COURT DIARY

Extra Time Win For Arsenal

The long-running contest between Arsenal Football Club and Mr Matthew Reed appears finally to have been decided, by the English Court of Appeal, in favour of the Premier League club.

In summary, the background to the case was as follows. Mr Reed had sold unofficial (unlicensed) merchandise bearing one or more of Arsenal’s trade marks outside the club’ ground for over 30 years. His outlets always bore a sign emphasising the unofficial nature of his goods. For a long period, Arsenal had tolerated Mr Reed’s activities, but, as their own merchandise operation increased, they took the decision to try to prevent his unlicensed use of their marks. They therefore brought a trade mark infringement and passing off case before the English High Court.

At first instance, the judge (Mr Justice Laddie) had dismissed the passing off case because, on the balance of probabilities, Mr Reed’s activities had not led to any confusion amongst the relevant public. Turning to the question of trade mark infringement, the judge found that Mr Reed’s use of the club’s trade marks did not carry any message of trade origin, but would be perceived as a badge of support, loyalty or affiliation to the club. Mr Justice Laddie therefore found that Mr Reed’s use did not amount to trade mark use. Having made this finding of fact, the judge then asked the European Court of Justice (ECJ) for guidance on a question of law, which can be paraphrased “Is it a defence to trade mark infringement if the use complained of does not indicate trade origin?”. The ECJ’s ruling did not answer Mr Justice Laddie’s question as posed. Instead they reached the following conclusions:

• The exclusive right under Article 5(1)(a) of the Directive was conferred in order to enable the trade mark proprietor to protect his specific interests as proprietor, that is, to ensure that the trade mark can fulfil its functions. The exercise of that right must therefore be reserved to cases in which a third party’s use of a sign affects or is liable to affect the functions of the trade mark, in particular, its essential function of guaranteeing to consumers the origin of the goods.

• Mr Reed’s presentation of the word Arsenal on the goods at issue…is such as to create the impression that there is a material link between his (Mr Reed’s) goods and the trade mark proprietor. This conclusion is not affected by the notice on Mr Reed’s stall that the goods he is selling are not official Arsenal products. The connection between Mr Reed’s notice and his unofficial merchandise is lost once the goods are sold and consumers subsequently dealing in the goods may interpret the Arsenal sign on the goods as designating the club as the origin of those goods. Thus, there would be no guarantee that all goods bearing the mark have been manufactured or supplied under the control of a single undertaking which is responsible for their quality.

• In those circumstances, it is immaterial that Mr Reed’s use of Arsenal is perceived as a badge of support for or loyalty or affiliation to the football club. This seemed to have settled the matter in favour of Arsenal. However, when the case returned to the English High Court, the judge decided that the ECJ had exceeded its jurisdiction and made findings of fact that were at odds with his findings in the original case. He then proceeded to interpret the ECJ’s rulings as meaning that only trade mark use would infringe a registered trade mark under Article 5(1) of the Directive. When this interpretation was combined with the original findings of fact (Mr Reed’s use was not trade mark use), Mr Justice Laddie inevitably concluded that Mr Reed’s activities did not infringe Arsenal’s trade marks.

Not surprisingly, the football club appealed against the decision on registered trade mark infringement. In a ruling that may have a wide ranging effect on sources of unofficial merchandise throughout the entertainment industry, the Court of Appeal reversed Mr Justice Laddie’s decision and found in favour of Arsenal. In doing so, the Appeal Court made the following, important pronouncements:

• The ECJ had concluded that the question of whether or not trade mark infringement required trade mark use was not the relevant consideration. The ECJ had held that a trade mark registration gave the proprietor a property right. In view of this, the relevant consideration was whether the allegedly infringing use was likely to damage that property right or was likely to affect or jeopardise the guarantee of origin which constitutes the essential function of the mark. That did not depend on whether the use complained of was trade mark use. At no stage did the ECJ suggest that use which was not understood by the public to be a designation of origin could not infringe.

• A third party’s use of a sign could affect the functions of a registered trade mark, even if that use was not trade mark use and even if there was no confusion. For example, it could occur where a competitor took unfair advantage of the reputation of the (registered) trade mark.

• The crucial sentence in understanding the ECJ’s reasoning is the one, in paragraph 57 of their ruling, where they state that there is a clear possibility that consumers, who do not purchase directly from Mr Reed and who may therefore be unaware of the unofficial nature of the merchandise, may infer from the presence of Arsenal’s trade marks on the products that the football club are the source of (Mr Reed’s) products.

• Unchecked use of a registered trade mark by a third party, which is not descriptive use, is likely to damage the function of the trade mark right because the registered trade mark can no longer guarantee origin.

• On the evidence, particularly the evidence that Mr Reed believed that it was necessary, on his stall, to distinguish his unofficial merchandise from the club’s official products, Mr Reed’s use did serve to denote origin. In other words, Mr Reed’s use was trade mark use.

Although the passing off aspect of Mr Justice Laddie’s decision had not been appealed, the Appeal Court still made the following interesting comments on that aspect of the case:

• The traditional form of passing off, perhaps best referred to as unfair competition, is no longer definitive of the ambit of this cause of action.

• Quoting with approval a passage from an earlier passing off case (Vine Products v Mackenzie, 1969 RPC 1), “..if people were allowed to call sparkling wine not produced in Champagne “Champagne”, even though preceded by an adjective (Spanish) denoting the country of origin, the distinction between genuine Champagne and “champagne type” wines produced elsewhere would become blurred…the word “Champagne” would come gradually to mean no more than “sparkling wine”…in such a case there is not, in the ordinary sense, any representation that the goods of the defendant are the goods of the plaintiff, and evidence that no-one has been confused or deceived in that way is quite beside the point. In truth the decision went beyond the well-trodden paths of passing off into the unmapped area of “unfair trading” or “unlawful competition”.

Comment

This decision is undoubtedly correct in strict legal terms and will be welcomed by professional sports clubs and others operating in the wider entertainment industry. However, in the light of the Appeal Court’s ruling, it is imperative that the commercial activities of such sports clubs, especially the leading football clubs, as well as their suppliers and distributors, are closely monitored by the competition authorities. These clubs are, at least off the field, de facto monopolies and their merchandising activities should be viewed in that light.

Given the facts of the Reed case, in particular the defendant’s unofficial use of the club’s trade marks for over 30 years, the writer does not understand why the defence of acquiescence has never been raised in this action. Although Arsenal may now be able to prevent Mr Reed selling merchandise bearing the club’s new logo, that was introduced during the past year, their long-term acquiescence to his use of Arsenal, Gunners and earlier club badges, ought to prevent any trade mark infringement or passing off case, based on those rights, succeeding.

Finally, the Appeal Court’s enlightened comments on the ambit of a passing off action in the modern commercial world are to be welcomed. It remains to be seen whether this will lead to a sea change in the English judiciary’s traditional treatment of passing off cases. For example, will some of the worst excesses of British supermarkets’ “look-alike” practices be caught by a wider definition of passing off? We shall see.