In a recent decision of the House of Lords - in the trade mark infringement/revocation and passing off action, Scandecor Development AB (Appellants) -v- Scandecor Marketing AB and others (Respondents) - the Lords expressed views regarding the definition and essential function of a trade mark today under the Trade Marks Act 1994 ("the 1994 Act") which, in its own words, "represent a significant change in English law on a point of considerable practical importance, and on which there is no Community jurisprudence."
Before applying its views to the rather complex facts of the case, the House of Lords has sought an authoritative ruling from the European Court of Justice ("ECJ") on four questions.
This article focuses on two of the questions referred to the ECJ and comments on the views expressed by the House of Lords and the potential consequences flowing from them. To put the questions in context, the factual background to the litigation is summarised below.
Facts - Summary
The facts of the case are complex but, in essence, the proceedings arose out of the break up of the "Scandecor" group of companies - (Scandecor being an invented word derived from "Scandinavian décor"). Scandecor International AB ("International") owned two UK trade marks, a word mark, "Scandecor", and related logo mark both registered in Class 16 in respect of items such as posters, calendars and cards.
Scandecor Marketing AB ("Marketing") was International's exclusive distributor of products, mainly posters, in the UK and elsewhere. In addition, Marketing was exclusively licensed by International to use the Scandecor mark on its own pictorially based products such as calendars and cards. In the UK, Marketing distributed products through its local subsidiary, Scandecor Limited ("Limited").
When International became insolvent, its assets - including the trade marks - were bought by Scandecor Development AB ("Development"). The insolvency terminated Marketing's distribution and licensing agreement. Nevertheless, Marketing and Limited continued to use the marks in the UK. Development therefore started proceedings for trade mark infringement and passing off against Marketing and Limited for their continued use of the marks in the UK.
Questions 1 and 3 referred to the ECJ
Question 1 - Effect of a Bare Exclusive Licence
"Is a trade mark to be regarded as liable to mislead the public within the meaning of Article 12(2)(b) [of the Trade Marks Directive1] if the origin of the goods denoted by the mark is a bare exclusive licensee?"
Marketing and Limited argued that, at least as regards products which were not sourced from International/ Development, the marks had become deceptive because the registered proprietor, Development (and its predecessor, International) were not the origin of the goods and did not have or exercise quality control over them.
Marketing and Limited submitted further that, in accordance with the "golden thread" running through the law relating to registered trade marks - namely that if a mark belongs to X but with X's consent it is used in relation to the goods of Y, over whom X has no quality control, the mark has ceased to be distinctive - a bare licence could not be countenanced. International had therefore forfeited the goodwill in the mark.
Bare licences under the 1994 Act
The House of Lords reviewed the common law and early Trade Marks Acts from the 19th century onwards.
It emphasised that, among other substantial changes, the 1994 Act "has swept away the remaining restrictions on assignment and licensing". A trade mark is defined at Section 1(1):
"A Atrade mark" means any sign capable of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings".
The House of Lords stated that inherent in this definition is the notion that distinctiveness as to business source ("the goods of one undertaking") is the essential function of a trade mark today.
The Act is, however, silent as to what the mark denotes about that source. If the source is interpreted as being the proprietor of the trade mark, this appears to be inconsistent with the statutory power to grant exclusive or non-exclusive licences. The House of Lords preferred the view that the "business source" is the person who is for the time being entitled to use the mark, whether as proprietor or exclusive licensee. This was borne out by the manner in which customers view the matter. In the opinion of their Lordships, customers rely on the self-interest of the owner for their quality assurance.
"They assume that if a licence has been granted the owner can be expected to have chosen a suitable licensee and imposed suitable terms. They also assume that during the currency of any licence the licensee, as well as the owner, is likely to have an interest in maintaining the value of the brand name. Customers are not to be taken to rely on the protection supposedly afforded by a legal requirement that the proprietor must always retain and exercise an inherently imprecise degree of control over the licensee's activities."
The House of Lords concluded therefore that it could not accept the Agolden thread" submission of the Respondents. The fact that Marketing and Limited were selling their own goods under the Scandecor marks under a bare licence did not of itself mean that the Scandecor marks had become liable to mislead.
Having decided that a bare licence is not necessarily liable to mislead the public, the House of Lords considered a number of practical implications arising from the exclusive nature of the licence between International and Marketing. It observed that the mere fact that customers may associate a trade mark with the exclusive licensee does not mean that the trade mark has become deceptive or lacks distinctiveness. "During the licence period the goods come from only one source, namely the licensee, and the mark is distinctive of that source."
The House of Lords stated that, after the licence has ended, the right to use the mark reverts to the proprietor of the mark who can then apply the mark to his goods. It was observed that whether the change in the person entitled to use the mark gives rise to deception will depend primarily on what happens to the former licensee's business. If the former licensee ceases to carry on the business in which it used the mark, there would normally be no question of deception. The position would be similar to that of an assignment. After termination, the mark would normally be distinctive of one source, namely the proprietor (and original licensor) of the mark.
What happens, however, when: (1) as a matter of fact, customers associate the mark with two sources (both licensor and licensee)2; or (2) after the licence has ended, the former licensee continues to carry on the same business as he did during the licence period? In relation to (2), the House of Lords recognised that in such a case customers may continue to associate goods bearing the trade mark with the former licensee and his continuing business rather than with the licensor. The mark may therefore no longer be distinctive of one business source.
In light of these observations, whatever the decision of the ECJ on whether or not a bare exclusive licence is inherently liable to mislead the public, it is essential when licensing third party use of trade marks, to seek to ensure that a case (2) type scenario does not result. If the licensee will not cease carrying on the same or a similar business on termination of the licence, it may be necessary to ensure that the licensee takes practical steps (by advertising, marking the product or otherwise) to ensure that its customers are aware that the proprietor and "business source" of the trade mark is the licensor. For the licensor, the potential consequences of failure to make adequate arrangements are grave - it could result in revocation of the trade mark and, potentially, in the licensor being prevented, under passing off, from using the mark in relation to its own goods.
Question 3 - Own name defence
"Is a company a person for the purpose of Article 6(1)(a) of the Trade Marks Directive?"
Section 11(2)(a) of the 1994 Act3 provides that a registered trade mark is not infringed by the use by a person of his own name. The House of Lords considered that a company should be able to claim the protection of this provision. The fact that a name has an importance for an individual that is not present in the case of a company was not, in its view, a sufficient reason for cutting down the scope of the provision. The proviso of use in accordance with honest practices in industrial or commercial matters was considered to be adequate to ensure that companies cannot misuse the defence.
As different European member states have adopted different approaches to the "own name" defence - for example in Germany it has been held to extend only to individuals and not to companies - an ECJ ruling on this matter is now overdue. There is a real possibility that the ECJ may rule that the own name defence does not extend to companies and that the approach adopted to date by the UK Courts4 may be overturned. Companies should be aware therefore and provide for the possibility that the own name defence to trade mark infringement may not be available to them following the ECJ ruling on this issue.
A ruling from the ECJ on the questions referred to it by the House or Lords should provide welcome guidance on issues which could have a considerable impact on trade mark licensing and branding. In particular, it is to be hoped that the ECJ (and/or the House of Lords when applying the ECJ ruling) will elaborate on the bare exclusive licence question to give guidance on the circumstances in which a licensed trade mark is liable to mislead the public. The decision on whether a company can benefit from the "own name" defence will also settle a point on which different European member states have adopted different approaches.
1 Council Directive No.89/104/EC of the 21st day of December 1988 to approximate the laws of the Member States relating to trade marks.
2 The High Court decision at first instance concluded that goodwill in the Scandecor name was shared between the parties and that therefore neither party could restrain the other from using the name by way of passing off.
3 Corresponding to Article 6(1)(a) of the Trade Marks Directive.
4 See e.g. Mercury Communications Limited -v- Mercury Interactive (UK) Ltd  F.S.R. 850