UK Court Diary

Apples Round Off Trade Mark Dispute

Ambiguity in settlement agreements can lead to litigation, costs and commercial loss. Even the most tightly-worded accords can sometimes fail to envisage and provide for all possibilities. So learned Apple Corps. recently, when the legendary Beatles record company lost a multi-million pound trade mark dispute before the High Court. The judgment provides useful insight into problem areas in drafting trade mark settlements.

 

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Apple Corps. (“Corps.”) was founded by the Beatles in 1963 and still owns the rights to a large number of the band’s recordings. Its trade mark is the image of an apple.

Apple Computer (“Computer”) was founded in 1976 and is a highly successful computer and software company. Its trade mark image is an apple with a bite taken out of it.

The two companies had a history of litigating against each other in relation to the apple logos. In 1991, they settled the outstanding dispute with a formal trade mark agreement in the hope of delineating each party’s sphere of activities and putting the conflicts behind them. It was not to be.

In 2001, Computer launched a new software product under the iTunes brand name. It allowed the user to download music playable through a computer. The music downloads were popular, and with the development of technology and the growth of illegal downloads that damaged the music industry, Computer saw an opening in the market for a new service that allowed users to buy downloaded tracks at very low prices through an electronic shop, which it called the “iTunes Music Store.” This launched in 2003 and enjoyed considerable commercial success.

 

Apples All Over

The iTunes Music Store service involved the use of Computer’s half-eaten apple logo on the computer screen while the service was being accessed and before and after tracks were played.

Corps. brought proceedings in the High Court, objecting that Computer’s use of the half-eaten apple logo in connection with the iTunes Music Store was use “on or in connection with … current or future creative work whose principal content is music and/or musical performances…” in breach of the agreement.

The case was beset with difficulties from the outset. Even before the core of the dispute could be addressed, a preliminary issue as to governing law, arising from the parties’ failure to agree one when the settlement was signed, required the intervention of the judge and ultimately resulted in a finding that English law applied.

When the central issues were finally addressed, the judge faced problems of construction arising from the use of generalized language in the agreement. The question he had to resolve was whether the use of the half-eaten apple logo on the screen while the iTunes Music Store was being accessed was use “on or in connection with” music, or whether it was instead use “on or in connection with” software and data transmission services, which had been reserved to Computer under the agreement. The words “on or in connection with” were problematic because they were so wide.

The judge considered it necessary to impose some limits on how the term should be construed. As the term was part of a trade mark agreement, he decided that use “on or in connection with” a particular product or service should be use that denotes “a degree of trade connection or association with that subject matter relating to its commercial origin.”

When this was resolved, the judge then turned to whether the use of the half-eaten apple logo as part of the iTunes Music Store service amounted to use that denoted a trade connection or association as to the commercial origin of music.

He found that it did not. Likening the logo to a retailer’s brand, the judge considered that the average consumer encountering it through the iTunes Music Store would not assume that all the content offered via downloads was in fact the content of Computer, just as he or she would not assume that all the products sold in a supermarket were made by the supermarket. On the contrary, the logo was likely to be seen as denoting the software and data transmission service by which the downloaded music was made available to the user. Put succinctly, the logo denoted the trade origin of the electronic store, not that of the products available for purchase in or through it.

 

Comment

Apple Corps.’ legal bid failed, although it remains to be seen whether the findings will be reversed to some, or any, extent on appeal.

Nonetheless, the story so far is an object lesson in why it is important to draft settlement agreements with care, clarity and precision. The failure in this case to agree a governing law led to an expensive initial chapter in a case where the main action was fearsomely costly already. In this case, the stakes were so high that the parties had no choice but to press forward. Smaller, less well-funded parties might be prevented from pursuing a case altogether where such preliminary issues raise costs unacceptably.

The use of generalized terms such as “use on or in connection with” certain goods or services is difficult to avoid in trade mark agreements. They are typically included to provide for all possible uses of a trade mark, including ones not envisaged at the time the agreement is signed. However, the judge’s approach in this case clearly signals that the courts will impose some limitations on these broad terms, and are most likely, in the case of a trade mark agreement, to fence them in by reference to general trade mark principles.

The sort of use such an agreement is likely to prohibit, in the absence of an express indication to the contrary, is the sort of use that is likely to be taken as denoting trade origin. If parties mean something else, it will be necessary to say so expressly.