Muzz Buzz Franchising Pty Limited v JB Holdings (2010) Limited

[2012] NZHC 2490

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-007338 [2012] NZHC 2490

BETWEEN  MUZZ BUZZ FRANCHISING PTY LIMITED

Plaintiff

ANDJB HOLDINGS (2010) LIMITED First Defendant

ANDCHRISSANDRA LEE CHRISTIE Second Defendant

ANDSCOTT ANDREW CHRISTIE Third Defendant

Hearing:         20 September 2012

Appearances: B Henry and P Knapp for Plaintiff

M J Utting for Defendants

Judgment:      26 September 2012

(RESERVED) JUDGMENT OF ANDREWS J [Application for interim injunction]

This judgment is delivered by me on 26 September 2012 at 3:30pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Solicitors:

Dennis J Gates, DX BP60504, Whangaparaoa:  [email protected]
Thode Utting & Co, PO Box 300-885, Auckland 0632:           [email protected]

Counsel:

Brian Henry, PO Box 4050, Shortland St, Auckland 1140:       [email protected]

MUZZ BUZZ FRANCHISING PTY LTD V JB HOLDINGS (2010) LTD HC AK CIV 2011-404-007338 [26

September 2012]

Introduction

[1]      The plaintiff (to which  I will refer as “Muzz Buzz”) has applied for an interim injunction against the defendants to restrain them from infringing the plaintiff’s trade marks, using the plaintiff’s copyright, and passing off the plaintiff’s intellectual property, in the conduct of the business known as a “Jitta Buzz”.   For convenience, the defendants will be referred to in this judgment as “Jitta Buzz”.

Background facts

[2]      Muzz  Buzz  operates  two  drive-through  coffee  outlets,  in  Mt Albert  and Manukau.   It runs the business and markets it by way of franchises called “Muzz Buzz” within an international franchise network.  The first defendant, JB Holdings (2010) Ltd carries on business under the name “Jitta Buzz”.  The second and third defendants are directors of JB Holdings.   There are two “Jitta Buzz” outlets, at Sunnybrae  Road,  Hillcrest, Auckland  and  347  Ti  Rakau  Drive,  Botany  Downs, Auckland.

[3]      Muzz Buzz alleges that Jitta Buzz set out deliberately to compete with Muzz Buzz, and that their building outlet shape, colours, design, websites, Facebook page, and brand name are all deliberate attempts to go as close as they can to copying Muzz Buzz.

[4]      Set out below are the respective logos of Muzz Buzz and Jitta Buzz, taken from their websites:

[5]      The Jitta Buzz Hillcrest outlet was opened in August 2010.   The Botany Downs outlet was opened in early 2012, after proceedings had been filed by Muzz Buzz. Muzz Buzz opened its first New Zealand outlets in August 2012.

[6]      Muzz  Buzz  first  wrote  to  Jitta  Buzz  claiming  they  were  breaching  its intellectual property, in August 2011.  Jitta Buzz denied this, and Muzz Buzz issued proceedings in November 2011.  The application for an interim injunction was filed on 21 August 2012, shortly after Muzz Buzz had opened its first New Zealand outlets. A fixture for trial of the substantive proceeding has been allocated for March

2013.

Principles as to application for interim injunction

[7]      As set out by the House of Lords in American Cyanamid Co v Ethicon Ltd,1 there are two broad questions to consider, as to whether an interim injunction should be  granted.   The first  is  whether  there  is  a serious  question  to  be tried  in  the proceeding; and the second is where the balance of convenience lies.  The Court of Appeal in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd,2 held that while those two broad questions provide an accepted framework for approaching applications for interim injunctions, they are not exhaustive and relief is essentially discretionary.

[8]      The purpose of an interim injunction is to protect plaintiffs against injury by violation of their rights, for which they could not adequately be compensated in damages recoverable in the action, if the proceedings were resolved in their favour at trial.  A plaintiff’s need for such protection must be weighed against a defendant’s need to be protected against injury resulting from being prevented from exercising legal rights, for which the defendant could not be adequately compensated under the plaintiff’s  undertaking  in  damages,  if  the  proceedings  were  resolved  in  the

defendant’s favour at trial.3

[9]      I turn, first, to consider whether there is a serious question to be tried.

1      American Cyanamid Co v Ethicon Ltd [1975] AC 396 (HL).

2      Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 140 (CA) at 142.

3      See McGechan on Procedure (looseleaf ed, Brookers) at [HR7.53.02].

Is there a serious question to be tried?

[10]     The onus is on the applicant for an injunction to “adduce sufficiently precise factual evidence to satisfy the court that he has a real prospect of succeeding in his claim for a permanent injunction at the trial”.4     To support an application for an interlocutory injunction, the proceeding must be capable of supporting a claim for a perpetual injunction, or other sufficient equitable relief, whether or not there is also a claim for damages.5

[11]     I therefore consider Muzz Buzz’s claims as to trademark infringement, breach

of copyright, and passing off.

Alleged trademark infringement

[12]     Muzz Buzz owns the trade marks “Muzz Buzz” (word mark, classes 30, 35 and 43), “Muzz Buzz Drive Through Coffee” (device, classes 30, 35 and 43), “Muzz Buzz” (word mark, classes 29 and 32) and “Buzz” (word mark, class 43) in relation to coffee drive-through services.   The classes concern the goods and services to which the mark relates: coffee, retailing and wholesaling of food and beverages, services for providing food and drink, milk and milk products, non-alcoholic beverages, etc.

[13]     Pursuant to s 89 of the Trade Marks Act 2002, a person infringes a registered trademark if the person does not have the right to use the registered trade mark, and uses in the course of trade a sign which is identical to the registered trade mark, or similar to the registered trade mark, if that use would be likely to deceive or confuse.

[14]     Jitta Buzz points out that the trade mark for the word “Buzz” was only granted in February 2012, after the defendants had already been trading for some time.  I also note that the application for registration was filed in August 2011, which

was also after the defendants had already been trading.

4      Re Lord Cable (dec’d) [1977] 1 WLR 7 (ChD) at 19.

5      Mayall v Weal [1982] 2 NZLR 385 (HC).

[15]     I accept that there may be a serious question to be tried as to whether Muzz Buzz has a claim under s 89 of the Trade Marks Act.  The marks used by Jitta Buzz are for the same goods or services as those registered for Muzz Buzz.  The issues are whether the marks are similar, and whether confusion or deception is likely.

[16]     On a preliminary consideration, it appears that the use of the word “buzz”, and of the colours (which have some similarity) are sufficiently similar to raise a serious question to be tried.  Moreover, that similarity, taken together with the fact that both marks are used for drive-through coffee retailing, raises a serious question to be tried as to confusion or deception.

[17]     I am satisfied that there is a serious question to be tried as to whether Jitta

Buzz has breached Muzz Buzz’s registered trade marks.

Alleged breach of copyright

[18]     Under ss 16 and 29 of the Copyright Act 1994, the owner of the copyright has the exclusive right to copy the copyrighted work.   Copying need not be a full reproduction to be an infringement.  Most cases of alleged breach of copyright are concerned with whether a defendant has copied a “substantial part” of the work, and courts usually employ a “fairness” test to decide this.6

[19]     In Wham-O MFG Co v Lincoln Industries,7 the Court of Appeal suggested a three-fold approach to considering alleged breach of copyright, as follows:

(a)       the reproduction must be either of the entire work or of a substantial part of it;

(b)there must be a sufficient objective similarity between the infringing item and the copyright work, or a substantial part of it;

6      See Paul Sumpter Intellectual Property Law: Principles in Practice (CCH New Zealand, Auckland, 2006) at [102].

7      Wham-O MFG Co v Lincoln Industries [1984] 1 NZLR 641 (CA).

(c)      there must be some causal connection between the copyright work and the infringing item in that the infringing work must have been derived from the copyright work.

[20]     Muzz Buzz claims that Jitta Buzz copied its building shape, colouring, text placement, text colouring, and menu placement from its website, and that Jitta Buzz copied its text from its website and Facebook page.

[21]     Jitta Buzz submits that there are significant differences between the brand names, colour and design of the text used by it and that used by Muzz Buzz.  Jitta Buzz denies looking at the Muzz Buzz website and copying its colours.  Jitta Buzz points out that it has had a Facebook page since May 2011, and says it believes that Muzz Buzz’s New Zealand Facebook page was not opened until January 2012.  With respect to the “building shape” issue, Jitta Buzz denies any copying, and says that it used an architect to design its building plans.  While acknowledging that both buildings  use a curved  shape,  Jitta Buzz  says  that  its  shape was  influenced  by another business, “DTC”, rather than Muzz Buzz.  Further, Jitta Buzz submits that Muzz Buzz itself does not have one distinctive building design, but has a multitude of different building designs.

[22]     In  cases  of  industrial  design,  the  plaintiff  usually  has  to  prove  that  the

defendant’s  building  was  actually derived  from  the plaintiff ’s  design  drawings.8

Muzz Buzz’s case on this aspect does not appear to be strong.

[23]     For Muzz Buzz Mr Henry pointed, in particular, to the Jitta Buzz website, and submitted that various statements were made in the same order in the Jitta Buzz website as in the Muzz Buzz website, and that very similar phrasing is used by Jitta Buzz.

[24]     While I could not accept Mr Henry’s submission that the Jitta Buzz website is a “simple copy” of the Muzz Buzz website,  I accept that there  is an  objective similarity between the Jitta Buzz website and the Muzz Buzz website.  Whether that

is sufficient for a claim in copyright, rather than simply being a function of the

8 See Sumpter, above n 6, at [307].

similarity of the two businesses, is not something that can be assessed at this stage. For the purposes of the application for an interim injunction, I am satisfied that there is a serious question to be tried.

Passing off

[25]     The elements required for passing off were discussed in the judgment of the House of Lords in Erven Warnink BV v J Townend & Sons (Hull) Ltd, (“the Advocaat case”)9, and has been adopted in New Zealand.10    The five elements required to be proved by a plaintiff are:

(a)       a misrepresentation;

(b)      made by a trader; in the course of trade;

(c)       to prospective customers of his or ultimate consumers of goods or services supplied by him;

(d)calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence); and

(e)       causes actual damage to the business or goodwill of the trader by whom the action is brought.

[26]     Muzz Buzz alleges that its goods and services have acquired a goodwill and reputation in the market as a result of the totality of their distinguishing wording, colouring, font and text placement.  Muzz Buzz alleges that its goods and services have been created as a package concept, being a drive-through coffee shop concept. Muzz Buzz alleges that Jitta Buzz has made representations that are likely to cause the public to believe that its goods and services are those of Muzz Buzz.  Muzz Buzz alleges that members of the public will mistakenly infer from Jitta Buzz’s use of part of the Muzz Buzz name, mark, branding and other features (such as colour, font, etc)

that are sufficiently similar to Muzz Buzz’s, that Jitta Buzz’s goods and services are

9      Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] AC 731 (HL).

10     See Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (CA).

from the same source as Muzz Buzz’s, or are associated with Muzz Buzz.  In support of its allegation, Muzz Buzz has provided an affidavit from a customer, who says he saw a Jitta Buzz outlet, and thought it was affiliated with Muzz Buzz.

[27]     For its part, Jitta Buzz says that the font, colour, and text placement of the word “buzz” are substantially different from those of “Muzz Buzz” and would not be likely to deceive or confuse anyone in relation to drive-through coffee services.  At the time Muzz Buzz filed its proceeding, it did not have a physical presence in New Zealand, and its presence in Australia was limited primarily to Western Australia. Jitta Buzz says that at the time it filed its statement of defence in the proceeding, the muzzbuzz.co.nz website redirected viewers to the Australian website.  Jitta Buzz also points out that there are at least 13 other established drive-through coffee services in New Zealand, so the drive-through coffee concept is not unique to Muzz Buzz.  Jitta Buzz also submits that Muzz Buzz is unable to show that it has been subject to any loss in New Zealand.

[28]     The similarities in the present case, particularly in the use of the word “buzz” and similar colours are sufficient, in my view, to support a claim that confusion could be caused for an ordinary consumer.  Muzz Buzz’s case is strengthened by the affidavit showing actual confusion.  That said, Muzz Buzz would also need to show actual damage to Muzz Buzz’s business or goodwill.  This may be a more difficult element for Muzz Buzz to prove, in light of the fact that it had a limited (if any) presence in New Zealand at the time it filed the proceedings, or when Jitta Buzz began trading.  Further, the two Muzz Buzz outlets are geographically some distance from Jitta Buzz’s outlets and this is also likely to be a relevant factor in determining whether there is any actual loss.

[29]     However, as this is an interim injunction application, I conclude that Muzz

Buzz has established that there is a serious question to be tried as to passing off.

Conclusion as to serious question to be tried

[30]     As indicated above, I have concluded that there is a serious question to be tried in relation to the claims made by Muzz Buzz.

Where does the balance of convenience lie?

[31]     The balance of convenience involves a decision as to whether granting or refusing an injunction is the course which, after the action itself has been tried and the issues between the parties determined, would fairly allow the adjustment of the rights of the parties in a way that accords with fairness and justice.11   If in any case there is doubt as to the parties’ respective remedies in damages being adequate to compensate them for loss occasioned by any restraint imposed on them, it would be prudent to preserve those status quo.12   Damages will rarely be an adequate remedy where there are allegations of likelihood of confusion in trade whether in passing off claims,13 or in cases involving trade mark infringement,14 because of the difficulty in assessing damage to goodwill, reputation, etc.

[32]     For  Muzz  Buzz,  Mr  Henry submitted  that  damages  are  not  an  adequate remedy, because Jitta Buzz is causing it substantial revenue loss and damage to its reputation and brand awareness.  He submitted that this is not readily compensated by a monetary payment and, further, that there is no evidence that Jitta Buzz is in a position to meet an award of damages.

[33]     For Jitta Buzz, Mr Utting submitted that damages would be an adequate remedy.   He submitted that Muzz Buzz is a franchise, which has a set price for establishing outlets within the franchise, and that payment of that price permits the franchisee to use the name and products in a particular way.  He submitted that if Muzz Buzz’s claim succeeds, an assessment of damages could be made on the basis of the cost of the licence.

[34]     Mr Utting further submitted that Muzz Buzz’s New Zealand business has not suffered any loss, and that it cannot be said that Jitta Buzz has made any profits as a result of Muzz Buzz’s reputation.  This submission was based, in particular, on the fact that Muzz Buzz has been functioning in New Zealand for only a very short time,

and that the Jitta Buzz outlets are not in close proximity to any Muzz Buzz outlets.

11     See Congoleum Corp Ltd v Poly-Flor Products (NZ) Ltd, [1979] 2 NZLR 560 (CA) at 571.

12     See American Cyanamid Co, above n 1, at 408.

13     See Klissers Farmhouse Bakeries, above n 2, at 139.

14     See Philip Morris (NZ) Ltd v Liggett & Myers Tobacco Co (NZ) Ltd, [1977] 2 NZLR 35 (CA) at

38.

Geographical convenience would be very important for the customers of a drive- through coffee business, so that any loss or damage to Muzz Buzz caused by the presence of Jitta Buzz outlets some distance away would be minimal.

[35]   Mr Utting further submitted that if Muzz Buzz ultimately failed in its proceeding, but the interim injunction was granted, Jitta Buzz would have potentially lost their customer base, and their source of income, for a significant period of time, and that their employees would lose their jobs.   That submission appeared to be based on an understanding that Muzz Buzz sought an interim injunction that would require Jitta Buzz businesses to shut down.  Mr Utting clarified his submission, as a result of Mr Henry’s submission that Muzz Buzz did not seek to have all Jitta Buzz outlets shut down.  Rather, Muzz Buzz sought an order that Jitta Buzz not infringe Muzz Buzz’s trade marks, copyright, or engage in passing off.  Mr Utting submitted that  if  Jitta  Buzz  were  required  to  change  its  branding,  then  continuing  the proceeding  would  become pointless.    Muzz  Buzz  would  have achieved  what  it wanted as a result of the interim injunction, and this would short circuit the Court process.

[36]     Finally, Mr Utting submitted that Jitta Buzz is in a position to meet an award of  damages,  if  such  an  order  were  made  in  the  substantive  proceeding.    He confirmed this submission after taking instructions from one of the defendants who was present in Court.

[37]     There  is  little  material  on  which  to  make  an  assessment  as  to  whether damages would be an adequate remedy.   This is no doubt because both the Muzz Buzz and Jitta Buzz businesses are relatively new in New Zealand.  There does not seem to be any real likelihood that Jitta Buzz could flood the market before this proceeding goes to trial, on 25 March 2013.  Further, it is in my view significant for the purposes of assessing this issue that the Jitta Buzz outlets are geographically distant from the Muzz Buzz outlets.  There is a reference on Muzz Buzz’s website to the possibility of it opening another outlet in the Auckland area at some stage in the near future, but that does not appear to be intended to be in a location which is in any proximity to either of the Jitta Buzz locations.   On that basis, there is reason to

conclude that any loss suffered by Muzz Buzz in terms of diversion of business would be less than it might otherwise be.

[38]     Counsel  for both  sides  raised  in  submissions  the fact  that  the other had opened an outlet after this proceeding was issued.   I do not give any particular weight to that factor, nor do I give any particular weight to the fact that Muzz Buzz has chosen to apply for an injunction now, rather than earlier.

[39]     A matter which is of significance is that if the injunction is granted, then in order to continue in business Jitta Buzz would be required to take steps to change its logo, building design, website and other advertising to comply with the injunction. This would not be a minor step and would have the practical effect of, in substance, causing at least substantial disruption to Jitta Buzz’s business.  It may well have the practical effect of putting an end to the proceeding.   If the injunction were to be refused, and Muzz Buzz ultimately succeeded at trial, damages would, in my view, be able to be calculated, and would be an adequate remedy.

[40]     A further matter of considerable significance is that the substantive hearing in this proceeding is set down for 25 March 2013.  There is, therefore, a relatively short period of time before this proceeding will be determined.

[41]     For the above reasons, I have concluded that the balance of convenience weighs against granting the interim injunction.

Result

[42]     The application for an interim injunction is dismissed.  Costs are reserved.

Andrews  J