Court of Appeal, Kòs P, Miller and Winkelmann JJ, 8 – 9 November 2017, 12 March 2018, [2018] NZCA 45

Misleading or deceptive conduct – self-storage industry – appellant being long-established business in Auckland area – trading as National Mini Storage – respondents having established self-storage facilities under National Storage in other parts of New Zealand – whether use of National Storage in greater Auckland area would be misleading or deceptive conduct.

Confusion or deception on search engine results page – whether Google Knowledge Panel creates confusion – whether confusion from consumer use of Google Maps feature – Imperfect recollection – Initial interest confusion – Fair Trading Act 1986 (NZ) s 9.

Passing off

Defences of acquiescence and honest concurrent use

Extent and scope of injunction

Facts:[1]

Background

NMS was a provider of self-storage facilities throughout the greater Auckland region [HC:4].  It was incorporated in 1991 and had nine self-storage facilities between Albany and Takanini [4].  It had no plans to expand outside of the Auckland region [HC:4].  NMS operated under a logo trade mark comprising NATIONAL MINI STORAGE and had held a trade mark registration for this logo since October 1996 [HC:6] – [7].

The four defendants (together “National Storage” or “NS”) were all part of the National Storage Group of companies, formed in Australia in 2002 out of the merger and acquisition of other storage companies.  It entered the New Zealand market in 2015 and had 101 self-storage centres under operation or management in Australia, and nine in New Zealand.  It is publicly listed on the Australian Securities Exchange [HC:5].  It operated under the trade mark: NATIONAL STORAGE in a logo form in both Australia and New Zealand.  It had a registered trade mark in New Zealand for, in logo form, “National Storage Tailored Storage Solutions” [HC:9].

Self-storage facilities are offered to both retail customers and businesses.  Retail customers rent storage facilities on an “events” basis, or to store equipment not required on a seasonal basis [HC:19].  The Auckland self-storage market was dominated by NMS and Storage King (together controlling approximately 80% of the market) [HC:21]. 

The self-storage market had low brand awareness [HC:25].  In a 2010 study, approximately 41% of Auckland respondents were unable to nominate a single brand associated with self-storage [HC:26].  In 2013, 42% of Auckland respondents were unable to nominate a single brand associated with self-storage [HC:27].

The 2010 study showed that 50.7% of potential self-storage customers found a facility via the internet [HC:30].  In 2013, this figure was 33.5%.  In relation to NMS specifically, for all but two facilities street signage or the NMS website were the primary sources for customers to come to know about NMS [HC:32]. In the 2013 study, 63% of people became aware of a facility by seeing the physical signage located in their neighbourhood [HC:36].

When people who had found out about NMS come to contact it, they frequently did so via the internet.  NMS could show that from approximately 2009, there had been an accelerated shift in use of the internet which it could monitor through adoption of different 0800 numbers for its various methods of advertising.  Its website attracted 60,000 – 70,000 visits per year [HC:34]. 30% of people visiting the website in a year did so using a phone or tablet.

The 2013 study showed that 35.2% of self-storage customers contacted only the facility they ultimately dealt with.  64.8% of respondents contacted two or more facilities [HC:33].

In terms of ultimate selection of facilities, the studies identified convenient access to the storage site as one of the most important considerations [HC:36].

Events Leading to Proceedings

In August 2014, NS announced its intention to expand into New Zealand at a Self-Storage Association of Australasia conference [HC:10].  In October 2014 and March 2015, NS representatives met with Mr McFadzien, the managing director of NMS, and expressed interest in purchasing NMS’s business.  Mr McFadzien said the business was not for sale.  NS said that NMS was put on notice at these meetings that NS intended to enter the Auckland market.  NMS said that nothing was revealed at the meetings about how or when NS’s expansion into New Zealand would occur [HC:11].

In June 2015, NS acquired five facilities and a sales office in Christchurch.  It applied for its trade mark registration in September 2015.  It acquired a facility in Hamilton in November 2015.  It acquired two facilities in Wellington in May 2016, and a further facility in Porirua in January 2017 [HC:12]. 

In February 2016, NS publicly announced its intentions to move into the Auckland market [HC:13].  On 1 July 2016, NMS sent NS a letter setting out its concerns about NS’s proposed use of the brand name “National Storage” in Auckland and requested undertakings. 

NMS issued proceedings in September 2016 claiming breach of s 9 of the Fair Trading (the FTA) (misleading or deceptive conduct) and passing off.  It sought an injunction to prevent NS from using the words “national storage” to operate and promote its services in the greater Auckland area.  It alleged that if NS established its self-storage facilities in Auckland under NATIONAL STORAGE, a significant number of customers who knew of NMS would be misled or deceived into dealing with NS in particular as a result of internet searches for self-storage facilities.

NS pleaded the affirmative defence of acquiescence to both breach of FTA and passing off.  Its argument was that for almost two years NMS had been aware that NS would inevitably expand into the Auckland area but had delayed objections until after NS had committed to over $50 million worth of acquisitions in New Zealand.  NS also pleaded honest concurrent use but acknowledged at trial that it only applied to the passing off claim.

Pathway to Deception

NMS focussed its case on internet searches made by consumers who imperfectly recalled its name (sometimes by relying on incomplete word of mouth recommendations) and so failed to enter its name correctly; or by consumers who did recall NMS by name but were confused when presented with a search engine results page (SERP) that included results for both NMS and NS.  NMS asserted that it was immaterial that such confusion might be remedied when a customer clicked through to a website and saw the branding [29].

NMS relied on Google map listings.  When a consumer used a search engine including a geographical term a map was displayed on the SERP with nearby providers – including an icon button providing a clickable direct phone call to the provider [38] and [57].

NMS relied too on the confusion from the fact that a Google “Knowledge Panel” for NS appeared immediately alongside search results for “National Mini Storage” on the SERP [CA:59].

First Instance Judgment

(a)  The Trial Judge dismissed the claims of breach of FTA and passing off, holding that brand recognition in the industry was low and NMS's name was descriptive. It had acquired "some element" of secondary meaning, but consumers who associated it with NMS do so because of the firm's distinctive branding, which emphasised the word "mini" [HC:124].

(b)  NMS failed to show that consumers who experienced imperfect recollection and search for it using unbranded searches such as "storage Auckland" were likely to be misled when they saw results for both NMS and NS on the SERP. Consumers who knew of NMS were likely to be prompted on seeing the firm's full name, which appears on the SERP. On the evidence, the number of customers who might be confused as a result of imperfect recollection was very small [HC:181].

(c)   NMS also failed to show that consumers who did recall its name would be misled or deceived on seeing a SERP into thinking there is some association between NMS and NS [HC:159].

(d)   Any confusion would be remedied when a consumer saw either firm's branding, which will happen when the consumer clicked through from the SERP to a website to obtain contact details or check out offerings [HC:191] and [HC:232(b)].

(e)   NMS failed to show that confusion would increase materially when NS entered the market. Both firms would engage in search engine optimisation and NMS could not show that it would be pushed off the first page of the SERP. NS had undertaken not to target the distinguishing word "mini" in its marketing [HC:264].

(f)    Because NS had an established and growing presence in New Zealand the two firms were destined to continue to appear together on SERPs whether or not NS established facilities in Auckland. So an injunction could not preclude confusion that may occur when consumers viewed a SERP (and there was no need of an injunction to protect consumers from entering transactions in error since any confusion is remedied before that point) [HC:314 - 5].

(g)    The injunction sought was also over-extensive, for the greater Auckland area includes places in which NMS has no facilities and, on its own evidence, no customers (though it plans to expand). It was difficult to draw alternative geographic boundaries - such as the seven-kilometre radius which is the approximate catchment of a NMS facility - because the Internet does not respectthem [HC: 307 - 310] [HC:314].

As to the defence of acquiescence, the trial judge held that NS was materially prejudiced by NMS’s passivity, having commenced and continued an acquisition strategy where Auckland was always going to be a target market.  NS was deprived of an opportunity to test its position without substantial prior investment outside of the Auckland area [HC:292].  It was the particular circumstance of the two face-to-face meetings between NMS and NS that put this case in a different category and meant that silence in that particular context was conduct which induced NS reasonably to believe that NMS would not be pursuing its claim [HC:293].

As to honest concurrent use, the trial judge held that, had it been necessary to decide the point he would have held that the defence was not available to NS in circumstances where it had no physical presence in Auckland [HC:306].

Held, dismissing the appeal:

  1.  The Judge had not made an error of law in applying the standard of the reasonably informed and attentive internet user [42].
  2.  The Court was not persuaded that the Judge erred on the facts.  The likely level of confusion from imperfect recollection was very low and not sufficiently substantial to justify characterising NS’s conduct as misleading or deceptive [53]:

(a)          The proposition that customers who searched for “National Storage” and clicked through to NMS were evidencing imperfect recollection rested on the weak premise that there was no other explanation for that search term.  National Storage was a generic term [50];

(b)          It was also open to the Judge to find that NS had an increasing profile attributable in part to its sponsorship activities in Australia [51];

(c)          Consumers are used to being presented with links to the websites of multiple providers on a SERP and expect to distinguish among them as competitors in a marketplace.  Clicking through to websites may indicate not that consumers are confused about supplier identity but that they are evaluating offerings and seeking contact details. [52].

Confusion by Association

  1. As to confusion by association involving the Google maps and the presence of the Knowledge Panel for NS, the Court accepted that NMS and NS were both likely to continue to appear on a SERP in response to searches for “national mini storage”.  However the Knowledge Panel showed the distinctive NS brand mark while the SERP identified NMS by name.  It followed that a reasonably informed and attentive consumer who was looking for NMS was unlikely to be confused by the Knowledge Panel [60].

Taking Into Account the Websites

  1. As to the contention that the Judge had wrongly taken into account the actual websites of the parties when assessing the likelihood of misleading or deception, the Court accepted that Judge had so taken the websites into account.   But his findings about confusion did not assume the customer had clicked through to the websites.  He had made it clear that the question was whether on consideration of the SERP as a whole an informed and reasonably attentive user would be misled [61].
  2. Overall the Court found that there was no risk of confusion where customers searched for terms including the word “mini” and the level of potential confusion amongst those who sought out NMS using “national” or who might think the two firms were associated, was too low to characterise the use of NS’s name as misleading or deceptive [71].  Those conclusions applied at the SERP [72].

Initial Interest Confusion

  1. (Obiter) Given its findings, the Court did not need to discuss the concept of initial interest confusion.  The Courts have traditionally been unwilling to excuse defendants who claim that consumers had the means to resolve their confusion once they had acted upon it by entering the defendant’s premises.  The policy question whether a SERP should be treated differently should be reserved for a case that turns upon it.  The Court did accept that remedy may be affected where initial confusion is remedied before a transaction is entered, but that was a different point.

Trust Bank Auckland Limited v ASB Bank Limited [1989] 3 NZLR 385 (CA) at [389]; Tott Toys Limited v Mitchell [1993] 1 NZLR 325 (HC) at [368]; Red Eagle Corporation Limited v Ellis [2010] NZSE 20, [2010] 2 NZLR 492 at [30] – [31] referred to.

Confusing Similarity in Internet Searches

  1. The Judge was right on the facts of this case to distinguish cases dealing with confusion on the SERP involving predatory advertising. The courts in these cases had intervened decisively for a plaintiff whose name had been appropriated by a rival which acquired the name or words very close to it, for Google advertising purposes.  The Court did not doubt the correctness of the decisions but the Judge was right to distinguish them [76].

Intercity Group NZ Limited v Nakedbus NZ Limited [2014] NZHC 124, [2014] 3 NZLR 177; Victoria Plum Limited v Victoria Plumbing Limited [2016] EWHC 2911 (Ch); Vancouver Community College v Vancouver Career College (Burnaby) Inc 2017 BCCA 41 distinguished.

Acquiescence

  1. (Obiter) The defence of acquiescence was not satisfied and ought to have been dismissed by the Trial Judge.  It was not enough that NMS knew NS intended to enter New Zealand markets and that its managing director accepted at trial (with the benefit of hindsight) that NMS ought to have issued a warning at that time.  This was a commercial context involving arms-length parties and nothing about their relationship created a reasonable expectation that NMS would speak [81].  Further, it was not reasonable to assume nor did NMS know that NS was acting in reliance upon such an assumption (if indeed it was).  NMS had refused to sell its business to NS and NS must have appreciated that it intended to continue operating in Auckland under its own name and branding and would defend its patch if NS entered the market [82].

Remedy

  1.  The Trial Judge was right to characterise the injunction as overbroad.  He was also correct to note that it would prevent confusion that may already exist and might compound such confusion by giving NMS an unfair opportunity to capture consumers looking for NS should NS be required to enter the market under another name [87].

 

 

[1]  These facts are drawn from both the High Court decision [2017] NZHC 1775 and the Court of Appeal decision.  References to paragraphs in the New Zealand High Court’s decision are indicated by the use of “HC” within the reference.