THE tort of passing off is embedded in the world of commerce. Its roots are in an age when customers patronised local speciality shops. Today it operates in a world of e-commerce operating across national boundaries. To succeed in passing off, the claimant must show it has goodwill, that there has been a misrepresentation, and as a result that the claimant has suffered damage or, in a quia timet action, that there is the likelihood of damage. Necessary to establishing goodwill is not only that the claimant's goods and services have a reputation in the relevant jurisdiction, but also that the claimant has customers there. The question raised in Starbucks (HK) Ltd. v British Sky Broadcasting Group Plc. [2015] UKSC 31; [2015] 1 W.L.R. 2628 was whether this principle is still relevant in what Lord Neuberger described as “the age of global electronic communication” (at [1]). The Supreme Court held that it was.

The claimants, PCCM, supplied a closed circuit Internet television (“IPTV”) subscription service in Hong Kong. Since 2006, the service had operated under the name NOW TV. It had approximately 1.2 million subscribers and provided 200 channels, many with names including the word NOW. The vast majority of its programmes were in Mandarin or Cantonese. Crucially, the service could not be received in the UK nor had any set top boxes been supplied in the UK. There were no subscribers to NOW TV with UK billing addresses and PPCM had never held an OFCOM licence for UK broadcasting. However, it was also the case that many Chinese-speaking residents of the UK would be aware of NOW TV, perhaps because of its Hong Kong service and perhaps because, since 2007, NOW TV Chinese content had been available on PCCM's website, its YouTube “channel”, and finally as video on demand on flights to the UK. PCCM had also been considering expanding its service into the UK, launching a NOW TV “app” which, by October 2012, had been downloaded by 2,200 people.

In July 2012, the defendants, collectively known as Sky, launched an IPTV service named NOW TV, available across all Internet platforms. The claimants sued for passing off. The lower courts took the view that it was not enough for the claimants to have a reputation among a significant number of people in this country. They must also have goodwill and this would only be acquired if they had actual customers in the UK. In this case, the claimants had a reputation but no customers. On appeal to the Supreme Court, PCCM argued that they had both a reputation in this country with those who might subscribe to its service in Hong Kong, but also that it had customers in this country because of the significant number of people who were exposed to its programmes on its website and on some international flights.

Lord Neuberger first confirmed that UK courts have consistently held that, for a claimant to have the necessary goodwill for passing off, it must have a customer base in the jurisdiction in which proceedings are brought. However, PCCM further contended that, in an age of “global electronic communication and relatively quick and cheap travel”, it was both impractical and “inconsistent with commercial reality” to treat reputation or goodwill as limited only to jurisdictions where there were customers (at [27]). Indeed, it would be “anachronistic and unjust” (at [28]) in an age of international travel and the Internet if there were no right to bring passing off proceedings in jurisdictions where the claimant's mark had a reputation. This was particularly the case, PCCM argued, in relation to electronically communicated services and should apply even if, as in this instance, users did not actually pay for such services.

Lord Neuberger concluded that there were no UK decisions which assisted PCCM's case. He also took the view that few cases in other common law jurisdictions offered any real comfort to PCCM. Indeed, for the most part, the decisions cited by PCCM went the other way. In particular, he noted the decision of the Singapore Court of Appeal in Staywell Hosptiality Group Pty. Ltd. v Starwood Hotels & Resorts Worldwide Inc. [2013] SGCA 65; [2014] 1 S.L.R. 911, which held decisively that there was a clear distinction between goodwill and reputation, and that a foreign trader who did not conduct business in Singapore did not have goodwill. The Singapore court did suggest, however, that, if a plaintiff had started “pre-business activities” such as “a massive advertising campaign”, this might constitute goodwill (at [45]–[46]). Lord Neuberger concluded that PCCM's appeal should be dismissed on the same grounds on which it was decided in the lower courts.

The question then arose as to whether, despite previous authority, the Supreme Court should depart from the principle that passing off requires local goodwill. Lord Neuberger agreed that it was open to the court to develop the common law when it had become archaic or unsuited to “current practices and beliefs”. Indeed, he considered its adaptability an asset “in a world which is fast changing in terms of electronic processes, travel and societal values” (at [49]). However, he set out a number of reasons why he did not intend to depart from past authority. First, changing a fixed principle of common law might undermine legal certainty. One change could lead to other unsought consequential changes. Secondly, although it was useful to consider the law as it had developed in other common law jurisdictions in order to fashion a consistent approach, in this instance, there was by no means a clear line for the UK to follow. Thirdly, he reiterated that the law as it has developed makes clear that mere reputation is insufficient for goodwill and that it is necessary to show there are customers in the jurisdiction even if it were not necessary to have an establishment there. Indeed, the territorial nature of goodwill is supported by the fact that judges in one jurisdiction have consistently refused to accept that they have the power to make orders in relation to goodwill in others.

In further support of his view that goodwill should remain local, Lord Neuberger called in aid the approach taken by the Court of Justice of the European Union (CJEU) in cases involving registered trade marks. He noted that the CJEU has consistently held that there must be genuine use of a mark to guarantee its role as an indicator of origin, which entails the commercial exploitation of the mark in order to establish an actual market share. Further, he explained that the CJEU has also held that advertising goods on a website accessible in a jurisdiction does not necessarily mean that the site is targeted at actual consumers in that jurisdiction. Finally, Lord Neuberger pointed out that the CJEU has held that a sign might be distinctive in one Member State and not in others because of, among other things, language differences.

Another possible argument for rejecting PCCM's case for change, according to Lord Neuberger, was the fact that section 56 of the Trade Marks Act 1994 already gives protection to well-known marks, which are not registered in the UK, if their use on similar goods or services is likely to cause confusion even if their proprietors have no customers in the UK. As to the suggestion made by the Singapore Court of Appeal in Staywell Hosptiality Group Pty. Ltd. v Starwood Hotels & Resorts Worldwide Inc. that a passing-off claim might succeed if there has been substantial advertising and an imminent intention to market the goods or services in the jurisdiction, Lord Neuberger acknowledged that, on the basis of commercial fairness, this could constitute an exception to the present “hard line”. However, it was not relevant in this case since PCCM's intention to move into the UK market had not been publically advertised. And he also said that that the opportunity which the Internet accorded to a large competitor to “spike” a pre-existing marketing campaign by another market actor would militate against such an exception.

Perhaps most interestingly, Lord Neuberger did not believe that moving away from local goodwill would be in the public interest. He noted that passing off involves a balancing exercise between the public interest in free competition and the protection of a trader against unfair competition. Protecting the former would, for example, encourage the development of new products based, perhaps, on those of the claimant. Protecting the latter would encourage the claimant's originality, effort, and expenditure. In Lord Neuberger's view, if it were only necessary to have a reputation but not goodwill in a jurisdiction, the balance would be tipped too far in favour of the claimant. It might allow the monopolising of an ordinary English word such as “now” against its use in relation to a similar product or service by third parties. Indeed, the power of the Internet and increased travel might allow a claimant to establish a reputation anywhere in the world without the necessity of spending time or money to develop a market in that jurisdiction. For all these reasons, he believed the law should stay as it is. Ironically, then, while the rule that goodwill must be local arose at a time when marketing was indeed a local affair, the fact that marketing may now take place on a global scale has made it even more important that goodwill should remain local.