Posted: December 10th, 2012
By: Lindsey Chessum *
January 2010, Ferrero S.p.A. (owner of Nutella) filed suit against The Connoisseur Concerto (“TCC”), a chain of sophisticated art cafés in Singapore. TCC has modern décor, a splendid menu, and a wealth of drinks: espressos, lattes, brews, and frappes. What is now absent from the menu is “Nutello,” an in-house created espresso drink flavored with Nutella. Nutello set off the suit with Ferrero.
Ferrero brought its claim before the High Court in Singapore, and the court found for Ferrero on several counts.
The Court analyzed trademark infringement with a step-by-step test requiring similarity of signs, similarity of product, and then likelihood of confusion. In the first step, in a prolonged discussion the court determined “Nutello” was similar to “Nutella.” Then the court blew through the second step, the question of similarity of products, refusing to compare the drink and the spread; instead, the court compared the chocolate drink to the “chocolate products” registration specifications under which Ferrero registered Nutella, a large target. In the last step, a survey stating 30% of the relevant public mistakenly associated or linked the two businesses established likelihood of confusion.
Ferrero also succeeded under the claim of dilution by blurring. The Court rejected the argument that likelihood of confusion necessarily excluded dilution because dilution is based on a lack of confusion. There is no risk of confusing a consumer who no longer identifies a product with a distinctive source. Yet, while 30% of the population was confused, dilution was based on the remainder of the population that was not confused.
Infringement and dilution are practically irrelevant to Ferrero unless the company can prove damages. Nutella suffered no loss in sales, rather, it experienced an increase in sales. Still, the court found Nutello injurious, since it restricted Ferrero’s expansion into the drink market in Singapore. Keep in mind Ferrero does use Nutella in a milkshake, distributed in France as of 2010.
TCC was not the only business caught by Ferrero’s pursuit of legal action. Recently, Ferrero sent a cease & desist letter to Boloco, a chain centered in Boston selling burritos and smoothies. Boloco has sold the “Nutella Milkshake” for fourteen years, and it does not have to stop using Nutella in its shakes. It could simply change the name. The “Eater Boston,” a guide to local dining and drinks, suggested “litigious chocolate hazelnut spread company milkshake.” But after the “legal nastygram” Boloco received, it is understandable that they want to remove Nutella entirely and make milkshakes with another ingredient.
Why the sudden desire to protect? One suggestion is that Ferrero is reacting to a recent class action suit. Plaintiffs in the class action accused Ferrero of overstating the health benefits of Nutella in commercials. With the looming risks and costs of class action litigation Ferrero decided to settle for $3 million. This is at tops $4 per jar for anyone who made a purchase in the U.S. during the specified timeframe.
Are these law suits by Ferrero from a misdirected desire for revenge? This explanation does not account for the fact that Nutella makes money off businesses like TCC and Boloco. Ferrero receives direct benefits from the money spent by businesses on bottles and bottles of Nutella and indirect benefits when good businesses use Nutella in their tasty drinks. It is free advertising. Perhaps Ferrero overestimated the dependence of smaller businesses on Nutella. It believed businesses would go along with Ferrero’s demands, removing the name “Nutella” but keep using the product.
Otherwise, the logical conclusion is that Ferrero intends to make up for those lost profits some other way. The chocolate milkshakes in France could be only a test run for a larger plan to expand across the globe. But then the question is, what are they waiting for? Because it has not yet happened.
In any case, businesses need to know where they stand. Can they use Nutella, and if they do use Nutella, can they use the name “Nutella.” The primary purpose behind trademark law is consumer protection. It is to protect the customer, and, as a secondary purpose, it exists to protect a business’s goodwill.
So what does that look like? The landmark case dates back to 1924 in Prestonettes, Inc. v. Coty. A New York business used a French business’s powder to create its compact makeup and then put the French business’s name on the packaging. The Supreme Court only required a disclaimer, so customers would not be confused into thinking the two companies were linked. The 9th Circuit Court of Appeals reaffirmed this case as recently as 2010 in Au-Tomotive Gold, Inc. v. Volkswagen of Am., Inc.
I turn to America’s favorite cookie as an example. Oreo is used by Dominos, Dairy Queen, Baskin Robbins, Chick-Fil-A, and Cold Stone Creamery. Oreo can be used by anyone; for instance, Chick-Fil-A uses Oreo in its cookies & creme milkshake (a descriptive name), and Oreo appears discretely in the nutritional facts. But when using the name for advertising, there needs to be a licensing agreement like in the case of Dairy Queen and the Oreo Blizzard.
Under this rule, Boloco would be subject to a factual inquiry, whether customers were confused by their sign “Nutella Milkshake.” If the sign contained a disclaimer of any link or relation to Ferrero, then there would be no cease and desist letter in regards to infringement. Especially with a distinctive name like “Nutella,” there is no argument that it is a descriptive term. Do not risk using “Nutella” on a menu unless a licensing agreement exists. However, the capacity to experiment with Nutella and use it as an ingredient is in this way, unlimited. Innovation is preserved, and thankfully, we have a milkshake with Nutella flavoring.
Now, just a last bit of research…
” ” Milkshake
1/3 cup Nutella
1 cup skim milk
3 big scoops of low-fat vanilla frozen yogurt
Blend and Enjoy
(caution: drink slowly or you may experience a brain freeze)
* Lindsey M. Chessum is a second year law student at Wake Forest University School of Law. She has a Bachelor’s in Economics & Business and a Bachelor’s in Philosophy from Westmont College. She spent nearly two years in the stock market industry prior to law school, and upon graduation in 2014, Ms. Chessum plans to return to California to practice business law.