A recent case has highlighted the importance of franchisors actively managing their trade mark portfolios to ensure that their registered trade marks do not become vulnerable to a non-use cancellation action after five years. In Walton International Ltd and another v Verwiej Fashion BV, the claimant's failure to review its portfolio resulted in the loss of its trade mark protection and the ability to use its brand in the UK and the EU. Paul Cox and Rachel Warren from the Intellectual Property team provide further insight.
The claimants, who were based in Hong Kong and had franchises across Asia and the Middle East, owned UK and EU registered trade marks for the word 'Giordano' in relation to clothing and accessories; including footwear, headgear, wallets, eyewear, handbags and briefcases. The claimants made sales to UK and EU customers through various online stores. In 2015, the claimants incorporated Giordano UK, a private limited company which was 'set up to prepare for [the Giordano Group's] expansion into the market in Europe'. They had also made several efforts to trade in the UK including an unsuccessful franchising agreement with Whittard of Chelsea in 1997 and opening 'pop-up' stores in 2016.
The defendant was based in the Netherlands and had expanded its business organically across the EU and into the UK since it started selling the Giordano brand in 1989. The claimant brought a claim for infringement of its UK and EU trade marks against the defendant. The defendant counterclaimed for passing off and a declaration of invalidity, arguing that 1) the claimant's trade marks had not been used in the UK or EU, 2) had been registered in bad faith, and 3) that they had earlier rights in passing off and they should therefore be revoked.
Before the trial started, the claimants served a notice of discontinuance in relation to the EU trade marks. The purpose of such a notice is to bring the entirety, or part, of a claim to an end - the party who has served the notice is required to pay the other side's costs in relation to the case.
The Judge held that the notice should be set aside, concluding that the claimants were using the notice as an abuse of process in order to shield the EU trade marks from a determination of invalidity, which would also allow them to use the trade marks in further proceedings.
This decision demonstrates the Court's broad case management powers in relation to the conduct of legal proceedings and should serve as a warning to parties in intellectual property disputes that they cannot simply use the Court system to protect their trade marks by bringing claims and then ask the Court to dismiss them on the eve of the proceedings.
Trade mark dispute
The judgment in relation to the trade mark dispute was particularly interesting and important for franchisors which operate in several jurisdictions and markets.
The judge considered whether or not the claimants' websites, the e-shop and the AliExpress site, were targeted at UK consumers and retailers. He noted that the prices of goods were quoted in US dollars and that the site showed a US flag and photos of locations in the US. Customers placing orders on the website could have the goods delivered anywhere in the world. After considering the evidence, he found that the advertisements and offers for sale on the internet were not targeted towards either the EU or the UK and therefore these did not represent the use of the Giordano trade mark in those jurisdictions. Furthermore, the claimants were not actively selling in the UK or the EU and any orders that they were accepting from the UK and the EU were negligible in comparison to orders from other jurisdictions.
The Court also found that eight of the trade marks should be revoked for non-use and therefore there was no infringement.
The defendant claimed that the remaining UK trade mark was invalid because it had been applied for in bad faith. The defendant argued the claimant had a lack of intention to use the trade mark, prior knowledge of the defendant's prior use of the Giordano name and the intention to block the defendant's UK trade under that name at a time when the parties were in negotiations. The mark was not found to be invalid on the ground of bad faith as the evidence showed that there was a genuine intention to use the mark by the claimants. The Judge, however, found this mark to be invalid due to the defendant's earlier goodwill in its own mark being sufficient to bring a claim for passing off. The claimants accepted that the defendant would have acquired goodwill in Giordano and accordingly the Court found that the claimant's use of the mark in relation to clothing amounted to passing off.
In the circumstances, the claimants (who were franchisors) lost their trade mark rights in the UK and EU and were found to be liable in passing off from December 2010. This would therefore block their expansion into these territories.
This decision highlights the importance of trade mark portfolio management and serves as a warning to parties in intellectual property disputes that they cannot use the legal process to enforce their rights and then withdraw claims at the last minute to avoid a declaration of invalidity. Paul Cox, a partner in the IP team commented "the key lesson is for trade mark owners and franchisors to actively manage their trade mark rights and ensure that they have been used in the relevant non-use period which in the EU is five years but in other countries is three years. If the non-use period is coming to an end, it is advisable to re-file the trade mark."
If you would like some more information about how to protect your trade mark, or whether you have suffered an infringement of your trade mark, please get in touch with Paul Cox (Partner) at firstname.lastname@example.org or on 02380 172212 or Rachel Warren (Senior Associate) at email@example.com or on 01392 685210.