In Best Buy Co Inc v Worldwide Sales Corporation España SL  EWCA Civ 618, the Court of Appeal of England and Wales has allowed an appeal against a decision that a letter before action containing threats of infringement fell within the without prejudice rule because the letter also contained an offer to negotiate an out-of-court settlement of the parties’ dispute.
Best Buy Co Inc proposed to enter the UK and European market by opening shops under the name Best Buy, which it had used extensively in the United States. Best Buy Enterprises Services, a US company related to Best Buy, applied for a Community trade mark (CTM) incorporating the words BEST BUY. This was opposed by Worldwide Sales Corporation España SL (España) on the basis of its two earlier device CTMs that incorporated the words BEST BUY. Best Buy applied to revoke one of these marks for non-use. During the cooling-off period, España’s lawyers sent a letter to Best Buy requesting Best Buy’s confirmation of its willingness to start negotiations within 15 calendar days of the date of receipt of its letter, or an undertaking not to use the BEST BUY mark in Europe.
The parties entered into unsuccessful negotiations. Best Buy issued and served proceedings on España for groundless threats of infringement under Section 21(1) of the Trade Marks Act 1994. The issues were whether the letter sent by España’s lawyers threatened proceedings for infringement of España’s CTMs. If so, whether the threat was made in relation to an infringement that was excluded from the operation of Section 21(1); and, if a non-excluded threat was made, whether evidence of it was inadmissible by virtue of the without prejudice rule.
At first instance, Mr Justice Floyd dismissed the action, ruling that the letter as a whole should be seen as España setting out its position in the settlement negotiations. As such, it fell within the without prejudice rule. Best Buy appealed to the Court of Appeal.
Lord Neuberger MR found that the letter constituted a threat, holding that a reasonable recipient of the letter would take statements as to the reputation of the marks, the “irreparable and irreversible damage” that España would suffer, and its entitlement to “take appropriate legal action to defend its interests” as an indication that España was asserting its legal rights andintending to enforce those rights against Best Buy. He further found that the proposal of a negotiated settlement served to support the contention that infringement proceedings were threatened, not least because of the ultimatum.
Lord Neuberger MR held that a reasonable recipient in the position of Best Buy would have understood the letter as threatening proceedings in the United Kingdom. He noted España’s submission that it would have been fanciful to think that a reasonable recipient of the letter would have understood it to be a threat to issue infringement proceedings in the courts of all 27 Member States, but held that if one made a Europewide threat of proceedings, the fact that, when it eventuated, the claim was brought only in one State did not mean that the threat of proceedings was not in each Member State. This view was reinforced by the fact that both parties would have known that the Best Buy group was intending to launch its European business in the United Kingdom.
However, whilst approving Floyd J’s approach that the court should “as a general rule” be ready to hold that a communication was to be treated as privileged from use in court, where “it was clear from the surrounding circumstances that the parties were seeking to compromise the action”, Lord Neuberger MR held that Floyd J had reached the wrong conclusion on the facts of this case as he had concentrated on the last three paragraphs without properly considering the letter as a whole.
Lord Neuberger MR held that it was possible that parts of a letter could be excluded from court under the without prejudice rule. However, he held that if the main and earlier part of the letter would not have struck a reasonable recipient as anything other than open, that undermined the view that the proposals at the end of the letter would have been understood to have been intended to be privileged from use in court, since there was no indication in the letter that the last three paragraphs were to be treated differently. He therefore held that it was not realistic to treat the last three paragraphs of the letter as amounting to the sort of settlement proposal that should be privileged under the without prejudice rule.