Supreme Court confirms the relevance of overly broad trade mark specifications in determining bad faith

Legal practitioners have been eagerly awaiting the Supreme Court’s decision in SkyKick UK Ltd and another v Sky Ltd and others, which essentially relates to two issues: (a) what is the test for determining “bad faith” in s3(6) of the Trade Marks Act 1994?; and (b) if bad faith is established, what is the correct approach to determining the scope of the specification that the proprietor of the trade mark should be permitted to retain?

Bad faith has been a central issue in trade mark law in recent years. In 2021, Hasbro was found to have registered the MONOPOLY trade mark in bad faith as a result of its practice of ‘evergreening’, i.e. repeatedly re-filing the same trade mark to ensure that it could not be vulnerable to a non-use attack which, if successful, would result in the mark being removed from the register.

The Supreme Court delivered their long-awaited judgment today, unanimously holding that the High Court was correct in finding bad faith on Sky’s part and modifying its trade mark specifications to the extent that it did, and that the Court of Appeal failed to take into account important legal and factual considerations in its decision to overturn the High Court’s judgment. In particular, the Supreme Court lowered the threshold previously established by the Court of Appeal for finding bad faith by confirming that overly wide or general trade mark specifications are capable of leading to an inference of bad faith. The Supreme Court also made findings relating to infringement and the UK courts’ jurisdiction post-Brexit.

Background

This case is a long-running dispute between Sky, who offer broadcasting and broadband services, and SkyKick, who offer email migration and cloud storage services. The dispute began with Sky bringing infringement proceedings against SkyKick, alleging that the similarities between the SKY and SKYKICK trade marks would lead to confusion among consumers.

SkyKick not only defended the infringement proceedings but alleged that Sky’s trade marks were invalid on the ground that they were registered in bad faith, relying on s3(6) of the Trade Marks Act 1994. SkyKick argued that Sky’s trade mark registration strategy, covering particularly wide categories of goods and services, including some goods and services which were far removed from their core telecommunications services, was undertaken in bad faith because Sky had no intention to use its trade marks for all of the goods and services for which the trade marks were registered, but rather intended to undermine competition.

Legal Proceedings to Date

This case has been the subject of extensive legal consideration. As well as going through the High Court, Court of Appeal and the Supreme Court, the matter was referred to the Court of Justice of the European Union (CJEU), as it was brought before the UK left the EU.

The CJEU was asked to rule on a number of questions, which included whether it could constitute bad faith to register a trade mark without any intention to use it in relation to certain goods or services covered by the registration.

The CJEU confirmed that a registration is undertaken in bad faith where ‘the applicant for registration of that mark had the intention either of undermining, in a manner inconsistent with honest practices, the interests of third parties, or of obtaining, without even targeting a specific third party, an exclusive right for purposes other than those falling within the functions of a trade mark’. The CJEU ruled that a lack of intention to use a trade mark in relation to specified goods and services may constitute bad faith where there is no rationale for the registration, but that there must be ‘objective, relevant and consistent indicia’ showing bad faith as defined above.

The High Court (HC), following this judgment, partially invalidated Sky’s trade marks in relation to certain goods and services on the grounds of bad faith. The HC pruned the problematic specifications to limit protection to goods and services relevant to Sky’s established business, such as by limiting computer software to certain uses. The HC did, however, also find SkyKick to have infringed Sky’s trade marks in respect of SkyKick’s Cloud Migration and Cloud Backup activities, on the basis of a finding that Cloud Migration was an electronic mail service, and that Cloud Backup involved ‘computer services for accessing and retrieving audio, visual and/or audiovisual content and documents via a computer or a computer network’.

The Court of Appeal (CoA) overturned the HC’s finding of bad faith. The CoA found that, while a lack of intention to use is a factor to consider when determining bad faith, inadequate attention was given to the assessment of whether there was a commercial justification for Sky’s broad registration. Moreover, the CoA found that the breadth of registration is not in itself an indication of bad faith, and that registering a trade mark for a wide category of goods and services, even where this may be wider than the category of goods and services for which the applicant intends to use the trade mark, is also not in itself an indication of bad faith. The CoA found that Sky did have a commercial justification for its registrations in relation to ‘computer software’ and the other categories of goods and services under dispute, and there was therefore no bad faith on Sky’s part.

With regards to infringement, the CoA upheld the HC’s decision regarding Cloud Backup but disagreed in relation to Cloud Migration, finding that the extension of ‘electronic mail services’ to Cloud Migration was contrary to principle.

SkyKick appealed the CoA decision on the issues of bad faith and infringement to the UK Supreme Court.

Supreme Court Decision

Interestingly, while the Supreme Court (SC)’s judgment was being finalised, SkyKick made an application, supported by Sky, for permission to withdraw the appeal, as a settlement had been reached. Nevertheless, the SC found that it was in the public interest to proceed, given the importance of the case and the potential impact of the decision on brand owners.

Overall, the SC found that the HC was entitled to find bad faith in the way it did, and to require modification of the categories of goods and services for which Sky’s trade marks were registered as a result.

The SC confirmed that, on the basis of the CJEU judgment, while it is not necessary for an applicant to have a ‘settled or developed intention’ to use the trade mark for certain goods and services covered by the application, the position is different where there is no intention to ‘try and establish or even reasonably to explore the viability of a business under the mark’, but an intention ‘vigorously to enforce the registration across the full range of the goods and services in respect of which it is registered’. The SC noted that, while an inference of bad faith can be met with an explanation of the commercial rationale for the decision, a failure to provide such an explanation can support a finding of bad faith.

The SC indicated that the CoA’s position that the breadth of the specification of goods and services covered by a registration can never, in and of itself, rebut the presumption of good faith, would make it ‘very difficult if not impossible for a third party to make out a case of bad faith filing’.

The SC emphasised the central importance of the essential function of a trade mark being to denote the origin of the goods and services to which it relates and found it to be inherent to this function that a trade mark will be used for that purpose by its proprietor. On that basis, the SC found it to be a matter of degree whether an overly wide filing justifies finding that an application was, at least in part, made for a purpose other than in connection with the essential function of a trade mark.

The SC also found that the use of overly general categories, where the applicant has an intention to use the trade mark in relation only to a subset of the category, should be taken into account when determining bad faith, contrary to the CoA’s ruling.

According to the SC, the CoA failed to appreciate both the legal points set out above and a number of significant facts. For example, Sky had been exceedingly active in enforcing its trade mark rights with a ‘remarkable’ 800 decisions partially or wholly in their favour worldwide, some in relation to goods and services which have no connection to Sky’s core services. Furthermore, in the course of infringement proceedings against SkyKick, and, in the face of SkyKick’s bad faith objection, Sky initially relied upon all the goods and services for which its trade marks were registered, only limiting their case to a subset five weeks before trial, and further limiting their case in the course of closing submissions. In the SC’s view, these points were clearly consistent with SkyKick’s allegations regarding Sky’s intention to abuse their trade mark registrations. The SC therefore upheld the HC’s judgment in relation to bad faith and the decision to modify the trade mark specifications in the way it had done.

However, the SC sided with the CoA in relation to infringement. The SC held that the CoA was right to find that Sky’s registration in respect of ‘electronic mail services’ did not extend to Cloud Migration and that infringement had therefore not been established. The SC noted that, where a specification of goods and services is ambiguous, it should be confined to those goods and services which fall within the core of its possible meanings, not extended to other goods and services which may or may not be similar or related in an indeterminate way. The SC also agreed with the CoA that the HC had made no error regarding Cloud Backup.

There had been significant discussion of the jurisdictional element of this case given that some of Sky’s trade marks were EU trade marks. The SC confirmed that the UK courts have jurisdiction in relation to EU trade marks for proceedings that were pending in the UK on IP completion day, i.e. 31 December 2020.

Implications

Paul Cox, Partner at Ionic Legal, said:

“The Supreme Court’s judgment will no doubt lead to more counterclaims as part of court or trade mark registry proceedings, particularly as many trade marks have been filed using more general specifications under the old system. Trade mark registrations will be vulnerable to an attack if they are too general, and also if they cover goods or services which are not connected to the core business of the applicant. Obviously, Sky was an extreme example, as their marks were both, and of course they then took action against businesses which did not trade in identical or similar fields.

In light of this decision, trade mark applicants need to take care when filing trade mark specifications, and particularly when choosing to cover a broad range of specifications or to use general terms, given the risk of exposure to allegations of bad faith. Applicants should consider the necessary scope of a trade mark in light of their current and intended business practices, and they should preserve evidence of their commercial reasoning for registering under the chosen specifications.

As seen in this case, where terms are overly general or their scope is unclear, their interpretation will be a matter for the courts or the registry. One approach to secure an increased measure of control may be to use more general specifications followed by more specific terms. Then, even if the more general specifications are found to have been made in bad faith, applicants’ trade marks can still cover the more specific goods and services included in the registration.

Given the potential proliferation of bad faith counterclaims, it is essential for applicants to take legal advice when submitting a trade mark application to ensure their trade marks are enforceable as registered and less vulnerable to accusations of bad faith. Also, if a brand owner issues infringement proceedings, it will be important to limit the claims to particular goods and services covered by the specification rather than seeking to enforce in relation to goods or services which may be vulnerable to an attack, either through bad faith or non-use.“