Entering/exiting RPC building - dark

The jurisdiction eagle has landed…in the Courts of England & Wales

11 February 2021. Published by Parham Kouchikali, Partner and Nina Pulimood, Associate

Does the governing law for passing off claims fall under Article 6 or Article 8 of Rome II? The High Court's explores this in Lyle & Scott Limited v American Eagle Outfitters Inc(1).

Background

Lyle & Scott Limited and American Eagle Outfitters Inc are both well-known clothing brands. Lyle & Scott is incorporated in England and American Eagle Outfitters is incorporated in Delaware. Both companies use a branded flying eagle image on their clothing, Lyle & Scott since at least 1968, and American Eagle since 1982. Although there are certain differences between the eagles, they are "closely similar". 

Following a discovery that American Eagle had been using the image on clothing sold in the UK and EU, Lyle & Scott contended that American Eagle had infringed its registered trademarks in the UK and EU. Parties then met in London to negotiate the use of the image, and a hand-written memorandum was drawn up setting out an agreement that American Eagle would sell clothing with the branded device only to American Eagle stores, stores within stores or on the American Eagle website. Negotiations subsequently broke down, and a declaration was sought by American Eagle that the hand-written memorandum drawn up constituted a valid and binding agreement. This was ultimately upheld by the United States Court of Appeals for the 3rd Circuit.

Dispute

On 4th August 2020, Lyle & Scott brought proceedings against American Eagle, alleging that American Eagle were selling clothing with the eagle image on UK websites ASOS and Zalando, in breach of contract and in an act of passing off.

Serving the claim form out of the jurisdiction

Lyle & Scott served the claim out of the jurisdiction in Pennsylvania, having been granted permission, and American Eagle applied to set aside that order. The appeal was rejected.

The relevant principles to be applied when seeking permission to serve a claim outside of the jurisdiction, are set out in CPR 6.37, summarised as follows(2):

a) there is a serious issue to be tried on the merits. This is the same as a test for (reverse) summary judgment;

b) there is a good arguable case that the claim falls with one of the jurisdictional gateways; and

c) in all the circumstances of the case England and Wales is clearly or distinctly the appropriate forum for the trial of the dispute, and that in all the circumstances the court ought to exercise its discretion to permit service of the proceedings out of the jurisdiction.

It was agreed that the second limb had been met as the agreement had been made within the jurisdiction, and that it was sufficiently arguable that damage incurred as a result of the passing off claim would be sustained in the jurisdiction. However, American Eagle argued that the first and third limbs had not been successfully met.

A real prospect of success

The test under the first limb was "whether there is a real (as opposed to fanciful) prospect of success. Miles J concluded that the two images were closely similar and there was indeed potential for confusion between them. At a trial the court would be able to assess through evidence any factual assumptions made by American Eagle, for example about customers' knowledge and understanding of both brands, amongst other issues. An absence of evidence about actual confusion did not assist American Eagle on the current state of the evidence and concluded that the passing off case raised a serious issue to be tried. 

The clearly or distinctly appropriate forum

The third limb of the test was also satisfied; England & Wales was the appropriate forum for the case. The judge explored the various factors that played into his decision.

Governing Law under Rome II

It was likely that the governing law in this cause of action would be English law, in accordance "Rome II(3). The claim of passing off fell within Article 6(2) of Rome II (on unfair competition affecting the interests of a specific competitor), rather than Article 8 (on infringement of intellectual property rights). Consequently, the default applicable governing law was that of the country in which the damage occurred (the test to determine governing law under Article 4). The test under Article 8 differs, as it judges governing law on the law for which protection is claimed. Passing off did not require infringement of an intellectual property right as defined in the recital, as the purpose of the cause of action is to protect the goodwill of traders against deceptive conduct, and goodwill is not an intellectual property right.

Other factors

Other important factors included that the tort had been committed within the jurisdiction and the claim related to damage of the goodwill of Lyle & Scott, a territorial concept. Furthermore, at trial, the passing off claim would likely involve factual or expert evidence about consumers based in the UK, which would favour the jurisdiction of England & Wales. Additionally, any injunctive relief would be granted in respect of conduct taking place in the UK (i.e. American Eagle would be required to stop selling clothing on UK third party websites). The judge did note, however, that the parameters of the dispute extended beyond the UK, as the outcome of the proceedings would have ramifications for both parties throughout the world. Any contract claim would be governed by Pennsylvania law. On balance, however, the connecting factors were found to be in favour of the claim being appropriately tried in the courts of England and Wales.

Comment

When determining the governing law of a passing off claim under Rome II, it will fall under the umbrella of Article 6 as an act of unfair competition rather than Article 8. This decision remains relevant to English law in light of Brexit, as the UK has legislated(4) to incorporate Rome I and II into English law, following the end of the transition period.

(1) [2021] EWHC 90 (Ch)Case No: IL-2020-000084

(2) Altimo Holdings and Investment Ltd v Kyrgyz Mobil Tel Ltd [2011] UK PC 7 at [71]

(3) Regulation (EC) 864/2007 on the law applicable to non-contractual obligations

(4) Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc.) (EU Exit) Regulations 2019