This is an informal case summary prepared for the purposes of facilitating exchange during the 2023 WIPO IP Judges Forum.
Superior Tribunal of Justice of Brazil [2023]: Esperança Holding Ltda. and Hope Do Nordeste Ltda. v Loungerie S/A and Google Brasil Internet Ltda.
Date of judgment: August 8, 2023
Issuing authority: Superior Tribunal of Justice (STJ), Brazil
Level of the issuing authority: Final instance
Type of procedure: Judicial (Civin( �br>
Subject matter: Trademarks; Competition
Plaintiffs: ESPERANÇA HOLDING LTDA. and HOPE DO NORDESTE LTDA.
Defendants: LOUNGERIE S/A and GOOGLE BRASIL INTERNET LTDA.
Keywords: Comparative advertising, Sponsored links, Search engines, Unfair competition, Parasitic competition, Consumer confusion
Basic facts: The plaintiffs, owners of the HOPE intimate apparel trademark, filed a lawsuit against the competing company LOUNGERIE, protesting LOUNGERIE’s unauthorized use of the HOPE trademark by hiring sponsored ads on GOOGLE's website that use their brand as a keyword.
The first-instance court granted the plaintiffs’ request, ordering: i) LOUNGERIE to refrain from using the term HOPE as a keyword to activate sponsored links in searches by GOOGLE's search tool; ii) GOOGLE to refrain from linking and indexing the term LOUNGERIE in ads contracted by the plaintiffs exclusively with the term HOPE; iii) LOUNGERIE and GOOGLE to pay compensation for material and moral damages.
The decision was fully confirmed in the second instance, which also increased the amount of compensation for moral damages.
LOUNGERIE and GOOGLE filed a special appeal to the Superior Court of Justice (STJ).
LOUNGERIE's claims: i) contracting Google AdWords does not constitute a fraudulent means that justifies its classification as an act of compensable unfair competition; and ii) the increase in the amount of compensation for moral damages suffered was inappropriate.
GOOGLE's claims: i) using a company's brand to display sponsored links of its competitor is considered comparative advertising and not an act of unfair competition; ii) the lack of clear and specific indication (e.g., URL indication) of the infringing content to be removed from the search results violates Article 19 of the Establishment of Principles, Guarantees, Rights and Obligations for the Use of the Internet in Brazil (hereafter referred to as the Internet Civil Framework); iii) search providers should not be held liable for potential intellectual property violations, as they are not responsible for third-party generated content, as per Article 19 of the Internet Civil Framework; and iv) the requirements to substantiate the charge for material and moral damages are absent.
Held: The Superior Court of Justice dismissed the appeals by both LOUNGERIE and GOOGLE, with an increase in fees.
Relevant holdings in relation to intellectual property and competition issues:
The Superior Court of Justice was tasked with determining whether: a) purchasing a keyword identical to a competitor's brand from a search provider so that one's own advertisement appears prominently in search results constitutes an act of unfair competition; b) there is a necessary joinder between the advertiser who purchased sponsored link services and the search provider; and c) the limited liability of search providers, provided for in art. 19 of the Internet Civil Framework, applies to their role in the sponsored links market.
The purpose of brand protection – ensured by art. 5, XXIX of the Republic's Constitution and regulated by art. 129 of the Industrial Property Law – is twofold: on one hand, to protect companies against usurpation, parasitic economic gain, and unfair diversion of their clientele; on the other hand, to prevent consumer confusion about a product's origin (art. 4, VI, of the Code of Consumer Defense and Protection).
Art. 195, III, of the Industrial Property Law stipulates that it is a crime of unfair competition to employ fraudulent means to divert clientele for one's own or another's benefit. Using a brand as a keyword to direct a product or service consumer to a competitor's link is a fraudulent means of diverting clientele, as it allows parasitic competition and confuses the consumer.
According to art. 32 of the Brazilian Self-Regulation Code for Advertising, one cannot claim comparative advertising when the act in question causes i) confusion among consumers, ii) unfair competition, and iii) unjustified profit from a competitor's prestige. Art. 209 of the Industrial Property Law ensures the injured party the right to compensation for damages resulting from such acts, especially when they harm a party’s reputation or business, or create confusion between commercial establishments or between products and services on the market.
Moral damage due to misuse of a brand is ascertainable in re ipsa; it arises from mere proof of illicit conduct, making it unnecessary to demonstrate concrete losses or prove actual moral harm.
When assessing the civil liability of internet providers for acts of unfair competition in the sponsored link market, it is not the content generated on the sponsored site that gives rise to the duty to compensate, but rather how the search provider markets its advertising services, such as by presenting search results that promote parasitic competition and confuse the consumer. For this reason, the defendants cannot invoke the application of art. 19 of the Internet Civil Framework.
Relevant legislation:
Constitution of the Federative Republic of Brazil, 1988
Law on Industrial Property (Law no. 9.279/1996)
Establishment of Principles, Guarantees, Rights and Obligations for the Use of the Internet in Brazil (Law no. 12.965/2014)
Brazilian Code of Consumer Defense and Protection (Law no. 8.078/1990)
Brazilian Code of Advertising Self-Regulation, 1980