Court Diary

ECJ Favours Arsenal’s Big Guns But…...

The European Court of Justice has recently ruled on the questions put to it by the English High Court in the case of Arsenal Football Club v Matthew Reed. Despite some short term local difficulties (see below), the ECJ’s findings are likely to shift the balance fundamentally between the purveyors of official merchandise, sporting or otherwise, and those selling competing, but unauthorised, products.

The facts of the case were as follows. After the creation of the English Premier League in 1992, football became hugely popular in this country and, for successful clubs such as Arsenal, highly profitable. Much of this profit is derived from television rights and sponsorship, but another source of revenue that has increased dramatically during the past 10 years is club merchandising. Prior to 1990, for example, Arsenal had one small shop situated in their ground devoted to the sale of souvenirs and memorabilia, as well as a small mail order business. Since then, the club’s retail premises have expanded to three large stores and the mail order business has also increased, to the point where the total sales of official Arsenal merchandise now amounts to about £5 million per annum. All of the merchandise authorised by the club is marked as “Official” and bears one or other of the club’s trade marks, including the word Arsenal, the phrase The Gunners, the device of a cannon and the Arsenal crest device. These “Official” products are sold principally through the club’s retail outlets and mail order service, although some match day vendors are also licensed to sell such merchandise outside the ground.

Mr Matthew Reed has sold unofficial Arsenal merchandise for over 30 years, first within and then, for the past 20 years, outside the club’s ground on match days. Some, at least, of this merchandise bears one or more of the club’s trade marks. In the case of one particular scarf sold by Mr Reed, all four of Arsenal’s main trade marks appear on the product. In no case, however, did Mr Reed use a trade mark by way of a swing ticket, neck label or header card or in any other manner traditionally employed to signify the source of a product. Further, at all times, he made it clear that his unofficial merchandise had no “Official” connection with the club.

As Arsenal expanded its merchandising operation, it began to take a more hard headed approach to some vendors of unofficial merchandise, including Mr Reed. This led the club to bring trade mark infringement and passing off proceedings against Mr Reed in an attempt to halt his trading activities.

The Judge (Mr Justice Laddie) dismissed the passing off action because, on the balance of probabilities, Mr Reed’s activities had not led to any confusion amongst the relevant public and therefore those activities had not caused any relevant damage to the club.

Turning to the trade mark infringement action, the Judge commented that the most important issue to be decided here was whether, in order to succeed under Section 10 (the infringement section) of the UK’s 1994 Trade Marks Act, a plaintiff must establish that the defendant has been using his sign as a trade mark for the relevant goods. If trade mark use was not a requirement, then Mr Reed’s activities infringed Arsenal’s registered trade marks. However, if trade mark use was required then, according to the Judge, the defendant did not infringe. In Mr Justice Laddie’s view, the defendant’s use of the sign Arsenal did not carry any message of trade origin.

Given the crucial nature of this issue to the interpretation of European trade mark law, the English Court decided to put the following questions to the ECJ:

“1. Where a trade mark is validly registered and

(a) a third party uses in the course of trade a sign identical with that trade mark in relation to goods which are identical with those for [which] the trade mark is registered; and

(b) the third party has no defence to infringement by virtue of Article 6(1) of [Directive 89/104/EEC];

does the third party have a defence to infringement on the ground that the use complained of does not indicate trade origin (i.e. a connection in the course of trade between the goods and the trade mark proprietor)?

2. If so, is the fact that the use in question would be perceived as a badge of support, loyalty or affiliation to the trade mark proprietor a sufficient connection?”

In its ruling on 12th November 2002, the European Court answered the questions as follows:

• Mr Reed’s use of a sign identical with the registered trade mark is use in the course of trade, since it takes place in the context of commercial activity with a view to economic advantage and not as a private matter. It also constitutes use of a sign which is identical with the registered mark for goods which are identical with those for which the mark is registered (Article 5(1)(a) of the Trade Mark Harmonisation Directive).
• The exclusive right under Article 5(1)(a) of the Directive was conferred in order to enable the trade mark proprietor to protect his specific interests as proprietor, that is, to ensure that the trade mark can fulfil its functions. The exercise of that right must therefore be reserved to cases in which a third party’s use of a sign affects or is liable to affect the functions of the trade mark, in particular its essential function of guaranteeing to consumers the origin of the goods.
• The proprietor may not prohibit the use of a sign identical with the trade mark for goods identical with those for which the mark is registered if that use cannot affect his own interests as proprietor of the mark, having regard to its functions. Thus certain uses for purely descriptive purposes are excluded from the scope of Article 5(1) because they do not affect any of the interests which that provision aims to protect, and do not therefore fall within the concept of use within the meaning of that provision.
• Mr Reed’s use of the sign (Arsenal) takes place in the context of sales to consumers and is obviously not intended for purely descriptive purposes. His presentation of the word Arsenal on the goods at issue…is such as to create the impression that there is a material link in the course of trade between his (Mr Reed’s) goods and the trade mark proprietor. This conclusion is not affected by the notice on Mr Reed’s stall that the goods he is selling are not official Arsenal products. The connection between Mr Reed’s notice and his unofficial merchandise is lost once the goods are sold and consumers subsequently dealing in the goods may interpret the Arsenal sign on the goods as designating the club as the origin of those goods. Thus, there would be no guarantee that all goods bearing the mark have been manufactured or supplied under the control of a single undertaking which is responsible for their quality.
• In these circumstances, it is immaterial that Mr Reed’s use of Arsenal is perceived as a badge of support for or loyalty or affiliation to the football club.

However, in an extraordinary twist to this David and Goliath story, when the case returned to the English High Court in December 2002, the Judge found in favour of Mr Reed. The basis for this apparently unprecedented rejection of an ECJ ruling by an English Court was that the ECJ had exceeded its jurisdiction and made findings of fact which were at odds with those made by Mr Justice Laddie. In particular, the ECJ concluded that Mr Reed’s use did indicate trade origin when Mr Justice Laddie had found that it did not and they also found that Mr Reed’s efforts to emphasise the unofficial nature of his goods would not prevent a possibility of confusion. This latter point was also at odds with the English Judge’s findings. Since it was for the English Court, rather than the ECJ, to establish the facts of the case and for the ECJ to make rulings based on those facts alone, the European Court’s rulings were set aside by the Judge. Instead, Mr Justice Laddie took what he regarded as the ECJ’s findings of law and applied them to his, earlier findings of fact. In the English Judge’s view, the ECJ had found, as a matter of law, that only trade mark use would infringe a registered trade mark under Article 5(1) of the Directive. Since he had previously found that Mr Reed’s use was not trade mark use, Mr Reed could not be guilty of trade mark infringement.

We can expect this case to be appealed to the English Court of Appeal, who will be in a position to assess both Mr Justice Laddie’s findings of fact and the ECJ’s rulings in relation to the law.

 

Comment

It is submitted that the ECJ’s rulings on Article 5(1) are correct. It should be necessary to use a trade mark in a trade mark rather than a descriptive manner in order to infringe a trade mark registration. However, it is difficult to categorise Mr Reed’s use of Arsenal as anything other than trade mark use. To decide otherwise would be to open the floodgates to unofficial versions of Nike t-shirts and Adidas footwear. This would not be in the public interest.

Having said that, it is also clear that football club merchandise is a very particular area of commerce. Whilst competition between Nike, Adidas and Reebok should exercise at least some restraint on the prices that they can each charge for their respective products, a football club faces no such competition. No Arsenal supporter, being dissatisfied with the cost of the club’s replica shirts, is going to buy a Tottenham Hotspur or Manchester United shirt instead. In the light of the ECJ’s ruling therefore, it is imperative that the commercial activities of football clubs are monitored very closely by the competition authorities. The clubs are, at least off the field, de facto monopolies and their merchandising activities should be viewed in that light.

As far as Mr Reed is concerned, it is believed that Arsenal’s acquiescence to his activities for at least 20 years should allow him to continue to sell the club merchandise that he has previously sold. However, Arsenal has recently changed the design of their club badge and also the typesetting of their club name. Both the new badge (see page 1) and the new typesetting are protected by trade mark and design applications and registrations. It is unlikely that the club will acquiesce to Mr Reed’s use of these new forms of identification. It follows that Mr Reed’s activities may now be restricted to past rather than present Arsenal merchandise and that, with the passage of time, Mr Reed and every other unofficial purveyor of sports merchandise will disappear from the British sporting scene.