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Thursday, 26 May 2011

Court tells Kats, tail must not wag dog

A wagging tail: threat?
When is a threat not a threat? This is the question posed by the IPKat in July of last year, which was also before the Chancery Division England and Wales, in Best Buy Co Inc and another v Worldwide Sales Corporation Espana SL. This case turned on the meaning of the Trade Marks Act 1994, section 21:
"(1) Where a person threatens another with proceedings for infringement of a registered trade mark other than— (a) the application of the mark to goods or their packaging, (b) the importation of goods to which, or to the packaging of which, the mark has been applied, or (c) the supply of services under the mark, any person aggrieved may bring proceedings for relief under this section.

(2) The relief which may be applied for is any of the following— (a) a declaration that the threats are unjustifiable, (b) an injunction against the continuance of the threats, (c) damages in respect of any loss he has sustained by the threats; and the plaintiff is entitled to such relief unless the defendant shows that the acts in respect of which proceedings were threatened constitute (or if done would constitute) an infringement of the registered trade mark concerned.

(3) If that is shown by the defendant, the plaintiff is nevertheless entitled to relief if he shows that the registration of the trade mark is invalid or liable to be revoked in a relevant respect.

(4) The mere notification that a trade mark is registered, or that an application for registration has been made, does not constitute a threat of proceedings for the purposes of this section".
The claimants (US corporation Best Buy and its UK subsidiary) intended to open a series of shops in the UK and elsewhere in Europe under the name 'Best Buy'. Worldwide, a Spanish corporation, held a number of national and Community registrations that contained the words 'Best Buy' in combination with devices and graphics. The claimants applied to register as a Community trade mark (CTM) a sign including the words 'Best Buy'. Worldwide opposed, so the claimants' lawyers wrote to Worldwide to ask about a possible coexistence agreement. In response they received a "without prejudice" letter from Worldwide's lawyers stating that their client was entitled to take appropriate legal action to defend its interests in the event that the claimants should start to expand into the European market. The claimants then commenced section 21 proceedings, alleging that this letter was an unwarranted threat to launch trade mark infringement proceedings against them.


Floyd J was asked to determine four issuesd: (i) did the letter threaten proceedings for infringement? (ii) was the threat made in relation to an infringement which fell within the "other than" bit of section 21 and was thus excluded from the operation of the section? (iii) if a real, live, actionable threat had been made, was the letter admissible as evidence, given that it was written "without preducice"? (iv) did section 21 apply just to threats to sue in respect of infringement of UK registered marks in the UK, or did its extension under the Community Trade Mark Regulations 2006, reg.6(1), to cover Community trade marks make unwarranted threats to sue for CTM infringements anywhere in the EU actionable too?

Floyd J dismissed the claimants' action. He agreed that any reasonable businessman in the position of the claimants would have understood from the letter in the clearest terms that proceedings for infringement of trade mark were threatened if negotiations failed and they decided to use trade as Best Buy. It didn't matter if the proceedings threatened infringement of a UK mark or a CTM: what mattered was that the threatened proceedings had to be an infringement action in the UK. Section 21 did not concern itself with the harmful effects of proceedings threatened in jurisdictions other than the UK. If it did, then it would be a trap for the unwary in all the 26 other EU member states.

Floyd J considered that Worldwide's letter showed it had a range of options as to the forum in which it could bring proceedings, including both Spain and the UK, and that if the claimants opted to trade as 'Best Buy' in the UK, that jurisdiction would be a likely choice for proceedings. On this basis, section 21 applied even if it did not specifically threaten proceedings in England. The reasonable recipient of Worldwide's letter would not have understood the threat of proceedings as being limited to the supply of services (which was excluded from liability under section 21(1)).

Notwithstanding this, the claim failed. Since Worldwide's letter was written and sent in the context of correspondence between the parties which was part of a negotiating process, it fell firmly within the protection of the "without prejudice" rule -- and that was an end to the matter. Part of the letter was in response to earlier points, while other bits sought to underline the strength of Worldwide's position: you couldn't chop the letter up into those parts which were in response to the request to negotiate and those which were not. Taking a global view of the letter in its context, it was a response to the claimants' proposal and not a threat.

The Court of Appeal (Lord Neuberger MR, Etherton and :Patten LJJ) yesterday reversed this decision in [2011] EWCA Civ 618.  While the judge's characterisation of the letter as a threat was correct, his conclusion regarding "without prejudice" was not.  Said the Master of the Rolls, with whom Etherton and :Patten LJJ agreed):
"37. The question in the present case is whether the September letter, or at least the last three paragraphs of that letter, would reasonably have been understood to have been intended to have this privileged status. It may seem at first sight that this is an over-simplification of the issue, given the significance of public policy in this field, but, on analysis, I do no think that it is. That is because the question I have suggested really incorporates the public policy issue, as it involves considering whether the parties would reasonably have thought that their negotiations in the correspondence in issue were sufficiently advanced to have moved into the "without prejudice" zone.

38. In my view, the Judge reached the wrong conclusion on this issue. In addressing this question, I think that he may have concentrated on the last three paragraphs, without properly considering the September letter as a whole: in that sense, he let the tail wag the dog. The letter was concerned to set out, in some detail, the defendant's objections to BBES's actual and proposed use of the Best Buy mark, and the extent of the defendant's interest in and rights over the use of that mark, as well as threatening BBES with infringement proceedings. The proposals at the end of the letter were, as I see it, a generally and unexceptionally expressed offer to negotiate a settlement of the issues, with two possible routes being raised".
The court offered this little idea, which is bound to attract further litigation: perhaps "without prejudice" correspondence isn't excluded from liability for threats at all?
"42 ...  I think the Judge was wrong to hold that the September letter was privileged from use in court. ...[E]ven if I had agreed with his conclusion that the last three paragraphs of the September letter brought the "without prejudice" rule into play, I would, at least as at present advised, nonetheless have held that the letter could be relied on to support the claimants' threat claim ...".
The IPKat's friend David Stone (Simmons & Simmons) summarises the position thus:
"... The Court of Appeal in effect is saying that courts will look at the substance of a communication rather than its form to decide if it is really without prejudice. Relevant considerations will include:
· the overall purpose of the communication (in this case it was held to be intended to act as a letter before action);
· whether there is a clear 'signal' that some parts of the letter are to be treated differently to others, in particular the use or absence of the words "without prejudice" (although this is not definitive and in a case where the authors are Spanish, such as here, is somewhat weaker as an indicator); and
· The court will not allow the words "without prejudice" to be used to allow threats to be made with impunity".
Tails wagging dogs here
Dogs wagging tails here
Judge wagging finger here

2 comments:

Mark Anderson said...

IP Draughts comments on this issue here: http://ipdraughts.wordpress.com/2011/05/26/ip-threats-provisions-time-to-abolish-them/

Allan Poulter said...

it should be noted that the letter containing the threat was not actually marked "Without Prejudice".

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