Sportswear SpA v Four Marketing Ltd
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE WARREN,Mr Justice Warren |
| Judgment Date | 03 October 2005 |
| Neutral Citation | [2005] EWHC 2087 (Ch) |
| Docket Number | Case No: HC 04 C 03552 |
| Court | Chancery Division |
| Date | 03 October 2005 |
[2005] EWHC 2087 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Warren
Case No: HC 04 C 03552
& HC 04 C 03665
Guy Tritton (instructed by Messrs Wedlake Bell) for the Claimants
Hiroshi Sheraton (instructed by Messrs Mc Dermott Will & Emery UK LLP) for the Defendants
Hearing dates: 27th & 28th June 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
I have before me applications to strike out paragraphs 16 to 18 of the Defences in each of these two actions. The pleadings in each action are in virtually identical form. The actions are concerned with the alleged infringement by the Defendants of the trademark of the first Claimant (" Sportswear"). Sportswear is the owner of the registered trademark STONE ISLAND and the second Claimant is the distributor in the UK of Sportswear's clothing
Stone Island, according to the Claimants, is a prestigious brand and clothing sold under its label commands a high premium. The Defendants in the two actions are selling clothing bearing the mark Stone Island which has had labels defaced and/or swing tags cut out and defaced. The labels include codes ("Garment Codes") which contain information relating to the order and quantity of the order and from which Sportswear would be able to ascertain to which of its distributors/customers the clothing was originally sold.
There is no dispute that the clothing which the Defendants are selling is genuine Stone Island clothing and that it has been placed on the market in the European Economic Area ("the EEA") by the Claimants or with their consent. This would normally have the result that Sportswear would be deemed to have exhausted its rights to prevent any further circulation of the clothing within the EEA: see section 12(1) Trade Marks Act 1994.
However, the Claimants object to what they describe as the mutilation of clothing bearing the Stone Island label including the removal of Garment Codes. They assert that customers buying genuine Stone Island clothing do not expect to buy clothing in such a damaged state. The customer has a right to expect Stone Island clothing to be in mint condition wherever he or she buys it. This is true, it is said, of any premium brand clothing such as Stone Island. They accordingly seek to prevent the continued sale of clothing by the Defendants in order, they say, to protect their own image. It is a feature of the case therefore that, absent the removal of the Garment Codes, the Defendants would clearly not be infringing Sportswear's trade mark and would be entitled to market the Stone Island clothing.
The Defendants put forward another interpretation of the action being taken against them. Apart from saying that the removal of Garment Codes is not, in any sense, mutilation of the clothing, they suggest that the real reason for the actions is the desire to force the Defendants to retain the Garment Codes in order for the Claimants to be able to identify the person to whom the latter originally supplied the garments. In that way, they will be able to cut off supplies and thus throttle the business of the Defendants in an anti-competitive breach of Community law.
The Defendants rely on a number of defences. In particular, they attack certain agreements (including what is referred to as "the 2004 Distribution Agreement") made between the Claimants as being anti-competitive and in breach of Article 81 of the EU Treaty (" Article 81"). In a domestic context, they refer to section 12(2) Trade Marks Act 1994. Under section 12(2), section 12(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)".
The Defendants say that section 12 is to be construed against the requirements of EU competition law, and in particular Article 81. They say, in the light of the agreements which I have referred to between the Claimants, that the assertions made by the Claimants do not constitute legitimate reasons under section 12(2) and therefore that they, the Defendants, cannot be prevented from selling the clothing with Garment Codes removed.
Article 81 provides as follows:
"The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations or undertakings and concerted practices which may affect trade between Members States and which have as their objective or effect the prevention, restriction or distortion of competition within the common market, and in particular those which….[and there follow lettered paragraphs containing examples]"
There must, for the prohibition under Article 81 to apply, be (a) an agreement or concerted practice (b) which may affect trade between Member States and (c) whose object or effect is to prevent unfair competition. It is well established, and is not in dispute, that requirement (b) requires that the effect on trade be appreciable as the case-law of the ECJ has explained that word: see for instance Volk v Vervaecke [1969] EC 295 and Miller v EC Commission [1978] 2 CMLR 334. To ascertain whether there is an appreciable effect on trade will, no doubt, usually require an economic analysis of the relevant market and the trader's place in, and share of, it.
The basis of the applications to strike out paragraphs 16 to 18 of each Defence (which are in the same terms in relation to the same claims in each action) is that they disclose no arguable defence and/or are embarrassing.
There are in essence two distinct criticisms of the Defences:
a. The Defences do not set out how the agreements affect trade between Member States or assert an appreciable effect on trade between Members States (the " Appreciable Effect on Trade" point). The Claimants say that they are in fact such small undertakings that their activities are incapable of have an appreciable effect on trade.
b. A breach of Article 81, even if proved, would not provide a defence to trade mark infringement (the " Nexus" point).
During the course of argument, the Defendants were compelled to accept that paragraphs 16 to 18 were defective in failing to address the Appreciable Effect on Trade point. But it was maintained on their behalf that this was a purely pleading point which could be corrected by amendment. It was accordingly appropriate to give them the opportunity to make such amendments. Draft amendments have now been submitted which refer expressly, in both paragraphs 16 and 17, to the agreements which I have mentioned as being "capable of appreciably affecting trade between member states" and contain particulars relied on. In this judgment, however, I do not deal with whether the amendments are adequate to deal with the Appreciable Effect on Trade point.
For the purpose of addressing the Nexus point, I make the assumption that the agreements which I have mentioned contain terms which infringe Article 81 ie they have as their object or effect the prevention, restriction or distortion of competition and are capable of affecting trade between member states.
It is submitted on behalf of the Claimants that, for an Article 81 defence to succeed as a defence to an action for trade mark infringement, it must be shown that there is some credible nexus between the relief sought in the action and the alleged breach of Article 81. Reliance is placed on British Leyland v Armstrong [1984] 3 CMLR 102 where a defendant sought to defend an action for copyright infringement brought by a copyright owner on the grounds that the plaintiff was party to an agreement with third parties (its licensees) which contravened Article 81. For the Claimants it is, of course, submitted that there are very strong parallels with the facts of the present cases. In dismissing this defence, Oliver LJ said this:
"[89] Now the only agreements upon which the defendants rely as infringing this Article are certain licence agreements, to which I will refer in a little more detail below, under which certain manufacturers of spare parts engage to pay royalties to the plaintiffs on spare parts manufactured and sold by them, and there is, as it seems to me, a very short answer to the defence based on this Article.
[90] The defendants have not entered into such an agreement, so that what they are saying, in effect, is this: 'because you have entered into agreements with X, Y and Z, which are void under Article [81], you are debarred from exercising any of the rights which the law confers on you in respect of infringements by us'. The answer to this is, I think, conveniently set out in the judgment of Sir Robert Megarry, V.C. in Imperial Chemical Industries v. Berk Pharmaceuticals, [1981] [1981] FSR 1, 2 CMLR 91, where he struck out a paragraph in the defence which pleaded that by reason of breaches of Article 86 (in that case) [now Article 82] the plaintiffs were debarred from relief against passing-off on the ground of the lack of nexus between the abuse pleaded and right claimed by the defendants.
[91] That seems to be equally applicable here, where the defendants claim the right to do what they would otherwise be prohibited from doing because of some contractual relationship which has been entered into between the plaintiffs and third parties.
[92] The learned Vice-Chancellor...
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