What's in a name? The importance of getting a business name right

In this article senior solicitor Jeanette Singh looks at a recent case before the courts which highlights the importance of conducting the appropriate due diligence before choosing a business name or launching a brand.

Business owners need to be careful not to use a name or brand which is so close to a competitor's that confusion is likely to arise. Even if a business name is not registered as a trade mark, the party who first commenced use of the business name may prevent the other from using it by relying on provisions of the Fair Trading Act and the laws of passing off. Targeted searches will clarify whether the name is available for use and will save the heartache of a challenge after you have launched, with the possibility of losing the investment in building a name or brand and the added cost of establishing a new one.

The case

Background facts

In a recent High Court case¹, Great Barrier Airlines Limited (the appellant) sought an injunction to prevent its competitor, Commercial Helicopters Limited trading as Great Barrier Air (and various related parties together referred to as the respondents), from trading under, using and advertising any name similar or identical to GREAT BARRIER AIRLINES or GREAT BARRIER EXPRESS on the grounds that such conduct amounted to a breach of the Fair Trading Act and the laws of passing off.

Both the appellant and the respondents have been competing in the market for flight services to and from Great Barrier Island for a considerable time. The appellant has been using and trading under the name GREAT BARRIER AIRLINES since as early as 1995. The respondents have provided flights under the names GREAT BARRIER XPRESS (following an arrangement with the appellant in 1998 when it had its transport operator's licence suspended for a brief period) and MOUNTAIN AIR.

It would appear that the respondents incorporated the company GREAT BARRIER AIR LIMITED in mid-2006 as a counter-measure to the appellant being re-allocated the Yellow Pages listing for the name Great Barrier Xpress. This meant in practice that the name GREAT BARRIER AIR LIMITED was listed in the New Zealand White and Yellow Pages immediately above the appellant's listing for GREAT BARRIER AIRLINES. At the same time the respondents abandoned their listing for their former principal trading name of Mountain Air.

The District Court declined to grant an injunction finding that the respondent's actions did not amount to a misrepresentation and that the plaintiff did not demonstrate that it would actually suffer loss.

Appeal to the High Court

The appellant appealed the District Court decision on the grounds that the judge had failed to take into account the claim advanced under the Fair Trading Act (misleading and deceptive conduct) and had applied a wrong principle in requiring the plaintiff prove on the balance of probabilities that it would actually suffer loss.

Judgment

Justice Winkelmann found that the District Court judge had erred in that he did not turn his mind to the cause of action under the Fair Trading Act and had only considered the passing off action. She also found that the judge had applied the wrong test in requiring the appellant prove that it had suffered actual loss on the balance of probabilities. She stated that it is essential to a passing off action that the defendant's activities cause substantial damage to the plaintiff's business or goodwill or are likely to do so if continued. Where the services of both parties compete (as in the present instance), then it is likely that the plaintiff will suffer loss. At an interlocutory stage, it is not necessary for the appellant to prove loss; all it needed to prove was that it was likely to suffer damage as a result of confusion caused by the respondents' conduct.

Section 9 of the Fair Trading Act provides that "no person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive".

To be successful under this cause of action, the appellant had to prove that the first respondent's listing in the telephone directories is misleading and deceptive conduct. Because the appellant and respondents both operated in the same market (air travel to the Great Barrier Island), Justice Winkelmann accepted that consumers may be misled or deceived by the lack of distinctiveness of the telephone directory listings. She stated as follows:

"I am satisfied that the appellant has a strong case that the respondent's conduct breaches section 9. The names GREAT BARRIER AIR LIMITED and GREAT BARRIER AIRLINES are so close that confusion is inevitable. Imperfect recollection of the relevant sectors of the public must be taken into account. A person searching the directory for the GREAT BARRIER AIRLINES number will be most unlikely to differentiate that company from GREAT BARRIER AIR."

Counsel for the respondent argued that that there was no serious question to be tried because the injunction was sought against Great Barrier Air Limited (the first respondent) who was not in trade. However, Justice Winkelmann stated that in reality all respondents were closely related and worked collaboratively to ensure that the name GREAT BARRIER AIR was available for the second respondent (Commercial Helicopters Limited) to use. Therefore, this was use in trade. The respondents opposed the injunction by arguing that damages would be an adequate remedy. However, Justice Winkelmann disagreed stating:

"If injunctive relief is not granted, the appellant's goodwill in its trading name will be potentially eroded by the confusion..."

In granting the injunction her honour ordered the respondents to stop use of the name GREAT BARRIER AIR in any form until the issues were resolved at trial.

How to get it right

Before launching a new business name or a brand, it is important to conduct searches of the various official registers (including the Intellectual Property Office of New Zealand (IPONZ) trade marks register and companies office register) to ensure that no other trader is using or holds a trade mark registration for a similar or identical name/trade mark. Conducting due diligence in the beginning can save you from heartache and expensive litigation in the future if another trader objects to your use of the name.

 

¹Great Barrier Airlines Flight Operations Limited v. Great Barrier Air Limited (first respondent), Commercial Helicopters Limited (second respondent) and Keith Leslie and Robyn Malcolm McKenzie (third respondent) (Unreported Decision, High Court, Auckland Registry, Winkelmann J.,13 December 2007, CIV 2007-404-5710)

Enquiries and information

For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.