Passing Off
The Law46.The basic elements of the passing off, namely (a) goodwill, (b) misrepresentation and (c) damage have long been settled and were confirmed by Lord Oliver in Reckitt & Colman Products Ltd v Borden Inc [1990] 1 WLR 791, at 499. In respect of the first element, Lord Oliver spoke of the plaintiff in a passing off action being required to “establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by association with the identifying…brand name or a trade description or [get-up].”47.There are territorial and other nuances in the law of passing off which did not arise in Reckitt & Colman but which were relevant in Starbucks (HK) Ltd v British Sky Broadcasting Group plc [2015] UKSC 31. These led the Supreme Court to qualify Lord Oliver’s formulation. It is goodwill that matters in an action for passing off, not reputation. Lord Neuberger PSC, with whom Lords Sumption, Carnwath, Toulson and Hodge JJSC agreed, said:“[52] As to what amounts to a sufficient business to amount to goodwill, it seems clear that mere reputation is not enough… . The claimant must show that it has a significant goodwill, in the form of customers, in the jurisdiction…”…[62] If it was enough for a claimant merely to establish reputation within the jurisdiction to maintain a passing off action, it appears to me that it would tip the balance too much in favour of protection. It would mean that, without having any business or any customers for its product or service in this jurisdiction, a claimant could prevent another person using a mark, such as an ordinary English word …”48.As Lord Neuberger implied, passing off is founded on goodwill in a business and damage to that goodwill caused by the misrepresentation. There is no goodwill in a name or get up as such. Lord Neuberger referred to and endorsed the judgment of Lord Diplock in Star Industrial Company Ltd v Yap Kwee Kor [1976] FSR 256 (PC). Lord Diplock said this at 269:“A passing-off action is a remedy for the invasion of a right of property not in the mark, name or get-up improperly used, but in the business or goodwill likely to be injured by the misrepresentation made by passing-off one person's goods as the goods of another. Goodwill, as the subject of proprietary rights, is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached.”49.Three years after Star Industrial, in another case which required exploration of the nuances of passing off, Lord Diplock provided this well-known formulation of the tort in Erven Warnink Besloten Vennootschap v J. Townend & Sons (Hull) [1979] AC 731, at 742:“My Lords, A. G. Spalding & Bros. v. A. W. Gamage Ltd., 84 L.J.Ch. 449 and the later cases make it possible to identify five characteristics which must be present in order to create a valid cause of action for passing off: (1) a misrepresentation (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or (in a quia timet action) will probably do so.”50.In the present case Ms Tang’s counsel relied on “reverse passing off”, a term referred to by the Court of Appeal in Bristol Conservatories Ltd v Conservatories Custom Built Ltd [1989] RPC 455. The defendant’s salesmen showed prospective customers a portfolio of photographs of conservatories, implying that these were samples of the goods and workmanship of the defendant. In fact, they were photographs of the claimant’s conservatories. The statement of claim was struck out at first instance, but this was reversed on appeal. Ralph Gibson LJ (with whom the President of the Family Division and Butler-Sloss LJ agreed) said:“Custom Built, by their misrepresentations, were seeking to induce customers to purchase conservatories from them in order to get a conservatory from the commercial source which had designed and constructed the conservatories shown in the photographs. … If a customer ordered a conservatory from Custom Built in response to the misrepresentation – as it was the invention of Custom Built that he should – Custom Built would supply conservatories not of the stated commercial source but of their own manufacture.”51.Ralph Gibson LJ referred with approval to Plomien Fuel Economiser Company, Limited v National Marketing Company [1941] Ch 248. In that case the plaintiffs manufactured a product known as an economiser, which reduced fuel consumption in boilers. The defendants marketed economisers made by a third party. They represented that tests had been carried out in connection with their product whereas the tests concerned related to the plaintiffs’ economiser; they further represented that economisers fitted for certain named purchasers were their products, although it was the plaintiffs’ economisers that had been fitted for those customers. The Court of Appeal ruled that this was passing off. In a judgment with which Luxmoore and Parcq LJJ agreed, Lord Greene said:“It is perfectly true that there is no evidence that a single person who purchased an economiser from the defendants had ever heard of the plaintiffs; but in passing off there is no necessity that the person who is deceived should have known the name of the person who complains of the passing off. In many cases the name is not known at all. It is quite sufficient, in my opinion, to constitute passing off in fact, if a person being minded to obtain goods which are identified in his mind with a definite commercial source is led by false statements to accept goods coming from a difference commercial source.”52.Both Lord Greene and Ralph Gibson LJ pointed out that the wrong restrained in Bristol Conservatories and Plomien was the same as that restrained in a more typical passing off action. Customers of the defendant wanted to obtain goods or services from source A and they were misled by the defendant’s false representation into getting them from source B, the defendant. In a typical passing off action this is achieved by the defendant’s use of a trade name or get-up confusingly similar to that of the claimant. In Bristol Conservatories it was done by supplying customers who wanted conservatories made by the entity which made those in the photographs with its own conservatories instead. In Plomien the customers wanted economisers from the source which had fitted its economisers for earlier named customers and which had satisfied certain tests, but they were supplied instead with the defendant’s products. There was little significantly “reverse” about the passing off in either case, as Ralph Gibson LJ appeared to note although he declined in an interim hearing to make any firm ruling one way or the other about the existence of reverse passing off as a separate tort (at 464). The facts of both Bristol Conservatories and Plomien fit comfortably into Lord Diplock’s five requirements in Warnink.53.One further issue of law relevant to the present case concerns damage to the claimant’s goodwill. Dawnay Day & Co. Ltd v Cantor Fitzgerald International [2000] RPC 669 concerned the fallout from the termination of a joint venture between the first claimant and three individuals experienced in the broking of Eurobonds. The joint venture traded as Dawnay Day Securities Ltd and was part of the Dawnay Day group along with the Dawnay Day corporate claimants. The three Eurobond brokers and three Dawnay Day nominee directors fell out. There was a deadlock in the management of the joint venture which was subsequently sold by the administrator to the defendant. It nonetheless continued to trade as “Dawnay Day Securities”. At first instance it was held that the joint venture’s trading outside the Dawnay Day group under a Dawnay Day name was passing off. The judgment was upheld on appeal. Sir Richard Scott, with whom Henry and Pill LJJ agreed, considered the elements of passing off, including damage:“In respect of each of the Dawnay Day members the necessary ingredient of damage, or the likelihood of damage, is, in my judgment, present. The damage is of two varieties. First, the Dawnay Day members, collectively and individually, have no control over the activities of the proprietors of Dawnay Day Securities. The Dawnay Day reputation will suffer if those activities become in any respect reprehensible. The Dawnay Day companies will be unable to prevent that happening. Secondly, the use of Dawnay Day as a trading style by a company that is not a member of the Dawnay Day group will dilute and, potentially, may destroy the distinctiveness of the name. (See Taittinger SA v. Allbev Ltd [1993] F.S.R. 641, per Peter Gibson L.J. at page 669.)”Discussion54.The express misrepresentation alleged to have been made by Ms McIver was that she created the Elixir serum. This first happened in her Instagram post of 6 June 2018. It fixes the date by which YNNY must establish goodwill in Ms Tang’s business, see Starbucks at [16].55.Ms Tang’s business in the sale of her serum started in June 2015 and had continued without interruption by 6 June 2018. I am satisfied that her business had acquired goodwill in that period. Her evidence, not challenged, was that she sold her product to beauty practitioners, including Ms McIver, and directly to the public. It is not disputed that if the goodwill existed as of the relevant date, it was assigned to YNNY.56.The defendants pointed out that Ms Tang never traded under the names “Kate McIver” or “Secret Weapon”, never used any of the own-brand labels used by Ms McIver and never traded as the creator of Elixir serum. She did not, but I fail to see the relevance of this. YNNY’s case is that her business in sales of the serum acquired goodwill and that goodwill was associated in the public mind with the trade name “Elixir”. I find that this case is established.57.Ms McIver began sales to her customers of the serum made by Ms Tang in October 2017. At that time and until April 2018 sales were made using the Original Label. Ms McIver switched to the First McIver Label in April 2018 and was still using the First McIver Label on 6 June 2018. Both the Original Label and the First McIver Label prominently featured the trade name “Elixir”. The significance of using that trade name was that Ms McIver thereby represented that the serum marketed by her was the same as the Elixir serum marketed by others, including Ms Tang. This representation was true.58.Ms McIver’s statement on 6 June 2018 that she had put her life and soul into researching and creating the “Kate McIver” serum, can only have been taken as meaning that she had created the Elixir serum she was selling. No alternative was suggested. Thus, Ms McIver’s express representation was that she was the creator of the Elixir serum. By inevitable implication, she also made the further representation that she was the creator of the Elixir serum sold by anyone else, including Ms Tang. Both the express and the implied representation were false. Ms McIver repeated these representations on 8 June and 1 October 2018. It was repeated by her again in her quoted comments in the Liverpool Echo on 1 December 2018 and in her radio interview the next day.59.The misrepresentations continued at least until March 2019. From that date both the First and Second Pelham Reformulations were marketed. The Second Pelham Reformulation had many more changes than had been the case with the First Pelham Reformulation. However, use of the word “original” still implied that it was a throwback to the earlier formulation. Also, as indicated above, a promotion using photographs of Danielle Lloyd were still used, which implied that the serum marketed after March 2019 had not significantly changed from that marketed in October 2018 – Ms Tang’s serum.60.I find that the changes made to the formulation of the serum that resulted in the Second Pelham Reformulation were sufficiently extensive for KMS to represent that it was no longer the Elixir serum created by Ms Tang. However, KMS continued to sell the First Pelham Reformulation and for the reasons I have given, the message presented by KMS in respect of both reformulations was that it was the same serum as had been sold as the Elixir serum. In my view, Ms McIver and KMS remained very attached to the attractive story of Ms McIver’s having created their serum because of her efforts to recover from the effects of chemotherapy and through her own research conducted during her recovery from chemotherapy. They continued to state that this was the serum they were selling. This is supported by Kathryn Orr’s interview for the Ladies of Liverpool podcast, the prominent use of “Original” on the packaging and the repeated use of the Danielle Lloyd photographs to promote the product. I take the view that the misrepresentations continued after March 2019.61.At the trial the principal defence advanced on behalf of the defendants to the alleged misrepresentations turned on an unpleaded assertion about the meeting at Cheshire Oaks on 7 June 2018. It was said that Ms Tang must have agreed to allow Ms McIver to claim that she had created the Elixir serum and that it was entirely her product. Reliance was placed on Ms Tang’s email of 18 May 2018, but this email is inconsistent with such an agreement: in it Ms Tang insists that she was the creator and “copy right stays with me”. I think the alleged agreement is fanciful and did not happen.62.In an Instagram exchange on 15 June 2018 Ms Tang informed Ms McIver that labelling regulations would require changes to the packaging used, which at least in part led to the Second McIver Label. Ms Tang said that YNNY would have to appear on the packaging but it would not be necessary to state expressly that YNNY made the product. It was argued on behalf of the defendants that this was consistent with a concession by Ms Tang that Ms McIver could say that she made the product. I do not accept that. Ms Tang was doing no more that explaining the minimum changes required to comply with the regulations.63.I am satisfied that the misrepresentations relied on by YNNY took place.64.YNNY relied on two heads of damage. The first was loss of sales, although this was based on no more than an inference that there must have been lost sales. I do not find that proved. On 30 November 2018 Ms McIver terminated her arrangement with Ms Tang with immediate effect so there can have been no lost sales from December 2018 onwards. Before that date it is possible that the misrepresentation led to an increase in Ms McIver’s sales but that would have meant an increase in Ms Tang’s sales. It is also entirely possible that any boost to Ms McIver’s sector of the market for Elixir caused by her misrepresentations at any time was limited to that sector, having no significant impact on sales of Elixir through other channels; it just expanded the overall market before 30 November 2018 and/or afterwards. In short, the inferred loss of sales on the part of Ms Tang and/or YNNY was not established on the evidence.65.YNNY was on stronger ground in its claim that there has been damage to the reputation of Elixir in the context of a skin serum, that there is a risk of this recurring and of loss of the distinctiveness of the Elixir brand name. There was evidence of at least one customer finding that the First Pelham Reformulation caused a skin break out. Continued branding by KMS of its product as “original”, which suggests that it is a return to the first formulation of Ms McIver’s Elixir product, is likely to leave YNNY still exposed, at least to some degree, to quality issues in respect of KMS’s product. Further, the misrepresentation up to the present and the possibility of continuing misrepresentation risks rendering Elixir as the name of a generic type of skin serum.66.The three elements of passing off set out in Reckitt & Colman (as amended) are satisfied. So are the five of Lord Diplock in Warnink. YNNY’s allegation of passing off is made out.