NEUMANN V SONS OF THE DESERT, S.L. HC AK CIV 2007-485-212

NEUMANN V SONS OF THE DESERT, S.L. HC AK CIV 2007-485-212 5 November 2007IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-485-212UNDER the Trade Marks Act 2002 IN THE MATTER OF an appeal from the decision of the Assistant Commissioner of Trade Marks dated 15 January 2007 BETWEEN HERBERT NEUMANN Appellant AND SONS OF THE DESERT, S.L. Respondent Hearing: 30 October 2007 Appearances: M C Hayes for Appellant No appearance for Respondent Judgment: 5 November 2007 at 11:00am(RESERVED) JUDGMENT OF ANDREWS JThis judgment was delivered by Justice Andrews on5 November 2007 at 11:00ampursuant to r 540(4) of the High Court Rules. Registrar/Deputy Registrar Date: Solicitors: A J Park, PO Box 565, Auckland fax (09) 356-6990 – M HayesIntroduction[1] The appellant has appealed against the decision of the Assistant Commissioner of Trade Marks ("the Assistant Commissioner"), delivered on 15 January 2007, directing that trade mark application no. 704235 may proceed to registration. [2] The issue on appeal is whether the Assistant Commissioner was correct in fact and in law in finding that the appellant had not succeeded in opposing registration on the grounds that the application for registration had been made in bad faith. [3] I record that the respondent abides the decision of the Court. There was no appearance on behalf of the respondent at the hearing of the appeal.The application for registration[4] On 11 November 2003 the respondent filed an application to register a trade mark (no. 704235) ("the trade mark") in Classes 16 and 25. The mark incorporates a cartoon of a seated boy, accompanied by the words "El Niño Tarifa" ("the seated boy device"). The application was advertised on 26 March 2004. [5] The appellant filed a notice of opposition to registration on 28 June 2004. The respondent filed a counter-statement on 27 October 2004. Each filed amended statements and the application was heard before the Assistant Commissioner on 14 December 2006. [6] The appellant's opposition was on the grounds that the respondent's application for registration of the trade mark was made in bad faith. Pursuant to s 17(1)(b)(iii) of the Trade Marks Act 2002 (as it stood at the time the application and opposition were filed) a trade mark may not be registered if the application for registration was made in bad faith. 11 The equivalent provision, as from 15 December 2005, is s 17(2)[7] The allegation of bath faith rested on ownership of the trade mark. The appellant's evidence before the Assistant Commissioner was that he and two others, a Mr Galdeano and a Mr Steffan, had incorporated in September 1998, in Spain, a company called Lucky Charm Distribuciones Tarifa S.L. ("Lucky Charm"). Lucky Charm was formed to market casual wear and clothing using the El Niño name and the seated boy device. The appellant said there was an oral agreement between the three men that the trade marks of the business – including the El Niño name and the seated boy device – would be jointly owned by all three of them, in all countries of the world. [8] The appellant's evidence was that a Mr Pozo joined Lucky Charm in 2000. Mr Steffan withdrew in February 2001 and Mr Pozo withdrew in May 2002, leaving the appellant and Mr Galdeano as the sole shareholders and directors of Lucky Charm. [9] The appellant went on to say that when Mr Steffan withdrew from Lucky Charm his interest in the trade marks was assigned to Mr Galdeano, Mr Pozo and the appellant. When Mr Pozo withdrew, his interest in the trade marks was assigned to Mr Galdeano and the appellant, leaving Mr Galdeano and the appellant as co- owners. [10] The appellant also referred to two agreements executed in August 2002. The first was dated 6 August 2002, and was between himself and Mr Galdeano. This agreement was said to be intended to specify certain aspects of the relationship between the appellant and Mr Galdeano. The 6 August 2002 agreement was also said to be made in contemplation of the second agreement, dated 7 August 2002, pursuant to which the appellant and Mr Galdeano granted a licence to use the Spanish and CTM (European Union) trade marks featuring the El Niño name and the seated boy device in Spain and the European Union. [11] The appellant's case before the Assistant Commissioner was that Mr Galdeano is the sole director and shareholder of the respondent. Accordingly, he argued, Mr Galdeano's knowledge of the appellant's co-ownership of the trade mark could be imputed to it. The application for registration, made by the respondentwithout the knowledge and consent of the appellant, would deprive the appellant of the benefit of his ownership. The appellant also argued that it was in breach of Mr Galdeano's contractual obligations to him as co-owner. [12] The application was, he argued, made in bad faith and should not be registered. "Bad faith" is not confined to dishonesty and may be demonstrated by evidence of conduct falling short of reasonable standards of commercial behaviour. The appellant argued that the respondent's application fell short because it was made contrary to the agreement that Lucky Charm's trademarks were to be owned jointly by the Lucky Charm shareholders. The appellant's consent had not been sought to the application for registration, and the appellant was not recorded as co-owner on the application. [13] Mr Galdeano acknowledged that he controlled the respondent. However, his evidence and argument before the Assistant Commissioner in support of registration was on two bases. The first was that he was that he was the sole creator and owner of the seated boy device, which was an essential feature of the trade mark. That meant, he argued, that he was entitled to register the trade mark in New Zealand. Mr Galdeano's second argument was that any agreement between himself and the appellant related only to trade marks in Spain and the European Union. Accordingly, the respondent argued that it was entitled to register the El Niño trade mark in New Zealand, without the appellant's consent.The Assistant Commissioner's finding[14] The Assistant Commissioner held that Mr Galdeano's knowledge could be imputed to the respondent. However, she held that she had no evidence of an agreement between Mr Galdeano and the appellant that, as shareholders of Lucky Charm, they would jointly own trade marks consisting of the seated boy device, in all countries of the world. Accordingly, the appellant's opposition failed at that point. The Assistant Commissioner was not required to consider the question of bad faith.Further evidence[15] After filing the notice of appeal, the appellant applied under r 716 of the High Court Rules to adduce further evidence. At the time of the hearing before the Assistant Commissioner the appellant had attempted, without success, to locate Messrs. Steffan and Pozo. At the time of their involvement with Lucky Charm, they had all been based in the town of Tarifa in Spain, but on withdrawal from the company had gone their separate ways. [16] Later, the appellant located Mr Pozo in Barcelona and Mr Steffan in Zurich, Switzerland. He sought leave to adduce affidavits from each, and affidavit evidence of translations of documents referred to by them. The application, which was not opposed by the respondent, was granted by Courtney J in a judgment delivered on 12 October 2007. [17] The evidence of Messrs Steffan and Pozo confirmed that of the appellant, that there was an oral agreement between the shareholders of Lucky Charm (as they were from time to time) that trade marks incorporating the seated boy device and the name El Niño were owned by them in equal shares, in all countries of the world. The documents annexed by them comprise notices of assignment of Mr Steffan's interest in the trade marks to Messrs Galdeano, Pozo and the appellant, and the later notices of assignment of Mr Pozo's interest in the trade marks to Mr Galdeano and the appellant. [18] Also adduced as new evidence were copies of a "private" and a "public" (notarised) agreement for the sale and purchase of trade mark rights and shares in Lucky Charm, between Mr Pozo, Mr Galdeano and the appellant. [19] None of the above evidence was available to the Assistant Commissioner. Had it been, it would have assumed significance in her consideration of the ownership of the trade mark.Appeal[20] The appeal is by way of re-hearing. I am required to reach my own conclusion, based on the material presented to the Assistant Commissioner, and the further evidence adduced by leave. Pursuant to s 173 of the Trade Marks Act I may, on the present appeal, confirm, modify or reverse the Assistant Commissioner's decision to admit the trade mark for registration.Issues on appeal[21] As noted earlier, the basis of the appellant's opposition to registration was that it was made without his knowledge and consent as co-owner of the trade mark. The appellant also said that registration by the respondent would deprive him of the benefit of registration in New Zealand. Dealing with the appellant's appeal therefore requires me to consider two questions: a) Are the appellant and Mr Galdeano co-owners of the trade mark in New Zealand? b) If yes, then was the application for registration by the respondent made in bad faith?Are the appellant and Mr Galdeano co-owners?[22] On the evidence before her, the Assistant Commissioner was not satisfied that the appellant and Mr Galdeano were co-owners of the trade mark in all countries of the world. However, I have the benefit of the affidavits of Mr Steffano and Mr Pozo, and the documents annexed to those affidavits. [23] Mr Steffano says that when he, Mr Galdeano and the appellant formed Luck Charm, they "verbally" agreed that the shareholders in Lucky Charm would jointly own the Spanish trade marks for the El Niño name and/or featuring the seated boy device. Further, they agreed that if any new El Niño trade marks were filed, in any territory of the world, consisting of or comprising the words El Niño and/or theseated boy device, they would be jointly owned by the owners of the Spanish trade marks. Thus, Mr Steffan's evidence supports the appellant's evidence that the trade mark for which registration was sought in New Zealand is jointly owned by Mr Galdeano and the appellant – they being the shareholders in Lucky Charm and owners of the Spanish trade marks. [24] Mr Pozo says in his affidavit that when he became a shareholder in Lucky Charm he, Mr Galdeano and the appellant reached a "verbal" agreement in the same terms. Mr Pozo's affidavit also, therefore, provides support for the appellant's evidence as to ownership. [25] Also before me, and not before the Assistant Commissioner, are notices of assignment of Spanish trade marks from Mr Steffan to Messrs Galdeano and Pozo and the appellant (dated 23 January 2002), and an agreement dated 25 April 2002 for the assignment of his share of the trade marks registered in Spain and the European Union from Mr Pozo to Mr Galdeano and the appellant. [26] Further, I have copies of "private" and "public" (that is, notarised) agreements, each dated 25 May 2002, pursuant to which Mr Pozo transferred his shares in Lucky Charm and his interest in the Spanish trade marks to Mr Galdeano and the appellant. [27] I am conscious that this hearing has proceeded without any appearance or opposition by the respondent. The newly adduced evidence has not, therefore, been subjected to any challenge by the respondent. However, I can see no reason not to accept the affidavits of Messrs Steffano and Pozo, and the documents referred to, as evidence confirming the appellant's evidence to the Assistant Commissioner. [28] Accordingly, I accept the appellant's evidence that Mr Galdeano and he are co-owners of the El Niño trade marks incorporating the seated boy device not only in Spain and the European Union, but also in any territory in the world. In so finding, I have not found it necessary to refer to the August 2002 agreements. Accordingly, I find that Mr Galdeano and the appellant are co-owners of the trade mark for which the respondent applied for registration in New Zealand.[29] For completeness, I have considered the arguments made to the Assistant Commissioner on behalf of Mr Galdeano. I note that she found that there was insufficient evidence before her to conclude whether Mr Galdeano retained ownership of all copyright in the seated boy device. There has been no cross-appeal against that finding. Accordingly, I am not required to consider whether Mr Galdeano is, as he argued, the sole owner of all copyright in the seated boy device or whether he is (if he is the sole owner of the copyright) therefore entitled to register the trade mark in New Zealand without the appellant's consent.Was the respondent's application made in bad faith?[30] Having found that the appellant and Mr Galdeano are co-owners of the trade mark (contrary to the finding of the Assistant Commissioner) I am now required to go on to consider whether the respondent's application was made in bad faith, so as to preclude registration by virtue of s 17(1)(b)(iii) of the Act. It will be recalled that the Assistant Commissioner was not required to consider the issue of bad faith. [31] In his judgment in Gromax Plasticulture Limited v Don & Low Nonwovens Limited, 2 at [37], in relation to the equivalent provision (s 3(6)) of the Trade Marks Act 1984 (UK) Lindsay J said:I shall not attempt to define bad faith in this context. Plainly it includes dishonesty and, as I would hold, includes also some dealings which fall short of the standards of acceptable commercial behaviour observed by reasonable and experienced men in the particular area being examined. Parliament has wisely not attempted to explain in detail what is or is not bad faith in this context; how far a dealing must so fall-short in order to amount to bad faith is a matter best left to be adjudged not by some paraphrase by the Courts (which leads to the danger of the Courts then construing not the Act but the paraphrase) but by reference to the words of the Act and upon a regard to all material surrounding circumstances.[32] In his judgment in Valley Girl Co Limited v Hanama Collection Pty Limited and Anor, 3 at [53] (after citing at [52] the above passage from Gromax) Miller J stated that he would approach the matter of bad faith:2 Gromax Plasticulture Limited v Don & Low Nonwovens Limited [1999] RPC 3673 Valley Girl Co Limited v Hanama Collection Property Limited and Anor HC WN CIV2004-485- 2005, 6 April 2005 on the basis that the appellant was not entitled to claim proprietorship of the mark in New Zealand if its claim is affected by fraud or breach of duty, or the application was made in bad faith. The New Zealand Act did not refer to bad faith, but I accept that bad faith is not confined to dishonesty. It may be demonstrated by evidence of conduct falling short of reasonable standards of commercial behaviour. (Emphasis added.)[33] In Harrison's Trade Mark Application4 at 185, Aldous J, delivering the judgment of the majority in the UK Court of Appeal, applied a "combined" test for determining whether an application for registration has been made in bad faith. That is, the Commissioner (or Court) must decide whether the knowledge of the applicant (a subjective element) was such that its decision to apply for registration would be regarded as being in bad faith by persons adopting proper standards (an objective element). In my judgment, that is an appropriate test. [34] I therefore turn to consider whether the respondent's application for registration of the trade mark was in bad faith, in all the circumstances. I note that Mr Hayes advised me that he was unaware of any judgment given in similar circumstances – that is, where entitlement to register a trade mark was challenged by a co-owner of the mark. [35] The relevant circumstances are: a) Mr Galdeano and the appellant are the co-owners of the trade mark. b) As shareholders of Lucky Charm, Mr Galdeano and the appellant have agreed that they are co-owners of the trade mark, in respect of any new trade mark application filed, in any territory in the world, consisting of or comprising the word "El Niño" and/or the seated boy device. c) Mr Galdeano controls the respondent. The respondent therefore had knowledge of the appellant's co-ownership of the trade mark, in all4 Harrison's Trade Mark Application [2005] FSR 177territories of the world, by Mr Galdeano's knowledge being imputed to the respondent. d) The respondent's application for registration of the trade mark, in the respondent's name, was made without the knowledge or consent of the appellant. e) Registration of the trade mark by the respondent has the effect of depriving the appellant of the benefit of registration in New Zealand. [36] In those circumstances, I am satisfied that the respondent's application for registration of the trade mark was conduct that fell short of reasonable standards of commercial behaviour. I am, therefore, satisfied that the application was made in bad faith. Accordingly, pursuant to s 17(1)(b)(iii)/17(2) of the Act, the trade mark should not have been accepted for registration.Result[37] The appeal is allowed. The decision of the Assistant Commissioner dated 15 January 2007 is reversed and there will be an order cancelling registration of trade mark no. 704235. [38] The appellant sought costs. It is appropriate that costs should follow the event and accordingly the appellant is entitled to costs on a 2B basis together with disbursements as certified by the Registrar. _____________________________ Andrews J