Contempt proceedings become weapons in war against infringers

Two recent decisions of the Federal Court of Australia indicate that the use of contempt proceedings against trademark counterfeiters and infringers is becoming a powerful and significant weapon in the war that trademark owners are waging to protect their rights.

The first decision, Mobileworld Communications Pty Ltd v Q & Q Global Enterprise Pty Ltd, concerned rival retailers of mobile phones. The applicants traded as Crazy John's and the respondents as Crazy Ron's. In December 2003 Justice Allsop found that Crazy Ron's had infringed Crazy John's trademarks. Accordingly, he issued injunctions ordering Crazy Ron's to stop using the names Crazy Ron or Crazy Ron's. As a consequence of the court's orders, Crazy Ron's adopted the name Mad Ron's. However, in contravention of the orders, it paid to have the following entry inserted in the Melbourne and Sydney White Pages telephone directories for 2004-2005: "CRAZY RONS MOBILE PHONES (See Mad Rons Mobile Phones)".

Crazy John's initiated contempt proceedings. Crazy Ron's pleaded guilty and offered to the court and Crazy John's an unreserved apology for the publication. In determining the appropriate penalty, Justice Heerey observed that as a result of Crazy Ron's actions, the directory entry would be viewed by over 8 million people. Heerey also considered the mitigating factors (such as the prompt efforts to prevent further publication and the unreserved apology). Significantly, Heerey found that the contempt was the result of negligence and was not a contumacious disregard for the orders. Nevertheless, Heerey ordered that Crazy Ron's pay a penalty of A$50,000 ($38,000). (For a discussion of another decision involving these parties, see Ron beats John in CRAZY mark duel.)

The second decision, Rip Curl International Pty Ltd v Phone Lab Ltd, concerned Phone Lab Ltd (a retailer of mobile phones and accessories) and its two directors who had been importing and selling goods bearing counterfeit trademarks of several trademark owners, including Rip Curl International Pty Ltd. On June 15 2004 orders by consent were made by Justice Sundberg, which prohibited Phone Lab from continuing to import or sell counterfeit goods. However, in a wilful and contumacious disregard of the orders, Phone Lab continued to import and sell counterfeit goods. Rip Curl and the other mark owners initiated contempt proceedings. Phone Lab and its directors pleaded guilty to each of the charges of contempt made against them.

Phone Lab contended that a total of 14 phone covers and one battery were sold in breach of the court's orders, and that the proceeds received by Phone Lab by reason of the breaches totalled less than A$500. However, Justice Hely determined that the breaches were:

• flagrant;
  
  
• overt (in the sense that other vendors may become familiar with them); and
  
  
• involved repeated acts of infringement.

Accordingly, he ordered Phone Lab to pay a penalty of A$38,500 for the contempt of court. One of Phone Lab's directors was ordered to pay an additional penalty of A$5,000. Given the small size of Phone Lab, the penalty imposed on it was very significant. Further, the directors of Phone Lab were both sentenced to one month's imprisonment. The sentences were suspended on condition that the directors not contravene the earlier orders made by Justice Sundberg.

The Mobileworld and Rip Curl decisions demonstrate that the Federal Court of Australia is increasingly adopting a harsher approach to repeat trademark infringers and counterfeiters who are found to be in contempt of court. In Rip Curl, Hely stated that:

"it is the public interest in having court orders obeyed which must be vindicated in these proceedings, and not just the private interests of the applicants in securing future obedience to those orders."

Although the primary concern of the Australian judiciary is geared towards protecting the integrity of court orders, the practical effect of such judgments is to provide a boost for trademark owners against a counterfeit industry that has boomed since 2000.

Decisions such as Mobileworld and Rip Curl send a powerful message to counterfeiters and infringers that their actions can have significant repercussions. If the consequences of infringement and counterfeiting outweigh the benefits, then potential counterfeiters and infringers may be dissuaded from trading in counterfeit or infringing goods.

Stephen Stern and Anthony Herman, Corrs Chambers Westgarth, Melbourne