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Feature By Joel Smith and Sarah Burke

Right Example of the SKY Stopping telemarketers stealing your

The UK High Court has shed some much-needed light for their extended warranty plans as being on the slightly dubious methods employed by provided by Sky or otherwise authorized, endorsed or approved by Sky. Sky offers its customers extended service plans to repair their telemarketers that seek to piggy-back on another Sky satellite reception equipment (primarily the set-top box) owner's success by blurring the distinction branded SKY REPAIR PROTECTION PLAN (previously SKY CARE). between themselves and the brand owner. The ruling These extended service plans are offered to customers under the provides guidance on the extent to which such traders SKY mark by Sky’s official provider, Domestic & General. The are expected to go in distinguishing their products defendants also provide extended service plans or warranties for Sky satellite reception equipment. However, they have not been and services from those of other traders to ensure they authorized by Sky to use the SKY marks. The defendants appeared to stay on the right side of the law have built a large base in a short period by making up to 6 million calls per year.

The law To succeed in passing off, Sky needed to demonstrate three elements: • goodwill in the use of the SKY mark for the supply of extended service plans, such that the public identified use of SKY for these The growth of telemarketing is a modern phenomenon. Despite services with the Sky group of companies; the fact that many people consider these calls an unwarranted • a misrepresentation made by the defendants to the public intrusion into their lives, no one can deny that telemarketing a leading (or likely to lead) the public to believe that the service or service is one of the most effective means of direct plan or warranty offered by the defendants was that of Sky or its . Where one trader launches a successful product or authorized provider; and service, others are sure to follow – such is the nature of healthy • that it had suffered (or was likely to suffer) damage by reason of . But what happens when newer entrants to the the erroneous belief induced by the misrepresentation that the seek to piggy-back on another brand owner’s success by blurring services were from Sky, or were authorized or endorsed by Sky. the distinction between themselves and the brand owner? What happens if the new entrants to the market imply some form Proving the elements of passing off of connection with the brand owner and/or fail to disabuse Sky was ultimately successful in establishing all three elements of a customer’s mistaken belief that he or she is dealing with the passing off. The court accepted that Sky could claim goodwill in the brand owner or incumbent provider in the market? use of SKY in the supply of extended service plans, based on the These questions were considered in detail in the recent case strength of the Sky brand and the massive recognition that it of British Sky Broadcasting Group Plc v Satellite Direct UK Limited achieves in the entertainment sector. [2006] EWHC 3165. This was the first case before the UK courts to Much of the court’s time was taken up with considering whether consider the misselling of or services by telemarketers. The the defendants had made actionable misrepresentations, and a large High Court of and Wales analyzed the sophisticated type of volume of evidence was presented during the trial regarding both suggestive marketing used by telemarketers to persuade customers written and oral misrepresentations made by the defendants. to purchase the products or services of a competitor, and the Factual evidence and, in particular, evidence from members of the boundaries to be drawn between what is and what is not legitimate. public has long been recognized as an important factor in passing off cases. It proved to be the decisive factor in this case, where the The facts court considered the evidence of 24 members of the public from Well-known broadcaster British Sky Broadcasting Group Plc brought every walk of life – ranging from a retired paramedic to a judge’s an action against two groups of defendants, which included the wife. The court showed less enthusiasm about considering large companies Satellite Direct UK Limited and Sky Home Services Ltd, numbers of complaint records from a database of complaint calls

72 World Review March/April 2007 www.WorldTrademarkReview.com logged by Sky’s authorized provider. However, this type of The court accepted that Sky complaint evidence can still be valuable to demonstrate that the witnesses heard are but the “mere tip of an iceberg”. could claim goodwill in the use Written misrepresentations ranged from the use of deceptive trading or company such as Skycare, Sky Home Services and of SKY in the supply of Subscriber Services, through to marketing materials addressed to “Dear Sky Digital Viewer” sent in an envelope marked “this envelope extended service plans, based contains important information for all Sky digital viewers”, often accompanied by an insert offering Sky+ set-top boxes for sale. on the strength of the Sky However, the bulk of the misrepresentations related to what the telesales agents actually said to customers when cold-calling. One of brand and the massive the defendant companies (Satellite Direct) had created various call scripts which were intended to be followed by its operators. The recognition that it achieves in early call scripts used Subscriber Services as the of the company calling and informed the customer that his or her the entertainment sector manufacturer’s warranty had expired, and invited the customer to “renew your warranty”. Later versions used Satellite Direct, but still www.WorldTrademarkReview.com March/April 2007 World Trademark Review 73 Feature: Stopping telemarketers stealing your customers

Right Example of a Sky+ set-top box suggested Sky customers “renew” an extended service plan or to take such care as will prevent its chosen marketing method from warranty in fact not provided by the defendants in the first place. conveying a misrepresentation that there is a connection between However, the evidence collated by Sky demonstrated a significant the competitor and the market leader. Further, where an agent is volume of complaints from members of the public that had taken aware that the customer is under a self-induced misapprehension out a policy with the defendants, believing that they were doing so as to whom he or she is dealing with and the agent fails to put that with Sky. It was clear that the operators deviated from the mistaken belief right, then this amounts to a misrepresentation by script frequently, indicating that they had an existing relationship conduct, analogous to “switch-selling” (customer asks for product A with the customer, when in fact they did not. For instance, they and is given indistinguishable product B without being told that it is stated that “according to our records” the customer’s manufacturer’s product B). Again, rather than taking steps clearly to distinguish warranty had expired, that they knew what equipment the customer their competing product from that of Sky, the defendants positively had or that they had the customer’s bank details, when in large part exploited the advantage that they identified as flowing this was a sham. from that risk. The court also found that in many cases the sales Sky was found to have suffered damage on the basis that it lost agents did not correct the customer’s incorrect understanding that custom to the defendants, where customers agreed to contract only the agent was calling from Sky: “The transcripts show numerous with the defendants as they were under the mistaken belief that instances where … the transaction completed without the sales they were dealing with Sky or Sky’s authorized provider. agent putting right the customer’s misapprehension.”

Issues Comment Two main issues arose in the case: This case is important for brand owners tackling attempts to • whether the number of complaints was sufficient to ‘divert’ customers away from them by unlawful means, as well as for demonstrate endemic or institutional passing off or, rather, those in the telesales industry who will need to ensure that proper whether they were just evidence of isolated instances of passing procedures are in place to prevent this kind of abuse. off by rogue agents; and The case has shed some much-needed light on the slightly • whether a misrepresentation arose by “silence” where a trader dubious methods employed by telemarketers, and represents a made no express misrepresentation to the customer, but useful guide about what can and cannot be said during realized from something that the customer said that the telemarketing calls and the extent one trader is expected to go customer was under a self-induced misapprehension that the to distinguish its products and services from those of another caller was from, or was connected to, Sky. trader to stay on the right side of the law. The decision requires telemarketers to be more forthright with customers and, Outcome if a new entrant fails to take steps clearly to distinguish itself from The High Court found institutional passing off on a massive an incumbent trader, then the new entrant may fall foul of the scale, with the defendants setting out deliberately to exploit “grey law of passing off. areas” for economic gain. Both groups of defendants had passed Telemarketers must exercise greater care in distinguishing themselves off as Sky, or as authorized or endorsed by Sky, and the themselves from market leaders and be aware that achieving sales by “issue had become one of extent and degree”. It concluded that less than honest sales techniques could land their employers in hot Satellite Direct intended, through the put water. This case demonstrates the risks that a new entrant to a market in place, to suggest a connection with Sky and to intimate a current runs if it decides deliberately to ‘sail close to the wind’ and exploit relationship with the customer to create a bond of trust. Here certain assumptions that customers make about the incumbent was a strategy designed to gain the trust of the intended customer provider in the market. Further, the case has established new law that by hinting at a pre-existing relationship, necessitating an a trader may make a misrepresentation by conduct (even silence), by assumption that he or she was speaking to Sky. It was a culture in failing to correct a self-induced mistaken belief of a customer, where which this assumption was believed to be good for business and that trader takes advantage of that mistaken belief. If a trader fails to where it was not thought to be wrong to take advantage of it, or even disabuse a customer of his or her impression that he or she is dealing encourage it, just short of making a direct assertion that the agents with the brand owner, this may be sufficient to constitute passing off. were Sky representatives. The decision is to be welcomed by brand owners as it The court concluded that the period from 2002 to the point strengthens their arsenal against new entrants to the market that when Satellite Direct gave undertakings in a parallel trading seek to piggy-back on the success of their brand or imply any form standards action involved “habitual or institutional passing off”, of connection when there is no legitimate basis for suggesting that such that up to 80% of sales were immediately preceded by passing such a connection exists. Brand owners need to take active off. Even when Satellite Direct introduced disciplinary measures, measures to protect their brand or if they suspect a training and call-monitoring, the court concluded that “the new entrant is stealing their customers. The first step for any brand previously systematic invasion of [Sky’s] rights was not immediately owner that wants to take action against rival telemarketers is to go or even quickly reduced to a trickle”. The specific instances of out and collect strong evidence to show that a new remained the “tip of an iceberg”, such that, even by the entrant to the market has been actively diverting custom by date of the hearing, 10% of sales amounted to passing off, which dishonest sales techniques. While this can be time-consuming, “still represents a serious continuing infringement of [Sky’s] rights”. preserving a hard-won customer base is worth fighting for. WTR

Legal analysis The court found that, if a party has a strong position in the market Joel Smith is a partner and Sarah Burke is an associate in the for particular goods or services, where a competitor adopts a IP group of Herbert Smith LLP in London marketing method which will cause or contribute to confusion by [email protected] an implied misrepresentation, then that competitor is under a duty [email protected]

74 World Trademark Review March/April 2007 www.WorldTrademarkReview.com