If a competitor attacks your trademark registration, how seriously do you need to take the claim if it is not before the court? Very, according to the High Court recently in William Evans & Anr. v Focal Point Fires Plc (FIRECRAFT) ( EWHC 2784 (Ch)). The ruling in FIRECRAFT significantly raises the status and effect of IPO decisions and demonstrates the serious commercial consequences that can lie in wait for those who fail to defend, or pursue, an IPO-level challenge as fully as though it were before the court. Following this decision, UK brand owners need to re-evaluate how they approach actions before the IPO.
One Little Spark
Ironically, this seminal ruling arose from a commercial dispute which was, for all practical purposes, over by the time the matter was heard.
The Defendant had been selling gas fires in the UK under the name FIRECRAFT since 2001. Before it began use, the Defendant had the mark professionally searched and found no obstacles. The Defendant secured a UK trademark registration for the mark in summer 2000. The Claimant, who had been selling stone fireplaces in the UK under the identical mark FIRECRAFT since 1991, applied to invalidate the Defendant's registration on the basis that the use of the mark was liable to be prevented under the law of passing off. In November 2008, the IPO declared the registration invalid and the Defendant did not appeal.
Although the Claimants threatened to bring passing off proceedings in court to secure an injunction and damages, the Defendant did not agree to cease use until May 2009, by which time proceedings had already been issued. The High Court therefore needed to rule only on whether there had been past acts of passing off such as to warrant damages and whether a quia timet injunction against future acts of passing off should be granted.
A Real Conflagration
The Defendant argued that in spite of the IPO ruling in the invalidation proceeding, the Claimant needed to prove its case on passing off before the Court. The Defendant contended that it now had better evidence than it had led before the IPO, which would prove that in fact there had been and would be no misrepresentation. It had refrained from leading that evidence earlier because IPO proceedings have traditionally not been fought out so painstakingly as court proceedings, not least because costs recovery before the IPO is, in most cases, so much lower.
In reply, the Claimants argued that the fundamental issue was whether the IPO's invalidity ruling was final and binding on the Court insofar as it involved a decision that the Defendant's use had been "liable to be prevented under the law of passing off." The Claimants asserted that it was, and that the Defendant's effort to force them to make their case all over again in court, with all the incumbent costs, was an abuse of process. The Claimants moreover argued that the Defendant was estopped from challenging the IPO decision on the passing off point, which had become final.
The Court sided strongly with the Claimants. In its view, the IPO decision on invalidity had required the hearing officer first to determine whether the Defendants' use amounted to passing off. The IPO was required to apply the same test as the Court, and the hearing officer had been satisfied that the Defendant's use would amount to a misrepresentation and that there would be resulting damage arising from confusion as well as a risk of tarnishment. The decision on passing off was essential to the decision on whether the registration was valid, and the mere fact that the IPO had no jurisdiction to award damages or an injunction did not mean that it did not enjoy a parallel jurisdiction with the Court in determining the essential issue of passing off on an invalidity claim.
Consequently, the IPO's decision on whether the Defendant's use would amount to passing off had become final and created an issue estoppel, preventing the Defendant from forcing the Claimants to re-prove their case on the same issue in later proceedings. Further, there was a cause of action estoppel, in that the cause of action for passing off (although not the relief therefor) had already been determined by the IPO, who enjoyed a parallel jurisdiction with the Court on that point, and could not be re-litigated by either party once the determination had become final.
The Court was particularly scathing of the Defendant's failure to lead all its evidence in the IPO proceedings. The mere fact that the Claimants did not indicate, while the IPO proceedings were underway, that they intended to sue for relief before the Court was no excuse for not leading all relevant evidence while the issues were being determined by the IPO. "This is precisely the kind of thing," the judge wrote, "which the Courts deplore. The Courts are anxious to ensure that all matters as far as possible are determined expeditiously and with one hearing. It would be quite wrong...to allow the Defendant to adduce more evidence in an attempt to reverse the Hearing Officer's un-appealed decision. In my view it would be...an abuse of the process..."
The impact of this decision will be widely felt. It has already begun to make waves at the IPO, who almost immediately issued a practice notice indicating that in light of FIRECRAFT, parties and their representatives would now be required to attend hearings in invalidity proceedings based on relative grounds rather than allowing them to be decided on the basis of the papers.
Parties to IPO invalidity proceedings will have to count the costs. In FIRECRAFT, the parties racked up costs of over £100,000 each in (presumably the combination of) the original IPO action and the subsequent court action on the status and effect of the IPO ruling. In an ordinary IPO action, parties often run a low-key case because costs recovery is usually so low that they would never recover anything approaching actual costs. However, institutionalised low costs recovery is increasingly at odds with the severity of the consequences for parties who fail to run a full case and defence at IPO level. The IPO is not per se a low-costs forum and parties treat it as such at their peril. Those who give IPO case preparation the care and attention it deserves should not be punished by the inability to recover costs at a level that reflects what the IPO expects parties to put into a case. Higher costs exposure, moreover, would better concentrate all parties' minds and contribute to the early resolution of cases that should not be litigated all the way to a decision.
Of course, where infringement actions are not already pending, potential invalidity claimants have the option whether to bring their action before the IPO or the High Court, and if they opt for the latter the normal court rules on costs will apply. The fact that costs exposure before the IPO is currently so much lower makes it a more attractive forum than the Court for would-be claimants who are not sure of the strength or commercial value of their case and who prefer not to run the risk of an adverse costs award in court.
Is that approach appropriate, though, where a trademark owner is actually passing off and causing damage to the goodwill owner? The IPO may be able to determine whether the use of a registered mark amounts to passing off, but it cannot order damages or an injunction. In FIRECRAFT, the Claimants obviously considered the Defendant's actions to be damaging but nonetheless brought the claim before the IPO first. Here, though, the parties' respective business spheres were one step removed. If they had been closer, then litigating the issue before the IPO first could have allowed serious losses to be multiplied. As IPO proceedings generally take longer than those before the Court, such increased losses could be severe even if the later application to the Court for relief were decided by summary judgment.
The effect of final IPO decisions in invalidity matters must also be contrasted with the effect of decisions in oppositions, which can only be brought before the IPO. The Court of Appeal in Special Effects ( RPC 15) found that in oppositions, IPO decisions were not final and conclusive such as to give rise to issue or cause of action estoppel preventing an unsuccessful opponent from re-running the same case in invalidity proceedings (or presumably, by analogy, in court proceedings for eg passing off) with better evidence. By the same token, an unsuccessful trademark applicant is entitled to expand on its failed opposition defence in any subsequent infringement or passing off claim before the Court, in an effort at least to save its ability to use a mark.
The recent KINDERJOGHURT case before the General Court indicates that much the same principle applies before OHIM: an unsuccessful opponent who does not appeal can apply for invalidity later, with more and better evidence. However, it is important to note that bringing a subsequent action that should not have been necessary had the case been prepared properly the first time, or with the intention of harassing another party into incurring costs in re-litigating issues, may amount to an abuse of process.
So it is that a small fire, doused before the High Court even turned to it, has resulted in a decision that bristles with implications for others. Recognising that IPO proceedings merit full and careful case preparation will help parties obviate the risk, as will watch services that allow them to mount first-instance challenges through opposition rather than invalidation. However, for its part, the IPO will need, in this writer's view, to recognise the growing status and effect of its decisions, and to bring its costs rules more into line with the reality for parties.