Latest trends in passing off

by Nikhil Issar

The concept of passing off has undergone changes. At the outset, it was based on representation that the goods were being marketed as the goods of another.[1] However, the concept has now developed to include profession and non-trading activities and at present it is applicable to various forms of unfair trading where such activities caused damage or injury to the goodwill associated with the activities of another person.[2] Lord Dipock had stated the essential characteristics of a passing off action in the following words:

(i) misrepresentation, (ii) made by a person in the course of trade, (iii) to prospective customers of his or ultimate consumers of goods or services supplied by him (iv) which is calculated to injure the business or goodwill of another trader and (v) which causes actual damage to a business or goodwill of the trader by whom the action is brought or will probably do so.[3]

The Controversy of “Goodwill” vs “Reputation” in the United Kingdom

Lord Dipock had enunciated that a misrepresentation made by a person must be with a motive to injure the goodwill of another trader so as to constitute a ground for a passing off action.[4] It is stated that the concept of “Goodwill” has been recognized distinctly from the concept of “Reputation”. The generally accepted definition of “Goodwill” is “benefit and advantage of the good name, reputation, and connection of a business”.[5] In the United Kingdom, the courts have held that a claimant has to establish a customer base within the UK as a pre-requisite to satisfy the goodwill requirement for the obtainment of a passing off action.[6] Thus, in the United Kingdom, a business which has a reputation overseas but does not possess customers in the United Kingdom, shall not succeed in the institution of a passing off action as they would fail to meet the “Goodwill requirement”.[7] A mere reputation within the jurisdiction is not enough to base a passing off claim. In the words of Lord Neuberger, the rationale for the continuance of this interpretation of goodwill is that a business which has simply gained a reputation in the United Kingdom and has not indulged in any trading has “not done enough to justify an effective monopoly”.[8]

Furthermore, the United Kingdom has a stringent definition of the word “Customer” which as per a recent decision which only includes “Paying Customers” under the category of “Customers”.[9] In the current world of online marketing where most services are available free of cost, the word “customer” cannot be restricted to only a “paying customer”. This rationale had been in fact adopted by the English High Courts but was surprisingly not accepted by the English Supreme Court.[10] The exclusion of non paying customers further raises the bar for achieving the “Goodwill requirement” in order to institute a passing off action.

The Transborder-Reputation approach

In Australia, the reputational approach has been recognized as far back in 1992[11] as it was felt that the English approach of goodwill was not in consonance with the international trade and commerce which had begun to take its roots.

Even in India protection is extended to foreign marks which have acquired a reputation in India by extensive advertisements and publicity even though a business is not trading in India.[12]

However, even this approach has two flaws: First, it provides protection to reputable foreign business that do not intend to trade in the country which follows this approach, Secondly, it is much more difficult to prove the existence of a reputation in contradistinction to goodwill which can be proved through amounts generated via revenue.

Balance between reputational and goodwill approach

The most balanced approach can be noticed in New Zealand. New Zealand has adopted the goodwill approach, however “Goodwill” in New Zealand is established through “sufficient business activity” rather than having customers in the jurisdiction.[13] “Sufficient business activity” obviously includes having customers within New Zealand, however it has also been stretched to encompass negotiations to extend an international brand into the jurisdiction. Thus, businesses intending to enter into the jurisdiction of New Zealand may qualify the criterion of “Sufficient business activity” and therefore they would be able to sue for passing off. Thus, New Zealand is able to give necessary protection to businesses which intend to trade in New Zealand and thereby avoid the risk of indulging in “over-protectionism”.

Conclusion

It is very difficult to choose between the goodwill approach and the trans-border reputational approach. However, it can be safely stated that rigid following of the goodwill approach in today’s globalized world is economically unsound. However, the trans-border reputational approach has the risk of “Over-Protectionism” as it would protect even the reputations of businesses which do not seek to carry on trade within the host nation. Thus, this would stifle the growth of legitimate businesses within the nation. The approach of New Zealand seems to be much more logical as it provides protection to businesses which intend to operate in the host nation. This provides the necessary equilibrium needed to satisfy domestic as well as international economic requirements.

[1] Singer Manufacturing Co. v. Loog, (1880) 18 Ch.D. 395.

[2] Bata India Limited v. M/S Pyare Lal & Co., AIR 1985 All. 242

[3] Erven Warnink B.V. v. J. Townend & Sons (Hull) Ltd., 1980 RPC 31; This judgment had been approved in Cadila Health Care Ltd v. Cadila Pharmaceutical Limited, (2001) 5 SCC 73

[4] Supra Note 3

[5]  IRC v Muller [1901] AC 217.

[6]  Anheuser-Busch Inc v Budejovicky Budvar Narodni Podnik [1984] FSR 413 cited in Starbucks (HK) Limited v British Sky Broadcasting Group PLC [2015] UKSC 31

[7] Starbucks (HK) Limited v British Sky Broadcasting Group PLC [2015] UKSC 31

[8] Ibid

[9] Ibid

[10] Plentyoffish Media Inc v Plenty More LLP [2011] EWHC 2568.

[11] ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 106 ALR 465.

[12] Mars Incorporated v. Chanda Softy Ice Cream and Others, AIR 2001 Madras 237

[13] Dominion Rent-A-Car Ltd v Budget Rent-A-Car Systems (1970) Ltd [1987] 2 TCLR 91.

 

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