- This is the claimant's application dated 19 February 2018 seeking to set aside my order dated 2 February 2018 ("the transfer order") transferring the claim to the IPEC. The order was made at the triage stage on the court's own initiative. The application has a protracted procedural history, which it is unnecessary to recount for present purposes.
- The evidence on behalf of the claimant was contained in:
(1) the second witness statement dated 16 April 2018 of its solicitor, Ewan James Grist ("Grist 1");
(2) the third witness statement dated 10 May 2018 of Mr Grist ("Grist 3");
(3) the fourth witness statement dated 14 May 2018 of Mr Grist ("Grist 4");
(4) the fifth witness statement dated 10 July 2018 of Mr Grist ("Grist 5").
- The evidence on behalf of the defendants was contained in:
(1) first witness statement dated 3 May 2018 of their solicitor, Patrick John Wheeler ("Wheeler 1");
(2) the second witness statement dated 14 May 2018 of Mr Wheeler ("Wheeler 2")
(3) the third witness statement dated 17 July 2018 of Mr Wheeler ("Wheeler 3").
Parties and the claim
- The claimant, Massimo Osti SRL maintains the archive of an influential garment engineer and fashion designer, Massimo Osti, and offers fashion and design consultancy services and under the name "Massimo Osti Archive". It is the owner of two trade marks ("the Marks"), both registered in respect of goods in classes including 25 (clothing, footwear, headgear):
(1) EUTM no. 5225339 for the word mark MASSIMO OSTI;
(2) International Registration no. 1039334 for a figurative mark comprising the words MASSIMO OSTI ARCHIVE.
- The first defendant, Global Design and Innovation Limited ("D1"), designs, makes and sells clothing under the "MA.STRUM" brand in the UK. It was incorporated on 9 February 2011 by the 2nd defendant, Mr John Sharp, who has at all material times been its sole shareholder and a director. He is also its sole director, and has been at all relevant times, other than the period 24 May 2011 to 1 October 2014.
- The claim is based on two causes of action: breach of contract and trademark infringement.
- The breach of contract claim arises in the following factual circumstances. The claimant was the licensor under a licence agreement dated 22 September 2010 ("the Licence") between it and a third party, Global Design and Innovation LLC ('the Delaware company'), a Delaware registered company and founder of the "MA.STRUM" brand. Under article 2 of the Licence, the claimant authorised the Delaware company to use the marks "MASSIMO OSTI ARCHIVE" and "INSPIRED BY MASSIMO OSTI ARCHIVE" on goods within the classes for which the Marks are registered.
- The Licence included the following terms:
(1) the term was 22 September 2010 to 31 December 2013, renewable by the written consent of the parties;
(2) it provided for a "sell-off" period (during which items made during the term of the Licence could be sold) of 12 months following termination;
(3) the royalty payable was 5% of the "Actual Sales Amount" of the co-branded products;
(4) "Actual Sales Amount" is defined as the wholesale price charged by the Delaware company and/or its distributors/sub- distributors, less certain deductions.
- The claimant's invoices are addressed to the company named Global Design and Innovation, LLC at an address in New York ("the New York address"). Although this might appear to be the trading address of the Delaware company, the defendants' case is that the invoices were addressed to another company, with the same name as the Delaware company, registered under the laws of New York.
- The Delaware company was 'cancelled" under Delaware law on 1 June 2011, and the claimant alleges, ceased to trade and has been wound up.
- Notwithstanding the "cancellation" of the Delaware company (and it is unclear when the claimant became aware of this), the claimant continued to send its invoices for royalties to "Global Design and Innovation, LLC" at the New York address. The particulars of claim alleges that these invoices were paid by a number of different companies, all of which are alleged to have been under the operational control of Mr Sharp.
The Implied Licence
- In these circumstances, the claimant alleges, an implied agreement ('the Implied Licence") arose between the claimant and the defendants. The terms of this licence are alleged to be:
(1) the claimant agreed to consent to the defendants' use of the Marks;
(2) the defendants agreed to provide royalty statements and pay royalties to the claimant for such use on the same basis as under the Licence;
(3) the term of the Implied Licence was the same as that of the Licence.
- Accordingly, the claimant alleges that the Implied Licence expired on 31 December 2013 (subject to the sell-off period until 31 December 2014).
- The use of the Marks alleged by the claimant is use on goods co-branded with the Delaware company's "MA.STRUM" mark ("co-branded products").
- In these circumstances, the claimant alleges the following breaches of the Implied Licence:
(1) failure to pay licence fees totalling €79,835.80 for the period from 1 January 2013 to 31 December 2013;
(2) failure to provide royalty statements for the period 1 July 2013 to 31 December 2014;
(3) failure to pay royalties due for that period.
- The claim for royalties for the period ending on 31 December 2014 is also pleaded, in the alternative, on the basis that the defendants' use of the Marks was not pursuant to the Implied Licence, as a claim for damages for infringement of the Marks.
- The claimant also alleges that the defendants have continued to use the Marks after 31 December 2014 (i.e. after the end of the sell-off period), and thereby infringed them.
Claim against Mr Sharp
- There is also an independent claim against Mr Sharp, based on his being a joint tortfeasor with D1.
- The relief sought is
(1) €79,835.80, unpaid royalties under the Implied Licence;
(2) damages for breach of the Implied Licence;
(3) an EU injunction prohibiting infringement of the Marks;
(4) an order for delivery up or destruction of infringing items;
(5) the usual inquiry as to damages or account of profits in respect of the alleged infringements.
Defence to the claim
- The defendants admit that they have bought co-branded products from the Delaware company. In their Defence dated 29 May 2018, they defend the claim on the following basis:
(1) The defendants admit that D1 and an associated company Branded Stocks UK Limited paid the invoices sent to "Global Design and Innovation, LLC" in respect of royalties due from the Delaware company under the Licence. However, they assert that those payments were made, not as principals, but on behalf of the Delaware company and without assuming liability for their payment. (This position fails to engage with the allegation that the Delaware company was non-existent at the time the payments were made.) The defendants therefore deny that they are parties to the Implied Licence. Accordingly, while accepting that they have not paid the royalties claimed by the claimant, they deny being liable to do so.
(2) They deny selling any of the co-branded products after 31 December 2013, the expiry date of the Licence. (This is inconsistent with the evidence at paras 11 to 15 of Wheeler 1 - which accepts that co-branded products were sold after 31 December 2013; but alleges that all such items had been manufactured pursuant to the Licence.)
(3) They assert that any use of the Marks by the Defendants was not use in the course of trade; or was purely descriptive use within Art 14 of the European Union Trade Marks Regulation (Council regulation (EC) No. 2017/1001) ("EUTMR"); although there is no plea that their use was in accordance with honest practices in industrial or commercial matters (Art 14(2)).
(4) They also raise a defence in the alternative that the co-branded items were put on the market in the UK by the Delaware company pursuant to the Licence; and, accordingly, that the claimant consented to that use. This plea also does not attempt to engage with the obvious difficulty that at all relevant times, the Delaware company had ceased to exist.
(5) They counterclaim for a declaration that the Marks are invalid for lack of distinctive character and being descriptive, as at the filing date; pursuant to Arts 59(1)(a), 7(1)(b) and (c) of the EUTMR - the defendants' position being that the "Massimo Osti" name was not perceived as distinctive of any particular undertaking, and that he was known at most as the founder of certain brands embodying a particular fashion.
- Paragraph 9 of CPR PD30 states the following:
"Transfer to or from the Intellectual Property Enterprise Court (Rule 63.18)
9.1 When deciding whether to order a transfer of proceedings to or from the Intellectual Property Enterprise Court the court will consider whether –
(1) a party can only afford to bring or defend the claim in the Intellectual Property Enterprise Court; and
(2) the claim is appropriate to be determined by the Intellectual Property Enterprise Court having regard in particular to –
(a) the value of the claim (including the value of an injunction);
(b) the complexity of the issues; and
(c) the estimated length of the trial."
- Environmental Recycling v Stillwell  EWHC 2097 is authority for the proposition that the fact that a party can afford to litigate in the High Court does not mean that the case should stay in the High Court, if other relevant factors point towards its transfer.
- The 2016 IPEC Guide sets out at para 1.3, so far as relevant to this case:
"* Size of the parties. If both sides are small or medium sized enterprises, then the case may well be suitable for the IPEC. If one party is a small or medium sized enterprise but the other is a larger undertaking, then again, the case may be suitable for the IPEC, but other factors ought to be considered such as the value of the claim and its likely complexity.
* The complexity of the claim. The procedure in the IPEC is streamlined and trials will seldom last more than 2 days. A trial which would appear to require more time than that even with the streamlined procedure of the IPEC is likely to be unsuitable.
* Conflicting factual evidence. Cross-examination of witnesses will be strictly controlled in the IPEC. The court is well able to handle cases involving disputed factual matters such as allegations of prior use in patents and independent design as a defence to copying; but if a large number of witnesses are required the case may be unsuitable for the IPEC.
* Value of the claim. Subject to the agreement of the parties, there is a limit on the damages available in the IPEC of £500,000. However, assessing the value of a claim is not only concerned with damages. Putting a value on a claim is a notoriously difficult exercise, taking into account factors such as possible damages, the value of an injunction and the possible effect on competition in a market if a patent was revoked. The value of the claim will generally be a secondary indicator of its suitability for hearing in the IPEC. It may sometimes be inferred that a claim of very high value will require evidence and argument of an amount which will render the claim unsuitable for the IPEC. On the other hand, if a claim is otherwise appropriate for hearing in the IPEC it will be unusual for this to be ruled out solely because of an estimate of the claim's value."
- I also mention the Chancery Masters Guidelines for the Transfer of Claims (20 May 2015). These provide:
"8. … The value of a claim is not a consideration which has greater weight than the other criteria set out in CPR 30(3)(2) but it is likely to be a factor with considerable influence in making a decision about transfer to the County Court or a specialist list. The figure of £100,000 mentioned in PD29 is not generally regarded as a relevant measure for money claims in the Chancery Division in London.
9 If the value of the claim is ascertainable, particular focus should be given to the possibility of transferring Part 7 claims with a value of less than £500,000. Factors which may point to retention of such claims in the High Court include:
(a) complex facts and/or
(b) complex or non-routine legal issues and/or
(c) complex relief and/or
(d) parties based outside the jurisdiction and/or
(e) public interest or importance and/or
(f) large numbers of parties and/or
(g) related claim and/or
(h) the saving of costs and/or
(i) efficiency in the use of judicial resources ."
Issues in the application
- An initial point arose as to the principles governing the application. The defendants' counsel submitted that the application was made under CPR 3.1(7), and governed by the principles set out in Tibbles SIG plc  1 WLR 2591. I reject that submission. The transfer order was made of the court's own initiative, pursuant to CPR 3.3. CPR 3.3(5) provides that when the court makes such an order, a party affected by the order is entitled to apply to have it set aside, varied or stayed; and this is the provision governing the application. The hearing of such an application is, in my judgment, a redetermination of the issue in question, with the benefit of the parties' submissions; and is not governed by the restrictive principles in Tibbles, which apply to an application to set aside an order made at a hearing. For this reason, it is also unnecessary that the application be heard by the judge who made the initial order.
- The following issues arose in the application to set aside the transfer order:
(1) The defendants' finances and their ability to afford to defend the claim in the High Court;
(2) the value of the claim
(i) the value of the monetary relief sought;
(ii) the value of the injunctive relief sought;
(iii) the value of the Marks, which the defendants seek to revoke/be declared invalid;
(3) the complexity of the issues;
(4) the estimated length of the trial.
- The defendants' evidence as to their financial resources is as follows. D1 is a limited company. Its accounts show that it had a turnover for the year to 31 March 2017 of £1.66 million. However, its operating profit was only £9,559 and it has a balance sheet deficit of £583,487. According to the European Commission definition of Small and Medium-sized enterprises, D1 is a "micro" company below the definition of an SME.
- Undoubtedly, D1 could not afford to litigate in the High Court if it was confined to its own resources. However, D1 is part of the group of about 17 companies owned and/or controlled by Mr Sharp, some of which have very substantial assets. For instance, Branded Stocks (UK) Limited's balance sheet as at 31 March 2017 showed net current assets of £5.25 million. The notes to its accounts record that it provides a guarantee of £4,440,750 for Branded Stocks Properties Limited and D1, both of which companies are 100% owned by Mr Sharp. The defendants' evidence does not address whether and to what extent it would be supported by companies in its group; and I am not satisfied that it could not afford to litigate in the High Court.
- As for Mr Sharp, the evidence as to his means is very limited, and lacking in detail. Wheeler 2 records that Mr Sharp has assured Mr Wheeler that he is not "fabulously wealthy"; and refers to his limited personal assets. Whilst Mr Sharp's wish to maintain the confidentiality of his personal financial position is understandable, he has not provided the court with a sufficient evidential basis to justify concluding that he is unable to litigate in the High Court.
- I therefore consider the parties' ability to litigate in the High Court to be a neutral factor.
Value of the claim
Value of the monetary relief sought
- The total monetary value of the claim is unspecified. As noted above, it includes a claim for a specified sum of €79,835.80, plus damages for breach of the Implied Licence, and damages or an account of profits for trademark infringement.
- The claimant's position was that the monetary value of its claim was likely to exceed £500,000. It reaches this conclusion by assuming that sales of co-branded products have continued and will continue until trial in mid 2019 at approximately the same level as in 2013: multiplying the royalties due in respect of sales in 2013 (€79,835.80) by 5.5 to give a figure of €440,000. However, since the claimant does not allege that the defendants have made any co-branded products after 31 December 2014, the assumption that sales will continue at 2013 levels seems to me to be an overoptimistic one.
- The defendants' evidence is that all the co-branded products sold or held in stock by them were commissioned by the Delaware company (again, the issue of its non-existence at the material time is ignored) under the Licence (referred to as "Old Stock"). Some of this Old Stock was acquired in July 2012. The Marks are used in respect of these items in two ways: on a sewn badge attached to an inside pocket of a jacket; and on a swing tag (with an orange sticker) attached to the item. Some products have both a badge and a swing tag ("badge products"). Some products ("swing tag products") only have swing tags, but not badges.
- The defendants' case is that remainder of the Old Stock was acquired on 29 April 2014 (when Mr Sharp acquired full ownership of the MA.STRUM brand), or commissioned at an earlier date, but delivered to the defendants after that date. Their evidence is that Mr Sharp's instructions were that all orange stickers/swing tags with orange stickers should be removed from all swing tag products; and that this was done, although since it was not done personally by Mr Sharp, he cannot be sure that each and every orange sticker/swing tag with an orange sticker were removed.
- The defendants' evidence includes a table prepared by their accountant, Dawn Avery, setting out the wholesale sales figures for the above two categories of products. It covers the period "prior to 10/7/12" to date; and includes stock held by defendants at their warehouse. The table shows sales by the Delaware company up to 29 April 2014, based on the defendants' records of its purchases from it; the claimant does not suggest that the Delaware company sold to any other entities. The maximum royalty due in respect of those sales is stated to be £198,294, which £141,125 has been paid to the claimant. This leaves a balance outstanding of £57,169.
- As for the period between 29 April 2014 and 30 December 2014, the maximum royalty due on those sales is £54,202. This includes a royalty payable on all of the swing tag products even though, as noted, the defendants' evidence is that the orange stickers/swing tags with orange stickers were removed from the swing tag products. Although the defendants assert that this is a liability of the Delaware company, it forms part of the claim against them and must be taken into account in assessing the value of the claim.
- As for the period from 1 January 2015 onwards, when both the Licence and sell-off period had expired, the defendants accept that if the Marks are valid, they are liable for damages for infringement of them. They dispute that the appropriate royalty rate would be 5% of the wholesale price. In respect of badge products, the royalty at the rate claimed would be £28,542. So far as swing tag products are concerned, the defendants do not include any sums in respect of their sale, on the basis that by this stage efforts to remove the swing tags had been wholly or nearly wholly successful. The claimant relied upon the fact that it had made 4 separate random sample purchases from the defendants in the period after 1 January 2015, and in each case the product purchased had a swing tag on it; and their claim includes swing tag products sold since 1 January 2015. In response, the defendants' evidence (Wheeler 2, para 3) is that all 4 of the sample purchases were "badge products", from which, as noted above, the orange stickers/swing tags with orange stickers were not removed.
- I approach the value of the claim on the basis that the claimant succeeds in all its factual allegations which have a real prospect of success. Whether any orange stickers/swing tags with orange stickers remained on the swing tag products is an issue of fact which I am not able to resolve; and in respect of which the claimant cannot be said to have no real prospect of success. The value of the claim therefore, in my judgment, includes sums claimed in respect of these products.
- As for stock remaining in the warehouse, the defendants submitted that this should not be taken into account because the remedy in respect of those items was delivery up. I do not agree - some value is to be attributed to the delivery up of those items; and, on a rough basis, I consider that the royalty payable in respect of them is an appropriate figure: £18,349.
- On the claimant's best case therefore, including royalties payable on all of the swing tag products, the total royalties payable would be £454,706. However, from this must be deducted payments made by or on behalf of the Delaware company of £141,125, giving a net monetary value of the claim of £313,581. This is well within the maximum value of damages awardable by the IPEC; and well within the range of value which requires the court to give serious consideration to transfer out of the High Court.
Value of injunctive relief
- The claimant seeks a pan-EU injunction and submitted that this was an extremely valuable form of relief. However, there is no evidence before me as to the value of the claimant's business or the value to be attributed to its exploitation of the Marks. The claimant's counsel submitted that the Marks in respect of which the injunction is sought protect the claimant's very identity and commercial purpose. This is a curious submission where the claimant does not put forward any positive case that the defendants are still making products bearing the Marks. The effect of the injunction would be to prevent the defendants from selling the remainder of the Old Stock in their possession; thereby depriving the claimant of any financial benefit from such sales. I am not therefore satisfied that the claimant would obtain any significant benefit from the injunction it seeks.
- I mention that in the course of the hearing it emerged that the claimant has not sought an undertaking from the defendants not to manufacture any further goods bearing the Marks; and the defendants indicated that, if asked, they would give such an undertaking. This is an additional reason not to contribute any significant value to the injunctive relief.
Value of the Marks
- A similar point arises in respect of the value of the Marks, the validity of which the defendants challenge. In the absence of evidence as to the monetary value of the claimant's exploitation of the Marks, it is not possible to form any view as to the value of the Marks.
- As the claimant's counsel submitted, the claim gives rise to 4 main issues:
(1) Whether the Implied Licence came into existence;
(2) Whether the claimant's consent to the manufacture of the co-branded items during the term of the Licence exhausted its rights in respect of those items;
(3) Whether the defendants' use of the Marks is descriptive use within the meaning of Article 14 of the EUTMR;
(4) Whether the Marks are invalid for lack of distinctiveness or descriptiveness as at the date of filing.
- He submitted that the factual and legal complexity of the case demonstrated that it was not suitable for the streamlined procedures of the IPEC.
- The claimant's counsel submitted that the existence of the Implied Licence was an issue of factual complexity, requiring disclosure of contemporaneous documents and oral evidence. In evaluating the complexity of the issue, reference must be made to the claimant's pleaded case in para 12 of the Particulars of Claim. The facts which are said to give rise to the Implied Licence are as follows:
(1) the defendants, rather than the Delaware company, began to manufacture and sell co-branded products;
(2) the Delaware company was cancelled under Delaware law, ceased to trade and was wound up;
(3) the defendants continued to use the Marks;
(4) the defendants continued to pay the royalty fees to the claimant for the use of the Marks in the amounts set out in the Licence.
- These are the only facts from which the court is asked to infer that the Implied Licence arose. As to (1), the defendants will have to give disclosure of any purchase orders for the manufacture of and sales records of co-branded products; but this will not be an extensive exercise. (2) is not denied by the defendants (only not admitted), and likely to be capable of agreement. (3) will require disclosure by the defendants of their sales records; again, this is not likely to be an extensive exercise. As to (4), the claimant has not set out any factual basis from which can be inferred that the payment of sums due under its invoices addressed to "GDI LLC" were made other than on behalf of that entity.
- I am not therefore satisfied that the issue of the existence of the Implied Licence is one of sufficient complexity as to make it inappropriate for determination by the IPEC.
- Whether the consent to use the Marks granted by the Licence permitted the defendants to use them insofar as they were applied to co-branded products sold to D1 by the Delaware company is not, in my judgment, a factually complex issue. The defendants rely upon the Licence, which was granted to the Delaware company. This defence can therefore only apply to co-branded products bought by D1 from the Delaware company. Contrary to the claimant's suggestion, other supply chains will not be relevant.
- The relevant arguments will be legal arguments as to the construction and effect of the Licence, which in my judgment are not of great complexity and capable of determination by the IPEC.
- The defendants' counsel submitted that descriptive use was an issue very commonly addressed in the IPEC, referring me to a number of authorities in which this occurred. He also submitted, correctly in my judgment, that the nature and context of any use of the Marks by the defendants was a factual matter in respect of which the defendants have most of the relevant documents. He consented on their behalf to disclosure of documents relevant to the manner in which the Marks have been used, and whether such use was in accordance with honest practices within Article 14 (2).
- Again, I do not consider that this issue gives rise to significant factual complexity; and these issues are well within the range of issues frequently dealt with by the IPEC.
- As the defendants' counsel submitted, this issue involves the question of whether the Marks were capable of being used as a badge of origin at the filing date. This will require factual enquiry as to how they were used and perceived for the purposes of assessing their distinctiveness. Again, he submitted that this was an exercise that the IPEC was well accustomed to and referred me to various cases in which it had dealt with this issue. I agree. Each side will no doubt wish to call a trade witness as to the perceptions of consumers at the filing date; but this does not take the claim outside the range of cases dealt with by the IPEC.
- The claimant's counsel submitted that a trial length of 5 days would be required. In my judgment, this is an over estimate, even without IPEC streamlined procedures. Given those procedures, I consider that this claim could be heard within the usual two days required for an IPEC case.
- Having considered all the factors set out above, in my judgment, they point clearly to the conclusion that this is a claim which is suitable for the IPEC and ought not to be retained in the High Court.