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Trade Mark Co-Existence Agreements - in tune with the times?

April 2004

The English High Court has recently ruled on a preliminary issue in litigation concerning the status of trade mark co-existence agreements in the music sector: Apple Corps Limited v Apple Computer Inc[1] . This Short Lines considers the primary issues arising out of the case and the wider implications the Apple litigation may have for the on-line delivery of musical content.

Procedural Background

The dispute concerned the launch in the United States of Apple Computer's ("Computer", a US corporation) iTunes Music Store. This is a web-based service which allows subscribers to download music over the internet and store it for the purposes of replaying it either on a computer or on Computer's portable iPod Player. Apple Corp ("Corp"), the English record company set up by the Beatles, alleged that the launch of the iTunes Music Store in the US breached a trade mark co-existence agreement ("the Agreement") entered into by Computer and Corp in 1991 as part of a settlement of trade mark litigation before the English courts, and issued proceedings in the High Court in England.

The ruling of the court was on the preliminary issues of where the Agreement had been made and what was the proper law of the Agreement (which did not contain an express choice of law clause). The court ultimately found that the proper law of the Agreement was English law as England had the closest connection to the subject matter of the Agreement (which was, in part, the settlement of English litigation).

Where was the Agreement made?

One of Computer's main arguments was that the Agreement was not made in England , but in California (where it has its headquarters). Computer claimed that the Agreement was concluded orally by an offer being made in California and which was accepted by Corp in London . As the parties were in instantaneous communication via telephone at the time of acceptance, Computer claimed, in accordance with established legal principles,[2] that the Agreement had been made at the place where the acceptance was communicated (i.e., California ). Corp applied the same principles but derived the opposite conclusion from its interpretation of the facts. Each party's case turned upon the order in which each claimed it spoke in finalising the Agreement.

The court found that Corp had a "good arguable case" that the contract had been made in England justifying grant of leave to serve its claim outside the jurisdiction. However, the more interesting aspect of the judgment is the court's view that there may be contracts which cannot be analysed strictly in terms of offer and acceptance. This is likely to be the case where there are multiple parties conferencing in from different parts of the world in the course of negotiations. In such circumstances the court considered it possible that this may give rise to contracts simultaneously coming into existence in a number of jurisdictions. This further underlines the importance of agreeing choice of law and jurisdiction clauses in order to avoid litigation in multiple jurisdictions and under various legal systems.

The scope of trade mark co-existence agreements

At the heart of the Apple litigation is how trade mark co-existence agreements are to be interpreted in an evolving commercial context. The court acknowledged that at the time the Agreement was entered into e-mail was not widely available. It was therefore unlikely that delivery of musical content on-line was within the contemplation of the parties at the time they concluded their contract.

Although whether Computer actually breached the Agreement has not yet been decided, the case highlights the danger of trade mark co-existence agreements which are not drafted with sufficient precision to prevent one of the parties from encroaching into the field of the other, or which remain silent with respect to potential new fields of application for a trade mark.

It will be interesting to see whether the on-line delivery of music was within the scope of the rights granted to Computer under the terms of the Agreement. At the time of the negotiation of the Agreement, Computer was in the business of distributing technology and software rather than content. It remains to be seen whether this fact will ultimately affect the Court's interpretation of the scope of the Agreement. The Agreement does appear to contemplate the use by Computer of the "Apple" mark in connection with "broadcasting services", which, at the full trial of the issues, will need to be considered in light of the recent amendments to the Copyright Designs and Patents Act 1988. These provisions exclude an internet download service from the definition of a "broadcast" unless:

it is part of a concurrent transmission of a live event; or
the internet transmission is simultaneous with some other form of transmission; or
the transmission forms part of a service under which programmes are transmitted at scheduled times. [3]

It is unlikely therefore that downloads from the iTunes Music Store service fall within the definition of a "broadcast".

Concluding remarks: the same old song?

The Court's remarks on the formation of a contract are welcome, particularly if they lead to an updating of the common law's attachment to contractual formation in terms of offer and acceptance. Modern means of communication and concluding contracts instantaneously mean that it may be difficult to determine clearly which party has made an offer and which party has accepted it.

Secondly, the case underlines the danger of not agreeing which law is to govern an agreement. In the Apple case, this was done deliberately, as neither party was prepared to submit to the governing law proposed by the other. However, the case is a timely reminder that choice of law clauses (and choice of jurisdiction clauses) are more than just boilerplate drafting and need to be paid due attention as part of the contractual negotiations.

Finally, with the ubiquity of digital media and the convergence of content and delivery modes continuing apace, one can expect that many trade mark co-existence agreements may be subject to fresh scrutiny by both content owners and technology providers, with a corresponding risk of further litigation.

Anthony Sourgnes

[1] [2004] EWHC 768 (Ch).

[2] See Entores v Miles Far East Corporation [1955] 2 QB 327 and Brinkibon Limited v Stahag Stahl [1983] 2 AC 34.

[3] The Copyright and Related Rights Regulations 2003 S.I. 2003 No. 2498, Part 2, section 4

Useful URLs:-

The Copyright and Related Rights Regulations 2003 S.I. 2003 No. 2498: http://www.bailii.org/uk/legis/num_reg/2003/20032498.html