A Risky Business?

Using other people’s trademarks is dangerous. Mark Lomas gives an extra time match report and risk assessment on the case of Arsenal Football Club against Reed

Do you know what risks you run if you let others use your company’s trademarks ? Do you know when you can legitimately use another company’s trademark? Is trademark and brand control part of your risk management strategy? It should be. You can expose your company to substantial loss if you get it wrong. Do not forget that officers and directors of a company can be personally prosecuted.

If you are in charge of risk management, you need a system and policy to manage and enforce the use of trademarks by your company and by others (be that on a licensed or unlicensed basis), and you need to be especially careful if part of your business activity involves use of, or reference to, trademarks belonging to others.

There are situations when the use of an identical sign for identical goods or services is legitimate, for example if one is engaging in a comparative advertising1 exercise. Some very acute legal minds have recently been pondering the extent to which one can use an identical sign for identical goods in other circumstances. This (and related questions) was one of the key issues in the case discussed here.

There are many parallels to be drawn between the world of sport and the world of law, but one thing is clear. Knowledge of the rules can help you manage risk and exploit opportunities2.

Match report
In June all eyes were turned to the East, where silky South American football skills prevailed on the pitch. Back in Europe, silky legal skills were on show to a smaller audience when a senior judge at the European Court of Justice (ECJ) handed down his preliminary opinion on questions impacting on the extent of permissible ‘trademark use’.

The display of legal juggling was triggered by a claim in the UK by Arsenal Football Club plc over the alleged unauthorised use of its trademarks. In legal circles, the Arsenal Football Club case is old news, because this particular match has been played for quite some time. Continental football, while high on skill levels, can be quite a slow game to watch. Ignoring the pre-match preparation, the first leg came to a close when the Honourable Mr Justice Laddie’s approved judgment at first instance was handed down on 6 April 2001. The second leg waited for warmer conditions, with the Advocate General’s preliminary opinion being delivered on 13 June 2002. The last leg took place five months later, when the ECJ gave its final verdict.

So what was the fuss all about? On the facts it was a very straightforward issue. Arsenal sued a trader (one Matthew Reed), in an effort to stop him selling unofficial ‘Arsenal’ football scarves and other merchandise outside the Highbury football ground. This was a trade that Reed had conducted since about 1970.

The sale of merchandise by football clubs has become a very lucrative source of income in recent years, so they have taken steps to tighten up on previously slack practices which were damaging their commercial and trademark interests.

Reed’s trade was by no means unusual. For decades, traders have been exploiting a grey area in trademark law by using third party trademarks without the explicit permission of the rights owner. The extent to which they are legitimately able to get away with this depends on a number of factors to do with whether the marks are registered or unregistered and how they present them to the market. One technique is to openly state that the products are ‘unofficial’, with varying degrees of prominence. The idea behind this is to create a position that does not mislead customers about the origin of the product, before they buy. It is thus especially effective for neutralising ‘passing off’ claims and for some complaints about false trade descriptions. Its effectiveness on registered trademarks is more questionable, especially since the European Court’s final decision.

There is no doubting the fact that Arsenal’s adoption of tighter trademark controls has had an arguably harsh impact on some long standing businesses such as Reed’s. But business is business after all, and, from a trademark management perspective, it is very important to enforce one’s rights, at least occasionally. Acquiescence to known infringing over a long enough period can set up a defence for an infringer.

There is also a strong case for enforcing your rights simply for deterrent reasons. Our experience is that trademark owners who are known to take action have less resistance from alleged infringers and effectively deter repeated infringing behaviour from ‘the usual suspects’. It is also worth remembering that some trademark owners’ policy is only to run a ‘cease and desist’ letter strategy. When this becomes known, the bolder grey market or counterfeit goods trader tends to regard a cease and desist letter simply as a temporary irritation, rather than as a permanent deterrent.

The European leg
The second leg arose because Mr Justice Laddie asked the ECJ for guidance on some fundamental issues about the nature of trademark infringement. To a certain extent this was inevitable, given the legal arguments that had been raised in the Arsenal case and on matters that had become increasingly unclear in the light of other cases that had been developing UK trademark law. The guidance requested comprised a series of carefully framed technical questions about what does or does not constitute permissible use as a trademark, including whether or not there was an infringement if the use complained of could be regarded as use as a ‘badge of support, loyalty or affiliation’.

The Advocate General’s opinion replying to the questions set can be accessed at the ECJ website3. It is, to say the least, wide ranging and colourful in scope. It manages to mention such characters as Andy Warhol and Zinedine Zidane, and, in passing, analyses the global football economy.

Ruiz-Jarabo Colomer’s opinion has now been approved by the full ECJ and it is of immense importance. It may underpin the legal proposition that the correct approach to be taken when looking at infringement issues is for the court to ask a basic but potentially devastating question. This is: ‘Why has the trader actually used the mark?’ You can appreciate immediately that this focuses on the defendant’s reasons for using a given registered trademark, not on why the customer bought the product. If the trader’s reason for using the mark was commercial, then in 99% of cases (if there is no other defence) it is likely that a claim will succeed. This is a profound change of approach and creates much food for thought.4

The trade in unofficial products is, of course, entirely commercial in nature. It is therefore the voices of the trademark owners who are currently chanting loudest.

Mr Justice Laddie will soon be considering the return pass from Europe when reassessing his decision in the UK. Will he reach for the red card? Will it be a yellow or simply ‘play on’? Whatever he decides, now that the preliminary opinion has been upheld by the ECJ, it will cause legal ripples throughout Europe, and the end result could have profound effects on the lucrative market in openly ‘unofficial’ products, well beyond the market for football merchandise.

What now?
The match is not quite yet over. The Advocate General openly acknowledged that he did not directly answer the questions in the way that the High Court framed them. Whether the High Court will be satisfied with the answer from the ECJ, or is able to do anything about it, remains to be seen. In football pundit parlance, “It’s not over until the final whistle,” so do not be too surprised if there is period of extra time to be played and a golden goal waiting to be scored.

That said, the judgment from Europe has put massive pressure on the Reed goalmouth. The on-looking crowd of trademark lawyers, rights owners and traders in unofficial merchandise suspect that things look bad for Reed. If Mr Justice Laddie is satisfied with the answer, one wonders whether Reed will want to carry on the fight. At some stage this particular match must come to an end.

1 There is a defence under section 10(6) of the Trade Marks Act 1994 in civil cases for registered trademark infringement. The defence allows the use of a registered trade mark for the purpose of identifying goods or services as those of the trademark owner or a licensee but the use must be in accordance with honest practices in industrial and commercial matters and must not without due cause take unfair advantage of nor be detrimental to the distinctive character or repute of the trademark. This is the defence that one would point to in cases of comparative advertising. However, it is absolutely crucial to be fair in the use of the mark, for example, comparing like with like is vital.

2 Football commentators might say “ you have got to take your chances John”.

3 www.curia.eu.int/jurisp/

4 The approach in the Arsenal case is concerned with a civil claim. There are also criminal sanctions for misusing registered trademarks. In Section 92 cases there is less emphasis on what is in the mind of the defendant due to the strict liability nature of the offence. For example, in the ‘Tellytubbies T Shirt’ case [R v Torbay District Council ex parte Satnam Singh] the defendant’s intent became largely irrelevant, as he was found strictly liable of an offence under section 92 of the Trade Marks Act 1994 for exposing for sale goods which bore a registered trade mark (Tellytubbies, owned by the BBC), even though he claimed that he did not know of the existence of the registered trade mark and had not applied his mind to its detail. Singh did not establish the defence contained in s.92(5) of the Act that he believed on reasonable grounds that the use of the sign, in the manner in which it was used, was not an infringement of the registered trade mark.

TRADEMARKS RISK NOTE
Civil claims