In the famous words of Donald Rumsfeld, “There are known knowns. There are things we know we know. We also know there are known unknowns. That is to say, we know there are some things we do not know. But there are also unknown unknowns, the ones we don't know we don't know.” ‘Rumsfeld’s Wisdom’ (as it is sometimes called) applies to litigation as much as it applies to searching for ‘WMD’ and anything else. At the outset of litigation, parties will consider their case, work out what they know and do not know, and go from there.
This case came down to known knowns and known unknowns. The known known was, as it turned out, whether the claimant, Fox Group International Limited (“Fox”), knew it did not have the right to register a trade mark for the products in question. It knew that it did not. The known unknown was whether or not a third party supplier of branded products was selling genuine, branded products, the rights to which had been exhausted through the placing onto the EEA market. Despite it being a known unknown, Fox did not take proper steps to establish the relevant facts, and ended up having to discontinue its claim and pay damages for unjustified threats.
I hope you read the whole of this article, but in case you don’t here are the key points I would draw out:
- Bringing claims before taking proper steps to establish the relevant facts is risky, and can result in embarrassing and costly climb-downs.
- It will likely constitute bad faith for a distributor to register a trade mark in its own name where it does not have the right to do so.
- Suing on such a trade mark can lead to a counterclaim for invalidity and damages for unjustified threats.
- While importers are generally not able to bring claims for unjustified threats, whether a person is an importer is a matter of fact as to who actually carried out the importation.
Fox is a UK-based supplier of aesthetic and cosmetic products, including a hyaluronic acid dermal filler branded REVOLAX. REVOLAX is manufactured by a Korean entity called Across Co., Ltd (“Across”). Across had granted Fox the exclusive right to sell REVOLAX in the UK for three years. The distribution agreement between Across and Fox made clear that Fox did not own the trade marks relating to REVOLAX; it was only an exclusive licensee.
Despite this, in 2018 Fox applied to register REVOLAX as a trade mark in the UK, naming itself as the owner. Later that year, Fox identified that Teleta Pharma Ltd (“Teleta”), which is a wholesaler of third party pharmaceutical, cosmetic, aesthetic and medical device products, was selling REVOLAX-branded dermal fillers in the UK. Fox wrote to Teleta claiming that it was infringing Fox’s rights. As became clear, Teleta was not infringing Fox’s rights; it was selling genuine REVOLAX products that had been placed on the EEA market by or with the consent of Access. Teleta nevertheless gave interim undertakings while it considered the claim, but that was apparently insufficient for Fox, which issued proceedings for trade mark infringement and passing off four days later. It then applied to register the REVOLAX mark as an EU trade mark (despite acknowledging in the distribution agreement that it had no rights to the REVOLAX name outside the UK, and that even in the UK being only a licensee).
Teleta defended the claim on the basis that it was selling genuine REVOLAX products, the trade mark rights in which had been exhausted by their placement on the EEA market. It also counterclaimed for a declaration of invalidity on the ground that the trade mark was filed for in bad faith and that the letter before claim constituted a groundless threat.
Fox discontinued its claim in February 2019. The effect of discontinuance means that the court no longer needed to consider infringement, and will have resulted in an order that Fox pay Teleta’s costs of defending the claim, but it did not dispose of the counterclaim, which went on to trial.
The court declared the UK trade mark invalid. The judge was not persuaded by Fox’s evidence that Across had consented to the application. She considered that Fox knew it did not have the right to apply to register the mark, and that the intention behind the application was to prevent traders selling genuine REVOLAX, despite there being legitimate grounds for them to do so.
Teleta won again. It had purchased genuine REVOLAX products and was entitled to sell them in the UK. Fox accepted that the letter before claim constituted a threat, but argued that Teleta was an importer of REVOLAX and that the threat was therefore not actionable. Generally, threats against importers are not actionable by the importer. This is the result of a policy decision that trade mark owners should not be able to make unjustified threats against retailers and customers (who might be more easily persuaded not to stock a particular product), but that such owners should be free to make allegations against importers and manufacturers. Fox therefore tried to argue that Teleta was an importer and could not bring a claim for unjustified threats.
In fact it was Teleta’s affiliate, BR Pharma, that was the importer. BR Pharma purchased the goods in Poland and arranged for their shipment to the UK, where it handed them to Teleta to be sold. Fox argued that Teleta had been part of a “common design” to import the products, such that it should be taken to be a co- or joint importer. The judge found that interpretation to be inconsistent with the wording of s.21A of the Trade Marks Act 1994.
The judge said that “The moral of this particular story is, like that of many cautionary tales, simple and seemingly obvious. A potential claimant should, before issuing a letter before claim or a claim alleging trade mark infringement: (i) check that the suspect goods are, in fact, infringing and not legitimate branded goods; and (ii) check it had the legitimate right to register the trade mark it alleges has been infringed.”
While certainly true that a claimant should be confident it has a valid right on which to bring a claim before asserting infringement, in parallel importing cases a brand will often not know whether the goods being sold by the potential infringer are being sold legitimately or not. Parallel importers rarely say where they have obtained the products, and products that have, for example, been purchased in Asia and then imported into the UK would likely infringe the right. The bad faith element of this case means it is unusual.
One further point worth mentioning is that the UK government is currently consulting on whether or not IP rights should be exhausted in respect of products placed on the EEA market (as is currently the case, notwithstanding Brexit). My colleague, Anna Caruso has covered this in detail, and I’d recommend having a read of her article here. It is a really important issue for brand owners, distributors, wholesalers and retailers, and is another example of the complex problems thrown up by Brexit.
This case is a cautionary tale to potential claimants who are considering trade mark infringement proceedings against a potential defendant they suspect of trading in infringing goods. The moral of this particular story is, like that of many cautionary tales, simple and seemingly obvious. A potential claimant should, before issuing a letter before claim or a claim alleging trade mark infringement: (i) check that the suspect goods are, in fact, infringing and not legitimate branded goods; and (ii) check it had the legitimate right to register the trade mark it alleges has been infringed. Had the claimant in this case taken those steps, it would not have had to discontinue its claim against the defendant for trade mark infringement with the costs consequences that follow. Nor would it find itself defending the defendant's counterclaim for trade mark revocation on the grounds of bad faith, and for damages for groundless threats pursuant to section 21A of the Trade Marks Act 1994, as it now does before me.