The "Elixir" to a reverse passing off claim: Court of Appeal upholds IPEC decision

The Court of Appeal has dismissed an appeal against a skin-care company's successful passing off claim in relation to its anti-age skin serum "Elixir" and copyright infringement of marketing materials following false statements made online by Kate McIver Skin Limited, and its founder Ms McIver, purporting to be the creator of the serum.

Lord Justice Arnold, who gave the leading judgment in the appeal (Yours Naturally Naturally Yours Ltd v Kate McIver Skin Ltd & Anor [2023] EWCA Civ 1493, had originally granted permission to appeal but recommended mediation given that the costs of the appeal would likely exceed what was at stake. However, this had not happened.

Background

This was a factually complex case. The claimant, Yours Naturally Naturally Yours Limited ("YNNY") was the manufacturer and seller of skin care products, a business previously conducted by Ms Tang, the sole director and shareholder of YNNY.

The first defendant, Kate McIver Skin Limited ("KMS") was set up as a vehicle for an existing business run by Ms McIver (deceased) selling skin care products. The second defendant, Christopher John McIver, was the widower of Ms McIver and personal representative of her estate.

The dispute centred around a skin serum called "Elixir" which was created in June 2015 by Ms Tang and sold in the UK. In March 2017, Ms McIver bought the serum from Ms Tang to help her severe skin irritation resulting from chemotherapy. Ms McIver was so impressed with the product that she asked to buy it wholesale and between October 2017 and April 2018 Ms Tang supplied the product to Ms McIver to sell on to her customers.

Between April and June 2018, Ms McIver sold the serum under a label bearing the names "Kate McIver" and "Elixir".

In June 2018, Ms McIver posted on Instagram about the product, including stating "…I literally put my life and soul too [sic] researching and training, creating bespoke treatment and tailor making the ingredients…" and "I made this with my very own hands…". Other posts from "katemciverskin" referred to the serum as being produced by "us".

Between June and August 2018 Ms McIver sold the serum under a second label bearing the names "Kate McIver" and "Secret Weapon", with YNNY in small typeface at the bottom of the label. Although the label was different, Ms McIver told her customers that this was still the same product she had created.

In late August 2018, KMS was incorporated by Ms McIver. In November 2018, Ms McIver ceased purchasing Ms Tang's product and from December 2018 KMS sold a reformulation of the original serum under a new label named "Secret Weapon Serum". The reformulation was YNNY's "Elixir" serum with a few ingredients added.

KMS used before and after photos from October 2018 to promote the product, implying that the serum marketed then was the same serum being marketed in December 2018 onwards. There were also several articles in the press promoting the "Secret Weapon Serum" and a radio interview given by Ms McIver referring to the serum as being created by her.

Following a customer complaint about the "breaking out" caused by the reformulation, in March 2019 KMS produced another version of the serum which was marketed as the "original".

First instance IPEC decision

Proceedings were commenced in the IPEC by YNNY in May 2020 and relief was granted for passing off and copyright infringement in April 2023 (Yours Naturally Naturally Yours Ltd v Kate McIver Skin Ltd & Anor [2023] EWHC 890 (IPEC) (20 April 2023))

Court of Appeal decision

Passing off: grounds for appeal

Ground 1: Goodwill in the name "Elixir"

The Court of Appeal agreed with the defendant that the judge had been wrong to find that YNNY owned goodwill in the name "Elixir" because that case had not been pleaded. However, the judge ought to have found that goodwill was associated with YNNY's "Elixir" product and YNNY itself.

Ground 2: Misrepresentations

KMS argued that it was wrong for the judge to find that the misrepresentations set out in the judgment had been made.

(a) Goodwill in the name "Elixir"

As above in relation to ground 1, in so far as the judge's reasoning was based on the use of the name "Elixir", the judge was wrong to find that YNNY owned goodwill in that name.

(b) Interpretation of statements made on social media

The Court of Appeal did not consider the defendant's suggestion that the correct interpretation of the statements was that Ms McIver had created the treatments herself, rather than the serum itself, to be a realistic alternative interpretation.   

(c) Relevant consumer

The Court of Appeal also rejected the defendants' allegation that the judge failed to interpret the Instagram post and other statements made by Ms McIver from the perspective of the relevant consumer, particularly given that the defendants had not identified any attribute of the relevant consumer which would have led to a different interpretation.

(d) Deception

The Court of Appeal found that the judge was entitled to find that there had been misrepresentations giving rise to the deception of customers. KMS had misrepresented that their reformulated product was "the same serum as had been sold as the Elixir serum". This was a material misrepresentation which involved deception of KMS's customers into thinking that they were getting the same product as before when in fact they were getting a different product.

Ground 3: Damage by misrepresentation to goodwill  

The defendants claimed the judge should not have found that there was damage due to a risk of genericisation of the name "Elixir", because YNNY had not pleaded its case based on goodwill in the name.

However, YNNY did have goodwill in the "Elixir" product and in YNNY itself so the Court of Appeal found that the judge was correct in finding that there was a risk of damage to the reputation of the product and YNNY's goodwill, stemming from the misrepresentation that the reformulations were the same serum as the original "Elixir" serum.

Copyright infringement: grounds for appeal

The defendants appealed on the ground that the judge should not have granted relief for copyright infringement without making any finding of copyright infringement.

The IPEC judge had found that because there was a bare licence allowing Ms McIver to use the marketing materials written by Ms Tang for so long as she purchased the serum from Ms Tang, any use of those materials after November 2018 (when the licence came to an end) was infringement.

On appeal the defendants argued that there was no continuing infringement. Given they had previously conceded there was an implied licence until November 2018 and did not seek to argue that the acts were only actionable under section 20 (infringement by communication to the public) and not section 18 (infringement by issue of copies to the public) (given the use did not involve tangible copies), the Court of Appeal confirmed that the continued public availability of social media posts after November 2018 constituted a continuing copyright infringement.

Comment

Purchasing goods from a manufacturer and relabelling them to sell on is a common and legitimate practice where terms have been agreed between the parties. However, this case is a cautionary reminder that there is a difference between this and misrepresenting that those products have been created by your brand, even where a product has been reformulated so it is no longer identical.

This is an interesting example of a case where there is a finding of passing off with no trade mark infringement.  In particular, it is also one of reverse passing off, where the misrepresentation as to the origin of a product is such that that the customer cannot perceive the difference between two products. The case also demonstrates that the passing off "holy trinity" test requiring goodwill, misrepresentation and damage, still runs strong in reverse passing off cases.

This case also highlights the importance of accurate pleadings. As detailed above, there were numerous deficiencies in the claimants' pleadings, including failures to properly plead goodwill in all aspects of the product and appreciate the distinction between sections 18 and 20 of the Copyright, Design and Patents Act 1988. Practitioners should scrutinise pleadings very carefully and remain aware of the risk that defective pleadings can be challenged and struck out.

Arnold LJ expressed his regret at the beginning of his judgment that even though he had recommended mediation to the parties when he granted permission to appeal, they had not been able to resolve their dispute, because it seemed likely that the costs of appeal would have exceeded what was at stake. So this case is also a helpful reminder that attempting to resolve disputes out of court may ultimately deliver a more commercial outcome for the parties and should always be considered. 

With special thanks to Trainee Solicitor, Fiona Sellers, for her contribution to this blog.