Caspian Pizza Ltd & Ors v Shah & Anor

This is an appeal by the claimants from an order of HH Judge Hacon dated 18 December 2015 dismissing a claim for trade mark infringement and passing off and declaring that a UK trade mark No. 2 396 396 (“the Caspian Mark”) was invalidly registered.

The second and third claimants are the co-proprietors of two UK registered trade marks:

The background facts are no longer in dispute. As the judge found, the second claimant, Mr Zarandi, started a pizza business in Birmingham in 1991 trading under the name “Caspian Pizza”. The business has subsequently expanded into a chain of restaurants under the same name in and around Birmingham and has acquired goodwill associated with the Caspian and the Device Marks. Since 2011 the third claimant has been involved in the business and on 7 August 2012 Mr Zarandi and Mr Zand licensed both marks to the first claimant (“CPL”) through which the business has been conducted since that time. The fourth named appellant, Caspian Franchise Holdings Limited, was not a claimant in the proceedings but was added as a party to the appeal by Floyd LJ on 18 October 2016. It was set up in February 2016 and both trade marks were assigned to it. CPL remains the licensee of the marks.

The defendants operate pizza restaurants in Worcester using the Caspian name. The first of these restaurants opened in 2002 at St Martin’s Gate, Worcester and traded until 2005. A second restaurant also trading under the name Caspian Pizza was opened at 82-84 Sidbury, Worcester in 2004. Since then further outlets have been opened in Malvern Link and Droitwich. The business has been carried on through the second defendant since 2011.

The proceedings before Judge Hacon concerned only the restaurant at 82-84 Sidbury. I shall refer to it as the judge did as the Worcester Restaurant. The allegation in the amended particulars of claim was that in 2008 the first defendant, Mr Shah, entered into an oral franchise agreement with the claimants permitting him to operate the Worcester Restaurant under the Caspian Pizza name; that it was a term of this agreement that any goodwill generated by the use of the mark would be vested in or assigned to the first claimant; and that monthly royalty payments would be made for the use of the name. It was claimed that in 2013 the defendants refused to regularise the position by entering into a written agreement and failed to pay the royalties due. In November 2013 CPL terminated the agreement but the defendants have continued to trade using the Caspian Pizza name and have therefore infringed both of the claimants’ registered trade marks.

The defence joined issue with the claimants on whether the defendants have operated under a franchise agreement as alleged but also averred that since 2002/2003 the defendants have acquired goodwill at least in Worcester from the use of the Caspian Pizza name. On this basis, the defendants counterclaimed for a declaration that both the Caspian and the Device Marks are invalid because they were registered in contravention of s.5(4)(a) of the Trade Marks Act 1994 (“TMA 1994”).

It was conceded by the defendants at the trial that the Worcester Restaurant uses signs similar to the registered trade marks in relation to the supply of similar goods or services: see TMA 1994 s.10(2)(b). Nor was the judge required to investigate the likelihood of confusion. But the defendants relied on three defences to the claim for trade mark infringement:

acquiescence.

Section 47(2)(b) provides:

Under s.5(4):

Article 4(4)(b) of the Trade Mark Directive (2008/95/EC) is to the same effect.

Limits on the effect of a registered trade mark are also imposed by s.11 TMA 1994. Section 11(3) provides:

The judge rejected the defences based on consent and acquiescence. Nor did he accept the claimants’ evidence about the franchise agreement. He found that the St Martin’s Gate and subsequently the Worcester Restaurant had established sufficient goodwill in the CASPIAN name in 2002 and 2004 so as to found an action for passing off against anyone using the name to run a pizza restaurant in Worcester. The reliance by the defendants on s.11(3) was, however, contested on the basis of the unchallenged evidence of Mr Zarandi that he had operated a pizza business using the CASPIAN name in Birmingham in 1991.

In relation to s.11(3), the claimants contended that “the use” of the trade mark by the proprietor referred to in paragraph (a) of the definition of “earlier right” in that section meant pre-registration use anywhere and did not have to be use in the locality in which the defendants had established goodwill in the same mark. On this basis the defendants would not satisfy the conditions in s.11(3). The judge, however, concentrated on Article 6(2) of the Directive which s.11(3) was intended to implement and which is in these terms:

Judge Hacon interpreted Article 6(2) as limiting the enforcement of the registered mark against the defendants in Worcester even though Mr Zarandi had established goodwill in the CASPIAN name in Birmingham from 1991. In my view he was right to do so. There is nothing in Article 6(2) which in terms defines an earlier right by reference to pre-registration use of the mark by the proprietor anywhere in the UK. It would also be odd if the s.11(3)/Article 6(2) defence were denied to the defendants on the basis of the claimants’ prior use of the mark in Birmingham but they were nonetheless entitled to object to the subsequent registration of the mark under s.5(4)(a) to the extent that its UK-wide registration would include Worcester. “Earlier right” for the purposes of TMA 1994 means prior use of the mark or sign which would be protected by the law of passing-off: see s.5(4)(a). This would include use which had generated goodwill in a particular locality: something which would only be prevented if the trade mark proprietor had himself previously used the mark in the same locality. In any event, the judge’s treatment of this issue is not challenged as part of this appeal.

That brings me to the question of the invalidity of the two marks. The judge held that the Caspian Mark was invalidly registered because by 8 July 2005 (the filing date) the defendants had established goodwill in the use of the CASPIAN name in Worcester sufficient to found an action for passing-off. He declined to follow an earlier decision of HH Judge Birss QC (as he then was) in Redd Solicitors LLP v Red Legal Ltd [2012] EWPCC 54; [2013] ETMR 13 (“Redd”) in which the judge held that prior local use that was sufficient to provide a defence under s.11(3) did not also establish a ground of invalidity under s.5(4)(a). I shall come to the detail of this shortly.

But Judge Hacon declined to grant a declaration of invalidity in respect of the Device Mark for the reasons set out in [69]-[70] of his judgment:

The claimants have appealed against the declaration of invalidity in respect of the Caspian Mark and the defendants have cross-appealed against the judge’s refusal to declare the Device Mark invalid. Mr Moss for the defendants contended that if the Caspian Mark was invalid it necessarily followed that the same went for the Device Mark. The essential and most prominent feature of the Device Mark is the word CASPIAN whose use in Worcester, the judge has found, could have been restrained in an action for passing off based on the defendants’ prior use of the word CASPIAN to describe its pizza business. There was therefore nothing in the pre-registration history and in the evidence about the origin of the Device Mark to distinguish it from the Caspian Mark in terms of its validity under s.5(4). The judge was therefore wrong to have segregated the two marks when considering the question of earlier rights. Mr Harding for the claimants said that he accepted the logic of this submission and did not contest the cross-appeal on other grounds. The validity of both marks therefore depends on whether the judge was correct in his application of s.47 and s.5(4)(a) TMA 1994.

In SWORDERS Trade Mark dated 28 July 2006 (O-212-06), a decision of the Hearing Officer (Mr Allan James) in opposition proceedings, a challenge was successfully made to the registration of the SWORDERS mark in relation to real estate agency (Class 36) and land surveying (Class 42) services by another firm (originally part of the same firm as the applicant for registration) which had carried on and acquired goodwill in the same name in relation to the provision of similar services in the area of Bishop’s Stortford in Hertfordshire. The Hearing Officer found that the opponent’s use of the mark had generated sufficient goodwill in the locality to enable it to restrain any other use of the name for the same services and that the application to register a national mark was the equivalent of a notional expansion of the applicant’s business into the opponent’s area. Absent an agreement by the applicant under s.13(1)(b) TMA 1994 for a geographical limitation on the registered mark so as to exclude the Bishop’s Stortford area, registration of the mark was refused.

In Redd the challenge to the validity of the registered mark was made, as in this case, not in opposition proceedings but as a counterclaim for a declaration of invalidity under s.47 in response to a claim by the trade mark proprietor for infringement. The case concerned a firm of solicitors which sued a firm of licensed conveyancers trading under the name RED LEGAL in Northampton, Milton Keynes, Leicester and Bedford. This was alleged to amount to an infringement of the claimant’s trade mark RED registered in respect of legal services. The defendant firm relied on its prior use of RED LEGAL for a period of about a year. Judge Birss QC was not referred to the decision in SWORDERS. He held that although the defendant had acquired sufficient local goodwill in the RED LEGAL name to found an action for passing off and therefore to be able to rely on s.11(3), its claim for a declaration of invalidity should be refused:

Judge Hacon preferred the approach taken in SWORDERS:

Mr Harding submitted that the preferable approach was the one taken by Judge Birss in Redd. He contends that the reference in s.5(4) to the trade mark’s “use in the United Kingdom” being liable to be prevented by the law of passing off must be construed as referring to a wider geographical area than the “particular locality” in s.11(3). He submits that it means either throughout the UK or at least in a significant part of the UK so that a defendant which has established goodwill in the mark in a particular locality will enjoy protection under s.11(3) for that area but will not be able to obtain a declaration of invalidity. No action for passing off will lie to restrain the proprietor’s use of the mark over the whole country. This explains, he says, why in Redd the court refused to make a declaration of invalidity whilst accepting that the s.11(3) protection was available.

The difficulty I have with that submission (and with the decision in Redd) is that it takes no real account of the reference in the opening words of s.5(4) to “or to the extent that”. It is important to bear in mind, as Mr Moss emphasised, that the provisions of s.5(4) cater for opposition to the validity of the mark at two possible stages of its existence The first is during the currency of the application for registration when earlier rights as defined may be relied on to oppose registration. The Intellectual Property Office will be required to determine whether the s.5 grounds relied on are made out and importantly in relation to opposition proceedings based on s.5(4)(a) will have the option of registering the mark with an appropriate geographical carve out provided that the applicant for registration is prepared to consent to registration with that limitation: see s.13(1)(b).

It is, I think, implicit in these provisions that opposition under s.5(4) based on earlier use of the mark does not have to be use throughout the UK or alternatively in a geographical area which overlaps with the place where the applicant for registration actually carries on business using the same or a similar mark. As the Hearing Officer explained in SWORDERS, the application for a national mark operates as a notional extension of the use of the mark over the whole of the country. The only requirement is that the opponent should have established goodwill in the mark over an identifiable geographical area that would qualify for protection in passing off proceedings. Reputation may be enjoyed on such a small scale that it does not generate goodwill at all: see Knight v Beyond Properties Pty Ltd & Ors [2007] EWHC 1251 (Ch). But goodwill which is established in a particular locality will be capable of preventing registration of a countrywide mark.

It is therefore difficult to see why the position should be any different when the challenge to validity is raised under s.47 after registration is complete. Section 47 provides the procedural means of challenging the validity of the registered mark. The fact s.47(2) says that the registration “may” be declared invalid is not to be read as giving the Court a discretion to refuse a declaration of invalidity even if one of the s.5 grounds is made out. This, I think, is evident from the provisions in s.47(1) to the effect that the registration shall not be declared invalid in certain specified circumstances. This language indicates that in cases not covered by these exceptions a declaration of invalidity should follow the establishment of one of the s.3 or s.5 grounds.

In the present case the marks are registered in respect of the whole of the UK and the claimants’ defence to the counterclaim has been based on the points already discussed about the operation and effect of s.47 and s.5(4)(a). But for the first time during the hearing of the appeal Mr Harding indicated that his clients wished to contend that any declaration of invalidity should be restricted so as to preserve the validity of the registration of both marks so far as they apply to areas other than Worcester.

Sub-sections 47(5) and 47(6) allow the Court to make a declaration of partial invalidity where the grounds of invalidity relied on affect only some of the goods or services in respect of which the mark is registered. There is no equivalent power in relation to the geographical area covered by the registration. Section 13, as already mentioned, allows the applicant for registration to consent to a limited registration which respects established earlier rights but after registration the mark is subject to s.44 TMA 1994 which provides that it is not to be altered in the register save to change the proprietor’s name and address and then only if that does not substantially affect the identity of the mark. Section 13 allows the registered proprietor of the mark to agree that the rights conferred by the registration shall be subject to a territorial limitation but given the terms of s.44 this must envisage the abandonment or disclaimer of part of the mark and could only take effect from the date of abandonment which in this case would be the hearing of the appeal. It therefore comes too late to save the marks from the attack on their validity made under s.5(4)(a) which relates back to the date of filing. There is therefore no power in this Court to make the order which Mr Harding now seeks.

For these reasons I would therefore dismiss the appeal against the declaration of invalidity in respect of the Caspian Mark but allow the cross-appeal and also declare the Device Mark to be invalidly registered.

I agree.

I also agree.