Federal Court prescribes harsh medicine to discount chemist

Australia

The Federal Court has dismissed claims made by the owners of Chemist Warehouse outlet stores of misleading and deceptive conduct and trademark infringement, instead ordering that their trademark is invalid for lack of distinctiveness and therefore should be cancelled from the register.

To avoid suffering a similar fate as the owners of Chemist Warehouse outlet stores, traders should note that:

  • long-term, widespread use of a trademark will not necessarily 'cure' a claim of invalidity if the mark is not inherently adapted to distinguish;
  • the use of bright colours is a common marketing ploy used by discount stores and so cannot be claimed by one particular outlet to be theirs alone to use, unless the colours are claimed as part of a valid trademark; and
  • if you want to use a descriptive phrase in a trademark, consider also filing an application for a composite mark (ie, combining the phrase with devices, shapes, sounds, scents and/or colour elements) to avoid a finding that your mark is not inherently adapted to distinguish.

In Verrocchi v Direct Chemist Outlet Pty Ltd ([2015] FCA 234) the applicants, trading as Chemist Warehouse, had alleged that Direct Chemist Outlet (the respondents) had, among other things:  

  1. intentionally copied various visual aspects of Chemist Warehouse's marketing and business, and adopted a get-up so similar to that of Chemist Warehouse that it was likely to make consumers believe that the two pharmacy chains were linked; and
  2. infringed the applicant's registered trademark (shown below) which contained the phrase: "Is this Australia’s Cheapest Chemist?"

Chemist Warehouse's registered trademark                   

Direct Chemist Outlet's advertising

In response, the respondents cross-claimed that the trademark was descriptive and should be invalidated for lack of distinctiveness under Section 88 of the Trademarks Act 1995.

This article focuses on the trademark dispute.

The respondents had been using the slogan "Who is Australia's Cheapest Chemist?", in a very similar layout to that used by Chemist Warehouse. In response to the 'descriptive' counter-claim, the applicants argued that they had used "Is this Australia's Cheapest Chemist?" as a trademark extensively since 2005 in online campaigns, brochures and television commercials. As such, they said it should be considered capable of distinguishing the applicant's goods and services under Subsections 41(5) or (6) of the act.

The applicants did not put forward any trademark arguments in relation to the get-up of their stores, catalogues or website, however.

Justice Middleton held that the applicants' mark did not meet the registrability requirements of either Section 41(5) or Section 41(6) and thus was invalid. 

  • At the relevant time, Section 41(5) provided that if a trademark was to some extent inherently adapted to distinguish, then the registrar could consider evidence of use and other circumstances to determine if the mark did distinguish, or was capable of becoming distinctive of, the relevant goods or services.
  • On the other hand, if the mark was considered to be to no extent inherently adapted to distinguish, Section 41(6) allowed the applicant to adduce evidence of the extent to which it had used the trademark to prove that the trademark did in fact distinguish the goods or services as those of the applicant, as at the filing date of the application.

In considering the extent to which the trademark was inherently adapted to distinguish, his Honour stated that the last part of the trademark AUSTRALIA'S CHEAPEST CHEMIST merely signifies the geographical location, price and nature of the business. In his Honour's opinion, the addition of the words 'is this' was insufficient to render the mark to some extent inherently adapted to distinguish the goods and services of the applicants, and thus concluded that Section 41(5) did not apply.

Accordingly, as the mark was considered to be to no extent inherently adapted to distinguish, Section 41(6) was to be applied. However, in the court's view, the evidence did not show that the mark did in fact distinguish the goods and services of the applicants at the filing date of the application. Although the Chemist Warehouse stores had made extensive use of the mark across Australia since 2002, it was held in this case that extensive use of the 'inherently descriptive' mark was not enough here to make it relevantly distinctive. His Honour noted that the significance of the mark was often diluted by the multitude of slogans and logos by which it was surrounded at the Chemist Warehouse stores.

(Note: Similar provisions to the former Sections 41(5) and (6) now apply in the act post the Raising the Bar amendments. Section 41 was re-drafted in negative terms so that a trademark is now held to be distinctive unless Sections 41(3) and (4) apply. These amendments were made to clarify that the presumption of registrability applies to the consideration of the inherent registrability of trademarks.)

When determining whether the mark was to any extent inherently adapted to distinguish, his Honour appears to have focused almost solely on the words 'Australia's Cheapest Chemist', rather than the stylised trademark as a whole. Notwithstanding the description of the words 'Australia's Cheapest Chemist', the trademark also includes the words 'is this' in a font of different size and orientation. Furthermore, the phrase is posed as a question. In these circumstances, the trademark does not actually describe Chemist Warehouse as 'Australia's Cheapest Chemist', it merely poses the question – what if the answer is 'no'?

As stated in Cadbury Schweppes Pty Ltd v Effem Foods Pty Ltd ((2005) AIPC 92-105), it is "beyond dispute that a trademark can be, as a whole, capable of distinguishing even though composed of elements that are individually of no great inherent adaptation to that purpose" (at Paragraph 58). Furthermore, in Re Allergan Inc ((1997) AIPC 91-297) – in relation to the trademark CLEAN-N-SOAK – the senior examiner commented that:

"by virtue of the combination of the three factors, phonetic rendering, hyphenation and grammatical usage… it is not quite 'a sign that is ordinarily used to indicate' the goods in question. It follows, therefore, that there is some doubt as to whether the trademark is totally devoid of adaptation to distinguish."

If we take this reasoning and apply it to the present situation, it is unlikely that the applicants' mark is in fact merely descriptive, as his Honour suggests. Taken as a whole, including the text stylisation and grammatical usage of the mark, the mark may be considered to be 'to some extent' adapted to distinguish the applicants' goods from those of others, thus bringing it under Section 41(5). Section 41(5) is important as post-filing evidence may be adduced under this provision to demonstrate that a mark is capable of becoming distinctive, which is a lower threshold than Section 41(6).

Although it was unnecessary to decide the question of infringement, his Honour determined that the respondents did not use the sign in question as a trademark and so would not have infringed the applicants' mark even if it was held to be valid. This was because a trademark must be seen as 'a reliable badge of trade origin on its own' and, as with the applicants' mark, the respondents' phrase 'Who is Australia's Cheapest Chemist?' was found to be merely descriptive.

For the reasons stated above, we consider that if the respondents' mark had been considered as a whole, having regard to stylisation of the mark, the differing font size and orientation, and the fact that the mark was stated as a question, this may have impacted on the court's finding that the mark was merely descriptive and hence not being used as a trademark.

This means that if the applicants' mark had been deemed to be valid, the respondents' trademark may indeed have been found to infringe. Such a finding may have also impacted on the misleading and deceptive conduct claims in this case, which also failed. However, this analysis would have to have involved careful consideration of other circumstances, including the use of the respondents' slogan as a trademark in the context of their other advertising and store get-up.

In the reasons, his Honour mentioned that before trial he had suggested to the parties that it may be an appropriate case to be tried by jury under Section 40 of the Federal Court of Australia Act 1976. His Honour referred to a paper written by Justice Rares in 2010 and also comments made by Rares J in Ra v Nationwide News Pty Ltd ((2009) 182 FCR 148) (the only example of a 'trial by jury'), in which Justice Rares stated that juries can be highly valuable in cases such as this as they represent "the very audience" to which the publication (or, in this case, advertising) is directed (at Paragraph 19).

Given the court's recent criticism of survey evidence, particularly in trademark infringement cases (see adidas AG v Pacific Brands Footwear Pty Ltd ((No 3) [2013] FCA 905)), it is interesting that his Honour suggested this matter be tried by jury. This may be an indication of a new direction for the Federal Court in relation to trademark cases.

In any case, both parties opposed this proposal for practical reasons, including increased cost and time delay

Orders have been filed pursuant to Justice Middleton's judgment, however no appeal has been filed as of yet. There has been no request to have the trademark cancellation order stayed until then.

Claire McMahon, Allens

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