In a recent case concerning vodka, the High Court re-examined the law of extended passing off in relation to product types. In VODKAT (Diageo North America, Inc (and Anr) v Intercontinental Brands (ICB) Ltd. (and Ors)  EWHC 17 (Ch) ), the Court developed themes from earlier passing off cases involving the names "champagne" and "advocaat," and confronted interesting points about when extended passing off can occur, and the type of party that may claim it.
In this case, the well-known alcoholic drinks purveyor, Diageo, brought an action against Intercontinental Brands to prevent the sale of a vodka-based drink called "VODKAT," on the basis that it passed itself off not as one of Diageo's own branded products, but rather as real vodka, when in fact it was not.
In VODKAT, the term "vodka" was held to describe a clearly defined class of goods, regulated since 1989 by European legislation. Under it, vodka must contain a minimum of 37.5% alcohol by volume (ABV), and is formally defined as "a spirit drink produced by either rectifying ethyl alcohol of agricultural origin or filtering it through activated charcoal..." , or as "a spirit drink produced from ethyl alcohol of agricultural origin obtained following fermentation with yeast from either potatoes and/or cereals, or other agricultural raw materials".
In contrast with this, Intercontinental's VODKAT product was a mere 22% ABV, and was classified as "other fermented beverage". Due to its lower ABV, the duty payable on the VODKAT product was considerably lower (£2.85 per litre) than would have been the case for vodka (£8.49 per litre). Unsurprisingly, therefore, the VODKAT product was a hit with shoppers and public houses looking to save money on their tipple.
Diageo claimed that the use of VODKAT was misleading, but in order to get its passing off action off the ground it needed to prove that it owned protectable goodwill in the descriptive term "vodka." As "vodka" was a clearly defined product, the question was then whether vodka had a reputation which gave rise to goodwill amongst a significant section of the public, and whether Diageo was entitled to bring an action based on that goodwill. The Court found that there was a protectable goodwill in the descriptive term "vodka" because it related to a clearly defined class of goods, namely vodka, and that Diageo, as a vodka manufacturer, was entitled to bring the action on the basis of its substantial sales of various brands of vodka, including the SMIRNOFF brand.
It is important to bear in mind here that the level of "goodwill" required to allow an action for passing off to be brought is different from the concept of "reputation." The judge made it clear that goodwill did not need to be in products having a high quality, but rather must be in respect of a "clearly defined class of goods".
Having decided that Diageo was entitled to sue, the next point for the judge was whether the use of VODKAT for a vodka-based product that was not in fact vodka was a misrepresentation on the part of the Defendant. Here, Diageo's case was assisted by the get-up used by the Defendant on its labels, which were seen as attempting to give a "Russian" or "Eastern European" feel to the product. As the research showed that the average consumer associated vodka with Russia or Eastern European countries, the imagery reinforced the idea that the consumer would have as to the type of product being offered.
This was reinforced by evidence that in many shops, VODKAT was sold on shelves with other genuine vodka products, although due to the much lower rate of duty payable, was considerably cheaper per litre to purchase. The evidence showed that there was widespread confusion about the nature of the product, not only among consumers, but also among retailers.
The final requirement for a finding of passing off is for damage to have occurred. In this case, there was evidence that VODKAT had been used in pubs and bars for "house doubles", the practice of selling a double measure of a cheaper spirit at a lower price than would have been the case for a branded spirit. The evidence showed that VODKAT had been used by pubs as the "house spirit" vodka, and thus had potentially taken sales from Diageo and its SMIRNOFF brand. The judge decided that even if there had been no evidence of lost sales, the use of the VODKAT term was likely to "erode the distinctiveness of the term ‘vodka,'" and therefore found in Diageo's favour.
This case is an important development in the law of "non-traditional" passing off.
In earlier, similar cases (such as those involving the terms "champagne" and "advocaat"), there seemed to be an assumption that when a product was alleged to have been passed off as a particular type of product, some "reputation" in the sense of high quality or exclusiveness was required, rather than merely "goodwill" in a product descriptor.
However, VODKAT shows that the test is not one of reputation or quality, but rather whether a descriptive product type name is used for a "clearly defined class of goods," such that the defendant's use of it for some other type of product would amount to a misrepresentation.
VODKAT is a salient reminder that competitors may take market share not only by using identical or similar brand names, but also by producing and selling similar, but not identical, products cheaper. Often this is legitimate, but where the public is misled by the inappropriate use of a product name, it is not. Diageo's success in VODKAT is proof positive that vigilance against both types of unfair competition can pay off.