E&J Gallo Winery v Lion Nathan Australia Pty Limited

[2009] HCATrans 180

[2009] HCATrans 180

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S89 of 2009

B e t w e e n -

E & J GALLO WINERY

Applicant

and

LION NATHAN AUSTRALIA PTY LIMITED (ACN 008 596 370)

Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 31 JULY 2009, AT 11.50 AM

Copyright in the High Court of Australia

MR I.M. JACKMAN, SC:   May it please the Court, I appear with my learned friends, MR M.J. DARKE and MS D.M. BAMPTON for the applicant.  (instructed by Corrs Chambers Westgarth)

MR A.J.L. BANNON, SC:   May it please the Court, I appear for the respondent with MR N.R. MURRAY.  (instructed by Mallesons Stephen Jaques)

GUMMOW J:   Yes, Mr Bannon.  Can I ask you if leave were granted in this case would you be seeking to reopen Estex?

MR BANNON:   We rely on Estex.

GUMMOW J:   I see.  Yes, Mr Jackman.

MR JACKMAN:   Can I ask the Court to go to page 91 of the application book and your Honours will see in paragraph 27 of the Full Court’s judgment the very same question that we have put forward as the primary special leave question, and the Court fairly points out that there is no direct authority on the question.  They then set out some fundamental propositions of trade mark law with which they agree and we emphasise the second of those, namely the objective theory of trade mark law that trade mark use does not depend upon subjective intentions or knowledge the person is said to have used the mark, but when one comes to paragraph 37, their Honours set out a passage from the Full Court decision in Estex which used the verb “projects” in the third line, and the Full Court’s reasoning in effect was that that is not a reflection of the facts and circumstances of that particular case, but rather a statement of an essential integer to be proved in the case of a foreign trade mark owner or authorised user who claims to have used the mark in Australia.

GUMMOW J:   What is said to be the critical factual distinction between Estex and this case?

MR JACKMAN:   The critical factual distinction is that there are two propositions.  The first proposition is that in Estex the United Kingdom manufacturer of the goods knew and intended that the goods be sold in Australia, and the Full Court says that our case is ‑ ‑ ‑

GUMMOW J:   It was sold by David Jones, was it?

MR JACKMAN:   Grace Bros.  The Full Court says that that is one point of distinction with our case because they say in paragraph 43 that this is an essential element.  That is that the foreign owner or authorised user must have known that:

use in Australia involved or comprehended some act that was known either to have had, or potentially have, the result that the goods to which the mark was attached would be dealt with in some way within Australia in the course of trade.

The first point of distinction is that there was no evidence in the present case that the United States owner or authorised user knew or intended the mark be used in Australia.  The second point of distinction is even more radical and that can be found in the reasoning at paragraphs 55 and 56 where the Full Court says that what Sir Victor Windeyer had said at first instance in Estex is a requirement that the course of trade in Australia be a course of trade between the owner on the one hand, and a trader in Australia, and it is then pointed out in paragraph 56:

There was, objectively considered, no course of trade between Gallo and BAW or any other party in Australia –

because the goods had passed through the hands of an intermediary.  We say that is novel, it would have astonished Sir Victor Windeyer to have that proposition attributed to him because back at paragraph 52 the Full Court has quoted a passage from Sir Victor Windeyer’s judgment which is precisely to the opposite effect.  That is:

The manufacturer who sells goods, marked with him mark, to –

various kinds of intermediaries –

does not, in my view, thereupon cease to use the mark in respect of those goods.  The mark is his property although the goods are not; and the mark is being used by him so long as the goods are in the course of trade and it is indicative of their origin, that is as his products.  Goods remain in the course of trade so long as they are upon a market for sale.  Only when they are bought for consumption do they cease to be in the course of trade.

We say that is directly to the opposite of the proposition that there has to be a course of trade between the owner of the trade mark on the one hand, and a trader in Australia on the other, because it is expressly talking about the role of intermediaries not breaking any sense of the course of trade, and that is in effect, the second way in which the Full Court said that the present case can be distinguished from Estex.  It is our submission that neither ground of distinction is available.  The first ground of distinction is wrong as a matter of fundamental principle because it turns upon the notion that use of a trade mark requires knowledge or intention by the trade mark owner which clashes with the fundamental proposition that the Full Court said it agreed with, which is set out in paragraph 29(b) of the judgment.

GUMMOW J:   You may get some comfort from the Champagne Case, I suppose.

MR JACKMAN:   Yes, quite.

GUMMOW J:   But that is an era before registered users existed.  Was there any registered user in this case that we know of?

MR JACKMAN:   No, there is a question of authorised user, rather than registered user because under the 95 Act one has authorised users.  Section 8(3) of the 95 Act stipulates who is an authorised user.  The owner of the mark in this case was Mr Houlihan, the authorised user was the company that he operated, Grape Links Inc, trading under the name Barefoot Cellars, and what we had to establish was that Mr Houlihan exercised quality control over the goods being manufactured by Barefoot Cellars, so there is an authorised user.  Indeed, one of the reasons why Shanahan on trade marks says that Estex cannot be read as indicating there must be a requirement of knowledge or intention, is not only that it clashes with the objective theory of trade marks but also that it is inconsistent with the Champagne line of authorities on parallel importation.

The Full Court has taken a different view, it has not grappled with the clash between its reasoning requiring knowledge or intention, and the fundamental proposition in 29(b) with which they say they agree, and nor is there any satisfactory explanation, in our respectful submission, for the reasoning in paragraphs 55 and 56 which seemed to require on top of that some direct connection between the foreign owner or authorised user on the one hand, and traders in Australia on the other hand, and we say that is erroneous and it is erroneous to associate Sir Victor Windeyer with that proposition because it is the opposite of what he said in Estex.

GUMMOW J:   If you succeeded in getting a grant, would that bring with it the prospects of other issues?

MR JACKMAN:   It will not bring with it the prospect of infringement issues, unless my learned friend is successful in getting special leave to cross‑appeal, because the Full Court has found infringement in our favour, so my learned friend may want to bring an application at the hearing that is on before the Court at the moment.  That is a matter for my learned friend to deal with.  There are a couple of relatively minor issues which my learned friend may wish to raise by way of notice of contention.

One of them is whether the use of the mark in Australia was use in good faith, and we are able to point to transactions involving the sale of about 100 bottles of this wine and my learned friend says, that is not use in good faith, because it is not a genuine and substantial commercial use.

That is a sort question of legal principle, it does not involve any contested facts which are all to be gleaned from a handful of documents as to the volume of sales.  My learned friend also says in his submissions that a point of contention that may be available is whether Barefoot Cellars, the authorised user in California, used the mark that was registered, namely the word “Barefoot”, or whether it did not use that mark, but some composite mark which also involved the image of a foot.  That also is a question of legal principle that does not involve any contested facts.

There are two others matters that my learned friend refers to in his written submissions, but we do not see them as being matters – they are matters that may well not be pressed at the hearing of an appeal, or if they are pressed, they are very, very short matters for this Court to deal with.  One question that he raises is whether in fact Barefoot Cellars was an authorised user, and that depends on whether Mr Houlihan, the owner of the mark, exercised quality control over the wine that was made by Barefoot Cellars.  We say that there are implicitly findings in our favour on that point from the trial judge.

Can I deal with that shortly by taking your Honours first to page 39, paragraph 132.  The first sentence refers to our submission that Mr Houlihan licensed the mark:

to Barefoot Cellars and exercised quality control over the BAREFOOT wines to which the mark was applied.

His Honour then goes on to deal with other matters and does not make a finding of that point, but if his Honour had not agreed with the submission, then the rest of the analysis on this point was pointless, because it is a threshold question, but his Honour returned to it at page 45 in paragraph 154, where his Honour said:

The “quality control” relied upon by Gallo Winery was the control originally exercised by Mr Houlihan when he owned Barefoot Cellars, and later his retention as a consultant, his responsibilities including the monitoring of the quality of the wine.

That, in our submission, is a finding in our favour on that point, and then at paragraph 158 that submission is strengthened by considering what his Honour says in relation to the alleged non‑use period which is after the goods have left California:

At no time during the period 2004‑2007, or for that matter at any point of time after the wine was shipped from California to Germany in 2001, did Mr Houlihan exercise any quality control over the wines exported.

His Honour is implicitly, we would submit, that Mr Houlihan did exercise quality control in the period before the wine was actually shipped out of California.  In any event, the issue turns on reading two or three business records that contain express representations by Mr Houlihan to the effect that he did exercise quality control, and it is not a matter that will, in any significant way, expand the hearing.

GUMMOW J:   There was a discretion here, was there not, to expunge under section 101?

MR JACKMAN:   Yes.

GUMMOW J:   Does the evidence disclose that your client, whatever may have been its failures in the past, after the expungement period, did substantially trade?

MR JACKMAN:   Yes.  There is evidence of a launch by McWilliams Wines in the latter part of 2007 of this very wine, Barefoot wine.

GUMMOW J:   Was there any consideration in the Full Court of the question whether in any event the discretion should be exercised in your favour?

MR JACKMAN:   No, we did not appeal on that particular point.  I am sorry, I should mention one last point that potentially might be raised by way of notice of contention, and that is a point raised by my learned friend, what happened to the wine when it was in Germany?  The wine was exported from California to Germany and then went from Germany to Australia, and that is a straightforward matter.  In our submission, if your Honours go to page 35 of the application book, paragraph 114, the trial judge says there:

What happened to that wine after its arrival in Germany is not known, except to the extent that some of those wines were later imported by Beach Avenue Wholesalers into Australia in July 2002.  To the limited extent that it assumes any relevance, the fact that the wine shipped to Australia was part of the shipment to Germany was evidenced by the serial number disclosed in the approval given by the United States Department of Territory on 14 February 2001 to the export of that wine corresponding the serial number on the carton

of wine purchased in September 2007 from Beach Avenue Wholesalers.

In other words, there is an obvious inference that the wine remained in the course of trade as it moved from California through Germany and then into Australia, because in the hands of the retailer in Australia, the very same boxes contained the wine that had been used to ship the wine out of California in the first place.

GUMMOW J:   These parties are very active in pursuing their trade mark dispute.  Does Mr Bannon’s client have an application on foot to register?

MR BANNON:   Yes.

MR JACKMAN:   I am told the answer is yes.

GUMMOW J:   I see.

MR BANNON:   And there are opposition proceedings.

GUMMOW J:   But, at the moment your registration would stand in the path of that.

MR JACKMAN:   Yes.  It is fundamental.

GUMMOW J:   I am just trying to understand the parameters of this detailed dispute.  All right.

MR JACKMAN:   Unless there is anything further on which I can assist your Honours, those are our submissions.

GUMMOW J:   Yes, Mr Bannon?

MR BANNON:   Your Honours, use of a trade mark requires satisfaction of two conditions.  One is a reference to the mark in such a way as to indicate a trade connection or origin.  Secondly, and critically for present purposes, a reference in the course of, or in connection with an actual or putative trading transaction.  In other words, the mere application of a mark, for example, in a factory to a bottle of wine, does not constitute use of the trade mark in the course of trade anywhere, albeit one can pick up that bottle of wine, look at it, and it gives the appearance of indicating a source or a trade connection.  An additional act is required, being an act in relation to goods so marked, and that must be an act in the course of trade in Australia, and we respectfully submit that both Wills and Estex clearly establish that proposition and that this ‑ ‑ ‑

GUMMOW J:   There is an ambiguity there as to whether the act has to be in Australia.

MR BANNON:   The act has to be in the course of trade in Australia.

GUMMOW J:   That is right.

MR BANNON:   What Estex did, if one looks at the historical position of cases which have been dealt with in this country, addressed an issue which was a preconception, in effect, that if property passed outside of Australia it was not in the course of trade in Australia, and that just exposed a narrowness of thinking which confused sale of goods law with the fundamental concept of trade which underpinned the constitutional basis of a trade mark and also trade mark legislation and theory.  In effect, the ultimate position of the Full Court’s hearing was that it would be an odd thing if the sale of goods law determined where the trade took place, but in Estex, and I propose to take your Honours briefly to some of the factual matters in Estex, what one had was acts which plainly and objectively constituted acts by the registered proprietor in the course of trade in Australia, notwithstanding that there was some physical association with Acts in England.

If I could take your Honour to three passages in the Wills Case, it is behind tab 4 of the bundle, W.D. & H.O. Wills v Rothmans 94 CLR, firstly at page 191.  The passage from the top of 191 down to about point 4 of the page breaks up the requirements of use into (1), (2) and (3), and by about point 4 on the page it is saying, “it must be used for the purposes of trade and by the appellant” and that is completely reflective of the basis on which the Full Court decided the matter.  There is the additional element, and the mere fact that the mark continues to function to indicate origin on goods which have been launched anywhere in the world simply satisfies one condition but not the second necessary condition; an act by the appellant in that case who was the registered proprietor.

Similarly, if one looks at 188, point 3 in the same case.  In discussing the facts of that case at the top of the page, what the Court referred to was, “The offer to purchase” - in that case cigarettes – “the sale, the payment . . . all took place in the United States.”  Importantly the next two sentences:

The import licenses were granted to the concerns or persons in Australia to whom the goods were consigned.  The appellant took no part whatever in the importation.

Then later on the same page at 188 at about point 5:

They were imported for consumption.  The cigarettes that reached Australia for consumption by the Australian purchasers were in no different position from cigarettes which a traveller might have purchased in the United States and brought with him to Australia for his own consumption here.  If a purchaser instead of smoking the cigarettes had attempted to resell the packets he would of course have used the trade mark and would have been liable to be sued for infringement under s 53 of the Trade Marks Act.  But that would have been an unlawful use of the trade mark by the purchaser and not a use by the proprietor ‑ ‑ ‑

GUMMOW J:   What do you want to get out of Rothmans?

MR BANNON:   Because the next part says that is a use with which the proprietor was not concerned.  What we get out of Rothmans is the specification of the second condition that there must be an act by the proprietor in the course of trade in Australia.  See in that last case, that passage there in the middle of 188, the trade mark would still function if the purchaser of the cigarettes had resold the cigarettes in Australia in the course of trade.  The mark would still have functioned.

GUMMOW J:   Justice Windeyer looked at Rothmans, did he not, at page 269?

MR BANNON:   He did.  Yes.

GUMMOW J:   He said the point about Rothmans was that the goods had left the course of trade.  It had finished in the United States because they had been sent to Australian consumers.  There was not going to any resale in Australia.  That is what he said.

MR BANNON:   We say there were two reasons his Honour gave for distinguishing it.  That was one, but if one looks at the bottom of 268, about seven lines from the bottom it says:

The registered proprietor of the mark, W. D. & H. O. Wills, was in no way concerned in the transaction by which the goods reached Australia –

That is the key:

The contrast between those facts and the facts of this case is quite marked.  The very reasons why, in that case, it was held that there had been no user of the trade mark in Australia show why, in my view, there was such a user in this case.

There is one point of distinction referred to and that was the consumption point, but the next one is critical:

The other point of distinction between the two cases I have already mentioned.  There the company which was the registered proprietor of the mark had no part at all in the transactions by which the goods came to Australia.

If I could take your Honour back within Estex to a couple of other passages.  Firstly at 264, the facts in Estex are very important.

GUMMOW J:   I think the judgment in the Full Court in Estex manifests some impatience with the submissions of the appellant.

MR BANNON:   That may be so, but we would submit that analysis of the facts demonstrates why that is so.

GUMMOW J:   That has not assisted the subsequent utility of Estex.  People have been wondering what it meant for years.

MR BANNON:   I should have qualified my answer to your Honour’s earlier question; as presently advised we rely on Estex, unless there is a different interpretation, but can I direct ‑ ‑ ‑

GUMMOW J:   Justice Heydon reminds me that it took them all of nine days to produce the Full Court judgment in Estex.

MR BANNON:   If one looks at the facts, it is clear why that is so.  The passage at 264, about the middle of the page, tells you that the people they were dealing with were known buying agents for Australian entities.  If one goes over to 265, it is an analysis of the documents which were involved.  The invoices sent out by the trade mark owner in London were addressed to entities – either entities in Australia, or buyers known to be buyers for Australia entities, and in the right‑hand column, for consignment to Australia.  If one goes over the page to 266, that is encapsulated on 266; the orders, about five lines down were accepted, but directed to Australian retail houses.  This appears from the business records, “I am satisfied too that the goods bore” the relevant mark.

HEYDON J:   These submissions are rather against you, are they not?  They are showing the issue was not squarely before the mind of the Court.

MR BANNON:   No, what they show is that the necessary condition of an act by the registered proprietor in the course of trade in Australia was satisfied, and that is why the second condition which I posit as an essential requirement of trade mark use was satisfied in that case.  Whereas, by contrast in this case one cannot find any act by the registered proprietor.

GUMMOW J:   I think what it comes to is this, Mr Bannon.  You may be right in the end, but at the moment it is not crystal clear what the authorities mean in their application to the factual dispute here.

MR BANNON:   I hear what your Honour says, but can I just direct attention to the passage which I think is regarded by my learned friends as their high point at 267, and if one sees what immediately follows it, we submit the point we make is established.  In other words, they refer at the top of 267 to the warehouseman theory, but his Honour immediately says after that:

Of course, the use which s 23 speaks of is a use in Australia by the registered proprietor –

and it is obvious that has to be the case, otherwise, his Honour goes on to say, an infringing use would satisfy the purpose.  Just pausing there, in other words, what his Honour is saying there, if it appears on the goods it is serving the function which the appellants rely upon, but it is not an act by the registered proprietor.  The very next paragraph:

Had anyone asked the respondent, “ Do you use your trade mark ‘EASTEX’ in Australia?”, I imagine that the answer would have been “Yes: all the goods we export to Australian retailers go with our marks on them”.

That is the essence of what Sir Victor Windeyer was saying.  Notwithstanding that the reference to the course of trade argument, that was positing an assumption of course of trade in Australia.  You still have to find an act by the proprietor in the course of trade in Australia, and his Honour said that that was satisfied in this case because of the facts, because they were dealing, invoicing and sending goods to Australian retail houses.

GUMMOW J:   The 1955 Australian Act which they are construing here was more or less on the same foundation as the 1938 United Kingdom Act, there is no different United Kingdom Act.

MR BANNON:   No.

GUMMOW J:   Is there any consideration of the position under the present United Kingdom legislation?

MR BANNON:   No, not that we are aware of.

GUMMOW J:   Or in New Zealand?

MR BANNON:   No, not that we have seen.  It is for those reasons, we submit that Estex supports us, not them, but perhaps I should have qualified my earlier answer to your Honour that if Estex is interpreted as supporting the position where a trade mark owner, having no involvement in a sale in Australia, or any transaction involving a course of trade of Australia, we say it is clearly wrong.  It contravenes – and we say it does not – but any contrary conclusion would be contrary to the statutory pact, as it were, which is afforded by the grab of a monopoly right in a trader to use to the exclusion of other traders – in relation to registered goods or services – the pact, that particular word or mark.  That pact involves a requirement that they exercise that right.

Section 92 itself assumes - the trade mark owner has the onus of showing use – it assumes that a trade mark owner knows what it has done.  It assumes it can say to the office, or the court, this is how we have used it.  Their case admits of the circumstance and a parallel import case - your Honour referred to the Champagne Case as a good example.  Parallel import cases are cases where the registered owner is falling over itself to stop its goods coming to Australia.  Their case would say, because they put the mark on it, and because it is serving a badge of origin in Australia, that is use.  Maybe it satisfies one condition of indicating connection, but it does not satisfy the other necessary condition, it is not an act by the proprietor.

It would be an odd outcome for those parallel import cases to have been simply decided by the parallel importer saying, you cannot sue me for infringing use because actually you are the one who is using.  It is a nonsensical outcome and contrary to the act.  It falls foursquare within Sir Victor Windeyer’s comment, if they are right, if it is not an act by the proprietor in Australia, infringing use defends the mark, and that cannot be right either.  Indeed, in the present case – and this raises an issue which if special leave is granted, which will arise on the contention – in the present case they put forward as an obstacle the fact that there was a company called Logan who had a registration for a foot.

Your Honours will have seen the label of their wines.  They only ever sold wine, except when they were faced with this non‑use application, that historically, with the combination of the word and the foot, and they did not want to come to Australia, and neither did its predecessor want to come to Australia because they feared that they would be infringing the Logan design label.  This case is very much an example of something, if somebody had contrary to their wishes, put their wine on sale in Australia and Mr Logan had sued them for infringement of trade mark or other rights, on their case they would say, you have got us, that was our use, but plainly it was not their use, they were trying to stop it.

That is why, when one teases this out there is not real issue of principle, we respectfully submit, that whatever uncertainty may or may not arise in relation to Estex, which warrants the consideration of this Court, because their outcome, we respectfully submit, cannot serve the statutory purpose and is inconsistent with anything which has ever been said about use of trade marks in this country, and so far as we can determine it elsewhere.  Of course, in answer to some questions which your Honour raised, additional questions which will arise, one is whether or not the use of the combination of the foot plus the word was what they were really using.

That raises the issue which arose in cases such as Carnival where the FAIRSTAR THE FUNSHIP was not the same as THE FUN SHIP.  It arose in another case in the Full Court called Colorado where they used “Colorado” plus an image of a mountain.  That is an issue decided against us by the trial judge for a reason we say which showed error of principle, not decided by the Full Court, and deferred, so that would be an issue which would arise.  My friend also refers to the black hole in Germany.  That is also an evidentiary issue which will arise.  The point being there that what the evidence showed is that the goods arrived in Germany, bought by trader A in Germany.  Eighteen months later part of the goods were sold by trader B in Germany – a different company – and there is an 18 month hiatus.

We do not know what happened in there, they did not seek to prove it.  Their own case on the warehouseman theory requires a conclusion that the goods remain always in the course of trade and never reach the consumer.  There is no evidentiary basis to support that conclusion, it was in their camp to do so.  My friend would say that ‑ ‑ ‑

HEYDON J:   These other issues are not going to take a huge amount of time though, are they?

MR BANNON:   No, I not suggesting they do, but in terms of whether or not ‑ ‑ ‑

GUMMOW J:   Why keep threatening us?

MR BANNON:   I am not threatening your Honours, far be it for me to do so.  All I am saying is that in terms of a vehicle, it is not a satisfactory vehicle because, we say that even their best case requires factual findings which have not yet been made in their favour, or which will be at large.  I was really just raising those on the point of vehicle.  There will be some

other issues and we will put on, in all likelihood, an application cross‑appeal as well, and whether or not those matters are raised – but we would not suggest that would be a reason why the Court would not deal with that case.  What we simply say is that it is not sufficiently attended by doubt and it does not require the elucidation of Estex, to the extent there is such doubt, and the outcome entirely serves the statutory purpose.

GUMMOW J:   Thank you.  There will be a grant of special leave in this matter which will be a one day appeal, or one day plus, perhaps?  Anyhow we will see what emerges, very well.

AT 12.23 PM THE MATTER WAS CONCLUDED