Morley's take away victory in copycat appeal

We previously blogged about the first instance decision here: Morley's v Metro's – success tastes better for the fast-food franchise | Fieldfisher.

Background

Morley's is a popular fast-food franchise with over 100 franchised outlets, serving fried chicken and burgers. It owns a number of registered UK trade marks, including:

The appellants, comprising a brand owner – the seventh appellant, Kunatheeswaran ("KK") – and seven franchisees, used the below sign (the "Metro's Sign") in relation to fast-food outlets serving similar fare to Morley's.

KK had, prior to 2018, used the sign "Mowley's" for providing fast-food services but, following a complaint by Morley's, signed a settlement agreement and agreed to rebrand to "Metro's", with the only permissible branding being the below sign (the "Settlement Sign"), or "any reasonable modifications thereto".

In the first instance decision, Mrs Justice Clarke found that the Metro's Sign was not a reasonable modification to the Settlement Sign and that the defendants had therefore infringed Morley's registered trade mark. Furthermore, even if the Metro's Sign had been found to be a reasonable modification to the Settlement Sign, the seven franchisee defendants would not have been protected from trade mark infringement by the 2018 settlement agreement between Morley's and KK because it did not provide any rights to third parties such as franchisees.

The appeal

The defendants challenged the first instance decision on a number of grounds, including claiming that the first instance judge had erred in her assessment of the similarity of the marks, that she had misinterpreted the 2018 settlement agreement – both in relation to KK's breach of the agreement and in relation to the rights afforded to the franchisees – and that she had wrongly assessed the "identity and attributes" of the average consumer.

Similarity assessment and settlement agreement

Lord Justice Arnold, giving judgment for the Court of Appeal, recalled  that "in so far as [an] appeal challenges findings of fact made by the judge, this Court is only entitled to intervene if those findings are rationally insupportable … in so far as [an] appeal challenges multi-factorial evaluations by the judge, this Court is only entitled to intervene if the judge erred in law or principle".  He then found that the first instance judge's assessment of the similarity between the marks was "well within the bounds of rationality", did not involve "any error of principle", and had correctly taken into account any conceptual and visual differences between the marks, and therefore dismissed any appeal grounds regarding the similarity of the marks.

Likewise, Arnold LJ agreed that the Metro's Sign was not a reasonable modification to the Settlement Sign, particularly in relation to the addition of the "…It's The Real Taste" strapline, and that KK had breached the settlement agreement.

While Arnold LJ commented that the first instance judge had erred slightly in accepting evidence that Morley's would not have signed the settlement agreement if it had known that KK intended to franchise the brand – the agreement should have been interpreted without considering the parties' subjective intentions – he agreed that the franchisee defendants could not derive any benefit from the agreement.  He commented that the agreement should be interpreted as a license to KK to use the Settlement Sign which does not give KK any power of sub-license the use of the Settlement Sign (i.e. by way of a franchise arrangement).

Average consumer

In the first instance decision, the judge considered there to be two classes of average consumer: one comprising "children, young people, students and families" and a second class comprising "late-night and early-morning revellers […] who are likely tired, hungry and a significant subset of which will be intoxicated".

The appellants contended that the first instance judge "salami sliced" the relevant population to arrive at the second class of consumer, particularly those who were intoxicated, and that, in doing so, focused on a subset of consumers who would not, by definition, be "reasonably well informed and circumspect" and therefore could not fulfil the common law assessment of likelihood of confusion.

Arnold LJ agreed with the appellants on these points, stating that "a consumer who attends late at night is not necessarily more tired or more hungry [and by implication paying less attention] than one who attends earlier in the day" and reiterated that likelihood of confusion should not be assessed by reference to a subset of consumers who may be intoxicated. The average consumer is hypothetical; the purpose of looking at their general, rather than individual, characteristics is "to assess how the average consumer would select the relevant goods and services and the level of attention which would be paid by the average consumer".

Arnold LJ did not consider that the errors made by the first instance judge were sufficiently material to change the assessment of likelihood of confusion and there was no reason to think that a different outcome would have been reached had the judge not made that error.

Therefore, the appeal was dismissed.

Comment

Arnold LJ's comments reinforce our takeaways from the first instance decision that a court is unlikely to imply third-party rights into an agreement, particularly in relation to franchisees or sub-licensees, and that it is important for both parties to consider what their own plans are going forwards and what the other party may have in mind for their own brand.

This decision has also reinforced the fact that the average consumer is only a notional consumer of goods or services, and does not necessarily reflect the actual consumers of those goods or services, particularly any subset of those consumers who are intoxicated. While inspiration may be taken from the clientele who frequently patronise a particular outlet or provider when formulating the average consumer, the relevant consumer should remain notional, fictitious and sober.