Sportswear SpA v Four Marketing Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Lloyd,Lord Justice Longmore,Lord Justice Waller
Judgment Date11 April 2006
Neutral Citation[2006] EWCA Civ 380
Date11 April 2006
Docket NumberCase No: A3 2005/2316

[2006] EWCA Civ 380

[2005] EWHC 2087 (Ch)

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

MR JUSTICE WARREN

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Waller

Lord Justice Longmore and

Lord Justice Lloyd

Case No: A3 2005/2316

Between:
(1) Sportswear Spa
(2) Four Marketing Limited
Respondents Claimants
and
Stonestyle Limited
Appellant Defendant

Fergus Randolph (instructed by McDermott Will & Emery UK LLP) for the Appellant

Guy Tritton (instructed by Wedlake Bell) for the Respondents

Lord Justice Lloyd

Introduction

1

This appeal is brought by the Defendant to one of two related claims in which the Respondents seek to enforce trade mark rights in respect of garments manufactured by or for the First Respondent, and distributed in the UK by the Second Respondent, under the brand Stone Island. The order appealed from was made by Warren J on 3 October 2005.

2

The other of the two claims is against a Mr Ghattaura, trading as GS3. A similar order was made against him, and he also appealed, but he has withdrawn his appeal.

3

The order struck out from the Defence in each claim a number of paragraphs in which the Defendant sought to allege that the Respondents were parties to agreements which infringe Article 81 of the EC Treaty, and that for this reason they were not entitled to enforce their trade mark rights. The claims are in the meantime proceeding to trial on the other issues raised, and they are at present due for trial early in May. Thus the resolution of this appeal is urgent; if the paragraphs in question are to be reinstated the issues at trial will be considerably expanded.

4

The First Respondent is the manufacturer of a range of garments in relation to which it uses the word mark Stone Island and a related graphic mark. Its products are sold in England and in other markets, both within and, we were told, also outside the European Economic Area. The Second Respondent is its distributor in the UK, Eire and Iceland. Two agreements between the two Respondents are before the court. Sales of the relevant products in other Member States of the EEA are made through other undertakings; we were told that there is a distributor in Spain and agents in other countries, but we do not have any information as to the terms of the agreements with those entities.

5

The agreements between the two Respondents, to which I will refer in more detail below, provide evidence that the First Respondent seeks to achieve a clear geographical separation of the marketing of its products. The Second Respondent has exclusivity within its territory and agrees not to sell into other territories.

6

Stone Island products are said to be popular and successful in England, and to command substantial prices. Mr Ghattaura sold such products which he had obtained from the Appellant. The Appellant obtains such products, but from a source other than the Second Respondent. The identity of the Appellant's supplier is not revealed, but it is known to be based in Italy.

7

The Stone Island trade mark features in a number of ways on garments as sold. In particular the words are on the label of the garment. Also on the label, and on the swing tag (which gives the price and other details such as size) , there is a code, known as the Garment Code. This enables the First Respondent to identify for which of its retailers the particular garment was manufactured. The code is in two parts: the first identifies the retailer and the second gives information as to the order and its quantity. The Respondents assert that the Garment Codes assist in determining whether goods bearing the Stone Island mark are genuine or not, and enable the First Respondent to track, administer and identify orders for retail customers. The Appellant does not admit these purposes, and asserts that the Garment Codes have another use, namely to enable the Respondents to police and enforce the absolute territorial exclusivity conferred on each party by the distribution contracts between them.

8

When the Respondents found that Mr Ghattaura was selling Stone Island garments, they also found that the Garment Codes had been cut out of the garments, by the cutting of holes in the labels, and also from the swing tags. We were told, and it is not difficult to believe, that this operation was carried out before the garments reached the Appellant. The Appellant's Italian supplier would have removed the Garment Codes from the products which it sold outside Italy, because, if the Garment Codes were not obliterated, an item found on sale in the UK might be able to be traced back to the particular retailer. The First Respondent might then be able to take steps, whether by legal proceedings or by limiting supplies, against that retailer in an attempt to prevent Stone Island garments getting into the UK market otherwise than through its official distributor for that market, namely the Second Respondent.

9

It is inconsistent with the basic tenets of the single market under the EC Treaty for an undertaking to partition the market within the EU, or now the EEA, on a geographical basis. This infringes the principle of free movement of goods, enshrined in Article 28 of the Treaty. The interaction between that principle, on the one hand, and respect for intellectual property rights, such as trade marks, on the other, has given rise to tensions over the years, which have been explored in a number of decisions of both national courts and the European Court of Justice. The present case is another such.

10

Ordinarily, under English trade mark law, it would be an infringement of the rights of the proprietor of a registered trade mark for relevant goods to be imported into or sold in this jurisdiction by reference to the mark without the consent of the owner: see Trade Marks Act 1994 section 10(4) (b) and (c) . However, as regards operations within the EEA, section 12(1) of the Act (which gives effect to Article 7(1) of the Trade Marks Directive 89/104/EEC) provides that a registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market in the EEA under that trade mark by the proprietor or with his consent. To this there is an exception, in section 12(2) , which implements Article 7(2) of the Directive:

"Subsection (1) does not apply where there exist legitimate reasons for the proprietor to oppose further dealings in the goods (in particular, where the condition of the goods has been changed or impaired after they have been put on the market) ."

11

Given that the garments sold by the Appellant came from Italy, it is common ground that section 12(1) applies. The Respondents contend that the interference with the labels (and swing tags) involved in the removal of the Garment Codes affords them a legitimate reason for opposing further dealings in the goods, and that therefore, notwithstanding section 12(1) , they can assert their trade mark rights and sue the Appellant and Mr Ghattaura for infringement. They seek an injunction and financial remedies (an account or damages) , as well as delivery up of any infringing items and disclosure of the identity of the Appellant's suppliers.

12

The Claim Form was issued on 22 November 2004, followed by Particulars of Claim early in December. The Appellant served its Defence on 25 January 2005, and the Respondents followed with a Reply in February. After some correspondence as to the adequacy of the Appellant's pleading, the Respondents issued an application to strike out three paragraphs of the Defence on 16 March 2005. This came before the judge on 27 and 28 June. He gave judgment on 3 October, granting the application. Points of pleading and points of substance were argued. On one point the judge refused an application by the Appellant for permission to amend. No appeal is brought against that refusal. On another he indicated that permission to amend might be given, but did not decide whether or not to give permission for the amendment proposed.

The pleaded allegations

13

Since the issue in the appeal is whether the judge was right to strike out paragraphs 16 to 18 of the Defence, the appropriate place to start on an examination of the relevant details is with the statements of case.

14

The Particulars of Claim allege, among other things, the trade mark registrations, exclusive licences granted by the First Respondent to the Second Respondent in 1999 and in 2004 to sell clothing of the First Respondent under the Stone Island brand in the UK, substantial sales of such clothing under the brand and, resulting from such sales, "substantial goodwill and reputation as a high quality brand in relation to premium quality clothing", and the association of the brand exclusively with the First Respondent's clothing. The use of the Garment Codes is alleged, and the purpose of such use, as described at paragraph 7 above. Then sales by Mr Ghattaura of clothing bearing the Stone Island mark but defaced by the removal of the Garment Codes, the identification by Mr Ghattaura of the Appellant as his supplier, and the Appellant's admission of having supplied the items to him, are alleged. It is then said that the sale of the garments with the Garment Codes defaced or removed is detrimental to the distinctive character and repute of the marks, for reasons stated. It is said that the defacement or mutilation of the goods is a legitimate reason for the Respondents to oppose further dealings in the goods under section 12(2) , for reasons given. On that basis, infringement of the marks is alleged, and relief sought such as I have already mentioned.

15

By the Defence,...

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