ConAgra Inc v McCain Foods (Aust) Pty Ltd

Re: ConAgra INC.
And: McCAIN FOODS (AUST) PTY LTD
No. G312 of 1991
FED No. 176
Intellectual Property - Trade Practices
(1992) 23 IPR 193, (1992) AIPC 90-892 (extract)
(1992) 106 ALR 465
(1992) 33 FCR 302

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart(1), Gummow(2) and French(3) JJ.

CATCHWORDS

Intellectual Property - passing off - bases and elements of passing off action - whether carrying on business within jurisdiction or place of business within jurisdiction - sufficiency of nexus with the jurisdiction - necessity and method of establishing reputation within jurisdiction - requirement of goodwill - whether fraud is a necessary element of passing off - relevance of establishing fraud.

Trade Practices - misleading and deceptive conduct - relationship between reputation in passing off action and establishing misleading and deceptive conduct.

Trade Practices Act 1974 (Cth): s. 52, s. 53(c).

HEARING

SYDNEY

#DATE 14:4:1992

Counsel for the Appellant: J.M. Ireland QC

R.J. Webb

Solicitors for the Appellant: Baker and McKenzie

Counsel for the Respondent: B.I. Shaw QC

B.J. Hess

Solicitors for the Respondent: A. Tatlock

ORDER

The appeal be dismissed.

The cross appeal be dismissed.

The appellant pay the costs of the respondent of the appeal.

The respondent pay the costs of the appellant of the cross
appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This case raises two important questions of law in the field of passing off: first, is it necessary that a plaintiff carry on business or have a place of business in Australia to maintain an action for passing off; and second, what is the significance of fraudulent intention of a defendant?

The appeal is brought from the judgment of a Judge of the Court (Hill J.), whose reasons are now reported in (1991) 101 ALR 461. The appellant, ConAgra Inc., is a company incorporated in the United States of America which carries on business there in diverse areas but generally related to food. The appellant manufactures and markets in the United States frozen foods under a number of brand names including the name relevant to this case "Healthy Choice". The concept of the product Healthy Choice originated in September 1985 following a heart attack of the Chairman and Chief Executive Officer of the appellant who found himself unable to obtain food with a pleasant taste that fell within his restricted diet, that is to say, food low in fat, cholesterol and salt. A few years passed before Healthy Choice was marketed as a range of frozen dinners. The name "Healthy Choice" was the result of a "brainstorming session" in June 1987. The packaging design for the product was formulated so that the product would stand out from all other frozen food packaging, would communicate the twin ideas of pleasant taste and good health and prominently feature the nutritional claims of "low fat, low cholesterol and low sodium". The colour green was chosen as the primary background colour of the packaging to differentiate the Healthy Choice product from other products; and a small figure of a running man appeared on the packet to convey, so it was said, an image of health and vitality. Trademark registration was sought and obtained in the United States for the mark Healthy Choice in connection with a number of food items. Since the national launch of the product in January 1989 with an initial range of ten products, the range has expanded so that at the present time it consists of some 79 products.
Sales of frozen food products by the appellant in the United States amount to approximately $US1.1 billion a year. Sales of the Healthy Choice products in the twenty-seven month period following the national launch amounted to $US458,210,000 and for the period of twelve months ended 17 march 1991 $US238,533,000. The brand has 7.6% of the overall frozen food, dinner and entree market in the United States.
The appellant has expended very substantial sums of money on advertising. Total expenditure by it on television and national print advertising from the date of the launch to December 1990 was $US36,160,100. Together with coupon advertising, the annual cost of advertising the Healthy Choice product in the United States in 1990 was approximately $US50m. The target market for advertising is adults aged 35 years and over where the head of the household earns over $US30,000 per year. Brand awareness of the Healthy Choice product in the United States is 47% of the general population, and among buyers of frozen food dinners at the premium end of the market around 68%.
The appellant does not presently manufacture the Healthy Choice products other than in the United States but, due to the geographical position of the United States, there is a spillover of the product both into Canada and Central America.
In March 1986 the appellant entered into a licence agreement with Wattie Frozen Foods Limited ("Wattie") whereby Wattie was licensed to introduce and distribute ConAgra Frozen Foods in both Australia and New Zealand and in other Pacific markets. Subsequently, probably in January 1991, Australia was deleted from the agreement. This coincided with the view formed by Mr McNamara (Vice-President, International Business of ConAgra Frozen Foods) in December 1990 that Australia was a strategic market in which to do business. Some research into the possibility of commencing manufacture in Australia is presently being conducted, but no firm decision to do so has, it would seem, yet been made. It is Mr McNamara's present intention, however, to introduce the product range Healthy Choice to Australia by about June this year.
The interest in Australia coincided, in part at least, with the purchase by the appellant of part of the Elders IXL operation in Australia and particularly the F.J. Walker business, which included facilities for the manufacture and warehousing of frozen food. This acquisition confirmed and accelerated Mr McNamara's plans for Australia. However Mr McNamara's role has been largely exploratory because he does not have the authority himself to commit the appellant to an Australian venture. The learned primary Judge found that the persons superior to Mr McNamara have, at least in principle, authorised him to proceed on the assumption that it is economically worthwhile to invest in the Australian market. The appellant plans to launch its product in other countries including Canada and possibly Japan and Europe.
The respondent, McCain Foods (Aust) Pty Ltd, is the wholly owned subsidiary of a Canadian company. It estimates its sales turnover in Australia for 1990-91 as $A206m. It commenced operations in Australia in 1968 selling imported French Fries, later turned to producing frozen pizzas and frozen vegetables, and in 1987, as a result of an acquisition, moved into manufacturing and marketing frozen food dinners. The respondent now has some 21% of the total frozen food market in Australia, second only to the food brands sold by the Petersville Group of companies and ahead of the competing brands of Nestle and Sara Lee. The respondent's estimated market share of the frozen dinner market in Australia is 23%.
The respondent had, in February 1989, commenced manufacturing and selling a low cholesterol range of French Fries. The success of that product prompted the research and development manager of the respondent to write in October 1989 a memorandum to the product manager of the respondent, with a copy to Mr Boyle, the then marketing director of the respondent, that consideration should be given to producing low cholesterol dinners.
In October 1989, Mr Boyle travelled to the United States and Canada and noticed the appellant's product on the shelves in supermarkets in various cities in Canada and the United States. He was sufficiently impressed that he obtained five examples of the packaging and took them back with him to Australia along with packets of other products.
On Mr Boyle's return to Australia he prepared a report on his trip to the senior management of the respondent saying that "The ... product 'Healthy Choice' (low cholesterol) is getting very favourable comments in the United States. We should look closely at this one." Discussions ensued between Mr Boyle and the product manager. In early December 1989 Mr Boyle instructed a member of the respondent's staff to request the respondent's patent attorney to lodge an application for registration of the trade mark HEALTHY CHOICE. Subsequently in July 1990, after advice, the patent attorney lodged an application for registration of those words together with the McCain logo.
Nothing much appears to have happened until about May 1990 when, at a research and development meeting within the respondent, the need for eight varieties of Healthy Choice Meals was referred to as "Priority A". In June 1990 the product manager prepared a written brief to an advertising agency. Various meetings concerning the advertising and the packaging were then held, reports were produced and market research carried out, leading up to the launch of the "McCain Healthy Choice" product with three varieties in February 1991. I need not refer to those products in any detail at this stage as they are fully set out in the primary Judge's reasons at 466-469 of the report.
The appellant commenced proceedings against the respondent in this Court on 8 April 1991. On 11 April 1991, the matter was heard on an interlocutory basis before a Judge of the Court and, upon the appellant by its counsel giving to the Court the usual undertaking as to damages, the Court granted interlocutory injunctions restraining the respondent from selling the "McCain Healthy Choice" product and from distributing the Trade Presenter (to which reference will be made later).
In its statement of claim the appellant alleged, amongst other things, that the respondent had adopted the name and get-up of the appellant's frozen food products with the intention of passing off the respondent's products as those of the appellant. In the alternative, the appellant alleged that the respondent had contravened s. 52 or s. 53(c) of the Trade Practices Act 1974 ("the Trade Practices Act").
The primary Judge considered first the appellant's claim based on passing off and held that he felt constrained to decide in the light of the present state of the authorities that the tort of passing off requires the existence of a business in Australia (albeit slight activities will suffice), and that as the appellant has no business in Australia it must fail in its passing off claim.
In so far as fraudulent intent on the part of the respondent might be relevant to the passing off claim, his Honour made findings of fact to which I shall refer later when dealing with the question of fraud. His Honour found that the respondent was guilty of fraud in that from the outset it had deliberately adopted the name of the appellant's product and aspects of its packaging.
His Honour found that, given that the words Healthy Choice are used on the respondent's package in conjunction with the McCain trademark and logo prominently displayed, it seemed to him quite clear that no one seeing the McCain product would believe that they were purchasing a product of the appellant and that this was virtually conceded by counsel for the appellant. His Honour said that this was at least in the case where the running man logo no longer appeared on the respondent's packaging, as it initially did. His Honour asked the question whether the use by the respondent of the name and the associated packaging matters to which he referred in his judgment, led to the conclusion that there was a relationship between the respondent or the respondent's product on the one hand and the appellant or its product on the other, albeit by way of licence or whatever. His Honour found that the packages did suggest to a purchaser or at least one familiar with the appellant's product, that there was a relationship of some kind between the appellant and the respondent or their respective products. He relied in large part upon the particular emphasis on "low fat, low cholesterol, low sodium", the position of those words, and in particular the use of the Americanism "sodium" for the common English word "salt", all in association with a green package on which the name Healthy Choice appeared.
His Honour went on to say that a connection would only be apparent to a person familiar with the ConAgra product, so he then turned to the evidence of reputation in Australia. I shall refer to this evidence and his Honour's findings relating to reputation in more detail later. It is sufficient for present purposes to say that his Honour found that, while there was no doubt that there were persons in Australia aware of the ConAgra product and while the evidence established that there was a potentially large number of such persons, he was unable to be satisfied on the evidence on the balance of probabilities, that there existed in Australia a sufficiently substantial number of persons who were aware of the ConAgra product and for whom the name Healthy Choice would have acquired a secondary meaning, that is to say, the meaning signifying the ConAgra Healthy Choice product. He found therefore that in respect of the name and get-up on the packaging of the respondent there was no misrepresentation.
His Honour found that it was a prerequisite of a passing off action that the plaintiff prove either actual damage or, in a quia timet action, probable damage. No actual damage had been proved because the appellant did not manufacture or market in Australia its Healthy Choice product. He referred to the evidence of the appellant's proposal to market Healthy Choice in Australia in the future. He said that the evidence suggested that the appellant had not yet made a final decision whether to market in Australia, but there was a clear possibility that it would do so and he was satisfied that it was likely that it would do so. He concluded that it was more probable than not that the appellant would commence at some time in the future to manufacture and market its Healthy Choice product in Australia. Should it do so then it was clear that the appellant would suffer damage by there being on the market another product with the name Healthy Choice and that that damage would be great if the name Healthy Choice had by then developed a secondary meaning equating it to the respondent's product. He held that the appellant has shown a probability that it would suffer damage sufficient to found a passing off action.
As to the claims under the Trade Practices Act his Honour found that the appellant had not satisfied the onus of proof of showing that the number of persons for whom the name Healthy Choice and the package design would have the necessary secondary meaning was other than insignificant.
His Honour turned to the document called the Trade Presenter. The launch by the respondent of the "McCain Healthy Choice" product in February 1991 was accompanied by what is referred to in the evidence as a "Trade Presenter". Fifty-two copies of the document were distributed to the persons responsible for the ordering, largely by wholesale but also by retail, of frozen food products in Australia. The document was prepared by the respondent. His Honour held that in distributing the Trade Presenter the respondent was guilty of misleading or deceptive conduct contrary to s. 52 of the Trade Practices Act, but that otherwise the appellant's case under s. 52 failed.
As to the case based on s. 53(c) of the Trade Practices Act, his Honour held that, since he had found that the appellant had no significant reputation in Australia, it must follow that the use of the Healthy Choice name and the similarities of packaging could not constitute a representation by the respondent that its product was associated with the ConAgra Healthy Choice product. There was thus no need to consider, his Honour said, whether a representation of association such as was alleged by the appellant could properly be said to be a representation of "sponsorship" within the meaning of s. 53(c).
Accordingly, his Honour found that the respondent had breached s. 52 of the Trade Practices Act in disseminating the Trade Presenter, but that otherwise its claim based on Part V of the Trade Practices Act must fail. His Honour varied one of the earlier interlocutory injunctions so as to restrain the respondent from contravening s. 52 of the Trade Practices Act by disseminating the Trade Presenter, dissolved the other interlocutory injunction, otherwise dismissed the proceeding and ordered the appellant to pay two-thirds of the costs of the respondent.
The appellant appeals from his Honour's judgment except that part of it whereby his Honour upheld the appellant's claim in relation to the Trade Presenter. The respondent cross appealed from his Honour's findings in respect of the Trade Presenter, but the cross appeal was withdrawn upon the commencement of argument before us.
The basis of passing off
The basis on which rights are entitled to protection in an action for passing off has moved from time to time as the law has adjusted to changed commercial practices and perceptions. Christopher Wardlow said in The Law of Passing Off 1990 at 10, (and I agree with him):

"The law has advanced on the strength of common sense and judicial instinct, with rationalisation and consolidation following. Despite this, passing off presents an example of the incremental approach of the common law at its most effective."

Many learned publications have discussed the origins of the tort of passing off, with two of the finest treatments of the subject being those by Professor W.L. Morison "Unfair Competition and Passing Off" (1956) 2 Syd L Rev 50 and Mr W.M.C. Gummow, "Carrying On Passing Off" (1974) 7 Syd L Rev 224. The expression "passing off" is of comparatively recent origin, but in its early stages fraud in one sense or another was essential both at law and in equity. The tort has developed through decisions resting primarily on the premise that dishonest rivals in trade must be prevented from attempting to gain the advantage of a reputation in the market place built up by a trader by hard work, advertising and the quality of his product. The law of passing off arose principally to protect traders and prevent commercial dishonesty.

Whether fraud survives as a basis (albeit not an essential basis) for a passing off action or is now obsolete or even no longer an available basis, is one of the two principal questions in this case which I will deal with later.
It has been clear since 1838, when Millington v Fox (1838) 3 MyandCr 338; 40 ER 956 was decided, that equity does not require proof of an intention to deceive as a necessary ingredient in the cause of action. It requires that there be a misrepresentation by the defendant, but it is the property of the plaintiff, namely his business, goodwill or reputation, likely to be injured by the misrepresentation, that the law protects.
In the United Kingdom in 1979, the judgment of the House of Lords in Erven Warnink Besloten Vennootschop v J. Townend and Sons (Hull) Ltd (1979) AC 731 ("the Advocaat Case") squarely placed the basis of the tort in misrepresentation. In the Advocaat Case Lord Diplock said (at 741-2) that Lord Parker of Waddington in A G Spalding and Bros v A W Gamage Limited (1915) 32 RPC 273 (a case I will deal with later) provided a rational basis for the extension of the cause of action and that that case:

"led the way to recognition by judges of other species of the same genus, as where although the plaintiff and the defendant were not competing traders in the same line of business, a false suggestion by the defendant that their businesses were connected with one another would damage the reputation and thus the goodwill of the plaintiff's business".

That the underlying rationale of the tort of passing off is to prevent commercial dishonesty finds further support from Lord Diplock's speech in the Advocaat Case where his Lordship described the question arising in that case as "essentially one of legal policy" (at 739) and he found that the facts disclosed "a case of unfair, not to say dishonest, trading of a kind for which a rational system of law ought to provide a remedy to other traders whose business or goodwill is injured by it" (at 740).
A passage from the speech of Lord Diplock has come to be regarded as the authoritative statement of the necessary elements to establish passing off. His Lordship said (at 742):

"My Lords, A.G. Spalding and Bros v A.W. Gamage Ltd and the later cases make it possible to identify five characteristics which must be present in order to create a valid cause of action for passing off: (1) a misrepresentation

(2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him,

(4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of a trader by whom the action is brought or (in a quia timet action) will probably do so."

The other members of the House concurred in this statement as they did with the speech of Lord Fraser of Tullybelton. The speech of Lord Fraser contains at 755-6 a narrower statement of the cause of action in these terms:

"It is essential for the plaintiff in a passing off action to show at least the following facts: - (1) that his business consists of, or includes, selling in England a class of goods to which the particular trade name applies; (2) that the class of goods is clearly defined, and that in the minds of the public, or a section of the public, in England, the trade name distinguishes that class from other similar goods; (3) that because of the reputation of the goods, there is goodwill attached to the name;

(4) that he, the plaintiff, as a member of the class of those who sell the goods, is the owner of goodwill in England which is of substantial value; (5) that he has suffered, or is really likely to suffer, substantial damage to his property in the goodwill by reason of the defendants selling goods which are falsely described by the trade name to which the goodwill is attached."

In Anheuser-Busch Inc v Budejovicky Budvar (1984) 4 IPR 260 ("the Budweiser Case"), Oliver L.J. regarded the two statements of Lord Diplock and Lord Fraser as "complementary" (at 275-276) and O'Connor L.J. regarded the two statements of the essential elements of passing off as "cumulative" (at 284). The English Court of Appeal declined to follow either of those observations in Bristol Conservatories Limited v Conservatories Custom Built Limited (1989) RPC 455 and stated at 466 (in the judgment of Ralph Gibson L.J., with which Butler-Sloss L.J. and the President agreed):

"I am unable to accept that Lord Diplock, or their Lordships who agreed with him, can be taken to have intended to exclude from the protection of the law a trader injured by the sort of dishonest trading alleged or proved in such cases as Samuelson or the Plomien Fuel Economiser case, or in this case. Nor do I think that Lord Fraser is to be taken as having intended to lay down essential requirements which would exclude from the ambit of the tort such cases which were not under consideration in the Warnink case itself. In Lego System A/S v Lego M. Lemelstrich (1983)FSR 155 Falconer J., after reference to Lord Diplock's list of characteristics and to Lord Fraser's five essential facts, said at page 185, 'In so stating the essential facts to be established by the plaintiff in a passing off action, I think that Lord Fraser was, in essentials (1) to (4) inclusive, stating his formulation in the context of the case he was actually considering'. We have been referred to other expressed views (Oliver L.J. and O'Connor L.J.) of the relationship between the two speeches, but it was not argued that those other views were matters of decision so as to be binding on this court. For my part, I agree with Falconer J's view of the matter."

The Privy Council, on appeal from Powell J. of the Supreme Court of New South Wales, in Cadbury Schweppes Pty Limited v Pub Squash Co Pty Limited (1980) 32 ALR 387 at 391 regarded the "declarations of principle" of the speeches of Lord Diplock and Lord Fraser of Tullybelton as being of "general application". Lord Diplock's statement of the five characteristics of the tort was referred to with apparent approval by Deane J. (in whose judgment the other members of the Court concurred) in Moorgate Tobacco Co Limited v Philip Morris Limited (1984) 156 CLR 414 at 443-444. Deane J. then proceeded to paraphrase the following further observations made by Lord Diplock (at 742) in the Advocaat Case (at 93):

"In seeking to formulate general propositions of English law, however, one must be particularly careful to beware of the logical fallacy of the undistributed middle. It does not follow that because all passing off actions can be shown to present the characteristics, all factual situations which present these characteristics give rise to a cause of action for passing off. True it is that their presence indicates what a moral code would censure as dishonest trading, based as it is upon deception of customers and consumers of a trader's wares but in an economic system which has relied on competition to keep down prices and to improve products there may be practical reasons why it should have been the policy of the common law not to run the risk of hampering competition by providing civil remedies to every one competing in the market who has suffered damage to his business or goodwill in consequence of inaccurate statements of whatever kind that may be made by rival traders about their own wares."

What is the test of local connection?

The first question I propose to consider is whether it is necessary to sustain the tort of passing off that the plaintiff's trade or business is in fact carried on within the jurisdiction or whether it is sufficient that there is a reputation within the jurisdiction in respect of that trade or business carried on elsewhere.
The primary Judge said at 471-2:

"There is no doubt that, for the applicant to succeed, it must prove that it had a reputation in Australia. So much was conceded by the applicant. The emphasis placed upon the twin concepts of goodwill and business raises immediately the further question whether for the applicant to succeed in a passing off action it must also establish that it was carrying business in Australia. The evidence admittedly fails to establish the existence of any business in Australia of the applicant. The preponderance of case law presently favours the respondent ...

As goodwill is inseverable from the business, it follows that if no business is carried on in the jurisdiction then no goodwill exists in the jurisdiction to protect. Hence if passing off exists to protect goodwill in the jurisdiction, it must follow that the plaintiff must carry on business in the jurisdiction." The rules as to passing off were, of course, formulated in simpler times when business was less internationally based, and when communications between countries in the form of advertising messages and travel were virtually non-existent. In times gone by, a company not carrying on business in the jurisdiction, not selling its goods there, might be presumed in any event to have had no reputation in the jurisdiction. With the advent of mass international communications, with television beaming from one country to another, with newspapers, magazines and journals being almost instantaneously available in countries other than the country of publication, there is much to be said for rethinking the basis of the action in passing off to the extent that it truly is confined to the existence of a business within the jurisdiction rather than the existence of a reputation in the jurisdiction."

His Honour then reviewed the authorities both in Australia and other countries concerning the question whether it is an essential element in the tort that the plaintiff's business be carried on in the jurisdiction and said at 474-5:

"Like Powell J in Fletcher Challenge Ltd v Fletcher Challenge Pty Ltd (1981) 1 NSWLR 196), I am of the view that the time has come to recognise that, although the tort of passing off is based upon the existence of a business or trade, it does not matter whether that trade or business is in fact itself carried on in the jurisdiction, provided that there is in respect of that trade or business, extant, a reputation in the jurisdiction. However, neither the decisions of the High Court nor Full Federal Court presently go so far and such comments on the matter as there are point in the other direction. I think, therefore, that the issue should be addressed and resolved by an appeal court rather than by a single judge. As will become apparent, the question is of little practical moment in Australia because in proceedings taken under the (Trade Practices) Act there clearly can be no need to establish that the plaintiff is carrying on business in Australia or has goodwill in Australia if the issue is whether the respondent is engaged in conduct which is misleading or deceptive."

Different tests, and sometimes substantially the same tests expressed in different language, have been applied by the courts over many years, most relevantly since 1838, but they do not clearly resolve the present question. Some judgments fasten on the actual carrying on of business by the plaintiff in the forum as being an essential ingredient in the cause of action, but the cases vary about the extent to which that business must be carried on; whilst others have found it sufficient that the plaintiff has a local reputation in respect of his name, business, goods or services notwithstanding that he does not carry on business there. The expression "goodwill" is often referred to in conjunction with "reputation" in this context as being the "property right" of the plaintiff that is entitled to protection, and it is the adoption of this expression and the concept which it embodies that has led some courts to require the carrying on of business by the plaintiff in the forum for him to succeed. In my view, to properly resolve this question, it is necessary to analyse many of the relevant reported cases some of which will also be of assistance in looking at the question of the relevance of fraud.
England
As mentioned earlier, in 1838 the House of Lords decided in Millington v Fox that intention to deceive need not be proved and that equity was concerned to protect the plaintiff's property, being the exclusive use of certain marks.
In The Collins Company v Brown (1857) 3 KandJ 423, a demurrer heard by Vice Chancellor Wood, the complaint was that a fraud had been committed by the defendant by using the trade mark of the plaintiffs and thus representing that the goods manufactured by the defendant were manufactured by the plaintiffs. The plaintiffs were an American company without any establishment in the United Kingdom and it was not alleged that they ever manufactured or sold goods in the United Kingdom. The defendants argued that the plaintiffs had no right to any trade mark in the United Kingdom and therefore could not be defrauded or wronged by another person using their marks. The Vice Chancellor rejected this argument and held that the true foundation of the jurisdiction in these cases was whether a fraudulent intent existed:

"If a man has been in the habit of using a particular mark for his goods for a long time, during which no one else has used a similar mark, and then another person begins to use the same mark, that can only be with a fraudulent intent; and any fraud may be redressed in the country in which it is committed, whatever may be the country of the person who has been defrauded" (428).

The Vice-Chancellor thus found that, if the defendant fraudulently intended to represent his goods as those of the plaintiffs, the English Courts could restrain him, notwithstanding that the plaintiffs resided and carried on business in another country and had no establishment in England and did not even sell their goods there.
The Commissioners of Inland Revenue v Muller and Co's Margarine Limited (1901) AC 217, is a case on goodwill in the context of the Stamp Act 1891 (UK), but it is often cited in passing off cases for the definition of "goodwill" in the speeches of their Lordships, especially Lord Macnaghten. Lord Macnaghten said (at 223-4) that goodwill was property and that it was:

"bought and sold every day. It may be acquired, I think, in any of the different ways in which property is usually acquired. ...

I am disposed to agree with an observation thrown out in the course of the argument, that it is not easy to form a conception of property having no local situation. What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start. The goodwill of a business must emanate from a particular centre or source. However widely extended or diffused its influence may be, goodwill is worth nothing unless it has power of attraction sufficient to bring customers home to the source from which it emanates. Goodwill is composed of a variety of elements. It differs in its composition in different trades and in different businesses in the same trade. One element may preponderate here and another element there. To analyze goodwill and split it up into its component parts, to pare it down as the Commissioners desire to do until nothing is left but a dry residuum ingrained in the actual place where the business is carried on while everything else is in the air, seems to me to be as useful for practical purposes as it would be to resolve the human body into the various substances of which it is said to be composed. The goodwill of a business is one whole, and in a case like this it must be dealt with as such. For my part, I think that if there is one attribute common to all cases of goodwill it is the attribute of locality. For goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business. Destroy the business, and the goodwill perishes with it, though elements remain which may perhaps be gathered up and be revived again. No doubt, where the reputation of a business is very widely spread or where it is the article produced rather than the producer of the article that has won popular favour, it may be difficult to localise goodwill. (223-4)"

Lord Lindley said, in addition to an oft cited passage to which reference shall be made later:

"I am not aware of any case in which goodwill, as property, has been treated as having no locality for legal purposes" (at 237)

The Earl of Halsbury L.C. said (at 238-239), in a dissenting speech:

"The goodwill of a business is what the word itself expresses, although the concurrence of so many of Your Lordships leads me to doubt what I should otherwise have had no doubt upon. The advantages which may be conferred upon a business, either by its local situation or by attractive appearance, have nothing to do with the goodwill, although they may have originally contributed to procure it, and may, to some extent, be connected with the nature of the business, which itself, however, is a different thing. 'The goodwill thereof' is a thing which can be assumed to exist separately. Like every other thing which suggests one simple idea, it is difficult, if not impossible, to define it. The right to trade under the name of a firm which has acquired a reputation is not confined to a particular locality or to any particular premises. The right would remain if the business were transfered to another site elsewhere, or if the premises were entirely altered."

In La Societe Anonyme Des Anciens Etablissements Panhard Et Levassor v Panhard Levassor Motor Company Limited (1901) 2 Ch 513 the plaintiffs were a well known firm of motor car manufacturers in Paris. Their reputation had extended to England for several years, but they had prior to the action no agency and did not sell directly in England. They sold indirectly in the sense that their cars were bought and frequently imported into England by private individuals and another company, so that England was one of their markets. Farwell J. applied The Collins Company v Brown in holding that the defendant company had the fraudulent intention of annexing the benefit of the plaintiffs' name and granted injunctive relief but not damages because he said (at 517) that no damages had been proved or suffered because the defendant company had not carried on business. He said (at 516) that apart from The Collins Company v Brown he would still have granted relief to protect the foreign trader "who has a market in England ... from having the benefit of his name annexed by a trader in England who assumes that name without any sort of justification." Thus Farwell J. found against the defendants on two bases: first, fraud of the kind in The Collins Company v Brown and second, although the plaintiffs had no establishment in England and did not carry on business there, nevertheless they had a sufficient market for their cars there to maintain a passing off action.

In Spalding Lord Parker of Waddington, in a speech approved by Lord Diplock in the Advocaat Case and referred to earlier, discussed (from 283) the principles on which a passing off action is founded, and adopted the statements of Turner L.J. in Burgess v Burgess (1853) 3 D M and G 896, 43 ER 351 and Lord Halsbury in Reddaway v Banham (1896) AC 199 to the effect that "nobody has any right to represent his goods as the goods of somebody else". His Lordship stated (at 283):

"Nor need the representation be fraudulently made. It is enough that it has in fact been made, whether fraudulently or otherwise, and that damages may probably ensue, though the complete innocence of the party making it may be a reason for limiting the account of profits to the period subsequent to the date at which he becomes aware of the true facts. The representation is in fact treated as the invasion of a right giving rise at any rate to nominal damages, the inquiry being granted at the plaintiff's risk if he might probably have suffered more than nominal damages. The view taken by the Common Law Courts was somewhat different. The plaintiff's remedy was said to have been in the nature of an action for deceit, but it only resembled the action for deceit in the fact that the misrepresentation relied on must have been fraudulently made. In all other respects it differed from an action for deceit. For example, the plaintiff was not the party deceived, and even if it were necessary to prove that someone had been deceived, nominal damage could be obtained though no actual damage was proved."

His Lordship referred to the early case of Blofeld v Payne (1833) 4 B and Ad 410, 110 ER 509 and said (at 284) that there was considerable diversity of opinion as to the nature of the right, the invasion of which is the subject of a passing off action:

"The more general opinion appears to be that the right is a right of property. This view naturally demands an answer to the question - property in what? Some authorities say property in the mark, name or get-up improperly used by the defendant. Others say, property in the business or goodwill likely to be injured by the misrepresentation. Lord Hershell in Reddaway v Banham ... expressly dissents from the former view; and if the right invaded is a right of property at all, there are, I think strong reasons for preferring the latter view. In the first place, cases of misrepresentation by the use of a mark, name or get up do not exhaust all possible cases of misrepresentation. ... Further, it is extremely difficult to see how a man can be said to have property in descriptive words, such as "Camel Hair" in the case of Reddaway v Banham ... where every trader is entitled to use the words, provided only he uses them in such a way as not to be calculated to deceive.

His Lordship's judgment was concurred in by Lord Atkinson, Lord Sumner and Lord Parmoor.

In Pioret v Jules Pioret Limited (1920) 37 RPC 177 Paul Pioret, a designer and maker of ladies' dresses and theatrical costumier who carried on business in Paris, sought an injunction to restrain the defendants from using the name of Pioret in connection with the manufacture, sale or advertisement for sale of costumes or dresses. P.O. Laurence J. held (at 187) that Paul Pioret was entitled to injunctive relief notwithstanding that he had no place of business in England because he had acquired a reputation in England in the name Pioret, associated with gowns or dresses, either as the designer or maker of them. His Lordship held that the defendant had deliberately taken the surname Pioret because of the high reputation which it had acquired in the dressmaking business and in order to get the benefit of it.
Pioret is a case of a reputation having been established in the England by the plaintiff even though he had no establishment or place of business there. But he visited England, or sent an assistant to England, three or four times a year, with dress models which he sold to dressmaking firms and others thus establishing a reputation by 1909. Indeed, Mrs Asquith, the wife of the Prime Minister of England, held an exhibition of his dresses at No. 10 Downing Street in 1909, which was the subject of lively controversy in the newspapers.
In R.J. Reuter Company Limited v Mulhens (1953) 70 RPC 235 prior to 1939, a German business had been the proprietor of numerous registered trade marks for eau-de-cologne and like goods which were in use on goods imported from or compounded at an English factory with essences imported from a German factory. These products had, in the words of Lord Evershed (at 239), a "great reputation" in Europe. After the outbreak of World War II the trade marks were vested in the Custodian of Enemy Property and thereafter were used by the plaintiff, a company controlled by the Custodian, as a registered user. In 1951, the Custodian sold the shares of the plaintiff and assigned the marks and associated goodwill to the plaintiff. Since 1939 bottles bearing the trade marks had been on sale in England and the marks had been, on the face of it, indicative of English origin, namely, the manufacture of the plaintiff. The defendant, who inherited the German business, wrote letters to persons in Great Britain on which he used the trade marks. The defendant had no present intention to trade in Great Britain. The plaintiff sued the defendant for infringement of the trade marks and the defendant counter claimed for passing off. Lord Evershed M.R., with whose reasons Birkett and Romer L.J. agreed, said (at 253):

"... I do not think the Defendant is entitled to succeed in his claim for passing-off. He is conducting in England no business, selling here

no goods. As it seems to me, he had not in this country any proprietary right which he is entitled to protect."

Romer L.J., with whom Birkett L.J. also agreed, was of the opinion that the goodwill in question was solely attached to the business which the defendant carried on in Britain as a distinct and severable enterprise and found that "the goodwill did possess a locality and that locality was Britain". His Lordship found that approach to be in accord with the following observations of Lord Lindley in Muller (at 235):

"Goodwill regarded as property has no meaning except in connection with some trade, business or calling. In that connection 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 absence from competition, or any of these things and there may be others which do not occur to me. In this wide sense, goodwill is inseparable from the business to which it adds value and, in my opinion, exists where the business is carried on. Such business may be carried on in one place or country or in several and if in several there may be several businesses, each having a goodwill of its own."

It is difficult to draw much of general application to the law of passing off out of this case due to its peculiar factors as the predecessors in business of the defendant did in fact market and manufacture their products in the United Kingdom at material times before 1939 but, due to orders made under the Trading with the Enemy Act 1939 (UK), were effectively stripped of all their trade marks and goodwill; and, as nothing had been done to recreate that part of its business (which the plaintiffs then conducted) in Great Britain, they had no reputation or goodwill in Great Britain to found a passing off action.
T. Oertli Ag v E.J. Bowman (London) Limited (1957) RPC 388 was a passing off action. Jenkins L.J. delivered the judgment of the Court of Appeal. It was emphasised by his Lordship (at 397) that it was essential to the success of a passing off claim based on the use of a given mark or get-up:

"That the plaintiff should be able to show that the disputed mark or get-up has become by user in this country distinctive of the plaintiff's goods so that the use in relation to any goods of the kind dealt in by the plaintiff or that mark or get-up will be understood by the trade and the public in this country as meaning that the goods are the plaintiff's goods. The gist of the action is that the plaintiff, by using and making known the mark or get-up in relation to his goods, and thus causing it to be associated or identified with those goods, has acquired a quasi-proprietary right to the exclusive use of the mark or get-up in relation to goods of that kind."

He posed the question (at 397) as being whether the plaintiffs, a Swiss company, had established "the requisite association in this country of the word 'Turmix' with machines of the plaintiff's manufacture". The facts showed that the plaintiff had sold 50 machines in England and exhibited them at one exhibition. Their Lordships held (at 398) that such evidence fell "far short" of proof that the word "Turmix" had become distinctive in England of machines of the plaintiff's manufacture. Thus their Lordships regarded more substantial use in England of the mark or get-up in respect of the plaintiff's goods as essential. The appeal to the House of Lords was dismissed: see (1959) RPC 1.

Sheraton Corporation of America v Sheraton Motels Limited (1964) RPC 202, a decision of Buckley J., was an application for an interlocutory injunction to restrain passing off, as many of the cases which bear on this question are. The plaintiff was a United States corporation which owned and ran a well known chain of hotels in the United States and elsewhere, but they had no hotel in the United Kingdom. However, bookings for accommodation in the hotels outside the United Kingdom were frequently made in the United Kingdom both through an office which the plaintiff maintained in London and through travel agencies. The defendant company was on the verge of building luxury hotels at Prestwick Airport and other places under the Sheraton name. His Lordship looked at the matter as being one where the plaintiffs may be able to say that they had a reputation and a goodwill which would be (at 204):

"exposed to risk resulting from the confusion between the plaintiffs and the defendants notwithstanding that they are carrying on business in different parts of the world; and that, moreover, the plaintiff company are entitled to retain the possibility of exploiting their own goodwill in this country by opening hotels here, and that that possibility ought not to be diluted by anything done by the defendant company meanwhile."

His Lordship granted interlocutory relief. His Lordship appears to have applied Pioret and seems to have accepted the proposition that somebody who carries on business abroad is entitled to protect his local goodwill notwithstanding that the business which he carries on and the goodwill connected with it relates to a business outside the United Kingdom. The fact that the plaintiff had a London booking office and that bookings were made through travel agencies in the United Kingdom and thus involved use of the name of its hotels seems to have been basic to the decision.

An important case is Alain Bernardin et Compagnie v Pavillion Properties Limited (1967) RPC 581 ("The Crazy Horse Case"), a decision of Pennycuick J. It was an interlocutory injunction case based on passing off in which injunctive relief was refused. The plaintiff was the proprietor and operator of a bar and cabaret in Paris known as the "Crazy Horse Saloon". There was evidence that the bar had been continuously and extensively publicised in the United Kingdom for sixteen years. The defendant commenced a place of entertainment in London under the name of "Crazy Horse Saloon" and issued an advertisement stating "Crazy Horse Saloon comes to London". His Lordship said (at 583) that the foundation of the action for passing off is the protection of goodwill and referred to Kerly's Law of Trade Marks and Trade Names 9th ed., 1966, and to Halsbury's Laws of England, 3rd ed, vol 38. He cited from Muller the two well known passages from the speeches of Lord Macnaghten at 223 and 224 and Lord Lindley at 235. He also cited the passage I referred to earlier in Oertli per Jenkins L.J. at 397 with reference to local user and stated:

"that a trader cannot acquire goodwill in this country without some sort of user in this country. His user may take many forms and in certain cases very slight activities have been held to suffice. On the other hand, I do not think that the mere sending into this country by a foreign trader of advertisements advertising his establishment abroad could fairly be treated as user in this country. No authority to that effect has been cited. If that were so, the range of the action of passing off would be extended far beyond anything which has hitherto been treated as its proper scope. That observation applies I think particularly to such establishments as hotels and even more to restaurants. It may well be that the owner of a foreign hotel or restaurant acquires in this country a reputation for the name of his hotel or restaurant in a wide sense, that the travel agents or other persons to whom he sends advertisements know of his establishment. Again he may acquire a reputation in a wide sense in the sense of returning travellers speaking highly of that establishment, but it seems to me that those matters, although they may represent reputation in some wide sense, fall far short of user in this country and are not sufficient to establish reputation in the sense material for the purpose of a passing off action. It is very clear that in such circumstances the foreign trader has not acquired anything which in law could be described as goodwill in this country."

His Lordship referred to Pioret as being a case which went very little along the way towards helping the plaintiff company in the present case because it did not carry on business activities in the United Kingdom of any kind apart from disseminating advertisements (at 586). Even though P.O. Lawrence J. in Poiret held that it was not necessary that the plaintiff in order to maintain the action should have a place of business in London, his Lordship distinguished it from the case before him as the facts of Poiret showed a number of business activities in London. His Lordship also referred to Sheraton and distinguished it because there was no suggestion in the case before him that the plaintiff had an office in the United Kingdom or that bookings could be made in London of tables in the Paris nightclub. His Lordship cited the following passage from Kerly 9th ed, 1966, para 719 which after referring to Oertli v Bowman says:

"This proposition, however, must be read in its context in this case: if in fact the plaintiff has the necessary reputation in this country, it does not matter whether it was acquired by user here or in any other way."

His Lordship went on to say (at 587):

"It seems to me that that way of putting it is different from what Buckley J held, and I find it difficult to reconcile it with these authorities which are binding upon me. It seems to me that there must be some kind of user in this country, as there was in the Sheraton case."

He concluded "with considerable reluctance" that the plaintiff company had not shown a prima facie ground for injunctive relief and in particular had failed to show that it had acquired by user of the name "Crazy Horse Saloon" in the United Kingdom, any goodwill or reputation such as is entitled to protection by the courts of the United Kingdom.

In Suhner and Company A.G. v Suhner Limited (1967) RPC 336 an interlocutory injunction was granted by Plowman J. restraining the defendant company from remaining registered under its current name. The plaintiff was a Swiss corporation manufacturing electronic components and it asserted an international reputation and goodwill in the name of "Suhner". The defendants disputed that the plaintiff had goodwill in the United Kingdom. His Lordship found that the plaintiff had established a clear prima facie case of the existence of its goodwill in the United Kingdom. His Lordship's finding was based upon the fact that from 1946 until some years thereafter another company was the sole distributor in Great Britain of the plaintiff's high frequency connectors and cables. That distribution arrangement was initially a direct relationship, but from about 1960 the plaintiff supplied the distributing company with goods to distribute in the United Kingdom through a Swiss associate. In 1967 the distribution arrangement ended and the plaintiff decided to form its own company to distribute its product in the United Kingdom, but found that the defendant company was already registered with the name "Suhner". It is clear that the plaintiff's goods were in fact sold and distributed in the United Kingdom, though not by the plaintiff but by a company which was its sole distributor in the United Kingdom. There is no suggestion of any further "business activities" on the part of the plaintiff in the United Kingdom.
Globelegance BV v Sarkissian (1974) RPC 603 was a decision of Templeman J., again a passing off case where interlocutory injunctive relief was sought. A Mr Valentino Garavani was a fashion designer who in 1960 opened a salon in Rome and in the years that followed built up a reputation in ladies' high fashion under the name "Valentino". His fashion shows in Rome and New York were attended by buyers from various countries including the United Kingdom. In 1966 and 1968 Mr Garavani held fashion shows in London and in 1970 clothes made from his patterns were sold in London under the "Valentino" label. In 1969 Mr Garavani assigned to the plaintiffs, an Italian company based in Rome, some of the business assets which he owned including the trade mark "Valentino" and the goodwill in his business in connection with it. Also he entered into a service agreement with the plaintiffs. In 1970 and 1971 Mr Garavino's activities were given publicity in various international papers and in newspapers including The Times. By 1972 the world wide business carried on under the name "Valentino" was very substantial. Valentino ties were sold in the United Kingdom in August 1972.

The plaintiffs sought an interlocutory injunction to restrain the defendant from passing off his business and goods as those of the plaintiffs by the display of the name "Valentino" on his premises and the use of the name "Valentino". The defendant wished to establish a men's fashion business in London. His Lordship said that there was obviously "a very great difference between the activities of the plaintiff outside England and their activities inside England" (at 609). He referred to the Crazy Horse Case and to Pioret and distinguished Pioret on the ground that, though like the Garavani case there was no establishment in England, Pioret made a practice of himself coming or sending over an assistant three or four times a year with dress models which he sold to English dress making firms and he gave a display attended by the then wife of the Prime Minister, Mrs Asquith, at No. 10 Downing Street which caused some resentment amongst his English competitors. His Lordship said that Pioret was a very much stronger case on the facts than the case before him as a great deal more business was done in the United Kingdom notwithstanding that there was no place of business there. Templeman J took up the point left by Pennycuick J. in the Crazy Horse Case that there must be some kind of user in the United Kingdom; but his Lordship said (at 612):

"The question is really: What kind of user? Pure advertisement is clearly insufficient. Taking bookings was sufficient in Sheraton. Carrying out orders in this country was held to be sufficient in Pioret."

He then referred to the evidence of user in the United Kingdom in the Garavani case and said that the necessary conditions were fulfilled bearing in mind of course he was dealing with the matter at an interlocutory stage only. He also held there were sufficient persons who might become purchasers from the defendants and who would assume a connection between the defendant's premises in Jermyn Street and the name "Valentino" and the activities of the plaintiffs in respect of the "Valentino" products. His Lordship concluded (at 615):

"One knows that in practice the trade in high fashion is becoming more and more international, and it does seem to me, in general, that it would be a very great pity if the strait jacket of the Crazy Horse decision was found to constrain me from preventing Valentino from keeping the name which he has so well publicised."

In Amway Corporation v Eurway International Limited (1974) RPC 82, a claim for interlocutory relief in respect of passing off failed before Brightman J. His Lordship said that in order to sustain a claim of passing off the plaintiff must have a business reputation in the United Kingdom which is entitled to be protected and (at 88): "Some knowledge of the name of the plaintiffs in this country without any business activities here would quite clearly not be sufficient." He relied on the Crazy Horse Case. The second plaintiff was a wholly owned subsidiary of the first plaintiff, incorporated in the United Kingdom. It had engaged in minor trading activities over the previous two years, but over the previous six months had actively begun to organise the promotion of a large scale United Kingdom business and was seeking premises and interviewing senior personnel to run the company. His Lordship referred to the fact that the first plaintiff, an American company, engaged in the business of direct selling of cleaning materials, had over 200,000 distributors in the United States; but it had in addition a large number of Canadian and Australian distributors and many of the distributors had relatives or friends in the United Kingdom and had told them what the plaintiff was doing. The plaintiff had a preliminary list of over 500 names of distributors in the United States who wished to appoint their relatives or friends as distributors in the United Kingdom. The plaintiff placed full page advertisements in a number of American magazines, some of which had quite a large circulation in the United Kingdom; for example, the National Geographic magazine. Also the plaintiff had in the United States and Canada a house magazine with a circulation of over 500,000 copies a month and in which the proposed opening of the United Kingdom operations was publicised. His Lordship held that the evidence was "totally inadequate to show any world-wide business activities" in the United Kingdom which the plaintiffs were entitled to protect by interlocutory injunction.
In Star Industrial Company Limited v Yap Kew Kor (1976) FSR 256, a decision of the Privy Council on appeal from the Court of Appeal of Singapore, the plaintiff, a Hong Kong corporation, had for several years before 1965 marketed substantial quantities of toothbrushes known as "Ace Brand" in Singapore, mainly for the purpose of re-export to Malaysia and Indonesia, but some appear to have been sold in Singapore for local use. In 1965 the plaintiffs stopped marketing and selling in Singapore due to the imposition of import duties on toothbrushes by the Singapore government. In 1968 the defendant company commenced marketing toothbrushes under a similar name and get-up to that formerly used by the plaintiff. At the time the plaintiff sued it was not itself carrying on business in Singapore and had not done so for the previous five years and the evidence showed it had no intention of itself resuming that part of its former trade. The opinion of the Judicial Committee was given by Lord Diplock who said (at 269):

"Whatever doubts there may have previously been as to the legal nature of the rights which were entitled to protection by an action for 'passing off' in courts of law or equity, these were laid to rest more than 60 years ago by the speech of Lord Parker of Waddington in (Spalding) with which the other members of the House of Lords agreed. A passing-off action is a remedy for the invasion of a right of property not in the mark, name or get-up improperly used, but in the business or goodwill likely to be injured by the misrepresentation made by passing-off one person's goods as the goods of another. Goodwill, as the subject of proprietary rights, is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached. It is local in character and divisible; if the business is carried on in several countries a separate goodwill attaches to it in each. So when the business is abandoned in one country in which it has acquired a goodwill the goodwill in that country perishes with it although the business may continue to be carried on in other countries."

His Lordship referred to Muller per Lord Macnaghten at 224 and per Lord Lindley at 235. He said that once the Hong Kong company had abandoned that part of its former business which consisted in manufacturing toothbrushes for export to and sale in Singapore it ceased to have any proprietary right in Singapore which was entitled to protection in any action for passing off brought in the courts of Singapore.

Baskin-Robbins Ice Cream Co v Gutman (1976) FSR 545, before Graham J., was a passing off case in which interlocutory injunctions were sought by the plaintiffs to restrain the defendants from selling ice cream by reference to the number "32" or the term "Thirty-two flavours" and certain other matters. The plaintiffs sold ice cream through a chain of shops in the USA and Canada and similar shops had been opened in parts of Europe. The plaintiffs did not trade in the United Kingdom; but adduced evidence of their intention so do so at a later date. The defendants unsuccessfully sought a franchise from the plaintiffs to sell ice cream in the United Kingdom but as they were unsuccessful the defendants then began to sell ice cream in the United Kingdom through their own retail outlets by reference to the number 32 or the term "Thirty-two flavours" and by allegedly adopting a style for their shops so as to pass off their goods as those of the plaintiffs. His Lordship said that the existence and extent of reputation was essentially a question of fact, so that similarly the existence and extent of goodwill acquired by virtue of a trader's business and reputation was equally one of fact (at 547). He then said at that page:

"This being so, I do not see how one can properly lay down artificial limits as to the geographical areas over which reputation and goodwill can or cannot extend, nor state rules as to what a trader must or must not do to prove the existence of such reputation and goodwill. Being questions of fact the court must be guided, and guided only by what the proved facts establish. In attempting to refute this proposition (counsel for the defendants) cited

(Star) and relied upon the words of Lord Diplock at page 269 ... (which his Lordship then stated and to which I have already referred). What is said there is, of course, obviously sound sense and in any event binds this court, but it is not right, I am sure, to read the phrase 'it is local in character' (a reference to Lord Diplock's speech) in the narrowest territorial sense automatically limiting goodwill to the boundaries of the country where the particular business is registered or established. Taking that particular case of a business in Singapore, it would I consider to be impossible to hold if the facts were to the contrary that the goodwill of a business there must be confined to the strict legal boundaries of that city and could not extend some few hundred yards across the bridge over the Johore Straits to the bank on the other side in West Malaysia. It must surely be a question of fact in each case and I do not believe that Lord Diplock intended his words to be read in the narrow sense suggested."

His Lordship said (at 547-8) that a similar narrow view to that argued by the respondents seems at first sight to have been expressed by Pennycuick J. in the Crazy Horse Case in reliance upon the words of Jenkins L.J. in Oertli. His Lordship went on to say, (at 548) with reference to those cases, that again it seemed to him that they ought not to be read as going further:

"than requiring that in the normal case distinctiveness must be established by showing user of the disputed mark or get-up by the plaintiff on his goods or premises in this country, so that the public here understand such mark or get up to mean him. It may well be very difficult if not normally impossible for a plaintiff to establish such a reputation and goodwill as will support a passing off action without showing he has user of his mark or get-up in this country.

Some businesses are, however, to a greater or lesser extent truly international in character and the reputation and goodwill attaching to them cannot in fact help being international also. Some national boundaries such as, for example, those between members of the EEC are in this respect becoming ill-defined and uncertain as modern travel and Community rules make the world grow smaller. Whilst therefore not wishing to quarrel with the decisions in question, if they are read as I have suggested, I believe myself that the true legal position is best expressed by the general proposition which seems to me to be derived from the general line of past authority, that that existence and extent of the plaintiff's reputation and goodwill in every case is one of fact however it may be proved and whatever it is based on."

Graham J. considered the question again in Maxim's Limited v Dye (1977) 1 WLR 1155. The first plaintiff was a company registered in England in 1907 which owned "Maxim's" restaurant in Paris which was well known in England. In June 1970 another company opened a restaurant named "Maxim's" in Norwich, but in an action by the plaintiff against that company, the company undertook to not operate a restaurant under that name. In December 1975 the defendant opened a restaurant at the same address under the same name. The plaintiff sued the defendant for passing off. The defendant did not put in a defence. The plaintiff then took out a motion for judgment in default of defence. His Lordship pointed out that the judgment of Pennycuick J. in the Crazy Horse Case, being an interlocutory proceeding, did not bind him and said that in the Baskin-Robbins Case "I felt I was unable to adopt its reasoning and follow it as an authority." His Lordship noted that it appeared that the only reported cases cited to Pennycuick J. were Pioret and Sheraton and that the references in the judgment to Muller might well have been quoted from the then current edition of Kerly where exactly the same passages were set out. His Lordship accepted counsel's argument that if the passages in Muller quoted in Kerly 9th ed at paragraph 488 were given too narrow a meaning in defining the "local" nature of goodwill, they gave a wrong impression as to the ratio decidendi of Muller. His Lordship said that a study of the full speeches in that case made it clear that the House considered that though, of course, goodwill cannot exist in vacuo without an associated business, nevertheless its extent in any given case must be a question of fact and he said that he himself had expressed that view in the Baskin Robbins case. His Lordship thought that the Panhard Case was important as establishing that a foreign company having no place of business in England may nevertheless have such a reputation in its name in England as to justify the grant of relief for passing off against a defendant setting up in England under a similar name and he said the Panhard Case did not appear to have been cited to Pennycuick J. He said that he felt himself unable legitimately to distinguish the case before him from the Crazy Horse case. He said it was true that the plaintiff was an English company but it is clear that it had not and had never had any business there, and the statement of claim which he was bound to act on, led him to hold that as a fact the English company had a reputation in England by virtue of its restaurant in Paris. It is not the law, he said, that a plaintiff cannot establish goodwill to be protected by the English courts without actually showing he has a business in England. He relied on what he said in the Baskin Robbins's case at 548 and said that if he were writing the judgment again he would for the purposes of clarity add the words "in his business" after the words "reputation and goodwill" towards the end of the quotation. His Lordship said (at 1160) that:

"a plaintiff's existing goodwill in this country, which derives from and is based on a foreign business, such as one in Paris or elsewhere in the common market, may be regarded as prospective but none the less real in relation to any future business which may later be set up by the plaintiff in this country".

He declined to follow Crazy Horse. It should be noted that he did so after hearing submissions based on the effect of Britain's accession to the EEC treaty and the provisions of Community law, but he relied on those matters as confirming the view to which he otherwise would have come.

Metric Resources Corporation v Leasemetrix Limited (1979) FSR 571, a decision of Megarry V.C., was a passing off case where interlocutory injunctions were sought. The plaintiffs did not carry on business in the United Kingdom but did so in the United States and Canada and had a large and well known business there. They claimed they were well known in England by virtue of their advertising in United States journals which circulated in England and by reason of certain dealings with United Kingdom companies. The evidence only established one case of a United Kingdom customer of the plaintiffs having actually brought equipment hired from them in to the United Kingdom. Interlocutory injunctions were granted.
The Athletes Foot Marketing Associates Inc v Cobra Sports Limited (1980) RPC 343, a decision of Walton J., was another case of interlocutory injunctive relief for passing off, but this time refused. The plaintiffs carried on in the United States and elsewhere, but not in the United Kingdom, a business in which they granted franchises to independent stores to carry on business in the supply of footwear for athletes under the name "The Athletes Foot". They had a large number of franchised stores and an extensive reputation at least in the United States. During 1978 and 1979 they had taken steps to secure a franchise agreement for the United Kingdom and a prospective franchisee had gone so far as to order goods and stationery with a view to establishing a chain of stores under the name "The Athlete's Foot" in the United Kingdom. They had not concluded a franchise agreement in relation to the United Kingdom and there had been no sales there under the name "The Athlete's Foot", and the evidence did not disclose that sales had ever been made abroad under that name to visitors from the United Kingdom.
His Lordship considered the important question of what connection with the United Kingdom was required before the plaintiff could successfully maintain an action for passing off (at 349). He referred to two schools of thought: the "hard line" school of thought which maintained that it is essential for a plaintiff to have carried on a trade in the United Kingdom, perhaps best exemplified by the Crazy Horse Case; and a much less demanding approach which suggested that something less than that will do, well exemplified he said by Maxims. He said he could only echo the same approach taken by Megarry V.C. in Metric, to the effect that the final decision between these two schools of thought was "a difficult matter requiring mature consideration and detailed argument, and is not best dealt with on motion". However his Lordship considered the relevant cases. He said (at 355-356) of the Baskin Robbins case that what was said on this critical point by Graham J. was obiter dicta since his Lordship did not grant an injunction; but if the "crucial distinction" between reputation in the wide sense and goodwill is borne in mind this appeared to him to "square fully" with the "previous current of authority". His Lordship referred to Maxim's case and said it had some curious characteristics including the fact that the averments in the statement of claim had to be taken as correct and they included an allegation that the goodwill of the plaintiff's business extended to England. He said he found its persuasive power very small. He then referred to the Irish case of C and A Modes v C and A (Waterford) Ltd (1978) FSR 126 (which I will consider later) in which the plaintiffs did not carry on business in the Republic of Ireland but did have a very substantial number of customers there. The Court of Appeal of Ireland criticised the Crazy Horse Case; and Walton J. said that he thought the judgment of Henchy J. displayed a complete misapprehension of the Crazy Horse decision. His Lordship then said (at 357) that it did not matter that the plaintiffs were not at present actually carrying on business in the United Kingdom provided they had customers there. Equally it was of no moment if they had no customers there but had a reputation in the general sense of the word in England. It was also of no moment that that reputation might have been brought about by advertising. He said that on the evidence there was not one solitary transaction by way of trade with anybody in the United Kingdom, so it was impossible to say that the plaintiff had any goodwill there whatever.

The Findings of the Trial Judge

The facts are set out in the judgment of Lockhart J. which I have had the opportunity of reading in draft and I need not review them in detail here. In substance, the learned trial judge found that:
1. Conagra manufactures and sells in the USA frozen dinners under the title "Healthy Choice". The product is sold under licence in New Zealand and other Pacific markets, but not in Australia. Conagra intends to introduce the product into Australia later this year.
2. McCain adopted the name "Healthy Choice" for its product having regard to the success of the marketing of Conagra's products under that name in the United States.
3. The package design adopted by McCain was consciously influenced by that of the Conagra product.
4. From the outset McCain was aware that it had adopted the name of Conagra's product and aspects of its packaging.
5. No one seeing the McCain product would believe that they were looking at Conagra product.
6. McCain's packaging suggests to a person familiar with the Conagra product, that there is a relationship of some kind between Conagra and McCain or their respective products.
7. There are to be found in Australia some number of persons either originally from the United States or residents of Australia who have visited the United States who would know of or recognise the Conagra product. The number of persons in Australia aware of the Conagra product is "potentially large".
8. The evidence did not establish on the balance of probability that there is in Australia a sufficiently large number of persons who are aware of the Conagra product and for whom the name Healthy Choice would have acquired a secondary meaning, that is to say, a meaning signifying the Conagra Healthy Choice product.
In the course of a comprehensive examination of case law, his Honour concluded:

1. It was necessary in order for Conagra to succeed in its action that it prove a reputation for its product in Australia. This was conceded by Conagra.

2. The time has come to recognise that although the tort of passing off is based upon a business or trade, it does not matter whether that business or trade is carried on in the jurisdiction in which the action is brought provided that there is a reputation in the jurisdiction in respect of it.

3. The existing state of the authorities however constrains a judge at first instance to hold that the tort of passing off requires the existence of business activity in Australia (albeit slight activity will suffice) and that as Conagra has no business in Australia it must fail in the passing off action.

Although the latter conclusion was sufficient to dispose of the case, his Honour's findings of fact also went to the question whether McCain's conduct constituted misrepresentation and whether it was fraudulent in a sense relevant to the tort of passing off. His Honour was not satisfied that there existed at the relevant time a reputation in Australia in respect of the Conagra Healthy Choice product and this is reflected in the finding noted above that there was not a sufficiently substantial number of persons in Australia aware of the Conagra product and for whom the name Healthy Choice would have acquired a secondary meaning signifying the Conagra Healthy Choice product. It followed, therefore, that the name and getup on the McCain product did not convey any misrepresentation.
While concluding that evidence of local business activity was necessary to establish a cause of action in passing off, his Honour was sympathetic to the approach taken by Gummow J. in 10th Cantanae Pty Ltd v. Shoshana Pty Ltd (1987) 79 ALR 299 at 321-2 and Telmak Teleproducts (Australia) Pty Ltd v. Coles Myer Ltd (1988) 84 ALR 437 at 446. The reasons for judgment in those cases suggest that proof of fraud may support an action for passing off based on local reputation derived from international rather than local business activity. Against the event of an appeal in which the question might be further agitated, his Honour considered the question whether fraud had been proven. He took the view that fraud in the context of passing off did not require proof of all the elements necessary to support an action for deceit. It could be constituted by "persistence after notice", Turner v. General Motors (Australia) Pty Ltd (1929) 42 CLR 352 at 362 (Isaacs J.). On the basis of his finding that McCain was aware from the outset that it had adopted the name of Conagra's product and aspects of its packaging, his Honour concluded shortly that the company was engaging in fraudulent conduct in the sense used by Isaacs J. Whether or not the company believed that it was legally entitled to adopt the name and getup that it did was, in his Honour's view, irrelevant to the finding of fraud.
In relation to the claim of misleading or deceptive conduct in contravention of the Trade Practices Act 1974, his Honour was prepared to accept that the extent of reputation necessary to support that cause of action might not be as great as the reputation required to establish the cause of action in passing off. Nevertheless, he did not think that Conagra had satisfied the onus of proof of showing that the number of persons for whom the name "Healthy Choice" and the package design would have the necessary secondary meaning was other than insignificant. Thus to the extent that Conagra's claim of misleading or deceptive conduct depended upon the use of the name and getup it failed. It succeeded in one other respect relating to a trade presenter document used by McCain but that aspect of his Honour's judgment is not in issue here.
The Grounds of Appeal
The cross-appeal having been abandoned, there was no challenge to his Honour's conclusions adverse to McCain.
His Honour's finding that the absence of business activity in Australia on the part of Conagra was critical to its cause of action was challenged in the first ground of appeal (para 2 of the notice). In the light of findings as to recognition and awareness of Conagra's product in Australia and fraud on the part of McCain, his Honour is said to have erred in failing to hold that McCain's conduct amounted to passing off (para 3). And having found fraud his Honour should have held that the reputation of Conagra's products in Australia was sufficient for the conduct of McCain to constitute passing off (para 4). Further, it was said, he erred in failing to find that the reputation of Conagra's Healthy Choice products in Australia was significant (para 5) and given the finding that there was a potentially large number of persons in Australia aware of Conagra's products, his Honour erred in failing to hold that McCain's conduct was likely to mislead and deceive a "not insignificant number of relevant persons" so as to constitute contraventions of ss.52 and 53(c) of the Trade Practices Act 1974 (para6). In determining whether the reputation was significant, his Honour was said to have erred in failing first to determine the section of the public or class of persons by reference to which that significance was to be measured (para 7). His Honour should have attributed significance to the number of persons from the United States who came to Australia and persons from Australia who visited the United States with whom Healthy Choice products had a reputation (para 8). There was also complaint about his Honour's alleged failure to distinguish between Conagra's reputation in the name Healthy Choice and its reputation in the packaging and getup of those products. This related both to the passing off and s.52 claims (paras. 9 and 10). And there was error, it was said, in the requirement that relevant persons should not only have known of Conagra's Healthy Choice products but that the words had acquired a secondary and distinctive meaning (para 11).
The Question of Reputation
I have had the advantage of reading the judgments of Lockhart and Gummow JJ. and subject to some observations I wish to make on the question of reputation, I agree with their reasons and regard them as consistent with the general propositions that:

1. The cause of action in passing off in relation to goods or services does not require proof that the applicant for relief has engaged in business activity in relation to those goods or services within Australia.

2. It is essential to the cause of action in passing off that the applicant's goods or services have a reputation with a substantial number of persons who would be potential customers were those goods or services to be marketed within the jurisdiction.

3. The belief by a trader that the name and/or getup of the trader's goods or services is likely to cause members of the public to associate them with the goods or services of another may be evidence that the name or getup is likely to have that effect. According to the circumstances, persistence in the use of a name and/or getup after notice of similarity may indicate such a belief and an intention to benefit by the similarity. Such a belief or intention does not logically supply the requirement that the use of the name or getup complained of be deceptive.

4. The requirement in passing off that a name or getup be deceptive in the sense of conveying a misrepresentation is met when there is an awareness among members of the public of those features of the prior product. Such awareness usually precedes the introduction of the parasitic product, although that may not always be the case. For example a new product might be released upon the market with the false proclamation of an association with a product established in some foreign country which has no existing reputation in Australia. This was the nature of the representation which his Honour found to be embodied in the trade presenter by which McCains introduced its product to the trade in Australia.

Accepting that business activity within the jurisdiction is not a prerequisite for the success of a claim in passing off and that with or without evidence of fraud, consumer awareness of the applicant's product, otherwise known as its reputation, is necessary, it is the question of reputation which is central in this case to both the Trade Practices Act claim and the claim in passing off.
It was the claim in passing off which dominated his Honour's reasons for judgment and this was a reflection of the way in which Conagra presented its case. But as Deane and Fitzgerald JJ said in Taco Company of Australia Inc. v. Taco Bell Pty Ltd (1982) 42 ALR 177, the cause of action in passing off may provide no basis for wider or more effective relief than a claim for contravention of s.52. Their Honours were considering a situation in which a primary claim was brought under s.52 and the secondary or associated claim in passing off. The learned trial judge in this case acknowledged that observation but pointed out that in the case before him the passing off claim was that primarily relied upon. Why that should have been so is not clear. The cause of action based upon s.52 and those provisions of the Trade Practices Act providing for awards of damages and injunctive relief do not involve consideration of the respondent's mental state nor argument (except for its evidentiary implication) about local business activity. Whether the name and/or getup of a product is misleading or deceptive in the sense contemplated by s.52 depends in this case upon the issues of reputation and similarity. Deceptive similarity having been found, the question is whether there was a relevant public who, being already aware of the existence and name and/or getup of the Conagra product, could be deceived by the McCain product.
His Honour made two important findings of fact on the issue of reputation, both of which are embodied in the one passage at p 57 of his judgment:

"...while there is no doubt that there are persons in Australia aware of the ConAgra product and while the evidence establishes that there is a potentially large number of such persons, I am unable to be satisfied on the balance of probabilities that there does exist in Australia a sufficiently substantial number of persons who are aware of the ConAgra product and for whom the name Healthy Choice would have acquired a secondary meaning, that is to say, the meaning signifying the ConAgra Healthy Choice product."

These findings must be read in the light of the evidence relating to reputation which was reviewed in the judgment. His Honour referred to advertisements for the Conagra product which appeared in some American magazines with limited circulation in Australia. The magazines and their Australian sales were set out in a table at p 49 of the judgment as follows:

Magazine Date of Advertisement Australian Sales Bon Appetit August 1990 174 February 1991 174 Better Homes

and Gardens August 1990 896 November 1990 896 Redbook February 1991 84 Midwest Living December 1990 25 April 1991 25 Working Woman September 1990 154 November 1990 154

An article about the Conagra product appeared on 22 October 1990 in an American trade journal called "Food Business" and his Honour inferred that some persons in the trade in Australia would have received the journal and read the article. There was testimony from persons presently living in Australia who are aware of the Conagra product and his Honour referred to that testimony. These were American visitors to this country and Australians who had visited America. Evidence of a more general nature related to the movement of persons between America and Australia and included reference to surveys which showed that 67% of persons tested in the United States were aware of the Conagra product. Test evidence adduced by McCain to show an absence of awareness of the Conagra product among persons living in Sydney and Melbourne was not given any weight. In the event his Honour found that there was in Australia "some number of persons" being either originally from the United States or returned visitors who would have seen the Conagra product or advertisements for it. For these persons "the name Healthy Choice may well have acquired a secondary meaning at the time (McCain) launched its Healthy Choice product on to the Australian market".
There was specific reference in the judgment to evidence given by Mr Steven Yung, a Product Manager for McCain who was involved in the preparation of the trade presenter with a view to introducing the Healthy Choice product to trade buyers. Mr Yung was asked in cross- examination if he believed that the buyers would know of the US Healthy Choice product. He replied:

"I believe they would of (sic) but I can't comment that that's, you know, for certain."

His Honour said in relation to that evidence:

"Mr Yung believed (and I have no reason to reject his evidence) that trade buyers would have been aware of the ConAgra product in the United States. Among that class of person, to whom the trade presenter was sent, it is clear that the ConAgra products had therefore a significant reputation."

Against the background of these findings, his Honour adopted the test to be found in Saville Perfumery Ld v. June Perfect Ld (1941) 58 RPC 147 at 176 and Norman Kark Publications Ltd v. Odhams Press Ltd (1962) 79 RPC 163 at 168, which requires in passing off, proof of the relevant product's reputation among "a substantial number of persons". He made the evaluative judgment in the passage cited earlier, that he was not satisfied that there does exist in Australia a sufficiently substantial number of persons who are aware of the Conagra product and for whom the name Healthy Choice would have acquired a secondary meaning. The reference to a "potentially large number of such persons" must, in the context in which it appears, be taken as describing a class which theoretically could be large but was not found to be so. It cannot be said in my opinion, that his Honour erred on the extent of the reputation of the Conagra product in Australia. It was not suggested that he applied the wrong test in requiring evidence to satisfy him that there is a substantial number of persons who are aware of that product. The term "substantial" is evaluative and relative to such factors as the size and distribution of the population of prospective consumers. Having regard to the facts which he found, his Honour did not err in failing to be satisfied as a matter of evaluation that the reputation of the Conagra product was substantial.
On the Trade Practices Act claim, his Honour adopted what may be in some circumstances a different test for the extent of Conagra's product reputation necessary to show misleading or deceptive conduct on the part of McCain. Provided Conagra could show on the balance of probabilities that "a not insignificant number" of persons knew of the Conagra product, then it should be entitled to succeed. His Honour said:

"If the number of persons with the necessary knowledge is insignificant, then a fortiori the conduct complained of will not be able to be characterised as conduct that is misleading or deceptive. Once it passes, however, the threshold of insignificance, then there is much to be said for the view that the conduct in question has become misleading."

But accepting the possibility that the threshold of requisite reputation under the Act is lower than that required to support a claim in passing off, he did not think that Conagra had satisfied the onus of showing that the number of persons for whom the name Healthy Choice and the package design would have the necessary secondary meaning was other than insignificant.

The nature of the question to be asked about McCain's conduct for the purposes of s.52 Trade Practices Act 1974 is to be borne in mind in considering the correctness of the approach taken by his Honour. The question is one of characterisation of the conduct, not of the reactions of consumers or others to that conduct. So where some express representation is made and that representation is demonstrably false, it is not usually necessary to go beyond that finding in order to conclude that it is misleading or deceptive. The case of an obvious puff might be taken as an exception. Where conduct depends upon context or surrounding circumstances to convey a particular meaning, then those factors must be taken into account but only as a way of characterising the conduct. Where the name and getup of a product are in issue, the question for the purposes of s.52 is whether they are misleading or deceptive in the circumstances. The fact that some members of the relevant public may be aware of a similar product in another country does not affect the characterisation of the conduct if that number is small. The word "insignificant" was used by his Honour to identify the threshold of public awareness below which such conduct is not misleading for the purposes of the section. That word is normative but not for that reason inappropriate. Attention must be paid to the policy of the relevant provision which, as the heading to Pt.V and many of its provisions indicate, is one of consumer protection. If the similarity complained of is commercially irrelevant having regard to the number of people who know of it, then it can be concluded that the use of the name and/or getup complained of is not misleading or deceptive. That is essentially the kind of evaluation which underpinned his Honour's finding in this case and on the primary facts that he found I am not persuaded that he erred in his approach.

For these reasons I agree that the appeal should be dismissed.

[1992] FCA 176

14 APRIL 1992