Lotus V Lotus

 

A commentary on Group Lotus plc & another v 1 Malaysia Racing Team Sdn Bhd and others [2011] EWHC 1366 (Ch)


A BLOSSOMING RELATIONSHIP

On 5 September 2009, the Prime Minister of Malaysia announced the formation of the 1 Malaysia Formula 1 Racing Team under the 1st Defendant, 1 Malaysia Racing Team ("1MRT"). It also marked the return of the iconic name "Lotus" to the Formula One ("F1") racing scene after an absence of 16 years as 1MRT would race as Lotus Racing under a licence agreement ("Licence Agreement") with the 1st Claimant, Group Lotus plc ("GL"), a subsidiary of Proton Holdings Berhad.

It was the start of a relationship that held much promise, with both sides aspiring to have the team based, and the racing cars designed, built and tested, in Malaysia eventually.

 

THE WHEELS FALL OFF

As 1MRT's Lotus cars trundled around the racing circuits in the lower half of the field (a commendable achievement as compared to those of its fellow rookie teams, the Hispania and Virgin racing teams), the relationship between the parties deteriorated and culminated in GL terminating the Licence Agreement on grounds of "flagrant and persistent" breaches of the licence by 1MRT.

After the 2010 F1 season ended, 1MRT announced that it had acquired the right to use the "Team Lotus" name in F1 racing through its acquisition of the 2nd Defendant, Team Lotus Ventures Limited ("TLVL").

GL disputed the validity of TLVL's ownership of the Team Lotus brand and filed a claim in the High Court in England.

Subsequently, GL announced that it had entered into a strategic partnership with Genii Capital to race cars under the name "Lotus-Renault GP" in the 2011 F1 season.

 

THE CLAIMS AND COUNTERCLAIM

Among the claims made by GL and Lotus Cars Ltd (collectively "Claimants") were that –

 

(1) the use of the name "Team Lotus" and the trade mark Lotus Roundel ("Trade Mark") by the Defendants in relation to F1 motor racing without the authorization or endorsement by the Claimants tantamount to wrongful passing off;

(2) the trade marks that were registered in the name of TLVL ought to be revoked for non-use; and

(3) 1MRT had breached the Licence Agreement.

 

The Defendants filed a counterclaim ("Counterclaim") seeking, among other relief, an injunction to restrain the Claimants from passing off as an F1 racing team which is connected to Team Lotus or the Trade Mark.

According to the learned Judge, the case involves 2 major issues. First, whether or not 2 sets of Lotus cars can legitimately race in F1 under a name that incorporates Lotus in some way and the use of the Trade Mark. Second, whether or not F1 racing under Team Lotus is part of the goodwill attached to GL or is an independent goodwill vested in Team Lotus Limited ("TLL").

 

DECISION OF THE HIGH COURT

After a full hearing, the Judge was satisfied that –

 

(1) the founder of Lotus cars, the late Colin Chapman, had raced cars under the name "Team Lotus" for at least 10 years before GL came into existence and that GL had manufactured sports cars under the Lotus name since it was created in 1958;

(2) to safeguard GL's sports car manufacturing business from the risks and liabilities associated with motor racing, including F1, all motor racing activities were carried out through separate companies, firstly, TLL and its successor, Team Lotus International Limited ("TLIL") which had both raced under the name "Team Lotus" since 1961;

(3) GL had not at any time raced in F1 under the name Group Lotus or Lotus before its entry for the 2011 F1 season as Lotus-Renault GP together with Genii Capital;

(4) except for a brief period of about 1½ years in 1967 through 1968, TLL existed independently from GL and was never its subsidiary;

 

(5) after the demise of Colin Chapman in 1982, GL, TLIL and other parties entered into an agreement in 1985 ("the 1985 Agreement") which, among other matters, provided as follows–

(a) TLIL acknowledged that the business of GL was manufacturing and marketing motor vehicles other than single seat racing vehicles whilst GL acknowledged that the business of TLIL was making racing vehicles and entering them in motor racing events;

(b) GL and TLIL each acknowledged that the other had operated their respective businesses as separate businesses since at least 1968;

(c) GL acknowledged that TLIL had the right to continue using the name Team Lotus in relation to its business and to use the Trade Mark with or without the words "Team Lotus" whilst TLIL acknowledged that GL had the right to continue using the names "Group Lotus", "Lotus" and the Trade Mark in relation to its business;

(d) GL would cancel its registration for various trade marks, including the Trade Mark, and undertook not to use any rights under its remaining trade marks against TLIL in relation to the latter's motor racing business. GL also agreed to consent to the registration of the cancelled marks, including the Trade Mark, by TLIL; and

(e) upon the termination of the 1985 Agreement, GL would have the right to own, run or be associated with another motor racing team running single seat racing vehicles which may have in its title and the use of the name "Lotus" and TLIL's right to use the name "Lotus" would be restricted to "Team Lotus", with the words "Team" and "Lotus" having substantially equal prominence.

 

(6) TLIL had sold certain of its assets (including its racing business, trade marks, trade or brand names) and such assets had devolved to TLVL through a series of transactions. However, TLIL had not executed any assignment in respect of its rights under the 1985 Agreement.

 

Effect of the 1985 Agreement

One of the main contentions by the Claimants was that TLVL was not entitled to exercise the rights under the 1985 Agreement as TLIL had not assigned any of its rights under that agreement.

The learned Judge was of the view the 1985 Agreement achieved 3 purposes. First, GL and TLIL acknowledged each other's rights in relation to the business and arrangements that existed before the execution of the 1985 Agreement. Second, the 1985 Agreement created additional rights, such as GL's agreement to cancel its registration of the Trade Mark and for TLIL to re-register the same and third, the 1985 Agreement contained provisions which set out the consequences of its termination.

As the rights created by the 1985 Agreement, such as arrangements relating to the cancellation and re-registration of the Trade Mark, had not been assigned to TLVL, His Lordship upheld the Claimants' contention to the extent that TLVL could not assert these rights against GL.

However, the Judge further held that the 1985 Agreement did not prohibit TLIL from dealing with the rights which it had before the 1985 Agreement, namely the right to make and race vehicles in motor racing events and to use the name Team Lotus in connection with such activity. As these rights (including trade marks, trade or brand names) had been disposed by TLIL and had devolved to TLVL, it could assert these pre-existing rights. Accordingly, the Judge had, in the main, rejected the Claimant's contention insofar as it relates to the pre-existing rights held by TLIL.

As the 1985 Agreement had lapsed, His Lordship ruled that GL was entitled to compete in single seat car racing.

 

Goodwill

The Judge then proceeded to consider whether the rights purportedly acquired by TLVL existed as part of GL's goodwill or are divisible.

The Claimants' case was that there is one indivisible goodwill which is vested in GL whereas the Defendants contended that the goodwill had been divided so that GL had the benefit of the use of the word Lotus in isolation while the Defendants through the chain of transactions discussed earlier had the benefit of the goodwill associated with Team Lotus.

According to the learned Judge, the identification of the goodwill associated with the names Lotus and Team Lotus was the key to the case. Once the goodwill is identified, the next question is whether or not GL has the entire goodwill in the word Lotus which extended to the use of the word in conjunction with any other word, including the word Team.

His Lordship held that the Claimants' contention that there existed one indivisible goodwill which rested with GL was an oversimplification. According to the Judge, Colin Chapman had created a goodwill in "Team Lotus" which came into existence before GL was incorporated in 1958 and was identified with his primary activity before then, namely motor racing.

The Judge was of the view that the 1985 Agreement clearly indicates that GL and TLIL acknowledged that they each had separate and independent goodwill in respect of their separate businesses, namely the manufacturing of sports cars by GL and motor racing by TLIL. Other evidence tendered by the parties did not undermine the position that was acknowledged in the 1985 Agreement.

The Judge concluded that there was no realistic possibility of confusion so long as TLVL or anyone authorized by it competes in F1 as opposed to building and selling sports cars. The position would be otherwise if GL had a reputation in F1 racing (which it had not, given the fact that it did not participate in F1 racing before 2011) as opposed to sports car manufacturing.

 

Cancellation of Trade Mark

The Court was satisfied that there was non-use of the Trade Mark for a period of 5 years from 2003 to 2008. As the Defendants had failed to adduce evidence that there were proper reasons for such non-use, the Court ordered that TLVL's Trade Mark be cancelled.

The Court accepted the Defendant's submission that if there is no evidence of confusion, there can be no infringement of GL's trade marks despite the cancellation of the Trade Mark.

The Judge held that TLVL's loss of the Trade Mark registration did not enable GL to stop the use of the words Team Lotus and the Trade Mark as being an infringement of GL's trade marks. The Judge did not accept that the name and mark were confusingly similar and that the parties had accepted this fact when they entered into the 1985 Agreement. The Judge also took cognizance of the fact that GL had acknowledged in the Licence Agreement that it should not licence 1MRT to race under the name Team Lotus as that could result in TLVL asserting a claim for passing off.

His Lordship ruled that the cancellation of trade marks for non-use is an entirely different exercise as compared to the loss of goodwill. The Judge was satisfied that substantial goodwill remains attached to the name Team Lotus and the Trade Mark notwithstanding that it may have been diminished by non-use since 1994. The Judge concluded that the right to such goodwill rested with TLL and had devolved to TLVL. Accordingly the Judge rejected GL's contention that the goodwill associated with the name and the Trade Mark had been abandoned by non-use.

 

Breach of Licence Agreement

The Court was satisfied that 1MRT had committed a material breach of the terms of the Licence Agreement by using GL's trade marks on poor quality merchandise and in a manner which had not been authorized by GL. Accordingly the Court upheld the termination of the Licence Agreement by GL and ruled that it was entitled to damages by reason of 1MRT's breach of the terms of the Licence Agreement.

 

CONCLUSION

The terms of the 1985 Agreement were pivotal to the High Court's decision. Firstly, the agreement recognized the late Colin Chapman's legacy of manufacturing sports cars and racing F1 cars under the Lotus name and trade mark but, at the same time, keeping these businesses separate from each other, thus resulting in the creation of separate and independent goodwill in the respective activities.

Secondly, by allowing GL to compete against 1MRT and TLVL in F1 under the Lotus name, the Court had given effect to the arrangements that had been contemplated and agreed upon by the parties to 1985 Agreement in the post-Colin Chapman era.

 

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