Red Bull New Zealand Ltd v Drink Red Ltd [2016] NZHC 531, [2016] NZCA 373

Red Bull New Zealand Ltd (the first plaintiff) was the New Zealand based supplier of Red Bull GmbH’s (the second plaintiff, together with the first plaintiff “Red Bull”) RED BULL energy drink products. RED BULL products had been sold in New Zealand from 1997. RED BULL products were marketed in the energy drink market as well as in the alcoholic beverages market. Although there were no RED BULL alcoholic beverages, the RED BULL energy drink was a popular mixer for combining with vodka to make a cocktail known as “Vodka Red Bull” or “Red Bull and vodka”.

In 2014, two individuals made plans to introduce an energy drink and a ready-to-drink (RTD) alcoholic beverage to the New Zealand market. Following a marketing exercise which was directed to emulate RED BULL (with statements in the marketing documents providing that adoption of a design similar to the RED BULL get-up would be “the most effective way to tap into Red Bull’s equity” and with suggested names that would enable “Direct Pass Off” of RED BULL), a decision was taken to name the product ЯED. The marketing documents were dated June 2014. The first defendant (Drink Red Ltd) and second defendant (Drink Red (Australasia) Ltd) were then incorporated (together, “Drink Red”). Drink Red began selling their products in February 2015. The get-up of the defendants’ RTD product is displayed below:

At the relevant time, the get-up of Red Bull’s RED BULL looked like the product displayed below:

In February 2015, the plaintiffs sent Drink Red a letter requiring that they withdraw the products from sale. The defendants refused. At around this time, Drink Red’s marketing company sent an internal email instructing employees to prepare a new branding strategy report which removed any references “that relate to ‘passing off’ or creating confusion with Red Bull”. Employees were also instructed to include new material which attempted to differentiate the Drink Red product from the RED BULL product: “do another search of all names that include Red in them … we need to show this is a generic name.” A report dated May 2015 was eventually produced as evidence in the High Court by Drink Red as part of its response to Red Bull’s interim injunction application.

Red Bull filed proceedings in May 2015, alleging trade mark infringement under ss 89(1)(c) or 89(1)(d) of the Trade Marks Act 2002, passing off and breach of the Fair Trading Act 1986. Red Bull owned the following relevant trade mark registration (a series mark):

In November 2015, Drink Red introduced a non-alcoholic energy drink with similar get-up to the RTD, named ЯED ENERGY. This product was formulated so as to taste the same as the RED BULL drink and was the same colour as the RED BULL drink. Drink Red again refused to withdraw its products from the market after a renewed request from Red Bull. Red Bull applied for an interim injunction in December 2015.

The interim injunction application was heard in March 2016. As detailed below, the High Court refused the interim injunction. However, the High Court’s decision was overturned by the Court of Appeal in August 2016, because Drink Red had seriously misled the High Court as to its branding process with deliberately misleading evidence at the interim injunction hearing.

The High Court judgment is available on the NZLII website.

As the application was for an interim injunction, the Court needed to be satisfied that there was a serious question to be tried and that the balance of convenience and overall justice of the case favoured the granting of an injunction pending trial [5].

Was there a serious question to be tried?

Brewer J accepted that if an interim injunction was granted, there would be no substantive hearing as Drink Red would “collapse” [7]. This fact meant that his Honour stated that Red Bull would have to show a “strong prima facie case in support of its application” [9].

Passing off and breach of the Fair Trading Act 1986

A side by side comparison of the plaintiffs’ and defendants’ products is below:

Brewer J addressed Red Bull’s allegations of passing off and breach of the Fair Trading Act (“FTA”) together, as they addressed the “same wrong: misleading or deceptive conduct on the part of the defendants that is likely to lead a consumer into believing that the goods of the defendants are the goods of the plaintiffs” [12].

Brewer J concluded that there was a serious question to be tried in relation to passing off and breach of the FTA. Although his Honour disagreed with Red Bull that various aspects of Drink Red’s Trade Presenter document were likely to mislead or deceive consumers into thinking that the Drink Red products contained the RED BULL drink or were associated with RED BULL [22], Red Bull’s evidence of responses from shop assistants about the products did ground a serious question to be tried. Red Bull had employed two barristers to visit liquor stores and ask the shop staff what “energy drink” the Drink Red ЯED VODKA & ENERGY RTD contained. Brewer J accepted that responses in 13 of the off licence premises visited “do illustrate a level of confusion amongst the staff members questioned … Those 13 staff members responded unequivocally to open questions that the defendant’s products either contained or were associated with Red Bull” [25]. In total, Brewer J accepted that “staff in 21 out of 94 premises thought that the defendants’ products contained or were otherwise associated with Red Bull … that is a significant percentage” [29]. This evidence was discussed in the later Court of Appeal judgment at [31] – [36]. Although Fogarty J (in the minority in the Court of Appeal) had concerns about the exercise the barristers had undertaken, the majority of the Court of Appeal had no issues with the exercise.

There was also other evidence of confusion, including a photograph of a sign displayed in a liquor store reading “ANY RED BULL AND VODKA – Buy 2 for $20.00” which was displayed alongside the defendants’ RTD [31]; as well as comments from the public on the defendants’ Facebook page which demonstrated that the commenters believed that the defendants’ products contained the RED BULL drink or were otherwise associated with RED BULL [35]. The fact that Red Bull had released a RED edition RED BULL can also helped Red Bull’s case, because this meant that consumers might assume that the Drink Red product was a line extension from Red Bull [43].

Some of Drink Red’s products had a disclaimer printed along the side of the can or on cardboard packaging. The disclaimer is visible on a can of ЯED VODKA & ENERGY below:

The disclaimer read “This product does not contain Red Bull, and it is not endorsed by or affiliated in any way with Red Bull. We know you wouldn’t think that, but their lawyers thought you might.”

This raised the issue of whether a disclaimer could act so as to neutralise what was otherwise misleading or deceptive conduct [45]. Brewer J considered that while a consumer could notice the disclaimer, in all its various forms its “prominence, location or typeface would [not] cause [it] to be effective” when considering tests set out in relevant Australian cases (Hutchence v South Seas Bubble Pty Ltd (1986) 64 ALR 330 and Abundant Earth Pty Ltd v R & C Products Pty Ltd (1984) 59 ALR 211) [48]. The Court of Appeal later agreed that the disclaimer was “ineffective in resolving any confusion” [fn 3, Court of Appeal judgment].

Red Bull argued that the evidence which had been collated to date showed an intention on the part of Drink Red to “have the trade believe that [ЯED RTD] is put out by, or associated with [Red Bull]” [50]. Brewer J disagreed, holding that the evidence before him did not support “the submission that the defendants had an intention to piggy back on Red Bull’s goodwill" [52]. Significantly, the evidence that Brewer J made specific reference to here included the branding material which (unbeknown to Brewer J or Red Bull at the time) had been edited to remove references to any intention to “pass off” Red Bull.

Trade mark infringement

In relation to Red Bull’s s 89(1)(c) claim, Brewer J agreed that the defendants’ signs were similar to the Red Bull registered trade mark for the Red Series Mark [62]. However, his Honour was not satisfied that the evidence as to confusion met the “strong prima facie case” standard that he considered was applicable to this case [62].

Infringement under s 89(1)(d) requires that the defendant be using the plaintiff’s sign on goods or services which are dissimilar to the plaintiff’s goods or services. Red Bull had argued s 89(1)(d) in the alternative, in case the Court had found that Drink Red’s alcoholic beverages were dissimilar to the goods that the Red Series Marks were registered for (beverages not including alcohol). Although Brewer J had earlier found that the goods were similar [55], he nonetheless went on to consider application of s 89(1)(d). The Court of Appeal did not discuss this point in detail, so the High Court’s consideration of s 89(1)(d) may, potentially, ground an argument that s 89(1)(d) can be relied on even when goods are similar rather than dissimilar (although the interim injunction context must be kept in mind).

Continuing with the s 89(1)(d) analysis, Brewer J determined that the Red Series Marks were “well known in New Zealand” [71]. However, he rejected Red Bull’s argument that Drink Red was taking unfair advantage of its goodwill. His Honour considered that the evidence fell short of the requirement of “cogent evidence that a defendant was deliberately attempting to free ride” [74]. Again, this was on the basis of the evidence as presented to the High Court and to Red Bull by Drink Red at the time of the injunction hearing, which was later found to have been significantly misleading.

Where did the balance of convenience and overall justice of the case lie?

There was a serious question to be tried to the usual standard for each cause of action, but not (in Brewer J’s view) to the “strong prima facie case” standard [81]. Damages would be insufficient to compensate Red Bull for its losses if it won at trial [81]. However, “if the interim injunction is granted, the defendants die” [81]. As such, Brewer J concluded that the balance of convenience favoured Drink Red [83]. The overall justice of the case was also said to favour Drink Red [87].

The Court of Appeal judgment is available on the NZLII website.

As recorded in the Court of Appeal judgment, after Brewer J handed down the interim injunction decision, Red Bull found through discovery that the marketing materials which had been adduced by Drink Red in the High Court had been edited so as to mislead the High Court. By majority, the Court of Appeal granted the interim injunction, stating that “we are satisfied Brewer J would have reached a different conclusion about the strength of Red Bull’s case and the balance of convenience had he the benefit of the evidence we have now considered. … [T]he majority have reached the firm view that an interim injunction should be issued” [2]. Although Red Bull had appealed against Brewer J’s adoption of the “strong prima facie case” standard, the Court of Appeal did not determine whether that approach had been wrong to take, because the majority were satisfied that even applying the higher standard, Red Bull had shown a strong prima facie case to be tried on the evidence as understood by the time of the Court of Appeal hearing [76]-[79].

The key differences between the evidence presented to the High Court and the material found during the discovery process were summarized at [62]. Given this development, much of the Court of Appeal judgment was concerned with Red Bull’s application to adduce further evidence in the Court of Appeal to demonstrate the extent of misleading which had occurred in the High Court and was focused on the relevance of a defendant’s intention in a passing off, FTA and/or trade mark infringement case. The remainder of this summary will focus on the intention point.

Relevance of intention

The majority of the Court of Appeal stated that intention was relevant in three ways [27]: (1) in a passing off/FTA case, “a defendant’s intentional use of a plaintiff’s intellectual property is a factor that strengthens a plaintiff’s case”; (2) under s 89(1)(d) Trade Marks Act, evidence that a defendant had deliberately exploited “the coat-tails of the well-known mark” could be used to show the required unfair advantage to a plaintiff’s mark; and (3) the fact that a defendant acted intentionally was relevant in an interim injunction case to the balance of convenience and interests of justice assessment. The final point arose because in such a case, it was relevant that a defendant who had intended to take advantage of a plaintiff’s intellectual property was “the author of its own inconvenience” [82] and had acted “with their eyes open” to the risks of their conduct [83].

The substantive hearing had been set down to commence in October 2016. However, Drink Red failed to take any steps in the lead up to the trial. The substantive hearing did not take place.

Overall, the Red Bull v Drink Red proceeding is significant because it provides us with an example of a competitor deliberately attempting to ride on the coat-tails of another major market player. It is not often that an intention to “pass off” is so blatantly asserted in a (registered or unregistered) trade mark case. This led to the Court of Appeal’s clear statement as to the relevance of intention. Further, the inclusion of the disclaimer on the Drink Red product gave the courts an opportunity to comment on the relevance (or otherwise) of disclaimers. It is relatively rare to find an example of a product image that has a disclaimer. Although not an intellectual property point, the discovery of the fact that the High Court had been misled was remarkable.

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Disclosure: the author was part of the legal team acting for Red Bull New Zealand Ltd at the time of the judgments discussed here.