Crafts Group LLC v M/S InDeutsch International & Anor

This an application by the defendants (“KnitPro”) for a stay of this claim pending the resolution of an application to cancel one of KnitPro’s trade marks in the European Union Intellectual Property Office (“EUIPO”). KnitPro relies on art.132(1) of Regulation (EU) 2017/1001 (“the Trade Mark Regulation”) and on CPR 3.1(2)(f).

Michael Edenborough KC appeared for the claimant (“Crafts”), Guy Hollingworth for KnitPro.

Both KnitPro defendants are partnership firms formed under Indian law. They are part of a group headed by the Indian company Indeutsch Industries Private Limited. From August 2007 the Indeutsch group supplied to Crafts’ predecessor, Crafts Americana, wooden knitting needles and crochet hooks which bore a decorative chevron pattern in two styles.

In late 2009 Crafts applied for a trade mark in the form of one of the chevron patterns in the United States Patent and Trade Mark Office.

To protect its position outside the United States, in February 2010 KnitPro (specifically the first defendant, but I need not distinguish the defendants) filed two applications in the EUIPO for trade marks. Both were registered on 10 August 2010 in class 26 for knitting needles and crochet hooks. The first, “the EU Chevron Mark” takes a chevron form, as does the second (“the EU Symfonie Mark”), more figuratively. Following Brexit the second defendant obtained comparable UK trade marks, the “UK Chevron Mark” and the “UK Symfonie Mark”.

On 26 May 2010 the parties signed what was referred to as the “Trade Dress Rights Agreement”, by which they sought to delimit geographically their respective uses of two types of chevron signs used on their products.

The relationship broke down. Crafts began to sell knitting needles and crochet hooks in competition with those made by KnitPro. On 9 January 2013 Crafts applied to the EUIPO seeking cancellation of KnitPro’s EU Chevron Mark under art.7(1)(a) and (b) of the Trade Mark Regulation.

In 2015 KnitPro became aware that Crafts was selling knitting needles and crochet hooks through Amazon in the United Kingdom and in Germany, both types of product bearing a sign which KnitPro believed constituted an infringement of its EU Chevron Mark. In the UK they were branded Crafts’ “Caspian” products. In June 2015 KnitPro instigated a takedown request to Amazon. Amazon removed the listing of the Caspian products from Amazon.co.uk on 14 July 2015.

On 23 July 2015, trade mark attorneys acting for Crafts wrote to KnitPro’s solicitors alleging that KnitPro had made unjustified threats of infringement of the EU Chevron Mark by reason of its communications with Amazon. On 29 July 2015, KnitPro’s solicitors replied, denying the claim.

On 30 November 2015 Amazon removed another line of Crafts’ needles, the “Sunstruck” needles, following KnitPro’s complaint that they infringed the EU Chevron Mark.

Meanwhile Crafts took no further steps in respect of its allegation of threats and did not do so for over five years. The next that KnitPro heard about this allegation was when solicitors newly instructed by Crafts wrote to KnitPro’s solicitors on 12 November 2020 alleging that KnitPro’s communications with Amazon UK had constituted unjustified threats of infringement of the EU Chevron and Symfonie Marks contrary to s.21 of the Trade Marks Act 1994. A claim form was issued in this court by Crafts on 11 December 2020.

On 8 January 2021 the claim form was amended to add allegations of unjustified threats in relation to the UK Chevron and UK Symfonie Marks and later re-amended to correct the addresses of KnitPro.

I made an Order dated 20 May 2021 giving Crafts permission to serve the re-amended claim form in India. KnitPro were served on 3 August 2021. On 9 September 2021 KnitPro applied to set aside service. KnitPro also sought in the alternative a stay pursuant to art.132(1) of the Trade Mark Regulation.

In a judgment dated 23 December 2021, Ian Karet, sitting as an Enterprise Judge, refused either to set aside service or to grant the stay (“the Karet Judgment”). Permission was sought to appeal the order on service, which was refused by Snowden LJ on 29 September 2022.

On 27 October 2022 KnitPro served a Defence and Counterclaim. KnitPro allege that the EU Chevron and Symfonie Marks and the two comparable UK Marks have been infringed by Crafts. They further allege that Crafts has passed off its goods for those of KnitPro.

On 8 December 2022 Crafts served a Reply and Defence to Counterclaim, together with an Additional Claim. Crafts pleads that the Trade Dress Rights Agreement provides a defence to the allegation of infringement of all the Chevron and Symfonie Marks. In the Additional Claim Crafts alleges that the EU Chevron and UK Chevron marks were invalidly registered pursuant to, respectively, art.7(1)(a), (b) and (c) of the Trade Mark Regulation and s.3(1)(a), (b) and (c) of the Trade Marks Act 1994, and further that they stand to be revoked on grounds of non-use.

Part of Crafts’ case is that this Court does not have jurisdiction in relation to the EU Chevron and Symfonie Marks because it is no longer an EU trade mark court within the meaning of the Trade Mark Regulation. I discuss this below.

KnitPro’s principal argument for a stay is based on its contention that art.132(1) of the Trade Mark Regulation applies. KnitPro submits that this court is obliged to stay the proceedings insofar as they relate to the EU Chevron Mark.

Art.132(1) falls within Chapter X of the Trade Mark Regulation. It provides:

Art.123 of the Trade Mark Regulation requires Member States to designate national courts which have the functions of EU trade mark courts under the Regulation. Art.124, referred to in art.132(1), provides:

The UK Community Trade Mark Courts Regulations 2006 (SI 2006/1027) (“the 2006 Regulations”) as amended designate the High Court and the County Courts at the seven regional Business and Property Court centres as EU trade mark courts in accordance with art.123.

I pause here to mention the reason given in the Karet Judgment for refusing a stay of the threats action. It was held that a UK threats action is not listed in art.124 of the Trade Mark Regulation and consequently art.132(1) could not be engaged and there could be no stay. It followed that there was no need to consider the issues on post-Brexit transitional provisions which have been raised in the present hearing.

In anticipation of the UK leaving the EU, among the provisions introduced were the Trade Marks (Amendment etc.) (EU Exit) Regulations 2019 (“the 2019 Regulations”), made on 13 February 2019. They were to come into force on exit day. Exit day was due to fall on 31 October 2019, later amended to be 31 January 2020.

The 2019 Regulations added Schedule 2A to the Trade Marks Act 1994 (“the 1994 Act”). Paragraph 1 provided for the introduction of “comparable trade marks (EU)” to UK trade mark law on exit day. Paragraph 20(1) and (2) stated:

Thus, where there were pending proceedings before a UK designated EU trade mark court on exit day, the articles of the Trade Mark Regulation falling under Chapter X of the Trade Mark Regulation would continue to apply to those proceedings. There were exceptions, among them art.132.

The 2019 Regulations were made at the time when negotiations between the UK and the EU were an uncertain outcome, which included the possibility of no deal. As it turned out there was a deal, set out in the Agreement on the Withdrawal of the United Kingdom and Northern Ireland from the European Union and the European Atomic Energy Community (2019/C 384 I/01) (“the Withdrawal Agreement”), signed on 24 January 2020 and effective as of 1 February 2020.

Pursuant to art.126 of the Withdrawal Agreement there was a transition or implementation period that applied from immediately after exit day on 31 January 2020 until 31 December 2020. The effect was that in most respects EU law continued to have effect in the UK until the end of that period.

Section 39(1) and (2) of the European Union (Withdrawal Agreement) Act 2020 (“the 2020 Withdrawal Act”) defined the end of the period as “IP completion day” (IP standing for implementation period), stated to be at 11pm on 31 December 2020.

The implementation of schedule 2A of the Trade Marks Act 1994 was adjusted along with that of many other provisions, so that the schedule came into force on IP completion day rather than exit day, see the 2020 Withdrawal Act, schedule 5 para.1(1).

Art.67 of the Withdrawal Agreement provides:

Thus, pursuant to subparagraph (b) the provisions regarding jurisdiction of the Trade Mark Regulation were to continue to apply after that date in respect of legal proceedings instituted before that date. Those provisions are the articles of the Regulation which fall under Chapter X, headed “Jurisdiction and Procedure in Legal Actions relating to EU Trade Marks”, namely arts.122-135, see Easygroup Ltd v Beauty Perfectionists Ltd [2021] EWHC 3385 (Ch) at [23], per the Chancellor, Sir Julian Flaux.

Section 5 of the Withdrawal Act 2020 inserted a new section 7A into the EU Withdrawal Act 2018. This had the effect, among other things, of giving the rights and procedures provided for under the Withdrawal Agreement, including art.67(1), direct legal effect as part of English law, see Easygroup at [25].

Art.67(1) makes no exception to the continuing application of Chapter X of the Trade Mark Regulation in the circumstances stated. Art.132 was not excluded.

This created an inconsistency with para.20 of Schedule 2A to the 1994 Act. It was remarked upon by the Chancellor in Easygroup:

Art.67(1) was considered by Judge Cawson QC in Simon v Taché [2022] EWHC 1674 (Comm). The case related to Regulation 1215/2012 (“Brussels Recast”) under subparagraph (a) rather than the Trade Mark Regulation under subparagraph (b). The defendants challenged the jurisdiction of the court pursuant to art.29 of Brussels Recast because they had already commenced proceedings involving the same cause of action in Belgium. The claimant’s first argument was that art.29 did not apply by reason of art.67 of the Withdrawal Agreement since, although the Belgian proceedings had been instituted before the end of the transition period on 26 October 2020, the English proceedings had not become “related to” the Belgian proceedings until the issue of the claim form in England on 10 May 2021.

Judge Cawson said:

There was no dispute that since the claim form in the present case was issued before IP completion day, those are “proceedings instituted before the end of the transition period” contemplated by art.67(1) of the Withdrawal Agreement.

It is also common ground that if, pursuant to art.67(1)(b), art.132(1) is engaged, there are no “special grounds” within the meaning of art.132(1), so this court must stay these proceedings insofar as they apply to the EU Chevron Mark, assuming this court has jurisdiction in respect of that mark.

Crafts argued that art.132(1) is not engaged because this court was not acting as an EU trade mark court at the time the Defence and Counterclaim was filed on 27 October 2022, a necessary element of art.132(1). This court’s lack of status as an EU trade mark court was underlined by the fact that on 27 October 2022 the court had no jurisdiction over EU trade marks, only UK marks and UK comparables. The various Brexit provisions made no difference to that lack of jurisdiction.

Secondly, the inconsistency between art.67(1)(b) of the Withdrawal Agreement and paragraph 20 of Schedule 2A to the Trade Marks Act 1994 must be resolved in favour of the latter. Art.67(1) is a provision of general effect, applying to all proceedings instituted before the end of the transition period (and proceedings related to them with the meaning of arts.29-31 of Brussels Recast), whereas Schedule 2A is a specialist provision directed to the law of trade marks.

Thirdly, Simon v Taché provides no guidance because the judge was concerned only with the general provision relating to Brussels Recast under art.67(1)(a) of the Withdrawal Agreement, not the more specialist provision under art.67(1)(b).

Fourthly, the 2019 Regulations lawfully amended the Trade Marks Act 1994 to add Schedule 2A, which is primary legislation. Schedule 2A came into force after the Withdrawal Agreement was concluded, so the Withdrawal Agreement must be read in the light of Schedule 2A.

KnitPro’s argument began with the fact that there were existing proceedings, the threat actions, instituted before the end of the transition period on IP completion day. Art.67(1)(b) expressly provides that the provisions of the Trade Mark Regulation regarding jurisdiction continue to apply to existing proceedings after the end of the transition period and this includes the whole of Chapter X, see Easygroup para [23], with no exceptions.

The same applies to new claims added to such existing proceedings after the end of that period, see Simon v Taché at [74].

It is irrelevant that the new claim in the present proceedings, the claim alleging infringement of the EU Chevron Mark, was added after this court ceased to be an EU trade mark court. There is an analogy to be drawn between these facts and those of Simon. In Simon it was argued that the new claim did not give rise to a stay because it had not become a “related claim” until after IP completion day. That argument was rejected by the judge.

In effect, KnitPro argued, the new claim was deemed to have been started at the same time as the Belgian claim. The position corresponded to the “relation-back” principle of English law, whereby a new claim, including a counterclaim, is deemed to have been started on the same date as the claim for the purposes of the Limitation Act 1980, see s.35(1) and (2). Similarly, in the present case the new claim started after IP Completion Day “related back” to the threats claim started beforehand.

The direct effect of art.67(1) cannot be limited by a statutory instrument, namely the 2019 Regulations, and so by Schedule 2A of the 1994 Act. They are inconsistent, but the direct effect of art.67(1) must prevail.

In written submissions from the parties invited by the court after the hearing, KnitPro supplemented its argument by saying that regulations that may be made by a Minister of the Crown in relation to art.67 are limited to provisions which either (a) implement that article, (b) deal with matters arising out of, or related to, that article, (c) supplement the direct effect of that article or (d) restate that article for the purpose of making the law clearer or more accessible. Section 8B of the European Union (Withdrawal) Act 2018, added by the European Union (Withdrawal Agreement) Act 2020, provides, to the extent that is relevant, as follows:

KnitPro’s point was that although a Minister could implement or supplement the direct effect of the Withdrawal Agreement, deal with matters arising out of it or even restate aspects of that direct effect, no Minister has the power to make regulations which limit the direct effect. Nor can the direct effect of the Withdrawal Agreement in English domestic law be limited by any such regulation.

In Easygroup the Chancellor addressed an argument similar to that advanced by Crafts in this case, namely that after IP completion day no English court could sit as an EU trade mark court. The Chancellor was considering a different point, namely whether an English court could grant an EU-wide injunction after IP completion day in respect of pending proceedings. However, it seems to me that his analysis holds good here with regard to whether this court sits as an EU trade mark court in proceedings pending before IP completion day:

I see little force in Crafts’ argument that schedule 2A should override art.67 on the ground that the former is a specialist provision whereas the latter is general. The relevant part of art.67, paragraph 1(b) relates expressly to, among other regulations, the Trade Mark Regulation. To that extent it, too, is a provision with specialist effect.

Save that art.67(1) applies to new claims added to pending proceedings, I find only limited assistance from the judgment in Simon v Taché. The issue before the judge was whether art.67(1)(a) applied where the claim brought after IP completion day could not therefore have been “related” to the earlier claim until after IP completion day. The question of being “related” concerned “related actions” within the meaning of Section 9 of Brussels Recast and had nothing to do with “relating back” in an analogy with the Limitation Act 1980. As I understand Judge Cawson’s judgment, it did not matter that the later claim, “related” in the Brussels Recast sense, was made after IP completion day because (a) art.67 itself did not require that it should, (b) had that been a requirement the words “and in respect of proceedings or actions that are related to such legal proceedings” in art.67(1)(a) would have been otiose, (c) paragraph 1.1 of the European Commission’s ‘Notice to Stakeholders’ dated 27 August 2020 supports this view and (d) there is indirect support from other judicial rulings. None of these reasons have any bearing on the present case.

Nor do I think that a parallel can be drawn with s.35 of the Limitation Act 1980 and the English rules derived from it on claims which can be “related back”. The opening words of s.35 are: “For the purposes of this Act”.

I agree with the submission made on behalf of KnitPro that s.8B of the European Union (Withdrawal) Act 2018 indicates an intent on the part of Parliament that the direct effect of the Withdrawal Agreement in English law cannot be limited by regulations made by a Minister of State. It seems to me that this applies even if the regulations in question have the effect of supplementing primary legislation.

Ultimately, though, I think the answer is that although paragraph 20 of schedule 2A of the Trade Marks Act 1994 and art.67(1)(b) of the Withdrawal Agreement are not consistent with regard to the application of art.132 of the Trade Mark Regulation to pending proceedings, they can be reconciled. The two provisions overlap. The overlap does not of itself create a difficulty. Art.67(1)(b) provides for the continuing effect of art.132 as retained EU law in respect of proceedings instituted before the end of the IP completion day; paragraph 20 of schedule 2A does not. The net result is that art.132 has continuing effect.

As I have discussed, in broad terms art.132(1) requires that an EU trade mark court hearing any action listed in art.124 (other than for a declaration of non-infringement) shall stay the proceedings in circumstances such as the present one. I will therefore stay KnitPro’s counterclaim for infringement of the EU Chevron mark, the claim for threats in relation to the EU Chevron Mark and the claims for revocation and a declaration of invalidity in relation to the EU Chevron Mark.

There remain Crafts’ threats claims which relate to the UK Chevron Mark and the EU and UK Symfonie Marks, KnitPro’s counterclaim for infringement of the UK Chevron Mark and the EU and UK Symfonie Marks, KnitPro’s counterclaim for passing off and Crafts’ additional claim for a declaration of invalidity of the Chevron UK Mark and for revocation of that Mark.

KnitPro seeks a stay of those claims too pursuant to s.49(3) of the Senior Courts Act 1981 and CPR 3.1.(2)(f).

Article 54 of the Withdrawal Agreement provides, in relevant part:

Consistently with this, paragraph 21A of schedule 2A introduced into the Trade Marks Act 1994 provides:

The cancellation proceedings before the EUIPO are under art.7(1)(a) and (b). It was common ground that neither the second paragraph of art.54(3) of the Withdrawal Agreement nor paragraph 21A(4) of Schedule 2A applies. If the EU Chevron Mark is declared invalid by the EUIPO, the UK Chevron Mark will also be declared invalid.

The reverse is not necessarily the case: if the decisions of the EUIPO and appeals from them were to result in the EU Chevron Mark being found validly registered, neither the Withdrawal Agreement nor Schedule 2A of the Trade Marks Act 1994 require English courts to follow suit. KnitPro submitted that it would be an abuse of process for Crafts to seek a declaration of invalidity of the UK Chevron Mark in those circumstances. It seems to me that, without deciding whether it would be an abuse, it is safe for me to assume that this court is unlikely to reach a different view on the validity of the registration of the UK Chevron Mark to that reached by EU tribunals. The material facts in this case relating to the provisions of the Trade Marks Act 1994 equivalent to art.7(1)(a) and (b) would not differ materially from those facts considered by the EU tribunals. It was part of Crafts’ case on delay that the EU proceedings are likely to be decided finally by the CJEU and its judgment would be persuasive. The judgment from the General Court, before remission to the EUIPO Grand Board of Appeal, suggests that the challenge to validity under art.7(1)(a) of the Trade Mark Regulation may play a central part in the final result. To my knowledge, there is little case law on that provision. A judgment of the CJEU which turns on an analysis of this part of trade mark law is likely to be particularly persuasive.

My attention was drawn to the discussion of the Court of Appeal in IPCom GmbH & Co KG v HTC Europe Co Ltd [2013] EWCA Civ 1496 in which the court considered an application for the stay of an English patent action pending the outcome of opposition proceedings in the European Patent Office.

An analogy can be drawn with the present application insofar as it relates to the Chevron issues, i.e. the issues of infringement, validity, revocation for non-use and threats in respect of the EU and UK Chevron Marks. The analogy is not exact because in the case of patent proceedings, the outcome in the EPO may or may not be decisive of the issues before the English court. If there is a finding in the EPO that the patent in suit is valid, it resolves nothing. There is therefore a risk – the degree of risk will generally be difficult to assess – that a stay pending the outcome of the EPO proceedings will delay the claimant’s right to relief to no purpose. By contrast, in the present case if the EU Chevron Mark is found to be valid by the European Tribunals, the validity of the registration of the EU Chevron Mark and very likely the UK Chevron Mark would no longer be issues before this court. If the EU Chevron Mark is found to be invalid, so will be the UK Chevron mark; infringement and revocation for non-use fall away. Of the Chevron issues, only the question of whether there was a threat on the facts would remain.

In IPCom Floyd LJ noted that the earlier guidance in Glaxo Group Ltd v Genentech Inc [2008] EWCA Civ 23 had been overtaken by the judgment of the Supreme Court in Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2013] UKSC 46:

With regard to Floyd LJ’s point 5, Crafts’ estimate, on the assumption that validity of the EU Chevron Mark is finally resolved by the CJEU, is that a finding will be made in 5 years’ time. That is probably a maximum, but I will assume that it is correct. If there were no stay of the present proceedings, the issues relating to the UK Chevron Mark, and the EU Chevron Mark if this court has jurisdiction, would be decided in about 9-10 months, subject to appeal. Five years must be added to that if there were a stay of the issues relating to the UK Chevron Mark.

There was evidence from Matthew Petkun, the CEO of Crafts, regarding the potential damage that Crafts would suffer if the proceedings before this court were to be stayed. He said that Crafts is currently prevented from selling its Caspian and Sunstruck product lines on Amazon. He believes that if Crafts sought to market three other lines on Amazon, KnitPro would seek further takedown notices because of alleged infringements of KnitPro’s EU Marks and that Amazon would remove the products from its websites. Mr Petkun calculates the potential loss. He estimates that Crafts would make direct annual sales of $72,000 in the UK but for the takedown notices, a sum arrived at by estimating that UK sales would be consistently 10% of US sales in 2022. In addition, Crafts is losing (unquantified) sales through distributors who would sell on Amazon. Mr Petkun suggests that over 5 years Crafts’ losses would exceed the IPEC cap and the amount over £500,000 would be irrecoverable. He adds that his company wants certainty and that the current uncertainty means that Crafts is not expanding into Germany because he expects that KnitPro would seek a takedown notice on Amazon.de.

Mr Petkun’s point about irrecoverable damages is hard to follow. Taking his figures at face value and assuming that Crafts were to win at trial in its claim for unjustified threats, Crafts would be entitled to its lost profits between June 2015 and around June 2029, about 17 years. Michael Browne of KnitPro’s solicitors gave evidence of having been told by Shirish Jain, Vice President of the second defendant, that a profit margin of 10% would be considered healthy, a figure not challenged by Crafts. On the assumption that sales were completely consistent at $72,000 per annum since 2015 and will continue to be so until 2029, that would mean a loss of $7,200 each year for 17 years, on my maths a total of $122,400. An online currency converter at current rates translates that into about £97,000. There is no prospect of Crafts losing out because of the damages cap in this court. Losses in Germany because of a takedown notice there, or a threat of one, will be recoverable in Germany if a cause of action is available there.

Following Crafts’ complaint by correspondence in July 2015 that KnitPro’s application to Amazon for a takedown notice constituted an unjustified threat of infringement proceedings, Crafts chose to do nothing until the claim form was issued on 11 December 2020. Thomas Carver, a solicitor acting for Crafts, gave evidence about this, with which Mr Petkun agreed. Mr Carver says that when Crafts applied to the EUIPO in January 2013 for a declaration of invalidity of the EU Chevron Mark, it expected that application to resolve the matter. Unexpectedly there have been two judgments of the General Court so far, remittances to the EUIPO with another decision of the Grand Board of Appeal currently expected, plus the further expectation of judgments on appeal from the Grand Board to the General Court and then to the CJEU.

I accept Mr Carver’s evidence that Crafts expected the EUIPO proceedings to be concluded sooner than they will be. However, if Crafts had been seriously concerned by irreparable damage due to the takedown notices, it seems to me that it would have issued a claim form in 2015 and would have either sought interim relief or moved the case forward to a trial some months later. Its behaviour is more consistent with a willingness to live with any loss of sales and to claim compensation in due course. Issuing the claim form in December 2020 was consistent with keeping open the option of being able to seek such compensation at some stage, avoiding any bar under the Limitation Act 1980.

Thus, if the claims in this court relating to the EU and UK Chevron Marks are stayed pending the outcome of the European proceedings and Crafts succeeds in those claims, it will be compensated for the loss caused by the takedown notices if and to the extent it is entitled to such compensation. No other relevant damage to Crafts has been identified.

If there is no stay, there will be a trial in several months’ time and a second trial after the judgment of the CJEU to deal with the claims this court is required to stay under art.132(1) of the Trade Mark Regulation. A judgment in relation to Chevron claims in this court will at least in part be subsequently overtaken by the CJEU’s judgment, possibly in substantial part, so the cost of dealing with such claims in this court would be wasted.

Therefore I take the view that the balance of justice favours a stay of all claims relating to the EU and UK Chevron Marks.

Next I consider the claims relating to the Symfonie Marks and for passing off. If those claims are stayed, the potential damage to Crafts remains the same, none of it irreparable. The difference is that there would be one trial, not two. Self-evidently that would save costs, which is what KnitPro wants to do. It seems to me that the balance of justice favours staying those claims as well.