Caspian Pizza Ltd and Others v Shah and Another

The sign that appears above is registered as a trade mark for

Meat, fish, poultry and game; meat extracts; preserved, dried and cooked fruits and vegetables; jellies, jams, compotes; eggs, milk and milk products; edible oils and fats; prepared meals; soups and potato crisps; canned foodstuffs; pizza toppings; preparations for making pizza toppings; dried preparations for use as pizza toppings; ingredients for making pizzas

in class 29 in the name of Caspian Holding Franchise Limited under trade mark number 2,559,245 with effect from 21 Sept 2010. Until 12 Jan 2016 it had been registered to Behzad Zarandi (Mr Zarandi") and Nadar Zand ("Mr Zand").

Until that date Mr Zarandi and Mr Zand also owned UK trade mark number 2,396,396 whereby the word CASPIAN had been registered for restaurant services, take-away food services and catering in services in class 43 with effect from 8 July 2005.

Caspian Pizza Ltd. ("CP") run a chain of pizza restaurants in and around Birmingham which is a business that Mr Zarandi claims to have started in 1991. He was joined in that business by his brother in law, Mr Zand, in 2011. Mr Zarandi and Mr Zand transferred their business to CP in 2012 though they continued to hold the trade marks.  By a licence agreement dated 7 Aug 2012 they licensed the company to use their trade marks.

A Mr Makseen Shah ("Mr Shah") had run similar restaurants in Worcester also called CASPIAN since about 2002 but the premises from which he operated that business had been let to a company called Porcelain Ltd. which now ran the business. There had been negotiations and dealings between Mr Shah and Mr Zarandi over the years which Messrs Zarandi and Zand claimed to have crystallized into a franchise agreement but that was denied by Mr Shah.

In  Caspian Pizza Ltd and Others v Shah and Another [2015] EWHC 3567 (IPEC) (9 Dec 2015) Messsts Zarandi and Zand and their company sued Mr Shah and the company that let the Worcester restaurant to Porcelain for trade mark infringement and passing off.  The defendants denied infringement on the ground inter alia that they had an earlier right under s.11 (3) of the Trade Marks Act 1994 and counterclaimed for revocation or invalidation of the trade marks on grounds of lack of genuine use, bad faith under s.3 (6), an earlier right under s.5 (4) (a) or that the use of the mark was prevented by copyright under s.5 (4) (b).

The action and counterclaim came on for trial before Judge Hacon on 26 and 27 Oct 2015 and he delivered judgment on 9 Dec 2015.  In his judgment he dismissed the claims for trade mark infringement and passing off and held that the word mark but not the device mark had been invalidly registered (see paragraph [83]).

The claimants had pleaded that Mr Shah had entered the franchise agreement with them in about 2008, that he had failed to pay the royalties due under that agreement and that they had terminated his franchise and licence to use the device and word marks for his restaurants but they abandoned that case at trial.  The judge found that Mr Shah had operated a restaurant under the CASPIAN name in Worcester since 2002 and that the goodwill generated by that operation would have been sufficient to found an action in passing off to prevent parties other than Mr Shah from conducting a pizza business under that name in Worcester.  That constituted an "earlier right" under s.11 (3).  As the claimants had no alternative case in the event of a finding that there had been no franchise agreement it followed that the claim for trade mark infringement failed.

Although the judge noted at paragraph [11] of his judgment that the claimants' counsel had conceded that his case for passing off was unlikely to succeed if his claim for trade mark infringement failed His Honour considered at paragraph [34] the geographical extent of their goodwill. Finding that their restaurants were small outlets with a local clientèle he concluded that their goodwill associated with the CASPIAN sign never stretched as far as Worcester.   Consequently, there could be no claim for passing off.

The judge added at paragraph [48] that even if the business operated from the Worcester premises had infringed the registered trade marks and there had been an action for passing off neither Mr Shah nor his company would have been liable for the infringements or acts of passing off as they had divested themselves of the business by the start of the action.

Having dealt with the claim Judge Hacon considered the counterclaim for revocation of the marks or declaration of invalidity. Relying on Mr Allan James's decision in Re Sworders, West v Hudson BL O/212/06 (28 July 2006) the judge held that Mr Shah could have prevented the registration of the word mark under s.5 (4) of the Trade Marks Act 1994 and that he therefore had an "earlier right" within the meaning of s.47 (2) (b). However, there was no evidence of an earlier right in respect of the device mark.

As for the remaining defences, Mr Shah admitted in cross-examination that the CASPIAN trade mark had been used between 2005 and 2014 (see para [59]), there was no real evidence of registration in bad faith (paras [60] to [61]) and there was no evidence as to who owned copyright in the running chef illustration in the device mark.

The most interesting parts of the judgment concerned the s. 11 (3) defence to the claim for trade mark infringement and the counterclaim for a declaration of invalidity in respect of the word mark. Both arose out of Mr Shah's operation of his pizza business in Worcester between 2002 and 2004.

S.11 (3) of the Trade Marks Act 1994 defines "earlier right" for the purpose of that subsection as follows:

"For this purpose an “earlier right” means an unregistered trade mark or other sign continuously used in relation to goods or services by a person or a predecessor in title of his from a date prior to whichever is the earlier of—

(a) the use of the first-mentioned trade mark in relation to those goods or services by the proprietor or a predecessor in title of his, or
(b) the registration of the first-mentioned trade mark in respect of those goods or services in the name of the proprietor or a predecessor in title of his;

and an earlier right shall be regarded as applying in a locality if, or to the extent that, its use in that locality is protected by virtue of any rule of law (in particular, the law of passing off)."

As Mr Zarandi had given unchallenged evidence that he had started his pizza restaurant business in Birmingham in 1991 which was long before Mr Shah began his in Worcester the judge acknowledged at para [530] that  "[o]n a straightforward reading of s.11(3), particularly sub-paragraph (a), the defendants have no defence under that subsection."

However, His Honour was not sure that is right because s. 11 (3) must be interpreted in a manner consistent with art.6 (2) of the Trade Mark Directive which provides as follows:

"The trade mark shall not entitle the proprietor to prohibit a third party from using, in the course of trade, an earlier right which only applies in a particular locality if that right is recognised by the laws of the Member State in question and within the limits of the territory in which it is recognised."

According to the judge the draftsman of s.11 (3) appears to have elaborated on art. 6 (2). Referring to Mr Justice Jacob' decision in British Sugar plc v James Robertson & Sons Ltd [1996] R.P.C. 281, at 292; Lord Nicholls of Birkenhead's speech in R. v Johnson : [2003] FSR 42, (2003) 167 JP 281, (2003) 167 JPN 453, [2003] 3 All ER 884, [2004] ETMR 2, [2003] 1 WLR 1736, [2003] HRLR 25, [2003] UKHRR 1239, [2003] 2 Cr App Rep 33, [2003] 2 Cr App R 33, [2003] WLR 1736, [2003] UKHL 28, at [30] and the judgment of the European Court of Justice in Budejovicky Budvar v Anheuser-Busch Inc  [2012] RPC 11, [2012] ETMR 2, [2011] EUECJ C-482/09, [2012] Bus LR 298 he concluded: "What matters is the language of the Directive". He could speculate as to how s.11 (3)(a) should be notionally reworded so as to arrive at a correct interpretation, but in his view was that it is better to ignore it and focus on art 6 (2).  On that basis Judge Hacon reached the view at para [56] that art.6 (2) provided the defendants with a defence.

I have to say that I am not entirely persuaded by the learned judge's reasoning on that point. Art 6 (2) refers to "the laws of the Member State in question" but it does not prescribe what those laws should be. That is surely the job of the national legislatures and there seems to me to be no reason why the statute that implements the Directive should not define "the earlier right" applying to the particular locality to which art 6 (2) refers.

Equally courageous was the judge's preference for a decision of a hearing officer in Sworders over that of his illustrious predecessor in the later case of Redd Solicitors LLP v Red Legal Ltd and Another [2012] EWPCC 54; [2013] E.T.M.R. 13. In that case His Honour Judge Birss QC (as he then was) found that an earlier right which afforded a defence to infringement of a trade mark under s.11 (3) did not afford a ground for invalidity under s.5 (4) (a). Noting at para [67] that Judge Birss had not been referred to Sworders he declined to follow Redd on the following grounds:

"I think the difficulty with the approach to s.5(4)(a) taken in Redd may be that the resolution of the conflicting rights of parties using the same trade mark in different localities would come to depend arbitrarily on which party first gets to the tape of making an application to register the mark. Party A may have the more geographically widespread business and a greater legitimate expectation of expanding further. Party B, using the same trade name in another part of the UK, may be satisfied with a business limited to a relatively small locality. But if party B applies for a trade mark first then following Redd there would be nothing that Party A could do about it, save rely on its 'earlier right' to provide a defence to infringement under s.11(3), a defence strictly limited in geographical scope. The approach in SWORDERS is more likely to give the tribunal the opportunity, where possible and appropriate, to set a fair territorial limit to the trade mark right or rights granted. I therefore prefer the approach to s.5(4)(a)/art.4(4)(b) in SWORDERS."

Judge Hacon's argument on this point is attractive and I can see its force particularly as s.47 (2) (b) refers to the conditions in s.5 (4).  It would be anomalous if the same facts could found a defence to a trade mark infringement but not invalidate the trade mark in the absence of a disclaimer.   It will be interesting to see whether Caspian Pizza will be followed and, more importantly, endorsed on appeal.

Should anyone wish to discuss this case, earlier rights under s.5 (4) or s.47 (2) (b) or trade marks and passing off in general, he or she should not hesitate to call me on 020 7404 5252 during office hours or message me using my contact form.


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