The Court of Appeal in Best Buy Co. Inc and others v Worldwide Sales Corporation Espana S.L. (Court of Appeal (Civil Division),[2011] EWCA Civ 618, judgment of Lord Neuberger of Abbotsbury, M.R.) has indicated that referring to infringing acts other than affixing, importing or supplying services under the trade mark, during without prejudice negotiations to settle a trade mark infringement dispute, may constitute an actionable threat.

The facts

The claimants (Best Buy) brought a groundless threats action against Worldwide, the owner of several Community Trade Marks (CTMs) including the words "BEST BUY". Best Buy, which operates its stores under the name BEST BUY in the US, was seeking to expand into Europe (via the UK) under the same name. In September 2008, Worldwide wrote (the "September letter") to a subsidiary of Best Buy (BBES) that BBES's use of the BEST BUY trade mark "in Europe, and in particular in Spain, as well as in advertising and in the media, as at present... would entitle [Worldwide] to take the appropriate legal action to defend its interests".

To avoid such action, the letter asked Best Buy, within 15 days, to either enter into settlement negotiations or undertake not to use the BEST BUY trade mark in Europe. When negotiations failed, Worldwide brought threats proceedings on the basis of the September letter. At first instance Floyd J held that the letter, despite not being headed "without prejudice" was in fact "without prejudice", and therefore could not be used to found a threats action.

Lord Neuberger identified the following issues to be resolved on appeal:

  1. Does the September letter contain a threat? If so,
  2. Is it a threat of such proceedings in the English courts? If so,
  3. Does the threat of proceedings fall outside the exclusions in paragraphs (a) to (c) of section 21(1)? If so,
  4. Is the September letter precluded from being an actionable threat by virtue of containing settlement proposals? If not,
  5. Are the claimants "persons aggrieved" and therefore entitled to relief under section 21?

The judgment

The Court of Appeal held that:

  1. The letter did contain a threat of trade mark infringement proceedings. If one of the two settlement options was not accepted, the only option left open to it to "protect its rights" would have been to start proceedings.
  2. A threat based on a CTM would be actionable if the threat, in the circumstances, could be construed as including a threat of proceedings in the United Kingdom. The references here to activity of the claimants in the UK were sufficient for the threat to be so construed and to make that threat actionable in the UK.
  3. The letter was not saved by paragraphs (a) to (c) of section 21(1) as it referred to use of the mark in the "advertising" of services, which was not the same as "the supply of services under the mark" referred to in section 21(1)(c).
  4. The letter was not entitled to "without prejudice" privilege (as it had no admission or concession to entitle it to the protection of the "public policy of encouraging parties to settle their differences... without fear of any admission or concession being subsequently used against them in court").
  5. The claimants were "persons aggrieved" for the purposes of the threats provisions, without the need to prove they suffered damage. This was despite the fact that they were not the actual recipients of the September letter.

Comment

Lord Neuberger's judgment contains several stark warnings about the scope of the current threats legislation relating to trade marks. Firstly, it illustrates that the extent of the threats of proceedings in respect of the "supply of services under the mark" exclusion is narrow. It does not extend to use in advertising for the supply of those services.

Threatening proceedings based on European rights and activity "in Europe" may easily be construed as threatening proceedings in the UK. This is particularly so if evidence of use, or intended use, of the sign is objected to in the UK and would be the case even if proceedings were subsequently commenced outside the UK.

Lord Neuberger's judgment also warns that a general invitation to enter into settlement discussions contained within a letter may, as here, be viewed not to be "an offer of proposals" but rather as merely "an invitation to treat". It will not therefore, in itself, bring the "without prejudice" rule into play. Here "the main and earlier part of the September letter would not have struck a reasonable recipient as anything other than open".

Including a reference to settlement, and even stating that a letter is "without prejudice", may not prevent a threat of proceedings also contained in it from being actionable. Although the judge, in this case, found that nothing within the September letter brought the "without prejudice" rule into play, he also noted that, had he made the opposite finding, he would have found the threat it contained actionable anyway. This is because:

"[as] the without prejudice rule is based on public policy, it has to yield on occasions to another rule or principle which may apply... [and] the rule would not have prevailed over the clear statutory policy of the threats jurisdiction contained in section 21. If, by writing a genuinely "without prejudice" letter, one could with impunity make threats which otherwise would clearly fall within the ambit of section 21, it would render that section close to being a dead letter, except for the poorly advised".

Despite the current emphasis on pre-action correspondence aimed at settling disputes without the need for court proceedings, the above difficult state of affairs continues to exist. This is principally because, when the threats provisions in relation to patents were amended, the equivalent provisions in relation to trade marks were not changed.

The new patent threats provisions mean that it is the nature of the infringer's activities (i.e. whether they are a manufacturer or importer, as opposed to a retailer) which determines the threats a patentee can make without them being actionable. Provided an infringer is engaged in manufacturing or importing an infringing article, the patentee can threaten them with proceedings for any type of infringement without those threats being actionable.

In contrast, the threats provisions in relation to trade marks are still based on the nature of the infringing activity with which issue is taken, rather than the nature of the infringer. So even if the infringer is affixing the mark to the goods or importing the marked goods, threatening proceedings also for sale still constitute an actionable threat, perhaps even, it now seems, if they are made in the course of "without prejudice" negotiations.

The shortcomings of this position were explicitly recognised by the UK Intellectual Property Office and the Department for Trade and Industry when the Patents Act 1977 was amended. This case clearly shows that the same issues arise in relation to trade marks. If the threats provisions of the Trade Marks Act 1994 had been similarly amended, the precise scope of the "without prejudice" rule would have been largely irrelevant in the present case, and in most cases.

In the writer's view, bringing the law in relation to trade marks into line with patent law would increase the effectiveness of the trade mark threats legislation.