When it comes to the Crunch: CRUNCH MORTGAGES and bad faith

The IPO in Newport - where the hearing officers are to be found

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Licensed by the IPO

Jane Lambert

An exception to the rule that a trade mark registration cannot be challenged for non-use in the first 5 years after registration is where the application to register the trade mark was made in "bad faith". The legislative mechanism is provided by s.47 (1) of the Trade Marks Act 1994:

"The registration of a trade mark may be declared invalid on the ground that the trade mark was registered in breach of section 3 or any of the provisions referred to in that section (absolute grounds for refusal of registration)."

Subsection (6) of s.3 provides:

"A trade mark shall not be registered if or to the extent that the application is made in bad faith."

But what does "bad faith" mean exactly? In Hotel Cipriani SRL and Others v Cipriani (Grosvenor Street) Ltd and others [2009] Bus LR D81, [2008] EWHC 3032 (Ch), [2009] RPC 9, Mr Justice Arnold reviewed the Engish and European cases and concluded that it connoted not only dishonesty but also "some dealings which fall short of the standards of acceptable commercial behaviour observed by reasonable and experienced men in the particular area being examined".

In Red Bull GmbH v Sun Mark Ltd and another [2012] EWHC 1929 (Ch) (17 July 2012), the leading case on invalidation on the grounds of bad faith, Mr Justice Arnold said at para [133] of his judgment that "an allegation of bad faith is a serious allegation which must be distinctly proved." He added that although the standard of proof is on the balance of probabilities, cogent evidence is required due to the seriousness of the allegation. The judge also said at [131] that the relevant date for assessing whether an application to register a trade mark was made in bad faith is the filing date and that the burden of proof rests on the party alleging bad faith.

So what sort of evidence is needed to discharge that burden?  In Re CRUNCH MORTGAGES, e-Crunch Ltd v Mortgage Quest Ltd. BL 0/243/17 19 May 2017 a mortgage broking company called Mortgage Quest Ltd. ("Mortgage Quest") had registered the sign MORTGAGE CRUNCH as a trade mark for a range of goods and services in classes 16, 35 and 36. The registration was challenged by online accountants called e-Crunch Ltd. ("e-Crunch") which had registered the sign CRUNCH for services in classes 35, 36, 41 and 45 since 2011.  There was evidence that e-Crunch had offered mortgage services under the sign MORTGAGE CRUNCH since 2011. Mortgage Quest registered the domain name in 2014 even though it knew of e-Crunch's trade mark registration and the use of the mark in relation to mortgage services. A telephone conversation took place between a director of Mortgage Quest and the CEO of e-Crunch in which they discussed possible collaboration and Mortgage Quest's CEO promised to transfer the domain name to e-Crunch. Mortgage Quest's director did not keep that promise.  Instead, it registered CRUNCH MORTGAGE as a trade mark.  e-Crunch challenged Mortgage Quest's trade mark registration on the grounds that it had an earlier mark and bad faith under s.3 (6).

The hearing officer  summarized the case for cancellation on grounds of bad faith as follows at para [29] of her decision:

"The applicant’s case hinges on unanswered evidence that when the proprietor applied for the CRUNCH MORTGAGES mark, it knew perfectly well that the CRUNCH mark belonged to the applicant and that the applicant was intending to provide its mortgage services under the name CRUNCH MORTGAGES. In this connection, the applicant alleges that the proprietor had no real intention of running a business under the name CRUNCH MORTGAGES and that it filed its application to “cause nuisance to the applicant following its decision not to work with [the proprietor] by frustrating the applicant’s business plans and misleading the public as to the [proprietor]’s association with the applicant and its prior mark” and to “negotiate a higher sale price for the domain name crunchmortages.co.uk”

The allegation of bad faith was supported by two witness statements filed on behalf of e-Crunch. Mortgage Quest did not challenge that evidence or file any witness statements of its own. The only material it lodged was a counter-statement.  Neither party requested a hearing or submitted written arguments. The hearing officer had to do her best on the pleadings and evidence.

In ROADRUNNERS  BL O/094/17 28 Feb 2017, Mr Daniel Alexander QC, sitting as the appointed person, said at [25]:

"More generally, the proprietor submits that it is for a person challenging a mark to prove bad faith, not for a proprietor to disprove such an allegation. The proprietor also submits that good faith is to be presumed. While that is right, if a person challenging the mark adduces specific evidence of an intention to deprive a known existing user of its ability to trade under its mark and that intention is not actually denied by the principal of the proprietor, that is a case where the case of bad faith is likely to be made out. That is not a situation of requiring a proprietor to disprove bad faith or one in which good faith is not initially presumed but one in which a prima facie case is made out which is not adequately rebutted by the proprietor."

The hearing officer in MORTGAGE CRUNCH directed herself as follows:

"Consequently, if the applicant has established a prima facie case of bad faith, the case will succeed because the proprietor has not answered it."

She asked herself first whether e-Crunch had presented a prima facie case of bad faith and found that it had.  She then considered whether Mortgage Quest had rebutted that case and found that it had not. It followed that the claim for invalidation under s,3 (6) succeeded.

Should amplification or clarification of this note be required, call me on 020 7404 5252 during office hours or send me a message through my contact form.