Liquid Engineering highlights importance of correctly framing issues
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In Edwards v Liquid Engineering 2003 Pty Ltd, ( FCA 970, June 26 2008), the Federal Court of Australia has declared that the registered owner of two trademarks was deemed to have held the marks on constructive trust for his former employer and, more recently, for his former employer’s successor in title.
The decision was in respect of two (originally separate) actions involving an individual, William Edwards, and Liquid Engineering 2003 Pty Ltd. Edwards, while an employee of Liquid Engineering Ltd (the predecessor of Liquid Engineering 2003), registered in his own name two trademarks that were then being used by Liquid Engineering Ltd, and subsequently by Liquid Engineering 2003. Liquid Engineering 2003 initially applied to the registrar of trademarks for the removal of Edwards’s marks under Section 92(4) of the Trademarks Act 1995, which allows for the removal of a registration where, at the time of application, the owner did not intend to use (and has not since used) the mark in good faith.
The registrar accepted the application and Edwards appealed to the court. At the trial, Liquid Engineering 2003 amended the grounds of its application: it abandoned the non-use allegation and instead relied on Section 88(1)(b) of the act, which deals with the removal of registrations that are wrongly made or remaining in the register. Among other things, Liquid Engineering 2003 argued that Edwards was not the true owner of the registered marks (hence relying on Section 58). The court declared in this first action that Edwards was not the true owner of the marks and was to be deemed to have held the two marks on constructive trust for Liquid Engineering Ltd and, subsequently, for Liquid Engineering 2003 (as from the date on which Liquid Engineering 2003 acquired Liquid Engineering Ltd’s business and assets). Accordingly, the court ordered the rectification of the register by removing Edwards’s name and substituting Liquid Engineering 2003 as the owner of the two marks.
Liquid Engineering 2003 would have lost its non-use application under Section 92(4) because it had not established the requisite lack of good faith on the part of Edwards. Although the court was satisfied that Edwards had registered the two marks in circumstances tending to suggest a breach of fiduciary duties or even a malicious intent, Edwards’s good-faith intention to use the marks for trading purposes would have been sufficient to demonstrate good faith for the purposes of Section 92(4). Thus, good faith for the purposes of Section 92(4) requires no more than a genuine intent to use a mark for commercial purposes; it does not involve any element of honesty or subjective good intentions (see E & J Gallo Winery v Lion Nathan Australia Pty Ltd  FCA 934, which examined the meaning of good faith under related provisions of the act. For further details please see "Lion Nathan gets its claws out in BAREFOOT Case").
Commenting on the misconceived nature of Liquid Engineering 2003’s initial application under Section 92(4), the court stated that:
"These trademark infringement... proceedings have a long and unsatisfactory history. [F]rom the outset of the litigation, the issues have not been framed in a way that accurately identifies the dispute between the parties. This has resulted in excessive costs and consumption of court and party resources which could have been avoided."
The court ordered that Liquid Engineering 2003 pay Edwards’s costs associated with the non-use action.
The second action involved an allegation by Liquid Engineering 2003 against Edwards (and his companies) of separately infringing one of Liquid Engineering 2003’s trademarks (LIQUID ENGINEERING) by trading under the names Liquideng and Liquideng Farm Supplies. The court found in favour of Liquid Engineering 2003 and ordered that Edwards and his companies pay Liquid Engineering 2003 over A$100,000 in damages (plus interest from June 30 2005, as well as Liquid Engineering 2003’s legal costs).
In relation to the second action, the court based its decision on the finding that Edwards’s trading names were "deceptively similar" to the LIQUID ENGINEERING mark. It did so notwithstanding that Edwards had:
- shortened the word 'engineering' to 'eng'; and
- added the words 'farm supplies'.
The court dismissed these differences because it focused on the essential and distinguishing feature of the registered mark LIQUID ENGINEERING, which the court thought lay in the use of the word 'liquid'. By using that same word, as well as the first syllable of the word 'engineering', the court decided that 'Liquideng' would leave ordinary persons with the impression that the goods sold by Edwards under the mark were associated with, or stemmed from, Liquid Engineering 2003.
The fact that Edwards’s mark also contained the additional phrase 'farm supplies' was described as "an otherwise bland descriptive term" which does not diminish a deceptively similar impression engendered by the use of the distinctive part of the mark (see Polo Textile Industries Pty Ltd v Domestic Textile Corporation Pty Ltd (1993) 42 FCR 227).
Finally, the court expressly placed on the record that the finding of deceptive similarity was "buttressed" by (although not dependent on) its view that:
- Edwards intended to appropriate Liquid Engineering 2003’s registered mark; and
- it was "more probable than not" that Edwards, whether subconsciously or consciously, was influenced by, and was attempting to trade on, the association that the word 'liquideng' had with LIQUID ENGINEERING.
Counsel for Edwards conceded that a subconscious borrowing was "perfectly possible".
Julian Gyngell, Julian Gyngell, Wahroonga
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