Introduction

An allegation of bad faith in trade mark law is difficult to make out because it relates to the subjective motivation/intention of the applicant at the time they filed the application to register a trade mark.

The applicant’s motivation in applying to register a trade mark must be shown to have been dishonest and involve conduct which falls short of accepted standards of ethical behaviour or honest commercial business practices.

This subjective motivation must be determined by reference to the circumstances of the case and is considered from the objective perspective of honest people in the relevant trade.

Good faith is presumed until the contrary is proved; it is up to the party alleging bad faith to prove it.

Having to consider the subjective motivation of the applicant in light of the circumstances of the case means that it is not possible to adopt a uniform approach to deciding if there has been bad faith. The outcome of every case will depend on the facts and circumstances at hand.

In this case, ultimately, the fact that the applicant filed the trade mark application in his own name, as opposed to the name of the company, of which he was one of the directors, which used the mark and traded under the name, was enough to lead to a finding of bad faith.

But it should be noted that a proper assessment of all circumstances is required to find bad faith. Filing in a director’s personal name could in many instances be acceptable, but, as in this case, if there are other issues which point towards a dishonest intention on the part of the applicant, bad faith can be established.

Issue

These proceedings concerned an application for a declaration of invalidity of UK trade mark registration no. 3687532 for the SNEAKER 63 logos shown above (“the contested mark”) in the name of Jack Chen (“Chen”).

The application for invalidity was filed by Eleanor Hespe (“Hespe”) against all of the goods and services covered on the grounds that Chen filed the application in bad faith contrary to s3(6) of the Trade Marks Act 1994.

Background

In late 2018/early 2019, Hespe, Chen and their spouses agreed to start a footwear retail business. As a result of this agreement, they incorporated the company, Sneaker 63 Ltd, in January 2019 in which both Chen and Hespe were directors and equal shareholders (“the company”). The company traded under and used the contested mark in the conduct of its business.

As a result of her husband being unwell, Hespe took a break from active involvement in the company. During this time, Chen applied to register the contested mark in his own name and without Hespe’s knowledge or authorisation. Hespe claimed that the registration was obtained with the dishonest intention of using it against her as part of an effort to remove her from the business.

Chen denied the allegation of bad faith. He submitted that he filed the application to obtain protection for the contested mark and to hold it on trust for the company in his capacity as a director. He also claimed that he had prior ownership of the contested mark (copyright) and did not assign those rights to the company when it was formed. Nevertheless, he claimed that he applied to register the trade mark to safeguard the company’s interests.

Decision

The Hearing Officer found that the contested mark had been filed by Chen in bad faith.

In his decision, the Hearing Officer noted the following points:

1. Chen’s claim that he had prior ownership of the contested mark, which predated the formation of the company, was not mentioned in, nor proved by, his evidence. From the submissions and evidence before him, the Hearing Officer concluded that the contested mark was intended to be a company asset.
2. On the date the application for the contested mark was filed by Chen, he was a director of the company and a joint shareholder and therefore had a duty to act in the best interests of the company. Intellectual property is a key company asset and the registration of a trade mark is a monopoly right. The effect of him applying for the contested mark in his own name was to exclude all others, including the company itself, from being able to use it without licence or permission. It was the Hearing Officer’s view that, even without an in-depth knowledge of the trade mark system or company law, a reasonable person should have been expected to know that a company’s trade mark should be filed in the company’s name, rather than in the personal name of any one of its directors.
3. Chen’s own feelings about his conduct and whether it was reasonable in the circumstances were considered irrelevant, since the matter was to be considered from the objective perspective of honest people in the relevant trade.
4. Even so, the circumstances made out by Chen would not have prevented him from applying for the trade mark in the name of the company and he did not provide an adequate explanation for why he, as a director of the company, actively chose to apply in his own name instead. It was the Hearing Officer’s view that this action in itself was not consistent with honest and reasonable business practices and therefore amounted to bad faith.

Comments

This case serves as a reminder that, if a trade mark is used by a company and is therefore an asset of that company, any trade mark applications should be filed in the name of the company, unless there are clear reasons for and agreement of the fellow directors for an alternative course of action. This is especially important if there is more than one director and/or shareholder with interests in the company. When applying to register trade marks, regard must be had to any duties to act in the best interests of a company and its shareholders.

If a decision is made to apply for a trade mark in the name of an individual where the trade mark concerned is likely to be considered an asset of a company, it is important to document or keep evidence recording the commercial decisions made, which can clearly illustrate the bone fide intentions at the time of filing. Most importantly, any decisions on behalf of a company must be made in compliance with relevant company laws and be authorised by any directors and shareholders of the company as necessary.

Had Chen produced sufficient evidence to show that he did have prior ownership of the contested trade mark predating the formation of the company, or had he thoroughly documented the circumstances and reasoning behind the commercial decisions he had made, this case could potentially have been decided differently. Having said that, he did not involve Hespe, a joint director and shareholder, in his decision to apply for the trade mark in his own name. Having done this without Hespe’s knowledge or authorisation, it is difficult to see how the application was not filed in bad faith.

If you require advice in connection with bad faith, or in respect of any trade mark issues, please get in touch and speak to one of our attorneys.