Diageo and others v Intercontinental Brands and others

[2010] EWCA Civ 920

Court of Appeal, Patten LJ, Rix LJ and Peter Smith J, 30 July 2010

The Court of Appeal has upheld the judgment of Arnold J in January that Intercontinental Brands (ICB) passed off its VODKAT product as vodka and thereby caused damage to Diageo, manufacturer of the SMIRNOFF brand of vodka.

This judgment confirms the apparently broad scope of "extended passing off" to cover classes of products that cannot be defined by their geographical location, cachet or reputation as a luxury product.

Factual background - a reminder

The term "vodka" is defined as a "colourless alcoholic spirit made esp. in Russia and Poland by the distillation of grain etc" by the Oxford English Dictionary. It has also been defined by European Regulations which have specified, among other requirements, that it has a minimum alcoholic strength by volume (ABV) of 37.5%. The claimant's main vodka brand, SMIRNOFF, was one of the first brands to be marketed in the UK and accounted for more than 40% of the UK vodka market by volume, with annual revenue of around £90 million.

On the other hand, Arnold J said that Vodkat, manufactured by ICB, is not a vodka. It is a mixture of vodka and neutral fermented alcohol which has an overall ABV of 22%. The neutral fermented alcohol costs ICB considerably more to purchase than the vodka. However, its lower alcohol level meant it attracted duty of around £3 rather than £8.50. The resulting low price meant it filled a gap in the market for a cheap "light spirit".

The law of extended passing off

After a number of cases, starting with "Spanish champagne" and then journeying through a cocktail of cases covering sherry, Scotch whisky and champagne cider, the House of Lords heard the "Advocaat" case, and all of these were considered by the trial judge and Court of Appeal.

Lord Diplock in Advocaat identified five characteristics that create a valid cause of action in passing off:

  1. a misrepresentation
  2. made by a trader in the course of trade
  3. to prospective customers of his or ultimate consumers of goods and services supplied by him
  4. which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and
  5. which causes actual damage to the business or goodwill of the trader by whom the action is brought or will probably do so.

The law of extended passing off is summarised in our report of the High Court judgment in this case. It suffices here to note that in extended passing off cases the misrepresentation consists of leading consumers to believe the defendant's product is a product of a particular type and the damage is done to the goodwill (which the claimant can claim a share in) attached to that product's name - which may be used by all those competing in the relevant market.

In contrast, in most classic passing off cases, the consumer is confused by the defendant into believing that its products are those originating from the claimant and the damage is done to the claimant's own goodwill, which is often associated with the claimant's product brand name.

Lord Diplock dismissed the geographic connotations of the previous cases as irrelevant. The key issue, he said, was that there had to be "at least some measure of distinctiveness". Names which begin their lives as descriptive of the product, such as Carrara marble and Champagne, may over the course of time become distinctive as well.

Laddie J clarified in the later Swiss Chocolate case that the descriptive term must denote an identifiable group of products which have a perceived distinctive quality. Arnold J found it difficult to see how one can distinguish between products which are bought because they are perceived to be of superior quality and those bought simply because consumers like them. It is not, he found, that the descriptive term must cover products of superior quality, simply that it covers products with recognisable qualities.

Arnold J held that vodka denotes a clearly defined class of goods, and that class of goods has a reputation giving rise to goodwill. As VODKAT conjured images of vodka (not helped by the choice of packaging) it was very likely that the product would be found to pass itself off as vodka (and he held that it did). The judge acknowledged that there might be a possibility for the product to retain the VODKAT name while not passing itself off as vodka, but it would be very difficult as the product would have to make it very clear that it was not vodka in order to be sure that it was not misrepresenting itself to consumers. It would be particularly difficult to take sufficient steps to ensure those consumers who had already been so confused would no longer be.

The point of appeal

ICB's appeal to the Court of Appeal was based on a discrete point about the nature of the products to which the protection available in the extended form of passing off can apply. ICB's view was that it should be limited to products which have cachet - goods of a superior quality or that would be described as a premium product. Mr Wyand QC for ICB argued that the cachet requirement is needed in order to prevent the floodgates from opening with passing off cases over what the Court of Appeal summarised as "widely available commodities" such as unleaded petrol, butter or white paint.

The Court of Appeal

After revisiting the broad range of case-law in this area, the Court of Appeal focused on the House of Lords in Advocaat. In addressing the key issue of floodgates, the Court of Appeal's view was that one should look at Lord Diplock's answer to that argument, namely that the extended form of passing off is:

"essentially self-limiting. Unless the product has, by name, acquired a distinctive reputation and therefore goodwill as (e.g.) a particular kind of wine or alcoholic drink, it will not qualify for protection. Similarly a successful claimant will have to show that he is entitled to the goodwill so acquired and has suffered loss."  

Quoting from Lord Diplock directly, Lord Justice Patten said: "the larger the class the more difficult it must also be for an individual member of it to show that the goodwill of his own business has sustained more than minimal damage as a result of deceptive use by another trader of the widely-shared descriptive term".

Cachet is not a requirement, unless by that ICB simply meant distinctiveness. The House of Lords in Advocaat found that it is simply "necessary to show that a descriptive name has gained a public reputation which distinguishes it from competing products of a different composition". The Court of Appeal endorsed the judge's view that "so-called premium brands are likely (perhaps more likely) ... to acquire the distinctiveness required. But goodwill may attach to a product simply because consumers come to like and value it for its inherent qualities rather than its status". The Court of Appeal suggested that perhaps the better argument available (but not run) to ICB would have been not that cachet is required, but rather that vodka simply does not have the degree of distinctiveness required. However, this was a question for the trial judge.

Dealing with ICB's other product examples, the court (obiter) suggested that white paint is unlikely to qualify under these principles, as it is imprecise and purely descriptive - the goodwill is more likely to attach to the manufacturer's own name. Butter, on the other hand, might be different, as it has required qualities.

Qualified injunction

In light of this, the appeal was dismissed. There was a cross appeal on the form of order, as only a qualified injunction was ordered. This could, Diageo argued, mean that in certain circumstances ICB could still use the VODKAT name. The court held that it was right that the name should still be permitted, provided that no misrepresentation takes place. It was acknowledged by all that it was extremely unlikely that ICB would be able to take sufficient steps, in the circumstances, to achieve this. However, the Court of Appeal held that the injunction should continue to allow for this possibility and therefore the cross appeal failed.

Concerns from Lord Justice Rix

Although Rix LJ agreed with the leading judgment, he did have concerns over its impact. His concern was that in Advocaat, the House of Lords had not intended to cover as a matter of principle the case where a claimant sues to protect a shared reputation in the manufacture or distribution of a generic product which is distinctive primarily because it extends to the whole of a broad category of product. In Advocaat, it was different; the manufacturer of Advocaat had created the product and thus the product's reputation. It was a small sub-category of alcohol egg-based drinks.

Rix LJ noted that all of the previous decisions in this area have concerned fairly narrowly-defined sub-markets; either by geography (e.g. champagne) or by being a niche product (Advocaat). He acknowledged, however, that it is difficult to distinguish the present case from those that have gone before. Misrepresentation is always, as he put it, "unattractive", and as a matter of policy the courts do what they can to prevent it. This has resulted in an increasingly broad scope to passing off, and Rix LJ said he was making his comments primarily to ensure that "extensions beyond extensions" do not lead to trespass beyond the legitimate area of protection of goodwill to the illegitimate area of anti-competitiveness.