13 May 2015

Supreme Court confirms territorial nature of goodwill in passing off

Note: The London IP team of King & Wood Mallesons acted for Sky in these proceedings

The Supreme Court has today delivered its decision in PCCW v Sky.  The Court has confirmed that, in order to bring a claim for passing off in the UK, a claimant must show that it has goodwill in the form of customers in the jurisdiction; mere reputation is not sufficient, nor is the presence of people in the UK who are customers elsewhere. In reaching this conclusion, the Supreme Court has in effect affirmed the so-called ‘hardline’ approach adopted in a series of previous UK decisions. 

In light of its finding, the Appellants, Starbucks (HK) and PCCW Media (PCCW), had no basis for their allegation that the Respondent (the well-known media group, Sky) was liable in passing off by adopting NOW TV as the name of its internet based TV service, even though PCCW’s Hong Kong based NOW TV service enjoyed – according to the trial judge – a modest reputation in the UK. 

Background

Since 2003, PCCW has provided a closed circuit IPTV (internet protocol television) service in Hong Kong which has, since March 2006, been branded NOW TV.  By 2012, PCCW’s NOW TV had around 1.2 million subscribers covering half the households in Hong Kong.  PCCW has no UK based customers as it is not possible to receive its NOW TV service in the UK.  However, members of the UK public had been exposed to PCCW’s service in the following ways:

  • Chinese speakers permanently or temporarily resident in the UK at the relevant date were acquainted with PCCW’s NOW TV, having been exposed to it when resident in or visiting Hong Kong.

  • Programmes and trailers have been available on PCCW’s ‘channel’ on YouTube.

  • A few of its programmes have been available as videos-on-demand on various international flights, including three which flew into the UK. 

In March 2012, Sky announced the launch of its new ‘over the top’ (‘OTT’) IPTV service (OTT IPTV differs from closed circuit IPTV as the signal is delivered via a standard broadband connection) under the name NOW TV.  Sky launched NOW TV in beta form in mid-July 2012.  At the time of Sky’s launch, PCCW had plans to extend its service internationally, including in the UK, but these plans were not in the public domain.

In April 2012, PCCW issued proceedings against Sky for trade mark infringement (based on its figurative Community Trade Mark for NOW) and passing off.  At trial, Arnold J dismissed PCCW’s claims.  In particular, he decided that PCCW had failed to establish the first necessary element in a claim of passing off, goodwill in relation to its services in the UK (the other elements being misrepresentation and damage).  Whilst he thought PCCW’s service had a modest reputation amongst members of the Chinese-speaking community in the UK, such individuals were not customers in the UK for the purposes of establishing goodwill in the country. The Court of Appeal upheld his decision but the Supreme Court gave PCCW permission to appeal on this question.

Supreme Court decision

Lord Neuberger (with all the other Lordships agreeing with his judgment) affirmed the principle that a claimant in a passing off action must establish actual goodwill in the UK, involving the presence of clients or customers in the UK for the products or services in question.  He analysed a series of passing off cases over the last century at all judicial levels which confirmed that this was the consistent view of the UK courts. For example, in Budweiser (1984), the claimant was unable to establish goodwill based on imports of its beer into the UK for use and sale in US military and diplomatic establishments.  It did not have customers amongst the general public in the UK for its products, and it did not therefore matter that BUDWEISER had a significant reputation in the UK.  

PCCW argued that the UK approach was out of step with that in other jurisdictions, relying on cases in Ireland, Canada, New Zealand, Australia, South Africa, Hong Kong and Singapore.  These cases were said to support its argument that the reputation or goodwill associated with a mark for a particular product or service should extend to circumstances where it is simply associated with it as a matter of reputation.  Of these cases, Lord Neuberger noted that the Federal Court of Australia’s decision in ConAgra Inc v McCain (1992) lent support to PCCW’s case, the Australian Court describing the UK cases as being “in conflict with the needs of contemporary business and international commerce”.  However, Lord Neuberger noted that the claim was dismissed (as the claimant did not have a sufficient reputation in Australia), and that the High Court of Australia had not considered the issue.  

Further, the Singapore Court of Appeal had, in 2013, in Staywell v Starwood, endorsed the UK approach, albeit softening it where the claimant has begun ‘pre-business activities’ including large scale advertising campaigns before launch in order to familiarise the public with its service or product.  On this question, Lord Neuberger though it unnecessary for the Court to rule given PCCW’s plans were not sufficiently advanced in 2012 to have been publicised.  He concluded that the position in other Commonwealth jurisdictions, including those relied upon by PCCW, was less clear (albeit the position in the US appeared to be consistent with that in the UK).   

In the face of PCCW’s assertion that the Court should displace the existing UK approach, Lord Neuberger acknowledged that the Court could develop or even change the law in relation to a common law principle, e.g. to adapt it to practical and commercial realities, but he highlighted that this could itself undermine legal certainty.  Whilst a consistent approach between common law jurisdictions was desirable, it did not appear to him that there was “anything like a clear trend in the common law courts outside the UK away from the “hard line” approach”.  

Lord Neuberger also found indirect support from trade mark cases for the territorial approach to goodwill (i.e. cases relating to genuine use and decisions confirming that mere accessibility of a website is not a sufficient basis to conclude that offers for sale are targeted at consumers in a territory).  Further, he suggested that section 56 of the Trade Marks Act 1994 (which applies article 6bis of the Paris Convention in relation to ‘well known marks’) could substantially reduce the likelihood of what might otherwise be considered harsh results.  Under that section, a mark (whether registered or unregistered) which is used abroad may still be protected in the UK if it satisfies the criteria for a well-known mark, even if there are no customers or goodwill in the jurisdiction.    

The Supreme Court concluded that PCCW had no customers in the UK and therefore had not established the requirement of goodwill. Its business was based in Hong Kong and, to the extent that UK based residents associated NOW TV with its service, they could only be customers of PCCW in Hong Kong, not the UK (because it was not possible to use PCCW's service in the jurisdiction).  As for the availability of PCCW’s services via websites and international airlines, this merely promoted PCCW’s Hong Kong business.  

Comment

The Supreme Court’s decision (the first time that the UK’s highest court has had to consider passing off since the famous Jif Lemon case in 1990) provides welcome certainty as to what a foreign claimant must establish to found a passing off claim in the UK. This is especially the case given that the internet and social media make brands globally accessible, regardless of whether their actual customer base is territorially focused.

In reaching its decision, the Supreme Court was acutely aware of the need to undertake a balancing exercise - namely between the public interest in free competition and the protection of a trader against unfair competition.  According to Lord Neuberger, a finding that a reputation within the jurisdiction is sufficient would have tipped the balance too far in favour of protection as against free competition:

“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.”


Case references

Starbucks (HK) Limited & anr v British Sky Broadcasting Group plc & ors [2015] UKSC 31
Anheuser-Busch Inc v Budejovicky Budvar NP [1984] FSR 413
ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 106 ALR 465
Staywell Hospitality Group Pty Ltd v Starwood Hotels & Resorts Worldwide Inc [2013] SGA 65

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