Target Stores Stung on Costs in Bull's-Eye Case

Costs in UK-IPO actions are typically lower than before the courts. Costs awards tend to reflect this. However, a UK-IPO hearing officer recently awarded costs of £112,000 in a failed invalidation and opposition (Target Brands Inc. v Music Choice Ltd., Case O-281-07). The circumstances that led to this astonishing award make compelling reading for those who are or may become involved in UK-IPO actions.

Music Choice Targeted

Target was the owner of a CTM registration for TARGET and Bull’s Eye Device for business and retail services in Classes 35 and 42. It operated a vast and highly successful chain of discount retail stores in the U.S., selling a wide range of merchandise. It did not, however, trade in the U.K., and although its website was accessible here, purchases could not be made for delivery outside the U.S.

Music Choice was the owner of a laterfiled U.K. trade mark registration for MUSIC CHOICE and Bull’s Eye Device for entertainment-related electronic goods in Class 9, communications services in Class 38 and various entertainment-related services in Class 41. Its business was in the provision of digital television music channels and broadband music delivery. It did not trade in the U.S.

Target applied to invalidate Music Choice’s registration, claiming that it had been made in bad faith because Music Choice knew of, and copied, Target’s Bull’s Eye Device, and had in any event no bona fide intention to use in respect of all the goods and services claimed. Target asserted moreover that there was a likelihood of confusion between the marks.

Music Choice denied all the claims, and filed voluminous witness statements and evidence designed to show that it had not known about nor copied the Target logo. Much of its evidence concerned the design of its own device, which it claimed was intended to represent concentric circles reminiscent of a spinning disc, and the extent to which the employees and designers involved in the creative process had any knowledge of the Target logo. It also filed evidence that Target had not traded in the U.K. and had only a meagre reputation, if any, here.

In all, Target filed 5 witness statements as evidence in chief, to which Music Choice responded with 8. In reply, Target filed a further 12 witness statements. Two further witness statements from Music Choice were then admitted as additional evidence. At a case management conference Music Choice applied for much of Target’s evidence to be redacted as irrelevant, but the hearing officer declined on the basis that reviewing the evidence at the CMC would be too timeconsuming.

At the skeleton arguments stage, Target dropped its reliance on three of its witness statements and its claim that the TARGET and Bull’s Eye Device mark was a famous mark under Article 6bis of the Paris Convention. It also dropped its claim to a likelihood of confusion and passing off in the invalidity case, and restricted those claims to Class 35 services in a related opposition intended to be heard together with the invalidation.

Later, after extensive cross-examination of 6 witnesses by Music Choice, Target also withdrew its claim that Music Choice had applied for its mark in bad faith in the knowledge of, and having copied, the Target device.

Outcome

The hearing officer found for Music Choice on every point that remained. In his view, the evidence did not support Target’s claim that Music Choice did not have a bona fide intention to use its mark in connection with all the claimed goods and services. He held that a finding for Target would require evidence of “a calculated attempt” to “clog the Register” by claiming goods or services not related to Music Choice’s field of activity. Target had no such evidence.

Moreover, Music Choice itself had filed a copy of an investment prospectus pre-dating its filing showing that its interests extended to most of the claimed specification. The hearing officer was satisfied that the specification overall had been carefully drafted to reflect the goods and services that might reasonably interest Music Choice at the time of filing or in the future.

The hearing officer further found that Target had not made out its case that its earlier mark enjoyed a reputation in the U.K., and that the use of Music Choice’s mark would give rise to detriment or unfair advantage. In particular, Target’s evidence of activities in the U.S. only, without promotion in the U.K. apart from meetings with potential investors, did not rise to the level of proving a reputation here. Moreover, he regarded the word elements of each mark as dominant, and held that the marks were not similar overall.

Costs

Music Choice claimed actual costs of £168,358.36 in dealing with the actions, arguing that the award should climb well above that UK-IPO’s standard scale, which normally limits costs awards to pre-set levels.

It pointed out that although initially the actions had included 6 grounds, only 2 were actually pursued in the invalidation case. The grounds in a related opposition, heard at the same time, were similarly winnowed. The grounds, and reliance on a number of witness statements alleged to support them, were dropped at a very late stage, after evidence had been filed and, in the case of the claim to knowledge and copying, after cross-examination, although it was evident at a much earlier stage that the grounds were unsustainable. Consequently, Music Choice had incurred substantial costs in addressing evidence that was not relevant or on which Target did not ultimately rely.

The hearing officer agreed. In the case of unreasonable or vexatious conduct by one party, he considered himself entitled to award costs off the standard scale. In his view, it was unreasonable to plead or maintain a ground that clearly had no foundation or became unsustainable in the light of evidence. He considered that, where grounds were clearly unfounded from the outset, pursuing them through the evidence rounds could even be regarded as vexatious. That was the case here, particularly with regard to the claims as to knowledge and copying, reputation in the U.K., a likelihood of passing off and ownership of a famous mark. These grounds should have been dropped at a much earlier stage when it became clear that they were fatally flawed.

The hearing officer reduced the actual costs claimed by Music Choice by 33% to account for work in relation to grounds that he considered were not vexatious or unreasonable when pleaded, and arrived at a final award of £112,000.

Comment

Awards of this magnitude are virtually unknown before the UK-IPO, and the Music Choice case has aroused much comment and controversy.

No doubt the evidence involved was unusually heavy for both sides. Music Choice’s actual costs of around £168,000 are exceptionally high for a UK-IPO proceeding. However, the hearing officer carried out no detailed assessment of whether the costs were reasonably and necessarily incurred. Rather, he accepted the bill of costs at face value and awarded costs on an effectively punitive basis.

Whether it was reasonable to do this is highly arguable. Before the courts, where bills of costs on this order and higher are regularly considered, some assessment would have been made as to whether the costs were proportionate to the issues as well as reasonably incurred and reasonable in amount. Even if costs were awarded on an indemnity basis, some enquiry as to reasonableness would have been made. The hearing officer in this case carried out no such enquiry.

Arguably, the hearing officer also gave insufficient weight to his own decision at the CMC to reject Music Choice’s application to redact much of Target’s evidence, which later proved irrelevant or was not relied upon. The hearing officer maintained that his decision was intended to keep costs down for the parties; unfortunately, it appears to have had quite the opposite effect.

The award was not appealed. This is a shame; if it had been, valuable guidance might have been given on the criteria relevant to assessing the level of costs to award when actual, or close to actual, costs are claimed. As things stand, the decision stands more as a warning of ostensibly arbitrary, off-scale costs awards than as a useful indicator of how the level of an award is determined.

On a more general level, it is clear that pleading or maintaining unsustainable grounds may have costs consequences. Dropping such grounds at too late a stage may not avoid those consequences where their presence has already caused expense to an adversary. It is therefore important for a case to be assessed candidly and realistically not only at the outset, but also as the case develops and when evidence is filed. In too many cases, this assessment only takes place just before a hearing, as it apparently did in Music Choice. However, at that stage the vast majority of costs have already been incurred and a costs penalty may already have become likely.

Where grounds still have an arguable chance after evidence is filed, no costs penalty should follow even where the grounds fail at the hearing. A costs award may be made, but it should not be made on a punitive or indemnity basis.

Time will tell whether the staggering costs awarded in Music Choice represent the start of a pattern, or whether they are an aberration. Its chilling effect, however, will no doubt encourage parties and their advisors to aim to hit the mark.