UK: High Court Monitors Reverse Passing Off

Last Updated: 20 October 2006
Article by Nick Beckett, Isabel Davies and Tom Scourfield

In determining an application for an interim injunction between two companies involved with internet monitoring software, the High Court has considered the law of reverse passing off, which involves a third party implying that the goods/services of a better known competitor are their own, thereby benefiting from the goodwill attaching to the Claimant’s products and services.

On the facts, only a limited injunction was granted, but the case provides a useful review of the applicable law in this rare form of passing off.

For the full article on the case of ScanSafe Limited v MessageLabs Limited, and Star Technology Services Limited v ScanSafe Limited (Ch. D.) please see below:


Full Article

In determining an application for an interim injunction between two companies involved with internet monitoring software, the High Court has considered the law of reverse passing off, which involves a third party implying that the goods/services of a better known competitor are their own, thereby benefiting from the goodwill attaching to the Claimant’s products and services.

On the facts, only a limited injunction was granted, but the case provides a useful review of the applicable law in this rare form of passing off.

Reverse Passing Off explained

Passing off requires the proof of three elements:

  1. goodwill
  2. a misrepresentation by the Defendant
  3. damage suffered by the Claimant as a result

In a classic passing off case, the Defendant will pass off goods/services as being those of the Claimant when they are in fact his own. For example, a customer may ask for a particular brand of soft drink cola by name, but be given a glass containing the cola of a different brand, without explanation of the fact they have received a different product to the one they asked for. This is called "switch selling". The Defendant has made a misrepresentation about the origin of the product by implying that the product supplied is the original product requested.

In reverse passing off, the opposite is the case. In this scenario the Defendant implies or suggests that goods/services have emanated from him when in fact they are the Claimant’s, often by advertising competing products offered by the Defendant in a sales catalogue, but using photographs of the Claimant’s actual products. In the above example, reverse passing off would occur when the Defendant (X) re-packaged Y COLA (someone else's product) and sold at as BRAND X as if the product were his own.

ScanSafe v MessageLabs

The Claimant, ScanSafe Limited ("ScanSafe"), produced corporate software that prevented employees accessing certain websites from their work computers, intended to boost productivity by preventing "recreational" web surfing. The defendant MessageLabs Limited ("MLab"), had a commercial arrangement to market and sell this software along with its own under a "White Label" Agreement. Accordingly, an ultimate consumer of the software would be unaware of the fact that the original service provider was ScanSafe, rather than MLab.

The relationship between the two companies deteriorated and MLab served two months notice that it would be producing its own version of ScanSafe’s software and the White Label arrangement was no longer required. However, MLab’s advertising and promotional material for the new software continued to imply a link with the original product by packaging the software as a "new" version (2.0) of the ScanSafe product. There was also evidence that sales agents described the new service as an update of the previous system.

ScanSafe applied for an interim injunction to restrain MLab from passing off and breach of contract. In addition to the allegations of passing off, ScanSafe claimed MLab was required to give nine months notice before it could transfer any existing customers to the new system.

Merits of Claim and Balance of Convenience

A key assessment for the grant of any interim injunction is the Court’s determination of the balance of convenience. However, in this case, Patten J. avoided a detailed assessment of the balance of convenience by focusing on the merits, informed by the practical issues pending trial.

In this case, it was difficult for ScanSafe to establish that MLab was misappropriating their goodwill and reputation as under the White Label arrangement the true source of the services remained unclear. In fact, Patten J. held that the goodwill generated by the existing service was likely to be accrued by MLab, not ScanSafe, under the terms of the White Label Agreement.

Faced with this issue, ScanSafe argued that whilst they might for current purposes have consented to the accrual of goodwill under the White Label arrangement, once it had terminated, MLab were not entitled to claim a common technical origin between the original software, and the new version 2.0. (developed by MLab alone). In effect an association of common origin between the two products was a misrepresentation.

Patten J noted "A permission to brand goods as one's own entitles the licensee to use the commercial reputation of the goods or services to make sales of that product in its own name. To that extent, it permits the licensee to accrue goodwill generated by the product for its own benefit. But it does not, without more, carry with it the right to trade on the reputation of those goods in order to market a similar product that does not originate from the same source as if it does. Such conduct would be a misrepresentation by that defendant and one not authorised by the Agreement. "

The issue to be determined at trial was whether on a true construction of the White Label arrangements the accrual of goodwill prevented the ScanSafe from having the necessary cause of action in passing off. For current purposes however, an arguable case had been made out.

Ultimately, Patten J determined that only a limited injunction was required to ensure no misrepresentation was made pending trial and declined to grant the full injunction sought, or impose the wide undertakings (voluntarily offered) by MLab. He ordered that any customer of MLab who enquired about the new software should be given a copy of a press release which detailed the change in relationship between the parties and explained that the new software was not a further version of the original product but a totally new product.

Review and Comment

Whilst reverse passing off cases are relatively rare, the use of a press release to limit relief granted is even rarer. This case does serve as a useful reminder that the law of passing off is a flexible and practical remedy, which often has application far beyond the more traditional cases with which the tort is usually associated. It is also somewhat unusual for the Court to consider the detailed merits of the claim and be prepared to enter into a "mini-trial" of contractual interpretation. Typically an interim injunction hearing will focus on the balance of convenience after only a limited review of the merits.

It is also interesting to note the robust case management applied by the Court in this case, which had the practical effect of not only limiting the relief granted pending trial, but refusing to endorse much wider undertakings already offered by the Defendants.

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

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 20/10/2006.

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