It is human psychology that sits at the heart of trade mark law. Legal texts and their interpretation place an emphasis, before else, on the ‘consumer perception’. When assessing potential conflicts between trade mark owners, questions like ‘what would consumers think?’, ‘would they be confused?, ‘would they feel misled?’ are in the centre of every debate.

In a world of profound market competition, traders are often tempted to apply that psychology, whether intentionally or innocently, to tap into what is popular amongst consumers at any given time. A brand name or the characteristics of the packaging of a given product are a highly effective tool and easily appropriated for achieving that goal.

‘Passing off’ is one of the ways in which the law has intervened to protect the interest of brand owners when they have an unregistered right in a trade mark. It means that ‘nobody has the right to represent his goods as the goods of another’.[1] This concept originates from the common law tort of deceit and protects a person’s commercial interests against economic harm. It is an exception to the principle of free market competition.

The rationale behind ‘passing off’, on the one hand, is to maintain fair market competition by protecting traders’ economic expectations. On the other hand, it intends to protect consumers against falsely represented products on the market.

In a legal context the elements of ‘passing off’ are goodwill, misrepresentation and damage.

“GOODWILL”

‘Goodwill’ as part of passing off is the connection between a business and its customers. It is the attractive force that brings in business.[2] Goodwill is local in character and divisible in that if the business is carried out in several countries a separate goodwill exists in each of those countries.[3]

Showing goodwill involves demonstrating the connection between the business and its customers by, for instance, showing sale figures, customer reviews, publications in the press and any promotional material in the given territory.

‘Pre-trading goodwill’

Goodwill is typically earned by a business once it has started trading but it is not impossible for it to be achieved before a product or a service becomes available to consumers. Of significance to this kind of ‘pre-trading goodwill’ is the nature of the product and whether the business is associated with another business, which has an already established reputation.[4] Extensive advertising can have the effect of educating consumers to perceive a brand with high regard before the launch of the product itself, again, particularly where that brand is associated with another brand which has already earned the loyalty of its customers.[5]

Foreign traders

It is important to note that foreign traders who want to show goodwill in another country have to show more than mere reputation in their brand or product. They must show (1) business activity and (2) actual customers in the relevant country.[6] The kind of business activity necessary has to be more than sporadic or a matter of occasional sales.[7]

‘Residual goodwill’

Then there is ‘residual goodwill’. ‘Residual’ because it persists after the business has ceased to exist. There are two primary rationales in deciding whether residual goodwill exists. One focuses on the trader’s intent to abandon the goodwill in their product or service, while the second looks at the consumer’s perception.[8]

The ‘abandonment’ rationale looks at whether there is any possibility of the business being resurrected. Mere cessation of the business is not enough. However, if the factual circumstances indicate that there is no possibility of the business being revived, the relevant goodwill may be deemed as abandoned.[9]

The alternative is the ‘consumer perception’ rationale, being the more favoured one, it dictates that if consumers still perceive a given name or a symbol as an indication of the commercial origin of particular goods or a service, then the goodwill attached to that name or symbol lives on, despite the cessation of the business.[10]

Additional consideration in deciding whether the relevant goodwill is preserved is looking at whether there has been use of the symbol by third parties like licensees or small traders re-selling the products bearing the symbol. Notably, the consequence of a third party use may be that the goodwill becomes ‘augmented’ e.g. the new use made of the symbol may alter the original goodwill by building upon what the symbol was originally known for. The other consequence may be that origin of the goodwill has either shifted to a new trader[11] or has become too diluted for consumers to identify one particular trader as the source. The latter scenario acts as a reminder that if traders wish to enforce their rights, they have a responsibility to educate their consumers that their goods or services originate from them. This applies equally to unregistered and registered rights.

MISREPRESENTATION

The second requirement in a passing off action is the need for misrepresentation by the alleged trade mark infringer. This requirement will be satisfied where the consumer is deceived or is likely to be deceived as to the origin of the goods or services. The concept of misrepresentation in this context can be misrepresentation as to quality of the goods or services provided[12], or misrepresentation that the alleged infringer exercises control over or is responsible for the quality of the products.[13] Deception may also occur where, because of the nature of the goods, consumer may assume that the third party making use of the mark is associated with the proprietor by way of a licence or an endorsement.[14]

Once there is evidence of misrepresentation, its extent is considered e.g. it must be more than negligible but rather affect a substantial part of the public. What amounts to a ‘substantial’ part of the public is determined based on considering a number of factors, such as the relevant consumer circles (e.g. the group of consumers targeted by the relevant product or service[15]), the ‘sophistication’ of the consumers (e.g. the level of attention paid by consumers towards the goods or services[16]), the strength of the sign, the similarity between the marks and the goods, the location of the parties’ businesses, the characteristics of the market and the alleged infringer’s intention to deceive consumers (e.g. would it be a reasonably foreseeable consequence that use of the sign will result in deception?).

DAMAGE

The final element of passing off is that the misrepresentation caused by the alleged infringer has caused, or is likely to cause, damage to the proprietor of the mark. Damage can be in the form of loss of actual or potential trade or profit, loss of licensing or endorsement revenue, or it can be damage to reputation. Allowing third party use for a long period of time may also damage the mark by diluting its exclusivity or by making it generic.

Note on Extended Passing off (Collectively owned goodwill)

Goodwill can also be attributed to a particular term or product because of the method applied in making the product.[17] This kind of goodwill is then collectively owned by all traders who manufacture or sell the product. The use of the term ‘Greek yogurt’ is an example of that as it indicates a particular way of making yogurt. Traders can then object against those who cause damage to that goodwill by using the term for products that are not made in that way. 

Closing thoughts

‘Passing off’ as a course of legal action has the reputation of having little certainty of success and be costly, mainly because of the need to evidence all three elements: 1) goodwill in the mark, 2) misrepresentation to consumers, and 3) actual damage to the business. However there have been positive developments in this area:

1. Sophisticated consumer channels such social media platforms, by documenting consumer reviews and comments, make it easier to spot where misrepresentation to consumers has led to confusion or, if there is no confusion, to an impression of a commercial ‘link’ between the proprietor and the alleged infringer (e.g a license).
2. The court has expanded the traditional requirement for evidence of actual consumer confusion, which can be very hard to show, to evidence of the consumer’s perception of commercial link.[18] This means that although consumers are not confused as to which trader the goods originate from, they may presume that there is a commercial relationship between the traders at issued, and that would be enough to show misrepresentation.
3. Increasing awareness amongst traders has meant that they are becoming better prepared to enforce their rights by maintaining internal records of brand promotion, dynamics of use (e.g. sale invoices), customer engagement reviews, etc.

The three points above make this area of law one to follow more closely in the upcoming years.

Footnotes:

[1] Reddaway v Banham [1896] AC 199 (Lord Halsbury, Lord Herschell)

[2] CIR v Muller & Co’s Margarine Ltd. [1976]

[3] Star Industrial Co. Ltd v Yap Kwee Kor [1976]

[4] My KindaBones v Dr. Pepper’s Stove [1984]; BBC v Talbot Motor Company [1981]

[5] BBC v Talbot Motor Company [1981]

[6] Hotel Cipriani v Cipriani (Grosvenor Street) [2010]; Starbucks v British Sky Broadcasting [2015]

[7] Anheuser-Busch v Budejovicky Budvar [1984]

[8] Star Industrial Co. Ltd v Yap Kwee Kor [1976]

[9] Maslyukov v Diageo Distilling [2010]

[10] Mary Wilson Enterprises Inc’s Trade Mark Application [2003]

[11] Scandecor Development v Scandecor Marketing [1999]

[12] AG Spalding v Gamage [1915]

[13] Harrods v Harrodian School [1996]

[14] Mirage Studios v Counter-Feat Clothing [1991]; Irvine v Talksport Ltd [2000]; Robyn Rihanna Fenty v Arcadia [2015]

[15] Harrods v Harrodian School [1996]

[16] Wagamama v City Centre Restaurant [1995]

[17] Fage UK v Chobani UK [2014]

[18] Lego v Shantou Chenghai District Longjun Toys Factory Co [2019]