Wednesday 9 July 2014

Who's the source of those infringements? The tale of Wilko v Buyology

The following post was originally composed by Rebecca Gulbul for the IPKat weblog, Rebecca being one of the new crop of guest Kats. However, just before she could post it, another Kat -- David Brophy, to be precise -- beat her to the draw by posting this.  It would be such a pity if all Rebecca's hard work went to waste, so I've posted it here.  Rebecca thinks the decision is a good one; David coyly doesn't say, and I'm left puzzled and uncomfortable with the reasoning.  Writes Rebecca:
Earlier this week Judge Hacon (Intellectual Property Enterprise Court, England and Wales) gave judgment in Wilko Retail Limited v Buyology Limited [2014] EWHC 2221 (IPEC), an action where a request for a Norwich Pharmacal order [note to non-Brits: this is an order that a party disclose details of a person who is not a party to the proceedings] was sought. Using the test of ”balance of irreparable harm”, Judge Hacon refused the request.

The claimant, Wilko, was a retail business offering consumer products in about 370 stores in the United Kingdom and registered proprietor of the WILKO trade mark. The defendant, Buyology, ran 8 stores in the South West of England and in Wales, offering end-of-line products and discontinued stock at a discounted price. As part of its business, Buyology offered WILKO branded products for sale in its stores. Wilko alleged trade mark infringement and passing off. Buyology did not deny selling these products, but said that their suppliers assured them that they could do so.

Since Buyology did not contest infringement, the sole purpose of the hearing was to determine whether a Norwich Pharmacal order should be made by the court, thus compelling Buyology to disclose the names of the suppliers who had provided them with the WILKO branded products.

Wilko sent its first letter of complaint to Buyology on 20 October 2012, asking it to remove WILKO branded products from sale and to disclose name and address of supplier. Being particularly concerned about discovering who Buyology’s suppliers were, Wilko then made two further requests for disclosure – but to no avail.

When Wilko commenced trade mark infringement proceedings in August 2013, it particularised the alleged infringements but made no request for the disclosure of the identity of Buyology’s suppliers. Buyology admitted having sold goods bearing the trade mark in question and undertook to stop doing so unless they received Wilko’s consent to sell the branded products. However, Buyology did sell some further items bearing the WILKO trade mark, which they said were very few in number and accidental. Wilko did not contest this, but said that Buyology’s conduct was ‘excessively casual’.

In November 2013, Wilko sent a further letter to Buyology, complaining about the sales of WILKO branded products in three stores and proposing that the matter be resolved by agreeing to an order, which would then be included in their application to Court. Wilko then provided a draft court order that ontained the relief it sought in its particulars of claim, but which again did not include any requirement to disclose the names of suppliers.

Buyology agreed to the terms of the draft order and to an account of profits, suggesting that they reach an agreement on the amount rather than going through an inquiry. They also told Wilko that, after they filed their defence, they had been offered WILKO products to sell in their stores, without any requirement to debrand the products.

Was there a binding agreement?
Judge Hacon first had to decide whether there was a binding agreement between the parties. Buyology’s counsel argued that the November 2013 correspondence amounted to an offer by Wilko which had been accepted, the draft order laying out the terms of their agreement. No, said Wilko: there had been an offer, and then a counter offer (comprising the additional information that Wilko would collect the goods themselves and that they could agree on quantum for the accounts of profit), which proposed to amend the initial order but which had not been accepted. 
Judge Hacon disagreed with Wilko:  both letters of November 2013 stated unequivocally that the proceedings should be settled as per the draft order. He  saw no counter offer: clarifying that the alternative method of collecting the goods did not change the substance of the agreement, while the agreement as to the amount to be paid was a matter of convenience. He therefore found that there was a binding agreement, which had been fulfilled by the parties coming to court and agreeing to the terms of the draft order. 
Did the agreement stop Wilko seeking Norwich Pharmacal disclosure?
Having found that there had been a binding agreement, Judge Hacon considered whether the agreement precluded WRL from asking for a Norwich Pharmacal disclosure in order to find the identity of Buyology’s suppliers. Wilko’s counsel submitted that a Norwich Pharmacal order was independent of the finding of an agreement and could be made at any point of the proceedings, and was thus unaffected by the finding of an agreement to settle. 
No, said Buyology’s counsel: by agreeing to the draft order, it was understood that it would put an end to Wilko’s claims. Disclosure of the suppliers’ names was beyond the scope of what the parties agreed and the application amounted to an abuse of process. What’s more, it would be contrary to the rule of finality in litigation in Henderson v Henderson (1843) 3 Hare 100, reiterated by Lord Bingham in Johnson v Gore Wood & Co [2002] 2 AC 1.
Despite understanding Buyology’s perspective, Judge Hacon said that it was unlikely that Wilko would be barred from seeking a Norwich Pharmacal order: the Particulars of Claim did not include anything regarding disclosure and Buyology’s letter agreeing to Wilko’s offer did say that they would not disclose the names of their suppliers. Nevertheless, since the request for disclosure had been made as part of the proceedings and not as a separate application after the current proceedings, he found that Henderson v Henderson did not apply, and that Wilko was entitled to seek a Norwich Pharmacal order. 
Should there be an order for disclosure?
Having found that Wilko was not barred from seeking the order, should that order be made? Wilko argued that the court had the jurisdiction to do so on two bases: first under Jade Engineering (Coventry) Limited v Antiference Window Systems Limited [1996] FSR 461 and under Article 8 of Directive 2004/48 on the enforcement of intellectual property rights. However, Article 8 was only implemented in Scotland: the reason for this was explained in the Explanatory Notes of The Intellectual Property (Enforcement, etc.) Regulations 2006:
“By reason of the House of Lords decision in Norwich Pharmacal v Customs and Excise Commissioners [1974] AC 133 no provision is necessary to implement this obligation in England and Wales or Northern Ireland.”
While not seeking to rely directly on Article 8, CounseWilko said that its provisions could provide guidance as to how the law in Norwich Pharmacal disclosure should be interpreted. Buyology’s counsel cited Lord Kerr JSC in Rugby Football Union v Consolidated Information Services Ltd (formerly Viagogo Ltd) [2012] UKSC 55, where he said that the purpose of Norwich Pharmacal orders is to do justice. This involved the exercise of discretion by a careful and fair weighing of all relevant factors, which he then cited. 
In this case, Buyology relied on factor (iv) in particular, which is “whether the information could be obtained from another source”. However, in Judge Hacon’s opinion, what mattered in deciding whether the order should be granted was “the balance of irreparable harm, analogous to the balance applied in the context of an application for an interim injunction” as in Eli Lilly & Co Ltd v Neolab Ltd [2008] EWHC 415 (Ch) which applied the judgment of the Court of Appeal in Sega Enterprises Ltd v Alca Electronics [1982] FSR 516.

Wilko’s case was that, if they could not identify the suppliers, they would be unable to protect their trade marks adequately and to prevent a secondary market in their branded goods. Judge Hacon said that, since Buyology was now subject to an injunction if it sold WILKO-branded goods, it could be assumed that there would be no further infringing goods reaching the market through them. There had been no assessment as to whether, or the extent to which, there may be other chains of supply and, if there were, whether these would cause irreparable harm to Wilko to a negligible or serious amount.

Buyology explained that the retail industry was a small close-knit community and that, if they were ordered to disclose the names of their suppliers, it would result in a lack of trust towards them, undermining their reputation and resulting in suppliers being worried about future disclosure actions. Judge Hacon concluded that Buyology’s business would suffer irreparable harm.

Judge Hacon pointed out that Buyology readily accepted its wrongdoing in its defence and that it also accepted all the other relief sought by Wilko, who would be adequately compensated for the damage caused by the sale of these goods by Buyology —and that the damage would not recur. He therefore concluded that, on the balance of irreparable harm, no Norwich Pharmacal order should be granted.

This blogger agrees with the decision. Considering the size of Buyology’s business and the way the retail industry works, the decision seems fair as ordering the disclosure of their suppliers’ names may have indeed caused Buyology to suffer irreparable harm.

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