Melaleuca of Australia and New Zealand Pty Ltd v Duck

[2004] FCA 1325

FEDERAL COURT OF AUSTRALIA

Melaleuca of Australia & New Zealand Pty Ltd v Duck [2004] FCA 1325

INTELLECTUAL PROPERTY – trade marks – passing off – confidential information – respondents were formerly independent marketing executives of the first applicant – second applicant trading as “MelaCom” in respect of telecommunication services in the United States of America – respondent knew that first applicant intended to trade as “MelaCom” in Australia – respondent registered “MelaCom” as a business name and as a trade mark in respect of telecommunication services in Queensland

INJUNCTION – application for interlocutory injunction – injunction granted

Trade Practices Act 1974 (Cth)

Conagra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302

MELALEUCA OF AUSTRALIA AND NEW ZEALAND PTY LTD (ACN 091 339 409) AND MELALEUCA INC. v GRAHAM DUCK AND CELIA DUCK

NSD1319 OF 2004

BENNETT J
6 OCTOBER 2004
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD1319 OF 2004

BETWEEN:

MELALEUCA OF AUSTRALIA AND NEW ZEALAND
PTY LTD (ACN 091 339 409)
FIRST APPLICANT

MELALEUCA INC.
SECOND APPLICANT

AND:

GRAHAM DUCK
FIRST RESPONDENT

CELIA DUCK
SECOND RESPONDENT

JUDGE:

BENNETT J

DATE OF ORDER:

6 OCTOBER 2004

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1. Subject to Order 3, the Respondents and each of them, whether by themselves, their servants, agents or otherwise be restrained until further order from:
1. disclosing to any person; and/or
2. using for the purpose of promoting, or continuing to promote, any business opportunity at any time,

any information contained in any of the Marketing Executive business reports produced by the Applicants and provided to the Respondents.
any information contained in any of the InTouch Plus reports produced by the Applicants and provided to the Respondents.
without the licence of the Applicants.

2. Subject to Order 3, the Respondents and each of them, whether by themselves, their servants, agents or otherwise be restrained until further order from:
1. disclosing to any person; and/or
2. using for the purpose of promoting, or continuing to promote, any business opportunity at any time,

3. Nothing in Orders 1 and 2 will prevent the Respondents, or either of them, form contacting the persons identified in the confidential document annexed to these orders and marked “Confidential A”, whether for the purpose of promoting, or continuing to promote, any business opportunity, or otherwise PROVIDED THAT the Respondents, and each of them, keep records and provided those records to the Applicants and to the Court following a direction from the Court to do so, which records must comprise the following particulars of the Respondents’ use of the said names in connection with the conduct of any business conducted, or to be conducted, by the Respondents, or either of them:
1. the name and contact details of each person contacted;
2. the name and contact details of each person with whom the Respondents, or either of them, have or has entered into a contractual relationship or to whom the Respondents, or either of them, have or has provided goods or services;
3. a description of all goods or services provided to each person referred to in paragraph (b) and the dates on which those goods or services were provided;
4. all sums received by the Respondents, or either of them, pursuant to any contractual, supply or services relationship referred to in paragraph (b), such account to include the sums received from each such person and the date of receipt of each sum.
4. Access to the document marked “Confidential A” and annexed to these Orders is to be limited to the parties to the proceedings.
5. The Respondents and each of them, whether by themselves, their servants, agents or otherwise be restrained from conducting any business under or by reference to the names:
1. “MELACOM”; or
2. any name which includes the name “MELACOM”

6. The costs of the application for interlocutory relief shall be the Applicants’ costs in the cause.

The Applicants, by their counsel, give the usual undertaking as to damages.

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	NSD1319 OF 2004

BETWEEN:

MELALEUCA OF AUSTRALIA AND NEW ZEALAND PTY LTD (ACN 091 339 409)
FIRST APPLICANT

MELALEUCA INC.
SECOND APPLICANT

AND:

GRAHAM DUCK
FIRST RESPONDENT

CELIA DUCK
SECOND RESPONDENT

JUDGE:	BENNETT J
DATE:	6 OCTOBER 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. This is an application for interlocutory relief on a number of bases. First, the applicants that the respondents are contravening sections 52 and 53 of the Trade Practices Act1974 (Cth) by their use of the name “MelaCom”. Secondly, the applicants claim that the respondents used confidential information, namely the fact that the applicants intended to launch telecommunications services in Australia under the name “MelaCom”, being the name by which the second applicant conducts an extensive telecommunications business in the United States and, through other related parties, in other countries. Thirdly, the applicants claim that the respondents are using confidential information, being the information contained in reports called “Marketing Executive business reports” and “In Touch Plus Reports”.

2. The applicants are represented by Mr Sibtain and Mr Small as counsel.  Mr Duck, who appears also on behalf of Mrs Duck, was not legally represented but was assisted by Mr Bell who, I was informed, has some legal training.  It is acknowledged that both respondents are presently using the name “MelaCom”, and that both respondents are presently conducting a business on behalf of ACN Communications, a competitive telecommunications business.  It is also not in dispute that Mr and Mrs Duck have been approaching Melaleuca customers and Independent Marketing Executives (‘IMEs’), and using the above reports. What is in dispute is their right to do so. 

3. The application was filed on 8 September, 2004.  The matter has been adjourned twice with interim orders made until the next occasions.  This is an application for a continuation of or variation of those orders until final hearing. 

   The Business of the Applicants

4. Melaleuca Australasia & New Zealand Pty Ltd (‘Melaleuca Australasia’) manufactures natural consumable products through the use of a catalogue or mail order shopping system.  To become a customer, persons are required to enrol as a customer and must sign a Melaleuca Australasia customer agreement (‘customer agreement’).  The marketing of the Melaleuca Australasia products is conducted by sales agents or IMEs.  Sales agents are required to enrol as IMEs with Melaleuca Australasia. In order to become an IME, an applicant must be a customer of Melaleuca Australasia and, accordingly, must have signed a customer agreement. IMEs must also have at least one Melaleuca Australasia customer of their own.  IMEs introduce other customers who can in turn become IMEs.

5. Sales are made direct to customers introduced by IMEs.  Commissions are paid to IMEs for customers introduced by them, and for customers introduced up to the sixth “generation” of IMEs introduced through them.  The level of compensation and bonuses paid to IMEs depends upon three factors: 

   (1)The number of customers an IME has; 

   (2)The amount each customer purchases each month; and

   (3)The IMEs effectiveness in building an organisation which includes other IMEs who help expand the IMEs customer base as they build their own marketing organisations.

   The relationship between the applicants and the respondents

6. On 20 September 2001, Mr and Mrs Duck signed a customer agreement and an IME agreement.  The customer agreement provides that the IMEs (Mr and Mrs Duck) ‘agree to all the terms and conditions on the front and back of this Independent Marketing Executive Agreement the Melaleuca Compensation Plan and the Melaleuca Statement of Policies".

7. Clause 17 of the Melaleuca Statement of Policies (‘the policies document) which was the one primarily relied upon by the applicants, provides that:

   ‘By executing the Independent Marketing Executive Agreement, the Marketing Executive acknowledges that all information which is contained in the Marketing Executive’s Business Report, including names, addresses and telephone numbers of Marketing Executives and Customers, is Melaleuca’s proprietary trade secret information. The Marketing Executive agrees not to disclose such information to any third party (except to existing or prospective Melaleuca Marketing Executives or Customers for the purpose of promoting Melaleuca products and business opportunity) or to utilise such information for the purposes of promoting any other business opportunity at any time, whether during the term of his/her association with Melaleuca or thereafter. The Marketing Executive acknowledges that such proprietary information is of such character as to render it unique and that disclosure or use thereof in violation of this provision will result in irreparable damage to Melaleuca and to Independent Melaleuca Businesses. Melaleuca and its Marketing Executives will be entitled to injunctive relief to prevent breach of this policy. If litigation or arbitration is required to obtain injunctive relief or to recover damages, the prevailing party shall be entitled to an award of lawyer’s fees and expenses.’

   I note clause 13 of the policies document which provides:

   ‘If any member of the Marketing Executive’s Immediate Household engages in any activity which, if performed by the Marketing Executive, would violate any Melaleuca policy or any provision of the Independent Marketing Executive Agreement, such activity will be deemed a breach by the Marketing Executive.’

   I also note clause 24 of the policies document which provides inter alia:

   ‘…The Business Report will show the calculation of the Marketing Executive’s commission and bonus, Marketing Executives should use their Business Report as a tool to manage, supervise and train the members of their Marketing Organisations. The information contained in Business Reports is Melaleuca’s proprietary trade secret information, and Marketing Executives are prohibited from disseminating the information contained therein.’

   The Marketing Executive business report and the In Touch Plus report

8. All IMEs receive a monthly Marketing Executive business report (‘the business report’) containing a statement of monthly commission earned by that IME and the contact details of customers through whom that IME earns commission.  That includes, in the case of the Ducks, customers not introduced directly by the Ducks but who are introduced by up to six generations of IMEs branching out from the Ducks but in relation to whom the Ducks receive commission.  Commission is also earned by the other IMEs in the “family” up the line from the customer to the Ducks.  The business report bears an endorsement of confidential information. 

9. As at June 2004 the Ducks’ business consisted of 2364 customers of whom 1902 were Australian customers.  Of those customers the Ducks themselves enrolled 101 people, the rest having been enrolled by other Melaleuca Australasia IMEs within the Ducks’ Melaleuca Australasia business or “matrix”.  Mr Duck says that the information in the business report is generated by the respondents.  It does not really seem to be in dispute, however, that the report contains an accumulation of information provided by those within the Ducks’ Melaleuca Australasia business at various levels of the Melaleuca Australasia organisation.  Mr Duck pointed out that it is the applicants’ obligation to provide that information. It is asserted by the applicants and not disputed that the report contains information of which the Ducks would have no personal knowledge without the report.  Melaleuca Australasia also distributes a weekly email report entitled “In Touch Plus”, which is sent to senior or leading IMEs of the status of director or above.  This contains the email addresses of all transacting Melaleuca Australasia customers of the IME.  It is also marked “Confidential”.  The Ducks are of a status to receive this report.  There is also a non-confidential “In Touch” report, which is a weekly newsletter.

10. Mr Sibtain argues that each of the reports is a business report within the meaning of the policy document in that each contains information relating to the activity of the respondent’s business organisation.  Nothing has been put as to why this is not the case.

    The evidence as to the use or intended use of “MelaCom” in Australia in connection with telecommunication services 

11. It is not in dispute that the name “MelaCom” has been widely used by Melaleuca Inc. in the United States as the name and trademark under which it has conducted a telecommunications business since 1994.

12. That is said to be relevant in a number of ways:

    (a)Mr and Mrs Duck attended conferences in the United States for Melaleuca Australasia in February and August 2003.  At the latter there was a stand dedicated to the promotion of MelaCom in North America.  The information promoted at the stand was, of course, not confidential.

    (b)Melaleuca Australasia circulates copies of a Melaleuca Inc. publication called “Leadership in Action” to IMEs who are executive directors or above.  The Ducks fall within this category.  This monthly publication almost always contains references to MelaCom in North America.  This is not confidential.

    (c)The Australian and New Zealand Leadership Council is a small discussion group in which the top four to six IMEs participate normally by telephone conferences during which new business development plans are discussed.  These are conducted in confidence and the IMEs sign a confidentiality agreement.  The Ducks signed such an agreement on 20 January 2003.  Participants are reminded of the commercially sensitive nature of some matters verbally prior to discussion of them.  At such meetings on 7 January 2004, 29 March 2004, 28 May 2004 and 14 July 2004 the Ducks were present.  During those meetings Melaleuca Australasia’s intention to offer telephony services under the “MelaCom” mark in Australia and New Zealand was discussed.  On one occasion an intended approach to the Virgin group for services including “MelaCom mobile phone services” was mentioned.  On 7 January 2004 “a MelaCom option” was mentioned.  Also a reference to a service being launched in Australia ‘which is very similar to the service offered by MelaCom in the US’ was made.  There were other Leadership Council meetings, including in July 2004, during which there was no mention of MelaCom.

13. (d)In January 2004 at a meeting of about 30 senior directors including the Ducks, Mr McManus, the General Manager of Melaleuca Australasia, said that Melaleuca Australasia was looking at introducing services such as ‘MelaCom-type products’ and credit cards.  This was a confidential meeting. 

    (e)On 28 June 2004 at a training meeting of approximately 150 attendees including the Ducks, Mr McManus said that Melaleuca will offer telephony services in Australia and New Zealand.

    The non-Melaleuca business activities of the Ducks

14. At the end of June 2004 Mr McManus became aware that the Ducks were conducting business for ACN and that they had contacted Melaleuca customers and IMEs to promote that business and to disparage Melaleuca Australasia.  It is not in dispute that ACN is a telecommunications business.  Any prospective Melaleuca Australasia telecommunications business in Australia would be in competition with ACN.  There is some controversy over the current relationship with the Ducks and Melaleuca.  Melaleuca says that Mrs Duck purported to resign on 20 July 2004 and that Mr Duck’s agreement was terminated on 2 August 2004.  Mr Duck says that at least he still has a contract with Melaleuca Australasia.  It is not necessary to determine this aspect of the matter at this stage. 

15. On 12 August 2004 Mr Duck registered “MelaCom” as a business name in Queensland in respect of “communications”.  On 19 August Mr Duck lodged an application for the trademark “MelaCom” in respect of telecommunication services in Australia.  On 17 August 2004 Melaleuca Inc. applied for a trademark for the word “MelaCom” in respect of class 38 services which include telecommunications.  On 1 September 2004 Mr and Mrs Duck placed an advertisement in a Queensland newspaper for MelaCom listing their phone numbers as contacts.

16. Despite being requested to do so, Mr and Mrs Duck have not returned to Melaleuca Australasia copies of the business reports and In Touch Plus reports in their possession.  They have declined to give to the applicants any undertakings as to their conduct save for those given for the purpose of adjournment of these proceedings without admissions.  Mrs Duck has said that the registrations were to ‘get back at Melaleuca’.

    The evidence of Mr and Mrs Duck

17. Much of the evidence presented by the applicants and summarised above, including the stated purported purpose of the registrations, was not disputed by Mr and Mrs Duck. 

18. Mr Duck does say that on 16 July 2004 they asked Mr Groenendijk, the National Sales Manager of Melaleuca Australasia, at a dinner at which only Mr and Mrs Duck and Mr Groenendijk were present if Melaleuca Australasia was going to introduce its own telecommunications service, and he replied, ‘Not in the foreseeable future’.  Mr Duck also says that this response was given by Mr McManus at a public meeting on 17 July 2004 and to him by telephone on 31 July 2004. 

19. There are a number of affidavits of other Melaleuca Australasia IMEs who deny any knowledge of an intention on the part of the applicants to market telecommunication services or services under the name “MelaCom” in Australia. Some directly asked Melaleuca Australasia executives if and when a service was to be provided, and were told that it was not planned ‘in the foreseeable future’.  This includes Mr Berghan, a senior director, who was told on asking on “numerous occasions”, that are not dated, that there was no intention ‘in the foreseeable future’.  He also asked about the provision of a communications service on 30 August 2004 but ‘had no confirmation’.  He was informed on that date that his business was suspended.  Mr Berghan also denied any use by the applicants of the word “MelaCom” in connection with the Australian market. 

20. In these affidavits, the IMEs also confirm the marketing system and assert that customers are not introduced by the applicants themselves.  Mr Duck does not say that all of the persons listed in the reports have been introduced by him nor that he was aware of their details other than by reason of access to the reports.  He has identified those persons who were his friends and acquaintances who he introduced to Melaleuca. 

    Reputation

21. The second applicant has developed a reputation in the United States in connection with the name “MelaCom”.  That is not in dispute.  IMEs and customers received marketing material from the applicants which referred to the name in connection with the second applicant.  Those IMEs and customers who were sufficiently senior in the organisation to have been party to the confidential briefings were told of the impending introduction of MelaCom in connection with telecommunications in Australia.

    Conclusions on the evidence

22. There has been no challenge to the case put by the applicants which establishes that the intention to market telecommunication services in Australia under the name “MelaCom” was disclosed to Mr and Mrs Duck. However, Mr Duck claims that he was also informed that this was not going to happen in the ‘foreseeable future’. Other IMEs and customers, including a senior director, of Melaleuca Australasia, were not informed of this intention on the part of Melaleuca Australasia and did not hear the name “MelaCom” used in connection with Australia.  However, there is also evidence that the communication was made on distinct occasions to specific groups of people. It is not, on the evidence, surprising that not all IMEs had been informed particularly if they were not party to those confidential meetings or that when questions were specifically asked by persons not included in the confidential disclosure that those other IMEs were told the telecommunication services were not being provided "in the foreseeable future".  It has not been established that Mr Berghan was actually present on occasions when Mr Duck was said to have been told.  The response to his direct question on 30 August 2004 may have been affected by the termination of his business on the same date.

1. In any event there is no evidence before me from Mr and Mrs Duck contradicting the nature of the disclosures with respect to the intended use of the name “MelaCom” in Australia or the fact that the disclosures were made in confidence. 

2. I have some difficulty with the evidence of Mr Savage (rather than that of Mr Duck) that Mr Duck happened to make up the name “MelaCom” as a play on his own name without mention of any knowledge of that name in association at least with Melaleuca Inc. and the fact of its being advertised in the same stylised form as used by Melaleuca Inc.  This, together with the chronology of events that are not presently in dispute and the uncontradicted assertions as to the Ducks’ reasons for using the name “MelaCom”, lead to a conclusion that the name was chosen and used by reason of its association with the applicants. No other explanation has really been advanced. 

3. There is evidence that the applicants’ reputation is sufficient to satisfy the test in Conagra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302 at 344 and 372. The persons among whom the reputation exists are the senior IMEs and customers of the applicants as well as telecommunication providers, but particularly of former. The applicants have:

   ‘Acquired a reputation with a substantial number of persons who would be potential customers, were it to commence business within the jurisdiction, the plaintiff has, in a real sense, a commercial position or advantage which it may turn to account.’ (Per Gummow J)

   The nature of the applicants’ business is to recruit customers as sales agents within their organisations.  The applicants contend that it is those persons who are likely to be deceived or mislead by the use of the name “MelaCom” by a person other than the applicants.  Those persons would be led to believe that the name “MelaCom”, as used by the respondents, was associated with the applicants.  This could well be exacerbated in circumstances where the person using the name has been associated with the applicants but is no longer. 

4. Mr Bell relies upon a need on the part of the applicants to be conducting a business under the name, “MelaCom” in Australia. That requirement, that the goods needs to have been sold or services provided in Australia, does not need to be satisfied since Conagra. It is now a matter of reputation.  As was pointed out in that case by Lockhart J at 340, the protection is of:

   ‘…the business of the plaintiff with its many facets: its assets, goodwill and reputation.  It stops persons and companies gaining a commercial advantage through wrongfully taking the attributes of another’s business if it causes or is likely to cause that other person’s business some damage.’

   There must, on the evidence, be a serious question to be tried on this issue. 

5. There is no evidence that contradicts the compilation of the two reports by the applicants or that confidentiality is asserted in respect of them, nor that much of the information contained therein was not information which would have been known to the respondents but for the provision of the reports.  These reports represent, in effect, client lists and information in an industry that acts in part upon direct personal contact.  On the basis of the uncontroverted evidence, the Ducks have made use of confidential information and intend to continue to do so. Indeed, they assert their right to do so.

   Balance of convenience 

6. Mr McManus gave evidence of the steps taken by Melaleuca Australasia to prepare for launch of a telecommunications business in Australia under the “MelaCom” name, including approaching Australia based telecommunications providers with a view to establishing a commercial arrangement under or by reference to the name “MelaCom”.  The applicants’ intention was to announce the provision of these services at the Melaleuca Australasia convention on 9 and 10 September and to, “go live” with the business no later than 1 November 2004. The announcement of MelaCom services to Melaleuca Australasia IMEs attending the convention has now taken place.  There was also then an email sent on 14 September to some 8400 Melaleuca customers. 

7. It is not suggested the Melaleuca Australasia presently offer such telecommunication services.  However, discussions have resulted in a yet unsigned draft Corporate Services Agreement, there have also been discussions with other telecommunication service providers. 

8. A further advertisement was placed by the respondents in a Queensland paper on 11 and 12 September 2004.  I was informed that it was not in dispute that Mrs Duck placed this advertisement.  That advertisement is under the heading, “MelaCom”, seeking representatives for promotion of a, “New to Queensland Phone Company”.  There is also in evidence an invoice, one of 13 August 2004 for photocopying.

   Damages as remedy 

9. Mr Sibtain submits that damages is not an adequate remedy for the loss suffered by the applicants.  That damage includes possible damage to reputation, diversion of customers and concern of other Melaleuca Australasia IMEs at the potential or actual loss of their business and customer base. Further, the launch by way of announcement to IMEs and customers has taken place, so Melaleuca Australasia are committed to a launch of a product under the name “MelaCom”.  In particular, Mr Sibtain points to the damage to third parties, other Melaleuca IMEs whose income derives, at least in part from customers introduced by them or those that they have introduced and who are unknown to the Ducks. 

10. Mr Duck agrees that an account of profits is not an adequate remedy because it is, “not workable” other than perhaps with respect to the direct business from named persons. There is no dispute that the applicants’ undertaking for damages is sound.  Melaleuca Inc. is a substantial corporation. 

11. There is no evidence linking the use of the name “MelaCom” with damage that will be suffered by the respondents. 

12. There is evidence as to the nature of the respondent’s business in the sense that it is similar to that described by the applicants.  Mr Duck asserts, and it is not disputed, that he conducts his business, in particular the ACN business, by reference to the customer lists in the report. The problem is that the applicants claim confidentiality in the reports, both on their face and by reason of the policy document which has, it is said, contractual force to the extent of a proper construction of clause 17 of the policies statement. 

    Serious question to be tried

13. There is, in my view, a serious question to be tried on the applicant’s claims for confidentially in the reports and in the intention to market telecommunications services under the name “MelaCom”.  In respect of the latter, the actions of the respondents in using the name and registering the business name “MelaCom” can be said to afford them a springboard by the use of that confidential information prior to a public announcement.

14. On the balance of convenience, the evidence does not establish significant use of the “MelaCom” name by the respondents.  The applicants have, however, been moving on an intention, now effected, to launch products under the name “MelaCom” in Australia.  The name is one with which they have an association.  There is potential for loss of custom and damage if the respondents use of the name impacts negatively on the goodwill associated with it.

15. With respect to the business reports and the In Touch Plus reports once used, the benefit of the confidentiality is lost.  Accordingly it is, in my view, appropriate to maintain the confidentiality other than for those 101 persons identified by the respondents as directly introduced by the respondents to Melaleuca Australasia.  I accept that the 101 people in the business report were introduced by the Ducks and that their details are known to the Ducks without access to the reports.  I note the applicants relies on clause 17 of the policies document with respect to the 101 people but I do not propose to prevent the Ducks from contacting those people, although it is appropriate that they keep an account of profits with respect to any business that arises from such contact. 

16. I extend the orders made on 5 October 2004 until 5 pm today.

    Addendum

17. After these reasons were delivered, the matter was stood over until the afternoon of the 6 October 2004 to allow the parties to prepare minutes of order which accorded with the reasons. By consent, and noting that the applicants gave the usual undertaking as to damages, I made the orders in the short minutes dated 6 October 2004.

I certify that the preceding thirty - nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bennett.

Associate:

Dated:            25 October 2004

Counsel for the Applicants:	D Sibtain
Solicitor for the Applicants:	Coudert Brothers
The first respondent appeared in person with the assistance of B Bell
Date of Hearing:	29 September 2004 & 5 October 2004
Date of Judgment:	6 October 2004