Bad company?

23rd Feb 2022

Our authors consider the implications of 2021’s key Sky v SkyKick decision, which has given renewed importance to applicants’ intentions.

On 26th July 2021, the Court of Appeal (CoA) issued another keenly awaited decision in the long-running Sky v SkyKick trade mark dispute, overturning the High Court’s April 2020 decision to narrow the scope of protection afforded by some of Sky’s marks based on bad faith (due to overly broad specifications).

Sky’s successful appeal rested on the fact that the trade marks had in fact not been applied for in bad faith, and that the excision of certain goods and services from its marks was consequently unwarranted.

The CoA’s decision in this instance marks the most recent chapter in a dispute that commenced in 2016 when the British media and telecommunications conglomerate Sky issued proceedings against SkyKick, a US-based provider of cloud-based management software.

To recap in summary, Sky argued that the use of the sign “SkyKick” for cloud-based management software infringed five of its UK and EU trade marks for SKY and claimed passing off on the part of SkyKick. SkyKick denied both claims and counterclaimed for invalidity of Sky’s trade mark registrations, arguing that:

a number of the alleged infringements related to goods and services that had no direct relevance to Sky’s current core business;
Sky’s registrations for marks relating to certain goods and services, such as “computer software” and “data storage”, lacked clarity and precision, and the applications were filed in bad faith; and
Sky should consequently not have been granted registrations for these wide-ranging rights in the first instance.

In the High Court, Lord Justice Arnold referred various questions to the Court of Justice of the European Union (CJEU).

The CJEU determined that, among other things, an EU mark “cannot be declared wholly or partially invalid on the ground that terms used to designate the goods and services in respect of which that mark was registered lack clarity and precision”.

In other words, seeking to protect broad terms such as “computer software” would not lead to invalidity on the grounds of lack of precision or clarity.

However, the CJEU suggested that if an applicant filed for a mark relating to certain goods and services without any intention to make use of the mark in these areas, this could constitute bad faith if there was “objective, relevant and consistent indicia” suggesting that, at the time of filing, the applicant had the “intention of undermining, in a manner inconsistent with honest practices, the interests of third parties, or of obtaining, without even targeting a specific third party, an exclusive right for purposes other than those falling within the functions of a trade mark”.

Applying the CJEU’s June 2020 ruling, the High Court found that SkyKick had infringed Sky’s rights, but also found that the telecoms giant had acted in “bad faith” when it applied for certain goods and services with no apparent intention to use them.

As a consequence, the High Court declared Sky’s EU marks partially invalid and instructed that the goods and services falling outside the scope of Sky’s core business be removed.

Both parties were given permission to appeal the Court’s decision: SkyKick against the finding of trade mark infringement and the extent to which the Court reduced the scope of Sky’s registered protection; and Sky against the Court’s partial finding of bad faith.

Sky ultimately won this appeal following the CoA’s decision on 26th July 2021.

The CoA found in favour of Sky and reversed the High Court’s decision that had rendered its EU marks partially invalid.

The CoA highlighted the CJEU’s guidance that a lack of intention to use a mark in relation to certain goods and services does not, in and of itself, constitute bad faith.

The CoA also determined that there is no requirement for owners of a mark to offer a commercial justification for using a mark with respect to every single good or service that might fall within a broader term in a specification.

Obvious justification

In the case of Sky – which the CoA recognised as having a significant present trade, and an ongoing expectation of trade, in, for example, “computer software” – the CoA deemed that the company was not acting in bad faith despite the broad specifications of its marks because it had an “obvious commercial justification” for including terms such as “computer software” in its specifications:

“An applicant for a trade mark does not have to formulate a commercial strategy for using the mark in relation to every species of goods or services falling within a general description.

Such an applicant is entitled to say, ‘I am using the mark for specific goods falling within description X. I have no idea precisely where my business in goods of that description will develop in the next five years, but there will undoubtedly be more such goods than there are now.’”

The CoA did, however, acknowledge that this decision may not apply to cases where no intention whatsoever can be found for using marks with respect to certain terms within a specification, or where marks have been registered for the sole purpose of precluding competitors and other third parties from receiving protection.

Implications and issues

The key policy considerations underpinning this long-running case reflect the tension between allowing companies to file broadly and to wield a monopoly for five years and the impact these overly broad specifications have on new businesses who want to find room for their rights on the Register.

The practice of over-claiming also makes it very difficult for the trade mark profession and brand owners generally to clear marks accurately.

We can probably all agree that there is too much trade mark “clutter” on the Register, but the difficulty lies in finding a balance between allowing companies to build some commercial expansion into their specification and having appropriate sanctions in place for those who abuse the system.

But how to achieve this balance, and what should the sanction be for those who over-claim?

Natural boundary

When we think of other IP rights, there is a natural boundary that arises around the right – around a patent’s inventive step, for example, or a new copyright created around the extent of a work’s originality.

However, for trade marks, barring the absence of earlier rights, there is much more choice. The only boundaries arise from cost and interest. This freedom to self-define boundaries has established a “norm” whereby applicants will file more widely than needed.

Because trade marks cannot be challenged for the first five years after registration, it means that applicants are free to monopolise any number of goods and services, regardless of whether they have any real intention to use them.

This freedom to file goods and services without restriction makes it very difficult to clear marks accurately. It also increases the cost of searching by requiring off-Register checks, particularly where marks are too young to be challenged for non-use.

Giving companies the right to monopolise any number of goods or services for five years gives them a huge advantage, particularly in opposition proceedings, and perhaps this advantage should be balanced by sanctions for trade mark owners who abuse the system by over-claiming.

It is now the role of third parties to assume much of the burden, cost and risk of initiating a non-use cancellation action against a trade mark owner who may have over-claimed and monopolised more than their fair share of the Register.

In 2019, when the Advocate General (AG) delivered his opinion on the case, he also emphasised the policy considerations by indicating that specifications covering broad terms such as “computer software” were unjustified and contrary to the public interest because a single trade mark owner could not possibly have a commercial interest in providing all types of computer software, because software is far too broad in terms of function and field of use.

As a result, the AG suggested that trade marks covering such broad terms (“computer software”, as well as “financial services” and “telecommunications”) may in certain circumstances lead to a finding of bad faith where there is no intention to use the mark in connection with those broad terms and where “the sole objective of the applicant is to prevent a third party from entering the market, including where there is evidence of an abusive filing strategy”.

This certainly made practitioners sit up and think very carefully about the extent to which our clients’ trade mark registrations could be vulnerable to counterattacks.

It also made us wonder whether this could lead to a possible policy change regarding specifications (could we see subclasses being introduced for class 9, or perhaps Declarations of Use?), or even simply a more subtle shift instigated by the profession itself, which might choose to adopt a more US-style approach to drafting specifications.

When the High Court’s decision was delivered and Sky’s marks were declared partially invalid on the basis of bad faith and its specification was restricted to the goods and services with some connection to its established businesses, trade mark owners and practitioners all took a sharp intake of breath.

This ruling effectively paved the way for defendants in trade mark infringement cases to attack an overly broad registration on the basis of bad faith.

It also opened up the possibility of the courts adopting a “blue pencil” approach to specification interpretation.

The CoA ended up reversing the High Court’s decision, stating that SkyKick was precluded from arguing that an entire category of Sky’s goods or services could be declared invalid, because the bad faith related to only some of the goods or services that fell within it.

Each category of goods and services had to be considered in its own right and in any event, a lack of intention to use was not, of itself, a ground for a finding of bad faith.

The fact that Sky did not intend to use the marks “across the breadth of the category”, was not the same as finding that Sky had no intention at all to use the marks for that category.

Impossible burden

In addition, while the High Court concluded that Sky had applied for the marks pursuant to a deliberate strategy of seeking very broad protection, the CoA determined that an applicant does not have to formulate a commercial strategy for using the mark in relation to every type of good or service falling within a general description, because doing so would “create an increasingly impossible burden on applicants”.

This is of course true, but when an applicant fails to demarcate its own rights fairly and accurately at the outset, this “burden” shifts entirely to a future counterparty to do, which can also be a very hefty task to undertake.

According to the CoA, an applicant with only one item of computer software could apply in good faith for “computer software” as a whole.

The absence of a clearly defined plan to use a mark for all goods falling within that specification could not, in itself, constitute bad faith.

Trade mark owners and practitioners could breathe a sigh of relief.

However, now that questions have been raised over the validity of broad specifications and an applicant’s genuine intention to use a mark, it does appear that there is some judicial sympathy towards smaller companies fending off trade mark disputes against claimants with very significant portfolios.

EU case law also indicates a willingness to require that owners of trade marks that may have been made in bad faith – such as where they contain unduly broad specifications or are repeat filings – bear some responsibility in explaining the commercial justification for their filing practices.

It certainly looks as though anyone looking to enforce their rights should take a close look at the registration before doing so, to make sure that they can provide some form of commercial rationale for the inclusion of some of the broader terms within their specification, because a failure to do so could result in a loss of at least the broader terms within the specification.

Nevertheless, we expect the urge to over-claim will still creep in, so the legal fog created by broad specifications will remain until the balance is redressed.

But what does seem certain is that the SkyKick case has had a lasting impact on current trade mark practice.

Gone are the days of going down the “kitchen sink” route with specifications covering “Christmas decorations” for no reason other than the fact that you can.

Instead, responsible practitioners should now adopt a much more considered approach when drafting a specification, which benefits everyone – both existing trade mark owners who can still file relatively broadly without fear of a full cancellation, and those who are trying to clear marks to use and register.

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