Beleaguered UK brand owners already know that dangers lurk in threatening to sue others for infringement. Now, CTM owners from other shores should take note, too, following the Court of Appeal's decision in Best Buy Co. Inc. & Anr. v Worldwide Sales Corporation España SL ( EWCA Civ 618). Following this ruling, those asserting CTM rights without first going to court will need to take greater care to avoid the risk of an unjustified threats action.
Talking It Over
The case turned on a short exchange of letters between the parties' lawyers, sent while trying to resolve a CTM opposition within the cooling-off period.
The CTM applicant was part of the large US company, Best Buy, which was planning to launch its well-known chain of consumer electronics shops in Europe, starting in the UK. The Spanish opponent owned prior CTMs for BEST BUY in logo form. The US company, through English lawyers, wrote to the Spanish company's lawyers expressing an interest in settlement. In reply, the Spanish lawyers wrote that the US company's use:
"...in Europe and in particular in Spain, as well as in advertising and in the media...represents a conflict with the [Opponent's] intellectual property rights...in Spain and Europe which would entitle it to take the appropriate legal action to defend its interests...
"...If, taking into account the above, [the US company] were to remain interested in using the BEST BUY trademark in Europe, my client would be prepared...to reach a negotiated solution which would enable [it] to do so while at the same time compensating [the defendant] for the cessation of its activity that this would undoubtedly entail..."
Until a settlement were reached, however, the Spanish company demanded undertakings that the US company should refrain from use of the BEST BUY trademark "in Europe".
Negotiations ensued but bore no fruit, and Best Buy sued the Spanish company in the English High Court for making an unjustified threat of trademark infringement proceedings under S. 21 TMA 1994.
Negotiations Are No Shield
At first instance, Best Buy lost because the trial judge found that the threat of proceedings was made in the context of settlement discussions. On appeal, though, the tables turned.
The appellate court expressed no doubt that the Spanish law firm's letter contained a threat of proceedings, since on any reasonable reading it was clear that the Spanish company was threatening to sue for infringement of its rights if Best Buy did not give the required undertakings and a negotiated settlement was not then reached. Any backtracking or change of position later on would not have altered that; what mattered was how a reasonable recipient would understand the letter in which the alleged threat had been made, based only on the information known to him at the time.
The court was, however, not convinced that the threat to sue was shielded by the "without prejudice" rule that protects genuine settlement discussions from being exposed to a court. It noted, first, that the threat was made in an open letter, the primary thrust and purpose of which was to assert the Spanish company's rights.
The settlement proposal at the end was not in fact an offer of settlement or compromise at all, but rather merely an invitation to treat, or an expression of a willingness to enter into settlement discussions. As such, no concessions had yet been made that would have brought the "without prejudice" rule into play.
Even if the letter had been "without prejudice", the court ruled that such a status would not have shielded the Spanish lawyers. The "without prejudice" rule was based on public policy and as such could be overridden by other rules or principles in appropriate cases. It had already been overridden in certain bankruptcy actions, and the court held that it could be overridden as well where actionable, unjustified threats of trademark infringement proceedings were alleged to have been made in the context of "without prejudice" settlement discussions. To rule otherwise, observed the court, would be to render S. 21 "close to being a dead letter, except for the poorly advised."
Threat in the UK?
Of equal importance, however, was the court's approach to whether the threat was of proceedings in the UK, as it was common ground that a threat based on a CTM could only found an action under S. 21 if that were the case.
Here, the Court of Appeal agreed with the trial judge that the Spanish firm's letter, although not mentioning the UK specifically, would be construed by a reasonable recipient as threatening CTM infringement proceedings in the UK. The threat itself was Europe-wide, and there were frequent references in the Spanish firm's letter to "Europe"; indeed, the letter took pains to make it clear that the Spanish company's rights extended across Europe, and that its objection to Best Buy's plans extended likewise.
CTM infringement actions may be brought in any member state of the EU where an infringement occurs or a party is based, and it was therefore reasonable to conclude that the threat was of proceedings in each member state, and that it therefore included the UK. The mere fact that proceedings were ultimately likely to be brought in only one member state did not change the fact that the threat, at the outset, was unlimited.
The court also noted that the letter referred to current press about Best Buy's launch plans, and that evidence had shown such press to relate mainly to launch plans in the UK. Consequently, it was even more reasonable to conclude that the threat pertained to the UK, even though the UK was not specifically mentioned.
No Exception Here
In spite of all this, it would still have been possible for the Spanish company to escape liability had it worded its letter more carefully, since S. 21 does not apply where threats are made only in respect of the provision of services.
In the event, though, the almost throwaway reference to Best Buy's use "in advertising and in the media" proved the Spanish company's undoing. Even though Best Buy's activities were in the retail services sector and the complaint was directed at those services, nonetheless the court found that use "in advertising and in the media" was not the same thing as providing services, even where the advertising was intended to promote the offer of services.
The court noted that the infringement provisions of the Act distinguished between a person "who offers or supplies services" under a sign and a person who "uses the sign on business papers or in advertising". Consequently, the court thought it unlikely that the intent of the legislation was to treat "the supply of services" as synonymous with "advertising" or use of a mark "in the media".
In light of these findings, the court swept away the without prejudice veil and found that the Spanish company had, indeed, made an unjustified threat of infringement proceedings in the UK within the meaning of S. 21.
Perhaps Best Buy smelled blood when its Spanish opponent appeared willing to consider shutting its own business down in exchange for a (doubtless sizeable) pay-off. This might have signalled financial problems that Best Buy could leverage by pushing the Spanish company into court first under S. 21.
By so doing, Best Buy could also resolve any question as to whether or not it was free to launch in the EU in spite of the Spanish company's CTMs, since the question of whether the threat was justified (ie, whether or not Best Buy's use would infringe) would be central to any defence the Spanish company might make. It is hard to argue with the strategy.
The decision, however, makes it clear that CTM owners based abroad, who know little of the UK's unusual provisions on threats, will need to educate themselves before writing letters before action to UK recipients. In this regard, careful wording is key. It appears from the ruling that where CTM matters are concerned, broad references to rights in "Europe" and entitlement to take action to prevent use "in Europe" can be tantamount to saying "UK".
If proceedings are envisaged in a different EU country, then saying so expressly may avoid such a finding provided the rest of the communication does not leave it open to conclude that action might still be brought in the UK.
It is arguable whether a threat to bring proceedings in a specific, named EU country other than the UK, coupled with a demand for an undertaking to cease use in all EU countries, which would naturally include the UK, would become by virtue of that undertaking a threat of proceedings in the UK.
The courts have certainly accepted in the past that a threat can be implied; but, on balance, if a specific, express threat of proceedings in one EU country is made, then it seems unlikely that an English court would infer a threat of proceedings in another jurisdiction just because a required undertaking demands that use cease across the EU. Except in limited cases, an action in one EU country can result in a pan-EU injunction in any event, so there would be no need for such an inference.
It is unclear whether a Europe-wide threat of infringement proceedings made by a CTM owner with no nexus to the UK to an alleged infringer who also has no UK nexus could be classed as an actionable threat in the UK, if the infringer were to seek an advantage by attempting to sue under S. 21 here. However, one suspects that the English courts would find a way to construe the threat as not realistically applying to the UK in those circumstances, notwithstanding the rather broad-brush approach in this case; and indeed, such an action might be regarded as an abuse of proceedings.
Following this ruling, making actionable threats in the context of negotiations will not in itself avoid the risk of an action. Neither, it appears, will an effort to limit the threat to proceedings in respect of "the supply of services" if superfluous language referring to use in advertising or the media is used, even in the context of undertakings.
This last point is no surprise, and it underlines the nature of the traps for the unwary posed by S. 21. Even careful drafting can be undone by one or two ill thought-out words, and CTM owners not based in the UK who think of sending letters before action to UK-based infringers would be wise to get local advice first.