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A departure from established UK case law on passing off? Not NOW, says UK Supreme Court

15 June 2015

Where an undertaking has no paying customers in the UK for goods sold under a mark and therefore no goodwill, can a claim for passing off succeed on the basis of the mark’s reputation alone? This was the focus of a recent Supreme Court decision, a matter, as the presiding judge Lord Neuberger reflected, “of particularly acute significance in the age of global electronic communication.”

The appellants were Starbucks (HK) Limited and PCCW Media Limited, who together form part of a media group (“PCCM”) which provides an internet television subscription service in Hong Kong. By 2012, PCCM was the largest pay television operator in Hong Kong, offering services under the brand NOW TV. In 2012, Sky announced the UK launch of its own internet-based television service, also branded NOW TV. After PCCM alleged that Sky’s proposed use of NOW TV would constitute infringement of its registered Community Trade , Sky applied to OHIM for a declaration of invalidity against PCCM’s mark. The matter was eventually brought before the UK Court of Appeal, where the trade mark was found to have no distinctive character and was therefore deemed invalid, while PCCM’s claim of passing off was dismissed on the basis that PCCM had no goodwill in the United Kingdom.

One of the three pillars of a successful claim for passing off is the need to establish goodwill in the form of customers for goods and services sold under a mark (or an identifying getup). In this case, people in the UK could not receive PCCM’s broadcasts, no subscription had been purchased linked to a UK billing address, nor did PCCM have an Ofcom licence for UK broadcasting. However, PCCM claimed that there were a number of Chinese speakers permanently or temporarily resident in the UK who were aware of their NOW TV service through visits to or residence in Hong Kong. Moreover, its programmes had been made available on YouTube, entertainment platforms for international airlines, and were accessible free of charge on PCCM’s Chinese language websites.

The Supreme Court decision (see here) deals with PCCM’s appeal, in which they pursued the claim for passing off on the basis of the mark’s reputation in the UK, rather than goodwill built up through sales.

PCCM effectively proposed a radical departure from the long-established UK case law on passing off, arguing that, in view of the technological advances in communication and broader access to global travel, it was unrealistic and impractical to continue to treat the “reputation or goodwill” associated with a trade mark as limited only to jurisdictions where there was a business with customers for those goods or services. Rather, commercial realities demanded that reputation be sufficient regardless of sales. This was particularly the case, PCCM alleged, where the services provided were internet-based. In the absence of domestic precedents, PCCM turned to case law from other common law countries such as Canada, Australia, and Singapore.

In response, Lord Neuberger acknowledged that PCCM’s case carried some weight, and that it was “open to this court to develop or even to change the law in relation to a common law principle, when it has become archaic or unsuited to current practices or beliefs.” However, he held that the appeal should be dismissed in line with the decision of the Court of Appeal. There was a balance to be struck between competition and protection, and if a passing off action could be maintained on the basis of reputation alone, it would “tip the balance too much in favour of protection,” and mean that “without having any business or any consumers for its product or service in this jurisdiction, a claimant [such as PCCM] could prevent another person using a mark such as an ordinary English word, “now”, for a potentially indefinite period” despite the fact that “it had spent no time or money developing the market.”

What did require clarification was what would constitute “sufficient business” to give rise to goodwill. While reputation alone was not enough, it was not necessary that the claimant have an establishment or office in the UK. The claimant should have customers in the UK, rather than merely people in the UK who had purchased products or services overseas. However, purchases made in the UK of an undertaking’s services which were rendered abroad could be sufficient. Further, Lord Neuberger affirmed that goodwill, as a legal proprietary right, was territorial in nature.

This case is indicative of the growing tension between the territorial nature of IP rights and the ubiquitous use of a borderless internet as a means of marketing and delivering goods and services. While the Supreme Court made no modification here to the relevant common law principles, it seems likely that many brand owners will consider the current approach to be out of step with the practicalities of modern commerce.

Charles King
Trade Mark Group

If you require further information on anything covered in this briefing, please contact Charles King (cking@withersrogers.com; +44 207 940 3600) or your usual contact at the firm.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Withers & Rogers LLP, June 2015