Parallel importers fail again before Full Court of Federal Court

The decision of the Full Court of the Federal Court in Paul's Retail Pty Ltd v Lonsdale Australia Limited ([2012] FCAFC 130, September 11 2012) is the most recent in a line of Australian cases in which an importer of goods purporting to be 'genuine' goods has been found guilty of trademark infringement.

The facts of the case are somewhat complex. In essence, the situation was that an English company, Lonsdale Sports Limited - the owner of an international portfolio of LONSDALE trademarks for clothing - licensed in 2009 a German company, Punch GmbH, to promote, distribute and sell products bearing the LONSDALE marks in "the Territory" (essentially Europe), and to manufacture the products in or outside "the Territory". In August 2011 Punch entered into a sales agreement with a Cyprus company, Unicell Limited, to sell to Unicell products marked with the LONSDALE marks on an "ex-Warehouse China" basis. Cyprus was within "the Territory" and Punch paid royalties to Lonsdale on its sales to Unicell. At some time between August 2011 and December 2011, goods bearing the LONSDALE marks were sold by Unicell to an American company, TMS LLC, which in turn onsold them to the appellant, Paul's Retail Pty Ltd. Previously, Paul's Retail had acquired LONSDALE-branded products from Lonsdale's then Australian licensee, VAG Pty Ltd.

In June 2011 Lonsdale assigned its Australian trademarks to the respondent, Lonsdale Australia. Lonsdale Australia is a sister company to Lonsdale; each are ultimately owned by Sports Direct International plc. Punch is not a member of the same group.

Lonsdale Australia, as the owner of the Australian LONSDALE registrations, brought action for infringement against Paul's Retail. Paul's Retail sought unsuccessfully to rely, among other things, on the provisions of Section 123 of the Trademarks Act. Section 123 provides that it is not infringement if "the trademark has been applied..., by or with the consent of, the registered owner of the mark". The court found for Lonsdale Australia on the basis, among other things, that it, as the register owner of the Australian registrations, played no part in the application of the marks by Punch.

Paul's Retail argued on appeal that:

• the relevant question was whether the physical application of the marks was with the consent of Lonsdale, the owner of the Australian registrations, at the time of the licence to Punch;
• the consent of Lonsdale should be equated to consent by Lonsdale Australia on the basis of the principles applied by the English Court of Appeal in Revlon Inc v Cripps & Lee Ltd ([1980] FSR 85);
• as well as Section 123, it was entitled to rely on the principle of exhaustion in Champagne Heidsieck et Cie v  Buxton ([1930] 1 Ch 330);
• the use of the marks in Australia on genuine goods was not use by Paul's Retail for the purposes of infringement.

The Full Court, in effect, short-circuited these arguments and held that the use of the mark could not be with the consent of Lonsdale because it was outside the scope of the Punch licence, which was to sell the trademarked products only within "the Territory". Adopting a strict contract analysis, it held that, under the sale agreement between Punch and Unicell, the sale of the Paul's goods to Unicell was concluded in China and, therefore, contrary to the terms of its licence, Punch had sold the products outside "the Territory". The application of the marks by Punch for the purpose of the sale to Unicell was not therefore an application to which Lonsdale had consented and was not protected by Section 123.

The court rejected the argument that the sale of the product by Paul's Retail did not constitute a use of the marks by it in Australia and upheld the decision of the primary judge.

Although, in the light of its decision on the affect of the Punch licence, it was unnecessary to deal with the other issues raised in the appeal, the Full Court noted that words of Section 123 should not be narrowly construed "as if they necessarily exclude any limit or condition on the grant of the right to apply a mark to goods". With regard to the argument based on the Champagne Heidsieck principle, the court also held that, "to the extent that the appellants failed to make a case in accordance with Section 123 of the act, there is no other principle available to fill the gap in their case".  It did not consider the Revlon argument.

Paul's Retail has until 10 October to seek leave to appeal the decision to the High Court. The prospects of success in seeking leave do not seem bright since, two days prior to the Full Court's decision, the High Court refused leave in a similar case, Paul's Retail Pty Ltd v Sporte Leisure Pty Ltd ([2012] HCA Trans 820), stating that, "in our view, the construction placed on Section 123 by the Full Court of the Federal Court was not attended by doubt".

The decision will no doubt be welcomed by trademark owners who wish to confine their Australian sales to authorised distributors, but it severely limits the extent to which the consumer interest in competition can be advanced by allowing parallel imports. In future, prospective importers will need to be satisfied not only that the goods are genuine or licensed goods, but also whether their importation to Australia is within the scope of the territorial or other conditions imposed by the licensor. In many cases, as here, that will be very difficult to determine.

Des Ryan, Davies Collison Cave, Melbourne