The Difference between Reputation and Goodwill: Starbucks (HK) Ltd and Another v British Sky Broadcasting Group PLC and Others

Supreme Court of the United Kingdom

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Source Wikipedia

In Reckitt & Colman Products Ltd v Borden Inc [1990] 1 WLR 491, [1990] RPC 341, [1990] WLR 491, [1990] 1 All ER 873, [1990] UKHL 12, Lord Oliver said:

"The law of passing off can be summarised in one short general proposition - no man may pass off his goods as those of another. More specifically, it may be expressed in terms of the elements which the plaintiff in such an action has to prove in order to succeed. These are three in number. First, he must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by association with the identifying "get-up" (whether it 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, such that the get-up is recognised by the public as distinctive specifically of the plaintiff's goods or services. 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. Whether the public is aware of the plaintiff's identity as the manufacturer or supplier of the goods or services is immaterial, as long as they are identified with a particular source which is in fact the plaintiff. For example, if the public is accustomed to rely upon a particular brand name in purchasing goods of a particular description, it matters not at all that there is little or no public awareness of the identity of the proprietor of the brand name. Thirdly, he must demonstrate that he suffers or, in a quia timet action, that he is likely to suffer damage by reason of the erroneous belief engendered by the defendant's misrepresentation that the source of the defendant's goods or services is the same as the source of those offered by the plaintiff."

In  Starbucks (HK) Ltd and Another v British Sky Broadcasting Group PLC and Others (Rev 1) [2015] UKSC 31 (13 May 2015) the Supreme Court considered the first of Lord Oliver's elements. It had to decide whether it was enough for a claimant to establish a reputation attached to the goods or services that it supplies in the minds of the purchasing public by association with the identifying get-up or whether the claimant actually had to have a business in the UK.

The claimant companies operated a number of mainly Mandarin language TV channels in Hong Kong under the trade mark

The defendants operate a TV service in English in the UK under the sign

The claimants sued the defendants for trade mark infringement and passing off in Starbucks (HK) Ltd and Others v British Sky Broadcasting Group Plc and others [2012] EWHC 3074 (Ch) (2 Nov 2012). The case came on before Mr Justice Arnold who dismissed the claim for the reasons I discussed in my case note Community Trade Marks: Starbucks v Sky 16 Nov 2015. The claimants appealed to the Court of Appeal in Starbucks (HK) Ltd and Another  v British Sky Broadcasting Group Plc and Others [2013] EWCA Civ 1465 (15 Nov 2013). Lords Justices Patten, Pitchford and Mummery dismissed the appeal and affirmed the judgment of the court below. As there are Commonwealth and Irish decisions that seem to suggest that it is enough for a claimant to show that it is enough for a claimant to be known in a jurisdiction even if it does no business there the Supreme Court gave permission to the claimants to appeal on that point.

The claimants argued that

"the courts below were wrong, and in particular that (i) it was sufficient for PCCM to succeed in its passing off claim that it had established a reputation for the NOW TV name in connection with its IPTV service among a significant number of people in this country, even if they were not customers of PCCM's IPTV services in this country, but in Hong Kong, and (ii) in any event, PCCM had customers in this country, because a significant number of people were PCCM's customers in this country by virtue of having been exposed to PCCM's programmes on the websites and on international flights."

The Supreme Court (Lords Neuberger, Sumption, Carnwath, Toulson and Hodge) reviewed AG Spalding & Bros v AW Gamage Ltd (1915) 32 RPC 273, 284, T Oertli AG v EJ Bowman (London) Ltd [1959] RPC 1, Star Industrial Co Ltd v Yap Kwee Kor [1976] FSR 256, 269 and  Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] AC 731, 752 and concluded at paragraph [20]:

"it does appear that the courts in the United Kingdom have consistently held that it is necessary for a claimant to have goodwill, in the sense of a customer base, in this jurisdiction, before it can satisfy the first element identified by Lord Oliver. That this has been the consistent theme in the cases can be well established by reference to a series of House of Lords decisions, and a decision of the Judicial Committee of the Privy Council, over the past century."

The claimants responded that

"particularly in an age of global electronic communication and relatively quick and cheap travel, it is inconsistent with commercial reality and unrealistic in terms of practicality to treat the "reputation or goodwill" associated with a mark for a particular product or service as limited to jurisdictions in which there is a business with customers for the product or service, and incapable of extending to jurisdictions in which the mark is simply associated with the particular product or service as a matter of reputation."

Furthermore

"the notion that goodwill should be limited to jurisdictions where the claimant had business is wrong in principle: the question of where the claimant had goodwill was a matter of fact and evidence, not a matter of law. Further, in the present age of "international travel and the presence of the internet", he argued that it would be anachronistic and unjust if there was no right to bring passing off proceedings, particularly in relation to an electronically communicated service, in a jurisdiction where, as a matter of fact, the plaintiff's mark had acquired a reputation."

They also relied on the English interlocutory decisions in  La Société Anonyme des Anciens Établissements Panhard et Levassor v Panhard Levassor Motor Company Ltd [1901] 2 Ch 513 and Sheraton Corporation of America v Sheraton Motels Ltd [1964] RPC 202, the Irish decision in C&A Modes v C&A (Waterford) Ltd [1978] FSR 126, the Canadian case of Orkin Exterminating Co Inc v Pestco Co of Canada Ltd (1985) 19 DLR (4th) 90, the Australian judgment in ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 106 ALR 465, the South African Caterham Car Sales & Coachworks Ltd v Birkin Cars (Pty) Ltd [1998] 3 All SA 175 (A), [1998] ZASCA 44 and the New Zealand authority Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd [1987] 2 TCLR 91, [1987] NZCA 13.

Lord Neberger, who gave judgment on behalf of all the judges who heard the appeal was unmoved.  He acknowledged at paragraph [50] that

"it is both important and helpful to consider how the law has developed in other common law jurisdictions – important because it is desirable that the common law jurisdictions have a consistent approach, and helpful because every national common law judiciary can benefit from the experiences and thoughts of other common law judges."

However, he was not persuaded tha tall the  other common law jurisdictions took a different view from that of the UK:

"In the present instance, the Singapore courts follow the approach of the UK courts, whereas the courts of Australia (subject to the High Court holding otherwise) and South Africa seem to favour the approach supported by PCCM. The position is less clear in other Commonwealth jurisdictions. In the United States of America, the approach appears to be consistent with that of the courts below in this case. Thus in Grupo Gigante SA De CV v Dallo & Co Inc (2004) 391 F3d 1088 the Court of Appeals for the 9th circuit said at p 1093 that "priority of trademark rights in the United States depends solely upon priority of use in the United States, not on priority of use anywhere in the world. Earlier use in another country usually just does not count". Accordingly it does not appear to me that there is anything like a clear trend in the common law courts outside the UK away from the "hard line" approach manifested in the UK cases discussed in paras 21-26 and 32-36 above."

He decided at paragraph [47] that the appeal should be dismissed for the same reasons as it was dismissed in the courts below.  He considered that the Supreme Court should reaffirm that the law is that a claimant in a passing off claim must establish that it has actual goodwill in this jurisdiction, and that such goodwill involves the presence of clients or customers in the jurisdiction for the products or services in question. And, where the claimant's business is abroad, people who are in the jurisdiction, but who are not customers of the claimant in the jurisdiction, will not do, even if they are customers of the claimant when they go abroad. That had been the consistent view of the House of Lords and Privy Council for the last 100 years and while it was always open to the Supreme Court to change the law to take account of changing economic and social circumstances it had to be appreciated that change would bring uncertainty and possibly new anomalies.

Having disposed of the appeal His Lordship considered two connected issues "namely (i) clarification as to what constitutes sufficient business to give rise to goodwill as a matter of principle, and (ii) resolution of the judicial disagreement as to the jurisdictional division of goodwill described by Lord Diplock in Star Industrial."

As to the first issue Lord Neuberger said:

"it seems clear that mere reputation is not enough, as the cases cited in paras 21-26 and 32-36 above establish. The claimant must show that it has a significant goodwill, in the form of customers, in the jurisdiction, but it is not necessary that the claimant actually has an establishment or office in this country. In order to establish goodwill, the claimant must have customers within the jurisdiction, as opposed to people in the jurisdiction who happen to be customers elsewhere. Thus, where the claimant's business is carried on abroad, it is not enough for a claimant to show that there are people in this jurisdiction who happen to be its customers when they are abroad. However, it could be enough if the claimant could show that there were people in this jurisdiction who, by booking with, or purchasing from, an entity in this country, obtained the right to receive the claimant's service abroad. And, in such a case, the entity need not be a part or branch of the claimant: it can be someone acting for or on behalf of the claimant. That is why, as explained in Athlete's Foot, the decision in Panhard et Levassor and the observations in Pete Waterman are compatible with the decision in Alain Bernardin."

As to the second, His Lordship said:

"an English court has to consider whether the claimant can establish goodwill in England, I consider that it was correct. In other words, when considering whether to give protection to a claimant seeking relief for passing off, the court must be satisfied that the claimant's business has goodwill within its jurisdiction."

Having found in favour of the defendants the Supreme Court did not consider it necessary to deal with the other points raised by the defendants in support of the judgments below. Lord Neuberger explained that if the Court had allowed the appeal it would have remitted the appeal to the Court of Appeal to determine those issues.

A particularly interesting part of the judgment is his reference to the balancing exercise between two competing public interests to which Mr Justice Somers referred in Dominion Rent-A-Car, namely "on the one hand the public interest in free competition, on the other the protection of a trader against unfair competition by others". Balancing those interests Lord Neuberger said at paragraph [62]:

"If it was enough for a claimant merely to establish reputation within the jurisdiction to maintain a passing off action, it appears to me that it would tip the balance too much in favour of protection. 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."

To that, I can only say "bravo".

This is a very well-reasoned decision which is a pleasure to read. It is also an important one. IMHO at least as important as  Spalding, Erven Warnink and even Reckitt & Colman and because of the discussion on the balancing of the conflicting public interests perhaps even more so. Should anyone want to discuss this case or passing off, in general, he or she should call me on 020 7404 5252 during office hours or use my contact form.