Sportswear Spa & Anor v Stonestyle Ltd

A closely connected breach of competition law may arguably prevent a trade mark proprietor from relying on legitimate reasons for opposing further dealings in goods already placed on the EEA market. Article 81 of the EC Treaty cannot invariably be confined to a claim or counterclaim rather than a defence.

For this purpose, participation in an unlawful agreement is insufficient by itself. A legally and factually adequate nexus must exist between the anti-competitive agreement and the enforcement of the intellectual property right. Where European law remains unresolved and the pleaded defence is properly arguable, the court should determine the necessary connection at trial rather than strike out the defence.

The respondents manufactured and distributed Stone Island garments under registered trade marks. They alleged that garments supplied by the appellant had identification codes removed from their labels and swing tags. Although the goods had been placed on the EEA market with the proprietor’s consent, the respondents claimed that the alterations provided legitimate reasons under section 12(2) of the Trade Marks Act 1994 for opposing further dealings.

The appellant pleaded that the codes implemented distribution agreements designed to partition national markets and fix prices contrary to Article 81 of the EC Treaty. Warren J struck out those allegations in [2005] EWHC 2087 (Ch).

The central question was whether the alleged Article 81 infringement had an arguably sufficient nexus with the trade mark claim to constitute a defence.

1. Appeal allowed. Lloyd LJ, with whom Longmore and Waller LJJ agreed, held that the Article 81 allegations were sufficiently arguable and should not have been struck out. The striking-out order was discharged, and the application was remitted to the Chancery Division to decide the outstanding pleading issue concerning an appreciable effect on trade between Member States.

2. A party’s participation in an agreement contrary to Article 81 of the EC Treaty does not, without more, prevent it from enforcing intellectual property rights. There must be an adequate connection between the prohibited agreement and the right asserted. The absence of any connection explained the result in British Leyland v Armstrong.

3. The European authorities made it arguable that Article 81 could provide a defence, rather than only a claim or counterclaim, where an anti-competitive agreement was sufficiently closely related to the trade mark proceedings. The court could not rule out the possibility that proof of such an agreement would strengthen the defendant’s case that the proprietor lacked legitimate reasons under section 12(2) of the Trade Marks Act 1994. The court did not decide whether the defence would ultimately succeed.

4. There was an arguable connection on the pleaded facts. The claim concerned the removal of codes which, according to the defence, formed an integral part of an agreed system for territorial exclusivity and market partitioning. Whether the connection proved at trial would be sufficient in law and fact was for the trial judge.

5. The allegation that the proceedings were brought as the object, means or consequence of the prohibited agreement was not a separate defence. It was a further aspect of the allegations concerning the distribution agreement. It was arguable that litigation could be pursued under an agreement where the parties contemplated and made financial provision for proceedings, even though the agreement imposed no obligation to litigate.

6. Longmore LJ emphasised that an arguable defence should not be struck out before trial, despite the resulting cost and delay. The future case management should confine disclosure and evidence so far as practicable.

1. Court of Appeal (Civil Division): In [2006] EWCA Civ 380, the court allowed the defendant’s appeal, discharged the order striking out paragraphs 16–18 of the defence, and remitted the application for resolution of the outstanding pleading issue and further case management.

2. High Court, Chancery Division: Warren J, in [2005] EWHC 2087 (Ch), struck out the paragraphs alleging that the respondents’ distribution agreements and trade mark enforcement infringed Article 81 of the EC Treaty.