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Unfair Trade Practices And Passing Off In Economic Torts

If a person interferes deliberately, with the trade or business of another, doing so unlawfully, then he is also acting unlawfully. The fact that there is no general doctrine under common law for unfair competition could be due to the fact of common laws commitment to free competition. It is often a very delicate exercise to draw a line between illegitimate and legitimate use of someones efforts in a competitive economy.

On one side, constraints can be used to restrict unfair trade practices but on the other hand, such regulations could also be considered to be anti-competitive and then therefore the decision as to how far a business should be protected from unfair trade practices is a tough one to deal with. However, modern law has tried to understand that a free or competitive economy does not involve unrestrained and unregulated competition which would in turn harm the businesses. Protection of a plaintiffs business interests in order to ensure not only free but fair form of competition in the market is very essential for the overall growth of the economy. The doctrine of reaping without sowing sort of supports the judicial intervention in protection of a traders rights over their intangible property such as brand name, goodwill etc.

What Trade Practices are considered to be Unfair and Deceptive?

 As there exists a duty of good faith and fair dealing in the law of contracts, there also exists a duty of carrying on trade in good faith by fair and lawful means under economic torts by businesses. What is fair and just is subjective and depends on the courts analysis from case to case but in a broader sense, any unreasonable or unlawful interference in the conduct of business of another with an intent to advantage at their disadvantage can be categorized as an unfair or deceptive trade practice. The word deceptive in itself suggests something that is misleading or gives an impression of anything that is away from the true. A deceptive trade practice is thus an activity meant to misguide the public into purchasing a good or service maliciously. Such practices give rise to what is called as unfair competition under economic (business) torts where not only the consumers are harmed but also the competitors are harmed.

With reference to todays global economy and the ease with which all sorts of information travel within it, protecting trade secrets and goodwill of the business, preventing unjust competition and retaining a good business reputation becomes even more relevant than in the earlier times. Any adverse effects to a business due to deceptive trade practices can be long-lasting and devastating.

What is meant by Passing off?

Today, theft of identity in the sphere of commercial businesses, especially retail brands is a common scenario. Advertising own products by using the title or imagery of an imminent brand is a method of establishing brand equity. This scenario of causing harm to the economic interests of an established business/brand by confusing its customers and damaging its goodwill is called passing-off.

Passing off is one of the key aspects of trademark protection in common law countries. It is rooted within the law of deceit under common law. Under passing off, effect on consumers is given more importance than the presence of the intent to deceive. Traditionally, passing off occurs when a seller/merchant places the trademark of a competitor on his own products and services so as to mislead the consumers into purchasing the mislabeled goods or services. This wrong of passing off protects the goodwill of traders from misrepresentation under common law of tort. Acts done under this law protects the right of the property in the form of goodwill. Goodwill, being an intangible asset, is defined as that value of the business which crosses and is over the value of estimable business assets. It is the good name that a business has earned for itself.

Thus, in order to protect ones goodwill under trademarks, one should be able to prove that there has not only been misrepresentation but also a damage to the goodwill of a business due to the misrepresentation amounting to confusion among the consumers. Lord Halsbury, while dealing with a passing-off claim said that the whole question in these cases is whether the thing - taken in its entirety, looking at the whole thing - is such that in the ordinary course of things a person with reasonable comprehension and with proper insight would be deceived.[1]

 Although, damage to goodwill of the plaintiff is considered to be the key point of passing off, the defendant should be able to prove that there was a valid reason for the plaintiff to be injured by the defendants actions i.e., harm to the economic interests of the plaintiff,[2] also only the traders goodwill earned out of sale of his goods and services can be protected under the tort of passing off. [3]
Understanding Passing off and infringement with respect to trademarks:

Today, passing off is extremely necessary as an action of infringement under Trademark provides protection only or registered goods and services, but in case of passing off action, protection is provided for unregistered goods and services. It is a statutory remedy for misrepresentation of registered goods and services and damages arising out of that. In an action for infringement of a trade mark, title of the plaintiff over the trademark is established by giving evidence of registration of the title whereas under a passing off action, title is established by the evidence of goodwill and reputation of the business carried on by the use of a badge, mark or other symbol.[4]

As the main aim of the claim of passing off under torts is to maintain fair competition in the market and prevent any damage to the goodwill or reputation of a business due to misrepresentation, it becomes important to check whether any business in conducted in such a way that it causes deep confusion within the minds of its consumers.

When there is a conflict between a claim of passing off with regard to a registered trademark, the proof of resemblance in case of infringement and passing off is different. Where an infringement action may fail when the plaintiff is unable to prove the registration of the goods in question, a passing off action may succeed as registration is not a decisive factor under it. In the same tone, lord Halsbury says that – degree of similarity of the name, mark or other features concerned is important but not necessarily decisive, so that an action for infringement of a registered trade mark may succeed on the same facts where a passing-off action fails or vice versa.

This concept of passing- off has undergone major changes in the course of law.

From being restricted to the misrepresentations of a persons goods it was extended to businesses and services and further to professions and non-trading activities now.

An extended definition of passing off would also refer to the misrepresentations of the very characteristics of a good. This not only would effect a single seller but all those who produce the same kind of goods. For instance, an action of passing off could also lie when a defendant involved in the same kind of business as that of the plaintiff also picks up a similar sounding name to that of the plaintiffs business appearing as though he were a part of it.[5] 

In the Leahy, Kelly Case[6] it has been observed: the foundation of an ordinary case of passing off is that the party alleging it should prove, in the first instance, that any name which he claims as his trade name has been so extensively used in connection with his manufacture or with the goods which he sells that his goods have come to be known in the market by that name; that anyone using that name would intend to refer to his goods, and that anyone to whom the name was used would understand that his goods were referred to.

Another point of extension under the action of passing off is that the plaintiff and the defendant need not be engaged in the same type of trade. In one of the cases in India, Daimler Benz Aktiegesellschaft v, Hvbo Hindustan[7] the trademark of the plaintiff was that of BENZ with respect to vehicles but the court had granted an injunction to the defendants use of three pointed human being in a ring along with the trademark BENZ with regard to an undergarments brand.

Unjust appropriation of the business reputation of a person is neither acceptable nor a healthy means of competition in the socio-economic society. Thus, under the action of passing-off the courts very well recognize the need to protect common law trademarks from the likelihood of confusion or damage.

End-Notes
[1] In Schweppes Ltd. v. Gibbens 1905 22 RPC 601 (HL)
[2] Reckitt & Colman Products Ltd. v. Borden Inc, 1990 R.P.C 341.
[3] Star Industrial Co Ltd v Yap Kwee Kor [1976] FSR 256, at 269.
[4] Honda Motors Co. Ltd. v. Charanjith Singh (2002) 101 DLT 359.
[5] Beecham Group Limited v. Edsee Food Products Nigeria Limited
[6] Leahv. Kelly v. Glover T18931 10R.P.C. 141.
[7] 1994 PTC 287.

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