W.D. & H.O. Wills (Australia) Ltd v Philip Morris Ltd

[1997] FCA 1074

W.D. & H.O. WILLS (AUSTRALIA) LTD v. PHILIP MORRIS LTD
No. NG391
of 1997
FED No. 1074/97
Number of pages - 13
Trade Practices

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

DAVIES J

Trade Practices - Misleading or deceptive conduct - use of get-up resembling that of rival trader - whether purchasers would be likely to be misled into thinking that the competing products came from the same source - whether get-up had become distinctive - intention of trader.

Trade Practices Act 1974 (Cth) s52

Apand Pty Ltd v Kettle Chip Co Pty Ltd (1994) 52 FCR 474

Australian Woollen Mills Ltd v FS Walton & Co Ltd (1937) 58 CLR 641

Brock v Terrace Times Pty Ltd (1982) 40 ALR 97

Hogan v Koala Dundee Pty Ltd (1988) 20 FCR 314

Hogan v Pacific Dunlop (1988) 83 ALR 403

HP Bulmer Ltd & Showerings Ltd v J Bollinger SA [1978] RPC 79

Kettle Chip Co Pty Ltd v Apand Pty Ltd (1993) 46 FCR 152

McIlhenny Company v Blue Yonder Holdings Pty Ltd (Lehane J, 18 September 1997, unreported)

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191

R & C Products Pty Ltd v Sterling Winthrop Pty Ltd (1993) 15 ATPR 41-253

Sterling Winthrop Pty Ltd v R & C Products Pty Ltd (1994) 16 ATPR 41-308

Telmak Teleproducts (Australia) Pty Ltd v Coles Myer Ltd (1989) 89 ALR 48

Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 27 ALR 367

SYDNEY, 11-15 August 1997 (hearing), 9 October 1997 (decision)

#DATE 9:10:1997

#ADD 23:10:1997

Counsel for the Applicant: D.K. Catterns QC

with S.J. Goddard

Solicitors for the Applicant: Mallesons Stephen Jaques

Counsel for the Respondent: R.M. Garratt QC

with M.R.J. Ellicott, P. Gray & W. Harris

Solicitors for the respondent: Arthur Robinson & Hedderwicks

THE COURT ORDERS THAT:

Counsel should bring in short minutes of the orders for which they move.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

DAVIES J

Introduction

This application relies upon s 52 of the Trade Practices Act 1974 (Cth) ("the Act"). The applicant, W.D. & H.O. Wills (Australia) Ltd ("Wills"), has since 1991 sold in Australia a range of cigarettes under the name "Horizon". The respondent, Philip Morris Ltd ("Philip Morris"), was in the process of launching in Australia a range of cigarettes under the name "Summit" when these proceedings were brought. The applicant claims that, in contravention of s 52 of the Act, the respondent has engaged in or threatens to engage in conduct which is misleading or deceptive or which is likely to mislead or deceive, in that the get-up and associated advertising of the Horizon and Summit cigarettes will be similar.

From 1991 until recently, Horizon cigarettes were produced in packaging possessing the following features:-

(a) Horizon cigarettes were available in packets of 30 and 50 cigarettes in tar delivery variants of 1 mg, 2 mg, 4 mg, 8 mg, 12 mg, 16 mg and 2 mg and 8 mg menthol.

(b) The packaging for Horizon other than the menthol and 16 mg variants had a solid blue colour with a white cloud depicted in the top right hand corner and rear of each pack.

(c) The range of blue packaging was graded from light blue to dark blue according to the average tar content of the cigarette including as follows:

* Horizon Ultimate 1 mg cigarettes in a powder blue packet;

* Horizon Micro Mild 2 mg cigarettes in a light blue packet;

* Horizon Ultra Mild 4 mg cigarettes in a mid blue packet;

* Horizon Super Mild 8 mg cigarettes in a bright blue packet; and

* Horizon Mild 12 mg cigarettes in a dark blue packet.

(d) The brand name Horizon was depicted on the bottom of the face in a Serif capital letter font; in a letter size of 10 mm high; and underlined with a metallic gold strip across the face of the packaging. Lettering on the packaging was gold and white.

(e) The packaging for the menthol variant of Horizon cigarettes was green in colour and otherwise appeared as described in (d).

(f) The packaging for the 16 mg variant was burgundy in colour and otherwise appeared as described in (d).

The cigarettes were launched in 1991 as a "value" brand directed to persons from a lower socio-economic background, particularly female smokers over 30 years of age. A report prepared for Wills in 1995 reported that there had been a shift in the attitude of the value smoker; whereas the value smoker in the early 1990s had been driven by a need to escape, the value smoker of 1995 was more likely to be characterised by a more realistic outlook and more likely to face the realities of the situation. That perceived change in attitude was one of the matters which led Wills on 17 May 1997 to introduce a slightly changed packet.

The new packaging differed from the old in that the pack colours for the non-menthol variants were replaced by a single blue colour, a blue somewhere between the former 8 mg and 12 mg blues, with each tar variant differentiated by a colour strip on the face of the pack. The new pack was very similar in character to the original but would appear to have been slightly upgraded and to have a slightly more positive impact.

In my opinion, the difference that has been made in the packaging is not sufficiently significant to affect the decision in these proceedings. The changes indeed seem to me to be little more than an upgrading of the old pack. The basic character of the pack remains.

Wills also relies upon the fact that, although the new pack was introduced on 17 May, it will take some time for the new pack to completely replace the old. Wills itself had stocks of the old pack in its warehouses, particularly in the less popular tar variants. It proposes to distribute these before distributing the equivalent new pack. And, likewise, distributors, warehouses and retail outlets have such stocks which they will sell first. I need not go into such details as have been supplied to the Court.

The Horizon cigarettes were targeted at smokers to whom price was important. Because of the manner in which excise was calculated, a packet of 50 cigarettes could be sold at a price lower than 2 packets of 25 cigarettes. Accordingly, the 50 cigarette packets had a competitive advantage when price was important. Wills exploited this price advantage by engaging in price cutting. Its promotion of the brand was successful and Horizon quickly established itself as one of the largest selling brands.

It was not only the price which attracted customers. The get-up of the pack was particularly distinctive and attractive. Wills had identified the target population for the Horizon cigarettes as persons from a lower socio-economic background who would seek to gain from the cigarettes some escape from or relief from the realities of life. The get-up of Horizon cigarettes was attractive with its solid blue colour and the soft floating cloud. The name "Horizon" assisted to uplift a smoker's spirit.

Horizon cigarettes were targeted at "value" smokers. A memorandum of 28 May 1991 refers to the target as "Primarily female smokers over the age of 30 with a lower socio-economic background", although the cigarettes had a much wider appeal than that. "Escape" was an important element in the marketing. A research report in 1995 stated that:- "The value smoker in early 1990 was driven by a need to escape (from life's pressures, the stigma of being a smoker in an anti-smoking climate, cost of living)".

A feature of the cigarette market is that it is a limited market. As one cigarette achieves success, it takes market share from other cigarettes. Another feature of the market is that the names of the manufacturers are not highly publicised. Accordingly, consumer loyalty is attached to brands rather than particular manufacturers. When a new brand is launched by a manufacturer, the manufacturer seeks to design the cigarette and its marketing so as to take market share away from the brands of other manufacturers, rather than its own existing brands.

Horizon's success was such that it took market share from brands marketed by the other major producers, Rothmans and Philip Morris. Philip Morris was concerned about the effect on its "Peter Jackson" cigarette, its mainstream brand, and its "Longbeach" cigarette, a value brand.

As far back as 1991, Philip Morris decided to develop a new cigarette to inhibit recent successful new brands including Horizon. The new cigarette was to be a slim 60s. Considerable attention was given to the development of this cigarette. It was decided to use the name "Summit", which was an existing Philip Morris brand or trademark, as it was relevant to the essence of the brand "superior value". The colours blue and white were to be used to convey mildness.

As part of the project, research was undertaken with, inter alia, groups of Horizon smokers. Some of the findings were:-

CONFIDENTIAL

Design work was undertaken for the slim 60s package. The design featured a blue front with a large triangle, representative of a summit, the triangle being given differing colours according to the tar content.

For a number of reasons, the project languished and, as the result of the research on Horizon smokers and also research into Longbeach and Peter Jackson smokers, Philip Morris came to the view by October 1994 that a slim cigarette would not be attractive to smokers and that, if a new brand was to be developed, the cigarette should be full size. By December 1994, attention had been turned to producing a 50s pack. A report of 14 December 1994 said:-

"Summit 50's would equip Philip Morris with a more direct supervalue product which can better compete on price against Horizon, More and Holiday and minimise the necessity to inject enormous TPE funding into Longbeach to compete against the 50's segment, in the advent of a price war."

The concept of a new cigarette was given an impetus during 1995 when there was a further price war involving Horizon, amongst other brands. The view was formed that the new brand should be launched to defend Philip Morris against price wars. As Longbeach by then had a 40s pack, an aim of the project came to be not to diminish Longbeach's share of the market. A memorandum of 23 November 1995 said:-

"Project Hercules is a Philip Morris initiative, designed for a defensive and prompt response should either Wills or Rothmans launch an additional Supervalue pack count into the market, or make substantial reductions to Wholesale List Price of Supervalue brands.

As you already know, the initial concept of a slim spec 60's had moved to a full spec 50's, with its main objective being to protect Philip Morris' share and volume from additional supervalue launches/pricing.

By virtue of Longbeach 40's pack count, the Summit 50's franchise is likely to cannibalise Longbeach 40's share of the market to a certain extent. The more we engineer the packaging and image of Project Hercules to appeal to Horizon smokers, the less potential damage the Longbeach franchise will suffer."

New designs based upon the triangle summit were then prepared. A great deal of attention was given to the project and, in February 1996, research was again undertaken with Longbeach and Horizon smokers. One of the results of the research was that the proposed packaging would be unsuccessful. The research report of February 1996 said, inter alia:-

'Current Summit packaging was seen as 'cheap and nasty' rather than good value. It expressed tension not freedom from tension. The packaging needs to:

- Follow 'peak' symbolism.

- Be much more soft, soothing and dreamy. Sharp angles and hard edged lines should be removed.

- A degree of contemporary quality needs to be introduced."

The report made the following comments on Horizon smokers:-

CONFIDENTIAL

As a result of this research, it was decided that a new pack should be developed.

By 8 November 1996, the aim of the launch had been clearly identified. The memorandum of that date states, inter alia:-

"5.0 Launch Objective

The objective of Summit is to threaten Wills, and to a lesser extent Rothmans' to promote reasonableness in their supervalue pricing and to ultimately achieve better profitability within the industry.

6.0 Strategic Considerations / Implications

As a defensive brand launch, the strategy of Summit will aim to establish a positioning which does not compete aggressively for market share and a big brand status, but rather sends a convincing message to Wills and Rothmans that we have a serious fighter with a strong ability to compete on price.

Part of this strategy will entail a regional launch which targets Wills' strongest State. A competitive but more conservative pricing strategy on a wholesale list price basis will be required, and adequate DME support will be required during the launch phase to establish a high level of awareness across the market place so that Summit is recognised as a viable proposition amongst supervalue smokers. However, once the brand is established in the market, the brand's DME allocation will be adjusted to provide adequate support in-market, although not to the extent of our existing majors."

A packaging research proposal was developed and, in this proposal, the above objectives were repeated in these terms:-

"The key objective in launching Summit 50's is to appeal to the '50s' segment, in particular Horizon 50's smokers, which is the largest brand in this pack count segment."

The proposal also gave this guide as to factors which influenced the purchase decisions of Horizon smokers:-

"the blue sky and cloud imagery is relaxing, soft, trusting, warm, friendly and casual."

A large number of designs were then prepared. One of these had a blue front with the blue fading in a vignette to white. The name "Summit" was placed at the top of the pack and, underneath, was a picture of a bird, a picture which has been described as a hologram bird.

Research was undertaken again with Horizon and Longbeach smokers. The report on the bird hologram was:-

* Very appealing to Horizon smokers

* escape, dreamy

* bird treatment gives a sense of 'astral', higher level of being

* unique

* distinctive

* relevant to Summit name

* too 'head in the clouds', not real for Longbeach and Peter Jackson smokers

Typestyle:
* Silver Serif preferred and recommended in research although similar to Horizon, silver adds quality and enhanced Horizon smokers need for dreamy escape."

This design was chosen. One of the team involved in the development of the supporting advertising material wrote, on 9 January 1997:-

"The packet design is aimed at appealing to Horizon smokers. It features a vignette like bird below the Summit brand. The proposed background will be various shades of blue depending on the variant.

The Client has supplied reference of the pack design for your perusal.

You will notice that it is very similar to the Horizon 50's pack design." (emphasis added)

The last sentence in that memorandum reflects a view which must have been apparent to many in the Philip Morris organisation.

Philip Morris thus decided to launch a new brand which would compete with Horizon. Its aim was not so much to gain market share as to position itself to match the price cutting which Wills was undertaking with the Horizon cigarettes. The step to be taken was intended to be a defensive step to warn Wills against price cutting. One of the Philip Morris documents put the matter this way:-

"Wills are continuing to aggressively price their Supervalue products in the market place. The launch of Summit 50's into one of Wills strongest market share States, aims to send a clear message to them to back off."

A concomitant aim for the launch was not to attract customers away from existing brands of Philip Morris, particularly Peter Jackson and Longbeach. Thus, one of the documents prepared at this time said:-

"The key objective of this research is to launch Summit to appeal to Horizon 50's smokers without cannibalising Peter Jackson or Longbeach."

It is probably coincidental that the name "Summit" and the name "Horizon" had the potential to convey a similar message, a far vision. And although Philip Morris did not set out to create a package which would be similar to the Horizon package, the imperatives of the launch, that the cigarette should appeal to Horizon smokers but should not attract smokers away from Peter Jackson or Longbeach, seems to have led inevitably to the consequence, step by step, that the Summit pack was similar to the Horizon pack.

The first point, of course, was that the package was to contain 50 full size cigarettes, so it was of the same dimensions.

The next point was that blue was chosen to be the predominant colour, it being the view of Philip Morris as well as the view of Wills that the colour blue would provide a suitable range of colours varying with tar content, which would reflect a mild cigarette and would appeal to the target population. It seems that colour is important. Most expensive cigarettes tend to feature gold or black. Red appears to reflect strength. Blue tends to predominate amongst the cheaper cigarettes, although it also featured in the Peter Jackson pack. A November 1996 memorandum on the Summit project stated that:-

"The main objective is to develop a design which has significant appeal to Horizon smokers in the main and also to More smokers. The design aims to fit in with a distinct 50's packaging look. To this end the use of blue packs is imperative."

The packaging brief for Summit contained the suggestion that:-

"Consideration should be given to using solid colour blocking on the pack face as per Horizon without utilising Horizon's colours directly, however look at blues as its main colour in one direction."

It does not appear that there was an intention on the part of Philip Morris to adopt the precise blue used for Horizon. But, of course, the Horizon colours were attractive and the designers were aware of the need to design a pack which would appeal to Horizon smokers. In relation to the range of blue colours chosen, Mr Bungey, a project director at Cato Design Inc Pty Ltd, the company which designed the Summit pack, admitted under cross-examination:-

"Were you not intending and indeed instructed to use the Horizon range of colours as a guide? We were instructed to use the Horizon colours as a guide ...".

In fact, of the colours chosen, the colours for the Horizon 2 mg and 8 mg and the Summit 2 mg and 8 mg variants may have been identical whilst others of the colours were similar. It is fair to mention, however, that Mr Bungey gave evidence that his organisation would not have known what were the precise colours which Wills had chosen for Horizon, for the quality of printing varies. Mr Bungey further said that his organisation was not given a full set of the Horizon packs until after the Summit colours had been chosen.

In relation to colour, another element of chance intervened. The design which was chosen included a noticeable vignette or shading which reduced the blue as it moved down the pack, reducing to white or off-white at the bottom of the pack. This was noticeably different from any feature on the Horizon pack. Unfortunately, the printer of the packs was unable to give effect to this vignette. As actually produced, the Summit packs have a slight shading in the blue, but it is so slight that it is not a distinctive feature of the Summit pack.

The designers had been asked not to design a hard edged pinnacle or a cold snow-covered mountain top but, otherwise, the nature of the design was left to them, together with the injunction that the pack should appeal to the Horizon smokers and should not attract customers away from Longbeach or Peter Jackson. Over 25 differing designs were produced in the first instance. One of these designs had solid blue colours with a distinctive vignette, and what has been described as a holograph of a bird in flight.

The source from which the bird has been derived has not been explained. It is certainly not a clear photograph or even a clear drawing of a bird in the air. The bird may possibly be a dove, for dovelike wings are outstretched and two strokes beneath the bird may reflect a dove's tailfeathers in an outspread position. But that is sheer guesswork. Because the picture is blurred and the outlines are imprecise, the picture of the bird gives the same type of image as does the soft cloud on the Horizon pack. The soft cloud and the hologram bird are both soft and fuzzy images, and they are white on a solid blue background. In addition, they are in a substantially similar position on the pack.

After the designs had been examined, a number of them were put before further groups of Horizon smokers and of other smokers and their reactions were recorded. Most of the Horizon smokers preferred the bird design, presumably because it engendered many similar feelings as did the Horizon pack. A Colmar Brunton research report stated at page 10:-

"The Bird Hologram is very appealing to Horizon smokers because it gives the same sense of dreamy, floaty escapism. The hologram style of the bird, combined with the Summit name ... communicates a more extreme version of the Horizon imagery."

After various type faces and designs had been tried, Philip Morris selected a serif type face, very similar to the type face used on the Horizon pack, and printed the name "Summit" in about the same size as the name "Horizon" is printed on the Wills pack. This was adopted after the research of Horizon and Holiday smokers reported:-

"White serif (similar to Horizon) strongly preferred, gave connotation of relaxation, but preferred in silver."

Thus, Philip Morris ended up with a pack which had many similarities with and a generally similar ambience or aura to the Horizon pack, and both the Summit and the Horizon packs were distinctly different from any other cigarette packs on the market. Ultimately, save for the fact that a vignette effect would have been preferred, this result was intentional, in the sense that the design was chosen because it achieved that result.

The packaging of the Summit range possesses the following features:-

(a) Summit cigarettes are to be available in packets of 50 cigarettes in tar delivery variants of 2 mg, 4 mg, 8 mg and 12 mg.

(b) The packaging for Summit is to be predominantly blue in colour, with a symbol of a bird in the air depicted in the top right hand segment and on the rear of each pack.

(c) The range of blue packaging is graded from light blue to dark blue according to the average tar content of the cigarette including as follows:

* Summit Ultimate 2 mg cigarettes in a light blue packet;

* Summit Ultra Mild 4 mg cigarettes in a mid blue packet;

* Summit Super Mild 8 mg cigarettes in a bright blue packet; and

* Summit Extra Mild 12 mg cigarettes in a dark blue packet.

(d) The brand name Summit is depicted on the top of the face in a Serif capital letter font; in a letter size of 10 mm high; and overlined with a metallic silver strip across the face of the packaging. Lettering on the packaging is silver and white.

There were people in the Philip Morris organisation who recognised what had occurred. On 23 December 1996, Mr Henry Goldberg, the Managing Director of Philip Morris in Australia, wrote in a memorandum, after a conversation he had had with Mr Bill Webb, the General Manager of Philip Morris Corporation of the United States:-

"I'm afraid we have a problem. Bill sees the favoured design as a simple `knockoff' and therefore consigning the brand to a defensive, `me too' status forever."

Subsequent to this, a Ms Rita Hadjikakou, the Group Product Manager of Philip Morris, went overseas and spoke with Mr Webb. She took with her a number of designs, including the design with the holograph bird. She informed Mr Webb that the response of the smokers in the research groups had been very favourable and that they considered the bird design to be distinctive and preferable. After this conversation, Mr Webb withdrew his opposition. Of course, the comments which were reported to him may have been comments made on the design which included the distinctive vignette and which did not at that time incorporate the serif type face. It is not clear that Mr Webb was given the full picture.

Subsequently, on 14 May 1997, the minutes of a meeting of Philip Morris recorded:-

"* F.S. says she believes they will get a shock when they see the pack. - Very similar to Horizon. (JAH has assured F.S. that Wills will not have any legal case against pack design.)"

"F.S." was Ms Felina Shannon, the Marketing Director of Philip Morris, and "JAH" was Judy Hargreaves, a legal adviser. The same note was substantially repeated in a minute of the following day. Ms Shannon has given evidence that she cannot recall having made that statement and that she did not receive any such advice from Ms Hargreaves. However, as the matter appears in the minutes, I am satisfied that the comment was made and I assume that Ms Shannon's recollection was faulty. It is not surprising that somebody in Philip Morris expressed that view. The packs have so many similarities that it seems to me to be obvious that anyone in Philip Morris who had thought about the matter would feel that Wills would be shocked when Summit was launched.

In my opinion, the packs have so many similarities, are so similar in character and are so distinctly different from other cigarette packs that, if the cigarettes were readily available on shelves to be picked up by customers, the Summit pack would be likely to mislead and deceive and would, in fact, do so. At least until the two cigarettes became well known and differentiated by experience, some customers would be likely to pick up a Summit pack thinking it to be an Horizon pack.

However, cigarettes are ordinarily kept in secure areas behind counters and are handed over by a shop assistant on request. Thus, purchasers will not be likely to be misled into picking up a packet from a shelf thinking it to be another product. Purchasers will have to ask for the cigarettes by name, by the size pack and the tar variant required. The names of the cigarettes are distinctly different. Many affidavits by retailers have been filed on behalf of Philip Morris. They confirm the view, to which I think I would in any event have arrived, that retailers and their employees would be unlikely to confuse the Horizon cigarettes with Summit and that the occasions when consumers are able to select packets themselves, from what are described as dump bins, are few. I consider that the occasions on which mistakes would be made would be too few to satisfy the requirement of "likely", as to which see Tillmans Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1979) 27 ALR 367 at 380-2, per Deane J.

But it is sufficient in a get-up case that purchasers are likely to be misled into thinking that the competing products came from the same source, such as being produced by the same manufacturer.

In Hogan v Pacific Dunlop Ltd (1988) 83 ALR 403, Gummow J at first instance said at 426-7:-

"... the action is concerned with misrepresentation, and with a particular type of misrepresentation involving use of the image or indicium in question to convey a representation of a commercial connection between the plaintiff and the goods or services of the defendant, which connection does not exist. This case, like 10th Cantanae Pty Ltd v Shoshana Pty Ltd (1987) 79 ALR 299 is concerned with what will satisfy that requirement of commercial connection. Again, it is not all representations, made in commerce, as to connection between the plaintiff and the goods or services of the defendant which will suffice."

At 427, his Honour cited the remarks of Goff LJ in HP Bulmer Ltd & Showerings Ltd v J Bollinger SA [1978] RPC 79 at 117:-

"Not every kind of connection claimed will amount to passing off; for example if one says that one's goods are very suitable to be used in connection with the plaintiff's. On the other hand in my view there can be a passing off of goods without representing that they are actually the well known goods which the plaintiff produces or a new line which he is supposed to have started. It is sufficient in my view if what is done represents the defendant's goods to be connected with the plaintiff's in such a way as would lead people to accept them on the faith of the plaintiff's reputation. Thus for example it would be sufficient if they were taken to be made under licence, or under some trading arrangement which would give the plaintiff some control over them ...".

A more recent case in which many of the authorities on this subject of the representation of a connection are reviewed is McIlhenny Company v Blue Yonder Holdings Pty Ltd (Lehane J, 18 September 1997, unreported.)

It is a feature of the cigarette market that the names of the manufacturers are not prominently promoted. Brands are promoted, rather than the producers. Some of the evidence suggested that many smokers are, in fact, unaware of the manufacturer of the cigarettes they usually smoke. Certainly, the names of the manufacturer are printed in only small print on the Horizon and Summit packs. Moreover, cigarette producers are very limited in the extent to which they may advertise. Advertising in the print and electronic media is prohibited. Therefore, much advertising takes place in retail premises at and in the vicinity of the point of sale. For the purposes of promoting sale, the cigarette companies produce advertising material, including cardboard displays which are put up either at or near the point of sale.

The evidence shows that Philip Morris intends to advertise the Summit cigarettes in this way using the features I have already mentioned, plus cardboard displays featuring the bird hologram with clouds on a blue background and also messages such as "Value above all", which are similar to Horizon's slogan. I do not place any significant weight on the slogans. The message they convey is expected in the "value" segment of the cigarette market.

It appears to me to be likely that, if Summit is so advertised at a price the same as or less than Horizon, a significant number of customers might think that the cigarettes come from the same source as Horizon cigarettes. That is because the packs are so similar whilst other cigarette packs are quite distinctive. This conclusion flows in part from the similarities in the packaging, in part from the fact that the get-up of the two brands is strikingly different from that of other brands and in part from the fact that the get-up of Summit is not sufficiently differentiated from that of Horizon as to indicate that it comes from a different source. I agree with Mr Webb's first impression that Summit gives the impression of "me too" with Horizon. And, indeed, Philip Morris was not seeking to establish a new, successful, independent brand.

To succeed under s 52 in a proceeding such as this or for passing off, the applicant must establish that the features of its product have become distinctive and associated in the minds of a substantial number of the relevant class of consumers exclusively with the applicant.

It is clear that a large and valuable reputation has been established by the applicants in Australia in their Horizon range of cigarettes and in their get-up, such that the get-up signifies the applicant's cigarettes. Horizon was listed as the number five consumer goods brand in Australia and the fourth leading brand of cigarettes in the December 1995 and December 1996 in AC Nielsen Surveys of the Top 100 Grocery Brands. Horizon has a market share of approximately 14% of the Australian cigarette market.

It was argued on behalf of the respondents that reputation did not subsist in the applicant's get-up as consumers in the "supervalue" segment of the cigarette market, of which Horizon was a member, were motivated to purchase by price alone. However, under cross examination, Ms Shannon, Philip Morris' Marketing Director, conceded that while price may drive consumers into the supervalue segment of the market, factors of value, branding and quantity motivate purchase within that segment. I am satisfied that the Horizon brand has a loyal following.

The respondent submitted that, by changing the packaging of the Horizon range, Wills abandoned the reputation it had established in the Horizon get-up. However, of the 12 retailers who swore affidavits in these proceedings, eight stocked both old and new Horizon at the time of swearing their affidavits. It was expected that the existing packaging would not be phased out for several months from the date of this trial, due to stock currently held by retailers and stock held in the applicant's warehouse. Moreover, the new Horizon pack retains overwhelming similarities with the old, so that these packs will be recognisable by consumers as coming from the same source. The reputation of Horizon thus exists in and will be transferred to the new packaging.

The applicant's reputation in its Horizon brand cigarettes resides in the features of its packaging, as well as in the name. Reputation may reside in get-up as well as in a trade name: see, eg Brock v Terrace Times Pty Ltd (1982) 40 ALR 97; Apand Pty Ltd v Kettle Chip Co Pty Ltd (1994) 52 FCR 474; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; R & C Products Pty Ltd v Sterling Winthrop Pty Ltd (1993) 15 ATPR 41-253; Sterling Winthrop Pty Ltd v R & C Products Pty Ltd (1994) 16 ATPR 41-308.

In this case, Wills could not claim a monopoly in any particular aspect of its pack, although, of course, it has the only pack which features a cloud. Nevertheless, the general appearance of its pack is individual and distinctive. It was this general appearance which was adopted for the Summit pack and which is the subject of complaint. In Hogan v Koala Dundee Pty Ltd (1988) 20 FCR 314, Pincus J said at 327, after referring to a film's images:-

"Mr Chesterman pointed out that each of the elements complained of is by itself common enough. For example, koalas are, as are bush hats and, perhaps less so, hats with teeth in the band and so forth, but the combination of images is something else again."

The intentional adoption of the features of a rival's get-up is eloquent testimony that it may succeed and is material from which the Court may more readily infer deception: see Australian Woollen Mills Ltd v FS Walton & Co Ltd (1937) 58 CLR 641; Telmak Teleproducts (Australia) Pty Ltd v Coles Myer Ltd (1989) 89 ALR 48; Kettle Chip Company Pty Ltd v Apand Pty Ltd (1993) 46 FCR 152. As Dixon & McTiernan JJ said in Australian Woollen Mills at 657:-

"The rule that if a mark or get-up for goods is adopted for the purpose of appropriating part of the trade or reputation of a rival, it should be presumed to be fitted for the purpose and therefore likely to deceive or confuse, no doubt, is as just in principle as it is wholesome in tendency. In a question how possible or prospective buyers will be impressed by a given picture, word or appearance, the instinct and judgment of traders is not to be lightly rejected, and when a dishonest trader fashions an implement or weapon for the purpose of misleading potential customers he at least provides a reliable and expert opinion on the question whether what he has done is in fact likely to deceive."

The principle has application in the present case, perhaps not directly but at least in the sense described in Apand Pty Ltd v Kettle Chip Company Pty Ltd (1994) 52 FCR 474, where Lockhart, Gummow & Lee JJ said at 488:

"... the appellant engaged in a sophisticated analysis of the image which the respondent had created for its product as well as of the product itself. ... the appellant set out to duplicate the characteristics of the respondent's product in the sense that it sought to market a product with the same general characteristics as were to be found in the respondent's product."

Here, the product, Summit cigarettes, was directed primarily and deliberately at Horizon smokers.

However, the appearance of the packs is a more important factor than intention. The question whether or not the packaging is misleading is a question for the Court to decide, although the Court may be assisted by expert evidence: Brock & Ors v Terrace Times Pty Ltd (1981) 40 ALR 97; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191. As Dixon & McTiernan JJ said in Australian Woollen Mills at 659, the decision:-

"... depends on a combination of visual impression and judicial estimation of the effect likely to be produced in the course of the ordinary conduct of affairs."

In the present case, two experts were called, Dr George Beaton by Wills and Associate Professor Richard Bell by Philip Morris. I did not find their evidence to be particularly helpful although I agree with the general thrust of Dr Beaton's overall conclusions. I do not agree with Associate Professor Bell's emphasis on the need for "scientifically valid data." We are dealing with the field of marketing, not that of science. Nor do I accept his evidence that "image can be said, at most, to operate as a negative determinant amongst customers" or his evidence that "the purchase decision for cigarettes is not made at the point of sale." The evidence shows both that "image" is an important element in the marketing of cigarettes and also that much attention is given to marketing at the point of sale, for advertising in the media is prohibited. I am satisfied that cigarette companies seek to influence consumers at the point of sale and that those endeavours can be effective.

Counsel for Philip Morris criticised the case put for Wills in that no survey or research was adduced by Wills. There has, however, been adequate research evidence called in the proceedings to enable the Court to form a view of the impact which the Horizon packaging has on consumers. Moreover, I would not have expected a survey to be conducted in the present proceedings, which were brought on for hearing expeditiously. A reliable survey would be difficult to set up, for the relevant issue would be the impression gained by consumers if the Summit pack were put up for sale and advertised at the point of sale. A survey of people in the street or in a group could well be misleading. The making of any such survey would have involved delay.

Having regard to the appearance of the packs and the factors I have mentioned, I am of the opinion that, at all relevant times, if Philip Morris were to launch the Summit cigarettes in the manner proposed, its conduct would breach s 52 of the Trade Practices Act.

Counsel should bring in short minutes of the orders for which they move.