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Wednesday, October 21, 2015

Cigar parallel importation claims go up in smoke

By Joel Barrett, Senior Associate

As any experienced smoker will tell you, one does not inhale when smoking a cigar. But Scandinavian Tobacco Group Eersel BV (STG for short), a Danish producer of hand- and machine-made cigars, is likely to be taking a few deep breaths after the Federal Court recently dismissed its claims against a parallel importer for trade mark infringement, passing off and contravention of the Australian Consumer Law.

The dispute took place against the somewhat unusual backdrop of Australia's tobacco plain packaging legislative landscape. STG manufactures and packages cigars under the brand names Café Crème, Henri Wintermans and La Paz in Belgium and Holland, and then supplies the goods to its Australian subsidiary for sale in Australia. Under a formal distribution agreement between them, STG appointed the Australian subsidiary as the sole distributor, wholesaler and promoter of the cigars in Australia. However, since 2012, a third party named Trojan Trading Company Pty Ltd has been independently purchasing genuine STG cigars packaged for overseas markets (from a source unknown), importing them into Australia, unpacking and repackaging them so that they comply with the Tobacco Plain Packaging Act 2011 (Cth) and Tobacco Plain Packaging Regulations 2011 (Cth), and selling the cigars to Australian wholesalers and retailers in that new packaging.

Importantly, as part of the repackaging process, Trojan reapplies CAFÉ CRÈME, HENRI WINTERMANS and LA PAZ, which are registered trade marks in Australia owned by STG, to the goods before selling them. In October 2014, STG and its Australian subsidiary commenced proceedings in the Federal Court and sought declarations and an injunction on the grounds that this conduct constitutes trade mark infringement, passes off that the repackaging is authorised and controlled by STG, and for the same reason constitutes 'misleading or deceptive conduct' and 'false or misleading representations' under the Australian Consumer Law.

While the judgment of Chief Justice Allsop covers several topics, his most interesting findings concern sections 120 and 123 of the Trade Marks Act 1995 (Cth). Section 120 clarifies that a person will infringe a registered trade mark by using it 'as a trade mark' (that is, as a badge of origin indicating a connection in the course of trade between a trader and its goods), while section 123(1) acts as an exception or defence to that general rule:
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 [Australian] trade mark. [Emphasis added]

Section 123 is, in the words of Chief Justice Allsop, 'a provision that applies naturally to parallel importing and second-hand goods'. Parallel imports, also known as grey goods and often confused with counterfeits, are genuine goods that are trade marked overseas by or with the permission of the trade mark owner, but then imported into Australia and sold without its permission. Brand owners often dislike parallel imports as they operate outside controlled distribution channels and can undermine exclusive distribution arrangements. Both section 123 and the general question of whether parallel imports constitute trade mark infringement have been the subject of several, sometimes conceptually difficult and sometimes counter-intuitive, Australian decisions. In particular, the courts have grappled with the question of when 'consent' under section 123 can and cannot be imputed to a registered trade mark owner in a variety of scenarios. In this case, the focus was on a different part of section 123.

Chief Justice Allsop first considered whether Trojan was using the registered trade marks 'as a trade mark' within the meaning of section 120. Trojan argued that it was not, as STG had originally applied the trade marks to the goods and Trojan, in removing but then reapplying the trade marks, was simply indicating a connection in trade between the cigars and STG (rather than between the cigars and Trojan). Although Chief Justice Allsop considered 'there to be a degree of force in the arguments of Trojan' on this point, his Honour felt bound to follow a string of Australian authorities to the contrary, which stand for the proposition that even 'the mere sale of goods already marked by the registered owner … would be an infringing use of the mark by the importer'. Therefore, his Honour held that Trojan was engaging in prima facie trade mark infringement under section 120.

Which brought Chief Justice Allsop to the decisive question: does the trade mark 'application' to which section 123(1) refers mean application at the time of the alleged infringement (which was done by Trojan definitely without the consent of STG) or application at the time of original packaging (which was done by or with the consent of STG)? If the former, section 123 would not be enlivened, a position that STG argued is 'supported by an appreciation of the need for control by the registered owner of its trade marks'. If the latter, Trojan could rely on section 123 to avoid liability for trade mark infringement, which Trojan submitted was the more fitting application of 'a provision that was directed to the protection of the use of the trade mark, such as in invoices and the like when the goods in question had a certain status brought about when the trade mark has been applied to or in relation to the goods'.

Ultimately, Chief Justice Allsop favoured the interpretation advanced by Trojan, both on a plain English reading of section 123 and because it 'more naturally conforms with a purpose in section 123 of protecting as non-infringing use that which does no more than draw a connection between the goods and the registered owner, and does not draw a connection between the goods and the person using the trade mark being someone other than the registered owner'. Therefore, section 123 permits Trojan to reapply the trade marks to the cigars and engage in related uses (for example, in advertisements, price lists and invoices).

Chief Justice Allsop dismissed the claims of passing off and contraventions of sections 18 and 29(1)(a) and (g) of the Australian Consumer Law much more summarily. Essentially, his Honour found that Trojan made no express representation that its repackaging was authorised or controlled by STG, and there could be no implied misrepresentation to that effect in circumstances where nobody would assume that compliance with the tobacco plain packaging legislation needs to be 'carried out under some unidentified process of authorised activity'.

This decision might raise (smoke) alarm bells for trade mark owners who, like STG, worry that they will 'lose all control over secondary get up and packaging so important to modern commerce'. However, it is important to remember that Chief Justice Allsop was considering these issues in the context of plain packaging laws for tobacco products, a fact that his Honour mentions more than once in the judgment. While the meaning and operation of section 123 should not, in theory, change in a different context, owners of non-tobacco brands are at least likely to find solace in the tort of passing off and sections 18 and 29 of the Australian Consumer Law should a parallel importer, wholesaler or retailer decide that it can do a better job of packaging the products.

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