On 12 June 2018 the Court of Justice of the European Union (CJEU) ruled on a question referred from the Dutch court regarding the Louboutin ‘red soles’ trade mark.

As we explained in an earlier blog regarding this case, Louboutin registered the red soles of its high heels as a trade mark. The registration was challenged in the Dutch courts by a Dutch high street chain, Van Haren, who had been sued by Louboutin for selling high heeled shoes with red soles. During the proceedings a question arose as to the type of trade mark Louboutin had registered and specifically whether it could be classed as a “shape mark”.

The distinction is important because a trade mark cannot be registered if it consists exclusively of a shape which “gives substantial value” to the goods covered by the registration. If Louboutin’s trade mark was found to consist exclusively of a shape giving substantial value to the shoes then its trade mark would be deemed invalid.

The Dutch court asked for guidance from the CJEU as to what “shape” means and specifically whether it could include other properties such as colour.

The CJEU has ruled that the shape of a product or of part of a product plays a role in creating an outline for colour. However, where the registration of the trade mark does not seek to protect that shape but solely to protect the application of a colour to a specific part of that product, this would not be a “shape mark”.

The court found that the main element of Louboutin’s trade mark is the colour red. In light of the fact that the trade mark does not seek to protect the shape of the sole of a shoe but instead the application of the colour to that specific part of the shoe, the CJEU held that Louboutin’s trade mark is not a shape mark.

This is in contrast to the advocate general’s view that Louboutin’s trade mark was a shape mark.

This will be seen by Louboutin as a significant win. The ruling confirms that Louboutin’s trade mark is not a shape mark and therefore is not invalid on the basis that it does not consist exclusively of a shape.

The case will now be passed back to the Dutch court for a final ruling following the CJEU’s clarification of the law.

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On 6 February 2018 the Advocate General (AG) gave the Court of Justice of the European Union (CJEU) his opinion on a question referred from the Dutch court regarding the Louboutin ‘red soles’ trade mark.
Louboutin registered the red soles of its high heels as a trade mark. The registration was challenged in the Dutch courts by a Dutch high street chain, Van Haren, who had been sued by Louboutin for selling high heeled shoes with red soles. During the proceedings a question arose as to the type of trade mark Louboutin had registered and specifically whether it could be classed as a “shape mark”. The distinction is important because a trade mark cannot be registered if it consists exclusively of a shape which “gives substantial value” to the goods covered by the registration.
The Dutch court asked for guidance from the CJEU as to whether “shape” means the 3-D properties of goods or whether it could include other properties such as colour. The AG suggested that the CJEU should conclude that a shape trade mark could comprise the combination of a shape and a colour.
Whilst the CJEU and the AG are not required to determine specifically whether the Louboutin trade mark is a shape mark, the AG did given his view on this point. He stated that he believed that the Louboutin trade mark seeks to protect the application of a colour to a shape (namely the colour red to the shape of a sole of a shoe) and therefore was a shape mark. However, he emphasised that this is ultimately an issue for the Dutch court to determine.
The AG highlighted that it was also for the Dutch court to determine, if the Dutch Court decides that Louboutin’s trade mark is a shape mark, whether that shape trade mark gives “substantial value” to the goods and therefore should not have been registered in the first place. The AG suggests that when making this assessment a court should only consider the intrinsic value of the shape and must not take account of the attractiveness flowing from the reputation of the proprietor of the trade mark. In Louboutin’s case this would mean that the Dutch court should consider whether red soles in and of themselves (ignoring the association with Louboutin) give substantial value to high heels.
We will keep you updated as to what the CJEU decides when its ruling is published and whether Louboutin loses the right to trade mark its red soles when the case returns to the Dutch court.

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The Court of Appeal yesterday (23 November 2017) confirmed that small businesses that have goodwill in a small locality can prevent the registration of a trade mark nationwide and can also apply to invalidate a brand owner’s trade marks.
In the case of Caspian Pizza [2017] EWCA Civ 1874 the Court of Appeal considered the question of whether two trade marks which had been registered by a pizza business trading in Birmingham called Caspian Pizza should be declared invalid on the basis that a business trading in Worcester had acquired goodwill in the same name in Worcester before the trade marks were registered.
The trade mark owner had sued the Worcester business for passing off and trade mark infringement for use of the name Caspian Pizza. The Worcester business counterclaimed for a declaration of invalidity in respect of the Caspian trade marks. The Court of Appeal held that the Worcester business only had goodwill in Worcester but that this was sufficient to object to the registration of the trade marks on the basis that the trade marks are UK wide and therefore would include Worcester.
This case is likely to be a great concern for brand owners as it gives any business, no matter how small, the power to obtain a declaration of invalidity of another brand’s trade marks as long as they have earlier goodwill in a locality.
It also serves as a salutary reminder to trade mark owners to ensure that their trade marks are in order before issuing proceedings for infringement. In this claim the Claimant had aimed to stop the use of the Caspian name by one restaurant and instead lost both of its trade marks.

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A report by the All Party Parliamentary Group (APPG) on intellectual property was released at the end of February 2017. The report considered the emerging threats in the field of intellectual property (IP).
The APPG recognised that technology is continuing to increase the opportunities for infringement which is making enforcing IP rights more challenging for IP owners. The threats the APPG identified included stream ripping (where individual creates a permanent download of a song or video played on a streaming service) and substitute selling.
Substitute selling is the process by which individuals or companies advertise products under existing listings on online sales platforms such as Amazon or eBay. Instead however of supplying the branded product which is advertised in the listing, infringers supply an alternative, substitute branded product or generic unbranded product.
This results in a loss of sales for the brand owner and a loss of control over the brand, and is unlawful.
We have been working closely with the British Brands Group to bring this issue to the attention of brand owners and the government. It is encouraging that this problem (which is experienced by many of our brand owner clients) has been recognised by the APPG and we hope that this recognition will result in effective solutions at government level.
If substitute selling is a problem faced by your business please do not hesitate to contact us to discuss how we might be able to assist.

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Members of pop group Duran Duran are ‘shocked’ and ‘saddened’ by the recent loss of a High Court claim regarding the ownership of the copyright of some of their best-known hits.
Almost 40 years ago, Duran Duran entered into worldwide contracts to assign the copyright in songs written or composed by them. At the time of the agreements, the band were said to be aware of a US law which stated that 35 years after copyright had been assigned, a notice could be served demanding that the US copyright be transferred back to the authors.
Duran Duran had served notices under this US law for the copyright in their most famous songs (including Rio and Hungry like the Wolf) to be transferred back to them. The current owner of the copyright commenced proceedings in the UK for a declaration that serving these notices was a breach of the contracts under which the copyright was assigned.
The High Court ruled against the band, confirming that the contracts prevent Duran Duran from exercising their rights under US law to require that the copyright be returned to them.
This case has brought to light an issue that may affect many UK artists looking to remove themselves from long-term contracts that enable music-publishing companies to exploit their song writing rights. Arguably, this judgment sets a dangerous precedent for English law being used to override the rights of UK authors in other countries.
The converse argument is that if parties freely enter into a contract in which they agree that their copyright worldwide should be assigned to a third party; this agreement should be respected and upheld. What this case does demonstrate is the complex nuances in contracts of this nature, and the need for absolute clarity in communication when trying to future proof a contract.

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The Commercial Court has ruled that a remedy of specific performance of shareholder’s rights can be sought under shareholder agreements, enabling shareholders to circumvent the difficulties created by the “reflective loss” principle.

 

What is “Reflective Loss”?

 

The principle of reflective loss states that that the company itself, as opposed to its shareholders, has the sole right to recover company losses. The principle is an important part of company law, as preventing individual shareholders from claiming for company losses can protect a company’s creditors from prejudice – allowing shareholders to claim for a company’s losses could frustrate a legitimate claim advanced by other creditors.

In Johnson v Gore Wood [2002] 2 AC 1, Lord Bingham summarised the scope of the principle in three points:

  1. Where a company suffers a loss, the company is the only party entitled to claim for that loss. A company can bring an action to replenish their assets, and so they remain the only party entitled to bring forward an action. A shareholder cannot sue for the diminution in the value of their shares, as this is merely a “reflection” of the loss suffered by the company and therefore the loss cannot be considered the party’s own.
  2. Where a company has no cause of action to recover a loss, a shareholder may sue even though the loss suffered by the shareholder is a diminution in the value of the shareholding.
  3. When the losses of a shareholder and company are separate and distinct from one another, both may make individual, but separate claims to recover their losses.

Decision

 

Oceanic Trans Shipping Corp, Latin American Investments Limited and Maroil Trading Inc. were three shareholders in two companies. These companies owned two oil carriers. These three shareholders entered into two shareholder agreements. Pursuant to these shareholder agreements, the oil carriers were made available to another company, Sea Pioneer Shipping Corporation, who entered into a contract with an oil company.

The oil company was alleged to have failed to perform its obligations under the contract and disputes arose as a result. They were then settled by the two other shareholders without the consent of Oceanic for $30m.

Oceanic argued that the dispute ought not to have been settled for less than $89m. In addition, Oceanic claimed that it did not receive its share of a settlement, which is valued at $10m. Oceanic claimed that as a result of both the two companies, alongside Oceanic itself as a shareholder, suffered a loss.

In the claim, Oceanic sought an order that the loss is paid back into the two companies by the other two shareholders. It sought this by way of an order specific performance of the shareholder’s obligations under the shareholder’s agreements. The two other shareholders argued that this fell foul of the “reflective loss” principle, as Oceanic suffered a loss simply due to the diminution of the value of its shareholding in the two companies.

It was decided that the claim for specific performance was able to circumvent the “reflective loss” principle. Mr Justice Teare in the Commercial Court drew attention to the purpose of the “reflective loss” principle being to protect company Autonomy. While claiming directly for the diminution in value of shareholdings may undermine the principle of company autonomy (and thus fall foul of the principle), this claim aimed to pay funds back into the two companies. Seeking specific performance of the shareholder’s agreement, therefore, did not undermine the principle of company autonomy, nor would it prejudice the interests of a company’s creditors.

The case is being appealed.

Summary

 

With the principle of “reflective loss” forming a barrier to individual shareholders from claiming for the diminution in the value of their shareholdings, this judgment provides shareholders with a potential avenue for circumventing the “reflective loss” principle. While generally a claim cannot be made for the reduced value of a shareholding, the remedy of specific performance can be sought to have funds transferred into a company in order to make good on the loss. Shareholders, therefore, have an alternative avenue where the value of their shareholdings can be restored in a way which does not fall foul of the “reflective loss” principle alongside any derivative actions they might be able to bring.

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