GOODWILL HUNTING
Reputation is everything. And protecting it is crucial, says Kate McHaffie. The more prominent in the market your competitor is, the more careful you may need to be, as consumers will readily perceive a connection because they are familiar with your compe
It’s a sadly familiar story: your business has invested significant time and money in building a reputation in its product. Then a competitor takes advantage of that reputation by suggesting its product is connected with yours. What can you do to stop someone getting a free ride on the back of your hard work?
PASSING OFF VS THE FAIR TRADING ACT
Like actions under the Fair Trading Act (FTA), the action for passing off is concerned with misleading or deceptive conduct in trade. But while anyone can sue
for a breach of the Fair Trading Act, you can’t sue for passing off unless the goodwill in your business has suffered or will suffer damage from the misleading conduct. Consequently, the parties in a passing off case are usually business competitors.
WHAT DO YOU NEED TO SUCCEED?
The passing off action was created to protect the goodwill or reputation that a business acquires through the making or selling of its product. Therefore, to successfully argue passing off you must show that your product has acquired goodwill in the minds of consumers. Your product must be known by a distinctive name, brand or get-up that is capable of conferring that goodwill on your business.
The party you’re suing must have made a misrepresentation (more on that below), and that misrepresentation must have caused, or be likely to cause, damage to your business. A competitor’s misleading conduct may be galling, but unless it is damaging your business, or is likely to, a Fair Trading Act action is a better way to deal with it.
TYPES OF PASSING OFF
Most commonly passing off occurs where Company A misrepresents that its product (or service) is Company B’s, thereby damaging may be the adoption by Company A of a product name, packaging or product shape that is deceptively close to Company B’s.
A, or by association with Company A’s inferior products. The distinctiveness in Company B’s brand may be diluted by Company A’s use of a similar brand.
In what is sometimes called ‘reverse passing off’, Company A misrepresents that Company B’s product is Company A’s. For example, rental car company A may mislead consumers into believing that rental car
company B is a branch of company A. If company A provides an inferior service, this may damage company B’s business.
Passing off can also occur where Company A misrepresents that its product has characteristics belonging to Company B’s product. In the Champagne cases, French sparkling wine makers from the Champagne region argued that makers of sparkling wine in other countries should not be allowed to use the term ‘Champagne’. The French wine makers were not arguing that other wine makers were directly damaging the goodwill of their business, but rather that the ability of the name ‘Champagne’ to indicate wine of a particular quality and geographical origin was being damaged.
AVOIDING TROUBLE WITH PASSING OFF...
As with the Fair Trading Act, you can avoid becoming entangled in a passing off case by being scrupulous in how you promote your product. Don’t use promotional language, product design, or colour schemes that refer or allude to a competitor’s product. The more prominent in the market your competitor is, the more careful you may need to be, as consumers will readily perceive a connection because they are familiar with your competitor’s products and promotions.
...AND WHEN YOU CAN’T
If you think that you’re the victim of passing off, get legal advice as soon as possible. There’s no point in girding yourself for litigation if you can’t satisfy the legal tests. Also, a lawyer can guide you on how to make the first approach to someone you consider may be passing off. Often disputes between business competitors can be sorted out directly, but negotiations can be derailed by testy exchanges made before you have an objective assessment of the strength of your case.
Kate McHaffie is a senior associate at AJ Park. kate.mchaffie@ajpark.com.