Harrison v Teton Valley Trading Co

On 19th March 1999 Mr Karl Harrison, the applicant, applied to register the trade mark CHINA WHITE for “beers; mineral and aerated waters and other non-alcoholic drinks; fruit drinks and fruit juices; syrups and other preparations for making beverages” in Class 32, and “alcoholic beverages (except beers) including cocktails” in Class 33.

On 7th October 1999 Teton Valley Trading Ltd opposed those applications. They have now gone into voluntary liquidation, but their rights have been assigned to Firstfind Limited which by order of this court has carried on these proceedings. There is no need to distinguish between them and I will refer to them as the opponents.

The opponents asserted that the registrations should be refused under section 5(4)(a) of the Trade Marks Act 1994 because use of the trade mark CHINA WHITE by the applicant would be liable to be prevented by virtue of a rule of law. They also asserted that registration would offend section 3(6) of the Act which states:

“3(6). A trade mark shall not be registered if or to the extent that the application is made in bad faith.”

The Trade Marks Act 1994 implements Council Directive 89/104/EEC of 21st December 1998. Although section 3(6) of 1994 Act differs slightly in wording to article 3(2)(d) of the Directive it must be construed as being consistent with that article.

The opposition came before Mr S.P. Rowan, a hearing officer acting for the Registrar of Trade Marks. In his written decision dated 22nd August 2002 he dismissed the section 5(4)(a) ground, but concluded that the objection under section 3(6) succeeded. He therefore refused the applications.

The applicant appealed and the opponents cross appealed. The appeal and cross appeal came before Pumfrey J in December 2002. In his judgment of the 19th December 2002 he dismissed both the appeal and the cross appeal.

With leave of this court, the applicant appeals. He submits that both the registrar and the judge had wrongly construed the words “bad faith”. If they had applied the correct construction, they would have held that bad faith had not been established. In any case the evidence failed to establish bad faith of any kind. If those submissions were not accepted this Court should seek guidance from the European Court of Justice on the construction of article 3(2)(d) of the Directive.

The hearing officer dealt with the evidence at length and made findings of fact. The judge held that the hearing officer’s analysis of the facts “was extremely careful” and he went on to conclude that his findings of fact “were amply justified by the evidence which was before him”. I agree and can therefore take the relevant facts from his decision.

The opponents occupy premises under the Café Royal Hotel in London. At this location the opponents’ licensees run a night club named “CHINAWHITE”. It has a capacity for about 414 people at any one time.

The name CHINAWHITE for the nightclub was chosen by the opponents in September 1998. It was first used as a name in November 1998 when the premises were used for private parties. Clearly the club was successful as on 4th May 1999 it received the Best New Club award. There were before the hearing officer numerous examples of the nightclub CHINAWHITE being mentioned in various press articles from November 1998 up to the date of the applications in March 1999. The hearing officer said that the number of such articles was very impressive, he concluded:

“All this coverage would in my view would have done more than establish a reputation amongst those who had visited the club CHINAWHITE. It seems to me that such consistency and presence in the press, including articles which make it clear that a celebrity has attended the nightclub ‘CHINAWHITE’, and those that are specifically about the club would have resulted in a wider reputation and goodwill for the nightclub CHINAWHITE.”

In view of that evidence, the applicant accepted that at the date of his applications to register the trade mark the opponents enjoyed a reputation in a nightclub under the name “CHINAWHITE”.

The need for a signature or house cocktail to be called CHINAWHITE to be served at their night club was discussed by the general manager of the opponents Mr Gouty and one of their directors Mr Keegan in August 1998. Early in October 1998 they instructed Mr Matt Rymer, as part of his duties as bar manager, to develop a recipe for a cocktail to be called CHINAWHITE. He was given some directions as to the cocktail namely that it should be white in colour and oriental in flavour. Mr Rymer and his team which included Mr Arnold de Fort worked on developing the cocktail. Mr Arnold de Fort came up with the fruit juices that were to be included in the drink. Early in December 1998 the drink was produced for Mr Gouty to taste. He liked it. From early December they started selling the drink in the nightclub under the name CHINAWHITE. Soon after the drink went on sale, Mr Rymer was informed that when the opponents came to bottle and exploit the drink he would be rewarded with bonus payments.

In December 1998 a confidentiality agreement was signed by Mr Rymer, Mr Arnold de Fort and two other members of the nightclub staff. The agreement sought to maintain confidential the recipe for the cocktail. None of the signatories could have thought that they owned the cocktail or the name.

Mr Rymer was the link between the opponents and the applicant. In November 1998 he approached the applicant. He told him that he had developed a premium cocktail called CHINAWHITE and a derivative of it was to be served at a new venue to be called “CHINAWHITE” which was to open in December. He would be working at the club as a barman, but was not bound by any formal contract. He prepared the drink for the applicant to taste.

The applicant was not cross-examined and therefore the hearing officer accepted the applicant’s evidence that he believed that the drink was under the sole proprietorship of Mr Rymer. A working title of CHINA WHITE was chosen by the applicant. He then carried out trade mark and company searches. Nothing of importance was found and on 18th March 1999 he caused to be incorporated a company called China White Limited with Mr Rymer as a director, and also arranged for the trade mark applications to be filed.

Upon those facts the hearing officer concluded:

“102.

… On the basis of the evidence before me, I find that the opponents have shown that Matt Rymer and others in employment at that time were told to develop a cocktail to be called CHINAWHITE which was to be served at the opponent’s nightclub. This was as part of their employment. As such, I find that the idea to use CHINAWHITE as the name for the cocktail was that of the opponents. There is no evidence from Mr Rymer to contradict this. He is the only person who could have provided a different version of events. That is not to say that I question Mr Harrison’s evidence. I accept that Matt Rymer represented to Mr Harrison that he, Matt Rymer, was the sole proprietor of the name and recipe, but on the evidence before me that was not in fact the case.

103.

Whilst, Mr Rymer’s bad faith is not strictly an issue before me, I think that his actions and the facts that lay behind them are important. He is the vital link between the opponents and the applicant. I cannot in my view consider the actions of Mr Harrison without considering the actions of Mr Rymer. Whilst I can only take a view on the evidence before me and that evidence is incomplete since I do not have any evidence from Mr Rymer himself, I can state that if the applicant had been Mr Rymer or if the applicant had been the company of which Mr Rymer was a director (or co-director) I would, on the basis of the evidence before me, have had no hesitation in finding that the application for this trade mark was made in bad faith. It seems to me that Mr Rymer was aware of his employer’s interest in the name CHINAWHITE as a nightclub, he had been instructed to develop a cocktail of that name for use in that club, he was aware that the appellants intended to exploit the drink further by bottling it.

104.

Even if he believed that the drink and name belonged solely to him, that was not the case, I have the applicant’s own evidence that the drink was the result of a collaboration with at least one other person, Mr de Fort, and from the opponent’s evidence, possibly others (Mr Gouty). Mr de Fort’s name is alongside Mr Rymer’s on the confidentiality agreement that other bar staff were required to sign. They agreed to keep the confidence disclosed to them by Mr Rymer and Mr de Fort. Even if the drink and name did not belong to the opponents, it was not in the sole proprietorship of Mr Rymer.”

As the applicant was not cross examined, the hearing officer concluded that he should accept his evidence when he said:

“I have little or no knowledge of Mr Keegan and his company and recognised no bad faith in my decision to develop and market the drink CHINA WHITE. Indeed, even though I am a director of a company with a bar and restaurant interests at no stage did I intend using the CHINAWHITE name in relation to any such operations..”

The hearing officer concluded that at the date of the applications the applicant believed what he had been told by Mr Rymer and “saw nothing wrong in his own behaviour”.

The hearing officer decided that the question for him was whether, having regard to the background facts, the filing of the trade mark applications in the applicant’s own name amounted to dealings which fell short of the standards of acceptable commercial behaviour observed by reasonable and experienced men in the particular area being examined. He said that if the applicant had been aware of the circumstances as to how Mr Rymer had been instructed to develop the drink, he would be under no doubt that the filings would have been in bad faith. He went on to say:

“112.

Taking account of the facts which he was aware, should Mr Harrison have accepted Mr Rymer’s assurances at face value? Was that the action of a reasonable and experienced men in the particular area being examined? I think the answer to both those questions must be no.

114.

… I have before me a number of facts from the applicant’s own evidence that allow me to find that the application was made in bad faith. Mr Harrison states that he was aware of the fact that Mr Rymer was a barman at the club to be called CHINAWHITE, that he had developed a drink called CHINAWHITE, a derivative of which was to be served at the club when it opened. These three facts should in my view, have led a reasonably informed businessman in the relevant field to question Mr Rymer further about his assertions and to make further enquiries. He should not have ‘deliberately not asked questions, lest he learn something he would rather not know and then proceed regardless’; ( Royal Brunei.) It was not sufficient in my view to have carried out a search of the Companies register and the Trade Marks register. As Mr Harrison himself acknowledges, he did not file an application for nightclub services because he was aware of the opponent’s use of the name CHINAWHITE in that field.

115.

Taking all these facts together, I find that in filing an application for the trademark CHINA WHITE for goods in class 32 and 33, Mr Harrison fell short of the standards of acceptable commercial behaviour observed by reasonable and experienced men in the particular area being examined. The application was filed in bad faith and the opponents ground of objection under section 3(6) is made out.”

The judge adopted the formulation of Lindsay J in Gromax Plasticulture Ltd v Don & Low Nonwovens Ltd [1999] RPC 367 at 379:

“I shall not attempt to define bad faith in this context. Plainly it includes dishonesty and, as I would hold, includes also some dealings which fall short of the standards of acceptable commercial behaviour observed by reasonable and experienced men in the particular area being examined. Parliament has wisely not attempted to explain in detail what is or is not bad faith in this context: how far a dealing must so fall-short in order to amount to bad faith is a matter best left to be adjudged not by some paraphrase by the courts (which leads to the danger of the courts then construing not the Act but the paraphrase) but by reference to the words of the Act and upon a regard to all material surrounding circumstances.”

The judge went on to conclude:

“… it seems to me that the hearing officer correctly instructed himself as to the law. His analysis of the facts was extremely careful and the summary of his findings which I have quoted above was in my judgment a series of findings which were amply justified by the evidence which was before him. I am also satisfied that he was wholly conscious of the dangers of coming to any conclusion adverse to the applicant in the absence of cross-examination and that the ultimate conclusion to which he came was a conclusion which was sufficient to make good the objection of want of good faith in this context and was entirely supportable on the evidence.

…

The words ‘bona fide’ or ‘good faith’ are what are sometimes called ‘chameleon words’ and take their content from the colour from their surroundings. Once the hearing officer decided that the correct approach was that which I think he may well have been bound to accept, it was open to him to find that objectively the behaviour of the applicant did not satisfy the second half of the formulation ... this was not a question of drawing inference at all. It was a question of coming to a secondary finding of fact on all the materials. I do not consider that the hearing officer’s decision is open to challenge on this ground and the appeal must accordingly be dismissed.”

Mr Silverleaf QC who appeared for the applicant submitted that the words “made in bad faith” required that the application should be made “dishonestly”. I reject that submission. If dishonesty was the test then that word would have been used in the 1994 Act and in the Directive. No doubt an application made dishonestly will be made in bad faith, but it does not follow that if dishonesty is not established, bad faith cannot have existed.

Mr Silverleaf’s main submission was that upon the findings of fact made by the hearing officer, namely that the applicant filed his application believing Mr Rymer owned both the recipe and the name “CHINAWHITE” for cocktails, the hearing officer and the judge should have held that the application was made in good faith. In essence the state of mind of the applicant was the only consideration. The test was, he said, subjective. If it was established that the applicant believed that he was entitled to make the application then there was no bad faith. It followed that as the applicant believed that he was entitled to make the application, the objection under section 3(6) of the 1994 Act could not succeed. To support that submission, Mr Silverleaf referred us to the speeches of the House of Lords in Twinsectra Ltd v Yardley [2002] UKHL 12: [2002] 2 AC 164.

Mr Vanhegan who appeared for the opponents submitted that the test of bad faith was objective and that the fact that the applicant believed Mr Rymer did not mean that the applications had been made in good faith. To decide whether the applications were made in bad faith, the court had to look at all the facts and then decide objectively whether bad faith had been established. He also relied on passages in the speeches in the Twinsectra case.

In Twinsectra, the courts had had to consider whether a solicitor had acted dishonestly. Although the question for decision in that case was different, the reasoning in the speeches is relevant. The leading speech was made by Lord Hutton. At paragraph 27 he said:

“27.

… There are three possible standards which can be applied to determine whether a person has acted dishonestly. There is a purely subjective standard, whereby a person is only regarded as dishonest if he transgresses his own standard of honesty, even if that standard is contrary to that of reasonable and honest people. This has been termed the "Robin Hood test" and has been rejected by the courts. As Sir Christopher Slade stated in Walker v Stones [2000] Lloyds Rep PN 864, 877 para 164:

"A person may in some cases act dishonestly, according to the ordinary use of language, even though he genuinely believes that his action is morally justified. The penniless thief, for example, who picks the pocket of the multi-millionaire is dishonest even though he genuinely considers that theft is morally justified as a fair redistribution of wealth and that he is not therefore being dishonest."

Secondly, there is a purely objective standard whereby a person acts dishonestly if his conduct is dishonest by the ordinary standards of reasonable and honest people, even if he does not realise this. Thirdly, there is a standard which combines an objective test and a subjective test, and which requires that before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest. I will term this “the combined test”.”

Cleary the court, when considering bad faith, cannot apply a purely subjective test, called by Lord Hutton “the Robin Hood test”. The dishonest person or one with low standards cannot be permitted to obtain trade mark registrations in circumstances where a person abiding by a reasonable standard would not. The registration of a trade mark is designed to enable bona fide proprietors to protect their proprietary rights without having to prove unfair trading. Registration is not provided to help those with low moral standards.

Lord Hutton went on to conclude that the true test for dishonesty was the combined test. He said:

“36.

… Therefore I consider … that your Lordships should state that dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct.”

For my part, I would accept the reasoning of Lord Hutton as applying to considerations of bad faith. The words “bad faith” suggest a mental state. Clearly when considering the question of whether an application to register is made in bad faith all the circumstances will be relevant. However the court must decide whether the knowledge of the applicant was such that his decision to apply for registration would be regarded as in bad faith by persons adopting proper standards.

I believe that Mr Silverleaf did, during argument, accept that to be the right test. He accepted that despite his client’s belief as to what he had been told by Mr Rymer, the applications would have been made in bad faith if the circumstances were such that an honest person would not have applied for registration without further enquiries. Mr Vanhegan also modified his basic submission during argument. He accepted that an application would be made in bad faith if the applicant knew or ought to have known that somebody else had a better claim. If when he said “ought to have known” he had in mind that the standard was that of persons adopting proper standards, then there may be little of importance between that and the combined test that I have set out above.

The parties have not made a complete search of all the decisions of the First Cancellation Division. It may be that we were referred to the ones which were of most significance to this appeal. None of them dealt in detail with the issue in this case, but the judgments appear consistent with the test I have proposed.

In Surene Pty Ltd v Multiple Marketing Ltd C000479899/1, the proprietor, Multiple Marketing, distributed the applicant for revocation’s products under the trade mark BE NATURAL. The Cancellation Division held that the application had been made in bad faith. It said:

“10.

Bad faith is a narrow legal concept in the CTMR system. Bad faith is the opposite of good faith, generally implying or involving, but not limited to, actual or constructive fraud, or a design to mislead or deceive another, or any other sinister motive. Conceptually, bad faith can be understood as a “dishonest intention”. This means that bad faith may be interpreted as unfair practices involving lack of any honest intention on the part of the applicant of the CTM at the time of filing.

11.

Bad faith can be understood either as unfair practices involving lack of good faith on the part of the applicant towards the Office at the time of filing, or unfair practices based on acts infringing a third person’s rights. There is bad faith not only in cases where the applicant intentionally submits wrong or misleading by insufficient information to the Office, but also in circumstances where he intends, through registration, to lay his hands on the trade mark of a third party with whom he had contractual or pre-contractual relations.”

In the Senso Di Donna’s Trade Mark case C0006716979/1, [2001] ETMR 5, the First Cancellation Division said:

“17.

Bad faith is a narrow legal concept in the CTMR system. Bad faith is the opposite of good faith, generally implying or involving, but not limited to actual or constructive fraud, or a design to mislead or deceive another, or any other sinister motive. Conceptually, bad faith can be understood as a “dishonest intention”. This means that bad faith may be interpreted as unfair practices involving lack of any honest intention on the part of the applicant of the CTM at the time of filing. Example: if it can be shown that the parties concerned had been in contact, for instance at an exhibition in the respective trade, and where then one party filed an application for a CTM consisting of the other party’s brand, there would be reason to conclude bad faith. In this case, however, according to the meaning of the term “bad faith”, there is no evidence that Senso di Donna Vertribes - GmbH was acting dishonestly or that they intended any similar act, or were involved in unfair practices or the like.”

To similar effect was the decision in Lancôme Parfums et Beauté and Cie’s Trade Mark [2001] ETMR 89.

We were also referred to the decision of Mr Hobbs QC acting as the appointed person in Daawat Trade Mark [2003] RPC 187. I am not certain from the language that he used that he was of the view that the words “bad faith” required consideration of the mental state of the applicant. However his decision was clearly right on the facts but care should be taken if his reasoning is applied.

The judge applied the statement of Lindsay J in Gromax which is cited above in paragraph 18. He was right to do so. The words “bad faith” are not apt for definition. They have to be applied to the relevant facts of each case. The test is the combined test and the standard must be that of acceptable commercial behaviour observed by reasonable and experienced persons in the particular commercial area being examined. I stress “acceptable commercial behaviour” to exclude behaviour that may have become prevalent, but which would not upon examination be deemed to be acceptable.

It appears from the report “Bad Faith Provision in the European Union and in EU Candidate Countries”, prepared by the European Legislation Analysis Sub-Committee (April 8 2002) of the International Trade Marks Association, that the standard of bad faith applied differs slightly in some of the States to which the Directive now applies. That was also the view expressed by Professor Philips in his book, Trade Mark Law, A Practical Anatomy (2003). At page 447 he said:

“The fact that “bad faith” has been considered in a number of cases involving CTMs means that a body of coherent doctrine is building up. In contrast the doctrine on “bad faith” under the Directive is inevitably going to be, at least initially, less coherent since it is derived from a variety of different tribunals in different countries.”

Even so, there appears to be a consensus that seeking to monopolise another’s trade mark and other unfair practices would render an application invalid for bad faith.

Against that background I turn to apply the law to the facts. Mr Silverleaf accepted as correct the primary findings of fact made by the hearing office. He went on to submit that the hearing officer had held that the goodwill in drinks and in nightclubs were in different fields of activity. The opponents had a reputation in their nightclub, but the fact that they served a house cocktail called CHINAWHITE added nothing to their reputation. Further, the applicant was entitled to believe Mr Rymer and did so. The suggestion in paragraph 114 (see paragraph 17 above) that the facts should have led the applicant to question Mr Rymer further was not realistic. Mr Rymer, according to the hearing officer, had misled the applicant and the hearing officer had no reason to believe that further questioning would have elucidated answers which would have led the applicant to any different view of his rights in the mark CHINA WHITE. In any case there was no basis for the suggestion the applicant deliberately avoided asking questions. The applicant believed Mr Rymer and had no reason to make further enquiries, save to carry out the trade mark search that he did.

Mr Vanhegan supported the conclusion and the reasoning of the judge. He reminded us that an appeal court should not interfere with the decision of the hearing officer merely because the appeal court would have come to a different conclusion. This Court should accept the conclusion arrived at by an experienced hearing officer unless he had gone wrong in principle.

I accept that there was no evidence that the applicant deliberately avoided asking questions, in the sense of considering and rejecting asking questions, nor that if he had Mr Rymer would have told him the truth. However it would be wrong to view those statements by the hearing officer as being the basis upon which he decided the case. He decided, taking into account the belief of the applicant and the surrounding facts, that bad faith had been established. That bad faith was the result of all the facts and because the applicant made no further enquiries. I believe that the hearing officer was right to come to that conclusion.

The applicant believed Mr Rymer when he told him that he owned the name and the recipe of a cocktail called CHINA WHITE. The applicant knew of the club called CHINAWHITE and that neither he nor Mr Rymer had any right or interest in it. He knew that a cocktail called CHINAWHITE was being served at the club. With that knowledge he then applied for a trade mark registration which, despite the completely untenable suggestion to the contrary by Mr Silverleaf based on section 11(2)(a) and (b) of the 1994 Act, would, when granted, have enabled him to prevent use by the opponents of the word CHINAWHITE upon price lists in their club. The suggestion that the name CHINAWHITE, being used in relation to a cocktail, added nothing to the reputation of the club is neither here nor there. A person in the position of the applicant adopting proper standards would despite believing Mr Rymer have not applied for a monopoly which would have enabled him to prevent the opponents carrying on their business of selling their CHINAWHITE cocktail and drinks under that name as they presently were. To make such an application, as he did, amounted to bad faith. I conclude that both the hearing officer and judge were right and that the appeal should be dismissed.

On the facts of this case there is no reason to seek guidance from the European Court of Justice.

I agree.  I am grateful to Sir William Aldous for setting out the relevant law and facts in this case.  The concept of "bad faith" for the purposes of section 3(6) of the Trade Marks Act 1994 is an autonomous concept of European Union law.  It is not defined in the Council Directive which section 3(6) seeks to implement.   Indeed it would be difficult to define exhaustively.  Its meaning must be sought in the language, scheme and purpose of the Directive.  As to these matters, I note that the relevant provision in the Directive confers an option on member states to refuse applications for registration made in bad faith, and the Directive is a harmonising measure to assist (among other objects) freedom of movement in the European Union.

We should, therefore, seek a meaning which is consistent with the meaning given to bad faith in this context by other member states and (more importantly) by the courts of the European Union. The Surine and Senso di Donna cases,  which Sir William Aldous  has cited, provide helpful guidance to the meaning of bad faith, and the meaning so given differs little if at all from that given to this expression by Lindsay J in the Gromax case.  On this basis, I have less concern about the reasoning of Mr Geoffrey Hobbs QC in the Daawat case: for my part, I would have agreed with paragraphs 85 and 96 of his judgment.

In the circumstances of this case, however, I too agree, for the reasons given by my Lords, that Mr Harrison made his application in bad faith for the purposes of the Directive.

I agree that the appeal should be dismissed for the reasons given by Sir William Aldous.

I agree that the combined test stated by Lord Hutton in Twinsectra Ltd v Yardley [2002] UKHL is appropriate to apply in the present case. Before stating it, Lord Hutton considered the judgment of Lord Lane CJ in R v Ghosh [1982] QB 1053 and the speech of Lord Nicholls in Royal Brunei Airlines Snd Bhd v Tan [1995] 2 AC 378.

A realisation by the applicant that what he was doing would be regarded by honest people as in bad faith was required. Sir William Aldous has set out the facts relied on as establishing that reasonable and honest people in the trade would have considered the application to be in bad faith. It would be fanciful to suggest that someone as experienced in the trade as the applicant did not realise what the standards were by which his conduct was to be judged.

I agree with the reservation expressed by Sir William Aldous about the reasoning of Mr Geoffrey Hobbs QC in Daawat in so far as it may be read, in the last sentence of paragraph 96, as casting doubt upon the combined test expressed in Twinsectra.