SPECIAL EFFECTS Case leaves questions unanswered

In Special Effects Limited v L'Oréal SA, the Court of Appeal of England and Wales has reversed the first instance decision (which had alarmed many practitioners) that a party was precluded from challenging the validity of a trademark in the High Court because it had already unsuccessfully opposed the registration of the same trademark at the Trademarks Registry. The Court of Appeal's decision does however seem to leave open the possibility that if opposition proceedings are fully fought the subsequent invalidity action might still be an abuse of process. This has left the law in a potentially confusing position.

The case arose following Special Effects Limited's (SEL) claim against L'Oréal SA in which SEL claimed that L'Oréal's use of a SPECIAL FX mark infringed SEL's rights in the mark SPECIAL EFFECTS.

At the High Court, L'Oréal challenged the validity of SEL's trademark. SEL in response argued that L'Oréal was precluded from so doing because it had previously resisted the grant of the trademark in opposition proceedings in the Trademarks Registry. The court ruled on the question of whether L'Oréal was precluded from challenging the validity of the mark as a preliminary issue. In terms of legal analysis it was argued that either cause of action estoppel, issue estoppel or abuse of process meant that L'Oréal was not entitled to have "two bites of the cherry".

The High Court considered the case of Hormel Foods Corp v Antilles Landscape Investments NV [2005] RPC 28. Applying the reasoning in that case, the court held that L'Oréal was barred from alleging invalidity in the High Court action.

L'Oréal appealed. The first instance decision had been widely reported and alarmed many practitioners - such that the International Trademark Association intervened in the appeal, and the Institute of Trademark Attorneys made written submissions. The Court of Appeal noted that the first instance decision, if correct, would have a profound impact on current opposition practice - parties would tend not to oppose at all or, if they did so, conduct oppositions much more like litigation.

The Court of Appeal rejected the submissions that opposition proceedings could give rise to either a cause of action estoppel (such proceedings not being a cause of action in the sense required) or issue estoppel (as the opposition is not a final determination of the type required). It then addressed the question of whether such proceedings were nevertheless an abuse of process. On the facts of the present case the court concluded that it was not an abuse of process to allow L'Oréal to challenge validity in the litigation. In essence, the court seems to have determined that the different nature of the opposition proceedings, and the limited investigation they involved, meant it was not in effect unfair for L'Oréal to have a further, and more thorough, attack on the same trademark once granted.

However, the court then went on to consider what would happen in circumstances where an opposition had involved a fuller attack, stating:

"We were told that sometimes opposition proceedings are conducted in a manner similar to that of High Court litigation, with counsel representing the parties and with disclosure and cross-examination. We could imagine the possibility that, if issues had been fought in that way in the registry on an opposition, it might then be properly regarded as an abuse to fight the same issues again in court."

The appeal brings welcome certainty in confirming that opposition proceedings in the Trademarks Registry will not themselves give rise to an estoppel precluding essentially the same points being taken by way of challenge to validity in any subsequent litigation. Less welcome is the uncertainty that surrounds the question of whether such litigation could be an abuse of process. This is a potentially worrying situation that could lead to confusion and force parties to avoid taking too thorough an approach in the registry. A party that wishes to challenge what it regards as a particularly significant mark may need to make a deliberate decision to "keep his powder dry" and not set about an all out attack in the registry. Adopting a low key approach should mean that the action can be heard by the court, although by that stage the stakes may be very much higher, as infringement may well be in issue as well.

For discussion of the High Court's decision, see Issue estoppel may prevent use of certain arguments in court.

Nick Gardner, Herbert Smith, London