Paul's Retail Pty Ltd v Sporte Leisure Pty Ltd & Ors [2012] HCATrans 219

[2012] HCATrans 219

[2012] HCATrans 219

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S113 of 2012

B e t w e e n -

PAUL’S RETAIL PTY LTD

Applicant

and

SPORTE LEISURE PTY LTD

First Respondent

GREAT WHITE SHARK ENTERPRISES LLC

Second Respondent

LIFESTYLE BRANDS HOLDINGS LLC

Third Respondent

PAUL DWYER

Fourth Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 7 SEPTEMBER 2012, AT 12.19 PM

Copyright in the High Court of Australia

____________________

MR R. COBDEN, SC:   May it please the Court, I appear with my learned friend, MR J.S. COOKE, for the applicant.  (instructed by W Lawyers)

MR R.J. WEBB, SC:   May it please the Court, I appear with my learned friend, MR C.J. BURGESS, for the first to third respondents.  (instructed by James Beatty & Associates)

GUMMOW J:   Thank you.  There is a submitting appearance for Mr Dwyer, is that right?  Yes, Mr Cobden.

MR COBDEN:   Your Honours, may I briefly go to a couple of uncontested findings which are important background and then get to what we say is the error on the part of his Honour in the Full Court; secondly, why that error reflects an erroneous application of the construction of section 123 of the Trade Marks Act; and thirdly, why the issue is of general importance.

GUMMOW J:   Well, why do we not look at section 123 first and tell us what the point of construction is.

MR COBDEN:   Yes, your Honour.  The point of construction, your Honour, is that the court ‑ ‑ ‑

GUMMOW J:   Where do we find 123 in the application book?

MR COBDEN:   Justice Nicholas sets out the relevant provisions, your Honour.

GUMMOW J:   Page 60?

MR COBDEN:   That is of the Full Court, yes, your Honour.  Section 123(1) is at paragraph 22 of the Full Court.

GUMMOW J:   Is it this expression, “or with the consent of”?

MR COBDEN:  

applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark.

What we say is the error is to ‑ ‑ ‑

GUMMOW J:   This is linked to 120?

MR COBDEN:   Closely linked to 120, yes, your Honour, and by reason of three decisions now of the Full Court of the Federal Court of which this is one, sections 120 and particularly 123, we submit, have a very large role to play now in trademark law and everyday local transactions as well as imported transactions.

GUMMOW J:   So?

MR COBDEN:   So a proper construction, a close construction ‑ ‑ ‑

GUMMOW J:   Do you say the construction is having regard to the facts in this case that there seems to be a consent, but a consent limited territorially outside Australia?

MR COBDEN:   Yes, your Honour.  One has to focus, we say, by reason of the words of section 123 on the application of the mark to the goods and not on post‑application limitations or conditions that the trademark owner seeks to impose, which trademark owners have sought to impose for years and years, if not decades, and your Honours know that is the long‑running debate about whether it is a badge of origin or a badge of control, the sort of debate that led to the Champagne Heidsieck line of cases.  Can I lead into that by the decision of the ‑ ‑ ‑

GUMMOW J:   Do not worry about decisions, they do not bind us.  Just worry about the text.  Now, you say the consent is linked to the application.  Well, the application is by consent but on a condition as to what happened next.  It may be the channels of trade into which the goods were to be put.

MR COBDEN:   We say that is not a condition on the manufacturing licence as granted in this case.

GUMMOW J:   Where does this talk about manufacturing licence?

MR COBDEN:   It talks about application of the mark and application of the mark is defined ‑ ‑ ‑

GUMMOW J:   But are you saying the consent can only be limited to the mere fact of application?

MR COBDEN:   Yes, your Honour, and in this case ‑ ‑ ‑

GUMMOW J:   Not in any way linked to the consequent projection into trade which is the whole purpose of the application?

MR COBDEN:   Well, no, your Honour, that is what we say, because the principal function of the trademark, particularly in this case as the finding will show, which is to have the quality controls and design controls imposed by the trademark owner onto the goods that leave the distributor or the manufacturer with the trademark owner’s mark on it is fulfilled if the goods are manufactured in accordance with the trademark owner’s quality control provisions. 

In threshold findings I was going to take your Honours to, in this case his Honour held – and there has been no challenge to this at any time - at paragraph 90 of Justice Nicholas’s judgment at page 28 of the application book ‑ ‑ ‑

GUMMOW J:   Page 28?

MR COBDEN:   Page 28, yes.  There was a sharp contest at trial as to whether the goods had met the specifications, quality specifications, but his Honour found at paragraph 90 after a long discussion of some evidence by a witness called by my learned friend – says at the end he was not prepared to find non‑conformities:

On the contrary, I would have found that the second applicant consented to the application of its marks to those goods but for the fact that the goods were manufactured by BTB for sale outside India.

So that the quality aspect of the purpose of a trademark was entirely fulfilled.

GUMMOW J:   But for the fact?

MR COBDEN:   But for the fact, quite so, and what his Honour then held ‑ ‑ ‑

GUMMOW J:   So that throws up an error of law in the construction of the section?

MR COBDEN:   Yes, your Honour, by taking into account factors that took place after the application of the mark, application of the mark being defined in the Act as being the weaving into or placement on labels – might I give your Honours a reference to that quickly?  That is section 9 of the Trade Marks Act.  The relevant acts of application we rely upon here are when the goods – the things were woven in, impressed or worked into or affixed to the goods because they were woven marks.

GUMMOW J:   Do you say it is appropriate to attach conditions for the quality of the goods, the physical quality?

MR COBDEN:   Yes, because that is part of the manufacture process.  I should take your Honours immediately to the two clauses of the licence agreement that were in contest and indicate why it is we say what we say in terms of the error.  They are conveniently found, your Honour, at page – the primary judge, paragraph 20, pages 12 to 14 of the application book.  It is set out in full there.

GUMMOW J:   Yes.

MR COBDEN:   The first one, which is the primary grant of the licence, is GNC – that is the Greg Norman Corporation.  Your Honours need not be troubled about that.  I think it may have been succeeded by a different party, but it is always the Greg Norman party:

grants to LICENSEE –

That was the BTB company in India:

for the term of this Agreement and no longer, a limited and non‑license to use in the TERRITORY such of the TRADEMARKS –

That is all that matters for the moment –

as GNC shall have indicated to LICENSEE in writing –

That was covered by the specifications –

in connection with the manufacture, marketing, distribution and/or sale of LICENSED PRODUCTS –

So there are effectively four separate licences as well as an overall licence to do any of those things - manufacture, market, distribute and sell the licensed products - and that all has to take place in the territory.  We just saw that a moment ago.

HAYNE J:   The territory is the Union of India?

MR COBDEN:   Union of India only, quite so.  The definition of “licensed products” does not take it any further so I will not trouble your Honours with that; we have set it out in our submissions.  It is a disjunctive licence and here the manufacture was in fact in India.  That is common ground.  So there is no breach of the manufacturing licence.  But his Honour in the Full Court paid attention to clause 2.4 which is further down the same passage which needs to be broken up into pieces:

LICENSEE acknowledges that this License is limited to the TERRITORY defined herein –

Quite so.  In other words, we accept the licence is limited to manufacturing in India and/or to selling in India and/or to distributing in India, et cetera, et cetera.  Then there is a covenant:

agrees not to LICENSED PRODUCTS to anyone other than –

There are three conditions then on this covenant.  BTB cannot sell its products to – must sell its products to regular retail customers, they must be sold in the territory and must be sold in the normal course of trading.  Now, on their Honours’ reasoning, breach of any one of those three conditions, not just the sale outside the Union of India, would have rendered these goods outside the licence.  But just for a moment postulating that they were sold in India to a customer and then bought by my client from India, he would have to have proved, at their Honours’ view of section 123 and the prevailing view of section 123, not only that they were sold in the territory, but that they had been sold to regular retail customers and in the normal course of trading, all of that from a trader who has no idea what the detail of these agreements provide.  There is a further covenant:

will not sell LICENSED PRODUCTS destined directly or indirectly for sale outside the TERRITORY without the prior written approval of GNC.

What we say, your Honours, is that the manufacturing licence was exercised in India, there was a breach of the sale licence if the licence is needed to sell – probably not – there is a breach of the accompanying covenants in 2.4, but each of those events occurs after the relevant statutory concept which is in section 123, which is the application of the marks with the consent of the registered proprietor. 

What we say, with respect, is that once the manufacturing contractually proper has taken place in India that disjunctive construction, post‑manufacture or breach of post‑manufacture covenants, is irrelevant to the inquiry mandated by section 123.  Our submission is that both his Honour and the Full Court by saying that the – for example, the Full Court, paragraph 77, page 70, said:

It is not correct to describe the contractual position between BTB and GNC as one in which GNC gave conditional consent to the application of the marks so long as the goods were to be sold in the territory of India.  Rather, it prohibited the application of the Greg Norman marks to good which were destined for supply outside of India.

We respectfully submit on the proper construction of the agreement it did not do that.  It allowed the manufacture of goods in India.  It prohibited the sale of goods outside India.

GUMMOW J:   But prima facie you are sued for infringement, are you?

MR COBDEN:   Yes.

GUMMOW J:   The question then is, is section 121(1) engaged?

MR COBDEN:   Yes.

GUMMOW J:   That appears at page 60.  It looks as if Paul’s Retail has used the mark in relation to goods in respect of its trademark as registered.

MR COBDEN:   Indeed, your Honour.

GUMMOW J:   Done that without any express licence to yourself.

MR COBDEN:   As to the sale, yes, quite so.

GUMMOW J:   But then you say 123 relieves you from what otherwise would be attachment to 120?

MR COBDEN:   Yes, and could I just say something briefly about sections 120 and 123?  Each of the three cases – Transport Tyre Sales, Gallo in the Full Court of the Federal Court and ‑ ‑ ‑

GUMMOW J:   Gallo was a user case?

MR COBDEN:   It was a user case, your Honour, but it made some comments about ‑ ‑ ‑

GUMMOW J:   About treating a trademark as something that should be kept alive.

MR COBDEN:   It was quite ‑ ‑ ‑

GUMMOW J:   All about vindicating a trademark against infringement.

MR COBDEN:   Yes, but in the Full Court of the Federal Court, not in the High Court, there was some discussion of the role of section 123 in infringement.  There are references to that in our submissions.  Those three cases are about parallel importation but your Honour is quite right.  If one reads the section of the statute literally it is as applicable - section 120(1) - to a local trader dealing in locally marked goods.  It is not a parallel imports alone section.

So, of course, if one just postulates a trader, David Jones infringes a registered trademark if David Jones uses a trademark, a sign substantially identical with, say, the Twinings tea trademark in relation to goods or services in respect of which the mark is registered, and the three Full Courts to which I have referred have now said that effectively sections 120 and 123 form a little code.  The introduction of section 123 means that, in any answer to section 120, one turns to section 123 to see whether the mark has been infringed or not, despite the literal words of section 120, thus, we submit, effectively seeking to displace notions that appear in Estex and, for example, in Wingate which say that if ‑ ‑ ‑

GUMMOW J:   They are all on different statutes.

MR COBDEN:   Wingate and Estex?

GUMMOW J:   They are earlier cases.

MR COBDEN:   I know that, your Honour.  I am emphasising that, your Honour.  So what it means, your Honour, apparently – and we do not quibble with ‑ ‑ ‑

GUMMOW J:   What it means, I suppose, is that if David Jones sells goods manufactured in Australia under a well‑known Australian trademark, they take the risk that they are counterfeit.

MR COBDEN:   Yes, and ‑ ‑ ‑

GUMMOW J:   They have an action under the sale of goods law in respect of the person who sold them to – under the trademarks law they are in trouble.

MR COBDEN:   Unless they can now ‑ ‑ ‑

GUMMOW J:   Unless they can make out section 123.

MR COBDEN:   That is a major change in the law from 1995.

GUMMOW J:   Maybe.

MR COBDEN:   Which has significant ramifications which is why we submit that section 123 needs to be applied very closely to its terms, that is to say, look just at the application and the consent of the registered proprietor of the application because otherwise the registered proprietor can in effect start to make conditions, travel with its goods, that make the mark a badge of control, not a badge of origin.  That is very unlikely, with respect, your Honour, in the context of the Trade Marks Act because section 121 - which I am sorry is not set out in the judgments, but your Honours will recall that it is the old section 63, I think – limits very closely the sorts of conditions that a registered owner – in a bundle we sent up, your Honours ‑ ‑ ‑

GUMMOW J:   Yes, we have it.

MR COBDEN:   This is really just a sense test.  If that is the brave new world of trademark infringement since 1995, everyone infringes unless they can positively mount the defence under 123 in relation to licences that are opaque to them because they could be way up the chain with distributors and manufacturers.  That enables, on that view, manufacturers, as has happened here, to seek to impose territorial and considerably other conditions on their marks.

GUMMOW J:   It is still opaque if you are right about your point of application, is it not?

MR COBDEN:   It is considerably less opaque, your Honour.  At least one can think if the goods are marked with the trademark owner’s goods and they are out in the marketplace, it is unlikely that they have been marked without consent.  It is an objective assessment, in any event.  Your Honours referred to that in Gallo, the need for it to be an objective assessment, not a subjective assessment.

But my point about section 121 which is only illustrative is that in order to impose conditions that will go with the goods or render use of the goods an infringement, they have to be of a very narrow kind and have to be actually emblazoned on those goods themselves and it is very unlikely, in our respectful submission, that section 123 and its introduction in 1995 would have radically changed trademark law without there being some major announcement about it.  Mr Justice Clauson said that in relation to the Champagne Case.

GUMMOW J:   Another country and another Act and another time.

MR COBDEN:   Quite so, your Honour.  Your Honours, his Lordship’s words were - I will not take your Honour to them.  So, in our submission, that is the point of general importance, which is that traders, because of the wide net of sections 120 and 123 for the very reasons your Honour Justice Gummow has identified, traders ought not to be burdened with having to prove as a matter of - because section 123 casts the burden on them to prove that the goods were not only manufactured or applied with the consent of the registered owner of the mark, but that all other conditions were complied with including, for example, the conditions I just took your Honours to in clause ‑ ‑ ‑

GUMMOW J:   I think your point in one way is that, parallel importing somewhat to the side, all your complaints would be just as good for a purely domestic situation.

MR COBDEN:   Yes, and that is a very wide ramification.  That takes it away from parallel importers who are businesspeople of course, presumably also taking some risks, but also this shifts it onto the shoulders of every single retailer and every single wholesaler and middle distributor who is not buying directly from the registered trademark owner themselves and in these days it is notorious, of course, that trademark owners manufacture things less themselves than they – it used to be of course you could not licence a trademark - that would be a deceptive thing to do in the early part of last century. 

Now trademark licensing is the norm and not having your own manufacture is the norm and if this revolutionary change has been made to trademark law, it is a very wide application rendering the principles that we seek to put forward of considerable importance.

GUMMOW J:   Yes, Mr Webb.

MR WEBB:   Your Honours, my friend took you to the finding of the Full Court in its paragraphs 77 and 78 on page 70 and the finding there was that the licence properly construed prohibited the application of the trademark to goods in the course of their manufacture for the purpose of sale of those goods outside the territory.  That was also the construction given to the licence agreement by his Honour Justice Nicholas in the draft grounds of appeal, paragraph 3 of the ‑ ‑ ‑

GUMMOW J:   Granted all of that - we have to get to the heart of it - what do you say about Mr Cobden’s point as to the difficult position David Jones is placed in, in a purely domestic situation?

MR WEBB:   Well, your Honour, in any situation a retailer, whether dealing with a domestic supply or not, is, as I think your Honour said in the course of discussion of the matter, taking the risk that it might be dealing in counterfeit goods.  But that is clearly something that the legislature adverted to when it arranged the new statute as it did, including by section 20 where it gave the exclusive right to authorise and swept away the old registered user provisions.

HAYNE J:   Does not the example require rather closer attention to the terms of 123(1) in particular?  Accept for the purposes of argument that Mr Cobden is right to give a particular meaning to the words “applied to”, the subject of that is “the goods”.  What are the goods in question?  The goods in question, it would seem to me, at least arguably, are the goods referred to in the first line of the quoted section which are the goods in respect of which the person in question is using the mark. 

So that you are identifying the goods which in this case are the subject of sale, sold by – what is the name – Paul’s Retail, and was there consent to the application to those goods of the mark?  The answer made by the Full Court, be it right, be it wrong, is there was not consent to the application of the mark to those goods because those goods were, as it is put, destined for supply outside of India.

MR WEBB:   That is so, your Honour.  The goods that are fixed upon by section 123 are the goods the subject of the suit for infringement, so it is specific goods in every case and in this case, as the Full Court and the primary judge found, the mark had not been applied to those goods with the consent of the registered proprietor of the mark and that is because they were, as found below, made, that is, manufactured with marks applied for a specific purpose which was outside the bounds of the licence.  So for that reason we say, your Honours, that the ‑ ‑ ‑

GUMMOW J:   We do not need to hear you any further, Mr Webb.

MR WEBB:   Thank you, your Honour.

GUMMOW J:   Yes, Mr Cobden.

MR COBDEN:   The only issue that arises, your Honour, out of the general application of section 123, my learned friend has accepted is that, contrary to the pre‑1995 law, it now falls to every retailer, for example, accused of infringement to prove positively out of whatever resources they can marshal that the goods are not counterfeit.  That is a significant shift in the law which, in our submission, would require a very clear exposition of the scope of section 123 which this case offers the opportunity for.

GUMMOW J:   Thank you. 

In our view the construction placed upon relevant provisions of the trademarks legislation by the Full Court of the Federal Court was not attended by doubt.  Accordingly, application for special leave is refused with costs.

The Court will now adjourn until 2.00 pm.

AT 12 43 PM THE MATTER WAS CONCLUDED