Ugg boots counterfeiters jailed for contempt of court

Australia
In Deckers Outdoor Corporation Inc v Farley (No 8) ([2010] FCA 657, June 24 2010), the Federal Court of Australia has imposed prison sentences on three respondents, who were found to be in contempt of court. 

Deckers Outdoor Corporation Inc manufactures UGG AUSTRALIA-branded boots. Deckers is also the owner of the relevant trademark, copyright and reputational rights in the UGG AUSTRALIA brand.

This proceeding is part of a long-running and complex claim by Deckers against 23 respondents in relation to the manufacture, distribution, sale and marketing of counterfeit Ugg Australia boots, over a four-year period from 2003 to 2007. This particular proceeding related to the conduct of three respondents, Vladimir Vaysman, Victoria Vaysman and Lenoid Mykhalovskyi, and certain companies associated with them (namely, Hepbourne Pty Ltd and Vaysman Pty Ltd). The respondents had repeatedly and deliberately contravened the court's orders prohibiting the manufacture, distribution, marketing and sale of counterfeit boots. 

In Deckers Outdoor Corporation Pty Ltd v Farley (No 6) ([2010] FCA 391) and Deckers Outdoor Corporation Pty Ltd v Farley (No 7) ([2010] FCA 560), the Federal Court had found the charges of contempt proven against the respondents. 

Under Section 31 of the Federal Court of Australia Act 1976 (Cth), the Federal Court has the power to order that a contemnor "pay a fine, be committed to prison, or both pay a fine and be committed to prison". This decision concerned the determination of the penalties to be imposed on each of the respondents.

The court first considered the case of Vladimir Vaysman, who exercised overall control over the respondents' commercial operation. Ten charges of contempt of court were proven against Vladimir in Deckers No 6, including:
  • causing and encouraging the use of a factory and warehouse for manufacturing, distributing, selling, importing and exporting the counterfeit boots;
  • procuring or attempting to procure the services of persons to act as his agents in offering for sale and selling the counterfeit boots; and
  • representing that the counterfeit boots were manufactured, advertised and promoted with the sponsorship or approval of Deckers.
The court stated that Vladimir's conduct was "one of the worst cases of contempt to have become before the court… Not only have the applicant's rights been seriously infringed, the authority of the court has been severely undermined". The court determined that Vladimir's most serious offence warranted a sentence of three years' imprisonment. The other offences warranted sentences of between six months and seven days' imprisonment. The court ordered that the sentences be served concurrently, such that the total term to be served by Vladimir is three years.

The court then turned to Victoria Vaysman, Vladimir Vaysman's sister. She played a key role in the respondents' business in procuring sales through the Internet and recruiting other people to undertake this work. Seven charges of contempt were proven against her, including:
  • advertising, promoting, offering for sale and selling counterfeit boots;
  • representing that the products were genuine Ugg Australia boots, made by Deckers;
  • obstructing the execution of search orders; and
  • recruiting, instructing and assisting various persons to act as her agents in promoting, advertising, offering for sale and selling counterfeit boots on the Internet.
In determining the sentence, the court gave some weight to the fact that Victoria was the single parent of a young child. The court held that the most serious charges against Victoria warranted prison sentences of one year, with the other charges warranting sentences of between seven days and six months' imprisonment. The court ordered that the sentences be served concurrently and that Victoria serve two months' imprisonment, with the remainder of the sentence suspended.

The court then turned to Lenoid Mykhalovskyi, who was involved in the manufacture and transportation of the counterfeit products. He was also the sole director of a number of companies used to purchase materials for the manufacture of, and received proceeds from the sale of, the counterfeit boots. Six charges of contempt were proven against Mykhalovskyi, including:
  • manufacturing counterfeit boots; and
  • failing to provide information about the counterfeit footwear, including statements of assets of companies of which he was the sole director.
The court found that Mykhalovskyi should be imprisoned for three months on the basis of the most serious charge against him. The other charges warranted a sentence of one month's imprisonment, to be served concurrently with the three-month sentence.

Finally, the court turned to Vaysman Pty Ltd and Hepbourne Pty Ltd, which were corporate vehicles used by Vladimir Vaysman to manufacture, receive orders and forward the goods to the purchasers. Vaysman Pty Ltd was deregistered in March 2007, and Hepbourne Pty Ltd was in liquidation as the result of fines imposed in previous proceedings. Accordingly, no further penalties could be imposed on the companies. However, the court declared that Vaysman Pty Ltd and Hepbourne Pty Ltd were guilty of contempt of court.

This case serves as a warning for counterfeiters that continued, commercial and flagrant infringement of intellectual property is an illegal and costly exercise. Not only is conduct of this nature likely to result in a high award damages being made, but it may, in the most severe and sustained cases, result in terms of imprisonment for those involved.
 
Lisa Ritson and Elizabeth Ireland, Blake Dawson, Sydney

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