By Joe Lederman
On 6 January 2010, the Federal Court handed down its decision in the case NutrientWater Pty Ltd v Baco Pty Ltd [2010] FCA 2 (NutrientWater case). The judgement by Justice Kenny has clarified the law concerning the tort of passing off and the applicability of sections 52 and 53 of the Trade Practices Act. This case is particularly significant in relation to the marketing of food products with similar getup and the case explains what is required before ‘copying’ becomes passing off and therefore attracting liability for damages. It is also significant because, for example, one possible consequence is that this case may make it easier for (supermarket) private labels to closely imitate the getup of rival products in certain circumstances that do not constitute passing off. Facts of the NutrientWater case In these proceedings, NutrientWater Pty Ltd (NutrientWater) made an application to the Federal Court for an injunction and damages against the respondent, Baco. Both parties were manufacturers of products in the enhanced beverages market, a relatively new market that had grown considerably in Australia over five years. The products in question were lightly flavoured, non-alcoholic beverages containing various vitamins, minerals and other ingredients. NutrientWater began marketing its product range in 2005, at a time when there was no established market category for enhanced beverages in Australia. The product range was then relaunched in 2007 (shown below). @@img:NW1@@ In 2008, Glaceau (a subsidiary of Coca Cola Amatil) launched its ‘Vitaminwater’ range in Australia. Vitaminwater had been the market leader in the United States enhanced beverages market since 2000 and had a product range that was quite similar in various respects to NutrientWater prior to the latter relaunching its product in 2007. Due to a very successful marketing campaign in Australia, Vitaminwater experienced a substantial increase in sales and rapidly became the leader in the Australian market by May 2009. @@img:nw2@@ In May 2009, Baco Pty Ltd launched its enhanced water products onto the market (shown below). @@img:nw6@@ By this time, there were a number of other competitors that had entered the market such as ‘Emma and Tom’s’ and Bickford’s 'Vitamin H2O’. NutrientWater’s claim NutrientWater claimed to the Federal Court of Australia that, by manufacturing, offering for sale and selling their product range, Baco had passed off its enhanced beverages for those of NutrientWater and had engaged in misleading or deceptive conduct contrary to Section 52 of the Trade Practices Act 1974 (TPA). NutrientWater also calimed that Baco made false representations to the affect that Baco’s products had the sponsorship or approval of NutrientWater (section 53(c)) or that Baco itself had the sponsorhip and approval of NutrientWater or was affiliated with NutrientWater (section 53(d)). Passing Off The tort of passing off “is designed to protect a trader’s intangible property rights in the trader’s business, goodwill or reputation, which is likely to be injured by the misrepresentation involved in a passing-off”. The aim of the law is to give effect to the ‘notion that a trader must not pass off the trader’s goods or services as the goods or services of another’. For a successful action in passing off, NutrientWater was required to establish the existence of the following: (1) Proof of prior goodwill or reputation attaching to the NutrientWater product range in the minds of relevant purchasers by association with the get-up under which the NutrientWater Product Range is supplied to the public, such that the get-up is recognised by the purchasers to be distinctive solely of the NutrientWater product range;and (2) Proof that Baco had misrepresented to the public (whether intentionally or unintentionally) that the products in the Baco product range are products in the NutrientWater product range or that they come from the same source as products in the NutrientWater product range; and therefore that a significant proportion of potential purchasers is likely to believe that the products in the Baco product range are the products of NutrientWater or that they come from the same source as products in the NutrientWater product range; and (3) Proof that NutrientWater had suffered or was likely to have suffered damage by reason of the erroneous belief engendered by Baco’s misrepresentation.’ Misrepresentation The Federal Court did not require any evidence of actual deception or any intention to mislead, and the court said that simply proving that a misrepresentation was likely to lead the public to believe that Baco’s products are those of NutrientWater would suffice. The Court made it clear that a misrepresentation can exist despite a company acting honestly and reasonably. The Court recognised the potential overlap between a passing off action and Sections 52 and 53 of the Trade Practices Act (at paragraph 83 of Justice Kenny’s judgement): “A misrepresentation as to the source of a trader’s goods is not only an element in the tort of passing off, it can also be conduct that is misleading or deceptive or likely to mislead or deceive for the purposes of section 52 of the Trade Practices Act’ and section 53(c) and 53(d).” Section 52 of the TPA provides that a corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 53 provides that a corporation shall not, in connection with the supply of goods represent that goods have sponsorship or approval that they do not have (53(c)); or represent that the corporation itself has sponsorship, approval or affiliation it does not have (53(d)). Products Sufficiently Distinguished? The Federal Court in this case held that copying certain parts of another’s products “may indicate nothing more than realisation that the plaintiff has a useful idea which the defendant can turn to his own advantage, though not intending to pass off his goods as those of the plaintiff”. The key question in this case was whether Baco had sufficiently distinguished its products and made it clear that they were not those of NutrientWater. The Federal Court held that Baco’s enhanced water beverages were in fact sufficiently distinguishable from those of NutrientWater. Evidence was put forward by Baco that there was a specific intention on its part to ensure that their products were distinctive and could be easily differentiated from those of NutrientWater. Since Baco’s products were sufficiently distinguishable from those of NutrientWater there was no misrepresentation to support the claims made i.e. it was “not probable that the ordinary reasonable consumer would be misled or deceived into believing they were all NutrientWaters products or from the same trade source” (see paragraph 117). Category Signature Baco argued, and the Federal Court upheld, that NutrientWater “did not merely ‘reference’ the US vitaminwater products, but that NutrientWater directly copied many of its distinctive features in the NutrientWater product range” from the Coca-Cola product. This court action was not bought by Coca-Cola Amatil. The crux of NutrientWater’s claim again Baco was based on Baco’s choice of colours as giving rise to the requisite similarity rather than any other feature of the product. However, Baco successfully argued that this colour and white horizontal banding which it used was not only on NutrientWater products but on Vitaminwater products and had become a ‘category signature’ used by other companies in the business of enhanced beverages market by May 2009, the time that Baco had entered the Australian market. These features were also shown to be used by another competitor Smart Water, (shown below). @@img:nw3@@ Evidence was put forward by Baco that it simply wished to retain that particular feature to gain ‘automatic recognition’ that its products were within the enhanced beverages category and to closely align the Baco product as “immediately recognisable as being a competitor” in that category. The court accepted that “the banding, together with bright labels that correspond to the colour of the variant of the beverage as viewed through a clear plastic bottle, the quirky comment, plus a health-driven ‘wellness’ or medicinal look, had become indicative of an enhanced water product in general, rather than any particular brand or source, by May 2009” (see paragraph 65 of the judgement). Reputation The issue of reputation was also significant in this case as it is relevant to both the passing off claim and breach of the TPA. The Federal Court said Baco would be unlikely to have made the misrepresentations in sections 52 and 53 of the TPA unless it could be demonstrated that NutrientWater had a reputation in the features of its packaging it sought to protect as of May 2009 since this reputation is the “springboard for the argument that consumers are deceived by a particular imitation” (see paragraph 90 of the judgement). The Federal Court held that despite NutrientWater having a reputation in its range of products, the applicant had not established that its reputation was in the features it sought to protect (specifically the colour and bands) rather than the overall packaging, which Baco did not use. Essentially, NutrientWater attempted to argue that features which were shared and possibly appropriated from other competitors in that particular market category were sufficiently distinctive of its own product range. The Federal Court rejected this argument and found that NutrientWater had failed to establish that the colours or any other features used were distinctive of their product but were actually associated with the enhanced beverages market in general, and that NutrientWater had appropriated such features from Vitaminwater too. The failure of the applicant to establish the requisite reputation was therefore fatal not only to its "passing off" claim but also prevented its claims under sections 52 and 53 of the TPA from being successful. Conclusion While a food marketing business is free to market its product in the way it thinks best, that freedom can be limited by some proprietary rights such as those that are conferred by registration of a trademark. In the absence of a registered trade mark or other legally protected intellectual property rights (such as copyright), a business must not market the product in a manner likely to mislead or deceive a reasonable person into mistaking their goods for those of another. The concept of a ‘category signature’ examined in this case serves to limit the potential liability of competitors who may adopt features in their product that are used widely and provide automatic recognition for that category in general. In order to claim some right over a particular feature in a product, that feature must be shown to be distinctive to that product and not appropriated from a competitor and/or be widely used by other competitors at the time of entry into the market. From a protective legal standpoint, food companies should consider strengthening hteir position by trademarking particular features of their packaging. For example, Cadbury has successfully registered several shades of purple used in their packaging as a trade mark and Coca-Cola has many trade marks such as over the well-known 'slash' signature and over its well-known bottle shape. When marketing a particular product in a category, care must be taken to ensure that the product is able to be sufficiently distinguished by consumers. The central focus of the law of "passing off" is the desire by the courts to maintain an appropriate balance between the protection of the trader’s reputation and the need to ensure free competition without unfair trade practices or misappropriation of the goodwill or reputation in particular existing features that are unique.
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© Lawmedia Pty Ltd, February 2010
A Federal Court decision handed down in January 2010 provides an analysis of the legal line between “being influenced” by someone else’s food product getup as against committing the tort of passing off. The case involved two well-known beverage brands. There are possibly wider implications of the case in the context of the supermarket private label push involving similar getup to the "look" of their competitors.
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