New Zealand: Sticks And Stones: The Interplay Between Rights Conferred Under The Trade Marks Act 2002 And The Tort Of Passing Off / Fair Trading Act 1986

Last Updated: 31 May 2010
Article by Ian Finch

Consider 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 via the "Services" tab of our website: www.jaws.co.nz.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

James and Wells is the 2009 New Zealand Law Awards winner of the Intellectual Property Law Award for excellence in client service.

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