Breakup of Rover Group still giving rise to disputes over MG trade mark

Tanya Kallmann, Trade Mark Attorney, Boult Wade Tennant

This article first appeared in the May 2010 issue of ITMA Review. Click here to read this article in PDF format.

Introduction
Three claimants, Nanjing Automobile (Group) Corporation (NAC China), Nanjing Automobile Corporation (UK) Limited (a subsidiary and licensee of NAC China), and MG Motor UK Limited (a subsidiary of Nanjing Automobile Corporation (UK) Limited and licensee of NAC China) brought an action to restrain trade mark infringement and passing off by MG Sports and Racing Europe Limited and William Riley (SREL).

SREL and Mr Riley had already disputed the ownership of these marks at the registry, and the hearing officer referred SREL's application for revocation of 31 other MG trade marks and rectification of the register in respect of the MG X POWER trade mark to the High Court. These cases were then consolidated.

MG Rover group went into administration in April 2005. Following this, by an agreement dated 22 July 2005 NAC China acquired, together with other items, most of the assets of the business of vehicle development, manufacture, sale and distribution then carried out by MG Rover Group. Among these assets were a number of trade marks which included various letter marks and device marks associated with the brand MG in the UK. These included UK and Community trade mark registrations of both the leter mark MG and the octagonal-shaped logo covering, amongst others, cars and parts and fittings for cars, and services connected with them. NAC China then recorded themselves as the trade mark proprietor in relation to all of these trade marks, including the MG X POWER marks.

Since July 2005, NAC China continued business at the original site of MG Rover Group, preparing for the launch of cars under the MG brand, including a large amount of publicity in the UK and overseas.

SREL had also been making and selling cars under the trade marks MG and MG X POWER and the octagonal-shaped MG logo. It has not disputed the fact that is has been continuing to carry out this business under the name SREL, and the name is prefixed with the letters MG. It claims to be entitled to do so under the terms of an agreement dated 27 June 2007, whereby it purchased certain assets from MG Rover Group and MG Sport and Racing Limited (SRL), both which were in the same group as MG Rover Group.

The main issue here is whether the 2005 agreement with NAC China included the MG X POWER trade marks, and therefore that NAC China are the rightful proprietors of these marks, or whether the 2007 agreement with SREL in fact failed to include rights to the MG X POWER trade marks which would have entitled them to continue business under the name.

The 2007 agreement
This was an asset sale agreement between SRL (first seller) and MG Rover Group (second seller), their respective liquidators and SREL (the buyer).

A number of assets were transferred to SREL which were referred to in the agreement as "transferred assets" and included, "the goodwill of the first seller in connection with the business" and which expressly included "the vehicles... and type approval" bud did not include "excluded assets". "Business" was defined by the agreement to mean "the business of designing, engineering, manufacturing, testing and selling MG SV sports cars, race cars and other vehilces (including but not limited to the MG SV), merchandise and accessories owned by the first seller". "Vehicles" were defined as meaning the chassis located at a particular address and certain motor vehicles.

Mr Riley (the second defendant) argued that if he had changed the name or the badge on the vehicles that had been included in the agreement, then he would have had to obtain a new type approval for the manufacture of that vehicle. Therefore the agreement must have been intended to include the right to use the disputed marks.

Another item listed to be included in the agreement was "business intellectual property" which was defined in the agreement as, "the intellectual proeprty, to the extent owned by the first seller, which is used in or relates to the business immediately prior to completion [ie, of the sale and purchase of the transferred assets], other than (for the avoidance of doubt) third party intellectual property and including (without limitation) such right, title and interest (if any)...". Those items listed are not relevant to this dispute, bu the definition of third party intellectual property seems to be the main factor here. The agreeement defines third party intellectual property as "any intellectual property which is not owned by the sellers or which either of the sellers have already transferred or licensed, or agreed to transfer or license, to another party pursuant to separate arrangements entered into between a seller and such other party prior to completion, including without limitation, the MG trade mark (word mark), the MG logo (device mark), the MG X Power trade mark and any intellectual property sold, or agreed to be sold, by the second seller to Nanjing Automotive Corporation prior to the date of completion".

It is therefore plain that this agreement ws not intended to include the marks which were the subject of these proceedings.

Furthermore, a clause in the agreement stated that "no licence, express or implied, is being granted by either sellers under this agreement to use the words 'MG' or 'Rover' and therefore that the buyer has no right under this agreement to use those words in a business name, trademark or otherwise in the course of its business".

It was therefore concluded by Sir William Blackburne that neither SREL nor Mr Riley were entitled to use or register the MG X POWER marks under the terms of the 2007 agreement.

The 2005 agreement
Although Sir William Blackburne had established on the facts of the case that the 2007 agreement did not intend to transfer any right in the disputed marks to SREL, this did not conclude whether NAC China were, in fact, themselves entitled to the marks.

This is an agreement where NAC China acquired from MG Rover Group Limited and Powertrain Limited, most of the assets of the business of vehicle development, manufacture, sale and distribution then carried on by MG Rover Group.

After this agreement was signed, NAC China recoreded themselves as the proprietor of a number of trade marks including the MG X POWER mark both at the UKIPO and OHIM.

Within the agreement were a number of assets which were specifically excluded. These were:

"(i) the business and assets (including intellectual property) relating solely and exclusively to the MG Sport and Racing business (which for the avoidance of doubt does not include the MG TF business which is to be sold to the buyer hereunder) but including MGSV, MG X Power and MGX80 and (iii) all intellectual property rights (including design rights but excluding trade marks) to MGSV and its variants...".

Therefore it is clear that as the MG X POWER trade marks did not solely relate to the business of SRL (it had been used and registered by MG Rover Group) they were not excluded from this agreement. Furthermore as no trade marks which related to MGSV and its variants were excluded, the MG X POWER trade marks would automatically pass to NAC China.

Although it was argued that as the agreement contained a schedule of marks which were to be transferred to NAC China, and the MG X POWER marks were not contained within this schedule, they were not intended to be transferred, Sir William Blackburne concluded that the agreement was effective to pass to NAC China the MG X POWER trade marks.

Trade mark infringement and passing off
Under Section 9(1) of the Trade Marks Act 1994, the proprietor of a 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.

As it was found that NAC China were entitled to be recorded as the registered proprietor of the MG X POWER trade marks, they were entitled to relief against SREL for trade mark infringement concerned with past and future use by it of the MG and MG X POWER word marks and logo and for passing off. NAC was granted injunctive and other relief sought.

With regards to passing off, NAC China had to establish that:

a) they have goodwill in the marks;

b) that SREL are misrepresenting them as to that goodwill, and that the misrepresentation lead to confusion among the public (or those persons likely to use the irrelevant goods or servcies in relation to which the goodwill subsists); and

c) damage or likelihood of damage.

It was admitted in the pleadings that there is substantial goodwill in the United Kingdom associated with the MG marks in the field of motor vehicles and related products. NAC proved that they were the owners of this goodwill. They also demonstrated that the activities of SREL were calculated to give rise to the mistaken belief that their sports cars and related goods and services, including, in particular, the manufacture and supply of such cars and related goods and services, are those of NAC China, or are at least connected or associated with them. It follows on from this that damage, or at least likelihood of it, to NAC China would result.

Defences
1. Under Section 10(6) of the Trade Marks Act 1994:

"Nothing in the preceding provisions of this section shall be construed as preventing the use of a registered trade mark by any person for the purpose of identifying goods or services as those of the proprietor or a licensee. But any such use otherwise than in accordance with honest practices in industrial or commercial matters shall be treated as infringing the registered trade mark if the use without due cause takes unfair advantage of, or is detrimental to, the distinctive character or repute of the trade mark."

The defendants contended that their use has, at all times, been for the purpose of identifying the goods and services as those of the registered proprietor.

2. Section 11(1) states that:

"A registered trade mark is not infringed by the use of another trade mark in relation to goods or services for which the latter is registered (but see section 47(6) (effect of declaration of invalidity of registration))."

The defendants contended that the use by SREL of the MG and MG X POWER marks was "at all material timed in relation to goods/services which were the subject of its International Registration and therefore United Kingdom trade mark number 2296016".

It was held that as SREL is not, and has never been the registered proprietor of either MG or MG X POWER trade marks and it cannot rely on either of these provisions as defences.

3. Section 2(2) of the Trade Marks Act 1994 states that:

"...nothing in this Act affects the law relating to passing off".

SREL relied upon this as a defence, stating that the Act "defers to common law and therefore unregistered trade mark rights". They believe that their rights as owner of the business previously conducted by SRL entitled them to continue to make and sell cars under the mark MG X POWER, and that they should not be stopped from doing so by NAC China, merely because they had acquired the right to be registered as proprietor of the MG X POWER mark.

It was held that, "any goodwill or reputation resulting from the use by SRL of the MG X POWER trade mark in the course of its business which passed to SREL under the 2007 agreement does not provide it with a defence to NAC's claim for trade mark infringement."

Invalidity attack
The defendants counterattacked with a revocation action on the basis that whether or not the 2007 agreement passed to them the right to the MG X POWER trade marks, the registrations are liable to be revoked under Section 46(1)(d) of the Act (for the UK marks), and Article 50(1)(c) of the Regulation (for the Community Trade Marks).

Section 46(1)(d) states that:

"(1) The registration of a trade mark may be revoked on any of the following grounds...

(d) that in consequence of the use made of it by the proprietor or with his consent in relation to goods or services for which it is registered, it is liable to mislead the public, particularly as to the nature, quality or geographical origin of those goods or services."

Article 50(1)(c) allows for revocation on the same grounds.

The defendants argued that "the omission to purchase all of the trade marks prefixed MG by NAC and/or the assets associated with the 'manufactory' of the business of [SRL] (in administration) was an omission which rendered the trade marks prefixed MG deceptive in the UK marketplace."

It was held that as it was found that NAC China did, in fact, acquire the rights to the MG X POWER trade marks from MG Rover Group this defence failed.

Exhaustion of rights
Although it is not entireley clear from the defendant's submission whether they intended to run a defence based on exhaustion of rights, Sir William Blackburne nevertheless addressed this issue. The sale to SREL included a number of items which carried the MG and MG X POWER trade marks and they are therefore entitled to, under Section 12(1) of the Act, to "deal with those items notwithstanding that they carried those marks".

Section 12(1) states that:

"A registered trade mark is not infringed by the use of the trade mark in relation to goods which have been put on the market in the EEA under that trade mark by the proprietor or with his consent."

As the items had been put on the market by or with the consent of MG Rover Group, SREL had the right to "deal with spares, as for example by incorporating them into a new car" but this does not entitle them to sell cars under the MG brand.

Joint liability
Although the activities complained of by NAC China were carried out in the name of SREL, Mr Riley being a controlling shareholder and principle director was found to be jointly liable for trade mark infringement and passing off.

The court referred to MCA Records Inc v Charly Records Ltd [2001] EWCA Civ 1441 [2002] FSR 26 which ruled that "the claimant must show that, where an individual is a director or controlling shareholder of the company, his conduct has gone beyond the carrying out of his constitutional role in the governance of the company.  

He will attract joint liability if, in relation to the wrongful acts which are the subject of complaint, his participation or involvement [has been] in ways which go beyond the exercise of constitutional control...in particular, liability as a joint tortfeasor may arise where...the individual intends and procures and shares a common design that the infringement takes place."

In this case, there was a substantial amount of evidence to show that Mr Riley's conduct went far beyond the carrying out of his constitutional role in the governance of SREL.

Throughout the evidence submittd by Mr Riley and SREL in this case, Mr Riley did not distinguish between himself and the company, in fact, he and SREL were effectively one and the same. On many occasions Mr Riley spoke in the first person when referring to actions taken by or on behalf of SREL. Furthermore, during his cross-examination "Mr Riley accepted that the decision on how to brand the cars that SREL was selling and proposing to sell was his (Mr Riley's) alone and not that of anyone else."

Relief
Sir William Blackburne granted the injunction against SREL to restrain passing off and trade mark infringement as sought by NAC China. He also ordered SREL to change its name to one which does not include the letters MG. Furthermore, he ordered delivery up and forfeiture in the terms sought, direct the defendants to remove all references to MG on their website and take all necessary steps to transfer into NAC China's name the domain name mg-xpower.com and any other domain name which includes the mark MG. Lastly, he also directed the enquiry as to damages or, at NAC's option, an account of profits.

The counterclaim for revocation and rectification failed alongside the parallel registry proceedings referred to the court by the registry.

Comment
A large amount of evidence was put forward by Mr Riley to try and sustain the claim that he (and SREL) was the rightful proprietors of the MG X POWER marks. However, he did not take into consideration the fact that he did not have access to the 2005 agreement with NAC China, and he was therefore not party to any discussions they had. Unfortunately for him, even though he tried very hard to have his 2007 agreement drawn up with the transfer of the MG X POWER marks in mind, the court did not allow this to cloud their judgment.

Mr Riley clearly knew that the 2007 agreement in no way served to transfer any rights in any trade marks to himself or SREL but still continued to use the marks. NAC China was correct in bringing proceedings for trade mark infringement and passing off in order to preserve its newly acquired rights. Even Mr Riley himself admitted that he would have continued to use the MG X POWER marks given the chance.

This is an obvious lesson to trade mark owners that not only do they need to ensure that any agreements drawn up are clear and unambiguous, but that any rights that they have are recorded at the relevant registries as soon as possible, and notice is taken of any third party using or trying to use their trade marks.

This case could so easily have gone the other way if Nanjing had not ensured that its 2005 agreement (and subsequently the 2007 agreement with SREL) with MG Rover Group had explicitly stated what was and was not to be transferred.

Boult Wade Tennant