This article was first published in the May/June 2015 edition of E-Commerce Law Reports.

UK Supreme Court, 13 May 2015, [2015] UKSC 31

In a case in which PCCW sued Sky for launching a TV service with the same name as its own service in the UK, the Court ruled that reputation is not enough for passing off.

Starbucks (HK) Limited and PCCW Media Limited operate a TV service in Hong Kong under the name NOW TV. When Sky launched a TV service in the UK under the name NOW TV, Starbucks (HK) and PCCW Media sued Sky in the UK, alleging passing off. The claimants' NOW TV had a reputation in the UK, established in part by UK-based individuals visiting their website and YouTube channel, but there were no paying customers in the UK. Was this enough to found a claim in passing off?

It was not. The case reached the UK Supreme Court which, in May 2015, confirmed that reputation without custom in the UK is insufficient for the purposes of a passing off claim. The claimants therefore could not prevent Sky from using the NOW TV name in the UK. The decision highlights an issue for businesses which provide free online services, and underlines the value of obtaining registered trade mark protection in advance of a UK launch, rather than relying on unregistered rights.

Background (SH)

The claimants, Starbucks (HK) Limited and PCCW Media Limited, are Hong Kong companies which are members of the PCCW group, and are referred to in the earlier judgments as 'PCCW.' PCCW has operated an internet protocol television ('IPTV') service in Hong Kong since 2003. It is a so-called closed circuit IPTV service, in that it uses dedicated bandwidth on the provider's network, and requires a set-top box for the subscriber to receive the service. This is similar to traditional cable broadcasts, but with the functionality of catch-up services and video on demand. By 2012, PCCW had become the largest pay TV operator in Hong Kong, with around 200 channels. Its 1.2 million Hong Kong subscribers covered more than half the households in Hong Kong. The service was originally called NOW BROADBAND TV but it was rebranded in 2009 as NOW TV. Whilst the name has always been English, the vast majority of the programmes are broadcast in Mandarin or Cantonese.

In addition to its availability in Hong Kong through the subscription service, NOW TV programmes have been available on PCCW's websites since 2007, and some programmes and trailers are available on PCCW's channel on YouTube. The online content was available to internet users around the world, including in the UK. A small number of programmes were also available as on-demand videos on a few international airlines which fly to or from the UK, but there was no evidence of how many times these were viewed (if at all) or whether they made reference to NOW TV.

Since 2009, PCCW had been in discussions about expanding the NOW TV subscription service internationally, including to the UK. In June 2012, they launched a NOW player app in the UK, which was available to download from a PCCW website and the Apple App Store, in order to warm up the market for its proposed launch in the UK. By October 2012, just over 2,200 people had downloaded the app.

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.' They started developing their NOW TV service in 2011, and announced the launch in March 2012. Like PCCW's service, Sky's NOW TV is an on-demand IPTV service, but it differs in that it is delivered over standard broadband connections, and is a pay-as-you-go service rather than subscription-based.

PCCW commenced proceedings against Sky in April 2012 alleging trade mark infringement and passing off. At first instance (Starbucks (HK) Limited and others v. British Sky Broadcasting Group plc and others [2012] EWHC 3074(Ch), Arnold J held PCCW's trade mark (for the word NOW with some figurative elements) to be invalid on the basis that it was descriptive of the instant nature of the service, and devoid of distinctive character. The registered trade mark infringement claim therefore failed. The passing off claim also failed for lack of goodwill.

PCCW appealed, but the Court of Appeal upheld Arnold J's decision (Starbucks (HK) Limited and another v. British Sky Broadcasting Group plc and others [2013] EWCA 1465) to PCCW's appeal to the Supreme Court was in respect of the decision of the Court of Appeal to uphold Arnold J's dismissal of its passing off claim.

In the Supreme Court (Starbucks (HK) Limited and another v British Sky Broadcasting Group plc and others [2015] UKSC 31), Lord Neuberger gave the only reasoned judgment, with 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: whether, on the facts, PCCW had a protectable goodwill in the UK.

Passing off, and the requirement for goodwill (SH)

Passing off is a common law tort that has developed little in the past 150 years - one of the judgments referred to with approval in the Supreme Court was from 1867. The requirements of a passing off claim to succeed were set out neatly by the House of Lords in Reckitt & Colman Products Ltd v. Borden Inc [1990] 1 WLR 491, which identified three essential elements that must be established by the claimant: goodwill, misrepresentation and damage. That 'holy trinity of passing off' was summarised by Arnold J in the present case as follows:

"(1) the claimant's goods or services have acquired a goodwill in the market and are known by some distinguishing name, mark or other indication;

(2) the defendant has used, or threatens to use, a name, mark or other indication which has led, or is likely to lead, the public to believe that goods or services offered by the defendant are goods or services of the claimant, or connected with it, and thus to a misrepresentation by the defendant (whether or not intentional); and

(3) the claimant has suffered, or is likely to suffer, damage as a result of the erroneous belief engendered by the defendant's misrepresentation."

In the Reckitt & Colman case, the claimants owned the Jif brand, which had become known for selling Jif lemon juice sold in yellow lemon-shaped bottles. Borden's sale of lemon juice in similar bottles was considered to amount to a representation by Borden that the juice that it sold was Jif lemon juice, and the court concluded that a substantial number of members of the public would be misled into purchasing the defendants' lemon juice in the belief that it was the claimants' Jif lemon juice, thereby damaging the claimants' sales.

In the current case, Arnold J found that in 2012, PCCW's subscription services could not be accessed in the UK - no set top boxes had been supplied in the UK and no subscriptions had been paid for with a credit card registered to a UK address. However, a number of Chinese speakers permanently or temporarily resident in the UK were aware of PCCW's NOW TV service. This reputation among UK residents had been gained through exposure to NOW TV when living in or visiting Hong Kong, or Chinese speakers in the UK had become aware of the NOW TV service from PCCW's own websites, YouTube channel, or the on-demand videos on flights. Arnold J concluded that PCCW's NOW TV service had a modest reputation in the UK, but that PCCW had not acquired the necessary 'goodwill' in the UK to support its claim for passing off. He added that had he found there to be goodwill, a substantial number of people would have been misled by Sky's conduct - in other words, there would have been misrepresentation and damage, so the passing off argument failed solely due to the lack of goodwill.

The courts have distinguished between reputation and goodwill for over 100 years. Goodwill consists of more than just reputation - it requires there to be a customer base in the UK.

PCCW tried to persuade the Supreme Court that its passing off claim should succeed, even though it had no paying customers in the UK. Its argument was that in the age of international travel and the internet, it would be illogical for PCCW not to be able to bring passing off proceedings despite having a reputation in the UK, simply because users did not pay when they viewed programmes on PCCW's websites and YouTube.

PCCW 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 strongest support for PCCW's case 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.'

However, the Supreme Court was not bound to follow this decision of the Australian court - and in any case, Lord Neuberger noted that ConAgra's passing off claim had failed since it was found to have insufficient reputation, and that it was a decision of the Federal Court of Australia (a court of first instance) and the point had not been considered by the High Court of Australia (the appeal court) so the decision had limited effect even within Australia.

Lord Neuberger considered a line of cases going back more than 100 years, from Inland Revenue Commissioners v. Muller & Co's Margarine Ltd [1901] AC 217 to the Jif lemon case referred to above, and found them all to support Sky's position. His conclusion on reviewing those cases was that goodwill is territorial in nature, and to show 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 must be customers in the UK who pay for the claimant's goods or services.

In order to succeed in this appeal, PCCW 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.

Lord Neuberger highlighted the difficulties of changing the law in favour of PCCW's argument. If the Supreme Court were to allow PCCW's claim, "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. 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."

His view was that whilst traders should be able to prevent unfair competition from 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 easily acquire a reputation in the UK, which could be used to restrain others, even though the trader had no business in the UK, no customers in the UK and even no intention of trading in the UK. That would have put UK businesses on the back foot when coming to launch a new brand, by risking a passing off claim just because another business had gained some sort of reputation in a similar brand principally known outside of the UK.

So PCCW's appeal failed, and the Supreme Court decided to follow the traditional line, which is now likely to remain the law of England and Wales for some time.

Comment

UK businesses may breathe a sigh of relief that clearing new brands has not become immeasurably more difficult.

The Supreme Court's decision also should not overly concern businesses outside the UK which target UK customers via the internet: as long as those customers pay for services, it is likely that there will be protectable goodwill. PCCW would probably have succeeded if they had charged UK-based users for access to the programmes on their own websites, or if they had made significant sales of the app to the UK public prior to Sky's launch.

However, if the UK could be an important market, and particularly if services are available to UK consumers without subscription, it may well be worthwhile for a non-UK business to consider UK branding issues and obtain UK or Community trade mark protection in the five years prior to an anticipated launch. PCCW would have succeeded in its case against Sky had its trade mark not been found to be invalid.