Given the high stakes in branding, gambling that an infringer will fade away is rarely a safe bet. Online casino 32Red plc learned this the hard way recently, when a major competitor bought a fledgling infringer and gave it wings (32Red plc (a Gibraltar Company) v WHG (International) Ltd. (a Gibraltar Company) & Ors.,  EWHC 62 (Ch) ). The confusion resulting from the infringer's scaled-up activities forced 32Red's hand, and it had to take leading bookmaker William Hill to court for trademark infringement in order to stop the use.
32Red won the case, which offers interesting guidance on likelihood of confusion, dilution and filing strategies.
Nonetheless, the cost of having to litigate against large, well-funded defendants must have rankled when the use might have been much more cheaply quashed when the infringer was financially weak.
Good Luck Turns Bad
Following launch in 2002, the claimant, 32Red plc, operated an online casino under the name and trademark 32Red.
The name "32Red" alluded to the red 32 on the roulette wheel. It was chosen following brand research which found no other online casinos using "32" in their branding, and because the colour red was regarded as lucky in the Far East, which 32Red saw as a potentially significant market. Also relevant was the fact that all the characters in the mark were situated close to each other on a computer keyboard, which made it easy to type into an Internet browser bar or search engine.
32Red filed a CTM application for 32RED in 2002, which was duly registered for casino and online casino services in 2004. In 2006 32Red also secured registration of the mark in a figurative form.
32Red's business prospered and by 2009 it had around 25,000 active players placing more than 130 million bets valued at around £170 million. 32Red derived some 74% of its income from players based in the UK.
In 2006, in the context of this growing business, 32Red became aware of a small rival online casino that had just begun operating under the name 32Vegas. Its Antiguan ownership prohibited it from advertising in the UK under the Gambling Act 2005, but its online presence meant that it could attract players from anywhere. In May 2006, 32Red's lawyers sent a cease and desist letter to 32Vegas, but no response was ever received and the matter was not followed up.
Meanwhile, in a series of unfortunate events, 32Vegas was acquiring rather significant backers. In late 2008 the major bookmaker William Hill Group entered into a joint venture that resulted in it acquiring the 32Vegas business and related domain name. The change in ownership had the knock-on effect that 32Vegas could now be advertised legally in the UK. At the same time, William Hill re-launched and expanded its own online gambling presence, with 32Vegas one of its many new offerings. In early 2009, therefore, the profile of 32Vegas began to rise.
When the Chips Are Down
Having learned of these events, 32Red sent a further cease and desist demand within three weeks of the William Hill re-launch. William Hill flatly rejected it.
32Red therefore issued a claim form in early March 2009 but delayed serving it, using the interval to prosecute a new UK trademark application for the number "32" on its own that it had filed at the end of February 2009. After the registration issued in June 2009, the claim form was amended and finally served, alleging infringement of the CTMs for 32RED in plain and stylised form and of the UK registration for 32 on its own.
In a detailed judgment, the High Court found that 32Vegas was similar to 32RED. The number 32 had no relevant or descriptive meaning in respect of gambling and was not in common use by others in the gambling field. The fact that 32RED might, to some, be understood as a number on a roulette wheel gave the mark an added layer of meaning that alluded to gambling without being descriptive. That added layer of meaning only further enhanced the attractiveness and distinctiveness of the mark in respect of gambling services.
For its part, 32Vegas shared the same initial distinctive and dominant component, 32, followed by another element clearly evocative of gambling and casinos. Taking into account imperfect recollection, the judge was persuaded that there was a risk that some users of Internet gambling websites could be confused between the marks, and that users who were not confused might nonetheless wrongly assume that the services offered under each were provided by the same entity.
The judge did not need evidence of actual confusion to reach this view, but noted that there had been evidence from some witnesses who had contacted 32Red with complaints about 32Vegas.
Curiously, the judge declined to find 32Vegas confusingly similar to 32 on its own, despite 32Red's pains to secure the 32 registration before commencing the action. The judge noted that the claimant had not yet used the number 32 on its own, and concluded that there was no factual basis on which to assume that it functioned as an indicator of origin. (This seems, though, a peculiar finding given previous decisions holding that infringement claims based on registered but hitherto unused marks must be considered on the basis of notional use. See eg Compass Publishing BV v Compass Logistics Ltd.,  EWHC 520 (Ch), para. 22.)
Bet on Dilution Pays Off, Too
Although 32Red had already won the case, the judge nonetheless went on to consider its claim under dilution, as well.
Here, the judge bore in mind that even though 32RED had strong inherent distinctiveness and had acquired a reputation in the online gambling field, the use of 32Vegas had to be shown as detrimental to the distinctiveness or repute of the 32RED mark in a way that resulted, or was likely to result, in a change in the economic behaviour of the average consumer. The likelihood of confusion made it easy to assume such a result, and the judge was fortified in this finding by at least one of the witnesses, who said she had ceased using 32Red's services after she had confused it with 32Vegas.
32Red also led compelling evidence from the head of gambling regulation in Gibraltar, where both 32Red and the first defendant were based. That evidence attested to an "unprecedented level of complaints" arising from the business practices of William Hill relating, inter alia, to 32Vegas. The formal complaints and a high volume of related "Internet chat" pointed to misleading terms and conditions relating to bonus awards offered by William Hill. This was in stark contrast to the reputation of 32Red, which the claimant showed was that of a reliable and high-quality provider of Internet gambling services.
Based on this evidence, the judge found a real risk that the use of 32Vegas could damage not only the ability of 32Red to denote the claimant's business exclusively, but could also undermine its good reputation. Infringement based on dilution in the form of tarnishing, too, was therefore made out.
The judge rejected the defendants' attacks on the validity of 32Red's marks, and in particular their claim that 32Red had filed the UK application for 32 in bad faith since it had been made primarily to strengthen 32Red's hand in the prospective litigation. In this the judge noted the ECJ's pains to stress, in Lindt (C-529/07, paras. 48 and 49), that obtaining rights with a view to quashing a recent market entrant who has copied a mark can be a legitimate exercise and does not necessarily evince bad faith.
32Red waited over 3 years before taking legal action against 32Vegas, and although the delay by no means sank the case, it no doubt made it a good deal more expensive.
At the time the initial cease and desist letter was sent, 32Vegas was "a shadowy Antiguan-owned" business which had been trading for only a few months, and which might have capitulated if an action had been brought. By the time 32Red finally sued, however, 32Vegas had been in business for over 3 years and was owned by one of the largest bookmakers in the UK, fully capable of defending a High Court action. Both sides fielded multiple witnesses and their own experts, and William Hill raised numerous issues as to the validity of the registrations asserted against it. The cost to 32Red in securing this late victory must have been very high.
While the legal points emerging from this case are interesting, this practical one is probably of greater importance. 32Red had clearly built, and was continuing to build, a successful business based on the 32RED mark. Failing to take action against a small-fry infringer might have seemed to pose little risk at the time, but the situation worsened in ways that 32Red evidently did not anticipate. By the time it took action, the dispute had blossomed into a fully-fledged contested infringement matter that must have cost hundreds of thousands of pounds to resolve. Typical High Court costs awards would not have covered more than around two-thirds of actual costs incurred by the victor.
This is a salutary lesson for brand owners weighing action against small infringers or conflicting registered marks. There is always a risk that a small infringer's business may grow or be acquired by a competitor more greatly to be reckoned with. Likewise, conflicting marks on registers are not necessarily harmless just because they are not currently in use. They can be sold at any time to competitors with the ability to get them out into the marketplace, where they can cause real damage.
Leaving problems like this unresolved is like giving hostages to fortune. True, legal action costs, but delay can cost too, and the price of waiting can ultimately rise much higher than the cost of early action to nip a problem in the bud. Recent reforms to the Patents County Court are making litigation less expensive against smaller-scale trademark infringements in the UK. When infringers are small and financially weak, swift action, early, is really the only game in town.