Supreme Goodwill - UK Supreme Court Addresses Jurisdictional Goodwill

In today's business world reputation is everything when selling your goods or services to the masses at large. Goodwill, the inherent reputation of your goods or services, can easily overreach beyond the mere confides of countries, continents, or even the solar system. With this in mind, how far a business' goodwill can, and does, reach is hugely important, especially when it comes to someone passing off their goods or services as a famous brands' equivalents. What makes things even more complex is the nature of the online world we are all a part of, which has a wholly borderless reach (excluding geo-blocking), and in which anyone can pass themselves off as someone or something else without much difficulty. This begs the question: how far does your goodwill extend, even if you have no or very little presence in a given territory, due to your goodwill online? The Supreme Court of the United Kingdom endeavored to answer this question only a little over a month ago.

The case in question was Starbucks (HK) Limited and another v British Sky Broadcasting Group PLC and others, which concerned the use of IPTV, or in more simplistic terms, the streaming of TV via the Internet using dedicated hardware to do so, very much like cable TV but in an online environment. Starbucks (HK) and PCCW Media Ltd, two corporate members of a larger group (referred to as "PCCM" in the judgment as a whole), which operated an IPTV service called "NOW BROADBAND TV", subsequently renamed to "NOW TV", in Hong Kong, being the largest entity in its respective IPTV business in the country. Most of the channels offered through the NOW TV service are in Chinese, and are not accessible in the United Kingdom, although some people in the UK had been identified as being aware of the service. PCCM had since considered expanding internationally, and did so by launching a mobile app called NOW aimed at the Chinese-speaking population in the UK. Prior to the launching of the app in the same year Sky announced its "NOW TV" on-demand service, which went into its beta phase roughly at the same time as the launching of PCCM's mobile app. PCCM subsequently sued Sky under the tort of passing off (more on which can be found here), with the case ending up all the way in the Supreme Court.

Passing off, as has been noted in the article above, hinges on three factors that need to be established in order to prove the tort of passing off: (i) goodwill or reputation in the goods or services provided in the minds of the purchasing public; (ii) a misrepresentation by the defendant to the public that leads or is likely to lead, the public to think the goods or services are provided by the plaintiff; and (iii) the plaintiff suffers, or is likely to suffer, damage as a result of this misrepresentation. PCCM established the latter two requirements at first instances, and therefore the Supreme Court had to decide on whether Sky's service fulfilled the first requirement, amounting to passing off.

The main question therefore to the Supreme Court was whether PCCM had goodwill in the jurisdiction in question, in other words a customer base, meaning the UK. As the court stated, reiterating Lord Justice Oliver in Anheuser-Buch v Budejovicky Budvar NP, that goodwill is very much "localized" and that "...reputation which may, no doubt, and frequently does, exist without any supporting local business… does not by itself constitute a property which the law protects". In other words, even if goods or services have a certain, even strong reputation to them, does not mean it inherently commands it everywhere, irrespective of actual use or not. This line of thinking very much confirms precedent from decades prior, where similar conclusions have been made as to the localized nature of goodwill.

Territorial issues can be dealt with amicably at times

After a presentation as to the law from both sides the Court finally discussed its decision on whether passing off, or goodwill, has a territorial nature to it. As Lord Neuberger remarked: "...I consider that we should reaffirm that the law is that a claimant in a passing off claim must establish that it has actual goodwill in this jurisdiction, and that such goodwill involves the presence of clients or customers in the jurisdiction for the products or services in question. And, where the claimant's business is abroad, people who are in the jurisdiction, but who are not customers of the claimant in the jurisdiction, will not do, even if they are customers of the claimant when they go abroad". To put Lord Neuberger's argument in different words, goodwill can only exist in a jurisdiction if its goods or services are used by actual customers in that jurisdiction, irrespective of foreign users who have emigrated or visit that jurisdiction (although, one would imagine, given a sufficient amount of immigrants this would be acceptable). As said, this is fully in line with older precedent, and also foreign authorities within the common law, as was put forth by Sky in its argument. PCCM had very little presence in the UK, although it did establish some user base did exist.

Finally, Lord Neuberger aimed to settle two questions that remained: "(i) clarification as to what constitutes sufficient business to give rise to goodwill as a matter of principle, and (ii) resolution of the judicial disagreement as to the jurisdictional division of goodwill".

In answering the first question Lord Neuberger quickly settled the matter by largely stating what has already been settled above: "The claimant must show that it has a significant goodwill, in the form of customers, in the jurisdiction, but it is not necessary that the claimant actually has an establishment or office in this country. In order to establish goodwill, the claimant must have customers within the jurisdiction, as opposed to people in the jurisdiction who happen to be customers elsewhere. Thus, where the claimant's business is carried on abroad, it is not enough for a claimant to show that there are people in this jurisdiction who happen to be its customers when they are abroad. However, it could be enough if the claimant could show that there were people in this jurisdiction who, by booking with, or purchasing from, an entity in this country, obtained the right to receive the claimant's service abroad.". Lord Neuberger's answer to the first question further establishes that a business has to have some form of customer base in a jurisdiction it wishes to protect its intellectual property in that jurisdiction, and that business would have to be, mostly at least, permanent in that jurisdiction, rather than just transient.

The answer to the second question leads to a much wider discussion than can be settled in this blog post, and merits reading in its own rights by those who might be interested. What needs to be said, however, is that Lord Diplock's comments in Star Industrial Co Ltd v Yap Kwee Kor further support Lord Neuberger's conclusions and highlight the distinction between goodwill in different jurisdictions through the existence of separation of judiciaries; i.e. not one court can decide an issue of a foreign court.  Allowing for territorial overlap would let businesses simply claim a right in a name in another jurisdiction with a minimal presence, thus restricting business and trade for legitimate entities in that jurisdiction.

Ultimately the Supreme Court dismissed PCCM's appeal, and concluded that their claim in "NOW TV" had no basis in the UK, as they did not have the requisite consuming public in the UK for their service to merit protection under passing off.

This case is an interesting one, and although one could say the decision is very much a common sense approach, it still does answer some question relating to goodwill, especially in a digital age where the Internet permeates nearly every part of the globe. Businesses have to have a legitimate business presence in a given country in the form of a customer base, even in this digital age.

Source: KWM Legal Insights

Fake Goods and the Internet - ISPs Face Trademarks

Counterfeit products are big business. Some estimates have put the sale of counterfeit items at a billion dollars in 2013, and anyone who has traveled around mainland Europe has probably seen people sell "authentic" designer bags off pieces of carpet on the street (and who doesn't like purchasing their luxury goods in the great outdoors). The only issue with selling blatantly on the street is the sheer visibility of your transactions, with the added issue of a very limited quantity of items for sale. The more genius members of the business have since moved onto the World Wide Web, pushing their goods to the willing masses on the great waves of the Internet. The law hasn't fully adapted to this change, with a clear difference in the protection of so-called intangible counterfeit goods (piracy etc.) and more physical objects and their intangible attributes such as trademarks. Amidst this uncertainty the protectability of trademarks in this space was brought up in the English courts, and has since been taken on by the UK Court of Appeal.

The case in question was Cartier International AG v British Sky Broadcasting Ltd, which dealt with the company Richemont, which owns several luxury brands such as Cartier and IWC. As Richemont's goods are highly sought after and quite valuable, six websites were started, aimed at selling and advertising goods using Richemont's trademarks in doing so. The website's donned such fantastic domains as www.cartierloveonline.com and www.iwcwatchtop.com, clearly aimed to confuse and befuddle those who are less savvy on the information super highway. As such Richemont wanted to halt the websites' operations, and approached the courts to impose an injunction to block the websites.

What remains the bigger question in this case is whether such a block is possible under the current law, or as was framed by Justice Arnold: "First, does this Court have jurisdiction to make an order of the kind sought? Secondly, if the Court has jurisdiction, what are the threshold conditions, if any, which must be satisfied if the Court is to make an order? Thirdly, are those conditions satisfied in the present case? Fourthly, if those conditions are satisfied, what are the principles to be applied in deciding whether or not to make such an order? Fifthly, applying those principles, should such orders be made in the present case?"

Under section 97A of the Copyright, Designs and Patents Act 1988 the courts can impose an injunction against an Internet service provider; however the issue presented to the court is that under section 97A the courts can impose an injunction only "...where that service provider has actual knowledge of another person using their service to infringe copyright". As such there was no issue of copyright infringement in the case, as only Richemont's trademarks had been potentially infringed, and no provision allowing for injunctions in the event of trademarks being infringed exists in the UK.

The Court of Appeal's message to trademark infringers

This lead to some extreme juggling of current laws and whether such an injunction was possible bar an express mention of such a power, although this was meant to have been implemented by the UK under the Information Society Directive. Justice Arnold was faced to examine whether this omission was supplemented under section 37 of the Senior Courts Act 1981, through which "[t]he High Court may by order (whether interlocutory or final) grant an injunction or appoint a receiver in all cases in which it appears to the court to be just and convenient to do so". Agreeing with precedent, Justice Arnold saw that an injunction under section 37 of the 1981 Act would not contravene the Supreme Court Act 1981, allowing for the High Court to afford the injunction as a final decision should it do so.

Justice Arnold discussed the conditions which have to be fulfilled before a court may award the aforementioned injunction: "First, the ISPs must be intermediaries within the meaning of the third sentence of Article 11 [of the IPR Enforcement Directive]. Secondly, either the users and/or the operators of the website must be infringing the claimant's trade marks. Thirdly, the users and/or the operators of the website must use the ISPs' services to do that. Fourthly, the ISPs must have actual knowledge of this. Each of the first three conditions follows from the wording of Article 11 itself.".

Applying the conditions to the case Justice Arnold quickly saw that all of the requirements had been fulfilled. First, British Sky and the other ISPs acting as defendants can be said to be intermediaries within the meaning of the Directive without much question. Second, as Richemont owns the rights to several infringed trademarks in the case, such as Cartier, IWC and Montblanc, used in in the six websites dealt with in the case, the websites clearly infringed on those rights. Third, due to the ISPs role as intermediaries, although are not prima facie used for the infringement directly, because of their integral role in the conveyance of the infringement to Internet uses they are used for the infringement, irrespective of a contractual relation between the infringer and the ISPs. Finally, through evidence it was easy for Richemont to establish that the ISPs did indeed have actual knowledge of this infringement and chose not to act on it. Because of this the requirements are fulfilled, and Justice Arnold could award the injunction.

The case can be said to be very important in a UK perspective, and potentially as an international precedent. Through the decision rights holders have a remedy to address the infringement of their rights outside of just copyrights online, potentially allowing the curbing of counterfeit sales online (although this writer will admit it seems like a long-shot it would be ever fully eradicated). Nevertheless, this remedy can be argued to have been needed, and in the absence of intervention by the legislature, should stand as an avenue for trademark enforcement on the Web.

Source: World Trademark Review

The US Supreme Court Faces Aereo and Web Streaming

Ever since its emergence in early 2012 the tech company Aereo has ruffled some feathers within the broadcasting sphere, and rightfully so. As discussed prior on this very blog, the website offers the ability to both stream and watch TV on-demand for a subscription fee, and functions much like a online DVR system as opposed to a licence based service provider such as Netflix. Although initially winning in the District Court of New York, the case has finally come to the US Supreme Court for final judgment, and presents a curious argument which will potentially affect the future of online streaming quite significantly.

The initial article on this blog discussed the Aereo case in the District Court of New York where the plaintiffs failed to demonstrate they would prevail on the merits of their infringement case, after which the case was subsequently appealed and went to the US Court of Appeals. It is worth discussing the issues again in light of this decision, facing final consideration in the US Supreme Court.

Under US copyright a copyright holder has an exclusive right to publicly perform their copyrighted works such as TV shows. Through this the Court was faced with determining whether Aereo's broadcasting of TV shows to its subscribers, whether live or on-demand, would amount to an infringement of this right as no licence was sought or paid for from the copyright holders of their respective contents broadcast over Aereo's systems.

"There has to be a better way!", thought Terry

The case largely hinges on the Transmit Clause within the US Copyright Act 1976, under which a public performance of a copyrighted work includes its transmission via cables, such as cable TV programming. The Clause's interpretation in the case of Cartoon Network v CSC Holdings, or more commonly known as the Cablevision case, is highly important in relation to Aereo and their potential infringement of the aforementioned public performance right. Under the Cablevision interpretation of the Transmit Clause, the Court of Appeals had to first consider the potential size of the audience of the transmission. A smaller amount of viewers, or a restricted ability to view the content, such as individual copies, would clearly weigh against the finding of a public performance of the copyrighted work. Secondly the court would have to avoid aggregating private transmissions of the works, making it irrelevant for the court to consider a large number of individual transmissions as opposed to a single, viewable by all transmission. This is important when assessing the first point, as a restricted and isolated transmission of a work would not be a public performance, clearly then not infringing that right. Thirdly the court would have to aggregate any transmissions made from a single copy of the work, i.e. if a single DVD is played in a player and distributed to several TVs. That transmission would clearly be a public performance of the work, at least more so than individual transmissions from individual copies. Finally, the court would have to take into account the factors which limit the potential size of the public who would view the transmission (emphasis the court's) in applying the Transmit Clause.

The Cablevision decision hinged on the very fact that all copies of the TV shows which were recorded through their DVR system were individual copies, and not merely a copy which was available to all. This limited both the actual and the potential amount of viewers for the copied transmission, clearly not making the performance a public one. Aereo's service functions much like Cablevision's DVR system, only creating a single copy viewable by that particular user upon their request to record it. As such Aereo's copies would, arguably at least, not be public performances, and not infringe the plaintiffs' rights in that content. Aereo's lack of licence is irrelevant as one is only required for public performances; something which Aereo's services are not doing. The Court of Appeals also reject the aggregation of Aereo's transmissions, as Cablevision's DVR functioned in a very similar way, and aggregating Aereo's transmissions would mean that Cablevision's transmissions would also have to be aggregated, clearly going against the precedent set by the case. The Court of Appeals rejected the plaintiffs' appeal, which is now being taken to the highest court in the US for final consideration.

The decision would have quite wide-ranging implications for both cable broadcasters and services much like Aereo. As the company pays no licencing fees to copyright holders, should they be allowed to operate and be deemed not to infringe copyright, similar services would undoubtedly spring up and cause significant losses to cable providers. On the other hand should the Supreme Court decide that Aereo infringes copyright, it could potentially restrict the future of the Cloud and cloud computing, further restricting the freedom of use over copyrighted content, at least on a commercial level. What ever the result will be, this writer for one is very interested in the decision and its potential impact on either side of the field.

Copyright and Advert Hopping

To the avid TV watcher, commercials can be both the bane of their existence, providing a break at the crucial moment of your favorite show just when it got interesting, or giving you the perfect opportunity to make a quick snack or to dash off into the bathroom. Since the advent of digital means to record TV, both through the early years of VCRs down till the modern DVR or even recording live TV on demand when you desperately need to pause the action, consumers have always wanted a way to skip them if they so please. For companies who provide your weekly fix of digital entertainment galore, they're a necessary source of revenue. These two conflicting interests pose a dilemma, and a struggle from both sides to keep their respective interests in front of the other. But could skipping commercials infringe copyright? In a recent decision, the US Ninth Circuit Court of Appeals had to decide this very fact.

Foxes are very protective of their copyright

The case of Fox Broadcasting Company v Dish Network LLC concerned a service offered by Dish called the "Hopper". What this little nifty device was what is commonly referred to as a DVR, a Digital Video Recorder, which can be set to record any given TV show at any given time, much like its analogue cousin back in the era of VCRs. After some years of launching its Hopper device, Dish started to offer a capability in the device called "Autohop", which automatically would skip over commercials, only subjecting the person watching the show to the first few seconds and the last few seconds of any given commercial break. Unlike older versions of similar technologies, the function does not require any action on the viewer's part, but skips the commercials once the feature is enabled, whereas in older iterations of DVRs one would only have the ability to skip a certain time, for example 30 second increments. Fox Broadcasting and Dish had a contract between them, where among other things Dish customers were not to be able to fast-forward through any commercials when recording Fox's shows. Fox subsequently sued Dish for breach of contract and copyright infringement, of which the latter is of more interests to us in this instance.

In seeking a preliminary injunction, stopping Dish's service, Fox would have to prove (1) it is likely to succeed on the merits, (2) it is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in its favor, and (4) an injunction is in the public interest. In analyzing the court's decision at first instance, the Court of Appeals looked through precedent to establish whether Fox's claim would fulfill the above criteria to acquire an injunction. Drawing from the Sony Betamax case (discussed on this blog here) the court had to assess whether Dish's service would fall under fair use, which it did. In their decision the court saw that the District Court had correctly decided that Fox did not have a likelihood of success in their case, as Dish was not the one making the copy of the program; Fox would not have suffered irreparable harm due to Dish's service; nor was there a public interest for the granting of an injunction. In finding that there was no likelihood of success for Fox, the court saw that the scales were not tipping in their favor, which solidified Fox's case as one which did not merit an injunction.

The court did note that Fox did not have a claim to begin with as they do not own the copyright to any of the advertisements shown on its network. Without copyright there cannot really be infringement on that copyright, or at least a claim for such. Arguably the court's view was the correct one, and forcing consumers to watch adverts through technological means seems harsh at best. Technology should be used to enable better consumer experiences as opposed to being force-fed something which they potentially don't want to see. Fox can still claim damages for copies made by Dish for quality assurance purposes, which did infringe copyright, but whether they take action will remain to be seen, although seemingly a point of principle should they opt to do so.

Source: Electronic Frontier Foundation