Their Lordships took time for consideration.
JUDGMENT
26 January 1984.
LORD DIPLOCK.
My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Brightman. I agree with it, and for the reasons he gives I would dismiss this appeal.
LORD FRASER OF TULLYBELTON.
My Lords, I have had the advantage of reading in draft the speech of my noble and learned friend Lord Brightman, and I agree with it. Like him, I am quite willing to accept that character merchandising has become a widespread practice in various countries, including the United Kingdom, and that it is perfectly harmless. But it is, in my opinion, reasonably clear that the appellants' proposals for exploiting the "Holly Hobbie" trade mark would facilitate "trafficking" in the mark, and would indeed themselves constitute trafficking. Parliament has seen fit to legislate against such trafficking in section 28 of the Trade Marks Act 1938, and it is not open to the registrar or the courts to disregard the provisions of that section. They have therefore rightly refused the appellants' application in this case.
I would dismiss the appeal.
LORD SCARMAN.
My Lords, I have had the advantage of reading in draft the speech to be delivered by my noble and learned friend, Lord Brightman. For the reasons he gives I would dismiss the appeal.
LORD BRIDGE OF HARWICH.
My Lords, I find myself constrained to agree that this appeal must be dismissed, but I do so with undisguised reluctance.
There came a point in the argument when the question was posed by my noble and learned friend, Lord Diplock: "If this is not trafficking in trade marks, what is?" To that question, despite Mr. Jacob's valient efforts, no satisfactory answer had been forthcoming. Likewise, I can find no ground to quarrel with the meaning ascibed by my noble and learned friend, Lord Brightman, to the expression "trafficking in a trade mark" as "dealing in a trade mark primarily as a commodity in its own right and not primarily for the purpose of identifying or promoting merchandise in which the proprietor of the trade mark is interested." But these considerations lead to the conclusion that the phrase "trafficking in a trade mark" in section 28(6) of the Trade Marks Act 1938 and parallel expressions found in the report of the Goschen Committee (report of the Departmental Committee on the Law and Practice relating to Trade Marks) (1934) (Cmd. 4568) which preceded the Act are precisely apt descriptions of the commercial activity now widely known as "character merchandising."
I can well understand that this activity, which I assume was little known, at all events on this side of the Atlantic, in the 1930's, never entered the consideration of the legislators in 1938 nor of the members of the Goschen Committee on whose recommendations they acted. They were concerned that the public should not be hoodwinked and to this end set their faces against allowing the reputation for quality attaching to a trade mark to be used deceptively by a mere purchaser of the right to use the mark.
But character merchandising deceives nobody. Fictional characters capture the imagination, particularly of children, and can be very successfully exploited in the marketing of a wide rage of goods. No one who buys a Mickey Mouse shirt supposes that the quality of the shirt owes anything to Walt Disney Productions.
Many marks will, of course, be protected by copyright. but when a mark consists simply in a name, it will be unprotected. It would seem from examples shown to your Lordships in the course of the argument that not a few marks in the character merchandising field have already been accepted by the registrar under section 28 before the present very large group of applications thrust the trafficking issue to the forefront. I do not pause to consider whether marks already registered which ought not to have been will be open to challenge. It will be bad enough, in my view, that the whole field of character merchandising will now be wide open to piracy. The protection, if any, of the original inventor of the character will lie in the uncertain remedy of a passing off action. This situation seems likely to generate a mass of difficult and expensive litigation which cannot be in the public interest.
In short, though I can find no escape from section 28(6) of the Act of 1938, I do not hesitate to express my opinion that it has become a complete anachronism and that the sooner it is repealed the better.
LORD BRIGHTMAN.
My Lords, this appeal relates to a commercial activity commonly called "character merchandising." The expression is used to signify the exploitation of a well known invented name, whereby the author or promoter of the name licenses or purports to license its use on the goods of traders who have no other connection with the licensor. If the invented name is a registered trade mark of the licensor in respect of certain classes of goods, the licensor may wish to protect his position by obtaining registration of the mark in respect of the goods of the licensee. The question is whether, on the facts of the case before your Lordships, applications for the registration of the trade mark "Holly Hobbie" in respect of the goods of certain licensees were properly refused by the registrar on the ground that registration would tend to facilitate trafficking in a trade mark contrary to section 28(6) of the Trade Marks Act 1938.
The applicants, American Greetings Corporation, who are the appellants, are an American company. They carry on business as designers and producers of greetings cards. Some years ago one of their designers produced a drawing of a child dressed in a pinafore and bonnet to whom the name "Holly Hobbie" was given. "Holly Hobbie" captured the imagination of the American public. The drawing and name are extensively used by the appellants on or in connection with greetings cards and a small range of other goods which the appellants manufacture or buy in and market. No difficulty would arise upon an application to register the trade mark in regard to those goods.
The appellants however desire to expolit the name "Holly Hobbie" in a wider field, by licensing other traders to make use of the name in relation to the goods of the licensees, being goods in which the appellants do not trade and never have traded. The procedure is that after the grant by the appellants of a licence to a trader who wishes to use the name "Holly Hobbie," the appellants apply to the registrar for the registration of the mark in respect of that class of goods, and for the registration of the licensee as the registered user thereof.
The majority of trade mark applications are made under section 17 of the Act. Under this section a person claiming to be the proprietor of a trade mark "used or proposed to be used" by him may apply for the registration of the mark in the register of trade marks. Clearly such an application could not be made by the appellants in respect of the goods of the licensees, since the mark is not used or intended to be used by the appellants in relation to such goods. Those goods are produced by or for, and until sale remain the exclusive property of, the licensees. A non-user of a trade mark may, however, apply for registration in the cases specified in section 29(1) of the Act of 1938. Paragraph (a) of that subsection deals with the case of the applicant who wishes to assign the trade mark to a company which is about to be formed, with a view to the use of the mark in relation to that company's goods. Paragraph (b) deals with the case of a licensee. There are three conditions. First, the application by the proprietor of the mark is to be accompanied by an application for the registration of a person (the licensee) as a registered user of the mark. Secondly, the proprietor must intend the mark to be used by the proposed registered user in relation to the goods in question. Thirdly, the "tribunal" (presumably the registrar or the court) must be satisfied that the proposed user will in fact be registered as a registered user of the mark immediately after the registration of the mark. The last of these conditions brings section 28 into play. Section 28 is devoted to the subject of registered users. This was a new concept. The section enables a person other than the proprietor of the mark to be registered as a registered user thereof. The section proceeds (subsection (2)) on the basis (shortly stated) that use of a mark by a registered user thereof shall be deemed to be use by the proprietor thereof. Under subsection (4), the application for the registration of a person as a registered user must be made jointly by the proprietor and the user, and particulars must be given (a) of the relationship, existing or proposed, between the proprietor and the proposed registered user, and (b) showing the degree of control by the proprietor over the permitted use which their relationship will confer. Under subsection (5), if the registrar is satisfied that the use of the mark in relation to the proposed goods by the proposed registered user will not be contrary to the public interest, the registrar may register the proposed registered user as a registered user in respect of the goods in question. There is no problem in the instant case in relation to the requirements of subsections (1) to (4), and it is to be assumed for present purposes that no problem arises in regard to the public interest. The stumbling-block is subsection (6). It reads as follows:
"The Registrar shall refuse an application under the foregoing provisions of this section if it appears to him that the grant thereof would tend to facilitate trafficking in a trade mark."
Although subsection (6) in terms makes the registrar the judge of whether the grant of registered user status would tend to facilitate trafficking, subsection (11) subjects his decision to a right of appeal to the High Court.
The only other part of the Act to which I need to refer is section 68(1). This defines "trade mark," with an immaterial exception, as a mark
"used or proposed to be used in relation to goods for the purpose of indicating, or so as to indicate, a connection in the course of trade between the goods and some person having the right either as proprietor or as registered user to use the mark ..."
I give the definition but I do not myself think that it helps to resolve the central problem in this case, namely, the meaning in a trade mark context of the word "trafficking." In particular, the definition does not of itself demand any connection in the course of trade between the proprietor of a mark and the registered user thereof.
My Lords, I turn now to the facts of the present case in more detail. The appellants entered into 12 licence agreements relating to 12 classes of goods. Your Lordships were referred to two such agreements, and I assume that they are representative of the other 10. The earlier in time was dated 3 april 1978 and was made between the appellants and Oneida Silversmiths Ltd., and English company. By clause 1, the appellants granted Oneida a non-exclusive licence to use the trade mark "Holly Hobbie" in the United Kingdom and in Ireland upon and in connection with breakfast sets, cutlery and other tableware, so long as such goods were manufactured by Oneida in accordance with standards, specifications and instructions submitted to or approved by the appellants. Under clauses 3 and 4 the appellants were given the right to inspect the finished goods and the method of manufacture thereof, to receive samples of the goods and to receive for approval all packages, labels, advertising and other material on which the trade mark appears. The agreement was for two years unless determined earlier by either side. The agreement does not reveal what consideration (if any) was payable for the licence. The other agreement was dated 1 July 1978 and was made between the appellants and General Mills U.K. Ltd. as successors to Chad Valley Co. Ltd. By clause 1, the appellants granted to the licensee the exclusive right of using the "Holly Hobbie" characters, including the associated copyrights and trade marks, upon and in connection with the manufacture, sale and distribution of toys etc. throughout the world except Canada, Japan and the U.S.A. Under clause 2, the appellants undertook to sell to the licensee art reproduction material for use in producing goods and to supply creative art services. Under clause 3, the appellants reserved the right to approve all uses of the "Holly Hobbie" trade mark on or in connection with the licensee's goods, including advertising, and to approve the nature and quality of the goods associated with the "Holly Hobbie" trade mark. There were further provisions for access to the licensee's premises, and for samples. The licence was for term of eight years, with a provision for optional extension for a further 12 years. Clause 5 provided for substantial royalties, with a minimum royalty of $300,000 for the first eight years.
The 12 applications related to 12 classes of goods. Their range was immense, including toilet products, tableware, lampshades, silver boxes, printed matter, furniture, textiles, sleeping bags, slippers, table-mats and toys.
On 2 May 1979 the appellants applied to the registrar for registration of the mark in respect of the different classes of goods under section 29(1)(b) and for registration of the licensees as registered users under section 28. On the wording of section 29, that application was bound to fail if the section 28 application would fail.
The application came before the assistant registrar of trade marks who gave his written decision on 2 April 1982. At one of the hearings the appellants' agent, Mr. Grant, said, in my view correctly, that the appellants were engaged in two sorts of enterprise, as manufacturers and merchants on their own account and "as licensors in the business of character merchandising." The assistant registrar examined documentary material produced by the appellants in evidence, including "A Gallery of Fresh Ideas from American Greetings," the last page of which contained an open invitation to all and sundry to become licensees of the "Holly Hobbie" mark. The assistant registrar found as follows:
"In my opinion these items show that the applicants' business is really that of providing a marketing advertising service and is saying, in effect, to any manufacturer of any product whatever that if they like to get on the bandwagon they can use the applicants' trade marks. It seems clear that any Tom, Dick or Harry, in any trade whatever, will be given a licence if he applies for one and that the applicants are, in effect, hawking the trade mark around. Mr. Grant did not dissent from this as a description of character merchandising but submitted that this kind of exploitation of a character is legitimate."
The assistant registrar defined trafficking as "treating the mark itself as a source of income without any existing reputation attaching to the mark for the [particular class of] goods concerned, ..." He held that the grant of the application would tend to facilitate trafficking in a trade mark. Accordingly he refused the applications under section 29. On appeal, his decision on the facts and the law was upheld by the High Court [1983] 1 W.L.R. 269. The case then went to the Court of Appeal, which dismissed the appeal [1983] 1 W.L.R. 912. Dillon L.J., delivering the leading judgment, said, at p. 918:
"there must be a trade connection between the proprietor of the mark and the goods of the licensee on which the mark is to be used," and he rejected, at p. 919, the submission that "the mere inclusion in an agreement of quality control provisions provides automatically a trade connection where otherwise there would be none."
Sir Denys Buckley agreed with the judgment of Dillon L.J., and added, at p. 921, that in his opinion
"`trafficking' in section 28(6) extends to any conduct carried out or intended to be carried out in respect of a mark or a proposed mark with a view to commercial gain which is not a bona fide exploitation of that mark in pursuance of the true function of a trade mark, viz., its use `in relation to goods for the purpose of indicating, or so as to indicate, a connection in the course of trade between the goods and some person having a right either as proprietor or as registered user to use the mark': ..."
Sir John Donaldson M.R. agreed with both judgments.
There is no definition of trafficking in the Act. It is a word with several shades of meaning, ranging from ordinary reputable buying and selling to unlawful or improper commerce. When one seeks to discover the sense in which the word is used in a trade mark context, the clues are sparse. The starting point is, I think, In re J. Batt & Co.'s Trade Marks (1898) 15 R.P.C. 262, decided at the close of the last century. In that case Romer J. directed that certain marks should be expunged from the register on the ground that there has been no bona fide intention to use them. The learned judge said this, at p. 266:
"one cannot help seeing the evils that may result from allowing trade marks to be registered broadcast, if I may usew the expression, there being no real intention of using them, or only an intention possibly of using them in respect of a few articles. The inconvenience it occasions, and the costs it occasions, are very large, and beyond that, I cannot help seeing that it would lead, in some cases, to absolute oppression, and to persons using the position they have got as registered owners of trade marks, which are not really bona fide trade marks, for the purpose of trafficking in them, and using them as a weapon to obtain money from subsequent persons who may want to use bona fide trade marks in respect of some classes, in respect of which they find these bogus trade marks registered."
There was an unsuccessful appeal to the Court of Appeal, 15 R.P.C. 534 and ultimately to your Lordships' House (1899) 16 R.P.C. 411, where Lord Halsbury L.C. picked up the same notion of trafficking when he said, at p. 413:
"Here is a gentleman who, for 17 years, has been in possessio n of a trade mark. There are a variety of circumstances which can be suggested - that it was needed for the purpose of trading under a particular form of mark, and so protecting the trade which he had either begun or intended to begin; or that he was disposed to register any number of trade marks for the purpose of vending them to others to whom they might appear as pleasant and attractive trade marks."
adding that there were "circumstances which certainly would suggest he was a dealer in trade marks ..."
The law clearly did not recognise the entitlement of the owner of a trade mark to deal with it, like a patent, as a commodity in its own right. The same point was highlighted 15 years later in your Lordships' House in Bowden Wire Ltd. v. Bowden Brake Co. Ltd. (1914) 31 R.P.C. 385, where Earl Loreburn L.C. said, at p. 392:
"The object of the law is to preserve for a trader the reputation he has made for himself, not to help him in disposing of that reputation as of itself a marketable commodity, independent of his goodwill, to some other trader. If that were allowed, the public would be misled, because they might buy something in the belief that it was the make of man whose reputation they knew, whereas it was the make of someone else .... In this case the appellants parcelled out the right to use their trade mark as if they had been dealing with a patent."
The committee appointed in 1933 under the chairmanship of Viscount Goschen (Report of the Departmental Committee on the Law and Practice relating to Trade Marks (1934) (Cmd. 4568)), to report whether any and if so what changes in the existing law and practices relating to trade marks was desirable. had this point in mind. The committee, reporting in the following year, recommended a relaxation of some of the restrictions on the assignment of trade marks, and in particular, a facility for a person to register a trade mark to be used only by others under the "registered user" provisions proposed by the committee. This recommendation was, however, subject to the proviso (p. 8) "that trafficking in registered trade marks is not thereby facilitated."
It was against this background that Parliament enacted section 8 of the Trade Marks (amendment) Act 1937, which (with an immaterial exception) became section 28 of the consolidating Act of 1938.
The crucial question, then, is what is meant by trafficking in a trade mark, a tendency to facilitate which is fatal to an application by the proprietor and the proposed registered user? Or, to put the question more bluntly, if a commercial activity such as that falling to be considered by your Lordships in the instant case is not trafficking in a trade mark, what is?
It is fair to say that the Batt case, at first instance, 15 R.P.C. 262, is the only pre-1938 reported case discovered by counsel in which the word "trafficking" has been used judicially in a trade mark context.
Counsel for the appellants has deployed formidable arguments in support of the appellants' case that subsection (6) is not fatal to them. It is said, correctly, that a number of famous trade marks are to be found on the register in relation to classes of goods which have no conceivable connection with the goods responsible for the fame of the mark: the use of the name "Coca-Cola" on T-shirts, for example. but your Lordships do not know the circumstances in which such registrations were allowed, and in particular what weight may have been given to any advantage accruing to the licensor of a free advertisment for his products.
The appellants accept that in the case of the grant of a licence by the proprietor of a mark to another trader to use that mark on the licensee's own goods, there must always be some connection in the course of trade between the proprietor of the mark and the goods to which the mark is to be applied by the licensee, if registration is to be granted, but, the appellants submit, this connection is sufficiently established if the proprietor controls or is able to control the nature and quality of the goods put on the market under the mark. Put shortly, quality control is said to be enough. "Trafficking," it is submitted,is confined to the sort of situation described by Romer J. in the Batt case, where the mark is sought to be registered merely to enable the proprietor to use it as a means of extorting money from another who, on a later occasion, wishes to make bona fide use of the mark. No doubt in a number of cases, e.g. In re "Bostitch" Trade Mark [1963] R.P.C. 183, a provision for quality control by the licensor over the goods of the licensee had been relevant in establishing a connection in the course of trade between the licensor and such goods. Such decisions are confined to their own factual circumstances, and I can discern no general rule that the mere ability to control quality is always to be sufficient to establish the required connection. In fact, the quality control exercisable in the cases before us, so far as we have seen examples of the licence agreements, is slight. In the Oneida case it is confined to a right to inspect and to approve if the appellants so wish. In the General Mills (Chad Valley) case, the licensee must submit samples for written approval prior to use or sale.
For my part, I am quite prepared to accept that character merchandising, in the sense of the exploitation of the reputation of famous marks by making them available to a wide variety of products, has become a widespread trading practice on both sides of the Atlantic. It may well be that it is perfectly harmless and in most cases probably deceives nobody. These considerations do not, however, help to decide what Parliament intended by trafficking in trade marks or justify placing a gloss on the meaning to be attributed to that expression. I do not feel able to agree with the appellants' submission that the purpose of subsection (6) was confined to the prevention of trafficking in the Batt sense. Trafficking as stigmatised by Romer J. in that case was in effect the stockpiling of trade marks, without any use or intended use in relation to the goods of the proprietor, with the intention of turning them to account when other traders wished to make use of the marks on their own goods. I see no reason for thinking that subsection (6) was solely directed against trafficking in that very narrow sense.
My Lords, although as a matter of ordinary English, trafficking in trade marks might mean the buying and selling of trade marks, it seems obvious that it is to have a more specialised meaning in a trade mark context. I have no quarrel with the definitions suggested by the assistant registrar and by Sir Denys Buckley, but perhaps one further attempt on my part may not be out of place. The courts have to grope for some means of delineating the forbidden territory, and different modes of expression may help to indicate boundaries which are not and cannot be marked out with absolute precision. To my mind, trafficking in a trade mark context conveys the notion of dealing in a trade mark primarily as a commodity in its own right and not primarily for the purposes of identifying or promoting merchandise in which the proprietor of the mark is interested. If there is no real trade connection between the proprietor of the mark and the licensee or his goods, there is room for the conclusion that the grant of the licence is a trafficking in the mark. It is a question of fact and degree in every case whether a sufficient trade connection exists. In my opinion, on the facts of these particular applications, the assistant registrar and the High Court were entitled to take the view that the registration of the licensee as a registered useer, pursuant to section 28, would tend to facilitate trafficking in a trade mark.
I would dismiss this appeal.
ORDER
Appeal dismissed with costs.
Crown Copyright acknowledged
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Date: 14:55 03/09/2002