The UK Supreme Court has confirmed, in Starbucks v B Sky B, that the law on passing off only protects 'goodwill' within the territory of the UK, not mere reputation. In order to have goodwill for the purposes of a passing off claim, the claimant must have a business in the UK to which the goodwill is attached.
The Supreme Court has, in reaching this decision, confirmed the decisions of the High Court and the Court of Appeal in the same case.
Passing off is one of the last bastions of the common law, unsullied by interference by statute. A fundamental tenet is that the claimant must establish that he owns a relevant goodwill. Goodwill is the first of the so-called 'holy trinity', the ingredients of a successful claim for passing off: goodwill, misrepresentation and damage or likelihood of damage.
The claimants, Starbucks (HK) Limited and PCCW Media Limited, are Hong Kong companies, collectively referred to in the judgment as PCCM.
In Hong Kong, PCCM broadcast a closed circuit IPTV service, broadcasting both live and catch-up programming. The service has been running since 2003. It currently has around 200 channels and 1.2 million subscribers in Hong Kong. The channels are all broadcast in either Mandarin or Cantonese. The name originally given by PCCM to the service was NOW BROADBAND TV but this was changed in 2009 to NOW TV.
In addition to its availability on the Hong Kong subscription service, the NOW TV service has been available on PCCM's own website since 2007, and programmes and trailers are available on PCCM's channel on YouTube. A small number of programmes have also been available as on-demand videos, on international airlines flying between Hong Kong and the UK.
PCCM decided to expand their NOW TV subscription service internationally, including to the UK.
The Defendants, British Sky Broadcasting Group PLC, British Sky Broadcasting Ltd and Sky IP International Ltd, are all part of the British Sky Broadcasting Group, and are referred to in the judgment as "Sky". In March 2012, Sky announced the launch of an IPTV channel to be called NOW TV. It was to be a so-called ‘over the top’ service delivered over standard broadband connections. It is a form of pay-as-you-go service rather than subscription-based.
Earlier stages in the litigation
PCCM commenced proceedings for passing-off in April 2012.
The High Court's assessment of the facts (Mr Justice Arnold) was relied upon by the Supreme Court:
In 2012, a number of Chinese speakers permanently or temporarily resident in the UK were aware of PCCM's NOW TV service, through exposure to it when residing in or visiting Hong Kong. Additionally, Chinese speakers in the UK had become aware of the NOW TV service, from PCCM's own web site, the YouTube channel, and the on-demand videos on flights.
Arnold J. concluded that PCCM's NOW TV service had a reputation in the UK that was modest, not just de minimis, but that PCCM had not acquired the necessary 'goodwill' in the UK to support its claim for passing-off. He added, though, that had he found that PCCM did possess goodwill in the UK, then he would also have found that a substantial number of people in the UK would have been likely to be misled by Sky's conduct.
The Court of Appeal dismissed PCCM's appeal, essentially agreeing with Arnold J. PCCM appealed to the Supreme Court.
The court's assessment and decision
In the Supreme Court, Lord Neuberger gave the only reasoned judgment, the other members of the court (Lords Sumption, Carnwath, Toulson and Hodge) all agreeing with him.
There was, essentially, only one matter that the Supreme Court had to decide. This was whether, on the facts, PCCM had a protectable 'goodwill' in the UK.
PCCM tried to persuade the Supreme Court that it had the necessary goodwill to found a claim in passing-off despite not having traded in the UK. They contended that none of the earlier cases in the House of Lords and Privy Council were inconsistent with the case they were putting forward, and that other cases in the lower courts supported their view, as did cases in other jurisdictions.
The Supreme Court was not persuaded. Lord Neuberger's judgment relies on a line of cases going back more than 100 years, from Inland Revenue Commissioners v Muller & Co’s Margarine Ltd  AC 217 to Reckitt & Colman Products Ltd v Borden Inc  1 WLR 491.
His conclusion is clear: Goodwill is territorial in nature. To show that he has goodwill within the jurisdiction, a claimant must show that he has a business in the UK to which the goodwill is attached. This in turn means that there are customers in the UK who pay for the claimant's goods or services. As Lord Neuberger said:
"...that is what a succession of respected judges, many of whom had substantial experience in this area, considered to be the law."
On that view of the law there could only be one outcome; PCCM's appeal failed.
Lord Neuberger explained that PCCM might well have a reputation in the UK, but reputation and goodwill cannot be equated.
Although PCCM were, it seems, reluctant at first to accept it, in order to succeed in this appeal they needed to persuade the Supreme Court to depart from the existing law. As the law of passing-off is not statute-dependent, the Supreme Court could have chosen to do so.
The essence of the case for change was that globalisation and the existence of the internet have changed trading conditions so fundamentally that the traditional view of goodwill, as dependent upon a territorially located customer base, is no longer appropriate. Potential customers for global businesses exist everywhere. Arguably, the real test should be whether the claimant's business has a reputation in the country in question.
The strongest support for PCCM's case for change was a decision of the Federal Court of Australia in ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 106 ALR 465. The Australian court reviewed the common law authorities, including the UK cases, and voted for change. This quotation from Lord Neuberger summarised the view of the Australian court:
"... it was "no longer valid, if it ever was, to speak of a business having goodwill or reputation only where the business is carried on", relying on "modern mass advertising ... which reaches people in many countries of the world", "the international mobility of the world population" and the fact that "this is an age of enormous commercial enterprises"."
The Australian court decided that the 'hard line' cases in England did not meet the needs of contemporary business. It concluded that for a claimant to succeed in a passing-off claim it would be:
"sufficient if his goods have a reputation in this country among persons here, whether residents or otherwise".
The decision of the Australian court in the ConAgra case was of course not binding on the UK Supreme Court. Nor had it been appealed to the High Court of Australia.
However, Lord Neuberger's real difficulty with proceeding down this line was that it would upset the balance between the conflicting interests of protection for one trader against competition by others. If reputation was all that was required, the existence of modern methods of communication and the modern ease of travel would mean that traders elsewhere could acquire a reputation in the UK, which could be used to restrain others, even though the trader had no business here, no customers here and even no intention of trading here.
So the Supreme Court decided to follow the traditional line, which is now likely to remain the law of England and Wales for some time. Nonetheless, there will always be fine distinctions to be made. For example, if PCCM had specifically charged UK-based Chinese language users for access to its programming on its own web site, rather than permitting free access, perhaps they might have succeeded.