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Thursday, April 3, 2014

Finding Nappyland: does a registered trade mark trump all?

By Julia Kovarsky, Lawyer

In short, the answer is no.

The recent decision in CI JI Family Pty Limited v National Australian Nappies (NAN) Pty Limited, which involved two family businesses trading in commercial quantities of nappies and other products, examined whether having a registered trade mark can be a defence to a claim for misleading or deceptive conduct, or passing off.

CI JI Family Pty Limited (CJF) (whose sole director was Mr Ngo) had traded as 'Nappyland' in New South Wales since 1999. The business name 'Nappy Land' was registered in New South Wales to Mr Ngo and his wife. CJF traded under the logo:
It was not registered as a trade mark.

By the time this case was commenced in the Federal Court, National Australian Nappies (NAN) Pty Limited (NAN) (whose sole director was Mr Ho), had been trading under the names 'National Australian Nappies' and 'Nappy Land' throughout Australia. Trading under 'Nappy Land' commenced in New South Wales in mid-2013. NAN had registered the business name 'Nappy Land' in Victoria, Queensland and South Australia. NAN had also registered the domain name, and the trade mark:

The Trade Marks Act 1995 (Cth) gives the registered owner of a trade mark the exclusive rights to use the trade mark.
Mr Ngo and Mr Ho had previously conducted the 'Nappyland' business as a partnership. In 1999, following disagreements, the partnership was dissolved, resulting in the split into CJF and NAN. Mr Ngo alleged that he bought out Mr Ho's share of the partnership in return for Mr Ho agreeing not to trade under the name 'Nappyland' (or similar) in New South Wales. When NAN began to use 'Nappy Land' in New South Wales, CJF and Mr Ngo sued for:

  • breach of the 1999 agreement;
  • misleading or deceptive conduct under s18 of the Australian Consumer Law; and
  • passing off.

NAN and Mr Ho sought to defend the claims on the basis that NAN's registered 'Nappy Land' trade mark was a complete answer to any reliance by CJF and Mr Ngo upon any agreement, s18 or the law of passing off.
The claim based on the 1999 agreement was quickly dismissed, leaving the much more interesting issue of the significance of a registered trade mark as a defence to misleading or deceptive conduct and passing off.

Effect of a registered trade mark

Section 230 of the Trade Marks Act provides that the Act does not affect the law relating to passing off. So it was not altogether a surprise that Justice Flick  held that '[t]he rights conferred upon the registered owner of a trade mark do not extend to a licence to engage in conduct which is misleading or deceptive or to engage in conduct which constitutes a passing off'.
Justice Flick found that NAN was engaging in conduct which had the potential to mislead, and did mislead persons, when it began using the 'Nappy Land' name and trade mark in New South Wales. Justice Flick took into account the visual and aural similarity of the words 'Nappyland' and 'Nappy Land', the fact that some CJF customers were in fact misled, and that both parties sold the same products.
Had it been necessary to reach a conclusion, Justice Flick also considered that the elements of passing off were made out. NAN had targeted its marketing by sending price lists to potential customers, and in doing so misrepresented that it was aligned with CJF. This misrepresentation was made to potential and actual customers of CJF in the course of trade, where injury to CJF's business was a reasonably foreseeable consequence and damage was probable.
While CJF's evidence regarding loss caused by NAN's conduct was regarded as inadequate, the judge was prepared to award CJF and Mr Ngo $25,000 in damages as a reasonable estimate. An injunction was also granted.

The moral of the story?

Registering a trade mark does not allow the registered owner to conduct themselves in a way that is misleading or deceptive, or which would constitute passing off. Trade mark owners must remain alert to the potential for a statutory or common law actions, notwithstanding the rights conferred by registering a trade mark.

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