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CJEU answers UK reference arising from the UK High Court litigation between Sky and SkyKick on issues relating to bad faith and validity


12th Feb 2020

In February 2018 we reported on the decision of Mr Justice Arnold in the UK High Court trade mark litigation involving various Sky companies (Sky plc, Sky International AG and Sky UK Limited – ‘Sky’) and SkyKick (SkyKick UK Limited and SkyKick Inc).

On 29 January 2020 the Court of Justice of the EU (CJEU) delivered its judgement on the questions referred by the UK court. Details of the CJEU’s judgement and what it means in practice are set out below.

 

Re-cap of Background to the UK Proceedings

In 2011/2012 SkyKick established a new business in the USA offering IT customers a range of cloud-based services under the mark SkyKick, including cloud-base data-migration, cloud-based back-up and cloud-based manager services. In November 2014 SkyKick rolled out its cloud-based services to the UK under the trade mark SkyKick.

By November 2014 SKY was considered a household name in the UK and Ireland for TV broadcasting, telephony and broadband services. In addition to these core services, Sky offers, or has in the past offered, a range of other SKY-branded services including: SKY WIFI, SKY email, SKY software, a range of SKY merchandise and various other services, including financial services, insurance services and educational services.

SkyKick’s services targeted business customers only. Sky’s business targets both domestic and business customers. Sky does not offer email migration services or cloud backup services to customers and its evidence in the UK proceedings did not reveal that it planned to offer such services in the immediate future.

Sky took issue with SkyKick’s trade mark, which led to Sky issuing SkyKick with a letter before action in January 2016. Proceedings were commenced by Sky against SkyKick in the UK High Court in May 2016 for infringement of several of Sky’s registered trade marks and for passing off.

 

UK Reference to the Court of Justice of the EU (CJEU)

The UK High Court proceedings raised important questions on issues relating to trade mark validity and bad faith. Mr Justice Arnold considered it appropriate to seek guidance from the CJEU on these points of law. Accordingly, the UK proceedings were stayed and a reference was made to the CJEU for a preliminary ruling on the questions set out below.

 

The CJEU’s Judgment – Summary

The UK reference to the CJEU was important because it had the potential to significantly impact on trade mark filing and enforcement practices across the EU.

Some may argue that the EU trade mark system is in need of reform, because it favours those with deep pockets (i.e. those best able to shoulder the cost of filing / re-filing pan-EU trade marks for multiple classes of goods and services). Some may also argue that it would be fairer to move towards a US-style trade mark system where applicants are not permitted to claim entire categories of goods and services; this would be particularly important where – as is the case for EUTMs – there is no strict requirement to have a genuine intent to use a trade mark at the date of filing.

As it turns out, whether or not you are a fan of the EU trade mark system, the CJEU’s judgement maintains the status quo. In that sense it represents some good news for trade mark owners, particularly from a perspective of being free to file trade marks covering broad categories of goods and services.

When it comes to enforcement of trade marks again the CJEU’s judgement is largely positive, but the door has been left open for third parties to seek invalidation of trade mark rights where their owners have covered goods and services for which they have no genuine intention to use the marks and have also engaged in conduct which is inconsistent with honest practices e.g. by abusing the trade mark system and undermining the interests of third parties.

 

The CJEU’s Judgment – Detail

It is not always the case that the CJEU provides the necessary clarity that a referring court requires. However, in this instance the CJEU appears to provide a degree of certainty for trade mark owners on the important issues raised in the UK reference, as discussed below.

 

The First Two Questions

“(1) Can an EU trade mark or a national trade mark registered in a Member State be declared wholly or partially invalid on the ground that some or all of the terms in the specification of goods and services are lacking in sufficient clarity and precision to enable the competent authorities and third parties to determine on the basis of those terms alone the extent of the protection conferred by the trade mark?

(2) If the answer to question (1) is yes, is a term such as ‘computer software’ too general and covers goods which are too variable to be compatible with the trade mark’s function as an indication of origin for that term to be sufficiently clear and precise to enable the competent authorities and third parties to determine on the basis of that term alone the extent of the protection conferred by the trade mark?”

These questions relate to interpretation of the scope of the rights granted under a trade mark registration. Because trade mark registrations have the potential to last indefinitely, interpreting their scope is an important consideration.

Unlike in the USA, UK and European trade mark practice has long-since allowed for the use of broad terms in the specifications of goods and services, including terms such as “computer software”, “financial services” and “telecommunications services”. Whilst in the vast majority of cases a trade mark applicant may have a vested interest in only a small sub-set of these goods and/or services (e.g. computer software for encryption, or financial services in the nature of providing loans), applicants would be permitted, nevertheless, to cover the entire category of these products/services.

In an earlier judgement by the CJEU in the IP Translator case [Chartered Institute of Patent Attorneys v Registrar of Trade Marks; Case C-307/10: see here] the CJEU ruled that goods and services used in specifications must be sufficiently clear and precise to enable “competent authorities and economic operators” to determine the extent of protection conferred by a trade mark. This is important because it allows the scope of a trade mark application/registration to be adequately assessed.

As a result of the IP Translator case a change to EU classification practice followed whereby certain terms which had previously been accepted to describe categories of goods and services were deemed insufficiently clear and precise to be acceptable. Those terms included, amongst others, “machines”, “repair services” and “treatment of materials”. Following this change in classification practice, trade mark applicants specifying these terms in lists of goods and services would be asked to amend the terms so as to provide the required clarity and precision.

The terms “computer software”, “financial services” and “telecommunications services” did not feature in the list of goods and services deemed to lack clarity and precision following IP Translator, such that they continue to be accepted by the UK and EU Intellectual Property Offices. These terms also feature in the list of goods and services of the trade mark registrations relied upon by Sky in the UK litigation against SkyKick.

In the SkyKick litigation in the UK Mr Justice Arnold was of the view that the term “computer software” was likely to satisfy the requirements of clarity and precision, but he considered the ongoing acceptance of this term by the UK and EU IP Offices to be at odds with the approach taken with regard to other terms that were previously considered to lack clarity and precision following the decision in IP Translator.

Although the CJEU’s judgement in SkyKick does not clarify whether “computer software” lacks clarity and precision, it does establish that where trade mark registrations do cover descriptions of goods and/or services which lack clarity and precision, this alone is not sufficient to provide a basis for invalidating those registrations (either wholly or partially). This is the case because the CJEU ruled that the grounds which may be relied upon to seek the invalidation of a registered trade mark are set out in the trade mark legislation – these grounds represent an exhaustive list and the absence of clarity or precision in trade mark specifications does not feature in this list.

The CJEU’s judgement on this point provides much needed certainty for trade mark owners. Even where trade marks are registered for terms which are found to lack clarity and precision this isn’t a ground for cancelling registrations. In practice, a lack of clarity or precision defect in a specification is capable of being remedied by owners applying to amend the unclear/imprecise terms.

Although it was not a specific question from the referring court in the UK, the CJEU went on to address a point raised by Mr Justice Arnold in his UK judgement on the issue of public interest and broad trade mark monopolies. This was also a point that Advocate General (AG) Tanchev opined on in his non-binding decision issued on 16 October 2019 in respect of the questions referred by the UK court.

In the UK High Court judgement Mr Justice Arnold opined that registration of a trade mark for “computer software” was in his view “unjustified and contrary to the public interest because it confers on the proprietor a monopoly of immense breadth which cannot be justified by any legitimate commercial interests of the proprietor”. AG Tanchev agreed, opining that a lack of clarity and precision in trade mark specifications (including for “computer software”) could be contrary to public policy and the public interest on account of it providing protection for goods and services that are too general in nature.

The CJEU dismissed these concerns, ruling that public policy considerations do not apply to characteristics of the trade mark application itself, such as the list of goods and services.

 

The Third and Fourth Questions

“(3) Can it constitute bad faith simply to apply to register a trade mark without any intention to use it in relation to the specified goods or services?

(4) If the answer to question (3) is yes, is it possible to conclude that the applicant made the application partly in good faith and partly in bad faith if and to the extent that the applicant had an intention to use the trade mark in relation to some of the specified goods or services, but no intention to use the trade mark in relation to other specified goods or services?”

These questions relate to the intention of the applicant at the time of filing a trade mark, in particular whether the applicant must have a genuine intention to use the mark for the goods and services applied for and whether filing without a genuine intention to ever use the mark could constitute bad faith.

The CJEU’s judgement on these questions does not provide absolute certainty for trade mark owners. On the one hand it has been clarified that bad faith cannot be presumed merely on the basis of a finding that at the time of filing a trade mark an applicant had “no economic activity corresponding to the goods and services listed in the application”. This is consistent with current EU legislation and practice whereby a trade  mark owner is permitted a defined period of five years, post-registration, to grow its business in areas which may not have been of immediate interest on the date of filing, but which perhaps featured in the longer-term commercial plans of the owner, and are reflected in the list of goods/services.

On the other hand the CJEU has ruled that bad faith may be found where the actions of the trade mark owner, when applying for a trade mark with goods and services for which there is not an economic activity connection, are at odds with honest practices and the legitimate interests of third parties. Bad faith must be demonstrated by way of “objective, relevant and consistent indicia” that the trade mark applicant had the intention of undermining the interests of third parties or of obtaining an exclusive right for purposes other than those falling within the essential functions of a trade mark.

So, for example, the filing of a trade mark for goods and services for which there is no genuine use intent and no economic activity connection for the purpose of blocking third parties from using or registering the same or similar marks may fall within the parameters of the bad faith exception outlined by the CJEU.

If a trade mark owner is found to have acted in bad faith the CJEU ruled that this would not necessarily taint the entire registration. Rather, the registration could be declared invalid only for the goods and services for which bad faith has been established. The CJEU’s approach in relation to partial validity/ invalidity of a registration where bad faith has been established is broadly consistent with the recent decision of the EUIPO Board of Appeal in Monopoly [Kreativni Dogadaji d.o.o v Hasbro, Inc. ; Case T-663/19: see here]. In the Monopoly decision Hasbro Inc. was found to have acted in bad faith by re-filing it MONOPOLY trade mark for goods and services some of which were already covered by more than one earlier registration for the same mark. Based on evidence from Hasbro Inc. the Board of Appeal decided that Hasbro Inc.’s actions were intended to circumvent the requirement to prove genuine use of the MONOPOLY mark vis-à-vis third parties. This amounted to bad faith and Hasbro Inc.’s trade mark registration at issue was partly cancelled for the re-filed goods and services. An appeal is currently pending at the General Court in relation to the EUIPO Board of Appeal’s findings in Monopoly.

Bad faith has always been a difficult ground to establish and the burden of proof falls on the party alleging bad faith. The bad faith intention of a trade mark owner would have to be demonstrated through evidence of conduct. In most instances it will be difficult and costly to establish a pattern of behaviour which points to bad faith, but the transparency of the EUTM system may help ease the burden to some extent. In particular, the ability to access records at the EUIPO will assist those wishing to build a body of evidence against serial abusers of the EUTM system.

 

The Fifth Question

“(5) Is section 32(3) of the UK Trade Marks Act 1994 compatible with Parliament and Council Directive 2015/2436/EU and its predecessors?”

Here the CJEU was asked to clarify whether the requirement under UK trade mark law for a trade mark applicant to declare at the time of filing that it has a bone fide intention to use the mark for the goods and services listed in the application was at odds with EU law.

The CJEU ruled that the bona fide intention to use declaration under UK trade mark law is not incompatible with EU law because it is a merely procedural requirement. Whilst evidence that this declaration was falsely made may give rise to grounds for establishing possible bad faith, the sole act of making a false declaration of bona fide intention to use in relation to the filing of a UK trade mark does not provide a ground for invalidating a UK trade mark registration.

 

What does this mean for Sky?

The case law on bad faith has been evolving for a number of years and it was already the position that an assessment of bad faith requires the consideration of all factual circumstances relevant to the particular case. The CJEU’s ruling in SkyKick, the CJEU’s recent ruling in Koton [Koton Mağazacilik Tekstil Sanayi ve Ticaret AŞ v EUIPO; Case C-104/14: see here] and the EUIPO Board of Appeal ruling in Monopoly represent important developments in this area of law, focussing in particular on the intention of the trade mark owner at the time of filing a trade mark vis-à-vis its own commercial activities and motivations as well as the interests of third parties.

The EUTM system favours businesses with large IP budgets because it is a cost-effective system for obtaining pan-European trade mark protection for broad categories of goods and services where there is no burden on the trade mark owner to have a genuine intention to use the mark at the time of filing. Equally, the EUTM system is an easy mechanism to block third parties from registering identical or similar trade marks at a pan-European level. Against this backdrop, for many years Sky has pursued an aggressive trade mark enforcement strategy in the UK and in the EU. To ensure that this strategy remains effective in the long term it has necessitated Sky registering/re-registering a number of its core trade marks across numerous categories of goods and services. For some of these goods and services Sky has been unable to establish an economic activity connection. Sky has also relied on its rights to block third parties from obtaining registered trade marks containing the word SKY. In some instances Sky has pursued this strategy where it is unable to justify an economic activity connection with regard to the goods and services covered by those third party trade marks.

At first blush the CJEU’s ruling appears wholly positive for Sky. However, in the wake of pursuing an aggressive filing and enforcement programme over many years Sky has left a considerable paper trail of evidence. If this paper trail points to attempts by Sky to circumvent the genuine use requirement of EU trade mark law and/or acting in a manner that is not in accordance with honest practices or the legitimate interests of third parties, it could indicate a pattern of behaviour tantamount to bad faith.

 

What Next?

In due course the UK High Court will apply the CJEU’s ruling in the context of the UK litigation. It is difficult to see how Sky’s infringement claim will not be upheld in the wake of the CJEU’s judgement.

 

Links

A copy of the UK High Court decision of Mr Justice Arnold in the SkyKick infringement proceedings can be found here.

A copy of Dale’s earlier report on the UK High Court infringement proceedings in SkyKick can be found here.

A copy of Advocate General Tanchev’s decision on the UK reference in SkyKick can be found here.

A copy of the CJEU judgement in SkyKick can be found here.

 

This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.

Author
Dale Carter
Senior Associate
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Would you like to know more? You can talk to Dale Carter who will be able to help. Call +44 (0)20 7539 4491

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