Oakley v Animal: a true spectacle

01 December 2005

Emily Bennett

The recent Court of Appeal judgment in the case of Oakley Inc. v Animal Limited[1] examines what started off as an ostensibly simple dispute concerning the Registered Designs Regulations 2001. This unlikely case has now provoked one of the most important administrative law discussions of recent times, with weighty implications for not only the Registered Design Regulations but for all subordinate legislation made in the UK, particularly throughout the intellectual property arena.

Background

In 2001 the Registered Designs Regulations were introduced, creating new law applicable to registered designs from 9 December 2001. The purpose of the Regulations was to implement European Community Directive 98/71/EC, which provided for a more harmonized system relating to registered designs across Member States. The Directive was incorporated into UK law by way of s2(2) of the European Communities Act 1972 (‘the 1972 Act’) which, broadly, gives ministers the power to make regulations for the purpose of implementing Community laws. The exact terms and construction of s2(2) were central to the case and will be revisited.

The case arose specifically in relation to the transitional provisions of the new legislation. What was to happen in relation to designs registered prior to 9 December 2001 (i.e. under the existing Registered Designs Act 1949) was not conclusively determined by the Directive. Instead of applying the new law indiscriminately, the Directive gave Member States an option to derogate[2] and retain in force existing legislation on validity for all designs already registered under such legislation. Such options are frequently seen in Community legislation and, although potential difficulties had been predicted by some[3] due to the fact that it would be a government minister and not Parliament who chose whether the option should be exercised, there was no case law which dealt with the subject convincingly. The Secretary of State chose to exercise the option given by the Directive, with the effect that all existing design registrations would continue to be subject to the old law. This was expressed in Regulation 12 of the 2001 Regulations.

The position following the introduction of the Regulations was therefore that the old law on validity would apply to designs registered prior to 9 December 2001, and the new law would apply to those registered after. Oakley was the owner of a registered design for sunglasses which was registered before 9 December 2001 and so, according to the Regulations, subject to the old law.

Shortly before the start of a trial in which Oakley was attempting to assert its registered design rights in certain sunglasses against Animal, it was learnt that Oakley had published one of the designs a month before it had been registered. Under the old law a design registration must be ‘new’ in the UK in order for registration to be valid. If it could be shown that the design had been published in the UK by someone free to do so before the design was registered here, then novelty would not be established and the design would not be validly registered. Animal Limited used this information to challenge the validity of Oakley’s registered design right and Oakley put forward the defence that it wasn’t in fact the old law which applied to the case, but rather the new law contained in the Regulations. If this was correct then Oakley would be off the hook in relation to the prior disclosure, because, in contrast to the old law, the Regulations provide for a grace period of one year during which prior use of the design by the design owner does not destroy the necessary element of ‘novelty’.

s2(2) European Communities Act 1972

In support of its argument Oakley looked at s2(2) of the 1972 Act:

2(2) Subject to Schedule 2 to this Act, at any time after its passing Her Majesty may by Order in Council, and any designated Minister or department may by regulations, make provision-

(a) for the purpose of implementing any Community obligation of the United Kingdom, or enabling any such obligation to be implemented, or of enabling any rights enjoyed or to be enjoyed by the United Kingdom under or by virtue of the Treaties to be exercised; or

(b) for the purpose of dealing with matters arising out of or related to any such obligation or rights or the coming into force, or the operation from time to time, of subsection (1) above; …

The scope of s2(2)(a) and s2(2)(b), both individually and in combination, had been subject to a negligible amount of discussion in the courts prior to this case. Oakley submitted that s2(2) of the 1972 Act gave the executive a limited power to implement Community obligations, but only where those obligations were clear and would involve no element of policy making. Policy-making of any kind, said Oakley, is the sole prerogative of Parliament. In exercising the option to derogate from the Directive and deciding that the new design law would not apply to certain registered designs, Oakley contended that the ambit of s2(2) had been exceeded and that Regulation 12 was therefore ultra vires and should be struck out. The effect of striking out Regulation 12 would be to make the Regulations applicable to all design registrations – past and future – with the result that Oakley could take advantage of the extended grace period.

Animal argued that a proper interpretation of s2(2) showed that the Secretary of State was perfectly within her powers when she chose to exercise the option, and that regulation 12 was therefore valid.

Decision at 1st instance

The case was heard at first instance by Peter Prescott QC[4]. In a judgment dated 17 February 2005[5] he held that, in so far as the Secretary of State had by the 2001 Regulations exercised the option to retain existing legislation in relation to old registered designs, she had acted ultra vires. He found that Regulation 12 was not valid under either s2(2)(a) for the purpose of “implementing any Community obligation” or “enabling any such obligation to be implemented”. Nor could it be allowed under s2(2)(b) in relation to “dealing with matters arising out of or relating to” any such obligation. His reasoning for this decision was based on his opinion that the decision left open by the Directive was a “significant policy choice” which “had to be implemented by primary legislation”.

Despite finding that Regulation 12 was ultra vires, the judge refused to sever it from the remainder of the Regulations. He reasoned that this would bring into force Regulations which the Secretary of State had not intended to pass.

English law governing severance is clearly established and the basic principle is that subordinate legislation will be held invalid as a whole if it contains a provision which is ultra vires. One of the few exceptions that may prevent a provision being struck out is where a court can remove the offending matter and be satisfied that it is causing no change in the substantial purpose and effect of the impugned legislation. Where it cannot be so satisfied, it may not strike out the offending provision – the whole piece of legislation must be taken together and treated as invalid. Peter Prescott QC concluded that the removal of Regulation 12 would indeed be effecting a change in the overall purpose and effect of the legislation, and necessarily arrived at the conclusion that the 2001 Regulations were invalid as a whole.

This decision could be classified as something of a pyrrhic victory for Oakley. Although Oakley needed Regulation 12 to be found ultra vires, this finding in itself was of no use if Regulation 12 could not be severed from the rest of the Regulations. The finding that the entire Regulations were invalid meant that the position reverted to what it was before the introduction of the Regulations – the applicable law was therefore the 1949 Act, and precisely what Oakley wanted to avoid!

Both parties appealed. Animal argued that Mr Prescott was incorrect to find that Regulation 12 was ultra vires and Oakley appealed on the basis that, although it was correct to find that Regulation 12 was ultra vires, the judge had been wrong to say that Regulation 12 could not be severed.

Court of Appeal

The constitutional importance of the case had become apparent by now and the Secretary of State, having been invited to join the proceedings, was represented by David Pannick QC in the court of first instance. The Secretary of State appealed that decision and was represented in the Court of Appeal by the Attorney General himself, Lord Goldsmith QC. The appeal opened with the Attorney General’s submissions on validity, on which topic he was supported by Animal. By taking the validity issue first, if the earlier court’s findings were found to be incorrect and the Regulations were in fact valid, there would then be no need to look at the severability point central to Oakley’s appeal.

The case was heard in the Court of Appeal by Lord Justices Waller, May and Jacob, with the leading judgment being given by Waller LJ. In a judgment published on 20 October 2005 all three judges agreed that the findings of the lower court should be reversed. They held that the 2001 Regulations, including the provisions in Regulation 12 relating to the continuing validity of old law, were validly passed and were not ultra vires.

The basis for the decision differed slightly from judgment to judgment. It is common ground between them, however, that the decision to opt out of the Directive for the purposes of Regulation 12 lay firmly within the realm of the Secretary of State’s powers under s2(2) when creating subordinate legislation through the implementation of a Community Directive.

The significance of the decision for Animal and Oakley was that the 2001 Design Regulations became binding law, including Regulation 12. Because the particular design in dispute was registered prior to 9 December 2001 it came under the opt out and was therefore subject to the old law. In the absence of the year’s grace period that new registrations now enjoy, proof that the Oakley sunglasses had been validly brought into the UK before the design was registered meant that the registration of the design was invalid and therefore ineffective. Animal’s challenge was successful and Oakley was unable to prove it had a design right to assert against Animal.

Comment

Although the three Court of Appeal judges reached the same conclusion in applying s2(2) to the facts in hand, a close reading of the judgments reveals variances in approach that could present difficulties in the future.

Waller LJ’s leading judgment involves a very broad interpretation of s2(2)(a). In his view, transitional arrangements of the sort seen in Regulation 12 fall within subsection (a) because they are part of the bringing into force of a Directive. In his ‘whole view’ approach to the section he argues that a choice must be made in order to enable the Directive to be implemented at all. Whether the choice is to opt in or opt out of the new legislation for prior registrations, then so be it. This choice is an essential element of implementing the Directive and, as such, must be classified not as ‘arising out of’ or ‘related to’ the implementation of the Directive, but ‘for the purpose’ of it.

Where this leaves subsection (b) under Waller LJ’s theory is unclear. He doesn’t explicitly say that transitional arrangements (such as in the immediate case) do not fall under s2(2)(b), but from his preceding reasoning it would seem that they do not. Waller LJ is clear that s2(2)(b) must have a function reaching beyond the scope of s2(2)(a) but he does not suggest any boundaries to this. He sees it as potentially encompassing ‘significant policy decision(s)’ as well as any ‘further measures…which naturally arise from or closely relate to the primary purpose being achieved’.

Waller LJ’s interpretation is worrying in its breadth. If s2(2) is as he believes it to be then the Secretary of State has a large area of virtually unchecked power to pass any law he likes. So long as it could be said to ‘closely relate’ to a purpose of a Directive then the Secretary of State is given unfettered powers by s2(2)(b), even so far as this involves making significant policy choices.

The other law lords agree with Waller LJ that the transitional provisions in this case fall under s2(2)(a). However, they both appear to believe that they could also fall under subsection (b). This begs the question, which they all acknowledge, of the point of subsection (b)? If subordinate legislation and policy decisions can be made under s2(2)(a) then there must be an additional purpose to justify subsection (b) being there. May LJ declines to define subsection (b) at all, saying it is confined by its words and context. Jacob LJ, though, goes into a fair bit of reasoning about the purpose of subsection (b).

According to Jacob LJ, the structure of s2(2) makes it apparent that the Act envisages certain policy decisions being made under it. Schedule 2 (referred to in s2) separates out those matters that can only be dealt with by Parliament, and it does not include ‘Directives which contain options or discretionary choices’. This, argues Jacob LJ, is because if such areas were included then there would be scarcely a Directive passed that could be implemented without an Act of Parliament being necessary – this is obviously not what was intended.

Indeed, what Jacob LJ describes illustrates what would have been the case if Peter Prescott QC’s decision had been left to stand. Any Directive which gave options or choices could not be implemented until such decision had been taken by Parliament – the only body with the authority to make such policy choices. This would have had vast consequences for many pieces of legislation already passed under s2(2) ECA 1972. What would be the status of these pieces of legislation? Would they be invalid in their entirety or could the relevant section be severed? Severability was not considered by the Court of Appeal in relation to the Registered Design Regulations, but it is likely anyway that the result would be different in relation to each piece of subordinate legislation and much judicial time and effort would be spent analysing the construction of the legislation, trying to apply the rules of severability.

The intellectual property sphere would be likely to suffer disproportionately from legal uncertainty such as that described above due to the immense volume of EC legislation that has recently flooded the area. For instance, according to one authority[6], over half of the first 15 sections of the Copyright, Designs and Patents Act 1988 contain amendments made by Regulations. These Regulations, like the Design Regulations, were not made by Parliament but by the Secretary of State, and so the validity and effect of such Regulations in many cases would be cast into doubt.

Another reason why intellectual property law is especially vulnerable to this type of executive law-making is because of the rule that only Parliament may grant or alter a monopoly. The essence of intellectual property law concerns the granting of monopolies for periods of time, through registered designs, copyright etc. When Regulations are made which have the effect of altering or introducing a new monopoly, Parliament’s authority has been circumvented. Can such Regulations be relied upon? Even if the scope of s2(2) is as wide as the Court of Appeal now suggests it might be, is it legal for the Secretary of State to grant a new monopoly? There are still no answers.

Questions such as those above could have suitably been addressed and resolved by the Court of Appeal in the Oakley v Animal case. Unfortunately, the judges assigned to the case were selected in light of their intellectual property acumen when, perhaps, a knowledge of constitutional affairs would have been more appropriate. Maybe because of this, there seemed to be a reluctance to tackle the real issues highlighted by the case, as shown by the notable absence in the judgments of any definitive analysis of s2(2). The situation now is arguably worse than it was before the case went to the Court of Appeal. Instead of just calling into question Regulations which could be said to have incorporated policy decisions in their making, we now have a situation where the ambit of s2(2) is so extremely unclear, and so potentially wide, that there is little guidance as to what the Secretary of State may and may not legally do. Perhaps the judges wisely decided that a matter of such constitutional potency was better left to the House of Lords.

Also published in the December issue of WIPR.







[1] Oakley Inc v (1) Animal Limited & Ors and (2) The Secretary of State for Trade and Industry

[2005] EWCA Civ 1191



[2] Article 11.8 of EC Directive 98/71/EC



[3] ‘The Modern Law of Copyright and Designs’, 3rd edition, Laddie, Prescott, Vitoria, Speck, Lane



[4] Sitting as a Deputy High Court Judge of the Chancery Division.



[5] [2005] EWHC 210 (Ch)

[6] The Modern Law of Copyright and Designs, Laddie, Prescott, Vitoria, Speck, Lane