25 April 2010

Good Faith Annulled by Deliberate Use of Secondary Meaning

CaseMantra Group Pty Ltd v Tailly Pty Ltd (No 2) [2010] FCA 291

This matter follows on from a previous judgement which I reported on in my post of 13 February 2010.

Both parties let properties in a precinct called "Circle on Cavill". The applicant is the owner of a number of registered trade marks. The registered trade marks include the term "Circle on Cavill" in respect of property management and the rental of short term accommodation.

Tailly used "Circle on Cavill" in a number of websites, domain names and meta tags to promote its business. 

Mantra contended that Tailly was infringing its registered trade marks. Tailly raised the defence that it was using the words in good faith to indicate the geographical origin of the services that it was offering. Tailly also filed a cross claim that Mantra's marks should be cancelled because they have become generally accepted in the trade as the sign that indicates the Circle on Cavill complex.

The issues to be determined included whether Tailly used "Circle on Cavill" in good faith. If so, was that use in "good faith"? Has "Circle on Cavill" become generic, such that Mantra has lost its exclusive rights to the words?

Use as a Trade Mark

Section 120(1) governs infringement. A person must use a sign "as a trade mark". The sign must be "substantially identical with, or deceptively similar to" the trade mark in question.

Reeves J spent some time describing how the internet operates. He relied on the evidence of one of Mantra's witnesses and a text book. The text book, Shanahan's Australian Law of Trade Marks and Passing Off, can hardly be regarded as a technical description of the internet. But his honour could only work with what was admitted. As IP and the internet overlap more and more these days, it is important that parties ensure that the court is as well-informed as possible.

His honour also described how both Mantra and Tailly use the internet. Clearly, Tailly used the trade mark and various misspellings in its domain names. Tailly appeared to be very successful at coming up on the first page of Google searches for the key words "Circle on Cavill". The witness for Mantra produced copies of the mark up language versions of Tailly's showing Tailly's extensive use of the trade mark as meta tags. Reeves J "noted" that the trade mark had been used numerous times as a meta tag. Why this was "to be noted" is not clear to me. If "Bazpat's Car Sales" wants to sell Toyotas, then surely it should be able to use "Toyota" as much as it likes as a meta tag. That's standard optimization practice. In any event, many SEO gurus these days seem to think that the Google search algorithms have evolved beyond relying on meta tags. They appear to rely more on content these days. This court's approach could result in use of trade marks not "as trade marks" being notable just because the use is extensive.

Usefully, his honour enumerated a number of legal principles worth repeating:

1. Use as a trade mark is use of the mark as a "badge of origin". The use indicates a connection in the course of trade between goods or services and the person who applies the mark to the goods or services.

2. One does not ask whether the sign indicates a connection between the alleged infringer's services and those of the registered owner. Instead, has the alleged infringer used the sign to indicate that it is the origin of the services?

3. The court is required to examine the purpose and nature of the use in its context. This includes factors such as the positioning of the sign, the type of font used, the size of the words or letters and the colours which are used, as well as how the sign is applied to the advertising material in question.

4. The assessment of the purpose and nature of the use of the sign is by reference to what a member of the public could be expected to understand by its use.

5.  The words of a mark can be descriptive and still serve as a badge of origin. The question is whether "consumers are being invited to purchase the services on the basis that they are to be distinguished from that (sic) of other providers of those services, partly because they are described by the words used."

6. The combination of a registered domain name and a website that contains advertising material promoting goods or services in relation to which the trade mark is registered could constitute use as a trade mark for section 120.

Tailly presented three reasons why the way it used "Circle on Cavill" was not trade mark use.

One of them was that its services were not associated with Mantra's. But the authorities are clear that the assessment only involves an examination of Tailly's use of "Circle on Cavill" to determine whether it used the marks to indicate that it was the origin of the services.

Another was that the use was descriptive. This was rejected. A look at the sites in question clearly indicate a number of cases where the mark is presented at the top of the page in a banner-style. Such use was not regarded by the court as descriptive.

Another was that the use was in no way to distinguish its services from those of other providers. In support, Tailly pointed out that on its website it was made clear that a number of other providers operated out of the same property. But the court felt that it was significant that none of those other providers were mentioned by name. Also, no direct cost comparison is made. But the way in which Tailly had made use of the words "Circle on Cavill" was really what destroyed this argument as far as the court was concerned. Citing Mark Foy's Limited v Davies Coop and Company Limited (1956) 95 CLR 190 - "The public...are being invited to purchase goods of the defendant which are to be distinguished from the goods of other traders partly because they are described as "Tub Happy" goods."

As far as the court was concerned, the problem that Tailly had here was that it insisted on using "Circle on Cavill" as an emblem or "badge of origin" by having the words appear in the banner heading of the relevant web pages.

Geographical Origin

Section 122(1) of the Trade Marks Act could have provided a defence to Tailly. According to that section, a person does not infringe a registered trade mark when the person uses a sign "in good faith" to indicate inter alia, "geographical origin" of the services.

Did Tailly use the sign to indicate the geographical origin of the letting service?

Tailly's contention was that "geographical origin" was not defined by the location of the service provider but by the origin of the services. Tailly submitted that a "complex comprising two high rise buildings" can be regarded as a geographical point.

I, personally, have been to "Circle on Cavill" on numerous occasions. It includes two high rises. But it also includes a large circle, overshadowed by a giant television screen. The large circle is bounded by a number of shops and small businesses. Also it actually is a large circle on Cavill Avenue. My understanding is that it is common practice to refer to some prominent feature on a street or avenue as, for example, the circle on Cavill. It beggars belief that Tailly did not make more of this. And clearly the court had no local knowledge of Circle on Cavill. Unfortunately for Tailly, their evidence in support of the contention that "Circle on Cavill" had become a geographical description was of little probative value. See my previous post referenced above. 

In any event, Mantra's argument reflected the experience and depth of legal knowledge of its team. They referred to Section 122(1)(a)(i). That deals with the defence involving the use, in good faith, of a trade mark as the name of a person's place of business. Citing MID Sydney Pty Ltd v Australian Tourism Co Ltd (1998) 90 FCR 236, traders conducting their business from the Chifley Tower building in Sydney would not have infringed the plaintiff's trade mark ("Chifley Tower") if they used that name in good faith as the name of their place of business. According to Mantra, this defence was not available to Tailly because the complex was not its "place of business". Mantra contended that Tailly therefore had to rely on the "geographical origin" defence. The "place of business" is dealt with in section 122(1)(a) and so "geographical" must "refer to the broader concepts of place such as country, state, region, city, town or suburb" from which the service originates.

The court found it necessary to refer to the Macquarie dictionary. Here it found that "Geographical" means: "...2. referring to a characteristic of a certain locality, especially in reference to its location in relation to other places". Perhaps I'm being pedantic, but surely a precinct is a certain locality, particularly if it's a large circle surrounded by shops and two residential towers. This is why Tailly should have ensured that the court understood the exact nature of Circle on Cavill. 

In any event, Reeves considered that when section 122(1)(b) is read in the context of section 122 as a whole the concept of place as in "place of business" provided support for Mantra's argument that "geographical origin" is intended to describe a broader concept of place such as a country region or town. This argument is thin, in my opinion. Using Section 122(1)(a)(i) to qualify Section 122(1)(a)(i) is comparing apples with oranges. The first phrase refers to the place where the person is doing business and the second phrase refers to the place where the goods or services originate. How the court could accept the argument that one qualifies the other is surprising.

Reeves referred to the well-known Clark Equipment Company v Registrar of Trade Marks (1964) 111 CLR case in which Kitto J identified the common right of the public to make honest use of words forming part of the common heritage such as the name of a place or an area "whether it be a district or a county, a state or a country". If Tailly had been more diligent in attempting to establish the nature of Circle on Cavill and that Circle on Cavill is indeed a geographical description, this reference could have been relatively weightless.

In the Mid Sydney case (supra), to cite Reeves: "The borderline exception identified in Mid Sydney was where a plaza or other public space adjoining such a building had become part of the common heritage. There is nothing to suggest that arises in this case." This is clearly a failure by Tailly to inform the court properly. Just because a large circle on Cavill avenue surrounded by shops in Surfers Paradise is not a few hundred years old dominated by a massive fountain, does not mean that it has not become part of the common heritage. But this argument appears not to have been canvassed by Tailly.

Reeves ended this part of the decision with: "I consider the words "geographical origin...to be construed to refer to the name of a country, region, city, town or similar geographical area ... but not to refer to a privately owned building situated within such a city or town, such as the Circle on Cavill complex in this case." 

Did Tailly use the sign in good faith?

The court explained that "good faith" must involve "an honest use of the words or sign, but even that may not be sufficient if the defendant used the words or sign to take deliberate advantage of a secondary meaning of the words or sign.

According to Reeves, there were a number of reasons why Tailly's use of "Circle on Cavill was not in good faith.

He considered the prominence and widespread nature of Tailly's use of the words "Circle on Cavill" as inconsistent with the use of those words in good faith.

I think that Reeves became a little confused here regarding meta tags. He stated that the highly repetitive use of "Circle on Cavill" as meta tags is pertinent to the good faith issue. This is disingenuous. If, as a trader, I'm attempting to sell a particular branded item, I should be able to use that brand as much as possible in my meta tags. Ironically, as I mentioned above, many SEO experts are of the opinion that Google's search algorithms filter out excessive use of meta tags and comb the text of sites instead. According to Reeves' thinking, excessive use of a descriptor as part of an SEO project could be regarded as pertinent to the good faith issue. This would open a can of worms. What would constitute descriptive use to such an extent that it is no longer considered descriptive use? I, for one, don't think that can should be opened. In any event, it is common practice to use key words as much as possible when attempting to sell items legitimately. It just doesn't make sense to introduce a limitation, whether in meta tags or text, on the descriptive use of trade marks. To qualify, my view is that a meta tag is a descriptor. So to use a trade mark as a meta tag is to use it descriptively.  And of course one would use it repeatedly purely for search engine optimisation. But Reeves, influenced by Mantra's SC, seemed to think that there was something sinister about this.

But even if Reeves had got that right, it was clear that Tailly failed the "good faith" test. They were aware of Mantra's trade mark. They were also given advice that they should adjust their websites to ensure that the words "Circle on Cavill" were not used as a trade mark on those websites. It appears that they ignored that advice.

Had Exclusive Rights been lost by Mantra?

Tailly cross claimed for orders that the "Circle on Cavill" word mark and two logo marks be cancelled or qualified by an endorsement that their registration gives no rights to the exclusive use of the words "Circle on Cavill".

In support of this claim, Tailly relied on Section 87(1).  This section refers to Section 24, which deals with the situation of a trade mark becoming generally accepted within the relevant trade as the sign that describes or is the name of an article, substance or service.

This raised a number of questions:

1. Is Tailly "an aggrieved person"?
2. Since its registration, has the sign "Circle on Cavill" become "generally accepted" within the relevant trade under s24?
3. Is the sub-letting of apartments in Surfer's Paradise a "relevant trade" under s24?
4. Can a building be an "article" under s24?
5. If s87(1) applies, has that arisen through any act or fault of Mantra?

The court accepted that Tailly is an "aggrieved person". For more on that requirement, read my post of 21 April 2010.

Tailly submitted that the relevant trade was "the trade of providing short-term accommodation at Surfer's Paradise". The court disagreed, saying that definition was too narrow. The Trade Marks Act is Commonwealth legislation that applies nationally to trade marks. So it held that it was improbable that the words "relevant trade" were intended to "refer to the trade conducted by persons living in a narrowly defined area like Surfers Paradise, such that what is generally accepted by that group of traders could be relied upon to effect the cancellation of a trade mark that is registered and operates nationally."

Tailly argued that the Circle on Cavill buildings fell within the definition of the word "article" in s24 of the Act. So they submitted that the words "Circle on Cavill" have become generally accepted as the name of the Circle on Cavill complex buildings within the provisions of s24. Reeves rejected this. He said that the "tenor of the Act" is directed to trade in goods or services. Referring to the definition of "trade mark" in the Act, he said that the words "article, substance or service" refer to the more basic components of the "goods" or "services" that can be the subject of a trade mark. Again using the Macquarie dictionary, he considered the word "building" ordinarily refers to something that is too complex and substantial and comprising too many pieces to be said to be an article. That begs the question: "Can a ship be an "article"?" It would seem improper if the name of a large boat or ship were not able to become generic. What the court is saying is that names applied to a certain class of goods, such as a type of housing structure, are exempt from s24. Surely this cannot be correct. But perhaps it is the Act that requires adjustment.

The question of "generally accepted" was dealt with the previous judgement I refer to earlier. Reeves considered that there was nothing in Tailly's evidence to come to "any sensible conclusion about whether the sign has been "generally accepted" in the defined trade. It simply never covered important aspects such as how often the people canvassed used the words "Circle on Cavill", how many people in total have used the words; how many people are involved in the defined trade; the circumstances in which the words were used, etc.

Conclusion

There as aspects of this judgement with which I do not agree. However, it's important to bear in mind that the court could only work with the evidence submitted. I think that the court was simply not properly educated by Tailly.

It therefore seems to me that this case is a lesson in the importance of proper evidence. Clearly, there was insufficient evidence presented both in this matter and in the earlier matter as to the nature of "Circle on Cavill". This allowed the court to accept Mantra's arguments in line with the onus resting on Tailly. Even more importantly, one should only make the decision to litigate once all the possible evidence has been gathered. In this case, I would have thought that proper survey evidence as to the nature of "Circle on Cavill" should have been available to Tailly before it made the decision to defend itself.

Furthermore, it could have stopped using the "Circle on Cavill" banners on its websites without significantly reducing the effectiveness of its internet advertising campaign. That would have helped to address the lack of "good faith" argument raised by Mantra.

2 comments:

  1. Barry - to be a geographical location, the place must be part of the "common hertitage". A building complex that was built only a few years ago does not meet that standard. If Tailly was right, then a person could establish a florist that specialised in selling to Disneyland employees, located near Disneyland, and call themselves the Disneyland florist -- this surely would be wrong!

    You say: "If, as a trader, I'm attempting to sell a particular branded item, I should be able to use that brand as much as possible in my meta tags." That may or may not be right, but here, Tailly was not selling the Circle on Cavill product -- its product was different -- you could not check in at the reception, but had to meet Mr Tailly across the road or in the car park to check in.

    I see your name in the judgment!

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  2. Thanks for the comment, Jeff

    I'm not sure why an area needs to be "common heritage" to qualify as a geographical location. The inverse is true, though. After all, if a developer builds a complex with a number of dwellings and a few shops, surely that would qualify as a geographical location? The defence led very little evidence on the nature of Circle on Cavill, which was an error, I believe.

    As for the "Disneyland Florist" I agree that name would be problematic without authorisation from Disney(?). However, that shouldn't stop the florist from using "Disneyland" as often as it likes as a meta tag. A meta tag is a descriptor and therefore should have been given no weight by the court, in my opinion.

    You don't have to be located at a particular place to be geographically linked to that place. The Act recognises this by referring in one instance to a "place of business" and, in another instance, to a "geographical origin". Tailly's service of sub-letting units had its geographical origin at the Circle on Cavill complex. My gripe was with the way that the court used "place of business" to define the scope of "geographical origin".

    The outcome of the judgement may well have been correct. However, the way in which it was reached concerned me. Consider the meta tags. "Circle on Cavill" was legitimately used as a descriptor in the meta tags, in my opinion. So the extent of that use should not be an issue. If search engines are trawling text for descriptors, is excessive use of a descriptor in the content to be given weight? If so, how much use? Internet-based trade mark infringement is a big issue at the moment. It's important that the courts tread carefully lest they set poor precedents for further judgements.

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