Advanced Data Integration Pty Ltd v ADI Limited

[2004] FCA 731

FEDERAL COURT OF AUSTRALIA

Advanced Data Integration Pty Ltd v ADI Limited [2004] FCA 731

INTELLECTUAL PROPERTY – trademarks – application for stay of proceedings pursuant to s129(5) of the Trade Marks Act 1995 (Cth) – operation of s129(5) – whether action for groundless threats of legal proceedings should be stayed because trademark owner brought proceedings for infringement, after threatening to do so, with due diligence – whether applicant would be unable to pursue a claim for damages if proceedings were stayed – whether application of s129(5) can be determined at an interlocutory level – whether s129(5) allows an application to remove a stay of action where there has been delay in the conduct of the proceedings by the trademark owner – meaning of phrase ‘begins and pursues’ in s129(5)

Trade Marks Act 1995 (Cth) ss 129(5), 129, 129(2), 129(1)
Trade Practices Act 1974 (Cth) s 52

Montana Tyres Rims and Tubes Pty Ltd v Transport Tyre Sales Pty Ltd (1998) 155 ALR 489 Cons
Transport Tyre Sales Pty Ltd v Montana Tyres Rims and Tubes Pty Ltd (1999) 93 FCR 421 Cons

ADVANCED DATA INTEGRATION PTY LTD v ADI LIMITED
Q 176 of 2003

KIEFEL J
BRISBANE
10 JUNE 2004

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q176 OF 2003

BETWEEN:	ADVANCED DATA INTEGRATION PTY LTD (ACN 064 579 513) APPLICANT
AND:	ADI LIMITED (ACN 008 642 751) RESPONDENT
JUDGE:	KIEFEL J
DATE OF ORDER:	10 JUNE 2004
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1.These proceedings be stayed by reason of s 129(5) of the Trade Marks Act 1995 (Cth).

2.        The applicant pay the respondent’s costs on the motion.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q176 OF 2003

BETWEEN:	ADVANCED DATA INTEGRATION PTY LTD (ACN 064 579 513) APPLICANT
AND:	ADI LIMITED (ACN 008 642 751) RESPONDENT

JUDGE:	KIEFEL J
DATE:	10 JUNE 2004
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. The respondent to these proceedings is the owner of a number of registered trademarks. On 23 September 2003 it wrote to the applicant alleging infringement of a particular trademark and threatening proceedings if undertakings to desist were not forthcoming. Correspondence ensued between the parties. The applicant filed these proceedings on 18 November 2003. The respondent filed proceedings for infringement in the New South Wales District Registry of this Court on 20 November 2003. The respondent now applies to stay the proceedings, until further order, on the basis of s 129(5) of the Trade Marks Act 1995 (Cth). The orders it originally sought, to have the applicant’s proceedings dismissed or permanently stayed, are no longer pursued.

2. On 23 September 2003 the respondent’s solicitors wrote to the applicant advising that it was the ‘owner in Australia of numerous registered trademarks incorporating the acronym ‘ADI’, however relevantly for the purposes of this letter is No 904507 ‘ADI’ in Class 9 for goods including software (the ‘Trade Mark’).’  It went on to say that it had come to its attention that the applicant had been using the trademark  ‘ADI’ in connexion with its company name on its website and in newspaper articles and took the view that such uses were  in relation to provision of computer software and software related services.  It was contended that ADI had rights under both the Trade Marks Act and the Trade Practices Act 1974 (Cth). The solicitors advised that they were instructed to request that the applicant immediately cease using the name ADI or any name which includes those letters and take action to remove all references from its website. Failing the giving of those undertakings the solicitors advised that they would seek instructions to issue proceedings for infringement. The deadline for those undertakings was given as 7 October 2003. On 3 October 2003 the solicitors for the applicant advised that they were investigating the history of the use of the expression ‘ADI’ and asked for some evidence of the history of the respondent’s continuous use of it.  That request was repeated in a letter of 17 October 2003.  On 17 October 2003 the respondent’s solicitors advised that it was not incumbent upon their client to provide evidence of continuous use.  The undertakings were requested to be provided by 24 October 2003. 

3. On 27 October 2003 the applicant’s solicitors advised that a lengthy letter in response would be provided and it was, on 28 October 2003. In it the applicant cast doubt upon whether the particular trademark was a validly registered trademark . On the assumption that it was, it was said that the applicant had a number of defences to an infringement action and denied that there had been a breach of s 52 of the Trade Practices Act.  It is not necessary to detail the contentions.  For its own part the applicant threatened to bring its own action ‘to redress the wrong that has been done to it by the wrongful threats’, and to seek an expungement from the register of the mark or at least so far as it related to a particular class of goods.  It then made an offer to obviate further proceedings.   A period of seven days was given for their acceptance. 

4. The respondent’s solicitors replied on 5 November 2003, the day after that deadline expired.  The letter attempted to further discussions towards a resolution of the matter but not on the terms proposed by the applicant.  The respondent’s offer was to remain open until 12 November 2003. 

5. As previously mentioned the applicant’s proceedings were commenced in this Registry on 18 November 2003 and on that day a letter was sent by its solicitors to the solicitors for the respondent attaching a draft application and statement of claim.  Two days later the respondent commenced proceedings for infringement in the New South Wales District Registry. On that day, 20 November 2003, the respondent’s solicitors wrote to the applicant’s solicitors advising that their client had ‘this morning’ instructed them to issue proceedings.  On 9 December 2003 the respondent filed the present motion.  The motion has not been heard earlier because the parties continued their discussions. 

6. The proceedings for infringement refer to two trademarks.  In addition to that numbered 904507 another, numbered 673815, is also said to have been infringed.  In response the applicant in these proceedings has amended its application and statement of claim to refer to some fourteen trade marks owned by the respondent.  I take it that it is said that the respondent’s threats may have a connexion with any or all of these marks.

7. Section 129 of the Trade Marks Act provides as follows:

   ‘Groundless threats of legal proceedings

   (1)If a person threatens to bring an action against another person (threatened person) on the ground that the threatened person has infringed:

   (a)a registered trade mark; or

   (b) a trade mark alleged by the person to be registered;

   any person aggrieved by the threat (plaintiff) may bring an action (either in a prescribed court or in any other court having jurisdiction) against the person making the threat (defendant).

   Note:   For prescribed court see section 190.

   (2) The purpose of the action is to obtain from the court:

   (a) a declaration that the defendant has no grounds for making the threat; and

   (b) an injunction restraining the defendant from continuing to make the threat.

   The plaintiff may also recover any damages that he or she has sustained because of the defendant's conduct.

   (3) The action may be brought whether or not the defendant is the registered owner, or an authorised user, of the trade mark alleged to have been infringed.

   Note:   For authorised user see section 8.

   (4) The court may not find in favour of the plaintiff if the defendant satisfies the court that:

   (a) the trade mark is registered; and

   (b) the acts of the threatened person in respect of which the defendant threatened to bring an action constitute an infringement of the trade mark.

   (5) An action may not be brought, or (if brought) may not proceed, under this section if the registered owner of the trade mark, or an authorised user of the trade mark having power to bring an action for infringement of the trade mark, with due diligence, begins and pursues an action against the threatened person for infringement of the trade mark.

   Note: An authorised user of the trade mark may not have power to bring an action for infringement of the trade mark because of the terms of the agreement between the authorised user and the registered owner of the trade mark (see section 26).

   (6) This section does not make a lawyer, registered trade marks attorney or patent attorney liable to an action for an act done in a professional capacity on behalf of a client.

   Note:For lawyer, registered trade marks attorney and patent attorney see section 6.’

8. In Montana Tyres Rims and Tubes Pty Ltd v Transport Tyre Sales Pty Ltd (1998) 155 ALR 489 Wilcox J thought the policy behind s 129 was plain. As his Honour pointed out, a threat to bring a legal action for infringement of a trademark may have drastic consequences (at 509). The potential for abuse by making threats and not instituting proceedings for infringement had been observed in other cases. His Honour however considered that the policy behind subs (5) was less clear, his Honour holding that ‘the subsection is obviously concerned to avoid multiplicity of proceedings but it is unnecessarily restrictive’. In his Honour’s view the potential for injustice was obvious (at 510). Threats may have been unjustified and caused substantial loss in respect of which damages would ordinarily be recoverable pursuant to s 129(2). However his Honour accepted that subs (5) allows the defendant to bring the threatened party’s action to a halt, and thus avoid an order to pay damages. In his Honour’s view it was one thing to forbid the commencement of an action for unjustified threats; but it is another thing to stop an already commenced action and preclude the recovery of damages. No explanation was provided in the Explanatory Memorandum as to why this course was taken.

9. His Honour does not appear to have doubted the effect of subs (5).  He went on to say that its drastic effect was mitigated by its restriction to an action for infringement that is commenced and pursued ‘with due diligence’ (at 510).  In that connexion his Honour agreed with a comment made in ‘Lahore’s Patents, Trade Marks and Related Rights’, vol 1A (at par [58,025]):

   The availability of this procedure emphasises the need for registered owners and authorised users of trade marks (and their legal advisers) to make a decision prior to the despatch of any letter of demand that, if the undertakings sought are not forthcoming, proceedings for infringement will be instituted.  The practice of writing letters of demand in the hope that negotiations will commence with a view to a resolution of the claims is not to be encouraged.  Threats of litigation made against anyone are serious, are to be treated as such, and if they are empty, a heavy liability may be incurred.’

10. Wilcox J held that there had been no due diligence in commencing the action.  Within three weeks of the assignment to it of the rights in some registered trademarks Transport Tyre Sales had required undertakings to be given within ten days, by 27 June 1997.  Its solicitors warned that a failure to provide them would leave their client no alternative but to institute proceedings for infringement.  Within the time limited Montana’s solicitors offered a more limited undertaking than that which had been sought.  Transport Tyre Sales did not accept that counter-offer and wrote again, twelve days later, on 9 July 1997 again demanding the wider undertaking to be given by 11 July 1997.  In his Honour’s view, Transport Tyre Sales had no alternative at this point but to institute an infringement action and it was nearly seven weeks since its rights to the marks had been recorded.  There had, in his Honour’s view, been ample time to prepare the documents necessary for the institution of an action but it did nothing.  It left it to Montana to initiate litigation.  His Honour went on (at 511):

    ‘Whatever the reason, TTS allowed a further 10 weeks to pass before, on 19 September 1997, it filed a cross-claim alleging infringement.  This was some three months after TTS’ first threats and demands for urgent undertakings.’

11. His Honour held that subs (5) did not apply.

12. On appeal (Transport Tyre Sales Pty Ltd v Montana Tyres Rims and Tubes Pty Ltd (1999) 93 FCR 421), the Full Court did not express disagreement with Wilcox J’s view of the operation and effect of subs (5). There is nothing to suggest that it was raised. Their Honours (Beaumont, Heerey and Emmett JJ) considered that his Honour was in error in failing to consider the reason for the delay. In their Honours’ view the process of characterising inaction as a lack of ‘due diligence’ does require an understanding of the reason for the delay (at 441). In the Court’s view Transport Tyre Sales’ reason for not suing before September was a good one, namely that other proceedings had already been commenced by Montana and were not returnable until 5 August 1997 when directions were to be made for the filing of a cross-claim.  This was, in the Court’s view, action taken with due diligence.

13. I agree that it seems odd that legislation would provide a remedy such as damages to the person threatened and then effectively prevent the remedy being pursued if a trademark owner brings proceedings for infringement.  The words of subs(5) are however clear.  It is not intended that an action brought under subs (1) is to continue in that circumstance.

14. Reading the subsections together, it would seem that the right to bring proceedings under subs (1) is predicated upon the trademark owner not having brought infringement proceedings, after threatening to do so, with due diligence.  If proceedings are brought orders in the nature of declarations and injunctions referred to in subs (2) will no longer be necessary, the threat having been overtaken by the proceedings.  So far as concerns damages, it must have been thought that they would not be necessary where infringement proceedings are brought with due diligence.  In such a situation the party threatened will be left to any other remedies it may have if it has in fact suffered damage as a result of the threats and they prove to be unjustified.

15. The applicant in these proceedings submitted that it will be unable to pursue a claim for damages if these proceedings are stayed. I do not think that follows. The right given by s 129 is not exhaustive of its rights to claim damages whether by reference to economic torts or under the Trade Practices Act. I do not see how a stay of these proceedings could create an issue estoppel against the applicant with respect to such claims.

16. It was also submitted for the applicant that subs (5) cannot be determined at an interlocutory level.  This is because it refers not only to due diligence in the commencement of the action but also in pursuing it.  That cannot be assessed until trial.  The few reported cases concerning the subsection did not involve applications brought before trial.  In support of this contention it was submitted that to permit the matter to be determined in a summary way would prevent the applicant from having access to discovery to strengthen or support its case.  Here the applicant had given a notice to produce.  The respondent produced the documents listed but immediately claimed privilege with respect to them.  The applicant did not seek to have that issue determined but submitted that it was clear from the nature of the documents and the response to it that the documents were material to its case. 

17. It is necessary to consider whether the subsection operates so as to allow the person threatened to apply to remove a stay of its action in the event that the trademark owner was dilatory in the conduct of the proceedings.  In a sense the order sought by the respondent, that the action be stayed ‘until further order’ supports the applicant’s contention, but I put that to one side.  Subsection (5) provides, relevantly, that an action brought under the section may not proceed if the owner ‘begins and pursues’ an action for infringement with due diligence.  I do not think that it can be taken as intended, by the use of the word ‘pursues’ that what is effected by the subsection may be undone at some later point.  The word was no doubt added to prevent proceedings being filed and no further action taken.

18. The word ‘pursues’ should not be taken as meaning to pursue to judgment.  If that were the case the prohibition effected by subs (5), that if brought an action by the person threatened is not to proceed, would have little if any operation.  The phrase ‘begins and pursues’ is referrable to an early point in an action where it can be seen that not only has it been initiated, but it is plain that it is to be litigated.  As I have said the effective removal of the threatened person’s rights to bring action concerning the threats is based upon a trademark owner being dilatory or not intending to bring proceedings.  The section is concerned with the delay between threats, or continuing threats, and the commencement of infringement proceedings.  It is not concerned with whether the whole of the proceedings are then conducted with diligence.  That may be dealt with in the management of the proceedings.

19. The applicant submitted that the steps taken here by the respondent did not amount to the commencement of an action with due diligence.  It pointed to the number of times an undertaking had been required.  It submitted that the respondent’s letter of 20 November  2003 showed, by its reference to instructions only being obtained that day, that the respondent had not earlier given instructions to bring proceedings for infringement.  In that regard reliance was placed upon the passage from Lahore to which Wilcox J had referred in Montana Tyres Rims and Tubes Pty Ltd v Transport Tyre Sales Pty Ltd.

20. The respondent submitted that the Full Court must have disagreed with Wilcox J’s adoption of the approach in Lahore by the approach it took to the relevance of the owner’s reasons for not bringing the proceedings. It submitted that in this case there had been an ‘active battle’ between the parties to mid-October and the letter of 28 October was a combative response.  For its part it submitted that the applicant’s action was brought prematurely, only six days after the last deadline.

21. I do not consider that any inference can be drawn concerning what the Full Court thought of the passage his Honour quoted from Lahore.  It would not preclude a consideration of a party’s reasons for delay.  It gives a warning that parties should be ready to litigate if they threaten to do so.  So far as concerns the provision of instructions in this case, without more I do not think it is to be inferred that the respondent did not intend to bring proceedings when the initial threat was made, although it obviously hoped that would not be necessary.

22. The correspondence does not contain gaps suggestive of delay (or inaction) on the respondent’s part.  The applicant did not point to a particular time by which the respondent should have brought proceedings.  It is apparent that the respondent did not do so because it was hopeful that the matter might be resolved.  The correspondence does not suggest that at some point it was obvious that it could not be resolved.  The first complete response by the applicant was on 28 October 2003.  After that response the respondent had one more attempt to resolve the matter.  The applicant brought its proceedings six days after that deadline, on 18 November 2003, and the respondent commenced its action two days later.  Almost certainly the respondent’s preparations to do so would have commenced earlier.  None of this suggests delay on the respondent’s part.  Its action was brought with due diligence and subs (5) applies. 

1. The applicant’s other submission relates to the other trademarks.  In the letter of 23 September 2003 the respondent had asserted that it was the owner of numerous trademarks but that that numbered 904507 was relevant to the letter.  Now it claims under an additional trademark.  The applicant is now concerned that the respondent may have been threatening proceedings and requiring undertakings on the basis of infringement of all of the trademarks.  The applicant’s point is that there needs to be correspondence between the trademark the subject of the threat and the trademark the subject of the infringement proceedings for subs (5) to apply. 

2. It is to be expected that threats will identify a trademark.  Here the threat was clearly directed to one trademark.  When the respondent came to bring proceedings it appreciated that another mark also related to the same category of goods.  A review of the other trademarks owned by it shows that they were either endorsed prior to the 1995 Act, to the effect that registration gives no right to the exclusive use of the letters ‘ADI’, or they relate to classes of goods wholly unrelated to the applicant’s use. They are therefore irrelevant to the respondent’s claim. The applicant’s proceedings under s 129(1) and (2) should have referred only to trademark 904507 since that was the only trademark the subject of the threats. The fact that the respondent did not make demand or threaten proceedings with respect to the other mark does not prevent it from claiming infringement.

3. It follows from my reasons that no purpose is to be served by limiting an order staying the applicant’s proceedings to further order, since there will be no occasion to revisit the application of s 129(5). The order will be that these proceedings be stayed. The applicant should pay the respondent’s costs of the motion.

I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.

Associate:

Dated:             10 June 2004

Counsel for the Applicant:	Mr D Logan
Solicitor for the Applicant:	Bennett & Philp
Counsel for the Respondent:	Mr R Cobden
Solicitor for the Respondent:	Griffith Hack
Date of Hearing:	5 May 2004
Date of Judgment:	10 June 2004