SkyKick v Sky: Supreme Court lowers the bar for bad faith

Supreme Court overturns the Court of Appeal on key aspects of bad faith. Ruling has significant implications for trade mark filing and enforcement.

What's happened?

• The Supreme Court has issued its decision in the SkyKick case despite (as postulated by us here) the parties having settled the action. It did so because of the general importance of the issue and because the Comptroller (as intervener) had requested a ruling to provide clarity to the UKIPO. The Supreme Court largely endorsed the original approach of the High Court to bad faith and rejected the approach of the Court of Appeal.
• The net result is that there is now greater scope for trade mark registrations to be held invalid for bad faith where the specification is broad since it will be more difficult for the owner to show that (at the time of filing) it had the requisite genuine intention to use the mark. Lack of such intention can constitute bad faith where it amounts to an abuse of the trade mark system.
• The risk of a finding of bad faith is particularly high where there are 'red flags' in a specification. These include the inclusion of terms/categories considered very broad (such as 'computer software', telecommunications' and 'pharmaceuticals'), long lists of goods/services, and goods/services seemingly not connected to the applicant's business.
• Given the number of registrations with relatively broad specifications, brand owners can now expect a greater number of bad faith-based invalidity actions, including counter attacks from defendants to opposition, invalidity and infringement actions. While a registration will only be invalidated for those goods/services for which bad faith is found, brand owners will want to avoid long and costly side claims about bad faith, potentially with negative publicity. This is especially so if those claims might result in a substantial cutting back of the specification of a key mark (reducing enforcement powers and a registration's deterrent effects).
• To minimise that risk, brand owners (and their advisers) will need carefully to consider the specifications they use for trade mark applications. If registrations with broad specifications exist, brand owners should take advice on enforcement. For more detailed recommendations, see 'what does this mean for you?' below.

What's the case about?

Bad faith arose in this case because Sky had asserted a number of broad trade mark registrations for SKY in infringement proceedings against SkyKick. The specifications for those registrations included multiple class headings, broad categories such as 'computer software', and unexpected items such as 'bleaching preparations'.

After numerous actions (including an ECJ reference), the High Court agreed with SkyKick that the SKY registrations were partially invalid for bad faith. This was on the basis that Sky had no foreseeable prospect of use for certain goods/services and that the applications had been filed pursuant to a deliberate strategy of seeking broad protection regardless of whether it was commercially justified. Where there was a genuine intention to use for some items within a broad category (such as computer software), the specification was restricted to appropriate sub-categories for which there was the requisite intention plus a bit more. Despite all this, SkyKick was still found to infringe.

However, this decision was partially overturned by the Court of Appeal who set the bar for bad faith much higher. It held that inferences about bad faith cannot be drawn from the breadth of a specification and that bad faith cannot be found for a broad category where there was an intention to use for some items within that category.

What are the key findings of the Supreme Court?

The Supreme Court has now largely endorsed the original approach of the High Court. The three key findings of the Supreme Court are that:

• A broad specification can lead to an inference of bad faith, but it depends on all of the circumstances of the case. Relevant circumstances might include the size and nature of the specification relative to the size and nature of the applicant's business, the owner's enforcement strategy and any appropriate explanation and rationale for the filing. Relevant circumstances do not include the fact that a trade mark owner has a significant reputation, high brand recognition, or that its brand is a key asset. The corollary is that, a broad specification can, depending on all of the circumstances, be acceptable and not lead to a finding of bad faith.
• Where a specification includes a broad category of good/services, it may be held partially invalid for bad faith if that broad category includes distinct sub-categories for which there is no genuine intention to use the mark. While this means that the inclusion of a broad category or even a class heading within a specification is not, of itself, sufficient for a finding of bad faith, in practice, it will be very difficult for brand owners to show the requisite genuine intention to use a mark for all sub-categories within a broad category. Broad terms such as 'computer software' are therefore likely to be restricted to distinct sub-categories for which a genuine intention to use can be shown. The Supreme Court endorsed the well-established approach of the CJEU to establishing a suitably restricted specification and saw no reason to interfere with the High Court's application of that process in the SkyKick case.
• The Court of Appeal was wrong to introduce a requirement for the invalidity applicant to identify precisely which goods/services the trade mark applicant should have applied for and how the trade mark specification should be restricted. It is unlikely to be able to do so with any degree of precision. These are matters within the knowledge of the trade mark registrant. An approach where the invalidity applicant relies on the objective facts on bad faith available to it should meet the requirement for a party to plead its case properly and will often be sufficient to displace the presumption of good faith (such that the burden shifts to the trade mark owner to show no bad faith).

The parties had agreed that there was no need for the Supreme Court to depart from retained CJEU case law – and there is no suggestion in the above that the Supreme Court has done so. The Supreme Court has invited submissions from the parties on the appropriate form of final order that it should make given that it has endorsed the finding of partial invalidity of the High Court (and a single ground of infringement) but that the parties have settled.

What does this mean for you?

• There will be a balance for brand owners to strike between a sufficiently broad specification that meets their needs and not inviting unnecessary bad faith counter attacks. There will be no 'one size fits all' approach – what is right for one brand owner might not be right for another.
• More time will now need to be spent on drafting trade mark specifications at the time of filing. One approach might be to use sub-categories of goods/services as opposed to broad categories. Some brand owners might want to consider voluntarily limiting existing broad specifications. Where a specification includes a class heading, this should be considered anyway since class headings are often ambiguous with the result that they are confined to goods/services clearly covered.
• Brand owners should be recording in writing at the time of filing their rationale for the filing and for the particular goods/services covered (and ensuring that such records do not form part of document destruction policies) to help combat any potential future bad faith allegations. This particularly applies where there are 'red flags' in the specification and for repeat filings. Importantly, the passage of time won't be an adequate excuse for such records not being available. Where they are not available, it can be difficult for brand owners to discharge the burden of proving no bad faith (as happened in Lidl v Tesco, which the Supreme Court said was consistent with its ruling).
• If registrations with broad specifications exist, brand owners should take advice on what goods/services to enforce even in the five-year grace period following registration (where previously brand owners would have felt able to assert across the full breadth of a specification). The practice of asserting entire broad specifications in disputes and only narrowing down later, if at all (common in oppositions and - for some - more generally) might need to change. Notably, Sky's enforcement strategy was a key factor in the Supreme Court's decision – in particular, Sky had deployed its full armoury of very broad marks covering goods/services it never had any intention to provide against traders whose activities were not likely to cause confusion. This is in keeping other recent rulings (such as the various Lifestyle and easy Group cases) where overall trade mark enforcement strategies have been (if only implicitly) under the spot light.
• Brand owners should watch for further developments. The UKIPO has said that it is considering the decision and any appropriate changes of policy. There could be a change of practice about the acceptability of broad terms such as 'computer software' (unlikely but possible) and on the Registry's approach to raising bad faith at the application stage (with perhaps greater scope for it to be raised where a specification is extremely broad).
• It should be remembered that bad faith is only judged at the application stage and that an applicant has an intention to use a mark where it genuinely intends to "establish or reasonably explore the viability of a business under the mark". These factors give brand owners some leigh way, as does the fact that a genuine intention to use a mark on some (but not all) items within a sub-category can be sufficient to justify inclusion of that sub-category. If this ruling leads to a slight decluttering of the register, this might also help brand owners when clearing new brands.