Special Effects Limited v (1) L'Oréal SA (2) L'Oreal (UK) Limited

26 April 2007

Can a defendant in infringement proceedings be prevented from counterclaiming that a trade mark registration is invalid if he has unsuccessfully relied on the same arguments in an earlier trade mark opposition? This question was considered by the UK Court of Appeal in its judgment in the case of Special Effects Limited v (1) L'Oréal SA (2) L'Oreal (UK) Limited on 12 January 2007. Due to the potential implications of the judgment, the International Trademark Association ("INTA") intervened and the Institute of Trade Mark Attorneys ("ITMA") made written submissions to the Court.

L'Oréal SA ("L'Oréal") had 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 in the UK. L'Oréal relied on grounds of non-distinctiveness, its prior unregistered rights in 'FX' and 'SPECIAL FX' in the UK in relation to identical goods, and its earlier UK registered trade marks for 'FX' and 'FX STUDIO LINE'. The Hearing Officer rejected the opposition and the mark was registered in the UK.

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 UK infringement proceedings against L'Oreal for infringing its 'SPECIAL EFFECTS' UK registration. L'Oreal counterclaimed for a declaration of invalidity on the same grounds it had relied on in its UK opposition as well as claiming that the use of the registered trade mark amounted to passing off. Special Effects argued that L'Oréal's unsuccessful UK opposition to the application for 'SPECIAL EFFECTS' precluded it from challenging validity on the same grounds which had been relied on in those opposition proceedings.

At first instance the Court decided in Special Effects' favour that L'Oreal were prevented from raising in court proceedings the same arguments which had failed in opposition proceedings. L'Oreal appealed.

The Court of Appeal's decision considered the English law concepts of (i) cause of action estoppel (ii) Issue estoppel and (iii) Abuse of Process. It decided that L'Oreal was not estopped from running these arguments for a number of reasons in particular because a decision to grant a UK registration did not amount to a final decision on the issues as the validity of trade marks can be subsequently reviewed by the Court.

The decision is a relief to many UK practitioners as there was concern that if the first instance decision was upheld UK trade mark opposition proceedings would become overly expensive as the parties felt they had only the one opportunity to succeed.