Judgments - Scandecor Developments AB v. Scandecor Marketing AV and Others and One Other Action

(back to preceding text)

    30. Two points are to be noted here. First, under this definition the source denoted by a mark need not always be the proprietor of the mark. The source might be a person using the mark with the consent of the proprietor: a registered user. This was a further, and important, development in the concept of a trade mark and what it denotes.

    31. Second, as to other licences, much legal learning grew up around the scope of the phrase 'a connection in the course of trade'. The courts grappled with the conundrum of identifying what were the essential ingredients of a connection 'in the course of trade' between the proprietor of a mark and a licensee's goods. The position was not satisfactory. It is summarised succinctly in Kerly's Law of Trade Marks and Trade Names, 13th ed (2001) page 336:

    'The cases were never entirely consistent, and it was hard to discern hard and fast rules as to the connection in the course of trade which was required between the proprietor of a mark and the goods of his licensee in order to avoid the mark becoming deceptive.'

    32. However, the generally accepted view was that a bare licence, under which the licensor has no control over the quality of the goods sold by the licensee, would not suffice. The passage from the judgment of Whitford J in McGREGOR Trade Mark [1979] RPC 36, 53, which I have quoted above, reflects this view. Further, section 28(6) of the 1938 Act outlawed 'trafficking' in a trade mark. In the 'Holly Hobbie' case this prohibition was held to catch character merchandising: see In re American Greetings Corporation's Application [1984] 1 WLR 189. Lord Bridge of Harwich, at page 192, described this result as a 'complete anachronism'. Character merchandising deceives nobody.

Trade Marks Act 1994

    33. The Trade Marks Act 1994 has brought about substantial changes in the registered trade mark law of the United Kingdom. The primary purpose of the Act, as set out in its long title, is 'to make new provision for registered trade marks', implementing the Trade Marks Directive. Among other changes the Act has swept away the remaining restrictions on assignment and licensing. Section 1(1) defines a trade mark in the following terms:

    'a "trade 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.'

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.

    34. Under section 24 of the 1994 Act a registered trade mark may be assigned in the same way as other personal property and either with the goodwill of a business or independently. The obligation under the 1938 Act to advertise an assignment of a trade mark when the assignment was unaccompanied by the goodwill of the assignor's business has been abolished. This requirement was thought to be of little practical effect as a safeguard to the public. Now it is up to the assignee of the mark, if he does not also acquire the assignor's business, to make with the assignor whatever arrangements may be necessary to ensure that the mark will continue to be indicative exclusively of one source, viz, after the assignment, the assignee. That is now the responsibility of the assignee, because the abolition of the statutory prohibition on assignment has not altered the fundamental principle of trade mark law that a trade mark which ceases to be distinctive is no longer fulfilling the essential functions of a trade mark and therefore, if registered, should not remain on the register.

    35. As to licences, sections 28 to 31 make provision for the grant of licences, either exclusive or non-exclusive, general or limited. Licences are registrable transactions. This wide power to grant licences is drawn directly from article 8(1) of the Trade Marks Directive. The Directive provides simply that a trade mark 'may be licensed for some or all of the goods or services for which it is registered'.

Bare licences

    36. Against this background I turn to the question whether the use of a mark by a licensee under a bare licence is objectionable as inherently likely to deceive. I shall confine my observations to exclusive licences. What is the message which a trade mark conveys today? What does a trade mark denote? It denotes that goods bearing the mark come from one business source: the goods of one undertaking, in the words of section 1(1) of the 1994 Act. That much is clear. But what does the mark denote about that source? Must the source be the proprietor of the trade mark? On this the Act is silent. But so to read the Act would accord ill with the statutory power to grant licences. And this interpretation would turn the clock the back to 1905. Even under the 1938 Act the source was not so confined. Under the 1938 Act the source could be a registered user.

    37. Or is the business source the person who is for the time being entitled to use the mark, whether as proprietor or exclusive licensee? I prefer this view. The commercial background has changed greatly since 1938, and even more so since 1905. The present position was well summarised in a paper, Reform of Trade Marks Law, issued by the Department of Trade and Industry in September 1990 (Cm 1203). Paragraph 4.36 reads:

    'Whatever may have been the position in 1938, the public is now accustomed to goods or services being supplied under licence from the trade mark owner. For example there has been the growth of franchise operations. The potential for deception is therefore less. Moreover the strongest guarantee that a proprietor will maintain control over the way in which his trade mark is used is that it is in his own interest to do so. A trade mark is a valuable piece of property, in terms both of its power to attract customers and of the royalties which can be demanded from licensees. Its value is however ultimately dependent on its reputation with the public. If the proprietor tolerates uncontrolled use of his trade mark the value of this property will be diminished. In an extreme case the registration of the mark may become liable to be revoked if it has become deceptive or generic through such use. It is however the responsibility of the proprietor, not the Registrar, to prevent the devaluation of his own property.'

    38. Thus, the wider interpretation, according to which the source may be either the proprietor or an exclusive licensee, would not be at variance with customers' perceptions. Customers are well used to the practice of licensing of trade marks. When they see goods to which a mark has been affixed, they understand that the goods have been produced either by the owner of the mark or by someone else acting with his consent.

    39. Nor does the wider interpretation undermine the protection which a trade mark is intended to afford customers. For their quality assurance customers rely on the self-interest of the owner. 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.

    40. Some of those who have spent their professional lives under the regime of the 1938 Act, may consider that this view of the matter is distressingly heretical. They would be mistaken. It is no more than the consequence flowing from the 1994 Act having freed the law of registered trade marks from the straitjacket imposed by the statutory definitions of a trade mark in the 1905 Act and then the 1938 Act. Freed from that constraint, the law can now catch up with business practice.

    41. Accordingly, I cannot accept Mr Young's 'golden thread' submission. From 1984 Scandecor Marketing and Scandecor Ltd were selling their own goods under the Scandecor marks. They were doing so, until 1994 when it was terminated, under a bare licence. This does not of itself mean that from 1984 onwards these marks had become liable to mislead.

Practical implications

    42. Before proceeding further I must mention some of the practical implications of the view expressed above, starting with the position which exists while an exclusive licence is in operation. The mere fact that, during this period, some customers may associate the trade mark with the exclusive licensee does not mean that it has become deceptive or that it lacks distinctiveness. During the licence period the goods come from only one source, namely the licensee, and the mark is distinctive of that source.

    43. The position after the licence has ended is different. Then the right to use the mark reverts to the proprietor of the mark. He can then apply the mark to his goods. The position is, indeed, comparable to the position which arises when a trade mark is assigned without any assignment of the assignor's business. Whether this change in the person entitled to use the mark gives rise to deception will depend primarily on what then happens to the erstwhile licensee's business. If the former licensee ceases to carry on the business in which he used the mark, no question of deception due to lack of distinctiveness will normally arise. Henceforward the mark will be distinctive of one source, namely the proprietor of the mark. This will be a different source from the source during the licence period, but this change in the source is not itself inherently deceptive. Such a change occurs whenever a trade mark changes hands.

    44. What happens if, after the licence has ended, the former licensee continues to carry on the same business as he did during the licence period? Suppose he continues to manufacture the same goods and deal with the same customers, but without using the licensed mark. In such a case there may be scope for confusion and deception. Any customers who were aware of the identity of the source during the licence period may continue to associate goods bearing the mark with the former licensee and his continuing business. When that is the position, the mark may no longer be distinctive of one business source. Whether that is so will depend on the facts of the case.

Transitional provisions

    45. A complicating feature of the present case is that for the most part the use of the Scandecor marks by the licensees, Scandecor Marketing and Scandecor Ltd, occurred while the Trade Marks Act 1938 was still in force. The 1994 Act came into force on 31 October 1994. Paragraphs 8 and 9 in Schedule 3 to the 1994 Act provide that sections 24 and 28 of the 1994 Act, concerning assignments and licences, apply only to transactions occurring and licences granted after the commencement of the 1994 Act. The old law continues to apply in relation to transactions occurring and licences granted before the commencement of the 1994 Act.

    46. This means, for instance, that the validity of the assignment of the Scandecor word mark by Scandecor Ltd to Scandecor International in 1978 is to be decided by reference to the provisions of the 1938 Act. Nothing turns on this point, however, so far as this particular assignment is concerned, because Scandecor Ltd does not seek to challenge the validity of this assignment.

    47. Less clear cut is the position regarding the licence granted in 1984 by Scandecor International to Scandecor Marketing to use the Scandecor mark on its own products, such as calendars. Under the 1938 Act, the question which arose was whether this licence was sufficient to constitute a connection in the course of trade between Scandecor International and the goods of Scandecor Marketing and Scandecor Ltd, within the meaning of section 68 of that Act. Scandecor International neither exercised nor did it have any right to exercise any control over these products. Lloyd J decided that, despite this, the connection was sufficient to satisfy the statutory requirement. I agree. The parties continued to regard themselves as part of a loosely knit group, even though the corporate relationship between the companies had ended. There was continuing consultation and collaboration both ways about posters and calendars and other items. English law has long recognised that when applying the phrase 'a connection in the course of trade' the court looks at the business realities and does not confine itself to a narrow legalistic view: see the authorities referred to by Dillon J in Revlon Inc v Cripps & Lee Ltd [1980] FSR 88, 95-97.

    48. In the end, however, I do not think this matters. Revocation of the two marks is sought under section 46(1)(d) of the 1994 Act. Section 46(1) provides:

    'The registration of a trade mark may be revoked on any of the following grounds...(d) that, in consequence of the use made of it by the proprietor or with his consent in relation to the goods or services for which it is registered, it is liable to mislead the public, particularly as the nature, quality or geographical origin of those goods or services.'

    49. The claim in these proceedings is that, in consequence of the use made of the marks by Scandecor Marketing and Scandecor Ltd with the consent of Scandecor International, the marks are 'liable to mislead the public'. That is essentially a question of fact. That question of fact must be answered having regard to matters as they now are, not as they were at some time in the past. In deciding this issue of fact the court must have due regard, as I have been at pains to emphasise, to the message which a trade mark conveys. But since the question is whether the marks are currently liable to mislead, the message which is relevant is the message which use of the marks conveys today, not the message it would have conveyed to the public in the past.

Questions for the European Court of Justice

    50. However, before applying the views expressed above to the facts of this case an authoritative ruling will have to be sought from the European Court of Justice. The views I have expressed represent a significant change in English law on a point of considerable practical importance, and on which there is no Community jurisprudence. Needless to say, it is essential that the same view is taken on this point throughout the European Union. As already noted, the relevant provisions of the 1994 Act are drawn directly from the Trade Marks Directive. Accordingly, the House should refer to the European Court of Justice the question whether a trade mark is to be regarded as liable to mislead the public within the meaning of article 12(2)(b) if the origin of the goods denoted by the mark is a bare exclusive licensee.

    51. The Court of Justice should also be asked to give a ruling on three further questions. The first concerns the meaning of 'undertaking' in article 2 of the Directive. I should explain how this point arises. After 1984 Scandecor Marketing and Scandecor Ltd acted in two capacities. They continued to distribute Scandecor International's posters and other goods. They were also licensed to apply the Scandecor marks to their own calendars and cards and other items. Thus Scandecor Marketing and Scandecor Ltd were selling, under the same brand name and at the same time, products which had been produced by them (calendars and cards) and closely allied products which had been produced by Scandecor International (pictorial posters). This gives rise to no difficulty if throughout this period all these companies formed part of one 'undertaking'. If they did not, the position may be very different.

    52. What is the criterion to be applied in deciding whether, for trade mark purposes, Mr Huldtgren's companies and Mr Hjert's companies were still part of a single undertaking? Undoubtedly these companies were one undertaking at the outset in the 1970s. But was that still the position after 1984? Neither the 1994 Act nor the Directive elaborate on what is meant by undertaking. Section 1(1) of the Act simply reproduces the language of article 2 of the Trade Marks Directive. For competition law purposes undertaking is taken to mean an economic unit. The unit may consist of several persons, natural or legal. Typically this is so where several persons have no real freedom to act independently in the relevant respects: see, for instance Viho Europe BV v Commission of the European Communities [1996] ECR I-5457, 5489, paragraph 50, and Centrafarm BV v Winthrop BV [1974] ECR 1183, 1198, paragraph 32. Whether this concept can be transferred and applied directly to trade mark law may be a matter open to discussion. Certainly, in the context of article 2 and consistently with the purpose of trade marks, the essential feature distinguishing one undertaking from another would seem to be that normally each undertaking can be expected to set its own standards of quality for its goods. Thus, if two or more individuals or companies are trading separately and producing their own goods but there are long-term contractual links between them, an important consideration in deciding whether they form one undertaking for the purposes of article 2 is the extent to which they collaborate, or act in concert, in matters affecting the quality of their goods.

    53. In the present case the parties worked to similar if unwritten standards. As the Judge commented, this is not surprising. They were using the same mark, so that each would be concerned about the quality of the other's products. There was continuing consultation and collaboration both ways about posters and calendars and other items. They bought each other's products. They maintained a policy of 'one face to the outside world'. This could hardly have been done if different companies were adopting different standards. They were not in competition with each other. But, against this, the Judge found that Scandecor International did not exercise any control over Scandecor Ltd's own products. It is not appropriate at this stage to pursue the question whether the distinction between control and acting in concert is material for present purposes. The next step must be to obtain guidance from the Court of Justice on what are the criteria to be applied in determining whether a trading relationship comprises a single undertaking for the purposes of the Trade Marks Directive.

    54. A further question which must also be referred to the Court of Justice concerns the 'own name' defence. This is one of the defences on which Scandecor Marketing and Scandecor Ltd rely in answer to the trade mark infringement claim. The Judge upheld this defence. Section 11(2)(a) of the 1994 Act provides that a registered trade mark is not infringed by the use by a person of his own name. This is subject to the proviso that the use must be in accordance with honest practices in industrial or commercial matters. Section 11(2)(a) reproduces article 6(1)(a) of the Directive. The invocation of this provision by Scandecor Marketing and Scandecor Ltd raises a much-discussed question: is a company a person for the purpose of section 11(2)(a) of the Act? I think the better view is that a company can claim the protection of this provision. I recognise that the name of an individual is part of his overall personality. His name has an importance for him that is not present in the case of a company. But I do not consider this is a sufficient reason for cutting down the scope of this provision, the more especially as the added proviso is adequate to ensure that companies cannot misuse this limitation on the rights of the owners of trade marks. But this cannot be regarded as acte clair.

    55. My noble and learned friend Lord Scott of Foscote has raised another question. Section 46(1) provides that the registration of a trade mark 'may' be revoked on certain grounds. This implements the provision in article 12 of the Directive that a trade mark shall be 'liable' to revocation in specified circumstances. The question which arises is whether, when those circumstances exist, the court must revoke the trade mark, that is, that the court retains no discretion.

    56. For completeness I mention a contention of Mr Rosen QC based on article 10(3) of the Directive. Article 10 makes provision regarding the non-use of trade marks. Article 10(3) provides that 'Use of the trade mark with the consent of the proprietor … shall be deemed to constitute use by the proprietor'. Mr Rosen submitted that the proper interpretation of this article is that use with consent constitutes deemed use by the proprietor for all purposes. Accordingly, the use of the marks by Scandecor Marketing and Scandecor Ltd on their goods was not likely to 'mislead the public'. Their use is deemed to be use by the proprietor of the marks, Scandecor International. The 1994 Act should be construed accordingly.

    57. I cannot accept this. I agree with Lloyd J that the context of article 10(3) makes clear that article 10(3) is directed at the non-use provisions of articles 10 and 11. It is not applicable to the revocation provisions in article 12(2)(b). Those are the provisions carried into section 46(1)(d) of the Act. The Act incorporates the effect of article 10(3) into section 46(1)(a). A mark may be revoked if, for a period of five years, it has not been put to genuine use 'by the proprietor or with his consent'. I consider this is acte clair. The Court of Justice should not be burdened with this further point. That court is burdened enough without being asked questions to which the answer is obvious.

    58. Accordingly, the further conduct of this appeal should be adjourned while the Court of Justice is asked to give rulings on the questions I have outlined.

LORD STEYN

My Lords,

    59. I have had the privilege of reading in draft the speech of my noble and learned friend Lord Nicholls of Birkenhead. For the reasons he gives I would also make the order which he proposes.

LORD HOBHOUSE OF WOODBOROUGH

My Lords,

    60. For the reasons given by my noble and learned friend Lord Nicholls, I agree with the order which he has proposed.

LORD MILLETT

My Lords,

    61. I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Nicholls of Birkenhead. I agree with him that the questions which he identifies are not acte clair and should be referred to the Court of Justice.

    62. By doing so I should not be taken as necessarily accepting that the answers to these questions will be determinative of the appeal or necessary to its disposal. The appeal raises difficult questions of national as well as Community law, and even more difficult questions in the application of the law to an unusual set of facts.

    63. With this reservation I agree with the order which my Lord proposes.

LORD SCOTT OF FOSCOTE

    My Lords,

    64. The trademark issues before your Lordships on this appeal arise out of the terms of a divorce settlement entered into not between the parties to a marriage but between business partners who, having fallen into disagreement, decided to split between them the business empire they had together created. They entered into what, objectively viewed, were eminently sensible arrangements for the split. But they did not foresee, and so did not provide for, a particular eventuality that has led to this litigation and to the appeal to your Lordships House. The eventuality, the unforeseen event, was the bankruptcy in 1994 of Scandecor International AB. I have had the advantage of reading in draft the opinion of my noble and learned friend, Lord Nicholls of Birkenhead, and gratefully adopt both his summary of the facts and his illuminating survey of the history and development of the relevant trade mark law. The law is, today, to be found in the provisions of the Trade Marks Act 1994, enacted in order to implement Council Directive No. 89/104/EEC of 21 December 1988. The purpose of the Directive was to approximate the laws of the Member states relating to trade marks. The old law is not, however, entirely spent. The 3rd Schedule to the Act contains transitional provisions and paragraphs 8 and 9 are of relevance to some of the issues arising in this case.

    65. As to the issues, the position seems to me to be as follows:

                  1. the appellant, Scandecor Development AB (Development), is, or was prior to the order made by the Court of Appeal on 23 July 1988, the registered proprietor of the word mark, 'Scandecor', registered on 23 April 1971, and the logo mark incorporating the word 'Scandecor' registered on 27 August 1976.

                  2. Development, the successor in title of International as registered proprietor of these trade marks, "has exclusive rights in the trade mark[s] which are infringed by use of the trade mark[s] in the United Kingdom without [its] consent" (s.9(1) of the 1994 Act, and see Art. 5.1 of the Directive).

                  3. Over the period 1979 to 1997 one or other, or both, of the respondents, Scandecor Marketing AB (Marketing) and Scandecor Limited (Limited), was the distributor in the United Kingdom of International's products. These products were, of course, marketed and sold as Scandecor products. In addition Marketing and/or Limited was the licensee of the two Scandecor marks for the purpose of marketing and selling in the United Kingdom products produced by and acquired from sources other than International.

                  4. In using the marks for the purpose of carrying on its business over the period mentioned, Limited attracted to itself business goodwill, in the sense that its retailer customers associated the name Scandecor with Limited and were satisfied with the quality of Scandecor goods and services they were receiving from Limited.

                  5. After the revocation in 1997 of Limited's licence to use the two marks (i) Limited continued to carry on business as Scandecor and (ii) the appellant Panther + Scandecor Ltd. (Panther), as the new licensee of the two marks, commenced to carry on a competing business and used the marks for that purpose.

                  6. The use by Limited of the style 'Scandecor' for its business purposes is a use which infringes the word mark 'Scandecor' (s.9(1) of the 1994 Act), and, perhaps, the logo mark as well, unless Limited can bring itself within section 11(2) of the 1994 Act. Section 11(2) provides, so far as relevant, as follows:

                   "(2) A registered trade mark is not infringed by -

 
continue previous