O2 Ltd & Anor v Hutchison 3G UK Ltd.

This is an application by the claimants, who are the well-known suppliers of mobile phone services, to (a) restrain the defendant from further causing a certain television advertisement to be shown (b) from using in any television advertisement a representation of bubbles and (c) from using any of a large number of the claimants' registered trade marks in any advertisement which makes "any comparison which suggests a price disparity between the parties' telecommunication services which is greater than would exist if a comparison were made between their services which are identical to each other or as close to each other as their respective price structures permit".

Similar heads of injunctive relief are sought upon an interim basis against a press advertisement and against a radio advertisement. While the issues affecting the press advertisement are somewhat different, the radio advertisement is, as far as I can see, substantially identical in all material respects to the television advertisement. I shall concentrate on the television advertisement and deal with the press advertisement as is necessary.

The advertisement in question, which is a price comparison between 02's mobile prices and those of the comparatively new network, called 3, was first shown on 20th August this year. The claimants say they came to know of it on 23rd August. On 25th August they applied to the vacation judge. On that date, no interlocutory relief was granted. On 26th August the application was renewed. The defendant then informed the claimants that the run was scheduled to cease on 31st August and interim relief on incomplete evidence at that point was not sought. The defendant, however, reserves the right to use its advertisement in the future, and this accordingly is the effective hearing of the claimants' application for interim relief.

The claimants, to whom I shall refer collectively as 02, or as the claimants, carry on the business which was originally known as Cellnet and then BT Cellnet. They are owned by a company called MM02 Plc. I think I can safely say that they are very well known indeed. They have heavily advertised the services provided by them under the 02 brand, both directly in press and broadcast media, and by sponsorship, notably of the Arsenal but also of television programs such as Big Brother.

According to the parent company's annual report, the company had at the end of the year 2003 reporting period 8 million pre-pay and 4 million post-pay customers in the United Kingdom. The average revenue per user in 2003 was about £121 for the pre-pay customers and £503 for the post-pay customers, giving a service turnover of no less than £2.74 billion. I am told that the average revenue per user in 2004 is £141 for the pre-pay customers, and this is a figure to which I shall have to return.

The mark 0₂ is, as is well known, written like the chemical formula for oxygen and the claimants' advertisements frequently figure bubbles, no doubt intended association with the gas, and again a subject to which I shall have to return.

The defendant is a comparative newcomer to the market. Its name reflects the fact that it has entered the market for so-called third generation or 3G services. It acquired its 3G licence in the year 2000 and started trading in 2002. Its principal mark consists of a stylized digit 3.

The business with which I am concerned is the pre-pay business. As is, I think, now generally known, pre-pay mobile phone business, which is often called "pay-as-you-go", enables the user to purchase call time or SMS time in advance. Top-up time is purchased by credit card or swipe card and activated, permitting use for the periods and at the times permitted by the particular tariff on which the time has been purchased. If the claimants' figures are correct, pre-pay users are numerically far and away more important than post-pay users, but pay on average much less per head than post-pay or account customers.

The claimants have three pre-pay tariffs, called Talkalot, Talkalotmore and Original. I am concerned with the Talkalot and Talkalotmore tariffs. These are summarised in an objective way in a page exhibited at JPH13 to the witness statement of Julian Hough, who is the defendant's advertising strategist. This page is an extract from the Carphone Warehouse catalogue and compares the offerings of the principal "pay-as-you-go" service providers.

In addition to the three basic tariffs, the claimants provide what they call bolt-ons. A bolt-on is a service purchased additional to the basic tariff. Thus, for example, the claimants have a messaging bolt-on which enables the customer to purchase the ability to send a number of additional SMSs. This bolt-on, as it happens, is valid for 30 days. If any of the units purchased remain unused at the end of the 30-day period, they are lost.

This appears to be a method of charging which is by no means unique either to the claimants or to the defendant, and it formed the basis for a submission by Mr. Platts-Mills, to which I shall have to return, that the interested public are well familiar with this kind of charging in which a number of call minutes or a number of SMSs are purchased; and are lost so far as unused at the end of a period of validity, in this case 30 days.

The defendant, which has many fewer customers, but none the less a large number, now I am told in excess of 1 million in the United Kingdom, has in effect three tariffs for its pre-payment service, which is called Threepay. Using a similar method of pricing to that employed by the claimants in their messaging bolt-on, it offers a fixed pre-payment of either £15, £25 or £35. A payment of £25 entitles the user to 500 minutes call time in a 30-day period, starting with the date of activation, which must itself be within 90 days of the date of purchase. The time purchased but unused at the end of the 30-day period is lost. These facts are readily ascertainable from the summary of the tariffs in the Carphone Warehouse catalogue, together with the notes which appear beneath them.

The television advertisement with which I am concerned is intended as a price comparison between the claimants' Talkalot and Talkalotmore tariff on the one hand and the defendant's VideoTalk 25 voucher on the other. A description does not do it justice and it should be seen.

In order, however, to make this judgment comprehensible, I shall attempt to summarise the advertisement as well as I can. It begins in black and white with a shot of a circular field of bubbles. This circular region expands to fill the screen, accompanied more or less immediately by a voice over as follows: "On 0₂ 'pay-as-you-go' the first 3 minute peak rate call each day could cost you 75 pence." By the words "75 pence", which happen about nine seconds into the advertisement, what is called a "Super" appears at about 7.5 seconds into the advertisement. This consists of three lines at the foot of the screen and reads: "O2 Talkalot & Talkalotmore 5p per minute thereafter. Based on a £25 VideoTalk voucher with a 30 day validity period. Certain calls excluded. See three.co.uk." The screen clears at 9 second while leaving the Super in place. Then an animated figure 3, enters stage right and performs a motor bicycle-like journey to stage front with the same Super and with the following voice over: "Or. With ThreePay, that exact same call could cost you 15p." By this stage we have got through 15 seconds of advertisement and the Super vanishes. The 3 becomes fixed in the middle of the screen, losing a trail, which it has hitherto drawn behind it, and a further voice over 'Threepay - Pay as you go from 3." The whole lasts almost exactly 20 seconds.

The radio advertisement is substantially identical to the voiceover, with the Super being read, but lacks the reference to 5 pence a minute in respect of the claimants' Talkalot and Talkalotmore tariffs.

The claimants make the following complaints in general terms about this advertisement. First of all, the price comparison, that is to say the first 3 minute peak rate call at 75 pence as against 15 pence for "the exact same call", is grossly misleading and an over simplification of any legitimate comparison which can be made. Second, the advertisement infringes the claimants' series of United Kingdom registered trade marks were referred to at the hearing before me as the Bubble marks, or one or more of them. Thirdly, the advertisement infringes the claimants' United Kingdom registered trade mark for the letter and digit O2 and a substantially identical Community Trade Mark.

The defendants say that the price comparison is accurate or, alternatively, fair. There is no possibility, they say, of infringement of the Bubble marks because the bubbles in the advertisement are insufficiently similar to the registered marks to be infringements. In any event, the use of the bubble marks is entitled to the protection of section 10(6) of the Trade Marks Act 1994.

So far as the 0₂ marks are concerned, their use, so far as the UK mark is concerned, is again entitled to the protection of section 10(6) of the 1994 Act. So far as the Community Trade Mark is concerned, it is protected by article 12B of regulation 14/94 of the 20th December 1993, ("The Regulation").

This is yet another stage in what can be viewed as a continuing battle between suppliers of mobile telephone services. There is in the books a number of cases of direct relevance. The results of the various telephone cases are drawn together by Jacob J in the well known decision of British Airways Plc v. Ryanair Limited, which was again a complaint in form, among other things, of trade mark infringement raising the question of the accuracy of advertisements.

The infringement of a registered trade mark in these circumstances has been considered both by the domestic and by the community legislatures, who have decided, as a matter of policy, that the right to make accurate comparative advertisements should not be interfered with by an allegation of infringement of trade mark when that trade mark needs to be used in order to identify the services with which the defendant wishes to compare prices. In interpreting the domestic statutes, I must necessarily obtain guidance from the relevant community legislation and, in particular, I have to have regard also to the fact that the community has intervened directly in the field of misleading advertising generally and has, perhaps more as a matter of policy than anything else, indicated the circumstances in which it considers that comparative advertising is legitimate.

The relationship of the various Community instruments, including Directive 97/55 EC of the Parliament and council, amending Directive 84/450 EEC, concerning misleading advertising so as to include comparative advertising, known generally as the Comparative Advertising Directive, the Trade Marks Directive and the Trade Marks Regulation are discussed extensively in Jacob J's judgment in the Ryanair case and I do not propose to set out at length the considerations already once traversed by him again. However, I must summarise the position which I find myself in in this case, which differs of that to the Ryanair case in one important respect and one less important respect. The important respect is that I am concerned with a Community Trade Mark whereas Jacob J was concerned with a domestic trade mark and had therefore to interpret section 10(6) of the 1994 Act. Secondly, the time for compliance and for transposition of Directive 97/55 EC, the Comparative Advertising Directive, has now gone past with the result that, so far as relevant, domestic instruments must be construed so as to be consistent with it by an application of what is generally called the Marleasing doctrine by reference to the case Marleasing [1990] ECR I-4135 in the European Court of Justice.

A Community Trade Mark is autonomous. Its existence and effect are governed by the regulation. It was assumed before me that so far as the regulation was concerned, the law as to comparative advertising had to be essentially determined in accordance with the principles articulated in three recitals to the Comparative Advertising Directive. Those recitals, numbers 13 to 15, are as follows:

It follows, I think, that it must be that not only the Directive, which is referred to expressly in the recitals, but also the Regulation, which covers the same ground almost word-for-word so far as I am concerned here, have this effect. Jacob J formed this view in the Ryanair case and, with respect, I consider it to be obviously correct.

The result is that a provision of the regulation must be identified which is capable of taking out of infringement use which, as in Jacob J's words, are honest comparative uses, and the provision is of course Article 12(b).

Article 12(b) of the Regulation is as follows:

The word "he" refers to the third party. The other characteristics of the good or service include price. Accordingly, Article 12(b) is entirely apt to permit comparative advertising, provided that the use made by the comparative advertiser is in accordance with honest practices in industrial and commercial matters, and it is upon that question that the hearing in front of me was largely concentrated.

There are many circumstances in which an advertisement, while literally true, may be apt to mislead and there are also many advertisements which, while not entirely accurate, none the less convey an impression which is not misleading. Also there are advertisements which for some reason lawyers always describe as being mere puffs, which are general commendatory statements to which no intelligent person would attach too much weight. This is a case of specific comparison and we are not therefore concerned with mere puffs.

The issue of honest practices has been considered in many other cases and the various indicia or criteria for identifying acceptable practices have been well worked over. They are conveniently summarised in another judgment of Jacob J (as he then was) in Cable & Wireless plc v. British Telecommunications plc [1998] FSR, 383. His conclusions in that case are largely restated in the Ryanair case in paragraphs 30 of the judgment.

He identifies 13 different considerations which the court needs to have in mind in considering comparative advertisements. They are as follows:

This is a robust set of criteria. The court is not called upon to perform a minute analysis of every aspect of a particular advertisement, but it must, I think, look to what is sometimes called the headline message or the take home message of the advertisement in question. This, if it needed to be stated at all, is to be found in the last three of Jacob J's propositions.

I think the sixth factor may need further examination in the future. In domestic law, the fairness of comparative advertisements -- trade mark infringement aside -- is a matter for the Office of Fair Trading under the Misleading Advertisements Regulations 1988 (as amended). I would, myself, be unhappy at concluding that a comparative advertisement which satisfied the requirements of Regulation 4A of the Control of Misleading Advertisement Regulation 1988 (as amended) was not in accordance with honest practices in business and commercial matters. It might be that failure to satisfy those requirements would not necessarily preclude a finding that it was in accordance with such practices. At this interlocutory stage, however, both counsel addressed me on the degree to which the advertisement with which I am concerned was misleading. I should just add this. If it is established that an advertisement is plainly untrue at the interlocutory stage, then I have no doubt that the court will lean in favour of preventing its reappearance if that can be done.

Two other general observations are necessary. First, the comparative advertising defence, if that is the correct way to refer to it, centres on an objective comparison. That objective comparison must be an objective comparison for which the use of the trade mark in question is, to use the words of the recitals, indispensable. This has particular relevance to the question of the infringement of the Bubbles trade marks since if the case on infringement is otherwise arguable, the impact of the comparative advertising defence may be different from its impact on the use of the 0₂ mark, since the use of the bubbles sign in the advertisement is certainly gratuitous and I think it would be stretching it to describe it as indispensable to the making of the comparison which the advertisement makes.

With that over-long introduction, I can turn to the specific complaints which are made by the claimants. These are that the comparison is misleading, first, which I shall call the 5 pence a minute claim, the super is insufficient to explain to the interested public that the price quoted for the defendant's service of 5 pence per minute depends upon the full utilisation of a 25 voucher. If the voucher is not fully used by the expiry of the 30-day period, the outstanding minutes are lost and the actual price paid for the calls made is increased proportionately. Second, this is the 25p per minute claim, the claimants' effective rate quoted in the advertisement is said by the claimants to be their worst possible rate. The sting of using the 25p, which is only applicable to the first three minutes used in any 24-hour period is not sufficiently defused by the reference in the "Super" to them costing 5 pence per minute thereafter. The third specific complaint is that the comparison is not a true comparable since to use 500 minutes per month, the notional user must be using more than 3 minutes per day, and the additional minutes on the claimants' tariff cost 5 pence during the week and 2p at weekends. Accordingly, they say that the comparison is materially misleading.

I have taken that summary from the pleaded case and I have to a certain extent elided the pleaded objections since they seem to me to cover the same ground in several different ways. At the hearing before me, Mr. Wilson QC, who appeared on behalf of the claimants, expanded on these objections and introduced what I think is a fresh one. He contended that the take home message of the advertisement was that the claimants' service was more expensive than that of the defendant's and that for the majority of users that could not be true. This last proposition, that for the majority of users the defendant's service must be more expensive than that of the claimants' is, he suggests, susceptible of mathematical proof.

Taking the claimants' average revenue per user of £141 per pre-pay customer, he observes that this is a monthly revenue per pre-pay customer of about £12, which is obviously less than the £15 price of the cheapest of the defendant's 30-day vouchers. So, he submits, for all users using at a rate at the average or less, who must be a majority, the defendant's voucher is a poor deal.

He prays in aid also an adjudication by the Advertising Standards Authority in respect of the predecessor of the newspaper advertisement in respect of which complaint is made. This advertisement is somewhat more specific in some respects and somewhat less specific in other respects than the television advertisement. It is convenient to describe it here. It has a large stylised 3 with what I shall call its vapour trail at the top of the advertisement and at least in the copy reproduced from the Sun, with which I have been provided, it contains the following copy, "A 3 minute peak rate on 0₂ pay as you go could cost you 75p. On ThreePay it could cost you only 15 pence". There is then another stylised figure 3. Underneath that is what I believe is a called a strap line, "ThreePay, pay as you go text or voice minutes for just 5p" and then underneath that is what is usually called the small print, after identifying the relevant retailers, "Based on a £25 Video Talk or Video Text voucher fully utilised within a 30 day validity period. Certain calls and texts excluded. 0₂ Pay and Go Talkalot/ Talkalotmore 5p per minute after the first 3 minutes. Exclude special offers. See three.co.uk." It will be observed that there is a reference to "fully utilised" in respect of the voucher. This is in fact a response to the complaint which gave rise to the Advertising Standards Authority adjudication.

The Advertising Standards Agency authority, so far as relevant, concentrated on the use of the 5 pence effective rate. They considered that the reference to "fully utilised" was to be welcomed, but they required a further amendment to make it clear that it was not guaranteed, but an equivalent cost dependent on buying and using a whole £25 voucher comprising 500 minutes or 500 texts within 30 days. The reference to the validity period they said was to be increased and further advertisements were not to suggest that the quoted cost was an actual rate that consumers would always pay.

So far as relevant, therefore, the Advertising Standards Authority concentrated, as much of the discussion before me concentrated, on this question of the lost minutes on a voucher.

I have to consider the average consumer interested in either acquiring or, perhaps more likely, changing service provider and I have to consider the effect on that consumer of this advertisement. Unless he or she appreciates the significance of the limitation on duration of the defendant's voucher, the comparison may mislead. But, and this is the curiosity of this case, the defendant contends that to the extent which it does mislead, it does not mislead in a material way. The reason they say it does not mislead in a material way is that in fact if you do a fair comparison between the price of the services provided by the claimants and the price of the services provided by the defendant, over a wide range of minutes used per month it will become clear that in all cases, except 60 minutes usage per month, the defendant's services are, on reasonable assumptions, cheaper in fact than the claimants'. So they say the take home message of the advertisement is true. The floor usage of 60 minutes per month is just that and I think it is accepted that for usages below that the defendant will not be cheaper than the claimants.

The justification for this inclusion, which the defendant say I should draw at this stage, is contained in schedule A to F and the associated footnotes, which were provided to me during the course of the hearing by Mr. Platts-Mills QC. He acknowledges that these schedules make certain assumptions as to usage and in particular one, that is to say, only three minutes usage on each of the days of the weekend, which is undoubtedly favourable to the defendant and unfavourable to the claimants. However, he says making due allowance for that, the take home message is the same. Certainly he cannot justify, let us take for an example, a statement that the claimants are five times more expensive than the defendant, which is one possible reading of the advertisement, but viewing the matter in the round, he says this is properly justifiable and a true and fair comparison.

Mr. Wilson says that it is not a true and fair comparison because it ignores half the users. In fact, it ignores more than half the users. At an interlocutory stage I do not have to resolve this question and I would be willing to do so only if I was satisfied that there was no evidence that would be adduced that would affect the preliminary view which I have formed of it. I am not so satisfied, but I should indicate what my preliminary view is. My preliminary view is that Mr. Wilson's answer misses the point. People whose usage rate does not reach £15 worth during any month are not going to buy a £15 voucher. It is as simple as that. So if they are presently with a supplier and are spending less than £15 a month on their mobile phone services, they are going to have to be very unusual people indeed to give that supplier up and spend at a minimum £15 a month with the defendant. The defendant's service is, it seems to me, perhaps not so orientated towards conventional telephony at all, but more towards the more expensive end of the services provided using 3^rd generation techniques. But so far as the basic requirements of making calls are concerned, I cannot understand how that half of the potential pre-pay users could ever relevantly be considered to be targets of the advertisement at all. The reason why I am unwilling to express more than a preliminary view is that I am not satisfied I fully understand on the evidence before me, which I have to say in this area can only be described as exiguous, how marketing and purchasing works in this particular market. I do not know how customers or intending customers respond to particular charging rates and in those circumstances I have to take a basic, first order, view of what is going on.

It seems to me therefore that in the relevant section of the market, that to which the defendant direct their advertisement at all, on a preliminary assessment the statement -- what I have called the take home statement -- is true.

This view has the effect of entirely defusing the complaint about the exhaustion of the vouchers since the computations on the price comparison make allowance for substantial periods of time on each voucher remaining unused at the end of the month. In each case the defendant demonstrates itself to be somewhat cheaper and, as the number of minutes used increases towards the maximum of the voucher substantially cheaper, than the claimants and this is so for each class of call which is considered in the respective schedules.

In principle, therefore, at this stage of the proceedings my view is that this is a permissible comparison within limits. The one objection which can be made to the advertisement is that it is not completely clear as to what those limits are, but if one assumes that the only relevant persons are those spending £15 per calendar month and that those spending less are most unlikely to go for a minimum monthly price higher than the price which they are presently paying, it seems to me that the underlying message is strongly arguable to be generally true to the intended targets of the comparison.

It follows, if I am right, that the question of honest practices does not arise, since the comparison is a true one. However, I must also consider the question on the assumption I am wrong about those who use less than £15 worth a month and those whose usage matches the patterns of usage which were put to me in argument by Mr. Wilson QC, which included heavy concentration on use at weekends in preference to over the week and so on.

I think at this stage one must return to the text of the advertisement and note that it does concentrate upon peak calls. It therefore is concentrating on use across the week, perhaps even to the detriment of use at weekends and is of less impact to the user who reads that carefully in making a comparison overall. I also bear in mind that it has appeared (albeit over a period of a week or so only) without complaint to any of the regulators. At the interlocutory stage I should be extremely unwilling to say on this material that what the defendant have done is otherwise than in accordance with honest practices. To the extent to which that is arguable, it would not in my judgment be a significant departure from the criteria which I must apply. I should return to the factors which Jacob J identified, if only briefly. The seventh, eighth and ninth factors seem to me to be right at the heart of this case. He says it should be had borne in mind that the general public are used to the ways of advertisers and expect hyperbole, but the 1994 Act does not impose on the courts an obligation to try and enforce through the back door of trade mark legislation a more puritanical standard than the general public would expect from advertising bubble, but that an advertisement which is significantly misleading is not honest for the purposes of section 10(6). On the material which is before me, as I have indicated, I could not come to a conclusion this use was not honest.

I turn to the question of the Bubbles marks. This is a more difficult question. I leave the question of arguable infringement on ordinary principles to be dealt with after I have considered whether they can take advantage of what for conciseness I call the comparative advertising defence. This I think is a matter for an appreciation of the advertisement as a whole. When one watches the advertisement, the voice-over associates the word or words "O2" with the bubbles almost immediately. It is right that bubbles, although bubbles by no means identical to the bubbles in this advertisement, have been used extensively by the claimants and I am left with what may only be a lawyer's strong suspicion that the defendant have used the bubbles as a way of emphasizing the unfavourable nature of the comparison which is being made, an impression which is reinforced by the fact that the bubbles appear in black and white, or more accurately in shades of dark grey, rather than the rather more cheerful blue colour of the claimants' own advertisements.

I think that the better view is that it is not possible in this advertisement sensibly to divide up the use of the word mark and the use of the decorative bubbles.

This is, however, far from a straightforward conclusion and I have no doubt that a different view could well be taken at trial. There are powerful arguments at least to the contrary. But is there otherwise here a case on infringement? This is a similar marks case. Infringement has to be assessed under sections 10(2) and 10(3). The point is plainly arguable. At this stage it cannot be rejected. The evidence of the extent of use will be necessary and is not forthcoming at this stage and of reputation if any attaching to bubbles alone. I say bubbles alone; it is notorious that evidence of this description is hard to obtain, but none the less the claimants must have an opportunity to obtain it and even though at the end of the day the reputation attaching to bubbles alone in the absence of the O₂ mark may be a matter for inference.

Accordingly, I conclude that there is an arguable case for infringement of the Bubbles marks and an arguable defence in relation to them. I consider that on the material before me the case on infringement of the O₂ mark is not really arguable.

In those circumstances, I have to decide what to do at this interim stage pending a trial, if a trial takes place. The evidence affecting the balance of convenience, I have to say, is evidence which one could have written on both sides I think without having had the benefit of the individual witnesses who came forward to give it. It has a certain stereotyped quality. In a case such as the present, in the absence of a strong case of infringement causing genuine unquantifiable loss between now and trial, it is essential for a court considering whether to grant interlocutory injunction or not to consider carefully the impact of the defendants' activities upon the claimants. Where the claimants' case seems to be a weak one, I am certain that that fact falls to be considered since the principal head of relief in any case such as the present stems from the deception caused by the activities of the defendant, together with diversion of trade caused by a dishonest advertisement. Where there is no real evidence of dishonesty and where the case on confusion is weak, as it is in relation to the bubbles, the damage caused to the plaintiffs is on any view small. For an interlocutory injunction to be granted, I have to be satisfied that the disruption it causes is proportionate to the damage which is ex hypothesi being caused to the claimants. I do not think any interlocutory relief is proportionate to that loss in the present case. There is no doubt here that both parties are able to pay any pecuniary damages, not withstanding the fact that both of them have substantial negative current net current assets but that unquantifiable loss is slight.

I pay careful attention to the contentions that the brand, together with its imagery, is damaged by the activities of the defendant, but I feel that that is really a conclusion upon which it is difficult to act without coming to a conclusion as to infringement or not since the damage in question seems to me to follow equally whether there is infringement or not in the present case. In those circumstances, I will refuse the interlocutory relief sought.