Court of Appeal reverses Special Effects ruling

Court of Appeal reverses Special Effects ruling

Now here's some hot news from that hotbed of glamour and fashion, the Court of Appeal for England and Wales ...

Special Effects was the assignee of a word mark SPECIAL EFFECTS which was registered for conditioners and hair lotions (Class 3) and beauty and cosmetic therapies (Class 40). L'Oréal, owners of the brand name SPECIAL FX, unsuccessfully opposed the application. Following registration, Special Effects sued L'Oréal and its UK subsidiary for infringement through the use of SPECIAL FX. Special Effects also argued that L'Oréal was barred from challenging the validity of the mark on grounds of estoppel and abuse of process. L'Oréal denied they were infringing, arguing that Special Effects' registration was invalid.

In a preliminary hearing, Chancellor Morritt held for Special Effects (see earlier IPKat post here). In his opinion L'Oréal could not re-contest any of the issues it wanted to raise. In particular he held that (i) there was no real difference between the practice and procedure of the Trade Marks Registry in opposition proceedings and invalidity proceedings since the issues underlying the two sets of proceedings were identical; (ii) cause of action estoppel applied where a cause of action in the second action was identical to a cause of action in the first and (iii) L'Oréal could not rely on their own use of the SPECIAL FX brand before the date of application for SPECIAL EFFECTS, since that issue had been expressly raised, and dealt with, in the opposition proceedings.

L'Oréal appealed to the Court of Appeal for England and Wales, which yesterday allowed the appeal (full judgment here on BAILII).

The Court, consisting entirely of non-IP specialist judges, was clearly impressed by the INTA's intervention - the first time the organisation has become involved in UK litigation. As Lord Justice Lloyd said, speaking for the Court:

"The point is seen as being of considerable importance, in that, if the Chancellor's decision is right, the practice in relation to opposition proceedings will change in one or both of two ways: either parties will not attempt to oppose or, if they do oppose, they will seek to do so in a much more substantial way, similar to the conduct of litigation in court. The implications of the decision were such that the International Trademark Association intervened, with permission, and the Institute of Trade Mark Attorneys also made a written submission to us. The Trade Marks Registry chose not to intervene. We were much assisted by full, clear and helpful submissions from Counsel for the parties and for the Intervener" (para. 4).

The Court of Appeal agreed that decisions of the Trade Mark Registry may form the basis of res judicata where a Registry decision is subsequently challenged in court:

"Both parties ... contended that a decision of the Trade Marks Registry could be the basis of res judicata. We are content to proceed on that basis. The question is whether the decision on the opposition proceedings in the present case does create a cause of action estoppel or an issue estoppel against [L'Oréal]. or makes it an abuse of process for [L'Oréal] to raise the relevant points which it seeks to raise in the Defence and Counterclaim, and if so, whether it also precludes the [UK subsidiary of L'Oréal] from raising the same points" (para. 42).

Essentially, the Court of Appeal concluded that

* there was no cause of action estoppel: the cause of action before the Registry was an opposition proceeding, while that before the High Court was a trade mark infringement proceeding in which the validity of the claimant's mark was put in issue. The two proceedings were therefore quite different.

* as to issue estoppel (where, even if the proceedings are different, the issue the court is asked to resolve is one that has already been resolved), that too did not apply in this case:

"A decision in court proceedings for invalidity will have the effect of binding the unsuccessful party to the extent of past matters, though not for continuing relief. The question is whether a decision of the Registry in opposition proceedings has that effect. Such a decision could at most (as the Chancellor held it did) preclude the unsuccessful opponent from relying on the same grounds in support of invalidity proceedings. If, however, invalidity proceedings were brought, successfully, by a third party, so that the trade mark registration was revoked, there would be no continuing effect of the estoppel against the unsuccessful opponent. That party, like any other, could then proceed with impunity, regardless of the previous registration of the trade mark. ...

It seems to us that the co-existence of the provisions for opposition and for a declaration of invalidity has the result that opposition proceedings are inherently not final. They exist at the first stage of the process, before registration. By itself that would not be conclusive, but it seems to us that the fact that, at least, any unconnected third party could challenge the validity of the registration despite an unsuccessful opposition by another, and that, if that challenge were successful, there would be nothing which would bind the unsuccessful opponent (in contrast with the position of a party which had unsuccessfully applied, at any rate to the court, for a declaration of invalidity), shows that the decision of the Registry on opposition proceedings, or more generally a decision to register despite opposition, is not a final decision so as to be capable of being the basis for an issue estoppel. This is true both as regards the grounds of invalidity and as regards the issue of prior use more generally, as relevant to a passing off claim. The same would be true of cause of action estoppel if, contrary to our view expressed above, there was a cause of action at that stage" (paras 70, 71).

* there was no abuse of process either, given the circumstances in which the issue was raised for the second time:

"On the facts of the present case, we hold that it is not an abuse of process for L'Oréal to raise by way of defence or counterclaim, for a declaration of invalidity or for relief on the basis of passing off, matters which it raised in the opposition proceedings and which were found against it. In so doing, it wishes to take advantage of opportunities expressly afforded by the Act, and it does not seek to do so in a manner which, in our judgment, amounts to an abuse of the process" (para 78).

The IPKat was initially very sceptical about this appeal, feeling that L'Oréal had been using its size and financial muscle in an inappropriate manner. However, taking note of the careful manner in which their Lordships analysed the issue, he is inclined to think they've got it right. In summary, res judicata does apply in respect of Registry decisions, but the circumstances in which it does so have been clarified and, to that extent, narrowed. Merpel says, there's a sort of poetic justice here: just as cosmetics are tested out on animals, so too are legal theories are tested out on cosmetics manufacturers ...