Unjust enrichment claim upheld despite no finding of passing off

In Katzav v Pesagot (Case 2318-03, October 7 2007), the Tel Aviv District Court has dismissed the passing off claim filed by the owner of the mark FUNKIER based on the 'market overt' defence and the absence of goodwill, but allowed the unjust enrichment claim against the fourth and fifth defendants.

Aharon Katzav brought an action for passing off and unjust enrichment against the defendants, alleging that they had copied certain garments (four shirts and one skirt) marketed by Katzav under the trademark FUNKIER.

The first, second and third defendants are in the business of selling fashion clothes. It was uncontested that they had purchased the allegedly infringing goods from the fourth and fifth defendants. The court dismissed the passing off claim against the first, second and third defendants. It reasoned that even if Katzav could prove that it had rights in the designs in question and that the garments sold by the first, second and third defendants are confusingly similar to those designs, the defendants would be able to rely on the defence of 'market overt' - that is, the common law principle whereby a buyer acquires good title to the goods where they are purchased in good faith on the open market.

In their defence, the fourth and fifth defendants claimed that they had copied the garments of a third party. However, as they failed to show that the third party's clothes were on the market before those of Katzav, the court assumed that the defendants had copied Katzav's products.

The court then examined whether Katzav was entitled to remedies against the fourth and fifth defendants on the basis of passing off. In order to succeed in an action for passing off, Katzav had to demonstrate that it had acquired goodwill in the products. Although the manner of proving goodwill may vary depending on the nature of the goods and the relevant market, the court stated that it will give more weight to evidence that a product is recognized by the public.

According to the court, the fact that certain articles are copied may serve as proof of the existence of goodwill. In the case at hand, and in view of the fact that the case involved basic clothing items inspired by other models and various catalogues, the court concluded that the fact that Katzav's products had been copied did not prove the existence of goodwill. Moreover, the court stated in an obiter dictum that sales figures were not necessarily relevant to prove goodwill, as designers may limit the number of items distributed in order to increase the prestige of the mark.

With regard to the risk of confusion, the court found that despite the similarities between Katzav's products and those of the defendants, the relevant public would not be misled as to the origin of the products, as the defendants' goods were marketed under the trademark STUDIO PASHA.

Although the court dismissed the passing off claim, it decided in favour of Katzav with regard to the unjust enrichment claim against the fourth and fifth defendants. The court found that even though Katzav's designs were not particularly innovative, Katzav had nevertheless invested time and effort in the design of the garments. Therefore, the defendants were unjustly enriched at the expense of Katzav, as they had profited from the investment of the original manufacturer.

David Gilat, Reinhold Cohn Group & Gilat Bareket & Co, Tel Aviv