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Wednesday, 13 May 2015

"Now Now, mere reputation is not enough for passing-off" says Supreme Court

The UK Supreme Court has rejected arguments that it should expand its jurisprudence on passing-off to follow an alleged trend in other common law countries, in this morning's judgment in Starbucks (HK) Limited and another v British Sky Broadcasting Group plc and others [2015] UKSC 31. Essentially the question was whether a claimant for passing-off could rely on reputation alone, or if it required customers in the jurisdiction.

This litigation has been the subject of several earlier Katposts and centres on two competing internet television offerings, both called "NOW TV". For a full rundown of the story up to this point including the decision of the Court of Appeal, see Jeremy's post here.

Starbucks' NOW logo
In this appeal to the Supreme Court, Starbucks (HK), who are broadcasters and not baristas, dropped a claim for infringement of a CTM for a device mark dominated by the word "NOW" with minimal graphical embellishment which was ultimately held invalid. The only issue pursued was that of passing-off, and the CTM issues are not discussed further here.
Factual Background
Sky's Now TV logo in 2012
Starbucks was part of a group called PCCM which had been running its service NOW TV in Hong Kong under that name since 2006 and was the largest pay TV operator in Hong Kong by 2012 when this litigation commenced. The trigger for the lawsuit was an announcement by British Sky Broadcasting ("Sky") that it was going to launch its own internet TV service, NOW TV.

At that point in time, the PCCM service was not officially available in the UK. As Lord Neuberger (who gave the judgment of the Supreme Court) explained:

4. People in the United Kingdom cannot receive PCCM's closed circuit service. No set top boxes for it have been supplied in the UK, no subscription has been registered to a subscriber with a UK billing address, and there is no evidence of any subscriptions having been paid for with credit or debit cards with billing addresses in the UK. Consistently with this, PCCM has never held an Ofcom licence for broadcasting in the UK. However, a number of Chinese speakers permanently or temporarily resident in the UK in 2012 were aware of the NOW TV service through exposure to it when residing in or visiting Hong Kong. 

5. On the findings made by the trial judge, UK residents could also become acquainted with the NOW TV service in three other ways by 2012. First, since July 2007, the Chinese language content had been accessible free of charge via PCCM’s own websites. Secondly, programmes and trailers from the NOW TV service had been available free of charge on PCCM’s “channel” on the YouTube website. Thirdly, a few of PCCM’s programmes from its NOW TV service had been available as videos-on-demand on various international airlines, three of which flew into the UK, but none of whose in-flight magazines made reference to NOW TV.

The decision at first instance

When the case came before Arnold J. in the High Court, he found that PCCM had a reputation that was modest but more than de minimis.However, he dismissed PCCM’s claim because the body of people in the UK who associated the mark NOW TV with PCCM's service in Hong Kong were not customers in the UK, and therefore did not represent goodwill in the jurisdiction. 

He concluded that the reality was that “PCCM's primary purpose in making programme content available via YouTube, its own websites and international airlines was to promote its Hong Kong business by encouraging people to subscribe in Hong Kong”. Therefore, he held that PCCM’s “customers were its viewers in Hong Kong, but not viewers in the UK”, and so its “business had goodwill in Hong Kong but not in the UK”, so that the passing off claim failed, though he accepted that if he had found PCCM to have a protectable goodwill in the UK, there was a likelihood that a substantial number of UK viewers would wrongly believe that Sky’s NOW TV emanated from the same or a connected source. 

The Court of Appeal (through Sir John Mummery) essentially agreed with Arnold J. and dismissed the appeal. 

The Supreme Court decision

Essentially, the Supreme Court was asked by PCCM to depart from a long line of case law which held that reputation alone was not enough to found a case of passing-off without there also being actual goodwill, requiring clients or customers in the jurisdiction for the products or services in question.

Lord Neuberger reviewed a long list of authorities of the House of Lords, the Privy Council and that of the Court of Appeal in Anheuser-Busch Inc v Budejovicky Budvar NP [1984] FSR 413, 462. His conclusion on these domestic authorities were summed up as follows:

48. It seems to have been the consistent view of the House of Lords and Privy Council from 1915 to 1990 that a plaintiff who seeks passing off relief in an English court must show that he has goodwill, in the form of customers, in the jurisdiction of the court. While it can be said that, in none of the cases discussed in paras 21-25 above was that point the main focus of attention, it nonetheless seems clear that that is what a succession of respected judges, many of whom had substantial experience in this area, considered to be the law. That conclusion is underlined by the reasoning and conclusion in the judgments in Anheuser-Busch, and indeed the first instance judgments discussed in paras 32-36 above.

Among the English authorities there were a couple of cases that required particular comment. In the Anheuser-Busch case, the importation from the USA of bottled beer under the BUDWEISER mark for use and sale in US military and diplomatic establishments within the UK did not entitle the plaintiff to establish what Lord Oliver later stated was the first element of a passing off claim.

This Anheuser-Busch decision was held to be entirely consistent with Lord Diplock’s speech in the landmark Advocaat passing-off case of Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] AC 731. Lord Neuberger observed in this regard:

32. So far as Anheuser-Busch is concerned, as I have already indicated, the fact that the decision proceeded on the basis that a plaintiff in a passing off action must have goodwill, in the form of customers, in the jurisdiction did not represent any departure from an approach already approved by the House of Lords. As Oliver LJ pointed out at p 464, Lord Diplock in Erven Warnink at p 744 stated that a plaintiff must have “used the descriptive term long enough on the market in connection with his own goods and have traded successfully enough to have built up a goodwill for his business”, and, as Oliver LJ then observed, this “emphasises the point that goodwill (as opposed to mere reputation) does not exist here apart from a business carried on here”. As Oliver LJ went on to say, the same feature “emerges with even greater clarity from the decision of the Privy Council in Star Industrial”. And Dillon LJ in Anheuser-Busch at pp 475-476 cited Spalding, Star Industrial and Inland Revenue Commissioners v Muller to make the same point.

In Sheraton Corporation of America v Sheraton Motels Ltd [1964] RPC 202, the US hotel chain had an arguable case to justify an interlocutory injunction against use of its mark; the goodwill was based on the fact that customers living in the United Kingdom booked rooms in the plaintiff’s hotels through the plaintiff’s London office or through UK-based travel agents. This case was contrasted with the Crazy Horse decision, Alain Bernardin et Cie v Pavilion Properties Ltd [1967] RPC 581, where (as summarised by Lord Neuberger at [38]):

In Alain Bernardin, Pennycuick J held that the plaintiffs could not obtain an injunction against the use of the mark CRAZY HORSE in the UK, even though they could establish a reputation here for its cabaret in Paris under that name. The plaintiff’s problem was that they could not identify any business done in the UK, either directly or indirectly (to use Farwell J’s expression in Panhard), in connection with their “Crazy Horse Saloon” in Paris, and the mere distribution of advertisements was not enough (hence Templeman J’s observation in Globelegance [1974] RPC 603). In other words, there does not seem to have been any evidence of any customers in England of the plaintiffs’ Paris establishment as opposed to people in England who visited that establishment when they were in Paris (see at p 582).

Against this body of case law, PCCM pointed to judgments in several other common law jurisdictions, including:

  • Ireland: C&A Modes v C&A (Waterford) Ltd which Lord Neuberger said [39] shows a “misapprehension” of the reasoning in Crazy Horse
  • Canada: Orkin Exterminating Co Inc v Pestco Co of Canada Ltd, which was “of no assistance” [40] since the US-based plaintiff had thousands of customers in Canada
  • New Zealand: Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd which “does not take matters much further” [41]
  • Australia: ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) represented the best case for PCCM [42] and is commented on below. Essentially Lord Neuberger had some sympathy with the approach but not enough to reverse a century of settled English law.
  • South Africa: Caterham Car Sales & Coachworks Ltd v Birkin Cars (Pty) Ltd which is similar to ConAgra [43]
  • Hong Kong: Ten-Ichi Co Ltd v Jancar Ltd which however is contradicted by a more recent decision of the Court of Final Appeal in In re Ping An Securities Ltd [44]
  • Singapore: Several cases were discussed, but the leading case of Staywell Hospitality Group Pty Ltd v Starwood Hotels & Resorts Worldwide Inc “draws a clear distinction between goodwill and reputation” [45], though admittedly this line was softened in another case (CDL Hotels International Ltd v Pontiac Marina Pte Ltd) where a plaintiff had embarked on a massive pre-launch advertising campaign.

The Australian ConAgra decision represented the best case for a change in direction by the Supreme Court. Lord Neuberger summarised it as follows:

42. Support for PCCM’s case may however be found in the decision of the Federal Court of Australia in ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 106 ALR 465, given by Lockhart J, with whom Gummow and French JJ agreed (and gave judgments of their own). After a very full review of the common law authorities (including those I have discussed above) on pp 473-501, Lockhart J said at p 504 that it was “no longer valid, if it ever was, to speak of a business having goodwill or reputation only where the business is carried on”, relying on “[m]odern mass advertising … [which] reaches people in many countries of the world”, “[t]he international mobility of the world population” and the fact that “[t]his is an age of enormous commercial enterprises”. He also said at p 505 that, in his view, “the ‘hard line’ cases in England conflict with the needs of contemporary business and international commerce”. He concluded on the next page that “it is not necessary … that a plaintiff, in order to maintain a passing off action, must have a place of business or a business presence in Australia; nor is it necessary that his goods are sold here”, saying that it would be “sufficient if his goods have a reputation in this country among persons here, whether residents or otherwise”. Two points should be noted about this decision. First, the passing off claim nonetheless failed because the plaintiff was held to have an insufficient reputation in Australia. Secondly, the High Court of Australia has not considered this issue.

But should the Supreme Court develop the law for similar reasons to keep in line with the modern world? 

49. It is of course open to this court to develop or even to change the law in relation to a common law principle, when it has become archaic or unsuited to current practices or beliefs. Indeed it is one of the great virtues of the common law that it can adapt itself to practical and commercial realities, which is particularly important in a world which is fast changing in terms of electronic processes, travel and societal values. Nonetheless, we should bear in mind that changing the common law sometimes risks undermining legal certainty, both because a change in itself can sometimes generate uncertainty and because change can sometimes lead to other actual or suggested consequential changes.

After looking at the US case in Grupo Gigante SA De CV v Dallo & Co Inc which supported the view of the traditional English cases, he concluded:

Accordingly it does not appear to me that there is anything like a clear trend in the common law courts outside the UK away from the “hard line” approach manifested in the UK cases discussed in paras 21-26 and 32-36 above. [50]

What constitutes sufficient business to give rise to goodwill as a matter of principle?

At [52] Lord Neuberger says:

The claimant must show that it has a significant goodwill, in the form of customers, in the jurisdiction, but it is not necessary that the claimant actually has an establishment or office in this country. In order to establish goodwill, the claimant must have customers within the jurisdiction, as opposed to people in the jurisdiction who happen to be customers elsewhere. Thus, where the claimant’s business is carried on abroad, it is not enough for a claimant to show that there are people in this jurisdiction who happen to be its customers when they are abroad. However, it could be enough if the claimant could show that there were people in this jurisdiction who, by booking with, or purchasing from, an entity in this country, obtained the right to receive the claimant’s service abroad. And, in such a case, the entity need not be a part or branch of the claimant: it can be someone acting for or on behalf of the claimant.

As for the territoriality of the goodwill “an English court has to consider whether the claimant can establish goodwill in England... In other words, when considering whether to give protection to a claimant seeking relief for passing off, the court must be satisfied that the claimant’s business has goodwill within its jurisdiction.”

He then went on to consider further the territoriality of goodwill in paras [55] to [60], citing with approval the passage from Christopher’s Wadlow’s textbook The Law of Passing-off (4th Ed, 3-131) which says:

The reason why goodwill is territorial is that it is a legal proprietary right, existing or not in any jurisdiction according to whether the laws of that jurisdiction protect its putative owner. Goodwill in the legal sense is therefore something more than bare reputation …. The distinction between goodwill in the legal sense and reputation in the everyday sense is like that between copyright and the underlying literary work. It may be surprising, and even inconvenient, that at the moment a literary work is reduced to writing tens or hundreds of legally distinct copyrights may simultaneously come into existence all over the world, but the nature of copyright as a legal right of property arising in any given jurisdiction from national legislation, common law or self-executing treaty means that it must be wrong to speak as if there were a single international copyright.

Finally, Lord Neuberger considered the question of balance between public interest in free competition on the one hand, and the protection of a trader against unfair competition on the other hand, holding:

62. If it was enough for a claimant merely to establish reputation within the jurisdiction to maintain a passing off action, it appears to me that it would tip the balance too much in favour of protection. It would mean that, without having any business or any consumers for its product or service in this jurisdiction, a claimant could prevent another person using a mark, such as an ordinary English word, “now”, for a potentially indefinite period in relation to a similar product or service. In my view, a claimant who has simply obtained a reputation for its mark in this jurisdiction in respect of his products or services outside this jurisdiction has not done enough to justify granting him an effective monopoly in respect of that mark within the jurisdiction.

63. I am unpersuaded that PCCM’s case is strengthened by the fact that we are now in the age of easy worldwide travel and global electronic communication. While I accept that there is force in the point that the internet can be said to render the notion of a single international goodwill more attractive, it does not answer the points made in paras 51-59 above. Further, given that it may now be so easy to penetrate into the minds of people almost anywhere in the world so as to be able to lay claim to some reputation within virtually every jurisdiction, it seems to me that the imbalance between protection and competition which PCCM’s case already involves (as described in paras 60-62 above) would be exacerbated. The same point can be made in relation to increased travel: it renders it much more likely that consumers of a claimant’s product or service abroad will happen to be within this jurisdiction and thus to recognise a mark as the claimant’s. This would mean, if PCCM’s case were correct, it would mean that a claimant could shut off the use of a mark in this jurisdiction even though it had no customers or business here, and had not spent any time or money in developing a market here - and did not even intend to do so.

In conclusion, PCCM’s business was based in Hong Kong and it had no customers, and therefore no goodwill, in the UK – despite an established reputation among a significant number of people in the UK.


Anonymous said...

Sounds like the right decision for now at least.

Stephen Johnson said...

There are some interesting cases proceeding in parallel across the Atantic at the moment. Starbucks v. BSkyB parsed out the requirement for local goodwill in the UK and stated that while the the Paris Convention was not implicated in that case, it did protect famous marks. In Belmora, LLC v. Bayer Consumer Care AG, No. 1:14-CV-00847 (E.D. Va., Feb. 6, 2015), appeal docketed (4th Cir. Apr. 2, 2015) the District Court held in an appeal of a cancellation and associated proceeding that ex US trademark rights were generally not recognized in the US and that the Paris Convention is not self-executing. However, the case is as of the time of publication on appeal with the US Patent Office taking the position that the case is contrary to the implementation of the Paris Convention by the US in the case of a trademark owner with goodwill in the US.

Kind regards

Stephen Johnson

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