Intellectual Property Enterprise Court

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
INTELLECTUAL PROPERTY ENTERPRISE COURT

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		18/06/2014

Judge Hacon :

Introduction

1. This is an action for passing off and breach of contract. The claimant ("Orvec") trades in textile products which it sells to airlines for use by their passengers. These include pillows, blankets, headrest covers, tray mats and towels.
2. The defendant ("Linfoots") is an advertising agency. Between 2002 and 2011 Linfoots provided advertising and marketing services to Orvec. Linfoots was responsible for the design and maintenance of Orvec's website and created printed advertising material. From about 2006 Linfoots made photographs of products which Orvec offered to the airlines ("the Photographs") and these were featured on Orvec's website and in its printed advertising.
3. Orvec claims that the production of the Photographs and their use by Orvec were all done pursuant to a single agreement which Orvec calls "the Commissioning Agreement". Linfoots says, probably more accurately, that in fact there was a succession of agreements between the parties under which Linfoots supplied its advertising services to Orvec, including the creation and supply of the Photographs. Nothing turns on it. For simplicity I will use the term "the Advertising Agreement" by which I mean the single or multiple agreements between the parties, whichever was the case.
4. It is not disputed that Linfoots retained ownership of copyright in the Photographs. There is an express term to that effect in Linfoots' standard terms and conditions which by common consent applied to the Advertising Agreement.
5. The parties ended their business dealings in 2011. In the discussions which led to the parties going their separate ways the Photographs were discussed. There was a meeting on 21 June 2011 at which Linfoots offered to sell the copyrights in the Photographs to Orvec. Orvec declined. However it was agreed that for the price of £430 Linfoots would supply Orvec with certain images from among the Photographs, for Orvec's internal use and for supply by email to Orvec's customers.
6. The products shown in the Photographs were in some cases manufactured by Orvec but in many instances were supplied to Orvec by Intex Company Limited ("Intex"), a trader based in Hong Kong. Over time the business relationship between Orvec and Intex also deteriorated and in 2012 came to an end. In about 2012 two of Orvec's employees left to join Intex and indeed Intex started to compete with Orvec in the supply of textile products to airlines.
7. In September 2012, after Intex and Orvec had terminated their business dealings, Intex asked Linfoots to create and supply photographs for use in its advertising, in particular on Intex's website. In due course images were supplied by Linfoots showing the sort of products which Intex offered to airlines. Some or all appeared on Intex's website. Among them were the images about which Orvec now complains.
8. There are two complaints. The first is that the images on Intex's website included Photographs created for Orvec and that they had been supplied by Linfoots in breach of contract. Orvec argues that the Advertising Agreement contained an implied term. Essentially Orvec submits that the implied term gave it a perpetual and exclusive licence under the copyright in the Photographs and that Linfoots acted in breach of Orvec's exclusive right.
9. The second complaint is that the appearance of the relevant images on Intex's website gave rise to passing off on the part of Intex. Intex is not a defendant but Orvec alleges that by supplying Intex with the images Linfoots (a) equipped Intex with the means to pass off and (b) procured the passing off. The images were used by Intex on its website from November 2012 until May 2013. So the alleged passing off by Intex falls to be assessed as of November 2012.

The Photographs

10. The Particulars of Claim refer to 10 Photographs which have been used as images on the Intex website. None of them was annexed to the Particulars. At the start of the trial Orvec had still not clarified which of the many photographs in the evidence were the 10 Photographs on which it relied and which of the many pages of Intex's website were said to have reproduced those 10 Photographs. I asked Orvec's counsel to be specific. He drew my attention to five copied pages from the Intex website in the evidence on which Orvec would rely, each alleged to display reproductions of one or more of the Photographs. It emerged that the images on two of these website pages had not been raised before as part of Orvec's complaint. It would not have been fair to Linfoots to permit Orvec to rely on them for the first time at that late stage, without Linfoots having had the chance to address them in evidence. So the shortlist came down to images on three pages of Intex's website. They were images of the following articles:

(1) A pillowcase formerly used by British Airways ("BA"), either in its first class cabins or possibly in club world (or both). The pillowcase was white with a dark blue border ("the BA Pillowcase").

(2) Headrest covers, one of which had "Feel Airline" on it ("the Feel Airline Covers").

(3) Headrest covers, one of which was yellow with a darker yellow bordering. This was apparently in a style used by British Midland Airways ("the BMI Cover"). The other was a headrest cover with the logo of Norwegian Air partly visible ("the Norwegian Air Cover").

11. The evidence in relation to the image of the BA Pillowcase used on the Intex website was not completely clear. However, it seems to have appeared in a written presentation by Orvec to BA dated 29 September 2010. I find that this image came from one of the Photographs created by Linfoots for Orvec.
12. Debra Petch gave evidence for Linfoots regarding the two other pages of the Intex website complained of. She was one of the former employees of Orvec who left to join Intex in 2012. She said in her witness statement that the image of the Feel Airline Covers used on the Intex website was created in 2013 by Linfoots for Intex. A curiosity of her witness statement was that she stated that Feel Airline was not a real airline. Elsewhere the evidence indicated that in fact Feel Airline was a real Norwegian airline, although it may or may not have traded.
13. This other evidence was an exchange of emails between Ms Petch and a colleague at Orvec at the time on the one hand, and Hong Ying of Intex on the other. There were also email exchanges between Ms Petch and Rune Trøftmoen of Sodexo, a services company used by Norwegian airlines. It appears that in 2010 Intex supplied samples of fabric products for projected use by Feel Airline. It was not clear that the products included a headrest cover and even if they did, this was not inconsistent with the image of the Feel Airline Covers on the Intex website having been created for Intex rather than Orvec. In cross-examination Ms Petch maintained that this was the case. She said that this image was not from a Photograph originally supplied to Orvec. I accept that evidence.
14. Thirdly there is the image on Intex's website showing the BMI Cover and the Norwegian Air Cover. In her witness statement Ms Petch said that this also came from a photograph taken by Linfoots in 2013 at the request of Intex, i.e. it was not one of the Photographs supplied under the Advertising Agreement with Orvec. This was not really challenged and so I accept that evidence.

Implied terms

15. It follows that out of the three selected pages from Intex's website, Orvec's case in relation to breach of contract in the end rested on the page showing the BA Pillowcase. Was the Photograph of the BA Pillowcase supplied to Intex by Linfoots in breach of contract? I should add that it was my impression that this was not the only Photograph created under the Advertising Agreement which was later supplied to Intex, although the others were outside Orvec's chosen shortlist selected at the start of the trial.

The law

16. In Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10; [2009] 1 WLR 1988 Lord Hoffmann, who gave the judgment of the Board of the Privy Council, stated that the assessment of whether a term is to be implied into an instrument goes no further than being part of the objective investigation into what the instrument was intended to mean. Generally where a term is not expressly stated, the objective inference will be that no such term was intended. He said this:

"[16] … The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912–913. It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.

[17] The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls."

Sometimes the reasonable reader of the document with the relevant background knowledge will conclude that the authors of the document intended that it should convey more than is expressly stated. Lord Hoffmann continued as follows:

"[18] In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.

…

[21] It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech [in Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 609] that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on – but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?"

Lord Hoffmann pointed out the dangers of considering the two best known tests for inferring an implied term – 'necessary to give business efficacy' and that it must 'go without saying' in an imaginary conversation with an officious bystander – as if they were tests detached from the process of construing the instrument into which the putative term is to be implied. Likewise other tests for implied terms, although they may provide useful ways of suggesting how that process of construction is to be performed, go no further than that.

"[26] In BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282–283 Lord Simon of Glaisdale, giving the advice of the majority of the Board, said that it was "[not] necessary to review exhaustively the authorities on the implication of a term in a contract" but that the following conditions ("which may overlap") must be satisfied:

"(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

[27] The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of 'necessary to give business efficacy' and 'goes without saying'. As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant."

17. I am cautious of adding another factor which may be taken into account in assessing whether the reasonable person would identify an implied term in the context of an objective assessment of what a contract means, but there is one which arises in the present case. I think that the more complex the putative term, the less likely it is that the reasonable person would take it to be an implied part of the contract. As a rule terms with detailed formulations will either be present as an express term or not at all. A usual characteristic of an implied term is that it is simple. (This may be nothing more than another way of stating the fourth test set out by Lord Simon, see above.)
18. It must also be borne in mind that even though an implied term is likely to be simple in its formulation, it may not be immediately apparent, see Attorney General of Belize, at [25].

This case

19. The starting point is the express terms of the contract into which Orvec seeks to introduce an implied term. By common consent they are Linfoots' standard terms and conditions. They were presented by Linfoots when a quotation was given for a piece of work.

"Terms and Conditions

1. All prices are subject to VAT where applicable.

2. Any outside services or expenses over and above those estimated will be charged extra.

3. Prices are based on current costs of labour and materials and may be subject to alteration.

4. Any alterations to the design may adjust the price.

5. The use of the design is limited to the items in the estimate,

6. Copyright remains the property of the company unless otherwise assigned.

7. This quotation is valid for a period of 30 days.

8. After the first presentation, accounts will be submitted by Linfoots Limited at the end of each calendar month for work carried out during that month, or at set stages in the work.

9. Payment is due 28 days following the issue of an invoice."

20. It was common ground, and self-evident, that these must have contained the implied term that Orvec had a licence under Linfoots' copyright to use the advertising material supplied by Linfoots. The issue between the parties concerns the nature of the licence granted.
21. Orvec advanced two alternative implied terms. It was either that

(a) Linfoots had granted Orvec a worldwide, perpetual, non-terminable and exclusive licence to use the images in the Photographs,

or that

(b) Orvec can use the images for all marketing purposes, without limitation and the images would not be supplied to a third party without the permission of Orvec.

22. I think that these amount to two ways of saying the same thing. As I have said, the simpler the proposed term, the more likely it is to be implied (assuming there is basis for any sort of implied term). I think the essence of Orvec's case is that the licence granted by Linfoots was (a) exclusive for the whole world and (b) perpetual.
23. Orvec's argument rested on the fact that some of the images in the Photographs created for Orvec included Orvec's trade marks and/or the livery, trade marks and logos of Orvec's airline clients. This was not disputed. Orvec argued that Linfoots can have had no conceivable legitimate use for the Photographs displaying trade marks, livery or logos and so the licence granted to Orvec in relation to these must have been exclusive and perpetual. I was referred to the judgment of the Court of Appeal in Griggs Group Ltd v Evans [2005] EWCA (Civ) 11; [2005] FSR 31. Orvec submitted that the implied term in the Advertising Agreement which set out the nature of the licence granted to Orvec must have been the same for all the Photographs created by Linfoots for Orvec. Therefore the implied term in relation to all the Photographs was that the licence was exclusive and perpetual.
24. I agree that where a designer creates a work of a nature such as the logo of a client, at the time of the agreement between the parties it must have been understood between designer and client that (a) no one other than the client could have a legitimate reason to copy the work and (b) the client would expect to be able to prevent others from copying it. The reasonable person considering the agreement would conclude that copyright must pass to the client and that a term in the agreement between the parties should be implied to that effect, see Griggs.
25. The position is not the same if the work created is a photograph which includes the claimant's logo or other trade mark. Consideration (b) will be unlikely to arise because the claimant will have other rights in the trade mark on which he will rely to prevent other parties from using it, which may include copyright in the logo itself as an original work. Consideration (a) still potentially applies but only to the extent that the photograph is copied unaltered, including the trade mark. A claimant would not invariably be expected to be in a position to prevent reproduction of the photograph, even where the copies have the trade mark removed. I stress invariably. It may be a neater solution in many cases to prevent this happening by introducing an express term to that effect, but this is beside the point.
26. If the work created is a photograph displaying a third party's trade mark, I can see no reason for an implication that exclusive rights were granted to the claimant. The right of the defendant and others to reproduce and/or display the trade mark will depend on their relationship with the third party trade mark owner.
27. It is also important to bear in mind that a minimalist approach must be taken when inferring the presence of unexpressed terms in a contract. Where alternative terms are possible, the choice between them must favour the least that is necessary in the circumstances, see Liverpool City Council v Irwin [1977] AC 239, per Lord Wilberforce at 245 F-G. In the context of a copyright licence this will mean implying a bare licence and no more if that is sufficient to make the relevant part of the contract consistent with the whole. Failing that, an exclusive licence may be implied and in unusual circumstances such as those in Griggs, an assignment of the copyright is implied.
28. For the reasons I have explained, I think that the implied term setting out the licence granted by Linfoots to Orvec is likely to be simple in form. Applying the simple and minimalist approach to the present context, in my view the term implied is that Linfoots granted Orvec a non-exclusive licence under the copyright in the Photographs. The licence was probably perpetual. I do not believe that the reasonable person considering Linfoots' standard terms and conditions would take anything more to have been implied. He or she must be deemed to consider, among other things, what the parties objectively intended with regard to those Photographs displaying Orvec's trade marks. In my view there is no reason to infer that the parties must have agreed that Orvec should have the right to prevent Linfoot copying these Photographs or dealing in such copies even where the trade mark is omitted from the copy. Many of the products shown in the Photographs were generic in nature.
29. If more than a non-exclusive perpetual licence is to be implied, at most the licence is exclusive only where Orvec's trade mark appears in the Photograph. The difficulty with this alternative, however, is that it may raise questions of fact and degree: are there any contexts in which the trade mark could legitimately be copied? This threatens to take one down the road of a term with a more complex formulation, which means that the term is less likely to have been implied. In any event, it was not established that any Photographs showing Orvec's trade mark were supplied by Linfoots to Intex.
30. In either alternative Linfoots is not in breach of any licence which may be implied into the Advertising Agreement.

Passing off

Orvec's case

31. The starting point in any passing off action is the establishment by the claimant of goodwill in its business. I accept that such goodwill subsists and this was not seriously disputed.
32. The party alleged to have committed the primary acts of passing itself off is Intex. Orvec complains of the use of particular images by Intex on its website. It is not central to Orvec's case that these images are reproductions of one of the Photographs created pursuant to the Advertising Agreement. But as I have indicated, at the start of the trial Orvec clarified its argument so that the trial could go forward in a sensible way and Orvec pinned its case, in relation to both breach of contract and passing off, to the images on Intex's website of (i) the BA Pillowcase, (ii) the Feel Airline Covers and (iii) the BMI Cover and the Norwegian Air Cover.
33. The misrepresentations by Intex are characterised in the following way in the Particulars of Claim:

(1) "Intex's use of the Images provides customers and potential customers with the impression that these products [in the images] originate from Intex when, in fact, they originate from the Claimant."

(2) "It also provides customers and potential customers with the impression that the customers identified by their trade mark, logo and trade dress are Intex's customers when, in fact, they are the Claimant's customers."

34. The next stage in the argument is that Intex's passing off has been made possible by the supply of the relevant images by Linfoots for use on Intex's website. The Particulars of Claim plead that Linfoots has

"…equipped Intex with the means to deceive members of the trade and interested public into believing that the products shown and the customers identified in Intex's website were Intex's products and customers, contrary to the fact. Furthermore, Intex's use of the Images on its website represented to members of the trade and interested public that it had the Claimant's heritage, products, production capability and customer base."

35. There is an alternative allegation that Linfoots caused and procured Intex's acts of passing off and is jointly liable with Intex for them.

Alleged misrepresentation by Intex

36. Orvec based its allegation of a misrepresentation by Intex on Bristol Conservatories Ltd v Conservatories Custom Built Ltd [1989] RPC 455 and in particular on the following passage from the judgment of Ralph Gibson LJ:

"In this case the substance of the misrepresentation by the defendants, as alleged by the plaintiffs, is fairly capable of being expressed thus: 'If you order a conservatory from us you will be getting a conservatory designed, manufactured and constructed by the people who have earned the goodwill and reputation that properly belongs to the party which secured the orders and designed, manufactured and constructed the conservatories shown in these photographs. The conservatories shown in the photographs indicate the skill, the experience and the reputation of the party who designed and made them. That party is Custom Built.' But, of course, it was not."

The President (Sir Stephen Brown) and Butler-Sloss LJ agreed with the judgment of Ralph Gibson LJ. The application in Bristol Conservatories was to strike out the Statement of Claim as disclosing no cause of action, so strictly it establishes only that the plaintiff's case was arguable. But courts have not since disagreed with the principle expressed in Bristol Conservatories and it has become accepted that where a defendant represents the claimant's article as being the product of his own efforts and skill, this may be an actionable misrepresentation.

37. Orvec argues that by showing on its website samples of products that were recognisably used in the cabins of BA, Feel Airline, BMI and Norwegian Air, Intex falsely represented that (1) the products came from Intex when in truth they came from Orvec and (2) these airlines were customers of Intex when in truth they were not.
38. The first misrepresentation was not supported by the evidence. Ms Petch said that the BA Pillowcase, the Feel Airline Cover and the Norwegian Air Cover had all been made by Intex. To the extent that the Intex website represented that the products originated from Intex, they did. The evidence regarding the BMI Cover was more complicated. Ms Petch said that it was not made by Intex but she doubted that it would be seen as anything other than a generic product. She did not think a product of that colour was ever used on a BMI flight and believed that BMI ceased to exist about ten years previously. She also said that this product was never supplied by Orvec either. Mr Medding, who is Finance Director of Orvec, gave evidence that this yellow image was distinctive of BMI although he said that BMI had stopped flying in 2011. However he did not suggest that the BMI Cover had ever been made or supplied by Orvec. So the image of the BMI Cover could have represented nothing regarding products which originated from Orvec.
39. The evidence in relation to the second alleged misrepresentation was not helpful to Orvec either. Norwegian Air has been supplied with products by Intex. There was evidence from Ms Petch in cross-examination that Feel Air was also a customer through those airlines' common agent, Sodhexo, or at least Feel Air had received samples from Intex marked with its name. If, as appears to have been the case, Feel Air was an airline that never traded, the Intex website could never have represented to the informed observer that it was a direct customer of Intex's in the full sense.
40. Intex had never supplied products to BMI. But if a person looking at the Intex website was sufficiently well informed potentially to realise that the yellow product shown was used by BMI and in fact would have reached that conclusion just from its appearance (which was in dispute), such a person would also have known that BMI has stopped flying. So there could have been no inference that BMI is a customer of Intex's. In fact I think the only rational inference that the person could have drawn is that the yellow headrest cover represented nothing at all, beyond being the sort of product that Intex offers for sale.
41. That leaves the website page showing the BA Pillowcase. It was common ground that BA is an important customer of Orvec's but has never been a direct customer of Intex's. Mr Heath identified the pillowcase as one that was formerly used in BA's club world cabins; Ms Petch also recognised it and thought that it used to be used in BA's first class. I infer therefore that persons with knowledge of the airline industry looking at the relevant page of the Intex website would also know that this was at one time a pillowcase used by BA.
42. However it does not follow that such persons would take from this a representation that BA buys directly from Intex. I think it is considerably more likely that the website would be perceived as setting out Intex's stall of products that it has supplied and is able to supply. Intex did supply the BA pillowcases, to Orvec, who in turn sold them to BA. Intex is no doubt willing and able to supply such pillowcases in the future, either to BA if BA were interested, or to another intermediary like Orvec which has BA as a customer. I see no false representation in that. Also, since BA no longer uses that pillowcase there may be no reason why it cannot be offered to other airlines.
43. In my view Orvec did not establish the facts on which it based its case for passing off by Intex. In relation to the second alleged misrepresentation I would add this: even if Orvec had shown that Intex had falsely represented that certain airlines were its direct customers, it would remain for Orvec to establish in law that consequently it had a good cause of action for passing off against Intex. The parties did not explore the authorities on this.
44. Since Orvec has not established passing off by Intex, its case on Linfoots' liability, either by creating an instrument of fraud or by procuring Intex's passing off, cannot succeed.

Conclusion

45. The action fails in relation to both breach of contract and passing off.