Designs: Poul Chang v Bailcast - stay of RCD proceedings

It is fundamental to European Union unitary rights, such as registered Community designs, that there is no forum shopping by the parties or inconsistent decisions by national courts as to the infringement and validity of those rights.

For this reason, there is a complex system of rules in place governing which courts have jurisdiction. These are principally set out in the Community Design Regulation (6/2002), which broadly says that the member state court with jurisdiction over the matter is the one in which the defendant is domiciled. If the defendant is not domiciled in a member state, the member state court in which the claimant is domiciled has jurisdiction. Absent this, the Spanish courts (as the member state hosting the European Union Intellectual Property Office - EUIPO) has jurisdiction.

The problem in the case at hand was that both defendants were domiciled in the member state in which they had been sued, the distributor in Germany and the rights holder in the UK. In these circumstances, the court had to have recourse to the remaining operative provisions of the Recast Brussels Regulation (1215/2012), Articles 29 and 30.

Article 29 of the Recast Brussels Regulation states that: "... where proceedings involving the same cause of action and between the same parties are brought in the courts of different Member States, any court other than the court first seised shall of its own motion stay its proceedings until such time as the jurisdiction of the court first seised is established."

The court considered that this meant that if the following four criteria were established it was obliged to stay the UK action: (1) that the German court is the court first seised; (2) that the German proceedings and these proceedings involve the same cause of action; (3) that the German proceedings and these proceedings involve the same object: and (4) that the German proceedings and these proceedings involve the same parties.

The court held that the first three criteria were satisfied, but that the fourth criteria was not. HH Deputy Judge Stone reasoned: “It cannot be said that the interests of [the manufacturer] and [the distributor] are identical and indissociable. As counsel for [the manufacturer] pointed out, neither [the manufacturer] nor [the distributor] exercises any control over the other. [The distributor] is a customer of [the manufacturer] and sells [the manufacturer’s] products in Germany and other European Union Member States. [The distributor] used to sell [the right’s holder’s licensee’s] tools and then switched to selling [the manufacturer’s] tools. What, asked counsel for [the manufacturer], is to stop [the distributor] switching again by settling with [the right’s holder’s licensee’s] in Germany and presumably submitting to EU-wide injunctions? The possible divergence of interests indicates that they are not the same. In my judgment, on the facts of this case, the interests of [the distributor] and the [manufacturer] are not indissociable.”

Article 30 then fell to be considered. This reads:

"1. Where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings.

2. Where the action in the court first seised is pending at first instance, any other court may also, on the application of one of the parties, decline jurisdiction if the court first seised has jurisdiction over the actions in question and its law permits the consolidation thereof.

3. For the purposes of this Article, actions are deemed to be related where they are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings."

It was common ground between the parties that the German and UK actions were related. It, therefore, fell to be considered whether the court should exercise its discretion to grant a stay.

The court held that there was a strong presumption in favour of a stay. However, it identified a number of factors which militated against that presumption:

• It was accepted that, if the UK proceedings were stayed pending the outcome of the German action, they would continue thereafter. Presumably this was because the German proceedings were specific to the distributor and the parties were of the view that matters needed to be resolved one way or the other between the rights holder and the manufacturer.
  
• The stay would only be for a month or so, with little cost in the intervening period.
  
• The procedural background of the litigation was telling. German civil procedure had prevented the manufacturer from joining the German action. The manufacturer had, therefore, tried to commence a declaration of non-infringement in Germany, but the rights holder had declined to consent. This necessitated commencing proceedings in the UK.
  

In his judgment, HH Deputy Judge Stone sided with the manufacturer, declining to grant a stay. He reasoned: “... it is appropriate to exercise my discretion against granting a stay. I am mindful of [the] strong presumption in favour of a stay and I have weighed that heavily in considering the exercise of my discretion. I have also taken into account the cases to which I was referred and the detailed and helpful submissions of counsel, but I agree with counsel for the [manufacturer] that if there is a risk of inconsistent judgments, that risk is of the [rights holder’s] making. Further, I do not wish to put that risk too highly, given the particular timings in this case. No matter how quickly this court moves, it will, on the [the rights holder’s] own evidence, have the benefit of a German first instance decision prior to considering the merits of the [manufacturer’s] declaration of non-infringement. That is exactly what Article 30 sets out to achieve, and it will be achieved in this case without a stay. As counsel for the [the rights holder] conceded, this court will have to hear this matter eventually. In my judgment, delaying that achieves no purpose other than delaying the commercial certainty which the [manufacturer] seeks and to which it is entitled. The fact that this court will have the benefit of the German court's findings lowers the risk of inconsistent decisions.”

While much turns on the facts of the case, this provides useful guidance for manufacturers whose distributors have been sued and who want to redress the situation by seeking declaratory relief.