"Bait and switch" selling: when is it OK to sell competing products?

Quick read

In Pliteq Inc & Pliteq (UK) Ltd v iKoustic Ltd & Ricky Lee Parsons [2020] EWHC 2564, a former distributor of a trade mark owner’s products was not liable for trade mark infringement (or passing off) by means of "bait and switch" selling where it sold its own competing products alongside those of the trade mark owner.

The distributor had not used the marks in relation to its own products or to attract custom (which was then diverted to its own products) but had instead acted openly in offering its own products for sale as an alternative.

Important findings

Use of a third-party mark in a Google Dynamic ad can constitute trade mark use by the advertiser.
There is no "bait and switch" selling where a reseller has a stock of genuine goods bearing the marks and the average consumer would have understood that the reseller was offering an alternative product.
The essential functions of a trade mark are not affected when alternative products are offered to a customer who has inquired about products by reference to a mark (at least in the absence of any obligation to sell the trade-marked goods exclusively).
There might be trade mark infringement where a reseller uses a third party's mark in advertising when it has no stock or no available stock of that trade-marked product (unless perhaps the lack of stock is temporary). The exhaustion of rights defence might not apply here.
Th exhaustion of rights defence can apply where a reseller has limited stock of the trade-marked goods. Otherwise, all resellers of trade-marked goods would run the risk that, at some indeterminate point, the defence would become unavailable to them.

What happened?

This was a case brought by a supplier, Pliteq Inc and Pliteq (UK) Ltd (Pliteq) against its former UK distributor, iKoustic Ltd, and its director Mr Parsons (iKoustic) for trade mark infringement and passing off by alleged "bait and switch" selling.

Pliteq sold acoustic damping and sound control products under two trade marks: "GENIEMAT" and "GENIECLIP" (each registered as a UK trade mark and an EUTM). In 2012, it appointed iKoustic as its distributor in the UK for these products. As the parties did not enter into a negotiated commercial agreement, iKoustic began to distribute the products on a non-exclusive basis.

In 2018, the relationship between the parties broke down. iKoustic began to sell and market its own range of competing products under its own brands, "MuteMat" and “MuteClip".

Pliteq alleged that iKoustic were using Pliteq's trade marks in internet adverts, on its website and to consumers to entice customers to iKoustic's website to purchase iKoustic's own alternative products. Pliteq argued these uses occurred when iKoustic was low on Pliteq stock and unable to fulfil normal orders.

iKoustic argued that it had only made use of Pliteq's marks legitimately in relation to genuine goods of Pliteq (not for the purpose of selling iKoustic’s products). It further argued that, when Pliteq's products were not in stock, they were not displayed on iKoustic's website.

Pliteq brought an action for trade mark infringement on the ground of double identity (use of an identical mark on identical goods). It also alleged passing off.

What was the decision?

The Judge dismissed the claims for trade mark infringement and passing off (except in relation to one minor use). The key issues considered are set out below.

Did the use of the Pliteq marks in Google Dynamic ads generated by iKoustic amount to trade mark "use"?

Yes. The use of a third-party mark in a Google Dynamic ad can constitute trade mark use by the advertiser. Although Dynamic ads are generated by Google’s own algorithms, there are mechanisms which allow the advertiser to control positively or negatively which products are advertised.

In this case, iKoustic had not tried to use these mechanisms to influence the use of Pliteq marks in its Dynamic ads. The use of Pliteq's marks in the Dynamic ads, even without positive choice by iKoustic, therefore amounted to trade mark "use" by iKoustic.

Did the use of the Pliteq marks amount to "bait and switch" selling?

No. The Judge held that, if bait and switch selling amounts to infringement because "the process of buying goods or services should, from selection through to purchase, be free of the distorting effects of confusion" or, alternatively, bait and switch selling is "a sub-set of initial interest confusion", he was not persuaded that there was any infringement by bait and switch selling in this case.

He was satisfied that the average consumer would have understood that iKoustic was offering an alternative product to Pliteq's product. iKoustic also had stocks of genuine Pliteq goods.

Nonetheless, did the use of the Pliteq marks infringe because that use affected the origin, advertisement or investment functions of the marks?

No. The origin function is not affected where customers are aware that they are purchasing a different product. The Judge remarked:

"It does not seem to me that the origin function is harmed when alternative products are offered to a customer who has inquired about goods by reference to a mark; at least in the absence of any obligation to sell the Claimants’ goods exclusively, this seems to me to be an everyday and unobjectionable commercial reality."

The Judge was not persuaded that iKoustic's use of the Pliteq marks affected the advertising function of those marks. There was no evidence of an effect on Pliteq's use of the marks in sales promotions or in its commercial strategy.

The fact that some consumers might switch to the iKoustic's goods would not, in circumstances of fair competition, infringe the investment function.

The origin and investment functions would be affected if there was use of Pliteq's marks in relation to iKoustic's products – there was only one minor example of this here (and infringement was held in respect of that single use).

If there was infringement, did iKoustic have a defence on the basis that Pliteq had exhausted its rights in the goods?

Yes (except in relation to the one minor use). For this defence to apply, iKoustic would need to show that it had used the Pliteq marks in relation to Pliteq goods previously put on the market by or with Pliteq's consent and that Pliteq did not have any legitimate reasons to oppose the further commercialisation of the goods.

The Judge held that iKoustic's motivation was not relevant to the application of this defence. However, even if he was wrong on that, he was not persuaded that iKoustic's motivation in using Pliteq's marks was only or principally to attract custom for iKoustic’s own goods.

As to how the amount of Pliteq stock held by iKoustic would affect the application of the defence, the Judge commented that:

If there was no stock or no available stock, the exhaustion defence would not apply (unless perhaps the lack of stock is temporary). However, this was not a situation which applied on the facts.
He was not convinced by Pliteq's argument that the exhaustion defences cannot apply where a defendant has limited stock of the marked goods. Otherwise, all resellers of marked goods would run the risk that at some indeterminate point the defence would become unavailable to them, simply because they had sold some but not all of their stock of the products.
Pliteq had not made good the allegation that iKoustic were holding stock in quantities such that an average order, or some normal orders, could not be fulfilled.
Pliteq did not have legitimate reasons to oppose the further commercialisation of its products: there was no likelihood of damage to the reputation of the Pliteq marks, no false implication of a trade connection, and no evidence of confusion as to origin.