Emrik Sporting Goods Pty Ltd v Stellar International Sporting Goods Pty Ltd

[1981] FCA 78

Re: EMRIK SPORTING GOODS PTY. LIMITED
And: STELLAR INTERNATIONAL SPORTING GOODS PTY. LIMITED (1981) 53 FLR 319
No. G 58 of 1981
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sheppard J.(1)

CATCHWORDS

Trade Practices - tennis racquets manufactured in Taiwan sold to two Australian companies - Australian companies market the racquets under their own names and the name "Supergraph" - one company first on to the market - relief offered to applicant on conditions that it market racquets so as to distinguish them from respondent's goods - Trade Practices Act 1974 s.52.

Trade Practices - Misleading or deceptive conduct - Tennis racquets manufactured in Taiwan sold to two Australian companies - Companies marketing racquets under their own names and name "Supergraph" - One company first in market - Relief offered to applicant on condition that it market racquets so as to distinguish them from those of respondent - Trade Practices Act 1974 (Cth), ss. 45, 52.

HEADNOTE

The applicant and the respondent each imported and sold in Australia a particular type of tennis racquet manufactured by a company in Taiwan. The racquets sold by the applicant were labelled "Emrik Super Graph", and those of the respondent "Stellar Supergraph": both types included the word "Supergraph" on the throat of the racquet. The evidence showed that the word "Supergraph" had come to indicate to the relevant section of the public a particular type of racquet coming from the one source of supply, and that people were likely to be misled or deceived into buying the respondent's Supergraph racquet when they wished to buy the applicant's Supergraph racquet.

Held: (1) The applicant was entitled to relief under s. 52 of the Trade Practices Act since, although there might be no actual difference between the two racquets, the source of supply might be a significant factor for the purchasing public; and it was in the public interest that customers not be deceived or misled into buying the respondent's racquet when they wished to buy the applicant's racquet.

(2) Any interlocutory relief should be designed so as not to have an adverse effect upon competition between the applicant and the respondent, but to make the public aware of the true position in relation to the origin of the racquets.

(3) The applicant would be offered interlocutory relief conditional upon its undertaking to affix to its racquets a notice specifying the origin of its racquets, and dissociating its racquets from those of the respondent.

(4) Upon this condition being fulfilled by the applicant, the respondent would be ordered to affix a similar notice to its own racquets.

HEARING

Sydney, 1981, May 26, 29; June 1-2. #DATE 2:6:1981

APPLICATION FOR INTERLOCUTORY INJUNCTION.

The facts appear from the judgment.

C.J. Bannon Q.C. and P.R. Callaghan, for the applicant.

W.M. Gummow, for the respondent.

Cur. adv. vult.

Solicitors for the applicant: Baker & McKenzie.

Solicitors for the respondent: Freehill, Hollingdale & Page.

R.R. BOADEN

ORDER

When the matter was in the list on 4 June, 1981, it was settled upon the basis of mutual undertakings not to use the name "Supergraph" after existing stocks had been cleared.

By consent the application was dismissed. There was no order as to costs. Orders accordingly.

JUDGE1

The Topway Company of Taiwan manufactures tennis racquets. Amongst its products is an oversized racquet made by encasing a thermoplastic core in graphite fibre. Racquets so constructed are considered by some to be superior to other types of racquets because less vibration is transmitted to the handle when the ball is hit. The racquets are said to be oversized because their heads are larger than those of conventional tennis racquets. The larger head is thought to be an advantage at least by some people because of the larger area which is available for striking the ball without there being a mishit.

The evidence in this interlocutory application has had to be prepared with some haste and may not for that reason give an entirely accurate picture. That is no criticism of the parties; they have done their best in the short time that has been available. The evidence establishes that the Topway racquet is presently being marketed in Australia by both the applicant and the respondent who are competitors in the tennis racquet market. I am unable to say whether the racquets are identical in quality. There is no evidence to say that they are not. They appear to be identical in size and appearance, subject to their colours and the writing which appears on them.

The racquets marketed by the applicant bear the name "Emrik Supergraph". Those marketed by the respondent are described as "Stellar Supergraph". It is the respondent's use of the word "Supergraph" which the applicant seeks to restrain in these proceedings.

The word is not written similarly on each racquet. On the respondent's racquet it is written as one word in print which is of the same size; on the applicant's racquet it is printed as two words, the word "Super" being in somewhat smaller size print than the word "Graph". In each case the word "Supergraph" appears along one side of the throat of the racquet. The words Emrik and Stellar appear respectively detached from it at the top of the throat of each.

There is other writing on each racquet to which it is unnecessary to refer, except that the top of the Emrik racquet says "100 per cent graphite fibre" and that of the Stellar racquet, "All carbon graphite construction".

Each racquet is supplied with a cover also made by the Topway company. The covers are distinctive of each other, but each bears in large print the word "Supergraph" as well as the words either Emrik or Stellar. The evidence is that in retail shops the racquets are often, if not usually, displayed without their covers.

The circumstances in which the Topway racquet came to be marketed in Australia are described in the evidence as follows. The respondent was the first to order racquets of this kind. It did so on 13 November, 1980, by its managing director Mr. Van Hoboken who was then in Taiwan. He ordered 240 racquets. It was not at that time proposed to call them "Supergraph"; they were to be described as "Formidable". Some six racquets sent to Australia were so marked.

The respondent's evidence is that Mr. Van Hoboken subsequently concluded that the name "Formidable" was better suited to another racquet which he proposed to market. On 12 January, 1981, he had further discussions with his agent in Taiwan who suggested to him that since the respondent had already marketed graphite racquet strings under the name of "Supergraph", the new graphite racquet should also be marketed under the same name. They there and then resolved to advise the Topway company of their decision, and on that day the Topway company was asked to supply the 240 units ordered on 13 November, 1980, under the name "Supergraph" rather than the name "Formidable".

In the meantime Mr. Ekas, who is the managing director of the applicant, had also been to Taiwan. On 31 December, 1980, he ordered 75 racquets to be sent to Australia. In consultation with his sales manager Mr. Josephs and his agent in Taiwan he decided to use the name "Supergraph". The racquets ordered were to bear this name.

There is no evidence of how the name came to be selected but the word "graph" is plainly a reference to the graphite composition of the racquet; the word super may be intended to refer to the quality of the racquet or to the fact that it is oversize. Fairly clearly the word is an invented word within the meaning of s.24(1)(c) of the Trade Marks Act 1955. It was no doubt upon this basis that Mr. Ekas on his return from Taiwan, applied to register the word as a trade mark in Part A of the Register. The application was made on 21 January, 1981. Registration was sought in respect of all goods in class 28 inclusive of racquets used in sporting activities.

The applicant began its marketing promotion and actual marketing of the racquet much earlier than did the respondent. Steps to promote it began early in February 1981. By early March orders had been taken and the first deliveries had been made. In his affidavit Mr. Ekas said:
"Since its introduction onto the market (in March 1981) about 500 racquets have been sold and there are currently outstanding orders for about 50 racquets. In Australia for an expensive new racquet this is a most successful level of sales. About $5,000 has been spent in special promotions to retailers. At present there are about 100 retail outlets in New South Wales, Queensland and Victoria displaying the Supergraph for sale to the public."

Mr. Ekas also said that the applicant had stocks of Supergraph racquets in its warehouse and that further stocks were on ships which had arrived in Australian ports.

In March 1981 the respondent heard of the applicant's marketing of the racquets. Its solicitors wrote the applicant a letter dated 26 March, 1981. It was headed "Without Prejudice", but in every sense it was an open letter. No objection to its tender was made or, at least, no objection based upon the words "Without Prejudice". Amongst other things the letter said:
"Our client is an applicant for the Trade Mark 'Supergraph' in Classes 22 and 28 and has, since 1977, marketed and sold tennis and squash racket strings under the name "Supergraph' in Australia. In addition, our client has made extensive arrangements to launch on to the Australian market a new carbon graphite racket under the name 'Supergraph'. It has come to our client's attention that you have been promoting, with the view to sale, tennis rackets bearing the name 'Supergraph' and that on 19th January, 1981 you made application for the Trade Mark 'Supergraph' in Class 28".

The letter went on to say that the solicitors had advised the respondent that the applicant's conduct provided the respondent with an action for passing off and also for contravention of Part V of the Trade Practices Act 1974. They said that they had been instructed to institute proceedings unless certain action was taken by the applicant, that action being specified in the letter.

The answer to the letter is not, for reasons which I do not understand, in evidence, but on 8 April the applicant's solicitors wrote to the respondent's solicitors as follows:
"It has come to our client's attention that your client may be proposing to advertise and sell a tennis racquet under the name 'Supergraph'. At the beginning of February this year our client began selling a tennis racquet under the trade mark 'Supergraph' and has established a substantial goodwill and reputation in the mark. Our client has also applied for registration of the trade mark (Application No.355665). In view of these facts the proposed conduct of your client, if engaged in, would constitute passing off and would be in contravention of the provisions of section 52 of the Trade Practices Act."

There is no evidence that that letter was ever replied to. Thus the two letters of demand stand alone. There is no evidence as to what the terms of any reply to them were.

On 6 April, 1981, the respondent made two applications to register the name "Supergraph" as a trade mark in Part A of the Register. One application was to register it in respect of goods in class 28, particularly in relation to tennis and squash racquets and the other to register it in respect of goods in class 22, particularly in respect of tennis and squash racquet strings.

Before going to the evidence of the respondent's marketing activities, it is convenient to say something of the evidence which there is concerning the use by the respondent of the name "Supergraph" in relation to racquet strings. The evidence is that it has been marketing strings under this name since 1978. The strings in question are impregnated with carbon graphite. They are to be distinguished from other strings marketed by the respondent under the name "Superspeed". These are ordinary nylon strings.

The oral evidence concerning the use of the word "Supergraph" in relation to strings is not in a very satisfactory state and it is curious to me that there is no reference to such strings in the price list published in respect of the respondent's products having effect as from 11 September, 1980. But I am nevertheless satisfied that I ought to accept, at least as prima facie correct, the evidence which the respondent has led in relation to this matter. I am minded to do so because of what is contained in some shipping documents which are in evidence and also by reason of the contents of an internal office memorandum dated 17 October, 1978.

I am not satisfied, however, even on a prima facie basis, that the public, or any relevant section of it was aware of the marketing of such strings by the respondent. I do not accept the evidence of Mr. Bell, the respondent's New South Wales manager on this point. I take that view not because I think his evidence is dishonest but because of his recent joinder of the respondent's staff and his obvious unfamiliarity with the position. I think, however, that retailers and those who are engaged professionally to string racquets would have been aware of the marketing of the Supergraph strings by the respondent, at least throughout 1979 and 1980, if not before.

As earlier mentioned, the respondent's marketing of the Supergraph racquets has been well behind that of the applicant. The sale of them in any quantity did not commence until 22 May last. The respondent had begun taking orders in March but did not receive its first consignment of 240 racquets until 5 May, 1981. It has 180 orders for racquets. About 100 have been delivered and it is in the process of delivering the remainder. A further 1,200 racquets have been ordered from Topway in Taiwan.

There is a good deal of evidence, mostly hearsay, about the claims and counterclaims of salesmen and retailers as to which company has the right to use the name, "Supergraph". Some of this evidence I rejected because it was not in proper form, even for the purposes of an interlocutory application, but so much of it as is left indicates that an undesirable situation has been created by the simultaneous promotion and marketing of the two racquets. Retailers are clearly confused. Part of that confusion arises, I think, because of the prior use by the respondent, to the knowledge of many retailers, of the word "Supergraph" in relation to strings.

Another matter which causes confusion is conflicting marketing policy on the part of the two companies. The applicant has decided to trade up and is selling at a wholesale price substantially higher than that charged by the respondent. Its recommended retail price is accordingly higher also. As earlier said, the racquets appear to be identical in size, shape and composition. There is nothing to suggest that one is superior in quality to the other although that, of course, may be the case. I can only judge the matter by the evidence and, as I have said, there is no evidence that the quality is different. Thus, retailers and their customers, by reason of what they are told by retailers, are puzzled as to why what appear to be identical racquets are selling for different prices. One may speculate tht some would think that the applicant's racquet being more highly priced must be superior in quality; others may have a different view.

The provision upon which the applicant relies is s.52 of the Trade Practices Act 1974. Up to this stage no reliance has been placed alternatively upon a cause of action for passing off. Section 52 provides that a corporation shall not in trade or commerce engage in conduct that is misleading or deceptive or is likely to mislead or deceive. It is probable, on the present state of the authorities, that confusion is not enough. The evidence to which I have referred indicates no more than confusion. The applicant must establish that members of the tennis playing public, if not actually being misled or deceived, are likely to be.

The confusion to which I have referred is not directly, or perhaps at all, relied upon by the applicant. It relies upon another matter which arises from the evidence to which I have referred but which I have not so far brought out in as explicit a manner as it is necessary to do in order that the applicant's case may be understood. Its claim is that a relevant section of the public is likely to be deceived or misled because of evidence which associates the name "Supergraph" with a single source of supply whether the source be known as the applicant company or not. The case is one where, in its submission, the name "Supergraph" has become known, apart from its association with the name Emrik. The problem is not solved, so it submits, by taking the view that a sufficient distinction is presently drawn by the marketing of the two racquets, one as an Emrik Supergraph and the other as a Stellar Supergraph. That is a critical submission and one to which I have given much thought. It is based largely upon evidence, some of which I rejected, concerning what happened at an international sporting goods trade fair held in March at the Sydney Showground and the evidence of a retailer, Mr. Rowie of Toongabbie. He has a sports store in that suburb. He was available for cross-examination but counsel for the respondent did not wish to cross-examine him. Amongst other things, he said:
"In my experience customers who come to the shop to buy a racquet and particularly an expensive or a professional standard racquet refer to the racquets which they are considering by model name such as Maxply (distributed by Dunlop), Challenge, Panther, Ken Rosewall and John Newcombe (distributed by Slazenger). Quite often recently customers have asked me for the 'Supergraph'. It is quite usual for customers to ask for a particular model of racquet on recommendation from a coach or another tennis player. The same is true of squash racquets."
The sentence, "Quite often recently customers have asked me for the 'Supergraph'" was objected to but I thought it was admissible, particularly in an interlocutory application. Criticism was made because one was not told what it was that customers had said when this statement was made and what was said to them, but those are matters which could have been elicited in cross-examination which counsel for the respondent declined to undertake.

Having reflected on the matter, I have decided that I should, upon a prima facie basis, accept the applicant's submission that the word "Supergraph" has come to indicate to members of the tennis playing public a racquet provided from the one source of supply, whether known to them as Emrik or not. My conclusion in that regard is based principally upon Mr. Rowie's evidence and not upon what occurred at the trade fair.

By reason of its much earlier arrival in the market, the applicant has established, again on a prima facie basis, a sufficient reputation in the use of the name in relation to its goods. That finding, coupled with my view of Mr. Rowie's evidence leads me to the conclusion that, if matters are allowed to go on as they are, members of the public are likely to be misled or deceived into buying a Stellar Supergraph racquet when they wish to purchase an Emrik one. But that is not the end of the problem.

The respondent's answer to my conclusion so far, which it foresaw might be my conclusion, was to say that it was immaterial. No matter what racquet they acquired, persons purchasing a Supergraph racquet would, in fact, acquire one of identical quality, at least so far as the evidence indicates, namely, a Topway racquet imported by one company or the other from Taiwan. There is much force in that submission but, as senior counsel for the applicant submitted, this is a case concerning sources of supply in Australia. It may be important to some to deal either with Emrik or with a source of supply, unknown by name though it may be, which one considers, for one reason or another, to be reliable, rather than to deal with Stellar. Others, of course, may take a contrary view.

On the other hand, I do not think it would be in the public interest simply to restrain the respondent from marketing its racquets under the name "Supergraph" or to restrain it from doing so unless it clearly distinguished them from those marketed by the applicant. Such an order might itself have confusing, if not misleading, consequences. The public whose interest is paramount need, if the present position is to change, to be made clearly aware of the true position so far as this can be done. It is a case where, particularly because of the confusion which already exists and to which I have earlier referred, if relief is to be granted, it must be granted on terms which are conditional.

It is also a case where it is desirable that the final hearing be brought on with the least possible delay, not overlooking the fact that the parties, obviously enough, need adequate time to prepare their cases for that hearing.

I shall say something of the terms of the relief I am prepared to give in a moment, but before coming to that matter there is one other matter that I should mention. It was submitted on behalf of the applicant that the evidence disclosed, at least upon a prima facie basis, that the respondent had deliberately set out to copy the name "Supergraph" knowing that it was to be used on racquets to be imported by the applicant. I think there is force in those submissions, bearing in mind the time difference which there is between the time when the applicant ordered the racquets at the end of December 1980 and the respondent changed its mind about the use of the name "Formidable" on 12 January, 1981. I am puzzled also as to why it was that the applicant's order was fulfilled with what seems to have been reasonable despatch, it being able to deliver racquets in March and yet the respondent's racquets were not available to be delivered until last month. But there are countervailing considerations. I find it usually impossible to deal with a submission of the kind now under consideration in an interlocutory application; one simply does not have the entirety of the evidence and one can easily do one party or the other an injustice by attempting to resolve such a question on what is meagre and, often, hearsay evidence. This case is no exception to that general rule.

I therefore put aside the applicant's sybmission based upon deliberate deception. It is not a matter which I have taken into account. And I should add that, in any event, there is upon the authorities a real question as to whether it is a relevant consideration.

In approaching the question of the relief which I am prepared to give, I have taken into account that there is involved an allegation of breach of a provision of the Trade Practices Act designed to prevent the public from being deceived or misled. The section in question is but one of many provisions in an Act which deals with many aspects of trade practices. One must not overlook the provisions of s.45 of the Act which is designed to ensure prce competition amongst competitors. One reason for not giving the unconditional relief which the applicant seeks, particularly bearing in mind the price differential which there is, is that, to do so, might have an adverse effect upon the public in that it would restrict competition. On the other hand, one should bear in mind that it is possible, although the evidence does not enable me to say, that the reason why the racquets are being sold more cheaply by the respondent than they are by the applicant is that it has come late on to the market and has to attract customers to its racquets.

All in all, I have found the case a difficult one. It is one where I have considered seriously whether I should not refuse interlocutory relief and bring the case on for hearing finally at an early date. But I think that the applicant, provided it is prepared to submit to some conditions, is entitled to some relief. It will be a matter for it and its advisers to decide whether it is prepared to abide by the conditions which I think should be imposed. What I propose to do is announce now the form of the relief and the conditions and to stand the matter over for a short time, later this afternoon if that is what the parties wish, or later this week, to enable them to consider what I have said and then to hear whether the applicant is willing to take the relief I offer it upon the conditions that I will impose.

The relief I propose is as follows:

Upon the applicant -

(1) undertaking to the Court that it will affix to each Supergraph tennis racquet and Supergraph tennis racquet cover hereafter to be sold by it a label or notice in the form of Schedule A hereto and that it will, as to racquets and racquet covers already distributed to retailers but not sold by them, take reasonable steps to affix to such racquets and racquet covers a label or notice in similar terms.

(2) giving the usual undertaking as to damages I order that the respondent -

(1) be restrained until the hearing of this application from selling or marketing any tennis racquet or tennis racquet cover under the name Supergraph or Stellar Supergraph unless there be affixed to such tennis racquet or tennis racquet cover a label or notice in the form of that set out in Schedule B hereto;

(2) take reasonable steps, as to Supergraph racquets and racquet covers already distributed to retailers but not sold by them, to affix to such racquets and racquet covers a label or notice in similar terms.

What I might call the applicant's notice which is contained in Schedule A is as follows:

Emrik Supergraph racquets are imported into and marketed in Australia by Emrik Sporting Goods Pty. Limited which company has no connection with Stellar International Sporting Goods Pty. Limited. The racquets are manufactured in Taiwan for Emrik Sporting Goods Pty. Limited by the Topway Company.

Schedule B, or the respondent's notice, is:

Stellar Supergraph racquets are imported into and marketed in Australia by Stellar International Sporting Goods Pty. Limited which has no connection with Emrik Sporting Goods Pty. Limited. The racquets are manufactured in Taiwan for Stellar International Sporting Goods Pty. Limited by the Topway Company.

(For ensuing discussion see transcript).

Stood over to 4 June, 1981 at 9.30 a.m. for short minutes of order and directions.