Bad faith again – Scottish Court of Session decision tentative good news for brand owners

In-depth analysis

The burden of proof to establish bad faith remains a high bar to meet and the burden will not always be reversed.

What has happened?

In the second ever appeal from the UK IP Office (UKIPO) to the Intellectual Property Court of the Court of Session in Scotland (the first being Vaporized v Vapouriz Ltd in 2017), the Scottish Court recently considered the issue of bad faith including the burden of proof in bad faith cases – a current "hot topic" in trade mark law.

The appeal was brought by D&M Winchester, the owner and landlord of the former Coleburn distillery, after its lessee, Coleburn Distillery Limited (CDL), opposed D&M's trade mark application for the word "Coleburn". The opposition was (in part) based on an allegation that the application had been filed by D&M in bad faith.

It is normally for the person alleging bad faith to prove it. However, where there is prima facie evidence of bad faith, the burden of proof will shift to the trade mark applicant to show that the application was filed in good faith. That can often be difficult to prove especially for applications filed years ago where evidence as to why an application was filed will often not be available. A reversal of the burden of proof can therefore often be determinative.

At first instance, the UKIPO held that there was prima facie evidence of bad faith (and reversed the burden of proof). It did so on the basis that there was no evidence that D&M had an intention to use the Coleburn name for whisky when it leased the site to CDL (for the latter to produce a Coleburn whisky) and (if it did have such an intention) it had not communicated that fact to CDL.

It went on to find bad faith because D&M had not adhered to accepted standards of commercial behaviour in deciding to produce its own Coleburn-branded whisky after allowing CDL to take out a 25-year lease of the site and spend £350,000 refurbishing it.

On appeal, the Scottish Court has now held that the burden of proof should not have been reversed and that the application in question was not filed in bad faith. The Court held that there is nothing dishonest with establishing a business in competition with another. That - of itself - does not amount to bad faith.

Critical to the outcome appears to be that the parties had never agreed who had rights to the Coleburn name. The court clearly felt that bad faith could not fill the gap that should have been filled by an express agreement between the parties.

This ruling is tentative welcome news for brand owners. It suggests that the burden of proof should not be reversed absent significant prima facie evidence of bad faith of the type found in the recent Lidl v Tesco case. It also suggests that the courts will not find bad faith where the issue is really a commercial (or contractual) one between the parties. If the applicant has a genuine intention to use the mark and is not trying to (unlawfully) prevent another from using it, then (however unfair it might seem) there is no bad faith.

Whether the Supreme Court agrees that the burden of proof should not be reversed lightly when it considers bad faith in the context of Sky v SkyKick appeal remains to be seen.

Want to know more?

Background

D&M – the trade mark applicant - is the owner and landlord of the former Coleburn Distillery. It does not produce any whisky on the site but sells and stores whisky, hosts events there and provides management services. D&M had plans to develop the site to create a hotel and restaurant and to recommence whisky production, with the hope of using the name "Coleburn" as part of the development, given its history.

One of the warehouses on the site is leased by D&M to Aceo Ltd who runs a cask management service and hosts tours at the site. CDL and Aceo share the same controlling entity, and CDL owns the trade mark "COLEBURN" in classes 33, 39 and 40. It also owns a comparable UK trade mark (created from its EUTM registration at the end of the Brexit transition period). Aceo had spent considerable time and money redeveloping the distillery for whisky production.

D&M applied to the UKIPO in February 2021 to register the word "COLEBURN" in classes 32, 33, 39, 40, 41, 43 and 44. CDL opposed D&M's application on various grounds including its prior registration and that the application was filed in bad faith. We consider the bad faith ground only here.

UKIPO's decision

The UKIPO hearing officer held that CDL's evidence was enough to rebut the presumption of good faith so that the onus should move to D&M to prove its intentions when applying to register the mark.

While not completely clear from the decision, the evidence of bad faith relied on by the hearing officer to reverse the burden of proof seemed to be:

That there was no evidence that the trade mark applicant, D&M, intended to start to use the Coleburn name for whisky when it leased part of the Coleburn site to CDL.

That D&M did not communicate such an intention to CDL at the time CDL entered into the lease.

In finding bad faith, the hearing officer added that D&M had provided no evidence of the commercial rationale or logic for the filing and that filing the application fell below the acceptable standards of commercial behaviour given that CDL had entered into a 25-year lease of the site and spent considerable effort and money (£350,000) refurbishing the site and launching its Coleburn whisky brand.

D&M appealed the decision to the Court of Session in Edinburgh.

Court of Session appeal

The appeal was brought on various grounds including that the hearing officer had been wrong to find bad faith.

Much of the appeal hearing focussed on what the standard of review should be for an appeal of this type. The method agreed was a re-hearing, which should not be interpreted as a full re-hearing. Certain key cases were cited when considering the agreed legal principles on which to consider the appeal, one being the principle laid out in Vaporized, that the Court of Session should not interfere with decisions of a hearing officer unless there was an error of principle or the decision lies outside the bounds within which reasonable disagreement is possible.

The Court agreed with the approach of the hearing officer on all points except bad faith, in respect of which it was critical of the reasoning and ultimately held the decision was incorrect. The Court held that the hearing officer had mixed up the issues of:

whether D&M had departed from accepted business practices by deciding to promote its own distillery and registering the mark

whether the trade mark application itself was made in bad faith.

The Court held that there is nothing dishonest with establishing a business in competition with another. In effect, the hearing officer had mixed up commercial (or contractual issues) with bad faith. It ultimately concluded that the hearing officer's decision relating to bad faith was outside the bounds of reasonable agreement. The hearing officer had been wrong to reverse the burden of proof and to find bad faith.

Comparison with Lidl v Tesco

In the recent Lidl v Tesco case (article here), the burden of proof was also reversed. This was on the basis of evidence:

Of repeat filings for the same mark covering largely similar goods/services by Lidl.

That – given the nature of the mark – Lidl could not have had an intention to use the mark at the time of the filings.

That Lidl had not used the marks in fact.

The above evidence seems stronger than that in the D&M case and more relevant to whether there was bad faith at the time of filing the applications.

What does this mean for you?

The decision shows the (general) reluctance of the Scottish Court to reverse UKIPO decisions, despite the ruling on bad faith being overturned. The same is true of the courts in England and Wales.

The bad faith decision will be tentative welcome news for brand owners, suggesting that the burden of proof in bad faith will not be reversed absent concrete and strong evidence of lack of good faith. It also illustrates that bad faith itself will not necessarily be found where the issue is more about the commercial bargain and relationship between the parties than the trade mark application itself.