Trademark may be infringed by taking only essential element

Australia

 In Optical 88 Limited v Optical 88 Pty Limited ([2011] FCAFC 130, October 17 2011), the Full Court of the Federal Court has considered an interesting case involving trademark infringement and defences thereto, accessorial liability, removal for non-use and copyright infringement.

Applicant Optical 88 Limited operates a chain of optical stores throughout the Asia-Pacific region (predominantly in Hong Kong) under the name Optical 88. It owns a number of Australian trademarks, including the following:


The Chinese characters appearing in each of the marks may be translated into English as 'Optical 88'.

First respondent Optical 88 Pty Ltd was incorporated in Australia on July 30 1993. Mr Law, the second respondent, is an optometrist; in August 1993 he transferred his existing optometry practice and business to the first respondent. The first respondent has since operated three optometry practices in Sydney under the name Optical 88. The second respondent is a director and manages the business of the first respondent. Mrs Law (the third respondent) is also a director of the first respondent.

In addition to use of the name Optical 88, the first respondent sometimes used the name in combination with its logo (reproduced below) or in a form in which the word 'optical' is represented in Chinese characters.



At trial, the applicant alleged that the first respondent had infringed its registered trademarks by using deceptively similar signs. It also alleged that such conduct infringed copyright in the marks, and constituted passing off and misleading and deceptive conduct. The first respondent counterclaimed, seeking the removal of registrations '707 and '966 for non-use.

The court held that, while each mark must be compared as a whole, deceptive similarity may be established when an impugned mark uses an 'essential' or 'distinguishing' feature of the mark. 'Optical 88' was the dominant element of the '707 and '966 marks, given its relative size, central position and the likely way in which each mark is spoken. The court acknowledged that the use of the applicant's logo within the marks was not insignificant, but it was illustrative of the words 'Optical 88', as it depicts spectacle frames and is reminiscent of the number 88.

Thus, the first respondent's use of 'Optical 88' on its own and in combination with its logo, or 'Optical 88' in Chinese characters, was use of a sign as a trademark that was deceptively similar to the '707 and '966 marks, as the essential characteristic of each mark had been taken.

This effective dismissal of the significance of an illustrative logo called to mind the decision of the High Court in E & J Gallo Winery v Lion Nathan Australia Pty Limited ([2010] HCA 15), where it was held that the addition of a device to a registered word mark was not a feature that substantially affected the identity of the mark, as the device was a mere illustration of the words in the mark.

In the present case, the court held that the respective logos were not sufficiently similar for there to be copyright infringement. Although all of the respondent's marks were held to be deceptively similar to the applicant's marks, the respondent was able to establish defences to all uses.

The court was satisfied that the respondent had a defence to the infringement of the '707 and '966 marks, as the respondents' use of the name Optical 88 was use in good faith under Section 122(1)(a)(i) of the Trademarks Act 1995 (Cth). The use was held to be honest, as the court accepted the respondent's reasons for choosing the name Optical 88, which were that 'Optical' was a precise, descriptive and efficient word to identify an optometry business, while the numerals 88 are considered to be lucky in Asian cultures and represent spectacles. Bearing in mind the trade involved and the cultural significance of the number 8, the name Optical 88 is not so unusual as to warrant the conclusion that it could only have come from a knowledge of the applicant's business.

The respondent successfully obtained removal of the '707 mark under Section 92(4)(b) and the '966 mark under section 92(4)(a) of the act. The court noted that, by virtue of Section 100(1), the onus is on the opponent to the removal application (in this case, the applicant) to rebut the allegations that it had not used the marks in the relevant period or had an intention to use them at the application date.

The relevant issue under Section 92(4)(b) was whether the applicant had used the mark 'in the course of trade'. The applicant had no stores in Australia; however, three of its stores sent goods bearing third-party marks to customers overseas (including Australia) with coupons (bearing the mark) enclosed.

The court held that sending the coupons with the goods to a customer in Australia was 'use' in the course of trade in Australia. The coupons were part of the applicant's promotional activities, designed to encourage customers to continue to deal with it, and the mark was used on the coupons to distinguish the applicant from other retailers. It is significant that only eight of such transactions occurred and yet were sufficient to constitute use.

The applicant's downfall was, however, that the mark was registered only for optical goods, but the relevant use was for the provision of retail services. The goods sold by the applicant into Australia were not branded with the mark, but rather with third-party brands; therefore, the applicant's mark was not being used in relation to those goods. The court held that use of a mark in relation to the services or supplying third-party branded goods is not use in relation to the goods themselves.

This supported the proposition that a retailer's marks are used only for its retail supply services, not the third-party branded goods it sells. It also supports the proposition that the supply of goods into Australia can constitute use of a mark in Australia; however, the court did not analyse the implications of the location of the offer and acceptance (an issue relevant to the decisions in Ward Group Pty Ltd v Brodie & Stone Plc ((2005) 143 FCR 479) and WD & HO Wills (Australia) Ltd v Rothmans Ltd ((1956) 94 CLR 182)).

The relevant issues under Section 92(4)(b) were:

  • whether, on the date the applicant had filed its application, it had an intention to use the mark; and
  • whether the applicant had used the mark in the course of trade.

In relation to the latter, as the '966 mark bore a total impression of similarity to the '707 mark and was registered for retail services, the use of the '707 mark was held to amount to use of the '966 mark. Thus, the '966 mark had been used for retail services for optical goods, but had not been used for optical goods or the wholesale services for optical goods.

However, the applicant did not rebut the allegation that, on the day it filed its application for registration of the '966 mark, it had no intention to use the mark for the goods or services for which it was registered. The only evidence the applicant provided of its intention was an instruction given to the applicant's operations manager and general manager in 2005 and 2006, respectively, to travel to Australia to assess the opportunities for establishing the applicant's stores there. Only the operations manager visited in 2006, and the court held that this was nothing more than a preliminary reconnaissance mission to attempt to gain some rudimentary knowledge about retail activities in Australia and possibly to gauge the activities of the first respondent. Further, it was clear that much more work would be necessary before making a decision to expand into a new market and there was no mention in any of the applicant's parent company's annual reports between 1989 and 2005 of an intention to expand into Australia. As such, the applicant's intention at the priority date was no more than an uncertain or indeterminate possibility. The action for removal succeeded in part.

On appeal, the applicant claimed that, in finding against the claims of trademark and copyright infringement, the primary judge had erred on 21 grounds. Mercifully, the parties agreed that the grounds of appeal could be grouped into seven classes in respect of the trademark infringement and a single class in respect of the copyright infringement. Interestingly, the primary judge's finding that the marks were deceptively similar was not cross-appealed.

The most notable of the grounds of appeal were as follows.

The applicant argued that the primary judge had erred in finding that the '707 and '966 marks had been used merely in respect of services, and that the mark had also been used in respect of the registered goods such that the registrations were not vulnerable to removal for non-use.

The applicant's argument was based on evidence of a transaction in which an order was placed by a Mr Pitt for the provision of a pair of spectacles, being ARMANI-branded frames fitted with prescription lenses. The applicant's marks did not appear anywhere on the spectacles. However, when the spectacles were sent to Pitt, they were accompanied by 'bonus' and 'cash' coupons, a spectacle case and a cleaning cloth bearing the marks. Given that the spectacles had, in essence, been created by the applicant, it argued that the use of the marks on the case, cloth and promotional materials constituted use of the marks in relation to the spectacles. The court held, however, that while the applicant created the goods in the sense that it fitted the prescription lenses to the frames, this was an incomplete description of the transaction. The court noted that the evidence showed that the processing of Pitt's order was in accordance with standard procedures for the applicant's store, and that, in that context, use of the '707 mark on documents related to the transaction could not be characterised as being use in "other relation" to the goods as required under Section 7(4) of the act. The court deemed that use of the mark functioned to distinguish the applicant's services from the services of others.

In upholding the primary judge's finding, the Full Court quoted favourably that the "goods passed through the hands of the applicant in the course of trade, but in no true sense was the applicant the source or origin of those goods". Rather, the applicant was "the source or origin of particular retail services involved in the downstream supply of those goods".

This confirms the Australian position that it is very difficult for Australian retailers to argue that the name of their retail store is a trademark in respect of the third-party goods they supply.

In dismissing the ground of appeal that the judge had erred in not finding Mr and Mrs Law liable for infringement as joint tortfeasors, the Full Court continued the trend of recent Australian cases such as Sporte Leisure Pty Ltd v Paul's International Pty Ltd (No 3) ([2010] FCA 1162) which say that directors are not liable unless they make the tort their own. Although Mr and Mrs Law had made admissions in relation to their infringing conduct, the court found that there was no evidence supporting any inference that they were carrying out any activity other than in their capacity as directors of the first respondent.

The Full Court also noted that the defence to infringement provided by Section 122(1)(a)(i) - good-faith use of a person's name - where a corporation may have the benefit of the defence, but the human agent would not, meant that the legislative scheme is inconsistent with the imposition of personal liability for trademark infringement on agents of the corporation, unless the agent has somehow made the use his or her own by acting other than in the capacity of agent.

At trial, the applicant had accepted that the respondent's use of OPTICAL 88 without the additional 'Pty Ltd' constituted use of its name. Section 122(1)(a)(i) of the act provides a defence to infringement where the alleged infringer has made good-faith use of his name. However, the applicant argued that, while the Section 122(1)(a)(i) defence might apply to use of the name of the first respondent, the defence could not apply in circumstances in which the use of 'Optical 88' was as part of a discrete sign which incorporated additional elements. The applicant argued that, when considering various examples of uses in which the sign as a whole consisted of the words 'Optical 88' with additional materials, such as Chinese characters or '88' in stylised form, the primary judge had erred in determining that these constituted use of the respondent's name.

In dismissing this ground of appeal, the Full Court noted that the primary judge's finding that the essential or distinguishing feature of the '707 mark and the '966 mark is 'Optical 88', and that the logo elements play only a secondary role, was not challenged. In the absence of any dispute on this point, the court held that the primary judge's conclusion that the defence in Section 122(1)(a)(i) protected the first respondent's uses of its name did not disclose error.

The effect of this decision creates quite a wide defence under Section 122(1)(a)(i), as it may now cover uses of composite marks, provided that the essential element of the mark is the person's name.

Section 92(4)(a) of the act provides a ground for removal for non-use of a registered mark if it can be demonstrated that, at the time of filing, the applicant had no intention in good faith to use the mark in respect of the goods/services to which the non-use application relates.

The applicant argued that the primary judge had mischaracterised the evidence and elevated the test of intention to use as one requiring actual use, and had overlooked key evidence of Mr Wong. However, the Full Court found that Wong's evidence to demonstrate the requisite intention to use the mark did not withstand scrutiny. At trial, Wong had been cross-examined in relation to the absence of any mention in the applicant's annual reports between 1989 and 2006 of an intention to open stores in Australia.

Therefore, the court held that the primary judge's conclusion of a lack of intention to use the '966 mark at the time of filing was not amenable to challenge on appeal – the applicant's intention was a mere "uncertain or indeterminate possibility". Accordingly, the finding that the '966 mark should be removed from the register was upheld.

The failure of the Full Court to disturb any of the findings of the primary judge means that infringement of a trademark may be found where an essential element of the registered trademark is taken, even if the infringing mark contains other material (an issue not the subject of the appeal). Therefore, it is critically important to avoid using a mark which consists substantially of a distinguishing part of an earlier mark. On the flip side, it should now be easier to pursue third parties for infringement of registered marks, even in cases where the whole of the mark is not used.

The case also confirms the Australian position that a relatively small amount of promotional conduct may be sufficient to defeat a non-use removal action, provided the use is in relation to the goods and/or services for which the mark is registered.

However, the decision may also have serious repercussions for trademark owners. Firstly, infringers may be able to avail themselves of the good-faith defence under Section 122(1)(a)(i) even if their name (which would otherwise infringe your registration) constitutes only the distinguishing part of their mark.

Furthermore, with respect to non-use, the decision confirms the Australian position that there is a reasonably high threshold to satisfy the registrar that a trademark applicant/owner had the requisite intention to use the mark at the time of making the application. An uncertain or indeterminate possibility of using the mark at some unascertained time in the future is unlikely to be sufficient. Moreover, even if use of the registered mark can be demonstrated, it appears that the courts will take a narrow view when determining whether a mark has been used in relation to goods and services.

Mark Williams and Tim Golder, Allens Arthur Robinson, Melbourne

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