Litigation by STEALTH not permitted by Court of Appeal

Litigation by STEALTH not permitted by Court of Appeal

---

Introduction

It is not uncommon for trade mark owners to purchase old, and unused, trade mark registrations as part of their commercial IP strategy, but what happens when a party acquires a right during the course of litigation and deliberately conceals the fact it has done so whilst use of the mark is resumed? A recent Court of Appeal decision assessed this issue, with the Court refusing to grant permission to amend a defence to introduce the acquired mark in circumstances where the defendants were found to have attempted to take advantage of the process of civil justice.

Background

ABP Technology Limited (“ABP”) is a UK based producer of gaming accessories, including a range of gaming headsets which it has sold under the marks STEALTH VR and STEALTH. Voyetra Turtle Beach Incorporated and its subsidiary Turtle Beach Europe Limited (together referred to as “VTB”), are competitors in this field who have also sold gaming headsets in the UK under the mark STEALTH.

The parties have historically been in dispute before the UK IPO regarding the ownership of UK trade marks for STEALTH and STEALTH VR (in a stylised form). The outcome of those proceedings (reported here and here) was in favour of ABP, leaving it as the senior user of the mark STEALTH VR and the registered owner of UK trade mark rights in the marks STEALTH VR (in a stylised form) and, subsequently, STEALTH.

Following its success in the UK IPO proceedings, ABP commenced trade mark infringement proceedings against VTB in November 2020 claiming that VTB’s use of the mark STEALTH on headsets constituted trade mark infringement under the Trade Marks Act 1994 (the “TMA”).

In January 2021, after infringement proceedings had been brought and a few days before the Defence was filed, a shell company called Name Creations Ltd (“NCL”), acquired the long-unused UK Registration No. UK00002014250 for STEALTH (the “250 Mark”) on behalf of VTB. VTB’s connection to the mark was kept secret and it was purported to be licensed by NCL for a period in excess of 3 months until mid-June 2021 when the 250 Mark was then assigned to VTB. The significance of the greater than 3 month period was that, had ABP learned of VTB’s interest in the 250 Mark before 3 months of purported resumed use had elapsed, it would have had an unanswerable claim for revocation for non-use (because section 46(3) of the TMA disregards the first 3 months prior to the bringing of such a claim).

In July 2021, VTB sought to amend their Defence to introduce the 250 Mark into proceedings both as a defence to the infringement claim, under s11(1B) TMA, and as the basis of a counter-claim for infringement (and to attack the validity of ABP’s marks).

The judge at first instance in the High Court (ABP Technology Ltd v Voyetra Turtle Beach, Inc [2021] EWHC 3096 (Ch)) allowed some of these amendments (not the invalidity attack), finding that the amendments were not late because the proceedings had not progressed very far and, essentially, that it would be artificial to exclude consideration of a right that had been lawfully acquired by VTB.

ABP appealed against this decision.

The Appeal

Among other things, ABP argued that the application to amend was late because it could have been made at an earlier point in time. In finding the amendment was not late, the judge, therefore, had not gone on to seek any explanation from VTB as to why the amendment was late. Had he done so he would have inevitably found that there was no good reason for the lateness because VTB had filed no evidence in relation to this issue and the evidence of ABP in relation to the deliberate scheme employed by VTB was uncontested.

The involvement of VTB in the acts of NCL were confirmed by VTB’s barrister at the first instance hearing and expanded upon at the hearing of the appeal to the effect that VTB had undertaken a deliberate scheme to be able to be in possession of trade mark with its vulnerability to revocation removed. To have done otherwise and sought to introduce the trade mark earlier would have been to have rendered the amendments meaningless.

The Appeal Decision

The Court of Appeal, relying on existing case law relating to late amendments, found that an amendment is to be regarded as late if it could have been made earlier and that, where an amendment is late, it calls for an explanation justifying the lateness (ABP Technology Ltd v Voyetra Turtle Beach, Inc [2022] EWCA Civ 594). Considering VTB could have introduced its s11(1B) defence on 2 February (in the original Defence) – as that defence did not require that VTB be the legal proprietor of the 250 Mark – the judge had erred in finding the amendment was not late. Moreover, he should have found it late even on the footing as it appeared to him at the first hearing that the relevant date was that of the licence on 15 March.

Despite the lateness of the amendment, the Court has a discretion to allow new issues to be raised where they do not cause unjustified prejudice to the other party. The real issue in this case was that VTB’s lateness in applying to amend its defence had deprived ABP of a defence which it would have had if the amendment had been raised when it could have been, namely, that the 250 Mark had not been used and should therefore be revoked.

In light of the lateness and the prejudice caused to ABP, an explanation for the lateness was required from VTB. However, VTB did not provide any such explanation, despite a clear request from ABP to do so. Such a failure should have been fatal to VTB’s application to amend.

Although it was not pertinent to the decision, the Court also addressed VTB’s arguments that ABP could have checked the register themselves for the 250 Mark and revoked it if they had been concerned about it. This argument was rejected with the Court finding that there was no duty on ABP to conduct a search of the register and apply to revoke any marks of concern.

Commentary

The Court of Appeal was highly critical of VTB’s approach and the way in which they conducted the amendment application.

In the words of Lord Justice Birss: “Voyetra’s conduct will not do”. He went so far as to say that, in response to an apparently well founded challenge in evidence relating to the statement of truth in the original Defence: “Voyetra ought at the very least to have filed apologetic evidence explaining what had happened.”

While VTB’s scheme might not have been unlawful as regards the TMA, Lord Justice Birss noted: “The power to refuse late amendments which cause unjustified prejudice may well have the result that a point is excluded from consideration at trial which would not have been excluded if it had been raised earlier.” Thus it was VTB’s deliberate lateness coupled with the lateness being the cause of the prejudice to ABP that led to the application to amend being refused.

Ultimately, the Court found VTB’s conduct to be an attempt to take advantage of the process of civil justice and that permitting the amendments would: “sanction an act of deliberate concealment by the party seeking to be permitted to amend”. As a result, the appeal was allowed and VTB was refused permission to amend its defence and introduce a counter-claim.

At one level this is a decision on a purely procedural question of lateness in bringing an application to amend a statement of case, but it has important implications for trade mark practitioners. This is because it is clear from the judgment that any scheme which seeks to resume use of a trade mark but to hide the connection between the trade mark and the use for any period sufficient to overcome section 46(3) TMA (i.e. at minimum 3 months) will be considered late because of the prejudice it causes. The over-riding consideration mentioned is that the system of civil justice includes the idea that “litigation is conducted with cards on the table – face up”.

While the decision should also provide some comfort for trade mark owners that there is no duty to check and clear the register of potentially conflicting earlier rights which might not be in use, it is unclear the extent to which the practice of resuming use of old trade marks can be pursued outside of ongoing litigation. It would therefore be prudent for those involved in potential trade mark disputes to consider the possibility of resumed use and the timing of such use.

AA Thornton acted on behalf of ABP Technology in these proceedings

---

Category: Latest Insights | Author: Daniel Byrne, Sarah Neil | Published: May 2022 | Read more