Reputation, goodwill and passing off in the UK: a further look ...

Last Wednesday, fellow Kat David performed an astonishing feat in posting a full and detailed account of the UK Supreme Court's hot-off-the-press ruling in Starbucks v British Sky Broadcasting almost before the ink was dry on this seminal case and probably well before their Lordships had replaced the cork in the bottle of their pre-prandial sherry.  This Kat can report that we have now a further post on the same decision, thinking about it from the perspective of what it means to a litigant who has nothing at his disposal but an unregistered trade mark, known by some members of the public (ie having a reputation) in respect of goods or services that are not being sold in the jurisdiction (ie the reputation has no goodwill). This is a guest post from Katfriend Flora Cook (Kilburn & Strode), who writes as follows:

In-flight entertainment: for those who like
their viewing to be constantly interrupted
by in-flight announcements ...

Starbucks (part of the PCCM Group, referred to below as “PCCM”) ran an internet TV subscription service in Hong Kong under the name NOW TV since 2006. By 2012, when the current litigation began, it was the largest pay TV operator there, offering around 200 channels in Mandarin and Cantonese, plus a small number of English language programmes — all being delivered by a set-top box. PCCM’s NOW TV service was known by a substantial number of Chinese speakers in the UK through their exposure to the mark if they visited or lived in Hong Kong, through free online services available in the UK from PPCM’s Hong Kong website, as well via in-flight entertainment on international flights to the UK.

When British Sky Broadcasting (‘Sky’) announced it was going to launch its own internet TV service, also under the name NOW TV, PCCM claimed infringement of its Community trade mark (CTM) registration, which was held to be invalid, and alleged passing off.

At the relevant date (21 March 2012), PCCM’s NOW TV had a reputation among a substantial number of Chinese-speaking people in the UK, although there were no purchasing customers there.

Three lemons: bad news
for passing-off plaintiffs

The question to be decided at appeal was whether this reputation among a significant section of the public in the UK, in the absence of goodwill, was enough to form the basis of a successful passing off action where the remaining requirements of misrepresentation and damage in the classic Reckitt & Colman Products Ltd v Borden Inc [1990] 1 WLR 491 ‘Jif Lemon’ trinity of criteria were satisfied. Both Arnold J and the Court of Appeal considered that reputation among a significant number of people in this country would be insufficient if unaccompanied by goodwill. The Supreme Court in last week’s decision reaffirmed this view, holding that PCCM had its business based in Hong Kong but that, as it did not have any customers in the UK, it had no goodwill in the UK for the purposes of passing off.

Passing off: the classic trinity

Lord Oliver in Jif Lemon stated:

“First, [the claimant] must establish a goodwill or reputation attached to the goods or services which he supplied in the minds of the purchasing public by association with the identifying ‘get up…’

Given the wording of this key dictum, one could be excused for thinking that goodwill and reputation are interchangeable, such that (1) reputation or goodwill, (2) misrepresentation and (3) damage would form alternative versions of the classic trinity.

The view that reputation alone, without customers in the UK, is not enough for a passing off claim dates back to Maxwell v Hogg (1867) LR2 Ch 307 (which involved a claim for passing off where the plaintiff had advertised though had not yet sold the product).

Through its appeal, PCCM was essentially arguing that an updated ‘repute’ version of the trinity should exist, and put forth case law from other common law jurisdictions as incitement for change of the UK law. However, the Supreme Court was not convinced that there was “anything like a clear trend in the common law courts outside the UK away from the ‘hard line’ [i.e. the classic trinity] approach manifested in the UK cases”.

As outlined thoroughly in the Supreme Court’s decision, the prevailing stance of the UK courts has been to require a claimant to have goodwill, consisting of a customer base in the UK, before the first box in the classic trinity can be ticked. While consumers’ knowledge of the claimant’s indicia may play a part in helping to establishing goodwill (e.g. pre-trading reputation could reduce the length of trading-time needed to establish goodwill: Home Box Office Inc v Channel 5 Home Box Office Ltd [1982] FSR 449], such reputation has not been sufficient on its own to satisfy the first of the three requirements laid out by the Jif Lemon test.

PCCM’s case for an updated/alternative trinity

Arnold J had been convinced that PCCM had established the second and third elements of the classic trinity: it was only the “goodwill or reputation” point that was in question on appeal. PCCM had been able to establish it did have reputation in the UK for NOW TV, and while it was modest, this was more than de minimis.

(i) Reputation

PCCM argued that it was sufficient for PCCM to succeed in its passing off claim that it had established a reputation for the NOW TV name in connection with its IPTV service among a significant number of people in this country, even if they were not customers of PCCM’s IPTV services in this country, but in Hong Kong.

In response, para 62 of the judgment states:

“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.” (emphasis added).

If a trade mark proprietor has a registered trade mark, the type of monopoly outlined in para 62 is exactly what he can expect to obtain (at the very least, while the registration is still within the non-use grace period, and respect of a certain set of goods and services). In light of the wording used by Lord Neuberger, PCCM was effectively trying to obtain a similar monopoly without registration, relying on its repute among UK residents.

Crazy Horse Saloon, Paris, c.1958

There have been cases where reputation in the UK for business conducted abroad has been led to relief under passing off, e.g. as touched on in Hotel Cipriani SRL v Cipriani (Grosvenor Street) Ltd [2010] EWCA Civ 110 [noted by the IPKat here]. However, in such cases, it is not the repute alone which helped satisfy the Jif test, but rather repute in combination with evidence that UK customers are able to purchase the goods or services from the UK, even though those goods or services might be provided abroad. In favour of the position that UK-based purchases are required, an injunction against the use of CRAZY HORSE was refused even though the plaintiff could establish reputation in the UK for its Parisian cabaret under the name Crazy Horse Saloon. The plaintiffs did not evidence that they had customers in England. It is not sufficient that the repute would lead people in England to visit the venue when they visited Paris (Alain Bernardin et Cie v Pavilion Properties Ltd [1967] RPC 581).

In our case, PCCM would have needed to establish that UK-based consumers were making purchases of its subscription services. However, there was no evidence to show that UK payment cards had been used to purchase the subscription services which were only being rendered in Hong Kong.

Another factor that borne in mind in refusing PCCM’s appeal was that of ‘well known marks’ under section 56 of the Trade Marks Act 1994, which gives effect to Article 6(bis) of the Paris Convention. Since section 57 makes no requirement that the proprietor establishes a consumer base or goodwill in the UK, this can provide protection where a proprietor uses a mark abroad and has reputation in the UK. However, in practice this type of protection is typically afforded to international corporations with international reputations: PCCM had only a ‘modest’ reputation.

(ii) ‘Customers'

Arnold J, when dismissing the action at first instance, stated “the key question is whether the viewers of PCCM’s programmes in the [UK] were customers for its service so as to give rise to a protectable goodwill in the UK”.

PCCM argued on appeal that, in any event, PCCM had customers in this country because a significant number of people were PCCM’s customers in this country by virtue of having been exposed to PCCM’s programmes on their websites and on international flights.

The availability of PCCM’s NOW TV content was free in the UK and came online via its websites, its channel on the YouTube website and via international in-flight entertainment. PCCM argued that the global electronic communication and relatively quick and cheap travel meant that confining a business’ “reputation or goodwill” to jurisdictions where that business has customers would be inconsistent with commercial reality. PCCM also argued that limiting goodwill to jurisdictions where the claimant had business was wrong in principle.

However, while it is true that we have the ability to communicate on an almost instantaneous and practically global scale, the Supreme Court states at para 63:

“…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) 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 will happen to be within this jurisdiction and thus to recognise a mark as the claimant’s … 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” (emphasis added).

The stance taken by the Supreme Court (and previous case law) prevents a ‘free for all’ where any business entity or trader sharing content and advertising its goods and services worldwide (which, in this day in age can be at the touch of a button by clicking ’upload’) would be able to stake a claim to a passing off action in the UK. PCCM’s UK-based activities were found to amount to a form of advertising which was insufficient to give rise to goodwill.

The judgment also extensively discusses the territorial nature of goodwill in the context of passing off (as raised at para 51), and sides with Professor Christopher Wadlow’s summary of the position at para 59:

“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 more that 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.” (The Law of Passing-Off: Unfair Competition by Misrepresentation, 4th ed, 2011, para 3-131)

Registered and unregistered trade mark rights are territorial. As IP practitioners, we are well versed in advising our clients on jurisdictional disputes, where borders define the nature of the actions (trade mark infringement, ’passing off’ in the UK, and ‘unfair competition’ in other Member States) as well as the likelihood of success.

To afford protection under passing off to marks with repute (in this case, where knowledge in the UK had not been converted into UK sales) as opposed to goodwill would result in a situation where an unregistered right could potentially provide more robust form of protection than a trade mark registration. For example, a CTM proprietor providing evidence of genuine use in order to justify the retention of his/her registered right must establish actual sales within the relevant jurisdiction. Whilst there is no de minimis requirement, it must still be shown that use of the mark has been ‘in order to create or preserve an outlet for those goods or services…’ with a view to ’maintaining or creating market share for the goods or services protected by the mark’ (Leno Merken BV v Hagelkruis Beheer BV (Case C-149/11) EC:C:2012:816, para 29 [noted here by the IPKat].

Generally, anyone preparing evidence of proof of use in the context of Community trade mark proceedings will be aware of the uphill struggle of trying to persuade OHIM that evidence of advertising spend and marketing material alone justifies the retention of such a powerful monopoly right. It therefore seems logical that the proprietor of a registered or unregistered trade mark right should at least be able to establish some level of custom, i.e. where goods and services have been purchased, in the relevant territory.

The Supreme Court provided clarification as to what constitutes 'sufficient business" in order to give rise to goodwill (para 52): 

• 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
• customers within the jurisdiction, as opposed to people in the jurisdiction who happen to be customers elsewhere (it is not enough that the people in the UK happen to be customers when they are in Hong Kong).
• 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 services abroad.

Remarks

This seems a sensible decision in light of preceding case law. A finding in favour of PCCM may have the potential to provide an unregistered right with the equivalent power to that of a registered trade mark within the five-year grace period, enabling the claimant to “shut off the use of a mark in this jurisdiction even though it had no customers or business here”.

What we are left with is a web of trade mark protection where (1) trade mark registration (within the non-use grace period) provides an absolute monopoly right; (2) trade mark registration (subject to proof of use requirements) allows the continuation of the monopoly right provided the proprietor shows 'genuine use’, (3) unregistered rights at common law under passing off, where the Supreme Court’s view affirms that business i.e. customers and sales, in the relevant territory are required in order to establish goodwill, which is only one third of the classic trinity, (4) ‘well known' unregistered rights where reputation alone, without custom or goodwill, is sufficient to claim protection.

The trade mark registers set out to provide legal certainty by clearly outlining the scope of protection claimed by rights holders. In contrast, unregistered rights by their very nature create less certainty for all concerned, which would seem to justify taking a ‘hard line’ approach (insisting on having UK customers, and UK goodwill in the case of passing off; and substantial reputation needed in the case of ‘well known’ mark) when assessing whether relief under passing off should be granted. The Supreme Court judgment reaffirms that the Jif Lemon trinity, and the raft of case law which has followed in the UK, continues to provide the basic hurdles which a plaintiff must overcome before relief can be granted under a passing off action.