Facton Ltd v Azadzoi
[2012] FMCA 800
•7 September 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FACTON LTD & ORS v AZADZOI | [2012] FMCA 800 |
| COPYRIGHT – Allegations of contraventions of Copyright Act and other statutes – passing off – failure of Respondent to participate in trial and comply with interrogatory orders – failure of Respondent to file Notice of Dispute to Applicants’ Notice to Admit – assessment of compensation to be paid to Applicants, including for loss of reputation – costs. |
| Copyright Act 1968 (Cth), ss.38, 115(2), 115(4), 116, 120, 126 Fair Trading Act 1999 (Vic), ss.9, 12 Trade Marks Act 1995 (Cth), s.120(1) |
| Amalgamated Mining Service Pty Ltd v Warman International Ltd (1992) 24 IPR 461 Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd and Anor [2008] FCA 74 |
| First Applicant: | FACTON LTD |
| Second Applicant: | G-STAR RAW C.V. |
| Third Applicant: | G-STAR AUSTRALIA PTY LTD (ACN 084 011 852) |
| Respondent: | JOHN IQBAL AZADZOI (ALSO KNOWN AS IQBAL AZADZOI) |
| File Number: | MLG 314 of 2011 |
| Judgment of: | O’Dwyer FM |
| Hearing date: | 2 April 2012 |
| Date of Last Submission: | 2 April 2012 |
| Delivered at: | Melbourne |
| Delivered on: | 7 September 2012 |
REPRESENTATION
| Counsel for the Applicants: | Mr T.D. Cordiner |
| Solicitors for the Applicants: | Middletons |
| The Respondent: | No appearance |
THE COURT ORDERS THAT:
Leave be granted to the Second Applicant to amend its name to “G-Star Raw C.V.”
Leave be granted to the Applicants to file an Amended Statement of Claim.
AND THE COURT DECLARES THAT:
The Respondent has infringed the G-Star trademarks (as defined in paragraph 5 of the Amended Statement of Claim) in breach of s.120 of the Trade Marks Act 1995 (Cth) (Trade Marks Act).
The Respondent has infringed or authorised the infringement of the copyright works (as defined in paragraph 7 of the Amended Statement of Claim).
The Respondent has contravened sections 9 and 12 of the Fair Trading Act 1999 (Vic).
The Respondent has committed the tort of passing off.
AND THE COURT FURTHER ORDERS THAT:
The Respondent, whether by himself, his servants, employees, agents or otherwise howsoever, deliver up to the Applicants:
(i)all of the Azadzoi garments (as defined in paragraph 10 of the Amended Statement of Claim) in his possession, custody or control; and
(ii)any and all brochures, pamphlets, advertising, labels, swing tags, promotional or marketing material and the like in his power, possession, custody or control which bear the G-Star trademarks or the copyright works (as defined in paragraphs 5 and 7 respectively of the Amended Statement of Claim).
The Respondent pay to the Applicants, pursuant to s.126 of the Trade Marks Act and s.115(2) of the Copyright Act 1968 (Cth) (Copyright Act) the sum of $20,009.13.
The Respondent pay the Applicants in respect of additional damages pursuant to sections 115(4) and 116 of the Copyright Act the sum of $25,000.
The Respondent pay the costs of the Applicants.
The Applicants serve a sealed copy of these orders on the Respondent as soon as practicable.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 314 of 2011
| FACTON LTD |
First Applicant
| G-STAR RAW C.V. |
Second Applicant
| G-STAR AUSTRALIA PTY LTD (ACN 084 011 852) |
Third Applicant
And
| JOHN IQBAL AZADZOI (ALSO KNOWN AS IQBAL AZADZOI) |
Respondent
REASONS FOR JUDGMENT
Introduction
By an amended application the Applicants seek certain declarations against the Respondent in respect of the infringement of trademarks and copyright works owned and produced by the Applicants. They also seek a declaration that the Respondent has committed the tort of passing off.
By way of remedy, the Applicants seek the delivery of any items in the possession of the Respondent that breach the trademarks and copyright works, together with damages, including those due to the Applicants under sections 115(4) and 116 of the Copyright Act 1968 (the Copyright Act).
When the matter was first called there was no appearance on behalf of the Respondent, although it is to be noted that he did file a Defence. However, a woman, Ms Lina Azadzoi, who identified herself as the Respondent’s sister, sought to speak on his behalf. She said the Respondent was not well and sought to inform the Court that her brother is not known as John, but only Iqbal Azadzoi. When asked to indicate the nature of the Respondent’s illness she informed the Court that he had been involved in a major car accident some three years ago, resulting in an acquired brain injury and that he has been unemployed since.
She purported to be his carer. She was not armed with any medical certificates or evidence in support of her contentions. She did not seek an adjournment, but sought to draw issue over the name of her brother, insisting that he had never been known as John and that his correct name was Iqbal Azadzoi. However, from the bar table she conceded her brother was working from the Caribbean Gardens Market as a form of getting income during his recovery. The Caribbean Gardens Market, incidentally, is where the Applicants’ investigator collected the evidence against the Respondent.
Ms Azadzoi sought to mitigate the Respondent’s culpability by suggesting he was unaware that the branded clothing he was selling was counterfeit, and as soon as being informed of such, he ceased selling it. She alleged the G-Star products were given to him by another store owner and he was unaware of the significance of the brand name until brought to his attention. Later, after submissions by the Applicants were concluded, she sought to challenge the evidence of the investigator as to the number of products seen by him.
Whilst I allowed Ms Azadzoi to articulate from the bar table the position of the Respondent, as she understood it, as a matter of courtesy to her, the reality was that the only admissible evidence before me was that constituted by the various affidavits filed on behalf of the Applicants, and the admissions taken to have been made by the Respondent by his failure to respond to the Notice to Admit served on him.
Hereinafter a statement of fact is to be taken as a finding of fact unless the context suggests otherwise.
Admissions and Evidence
The only formal compliance with the rules of Court by the Respondent was his filing of a Defence. In that Defence he admits that he conducted stall K20 at the Caribbean Gardens Market from
2 November 2008 to 27 February 2011. He admits that he sold five tops and five pairs of jeans on two days which bore the G-Star name, which he says he purchased from another outgoing stall holder. He admits to selling one top and one pair of jeans for $10 and $20 respectively, but otherwise destroyed seven other items that were the subject of a breach of copyright. He denies that he is the named Respondent but does admit that he, as Iqbal Azadzoi purchased the items and sold them as set out in the Defence.
In response to the assertions and allegations that the Respondent denied in his Defence, the Applicants served upon him a Notice to Admit which sought to obtain admissions from him in respect of such things, but not limited to, the ownership of described and illustrated trademarks, the licence of some Applicants to use the trademarks and the subsistence of copyright in the subject items. I note it also sought admissions to the effect that the trademarks and identified items were distinctive, exclusive and the goods of the Applicants. The final admission sought was his knowledge that the subject items were counterfeit.
No Notice of Dispute was filed or served in response to the Notice to Admit and as a consequence, it is taken that the allegations and assertions of fact are admitted and form the factual matrix upon which the determination is made.
The Applicants also relied upon the affidavit of Mr Craig Raymond Douglas, who deposed to the fact that he attended on the Respondent’s stall on 27 June 2010, on which occasion he observed ten pairs of
G-Star branded jeans for sale for $65, and 100 G-Star T-shirts for sale at $10. This unchallenged evidence contradicts the assertions made in the Defence, and also by Ms Azadzoi at the hearing as to the quantity of subject items being offered for sale. Needless-to-say, the sworn evidence of Mr Douglas is the only evidence before the Court and it is the evidence upon which this determination is based.
In support of the claim by the Applicants concerning the reputation and the exclusivity of the G-Star brands. The Applicants rely upon the affidavit of Mr Piet Poelmann. His evidence is unchallenged.
Findings
On the evidence that has been outlined above I find the following:
a)Since 1989 the Second Applicant has designed, promoted, marketed and advertised, distributed, offered for sale and sold around the world, clothing and clothing accessories branded with, and by reference to, the name “G-Star.”
b)
The Third Applicant is the exclusive Australian distributor of
G-Star products.
c)The First Applicant is the registered owner of the Australian trademarks appearing upon the subject items.
d)The First Applicant has granted an exclusive licence to the Second Applicant to use the G-Star trademarks.
e)The employees of the Second Applicant created artistic works in the course of their employment with the Second Applicant being the G-Star “G” logos, as represented in Australian trademark Nos 722852 and 980122 and the “G-Star Originals” logo as represented in Australian trademark No 883618.
f)The copyright works (as defined in paragraph 7 of the Amended Statement of Claim) are original artistic works in which copyright subsists by virtue of Part III of the Copyright Act.
g)The copyright works are owned by the Second Applicant.
h)The Applicants have established a substantial, exclusive and valuable reputation and goodwill in Australia by reference to the G-Star trademarks, the G logos and the G-Star Originals logo.
i)The business and goods of the Applicants have become widely and favourably known and identified by the general public in Australia by reference to the G-Star trademarks, the G logos and the G-Star Originals logo.
j)The G-Star trademarks, the G logos and the G-Star Originals logo are featured on the G-Star products and on packaging, promotional, and advertising material relating to the sale of G-Star products.
k)The G-Star products are available for purchase from retailers throughout Australia.
l)The G-Star trademarks, G logos and the G-Star Originals logos are, and have been at all material times, known to be distinctive of and signifying exclusively the business and goods of the Applicants.
m)The subject items (as defined in paragraph 10 of the Amended Statement of Claim) are counterfeit.
In addition, I find the Respondent has failed to take an active role in the proceedings since the filing of the Defence and the Respondent has, in contravention of the orders of the Court made on 27 July 2011:
a)failed to file and serve any affidavits, being his evidence in chief;
b)failed to notify the Applicants in writing of any deponent required for cross-examination within 14 days of receipt of the relevant affidavit; and
c)failed to respond to the Notice to Admit.
The Court also finds that the named Respondent, “John Iqbal Azadzoi” is properly named, but upon the assertions made in the Defence and by Ms Azadzoi that the Respondent’s name should be “Iqbal Azadzoi,” then any orders made will be against the Respondent “John Iqbal Azadzoi, also known as Iqbal Azadzoi.”
I am satisfied that the Respondent has committed a trademark infringement pursuant to S.120(1) of the Trade Marks Act. I am further satisfied that the evidence supports a finding that the Respondent has breached sections 9 and 12 of the Fair Trading Act 1999 (Vic)
(as applied at the relevant time) and also satisfied that a case has been established that the Respondent was passing off the counterfeit subject items as those of the Applicants.
In my view the Respondent knew, or ought reasonably to have known, that when he was selling the subject items, which were clearly identified as G-Star products for which, on his own admission, he paid little, he knew that the items were counterfeit, having regard to their significant reputation in the high end retail clothing market and that they were not genuine products. By offering, exhibiting in public and selling such products which clearly reproduced a substantial part of the copyright works, the Respondent has infringed copyright pursuant to s.38 of the Copyright Act.
Damages
The Applicants seek the following damages:
a)$5009.13 for loss of sales, calculated on the number of items admittedly sold and those observed by Mr Douglas on display at the Respondent’s stall, being the aggregate loss to them after deducting costs from likely sale price. I am satisfied that the Applicants are entitled to that award based upon the evidence presented.
b)The Applicants also seek $35,000 for loss of reputation; and
c)$50,000 in additional damages.
Loss of reputation
There is significant evidence, in my view, presented by the Applicants that supports the contention that the “G-Star” brand name and the products produced under that brand name have a significant high value profile in the retail clothing market. The name and standing of the
G-Star brand and its acceptance in the marketplace as a quality brand has been established over a significant period of time through expensive marketing and quality control. As such, its position in the marketplace is of high value and forms the foundation in which businesses relying on the production and sale of the products depend.
There are 40 franchisees in Australia dependent on the continued high-standing of the product. By necessity, in my view, in order to maintain its position in the marketplace its reputation is jealously guarded by the Applicants and those depending upon the continuing production of the brand and clothing products.
To challenge the standing of the brand by the sale of cheap counterfeit products that are passed off as original products, purportedly produced under the auspices of the brand, is to seriously diminish the reputation of the brand and its products in the marketplace. It is diminished on two levels. First, the counterfeit products sold under the brand name are of lesser quality and therefore the standing and reputation of the product is undermined if people purchase the counterfeit product believing it is of the expected high standard and later discovering it is not. Secondly, the exclusivity associated with the brand is undermined by the availability of counterfeit cheap products which attract sales away from those legitimate outlets selling non-counterfeit products.
The challenge that the sale of counterfeit products represents is in the potential to seriously undermine legitimate production of the genuine product and in due course placing at risk the businesses associated with the production and the sale of the products. This, in my view, cannot be lightly dismissed.
I have been referred to numerous authorities where awards have varied in respect of this aspect of the Applicants’ claims, in similar circumstances, from $7,500 to $50,000.
In Review Australia Pty Ltd v The New Cover Group Pty Ltd[1]
[1] [2008] FCA 1589
the Court ordered $35,000 based upon 700 infringing garments being sold. In this case, I am satisfied, as stated, that the Applicants’ products have a well-defined and strong position in the marketplace and that they are at risk of, and on balance, have suffered a loss of reputation by the sale of these counterfeit garments and that the figure of $15,000 is an appropriate award.[2] In determining that amount, I am conscious of lesser amounts being awarded for loss of reputation in the range of $7500 to $10,000, but this case, in my view, is distinguished from them by the following factors, which cumulatively heighten the real prospect of damage to reputation to a degree not so prevalent in the other cases:
[2]See also Crimson SRL & ANOR v Claudia Shoes Pty Ltd and Ors (No.7) (2008) ASAL; Review Australia Pty Ltd v New Cover Group Ltd [2008] FCA 1589; Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd and Anor [2008] FCA 74; Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633; Facton Limited & Ors v Chung Lim Sports Cap Pty & Ors [2010] FMCA 584; Facton Ltd & Ors v Rifai Fashions Pty Ltd & Ors [2012] FCAFC 9
·the Applicants lose sales of the G-Star products as consumers refuse to pay the higher prices for the G-Star products when similar looking counterfeit “G-Star” products are available in the marketplace for cheaper prices;
·
the Applicants lose customers as they no longer purchase the
G-Star products as they are no longer considered “exclusive” as cheaper copy product is available in the marketplace;
·
the Applicants’ retail customers no longer wish to purchase the
G-Star products as counterfeit “G-Star” products are being sold in retail outlets in competition with them at cheaper prices;
·the Applicants ensure strict quality control for any product sold under or by reference to the G-Star marks and the Azadzoi garments are not subject to these controls; and
·the infringements must clearly, in my view, result in some diminution in the commercial value of the designs in respect of future use.
Additional Damages
Under s.115(4) of the Copyright Act the Court has a discretion to award an amount in additional damages and in the exercise of that discretion the Court may have regard to:
·the flagrancy of the infringement;
·the need to deter similar infringements of copyright;
·the conduct of the Respondent after being informed of the infringement; and
·the benefit to the Respondent arising from the infringement.
In determining to exercise my discretion in favour of making an award for additional damages I have taken the following into account:
·There needs to be a general deterrent to prevent similar infringements of copyright, a deterrent that is known and understood in the marketplace. It is important to protect copyright owners in the marketplace from the destructive conduct of those who seek to pass off counterfeit products as being those of the rightful copyright owner. The conduct seriously jeopardises the fiscal wellbeing of not only the copyright owners in the first instance, who have, I am satisfied, invested a great deal in establishing the copyright works, but also those aligned industries that are dependent on the subsistence of protection of copyright works to provide a viable market, leading to wealth creation and employment.
·The Respondent has failed to take any active role in these proceedings.
·In excess of 100 units of the counterfeit garments were on offer for sale in one market stall.
·
The counterfeit garments are good copies of the G-Star products and are therefore flagrant infringements. The Respondent offered for sale and sold the counterfeit garments as if they were the
G-Star products. There is a need to deter similar conduct in the marketplace.
·
The Respondent has gained, and stood to gain further, a commercial advantage in selling products which bear the
“G-Star” brand as the Respondent was able to charge a premium on what he would otherwise have charged for such products, unrightfully trading on the status and standing of the name in the marketplace without having exercised the creativity to design the product or been put to the expense of establishing the name in the marketplace. The Respondent was also able to trade on the long and substantial investment of the Applicants in promoting the
G-Star products and the G-Star brand.
·
The Respondent has shown an almost complete disregard for these Court proceedings and the orders made by the Court.
The Respondent has failed to comply with directions ordered in these proceedings. The Respondent’s Defence, also, fails to disclose any real defence to the claims made.
·However, the Respondent, having regard to the best evidence, cannot be said to operate a significant retail outlet that sells a substantial volume of merchandise and any award, in my view, must reflect this. That being so, however, the Respondent has a responsibility not to infringe the legal rights of other parties and should behave in a law abiding manner. There is certainly a public interest in deterring the Respondent from taking part in such conduct again and also to deter other potential infringers from conducting themselves in a similar way.
I am satisfied, therefore, this is an appropriate case for the Court to make an order for additional damages.
The Applicants sought an award of $50,000 under this head, and suggested it should also inclusively stand as an appropriate award for passing off. In support of that award the Applicants referred to various cases where awards under this head were made in the range of
$3 million against a corporation, to $30,000 against a Director of such. In my view, proportionality dictates that against this Respondent, an award of $25,000 will serve as a specific deterrent to him, and a general deterrent to those in their industry who may be tempted.[3]
[3]See Amalgamated Mining Service Pty Ltd v Warman International Ltd (1992) 24 IPR 461, Bailey v Namol (1994) 30 IPR 147, Milpurrurru and Others v Indofurn Pty Ltd and Others (1994) 30 IPR 209, Microsoft v Goodview (2000) 49 IPR 578, Microsoft Corporation and Others v PC Club Australia Pty Ltd and Others (2005) 67 IPR 262, Fraserside Holdings & Anor v Venus Adult Shops & Ors [2005] FMCA 997, Foxtel Management Pty Ltd & Anor v Mod Shop Pty Ltd & Ors (2007) 72 IPR 1, Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in Liquidation) & Ors (2007) 71 IPR 437 and Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633
Question of Declarations and Injunctions
The Applicants also sought declarations and injunctions as set out in their application and the Amended Statement of Claim. Those sought are justified on the evidence and appropriate.
Conclusion
I am satisfied on the evidence presented that there have been infringements of the Applicants’ copyright works by the sale, and attempted sale, of counterfeit garments bearing the Applicants’ “G-Star” brand and labels which entitled the Applicants to awards of compensation in the sum of $5,009.13 for loss of sales, $15,000 pursuant to s.115(2) of the Copyright Act, and additional damages of $25,000 pursuant to s.115(4) of the Copyright Act, a total of $45,009.13.
I certify that the preceding thirty (30) paragraphs are a true copy of the reasons for judgment of O’Dwyer FM
Date: 7 September 2012
0
9
3