UK: New Law of Unfair Competition : Is it Necessary?

Last Updated: 2 December 1998
Proponents for a new law claim that a new law of unfair competition is necessary in order to ensure that we comply with our obligations under the Paris Convention. That may well be so. I do not know.

What really interests me is that many also argue that the current law is inadequate to deal with lookalikes. The law is too uncertain, so the argument goes, and it is too expensive.

Uncertainty

What is uncertain about the law? To succeed under Section 10(2) Trade Marks Act 1994 one needs a valid trade mark registration and one needs to be able to prove confusing similarity. Under the law of passing off one needs to be able to establish the classic trinity, namely goodwill, misrepresentation and damage. No uncertainty there - the law is clear. In copyright, again, the law is simple, it is unlawful to reproduce without permission a substantial part of a copyright work.

What they mean, of course, is that the outcome is sometimes difficult to predict - a very different matter. It is precisely the same uncertainty faced by a plaintiff trying to prove negligence, defamation, and breach of contract or, indeed, any other pleaded case. The uncertainty lies not in the law, but in whether or not one will be able to convince the court that one has a good case. The uncertainty may be as to the quality of one's evidence to support the case or it may be a concern that the judge will not view the case in the same way or it may be a combination of the two.

Why should brand owners be put in any more favourable position than plaintiffs in any other type of suit? A good reason might be that injustice is resulting. Look at all the lookalikes, they say. The supermarkets are running riot, our hard won brands are being diluted left, right and centre and we are powerless to do anything about it.

Oh, yeah? Show me a case where a brand owner has taken on a supermarket and lost. They can't. In over 25 years of supermarket lookalikes the best they can do is point to Penguin v. Puffin, where the passing off case was won and resulted in material changes to the get-up, but where the trade mark infringement case was lost. The fact that the defendant in that case continued to use the name Puffin had nothing to do with the lost trade mark case, but everything to do with the fact that the parties (trading partners) had had enough fighting and wanted to settle the case. It is invariably overlooked that when the judge made his order, the defendants asked for a variation confirming that they were entitled to use the brand name Puffin and the judge refused.

Where a law is severely defective, it is not difficult to point to meritorious cases, which fail; and it is usually possible to find judicial dicta supporting a change in the law. Take for example the Rank Film Distributors case on the plea against self-incrimination which led to Section 72 Supreme Court Act 1981; and the Amstrad case, which supported the music copyright owners' lobby for a blank tape levy. Strong judgments from Lord Russell and Lord Justice Nicholls (as he then was) in those cases provided powerful support for the aggrieved parties.

Where do we find equivalent dicta to support the push for a new law of unfair competition? Nowhere. In short, there is no uncertainty in the law and there is no injustice, which cannot be dealt with by the existing law.

Expense of litigation

The complaint that the law is too expensive is so outrageous as to take one's breath away. Let us look at who these poor impoverished would-be litigants are. They are almost invariably the mighty national and international brand owners. Supermarkets do not produce copycats of failed or even mildly successful brands. They only go for the mega brands. These are the plaintiffs who in other types of action find the expense of litigation an extremely useful ally. They are able to use the expense of litigation to frighten off the opposition. As soon as they are faced with opponents who have the financial muscle to stand up to them, litigation suddenly becomes too expensive.

Worse still, anybody who takes brand protection seriously knows perfectly well that a trade mark registration certificate is only the start. The brand needs litigation support as much as it needs advertising and promotion. The most expensive trade mark infringement and passing off action that I have ever conducted cost £550,000 all in. That is but a drop in the ocean compared with the money spent on advertising a leading brand of the kind likely to be a target for a supermarket.

Those who believe that litigation is too expensive completely fail to understand the role of litigation in brand support.

The truth, of course, is that the predicament that brand owners find themselves in has nothing whatever to do with the inadequacy or expense of litigation. It is simply that in this day and age, when institutional investors require immediate results, the long-term attention that brands require is a luxury that companies believe they can ill-afford. De-listing is the fear. Sales come first. The brand is of secondary importance. Suing one's principal customer is going to be a no-no for all but the most enlightened sales directors.

That is why brand owners have allowed the supermarkets to get away with murder. The decision is only a difficult one if the long-term interests of the brand are other than of paramount importance.

That consideration will continue to apply if and when the new law of unfair competition is enacted. A sales director is no more likely to want to accuse his principal customer of cheating him by way of unfair competition than he is of wanting to accuse him of cheating him by way of passing off.

When one comes to look at the new law that is proposed (WIPO model 3) one finds that all damaging acts of competition are acts of unfair competition.

"Any act or practice, in the course of industrial or commercial activities, which damages or is likely to damage the reputation or goodwill of another's enterprise, shall constitute an act of unfair competition ... whether or not such act or practice causes confusion."

Clearly, that cannot be right, so we are back to the courts to define the limits of the enactment. If anything, the new law is less certain than the existing law.

The ultimate and infuriating irony is that evidentially it ought to be easier to succeed in a passing off action against a supermarket lookalike, than in an action against a competitor's lookalike. The competitor's name on the pack may well counter any risk of consumer deception, whereas the supermarket's name is purely a retailer's mark and does not identify the manufacturer. It does not help the consumer identify the manufacturer.

In relation to the supermarket lookalike the brand owner has the benefit of the widely held consumer belief that the own label is made for the supermarket by the manufacturer of the market leader. As the judge found in Penguin v. Puffin the more "cues" the supermarket takes from the market leader, the more likely that that consumer perception will be fuelled. "On average nearly half of shoppers (47%) mistakenly believe a copy-cat is definitely or probably made by the brand manufacturer" states the Chairman of the British Brands Group. To a passing off litigator 47% is an astonishingly high level of confusion. Plaintiffs have got home in passing off on a fraction of that figure.

Conclusion

The British Brands Group campaign says it all. Not 47%, but total confusion. They push for a law that obviates the need for them to prove likelihood of confusion in order to win; simultaneously, they produce survey research to show stunningly high levels of confusion among consumers in relation to supermarket lookalikes; and their representative pressing their case in the House of Lords, Lord McNally, concludes his speech in the House of Lords debate "we are objecting to what has always seemed to me to be blatant passing off".

Quite so, my lord. The existing law of passing off is well-equipped to deal with blatant passing off. Try it and see. If a meritorious case is lost, then, but only then, will the proponents of the new law have a satisfactory platform from which to launch their campaign.

Dawn Osborne is a senior solicitor at Willoughby & Partners. Willoughby & Partners, in association with Rouse & Co International, have an active interest group devoted to legal issues relating to the Internet.
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