Bohemia Crystal Pty Ltd v Host Corporation Pty Ltd

BURLEY J: 1 On 6 March 2018 I delivered judgment in Bohemia Crystal Pty Ltd v Host Corporation Pty Ltd [2018] FCA 235 (primary judgment) and directed that the parties file and serve submissions going to costs and the form of orders consequent on that judgement within 21 days. The parties have done so. They disagree as to the orders to be made in respect of the costs of the proceedings. These reasons should be read in conjunction with the primary judgement. I adopt the defined terms used therein. 2 By way of brief summary, in the proceeding BCP contended that Host infringed the Bohemia marks by importing, advertising and selling the Banquet glassware. Separately, BCP alleged that Host had engaged in misleading or deceptive conduct in breach of ss 18 or 29(1) of Schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL) and that the second respondent, Mr Gavan Sullivan, was liable as a result of either being involved in the alleged misleading or deceptive conduct or as a joint tortfeasor in respect of the alleged trade mark infringement. In the course of the hearing BCP indicated that it no longer pressed a pleaded claim for passing off. 3 Host denied trade mark infringement and contended that it had not used the Bohemia marks as trade marks within the meaning of the TM Act. It also relied on a defence of good faith use of a geographical term pursuant to s 122(1)(b)(i) of the TM Act. Significantly, Host contended that the Bohemia marks were liable to be removed from the Trade Marks Register pursuant to ss 88(1) and 88(2)(a) of the TM Act, because each could have been opposed pursuant to s 41 of the TM Act. It contended that, as at the filing dates of the marks, the words "Bohemia" and "Bohemia Crystal", when used in relation to glassware were not capable of distinguishing BCP's goods from those of other persons. In the alternative, Host contended that the Bohemia marks had become generic and were liable to be cancelled by operation of ss 24 and 87 of the TM Act. Host also denied that it had breached the ACL and Mr Sullivan denied any liability on his part. 4 In the result, I concluded that the Bohemia trade marks should be revoked. For the reasons set out in section 2 of the primary judgment, I found that as at the relevant dates, neither was capable of distinguishing the goods in respect of which they were registered from the goods or services of other persons. In section 3 I found that the Register should be rectified by cancelling the registration of each of the Bohemia marks pursuant to s 88(1) of the TM Act. I then considered whether or not, on the assumption that the marks were validly on the register, BCP had established that they were infringed. I concluded that the BOHEMIA mark was infringed in respect of 4 of the 5 impugned uses, but that the BOHEMIA CRYSTAL mark was not infringed at all. I also rejected BCP's claim under the ACL. It was, in those circumstances, not necessary for me to consider the claims against Mr Sullivan. 5 BCP contends that it had prima facie success in relation to the trade mark infringement claims and that accordingly Host and Mr Sullivan should pay the costs of its application. It accepts that it should pay the costs of the revocation cross-claim, on which it was unsuccessful. Alternatively, BCP submits that if costs are ordered generally in favour of Host and Mr Sullivan, the Court should allow a percentage reduction of those costs to account for the success that BCP had in respect of its trademark infringement claim. It proposes no particular percentage discount that is to apply. 6 Conversely, Host and Mr Sullivan submit that they were the successful parties to the litigation. The relevant trade marks were invalidated, and BCP's other claims were dismissed. Furthermore, Host made a letter of offer on 31 March 2016 and both Host and Mr Sullivan made a further offer on 3 November 2016. They submit that each qualifies as an offer made within Calderbank v Calderbank [1975] 3 ALL ER 33 (Calderbank). They contend that BCP should pay their costs on an indemnity basis from the date of the first or alternatively the date of the second of these letters. 7 In Idenix Pharmaceuticals LLC v Gilead Sciences Pty Ltd (No 2) [2018] FCAFC 7 the Full Court said at [3]: The power of the Court in relation to costs is well established. Section 43 of the Federal Court of Australia Act 1976 (Cth) gives the Court a wide discretion in awarding costs. The exercise of the Court's discretion is not without principles or practices; it must be exercised judicially (Les Laboratoires Servier v Apotex Pty Ltd (2016) 247 FCR 61 at [305] per Bennett, Besanko and Beach JJ). The ordinary rule is that costs follow the event, although a successful party may be awarded less than its costs, or costs may be apportioned, based upon success on the issues (Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) (2015) 327 ALR 192; [2015] HCA 53 at [6] per French CJ, Kiefel, Nettle and Gordon JJ; Les Laboratoires Servier at [297] to [298] and [303]). 8 It is not uncommon in intellectual property cases for costs to be awarded on an issue by issue basis, although in each case it is necessary for the Court to consider whether, in the particular case before it, such an approach is to be taken; Firebird Global Master Fund II Ltd v Republic of Nauru (No 2) [2015] HCA 53 ; 327 ALR 192 at [6]. 9 In the present case, the primary forensic issue was whether or not the Bohemia marks were capable of distinguishing the goods in respect of which they were registered from the goods or services of other persons. Ultimately, however, Host succeeded on its cross-claim because the question as to capacity to distinguish was answered in the negative. The question of trade mark infringement (based on the assumption that the revocation finding was incorrect) was determined by reference to the separate question of whether, in context, the words "Czech Crystal by Bohemia", "Banquet Crystal by Bohemia" or "Bohemia Flute" (or variations of product) would be construed to amount to trade mark use. Host failed on that issue for all but the last of these, but succeeded in avoiding infringement of the BOHEMIA CRYTAL mark, because its use was not deceptively similar as required by s 120(1) TM Act. 10 In my view the evidence adduced and the time spent at trial on the question of infringement was relatively trivial and, in context, it might be observed that BCP's success on the infringement issue overall was quite limited, it having failed on one fifth of the infringement case for one mark, and failed entirely in respect of the other. Accordingly, I do not consider that it is appropriate to award costs separately on an issues basis for the infringement debate, even allowing for the failure on the part of Host to establish its defence under s 122(1)(b)(i) of the TM Act. I award Host and Mr Sullivan the costs of the application and the cross-claim, as this appropriately reflects the success that it had in the proceedings. 11 I now turn to Host and Mr Sullivan's application for indemnity costs. 12 On 17 March 2016 the solicitors representing BCP wrote a letter before action to Host. In it, BCP referred to its ownership of three trade marks in particular, being the two trade marks the subject of the proceeding and a third being for the 701 mark, depicted at paragraph [30(3)] in the primary judgment. The letter also referred to the trade marks identified in annexure A, which comprised 34 listed trade marks registered in the name of BCP or Bohemia Trading Pty Ltd (annexure A marks). 13 The letter informed Host that, without the consent or authorisation of BCP, Host had "advertised for sale on [its] website… "Bohemia" products including the Trade Marks", which it identified as the "Offending Products". It also identified the unauthorised use by Host on its website of the words "Czech Crystal by Bohemia - Exclusive to HOST", "Banquet Crystal by Bohemia" and "Banquet by Bohemia" (collectively, "Offending Passages"), which it said amounted to "Unauthorised Conduct". The letter demanded that Host immediately withdraw the Offending Products and the Offending Passages, supply the names and addresses of the suppliers of the Offending Products to Host and any customers that had purchased or agreed to purchase the Offending Products, cease-and-desist forever from selling any goods bearing BCP's trade marks and various other things. The letter concluded by demanding a response by 5 pm the following day. 14 On 31 March 2016 the solicitors representing Host responded with a letter marked "without prejudice save as to costs". In it, Host denied trade mark infringement or engaging in misleading or deceptive conduct and explained that it used the word "Bohemia" to describe the region of the Czech Republic from which its goods originated, which entitled Host to a defence under s 122 (1)(b)(i) TM Act. The letter went on to state that BCP itself used the word "Bohemia" to signify the origins of its goods on its website, which further emphasised that Host was not engaging in trade mark infringement and meant that each of the BCP trade marks identified in the letter was vulnerable to revocation. The letter asserted that even if BCP successfully proved infringement and maintained the trade mark registrations, Host had made no profits from the sale of the impugned goods, so there would be nothing payable by way of an account of profits. 15 The letter concluded with an offer in the following terms (First Offer): However, in order to avoid the expense and inconvenience of litigation, and obviously on a without admissions basis, Host would be prepared to settle this dispute on the following terms: (a) Host agrees not to use the logo the subject of your client's trademark registration no. 319701 without your client's authorisation for the period that that trademark remains registered (noting that our client has never used that logo); (b) Host agrees not to use the phrases "Banquet Crystal by Bohemia", "Banquet by Bohemia" or "Czech Crystal by Bohemia-exclusive to HOST" in connection with the sale, supply or promotion of its goods during the period that your client's Australian trade marks [sic] registration numbers 891129 (BOHEMIA CRYSTAL) and 952530 (BOHEMIA) remain registered; (c) Your client releases Host from any and all actions, suits, causes of action, arbitrations, debts, liabilities, dues, costs, claims, demands, directions, orders, verdicts and judgements either at law or in equity or arising under a statute arising and any other liabilities of any nature (whether the parties were or could have been aware of them) from or in connection with any use of the word "Bohemia", including for any alleged infringements of Australian trade marks registrations numbers 319701 (logo), 891129 (BOHEMIA CRYSTAL) and 952530 (BOHEMIA); (d) Host releases your client from any and all actions, suits, causes of action, arbitrations, debts, liabilities, dues, costs, claims, debt demands, directions, orders, verdicts and judgements either at law or in equity or arising under a statute arising and any other liabilities of any nature (whether the parties were or could have been aware of them) from or in connection with any groundless threats of trademark infringement proceedings regarding our client's above-mentioned use of the word "Bohemia"; and (e) Each party pays its own costs of the dispute. 16 The First Offer was peremptorily rejected within one hour of its receipt. The response from the solicitors for BCP said: Our instructions are to reject the offer and otherwise proceed… much along the lines of Bohemia Crystal Pty Ltd v Alessi Global Pty Ltd NSD 1917/2011. 17 In response, also on the same day, the solicitors representing Host and Mr Sullivan noted that the case cited was disposed of by consent and indicated a preparedness to discuss a reasonable settlement. 18 On 7 April 2016, BCP filed this proceeding together with a Genuine Steps Statement as required by section 6 of the Civil Dispute Resolution Act 2011 (Cth). The Statement asserted that certain undertakings relevant to the subject matter in the proceedings had been sought from the respondent; the respondent had failed to provide the undertakings sought within the time stipulated or at all; and that the lawyers for the parties thereafter engaged in without prejudice discussions without a successful resolution. 19 On 3 November 2016, the solicitors for Host and Mr Sullivan sent a further letter marked "without prejudice except as to costs". By this stage the proceedings were considerably more advanced. The pleadings had closed and affidavit evidence had been filed by both parties, although the evidence was not yet complete. Notably, the claim for infringement had been whittled down to the two Bohemia marks. No evidence in answer had been filed on the cross-claim. 20 The letter of 3 November 2016 commenced by stating that the purpose of the letter was to set out why Host and Mr Sullivan considered that the claims against them were of no substance and to make an offer to resolve the matter in accordance with the principles set out in Calderbank. The letter reiterated the basis upon which the conduct of Host in using the word "Bohemia" would not amount to trademark infringement, stated that for similar reasons the conduct impugned pursuant to the ACL claim would not amount to a contravention, and stated that the evidence filed demonstrates that the words "Bohemia" and "Bohemia Crystal" do not relevantly distinguish BCP's goods from those of other traders and accordingly render those trade marks liable to revocation. The letter stated that the evidence in the proceedings is that sales of the products in question are worth approximately $10,690 and that the profit on those goods is $107. It asserts that even if successful in its claim, BCP could not expect to recover its costs and that, in light of the strength of the defences, BCP would be liable to pay Host and Mr Sullivan's costs. 21 The letter then set out the following offer (Second Offer): In light of the above, and in the interests of facilitating a commercial and cost-effective resolution to this matter, Our Clients instruct that each would be prepared to settle the matter, without admissions, on the basis that: (a) the First and Second Respondents each undertake not to use the words "BOHEMIA" or "BOHEMIA CRYSTAL" or any name including the word BOHEMIA, including in any of the uses set out in paragraph 6 of your Client's Amended Statement of Claim, in respect of any glass ware or crystal ware products supplied in Australia by the First or Second Respondents; (b) Our Clients pay Your Client a sum of $500, representing more than the profits made from the sale of the products in question; (c) the Proceedings in the cross-claim are dismissed; (d) Your client pays Our Clients 50% of their costs in the matter to date, namely $89,408. (e) Your Client releases Our Clients from any and all actions, suits, causes of action, arbitrations, debts, liabilities, dues, costs, claims, demands, directions, orders, verdicts and judgments either at law or in equity or arising under a statute arising and any other liabilities of any nature (whether the parties were or could have been aware of them) from or in connection with any use of the word "Bohemia", whether alone or in combination with other words or numbers, including for any infringements of Australian trade marks registrations number 891129 (BOHEMIA CRYSTAL) and 952530 (BOHEMIA); 22 The Second Offer was expressed to be open until 1 December 2016. 23 In Brosnan v Katke [2016] FCAFC 156, Gleeson J (with whom Dowsett and Edelman JJ agreed) set out the principles applicable to rejection of a Calderbank offer. Her Honour said (at [6]): … the relevant legal principles were not in dispute. Costs will usually be assessed on a party/party basis in the absence of an unusual feature warranting a different approach. In this case, the unusual feature relied upon by the respondents was the rejection of the Calderbank offer. Rejection of a Calderbank offer does not per se warrant an order for indemnity costs: it is necessary to consider whether the offeree's rejection of the offer was unreasonable in the circumstances in which the rejection occurred: Black v Lipovic [1998] FCA 699; (1998) 217 ALR 386 at [217]-[218]; Szencorp Pty Ltd v Clean Energy Council Limited (No 2) [2009] FCA 196 at [7]; Carey v Freehills [2013] FCA 1258 at [16]; Veda Advantage Limited v Malouf Group Enterprises Pty Limited (No 2) [2016] FCA 470; 118 IPR 156 at [31]. 24 In Shape Shopfitters Pty Ltd v Shape Australia Pty Ltd (No 4) [2017] FCA 1277 Mortimer J observed at [13] that the governing consideration is the reasonableness or rather the unreasonableness of the party's refusal of the offer at the time it was made, and in the circumstances in which it was made and refused. 25 Host submits that the peremptory rejection of the First Offer was unreasonable. It submits that the offer put was a genuine offer of compromise that proved to be equal to or better than BCP's ultimate result at trial. The rejection of the offer was, Host submits, unreasonable because: BCP was on notice of the risk of expungement of the trade marks. Mr Hesse was acutely aware of the geographical signification of Bohemia and that other traders, without improper motive, would likely seek to use BOHEMIA or BOHEMIA CRYSTAL in connexion with glassware. Host submits that, in those circumstances, BCP was aware that it would need powerful evidence to demonstrate use. Host also submits that Mr Hesse's knowledge of the geographical significance and the desire of others to use it outweighs the fact that the offer was made early in the proceedings. This was a real and very clear offer. The offer amounted to an agreement to desist from engaging in the unauthorised conduct as set out in the letter before action and offered that each of the parties bear their own costs thereby implicitly agreeing to pay its own costs of the re-packaging or re-badging of product that would be required. Furthermore, the First Offer informed BCP that it would be relied upon on the question of costs and indicated that it would seek costs on an indemnity basis. 26 Host also relies on the peremptory rejection of the First Offer as amounting to a form of conduct that reflected the unreasonableness of BCP's conduct. It submits that BCP did not sufficiently engage with the offer, and so acted in a manner inconsistent with the overarching purpose set out in s 37N(1) of the Federal Court of Australia Act 1976 (Cth). In this regard Host cited Greenwood J in Julstar Pty Ltd v Hart Trading Pty Ltd [2014] FCA 108 where his Honour said at [94] (emphasis original): Section 37N (1) casts an obligation on the parties to a civil proceeding to "conduct the proceeding (including negotiations for settlement of the dispute to which the proceeding relates) in a way that is consistent with the overarching purpose". It follows that when the applicants, in their conduct of the proceedings, received the various offers of settlement… They were required… to engage with those offers, in their conduct of the proceeding, in a way directed to identify whether each offer was conducive to the just resolution of the dispute as quickly, inexpensively and efficiently as possible… 27 There is considerable force in Host's criticism of BCP's conduct following receipt of the First Offer. The cryptic reference made in reply to Bohemia Crystal Pty Ltd v Alessi Global Pty Ltd might be regarded as an abbreviated way of stating that BCP rejected the contention that its trade marks were invalid. However, one might have expected more active engagement in a negotiation than that evinced by the chain of correspondence. The same observation may be made in respect of the Second Offer to which there was no response whatsoever. However, the relevant question is whether it was unreasonable for BCP to reject each of the offers having regard to circumstances prevailing at the time. 28 In relation to the First Offer, it may be accepted that it reflected a result that was more advantageous to BCP than it achieved in the litigation. However, this was at a stage before the issues had been crystallised in pleadings. The central basis for the threatened action as set out was that Host had engaged in infringing conduct by its use of the word "Bohemia" in circumstances where BCP held longstanding trade marks for BOHEMIA and BOHEMIA CRYSTAL. In my view for the following reasons Host has not established that it was unreasonable for BCP to reject the First Offer at that time. 29 First, this was at an early stage in the dispute when each party's case had not yet fully crystallised. It is easy to consider that a settlement should have been reached at the early stages of litigation when one knows the result. However, in considering the offer one must set hindsight to one side. 30 Secondly, at the time of the First Offer, BCP had for many years been the registered owner of the three trade marks most particularly identified. Those trade marks had survived the scrutiny of the trade marks office registration process and were presumptively valid. Whatever deficiencies that existed in its registration would not have been immediately obvious to it, and BCP was at that time reasonably entitled to consider that its registrations were valid. 31 Thirdly, the letter was incorrect insofar as it asserted that Host did not infringe because the use of the word "Bohemia" was purely descriptive and not trade mark use. 32 Fourthly, although Mr Hesse might have known that there had been geographical uses of the word "Bohemia", it was not established that Mr Hesse knew that BCP's historical uses of the words before the priority dates were purely geographical or descriptive. The question of whether or not either of the marks had been "used" in the sense necessary to satisfy ss 41(5) or (6) of the TM Act is legally difficult. It depends on concepts that leave lawyers inclined to debate and provide room for legitimate disagreement, as the matters addressed in the primary judgment in sections 2 to 4 make clear. I am not prepared to assume that as at the date of the first letter of offer BCP was aware that its trade marks would have been cancelled had it proceeded. 33 Fifthly, the terms of the First Offer are not as compelling as they appear at first sight. Host only agreed not to use the logo the subject of BCP's 701 mark (as per (a) in the First Offer). Although in (b) Host agreed not to use the impugned phrases, a central aspect of the complaint set out included an allegation of trade mark infringement in respect of the BOHEMIA and BOHEMIA CRYSTAL marks. Nowhere does Host offer not to use those trade marks. Nor does Host undertake not to bring a claim for the cancellation of those marks. Host does, however, seek the extremely broad release set out in (c), whereby Host is released from all actions or claims, whether or not BCP was aware of them, in connection with the use of the word "Bohemia". 34 In the course of oral submissions, Counsel for Host submitted that Host should not be penalised for the fact that it did not offer the undertaking upfront, in circumstances where BCP did not engage with Host in relation to the offer. Host submitted that had BCP raised it, no doubt Host would have considered it. However, the question is whether it was unreasonable for BCP to reject the offer that was put to it, not a hypothetical offer that might have been made after further negotiations between the parties. I do not by this observation mean to condone BCP's conduct in this regard. In my view it was inappropriate. However, in the present case I do not consider it sufficient to tip the scales in favour of Host. 35 In these circumstances, in my view it cannot be regarded as unreasonable for BCP to refuse the offer as made. 36 The position in relation to the Second Offer is slightly different, because by then the proceedings were well advanced and a substantial amount of evidence had been filed. However, a number of the considerations that I have raised above also apply and lead me to the conclusion, on a more tightly balanced scale, that the failure to accept the Second Offer has not been shown to be unreasonable. 37 First, the factors identified in paragraphs [30] - [33] above continued to apply. 38 Secondly, the second and third affidavits of Mr Hesse, being the answer to Host's revocation evidence, had not been filed. It was the absence of a coherent picture of relevant trade mark use before the filing dates of the Bohemia marks that materially contributed to the conclusion that the requirements of ss 41(5) and 41(6) of the TM Act had not been satisfied. In my view it was not unreasonable at this stage for BCP to maintain its view that the Bohemia marks were valid and, therefore, that it might reasonably succeed in the proceedings. 39 Thirdly, the Second Offer required a payment of 50% of Host's costs in the matter to date, namely $89,408. It also required releases given by BCP in broad terms from all actions arising against Host, whether Bohemia was aware of the existence of a liability or not, in connection with the use of the word "Bohemia". There was no promise not to take action for the cancellation of the Bohemia marks. It is true that in this offer Host made a clear undertaking not to use either of the Bohemia marks. But on balance, in my view, BCP did not have certainty that the underlying dispute would be resolved, and would have continuing uncertainty as to whether or not its trade marks would be challenged by Host in the future. See, in analogous circumstances, Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd [2018] FCAFC 6; 128 IPR 255 (Nicholas, Yates, Beach JJ) at [242]. 40 Taking these matters together, I am not satisfied that it was unreasonable to reject the Second Offer. 41 Accordingly, the orders to be made are:

1. The applicant pay the respondents costs in relation to the application and the cross-claim.
2. The cross-claim be otherwise dismissed.
3. The application be dismissed. I certify that the preceding forty one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Burley.