2023 Issue 4

1. General

New Zealand

Pipers Attorney Tom Robertson Elected as NZIPA President
Pipers is pleased to announce that Tom Robertson was elected as the President of the New Zealand Intellectual Property Attorneys organisation (NZIPA) at the recent annual general meeting on 8th September 2023.

Tom has a long association with NZIPA, having been a Council Member since 2010 and is keen to build on that over the next two-years in his tenure as the NZIPA President.

NZIPA advocates in New Zealand and Australia to advance IP rights and represents most trans-Tasman registered Patent Attorneys who are resident and practising in New Zealand.

Tom has well-rounded experience in intellectual property having initially started as an examiner in the patents, designs and trade mark fields, including advising IPONZ on the drafting of the Trade Marks Act 2002. Tom commenced working for Pipers in 2002 and is a registered Patent Attorney in both New Zealand and Australia.
Tom is also a member of IPSANZ, APAA and BNI and is pleased to be part of the IPONZ Patent and Trademark Technical Focus Groups that consider and provide advice on Patent and Trade Mark policy and practice.

Intellectual Property and Misuse of Market Power
Recent changes to New Zealand’s Commerce Act 1986 enhanced the restrictions on the misuse of market power and also changed the extent to which intellectual property rights are an exception to the market competition that the Commerce Act promotes. Will attempts at enforcing IP Rights be seen as a misuse of market power?

Background
Modern competition law and intellectual property law have an inter-twined and even inter-dependent history. Both grew out of attempts to diminish the power and influence that monarchies had over commerce and allow for competitive and innovative markets that encouraged resources to be allocated in ways that lower prices, improve quality, and provide more choice for consumers, while also giving incentives to innovate.

The classic example of this is the English Statutes of Monopolies Act 1623, section 1 of which voided all monopolies, commissions, grants, licences, charters or patents of or for the sole buying, selling, making, working or using of any thing within England or Wales. Section 6 of that Act provided an exception for the granting of limited term patents for the sole working or making of any manner of new manufacture (invention), provided that such grant was not contrary to the law nor mischievous to the State, by raising prices of commodities at home, or hurting trade, or being generally inconvenient. Section 6 of the Statutes of Monopolies Act 1623 has been and remains central to New Zealand’s patent legislation, as evidenced by it being part of the definition of a patentable invention in the current Patents Act.

New Zealand’s competition law is currently provided for in the Commerce Act 1986 and is primarily administered by the Commerce Commission. A key focus area of this Act is Part 2, which specifies the types of restrictive trade practices that are prohibited, being contracts, arrangements, understandings or covenants that substantially lessen competition. Within Part 2 of the current Act sections 36-36B relate to misuse of market power. When the Act commenced in 1986 section 36 prohibited those with a dominant position in a market from using that dominance to (i) restrict others from entering that or any other market; (ii) prevent or deter competitive conduct by others in that or any other market; or (iii) eliminate others from that or any other market. Subsection 36(2) provided an exception to that prohibition for the purposes of enforcing statutory intellectual property rights.

Although not involving intellectual property rights, litigation in the 1990’s gave rise to concerns about section 36 not being fit for purpose on account of it being hard to establish that conduct by a market participant with a dominant position in the market amounted to abuse of that dominance. This eventually led to section 36 being strengthened by way of revision and expansion in 2001. Instead of applying only to those with a dominant position in a market its application was broadened to those with a substantial degree of power in a market. Sections 36A and 36B were added, with 36A capturing conduct in trans-Tasman markets and 36B specifying that the existence of an anti-competitive purpose may be inferred from the conduct of relevant market participants. 

Section 36 was further strengthened with effect from 5th April 2023 by being triggered when a substantial lessening of competition in a market is an effect or likely effect of conduct by a party with a substantial degree of market power. The 2001 amendments had prohibited businesses with a substantial degree of market power from taking advantage of that power for specified purposes, with the possibility of that purpose being inferred rather than needing to be established in evidence. Nonetheless, a review found that it had the potential to fail to deter or penalise some forms of anti-competitive conduct, was costly and complex to enforce and its application to business conduct had some unpredictability. The new test, which better aligns with Australia’s, means that businesses with substantial market power who engage in conduct that has the purpose of, or has or is likely to have the effect of, substantially lessening competition in identified markets, may be in breach of the Act. Such conduct by business with substantial market power creates an onus on them to establish that they are not in breach of the Act, irrespective of whether conduct on or after 5th Apil 2023 gives effect to a contract, arrangement, understanding, or covenant that was entered into before, on or after 5th April 2022. Although, if the business had obtained or applied for authorisation before 5th April 2022, any such successful authorisation would continue in effect.

Along with the above changes to section 36 the recent amendment also repealed the exception specifying that a party would not be taking advantage of a substantial degree of power in a market by reason only that the party seeks to enforce a statutory intellectual property right. Instead of being immune, conduct or arrangements relating to intellectual property rights that harm competition will be assessed under the Commerce Act, which continues to recognise that adverse effects on competition can be offset by other benefits to the public and allows the Commerce Commission to, upon application, authorise conduct that would otherwise breach section 36.

Effects Going Forward
It remains to be seen how the enforcement of IP rights by entities with substantial market power will be construed by the Courts in relation to the amended Commerce Act. While section 36 should not prohibit pro-competitive conduct, such as competing through superior innovation, better quality products or lower prices from being more efficient, the reach of section 36 will likely depend upon how widely or narrowly the relevant market is defined. This will particularly be the case for patents for new technologies for which there are no viable or approved alternatives or which are central to an industry standard. Refusing to licence a competitor or not offering a licence on fair, reasonable and non-discriminatory (FRAND) terms may be found to constitute a misuse of market power.

While some market conduct by a party that has substantial market power is likely to harm competition, the same conduct by a party without substantial market power is probably unlikely to do so. Examples of conduct by parties with substantial market power that are likely to be prohibited are:

• Refusing to supply goods or services to the downstream market
• Margin/price squeezing
• Exclusive dealing
• Offering loyalty rebates and conditional discounts
• Tying and bundling patented and unpatented goods/services
• Inducing customers to enter into agreements that extend well beyond patent expiry
• Predatory pricing
• Pay for delayed market entry agreements

Identification of the market is the first step in establishing whether a party has substantial market power. In this regard it is important to note that intellectual property can be disruptive of market definition in that instead of merely adding a further option to a market it may drive a market towards segmentation into discrete markets where one product is not substitutable or a viable alternative to another. The extent to which this is the case will be determined on a case by case basis with the determination of whether products or services are considered substitutable for one another under the Commerce Act being made as a matter of fact and commercial common sense.

An example can illustrate how nuanced market definition can be. It is well-known that some people are allergic to some products due to a protein that the product invariably contains. However, if innovation establishes a way of obtaining that type of product but without the allergy causing protein, then this may lead to segmentation of the market. The degree to which market segmentation occurs will be determined by substitutability between the standard and the innovative products, taking into account the competitive factors of innovation, quality, service, price and convenience. From the perspective of people with the allergy who had nonetheless consumed the standard product, the innovation and quality factors will lead to a preference for the innovative product that is more than whimsical, although some of those people may continue to consume the standard product due to price or convenience. For such people the standard product would have a low degree of substitutability for the innovative product. However, the innovative product would have a high degree of  substitutability for the standard product as, in addition to the people with the allergy, people who are not allergic to the protein could choose to consume the innovative product. Put another way, businesses that only supply the innovative product are little affected by businesses that only supply the standard product, whereas businesses that supply the standard product can be noticeably affected by businesses that only supply the innovative product. If a business is substantially unconstrained by competitive pressures, then it has substantial market power.

If on the evidence it is found that a market has become segmented, then it will be easier for a market participant in one of those segments to be found to have substantial market power in that newly segmented market. That said, having significant market share does not necessarily indicate substantial market power, particularly if the barriers to market entry or expansion are low. Also, more than one business can have substantial market power in the same market. A finding of substantial market power would be more likely in the market for the innovative product as the barriers to entry or expansion in the market for the standard product would be much lower.

Under the amended section 36, if that disruptive innovative product is under patent protection and owned by an entity that is found to have substantial market power in the relevant market, then if the owner refuses to licence a competitor or not offer a licence on FRAND terms that may lead to a finding of a misuse of market power. Before making and seeking to enforce such a finding the Commerce Commission would investigate and establish the effect or likely effect of the conduct in question on competition by comparing the likely state of competition with the relevant conduct to the likely state of competition without the conduct. That analysis would also take into account whether the investments in research and development that led to the innovation would have been made if the innovator was unable to have exclusive use of the new technology. It would also consider the degree to which having a licence to use the technology is a necessary input for competing for the supply of downstream products or services. Pro-competitive effects of the conduct would also be considered.

In assessing whether there has been a substantial lessening of competition in addition to considering the size of the relevant market and the availability of substitutes the Commerce Commission can also consider the extent to which competition is hindered or prevented by the conduct of a party. In the context of intellectual property rights this may occur where a party with substantial market power seeks to use legal or regulatory proceedings in an unreasonable or vexatious manner in order to hinder or exclude rivals or potential entrants. That type of scenario can arise where a party has attained substantial market power on account of obtaining patent protection for an innovative and disruptive technology.

When the patent expires they may try to make it difficult for competitors to develop market share in that market by claiming trade mark rights in terminology that consumers associate with the technology, even though their attempts to obtain trade mark registrations for that terminology has consistently been rejected due to its descriptiveness. In leveraging their substantial market power to impose or threaten to impose litigation costs on competitors who seek to use or include such terminology in their trade mark applications, the party would likely be found to be misusing their substantial market power.

Another example of potential problems in enforcing IP would be a trade mark infringement action where the registered trade mark has become the only name for a previously patented product.  Section 66(1)(d) of the Trade Marks Act 2002 allows a trade mark registration to be revoked where the owner has allowed the trade mark to become the common name of the product and two or more years have passed since the patent expired. It might be arguable that in the case of a party that has substantial market power that revocation should be allowed upon patent expiry.

Trade mark rights are also sought by parties who have had commercially successful design registrations for the shape of an article as a way of extending their monopoly by other means. Is obtaining a trade mark registration for an expired or expiring design inherently contrary to section 36 if the owner has substantial market power in the relevant market?

While the designs legislation does not allow a design to be registered for features of shape or configuration which are dictated solely by the function which the article has to perform, a shape or configuration that is largely functional can be registered. The designs legislation also requires that the features of shape or configuration need to appeal to the eye and so must have some individual character. Where a design has been registered for the shape or configuration of an article that is largely functional it is unlikely that the shape will meet the threshold of being inherently distinctive. Rather, if such a design is to be registered as a trade mark it will be on account of acquired distinctiveness, whereby through extensive use consumers associate the shape of the article with a commercial origin. Nonetheless, the functionality of a design is on a spectrum and for some designs the functionality aspect will be low enough for the shape or configuration to be inherently distinctive for trade mark registration purposes.

It might be argued that if the shape of the article is the goods, then once the goods are removed there is nothing left to function as a trade mark. This view was rejected by the Court of Appeal in Fredco Trading Ltd v Miller (2006) 11 TCLR 751 at [41]-[42] on the basis that it does not give effect to the statutory recognition that shape can be a trade mark. Provided the shape is distinctive, whether inherently or acquired through use, it can function as a trade mark even if it is also the shape of the goods. It would seem inappropriate for section 36 of the Commerce Act 1986 to categorically prevent a party with significant market power from obtaining trade mark rights in the shape of an article that had been a registered design, provided the shape meets the threshold for distinctiveness. As was also held by the Court of Appeal in Fredco at [38] even where the shape of the goods is functional it does not follow that the owner of a trade mark registration for that shape has cornered the market, as there can be other ways of achieving the same functionality. However, if in practice there is a limitation to the types of shapes that can achieve the same functionality, then that could be basis for finding a substantial lessening of competition.

Other factors that can be relevant to assessing whether there has been a substantial lessening of competition are:

• To what extent are customers or inputs foreclosed by the conduct, and what alternatives do customers or competitors in the market have?
• To what extent does the conduct impose costs on competitors or potential entrants that are not faced by the firm in question?
• Does the conduct have the effect of harming incentives to innovate by other competitors in the market?
• Does the conduct have the effect of causing competitors in the market to compete less vigorously?
• Does the conduct make it harder for potential entrants to enter the market in question in response to profitable opportunities to do so?
• Does the conduct enable the firm in question to exercise power over suppliers, customers or competitors?
• How long are these effects likely to continue?

Conclusion
The enhanced restrictions on the misuse of market power and the removal of the exception for intellectual property rights represent a significant change that will affect the strategic use of IP rights by parties who have significant market power. However, the effect will be quite nuanced and fact specific. It will be particularly important for businesses operating with disruptive technology to seek counsel on whether their conduct in relation to that technology amounts to a misuse of substantial market power.

2. Trade Marks

New Zealand

Song Remains the Same – Music Awards Rebrand Found to Acquire Distinctiveness from Prior Mark
In Recorded Music New Zealand Limited [2023] NZIPOTM 39 the applicant was allowed to rely on its reputation in a conceptually equivalent registered mark to establish acquired distinctiveness for its otherwise non-distinctive mark.

On 31st July 2020 the applicant applied for AOTEAROA MUSIC AWARDS in goods classes 9, 16 and 25 and services classes 35 and 41. From 1965 – 2019 the applicant had used the trade mark NEW ZEALAND MUSIC AWARDS in relation to its annual awards ceremony and related goods and services.  In 2016 it achieved registration of that mark on the basis of acquired distinctiveness, by filing evidence of its use and reputation in the mark.  From 2020 the applicant rebranded as AOTEAROA MUSIC AWARDS to promote Te Reo Māori and to recognise the contribution of Māori to music in New Zealand.

Throughout the examination process the examiner maintained that the mark lacked inherent distinctiveness. As the rebrand occurred around the time the application was filed the applicant was unable to rely upon distinctiveness acquired through use of AOTEAROA MUSIC AWARDS. During examination the applicant argued that its application had nonetheless acquired distinctiveness under the “any other circumstances” limb of section 18(2) on the basis that the mark is conceptually equivalent to NEW ZEALAND MUSIC AWARDS, which has an established reputation and is registered in relation to the same goods and services as the application. The examiner rejected that contention, holding that the respective marks are visually and phonetically different and convey different meanings since the first word is in different languages.  The examiner therefore refused to take into account the evidence of use which enabled registration of the earlier mark. The examiner considered some New Zealand cases where registration was allowed under the “any other circumstances” provision in section 18(2), but held that the qualifying circumstances in those cases were not relevant or analogous to the applicant’s case.

The Assistant Commissioner disagreed with the Examiner and allowed the appeal finding that AOTEAROA MUSIC AWARDS is conceptually equivalent to NEW ZEALAND MUSIC AWARDS and that the reputation of the latter can be attributed to the former. The Assistant Commissioner agreed with the applicant’s pleading that no-one would seek to use AOTEAROA MUSIC AWARDS as a trade mark in relation to the relevant goods or services without the intention of exploiting the applicant’s reputation in its registered NEW ZEALAND MUSIC AWARDS trade mark. It was also noted that it was not clear why the examiner considered the two marks were conceptually different given that the examiner acknowledged the interchangeability of ‘New Zealand’ and ‘Aotearoa’ being well-known throughout New Zealand.

This case serves to further elucidate the circumstances which may be relied on by an applicant to achieve registration of an otherwise non-distinctive trade mark under section 18(2).  Other (non-limiting) circumstances that can be relied on include the following:

• Where goods or services could on a reasonable basis be said to be fairly closely allied to the pre-existing fields of the applicant’s activities;
• Where the mark is another in a distinctive family of marks to which distinctiveness will already attach;
• Where the mark forms part of a well-known business name but has been used only in a limited context as a trade mark;
• Where subsequent events assist in establishing the essential quality at the time of registration.

A Blurry Decision on Alcoholic Beverage Marks … with a twist of lemon
In Gewei Zhang v QB Trademarks SARL 2023 NZIPOTM 40 the opposition was rejected even though the accepted mark begins with the opponent’s mark and despite the Assistant Commissioner (AC) finding the respective parties goods to be similar.

In January 2022 Zhang’s application for Bloomfield in respect of wine in class 33 was accepted. QB opposed acceptance on the basis of its prior use and registration of the mark BLOOM. QB has used the BLOOM mark for gin products internationally since 2009 and in New Zealand from 2017 and its class 33 registration is in respect of: “Alcoholic beverages except beers, cider, wine-based drinks (spritzer) and aromatized fruit wine-based drinks”.

QB’s registration provided it with its strongest ground of opposition under section 25(1)(b), which can prevent registration if the opposed mark is similar to the registered mark and in respect of the same or similar goods or services if deception or confusion is likely on a notional use basis. In comparing the goods the AC split-up the opponent’s specification into “alcoholic beverages except beers”, “cider” and “wine-based drinks (spritzer) and aromatized fruit wine-based drinks” and found wine to be similar to each of them.

While acknowledging that the opposed mark begins with the opponent’s mark the AC only found a low to moderate visual and phonetic similarity on account of the opposed mark being twice as long and containing three syllables in contrast to one syllable for BLOOM. Regarding the ideas of the respective marks the AC first noted that BLOOM is usually used either as a verb or noun in relation to flowers or blossoms of a plant, although it can also be a surname. The AC somewhat downplayed the conceptual relevance of Bloomfield to flowers by finding it to be an unusual conjunction, with more grammatically usual combinations being “blooming field”, or “field of blooms”. However, the AC still considered there was sufficient conceptual similarity. It was also noted that the surname significance of Bloomfield was heightened at the relevant time due to the prominence of Dr Ashley Bloomfield in the Government’s response to the Covid-19 pandemic.

Regarding the likelihood of deception or confusion amongst a substantial number of persons in the relevant market, the opponent argued that: (i) the marks common feature is the more memorable element; (ii) consumers are likely to overlook differences that are unlikely to override the common distinctive feature; (iii) the common distinctive feature is likely to dominate any imperfect recollection; (iv) that consumers will accentuate BLOOM and slur FIELD, and (v) that consumers may be caused to wonder if the parties are connected. In rejecting the opponent’s contentions the AC merely reiterated the findings of a low similarity between the marks without considering the surrounding circumstances of notional use by consumers in the relevant market. This seems particularly remiss given that at [32] the AC cited the following relevant principles for the comparison of marks from the Court of Appeal decision Pharmazen Limited v Anagenix IP Limited [2020] NZCA 306:

• the Court should consider the marks in their entirety; the overall or net impression of the marks should be considered;
• while differences between two marks may be significant, it is the similarities which are most significant, whether visual, audible, distinctive, or conceptual;
• the impression or idea conveyed by the marks is important in assessing how they will be recalled; the idea of a mark is more likely to be recalled than its precise details;
• comparison is not of the opponent’s mark with the mark of the applicant when taken side by side, but taking into account imperfect recollection in all the circumstances in which the products might be sold; and
• the marks are to be compared as they would be encountered in the usual circumstances of trade.

It is not clear that the AC has given due consideration to these principles when swiftly concluding that there is no reasonable likelihood of deception or confusion. Given the accepted mark begins with the opponent’s mark in the context of a product that can be purchased in noisy environments and/or which can be associated with a hazy memory it would seem that the opponent’s contentions have not been adequately addressed. Perhaps the AC gave more consideration to the impression or idea conveyed by the marks and side by side comparisons of the opponent’s mark with the applicant’s trade mark, however this not entirely clear from the AC’s decision.

Would you like a twist of lemon with that?
However, the AC has misinterpreted the scope of the opponent’s specification. As noted above the opponent’s specification is for “Alcoholic beverages except beers, cider, wine-based drinks (spritzer) and aromatized fruit wine-based drinks”. It is standard for class 33 specifications to include the phrase “Alcoholic beverages except beers”. However, in this case that phrase is followed by a comma, rather than a semi-colon. The lack of a semi-colon in the remaining specification means the exception also applies to the rest of the listed goods, being “cider, wine-based drinks (spritzer) and aromatized fruit wine-based drinks”.

The opponent’s BLOOM mark entered New Zealand via a subsequent designation under the Madrid Protocol, and the New Zealand specification is unchanged from the specification used for the Madrid Protocol filing, which in-turn has an EU trade mark as its ‘home’ or ‘basic’ registration. In this regard it is noteworthy  that QB’s first EU application for the word mark BLOOM was refused after being successfully opposed. The class 33 specification of that application was for “Alcoholic beverages; wines; spirits; liqueurs; cider; cocktails; perry; vodka; rum; tequila; whisky; whiskey; gin; brandy”. QB subsequently filed again for the word mark BLOOM, this time with the specification “Alcoholic beverages except beers”, and this was also opposed (although by different parties). Both oppositions were withdrawn with the main opponent having a German device mark registration that prominently contained the word ‘bloom’ in stylised format for the class 33 goods “cider, wine-based drinks (spritzer) and aromatized fruit wine-based drinks”. Hence, that is why the New Zealand designation also contains that exclusion.

Are the Goods Still Similar?
The scope of QB’s registration needs to be interpreted with due regard to the exclusions, which most relevantly exclude wine-based drinks (spritzer) and aromatized fruit wine-based drinks. Neither of these excluded goods qualify as fortified wine, being wine to which a distilled beverage such as bourbon, gin, rum, vodka or whisky has been added. While not binding on the AC, IPONZ’s practice is that wine is similar to bourbon, gin, rum, vodka or whisky, but wine excluding fortified wine is not similar to bourbon, gin, rum, vodka or whisky. Given that Zhang’s specification is for wine it would still be considered (by IPONZ) to be similar to the remaining alcoholic beverages such as gin covered by QB’s registration. If, hypothetically, the AC had instead allowed the opposition, the AC might have held that Zhang could retain its accepted application by amending the specification to “wine excluding fortified wine”.

May I Compare Thee to a Chameleon? NZ’s Comparative Advertising Law in its Historical Context
New Zealand’s law regarding the use of another party’s trade marks in comparative advertising in the last 100 years has been through several forms, and is currently close to where it started.

Prior to the Patents, Designs and Trade Marks Amendment Act 1939 the trade marks legislation in effect allowed the use of another party’s trade marks in comparative advertising if the consumer would not confuse the goods of the comparative advertiser with those of the trade mark owner. This was found to be the case in the UK House of Lords decision Irvings Yeast-Vite Ltd v Horsenail [1934] RPC 110, where the phrase “Yeast tablets a substitute for ‘Yeast-Vite’’’ was held to not be a use of “Yeast-Vite” as a trade mark. More particularly, while the proprietor had the exclusive right to the use of a registered trade-mark upon or in connection with the goods in respect of which it is registered, the then definition of a trade mark limited that right to the origin function of indicating that they are the goods of the proprietor. Consequently, as Horsenail’s use of “Yeast-Vite” clearly did not indicate that they are the source of origin of Yeast-Vite, the use was held to be non-infringing.

This was considered undesirable and so when the UK refreshed its trade marks legislation with the Trade Marks Act 1938 it allowed for the possibility that comparative advertising involving the use of another party’s trade mark can amount to trade mark infringement. This was effected by several changes as follows: (i) extending a trade mark’s exclusive rights to being in relation to its goods rather than merely upon or in connection with its goods; (ii) by extending the definition of “use of a mark” so that it was not limited to use in a physical relationship to the goods to denote origin, but could also include use in other relation to the goods such as performing an advertising function; (iii) expanding the exclusive rights of trade marks in Part A of the register (see below) so as to also be infringed when a trade mark in use is performing an advertising function.

New Zealand’s Patents, Designs and Trade Marks Amendment Act 1939 incorporated these (and most of the other) amendments from the UK Act, with the result that trade mark infringement could be established for comparative advertising involving the use of another party’s trade mark where that trade mark was in Part A of the register. By way of the Patents, Designs and Trade Marks Act 1921-22 New Zealand adopted the UK’s division of the register into Part A and Part B, which the UK effected with its Trade Marks Act 1919. Part A was for prior registrations and marks that are adapted to distinguish, while Part B was for marks that are capable of distinguishing. For comparative advertising that used a third-party’s Part A trade mark registration to infringe it only required that the registered mark was used in the course of trade in relation to (some of ) the goods that it is registered in relation to and with that mark being taken as likely to be being used as a trade mark. Given the commercial nature of comparative advertising these conditions are in practice easily satisfied.

Comparative advertising that used a third-party’s Part B trade mark registration would likewise infringe. However, no relief would be granted if the defendant could establish both that deception or confusion would be unlikely and that their use of the trade mark does not indicate a connection in the course of trade between their goods and a person who has the right to use the mark. Given that comparative advertising seeks to contrast or compare one party’s goods with another’s, in theory it should be hard for the affected party to establish the requisite deception or confusion or connection in the course of trade.

The Trade Marks Act 1953 incorporated these provisions, and their effect in terms of comparative advertising was considered in the dispute between Montana Wines Ltd and Villa Maria Wines Ltd. Villa Maria had run ads that compared its wines with Montana’s with the ads containing a picture of one of Montana’s bottles that had some of Montana’s Part B registered trade marks on its label. The dispute went before the High Court as an interlocutory injunction, in which Montana focussed its case on Villa Maria’s conduct creating the impression of a connection in the course of trade between the parties, although it did not thereby relinquish other grounds in the event that the case went to full trial.

In Montana Wines Ltd v Villa Maria Wines Ltd 2 IPR 203 the High Court judge found that Villa Maria’s ad infringed under section 8(1)(b) by using Montana’s trade marks in the course of trade while importing a reference to the goods with which Montana is connected in the course of trade. The judge went on to hold that the Part B defence was not available to Villa Maria on the basis that the ads could give the impression that there was a connection in the course of trade between Montana and Villa Maria or that Montana impliedly endorsed Villa Maria’s product. It was also found that through the ads Villa Maria sought to benefit from associating its product with the established reputation and quality of Montana’s wines.

On appeal in Villa Maria Wines Ltd v Montana Wines Ltd [1984] 2 NZLR 422 the Court of Appeal applied the analysis of the UK Court of Appeal majority in Bismag Ltd v Amblins (Chemists) Ltd 1940 RPC 209 and held section 8(1)(b) wasn’t concerned with the origin function of a trade mark, which was instead covered by section 8(1)(a). Infringement under section 8(1)(b) was held to require that the registered mark was used by a third party in a trade mark sense as referring to the goods of the owner of the mark. In applying that the Court of Appeal agreed with the High Court judge’s finding that Villa Maria infringed under section 8(1)(b) by using Montana’s trade marks in the course of trade while importing a reference to the goods with which Montana is connected in the course of trade.

While the defence to infringement of Part B marks has two aspects that need satisfying, the aspect of the defence concerning the unlikeliness of deception or confusion was not on appeal as it was accepted that there was no deception or confusion regarding the owner of the respective trade marks. The Court of Appeal found that the Part B defence was available to Villa Maria as the other aspect only concerns whether the origin function of the trade mark has been misrepresented. As the ads did not give the impression that Montana was connected with the production or preparation of Villa Maria’s wines, that was not the case. While the ads could give the impression that Montana impliedly endorsed Villa Maria’s product or consented to the ads or that there was a corporate link between the two companies, those types of connection in the course of trade were not relevant to the type of connection that removed the Part B defence to infringement.

Amongst the various TRIPs Agreement complying amendments made by the Trade Marks (Amendment) Act 1994 were amendments to the rights given by registration in Part A and Part B of the register. The intent behind the amendments to those provisions was to expand the scope of infringement by allowing a registered mark to be infringed by use of similar marks on similar goods or services, provided such use was likely to deceive or cause confusion. Prior to that infringement could only be established for the use of an identical or nearly resembling mark in relation to the goods or (following the 1987 amendment Act) services that the mark was registered for. Both before and with the TRIPs amendments a likelihood of confusion was presumed if an identical mark was used in relation to (some of) the same goods as those the mark was registered for.

However, in PC Direct Ltd v Best Buys Ltd 7 TCLR 452 those amendments gave rise to a curious result when comparative advertising involved the use of a mark identical to a Part B registered mark on goods or services identical to (some of) those it is registered for. Best Buys used PC Direct’s Part B registration of PC DIRECT in ads that compared characteristics of both party’s computers. It was conceded that the use was not likely to deceive or cause confusion. Nonetheless, as a matter of statutory construction, the amendments were found to result in the Part B defence not being available where the use involved the double identity of an identical mark and identical goods or services. While noting that the legislative history was silent regarding the effect of the 1994 amendments on comparative advertising, the Judge considered a possible policy rationale was that the absence of confusion on the part of the public insufficiently protects a plaintiff whose reputation has been borrowed for comparative advertising purposes. In this regard it was noted that Villa Maria would have infringed if its comparative advertisements had been made after the 1994 amendments.

Given that their company name contained the trade mark, PC Direct further argued that the use of its company name by Best Buys in relation to computers would infringe, meaning that there would be no other practical means by which Best Buys could engage in comparative advertising. The Judge noted a UK case which held that third party use of a company name that contained a registered trade mark was not use of the trade mark in a trade mark sense. While attracted to that reasoning, the Judge was precedentially bound by the Court of Appeal’s Villa Maria v Montana decision, which held that use of a mark in comparative advertising is use in the course of trade and in a trade mark sense.

However, when considering relief in the context of the interlocutory injunction, while noting that there was a serious question to be tried, the absence of a risk of confusion was considered to increase the likelihood of damages being an adequate remedy. Consequently, when considering the overall justice of the case, this allowed the Judge to give weight to public interest factors, which arose on account of the overlap between the plaintiff’s trade mark and its company name making comparative advertising in relation to such a business impractical. In particular, the Judge gave priority to the rights to freedom of speech and to receive information that are protected by the New Zealand Bill of Rights Act 1990, given that comparative information can have public benefits.

The next significant litigation involving comparative advertising issues arose from Benchmark Building Supplies (trading as Bunnings) placing stickers next to various products in advertising brochures produced by Mitre 10, where the stickers stated a lower price offered by Bunnings. The stickers were placed in the Mitre 10 brochures next to third party brands, unbranded goods and Mitre 10’s BUTLERS brand. In Mitre 10 (NZ) Ltd v Benchmark Building Supplies Ltd 10 TCLR 607 the High Court Judge granted some of Mitre 10’s interim injunction requests under the trade mark infringement cause of action. Most of the relevant Mitre 10 trade mark registrations were in Part A, although its BUTLERS mark was registered in Part B. The Judge found Mitre 10’s trade marks to be used by Benchmark in a trade mark sense in relation to the unbranded goods as well as for the BUTLERS brand. However, Mitre 10’s class 16 registration for printed matter was not infringed as the brochures were purely promotional in nature and not part of Mitre 10’s business to manufacture or sell. Where the stickers were placed in relation to third party brands Mitre 10 could not claim infringement of its goods registrations. At best it could claim infringement of its retailing and wholesaling services registration, but that too was rejected as the device mark used in the brochure differed from the retail services device mark registration. Benchmark attempted to argue that the BUTLERS registration was not infringed as a stylised version of the mark was used in the brochure. However, the Judge held that the word mark registration covered all stylised uses of that mark and so an identical mark had been used by Benchmark, meaning, following PC Direct, that the Part B defence was not available. Benchmark also tried to use section 8(3)(a) of the Trade Marks Act 1953, arguing it had a defence given that Mitre 10 applied the BUTLERS mark to the brochure. However, the Judge rejected that, finding that the intent behind section 8(3)(a) is to protect resellers, which Benchmark’s use did not fall within.

The decision was appealed and heard shortly before the commencement of the Trade Marks Act 2002, while the Court’s unanimous decision (Benchmark Building Supplies Ltd v Mitre 10 (NZ) Ltd 10 TCLR 767) was delivered shortly after the Act’s commencement date of 20th August 2003. Under section 94 of the new (and current) Act the use of a registered trade mark in comparative advertising is allowed provided the use is not otherwise than in accordance with honest practices in industrial or commercial matters.

94 No infringement for comparative advertising of registered trade mark
A registered trade mark is not infringed by the use of the registered trade mark for the purposes of comparative advertising, but any such use otherwise than in accordance with honest practices in industrial or commercial matters must be treated as infringing the registered trade mark if the use, without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark.

While the new Act’s transitional provisions specify that the old Act continues to apply in respect of proceedings commenced before the commencement of the new Act, it was accepted that section 94 would apply in respect of future alleged infringements, which in effect is the focus of interim injunctions. Nonetheless, Mitre 10 argued that Benchmark’s use did not allow it to claim the section 94 defence for two reasons. Firstly, it was claimed that the section is concerned with traditional comparative advertising, where the party making the comparison compiles the information. The Court of Appeal rejected that distinction, finding that Benchmark’s use fell within the specified purpose of that section. Secondly it was argued that Benchmark’s use was not in accordance with honest practices in industrial or commercial matters in that it takes unfair advantage of, and is detrimental to, the distinctive character or the repute of their trade mark. The Court of Appeal found that the Mitre 10 mark was only used in relation to retail services, while the BUTLERS mark was used in relation to goods. In either case, the Court of Appeal found Benchmark’s conduct to be in accordance with honest practices in industrial and commercial matters as its use of those marks did not disturb those functions and actually depended upon the public perceiving the marks as retaining those functions.

Section 94 of the 2002 Act is based on section 10(6) (now repealed) of the UK Trade Marks Act 1994. (Comparative advertising in the UK is now governed by regulation 4 of the Business Protection from Misleading Marketing Regulations 2008.) The 2002 Act also abolished the distinction between Part A and Part B of the register, along with the distinction between marks that are ‘adapted to distinguish’ and those that are ‘capable of distinguishing’. This is reflected in the provisions of section 94 applying irrespective of the level of distinctiveness of the registered trade mark. Instead, section 94 prioritises open competition in the marketplace over trade mark rights, provided that any such trade mark use is in accordance with honest practices in industrial or commercial matters.

It is within this context that the recent New Zealand comparative advertising dispute between the global toy manufacturing entities of Lego and Zuru occurred. In Zuru New Zealand Limited v Lego Juris AS 2023 NZHC 1808 Zuru sought a declaration of non-infringement from the High Court over its use and proposed variations of use of Lego’s trade mark in compatibility notices. Zuru’s original compatibility statements on the packaging of its ‘MAX BUILD MORE’ toy range made prominent use of LEGO, in larger font and above BRICK COMPATIBLE. While the word MAX was more prominent than the word LEGO, the latter was found to be the next largest element and designed to draw the attention of the consumer. The Judge held that Zuru’s use of LEGO fell within the section 89 infringement provisions as a substantial number of consumers would be likely to view the prominent use of LEGO as use as a trade mark. The Judge then held that the proposed variations in compatibility statements would still be taken as use as a trade mark, either because they commenced with LEGO or because of the prominence of the compatibility statement as a whole.

The Judge then found that Zuru did not have a defence under section 94, essentially for two reasons. Firstly, its use was not in accord with honest practices – from the perspective of reasonable members of the trade. While the Judge agreed that Zuru could use LEGO to describe a characteristic of its product, it was the context around Zuru’s use that was not in accord with honest practices. Zuru was found to have taken a calculated risk given that it only sought advice on the matter from an in-house legal team, with the Judge characterising that advice as manifestly inadequate. It also hadn’t sought Lego’s consent and knew Walmart (in the USA) refused to accept stock that used the LEGO compatibility statements. In the USA it instead used ‘Compatible with Major Brands’ and it had also done so for the majority of the time it marketed the product in New Zealand. The Judge found no compelling reason why it could not have continued to do so. The Judge also found it was not reasonably necessary for Zuru to make prominent use of the LEGO mark, and consumers did not need to be advised of the compatibility of Zuru’s products with those made by Lego. The Judge concluded that the context of Zuru’s use shows that it sought to take unfair advantage by gaining leverage from the reputation Lego had built up in the mark over many years and so was not in accord with honest practices.

Secondly, the Judge held that Zuru’s compatibility statement does not satisfy section 94 as it does not make an express comparison with Lego’s product. The Judge found comparative advertising to involve an endeavour to persuade the consumer that features or characteristics of the advertiser’s product (such as quality, reliability, style, ease of use, or price) are superior to those of one or more competitors. At best Zuru’s compatibility statements amounted to inherent or implied (in contrast to express) comparisons regarding having a superior (lower) price. There was no express claim to superiority in respect of a feature or quality of Zuru’s product. Being interchangeable was considered insufficient to amount to a comparison for section 94 purposes. The Judge also held that it is not necessary for advertising to involve paid media and that advertising-like messages shown on packaging or in other promotional materials can qualify as advertising.

Concluding Remarks
After several twists and turns New Zealand’s law regarding the use of registered trade marks for the purposes of comparative advertising once again prioritises open competition in the marketplace over trade mark rights. However, the Zuru decision shows that not just any use of a third-party’s trade mark will be tolerated and that it is best to seek independent legal advice regarding whether a proposed use is in accordance with honest practices in industrial or commercial matters.