High Court round up – IP cases in the first half of 2010

August 12, 2010

By Janice Luck and Peiwen Chen

The High Court handed down two decisions on trade mark issues in the first half of 2010:

  • E. & J. Gallo Winery v Lion Nathan Australia Pty Limited [2010] HCA 15.
  • Health World Limited v Shin-Sun Australia Pty Ltd [2010] HCA 13; and

Case 1: E. & J. Gallo Winery v Lion Nathan Australia Pty Limited [2010] HCA 15

On 19 May 2010 the High Court upheld an appeal by California-based wine producer E & J Gallo Winery (Gallo) against the removal of its BAREFOOT trade mark from the Trade Marks Register for non-use. French CJ, Gummow, Crennan and Bell JJ (the joint judges) delivered a joint judgment. Heydon J delivered a separate judgment on the evidence adduced to establish authorised use, holding the evidence was sufficient. On the remaining issues, Heydon J stated that he agreed with the substance of the joint judges’ reasoning.

Background

Gallos’ BAREFOOT trade mark had been registered in Australia since 9 March 1999 in class 33 in respect of wines (the BAREFOOT registered trade mark).

During 2006 and 2007, Lion Nathan Australia Pty Limited (Lion Nathan) developed what was referred to as a concept beer containing lemon and lime flavours. This concept beer was intended to be less bitter than traditional beers and was targeted at non-beer drinkers.  In January 2008 Lion Nathan began selling this beer under a trade mark treated for the purposes of the litigation as being BAREFOOT RADLER.

Gallo commenced proceedings against Lion Nathan in the Federal Court alleging that Lion Nathan’s use of the BAREFOOT RADLER trade mark infringed its BAREFOOT registered trade mark pursuant to section 120(2) of the Trade Marks Act 1995 (Cth) (the Act). Lion Nathan counter-claimed against Gallo arguing that Gallo’s BAREFOOT trade mark had not been used during the three year period from 7 May 2004 to 8 May 2007 (the statutory period) and should therefore be removed from the Register in accordance with section 92(4)(b) of the Act.

The trial judge decided against Gallo on both matters holding that Lion Nathan had not infringed Gallo’s registered trade mark and that Gallo’s registered trade mark should be removed from the Register for non-use.

Gallo appealed to the Full Federal Court which held that Lion Nathan had infringed Gallo’s registered trade mark but also agreed with the trial judge that Gallo’s registered trade mark should be removed from the Register for non-use. Gallo appealed the Full Federal Court’s decision on non-use to the High Court.

The High Court refused Lion Nathan’s application for special leave to cross-appeal the Full Federal Court’s finding that Lion Nathan had infringed the BAREFOOT registered trade mark pursuant to section 120(2) of the Act and the finding that the effective date of removal from the Register of Gallo’s BAREFOOT registered trade mark should be the date of judgment.

What was the use of the BAREFOOT mark?

Between 9 March 1999 and 17 January 2005 the registered owner of the BAREFOOT registered trade mark was Michael Houlihan (Houlihan) who had licensed the mark to Grape Links Inc trading as Barefoot Cellars (Barefoot Cellars). Grape Links Inc was sold to Gallo and pursuant to this sale the BAREFOOT registered trade mark was assigned to Gallo in January 2005.

On 14 February 2001, 60 cases of wine bearing the BAREFOOT trade mark were shipped by Barefoot Cellars to a German distributor who had purchased the wine. Some of this wine was subsequently sold to a Victorian liquor wholesaler, Beach Avenue Wholesalers Pty Ltd (Beach Avenue), who imported the wine into Australia in July 2002. Beach Avenue offered 144 bottles of this wine for sale in Australia during the statutory period. Fifteen bottles were sold after 7 May 2004 but prior to the transfer of the BAREFOOT registered trade mark to Gallo and another 26 were sold after that transfer but before 8 May 2007. Some 18 bottles were given away.

However, there was no evidence that Gallo, Barefoot Cellars or Houlihan knew that the wine was being offered for sale or sold in Australia under the BAREFOOT trade mark.

The High Court Decision – the principal issue

In order to defeat Lion Nathan’s counter claim to remove the BAREFOOT trade mark registration for non-use, sections 92 and 100 of the Act required Gallo to establish use in good faith in Australia during the statutory period of the BAREFOOT trade mark by the registered owner of the trade mark or an authorised user, that is, a person using the trade mark under the control of the owner of the trade mark in accordance with section 8 of the Act.

By virtue of section 7(3) of the Act, an authorised use of a trade mark by an authorised user is taken to be a use of the trade mark by the owner of the trade mark. The only acts considered by the joint judges were the offer for sale and selling by Beach Avenue of the bottles of wine bearing the BAREFOOT trade mark. The joint judges recognised that these acts constituted a use of the BAREFOOT trade mark in Australia.

Was there “use” by the registered owner or an authorised user?

The issue thus became whether that use was use by the registered owner or an authorised user. This in turn led to a consideration of the ambit of the High Court decision in Estex Clothing Manufacturers Pty Ltd v Ellis and Goldstein Ltd (1967) 116 CLR 254 (the Estex Case) where it was held on page 271

“[W]hen an overseas manufacturer projects into the course of trade in this country, by means of sales to Australian retail houses, goods bearing his mark and the goods, bearing his mark, are displayed or offered for sale or sold in this country, the use of the mark is that of the manufacturer.”

However, neither Gallo nor Houlihan nor Barefoot Cellars had knowingly projected the BAREFOOT wine into the course of trade in Australia because none of them had been involved in the BAREFOOT wine being imported into and sold in Australia.

The joint judges held that there was no suggestion in the Estex Case that what was sufficient in that case was necessary in every case. Earlier in their judgment in the Gallo Case the joint judges had stated that “use” for the purpose of the non-use removal provisions of the Act must be understood in the context of the definition of a trade mark as a sign used to distinguish the goods of one person from the goods of others and that this definition encompassed the orthodox understanding that one function of a trade mark is to indicate the origin of the goods to which it is applied.

Thus the joint judges went on to hold that the capacity of a trade mark to distinguish the registered owner’s goods does not depend on whether the owner knowingly projects the goods into the Australian market but rather depends on the goods being in the course of trade in Australia. In paragraph 52 the joint judges enunciated the following principle:

“An overseas manufacturer who has registered a trade mark in Australia and who himself (or through an authorised user) places the trade mark on goods which are then sold to a trader overseas can be said to be a user of the trade mark when those same goods, to which the trade mark is affixed, are in the course of trade, that is, are offered for sale and sold in Australia.  This is because the trade mark remains the trade mark of the registered owner (through an authorised user if there is one) whilst the goods are in the course of trade before they are bought for consumption.”

Thus, provided Barefoot Cellars was an authorised user, use of the BAREFOOT trade mark by the registered owner was established. The joint judges went on to hold that on the evidence Gallo had established that Barefoot Cellars used the BAREFOOT registered trade mark under the control of Houlihan whilst he was the registered owner of the trade mark.  If followed that Barefoot Cellars was an authorised user pursuant to section 8 of the Act.

The High Court Decision – the subsidiary issues

Use in good faith

Lion Nathan’s contention that the use of the BAREFOOT trade mark was not “in good faith” as required by the non-use removal provisions of the Act was rejected.  The joint judges held that in all the circumstances the use of the BAREFOOT trade mark was genuine and sufficient to establish the requisite use in good faith. However, the joint judges expressly said in paragraph 64,

“On the facts here, it is not necessary to decide whether a single use of a registered trade mark in good faith would have been sufficient to resist removal.” (citation omitted)

What trade mark was used?

The front label on the bottles of the BAREFOOT wine sold in Australia is reproduced below.

Lion Nathan argued that this was use of a trade mark consisting of the word BAREFOOT in combination with the device of a foot and not use of the registered trade mark. The joint judges referred to section 7(1) of the Act which provides that the Registrar or a court may decide that a person has used a trade mark if it is established that the person has used the trade mark with additions or alterations that do not substantially affect the identity of the trade mark.

The joint judges held that the device is an addition to the registered trade mark that does not substantially affect its identity.  This view appears to be based on the fact that the device is an illustration of the word. It accordingly followed the joint judges held that the use of the BAREFOOT registered trade mark with the device constitutes use of the registered trade mark in accordance with section 7(1).

The High Court Decision – the conclusion

The joint judges thus considered that Gallo had established the requisite use of the BAREFOOT registered trade mark during the statutory period with the consequence that Lion Nathan’s counter claim for removal of the BAREFOOT registered trade mark for non-use failed.

Implications

The decision of the joint judges on the principal issue is a welcome one. The bottles of the BAREFOOT wine had been sold to the German distributor without any limitation as to their destination. As the joint judges said in paragraph 51:

“A registered owner who has registered a trade mark under the provisions of the Trade Marks Act can be taken, in general terms, to have an intention to use the trade mark on goods in Australia. It is a commonplace of contemporary international trade that prior to consumption goods may be in the course of trade across national boundaries.”

It will be interesting to see how the reasoning of the joint judges is applied in determining use of a trade mark for the purposes of determining ownership of a trade mark in Australia for the purposes of sections 27 and 58 of the Act.

It is important, however, to note that the joint judges declined to decide the vexed question of whether a person in the position of Beach Avenue also uses the registered trade mark. In paragraph 53 the joint judges said:

“It is not necessary to decide whether by importation and sale Beach Avenue has also used the mark (as was found by the Full Court) because the only relevant question is whether the registered owner used the mark.” (citations omitted)

In relation to the subsidiary issue of “What trade mark was used?” it is interesting that the joint judges referred to section 7(1) of the Act rather than the almost identical provisions in section 100(3)(a) of the Act dealing specifically with non-use removal proceedings. It is also interesting that the joint judges treated the word BAREFOOT and the device of the foot as constituting a single combination mark and not two separate trade marks.  But perhaps most interesting are the following statements made by the joint judges on this issue in paragraph 69 without any express reference to substantially identical or deceptively similar trade marks:

“The monopoly given by a registration of the word BAREFOOT alone is wide enough to include the word together with a device which does not substantially affect the identity of the trade mark in the word alone. So much is recognised by the terms of s 7(1), which speak of additions or alterations which “do not substantially affect the identity of the trade mark”. Except for a situation of honest concurrent use, another trader is likely to be precluded from registering the device alone while the registered trade mark remains on the Register.”

CASE 2: Health World Limited v Shin-Sun Australia Pty Ltd [2010] HCA 13

On 21 April 2010, Health World Limited (Health World) succeeded to establish that it was ‘aggrieved’ within the meaning of sections 88(1) and 92(1) of the Trade Marks Act 1995 (Cth) (the Act). The High Court found that Health World had the requisite standing to challenge Shin-Sun Australian Pty Ltd’s (Shin-Sun) HEALTHPLUS trade mark given that the two companies were rivals in relation to the goods to which the mark applied.

The matter was remitted to the Full Federal Court for determination of the remaining issues.

It should be noted that the 2006 amendments to the Act have removed the requirement in section 92 that the applicant for removal of a mark be a person aggrieved.

Background

Both Health World and Shin-Sun were involved in the manufacture and supply of health products.  Health World began selling a probiotic powder called ‘Inner Health’ in 1991. Another similar line of product in tablet form called ‘Inner Health Plus’ was subsequently launched in 2001. In September 2001, Health World applied to register INNER HEALTHPLUS as a trade mark.

Shin-sun marketed and sold a range for products derived from bees, their wax and shark cartilage under the name of ‘HealthPlus’. On 7 May 2001, Shin-Sun applied for registration of HEALTHPLUS. Health World opposed that application, but following an earlier decision of the Federal Court , Shin-Sun’s application for HEALTHPLUS was registered.

Health World sought rectification of the HEALTHPLUS trade mark pursuant to section 88 on the basis Shin-Sun had no intention of using the mark in Australia and that it had allowed the trade mark to become deceptive or confusing.  It also contended rectification pursuant to section 92(1).

The High Court Decision

The High Court found the Full Federal Court erred in adopting the exhaustive test for standing from the case of Kraft v Gaines (1996) 65 FCR 104, which included the requirement that a rival have a desire, or intention to use the mark to qualify as a ‘person aggrieved’.

Instead, the majority of the court preferred a liberal construction of ‘aggrieved’ adopted in “Daiquiri Rum” Trade Mark [1969] RPC 600 (“Daiquiri Rum”) where Lord Pearce stipulated no requirement that the application for revocation desire or intends to use or could use the mark.

French CJ, Gummow, Heydon and Bell JJ emphasised that the Register of Trade Marks must have ‘integrity’ and should be maintained as ‘an accurate record of marks’.  However, this function must be balanced with the need to prevent ‘busybodies’ from making invalid applications for rectification and thus eroding the security of the Register. In this light the High Court concluded that the authorities favoured a liberal construction of ‘aggrieved’.

Hence the test for a ‘person aggrieved’ depended on whether the parties were trade rivals in respect of the goods with registered marks.

As Health World and Shin-Sun were rivals in selling health supplements, Health World was therefore a ‘person aggrieved’ for the purposes of sections 88 and 92(1) of the Act.

Crennan J concurred with the majority but differed in opinion with respect to the test enunciated by Lord Pearce in “Daiquiri Rum”.  Her Honour held that an ‘aggrieved person’ must be ‘affected’ by the erroneously registered trade mark.

Implications

Trade mark owners have improved standing and therefore better opportunities to challenge intellectual property registrations that are hindering their businesses.

On the flip side, owners of marks may now be at greater risk of having their intellectual property registrations and possibly administrative decisions favourable to them, being challenged.

Janice Luck is Senior Lecturer at the University of Melbourne Law School

Peiwen Chen is recent LLB graduate of the University of Melbourne Law School

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