UK: Best Buy Case Provides Warning on Trade Mark Threats

Last Updated: 26 August 2010
Article by Isabel Davies and Scott Fairbairn

In the recent High Court case of Best Buy v Worldwide Sales Corporation, Mr Justice Floyd has given a judgment that gives a literal and strict approach to one of the commonly relied upon exceptions to the statutory threats provisions in the Trade Mark Act 1994, opining that the exception relating to 'the supply of services under the mark' should not extend to the 'offer of supply' of services, and confirming that letters before action and related undertakings should not go further than the exceptions, otherwise the communication could constitute an actionable threat. Mr Justice Floyd also considered the circumstances in which without prejudice privilege may apply to threatening letters, concluding that even the opening shot in negotiations can, depending on the circumstances, amount to bona fide without prejudice correspondence and be privileged accordingly.

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Threats Provisions in the UK

Unjustified threats provisions are unique to the United Kingdom and specify that, in relation to certain intellectual property rights, any person aggrieved may, subject to certain statutory exceptions, bring an action against the maker of a threat of enforcement proceedings. This creates inconsistencies across intellectual property rights as threats provisions apply to trade marks, patents and designs but the detailed provisions differ, and do not apply to copyright or the common law tort of passing off. These provisions also provide a trap for the unwary, particularly for practitioners from other jurisdictions.

Threats Provisions under the Trade Marks Act 1994

Section 21(1) of the Trade Marks Act 1994 (TMA) provides that where a person threatens another with proceedings for infringement of a registered trade mark other than:

(a) the application of the mark to goods or their packaging;

(b) the importation of goods to which, or to the packaging of which, the mark has been applied; or

(c) the supply of services under the mark,

any person aggrieved may bring proceedings for relief under this section.

Claimants can seek a declaration from the trade mark owner that the threats lacked justification, damages and an injunction to prevent further threats.

The Best Buy case clarifies the scope of these statutory exceptions and provides a warning to those who may have assumed that if one refers to the supply of services in a letter before action and undertakings, one can also ask the infringer to stop related infringements, such as advertising and marketing in relation to the supply of services, without falling foul of the threats provisions.

In addition the Best Buy case considered the application of the without prejudice rule or privilege which generally prevents statements made in a genuine attempt to settle an existing dispute from being put before the court as evidence.

Facts

The claimants, Best Buy Inc and its UK subsidiary (Best Buy) planned to open a series of consumer electronics shops in the UK and in other EU countries under the Best Buy name which they had used extensively in the US. Worldwide Sales Corp Espana SL (WSC), owned a number of figurative CTMs and national registered trade marks including the words "Best Buy".

A company related to Best Buy had filed for a CTM for "Best Buy" which WSC had opposed on the basis of their earlier marks. In 2008 Best Buy's lawyers wrote to WSC setting out that there could be scope for a co-existence agreement and that they would be prepared to agree to an extension to a cooling-off period in place at the time to allow further time within which to discuss a possible co-existence agreement.

Clifford Chance S.L. Abogados replied on behalf of WSC with a letter that triggered the threats claim. The letter said, amongst other things, that the use of the "Best Buy" trade mark "in Europe and in particular in Spain, as well as in advertising and in the media, as at present, represents a conflict with the intellectual property rights duly registered by my client in Spain and Europe which would entitle it to take the appropriate legal action to defend its interests".

The letter went on to say:

"If, taking into account the above, [Best Buy] were to remain interested in using the BEST BUY trademark in Europe my client would be prepared, taking up the proposal made by your client in your facts of 28 August 2008, to reach a negotiated solution which would enable your client to do so while at the same time compensating my client for the cessation of its activity that this would undoubtedly entail.

Until a negotiated solution is reached, we hereby request that your client refrain from using the BEST BUY trademark in Europe, issuing any press articles or making any announcements of its imminent activities in Europe (news that has already caused confusion and concern among my client's customers).

In order to ensure that my client is able to protect its rights in a proper fashion, we hereby request that, within a term of fifteen (15) calendar days as of the date of receipt of this letter, you reply to us in writing confirming (i) [Best Buy's] willingness to start a negotiation process with my client in order to attempt to find a negotiated solution to the conflict; or (ii) your client's undertaking to not use the BEST BUY trademark in Europe, or issue any news in the press or make any announcements of any imminent activity in Europe, or indeed use such trademark in any other way."

The issues in the case were whether an actionable threat had been made in the letter, whether such a threat related to UK infringement proceedings, whether the communication fell within a statutory exception and whether it attracted without prejudice privilege.

Held

Mr Justice Floyd held that a threat had been made, but as the letter was part of a negotiating process, it fell within the protection of the without prejudice rule.

Threatening Behaviour

In considering whether the letter was a threat, the meaning and the impact of the letters has to be decided in accordance with how they would be understood by an ordinary reader. Floyd J quoted the Unilever v P&G case:

"In summary, the term 'threat' covers any information that would convey to a reasonable man that some person has trade mark rights and intends to enforce them against another".

Floyd J considered that the recipient would understand from the CC letter in the clearest terms that proceedings for infringement of a trade mark were being threatened.

The Statutory Exceptions

Floyd J also reasoned that the court has to consider the impact of the letter on the recipient and that one must ask whether the recipient would understand the threat to be limited to proceedings in respect of excluded acts. Floyd J was careful to make a distinction between the supply of services (statutory exception) and the offer of the supply of services (not an exception):

"Section 21 excludes certain types of infringement proceedings from its scope ("excluded acts"). The excluded acts correspond to some but not all of the acts which are deemed, by section 10(4) to be use of a sign for the purposes of infringement. Thus, for example, exporting goods under the sign is deemed to be use of the sign for the purposes of infringement, but is not an excluded act. Similarly, and more relevantly, offering or supplying services under the sign is deemed use for infringement purposes, but only supply of services (and not offering to supply) is an excluded act."

He went on to state that any threat must be clearly limited to proceedings in respect of excluded acts (such as the supply of services). The letter in question sought undertakings in respect of any use of the mark, which must include offering to supply services. It was explicit in seeking to restrain other acts beyond the supply of services and so could not benefit from the defence based on excluded acts.

Jurisdiction

Floyd J dismissed arguments that the threat of proceedings did not relate to the UK courts, concluding that the reasonable recipient would consider that WSC had a range of options as to the forum in which they could bring the proceedings and that they were not limiting themselves to bringing proceedings in Spain. The recipient would recognise that, if a major launch were to take place in the UK, then the UK would be a likely choice for proceedings.

Without Prejudice

The threats action was unsuccessful because the CC letter was covered by without prejudice privilege. Floyd J rejected arguments that the 'real' purpose of the letter was a letter before action, because in context, the letter was setting out a negotiating position. Floyd J came to this conclusion as both the CC letter and the letter that preceded it contained genuine offers to negotiate. The offers to negotiate were made in the context of proceedings which were on foot: subsisting CTM opposition proceedings were underway in which WSC were trying to invalidate Best Buy's CTM, and Best Buy were seeking to revoke one of WSC's trade marks as well. The offer was made during a cooling-off period intended for the parties to negotiate a consensual solution. In context, and as the letter itself requested a response confirming a willingness to start a negotiation process, the letter fell within the protection of the without prejudice rule.

Comment

The decision is significant because it is the first judgment in which a judge has gone on record to expressly state that, while the 'supply of services' clearly falls within a statutory exception, the 'offer to supply services' does not. It also confirms that any threat must be clearly limited to proceedings in respect of excluded acts (such as the supply of services) and that where a letter seeks undertakings in respect of any use of a mark they must not go wider than the exception - they must not seek to restrain other acts.

This is perhaps a somewhat impractical approach. Trade mark owners and their professional advisers must be even more careful to limit both their letters and their undertakings to acts that fall expressly and exclusively within the narrow ambit of the statutory exceptions.

As for the availability of without prejudice as a 'defence' to a threats claim, Floyd J did state that "It is clear from the authorities that even the opening shot in negotiations can, depending on the circumstances, amount to bona fide without prejudice correspondence and be privileged accordingly". However this should not be regarded as a 'cure-all' defence - it remains to be seen and seems unlikely that a letter before action could seek to rely on such a defence unless a dispute has already been identified between the parties and the communication is part of negotiations or a genuine attempt to settle.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 25/08/2010.

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