Goodwill, Bad Faith and Brotherly Luv: Court of Appeal finds "special circumstances" to allow defence to Passing Off claim

In a dispute between two half-brothers regarding the ownership of a music group name, the Court of Appeal (CoA) found "special circumstances" to permit arguments that would ordinarily be barred through estoppel.

Background

Following the split of their music group, 'Love Injection' or 'Luv Injection', in 2016, two half-brothers, Ian Thomas (IT) and Winston Thomas (WT), formed separate groups, using similar names.  IT started to perform under 'Love Injection' and, more infrequently 'Luv Injection', whilst WT (along with other members of the original group), used 'Luv Injection Sound'.

In February and October 2017, WT made two applications to register 'Luv Injection Sound' and 'Love Injection Sound' as trade marks. The applications were filed in classes 9 and 41, for hi-fi systems, music recordings and entertainment services. The first application proceeded to registration but IT opposed the second and sought to invalidate the registration, on grounds of bad faith and passing off. 

The UK Intellectual Property Office (UKIPO) upheld IT's opposition and invalidity claim, finding that the original 'Luv Injection' group had been a partnership. This meant that the goodwill in the name was not owned by WT alone, but by all members of the partnership (at least up until the split).  Therefore, at the relevant date of the proceedings, IT owned the necessary goodwill to oppose the application and registration.

WT did not appeal the decision.

Passing Off Claim

Armed with the UKIPO's decision, IT sued WT for passing off in the Intellectual Property Enterprise Court (IPEC). WT filed both a defence and counterclaim arguing that: (1) between the split of the group and issue of the claim, IT and WT had continued to trade under the name and so it designated the business of the brothers (rather than the partnership); and (2) if the partnership had not already been dissolved, it should be declared as such, with its assets, including the goodwill, disposed of and any proceeds split between the brothers.

Following an application by IT, the IPEC struck out almost the entirety of WT's defence.  Under the principle of issue estoppel, the Court held that both WT and IT were estopped from denying the findings of the UKIPO, noting:

"neither the court nor the parties should be vexed with rehearing matters that have been heard and determined by a tribunal of competent jurisdiction". 

The IPEC therefore granted an injunction, preventing WT from using the name.  WT appealed to the CoA.  

Court of Appeal's Decision

The CoA noted that almost all of WT's defence had been struck out by the IPEC, even though certain of WT's arguments were not necessarily at odds with the UKIPO's findings. The CoA therefore held that WT should be permitted to advance his alternative defences.

The CoA noted that the UKIPO's decision had been based on two separate grounds (i.e. passing off and bad faith) and it was therefore "doubtful" that the UKIPO's decision had created issue estoppel. Further, even if there had been issue estoppel, WT would be entitled to challenge IT's standing to bring proceedings in passing off due to various special circumstances (including WT's lack of opportunity to appeal against the objection based on passing off, WT's future ability to trade under the name and the IPEC's failure to appreciate that the partnership had been dissolved).

The CoA commented that as at the date the partnership was dissolved, both IT and WT were entitled to ask for the partnership assets (including goodwill in the name) to be realised and divided between them; neither was solely entitled to the goodwill. 

The Court of Appeal therefore allowed the appeal; WT could pursue his defences against IT's passing off claim in the IPEC.

Comment

The case raises interesting legal questions concerning the scope of issue estoppel and the extent to which it may arise where a decision of a court has been reached on two grounds.

It also serves as a useful reminder of the need to consider and agree the position regarding ownership of intellectual property rights at the outset of any commercial venture. Had the members of the original 'Luv Injection' group done so the dispute (and associated costs) could likely have been avoided.

The full IPEC and CoA judgments are available here and  here.