Pliteq Inc & Anor v iKoustic Ltd & Anor [2020] EWHC 2564 (IPEC) (02 October 2020)

Appleyard Lees acted for the operator of an ecommerce website which successfully defended a High Court claim for trade mark infringement brought by its international suppliers, in one of the first trials held in the Intellectual Property & Enterprise Court remotely during the Coronavirus pandemic. The client recovered its legal costs in full up to the IPEC costs cap.

The claim addressed a relatively unusual area of UK trade mark law, an allegation of “bait and switch” selling by the Claimant suppliers. The Defendant clients were selling off their remaining stock of goods purchased from the Claimants after introducing their own product ranges. The judge considered whether the use of the Claimants’ trade marks by the Defendants was properly in relation to the Claimants’ goods, or the Defendants’ goods and what legitimate reasons may exist for the Claimants to oppose further dealings in their goods which had been put on the market with their consent and which were being sold by a competitor. 

Bait and switch

The Claimants’ case was that “bait and switch” selling amounted to trade mark infringement because the Defendants’ use of the Claimants’ marks was not properly in relation to the Claimants’ goods, but that the Claimants’ goods were used as a “bait” to sell the Defendants’ goods.

At trial the judge considered specific allegations of bait and switch selling raised by the Claimants, including a large number which were raised for the first time in the Claimants’ skeleton schedule at trial. Of the many incidences of communications relied upon by the Claimants and considered by the judge, the allegations of bait and switch were simply not made out on the facts.

The Claimants had not shown that customers to the Defendants’ website were visiting solely as a result of the Defendants’ use of the Claimants’ Marks, or that the Defendants’ use of the Claimants’ Marks was in relation to the Defendants’ goods, or that customers were confused as to the origin of the goods sold. In several of the examples relied upon by the Claimants at trial, the evidence showed that the Defendants had not simply marketed their own goods but had sold the Claimants’ goods.

Trade mark infringement

The judge separately considered whether a trade mark infringement claim was made out. As it was admitted the Defendants were using the Claimants’ Marks, this came down to whether the use of the Claimants’ Marks was properly in relation to the Claimants’ goods, and whether the uses affected the functions of the Claimants’ trade marks, the “origin function”, “advertising function” and “investment function”.

The judge was satisfied that the customers were aware that the Defendants’ goods had a different origin to the Claimants’ goods and so did not accept that the origin function of the Claimants’ Marks was affected by the Defendants offering competing products on its website.

The judge was not persuaded that the use of the Claimants’ Marks generally affected the advertising function of the Claimants’ trade marks as there was no evidence provided that the use by the Defendants had affected the Claimants’ use of the Claimants’ Marks as a factor in sales promotion or as an instrument of commercial strategy.

The fact that some consumers might switch to the Defendants’ goods would not in circumstances of fair competition, infringe the investment function. The only exception was a single webpage the Defendants had altered to state that the Claimant’s stock had run out but that the Defendant’s goods were available to buy online, which the judge held to be use of the Claimants’ Marks in relation to the Defendants’ goods and did not amount to fair competition (but did not amount to bait and switch selling).

Defence of “exhaustion”

The Defendants relied upon the defence of exhaustion: all their uses of the Claimants’ Marks were made in relation to the Claimants’ goods, which had put on the market by the Claimants/with their consent and as such the Claimants’ trade mark rights had been exhausted.

The Claimants denied the defence on the basis that it was alleged that the Defendants’ motivation had been to attract customers and sell them the Defendants’ goods. However, the judge did not consider that the Defendants’ motivation was relevant for exhaustion to apply but in any event did not consider the Defendants’ motivation was only or principally to attract custom for the Defendants’ goods.

The judge held it was an objective question of fact whether the Defendants’ use was in relation to the Claimants’ goods or the Defendants’ goods and was satisfied that this was the case.

The Claimants further claimed that the exhaustion defence could not apply in circumstances where the Defendants only held limited stock, or where the stock was only kept for the purpose of using the trade mark to preserve an attraction for customers, or where the Claimants’ Marks were being used “partly” to sell the Claimants’ goods and partly to sell the Defendants’ goods.

The judge did not accept these propositions which would add a significant limitation to the exhaustion defence. The sole question was whether the use of the Claimants’ marks related to goods which had already been placed on the market by the proprietor, or with its consent and would be seen by the average consumer as relating to those goods.

Legitimate reasons to oppose use of the Claimants’ Marks

The Claimants claimed that there were legitimate reasons to oppose the commercialisation of their Marks arising from the Defendants’ use.

The judge held that there was no evidence before the Court that the Defendants’ resale of the Claimants’ product was through an inappropriate outlet or marketed in an inappropriate or damaging manner, or liable to damage the reputation of the Claimants’ Marks. Nor was there any false implication of a trade connection or any evidence of confusion as to origin. There was no requirement on the Defendants to sell exclusively the Claimants’ goods and that merely selling competing goods did not amount to taking unfair advantage in this case. The Defendants had due cause to use the Claimants Marks if they were selling genuine goods.

Google advertising

The judgment also considered the scope of trade mark law in relation to Google advertising, in particular whether the Defendants use of the Google Dynamic Ads service constituted “use” of the Claimants’ marks (even though such use did not involve selection of the trade marks as keywords by the Defendants). By trial the judge noted that the Defendants could have used negative keywords to control which products are advertised and held that the use of the Claimants’ Marks in the Dynamic ads did amount to “use” of the Claimants’ Marks. The judge held this was not evidence of “bait and switch” activity or trade mark infringement as the Defendants removed the relevant webpages upon running out of stock.

Passing off

Separately the Claimants’ pleaded that the use of a single photograph of one of the Claimants’ products and relating to the sale of one of the Defendants’ products constituted the tort of passing off. The use was admitted as being in error. The Claimants claimed to own a separate and distinct goodwill and reputation in and relating to the products shown in the photographs of their products and relied upon the use of their photographs on their website. There was no evidence that customers identified the Claimants’ products by reference to their appearance and the judge said this was improbable where customers are professionals seeking a technical product, so the claim failed.

Conclusion

The judgment is of interest to any distributor or supplier, as well as to the owners or operators of any e-commerce website, seeking to offer a range of competing products. It highlights the difficulties that can develop when a distributor/supplier relationship ends and demonstrates the value to any distributor of formalising any such relationship with clear contractual terms.  

In the absence of a contractual obligation, the judgment upholds the principle that an operator of an e-commerce website can supply a third party’s trade marked goods and offer competing goods, where such goods have been lawfully purchased within the EU, a customer is able to distinguish between the owner of the goods and the website supplier, where the goods are supplied in circumstances of fair competition and are supplied in such a way that the reputation of the trade mark is unaffected.

The judgment is a welcome one as the Claimants made a concerted effort to challenge the scope of the defence of exhaustion, which if they had succeeded would, it is submitted, have made it extremely difficult for owners of e-commerce websites to operate and would have and created considerable commercial uncertainty.

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