Imperial Group Ltd (Plaintiffs v Philip Morris & Company Ltd (Defendants

This is an appeal by the plaintiffs, the Imperial Group Limited, against first, the dismissal by Mr. Justice Balcombe of their claim against the defendants, Philip Morris and Co. Ltd., for an injunction to restrain them from infringing the plaintiffs' registered trade mark No. B 1,028,306 for the mark "Nerit", and secondly, against his order on the defendants' counterclaim that the Register of Trade Marks kept under the Trade Marks Act, 1938, be rectified by the removal of the mark "Nerit" therein registered in Class B.

The appeal calls for the consideration of three submissions. First, was "Nerit" a trade mark at all within the meaning of the Trade Marks Act, 1938? The trial judge found that it was. Secondly, was the mark "Nerit" capable of distinguishing the plaintiffs' goods within the meaning of section 10 of the Act? Again the trial judge found that it was. Thirdly, had the mark "Nerit" been registered without any bona fide intention on the part of the plaintiffs that it should be used in relation to their goods, and had there in fact been at any relevant time any bona fide use of the mark in relation to their goods? On this issue the judge found that there had been neither a bona fide intention to use the mark nor any bona fide use of it. This finding resulted, pursuant to section 26 of the Act, in the order for the removal of the mark "Nerit" from the Register. Consideration of these issues led the court to consider the validity of a trade practice amongst those who make and deal in tobacco products for smoking, which now goes back at least 20 years, of registering what the plaintiffs call "ghost trade marks", which were described by their counsel, Mr. Walton, as marks which are registrable under the Act and have been chosen to give their registered proprietors protection for unregistrable marks. "Nerit" was such a mark, as the plaintiffs intended it to be, and which they claimed in this appeal was validly registered as a trade mark and bona fide used as such.

The plaintiffs have many industrial and commercial interests. They manufacture cigarettes on a large scale through a number of Divisions. One is known, indeed well known, as W.D. & H.O. Wills. In December 1973 that Division wanted to market a "king size" brand of cigarettes at less than the usual price for cigarettes of that size. They wanted a new brand name for the projected cigarette. "Merit" was suggested and thought suitable. Pack designs and advertising copy for that were prepared for approval. By April 1974 the plaintiffs had decided to go ahead with the marketing of a king size cigarette with the brand name "Merit". Earlier the plaintiffs' Patent and Trade Marks Department had advised (and in my judgment advised correctly) that "Merit", being a word with a laudatory meaning, would "almost certainly" not be registrable.

The decision to go ahead with the brand name "Merit" led the plaintiffs' Patent and Trade Marks Department to give this advice in a letter dated 16th April 1974: "In the circumstances, I think it would be desirable to try and register a Ghost Mark for Merit and I would like to suggest to you that either Miret or Nerit would be suitable names for this purpose". This advice was accepted. A Mr. David Baird, who was then the Wills Division's senior brand manager, when accepting the advice said: "I have no particular preference in either of the names you suggest, although it seems to me that Nerit is the closest phonetically to our chosen brand name.": see his letter dated 17th April 1974. The plaintiffs then instructed their Trade Nark agents to file an application for the registration of the mark "Nerit" in class 34. At this time, a Mr. R. Walker of the plaintiffs' Patent and Trade Marks Department, commented to Mr. Baird in a letter dated 22nd April 1974: "I assume that you have a genuine intent to use the mark Nerit". Mr. Baird replied by letter dated 3rd May 1974: "I would confirm that we are actually developing a brand for an introduction in the reasonably near future with this proposed brand name".

This statement was not accurate. At that date, as Mr. Baird accepted in cross-examination, there were no plans for the development of a brand Nerit. The following questions and answers followed: "(Q) When did you contemplate it would be introduced? (A) Within a period of five years, I understood…. (Q) Are you saying that was all you intended to do? (A) Yes. (Q) Wait and see when an opportunity might occur, or the necessity might arise at any time in the four years beginning 3rd May 1974, or thereabouts? (A) Yes."

A few questions later he was asked: "(Q) Of course, no form of use of Nerit whatever was contemplated apart from any limited introduction that may have been intended? (A) That is right. (Q) It was an idea solely in aid of Merit? (A) Yes". These answers showed what was in Mr. Baird's mind, he being the plaintiffs' responsible servant, at the time when they made an application to register the mark "Nerit", which was on 22nd April 1974. The trial judge's finding about the plaintiffs' intention at the time of the application was as follows: "At this time the intention of Mr. Baird—who for this purpose was the relevant person within the plaintiffs' organisation—was to use 'Nerit' only if that should be necessary to protect the plaintiffs' own use of the name 'Merit' or to stop a competitor from using 'Merit', and for that purpose he understood it would then be necessary to make a limited introduction of a brand under the name 'Nerit' within a 5-year period". There was ample evidence to support that finding, and I agree with it.

By letter dated 2nd September 1974, the Trade Mark Registry objected to the registration of "Nerit" under section 9 of the Act, on the ground that it was too close to the word "Merit" connoting goods of outstanding excellence. They went on to suggest that the application could proceed under section 10 for the registration in Part B of the Register. The plaintiffs accepted this suggestion. The mark "Nerit" was duly registered as from 22nd April 1974, as was shown by a certificate dated 7th April 1975.

Save for registration and the benefits which might come thereby, "Nerit" had no part in the plaintiffs' plans after April 1974 and before December 1975, when they got news that an American company, Philip Morris Incorporated (the defendants' parent company) intended on 16th December 1975, to put upon the United States market a cigarette under the brand name "Merit". This was the kind of necessity which Mr. Baird had agreed in cross-examination might lead to the use of "Nerit" to safeguard the plaintiffs' use of "Merit". Action followed quickly. By 12th March 1976, the plaintiffs had prepared a pack for a brand of cigarettes to be called "Nerit". The cigarettes were not to be a new blend, but the plaintiffs' Embassy blend. The distribution was to be limited both in area and time and made through outlets which they themselves owned. The plaintiffs did not try to get any press support and in such information as was given to stockists and the press the introduction was described as "limited". The plaintiffs planned to distribute 42,000 cigarettes. Only 24,000 were distributed and 19,800 were sold (that is, 990 packets of 20 each). What this was intended to achieve is shown by a memorandum dated 12th April 1976, which was circulated within the plaintiffs' organisation. The relevant parts were as follows: "As you know, we took an interest in the name Merit some time ago but it is not registrable as it is laudatory. For this reason we registered a ghost mark "Nerit" which is now our trade mark. Because of Philip Morris activity with Merit (they are attempting to register Merit and a Merit label) we are now undertaking an exercise protecting our mark before it is even vulnerable. In other words indicating within trade mark law that we have an active interest in the name…The only other way we can undertake to protect this mark is to make a full scale introduction with widespread support which clearly is not commercially viable".

On 9th August 1976, the Morning Advertiser announced that the defendants were going to introduce Merit cigarettes into the United Kingdom, claiming that it had been one of the most successful new brands ever introduced in the United States. The plaintiffs decided on action. By November 1976 a plan had been drawn up for the launching of a Nerit brand. The object was still to protect the unregistered mark "Merit"; but the operation was to be a limited one, although much bigger than the first introduction of the Nerit brand. There was to be an introduction by the end of January 1977, through 2,500 independent outlets, together with another 100 which the plaintiffs controlled, of about 1,070,000 cigarettes, (that is about 20 packets of 20 each for each outlet). Each cigarette was to bear the "Nerit" brand name but the blend and packaging specification was to be the same as for the plaintiffs'...