Arsenal v Reed - The End

15 July 2003

Jennifer Bryant

The long-awaited Court of Appeal decision in Arsenal Football Club plc v Matthew Reed has finally been delivered. However, those who were hoping for certainty in what has become a fraught area of trade marks law will be disappointed, not least of all because of a conflicting House of Lords judgment, R v Johnstone, handed down the day after the Arsenal decision.

The brief facts of the Arsenal case are as follows. Arsenal owned UK trade mark registrations for “ARSENAL”, “ARSENAL GUNNERS”, a cannon device and a crest device (the “Arsenal Marks”). Mr Reed had been selling football memorabilia depicting the Arsenal Marks from stalls near Arsenal’s ground at Highbury (at which notices stating that the products were not official were prominently displayed) for around 30 years. Arsenal sued for trade mark infringement and passing off.

Arsenal lost on passing off (essentially because they had not submitted any evidence of confusion). Mr Reed’s defence to the claim for trade mark infringement was that his use of the Arsenal Marks did not amount to “trade mark use”, or use indicating trade origin. The Trade Marks Act 1938 required trade mark use, but the Trade Marks Act 1994 (“TMA”), which was based on Directive 89/104/EEC (the “Directive”), does not refer to the concept. English judges have therefore felt a lacuna in the law and several cases have considered whether trade mark use is necessary under the TMA, and come to the conclusion that it was not. There is a clear tension in balancing the interests of trade mark owners, who wish to have the widest possible protection for their brands, and those of other parties, who would wish to be able to use the marks in certain circumstances. Exceptions to trade mark infringement, such as use to describe characteristics of the product to which they are applied, are given in sections 11 and 12 TMA, but it could be argued that certain uses fall through the gaps – they may not be clearly infringing uses, but neither do they fall squarely within the statutory defences.

Laddie J, who heard the Arsenal case in the High Court, was not comfortable with the idea that any use of a trade mark infringed unless it fell into sections 11 or 12 TMA. Mr Reed’s use did not fall squarely within the exceptions, but Laddie J felt it unfair to hold that he infringed. He therefore made a reference to the ECJ hoping to clarify the matter once and for all, asking: “… does the third party have a defence to infringement on the ground that the use complained of does not indicate trade origin …?”, i.e. whether trade mark was use necessary for infringement of a trade mark under the Directive.

The ECJ, unfortunately, did not answer the referred question directly, so that its words had to be interpreted if an answer to the question was to be distilled. Laddie J considered that the ECJ had said that trade mark use was necessary in order to infringe a trade mark. He also found that the ECJ had made findings of fact which were inconsistent with those which he had made at trial; since it did not have the right to do that, he could ignore those findings and the consequent conclusion reached by the ECJ, and apply the guidance on the law, as he saw it, to the facts established at trial. He found no infringement.

Arsenal appealed, and the Court of Appeal overturned Laddie J’s decision. The judgment, given by Aldous LJ, considers the ECJ’s decision in depth. The Court of Appeal agreed that the ECJ cannot make findings of fact, and therefore that Laddie J was entitled to ignore the conclusions reached by the ECJ insofar as they were based on findings of fact inconsistent with his own. However, the Court of Appeal held that the findings of fact reached by the ECJ were not, in fact, inconsistent with those reached by Laddie J. Laddie J had held that there was no trade mark use of the Arsenal Marks; they

“would be perceived as a badge of … affiliation to those to whom they are directed. They would not be perceived as indicating trade origin”.

The ECJ had held that the use of the Arsenal Marks was “such as to create the impression that there is a material link in the course of trade” between the goods and Arsenal, and found that

“there is a clear possibility in the present case that some consumers, in particular if they come across the goods after they have been sold by Mr Reed and taken away from the stall where the notice appears, may interpret the sign as designating Arsenal FC as the undertaking of origin of the goods”.

The key to reconciling these apparently differing positions lies in an interpretation of the ECJ’s decision which Laddie had not considered. The ECJ talks of the essential function of the trade mark being to guarantee origin; it

“must offer a guarantee that all the goods or services bearing it have been manufactured or supplied under the control of a single undertaking which is responsible for their quality. … For that guarantee of origin … to be ensured, the proprietor must be protected against competitors wishing to take unfair advantage of … the trade mark by selling products illegally bearing it”.

The Directive grants the trade mark proprietor a right to stop identical use of his trade mark under Article (5)(1)(a), so as to ensure that his trade mark can fulfil its original function, and

“[t]he exercise of that right must …. be reserved to cases in which a third party’s use of the sign affects or is liable to affect the functions of the trade mark, in particular its essential function of guaranteeing to consumers the origin of the goods.”

It held that

“where a third party uses in the course of trade a sign which is identical to a validly registered trade mark on goods which are identical to those for which it is registered, the trade mark proprietor is entitled, in circumstances such as those in the present case, to rely on Article 5(1)(a) of the Directive to prevent that use”.

Feeling the need to squeeze this into the question he had asked, Laddie J took this to mean that trade mark use (use indicating origin) was needed in order to infringe. He had already held that there was no use indicating origin, and so found no infringement.

The Court of Appeal interpreted the ECJ’s words differently. They held that the ECJ had not in fact set out to answer the question posed by Laddie, as it was not trade mark use which was the relevant consideration. Instead, the test was whether the use of the sign was likely to affect or jeopardise the guarantee of origin, which is an essential function of the trade mark. This will depend on the facts of each case (meaning that there will always be an element of uncertainty until a case is tested) and here, it was decided that the use of the Arsenal Marks was such as to create an impression of a trade link between Arsenal and the goods. Whether or not the signs were perceived as badges of affiliation was entirely irrelevant to the issue of whether the use affected the marks’ function as a guarantee of origin, and Laddie J had not looked at this issue as widely as he ought to have. The use of the Arsenal Marks on the goods in question was held to jeopardise the ability of the trade marks to guarantee origin. Linked to this is the concept that indiscriminate usage of the trade marks will diminish the ability of the marks to distinguish. This is good news for trade mark owners, since their protection has essentially broadened; someone using the mark has no other defence than those appearing in the TMA. It would seem therefore that we have reverted back to the line of thinking of those cases which preceded the Arsenal first instance decision, such as British Sugar plc v James Robertson & Sons Limited and Philips Electronics NV v Remington Consumer Products Limited, such that any use of a trade mark will infringe unless it falls squarely within the exceptions of s11 and 12. The potential lacuna which Laddie J thought he had spotted therefore appears to have gone unremedied.

Although they did not consider it relevant, the Court of Appeal also overturned Laddie J’s finding of fact that Mr Reed’s use was not trade mark use. Arsenal submitted evidence from staff working in its own shops as well as in those of other top football clubs which showed that a small number of dissatisfied purchasers of unofficial goods had returned them to the official shops, on the basis that since they bore the clubs’ marks, they must have been produced by the clubs. Aldous LJ propounded that “it is reasonable to conclude that the instances [of confusion] were just the tip of the iceberg” and that accordingly, whilst many people considered the marks to be badges of allegiance, many people also considered them to be an indicator of origin. Further, Aldous LJ made reference to the fact that Mr Reed evidently took pains to inform his customers that his goods were unofficial, and stated that this must be because he believed that without such an explanation, customers would believe the goods to be official, meaning that Mr Reed had effectively admitted that “Arsenal” denotes origin. There was trade mark use.

The factual subtleties of trade mark cases are such that it is difficult to come to a conclusion which will be appropriate in every situation. This is exemplified by R v Johnstone, in which the House of Lords came to the view that trade mark use was necessary for trade mark infringement and did not consider the wider test of jeopardising the guarantee function. This case concerned the criminal provisions of the TMA in respect of bootleg CDs, and specifically whether the application of the artists’ names (simply as words rather than in any kind of logo format) to the CDs and the accompanying paperwork amounted to trade mark infringement. One question was whether the test for criminal infringement was the same as the test for civil infringement, and if so, whether trade mark use was required. The House of Lords considered the same provisions of the ECJ judgment as the Court of Appeal had considered, and came to the conclusion that trade mark use (“use of a mark likely to be taken as an indication of trade origin”) was required. Whether the use was trade mark use or not would depend on “how the use of the sign would be perceived by the average customer of the type of goods in question”, which in turn would depend upon such factors as the prominence given to the sign, what other marks were used and so on.

The aspects of the case relevant to this discussion consider the descriptiveness of the marks as against their use so as to indicate origin. There was a clear possibility that the artists’ names could have been used both descriptively and so as to indicate origin. The Arsenal case however was more subtle than that, since the use of the Arsenal Marks did not clearly fall one side of the line or the other. It may therefore be possible to distinguish the two cases based on the fact that the courts, try as they might to generalise, will only ever really be able to consider the precise facts before them. The House of Lords’ task was easier in that respect than the Court of Appeal’s, particularly as they did not have to decide on the precise status of the marks, but were merely looking at whether the defendant should have been allowed to run a defence of non-trade mark use (and not whether such a defence would have succeeded). They therefore did not need to analyse the ECJ’s decision in as much depth as the Court of Appeal did.

The law therefore has been left in a rather unclear state. It is conceivable that the House of Lords decision will be distinguished in future cases where there is not obvious descriptive use, so that the guarantee of origin test will apply, but it is disappointing that the Court of Appeal and the House of Lords did not communicate with each other in this matter, and unsatisfactory that the ECJ’s decision was not sufficiently clearly worded for there to be only one interpretation of it. We must now hope that Mr Reed’s appeal to the House of Lords clarifies the position.

Also published in the July 2003 issue of WIPR.