Melbourne Law School - SSRN

Melbourne Law School Legal Studies Research Paper No. 207

January 2007 Trade Mark Liability Issues Arising out of Internet Advertising Sam Ricketson

This paper can be downloaded without charge from the Social Science Research Network Electronic Library at: http://ssrn.com/abstract=958858.

(2006) 12(1) Media & Arts Law Review, forthcoming

Trade Mark Liability Issues Arising out of Internet Advertising Sam Ricketson∗ This paper reviews the basic principles of trade mark and passing off law that apply where a trade mark registered in Australia is used to advertise goods on a website situated in another jurisdiction. In particular, it considers the approach that Australian courts take to the use of trap order evidence, and reviews the most recent and relevant decision in this area, namely that of the Federal Court in Ward Group Pty Ltd v Brodie & Stone Plc. It concludes with some criticisms of the approach taken by the court in that case, and considers the implications of the case with respect to the use of trade marks in advertising goods and services on the Internet.

Introduction The purpose of the present paper is to examine some issues concerning liability for the usage of trade marks on the Internet.1 This will cover both registered and unregistered trade marks, and will have a Commonwealth emphasis, with particular reference to a recent Australian case that canvassed many of these questions at length: Ward Group Pty Ltd v Brodie & Stone Plc.2

The conflicts that can arise where trade marks that are lawfully owned by one party in one jurisdiction are used in another jurisdiction where the same marks are lawfully owned by another party are now well known. An increasing highway for such transjurisdictional use is the Internet, and the classic scenario arises where trade mark X, owned by Y in country Z, appears on a website based in that country where it can be viewed and acted upon by purchasers in country A where the same mark is owned by B, an entirely different person or entity. In the case of a registered trade mark, the relevant law will be found in the national trade mark registration statutes of each country; in the case of unregistered marks, such protection will arise under the common law of passing off or some broader unfair competition law (as in many civil ∗

Professor of Law, University of Melbourne, and Barrister, Victoria. It goes without saying that the internet gives rise to many other interesting and difficult issues concerning trade mark usage that will not be covered in the present article. Examples are framing, linking and the use of metatags: see further M Davison, K Johnston and P Kennedy, Shanahan’s Australian Law of Trade Marks & Passing Off, 3rd ed Thomson, Sydney, 2003, chapter 23; J McCutcheon, ‘Search and ye shall infringe? Current issues concerning the use and abuse of trade marks in cyberspace’ (2006) 17 Australian Intellectual Property Journal 99. 2 (2005) 215 ALR 716, [2005] FCA 471 (Merkel J). 1


law jurisdictions). There may also be the possibility of protection under the local fair trading laws of each country.3

A useful starting point for our discussion here is to set out the facts of Ward v Brodie & Stone, and then to consider the possible application of traditional passing off and trade marks principles to the issues raised by the case. I will then examine the decision of Merkel J, and conclude with a brief consideration of its implications for the future use and exploitation of trade marks on the Internet.

Ward v Brodie & Stone – a brief overview of the facts The Applicant (the ‘Ward Group’) was an Australian company that had developed a substantial business in the manufacture and distribution of hair products, notably products that prevent hair from going grey. These were marketed under the brand name ‘Restoria’ which was also the subject of trade mark registrations in Australia and in a large number of other countries in classes concerned with hair products and cosmetics.

There were a number of respondents, each of which was a company registered in the UK. The First (‘Auravita’), Second and Fifth (‘Beauty4you’ and ‘Liquid Designs’), and Fourth (‘Westons’) were the registered proprietors and operators of domain names and website that offered cosmetic and hair products online. These domains were, respectively: wwww.auravita.com; www.beauty4you.co.uk; and www.westons.com. Each of these websites could be accessed by consumers in Australia. The Third Respondent (Brodie & Stone PLC was a manufacturer and distributor of various cosmetic and hair products in the UK, and was registered as the owner of the trade mark ‘Restoria’ in the UK.

Although a business based in Victoria, the Applicant’s hair restorer products had been sold extensively around the world, including the UK, the Middle East and Asia. More recently, the Applicant had achieved good sales through the internet, with a website dedicated to ‘Restoria’ product recording about 50 hits a day from all over the world. The Applicant’s websites in particular referred to the products not being for sale in the UK (where it did not own the relevant trade marks). 3 In Australia, the relevant legislation is to be found in Part V of the Trade Practices Act 1974 (Cth), with equivalent legislation to be found at the State and Territorial levels.


The Applicant had originally registered the trade mark ‘Restoria’ in the UK in 1963 and in 1965 incorporated a UK company Ward Laboratories (UK) Ltd (‘Ward UK’), to which the UK trade mark was assigned in 1970. Ward UK made and sold hair colour products in the UK under the trade mark ‘Restoria,’ but subsequently the shares in Ward UK were sold to another UK company, Scott & Bowne Plc and Ward UK continued to sell hair colour products under the trade mark ‘Restoria’. Following this, the UK business and trade mark passed through the hands of a number of companies – Smithkline Beecham plc and Wella AG – before ending up in the hands of the Third Respondent Brodie & Stone. The latter was now the owner of the ‘Restoria’ trade mark in the UK and continued to manufacture hair colour products in that country under the ‘Restoria’ trade mark. There was no link, either in terms of common ownership of shares or through contractual arrangements, between the Applicant and Brodie & Stone: indeed, ownership of the UK ‘Restoria’ trade mark had been in separate hands for over 30 years by the time of the instigation of the litigation.

The genesis of the present dispute between the parties was that hair products, in particular hair colour products, that had been made and put on the market in the UK by Brodie & Stone under the trade mark ‘Restoria’, had been advertised for sale by resellers on each of the websites listed above, namely www.auravita.com, www.beauty4you.co.uk, and www.westons.com.

There was no doubt that these websites were accessible to consumers in Australia, and, in each instance, purchases of these products had been made online by persons situated in Australia who made their orders by reference to the ‘Restoria’ trade mark and then paid for and received products in Australia. While these were ‘trap orders’ (a contentious issue, of which more below), they indicated clearly that these transactions could be made online by someone in Australia, accessing a website whose owner and operator was situated in another jurisdiction, in this case the UK.

Following communications from the Applicant’s solicitors, the particular re-sellers operating the websites offering the UK ‘Restoria’ products ceased to do so, but Brodie & Stone, the ultimate manufacturer and supplier refused to take any steps to prevent


such conduct from recurring, for example, by selling their products subject to clear restrictions as to resale in Australia. The possibility of other online resellers engaging in the same conduct was also of concern to the Applicant. Ultimately, however, the only party before the court when it reached trial was Brodie & Stone, with the proceedings against the other respondents having been discontinued.

At this point, one may ask what was the liability of Brodie & Stone under Australian law, given that it had manufactured products and had lawfully applied its own registered ‘Restoria’ mark in the UK, and given further that the these products had actually only come into Australia through the actions of unrelated third parties (the online resellers)? The short answer is that any liability upon the part of Brodie & Stone rested on showing that the resellers (the potential primary infringers) would have been liable for trademarks infringement, passing off or Trade Practices Act contraventions in Australia, and that Brodie & Stone was accordingly liable on principles of secondary or accessorial liability or on some other special basis. It is therefore necessary to consider how these claims of primary and secondary liability could be sustained.

Trade mark infringement Under s 120(1) of the Trade Marks Act 1995 (Cth), it is an infringement of a registered mark to use as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered. Nothing is said explicitly in the section about this use occurring in Australia, but the general presumption must be that, in the absence of any contrary indication, the rights conferred by registration under the Act are territorially limited.

So far as the conduct of the UK online resellers was concerned, it could be said that the requirements of s 120(1) had been met as follows: a) The ‘Restoria’ signs appearing on the websites were substantially identical to those of the Applicant, in that they comprised exactly the same word ‘Restoria’;


b) The goods in respect of which they were used – hair colour and anti-greying products – were within the range of goods covered by the Applicant’s registrations in class 3; c) The signs had been used ‘as trade marks’ in that they had been used ‘in relation to’ these goods: see s 7(4). In this regard, it should be noted that there may be ‘use’ of a trade mark when this is done in advertising or offering of those goods for sale, in such a way that customers may place an order and have it fulfilled.4 It is clear from these authorities that the goods themselves need not be in Australia at the time the advertising or offering for sale occurs. d) Purchases of the goods so advertised had been initiated from Australia and the goods had actually been delivered to these purchasers pursuant to these orders, although these had been in the form of ‘trap orders’ procured by the Applicant’s solicitors. e) It was equally clear that none of the above acts was done with the authority or licence of the Applicant so far as any offer to supply into Australia was concerned – or, indeed, for supply into any other territory for which the Applicant had registered trade marks protection. On the other hand, there was no particular indication on any of the web sites that Australian purchasers were being ‘targeted’ in any way by the advertising that appeared there: at the most, it could only be said that the goods could be ordered from Australia or, indeed, anywhere else in the world where a user had access to the website.

Passing off As with registered trade marks, the protection offered by passing off is territorial in character, requiring proof of the following matters: a) That the plaintiff has an established goodwill or reputation in a particular name, mark or get up, by reference to which it provides goods or services in the marketplace;

4

See generally Shell Co (Aust) Ltd v Esso Standard Oil (Aust) Ltd (1963) 109 CLR 407, 422; Estex Clothing Manufacturing Pty Ltd v Ellis and Goldstein Ltd (1967) 116 CLR 254, 271; Re Registered Trade Mark ‘Yanx’ (1951) 82 CLR 199, 204-205 (Williams J); Moorgate Tobacco Co Ltd v Philip Morris Ltd (1984) 156 CLR 414, 433 (Deane J); Buying Systems (Aust) v Studio Srl (1995) 30 IPR 517, 520 (Gummow J)(; Malibu Boats West Inc v Catanese (2000) 51 IPR 134, 143-144 (Finkelstein J).


b) That the defendant have, by its conduct, whether intentional or otherwise, misrepresented itself or its goods as those of the Applicant or in some way associated with the Applicant; and c) That this has caused or is likely to cause damage to the Applicant. 5

In the present case, it was clear that the Applicant had an extensive and well established reputation in Australia for its hair products sold under the mark ‘Restoria’. This went back to 1957 and was also well established in a number of other overseas markets, notably in the Middle East. The real question, however, was whether the UK online resellers, in advertising ‘Restoria’ hair products for sale on their websites were engaging in passing off in Australia. In this regard, it should be noted that, apart from the trap orders referred to above, there was no actual evidence of any Australian customer having purchased goods from the UK websites in the belief that these goods were, in some way, associated with or authorised by the Applicant. On the other hand, proof of actual deception is not necessary for a successful passing off action, so long as a likelihood of deception (and damage to the Applicant’s goodwill) can be established.6

TPA contraventions For our present purposes, it is unnecessary to distinguish the requirements for liability here from those applying to passing off, with the qualification that proof of damage or likelihood of damage is not needed in a TPA proceeding which is brought to vindicate the interests of consumers rather than to protect the goodwill or reputation of rival traders.7

The relevance of the trap orders Given the absence of any actual evidence of customer confusion, the trap order evidence assumed a central significance for both the trade marks and passing off claims, albeit with somewhat differing emphases. Thus, in the case of the alleged 5

See further: ConAgra Inc v McCain Foods (Australia) Pty Ltd (1992) 23 IPR 193 (Full Federal Court); Reckitt & Colman Products Ltd v Borden Inc (1990) 17 IPR 1; [1990] RPC 341 (House of Lords); Cadbury Schweppes Pty Ltd v The Pub Squash Co Ltd [1981] RPC 429 (Privy Council); British Telecommunications plc v One in a Million Ltd [1999] 1 WLR 903, [1999] FSR 1 at 13 - 18. 6 See Johnson v Orr-Ewing (1882) 7 App Cas 219 (HL). 7 See further Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Campomar Sociedad Ltd v Nike International Ltd (2000) 46 IPR 481.


trade mark infringements, while such purchases might be said to indicate the making available of goods that had been advertised in the UK, there was the objection that this use had been ‘authorised’ by the Australian trade mark owner (the Applicant) as it had been the Applicant’s own agents who had placed the orders and accordingly there could not be infringement under s 120(1) of the Trade Marks Act 1995 (although that provision does not expressly refer to lack of consent as a precondition to showing infringement, unlike copyright law,8 it might be presumed as a general proposition that ‘authorised conduct’ cannot be infringing conduct). In the case of passing off, the objection could be made that there could be no misrepresentation involved in the case of purchases initiated by the Applicant’s agents as the latter were certainly not misled as to the provenance and association of the goods in question.

As against these objections, it can be argued that it will be difficult to obtain evidence of customer use and deception where transactions are done online pursuant to a bilateral relationship which generally remains private to the parties concerned. This is not just a problem of the online environment, as the review of cases below will indicate, but it does point to a particular difficulty that arises when transactions occur in this new environment.

Accordingly, it is useful to review the way in which courts both in the UK and Australia have approached the use of trap order evidence in trade marks and passing off cases. As will be seen, this is a matter that has some history.

Trap orders generally There is nothing intrinsically wrong with evidence of infringement being based on trap orders. The following passage appears in the 13th edition of Kerly’s Law of Trade Marks and Trade Names (footnotes deleted):9

In general, proof of a single act of infringement by a defendant is sufficient to justify the claimant in bringing his action, and the evidence relied on is frequently the sale by the defendant of the spurious goods to the claimant or his agent, who has brought them merely for the purpose of procuring evidence. Though orders of this sort, 8

Copyright Act 1968 (Cth), s 36(1). D Kitchin, D Lellwelyn, J Mellor, R Meade and T Moody-Stuart, with consulting editor, the Hon Sir Robin Jacob Kerly’s Law of Trade Marks and Trade Names, 13th edition, Sweet & Maxwell, London, 2001 at 18.212 9


generally referred to as ‘trap orders’, have not infrequently been the subject of unfavourable comment, they are often the only means by which evidence can be obtained, and, if they are fairly given, there is no impropriety in adapting this procedure. The object is to show what the defendant is doing or what is likely to be the result of some ambiguous advertising or marking, and the orders must, therefore, be fairly given, and of a character which is not unlikely to occur in ordinary practice. As the authorities cited in Kerly reveal, the primary concern of courts with regard to trap purchases has been to ensure the fairness of what has been done. However, the point never seems to have taken, as in Ward v Brodie & Stone, that such evidence should be disregarded entirely because the alleged infringing activity has been ‘authorised’ by the plaintiff rights owner or its representative in placing the trap order.

Relevant authorities The following cases underline the need for fairness and certainty, particularly where there may have been ambiguity as to what was asked for (in the case of verbal orders) and/or failure to understand on the part of the person receiving the order (such as a sales assistant): a) The California Fig Syrup Company v Taylor’s Drug Company Ltd,10 where the plaintiff’s trade name was ‘California Syrup of Figs’ and where the plaintiffs were too ‘sharp’ and overdid themselves by seeking trap orders for ‘California American Syrup’, ie creating ambiguity as to the name under which the defendant was selling its own syrup of figs product. b) Carr & Sons v Crisp & Co Ltd,11 another case where there was ambiguity as to what was actually said at the time of the trap purchase, coupled with difficulties of subsequent recall. c) Fox’s Glacier Mints Ltd v Joblings,12 where there was the possibility that requests for ‘Glacier’ mints were misunderstood or not heard, particularly as there was a common use of the word ‘glassy’ for sweets of this kind in the relevant market (the city of Leicester).

10 11 12

(1897) 14 RPC 564. (1902) 19 RPC 497. (1932) 49 RPC 352.


d) C Stillitz (a Firm) v Jones & Higgins Ltd,13 where there was a conflict in evidence as to what happened in the making of the trap purchases. e) Cellular Clothing Coy Ltd v G White & Coy Ltd,14 where two trap orders were successfully obtained through purchases in a shop, but no notice was given to the defendants of what had happened before issuing proceedings, meaning that there was no certainty as to whether the shop assistants in question were really made aware of what was being asked for. In the view of the court (Harman J), this was ‘exactly the way in which trap orders should not be given’ and that ‘such fragile evidence with no confirmation and which has been sedulously concealed from the Defendants’ could not be relied upon to support a claim for injunctive relief. f) C C Wakefield & Co Ltd v Purser,15 where there was evidence of one isolated instance of passing off (accepted by the court), but it was still held that this was insufficient for the purposes of an injunction to restrain continuing conduct that was alleged to be occurring, unless it could be shown that there was some kind of intentional conduct involved. In this regard, the following comments of Farwell J underline the fairness considerations involved in evidence of trap purchases, while noting that such orders may often be a necessary means of proof: Test orders or, as the Defendant prefers to call them, trap orders are in a case of this kind, it seems to me, quite essential. I fail to see how the Plaintiffs can safeguard themselves or the public without having regard to such methods of testing the matter as is used in the present case; but, trap orders or test orders, whichever they may be called, are scrutinised by the Courts with some jealousy, and rightly so, because, if as the result of a trap order or a test order, a person is to be charged with the very serious offence of fraudulently misrepresenting the goods which he is supplying to the public, to the detriment of the public as well as of the Plaintiffs, the Court must be satisfied that the offence has been proved strictly. Further, if a person is resorting to a test order or a trap order, even in a case of this kind, where the necessity for such a device

13 14 15

(1943) 60 RPC 15. (1952) 70 RPC 9. (1934) 51 RPC 167.


may be a real one, that person is bound to carry out the proceeding with the utmost fairness to the prospective defendant to the action. It is essential, if the plaintiff is to succeed in the action which he ultimately brings, that he should be able to satisfy the Court that he has acted throughout with the utmost fairness to the defendant and given him every reasonable chance of investigating the matter for himself, so that he may be in a position to put forward in the action, if one follows, any and every defence properly open to him. His Lordship’s concern was not to grant an injunction unless satisfied that the conduct was likely to continue. On the basis of an isolated instance of passing off, he was not prepared to do so, unless satisfied that the defendant had been intentionally seeking to pass off the plaintiff’s product (which he was not). g) Showerings Ltd v Fern Vale Brewery Co Ltd16 was a case involving passing off constituted by several trap purchases (asking for the plaintiff’s ‘Babycham’ perry at the same public house and being supplied with another perry drink). Danckwerts J rejected criticisms that were made of the plaintiff’s trap orders here, noting that they were not based on one isolated instance and that the plaintiffs had ‘tested’ the matter by several visits to see ‘whether there was simply one mistake or a regular practice’; it was only after these inquiries, that a letter was written and action subsequently launched. As this was in fact a motion for committal of the defendant for contempt in relation to an earlier order of the court, the court did not order committal because the defendant had acted honestly and the passing off was the fault of his servants who were, in his Lordship’s view, unfortunately persons of ‘extremely low intelligence’.

Similar judicial remarks about the need for fairness in the use of trap orders, and the giving of notice to defendants so that they can investigate alleged breaches, are to be found in several Australian cases: see, for example, OT Co v Muir17 and Bryant v Keith Harris & Co Ltd.18

16 17 18

[1958] RPC 484. (1914) 31 WN (NSW) 87, 88 (Harvey J). (1908) 33 ALR 437, 450-452 (Lockhart J).


At the same time, it is clear that, subject to these qualifications, evidence of trap orders has been accepted without question by courts in both trade mark infringement and passing off cases. See, for example: a. Bostitch Inc v McGarry & Cole Ltd,19 a passing off case, where the defendants supplied goods of their own manufacture as BOSTITCH goods when asked in writing for BOSTITCH machines (there had earlier been an agreement between the defendants, a UK manufacturer, and the plaintiff, a US company). In this case, his Lordship thought that it was ‘not unreasonable to suppose that they [the defendants] would have responded to genuine orders in the same way.’ While noting that the defendants were in a difficult position, it was ‘their duty to make absolutely clear to everyone who enquires of them for a BOSTITCH article that they are no longer in a position to supply him with what he wants, even if it results in their losing a customer.’ b. Thomas French & Sons Ltd v John Rhind & Sons Ltd,20 a passing off case where injunctive relief was granted by Danckwerts J on the basis of written requests presented by an inquiry agent to the defendant’s shop assistant for ‘Rufflette’ curtain rails, and there was no attempt by the shop assistant to point out that the curtain rails supplied were not ‘Rufflettes’. As Danckwerts J said: This, of course, was a trap order, and the person conducting the trap order would no doubt be more able to know that he was not getting what he was asking for, which, indeed, was his purpose in applying to be sold the goods in question; but one has also to consider whether an ordinary customer would be deceived. It appears from the case of Pearson Brothers v Valentine & Co (1917) 34 RPC 267, that it is not sufficient for a person who receives an order for a particular brand to send another brand without saying anything as to the maker and leaving the customer to find out for himself that it is a different brand from that which he asked for. 21 c. Pearson Brothers v Valentine & Co,22 referred to in the preceding subparagraph, again makes the point that customers who receive goods under a particular trade name cannot be expected to find the truth for themselves when 19

[1964] RPC 173. [1958] RPC 82. 21 Ibid, at 83. 22 (1917) 34 RPC 267. 20


they later examine the goods and find they are not the ones that they had ordered. The fact that there were trap orders here did not deflect the judge (Peterson J) from finding there was passing off of the plaintiff’s ‘Mattamac’ waterproofs.23 d. Procea Products Ltd v Evans & Sons Ltd,24 where the word ‘Procea’ was widely used to identify bread made with the substance ‘procea’ and made in accordance with the plaintiff’s formula. Evidence of trap orders was allowed, where requests were made for a ‘Procea loaf’ and bread of another kind that did not contain the ingredient was supplied. There are also instances in which trap orders have been relied upon by courts on contempt proceedings: see, for example, Walt Disney Productions Ltd v Gurvitz25 (a copyright case). In that case, the court rejected arguments that the plaintiff was acting as an agent provocateur in seeking to ascertain whether the defendant was complying with the terms of undertakings given to the court not to sell illegal video tapes. As Vinelott J said: That seems to me to be a long way from the facts of this case. All that happened here is that the plaintiffs wanted to find out whether a purchaser or potential purchaser of illegal cassettes would be able to obtain them from this shop; and so they arranged for someone to try. There was no persuasion and no inducement beyond the request for a video cassette the copyright in which vested in one of the plaintiffs. I do not see how in practice the question ‘can illegal video tapes still be bought at the premises of the defendant?’ can be answered except by arranging for someone to purchase or attempt to purchase them. The idea that because the plaintiff makes those arrangements, he is debarred in some way from relying on the purchase or is in any real sense in contempt of court seems to be wholly misconceived.26 Likewise, in Sony KK v Saray Electronics (London),27 the Court of Appeal relied on trap orders as a basis for awarding interlocutory injunctive relief of a mandatory character (requiring disclaimers), where the trap orders revealed that the defendants were not complying with the terms of undertakings they had previously given. 23

Ibid, at 271. (1951) 68 RPC 210. 25 [1982] FSR 446. 26 Ibid at 447. 27 [1983] FSR 302. 24


The propriety of trap orders was also fully canvassed before Chadwick J of the UK Chancery Division in Marie Claire Album SA v Hartstone Hosiery Ltd.28 This case involved a trap order that had been made by the plaintiff’s solicitors for hosiery sold under the name ‘Marie Claire’ (the plaintiffs published a women’s magazine under that name). There was criticism of the way in which this had been done by the Plaintiff’s solicitors (this included arranging the meeting at which the order was given and the making of a tape recording of the discussions), and there had also been a complaint to the Solicitors’ Complaints Bureau. Essentially, the defendants sought to mount a ‘lack of clean hands’ argument against the grant of an interlocutory injunction, which was refused, in any event, on other grounds. As to the propriety of the trap orders, Chadwick J set out the submissions of counsel for the solicitors (who were separately represented): Mr. Laddie points out to me that, whatever the courts may think of test or trap orders in intellectual property cases they are a necessary means of obtaining evidence as to what the other party is actually doing; and they have become an accepted norm. He has referred me to a number of cases in which such methods have been used. He points out (and, I think, points out correctly) that any trap or test order is bound to involve some element of deception upon the other party. At the lowest, the deception will take the form of the passive and unexpressed representation that the buyer of the product is an ordinary buyer interested in buying the product for the usual purposes in connection with which such a product is purchased. That, of course, will not be the case if the purchase is made for the purpose of gathering evidence.29 Following interchanges with counsel about the Sony v Saray case, noted above, Chadwick J noted the concession of counsel that it would have made no difference in that case had the solicitor executing a trap order and inquiring about whether the goods in question carried a Sony guarantee made an express misrepresentation as to his identity, ie converting an implied misrepresentation from the circumstances that he was an ordinary customer making the inquiry to an express statement to this effect. His Lordship went on to say: If that is the law, then it is clear that criticism cannot be levelled at the plaintiffs for the way in which the meeting of 14 July was arranged and conducted. If it is the law that a plaintiff is entitled to misrepresent himself as 28 29

[1993] FSR 693. Bid, 695.


a bona fide customer in the guise of executing a trap order then his solicitor must be entitled, first, to advise him that this is so and secondly, to set up the arrangements which enable the trap order to be executed effectively. It is but a short step from that for the solicitor to be present at the execution of the trap order, if only to ensure that a proper record is made of what occurs. If it be thought undesirable for solicitors to take part in what on any basis, is an exercise in deception then that seems to me to be a matter for their professional body, rather than for this court on this motion.30

Direct Australian authority on trap orders is surprisingly thin, although these issues were canvassed to some extent in Bryant v Keith Harris & Co Ltd.31 Reference to trap orders was also made in Copyright Agency Ltd v Victoria University of Technology32 by Gummow J. This was a test case concerning the operation of Part VB of the Copyright Act 1968 with respect to anthologies or course packs. The Plaintiff sought to rely on certain ‘trap purchases’ as being made for a purpose falling outside that of use in connection with a course of instruction provided by an educational institution. While his Honour referred to a ‘degree of artificiality’ in this argument,33 it also seems that their tender in the case was really irrelevant to the issues involved in the application of s 135ZZH(1) which directed attention to the question of whether they were sold or supplied for a financial profit rather than for a use falling outside the purposes of a course of instruction. Any disapproval of trap orders that may have been expressed here by his Honour has therefore to be viewed in the special circumstances of that case, and as having no general application to the use of such orders in the case of detecting infringements (as here).34

Another Australian case involving trap orders is University of New South Wales v Moorhouse35 where declaratory relief was founded on the one proven instance of infringement, which was a test case that had been mounted by the plaintiff. It is correct that Mr Moorhouse apparently did not know of the making of the copy beforehand (Gibbs J at 7-8), but it should be noted that the second respondent in the case (Angus & Robertson) had the exclusive right to ‘print, publish and sell’ the work 30

Ibid, at 696. (1908) 33 ALR 437, 450-452 (Lockhart J). (1994) 29 IPR 263, 276. 33 Ibid, at 276. 34 Nothing further is to be read into the comments of the Full Court on this question at 30 IPR 140, 145, lines 43-45. 35 (1975) 133 CLR 1. 31 32


in question pursuant to a 1971 agreement with Moorhouse, and did not give evidence at the trial. It is therefore likely that Angus & Robertson had an exclusive licence within the meaning of s 10(1) of the Copyright Act 1968 and would have had an independent basis on which to instigate proceedings against the University. It is unclear as to the degree of knowledge or involvement that it had in the mounting of the test case, even if it is accepted that Moorhouse was ignorant of the proceedings until after the actual act of infringement had been instigated by Paul Brennan.

More generally, it should be noted that the propriety and utility of trap purchases does not otherwise appear to have been questioned by the Federal Court in proceedings where such purchases have been relied upon for various purposes.36 Of particular interest here are the decisions of Davies J in Star Micronics Pty Ltd v Five Star Computers Pty Ltd37 and Sundberg J in Pioneer Electronics v Lee.38 In the first of these cases, a trap purchase from the Respondent was relied upon in relation to a misrepresentation claim under s 52 of the Trade Practices Act 1974, and his Honour stated: That representation amounted to conduct that was misleading or deceptive notwithstanding that Mr Harrison [the purchaser], who knew the true facts, was not likely to be misled or deceived thereby.39

In the second of these cases (Pioneer v Lee), it was submitted that a trap purchase of a transformer indicated that the Applicant was giving a licence to the importer of electronic equipment for the purposes of ss 37 and 38 of the Copyright Act 1968. As to this, Sundberg J said: Pioneer’s awareness that a transformer was required to operate imported players in Australia does not point to a licence. The Baker purchase was a trap purchase, preparing the ground for action against Alricarben and Lee. It does not suggest a licence.40

36

See, for example, ACCC v Universal Music Australia Pty Ltd [2001] FCA 1800; Microsoft Corp v Adelong Electronics Pty Ltd [1997] FCA 103, 37 IPR 283; Pioneer Electronics Australia Pty Ltd v Woodlands Resources (Aust) Pty Ltd [2000] FCA 1158, 49 IPR 299; Milcap Publishing AB v Coranto Corporation Pty Ltd [1995] AIPC 91-165; CCOM Pty Ltd v Jiejing Pty Ltd (1993) 27 IPR 577; De Garis v Jeffress Pidler Pty Ltd (1990) 18 IPR 292; Microsoft Corpor v Ben Zhang Fan [2003] FCA 1026; Brock v The Terrace Times Pty Ltd (1982) 40 ALR 97; Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd [1999] FCA 461, 44 IPR 281; Masport Ltd v Bartlem Pty Ltd [2004] FCA 591; Four Seasons Gutter Protection Pty Ltd v Leafbusters Pty Ltd [2004] FCA 1290; Sony Computer Entertainment Australia Pty Ltd v Kasmara [2003] FCA 1926; and Muscat v Le [2003] FCA 1926, 60 IPR 276. 37 (1990) 18 IPR 225. 38 (2001) 51 IPR 291. 39 Star Microonics, at 237. 40 Pioneer v Lee, at 303


Accordingly, it can be said that there is ample authority to uphold evidence of trap orders, so long as the overall requirements of fairness and certainty are met. In the particular circumstances of Ward v Brodie & Stone, it can also be said that this was probably the only realistic evidence that could have been obtained to support the claims of trade mark infringement and passing off in that case. a) Fairness: There could be no real criticism of the way in which the trap orders were obtained. Indeed, there was not even present the element of ‘deception’ referred to by Chadwick J in the Marie Claire case above: it would have been perfectly clear to each of the online retailers that the orders in questions came from Australia and there was no attempt by the Applicant’s solicitors to hide this fact. The online retailers therefore fulfilled these orders with full knowledge of the destination of the goods. b) Necessity: As the cases cited above make clear, there is frequently no other avenue open to a plaintiff but to proceed through the device of effecting trap purchases. In the case of internet transactions, this is all the more so. This is not the same as walking into a shop and purchasing goods in common with other members of the public; in such cases, it is usually possible to observe other purchases being made. By its very nature, however, the internet is concerned with bilateral transactions between a trader and an individual purchaser, and privacy and security considerations make it extremely difficult for any law-abiding competitor who is concerned at such conduct to monitor specific transactions that may be occurring. In any event, there is one sense in which the corner shop analogy can be applied to internet sales of the kind that occurred in Ward in that the websites in question were open to any member of the public to access, albeit on a one to one basis. Each of the websites was open to anyone to visit, including Australian consumers. The goods advertised on those websites were equally available for purchase by Australian consumers. This was, in fact, the very matter of which the Applicant complained. c) The Applicant’s role in procuring the sales: This is akin to the agent provocateur argument pressed in the Sony v Saray case and, indeed, raises the objection that trap purchases cannot be regarded as infringing because they are


procured by, and occur with the consent of, the right holder. It does not appear that this has been accepted in any of the other cases reviewed above; in fact, in Sony and Marie Claire, the two UK courts were untroubled by the consideration that the evidence in question might have been obtained through a misrepresentation on the part of the person placing the order. Likewise, in the Star Micronics and Pioneer cases referred above, both Davies and Sundberg JJ disregarded any suggestion that the false representation (in the case of Star) and the purchase of the transformer (in Pioneer) involved any element of procurement of, or consent to, the respondents’ conduct on the part of the respective applicants in those cases. Furthermore, in the case of an internet purchase, such as that in Ward, there is no meaningful sense in which it can be maintained that the Applicant had approved of, or authorised, the use of its (Australian) trade mark by the website operators. There was no communication of any consent or suggestion of consent to the act of supply from the Applicant to the Respondents: the latter simply did not avert to, or have regard to, the question of whether they had the consent of the Australian trade mark owner to do what they did. They may have been aware of the fact that there was a UK trade mark owner and have assumed that they were acting pursuant to consent from that person or entity, but that is quite irrelevant for present purposes. The real position was that they proceeded without any reference whatsoever to the rights of the Australian trade mark owner. There is a degree of artificiality therefore in suggestions that their actions were therefore approved by the latter (see further below).

Some issues specific to trade mark infringement There are several points with specific relevance to trade mark infringement that should be noted in relation to trap purchases. a) Trade marks are rights of property pursuant to section 21 of the Trade Marks Act 1994, and infringement thereof is not dependant upon the making of a misrepresentation as in the case of passing off: see further s 120(1). The real question is whether there has been a ‘’use’ of the trade mark or a mark that is substantially identical or deceptively similar: s 120(1).


b) In an online case such as Ward v Brodie & Stone, although there had been actual sales of the product (obtained through the various trap orders), this was more than what was required for the purposes establishing liability for trade mark infringement. Thus, the latter can be satisfied by an advertising and offering for sale of goods bearing the relevant trade mark, so long as there is a capacity to supply those goods if requested by a purchaser. In other words, it can be said that the infringing use of the trade mark in Australia had already occurred at the time of the advertising and offering for sale on a website that was accessible to Australian consumers.41 In this regard, however, the following remarks of Finkelstein J in Malibu Boats West Inc v Catanese42 suggest that there may be a need for a qualification, depending upon whether it can be said that advertisements of this kind are directed in some sense towards an Australian market: A use of a mark in an advertisement of goods is a use in the course of trade, and is use in relation to the goods advertised: Shell Co of Australia Ltd v Esso Standard Oil (Australia) Ltd (1963) 109 CLR 407 at 422; Moorgate Tobacco at 205. This is because an advertisement is a common method of indicating that certain goods are available for sale and that the vendor is soliciting orders for those goods. That is not necessarily the case when the advertisement is in a foreign publication in circulation in Australia. Many foreign magazines are available in this country covering a wide range of interests. Some of these magazines contain advertisements while others do not. Whether an advertisement is intended to solicit custom in Australia will depend upon a number of things including the nature of the magazine in which the advertisement appears, the contents of the advertisement, the type of goods that are advertised and the location of the vendor. Here I have advertisements that are clearly directed to the United States market, not to the Australian market. In the absence of further evidence, of which there is none, those advertisements do not amount to an offer to trade in the goods in Australia. This conclusion is 41

There is a strong line of authority to this effect, including Shell Co (Aust) Ltd v Esso Standard Oil (Aust) Ltd (1963) 109 CLR 407, 422; Estex Clothing Manufacturing Pty Ltd v Ellis and Goldstein Ltd (1967) 116 CLR 254, 271; Re Registered Trade Mark ‘Yanx’ (1951) 82 CLR 199, 204-205 (Williams J); Moorgate Tobacco Co Ltd v Philip Morris Ltd (1984) 156 CLR 414, 433 (Deane J); Buying Systems (Aust) v Studio Srl (1995) 30 IPR 517, 520 (Gummow J); Malibu Boats West Inc v Catanese (2000) 51 IPR 134, 143-144 (Finkelstein J). 42 (2000) 51 IPR 134, 143-144.


consistent with the views of the Registrar to the effect that advertising in foreign publications will not, without more, constitute sufficient use to support a claim for proprietorship of a trade mark: see eg Flagstaff Investments Pty Ltd v Guess ? Inc (1989) 16 IPR 311; Stylesetter International Co Pty Ltd v Le Sportsac Inc (1989) 17 IPR 59; Nissan Motor Co (Australia) Pty Ltd v Vector Aeromotive Corporation (1993) 27 IPR 296; Agatha Diffusion SRL v Cozzolino (1998) 43 IPR 436.43 c) Unlike the foreign print publications referred to by Finkelstein J in Malibu, in the case of the UK websites in Ward v Brodie & Stone the goods could actually be purchased by an Australian customer, even if the only proof of this was to be found in the trap purchase orders generated by the Applicant itself: there was no limitation on access to the UK websites by customers from anywhere in the world, and, as the trap purchases subsequently demonstrated, it was perfectly possible for an order to be placed and effected from Australia. Furthermore, in the case of one of the websites (Westons), it was possible to obtain a price for the product in Australian currency, from which it might be inferred that the possibility of Australian customers was at least contemplated by that website proprietor. In this regard, account must be taken of the fundamental character of the internet as a borderless market place: it provides the capacity for purchase orders to be sourced from anywhere in the world and, as the trap purchases subsequently confirmed, the compact size of the Respondents’ products made it easy for them to be forwarded through the mail to purchasers in countries other than the UK, including Australia. In this regard, hair products are to be distinguished from large products, such as boats or

cars,

or

services,

such

as

restaurants

or

department

stores that may have a fixed physical location in a particular jurisdiction.44 d) The converse to the Internet allowing such goods to be generally available everywhere is the possibility that the UK website owners could just as easily have prevented sales being made in response to orders coming from jurisdictions in which the use of the ‘Restoria’ trade mark would have infringed registrations existing in those jurisdictions. This, the evidence in 43 To similar effect, see Jacob J in Euromarket Designs Inc v Peters and Crate & Barrel Ltd [2001] FSR 288, where his Lordship held, albeit on a motion for summary judgment, that the defendant, a Dublin retailer, was not using the UK registered trade mark ‘Crate & Barrel’ where it used these words on its website but only with the intention of showing the goods it had for sale in its Dublin store. See also 800-Flowers Trade Nark [2002] FSR 191 (CA). 44 Such as in the Euromarket Designs Inc v Peters and Crate & Barrel Ltd [2001] FSR 288).


Ward showed that the provenance of the trap orders was always clear and there was also expert evidence to the effect that many online traders who are aware of rights existing in other jurisdictions refuse to take orders from those places. There is nothing new in this, even in the non-virtual world environment: thus, for many years, publishers of books in the UK would refuse to supply books to other markets because of the territorial division of rights as between those places.45

Some issues specific to passing off As noted above, the essence of a passing off claim (and, indeed, a TPA claim) is the making of a misrepresentation and the likelihood of damage (in passing off). In the online environment, what misrepresentation and/or damage is involved? The simplest case would be one where there are material differences in quality or standard as between the products put on the market in the foreign country and in Australia, as, for example, was the case in Colgate Palmolive v Markwell Finance Ltd.46 Another instance would be where a significant ingredient or component is absent from the products offered by the Respondents, as in Procea Products Ltd v Evans & Sons Ltd47 or Erven Warninck v Townend,48 or where other inappropriate ingredients have been added, as in John Walker & Son v Ost.49

None of these circumstances existed in Ward v Brodie & Stone: it appeared that the hair products were of the same standard and quality in both the UK and Australia. On the other hand, it could be argued that there was still a significant misrepresentation to Australian consumers where they purchased hair products under the ‘Restoria’ trade mark on any of the UK retail websites, the relevant misrepresentation being that these products came from the same source as those products which were otherwise available within Australia and in respect of which the Applicant had established its reputation and goodwill. On this argument, the fact that the products were substantially the same was beside the point: there was still a misrepresentation as to provenance and connection, and it can be said that this is the very essence of the 45

See further S Ricketson, The Law of Intellectual Property, Law Book Co, Sydney, 1984, p 1041, note 5.

46 [1989] RPC 497 (see further Spalding v AG Gammage Ltd (1915) 32 RPC 275 and Wilkinson Sword Ltd v Cripps & Lee Ltd [1982] FSR 16). 47 (1951) 68 RPC 210. 48 [1979] AC 731, [1980] RPC 31. 49 [1970] RPC 489.


traditional action of passing off which protects the goodwill and reputation of a trader within a particular jurisdiction. In this regard, the facts of the ‘Spanish Champagne’ case50 are instructive. The plaintiffs, a group of wine producers from the Champagne region of France, complained about the use of the appellation ‘Spanish Champagne’ by the defendants to describe their sparking wine that was imported from Spain. While accurate in several respects – the wine was made according to the methode champenois and was made in Spain – there was still a relevant misrepresentation giving rise to a passing off, in that consumers in the UK might be led into thinking that ‘Spanish champagne’ was the same as the product they had previously purchased from the French producers, even though they might not know of its French origin or method of making. As Cross J said in a later case involving ‘British Sherry’:51 A man who does not know where Champagne comes from can have not the slightest reason for thinking that a bottle labelled ‘Spanish Champagne’ contains a wine produced in France. But what he may well think is that he is buying the genuine article – real Champagne – and that, I have no doubt, was the sort of deception which the judge [Danckwerts J] had in mind.

In Ward v Brodie & Stone, there was a similar misrepresentation as to provenance which was quite different from the Revlon case52 where there was a common link between members of a corporate group and where it could be said that there was, in effect, a ‘house mark’ that reflected a common provenance of goods wherever the mark was actually applied. While there had originally been common ownership of the UK and Australian ‘Restoria’ trade marks in Ward v Brodie & Stone, this was over 30 years in the past, and ownership of the Australian and UK marks had been in completely separate hands for all of this period. Accordingly, there was a clear misrepresentation as to trade source where goods bearing the UK ‘Restoria’ trade mark were made available to customers in Australia. Furthermore, it could be argued that there would still be a misrepresentation (and a likelihood of damage) for Australian customers to believe that there was some kind of continuing association or link between the UK company, Brodie & Stone, and the Australian company, Ward,

50

Bollinger SA v The Costa Brava Wine Co [1960] Ch 262, [1960] RPC 16, [1961] RPC 116. Vine Products Ltd v MacKenzie & Co Ltd [1969] RPC 1, 23. Note that in this later case, although Cross J approved of the finding in the Spanish Champagne case, he held that the plaintiffs (the growers of ‘sherry’ in the Jerez district of Spain) had waited too long - over 100 years – before bringing their action against persons using ‘British sherry’ and similar appellations and were therefore precluded from gaining injunctive relief on the ground of acquiescence, although they were entitled to injunctive relief in relation to usages of the word ‘sherry’ on its own. 52 Revlon Inc v Cripps and Lee Ltd [1980] FSR 85. 51


when none, in fact, existed. Furthermore, it was irrelevant that the trap purchaser himself was not specifically misled, as the passing off cases involving trap purchases referred to above demonstrate.53

Holding Brodie and Stone liable Even if primary liability on the part of the online resellers could be established, these parties were no longer before the court: the real question was whether Boride & Stone, as the ultimate manufacturer and supplier of the goods to the UK market could be held liable. Given that the trade mark originally applied to those goods by Brodie & Stone was its own registered mark, did this transform into an infringing use once those goods were sent into the Australian market? Various bases for extending liability to Brodie & Stone were argued: as will be seen, each was ultimately unsuccessful.

TPA contraventions The potential liability of Brodie & Stone here arose under section 75B(c) which imposes liability upon a party that is ‘in any way, directly or indirectly, knowingly concerned in, or party to, the contravention’. The relevant contraventions here were those alleged to have been committed by the online resellers under sections 52 and 53.of the TPA.

So far as Brodie & Stone was concerned, its role was to manufacture and put on the market in the UK the hair colour products under the ‘Restoria’ trade mark that were then advertised for sale online by the First, Second and Fifth/Fourth Respondents. On their own, these acts of manufacture and sale within the UK would not constitute relevant conduct for the purposes of s 75B. However, it was argued by the Applicant that the role of Brodie & Stone went further, in that it had been aware of the Applicant’s concerns about resale to Australia for some time and had failed to take steps to place limits or restrictions on this occurring. But regardless of whether or not this was indeed either feasible or possible, there was an insuperable obstacle to arguing for Brodie & Stone’s liability for aiding and abetting under section 75B(c). This was to be found in the decision of Merkel J in Bray v F Hoffman-La Roche Ltd54

53 54

See also Star Micronics v Five Star (1990) 18 IPR 225, 237 (in the context of s 52 of the Trade Practices Act 1974. (2002) 118 FCR 1.


where his Honour had held that s 75B of the TPA was only applicable to conduct in Australia. The conduct relied upon in respect of the s 75B claims against Brodie & Stone was conduct engaged in solely in the United Kingdom, and accordingly the Applicant withdrew its TPA claim against Brodie & Stone in the course of the trial.

Trade mark infringement The argument for liability here was based on general principles of joint liability: Brodie & Stone had enabled the online resellers to infringe the Applicant’s registered Australian trade marks by placing them on the market in the UK and had done so without taking appropriate steps to ensure that the goods were not exported to Australia or other countries where there might be infringements of local trade mark laws or to reduce the possibility of this occurring.

While nothing Brodie & Stone had done in the UK infringed any registered UK trade mark - it was, indeed, the registered owner of the UK ‘Restoria’ marks - it was argued that its acts of sale and supply to the online resellers, with the requisite knowledge and in the circumstances referred to above, made it a joint tortfeasor in the acts of trade mark infringement and passing off committed by those parties. In addition to its knowledge of the Applicant’s claims, it was argued that Brodie & Stone had the ability to take further steps to ensure that resale of its products should not occur to territories outside the UK where there might be infringements of another party’s rights in those places.

For the purposes of joint liability generally, it is necessary to show that the parties are acting in concert and pursuant to a ‘common design’.55 It will therefore be clear that the Applicant had a hard task in front of it here, even in the event that liability for passing off and/or trade mark infringement on the part of the online resellers could be established. The bases for the Applicant’s claim of joint liability on the part of Brodie & Stone were limited to the following matters:

55

See further, as to the general principles to be applied here, MCA Records v Charly Records [2002] FSR 26; Premier Luggage and Bags v Premier Co [2003] FSRT 5; CBS v Amstrad [1988] 1 AC 1013; WEA International v Hanimex (1987) 10 IPR 349, 359 (Gummow J); Morton-Norwich Products Inc v Intercen Ltd [1978] RPC 501, 515-516; Thompson v Australian Capital Television Pty Limited (1996) 186 CLR 574; Allen Manufacturing v McCallum & Co (2002) 53 IPR 400, 406, 409-411 (and the cases referred to therein by the Full Court).


a) that it had supplied the ‘Restoria’ products to distributors in the UK, including the other Respondents, without making any appropriate qualifications concerning export; b) its knowledge (extending back possibly as far as 1998) of the conduct being engaged in by the other Respondents; and c) that it had done nothing to take the necessary corrective steps sought by the Applicant until solicitors’ correspondence in March 2004. As will be seen below, these contentions were not enough to satisfy Merkel J that there was joint liability on the part of Brodie & Stone.

The special case of passing off There was, however, another basis for direct liability in passing off which is worth noting here (although this, too, was ultimately dismissed by the court). This was to be found in a long line of UK authority imposing strict liability for passing off on those who supply inherently deceptive instruments of deception to the marketplace.56 In this way, ultimate suppliers have been held liable for passing off, even though the actual acts of passing off may have been carried out by intermediaries, such as wholesalers and retailers. In Johnson v Orr-Ewing,57 for instance, this liability was imposed where goods were exported to foreign markets in which the actual sales and distribution occurred. More recent cases to this effect are John Walker v Ost58 and see also British Telecommunications plc v One in a Million Ltd.59

In the Ward case, therefore, the argument could be made that Brodie & Stone’s products, when put on the market in the UK, and distributed in the way that had occurred, constituted inherently deceptive instruments of deception, in the sense that they would inevitably deceive and mislead once they entered the Australian market. Furthermore, the necessary knowledge for joint liability was present, in view of the long period of notice that Brodie & Stone had had of the Applicant’s concerns and the fact that it (Brodie & Stone) had, by the time of trial, begun to take steps to ensure that distributors of its products in the UK were aware of the possibility that export 56

Lever v Goodwin [1887] 36 Ch D 1, 4 RPC 492; Johnson v Orr-Ewing (1882) 7 App Cas 219; Cadbury v Ulmer [1988] FSR 385. (1882) 7 App Cas 219. 58 [1979] FSR 337 (Court of Appeal). See also the comment in this regard by the Court of Appeal in the British Telecommunications v One in a Million at [1999] 1 WLR 903 (Aldous LJ). 59 [1999] 1 WLR 903, [1999] FSR 1 (Court of Appeal). 57


might contravene the laws of another country, ie Australia. A similar case where joint liability for passing off appeared to have been imposed by a UK court is White Horse Distillers v Gregson.60

Quite apart from potential liability under Australian law, there was also the argument that, on the facts outlined above, Brodie & Stone’s conduct would constitute passing off so far as UK law was concerned. Thus, liability for supplying inherently deceptive goods (or ‘instruments of deception’) has been regarded for a long time under UK law as giving rise to liability in passing off, even if there was no deception or confusion on the part of the immediate recipient of the goods, eg a wholesaler or distributor.61 Furthermore, as Johnson v Orr-Ewing and John Walker v Ost indicate, there can be liability for passing off in such circumstances, even though the actual acts of passing off occur in another jurisdiction.

Accordingly, there was an argument open to the Applicant in Ward to allege primary passing off in the UK on the part of Brodie & Stone, rather than joint liability for passing off that had occurred or was likely to occur in Australia as a result of Brodie & Stone’s activities in the UK. As noted above, Brodie & Stone had submitted to the jurisdiction of the Federal Court of Australia in that proceeding and had not sought to make a conditional appearance. Given this acceptance of jurisdiction by Brodie & Stone, it was therefore possible to characterise this as a foreign torts case, where an Australian Applicant was suing with respect to a tort (passing off) committed in another jurisdiction (the UK). Under the torts choice of law rules that now apply in Australia following the decision of the High Court in Regie National des Usines Renault SA v Zhang,62 the applicable law in such a case is the law of the place where the tort was committed, leading here to the application of UK law.

If primary liability for passing off in the UK could arise on these facts, it could be argued that there was a correspondingly stronger argument in favour of joint liability so far as passing off in Australia was concerned.

The decision of Merkel J 60

[1984] RPC 61 (Nourse J). See the cases cited in para 50 above and see further C Wadlow, The Law of Passing Off , 3rd ed Thompson, Sweet & Maxwell, London, 2004, pp 357-379 and the additional cases cited therein. 62 (2002) 210 CLR 491. 61


Notwithstanding the arguments set out above, Merkel J found that Brodie& Stone were not liable on any of the grounds pressed before him.

Passing off Applying the requirements for passing off outlined by Lord Diplock in Erven Warninck v Townend,63 his Honour accepted that there might have been a misrepresentation in Australia as to the connection of the UK Restoria hair products with the Ward Group in Australia when the advertisements on the websites were received and read by consumers here. Nonetheless, he concluded that no passing off had occurred for the following reasons: a) The website proprietors had not targeted or directed their advertising at Australian customers and the only specific representations made in relation to UK Restoria products had been made in the course of the trap purchases. b) It was not clear that this was, indeed, a misrepresentation because the UK Restoria products had ‘their origins’ in the Australian Restoria products that had been sold since 1957 by the Ward Group (it is not entirely clear how his Honour reached this view, given that there had been separate ownership of the UK and Australian trade marks for over 30 years). c) Given that the representations were made to the persons who procured the trap purchases and who knew the true facts, his Honour thought this might make the case distinguishable from Star Micronics Five Star Computers64 (although again it is unclear how his Honour reached this conclusion, in view of the fact that in Star Micronics Davies J had stated that a representation to a trap purchaser was still misleading conduct even though the purchaser was aware of the true facts). d) The Ward Group had failed to establish the fifth requirement of Lord Diplock, namely some actual or probable damage flowing from the respondents’ conduct. In this regard, the trap purchases were the only sales established on the evidence, and ‘importantly, the evidence also established that it was most unlikely that anyone else in Australia had searched on the internet for, and then purchased, the UK Restoria products instead of, or in preference to, the

63 64

[1979] AC 731, at 742. (1990) 18 IPR 225, 237.


Australia Restoria products’. Furthermore, ‘as the UK and Australian Restoria products have a common origin and are not materially different in quality or standard, any sale of

was UK Restoria products in Australia is unlikely to

harm the goodwill attaching to the Australian Restoria products.’ e)

Trade mark use and infringement Had the trade marks been used in Australia? So far as the simple use of the marks on the UK websites by way of advertising was concerned, Merkel J thought not, even though this was ‘to the world at large’ and the marks could be downloaded and seen by consumers in Australia. In his Honour’s view, there was nothing in the marketing to suggest that it was ‘specifically targeted or directed at, or was specifically intended to be acted upon by consumers in Australia’. This was so, even though Australia was listed in a ‘drop down’ country box as a country, among many others, to which products might be shipped, and the Westons website quoted an Australian dollar figure together with other currencies as an indicative conversion price for a number of products. In reaching the position that ‘targeted’ advertising was required for there to be a trade mark usage in Australia, Merkel J relied upon a number of non-trade mark cases: a) Negligent misstatement, where there is authority for the proposition that where a statement is directed from one place or country to another where it is known or anticipated that it will be received, then it will be regarded as having been made at the place to which it was directed: see Voth v Manildra Flour Mills Pty Ltd.65 Similar findings are to be found in cases involving false and misleading statements made over the internet but directed at Australian consumers: see, for example, Australian Competition and Consumer Commission v Chen..66 b) Groundless threats of patent infringement, where the threat is to be regarded ‘as made at the time when and at the place where it is received by the person to whom it is addressed’: Norbert Steinhardt & Son Ltd v Meth.67

65

(1990) 171 CLR 538, 567-68 (Mason CJ, Deane, Dawson and Gaudron JJ). See also Bray v Hoffman-La Roche Ltd (2002) 118 FCR 1 (Merkel J). 66 (2003) 132 FCR 309. See further New Zealand Post Ltd v Leng (1998) 45 IPR 263. 67 (1961) 105 CLR 440, 442 (Fullagar J).


c) Defamation, where publication of defamatory material has been held to occur in the place where this has been downloaded by subscribers to an internet publication: Dow Jones & Co Inc v Gutnick.68

In Merkel J’s words: In summary, the use of a trade mark on the Internet, uploaded on a website outside of Australia, without more, is not a use by the website proprietor of the mark in each jurisdiction where the mark is downloaded. However, as explained above, if there is evidence that the use was specifically intended to be made in, or directed or targeted at, a particular jurisdiction then there is likely to be a use in that jurisdiction when the mark is downloaded. Of course, once the website intends to make and makes a specific use of the mark in relation to a particular person or persons in a jurisdiction there will be little difficulty in concluding that the website proprietor used the mark in that jurisdiction when the mark is downloaded.69

Absent ‘targeting’ of Australian consumers, however, Merkel J found there was no use of the Restoria trade mark in Australia until the first purchase was made by a consumer in Australia. In fact, this only occurred, in his Honour’s view, when the first trap order was placed by reference to the Restoria trade mark, and a further use took place when the goods were actually delivered to the trap purchasers in Australia.70 The real issue, then, was whether this could be an infringing use for the purposes of s 120(1), given that the trap purchases had been procured by the trade mark owner (through its solicitors) and could therefore be said to have been ‘authorised.’ In response to this, his Honour found that a defence was provided by s 123(1) which provides: In spite of section 120, a person who uses a registered trade mark in relation to goods that are similar to goods in respect of which the trade mark is registered does not infringe the trade mark if the trade mark has been applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark.

68 69 70

(2002) 210 CLR 575 (High Court). (2005) 215 ALR 715, 727. Ibid.


Despite objections by the Applicant that this was undermining the effect of the trap orders as a necessary first step in establishing infringement, his Honour said that the reason that trap orders were not ordinarily considered a consent to infringing use was that infringing use was usually already occurring when the goods bearing the infringing mark are advertised or offered for sale to the public in the jurisdiction: ‘In that situation the trap purchase is made to establish that fact, and cannot be seen to be a consent to the infringements that are occurring’. By contrast, in the present case, the acts alleged to infringe only occurred because they had been procured by the Applicant and would not otherwise have taken place: ‘In those circumstances it would be difficult for the trap purchaser, whose conduct was the sole cause of the use of the infringing mark in Australia, to contend that it has not consented to that use’.71 With respect, this finding appears to ignore the actual wording of s 123(1) which begins with the requirement that the ‘trade mark has been applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark’. It then provides a defence of consent with respect to subsequent uses of the mark as applied. The term ‘applied to, or in relation to’ goods (and services) is the subject of detailed interpretation in s 9: 9 Definition of applied to and applied in relation to (1)

For the purposes of this Act: (a)

a trade mark is taken to be applied to any goods, material or thing if it is woven in, impressed on, worked into, or affixed or annexed to, the goods, material or thing; and

(b)

a trade mark is taken to be applied in relation to goods or services: (i)

if it is applied to any covering, document, label, reel or thing in or with which the goods are, or are intended to be, dealt with or provided in the course of trade; or

(ii)

if it is used in a manner likely to lead persons to believe that it refers to, describes or designates the goods or services; and

(c)

a trade mark is taken also to be applied in relation to goods or services if it is used:

71

Ibid.


(i)

on a signboard or in an advertisement (including a televised advertisement); or

(ii)

in an invoice, wine list, catalogue, business letter, business paper, price list or other commercial document;

and goods are delivered, or services provided (as the case may be) to a person following a request or order made by referring to the trade mark as so used.

This provision was quoted by Merkel J, who accepted that the placing of the trade mark on the UK website was not done by the Applicant, but that the usage consented to had occurred when the marks were downloaded as a part of the trap ordering process. While there may be no doubt that these uses occurred within Australia, were they actually uses by way of application to or in relation to the goods? Section 9 appears to contemplate some kind of physical use of the mark, as might occur when the mark is affixed to the surface of the goods (s 9(1)(a)), applied to the covering or labels of goods (s 9(1)(b)(i)) or used on a signboard or advertisement, an invoice etc, and goods are delivered by reference to the mark (s 9(1)(c)). The only uncertain part of s 9(1) is (1)(b)(ii) which refers to use ‘in a manner likely to lead persons to believes that it refers to, describes or designates the goods or services’, although this still appears to require some kind of physical application of the mark. But ‘application’ of a trade mark is defined separately from ‘use’, which is dealt with in subs 7(4). The latter appears to have a wider scope that includes, but goes beyond, physical applications of the mark, providing that ‘use of a trade mark in relation to goods means use of the trade mark upon, or in physical or other relation to, the goods…’ If this is correct, it could be said that, while the Restoria marks had been ‘applied in relation to’ the goods when they were posted on the UK websites, there was no further ‘application’ of them when they were downloaded as part of the trap purchases but only uses subsequent upon the initial application (as occurs when goods trade marked by the owner pass through the hands of subsequent distributors and retailers). Accordingly, Merkel J was mistaken in finding that s 123(1) provided a defence to infringement where the products were ordered and delivered through the trap purchases, as the application of the trade mark (on the UK website) was clearly not authorised by the Applicant and the first condition for the application of s 123(1)


(application with the consent of the trade mark owner) had not occurred. On this reasoning, the fact that the Applicant procured the downloading of the trade mark as part of the trap purchase was irrelevant.

More generally, however, can it be said that the trade marks owner’s participation in the securing the purchase from abroad thereby prevents the use from being infringing? Although s 120(1) does not mention the need for the infringing use to be without the consent of the trade mark owner (compare the position under s 36(1) of the Copyright Act 1968), it must be the case that where a trade mark owner has consented to a use that it cannot be infringing. But was the situation case here? As noted above, there is no sense in which the UK website onsellers had adverted to the question of whether or not they had consent from the Ward Group to provide the goods requested: they simply responded to an order from Australia, without regard to whether they had permission from the Australian trade mark owner to use the mark, one way or the other. While there was no evidence of non-trap purchases having been made, there is no reason to suppose that the UK website onsellers would have responded any differently to such orders had they been made. And, as noted above, the courts in Australia and the UK have regularly accepted evidence of infringement obtained from trap orders, even where this is the only evidence in the case.

Joint liability Failure to establish primary liability for either passing off or trade mark infringement inevitably meant an end to the Applicant’s case against Brodie and Stone which could only be based upon joint liability. In any event, Merkel J found that, even if such primary liability had been established, he would not have found there to have been the basis for joint liability here, in the absence of proof of a common design or enterprise.72 The only exception to this might have been evidence that Brodie and Stone was equipped with or was intending to equip a purchaser with the goods in question as an ‘instrument’ or ‘badge’ of fraud or deception.73 But this was a hard ask, in a factual situation where Brodie & Stone was the ultimate source of lawfully trade marked goods that only became infringing in the event that they entered another

72 See further Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574, 580-581 (Brennan CJ, Dawson and Toohey JJ). 73 British Telecommunications Plc v One in a MiIllion Td [1999] FSR 1 (CA); Lever v Goodwin [1887] 36 Ch D 1, 4 RPC 492.


market on the other side of the physical world. Again, the lack of any evidence of ‘targeting’ of the Australian market made this a difficult proposition to advance.

Implications of the decision As the only Australian decision to date in this rapidly developing area of electronic commerce, Brodie & Stone contains some important propositions in relation to the use of trade marks in internet advertising. These can be summarised as follows: 1. The use of a trade mark registered in country A on a website advertisement centred in country B will not be an infringing use in relation to the goods (or services) advertised, in the absence of evidence that this advertising is directed towards, or targeted towards, consumers in country A. This not only has implications in the context of infringement actions, but in other important areas where use of a trade mark needs to be shown, namely in relation to ownership of a trade mark in Australia and in relation to non-use removal applications. 2. It is not entirely clear what the ‘targeting’ of a market in another country will require: at the minimum, however, it will call for some evidence that the advertiser is actively seeking, and is able to satisfy, orders emanating from that country. It is certainly clear from the Ward decision that a simple advertisement for goods will not be sufficient, even if it is possible for an order to be placed from anywhere in the world and even if this can be done in the purchaser’s currency. Marketing products ‘to the world at large’ is not enough: while the internet may provide a ‘telescope’74 into an establishment such as a shop or department store in another country, this is far from being a targeted offer to deal with persons from places outside. Indeed, Merkel J’s decision echoes the comments made by Jacob J in the Crate & Barrel case75 that ‘…the very language and the Internet conveys the idea of the user going to the site – ‘visit’ is the word’, in contrast to the well-known example of Amazon.com which, although based in the US, had ‘actively gone out to seek world-wide trade, not just by the use of the name on the Internet but by advertising its business here [in the UK] and offering and operating a real service of supply of books to this country.’ 74 75

This analogy was used by Jacob J in Euromarket Designs Inc v Peters and Crate & Barrel Ltd [2001] FSR 288, 296., Ibid.


3. Where a purchase is made by an Australian consumer from an offshore website by reference to a trade mark registered in this country, this will be a use of the trade mark in Australia. The situation will be otherwise if the supply of the product came about through a trap purchase, at least where there is no other evidence of infringing uses occurring. The correctness of this last proposition depends upon whether or not Merkel J’s application of s 123 of the Trade Marks Act 1995 is accepted: as noted above, it appears to be a misreading of that section. More generally, it is difficult to characterise such uses of the trade mark as having been made with the trade mark owner’s consent where the products have been supplied by the offshore website without any apparent reference to whether or not this was done with the Australian trade mark owner’s permission. 4. ‘Direction’ and ‘targeting’ are also required with respect to any alleged act of passing off in Australia, in so far as no likelihood of damage will arise if there is no relevant trading here, and all that can be shown is that goods bearing the Australian trade mark owners’ mark are being advertised generally to the world on the foreign website. In addition to targeting, it is likely that the following factors will be relevant if a successful passing off action is to be mounted in a Ward-type situation: a. The local and foreign traders should not be linked in any way through either common ownership or contractual arrangements (as in the Revlon case). As noted above, Merkel J’s decision appears to set the bar even higher in this regard by assuming that even past common ownership will be fatal (although this seems clearly wrong). b. If the goods are of a different standard or quality, this will obviously be important (as in Colgate-Palmolive). c. Although not specifically mentioned in Ward, price differentials may be important, particularly so far as showing a likelihood of damage when goods from the foreign website source enter the Australian market. One of the problems for the applicant in Ward was a judicial scepticism as to why anyone in Australia would purchase the same goods online from the UK when they could go to the shop around the corner and obtain the goods immediately over the counter. If the UK


goods were markedly cheaper (after postage to Australia), this might provide at least a partial response to this kind of scepticism. d. More generally, the nature of the goods should be relevant. While not an argument that influenced the court in Ward, there are some goods that are obviously more susceptible to ordering online and supplying through the normal mail and freight services. Good examples are books and DVDs (Amazon.com), pharmaceutical products and cosmetics, including hair restorer products (as in Ward). And, in the case of some products, ordering online can provide a degree of discretion and security that may not be possible if one has to go into an actual department store or shop (pharmaceuticals, sex aids and even hair restorer products may be in this category). Less obvious candidates for online transactions are furniture, earth moving equipment and cars, although there is no reason why orders for such products could not be placed online for subsequent shipment to Australia. Because of their personal and local character, services are another instance where online ordering may not be feasible. Thus, a famous restaurant or department store can only be enjoyed through an actual visit, but it is possible that other services, such as accounting and legal advice might be provided on an online basis. In each case, therefore, the nature of the product/service and its amenability to online-marketing will require close and careful consideration. 5. The factors mentioned in 4 will also be relevant to a TPA claim, although the lack of any requirement to show damage here should make such a claim easier to establish so long as misleading and deceptive conduct or the likelihood thereof can be shown.

Concluding comments While it is easy to criticise some aspects of Merkel J’s decision in Ward v Brodie & Stone,76 the policy choices before his Honour were not straightforward, particularly so far as the registered trade mark infringement claims were concerned. A decision that use by way of advertising on a foreign website was an infringement of the Australian 76

The author must declare a self-interest here, as he was junior counsel for the Ward Group!


trade mark would have meant that there was also an infringing use in any other country in which the same mark was registered by someone other than Brodie & Stone and from which the UK website could be accessed. This might appear an anomalous conclusion where there was no infringement so far as the initial use in the UK was concerned and where, indeed, there might be a corresponding infringement from the other direction if trade marks displayed on the Ward Australian website had been viewed in the UK. By stressing the need for ‘targeting’ to the Australian market, Merkel J’s decision can be seen as a pragmatic one that limits the risk of there being as many infringements in as many place as the trade mark is registered and can be seen. The ‘something more’ that is required, by way of efforts to appeal to and attract consumers in a target market, effectively means that only intentional conduct on the part of the overseas user will lead to liability here and that innocent and undirected usages will be excused.

On the other hand, there is an unreality about the decision that ignores the universal and seamless character of the internet. This has two obvious features: (a) it enables traders to advertise at large to the world regardless of jurisdictional boundaries, even if their primary market is their place of residence, and (b) it enables purchasers anywhere to enter into transactions with those traders, even if the same goods or services may be physically available only a street or so away. This has immediate consequences so far as a territorially based right such as a registered trade mark is concerned. Under Australian law, this is a right of property77 that gives the registered owner in that jurisdiction the exclusive rights to (a) use the mark, and (b) to authorise other persons to use it.78 It is trite law that these rights are infringed if that mark is used in Australia, regardless of whether or not there is any element of deception or confusion as might be required in a passing off case79 - the very purpose of a registered trade mark system is to provide an entitlement to protection that is not dependent, in each case, upon proof of reputation and misrepresentation. Even on Merkel J’s view in Ward, there was a use of the Restoria mark where an actual order was made from Australia; leaving aside the complication of trap orders, this would also have been an infringing use of that mark and only one such act would have been required for the purposes of success. If this is so, then it can be seen that the UK

77 78 79

Trade Marks Act 1995 (Cth), s 21(1). Trade Marks Act 1995 (Cth), s 20(1). Trade Marks Act 1995 (Cth), s 120(1).


website operators in Ward escaped liability in a purely fortuitous manner: their incidental and non-targeted use of the mark would not have availed them had there been one untainted, ie non-trap, purchase order from Australia. This potential liability, even on Merkel J’s view, indicates that the use of trade marks on foreign websites is not a risk-free exercise, and that such users will still need to consider where the mark may be seen outside of their own jurisdiction.

In the end, the answer may be the very one that the applicant in Ward was agitating for: the foreign user will need to take steps to ensure that orders cannot be received from those places where ownership of the trade mark is in different hands. Technical issues are beyond the scope of this article, but it is noteworthy that many websites, such as amazon.com in fact do this. While this puts an additional onus on trade mark users in each country, this is no different from the burdens that property rights owners have in other contexts not to allow their property to be used for unlawful or harmful purposes – this is, after all, the principal aim of road traffic laws and pollution and land use controls. The same duty, of course, will apply, in the opposite direction, to Australian trade mark owners where their marks are viewed on websites by persons outside Australia. And, if it is impossible for persons outside the jurisdiction to purchase goods from the website on which the mark appears, it should be equally impossible to argue that there has been a relevant use of the trade mark within the jurisdiction even though the mark is fully visible to consumers in that place. This would certainly be the case in Australia under our present trade marks legislation where use of a mark in advertising requires some present capacity to provide the goods or services advertised.