UK Supreme Court Rules Sky Acted In Bad Faith In SkyKick Trademark Dispute

UK Supreme Court Rules Sky Acted In Bad Faith In SkyKick Trademark Dispute

The findings stated that the Cloud Migration marks were not infringed

The UK Supreme Court has partly allowed the appeal of software company SkyKick in a controversial case centred on whether the media giant Sky’s filing of overly broad trademarks amounted to bad faith applications.

This long-running trademark case dates back eight years when Sky brought actions against cloud storage software company SkyKick for infringement of its EU and UK trademark registrations for ‘Sky’ across a range of goods and services while SkyKick challenged those trademarks’ validity.

The bench comprising Lords Reed, Lloyd-Jones, Kitchin, Hamblen and Burrows ruled that the High Court was entitled to find that the Sky marks were applied in bad faith and the Court of Appeal erroneously reversed the finding.

Lord Kitchin simplified that bad faith applications included seeking protection, regardless of whether it was “commercially justified” and with the intention to obtain an exclusive right not to use the mark for the goods and services in which it was then registered “but as a legal weapon against third parties.”

He added, “Therefore, the Court of Appeal was wrong to reverse the decision by the High Court.”

Meanwhile, Richard May, IP partner at Osborne Clarke said that the top court’s decision would have “wide ramifications for brand owners, as it opens the door for broad registrations to be attacked on grounds of bad faith. It represents a controversial row back from the Court of Appeals’ more pragmatic and brand-friendly approach.”

The Supreme Court noted that the High Court had sufficient material to find that SkyKick established its case that Sky had applied for and was prepared to take enforcement action for alleged infringement of the registrations of goods and services of a range and breadth that “it was implausible that Sky would ever provide them.”

It observed that the consequences of a bad faith finding depended on the circumstances and an entire term may be struck out or narrowed to exclude ‘overbroad’ protection.

The bench agreed with the Court of Appeal that SkyKick’s Cloud Backup services infringed Sky’s trademarks, but the Court of Appeal was right to reverse the lower court’s ruling.

The apex court also considered the jurisdiction, as the proceedings began before the UK left the European Union (EU).

It ruled that the EU Trade Mark Regulation, “continues to have direct effect on proceedings pending before a UK court, designated as an EU trademark court, prior to the end of the transition period on 31 December 2020.”

Later, the court discovered that the parties had settled their dispute, withdrawing their appeal. They requested the court to not give judgment.

Lord Kitchin stated, “On the other hand, the controller general, as intervener, asked the court to give the judgment in the usual way.” He added that taking both sides into account the court had “decided it was appropriate to proceed.”

In the High Court, Lord Justice Arnold declared Sky acted in bad faith by including the term ‘computer software’ in its trademark specification as, at the date of filing, Sky had no intention of using the mark in all computer software.

Thus, the order declared the trademarks partially invalid. However, it also found that SkyKick’s email migration and cloud storage services had infringed some of Sky’s valid trademarks.

In July 2021, the Court of Appeal allowed Sky’s appeal, ruling that bad faith required more than merely applying for a trademark to cover a broad range of goods and services without intending to use it. Thus, the status quo was maintained.

The Court of Justice of the EU (CJEU) interpreted the EU laws. (It was one of the last referrals to the court from the UK before the country left the EU).

Explaining the scenario, Kerry Russell, an IP partner at Shakespeare Marineau said the decision sent “shockwaves throughout the trademark laws.”

She added that businesses should remember that to invalidate a trademark “there is a robust and often costly procedure to follow either at the IPO or the UK courts. Any business wishing to attack a trademark based on the specification is unduly broad, and therefore, applied for in ‘bad faith’ must evidence the intention.”

Russell elaborated, “This can be done either by proving that the application intends to undermine the rights of a third party or was filed to obtain a right beyond the trademark’s essential function. The Supreme Court has said that this argument is only applicable if there are ‘objective, relevant and consistent’ indications that the mark was applied for in bad faith.”

Similarly, Peter Vaughan, chartered trademark attorney and associate professor at Nottingham Law School, opined, “This brings to a dramatic halt the common practice of a broad-brush approach to trademark coverage. It allowed a trademark as a ‘legal weapon against third parties’. This seemingly is now over.”

He added that although the focus would be on the impact of the larger brand owners having broader terms in their trademarks, and for the more aggressive enforcement strategies, there may be “unintended consequences.”

Meanwhile, several small businesses, especially those that filed their trademarks were able, if not encouraged, to select all the terms listed in a particular class. This resulted in extremely bloated and broad specifications.

Vaughan stated, “These businesses will have concerns regarding the impact of the decision on their trademark registrations and the protection contained within.”

He noted that while the decision did not mention the registrations should be completely cancelled, it introduced some uncertainty. He called for urgent guidance from the UK Intellectual Property Office “to reassure smaller businesses of the impact” and hoped it would come swiftly.

Commenting on the situation, Varuni Paranavitane, of counsel at Finnegan, said, “Applicants may consider a more conservative filing strategy until there’s certainty and application of this decision by the lower courts. I envisage there will be more invalidity claims for ‘bad faith’ filings and will be used by parties who have been sued for trademark infringement.”

Richard May agreed, “We can now expect bad faith claims to become a common feature of trademark disputes in the UK. There are already significant delays at the UK Intellectual Property Office due to the volume of cases, so this decision has the potential to compound the problem.”

Mark Buckley, a commercial litigation partner at UK law firm Fladgate said there was some good news for trademark applicants.

He added that the judgment stated that the absence of an intention to use the mark in accordance with its essential functions concerned some of the goods or services referred in the application “the trademark can be cut down rather than cancelled altogether.”

Giving further insight, Farah Mukaddam, counsel at Norton Rose Fulbright considered the decision benefited businesses and organizations looking to launch a brand by giving them confidence regarding unused marks.

On the infringement aspect, she added, “The Supreme Court states that a specification that includes ambiguous terms should be interpreted to cover only those goods and services. This will also be welcome news for new brands entering the market.”

Tristan Sherliker, of counsel at Bird & Bird, also viewed the decision positively, pointing out that his firm acted for Lidl in the recent case of Lidl v Tesco, the first case in which reputation rights alone were relied upon.

He added “The success of that case shows that it is not necessary to register more broadly. The SkyKick decision shows that it is not desirable either.”

Sherliker continued that bad faith was to be measured in the objective circumstances and was a matter of degree. “If you file for a very broad description, it means setting yourself a higher hurdle to prove good faith. That risk should be weighed against the ever-present temptation to file for broader protection.”