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

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Omega on Coexistence Deals: Getting it Right

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As usual with litigation, most trademark disputes are settled before they ever reach court. This is particularly so in cases arising out of disputed trademark applications, where the conflict is often more theoretical than actual.


Coexistence deals recognising each party's freedom to trade in a particular sphere are a common feature of such settlements because they offer a practical solution that allows parties to protect their brands without putting each other out of business.

Such agreements are not without their risks, however, as the parties to one recently learned in Omega Engineering Inc. v. Omega S.A. ([2010] EWHC 1211 (Ch) ). The hotly disputed interpretation of the agreement in that case shows the importance of careful drafting and reflection before tying the coexistence knot.

Watch That Wording

The dispute behind this case was long-running, but the decision itself addressed only the effect of an April 1984 coexistence agreement between the claimant, a US engineering instruments manufacturer, and the defendant, the well-known Swiss watchmaker, concerning their respective OMEGA brands.

That agreement provided inter alia that Omega Engineering would not use, register or apply to register any mark consisting of or containing the word OMEGA in respect of the following goods:

"Temperature measuring instruments or apparatus, incorporating a time of day display function, unless intended for science or industry."

Some 13 years later, in May 2007, Omega Engineering applied to register OMEGA as a UK trademark for inter alia goods in Class 14, which after amendment during prosecution read as follows:

"Instruments and apparatus intended for a scientific or industrial application in measuring, signalling, checking, displaying or recording heat or temperature (having provision to display the time of day)."

Omega S.A. opposed, arguing that Omega Engineering's application in Class 14 was in breach of the 1984 agreement. Although the wording conformed to that permitted under the agreement, Omega S.A. argued that the agreement envisaged use and registration only for such goods in Class 9, and not in Class 14, which covered watches and clocks and as such was Omega S.A.'s class of main interest.

Omega S.A. argued that the permitted wording fell in Class 9 at the time of the agreement, and that consequently the agreement should be construed as permitting use and registration for those goods only insofar as they fell in Class 9, despite later classification changes which meant that those goods were now included in Class 14.

Omega S.A. failed before the UK-IPO, the hearing officer finding that the agreement amounted to consent by Omega S.A. to Omega Engineering's use and registration for the listed goods in any class.

Omega S.A. appealed to the High Court, and Omega Engineering cross-appealed and sought summary judgment for breach of contract. It argued in particular that Omega S.A.'s opposition had breached the 1984 agreement and sought an injunction against Omega S.A.'s pursuit of the appeal and damages in respect of its unrecovered costs in the UK-IPO proceedings.

Far-Reaching Implications

In the High Court, Omega S.A. found no relief. 
The Court affirmed that the agreement had to be construed on the basis of what a reasonable person in possession of all the information available to the parties at the time of the agreement would have understood it to mean. After a detailed analysis, the Court concluded that, in fact, this meant that the agreement permitted use and registration by Omega Engineering for the specified goods, regardless of class.

The Court noted, in particular, that the agreement did not refer to any class, and was expressly intended "to avoid confusion". Confusion was linked to use rather than registration, and no class numbers applied to goods in use - classification was purely an administrative system used in registration. The fact that the agreement was also accepted as intended to apply to the use of unregistered trademarks only lent further support to this point.

Moreover, as conceded by Omega S.A. itself, the classification of goods can and does change from time to time, and the interpretation advanced by the Swiss company did not allow for that possibility.

The judge therefore concluded that by virtue of the 1984 agreement, the Swiss company was to be taken to have consented to the use and registration by Omega Engineering in respect of "temperature measuring instruments or apparatus, incorporating a time of day display function, unless intended for science or industry", regardless of the Nice Class in which they fell at any time after the agreement was signed. In practice, as those goods now fall in both Class 9 and 14, Omega S.A.'s consent extended to both classes.

As a result, the judge upheld the hearing officer's conclusion that Omega S.A.'s opposition failed under Section 5 (5) TMA 1994, which provides that prior rights may not be relied upon to prevent registration of a later mark where a would-be opponent has consented to such registration. As a result, the court granted Omega Engineering's application for summary judgment and barred Omega S.A. from pursuing its appeal, which the judge would have dismissed anyway in light of his findings.

Comment

It is ironic that two companies known for making precision goods should have run aground on imprecise wording in an agreement. The agreement in this case was not particularly badly drafted, but the parties' very different interpretations of what it allowed demonstrate the potential for things to go badly wrong even with a well-drafted coexistence agreement. It is not an arrangement to be entered lightly.

Coexistence agreements are normally drafted to last indefinitely, and it was 13 years before this one was put to the test.

The longevity of these arrangements can create problems where parties bind themselves to terms that restrict their freedom to use or register trademarks for particular goods or services, and later find that those activities are essential to the commercial development of their business. Then, even well-drafted agreements can give rise to costly disputes.

Drafting coexistence agreements inevitably involves a certain amount of crystal ball gazing, but predicting the future is an inherently flawed exercise. Businesses may feel sure that a particular area is well outside their own commercial sphere, but advances in business and technology can change all that in expected ways.

Thirty years ago musical recordings and computers must have seemed very different spheres; in these days of musical downloads, though, all that has completely changed.

Where parties do take the plunge and enter into coexistence arrangements, Omega shows that they should expect the agreement to tie their hands against any attempt to object to registration of a mark for the permitted goods in the UK.

As noted by the judge, however, the position is often different in opposition proceedings before OHIM, which does not regard itself as competent to interpret agreements subject to national laws and typically refuses to take them into account in the absence of an order by a national court. This is an unhelpful contrast not just to the position in the UK, but also to Article 53 (3) of the CTM Regulation, which expressly provides that consent to registration prevents an earlier right owner from bringing an invalidity action against a CTM.

As noted by the judge, it is anomalous that OHIM should accept a consent as a bar to an invalidity action, but not to an opposition. This is perhaps a further area of clarification that the EU Commission should consider this autumn when it looks at possible amendments to the CTMR.

Be that as it may, the lessons to be drawn from Omega are clear in that parties need to enter coexistence arrangements, if at all, with care and careful drafting. Above all, they should look to the wider implications of the promises and concessions they are making.