Theory of Passing off under Trademark Law

Introduction

“Nobody has any right to represent his goods as the goods of somebody else.” – Halsbury. This means that no one has the authority to represent their own products as the goods of another. People have the idea that the only way to prohibit someone from using their trademark is to register it, although the Trademark Law provides the same remedy in the form of passing off to unregistered trademark owners as well under Section 27 of the Trademarks Act, 1999. Passing Off is a common law tort that protects a trade mark holder’s goodwill and reputation from damage caused by the defendant’s misrepresentation. It is founded on the concept that “a man may not sell his own goods under the guise of another man’s goods” as held in the case of N.R. Dongre v. Whirlpool Corporation. In Cadila Healthcare Ltd v. Cadila Pharmaceuticals Ltd, the Supreme Court defined passing-off as “a type of unfair trade competition or actionable unfair trading in which one person, through deception, attempts to gain an economic benefit from the reputation that the other has established for himself in a particular trade or business.”

Passing off occurs when a defendant uses the plaintiff’s trade name, trademark, or other identifier to mislead potential buyers to believe that the defendant’s goods or services are the same as plaintiff’s. The tort is based on the defendant’s misrepresentation. The misrepresentation is directed at potential buyers of products or services who are encouraged to purchase the goods on the assumption that they are those of the plaintiff. This could be accomplished by the plaintiff’s use of confusing or deceptive trade names, trademarks, or other indicia in relation to such goods or services.

The passing off action is founded on the broader common law premise that no one has the right to portray his or her goods or business as the goods or business of someone else. The idea is that “Trading must not only be honest, but it must not even be unintentionally dishonest.” The objective of a passing off action is to protect commercial goodwill, guarantee that buyers are not exploited, and to deter dishonest trading. In order to do so, the plaintiff must show that his business or goods have developed a reputation. The core of a passing off lawsuit is that the defendants’ goods are marked with the plaintiff’s trademark or made-up or described in a way that is likely to mislead or confuse the average purchaser. In such circumstances, as held in the case of Sri Shadi lal Enterprises v. Kesar Enterprises Ltd, there is no need to prove fraud, actual deception, or actual losses.

The passing off action is separate from the Statutory Right action. The plaintiff’s right in a passing off action is independent of a statutory right to trade mark, and it is against the defendant’s behaviour that leads to or is intended or likely to lead to “deception.” In Wander Ltd. v. Antox India (P) Ltd, it was assessed that passing off is a type of unfair trade competition or actionable unfair trading in which one person attempts to gain economic benefit from the reputation that another has established for himself in a particular trade or business through deception. The act of passing off is considered a deceptive conduct.

It safeguards the interests of customers rather than the trademark owner. In Consumer Distributing Co. v. Seiko Time Canada Ltd., it was determined that “the simple wrong of misrepresenting one’s own goods as those of another is no longer at the heart of the action rather it is the safeguarding of the community against the negative consequences of unfair competition and unfair trading.”

Essentials of Passing off

When there is misrepresentation, goodwill is harmed in the course of commerce, and this causes damage to the trade or goodwill of the trader who brings the case, the law of passing off applies. In a number of cases, the characteristics of passing off are addressed and described. Lord Diplock opined the following five essentials in Erven Warnik B.V. v. Townend:

1. Misrepresentation of facts;

2. Created by a person in the course of their business,

3. To potential customers or final customers of his goods or services,

4. Which was calculated to injure business or goodwill of another trade (in the sense that this is reasonably foreseeable consequence), and

5. Which caused actual damage to a business or goodwill of a trader by whom the action was brought, or in a quia timet action would probably do so.

There are three main elements of the tort of passing off which were also referred as “classical trinity” in Harrods v. Harrodian School is:

1. Reputation;

2. Deception; and

3. Damage

Once a misrepresentation is established it is reasonable to infer that the customers of the goods bought them on that misrepresentation unless there is evidence to the contrary.

These three elements of passing off, namely the reputation of goods, possibility of deception and likelihood of damage have been approved by the Supreme Court in the case of Laxmikant V. Patel v. Chetanbhat Shah.

Evolution of Passing off in India

In India Passing off action was prevalent even before the enactment of the Trade Marks Act, 1940. It was the way to assert the trademarks right. To institute a suit one should establish the title on the trade mark. Secondly, one must show that the mark has obtained a reputation and goodwill. Thirdly, it was to be shown that the defendant has used a mark similar to the mark of the complaining plaintiff and has thereby actually passed off his goods or has been seeking to pass off his goods as those of the complainant.

The present law of passing off, as well as its evolution as part of Common law, can be summarised as follows: It began as a tort action to correct the defendant’s improper behaviour in passing off his goods as the plaintiff’s goods by utilising the plaintiff’s trade name or trade mark to lead potential purchasers to believe that his goods or business were those of the plaintiff. The tort was committed when the defendant misrepresented the plaintiff’s goods to potential customers of his goods. Defendant obtained this result through dishonesty and deceptive use of the plaintiff’s trade names, trademarks, and other indicators.

Passing off is covered by the Trade Marks Act of 1958 and the Trade Marks Act of 1999. According to Section 27,  No one has the right to bring a suit to prevent or recover damages for the infringement of an unregistered trade mark. Clause (2) of Section 27 protects the prior user’s rights and remedies. It specifies that even though the subsequent user submitted a trade mark registration application and received the registration, the prior user might still initiate a passing off action under Section 27(2).

“Section 27(2) makes it abundantly clear that registration of a mark in the trade mark Registry is irrelevant in an action of passing off, and the mere presence of the mark in the Register does not prove its user by the person in whose name the same has been registered,” Justice Thakur opined in Koninkhijke Philips Electronics v. Kanta Arora.

In N.R. Dongre v. Whirlpool, the question was whether an action for passing off could be maintained against the registered proprietor of a Trademark. To argue that the registration of a trade mark afforded the registered proprietor an absolute right to use the trade mark in connection to goods for which the trade mark was registered and to prevent infringement in the manner allowed by the Act, reliance was put on Sec. 28(1) of the 1958 Act. The court dismissed the claim, ruling that “the registration of a trademark would be irrelevant in a passing off case. In reality, registering a trademark does not give the owner of the mark any additional rights beyond those that already existed under common law before the mark was registered. Even before it was subject to statutory law, the right of goodwill and reputation in a trade mark was recognised at common law. There was no provision for trade mark registration in India prior to the drafting of trade mark law.

In the case of Honda Motors Co. Ltd v. Charanjit Singh & Others, where Plaintiff was utilising the trademark “HONDA” in relation to autos and power equipment. Defendants began using the “HONDA” logo on their pressure cookers. Plaintiff bought an action against the defendants for the passing of the plaintiff’s business. As a result, it was determined that the defendants’ use of the trademark “Honda” was not an honest adoption. Its use by the defendant is likely to cause public misconception, and an injunction was issued for that reason.

In the case of Rupa & Co. Ltd v. Dawn Mills Co. Ltd., the defendant makes an underwear called dawn that is identical to the plaintiff’s manufactured underwear don, causing confusion in the eyes of consumers because the layout, get-up, and colour combination are the same.

Difference between Passing off and Infringement

The registered trademark holders have a remedy to get injunction and damages caused by the defendant by using deceptive similar or identical trademarks to deceit or cause confusion amongst consumers. But the remedy of infringement is not provided to the unregistered trade mark holders. The Supreme Court of India distinguished between infringement and passing off in the case of Durga Dutt v. Navratna Pharmaceuticals Laboratories, holding that while an action for passing off is a common law remedy that is in substance an action for deception, i.e. a person passing off his own goods as the goods of another, it is not the gist of an action for infringement. A legislative remedy granted to the registered proprietor of a registered trade mark for the vindication of his exclusive rights to use the trade mark in relation to such products is an action for infringement. In an action for passing off, the defendant’s use of the plaintiff’s trade mark is not required, but it is the sine qua non (absolute requirement) in an action for infringement. In the instance of infringement, the plaintiff’s use is not required, but in the case of passing off, the plaintiff must demonstrate that its reputation and goodwill have grown as a result of its use.

The likelihood of actual sale by use of the infringing mark is not required in an action for infringement. It is sufficient to cause infringement if broad, essential, or peculiar aspects of a registered trademark are imitated. If a trademark consisting of a get-up, label, and word has been known and identified by a certain word, using that word would be infringing. While it is required to show that an average person is likely to buy goods in the belief that they are those of the plaintiff, it is not necessary to show that an actual sale occurred in passing off.

The burden of proof in case of infringement always lies on the plaintiff. In the case of S.M. Dychem Ltd. v. Cadbury (India) Ltd., court observed that an infringement action fails if the plaintiff cannot prove registration or that the registration extends to the goods or to all of the goods in question, or if the registration is invalid, but the plaintiff can show that the defendant has done what is calculated to pass off his goods as those of the plaintiff by imitating the mark otherwise to obtain a remedy.

Remedies Available under the Passing off Act

Section 135(1) lists the reliefs, which may be granted to the plaintiff who established his case by the court in case of infringement and passing off are:

1. An injunction restraining further use of trade mark;

2. Damages or an account of profits.

However, in the case of innocent infringement or passing off, if the conditions laid down in Section 135(3) are satisfied, the court will not grant relief by way of damages other than the nominal damages, or an account of profits; but

3. An order for delivery-up of the infringing labels and the marks for destruction or erasure.

Critical Analysis of the Theory in India

Among the BRIC countries, India has the fastest growing economy. It implies that enterprises in India are expanding at a quicker rate, implying that trade marks are expanding as well. The Trademark Act of 1999, as well as the Trademark Rules of 2002, make registering a trademark in India fairly simple and convenient. Another idea of passing off, a valuable instrument to the rights of the unregistered trade mark proprietor, is included among these laws and rules. This principle has been used in a number of cases to provide relief to those who do not register their trademarks and to look down on those who try to pass off their goods as their own. In Tata Sons v. Manu Kosari, the court decided that the delivery of Internet services is subject to protection in the same manner as goods and services are, and that trademark law applies to Internet activity. With technological advancements transforming the way we supply goods and services, domain names are now entitled to the same level of protection as trademarks, as they are no longer regarded as just addresses.

The remedy of passing off, on the other hand, is one of the trade mark industry’s concerns. It was taken as a common law principle from the United Kingdom. Because India is such a massive country with the world’s second biggest population, duplicating well-known brands is a common occurrence. The Courts’ precedent of awarding damages is an effective remedy for this situation, yet it is insufficient. The Registry Offices must also take certain further steps. The Registries should monitor the Trademark Register for similar marks on a regular basis. Even if the offender has a long history of using the trademark, no infringement case should be treated lightly.

One of the difficulties in grasping the notion is the lack of a clear description of “goodwill” and “reputation” in the Statute forms. In India, courts do not differentiate between these two terminologies and use them interchangeably.

It’s important to remember that ‘goodwill’ is a type of property that’s confined to a specific jurisdiction, but a Passing Off action is based on a reputation that crosses jurisdictions. The concept of residuary reputation is largely ignored by Indian courts. Even in the Whirlpool Case, the first precedent for trans-border reputation, the scenario was the same.

Conclusion

With the rise of competition and the expansion of the economy, trademark registration has become increasingly important. To preserve one’s reputation and goodwill, one must register the name under which he sold his goods, which is known as a trademark. However, just because a trademark isn’t registered doesn’t mean it can’t be used to protect one’s rights or interests. The notion of passing off can be used to achieve just that.

Passing Off is a common law tort which protects the goodwill and reputation of the trademark holder against damage caused by misrepresentation by the defendant. The action of passing off can be done by using the trade name, trade mark or other get up of the plaintiff as to induce in potential purchasers the belief that his goods or business were those of the plaintiff. The tort lies in misrepresentation by the defendant. The misrepresentation is aimed at the potential buyers of the goods or services, who are invited to buy the goods believing that the goods are of the plaintiff.

If the authorised person discovers that the defendant is using his mark, he may bring a lawsuit in court, with the court’s jurisdiction being the place where the defendant resides or conducts business. If he is able to prove harm to reputation or goodwill or misrepresentation, then the person can get damages if the loss occurred. Even he can stop the person from using the mark further by taking an injunction against him. In order to protect the right one has to prove reputation and goodwill in the market. As no precise definition or criteria is specified in law to prove goodwill and reputation, many people fail to prove the same and thereby are not subject to such remedies. This creates a huge loss to the honest person. Even now with the growth of the economy and large areas one cannot find out that the same mark in respect of the same goods is being used by some other person.