Court of Appeal Overturns Special Effects

In last autumn’s Make Your Mark, we reported on the decision of the High Court in L’Oreal SA and Another v. Special Effects Ltd. The court had held that unsuccessful opponents of trade mark applications before the U.K. Patent Office may be estopped from applying to invalidate the resulting registration later, either in a separate action or in a counterclaim to an infringement action brought by the registered proprietor.

The decision reverberated throughout the U.K. intellectual property scene. If it stood, owners of prior rights would have to think carefully before opposing U.K. trade mark applications. An earlier right holder would have only one chance to challenge the later mark, and failure in opposition proceedings would strip it of the ability to mount a challenge just when it needed it most, namely in a counterclaim against an infringement action brought by the later mark owner.

Whether the High Court was correct, therefore, was of great importance not just for the parties, but also for brand owners at large. The Court of Appeal recently settled the argument in favour of L’Oreal, overturning the High Court’s decision.

 

Special Effects on Appeal

The facts were summarized in our autumn 2006 issue of Make Your Mark.

In essence, L’Oreal had unsuccessfully opposed Special Effects Ltd.’s U.K. trade mark application, and later counterclaimed for invalidity when Special Effects sued for infringement. The High Court held that L’Oreal was estopped from raising the counterclaim because the cause of action and issues had already been adjudicated upon by the Patent Office. L’Oreal appealed.

The appeal attracted submissions from the International Trade mark Association and the Institute of Trade Mark Attorneys. They argued that opposition proceedings before the U.K. Patent Office were administrative in nature, and pointed to the disparity between the court’s ruling in Special Effects and the position before OHIM, where there was no bar to an unsuccessful opponent later challenging the validity of a CTM either before the Office or before a court. OHIM regarded the purpose of opposition as “not to establish which of the two parties has the best right, this task [being] reserved for the judicial courts, but to give third parties a swift, expeditious and low cost procedure for preventing the registration of a Community trade mark” (Budweiser, OHIM Opposition Division, decision no. 1645/2001).

 

Cause of Action Estoppel

The Court of Appeal disagreed that L’Oreal’s cause of action in the counterclaim was identical to that in the opposition proceedings.

It despatched this point succinctly, observing that in an administrative proceeding such as an opposition before the Patent Office, neither the applicant nor the opponent could be said to have a “cause of action” to register a mark, nor to have it refused. In short, neither had a “cause of action” properly so-called at all. It referred to and affirmed previous judicial doubts on a similar point in Buehler AG v Chronos Richardson Ltd. [1998] RPC 609.

L’Oreal could not, therefore, be barred by cause of action estoppel from raising the same grounds again in a counterclaim for invalidity.

 

Issue Estoppel

The Court of Appeal likewise found for L’Oreal. In its view, although the Patent Office had already decided against L’Oreal on some of the issues relevant to the counterclaim, L’Oreal was not barred by issue estoppel from raising the same issues again in the counterclaim.

For issue estoppel to apply, it was necessary for a final decision to have been taken on the issues. In the view of the Court of Appeal, this did not apply here. The legislation clearly provided for the separate availability of opposition and invalidity proceedings against U.K. trade marks. An unsuccessfully opposed mark could later be challenged for invalidity on the same or different grounds under the legislative scheme. If such subsequent proceedings succeeded, the registration would be declared invalid as regards the world at large, including the unsuccessful former opponent. A decision in opposition proceedings was therefore far from final on the issues raised.

As a decision in an opposition did not finally and conclusively decide the validity of a mark, issue estoppel did not apply and even unsuccessful opponents could apply for invalidity later.

 

Abuse of Process

The Court of Appeal held that in taking advantage of the opportunity under the legislation to counterclaim for invalidity in the infringement action, L’Oreal had not committed an abuse of process.

This might not be the case in every scenario, however, the Court noted. In determining whether a party’s conduct amounted to an abuse of process, the facts were particularly relevant. The Court observed that opposition proceedings before the Patent Office were generally fought at far lower cost than litigation before the court. However, Patent Office proceedings were occasionally fought as though they were litigation, with disclosure and cross-examination. In those particular cases, re-litigating the same issues in the same way in new proceedings might be thought to amount to an abuse.

 

Comment

This decision settles the uncertainty arising from the High Court’s ruling.

Had the ruling stood, opposition proceedings in the U.K. would have changed fundamentally: either would-be opponents would not have opposed, or more opposition proceedings would be fought like litigation, with all the concomitant costs.

It is now clear that unsuccessful opponents will not be estopped from re-litigating the same issues in later invalidity proceedings. Nor will such action normally be regarded as an abuse of process, since there is no reason to believe that the conduct of most U.K. oppositions will rise to the level of court proceedings.

Brand owners contemplating U.K. oppositions therefore need not worry that they could be tying their hands as regards possible future action if they fail at opposition level. Nevertheless, it is still wise for opponents to deal with the issues as fully and completely as necessary and reasonable to ensure success in the opposition, since the cost of failure is a second, and potentially far more expensive set of proceedings coupled with the risk of an injunction for infringement.

When factors like these are hung in the balance, it is clear that opposition proceedings should not be regarded as a “dry-run.” Rather, they remain the first and best chance.