Untangling jurisdiction under the Design and Brussels Regulations: should I stay or...?

Even without the B-word (sounds a bit like “breakfast”), it is a good time to be an IP lawyer interested in the jurisdictional aspects of unitary IP rights. Following the recent CJEU decisions in Case C-617/15(Hummel v Nike, reported in various places including here) and joined Cases C-24/16 and C-25/16 (Nintendo v BigBen Interactive, reported on this very blawg), the English court’s decision in Poul Chang Metal Industry Company Ltd v Bailcast Ltd and Anor [2018] EWHC 3432 (Ch) has just become available.

All three decisions consider the interaction of the specific jurisdictional rules regarding claims involving EU unitary IP rights with the jurisdictional rules under the Brussels Regulation, albeit in slightly different ways. 

Poul Chang concerns an action for declaration of non-infringement (DNI) of a registered Community design (RCD) owned by a Mr Philip Hayward, and licensed to Bailcast, a UK company (together, the two Defendants). The Claimant makes a tool that is sold in the EU, and which allegedly infringes the relevant RCD. In 2016, Poul Chang sought a DNI (regarding the same RCD) against Bailcast in the German courts; Bailcast contested jurisdiction, and the DNI action did not proceed. One of Poul Chang's customers in Germany, KS Tools, is the subject of earlier (and ongoing) infringement proceedings in the Nürnberg-Fürth court in Germany in relation to the same RCD. David Stone (Deputy High Court judge, sitting as an IPEC judge) was asked by the Defendants to stay the DNI action, pending the outcome of the infringement proceedings in Germany. He did not do so. 

The tool in question - answers on a postcard please...

I have Designs on your jurisdiction

Instinctively, some readers might be surprised by the decision. Before looking at the judge’s reasoning, a brief refresher on the jurisdictional rules governing RCD actions:

The Regulation on Community designs includes (in Title IX) a largely self-contained code to determine which of many potentially relevant Community design courts have jurisdiction in relation to an EU-wide (unitary) design. (The Brussels Regulation is only relevant to fill lacunae in this self-contained code). The intention is to avoid “forum shopping” [although presumably not in a manner that discriminates against shopping centres in Sittingbourne]. There is therefore a jurisdictional “cascade” to determine where a person should be sued. The Design Regulation also contains rules regarding related actions involving the same RCD, to avoid the risk of irreconcilable judgments. For example, a Community design court must stay an infringement action if another Community design court (or the EUIPO) is already considering the (in)validity of the RCD.

DNIs are expressly excluded from this rule. The Design Regulation prevents the validity of an RCD being challenged in a DNI action. Therefore, even if an invalidity action in ongoing elsewhere, there is no risk of irreconcilable judgments. Meanwhile, a potential infringer can obtain a DNI relatively quickly, even if an invalidity action is still crawling through the various levels of the EUIPO and the CJEU. This is a good thing, at least for legal certainty.      

Consequently, the question of whether a DNI action should be stayed is governed by the general lis pendens provisions under the Brussels Regulation. The Brussels Regulation gives two possible routes to a stay. First, under Article 29 a stay is mandatory if the co-pending actions have (i) the same parties; (ii) the same cause of action; and (iii) the same object. (Limb (iii) does not actually appear in the English-language version of Brussels (Recast), but it does in the majority of language versions, and Case C-144/86confirms that this limb must be taken into account). Second, under Article 30 a stay is optional if the actions are so closely connected that it is expedient to hear them together to avoid the risk of irreconcilable judgments. The application of these Articles to general commercial litigation is fairly stable. To this GuestKat’s knowledge, Poul Chang was the first time that the English court has considered these lis pendens provisions in the context of the Design Regulation [contrary insights welcome].  

Should I stay or should I…

The judge refused to grant a stay, whether under Article 29 or 30. This GuestKat took the following points from the judgment: 

·     Given the “careful” jurisdictional rules under the Design Regulation, the judge was equally careful to interpret the Brussels Regulation in light of the purposive aspects of the Design Regulation.

·     Although a DNI is the mirror image of an infringement claim, these forms of claim constitute the “same cause of action”. In both claims, the court has to determine whether the infringing product and the RCD form the same overall impression on the informed user.

·     The judge was not convinced by the argument that an infringement action and a DNI do not have the “same object” just because the former affects only the parties (and leaves third parties free to continue selling the relevant product), whereas the latter might affect third parties. Instead, both ultimately ask (and answer) the question: is the RCD infringed?

·     The supplier of the tool (Poul Chang) and its customer in Germany (KS Tools) could not be treated as the “same parties”. Their interests were not “identical and indissociable in relation to the subject matter of the disputes concerned.” There needs to be a significantly closer relationship e.g. insurer/insured; company/liquidator; or assignor/assignee.

·     Most importantly (for IP lawyers at least), a finding that Poul Chang and KS Tools were the “same parties” would be inconsistent with the aims of the jurisdictional scheme under the Design Regulation. If KS Tools were to be deemed the “same party” as Poul Chang, then so too would Poul Chang’s other customers. This would mean that an infringement claim against one seller would prevent the others from seeking a DNI against the RCD owner. A crafty RCD owner might sue a cash-strapped seller in a Member State with a slower legal process in order to stymie other potential claims i.e. forum shop. By the same token, the RCD owner would not be able to sue multiple individual infringers in different proceedings and Member States, because all would be the “same party” as the first one sued.

·     The judge found (unsurprisingly) that the infringement and DNI proceedings were “related actions” for the purposes of Article 30, and therefore had to exercise his discretion regarding a stay. If there is doubt, there is a “strong presumption” in favour of a stay. But the presumption was not sufficiently strong in this case. An important factor seems to have been Bailcast’s refusal to submit to the jurisdiction of the German court in 2016 so that the court could hear Poul Chang’s DNI action (even though Germany was not the proper place to bring the claim under the Design Regulation). If there were now a risk of inconsistent judgments, it was “of the Defendants’ making”. The parties agreed that the Nürnberg-Fürth court would deliver its judgment well before the IPEC, so the parties would have the benefit of the German court’s decision before the DNI action proceeded to trial. In other words, allowing the DNI to proceed would not necessarily increase costs substantially, because settlement might be in the offing.  

The presumption is strong with this one

·     The Defendants had agreed to be bound by the final decision of the German courts i.e. they would acquiesce to a DNI (via the English court) if the infringement claim was ultimately unsuccessful. All agreed that the road to a final decision in Germany would be long. Perhaps if the timeline for a final decision were shorter, or the Defendants had agreed to be bound by the decision of the Nürnberg-Fürth court, the balance would have tipped in favour of a stay.    

·      The judge was not convinced that the German court was closer to the subject matter of the case. The Design Regulation expressly permits a DNI action to be brought in a court other than the one first seised. The jurisdictional cascade under the Design Regulation requires that a defendant domiciled within the EU be sued in its “home” Member State (in this case, the UK). The DNI action was not misconceived, and it was not hypothetical, not least because Poul Chang had received a letter before action, alleging infringement, from the Defendants’ English legal advisers.