UK Court of Appeal allows L’Oreal to challenge trade mark validity

In proceedings that have been widely discussed in the UK, the Court of Appeal has overruled a controversial High Court decision and found that L’Oreal’s unsuccessful opposition to registration of the SPECIAL EFFECTS trade mark did not preclude it from challenging validity before the Court on the same grounds.

background

The Claimant, Special Effects Ltd (Special Effects), brought trade mark infringement proceedings against two separate L’Oreal companies in relation to their use of the mark SPECIAL FX. The Defendants denied infringement and counterclaimed for a declaration of invalidity and relief on the basis of passing off.

Special Effects contended that both Defendants were precluded from relying on points that had been raised unsuccessfully by the first Defendant in opposition proceedings.

At first instance, the Chancellor found in favour of Special Effects. The potentially far-reaching implications of his decision prompted the International Trademarks Association to intervene in the proceedings and the Institute of Trade Marks to make written submissions.

the decision

The Court of Appeal found in favour of L’Oreal on the following grounds.

Because opposition proceedings before the Registry do not involve a cause of action, L’Oreal could not be precluded by ‘cause of action’ estoppel from relying on the grounds it had relied on unsuccessfully in opposition proceedings.

Because the Trade Marks Act provides for declarations of invalidity in the Courts, opposition proceedings do not result in a final decision and cannot, therefore, provide a basis for either ‘issue’ or ‘action’ estoppel.

In relation to the proposition that L’Oreal’s attempt to rely again on grounds it had relied on in opposition proceedings amounted to an abuse of process, the Court found that it was simply taking advantage of an opportunity expressly afforded it by the Act, and not doing so in a manner that amounted to an abuse. The Court indicated, however, that where opposition proceedings are conducted in a manner similar to Court litigation, the result may well be different.

Given these findings it was not necessary for the Court to decide the privity issue. It did, however, make some interesting observations on the issue of privity between members of the one corporate group.

our comment

This is a welcome decision. The likely effect of the earlier decision was that parties would either not oppose or, if they did, seek to do so in a much more substantial way. Parties will now be able to devote appropriate resources to opposition proceedings, knowing they are likely to have another opportunity should infringement proceedings be brought against them.

staying patent actions pending outcome of EPO opposition proceedings

The circumstances in which UK patent actions will be stayed pending resolution of European Patent Office (EPO) opposition proceedings have been considered again in two cases before the High Court*. In both, a stay was refused, notwithstanding offers of extensive undertakings by the parties seeking a stay.

background

When a European patent has been granted, and corresponding national patents issued, the central patent can still be challenged in opposition proceedings before the EPO. Because these can take years to be determined, the question arises whether actions brought in respect of national patents should be stayed.

In some European countries, revocation proceedings brought in the national Courts will be stayed pending resolution of EPO opposition proceedings. In others, such as the UK, a stay is not automatic.

the cases

In Baxter v Bayer, Baxter failed in EPO opposition proceedings and appealed. Before the appeal had been determined, it brought proceedings before the UK Court for a declaration of non-infringement. Bayer applied for a stay.

Mr Justice Pumfrey asked the question that had been asked by Laddie J. in a number of cases: whether, on balance, a stay is in the interests of justice. He concluded that, here, the potential waste of costs was not disproportionate to the desirability of certainty for Baxter, in the face of an opposition that had failed and may fail again on appeal.

In the GlaxoSmithKline (GSK) case, in which Rouse Legal is representing GSK, GSK is opposing Sanofi’s patent at the EPO. It also applied to revoke the UK part of the patent. Sanofi sought to stay that action pending resolution of the EPO opposition.

Mr Justice Kitchin set out the legal principles: while there is a presumption in favour of a stay, it is for the Court to see where justice lies. Applying these principles to the facts, he decided in favour of allowing the case to continue. In so doing, he was influenced by the fact that opposition proceedings were at a relatively early stage, and that the action concerned a major new vaccine product with considerable market potential. He concluded that allowing the action to proceed would help remove uncertainty from a UK product launch and serve to inform the parties, thereby enabling them more readily to resolve the dispute.

our comment

These cases do not change the legal principles established in earlier cases. They do, however, provide interesting illustrations of the application of those principles, making it clear that although, in the UK, there is a presumption in favour of a stay, a stay will not be granted if, in the circumstances, it would be contrary to the interests of justice.

*Baxter & Ors v Bayer Corporation & Ors and GlaxoSmithKline Biologicals SA v Sanofi Pasteur SA.

proposal for important change to trade mark law

Following a consultation with users and professional representatives, the UK Trade Marks Registry (TMR) has decided to change fundamentally the way it examines applications. Until now, it has refused applications for two main reasons: the mark does not comply with registrability criteria or there is a confusingly similar mark covering similar goods or services.

It is proposed to remove the second reason for refusing - if you want to apply to register NIKE in relation to shoes, the TMR will not stop you! Earlier this week, proposals for how and when the change would be made were published. It is due to take effect in October 2007.

how the change will work

Currently, the TMR searches earlier trade marks, raising an objection if it discovers similar prior marks covering similar goods or services.

Following the change, a search will still be performed, but the Examiner will notify the Applicant of the results for information purposes only. The Examiner will, however, also notify the owner of any earlier UK trade marks (including UK designations of International Trade Marks), giving them the opportunity to object to the application. The owners of earlier Community Trade Marks (CTMs) will be able to opt to be notified, but only on payment of a fee.

Applications will be published for opposition purposes about two months after the search results are provided. This period will be extendible to allow for withdrawal or amendment if, having seen the results, the applicant decides this is wise.

our comment

Now that the TMR is giving up its role as ‘guardian’ of the Register, trade mark watching services will be more important than ever in order to prevent registration of later similar marks. We do not yet know how diligent Examiners will be when conducting searches in future. At the moment, they often err on the side of caution and include marks in their Reports that we are able later to ‘persuade’ them are not relevant. This may change under the new regime. It will be important for Trade Mark Owners to act on TMR notifications, objecting where appropriate (bearing in mind the ‘double jeopardy’ rule highlighted in the recent Special Effects case). Although the wording of the legislation suggests not, it is possible that a notification will start the five year period within which owners will be deemed to have ‘acquiesced’ unless they have objected.

We consider it is likely that more oppositions will be filed because the TMR will not be weeding out obviously conflicting marks. It may be good news for applicants of new trade marks, who will no longer face prior rights objections from the TMR. The owners of earlier trade marks will now have to spend money filing oppositions if they have a concern over an earlier trade mark and this should mean that only genuine objections are the result of opposition proceedings.

revisions to registered design system are attractive to applicants

Changes to the UK’s registered design system*, introduced in October 2006, appear to have led to a significant increase in the number of applications being filed. However, whether British designers, traditionally reluctant to register their designs, will now do so to the same extent as their European competitors, remains to be seen.

background

Before these changes were introduced, the UK registered design system was complex and restrictive. With the introduction of the more attractive European Community registered design (CRD) system in 2003, which, among other things, allowed for the filing of multiple applications and the deferment of publication of design applications, the number of design applications being filed in the UK declined.

The UK Registry has been clear as to its motives for the recent changes:

● to make the system a viable alternative to the Community Design system;
● to encourage British designers to use the system; and
● to make the system more user-friendly for the large number of unrepresented private applicants.

the changes

The main changes are:

• applications will no longer be examined for novelty and individual character;
• multiple applications can be filed;
• publication can be deferred for up to 12 months;

• the application process has been simplified;
• restoration of lapsed designs has been simplified; and
• public inspection of documents is now available.

There have also been changes to the fee structure, making the system less expensive than the CRD system.

Application for 10 designs – no deferment:

UK - £420
CRD - £1350

Application for 10 designs with deferred publication:

UK - £420
CRD - £1510

our comment

There is no doubt that the UK registered design system has been greatly improved, although applicants to whom confidentiality is of primary importance may still opt for the CRD system, which provides for longer deferment. British designers may, at least initially, continue to be reluctant to register their designs, but they now have available to them a system that provides cost-effective protection with almost all the features of the CRD system.

* Regulatory Reform (Registered Designs) Order 2006; Registered Designs Rules 2006.

publication of the Gowers Review of Intellectual Property

The Gowers Review of the UK’s intellectual property system*, published on 6 December 2006, contains a mixture of recommendations – many sensible, some, in our view, naïve. Reaction to it has been mixed. It has been welcomed by the Patent Office, but criticised by the press, particularly in relation to its recommendation that the term of copyright protection should not be increased.

While the Review has clearly stimulated interest in IP and debate on some important issues, which is to be welcomed, we believe it could have taken advantage of the opportunity to make more dramatic proposals in some areas.

This Alert provides brief notes and observations on some of the major recommendations. More detailed comments will follow.

background

Publication of the Review comes just one year after it was commissioned by the Chancellor in his 2005 Pre-Budget Report. It is intended to be a wide-ranging examination of the IP system, focusing in particular on administration of IP rights; the ease with which businesses can navigate the patent and copyright systems; the adequacy of ‘fair use’ provisions; and the extent to which the current framework is in tune with the digital age.

In conducting the Review, Andrew Gowers, former editor of the Financial Times, commissioned external research and considered ‘evidence’ from a wide range of interested parties.

summary of some of the main recommendations

While the Review concludes that the IP system is ‘broadly performing satisfactorily’, it highlights a number of weaknesses: damage caused by counterfeit products; the high cost of obtaining and enforcing IP rights; and the inability of consumers to use material in the digital world without infringing. It contains over 50 separate recommendations. Brief summaries and comments relating to some of the main ones are set out below.

patents

• The ‘research exception’ (which protects from infringement private non-commercial acts and acts done for experimental purposes) should be clarified to facilitate experimentation, innovation and education. In principle, removal of the current uncertainty over the extent of this exception is to be welcomed.

• No extension of patent rights for software, business methods or genes.

• Accelerated grant process – although many SMEs had lobbied for a second tier of ‘utility patent’ protection. The danger with acceleration is that the quality of patents granted suffers.

• Amendments to increase use of third party ‘observations’ on patent applications. Observations are unlikely to increase significantly because of fears that subsequent amendments would ‘save’ otherwise invalid patents. Parties often prefer to ’keep their powder dry’ until they either oppose the patent or counterclaim for invalidity.

• The Patent Office should pilot a community patent review system where patent applications are put on the Internet for comment. In theory, this could enable weak patents to be weeded out at an early stage, but we suspect that many organisations would simply not comment, preferring, again, to ‘keep their powder dry’.

• The establishment of a single EU Court to adjudicate cross border disputes is supported by the recommendation that the European Patent Litigation Agreement (which would establish a single European Patent Court with jurisdiction over patents in all EPC contracting states) be promoted. A single European Patent Court is long overdue, but it will be important to make sure it is a specialist Court with Judges with the necessary technical expertise.

• The establishment of a single Community wide patent. The Community Patent has hit a number of stumbling blocks thus far – particularly associated with the language of operation. However, this proposal is likely to have wide support from business.

• Increase in Patent Office fees and transparency of Patent Office financial reporting.

• Patent examiners to spend time in research centres. This could be useful, provided they are exposed to a wide range of views and technologies.

copyright

• Despite intense lobbying and high profile media coverage, the Review does not recommend extension of the current 50 year term for sound recordings and performers’ rights. Lobbying for change is, however, already continuing, no doubt with an eye to the European Commission considering the issue shortly.

• A number of pragmatic measures to facilitate education, research and the preservation of historic material, such as extending educational exceptions to interactive whiteboards and distance learning materials, and allowing private copying of all forms of content.

• A defence of caricature, parody or pastiche to be introduced by 2008. However, no definition has been proposed.

• Introduction of an exception to copyright for ‘creative, transformative or derivative works’.

• A proposal dealing with ‘orphan works’ should be made to the European Commission. The Patent Office should issue guidelines on ‘reasonable searches’ and set up a voluntary register to assist in the making of a ‘reasonable search’. The problem of ‘orphan works’ should be addressed, but the usefulness of such a register would depend how it operated in practice.

• OFT review of the activities of collecting societies to ensure they are meeting the needs of all interested parties. It is disappointing that the Review does not express a view, but simply opts for a review.

trade marks

• A fast track registration system which would allow for examination and acceptance within 10 days on payment of an increased fee. This system is likely to be welcomed by brand owners, not least because it would give increased opportunity for protection for a new brand from early on. However, whether it would in fact be workable in practice remains to be seen.

enforcement and dispute resolution

• No specific recommendations for streamlining or speeding up IP litigation have been made. The Review simply recommends steps should be taken to apply the fast track litigation system to IP cases. There is no recognition that some IP cases (particularly patent cases) may have a legitimate requirement for experts or experiments, which do not sit easily with a fast track procedure.

• The Review stops short of recommending the introduction of a law of unfair competition. Instead, it recommends monitoring the success of the Unfair Competition Directive. The introduction of a specific unfair competition law is likely to remain at the forefront of debate. Many rights holders argue that the Directive does not go far enough because it does not deal with business to business misrepresentations, whilst others take the view that the existing law is perfectly adequate to deal with unfair business practices.

• Increase in penalties for online copyright infringement. A long overdue move.

• A current Departmental consultation on damages should include in its remit the need to make sure that an effective and dissuasive system of damages operates for IP cases. Some commentators see this as a first step to the introduction of some form of punitive damages for all IP infringements.

• The DTI should consult on measures for stricter regulation of car boot sales and the like. This will be particularly welcomed by rights owners whose goods are counterfeited. However, it will be disappointing to some that there is no proposal for the review of the regulation of online auctions.

• The Home Office should recognise IP crime as an area for police action and Trading Standards Officers should have power to enforce criminal copyright infringement. Again, this will be welcomed, but ensuring adequate resources are available may be a problem in practice.

information and co-operation

• The DTI should consider improving guidance on the reporting of intangible assets and providing model reports. Potentially such a standardised system could be very useful for businesses raising finance.

● A number of recommendations designed to increase public awareness of IP, ensure that a proper focus is given to the development of Government IP policies and strategies, and foster co-operation between the Patent Office, the OFT and the Competition Commission to encourage competition and innovation. On the face of it, this sounds sensible, but there are some who fear that this is an example of the Review paying lip service to the notion of enhanced co-operation.

global issues

• A number of recommendations are made, particularly in relation to the effect of the IP system on developing countries.

our comments

It is important to remember that many of these recommendations will require changes in the law (including at European level) before they can be implemented. Implementation is not a foregone conclusion.

A number of significant areas have, in our view, been overlooked; arguably, because the focus of the Review was too narrow. For example, in the context of a Review which focuses on IP rights as assets, and links the growth of wealth to the value placed on intangible assets, it is surprising to see that no comment has been made on the use of IP rights as security for finance or how IP rights might be traded. Also, there are no proposals in relation to the database right.

Other areas that could have been tackled include the ‘inventive step’ test for patents; the problems resulting from the varying ways in which the Biotechnology Directive has been implemented in different countries; geographical indications; online auctions; the workings of the Copyright Tribunal; unjustified ‘threats’ provisions; and IP insurance schemes. That these have not been addressed is surprising and likely to disappoint interested parties.

Perhaps less surprisingly, potentially controversial areas, such as the patenting of products or processes derived from embryonic stem cells or the extent to which patents should be allowed for non-gene biotechnology patents, are not addressed at all either. This may mean that we are unlikely to be any the wiser as to the Government’s position on these issues for the foreseeable future.

* A full copy of the Review can be found on the UK Treasury website at www.hm-treasury.gov.uk.