Diageo North America Inc. and another v Intercontinental Brands Ltd & others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Mr Justice Peter Smith,Lord Justice Rix |
| Judgment Date | 30 July 2010 |
| Neutral Citation | [2010] EWCA Civ 920 |
| Docket Number | Case No: A3/2010/0411 HC08C02035 |
| Court | Court of Appeal (Civil Division) |
| Date | 30 July 2010 |
[2010] EWCA Civ 920
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT,
CHANCERY DIVISION, INTELLECTUAL PROPERTY
Arnold J
Before: Lord Justice Rix
Lord Justice Patten
and
Mr Justice Peter Smith
Case No: A3/2010/0411
A3/2010/0408
HC08C02035
Roger Wyand QC and Simon Malynicz (instructed by Pinsent Masons LLP) for the Appellants
Simon Thorley QC and Joe Delaney (instructed by Rouse Legal) for the Respondents
Hearing dates: 21 st and 22 nd July 2010
Lord Justice Patten:
Introduction
The Diageo group of companies (“Diageo”) is one of the leading producers and distributors of alcoholic drinks in the world. Since the 1950s it has marketed SMIRNOFF vodka in the UK. SMIRNOFF has been and remains the best selling brand of vodka. In the year ended 30 th June 2007 over 20 million litres of SMIRNOFF vodka were sold here which accounts for about 40% of the UK vodka market by volume. The sales generated in excess of £90 million. Diageo also sell other brands of vodka including KETEL ONE and CIROC.
The appellants (“ICB”) are part of a group of companies founded in 1990. They also produce and market a range of alcoholic drinks in the UK including (since 2005) VODKAT. This is not a vodka. It is what the judge described as a clear, virtually tasteless alcoholic drink made up from a mixture of vodka and neutral fermented alcohol. It has an overall ABV (alcohol by volume) of 22% compared with the minimum 37.5% required for vodka under Council Regulation No. 110/2008/EC of 15 th January 2008 (“the 2008 Regulation”) on the definition, description, presentation, labelling and the protection of geographical indications of spirit drinks.
Apart from a period between May 2008 and May 2009 when the figure was 80%, vodka has accounted for 48.2% of the alcoholic contribution of VODKAT. The remainder comes from neutral fermented alcohol made from a citrus base. The evidence before the judge was that although the neutral fermented alcohol costs more to purchase than vodka, a 22% ABV means that the drink qualifies for a lower rate of duty: £2.85 on a litre of VODKAT compared with £8.49 on a litre of vodka. This produces a lower retail price than vodka and a higher margin for both manufacturer and retailer.
ICB now sell a range of products under the VODKAT name. These include flavoured versions of the drink (marketed as VODKAT CLASSICS) and VODKAT SMOOTHIES which are a combination of VODKAT and various fruit juices with a 12% ABV.
In July 2008 Diageo commenced these proceedings against ICB for passing-off. The action came for trial before Arnold J in December 2009. They sought an unqualified injunction restraining ICB from advertising, offering for sale or selling or supplying any alcoholic beverage under the name VODKAT unless (1) the beverage in question was vodka with a minimum ABV of 37.5% or (2) in the case where the beverage was to be a combination of an alcoholic component diluted with a non-alcoholic component (other than water) which together formed a product having an ABV of less than 37.5%, the sole alcoholic component was vodka. Their contention before the judge was that the use of the name VODKAT either alone or in conjunction with a get-up reminiscent of vodka amounted to a misrepresentation that it was vodka or, at the very least, would do so absent a clear product description.
This was therefore a case of what is now commonly referred to as extended passing-off where protection is sought in respect of the goodwill generated by a particular product rather than by relying on the mark of the particular trader who produces it. This form of protection has been granted in the past in respect of champagne, sherry, advocaat and whisky and, outside the world of alcoholic drinks, for Swiss chocolate. The issue in this case was whether vodka as a product qualified for similar protection at the suit of Diageo as a major producer and distributor.
In his judgment ( [2010] EWHC 17 (Ch)) Arnold J assessed the claim by reference to the so-called classical trinity of reputation, misrepresentation and damage which it is common ground have to be established in every case of passing-off. He found that vodka denoted a clearly defined class of goods in accordance with the 2008 Regulation. This defines vodka in Article 1 as:—
“A spirit drink produced by either rectifying ethyl alcohol of agricultural origin or filtering it through activated charcoal, possibly followed by straightforward distillation or an equivalent treatment, so that the organoleptic characteristics of the raw materials used are selectively reduced. The product may be given special organoleptic characteristics, such as a mellow taste, by the addition of flavouring.”
Historically vodka originated in Russia and Poland but is now made in other countries including Sweden. Most commonly, however, it is associated with Russia and is often sold branded with a get-up (e.g. a Russian imperial eagle) which denotes some kind of Russian connection. Since the 1950's sales of vodka in the UK have significantly increased and it is now the best selling spirit. UK sales in 2005 totalled some 68.7 million litres.
Notwithstanding the quantities sold and the wide geographical origin of the products, the judge rejected the suggestion that the distinctiveness of vodka as a product either did not exist or had been lost as a result of vodka-based products such as RTDs (Ready to Drink products) which are flavoured drinks with a relatively low alcoholic content. He said that:—
“152. It is also true that various products have been sold which contain, and are stated to contain, vodka, but which are not themselves vodka. The two principal categories of such products are vodka-containing RTDs and vodka-based liqueurs. RTDs form a well-established category of product, which is well understood by the public. On the whole, vodka-containing RTDs are marketed in a manner which clearly informs the consumer that they contain vodka rather than being vodka. In my view, the only possible exception to this in evidence is SMIRNOFF BLACK ICE in a 70cl bottle, which post-dates 2005. Even in that case, confusion is unlikely since SMIRNOFF ICE and SMIRNOFF BLACK ICE are well known to be RTDs. Vodka-based liqueurs are a very minor category. Again, they are marketed in a manner which informs the consumer that they contain, or are made from, vodka rather than being vodka. In my judgment neither of these categories detract from the existence, or definiteness, of the class of products denoted by the term “vodka”.”
The attractions of vodka as a drink were dealt with in the evidence:—
“78. Although some consumers drink vodka straight in the form of “shots”, the majority of vodka consumed in the UK is drunk mixed with another drink. Common mixers include cola, tonic, lemonade, lime, cranberry juice, orange juice and tomato juice. In recent years a popular mixer has been an “energy” drink, in particular RED BULL.
79. In recent times vodka has been most popular in the 18–25 age group, particularly female drinkers and particularly those in socio-economic groups C1 and C2. Mr Almond's evidence was that it had gained a reputation as a “party spirit” and (rightly or wrongly) as causing fewer hangovers than other spirits.”
On this basis the judge concluded that the term “vodka” does have a reputation giving rise to protectable goodwill:—
“155. In my judgment the evidence clearly establishes that the alcohol-consuming public in the UK, and in particular the vodka-consuming public, have come to regard the term “vodka” as denoting a particular class of alcoholic beverage. They may not know precisely what it is, what it is made from or where it is made, but they use the term “vodka” to get what they want and to distinguish it from other similar products, and in particular from other spirits such as gin, rum and whisky. As Goulding J said of advocaat, vodka has acquired a reputation as “a drink with recognisable qualities of appearance, taste, strength and satisfaction.”
156. The evidence of both the experts and the trade witnesses was that vodka was generally perceived by consumers to be a clear, tasteless, distilled, high strength spirit. There is a considerable body of other evidence to support this, including a survey carried out by ICB which I shall describe below.
157. ICB rely on the fact that a key feature of vodka is that it is essentially tasteless, and contend that it is a mere “alcohol delivery system”. I agree with Diageo that that does no more than confirm an important aspect of the reputation of vodka, namely that it can alcoholically enhance any chosen mixer without detracting from the taste of the mixer.”
The judge then turned to the question of misrepresentation. The get-up used for VODKAT has changed a number of times since the product was launched in 2005. In February 2006 it was altered to remove the words “alcoholic vodka blend” from the labels. Instead the front label included the words “Imperial Superior” and the rear label the words “alcoholic spirit drink”.
The next change occurred in May 2007. After representations from ICB's local trading standards authority in North Yorkshire the words “Imperial Superior” on the front label were changed to “Alcoholic Spirit Drink”. Then in April 2008 these words became “Classic Schnapps Drink”. The judge refers to these versions of the get-up in his judgment as “the Old Get-Up”.
In August 2009 there...
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