• UK Court Diary

    Estoppel Extended in Trade Mark Disputes: Beware Special Effects


    Those seeking to invalidate U.K. trade mark registrations bear a heavy burden to plead and support all relevant grounds at first instance following last year’s decision in Hormel Foods Corp. v. Antilles Landscape Investments [2005] ETMR 54 (see Make Your Mark, Autumn 2005). That burden now encumbers those who oppose new applications, as well, following the recent decision of the High Court in Special Effects Ltd. v. L’Oréal S.A. and Others [2006] EWHC 481 (Ch). The implications of this ruling are deep and perhaps more extensive than even the Court appreciated.

     

    Having a Go…

    Special Effects had its origins in opposition proceedings before the U.K. Patent Office.

    A married couple, David and Jennifer Jones, had applied to register SPECIAL EFFECTS as a trade mark for hair products in Class 3 and beauty and cosmetic therapies in Class 44. Their application was opposed by L’Oréal, who argued inter alia that the mark was non-distinctive and descriptive, and was in any event barred from registration because its use was liable to be prevented as passing off in respect of L’Oréal’s FX and SPECIAL FX hair care range, and because there was a likelihood of confusion with L’Oréal’s earlier trade marks FX and Device and FX STUDIO LINE and Device.

    The Registrar’s hearing officer found in favour of the Joneses, holding that SPECIAL EFFECTS was distinctive and registrable, that there was no likelihood of confusion and that L’Oréal had not made out its case for passing off.

    The registration was granted, and the Joneses assigned it to their company, Special Effects Ltd.

     

    …And Having a Go Again

    Two years after the registration was granted, Special Effects Ltd. issued trade mark infringement proceedings against L’Oréal in respect of L’Oréal’s use of SPECIAL FX.

    L’Oréal counterclaimed for invalidity on the same grounds pleaded in its failed opposition. Special Effects Ltd., relying on Hormel, asserted that L’Oréal was estopped from re-raising those claims since they had been decided already in the Patent Office. L’Oréal replied that the principles of estoppel outlined in Hormel did not and should not apply in trade mark opposition proceedings, which were different in nature to invalidity proceedings and, unlike invalidity actions, could only be brought in the Patent Office, where they were decided by hearing officers who, although greatly experienced, were not legally qualified. The issue came before the High Court in March.

     

    Enough is Enough

    The core issue was whether a party who had failed in opposition proceedings could later rely on, and thus effectively re-litigate, the same grounds in invalidity proceedings against the same mark.

    Special Effects Ltd. argued that the logic of Hormel led inescapably to the conclusion that estoppel was as relevant to oppositions as to invalidity actions. The same grounds were relevant to both, and procedurally the two types of proceedings differed from one another in ways that could be described as distinctions without a difference. There was as great a public interest in ensuring finality and preventing the re-litigation of issues in oppositions as in invalidity actions. There was, in short, no reason to allow an unsuccessful opponent a second bite of the cherry, when he would not have had one had he chosen to await registration and apply for a declaration of invalidity instead.

    These arguments persuaded the judge. L’Oréal, he held, was estopped from counterclaiming for the invalidity of the SPECIAL EFFECTS registration.

    The primary finding was based on cause of action estoppel, namely that the causes of action raised in the counterclaim were identical to those previously raised and rejected in the opposition between the same parties. Cause of action estoppel permitted no exceptions other than fraud or collusion; even the discovery of relevant new facts or evidence would not overcome it.

    There was a subsidiary finding that L’Oréal’s counterclaim was blocked by issue estoppel, namely that issues germane to a cause of action which had already been litigated and decided could not be re-opened by the parties. The judge considered that his finding on issue estoppel must be the same as on cause of action estoppel.

    In contrast to cause of action estoppel, however, issue estoppel admitted of exceptions where relevant information or materials came to light that could not have been discovered with reasonable diligence in the earlier proceedings. L’Oréal argued that its counterclaim should not be barred by issue estoppel since, inter alia, its evidence before the Court was much fuller and more comprehensive than that on which it had relied before the Patent Office.

    L’Oréal derived no succour from this exception, however, since the judge was unpersuaded that the mere failure to gather sufficient evidence before the Patent Office should justify an unsuccessful opponent being allowed to re-open decided issues.

     

    Comment

    This decision is not unexpected, but its effect is unsettling and, indeed, far-reaching.

    L’Oréal’s counsel pointed out in argument that applying the principles of estoppel to trade mark opposition proceedings was likely either to deter parties from opposing in order to reserve the ability to counterclaim for invalidity if the matter later landed in court, or in opposition proceedings becoming considerably more expensive because the stakes were so much higher. The judge recognized these risks but regarded them as an unavoidable consequence of applying the law.

    These consequences are likely to bring long-term changes for brand owners who rely on the opposition system to prevent the registration of conflicting marks. Brand owners can no longer afford to treat Patent Office proceedings of any stripe as an inexpensive “dry-run” before a more serious attack is launched, if necessary,

    in court. Failing in an opposition will leave a party without further remedy against a registration, except for possible eventual revocation. More critically, it will leave a party without the strongest defence it might otherwise have had against an infringement claim, namely a counterclaim that the mark on which the proceedings are based is invalid. This is a serious outcome indeed.

    As a result of this judgment, the cost and complexity of trade mark opposition proceedings are likely to rise in cases of real commercial value, and parties may refrain from using the opposition procedure at all where there is doubt that all the evidence needed can and will be gathered in time. Acting otherwise could be seriously undermining if a commercial conflict were to erupt and an unsuccessful opponent is sued for trade mark infringement.

    It is right that opposition proceedings should be approached seriously and with full and proper evidence. However, following these rulings on estoppel, the Patent Office should re-think its own rules on costs. Current costs rules allow for recovery of only a fraction of the costs invested in Patent Office proceedings.

    Such proceedings can, however, have far-reaching effects on later court actions. The Patent Office can no longer be regarded as a low-cost, simpler alternative to the court. As costs in Patent Office actions rise, it is only fair that costs recovery should rise with them.