Federal Court limits scope of groundless threats provision

The Federal Court of Australia has issued a decision that appears to limit the scope and effect of Section 129(1) of the Trademarks Act 1995, which provides that a person threatened with legal proceedings for alleged infringement of a registered trademark may bring an action:

• to obtain a declaration that there are no grounds for making the threats;
  
  
• to obtain an injunction restraining continuation of the threats; and
  
  
• to recover damages sustained as a result of the threats.

However, such an action will be stayed under Section 129(5) if the registered owner or authorized user of the trademark, with due diligence, begins and pursues an action against the threatened person for infringement of the trademark.

ADI Limited, a systems and engineering company, wrote to Advanced Data Integration Pty Ltd on September 23 2003 (i) alleging infringement of its registered trademark ADI for software in Class 9 of the Nice Classification, and (ii) threatening proceedings if Advanced did not undertake to desist within two weeks. On October 28 Advanced made a counter-offer, underpinned by the threat of starting proceedings under Section 129(1). ADI responded with its own counter-offer. On November 18 Advanced commenced groundless threats proceedings. Two days later ADI filed proceedings for infringement of its ADI trademark. It also sought to stay Advanced's groundless threats proceedings.

The Federal Court of Australia stayed Advanced's proceedings. The court held that ADI (i) intended to bring infringement proceedings when its initial threat was made, although it was hoping that it would not be necessary, and (ii) had not delayed bringing the infringement proceedings: there had not been any time during the one and a half months of correspondence between ADI and Advanced when it had appeared obvious that the issue between them could not be resolved. ADI initiated its infringement proceedings two days after Advanced had initiated the groundless threats proceedings. The court considered that this was due diligence and that, accordingly, Section 129(5) applied.

In pronouncing this judgment, the court construed Section 129(5) as follows: firstly, a Section 129(5) application can be determined at an interlocutory level even though it refers to the requirement of due diligence in both beginning and pursuing the action. The court considered that the phrase 'begins and pursues' is "referable to an early point in an action where it can be seen that not only has it been initiated, but it is plain that it is to be litigated". 'Pursues' does not mean to pursue to judgment.

Secondly, the stay of action under Section 129(5) cannot later be removed if there is delay in conducting the infringement proceedings. The court considered that Section 129 is concerned with "delay between threats, or continuing threats, and the commencement of infringement proceedings ... [and not] with whether the whole of the proceedings are then conducted with diligence. That may be dealt with in the management of the proceedings".

The court read Section 129(1) and (5) together so the "right to bring [groundless threats] proceedings under sub[section] (1) is predicated upon the trademark owner not having brought infringement proceedings, after threatening to do so, with due diligence". As such, the court considered the potential restrictive nature of Section 129(5) was mitigated, because if proceedings were brought, orders in the nature of declarations, injunctions or damages were no longer necessary since the threat had been overtaken by the proceedings.

In addition, it considered that a stay under Section 129(5) did not estop the threatened party claiming damages by reference to economic torts or under the Trade Practices Act 1974. Therefore, it would appear that the threatened person is left to rely on the management of proceedings and remedies outside of the Trademarks Act to resolve the threats efficiently and minimize any adverse consequences.

Julian Gyngell and Francine Johnson, Clayton Utz, Sydney