Daybest Pty Ltd v Sou and Ho Trading Investments Pty Ltd

[1999] ATMO 55

TRADE MARKS ACT 1995
DECISION OF A DELEGATE OF THE REGISTRAR OF
TRADE MARKS, WITH REASONS

Re:Opposition by Daybest Pty Ltd to the registration of trade mark application number 680957 in the name of Sou and Ho Trading Investments Pty Ltd.

Background:
The Trade Marks Office has examined application 680957 and accepted it for registration.  The applicant is Sou and Ho Trading Investments Pty Ltd, which I will refer to simply as “the applicant” from this point.

The mark in question is as shown :

The class 42 services for which registration is sought are a "restaurant" and the opposed application was filed on 18 December 1995.

Daybest Pty Ltd  ("the opponent") opposes registration of the application, on what has come down to two grounds.  These are that:

• the applicant is not the owner of the trade mark

• the use of the trade mark by the applicant would lead to deception or confusion in view of the prior reputation in the opponent's trade mark

The opponent conducts a competing restaurant business at 124 Wicks Road, North Ryde, ("Wicks Road").  From the evidence, the opponent bought that restaurant from the former joint owners, Andrew and Betty Kong, as a going concern.  Thus, in September 1995, it became the owner of a restaurant that was already using the trade mark 33 ASIAN FOOD RESTAURANT, with the number 33 rendered, on the restaurant sign, very much as shown in the applicant's mark.

The opposition process has followed the course set out in the regulations.  The details of the evidence can be summarised as follows.

Evidence
The opponent relied on evidence in support and reply, in each instance a declaration by Edward Ip, a director of the opponent.

Mr Ip declared, in July 1997, that services provided by the opponent's Wicks Road restaurant were valued at $510,000 for the period November 1995 to June 1996, with a further $810,000 up to May 1997.  The opponent's restaurant has been advertised, once, in 1996, in a publication called the Northern District Times, apparently a local newspaper circulating in parts of Sydney.  The restaurants and food section of the same newspaper has carried two articles about the restaurant, again in 1996.  There is no evidence of the extent of the circulation of this paper, either in number or area terms.

In answer to the opposition, the applicant relied on the declaration of Allan Sou.  Mr Sou declares that his company is the owner of what he describes as 33 ASIAN FOOD RESTAURANT.  That restaurant was originally operated by Andrew Kong and is situated in Corunna Road, Eastwood.

Mr Kong sold the business, in November 1994, to the applicant in partnership with another company.  That other company has since sold its share to the applicant.

Prior to the sale, Mr Kong and Mr Sou agreed, according to the declaration of the latter, that Mr Kong would continue to conduct the Wicks Road business.  This was, Mr Sou has declared, on condition that it would operate as a "buffet-only" business, referring any requests for a la carte or takeaway food to the Corunna Road restaurant. 
Such an arrangement, to refer business from one restaurant to the other, appears to be quite feasible.  The two restaurants are in virtually adjacent suburbs of Sydney, separated by a straight-line distance of approximately 3 kilometres.

Annexed to the Sou declaration is a statement signed by Mr Kong.  From this, the business now owned by the applicant was commenced by Mr Kong in "around September 1989".  Mr Kong refers to it as being in "Corunam Road, Marsfield" but the discrepancy is immaterial and, as regards the suburb, is explained by the nearness of the Marsfield Post Office.  Paragraph 4 of his statement reads:

When I sold the Marsfield business to the new proprietors, I transferred the registered business name "33 Asian Food Restaurant, Marsfield" to the new proprietors and the sale was intended to transfer all rights in respect of the 33 Logo, subject to my continued use of that Logo in relation to a business at 124 Wicks Road, North Ryde which I started after the Marsfield business.

The business name in question, I note from another part of the evidence, was in fact simply "33 Asian Food Restaurant".

Mr Sou goes on to declare that:

I am informed by Mr Andrew Kong and believe that he advised a representative of Daybest Pty Ltd [the opponent] prior to that company's purchase of the North Ryde Restaurant, that it would not be able to operate that restaurant business as a takeaway service.  Despite the prohibition, Daybest Pty Ltd has expanded the business conducted at 124 Wicks Road, North Ryde to include the provision of takeaway food.

It is possible that the only confusion is that arising among telephone callers.  Mr Sou states:

Confusion of the general public has resulted from the expansion of the North Ryde [Wicks Road] restaurant as detailed in paragraph 7 hereof, in that customers wanting to contact the Eastwood restaurant [Corunna Road] have been given by Telecom the number of the North Ryde restaurant, especially after the North Ryde business changed numbers.

In reply to that declaration, Edward Ip has declared that he was personally involved in all of the negotiations between Mr Kong and the opponent.  He states that no such limitation was referred to by Mr Kong in discussions with Mr Ip or, to the best of the latter's knowledge, with any other officer of the opponent.  He also declares that, when he bought the business, it already operated as a takeaway restaurant.

Precise details of the early history of the Wicks Road restaurant are somewhat sketchy.  The best available evidence is the statement of Mr Kong, who says that he commenced that operation after the one now run by the applicant.  Mr Kong commenced to operate the first restaurant, Corunna Road, in either September or December 1989. 

Also relevant to the history of the opponent's restaurant is the contract for the sale of the Corunna Road business to the applicant.  The entire of this contract is in evidence.  When it was made, in November 1994, Mr Kong put his name to a contract that said that the non-compete clause "shall not apply to Restaurant 33 at 124 Wicks Road North Ryde, which has been in existence for some four years".

Arguments
When the opposition was scheduled for a hearing, both parties elected to rely on written submissions.  The applicant's submissions were prepared by Ms Carmen Champion, a solicitor employed at that time by Spruson & Ferguson, patent attorneys.  The opponent's submission was prepared by Ms Gail Hill, a solicitor of the patent attorney firm of F B Rice and Co.

Ownership
The opponent asserts that the applicant is not entitled to be registered as the owner of the trade mark.  This is because, as Ms Hill put it, 'another person had in fact acquired some prior right to use the mark "33 Device" in respect of the services as at the date of the application.' 

In Ms Hill's view, that claim is shown by evidence of completion of the agreement for the sale of the business, transfer of the NSW Business Name Registration in respect of Restaurant 33 and assignment of the lease of the Wicks Road restaurant.

It is clear that the opponent has operated its business under a trade mark substantially identical to that previously used by Mr Kong at his two restaurants.  Strictly, the opponent's mark is arguably the 33 RESTAURANT, while the applicant's is the 33 ASIAN FOOD RESTAURANT.  However, I consider that, at heart, the two trade marks, the one applied for and the one on the signage of the opponent's restaurant, are the same.  In terms of the appropriate case law, see below, I conclude that the trade marks are substantially identical.

The copy now in evidence of the contract for the sale of the business to the opponent has been edited so as to preserve the confidentiality of the financial details.  This prevents me from knowing if any part of the contract price was for the goodwill of the business.  Nor is there any mention, in the contract, of the trade mark rights.  However, the contract was for the sale of the business as a going concern, including one very large and prominent external, illuminated sign.  That sign is shown in the evidence.  The contract was supported by the assignment of the business name RESTAURANT 33, the registration of which is specifically referred to and included in the contract. 

In the circumstances, I do not think it would be reasonable for me to conclude anything other than that the opponent bought, from Mr Kong, some right to the name.  The only remaining question is the extent of that right.

The contract relied on by the opponent is apparently a standard Law Society one, of which only the particulars and some annexed "special conditions" are in evidence.  Mr and Mrs Kong are constrained, by clause 14 of the contract, the "Restriction of vendors competition" as it is called, not to operate a similar form of business within 7 kilometres of that sold to the opponent for a period of two years after the sale. 

A photograph of the external sign shows that the business, at the time of the sale, featured a "buffet - all you can eat" trade.  Ms Hill points out that, although there are special conditions inserted to amend the standard form of the contract, none of these impose any condition that the restaurant operate as a buffet-only business.  Prior to this, when the applicant bought its own restaurant from Mr Kong, he specifically excluded his remaining restaurant from the operation of the non-competition clause.  The non-competition clause ensures that:

Except to the extent otherwise agreed the Vendors shall not after completion of this agreement during the period referred to in sub-clause (a)(ii) engage in conduct derogating from the Purchasers' right to obtain the full benefit of the goodwill of the business.

This must be seen in the light of clause 20 of the contract:

The Purchasers acknowledge that, in entering into this agreement, they have not relied upon any statement, representation, warranty or condition made or given by the Vendors or any one on their behalf is respect of the subject matter of this agreement, other than those that are expressly herein contained

She noted the assertion of Mr Sou, on behalf of the applicant, that Mr Kong had assured him that he had, apparently verbally, imposed such a condition on the opponent.  However, as she points out, Mr Kong, in his written statement incorporated into the applicant's evidence, does not mention either the giving of any such assurance or the imposition of any such condition.  Mr Ip, for his part, denies that Mr Kong made any such representation. 

Consistent with that, it is quite clear that Mr Kong and the applicant had considered the situation and had put their arrangement into writing in the contract.  If the applicant was intending to rely on an alleged assurance by Mr Kong, it was on notice of the need to document its terms.

All things considered, I accept the opponent's case, to the effect that it bought the full right to use the trade mark in relation to its restaurant, without restriction.  That mark, as I have said, is substantially identical to the one the applicant now seeks to register, and was bought at a time prior to the filing of the opposed application.

Equally, it is quite clear from the evidence that the applicant also bought the right to use its trade mark in respect of its restaurant business.  Ms Champion, in written submissions on behalf of the applicant, relied on the facts that the applicant had used its trade mark since buying its restaurant in November 1994, and that there had previously been use by Mr Kong, the founder.  This, she said, established an ownership right for the present applicant.

As Ms Champion herself submitted, the right to claim proprietorship, when making an application, depends on first use.  See Aston v Harlee Manufacturing Co (1960) 103 CLR at 398 or, more generally, Shanahan's Australian Law of Trade Marks and Passing Off, page 154 and following. 

The first user, on the present evidence, was Mr Kong.  He has divided his ownership right.  He has sold, separately, his two restaurants, each with its own goodwill and with the trade mark.  Each was sold as a going concern.  When, in November 1994, he divested himself of the one now run by the applicant, he apparently was content that this would not cause a problem to either party.

This is a novel situation, something that, so far as I am aware, has not previously arisen in an opposition matter.  However, it is not unknown at common law.

In considering the history of English law of the last century, Lord Diplock commented, in the GE case [1973] RPC 297 at 326:

Furthermore, it was accepted that as an adjunct to the goodwill of the business, the right to use a trade mark may be acquired by more than one successor if the goodwill of the business were divided, as it might be, for instance, where the business had formerly been carried on in partnership or from more than one manufactory or shop.

There is a real tension between such arrangements and the framework of the Trade Marks Act 1995.  Section 106 provides for the assignment of a registered trade mark.  That assignment may be for less than the entire range of registered goods or services but the section specifically prevents the registration of assignments that are "partial in relation to the use of a trade mark in a particular area".  By this, the Trade Marks Act 1995 prevents the recordal of a partitioning of an ownership right. 

That was clearly a policy decision.  Prior to the commencement of the 1995 act, the Commonwealth Government commissioned a working party to review the 1955 legislation.  Its report, Recommended Changes to the Australian Trade Marks Legislation, comments at page 85:

Explicit provision should be made for partial assignment of a mark, but excluding partial assignment for a designated territorial area. (The Working Party considers that the latter action would be too likely to give rise to deception or confusion to be warranted)

If, ultimately, the Register of Trade Marks was to record the ownership of both parties, there would be one useful benefit to the public.  As Lord Diplock put it in the GE case, supra:  "neither of the owners of the mark could restrict the other from using it, but as against a usurper who infringed it, either of the owners could obtain an injunction".  However, the question of overlapping ownerships of a trade mark is inseparable from the issue of deception and confusion.  I therefore move on to considering the second ground of opposition.

Conflicting reputation
Section 60 stipulates that:

60. The registration of a trade mark in respect of particular goods or services may be opposed on the ground that:
(a) it is substantially identical with, or deceptively similar to, a trade mark that, before the priority date for the registration of the first-mentioned trade mark in those goods or services, had acquired a reputation in Australia, and
(b) because of the reputation of that other trade mark, the use of the first-mentioned trade mark would be likely to deceive or cause confusion.

Addressing these in order, I accept that the marks in question are substantially identical.

For the opponent, Ms Hill argued that there was evidence to allow me to infer that the opponent's restaurant had been in operation  "since at least late 1990".  To my mind, Mr Kong's statement, in the contract for the sale of the Corunna Road restaurant, that the Wicks Road restaurant had been in operation for "some four years" was not intended to be precise.  It was arguably not Mr Kong's intention to quantify the time accurately.  His wording is probably equally consistent with "more than three years" or "nearly five".  His evidence that the Corunna Road restaurant was the first to open fixes the start date of the Wicks Road restaurant as no earlier than December 1989, but it may have opened any time after this until perhaps November or December 1991. 

Neither party made any submission on the relevance of a business name record that is part of the applicant's evidence.  It suggests that the Wicks Road restaurant commenced in August 1992, with the business having previously been conducted elsewhere, presumably at Corunna Road.

Ms Champion, for her part, argued that the applicant has built up a reputation since it bought its restaurant.  She also noted that there was no evidence of the extent of any actual use by Mr Kong at the Wicks Road restaurant.  However, there is some evidence of use at Wicks Road before the priority date of the opposed application.  It is this date, 18 December 1995, rather than the date of either sale by Mr Kong, that is crucial for the applicant's case.

For the applicant, Mr Sou has declared to an undertaking, by Mr Kong, that customers seeking an a la carte or takeaway service were to be referred to the applicant's restaurant.  He has also declared that Mr Kong would "continue to use" the trade mark at the site subsequently sold to the opponent.  While I have found that no such arrangement entered into the terms of the sale of the restaurant, Mr Sou's concern is significant.  It shows that, firstly, Mr Kong's restaurant was already attracting customers and that, secondly, the interchange of customers between the two restaurants was a real possibility, even in November 1994. 

At the priority date of the current application, the opponent had owned and operated its restaurant for slightly less than three months.  There is, from the contract of sale, evidence that the restaurant was at that stage, in September 1995, taking at least $21,000 per week.  In my view, it stretches belief to assume that this can have arisen spontaneously just before the sale.  The tendency of the evidence is to show that the restaurant that had been run by Mr Kong since, at a very minimum, August 1992 was already, at the time of the sale, a successful business.

I believe the confusion that has allegedly been caused by Telecom in giving prospective callers the number of the "wrong" restaurant will simply mirror the sort of confusion that would have been reasonably likely in other situations.  Such confusion would have been at least as likely in the mind of any person who, at the filing date of the opposed application, knew of the Wicks Road restaurant and encountered the applicant's Corunna Road business.

The opponent's evidence is simply not comparable to the lack of evidence referred to in Dunlop Olympic Ltd  v Cricket Hosiery, Inc 20 IPR 475 at 478. Such a lack of evidence "forecloses to the registrar", as Ms Champion put it, the question at the heart of s 60, but such foreclosure does not arise here. My conclusion, therefore, is that, at the filing date, the use by the applicant would have been likely to deceive, or cause confusion amongst, a reasonable number of people.

Both the applicant and the opponent are now continuing to use the trade mark in ways that are likely, on the balance of probabilities, to cause a significant amount of deception.  While that is clearly outside the scope of the specifics of s 60, I think it argues that I should be cautious, in the application of the section in question, not to overlook the evidence pointing to such deception also existing at the date in question.

Ms Champion argued, as a reserve position, that if there was such confusion, it was entirely the fault of the opponent in departing from the buffet-only format and expanding its business to include take-away food.  Why that form of business will cause more deception than would a successful buffet operation is, however, not clear to me.  Secondly, I have already noted, above, that the opponent, just as the applicant, appears to be entirely within the rights that it bought from Mr Kong to conduct its business along the disputed lines.

Conclusion
I have found that the applicant is the owner of the trade mark, albeit not the sole owner.  I have also found that there is evidence that, at the filing date, use by the applicant would reasonably have given rise to a significant level of deception or confusion.  Its continued use seems necessarily likely to produce deception and confusion of the public, and the applicant itself seems to have initially been content with this state of affairs, at least while the remaining restaurant was in the hands of Mr Kong.

Under the former legislation, the Trade Marks Act 1955, it was fairly clear that the provisions of s 34 were available to assist an applicant who, as an honest concurrent user, was also the cause of a certain amount of deception or confusion.  That question is discussed in Shanahan's Australian Law of Trade Marks and Passing Off at pp201-202.

I do not think that s 44(3) or (4), the honest concurrent use and prior use provisions of the 1995 act, are available to such an applicant.  Leaving aside my view about the applicant's apparent lack of concern about being a cause of deception or confusion, a problem arises from the terms of the legislation itself.  This is because of the limited terms of the present drafting. 

Those provisions have been drafted to deal only with situations where an honest concurrent user, or prior continuous user, is obstructed by an earlier registration or application.  Sub-sections 44(3) and (4) provide that, "If the Registrar in either case is satisfied" that certain conditions have been met, the blocked application may be, or must be, accepted.However, the "either case" referred to must be one of the cases set out in ss 44(1) and (2).  Those depend initially on the existence of an earlier and conflicting application or registration.  If no conflict exists in terms of s 44(1) or (2), the following subsections cannot be applied.

I note that Ms Hill suggested that, should I be in favour of registering the trade mark, it would be open to me to impose some sort of limit to the area covered by the registration.  However, such a limit will in no way prevent deception or confusion.  It would also be contrary to the intention, if not the letter, of s 106.  Without the clear authorisation of s 44(3) or 44(4), this is not appropriate.  Nor, more to the point, would it be feasible where, as here, the applicant continues to assert that it is entitled to a nation-wide monopoly.

Accordingly, in terms of s 55, I refuse to register the trade mark, even subject to conditions or limitations.  Given that the application fails, I award costs, in accord with the official scale, to the opponent.

T.E. Williams
Hearing Officer
31 May 1999