Use of reverse confusion theory proves increasingly popular

With social media, influencer marketing trends and promotional activities on the upswing, the reverse confusion theory is fast gaining momentum in India.

Unlike the forward confusion theory – which applies when a subsequent trademark user, usually a small entity, adopts or starts using a known mark of an established large entity to cash in on its goodwill – reverse confusion represents instances when a junior user overpowers a senior user and overshadows its reputation through exceptional marketing and promotional activities.   

Understandably, reverse confusion can have a massive impact on the market, as consumers purchasing the senior user’s goods or services begin to believe the junior user provides them – hence the increasing attention recently paid to it in India.

First prominent international instance of reverse confusion theory

The reverse confusion theory first garnered international attention in 1976 following Big O Tire Dealers, Inc v Goodyear Tire & Rubber Co (408 F Supp 1219; D Colo 1976), a well-publicised US trademark case. 

In 1974, Goodyear, a US multinational tire manufacturer, adopted the BIGFOOT mark for use on its tyres – which was extremely similar to BIG FOOT, to which Big O Tire Dealers, a smaller, Colorado-based tyre company, had already established prior rights.

Goodyear then launched a massive publicity and advertising campaign that promoted products, successfully associating the company with its new mark before a large audience.  Understandably, consumer confusion between the rival marks quickly arose.

When the dispute reached the district court in Colorado, Big O failed to prove that Goodyear intended to trade on the goodwill of its BIG FOOT mark. Conversely, through consumer surveys, Goodyear demonstrated that consumers buying tyres utilising its BIGFOOT mark believed that Goodyear was their only source of origin.   

The court determined that Goodyear’s multi-million-dollar marketing campaign had made it reasonable for consumers to falsely assume that Big O had stolen Goodyear’s BIGFOOT mark.  Consequently, in an unprecedented decision, it recognised and enforced the doctrine of reverse confusion, awarding Big O $19.6 million in damages for Goodyear’s disparagement of its trademark and reputation and directing Goodyear to cease its trademark infringement.’

To determine reverse confusion, US courts have developed a case-based, multi-factor test considering factors such as:

• the strength of the marks;
• the similarity between the marks;
• the possibility of actual confusion;
• the intent of the infringer;
• the likelihood of expansion of product lines; and
• evidence of marketing expenditure, sales and consumer surveys designed to gauge brand recognition.

Defending against reverse confusion

A common defence against reverse confusion adopted by junior users is to claim ignorance of the senior user’s mark upon market entry. For instance, this strategy was successfully employed by the defendant in Walter v Mattel, Inc (31 F Supp 2d 751; CD Cal 1998; affirmed by 210 F 3d 1108; 9th Cir 2000).

The theory’s increasing popularity in India

While there are few examples of reverse confusion in Indian jurisprudence, the theory is gaining traction.

In 2001, the Delhi High Court recognised and enforced the doctrine in Allianz Aktiengesellschaft Holding v Allianz Capital and Management Services Ltd (17 September 2001 – DELHC).

In this case, the plaintiff, Allianz Aktiengesellschaft Holding, was a German company that had used the mark ALLIANZ since 1989 in conjunction with its investment and insurance services. It filed a petition with the Delhi High Court following the decisions of defendant, Allianz Capital and Management Services, to substitute ‘Allianz’ for ‘Asthan’ in the company name it used in India.

The court held that since the German company conducted no insurance business in India, it could not be said that the Indian company or its transferee would be passing off their services as those of the former. Instead, considering the reputation earned by the Indian company in a business other than insurance, there was a greater likelihood of reverse confusion. To avoid this, the court permitted the German company to use the word ‘Allianz’ with regard to the insurance sector and the business of a non-banking finance company, but prevented its use of the word in the investment and financial services sector.

In another interesting case, AZ Tech (India) v Intex Technologies (India) Ltd (24 December 2016 - DELHC), the plaintiff, AZ Tech, sought an interim injunction against the defendants for using the trademark AQUA with respect to mobile phones. AZ Tech contended that it had adopted the mark in 2009 and that Intex had wrongfully and fraudulently adopted its mark (AQUA) in late 2012 to pass off its goods as those of the plaintiff. The single judge of the Delhi High Court held that AZ Tech had established a strong prima facie case for prior use and goodwill and granted an injunction in its favour.

In response to the defendant’s appeal, the division bench disagreed. Intex argued that it honestly adopted and launched mobile phones under the mark AQUA in August 2012 with no prior knowledge of AZ Tech’s ‘AQUA’ product – which was not present in the Indian market at the time of Intex’s launch. Conversely, AZ Tech alleged that reverse confusion had been caused by Intex.

The court stated:

In order to establish reverse confusion, there must be tangible evidence to show that Intex being the alleged junior user of the mark 'AQUA' was able to swamp the goodwill and reputation of AZ Tech being the alleged senior user of the said mark. Such evidence, even upon a prima facie consideration, is lacking. Also, the added matter in the form of the word mark 'INTEX' was so prominent and distinct that it dispelled any chance of initial confusion.

The court held that irreparable injury would be caused to Intex if an injunction were to be granted or continued.

Looking forward

The concept of reverse confusion can be a game changer through its provision of a loophole to the well-tested defence of prior use.

A junior user can weaponise its extraordinary presence and awareness in the market to overpower a senior trademark holder. However, if the senior user can show that the junior user understood and intentionally disregarded its rights in order to make a reverse confusion claim, then the concept of reverse confusion fails and the junior user may face severe penalty. 

It remains to be seen whether this theory continues to gain traction in trademark disputes throughout India.