Counterclaim for invalidity based on earlier common-law rights fails to see off trade mark infringement claim

In an action for infringement of the trade mark CRYPTOBACK (Wirex Ltd v Cryptocarbon Global Ltd & Ors [2021] EWHC 617 (IPEC) (16 March 2021)) the defendants argued that they had earlier rights to the name, and also that the application to register it had been made in bad faith, but acknowledged that if they lost on their counterclaim they were infringing the trade mark.

 

The counterclaim was therefore a slightly unusual s.5(4) claim, based on the defendants’ ability to oppose the registration because they had common law rights that, in other circumstances, would have enabled them to sue for passing off. The test for passing off is set out in Lord Oliver’s judgment in Reckitt & Colman Products Ltd v Borden Inc [1990] 1 WLR 491 and the present case turned on whether the defendants (counterclaimants) had goodwill in the word. To succeed, they had to convince Hacon J that the name had been distinctive of their services at the claimant’s filing date.

 

The name was plainly a neologism, formed by merging elements of the words “cryptocurrency” and “cashback”. A neologism is not inherently non-distinctive, but it could be taken by consumers to be a new word for a type of goods or services, especially when used for something innovative. Linoleum Manufacturing Company v Nairn [1878] 7 Ch. D. 834 illustrates the problem: the product was protected by patents, which were assigned by the inventor to the plaintiff company which he set up to exploit them, but the name “linoleum”, coined by the inventor to denote the product, was used to denote the substance not (exclusively) the source of the substance, so the defendant could not be stopped from marketing his product as “Linoleum floor-Cloth” after the patents expired.

 

The evidence did not support Global’s contention that they owned goodwill in the name when the trade mark was applied for. There had been email campaigns, a web article and an invoice, but that did not amount to enough to impress the judge. To make matters worse for Global, in the few months of use before the filing date, they had actually applied the name CCRBBACK to their service, which made it more likely that CRYPTOBACK would be seen as a generic name for a new type of service.

Parallel imports and trade marks after B****t

 As everyone knows (well, perhaps not quite everyone), the doctrine of exhaustion tells us that once the owner of intellectual property rights of any type has put goods on a market, those rights are exhausted and cannot be used to control subsequent dealings with those actual goods. In the USA, the first sale doctrine does the same job, and it's an important job where a number of separate jurisdictions form a single market. It has always been an important component of EU law, too, needed to ensure that national intellectual property rights could not be used to partition the single market.

In EU trade mark law, it has therefore been a defence to an infringement action, enshrined in the Directive and the Regulation, subject to some exceptions, to say that the accused goods were placed on the market in the EEA by the trade mark owner or with its consent. Where that is the case, it will usually be impossible for the trade mark owner to use (say) a French trade mark to stop parallel imports entering France from (say) Germany. You could say that trade mark law gives the trade mark owner one bite of the cherry: the subtext (always important to understand) says that the same price should be charged in all the countries of the EU, so there is no incentive for parallel importers. Given that purchasing power in Germany and (say, again) Bulgaria is far from equal, the trade mark owner is highly unlikely to obey the subtext, and it will hurt to obey the letter of the law; but I put that down to politics rather than economics (like so much of the EU).

Up to the end of last year (rounded up to the nearest whole day), the UK was part of this arrangement. Section 12 of the Trade Marks Act 1994 embodied the principle of exhaustion, providing a defence to an infringement action where goods were brought into the UK from another EU Member State. Now of course goods coming into the UK would be leaving the EU, but (in an example of definitely not taking back control) the Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2019 (SI 2019/265) preserves this EEA-wide exhaustion principle. Goods imported into the UK from the EEA will still not infringe - unless there is a legitimate reason for the trade mark owner to oppose the goods entering free circulation in the UK, such as repackaging. There has been some changing of the words of s.12 (recognising that when you talk about the EEA the UK is no longer included) but no change of substance.

I'm probably missing something, because I can't see who benefits from this. Not the manufacturer whose goods are in circulation in the EEA, who must be charging more in the UK otherwise parallel traders wouldn't be interested. Not the UK distributor, who faces cut-price competition from the parallel traders. Not the government, which is losing a bit of VAT. Not even, really, UK consumers, who are unlikely to save very much as the parallel traders are going to undercut the legitimate channels by the smallest amount possible. Only the parallel traders are going to benefit - perhaps the government justifies this by calling them "arbitrageurs" to make it sound as if they are doing something socially useful, rather than just being parasites. Them, and maybe the NHS who are the main customer for parallel imports of pharmaceuticals.

I wonder, though, whether there are any parallel imports entering the UK now? Apart from the delays which the government minimises or denies, there's import duty and VAT to think about and it could be that parallel importing into the UK isn't worth it any longer.

I also wonder how long it will be before the government revisits this part of trade mark law, and decides that there are more votes to be had from moving to an international exhaustion doctrine. It already floated the idea, some 20 years ago, and attracted little or no support from its EU partners - whose support it no longer needs. Cheap jeans for the masses might be seen as a good platform for re-election, and a way to deliver a B****t dividend that is unlikely to arise in any other way.

Comparable trade marks, pre-Brexit use and EU trade marks as earlier rights

Having spent time today delving into some more of the darker corners of the changes to intellectual property law that Brexit has foisted on us, and also having had an e-mail conversation with a friend in the EU who told me he had been surprised when his clients received a bunch of unasked-for comparable trade marks from the UK registry at the turn of the year, I have a few things to say about trade marks today.

Comparable trade marks are the oddly-named UK trade marks that were spawned by EU trade marks on IP completion day, which was 11 pm on 31 December 2020. Calling a precise time such as 11 pm a "day" is a relatively innocent form of Newspeak, which it's no longer surprising to hear coming from our government. The reason the day in question started at 11 pm rather than midnight, as most days do, was simply that it was midnight in most of the EU, which doesn't seem to me to be a particularly good reason given that it wasn't the rest of the EU that was undergoing radical change at that moment (significant change, but short of radical) and hardly smacks of "taking back control". We'll take back control, but at a time to suit you.

Anyway, I digress, as usual. These new-fangled comparable trade marks (which come in two flavours, EU and International, depending on how the parent EU trade mark came into existence) look deceptively simple. They are, to all intents and purposes, UK trade marks and treated in exactly the same way under the Trade Marks Act 1994 - in most respects. They are instantly recognisable (if you need to recognise them) by their numbers: a prefix, UK009, is tacked on to the parent's EU registration number. A neat solution, although it leaves a lot of gaps in the register. (I wonder whether the IPO will triumphantly announce a ten-fold increase in new trade mark registrations in 2021?)

But go a little deeper and comparables get a lot more complicated. I want to consider two points here (because trying to do more would make this post too long and boring): will a comparable derived from an EU trade mark that hasn't been used in the UK in the past five years be instantly vulnerable to revocation for non-use; and how will an application for a declaration of invalidity play out where the earlier rights against which a UK trade mark is allegedly invalid were an EU trade mark?

The answer to the second question first, and I have just realised that there are in fact two elements to it. Will that EU trade mark still be an earlier right, and if not will its comparable stand in its metaphorical shoes? The answers seem to be no, and yes. The EU trade mark lost its status as an earlier right on the stroke of 11 that night, but the baton passed to its comparable which inherited all the vital statistics of its parent, including priority and seniority dates. So the conflict still has to be resolved, although presumably some trade mark litigators have been obliged to do some nifty footwork to substitute the comparable for the parent EU trade mark.

This is all buried in the Trade Marks (Amendment etc.) (EU Exit) Regulations 2019 (SI 2019/269), 28 pages of amendments many of which make little sense unless you have the Trade Marks Act open beside you. (Incidentally, the IPO has helpfully published an unofficial consolidation of the TMA with all these changes in it - though I wonder how it can be called "unofficial" when the office has produced it.) This change is one of those effected by Schedule 1, which (confusingly, to me anyway) inserts a new schedule 2A into the 1994 Act with all this good stuff in it.

As for the question of use or non-use, that is dealt with by stipulating that the use made of the parent EU trade mark is credited to the account of the comparable. That is logical, up to a point, because the comparable has inherited the priority and seniority of the comparable, so it's right to say that any use in the UK needs to be considered as use of the comparable in the UK. But that leaves a problem: what if the parent EU trade mark hadn't been used in the UK prior to IP completion day, but elsewhere in the EU? In that situation, the government says, it would be unfair and an unintended consequence to say that you are creating a new trade mark that is born with five years' non-use baked into it, so use of the parent EU trade mark anywhere in the EU will save it, which to a tiny but discernible extent negates the whole idea of leaving the EU.

Sui generis database rights in the UK

I have been looking in detail at the legislation that deals with intellectual property rights in the context of Brexit, and finding it even more complicated than I had expected. So I thought I would share my new-found knowledge in this blog, starting (because it's the topic I have been looking at today) with databases.

Databases may be protected in two ways in the UK, copyright and database right (or, as it is known in the EU, sui generis protection). Both rights are .the subject of an EC directive, which was implemented in the UK by the Copyright and Rights in Databases Regulations 1997 (SI 1997 No. 3032).The whole point of the directive was to ensure that database operators received the same protection throughout the EEA, so that there was a single market in databases unhindered by differences in copyright protection (which was what started the whole thing: differences arose from the fact that some countries, in particular The Netherlands, gave copyright protection only if the work was its author's own intellectual creation, whereas the UK looked only to see whether the work was a copy of another work, so databases received little if any copyright protection in The Netherlands but much more protection in the UK, and that isn't good in a single market, which in those days was what was thought desirable).

Recognising that this would mean that databases had precious little intellectual property protection, the directive then gave them a new form of protection, and since it was one of a kind (and continental lawyers are less scared of Latin tags than we are required to be) it was called sui generis protection, which is actually pretty useless as a name if you expect it to tell you something about what the right does.

Copyright is therefore limited in its application to databases, because the directive makes clear that a database may only receive copyright protection if it is its author’s own intellectual creation: moreover, copyright only protects the selection or arrangement of material in a database, so any protection it does give is rather indirect.

Database right, on the other hand, protects the contents of the database and is much more concerned with unfair competition (unauthorised extraction and reutilisation of material from the database). On the face of the legislation, it gives 15 years' protection, but as a substantial change in the database will start that term of protection running again there is actually no reason why database right should ever expire.

Database right in the UK

A database does not have to be original for it to qualify for database right, but there must have been a substantial investment in obtaining, verifying or presenting the data. There is quite a body of case law exploring the question of when an investment in a database is directed towards one of these activities

Eligible databases received protection throughout all the EEA member states when the directive was introduced, and this of course included the UK. Following the UK’s departure from the EU, these reciprocal arrangements have ceased. Importantly, there are no international conventions in this field: the EU’s sui generis right was always a one-off, and the Directive contained all the rules and dealt exhaustively with international protection (which never extended beyond the EEA). However, the UK and EU agreed to continue the reciprocal recognition where those rights had already come into existence.

UK databases created before 1 January 2021 will continue to be protected in the EU, and vice versa, but only UK citizens, residents, and businesses are eligible for database rights in the UK for databases created on or after 1 January 2021. By the same token, UK databases will no longer receive protection in EEA countries. The changes to the legislation to achieve this are contained in the Intellectual Property (Copyright and Related Rights) (Amendment) (EU Exit) Regulations 2019 (SI 2019 No. 605).

Sui generis database rights in the EU

Under the Directive, databases made by EEA nationals, residents or businesses receive protection in all EEA member states. UK citizens, residents, and businesses are not eligible to receive or hold database rights in the EEA for databases created on or after 1 January 2021. UK database owners whose databases were created on or after 1 January 2021 might still be able to rely on copyright, which is governed by a completely difference set of rules (including international treaties and conventions): but the valuable tailor-made protection given by the Directive has been lost.

Existing sui generis database rights

Database rights that subsisted in the UK or EEA before 1 January 2021 (whether held by UK or EEA persons or businesses) will continue to subsist in the UK and EEA for the rest of their duration. These rights were guaranteed under the Withdrawal Agreement, and are preserved in the 2019 Regulations. The term of protection is set at 15 years, but for rational database operators it should normally be effectively perpetual: making a substantial new investment in the database causes protection to restart. However, a close reading of the legislation shows that the mechanics of this process are actually rather different, and the substantial investment brings a new database into existence which gets 15 years' protection. That's a very different matter, and it's going to mean that UK database operators are looking at a limited future of protection under EU law.