Protecting Goodwill and Reputation of a Business in the UK: The Law of Passing Off

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Published: 16th July 2008
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Introduction



An action for passing off is made out when a person makes a misrepresentation which is calculated to deceive and cause damage to the business or goodwill of the other person, and that other person has accumulated goodwill in respect to the a trade mark, sign, name or trade dress. Passing off is sometimes referred to as the "law of unregistered trade marks", although it may also relate to a registered trade mark and as such, an infringement of a registered trade mark may also be actionable as a passing off.



Thus to succeed in an action for passing off, a claimant must show three essential elements: goodwill, misrepresentation and damage. In the case of Reckitt and Colman Products Limited v Borden Inc. (1990), Lord Oliver stated that:



"First the plaintiff must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by which the identifying 'get-up' (whether is consists simply of a brand name or a trade description or the individual features of labelling or packaging) under which his particular goods or services are offered to the public ... Secondly, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that goods or services offered by him are the goods or services of the plaintiff ... Thirdly, he must demonstrate that he suffers, or in a quia timet action, is likely to suffer damage ..."



This test is known as the 'classic trinity' test.



1. Goodwill



Passing off protects the goodwill of a claimant's business which is an established property right. It was defined by Lord Macnaghten in the case of IRC v Muller & Co's Margarine Ltd (1901) as:



"...a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start. The goodwill of a business must emanate from a particular centre or source. However widely extended or diffused its influence may be, goodwill is worth nothing unless it has power of attraction sufficient to bring customers home to the source from which it emanates."



Goodwill is established through use of a mark, name, get up or any other sign which is distinctive of a business. Passing off does not protect these marks, names, get up or other signs per se, but protects the goodwill of the business that uses them, as it is that goodwill accumulated through use that is the property right it is protected.



The concept of 'trade' is central to establishing the existence of goodwill which is defined in terms of trading activities. Trading activities is given a wide interpretation, but it is sufficient for the claimant to show that goods and services are supplied to customers in order to demonstrate that the activities are calculated to generate goodwill. However, it is possible for non-trading organisations to be protected from passing off. As Ackner LJ stated in the case of Kean v McGivan (1982):



"[T]he word 'trade' is widely interpreted and includes persons engaged in a professional, artistic or literary occupation."



There is no particular time frame within which goodwill must be created. It is possible for a business to create goodwill within a very brief period of trading, although the trading activity would be required to be intensive. Provided the claimant is able to show that they have the requisite goodwill, it is irrelevant how long they have been trading for. In exceptional circumstances it is possible for goodwill to be created by pre-launch activity. However, there are circumstances in which a claimant may have been trading for some time, but they have not generated any goodwill. This is usually the case when the name of a business is descriptive. In the case of County Sound plc v Ocean Sound Ltd (1991), the plaintiff's use of the name 'The Gold AM' for over six months for a radio station which played 'golden oldies' was held not to have acquired the requisite goodwill. In any event, whether goodwill has actually been created will depend on the individual circumstances of each case. The essence of goodwill is how well the business is known, either directly or indirectly as a result of exposure of the trade name or trade dress to the relevant public,



Goodwill is not the same as reputation for the purposes of passing off. While the two are very closely related, they may be distinguished from one another. It is true to say that a business which has established goodwill is also likely to have a reputation. However the existence of a reputation in a mark, name, get-up or other sign is not necessarily indicative of the presence of goodwill. In the case of Harrods v Harrodian School (1996), Millett LJ stated that:



"Damage to goodwill is not confined to loss of custom, but damage to reputation without damage to goodwill is not sufficient to support an action for passing off."





An action for passing off does not confer monopoly rights in a name as such. In theory, there is nothing preventing one party from using the name of another party provided the relevant market can be distinguished from each other. This is illustrated in the case of Harrods v Harrodian School (1996) where even the 'Harrods' name, which is highly distinctive, was not protected and the defendants were entitled to use it as the name of their school. It was held that the goodwill in the department store of the claimant would not be damaged:



"It is well settled that (unless registered as a trade mark) no one has a monopoly in his brand name or get up, however familiar these may be. Passing off is a wrongful invasion of a right of property vested in the plaintiff but the property which is protected by an action for passing off is not the plaintiff's proprietary right in the name or get up which the defendant has misappropriated but the goodwill and reputation of his business which is likely to be harmed by the defendant's misrepresentation."



To be successful in an action for passing off in the UK, the claimant must have goodwill in this country which relates to the claimant carrying on his business. As goodwill is local in character, where a claimant has goodwill in various countries, he will have goodwill in each country. In UK based proceedings, it is only UK goodwill that is relevant. However, section 56 of the Trade Marks Act 1994, does offer some form of protection to trade marks which are extremely well known, even of the proprietor of mark does not do business in the UK or have any form of goodwill.



2. Misrepresentation



There must be a misrepresentation, whether intentional or not, as to the goods or services offered by the other party which leads to confusion in the minds of members of the public. The misrepresentation must be a material one, creating a real, tangible risk of damage to the claimant. The misrepresentation must be believed by those to whom it is addressed and they must act in reliance upon it. In the case of Spalding v Gamage (1915), Lord Parker stated that:



"[T]he basis of a passing off action being a false representation by the defendant, it must be proved in each case as a fact that the false representation was made. It may, of course, have been made in express words, but cases of express misrepresentation of this sort are rare. The more common case is where the representation is implied in the use or imitation of a mark, trade name or get up with which the goods of another are associated in the minds of the public. In such cases the point to be decided is whether, having regard to all the circumstances of the case ... the defendant's use of such mark, name or get up is calculated to deceive."





This derives from the proposition that "nobody has any right to represent his goods as the goods of someone else."



The fact that there may be confusion in the minds of members of the public does not necessarily mean that the misrepresentation is material. As Lloyd J stated in the case of HFC Bank plc v HSBC Bank plc (2000):



"Even actual confusion does not show that there has been a misrepresentation by anyone; all that it shows is that people make assumptions, jump to unjustified conclusions and put two and two together to make five."



Misrepresentation can occur in a number of ways and according to Lord Parker in Spalding v Gamage, it would be impossible to classify each and every way in which a misrepresentation could occur. However, the most common forms of misrepresentation are:



a) Where the defendant represents that his goods or services are those of the claimant



This is likely to be the most common form of misrepresentation in cases of passing off and arises when the mark, name, get up or other sign of the defendant's business is the same as or similar to the claimant's.



b) Where the defendant represents that the claimant's goods or services are of a particular type of quality





This is where the defendant either represents that the claimant's goods are of a particular type of quality or represents substandard, inferior goods as new or superior.



c) Where the defendant represents that the businesses of the defendant and claimant are one and the same or in some way affiliated with one another



This is likely to be where the defendant deceives the public into believing that there is a business relationship or some trade connection between his goods and services and those of the claimant.



However, even where a representation is true, it may still be misleading in the sense that it is calculated to deceive, which is not a defence.



A misrepresentation may be implied where both parties businesses share a common field of activity. However, it is not a requirement that there necessarily be a common field of activity between the parties. Although where this is the case, it will be easier to demonstrate the existence of a misrepresentation.



It is possible for one party to use another party's mark, name, get-up or other sign, if he does so in a way which is not calculated to deceive. Where one party makes use of the other party's name, while at the same time making it unambiguously clear that the goods or services to be supplied are not connected in any way with the other party, there will be no passing off by way of misrepresentation.



There are certain situations where the use of such marks may be legitimate:



a) Where the defendant makes fair use of the claimant's mark, name, get up or other sign to highlight the purpose or suitability of things such as accessories, which are to be used with the claimant's goods;



b) Where the defendant uses the claimant's mark, name, get up or other sign to make a distinction between the two businesses, or to state that his business or goods are an alternative; or



c) Where the defendant refers to a legitimate relationship with the claimant.



3. Damage



If a claimant is to succeed in an action for passing off it is essential that the alleged misrepresentation is likely to cause damage to the goodwill of the business. It is not necessary to prove actual damage. Proving the likelihood of damage is sufficient.



There will be no cause of action for passing off where there is no damage or prospect of damage to the goodwill of the claimant's business. As Buckley LJ stated in Bulmer (HP) Ltd v J Bollinger SA (1978):



"It is well settled that the plaintiff in a passing-off action does not have to prove that he has actually suffered damage by loss of business or in any other way. A probability of damage is enough, but the actual or probable damage must be damage to him in his trade or business, that is to say, damage to the goodwill in respect of that trade or business".



There are two different types of damage that may be caused. The first relates to the destruction of the goodwill which usually occurs when unsatisfactory goods are sold under a particular business name and the goodwill is subsequently destroyed, damaged or depreciated, ceasing to have any attractive force at all. The second kind of damage relates to the deprivation of the benefit of the goodwill, that is to say that the attractive force which the goodwill has still draws custom in as before, but that custom is drawn to the other party's business and not the business to which the goodwill belongs.



The existence of confusion is not necessarily indicative of an action for passing off. Confusion may arise whether or not there has been a misrepresentation, but it may not be damaging to the claimant. As Robert Walker J stated in Barnsley Brewery Co Ltd v RBNB (1997):



"There must be deception, whether intentional or unintentional. If there is no deception, mere confusion or the likelihood of confusion is not sufficient to give a cause of action".



In dealings between trade competitors, it is fair to assume that confusion itself it damaging, or a sufficient indication of damage.



The type of damage which may occur as a result of passing off includes:



a) Direct loss of sales



This is where parties are in actual competition with each other and the defendant holds his goods out as those of the claimant, although they do not need to appeal to the same type of customer for damage to occur. Damages are likely to be awarded for "depriving [the plaintiff] of the profit he might have made by the sale of the goods which, ex hypothesi, the purchaser intended to buy." (Lord Cranworth LC in Seixo v Provezende (1866))





This is the most common head of damage for passing off.



b) Inferiority of defendant's goods and services





This is where the defendant's goods and services, which are inferior to the claimant's, are in fact passed off as the claimant's. This head of damage is not essential to an action for passing off where the parties are in actual competition with each other, but may still be relevant if the claimant wishes to apply for injunctive relief.



When the defendant passes off the claimant's goods or services as being of an inferior quality, it is necessary that these goods or services are of a different quality to those actually offered by the claimant. In the case of Combe v Scholl (1977), the defendants misrepresented that their goods were just as good as the claimant's but this was untrue. The defendant's product was actually inferior and an injunction was granted as it was thought that the claimant's reputation could suffer if the public purchased the defendant's product under the assumption it was the claimant's.



Damage under this head is difficult to quantify compared with loss of sales. The case of Rolls-Royce Motors Ltd v Zanelli (1979) demonstrated this point:



"The damage that may be done to the plaintiffs, if inferior work is put out as being the work of Rolls-Royce, is quite incalculable and of very great financial harm to Rolls-Royce. On this aspect of the case they are certainly in a very unusual position, in that a large part of the goodwill of Rolls-Royce does depend on their reputation for immaculate finish and engineering".





c) 'Injurious association' with the claimant





Even where the defendant and claimant are not in actual competition with each other, it is still possible for there to be damage caused to the claimant. According to Warrington LJ in Ewing v Buttercup Margarine Co L td (1917):



"To induce the belief that my business is a branch of another man's business may do that other man damage in all kinds of ways. The quality of goods I sell; the kind of business I do; the credit or otherwise which I might enjoy - all those things may immensely injure the other man who is assumed wrongly to be associate with me".



Damage under this head usually occurs where one business is mistaken for another. Where the defendant is an honest trader with an established reputable business, there is not likely to be a prospect of damage to the claimant.



If the claimant is to prove damage under this head, he must show one of the following:



i) That the defendant's business is one which is generally held in low regard, which will in turn have an affect on the reputation of the claimant;



ii) That the defendant may personally have a bad reputation, despite his trade being reputable;



iii) That the defendant provides goods or services which are of a poor quality;



iv) The defendant may break the law; or



v) The defendant's business may fail or face difficulties which may also damage the claimant's credit.



It is essential that if a claimant is to succeed in an action for passing off, that all three elements are satisfied, otherwise the action will fail.



Passing off is a catch area all area of law that entitles a business to prevent other businesses from unfairly using its goodwill. Goodwill is the attractive force that brings in customers and is the essence of what passing off protects. Otherwise known as the law of common law trade marks, it protects against all activities of a business that may lead the public into believing that they are the actual trader. It is therefore a flexible and adaptable area of law (in contrast to registered trade marks), geared to protect what might be called the reputation and association of goods or services to a particular business.

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