England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		6 June 2003

Mr Justice Laddie:

1. This is the judgment on the trial of a preliminary issue ordered by consent by Patten J on 19 March 2003. The claimant, Inter Lotto (UK) Limited ("Inter Lotto"), is engaged in the business of running lotteries on behalf of a number of charities. The defendant is Camelot Group Plc ("Camelot"). It also runs lotteries. In particular it manages the National Lottery under an operating licence from the National Lottery Commission ("NLC").
2. By claim form dated 9 January of this year, Inter Lotto brought proceedings for trade mark infringement and passing off against Camelot. For present purposes it is only the passing off claim which is of interest. In substance Inter Lotto alleges that continuously since 4 August 2001 it has promoted and organised the running of lotteries throughout the country in relation to which it has used the trade mark "HOT PICK". It claims to have built up a reputation and goodwill in that mark. It alleges that from about 7 July 2002, Camelot launched a new lottery game under or by reference to the trade mark "HOTPICKS". It alleges that HOTPICKS is confusingly similar to HOT PICK and that the defendant's activities have resulted in confusion in the market place and constitute passing off.
3. Camelot raises a number of defences. For example it says that Inter Lotto did not use HOT PICK as a mark for a lottery and, if it did, it did not start promoting the mark until much later than it claims and that, for various reasons which are not relevant to the current application, Camelot's activities have not and will not cause any or any significant damage to Inter Lotto. However, central to the current application are the defences arising out of Camelot's use of a registered trade mark. By the terms of its operating licence, all intellectual property rights relating to the National Lottery are owned by NLC and licensed to the operator, Camelot. On 17 October 2001 Camelot caused NLC to apply to register the name HOTPICKS as a trade mark under application number 2 283 392 ("the '392 mark"). It was advertised for opposition on 7 August 2002. Inter Lotto opposed on 7 November 2002. That opposition in the Trade Marks Registry is currently stayed pending the outcome of the current application. A number of other trade mark applications were made and, in some cases, opposed. They can be ignored for present purposes.
4. Camelot was exclusively licensed by NLC to use the '392 registered mark on 24 April 2002. It pleads that its use of the registered trade mark gives it a number of defences. The only ones relevant to this application are pleaded as follows:

"11. In the premises:

(a) by reason of the provisions of section 9 of the Trade Marks Act 1994 ("the Act") and the NLC Licences, the Defendant has at all material times had the exclusive rights in [the '392 mark] ; …

(c) by reason of the provisions of sections 9, 10(1), 10(2) and 30 of the Act and the provisions of the NLC Licences, upon the premises of the particulars of claim (namely that the word HOTPICKS so resembles the words HOT PICK when used in relation to lotteries as to give rise to confusion), the Claimant's use of the words HOT PICK in relation to its lottery game is and always has been unlawful and may therefore not be relied upon by the Claimant in support of any action for passing off against the Defendant which is the lawful user of the trade marks the subject of [the '392 mark]. …

13. … By reason of the facts and matters set out in paragraph 11 above, no goodwill or reputation in the words "Hot Pick" can accrue to the Claimant and the Claimant may not rely upon any use it may have made of the words "Hot Pick" in relation to any case made against the Defendant.

5. The effect of these pleas may be summarised as follows. Because of the exclusive rights which will exist in NLC's trade mark, all use of Inter Lotto's mark after the date of registration is to be treated as unlawful. As a result, Inter Lotto can not rely upon any reputation or goodwill generated by such unlawful use (i.e. after 17 October, 2001) in support of its passing off case. This was the way in which Mr Silverleaf put his client's case:

"The claimant's use of its mark is unlawful and cannot found an action

If the defendant is entitled to the benefit of a valid trade mark registration, it has the exclusive right to use the mark. It follows that the claimant's use of the same mark is unlawful. On this basis alone the claim for passing off should fail: ex turpi cause non oritur actio. There has to be a nexus between the illegality and the claim for passing off: ICI v Berk [1981] FSR 1. However, it is difficult to think of a closer nexus than that the use relied upon in support of a passing off claim is an infringement of a trade mark registration. The effect of an unlawfully acquired reputation has been raised before and it has been held that such a reputation is incapable of supporting a claim for passing off." (defendant's skeleton paragraph 3.23)

6. The point is emphasised in a supplementary skeleton argument served by Mr Silverleaf shortly before the hearing. In response to a large number of authorities cited in the claimant's skeleton by Mr Hobbs QC, who appears for Inter Lotto, Mr Silverleaf expressed his client's position as follows:

"The defendant's case is based upon the proposition that a valid trade mark registration which is of such scope as to prevent the specific user relied upon by the claimant to support its claim for passing off entitles the defendant to restrain the claimant from infringing his registration and is therefore a bar to the passing off claim." (paragraph 2, emphasis as in the original)

7. Thus, because Inter Lotto's use of its mark after 17 October 2001 was unlawful, it was, per se, incapable of giving rise to any goodwill and reputation which a court would be prepared to protect. The date of registration of Camelot's mark therefore acts as a guillotine. Only rights accrued before then can be taken into account in support of Inter Lotto's case of passing off.
8. Inter Lotto's case is that it can rely on all the goodwill built up by its alleged use of the HOT PICK mark from 4 August 2001 until Camelot commenced using HOTPICKS in July 2002. It is not disputed that, absent the special defence which is central to this application, it is the date when the defendant started using its mark which is relevant for determining the passing off claim. On the other hand Mr Hobbs accepts that if Camelot's plea is good in law, so that it can only rely on the reputation and goodwill generated in the period prior to the date of application to register the '392 mark, that is to say prior to 17 October 2001, this could have a significant impact on his client's passing off claim since it would need to demonstrate the development of sufficient reputation and goodwill in a few months at the very early stages of its use of the HOT PICK mark. Mr Hobbs argues that defendant's plea is bad in law. Inter Lotto can rely on the later and more extensive use which it alleges.
9. It is against that background that the parties agreed to the making of the consent order requiring the determination of the following preliminary issue:

"Is the 17^th October 2001 (the date on which the National Lottery Commission applied under application number 2283392 to register the designation HOT PICKS as a trade mark) the relevant date at which the claimant's reputation and goodwill for its claim in passing off falls to be assessed?"

10. Before considering the arguments advanced by the parties, it is necessary to have a clear understanding of what is in issue. I have already referred to the relevant pleadings in the defence and passages in Mr Silverleaf's skeleton arguments. However the nature of Camelot's case changed significantly during the course of the hearing.
11. It is possible to formulate a defence to the passing off action in two ways. First, it could be said that Inter Lotto has no enforceable goodwill and reputation. If that is the case, the claim will fail. Inter Lotto will have no rights which it can assert. The sword is taken from its hand. Second, it could be said that, even if Inter Lotto does have enforceable goodwill and reputation, Camelot cannot be restrained because it has an overriding entitlement to do the acts of which complaint is made. In such a case Camelot would have a personal shield. As can be seen from the pleadings and extracts from the its skeletons above, the plea advanced on behalf of Camelot was of the first type. The numerous authorities relied on by Mr Hobbs addressed the second type of defence. Because they did so, Mr Silverleaf said they were irrelevant and did not deal with the point he was raising. However, during the course of his speech he changed position. He asserted that Camelot's ownership of the '392 registered mark provided it with an entitlement to use it. He said that his client had a "better" claim than Inter Lotto to the marks in suit. He said that the issue was one of priority of rights and "hierarchy". His client's right to use its registered trade mark overrode any common law rights Inter Lotto might have.
12. Although this second type of defence is not what is pleaded by Camelot, Mr Hobbs did not object to Mr Silverleaf raising it. He says that both defences are bad in law.
13. At the forefront of his argument Mr Hobbs relies on s. 2(2) of the Trade Marks Act, 1994 ("the Act"):

"No proceedings lie to prevent or recover damages for the infringement of an unregistered trade mark as such; but nothing in this Act affects the law relating to passing off."

14. At its simplest, Mr Hobbs argues that there are here on the assumed facts, two distinct rights; NLC's and Camelot's in NLC's mark and Inter Lotto's in its reputation and goodwill built up by use. Although they may, in some circumstances, overlap, they are not the same and one is not superior to the other. There is no hierarchy. Each has to be considered on its own merits. The existence of Camelot's registration does not interfere with his client's right to sue to protect the goodwill and reputation which it has built up by activity in the market place. Mr Silverleaf argues that Mr Hobbs has misconstrued the section.
15. This application concerns some important but quite basic issues of intellectual property law. Each side argues that its position is supported by or consistent with s 2(2) of the Act when construed in its historical context. For that reason, the history of trade mark and passing off causes of action is a convenient starting point.

The origins and development of passing off and trade mark rights.

16. An erudite discussion of the development of the law of passing off and trade marks is to be found in The Law of Passing Off by Wadlow (2^nd Ed 1995) at paragraph 1.05 et seq. For present purposes, the following summary is sufficient.
17. Two or more centuries ago, the cause of action in passing off was dependent upon proof of fraud. With time, this requirement disappeared, at least in one form of the action, and it became dependent upon proof, inter alia, of misrepresentation. An early example of this is Millington v Fox (1838) 40 E.R. 956. As Wadlow points out, by 1842 the term "passing off" was in use and the principles of the cause of action were defined by Lord Langdale MR in Perry v Truefitt (1842) 49 ER 749 in terms which are familiar to the modern practitioner:

"I think that the principle on which both the courts of law and of equity proceed, in granting relief and protection in cases of this sort, is very well understood. A man is not to sell his own goods under the pretence that they are the goods of another man; he cannot be permitted to practice such a deception, nor to use the means which contribute to that end. He cannot therefore be allowed to use names, marks, letters, or other indicia, by which he may induce purchasers to believe, that the goods which he is selling are the manufacture of another person. I own it does not seem to me that a man can acquire property in a name or mark; but whether he has or not a property in the name or mark, I have no doubt that another person has not the right to use that name or mark for the purposes of deception, and in order to attract to himself the course of trade, or that custom, which without the improper act, would have flowed to the person who first used, or was alone in the habit of using the particular name or mark."

18. Much the same thing was said by Parker J in a well known passage in Burberry's v Cording [1900] 26 RPC 693, :

"The principles of law applicable to a case of this sort are well known. On the one hand, apart from the law as to trade marks, no one can claim monopoly rights in the use of a word or name. On the other hand, no one is entitled by the use of any word or name, or indeed in any other way, to represent his goods as being the goods of another to that other's injury. If an injunction be granted restraining the use of a word or name, it is no doubt granted to protect property, but the property, to protect which it is granted, is not property in the word or name, but property in the trade or good-will which will be injured by its use."

19. The ambit of the cause of action may well have expanded but not in a way which has any impact on the issues I have to consider. The above passages are of significance because they are early examples of the courts highlighting one of the crucial differences between passing off and trade mark rights. Under the former, the claimant acquires no property in his name or mark. The cause of action is dependent on deception of the customer. Misappropriation of the name or mark by the defendant may be the means by which that deception has been facilitated, but that does not mean that the claimant owns the mark.
20. In a series of case in the middle of the 19^th Century, Lord Westbury held that there was a right of property in trade marks. Wadlow describes this as follows:

"While the common law still required fraud, equity did not confine itself to relaxing the standard of dishonesty required before it would intervene. In a series of cases Lord Westbury L.C. "surprised the profession" [per Fry LJ in Newman v Pinto (1887) 4 RPC 580] by holding that there was a right of property in trade marks which was transmissible and enforceable even against innocent infringement. Perhaps Lord Westbury would also have recognised property in trade names, and if so the whole of the law of passing-off as it was then understood could have been re-interpreted in terms of infringement of property rights as opposed to misrepresentation. That, however, was not to happen. The law of trade marks was put on a statutory basis, the law of passing-off continued in terms of misrepresentation, and the idea of passing-off protecting a property right was largely rejected or forgotten until the twentieth century. In retrospect, passing-off and trade mark infringement may be seen as separate torts which to some extent evolved out of the same historical authorities, just as copyright and breach of confidence cannot always be distinguished in early cases on piracy of unpublished literary works." (p 18)

21. The statutory basis of trade mark law referred to by Wadlow started with the Trade-Marks Registration Act 1875. As its name suggests, it was designed to put in place a registration system for trade marks. To encourage traders to use this, it provided at section 1:

"From and after the first day of July one thousand eight hundred and seventy-six a person shall not be entitled to institute any proceedings to prevent the infringement of any trade mark as defined by this Act until and unless such trade is registered in pursuance of this Act".

22. The provisions of the 1875 Act were amplified by The Trade Mark Registration Amendment Act 1876. As far as I am aware, at the time no one suggested that the provisions of these Acts had any impact on the cause of action in passing off which were not based on a claim to a property right in the name or mark.
23. Once these Acts were passed, infringement proceedings could only be brought in respect of new marks which were registered. However, in respect of trade marks which were in use before the 1875 Act but in respect of which registration had been refused, the common law action for infringement of the unregistered mark continued (see Orr Ewing v Registrar of Trade Marks (1879) 4 App Cas 479). In the meantime, passing off actions were unaffected. An argument to the contrary appears to have been dismissed in Mitchell v Henry (1880) 15 Ch D 181. In any event the provisions of section 1 of the 1875 Act were, in substance, repeated in section 42 of the Trade Marks Act 1905:

"No person shall be entitled to institute any proceeding to prevent or recover damages for the infringement of an unregistered trade mark unless such trade mark was in use before the thirteenth of August one thousand eight hundred and seventy five, and has been refused registration under this Act. The registrar may, on request, grant a certificate that such registration has been refused."

24. Furthermore, an entirely new provision was added in section, 45:

"Nothing in this Act contained shall be deemed to affect rights of action against any person for passing off goods as those of another person or the remedies in respect thereof."

25. One of the leading textbooks of the day, The Law of Trade Marks and Trade Names by Kerly (3^rd Ed 1908) expressed the view that the latter section merely stated expressly what was already the law. Other textbooks of the time said the same thing. Kerly illustrated the point by referring to the "Stone Ales" case, Montgomery v Thompson [1891] AC 217. Thompson had a registered Stone Ale as a trade mark. He sued a competitor, Mr Montgomery. The mark was removed from the register. Notwithstanding that, Thompson succeeded in an action to restrain the Mr Montgomery from using the mark in relation to his beer. The cause of action in passing off was independent of the trade mark rights. A very similar case was Faulder & Co. Ltd v Rushton (1903) 20 RPC 477. Kerly discussed the differences between a trade mark infringement action and a passing off action:

"… when an injunction is granted to restrain the use of a mark calculated to pass off the defendant's goods as those of the plaintiff, by reason of its resemblance to his unregistered mark, it should be so limited as to leave it open for the defendant to use any part, or the whole, of the plaintiff's unregistered mark, if he can do so, in any manner which is not calculated to lead to deception." (p 343)

26. That passage is as applicable today as it was in 1908. Because the action in passing off protects the reputation and goodwill of a trader, not his names, marks or get up per se, a rival trader can, in theory, use those names, marks or get up as long as he does so in a way which does not lead to deception. See, for example, Fisons v Godwin [1976] RPC 653. In this respect there is a difference between passing off and trade mark rights as explained by Lord Greene MR in Saville Perfumery Ltd v June Perfect Ltd (1941) 58 RPC 147, 162:

"I now turn to the claim based on passing-off. It does not necessarily follow that a trader who uses an infringing mark upon goods is also guilty of passing-off. The reason is that in the matter of infringement, as I have already pointed out, once a mark is used as indicating origin, no amount of added matter intended to show the true origin of the goods can affect the question. In the case of passing-off, on the other hand, the defendant may escape liability if he can show that the added matter is sufficient to distinguish his goods from those of the plaintiff. Such proof may be very difficult, but theoretically at any rate the result may be as I have stated."

27. Thus, the effect of section 45 of the 1905 Act was to confirm what was already the law, namely that the rights created by registration of a trade mark were different to those protected by passing off proceedings and, for that reason, the legislation relating to the former had no impact on the latter.
28. In the Trade Marks Act, 1938, section 42 and 45 were brought together and re-enacted as section 2:

"No person shall be entitled to institute any proceedings to prevent, or to recover damages for, the infringement of an unregistered trade mark, but nothing in this Act shall be deemed to affect rights of action against any person for passing-off or the remedies thereof."

29. It is not suggested that this changed the law. The provision in the 1994 Act is, in substance, identical. Once again, neither Mr Silverleaf nor Mr Hobbs suggested that it changed the law.
30. Consistent with this history, section 2(2) of the Act is an unpromising start for the defendant. Its argument is that the existence of the '392 trade mark registration gives rise to a per se overriding of Inter Lotto's ability to protect its reputation and goodwill by means of passing off proceedings. If correct, the rights created under trade mark legislation would "affect the law relating to passing off" or, at the least, affect its practical application. However there is nothing to suggest that the legislature had in mind the problem in this case, namely a clash of competing rights. What the section and its predecessors were primarily concerned with was whether the owner of a registered trade mark was capable of owning and enforcing, at the same time, rights to sue in passing off. The section, consistent with cases like Stone Ales, confirms that a trader who has built up a reputation and goodwill in his business is entitled to protect it by passing off proceedings, whether or not he has also acquired trade mark registrations in respect of any names or marks used in relation to that business. As far as I can tell, no one appears to have argued that the exclusive right given by registration overrode passing off rights. There is no reason to believe that that type of argument was in the mind of the legislature when s. 45 of the 1938 Act and its equivalent in later Acts were being drafted. For this reason I think it is necessary to look more closely at the two defences raised by Camelot.

Does Camelot have a right to use the '392 mark which overrides Inter Lotto's rights?

31. Camelot's argument is based upon the provisions of section 9(1) of the Act:

"The proprietor of a registered trade mark has exclusive rights in the trade mark which are infringed by use of the trade mark in the United Kingdom without his consent.

The acts amounting to infringement, if done without the consent of the proprietor, are specified in section 10"

32. Mr Silverleaf says that, in the light of this provision, the owner of (or licensee under) a registered trade mark has a statutory right to use it. This cannot be taken away. Passing off rights are "inferior" and cannot be used to impugn or restrict that entitlement. He says the matter is purely hierarchical. The person with the better title succeeds. He also prays in aid sections 22 and 27 of the Act which provide that a registered trade mark is personal property and also treat applications for trade marks in the same way. He says that if a trade mark is a property which entitles the owner to exclude others from infringing it, it must carry with it the right to stop others from preventing the owner from using it himself.
33. To understand the impact of this argument, it is useful to bear in mind some of the other differences between the right to protect reputation and goodwill by passing off proceedings and the rights acquired under a trade mark registration. The essential characteristic of the former is that it is built up by use. If the use stops, the reputation and goodwill will wither and die. Once it is dead, passing off proceedings will not avail the claimant. If there has only been a small amount of use, the reputation and goodwill may be insufficient to justify protection and, even if it is, if the use ceases such reputation and goodwill as was generated is likely to dissipate quickly. On the other hand it is possible and common to obtain registrations for marks which have never been used. Although the Act requires the applicant for a registered trade mark to state that the mark is being used or that he has a bona fide intention to use it the only encouragement to keep to the latter intention is to be found in section 46. This provides that a mark may be taken off the register if it is not used for a continuous period of five years. It is not necessary for present purposes to determine whether removal after such a period of non use is mandatory or, as was the case under the 1938 Act, discretionary. Another, but related, difference is that the proprietor chooses in respect of what goods or services he wants to register his mark. Even if the mark is used by the proprietor in relation to some goods or services, it is possible and common to register marks in respect of a much wider group of goods and services on which it will never be used.
34. The practical application of Mr Silverleaf's argument can be explained by reference to a notional example. A trader starts to use a trade mark "X". He uses it extensively in relation to particular goods and builds up a valuable reputation and goodwill. At the same time another trader applies to register "X" as a trade mark which he does not use in respect of the same class of goods. At the outset, each trader is ignorant of the existence of the other. After four and a half years, the second trader decides to start using his registered mark. He learns of the first trader and sues for infringement. The second trader sues for passing off. Mr Silverleaf argues that not only does the second trader succeed on the infringement proceedings, but the first trader cannot succeed in passing off. The result is that the second trader is entitled to take all the goodwill and reputation which the first trader had built up. Indeed, if Mr Silverleaf's argument is correct, it is difficult to see why he limited himself to saying that the guillotine on Inter Lotto's reputation comes down on 17 October, 2001. Even if Inter Lotto had built up an enormous reputation and goodwill before that date, according to this argument, Camelot is "entitled" to use its registered trade mark.
35. In my view Mr Silverleaf's argument is untenable. It involves a misreading of section 9(1) of the Act and a basic flaw in the appreciation of what registration achieves. The section does not stipulate that the proprietor of the registered mark has an "exclusive right to use" the mark. It stipulates that he has the "exclusive rights in the trade mark which are infringed by use of the trade mark in the United Kingdom without his consent". In other words, registered trade marks, like all other statutory intellectual property rights do not give a right to the proprietor to use, but give him the right to exclude others from using. The types of activities which can be prohibited by the existence of a registered trade mark are those which are set out in section 10 of the Act. None of this gives rise to an entitlement to the proprietor to use.
36. The point is explained particularly clearly in Professor Cornish's admirable book Intellectual Property (3^rd Ed 1996):

"One characteristic shared by all types of intellectual property to date is that the rights granted are essentially negative: they are rights to stop others doing certain things – rights in other words to stop pirates, counterfeiters, imitators and even in some cases third parties who have independently reached the same ideas, from exploiting them without the licence of the rightowner. Some aspects of intellectual property confer positive entitlements, such as the right to be granted a patent or register a trade mark upon fulfilling the requisite conditions; but these are essentially ancillary.

The fact that intellectual property gives a right to control the activities of others has a number of implications, often inadequately understood. The rightowner does not need the right in order to exploit a market for its goods or services; a patent is not a pre-condition to exploiting one's own invention. By way of corollary, the right gives no liberty to ignore the rights of other individuals (including their intellectual property) or to override public liabilities …" (paragraph 1-04)

37. This is true across the whole field of intellectual property. The exclusive rights given in a copyright work do not mean that the owner of that copyright is entitled to use his work even though it infringes some prior author's rights. Similarly in the field of patents, it has never been the law that the owner of an improvement patent has an entitlement to use his invention even in breach of the prior patent in respect of which his invention is an improvement. Indeed, patent legislation contains express provisions to allow the owner of an improvement patent, in very limited circumstances, to obtain a compulsory licence, for which he will have to pay, under the master patent. Furthermore, how far does this entitlement go? Does it allow the owner of a statutory intellectual property right to over-ride public health laws, the law of libel and so on?
38. Mr Silverleaf did not shy away from this problem. I put to him in the course of argument a hypothetical case where the registered trade mark consists of a fancy label or the shape of a container. In the first it involves the wholesale unlicensed copying of someone else's copyright drawings and in the latter it is a breach of someone else's registered design or unregistered design right. I asked if the proprietor of the registered mark is entitled to override these conflicting rights. His answer was "yes".
39. In my view Mr Silverleaf's proposition is bad in law. His client has acquired no entitlement to use the '392 mark by registration. It has only acquired the right to prevent others infringing. A number of the cases cited by Mr Hobbs support that view. I need only refer to one of them, Re Lyle & Kinahan Ltd's Application (1907) 24 RPC 249 (CA);

"The registration of a trade mark does not confer any right at all of the description there pointed to, but it does confer a right, and the only right is the right to prevent anybody else from using that trade mark for their goods, but it does not give the registered owner of the trade mark any right to use that trade mark if the trade mark would deceive. I conceive that if at the date when application is made to register a trade mark there is no good ground of objection upon the footing that it will be calculated to deceive, and if subsequently by alterations in the character of the business of the two parties respectively the use of the trade mark will be calculated to deceive and a passing-off action were brought by one party against the other, it would be no defence at all on the part of the owner of the registered trade mark to say - 'Deception or no deception I am entitled to it because that is my registered trade mark'. That could not be advanced for one moment. In other words, the registration of a trade mark does not confer any right to do that which could not have been done irrespective of the trade mark, in the sense of doing any acts which would be competition in business. The only right which it confers is a right to restrain others from using that trade mark." (per Buckley LJ at p 262)

40. Had the legislature intended to bestow on the owner of a registered trade mark (or any other intellectual property right) an entitlement to override the rights of others it could and should have done so expressly. An example of this is to be found in the Trade Marks Act 1938 which, at section 4(4), provided that use of a registered trade mark could not amount to an infringement of another registered trade mark. A similar provision is to be found in the 1994 Act at section 11(1). However even that limited and express statutory right may be open to challenge since it is said by the Claimant to be inconsistent with the provisions of the Trade Mark Directive. Furthermore Mr Silverleaf's argument is difficult to reconcile with section 48(1) which provides:

"Where the proprietor of an earlier trade mark or other earlier right has acquiesced for a continuous period of five years in the use of a registered trade mark in the United Kingdom, being aware of that use, there shall cease to be any entitlement on the basis of that earlier trade mark or other right – …

(b) to oppose the use of the later trade mark in relation to the goods or services in relation to which it has been so used …"

41. This proceeds on the basis that the owner of the earlier right (for example Inter Lotto as owner of its rights to protect its goodwill) is entitled to sue the proprietor of the later trade mark if the use of the latter has not been continuous or has not been for 5 years or if the owner of the earlier mark was ignorant of the later use of the registered trade mark. In other words the owner of the registered trade mark does not have an entitlement to use his mark in the face of earlier competing rights owned by someone else.

Is Inter Lotto precluded from relying on reputation and goodwill built up on the back of use of the trade mark which, in the circumstances presumed for this application, constituted infringement of the '392 mark?

42. Mr Silverleaf's argument is encapsulated in the extract from his skeleton set out in paragraphs 5 and 6 above. Taken at face value, this would produce strange and far-reaching results. First, if a trader cannot rely upon goodwill or reputation built up on trade which is "unlawful" in the sense used by Mr Silverleaf, it would follow that it should be incapable of being relied on against any competitor. Thus it would be a defence to a passing off action to show that the claimant's use infringed a third party's trade marks. Since there has been an explosion of registration of marks, both national and Community, covering ever wider classes of goods and services, in many cases it would be open to the defendant to run this point. Furthermore, if infringement of a trade mark makes the use "unlawful" and, for that reason, undeserving of protection in a court of law, why should the unlawfulness be limited to infringement of trade mark? If the use relied on by the claimant could be said to infringe someone else's copyright, design rights or be libellous why should he be any more entitled to rely on his goodwill and reputation than if his unlawfulness consisted of infringement of a registered trade mark?
43. In the course of argument Mr Silverleaf addressed some of these points. First he said that this defence would only be open to the proprietor of the infringed right. Second he said that the weakness in the claimant's ability to rely on its reputation and goodwill only arises once the owner of the infringed right has lodged a claim of infringement. As far as I could tell, both of these were arguments of expediency. There was no discernible principle which would justify cutting down the ex turpi rule in this way. As Mr Hobbs said, if Mr Silverleaf were right, the claimant's goodwill and reputation would be simultaneously lawful and protectable against third parties but unlawful and not protectable against the owner of the registered trade mark.
44. There is nothing in this defence either. The underlying principle of ex turpi causa is that the behaviour of the party has been so heinous that the court will not assist it. In the case of trade marks and passing off, occasionally the courts have held that the claimant's rights have been built up or supported fraudulently. In those cases the court will not support the claim. Examples include Bile Bean Manufacturing Company v Davidson (1906) 23 RPC 725 and Leather Cloth Co. Ltd v American Leather Cloth Co. Ltd (1865) 11 E.R 1435 (H.L.) in which Lord Kingsdown said:

"Nobody doubts that a trader may be guilty of such misrepresentations with regard to his goods, as to amount to a fraud upon the public, and to disentitle him on that ground, as against a rival trader, to the relief in a court of equity which he might otherwise claim. What would constitute a misrepresentation of this description, may in particular cases be a reasonable subject of doubt, and it was in the present case the ground of the difference between the two judgments under consideration.

The general rule seems to be that the mis-statement of any material fact calculated to deceive the public, will be sufficient for this purpose."

45. Relevant considerations include the following. First, whether or not a party's behaviour has been so bad as to merit exclusion from protection by the court is an issue of fact. Second, the wrongdoing has to be substantial and go to the heart of the right sued on. In my view it is unarguable that trade mark infringement without more amounts to wrongdoing of such a level of depravity as to engage the doctrine. Calling Inter Lotto's actions "unlawful" as Mr Silverleaf did on many occasions, does not alter its character. There may be cases where the nature of the infringement is so flagrant and clearly and knowingly wrongful that a court might refuse to allow the claimant to rely on his goodwill and reputation. For example, a trader who sells through street markets counterfeit versions of sound recordings and DVD's bearing a famous trade mark might not be allowed to rely on his sales to maintain a passing off action against another counterfeiter who has come onto the market after him. But there is nothing like that here. The only wrongdoing alleged is the fact of infringement of the '392 mark (assuming, of course, that it is infringed). As I have said, the argument is that there is a per se disentitlement from relying on Inter Lotto's goodwill and reputation as and from the date on which Camelot applied to register the '392 mark. It should be borne in mind that there is no suggestion of dishonesty or flagrancy here, not least because it appears that Inter Lotto was using its mark months before Camelot applied to register its mark and a year before Camelot started to use it.
46. Mr Silverleaf says that it is absurd that Inter Lotto should be allowed to sue his client for passing off. He say that Inter Lotto is trying to say that Camelot cannot use its registered mark. First, this is a mischaracterisation of Inter Lotto's case. It is only saying that Camelot cannot use its mark in a way which will lead to deception and confusion. If Camelot can avoid those problems, it can continue to use the '392 mark. Second, whatever the impact of the '392 registration on Inter Lotto, I can see nothing absurd or even surprising in Inter Lotto being able to prevent its reputation and goodwill (assuming for this purpose that the allegations made in its pleadings are borne out at the trial) being appropriated by Camelot.
47. It follows that the preliminary issue is answered in the negative. The relevant date for assessing Inter Lotto's reputation and goodwill for its claim in passing off is the date upon which Camelot started using that mark in relation to its lottery product.
48. I should mention that both Mr Hobbs and Mr Silverleaf made reference to the provisions of the Trade Mark Directive in the course of their submissions. Each said that his arguments were consistent with, or not inconsistent with, that legislation. For the reasons set out above, the answer to the preliminary question is clear as a matter of domestic law. In those circumstances it is not necessary to consider the Community legislation.