The Law of Passing Off in Australia

Passing off is a doctrine developed by the English courts to deal with unfair business practices. The concept was adopted by Australian courts. The development of passing off in Australia mirrors the development in England. However, in Australia, passing off operates alongside the statutory provisions which prohibit misleading or deceptive conduct and other specified classes of conduct (which are discussed in another lens).

Passing off may be defined as a representation in the course of trade by one trader which damages the goodwill of another trader. It has its origins in the tort of deception but is different from the tort or unfair competition which exists in some other countries either as a result of the development of case law or as a result of its introduction by legislation. The tort of unfair competition allows a trader to restrain another trader who is behaving dishonestly and in a way which damages the trader seeking to stop the conduct.

In Australia, the doctrine of passing off together with the statutory provisions which prohibit misleading or deceptive conduct and other specified classes of conduct allow a trader to prevent some forms of unfair competition by other traders.

One of the key cases in describing the elements required to succeed in an action for passing off is the 1990 decision of the House of Lords in Reckitt & Coleman Goods Ltd v Borden Inc. This case was adopted by Australian courts.

In that case, Lord Diplock defined passing off to include three elements: goodwill, misrepresentation and damage. He said:

"First the plaintiff must establish a goodwill or reputation attached to the goods or services which he supplies in the mind of the purchasing public by which the identifying "get up" (whether it consists simply of a brand name or trade description or the individual features of labelling or packaging) under which his particular goods or services are offered to the public, such that the get up is recognised by the public as distinctive specifically of the plaintiff's goods or services. Secondly he must demonstrate a misrepresentation by the defendant to the public to believe that the goods or services offered by him are the goods or services of the plaintiff ... Thirdly, he must demonstrate that he suffers, or in a quia timet action, is likely to sufer damage by reason of the erroneous belief engendered by the defendant's misrepresentation that the source of the defendant's goods or services is the same as the source of those offered by the plaintiff."

A quia timet action is an action for an injunction to prevent damage for which money is no remedy.

Goodwill is the first element required to establish passing off. In the context of passing off, goodwill is personal property of the plaintiff - that is, the business or goodwill which is likely to be damages by the misrepresentation made by a trader passing off his goods or services as those of the plaintiff.

The terms "goodwill" and "reputation" have been used interchangeably and sometimes to mean the same thing. However, over the years, the case law has developed so that it has become clear that goodwill and reputation are two different things and that passing off protects goodwill and not reputation.

Examples of key cases in which courts have attempted to define the term "goodwill" include:
* IRC v Muller, a 1901 decision of the House of Lords, in which one judge defined goodwill as:
" the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force that brings custom."
and another judge, said:
" I understand the word to include whatever adds value to a business by reason of situation, name and reputation, connection, introduction to old customers, and agreed customers, and agreed absence from competition, or any of these things, and there may be others that do not occur to me."

* Harrods v Harrodian School, a 1996 decision of the Court of Appeal in which one judge said:
" Damage to goodwill is not confined to loss of custom, but damage to reputation without damage to goodwill is not sufficient to support an action for passing off."

The following points should also be noted in relation to goodwill:
* Under Australian law, goodwill is treated as property and can be assigned, licensed or otherwise dealt with as long as it cannot be separated from the business that generated the goodwill.
* A trader can acquire goodwill in each country in which the trader conducts business. The goodwill in each country is separate from the goodwill in other countries. To bring an action for passing off in Australia, the plaintiff must show that the plaintiff has goodwill in Australia.
* Whether a plaintiff has goodwill in Australia depends on whether the plaintiff is conducting business in Australia (ie, whether there are customers for the plaintiff's goods or services in Australia) and not whether the plaintiff has a place of business.
* In context of determining whether a plaintiff has goodwill, "customers" means ultimate consumers of the plaintiff's goods or services.
* It is not necessary for the public to know that the plaintiff owns the goodwill. It is sufficient that customers think that goods or services come from a particular source (even if they do not know the identity of the source).
* Goodwill can be shared by two or more persons - for example, business partners will jointly own the goodwill in the business they carry on in partnership.
* The length of time it takes to establish goodwill sufficient to bring an action for passing off is dependent on the facts of each case.
* Goodwill may exist even if a plaintiff is not trading. Pre-trading activities such as advertising can establish goodwill.
* The date for assessing whether goodwill exists is the date on which the alleged infringing activity occurred.
* Goodwill will not necessarily end when a business closes.

A misrepresentation is the second element required to establish passing off. A misrepresentation will be actionable if it is material in the sense that the plaintiff must show that it is a reasonably foreseeable that the misrepresentation will cause damage to the plaintiff's goodwill.

The following points are relevant:
* The types of actionable misrepresentations include:
# a misrepresentation that the goods of a trader are the goods of the plaintiff;
# a misrepresentation as to the origins of the goods;
# a misrepresentation that a trader's goods are of the same standard as the goods of the plaintiff;
# a misrepresentation that the trader has a business relationship with the plaintiff; and
# a misrepresentation that the plaintiff's goods or services are the goods or services of the trader.
* The misrepresentation must be made to the public (ie, the relevant target market).
* The misrepresentation is calculated to mislead the public into a mistaken belief that the good or services of the person making the representation are the goods or services of the plaintiff.
* The misrepresentation may be express or implied.
* Use of the plaintiff's trade marks or other indicia can constitute a misrepresentation.
* Confusion alone does not amount to a material misrepresentation. This is because confusion does not only arise as a result of a misrepresentation. Confusion may arise from a number of factors - eg, because a person has drawn an incorrect conclusion or made assumptions.
* The misrepresentation must be made by a trader to prospective customers or ultimate customers of his goods and services. Therefore, what constitutes a misrepresentation will depend upon the class of customer. This means that in some circumstances , it may be reasonable to assume that customers will exercise a higher level of attention than in other circumstances - for example, customers of goods or services which are expensive are of significance may be expected to pay more attention that customers of goods or services that are low cost items.
* A substantial number of customers must be misled and not the entire class of customers.
* There is no requirement that the trader and the plaintiff operate in the same or related fields.
* As with registered trade marks, a fancy or made-up word or an imaginative device will more readily distinguish goods of one trader from those of another trader than a descriptive word or device.
* A purely descriptive word or device can acquire a secondary meaning in the mind of the public. In this instance, a trader who uses a trade mark or device of another trader will make a misrepresentation for the purposes of passing off.
* If a brand name becomes a generic name for a product, another trader's use of the name will not be a misrepresentation for the purposes of passing off. An exception to this will be where use of the generic name infers a particular quality in which case use of the generic name will be a misrepresentation because it infers that the trader's goods or services are of the same standard as the goods or services of the plaintiff.
* Use of the same or similar packaging or other get-up can be a misrepresentation except in aspects of packaging or get-up that are common to an class of goods or industry.
* Character merchandising and false endorsement can be the basis of a claim for passing off.

The third element required to bring an action is passing off is damage or the likelihood of damage to the plaintiff's goodwill. As with the other elements of passing off, whether damage has or is likely to occur will depend on the individual facts of a case. However, loss of business and loss of reputation due to a false association will generally be sufficient damage for passing off.

The protection offered by passing off and registered trade marks overlaps but there are also points of distinction. Both trade marks and passing off protect a plaintiff's names, logos and other indicia which the plaintiff uses in connection with its goods or services. The key differences between the two are that:
* trade mark registration gives the owner the exclusive right to use the trade mark in respect of the goods or services for which it is registered and related services in the case of goods and related goods in the case of services;
* the trade mark owner is given property rights in the actual registered trade mark as opposed to the goodwill in the business generated by the use of the trade mark; and
* damage to goodwill is not required to bring an action for infringement (although the absence of goodwill may be relevant to determining the extent of any compensation to which the plaintiff will be entitled).

However, as it is possible that a trade mark may not be valid, it is usual to bring an action for trade mark infringement as well as passing off.

The protection offered by passing off and registered designs overlaps in situations where passing off actions are brought in respect of features of pattern, ornamentation and other design features of a product which are also registered as a design. The key differences between the two are that:
* a registered design gives the owner the exclusive right to use the design in respect of the goods for which it is registered;
* the owner of the registered design has property rights in the actual design as opposed to goodwill in the business generated by exploiting the design; and
* damage to goodwill is not required to bring an action for infringement (although the absence of goodwill may be relevant to determining the extent of any compensation to which the plaintiff will be entitled).

However, as it is possible that a registered design may not be valid, it is usual to bring an action for trade mark infringement as well as passing off.