Thursday, 29 March 2012


Lawyers all over the interweb refer to themselves as ‘Carbolic Smoke Ball’ or name themselves the ‘Man on the Clapham Omnibus’ after favourite or famous cases. Apologies if you do, or you know someone that does, but that is pretty tragic.
Unfortunately, I also have cases I like. One is Diageo v ICB, the Vodkat case. It’s one that shows law working in the real world, involves alcohol, and a dose of pragmatism. And it shows naughtiness that is a public interest concern being dealt with in a private law dispute.
The facts are that ICB, a drinks manufacturer, sold a 22% abv drink as ‘Vodkat’, in a clear bottle with red labelling. It looked like vodka, but wasn’t – EU rules dictate what constitutes vodka. For one, it has to be at least 37.5% abv.
Diageo, makers of Smirnoff vodka, claimed that Vodkat was ‘passing itself off’ as vodka. This was a claim in tort. They were seeking an injunction (a court order to ICB to stop packaging its drink as it was). To prove a claim in passing off, Diageo had to show the following:
  1. That ‘vodka’ had a reputation as a class of goods.
  2. That ‘Vodkat’ misrepresented itself as vodka.
  3. That Diageo had suffered damage – through lost sales caused by the misrepresentation, or damage to the reputation of vodka. 

They succeeded. Now, the judgment is interesting because maybe it extends the tort of passing off (the old cases were of producers ‘passing off’ as producers of specialist classes – e.g. Swiss chocolate), and because there was argument over what sort of injunction to give. Funnily enough the qualified injunction didn’t make Vodkat change its name immediately, but they did anyway. You can now buy ‘V-Kat Schnapps’ in clear bottle with black and gold labelling, sold near other schnapps and liqueurs in supermarkets. Just in case you want to drink the enviable mix of water, fermented alcohol and distilled alcohol. Mmmm.
But think on this. This is a private action, raised by one company against another. But how much did Vodkat really affect Diageo? As the judgment explained, not that much. Diageo’s Smirnoff is a relatively aspirational brand. Vodkat was and is competing against brands like Glen’s and cheaper own-brand supermarket vodkas. Diageo, it must be assumed, were worried about protecting their position into the future, by setting a strong legal precedent as to what was acceptable. They don’t want any Tom, Dick or Vladimir to start selling below-strength spirits that do impact on Smirnoff’s sales.
You could argue, though, that Diageo should not have needed to intervene. Maybe passing off should be a regulated domain. If Vodkat had called itself Vodkat Vodka, then it wouldn’t have made it to the shelves, falling foul of the vodka definition as enshrined in EU law. In other spheres, pretending to be what you’re not is regulated – pretending to be a doctor or a lawyer or person qualified to give financial advice. More generally, you can be commit fraud  by misrepresenting who you are.  Fraud is such a widely drawn offence that maybe that is the best analogy, given that the elements of that offence are simply:
  1.       A dishonest representation...
  2.       with the intent to make a gain or cause a loss (widely defined).

You can see that these are not far from what Vodkat did. The only difficulty would be dishonesty, which is not a requirement in passing off, and so was not discussed. Indeed, Diageo did not submit that ICB ‘intended to deceive’. But, why would they submit otherwise? They didn’t need to. 
I’m not saying ICB were fraudulent. Besides, fraud might be the wrong vehicle for this case. Fraud might be cast too wide generally speaking. My point is the broader and more general one that as the law stands, this private business dispute wrapped up with terms like ‘goodwill’ (‘the attractive force that brings in custom’), cachet and ‘deceptive competition’ is not a million miles away from fraud. As it is, ICB changed a label and paid some costs, and no one is dealt with criminally. 

Diageo v ICB [2010] EWHC 17 (Ch) affirmed in [2010] EWCA Civ 920.

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