TASMAN INSULATION NEW ZEALAND LIMITED v KNAUF INSULATION LIMITED & ORS

Court of Appeal

Randerson, French and Cooper JJ

29 September and 1 October 2015, 16 December 2015.

[2015] NZCA 602

Trade Marks – Fair Trading Act – appeal – loss of distinctiveness as a ground of revocation – use as a trade mark – honest practices – unjustified proceedings – misleading and deceptive conduct – use of a trade mark in HTML code - ss (66)(1)(c), 89(2), 95, 105 Trade Marks Act 2002, ss 9, 10, 13 Fair Trading Act 1986.

Facts:

The appellant (Tasman) was registered proprietor of the trade mark BATTS in respect of insulating material.

Since at least 1973 Tasman and its predecessors had manufactured and sold insulation in New Zealand made from recycled glass under the PINK BATTS brand. Tasman was the only New Zealand manufacturer of such products.  Its PINK BATTS brand accounted for about 75% of the market for insulation in new houses.

Prior to 2011 no other supplier used the term “batt” or any similar term in marketing insulation products in New Zealand. In July 2011 a company associated with the first respondent (Knauf) arranged for importation into New Zealand insulation products made from recycled glass under the brand EARTHWOOL.  The term “BATT” was used on the label of Knauf’s product and the words “batt” or “batts” were used elsewhere on the packaging.  Sales of the products were made through building suppliers and directly to consumers through the website “earthwool.co.nz”.  The terms “batt(s)” were also used on the website including in HTML code.

Tasman brought proceedings against the respondents for infringement of Tasman’s registered trade mark BATTS. Tasman also alleged that Knauf had breached the Fair Trading Act 1986 by giving the misleading impression that the EARTHWOOL product was made from natural wool when it was actually made from recycled glass. 

Knauf defended the claim for infringement on the ground that its use of “batt” or “batts” was unlikely to be taken as use as a trade mark in terms of s 89(2) Trade Marks Act 2002 (the Act). Alternatively, it claimed that use was an honest practice in terms of s 95(c)(i).  Knauf also counter claimed seeking an order for revocation of Tasman’s trade mark under s 66(1)(c) (i.e. that in consequence of acts or inactivity by Tasman, the trade mark had become a common name in general use), and alleging that Tasman’s proceedings were “unjustified” under s 105.

The decision under appeal was delivered by Brown J on 9 May 2014 (2014 108 IPR 162). The parties respectively appealed and cross appealed.

The principal issues on appeal were whether Brown J was correct to find that:

  1. Knauf’s application for revocation under s 66(1)(c) failed because Tasman’s trade mark had not become a common name in general public use for insulation and, if it had done so, that did not occur as a consequence of any acts or inactivity by Tasman. Knauf’s particular contentions were in summary that Brown J erred by:

  1. Confining his consideration of the evidence to that of the trade mark and consumers;

  2. Excluding evidence of Tasman’s acts and inactivity to protect its trade to the period subsequent to the commencement of the Trade Marks Act 2002; 

  3. Failing to engage with the evidence as a whole;

  4. Giving undue weight to the use of “batts” as a synecdoche for “pink batts”;

  5. Giving little or no weight to the failure of Tasman to protect its mark.

(b)        There was no infringement because Knauf’s use of the term “batt(s)” or “BATT” on the following did not amount to “use as a trade mark” per s 89(2):

(i)        The packaging of its EARTHWOOL product;

(ii)        The label on the EARTHWOOL product; and

(iii)       The earthwool.co.nz website (other than in the HTML code).

(c)        Knauf’s argument under s 89(2) did not apply to the use of the term “Batt” in the HTML code for the earthwool.co.nz website.

(d)        The honest practices defence under s 95(c)(i) would not have applied if there had been infringement in the respects alleged.

(e)        The proceedings were justified and therefore did not fall within s 105 of the Act (“unjustified proceedings”).

(f)         Liability was established under the Fair Trading Act 1986 for Knauf’s use of the EARTHWOOL name and the way it was marketed online.  In particular:

(i)         The Judge should not have placed weight on the survey evidence relied upon by Tasman;

(ii)        The Judge erred in his analysis of the EARTHWOOL brand and logo;

(iii)       The Judge erred by failing to take into account the characteristics of the persons likely to be enquiring about or purchasing insulation and their ability to look for further information on what EARTHWOOL was.

Held, dismissing the appeal and cross appeal save that the Judge’s finding on infringement in respect of the HTML code was set aside:

Did the Judge err in declining Knauf’s application to revoke Tasman’s trade mark?

Interpretation of s 66(1)(c)

  1. Section 75 created a presumption of validity. The onus lay on Knauf as applicant to establish that the trade mark should be revoked. The onus had been described as a heavy one requiring cogent evidence. [43]

     

    Wing Joo Loong Ginseng Hong (Singapore) Co Pte Limited v Qinghai Xinyuan Foreign Trade Co Limited [2009] SGCA 9 applied.

     

  2. The use of the expression “a common name in general public use for a product or service” in Section 66(1)(c) Trade Marks Act 2002 reflected an apparent policy shift from the approach adopted under s 24 Trade Marks Act 1953 [50] and [51]. The legislature intended to emphasise the breadth of the enquiry required by Section 66(1)(c) [56].

     

  3. The relevant public extended to those in the trade such as manufacturers and distributors as well to end consumers [56]. Evidence of use by the public generally was also relevant [57]. Such evidence of descriptive use and materials had the potential to be relevant for at least two reasons. First it may be reasonable to infer that those in the trade and consumers were also likely to use the term in a descriptive sense. Second, the use of such terms in the literature may be influential in moulding the perceptions of those who may be interested in purchasing the product or service in question [58].

     

    Re Gramophone Company’s application [1910] 2 CH 423 (CH) and Waitomo Adventures Limited v BWR Resources Limited HC Hamilton, CP 72/00 26 April 2002, applied. 

  4. The underlying purpose of the enquiry under s 66(1)(c) was to establish whether the trade mark at issue had become a common name in general public use such that it had ceased to distinguish the owner’s goods or services from those of others [59].

  5. The weight to be given to evidence from various sources would depend on the circumstances. The more closely the evidence was linked to, or was likely to influence, usage by consumers of the goods or services in question, the more likely it was that a court would be willing to treat it as material to the factual assessment [59].

  6. The use of the name in a descriptive sense had to be established or widespread in order to amount to a “common name in general public use” for the product or service. The Judge’s reference to established or widespread use “in the trade” no longer reflected the law [60].

  7. Section 66(1)(c) of the Trade Marks Act 2002 had retrospective effect so that acts or inactivity on Tasman’s behalf prior to the commencement of the Trade Marks Act 2002 on 20 August 2003 could be taken into account [65].

  8. The owner of a trade mark has always been susceptible to the risk of the protection of the trade mark being lost through a failure to use genuinely the mark or to loss of its distinctiveness as a badge of origin. The owner of a valuable trade mark is well aware of these risks and is or should be alert to the need to take whatever steps are reasonably necessary to protect its rights [66].

  9. Section 66(1)(c) can be viewed as providing further protection to a trade mark owner for two reasons. First, an applicant for revocation of the mark must prove that the trade mark has become a common name in general public use for the relevant product or services and that this has occurred in consequence of acts or inactivity on the part of the owner. Secondly, Section 66(1)(c) makes it clear that revocation is not permitted if the trade mark has become a common name in general public use which cannot be attributed to the acts or inactivity of the owner. This was intended to protect the owner of the mark where loss of distinctiveness arose from an extraneous event over which the owner had no control [63], [67].

    Conclusion as to whether the Judge was correct to find that “batts” had not become a common name in general public use

  10. Knauf did not satisfy the burden of demonstrating that the term “batts” had become a common name in general public use per s 66(1)(c) [113]. In particular:

  1. Tasman and its predecessor acceptably and continuously promoted the PINK BATTS trade mark in New Zealand for over 40 years. On the evidence the PINK BATTS branded products deserved to be described as “iconic” in the New Zealand context [114];

  2. The extent of Tasman’s success was reflected in the very high market share the company enjoyed for its PINK BATTS products;

  3. The evidence fell well short of establishing that “batts” had become a common name in general public use for the purposes of s 66(1)(c). While there had been some use of that word in descriptive terms the authorities were clear that some descriptive use was not sufficient to establish loss of distinctiveness of a trade mark as a badge of origin. The extent of any descriptive use had to be established and widespread [116];

  4. The evidence did not show established or widespread use in that sense. It would have been natural for some degree of descriptive use to creep into the New Zealand lexicon given the descriptive use of the term overseas. But a significant proportion of any descriptive use of the word “batts” was likely to be shorthand to Tasman’s PINK BATTS trade mark. That followed from the high degree of brand recognition for Tasman’s products prevailing in New Zealand [117];

  5. It did not matter that the trade mark “BATTS” had always been used in conjunction with Tasman’s separate “PINK BATTS” trade mark. The combined usage of those terms had been heavily promoted and evidence showed that the two terms were strongly associated in the public mind. Evidence showed a clear intermingling of “pink batts” and “batts”, supporting the conclusion that Tasman’s PINK BATTS were often referred to by the term “batts” along with “pink batts” [118]; 

  6. While “batts” was not a made up or “fantasy” word, it was use of the term in the New Zealand market that was important. The word was not widely used or understood by the general public as a descriptive term until it began to be promoted by Tasman’s predecessor after 1973. Thereafter, in consequence of marketing campaigns undertaken, the word “batts” became strongly associated in the public mind with Tasman’s PINK BATTS insulation products [119].

              The causation element of Section 66(1)(c)

  1. Although the owner of a trade mark is responsible for taking steps to protect its mark so that it continues to fulfil its protective functions, the obligation is not absolute: it is to take reasonable steps to achieve that goal [129]. There are practical limits on the steps an owner is able to take in this regard. For example it was relatively straightforward for Tasman to monitor and control the marketing and promotion of the Pink Batts products supplied to merchants. However little could be done to prevent individuals using the term “batts” descriptively [129].

     

  2. To find that Tasman had failed to protect its mark could not stand with the finding that Tasman had so heavily promoted its mark that it had achieved iconic status. Any failures by Tasman had to be balanced with the evidence of what it actually did to promote the correct use of the brand and to monitor and police any misuse of the trade mark [131], [145].

     

  3. Had it been necessary to make a finding on this matter, the Court of Appeal would have agreed that Knauf did not discharge the onus of proving that, if “batts” had become a common name in general public use, this was in consequence of any acts or inactivity by Tasman [143].

     

  4. The dominant feature of the evidence was that Tasman strongly promoted its PINK BATTS trade marks over many years and made it plain in marketing its products that they were registered trade marks. In addition, Tasman did all it reasonably could to ensure its distributors correctly promoted its product in the same way. The monitoring and policing of generic use of the trade marks was adequate, bearing in mind that some generic use of the term “batts” was inevitable and virtually impossible to eradicate completely [144].

Was the Judge correct to find that there was no infringement because Section 89(2) of the Act applied to Knauf’s use of the term “batts” or “batt”?

  1. The leading New Zealand authority on the predecessor to s 89(2) was the Court of Appeal’s decision in Mainland Products Limited v Bonlac (NZ) Limited [1998] 3 NZLR 341 (CA) [155].

     

  2. It was well established in the Australian authorities that use as a trade mark meant use of the mark as a badge of origin. The appropriate question to ask is whether the impugned word would appear to consumers as possessing the character of a brand. Consideration of the totality of the packing, including the way in which the words were displayed in relation to the goods and the existence on the label of a clear and dominant brand, was relevant to determining the purpose and nature of the impugned words [163].

     

    Coca-Cola Co v All-Fect Distributors Limited [1999] FCA 1721; J Gallo Winery v Lion Nathan Australia Pty Limited [2010] HCA 15; Shell Co Australia Limited v Esso Standard Oil (Australia) Limited (1963) 109 CLR 407; Johnson & Johnson Pty Limited v Sterling Pharmaceuticals Pty Limited (1991) 30 FCR 326 (FCA); Anheuser-Busch Inc v Budejovicky Budavar [2002] FCA 390; Natures Blend Pty Limited v Nestle Australia Limited [2010] FCA FC 117 referred to.

     

  3. The Judge’s conclusion that there was no “normal” meaning of the term “batt” was open to question. While the term “batt” had a descriptive meaning in Australia and in other overseas jurisdictions as referring to a segment of glasswool insulation, it was the meaning to consumers and others in New Zealand that counted. After 1973 the word “batts” became strongly associated in the public mind with Tasman’s PINK BATTS        insulation products [165].

     

  4. It did not follow that whenever the terms “batt(s)” or “BATT” were used, they were used in a manner as to render it likely they would be taken as use of a trade mark in terms of s 89(2). That would only be so if the word or words used were inherently incapable of being used other than in the proprietary sense. That would be the case where, for example, the word at issue was a made up or “fancy” word having no normal or descriptive meaning. As indicated in Mainland, even if the impugned word had not found its way into ordinary parlance, it could still be used descriptively rather than in the trade mark sense depending on the circumstances of the case [166].

     

    Mainland Products Ltd v Bonlac Foods (NZ) Ltd [1998] 3 NZLR 341 (CA); Aldi Stores Ltd Partnership Limited v Frito-Lay Trading Co GmBH [2001] FCA 1874 referred to.

     

  5. Here evidence demonstrated there was no clear dichotomy between the use of the term “batts” in the descriptive sense and in the proprietary sense as a badge of origin. It therefore became necessary to consider whether, in all the circumstances, the impugned words were likely to taken by a significant number of prospective users as having trade mark significance in the sense described in the authorities. That was to be determined objectively and was a matter of impression [167].

     

  6. The Court agreed with the Judge’s conclusion that use of “batts” and “BATT” on packaging, labelling, and the Earthwool website would not be perceived by the public as use as a trade mark [168-170].

     

  7. The Judge’s conclusions on the s 89(2) issue were not in conflict with his later conclusions about infringement under s 89(1). In that context, the Judge was considering whether there was infringement under s 89(1) on the hypothesis of a finding under s 89(2) that the allegedly infringing words were likely to be taken as being used in a trade mark sense. If that were so, but not otherwise, the Judge found the impugned words would be likely to deceive or confuse a significant proportion of consumers as to the trade origin of the products. In any event, issues about the likelihood of deception are not relevant to the question of what constituted use as a trade mark under s 89(2) [172].

     

  8. At first sight it may appear to be counter-intuitive that the owner of a registered trade mark does not have the right to the exclusive use of the mark in all circumstances. However, s 89(2) and its predecessor had long recognised there will be no infringement where the same or similar words are used by a competitor other than in a trade mark sense [173].

     

  9. The Court recognised Tasman’s concerns about the risk of erosion of the distinctiveness of its valuable trade mark. However care had to be taken not to unduly extend the ambit of protection afforded by the Act to the owner of a registered trade mark. The Act must not be used as a means of restricting competition by enforcement of monopoly rights except as permitted by law [174].

     

    Mainland Products Ltd v Bonlac Foods (NZ) Ltd [1998] 3 NZLR 341 (CA) applied.

Knauf’s challenge to the Judge’s finding in respect of the HTML code

  1. It was necessary to distinguish between “use in the course of trade” for the purposes of s 89(1) and the question whether the words had been used in a way that was likely to be taken as a trade mark under s 89(2). Section 89(1) did not involve a notional consumer test of the type required by s 89(2) [184].

Intercity Group (NZ) Limited v Napier Bus NZ Limited [2014] 3 NZLR 177 referred to.

  1. The approach taken by Asher J in Intercity (albeit in a Google adwords context) was appropriate in the present context: namely that if a significant number of normally informed and reasonably attentive internet users were likely to take the use of the sign as being used as a trade mark, that it would be sufficient for the purposes of Section 89(2) [185], [187].

     

  2. The question was not what Knauf may have intended by using the impugned words in HTML code, but what meaning prospective purchasers were likely to take from the word if they had access to them [192].

     

  3. There was insufficient evidence for the Judge to conclude that, for the purposes of s 89(2) the impugned words in the HTML code were likely to be taken as use of the trade mark. Applying the Mainland test, there was no evidence that the use of the relevant words in the HTML code would convey to a substantial number of normally informed and attentive internet users that the words were used as a trade mark. There was no evidence as to why consumers might endeavour to access the HTML code and how that would be achieved. Further there was no evidence of what, if anything, the impugned words would mean to them. It was evident that the impugned words appeared in a single line of source code along with numerous other lines of code of highly disjointed nature and were unlikely to have any meaning or significance to a prospective purchaser. Even assuming the notional internet user might for some unexplained reason access the source code, the words would appear to be entirely random and essentially meaningless [193].

     

  4. The Judge was wrong to find that there had been infringement in respect of the HTML code [194].

              Honest practices under Section 95

  1. The Judge was wrong to decide that any of the alleged infringements would constitute honest practices on Knauf’s part if “batt(s)” fell within s95(c)(i) [199].

     

  2. The onus of establishing the defence was on the defendant. The test was objective: would reasonable members of the trade concerned, upon knowing all the relevant facts that the defendant knew, say the use complained of was honest [200].

     

    Aktiebolaget Volvo v Heritage (Leicester) Limited [2000] FSR 253 (Ch) applied.

     

  3. The proper inference to draw from Knauf’s conduct was that it set out in an aggressive manner to undermine the distinctive character of Tasman’s valuable and widely recognised trade mark. It did so with full knowledge of the existence of Tasman’s trade mark and the detrimental effects Tasman was likely to suffer to its trade mark as well as the likely damage the company would suffer in the market place. Use of the trade mark with an ulterior motive, such as the “assiduous efforts of an infringer” to undermine a trade mark by rendering it generic, will not meet the honest practices test [210].

     

    Johnson & Johnson supra; James Minifie & Co v Edwin Davey & Sons (1933) 49 CLR 349 applied.

     

                  Section 105 – Unjustified Proceedings

     

  4. The matters canvassed in relation to the honest practices defence applied equally here. The steps taken by Tasman were essential if the reputation in its trade mark was to be protected. The application of Section 89(2) was not an easy issue and it was reasonable for Tasman to have the issue resolved by the Court. Knauf’s assertion from the outset that the term “batt” was merely descriptive and its advice to Tasman that revocation of its mark was to be sought provided further justification for the proceedings. Effectively, Tasman was facing a head-on attack on the validity of its trade mark [217].

              Fair Trading Act Issues

  1. The reasons given by the Judge in respect of the survey were open to him and not shown to be wrong. The Judge correctly identified prospective consumers of insulation as a significant group of the persons likely to be effected by Knauf’s advertising and promotion of EARTHWOOL. The Judge recognised that not every respondent in the surveys would have come within the relevant cross-section of the public but found that the survey results were sufficiently clear despite this deficiency. That finding was open to the Judge given that substantial number of survey respondents and the high proportion of respondents who believed EARTHWOOL was made from natural wool [253].

     

  2. The survey results supported the Court of Appeal’s impression that the EARTHWOOL brand and logo would be likely to convey to at least a significant number of potential consumers of insulation products that EARTHWOOL insulation was made from sheep’s wool. That could be derived from the words alone but was reinforced by the green and orange colours used (suggesting a link with nature) and the undisputed evidence of the extent to which an awareness of sheep’s wool was imbedded in the consciousness of most New Zealanders [254].

     

  3. The contention that the Judge failed to give sufficient weight to the words EARTHWOOL in the name and logo, had over-analysed the words, and had failed to consider EARTHWOOL as a whole, were not accepted. These criticisms contradicted each other and did not reflect the careful way in which the Judge considered the evidence and applied his judgment [255].

     

  4. In deciding whether, from an objective standpoint, conduct is deceptive and misleading it was necessary to consider the context in which the impugned conduct takes place. This included the characteristics of the persons likely to be affected. Further, consumers were expected to exercise a reasonable degree of care in the circumstances [256].

     

    Red Eagle Corporation Limited v Ellis [2010] NZSC 20; Godfrey Hirst NZ Limited v Cavalier Bremworth Limited [2014] NZCA 418 applied.

     

    Depending on the circumstances a consumer in the target class may be expected to make further enquiries at the point of sale to rectify any misunderstanding about the nature or characteristics of a product. How readily this could be achieved could be a relevant consideration. On the other hand, the Fair Trading Act was aimed at consumer protection and it may be sufficient to establish liability if it was shown that a significant number of potential consumers were misled as a matter of initial impression [224], [257].

     

  5. The Judge was aware of this point and addressed it. The evidence disclosed that Knauf’s target audience included not only the trade and others who might be expected to have specialist knowledge of the insulation products but also end-consumers. Given the focus on sales promotion online, the Judge was entitled to reach the conclusion that the failure to make it plain that the EARTHWOOL product was made from glass was likely in the circumstances to mislead or deceive as the survey evidence demonstrated. The Judge was also entitled to conclude that it was no answer to say that an online enquirer could have been able to establish that EARTHWOOL was made of glass if, for example, a three or four step process was followed [258].

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