When Reputation Just Isn’t Enough – Establishing Goodwill in Passing Off Claims

The tort of “passing off” has long been an essential dimension for people to protect their intellectual property (“IP”) rights. Unlike the registration requirements for trade marks and design rights to bring any claim under those rights, the tort of passing off can be established in any claim provided the legal threshold is reached. The

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The tort of “passing off” has long been an essential dimension for people to protect their intellectual property (“IP”) rights. Unlike the registration requirements for trade marks and design rights to bring any claim under those rights, the tort of passing off can be established in any claim provided the legal threshold is reached.

The current authority on this IP right is the case of Reckitt & Colman Products Limited v Borden Inc [1990] where Lord Oliver outlined the three elements one must establish to claim one’s goods or brand is being “passed off”. One must first establish they have goodwill or reputation attached to any goods or services. The second element is to determine that there is a misrepresentation by the potential defendant that his goods/services are yours and it is likely the public will believe this. The third and final element is to prove that your brand has suffered damage as a result of the public believing the first and second element, i.e. that the goods/services are yours.

There has been much debate over passing off and each of the three elements have been scrutinised in detail by the courts in the UK. Notable uses of this right include the singer Rihanna’s successful passing off claim against Topshop for use of her image on their clothing without permission, which she successfully claimed “passed off” that these garments were from her own independent licensed clothing lines.

Despite these more traditional uses for passing off, this IP right has taken on a new dimension in the global internet-based age. The speed at which content and services can be created and for that matter copied, is unprecedented and the law must constantly evolve to keep pace with technical innovation in the commercial world around it.

Many brand owners view the tort of passing off as the “last chance saloon” of IP rights, particularly in the spheres of internet and media, if their claims to registered IP rights have failed. However, the evidential requirements to prove the three elements of passing off remain high and parties in these situations should not view passing off as a panacea to any infringement of their IP.

The case below, recently heard in the UK Supreme Court, concerned an Internet Protocol TV service (“IPTV”) attempting to broaden the scope of the goodwill element to include mere reputation. The Supreme Court analysed this in detail.

The NOW TV case – widening goodwill?

The UK Supreme Court in its recent judgment on Starbucks (HK) Limited & Ors v BskyB Plc & Ors considered an argument whether mere reputation was enough to establish goodwill for a claim of passing off.

The original dispute arose when Starbucks (HK) (not connected to the global coffee brand) set up an IPTV service in Hong Kong in 2006 marketed under the name “NOW TV” which provided a closed circuit TV service. By 2012 this was one of largest subscription IPTV services in Hong Kong. Whilst this service is not available to Chinese speakers in the UK, many of them were aware of it through accessible videos posted on Youtube, visits to Hong Kong etc. The UK viewers were not subscribers to the service however and Starbucks (HK) did not generate any revenue from their viewing any programs. In June 2012 Starbucks (HK) launched a “NOW Player” app which was available for download in the UK. In March 2012, BskyB or Sky launched an IPTV service with the name “NOW TV”. Starbucks (HK) launched proceedings against Sky in April 2012 for infringement of its Community Trade Mark and passing off.

In the initial case at the High Court, Arnold J discussed the goodwill element of passing off that Starbucks (HK) were hoping to claim. Whilst he noted that Starbucks (HK) could show that a substantial number of Chinese speakers in the UK were acquainted with their “NOW TV” service and it had acquired a moderate reputation amongst the Chinese speaking community in the UK, the key question was whether the viewers in the UK were “customers “ for Starbucks (HK)’s service. As viewers in the UK were not paying subscription to Starbucks (HK) and the company’s preparations for its UK launch did not give rise to protectable goodwill within the UK market, it was not enough to only establish a reputation amongst a significant number of people within the UK.

The Court of Appeal upheld this decision dismissing the claim, adding that the ability of the UK public to access the Starbucks (HK) “NOW TV” content for free online through Youtube etc. did not establish an identifiable customer base in the UK and therefore no goodwill. Sir John Mummery clarified that proving goodwill for passing off relied on making or attempting to make a connection with customers in the market (i.e. the UK) with a view to transacting business and repeat business with them.

Lord Neuberger delivered the judgment of the Supreme Court on appeal from the Court of Appeal. Whilst Starbucks (HK) sought to rely on lines of case law in South Africa, Australia and Singapore which accepted reputation as sufficient to establish goodwill for passing off, the UK courts would not follow this. Lord Neuberger clarified that passing off was a territorial claim in nature and the UK Supreme Court was obliged to consider the current position within the UK, where it was clear that mere reputation was not enough. Starbucks (HK) was required to establish goodwill in the UK.

The decision was reached based on concerns that if it were enough for any claimant to simply establish a reputation without a significant number of people as transacting customers in the UK, this would favour brand protection too much at the expense of free competition. The viewers of Starbucks (HK) in the UK were not paying customers and their ability to view its “NOW TV” service for free through internet video sites was simply to advertise the services available in Hong Kong and could not form the basis for claiming passing off.

How does this affect passing off?

Despite the increasing willingness of courts in other common law jurisdictions to depart from the original elements of passing off, the UK Supreme Court clarified that passing off needs to be considered by the courts of each jurisdiction independently. The developments of the law on goodwill and passing off in Australia for example will not necessarily have any bearing on the decision of a court in the UK.

The Supreme Court set the following guidelines on the goodwill element of passing off;

1. UK decisions on goodwill show that reputation alone is not sufficient;
2. To prove goodwill, the paying customers must be in that country and not simply people in that country who are or can be paying customers elsewhere;
3. To claim for passing off, you do not necessarily need an office or establishment in the UK;
4. If it could be shown that a sufficient number of customers were paying to receive your services in the UK through another provider, this may be enough to establish the goodwill element.

It is clear that the UK courts are keen to prevent global monopolies on names and branding when a potential claimant has little to no presence or business within the UK market.

Those who are content service providers in the media and entertainment industries are attracting increasingly international audiences. This Supreme Court decision means that for the time being, one must be able to show there are paying customers for your services to establish the goodwill element to any passing off claim.

To avoid such situations, content service providers who are looking to engage with customers outside their home country would be well advised to try and register trade marks in that jurisdiction. In the UK and EU, registered trademarks do involve an element of reputation and to some extent the threshold for making a claim of infringement on your registered trade mark can be easier to prove than the often complex process of establishing all the necessary elements for a passing off claim.

For further advice on passing off claims please get in touch with Daniel Blake.

commercial law • Uncategorized

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