Following a long-running legal battle between Diageo and Intercontinental Brands ("ICB"), ICB have agreed to change the name of its vodka-based alcoholic drink, Vodkat. ICB will also pay Diageo an undisclosed but substantial sum in damages and legal costs.

The name change, as part of a settlement agreement reached last month, follows a decision by the Court of Appeal, upholding the High Court's judgment that Vodkat was being unlawfully passed off as vodka. The Court found that there was goodwill in the term 'vodka' meaning that vodka now joins the list of products (including champagne and Advocaat) which enjoy protection under the extended form of passing off.


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Background

Intercontinental Brands ("ICB") launched a product called Vodkat in April 2005. This vodka-based alcoholic drink had an ABV of 22% in contrast to the 37.5% minimum ABV of vodka. ICB also designed the packaging of the Vodkat product in a way that was reminiscent of the style of packaging traditionally used for vodka. Diageo brought an action against ICB in the extended form of passing off. Such an action is an action in passing off brought by a class of trader sharing collective goodwill in a mark to restrain rival traders from using that description or a confusingly similar term in relation to goods that do not correspond to that description. Previous decisions have considered the terms 'champagne', 'advocaat' and 'Swiss chocolate'.

According to the House of Lords decision in Erven Warnink BV v J Townend & Sons Ltd [1979] AC 731, in order to establish such a claim, a claimant must show that there has been "a misrepresentation made by a trader in the course of trade to his prospective customers or ultimate consumers of goods or services supplied by him which is calculated to injure the business or goodwill of another (i.e. it is a reasonably foreseeable consequence) which causes actual damage to a business or goodwill of a trader by whom the action is brought or will probably do so".

At first instance, in January 2010, Arnold J held that vodka was a clearly defined class of goods with a reputation giving rise to goodwill amongst a significant section of the public. Furthermore, ICB's failure to inform consumers and trade customers as to what Vodkat was and of the fact that it differed from vodka amounted to a misrepresentation. A considerable amount of evidence was presented to show that there had been actual confusion on the part of the public. Although evidence of lost sales was not readily apparent or significant, Arnold J held that Diageo had suffered damage due to the erosion of the distinctiveness of the term 'vodka'. Therefore, it was held that all of the necessary elements had been established and that ICB were unlawfully passing off Vodkat as vodka.

ICB appealed the decision on the basis that Arnold J had erred in his interpretation of the authorities and that the extended form of passing off should be limited to products which had some form of 'cachet'. The Court of Appeal found otherwise and upheld Arnold J's decision.

The full judgment in the High Court and Court of Appeal decisions can be found here and here respectively.

Settlement

ICB and Diageo have now reached a settlement in this dispute. Under this settlement, ICB will change the name of Vodkat and pay Diageo an undisclosed but substantial sum in damages and legal costs. The legal costs element of this sum will have been significant, given the amount of evidence obtained by Diageo to demonstrate actual confusion.

ICB plan to launch a new product from January/February 2011 and would be advised to exercise care to ensure that customers are left in little doubt as to the nature of the product.

This case and the subsequent settlement highlights the fact that manufacturers of food, drink and other goods should exercise caution when marketing their products to ensure that the description given is accurate and not misleading. It is arguable that this decision has widened the scope of the extended form of passing off and it will be interesting to see whether any further actions are brought for different classes of goods following this decision.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

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The original publication date for this article was 07/01/2011.