CONVENIENCE NOT THE SAME AS JUSTICE?

Convenience not the same as justice - or is it?

Tuesday's ruling of the Court of Appeal for England and Wales (Lords Justices Waller, Longmore and Lloyd) in Sportswear SpA and another v Stonestyle Ltd [2006] EWCA Civ 380 - reproduced in full on BAILII here - has caught the IPKat by surprise. He liked the decision of Mr Justice Warren (see earlier blog here) and was sure that the appeal would be dismissed, but their Lordships have gone and allowed it.

The claimants were Sportswear, who marketed STONE ISLAND clothing, and its UK distributor. They entered into two agreements, the object of which was to achieve a clear geographical separation in the marketing of STONE ISLAND garments. By those agreements the distributor had exclusivity within its territory and agreed not to sell into other territories.

Below: another controversial Stone Island - Rockall, claimed both by Ireland and the UK

Stonestyle obtained and sold STONE ISLAND garments from a source other than the UK distributor. Since the clothes had codes from which Sportswear could identify the customer to whom they were originally sold, those labels had been removed. There was no dispute that the clothing was genuine and that it had been placed on the market in the European Economic Area (EEA) by Sportswear or with its consent.

Sportswear sued Stonestyle for trade mark infringement. Stonestyle argued that the distribution agreements infringed Article 81 of the EC Treaty (distortion or prevention of competition) and that the codes in the garment labels were for the purposes of enabling Sportswear to police and enforce the absolute territorial exclusivity conferred by the agreements between them. It was accepted that, for a breach of Article 81 to be relevant, there had to be a sufficient nexus between the alleged trade mark infringement and that breach. Sportswear applied to strike out certain paragraphs of the defence relating to those allegations. Warren J allowed that application on the basis that there was no adequate nexus between the agreements and the issue of whether Sportswear had legitimate reasons to oppose further distribution of the garments under section 12(2) of the Trade Marks Act 1994.


Right: the original Euro-defence? the Maginot line

The Court of Appeal allowed Stonestyle's appeal.

* It was arguable that, if Stonestyle could prove that a relevant agreement was in breach of Article 81, it had a stronger basis for saying that Sportswear did not have legitimate reasons to oppose further dealings in the goods.

* Having regard to, inter alia, recent references to the European Court of Justice relating to the issue of parallel imports and re-labelling, certain issues of European Community law arising in relation to those matters remained unresolved. Warren J should not therefore have been satisfied that the defence was necessarily bound to fail.

* The paragraphs of the defence struck out were not unarguable for lack of a legally sufficient nexus. Whether such nexus as was proved at trial would be held to be sufficient in law and in fact was a matter for the trial judge.

The IPKat remains convinced that, in sectors such as the clothing industry, where there are tens of thousands of players, products are almost infinitely substitutable and no-one has a dominant market share, agreements such as those which Sportswear entered into with its UK distributor are hardly going to bring the world to an end: if you look at consumer choice and how much the price of clothing has fallen in the EU in the past two decades, it's difficult not to believe that agreements like this are necessary for sthe survival of small players. Merpel agrees, adding that Articles 81 and 82 are so easy to raise, and so spurious, that they are almost always going to be an expensive smokescreen that a rights owner has to penetrate before he can bring his case. Having said all this, neither the IPKat nor Merpel are convinced that there's so much wrong with cutting off labels and erasing bar-codes, so long as (i) the practice doesn't affect the essential function of the trade mark of guaranteeing the identity of the origin of the goods and (ii) consumers don't mind.

It's worth quoting the succinct concurring judgment of Lord Justice Longmore, with some emphases added:

"It is a well-known and rather disturbing fact that it costs far more to resolve intellectual property disputes in England than in other parts of the EEA. This case is a good example. The parties have elected to spend considerable sums of money in making detailed submissions about three paragraphs of a pleading, before any trial of what may be called the merits of the dispute will take place. I agree with Lloyd LJ that ... this appeal must be allowed. That means that the date currently fixed for a three day trial will have to be vacated; this will inevitably cause further delay and further expense. That is regrettable but follows from our procedural rule that a defence, which is arguable, should not be struck out before trial.

Undoubtedly it would be convenient if it were possible to hold that the Article 81 issue could only be used as a sword rather than a shield so that competition issues could not be used to muddy the waters of (here) a comparatively straightforward trade mark dispute. But convenience is not always the same as justice and I have been, a little reluctantly, persuaded ... that it is arguable that European Community law does not invariably allow trade mark issues and anti-competition issues to be compartmentalised and separated from one another. It may turn out at trial that the defendant will be able to rely on section 12(2) of the Trade Marks Act 1994 to defeat the claimant's claim but, ..., it is not possible to be sure that the defendant's position will not be stronger if it can also establish a breach of Article 81. That is something which, in my view, the European case law, at any rate arguably, entitles the defendant to do".