Case Bulletin: Special Effects Limited v (1) L’Oréal SA (2) L’Oreal (UK) Limited

16 January 2007

Nick Aries, Peter Brownlow

On Friday 12 January 2007 the Court of Appeal (“CoA”) handed down judgment in Special Effects Limited v (1) L’Oréal SA (2) L’Oreal (UK) Limited. The CoA overturned the High Court decision, which had stated that where grounds are relied on in unsuccessful UK trade mark opposition proceedings, the opponent is estopped from relying on the same grounds by way of counterclaim in any subsequent trade mark infringement proceedings. Due to the potential implications of the judgment, the International Trademark Association intervened and the Institute of Trade Mark Attorneys made a written submission to the Court.

Background

L’Oréal SA (“L’Oréal”) opposed an application by Special Effects Limited (“Special Effects”) to register the mark ‘SPECIAL EFFECTS’ in relation to soaps, perfumery and other cosmetics including hair products. L’Oréal relied on grounds of non-distinctiveness and its prior unregistered rights in ‘FX’ and ‘SPECIAL FX’ in the UK in relation to identical goods, and its three earlier UK registered trade marks for ‘FX’ and ‘FX STUDIO LINE’). The Hearing Officer rejected the opposition and the mark was registered.

Then, in 2002, L’Oréal applied to OHIM to register ‘SPECIAL FX’ as a Community Trade Mark. Special Effects opposed the application, arguing that there was a likelihood of confusion due to its UK registration for ‘SPECIAL EFFECTS’. OHIM rejected Special Effects’ opposition on the basis that the visual differences outweighed the phonetic and conceptual similarities.

The result was therefore that both Special Effects and L’Oréal held potentially conflicting registrations. In May 2005 this conflict came to life as Special Effects brought proceedings against the Defendants for infringing its ‘SPECIAL EFFECTS’ trade mark. Alongside their defence, the Defendants counterclaimed for a declaration of invalidity on the grounds of non-distinctiveness and the existence of their earlier trade marks as well as relief on the basis of passing off. Special Effects argued that L’Oréal’s unsuccessful opposition to the application for ‘SPECIAL EFFECTS’ precluded it from challenging validity on the grounds which had been relied on in the opposition proceedings.

The first instance decision was decided in Special Effects’ favour: cause of action estoppel and/or issue estoppel applied to prevent both the Defendants from raising in court proceedings arguments which had failed in opposition proceedings. The Defendants appealed.

Decision

1. Cause of action estoppel

The CoA identified that the cause of action in the proceedings before it was Special Effects’ allegation of infringement and the Defendants’ defence and counterclaim on the basis of invalidity and passing off. However, regarding the opposition proceedings, the Court thought it an “inappropriate and artificial use of language” to describe an applicant for registration as having a ‘cause of action’ for registration. Likewise, it held that an opponent does not have a ‘cause of action’ for preventing the registration applied for. Cause of action estoppel did not therefore apply in this case.

2. Issue estoppel

The Court reviewed a number of recent Australian authorities on this point, and also considered s72(5) of the Patents Act 1977, which it held did not carry weight in the context of trade marks. The Court decided that the co-existence of sections 38 and 47 of the Trade Marks Act 1994 (which provide for opposition to an application and for a declaration of invalidity against a registration) meant that opposition proceedings are not inherently final. The fact that invalidity proceedings could subsequently successfully be brought under s.47 by the same or a third party, leading to revocation of the mark, meant that a decision to reject an opposition did not have the necessary degree of finality to be capable of being the basis of an issue estoppel.

3. Abuse of Process

The Court held that it was not an abuse of process for the Defendants to bring a counterclaim based on the grounds of invalidity on which they relied in opposition proceedings. Neither was it an abuse for them to rely on the prior use which it had cited in opposition as a basis for a passing off claim. The reasons for this were the preliminary nature of opposition proceedings, the manner in which they are usually conducted, and Lord Bingham’s comments in Johnson v Gore Wood [2002] 2 AC 1, at 31 (which included a statement that it would be rare to find abuse of process without “unjust harassment of a party”). Further, if the legislation provides (as the CoA found it does) for a party to seek a declaration of invalidity, having failed in opposition proceedings, there would have to be unusual circumstances to find abuse by a party availing himself of the right provided by that legislation.

4. Privity

Although it was not necessary for the CoA to decide this point, the judgment also commented on the issue of privity. L’Oréal SA holds the trade marks, and is therefore the relevant entity on an opposition; L’Oréal (UK) Limited uses the marks, and is therefore the relevant entity against which to bring infringement proceedings. The Court took the view that if any estoppel constraint applied to the first, it might well be the case that it would also apply to the second in the circumstances of the case.

The appeal was allowed, and the first instance order set aside.

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