Intercity Group (NZ) Limited v Nakedbus NZ Limited
High Court of New Zealand
25-29 November 2013; 12 February 2014
 NZHC 124
Google AdWords – Trade mark infringement – use as a trade mark – clean hands – passing off – misleading and deceptive conduct – likelihood of deception and confusion – honest use – Trade Marks Act 2002 – ss 89(1), 89(2) – Fair Trading Act 1986 – s 9
The plaintiff, Intercity Group (NZ) Limited (ICG) and the defendant, Nakedbus NZ Limited (Nakedbus) were the dominant New Zealand long distance bus travel businesses. Competition between the companies was intense. ICG owned the registered trade mark INTERCITY, including for “road transportation services”, which the Court accepted was a well-known brand in New Zealand.
From its launch in 2006, Nakedbus had used the words “inter city” in various ways in pursuit of customers. This triggered various demands by ICG to cease use of this mark, which included earlier High Court proceedings.
Evidence showed that from late 2012, Nakedbus ran a Google Adwords campaign targeting the search terms “inter city”, and variations, such as “intercity” and “inter city”. Consumers searching for ICG’s brand name, INTERCITY, were presented with various advertisements for Nakedbus, which commonly included multiple uses of the words “inter city,” including in bold text, and in ambiguous contexts that could be read as referring to ICG’s services. Further, the words “naked bus” had less prominence in the advertising than “inter city”. There was no clear statement that the advertisement was not for ICG or was comparative.
The court accepted evidence (including survey evidence) that by September 2013, most New Zealand internet users, when searching for “inter city” and variants, were not searching for businesses that fitted that phrase in a descriptive sense, but instead were looking for the ICG brand. A Nakedbus internal email showed there was some evidence of confusion. There was also evidence that when in 2012 Google’s policy changed, which stopped or limited the Nakedbus advertisement responding to “inter city” or variations thereof, Nakedbus immediately complained to Google. When the policy was relaxed by Google, Nakedbus experienced an immediate lift in its revenue. The majority of revenue earned derived from the query “intercity”, as against “inter city”. There was evidence that for a period ICG had purchased the Google AdWords “Nakedbus”, which triggered its own advertisements.
The first cause of action, that Nakedbus had undertaken at a meeting to cease marketing Nakedbus operations as being “inter city”, or a similar word or phrase, was not pursued at trial. In any event Asher J did not accept any such undertaking had been given.
ICG claimed that Nakedbus infringed its trade mark INTER CITY by:
(a) Bidding against the words “inter city” and variants thereof with Google’s AdWords service, resulting in Nakedbus advertisements being displayed on Google in response to searches for ICG’s trade mark (second cause of action).
(b) Using the words “inter city” within the advertisements that were then displayed (third cause of action).
ICG also claimed that use by Nakedbus of the words “inter city” constituted passing off of ICG’s business, and misleading or deceptive conduct under the Fair Trading Act 1986 (fourth and fifth causes of action).
Relief sought included declaratory and injunctive relief, an account of profits, costs and interest. The parties agreed to a split trial in the event the plaintiff was successful on liability with a further hearing as to remedies.
Nakedbus argued (among other things) that its use of “inter city” was not use “as a trade mark”; that the purchase of Google AdWords could not be taken as such “use” of since it could not be seen by a third party; that its use of “inter city” was descriptive; and that the rights of a trade mark owner do not extend to preventing others from using the sign in a way that does not affect its trade mark functions. It raised an affirmatory defence to the claim for injunctive relief that ICG did not come to the Court with clean hands, because ICG itself had sought to promote its own coach services by advertising on Google using the key words “Naked Bus” and variations thereof. It also raised a defence under s 95 of the Act (no infringement if certain matters are undertaken in accordance with “honest practices”).
An application for interim injunctive relief had been dismissed. This was the substantive hearing.
Held, finding that Nakedbus had infringed ICG’s trade mark under ss 89(1)(a) and (c), had carried out the tort of passing off, and had engaged in misleading or deceptive conduct (but finding no infringement in respect of the second cause of action):
Trade Mark Infringement (second cause of action): The use by Nakedbus of Google AdWords
(1) Use as a trade mark: It is convenient to consider the application of s 89(2) (use as a trade mark) first before turning to infringement under s 89(1). Section 89(2) is both a gateway that must be passed by a claimant and its determination, if affirmative, sets a platform for the examination of infringement issues. 
(2) The essential function of a trade mark is to guarantee trade origin by enabling the consumer to distinguish the goods or services from others with a different origin. 
Re Powell’s Trade Mark  2 Ch 388 (CA); Mainland Products Ltd v Bonlac Foods (NZ) Ltd  3 NZLR 341 (CA); Johnson v Johnson Australia Pty Ltd v Stirling Pharmaceuticals Pty Ltd (1991) 101 ALR 700 (FCA), followed
(3) It is important not to confuse dicta relating to the issue of confusion and deception, in deciding the question of what constitutes “use as a trade mark”. 
(4) The word “use” in s 89(2) carries its usual meaning of employing something to achieve something.  The concept of “use” in Europe and Australia turns on the wording of the relevant sections, which differ from New Zealand legislation. 
(5) The essential question in New Zealand is whether the manner of use of the word is likely to be taken, by a notional third party, as use as a trade mark.  This will depend on all the circumstances of use. The normal meaning of the word will be a primary consideration, as will the way it is used in relation to the particular goods or services.  The consumer who determines whether the use is trade mark use is the same consumer used to measure whether the sign is “identical” or “likely to deceive and confuse” for the purposes of s 89(1).  If a significant number of normally informed and reasonably attentive internet users are likely to take the use of the sign as being used as a trade mark, that will be sufficient to the purposes of s 89(2). 
Mainland Products Ltd v Bonlac Foods (NZ) Ltd  3 NZLR 341 CA followedInterflora Inc v Marks and Spencer Plc  EWHC 1291, Google France v Louis Vuitton Malletier SA  ECR I-2417 at - referred to
(6) The use by Nakedbus of Google key words was entirely different from use on packaging or other communications to the public. Insofar as the use of the key word was not seen or known or understood by the consumer, there was no use of a sign “likely to be taken as being used as a trade mark”.  The second cause of action failed on this basis. If the s 89(2) threshold had been crossed, there would have been infringement under s 89(1)(a) or 89(1)(c). 
Affirmative defence – clean hands
(7) (Obiter) The defence of clean hands is available where a defendant can demonstrate that a plaintiff seeking to obtain equitable relief in relation to a particular transaction has also acted improperly in relation to that transaction. The impropriety must have a nexus with, or an immediate and necessary relation to, the relief sought. Plaintiffs may demonstrate that they have “washed their hands” of any uncleanliness, by showing that the inequitable conduct was accidental, or ceased well before suit was brought. 
Eldamos Investments Ltd v Force Location Ltd (1995) 17 NZTC 12,196 at 12,203;Weight v Murphy  NZLR 1170, 1183 referred to
(8) ICG’s purchase of the key word “Nakedbus” for its own advertisements would have been of a reactionary nature rather than as part of a long term strategy to obtain an unfair advantage. Further it had discontinued. If the second cause of action had been successful, an equitable remedy would therefore not have been declined on the basis of unclean hands. 
(9) It was not necessary to consider clean hands in relation to the (third to fifth) causes of action relating to the advertisements themselves, as ICG had not placed such advertisements itself, and there would therefore not have been a nexus as required by the clean hands doctrine. 
Trade Mark Infringement (third cause of action): use by Nakedbus of the words “inter city” in advertisements and on its website
(10) For the purposes of the proceeding, “intercity” could be seen as having two roles in New Zealand: one as an adjective, and one as the name of a well-known, long distance bus company. 
(11) It is easier to find infringement in a registered trade mark where it consists of a coined phrase, than where it is a generally descriptive word that has acquired a secondary meaning, so as to become distinctive of the plaintiff’s goods as a badge of origin. There is always the possibility that the word may be used in the former sense. A risk of confusion must be accepted. 
Pepsico Australia Pty Ltd v Kettle Chip Co Pty Ltd (1996) 33 IPR 161 at 162;Dominion Rent A Car v Budget Rent A Car  2 NZLR 395 at 408 referred to
(12) Care had to be taken to ensure that the important advertising medium offered by Google was not unduly constrained. 
Specsavers International Healthcare Ltd v Asda Stores Ltd  EWCA CIV 24 referred to
Section 89(2) and deliberate “use”
(13) The assessment of the nature and purpose of the use of a sign is objective, that is by reference to what consumers would take the use to be.  Where it is proven that an advertiser has set out to deliberately use words as a trade mark it can be expected that the advertiser’s perception that the use will be taken as a trade mark will be accurate. 
(14) There was evidence of deliberate use by Nakebus of INTER CITY as a trade mark. Nakedbus did not need to use the words “inter city” in its advertisements. It would have been more accurate to offer New Zealand-wide buses. If the “intercity” concept was sincerely the goal, the words “city to city” could have been used. The words “inter city” were used as hooks to attract those looking for the ICG bus service to Nakedbus. , 
Section 89(2) – “likely to be taken as used”
(15) A submission by Intercity that in addition to the function of trade marks as badges of origin, trade marks must now be seen as having an advertising function and thereby creating a unique product identity, was not accepted. -
L’Oreal SA v Bellure NV  RPC 23 CA at  referred to
(16) The notional consumer could not be expected, when scanning a results page on a screen, to read advertisements with absolute accuracy or care. On the other hand, the reasonable user is not careless in his or her observations, and can be expected to exercise a consumer’s customary skepticism of advertisements. 
(17) There was a real possibility that notional consumers would assume when they saw the Nakedbus advertisement in response to entering “intercity” that the website shown had a connection with the owner of the trade mark INTERCITY. In this regard it was relevant that the words “inter city” were stated twice, highlighted, and responded to the user’s search for “inter city”. Judicial notice was taken of the fact that the concept of companies with different names being associated was well understood by consumers in New Zealand. , , 
(18) The relevant time to assess use of the trade mark is when the consumer sees the advertisement on screen, having searched for “intercity”, before a click. At that point in time some consumers would think that “intercity” was being used as a trade mark indicating origin of the service. 
(19) The consumer might also retain the view that the ICG service was the subject of the advertisement on opening the Nakedbus website, which also contained the words “cheap inter city bus fares”. While the word Nakedbus was also stated, the consumer might well continue with the illusion that Nakedbus was in some way connected to ICG. , 
(20) The use of the sign “inter city” on Nakebus advertisements and on the Nakedbus website was likely to be taken as use as a trade mark. 
“Identical” in s 89(1)(a)
(21) Absolute protection is granted to a sign that is identical to a registered trade mark. In contrast, a qualified protection (turning on whether the mark was likely to deceive or confuse) is available for a sign that was only similar. 
(22) A decision as to identity is based on an assessment of the picture presented to the average consumer as a matter of overall impression. It should not be assumed that the consumer has both marks side by side. The significance of impression and the imperfections of memory of the average careful consumer must be borne in mind. The degree of oral similarity is also relevant. What must be assessed is the visual, oral or conceptual identity of the marks in question, based on the overall impression created by them, bearing in mind their distinctive and dominant components.  The notional normally informed and reasonably attentive consumer can be used for the purposes of assessment. In carrying out that assessment no special knowledge of the consumer is to be assumed. 
LTJ Diffusion SA v Sadas Vertbaudet SA  ECR I-2799 at ; Reed Executive Plc v Reed Business Information Ltd  EWHC 159; Lloyd Schuhfabrik Meyer & Co v Klijsen Handel BV  FSR 77; International Business Machines Corp v Web-Sphere Ltd  EWHC 529 at 810 referred to
(23) The absolute liability that follows a finding of “identical” indicates that the term requires a complete identity with a registered trade mark, and not something that is almost or nearly identical. 
Leafscreen NZ Ltd v Leafbusters Group Ltd (2004) 10 TCLR 967; International Business Machines Corp v Web-Sphere Ltd  EWHC 529 referred to
(24) The words “inter city” and the registered trade mark INTERCITY were identical. Putting the use of capitals to one side (since trade marks apply to upper and lower case) the only difference between the mark and the sign was the gap in the sign “inter city”. There was no oral difference. A notional consumer relying on overall impression would not notice the difference, taking into account the imperfections of memory. -
Likely to deceive or confuse: s89(1)(c)
(25) The circumstances in which the mark was used, the market in which the goods may be purchased and sold, and the character of those involved in the market, are relevant. The states of mind of the prospective or potential purchasers of the services are relevant, and particular the background that led the consumers to the advertisement or website. The test of likelihood of deception or confusion does not require that all persons in the market are likely to be deceived or confused. But it is not enough that just one or two might be confused. It must be a “substantial number of persons”. 
Pioneer Hi-Bred Corn Co v Hy-Line Chicks Pty Ltd  2 NZLR 50, 61-2; Re Smith Hayden & Co Ltd (1945) 63 RPC 97 (CA) at 101 referred to
(26) Given that the assessment turns on the impression conveyed, the confusion in question must be that arising when the advertisements are considered. In this case it was to be assessed at the time when the advertisements were read.  The issue was not what the user was intending to find, but what they understood when they looked at the display page and saw the advertisement. 
(27) There was no survey evidence on the point. However survey evidence on the issue of confusion could be unsatisfactory. 
(28) While there was some evidence of confusion, in the form of the email internal to Nakedbus, material indicating actual confusion was not conclusive. In the end the Judge had to apply an objective test in assessing whether the reasonably well-informed and reasonably attentive internet user would be deceived or confused. 
(29) Even without the evidence it was proven on the balance of probabilities that a significant number of reasonably well-informed and reasonably attentive internet users on looking at the Nakedbus advertisement would assume it was an ICG advertisement and click on the Nakedbus website intending to book with ICG. Based on the knowledge of INTERCITY as a badge of origin by New Zealand consumers, and the fact that they may enter the term “Intercity” expecting to access the ICG website, a significant number of consumers would think that references to “inter city” in the advertisement were placed there by the owner of the trade mark. 
(30) Even if the consumer was conscious that the website was a Nakedbus website and not that of ICG, they could believe that the website had an association with ICG or with selling discounted ICG tickets. Thus, confusion could arise when the consumer accessed the website itself. 
(31) Internet users are used to exploration by trial and error, and will readily skip from site to site. However, given the background that will have led them to the site, the gratuitous use of “inter city” and not “city to city” or some other non-confusing phrase would lead many into error. 
(32) Initial interest confusion can itself show an adverse effect on the origin and function of a trade mark. A significant number of consumers would remain confused when they clicked through to the website and then purchased a ticket. 
Interflora Inc v Marks and Spencer Plc  EWHC 1291 at ; Datacard Corp v Eagle Technologies Ltd  EWHC 244 at ; ACCC v Trading Post Australia Pty Ltd (2011) 197 FCR 498 at  referred to
(33) The use of “inter city” by Nakedbus in its advertisement and website was likely to deceive or confuse a substantial number of persons. There was infringement under s 89(1)(c).
Section 95 - Defence of honest use
(34) The issue was whether a reasonable reader would be likely to say upon the full facts that the advertisement was not honest.  The defence must be tailored to the commercial context in which the use takes place. The “inter city” sign in the context of the Nakedbus advertisement was unlikely to be seen as indicating the kind, quality, quantity, intended purpose, value, geographical origin or other characteristics of the bus service, rather it would indicate to a significant number of internet users the trade mark INTERCITY. Accepting the commercial context, this was not honest use. That the general public are used to the ways of advertisers and hyperbole was taken into account. 
Cable & Wireless Plc v British Telecommunications Plc  FSR 383, 390;Mitre 10 (New Zealand) Ltd v Benchmark Building Supplies Ltd  1 NZLR 26 (CA) at 56 referred to
(35) Evidence showed Nakedbus was aware that there was confusion. Further if Nakedbus was using the words “inter city” honestly it would not have complained when Google’s policy change in 2012 resulted in the Nakedbus advertisement no longer responding to the key word “intercity”. It could have taken steps to avoid confusion when it became aware of it. It did not do these things. The defence did not apply. 
Fourth cause of action – passing off; Fifth cause of action – breach of the Fair Trading Act
(36) There was passing off by Nakedbus in its “inter city” advertisements or website, for similar reasons , and the advertisement and other sites complained on were misleading or deceptive in breach of the Fair Trading Act.