Facton Ltd v Erdogan

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 1191 of 2011

JUDGE: MURPHY J DATE: 20 AUGUST 2012 PLACE: MELBOURNE

REASONS FOR JUDGMENT (revised from transcript) 1 I heard this application for default judgment today. The applicants have requested the speedy delivery of short reasons together with the orders so that they can immediately enforce the judgment obtained. These short reasons have been prepared on the basis that if, during the appeal period, either party requests more detailed reasons I will provide them. 2 The applicants seek declarations and damages to be paid by the respondent for trademark and copyright infringement, false representations in trade and commerce and passing off. The application is brought by three companies, all members of the G-Star group. The first applicant Facton Ltd, a company incorporated in Hungary, owns the Australian Trade Marks relating to G-Star Products ("G-Star Trademarks"). It has granted an exclusive licence to use the G-Star Trademarks to the second applicant G-Star Raw C.V., a company incorporated in The Netherlands. The second applicant also holds copyright in two G-Star "G" logos ("the G-Star Logos") ("the Copyright Works") and has since 1989 designed, marketed, distributed and sold around the world, clothing and clothing accessories branded with and by reference to the name "G-Star" ("G-Star Products"). The third applicant G-Star Australia Pty Ltd, a company incorporated in Australia, is and was at all material times the exclusive Australian distributor of G-Star Products. 3 The respondent, Mr Ali Erdogan, is the lessee of two shops in New South Wales at 75-77 Auburn Road, Auburn NSW ("Auburn Premises") and 170 Burwood Road, Burwood NSW ("Burwood Premises"). The applicants contend that since at least 27 October 2011, without their knowledge, authority or licence, he has imported, manufactured, advertised, marketed, distributed, offered for sale and sold clothing and clothing accessories in Australia which: (a) feature the G-Star Trademarks, or marks which are substantially identical with or deceptively similar to them, and which were placed on the items without the knowledge, authority or licence of the applicants or any of them; (b) bear logos which reproduce or substantially reproduce the G-Star Logos, and which were placed on the items without the knowledge, authority or licence of the applicants or any of them ("Counterfeit G-Star Products").

Default Judgment 4 Rule 5.23(2)(c) of the Federal Court Rules 2011 provides that in a proceeding commenced by way of a statement of claim such as this, if a respondent is in default the applicant may apply to the Court for "an order giving judgment for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled." Rule 5.22 makes it clear that Mr Erdogan is in default, as he has not filed a defence and has not complied with several orders of this Court. 5 The applicants having brought the proceeding let by way of statement of claim, r 5.23(2)(c) does not require them to provide proof by way of evidence of their claim. For the Court to order judgment in default it need only be satisfied on the face of the statement of claim that there is a claim for the relief sought, and that the Court has jurisdiction: Arthur v Vaupotc Investments Pty Ltd [2005] FCA 433 at [3]; ACCC v Albert [2005] FCA 1311 at [6] to [7].

The Facts disclosed on the Pleadings and Affidavits 6 I am satisfied on the face of the statement of claim that there is a valid claim for the relief sought. I am confirmed in this view by 14 affidavits relied on by the applicants in support of default judgment. The essential facts disclosed on the face of the statement of claim, and in the affidavits, are as follows. 7 The applicants have a substantial, exclusive and valuable reputation and goodwill in Australia by reference to the G-Star Trade Marks and the G-Star Logos. These trademarks and logos are featured on the G-Star Products and on packaging, promotional and advertising material relating to the sale of those products. The trademarks and the G-Star Logos are, and have at all material times been known to be, distinctive of and signify exclusively the business and goods of the applicants. The applicants own the goodwill and the reputation in Australia in the G-Star Products, the G-Star Trade Marks, and the G-Star Logos. 8 The respondent is the lessee of both the Auburn Premises and the Burwood Premises. He leased the Auburn Premises from 1 August 2011, but it is unknown when the lease on the Burwood Premises commenced. As at 27 October 2011 over 100 items of G-Star branded stock were on display for sale at the Auburn Premises. As at 28 October 2011 over 100 items of G-Star branded stock were also on display for sale at the Burwood Premises. G-Star branded items were sold from each of those premises on the date specified. 9 Pursuant to a Court order on 3 November 2011 229 G-Star branded items, being units of clothing and clothing accessories, were seized from the Burwood Premises, together with four exercise books recording sales apparently made at those premises covering the period from 16 April 2011 to 2 November 2011 ("Burwood Sales Books"). While the date of the commencement of the lease of those premises is unknown, the Burwood Sales Books make clear that the respondent was selling clothing and clothing accessories from at least April 2011 to the date of the seizure order. 10 On the same date and pursuant to the same order, 111 G-Star branded items were seized from the Auburn Premises together with one exercise book recording sales apparently made at those premises ("Auburn Sales Book"). The Auburn Sales Book records that on Sunday, 31 October 2011 35 G-Star shirts were sold at that store. 11 A perusal of the seized G-Star branded clothing and accessories by senior employees of the applicants identified that they were not genuine G-Star Products, that is they were Counterfeit G-Star Products. 12 Since at least 27 October 2011 the respondent has: (a) infringed the G-Star Trade Marks by using a mark or marks in the course of trade which are substantially identical with or deceptively similar to the G-Star Trade Marks, in connection with the goods in respect of which that G-Star Trade Marks are registered; (b) without the licence or authority of the second applicant, infringed or authorised infringement of the second applicant's copyright in the G-Star Logos by reproducing or substantially reproducing the G-Star Logos or authorising such conduct, and importing, selling, or by way of trade offering or exposing for sale Counterfeit G-Star Products where the respondent knew or ought reasonably to have known that the making of the items if they were made in Australia would have constituted an infringement of the second applicant's copyright in the G-Star Logos. (c) made false representations in trade or commerce in Australia that the Counterfeit G-Star Products were imported, manufactured, advertised, promoted, offered for sale or sold with the sponsorship or approval of the applicants, or any of them, when in fact they were not; (d) passed himself off as the applicants, or any of them, and has passed off the Counterfeit G-Star Products for genuine G-Star Products and as having the sponsorship, approval or a connection or affiliation with the applicants, or any of them, and the G-Star Products.

Declaratory relief 13 The applicants seeks declarations that the respondent has: (a) infringed the Trade Marks in breach of s 120(1) of the Trade Marks Act 1995 (Cth) ("Trade Marks Act"); (b) infringed the Copyright Works in breach of s 36 of the Copyright Act 1968 (Cth) ("Copyright Act") or authorised such conduct; (c) infringed the Copyright Works in breach of ss 37 and/or 38 of the Copyright Act; (d) by its false and misleading representations breached ss 18 and 29 of the Australian Consumer Law (NSW) (by operation of section 28 of the Fair Trading Act 1987 (NSW) as found in Schedule 2 of the Competition and Consumer Act 2010 (Cth) ("ACL (NSW)"); and (e) engaged in conduct that constitutes passing off. 14 The Court has a broad discretionary power to grant declaratory relief and I consider it is appropriate to do so in this matter. I have granted declaratory relief in the terms sought by the applicants. To grant such relief serves to vindicate the applicants' claims and records the Court's disapproval of the respondent's conduct in importing, manufacturing, advertising, marketing, distributing, offering for sale and selling the Counterfeit G-Star Products.

Injunctive relief 15 The applicants also seek injunctive relief restraining the respondent from further breaches of the same type. The power of the Court to grant such relief is controlled by the concluding words of s 80(1) of the Competition and Consumer Act 2010 (Cth), to do so "in such terms as the Court determines to be appropriate". I have granted injunctive relief in the terms in which it was sought by the applicants. In my view the injunctions sought clearly set out the conduct that the respondent is bound to refrain from, and there is a clear and sufficient nexus between the injunctions and the matter before the Court. In summary they operate to restrain the respondent from again importing, manufacturing, advertising, marketing, distributing, offering for sale and selling Counterfeit G-Star Products, or assisting, causing, procuring or inducing any person to do any act which would be an infringement of that restraint. They operate to restrain the respondent from representing that Counterfeit G-Star Products are genuine G-Star Products, or that they emanate from the same trade source, or are made by the applicants or any of them.

Damages 16 The applicants seek the following damages for the respondent's breach of the second applicant's copyright rights in the Copyright Works (as defined in paragraph 8 of the Statement of Claim): (a) general damages pursuant to section 115(2) of the Copyright Act including damages for loss of reputation; and (b) additional damages pursuant to section 115(4) of the Copyright Act. In the statement of claim the applicants also seek damages for the trade mark infringement with respect to the G-Star Trade Marks, the false and misleading representations in breach of the ACL (NSW), and for passing off. However, the applicants accept that it would be "double dipping" for them to receive damages for copyright infringement, and to also do so under the other causes of action pleaded. Accordingly, as I have found the applicants are entitled to damages for the breaches of the Copyright Act I will not order damages for the other breaches.

General damages - Lost Sales 17 Section 115(2) of the Copyright Act provides that the Court may grant damages or an account of profits in an action for infringement of copyright. The applicants have made an election for damages over an account of profits. Such damages are compensatory in nature and are for the depreciation to the value of the applicants' copyright. 18 It is clear that Counterfeit G-Star Products were offered for sale at both the Auburn Premises and at the Burwood Premises. However the respondent has failed to comply with orders made and has not particularised the sales which he made of G-Star branded items or provided copies of any financial documents, invoices or purchase orders showing the quantity of such items offered for sale and sold by him, or the profits derived from such sales. As a result the applicants are unable to quantify the exact amount in lost sales resulting from the respondent's sales of Counterfeit G-Star Products. 19 The lease on the Auburn Premises commenced on 1 August 2011 and the applicants' investigation commenced on 27 October 2011. The applicants invited me to draw the inference that the Burwood Premises operated for the same time period as the Auburn Premises. However I am unable to do so as there is no claim and no evidence upon which I might base such an inference. Having said this, the Burwood Sales Books indicate that the respondent was selling clothing and clothing accessories from April 2011, either from those premises or other premises. I infer that the goods sold included some Counterfeit G-Star Products. 20 I have assessed damages by making an estimate of the sales lost by the applicant as a result of the infringing conduct, which involved an attempt to identify the number of infringing sales, the value of the sales, and the profit margin which the applicant would have secured on those sales: see Deckers Outdoor Corporation Inc v Farley and Ors (No 5) [2009] FCA 1298. 21 As to the number of sales, the evidence is that in late October 2011 more than 200 Counterfeit G-Star Products were offered for sale at the two premises. The Auburn Sales Book shows that 35 shirts identified as being G-Star branded were sold on one Sunday alone. The Sales Books from both premises also show a much greater number of sales of shirts, jackets, tops and belts without disclosing whether they are G-Star branded or not. I infer from the fact that 35 shirts identified as G-Star branded were sold on one Sunday, and that several hundred were on offer for sale in late October 2011, that the respondent sold a large number of Counterfeit G-Star Products in the 12 week period claimed by the applicants. 22 The applicants submit that the respondent would have sold 10 Counterfeit G-Star Products per week at each store, plus the 35 Counterfeit G-Star Products that are specifically identified as having been sold. An estimate based upon 10 sales per week per store is a modest estimate. Whether the Burwood Premises were open for the whole of the 12 week period claimed or not, it is clear from the Burwood Sales Book that the respondent was selling clothing and accessories in that period. In my view it is reasonable to assess damages on the basis that 275 Counterfeit G-Star Products were sold by the respondent. In so far as this estimate may be unfair to the respondent, which I doubt, I note that the inability to better estimate sales arises from his failure to comply with orders made, and he should not benefit from that failure. 23 Affidavit evidence is before me as to the wholesale price for which G-Star Australia sells G-Star Products to its retail customers, and the average percentage mark-up charged by the second applicant to G-Star Australia for the products. Using this information to perform the calculation, the applicants seek general damages for copyright infringement, based on sales of 275 Counterfeit G-Star Products, in the amount of $8,662.50. I order general damages for lost sales in that amount.

General damages - Damage to Reputation 24 The applicants also claim that as a result of the counterfeit items being sold and being available in the marketplace the reputation of the G-Star Products, its "exclusivity" in the marketplace, and the "G-Star" brand per se, have been damaged. 25 The singularity, distinctiveness, quality and commercial value of the applicants' reputation are claimed in the pleading, and confirmed by the affidavits filed. The applicants have a substantial, exclusive and valuable reputation in Australia in relation to their trademark brands and goods. 26 I consider that the respondent's infringements resulted in some probable diminution in the commercial value of the G-Star Logos and Trademarks in respect of its future use, causing a probable diminution in its value as a chose in action. I also consider that the respondent's infringement is likely to have had some adverse effect on the reputation and the exclusivity of G-Star Products and the G-Star brand. The commercial value of the brand has likely been diminished by the sale of the counterfeit items because G-Star Products may not be considered to be as exclusive. Bromberg J reached a similar conclusion in relation to counterfeit G-Star Products in Facton Ltd v Rifai Fashions Pty Ltd [2011] FCA 290 at [26]-[28]. An award of damages for such losses is appropriate: Review Australia Pty Ltd v New Cover Group Pty Ltd (2008) 79 IPR 236, Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd (2008) 166 FCR 358. 27 It is not easy in this case to identify the value of the loss of reputation suffered by the applicants in monetary terms, but it is clear that I am obliged to do so if possible: Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83. In Facton Ltd and Ors v Rifai Fashions Pty Ltd [2012] FCAFC 9 ("Rifai No 2") the Full Court per Lander, Gilmour and Gordon JJ assessed the loss of reputation suffered by the same applicants in similar circumstances. The infringing conduct in that case occurred on a somewhat larger scale than in this case, as approximately 2,857 garments were seized by Customs, 340 units were seized during the execution of a search order, and 140 garments were found to have been sold from the respondents' market stall. Gilmour J noted: The appellants seek reputational damages in the sum of $35,000. I consider that to be excessive. The appellants are part of a multi-global group of companies with some 4,600 retail outlets in forty countries. Rifai Fashions is on any view a minnow by comparison. The loss of reputation suffered is likewise likely to have been minimal even if confined to the Australian context. I consider an award of $5,000 to be adequate. I note that, although their Honours did not interfere with the assessment of damages by Gilmour J, the majority appeared to consider that the award might have been higher: Rifai No 2 at [29] per Lander and Gordon JJ. 28 The applicants seek to distinguish Rifai No 2 on the basis that the counterfeit G-Star items were sold from market stalls, whereas here the respondent was selling the garments from stores in a shopping strip. The applicants submit, and I accept, that consumers are more likely to believe that a Counterfeit G-Star Product is genuine if it is sold from a retail shop rather than from a market stall. The applicants therefore submit that their reputation in the G-Star brand has been damaged more than in Rifai No 2. On the other hand, the volume of counterfeit goods intended for sale was much greater in Rifai No 2, which points towards a lower award in the present case. 29 I agree with the observations of Gilmour J that when, as here, an infringer is a minnow in the market it is hard to see, in the context of a large global operation like G-Star, that the damage to its reputation in Australia is likely to be more than minimal. However, taking into account that the sales were made from a retail shop in a shopping strip rather than from a market stall, I order damages for loss of reputation in the sum of $10,000.

Additional Damages 30 Section 115(4) of the Copyright Act gives the Court a discretion to award an amount in additional damages if an infringement of copyright is established. Section 115(4) of the Copyright Act sets out a number of non-exhaustive considerations that a court can look at in making an assessment of additional damages being the flagrancy of the infringement, the need to deter similar infringements of copyright, the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff's copyright, and any benefit shown to have accrued to the defendant by reason of the infringement. 31 Various of the factors identified in s 115(4) are present in this case. I consider that in infringing the copyright in the way that he did the respondent has acted in flagrant disregard of the applicants' rights. There is a need for general deterrence to deter others who might be inclined to infringe copyright in a similar way. The authorities illustrate the importance of discouraging market practices of the kind engaged in by the respondent: Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564 at [116]. 32 The respondent's conduct after being informed that he had infringed copyright is also a relevant factor. He has shown a complete disregard for the proceedings, and for the orders of the Court, having failed to appear in any of the directions hearings or file a defence. There can be little doubt that he is aware of the proceedings, and he has failed to acknowledge or seek to repair his wrongful conduct in any way. In Review Australia v New Cover Group Kenny J awarded additional damages on the basis that the respondent had failed to take an active role in the proceeding and that due to this failure there was "a very strong possibility that the extent of the infringement has been underestimated". The same considerations apply here. 33 It is also relevant that the evidence shows that the marks used on the Counterfeit G-Star Products are good copies of the Copyright Works. The respondent has likely gained a significant commercial advantage by selling products which falsely bear the G-Star Logo as he was able to charge a premium above what he could charge for similar products without the brand. He was therefore able to trade on the long and substantial investment made by the applicants in promoting their products and their brand. 34 Another factor relevant to the assessment of additional damages is the individual circumstances of the respondent. Because such an award is meant to act as a punishment, any award must be tailored to reflect the respondent's circumstances: Rifai No 2 at [46]. I have little information before me as to the respondent's circumstances which adds to the difficulty of the task. Having said this, I am inclined to infer from the scale of his operation that he is a "small player" in sales terms, which feeds into the assessment I have reached. 35 The applicants referred to various authorities in which additional damages ranging from $10,000 through to $3.5 million have been awarded by the Court. For example in the case of Rifai No 2 which had some significant similarities, the Full Court awarded additional damages of $25,000. However that was a case in which the infringing conduct was on a greater scale, and the respondents had continued to sell the infringing garments despite having other infringing garments seized by Customs and signing two sets of undertakings to cease doing so. That conduct can only have operated to increase the damages payable. There is no such conduct in this case and I consider a lower award is appropriate. I hold this view even though in this case the respondent took no active part in the proceeding, unlike in Rifai No 2. 36 I consider that an award of additional damages of $17,000 is appropriate.

conclusion 37 I grant the declarations sought and order the injunctive relief and damages set out in the orders. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy.