Facton Ltd v Yuan
[2011] FMCA 266
•21 April 2011
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FACTON LTD & ORS v YUAN | [2011] FMCA 266 |
| COPYRIGHT – Contraventions by respondent of copyright and trade marks – passing off – respondent failing to participate in proceeding – matter proceeding undefended – declarations and orders for damages made. |
| Trade Marks Act 1995, ss.125, 190 Copyright Act 1968, s.115(2) Fair Trading Act 1987 Evidence Act 1995 Federal Magistrate Rules 2001, O.13.03A(2) |
| Facton Ltd v Dash Industries Pty Ltd [2010] FMCA 709 Microsoft Corp v Leonidas [2010] FMCA 986 Adidas-Salomon AG v Turner (2003) 58 IPR 66 Ladakh Pty Ltd v Cao [2010] FMCA 799 |
| First Applicant: | FACTON LTD |
| Second Applicant: | G-STAR INTERNATIONAL B.V. |
| Third Applicant: | G-STAR AUSTRALIA PTY LTD (A.C.N. 096 765 123) |
| Respondent: | HAIZHI YUAN |
| File Number: | MLG 1070 of 2010 |
| Judgment of: | Burchardt FM |
| Hearing dates: | 22 & 25 February 2011 |
| Date of Last Submission: | 25 February 2011 |
| Delivered at: | Melbourne |
| Delivered on: | 21 April 2011 |
REPRESENTATION
| Counsel for the Applicant: | Mr J. Feder (on 22 February 2011) & Ms Jayaweera (on 25 February 2011) |
| Solicitors for the Applicant: | Middletons |
| The Respondent: | No appearance |
THE COURT DECLARES THAT:
The respondent has infringed the G-Star Trade Marks (as defined in paragraph 5 of the 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 Statement of Claim).
The respondent has contravened s.42 and s.44 of the Fair Trading Act 1987 (NSW) (“FTA”).
The respondent has engaged in conduct which constitutes the tort of passing off.
THE COURT ORDERS THAT:
The respondent pay the applicants the sum of $5,000 for damages pursuant to s.115(2) of the Copyright Act.
The respondent pay the applicants the sum of $20,000 for damages for loss of reputation.
The respondent pay the applicants the sum of $30,000 for damages pursuant to s.115(4) of the Copyright Act.
The respondent pay the applicants’ costs fixed in the sum of $11,200.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1070 of 2010
| FACTON LTD |
First Applicant
| G-STAR INTERNATIONAL B.V. |
Second Applicant
| G-STAR AUSTRALIA PTY LTD (A.C.N. 096 765 123) |
Third Applicant
And
| HAIZHI YUAN |
Respondent
REASONS FOR JUDGMENT
The applicants seek declaratory relief and damages against the respondent arising out of alleged contraventions of the Trade Marks Act 1995 (Cth) (“Trade Marks Act”), the Copyright Act 1968 (Cth) (“Copyright Act”), the Fair Trading Act 1987 (NSW) (“FTA”) and for passing off.
The applicants concede that there is a measure of overlap in the various claims and concede they should not be allowed to double-dip.
For the reasons that follow, I think that the applicants should have the relief they seek and I will assess the quantum of damages that they should receive.
History of the proceeding
It is not possible to address the matters in issue in these proceedings without setting out its history. The applicants filed their application on 30 July 2010. That application was accompanied by a statement of claim, which pleaded inter alia the incorporation of the three applicants, ownership of trade mark and copyright material, facts giving rise to infringement of those trade mark and copyright rights, conduct in breach of the FTA, and conduct that constituted passing off. They sought damages in respect of those contraventions.
From an affidavit of service of Mariam Youssef filed electronically but sworn on 9 August 2010, it is plain that on 6 August 2010 the respondent was served with the application and the statement of claim, and a letter from Messrs Middletons dated 2 August 2010. A copy of that letter is exhibited to Ms Youssef’s affidavit and shows that the respondent was put on notice that the matter was due to be heard at a directions hearing on 20 September 2010 at 9.30 am before this Court in Melbourne. It stated:
“You are required to attend this hearing at the Federal Magistrates Court of Australia in Melbourne at this time or orders may be made against you in your absence.
We recommend that you seek legal advice.”
The respondent did not attend the proceeding on 20 September 2010.
I adjourned the matter for further directions on 3 December 2010 and made other interlocutory orders, including an order for a defence and mediation.
The matter returned on 3 December 2010. No materials had been filed by the applicant. I have been informed, and have no reason to doubt, that the respondent failed to appear at mediation on 16 November 2010.
Accordingly, on 3 December 2010 I listed the matter for hearing on
22 February 2011 with an estimate of one day and granted leave to the applicants to proceed undefended if the respondent failed to file a response on or before the trial date. When the matter was called on
22 February 2011, the respondent did not appear and the matter was adjourned to 25 February 2011. A copy of the order making that adjournment was posted to the respondent’s home address at Hurstville that day, and would reasonably be taken to have been received by him the next day or at the very latest, on 24 February 2011.
Notwithstanding this, the applicant did not appear. On 25 February 2011, the applicants handed up an amended outline of submissions. Given the complete failure of the respondent to participate in the proceedings, these Reasons for Judgment necessarily follow the applicants’ outline of submissions somewhat closely and, indeed, incorporate various parts of them. To the extent that these Reasons for Judgment may reflect either generally or exactly any parts of the applicants’ written outline of submissions, I make it plain that I adopt those submissions as Reasons of this Court.
The application for default judgment
Order 13.03A(2) of the Federal Magistrates Court, Federal Magistrate Rules 2001 provides:
(2) If a respondent is in default, the Court may:
(c) if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings - give judgment against the respondent for the relief that:
(i) the applicant appears entitled to on the statement of claim; and
(ii) the Court is satisfied it has power to grant; or
(d) give judgment or make any other order against the respondent.
Pursuant to order 13.03(A)(2), the Rules define when a respondent is in default. Circumstances giving rise to such a default which are presently relevant include failure to:
a)Give an address for service before the time for the respondent to give an address has expired; or
b)give a response before the time for the respondent to file a response has expired; or
c)comply with an order of the Court in the proceeding; or
d)file and serve a document required under the Rules; or
e)defend the proceeding with due diligence.
All of those default circumstances are clearly extant in the circumstances of this case. The respondent has failed to participate in any way in the proceeding.
It is clear from the Federal Court authorities set out in paragraph 11 of the applicants’ written submissions, that Rule 13.03B(2)(c)(i) does not require proof by way of evidence of the applicants’ claims. Rather, it requires the Court to be satisfied that on the face of the statement of claim, there is a claim for relief sought and that the Court has jurisdiction to grant that relief. In Facton Ltd v Dash Industries Pty Ltd [2010] FMCA 709, Riley FM said at [5]:
“In Arthur & Others v Vaupotic Investments Pty Ltd & Others [2005] FCA 433 at [3], Heerey J, discussed the equivalent rule in the Federal Court Rules and said:
The Rule does not require proof by way of evidence of the applicant’s claim; rather, that on the face of the statement of claim, there is a claim for the relief sought and, of course, that the Court has jurisdiction to grant that relief.
The same point has been made in a number of other cases in the Federal Court and in this court. I proceed on the basis that Arthur v Vaupotic accurately sets out the relevant test.”
In my respectful view, her Honour’s description of the state of the authorities is correct and I, therefore, proceed on that basis. I note that the Federal Court has proceeded in the same way in all of the other three cases referred to in the applicants’ submissions.
The statement of claim undoubtedly provides sufficient satisfaction that there is a claim for the relief sought. The next question is whether the Court has jurisdiction to grant such relief.
Jurisdiction
During the course of counsel’s submissions on 22 February 2011, I expressed the view that this Court did not have trade mark jurisdiction and declined to entertain such of the statement of claim as relied upon trade mark infringement matters. Counsel for the applicants did not seek to persuade the Court that this was an erroneous conclusion and indicated a preparedness to limit the applicants’ claims to copyright, the FTA and passing off.
I also indicated during the course of discussion that in my opinion it was not appropriate to exercise the Court’s associated or accrued jurisdiction in such a way as to grant this Court jurisdiction where the effect of s.125 and more particularly, s.190 of the Trade Marks Act appears to vest jurisdiction solely relevantly in the Federal Court.
Since that time, I have become aware of the decision of Riley FM in Dash Industries. Curiously enough, I have not been directed to it before. In that case, her Honour found that at [12]:
“Pursuant to s.125(2) (of the Trade Marks Act), the court has accrued jurisdiction in relation to the infringement of trade marks, where the court has clear jurisdiction in relation to the copyright and other aspects of the claim.”
My understanding of the law relating to accrued jurisdiction is that a Court may exercise jurisdiction over matters not otherwise within its jurisdiction where they same form part of a single federal controversy or arise out of the same substratum of facts.There is, in truth, only one federal controversy in such cases.
In this case, on reflection, I would form the conclusion that there is only one controversy, namely the course of conduct that caused the respondent to sell counterfeit G-Star products, and the damages that should flow from it.
Further, given that the decision of Riley FM is directly on point and is a considered decision, forming part of the ratio decidendi in that case, I would be obliged to follow it unless it was clearly wrong. It is not clearly wrong and had I otherwise been made aware of it, I would have been obliged to follow it.
In the ultimate, however, this reconsideration is of no moment, as it is clear that the damages sought would, in the ultimate, be the same whether the trade mark matters were included or not.
The claims pressed at trial
Copyright infringement
The facts supporting the copyright infringement are set out in paragraph 10 of the statement of claim. Pursuant to Heerey J’s judgment in Vaupotic, referred to in paragraph 13, it is not necessary for there to be proof of such matters.
Nonetheless and for completeness, I would confirm that there is perfectly proper proof in admissible form before the Court to support the factual assertions there made. The affidavit of Ms Youssef, sworn 17 December 2010, details Ms Youssef’s visit in March 2010 to the respondent’s stalls at Fairfield Market, Fairfield, New South Wales and Paddy’s Market, Flemington, New South Wales. On each occasion, she noted items on sale bearing the G-Star brand, which she photographed.
Further affidavits by David Neil McAlister and Leanne Gai Smith disclose further occasions upon which G-Star materials were observed at the respondent’s stalls and purchases by them of such garments.
The affidavit of Christian de Bil, sworn 14 December 2010, confirms that these products are counterfeit.
It should be noted that, strictly speaking, these proofs are not necessary, owing to the operation of the default regime to which I have referred.
There is email correspondence from Robert Hens, the manager of the Fairfield Market, which confirms that the respondent is the lessee of the relevant stall at the Fairfield Market (annexure LM2 to the affidavit of Luke Corey Muntz) sworn on 15 December 2010 and, again to
Mr Muntz’s affidavit sworn on 24 February 2011 that confirms the respondent operates the relevant stall at Paddy’s Market.
Once again, although this evidence is sufficient (the emails to
Mr Muntz, in my view, being business records within the meaning of the Evidence Act 1995 in any event), it is not necessary for these matters to be proved by evidence as this is a default proceeding.
In the circumstances, it is clear that the applicants have made out their case in respect of the copyright infringement, the breaches alleged of the FTA, and that the conduct of the respondent constituted passing off.
Damages
On the matters set out in the statement of claim, it is clear that the applicants have established a reputation in their product. Were it necessary, this is further confirmed by the affidavit of Mr de Bil.
In the circumstances, the applicants are entitled to declaratory relief and to appropriate damages.
Damages pursuant to s.115(2) of the Copyright Act
The applicants have expressly (see paragraph 15, applicants’ amended outline of submissions) elected to seek an award of damages, rather than an account of profits.
I accept the applicants’ submission that damages under s.115(2) of the Copyright Act are, generally, compensatory in nature and are for the depreciation to the value of the copyright as a chose in action arising from the introduction of the counterfeit G-Star branded clothing into the market place.
The respondent, as these applicants submit, has failed to comply with orders made in the proceeding and has not particularised the sales that he has made of the garments that he was selling. As a result of the non-cooperation of the respondent, the applicants are unable to quantify the amount in lost sales arising from his conduct. Nonetheless, the affidavits of Mr McAlister, Ms Youssef and Ms Smith depose to substantial numbers of G-Star branded products on sale.
The affidavit of Mr de Bil shows that the profit made by the applicants on the sale of a genuine pair of G-Star jeans is $167.16 and $123.44 in respect of t-shirts. This would be an average of $93.30 per garment and the applicants seek damages in that sum for each of the 393 counterfeit G-Star items identified by Mr McAlister, Ms Youssef and Ms Smith.
This kind of, as it were, lineal arithmetical calculation of damages may be appropriate in given cases. I note that in Microsoft Corp v Leonidas [2010] FMCA 986, Emmett FM held that the applicants had proved that they suffered loss as a result of the infringing programs being sold in Australia, and inferred that those sales made by the respondent would otherwise have resulted in sales of the first applicant’s licence program. Her Honour, accordingly, awarded damages in the sum of the number of infringing items sold multiplied by the first applicant’s minimum profit over the relevant period.
The facts of this case do not support this approach. There is no proof that those who purchase the items that were probably purchased from the respondent, having counterfeit G-Star identification, would otherwise have purchased the product from the applicants. Indeed, given the very substantial price differential, it is more probable than otherwise that they would not. There is no evidence that would enable the Court to come to any satisfactory conclusion as to what loss there may have been. This issue has been addressed by Courts before.
In Adidas-Salomon AG v Turner (2003) 58 IPR 66, Goldberg J said at [5]:
“Nevertheless, notwithstanding the difficulties facing me on the assessment of damages, the task of the Court is to do the best it can on the available material. The principle was stated succinctly by the Full Court in Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167; 3 IPR 619 where the Full Court, comprising Sheppard, Morling and Wilcox JJ said at ALR 183; IPR 367:
The principle is clear. If the Court finds damage has occurred, it must do its best to quantify the loss even if a degree of speculation and guesswork is involved. Furthermore, if actual damage is suffered, the award must be for more than nominal damages. We would add that we can see no reason why this principle should not apply in cases under the Trade Practices Act as well as in cases at common law. We emphasise, however, that the principle applies only when the Court finds that loss or damage has occurred. It is not enough for a plaintiff merely to show wrongful conduct by the defendant.
The principle was recently restated by Emmett J in Sony Computer Entertainment Australia Pty Ltd v Stirling (2001) FCA 1852; BC (2001) 08544, particularly at [7], where his Honour said:
If a court finds damage has occurred as a result of wrongful conduct that gives rise to a cause of action, it must do its best to quantify the loss, even if a degree of speculation and guesswork is involved.”
In this case, in the statement of claim the applicants have pleaded, at paragraph 21:
“That the respondent had made a profit by his wrongful acts and conduct,
and the particulars given were:
The Yuan garments were offered for sale and sold in commercial quantities for profit by the respondent. The applicants will provide further particulars after discovery in the proceeding.”
They went on to claim that they had suffered, and were likely to suffer, loss and damage because of the importation and sale of the Yuan garments and the diminution in their reputation of their own product. Once again, these matters were set to be further particularised following discovery. Of course, discovery has not occurred in this case because the respondent has, effectively, refused to participate.
In my view, the selling of counterfeit G-Star product – more probably than otherwise – would give rise to some measure of loss. Even well-off people (who are sufficiently well-off to afford the G-Star product) might be attracted to considerable savings. In my view, the applicants have sufficiently proved that they more probably than otherwise have suffered loss in sales as the result of the infringing product, which I note was in substantial amounts. In all the circumstances, and doing the best I can, I will order $5,000 damages in this regard.
Damages for loss of reputation
This is a serious matter. As the affidavit material of Mr de Bil makes clear, the applicants spend very considerable amounts of money and devote considerable resources to establishing and maintaining the product reputation that they have in Australia. It was infringement on what appears to have been a relatively large scale (bearing in mind the scale of product sales revealed by other cases before the Court – see, for example, Ladakh Pty Ltd v Cao [2010] FMCA 799 at [35], where a witness expert in the retail sales trade said that 282 garments were an average sale for a particular item in Sydney).
Each case turns on its own facts.
In my opinion, in this case, the flagrant nature of the infringements – their relatively numerous amounts, which were not capable of being more precisely quantified because of the lack of cooperation of the respondent – leads to the conclusion that a sum of $20,000 should be awarded under this heading.
Additional damages pursuant to s.115(4) of the Copyright Act
Section 115(4) sets out a number of non-exhaustive considerations that a Court can look at in making an assessment for additional damages. They are:
a)The flagrancy of the infringement.
b)The need to deter similar infringements of copyright.
c)The conduct of the defendant after the act constituting the infringement.
d)Any benefit shown to have accrued to the defendant.
In this case, I accept the submissions of the applicants set out at paragraph 30 of the written submissions. I do not propose to set them out in full but would point to, by way of paraphrase, the apparently deliberate nature of the infringement; its wide ranging scope; the benefit likely to have been obtained by the respondent selling good quality fakes at a substantially reduced price; the total failure of the respondent to cooperate in any way with the applicants, despite being served with appropriate correspondence, let alone the Court; and the complete absence of contrition.
In all the circumstances I think that the appropriate sum for additional damages is $30,000.
Other matters
The applicants expressly conceded that if damages were awarded under the copyright headings, it would be inappropriate to double-dip by making further orders in respect to the contraventions of the FTA and the passing off. Accordingly, there will be no such orders.
The applicants have pressed for both declaratory relief and injunctive relief.
In my opinion, in this case declaratory relief is appropriate. It explains the penalties imposed.
Injunctive relief, however is in my view not appropriate. It is true that the respondent has failed altogether to cooperate with the applicants and/or to participate in these proceedings. However, the orders I will make are likely to cause the respondent to think long and hard before committing any further contraventions. Further, it is not appropriate, generally at least, to make an injunction the effect of which is to require a person to obey the law.
The applicants seek costs. They seek them pursuant to the Federal Magistrates Court scale.
The figures set out in the written submissions of the applicants are all, in my view, entirely appropriate and reasonable and there will be a costs order of $8,995 for scale items, together with disbursements of $2,205.
I have prepared orders to give effect to these conclusions. I will make final orders in this form, unless written submissions are received from either party within seven days that require a different conclusion.
I certify that the preceding fifty-five (55) paragraphs are a true copy of the reasons for judgment of Burchardt FM
Associate:
Date: 21 April 2011
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