transfer ownership free of any right of a third party), I therefore think it correct to examine the incorporation of the allocation of liability into that material. Undoubtedly, the readiness to recognize the allocation of liability at the negotiation stage also supports the need to incorporate this doctrine also at the stage of performance of the contract, in all its stages. We should emphasize once more that since the lack of cooperation and the absence of disclosure in our case originated in the pre-contractual stage, it is easier to apply the accepted principles at this stage to them.

(q) I have determined that in this case we should recognize the allocation of liability between the parties. All that remains is to determine how this allocation is to be made.

There are three possible methods:

(1) An allocation by comparing the degree of bad faith attaching to each of the parties.

(2) An allocation by comparing the causal contribution of each of the parties to the damage.

(3) An allocation that combines the degree of bad faith with the causal contribution to the damage (Porat, supra, at p. 314).

In the case before us, where we are concerned with a situation of mutual lack of good faith, we must compare both the causal contribution of each party to the damage and the degree of lack of good faith of each of them.

Finally, in the circumstances of the case, it seems to me that the correct allocation between the parties is the equal allocation.

5. The result is that the appeal should be allowed, albeit in part. The exporter-seller will be liable for 50% of the damage and the importer-buyer will be liable for the remaining 50%.

In the circumstances, each of the two parties shall pay costs to the State Treasury in a sum of 6,000 NIS.

 

 

Justice Y. Malz

I agree.

 

 

Justice E. Goldberg

I agree with President Shamgar’s remarks that both the appellant and the respondent ‘could not have been unaware of the possibility that a registered trade mark existed,’ for the reasons that he gives in his opinion. If so, the respondent’s behaviour cannot be deemed to be tainted by a lack of good faith, for the appellant had the same knowledge as the respondent. The lack of cooperation between the parties also cannot be deemed a lack of good faith, when each of them also knew of the danger that the anticipated damage existed and did not need the other party in order to discover this danger.

The buyer’s demand of the seller, under art. 52(1) of the Schedule to the Sale (International Sale of Goods) Law, that ‘other goods free from all rights and claims of third persons be delivered to him by the seller’ is based on the fact that the buyer did not agree ‘to take the goods subject to such right or claim’ (emphasis added). Such an agreement does not need to be expressly stated, and it may be inferred from the circumstances.

In our case, the learned judge determined that:

‘The manufacturer knew that the plaintiff had examined the sample in the United States and received the customer’s consent. This examination resulted in two special changes being ordered, of which at least one — the replacement of the soles — relates to customs problems. In this situation, a representation was made to the manufacturer that the party making the order knew the laws of the country of destination and the duties it imposed on him thereunder, and that he had complied with these obligations as an importer… the manufacturer was permitted to rely on the importer making the necessary preparations, from his point of view, for receiving the goods in the United States.’

What emerges from the remarks of the trial court is that the appellant, who, as stated, knew that there was a possibility that a registered trade mark existed, also knew the laws of the country of destination, and therefore it can be regarded as having agreed to assume the risk involved therein. If it turned a blind eye, this does not justify allocating the liability between it and the respondent.

I would therefore dismiss the appeal.

 

 

Appeal allowed in part, by majority opinion (President M. Shamgar and Justice Y. Malz), Justice E. Goldberg dissenting.

22 August 1993.

 

 

 

 

 

Justice S. Joubran

In the dispute between my colleagues, I agree with the opinion of my colleague Vice-President E. Rivlin, that the appeal should be allowed only in the sense that we should prohibit the respondents from making use of the name Carglass other than by way of using the rights which they acquired from the company Carglass Luxembourg S.A.R.L..

As my colleagues set out in their opinions, the main question before us is whether the facts of the case before us fall within the scope of the tort of passing off, which is provided in s. 1 of the Commercial Torts Law, 5759-1999 (hereafter: the Commercial Torts Law). As my colleague Justice M. Naor points out in her comprehensive opinion, proving the tort requires the proof of two cumulative elements — the existence of goodwill and the existence of a reasonable fear of misrepresentation. As I shall explain immediately, the fear of misrepresentation in the circumstances of the case before us is very limited, and therefore it justifies protection that is limited in scope.

As can be seen from the arguments of the parties, the vast majority of the appellant’s ‘end users’ — approximately 90 per cent of them, in the estimation of the District Court — do not even face the question of whether to buy its services or to turn to another glazing company. As can be seen clearly even from the appellant’s arguments (see para. 16 of its summations), these 90 per cent are customers who have comprehensive car insurance from an insurance company, which includes car window insurance, which is carried out by the appellant. In other words, when someone has the misfortune of having one of his car windows broken, he contacts the company where he insured his car or turns to the insurance policy itself, and these refer him to repair the window at the ‘Carglass’ company, which has now been replaced by the appellant. It is clear, therefore, that we are speaking of someone who should be regarded as a ‘captive audience,’ who never chose to enter into a business relationship with the appellant, and for whom it is all the same whether it is the appellant or the respondents, since the choice of with whom he has a business relationship is made for him by the insurance company (and see s. 7 of the appellant’s summations in reply).

In view of this, the true target population of the appellant is in practice the insurance companies themselves, who choose for their insured customers the provider of glazing services, together with the other ten per cent of ‘end users,’ who are comprised mainly of car leasing and rental companies. It should be emphasized that only these large institutional bodies have indeed chosen to enter into a business relationship with the Carglass company, a choice that they made for their insurance and leasing customers.

Consequently, the former director of the company Carglass, Daniel Besserglik, in his affidavit for the appellant, says that ‘Since it was founded, Car Glass approached insurance companies and insurance agencies as well as car leasing and car rental companies in order to supply its services to them.’ From this we see that in the transaction between the appellant and the Carglass company (after an attempt to make a similar transaction between the respondents and the Carglass company failed), the appellant bought the business activity of the Carglass company in the form of hundreds of thousands of end users who made use of its services and the goodwill that it had accumulated among insurance companies and among leasing and rental companies.

It follows from the aforesaid that the question of the existence of a reasonable fear of misrepresentation should be restricted to the possibility of misleading the insurance companies and car leasing and rental companies by the use that the respondents make of the name Carglass and the trademark that they bought. In this regard, I accept the determination of the District Court, that the fear that these bodies will make a mistake is unfounded. These are bodies with the common denominator that they incorporate a large number of cars, so that their decision to enter into a contract with one or another glazing company is a decision of great significance. This choice can be presumed to be made after a careful and thorough examination of whether the transaction is worthwhile and what are its circumstances, and it is not a decision that is made casually. In such circumstances, the fear that these bodies will err between the appellant and the respondents becomes, in practice, a theoretical fear only.

As the court said in CA 5792/99 Family Jewish Religious Communications and Education (1997) Ltd — ‘Family’ newspaper v. S.B.C. Publishing, Marketing and Sales Promotion Ltd — ‘Good Family’ newspaper [1] at p. 950, with regard to the fear of misrepresentation with regard to descriptive names:

‘First, we should compare the names that compete with one another and ask ourselves “Is the general impression that is given from the viewpoint of sound and look by the manner in which the goods are presented to the target audience such that it is likely to cause a misrepresentation, mistake or confusion”... In our case, this comparison shows a similarity between the names. At the same time, when we consider that we are speaking of common words that are used in the language to describe the goods under discussion — i.e., descriptive names — the fear of misleading the public decreases. The public are not fools, and the readers of newspapers know that the same word may be used to describe different products in the same industry. And even if we said that there is a small fear of a mistake, taking this risk is proper, even if only in order to maintain free competition and the freedom of occupation of the public, so that the individual will not expropriate for himself a word or name from the public and from competitors merely because of that small fear of misrepresentation.’

If we say that the newspaper reading public are not fools, this is even more certain when we are speaking of institutional bodies where the transactions that they make have significant economic ramifications. Thus, the court similarly held with regard to the manner in which transactions are made between banking institutions and their customers, in CA 210/65 Bank Iggud of Israel Ltd v. Bank ‘Agudat Yisrael’ Ltd  [18]  at  p. 676, that:

‘Even if the two companies are involved in banking business, there is no reason to fear that the potential customer base will be misled. We are not dealing here with merchandise of the grocery products type, which a person is accustomed to buy on a regular basis, without investigating or asking whose product it is. A person who requires the services of a bank is presumed, because of the importance of the action, to ascertain and investigate whether he is actually dealing with the institution in which he has confidence. Naturally, the type of customers of a bank is a priori more limited and their power of discernment is more developed than the power of the general public that regularly buys products that it needs on a daily basis... the greater the power of discernment of the customers is, the smaller the danger of misrepresentation.’

These remarks are also appropriate in our case.

In order to emphasize the fear that its customers will be misled by the respondents, the appellant attaches to its appeal the affidavit of Yahav Barzilai, the general manager of a car rental and car leasing company, who declares that the representatives of the respondents contacted him and presented themselves as representing the Car Glass company. But even from this affidavit we can see no fear that Mr Barzilai, or the general manager of another car rental company in his position, would enter into a contract with the respondents, while thinking them in error to be the representatives of the appellant. As we said above, there is a presumption that such a contract would not be made in a casual telephone call, but after thorough consideration and examination, and therefore we are not dealing with a representation that gives rise to a ‘reasonable fear of misrepresentation.’

Notwithstanding, despite what I regard as a small fear of actual misrepresentation between the respondents and the appellant among their customer base, I have nonetheless seen fit to accept those arguments that my colleague Vice-President E. Rivlin raises in para. 10 of his opinion. Admittedly, as I said above, in my opinion the negotiations that both the respondents and the appellant held with the Carglass company were directed towards the purchase not only of the goodwill that it had acquired for itself among its institutional customers, but mainly towards buying the extensive business activity, and I also do not regard the fear of misleading these customers, which is reflected inter alia in the affidavit of Mr Barzilai, as a reasonable fear of misrepresentation, as required in order to establish the tort of passing off. But I accept the arguments that the circumstances of the case do not justify allowing the respondents the possibility of making use of the name Carglass, with its various derivatives, but only a possibility of making use of the trademark that is registered in the name of Carglass Luxembourg S.A.R.L. — a right of use that the respondents bought from the aforesaid company.

In the aforesaid transaction, the respondents bought for themselves the right to represent themselves as licensees of Carglass Luxembourg S.A.R.L. and to make use of the aforesaid trademark, which is composed of a graphic presentation of the word Carglass in Latin characters, and above this an image with two colours. Because of the great similarity between the name of the company Carglass Luxembourg S.A.R.L. and the Israeli Carglass company, any use by the respondents that departs from the specific rights that they bought from the foreign company, even if it does not amount as aforesaid to a reasonable fear of misrepresentation, is likely to amount to a false description on the part of the respondents, as this is defined in s. 2 of the Commercial Torts Law, and this should not be allowed.

In conclusion, as I have said, I agree with the opinion of my colleague Vice-President E. Rivlin, that the appeal should be allowed in part, in the sense that an injunction should be made in favour of the appellant, prohibiting the respondents from making use of any of the forms of the word Carglass, in Hebrew or Latin characters, beyond the use outlined above. I also agree with his determination concerning court costs.

Decided in accordance with the opinion of Vice-President E. Rivlin, Justice M. Naor dissenting.

 

 

Given today, 17 Av 5767

1 August 2007

 

      ( - )                                    ( - )                              ( - )

Vice-President              Justice              Justice

 

 

CA 4410/06

 

NRG Energy International Inc.

 

v.

 

Texaco Inc.

 

The Supreme Court

[31 August 2010]

 

Before Justices M. Naor, E. Rubinstein and H. Melcer

 

Appeal of a decision by the external arbiter for intellectual property, Mr. Noach Shalev Shlomovich.

 

Facts: The decision involves an appeal from a ruling issued by the intellectual property arbiter at the Patents, Designs and Trademarks Office. The two parties had each registered trademarks with that Office: the appellant’s trademark, registered for its motor oil additive product, featured the letters NRG and a drawing of a fist combined with a piston, while the respondent’s trademark, registered at a later point in time for its motor oil, featured the words “Havoline Energy” and an image of a piston. The appellant, on the basis of its registered trademark, had requested the removal of the word “energy” from the respondent’s trademark. The arbiter denied the appellant’s request and this appeal followed.

Held: The respondent’s registered trademark did not violate the appellant’s registered trademark. The test for determining whether a trademark has been violated relies on three aspects: auditory and visual similarity between the two trademarks, the merchandise type and customer group for the products covered by the two trademarks, and any other relevant circumstances of the case. The appellant’s main argument was based on an allegedly misleading auditory similarity between its registered NRG combination and the word “energy”. However, even though auditory similarity may be an important test for products that are purchased over the counter, the similarity between the sound of the letters NRG pronounced in combination and the word “energy” does not suffice to create the result sought by the appellant. Here, the appellant had written to the Patents Office at the time of registration that the letters in the trademark “have no meaning”, and it could not, at this later stage, claim that it had sought protection for the word “energy”.  Furthermore, the word “energy” is an inherently descriptive word, and a standard term in the field, meaning that no party can be granted an exclusive right to its use through its inclusion in a registered trademark.  The appellant also failed to show that the word “energy”, as derived from the letters NRG, had acquired any distinctive character associating it specifically with the appellant’s product, or that it qualified for protection as a “well-known trademark”. In any event, the fact that the respondent’s mark contained another word, in addition to “energy”, established that the auditory similarity was not misleading. The visual differences between the trademarks also weaken the appellant’s argument, as does the fact that the products are marketed in different sized containers. Finally, although both parties’ products fall within the general motor oil category, one product is a motor oil additive while the other is a motor oil itself, so that a claim of a violation cannot be based on a similarity regarding the type of product covered by the two registered trademarks. 

 

Appeal denied.

 

Legislation cited:

Trademarks Ordinance [New Version], 5732-1972, ss. 1, 8(b), 11, 11(10), 11(13)21, 21(b).

Trademark Regulations 1940, Fourth Schedule.

 

Israeli Supreme Court Cases cited:

[1]          LCA 5454/02 Ta’am Teva (1988) Tivoli Ltd v. Ambrosia Subherb Ltd [2003] IsrSC 57(2) 438.

[2]          CA 6316/03 Ilan Car Windows Ltd v. Baruch & Sons Car Windows Ltd (2007).

[3]          CA 5689/94 Vergos Ltd v. Nega Engineering Ltd [1998] IsrSC 52(1) 521.

[4]          CA 395/88 Orly S. Co. [1985] Ltd v. Dandy Food Industries Ltd [1991] IsrSC 45(4) 32.

[5]          CA 116/87 Keren Chemicals Ltd v. Witco Chemicals Ltd  [1987] IsrSC 41(3) 505.

[6]          CA 1677/05 Deutsche Telekom AG v. E! Entertainment Television Inc. (2006) (unpublished).

[7]          CA 8778/04 Yotvata Dairies Ltd v. Tnuva Cooperative Center for Marketing of Agricultural Products in Israel Ltd (2007) (unpublished).

[8]          CA 2673/04 Copy To Go Marketing (1997) Ltd v. Shaked (2007) (unpublished).

[9]          CA 5792/99 “Mishpacha” Newspaper – Mishpacha Jewish Religious Education Media [1997] Ltd v. “Mishpacha Tova” - SBC Advertising, Marketing and Sales Promotion Ltd [2001] IsrSC 55(3) 933.

[10]        HCJ 44/49 Kay Daumit Co. v. Patents Office [1950] IsrSC 4 109.

[11]        LCA 7836/09 G.V.P. Sun Investments Ltd v. Naama (2009) (unpublished).

[12]        CA 9191/03 V&S Vin Spirt Aktielbolag v. Absolute Shoes Ltd [2004] IsrSC 58(6) 869.

[13]        LCA  3577/09 Ezra v. H & O Fashion Ltd (2009) (unpublished).

[14]        LCA 4322/09 S.A. Format Trade & Services (1994) Ltd v. A. S. Shnir Ltd (2009) (unpublished).

[15]        CA 8981/04 Avi Malcha – “Avazi Hazahav Restaurant” v. Avazi Shchunat Hatikva  (1997) Restaurant Management Ltd (2006) (unpublished).

[16]        CA 3559/02 Toto Zahav Subscribers Club Ltd v. Israel Sports Betting Council [2004] IsrSC 59(1) 873.

[17]        HCJ 144/85 Klil Non-Ferrous Metals Ltd v. Patents Office [1988] IsrSC 42(1) 309.

[18]        CA 11487/03 August Storck KG v. Alpha Intuit Food Products Ltd (2008) (unpublished).

[19]        CA 1123/04 Canali S.p.A. v. Canal Jean Co. (2005) (unpublished).

[20]        LCA 1400/97 Picanty Food Industries (Israel) Ltd v. Osem Food Industries Ltd [1997] IsrSC 41(1) 310.

[21]        LCA 10804/04 Prefetti Van Melle Benelux B.V. v. Alpha Intuit Food Products Ltd [2005] IsrSC 59(4) 461.

[22]        CA 307/87 M. Weisbrod & Sons v. D.Y.G. Electrical Products Factory Ltd [1990] IsrSC 44(1) 629.

[23]        CA 10959/05 Tea Board, India v. Delta Lingerie S.A. of Cachan (2006) (unpublished).

[24]        CA 945/06 General Mills Inc v. Meshubach Food Industries Ltd (2009) (unpublished), leave for further hearing denied, LCA 8910/09 General Mills Inc v. Meshubach Food Industries Ltd (2010) (unpublished).

[25]        CA 18/86 Fenicia Israel Glassworks Ltd v. Les Verreries de Saint Gobain [1991] IsrSC 45(3).

[26]        CA 9568/05 Shimoni v. “Moby” Birnbaum Ltd (2007) (unpublished).

 

English cases cited:

[27]        In re Compagnei Industrielle des Petroles  (1907) 2 Ch. D. 435.

[28]        In re Farbenfabriken Application (1894) 1 Ch. 645.

 

 

 

 

JUDGMENT

 

Justice M. Naor

Does the registration of a trademark for the combination of the letters NRG prevent the use of the word “energy” by others? This is the question confronting us in this appeal.

The facts

1.            The appellant is an Israeli company that manufactures a motor oil additive — defined as a material for coating engines, metals and containers (hereinafter: “the product”). In 1982, the appellant registered a trademark for the product; the trademark consisted of the combination of the letters NRG with an arrow in the letter G, and a drawing of a fisted hand along with a drawing of a piston (hereinafter: “the appellant’s trademark”). The appellant’s registration of the trademark included a notice of disclaimer, which stated that the registration of the trademark “does not confer a right of exclusive use of the letters NRG other than in the composition used in the trademark” (hereinafter: “the appellant’s notice of disclaimer”). The trademark was registered under Type 4 of the Fourth Schedule of the Trademark Regulations 1940 (hereinafter: “the Regulations”); Type 4 refers to “industrial oils and fats; lubricating oils; dust absorbing compounds; moisturizing compounds and binding compounds; fuels (including motor fuel) and illuminants; candles and wicks.”

2.            The respondent is an international company that manufactures motor oil. A trademark was registered for the respondent’s product, which includes the words “Havoline Energy” alongside an illustration of a silver piston (hereinafter: “the respondent’s trademark”). The respondent’s registration of the trademark included a notice of disclaimer, which stated that the registration of the trademark “does not confer a right of exclusive use of an image of a piston and the word ‘energy’, other than in the composition used in the trademark” (hereinafter: “the respondent’s notice of disclaimer”).

A graphical depiction at the beginning of my comments will be useful.

This is the appellant’s trademark:

 

 

And this is the respondent’s trademark:

 

The proceeding before the intellectual property arbiter

3.            The appellant, whose trademark was registered before that of the respondent, petitioned the Patents, Designs and Trademarks Office (hereinafter: “Patents and Trademarks Office”) to have the word “energy” removed from the respondent’s trademark. Its main argument was that the trademark registered on behalf of the appellant “blocked” the use of the word “energy” for other products included within the Type 4 grouping in the Regulations, due to the sound produced by the combination of the letters N, R and G in its trademark. The appellant argued that there was also an element of actual misleading, resulting from the fact that the product is purchased as an “over-the-counter product”. Such products are requested by the consumer verbally, so that the sound of the trademark is emphasized. The respondent, on the other hand, argues that the word “energy” is a descriptive word and must therefore be left open for use by all.

4.            The intellectual property arbiter at the Patents and Trademarks Office, Mr. Noach Shalev Shomovich (hereinafter: “the arbiter”), denied the request that the word be removed, holding that the appellant could not prevent third parties from using the word “energy”. The arbiter held that the policy of the Patents and Trademarks Office was not to grant any party exclusivity regarding the use of the word “energy”. He added that he found much merit in the respondent’s argument that the appellant had misled the Patents and Trademarks Office when it failed to indicate the significance of the letters NRG – i.e., when it failed to disclose the fact that when pronounced, the letters NRG sound like the word “energy”. The arbiter held that the circumstances therefore created an estoppel, blocking a claim of exclusivity with respect to the use of the word “energy”. Regarding the claim that the trademark was misleading, the arbiter held that the similarity between the trademarks was not misleading, in that the respondent’s trademark “is not composed of the word ‘energy’ alone, but rather of the combination of words ‘Havoline Energy’, and the sole similarity between the trademarks is, specifically, the generic part of the trademarks.” The arbiter concluded his decision with a holding that “the word ‘energy’ is standard in trade in the energy market, and as such it must stay open for trade, and therefore no one within the market has an exclusive right to use it.”

The arguments of the parties

5.            In its appeal against the arbiter’s decision, the appellant has asked us to rule that the respondent violated its trademark and that the appellant has the exclusive right to use the word “energy”. This right, it is argued, is based on two alternative claims. The first claim relates to the form of the trademark that is registered in the appellant’s name. The appellant argues that “the sound produced by the letters NRG is the same as the sound produced by the word ‘energy’: NRG = energy” and that this was a “brilliant idea” conceived by the appellant’s manager twenty-five years ago. According to the appellant, “the NRG trademark was intentionally registered so as to express the sound ‘energy’ as well,” and that “this is what has created a ‘block’ and an impediment that prevents the respondent’s use of the word ‘energy’.” The appellant referred to s. 11 of the Trademarks Ordinance [New Version], 5732-1972 (hereinafter: “the Ordinance”), which lists the type of trademarks that cannot be registered; the common denominator among these is that they bear a misleading similarity to an existing trademark. According to the appellant, the determinative test for proving that the trademark in this case is misleading is the auditory test, particularly since, as it argues, the product is sold “over the counter”. With regard to the arbiter’s determination concerning the creation of an estoppel by the appellant’s notice of disclaimer, the appellant argues that its disclaimer “refers to the use of the Latin letters NRG, and not to the meaning of the sound produced from the combination of the letters in sequence . . . when the appellant registered the trademark, it was at the  start of its business life. As time passed, a strong connection was formed between the Latin formation NRG and the word ‘energy’.” According to the appellant, the visual image of the respondent’s trademark contains a misleading element as well, in that its graphic design includes a drawing of a piston motor. It should be noted that this was not the main claim, and the requested remedy deals with the word “energy” and not the piston.

The second claim is based on the “well-known trademark” doctrine, as defined in s. 1 and in s. 11(13) of the Ordinance, which prohibits the registration of “a mark identical to or misleadingly similar to a well-known trademark even if the mark is not registered.” The appellant argues that this doctrine applies to its trademark, as the NRG trademark is so well known that the public refers to the appellant as “energy” and that this “shows that the consumer public is familiar with its trademark, and that it falls within the definition of a well-known [trademark].” The appellant submitted an affidavit from its manager regarding this matter, in which the manager claimed that the appellant had invested considerable effort and publicity in order to establish a reputation for its product, and that it had acquired a base of regular customers (Appendix E to the appellant’s notice).

In light of this claimed exclusive right of use, which, as stated, is based on the alternative claims described above, the appellant argues that the respondent’s trademark violates the appellant’s previously registered trademark.  The appellant believes that this violation provides a ground for the de-registration of the respondent’s trademark, or at least for the removal of the word “energy” from it; the appellant also argues that it can make claims based on deception, misleading, and unjust enrichment.

6.            The respondent, on the other hand, supports the arbiter’s decision. According to the respondent, the appellant does not have an exclusive right to use the word “energy”. Regarding the trademark’s sound, the respondent argues that “energy” is a descriptive word that cannot be appropriated for the benefit of only one of the players in the market. As for the “well-known trademark” claim, the respondent argues that the appellant did not indicate the scope of the product’s sales, and has not presented sufficient evidence to prove that the consumer public does indeed identify the word “energy” with the product.

Discussion

7.            An examination of a claim alleging a trademark violation will refer to the issue of a misleading similarity between the trademarks themselves, based on a three-part test: each trademark’s image and sound, the type of merchandise and the customer base, and the other relevant circumstances of the case (LCA 5454/02 Ta’am Teva (1988) Tivoli Ltd v. Ambrosia Subherb Ltd. [1], per Justice Grunis at paras. 12-13) .

The appellant relies, almost completely, on the auditory test. This test examines whether the two trademarks, as pronounced, produce similar sounds (“acoustic similarity”, see A. Friedman, Trademarks: Law, Case Law and Comparative Law (3rd ed. 2010, vol. 1), at p. 385). The arbiter accepted the appellant’s claim that the product is sold over-the-counter and as such can only be purchased with the assistance of a seller at a filling station (para. 54 of the arbiter’s decision). I am also willing to assume that this product is indeed sold over-the-counter. The courts have held, regarding products of this type, that the need to articulate the trademark verbally increases the importance that should be attributed to acoustic similarity (Ta’am Teva Ltd v. Ambrosia Ltd [1], at para. 12), and that under certain circumstances acoustic similarity is also the main, if not the only, test (see Friedman, Trademarks, supra, at pp. 374-376, 386; Ta’am Teva Ltd v. Ambrosia Ltd [1], at paras. 18-19); see also my own comments, writing for the minority, in CA 6316/03 Ilan Car Windows Ltd v. Baruch & Sons Car Windows Ltd  [2], at para. 27). This will be the case, for example, if the only expression of a difference between the products is the writing that appears on them, and the population buying the product is illiterate (an example is provided in CA 5689/94 Vergos Ltd v. Nega Engineering Ltd [3], per Justice Terkel at para. 11). Another example would be a situation in which the speakers of a particular language pronounce two different trademarks in a manner that is similar or identical (such as the German pronunciation of the words Fox and Fuchs, an example mentioned in Kerly’s Law of Trade Marks and Trade Names (14th ed., 2005), at p. 601). Although these issues do not arise in our case, the appellant relies on this line of argument, and points out that the trademark was intentionally registered as NRG in order to give it the same sound as “energy”. According to the appellant, this was a “brilliant idea” that prevents third parties from using the word “energy”. Is this true?

8.            It is important to emphasize that the NRG combination is not a word, but rather a combination of letters that purports to imitate the sound of a word. Nevertheless, I am willing to presume, without deciding the matter, that a combination of letters is sufficient to protect a derived word, and to presume that the pronouncement of the letters NRG, as a sequential combination, strongly resembles the pronunciation of the syllables of the word “energy”. In this sense, the auditory sense, it can be said that the NRG letter combination has a synergetic effect that is greater than the sum of its parts. With respect to the visual test, it has been held that “‘Aaron’ can be written such that what is seen is ‘Moses’” (CA 395/88 Orly S. Co. [1985] Ltd v. Dandy Food Industries Ltd [4], at 37E). By the same token, it can be said that with respect to the auditory test, “NRG” can be written such that what is read is “energy” (for a similar idea regarding a “phonetic similarity” under circumstances involving a particular consumer public, see CA 116/87 Keren Chemicals Ltd v. Witco Chemicals Ltd  [5], at p. 507). However, in our case, this argument does not necessarily lead to the conclusion that the appellant has an exclusive right to the word “energy”. In my view, the seemingly “brilliant idea” remains in the marketing realm and contains nothing that allows it take an additional step into the legal realm such that third parties can be prevented from using the word “energy”. The following are my reasons for this position.

The appellant’s notice of disclaimer and the circumstances of the trademark’s registration

9.            The appellant’s intention of having the trademark registered so as “to express the sound ‘energy’” was not indicated at the time that it actually registered the trademark. On the contrary, the appellant’s trademark, by itself, does not include the word “energy”. Moreover, a notice of disclaimer pursuant to s. 21 of the Ordinance was attached to the appellant’s trademark registration – a notice which stated that the trademark’s registration “does not confer a right of exclusive use of the letters NRG other than in the composition used in the mark.” A notice of disclaimer has significance for the purpose of determining the similarity between trademarks (Ta’am Teva Ltd v. Ambrosia Ltd [1], at para. 22; CA 1677/05 Deutsche Telekom AG v. E! Entertainment Television Inc. [6], per Justice Berliner at para. 16). The direct significance is that any other manufacturer may make use of the letters NRG, provided that their design is not that of the “composition used in the mark” (see s. 21(b) of the Ordinance; Deutsche Telekom AG v. E! Entertainment Television Inc. [6], at para. 18).

10.  Moreover, and this is the main point: the circumstances of the registration, and the correspondence between the appellant and the Patents and Trademarks Office in anticipation of the registration of the trademark and the notice of disclaimer, indicate that in practice, the appellant had disclaimed any meanings that could be derived from the NRG trademark as well. At the time of the registration, the appellant made no claim of an exclusive right of use regarding the word “energy”, derived from the registration of the NRG trademark. On the contrary, in a letter to the Patents and Trademarks Office, dated 23 April 1985 and sent in the context of the registration process, the appellant’s then counsel wrote as follows: “We are prepared to provide a notice of disclaimer regarding the letters NRG and wish to inform you that these letters have no significance.”

The argument made to the arbiter in the current proceeding was different. It was argued that the “notice of disclaimer related to the letters NRG, and the notice of disclaimer did not refer to the connotation of the sound of the combination of the letters.” In its summation, the appellant continued to argue that “the combination of the letters, together, has no meaning and/or interpretation, but the sound produced is indeed significant, and the significance is enormous from the appellant’s perspective.”

This is a weak argument. If the combination of the letters is indeed significant, why was this not mentioned to the Patent and Trademarks Office at the time of the registration? Why, at the time of the registration process, was a letter written to the Patent and Trademarks Office specifically stating that the “letters have no meaning”? I emphasize further: the notice of disclaimer was recorded with respect to the combination of the letters NRG in sequence, and not with respect to the letters N, R and G, separated from each other. All this was in the context of the relevant category of motor oils. The argument, as presented to the arbiter and in the summation, is apparently intended to explain the statement in the letter to the Patents and Trademarks Office, which constituted the basis of the registration years before the current proceeding. This is an unpersuasive explanation that has been provided after the fact, and it contradicts the appellant’s declaration to the Patents and Trademarks Office during the registration process; that declaration reflects a position which is binding because it was the basis for the decision made by the Patents and Trademarks Office to approve the appellant’s trademark (see and compare, with regard to circumstances that create a type of judicial estoppel or obstacle: CA 8778/04 Yotvata Dairies Ltd v. Tnuva Cooperative Center for Marketing of Agricultural Products in Israel Ltd [7], at para. 20; Keren Chemicals Ltd v. Witco Chemicals Ltd [5], at pp. 509-510). As the arbiter held, an opposite position, taken only after the fact, undermines the validity of the appellant’s trademark (compare: CA 2673/04 Copy To Go Marketing (1997) Ltd v. Shaked [8], per Justice Berliner at para. 23). The appellant’s argument based on a forced reading of its notice of disclaimer must therefore be rejected.

Descriptive word

11.            The legal result sought by the appellant is de facto protection of the word “energy”, which the appellant seeks to prevent third parties from using. The following analysis will therefore examine the legal situation with regard to the word “energy” (compare: Deutsche Telekom AG v. E! Entertainment Television Inc. [6], at para. 16).

12.            My view is that trademark law denies protection for any phonetic or auditory derivative meanings of the letters NRG in general, and for the word “energy” in particular, irrespective of the circumstances of the registration. The norm in trademark law is to distinguish between four types of names: generic names; descriptive names; suggestive names; and fantasy names, with the scope of the protection granted to a particular name being derived from its classification within one of these four categories (CA 5792/99 “Mishpacha” Newspaper — Mishpacha Jewish Religious Education Media [1997] Ltd v. “Mishpacha Tova” — SBC Advertising, Marketing and Sales Promotion Ltd [9], at p. 943). In our case, the respondent has shown that as a matter of professional terminology, the use of the word “energy” — as a name for motor oil products — is standard worldwide. The arbiter’s holding with respect to this issue was that “as has been proven to me, the word ‘energy’ is a standard trade word in this market” (para. 43 of the arbiter’s decision), and there is no reason for interfering with this holding. The respondent referred to the fact that in the United States the word often appears as part of a trademark, and in Israel it is used both in the names of other companies’ motor oils and in other trademarks. According to the respondent, this is therefore a generic name, and it wishes to draw an analogy from a similar ruling, that “a seller of motors cannot acquire a monopoly [over the use of the word] ‘diesel motors’” (id. [9], at p. 944C; see also, with regard to the word “motor”, the British decision In re Compagnie Industrielle des Petroles  (1907) 2 Ch. D. 435 [27], cited in HCJ 44/49 Kay Daumit Co. v. Patent Office [10] , per Justice Silberg, at p. 112).

13.  In my opinion, even if we do not accept this analogy and the position that the word “energy” is a truly generic word, we are, at the least, dealing with a context in which this is a descriptive-lexicographical term. The word “energy”, in the context of motor oils, is a non-Hebrew word with descriptive characteristics: the appellant and the respondent both claim that the use of their products increases the efficiency with which the motor produces energy. The word “energy” is therefore, in this context, a noun that is intended to describe a characteristic or component of the product (see Mishpacha Newspaper Ltd v. “Mishpacha Tova” Ltd [9], at p. 944; Kay Daumit Co. v. Patent Office [10], at p. 117A). The word has a “universal flavor”, regarding which it is difficult to say that an individual person may appropriate it and deny the rest of the public the right to use it (LCA 7836/09 G.V.P. Sun Investments Ltd v. Naama [11], per Justice Grunis at para. 5, regarding the use of the word “sun”; and see, regarding the word “sol”, the British decision in In re Farbenfabriken Application (1894) 1 Ch. 645 [28], cited in Kay Daumit Co. v. Patent Office [10], per Justice Silberg at p. 113). The rule is that a descriptive-lexicographical term must remain available for use by the public:

‘When the trademark is one that includes a name which is a lexicographical-descriptive term — and we use the word ‘lexicographical’ to provide extra emphasis — we must act with great care when invalidating a trademark and protecting an appropriation of the dictionary’ (CA 9191/03 V&S Vin Spirt Aktielbolag v. Absolute Shoes Ltd [12], at p. 885b, regarding the word “absolute”).

This rule also applies with regard to a product’s English language name, when that name is understood by at least a significant portion of the Israeli population (see: Copy To Go Ltd v. Shaked [8], at para. 8; and compare LCA 3577/09 Ezra v. H & O Fashion Ltd [13], per Justice Naor at para 16, regarding the word “fashion”; LCA 4322/09 S.A. Format Trade & Services (1994) Ltd v. A. S. Shnir Ltd [14], per Justice Grunis at para. 3, regarding the word “gold”). Applicable to our case is the holding that “descriptive names, which describe the features or components of the traded asset or the service being provided, will receive only very minimal protection, and only in rare cases” (CA 8981/04 Avi Malcha — “Avazi Hazahav Restaurant” v. Avazi Shchunat Hatikva  (1997) Restaurant Management Ltd [15], per Justice Cheshin at para. 16; see also, Mishpacha Newspaper Ltd v. “Mishpacha Tova” Ltd [9], at p. 943D).

14.  As the instant case involves a descriptive word, it is clear that the appellant cannot acquire an exclusive right to use that word and thus to appropriate it — not even pursuant to its “auditory test” argument. “An auditory identity which is not misleading is of course possible, when the trademarks use a descriptive word or a standard commercial term”, because within this group of trademarks “the similar sound results from the inherently weak nature of the trademarks, which, due to their very essence,  justifies their being left free for use by all parties” (Friedman, Trademark Law, supra, at pp. 385-386 and also at p. 389; compare Ta’am Teva Ltd v. Ambrosia Ltd [1], at para. 15, regarding the word “mega”). Indeed, “since we have noted that these are common words that are used in the language to describe the goods under discussion — i.e., that these are descriptive words — there is less concern that the public will be misled” (Mishpacha Newspaper Ltd v. “Mishpacha Tova” Ltd [9], at p. 949D).

The exception — a distinctive character

15.  “The rule is that descriptive nouns cannot be removed from the common language and they may not be taken from the public domain and appropriated for use in connection only with defined goods, unless during the course of their use they have acquired a distinctive character” (CA 3559/02 Toto Zahav Subscribers Club Ltd v. Israel Sports Betting Council [16] , at p.889C; see also Mishpacha Newspaper Ltd v. “Mishpacha Tova” Ltd [9], at p. 944D; HCJ 144/85 Klil Non-Ferrous Metals Ltd v. Patent Office [17], at p. 315; see also ss. 8(b) and 11(10) of the Ordinance). The appellant argues that it has proven that a distinctive character is a factor here.

I do not believe that the appellant has proven that the descriptive word “energy” — regarding which the appellant claims an exclusive right of use — has acquired, through use, a “second meaning”, such that there is an exclusive connection between the word and the appellant or its product, reaching the level of a distinctive character as defined in the case law (see Ta’am Teva Ltd v. Ambrosia Ltd [1], at p. 890D; “Avazi Hazahav Restaurant” v. Avazi Shchunat Hatikva  Ltd. [15], at para. 16; see also s. 11(10) of the Ordinance). In our case, the criteria established for proving an “inherent” distinctive character that would apply to the word “energy” have not been met with respect to the appellant’s trademark (see CA 11487/03 August Storck KG v. Alpha Intuit Food Products Ltd [18], per Justice Grunis at para. 8). The word “energy” is, as stated, “a part of the spoken language, which is in the public domain” (Kay Daumit Co. v. Patent Office [10], at p. 115G). This conclusion is strengthened by the notice of disclaimer required of the respondent at the time that the respondent’s trademark was registered, including a waiver of the exclusive right to use the word “energy”.

16.          I do not believe that the criteria for proving the existence of an “acquired” distinctive character (see August Storck KG v. Alpha Intuit Food Products Ltd [18], at para. 8) have been met here either. The appellant has not presented sufficient proof that establishes the period of time during which the trademark was in use, the level of publicity the trademark received or the effort that the company invested in creating the said connection (Toto Zahav Ltd v. Israel Sports Betting Council [16], at p. 891A). The burden of proof regarding this matter falls on the party claiming the distinctive character (see Copy To Go Ltd v. Shaked [8], at para. 18; Yotvata Dairies Ltd v. Tnuva Cooperative Center Ltd [7], per Justice Rubinstein at para. 11). The appellant relies on its manager’s affidavit in this matter. It is indeed possible to imagine a situation in which a manager’s testimony, based on reports that he has received “from the field”, will serve as good evidence (Vergos Ltd v. Nega Ltd [3], at para. 12). However, in our case, the affidavit is not sufficient to prove the existence of a distinctive character. The appellant has not taken the step normally taken in order to prove that a second meaning has been established – i.e., carrying out a reliable consumer survey (as opposed to a random check) which could have shown that the public identifies the word in question with the appellant’s product and that the public distinguishes between that product and others (see Yotvata Dairies Ltd v. Tnuva Cooperative Center Ltd [7], at para 21). A consumer survey is not an essential element, and it can be replaced with other persuasive evidence, but in our case no other such evidence has been presented. The appellant is not the only manufacturer of a product in the said category, and in such circumstances the evidence of a distinctive character must be of very high quality (regarding these considerations, see Copy To Go Ltd v. Shaked [8], at paras. 21-22). Note that the decline in the appellant’s sales is not in itself proof that its customers were misled or that customers had erroneously switched over to purchases of the respondent’s product. In actuality, the drastic decrease in the appellant’s sales is not disputed. The disagreement between the parties relates only to the reason for such: whether it was competition, or the fact that customers were misled. As stated, I do not believe that the buyers in this case were misled; rather, I believe that there were other reasons for the decline in sales (compare Vergos Ltd v. Nega Ltd [3], at para. 12).

Application of the auditory test does not indicate that consumers are being misled

17.            Even if the appellant had cleared the hurdles described above, it would still not be entitled to the relief that it seeks. This is because the application of the auditory test on which the appellant relies does not, in itself, lead to the conclusion that anyone was misled. The auditory test examines the auditory similarity between the trademarks in their entirety. Thus, what is needed here is to compare the appellant’s trademark with the trademark of the respondent, including all its elements, while giving weight to the first impression created by such a comparison (CA 1123/04 Canali S.p.A. v. Canal Jean Co. [19], per Justice Grunis at para. 5; Deutsche Telekom AG v. E! Entertainment Television Inc. [6], at para. 14). An analysis of the trademarks in their entirety reduces the concern that anyone was misled in terms of the sound, as the respondent’s trademark includes two words: the first is “Havoline”, and the second is “energy”, while the appellant’s trademark includes only the NRG letter combination. Thus, if a consumer seeking to purchase the product relies only on the sound of the appellant’s trademark, there is less concern that he or she might accidentally purchase the respondent’s product (compare, V&S Aktielbolag v. Absolute Shoes Ltd [12], at p. 888B). As stated above, my view is that the word “energy” is strongly connected to the motor oils industry, such that the main emphasis in a comparison that a consumer makes will necessarily relate to the other parts of the trademark, and in our case to the word Havoline. Indeed “when a determination is made as to whether there is a risk of being misled regarding two trademarks, substantial emphasis will normally be placed on the dominant expression in the trademarks” (Friedman, p. 386). The word “Havoline” is, in my view, a dominant addition which substantially weakens the auditory similarity between the trademarks (see and compare Toto Zahav Ltd v. Israel Sports Betting Council [16], at p. 893D; Deutsche Telekom AG v. E! Entertainment Television Inc. [6], at paras. 15-16; Ta’am Teva Ltd v. Ambrosia Ltd [1], at paras. 21-20). Moreover, as the following discussion of the visual test indicates, the word “Havoline” in the respondent’s trademark appears in larger print and in a more central location than the word “energy”, which appears on a smaller scale in the respondent’s trademark.

18.          The above discussion provides sufficient grounds for denying the appeal, which is based for the most part on the use of the auditory test. However, in order to provide a complete picture, I will also discuss the other tests briefly. The application of these tests in our case will clarify the weakness of the argument that there is a danger of being misled by the trademark.

The visual test

19.          A comparison of the images of the two trademarks in their entirety indicates that they are not at all identical. The difference is very obvious to the eye. We began our comments by displaying the appellant’s trademark alongside the respondent’s trademark. A comparison of all parts of the trademarks reveals that the respondent’s trademark includes elements that differentiate between it and the appellant’s trademark and which negate the concern that the two may be confused. The phonetic captions are very obviously different: the words in the respondent’s trademark do not appear at all in the appellant’s trademark, and this is important both with respect to the image and with respect to the sound (compare Canali S.p.A. v. Canal Jean Co. [19], at para. 5). The points of graphic similarity — and primarily the sketch of a piston — do not change the obvious conclusion, given the clear text. Furthermore, there is no visual similarity between the signs “considering the manner in which [they appear] in use on the product in actuality,” on the product itself (see LCA 1400/97 Picanty Food Industries (Israel) Ltd v. Osem Food Industries Ltd [20], per Justice Strassberg-Cohen at para. 4; compare: Ezra v. H & O Fashion Ltd [13], at para. 15). The appellant’s product, as attached in the exhibits file, is marketed in a 250 milliliter container. In contrast, the respondent’s product, which is also attached in the exhibits file, is marketed in containers of 1 to 5 liters. Briefly: a visual comparison of the trademarks shows the substantial difference between them.

The type of merchandise and customer group test

20.  Regarding the type of merchandise: as stated, the products are included in the “motor oils” category (Type 4 of the Fourth Schedule of the above-mentioned Regulations). However, the purpose of each of the two products is different. The arbiter determined that, as a factual matter, the appellant’s product is a motor oil additive, while the respondent’s product is a motor oil itself. The difference in the product’s purposes is relevant with respect to the customer group, in that it weakens the appellant’s line of argument. Because an “oil additive” is not an “oil”, the risk that a consumer may ask a seller in a filling station for an “oil additive” (the appellant’s product type) and instead receive an “oil” (the respondent’s product type) is reduced. The arbiter’s holding concerning this matter was as follows: “These are alternative products, in the sense that a person who buys a motor oil with additives in it produced [by the respondent] will not also buy an additive produced [by the appellant], and vice versa” (para. 51 of the arbiter’s decision). As can be seen, the “over-the-counter” product argument works both ways. This is also the view taken by Friedman, in connection with the “merchandise type test”: Friedman wrote that “over-the-counter products which are controlled by the seller are subject to a very low risk of customers being misled”, as compared to shelf products (Friedman, Trademark Law, supra, at p. 377), and that with regard to shelf products, “the visual image, in most cases, prevails over what the ear hears” (ibid., at p. 391).

21.  Regarding the customer group, no factual findings were established that provide guidance on the question of whether or not there is a limited group of customers with developed powers of distinction between products, a factor that could lessen the risk of being misled (see Ta’am Teva Ltd v. Ambrosia Ltd [1], at para. 13(b)). I believe that this issue works both ways. On the one hand, the channel of distribution is likely to be comprised of professional sellers who, on their own initiative, recommend the product to customers, and whose expertise in this regard mitigates the concern that customers will be misled (compare: Vergos Ltd v. Nega Ltd [3], at para. 11), and even if it is assumed that the customers make their choices independently, the relevant comparison then becomes the visual comparison, and the substantive difference in the products’ packaging means that there is no risk that any customer will be misled (compare: LCA 10804/04 Prefetti Van Melle Benelux B.V. v. Alpha Intuit Food Products Ltd [21], per Justice Grunis at para. 5). On the other hand, customers who come to the filling stations are likely to be insufficiently skilled, and to rely on the sound of the product name alone (compare CA 307/87 M. Weisbrod & Sons v. D.Y.G. Electrical Products Factory Ltd [22], at p. 635; S.A. Format Ltd v. Shnir Ltd [14], at para. 6; Ilan Car Windows Ltd v. Baruch & Sons Car Windows Ltd  [2], per Justice Naor at para. 27). In any event, the burden regarding this matter is imposed on the party claiming that the trademark is misleading. The appellant did not provide the arbiter with sufficient evidence to allow the merchandise type and customer group issue to weigh strongly in its favor. Generally, the merchandise type and customer group test is secondary to the visual and auditory test anyway (August Storck KG v. Alpha Intuit Food Products Ltd [18], at para.6; and compare CA 10959/05 Tea Board, India v. Delta Lingerie S.A. of Cachan [23], per Justice Berliner, at para. 10).

Other circumstances

22.  I did not find any additional circumstances that had not been taken into consideration in the context of the tests described above.

23.  To sum up: there is no cause for concern with regard to a possible misleading aspect of the two trademarks, and the appellant’s argument that the respondent has violated its trademark, based on the alternative sub-sections of s. 11 of the Ordinance that reflect various aspects and possibilities of consumers being misled, must be rejected (see Tea Board, India v. Delta Lingerie S.A. [23], at para. 9).

The alternative argument: the well known trademark

24.  The appellant’s second argument, based on the “well-known trademark” doctrine (for an in-depth discussion of this cause of action, see V&S Aktielbolag v. Absolute Shoes Ltd [12], at pp. 878-880). This doctrine examines, inter alia, the element of the product’s reputation; the tests used to determine the applicability of that doctrine are similar to those applied in order to determine whether a “distinctive character” has been acquired, as discussed above (Friedman, Trademark Law, supra, at p. 115, see also Sun Investments Ltd v. Naama [11], at para. 4). The appellant did not meet the criteria established for proving a reputation (for these criteria, see: [24] CA 945/06 General Mills Inc v. Meshubach Food Industries Ltd [24], leave for further hearing denied, LCA 8910/09 General Mills Inc v. Meshubach Food Industries Ltd (2010) (unpublished); see also: CA 18/86 Phoenicia Israel Glassworks Ltd v. Les Verreries de Saint Gobain [25], at pp. 245-246). In this regard, as stated, the appellant did not bring sufficient data to prove a widespread and continued use of its product (see Weisbrod & Sons v. D.Y.G. Factory Ltd [22], at p. 632; Copy To Go Ltd v. Shaked [8], at para. 21). As stated, no use has been proven which has resulted in the public identifying the product specifically with the appellant (see Phoenicia Israel Ltd v. Les Verreries de Saint [25], at p. 240).

Additional claims

25.          The appellant argued in the appeal briefs, even if only half-heartedly, that various civil torts had been committed such as deception and unjust enrichment. These arguments should not be dealt with in this proceeding; such claims must be raised in the appropriate court. But going beyond what is necessary, and to prevent my comments from being viewed as encouraging excessive litigation, I will say that an analysis of the civil tort of deception deals with both the reputation element and the element of misleading (Mishpacha Newspaper Ltd v. “Mishpacha Tova” Ltd [9], at p. 942A; CA 9568/05 Shimoni v. “Moby” Birnbaum Ltd [26], per Vice President Rivlin at para. 8). Unlike trademark law, which compares only the trademarks themselves, the tort of deception relates to the question of whether the defendant’s entire range of behavior and activity reaches a level at which a risk exists that someone may be misled (see Toto Zahav Ltd v. Israel Sports Betting Council [16], at p. 901E; “Avazi Hazahav Restaurant” v. Avazi Shchunat Hatikva Ltd [15], at paras. 12 and 28; Ezra v. H & O Fashion Ltd [13], at para. 17l; S.A. Format Ltd v. Shnir Ltd [14], at para. 4). Regarding the tort of deception as well, the difference between the trademarks themselves, as described above, combined with the significant differences in the packaging of the products and in the size of the containers, which is seen when the products are placed side by side, tips the scale in favor of a mitigation of the concern that anyone is being misled (regarding the importance of the image, design and size of the product’s package in the context of the tort of deception, see and compare: S.A. Format Ltd v. Shnir Ltd [14], at para. 5; August Storck KG v. Alpha Intuit Food Products Ltd [18], at para. 7; leave for further hearing denied, LCA 8910/09 General Mills Inc v. Meshubach Food Ltd (2010) (unpublished) [24], at para. 14; Shimoni v. “Moby” Birnbaum [26], at para. 11). This is also the apparent result regarding the unjust enrichment claim, since the appellant has not proven that the respondent benefited from anything at its expense in a manner that justifies a grant of relief pursuant to either the law of unjust enrichment or pursuant to the natural and standard trademark law framework (see and compare Vergos Ltd v. Nega Ltd [3], at para. 14; V&S Aktielbolag v. Absolute Shoes Ltd [12], at p. 888E); General Mills Inc v. Meshubach Food Ltd [24], at para 20; Shimoni v. “Moby” Birnbaum Ltd [26], at para. 14).

Conclusion

26.  The Patents and Trademarks Office took into consideration the appellant’s binding statement as a basis for the approval of the trademark – its statement that “the letters NRG . . . . have no meaning.” Even if these circumstances are ignored, a trademark that includes the letters “NRG” in print does not, in our present context of motor oils, change the descriptive character of the word “energy”, and for this reason it must remain in the public domain. The appellant may not appropriate the use of the word for itself and thus remove it from public use. The appellant’s trademark does not prevent third parties from using the descriptive, auditorily-derived word “energy”. The “brilliant idea”, as the appellant wrote, or the “brilliant invention” (see Kay Daumit Co. v. Patent Office [10], per Justice Silberg, at p. 117E) does not confer upon the appellant’s trademark the protection that the appellant seeks for it. The appeal is denied. The appellant will bear the respondent’s expenses and attorney fees, in the amount of NIS 50,000.

 

Justice Hanan Melcer

I agree with the comprehensive opinion of my colleague, Justice Naor.

 

Justice Elyakim Rubinstein

I concur in the comprehensive opinion written by my colleague, Justice Naor. Neither the letters NRG nor the word “energy” may be appropriated — either by the appellant or by any other party; likewise, the word “energy” in Hebrew may not be taken for private use. There is indeed no limit to the marketing creativity of a manufacturer or copywriter, but language, by its nature, has certain “quantitative” limits, even though there are no limits to “ideas” in the commercial world, certainly within the virtual-technological realm. It is noteworthy that the newspaper “Maariv” gave its website the name NRG at one point, and while there may be another explanation for this, the website’s name also sounds out phonetically as “energy”. The possibility that a phonetic sound will give rise to a question regarding the nature of the word being uttered arises in the Talmud as well (Babylonian Talmud, Baba Kama 104b). The sage Rav Huna cited the saying, “Robbery and fraud, loss and deposit – ‘Yesh Talmud’ (this is certainly a definitive teaching)” regarding the issue of when a person must pay for robbery committed by his father; this saying was not clear to his son Rabba, who asked the following, in light of the auditory similarity [in Hebrew] of the phrase ‘Yesh Talmud’: “Did he say ‘Yesh Talmud’ (there is a definitive teaching) or did he say ‘Yishtalmu’ (the heirs should have to pay)?” Rav Huna answered “Yesh Talmud” ( apparently there is no difference in terms of the substantive legal result). The end result is that I accept the opinion of my colleague.

 

Decided as per the opinion of Justice M. Naor.

 

31 August 2010

21 Elul 5771