UK: To Sleep: Perchance To Snore

From the summer of 1996 to the spring of 1998, the US corporation Medgen Inc. developed a natural health care product for the alleviation or prevention of snoring. The spray product’s efficiency was claimed to lie in the fact that, when sprayed into the mouth, it coated the soft tissues at the back of the throat, the vibration of these tissues apparently being the usual cause of snoring.

A name for this product, Snorenz, was coined by Medgen during the early part of 1997 and they filed a US trade mark application for the mark in May of that year. The product was sold in the US on a small scale during its development, but its major trade launch took place at a trade fair held in California in March 1998.

At that trade fair was a representative of the UK company Passion for Life Products (PFL), who specialise in the sale of natural health products. Business contacts were made between Medgen and PFL and these developed into more serious negotiations aimed at the sale of Medgen’s product in the UK. On 20^th March 1998, PFL wrote to Medgen saying that they had done some initial market research and, as a result, believed that they could sell Snorenz successfully in the UK. In that letter, PFL said "We have decided that we would rather import the product under your (that is, Medgen’s) brand". However, Medgen, at this stage at least, made it clear to PFL that they were not concerned which trade mark was used to market the anti-snoring product in the UK. As a result of these negotiations, PFL was appointed Medgen’s exclusive UK distributor until the end of 1998. The precise terms under which this exclusive distributorship was to operate were never expressed either in writing or in any other way.

In June 1998, PFL ordered about 4000 Snorenz bottles and these were promptly delivered. The product received by PFL in response to this order was identical to the product Medgen sold in the USA. Initially, PFL marketed the product by mail order rather than retail sales. Within a very short time, it was having an impact on the UK market.

On 2^nd August 1998, PFL filed a Community trade mark application for Snorenz in Classes 5, 10 and 20. They followed this, on 15^th August 1998, with a UK trade mark application for the mark in Class 5. Both applications were filed in the name of PFL. Medgen were not informed about either of these filings. During the prosecution of the UK application, an earlier UK registration for the trade mark Snoreeze was cited. PFL overcame this objection by purchasing the registration for Snoreeze.

At the same time as PFL were filing their CTM and UK trade mark applications, they also informed Medgen that, in order to continue selling the Snorenz spray in the UK, the product labelling would have to be redesigned to comply with European Union regulations. PFL also wanted to use this relabelling opportunity to create a new UK label for retail sales which would have a more "pharmaceutical" image and thereby be more attractive to potential consumers. Medgen had no objection to this proposal. PFL therefore went ahead and redesigned the label at their own expense. In early September 1998, they sent a sample label to Medgen for their approval. The new label bore the trade mark Snorenz but did not mention Medgen as the manufacturer of the product or any reference to Snorenz being a trade mark. Although Medgen did not initially express any concern about these omissions, at the beginning of October 1998 they allegedly wrote to PFL asking for the words "manufactured by Medgen Inc" to be added to the label and for ® to be added adjacent to Snorenz. This fax was never received by PFL. However, PFL were contacted by telephone by Medgen soon after to discuss these issues. PFL persuaded Medgen that their (PFL’s) name should appear on the new label because PFL would have to deal with any enquiries or complaints which arose in the UK. The new label (minus any reference to Medgen and ®) was again shown to Medgen at a meeting held between Medgen and PFL in the USA in November 1998.

From about October 1998 onwards, PFL sold Snorenz with the redesigned label both through retail and mail order outlets to the general public. They applied the new label to unlabelled bottles that they received from Medgen. Sales increased steadily until PFL’s UK sales amounted to 17% of total Snorenz spray sold around the world. Towards the end of 1998, the two parties began negotiating a new exclusive distributorship agreement to cover the whole of Europe. In a draft agreement, forwarded by PFL to Medgen, was a term which provided for PFL to own the goodwill in the mark Snorenz. Although a little slow to understand the impact of this clause, Medgen eventually, in April 1999, objected to it. They also (at last) conducted a trade mark search of the CTM and UK Trade Mark Registers and noted PFL’s trade mark application. In response, on 5^th May 1999, Medgen filed their own UK trade mark application for Snorenz (stylised) in Class 5.

The parties now took up opposite positions. Medgen wanted the return of the Snorenz trade mark in the European Union, including the UK, in return for giving PFL a European wide exclusive distributorship. PFL did not want to give up their UK and CTM trade mark rights. Not surprisingly, relations between the two companies became soured and, in August 1999, Medgen opposed PFL’s UK trade mark application on the ground that it had been filed in bad faith. In spite of this, commercial dealings between originator and distributor limped on, with Medgen supplying PFL with unlabelled bottles of spray until November 1999.

At this point, it became clear to PFL that the continued supply of spray from Medgen could no longer be guaranteed. It therefore set about arranging for a similar product to be made by another manufacturer and having the product tested. Again, PFL kept their plans secret. PFL was ready to launch their new anti-snoring product in May 2000 which they did under the new name Snoreeze. It will be recalled that PFL had acquired the UK trade mark registration for Snoreeze during the prosecution of their UK trade mark application for Snorenz. The packaging of PFL’s Snoreeze spray was, for all practical purposes, identical to their (PFL’s) earlier Snorenz product. During the launch of their new product, PFL claimed that Snoreeze had won an award in 1999. This was untrue. The award had been won by Snorenz.

Soon after the launch of Snoreeze, Medgen brought proceedings for passing off against PFL in the English High Court. They claimed that

• They (Medgen) owned the UK goodwill in the trade mark Snorenz and its packaging, and
• PFL had made misrepresentations about the product Snoreeze, so as to connect it with the product Snorenz in the minds of the UK purchasing public.

In relation to the passing off case brought before the Court (Mr Garnett Q.C.), it was ruled that, PFL, rather than Medgen, were the exclusive owner of the UK goodwill in the trade mark Snorenz and the product’s packaging and that therefore Medgen’s action failed. The Court commented as follows:

• Goodwill is local in character. Goodwill in relation to a business carried on in the UK is attached to that business. It is nevertheless legally and factually possible for a business based overseas to acquire goodwill in this country by the supply of its products through an agent, licensee or distributor. Whether it does so or not depends on the facts of the case, in particular, what was done and by whom. With whom do the relevant members of the public associate the name and get-up? Are they concerned with the quality and price of the product or the original source of the product?
• Given that there is no rule of law or presumption of fact which says that the goodwill generated by the trading activities of a wholly owned subsidiary belongs to the parent or is the subject of any kind of licence, the same must apply with just as much force to the trading activities of an independent exclusive distributor.
• On the evidence, it was clear that the wholesale or retail trade only knew PFL as the source of the product. It was to PFL that such traders would go for the product. In the event of any defect or problem, it was to PFL rather than to Medgen that a wholesaler or retailer would turn.
• There was no evidence that UK retail traders either knew that Medgen had developed the product or that they (Medgen) were responsible for its manufacture. Further, such retail traders did not care about the development and/or manufacture of the spray. The above comments applied with even more force to members of the purchasing public.
• The UK purchasing public was influenced by advertising or product references which carried PFL’s name. If they made successive purchases, they would do so either by contacting PFL or by identifying Snorenz and its local UK packaging in a shop. If the product failed to live up to the expectations they would have blamed PFL.

Turning to Medgen’s opposition, in the UK Trade Mark Office, to PFL’s UK trade mark application for Snorenz dated 15^th August 1998, the Hearing Officer found that the opponent’s bad faith objection (under Section 3(6) of the 1994 Trade Marks Act) failed. He made the following comments on the case before him and bad faith actions in general,

• Quoting from Gromax Plasticulture v Dow & Low Nonwovens (1999 RPC 367), "…bad faith…plainly includes dishonesty, and…also some dealings which fall short of the standards of acceptable commercial behaviour as observed by reasonable and experienced men in the particular area being examined".
• Quoting from Eicher v Velocette Motorcycle (unreported, Appointed Person), "An allegation that a trade mark has been applied for in bad faith is a serious allegation. It is an allegation of a form of commercial fraud. A plea of fraud should not be lightly made…It should not be made unless it can be fully and properly pleaded and should not be upheld unless it is distinctly proved and this will rarely be possible by a process of inference".
• The relevant date in the opposition proceedings was the date of application (15^th August 1998). In relation to Section 3(6) the applicant’s motives or intentions must be construed at the time the application was made.
• A vague suspicion that a foreign proprietor may wish to extend its trade under a mark to the UK is insufficient to found an objection under Section 3(6). However, if an applicant for registration of a trade mark has reasonable grounds to believe that a foreign user of the trade mark has plans to extend its trade under the trade mark into the UK, the application may be deemed to have been filed in bad faith.
• PFL had suggested that the product be sold under the trade mark Snorenz in the UK and were told by Medgen, prior to any UK sales taking place, that it did not matter to Medgen under what name the product was sold in the UK. Following receipt of this information PFL could reasonably infer that Medgen was merely keen to sell the product in the UK and had no particular concerns to use the Snorenz mark itself in the UK.

This is a salutary trade mark tale. It seems clear that, as a result of Medgen’s acquiescence to the sale of Snorenz under PFL’s terms from about October 1998 onwards, the UK rights to the mark drifted away from Medgen to PFL. The need to exercise control over a licensee, subsidiary and/or distributor and, in particular, their use of a prized asset such as a trade mark has never been better illustrated.

Having said that, it is also clear to the writer that the opposition to PFL’s UK trade mark application was wrongly decided. This is because the matter must be viewed at the UK application date (15^th August 1998) rather than 12-18 months later. What was the position at 15^th August 1998? First, PFL were Medgen’s exclusive UK distributor. Second, in a letter dated 20^th March 1998, PFL wrote to Medgen as follows "We have decided that we would rather import the product under your brand" (emphasis added). Third, all of the Snorenz product sold in the UK up to 15^th August 1998 was the spray with the US label and packaging. Fourth, PFL filed their UK (and CTM) application in secret, suggesting that they knew that their actions were, at the very least, not in the spirit of their commercial relationship with Medgen. If this sort of pre-emption by a distributor selling the original (US) product in the UK does not amount to bad faith, then this ground of opposition is virtually worthless.

The authorities (both the UK Trade Mark Office and the Courts) should also lighten up in relation to actions brought under the bad faith banner. Bad faith should not automatically be equated with fraud. It can also be a sharp commercial practice that simply falls on the wrong side of the line. Companies (and individuals) will always try to optimise their own position. The vast majority try not to do this dishonestly or fraudulently. However, many will test the limits of the law, including trade mark law, to see whether they can maximise their commercial advantage. It is submitted that this is simply what PFL did in this case. They did not act fraudulently but they did, in the writer’s view, act in a way that fell short of acceptable commercial behaviour. As a result, the Section 3(6) opposition brought against their UK trade mark application for Snorenz should have been successful.