Colbeam Palmer Ltd v Stock Affiliates Pty Ltd

[1968] HCA 50

HIGH COURT OF AUSTRALIA

Windeyer J.

COLBEAM PALMER LTD. v. STOCK AFFILIATES PTY. LTD.

(1968) 122 CLR 25

15 August 1968

Trade Marks—Injunction

Trade Marks—Infringement—Remedies—Distinction between account of profits and damages—Injunction—Effect of expiry of registered mark—Effect of assignment of mark—Delivery up or destruction of goods—Account of profits—Knowledge of infringer—Period of accountability—Onus of proof—Who may sue—Basis of calculation—Form of order—Trade Marks Act 1955-1958 (Cth), ss. 20 (3), 65, 82 (7).* Injunction—When available—Proprietary right as basis of jurisdiction—Effect of assignment of trade mark by plaintiff.

Decisions

July 19.
WINDEYER J. delivered the following written judgment: -
This action is the result of a dispute about the use of the term "Craft Master" as a trade name for articles described as painting sets. The plaintiff, a company incorporated in the United Kingdom, was registered under the Australian Trade Marks Act 1955-1958 as the proprietor of the word trade mark CRAFTMASTER, in respect of painting sets included in class 16, for a period of seven years from 11th April 1961. Unless it had been renewed this registration had expired before the case came on for hearing before me on 1st May last. It may have been renewed pursuant to s. 69 of the Act. But I do not remember evidence of that. Nor, so far as my recollection goes, was the matter adverted to by counsel. Unless the registration was in fact renewed and is in force the Court cannot now by injunction restrain infringement of it whatever was the position when the action was commenced. I therefore reserve the question thus arising for further consideration. If the registration was in fact renewed I shall, subject to any question of costs, allow the case to be reopened to prove this - or to remind me of any evidence I have overlooked. (at p27)

2. That, however, is not the only obstacle which the plaintiff has to surmount at the outset. The next arises from another matter which again, so far as I remember, was not adverted to by either side at the hearing and which then escaped my notice. It is that, although the plaintiff was the proprietor of the mark when the action was commenced, it apparently assigned it pendente lite. The copy of the register annexed to the Registrar's certificate which was tendered shews under the heading "Particulars of any Assignment or Transmission of Trade Mark" an entry as follows: "Transfer to Sines Bros. Limited of Tri-ang Works, Morden Road, Merton, London S.W. England, by deed dated 31st January 1966. Registered 18th October 1966." This I take to be a record of an assignment made pursuant to s. 82 of the Act and registered in accordance with s. 20. I put aside for the moment the bearing of this on the relief sought. I shall revert to it later in this judgment; and before making a final order I shall hear any submissions the parties wish to make. (at p28)

3. I turn now to the facts. It appears that at some time early in the 1950s an American company, then known as Palmer Pann Corporation, made and sold painting sets in the United States under the name "Craft Master". These painting sets were substantially the same as those in question in this case. They consist of a cardboard box containing a paint brush and ready-mixed oil paints of various colours and a card or cards of suitable surface and texture for painting. On the card an uncoloured picture is delineated. Numbers appearing on various parts of it indicate the colour to be carefully applied there to produce a finished painting. These painting sets are apparently attractive as a hobby or recreation especially for children. (at p28)

4. The American company Palmer Pann Corporation later changed its name to Craft Master Corporation. It seems that at one stage before doing so it had a business alliance or association with the plaintiff Colbeam Palmer Ltd. in England, which was apparently an offshoot of it. However that may have been, in or about 1954 the American and English companies decided to go their separate ways each selling its painting sets under the name "Craft Master". They agreed to divide the world between them each keeping out of the territory of the other. Broadly speaking the Eastern Hemisphere was to be the English company's territory, the Western Hemisphere that of the American company. Australia and New Zealand were apparently left as a kind of no-man's land where each company might make forays. (at p28)

5. The defendant is a company incorporated in New South Wales. Its main business is as an importer and wholesale supplier of a variety of goods to retailers. The company seems to be controlled by its founder, Mr. J. A. Winstock. He has been its managing director for thirty years. In 1960 or thereabouts he entered into negotiations with the American company with a view to his company becoming the selling agent - in the inexact commercial sense of that expression - of its Craft Master painting sets in Australia. In the result the defendant company became a regular importer of the American company's goods. These it sold to various retail shops in Sydney. At some time in 1962 Mr. Winstock found that painting sets of the plaintiff's manufacture were being sold in Australia under the name Craft Master. Not then knowing exactly what arrangements there were between the American and the English companies about the territory of each, he in November 1962 reported to the American company by letter that the English company's goods were being sold in Australia under the same name as the American. He was told in reply that -

"Colbeam Palmer have full right to be there and to market their paint-by-number sets under the Craft Master brand name. Granted beyond question that the two products with the same brand name is confusing and most undesirable, but we do not have access to any influence that would result in the other fellow withdrawing. Lack of sufficient sales of the product would be the surest method of eliminating him" and "you should not fear the competition, but go right on developing the business". (at p29)

6. Mr. Winstock took this advice to mean that as between the American company and the plaintiff there was no agreement that either must keep out of Australia, that each could there use the name Craft Master. He did not know that in 1961 the plaintiff had registered this name as its trade mark in Australia. His company therefore continued trading in the American goods bearing the name Craft Master as the American company had advised him to do. And the plaintiff company took no steps to make known to the defendant or to the trade generally that it had the name Craftmaster as its trade mark or to assert any rights in it until 30th August 1965. A firm of patent attorneys in Melbourne, acting for the plaintiff, then wrote to two retailers to whom the defendant had sold painting sets alleging that these infringed the plaintiff's trade mark. By a letter dated 1st September 1965 the same firm of patent attorneys made a similar complaint to the defendant adding:

"Possibly you are using the trademark CRAFTMASTER in ignorance of our client's statutory rights, and we have been instructed to request you to cease forthwith sale of the painting sets in question and to advise us of the particulars of previous sales and particulars of stock remaining in your possession. Your reply within seven days is requested." (at p30)

7. The defendant thereupon sought advice from a patent attorney. Correspondence ensued both between the parties and between the defendant and the American company. In the upshot the plaintiff commenced this action by writ issued on 10th December 1965 with a statement of claim delivered four days later. The defendant, acting on the advice of its patent attorney and solicitors, defended the action alleging that the registration of the trade mark was invalid on various grounds including prior user in Australia by the American company. The American company came into the field in support. In 1966 it commenced proceedings under s. 22 of the Act seeking to have the trade mark expunged from the register. Both matters drifted on, the parties in each being engaged in correspondence and inquiries, until the matters were about to come on for hearing in this Court. (at p30)

8. Then, on 29th April last, the defendant's solicitors wrote to the plaintiff's solicitors as follows:

"We understand that counsel for the defendant has advised Mr. Helsham Q.C. for your client that it is intended at the hearing to seek to amend statement of defence of the defendant by adding a new paragraph No. 6 in the following terms: -

'The defendant says that it was unaware of the existence of the plaintiff's Registered Trade Mark No. A166167 until it received a letter on behalf of the plaintiff on or about the 1st day of September 1965 and the defendant says that it was an innocent infringer of the said Mark until that time.'

The defendant also wishes to state that it is prepared to submit to an injunction in the suit as claimed in paragraphs 1 and 2 of the statement of claim and to submit to an account of profits or an alternative enquiry as to damages suffered by the plaintiff such profits or damages to be assessed from the date of receipt of such letter dated 1st September 1965 aforesaid."

At about the same time the plaintiff was also told that the application by the American company for the expungement of the registration of the mark would be abandoned. In that matter I made an order dismissing the application by consent and providing for the costs of the Registrar. (at p30)

9. On 1st May last the present case came on for hearing. I allowed the statement of defence to be amended in the way asked for in the letter of 29th April, whether or not such an amendment was strictly speaking necessary. I thought it was not necessary if the plaintiff should seek an account of profits, but that probably it was necessary if it sought damages. When the case began the plaintiff had not stated which form of relief it would choose. (at p31)

10. As the defendant had consented to an injunction as asked, the hearing proceeded on the basis that such an order should be made. I failed to notice the obstacles to that course to which I have already referred, namely that the trade mark had been assigned and that it had apparently expired. As I propose to hear any submissions the parties may wish to make arising out of these matters, I shall now merely indicate tentatively my views of the questions which seem to arise. (at p31)

11. First, I am not prepared to grant an injunction to restrain the infringement of a registered trade mark which has expired. No question of passing off arises in this case. It is founded only on the registration of the mark. (at p31)

12. Secondly, I greatly doubt whether, even by consent, an injunction should be granted to restrain the use of a trade mark at the suit of a party who before the hearing had assigned the mark. The plaintiff seems to me to be not now a person having a sufficient interest to obtain an injunction. It may be that an order could have been made before the hearing under the Rules of Court, O. 18, r. 2, for the addition of the assignee as a party. But no application for this was made. Certainly an injunction could not be granted as asked in terms describing the mark as "the plaintiff's trade mark". (at p31)

13. Thirdly, I think that the assignment of the mark limits the period in relation to which either damages or an account of profits may be had. I go now to that aspect. (at p31)

14. On general principles, and as I read s. 65, damages or an account of profits are forms of relief which ordinarily are to be had in a trade mark case only as ancillary to an injunction. However, the circumstances of this case are unusual. Although I think that an injunction cannot now be granted at the suit of the plaintiff, it could have been when the action was commenced. The plaintiff asks for an account of profits which, as an alternative to damages, was sought when the action was commenced. I am prepared, therefore, to order an account for such period as the facts warrant. I turn to consider when that period began, and for how long it continued. (at p31)

15. Section 65 of the Act provides that "the relief which a court may grant in an action or proceeding for infringement of a registered trade mark includes an injunction (subject to such terms, if any, as the court thinks fit) and . . . at the option of the plaintiff, either damages or an account of profits". It was submitted for the plaintiff that this somehow enlarges the scope of the account of profits. But the argument was, I consider, mistaken. The effect of s. 65 is to make expressly available in the case of the infringement of a registered trade mark the same remedies and relief as can be had in a passing-off action in the case of a common law trade mark. (at p32)

16. The plaintiff whose mark has been infringed can choose between damages or an account of profits. He cannot have both. They are alternative remedies. In this s. 65 merely echoes old law, now trite for nearly a hundred years: Neilson v. Betts (1871) LR 5 HL 1, at p 22 ; De Vitre v. Betts (1873) LR 6 HL 319, at p 321 (at p32)

17. The distinction between an account of profits and damages is that by the former the infringer is required to give up his ill-gotten gains to the party whose rights he has infringed: by the latter he is required to compensate the party wronged for the loss he has suffered. The two computations can obviously yield different results, for a plaintiff's loss is not to be measured by the defendant's gain, nor a defendant's gain by the plaintiff's loss. Either may be greater, or less, than the other. If a plaintiff elects to take an inquiry as to damages the loss to him of profits which he might have made may be a substantial element of his claim: see Mayne on Damages, 11th ed. (1946), p. 71 note. But what a plaintiff might have made had the defendant not invaded his rights is by no means the same thing as what the defendant did make by doing so. (at p32)

18. I need not elaborate the distinction between a defendant's profits and a plaintiff's loss. It has been explained often enough - very clearly in the article "Equity" by Professor Hanbury in Halsbury's Laws of England, 3rd ed., vol. 14, pp. 524-525. The aspect which is significant for the present case, in which the plaintiff has chosen an account of profits in lieu of damages, is the extent to which the amount recoverable by the plaintiff depends upon whether the account is to be taken from the date when the defendant became aware of the plaintiff's registered trade mark, or from some earlier date when the defendant was in fact infringing it. (at p32)

19. As to the facts, I am satisfied that the defendant did not know before 30th August 1965 that the plaintiff was the proprietor of the name CRAFTMASTER as a registered trade mark in Australia. I accept the evidence of Mr. Winstock. He was, I thought, a truthful, but cautious and somewhat reticent, witness. It may be that he did not before August 1965 make all the inquiries that a more prudent person in his position might have made, and that he was, as he says, in that sense remiss. But a lack of diligence in inquiry does not turn ignorance into knowledge. Dishonesty is not to be inferred from lack of care. This is not a case of "wilful blindness", the expression used in another context to describe a deliberate abstaining from inquiry from fear of what inquiry might reveal. Moreover for the defendant's ignorance before the end of August 1965 of the plaintiff's registered trade mark the plaintiff must take some responsibility, because it did not earlier assert its rights. I reject the defendant's contention that the plaintiff's dilatoriness amounts to laches altogether barring its rights to an account. Nevertheless I think it is a circumstance to be considered with the rest of the evidence to determine when it was that the defendant first became aware of the trade mark. (at p33)

20. To appreciate the effect of this finding in relation to an account of profits, it is necessary to remember that this form of relief has its own scope and limitations and that they are quite independent of, different from, and unaffected by the special limitations which s. 68 imports in a case when damages are sought. The account of profits was a form of relief peculiar to courts of equity, whereas damages were originally a purely common law remedy. Not until Lord Cairns's Act in 1858 had the Chancery Court power to award damages. In assessing damages equity follows the law; but the account of profits remains tied to its origin in equity.

"The distinction between an account of profits and an inquiry as to damages is most strongly brought out in cases where courts of equity grant an account as ancillary to an injunction. Although the account is there by way of compensation for a common law wrong, a court of equity, instead of following the law, measures the wrongdoer's liability by its own peculiar measure": Ashburner's Principles of Equity, 2nd ed. (1933), p. 40. (at p33)

21. The jurisdiction of courts of equity in relation to trade marks did not begin with the protection of statutory trade marks. It began with what have been called common law trade marks. These, notwithstanding their somewhat misleading name, were the creatures of equity which established a form of property in a mark gained by use and reputation: see Registrar of Trade Marks v. W. &G. Du Cros Ltd. (1913) AC 624, at p 636 . Protection of property, rather than abhorrence of fraud, was thus said to be the foundation of equitable jurisdiction in cases of common law trade marks: Leather Cloth Co. Ltd. v. American Leather Cloth Co. Ltd. (1863) 4 De G. J. &S. 137 (46 ER 868); (1865) 11 HLC 523 (11 ER 1435) ; Hall v. Barrows (1863) 4 De G J &S 150 (46 ER 873); Millington v. Fox (1838) 3 My &Cr 338 (40 ER 956) ; Curtis &Harvey v. Messner (1891) 13 ALT 127. Yet, despite what was said by Lord Westbury in the first two of the cases just mentioned, other lawyers of eminence have emphasized fraud rather than a proprietary right as the basis of the jurisdiction to restrain passing off. This view has its supporters: e.g. Ashburner's Principles of Equity, 2nd ed. (1933), p. 378. It may still be debatable as a matter of academic and historical interest. There is, no doubt, some circuity in saying that the protection which the Court of Chancery gave by injunctions to plaintiffs who had acquired trade marks by use and reputation made such trade marks a form of property - and then saying that the intervention of the Court in such cases was based upon the protection of an equitable proprietary interest. But the topic is really irrelevant in the present case. (at p34)

22. This is not a passing-off action. It is an action for the infringement of a registered trade mark. And, although the proposition may involve one's conception of the nature of property, it can hardly be said that a registered trade mark is not a species of property of the person whom the statute describes as its registered proprietor, and which it permits him to assign: ss. 57 and 82. In Attorney-General (N.S.W.) v. Brewery Employees' Union of N.S.W. (1908) 6 CLR 469, at pp 512-513 , Griffith C.J. spoke of a trade mark as "the visible symbol of a particular kind of incorporeal or industrial property consisting in the right of a person engaged in trade to distinguish by a special mark goods in which he deals, or with which he has dealt, from the goods of other persons". (at p34)

23. The remedy of injunction, now provided by statute to prevent the infrinement of a registered trade mark, reflects the history of the way in which equity protected and established a property in trade marks before they were recognized by statute. And the account of profits retains the characteristics of its origin in the Court of Chancery. By it a defendant is made to account for, and is then stripped of, profits he has made which it would be unconscionable that he retain. These are profits made by him dishonestly, that is by his knowingly infringing the rights of the proprietor of the trade mark. This explains why the liability to account is still not necessarily coextensive with acts of infringement. The account is limited to the profits made by the defendant during the period when he knew of the plaintiff's rights. So it was in respect of common law trade marks. So it still is in respect of registered trade marks : Edelsten v. Edelsten (1863) 1 De G J &S 185 (46 ER 72) ; Slazenger &Sons v. Spalding &Bros. (1910) 1 Ch 257 ; Moet v. Couston (1964) 33 Beav 578 (55 ER 493) . I think that it follows that it lies upon a plaintiff who seeks an account of profits to establish that profits were made by the defendant knowing that he was transgressing the plaintiff's rights. Counsel for the plaintiff disputed this. He contended that once infringement was admitted the onus was on the defendant to prove its allegation that for the period up to September 1965 it was ignorant of the plaintiff's rights in the mark. This, he said, was put forward as a matter of defence. I note, however, that in Moet v. Couston, Romilly M.R. - after quoting Edelsten v. Edelsten, for the proposition that a plaintiff was not entitled to an account of profits from a defendant who used a mark not knowing of the plaintiff's right - said (1864) 33 Beav, at p 581 (55 ER, at p 494) : "On looking at the evidence in this case, I find that the plaintiffs fail in establishing any such knowledge on the part of the defendants." In the present case I would say the same thing. But the question of where the onus lies does not really arise. As I have said, I find positively that the defendant did not know of the registration of the name Craftmaster as a trade mark until at the earliest 30th August 1965 when it learnt of the letter received by one of its retailer customers. It is suggested that one answer by Mr. Winstock as recorded in the transcript of evidence contradicts this. But, having heard some discussion of this by counsel, I am satisfied that the form in which this appears in the transcript is a garbled version of what the witness said when speaking of correspondence which he had after he had had advice from his patent attorney. (at p35)

24. For the reasons I have given, I consider that the account of profits for which the plaintiff asked ought not to go further back than 30th August 1965. As profits, not damages, were asked for, it is irrelevant to contrast the position in regard to damages. Nevertheless, because something was sought to be made of it during the argument, I merely mention that different considerations may govern an inquiry as to damages ; for damages being in origin a common law remedy, it seems that if it were not for s. 68 a plaintiff could be entitled to be compensated for the whole loss that he suffered by the defendant's usurpation of his proprietary rights in a registered mark : see A. G. Spalding &Bros. v. A. W. Gamage Ltd. (1915) 32 RPC 273 (a passing-off case) and Henry Heath Ltd. v. Frederick Gorringe Ltd. (1924) 41 RPC 457 (an infringement of a registered mark). The cases on this point are, however, conflicting : see Halsbury's Laws of England, 3rd ed., vol. 38, p. 646. Whatever view be taken of this, I see no reason for enlarging accountable profits because damages might be calculated in respect of a longer period. (at p36)

25. Having decided that the account of profits should be taken as from 30th August 1965, the next question is at what date should it terminate. I think on 18th October 1966. I say this because on the evidence and as I read ss. 20 (3) and 82 (7) of the Act the trade mark did not cease to be the property in law of the plaintiff until that date, whatever were the rights in equity of the assignee for some months before then. It would, of course, still be unconscionable for the defendant to retain profits it made after the mark was assigned. But the plaintiff is not entitled to have the defendant account for these. For the plaintiff is not the person to whom they should be made over. (at p36)

26. The proper order in this case is, I consider, that an account be taken of the profits the defendant made between 30th August 1965 and 18th October 1966 by its use as a trade mark of the word "Craftmaster" or the words "Craft Master" in respect of painting sets. (at p36)

27. The amount which will be found by the account may be small. That, if it proves to be so, may have some bearing on how the costs of taking the account should be borne. But there is no material before me to suggest that the profits for which the defendant is accountable are so small that I should refuse to order an account. (at p36)

28. There was some discussion as to how the account should be taken. By O. 34, r. 9 of the Rules of Court all just allowances are to be made without any direction for that purpose. That partly disposes of one of the submissions of counsel for the defendant. But the main problem remains. The remarks which Lord Cottenham made a hundred and thirty years ago in Crosley v. Derby Gas-Light Co. (1838) 3 My &Cr 428, at p 436 (40 ER 992, at pp 994, 995) about the practical difficulties of an account of profits made by the infringement of a patent and the expediency of a compromise to save costs have lost none of their strength. And in a general way they apply to trade mark cases equally with patent cases. But the Court cannot press parties to a compromise, except so far as reserving the costs of taking the account and allowing a defendant to make an open offer may do so. The Court can however anticipate, and by anticipation eliminate, some difficulties which could arise before the Registrar. It can do this by virtue of O. 34, r. 3, whereby when ordering an account it can give special directions. After some discussion by counsel on both sides I said that after giving my decision on the main issue in the case and making an order for an account I would hear any submissions the parties wished to make as to any special directions to be given. At this stage I therefore make only some general observations. (at p37)

29. The common form of order for an account of profits is set out in Seton's Decrees, Judgments and Orders. As applied to this case it would read : "Let an account be taken of the profits made by the defendant in selling painting sets under the name or title of 'Craftmaster' or 'Craft Master' between 30th August 1965 and 18th October 1966." But what is here meant by profits, and how are they to be ascertained ? In modern economic theory the profit of an enterprise is a debatable concept. Consequently the word "profit" had today varying senses in the vocabulary of economists. For law some definition or working rule must be accepted for the case in hand ; for, as Farwell J. said in Bond v. Barrow Haematite Steel Co. (1902) 1 Ch 353, at p 366 , "there is no single definition of the word 'profits' which will fit all cases". Perhaps the only single and simple proposition is Lord Lindley's statement that "when a person gets out of a concern more than he puts into it the difference is profit" : In re Armitage ; Armitage v. Garnett (1893) 3 Ch 337, at p 346 . But that is too general to be helpful here. (at p37)

30. It was suggested that the defendant's profit should be measured by the difference between the amount it received for painting sets bearing the trade mark and the amount it had paid to obtain them. The account taken when a patent has been infringed was suggested as an analogy. But to my mind there is an important distinction. If the infringer of a patent sells an article made wholly in accordance with the invention and thereby obtains more than it cost him to make or acquire it, he is accountable for the difference as profit. That is because he has infringed the patentee's monopoly right to make, use, exercise and vend the invention. But in the case of a registered trade mark, infringement consists in the unauthorized use of the mark in the course of trade in relation to goods in respect of which it is registered. The profit for which the infringer of a trade mark must account is thus not the profit he made from selling the article itself but, as the ordinary form of order shews, the profit made in selling it under the trade mark. This creates a difficulty in taking the account - a difficulty which also arises sometimes in cases of patents for improvements : see e.g. Goodlet v. Fowler (1876) 14 SCR (NSW) 496 . In passing-off cases an infringer has sometimes been required to account for the whole profits made by his selling of an article under a spurious description. For example in Lever v. Goodwin (1887) 36 Ch D1 the Court of Appeal upheld the order of Chitty J. to this effect, Cotton L.J. saying that the sale of soap "in a fraudulent dress was a wrongful act" and that "the profit for which the defendants must account is the profit which they have made by the sale of soap in that fraudulent dress". In a case of that sort, where a man sells goods by a false representation, the profit for which he is accountable may well be the profit which he makes by selling the goods. But there is nothing in the evidence to suggest that in this case the defendant by its use of the plaintiff's trade mark in fact passed off the painting sets it sold as the goods of the plaintiff. There is no evidence that the name Craftmaster had come to denote for the Australian public the plaintiff's goods. Indeed it seems that the name was as likely, perhaps more likely, to have meant a kind of article than the products of either the plaintiff or the American company. (at p38)

31. The painting sets the defendant sold bore the name of an American company. So far as the specimen given in evidence shews, they were in their general get-up and decoration unlike the plaintiff's painting sets except for the use of the name Craft Master, which was a common feature. The plaintiff's claim is thus founded simply on its exclusive right in this name arising from registration of it as a trade mark. Therefore I am not persuaded that the defendant is accountable for the whole of the profit which it gained by the sale of its painting sets. It seems to me, however, that this should be ascertained as the starting point for the computation of the profits it made by its wrongful use of the plaintiff's mark : cf. Peter Pan Manufacturing Corporation v. Corsets Silhouette Ltd. (1964) 1 WLR 96;(1963) 3 All ER 402 Subject to hearing any submissions the parties may wish to make, I propose to direct the Registrar in taking the account:

(1) to ascertain the sum received by the defendant for painting sets sold by it between 30th August 1965 and 18th October 1966 under the name Craftmaster or Craft Master or bearing such name upon them or upon any cards, leaflets or advertising matter sold therewith ;

(2) to ascertain the total cost to the defendant of

(a) obtaining the articles so sold and getting them to its store or place of business. This will be the landed cost in Australia including any charges for customs duties etc. payable by the defendant and also any costs of carriage to the place of business ; and of

(b) selling and delivering the articles so sold to the buyers of them. This will include any costs directly attributable to such sales and deliveries. But it should not, I think, include any part of the general overhead costs, managerial expenses and so forth of the defendant's business, as it seems that all these would have been incurred in any event in the ordinary course of its business in which as it was put in evidence the painting sets were a "side line" : cf. Leplastrier &Co. Ltd. v. Armstrong-Holland Ltd. (1926) 26 SR (NSW) 585 (at p39)

32. Then, taking the difference between (1) and (2) as the profit made by selling the goods, it would be necessary to ascertain how much thereof was attributable to the selling of them under the trade mark. That is a question of some nicety. I am prepared to hear counsel on what would be an appropriate direction as to it. (at p39)

33. I turn now to another matter. The plaintiff asked for an order that the defendant deliver up or destroy all painting sets still in its possession the use of which by the defendant would be an infringement of the mark. I see no ground for such an order in this case. I see no persuasive similarity between this case and a patent action in which such an order might be made. The painting sets belong to the defendant. If the trade mark has been renewed and is now in force the defendant cannot lawfully sell or display for sale any painting set under the name Craftmaster or Craft Master or with either form of the name on the box or on any associated articles. But, if it expunges the name from any sets it has, and does not in any way use it in reference to them, it can do what it likes with them. The plaintiff certainly has no right o them nor has its assignee ; and an order for their destruction would I consider be quite unwarranted. The defendant will not infringe the trade mark unless it uses it in the course of trade in relation to painting sets : s. 62. (at p39)

34. The only remaining question is costs. The plaintiff should have its costs of the action incurred up to 29th April 1968 when it was informed that the defendant would consent to an order for an account or damages. Thereafter the matter in contest at the hearing was whether or not damages or profits, whichever should be asked for, should be calculated from September 1965 or from some earlier time. On this issue the defendant has succeeded, the plaintiff having asked for an account of profits : but some other questions were argued. In all the circumstances I think the proper order is that the plaintiff pay two-thirds of the defendant's costs incurred after 29th April 1968 to date. I reserve further costs including the costs of taking the account of profits. (at p39)

35. The order which I make at the present time is that the case stands adjourned for further hearing on a day to be fixed when the matters which I have mentioned, namely the claim for an injunction and the form of the order for an account of profits, can be further considered if either party wishes to submit argument on these matters. The defendant is not to conclude that because I have not made an order for an injunction it is at liberty to do any act or acts which if the trade mark be valid and subsisting would amount to an infringement of the rights of the proprietor of it. The order I have indicated as to costs will stand. (at p40)

36. This action to stand for further consideration on a date to be fixed. Defendant to pay the costs of the plaintiff incurred up to and including 29th April 1968. The plaintiff to pay two-thirds of the costs of the defendant incurred after 29th April 1968 up to this day. (at p40)

37. M. H. McHugh, for the plaintiffs. (at p40)

38. C. J. Bannon, for the defendant.

Cur. adv. vult. (at p40)

August 15.
WINDEYER J. delivered the following written judgment : -
This case came on for further hearing on 29th July. It then appeared that the trade mark had been renewed and was in force. It appeared also that - as the notation on the copy of the Registrar's certificate earlier tendered had shewn - the plaintiff Colbeam Palmer Ltd. had on 31st January 1966 assigned its rights in the mark to Lines Bros. Ltd., a company incorporated in the United Kingdom. This assignment was made pursuant to an agreement dated 14th January 1966, a copy of which was tendered. In this it is said that Colbeam Palmer Ltd. is a wholly-owned subsidiary of another British company, J. Dring Ltd. It is also said that the word "Craftmaster" was used in the agreement as meaning "the system of painting by numbers . . . and all kits and components designed for the practical operation of every version thereof and includes the boxes and other containers in which such kits and components are sold". The word Craftmaster was registered as the trade mark of Colbeam Palmer Ltd. in many parts of the world. The registration is in some places in respect of artists' materials including paints and colours ; in others in respect of artists' materials other than colours and varnish. Only in Australia are the goods described as "painting sets". It is clear, of course, that the wide denotation claimed in the agreement of January 1966 for the name Craftmaster, and the various forms of registration in different countries, do not enlarge the scope of it as a trade mark in Australia. The assignment by Colbeam Palmer Ltd. dated 31st January 1966 is an absolute assignment of the trade mark in each country in which it is registered "together with the goodwill of the business in the goods in respect of which the trade marks are respectively now registered". The assignment was registered in Australia in October 1966. (at p41)

2. The facts concerning the assignment having been established, Mr. McHugh, who had appeared as one of the counsel for Colbeam Palmer Ltd., stated that he now appeared also for Lines Bros. Ltd. and applied pursuant to O. 18, r. 2, that it be joined as a co-plaintiff in the action. After some discussion I approved this course. The action is to be amended accordingly as from 29th July 1968, Lines Bros. Ltd. consenting to pay the costs of its application to join as a plaintiff and to abide by any order which I make as to costs generally. The case being thus newly constituted, I am now able to make, and I do make, an order for an injunction in favour of Lines Bros. Ltd. To this the defendant consents. (at p41)

3. Lines Bros. Ltd. having joined with Colbeam Palmer Ltd. in asking for an account of profits, I decided that accounts should be taken of the profits made by the defendant by its use of the trade mark between 30th August 1965 and 18th October 1966 and of the profits so made by the defendant since 18th October 1966. I assume that probably there were none after the date when the case first came on for hearing, as the defendant had before then realized that it must cease to use the mark. The reason for the separate periods of account is that 18th October 1966 is the date of the registration of the assignment. For the profits the defendant made until that date it is accountable to Colbeam Palmer Ltd., the assignor. Whether or not that company holds them or any part of them in trust for Lines Bros. Ltd., the assignee, I do not have to determine. For the profits made after 18th October 1966 the defendant is accountable to Lines Bros. Ltd., the assignee. (at p41)

4. Mr. McHugh, appearing now for both plaintiffs, addressed an argument to me as to the manner in which profits for which the defendant is accountable should be calculated. I had said something about this in my earlier judgment ; but I had said that I would hear any submissions counsel wished to make. Mr. McHugh submitted that the infringer of a trade mark must account in favour of the proprietor of the mark for the whole of his net profits made by the sale of any goods in relation to which he had used the mark. He claimed therefore that in this case the amount for which the defendant must account is whatever profit it made by the sale of painting sets which in fact bore the name Craftmaster. I rejected this proposition. I said I would put my reasons for doing so in writing and that the formal order would date from the day of their publication. (at p42)

5. No case was cited which supported the claim made for the plaintiffs that the defendant must account for the whole of the profit which it made by selling painting sets in fact marked Craftmaster and there is much to the contrary. Using the words of the common order for an account, the defendant must account for profits made in selling painting sets under the name Craftmaster - that means such profit as was attributable to the wrongful use of the mark. And that is not necessarily at all the same as the profit made by the sale of goods bearing the mark. The reason for that is clear enough. A trade mark is in its nature something apart and distinct from the goods in relation to which it is to be used : see Smith Kline and French Laboratories (Australia) Ltd. v. Registrar of Trade Marks (1967) 116 CLR 628, at pp 639, 640 , where I dealt with this aspect. (at p42)

6. What the defendant must account for is what it made by its wrongful use of the plaintiffs' property. The plaintiffs' property is in the mark, not in the painting sets. The true rule, I consider, is that a person who wrongly uses another man's industrial property - patent, copyright, trade mark - is accountable for any profits which he makes which are attributable to his use of the property which was not his. An early form of the order in a patent case is for "an account of all profits actually made by the defendant by means of the infringement" : Elwood v. Christy (1865) 18 CB(NS) 494 . (at p42)

7. Lord Kinnear in the Court of Session in Scotland sufficiently summarized the course of earlier decisions when he said "and there certainly is a great deal of authority for saying that where only a part of a complex machine is protected by a patent, the infringer cannot be made liable for the aggregate profit derived from the entire machine, as if that were the profit he had made by the use of the patent" : United Horsenail Co. v. Stewart &Co. (1886) 3 RPC 139, at p 143 . And in the same case on appeal Lord Watson said that in a patent action, if the patentee elects to have profits instead of damages, "it becomes material to ascertain how much of his invention was actually appropriated, in order to determine what proportion of the net profits realized by the infringer was attributable to its use. It would be unreasonable to give the patentee profits which were not earned by the use of his invention": United Horse-Shoe and Nail Co. Ltd. v. Stewart &Co. (1888) 13 App Cas 401, at pp 412, 413; 5 RPC 260, at pp 266, 267 . In trade mark cases it has been generally accepted ever since Cartier v. Carlile (1862) 31 Beav 292 (54 ER 1151) (a common law trade mark) that what a plaintiff who establishes infringement is entitled to is the profit attributable to the use of the mark, and no more. (at p43)

8. It has been recognized that it may be very difficult sometimes to establish how much of the total net profit which an infringer has made by sales of his goods is to be attributed to his selling them under another man's mark. That problem, the apportionment of a total profit, has been discussed many times, most recently so far as I am aware in Canada : Dubiner v. Cheerio Toys &Games Ltd. (1966) 55 DLR (2d) 420, at pp 434, 435 . It is similar to the difficulty, to which I have alluded above, of a patent infringed by the incorporation or use of a patented invention or process as a part of a larger machine or process. The same questions and the same difficulty in accounting for profits or assessing damages can also arise if a copyright is infringed by the publication of copyright material as part only of a larger work : e.g. Baily v. Taylor (1829) 1 Russ &My 73 (39 ER 28) ; Blackie &Sons Ltd. v. Lothian Book Publishing Co. Pty. Ltd. (1921) 29 CLR 396 (at p43)

9. If one man makes profits by the use or sale of some thing, and that whole thing came into existence by reason of his wrongful use of another man's property in a patent, design or copyright, the difficulty disappears and the case is then, generally speaking, simple. In such a case the infringer must account for all the profits which he thus made. This is so too in the case of a sale of an article which could only be made by the use of confidential information, as in Peter Pan Manufacturing Corporation v. Corsets Silhouette Ltd. (1964) 1 WLR 96 ; (1963) 3 All ER 402 . The judgment in that case, to which I had referred earlier, was invoked by counsel for the plaintiffs in support of the claim that they were entitled to have the whole of the profits made by the defendant by selling American painting sets which bore the mark Craftmaster. But the case does not support that proposition. It was a case of the misuse of confidential information in the manufacturing of brassieres of a particular kind. The profit for which the wrongdoer was held accountable was all the profit it made by selling articles of that kind. That was because, as Pennycuick J. pointed out, "the manufacture of the article in question of itself involved the use of the confidential information and Silhouette (the defendant) could not have manufactured that article at all without the use of the confidential information". That case is no help at all to the plaintiffs in this case. The painting sets in this case could have been made and sold without the use of the word Craftmaster. The difficulty of apportioning profits made by selling them therefore remains. (at p44)

10. It is a difficulty which ceases to be troublesome in a case when a word has become well known as indicative that goods of a particular kind are the product of a particular manufacturer or seller and those goods have acquired a reputation under that name. All profits made by an infringer by selling goods of that kind under that name may in some cases be said to be attributable to his use of the mark. In cases of that sort the buyer of the goods is taken to have bought them because of the mark under which they were sold. If that mark was for him an inducement, not necessarily the sole inducing cause, of his buying the goods, the infringing seller is accountable to the owner of the mark for the profit he made by the sale. But this case is not of that kind. There is no evidence that the name Craftmaster was associated in the trade in painting sets in Australia with products of the plaintiffs or of either of them. Indeed it seems possible that, in Sydney at all events, the name was known in the trade as indicative of the American goods sold by the defendant. (at p44)

11. Cases in the United States must be used cautiously, because of certain special provisions in the Trade Marks Act there and because in appropriate cases damages may there be had as well as profits. But if used with discrimination, American decisions on the point are illuminating and helpful. As I read them, they fully support the opinion I have expressed. They do not resolve the difficulties of its application to the facts of this case. Indeed they seem to confirm the remarks Lord Lindley, then Lindley L.J., made in his judgment in Siddell v. Vickers (1892) 9 RPC 152, at p 162:

"The plaintiff therefore was perfectly within his right in electing, as he did in this case, to have an account of profits ; but I do not know any form of account which is more difficult to work out, or may be more difficult to work out than an account of profits."

And his Lordship said(1892) 9 RPC, at p 163:

". . . the difficulty of finding out how much profit is attributable to any one source is extremely great - so great that accounts in that form very seldom result in anything satisfactory to anybody." (at p45)

12. I select four cases only from the United States - all decisions of the Supreme Court. One is Westinghouse Electric and Manufacturing Co. v. Wagner Electric and Manufacturing Co. (1912) 225 US 604 (56 Law Ed 1222),a patent case, which seems to have left the question of the apportionment of profits in an inconclusive state. The next is a trade mark case, Hamilton-Brown Shoe Co. v. Wolf Bros. &Co. (1915) 240 US 251 (60 Law Ed 629) There it was recognized that apportionment between the profits attributable to the defendant's improper use of the mark and those attributable to the intrinsic merit of the defendant's goods may be inherently impossible. In such a case the owner of the trade mark is entitled to have the whole profit. He is not required to establish how much was made by his use of the mark. This again leaves the question not fully answered. (at p45)

13. In the next case, Sheldon v. Metro-Goldwyn Pictures Corp. (1940) 309 US 390 (84 Law Ed 825), the same question was considered in connexion with an infringement of copyright. It was held that where the profits made by the infringer are attributable in part to the use of the copyright material, but in part to other matter, and where the evidence provides a fair basis of apportionment so as to give the proprietor of the copyright all that can be said to have resulted from the infringement, the profits will be apportioned accordingly. In the particular case one-fifth of the total profits was awarded to the proprietors of the copyright. The aim, as in the patent cases, is always "a rational separation of the net profits so that neither party may have what rightfully belongs to the other" (1940) 309 US, at p 404 (84 Law Ed, at p 833) (at p45)

14. Lastly from America, I cite Mishawaka Rubber &Woolen Manufacturing Co. v. S. S. Kresge Co. (1942) 316 US 203 (86 Law Ed 1381) That was a trade mark case In the majority judgment, delivered by Frankfurter J., it is said (1942) 316 US, at p 206 (86 Law Ed, at p 1385):

"If it can be shown that the infringement had no relation to profits made by the defendant, that some purchasers bought goods bearing the infringing mark because of the defendant's recommendation or his reputation or for any reason other than a response to the diffused appeal of the plaintiff's symbol, the burden of showing this is upon the poacher. The plaintiff of course is not entitled to profits demonstrably not attributable to the unlawful use of his mark."

Applying that to the present case, it seems highly probable that the defendant will be able to shew that profits, or a great part of them, which it made by selling painting sets were attributable to the intrinsic qualities and value of the goods and that the sales were not the result of the use of the name Craftmaster as indicative of the goods of the plaintiffs. (at p46)

15. It is generally recognized in America that in the application of apportionment principles mathematical precision is impossible. A reasonable approximation may suffice. It seems to me that a useful working rule may be derived from a means of ascertaining profit adopted in patent cases. In Frost on Patents, 3rd ed. (1906), pp. 499, 500, this is put, on the authority of Siddell v. Vickers (1892) 9 RPC 152:

"The true test of comparison is to take the ratio of profit derived when the invention was used to the profit which would have been derived had the defendant used that which, looking at all the circumstances of the case, he would most probably have used had he not illegally adopted the invention."

Substituting "trade mark" for "invention" that passage can be applied in this case. The defendant might have sold in Australia the painting sets which it had bought from America under some other name than Craftmaster. To have done so it would have had to obliterate the label on the boxes, put on a new label, and reprint some of the associated printed matter. The expense of doing this would have diminished its profit on sales. Whether in the circumstances of this case it would have lessened the number of its sales is a matter on which evidence may be required. However that be, if the profit which would have been made if this course had been taken be compared with the profit actually made by selling the goods with the mark Craftmaster on them, the difference may perhaps be regarded as, in part and in some sense, reflecting the profit made by the use of the mark. (at p46)

16. In whatever way an infringer's profit is computed, the computation is seldom easy. To the cases which I have already mentioned in which this was recognized I would add Automatic Coal Gas Retort Co. Ltd. v. Mayor &. of Salford (1897) 14 RPC 450, at p 471 (at p46)

17. On 29th July the defendant offered in court to consent to an order that it pay to the plaintiffs the sum of $1,300 as the profits for which it is accountable. If this offer be accepted, and if the two plaintiffs agree as to the division of this amount between them, that will end the matter. If not, an account of profits is to be taken. The offer will then be relevant only in relation to costs. (at p46)

18. Because of the peculiar circumstances of this case and as I already have a knowledge of it, I intend, if the taking of an account is to be proceeded with, to take the account myself rather than refer it to the Registrar. I have decided on this course in the hope that it may save expense for the parties. (at p46)

19. I adjourn the case into chambers to a date to be fixed for the taking of the account and for any directions in respect thereof. I direct that within one month the defendant file with the Registrar a statement of sales by it since 30th August 1965 of painting sets bearing the name Craftmaster and of the net profits earned by it by such sales in respect of (1) the period 30th August 1965 to 18th October 1966 and (2) the period since 18th October 1966 - this statement to be verified by affidavit. I direct that the defendant file also a statement shewing, in respect of the said profits in each of the said periods, how much, if any, thereof it admits was attributable to its use of the trade mark Craftmaster and stating the basis of the apportionment. When this has been done an appointment may be made for directions as to proceeding with the account. (at p47)

20. I have already ordered that the plaintiff Lines Bros. Ltd. pay one half of the defendant's costs of the proceedings before me on 29th July, that being the amount of such costs which I deem to be attributable to its application to be joined as a plaintiff. I make no order as to the rest of the costs of those proceedings. Each of the parties should I think bear its own, as I rejected the main argument advanced for the plaintiffs, but the case had to come on on 29th July for further consideration. I also make no order as to the costs of the parties attending today to take judgment or of the taking out of the order I make, these matters being consequential on the proceedings of 29th July. The further consideration of the case and further costs are reserved. (at p47)

21. (Counsel addressed further submissions upon the form of the order that should be made.) (at p47)

WINDEYER J. The injunction I have granted is that the defendant is enjoined as from 29th July from infringing the trade mark. That is not in the form in which the injunction was asked for in the statement of claim. This question of the right form of an injunction has been debated on occasions in the last twenty years ever since the case of Marengo v. The Daily Sketch (1948) WN 92 ; (1948) 1 All ER 406 in England, but I am not prepared to grant an injunction that the defendant by its servants and agents may be restrained from infringing the trade mark because it is not restrained by its servants and agents, it is restrained by the Court. To get over the difficulty which was mentioned in the case to which I referred, and which has since been mentioned I think in this Court it seems best to say that the defendant be restrained from infringing the trade mark by itself, its servants and agents. I realize that another form has been sometimes used but you cannot, by the repetition of ungrammatical jargon, achieve a satisfactory result. When the defendant is, as in this case, a corporation, it seems to me sufficient simply to enjoin it, as if it disobeys the injunction it will be doing so necessarily by a servant or agent, and it has been thought inappropriate to grant any form of injunction in respect of which servants and agents would necessarily be guilty of contempt if they were instruments by which it was infringed. (at p48)

Orders

Order (to date 29th July 1968). Lines Bros. Ltd. to be added as a plaintiff as from 29th July 1968. The proceedings thereafter to be amended accordingly. The costs of the application that it be joined as a plaintiff to be paid by Lines Bros. Ltd. The costs of the defendant occasioned by the said application to be one-half of the defendant's taxed costs of the proceedings on 29th July 1968.

Order (to date 15th August 1968).

(1) The defendant is enjoined, as from 29th July 1968, from infringing trade mark No. A166,167.

(2) Accounts to be taken, according to any directions given or to be given, of the profits made by the defendant by selling painting sets under the trade mark Craftmaster or Craft Master.

(a) in the period 30th August 1965, to 18th October 1966, and

(b) since 18th October 1966.

(3) Case adjourned into chambers for the taking of the said accounts.

(4) No order as to costs of proceedings on 29th July 1968, beyond that already made. No order as to costs of the attendance to take judgment on 15th August 1968, or of taking out this order.

(5) Further consideration and further costs reserved.

Direction (made on 15th August 1968). Defendant is to file with the Registrar within one month a statement, verified by affidavit, of

(1) sales by defendant since 30th August 1965 of painting sets bearing the name Craftmaster or Craft Master ;

(2) net profits earned by defendant by such sales in respect of the period 30th August 1965 to 18th October 1966 ;

(3) net profits earned by defendant by such sales in respect of the period since 18th October 1966.

Defendant is to file with the Registrar within one month a statement showing, in respect of the abovementioned profits in each of the stated periods, how much, if any, thereof, it admits was attributable to its use of the trade mark Craftmaster, and stating the basis of the apportionment.