European Union: Licensing Question Referred To The ECJ

In Scandecor Development AB (SD) v Scandecor Marketing AB (SM) (unreported, 4 April 2001), the House of Lords referred to the European Court of Justice a number of important questions on the licensing of trade marks.

In Scandecor, the parent company ("ParentCo") was jointly owned by a Mr Huldtgren and a Mr Hjert. ParentCo owned UK trade registrations for SCANDECOR and distributed its poster products bearing the SCANDECOR name in the UK through its sole distributor and wholly owned subsidiary, SubsidCo.

In 1984 there was a reorganisation of the group, following which Mr Haldtgren owned SubsidCo and Mr Hjert ParentCo. Following this re-organisation, SubsidCo remained sole UK distributor for Scandecor posters originating from ParentCo and was also exclusively licensed to develop and sell its own cards and calendars under the SCANDECOR name in the UK. This licence contained no provisions allowing ParentCo to control the quality of the licensed card and calendar products put on the market by SubsidCo (a "bare licence").

In 1994 ParentCo became insolvent and as a result SubsidCo’s distributorship and licence agreements terminated. Despite this, however, ParentCo continued to supply its SCANDECOR marked posters to SubsidCo until 1997. SubsidCo then decided to sell products produced by itself or obtained from other sources under the SCANDECOR name in the UK.

ParentCo sued for trade mark infringement. SubsidCo contended that the trade marks should be revoked under section 46 (1) (d) Trade Marks Act 1994. This allows a registration to be revoked if "…in consequence of use made of [the mark] by the proprietor or with his consent… it is liable to mislead the public, particularly as to the nature, quality or geographical origin of those goods or services".

SubsidCo argued that, if these marks were distinctive of ParentCo then, at least as regards calendars and cards, the marks had become deceptive. A trade mark must be an indication of origin., yet, for years, ParentCo had not been the origin of these goods, nor had it exercised quality control over them. SubsidCo submitted that, if a mark belongs to X but with X’s consent it is used in relation to the goods of Y, over whom X has no quality control, the mark has ceased to be distinctive.

When the issue reached the House of Lords, Lord Nicholls, giving the main judgment, disagreed. In his view, one had to consider first the current purpose of a trade mark, which was to indicate that goods came from one "business source". That business source is the person who, for the time being, is entitled to use the mark either as proprietor or exclusive licensee. However, he referred to the ECJ the question of whether use of a trade mark is liable to mislead where it is used under a bare licence.

SubsidCo also relied on the "own name" defence under s 11(2) (see Asprey above), ie it claimed to be entitled to continue using the name Scandecor on the basis that this was its own name. In their Lordships' view, this defence could apply both to natural and legal persons (eg companies) but, again, they referred this issue to the ECJ.

The "own name" argument was not limited to a defence for infringement. The argument (set out clearly in Lord Scott's judgment), was that if SubsidCo was allowed to continue using the Scandecor name (being its "own name") when the proprietor was continuing to use the mark, then the public might be mislead and the mark could be revoked. Lord Scott noted that the situation would be quite different if Scandecor had been required (presumably, contractually), on termination of its licence, to cease use of the Scandecor name.

The Lords also referred to the ECJ the question of how one determines what is an "undertaking" for the purposes of the trade mark directive and Act. To be valid, a trade mark must be capable of distinguishing the goods of one "undertaking" from those of another. If SubsidCo and ParentCo had continued to be part of the same "undertaking" because of the way they co-operated then, so the argument goes, the public could not be mislead.

Whatever the outcome of this reference to the ECJ, this dispute highlights the need to limit a licensee's use of a licensed trade mark in its corporate or trading name, and to make clear that, on termination of the licence, this use must also terminate. It is also a useful reminder of the need to include suitable quality control provisions in any licence.