The Effect of an Arbitration Clause in a Trade Mark Coexistence Agreement on IP Litigation - Lifestyle Equities CV and another v Hornby Street and others

Jane Lambert

Intellectual Property Enterprise Court (HH Judge Hacon) Lifestyle Equities CV and another v Hornby Street (MCR) Ltd and others [2020] EWHC 3320 (IPEC) (30 Nov 2020)

The first claimant has registered the following sign in the EU and UK as trade marks for clothes and various other goods. The second claimant is its exclusive licensee.

They have brought proceedings in the Intellectual Property Enterprise Court ("IPEC") alleging trade mark infringement and passing off arising from the use of the following mark in the UK:

Disputes had arisen between the previous owners of the Beverly Hills mark and the registered proprietor of the Santa Barbara mark,  These were settled in 1997 by a co-existence agreement which was governed by California law.  Clause 7 of that agreement contained the following provision:

"Any controversy, dispute or claim with regard to, arising out of, or relating to this Agreement, including but not limited to its scope or meaning, breach, or the existence of a curable breach, shall be resolved by arbitration in Los Angeles, California, in accordance with the rules of the American Arbitration Association. Any judgment upon an arbitration award may be entered in any court having jurisdiction over the parties."

Relying on that clause, the defendants applied for a stay of the infringement and passing off proceedings.  The application was heard by His Honour Judge Hacon who delivered judgment on 30 Nov 2020.

The claimants opposed the application on the grounds that they had not been party to the agreement and had acquired their trade marks without notice of it.  They contended that the court had no jurisdiction to stay the action under s.9 of the Arbitration Act 1996.  The judge responded to that argument as follows at paragraph [32]:

"The correct view may be that a person is party to an arbitration agreement within the meaning of the 1996 Act if, according to the law governing the agreement he is party to it, or, alternatively and more broadly, if he is bound by the arbitration agreement under that law. I will turn later to both those matters."

Before deciding the proper law of the contract, Judge Hacon referred to evidence that the claimants had been aware of the agreement and had actually relied on it.   In the first instance, the in-house legal adviser to the first claimant's parent company had requested and received a copy of the agreement from the 8th defendant. In the second, the claimants relied on the agreement to register a trade mark in Mexico.  They did not object to the following statement by the 8th defendant:

"Lifestyle Equities, C.V. (through its predecessor entity), and SBPC are parties to a worldwide coexistence agreement dated October 6, 1997, and pursuant to that agreement SBPC consents to this registration."

While the claimants may not have been party to the 1997 agreement they certainly appear to have adopted it in order to register their mark in Mexico.

As the question whether the claimants were bound by the 1997 agreement depended on whether English and EU or California law applied, Judge Hacon tuned to that issue.  The claimants had argued that English and EU law applied as the trade marks were registered at the UK and EU Intellectual Property Offices citing rule 135 (2) of the 15th edition of Dicey, Morris & Collins on the Conflict of Laws in support of their contention:

"But in other cases (semble), the validity and effect of an assignment of an intangible may be governed by the law with which the right assigned has its most significant connection."

They also referred to paragraphs 24-051 and 24-069 of that textbook.  The judge was not persuaded by their argument,  He said at [51[:

"I do not see that either passage assists the claimants' argument. Clause (2) is discussed in paragraphs 24-064 to 24-074, which paragraphs are largely concerned with intangibles other than IP. The relatively short section on the assignment of intellectual property rights, paragraph 24-069, from which the second passage quoted above was taken, does not seem to me to assist the claimants."

He considered rule 64 of Dicey to be relevant:

"(1) The material validity, scope and interpretation of an arbitration agreement are governed by its applicable law, namely:
(a) the law expressly or impliedly chosen by the parties; or,
(b) in the absence of such choice, the law which is most closely connected with the arbitration agreement, which will in general be the law of the seat of the arbitration.
(2) In general, arbitral proceedings are governed by the law of the seat of the arbitration.
(3) The substance of the dispute is governed by either:
(a) the law chosen by the parties; or
(b) if the parties so agree, such other considerations as are agreed by the parties or determined by the tribunal; or
(c) if there is no such choice or agreement, the law determined by the conflict of laws rules which the arbitral tribunal considers applicable."

He reasoned at paragraph [43] that the issue in hand was whether the effect of the arbitration provision in the 1997 Agreement was such that it bound the claimants. It seemed to the judge that that fell under the heading of "interpretation" of the arbitration agreement. That being so, the effect of the arbitration agreement, including the effect of the arbitration provision, was governed by the law chosen by the parties, namely Californian law without reference to its conflicts of law provisions.  The claimants also argued that the 1997 agreement was ineffective as it had not been registered under s.25 of the Trade Marks Act 1994 and the equivalent provisions of the EU Trade Mark Regulation.  The judge rejected that argument on the ground that s.25 applied to licences and the 1997 agreement was a coexistence agreement and not a licence. Moreover, an arbitration agreement is an independent agreement in itself quite separate and distinct from the substantive agreement.

The judge heard evidence on whether California law would bind the claimants to the arbitration clause from California lawyers called as expert witnesses by the two sides.  It has to be remembered that foreign law is treated as fact rather than law in English proceedings.  After hearing their expert testimony, Judge Hacon decided at [96]:

"It follows that in my view, on the balance of probability, the effect of the 1997 Agreement under Californian law and, in particular, the effect of its arbitration provision, is that the arbitration provision binds the claimants."

The defendants also relied on another doctrine of California law,  Where a party has relied on the benefits of an agreement he is estopped from disclaiming its burdens.  Having relied on the 1997 agreement to register a trade mark in Mexico the learned judge found on the balance of probabilities that the claimants were likely to be bound by the arbitration clause of that agreement.  For both of the above reasons, Judge Hacon stayed the trade mark infringement and passing off actions in England.

Anyone wishing to discuss this article or arbitration and trade mark law generally may call me on +44 (0)20 7404 5252 or send me a message through my contact page.