An evaluation of the view: "Dilution should be recognized as a form of damage in passing off as it is in the law of registered trade marks."

By Anna Diab, second-year LLB student, Dickson Poon School of Law, King's College London

*Note this is from an earlier publication on 3 March 2017

Abstract

Dilution is formally recognised as a head of damage in the law of registered trade marks; in Adidas-Salomon AG and Adidas Benelux BV v Fitnessworld Trading Ltd [2003]), AG Jacob divided dilution into three elements: (1) free riding (use which takes unfair advantage); (2) blurring (use which is detrimental to distinctive character); and (3) tarnishing (use which is detrimental to repute). Dilution should be recognised as a form of damage in passing off as it is in the law of registered trade marks because this would (i) protect the distinctive character and good will of a mark; (ii) extend protection where goods are dissimilar; (iii) and protect against unfair competition and free riding.  

(i) Distinctive Character and Good Will

In the law of registered trade marks, Article 4(4)(a)[i] of the Trade Marks Directive 2008/95/EC (“TMD”)[ii] is intended to protect the distinctive character of a trade mark and its capability to arouse immediate associations with the goods for which it is registered and used (Adidas-Salomon AG and Adidas Benelux BV v Fitnessworld Trading Ltd [2003] per AG Jacobs at [36]). Dilution should be recognised as a form of damage in passing off because the most probable result of damage to the distinctiveness of a mark is its role in jeopardising the capacity of the mark to function as an indication of origin which, in turn, damages or has the potential to damage good will. For example, in Taittinger v Albev Ltd [1993] the defendant sold a non-alcoholic drink under the name “Elderflower Champagne”, in a champagne-style bottle. The court recognised that the business goodwill of the claimants, as Champagne producers, would be damaged by the defendant’s misrepresentation but extended its analysis further by stating that the defendant’s actions would also “erode” the “singularity” and “exclusiveness” of the description “Champagne” (per Lord Bingham at [677]). This reasoning is justifiable; where a high-end product is the subject of a cheap imitation the cachet of the brand is put in jeopardy which has the effect of attenuating the ability of that brand to attract custom. Wadlow[iii] criticises the reliance on dilution as a head of damage in passing off, arguing that it “leads easily to the fallacy that the property which is being protected is the name or mark or get-up itself, rather than the goodwill in the claimant’s business”. It is respectfully argued that this is not a convincing argument against using dilution as a head of damage in passing off, given that there is an inextricable link between the dilution of a mark and the subsequent damage to the claimant’s good will, as dilution attenuates the distinguishability of the claimant’s mark and thus its effectiveness in attracting custom and repeat custom.

Moreover, dilution as damage should be extended to classic passing off as it is in the law of extended passing off (Chocosuisse v Cadbury [1998] and Fage v Chobani [2013]) and registered trade marks because previous cases in which dilution was accepted as a head of damage have yielded results with the effect of protecting distinctiveness and, in turn, good will. For example, in British Telecoms v One in a Million [1998] the court held that the registration of the internet domain “marksandspencer.co.uk” gave rise to liability in classic passing off on the basis that any inclusion of the words “Marks & Spencer” constitutes an erosion of the exclusive good will in the name which damages or is likely to damage Marks & Spencer. Similarly, in Sir Robert McAlpine Ltd v Alfred McAlpine plc [2004], Mann J held that the defendant was liable for passing of when it rebranded itself as “McAlpine” as this would blur the distinctive character of the mark and thus jeopardise the shared good will in the “McAlpine” name. These outcomes can be vindicated by reference to Schechter’s example that if the name “Rolls Royce” was used superfluously on “restaurants”, “pants”, and “candy”, within 10 years the “Rolls Royce” mark would cease to exist[iv]. Accordingly, dilution should be recognised as a form of damage in passing off as a matter of necessity to protect against the blurring of a mark’s distinctiveness and singularity, and to preserve the good will within which the intrinsic value of a mark resides.  

(ii) Dissimilar Goods

Conversely, another school of thought suggests that dilution should not be recognised as a form of damage in passing off as it is in the law of registered trade marks because this recognition would be illogical when set off against the requirements for an action in passing off. As per Arsenal FC plc. v Reed [2001], passing off requires a misrepresentation that is likely to deceive a significant number of people such that there exists a real likelihood of confusion as opposed to dilution in the law of registered trade marks which concerns the use of marks on dissimilar goods, even where most consumers appreciate there is no affiliation between the goods. In Intel Corp. v CPM Ltd [2009], the court indicated that “a bringing to mind” [60] of Intel would be sufficient to trigger S. 5(3) of the TMA 1994. Contrastingly, in Harrods v Harrodian School [1996] it was highly unlikely that the defendant’s activities would cause the “Harrods” name to lose its distinctiveness or become a generic term to refer to shops that sell luxury goods (i.e. genericide) and hence in the context of passing off it is conceptually difficult to accept “as sufficient a head of damage which does not depend on confusion” (per Millet L.J. at [715]). Therefore, recognising dilution as a form of damage in passing off in accordance with trade mark law might confound the essential purpose underlying the tort.

(iii) Unfair Competition: Free Riding  

Nevertheless, whilst this argument is compelling on a conceptual level, the requirements of passing off and the recognition of dilution as a head of damage can be reconciled on the basis that marks should be protected as a species of property and this means that the owner should be protected when the marks are used on dissimilar goods as well as similar goods[v]. This would offer protection under the tort of passing off against free riding; in L'Oreal SA v Bellure NV [2005] the defendant’s use of the word mark on comparison lists took unfair advantage (S. 5(3) TMA/Article 8(5) TMD) of the repute of L’Oréal, notwithstanding the fact that it was highly unlikely consumers were confused (or would be confused post-sale) when purchasing the smell-alike perfumes. This constitutes a policy-based recognition of the investment companies undertake when creating an attractive brand which warrants protection from “parasitism”. Professor Aplin[vi] argues that the rationale for anti-dilution is not to protect against confusion as to origin, but rather to protect marks with a reputation against unfair competition. As such dilution should be recognised as a form of damage in passing off as it is in the law of registered trade marks in which confusion is not required to find conflict under 4(3) and (4)(3)(a)[vii] (Sabel v Puma [1997]), even where the goods are dissimilar (Interflora v Marks & Spencer [2012]), with the objective to protect against unfair competition.  

However, Carty suggests that the tort had shifted away from protecting the public interest of customers in not being deceived towards protecting “trade mark value per se[viii]. On this view, passing off is at risk of being transformed into a tort of “misappropriation”, the effect of which would be to undermine an alleged purpose of passing off, specifically, to protect competitive markets by ensuring that the consumer obtains reliable information enabling him/her to make rational and efficient market choices by the reduction of consumer search costs. By recognising “dilution” to the claimant’s brand name as a head of damage in passing off, without the need for either consumer confusion or damage to its business good will, the court have moved passing off into the territory of unfair competition and this raises the question of to what extent the UK courts are moving towards developing a general tort of unfair competition[ix]. Therefore, it may not be advisable to recognise dilution as a form of damage in passing off as it is in the law of registered trade marks because a general tort of unfair competition might jeopardise the advantages of lawful competition acting as the “mainspring of the economy” (per Jacob LJ at [141] in L'Oréal SA v Bellure NV [2007]). Nevertheless, the recognition of dilution as damage in passing off would extend protection against those who “reap without sowing” and this would not necessarily discourage healthy competition in a capitalist market economy, but sanction competitive practices which are markedly unfair. This would create the added benefit of incentivising competitors to innovate, as opposed to precluding them from entering the market altogether, because the monopoly on marks would not become unduly wide if dilution was recognised as damage in passing off.

(iv) Conclusion

In conclusion, dilution should be recognised as a form of damage in passing off as it is in the law of registered trade marks because this would expand the scope of protection in favour of traders and encourage fairer commercial practices. In the wake of Brexit, whether the UK will continue to adopt the jurisprudence of the Court of Justice of the European Union and its inconsistent application of dilution to passing off remains to be seen, but it will nonetheless be interesting to see whether they chose to recognise dilution as head of damage in passing off to ultimately protect the distinctive character of marks within which the essential value resides.

 

 

[i]               Article 5(2) under infringement.

[ii]              S. 5(3) of the Trade Mark Act 1994 (TMA 1994) and Article 5(3)(a) of the Trade Marks Directive 2016.

[iii]             C. Wadlow, “The Law of Passing-Off: Unfair Competition by Misrepresentation”, (2004, p. 269).

[iv]             F. Schechter, “The Rational Basis for Trademark Protection” (40 Harvard Law Review, 813, 1927, p. 831).

[v]              Ibid.

[vi]             T. Aplin & J. Davis, “Intellectual Property Law: Text, Cases and Materials” (3rd ed., OUP, 2017, p. 372

[vii]            Article 5(2) of the TMD.

[viii]           H. Carty “Dilution and Passing Off: Cause for Concern” (112 Law Quarterly Review 632, 1996).

[ix]             F. Russell, 'The Elderflower Champagne case: Is this a further expansion of the tort of passing off?' (1993, EIPR 379. C.)