BIG BLAK SAKS NEW ZEALAND LIMITED V D & A MARKETING LIMITED HC AK CIV-2011-404-3773

BIG BLAK SAKS NEW ZEALAND LIMITED V D & A MARKETING LIMITED HC AK CIV-2011-404-3773 23 August 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-3773UNDER the Fair Trading Act 1986IN THE MATTER OF passing off and breaches of the FairTrading Act 1986BETWEEN BIG BLAK SAKS NEW ZEALANDLIMITEDPlaintiffAND D & A MARKETING LIMITEDDefendantHearing: 16 August 2011Counsel: J Rutter and N Taefi for PlaintiffA Johnson for DefendantJudgment: 23 August 2011In accordance with r 11.5, I direct the Registrar to endorse this judgment with the delivery time of 4.45 pm on the 23rd day of August 2011.JUDGMENT OF WILLIAMS J[1] The plaintiff Big Blak Saks New Zealand Limited (BBS) makes black rubbish bags. The defendant D&A Marketing Limited (D&A) does too. BBS has nearly 78 per cent by value of the plastic and paper bag market in New Zealand. BBS says D&A is copying its four best selling rubbish bag lines to cash in on BBS'goodwill. An interim injunction is sought to prevent this continuing.[2] The interim injunction application is underpinned by a substantive action in passing off and breach of the Fair Trading Act 1986. It is common ground that my focus should be on the passing off cause of action. That is because a finding either way on that will also determine the Fair Trading Act's cause of action.Passing off[3] There have traditionally been five elements to be proved in a passing off action.1 Those elements are:(a) a supplier of a class of goods in trade;(b) whose goods are clearly defined as against other similar goods;(c) there is goodwill attached to those goods;(d) the plaintiff owns that goodwill;(e) the plaintiff will suffer damage as a result of the defendant utilising that goodwill to sell its own goods.[4] In 1990 the United Kingdom House of Lords restated that test in Reckitt & Colman Products Ltd v Borden.2 This restatement is referred to as the "classicaltrinity test". By its terms a plaintiff should be required to establish:3(a) goodwill in the get up of the product such that it is recognised by the public as distinctive of the goods. Note "get up" here can include a brand name or trade description, or the individual features of labelling or packaging;(b) the defendant has misrepresented its own goods to the public such that the public will be misled into thinking they are goods of the plaintiff;1 See Erven Warnink BV v J Townend & Sons (Hull) Ltd [1979] AC 731 (HL) at 742 perLord Diplock as followed in New Zealand in a line of cases: Dominion Rent A Car Ltd v BudgetRent A Car Systems (1970) Ltd [1987] 2 NZLR 395 (CA) at 419 – 420 per Somers J(Richardson J concurring), at 423 – 424 per Casey J; Wineworths v Comite Interprofessionel duVin-Champagne [1992] 2 NZLR 327 (CA) at 336 per Gault J (Richardson J concurring); CloroxNew Zealand Ltd v Elldex Packaging Ltd HC Auckland CIV-2003-403-4292, 13 November2003.2 Reckitt & Colman Products Ltd v Borden [1990] 1 WLR 491 (HL).3 At 499 – 500 per Lord Oliver.(c) the plaintiff is or is likely to suffer damage by reason of that confusion.[5] The crucial thread in all three elements is the exclusive reputation enjoyed bythe plaintiff's goods and reflected in their get up.4Interim relief[6] The test for interim relief is well established now. Reference need only be made to Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd, a passing off case about bread wrappers. The relevant questions are:5(a) Is there a serious question to be tried?(b) Where does the balance of convenience lie?(c) Where is the overall justice of the case?The products and companies[7] BBS has been in the business of selling plastic rubbish bags since 1981. The get up of the four product lines in issue in this proceeding has remained unchanged since the beginning. Although I do not know the market share of these particular lines, overall BBS commands nearly 78 per cent by value of the plastic and paper bag market and the relevant products are BBS' most popular lines. The Chief Executive, Mr Waddell, filed three affidavits. One of them contained confidentialinformation in respect of the company's revenue and marketing budget over the lastfive years. By consent it was agreed that the content of the affidavit should remain confidential. It is sufficient to record that turnover has been consistent with market share and that BBS' marketing budget has been significant over the last five years. I do note however that most marketing has been around discounting to supermarkets4 Kerly's Law of Trade Marks and Trade Names (13th ed, Sweet and Maxwell, London, 2001)at [14-14].5 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).rather than advertising campaigns in the orthodox sense. This reflects where the products sit in the domestic goods food chain as it were.[8] There are four BBS products at issue. They are:Great Garden – a roll of three larger garden bags;Handle – a roll of five standard size bags measuring 620 mm wide x 1070 mm long with inbuilt handles;Low Cost – a bundle of five bags measuring 620 mm wide x 900 mm long; andDrawstring – a bundle of five bags measuring 670 mm wide x 900 mm long with, as the name suggests, a drawstring feature at the top of the bag.[9] All product bundles are rolled, wrapped on the right-hand side with a small fluorescent sticky label, secured at the left-hand side with a rubber band and marked in the centre in large Arial font with the name of the product. The name – the most visible word on the product – is printed on the bags themselves and can be seen on each product bundle because of the way the outer-most bag is rolled into the bundle. All but Great Garden have the centre band in white with the writing in black – the underlying sack colour. The central band on Great Garden is green with black writing. Each of the lines has a different coloured fluorescent sticky label. TheGreat Garden bag is fluorescent green; Handle – fluorescent pink; Low Cost –fluorescent yellow; and Drawstring – fluorescent orange. Big Blak Saks appears only on the fluorescent labels in styled writing 5 mm in height at the highest point. The trade name Big Blak Saks is a minor feature of the get up particularly when compared to the product name.[10] The fluorescent label also contains a "Made with recycled plastic" logowhich BBS says was designed in-house. D&A challenges this.[11] D&A markets and distributes in excess of 160 products to supermarkets throughout New Zealand. It has 47 packaging based products. These are branded as4U products. D&A launched a range of rubbish bags onto the market in 2007 also under the brand name 4U.[12] The original 2007 products had a distinctive get up of their own. Bags were packaged in a sleeve with prominent 4U branding. In around 2010 the sleeves were removed leaving the rolled plastic bags exposed. It is this second iteration of the 4Uproduct line that is challenged. The specific 4U products in question were as follows:Garden Bags – a roll of three garden bags 790 mm wide x 1220 mm high with Garden Bags 4U on the bag in black on a green background;Handle Sack 4U – a roll of five handle sacks 640 mm wide x 1120 mm high marked on the sack in white Handle Sack 4U;Cost Less – a roll of five plain rubbish bags 615 mm wide x 900 mm high with a central band with Cost Less in black on a white background and a narrower band of white on the left;Drawstring 4U – a roll of five drawstring bags 665 mm wide x 900 mm high with the same style of product name on white background.[13] All products had a fluorescent sticky label on the right-hand side carrying the4U label and a rubber band securing the left-hand side. The Garden Bags sticky label is fluorescent green; Handle Sack – fluorescent pink; Cost Less – fluorescent yellow; Drawstring 4U – fluorescent pink. All labels are a slightly different shade to the BBS labels but otherwise the same colour.[14] I note that Mr Gregory for D&A deposed that fluorescent pink labels were mistakenly placed on the Handle Sack product by manufacturers. The usual stickeris red. That difference in colour is not by itself going to be determinative, and the pink-stickered products were supplied to D&A's customers even after the mistakewas known. Accordingly I do not think anything particular turns on this.[15] I attach as an appendix to this judgment a photograph of the eight products –BBS on the left and 4U on the right.Does BBS have goodwill in these products?[16] Mr Johnson argued that there was no goodwill in BBS' get up on these four product lines. He argued that the bags were highly functional grudge products in which the only driver is price. He argued that the common features of these four BBS products are:Arial font;black wording on white background (although the Great Garden bags are black wording on a green background);secured by rubber band on left side of bundle;fluorescent sticker on right side;sticker perforation;recycled plastic logo;bag name.[17] Mr Johnson argued that these features were all so mundane and common and all so functional that they could not possibly create goodwill. There is something in each of these points. Black plastic is the most common colour in the plastic bag market; Arial the most common font; black writing on white surround is hardly distinctive; the rubber band on the left side is purely functional; and the fluorescentsticker on the right, while likely to draw the customer's attention, is not particularlydistinctive. In addition, the bag names are really descriptive – Great Garden,Handle, Low Cost, and Drawstring.[18] Looked at individually, all of that is true. But it misses the point. As Glazebrook J said in Cookie Time Ltd v Griffins Foods Ltd:6It seems to me, however, on the basis of the case law that a combination of factors, not distinctive in themselves can nonetheless result in a distinctive get-up.[19] Mrs Rutter provided me with a range of packaged bags from various suppliers from generic brands through to bags supplied by known brand names such as Glad. There was a very wide range of labelling and packaging. On some brands name was a key selling point – for example, Glad, Green One, and Clean Plus. In others the brand name was greatly subordinated to a descriptive label and other distinctive packaging features.[20] It is the combination of elements in BBS' get up that has, over 30 years, come to be seen as distinctive even if it probably started off being seen as generic. The cut down simplified packaging seems to provide the correct signal to buyers about price– reinforced by the subordination of brand name – while the combined features remain together to provide a look that is distinct from most other products on the market. For example, many other products use full plastic sleeves, labelling in the centre of the bundle, or plastic boxes.[21] It is, in my view, seriously arguable that BBS has goodwill in the get up of its four product lines.[22] I do not think it is tenable to argue that price is the only determinant for purchases of plastic rubbish bags. It is certainly an extremely important factor. That is shown by the get up BBS chose for these products. Flashy was not seen as appropriate for such a price sensitive product. But price is clearly not the determinative factor for the entire market because it was common ground that BBS6 Cookie Time Ltd v Griffins Foods Ltd HC Auckland M1756/SW00, 11 December 2000 at [76].bags are generally slightly more expensive than 4U bags. There must be a tension here between price, perceptions of quality and customer habit.Misrepresentation likely to cause confusion[23] Mr Johnson submitted that it is not seriously arguable that the public would be confused due to a misrepresentation by D&A. His submissions in this respect emphasised two things: the limited choices available in packaging once a container or sleeve is dropped from the get up; and the greater prominence of 4U in its get up compared to BBS.[24] Hugh Williams J in Clorox New Zealand Ltd v Elldex Packaging Ltd dealt with a passing off action by Glad Wrap and KiWi Kleen Film.7 The allegation was that the packagers of KiWi Kleen Film had copied Glad Wrap's get up in order toaccess the latter's goodwill. His Honour referred to the following passage in Wadlow, The Law of Passing Off:8The difficulty confronting the plaintiff in all actions for passing off based on get upis that it is unusual for one trader's goods to be distinguished from those of hiscompetitors exclusively, or even primarily, by their get up. Normally a brand name or other mark is chosen and given prominence and it is this on which consumers are expected and encouraged to rely. To make out a case based solely on similarities of get up the plaintiff must show that deception is likely notwithstanding the absence of his own brand name on the defendant's goods and the likely presence thereof the defendant's brand name and perhaps other distinguishing matter. Not surprisingly, the cases in which passing off has been found have predominantly been ones of deliberate deception.[25] Based upon both the logic and authority of that text, Williams J concluded:9While there is room for considerable scepticism about Elldex's choice of colours thefact remains that of three principal components of the packaging – trade names,"Wrap", and length – the trade name KiWi is a strong feature of the KiWi wrap packaging and, as the authorities reviewed show, causes of action such as this are seldom successful if the brand name is prominent on packaging unless there is proof of actual deception or deliberate imitation and, currently at least, there is insufficient information on this score.7 Clorox New Zealand Ltd v Elldex Packaging Ltd HC Auckland CIV-2003-403-4292,13 November 2003.8 At [36], citing Wadlow The Law of Passing Off (2nd ed, 1995) at [6.49].9 At [49].[26] In this case there are four different get ups. Some general observations may be made before turning to each product.[27] As with my namesake, I consider that there is room for considerable scepticism in this case given the radical change in get up between D&A's pre 2010 sleeved products and its current unsleeved ones. Contrary to D&A's submission, once the sleeve is removed there are, as other market competitors show, many different ways of binding and packaging bundles of bags.[28] Two further general factors are relevant. First, these are low cost, high volume, price sensitive products. Purchasers will not pour over these items before making choices. They will choose on the basis of instant and immediate impressions.[29] The second point is related to the first. In both BBS' and D&A's products, trade name or brand is subordinated to the overall get up and the specific name of the product line. "Big Blak Saks" is almost invisible. "4U" is occasionally visible but it is also dominated by the overall get up.[30] How similar are these products?(a) Handle (BBS) and Handle Sack 4U (D&A): The Handle Sack 4Ulabel is white on black rather than BBS' black on white. On the example I have, half of the Sack 4U is covered by the pink sticky label on the right-hand edge of the roll leaving Handle the most prominent element of the get-up as it is with the BBS equivalent. Around the roll there are two lines of 4U lettering repeated four times. Seen from a different angle they are prominent. Nonetheless, if theHandle Sack 4U bundles are stacked name outermost, or lengthwise on supermarket shelves with the fluorescent label outermost, the two products are visually almost undistinguishable.(b) Low Cost (BBS) and Cost Less (D&A): These are on first visual impression also almost indistinguishable. The naming on the bags isvery similar and the yellow tags on the right-hand side (although slightly different shades) are too similar for a purchaser to know that he or she is dealing with different products, if they are seen in the absence of one another and even (I suggest) when seen together.(c) Drawstring (BBS) and Drawstring 4U (D&A): Again the product name is very similar. The sticky labels are different colours but it seems to me unlikely that a purchaser viewing one product in the absence of the other would make anything of the different colours unless that shopper was particularly conscientious and well informed.(d) Great Garden (BBS) and Garden Bags 4U (D&A): Although there is similarity between the get up of these two products, this is one where I consider the difference in look is material. Great Garden bags are black. Garden Bags 4U are green. The Great Garden on-bag labelling is black writing on green background that covers only the centre of the exposed roll. Garden Bags 4U has black writing on green, covering almost the entire length of the roll – although 4U is again obscured by a fluorescent green label. There is just enough distinction in this example for me to conclude that whilst there is similarity, it is not seriously arguable that customers will be misled.[31] With the exception of Garden Bags 4U it is seriously arguable that a purchaser seeing D&A's products in isolation will believe they are BBS' products. In fact, even when the products are intermingled, it is not obvious that they are from different suppliers. Indeed it is my view seriously arguable that D&A's get up in respect of Handle Sack 4U, Cost Less and Drawstring 4U were deliberately calculated to mislead. This is, in short, a case where a competitor has sailed too close to the wind.Will BBS suffer damage?[32] In Taylor Bros Ltd v Taylors Group Ltd McGechan J identified the three categories of actionable damage:10At the end of the day there is nothing really arcane or specialised in these three categories of actionable damage. A common thread runs through all: damage to goodwill, differing only in type. Diversion is an appropriation of a part of the plaintiff's goodwill. Damage to reputation amounts to a poisoning of the plaintiffs goodwill. Damage by suggestion of association of the plaintiff's business amounts to a dilution of the plaintiff's goodwill. A plaintiff who is entitled in principle to the protection of his property right in goodwill is entitled to protection against all forms of attack without nice distinctions being drawn.[33] BBS' evidence was that it was losing market share in supermarkets where the two product lines competed head to head. Mr Waddell said that BBS' sales ofLow Cost rubbish bags at New World, Clendon decreased by 14.2 per cent four weeks after the Cost Less rubbish bag entered the market on 16 May 2011. In contrast sales at Pak n Save, Manukau where Cost Less is not stocked, remain static.[34] Mr Waddell deposed that orders of Low Cost rubbish bags had fallen in the period March to May 2011 in four stores where the two products competed. The falls ranged from 14 per cent to 30 per cent.[35] There may be other factors contributing to these oscillations but on the face of it diversion of BBS' sales to D&A must be said to be seriously arguable.[36] BBS says that 4U rubbish bags are thinner and less robust. Mr Waddell appended to his first affidavit a summary of comparative puncture strength results on all four products, but this assessment was rightly challenged by Mr Gregory on the basis that the laboratory where the tests were done manufactured some of BBS'products. In rejoinder BBS had independent tests done by Bruce Gunn of GunnLab Ltd. The tests demonstrated that less energy was needed to puncture the 4U products and that the plastic itself was weaker irrespective of thickness.10 Taylor Bros Ltd v Taylors Group Ltd [1988] 2 NZLR 1 (HC) at 22.[37] Mr Johnson argued that even if these independent tests were accurate they did not show that the 4U bags were unfit for purpose. That is true but it does not meet the point that if the 4U bags are thinner or more easily punctured it is at least seriously arguable that they will be less robust in the hands of customers than the BBS equivalent. There is therefore a likelihood that at least some customers who have been confused by similar get-up into believing the 4U bags are the BBS bags regularly purchased, will also find the 4U bags to be inferior in quality. I accept therefore that it is seriously arguable that continued sale of the challenged 4Uproducts is likely to damage BBS' reputation and goodwill.[38] In addition the evidence of loss of sales is limited but it is enough in my viewto establish a serious argument that BBS' market position is likely to be diluted if thestatus quo remains.Balance of convenience and overall justice[39] D&A meets BBS' balance of convenience arguments primarily by reference to the fact that D&A is a tiny player in the market. Mr Gregory for D&A advises that sales in the relevant items for the year ending March 2011 were a little under $170,000 with profit levels around $26,000. Mr Johnson argued that D&A's positionin the market will make it almost impossible to substantially damage BBS.[40] There is a point in that argument but given the strong similarity between these products, allowing the situation to continue could well create a slippery slope for the market leader. As Mr Gregory himself pointed out, dominance once achieved, can be lost. He pointed to Tuff Guy branded bags being dominant in the 1980s but losing their position in the 1990s. I do not agree that the balance of convenience is necessarily with D&A on that point. Nor do I accept that damages would be a sufficient remedy for BBS. Its market position will depend on market perception – including perception of product quality. If that perception is damaged through confusion, market share can be irretrievably lost.[41] Mr Johnson also advanced arguments under this heading challenging the evidence relating to confusion and quality difference between the products. For thereasons already given I do not agree with those submissions. Ultimately I must decide whether there is a likelihood of confusion and my own perception in this regard is relevant. There is, as I have said, a very strong argument that it is difficult to tell the difference between the products. In addition, while the puncture tests were less than comprehensive, they were enough in my view to establish a serious argument at this stage. Although the evidence is not definitive it is certainly sufficient to tip the balance of convenience in favour of BBS. Similarly, the evidence of sales diversion is limited to five supermarkets but its effect is that wherever the two products compete head to head BBS loses 14 to 30 per cent of market share. To allow that to continue (and perhaps even expand) is likely to cause a significant loss in profits for BBS and increase in profits for D&A where it is seriously arguable at least that this change in fortunes may be sourced to customer confusion. On the balance of convenience that should not be allowed to continue.[42] The overall justice of the case is consistent with that assessment. Most particularly, BBS has given an undertaking as to damages and is clearly in a position to support it if it is unsuccessful in the substantive litigation.[43] BBS will be entitled to its injunction accordingly. Costs are reserved.___________________________Williams JSolicitors: Martelli McKegg Lawyers, Auckland Kensington Swan, Auckland