What Are Unregistered Trade Mark Rights? A Business Owner’s Guide To Passing Off

Brand identity is crucial to a business’s success, and business owners spend considerable time and money on building strong, recognisable brands to set themselves apart from their competitors. The most effective way of protecting your brand is by developing and maintaining comprehensive registered trade mark portfolios. Trade mark owners enjoy a monopoly over their registered marks, and can prevent unauthorised third parties from using them without permission.

However, sometimes, a competitor may use your branding in circumstances where you have no registered trade mark. The branding might not fulfil the trade mark registration criteria, or a lack of time and money may have rendered you incapable of achieving trade mark protection before the imitation arose. In these cases, the common law of ‘passing off’ might offer some assistance.

Here we discuss the general principles of the law of passing off. We explain the law, when it applies and how you might rely on it to protect your brand against copycats.

What is passing off?

Passing off is sometimes referred to as an unregistered trade mark right since the protection it provides is, to a certain extent, akin to that offered by registered trade marks. Both protect a brand’s identity, goodwill and reputation and prohibit third parties from using branding that is too similar in connection with their own goods and services. However, passing off is, generally, more difficult to prove than trade mark infringement.

Passing off is a tort, and a tort is a civil wrong. In passing off, the wrong is when an individual or business causes harm to a third party by ‘riding on their coattails’ and implying that their own goods and services are in some way connected with the third party when they are not.

How do you prove passing off?

Three criteria must be fulfilled to prove passing off:

1. You enjoy goodwill in connection with the goods or services offered by the other party

A crucial element of a passing off claim is that the Claimant (the entity bringing the claim) can prove they have goodwill in the relevant market. Goodwill is a somewhat abstract concept and can be difficult to quantify. It has been described as ‘the benefit and advantage of the good name, reputation, and connection of a business’ and ‘the attractive force that brings in custom.’

The extent of a Claimant’s goodwill in a passing off action must be such that the public associates the goods or services, or their branding, get up, or other characteristics, with the Claimant or its offerings.  Extensive evidence is often required to prove goodwill, including sales figures, social media presence, advertising campaigns and press coverage. Generally speaking, more established businesses find it easier to convince the Court of their goodwill than newer ones.

2. The other party is misrepresenting to the public that their goods or services are connected with you

The third party’s actions must confuse a party into believing their goods or services originate from, or are in some way connected with, you. The confusion must arise at the point of sale; if the confusion only became apparent afterwards, your claim would fail.

Sometimes, the misrepresentation might be by way of a direct, misleading statement. More often, however, it arises from the third party using branding that is the same as, or confusingly similar to, yours. Take the much-cited Penguin/Puffin passing-off case as an example. Here, the Court held that Asda’s packaging for their ‘Puffin’ biscuits was sufficiently similar to that used for Penguins, that it amounted to a misrepresentation.

Crucially, the misrepresentation does not need to be deliberate, although it often is.

3. You have suffered, or are likely to suffer, damage as a result of the misrepresentation.

Damage is a crucial element of passing off claims. If, notwithstanding the third party’s misrepresentations, you have suffered no damage to your goodwill and reputation, you will not succeed in establishing passing off.

The types of damage you might point to are necessarily case-specific but might include lost sales, a dilution of your goodwill or a loss of opportunity to expand.

How can passing off harm your business?

The harm caused by passing off is similar to that caused by trade mark infringement, and includes the following:

• Brand dilution

Consumers often seek out a brand’s goods or services on the understanding that they will satisfy their requirements, which might relate to quality, effectiveness or brand values.

When third parties use elements of your branding without permission, your brand can become diluted. Your consumer appeal can wane, and your consumer base can be eroded.

• Lost sales

Where consumers are confused into believe they are buying your offerings rather than those of the third party, the potential for lost sales is obvious. Trade is diverted from you to the third party, and your profitability suffers as a consequence.

• Damage to your goodwill and reputation

A business’s reputation in the marketplace is critical to its success. Many copycat products are of an inferior quality to those of the brand owner, so when consumers purchase such products, believing them to be yours, your reputation can be significantly tarnished.

Examples of passing off

To understand how the law of passing off operates, it can be helpful to consider some circumstances that might arise in your day-to-day business operations. These include the following:

• A third party starts to use your business name and logo, or something confusingly similar to them, in connection with goods or services that are the same or very similar to your offerings.
• A third party starts selling a product similar to yours, in packaging that is the same or confusingly similar to yours. This might be a bottle of the same shape, or packaging with the same colours and graphics.
• A third party misrepresents to the public that their goods are licensed by you.

Of course, the legal criteria applicable in passing off cases would need to be satisfied in each case for your claim to succeed.

How do you deal with a third party who is imitating your brand?

Brand imitation can cause severe difficulties for a business, so must be addressed as swiftly as possible. As soon as you become aware of a competitor potentially passing off their goods and services as being in some way connected with you, you should take the following steps:

• Gather evidence of the third party’s activities. This might involve purchasing the goods, printing screenshots of their website and obtaining copies or advertising and promotional material.
• Gather evidence of your use of the branding, and your goodwill and reputation in the marketplace. Your intellectual property solicitor will advise on the types of evidence relevant to your case, which might include details of when you started to use the branding, examples of your products and services and any promotional activity.
• Gather evidence of your loss and harm. If you have lost sales as a result of the passing off, you must be able to prove the extent of those losses and show that they resulted from the passing off. For example, if you were alerted to the passing off by consumers who had purchased the other party’s goods or services instead of yours, you should keep copies of all correspondence relating to the issue, and expect to call those consumers as witnesses.
• Seek legal advice. Prompt legal assistance is essential when dealing with passing off. Your solicitor will consider the facts of the situation and the merits of your legal position and advise accordingly. They will pursue the matter on your behalf, seeking to stem the passing off as quickly and cost-effectively as possible, and obtain the financial damages to which you are entitled.

How do you bring a passing off claim?

Passing off claims follow the same procedure as other civil claims and are heard by either the High Court or the Intellectual Property Enterprise Court (IPEC). IPEC is intended to be a less expensive option and operates strict costs caps, so can be attractive to Claimants with more limited resources. However, if your case is complex, requires extensive evidence and the trial is likely to last for longer than two days, it is unlikely to be suitable for IPEC. Your solicitor will advise on the appropriate forum and explain the procedures of the relevant Court.

All passing off claims begin with the Claimant’s legal advisors sending a ‘letter of claim’ to the other party. The letter will set out the facts of the matter, the applicable law, and explain what the recipient must do to avoid legal action. Often, the action required is that the recipient enters into a series of ‘undertakings’, which are legally binding promises to do, and not to do, specific acts. In passing off claims, the undertakings required will likely include that the recipient immediately ceases their unlawful activity, agrees to refrain from restarting it in the future, destroys or delivers up all unlawful material and pays damages to the Claimant.

Often, a letter of claim is sufficient to resolve the issue, either immediately or following negotiations between the parties’ legal advisors. If the recipient refuses to adhere to your demands, the next step would be to issue a passing off claim at the relevant Court. The other party (known in the context of the claim as the ‘Defendant’) then has a specified time within which to file their Defence, following which the Court will set a timetable of steps the parties must take leading up to trial. These steps might include exchanging witness statements and disclosing copies of all documentation you intend to rely on. The Court will list the matter for trial, at which a Judge will consider both side’s cases before going away to consider their Judgment.

It is important to understand that issuing a claim does not necessarily mean that your case will proceed to trial. The inherent uncertainty of intellectual property matters often incentivises the parties to seek a settlement of the issue before the hearing, either through negotiations or alternative dispute resolution methods such as mediation. In fact, a Judge will expect the parties to have explored a settlement and can penalise any party who unreasonably refuses to do so. Alternative dispute resolution methods are cheaper, quicker and generally less stressful than litigation, and often produce excellent results.

What are the remedies for passing off?

The remedies available in successful passing off claims include the following:

• An injunction.

The main aim of most passing off claims is to halt the brand damage caused by the Defendant’s action. This is achieved by way of an injunction, a Court Order prohibiting the Defendant from carrying out the acts specified in it.

Often, a Claimant cannot wait the many months or sometimes years it can take for a case to reach trial, for the Defendant’s activities to cease. In these cases, urgent relief can be sought in the form of an ‘interim injunction’. Interim injunctions have the same effect as permanent injunctions, but only remain in place until the case has been resolved, at which point they are replaced by any injunction the Judge is minded to make following trial.

• Damages or an account of profits.

Successful Claimants in passing off actions can choose the financial relief they receive. The options are either damages, being the losses sustained by the Claimant, or an account of the profits made by the Defendant’s activities. The Claimant can elect whichever is the most advantageous to them, which often requires an investigation into both the Claimant’s losses and the Defendant’s profits, sometimes with assistance from a forensic accountancy expert.

• Delivery up or destruction.

A key aspect of preventing the ongoing brand damage caused by passing off is removing the offending material from the marketplace. This is achieved by the Defendant either agreeing to destroy all relevant material, and providing the Claimant with a Certificate of Destruction, or delivering up all relevant material to the Claimant. If the goods are such that the offending material can be easily removed, some brand owners donate the stock to charitable causes.

Takeaways

Whilst a registered trade mark is the strongest form of brand protection, business owners without a trade mark portfolio may still have recourse against copycats through the common law of passing off. Passing off claims rely heavily on evidence to establish goodwill, so it is a good idea to collate and retain all such evidence, even before any imitation occurs, so you have it to refer to should you need to. When passing off arises, you must act swiftly and decisively to minimise the damage caused to your brand and protect your position in the marketplace.

How we can help

At Jonathan Lea, we can:

• Conduct trade mark clearance searches
• File trade mark applications to register a brand name, trading name, logo or other trade mark and manage the process through to registration (in the UK and overseas)
• Assist in opposing registration of someone else’s conflicting mark or defending you against such threatened opposition
• Assist in post-registration matters, for instance, non-use cancellation, consents, limitation of the specification of goods and services
• Take action to prevent the use of your trade mark or similar mark by third parties
• Defend you if you are accused of using someone else’s trade mark
• Advise you in choosing an appropriate trade mark – some trade marks are legally stronger than others
• Assist in the exploitation of your trade mark, for instance, licensing, sale, mortgaging, franchising, etc
• Assist with the renewal of your trade marks

For all new clients, we offer a no-cost and no-obligation call of up to 20 minutes to first discuss your matter and requirements before confirming a scope of work and quote. This can be arranged by sending your details together with an overview of your matter through our contact form.

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited 2023.