POSTED BY:
Ian Finch
ON:
10 May 2010Consider this: You are a New Zealand company which has been manufacturing a product (for argument's sake, an agricultural implement) for over 30 years. You have enjoyed modest success and you are reasonably well known in the industry and amongst potential customers, but you are certainly not famous. On advice from your patent attorney you have taken the precaution of registering your name, Prosperity Group, as a trade mark.
Around three years ago there was a shift in the market involving
a number of new entrants. One of those was the agricultural
implement arm of a multinational corporation, let's call them
Prosperity Corporation. Prosperity Corporation has very deep
pockets and an extremely polished publicity department. Within a
few months its name was appearing on billboards, in newspapers and
magazines, in social media and on the internet. You tolerated this
because there was a positive spin off for your business as you were
able to piggyback on the advertising and promotion carried out by
Prosperity Corporation. In fact, things were going quite well for
you until you received a letter from Prosperity Corporation's
lawyers telling you to cease and desist from trading under the name
"Prosperity Group" because it is confusing the market and therefore
amounts to passing off and a breach of the Fair Trading Act. But
you have a registered trade mark and you were the first to use
"Prosperity" in relation to agricultural implements in New Zealand.
Can Prosperity Corporation succeed?
Unfortunately, the answer is probably yes. Why? Because, while
the Trade Marks Act 2002 gives the owner of a registered trade mark
the exclusive right to use that registered trade mark and to
authorise others to use it, nothing in the Act affects the law
relating to passing off or rights accruing under the Fair Trading
Act 1986 (see section 88 Trade Marks Act 2002).
Passing off
Passing off is an action bought to protect against unfair
competition between traders. The modern law of passing off is a
development of a principle first enunciated in the late 1890's that
"nobody has any right to represent his goods as the goods of
somebody else". The above fact scenario is unlikely to give rise to
a cause of action in passing off. That is because the relevant date
for assessing passing off is the date on which the defendant first
entered the market. In the above example, Prosperity Group could
never be liable for passing off its business as that of Prosperity
Corporation because it entered the market before Prosperity
Corporation had a business presence in New Zealand.
The Fair Trading Act 1986
However, unlike in passing off, the relevant date for
establishing reputation under the Fair Trading Act need not be the
date on which the defendant commenced the conduct alleged to be in
breach of the Act. That is because the Fair Trading Act is not
concerned with the rights of rival traders, but with the right of
the public not to be misled. Therefore, if conduct is misleading,
it does not matter whether the plaintiff or defendant was the first
entrant to the market (although, the timing of such entry may have
a bearing on whether the plaintiff is able to establish sufficient
reputation to give rise to a likelihood of misrepresentation).
Examples
This issue of timing has been considered by the New Zealand
courts under the Fair Trading Act on two occasions.
In Magellan Corp Ltd v Magellan Group
Ltd (1995) 6 TCLR 598 (HC) both
parties were in the commercial and industrial property industry.
The plaintiff ("Corp") had been in business since 1984 under
various names which included the word "Magellan". In 1992 the
defendant ("Group") entered the industry. By that stage, Corp's
business was still active but it was not listed in the telephone
directory. A company search by Group revealed the existence of Corp
but Group did not recognise its name. Group incorporated under the
name Magellan Group Ltd and started promoting its business under
the name "Magellan". Group was a much larger company than Corp and
built a stronger reputation than Corp in a short period of time.
While the spheres of operation of Corp and Group were not
identical, there was a major area of common activity resulting in
immediate and continuing confusion.
It was common ground that representations were made to the
public by Group as to its identity by using the name "Magellan" and
that this was conduct in trade. Whether the conduct was in breach
of the Fair Trading Act turned on the question of whether it was,
or was likely to be, misleading or deceptive by causing confusion
with Corp. Fisher J concluded that Group's conduct in using the
word "Magellan" was inherently likely to mislead customers dealing
with the two entities and had, in fact, done so. Accordingly, Group
was technically in breach of the Act. However, Group had
counterclaimed that Corp was breaching the Act as well. Corp argued
that it could not be in breach of the Act if it was the first to
use the Magellan name. In response, Group argued that the issue was
not priority in time but the current level of reputation of the two
parties. Noting (at 608) that consumer protection is the primary
object of the Act, Fisher J continued (at 612-613):
"If a trader uses a name in a way which causes a customer to
confuse the two companies or their products, associations or
attributes, the trader's conduct is misleading. That is all that
s.9 relevantly requires. Whether the trader acts in that way must
ultimately turn upon the reputations of the two organisations as at
the date of the conduct in question, however and whenever those
reputations may have been derived. It could not turn upon temporal
priority in adopting the name. Priority may have played its part in
contributing to a superior reputation today but if the ultimate
question is whether conduct is misleading it must be the reputation
today which matters, not its causes or history.
That view would seem entirely consistent with the
consumer-protection orientation of the Act…[T]he primary object of
the statute is to protect consumers. It matters not to the consumer
who uses a name first if the result of its current use is
confusion. Thirdly, a newcomer will normally begin with no
significant reputation in the name. At that stage the original user
will be misleading nobody by continuing to use its own name. Only
the newcomer's conduct will be misleading and only the newcomer
could be restrained.
So far as I can see an original user could lose the right to
use its own name only if its own apathy allowed that to happen…I
can see nothing anomalous in the basic proposition that the
original user of a name could breach the Fair Trading Act by
continuing to use its own name if it has allowed an interloper to
acquire its own reputation in the use of the same name. In the end
the only relevant thing which matters under s.9 is whether conduct
is misleading or deceptive."
On the facts of the case, Fisher J held that the conduct of
Corp, in continuing to use its own name, was causing confusion of
those members of the public more familiar with Group and therefore
Corp was also in breach of the Act. His Honour concluded that both
parties should be allowed to continue to use the name "Magellan"
providing they introduced suitable distinguishing information to
prevent consumers from continuing to be misled and/or deceived as
to the identity of the respective parties. However, as Corp was the
first to use the name, Fisher J ordered Group to pay costs.
In Frucor Beverages Limited v Red Bull GmbH &
Anor (12/2/2010, Potter J, HC Auckland CIV
2009-404-006525) the complaint centred around the manner
in which the plaintiff and defendant marketed their respective
energy drink products. In 2009, both parties released an energy
shot product - a more concentrated version of an energy drink.
Frucor's product was marketed as "V Pocket Rocket". Red Bull's
product was marketed as "Red Bull Energy Shot". However, in some
promotional material, including window decals and brochures, Red
Bull used the phrase "A blue and silver pocket rocket". The
evidence showed that Red Bull's energy shot product was released to
the trade in April 2009 and to the public from 6 August 2009.
Frucor's energy shot product was not released to the trade until 15
June 2009 and to the public from late August 2009. Hence, Frucor
was the second entrant to the market. However, the evidence
suggested that, in a very short space of time, Frucor had
established significantly greater reputation in the "Pocket Rocket"
trade mark than Red Bull (ie a situation analogous to the situation
faced by the court in Magellan). Frucor sought an interim
injunction restraining Red Bull from continuing to use the phrase
"A blue and silver pocket rocket" pending full trial on the basis
that Red Bull's conduct in doing so breached the Fair Trading Act
and amounted to passing off.
The court was not satisfied that there was a serious question to
be tried in respect of passing off given clear authority that the
relevant date for determining the plaintiff's reputation in passing
off was the date on which the defendant first entered the market,
and that preceded any use or promotion by Frucor of the POCKET
ROCKET trade mark (ie Frucor had no reputation in that mark at the
relevant time). In terms of fair trading, as in Magellan, Frucor
argued that the issue was timing: namely the relevant date at which
the alleged misleading and deceptive conduct should be assessed.
Frucor argued that it had established a reputation and goodwill in
respect of its "V Pocket Rocket" product on both the date of issue
of proceedings and the date of hearing and that it did not matter
which party launched its product first, so long as Frucor could
show a reputation and a likelihood of misleading or deceptive
conduct. After considering Magellan in detail, the court concluded
(at paras 87-88) that:
- It is incontrovertible that there is no misrepresentation in
adopting a name at a point before any other trader has acquired a
reputation in that name; and
- If, however, the alleged objectionable conduct is assessed at a
later point, for example, when proceedings were issued or at the
date of hearing, it might be arguable on the basis of the approach
in Magellan that the defendants are not automatically immune in
continuing to use the imputed phrase, merely because at the time
they began to use it the plaintiff did not have a reputation in
it.
Having concluded that there was an arguable case under s.9, her
Honour went on to consider the question of whether Red Bull's use
of "Blue and silver pocket rocket" was actually misleading or
deceptive (or likely to mislead or deceive) potential consumers of
energy products. After considering a number of factors
including:
- There was no evidence of actual confusion or deception in the
three and a half months the competing products had been on the
market;
- "Blue and silver pocket rocket" did not appear on Red Bull's
physical products themselves;
- Red Bull's slogan was used in conjunction with the well known
RED BULL trade mark and its distinctive blue and silver packaging;
and
- The target market - 18 to 34 year old consumers - were "brand
savvy";
her Honour considered that there was no likelihood of deception
or confusion and, therefore, no serious question to be tried under
the Act. Accordingly the application for interim injunction
failed.
So what can I do to protect myself?
The simple answer is to take action in respect of any rights
which you possess before those rights are inundated by the actions
of another party. In the example at the beginning of this article,
Prosperity Group did the correct thing by registering its name as a
trade mark. However, it failed to take action when Prosperity
Corporation first entered the New Zealand market selling the same
goods under an almost identical mark.
Remedies available to Prosperity Group at this point in time might
have included:
- A temporary or permanent injunction restraining Prosperity
Corporation from using its name;
- Publication of corrective statements by Prosperity
Corporation;
- Damages suffered by Prosperity Group through confusion; or
payment to Prosperity Group of any profits earned by Prosperity
Corporation through use of its name; and
- Payment of a proportion of Prosperity Group's legal costs.
Instead, Prosperity Group stood by and allowed Prosperity
Corporation to accrue a reputation. A registered trade mark is only
as good as the owner's ability and willingness to enforce it, and
enforcement action should be taken as soon as possible to ensure
that the registered mark remains exclusively associated with the
trade mark owner.
Similarly, if there was evidence of actual confusion, Prosperity
Group may have been able to take action under The Fair Trading Act,
or for the tort of passing off, shortly after Prosperity
Corporation entered the New Zealand market. While consumer
confusion advantaged Prosperity Group in the short term, it failed
to take a long term view of the market and its position in it and
bore the adverse consequences of that.
The golden rules? Protect what is of value to you, be vigilant
of the actions of others, take good advice and strike while the
rights are current and enforceable.
For further information regarding the trade mark registration
process and/or procedures for enforcement of registered and common
law rights in trade marks, please contact our trade marks and/or litigation teams.
By Ian Finch,
Partner
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