Passing off

Passing off

Contents

Passing-off

If one business has distinguishing or easily recognisable features, another business cannot mimic them in an attempt to pass them off as their own. There are several possible remedies available if this happens as well as a number of defences in the event of a claim.

Reputation and goodwill of a business is something that is used to try to give an identity to a business and its goods/services that distinguishes them from those of their competitors. Goodwill has been described as 'the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force which brings in custom'.

If someone else (defendant) uses this goodwill and reputation, the owner of the business (claimant) can stop this by using the law against passing off. In order to succeed in a passing off action the claimant has to prove that:

  • They possess a reputation or goodwill that is associated with their goods or services;
  • There has been a misrepresentation by the defendant which has led to confusion;
  • This misrepresentation has caused damage to the claimant's reputation or goodwill in the claimant's goods or services.

Requirements for a claim

Goodwill

To succeed in a claim for passing off, the claimant must first prove that they have established the necessary goodwill. Passing off claims often concern misuse by the defendant of a name, mark or get-up. However, although goodwill may be represented by words, names, colours, shapes or get-up, passing off protects the goodwill of the claimant's business as a whole and not individual elements.

The length of time required to establish goodwill is a matter of fact in all the circumstances and there is no hard and fast rule on this, but a business that has not traded is unlikely to be able to bring a passing off claim. Unusually, however, in Glaxowellcome, an injunction was granted requiring the defendant company to change its name, prior to the claimant commencing business. This case concerned the registration by the defendant of a new company (Glaxowellcome Ltd) following press releases stating that, if a merger between Glaxo and Wellcome proceeded, the claimant company would be renamed 'GlaxoWellcome Plc'. The injunction was granted despite the fact that the renamed plc had not yet been formed or traded, the court finding that the defendant was engaged in a dishonest scheme to appropriate the goodwill in the names Glaxo and Wellcome and extort a substantial sum for not damaging it. As a general principle, however, actions in passing off are founded on businesses that are in existence and generating goodwill at the time of the action.

In order to succeed in a passing off claim, the claimant must also prove that they have goodwill in the UK. It is not necessary for the owner to set up a place of business in the UK in order to show that they have established goodwill here, but the presence of UK customers will normally be necessary (although, even that may not be enough on its own to establish a real trade connection with the UK).

For example, in 1967, the Crazy Horse Saloon of Paris (which had no UK base but was known here) was unable to stop the opening of a similarly named but otherwise unconnected restaurant in the UK. The court decided that, although the restaurant might have acquired a reputation through travellers returning from Paris and speaking highly of the restaurant, this was not sufficient to amount to goodwill as there was no real connection with the UK.

Only the owner of the goodwill can pursue a passing off action, but it may not always be clear who the owner of the goodwill is, particularly if more than one business is involved in the process that results in the goods or services being made available to the public. Best advice is to make sure that the question of ownership is dealt with in contract documents when entering into new relationships, for example, when appointing a distributor, franchisee or agent.

Otherwise, ownership may depend on the answers to the following:

  • Are the goods or services bought on the strength of the reputation of an identifiable trader?
  • Who does the public perceive to be responsible for the character or quality of the goods or services? Who would be blamed if they were bad?
  • Who is, in fact, responsible for the character and quality of the goods or services?
  • What support is there for the claim of a particular trader to be the owner of the goodwill?

Collective goodwill can exist where a class of traders who all use a mark to denote their goods share the goodwill in the mark. It is necessary, however, to be able to identify with reasonable precision the members of this class of traders. For example, producers of Champagne can restrain sparkling wine not produced in the Champagne region from being sold as Champagne.

Rights in goodwill may continue to exist even after a business ceases to trade or stops using a name or mark. Once goodwill has been truly abandoned, a claimant will be unable to prove damage or a likelihood of damage if, in fact, there is nothing left to damage. It is, however, a question of fact in each case whether goodwill has been abandoned and can no longer be protected, or whether it continues to possess 'the attractive force which brings in custom', in which case it may continue to form the basis of an action for passing off.

Misrepresentation

The claimant must prove that in the course of trade, the defendant made a representation that confuses, deceives or is likely to confuse or deceive the public. It does not matter if the representation is true if, at the same time, it has the effect of confusing the public as to the origin of the defendant's goods or services. Moreover, there is no need for the representation to be made by the defendant with the intention that confusion will result. Innocence (i.e. a lack of awareness that the relevant activity amounts to passing off) is not a defence to an action for passing off.

The misrepresentation must concern the source of the goods.

Typically, the defendant falsely represents that their goods or services are the goods or services of the claimant. The misrepresentation may take the form of an express statement by the defendant to this effect, or may be implied from the use by the defendant of the same or similar distinguishing marks in respect of their goods or services as are used by the claimant. Passing off may also occur where a defendant wrongfully represents someone else's goods or services as theirs, thereby taking the credit for goods or services which originate from someone else.

The risk of confusion may depend on the phonetic and visual similarities between the marks; the nature of the marketplace and circumstances in which the goods are sold or services supplied; the habits of ordinary purchasers; and the nature of the goods or services themselves.

It is harder to establish a likelihood of confusion where the claimant has adopted an ordinary descriptive word to identify their goods or services. The claimant must show that the public has come to associate that word with the claimant and with no-one else.

It need not be all, or even the majority of customers or potential customers that are confused.

The defendant must make the misrepresentation in the course of trade. It is not necessary that the claimant and defendant operate in direct competition with each other, although the further removed the businesses are from one another, the less likely the public are to be confused into thinking there is a connection between the two, unless the claimant's mark has become a household name.

Damage to the claimant

To succeed in a passing off claim, the claimant has to show that the misrepresentation by the defendant caused damage to their goodwill or that damage to the claimant's goodwill is reasonably foreseeable.

The damage may take the following forms:

  • Loss of sales resulting from the public being led by the defendant's misrepresentation to buy the defendant's goods or services where they would otherwise have bought the claimant's
  • Damage to reputation
  • Damage by association, e.g., caused because the defendant has a bad reputation or supplies goods or services of an inferior quality
  • Loss of the opportunity to expand where the defendant's field of business is one into which the claimant might naturally be expected to seek to enter
  • Erosion of goodwill resulting from a proportion of the public ceasing to associate a mark with one particular business, leading to the claimant's exclusivity being reduced, blurred or diminished

Remedies

The claimant in a passing off action may claim any of the following remedies:

  • An injunction to restrain further dealings by the defendant on an interim or final basis. An interim injunction may continue until the full trial of the claim and its purpose is to prevent further damage to the claimant's goodwill during the intervening period
  • A search and seizure order to compel the defendant to allow the claimant's representatives to take possession of infringing articles which the defendant is expected to have concealed, or to obtain evidence and documents which the defendant is expected to suppress
  • Damages or an account of the defendant's profits
  • An order for the delivery up or destruction of the infringing articles

Trade mark infringement and passing off

The proprietor of a registered trade mark has exclusive rights in the mark which are infringed by its use in the UK without their consent. Trade mark infringement proceedings may only be brought in respect of marks which have been registered. A claim for passing off is wider, as it protects all the ways in which a claimant's product or business may be identified, and is not confined to marks which meet the criteria for registration as a trade mark. On the other hand, the benchmark for establishing a claim for passing off is normally higher from an evidential point of view, since the claimant must prove goodwill, misrepresentation and damage. In an action for trade mark infringement, if one of the prohibited acts has been committed, the defendant is likely to be liable unless a specified defence applies.

It is no defence to an action for passing off that the mark complained of is itself a registered trade mark (although potentially this would be a defence to a claim for trade mark infringement). In a passing off action, the claimant may rely on all use of the mark, name or get-up giving rise to their goodwill up to the date on which the defendant commences the infringing activity. This is the case even where the defendant has sought to register an infringing mark or name as a trade mark prior to commencing its own actual use; the defendant does not have a better title to use the name by virtue of a trade mark registration.

Commonly, where the claimant's mark is registered, claims are brought against the unauthorised user of the mark both in trade mark infringement and passing off.

Objection to company name under Companies Act 2006

Under Companies Act 2006, any person can object to a company's registered name on the grounds that it is the same as, or similar to, a name in which the objector has goodwill. Objections must be made by application to an adjudicator of company names.

If the applicant establishes that they have goodwill in the disputed name, the objection will be upheld unless the respondent company can show, on one of a number of grounds, that it adopted the name legitimately, or that it is already operating under the name. However, the applicant may still succeed if they can then show that the company adopted the name either to obtain money from them or to prevent them using the name.

If an objection is upheld, the adjudicator will be obliged to order the company to change its name.

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