Kitfix Swallow Group Ltd v Great Gizmos Ltd [2007] EWHC 2668 (Ch)

[2007] EWHC 2668 (Ch)Case No HC07C00099
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 22/11/2007
Before
MR JUSTICE MANN
Between
KITFIX SWALLOW GROUP LIMITEDClaimant/GREAT GIZMOS LIMITEDDefendant/
MR. M. EDENBOROUGH (instructed by Howes Percival LLP) for Claimant.MR. N. SAUNDERS (instructed by Messrs. Bird & Bird) for Defendant.Hearing Hearing date: 5 th November 2007
JudgmentMr Justice Mann :Introduction
[1]This is an application for a stay of English trade mark infringement proceedings in which there is a counterclaim for revocation, in favour of proceedings which have been commenced in the Office for Harmonisation in the Internal Market (“OHIM”). While there is a certain amount of jurisprudence in the cases about the interaction between English patent proceedings and proceedings in the European Patent Office, I am told that there is, as yet, none about the particular institutional interaction that arises in this case.

Factual background

[2]The claimant in the present proceedings (“Kitfix”) is an English company and is the registered proprietor of a Community registered trade mark no 3850039 for the word mark “Sequin Art” registered as of 19th May 2004 for “Artistic materials, namely craft and hobby kits for making pictures”. It also claims to be entitled to the goodwill attached to manufacturing and selling craft and hobby kits under and by reference to the name “Sequin Art”. The defendant (“Great Gizmos”) is the English distributor of craft kits for making pictures out of different coloured sequins, and bearing the name “Sequin Art”. The manufacturer of the kit is 4M Industrial Development Limited (“4M”), a Hong Kong company.[3]On 19th December 2006 solicitors acting for Kitfix wrote to Great Gizmos complaining that the latter company was distributing its product and saying that the same was an infringement of the mark in suit and passing off. They were invited to give undertakings to cease dealing in the product and to withdraw the product from the market. On 8th January 2007 patent attorneys acting for Great Gizmos responded that the mark was entirely descriptive and non-distinctive for the goods in question and that the passing off claim was not accepted. Nevertheless, they proposed dialogue. On 17th January 2007 Kitfix issued a claim form seeking relief for trade mark infringement and passing off. Particulars of claim accompanied the claim form. A defence and counterclaim was served on 5th March 2007. Infringement and passing off were denied, and there was a counterclaim for a declaration that the mark was invalid. The invalidity claim was based on Articles 7(1)(b) and (c) of the Community Trade Mark Regulation (Council Regulation 40/94 – “the Regulation”) – it was said that the mark was devoid of any distinctive character and/or that it consisted exclusively of signs or indications which might serve in trade to designate kind and /or quality and/or intended purpose and/or other characteristics of the goods for which it is registered.[4]In due course, a Reply was served, and then not much happened until there was to be a case management conference. That was due to take place on 6th September 2007. However, shortly before then, on 28th August 2007, 4M commenced proceedings at OHIM for a declaration that the mark be declared invalid. As well as relying on heads (b) and (c) of Article 7(1), 4M also relies on heads (a), (d) and (g). That prompted Great Gizmos to apply for a stay of the English proceedings pending a decision in OHIM. The Master conducting the CMC made various directions but adjourned the question of a stay to be heard by a judge. Thus the matter comes before me. The timetable laid down for the English action, on the assumption that it continues, is such that a trial would take place in the window June/July/October 2008. The parties agree that the OHIM proceedings, so far as they continue, would be likely to generate a decision in or about January 2009. Thus there is likely to be a three to six month time difference between the dates in which each of the proceedings would generate a decision.[5]Although in the end the matter was not dealt with on the basis of agreed undertakings, Great Gizmos has not in fact traded in the allegedly infringing product since April 2007. Its total turnover to date in the product was in the region of £35,000.[6]The proceedings in OHIM have taken what to my eyes seems a slightly odd turn. As will appear below, there is a provision in the Regulation (Article 100) which, to some extent, deals with the question of concurrent proceedings in one or more national courts and/or OHIM. Where national court proceedings are started before OHIM proceedings, OHIM ought normally to stay its proceedings unless there are special circumstances justifying their continuation. Initially, OHIM seems to have applied that provision and stayed its proceedings. The English solicitors acting for Kitfix drew the situation to the attention of OHIM and on 19th October 2007 they were notified by OHIM that its proceedings had been stayed. However, on 26th October 2007 OHIM sent out a document headed “Correction of Errors” to the solicitors acting for the two parties before it. It said:
“Reference is made to the Office’s communication of 19/10/2007. Indeed it was an error to grant the suspension request as the request for invalidity is based on Art.7 of the CTM regulation and the Office is not bound to await the outcome of pending decision on similar cases at national level. Thus the proceedings have to be resumed….”
It is not known what it was that prompted the change of mind. In particular, it is not known whether or not it was prompted by a communication from 4M. If it was, then that communication was not shared with Kitfix. The solicitors for Kitfix have written challenging that decision and inviting reconsideration. By the time of the hearing before me, no response had been received. Thus the proceedings have to be resumed….”

The application before me

[7]Thus at the date of the hearing before me there were two live sets of proceedings – these proceedings and the OHIM proceedings. The principal grounds on which the defendant seeks a stay of these proceedings, leaving the OHIM proceedings to continue, are in outline as follows: i) The mark is said to be, putting it at its lowest, highly questionable. ii) Once the trade mark issues are disposed of, and in particular the acquired distinctiveness point, there will be little left in the passing off claim. Thus the disposal of the trade mark matters in OHIM will in substance dispose of the real issues in this action. iii) OHIM proceedings are much cheaper. The defendant estimates that its costs of defending these proceedings will be over £200,000. Of course, the defendant is not involved at all in the OHIM proceedings, so to that extent the present proceedings are obviously more expensive for Great Gizmos itself. However, Great Gizmos acknowledges that the real comparison is between the costs of resolving the issue in OHIM (which will be 4M’s costs) and the costs here. In OHIM, Great Gizmos estimates that 4M’s costs will be in the region of £5,000. I confess to finding this somewhat implausible, and on analysis I think it turned out that that was merely an estimate of the first round of costs in making the application. There could be significant costs in dealing with Kitfix’s case in answer. However, it was nevertheless common ground that the proceedings in OHIM will be very much cheaper than the costs in this jurisdiction, not least because the procedure is a paper-based procedure without the disclosure that takes place in English proceedings. iv) Great Gizmos says that it is unjust that a small company who is merely a distributor should be obliged to run such large costs risks, particularly when it is prepared to undertake (as it undertook before me) not to sell any more products pending a final determination of the matter in OHIM. It is, as I understand it, part of Great Gizmos’ case that the manufacturer is a rather more appropriate person to challenge the mark in proceedings. v) Apart from the passing off claim, there is nothing in issue in the English proceedings which is not also in issue in OHIM. The OHIM proceedings will therefore decide everything relevant to the English revocation proceedings so far as trade marks are concerned. vi) Both proceedings are at a relatively early stage; it was said that arguably OHIM’s are ahead of the UK national proceedings, but that does not matter very much. The difference in time between the respective decision dates in both sets of proceedings is not very great. vii) There is a risk of inconsistent decisions if the English proceedings are stayed and the OHIM proceedings continue. viii) There is no prejudice in terms of trading because Great Gizmos has given its undertaking not to trade while the OHIM proceedings are extant. At the hearing, this was clarified so as to ensure that it persisted through any appeals from OHIM. ix) The provisions of article 100(2) of the Regulation point towards a stay in these circumstances. x) The patent law cases, which are said to demonstrate a presumption of a stay in favour of the European Patent Office are relied on by analogy.

The decision – should there be a stay?

[8]I start by dealing with the proposed patent law analogy. I do not consider that there is a useful analogy. It is true, of course, that the operation of patents law and trade mark law have in common the existence of European institutions operating to come extent in parallel with national courts. That means that the potential for concurrent actions, and the need to consider staying proceedings, is common to both. However, it does not follow that the answer for one is the same as the answer for the other. So far as patents are concerned, there is a presumption in favour of staying English proceedings over EPO proceedings – see Glaxo Group Ltd v Genentech Inc [2007] EWHC 1416 (Pat), and the cases referred to there. However, in that case, Lewison J, having considered the jurisprudence, and having emphasised that the presumption is very much a rebuttable one, ended by indicating that the Court of Appeal might like to consider whether the presumption should still represent the starting point. He drew attention to the difference between the approach in patent cases and the approach in more general commercial cases. His survey of the law indicates to my mind that I would have to be very cautious before adopting the current patent practice by analogy.[9]However, there is an even more significant reason in this case why the patent cases do not provide a useful starting point. As I have already indicated, the Regulation contains various provisions which provide for some of the conflicts which may arise, and they certainly do not compel the presumption that currently arises in patent cases.[10]Article 100 is the main relevant provision. Paragraph 1 of that Article provides that where a case is brought before a national court seeking remedies for infringement or revocation (or declarations of invalidity), that court shall stay the proceedings if the validity of the mark is already in issue in another community trade mark court, or where an application for revocation or for a declaration of invalidity has already been filed at OHIM. In those circumstances there is a clear provision which operates. Paragraph 2 is more closely related to the present circumstances. It provides:
“2. The Office, when hearing an application for revocation or for a declaration of invalidity shall, unless there are special grounds for continuing the hearing, of its own motion after hearing the parties or at the request of one of the parties and after hearing the other parties, stay the proceedings where the validity of the Community trade mark is already in issue on account of a counterclaim before a community trade mark court. However, if one of the parties to the proceedings before the community trade mark court so requests, the court may, after hearing the other parties to these proceedings, stay the proceedings. The Office shall in this instance continue the proceedings before it.”
The first sentence of that paragraph has direct application to the present case. There is a counterclaim before the English community trade mark court raising the issue of the validity of the mark. That means that the OHIM proceedings should be stayed unless there are “special grounds” for continuing them. In these circumstances there is therefore a strong presumption in favour of the national court. That is not necessarily an end of the matter. It remains open to one of the parties to the national court proceedings to persuade the national court to stay those proceedings, and if that happens then the OHIM proceedings will revive. However, it is plain that the approach to the national court cannot conceivably be based on a presumption in favour that the OHIM proceedings should continue. If anything, the presumption would be the other way, but I do not think that the answer to this case lies in presumptions.[11]From the paperwork that I have seen, it seems that OHIM initially applied the first sentence by staying the OHIM proceedings. (It should be noted that the Article apparently operates even if the person attacking the mark is not the same in both jurisdictions.) If that had remained the position, then an application to this court to stay the English proceedings would have taken place on the footing of an application within the second sentence. However, it did not remain the case because, as I have pointed out, OHIM removed the stay. There is, with all due respect, something a little odd about that decision, at least as it currently presents itself. The stay should only have been removed if there were “special grounds”. The only ground given by OHIM is that the proceedings in OHIM were based on Article 7. That does not seem very special to me. For my part I would have thought that something more special than that would be required. Those representing Kitfix are pursuing OHIM for more of its reasoning, but there has not yet been a response, and it seems to me to be likely that, unless some other and stronger case emerges, then OHIM’s decision will be challenged. In those circumstances I do not think that I can successfully approach the application before me on the footing that OHIM has reached a justifiable decision to continue its proceedings.[12]What Article 100(2) does not expressly deal with is the factors to be applied where OHIM decides there are special grounds for continuing its hearing within the first sentence, or if an application is made to the national court under the second sentence. However, it is plain that there can be no presumption in favour of a stay of the English proceedings in favour of OHIM in either of those situations. It seems to me that what the court has to do in those situations is to arrive at a decision that is just, bearing in mind all the relevant factors, including the legitimate interest that the claimant will usually have in being able to pursue its proceedings in its chosen jurisdiction. The situation is much closer to the normal sort of commercial cases referred to generally by Lewison J in Glaxo Group Ltd v Genentech Inc.

Argument and decision

[13]There are certainly factors which can properly be urged in favour of a stay of the English proceedings. It is obviously significant that the cost of proceeding in OHIM is very much less than the costs of proceeding in the jurisdiction. It is also true that a decision to revoke taken by OHIM would be binding in this jurisdiction, so to that extent a result in OHIM has a useful effect in this jurisdiction. Mr Edenborough sought to rely on the prospect of there being partial invalidity which would still lead to issues having to be tried in this jurisdiction on infringement. While theoretically a possibility, it does not seem to me that the risk of that is particularly great, though I concede that it is possible. Mr Saunders, on behalf of Great Gizmos, has offered an undertaking to be bound by the decision in OHIM, and his clients have indicated that they do not propose to deal in the goods until a final decision is reached in OHIM. Having concurrent proceedings presents a risk of inconsistent decisions, though whether that risk eventuates depends on the order of decisions, their timing and their nature. While the passing off claim would remain live even if the trade mark were revoked, many, but not all, of the issues that arise in passing off are likely to be dealt with in the course of dealing with the OHIM proceedings on the acquired distinctiveness point. A decision there on that point may in practice assist in disposing of the passing off claim. It might also be thought to be more appropriate that the manufacturer of the infringing goods should be challenging the mark then an importer/distributor. Mr Saunders also pointed out that the attack in OHIM is on wider grounds than in this jurisdiction, but in truth I do not think that this is particularly weighty since, taking a realistic view of the matter, it seems to me that they add very little to the major points which are in issue here.[14]Despite all that, however, I have come to the conclusion that to grant a stay would not be appropriate. I reached this as a result of weighing the factors relied on by Great Gizmos, as identified above, against the factors pointing the other way: i) A decision in this jurisdiction is likely to precede OHIM proceedings by between three and six months. While in many proceedings, and certain other circumstances, this might not be a very large time difference, nevertheless in a modern commercial context it is of some real significance. The claimant started its proceedings in this jurisdiction, as it was entitled to do, and ought to be allowed to have the benefit of such timing where it is available to it. ii) The timing point gains a greater significance when one considers appeals. An appeal lies of right from the decision of OHIM; it lies only with leave in this jurisdiction. Furthermore, there are, at least in theory, two further lines of appeal after the first line of appeal to the Board of Appeals – the Court of First Instance and the ECJ. The last of these appeals might be rather more fanciful than the preceding one, but overall the prospect of appeals is greater, and the prospect of delay arising out of such appeals is very much greater than the prospect arising out of English proceedings, where permission might not be given. Accordingly, in addition to the first decision being reached three to six months before the OHIM decision, the prospect of ultimate finality, taking into account appeals, is very significantly earlier in this jurisdiction than in Europe. I was provided with some figures for the timing of the potential chain of appeals in Europe, but they were not formally in evidence and were not agreed by Kitfix. In those circumstances I do not actually rely on those figures. All I will say is that if they are right they demonstrate that finality in Europe might not be reached for several years. That will be unlikely to be the case in this jurisdiction. iii) It seems to me that there is still a question mark over the viability of the OHIM proceedings. I have referred above to the circumstances in which OHIM came to stay, and then not to stay, its proceedings. The position remains uncertain and OHIM’s present expression of reasoning seems unsatisfactory. It is therefore not a case in which it can plainly be seen that OHIM is seised of proceedings which it is fully entitled to, and intends to, proceed with. What I am being invited to do is to stay the English proceedings in the light of a decision of OHIM, which prima facie has some unsatisfactory aspects, to continue its own. That would be less than satisfactory. iv) This is not a case in which the claimant has deliberately sought out an advantage in attacking a minnow and allowing the shark to swim free. The manufacturer is not in this jurisdiction, so it is hard to see who else the claimant can have sensibly sued here other then the English distributor. v) The passing off claim remains live, and even though the trade mark proceedings may be resolved in a way which makes the passing off claim unnecessary or unviable, it remains a separate claim which Kitfix is entitled to maintain. I would remark that Mr Edenborough said as much, although he indicated he did not place great weight on this factor. vi) I give some weight to the fact that it took the manufacturer seven or eight months after the dispute arose in order to commence its own proceedings in OHIM. I did not receive any evidence as to the communications with the manufacturer, but it seems to me to be unlikely that it was not told about the trade mark dispute shortly after it arose. To allow proceedings to continue for seven or eight months and then apply in OHIM is not wholly satisfactory. Of course, that is not the responsibility of Great Gizmos – the application at OHIM is the manufacturer’s, not the defendant’s. Nevertheless, for well over the first half of this year this matter proceeded on the basis that the issues would be decided in this jurisdiction, and I think that the claimant is entitled to rely on that factor and to rely on the delay in starting proceedings in Europe.[15]Balancing those factors against all those relied on by Great Gizmos, I have, as I have indicated, concluded that the interests of justice require that the claimant be allowed to continue its proceedings in this jurisdiction notwithstanding the greater cost. The greater cost is the principal downside, but I do not consider that that has a sufficient impact, either by itself or with the other factors on which Great Gizmos can rely, to outweigh the factors which the claimant can claim in its desire to proceed in its chosen jurisdiction.[16]In the circumstances I shall dismiss this application.

Postscript

[17]On the occasion on which I handed down this judgment, further correspondence with OHIM was drawn to my attention. It appears that solicitors for the claimant pursued with OHIM the question of whether it should have removed its stay, and by a letter dated 16th November 2007 OHIM responded that it was reimposing its stay and that:
“This suspension takes effect as from 15/10/2007 and will last until the final outcome of the national procedure before High Court of Justice, Chancery Division Intellectual rights. Consequently our notification of 26/10/2007 is deemed to be invalid. Please excuse any inconvenience.”
It therefore appears that my misgivings about OHIM’s original decision to remove the stay were well founded. Since the OHIM proceedings are now stayed, it is obvious that that state of affairs does not affect the decision to which I have come in this case save to make it even clearer that there should not be a stay in this jurisdiction. Consequently our notification of 26/10/2007 is deemed to be invalid. Please excuse any inconvenience.”