Diageo/Smirnoff were successful first time round in their tilt at Intercontinental Brands’ VODKAT product, arguing that the brand and the get up of the associated packaging passed the product off as pure vodka when it was nothing of the kind. The Vodkat maker appealed and Jonathan Mayner reports on the recent verdict.
Who: Diageo v Intercontinental Brands
When: 30 July 2010
Law stated as at: 30 July 2010
Intercontinental Brands ("Intercontinental") manufactured Vodkat, an alcoholic drink which contained vodka. Diageo (the manufacturer of Smirnoff vodka) brought a successful claim in passing off against Intercontinental on which the High Court held (in January 2010) that by using the name "Vodkat" and by the product's get-up and branding Intercontinental had been passing off Vodkat as pure vodka. Intercontinental appealed to the Court of Appeal. The appeal was dismissed.
Passing off and extended passing off
Passing off is a common law tort, the underlying principle of which is that one should not sell one's own goods under the pretence that they are the goods of someone else. In general, to succeed in a claim for passing off, a claimant will have to show that there is reputation or goodwill attached to the goods or services in question and that the defendant has intentionally or otherwise represented its own goods or services in such a way as to be likely to mislead the public into believing that their goods or services are those of the claimant. Additionally, the claimant must usually have suffered some loss as a result of the defendant's actions.
The underlying principle of the extended form of passing off is that one should not sell one's own goods under the pretence that they are a type of goods which they are not. To succeed in a claim for extended passing off, a claimant will have to show that in the course of trade the defendant made some misrepresentation to prospective or actual consumers of his goods which was likely to (and in fact did) injure the goodwill and business of the claimant.
Extended passing off has developed through claims brought by parties with an interest in the collective goodwill in a trade name for a type of product (often products with reputation for superior quality) against manufacturers of (usually cheaper) alternatives. Since the Bollinger champagne case in 1960 the UK courts have played host to disputes over use of such terms as "Sherry", "Scotch Whisky", "Advocaat" and "Swiss Chocolate".
When considering the case at first instance the High Court found that Vodkat was not a vodka, but was rather a 22% alcohol by volume (ABV) mixture of fermented alcohol and vodka whereas genuine vodka is 100% distilled alcohol and at least 37.5% ABV. Intercontinental was therefore able to bring Vodkat to market with a much lower retail price than even supermarkets' own-label vodka due to customs classifications which dictated that the duty payable on Vodkat was approximately 30% of that payable on genuine vodka. While the get-up and general appearance of the Vodkat product was varied on occasion, it was initially sold in bottles with labelling that bore more than a passing resemblance to that of genuine brands of vodka, not least Diageo's Smirnoff. The claimant adduced compelling survey evidence which strongly indicated that consumers (and in some instances, retailers and journalists) had presumed that Vodkat was genuine vodka.
The High Court held that "vodka" was a term which indicated a clearly defined class of goods (i.e. a clear, tasteless, distilled, high-strength spirit) with a reputation and goodwill which was protectable by the law of extended passing off. Moreover it was held that Vodkat had been branded and marketed in such a way as to deceive a substantial number of consumers into believing that Vodkat was vodka or a weaker version of vodka, and consequently causing lost sales of genuine vodka. Even though Intercontinental had significantly altered the get-up and appearance of the product since its launch, its form at the time of trial, though less objectionable, was insufficient to counter the passing off claim.
The High Court granted an injunction which included an order that restrained Intercontinental from representing that a mixture of fermented alcohol and vodka was genuine vodka or a weaker version of vodka. Diageo had sought a more restrictive order which would prevent Intercontinental from using the name Vodkat to describe anything other than full-strength vodka or a drink composed of this strength of vodka combined with a non-alcoholic mixer. Intercontinental appealed the decision and Diageo counter-appealed the order.
On appeal, Intercontinental argued that the law of extended passing off could only protect products which have a cachet or superior quality and that vodka did not have such a cachet or a reputation for superior quality. Additionally Intercontinental forwarded a floodgates argument, contending that if there was no requirement that the products in question be luxury items then the courts would be flooded by extended passing off claims relating to everyday products, including products as mundane as white paint.
The case law on extended passing off was reviewed by the Court of Appeal which held that in order succeed in a claim of extended passing off there was in fact no requirement that the product in question had a reputation as a luxury item. Moreover Intercontinental's floodgates argument was rejected as the number of claims would still be limited by the fact that any claimant would still have to prove that the product in question had acquired distinctiveness and the necessary level of goodwill among consumers.
Intercontinental's appeal was dismissed, as was Diageo's counter-appeal in relation to the form of the High Court injunction.
One of the Appeal Judges did express some concern however that this decision would mark the first time that extended passing off had been used to protect generic products rather than geographical sub-markets (per the cases related to Champagne, Sherry, Scotch Whisky et al.). While affirming the judgements of the other two judges, Lord Justice Rix said that passing off "should not by "dint of extensions upon extensions trespass beyond the legitimate area of goodwill into an illegitimate area of anti-competitiveness".
Why this matters:
This case is of course good news for the manufacturers of established brands of vodka and other products whose markets may be threatened by cheap alternatives which are marketed in such a way as to be readily confusable with the genuine article.
There is also a broader message here for brand owners and manufacturers from the earlier High Court trial which is not limited to extended passing off claims: launching a product with similar get-up to that of an established brand is always a risky strategy, even where such get-up is altered in the face of opposition or threats of legal action. Where a product can be seen to have established market share by unfairly riding on the coat-tails of another brand, a subsequent re-dress of the packaging may be deemed by the UK courts as being insufficient to remedy the harm done to competitors' brands.
The main reason that the case is particularly notable is however that it represents the first time that the law of extended passing off has been used to protect an entire class of product. It remains to be seen however whether the concerns raised on this point by the Court of Appeal will cause the courts to be reluctant to follow this decision in future cases.