Legal update Arsenal fall foul of Laddie’s unexpected strike ISABEL DAVIES is the head of Intellectual Property at Eversheds, London, Solicitors, and the Legal Editor of The Journal of Brand Management.

As many brands are sold worldwide, each issue of the Journal will contain developments on international branding matters. If readers have any particular questions on branding issues or related intellectual property matters such as designs, design rights, copyright or patents, please write to the Legal Editor at the Publisher’s offices so that she can answer questions which are of general interest to readers in a regular ‘problem page’.

Isabel Davies Eversheds, Senator House, 85 Queen Victoria Street, London EC4V 4JL, UK Tel: ⫹44 (0) 7919 4500

Arsenal Football Club plc v Matthew Reed Facts The Judge, Mr Justice Laddie, who was clearly enthused by the subject matter, said that Arsenal Football Club (AFC) ‘hardly needs any introduction’. AFC has never been relegated from the top flight of the English football league since it was promoted to it in 1919 and has consistently been one of the leading football clubs in the UK and Europe. AFC has registered the words Arsenal and Gunners as well as the club crest and the cannon device (the ‘Arsenal signs’) as trade marks in 12 classes. As with other major football clubs, AFC has taken steps both to regulate the market in and to receive income from the sale of clothing and memorabilia relating to the club. This side of AFC’s business has increased dramatically since about 1992, with current sales of such goods averaging an annual turnover of approximately £5m. AFC either supplies its own merchandise to its three shops, two of which are located at the Highbury ground, or

allows production and supply through various licensees, some of which are outside the Highbury ground. AFC had previously used various means to control the sale of unlicensed products by vendors who are found around the Highbury ground on match days. AFC had supported actions brought by Trading Standards officers, but the London Borough of Islington had become unwilling to use its staff for this purpose. AFC had also placed notices in its match-day programmes advising fans that official merchandise could only be purchased from AFC shops or its licensees. The word ‘official’ was used extensively in marketing their goods, and all such merchandise carried a swing ticket or neck label indicating that it was an official product. Mr Reed, himself an Arsenal fan, had been selling football souvenirs and memorabilia for over 30 years in and around the Highbury ground. Mr Reed only sold small quantities of licensed goods and the remainder of his

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stock was unofficial merchandise. Mr Reed had three stalls around the Highbury ground, from which 90 per cent of sales were products referring to Arsenal. It was estimated that his turnover of unlicensed Arsenal goods exceeded £50,000 per annum. AFC brought claims for registered trade mark infringement, passing off and copyright infringement, although the latter claim was abandoned prior to the start of the trial.

Held Passing off The Judge summarised the requirements for the passing-off action as ‘a mis-representation to members of the public which has caused or is likely to cause a not insignificant part of that public to believe that Mr Reed’s goods are goods of AFC or are licensed by or commercially associated with it’. The key question was whether there was any likelihood of any confusion on the part of members of the public. AFC failed to produce any evidence on this point, but sought to rely on the fact that the court could draw such an inference given that AFC was such a famous football club. The Judge was somewhat critical of AFC’s failure to produce any evidence of confusion. In the 30 years that Mr Reed had been trading no instances of confusion had been brought to AFC’s attention. The Judge said that in the absence of any direct evidence AFC could, and by implication should, have interviewed members of the public or set up a mock stall and interviewed customers who were purchasing Arsenal goods. The Judge emphasised that confusion 64

must be shown to exist among ‘that part of the public which cares’. The Judge said that among this sector there would be fans who would buy only goods that they knew to be official because they would be directly contributing towards the financial wellbeing of AFC. However, the Judge felt that there was also a significant, albeit unknown, percentage of purchasers who would not be interested in who made or marketed the goods but were simply interested because they represented a sign of allegiance. The Judge held that, over and above AFC’s failure to produce evidence itself, this was a market situation where confusion was unlikely. This was because of the lengths to which both AFC and Mr Reed himself went to distinguish unofficial from official merchandise. AFC made great efforts to ensure that supporters were aware that only certain goods could be described as official. Licensees around the ground displayed signs stating that ‘only official merchandise is sold here’. Mr Reed had also installed a sign at his stall which read: ‘the word or logo(s) on the goods offered for sale, are used solely to adorn the product and does not imply or indicate any affiliation or relationship with the manufacturers or distributors of any other product, only goods with official Arsenal merchandise tags are official Arsenal merchandise’. AFC produced specific evidence that Mr Reed had sold unofficial goods as being official when approached by an enquiry agent instructed by AFC. However, the Judge believed Mr Reed when he said that all his staff were categorically instructed not to sell anything as official which was not

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official and thought that this instance had been contributed to, although not intentionally, by the softness of the enquiry agent’s voice. Trade mark infringement Under s.10(1) of the Trade Marks Act 1994 a person infringes a registered trade mark if, during the course of trade, a sign is used which is identical to the registered trade mark and it is used in relation to goods or services which are identical to those for which the trade mark is registered. Mr Reed accepted that the designs he used where sufficiently similar to AFC’s registered trade mark to constitute infringement providing that the other statutory provisions were complied with. However, Mr Reed claimed that the signs and logos were not being used as a trade mark but were badges of allegiance and were therefore not covered by s.10. The Judge said that in considering whether a sign had been used in a trade mark sense it was the likely perception of the customer that should be considered. The Judge held that simply because designs are used on goods does not mean that they are being used as a trade mark. In his view, the Arsenal signs would not be seen by customers to be indicating trade origin but would be seen simply as a badge of support. AFC claimed that non-trade mark use could also infringe the rights gained by registration. This was the view the High Court took in British Sugar plc v James Robertson & Son Limited1 and was endorsed by the Court of Appeal in Philips Electronics Limited v Remington Consumer Products.2 Philips has been referred to the European Court of Justice, although the opinion of the

Advocate General3 has suggested that the case can be determined without reference to this particular issue. Laddie J. acknowledged the inconsistencies in the Trade Marks Act relating to this point but he was bound by the Court of Appeal’s decision in Philips. However, he said that ‘the law on this important point is not yet settled’. He said that if the view in Philips prevailed then Mr Reed had infringed AFC’s trade marks. However, he said that the point should be clarified by the European Court of Justice. Comment On 1st May, 2001 the case was referred to the European Court of Justice (‘ECJ’) for a decision as to whether or not non-trade mark use can constitute infringement of registered trade marks. Although Laddie J. has asked that the matter be decided as soon as possible it could be some time before the legal position is clarified. The case has attracted a significant amount of attention in the press but it is worth remembering that, based on existing case law, Mr Reed did infringe AFC’s trade mark rights and, subject to the referral, AFC won their action for trade mark infringement. If the ECJ upholds Laddie J.’s view that non-trade mark use should not be infringement then the decision could have an enormous impact on the football merchandising industry, which is currently valued at £3bn. Although unlicensed production and sale of goods already takes place, this has been restricted in the past by the various measures taken by football clubs. However, those companies paying high prices for licences to market authorised goods could now face significant losses as the number of unlicensed producers and sellers increases. The case also has implications for the commercial ex-

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ploitation of merchandising in other market sectors, such as music and possibly films, where use of the brand name or logo may not constitute trade mark use but serve as a badge of allegience rather than of origin. However, there has been some comment as to whether Jacob J. was correct in his view as expressed in British Sugar that non-trade mark use could constitute use for the purposes of infringement. In his first-instance judgment in Philips, Jacob J. himself indicated that this view might need to

be reconsidered. If the ECJ does concur with Laddie J., perhaps this will simply give greater certainty to trade mark owners and users and correctly limit the monopoly enjoyed by trade mark owners without unfairly restricting trade mark owner’s rights. References (1) British Sugar plc v James Robertson & Sons Limited [1996] RPC281. (2) Philips Electronics Limited v Remington Consumer Products [1998] RPC283. (3) Philips Electronics Limited NV v Remington Consumer Products (case C-299/99 — opinion 23rd January, 2001).

Teleworks Limited V Telework Group plc On 27th April, 2001 Mr Christopher Floyd QC sitting as a deputy Judge handed down his judgment in this passing-off case. Background TeleWorks Limited was a small company, with a net worth of around £50,000, which dealt in the provision of domain name registration services, website and e-mail hosting, design and supply of computer network infrastructure and general IT support. The company was based in the Lee Valley Technopark in north London and had been incorporated since 1997. The Defendant is the holding company for TeleWare plc and Workplace Systems plc. TeleWare was founded in 1992. It is worth noting that TeleWare 66

had used the capitalised ‘W’ in its name since its inception in 1992. The company’s core product is a highly sophisticated system, ‘Intelligent Telephony Service’ (ITS). This system permitted an individual employee to be allocated a single telephone number on which he/she could be reached anywhere. The Defendant’s typical contract worth is in the region of £100,000 to £200,000. Workplace was established in 1986. This company sells labour management software with installation costs of between £50,000 and £1m. In August 2000 TeleWork Group plc was floated on the stock exchange. In the publicity leading up to the flotation, the Claimant became aware

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that the name for this new company was to be TeleWork Group plc, the name having been chosen as an appropriate combination of TeleWare and Workplace. Prior to the flotation the Claimant’s solicitors wrote to the Defendant claiming that use of TeleWork Group plc would constitute passing off. The Defendant also had a product called the Integrated TeleWork Product and BT were using the Defendant’s software in, for example, its BT Homecarer TeleWork product. The flotation went ahead and in October 2000 the Claimants served proceedings. The parties agreed that an expedited trial should be sought and the matter came to trial in March 2001. The Claimant’s case fell into three main parts. — The Claimant had established goodwill and reputation in the name TeleWorks Limited. — The Defendant’s use of TeleWork, both in the company name and in relation to its products, would constitute a misrepresentation so that customers would confuse the two companies and their products/services. — The Claimant had suffered damage as a result of the misrepresentation. Another important aspect of the Claimant’s case, and the most interesting point of law arising from the case, was that the passing-off action could protect not only the goodwill of the Claimant’s business as at the relevant date, ie the date when the Defendant commenced the activities complained of, but also ‘future goodwill’, by which the Claimant meant the goodwill that the Claimant would acquire in the

future. The Claimant had argued that this approach was necessary to ‘protect the legitimate and logical expansion of a growing business’. The Defendant’s case was that the Claimant had insufficient goodwill and reputation in its name to prevent use of TeleWork, that there was no actionable confusion/misrepresentation and that the Defendant had suffered no damage. Another aspect of the Defendant’s case was that ‘telework’ and its derivatives, such as ‘teleworking’, are descriptive terms and apt to describe at least part of the parties’ businesses.

Held Future goodwill Deputy Judge Floyd held that the Claimant’s reputation must be proved at the date when the defendant commenced the activities complained of in July 2000. He held that it is wrong to form a view as to what that goodwill might be in the future and then to consider the question of misrepresentation against that hypothetical background. The Judge held that the law of passing off already protects claimants in respect of fields which they have not yet entered, if the Claimant can show that its reputation in the field where it currently operates is sufficient so that customers of a Defendant using the same or a similar name in relation to other goods are confused as to whether there is a connection between the parties. He referred to the Lego case1 where the maker of toy bricks was able to prevent the Defendant from using the mark LEGO on garden sprinklers. The Judge also made the point that it is correct to consider threatened

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future activities of the Defendant where injunctive relief is sought, as is usually the case in passing off. For example, the Judge considered that the Defendant would probably introduce other products under the TeleWork name and in addition it would target smaller companies. However, it was important that it would always be TeleWare and Workplace that would deal with customers and not TeleWork Group plc. The Claimant’s current goodwill and reputation Deputy Judge Floyd found that the Claimant’s business was a small business which specialised in the areas set out above. The Claimant’s share of the total computer telecommunications market, which has a value of £21.4bn, was in 1998–1999 just over 0.001 per cent, a tiny fraction. The Claimant had carried out minimal advertising and marketing, having, for example, placed some advertisements in a north London business magazine at a cost of £1,500 and having its name on the side of a van which it operated in and around London for about 12 months. In addition, the Claimant had a website, but the Judge held that the extent of recognition provided by a website must be a matter of speculation. The majority of the Claimant’s customers were based either in the Lee Valley Technopark or were connected with it, or were based in north London. The Judge found that the Claimant’s reputation was limited geographically to north London. Finally, the Judge held that the goodwill and reputation of the company was closely tied to its managing 68

director, Mr Mullins, with whom all of the company’s customers dealt. It was an important finding that in order to be deceived into thinking that another company called TeleWork was the same company as or connected to the Claimant, the customer would have to find an explanation for the absence of Mr Mullins, with whom he would certainly expect to deal. Confusion Substantial evidence of alleged actual confusion was submitted by the Claimant. However, the Judge found that a very large proportion of the material relied on by Mr Mullins as evidence of actual confusion consisted of companies with no knowledge of the Claimant and no knowledge of the Defendant, except that it was undergoing a flotation. Examples of the evidence submitted were companies which had noticed that the Defendant was floating and which wished to offer their services. A significant amount of confusion arose from a thumbnail summary of new IT companies published in the Daily Telegraph which gave the wrong domain name for the Defendant. Only one instance was put forward of what might be called relevant confusions ie where a person knowing of the Claimant had confused it with the Defendant. However, it was shown that there was no basis whatsoever for assuming that this was an instance of customer confusion. Finally, the Claimant accepted that there was no evidence at all of actionable confusion, despite eight months of parallel trading. The Judge considered the possibility that absence of actual deception is not

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necessarily determinative, as it may be that any such instances simply had not come to light, and that the court is still at liberty to decide as to whether deception is likely. In reaching his conclusion that no deception would occur, the Judge took into account the following factors. — The close relationship of Mr Mullins with his customers. If any instances of actual deception had occurred, it is unlikely that they would not have come to light. — Given the nature of the transaction which the Defendant enters into with its customers, which are of a high value and involve many meetings over a period of several months, if a customer was deceived, that customer would realise its mistake at a very early stage, and long before any sale was made. — As the Defendant had been trading using the name TeleWorks, and was unlikely to alter its use of the name significantly, any deception that would result from its use of the name would already have come to light. The Judge also took into account the descriptive element in the name TeleWork or TeleWorks. He held that although not everyone would know what teleworking is, customers of the parties would understand the term. Evidence of the widespread use of the term ‘telework’ and its derivatives had been submitted which showed that it is a word which traders wish to use and will continue to wish to use. For both parties, the word ‘telework’ does describe some of their activities but not exclusively so. In addition, the Claimant’s use of TeleWorks, with the

‘s’ and capitalised ‘W’ did serve to lend it greater distinctiveness. However, because of the descriptive element of the name, the Judge concluded that customers would not be surprised to find two companies using the term or a variation of it in their names or in relation to their products. Although this might not have been a particularly significant factor if both companies had been operating in identical fields, it played a part in reducing the risk of confusion where, as here, there was a significant difference in the fields in which the parties operated and where the products are not bought in a casual way which would be conducive to confusion. Misrepresentation The Judge summarised his reasons why he had found that no misrepresentation or threatened misrepresentation had been established. — The Claimant’s limited reputation both in scale of use and geographically. In addition, the fact that the Claimant’s goodwill was linked to the personality of Mr Mullins. — The Claimant’s short period of trading to July 2000. — The gap between the Claimant’s field of activity (Internet working and computer networks), and that of the Defendant. — The Claimant’s customer base, which consisted of small companies as opposed to the large companies generally dealt with by the Defendant, and the small value of the Claimant’s contracts, as opposed to those of the Defendant. — The fact that in the marketplace the Defendant’s customers dealt with

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TeleWare and Workplace, which would alert any customer that this is not the company they know as TeleWorks Limited. — The fact that customers of the Defendant only enter into purchase agreements after detailed and lengthy negotiations. — The descriptive element in the name TeleWork(s). — The absence of deception. In addition, the Judge mentioned the fact that none of the Claimant’s customers who had been asked to give evidence had been confused.

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In light of the Judge’s finding that the Claimant had very limited goodwill and reputation in its company name and that no misrepresentation or threatened misrepresentation had been established, he held that there was no damage of which the Claimant could complain. References (1) Lego v Lego M. Lemelstrich [1983] FSR.

Contributors Andrew Terry, Eversheds, London Sarah Hodson, Eversheds, London

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