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Thursday, July 7, 2016

Cigar manufacturer loses another battle in the Trojan war

By Joel Barrett, Senior Associate

Scandinavian Tobacco Group Eersel BV (STG) and its authorised Australian distributor (STG Australia) have been burned again, now that the Full Court has upheld the first instance decision in their dispute with parallel importer Trojan Trading Company Pty Ltd.

As we reported last year, Dutch company STG was incensed to find that Trojan was purchasing genuine STG cigars packaged overseas, importing them into Australia, unpacking and re-packaging them to comply with our tobacco plain packaging laws, and then selling them to Australian wholesalers and retailers in their new packaging – all without STG's permission. STG commenced proceedings in the Federal Court alleging that Trojan was, among other things, infringing the STG-owned trade marks CAFÉ CRÈME, HENRI WINTERMANS and LA PAZ by re-applying them to the products as part of the re-packaging process. At first instance, Allsop CJ held that while Trojan was engaging in prima facie infringement under section 120 of the Trade Marks Act 1995 (Cth), it could rely on the following defence in section 123(1).

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. [Emphasis added]

In a unanimous decision, the Full Court agreed entirely with the chief justice.

Under section 120, a person will only infringe a registered trade mark by using it (or a sign that is substantially identical with or deceptively similar to it) 'as a trade mark'. Although undefined in the legislation, the courts have clarified that use 'as a trade mark' means use as a badge of origin indicating a connection in the course of trade between a trader and its goods. In a notice of contention, Trojan maintained that it was using the trade marks to indicate a connection in the course of trade between the cigars and STG, not between the cigars and Trojan, and that does not constitute use as a trade mark. In support of that argument, Trojan relied on several older cases that seemingly stand for the general proposition that a person does not use a trade mark 'as a trade mark' by merely selling trade-marked goods, provided that the trade mark was applied to the goods by or with the licence of the trade mark owner. The Full Court disagreed, finding that those judgments were largely fact-specific and that the terms of the Trade Marks Act 1995 (Cth) subsequently clarified the position in Australia. For example, the statute added section 123 and why, the Full Court asked, would such a provision be necessary if Trojan was right? The Full Court affirmed a series of post-1995 decisions (including that of Allsop CJ at first instance) that a person who does nothing more than import and sell a trade-marked product still uses that trade mark 'as a trade mark'. On that basis, Trojan's conduct certainly enlivened section 120.

However, the Full Court found for Trojan in relation to section 123(1), agreeing that the past tense formulation of 'has been applied' means that the defence will be available as long as the trade mark was applied to or in relation to the goods by or with the consent of the trade mark owner at any point in time before the alleged infringing use. The Full Court reasoned: 'The operation of the section is not expressly or impliedly confined to a situation in which the goods still bear the mark as applied by the owner. … If those goods are later sold by a person in circumstances which involve him or her using a mark that was previously applied by or in relation to the goods by the owner then s 123(1) will be engaged.' Just as section 123(1) allows a supplier of genuine trade-marked goods to use the trade mark in related materials such advertising, invoices, price lists and other commercial documents, so too does it allow a supplier to apply or re-apply the trade mark onto packaging because, for example, 'the packaging in which they were originally supplied was damaged or because it did not comply with labelling or packaging laws'. Trojan was therefore protected.

So how can a brand owner protect itself, and the goodwill associated with its registered trade marks, from wanton re-packagers? Interestingly, the Full Court provided a potentially powerful solution that none of the parties had apparently considered:

Section 121 allows a trade mark owner to display on goods in respect of which its mark is registered a notice prohibiting certain acts in relation to the goods (s 121(1)). The acts that may be prohibited ("prohibited acts") include applying the mark to goods or using the mark in physical relation to goods after the packaging in which they were originally offered to the public has been altered (s 121(2)). An owner of goods who does a prohibited act in the course of trade infringes the mark unless it acquired the goods in good faith without being aware of the notice (s 121(3), (4)).

The Full Court noted with interest that the inspiration for section 121, which was a similar provision of the Trade Marks Act 1938 (UK), was 'introduced [in 1938] as a response to complaints made by trade mark owners in relation to the re-packaging of their tobacco products'. Crucially, section 123 is not a defence to section 121. Unfortunately for STG, it had not displayed a section 121 prohibition notice on its products.

All that was left for the Full Court to decide was whether Trojan, in re-packaging the cigars, had engaged in passing off, misleading or deceptive conduct under section 18 of the Australian Consumer Law or false or misleading representations under sections 29(1)(a) and (g). The Full Court was just as dismissive as Allsop CJ when it came to these allegations. STG repeated its argument that customers would assume that the brand owner has authorised or controlled the re-packaging, but the Full Court was unswayed. It held that there was simply no evidence to that effect, nor could such an inference be drawn. In fact, the Full Court could not even infer that customers would assume that the cigars had been re-packaged at all. It did not help that STG Australia was doing roughly the same thing as Trojan, and when it sent price lists to retailers, it did not disclose that some of the cigars on the lists (for which STG Australia was not an authorised distributor) had been re-packaged by STG Australia into compliant plain packaging. The Full Court surmised from this conduct that STG Australia did not believe that retailers would make any relevant assumptions about packaging or re-packaging.

Of course, the Full Court did not completely close the humidor on accepting scenarios 'in which it might be possible to infer, in the absence of any other specific evidence to support the inference, that purchasers will assume that the products had not been re-packaged or at least not without the authority of the manufacturer'. The Full Court mentioned, as one example, pharmaceutical products in tamper-free packaging.

But for those brand owners who are reluctant to put all their trust in the uncertain protection that business reputation and consumer protection laws might afford, it may be time to consider a section 121 prohibition notice. Other options in the Trade Marks Act 1995 (Cth) may be the offence provisions in sections 145 and 146 which, broadly speaking, prescribe some pretty heavy criminal penalties for a person who, without the permission of the owner or an authorised user of a registered trade mark, removes the trade mark from goods or applies the trade mark (or a sign substantially identical to the trade mark) to goods.

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