Overseas brand owners often rely on licensees to notify and act upon infringements in their local markets. This makes good business sense, since licensees have as much, if not more, at stake commercially in swiftly stopping infringements in their territories, and their presence on the ground may make it easier for them to bring a legal action whether or not the brand owner itself takes part.
In relation to CTMs, though, this is still a developing area of the law, and a recent decision of the English High Court explored whether an informal, unwritten CTM license agreement could give rise to locus standi to sue. It also considered the ancillary question of whether equally informal oral use of a mark may constitute infringement (Jean Christian Perfumes Ltd. & Anr. v Sanjay Thakrar,  EWHC 1383 (Ch) ).
A Stunning Outcome
The case centred on parallel imports of branded perfume under the trademark STUNNING, which was a registered CTM, from India to the UK in 2008.
It was common ground that the goods were infringing. In dispute, though, were certain questions of fact relating to the importation, as well as two legal issues: namely, whether the CTM proprietor's UK licensee had locus to sue for infringement given that its license was purely oral, and whether oral use of the trademark STUNNING by the defendant could amount to infringement.
The majority of the ruling dealt with complex and contradictory evidence of fact relating to who imported the goods into the UK and the circumstances surrounding those imports and related offers for sale. Ultimately, the Court was persuaded that the defendant had made oral offers to sell the infringing goods to distributors in the UK. Whether those offers could amount to infringement, and whether the claimant's licensee was entitled to bring an action, were then essential questions to be determined before the Court could grant relief.
Despite their centrality to the case, the Court spent little time on these two points and dealt with them fairly shortly at the beginning of the judgment. On the license issue, the judge noted that the position in relation to licenses of UK registered trademarks and that in relation to licenses of CTMs were very different. In particular, under S. 28 (2) TMA 1994, a license of a U.K. registered trademark must be in writing signed by or on behalf of the licensor in order to be valid. Without a valid license, of course, a licensee would have no locus to sue for infringement, regardless what oral representations the purported licensor may have made.
In contrast, Article 22 of the CTM Regulation provided for licenses but made no stipulation that they must be in writing or indeed comply with any formalities at all. Article 22 (3) CTMR recognised the right of a CTM licensee to bring infringement proceedings with the consent of the proprietor provided that the license agreement did not preclude this, as well as the right to intervene in proceedings brought by the licensor for the purpose of obtaining compensation in respect of any damages sustained.
The Court was content that the absence of any express formality requirements in Article 22 meant that an informal, oral license of a CTM did indeed entitle the licensee to bring infringement proceedings with the licensor's consent under Article 22 (3), as well as to intervene in proceedings brought by the licensor in order to seek compensation by way of damages. That the position in relation to UK registered marks was different made no odds where the license was of a CTM, since the provisions of Article 22 were clear, and governed.
On use, the Court was equally firm. It noted that oral use of a CTM had already been implicitly accepted by the ECJ as capable of infringing in Holterhoff (Case C-2/00) and had raised no eyebrows then. Moreover, the fact that sound marks were registrable as CTMs and national marks in EU countries led to the conclusion that oral use of registered marks could infringe; otherwise, it was difficult to imagine how sound marks, in particular, could be infringed at all.
Preferring the claimants' version of events to that advanced by the defendant, the Court ruled that the defendant had made oral use of the trademark STUNNING in offers to sell the infringing imports to UK distributors, and that such use amounted to infringement.
The defendant in this case operated in a shadowy world where business deals were plotted in hotel rooms in Dubai and transactions were offered and negotiated orally, leaving only a faint paper trail, if any at all.
It is difficult to imagine any national court in the EU having reached a different finding on the question of whether oral use could infringe a CTM. Nonetheless, the point had never been addressed directly and there was no settled law. The Court's finding on this issue gives welcome assurance not only to sound mark owners, who obtained their protection in the reasonable expectation that such rights could be enforced against audible, but not visible, use, but also to all brand owners who may need to combat infringements where the only proveable acts are oral offers for sale.
The point on CTM licenses was of less practical importance in this case because the infringement claim was brought by both the licensee and the CTM owner. However, it has a wider application. The fact that CTMs can effectively be licensed without a license agreement is potentially very important, not least because brand owners may be able to rely on such informal licensees to bring local actions for infringement in cases where the brand owner itself might find it more difficult (where, for example, an overseas CTM owner would be subject to an order for security for costs, or would find it more practically difficult to conduct the litigation itself).
However, by the same token, informal licensees may have rights that far exceed what a CTM owner expects. A license is, in a sense, no more than permission to use a registered mark, and a CTM owner who grants this informally may not realise that under Article 22, the informal licensee may apply to record the license on the CTM Register, intervene in infringement actions brought by the licensor in order to claim damages, and even, if the facts indicate that the informal license was exclusive, bring infringement proceedings itself against the wishes of the licensor.
Moreover, informal licensors are unlikely to have set down the exact terms of the license, including its duration, the form of the mark to be used, the scope of the licensed goods and/or services, the territory of the license and any provisions as to quality or acknowledgment of the license and identity of the mark owner. A licensee who contravenes any such provisions of a license may become an infringer under Article 22 (2), thus enabling a licensor to put a swift end to unauthorised activities by a licensee. However, where there are no clear provisions, a CTM licensor may be doomed to expensive legal wrangling over exactly what he did, or did not, allow under the informal license, and whether or not the use was with consent.
It is therefore clear that although the claimants in this case benefited from the recognition of an informal license, in practice CTM owners are far better advised to formalise license arrangements in writing so that the parties, and if necessary the courts, are clear as to what was agreed. Indeed, the mark of a good license agreement is that in case of dispute, it is hardly ever likely to reach a court. Making the outcome obvious at the outset by setting out terms in writing may give rise to initial costs, but they are more than recouped by avoiding arguments later.