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Business claiming 'passing off' must have UK customers before it can sue in UK, says Supreme Court

Out-Law News | 14 May 2015 | 3:27 pm | 3 min. read

The Hong Kong-based provider of internet TV subscription service NOW TV could not prevent Sky using the same name for a similar service in the UK because it did not have a UK customer base, the UK's highest court has ruled.

The Supreme Court said that it was not enough for the Chinese companies, Starbucks (HK) and PCCW Ltd, to show that their service had a reputation with a significant section of the UK public in order to establish a claim for 'passing off'. Although the companies' case was "not without force", they had been able to establish "actual goodwill" in the UK involving "the presence of clients or customers in the jurisdiction for the products or services in question", according to the judge, Lord Neuberger.

This was the first time that the Supreme Court had been asked to decide the issue, and Lord Neuberger acknowledged that it had the ability to modify laws that had become "archaic or unsuited to current practices or beliefs" given the growth of electronic communication. However, as passing off was a "domestic, common law issue" the Supreme Court was required to "consider the factual position in the UK", he said.

"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," he said. "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," he said.

"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. I am unpersuaded that PCCM's case is strengthened by the fact that we are now in the age of easy worldwide travel and global electronic communication," he said.

The position would potentially be different if a company did not yet have enough UK customers to establish goodwill but had "launched a substantial advertising campaign within the UK making it clear that it will imminently be marketing its goods or services in the UK under the mark in question", the judge said. However, the court did not come to a conclusion on this hypothetical situation.

"The decision highlights the continuing potential significance of the territorial nature of IP rights even in an increasingly interconnected world," said Iain Connor, an intellectual property law expert at Pinsent Masons, the law firm behind Out-Law.com.

"It also again highlights the need for those seeking to develop brands to consider whether registered trade mark protection is available and applying for same. In the case of NOW TV, the problem in this regard was that the mark was not capable of being registered because it was descriptive of the instant access characteristic of the service offered," he said.

In the UK, the law of passing off allows companies to protect goodwill in relation to their products or services from misappropriation or abuse by rivals. 'Goodwill' essentially recognises the value to that company of creating its business reputation. Passing off is a common law legal doctrine, meaning that it has been laid down and developed by the courts and can be used to protect unregistered trade marks if certain conditions are met.

The Chinese NOW TV service had been available in Hong Kong for a number of years, where the companies had substantial and valuable goodwill for their services. Some of the TV programmes available on a subscription basis in Hong Kong could be viewed free of charge in the UK, and significant numbers of temporarily or permanently UK resident Chinese speakers did so either on the providers' website or on YouTube. The companies had also been negotiating arrangements to bring their service to the UK on a paid-for basis, but had not begun promoting or advertising this.

In March 2012, Sky announced the imminent launch of its NOW TV internet subscription service in the UK. The Chinese companies challenged this in the courts claiming passing off. The trial judge and Court of Appeal held that as the Chinese companies' customers were located in Hong Kong and that the people viewing the content for free in the UK were not customers. This meant that the Chinese companies had no protectable goodwill in the name NOW TV in the UK, and the claim for passing off failed. The Supreme Court agreed.

"In the result, in the case of passing off, goodwill is territorial and does not freely move across borders in UK law," said litigation expert Jim Cormack of Pinsent Masons.

"However, the Supreme Court did accept that there could be a passing off claim in the UK where the claimant can show that customers in the UK book with or buy from an entity based in the UK even where the actual service purchased is provided when the customers are abroad. The court accepted that this state of the law could lead to fine distinctions and difficult cases," he said.