21 May 2010

High Court - Ignorance is Bliss for Registered Owners

Case: E.& J.Gallo Winery v Lion Nathan Australia Pty Limited [ 2010 ] HCA 15
Venue: High Court of Australia
Judges: French CJ, Gummow JJ, Heydon JJ, Crennan JJ and Bell JJ

Concepts

"Use of a trade mark"
"Authorised use"
"In the course of trade"

Main Issue 

Did the circumstances fall short of constituting "use" within the meaning of the Trade Marks Act because neither the registered owner nor an authorised user engaged in any act or conduct known by them to have had, or potentially to have, the result that the goods to which the registered trade mark was attached would be dealt with in some way within Australia in the course of trade?

Finding

It is not necessary for either the registered owner or an authorised user to have such knowledge for the use to constitute the necessary use in the course of trade required by the Act.

Introduction

In the Federal Court (E & J Gallo Winery vs Lion Nathan Australia Pty Ltd (2008) 77 IPR 69), Gallo claimed that Lion Nathan had infringed Gallo's Australian trademark registration for BAREFOOT in respect of wines. Gallo was unsuccessful in this infringement claim. But it was successful on appeal to the Full Court (E & J Gallo Winery v Lion Nathan Australia Pty Limited [2009] FCAFC 27).

By cross-claim in the Federal Court, Lion Nathan applied to have the registered trade mark removed from the register on the grounds of non-use from 7 May 2004 to 8 May 2007.

The Full Court upheld the primary judge's finding that Lion Nathan's non-use application was made out and that Gallo's trademark should be removed from the register. Gallo appealed that finding.


Background

Gallo is the second-largest wine producing company in the world.  It distributes alcoholic beverages in over 90 countries.  It is the current owner of a registered trademark - BAREFOOT.

Between 9 March 1999 and 17 January 2005 the registered owner of the trade mark was Michael Houlihan.  Houlihan licensed the trade mark to Grape Links Inc that traded as Barefoot Cellars.

Grape Links Inc was sold to Gallo by an agreement dated 10 November 2004.  On 17 January 2005 the registered trade mark, amongst other things, was transferred to Gallo.  There was also a consulting agreement dated 22 November 2004 between Gallo, Houlihan and Bonnie Harvey.

On 14 February 2001, 60 cases of wine bearing the registered trade mark were shipped by Barefoot Cellars to Einig-Zenzen in Germany.  Some of this wine was purchased by Beach Avenue Wholesalers who imported it into Australia in July 2002.

Beach Avenue began selling the wine under the registered trade mark on 14 March 2003.  It imported and offered 144 bottles for sale in Australia. 15 bottles were sold after 7 May 2004 but prior to the transfer of the registered trade mark from Barefoot Cellars to Gallo on 17 January 2005. Another 26 were sold after that date but before 8 May 2007.

There was no evidence that Gallo or Barefoot Cellars  or Houlihan knew that wine was been sold or offered for sale in Australia under the registered trade mark during the alleged "non-use" period.

The labelling showed a stylised device of a bare foot in addition to BAREFOOT.

During 2006 and 2007, Lion Nathan developed a concept beer and filed a trade mark application - BAREFOOT RADLER for beers and other goods in class 32.

In January 2008, Lion Nathan began selling beer under the trade mark BAREFOOT RADLER. The packaging and bottles displayed the words " Barefoot Radler " and a bare foot device.


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The Proceedings

In the Federal Court Gallo alleged that Lion Nathan had infringed the registered trade mark. Lion Nathan denied that there had been infringement. It filed a cross-claim contending that there had been a non-use by Gallo of the registered trade mark in terms of section 92(4)(b) and sought removal of the registered trademark.

Gallo denied the non-use claim. It relied on the offering for sale and sale of wine bearing the registered trade mark in Australia by Beach Avenue.

In the Federal Court the primary judge found that Gallo failed in its alleged infringement case and that relief should be granted. Gallo appealed to the Full Federal Court.

The Full Court overturned the primary judge's decision that the wine and beer were not goods of the same description, finding for Gallo in the infringement action. However, the Full Court upheld Lion Nathan's application for removal of the registered trade mark for non-use.

Legislation

Section 7 - The Registrar or a court may decide that a person has used a trade mark despite additions or alterations, provided the same do not substantially affect the identity of the trade mark. An authorised use of a trade mark is use by the owner. "Use of a trade mark in relation to goods" means use of the trade mark upon, or in physical relation to, the goods.

Section 8 - A person is an "authorised user" of a trade mark if the person uses the trade mark in relation to goods and services "under the control of the owner of the mark".

It was accepted by Gallo that Beach Avenue was not an authorised user of the registered trade mark once it owned the trade mark. Gallo's case on use relied on use by Barefoot Cellars as an authorised user, the registered owner being Houlihan at the time.

Section 17 defines a trade mark as a "sign used, or intended to be used, to distinguish goods ... dealt with or provided in the course of trade by a person from goods ... so dealt with or provided by any other person."

Section 92 - A person may apply to the Registrar to have a trade mark that is or may be registered removed from the register on the grounds that the trade mark has remained registered for a continuous period of 3 years ending one month before the day on which the non-use application is filed, and, at no time during that period, the person who was then the registered owner used the trade mark in Australia or used the trade mark in good faith in Australia in relation to the goods to which the application relates.

Section 100 - It is for the opponent to rebut any allegation that the trade mark has not been so used. The opponent is taken to have rebutted the allegation if the opponent has established that the trade mark was used in good faith by its registered owner in relation to those goods.

Principal Issue

The principal issue raised in this appeal was whether there was use by Gallo or Houlihan of the registered trade mark in respect of wines, in good faith during the alleged "non-use" period.

Other Issues

Four related issues arose.  First, whether Barefoot Cellars was an "authorised user".  Second, whether use of the registered trademark had been "use in good faith".  Third, whether the wine sold in Australia remained at all times "in the course of trade".  Fourth, whether the use of the registered trademark in Australia was not in fact use of the registered trademark because it was use of the word BAREFOOT in combination with a device.

Gallo's case was that the Full Court had made an error in its finding that for use of the trademark to occur in Australia in the circumstances of this case there must be some act that was known either to have had, or potentially have, the result of the goods to which the mark was attached would be dealt with in some way within Australia in the course of trade.  The Full Court said that for there to be use of a trademark there needed to be "a conscious resolve on the part of the person alleging ownership of future use in Australia".

Lion Nathan relied on Estex Clothing Manufacturers Pty Ltd vs Ellis and Goldstein Ltd (1967) 116 CLR 254.  Lion Nathan developed an argument that there was no conduct or act by the registered owner which amounted to use in Australia because a registered owner of a trademark uses the mark in Australia only if it projects the goods into the course of trade in Australia.

Use of a trademark

"Use" of a trademark must be understood in the context of section 17 which describes a trademark as a sign used, or intended to be used, to "distinguish" the goods of one person from goods of others.

In Coca-Cola Co vs All-Fect Distributors Ltd (1999) 96 FCR 107, the Full Federal Court said that use as a trademark is use of the mark as a "badge of origin" in the sense that it indicates a connection in the course of trade between goods and the person who applies the mark to the goods.

In the Estex case, it was held that after the goods have been sold the mark may still be used in relation to those goods for the purpose of indicating a connection in the course of trade between the owner of the mark and the goods.  Also, goods remain in the course of trade so long as they are for sale.  Only when they are bought for consumption to they cease to be in the course of trade.

In that case, the court said that when an overseas manufacturer projects into the course of trade in Australia by means of sales to Australian retail houses goods bearing his mark - the use of the mark is that of the manufacturer.

This passage lead to Lion Nathan's contention that it was a necessary condition that an overseas manufacturer knowingly "projects" its goods into the course of trade in Australia.

However, that was a misreading of the case.  In that case, the facts described are sufficient for establishing use in Australia.  There was no suggestion that what was sufficient in that case was necessary in every case.

The capacity of the trade mark to distinguish does not depend upon whether the owner knowingly projects the goods into the Australian market.  It depends on the goods being in the course of trade in Australia.  Each occasion of trade in Australia while the goods sold under the trademark remain in the course of trade is a use, for the purposes of the Trade Marks Act.

While a trade mark remains on goods, it functions as an indicator of the person who attached or authorised the initial use of the mark.  Thus, during the trading period, the trade mark functions as an indicator of origin of the goods irrespective of the location of the first sale - Wingate Marketing Pty Ltd vs Levi Strauss and Co (1994) 49 FCR 89.

Thus, provided Barefoot Cellars was an authorised user, the facts of the case were sufficient to constitute a use of the registered trade mark by the registered owner for the purposes of the Trade Marks Act.

Was Barefoot Cellars "an Authorised User"?

Gallo's case was that Gallo exercised quality control over the wine sold under the registered trade mark first because Houlihan owned Barefoot Cellars and later because he was retained by Gallo as a consultant for, inter-alia, monitoring wine quality.

Gallo relied on affidavit evidence of a third party concerning Houlihan's role.  No objection was made to this evidence.  I refer to this briefly below in connection with a comment by Heydon JJ.

The consulting agreement obligated the consultants to undertake the monitoring and quality of the goods and services produced by Grape Links Inc.  Lion Nathan contended that the clause was merely a covenant and could not be regarded as a representation and warranty that Houlihan did exercise quality control over the wine.  Also, it said that since Harvey had a role in exercising quality control, some doubt was cast over the extent of Houlihan's quality control.

Gallo said that the purpose of tendering the consulting agreement as a representation as to past facts was always plain at the trial.  It pointed out that no application was made to the trial court that the use to be made of the evidence should be limited.  Thus, the consulting agreement was in evidence for all purposes.

The court found that Barefoot Cellars use the registered trade mark under Houlihan's control while he was the registered owner.

Use in Good Faith

Lion Nathan argued that the volume of use should be substantial and the registered owner should be aware that such use was occurring.

In Electrolux Ltd vs Electrix Ltd (1953) 71 RPC 23, it was held that "bona fide" use must be ordinary and genuine use judged by commercial standards.  Also, in New South Wales Dairy Corporation vs Murray-Goulburn Co-operative Co Ltd (1989) 86 ALR 549, a use does not cease to be genuine even if it only occurs after an appreciation that a registration was vulnerable to an attack on the grounds of non-use.

Lion Nathan Relied on the New South Wales Dairy case in which the Court supported a statement that use should be "substantial and genuine judged by ordinary commercial standards considered in relation to the trade concerned".  In the case in question, the allegation of use was based on the launch of cigarette products under a trade mark which had not been in use for some years.  In that case, and in the context of cigarettes, the sales had been "negligible".

The court held that in the case of genuine use, a relatively small amount of use may be sufficient to constitute "ordinary and genuine" use judged by commercial standards.

In this case, a commercial quantity of wine, some 144 bottles was imported and offered for sale under the registered trade mark.  It was not contended by Nathan Lion that the use was fictitious or colourable.  In all the circumstances it was enough to establish use in good faith.

In the Course of Trade

Lion Nathan said that Gallo must establish that the wine remained at all times in the course of trade until dealt with by Beach Avenue.  The court rejected this.

What was critical was that the wine was in the course of trade when imported into Australia, as it clearly was.

What Trade Mark was Used?

The court said that the addition of the bare foot to the registered trade mark is not a feature which separately distinguishes the goods or substantially affect the identity of the registered trade mark.  That's because consumers are likely to identify the product sold under the registered trade mark with a device by reference to the word BAREFOOT.

The device is an illustration of the word.  The registration of BAREFOOT 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.

Note on Evidence

Heydon JJ commented that the affidavit submitted by Gallo in support of the allegation that Houlihan exercise quality control permitted a "retrospectant" circumstantial inference that Houlihan had monitored wine quality before the transition period.

Heydon JJ pointed out that the deponent was probably not speaking from personal knowledge.  He was an employee of Gallo from 1999 on, and seems to have had nothing to do with Barefoot Cellars or Houlihan until Barefoot Cellars was sold to Gallo 2005.  But client that did not object to the evidence on hearsay grounds, and it was admitted.

It was open to Lion Nathan at the trial to seek an order to limit the use made of evidence if there was a danger that a particular use of the evidence might be unfairly prejudicial or be misleading or confusing.  The basis for the application could have been that the evidence should have been received only for the purpose of laying the groundwork for the tender of the consulting agreement.

Conclusion

A trademark continues to function as such whilst it is in the course of trade.  Provided it has been applied by the registered owner, then it only ceases to function as such when the product to which it has been applied is consumed. Those of use who've managed to grasp the concept of "badge of origin" would have considered this trade mark basics.

In my view, this case should never have reached the High Court.  Clearly, the Full Court lost track of the basic principles of trade mark law.  Unfortunate and costly.

On a positive note, this matter clarifies issues nicely for businesses involved in imports and exports.  Such businesses are constantly having to avoid or enforce registered trade marks.  That burden will remain.  However, with this case, it is a bit easier to sail a suitable distance from the wind.

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