Montana Tyres Rims and Tubes Pty Ltd v Transport Tyre Sales Pty Ltd

[1998] FCA 708

FEDERAL COURT OF AUSTRALIA

TRADE MARKS - Trade marks registered in name of Japanese tyre manufacturer - Marks assigned to Australian distributor of the manufacturer’s products to enable distributor to prevent parallel importation of the manufacturer’s products - Assignment subject to separate option agreement enabling manufacturer to procure a reassignment under certain circumstances - Assignment recorded by Registrar on application of assignee and filing of deed of assignment, but not option regarding reassignment - After recordal, assignee threatened competitors with infringement proceedings - Whether the essential purpose of a trade mark is to indicate the origin of goods - Whether the registered marks were each a “sign used ... to distinguish goods ... dealt with or provided by (the distributor) from goods ... provided by any other person” - Whether the entries recording the assignment of the marks are subject to cancellation - Whether entries made as a result of fraud, false representation or misrepresentation or are likely to deceive or cause confusion  - Whether failure to file option deed amounted to false representation - Action for groundless threats of legal action - Infringement proceeding instituted by Cross-claim - Whether infringement action instituted “with due diligence” - Availability of relief under Trade Practices Act.

Trade Marks Act 1995, ss 17, 43, 88(2)(c) and (e), 106, 109, 110, 114 and 129

Trade Marks Regulations, reg 10.1

Trade Practices Act1974, ss 52 and 82

MONTANA TYRES RIMS & TUBES PTY LTD V TRANSPORT TYRE SALES PTY LIMITED

NG548 OF 1997

JUDGE:        WILCOX J
PLACE:        SYDNEY
DATE:          19 JUNE 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG548  of   1997

BETWEEN:	MONTANA TYRES RIMS & TUBES PTY LTD Applicant
AND:	TRANSPORT TYRE SALES PTY LIMITED Respondent
JUDGE:	WILCOX J
DATE OF ORDER:	19 JUNE 1998
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. It be declared that none of the trade marks numbered A278561, A 414790 and A492064 in the Register of Trade Marks is a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by the respondent, Transport Tyre Sales Pty Ltd, from goods or services so dealt with or provided by any other person.

2. Within 14 days after service of this order upon him, the Registrar of Trade Marks rectify the Register of Trade Marks by removing the entry made in relation to each of the said trade marks that records an assignment of the trade mark from Ohtsu Tire and Rubber Co Limited to the said respondent pursuant to a deed of assignment dated 12 May 1997.

3. The said respondent be restrained, whether by itself, its servants or agents, from threatening, or continuing to threaten, to bring a legal action against any person on the ground that the threatened person has infringed, or may infringe, any of the said trade marks.

4. The said respondent pay to the applicant, Montana Tyres Rims and Tubes Pty Limited, the costs so far incurred by the said applicant in connection with this proceeding.

AND THE COURT DIRECTS THAT:

1. All evidence to be adduced by the parties in connection with the applicant’s claim for damages be in affidavit form subject to cross examination as required.  All affidavits to be relied on by the applicant shall be filed and served by 28 August 1998; all affidavits to be relied on by the respondent shall be filed and served by 25 September 1998; and all affidavits in reply shall be filed and served by 9 October 1998.

2. The matter be listed for mention and possible further directions at 9.30am on Friday 7 August 1998, or such other date as may be arranged.

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	NG548 of 1997

BETWEEN:	MONTANA TYRES RIMS & TUBES PTY LTD Applicant
AND:	TRANSPORT TYRE SALES PTY LIMITED Respondent

JUDGE:	WILCOX J
DATE:	19 JUNE 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

WILCOX J:  This case turns on technical aspects of trade marks law.  But it has important ramifications for commercial competition in Australia.  The case raises the question whether it is possible for a local company to obtain a monopoly of the Australian distribution of a product that is manufactured overseas by obtaining from its manufacturer a revocable assignment of the product’s Australian trade mark.

The facts
The case concerns three trade marks registered under the Trade Marks Act 1995, all in respect of tyres and associated products. The three marks are the word OHTSU (registered 21 May 1974), the word FALKEN (registered 6 September 1984) and the word and symbols FALKEN RX (registered 28 July 1988). Until the events that gave rise to this proceeding, the registered proprietor of all those marks was The Ohtsu Tire and Rubber Co Ltd (“Ohtsu Co”) of Osaka, Japan. Ohtsu Co was, and is, a leading tyre manufacturer, manufacturing tyres sold all over the world.

The respondent, Transport Tyre Sales Pty Ltd (“TTS”), is a Brisbane-based company that was incorporated in 1973.  Since that time it has distributed tyres manufactured by Ohtsu Co.  This is not its only business; it also sells tarpaulins and similar products.  But tyres have always been its main business.  Moreover, the only tyres sold by TTS have been Ohtsu products.  They consist of truck tyres marketed under the brand name OHTSU and recreational vehicle and passenger car tyres sold under the name FALKEN, in each case with associated items.  The names, along with the words “Made in Japan” and a type identification number, are moulded into the sidewall of the tyres as part of the manufacturing process.

Between 1973 and 1981, TTS sold only OHTSU truck tyres.  It obtained them through another Australian company, Grant Matich & Co Pty Ltd.  According to the managing director of TTS, Spencer Scott Grammer, during that period TTS regarded itself as the exclusive OHTSU brand distributor for Queensland and the Northern Territory.

As a result of his company’s activities, Mr Grammer became acquainted with some Ohtsu Co executives.  In about 1981, TTS commenced to purchase tyres directly from Ohtsu Co, rather than through Grant Matich.  Mr Grammer later entered into discussions with Ohtsu Co representatives concerning an appointment of TTS as the company’s exclusive distributor of its products, recreational vehicle and passenger car tyres as well as truck tyres, for the whole of Australia.  An outline agreement was prepared but apparently never completed or executed.  Nonetheless, in about 1984, TTS commenced purchasing recreational vehicle and passenger car tyres manufactured by Ohtsu Co in Japan and bearing the name FALKEN.  At least from 1985 onwards, Mr Grammer understood his company was Ohtsu Co’s exclusive distributor for all products in New South Wales, as well as Queensland and the Northern Territory.  In 1988, as Mr Grammer understood the position, the exclusive distributorship was extended to the remainder of Australia.

Mr Grammer became concerned about what he called “parallel importing”.  He learned other companies were purchasing Ohtsu Co products outside Australia - it seems mainly in Singapore - bringing them into Australia and selling them to dealers and retailers at prices that sometimes undercut those of TTS.  Mr Grammer thought this was unfair.  He explained in his affidavit:

“I considered it unfair that TTS should invest substantial money, time and effort in promoting tyres bearing the Trade Marks when parallel importers derived the benefits with little or no expenditure of similar money, time and effort.  Further, TTS stocks and warehouses a wider range of tyres bearing the Trade Marks than parallel importers so as to promote and maintain the reputation of the Trade Marks and the tyres generally.  In my observation, this often allows parallel importers to sell tyres bearing the Trade Marks at a lower price than TTS.  Unlike parallel importers, TTS is not able to earn profits selling other brands of tyres as I believe that TTS would not retain its exclusive arrangement with Ohtsu if it distributed and sold other brands of tyres.”

I understand and sympathise with Mr Grammer’s attitude.  The evidence demonstrates TTS has expended considerable money and effort in promoting Ohtsu Co products.  No doubt it has obtained benefits in return.  Nonetheless, it must be galling to Mr Grammer to find his company undercut by competitors who do not make the same outlay.  The appropriateness of his reaction is another matter.

In January 1997 Mr Grammer sought legal advice as to how TTS might stop the parallel importation of Ohtsu Co products.  He was told that, if TTS became registered as the owner of Ohtsu Co’s Australian trade marks, it would be able to take trade mark infringement proceedings.

In April 1997 Mr Grammer visited Japan.  He held discussions with Ohtsu Co executives during which he raised the possibility of an assignment to TTS of Ohtsu Co’s Australian trade marks.  During these discussions reference was made to the possibility of a reassignment of the trade marks to Ohtsu Co.  Mr Grammer maintained in evidence that the Ohtsu Co executives would not have wanted anything in writing about reassignment if “I could guarantee them I’d be alive for the next 10 years”, because they trusted him.  Be that as it may, it was agreed TTS would give a written commitment to reassign.

It seems there was no discussion in Japan about documentation detail; this was to be left to the lawyers.  On his return to Australia, Mr Grammer instructed TTS’ solicitors.  They decided to produce two documents:  a deed of assignment of trade marks and an option deed.  Mr Grammer said in evidence he was not clear why there were two deeds; he left it to the solicitors and that was the way they did it.  The solicitors prepared drafts of the two deeds.  They were sent to Ohtsu Co in Japan.  Mr T Ogata and Mr Y Hoshida of that company suggested some minor changes.  These were made and the two deeds were executed.  Both deeds are in evidence.  For reasons Mr Grammer professed to be unable to explain, they bear different dates. 

The deed of assignment is dated 12 May 1997.  The parties are Ohtsu Co as assignor and TTS as assignee.  The deed contains two recitals, the first being that the assignor “is the registered proprietor in Australia under the Trade Marks Act 1995” of the trade marks particularised in the Schedule to the deed. The Schedule lists the three marks already mentioned. The second recital is in these terms:

“The Assignor has agreed to assign all its rights in the Trade Marks (together with the goodwill of the business concerned in the goods or services in respect of which the Trade Marks are registered) to the Assignee on the terms and conditions set out herein.”

Mr Grammer said in evidence he did not understand why this recital refers to an assignment of the goodwill of a business.  He said the way business was conducted between TTS and Ohtsu Co was unaffected by the deed; TTS continued to run its business, in its own name, as an importer and distributor of Ohtsu products, keeping for itself any profits earned and bearing any losses, and Ohtsu Co, back in Japan, continued to conduct a manufacturing and worldwide distribution business, the profits and losses of which were to its account.  Mr Grammer said nothing was transferred to TTS apart from the trade mark.

The operative clauses in the deed of assignment are as follow:

“1.The Assignor as legal and beneficial owner hereby assigns to the Assignee to hold absolutely and free from any mortgage, lien, charge or other adverse interest all the rights, powers, liberties and immunities conferred on the Assignor by the grant of the Trade Marks including the right to sue for damages and other remedies in respect of any infringement of the Trade Marks which may have occurred prior to the date of this Deed and together with the goodwill of the business concerned in the goods or services in respect of which the Trade Marks are registered.

2.The Assignor shall do all acts, matters and things and execute all documents necessary or desirable for further assuring the right, title and interest of the Assignee in and to the Trade Marks and to facilitate recordal of the Assignee as registered proprietor of the Trade Marks on the Register of Trade Marks.

3.In respect of any action for infringement in relation to any of the Trade Marks, the Assignor shall, at the Assignee’s request at any time, render all reasonable assistance at the cost of the Assignee.

4.The Assignor undertakes:-

4.1.not to do any act, matter or thing which would or might:-

(a)invalidate or put in dispute the Assignee’s title to the Trade Marks;

(b)invalidate registration of any of the Trade Marks;

(c)support an application to remove any of the Trade Marks as registered trade marks;

4.2not to assist any person directly or indirectly in the acts described in Clause 4.1.”

The option deed is dated 26 May 1997.  In the deed TTS is referred to as “Transport” and Ohtsu Co as “Ohtsu”.  The deed contains two recitals:

“A.The parties have contemporaneously entered into a Deed of Assignment of Trade Marks whereby Ohtsu assigned to Transport all its rights in the Australian-registered trade marks particulars of which are set out in the Schedule hereto together with the goodwill of the business concerned in the goods or services in respect of which the Trade Marks are registered (‘the Property’).

B.Transport has agreed to grant Ohtsu an option to re-acquire the Property in certain circumstances on the terms and conditions set out herein.”

The Schedule particularised the same three trade marks.

The significant operative clauses of the option deed are as follows:

“1.Transport irrevocably grants to Ohtsu an option to purchase the Property at a price of $1.00 in accordance with the provisions of this Deed.

2.Ohtsu may exercise its option to acquire the Property by notice in writing to Transport:-

(a)during the period of two (2) years from the date of this Deed -

(i)within the period of 90 days after Ohtsu obtains knowledge of the fact that Transport has committed any act which substantially affects in an adverse manner the world-wide reputation and goodwill of Ohtsu in the ‘Ohtsu’ and ‘Falken’ brands of tyres; or

(ii)upon Transport ceasing for any reason to be the representative of Ohtsu in Australia; or

(b)after the period of two (2) years from the date of this Deed, at any time.

3.In the event that Ohtsu exercises its option in accordance with this Deed:-

(a)Transport shall sell the Property to Ohtsu and Ohtsu shall purchase the Property at a price of $1.00;

(b)settlement shall occur within 60 days of exercise of the option; and

(c)any costs (including stamp duty) of and incidental to such sale shall be payable by Ohtsu.

4.Transport shall not assign the Property to any third party without obtaining the prior written consent to Ohtsu.

5.This Deed shall commence on the date hereof and shall continue for a period of 10 years from the date hereof.

6.In the event of Ohtsu exercising its option in accordance with this Deed, Transport shall do all acts, matters and things and execute all documents necessary or desirable for transferring the right, title and interest of Transport in the Property to Ohtsu and to facilitate recordal of Ohtsu as registered proprietor of the Property on the Australian Register of Trade Marks.”

On 15 May 1997 TTS requested the Registrar of Trade Marks to record the assignment of the three marks from Ohtsu Co to it.  In support of its application, TTS lodged a copy of the deed of assignment of trade marks dated 12 May.  No reference was made to the option deed.  This was despite the fact that the terms of the option deed had been finally agreed.  The document may have not yet been formally executed; that matter is left unclear by the evidence.

The Registrar of Trade Marks recorded the assignment of the three trade marks on 26 May 1997.  Since that time, TTS has remained the registered proprietor of all of them.  Having obtained registration as proprietor of the trade marks, TTS set about reining back its competitors.  On 17 June 1997 Ebsworth and Ebsworth, solicitors, wrote to the present applicant, Montana Tyres Rims and Tubes Pty Limited (“Montana”), in the following terms:

“We act for Transport Tyre Sales Pty Ltd.

Our client is now recorded on the Australian Register of Trade Marks as the owner of the following trade marks in respect of tyres and associated products:-

Ohtsu
Falken
Falken RX

Consequently, our client now has the exclusive right to use these trade marks (and/or authorise other persons to use these trade marks) throughout Australia in relation to tyres and other goods or services specified in the registration.

We are instructed that you import and/or sell Ohtsu/Falken tyres and associated products.  You are hereby placed on notice that the importation and sale of tyres bearing any of our client’s registered trade marks (or a deceptively similar trade mark) infringes our client’s trade marks. ... Our client has built up its own goodwill by virtue of being the Australian distributor of these tyres for approximately 20 years and has now been permitted to obtain by assignment the position of registered proprietor of these trade marks.

Our client requires that you provide to us by 4.00 p.m., Friday, 27 June 1997 the following undertakings in writing:-

(a)you will not import or sell tyres, tubes or related products bearing any of our client’s trade marks or a deceptively similar trade mark;

(b)you will not otherwise use any of our client’s trade marks in respect of tyres, tubes or associated products.

Failure to provide this undertaking by the stipulated time will leave our client no alternative but to institute court proceedings to restrain you from breaching our client’s trade marks and to obtain an order requiring you to pay our client an amount calculated either as damages suffered by our client or an account of profits earned by you from the infringing marks.

Provided this undertaking is given as required, our client is prepared to purchase your existing stocks of Ohtsu/Falken tyres and associated products at your landed cost subject to production of satisfactory evidence of such cost.”

This letter came to the attention of Amanda Safetli, the sole director of Montana.  Ms Safetli acquired all the shares in Montana in April 1996, at which date the company acquired a business formerly conducted by Ms Safetli under the business name “Montana Tyres and Rims”.  Ms Safetli gave evidence that, at various times, the business and the company had imported from Singapore various brands of foreign made tyres, including OHTSU and FALKEN branded tyres.  By June 1997 Montana had approximately 45 account customers to whom it supplied FALKEN tyres on terms of payment within either 30 or 60 days.  Two of these account customers (GH & EM Gardner Pty Ltd trading as “Montana Tyres Queensland” of Brisbane and Betta Tyres of Sydney) were wholesalers, the remainder were retailers.

At about the same time as she received the solicitors’ letter, Ms Safetli was telephoned by Gary Gardner, of Montana Tyres Queensland.  He said he had received a solicitors’ letter.  At Ms Safetli’s request, he faxed a copy to her.  She found it was in similar terms to the letter sent to Montana.

Also about the same time, an employee of Montana handed Ms Safetli a copy of a notice shown to him by one of Montana’s retail customers.  This notice is in the following form:

“OHTSU/FALKEN TYRES AND ASSOCIATED PRODUCTS

Transport Tyre Sales Pty Ltd A.C.N. 001 111 511 hereby gives notice that it has become the registered owner in Australia of the following trade marks in relation to tyres, tubes and associated products:-

OHTSU
FALKEN
FALKEN RX

The Company now has the exclusive right to use these trade marks (and/or authorise other persons to use these trade marks) throughout Australia in relation to tyres, tubes and associated products.

Any importation or sale in Australia of tyres, tubes or associated products bearing any of the Company’s trade marks (or deceptively similar trade marks) which is not authorised by the Company will infringe the Company’s statutory rights under the Trade Marks Act 1995. The Company will not hesitate to take legal action against any party engaged in unauthorised dealings in tyres, tubes or associated products bearing any of its trade marks or deceptively similar trade marks.”

Ms Safetli sought advice from Sprusons Solicitors.  On 27 June 1997 that firm wrote to Ebsworth and Ebsworth in these terms:

“We act on behalf of Montana Tyres Rims and Tubes Pty Limited (‘Montana’) and have been provided with a copy of your letter to our client of 17 June 1997.

We note that your client has been recorded as the registered proprietor of the OHTSU, FALKEN and FALKEN RX trade marks (numbers 278,561, 414,790 and 492,064)(‘Ohtsu Trade Marks’), effective from 15 May 1997, the date upon which the application to record the assignment to your client was filed.

All tyres and associated products bearing the Ohtsu Trade Marks presently in the possession of our client or distributed by our client to its dealers, namely Montana Tyres Queensland and Betta Tyres in Sydney, are tyres manufactured by or on behalf of The Ohtsu Tire & Rubber Co. Ltd of Osaka, Japan, the former registered proprietor of the Ohtsu Trade Marks.  These tyres were imported by our client prior to the date upon which your client applied to become the registered proprietor of the Ohtsu Trade Marks.

Accordingly, none of the tyres bearing the Ohtsu Trade Marks in the possession of any of Montana Tyres Rims and Tubes Pty Limited, Montana Tyres Queensland and Betta Tyres in Sydney, are infringing goods, being goods to which the Ohtsu Trade Marks were applied by the then registered proprietor of the trade marks at the time of importation. Our client’s right to sell those goods cannot be abrogated by a subsequent assignment of the Ohtsu Trade Marks. Any statements made by or on behalf of your client to the contrary to our client or its dealers will be treated as a groundless threat in breach of Section 129 of the Trade Marks Act 1995 and appropriate action taken.

Our client has been importing tyres manufactured by The Ohtsu Tire & Rubber Co. Ltd and bearing the Ohtsu Trade Marks for at least nine years and we are instructed that apart from our respective clients, there have been other importers of those tyres.  On this basis our client does not accept that the Ohtsu Trade Marks are capable of distinguishing goods sold by your client from those of others.

Without any admission as to the validity of the registration of the Ohtsu Trade Marks therefore, our client undertakes not to import or sell tyres, tubes or related products bearing any of the Ohtsu Trade Marks and not to use the Ohtsu Trade Marks in respect of tyres, tubes or associated products without the authority of your client, for so long as your client remains the registered proprietor of the Ohtsu Trade Marks.

This undertaking does not preclude our client from selling goods bearing the Ohtsu Trade Marks which were imported by it prior to 15 May 1997.”

TTS was not content with this undertaking.  On 9 July 1997 Ebsworth and Ebsworth wrote to Sprusons Solicitors requiring a written undertaking, by Friday, 11 July at 4pm, that Montana:

“will not sell tyres or associated products bearing the specified trade marks which were imported by it prior to 15 May 1997.”

The solicitors said, if this undertaking was not provided, they were instructed to institute proceedings for trade mark infringement and contravention of ss 52 and 53 of the Trade Practices Act 1974, claiming an injunction, damages and costs. The solicitors repeated the offer to purchase existing stocks of the tyres at Montana’s landed cost.

Montana did not offer the required undertaking.  Notwithstanding that fact, TTS did not institute the threatened proceeding. 

On 17 or 18 July Ms Safetli had a telephone conversation with Mr Gardner when he indicated TTS would not buy his FALKEN stock and he could not sell it.  He asked Ms Safetli to buy it back.  Ms Safetli asked for “time to arrange something”.

Over the following weeks, Ms Safetli received requests for the repurchase of FALKEN stock from many customers.  Montana’s sales of FALKEN tyres substantially ceased.  Further, Montana suffered a large drop in orders of other brands of tyres.  In her affidavit of 30 July 1997, Ms Safetli said the only explanation she could give for this phenomenon was that customers had become concerned “that all tyres sold by Montana may be ‘illegal’”.  She reported a comment of Mr Gardner to that effect on 26 July 1997.  When this case was heard, Montana had ceased trading altogether.

The proceeding
Montana commenced this proceeding on 11 July 1997, when it filed an Application and Statement of Claim. The Application sought cancellation of the registration of the three trade marks and a declaration and injunction pursuant to s 129 of the Trade Marks Act 1995. That section provides:

“129(1)If a person threatens to bring an action against another person (threatened person) on the ground that the threatened person has infringed:

(a)       a registered trade mark; or

(b)a trade mark alleged by the person to be registered;

any person aggrieved by the threat (plaintiff) may bring an action (either in a prescribed court or in any other court having jurisdiction) against the person making the threat (defendant).

(2)               The purpose of the action is to obtain from the court:

(a)       a declaration that the defendant has no grounds for making the threat; and

(b)an injunction restraining the defendant from continuing to make the threat.

The plaintiff may also recover any damages that he or she has sustained because of the defendant’s conduct.

(3)The action may be brought whether or not the defendant is the registered owner, or an authorised user, of the trade mark alleged to have been infringed.

(4)The court may not find in favour of the plaintiff if the defendant satisfies the court that:

(a)the trade mark is registered; and

(b)the acts of the threatened person in respect of which the defendant threatened to bring an action constitute an infringement of the trade mark.

(5)An action may not be brought, or (if brought) may not proceed, under this section if the registered owner of the trade mark, or an authorised user of the trade mark having power to bring an action for infringement of the trade mark, with due diligence, begins and pursues an action against the threatened person for infringement of the trade mark.

(6)This section does not make a lawyer or patent attorney liable to an action for an act done in a professional capacity on behalf of a client.”

On 19 September 1997 TTS filed a Defence and Cross-claim. The Cross-claim asserted the registration of the trade marks was valid and subsisting and Montana had infringed, and intended to continue to infringe, the marks. The Cross-claim also alleged conduct by Montana in breach of ss 52 and 53 of the Trade Practices Act 1974. The Cross-claim sought damages for infringement of the marks and an account of profits and a declaration and damages in relation to the breaches of ss 52 and 53 of the Trade Practices Act.

On 21 October 1997 I made directions for the conduct of the proceeding.  They included an order that issues of liability be heard separately from, and prior to, issues of quantum.

Neither the original Application nor Statement of Claim made any reference to the Trade Practices Act.  Nor did an Amended Statement of Claim that was filed on 2 September 1997.  However, on the first day of the hearing, 6 April 1998, I gave leave to the applicant to file a second Amended Application and a Further Amended Statement of Claim.  The respondent thereupon filed a Defence to the Further Amended Statement of Claim and an Amended Cross-claim.  The applicant’s amended pleadings included claims based on the Trade Practices Act, but they did not change the essential character of the proceeding. Counsel for the applicant, Mr D M Yates SC and Ms Allison Silink, in fact focused on the Trade Marks Act. Subject to one qualification, arising out of s 129(5) of the Trade Marks Act, they accept that, if they are not entitled to succeed under the Trade Marks Act, they are no better off under the Trade Practices Act.  Accordingly, I also will concentrate on the Trade Marks Act. 

The  relief under the Trade Marks Act sought in the second Amended Application is as follows:

“1.An order that the registration of each of registered trade marks numbers 278,561, 414,790 and 492,064 be cancelled pursuant to Section 88 of the Trade Marks Act 1995.

2.In the alternative, an order that the entry of the Respondent as the owner of trade marks Nos. 278561, 414790 and 492064 be cancelled pursuant to Section 88 of the Trade Marks Act, 1995.

3....

4.A declaration pursuant to Section 129 of the Trade Marks Act, 1995 that, in the events which have happened, the Respondent has no grounds for making the threat or threats pleaded and particularised in the Statement of Claim.

5.An order pursuant to Section 129 of the said Act that the Respondent, whether by itself, its servants, agents or otherwise howsoever, be restrained from continuing to make the threat or threats pleaded and particularised in the Statement of Claim or any other threat similar thereto.

6....

7.Damages pursuant to Section 129 of the Trade Marks Act, 1995 and interest thereon pursuant to Section 51A of the Federal Court of Australia Act 1976.”

In opening the case, Mr Yates conceded there were no circumstances under which his client would be entitled to order 1; even if the recordal of the assignment should be cancelled, the registration itself would remain. 

Four issues were ultimately left with the Court for determination.  One of these issues divides into sub-issues.  The issues are:

1. whether any of the subject marks is “a sign used ... to distinguish goods ... dealt with or provided” by TTS from goods dealt with or provided by any other person: see s 17 of the Trade Marks Act;

2. whether the entries in the Register recording the assignment of the marks to TTS are subject to cancellation:

   (a)because made as a result of fraud, false suggestion or misrepresentation:  see s 88(2)(e) of the Act; or

   (b)because the use of the marks is likely to deceive or cause confusion for a reason other than one referred to in s 88(2)(c)(i) or (ii) of the Act: see s 88(2)(c);

3. assuming the recordals are not subject to cancellation, whether the importation by Montana of tyres bearing any of the subject marks, and/or the sale and distribution of those tyres, constitutes an infringement of the trade marks:  see ss 120 and 123 of the Act.

1. whether, after the filing of the respondent’s Cross-claim on 19 September 1997, the applicant was precluded from proceeding further with its claim for relief: see s 129(5) of the Trade Marks Act.

I will deal with these issues individually.

Ownership of the marks

The arguments on this issue go to the fundamentals of trade marks law. 

The applicant’s counsel commence with a reference to the nature of a trade mark. They submit “a trade mark is a brand which functions as a badge of origin” and refer to s 17 of the Trade Marks Act.  That section provides:

“17A trade mark is a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person.”

The word “sign” is widely defined by s 6.  Each of the three subject marks is a “sign” within the meaning of the definition.

Counsel for the applicants say the concept embodied in s 17 is no different from that which informed earlier trade marks legislation. They refer to “Bostitch” Trade Mark [1963] RPC 183 where Lloyd-Jacob J (at 197) described “the very reason of existence” of a mark as being “a mark which should distinguish his goods from the goods of other makers”. Counsel go on:

“ownership of a trade mark (whether registered or not) connotes not merely title to the mark, as an abstract quality, but also the capacity and entitlement to exercise the power to control the use of the mark as a badge of origin.  The essential requirement for the maintenance of the validity of a trade mark and its registration is that it must indicate a connection in the course of trade with the owner ... The connection is maintained by the capacity and entitlement to control, and the fact of control, of the use of the mark by the owner.”

Counsel refer to Pioneer Kabushiki Kaisha v Registrar of Trade Marks(1977) 137 CLR 670 in which Aickin J said at 683:

“... the essential requirement for the maintenance of the validity of a trade mark is that it must indicate a connexion in the course of trade with the registered proprietor, even though the connexion may be slight, such as selection or quality control or control of the user in the sense in which a parent company controls a subsidiary.  Use by either the registered proprietor or a licensee (whether registered or otherwise) will protect the mark from attack on the ground of non-user, but it is essential both that the user maintains the connexion of the registered proprietor with the goods and that the use of the mark does not become otherwise deceptive.  Conversely registration of a registered user will not save the mark if there ceases to be the relevant connexion in the course of trade with the proprietor or the mark otherwise becomes deceptive.”

According to counsel’s argument, the indivisibility of control from ownership is reflected in s 8 of the Act.  Section 8(1) defines an “authorised user” of a trade mark as someone who “uses the trade mark in relation to goods or services under the control of the owner of the trade mark”.  Subsections (3) and (4) include quality control and financial control within the concept of use “under the control of the owner”.  Counsel say the capacity and entitlement to control the use of the mark cannot be divorced from ownership for trade mark purposes; if that happens, the mark loses its essential function.  They cite “Weston” Trade Mark [1968] RPC 167, a case in which, as they rightly say, “agreements which impliedly granted licences to use a trade mark were treated as an assignment because the licensor did not exercise quality control”: see 182-183. Counsel say the converse applies: there can be no transfer of ownership in a mark when the power to control the use of the mark as a badge of origin is retained by the transferor.

On the evidence, they say, that is this case.  Ohtsu Co continues to apply the marks during the course of manufacture, in the same way as it has always done.  In that regard it is relevant to note some evidence of Mr Grammer during the course of his cross examination:

“Ohtsu applies the FALKEN and OHTSU brands to the tyres as part of the manufacturing process?---That’s correct.

Ohtsu determines precisely the trademarks are applied on the tyres?---Yes.

And how the trademarks are applied on the tyres?---Yes.

If Ohtsu decided to represent its OHTSU trademark in a particular stylised form on goods supplied to your company then as between your company and Ohtsu you would regard Ohtsu as having the right to do so?---Yes.

And your company would supply tyres in that form?---Yes.

...

What I have put to you is:  it is your understanding of your company’s arrangements with Ohtsu that your company would be obliged to supply the tyres in the form in which Ohtsu supplies them to you?---Yes.

That would be the same with the tyres manufactured by Ohtsu that bear the FALKEN trademark?---Yes.

Is it your understanding that Ohtsu has the right to determine the position and size of the trademarks on the tyres that it supplies to your company?---Yes.”

Mr Grammer went on to explain that the mark is moulded on the tyres, “so naturally we can’t alter it”.  He agreed he would not wish to alter the mark.  The mark protrudes from the tyre, so the only way to remove it would be to sand it back.  This would devalue the tyre.

Counsel for TTS, Mr A J Bannon SC and Mr R Cobden, argue control of a mark is irrelevant to the question whether the mark has been assigned; assignment relates to title, not control.  A registered mark is personal property (see s 21(1) of the Act) that may be assigned, with or without goodwill (see s 106(3)).  Counsel say there is nothing in the Act that suggests the right to control of a mark affects the title to it.  They refer to a passage in Johnson & Johnson Australia Pty Limited v Sterling Pharmaceuticals Pty Ltd (1991) 30 FCR 326 where Gummow J said (at 347-348) that:

“where the issue is one of infringing use by use of a word mark ... the fundamental question remains ... whether those to whom the user is directed are being invited to purchase the goods (or services) of the defendants which are to be distinguished from the goods of other traders ‘partly because’ they are described by the words in question.”(Original emphasis)

Counsel for TTS also cite from Pioneer Kabushiki Kaisha, but a different passage from that quoted above.  At 688 Aickin J discussed Estex Clothing Manufacturers Pty Ltd v Ellis and Goldstein Ltd (1967) 116 CLR 254 which, he said:

“is authority for the proposition that the foreign owner of an Australian mark uses it in Australia when he sells goods for delivery abroad to Australian retailers and those retailers import them into Australia for sale and there sell them.  It demonstrates that such a situation does not differ from that where he sells the goods for delivery in Australia to the retailer or where he advertises the goods in Australia.”

Aickin J said it was unnecessary in Estex Clothing to consider whether the retailer also used the mark but he thought there was no doubt that:

“if the retailer had on the same basis imported goods other than those of the registered proprietor but bearing its mark, he would have used the mark by infringing it ... Thus if Pioneer Australia had done no more than import the goods and sell them by retail it would have used the mark ...”

Counsel say there is no obligation upon a trader who uses a registered trade mark to exercise quality control; “the mere fact that he chooses to sell, or selects, particular goods with the trade mark is his statement of alliance with that trade mark”.  They were not able to cite any authority for this far-reaching proposition.

It is common ground that, when TTS sells tyres bearing the mark OHTSU or FALKEN, it is using the mark.  Moreover, it is agreed this was also the situation before recordal of the assignment of the marks from Ohtsu Co to TTS.  But the parties differ about what the mark is now being used to say.  According to the applicant, both before and after recordal of the assignment, the mark was, and is, saying only one thing: this tyre was manufactured by Ohtsu Co.  The respondent agrees this was the message of the mark before the assignment; the mark then proclaimed a connection between the registered proprietor (Ohtsu Co), as manufacturer, and the tyre.  However, the respondent submits that, since the assignment, the mark denotes a distribution association between the now registered proprietor (TTS) and the tyre.

With respect to counsel for TTS, the notion that the message of the mark was radically changed by its mere assignment from Ohtsu Co to TTS, without any transfer or reorganisation of either of the associated businesses, is nonsensical. Its unreality can be seen by considering a hypothetical batch of tyres manufactured in Japan in (say) April 1997. An identical mark, say OHTSU, is moulded, in an identical way, into the fabric of every tyre in the batch. Some of the tyres are retailed in Japan, some are exported to the United States and some to Germany. In all three countries, the moulded mark is treated by both distributors and purchasers as a statement about the identity of the manufacturer of the tyres, a sign denoting they were manufactured by Ohtsu Co, as distinct from anybody else. Some of the batch are sent to Australia and marketed before 15 May 1997. In respect of those tyres, TTS’ argument concedes the message is the same; in terms of s 17 of the Australian Act, the mark “is a sign used ... to distinguish [tyres] ... provided in the course of trade” [that is, manufactured] by Ohtsu Co “from [tyres] so ... provided [that is, manufactured] by any other person”. But others of the batch arrive in Australia at a later date; they are marketed after 15 May. According to the argument for TTS, on those tyres the identical mark OHTSU is now a statement of association with TTS, a sign to distinguish those tyres from tyres, whether manufactured by Ohtsu Co or not, distributed in Australia by others.

I do not doubt it is possible, under some circumstances, to use a trade mark to make a statement about the identity of the distributor of goods.  An example is furnished by the old case of Major Brothers v Franklin and Son [1908] RPC 406. The plaintiffs in that case were fruit and vegetable salesmen and the proprietors of trade marks, registered in two sections of the Register, consisting of the word MAJO. The plaintiffs painted or stencilled their mark on baskets from which they sold vegetables at Covent Garden. The vegetables offered in the baskets consisted, not only of produce grown by themselves, but also vegetables grown by one Webb, from whom Major Brothers took vegetables for sale on a commission basis. Major Brothers had the right to reject any produce supplied by Webb that they thought to be of poor quality or badly graded or packed. They had, in fact, never exercised this right; as Jelf J found, Webb was an “exceptionally good selector, grader and packer of these goods”. As a result of a dispute with a railway company, with the concurrence of Webb the defendants put on sale, in the plaintiffs’ baskets, nine baskets of produce supplied by Webb. Amongst other arguments, the defendants contended their action had not infringed the plaintiffs’ trade mark because the things they sold from the baskets were the very things the plaintiffs intended to be sold under their trade mark: the goods of Webb. Jelf J dealt with this argument by saying at 414:

“The answer made to that is this, - The Plaintiffs might indeed, if the goods had come to them, have passed them because they came from Webb, and because of their great confidence in Webb, without any examination; but if they had chosen to examine them they could have examined them, and if they found that they were not good in quality, or in grading, or in packing, or in any other way, they could have rejected them, and refused to sell them; although they never had refused to sell for Webb they might do it; and inasmuch as the allegation is that the Defendants have infringed the Trade Mark by representing what was not the fact, namely that these goods had been dealt with, and selected and sold by the Plaintiffs, they were representing that which was not correct.  It does not matter that in a particular case, or in any number of cases, the Plaintiffs did actually accept the goods of Webb without an examination. I think it is quite sufficient infringement to do that which represented a thing to be true, which was not true, but if true would have given, in the way I have described, additional value to the goods.”

In modern parlance, it might be said the trade mark represented that the goods offered for sale in the baskets had been subjected to the plaintiffs’ selection and quality control procedures.

Counsel for TTS argue the same statement may be made about goods manufactured in Japan by Ohtsu Co but distributed in Australia by TTS; TTS decides what types of tyres it wishes to import, and in what sizes and quantities, and it has the right to reject any tyres received by it that do not meet normal quality standards.  No doubt those assertions are factually correct, but I do not think the subject marks constitute a statement about distribution.  In Major Brothers Jelf J found the distributors, the plaintiffs, “had acquired a great reputation in the market for dealing only in good vegetables of different classes”; that reputation attached to the goods they sold and the name - the registered trade mark MAJO - under which they sold their produce.  So the trade mark amounted to a statement about selection and distribution.  Although he produced good vegetables, Webb had no general reputation in the market.  He did not sell under his own name; he used no trade mark.  Not all vegetables offered in MAJO baskets came from him.  In the present case, by contrast, the marks OHTSU and FALKEN are marks associated with the manufacturer of the tyres on which they are displayed.  Ohtsu Co has manufactured tyres bearing those marks for many years; it has an enormous reputation as the manufacturer of tyres so marked.  It is surely no accident that the word comprising the mark OHTSU is the most distinctive word in the manufacturer’s name. 

It is pertinent to recall a comment of Barwick CJ in Bayer Pharma Pty Ltd v Farbenfabriken Bayer Aktiengesellschaft (1965) 120 CLR 285 at 323:

“It may be that, in some circumstances, what begins as a foreign manufacturer’s mark may in time end as the registrable mark of the local distributor of that manufacturer’s products or, for that matter, of that distributor’s own manufactured goods.  But in such cases, at least there must be a clear dissociation from the initial significance of the mark so as to warrant the conclusion that the mark has become exclusively indicative in Australia of the local distributor’s goods.”

In the present case there has been no dissociation from the initial significance of the mark.  So far as the evidence shows, Ohtsu Co has assigned away only its Australian-registered marks; it remains the registered proprietor of the same marks in other countries.  Moreover, it has retained the right, even in Australia, to reacquire the registered proprietorship of the marks after two years, or sooner if TTS commits any act that adversely affects Ohtsu Co’s reputation and goodwill in OHTSU and FALKEN tyres or ceases to be Ohtsu Co’s representative in Australia.  Further, so far as the evidence shows, Ohtsu Co has taken no action publicly to dissociate itself from the marks.  Neither Ohtsu Co nor TTS has made any effort to publicise the assignment of the marks.  So far as the public is concerned, the situation remains what it always was.

Reference should also be made to the House of Lords decision in Aristoc Limited v Rysta Limited [1945] AC 68. The respondent in that case carried on business as a repairer of women’s silk stockings. It received damaged stockings from businesses such as laundries, cleaning establishments and retail stores and, after repair, returned them to those businesses, who redelivered the repaired stockings to their owners and accepted payment for the repair work. When the respondent repaired the stockings, it affixed to them a printed label indicating they had been repaired by the “genuine Rysta guaranteed hosiery repair process”, the word “Rysta” being in bold type. The respondent applied for registration of RYSTA as a trade mark. The application was opposed by the appellant, a company that manufactured silk stockings and was the registered proprietor of several trade marks that included the word ARISTOC. Amongst other things, the appellant argued the respondent’s use of the word RYSTA, to indicate that stockings had been repaired by it, was not use as a trade mark. Dealing with this point, Viscount Maugham said at 89:

“... hitherto a registered trade mark has been understood as being used in relation to goods for the purpose of indicating the origin of the goods, in other words, for the purpose of indicating either manufacture or some other dealing with the goods in the process of manufacture or in the course of business before they are offered for sale to the public.  It must be remembered that in the early days when trade mark law was being slowly laid down, chiefly in Chancery Courts (where alone an injunction could be obtained), a trade mark was inevitably taken as indicating the origin of the goods.  It was used for the purpose of indicating that the goods were those of the manufacturer or the merchant of the goods.  It was closely connected with the goodwill of his business, of which it was often a valuable item, for the mark represented a quality or character on which the purchaser could place reliance.” (Original emphasis)

Viscount Maugham noted the Trade Marks Act 1905 (UK) included, for the first time, a definition of a trade mark.  That definition said the purpose of a mark was to indicate they “are the goods of the proprietor of such trade mark by virtue of manufacture, selection, certification, dealing with or offering for sale”.  He said it was argued the words “dealing with” are sufficiently wide to cover any operation on the goods by a trader after the goods have come into the hands of the public; but he was “quite unable to take the view that the function of a trade mark was being so radically altered”.  Viscount Maugham referred to two post-1905 cases in which the House of Lords held it was still the purpose of a trade mark to indicate the origin of the goods in connection with which it is used.  At 91-92 his Lordship said:

“It must be observed that there is a very striking difference between a mark intended to indicate origin and one intended to signify repair, cleaning, or some analogous process after, and it may be long after, the goods have come upon the market.  The former will indicate a character or quality which will ordinarily remain so long as the goods remain recognizable.  The latter may indicate a purely temporary connexion with the goods such as repairing, washing, cleaning or adjusting them; and I am not able to see why the principle should not extend to the connexion by warehousing or carrying the goods.  Not only may the effect of such operation be quite ephemeral, but such operations may be repeated many times (with or without the consent of the owners of the goods) by different persons, and only one or some of these persons may desire to affix a trade mark to the goods.  A washing mark or a cleaner’s tab is usually affixed only to indicate that the articles are the property of a certain customer, that is, to prevent loss; but if the respondents’ view is right such persons may obtain a trade mark for the goods when washed or cleaned.  In the course of a few years there may be, on the same hypothesis, half a dozen different marks attached to the goods, each indicating that a laundry-man or a cleaner has washed or cleaned the articles at some generally unknown time in the past - a matter of no interest to the owner of the goods and giving no information as to their character or quality.  The usual phrase that the mark should be distinctive, meaning ‘adapted to distinguish the goods of the proprietor of the trade mark from those of other persons’ ... would seem to be curiously inappropriate if (to take an example) a number of piano-tuners or painters or overhaulers of motor cars or other mechanical instruments were to affix their respective marks from time to time.  And it is clear that the value of the mark of origin, whether used by the maker or the merchant, would in some cases be rendered of little value.”

His Lordship went on to hold the situation remained unchanged under the Trade Marks Act 1938 (UK).

Lord Thankerton and Lord Wright expressly agreed with Viscount Maugham.  Lord Macmillan and Lord Simonds spoke to similar effect; the latter commenting at 105 that Major Brothers represented the “extreme limit of the meaning” of the words “the goods” in the 1905 Act definition. 

Section 17 of the Trade Marks Act 1995 refers to a “sign used ... to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person”. Despite the width of the term “dealt with”, there is no reason to doubt that the essential purpose of a trade mark continues to be indication of the origin of goods.  A purchaser’s inquiry about the origin of goods will usually be answered by identifying their manufacturer.  In rare cases, the identify of the manufacturer may be unimportant; some other trader may have taken such an active role in selecting, or controlling the quality of, the goods as to constitute their origin, in practical terms.  But that is not the present case.  Although I accept TTS is entitled to return to Ohtsu Co any tyres that are defective, TTS is not responsible for the design, manufacture or control of the quality of the goods it imports and distributes in Australia.  It selects those goods only in the sense of identifying the particular types and sizes of the tyres it wishes to purchase.  The goods present to purchasers as goods manufactured by Ohtsu Co; the trade marks are moulded into the tyres themselves, something that can only be done in the course of manufacture.  They appear alongside a statement about the place of manufacture.  The marks are associated throughout the world with Ohtsu Co; and used in every other country to denote the identity of the manufacturer of the goods.  Some Australian purchasers may be aware TTS is the Australian distributor of Ohtsu Co products; but it is unreal to contend the marks OHTSU and FALKEN would suggest to Australian purchasers a connection with TTS rather than Ohtsu Co.

In one answer during cross examination, Mr Grammer seemed to display an instinctive appreciation that this was the true situation.  He said:

“If I discuss this with Ohtsu I believe that I could have an extra mark on the tyre and we have discussed this, for tyres that we do bring in, so we know that the tyres that we bring in may be the ones we have sold - will be the ones we have sold.  Not defacing the trademark but just an additional mark somewhere in the tyre that would brand the tyre as being our import.”

In other words, it might be possible to add a second mark signifying the identity of the distributor.  If this were done, the mark would no doubt become distinctive of those Ohtsu Co products that are distributed in Australia by TTS.  It might be possible for TTS to register that mark under the Trade Marks Act  and prevent infringement of that mark by other distributors.  To the extent there is commercial value in being identified in the minds of purchasers as the authorised Australian distributor of Ohtsu Co products, TTS could develop and protect that value.  But, of course, this would not save it from the competition of people who import and sell Ohtsu Co products that do not bear TTS’ distribution trade mark.

In my opinion this first issue must be answered favourably to Montana.  The marks OHTSU and FALKEN are incapable of constituting signs distinguishing the goods distributed by TTS from goods distributed by others.  The signs are intended to distinguish, and do distinguish, the tyres as being goods manufactured by Ohtsu Co, as distinct from any other tyre manufacturer.  Leaving aside any problem arising out of the circumstances of the assignment of the marks and the recordal of the assignment, there is not such a nexus between the marks and TTS as to make those marks registrable as TTS trade marks. 

Cancellation of the entries of recordal
Counsel for the applicant argue the entries recording the assignments from Ohtsu Co to TTS are liable to cancellation on two bases:  they were made as a result of fraud, false representation or misrepresentation (see para (e) of s 88(2) of the Act) and are likely to deceive or cause confusion (see para (c)). 

It follows from my finding on the first issue that use of the marks OHTSU and FALKEN  by TTS is likely to deceive or cause confusion.  However, para (c) excludes deceit or confusion that is for a reason covered inter alia by s 43 of the Act. Section 43 requires the rejection of an application for the registration of a trade mark in respect of particular goods or services if the use of the mark is likely to deceive or cause confusion “because of some connotation that the trade mark ... has”. That is this case. The marks OHTSU and FALKEN each have a connotation of connection with Ohtsu Co, in the sense that the mark was imposed on the tyres in order to indicate the identity of the manufacturer. The use of either of those marks to indicate an association with a particular distributor would cause confusion, at the least.

Parliament presumably excluded a reason falling within s 43 from s 88(2)(c) in order to encourage persons having a basis of objection to registration to advance their objection at the registration stage, rather than to lie by and raise the problem at a later date. Whether or not that is so, these marks are not now liable to cancellation under s 88(2)(c).

The situation under s 88(2)(e) is different.  That paragraph depends on the circumstances under which the entry was made, not the result of its making.  The argument of counsel for Montana focuses on the requirements of Part 10 of the Trade Marks Act.  That Part permits assignment of a registered trade mark (s 106(1)), in whole or in part (s 106(2)) and with or without the goodwill of the business concerned in the relevant goods and/or services (s 106(3)).  An application must be made to the Registrar for recordal of the assignment (s 109(1)) and this must be filed together with any “prescribed document” (s 109(2)).  If an application complies with the Act, the Registrar must enter particulars of the assignment in the Register and register the assignee as the owner of the trade mark in relation to the relevant goods and/or services
(s 110(1)).

Regulation 10.1 of the Trade Marks Regulations states that, for the purposes inter alia of s 109(2)(b) of the Act, certain documents are prescribed.  They include “a document that establishes the title to a trade mark of the assignee ...”.  Counsel for Montana say the singular word “document” includes the plural (Acts Interpretation Act 1901, s 23(2)) and argue the effect of the regulation is to require the filing of “all documents which bear on the question of the entitlement of the assignee to be registered as owner”. If an applicant fails to file such a document, the application fails to comply with the Act, so the Registrar has no authority to record the assignment. Counsel say “the Registrar fulfils an important public function for the carrying out of which he has necessarily to depend upon information given to him by the only interested party, in this case the applicant for recordal”. They quote the comment of Oliver LJ in Therm-a-Stor Ltd v Weatherseal Windows Ltd [1984] FSR 323 at 337 in relation to an application for amendment of a patent specification:

“It is, therefore, of the highest importance that all material facts bearing on the application should be disclosed to him, and an applicant who fails to make such disclosure at any stage runs the risk that the patent may subsequently be declared invalid for false suggestion.”

Counsel note that, in the present case, TTS was the applicant for recordal.  They say that, in submitting the deed of assignment, TTS represented that:

“(a)     Ohtsu had agreed to assign all its rights in the trade marks to the respondent (Recital B);

(b)The respondent now held all the rights, powers and liberties with respect to the trade marks that Ohtsu had held and enjoyed by reason of its ownership, which was represented as being totally unfettered (clause 1);

(c)Ohtsu has assigned the goodwill of its business to the respondent (Recital B and clause 1);

(d)Ohtsu was bound not to do anything which would or might invalidate the respondent’s title to the trade marks.”

Counsel go on:

“In short, the deed indicates that the respondent, as assignee, held the full right, title and power to use the mark as its own with a business it had acquired, and that Ohtsu, as registered proprietor, had divested itself of its business and relinquished the right, title and power that it had possessed as owner of the marks in question.  In this case, the deed of assignment was calculated to give to the Registrar of Trade Marks the appearance of an absolute divestment by Ohtsu of its business and its trade marks, which the respondent could treat as its own, completely unfettered by Ohtsu.

This, however, was not the case, because, contemporaneously with the deed of assignment, the respondent and Ohtsu entered into another deed dated 26 May 1997 ... which made it clear that:-

(a)There had been no assignment of goodwill.  The respondent was merely the representative of Ohtsu in Australia (clause 2(a)(ii));

(b)The power to control the use of the trade marks rested completely with Ohtsu (clause 2(a)(i));

(c)The respondent did not have the power to assign the trade marks without Ohtsu’s consent (clause 4);

(d)Ohtsu had an ‘option to repurchase’ the trade marks which, after two years was unlimited as to the circumstances in which the ‘option’ could be exercised, and, within two years, could be exercised if the respondent did anything which adversely affected Ohtsu’s world-wide reputation and goodwill in the ‘Ohtsu’ and ‘Falken’ brands (clauses 1 and 2) or if the respondent ceased to be Ohtsu’s representative.

In short, Ohtsu had retained the right and power to control the use of the trade mark as a badge of origin and that the true intention of the parties was that the respondent would never have that power.  It was never intended and never the case that the respondent had the unfettered right to deal with the trade marks as its own property.  At all times the respondent was and remained a distributor of Ohtsu’s goods bearing the marks in question.  As a distributor it had no power to bring proceedings for trade mark infringement.  What was intended by the parties was to provide a facility by which the respondent could eliminate competition in Australia provided by genuinely branded Ohtsu tyres by apparently clothing the respondent with the power to ownership of the marks in question to enable it to obtain registration as owner and thus to exercise the rights under the Trade Marks Act 1995. The respondent has taken full advantage of that position; it has obtained registration and has sought to use proceedings for infringement as a means to eliminate competition in genuinely branded Ohtsu goods in circumstances where, but for the fact of the respondent’s recordal as owner of the marks, no infringement would occur: R & A Bailey & Co Ltd v Boccaccio Pty Ltd (1986) 4 NSWLR 701.”

Counsel note the words “fraud, false suggestion or misrepresentation” first appeared in Australian trade marks legislation in the 1995 Act; but similar words had previously been used in patents legislation.  They refer to the comment of Lockhart J in Prestige Group (Australia) Pty Ltd v Dart Industries Inc (1990) 26 FCR 197 at 198-199:

“The words ‘false suggestion or representation’ are of wide import.  The statutory ground ... is based on equitable notions of good faith, fairness, conscionable conduct and honesty.  If an applicant for a patent has misled the Commissioner in a material respect in the course of procedures which led to the grant of the patent, he should not have the benefit of his misleading conduct”. 

Lockhart J went on to refer to cases where the false suggestion was not found in the patent specification itself but was conduct that occurred in the application for grant of the patent.  At 201 he rejected the view it was necessary to show an intention to deceive.  He also said that, although there must be “some causal nexus between the conduct constituting the false suggestion or representation and the grant by the Crown of the letters patent”, it did not follow “that the conduct must be such that in its absence the patent would not have been granted”.  Lockhart J stated the test as being:

“whether the conduct constituting the false suggestion or representation materially contributed to the Commissioner’s decision to grant the patent even if other circumstances or causes also played a part in the making of that decision.  It is sufficient if the conduct is a material inducing factor which led to the grant.  It goes too far to say that the false suggestion or representation must be material in the sense that without it the patent would not have proceeded to grant.”

Adopting this approach, counsel for Montana say:

“In the present case the recordal of the respondent as owner of the marks in question was made as a result of fraud, false suggestion or misrepresentation in the following ways:-

(a)by selectively submitting the deed of assignment the respondent represented that this was the only document establishing its title and that its application for recordal was ‘in accordance with the Act’;

(b)it represented that it had absolute control of the marks in question together with Ohtsu’s business in which those marks were used.

The application, submitted in this form, must have materially contributed to the Registrar’s decision.  The Court does not have to go on to decide what the Registrar would have decided had he known the true facts.  However, it is submitted that it would seem doubtful that the Registrar would have countenanced such an application where the apparent title to the marks resided in one person, but the power to control the use and disposition of the marks resided with another.  This would be totally contrary to the notion of trade mark ownership and would have deprived the marks of the very reason for their existence, namely as badges of origin.”

Counsel for TTS emphasise that reg 10.1(a) refers to “a document that establishes the title to a trade mark of the assignee”.  They say the effect of the deed of assignment was that Ohtsu Co transferred title to the marks to TTS, notwithstanding the option deed enables Ohtsu Co to regain title under certain circumstances.  Counsel comment “only an entity with full title can grant an option to acquire the mark”.  They say:

“Treating the two transactions as a single transaction does not make it any less an assignment.  The retention of control of use of the mark is no more a derogation from the title being transferred than the retention by a registered owner of the beneficial interest in the mark when it assigns legal title in the mark to a  trustee.”  (Original emphasis).

Counsel point out there is no allegation the documents were a sham.  Consequently, “(i)f both the assignment and the option deed had been presented for registration, the only result would have been the registration of TTS as owner and the recording under  s 114 of the interest of Ohtsu”.

Section 114 of the Act provides for entry into the Register of claims to an interest in, or a right in respect of, a registered trade mark, other than as registered owner of the trade mark.

Counsel for TTS say:

“The effect of the Applicant’s submissions is that all documents relating to control of the mark must be provided to the registrar on any assignment or purported assignment.  Apart from being contrary to a proper understanding of the concept of title, it would render the assignment provisions unworkable.

For example, the Registrar would need to know who in truth controls the claimed assignee eg. its parent company or its bank which holds a mortgage over all its assets.  The Registrar cannot have been intended to undertake a weighing up process of working out who really controls the mark or, perhaps, controls it more or most and then register or refuse to register an assignment.” (Original emphasis).

I agree the Registrar is not concerned with the question who controls a claimed assignee. But control of an assignee is a different matter to control of a mark; the Registrar is potentially concerned with that matter because it bears on the question whether there is such a connection between the mark and the assignee as to fulfil the requirement of s 17.

I find the applicant’s submissions on this issue irresistible.  I am content to adopt the submissions I have quoted, emphasising only that it is not necessary for Montana to establish that the filing of the option deed would certainly have led the Registrar to refuse to record the assignment; it is enough that it probably would have done so, as I find.  In the absence of any other explanation, the fact that the solicitors for TTS decided to put the option into a separate document is a powerful indication they thought the option might induce the Registrar not to record the assignment.

Infringement
The issue of infringement arises in the present case only if the recordals of the assignment are not subject to cancellation.  As it was argued by counsel, the issue involves complex questions regarding the application of the Trade Marks Act to parallel imports.  The respondent’s submissions include a challenge to the correctness of the decision of Young J of the New South Wales Supreme Court in the important case of R & A Bailey & Co Ltd v Boccaccio Pty Ltd. 

On the view I take, the recordals are subject to cancellation, so these questions do not need to be addressed in this case.  In that situation, I have decided to say nothing about them.  The questions are of general importance.  They may be critical in other cases.  It is better to leave their determination to such a case.

Section 129
I have already set out the terms of s 129 of the Trade Marks Act. It will be recalled the section authorises the bringing of actions seeking a declaration that the defendant to the action has no grounds for making a threat of legal proceedings alleging infringement of a registered trade mark, an injunction to restrain continuation of the threat and damages for any loss sustained because of the defendant’s conduct. It may further be recalled that s 129(5) provides that “(a)n action may not be brought, or (if brought) may not proceed, under this section if the registered owner of the trade mark ... with due diligence, begins and pursues an action against the threatened person for infringement of the trade mark”. Section 130 of the Act treats a claim of infringement in a defendant’s counterclaim as being the equivalent of a claim in a principal proceeding, for the purposes of s 129.

The good sense behind s 129, generally, is readily apparent. A threat to bring a legal action for infringement of a trade mark may have drastic consequences. The situation is the same as that discussed by a Full Court of this Court, in relation to a threatened action for breach of copyright, in Avel Pty Limited v Intercontinental Grain Importers Pty Limited (1996) 65 FCR 154 at 159:

“... given the high cost of defending an action for infringement of an intellectual property right, the owner of such a right will frequently be able to deter an actual or potential infringer by a simple threat of infringement proceedings.  Such a threat, however, may also have the same effect on a person whose activities do not infringe, but who is unprepared to face the costs and time involved in establishing this.  As a result, a threat of an infringement action may enable the owner of an intellectual property right to frighten away competitors or to damage such persons less directly by threatening to sue their customers or suppliers.  This potential for abuse has been recognised for a long time in patents, trade marks and copyright legislation.”

Their Honours referred to s 128 of the Patents Act 1990 (and its predecessor, s 121 of the 1952 Act), s 124 of the Trade Marks Act 1955 and s 202 of the Copyright Act 1968. They also referred to United Kingdom legislation going back to the Patents Act 1883.  They quoted from Bowen LJ in Skinner & Co v Shew & Co [1893] 1 Ch 413 at 425:

“The legislature desires that threats of patent action shall not hang over a man’s head; that the sword of Damocles, in such a case, should either not be suspended or should fall at once ...”

Their Honours added the comment of von Doussa J in Townsend Controls Pty Ltd v Gilead (1989) 14 IPR 443 at 448 concerning s 121 of the Patents Act 1952:

“Section 121 provides the statutory machinery to enable the party threatened to bring down the sword.  The provisions of s 121 give no right to a patentee to make a threat.  The purpose of the section, on the contrary, is to provide a statutory remedy for a person against whom a threat is made by a patentee who embarks on ‘self help’ measures instead of enforcing his claimed monopoly by instituting proceedings for infringement.”

The policy behind subs (5) of s 129 is less clear. The subsection is obviously concerned to avoid multiplicity of proceedings but it is unnecessarily restrictive. Both the Copyright Act 1968 (see s 202(4)) and the Patents Act 1990 (see s 130) contain provisions facilitating counter-claims asserting infringement, in response to an action alleging the making of unjustified threats of infringement. But neither of those statutes goes so far as s 129(5) of the Trade Marks Act. That subsection provides that an action for groundless threats “may not proceed”, if an action for infringement is commenced and pursued with due diligence. The potential for injustice is plain. The threats may have been totally unjustified and have caused the threatened person enormous losses, in respect of which damages would ordinarily be recoverable pursuant to s 129(2). But subs (5) allows the defendant to bring the threatened party’s action to a halt, and thus avoid an order to pay damages, by the simple expedient of commencing an action for infringement, even in a counterclaim to the threatened person’s action. It is one thing to forbid the commencement of an action for unjustified threats, if an infringement action has already been instituted and is being pursued with due diligence. It is another thing to stop an already-commenced action and thereby preclude the recovery of what might be substantial damages.  Neither the Explanatory Memorandum to the Bill for the Trade Marks Act nor the Minister’s Second Reading Speech to the Bill (see House of Representatives Debates 27 September 1995) gives any indication why it was thought necessary to take that course. 

However, the drastic effect of s 129(5) is mitigated by its restriction to an action for infringement that is commenced and pursued “with due diligence”. The Act does not explain what is meant by this term. In Dial-An-Angel Pty Ltd v Sagitaur Services Systems Pty Ltd (1990) 96 ALR 181 at 195, speaking of the use of these words in s 124(2) of the 1955 Act, I said I was not aware of any authority on their meaning but thought they should be given their ordinary English meaning:

“It is necessary to ask whether the person making the threats has commenced the action within a reasonable period thereafter, having regard to the whole of the relevant circumstances, and whether the action has been prosecuted in a reasonable manner.”

Since that time, the learned editors of Lahore’s Patents, Trade Marks and Related Rights have offered the comment (at para 58,025) in relation to s 129 of the 1995 Act:

“The availability of this procedure emphasises the need for registered owners and authorised users of trade marks (and their legal advisers) to make a decision prior to the despatch of any letter of demand that, if the undertakings sought are not forthcoming, proceedings for infringement will be instituted.  The practice of writing letters of demand in the hope that negotiations will commence with a view to a resolution of the claims is not to be encouraged.  Threats of litigation made against anyone are serious, are to be treated as such, and if they are empty, a heavy liability may be incurred.”

I agree with this comment.  What constitutes due diligence must be considered against the background of the potentially disastrous consequences of threats and the inability of threatened persons to recover damages for losses caused by threats, if an action for infringement is commenced and prosecuted “with due diligence”.  It is appropriate to treat the term as requiring the speedy commencement of any infringement action and a high standard of efficiency in its prosecution.

Did that occur in the present case?  I think not.  I have set out the relevant facts.  It will be recalled the assignment was recorded by the Registrar on 26 May 1997.  Within about three weeks, on 17 June, Ebsworth and Ebsworth made their demands for undertakings.  They required these undertakings to be given within ten days from the date of their letter, by 4pm on Friday 27 June.  They told Montana its failure to provide an undertaking by the stipulated time “will leave our client no alternative but to institute court proceedings” for infringement.  The solicitors realised an action for infringement was the only logical response to a failure by Montana to give the required undertaking.  Presumably, TTS shared this view and was prepared (and preparing) to institute an infringement action if necessary.  Similar threats were made against others.  In its general circular, TTS said it “will not hesitate” to take legal action against infringers. 

Within the time limited by Ebsworth and Ebsworth, Sprusons Solicitors responded on Montana’s behalf.  They offered an undertaking concerning future importations but refused to give any undertaking regarding goods imported before 15 May. TTS declined to accept that response.  Although they took 12 days to do so, Ebsworth and Ebsworth wrote again, on 9 July, requiring an undertaking, within two days, that covered tyres imported before 15 May.  The two days expired at 4pm on Friday 11 July.  Once that time passed without receipt of the required undertaking, on the solicitors’ own logic TTS had no alternative but to institute an infringement action.  It was now nearly seven weeks since the assignments were recorded.  There had been ample time to prepare the documents necessary for the institution of an action.  Yet TTS did nothing.  TTS left it to Montana to initiate litigation.  Perhaps this was because TTS thought it unnecessary to commence a proceeding; perhaps TTS realised the threats were doing their work, Montana’s business was collapsing.  Whatever the reason, TTS allowed a further ten weeks to pass before, on 19 September 1997, it filed a Cross-claim alleging infringement.  This was some three months after TTS’ first threats and demands for urgent undertakings.

In my opinion s 129(5) does not apply to this case. The action for infringement was not commenced “with due diligence”.

Even if s 129(5) did apply, this would not deprive Montana of a remedy in respect of TTS’ groundless threats, as I hold they were. In respect of those threats, Montana now makes an alternative claim based on s 52 of the Trade Practices Act. Section 129(5) applies only to an action under s 129 in respect of groundless threats. It does not preclude the institution or continuation of an action that arises outside s 129. In Australian Law of Trade Marks and Passing Off (2nd ed) at 501, Mr D R Shanahan comments that s 52 of the Trade Practices Act “will catch a threat tending to mislead or deceive the person threatened”.  Of course, this is true only if the threat is made by, or on behalf of, a body that falls within the definition of “corporation” in s 4 of that Act.  But that is this case; TTS is a trading corporation formed within Australia. 

Counsel for the respondent contend the applicant’s pleading does not support a s 52 claim, but this overlooks para 26 of the Further Amended Statement of Claim.

Counsel also submit Montana did not rely on any statements by TTS or its solicitors. I doubt this is correct; in offering the undertaking set out in its solicitors’ letter of 27 June 1997, it seems Montana accepted the statement made by Ebsworth and Ebsworth in its letter of 17 June 1997 about TTS having the exclusive right to use the trade marks. In any case, damages under s 82 of the Trade Practices Act are not limited to cases in which it is shown the applicant acted in reliance upon the respondent’s misleading conduct; the respondent’s misleading conduct may have induced somebody else to act in such a manner as to cause the applicant to suffer loss:  see Janssen-Gilag Pty Ltd v Pfizer Pty Limited (1992) 37 FCR 526 at 530 and the cases there cited.

In Wardley Australia Ltd v The State of Western Australia (1992) 175 CLR 514 Mason CJ said at 525:

“... s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v E & M H Stramare Pty Ltd (1991) 171 CLR 506, except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act.”

March insists on causation being treated as essentially a question of fact, to be determined by reference to common sense and experience. If Montana can establish, as a matter or probability, that it lost sales because customers were influenced by misrepresentations made to them by the respondent, it would show it had suffered “loss or damage by conduct of another person that was done in contravention” of s 52 of the Trade Practices Act. Accordingly, it would be entitled to recover damages under s 82 of that Act.

Orders
At this stage I am dealing only with issues of liability.  Consequently, in relation to damages, I will do no more than make directions about the filing of the parties’ affidavits and fix a further directions hearing.  I will make substantive orders regarding liability issues.  They will consist, first, of a declaration that none of the relevant marks is a sign used, or intended to be used, to distinguish goods or services dealt with or provided by TTS in the course of trade from goods or services dealt with or provided by any other person; second, an order for cancellation of the Register entries of the assignment of the marks from Ohtsu Co to TTS; third, an order restraining TTS from continuing to make threats; and, fourth, an order that TTS pay the costs so far incurred by Montana in connection with the proceeding.

I certify that this and the preceding thirty-two (32) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox

Associate:

Dated:            19 June 1998

Counsel for the Applicant:	D M Yates SC and A Silink
Solicitor for the Applicant:	Sprusons Solicitors
Counsel for the Respondent:	A J L Bannon SC and R Cobden
Solicitor for the Respondent:	Ebsworth and Ebsworth
Date of Hearing:	6, 7 and 8 April 1998