Telstra fails to prove passing off by rival - and is found guilty of misleading conduct

In Telstra Corporation Limited v Phone Directories Company Pty Ltd ([2014] FCA 568), the Federal Court of Australia has held that Phone Directories Company Pty Ltd (PDC) did not engage in passing off or misleading conduct by publishing yellow-coloured telephone directories and notwithstanding that it accepted that Telstra Corporation Limited had acquired a secondary reputation in the colour yellow.

Telstra has published print telephone directories in Australia since 1880. It has used yellow-coloured pages and the colour yellow on the covers of its directories since 1975. In 1977 it registered the composite YELLOW PAGES trademark and subsequently registered various other related marks all including the words 'Yellow Pages'.

In 1994 PDC commenced publishing directories under the names Phone Directories, PDC or a PDC logo. PDC also used yellow-coloured pages for the business classified section of its directories and, from 1996, the directories also featured yellow covers.

It was not in dispute that Telstra has had a strong yellow theme in its marketing from an early date and that it has spent a great deal of money promoting its directories under its YELLOW PAGES trademarks. As a result, Telstra submitted that:

• it had achieved a secondary reputation in the colour yellow which became associated in the minds of consumers with Telstra; and
• by reason of its secondary reputation in the colour yellow, PDC’s use of the colour yellow conveyed a misrepresentation to consumers that their directories were published by, or otherwise associated with, Telstra.

PDC’s conduct was alleged by Telstra to constitute passing off and to be in breach of Sections 52 and 53(c) and (d) of the Trade Practices Act 1974 (and the successor provisions of the Australian Consumer Law). In this regard, neither party drew “any significant distinction” between the misleading or deceptive conduct and the passing-off causes of action and the judge thought that there was “no necessity to separately deal with them”.

The judge described the evidence in the proceeding to be “voluminous”. Eighty-one witness affidavits were filed and the judgment runs to 681 paragraphs. The scope of this report will therefore necessarily be limited to the issues associated with the allegations of passing off and misleading and deceptive conduct (and not the issues associated with the admissibility and weight of survey and hearsay evidence).

The significant hurdle that Telstra had to overcome was that the colour yellow is internationally recognised as a standard colour used in respect of classified directories and the court accepted that, when Telstra adopted yellow-coloured pages and yellow covers in 1975, it was following an international trend. The evidence also demonstrated that in Australia the use of the colour yellow generally in respect of classified directories was “widespread”. Although the judgment is 681 paragraphs long, the crucial findings of fact (which ultimately determined the outcome) are found in paragraph 15. The judge stated:

“Viewed in isolation, I accept that Telstra had a secondary reputation in the colour yellow but I do not consider that the claimed association in the minds of consumers between yellow and Telstra or its products is a strong one. I say this because:

(a) yellow is not distinctive in itself, being a colour widely used on products and services; 

(b) yellow is internationally recognised as a standard colour of classified directories and to some extent was so recognised by Australian consumers; 

(c) Telstra only ever used the colour yellow coupled with its well-recognised YELLOW PAGES trademarks including the Walking Fingers, and never independently; and 

(d) Telstra’s use of yellow on its directory covers after 1996 was inconsistent and declined over time.”

The fourth point above is a reference to the fact that Telstra changed the appearance of some of its directories and “significantly departed” from its long-standing practice of using almost entirely yellow covers. Indeed, the court considered that Telstra had gradually made its directories somewhat more similar in appearance to PDC’s directories. Given that Telstra’s claim was that PDC’s directories were not properly differentiated from Telstra’s directories, the court noted that “it is axiomatic that Telstra cannot base its claims… on similarities between the rival directories which arise from its own conduct”.

Two important aspects of the judgment (which run from one into the other and from which all else follows) are:

1. The judge’s consideration of Telstra’s reliance on the statement in a report which stated that many consumers perceive the PDC and Yellow Pages directory as being distributed by the same organisation. One consumer was indeed quoted as saying: “I don’t differentiate between the two, I see them both as the Yellow Pages”.
   
   However, in the judge’s view, Telstra was incorrect in proceeding on the assumption that consumers who use the name Yellow Pages are referring to Telstra’s directories because the term 'yellow pages' was often used by consumers generically to refer to classified directories in general rather than to Telstra’s Yellow Pages products.



2. Secondly, the judge focused on the (incontestable) fact that yellow is a primary colour in common usage, and consumers are aware that many directory providers will want to use an attractive colour on their products. His Honour thought this would be even more the case when many consumers are likely to think of yellow as a standard colour for classified directories.
   
   In such circumstances, in using a single primary colour to signify its directories, Telstra had to accept that “small differences in the get up of other traders using yellow will render them immune from action. Otherwise,… [the legislation] becomes an instrument for the creation of a monopoly in the use of a primary colour”.

In light of all the facts, the judge went on to summarise the relevant legal principles. His Honour observed that, in cases that relate to the taking of get-up or trade indicia by a trade rival, the key considerations are:

• the extent and nature of the relevant reputation in the alleged trade indicia that the applicant has established with the relevant class of the public;
• whether the trade indicia in question have acquired a secondary meaning, namely “do they indicate to the appropriate class of purchasers that the goods have come from a particular source, whether the name of that source is known or not”; and
• whether the respondents’ use of that trade indicia means to the relevant class of consumers that the applicant is the trade source of the respondents’ goods and services.

Applying these principles, His Honour held that the evidence fell “well short” of establishing that the hypothetical ordinary or reasonable directory user or directory advertiser was misled or deceived, or was likely to be misled or deceived. Put another way, Telstra failed to establish that a significant proportion of the classes of directory users or advertisers would have suffered from a misconception that the PDC directories were published by or associated with Telstra or its directories.

As a final irony, PDC filed a cross-claim alleging misleading or deceptive conduct by Telstra in publishing advertisements in its directories between 2004 and 2007 which purported to set out the comparative consumer usage of Telstra’s and PDC’s directories. The court upheld this allegation and concluded that the advertisements were misleading because they did not provide a fair or accurate picture of the comparative usage of the rival directories.

Julian Gyngell, Kepdowrie Chambers, Wahroonga