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Trade mark applications can be "instruments of fraud" – UK court rules in cryptocurrency case

Heidi Hurdle
04/11/2021

Locations

United Kingdom

The High Court has dismissed an appeal from the Intellectual Property Enterprise Court (IPEC) Small Claims Track, confirming that in certain circumstances, a trade mark application may amount to an "instrument of fraud".

Background

In the well-known One in a Million case back in 1999, the Court of Appeal established the principle that a passing off claim could be brought concerning the registration of domain names (see BT v One In A Million [1999] 1 WLR 903). Aldous LJ held that for such a claim to succeed the registration must either amount to:
 
  • A misrepresentation that the registrant has a connection or association with the owner of the goodwill (in other words "traditional" passing off); or
  • An "instrument of fraud" in the hands of anyone but the "true" owner.
There have been relatively few reported cases applying the "instrument of fraud" limb of the One in a Million case, but the facts in that case were relatively specific - with the scale of the defendants' activities quite immense. A more recent case in which the ruling was applied was in Bayerische Motoren Werke v BMW [2019] EWHC 411 (Ch) in relation to the incorporation of a company.  
 
In a recent case on appeal from IPEC's Small Claims Track, the High Court ruled that a trade mark application might also satisfy this definition: Litecoin Foundation Limited v Inshallah Limited [2021] EWHC 1998 (Ch).

Key facts

In this case, the claimants (developers of the Litecoin cryptocurrency) alleged that the defendants (two companies that had never traded, as well as those companies' director) were liable in passing off by virtue of:

(1) changing their company name to "Litecoin Exchange Limited"; and
 
(2) filing a UK trade mark application for the word mark LITECOIN (in upper and lower case) for "financial services" and "virtual currency".
 
In the IPEC, District Judge Hart granted an injunction to the claimants on the basis that the defendants' actions did amount to passing off. The defendants appealed this ruling.

High Court's ruling

Sitting as an Enterprise Judge, John Kimbell QC heard the appeal. In dismissing all the grounds of appeal, he concluded that in certain circumstances merely applying to register a trade mark could amount to passing off under either limb of the test in One In A Million (i.e. there being a misrepresentation or an "instrument of fraud").
 
On the first, he refused to accept arguments that a trade mark application was merely a "step in preparation" of a representation or that this was not a representation capable of affecting the claimant's goodwill. Rather, he accepted that the registration of the name would allow for an "erosion of the exclusive goodwill in the name" and would likely cause the public to be deceived, even if the Litecoin name was not as distinctive as those in the One In a Million case (e.g. "Marks & Spencer"):
 
"… in my judgment, the same basic point applies. Any person consulting the public list of applications for trade marks would assume that Inshallah was connected with the owner of goodwill in the name of Litecoin."
 
Similarly, in relation to the "instrument of fraud" question: Kimbell QC was happy to accept that in such cases one should consider "the intention of the defendant, the type of trade and all the surrounding circumstances" – and that it was therefore legitimate of the lower judge to have considered evidence of the defendant's apparent squatting on other trade mark applications.
 
Consequently, the judge concluded that the injunction could be upheld on either ground, and the defendants' appeal was dismissed.

Key takeaways

This case is potentially quite significant for trade mark owners who want to prevent the registration of similar marks. Rather than just relying on opposition proceedings, the ability to also seek an injunction against registration of the later mark would add a potential second string to the trade mark owner's bow.

However, it is not clear how widely this principle will apply beyond the relatively narrow confines of "vexatious" or "bad faith" applications. It seems from this case that the courts may be willing to accept a mere trade mark application can amount to an "instrument of fraud" when they are dealing with what looks like a so-called "trade mark troll", but this will turn on a finding of fact that will therefore likely require strong evidence.  As noted earlier, this case started in IPEC's Small Claims Track and then was appealed to the High Court, and whether it will be followed in other cases will be interesting to see.

 
With special thanks to James Russell, Trainee, co-author of this blog.
 

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