Surge Licensing Inc v Pearson, D.

[1991] FCA 274

Re: SURGE LICENSING INC and JVH PTY LTD
And: DAPHNE PEARSON; DESMOND PEARSON and SOUTH SEA BUBBLE CO PTY LTD
No. V G192 of 1990
FED No. 274
Trade Practices
(1991) 13 ATPR 41-119
21 IPR 228

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Einfeld J.(1)

CATCHWORDS

Trade Practices - reputation on basis of children's television program - absence of consumer evidence - court to determine issue of misleading conduct - relevant section of the public - degree of similarity - parody - image portrays illegality (smoking marijuana) - absence of evidence of specific loss - damages for loss of reputation - "broad brush" approach

Trade Practices Act sections 52(1), 53(c) and 55

Henderson v Radio Corp. Pty Ltd (1960) SR (NSW) 576

General Electric Co (of USA) v General Electric Co Ltd (1972) 1 WLR 729

McWilliams Wines Pty Ltd v McDonalds Systems of Australia Pty Ltd (1980-81) 33 ALR 394

Snoid v Handley (1981) 54 FLR 202

Taco Bell Pty Ltd v Taco Company of Australia Inc (1981) 60 FLR 60

Happy Landings Pty Ltd v Magazine Promotions Pty Ltd (1984) ATPR 40,459

Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82

Hutchence v South Seas Bubble Co (1985-86) 64 ALR 330

Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd (1986) 65 ALR 500

Hogan and Ors v Pacific Dunlop Ltd (1988) 83 ALR 430

Pacific Dunlop Ltd v Hogan and Ors (1989) 87 ALR 14

10th Cantanae Pty Ltd and Ors v Shoshana Pty Ltd and Anor (1987) 79 ALR 299

Equity Access Ltd v Westpac Banking Corporation Ltd (1990) ATPR 40,994

HEARING

SYDNEY

#DATE 24:5:1991

Counsel and solicitors Mr M. Oakes instructed by P.R. Murphy
for the applicants

Counsel and solicitors Mr R.J. Webb instructed by L. Ratner
for the respondents

JUDGE1

By an application dated 5 July 1990, Surge Licensing Inc and JVH Pty Ltd (the applicants) seek a permanent injunction to prevent Daphne and Desmond Pearson, directors of South Sea Bubble Co Pty Ltd, and that company itself, (the respondents) from producing and marketing t-shirts and similar apparel bearing the image or name of the cartoon characters known as the Teenage Mutant Ninja Turtles (the Turtles). One set of the garments in question depicts the Turtles smoking marijuana. The other is of the Turtles in typically aggressive battle armoury. The applicants say that the marketing took place from May 1990 and was principally of the first variety of garments. They allege breaches of sections 52(1), 53(c), 53(d) and 55 of the Trade Practices Act 1974 (the Act) as well as the common law tort of passing off. Declarations and orders for the delivery up of already manufactured goods, an account of profits and damages at common law and pursuant to section 82 of the Act are also sought. The respondents have given undertakings, through their solicitor, not to trade in the garments pending the outcome of these proceedings.

1. The applicants claim exclusive rights to promote and market the characters under a licence agreement from a U.S. company. While this is not admitted in the defence, the respondents did not argue against this claim. The applicants assert reputation in the Turtles on the basis of a children's program regularly screened on Australian television since February 1990 of which a video sample was evidenced to the Court at the hearing. Furthermore, the applicants claim that the rights to market t-shirts and sweatshirts bearing the images and names of the Turtles have been duly sublicensed and that such goods have been sold in substantial numbers in all Australian States since April 1990. They say that many other publicity and promotional products have also been sublicensed and are widely available. The applicants say further that the third respondent made an unsuccessful application for a licence in April 1990 and that the respondents are well-known at Paddy's Markets at Redfern and Flemington as stallholders and traders in t-shirts and sweatshirts. Again none of this seems to be contested although the respondents appear to allege that no t-shirts had actually been sold under lawful sublicences before the filing of this application.

2. The applicants' complaint is that respondents' marketing of the t-shirts and other goods mislead and deceive the public into believing that these products are authorised by them as licensees of the Turtles in Australia and that the characters, who are marketed as crime fighters in the sewers of a mythical U.S. city, in fact illegally smoke marijuana. The applicants also led evidence of previous pirating activity by the third respondent and referred to a reported case of Hutchence v South Seas Bubble Co Pty Ltd (1985-86) 64 ALR 330. Even disregarding the slight difference in the name of the company, I am doubtful of the admissibility of such evidence and have therefore ignored it.

3. The applicants rely principally on section 52(1) requiring the respondents not to:
   

engage in conduct that is misleading or deceptive or likely to mislead or deceive.

1. They also claim that the respondents' conduct amounts to passing off the applicants' product as their own. However, as Justice Hill noted in Equity Access Ltd v Westpac Banking Corporation Ltd (1990) ATPR 40-994 at 50,950, the
   

scope of operation of section 52 will ... be broader than that involved in the tort of passing off.

1. Therefore failure under the Act will
   

invariably mean that proceedings for passing off would likewise fail. (Ibid)

1. All parties in the litigation concede that the same result follows in both the claim under the Act and the common law claim. Following Justice Hill's approach, and in line with the submissions, I propose to consider the applicants' claim under the Act.

2. The applicants did not provide any evidence of consumers being actually misled or deceived by the respondents' products. They submit that such evidence is not necessary and that I must use my own "commonsense" in considering whether members of the public would be likely to be deceived or confused. In this regard I need go no further than Justice Gummow's adoption at first instance in Hogan and Ors v Pacific Dunlop Ltd (1988) 83 ALR 403 of Lord Diplock's comments in General Electric Co (of USA) v General Electric Co Ltd (1972) 1 WLR 729 at 738:
   

... where goods are sold to the general public for consumption or domestic use, the question whether such buyers would be likely to be deceived or confused by the use of the trade mark is a "jury question". By that I mean: that if the issue had now, as formerly, to be tried by a jury, who as members of the general public would themselves be potential buyers of the goods, they would be required not only to consider any evidence of other members of the public which had been adduced but also to use their own common sense and to consider whether they would themselves be likely to be deceived or confused.

The question does not cease to be a "jury question" when the issue is tried by a judge alone or on appeal by a plurality of judges. The judge's approach to the question should be the same as that of a jury. He, too, would be a potential buyer of the goods. He should, of course, be alert to the danger of allowing his own idiosyncratic knowledge or temperament to influence his decision, but the whole of his training in the practice of law should have accustomed him to this, and should provide the safety which in the case of a jury is provided by their number. That in issues of this kind judges are entitled to give effect to their own opinions as to the likelihood of deception or confusion and, in doing so, are not confined to the evidence of witnesses called at the trial is well established by decisions of this House itself.

1. The Australian law on this issue is clear in principle. Justice Smithers in McWilliams Wines Pty Ltd v McDonalds System of Australia Pty Ltd (1980-81) 33 ALR 394 said at page 399:
   

Evidence of members of the public that they have been misled, if it does actually go so far as that, is not conclusive of the question for determination but merely of peripheral value. The court must make up its own mind ...

1. Other Judges of this Court have held that evidence of consumers is persuasive but not essential: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87, and Taco Co Bell Pty Ltd v Taco Co of Australia (1981) 60 FLR 60; and that the absence of such evidence "is not decisive": Snoid v Handley (1981) 54 FLR 202 at 210. Justice Gummow stated in Hogan that the Court must apply its own commonsense. Justice Hill in Equity Access stated at 50,950 that it was an "objective question which the Court must determine for itself."

2. Even if there is evidence, "ultimately it is for the Court to determine whether the respondent's conduct contravenes the consumer protection provisions of the Trade Practices Act": Happy Landings Pty Ltd v Magazine Promotions Pty Ltd (1984) ATPR 40,459.

3. The respondents submitted that the entire question of misleading or deceptive conduct is one of fact for which evidence needs to be provided. In this case, it seems to me on the tests established in the cases, that the exhibits of the respective products, plus my own knowledge, albeit limited and non-expert, of the permeation of the market place by a wide variety of products featuring the Turtles, provide a sufficient basis for the relevant findings of fact needed here.

4. As to the level of deception or misleading conduct which must be found to exist in order to satisfy the criteria of section 52 of the Act, Justice Hill in Equity Access stated that "conduct of a corporation causing mere confusion or uncertainty in the minds of the public in the sense that they may be caused to wonder whether two products may have come from the same source is not necessarily co-extensive with misleading or deceptive conduct". In Global Sportsman the Court held that conduct will be likely to mislead or deceive if there is a "real or not remote chance or possibility" of misleading or deception.

5. It has also been repeatedly held that it is necessary to consider the relevant section of the public. The t-shirts produced in evidence were of adult size. The evidence disclosed that children's sizes were also available and sold. The presumed audience of the television program to establish reputation is children but the involvement of children normally implies a flow-on effect, at least of consciousness, on their adult parents. There was also evidence that sales took place at Paddy's Markets which is attended by people of all ages. I think it is proper to conclude that the relevant public here is the public at large.

6. The parties focussed on slightly different elements of the representations. The applicants claimed that the relevant representation is the association of the applicants' and the Turtles' reputation with the relevant apparel or appropriating the image of the Turtles as the respondents' product. The respondents submitted that the relevant conduct the applicants needed to establish involved two representations:
   

(a) firstly that the respondents' product would have been licensed by someone; and

(b) secondly that the licensor had in fact authorised this particular product.

1. While the parties are thus technically posing different questions, the underlying issue thrown up by them both is whether the respondents' products made a representation that there was some association between them and those who owned the rights to the cartoon shown on children's television and the other duly licensed products in the market place.

2. In a most commendable analysis of the law on this subject, Pincus J held in Hogan v Koala Dundee Pty Ltd (1988) 83 ALR 187 that a claim in passing off includes a wrongful appropriation of a reputation or association of goods with an image properly belonging to another person. His Honour placed reliance on 10th Cantanae Pty Ltd and Ors v Shoshana Pty Ltd and Anor (1987) 79 ALR 299 where Wilcox, Pincus and Gummow JJ. in separate judgments stated the legal principle in similar terms.

3. The case therefore turns on whether there is such a similarity between the images on the respondents' products and those in the cartoon and elsewhere as to cause confusion in the market place. The respondents' case is that there is no resemblance, and thus that the public would not be misled or deceived, because their images were a "parody" of the applicants' cartoon figures. The respondents point to the fact that sales were at Paddy's Markets and the adult sizes of some of the products as further reducing the possibility of such deception.

4. The respondents made two further submissions:
   

1. Other character merchandising cases such as discussed by a Full Court of this Court in Pacific Dunlop Ltd v Hogan and Ors (1989) 87 ALR 14 are to be distinguished by the fact that all involved the use of a name or image to advertise the respondents' product. Here, it was submitted, the image was part of the product itself. In my opinion this is a dubious distinction. There can be little doubt that the image of the applicants' characters was used to sell and promote the respondents' garments.

2. This case is distinguishable from others in that it dealt with cartoon figures rather than a real person, as in Henderson v Radio Corp Pty Ltd (1960) SR (NSW) 576. Again I do not think that this is a relevant difference.

1. While there are some differences in the appearance and presentation of the Turtles by the respondents and on the licensed products of the applicants, my clear view is that the general public as purchasers of the respondents' products would not particularly notice the differences. Indeed that must have been the respondents' intention. The public's impression would be that the respondents' products were in fact the licensed - i.e. the applicants' - products and would purchase them as genuine Turtle "gear". Although nothing in particular turns on this in this case, I think that there is some danger of loss to the applicants' reputation by the image of the Turtles smoking an illegal drug.

2. In my view, for the reasons given by Burchett J in Pacific Dunlop at 45-47, this is not a "parody" case. It is a clear case of conduct which misleads or deceives or is likely to do so. A breach of section 52(1) is manifestly established. There is also no doubt that a case of passing off has been established. It follows that a permanent injunction should be pronounced. There is no need to rule on the other heads of claim although breaches of section 53 seem also to have been established.

3. The applicants claim general damages and an account of profits, presumably preparatory to particularising their claim for specific loss of sales by them or return of profits gained by the respondents with the misappropriated product. They say that because the Turtles are shown to be smoking marijuana, the misleading conduct is of a particularly damaging kind. The general damages sought are akin to those in a defamation case, i.e. compensation for loss of reputation: see Wilcox J in Flamingo Park Pty Ltd v Dolly Dolly Creation Pty Ltd and Ors (1986) 65 ALR 500 at 524. The applicants' request is that I should make a "broad brush" assessment (ibid at 525) especially because the respondents are unable to produce any business records.

4. The respondents replied that this type of damages requires a demonstration by evidence that a loss was caused by the offending conduct. Evidence must be provided from which an estimate of the damage caused can be assessed. In fact, the respondents say, the applicants provided no evidence. As to written records, the respondents say that verified discovery was given and there are simply no documents. There was no cross-examination to attack that assertion; the only evidence is of a limited number of sales over a period of approximately 6 weeks.

5. David Melkman says in an affidavit dated 5 November 1990 that he saw the first respondent selling the t-shirts in question at Paddy's Markets at Redfern and Flemington on two weekend days in mid May 1990. He estimated that about 400 t-shirts in children's sizes were on sale on both occasions and that "hundreds of items per day were being purchased" at $8 for a t-shirt and $10 for a sweatshirt. In an affidavit of 31 August 1990 Jane Bolliger said that she attended Paddy's Market at Redfern on 9 June 1990 where she noticed stall number 340 with a substantial number of the relevant shirts. She purchased a t-shirt for $10 and a sweatshirt for $15. An affidavit dated 3 September 1990 disclosed that Tanya Schafer attended Paddy's Market at Flemington on 10 June 1990 where she saw stalls 366, 367, 433, 434 and 435 selling the relevant shirts. She purchased a sweatshirt for $10 and a t-shirt for $8. Michael David McDonald said, in an affidavit of 5 July 1990, that he attended Paddy's Market at Flemington on 15 June 1990 and made seven purchases of the relevant shirts from various stalls. He also said that on 16 June 1990 he attended Paddy's Market at Redfern and observed the relevant shirts on sale. In an affidavit of 3 July 1990 Catherine Young said that she attended Paddy's Market at Flemington on 1 July 1990 where she purchased a sweatshirt with the relevant image for $15.

6. It is not disputed by the respondents that they sold the shirts at the markets. Although it seems likely that they did so in significant numbers if only for a short period of time, there is no evidence to support a likelihood that an account of profits will assist the crystallisation or assessment of damages. There is no evidence, actual or likely, that the applicants have sustained direct loss from the breach of section 52 or the passing off by way of profits lost by them or gained by the respondents. On the other hand, I reject the respondents' submission that the evidence does not permit a finding of loss of reputation and an award of damages on this ground.

7. The promotion of an illegality under the guise of someone else's products would undoubtedly have the potential to damage that person's reputation. The populist marketing of marijuana use by the Turtles to young people and adults through casual clothing, such as occurs at Paddy's Markets, is a particularly sinister and damaging way of drawing attention to the pirating marketer and its product and away from the true owner/licensee and the licensed product. In principle, this must sound in damages.

8. On the other hand, it seems that the respondents' activities were only taking place for a short period of time. In saying that damages must be proportionate to the damage suffered, Wilcox J said in Flamingo Park at 525 that in general terms "the greater the reputation the more vulnerable it is to damage". It can equally be said, in circumstances such as these, that the shorter the period of harming reputation, the less the damage likely to have been done. I take into account, however, that imprinted garments of this kind can cause damage to reputation in the eyes not only of purchasers who wear them but of those others who see them being worn.

9. Assessment of damages of this kind is essentially intuitive. Having regard to the amounts awarded in other cases and doing the best I can in this regard, I fix damages in the sum of $10,000 and order that the respondents pay that sum to the applicants. The respondents will pay the applicants' costs as assessed or taxed. The delivery up of any unsold offending apparel should be dealt with in the short minutes of orders which I direct the parties to bring in to give effect to an appropriate form of injunction and the remainder of the orders to which I have referred. These may be presented at any convenient time.