National Mini Storage Ltd v National Storage Ltd
[2017] NZHC 1775
•31 July 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-2211 [2017] NZHC 1775
BETWEEN NATIONAL MINI STORAGE LTD
Plaintiff
AND
NATIONAL STORAGE LIMITED First Defendant
NATIONAL STORAGE HOLDINGS LIMITED
Second Defendant
NATIONAL STORAGE (NZ) PTY LIMITED
Third Defendant
NATIONAL STORAGE (OPERATIONS) PTY LIMITED
Fourth Defendant
Hearing: 20-29 March and 5 April 2017 Appearances:
A Brown QC, J Oliver-Hood and AIK Allen-Franks for the
Plaintiffs
J Miles QC, J Baigent and J C Dickson for the DefendantsJudgment:
31 July 2017
JUDGMENT OF MUIR J
This judgment was delivered by me on Monday 31 July 2017 at 2.30 pm
Pursuant to Rule 11.5 of the High court Rules.
Registrar/Deputy Registrar
Date:…………………………
NATIONAL MINI STORAGE LTD v NATIONAL STORAGE LIMITED [2017] NZHC 1775 [31 July 2017]
Contents
Paragraph
Introduction 01
Factual background 04
The parties 04 The parties’ brands 06 National Storage’s expansion into New Zealand 10 National Mini Storage’s response 14 An overview of the self storage industry and consumer trends 19 The defendants’ undertakings 37 Overview of legal principles relevant to plaintiff ’s claim Introduction: Fair Trading Act 41 “Likely” to mislead or deceive 44 By reference to whom is the conduct assessed? 46 Requirement for goodwill 49 What is “misleading” or “deceptive”? 50 Misleading or deceptive conduct in the Internet age 70 Conclusions on the Internet authorities 93 Quia timet actions and date at which conduct is assessed 96 Passing off 107 The issues 113 Generic and descriptive names 114 The plaintiff’s reputation 121 The plaintiff’s expert evidence A change in emphasis? 127 Mr Sareczky 136 Mr Brandon 165 Update to Brandon evidence 196 Mr Bateman 200 Defendants’ expert evidence
Ms Castelli
207
Mr Shand 236 Evidence of actual confusion 271 Conclusions: misleading and deceptive conduct 280 Conclusions: passing off 282 Affirmative defence: acquiescence 283 Affirmative defence: honest concurrent use 296 The scope of the plaintiff ’s intended injunction 307 Result 317
Introduction
[1] The plaintiff, National Mini Storage Ltd (NMS), seeks an injunction restraining the defendants (four companies within the National Storage Group which I will collectively refer to as NS) from using the trade mark “National Storage” in the greater Auckland area. NMS claims that the defendants’ intended use of that trade mark is a breach of s 9 of the Fair Trading Act 1986 (FTA) and amounts to passing off.
[2] In essence NMS submits that the defendants’ use and promotion of the trade mark “National Storage” in Auckland will confuse and deceive consumers and potentially divert them away from NMS’s business to that of NS. The defendants respond by saying that the branding of NS is very different to that of NMS, that they do not intend to trade on the goodwill of NMS and that any low level confusion which may occur in the market place is the price NMS must accept for the adoption of a generic or descriptive name.
[3] It is necessary to begin by setting out the history of the companies, their branding and their relationship in some detail.
Factual background
The parties
[4] NMS is a New Zealand company that provides self storage facilities throughout the greater Auckland region.1 It was incorporated on 25 March 1991, originally with only one branch in Penrose. It now has nine branches located between Albany and Takanini (one of which is under construction), and actively seeks to continue expansion by acquiring new sites in the Auckland region. NMS considers itself one of the two leading suppliers of self storage facilities in Auckland
the other being Storage King. It has no current plans to expand outside the Auckland
region.
1 “Self storage” simply means that the customer transports their own goods to the storage facility
and is able to access those goods as often as they want.
[5] The four defendants are all part of the National Storage Group of companies, which was formed in Australia in 2001 out of the merger and acquisition of other storage companies. The National Storage Group has continued to expand since its formation, entering the New Zealand market in 2015. It now has a total of 101 self storage centres under operation or management in Australia, and nine in New Zealand. It describes itself as Australia’s largest self storage owner-operator, and the
first to publicly list on the Australian Securities Exchange.2
The parties’ brands
[6] NMS uses the following livery:
[7] It has held a trade mark in respect of the above image since October 1996 and displays it prominently on all its storage facilities and promotional materials and vehicles.
[8] In 2009, NS updated to its current livery in the following form:
2 In December 2013, National Storage REIT publicly listed on the Australian Securities Exchange.
National Storage REIT was a stapled security comprising one share in National Storage Holdings Ltd (the second defendant) and a corresponding unit in the National Storage Property Trust.
[9] It operates under the same branding in New Zealand and Australia, and has held a New Zealand trade mark in respect of the above image since September 2015 including the block letter phrase “Tailored Storage Solutions”. It too uses consistent branding (fonts, colours, imagery and design) to generate and maintain brand awareness.
National Storage’s expansion into New Zealand
[10] In August 2014, NS announced its intention to expand to New Zealand at a conference of the Self Storage Association of Australasia (SSAA). Predictably it had undertaken a significant amount of prior research about the market.
[11] In October 2014 and again in March 2015, representatives of NS met with Mr McFadzien, the managing director of NMS and expressed their interest in purchasing the business of NMS. Mr McFadzien informed them that the business was not for sale. Mr Catsoulis, managing director of NS, considers that NMS was put on notice at these meetings that NS intended to enter the Auckland market. Mr McFadzien disputes this, saying that nothing was revealed at the meetings about how or when NS’s expansion into New Zealand would occur.
[12] In June 2015, NS acquired five facilities and a sales office in Christchurch. In September 2015, its logo was registered as a New Zealand trade mark without any objection. NS then acquired a facility in Hamilton in November 2015. It went on to acquire two centres in the Wellington region in May 2016, and a further centre in Porirua in January 2017. In total, NS now operates nine self storage facilities in New Zealand. As at the date of hearing it had also entered into an agreement to purchase facilities in Dunedin which it had yet to settle.
[13] In February 2016 it publicly announced its intentions to move into the
Auckland market.
National Mini Storage’s response
[14] NMS claims that it first heard that NS had come to New Zealand when NS announced its purchase of businesses in Christchurch in June 2015. It also heard of NS’s acquisition of a centre in Hamilton in November 2015. On 9 December 2015, NMS held a board meeting at which it discussed NS’s entry into the New Zealand market. At this time, however, Mr McFadzien says that he and the remainder of the management team were occupied with building issues in relation to their new facility in Newmarket. Mr McFadzien explains that this is why NMS took no action at that point.
[15] After these issues were resolved he took legal advice. On 13 May 2016, NMS applied to register the trade mark “National Mini Storage” as a word mark. NS filed a notice of opposition to this application on 27 October 2016. Mr Catsoulis explains that it did so because NMS had made its view clear to NS that it had rights in the name “National Mini Storage”, and that this prevented NS from trading in Auckland under the NS name.
[16] Such alleged rights were first notified on 1 July 2016 when NMS sent a letter to NS setting out its concerns about NS’s proposed use of the brand name “National Storage” in Auckland. NMS sought undertakings that NS would not seek to use the trade mark “National Storage” on or in relation to storage facilities in the greater Auckland area.
[17] NS responded on 20 July 2016. It refused to provide the undertakings sought.
[18] There was no further communication between the parties, and NMS commenced these proceedings in October 2016. Interim undertakings were given by NS to facilitate prompt disposition of NMS’s substantive claim.
An overview of the self storage industry and consumer trends
[19] Self storage facilities are offered to both households (called retail customers)
and businesses. Retail customers commonly rent storage facilities on an “events”
basis. Relevant events may include the sale and purchase of a house, an extended trip overseas, the death of a family member or a move into residential care. Others use facilities to store equipment not required on a seasonal basis. Businesses, on the other hand, typically use self storage facilities to store archived documents or surplus stock.
[20] Self storage companies tend to provide a variety of unit sizes ranging from
1m x 1m to 8m x 3m. As the name suggests, the customer can typically access these during extended hours.
[21] In Auckland the self storage market is dominated by two key players, NMS and Storage King. Together they control approximately 80 per cent of the market in terms of available facilities. The remaining 20 per cent is comprised of 39 very much smaller companies. Storage King operates on a management model with the individual facilities owned by its clients. NMS, by contrast, owns all its sites. In evidence Mr McFadzien conceded that, although technically NMS and Storage King could not be described as having a duopoly, their position could be described as “comfortable”. Of the two, Mr McFadzien considered that Storage King had the larger market share, possibly by 15-20 per cent.
[22] Although Mr McFadzien claimed that the Auckland market was “crowded”
and that “competition is fierce”, the evidence established that:
(a) Over the greater Auckland area, facilities were running at over 90 per cent occupancy as a function of limited housing availability and high immigration.3
(b) Occupancy in excess of 90 per cent is, within the industry generally,
considered “full” having regard to the customer “churn” rate.
(c) Auckland self storage facilities have the highest occupancy rate in
Australasia.
3 The Urbis Storage Index June 2016 recorded the Auckland occupancy level as 91.59 per cent.
(d)Occupancy in excess of 90 per cent gave the opportunity to increase price to maintain what NMS’s valuation expert Mr Blackwell described as “optimal” levels of occupancy.
[23] Although there may, numerically, be many providers in the Auckland area, excess demand has therefore resulted in a market which significantly blunts the “ferocity” of the competition Mr McFadzien refers to.
[24] Recurrent in NS’s defence of the proceedings is the following proposition: at the heart of NMS’s claims is an endeavour to protect what NS describes as NMS’s duopoly in Auckland, and NMS’s invocation of consumer protection legislation in the form of the FTA in fact conceals an agenda which is demonstrably against consumer interests. NS says such interests would be significantly enhanced by the introduction into the Auckland market of a well resourced and efficient publicly listed company, resulting in a better price and/or product for consumers.
[25] Generally the self storage market has low brand awareness, for the reason, as one witness explained it, that it is not a “sexy” product or service. This is confirmed by studies undertaken by the SSAA in 2006, 2008, 2010 and 2013 in each case authorised by Mr Blackwell.
[26] In the 2010 study, approximately 41 per cent of Auckland respondents were unable to nominate a single brand associated with self storage and only 6.1 per cent recalled NMS unprompted.4 That figure increased to 26.4 per cent on a prompted
basis.5
4 The comparable result for Storage King was 16.8 per cent. The research also recorded a 2.3 per cent response for National Storage in Auckland at a time when it had no New Zealand facilities. Mr Blackwell stated that this figure was “likely to include customers intending NMS”. However it seems inevitable that at least some respondents will have been exposed to the National Storage brand in the course of travel to Australia.
5 The 26.4 per cent result was in fact recorded as brand awareness of National Storage, but Mr Blackwell gave evidence that in this part of the survey NMS was not offered as an alternative so the result will be “almost totally awareness by respondents of National Mini Storage”.
[27] In the 2013 study those Auckland respondents unable to nominate a single brand on an unprompted basis remained constant at 42 per cent with 1.7 per cent recalling “National Storage”6 and 23.1 per cent “other”, a proportion of which Mr Blackwell stated will have answered “National Mini Storage” but were not included under that name as a result of an “editorial decision”. The 2013 study did not include a prompted awareness survey.
[28] Despite (or perhaps because of) this low brand awareness, some operators, of which NS is the most conspicuous example, have invested heavily in brand promotion. In NS’s case this has been particularly in the area of sports sponsorship which, together with associated television broadcast rights, gives wide brand exposure through stadium banners, branding of players’ clothing and associated merchandising. NS’s sponsorship portfolio now includes numerous National Rugby League, Australian Football League, basketball, cricket, netball, soccer and rugby teams in Australia and the Wellington Hurricanes International Super Rugby Team in New Zealand. Among the most prominent of these is its sponsorship of the Brisbane Broncos since October 2015.
[29] In terms of brand awareness, NMS relies primarily on well situated and branded storage facilities located next to major arterial routes. Its Takanini and Penrose facilities next to Auckland’s Southern Motorway are prime examples. It has also periodically engaged in radio advertising.
[30] The 2010 demand study showed that in Australasia by far the most frequent way that potential customers found a self storage facility was via the Internet. The
top five results were:
Internet 50.7% Local knowledge 18.5% Yellow pages 16.2% Personal visit 5.2% Ask a friend or family member 3.5%
6 Again Mr Blackwell suggests this figure is likely to be referring to NMS because of the absence of National Storage facilities in Auckland as at 2013.
[31] Somewhat counter-intuitively, the 2013 demand study showed a drop in the
Internet source figure to 33.5 per cent with the remainder of the results being:
Personal visit 17.4 % Local paper 12.7% Ask a friend or family member 12.3% Yellow pages 10.6%
[32] NMS has compiled its own statistics for how customers came to know about it during the period 2012 to 2016. The results were made available on a confidential basis and I refer to them in generalities only. They differ by branch but, in all but two cases, either street signage or NMS’s website was the primary source of knowledge, with signage frequently at or about 50 per cent of totals. Such signage includes, of course, NMS’s mark, its distinctive blue, black and white colour scheme and the prominence which the mark gives to the word “Mini”.
[33] Both the 2010 and 2013 SSSA studies also contained useful information in terms of how many facilities existing customers contacted before choosing their current storage location. NMS and NS each emphasise different aspects of the results. NMS focuses on the fact that, in the 2013 study, 35.2 per cent of customers contacted only the facility they ultimately dealt with and 67.3 per cent either one or two facilities only. NS emphasises that 64.8 per cent of respondents contacted two or more facilities.
[34] An important distinction is between how consumers know about NMS’s (or any other provider’s) storage facilities and how they come to contact it. NMS’s evidence in this respect is that, from approximately 2009, there has been an accelerated shift to the use of the Internet which it has been able to monitor by adopting different 0800 numbers for Yellow Pages, Localist, Internet based and general marketing. As a result, it has increasingly focused its marketing budget on optimisation of its website for organic searches and Google AdWords campaigns. Currently its website attracts 60,000 -70,000 visits per year, 90 per cent of which are New Zealand based searches and 75 per cent Auckland based. Half have never been to NMS’s website before and 30 per cent are using a device other than a PC to do so (phone or tablet). A further refinement in NMS’s approach (from July 2011) has
been to separate out phone traffic coming to it from organic searches and that generated by Google AdWords. This has been achieved by creating a mirror image of its website, again with 0800 numbers distinct from that on its main website.
[35] By a significant margin those who are conducting searches for self storage facilities in New Zealand do so by using unbranded searches. Nationally the two most relevant self storage keywords (derived from the most recent Google keyword planner data) shows that the terms “storage” and “storage Auckland” are the most frequently searched terms out of the selected keywords,7 with “national mini storage” the third most frequently searched term. Unbranded searches are, I accept, a strong indicator that the consumer is expecting to find a number of storage
suppliers so that they can compare the respective features, geographic location and other issues of interest to them.8 Google consumer barometer data is consistent with that conclusion. It confirms that 56 per cent of those using the Internet in relation to a purchase decision are doing so to compare choices online.
[36] In terms of ultimate selection of facilities, both studies identified convenient access to the storage site as one of the most important considerations in facility selection both in terms of existing and potential customers. In the 2013 study, 74 per cent of private respondents and 79 per cent of business respondents used a self storage facility within 20 minutes travel time of their home or business and 63 per cent of people became aware of a facility by seeing the physical location and signage in their neighbourhood. This was consistent with the evidence of the plaintiff’s Managing Director Mr McFadzien that in his experience “the large bulk of customers from a self storage facility come from a catchment within 10 minutes’ drive”.
The defendants’ undertakings
[37] In the course of its evidence NS provided various undertakings in relation to how it would, if permitted to open facilities in Auckland under the NS name, conduct its online marketing campaigns. These were ultimately the subject of a
memorandum recording the intended undertakings in terms that:
7 Accounting for approximately 60 per cent of searches.
8 As contended for by NS’s General Manager Marketing and Corporate Ms Castelli.
… with respect to the website with the URL they will:
(a) Not use SEO [search engine optimisation] techniques to target the phrases “national mini storage”, “national mini”, “mini storage” or “mini” in relation to Google searches:
(b) Not use the phrases “national mini storage”, “national mini”, “mini storage” or “mini” as keywords for Google Adword campaigns;
(c) Apply/continue to apply a “negative match” to the keywords “national mini storage”, “national mini”, “mini storage” and “mini” in Google Adwords campaigns in relation to Google searches (so long as Google continues to offer this capability).
[38] Although, as I will discuss shortly, the test of whether conduct is misleading or deceptive within the FTA and passing off contexts is an objective one, the courts have frequently acknowledged that they will more readily find that a defendant who has intended to deceive has succeeded in his or her object.9 Many of the cases on which the plaintiff relies, including Intercity Group NZ Ltd, are in this category and involve what I consider to be deliberately predatory conduct.
[39] The present case is in a different category. The plaintiff’s expert Mr Sareczky concluded from his researches that NS had made a deliberate decision not to capture storage inquiries including the word “Mini” and that commitment is reinforced by the undertakings which have been given. In so doing NS commits itself to a standard of competitive conduct likely exceeding its strict legal obligations. A degree of caution is therefore necessary in application of the authorities referred to.
[40] I do not accept the plaintiff’s position that such undertakings are irrelevant and/or unenforceable from a practical perspective. They are consistent with a company that seeks simply to trade under a name used for many years in Australia and now well established in parts of New Zealand. There is nothing in the defendants’ conduct which indicates an intention to leverage off any goodwill or
reputation that NMS has in its trading name and the undertakings are consistent with
9 See Intercity Group NZ Ltd v Nakedbus NZ Ltd [2014] NZHC 124, [2014] 3 NZLR 177; Tot Toys v Mitchell [1993] 1 NZLR 325 (HC) at 354; NZ Tax Refunds Ltd v Brooks Homes Ltd [2013] NZCA 90, (2013) 13 TCLR 531 at [32].
such position. I regard as relevant also that, as a publicly listed entity, any breach of undertaking by NS would reflect adversely on its standing with capital markets and its shareholder base. The Court is therefore entitled to assume compliance. Moreover, suspected breach is capable of enforcement action and in that context discovery of any digital marketing strategy contrary to undertaking will be available.
Overview of legal principles relevant to plaintiff ’s claim
Introduction: Fair Trading Act
[41] NMS asserts a breach by NS of s 9 of the FTA, which is in familiar terms:10
9 Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
[42] The primary purpose of the FTA is consumer protection,11 not the vindication of a competitor’s rights.12 As Cooke P commented in Taylor Bros Ltd v Taylors Group Ltd, “[members] of the public have a right not to be misled about with whom they are dealing”.13 Although a rival trader may bring an action under s 9, and often does, it “remains an action of a public character directed at the protection of consumers”.14 Any interested person has standing to bring an action under s 9.
[43] The Full Court of the Federal Court of Australia has explained the inter- relationship of competitive and regulatory influences bearing on application of s 9 in the following terms:15
Although the promotion of competition and the promotion of efficiency gains perceived to arise out of free competition are social benefits (particularly, the elimination of inefficient costs competed away by rivalrous behaviour to a level of economically efficient costs), rivalry, so far as the
10 Section 9 was modelled on s 52 of the Australian Trade Practices Act 1974 (Cth), meaning that Australian authorities are helpful. The Trade Practices Act has now been repealed and replaced by the Competition and Consumer Act 2010 (Cth), see sch 2, cl 18. The wording of both the former and current Australian provision is virtually identical to s 9 of the Fair Trading Act 1986.
11 Fair Trading Act 1986, s 1A(1); Magellan Corp Ltd v Magellan Group Ltd (1995) 6 TCLR 598 (HC) at 608.
12 Tot Toys Ltd v Mitchell, above n 9, at 368.
13 Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (CA) at 40.
14 Neumegen v Neumegen and Co [1998] 3 NZLR 310 (CA) at 325.
15 Peter Bodum A/S v DKSH Australia Pty Ltd (ACN 005 059 307) [2011] FCAFC 98, (2011) 280
ALR 639 at [201].
operation of [s 9] is concerned, occurs within a “regulatory framework” that seeks to avoid the social detriment of traders engaging in misleading or deceptive conduct or conduct likely to mislead or deceive consumers of goods or services (by prohibiting such conduct) ...
“Likely” to mislead or deceive
[44] Section 9 creates an objective test as to the likelihood of the defendant’s conduct misleading or deceiving the hypothetical reasonable person.16 It is neither necessary nor sufficient to show that the defendant’s conduct has actually misled or deceived anyone,17 or that the defendant intended to mislead or deceive.18 However, such evidence will be helpful and will typically strengthen the plaintiff’s case.19
[45] The test of likelihood in s 9 has been taken to mean a “real risk of the consequence ensuing”.20 It must be more than a mere possibility, but it need not be more probable than not.21
By reference to whom is the conduct assessed?
[46] The class of consumers towards whom the conduct is directed must be taken into account in assessing whether or not the conduct is likely to mislead or deceive.22
In the context of commercial dealings, the relevant perspective will be that of potential purchasers of the services.23
[47] Although it is not necessary that every person in that group is likely to be misled or deceived by the conduct in question, it is not sufficient to show that some
small percentage might be.24 Rather, the test is whether a “substantial” or
16 See Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
17 Red Eagle Corp Ltd v Ellis, above n 16, at [28].
18 Hornsby Building Information Centre Proprietary Ltd v Sydney Building Information Centre Ltd
(1978) 140 CLR 216 at 228, affirmed in Red Eagle Corp Ltd v Ellis, above n 16, at 503; see also
Neumegen v Neumegen and Co, above n 14, at 317.
19 Magellan Corp Ltd v Magellan Group Ltd, above n 11, at 608; Tot Toys Ltd v Mitchell, above n
9, at 343.
20 Airport Rentals Ltd v Airport Car Rentals (Southern) Ltd (1995) 6 TCLR 664 (HC) at 667; see also Bonz Group Pty Ltd v Cooke (1996) 7 TCLR 206 (CA) at 213–214.
21 Airport Rentals Ltd v Airport Car Rentals (Southern) Ltd, above n 20, at 667, see also Bonz
Group Pty Ltd v Cooke, above n 20, at 213–214.
22 See Red Eagle Corp Ltd v Ellis, above n 16, at [28]; Parkdale Custom Built Furniture Pty Ltd v
Puxu Pty Ltd [1982] HCA 44, (1982) 149 CLR 191 at 199.
23 Intercity Group NZ Ltd v Nakedbus NZ Ltd, above n 9, at [191].
24 Intercity Group NZ Ltd v Nakedbus NZ Ltd, above n 9, at at [191].
“significant” number of persons in that group are likely to be misled or deceived.25
As the Court of Appeal observed in Neumegen v Neumegen and Co:26
... if the number of affected members of the public is or will be very small and the impact upon those persons is or will be minimal a Court may be justified in taking the view that, looked at in the round, the conduct of the defendant is not properly to be characterised as deceptive or misleading or that, even if it has to be so characterised, what has occurred or is likely to occur is so lacking in real importance to any consumers who may be affected that the Court's discretion may fairly be exercised against the granting of a remedy.
[48] The Court must take into account the effect of the conduct upon the reasonable consumer.27 The reasonable consumer exercises a degree of care that is reasonable having regard to all the circumstances.28 He or she will not lack perception and can be expected to possess a reasonable degree of commonsense.29
Requirement for goodwill
[49] A misrepresentation, either by words or by conduct, is at the heart of an allegation of misleading or deceptive conduct under s 9 of the FTA.30 Where the allegation of misrepresentation is based on similarity to the trading name of Company A, Company A’s trading name must have acquired a reputation amongst a class of consumers as denoting Company A’s goods or services.31 In other words, there must be goodwill in Company A’s trading name.
What is “misleading” or “deceptive”?
[50] The FTA does not define “misleading” or “deceptive”. The High Court of
Australia has held that conduct which merely causes “confusion or wonderment”
25 Intercity Group NZ Ltd v Nakedbus NZ Ltd, above n 9, at [191]; Peter Bodum A/S v DKSH Australia Pty Ltd (ACN 005 059 307), above n 15, at [206].
26 Neumegen v Neumegen and Co, above n 14, at 317.
27 See Bonz Group Pty Ltd v Cooke, above n 20, at 213; see also Peter Bodum A/S v DKSH Australia Pty Ltd (ACN 005 059 307), above n 15, at [206]; Google Inc v Australian Competition and Consumer Commission [2013] HCA 1, (2013) 249 CLR 435 at [7].
28 Godfrey Hirst NZ Ltd v Cavalier Bremworth Ltd [2014] NZCA 418, [2014] 3 NZLR 611 at [51].
29 Unilever New Zealand Ltd v Cerebros Gregg’s Ltd (1994) 6 TCLR 187 (CA) at 192.
30 Co-operative Bank Ltd v Anderson [2014] NZHC 2686 at [51]; see also Airport Rentals Ltd v
Airport Car Rentals (Southern) Ltd, above n 20, at 667.
31 Neumegen v Neumegen and Co, above n 14, at 317; see also Magellan Corp Ltd v Magellan
Group Ltd, above n 11, at 608–609.
will not necessarily be misleading or deceptive; something more than that is required.32
[51] Generally the courts have held that the words are clear of themselves and no judicial gloss or additional test is needed.33 Thomas J commented in Neumegen v Neumegen and Co:34
In the end, the Court must always return to [the words of the section] and apply them to the particular facts. It is essentially a question of fact and degree.
[52] Where the allegedly infringing conduct consists of trading under a name said to be misleadingly or deceptively similar to the plaintiff’s name, different considerations will apply depending upon whether the plaintiff’s name is truly distinctive of its business (e.g. “Xero”), or is descriptive of the service it provides. In the latter case the starting point in terms of analysis is Lord Simmonds’ often repeated observations in Office Cleaning Services v Westminster Windows and
General Cleaners Ltd:35
Where a trader adopts words in common use for his trade name some risk of confusion is inevitable. But that risk must be run unless the first user is allowed unfairly to monopolise the words. The Court will accept comparatively small differences as sufficient to avert confusion. A greater degree of discrimination may fairly be expected from the public where a trade name consists wholly or in part of words descriptive of the articles to be sold or the services to be rendered.
[53] That observation echoes earlier comments to similar effect by Lord Shand in
Cellular Clothing Co Ltd v Maxton and Murray, namely:36
The person employing a word or term of well known signification and ordinary use – although he is not able to obtain a patent for his manufacture, and although he has not got the protection of a registered trade mark for the goods he is proposing to sell – is yet able to acquire the right to appropriate a word or term in ordinary use in the English language to describe his goods, and to shut others out from the use of this descriptive term, he would really acquire a right much more valuable than either a patent or a trade mark; for
32 Google Inc v Australian Competition and Consumer Commission, above n 27, at [8].
33 See Taylor Bros Ltd v Taylors Group Ltd, above n 13, at 39; Paper Plus New Zealand Ltd v
Robert Mitchell Ltd HC Auckland CL.53/92, 10 March 1993 at 5.
34 Neumegen v Neumegen and Co, above n 14, at 323.
35 Office Cleaning Services v Westminster Windows and General Cleaners Ltd [1946] 63 RPC 39 (HL) at 43.
36 Cellular Clothing Co Ltd v Maxton and Murray [1899] AC 326 (HL) at 339–340.
he and his successors in business would gain the exclusive right, not for a limited time as in the case of a patent, but for all time coming, to use the words applicable to goods which others may be desirous of manufacturing and are entitled to manufacture and sell as much as he is. That being so, it appears to me that the utmost difficulty should be put in the way of anyone who seeks to adopt and use exclusively as his own a merely descriptive term.
[54] Granting a monopoly over purely descriptive words in circumstances where other traders have a reasonable and legitimate interest in using those words, without improper motive, in their business is both anti-competitive and contrary to the intention of consumer protection legislation. Stephen J identified the problem in Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd when he said:37
To allow this section of the Trade Practices Act to be used as an instrument for the creation of any monopoly in descriptive names would be to mock the manifest intent of the legislation. Given that a name is no more than merely descriptive of a particular type of business its use by others who carry on that same type of business does not deceive or mislead as to the nature of business described.
[55] Harrison J was similarly exercised in DB Breweries Ltd v Lion Nathan Ltd:38
In my judgment also there is no justification in policy or principle for providing DB with what is in effect a monopolistic or quasi monopolistic right, equivalent to the protection of a trade mark, to a descriptive or generic name. To the contrary, such a result would be inimical to commercial freedom and competition and could only ever be rationalised if DB was able to show the words “Summer Ale” have acquired a secondary meaning connoting a degree of exclusivity, as denoting the goods. There is no evidential foundation for that argument here.
[56] As this extract indicates, for a descriptive name or word to be protected it must typically have acquired a secondary meaning. NMS relies heavily on alleged secondary meaning in its name to answer the allegation that it must accept some element of confusion with the defendants’ name as the price for the descriptive
words in its name.
37 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd, above n 18, at 230.
38 DB Breweries Ltd v Lion Nathan Ltd (2007) 12 TCLR 25 (HC) at [37].
[57] As Arnold J observed in NZ Tax Refunds Ltd v Brooks Homes Ltd,39 such secondary meaning is probably not an invariable requirement to secure protection.40
Nevertheless, the overwhelming majority of cases where descriptive words have been protected are where such a secondary meaning has been acquired.
[58] However, the corollary does not necessarily apply: having established a secondary meaning in descriptive words (in the sense of some association of the trading name in a particular location with a particular business), a plaintiff is not automatically in a position where it can restrict the use of comparatively minor variants on that name. That appears from the decision of Tipping J in Airport
Rentals Ltd v Airport Car Rentals (Southern) Ltd.41 Having said that the case
concerned the “often difficult subject of similar trade names” (a comment with which, in the context of this case, I am bound to agree) he identified the general rule as being:42
… the more distinctive a trading name is, both in itself and as identifying the plaintiff’s business, the further away competitors must keep in the names they adopt. On the other hand, if the plaintiff’s trading name is generic or descriptive (i.e. made up of words which describe common things and are in common use) the nearer the competitors may approach. In the second type of case only small distinctions may be enough to avoid passing off or conduct which can be impugned under the Fair Trading Act 1996.
[59] He then indicated that cases in the second category “involve not only a comparison of the names themselves”, but what he described as “other factors”, including “the length of time the plaintiff’s name has been generally identified with the plaintiff”, i.e. the quintessential inquiry into whether secondary meaning has
been established.43
39 NZ Tax Refunds Ltd v Brooks Homes Ltd, above n 9, at [19].
40 Compare Mark Davison and Ian Horak Shanahan’s Australian Law of Trade Marks and Passing Off (5th ed, Thomson Reuters, Sydney, 2012) at [105.1075], which suggests that it is a mandatory requirement citing numerous authorities at footnote 211.
41 Airport Rentals Ltd v Airport Car Rentals (Southern) Ltd, above n 20.
42 At 665. See to similar effect the observation by the Court of Appeal in Intellectual Reserve Inc v
Sintes [2009] NZCA 305, [2014] NZAR 556 at [74]:
“… the public is alert to small variations in largely descriptive marks because they expect others to use similar marks and are alert for detail that would distinguish one provider from another”.
43 At 665.
[60] He went on to state:44
As I said in the introduction to this judgment, words which are purely descriptive are less likely to be susceptible of protection than words which are distinctive. There is, however, no absolute embargo on descriptive words being afforded some measure of protection. The point can be made by assuming for the moment that the plaintiff was seeking protection for a name comprising only the words “car rentals” or to put it at a more extreme level simply the word “rentals”. Obviously those examples would be a very fragile basis for any claimed protection. The words “airport” when added to the word “rentals” is a step towards greater distinctiveness.
The more is this so if there is evidence demonstrating that the trading name as a whole is associated in the particular location with a particular business…. To that extent the name may be regarded as distinctive.
(Emphasis added)
[61] So his Honour saw evidence of secondary meaning in the sense previously described as assisting to establish the level of distinctiveness necessary to afford protection.
[62] Nor do I consider that Asher J’s observation in Co-operative Bank v Anderson
compels any different approach.45
The use of such a generic and descriptive name cannot give rise to a claim in passing off unless the use of the word in that context has acquired a secondary meaning so that its use by others will constitute a misrepresentation.
(Emphasis added)
[63] Earlier in his judgment Asher J recognised that cases in which a passing off or FTA claim had succeeded in relation to a generic or descriptive name had a number of features that, when taken together, meant there was a real likelihood of confusion or deception, namely:46
(a) A name containing descriptive words in combination.
(b) The development of a particular established reputation in the name.
Thus in the New Zealand Insurance case the name had been used for over 100 years in New Zealand, and that name had a secondary
reputation that was exclusively distinctive of the plaintiff. In the Hill
Flooring case the business had established an exclusive reputation in
44 At 667.
45 Co-operative Bank v Anderson, above n 30, at [37].
46 At [31].
a geographical area. This was also the case in Airport Rentals. In the Shotover Jet case Hardie Boys J was more equivocal, but observed that the name “…might have acquired some secondary meaning identifying the solely (sic) with the plaintiff’s business”.
(c) The defendant using the same descriptive words as the plaintiff.
Indeed, in all four cases, there were two identical words in each name.
(d) A high degree of similarity overall in the names at issue. (e) The parties trading in the same market.
(f) Evidence of confusion or the Judge considered that confusion or deception was likely.
(Footnotes omitted – emphasis added)
[64] Whether or not identified differences are sufficient to distinguish a name is therefore a factual matter to be determined in the context of the particular case. In Airport Rentals, the plaintiff (Airport Rentals Ltd) had been operating for seven years. The Court held that despite the absence of “car” from its title, the name would “normally be read … as at least including cars and probably as referring primarily to
cars”.47 The insertion of the word “car” in the defendant’s name (Airport Car
Rentals) was therefore insufficient to prevent an injunction issuing against it. Likewise, in NZ Tax Refunds Ltd v Brooks Homes Ltd, the defendant was seeking to establish itself under the trading name “Tax Refund NZ” when the plaintiff had for many years, and at very considerable cost, traded under and promoted its name “NZ Tax Refunds”. The movement of “NZ” to the end of the name was considered an insufficient distinction.
[65] These cases illustrate that identification of so-called secondary meaning (unless confined to names with a very high level of distinctiveness) has the capacity to limit what should be a wider inquiry into whether use by a competitor with a broadly similar descriptive name will mislead or deceive. I accept in that respect Mr Miles QC’s reference to all such cases as falling on a “continuum”. So in New
Zealand Insurance Ltd v New Zealand Insurance Brokers Ltd,48 where the secondary
meaning had been so well established over such a lengthy period of time that the descriptive words had become totally synonymous with a particular company for
47 At 667.
48 New Zealand Insurance Co Ltd v New Zealand Insurance Brokers Ltd [1976] 2 NZLR 40 (SC).
significant parts of the community, the injunction which issued against the defendant was predictable. But there will be many cases in which a plaintiff is able to demonstrate some element of local or national reputation or distinctiveness which nevertheless falls far short of this.
[66] On the approach I adopt, therefore, the establishment of secondary meaning in generic words will be among relevant considerations in determining how close a competitor can approach (that is, the extent of the differences required in a defendant’s name), but it does not create an exclusive monopoly in those words when other properly distinguishing features are present. And some element of low level confusion may nevertheless have to be tolerated as the price paid for the adoption of a descriptive name.
[67] An alternative way of approaching the issue is to recognise all cases of secondary meaning as an exception to the “comparatively small differences may suffice” principle but to impose a very exacting standard in terms of when secondary meaning is made out. Thus in Dominion Rent A Car Ltd v Budget Rent A Car
Systems, (1970) Ltd, Cooke P said:49
There is a price to be paid for an eloquently descriptive trade name. Its very descriptiveness tends to make it not truly distinctive of any particular business. “The risk of confusion must be accepted”, as Stephen J put it, “to do otherwise is to give to one who appropriates to himself descriptive words an unfair monopoly in those words and might even deter others from pursuing the occupation which the words describe”. This principle does not altogether rule out the possibility that by usage the descriptive words may become distinctive of the business ... but it means that true distinctiveness is especially hard to establish.
(Emphasis added)
[68] I respectfully adopt those observations and the burden they place on the plaintiff in the present proceedings. Clearly NZI would have satisfied the level of “true distinctiveness” that Cooke P considered so difficult to establish. Asher J
recognised as much in Co-operative Bank v Anderson.50
49 Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd [1987] 2 NZLR 395 (CA) at
408.
50 Co-operative Bank v Anderson, above n 30, at [31].
[69] On either approach I agree with Mr Miles that the inquiry necessarily conducted is intensely factual and that there is a danger in attempting to extrapolate some over-riding legal principle from findings particular to individual cases. Hardie Boys J was clearly of similar mind when, in Shotover Gorge Jet Boats Ltd v Marine Enterprises Ltd, he said:51
[158] In each case it is essentially a question of fact for the trial Judge to determine, on all the material before him, whether the likelihood of deception and damage has been established by the plaintiff.
Misleading or deceptive conduct in the Internet age
[70] The digital age and the increasing importance of the Internet both as a source of consumer information and as a marketing platform for business has generated a body of s 9 and passing off case law particular to that context.
[71] NMS relies on a number of decisions from New Zealand, England, Canada and Australia in support of a submission that the appearance of NS advertisements or organic listings in response to searches for NMS will constitute conduct in breach of s 9 of the FTA. Because of the importance of this submission to the plaintiff’s case I will refer to each of the decisions relied on.
[72] The first is Intercity Group NZ Ltd v Nakedbus NZ Ltd.52 In that case, Intercity alleged that the use by Nakedbus of the words “inter city” in its Google advertisements amounted to passing off and a breach of s 9.
[73] Asher J focused on the point at which the advertisements were read. In assessing whether there was relevant confusion he said he was required to consider what the “well-informed and reasonably attentive internet user” would understand when they looked at the search engine results page (SERP) and saw the advertisements,53 “Inter city buses from $1 – We’ll beat any inter city fare”. Asher J
considered it:54
51 Shotover Gorge Jet Boats Ltd v Marine Enterprises Ltd [1984] 2 NZLR 154 at 158.
52 Intercity Group NZ Ltd v Nakedbus NZ Ltd, above n 9.
53 At [192].
54 At [200].
… 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.
[74] He expressed his conclusion on misleading and deceptive conduct as follows:55
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.
[75] Next NMS relies on the English decision in Victoria Plum Ltd v Victorian Plumbing Ltd.56 In that case the plaintiff and first defendant were both bathroom retailers operating primarily or exclusively online. The plaintiff claimed that the first defendant had infringed the plaintiff’s trade marks by deliberately bidding for the keywords “Victoria Plum” (the plaintiff’s trading name) and minor variants thereof, with the result that searches for “Victoria Plum” were producing advertisements in the name of the defendant Victorian Plumbing. The evidence established that by
2015 the defendant was spending in excess of £600,000 annually on the targeted campaign.
[76] In the context alleged of trade mark infringement Carr J accepted that the
“critical question to be answered” was:57
... whether the advertisement does not enable normally informed and reasonably observant internet users, or enables them only with difficulty, to ascertain whether the goods or services referred to in the advertisement originate from the proprietor of the trade mark or an undertaking economically connected to it or, on the contrary, originate from a third party.
55 At [222].
56 Victoria Plum Ltd v Victorian Plumbing Ltd [2016] EWHC 2911 (Ch).
57 At [41].
[77] He noted that there was no dispute that the defendant was bidding on the plaintiff’s trade mark as a key word and concluded that the defendant’s advertisements did not enable normally informed and reasonably attentive Internet users to ascertain whether the goods or services referred to by the advertisements originated from Victoria Plum or from a third party.58 They were in that sense insufficiently transparent. At [121] his Honour noted:
The Claimant’s complaint is not confined to cases where the First Defendant’s advertisements appear in first or second place. Rather it depends on application of the Google Frame test which requires the First Defendant when bidding on the Victoria Plum (b) keywords to ensure that its resulting advertisements are “transparent”.
[78] His Honour considered himself reinforced in this conclusion by actual evidence of confusion: the expert evidence showed the click through rates to the defendant’s website had increased remarkably since targeting the plaintiff’s trading name in its Google keywords. The first defendant was therefore liable for trade mark infringement.
[79] Significantly (in the context of this case), the plaintiff did not seek to restrain the first defendant’s use of the name Victoria Plumbing and accepted the low level of confusion which previously existed. Its complaint was that the defendants had exacerbated that confusion with an AdWords campaign deliberately targeting the plaintiff’s trademark. The transparency test referred to in paragraphs [76] and [77] above was formulated in that unique context. The present case is in a very different category, reinforced by the undertakings which the defendants have given. I therefore do not consider it appropriate to directly apply the Victoria Plum transparency test to the present facts.
[80] The third case relied on is the very recent decision of the Court of Appeal of British Columbia in Vancouver Community College v Vancouver Career College (Burnaby) Inc.59 The appellant, Vancouver Community College, alleged passing off and unlawful use of its trade marks by the respondent, Vancouver Career College, in the context of the latter’s online profile. The passing off claim related to Vancouver
Career College’s use of the acronym “VCC” in that context.
58 At [58].
59 Vancouver Community College v Vancouver Career College (Burnaby) Inc 2017 BCCA 41.
[81] The Court of Appeal accepted that the appellant had goodwill in the acronym in that a significant portion of the public would recognise it as designating Vancouver Community College. In assessing whether confusion would be likely to occur in the minds of reasonably informed members of the public, the Court held that the relevant time for assessment was when the search results appeared on the SERP. Such search results contained the acronym “VCC” that had been long associated with the appellant, and there was nothing to distinguish the results or
domain name VCCollege.ca from Vancouver Community College.60 This caused
damage to the appellant’s goodwill, and accordingly the appellant’s claim in passing
off was established.
[82] In REA Group Ltd v Real Estate 1 Ltd, a decision of the Federal Court of Australia,61 both parties operated online portals that listed real estate available to rent or buy. The respondent used the domain name “realestate1.com.au”. The appellant, which used the domain name “realestate.com.au”, argued that the use of this domain name by the respondent amounted to passing off and constituted misleading or deceptive conduct in breach of s 52 of the Trade Practices Act 1974 (Cth).
[83] Bromberg J concluded that Real Estate 1 had not engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act. He noted first that when a consumer searches specifically for “realestate.com.au”, they are likely to expect that realestate.com.au will be at or near the top of the results, and will be less vigilant in assessing the results. However, there was no risk of confusion in that context because Real Estate 1 did not appear at all in the first 100 search results for
the search terms “realestate.com.au”. Further:62
Once the attention of the “ordinary” and “reasonable” consumer moves away from the first result and to the rest of the search results page, that expectation will no longer be in play and the “ordinary” or “reasonable” consumer may be expected to be vigilant to notice small differences on a page riddled with references to “realestate” and “realestate.com.au”.
60 At [70]–[71].
61 REA Group Ltd v Real Estate 1 Ltd [2013] FCA 559, (2013) 217 FCR 327.
62 At [168].
[84] From the above cases it is clear that the standard to be applied in assessing the likelihood of consumers being misled or deceived is that of the normally informed and reasonably attentive Internet user, whom Asher J described in Intercity as follows:63
Such a person cannot be expected when scanning a results page on the screen, to read advertisements with absolute accuracy or care ... On the other hand, the reasonable user is not careless in his or her observations, and can be expected to exercise a consumer’s customary scepticism of advertisements.
[85] In REA Group Ltd v Real Estate 1 Ltd Bromberg J said of such reasonably attentive user:64
The level of familiarity of such persons with the functionality of search engines and the nature and content of a search results page means that such persons are likely to understand that:
(i) search results include advertisements (which are identified as such)
and other results;
(ii) the advertisements or “sponsored links” will, like all advertisements, be paid for by the advertiser, contain content provided by the advertiser and are likely to have a prominence of place on the search page referable to the payment made by the advertiser;
(iii) the other results (the organic search results) are generated and ordered by the search engine predominantly by reference to the relevance of the websites displayed to the keywords searched for by the searcher; and
(iv) the content of the organic search results has likely been taken by the search engine from the web page or website whose URL is displayed in the result and as such, the words displayed are likely to be those of the web page and not words authored by the search engine.
[86] NS argues that in the case of companies using descriptive names, consumers should be credited with the ability to resolve any initial confusion arising from search results by reference to the respective companies’ websites. It says that in this case the branding of two companies is so very distinct that any such initial confusion
will be quickly dispelled.65
63 At [158].
64 At [96].
65 Albeit that it does not accept initial confusion will occur at any material level.
[87] This engages what is sometimes referred to as the concept of “initial interest confusion”. The concept appears to have its origins in American authorities and has, at least in the trade mark context, been dismissed as “an unnecessary and potentially misleading gloss on the tests the Court has articulated” and one which “we think … should perform no part of the analysis of our national courts in claims of the kind
before us”.66 It draws on some of the jurisprudence from the point of sale cases in
which courts have consistently rejected the notion that confusing advertising can be remedied for s 9 purposes by access to the products themselves on the shop shelf.67
In the Internet context the Federal Court of Australia has likewise held that advertisements which are misleading or deceptive cannot be cured by reference to the next stage in the search process. So in Veda Advantage Ltd v Malouf Group Enterprises Pty Ltd Katzmann J observed:68
The sponsored link advertisements for “The Veda Report Centre” were apt to mislead ... They were likely to lead ordinary or reasonable consumers in the relevant class to mistakenly think that they would be dealing with Veda. It is no answer to say, as Malouf did, that any mistaken impression would be transitory because it would have been dispelled once the consumer clicked on the link and was taken to the website of the relevant Malouf business. By then, the consumer has been enticed into Malouf’s “marketing web” ...
It is impossible for the Court to know whether a consumer misled by an online advertisement will immediately “click” through to the terms and conditions page, whether he or she will take a different step such as no longer proceeding with the purchase of an alternative service from a competitor, or whether he or she will take no immediate step but will go away under a false impression to act later.
[88] A similar approach is evident in the Vancouver Community College decision.
[89] In New Zealand Asher J touched on the same subject in Intercity where he said:
[205] My finding in relation to clicking on the advertisement relates to what is sometimes called “initial interest confusion”. Initial interest confusion can itself show an adverse effect on the origin function of the trade mark. I also find that a significant number of consumers would remain
66 Interflora Inc v Marks and Spencer plc [2014] EWCA Civ, [2015] FSR 10.
67 Trust Bank Auckland Ltd v ASB Bank Ltd [1989] 3 NZLR 385 (CA) at 389; Allied Liquor Merchants Ltd v Independent Liquor (NZ) Ltd (1989) 3 TCLR 328 (HC) at 336; Tasman Insulation New Zealand Ltd v Knauf Insulation Ltd [2014] NZHC 960, (2014) 108 IPR 162 at [278]–[279].
68 Veda Advantage Ltd v Malouf Group Enterprises Pty Ltd [2016] FCA 255, (2016) 241 FCR 161 at [254].
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.
(Footnotes omitted)
[90] However, it is clear from the extract cited that he regarded the initial confusion as compounded rather than clarified by the material on the defendant’s website.
[91] I must admit to some reservations about the concept. In my view it may underestimate the level of sophistication of the informed and reasonably attentive Internet user. As the defendants’ expert Mr Shand says, the online environment is markedly different from the physical world. Consumers are, I accept, well used in the digital environment to clicking on multiple sites to find what they are looking for and to some element of ephemeral confusion in the process. Were this a marginal case (which I do not consider it to be) and given that it is based on name similarity alone, I would not have regarded as irrelevant the very distinctly different branding evident at the point a consumer clicked on NS’s website.
[92] However, even if the concept of initial interest confusion was thought to apply, it will have no place if, on consideration of the search result as a whole (that is including the heading, URL, descriptive text and other contextual circumstances including the positioning of the result on the SERP), an informed and reasonably attentive Internet user would not be misled or deceived. As Katzmann J noted in
Veda:69
Ordinary and reasonable members of the class would read the advertisement as a whole, see the address appearing immediately below the headline, understand it to indicate the web page to which they would be taken if they were to click on the relevant link, and would expect to be taken to that website.
69 Veda Advantage Ltd v Malouf Group Enterprises Pty Ltd, above n 68, at [245]. See also REA Group Ltd v Real Estate 1 Ltd, above n 61, at [156].
Conclusions on the Internet authorities
[93] I am unpersuaded by Mr Brown QC’s submission that any or all of those authorities dictate the outcome he contends for. Both Intercity and Victoria Plum involved defendants who had deliberately bid through Google AdWords on the plaintiff’s name and who had then chosen to advertise in a way which did nothing to clarify the distinction between the two businesses. Indeed the advertisements could be considered to have exacerbated the problem. That is a very considerable distance from this case, and the plaintiff’s acceptance in Victoria Plum that it was required to live with some element of confusion arising out of similarity in trade names is instructive.
[94] Likewise in Vancouver Community College the respondent’s use of the domain name VCCollege.ca, which not only included the acronym long associated with the appellant but which otherwise lacked distinguishing features, made the result, in my view, inevitable. But again the present case is not marked by any such clearly misleading marketing strategy and the defendants’ undertakings provide a significant measure of comfort in terms of the defendants’ conduct in the future.
[95] REA is ultimately unhelpful to the plaintiff because it emphasises the priority always attaching to SERP results which exactly duplicate the search term, as well as the level of discrimination and vigilance to small differences consumers can be expected to have as they move down the page.
Quia timet actions and date at which conduct is assessed
[96] NMS brings a quia timet application on the basis that it anticipates a breach of s 9 of the FTA by NS but this has not yet occurred.
[97] Section 41 of the FTA entitles a plaintiff to seek an injunction for an anticipated breach of the Act. Relevantly it provides:
41Injunctions may be granted by court for contravention of Part 1, Part 2, Part 3, and Part 4
(1) The court may, on the application of the Commission or any other person, grant an injunction restraining a person from engaging in conduct that constitutes or would constitute any of the following—
(a) a contravention of any of the provisions of Parts 1 to 4 ...
…
(4) Where an application is made to the Court under this section for the grant of an injunction restraining a person from engaging in conduct of a particular kind, the Court may,—
(a) If it appears to the Court that, in the event that an injunction is not granted, it is likely that the person will engage in conduct of that kind, grant an injunction restraining the person from engaging in conduct of that kind; or
(b) If in the opinion of the Court it is desirable to do so, grant an interim injunction restraining the person from engaging in conduct of that kind,—
whether or not the person has previously engaged in conduct of that kind and whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind.
(Emphasis added)
[98] NMS submits that the relevant date for assessing whether NS’s conduct is likely to mislead or deceive is the date on which it publicly announced its intention to expand into Auckland under the name National Storage, namely 8 February 2016. Specifically, it says that in assessing the reputations of the two companies for the purposes of the s 9 analysis this is the relevant date, albeit that because of interim undertakings NS has yet to establish any physical presence in the Auckland area.
[99] The argument is premised on what is said to be a two stage inquiry under s 41.
(a) First, under s 41(1) the question is: “would” the threatened conduct complained of “constitute” a breach of s 9? This involves looking at the specific conduct complained of in the statement of claim (the announcement of an intention to acquire and operate facilities in Auckland) as at the date of that conduct.
(b)Second under s 41(4) the Court has to then consider at the date of hearing whether “in the event that an injunction is not granted it is likely that [the defendant] will engage in conduct of that kind, with the words “that kind” pointing back to the threatened breach complained of.
[100] In support of this proposition, Mr Brown cites Prudential Building and Investment Society of Canterbury v Prudential Assurance Co of NZ Ltd.70 In that case, Prudential Assurance had offices throughout New Zealand (including Christchurch) and was found to have substantial goodwill in the name “Prudential”. Prudential Building Society was originally based in Christchurch but undertook significant expansion from mid-1987. It opened offices throughout the country and advertised in newspapers using the name “Prudential” in a similar typeface to that of Prudential Assurance. Prudential Assurance sought an injunction preventing
Prudential Building Society from using the name “Prudential” outside Christchurch and limiting its ability to do so within Christchurch to situations where it used its full registered name, in a typeface distinct to that of Prudential Assurance. McGechan J granted an injunction to this effect in the High Court, concluding that Prudential Building Society’s conduct was misleading and deceptive.
[101] Prudential Building Society appealed, filing further affidavits to demonstrate that in its radio and billboard advertisements, it now gave prominence to the disclaimer: “Not associated with Prudential Assurance”. The Court of Appeal was not persuaded that this new evidence meant there was no breach of s 9, but it did take it into account in the context of remedy, imposing a slightly less restrictive injunction than that ordered by the High Court.
[102] Mr Brown submits that, in declining to take into account developments between the High Court and Court of Appeal hearings, the Court of Appeal’s decision in Prudential supports his February 2016 focus. However, I do not see the case as assisting him. In Prudential, the conduct which allegedly breached s 9 of the
FTA had already occurred at the date of the hearing: the plaintiff said that Prudential
70 Prudential Building and Investment Society of Canterbury v Prudential Assurance Co of NZ Ltd
[1988] 2 NZLR 653 (CA).
Building Society’s actions in opening offices beyond Christchurch and advertising using the name “Prudential” constituted misleading or deceptive conduct. The Court was therefore naturally required to look to the historic position. The subsequent disclaimers could not erase the accrued cause of action.
[103] By contrast, the exercise I am required to undertake is prospective. I must assess, as best I can at the date of judgment, whether NS’s proposed conduct is likely to mislead or deceive consumers.
[104] There is nothing in my view in s 41 supporting the contention that “conduct of that kind” should be interpreted as the “threat” to expand into Auckland. The “conduct of that kind” is conduct in breach of s 9. In the present case such conduct (if shown to be misleading) would be physical expansion of the business into Auckland under the trade name National Storage. Indeed the very nature of a quia timet injunction is forward looking – even more so than in the typical injunction
context where Fisher J in Magellan Corp Ltd v Magellan Group Ltd said:71
To determine whether an injunction is necessary one must make a prediction as to the likelihood of misleading conduct. The parties’ past and current conduct will certainly be an aid to predicting the future but in the end an injunction could be justified only upon the basis that without one the defendant’s conduct would be misleading from this point on. … Whether the trader acts in [a way that misleads or deceives] must ultimately turn upon the reputations of the two organisations as at the date of the conduct in question, however and whenever those reputations may have been derived.
… if the ultimate question is whether conduct is misleading it must be the
reputation today which matters, not its causes or history.
[105] I do not therefore accept Mr Brown’s submission that defendant’s reputation is to be assessed under the FTA as at February 2016. But at an even more fundamental level I question how the plaintiff’s argument impacts on the analysis I must undertake. When pressed, Mr Brown said that the issue was relevant to NS’s affirmative defence of honest concurrent use and possibly to the defence of acquiescence. However, despite having been pleaded in response to both the FTA
and passing off causes of action, the defendants acknowledge the honest concurrent
71 Magellan Corp Ltd v Magellan Group Ltd, above n 11, at 612. That was a case in which, although each party had already engaged in allegedly infringing conduct, the reputation of each party was nevertheless assessed at the time of hearing. The present case is therefore arguably a stronger one for assessing the defendant’s reputation at the date of hearing.
use defence is only available in respect of the latter and in the acquiescence context the focus is not on reputation as such but on the plaintiff’s conduct and the defendants’ response.
[106] On the view I ultimately take of the plaintiff ’s claim (and if incorrect in that assessment, of the honest concurrent use defence) I do not see it as necessary to further address the plaintiff’s submissions on this point. For completeness, however, I simply add that this is not in my view a case where the defendants have set about deliberately to try to bolster their reputation in Auckland with a view to providing some foundation for an honest concurrent use defence. Had they done so then the “honesty” of the concurrent use would have clearly been in question. As it is, I accept that in the course of their legitimate marketing activities in New Zealand and Australia there is a gradually increasing reputation and goodwill in Auckland, albeit not one sufficient to found the defence.
Passing off
[107] The tort of passing off is essentially one of injury to goodwill.72 As the Court of Appeal has commented, it represents:73
... a compromise between two conflicting objectives, on the one hand the public interest in free competition, on the other the protection of a trader against unfair competition by others.
[108] The question, therefore, is whether the “bounds of appropriate commercial behaviour have been overstepped to the detriment of a party who has an interest the law protects”.74
[109] Passing off is frequently pleaded alongside breach of s 9 of the FTA. While the principles behind the two claims are distinct (passing off being a tort of a private
nature and the FTA being directed at protection of consumers),75 the two are often
72 Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd, above n 49, at 411.
73 Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd, above n 49, at 420.
74 Vancouver Community College v Vancouver Career College (Burnaby) Inc, above n 59, at [54].
75 Ann Dufty and James Lahore Patents, Trade Marks and Related Rights: Volume 1A (looseleaf ed, LexisNexis, Sydney, 2006) at [74,350]; Mark Davison and Ian Horak, above n 40, at [105.1075].
treated similarly by the courts: where passing off is established, breach of the FTA is typically also made out.76
[110] Nevertheless, there are differences between the two causes of action, which Fisher J discussed in Tot Toys Ltd v Mitchell.77 Those that are relevant for present purposes can be summarised as follows:
(a) There is no need to prove damage to the plaintiff under s 9 of the
FTA, but that is an essential element of passing off.
(b)The requirements as to standing are also stricter for passing off: any interested person can enforce the FTA, but the plaintiff can only bring an action in passing off if his or her goodwill has been infringed.
(c) Given that passing off is a tort, the usual remedies for causes of action in tort are available. In respect of the FTA, however, the remedies are discretionary and restricted to those specified in ss 41–43.
(d)Defences of an inter partes nature that apply to an action in passing off will not necessarily also apply to an action under the FTA, which is of a public character.
[111] The three requirements for the tort of passing off are well established, and were summarised in Tot Toys Ltd v Mitchell as being:78
76 Ann Dufty and James Lahore, above n 75, at [74,350]. See for example Muzz Buzz Franchising Pty Ltd v JB Holdings (2010) Ltd [2013] NZHC 1599 at [81], where Toogood J concluded that the plaintiff was entitled to injunctive relief from passing off and briefly commented that the Fair Trading Act cause of action was also made out: “It is implicit in what I have concluded above in relation to the similarity between the defendants' brand and that of the plaintiff, and the likelihood for confusion ... that I am satisfied also that the establishment of the defendants' business in the manner described amounts to conduct in trade which is likely to mislead or deceive.” See also REA Group Ltd v Real Estate 1 Ltd, above n 61, at [213], where the Federal Court of Australia found that the claim for misleading or deceptive conduct under s 52 of the Trade Practices Act was not made out, and accordingly: “[the] conclusions I have reached in relation to the s 52 claim also require that ... the corresponding passing off claim be dismissed”. See also Peter Bodum A/S v DKSH Australia Pty Ltd (ACN 005 059 307), above n 15, at [264].
77 Tot Toys Ltd v Mitchell, above n 9, at 367–368; see also Ann Dufty and James Lahore, above n
75, at [74,350].
78 Tot Toys Ltd v Mitchell, above n 9, at 334, cited with approval in NZ Tax Refunds Ltd v Brooks
Homes Ltd, above n 9, at [16].
(a) that there is some reputation or goodwill attached to [the plaintiff’s]
name, mark or get-up;
(b) that the defendant has used the same or a deceptively similar name, mark or get-up so as to confuse or deceive the relevant public or if unrestrained is likely to do so; and
(c) that as a result, damage has been or is likely to be caused to the
plaintiff’s business, reputation or goodwill.
[112] Damage to the plaintiff may consist in diversion of customers from the plaintiff’s business to that of the defendant,79 damage to the plaintiff ’s reputation,80 or dilution of the plaintiff’s goodwill by virtue of the two names no longer being sharply distinguished.81
The issues
[113] These appear to me to be as follows:
(a) Are the words “NATIONAL” and/or “MINI” and/or “STORAGE” generic terms and/or descriptive of the services offered by NMS and/or National Storage Group?
(b)Does NMS have goodwill/reputation in the name NATIONAL MINI STORAGE in the “Greater Auckland area” and if so what are the consequences?
(c) Is there a real likelihood that a significant number of consumers will be misled or deceived if National Storage Group operates self storage facilities in the greater Auckland area under the trading name NATIONAL STORAGE, as it currently does in the rest of New
Zealand and Australia? (FTA)
79 I note that diversion of customers must be causally connected to the confusion or deception that was found to be established; diversion of customers as a result of legitimate competition does not meet the requirement for damage. See Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR
1 (HC) at 15.
80 On the basis that complaints directed at the defendant’s business, or mistakes made by the defendant could, by a mistaken association, reflect badly on the plaintiff ’s business. See Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (HC) at 15.
81 See Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (HC) at 15.
(d)Is it reasonably likely that the defendants’ use of the name NATIONAL STORAGE in Auckland will deceive and cause confusion among a substantial number of consumers? (Passing off)
(e) If the answer to [113](d) above is “yes”, will NMS suffer loss/damage
as a result? (Passing off)
(f) Is NMS estopped by acquiescence?
(g) Is its passing off claim defeated by honest concurrent use?
(h) If the plaintiff’s claim is made out, what is the appropriate relief?
Generic and descriptive names
[114] Of the three words in the plaintiff’s name, “storage” is emphatically generic or descriptive. The plaintiff’s Managing Director Mr McFadzien accepted it as such. Of the 41 self storage facilities identified by Mr McFadzien as operating in the greater Auckland area, 30 use “storage” in their name and a further five, variants on the word “store”.
[115] Likewise the word “National” has a generic meaning, being common to a whole nation. Again Mr McFadzien accepted as much.82 I accept the defendants’ submission that there is something of an irony in the plaintiff’s position in that it seeks protection for this particular word when it is, on its face, misleading in terms of the geographic reach of the plaintiff’s business. Such may be a consideration in terms of whether discretionary relief should be granted, although I would not wish the point overemphasised.
[116] More significantly, I accept the defendants’ submission that NMS itself recognises the word’s descriptive element by including on the front page of its website a “moving outside of Auckland” link, recognising, as it must, that consumers
will consider it to have national coverage by virtue of its name.
82 In response to a question asking whether he would accept that “national”, absent other factors,
would be a generic word.
[117] “Mini” is perhaps the least generic of the words in its title, although it has a
strong association with “small”.
[118] The plaintiff ’s witness, Mr Bateman, described the “Mini” part of the plaintiff’s trademark as not generic or descriptive because when self storage facilities were first developed in the United States, the term “Mini” was used in that market as synonymous with self storage. However, he said it had never been adopted or promoted as a descriptive term in New Zealand. Nevertheless, the evidence is that facilities recently opened in Matamata, Cambridge and Nelson are using that term.
[119] Whether synonymous with self storage or not, I consider “mini” to have some descriptive element consistent with the nature of the plaintiff’s business. Its facilities are not, for example, pitched towards large scale machinery or manufacturing surpluses. It is in the business of providing small, secure, self storage units and in my view would be recognised as such by virtue of its name.
[120] The plaintiff submits that taken together, the three components of its name are not descriptive because a consumer cannot purchase a “national mini storage”. I agree with the defendants that the conclusion does not follow from the proposition stated. The name is descriptive in that the service offered is “mini storage” and the service provider is, at least theoretically, “national”.
Conclusions: passing off
[282] The conclusions expressed above similarly dispose of the passing off claim. I do not for the reasons indicated consider that the defendants’ proposed operation in the greater Auckland area under its trading name National Storage is likely to lead the public to believe that the services offered by them are the services offered by NMS or that NS is associated with NMS.
Affirmative defence: acquiescence
[283] In relation to both the FTA and passing off causes of action, the defendants plead an affirmative defence of acquiescence. I consider it briefly in the event I am incorrect in my primary findings.
[284] In the passing off context acquiescence was recognised as a potential defence in Shotover Gorge Jet Boats Ltd v Marine Enterprises Ltd.105 In Dominion Rent A Car Ltd v Budget Rent a Car Systems (1970) Ltd, Cooke P referred to the doctrine of acquiescence, as referred to in a Halsbury discussion about concurrent use and shared reputation, as being “well settled”.106 In the FTA context such issues typically arise in the consideration of relief under s 41, where it has been held that delay and acquiescence are “no more than common sense factors to be taken into account in deciding whether any remedy, whether equitable or statutory, should be granted.107 Broadly speaking, acquiescence applies where it would be unconscionable for a party to deny that which, knowingly or unknowingly, they have allowed or encouraged another to assume to their detriment.108
[285] Both the plaintiff and the defendants adopt the position that, whether considered at the defence or remedies stage, the plea is one potentially available to the defendants. I accordingly consider it on its facts, but mindful that in the FTA context it will often be in the public interest that an injunction is granted where conduct has been held to be misleading or deceptive and that the position inter partes
is therefore less relevant.109
[286] NS bases its argument on the proposition that for almost two years NMS was aware that it would inevitably be expanding into the Auckland area but that it
delayed raising any objection (despite the opportunity in direct discussions between
105 Shotover Gorge Jet Boats Ltd v Marine Enterprises Ltd, above n 51, at 160–161.
106 Dominion Rent A Car Ltd v Budget Rent a Car Systems (1970) Ltd, above n 49, at 407.
107 E R Squibb and Sons (NZ) Ltd v ICI New Zealand Ltd (1988) 3 TCLR 296 (HC) at 324. See also
Lindsay GS Trotman and Debra J Wilson Fair Trading: Misleading or Deceptive Conduct (2nd ed, LexisNexis NZ, Wellington, 2013) at [11.8] and [11.20].
108 See Dominion Rent A Car Ltd v Budget Rent a Car Systems (1970) Ltd, above n 49, at 414–415; Habib Bank Ltd v Habib Bank AG Zurich [1981] 1 WLR 1265 (CA) at 1285; Wham-O MFG Co v Lincoln Industries [1984] 1 NZLR 641 (CA) at 671.
109 ACI Australia Ltd v Glamour Glaze Pty Limited (1988) 11 IPR 269 (FCA) at 277–278; see also
Mark Davison and Ian Horak, above n 40, at [105.1080].
the parties) until after NS had already committed to over $50 million worth of acquisitions in New Zealand, believing that there would be no restriction on it ultimately operating in the country’s most lucrative market, Auckland. NS relies on the following:
(a) Its announcement at the SSAA’s August 2014 conference of its intention to expand into New Zealand. In that respect the plaintiff’s Mr McFadzien said that he did not give consideration at the time to whether that meant Auckland, although “he probably should have”. I consider that response unsatisfactory. With Auckland being New Zealand’s largest metropolitan market it must have been obvious to Mr McFadzien that if a publicly listed Australian entity intended to come to New Zealand, Auckland would inevitably be targeted. I consider Mr McFadzien well knew this from the time of the August
2014 announcement.
(b)A meeting in Auckland on 15 October 2014110 between NS’s Messrs Catsoulis and Contini and NMS’s Mr McFadzien at which NS’s representatives expressed an interest in acquisition of NMS. In cross-examination Mr McFadzien accepted this as certainly indicating that NS had intentions to move into the Auckland market.
(c) A further meeting between Mr Contini and Mr McFadzien on 15
March 2015, at which NS restated its interest in acquisition of NMS
and, as in the October meeting, was told that NMS was not for sale.
[287] NMS accepts that at neither of these meetings did Mr McFadzien indicate that, in the event NS purchased other storage facilities or opened a new greenfield location in Auckland, NMS would raise any objection to NS trading under its name. Nor did Mr McFadzien seek any legal advice about the implications of such a move.
[288] In response to a question from the Bench, Mr McFadzien accepted that at
least by mid 2015 when NS announced its acquisition of Christchurch facilities “the
110 Arranged following discussions on 5 September 2014.
writing was on the wall” in terms of NS moving to Auckland but suggested that he had not given it sufficient thought to actually form that conclusion. He acknowledged, however, that in hindsight NMS should have written to NS following the Christchurch acquisition in terms “we are not going to stop you operating in Christchurch but don’t operate in our patch”.
[289] However, NMS did not take the matter further until 2016, with NS having in the interim acquired facilities in Hamilton (September 2015). Mr McFadzien says that it was NS’s announcement to the Australian Stock Exchange on 8 February 2016 that it intended to enter the Auckland market which concentrated his mind, but that because of construction problems with NMS’s Newmarket facility he did not consult solicitors until May 2016. The letter requesting undertakings that NS not trade in Auckland under that name was not, in turn, sent until 1 July 2016 with NS having in the interim (May 2016) committed itself to the purchase of Hutt City and Newtown facilities.
[290] In my view NS’s intentions were obvious from an early stage and unarguably so from the time it started making its first acquisitions in New Zealand. To the extent Mr McFadzien suggested otherwise I do not accept his evidence. Whether he chose to turn a blind eye to the inevitable is ultimately irrelevant. He accepted himself that by mid 2015 at the latest he should have placed NS on notice as to NMS’s concerns.
[291] To my mind, the fact that he did not do so reflects on the extent to which NMS genuinely considered, at least at that stage, that use by NS of its name in Auckland would be misleading or deceptive because it was as much so then as it is today.
[292] More significantly, however, NS was in my view materially prejudiced by NMS’s passivity. It commenced and then continued with an acquisition strategy in other parts of New Zealand in circumstances where Auckland was always one of its target markets and for obvious reasons. It did so without any suggestion that when it did open in Auckland it would need to do so under an alternative brand, with all of the investment and marketing implications that entailed. It was deprived of an
opportunity to test its position without prior substantial investment outside the Auckland area, when investment in Auckland was always part of a comprehensive national strategy, as shown by its early attempts to acquire the plaintiff.
[293] I accept that the present case does not share with Dominion Rent A Car the feature that the plaintiff had formerly been active in encouraging the defendant to use its name. However, nor is it analogous to Wham-O MFG Co v Lincoln Industries where the acquiescence argument rejected by the Court of Appeal rested simply on the plaintiff’s three year delay in sending a letter registering its concerns.111
Although unreasonable and inordinate delay might in appropriate circumstances
itself found the defence,112 it is the particular circumstances of the two face to face meetings between NS and NMS personnel, in which the latter were clearly on notice of NS’s intended move to Auckland, that in my view puts this case in a different category. Silence in that particular context was behaviour which in my view could and did induce NS reasonably to believe that NMS would not be pursuing the claim it now does.
[294] In addition and even if not establishing an affirmative defence as such, these considerations would, I consider, have weighed against the discretionary relief sought. In the FTA context I reach that conclusion despite the public interest considerations previously referred to. In the case of attempted assertion of monopolistic or quasi monopolistic rights in a descriptive name, the correlative public interest in commercial freedom and competition tempers the extent to which, in my view, such considerations would apply in this case. As Fisher J recognised in
Tot Toys, it is open to the Court in exceptional cases to deny a remedy:113
… on the grounds that the deception would have no real impact upon consumers and/or that an injunction would be contrary to their interests.
[295] I agree that the public interest in compliance with s 9 should not be considered in a vacuum. I am left in no doubt that such modest level of confusion as
111 Wham-O MFG Co v Lincoln Industries, above n 110.
112 See for example Institut National des Appellations d’Origine des Vins et Eaux-de-Vie v Andres Wines Ltd (1990) 74 OR (2d) 203 (CA), where the Ontario Court of Appeal held that the true champagne makers of France were not sufficiently diligent in protecting their rights, having allowed Canadian manufacturers to sell their sparkling wine under the name “champagne” since the early 1920s and as “Canadian champagne” since 1956.
113 At 370.
may exist if NS opens premises under that name in Auckland will be significantly outweighed by the public interest flowing from increased competition, as a result of entry into the market of a well resourced competitor using all of the synergies available to it by trading under its existing name.
Affirmative defence: honest concurrent use
[296] This defence is pleaded in response to both causes of action although acknowledged by Mr Miles to be available only in respect of the claimed passing off.114 In respect of the FTA cause of action, however, like considerations may arise in assessing whether a defendant’s conduct is misleading or deceptive or likely to mislead or deceive.
[297] As to the passing off context, analogies are available from trade mark infringement cases, where honest concurrent use is an established statutory defence115 available where two traders have co-existed for a long period, honestly
using the same or closely similar names.116 In those circumstances, the defendant is
entitled to continue using its trade mark.
[298] In Victoria Plum, the English High Court set out the following principles as applicable to the defence in trade mark infringement cases:117
i) The defendant has a duty to act fairly in relation to the legitimate interests of the trade mark proprietor.
ii) All circumstances must be considered when ascertaining whether or not the use by the defendant is honest, including whether the defendant can be regarded as unfairly competing with the trade mark proprietor.
114 Dominion Rent A Car Ltd v Budget Rent A Car Systems (1970) Ltd, above n 49, at 406–408; see also Wilton Classics Ltd v Stenhan Nominees Pty Ltd HC Auckland CIV-2003-404-4571, 10
October 2003 at [20]–[21], [26] and [34] where honest concurrent use is described as a “defence”. See also Taylor Bros Ltd v Taylors Group Ltd, above n 13, at 38. In Habib Bank Ltd v Habib Bank AG Zurich, above n 110, the English Court of Appeal characterises honest concurrent use not as a defence to an action in passing off, but as a failure to establish the second element of the cause of action, namely misrepresentation or deception. Oliver LJ said at 1275: “... where you find that two traders have been concurrently using in the United Kingdom the same or similar names for their goods or businesses, you may well find a factual situation in which neither of them can be said to be guilty of any misrepresentation. Each represents nothing but the truth, that a particular name or mark is associated with his goods or business.”
115 See Trade Marks Act 2002, s 26(b).
116 Victoria Plum Ltd v Victorian Plumbing Ltd, above n 56, at [59] and [74].
117 At [79].
iii) However, the question is not simply whether use of the sign complained of gives rise to consumer deception, as such deception may have to be tolerated. Similarly, the defendant may well be aware of the existence of such confusion, having lived with it for a considerable period.
iv) The question is whether the defendant has taken steps which exacerbate the level of confusion beyond that which is inevitable and so has encroached upon the claimant’s goodwill.
v) Whether the defendant ought to be aware that such steps will exacerbate confusion is a relevant factor.
[299] In Wineworths Group Ltd v Comité Interprofessionel du Vin de Champagne, Gault J observed in relation to a passing off claim:118
The cases in which it has been held that competitors have established concurrent goodwill are not numerous. Generally very special circumstances have been involved. Long concurrent use has been the essential factor.
[300] The Court of Appeal decision in Taylor Bros Ltd v Taylors Group Ltd in turn suggests that the two traders must have operated concurrently in the same geographical area for the defence to apply. In that case, the plaintiff operated a dry- cleaning business in Wellington trading under the names “Taylors” and “Taylors Drycleaners”. The defendant operated dry-cleaning and linen hire outlets in other parts of the country. It sought to open outlets in Wellington under the name “Taylors Linen Hire”. The plaintiff was successful in seeking an injunction to prevent it from doing so. The Court of Appeal declined to apply the defence of concurrent use because the defendant could not show concurrent use or reputation in the specific geographical area (Wellington) and field (textile cleaning) in which the plaintiff
operated.119
[301] The position was different in Dominion Rent A Car. There, the Court of Appeal commented that the increasing internationalisation of trade has meant that in some cases, goodwill can cross international borders for the purposes of honest
concurrent use:120
118 Wineworths Group Ltd v Comité Interprofessionel du Vin de Champagne [1992] 2 NZLR 327 (CA) at 343.
119 At 38.
120 At 407.
... in cases of natural expansion of established businesses into new territories it may not be right to regard exclusive rights as acquired by the first entrant in point of time; an international reputation already earned by the second entrant and extending to the new market militates against an automatic first- past-the-post approach to the establishment of goodwill ...
[302] In relation to Australian entrants to the New Zealand market and vice versa, the Court said:121
With regard to the reference in Halsbury to the European Economic Community, while similar legally-enforceable rules are not in force between New Zealand and Australia, I think that the Courts of the two countries should be prepared as far as reasonably possible to recognise the progress that has been made towards a common market.
[303] To similar effect is the Australian decision in Chase Manhattan Overseas Corp v Chase Corp Ltd,122 relied upon by the defendants for the proposition that an international business entering a local market can have a reputation which precedes its entry so that “it is recognised for what it is”. However, caution is, in my view, necessary before equating the defendants’ position to that of Chase Manhattan Bank.
[304] It appears that whether or not goodwill should be taken as crossing national borders for the purposes of the concurrent use defence depends on the industry in question. In Taylor Bros, the evidence was that the main factor in a customer’s choice of dry-cleaning outlet was location and convenience. It was therefore relevant whether or not the defendant had an existing reputation in the same geographical area as the plaintiff. In Dominion Rent A Car, on the other hand, the
Court acknowledged:123
In an industry such as the provision of rental car services it may be artificial and unrealistic, counsel contended, to identify market sectors by reference to national borders.
I think that, certainly as between New Zealand and Australia, Mr Gault's argument is correct and supported by evidence before Moller J.
[305] The present case is in my view closer to Taylor Bros, given the importance of location and convenience in selection of provider as confirmed by the SSAA studies
and the plaintiff’s own evidence. Moreover, although I accept the defendants’
121 At 407.
122 Chase Manhattan Overseas Corp v Chase Corp Ltd (1985) 63 ALR 345 (FCA).
123 At 410.
proposition that NS already has an established Internet presence and that because the Internet is no respecter of geographical boundaries that presence includes Auckland, in the context of the particular industry in issue, there is in my view a qualitative difference in terms of potential application of the defence between a company with a physical presence in a locality and one with a “cyber” presence only.
[306] Ultimately Mr Miles did not press the defence. In closing he suggested it “morphed” into the acquiescence argument. Had it been necessary to decide the point, I would have held that the defence was unavailable in circumstances where NS currently has no physical presence in Auckland.
The scope of the plaintiff ’s intended injunction
[307] Had I accepted the plaintiff’s claim I would nevertheless have been reluctant to grant an injunction in the terms sought. Such terms seek to restrain the defendants from various identified activities in the “greater Auckland area” which the plaintiff defines as the area within the jurisdiction of Auckland Council. Such jurisdiction extends from a line approximately traversing the North Island from Waikaretu to Miranda in the south and Mangawhai to Paparoa in the north. In the result, large and expanding urban centres such as Pukekohe, Pokeno, Warkworth and Wellsford are included in the area over which the injunction is sought. So too are Waiheke and Great Barrier Islands.
[308] NMS has no facilities in those areas. Its southernmost operation is in
Takanini and northernmost in Albany.
[309] Moreover, although Mr McFadzien accepted the results of the SSAA Demand Study showing that those seeking self storage facilities typically did so within a seven kilometre radius of their home (residential customers), or business
(commercial customers),124 many parts of metropolitan Auckland currently lie outside a seven kilometre radius of any NMS facility. For example, all of the suburbs from New Lynn south and around the perimeter of the Manukau Harbour are in that category and likewise places like Hobsonville in the north and Mangere in the south. Mr McFadzien accepted in cross-examination that there was, at least “at this point in time”, a “massive disjunction … between the relatively small area that you currently operate in and the area that you are claiming control”.
[310] NMS’s position is however that it has identified “other sites … as Auckland continues to expand where we wish to be”. It therefore seeks to impose what is undoubtedly an arbitrary boundary (in the sense that its reputation is admittedly no greater one kilometre inside the proposed boundaries than one kilometre outside) in order to protect on a permanent basis its long-term expansion plans within the most populous and fastest growing city in New Zealand.
[311] As to what would happen if NS was prevented from operating under that brand name in Auckland, Mr Shand said that, because the company already had a national reputation which would continue to grow regardless of the outcome of these proceedings, NMS would ultimately become the unfair beneficiary of NS’s ongoing marketing investment in its brand. That is, it would benefit from consumers familiar with the NS brand, looking for that brand in the Auckland market and, when finding no NS branded facilities in the area, clicking on NMS or other potential competitors’ websites. I accept this is more especially so for the fact that, because of the common elements in their names, each company is likely to appear on the SERPs for searches initiated in the name of the other. I agree with Mr Shand that there is a significant risk of an unfair benefit to NMS if NS is forced to trade in Auckland under some
new brand which does not include the words “National Storage”.
124 His evidence in cross-examination was “I think our records indicate that northwards of 75 per cent come from within the seven kilometres and then it starts to get split after that and that’s as a result of the facility being handy to their work or on the way to somewhere, those sort of things”. He did also provide a chart showing that across individual Auckland sites the percentage of customers coming from outside the seven km catchment (but with a contact address nevertheless in the greater Auckland area) varied between 13.9 per cent (Parnell) and 45.6 per cent (Penrose). He provided no breakdown in terms of what percentage of customers had greater Auckland contact addresses more than seven km south of Takanini or seven km north of Albany.
[312] I also accept Mr Shand’s evidence that the cost to NS of establishing a new sub-brand in Auckland would be very substantial and far more than simply the painting, stationery and associated costs identified by the plaintiff ’s experts. Moreover, the substantial investment which it has made and continues to make in its main brand would be wasted in the context of its Auckland operations.
[313] Restricting the injunction to the establishment of NS facilities under that brand name within a seven kilometre radius of existing NMS premises would in my view have better balanced the competing interests. However, I acknowledge also the practical difficulties in attempting to divide the Auckland market up in this way given that both companies would have an ongoing Internet presence in almost every home and business in Auckland.
[314] The reality is that NS has a present and increasing reputation in New Zealand. NMS cannot (and does not purport to) prohibit it from operating facilities outside of Auckland under its own name. But the Internet is no respecter of geographical boundaries and NS’s legitimate marketing outside of Auckland will inevitably impact on what is seen on the SERP throughout New Zealand. The appearance of an abridged NS knowledge graph on a National Mini Storage search is an example of this and I accept that the two parties’ names are destined to continue to appear together on the same SERP into the future regardless of whether NS opens NS branded facilities in Auckland. In that context the defendants suggest that a
regional injunction invokes memories of King Canute125 and looks more like a claim
to protect a dominant market position in an arbitrarily defined area. Certainly I accept their submission that there is and will continue to be a “spill over” reputation into the Auckland market and Mr Shand’s opinion that in respect of all businesses with a strong Internet presence the idea of a separate or contained Auckland market
is artificial.126
125 In so doing possibly perpetrating the popular misunderstanding that the legendary King Canute considered his powers sufficient to stop the tides, when in fact he staged the relevant scene to rebuke the flattery of his courtiers.
126 Mr McFadzien himself accepted that in the world of the Internet, concepts of regional reputation become meaningless unless you are looking for something specific in a specific area.
[315] In the result, if confusion were to occur it will occur anyway. However, if there is no NS facility trading under that name in Auckland then any such confusion would be unlikely to translate into NMS business migrating to NS, so in that sense a regional injunction would not be as “meaningless” as the defendants suggest.
[316] In an injunction context, however, I would have been required to assess that alongside the unfair advantage which Mr Shand identifies would accrue to NMS if it could trade off NS’s national reputation and marketing investment while NS was unable to operate facilities in Auckland under that name. And of course this all assumes a level of potential confusion sufficient to warrant the Court’s intervention and my being satisfied that such confusion is at a level greater than must be accepted as the price for NMS having adopted a descriptive name. As my review of the evidence indicates, I am not satisfied in that respect.
Result
[317] I decline the injunction sought by the plaintiff.
[318] In doing so I record as received by the Court the undertakings made by the defendants and referred to in paragraph [37] hereof.
[319] The defendants are entitled to costs. I note that the proceedings do not appear to have been categorised. In my provisional view a 3B categorisation would be appropriate with allowance for second counsel in respect of the appearance at hearing. In the event costs cannot be settled by agreement, as I expect, memoranda (maximum five pages plus any relevant schedules) may be filed on the following timetable.
(a) Memorandum by defendants 21 August 2017 (b) Memorandum by plaintiffs 4 September 2017 (c) Any memorandum in reply 18 September 2017
Counsel/Solicitors:
A Brown QC, Barrister, Auckland
J Oliver-Hood, Barrister, AucklandAIK Allen-Franks, Barrister, Auckland
Spencer Legal, Symonds Street, Auckland (David Spencer) J Miles QC, Barrister, Auckland
JWS Baigent, Simpson Grierson, Auckland
J C Dickson, Simpson Grierson, Auckland
Muir J
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