Legal Bulletin August 2016

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Published date: 30 Aug 2016

Singapore Court of Appeal explains operation of doctrine of instruments of deception and elements of passing off

Singsung Pte Ltd v LG 26 Electronics Pte Ltd (trading as LS Electrical Trading) [2016] SGCA 33
The Singapore Court of Appeal decision in Singsung Pte Ltd v LG 26 Electronics Pte Ltd (trading as LS Electrical Trading) is instructive on how a plaintiff may prove the elements of the tort of passing off, the operation of the doctrine of instruments of deception, and the scope of liability for issuing groundless threats under section 200 of the Copyright Act.
Two brothers, Mr See Lam Huat (“Johnny”) and Mr See Lam Seng (“Seng”), were business partners involved in acquiring second-hand electronic goods for resale to overseas customers. When their relationship soured, Johnny incorporated Singsung Pte Ltd (“appellant”). Its main business was the export of new electrical appliances manufactured in China to African and Asian markets. Most of the sales were made to non-resident trade buyers or middlemen who would visit the appellant’s shop to select the products they wished to purchase. These products would then be shipped to the trade buyer’s home country for sale to end users. Sales to customers resident in Singapore comprised only a small proportion of the appellant’s business. Sometime later, Seng incorporated LG 26 Electronics Pte Ltd (trading as LS Electrical Trading) (“respondent”), which sold similar products and targeted the same export markets. The respondent’s place of business was located next to the appellant’s. The respondent’s products bore striking visual similarities to the appellant’s products. For most of the products forming the subject matter of the suit, the only discernible difference was that the appellant’s products bore the “SINGSUNG” logo while the respondent’s products bore the “LS” logo.
The appellant commenced proceedings against the respondent which ultimately reached the Court of Appeal. The appellant argued in its claim in passing off that the get-up of the respondent’s products was identical or confusingly similar to that of the appellant’s products, thus misleading consumers into believing that the respondent’s products originated from or were associated with the appellant. The appellant claimed that it had goodwill in its business and that this was sufficiently associated with the get-up of the appellant’s products (“Singsung Get-Up”). The details of the Singsung Get-Up included: (a) the packaging and design of a DVD player, which included a white carton box (in which the DVD player was packaged) with an image of a DVD player, guitar and sitting room (“White Get-Up”), (b) the packaging and design of another DVD player, which included a blue carton box (in which the DVD player was packaged) with an image of the DVD model (“Blue Get-Up”), and (c) the design and placement of a sticker on the appellant’s television sets, which includes the words “Rotary Rotatory”, a symbol showing that the television may be rotated 90 degrees, an indication that the television was brand new and an indication that the television was ultra-slim (“TV Sticker”).
In addition, the appellant brought a concurrent action against the respondent for copyright infringement in: (a) the picture of a DVD player, guitar and sitting room on the White Get-Up (“White Get-Up Picture”), (b) the picture of a DVD player on the Blue Get-Up (“Blue Get-Up Picture”), and (c) the TV Sticker. The appellant argued that it owned the copyright in these works, and the respondent’s reproduction and/or sale of products that reproduced these works without a licence from the appellant had infringed the appellant’s exclusive rights in the works and had caused the appellant to suffer loss and damage.
Tort of passing off
The Court of Appeal analysed the tort of passing off through the “classical trinity” of goodwill, misrepresentation and damage. The essence of the tort was that no person is permitted to steal another’s trade by deceit.
Additionally, the law of passing off recognises the doctrine of instruments of deception, which deals with the situation where goods are sold to intermediate entities such as middlemen in the supply chain who are not themselves confused as to the true origin of the goods in question. Where instruments of deception are inherently deceptive, the supplier will be liable for passing off even though his direct customers (as middlemen) are not deceived.
To prove goodwill, the appellant must show that its business possesses an “attractive force” that generates custom. In this case, the court found that goodwill in the appellant’s export business through its foreign trade buyers clearly existed in Singapore. The appellant had business premises in Singapore at which and trade buyers made purchases. The large volume of sales to its foreign trade buyers was sufficient to establish goodwill to found an action in passing off both in the conventional sense (where any misrepresentation is made to the middlemen) and under the doctrine of instruments of deception (where the misrepresentation may be made to the end users through the middlemen).
Next, the Court of Appeal stated that issue of distinctiveness should be analysed in the context of misrepresentation, rather than in the context of goodwill as some courts have done. This is because the tort protects the plaintiff’s goodwill in his business; the mark or get-up will feature prominently because this is the usual means by which the tort or misrepresentation is committed. If indeed the mark or get-up is distinctive of the plaintiff, the court will consider whether the defendant’s use of similar indicia amounts to a misrepresentation. The misrepresentation must give rise to confusion, assessed from the vantage point of a notional customer with imperfect recollection. In this case, the Court of Appeal found that the respondent had, by its actions, admitted that the Singsung Get-Up was distinctive of the appellant’s products. The respondent had chosen to enter export markets where the appellant was already successfully trading, had admitted getting a factory to replicate the get-up of the appellant’s products, and had mimicked the appellant’s business methods. Moreover, the reference in the warranty cards in the respondent’s products to a “SINGSUNG dealer” (which the respondent claimed was a mistake) suggested that the respondent was related to the appellant. Apart from this deliberate copying, the respondent did not advertise or market its products in the export markets, and Seng had represented to walk-in customers that he used to be associated with the appellant. By supplying the instruments of deception to trade buyers for the purposes of sale to end users overseas, the tort was complete. Given this finding, the Court of Appeal did not deal with passing off in the conventional sense.
Lastly, the claimant need not show actual damage as long as a real tangible risk of substantial damage is present. Given that the appellant and respondent were competing in the same export jurisdictions and line of products, the appellant’s goodwill would be adversely affected through a diversion of custom. Furthermore, under the doctrine of instruments of deception, liability was established once the products were supplied on the basis that the instrument of fraud was likely to cause harm to the appellant. Thus, the element of damage was satisfied.
The appellant’s claim in passing off therefore succeeded.
Copyright infringement
The Court of Appeal found that the appellant owned the copyright in the White Get-Up Picture because the Chinese factory that produced it for the appellant had validly assigned the copyright to the appellant. The respondent had infringed this copyright by importing the DVD players with the White Get-Up Picture from China into Singapore for the purposes of sale.
The respondent was also liable for copyright infringement in respect of the TV Sticker. Seng had come across the TV Sticker, which bore the “SINGSUNG” mark, on the appellant’s television sets, when he asked for it to be placed on the respondent’s television sets. The respondent therefore ought reasonably to have known that it was infringing the appellant’s copyright when it sought the reproduction of the TV Sticker without the appellant’s consent.
However, the Court of Appeal found that there was no copyright infringement in respect of the Blue Get-Up Picture. The model of the DVD player which the respondent had used was different from that which appeared on the Blue Get-Up. Since it was a straightforward representation of a commonplace object, nothing less than identical copying would suffice to amount to copyright infringement.
Groundless threats of copyright proceedings
Since the Court of Appeal found no copyright infringement in respect of the Blue Get-Up Picture, it proceeded to analyse whether the appellant was liable for groundless threats of legal proceedings under section 200 of the Copyright Act. Section 200 provides that where a person threatens another with an action or proceeding in respect of a copyright infringement, the person aggrieved may bring an action and may obtain a declaration to the effect that the threats are unjustifiable, an injunction against the continuance of the threats, and recover such damages as he has sustained, unless the court is satisfied that the acts in respect of which the action or proceeding was threatened constituted or would constitute an infringement of copyright.
The Court of Appeal reasoned that section 200 is meant to provide a remedy for aggrieved parties whose business or reputation might be affected by threats from another party without having to prove bad faith of the threatening party. In this case, the letter of demand preceding the commencement of the proceedings was not the kind of conduct which called for any order to be made under section 200 of the Copyright Act. Although the respondent had not infringed the appellant’s copyright in the Blue Get-Up Picture, no conceivable damage flowed from the demand having been made which could not now be compensated by a costs order against the appellant for having made an unwarranted threat.
In conclusion, the Court of Appeal allowed the passing off claim and the copyright claims (except in relation to the Blue Get-Up Picture), and dismissed the respondent’s claims for groundless threats of copyright proceedings.
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