Kyosho Corp v Advanced Hobbies International Pty Ltd

[1998] FCA 481

FEDERAL COURT OF AUSTRALIA

TRADE MARKS - application to expunge trade mark from the Register - loss of distinctiveness - proprietorship of trade mark - whether entry of trade mark in Register wrongly made - whether applicant is a person aggrieved.

PRACTICE AND PROCEDURE - failure of respondent/cross-applicant to comply with an order of the Court relating to a cross-claim - whether order should be made under Federal Court Rules O 10, r 7.

Federal Court Rules, O 10, r 7.
Trade Marks Act 1955 (Cth), ss 22, 26, 40, 53, 58, 61.
Trade Marks Act 1995 (Cth), ss 20, 250.

Australian Securities Commission v MacLeod (1994) 54 FCR 309 (FCA/Drummond J), cited.
Clark Equipment Company v Registrar of Trade Marks (1964) 111 CLR 511, cited.
Kraft Foods Inc v Gaines Pet Foods Corporation (1996) 65 FCR 104 (FCA/FC), cited.
Re Registered Trade Mark “Thunderbird” (1974) 131 CLR 592 (Jacobs J), cited.
Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158 (S Ct NSW/McLelland J), cited.

KYOSHO CORPORATION V ADVANCED HOBBIES INTERNATIONAL PTY LIMITED
NG 6335 of 1994

SACKVILLE J
SYDNEY
7 MAY 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 6335 of 1994

BETWEEN:	KYOSHO CORPORATION APPLICANT
AND:	ADVANCED HOBBIES INTERNATIONAL PTY LIMITED RESPONDENT
JUDGE:		SACKVILLE J
DATE OF ORDER:		7 MAY, 1998
WHERE MADE:		SYDNEY

THE COURT ORDERS THAT:

1. The following question:

   “Should registered trade mark no A431624 (the “Trade Mark”) be removed from the Register on the grounds that JR Remote Control Australia Pty Limited, the first registered owner of the Trade Mark, was not the proprietor of the Trade Mark within the meaning of s 40 of the Trade Marks Act 1955 (Cth)?”

   be answered: “Yes”.

1. The Trade Mark be expunged from the Register.

1. The balance of the proceedings be stood over until 27 May 1998 at 9.30 am.

1. The applicant have leave to file a notice of motion seeking dismissal of the cross-claim returnable on 27 May 1998, at 9.30 am.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 6335 of 1994

BETWEEN:	KYOSHO CORPORATION APPLICANT
AND:	ADVANCED HOBBIES INTERNATIONAL PTY LIMITED RESPONDENT

JUDGE:	SACKVILLE J
DATE:	7 MAY, 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

The Question
This is a hearing for the determination of a separate question in proceedings between the applicant (“Kyosho”) and the respondent (“Advanced Hobbies”). Advanced Hobbies which has been wound up and is in liquidation, is the registered owner of trade mark A431624 in respect of the word “KYOSHO” for goods in Class 28, including (but not limited to) games and playthings (the “Trade Mark”). The relief claimed by Kyosho in its application, filed on 9 June 1994, includes an order pursuant to s 22 of the Trade Marks Act 1955 (Cth) (the “TM Act”) that the Trade Mark be expunged from the Register of Trade Marks. Section 22(1) provides that a prescribed court may, on the application of a person aggrieved, order the rectification of the Register

“(b)by the expunging...of an entry wrongly made in or remaining in the Register”.

The application for the Trade Mark was filed on 14 August 1985 by JR Remote Control Australia Pty Limited (“JR”) and was entered in the Register in the name of JR on 27 May 1987.  On 15 October 1990 JR assigned the Trade Mark to Advanced Hobbies (Aust) Pty Limited which, in turn, assigned the Trade Mark to Advanced Hobbies (the present respondent) on 1 January 1992. 

According to Kyosho’s statement of claim, Kyosho and JR entered into an agreement in October 1983, whereby JR became Kyosho’s exclusive distributor of its remote control model air kits in Australia.  It is alleged that JR, Advanced Hobbies (Aust) and Advanced Hobbies were related companies and that both Advanced Hobbies (Aust) and Advanced Hobbies acted in breach of fiduciary duties owed to Kyosho arising out of their knowledge of the terms of the 1983 distributorship agreement between JR and Kyosho.

The question identified for separate determination, as amended, is as follows:

“Should registered trade mark no A431624 (the “Trade Mark”) be removed from the Register on the grounds that JR Remote Control Australia Pty Limited, the first registered owner of the Trade Mark, was not the proprietor of the Trade Mark within the meaning of s 40 of the Trade Marks Act 1955 (Cth)?”

The Trade Marks Act 1955 (Cth) (the “TM Act”) was repealed by the Trade Marks Act 1995 (Cth) as from 1 January 1996. However, since Kyosho’s application was made under s 22 of the TM Act, and was pending immediately before 1 January 1996, the matter is to be decided under the TM Act: Trade Marks Act 1995 (Cth), s 250.

Procedural Background
In a defence filed on 9 August 1994, Advanced Hobbies denied that Kyosho was entitled to any of the relief claimed by it, including its claim for expungement of the Trade Mark from the Register.  On 30 November 1994, Advanced Hobbies filed a cross-claim against Kyosho seeking damages for what is said to be breaches of certain agreements entered into between it and Kyosho.

On 16 September 1996, an order was made in the Victorian Registry of the Court for the winding up of Advanced Hobbies and Mr M J Humphris was appointed liquidator of the company.  For some time prior to the making of the winding up order Advanced Hobbies had not taken an active part in the present proceedings.  In particular, it failed to appear at a number of directions hearings.  After the winding up order, the proceedings were stood over on several occasions, spread over a long period, to enable the liquidator of Advanced Hobbies to consider his position.  Further delays subsequently occurred, apparently because the parties were engaged in settlement negotiations.  Those negotiations ultimately broke down, but the liquidator did not thereafter appear at any of the hearings in the proceedings.

On 16 January 1998, Kyosho filed a notice of motion seeking an order under the Federal Court Rules (“FCR”) for judgment against Advanced Hobbies in the form of orders annexed to the motion.  One of the orders sought was to the effect of par 4 of the application, namely, that the Trade Mark be expunged from the Register.

On 5 February 1998, an order was made granting Kyosho leave pursuant to s 471 of the Corporations Law, to proceed against Advanced Hobbies.  On 13 March 1998, orders were made for the hearing of the separate question in the terms referred to earlier, except that minor editorial amendments were made at the hearing on the application of Mr Cobden, who appeared for Kyosho. 

Despite being served with relevant documentation, the liquidator did not appear at the hearing of the separate question. Notice of the hearing was also given to the Registrar of Trade Marks, as required by s 22(5) of the TM Act.  However, the Registrar has elected not to appear.  Thus Kyosho’s contention that the separate question be answered in the affirmative was unopposed.

Federal Court Rules Order 10, rule 7
Mr Cobden first submitted that, since Advanced Hobbies had failed to comply with orders of the Court relating to the cross-claim, Kyosho was entitled to move the Court for judgment under FCR O 10, r 7(1)(b).  That sub-rule provides as follows:

“7(1)   when a party fails to comply with an order of the Court directing that party to take a step in the proceedings, any other party may move the Court on notice -

...

(b)      if the party in default is a respondent - for judgment or an order against him;

...”

O 10, r 7(2) gives the Court a discretion in the circumstances covered by r 7(1):

“7(2)   The Court may make an order of the kind mentioned in sub-rule (1) or any other order or may give such directions, and specify such consequences for non-compliance with the order, as the Court thinks just.”

Mr Cobden pointed out that the word “proceeding” is defined in s 4 of the Federal Court of Australia Act 1976 (Cth) to include “an incidental proceeding in the course of or in connection with a proceeding”. He submitted that, in light of this definition, the order sought on the separate question could be made pursuant to O 10, r 7(1)(b), even though Advance Hobbies’ default was in relation to the cross-claim.

An issue may arise as to whether the power in O 10, r 7(1)(b) extends to answering a separate question in a manner unfavourable to the party in default.  The power is confined to entering judgment or making an order against the party in default.  It is doubtful whether an answer to a separate question, of itself, is an order against a party, even if the answer, in practical terms, means that that party will be unsuccessful in the litigation.

It is not, however, necessary to resolve this question.  Nor is it necessary to consider whether the decision in Australian Securities Commission v MacLeod (1994) 54 FCR 309 (FCA/Drummond J) is applicable and, if so, whether (as Mr Cobden submitted) it ought not to be followed. Even if FCR, O 10, r 7(1)(b) is broad enough to warrant an answer adverse to Advanced Hobbies on the separate question, I would not exercise the power conferred by the sub-rule to reach such a result.

The scheme for registration of trade marks is not merely intended to regulate the rights of persons who, at any given time, are in dispute over a particular mark.  The legislative scheme, whether established under the TM Act, or the Trade Marks Act 1995, creates rights and duties in relation to the world at large. For example, s 58(1) of the TM Act provides that registration of a trade mark gives to the registered proprietor “the right to the exclusive use of the trade mark in relation to the goods or services in respect of which the trade mark is registered”: see also Trade Marks Act 1995, s 20(1). An application to expunge a trade mark from the register does not concern merely the registered proprietor of the trade mark and the person aggrieved, but affects the wider public interest. In my view, it would not be appropriate to answer the separate question in favour of Kyosho unless it adduces evidence sufficient to demonstrate that the question ought to be answered in that way.

Distinctiveness
Section 61(1) of the TM Act provides, insofar as relevant to the present question, as follows:

“In legal proceedings relating to a trade mark registered in Part A of the Register (including applications under section 22), the original registration of the trade mark under this Act shall, after the expiration of 7 years from the date of the original registration, be taken to be valid in all respects, unless it is shown -

...        

(c)that the trade mark was not, at the commencement of the proceedings, distinctive of the goods or services of the registered proprietor.”

Mr Cobden conceded that, since the date of original registration of the Trade Mark was 14 August 1985 (see TM Act, s 53(2)), the present proceedings, which were commenced on 9 June 1994, were instituted more than seven years after the date of registration. Accordingly, he accepted that the original registration must be taken to be valid in all respects unless one of the exceptions to s 61(1) of the TM Act applies. However, he submitted that in the present case s 61(1)(c) is satisfied, because in June 1994, the Trade Mark was not distinctive of the goods of the registered proprietor, Advanced Hobbies. This is a factual question, involving an inquiry as to the use of the trade mark and other relevant circumstances: TM Act, s 26(1), (2),(b); Clark Equipment Company v Registrar of Trade Marks (1964) 111 CLR 511.

Mr Cobden relies on the evidence of Mr O’Reilly, a person who has worked continuously in the Australian “radio controlled hobbies industry” since 1970, and who distributed Kyosho products in Australia from 1979 to 1983.  Mr O’Reilly’s evidence was, of course, uncontradicted.

Mr O’Reilly’s evidence was to the effect that since the mid 1970’s products bearing the Kyosho mark have been well known in Australia as a leading Japanese brand of radio controlled hobbies.  They have been especially well known for their innovative designs, wide range and participation in competitions and championships.  Mr O’Reilly stated that he was aware that Advanced Hobbies had distributed Kyosho products.  However, he expressed the opinion that no Kyosho distributor had ever achieved a reputation as the manufacturer or factory source of Kyosho products.

Mr O’Reilly’s evidence was not as clear and precise as might have been expected.  For example, he did not direct his attention specifically to the question of the distinctiveness of the Trade Mark in relation to the goods sold by Advanced Hobbies in June 1994.  In the absence of evidence to the contrary, however, I am prepared to accept that Mr O’Reilly’s evidence justifies the inference that the Trade Mark was not, at the commencement of the present proceedings, distinctive of the goods of Advanced Hobbies as the registered proprietor: cf TM Act, s 26(1), (2)(b).

Person Aggrieved
Mr Cobden contended that Kyosho was a “person aggrieved” for the purposes of s 22(1) of the TM Act.  He pointed out that the liquidator of Advanced Hobbies had stated in September 1997 that he intended to sell the Trade Mark by private treaty.  Since Mr Cobden appeared to accept that Kyosho had to be a “person aggrieved” at the date of the application, it is not entirely clear how the liquidator’s stated intention assists Kyosho.

Be that as it may, I think that the evidence supports the conclusion that Kyosho was a “person aggrieved” in June 1994 within the principles adopted in Kraft Foods Inc v Gaines Pet Foods Corporation (1996) 65 FCR 104 (FCA/FC), at 111-114, per Sackville J.  In particular, the evidence warrants the inference that, at 9 June 1994, Kyosho had a firm intention to resume distribution of its products in Australia, an intention carried out in August 1994 when Kyosho entered into an exclusive distribution agreement with Dawn Developments Pty Ltd.  Given that intention, it seems to me that in June 1994 there was a reasonable possibility of Kyosho being disadvantaged, in a legal or practical sense, by the Register remaining unrectified.

Proprietorship
Mr Cobden submitted that the entry of the Trade Mark in the Register was wrongly made because JR was not, at the relevant time, the proprietor of the mark: see TM Act, s 40; Re Registered Trade Mark “Thunderbird” (1974) 131 CLR 592 (Jacobs J), at 600-602. In my view, the evidence supports this submission. There is ample evidence that Kyosho advertised and sold its products in Australia from about 1972 until 1983, when the first use by JR appears to have taken place. Even then, JR’s use of the mark, in the evidence, was in its capacity as Kyosho’s authorised distributor. Prior to JR’s use of the mark, Kyosho had acquired a substantial reputation in Australia by its own use of the mark. Thus the ground specified in s 22(1)(b) of the TM Act is made out.

Discretion
Mr Cobden properly drew to my attention some matters that might conceivably have been relied on by Advanced Hobbies, had it appeared in the proceedings, as grounds for not exercising my discretion under s 22(1) of the TM Act favourably to Kyosho.  However, Advanced Hobbies has not appeared and the matters referred to by Mr Cobden do not warrant withholding relief to Kyosho: see The Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158 (S Ct NSW/McLelland J), at 221.

Conclusion
The separate question should be answered “Yes”.  In the light of this answer, I propose to make an order expunging the Trade Mark from the Register.  Kyosho does not seek a costs order.

Kyosho has foreshadowed its intention to apply for an order dismissing the cross-claim, pursuant to the power conferred on the Court by FCR, O 10, r 7.  Mr Cobden indicated that, if such an order were obtained, Kyosho’s present intention is to seek leave to discontinue the balance of the proceedings.

I propose to stand the matter over until 27 May 1998.  Kyosho may make any motion it wishes to file returnable on that date.

I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville

Associate:

Dated:             7 May, 1998

Counsel for the Applicant:	Mr R Cobden
Solicitor for the Applicant:	Gilbert & Tobin
Counsel for the Respondent:	Unrepresented
Date of Hearing:	24 April, 1998
Date of Judgment:	7 May, 1998