Intercity Group (NZ) Ltd v Nakedbus NZ Ltd

[2014] NZHC 124

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-007532 [2014] NZHC 124

BETWEEN

INTERCITY GROUP (NZ) LIMITED Plaintiff

ANDNAKEDBUS NZ LIMITED Defendant

Hearing:                   25 - 29 November 2013

Counsel:                  JD McBride and PT Hall for Plaintiff

MC Harris and BA Tompkins for Defendant

Judgment:                12 February 2014

JUDGMENT OF ASHER J

This judgment was delivered by me on Wednesday, 12 February 2014 at 11.00 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Simpson Western Lawyers, Auckland. Gilbert Walker, Auckland.

JD McBride, Auckland.

Table of Contents

Para No

Two fierce competitors  [1] The use of the words “inter city”  [10] The ICG claims  [21] The first cause of action – the breach of undertaking  [29] The second cause of action – the use by Nakedbus of keywords

in Google’s AdWord service  [37]

How Google operates  [41] Nakedbus’ use of the words “inter city” on Google  [53] The use of keywords by Nakedbus and s 89(2) – the different positions

of the parties  [61] Keywords and s 89(2)  [67] Use       [73] Clean hands  [89]

The third cause of action – the use by Nakedbus of the words “inter city”

in their advertisements and website  [94]

The words “intercity” and “inter city”  [100] The s 89(2) threshold – the use of the word “intercity” in New Zealand  [103] The appearance of “inter city” in the advertisements  [131] Section 89(2) and deliberate “use”  [135] Section 89(2) – “likely to be taken as used”  [155] The word “identical” in s 89(1)(a)  [172] Are the words identical with the registered trade mark “INTERCITY”?  [182] Are the words similar to the registered trade mark “INTERCITY”?  [185] Likely to deceive or confuse  [190] Honest use  [207] Conclusion on the third cause of action  [212] The fourth cause of action – passing off  [213] The fifth cause of action – breach of the Fair Trading Act  [219] Summary      [228] Result     [234]

Two fierce competitors

[1]      InterCity Group (NZ) Ltd (ICG) operates a long distance national passenger bus network under the brand name “InterCity”.  It has approximately 60 per cent of New Zealand’s long distance bus business.   It owns the registered trade mark “INTERCITY”.

[2]      Nakedbus NZ Ltd (Nakedbus) is its major competitor, with approximately

35 per cent of the national business.   Nakedbus was formed in June 2006 when

InterCity Group (NZ) Ltd had 95 per cent of the market.  It has gained most of its market share at the expense of the percentage share of InterCity, but in a growing market. The competition between the two companies is intense.

[3]      In this proceeding, ICG claims that Nakedbus has infringed ICG’s trade mark INTERCITY in  two ways.   First, by bidding against the word  “inter  city” and variants thereof within Google Inc’s (Google) AdWords advertising service, resulting in Nakedbus advertisements being displayed on Google in response to searches for ICG’s trade mark; and secondly, by using the words “inter city” within the advertisements that would then be displayed.  It also claims that its use of the words “inter city” constitute a passing off of  InterCity’s business,  and misleading and deceptive conduct under the Fair Trading Act 1986.

[4]      The InterCity brand was introduced into New Zealand in the mid-1980s, when the New Zealand Railways Corporation launched a new brand for its coach services.  InterCity was the name for the long-haul passenger coach services of that corporation.  In 1991, the corporation sold the InterCity enterprise to ICG which was then owned by a number of private bus companies, and ICG now owns what is left of the Corporation business including the trade mark.  The trade mark report shows that the trade mark is specified for road transportation services.

[5]      InterCity is a well known brand.  Its Chief Executive is Malcolm Johns.  In

2006, ICG complained to the Domain Name Commission about alleged “cyber- squatting” on the website  Sir Ian Barker QC upheld its complaint, commenting that:

For years prior to the filing of the complaint, [Intercity Group (NZ) Ltd] owned the INTERCITY trademark which is well-known throughout New Zealand as representing the major provider of internal public transportation by road in that country.

For reasons developed later in this judgment, I consider that comment to be accurate.

[6]      Nakedbus was incorporated on 7 June 2006 and commenced trading in about September 2006.  Its founder was Hamish Nuttall, who is chief executive.  He holds all  its  shares  and  is  a  director.    In  Mr Nuttall’s  words  the  company  operates

principally under the brand “Nakedbus.com” and offers “low cost point to point bus travel throughout New Zealand”.

[7]      Mr Nuttall in his evidence explained that in 2006 Nakedbus believed that ICG had a “near monopoly” position, and that the “intercity” brand was tired and vulnerable to a vigorous competitor operating online.  Nakedbus thought that it was possible to grow the market substantially by attracting consumers on the basis of bus fares that were significantly cheaper than those of InterCity, and also by attracting consumers who might otherwise drive or fly.  From the outset, Nakedbus marketed and sold its tickets primarily online.  Neither company owns or operates most of the buses used under its name itself.  Both use other operators that own the buses and work for them under their brand.

[8]      From the outset the parties engaged in what could undoubtedly be called a price war.   Nakedbus introduced fares from $1 plus booking fee, and this in due course was matched by InterCity.  It would seem that each closely followed the price cuts of its opponent.

[9]      The focus of ICG in its submissions was on the Google advertisement for Nakedbus containing the words “inter city” as it appeared when “inter city” and close variants were searched for by the consumer using the Google search engine. This will be the advertisement that I refer to in the course of this judgment, save where I refer to a different advertisement or site.

The use of the words “inter city”

[10]     From its launch in September 2006 Nakedbus has used the words “inter city” in its pursuit of customers.   It is necessary to follow the history of the disputes between the parties in relation to the use of those words, as it has some relevance to later issues.

[11]     The initial website for referred to “intercity” bus travel

in describing Nakedbus’ services. The full paragraph read:

Get the best value long distance bus and coach services available.  Intercity bus travel, experience Kiwi life, discover the magic of New Zealand by bus.

[12]     It was put to Mr Nuttall in cross-examination that the words “Kiwi life” and “magic” were, like the word “Intercity”, words that were part of the names of the competitors of Nakedbus,1 and were inserted so that the Nakedbus web page would respond on Google and other search engines when those key words were used by consumers.  Mr Nuttall accepted this, and that he had set out to target competitors’ brands and that there was “no excuse for it”.   He stated that in 2006 he was not aware of the INTERCITY trade mark.

[13]     On 27 September 2006, ICG’s solicitors wrote to Nakedbus advising that its use of “intercity” on its website and other places amounted to trade mark infringement, passing off and breach of the Fair Trading Act.  In response, Nakedbus removed the  references  to  “intercity”  from  its  advertising.    Indeed  it  ceased  to operate that website.  Mr Nuttall stated that this was because Nakedbus was not in a financial position to defend a High Court case.

[14]     In October 2006, ICG discovered that Nakedbus had placed a “disclaimer” on its website asserting that ICG had required Nakedbus to point out that there was no association between the two companies.  In fact the correspondence does not indicate any request to this effect by ICG.   ICG alleged that the disclaimer was a way of getting the word “intercity” on to Nakedbus’ website so that it would attract internet traffic searching for that word.   ICG sent a letter requiring the disclaimer to be removed. This was done.

[15]     Approximately 10 months later, ICG discovered that Nakedbus was using the words “intercity” on metatags2 associated with its websites, and was using the words “intercity” and “inter city” as keywords3 to trigger the display of Nakedbus advertisements.

[16]     A letter was sent by ICG in July 2007 and resulted in Nakedbus’ lawyers on

9 August 2007 advising that Nakedbus had amended  It was

1      The competitors being Magic Bus and Kiwi Experience.

2      Metatags are “words or phrases embedded in a website’s code, which search engines use to provide short descriptions of the information included on the site”: Ashley Packard Digital Media Law (2nd ed, Wiley-Blackwell, Chicester, 2013) at 214.

3      “Keywords” is the term used by Google to describe the terms that users enter into the Google

search engine.

changed to contain no metatags using INTERCITY.  Nakedbus also advised that it did not use INTERCITY as a keyword on Google and had not done so since about

27 June 2007, and that Nakedbus did not use INTERCITY in any section of its website.  It was also stated that Nakedbus rejected the allegation that it was using or had used INTERCITY as a trade mark, and that Nakedbus would not use INTERCITY as a trade mark for so long as ICG’s trade mark registration remained valid. The letter noted:

In  relation  to  point  2  above  we  note  that  although  our  client  had INTERCITY removed as a keyword on Google at that time we are instructed that due to characteristics of Google’s broad matching software (which also correlates other terms such as “bus”) searches for INTERCITY after that date may have continued to return advertisements for our client’s website. We are instructed that our client has taken all reasonable steps to have this cease.    Any  instances  of  searches  returning  results  of  this  nature  after

27 June 2007 were not attributable to our client, but rather to Google.

[17]     It seems, however, that Nakedbus continued to use the words “inter city” in one way or another in its Google advertisements through 2008, which could have resulted in “intercity” searches returning Nakedbus advertisements.   In February

2009, matters escalated with Nakedbus using the words “inter city” in comparative advertising.    There  was  some  solicitors’ correspondence  which  culminated  in  a meeting on or about 1 June 2009 to discuss issues as to the use of “inter city”.  There were no lawyers present.

[18]     The meeting was attended by Mr Nuttall and a Mr Pavlovich who was the director  and  minority  shareholder  of  Nakedbus.    Mr  Johns  and  another  ICG executive Mr Ritchie assert that Mr Pavlovich accepted that the “InterCity” brand was distinctive, and undertook to cease marketing Nakedbus operations as being “intercity” or a similar word or phrase, and undertook to market the Nakedbus operations as “city to city” instead.  Mr Nuttall denies that Mr Pavlovich gave any such undertaking.

[19]     Over  a  year  later,  on  or  about  3  November  2011,  Nakedbus  initiated  a billboard advertising campaign promoting itself as providing “the cheapest inter city bus travel, guaranteed”.   This statement appeared on only one billboard, located close to the main ICG Auckland passenger depot.  There was yet another lawyers’

letter sent by ICG, and after some exchanges ICG issued proceedings against Nakedbus in the Auckland High Court on 16 November 2011.  However, later that month the advertisement removed words stating that Nakedbus was “the cheapest”, and the billboard was taken down altogether soon afterwards.   On 8 June 2012

Nakedbus  agreed  not  to  reinstate  the  billboard  advertisement,  or  to  use  the “InterCity” image in any other advertising or promotional material.   However, it refused to give undertakings that were also sought preventing it using the words “inter city”.

[20]     Mr Johns of ICG claims that around late October 2012 ICG discovered that searches for the term “inter city” on Google were generating Nakedbus advertisements which contained the words “inter city”, and which if clicked upon led to the Nakedbus website.  He asserts that on 23 October 2012 Nakedbus had set out on, or significantly accelerated, a campaign to target the ICG brand.   It will be necessary to set out Nakedbus’ activities at this time in more detail later in this

judgment.4     It was this development that led to ICG issuing these proceedings.

Mr Johns states that ICG believes that Nakedbus uses the words “inter city” in its advertisements as part of a “deliberate and cynical attempt to leverage off our brand and inflict commercial harm on InterCity Group”.

The ICG claims

[21]     In its first amended statement of claim, ICG alleges that on 23 October 2012

Nakedbus decided to target ICG and another brand, and that this was to be done by establishing a Google AdWords campaign targeting the plaintiff ’s brand “InterCity”. From 7.44 pm on 23 October 2012, Nakedbus commenced populating its “Bus NZ inter city bus travel” AdWords campaign with various individual advertisements. The purchased keywords would trigger Nakedbus advertisements containing the phrase “inter city”.  It is established that Nakedbus has specified some 87 different words and phrases which will trigger its “inter city” advertisements.

[22]     It is alleged that Nakedbus deliberately uses the words “inter city” in the

headings    and    description    fields    of    the    advertisements,    linked    to    the

4 See [142]–[149].

website.   The advertisement that will respond to the keyed in

words “InterCity” on a desktop personal computer typically appears as follows:

[23]     The first cause of action was based on breach of the undertaking allegedly given by Mr Pavlovich.  There then follow the two trade mark causes of action.  The first relates to Nakedbus’ purchasing of the keyword “inter city” and variations thereof via the Google AdWords service.  The other trade mark claim relates to the Nakedbus advertisements that would subsequently appear in various places on the Google results page, with the primary focus in evidence and submissions being the advertisement pictured above, and the Nakedbus website that responds to a click on the advertisements.

[24]     The  fourth  cause  of  action  is  an  allegation  that  in  its  advertisements Nakedbus is passing itself off as InterCity.  The final cause of action is an allegation that by the same conduct it is engaging in misleading and deceptive conduct.

[25]     In addition to declaratory and injunctive relief, an account of profits, costs and interest are sought.  It is agreed between the parties that should the plaintiff be successful there will be a split trial, and a further hearing in relation to the account of profits.   Therefore these aspects of relief are not issues to be determined in this decision.

[26]     The defendant in its statement of defence denies giving any undertaking and denies the alleged breaches of trade mark, and the passing off and Fair Trading Act allegations.  It raises as an affirmative defence to the claim for injunctive relief that the plaintiff does not come to Court with clean hands, because InterCity has itself sought to promote its coach services by advertising on Google using the keywords “nakedbus” and variations thereof.

[27]     On 18 February 2013 ICG sought interim orders granting it interim injunctive relief preventing Nakedbus’ use of the words “inter city” and variations thereof.  In a judgment of 1 March 2013 Rodney Hansen J dismissed the application.5

[28]     In this judgment I will refer to the “INTERCITY” trade mark as “InterCity”. When I refer to the plaintiff InterCity Group (NZ) Ltd I refer to the initials ICG to avoid confusion with references to the trade mark.

The first cause of action — the breach of undertaking

[29]     I was advised by ICG that this cause of action was not pursued.  However, the meeting in which the undertaking was allegedly given is part of the relevant background and Mr Johns and Mr Nuttall referred to the alleged undertaking in evidence, and were cross-examined on that evidence.   Mr Johns alleged that the undertaking was given by Mr Pavlovich at the meeting, promising that Nakedbus would cease marketing itself as being “inter city” and would use the words “city to city” instead.   Mr Nuttall denied this.   Mr Pavlovich was not called.   Given the conflict, and that it is part of the background, I set out my views on whether an undertaking was given.

[30]     I do not consider that any binding undertaking as asserted by Mr Johns was given on 1 June 2009 by Mr Pavlovich.  I have no doubt that a conciliatory stance was taken by Nakedbus at the meeting, and I am sure that Mr Pavlovich spoke in a friendly and assuring manner.   However, if an undertaking was given on such an important matter acceding to ICG’s demands it could be expected that it would be recorded in writing, given that it was between commercial and competitive parties who were at arm’s length. This was not done.

[31]     Moreover, it could be expected that there would have been some reference to such an undertaking in the correspondence that followed the meeting.   The first communication, an email from Mr Nuttall to Mr Johns, made no reference to such an undertaking and stated that Nakedbus reiterated that it was within its rights to engage

in comparative advertising, and in doing so could identify ICG.  It was accepted by

5      InterCity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 379.

Nakedbus that the comparisons had to be fair, and it was stated that Nakedbus would not use the word “intercity” in a manner that breached the trade mark.  However, this email contained no reference to an undertaking to cease marketing Nakedbus operations as “inter city” and made no reference to “city to city”.  It is inconsistent with Nakedbus having given an undertaking to cease marketing operations as “inter city” or a similar word or phrase, and use “city to city”.

[32]    Mr Johns in his reply email of 13 July 2009 made no reference to an undertaking, or complain that the Nakedbus email did not reflect what happened at the meeting.  The tone of his letter, which included statements that ICG had a history of aggressively defending its trade marks, was not consistent with some sort of agreed undertaking having been given to resolve matters.   Rather, it signified an ongoing unresolved dispute.

[33]     Following this there was then no reference to the undertaking until these proceedings were issued in November 2012.  This is despite the fact that there was solicitors’ correspondence in the meantime and allegations of breach of trade mark by Nakedbus.

[34]     Mr Pavlovich was not called by Nakedbus.  This could be seen as supportive of  Mr  Johns’ account  of  events,  as  it  is  surprising  that  Mr  Pavlovich  was  not subpoenaed or an explanation given as to his non-appearance, if he would have denied  giving  an  undertaking.6    But  his  non-appearance,  while  supportive  of Mr Johns’ account of events, is not conclusive, and I bear in mind that the cause of action was not pursued.

[35]     Mr Johns in his evidence explained in detail why the undertaking was not recorded in writing.  He deposed that he was not going to insult Mr Pavlovich with a demand that he put his statements in writing, and that he felt that he could not complain about legitimate comparative advertising.  This conciliatory position is not consistent with the belligerent and hostile letters sent by ICG in the two years that

followed.

6      See Penny Corp v Ithaca (Custodians) Ltd [2004] 1 NZLR 731 (CA) at [144]–[161].

[36]   I am left quite unable to reconcile the claimed undertaking with the correspondence and the actions of the parties.   While I accept that Mr Johns did receive some reassurance from Mr Pavlovich about Nakedbus intending to be fair, I cannot accept that there was a promise amounting to an undertaking for the reasons I have given.  Although later in this decision I do not accept some of Mr Nuttall’s assertions, on this issue his account of what happened is more likely to be correct than that  of Mr Johns.   While  I do  not  find that  Mr Johns  set out  to  mislead deliberately, it seems likely to me that he has, as the conflict has escalated, elevated Mr Pavlovich’s conciliatory expressions to too high a level.   I do not accept that Mr Pavlovich provided any undertaking.

The second cause of action — the use by Nakedbus of keywords in Google’s

AdWord service

[37]     It is alleged that the Google AdWords campaign created by Nakedbus on

23 October 2012 containing the 87 “inter city” keyword variants was “use in the course of trade” of ICG’s trade mark by the defendant in relation to road transportation services within the meaning of s 89(1) of the Trade Marks Act 2002 (the Act).   ICG submits that those keywords are identical to the plaintiff’s trade mark, giving rise to liability under s 89(1)(a) of the Act.   In the alternative, it is alleged that the “inter city” keywords are similar to ICG’s trade mark, and their use is likely to deceive or confuse within the meaning of s 89(1)(c).  Also as a further claim it is alleged that the “inter city” keywords are identical or similar to ICG’s trade mark, which is well known in New Zealand, and that Nakedbus has taken unfair advantage of or used that trade mark in a way detrimental to its distinctive character and repute within the meaning of s 89(1)(d).

[38]     It is pleaded that the “inter city” keywords are being used in such a manner as to render their use as likely to be taken as use of the trade mark within the meaning of s 89(2) of the Act.  A declaration is sought that the registered trade mark has been infringed by Nakedbus, and an order is sought restraining Nakedbus from any further use of the words “inter city” (in various forms) as keywords that are purchased from Google. An order is sought requiring Nakedbus to erase or obliterate the “inter city” keywords from its Google AdWords campaigns.

[39]     As can be seen, the second cause of action turns entirely on Nakedbus’ use of Google AdWords.   The affirmative defence of clean hands turns on ICG’s use of keywords for its Google advertisements.  In contrast to this focus on the purchase of keywords from Google, the third cause of action turns primarily on Nakedbus’ use of the words “inter city” in its advertisements on Google, its website, and other formats. How Google was used by ICG, Nakedbus and their consumers lies at the heart of both claims.

[40]     I  have  received  detailed  evidence  from  an  internet  marketing  consultant called by ICG, Gaber Sareczky, on how Google operates.  That part of his evidence has not been challenged.  The parties agree also that Arnold J correctly summarised the way in which Google works in his judgment in the English High Court decision

of Interflora Inc v Marks and Spencer plc.7

How Google operates

[41]     Google’s principal source of revenue is advertising.8   Its global revenue from advertising has risen from $66.9 million in 2001 to $43.7 billion in 2012.9     The principal way in which Google provides such advertising is by means of a service known as AdWords.  The service is subject to constant refinement, but has certain

constant features.

[42]     When a user of the Google search engine types a keyword into a computer, the search engine carries out a search and presents a display page with three main

elements:

The first is the Google search box which displays the search term that

the user has typed.

The second is the links to the websites assessed to be relevant to the

search  term  by  the  search  engine’s  algorithm  (a  sophisticated

7      Interflora Inc v Marks and Spencer plc [2013] EWHC 1291 (Ch) at [90]–[99].

8      One author has suggested 95 per cent of Google’s revenue results from keyword advertising:

Packard Digital Media Law, above n 2, at 215.

9      Interflora, above n 7, at [88].

mathematical  formula),  accompanied  in  each  case  by  some  text derived from the website in which the search term appears.   These links are known as the “organic” or “natural” results.   The search terms are sorted in order of relevance.  The ranking is carried out by

the Google algorithm on an objective basis.

The third comprises advertisements.   These advertisements contain links to websites.   The advertisements are displayed because the operators of the websites shown have paid for them to appear in response to the search term (or “keyword”) in question.  They are in a different colour to the organic results.   The organic results can be

blue, and the advertisements purple.

[43]     An example of the first and third elements is shown later in this judgment.10

The organic results and advertisements may appear at any place below the search box.  The search engine results page is sometimes referred to as a “SERP”.  I will refer to it in this judgment as the display page.

[44]     The advertisement is triggered and appears within the user’s web browser when the user enters one or more particular words into the search engine.   These words, known as keywords, are selected by an advertiser in return for the payment of a fee.  The advertiser pays a certain amount to Google each time a user clicks on the hyperlink in its advertisement and is as a consequence directed to the advertiser’s website.  This process is described as a “click” or “click through”.  The payments by the advertiser are calculated on the number of clicks, subject to a maximum daily limit specified by the advertiser.  If the daily limit is exceeded the advertisement will not be displayed.

[45]     Any number of persons can purchase a keyword.  When there is more than one  purchaser  there  is  an  automated  auction  process  whereby,  subject  to  the

influence of a quality score process devised by Google,11 the advertiser who bids the

10 See [132].

11     The  combination  of  a  website’s  “quality  score”  and  the  bid  amount  is  known  as  an

advertisement’s “Ad Rank”.

highest amount has its advertisement displayed in the most prominent position.  This means that popular keywords are more expensive than unpopular keywords.

[46]     Mr Sareczky deposed that no one knows for certain how the Google search engine distinguishes between the results that it provides in response to different keywords entered by users.  However, it is clear that it does not differentiate between words with or without capital letters.  Google may on occasions attach significance to a space between words or to a hyphen, and on others treat the words as being the same.   The experts do not appear to be able to predict exactly the way in which Google will respond to a word on any given day.  The existence of a gap or a hyphen may lead to a difference in the way in which advertisements or organic results are ordered.   Nevertheless, for all practical purposes in this case the Google search engine will for organic search purposes regard a search for “InterCity” as the same as searches for “intercity”, “Inter City” or “inter city”.  A search for “inter city” by the user will search for all four variants of the search term.  Similarly Google will read “InterCity Coachlines” in the same way was “inter city coach lines” and so on.

[47]   It is a significant feature of Google’s proprietary algorithm that it can personalise individual searches.  Thus, a search will generate a different display page for different internet users depending on user location, the type of browser used (for instance Internet Explorer or Safari) and information Google holds about the user’s search  behaviour.    The  privacy  policy  of  Google  states  that  Google  collects significant amounts of information from users, and uses this to try to ensure that its search results will be relevant to that particular user.

[48]     The advertisements themselves are short and to a prescribed form.   They comprise one headline consisting of 25 characters and two additional  text lines consisting of 35 characters each.   The headline functions as a hyperlink which if clicked on will redirect the user to the advertiser’s website.

[49]     The   advertisements   display   on   various   places   on   the   display   page. Sometimes they display directly underneath the search box.   At other times they display off to one side or further down the page, or on subsequent pages.

[50]     There are various ways in which a keyword may trigger an advertisement. An “exact match” is where the purchase of the keyword means that the search term entered by the user is the same as the keywords selected by the advertiser.  A “broad match” on the other hand enables the purchased keyword to be matched to variants of the keyword such as plurals, or the word or phrase with gaps between syllables or words.    There  is  also  a  “negative  match”  facility,  which  enables  advertisers  to prevent advertisements from appearing when the search query includes a particular word or phrase.

[51]     Thus, an advertiser who wishes to advertise against searches for the words “inter city” and  who utilises  the broad  match  function  will  thereby ensure that variants of “inter city” such as “intercity” or “inter cities” will produce its advertisement.   Equally that advertiser has the ability to stop this happening by placing a negative match on the words “intercity” so that when a consumer types in those words they will not produce the advertiser’s advertisement.

[52]     More than one advertiser can  bid  on  a  keyword.   When  more than one advertisement responds to a keyword search, Google has to rank the advertisements on the display page.  Google does not disclose exactly how it ranks advertisements in this situation.   However, it does disclose that it uses a feature called a “quality score”.  This is an assessment of how relevant the advertisement is to the keyword that is being searched.  Even if a competitor has paid more for an advertisement, it may be in a lower position to another advertisement where the bid has been lower, depending on the quality score.

Nakedbus’ use of the words “inter city” on Google

[53]     It was Mr Sareczky’s unchallenged evidence that Nakedbus generates very little organic traffic to its website from Google searches for “intercity” or “inter city”.   Google’s algorithm does not regard those search terms as relevant to In contrast for a consumer using Google, the search terms “intercity” and “inter city” both are highly relevant to ICG buses.   Mr Sareczky reported that when he searched for “intercity” on Google references to InterCity

buses, not Nakedbus, dominated at least the first 20 pages of organic rankings for

these search terms. The results were similar for “inter city”.

[54]     Mr Sareczky’s evidence was that Google’s algorithm treats “inter city” and “intercity” as the same.  Because Nakedbus is bidding on the words “inter city” as a broad match, Google will generate advertisements in response to any close variants such as “intercity” and misspellings of “intercity” such as “intercity”.

[55]   Mr Sareczky searched for “inter city” on 17 December 2012 and the advertisement set out in [22] appeared.   He also gave an example of a different layout but with similar words, obtained on a smartphone.  The Nakedbus “inter city” advertisements always ranked behind those of ICG.   This is because Google’s algorithm perceives ICG’s advertisements as more relevant than those of Nakedbus.

[56]     Mr Sareczky deposed that Nakedbus’ campaign targeting the words “inter city” and variations and combinations included some 87 different keyword combinations.   These were either broad  matches for “inter city”  and  associated phrases such as “inter city bus” and some 39 different misspellings of “inter city”.

[57]     It is not clear from the evidence when exactly Nakedbus started purchasing keywords which would result in Nakedbus advertisements appearing when the words “inter city” or variants thereon were keyed in by a user.   However, Mr Sareczky comments  that  from  November  2012  there  was  a  campaign  commenced  using Google that generated significant sales.  This is referred to in more detail later in this judgment.12    The “inter city bus” advertisements on Google that month generated sales of $19,388.44 against a cost of only $4,150.28.   The inclusion of the word “inter city” in those advertisements significantly improved the results from those

prior to the change.

[58]     Mr Sareczky deposed that he could see what search terms were triggering the advertisements and generating sales.  The keywords “intercity” and “intercity bus” were  responding  to  searches  and  generating  significant  impressions  and  click-

throughs and sales for Nakedbus.

12 See [142]–[149].

[59]     There was a change in December 2012 when Google interceded for a time, and prevented Nakedbus from targeting the trade mark term “intercity”.  This had a dramatic and immediate effect on sales through the advertisements using the “inter city”  keywords.    Following  Google’s  intervention  this  drop  in  sales  continued through to May 2013.   However in April 2013, Google relaxed its policy in New Zealand regarding the use of registered trade marks which allowed Nakedbus to start acquiring “intercity” search  traffic again.   This  resulted  in  an  immediate lift  in revenue for Nakedbus.  For the May to June 2013 two month period, the campaign generally generated sales of $17,949.22 at a cost of $4,455.53.  The matched search query “intercity” produced revenue of $11,734.73 as against “inter city” which produced only $391.58.

[60]     On the basis of this analysis Mr Sareczky, whose evidence I accept, deposed that Nakedbus has, in his opinion, run an AdWords campaign successfully targeting for its advertisement the search terms that would otherwise reference ICG’s InterCity site and organic ICG results.   By purchasing the words “inter city” Nakedbus has also purchased any close variants including the words “intercity” and “inter-city”.  A consumer searching for the brand name of a company, in this case “Intercity”, is presented with an advertisement from a competitor of the searched for brand “InterCity”. That competitor is Nakedbus.

The use of keywords by Nakedbus and s 89(2) — the different positions of the parties

[61]     Section 89(1) and (2) of the Act which relate to infringements provide:

89   Infringement where identical or similar sign used in course of trade

(1)   A person infringes a registered trade mark if the person does not have the right to use the registered trade mark and uses in the course of trade a sign—

(a)   identical with the registered trade mark in relation to any goods or services in respect of which the trade mark is registered; or

(b)   identical with the registered trade mark in relation to any goods or services that are similar to any goods or services in respect of which the trade mark is registered, if that use would be likely to deceive or confuse; or

(c)   similar to the registered trade mark in relation to any goods or services that are identical with or similar to any goods or services in respect of which the trade mark is [registered,] if that use would be likely to deceive or confuse; or

(d)   identical with or similar to the registered trade mark in relation to any goods or services that are not similar to the goods or services in respect of which the trade mark is registered where the trade mark is well known in New Zealand and the use of the sign takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the mark.

(2)   Subsection (1) applies only if the sign is used in such a manner as to render the use of the sign as likely to be taken as being use as a trade mark.

[62]     The section refers to “use” in two ways.  First, “use in the course of trade” in s 89(1), and second “used” and “likely to be taken as used” in s 89(2).  ICG claims that Nakedbus is “using” the “inter city” keywords in such a manner as to render their use as likely to be taken as being use as a trade mark within the meaning of s 89(2), and that the keyword “inter city” used by Nakedbus is identical with the registered trade mark “InterCity”, contrary to s 89(1)(a).   In the alternative, it is claimed that Nakedbus is also liable for infringement under s 89(1)(c) due to “inter city” being similar to “InterCity” and used in relation to bus services, and that its use would be likely to deceive or confuse. There is also a claim under s 89(1)(d).

[63]     Mr McBride argued that, consistent with European authorities such as Google France SARL v Louis Vuitton Malletier SA,13 when a consumer purchases a keyword that is identical with another’s trade mark it is using that trade mark in the course of trade.     He  also  submitted  that  the  advertisements  that  result  will  create  the impression that there is a material link between the advertised goods or services in question and the owner of the trade mark.  The implication is that the advertisement

originates from the trade mark owner, and the consumer is likely therefore in terms of s 89(2) to take it that “inter city” has been used as a trade mark when the keyword has been purchased.

[64]     Mr Harris submitted that the claim fails at this first step, as s 89(2) is simply not apt to cover the act of selecting keywords for an AdWords campaign.   He

submitted that the alleged use of selecting the keywords is an act that is invisible to

13     Case C-236/08 Google France SARL v Louis Vuitton Malletier SA [2010] ECR I-2417 at [51].

everyone except Google and the advertiser.  If the “use” cannot be seen by a third party, it cannot be “taken as” anything, let alone “taken as being used as a trade mark”.  He submitted that the Court should be cautious before relying on any of the European Court of Justice cases as the test in Europe is fundamentally different, and is whether the selection of trade marked keywords causes “detriment” to any of the functions of the mark.

[65]     Mr Harris suggested that it was convenient to consider the application of s 89(2) first before turning to infringement under s 89(1).  I agree.  Section 89(2) is both  a  gateway  that  must  be  passed  by  a  claimant  and  its  determination,  if affirmative, sets a platform for the examination of infringement issues.

[66]     I record that I do consider that there was “use” by Nakedbus in the sense of the words in s 89(1) as “use in the course of trade”.   This type of use does not involve a third party notional consumer test of the type required in s 89(2).  I have no doubt that Nakedbus was, when it purchased keywords, using the mark in the course of trade, in the sense of using it as part of its commercial activity to advance its

trade.14    The real issue is whether “use” in the second sense found in s 89(2) took

place.

Keywords and s 89(2)

[67]     It is stated in s 5 of the Act that “trade mark”:

(a)   means any sign capable of—

(i)    being represented graphically; and

(ii)  distinguishing the goods or services of 1 person from those of another person[.]

There is no doubt that “InterCity” is a sign represented graphically in terms of

distinguishing the goods or services of one person from those of another.   On its face, it fits within the definition.

14     See the remarks of Wylie J in Coca-Cola Company v Frucor Soft Drinks Ltd [2013] NZHC 3282 at [116].

[68]     The classic statement of the function of trade marks is that of Bowen LJ in Re

Powell’s Trade Mark:15

The function of a trade-mark is to give an indication to the purchaser or possible purchaser as to the manufacture or quality of the goods – to give an indication to his eye of the trade source from which the goods come, or the trade hands through which they pass on their way to the market.  It tells the person who is about to buy, or considering whether he shall buy, that what is presented to him is either what he has known before under the similar name, as coming from a source with which he is acquainted, or that it is what he has heard of before as coming from that similar source.

[69]     The  statement  has  been  referred  to  with  approval  in  a  number  of  New Zealand cases.16   In Mainland Products Ltd v Bonlac Foods (NZ) Ltd17 the Court of Appeal described the remarks of Gummow J in Johnson v Johnson Australia Pty Ltd v Sterling Pharmaceuticals Pty Ltd18 as instructive.  Gummow J stated:

[I]t remains the case that the primary function of a trade mark registered in Pt A or B of the register is that of distinguishing the commercial origin of goods  or  services  sold  under  the  mark.    The  registered  mark  serves  to indicate, if not the actual origin of the goods or services, nor their quality as such, the origin of that quality in a particular business, whether known or unknown by name.

[70]     These  authorities  show  that  the  essential  function  of  a  trade  mark  is  to guarantee to the consumer the identity of the origin of the trade marked goods or services by enabling that consumer to distinguish the goods or services from others which have a different origin.  With this in mind, I turn to whether, in relation to the keyword “intercity” and variations, there has been a “use” in terms of s 89(2) by Nakedbus.

[71]     I  accept  Mr  Harris’ submission  that  it  is  important  not  to  confuse  dicta relating to the issue of confusion and deception, in deciding the question of what constitutes “use as a trade mark”.  It is stated in relation to the Australian position in

Shanahan’s Australian Law of Trade Marks and Passing Off:19

15     Re Powell’s Trade-Mark [1893] 2 Ch 388 (CA) at 403–404.

16     See Kiwi Polish Co v Kempthorne, Prosser & Co [1925] NZLR 26 (CA) at 65, and Villa Maria

Wines Ltd v Montana Wines Ltd [1984] 2 NZLR 422 (CA) at 427.

17     Mainland Products Ltd v Bonlac Foods (NZ) Ltd [1998] 3 NZLR 341 (CA).

18     Johnson & Johnson Australia Pty Ltd v Sterling Pharmaceuticals Pty Ltd (1991) 101 ALR 700 (FCA) at 723.

19     M Davison and I Horak Shanahan’s Australian Law of Trade Marks and Passing Off (5th ed, Melbourne, LawBook Co, 2012) [Shanahan’s] at 85,560.

… the question of whether a sign is used as a trade mark is governed by the definition of ‘trade mark’ in s 17: is the sign being used to distinguish goods and services dealt with or provided by the defendant in the course of trade from  those  of  others,  or  is  it  serving  some  other  purpose,  such  as comparative advertising or a description of the user’s goods or services.  … There is a common misconception that an infringer uses a sign as a trade mark if the use indicates or is likely to indicate a connection between the infringer’s goods and the owner of the registered mark.   However, factors relevant to whether there is a misrepresentation or likelihood of deception have no role to play in deciding the question of what constitutes ‘use as a trade mark’.

[72]      “Use of sign” and “use of trade mark” are defined in ss 6 and 7 of the Act. There is no complexity about the concept of “use” as it appears in s 89(2).  It carries the usual meaning of employing something to achieve something.20    There are considerable bodies of authority both in Europe and Australia on the meaning of use as a trade mark.   However, the concept of “use” in both jurisdictions turns on the wording of the relevant sections, and those sections contain different words and

different concepts to those in the New Zealand legislation.  Article 5 of Directive

89/104, which applies to the European member states, refers to “using in the course of trade”.  Section 120(1) of the Australian Trade Marks Act 1995 (Cth) refers to “... uses as a trade mark”.  Neither has the phrase “likely to be taken as being used as a trade mark”.  In Australia in determining whether a sign is used as a trade mark there is an objective test applied, which is by reference to what a member of the public

could be expected to understand by its use. 21   While this has similarities to the New

Zealand test, it would be dangerous to apply the tests set out in the Australian cases to New Zealand, given the different statutory frameworks.

[73]     In  New Zealand the leading case on  the  approach to  “use” is Mainland

Products  Ltd  v  Bonlac  Foods  (NZ) Ltd.22      Unsurprisingly there  has  until  these proceedings been no New Zealand case which has examined the use of a keyword by

20     Tony Deverson and  Graeme  Kennedy (eds)  The  New  Zealand  Oxford  Dictionary  (Oxford

University Press, Melbourne, 2005) at 1243.

21     Shell Company of Australia Ltd v Esso Standard Oil (Aust) Ltd (1963) 109 CLR 407 at 425; Sportsbreak Travel Pty Ltd v P & O Holidays Ltd (2000) 50 IPR 51 at [14] per Burchett J; Mantra Group Pty Ltd v Taillyy Pty Ltd (No 2) [2010] FCA 291 at [50].

22     Mainland Products Ltd v Bonlac Foods (NZ) Ltd, above n 17.

an advertiser.23   However, there have been European decisions which have grappled with this issue.

[74]     Mr McBride referred to Google France SARL v Louis Vuitton Malletier SA in which there were references to the European Court of Justice concerning the display on the internet of advertising links on the basis of keywords corresponding to trade marks.24  The Grand Chamber observed:25

With regard, firstly, to the advertiser purchasing the referencing service and choosing as a keyword a sign identical with another’s trade mark, it must be held that that advertiser is using that sign within the meaning of that case- law.

[75]     In that regard, suffice it to note that the use, by a third party, of a sign identical with, or similar to, the proprietor’s trade mark implies, at the very least, that that third party uses the sign in its own commercial communication.  It was held that the relevant legislation had to be interpreted as meaning that the proprietor of a trade mark is entitled to prohibit an advertiser from advertising on the basis of a keyword identical with that trade mark which an advertiser has selected in connection with the internet, referencing goods or services identical with those for which the mark is

registered without the consent of the proprietor.26

[76]     Given the difference in the relevant legislation and case law this decision cannot be regarded as authoritative in New Zealand.  The approach in New Zealand turns on the concept of a notional third party taking the use as use as a trade mark. As Gault J stated in Mainland Products Ltd v Bonlac Foods (NZ) Ltd:27

The essential question then is whether this use of the word “Vintage” by Bonlac is likely to be taken as use as a trade mark. Taken by whom?  Plainly it is persons to whom the product is presented in the course of trade.  That will include persons engaged in the relevant trade such as wholesalers and retailers as well as retail customers.   To establish infringement it is now necessary  to  show  that  the  use  complained  of  will  likely  be  taken  by everyone encountering it in the course of trade as infringing use.   Just as when determining whether the resemblance of marks is such as to be likely

23     I  note  that  there  has  been  some  academic  commentary  on  the  subject,  including  that  of potentially “invisible uses”: P Sumpter Intellectual Property Law: Principles in Practice (2nd ed, CCH New Zealand Ltd, Auckland, 2013) at 174–175.

24     Google France, above n 13.

25     At [51] and [56].

26 At [99].

27     Mainland Products, above n 17, at 345.

to deceive or cause confusion, it is sufficient to constitute infringement if it conveys or is likely to convey to a substantial number of prospective purchasers the significance deemed to infringe – in this case trade mark significance.

[77]     Although Mainland Products Ltd v Bonlac Foods (NZ) Ltd related to the Trade Marks Act 1953, and there were some differences in the wording of that section, there was no material difference in the use of the phrase “likely to be taken” and Gault J’s remarks in that case apply.

[78]     The likelihood of the manner of use of the mark being taken as indicating a trade connection will depend on all the circumstances of the use.28     The normal meaning of the words will be a primary consideration, as will the way it is used in relation to the particular services.29

[79]     Liability only extends so far as to include uses of trade marks that consumers are confronted by in the market.  The consumer who determines whether the use is “likely to be taken” as use as a trade mark is the same consumer who is used to measure  whether  the  sign  is  “identical”  to  the  trade  mark  for  the  purposes  of s 89(1)(a), or whether the use of the sign is “likely to deceive and confuse”.

[80]     Obviously there cannot be only a small and insignificant group of consumers. Nor, however, does it have to be every consumer.   I note that in the decision of Arsenal Football Club plc v Reed30 the concept of “some consumers” was referred to and in Anheuser-Busch Inc v Budejovicky Budvar, národní podnik31 there was reference to “… at least a significant section of that public”.   It is sufficient to constitute infringement if it conveys or is likely to convey trade mark significance to a substantial number of prospective purchasers.32    The phrase used by Arnold J in Interflora Inc v Marks and Spencer plc was “a significant number of consumers to whom the advertising is addressed”.33    This statement was made in the context of

mistaken belief but is helpful as an identifying phrase.

28     Mainland Products, above n 17, at 345.

29     At 345–346.

30     Case C-206/01 Arsenal Football Club plc v Reed [2002] ECR I-10273 at [57].

31     Case C-254/02 Anheuser-Busch Inc v Budjovicky Budvar, národní podnik NP [2004] ECR I-

10989 at [83].

32     Mainland Products, above n 17, at 345.

33     Interflora, above n 7, at [83].

[81]     As to the type of consumer, I am assisted by the reference in a different context in the European cases involving Google to the “average consumer” concept. In Google France v Louis Vuitton Malletier SA the Court held in relation to the origin function of a trade mark in the context of internet users of Google that:34

The function of indicating the origin of the mark is adversely affected if the ad  does  not  enable  normally  informed  and  reasonably  attentive internet users, or enables them only with difficulty, to ascertain whether the goods or services referred to by the ad originate from the proprietor of the trade mark or an undertaking economically connected to it or, on the contrary, originate from a third party (see, to that effect, the Céline case (para 27 and the case law cited)).

(emphasis added.)

The concept of the normally informed and reasonably attentive internet user was also applied by Arnold J in the High Court.35

[82]     I consider that if a significant number of normally informed and reasonably attentive internet users are likely to take the use of the sign as being used as a trade mark, that will be sufficient for the purposes of s 89(2).

[83]     In relation to “likely to be taken as used” it was observed by Gault J in Mainland Products Ltd v Bonlac Foods (NZ) Ltd that when a Court is assessing how a trade mark would appear to those encountering it in trade:36

It is a matter of impression taking careful account of the considerations already reviewed and the circumstances in which the product is sold.  The extent to which it is contended that purchasers will have been conditioned by trade practices are to be taken into account cumulatively.

[84]     In that case, the trade mark VINTAGE had been registered in respect of cheese, and the respondent had introduced a cheese into the New Zealand market which bore the word “vintage” on its packaging, although in conjunction with the respondent’s registered trade mark.  In the High Court, “vintage” had been found to be a bona fide description of the taste and/or flavour of the cheese.  The Court of Appeal held that “vintage” would have been thought of by a consumer in all the

circumstances as used as a trade mark.  The use in question was the placing of the

34     Google France, above n 13, at [83]–[85].

35     Interflora, above n 7, at [231].

36     Mainland Products, above n 17, at 351.

word “vintage” on the package that would be seen by the consumer as use as a trade mark.

[85]     The position in relation to the use by Nakedbus of the keywords is entirely different to a use on packaging or other communications to the public.  The use of the  keyword  was  by  Nakedbus  when  it  purchased  that  keyword  prior  to  the placement of its advertisement, and then by Google when, through its search engine, it provided for the Nakedbus advertisement to appear when a consumer keyed “intercity” into a computer.  In such a situation, the use of the keyword by Nakedbus and indeed Google was not seen by the consumer at all.  As Mr Harris observed, these actions were invisible to everyone except Google and the advertiser.   If the “use” could not be seen by the consumer it could not be “taken as” anything, let alone “taken as being used as a trade mark”.

[86]     This does not mean that the trade mark owner is without remedy.  For reasons that I will set out in my consideration of the third cause of action, if an identical or similar trade mark is used by the advertiser in its advertisement, that may give rise to a successful infringement claim.   But it has not been shown in evidence that a consumer would know or understand the use of keywords, and I am not prepared to assume an awareness of how they are used.  Insofar as the use of the keyword was an act that was not seen or known or understood by the consumer, there was no use of the sign “likely to be taken as being used as a trade mark”.

[87]     I accept that this interpretation could mean that in New Zealand the plaintiff in the Interflora litigation, where there was no appearance of the trade mark at issue in the competitor’s advertisement, might be left without a remedy because the complained of actions in purchasing the keyword trade mark were all invisible to the consumer (although there might be remedies in passing off and breach of the Fair Trading Act).  The difference lies in the broader scope of protection afforded by the European legislation to trade marks, which considers actionable acts that cause detriment to the mark’s function.  I am bound to apply s 89(2) and the requirement which requires an assumption of use by a trade mark by the notional third party.  For this reason the second cause of action fails.

[88]     For reasons that I will set out in relation to the third cause of action, if the s 89(2) threshold had been crossed, I would have held there to be an infringement in the use of the keywords because Nakedbus has used the “InterCity” trade mark by using an identical or similar sign, likely to deceive or confuse.

Clean hands

[89]     It is not necessary to consider the doctrine of clean hands in relation to this to this cause of action as it has not been made out.  Nevertheless I refer to it briefly. ICG had for a period purchased the keyword “Nakedbus” so that its advertisements would respond.

[90]     The defence of clean hands is available where a defendant can demonstrate that a plaintiff seeking to obtain equitable relief in relation to a particular transaction has also acted improperly in relation to that transaction.37    The impropriety must have a nexus with38  or an immediate and necessary relation to, the relief sought.39

For example, a plaintiff relying on promissory estoppel to found a claim in contract was denied relief where that plaintiff had also misrepresented its financial situation in breach of contract.40     Plaintiffs may demonstrate that they have “washed their hands” of any uncleanliness, by showing for example that the inequitable conduct was accidental, or ceased well before the suit was brought.41

[91]     If Intercity had succeeded on the key words cause of action, and had for a period done the same thing itself, this would indeed have been a blatant infringement by ICG. There was no basis for ICG to think it could rightly use the Nakedbus word, as that word had no relevance to the ICG operation, and was not being used for comparative purposes.

[92]     However the infringement on the basis of what is good for the goose is good for the gander, is not now continued.   I would have been prepared to regard it as

37     Andrew  Butler  and  ors  Equity  and  Trusts  in  New  Zealand  (2nd  ed,  Thomson  Reuters, Wellington, 2009) at 1064.

38     Eldamos Investments Ltd v Force Location Ltd (1995) 17 NZTC 12,196 (HC) at 12,203.

39     Weight v Murphy [1931] NZLR 1170 (SC) at 1183.

40     Official Assignee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641 (SC).

41     R Meagher, D Heydon and M Leeming Meagher, Gummow & Lehane’s Equity Doctrines &

Remedies (4th ed, Butterworths LexisNexis, Australia, 2002) at [3–130].

being of a reactionary nature rather than as part of a long term strategy to obtain an unfair advantage.   I would not have declined to exercise  any equitable remedy because of this feature, and the discontinuance of the wrong.

[93]     It is not necessary to consider clean hands in relation to the causes of action relating to the advertisements themselves, as it has not been suggested that ICG placed advertisements containing misleading references to Nakedbus that might lead a consumer to think it was dealing with Nakedbus when it was dealing with ICG. The words “Nakedbus” and variations thereon do not appear in ICG advertisements. As noted above, any allegedly unclean hands must have a nexus with the same type of behaviour, and there is no sufficient nexus to those advertisements.

The third cause of action — the use by Nakedbus of the words “inter city” in

their advertisements and website

[94]     Under the third cause of action, it is alleged that Nakedbus is using the words “inter city” in the advertisements that would appear on Google, on its website and in other ways within the meaning of s 89(1) of the Act.  It is claimed that the 87 “inter city” variants are identical to the plaintiff’s trade mark or, in the alternative, the words are similar to the plaintiff’s trade mark and their use will be likely to deceive or confuse within the meaning of s 89(1) of the Act.   The primary focus of the plaintiff’s claim is the online advertising and the use of the words “inter city” in various forms in the Google advertisement.

[95]     As a further claim under this cause of action, it is alleged that the words “inter city” are identical or similar to the plaintiff’s trade mark and take advantage of or are detrimental to the distinctive character and repute of the trade mark within the meaning of s 89(1)(d) of the Act.  It is claimed that the words are likely to be taken as being used as a trade mark under s 89(2) of the Act. The same relief is sought.

[96]     Mr Harris submitted that the rights of a trade mark owner do not extend to preventing others from using the sign in a way that does not affect its trade mark functions. The Courts are loathe to expand the exclusive rights granted to trade mark

owners to “something akin to literary copyright”.42     He argued that none of the advertisements that were the subject of complaint in the third cause of action used any sign as a trade mark.  The words were used descriptively and for their actual meaning.

[97]     Mr McBride on the other hand, while accepting that a purely descriptive use of the trade mark would not engage s 89(2), submitted that consumers faced with the advertisements in question would be likely to see the references to “inter city” as a brand name, denoting the origin of the advertisements, because that is what they are looking for in the online context when they see the words.

[98]     It is necessary to assess these competing submissions.  In doing so it must be recognised that in New Zealand the essential function of a trade mark is as a badge of origin.43   It is necessary to consider the evidence of use of the words “inter city” in this context.  When consumers in New Zealand search for bus services using the words “inter city”, what are they looking for?

[99]     I record at this point that there can be no doubt that Nakedbus when it created its advertisements “used” the words “inter city” in the course of trade, in the sense that the words were used for commercial purposes.

The words “intercity” and “inter city”

[100]   The word “intercity” is recognised as a word in all of the leading dictionaries. Its use is discussed in the evidence of Dr Bronwyn Innes, a linguistics expert called by ICG, and Dr Diane Beardsley, a lexicography and linguistics expert called by Nakedbus.  They both agreed that the single word “intercity” has a similar meaning. The New Zealand Oxford Dictionary defines its meaning as follows:44

Adj. Existing or travelling between cities.

42     Johnson & Johnson, above n 18, at 723.

43 See [68].

44     The New Zealand Oxford Dictionary, above n 20, at 563.

[101]   This meaning was not contested by the experts; nor did they disagree that the morpheme “inter” had the meaning of “between”, “in between”, “amid” or “amongst”. The words “inter city” or “inter-city” are all variants of the same word.

[102]   It is also not in issue that the word “intercity” has acquired in New Zealand a character that is distinctive of a particular product or service, namely ICG’s bus service.  There are numerous examples of ordinary words like “intercity” acquiring such a character, such as the words “Bank of New Zealand” or “The Warehouse”. These brands have been formed from words that are used in everyday language and have a meaning.  Nevertheless, they are given trade mark protection and their owners have a statutory entitlement to their exclusive trade mark.  If a rival company wishes to challenge the validity of the trade mark it may do so by virtue of processes set out

in  the Act.45      There  has  been  no  such  challenge  in  relation  to  the  trade  mark

“InterCity”.  Thus, for the purposes of this proceeding “intercity” as a word can be seen as having two roles in New Zealand: one as an adjective which has a meaning, and one as a name of a well known, long distance bus company.

The s 89(2) threshold – the use of the word “intercity” in New Zealand

[103]   Mr Harris argued that the use of the words “inter city” in the Nakedbus advertisements were not use of a sign likely to be taken as being used as a trade mark.  They were used in a descriptive way.  He emphasised that trade marks are badges of origin, and that the words were not used as a badge of origin by Nakedbus to suggest it was selling ICG tickets.

[104]   I note Lockhard J’s comment in Pepsico Australia Pty Ltd v Kettle Chip Co Pty Ltd46  that it is easier to find infringement of a registered trade mark where it consists of a coined phrase, than where it is a generally descriptive word which has acquired a secondary meaning, so as to become distinctive of the plaintiff ’s goods as a badge of origin.  There is always the possibility that the word may be used in the

former sense.  Where a word has acquired such a secondary meaning it remains the

45     Trade Marks Act 2002, s 66(1)(a).

46     Pepsico Australia Pty Ltd v Kettle Chip Co Pty Ltd (1996) 33 IPR 161 (FCAFC) at 162.

case that it can still be used in a descriptive sense.  As has been observed, a risk of confusion must be accepted.47

[105]   I accept that care must be taken to ensure that the important advertising medium offered by Google is not unduly constrained.  I bear in mind the statement of the Court of Appeal in England in Specsavers International Healthcare Ltd v Asda Stores Ltd:48

In my judgment these cases … establish that a proprietor of a trade mark with  a  reputation  is  not  necessarily  entitled  to  prohibit  the  use  by  a competitor of his mark in relation to goods for which it is registered even though the mark has been adopted with the intention and for the purpose of taking advantage of its distinctive character and repute, the competitor will derive a real advantage from his use of the mark, and the competitor will not pay any compensation in respect of that use.  Consideration must be given to whether the use is without due cause.  Specifically, the use of a trade mark as a keyword in order to advertise goods which are an alternative to but not mere imitations of the goods of the proprietor and in a way which does not cause dilution or tarnishment and which does not adversely affect the functions of the trade mark must be regarded as fair competition and cannot be prohibited.

[106]  ICG put forward a significant body of evidence to support the general proposition that the word “intercity” is a well known trade mark in New Zealand, and does indicate to a purchaser or possible purchaser of bus services the trade source from which the service comes.  ICG submitted that when the mark is used in the absence of clear words indicating the contrary, it will be seen as a trade mark indicating origin.

[107]   The service provided by InterCity is not just a service “between cities” within the meaning of the word.  It is a true national network and operates between small towns and tourist destinations as well as between cities.  The same is the case for Nakedbus, although it appears to focus more on the main routes.  In my view it is not accurate to describe either service as an inter city service, in the sense of only between  cities.     They  are  both  national  services,  servicing  various  different

destinations including cities.

47     Dominion Rent A Car v Budget Rent A Car [1987] 2 NZLR 395 (CA) at 408.

48     Specsavers International Healthcare Ltd v Asda Stores Ltd [2012] EWCA Civ 24 at [141].

[108]   ICG called David Fougere, a market researcher, to give survey evidence to determine “… the extent of the relevant public’s use of the terms ‘intercity’ or ‘inter city’ as descriptive search terms, when using the internet to search for information about long-distance bus travel in New Zealand”.  The survey was an online survey undertaken by members of the New Zealand public.  A total of 786 persons were surveyed in a period between 24–26 July and 2–4 August 2013.

[109] The survey first asked participants six questions: three preliminary “demographic” questions (asking the participant’s gender, age and geographic location),  and  three  “screening”  questions  (to  determine  whether  the  participant would have information of value to provide concerning their use of the internet to search for bus services).  Participants would then proceed to the six “core” questions, aimed at surveying the New Zealand population’s use of internet search terms and phrases when using Google to search for information about bus travel.

[110]   The six core questions read:

Question 7.  If you wanted to take a bus from Auckland to Hamilton next weekend, and you decided to Google a word or phrase describing this bus service, to see what range of companies might offer that service, what word or phrase would you Google?

Question 8.  If you wanted to take a bus from Queenstown to Franz Joseph (the town near the glacier on the West Coast), and you decided to Google a word or phrase describing this bus service, to see what range of companies might offer that service, what word or phrase would you Google?

Question 9.  If you wanted to take a bus from Auckland to Hamilton next weekend and you wanted to Google the name of a bus company that you already knew provided this sort of service, to check its timetable and prices, what word or phrase would you Google?

Question 10.  And if you wanted to take a bus from Queenstown to Franz Joseph next weekend and you wanted to Google the name of a bus company that you already knew provided this sort of service, to check its timetable and prices, what word or phrase would you Google?

Question 11.  What word or phrase would you Google if you wanted to find

the InterCity website, to check InterCity’s bus routes, timetable and prices?

Question12.  What word or phrase would you Google if you wanted to find the Nakedbus.com website, to check its bus routes, timetable and prices?

[111]   As can be seen, the seventh and eighth questions were aimed at determining what  terms  New  Zealanders would  use to  find  bus  travel  between  destinations. Question seven concerned large cities, and question eight less familiar tourist destinations.   Questions nine and ten sought to elicit what companies participants would Google when seeking that “sort of service”, and questions eleven and twelve what terms would be used when searching for the InterCity and Nakedbus.com websites respectively.

[112]   The data that resulted was as follows:

[113]   Mr Fougere determined that the survey showed that:

the general public of New Zealand who travel by bus between cities, towns or other destinations, do not use the term “intercity” or “inter city” as a descriptive search term when they are searching for information about bus services and routes, or if they do so, it is to such a small extent as to be virtually negligible.

[114]   In response to questions seven and eight, the overwhelming majority (204 of

300 for question seven, and 245 of 300 for question eight) searched for the origin and destination of their hypothetical bus trip.   In answering question  seven, 37 participants searched for “InterCity” and close variants, and 25 for “Nakedbus” and close variants.  Mr Fougere examined the difference between these two figures, and

considered that there was no statistical significance in the difference in numbers. Mr Fougere considered this to be an important finding, demonstrating that although a small  proportion  of  participants  used  the  phrase  and  variants  of  “Intercity”  in response to question seven, that use is attributable to the tendency of a small proportion of people to use brand names, rather than descriptive terms, in their responses.

[115]   Of the 37 responses to question seven that used “InterCity” and variants , 33 of those uses were searches for “Intercity”, “intercity” or “InterCity”, and four for “inter city”.  Mr Fougere considered that this result supported his conclusion that use of the phrase was by participants searching for the brand, instead of using it as a descriptive term.  In the five instances where participants had used “intercity” as well as the origin and destination of their trip, it was not clear whether the phrase was used descriptively or as the brand name in any of them.

[116]   Once asked by question nine to Google the name of a specific bus company along the same Auckland to Hamilton route, 85 people (or 28 per cent) responded with InterCity, and 76 (or 25 per cent) with Nakedbus.  In applying the appropriate statistical test, Mr Fougere considered it highly statistically significant that a much higher  proportion  of  participants  entered  “InterCity”  (85  to  37)  when  asked  to provide brand names rather than a purely descriptive term.

[117]   In   examining   the   use   of   “inter   city”   (as   found   in   the   Nakedbus advertisements) in conjunction with origin and destination, Mr Fougere noted that such a use featured only once out of a potential 1200 responses (300 participants in response to questions seven through ten).  If participants had commonly used such a phrase, it could have been argued “inter city” was used descriptively.  However they did not.

[118]   He considered that when people use “inter city” or its variants in a search form they overwhelmingly more often use the one-word form (as in “InterCity” or “intercity” or “Intercity”), rather than the two word form of “inter city” as used on the Nakedbus website.  People in the survey who used the origin and/or destination of their trip were making general searches about bus travel.  He concluded that the

survey showed that when the relevant public used the terms “intercity” or “inter city” as part of a searchable phrase when using Google to search for information about bus travel, they used that term as a brand name and not as a descriptive search term meaning travel between cities or other long-distance travel.

[119]   Mr Fougere also concluded that the use of “intercity” and its variants across the survey was only slightly higher than use of “Nakedbus” and variants.   If “intercity” was used in New Zealand not only to designate ICG’s trade mark but also as a genuinely descriptive term, it could have been expected for the cumulative use to be much higher than that of “Nakedbus”.  Rather, the data demonstrated that the use of each brand was statistically equivalent, supporting the view that use of “intercity” in New Zealand conditions was of the brand and not a descriptive use.

[120]   The methodology adopted by Mr Fougere was criticised in one respect by a marketing research expert called by Nakedbus, Dr Philip Gendal.  He deposed that in his opinion two of Mr Fougere’s critical questions, questions seven and eight, were leading.   He did not appear to contest Mr Fougere’s conclusion that the survey showed that the general public of New Zealand who seek long distance travel by bus, do not use “intercity” or “inter city” as a descriptive search term.  However, he stated that  questions  seven  and  eight  of  the  survey,  quoted  above,  where  there  was reference to a “range of companies”, may have led some respondents to propose a response in the form of a bus company name when they would not have otherwise done so.

[121]   I do not see these questions as leading.   It is not being suggested to the respondent that the question should be answered with a company name.   To the contrary, the question is directed at discerning what word or phrase would be used to obtain the range of company or business names.  The respondents were being asked about a “word or phrase describing [a] bus service” and it does not follow as a matter of logic that the respondent should put in the name of a company.  Unsurprisingly, over two-thirds of the respondents answered by putting forward the words of their origin or destination as the words they would use.

[122]   I  consider  Mr  Fougere’s  survey  to  have  been  in  accordance  with  good practice, and I treat the results that he has obtained as reliable.

[123]   Mr Fougere’s survey confirms the evidence of Mr Johns and Mr Rode that the brand name “intercity” is well known in New Zealand.  Consumers when they search using that word, wish to locate that brand.   Indeed, Mr Nuttall effectively conceded this in cross-examination in the following exchange:

Q.       I am asking you that you agree with my proposition that you cannot

disagree with Mr Fougere’s findings?

A.        I understand what you’re saying.   I think absolutely a significant number of people are searching for the brand name or the trademark or the company, not the trademark, the company.  Some people are searching for a generic term.

[124]   Although  the  words  are  slightly  ambiguous  I  had  no  doubt  on  hearing Mr Nuttall’s response that this was a concession that Mr Fougere’s findings were right.  Bus users do not see the words “inter city” as useful when they are seeking to find out about bus travel.   This supports the view that a significant number of consumers when they key in the words “inter city” are not using the word descriptively. They are seeking to locate “InterCity” coachlines, the bus company.

[125]   This was the conclusion of Mr Rode, the general manager for marketing and online sales of ICG, referring to Google reports on the use of “inter city”.   They show that over the past 12 months the word “intercity” has been a more popular search term in New Zealand than in any other country in the world.  The country in which the word was next most popular had only 27 per cent of the volume of searches  that  there  were  in  New  Zealand.    I  accept  Mr Rode’s  evidence  that compared to New Zealand, the word “intercity” has virtually no significance as a search term in the United Kingdom, the United States or Australia.   It is used on occasions as a generic description for long-distance or “between cities” travel.  In no other country of the world  is  the word  “intercity” associated  with  a major bus company.   It follows that the phrase’s unique popularity in New Zealand derives from the similarly unique fact that among all of the English-speaking countries in the world, in New Zealand it is a well known word designating origin.  It is the name of a bus company.  It is a trade mark.

[126]   In my assessment it is obvious that a person wishing to travel between certain cities is unlikely to key in the word “intercity” or the words “inter city” because the very general nature of such words means that their entry is unlikely to reveal useful results.  A person who wishes to find out what bus services are available between cities is more likely to key in the word “bus” and the names of the cities in question. This will give a specific and helpful result.

[127] I also accept the evidence of Mr Rode that in relation to the website for the four weeks ended 29 September 2012:

(a)     The word “intercity” provided 31.15 per cent of its search traffic, with almost none of the searches for “intercity” being “paid”.

(b)The words “inter city” only accounted for 0.76 per cent of the search traffic.

(c)     Generic words, such as “bus”, had almost no relevance, providing only

0.68 per cent of its search traffic.

(d)“naked bus” accounted for 3.50 per cent of search traffic, with 51.85 per cent of those searches being paid.

For the weeks ended 7 September 2013:

(e)       The word “intercity” provided 26.32 per cent of its search traffic, with

56.04 per cent of searches for “intercity” being “paid”.

(f)       The words “inter city” only accounted for 0.98 per cent of the search traffic.

(g)      Generic  words,  such  as  “bus”,  again  had  almost  no  relevance,

providing only 0.3 per cent of its search traffic.

(h)“naked bus” accounted for 0.42 per cent of the traffic, with 23.55 per cent of those searches being paid.

[128]   He also deposed that in terms of for the four weeks ended 29 September 2012:

(a)       The word “intercity” had almost no relevance, providing only 0.73 per

cent of its search traffic.

(b)      The words “inter city” had no significance at all.

(c)       Generic words such as “bus” had almost no relevance, with “bus”

providing only 0.37 per cent of its search traffic.

(d)Searches for the words “naked bus” accounted for 21.47 per cent of search traffic to its website.

For the four weeks ended 7 September 2013:

(e)       Searches for the words “naked bus” accounted for 23.68 per cent of all traffic to its website.

(f)       The word “intercity” provided 2.04 per cent of its search traffic, with

57.73 per cent of that traffic being “paid”.

(g)      The words “inter city” had no significance at all.

(h)      Generic words, such as “bus”, had almost no relevance, providing

only 0.54 per cent of its search traffic.

[129]   He further deposed that in terms of searches for “intercity” for the four weeks ended 29 September 2012, 83.98 per cent of all internet searches for “intercity” in New Zealand went to the website, and only 1.06 per cent went to and for the four weeks ended 7 September 2013, 87.41 per cent of all internet searches for “intercity” in New Zealand went to the  website  (or  its  new  website  for  mobile  devices, m.intercity.co.nz), and 5.15 per cent went to I’ve had a couple of calls lately about customers meaning to book with IC but click on the IC website link and end up on the NB website and don’t realise until after they’ve booked.

I had a call about a lady doing this today and IC said we have nothing to do with each other but that it can happen that our websites somehow link up.

81 See above at [81].

82     Mainland Products,, above n 17, at 350.

83     Anheuser-Busch, above n 77, at [69].

I said it’s not possible as we’re not related and all that, but she seemed so

sure it happened.  I ended up refunding her as she went on.

Is there any way you can look into something like this because we do get a few calls about this and so does IC and it’s very strange.  I told her I’d pass it to IT so I can get an affirmative answer for next time.

[196]   The following observations can be made about this email. (a) It concerns at least two consumers.

(b)      These consumers have been operating online.

(c)      They have gone online intending to book with ICG.

(d)They click on a link and end up on the Nakedbus website, rather than as intended the ICG website.

(e)      They do not realise that are not on an ICG site, and proceed to book.

After they have booked they realise their mistake.

(f)      There appear to have been other calls in addition to the most recent ones.

(g)Ms Ware appears to have information indicating that ICG also gets such calls.

(h)The Nakedbus employees approached the confusion with refreshing honesty.   However, there is no indication of any specific response from their management, or any particular attempt made to avoid confusion, save for the general precautions Mr Nuttall referred to in evidence.

[197]   There was no objection to the admissibility of this email.  Nakedbus called neither Ms Ware nor Ms Chen to explain or give details.   I accept Mr McBride’s submission that the email is referring to Nakedbus’ “inter city” advertisements on Google responding to searches for “intercity”.  It is notable that the calls were made

to Nakedbus on an 0900 number which requires a payment.  There is some force in Mr McBride’s submission that these complaints were just the “tip of the iceberg”, as it can be expected that not every consumer would complain in this way if confused.

[198]   I regard this email as evidence of confusion, engendered by the Nakedbus advertisement, which has appeared when “InterCity” has been keyed in to Google.  It is also evidence of confusion when the same consumers then view the Nakedbus website and its reference to “inter city”.

[199]   Material indicating actual confusion is not conclusive.  In the end the Judge must apply an objective test in assessing whether the consumer, in this case the reasonably well-informed and reasonably attentive internet user, would be deceived or confused.

[200]   Even without this email I consider it proven on the balance of probabilities that a significant number of reasonably well-informed and reasonably attentive internet users, on looking at the Nakedbus advertisement, would assume it was an InterCity advertisement and click on the Nakedbus website intending to book with ICG.   I have already set out the evidence and my reasons for the making of this assumption earlier in this judgment,84  when I considered s 89(2).  I found based on the knowledge of “intercity” as a badge of origin by New Zealand consumers, and the fact that they may enter “intercity” expecting to access the ICG website, that a

significant number of consumers would think that the references to inter city in the advertisement were placed there by the owner of the trade mark.

[201]   I note in Hasbro Inc v 123 Nahrmittel GmbH there was no actual evidence of confusion of an advertisement containing the words “play dough”.85    Nevertheless those words were held to infringe the trade mark “PLAY-DOH”.  Floyd J noted the phonetic and visual similarity between the sign and the trade mark.86    Despite the fact that the words had a meaning independent of the trade mark, he was satisfied

that a significant class of consumers would assume the same origin.

84 See [83].

85     Hasbro Inc v 123 Nahrmittel GmbH [2011] EWHC 199 (Ch).

86     At [203]–[211].

[202]   I  also  accept  Mr  McBride’s  submission  that  even  if  the  consumer  was conscious that the website was a Nakedbus website and not that of InterCity, they could nevertheless well be clicking on to purchase a bus ticket because they believed that the website had an association with ICG or was selling discounted ICG tickets. There is no direct evidence of this, but I infer it from the facts that I have set out.

[203]   Thus, I consider that confusion will arise when the consumer accesses the website itself.   Some consumers when they take the various steps to access the InterCity website and purchase tickets, will enter the search word “InterCity,” then encounter the Nakedbus website featuring as it does the words “inter city”.  They may as a consequence perceive the website that appears and the references to “inter city” as referring to InterCity Coachlines.   They could assume that Nakedbus is offering a discounted rate for those ICG tickets, either as an associated company of ICG or as a separate company that has a right to sell ICG’s tickets.

[204]   I accept that internet users are used to exploration by trial and error, and will readily skip from site to site.87    However, given the background that will have led them to the site, the gratuitous use of “inter city” (and not “city to city” or some other non-confusing phrase) will in my view lead many into error.  The evidence of actual confusion reinforces this.

[205]   My finding in relation to clicking on the advertisement relates to what is sometimes called “initial interest confusion”.88    Initial interest confusion can itself show an adverse effect on the origin function of the trade mark.89   I also find that a significant number of consumers would remain confused when they clicked through to the website and then purchased a ticket.

[206]   I conclude the use of “inter city” by Nakedbus in its advertisement and

website is likely to deceive or confuse a substantial number of persons.  On the face of it, there have been infringements under s 89(1)(c).

87     Toyota Motor Sales USA Inc v Tabari (2010) 610 F 3d 1171 (CA) at 1178–1179.

88     Interflora, above n 7, at [306]; Datacard Corporation v Eagle Technologies Ltd [2011] EWHC

244 at [276]; and Australian Competition and Consumer Commission v Trading Post Australia

Pty Ltd (2011) 197 FCR 498 at [277].

89     Interflora, above n 7, at [306].

Honest use

[207]   Section 95 of the Act provides:

95   No infringement for honest practices

A person does not infringe a registered trade mark if, in accordance with honest practices in industrial or commercial matters, the person uses—

(a)   the person’s name or the name of the person’s place of business; or

(b)   the name of the person’s predecessor in business or the name of the person’s predecessor's place of business; or

(c)   a sign to indicate—

(i)    the kind, quality, quantity, intended purpose, value, geographical origin, or other characteristic of goods or services; or

(ii)  the time of production of goods or of the rendering of services; or

(d)   the trade mark where reasonably necessary to indicate the intended purpose of the goods (in particular as accessories or spare parts) or services.

[208]   Section 95 can be compared to s 94, which states that there is no infringement if the trade mark is used for comparative advertising in accordance with honest practices in industrial and commercial matters providing the use is fair, as set out in the section.

[209]   In Cable & Wireless plc v British Telecommunications plc90 Jacob J set out a number of factors relevant to honest use.  The issue is whether a reasonable reader would be likely to say upon the full facts that the advertisement is not honest.

[210]   The defence must be tailored to the commercial context in which the use takes place.  I have already found that the use of the “inter city” sign in the context of a Nakedbus advertisement is unlikely to be seen as indicating the kind, quality, quantity, intended purpose, value, geographical origin or other characteristics of the bus service; rather, it will indicate to a significant number of internet users the trade

mark “INTERCITY”. Accepting the commercial context in which this occurs, this is

90     Cable & Wireless plc v British Telecommunications plc [1998] FSR 383 (Ch) at 390, cited with approval in Mitre 10 (New Zealand) Ltd v Benchmark Building Supplies Ltd [2004] 1 NZLR 26 (CA) at [56].

on its face, not an honest use.  I bear in mind that the general public are used to the ways of advertisers and expect hyperbole.  However, I have found that they are being misled by the advertisement.

[211]   Turning to subjective matters, the internal email I have referred to shows that Nakedbus was aware that there was confusion.   If Nakedbus was using the words “inter city” honestly it would not have complained when Google did not allow the Nakedbus advertisement to respond to the keyword “intercity”; it could have taken steps to avoid confusion when it became aware of confusion; it could have placed a negative match on “intercity”.  Ultimately, it could have removed the words “inter city”  from  its  advertising  material  (which  I  find  were  not  inserted  for  their descriptive meaning but as hooks to attract ICG customers) or used the non- confusing phrase “city to city”.  It did not do these things.  I have found it did not do so because Mr Nuttall intended that those who searched for ICG would see the Nakedbus advertisement and click on the Nakedbus website rather than click on the ICG website.  This would lead to more business for Nakedbus.  In my view he was prepared to stand by when consumers proceeded to buy Nakedbus tickets, even if confused.  I do not consider the defence applies.

Conclusion on the third cause of action

[212]   It follows that I find that ICG has proved the third cause of action and is entitled to relief.  It is not necessary to consider the further reliance on s 89(2)(d). This was not expanded on by Mr McBride in submissions, and does not apply given my finding that the Nakedbus’ bus services are similar to the ICG services.

The fourth cause of action – passing off

[213]   The real issues in this case have been traversed in the trade mark causes of action.   Given the allegations of confusion already traversed, the outcome of this cause of action, and the Fair Trading Act cause of action follow the earlier findings. There was little said about these causes of action at the trial.

[214]   The key requirements of a finding of passing off were summarised by Lord

Oliver in Reckitt and Coleman Products Ltd v Borden Inc:91

(a)      a goodwill or reputation attaching to the plaintiff’s services in the mind of the purchasing public by association with the identifying get up;

(b)a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that the services offered by the defendant are the plaintiff’s services; and

(c)      that the plaintiff is likely to suffer damage by reason of the erroneous belief engendered by the defendant’s misrepresentation that the source of the defendant’s goods or services is the same as those offered by the plaintiff.

[215]   In my view these criteria are satisfied.  ICG has goodwill and reputation in the brand “INTERCITY”.  A significant number of internet users would consider the advertisement and website, given the background that had led them there, as indicating that the Nakedbus website was an ICG website, or a website associated with the ICG trade mark.

[216]   It can be readily inferred as a consequence that the ICG brand is suffering damage and that consumers that would have otherwise purchased tickets from ICG are now buying them from Nakedbus.  The increased income Nakedbus has earned from its “inter city” advertising campaign from October onwards is evidence of this.

[217]   There is also the evidence set out of actual confusion which I have referred to.92

91     Reckitt and Coleman Products Ltd v Borden Inc (1990) 17 IPR 1 (HL), adopted in Anheuser- Busch Inc v Budweiser Budvar National Corporation [2001] 3 NZLR 666 (HC) at [94].

92 See [195]–[197] above.

[218]   My  finding  of  passing  off  relates  to  the  use  of  “inter  city”  in  the advertisements on Google and other sites referred to in the third cause of action.  I find that Nakedbus has passed its bus services off as those of ICB.

The fifth cause of action — breach of the Fair Trading Act

[219]   Mr McBride submitted that Nakedbus’ use of the words “inter city” in its advertising is likely to mislead internet users by suggesting, contrary to the real position, that:93

(a)       There is an association or affiliation between the ICG and Nakedbus coach networks;

(b)Cheap tickets for ICG coaches can be purchased on the Nakedbus website; and/or

(c)       Information  regarding  the  ICG  coach  network  can  be  found  at

Nakedbus’ website.

[220]   For the reasons already set out, I have found that a significant number of consumers would be misled by the Nakedbus advertisement and website, using as they do the words “Inter city”.94   The advertisement was misleading in that given the context in which the internet user had come to it, the internet user was expecting an ICG advertisement or website.  In my view, a significant number of such consumers would have thought they were accessing an InterCity website when they clicked on the Nakedbus website, or the website of an entity associated with ICG or selling ICG bus fares.

[221]   In Google Inc v Australian Competition and Consumer Commission the High

Court of Australia held:95

93     These representations mirror those found to have been proved in the ACCC v Trading Post

Australia case, discussed below.

94 See [192]–[208].

95     Google Inc v Australian Competition and Consumer Commission [2013] HCA 1 at [118] and

[119].

The act of displaying an advertisement to people who otherwise would not see or hear it is clearly “conduct” capable of misleading or deceiving those who see or hear it.  Displaying the advertisement to those people may lead them into error. Whether it is likely to mislead or deceive depends upon how the ordinary or reasonable member of the class of persons to whom the publication was directed would understand what was published.

When a print or electronic media corporation publishes a paid advertisement, the reader or viewer of the advertisement will very often recognise readily that what is seen or heard was devised and paid for by the advertiser.  The reader  or  viewer  will  usually  be  given  no  reason  not  to  take  the advertisement at its face value.   If the advertisement is misleading or deceptive,  the reader  or  viewer  will  likely  be  misled  or  deceived.    The conduct of publishing the advertisement has made it available to the reader or viewer.  If no more is shown, there seems much to be said for the view that publishing the advertisement is conduct of the kind prohibited by s 52. When ss 52 and 85(3) are read together, it is evident that the Act assumed that the conduct of publishing an advertisement made and paid for by a third party may contravene s 52.

(emphasis added)

[222]   I am satisfied that through Google Nakedbus is placing advertisements that are misleading and deceptive to a significant number of internet users.  The conduct is buying the keyword “intercity” so that the Nakedbus advertisement responds to it featuring the words “inter city”, and displaying an advertisement and website when a significant number of consumers will be misled into thinking they are dealing with the bus company “InterCity”.   I am satisfied that the displays will lead normally informed and reasonably attentive internet users into error.   They will think when they click that they are accessing ICG buses, whereas they will be accessing those of its competitor.

[223]   In  Australian  Competition  and  Consumer  Commission  v  Trading  Post Australia Pty Ltd, the ACCC instituted proceedings against both Google and Trading Post for breaches of the Australian equivalent to s 9 of the Fair Trading Act.96   The proceedings against Trading Post settled before trial, and the subsequent decisions of the Federal Court and High Court only concerned the liability of Google.  In order to determine Google’s liability, however, Nicholas J had to consider whether Trading

Post’s  conduct,  which  has  similarities  to  that  of  Nakedbus  in  this  proceeding,

amounted to misleading and deceptive conduct.

96     Australian Competition and Consumer Commission v Trading Post Australia Pty Ltd [2011] FCA 1086, (2011) 197 FCR 498.

[224]   Trading Post had bid against searches for “Kloster Ford” and “Charlestown

Toyota”, two car leaderships.97  The Kloster Ford advertisement appeared as follows:

[225]   The Charlestown Toyota advertisement was the same, but with a reference to Charlestown Toyota rather than Kloster Ford, “Toyota cars” rather than “Fords”, and “see” instead of “search”. Nicholas J held that both advertisements conveyed representations by Trading Post that it was associated and affiliated with the car dealerships, as well as that information regarding the dealerships and sales of their

cars could be found at the Trading Post website.98   In the case of Kloster Ford, those

representations could be proven to be false and were accordingly misleading and deceptive.99

[226]   Mr Harris relied on a decision of the Federal Court in Lift Shop Pty Ltd v Easy Living Homes Elevators Pty Ltd,100 where Buchanan J held that the use of the words “lift shop” was clearly in the sense of a usual generic meaning of those words, and not likely to causes confusion by being regarded as identifying a competitor called “lift shop”.   Buchanan J found that the advertiser, Easy Living’s, objective was to differentiate itself from Lift Shop, not to suggest a trade connection. That

decision can be contrasted with the present situation where I find that there was a deliberate decision not to differentiate clearly between InterCity and Nakedbus in the relevant material.  Moreover, it is not clear that in that case there was any deliberate purchasing of keywords and targeting of a competitor, as there was by Nakedbus.

[227]   The misleading and deceptive conduct was to word and publish the Google advertisement and the Nakedbus website, so as to suggest to internet users an association or affiliation between the Nakedbus network and InterCity network. This

was misleading and deceptive conduct, and this cause of action is made out.

97     At [85]–[93].

98     At [129]–[136] and [149] and [150].

99     At [129]–[136].

100   Lift Shop Pty Ltd v Easy Living Homes Elevators Pty Ltd [2013] FCA 900.

Summary

[228]   The first cause of action was not pursued.

[229]   Nakedbus  did  not  infringe  ICG’s  trade  mark  “INTERCITY”  when  it purchased the key words “inter city” and variations thereof via Google AdWords. That second cause of action fails because the requirement of “likely to be taken as used as a trade mark” in s 89(2) has not been proven.  Nakedbus’ purchase of the keywords while involving use of the trade mark “INTERCITY,” would not be likely to be taken as use as a trade mark by consumers.  Those consumers would have no or little knowledge of how the Nakedbus advertisement came to appear in response to their attempt to access the ICG website.  They were not shown to be aware of the purchase by Nakebus of the keywords.

[230]   Nakedbus did infringe ICG’s trade mark “INTERCITY” when, in response to consumers using the key words “Intercity” or variations thereon, it arranged for its advertisements to be shown on Google featuring the words “inter city” (the third cause of action).  Those advertisements infringed in that in relation to infringement under s 89(1)(a):

(a)       The words “inter city” were used by Nakedbus as a trade mark in the

Nakedbus Google advertisements and the corresponding website.

(b)It was proven that the word “Intercity” had a significant meaning in New Zealand as referring to ICG’s business, and that a significant number of  consumers  who had  keyed  in  the words  “Intercity”  or variations  thereon  intending  to  access  the  Intercity  bus  business, would think that the references to “inter city” in the Nakedbus advertisement were being used by the owner of the ICG business as a trade mark.

(c)       This use extended to the Nakedbus website featuring the words “inter

city” that appeared when the advertisement was clicked.

(d)The  words  “inter  city”  in  the  advertisement  and  website  when accessed through the advertisement were identical to the trade mark “INTERCITY” for the purposes of s 89(1).  The use of lowercase was irrelevant and the gap between the words was not significant as a matter of overall impression.  There was therefore an infringement of the trade mark “Intercity” under s 89(1)(a) by Nakedbus.

[231]   If not identical, there was also a similarity between “Intercity” and “inter city” in terms of s 89(1)(c). They have a close resemblance.  There was also, under s

89(1)(c), a use that was likely to deceive or confuse.  There was significant public awareness of the “Intercity” brand.  A significant number of reasonable consumers would think that as a consequence of the Nakedbus “inter city” advertisement that appeared in response to them using the words “Intercity”, in which the words “inter city” were prominently displayed, that they were dealing with the owner of the “Intercity” brand.  There was also evidence of actual confusion by consumers as a result of consumers mistakenly booking with Nakedbus intending to book with ICG, causing lost sales to ICG.

[232]   The use of the sign “inter city” by Nakedbus was therefore likely to deceive and confuse. There was an infringement of trade mark in terms of s 89(1)(c).

[233]   ICG had also established that there had been passing off by Nakedbus in its “inter city” advertisements or website, for similar reasons, and that the advertisement and other sites complained of were misleading and deceptive in terms of the Fair Trading Act  (the  fourth  and  fifth  causes  of  action).    A reasonable  number  of consumers would have thought that the Nakedbus advertisement and other sites were ICG sites.

Result

[234]   ICG has proven that Nakedbus has infringed its trade mark under s 89(1)(a) and (c) of the Trade Marks Act 2002, carried out the tort of passing off, and engaged in misleading and deceptive conduct, in terms of the third, fourth and fifth causes of action.  It has failed on the second cause of action, and rightly has not pursued the first.

[235]   This is an interim judgment.   ICG is entitled to declaratory and injunctive relief under the third, fourth and fifth causes of action, and to a further hearing to determine the account of profits claim.   I am not sure that the relief sought in the statement of claim adequately reflects my findings.   ICG is to file submissions within seven days and Nakedbus in a further seven days on the wording of the appropriate declaratory and injunctive relief to be granted in terms of this judgment, if it cannot be agreed.

[236]   The proceeding is adjourned for a further hearing on the account of profits claim.

[237]   Costs are reserved.  ICG is to file submissions in 21 days, and Nakedbus in a further 14 days, if no agreement can be reached.  Each is to be no longer than six pages.

……………………………..

Asher J