Introduction 

 

Scenario 

 

A foreign reputable trader (“Foreign Trader”) wants to enter a domestic market. A local trader (“Local Trader”) catches whiff of its impending entry. Local Trader starts selling products with the same name and style as that of Foreign Trader’s. Local Trader is “cashing in” on Foreign Trader’s reputation by passing off its products as Foreign Trader’s. But Foreign Trader may not sue Local Trader for passing off. Why?   

 

Passing off requires proving three elements: goodwill, misrepresentation and damage to goodwill.2 Proving the first element of goodwill could be a problem for Foreign Trader. This problem of proving goodwill by a foreign trader whose goods or business may be known in a particular jurisdiction although it has no business there “is one of the most intractable in the law of passing-off”.3 In this article, I first briefly explain the two approaches to defining goodwill. This is followed by an analysis of the decision in Starbucks.

 

Defining Goodwill

 

Goodwill was defined by Lord Macnaghten in Inland Revenue Commissioners v Muller & Co’s Margarine Ltd as: 

 

the benefit and disadvantage of the good name, reputation and connection of a business. It is the attractive force which brings in custom … goodwill is worth nothing unless it has power of attraction sufficient to bring customers home to the source from which it emanates … goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business4 (emphasis added).

 

Common law countries are divided over this definition. There are two approaches to this definition. Whether Foreign Trader can succeed in a passing off claim depends on which approach is used. 

 

The Soft Approach 

 

The courts in Australia,5 Canada6 and New Zealand7 adopt this approach. It has three characteristics. 

 

First, this approach emphasises on protecting Foreign Trader’s reputation.8 Practically, this means that if Foreign Trader is reputable, it can dispense with proving goodwill. This is because goodwill is synonymous with reputation.    

 

Second, Foreign Trader need not have a place of business in the domestic market.9  Recall the definition of goodwill. Under the soft approach, goodwill need not be “attached to a business”. It suffices for goodwill to exist if Foreign Trader’s reputation has a “power of attraction sufficient to bring customers home to the source from which it emanates”.   

 

Third, Foreign Trader’s goodwill need not be constrained to the territory where it conducts business.10 Goodwill of a reputable brand is international in nature. It can spill over into territories even where Foreign Trader does not conduct business. 

 

There are two reasons for this soft approach. 

 

First, Local Trader’s use of Foreign Trader’s trade name may cause Foreign Trader to lose control over the impact of its trade name in Local Trader’s jurisdiction.11 Customers who bought Local Trader’s inferior products in the domestic jurisdiction and were unsatisfied with them, would not buy Foreign Trader’s products when they encounter them in Foreign Trader’s jurisdiction. Further, Foreign Trader could be prevented from expanding into Local Trader’s jurisdiction and using its trade name there.12

 

Second, the Court recognised that “[t]he international mobility of the world population increasingly brings human beings, and therefore potential customers of goods and services, closer together and engenders an increasing and more instantaneous awareness of international commodities”.13 As overseas travel becomes more affordable, customers are more able and willing to avail themselves of Foreign Trader’s business located abroad. Therefore, it makes sense to adopt the concept of an international goodwill without territorial limits. 

 

The Hard Approach

 

The Courts in England and Wales14 and Singapore15 follow this approach. This approach has two variants.  

 

Place of business

 

First, Foreign Trader has to have a place of business in the domestic jurisdiction to acquire goodwill.16 This threshold is low. It is obviously exceeded if Foreign Trader sets up an actual “brick-and-mortar shop”17 to sell his products/services. Absent an actual presence, Foreign Trader can also be said to have a place of business if its products are sold through a third party; for instance, a local importer18 or an agent.19 

 

(The foreign business problem)

 

This problem arises if Foreign Trader’s business is located outside the domestic jurisdiction. Without a place of business in the domestic jurisdiction, there could be no goodwill. Courts have held that there may be goodwill if Foreign Trader satisfies the test of direct bookings.20 This requires Foreign Trader’s business to have been booked or purchased in the domestic jurisdiction. But applying this test could produce unfair results. For instance, if customers could purchase Foreign Trader’s services through a domestic booking office, Foreign Trader would acquire goodwill.21 It does not matter whether this booking office is maintained by itself, or third-party travel agencies.22 Absent this booking office, no goodwill will exist, even if there are domestic customers who consciously travel abroad to purchase Foreign Trader’s business. In Alain Bernardin et Cie v Pavilion Properties Ltd (“Crazy Horse”),23 Foreign Trader’s night club business in Paris was frequently patronised by English customers. But Foreign Trader could not satisfy the test of direct bookings and thus had no goodwill. This is because English customers were unable to book, in London, “a table in [the] night club in Paris”.24 

 

From the above, a small booking office makes a big difference. To hold that a mere third party booking office could constitute the business (of Foreign Trader) within the jurisdiction has been described as “tenuous”.25 In Crazy Horse, the sizeable presence of Foreign Trader’s customers in England is more concrete evidence of “an attractive force which brings in custom”26 than proof of bookings made from England.27  This is because bookings, even if made, can be and often are cancelled subsequently.28 

 

Presence of domestic customers

 

Under the second variant, the focus shifts away from a place of business. There is no need to stretch the definition of “place of business” to include a small booking office maintained by third parties. Instead, the focus is on the customers who walk into that booking office. This is because the substance of any business is the presence of customers.29 

 

The definition of “customers”, unlike “place of business” generally poses no difficulties. “Customers” refer to members of the public who can purchase Foreign Trader’s business in the open market. If Foreign Trader’s business is only available in a “separate, artificial and special market”,30 there will be no customers. In Anheuser-Busch Inc v Budejovicky Budvar NP (“Budweiser”),31 Foreign Trader’s Budweiser beer was only available, in England, to employees of US Service establishments (ie US embassies and military bases). No goodwill arose because the public could not buy the beer in an open market.

 

(Potential customers)

 

The definition of “customers” includes potential customers. Recall that the second variant does not emphasise on a place of business. As such, goodwill may be generated by pre-business activities which precede commencement of business. The reason is given by the Singapore Court of Appeal in CDL Hotels International Ltd v Pontiac Marina Pte Ltd:32 

… pre-business activities can generate goodwill. This is a commonsense approach and is in line with commercial reality where promoters of business usually embark on massive advertising campaigns before the commencement of trading to familiarize the public with the service or product33 (emphasis added). 

 

However, pre-business activities will generate goodwill only if it can create potential customers of Foreign Trader’s upcoming business. This criteria was emphasised by the Singapore Court of Appeal in Staywell Hospitality Group Pty Ltd v Starwood Hotels & Resorts Worldwide Inc (“Staywell”):  

 

It must be remembered that the ultimate question is whether the [pre-business] activity has generated an attractive force that will bring in custom when the business eventually materializes34 (emphasis added).

Examples of pre-business activities include securing business premises, hiring of employees and massive advertising. The nature and intensity of such activities must be sufficient to put Foreign Trader’s “business in the awareness of the public so as to create demand”35 for its upcoming business. Otherwise, such activities are “mere preparations for trading”,36 which are insufficient to show goodwill. In Staywell, the nature and intensity of Foreign Trader’s pre-business activities were insufficient. Not enough had been done to put Foreign Trader’s business in the public domain. Foreign Trader had placed nearly 200 pages of print advertisements. But they were exhibited for only one calendar month; only three were published in a Singapore publication. There were no physical promotional events, or any use of digital and television media.37

Recognising that potential customers could generate “advance goodwill” is good news for foreign traders who genuinely intend to enter the domestic market and who may need time to get ready for business. 

(The foreign business problem, again) 

Focusing on “customers” makes solving this problem easier. We can use one of these tests to show the presence of domestic customers.

The first is the test of direct bookings (discussed earlier). But unlike the first variant, that small booking office may be bypassed. There is no need for customers to book through a domestic intermediary.38 Customers may book directly themselves, so long as it is done domestically. In Pete Waterman Ltd v CBS United Kingdom Ltd,39 the Court held that English customers can book a New York studio directly from England by “writing, faxing or telephoning from [England] to the office of [the studio] in New York”40 and they are subsequently invoiced in England. 

Alternatively, Professor Wadlow, in his authoritative text, proposed a second test:

[I]t is now suggested that a service business operating from a place or places abroad has customers and therefore goodwill in England to the extent that persons from England consciously seek out and make use of its services in preference to those available from its competitors, in England or elsewhere. So the foreign business has goodwill here if English residents are prepared to go to it (literally or figuratively) to avail themselves of its services, or if the availability of those services abroad is a material factor in their travelling to wherever the services can be acquired or experienced41 (emphasis added).  

 

In essence, this second test emphasises on whether domestic customers are prepared to consciously seek out the foreign business by travelling abroad. Unlike the first test, the purchase of Foreign Trader’s product or service need not be made domestically. 

 

The second test was cited with approval by the English Court of Appeal in Hotel Cipriani Srl v Cipriani (Grosvenor Street) Ltd (“Hotel Cipriani”). The Court opined that the direct bookings test may be “increasingly outmoded”.42 The Singapore Court of Appeal in Staywell also recognised that “there is much to commend”43 about this test. However, both cases involved local intermediaries where bookings for overseas services could be made. Thus, these dicta were obiter. 

 

Starbucks v Sky

 

In Starbucks, the stage is set for the Supreme Court to clarify the law and make the following determinations: 

 

Should the hard approach give way to the soft?

 

If the hard approach is retained, which variant should be used? Should the inquiry be on whether Foreign Trader has a place of business or whether there are customers, in the domestic jurisdiction?

 

If the second variant is used, which test should be used to prove that a foreign business has domestic customers? Should it be the test of direct bookings, or the second test formulated by Professor Wadlow?

 

Facts 

 

Foreign Trader44 offered internet TV services in Hong Kong under the brand “NOW TV”. NOW TV was only available in Hong Kong. It was not available in the UK. But NOW TV had some reputation in the UK arising from the following: 

 

The relevant UK market included some Chinese speakers who became exposed and acquainted with NOW TV having visited or lived in Hong Kong; 

Some Chinese language content were available free on Foreign Trader’s website; 

Programmes and trailers from NOW TV were available free on Foreign Trader’s YouTube channel; and 

A few programmes from NOW TV were available from various airlines which flew into the UK. 

From 2009, Foreign Trader began plans to expand into the UK. In June 2012, Foreign Trader launched a NOW player “app” in the UK to warm up the market before NOW TV’s official launch.

 

Before the launch could happen, on 21 March 2012, Local Trader45 announced its intention to launch an internet TV service under the identical name “NOW TV”. Foreign Trader then sued Local Trader for passing off. This is to prevent Local Trader from using the name “NOW TV” for Local Trader’s internet TV service in the UK. 

 

Held 

 

Lord Neuberger gave the judgment which other members of the Court concurred. He held that Foreign Trader’s business was based in Hong Kong. It had no customers and, therefore, no goodwill in the UK. Foreign Trader’s passing off claim against Local Trader failed. 

 

Reasoning 

Hard or soft approach

Lord Neuberger affirmed that the hard approach remains good law. He was unpersuaded that reputation alone is sufficient to constitute goodwill.46

(Commonwealth precedents)

 

In arriving at his decision, Lord Neuberger analysed the cases from common law countries Ireland, Canada, New Zealand, Australia, South Africa, Hong Kong and Singapore. Foreign Trader contended that these countries support the soft approach. But barring Australia and South Africa, Lord Neuberger did not feel that “there is anything like a clear trend in the common law courts outside the UK away from the ‘hard line’ approach manifested in the UK cases”.47

Lord Neuberger declined to follow Australia and adopt the soft approach. This is because the highest Court in Australia has yet to endorse the soft approach. The Australian case of ConAgra48 cited by Foreign Trader is only a Federal Court decision. Further, on the facts in ConAgra, the foreign trader had insufficient reputation in Australia.49 Therefore, the Federal Court’s view that reputation is sufficient to establish goodwill was strictly obiter. Similarly, Lord Neuberger declined to follow the position in South Africa.     

(England and Wales)

Lord Neuberger acknowledged that the Supreme Court can develop or change the law in England and Wales if it has “become archaic or unsuited to current practices or beliefs”.50 But he preferred to retain the hard approach for now. His Lordship recognised that:  

 

If reputation alone is sufficient to establish goodwill, this would tip the balance too much in favour of protecting Foreign Trader. Foreign Trader would be given a monopoly over the use of an ordinary English word (“NOW”) for which he had given no consideration.51

A harsh result of finding against Foreign Trader would be mitigated by the protection afforded to well-known marks under s. 56 of the Trade Marks Act 1994.52

Changing the common law sometimes risks undermining legal certainty.53 

 

On the facts, Chinese-speaking community in the UK had been exposed to Foreign Trader’s TV programmes; for example, through YouTube and Foreign Trader’s website. But such exposure only showed an awareness of Foreign Trader’s existence. This awareness at most contributed to establishing its reputation – but not goodwill – in the UK.54  

 

Which variant?

 

Relying on the earlier Court of Appeal decision in Budweiser, Lord Neuberger held that a foreign claimant “must establish goodwill in the form of customers for its goods or services within the jurisdiction”55 (emphasis added).

 

The second variant of the hard approach appeared to triumph over the first. The Supreme Court acknowledged that the inquiry should focus on whether Foreign Trader has customers in the domestic jurisdiction. It should not be on whether Foreign Trader has a place of business in that jurisdiction. But Lord Neuberger held that Crazy Horse (a case authority for the first variant) was correctly decided. His Lordship explained that there was no “evidence of any customers in England of the [Foreign Trader’s] Paris establishment as opposed to people in England who visited that establishment when they were in Paris”.56 Lord Neuberger had interpreted “customers” conservatively.57 Customers will exclude people who are prepared to seek out and provide custom to a foreign business. Therefore, when it comes to foreign traders, the triumph of the second variant matters only in form, but not in substance. A UK intermediary is still required for a UK resident to be a “customer” of a foreign business.58 

 

On the facts, Lord Neuberger held that Foreign Trader had no customers in the UK. This is because Foreign Trader’s NOW TV were not available to the UK public. It is true that some contents of NOW TV could be accessed on YouTube and Foreign Trader’s website. But such access is free. Access to free content does not make a UK resident a customer of Foreign Trader.59

Which tests?

 

Lord Neuberger held that the test of direct bookings remains good law: 

 

… it is not enough for a claimant to show that there are people in this jurisdiction who happen to be its customers when they are abroad. However, it could be enough if the claimant could show that there were people in this jurisdiction who, by booking with, or purchasing from, an entity in this country, obtained the right to receive the claimant’s service abroad. And, in such a case, the entity need not be a part or branch of the claimant: it can be someone acting for or on behalf of the claimant60 (emphasis added).  

 

On the facts, UK residents who had accessed Foreign Trader’s NOW TV programmes via the websites, or on various international airlines, were not customers in the UK. This is because they did not pay money to any domestic entity to purchase the access. Clearly, the test is not satisfied.  

 

Analysis

 

The Good

 

By refusing to hold that mere reputation can constitute goodwill, the decision is correct and welcomed.61 From a policy perspective, to hold otherwise means that:  

 

… it would tip the balance too much in favour of protection. It would mean that, without having any business or any consumers for its product or service in this [domestic] jurisdiction, a [foreign] claimant could prevent another [local trader] using a mark ... for a potentially indefinite period … . 62

 

From a conceptual perspective, the Court’s decision affirms that goodwill and reputation are two distinct concepts. They are protected by separate regimes. Common law passing off protects goodwill, which is the “benefit and advantage” of, inter alia, the reputation of a business.63 Statutory law protects the reputation of “well-known” marks per se. This protection is accorded even if the mark proprietor does not carry on business in the jurisdiction concerned.64  

 

The Can-Be-Better

 

By retaining the test of direct bookings, the decision appears disappointing. The Court of Appeal in Hotel Cipriani (which was referred to by Lord Neuberger) opined that with the increased prevalence of Internet bookings, the test should be reviewed in an appropriate case. But Lord Neuberger did not discuss in any depth why this test is still sensible today. Neither did he discuss the second test, despite implicit approval from the Courts of Appeal in Hotel Cipriani and Staywell. 

Lord Neuberger emphasised that “to establish goodwill, the claimant must have customers within the jurisdiction, as opposed to people in the jurisdiction who happen to be customers elsewhere”65 (emphasis added). The phrase “who happen to be customers elsewhere” suggests that His Lordship was mindful that overseas custom could be fortuitous.66 His Lordship wanted to remove the possibility that English customers had fortuitously sought out the overseas establishment through impulse patronage. That is probably why His Lordship retained the test of direct bookings. This will ensure that there is still some form of business connection to the UK. Viewed in this context, the decision is understandable. But it would have been better if he had also recognised the possibility that English customers had consciously sought out and purchased the services/products overseas.     

The Missing

Lord Neuberger acknowledged that in Singapore, a substantial advertising campaign which precedes the commencement of business could generate goodwill.67 His Lordship could have held that this is also the law in England and Wales, especially with lower English authorities68 also supporting this proposition. But he was concerned that it would be cheap and easy, especially for large competitors, to “spike” a pre-marketing advertising campaign in the age of the Internet.69 

On the facts, Foreign Trader’s plans to launch their service in the UK were still not in the public domain at the date on which Local Trader’s conduct complained of started, ie 21 March 2012.70 The public launch of the NOW player “app” to warm up the UK market only commenced on June 2012. As of 21 March 2012, Foreign Trader had not conducted any pre-business activities. Therefore, the facts strictly did not require His Lordship to determine whether to adopt the position in Singapore. As a result, the highest Courts in Singapore and England and Wales are not fully congruent on this point.
 

Conclusion

I would like to end off by making three short points.

First, at least for now, England and Wales prefer the hard approach over the soft. Reputation alone is not sufficient to prove goodwill. Reputation is not synonymous with goodwill. Separate regimes are in place to protect each of these two distinct concepts.  

Second, to ascertain goodwill, the inquiry is on the presence of domestic customers, rather than a place of business. This inquiry is welcomed. It is not the small booking office that matters, but rather, the customers who walk into that office to purchase Foreign Trader’s business. A little disappointing is that the test of direct bookings remains the law, even though there are dicta suggesting reform. 

Third, Singapore and England and Wales broadly follow the hard approach. But the former had softened its approach somewhat by recognising that pre-business activities could generate advance goodwill for the “coming soon” Foreign Trader. The UK Supreme Court prefers to postpone a determination of this point, for now.   
 

 

Notes

1 [2015] UKSC 31 (Supreme Court) (“Starbucks”).

2 Reckitt and Colman Products Limited v Borden Inc [1990] 1 All E.R. 873 (HL).

3 Christopher Wadlow, The Law of Passing-off: Unfair Competition by Misrepresentation (4th edition, Sweet & Maxell, 2011), p 157.

4 IRC v Muller & Co’s Margarine Ltd [1901] AC 217 (HL), 223.

5 ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 106 ALR 465 (“ConAgra”).

6 Orkin Exterminating Co Inc v Pestco Co of Canada Ltd (1985) 19 DLR (4th) 90.

7 Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd [1987] 2 TCLR 91, [1987] NZCA 13.

8 Supra (note 5 above) [106].

9 Supra (note 5 above) [111].

10 Supra (note 7 above) 101.

11 Supra (note 6 above).

12 Ng-Loy Wee Loon, Law of Intellectual Property of Singapore (2nd edition, Sweet & Maxwell, 2014), p 252. 

13 Supra (note 5 above) [115].

14 Alain Bernardin et Cie v Pavilion Properties Ltd [1967] RPC 581 (ChD) (“Crazy Horse”).

15 Star Industrial Co Ltd v Yap Kwee Kor [1976] FSR 256(PC) (“Star Industrial”).

16 Supra (note 15 above) 269.

17 Supra (note 12 above) 256.

18 La Société Anonyme des Anciens Établissements Panhard et Levassor v Panhard Levassor Motor Company Ltd [1901] 2 Ch 513 (ChD).

19 Poiret v Jules Poiret Ltd (1920) 37 RPC 177 (ChD).

20 Hotel Cipriani Srl v Cipriani (Grosvenor Street) Ltd [2010] EWCA Civ 110 (CA) (“Hotel Cipriani”) [124].

21 Novelty Pte Ltd v Amanresorts Ltd and Another [2009] 3 SLR 216 (CA).

22 Sheraton Corporation of America v Sheraton Motels Ltd [1964] RPC 202 (ChD).

23 Supra (note 14 above).

24 Supra (note 14 above) 587.

25 Ng Siew Kuan, Elizabeth, “Foreign Traders and the Law of Passing-Off: The Requirement of Goodwill within the Jurisdiction” [1991] Singapore Journal of Legal Studies 372, 387.

26 Part of the definition of goodwill formulated by Lord Macnaghten in IRC v Muller.

27 Saw Cheng Lim, “Goodwill Hunting in Passing Off: Time to Jettison the Strict ‘Hard Line’ Approach in England?” [2010] Journal of Business Law 645, 648.

28 Supra (note 27 above) 648.

29 Supra (note 25) 385.

30 Anheuser-Busch Inc v Budejovicky Budvar NP [1984] FSR 413 (CA) (“Budweiser”), 470.

31 Supra (note 30 above).

32 [1998] 2 SLR 550 (CA).

33 Supra (note 32 above) [58].

34 [2013] SGCA 65 (CA) [145].

35 Supra (note 34 above) [145].

36 Supra (note 32 above) [58].

37 Supra (note 34 above) [147]-[148].

38 Hotel Cipriani [2008] EWHC 3032 (ChD) [218] – per Arnold J, obiter.

39 [1993] EMLR 27 (ChD).

40 Supra (note 39 above) 40.

41 Supra (note 3 above) 168.

42 Supra (note 20 above) [124].

43 Supra (note 34 above) [161].

44 Starbucks (HK) Ltd (not the coffee company) and PCCW Media Ltd (collectively “PCCM”).

45 British Sky Broadcasting Group PLC, British Sky Broadcasting Ltd and Sky IP International Ltd (collectively “Sky”).

46 Supra (note 1 above) [52].

47 Supra (note 1 above) [50].

48 Supra (note 5 above).

49 Supra (note 1 above) [42].

50 Supra (note 1 above) [49].

51 Supra (note 1 above) [61]-[62].

52 The equivalent of s 55 Trade Marks Act (Chapter 332) in Singapore. 

53 Supra (note 1 above) [49].

54 Saw Cheng Lim, “Goodwill Hunting in Passing Off: England Retains the “Hard Line” for NOW – Starbucks (HK) Limited v British Sky Broadcasting Group PLC [2015] UKSC 31” [2015] 27 Singapore Academy of Law Journal 589, [21].

55 Supra (note 1 above) [26].

56 Supra (note 1 above) [36].

57 David Brophy, “The Supreme Court decision in Starbucks (HK) v British Sky Broadcasting: is that Crazy Horse still running?” [2015] 37 European Intellectual Property Review 661, 666. 

58 Supra (note 1 above) [52].

59 Supra (note 1 above) [67].

60 Supra (note 1 above) [52].

61 Supra (note 57 above) 666 .

62 Supra (note 1 above) [62].

63 Supra (note 27 above) 658.

64 Section 56(1) of UK’s Trade Marks Act 1994; s. 55(1)(b) of Singapore’s Trade Marks Act (Chapter 332).

65 Supra (note 1 above) [52].

66 Supra (note 54 above) [22].

67 Supra (note 1 above) [66].

68 WH Allen & Co v Brown Watson Ltd [1965] RPC 191; British Broadcasting Corporation v Talbot Motor Co Ltd [1981] FSR 228.

69 Supra (note 1 above) [66].

70 Supra (note 1 above) [16].