Trade mark ruling shows the importance of formalising franchise deals and registering IP rights speedily, says expert

David Woods of Pinsent Masons, the law firm behind Out-Law.com, who specialises in resolving disputes over IP, said the case before the Court of Appeal could have been decided differently had the business asserting its rights in the case followed those best practices.

Before the Court of Appeal, Birmingham-based restaurant business Caspian Pizza claimed that a rival Worcester-based pizza restaurant of the same name had infringed its trade mark rights.

The Birmingham-based restaurant claimed that it had entered into an oral franchise agreement with the Worcester-based rival in 2008 which permitted its rival to use the Caspian Pizza name for its Worcester restaurant in return for royalties payments, according to the ruling. The Birmingham business also said that it was agreed that "any goodwill generated by the use of the mark would be vested in or assigned" to it.

However, according to the ruling, the Birmingham business said it terminated the agreement in 2013 after the Worcester business "refused to regularise the position by entering into a written agreement and failed to pay the royalties due". It subsequently filed a claim for trade mark infringement by the Worcester restaurant.

The Birmingham business relied on two marks that it had registered – a mark for the 'Caspian Pizza' name, which was registered in 2005, and a further device mark, featuring the name 'Caspian Pizza' alongside a cartoon image of a pizza-making chef. The device mark was registered in 2010.

However, in its judgment, the Court of Appeal determined that both trade marks relied upon by the Birmingham business had been "invalidly registered". It said that this was because the Worcester-based restaurant had acquired sufficient goodwill in its use of the Caspian Pizza name in the Worcester area prior to the two trade marks being registered. The High Court had previously rejected the Birmingham business' evidence about the franchise agreement it said it had in place.

The Court of Appeal came to its decision after interpreting sections of the Trade Marks Act.

The Act sets out a defence to trade mark infringement where a business can rely on an earlier right in a particular locality to legitimise their use of the mark. An earlier right can include protections provided for under the law of passing off.

The law of passing off applies where businesses acquire sufficient goodwill in their use of an unregistered mark among consumers. Where such goodwill has been acquired, businesses are entitled to prevent other companies offering copycat goods or services that consumers may confuse as coming from the more recognised brand.

The Trade Marks Act also provides grounds for the refusal of registration of trade marks, or their subsequent revocation, where others enjoy rights under the law of passing off.

In its ruling, the Court of Appeal considered whether goodwill acquired by a business in one area of the country could lead to the revocation of a trade mark nationwide. It said it could. The Trade Marks Act does not contain provision to allow the courts to limit the geographic validity of a trade mark, the Court said.

David Woods of Pinsent Masons said: "This case highlights the importance of formal written agreements – if a formal franchise agreement had been entered earlier in this case it would have documented the terms of such a deal and detailed any constraints under which the Worcester business was under over its use of the Caspian Pizza name."

"The case is also a reminder to businesses that they should seek to register any IP rights they have as soon as possible. Here, the Birmingham pizza businesses started using the Caspian Pizza name as early as 1991, but did not register that name as a trade mark until 2005. This was after the Worcester restaurant business had already acquired goodwill in its use of the signs," Woods said.