Quick fix for Kitfix

A novel and unprecedented issue arose in an England and Wales Chancery Division case before Mr Justice Mann earlier this week, Kitfix Swallow Group Ltd v Great Gizmos Ltd [2007] EWHC 2668 (Ch), drawn to the IPKat's attention by his friend Simon Haslam: should a court stay English proceedings for infringement of a Community trade mark in which there is a counterclaim for revocation, pending a ruling of OHIM on the same trade mark?

Right: this is what happens if you use sequin craft kits ...

Kitfix owned a Community registered trade mark for the words SEQUIN ART for craft kits using sequins. Great Gizmos was the English distributor of Hong Kong-manufactured craft kits for making pictures out of different coloured sequins, and bearing the name "Sequin Art". Kitfix alleged infringement and passing off; Great Gizmos said the mark was entirely descriptive and non-distinctive for the goods in question and denied passing off.

This January Kitfix issued its claim form. Great Gizmos served its defence and counterclaim in March. A case management conference was fixed for September 2007. However, in late August, 4M - the Hong Kong manufacturer of Great Gizmos' products - commenced proceedings in OHIM for a declaration of invalidity of the SEQUIN ART mark. That prompted Gizmos to apply for a stay of the English proceedings pending a decision in OHIM. The likely date of the English trial was June/July/October 2008, while the OHIM proceedings - which were themselves initially stayed - would be likely to generate a decision in or about January 2009, suggesting that there would be a three to six month gap between the dates in which each of the proceedings would generate a decision.

Great Gizmos' arguments in favour of a stay were cumulatively quite impressive: (i) the mark's validity was highly questionable; (ii) once the trade mark issues were disposed of, and in particular the acquired distinctiveness point, there would be little left in the passing off claim anyway; (iii) OHIM proceedings are much cheaper than the £200,000 likely to arise from the English proceedings; (iv) it was unjust that a small company - indeed a distributor - should be obliged to run such large costs risks, particularly when it was prepared to undertake not to sell any more products pending a final determination of the matter in OHIM; (v) apart from the passing off claim, there was nothing in issue in the English proceedings that was not also in issue in OHIM; (vi) both proceedings were at a relatively early stage; (vii) there was a risk of inconsistent decisions if the English proceedings were not stayed and the OHIM proceedings continued; (viii) there was no prejudice in terms of trading because Great Gizmos had given its undertaking not to trade while the OHIM proceedings were live.

Mann J dismissed the application for a stay. In his opinion there was no useful analogy to be drawn with the extensively analysed practice of granting stays in patent law. On this he said:

" ... the operation of patents law and trade mark law have in common the existence of European institutions operating to come extent in parallel with national courts. That means that the potential for concurrent actions, and the need to consider staying proceedings, is common to both. However, it does not follow that the answer for one is the same as the answer for the other. So far as patents are concerned, there is a presumption in favour of staying English proceedings over EPO proceedings – see Glaxo Group Ltd v Genentech Inc [2007] EWHC 1416 (Pat), and the cases referred to there. However, in that case, Lewison J, having considered the jurisprudence, and having emphasised that the presumption is very much a rebuttable one, ended by indicating that the Court of Appeal might like to consider whether the presumption should still represent the starting point. He drew attention to the difference between the approach in patent cases and the approach in more general commercial cases. His survey of the law indicates to my mind that I would have to be very cautious before adopting the current patent practice by analogy.

However, there is an even more significant reason in this case why the patent cases do not provide a useful starting point. ... the Regulation contains various provisions which provide for some of the conflicts which may arise, and they certainly do not compel the presumption that currently arises in patent cases".

He then cited Article 100(2) of Regulation 40/94:

"The Office, when hearing an application for revocation or for a declaration of invalidity shall, unless there are special grounds for continuing the hearing, of its own motion after hearing the parties or at the request of one of the parties and after hearing the other parties, stay the proceedings where the validity of the Community trade mark is already in issue on account of a counterclaim before a community trade mark court. However, if one of the parties to the proceedings before the community trade mark court so requests, the court may, after hearing the other parties to these proceedings, stay the proceedings. The Office shall in this instance continue the proceedings before it",

on which he commented:

"The first sentence of that paragraph has direct application to the present case. There is a counterclaim before the English Community trade mark court raising the issue of the validity of the mark. That means that the OHIM proceedings should be stayed unless there are "special grounds" for continuing them. In these circumstances there is therefore a strong presumption in favour of the national court. That is not necessarily an end of the matter. It remains open to one of the parties to the national court proceedings to persuade the national court to stay those proceedings, and if that happens then the OHIM proceedings will revive. However, it is plain that the approach to the national court cannot conceivably be based on a presumption in favour that the OHIM proceedings should continue. If anything, the presumption would be the other way, but I do not think that the answer to this case lies in presumptions".

Mann J agreed that there were certainly factors in this case that could justify a stay, particularly in terms of the costs incurred, the binding nature of the OHIM decision within the UK and the willingness of Great Gizmos to give undertakings. However, no stay would be granted for the following reasons:

* in a modern commercial context even a delay of three tro six months is of some real significance - particularly if you consider that the OHIM proceedings are potentially subject to lengthy and time-consuming appeal procedures;

* on the facts it was not entirely clear that OHIM was seised of the issues in question and would be able to determine them;

* this was not a case in which the claimant had deliberately sought out an advantage in attacking a minnow and allowing the shark to swim free. The manufacturer was not in this jurisdiction, so it was hard to see who else the claimant could have sensibly sued in England other then the English distributor;

* the passing off claim would remain live even if the trade mark proceedings were resolved.

The IPKat says, this just goes to show how useful a passing-off claim can be in trade mark infringement proceedings, even if it is only a relatively minor issue: it can help make the difference between a stay or no stay. Merpel adds, there's a postscript to this ruling: OHIM has now stayed its own proceedings, "until the final outcome of the national procedure before High Court of Justice, Chancery Division Intellectual rights".