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UNITARY PATENT

In 2012 Member States and the European Parliament agreed on the "patent package" - a legislative initiative consisting of two...

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Goodwill Hunting in UK-IPO Proceedings

Challenging later marks based on prior goodwill is never easy. Proving goodwill sufficient to found a passing off claim is not as simple as proving a prior registered right, and normally entails much greater costs. Moreover, unlike registrations, goodwill does not come in the form of a certificate with a named owner. Consequently, a party relying on goodwill not only needs to prove that it exists, but also who owns it, in order to ensure that oppositions are brought in the correct name.

The pitfalls lurking here are highlighted by a recent IPO appeal decision before the Appointed Person (EGL Gem Lab Limited v Guillaume Margel, O-426-10). In this case the identity of the goodwill owner was not decisive to determining standing to oppose, but the position is rather different for other cases going forward. 

Gem of a Case

The appeal in EGL followed the rejection of an invalidity action based on inter alia ownership of prior goodwill sufficient to prevent use of the later mark through an action for passing off under Section 5(4)(a) of the Trade Marks Act 1994.

In March 2003, EGL Gem Lab Ltd. had filed UK trademark application no. 2326092 for the mark set out below in respect of various Class 42 services including the grading of precious stones and the issuing of certificates relating to such grading.

The mark was registered in September 2003, but in August 2007 Guillaume Margel, a Belgian expert in gemstone grading, applied to have the registration invalidated.

Mr Margel had formed a business called "European Gemological Laboratory" or "EGL" in 1974 in Antwerp. The concept behind it was to issue internationally recognised certificates which graded diamonds and other gemstones. Mr Margel later expanded his business by opening laboratories in New York, Los Angeles, Israel, France and South Africa. Mr Margel had used the name "European Gemological Laboratory", as well as the logo covered by UK registration no. 2326092, from around 1974.

In or around 1986, Mr Margel sold the US division of EGL to NK Gemological Services Inc., which later became EGL Gem Lab Ltd. The written purchase agreement addressed the transfer of the US trademark rights only, including EGL and European Gemological Laboratory. A further written agreement confirmed that EGL (US) were entitled to refer to the locations in which Mr Margel conducted his business and to issue certificates supplied by Mr Margel (for a fee), although there was no formal affiliation with him.

Around 1987-8, Mr Margel made an agreement "on a handshake" authorising a London diamond expert, Mr Roy Huddlestone, to issue EGL-marked certificates in the UK. This arrangement was mutually beneficial to both parties, as Mr Huddlestone gained kudos from the international reputation of the EGL marks, and the EGL certificates were more valuable than his own independent ones. Mr Margel, for his part, was able to add the UK to his list of affiliated laboratories. The EGL marks had been used in the UK by Mr Huddlestone ever since.

Upon noting the existence of UK registration no. 2326092, Mr Margel filed his challenge based inter alia on a claim that he owned goodwill in the EGL marks in the UK sufficient to prevent use of the registered mark here through an action for passing off. The action failed, however, because the hearing officer concluded that as of 10 March 2003 (when the challenged registration was filed) and 18 January 2010 (the date of the hearing), the owner of the goodwill in the EGL marks was not in fact Mr Margel, but rather Mr Huddlestone or his company. This finding was based on the following facts:

a)    Mr Margel had never had a business in the UK or exercised any control over any relevant business activities in the UK to which his goodwill could attach;
b)    Mr Huddlestone's customers came to him for his expertise and because he issued EGL certificates;
c)    Mr Margel had no part in assessing the gemstones of Mr Huddlestone's customers;
d)    Neither Mr Margel nor his EGL business had ever issued a certificate in the UK.

Since the invalidity application had been filed by Mr Margel and not Mr Huddlestone or his company, the Section 5(4)(a) ground failed.

So Who Should Have Filed the Action?

On appeal, however, Mr Margel's case sparkled a little more.

In the Appointed Person's opinion, the fact that Mr Margel rather than Mr Huddlestone had filed the invalidity application should not have resulted in the action being dismissed. Although the Trade Marks (Relative Grounds) Order 2007 required challenges based on relative grounds to be brought by the proprietors of the earlier rights asserted, these proceedings were commenced before that Order came into force on 1 October 2007 and did not therefore apply to this case. Consequently, Mr Margel was as entitled to apply for invalidation on the basis of Mr Huddlestone's goodwill as he was on the basis of his own, had there been any. 

The hearing officer's decision to reject the case appeared to be based on a technicality arising from unclear pleadings. Mr Margel had pleaded ownership of the goodwill himself without reference to Mr Huddlestone as a possible joint or sole goodwill owner.

Consequently, Mr Margel had never actually advanced a case based on goodwill owned by a third party, even though, depending on the hearing officer's assessment of the facts, it might have been the only case he realistically had. Mr Margel never applied to amend his pleadings to add a "further or alternative" allegation that the goodwill was owned by Mr Huddlestone or was owned jointly with him. As a result, his case at first instance failed.

Despite this unfortunate drafting, the Appointed Person considered that the hearing officer had been wrong to dismiss the case based on "what was at best a technicality." Since the Trade Marks (Relative Grounds) Order 2007 did not apply to these proceedings, once the hearing officer had determined that there was an actionable goodwill in the UK he did not need to consider who actually owned it in order to invalidate the registration. However, Mr Margel failed to raise this point in the appeal, and the Appointed Person was therefore confined to determining whether the hearing officer had been right to find that Mr Huddlestone was in fact the sole goodwill owner in the UK.

Goodwill Under the Microscope

On this point, the relationship between Mr Margel and Mr Huddleston and the way in which the EGL marks were presented to the public in the UK were key. Referring to the Scandecor case, the Appointed Person noted that:
-    Mr Huddlestone traded through his own limited company, Huddlestone Gemological Consultants Ltd. ("HGC");
-    The invoices relating to the issue of EGL certificates were headed with the name and address of HGC;
-    The reference to EGL appeared only in the description of the work charged for, eg "supplying one EGL diamond certificate"; and
-    There was no evidence of Mr Huddlestone using the name EGL to identify his own business. The certificates consistently presented EGL as an international organisation of which he was the UK representative.

In the Appointed Person's opinion, any customer receiving an EGL certificate from Mr Huddlestone would consider him to be acting as the London representative or agent of the EGL business. This was crucial to the question of who owned the goodwill, because every time Mr Huddlestone issued a certificate he was both trading off and adding to the international identity of the brand. In conclusion, the Appointed Person found that in fact the goodwill in this case belonged to Mr Margel as the proprietor of the international EGL business, and not to Mr Huddlestone, his representative in the UK, although he did not exclude the possibility that this might be a case of joint ownership of goodwill.

The hearing officer's conclusion that the goodwill belonged to Mr Huddlestone and HGC was flawed because Mr Margel's evidence showed that he had in fact exercised control over the form of certificates issued in the UK. Further, the Appointed Person considered the hearing officer's claim that EGL had never issued a certificate in the UK to be unacceptable when a number of the certificates issued by Mr Huddlestone were explicitly issued "as agent for" EGL.

As a fall-back position, EGL (U.S.) argued that Mr Margel had not provided evidence that the goodwill belonging to the international EGL business was his own. However, the Appointed Person regarded this as immaterial, although for his part he considered that the evidence adequately demonstrated that EGL was a personal venture of Mr Margel. The Appointed Person added that if a respondent in trademark proceedings wished to claim that the goodwill on which an applicant relies does not belong to the applicant, this must be positively pleaded. A blanket denial is not sufficient. The Appointed Person reversed the hearing officer's decision and declared the registration invalid.

Comment

Despite the imperfections of his pleadings, Mr Margel was at last able to secure the outcome sought. It would have been rather easier for him, though, if he had pleaded joint or sole ownership of the goodwill by Mr Huddlestone as an alternative case.

However, this decision is special because it relates to proceedings conducted under the previous legislation, under which earlier rights could be relied on in UK-IPO actions by parties other than the proprietors of those rights. The position now is that only the proprietors of those rights may oppose. Had this case been brought under the new rules, Mr Margel would have failed at first instance for a technicality, just as he did in the actual case, but it would have been a rather more serious one.

While proving both the existence and ownership of goodwill is a question of fact which should always have been proved in actions based on goodwill, proving who owns it is now more critical. Indeed, the owner of the goodwill needs to be established prior to the filing of an opposition or invalidity action so as to ensure that the action is brought by a party with the proper standing. Failure to do so can doom an action to failure and allow a contested application to slip through to registration. Where it happens in an invalidity action, it may potentially create an estoppel against renewed efforts to invalidate on the same grounds later.

This issue is of particular concern to those who license marks. It is clear from the "gentlemen's agreement" in this case that a mere handshake is a long way from enough to determine who in fact should own goodwill in a mark used in the UK but owned abroad by someone else. Brand owners who license marks, and those who draft licenses, would do well to ensure that license agreements spell out who is to own any goodwill arising from the licensed use. Careful drafting at the outset can avoid a great deal of uncertainty and unnecessary costs later.

This decision is, however, above all a salient reminder of the importance of registering marks to be used in the UK. If Mr Margel had owned a UK or CTM registration for his mark, he would not have had to leave the question of right ownership to the fickle fancy of a hearing officer or appellate tribunal, and his costs in the action would have been considerably lower. Indeed, faced with a claim based on a registration, it is possible that a later registrant would simply have backed down.

The existence of a registration is in itself prima facie evidence of the existence and ownership of a right. For the relatively minimal costs involved, it is a bargain indeed.