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Passing Off

1. Introduction to Passing Off
2. No Established Definition of Passing Off
3. The Origins of Passing Off
   1. Passing Off as a Common Law Tort
   2. Passing Off and Equity
4. The Elements of Passing Off
5. Element 1: Reputation or Goodwill
   1. Who can Establish Business Reputation
   2. Types of Trade Indicia
   3. Trade Indicia - Acquiring Secondary Meaning
   4. Proving Reputation
   5. Overseas Brands
6. Element 2: Misrepresentation
   1. Possible Forms of Misrepresentation
   2. Fraud is Not an Essential Element
   3. Other Requirements for Misrepresentation
   4. Proving Misrepresentation
7. Element 3: Damage
   1. Types of Damage
8. Disclaimers
9. Remedies
10. Defences
11. Passing Off Outside “Trade or Commerce”
12. Extension of Passing Off - Character Merchandising and Celebrity Endorsements
    1. Elements
    2. Examples of Character Merchandising
    3. Examples of Celebrity Endorsements
13. Passing Off and Misleading and Deceptive Conduct
    1. Advantages of Trade Mark Claim over Passing Off

This chapter will explain the law of passing off, the elements required to establish passing of and how it applies in practice.

Introduction to Passing Off

Passing off protects against the misappropriation of a trader’s business reputation or goodwill by the misrepresentation of another trader.

According to Lord MacNaghten in Inland Revenue Commissioners v Muller & Co’s Margarine Ltd a trader’s goodwill and reputation 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.’

Business reputation can be protected in a number of ways:

• Trade mark infringement
• Tort of passing off
• Tort of injurious falsehood
• Misrepresentation (misleading & deceptive conduct)

The core of passing off is trying to stop another trader from linking their product to that of another trader if it causes or is likely to cause the other trader’s business some damage.¹ Passing off seeks to stop a person from associating themselves with the trader and taking some of their goodwill for themselves, either overtly or covertly, by implication or directly.

Video overview by Nicolas Suzor on Passing Off

No Established Definition of Passing Off

There is no strict definition of what constitutes the tort of passing off as there are sufficient nooks and crannies to make the cause of action flexible.

Lord Oliver in Reckitt & Colman v Borden [1990] RPC 341 stated that:

“It would, however, be impossible to enumerate or classify all the possible ways in which a man may make the false representation relied on”.

Gummow J in ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302 at 356 noted that:

“The law of passing off ‘contains sufficient nooks and crannies to make it difficult to formulate any satisfactory definition in short form”.

The Origins of Passing Off

Passing off was originally recognised by both common law court and courts of equity.

Passing Off as a Common Law Tort

Commons law considered passing off a form of fraud. The commons law focus in therefore on the representation of traders and whether consumers have been deceived by the representations of traders. A common law action for passing off would be brought by a consumer who had been deceived into trading with one proprietor on the assumption that they were in fact dealing with another trader. The action of passing off expanded over the 20th Century into the tort known today.

Passing Off and Equity

The court of equity were interested in passing off, not as a form of fraud, but in relation to the property aspects, namely the reputation of the trader. The equity court’s focus on business reputation is one characteristic which is still central to todays tort of passing off.

The Elements of Passing Off

Passing off has three core elements known as “the classic trinity”.²

1. That the plaintiff’s goods, business or get-up, including any brand name, enjoy a certain reputation or goodwill, to be recognised by the public as distinctive in the geographical area; and

2. A misrepresentation by the defendant (intentional or otherwise) in the course of trade; and

3. That the plaintiff suffers, or in a quia timet action 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.

Passing off is not about stopping competition it is about dealing with the misrepresentation regarding the reputation of the plaintiff. The classic cases of passing off concern a misrepresentation as to the source of origin of goods. Some courts have gone further, extending the tort of passing off and providing protection where there has been passing off as to the quality of goods.

Element 1: Reputation or Goodwill

To establish this element for the purpose of passing off, the following must be shown:

• reputation/goodwill embodied in or attached to certain trade indicia; and

• that indicia must have acquired a secondary meaning as being distinctive of the trader’s goods or services;

  • in the relevant jurisdiction;

  • within the minds of consumers or likely consumers.

Who can Establish Business Reputation

Courts have taken a very liberal approach to this question – so, only even vaguely commercial activity would satisfy this – ie professional associations and charities. There is no requirement that the public be aware of the plaintiff’s identity as a proprietor, but only that the public think that the goods come from a particular source which in fact is the plaintiff.³

There is no need for plaintiff to be the only source of the goodwill attached to a particular trade indicia. The plaintiff may be one of many, perhaps hundreds who share in the goodwill attached to a particular indicia – ie Advocaat case and Champagne Case – the goodwill attached to Advocaat and Champagne respectively were shared by many manufactures.³ Two traders may also be honest concurrent users of particular indicia, in which case each will not normally have an action against the other. This is because the first trader will not normally have had a sufficient reputation at the time the second-comer had also begun trading under the name.

When must Reputation be Established?

The plaintiff’s reputation must be assessed at the date of the commencement of the conduct complained of.⁴ This means that a plaintiff who would not have succeeded at that date will not do so by the acquisition of a greater reputation. Note, however, that a right of action may be sustained even where the plaintiff no longer trades – provided there is residual goodwill. However, it is vital that the necessary reputation remain. It can be assumed that, over time, reputation will fade, and hence, any rights under passing off will also fade.

Types of Trade Indicia

This may include trade names, the get-up of goods, the title of goods, aspect of packaging, descriptive material, advertising formats, slogans, jingles, characters in a television campaigns, mastheads of newspapers. A Plaintiff’s reputation may be established not only in a trade mark or trade name or in a distinctive description but in any other material or activity which has become associated or identified in the minds of the public, or a sufficient section of the public.

Trade Indicia - Acquiring Secondary Meaning

It is commonly held that descriptive marks must have acquired a secondary meaning, or secondary signification, indicating goods or services connected exclusively with the plaintiff.⁵ Where a word has acquired a secondary meaning as indicating the plaintiff’s goods or services, it might be difficult for others to use it without committing a passing off.

However, using a descriptive term, rather than an inventive term, will require much more effort on the part of a plaintiff to establish a secondary meaning that the term is exclusively distinctive of the plaintiff’s goods.

For example in Reckitt & Colman, the court accepted that the shape of a lemon was used exclusively as indicating that the goods were that of the plaintiff. Other examples of descriptive words having acquired secondary significance include:

• ‘Special Brew’ for beer.
• ‘Top of the Pops’ for records.
• ‘Budget’, for a discount car hire company.
• ‘Pure and simple’ for vegetable oil.
• ‘Plantland’ for a plant nursery.

Reputation established in the relevant jurisdiction

The reputation must be established in the jurisdiction, but note that there is no requirement that the trader has actually traded in the jurisdiction, or even that their goods have been sold in the jurisdiction. Rather, reputation can be established by showing that people in the jurisdiction would be aware of the plaintiff’s reputation⁶ For sufficient reputation to be found there must also be a substantial number of persons in the jurisdiction who are aware of the plaintiff’s goods/services.⁷

Proving Reputation

May be proved by expert evidence, witness evidence or survey evidence. Expert evidence will be admissible if the expertise of the witness arises from specialised knowledge for example marketing experts or experts in a certain type of marketing (such as wine marketing).⁸ Consumers may be brought into court to testify where they have actually been deceived but this type of evidence is not very probative.⁹ While the court may accept expert and witness evidence, the probity of this evidence will vary greatly.

Survey evidence was not accepted until 1990s, before this it was rejected as hearsay. Survey evidence will only be admissible if testimonial evidence from the persons responsible for the survey evidence would also be admissible and subject to cross-examination. Factors that go towards whether survey evidence would be accepted by the court include whether:

• The interviewees are selected so as to represent a relevant cross-section of the public;
• the size is statistically relevant;
• It was conducted fairly;
• All the surveys carried out have been disclosed;
• The totality of the answers given have been disclosed and made available to the defendant;
• The questions are leading;
• The exact answers are recorded and not abbreviated answers;
• The coding has been accurately carried out;
• The instructions to the interviewees have been disclosed; and
• The coding instructions have been disclosed.

Again, while such evidence is admissible the probity varies and often courts have given little weight to such evidence, often criticising it on the basis of methodology.

Overseas Brands

The court’s recognition of the value and impact of indirect advertising techniques makes it easier for owners of well-known brands overseas, that are not sold or directly marketed in Australia, to establish brand reputation in this country. This recognition will make it increasingly difficult for Australians to copy profitable overseas products and to defend such imitations successfully on the basis that the product was not yet officially launched in Australia, and therefore that the reputation was not yet established in this jurisdiction.

Element 2: Misrepresentation

A misrepresentation in passing off refers to conduct on the part of the trader which relies on the reputation or goodwill of the plaintiff usually by misrepresenting some sort of connection with the plaintiff’s business, goods or services and results in consumers coming to an erroneous conclusion about or being confused about a connection between the goods/services of that traders and those of another trader.

It is necessary to show that the defendant’s conduct caused customers to be deceived. The misrepresentation must be capable of causing deception or foreseeable cause deception.¹⁰ The misrepresentation may be express or implied, but it will usually be implied. Whether or not there has been a misrepresentation is ultimately question of fact for the court to determine. It is a matter of impression and there is no determinative factor that the court will necessarily turn to answer the question.¹¹ The existence of a misrepresentation is gauged by the court’s objective assessment of its impact on consumers.

Possible Forms of Misrepresentation

1. There is a connection between the plaintiff’s and the defendant’s goods or services, when one does not exist;
2. The plaintiff’s and the defendant’s goods or services originate from the same source;
3. The defendant’s product is the plaintiff’s product;
4. The plaintiff sponsors, endorses, or somehow approves of the defendant’s product; and
5. The defendant’s product shares some exclusive quality with that of the plaintiff, such as where the defendants’ goods are represented as being made in a particular way or in a particular place when they are not, but the plaintiff’s are.

Fraud is Not an Essential Element

Proof of fraudulent misrepresentation is not necessary to prove passing off there is no requirement that deception be intended, but such an intention will be relevant to damages, and proof of an intention to deceive will assist in proving actual or likely deception (ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 23 IPR 193; Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd (1980) 32 ALR 387). Deliberate appropriation of attractive features of a competitor’s product may lead to an inference of an intention to deceive.¹³

The Full Federal Court in Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157 held:

“… where a trader, having knowledge of a particular market, borrows aspects of a competitor’s get-up, it is a reasonable inference that he or she believes that there will be a market benefit in so doing. Often, the obvious benefit will be the attraction of custom which would otherwise have gone to the competitor. It is an available inference that such borrowing was “fitted for the purpose and therefore likely to deceive or confuse… Of course, the trader may explain his or her conduct in such a way as to undermine the availability of that inference. Obviously, this reasoning will only apply where there are similarities in get-up which suggest borrowing …”

In determining intent to defraud the conduct of the defendant must be viewed as a whole - consideration cannot be given to words or acts which in isolation would be likely to mislead if those words or acts, when put into context, were not capable of misleading. ¹⁴ In Parkdale the defendant’s furniture closely resembled that of the plaintiff in a way that suggested deliberate copying. However, because the defendant adequately labelled their furniture so as to show the true origin of the goods, there was no passing off.

Whether or not there has been deception or likely deception is tested against a group of relevant persons, which is generally the class of potential customers likely to be affected by or exposed to the conduct. It is necessary that a significant segment of the relevant class would be deceived. ¹⁴

In practice, the issue is not who is likely to be deceived but rather whether the court decides, based on all the evidence, that conduct is deceptive. To do this the court will place itself in the shoes of a representative member of the relevant class of consumers and assess whether this hypothetical reasonable consumer would likely be deceived.¹⁵

The hypothetical consumer will take reasonable care, will not be overly gullible or astute, experienced or inexperienced.¹⁴

When considering whether conduct is likely to deceive the courts consider:

• the price of the goods. The more expensive the goods, the more likely it is that consumers will spend more time enquiring about them and the less likely it is that conduct will deceive.
• The court will allow for imperfect recollection. Deception will be more likely where items are not place side by side, if they are side by side (for example of a super market shelf) it is less likely deception will occur.

Other Requirements for Misrepresentation

Authority suggests misrepresentation must continue up until the point of sale and if cleared up before the point of purchase this will be insufficient for There must be likelihood of actual deception, mere confusion or a cause to wonder whether there is an association is not sufficient.¹⁴ However, if there is a deliberate attempt to create uncertainty, then this would amount to deception.¹⁶ misrepresentation.¹⁷

Proving Misrepresentation

Expert evidence and survey evidence will be less useful in establishing deception than it will be in establishing reputation.

Witness evidence will be crucial where special markets are concerned. For example, goods of a kind which are not normally sold to the public. Consumer evidence will be permitted if it establishes the habits of purchasers. For example, whether goods are normally sold side by side so that visual comparisons are made before purchase. Consumer evidence regarding whether consumers would be deceived is irrelevant as this is a matter for the judge. Evidence of actual deception would be admissible.

Survey evidence will not be admissible to establish whether potential consumers would have been deceived, but evidence of instances of actual deception would be.

Element 3: Damage

There is no requirement that actual damage be shown, only a likelihood of damage - a real and tangible risk of damage.¹⁸ Moreover, damage must only really be established if the plaintiff wants more than nominal damages or an injunction – ie where the plaintiff is seeking damages or an account of profits. Where the first two elements have been established in an action for passing off, damage will often be presumed. Damage must be by reason of an 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.

Types of Damage

Courts have been liberal with the types of damage that will satisfy the cause of action, the following are some examples:

In a classic passing off action, where a defendant is trying to pass his goods off as those of the plaintiff, damage may be proven through a loss of sales or existing trade – that trade has been diverted away from the plaintiff and towards the defendant.

Damage may simply be to reputation – that the defendant will depreciate or destroy the plaintiff’s goodwill in the particular field in which the unauthorised conduct takes place, ie where the misrepresentation is to the quality of the goods on offer.

It may be damage to the plaintiff’s ability to launch products in the future or to expand into new areas of business.

Misrepresentation as to association may damage reputation or may deprive the plaintiff of possible licence fees for the use of the mark, or it may be the loss of potential to exploit their goodwill in the future etc.

Dilution may occur where there is a loss of to the distinctiveness of the product or business.

Disclaimers

It may be possible to avoid passing off by disclaiming any association with the plaintiff. To be effective any such disclaimer must be as bold, precise and compelling as the trade description itself and must be effectively brought to the notice of any person to whom the goods may be supplied.¹⁹

It is far less likely that a disclaimer will neutralise the effect of a particularly distinctive trade mark. More often than not, courts will take the view that a disclaimer will not be noticed or understood or that it might be too easily removed.²⁰ A disclaimer will be less likely to be effective where goods are ‘low involvement goods’ – goods where purchasing decisions are made quickly and without much thought or examination - generally cheap goods.

On the other hand, where goods are expensive, disclaimers are likely to be more effective because the goods will be subject to closer inspection prior to purchase. Courts will also consider whether normal labelling of product and if the product is labelled in the normal and reasonable way to indicate its correct origin, this will go against a finding of passing off.⁹ There are no blanket rules when it comes to disclaimers.

Remedies

There are two main remedies available for an action in passing off. These are injunctions and damages. In instances involving fraud, an account of profits may be sought. Further, where there is evidence of fraud exemplary damages may be sought.²¹

Defences

There are a number of defences which apply to passing off.

These include:

• Honest concurrent use;
• Bona fide use of one’s own name;
• Consent;
• Shared goodwill; and
• Effective use of a disclaimer/sufficiently distinguishing the defendant’s goods from the plaintiff’s goods.

Passing Off Outside “Trade or Commerce”

Extension of Passing Off - Character Merchandising and Celebrity Endorsements

Passing off can be used in instances of character merchandising or celebrity endorsement. This provides, for famous people, an ability to prevent others from using their likeness. The basis for this is that consumers may be mislead into thinking the reputable person has endorsed the goods or services.

Character merchandising = using the reputation of a well-known fictitious character to give a name to and add to the popularity of goods not otherwise connected with the character.

Celebrity endorsements = Using a celebrity to endorse and contribute to the popularity of a particular product (that may or may not be connected to the particular celebrity).

Video overview by Billy Young on Character Merchandising

Elements

The elements of passing off for character merchandising and celebrity endorsements are:²²

• The subsistence of some reputation acquired by the fictional character or celebrity; and
• A misrepresentation by the defendant; and
• The existence or threat of actual damage or likelihood of damage to the plaintiff as a result of the conduct in question.

Examples of Character Merchandising

Examples of Celebrity Endorsements

Passing Off and Misleading and Deceptive Conduct

Passing off protects reputation and the legitimate rights and business interests of traders. Consumer protection (misleading/deceptive conduct) legislation protects consumers from being misled or deceived.

Advantages of Trade Mark Claim over Passing Off

With trade mark infringement, there is no need to prove reputation. Defendants in trade mark actions cannot rely on disclaimers to the same extent as in passing off. Additional damages for trade mark infringement now available under new s 126(2) TMA – not available for passing off. Trade mark law will be considered in the following chapters in more detail.

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