Reputation and Goodwill in UK Law

In such a case, although the defendant may not damage the goodwill as such, what he does is damage the value of the goodwill to the claimant because, instead of benefiting from exclusive rights to his property, the latter now finds that someone else is squatting on it. The ability to do that is compromised if another can use the reputation or goodwill without his permission and as he likes.

If someone acquires a valuable reputation or goodwill, the law of passing off will protect it from unlicensed use by other parties. Such use will frequently be damaging in the direct sense that it will involve selling inferior goods or services under the guise that they are from the claimant. But the action is not restricted to protecting against that sort of damage. The law will vindicate the claimant's exclusive right to the reputation or goodwill.

The important distinction is between the present day value of future income (which is not treated by the ECtHR as part of goodwill and a possession) and the present day value of a business which reflects the capacity to earn profits in the future (which may be part of goodwill and a possession). The capacity to earn profits in the future is derived from the reputation that the business enjoys as a result of its past efforts.

It is possible to formulate a defence to the passing off action in two ways. First, it could be said that Inter Lotto has no enforceable goodwill and reputation. He asserted that Camelot's ownership of the '392 registered mark provided it with an entitlement to use it. He said that his client had a "better" claim than Inter Lotto to the marks in suit. He said that the issue was one of priority of rights and "hierarchy".

The learned judge made the following findings of fact in respect of the public reputation of Advocaat in this country; (1) A substantial reputation and goodwill has, over half a century or more, been acquired by the name Advocaat as that of a drink with recognisable qualities of appearance, taste, strength and satisfaction; (2) A large part of the public has come to believe correctly that Advocaat is of Dutch origin and incorrectly that eggs and brandy are its characteristic ingredients; (5) There is another section of the public which buys and consumes Advocaat without any opinion as to its ingredients except that they include eggs and alcohol; (4) An expert can well distinguish a wine based drink, such as the defendants', from the traditional form of Advocaatsupplied by the plaintiffs, but there is no such gross difference of taste, colour or other qualities as would lead the inexperienced or casual customer to regard them as different species of drink.

The claimant must show that it has a significant goodwill, in the form of customers, in the jurisdiction, but it is not necessary that the claimant actually has an establishment or office in this country. In order to establish goodwill, the claimant must have customers within the jurisdiction, as opposed to people in the jurisdiction who happen to be customers elsewhere.

My Lords, Spalding v. Gamage and the later cases make it possible to identify five characteristics which must be present in order to create a valid cause of action for passing off: (1) a misrepresentation (2) made by a trader in the course of trade, (3) to prospective customers of his or ultimate consumers of goods or services supplied by him, (4) which is calculated to injure the business or goodwill of another trader (in the sense that this is a reasonably foreseeable consequence) and (5) which causes actual damage to a business or goodwill of the trader by whom the action is brought or (in a quia timet action) will probably do so.