Fanatics, LLC v FanFirm Pty Limited

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

1. On 17 July 2024, a judge of this Court found Fanatics, LLC, now the appellant, liable for trademark infringement of a word mark and a flag mark registered to FanFirm Pty Limited, the applicant below and now the appeal respondent, and made a declaration to that effect: FanFirm Pty Limited v Fanatics, LLC [2024] FCA 764 (Liability Judgment or LJ). The primary judge permanently injuncted Fanatics from using the word mark and related restraints (the injunction), and made orders for the rectification of the Register of Trade Marks (the rectification orders).
2. Fanatics subsequently made two applications to stay the primary judge's orders until after the determination of its appeal of the Liability Judgment. This judgment pertains to the question of costs for both applications, with the primary judge having agreed to me deciding the question of costs arising from the stay application before her Honour (first stay application) with the stay application before me (second stay application). That way of addressing the question of costs was the most convenient course. The parties were content to have the question determined on the papers. Written submissions in chief and in reply were furnished by both sides.
3. The first stay application was determined by the primary judge: FanFirm Pty Limited v Fanatics, LLC (No 2) [2024] FCA 826 (First Stay Judgment or SJ-1). Her Honour granted a stay of the rectification orders, and granted a short stay of the injunction to allow Fanatics to ensure compliance with it. It should be noted that there is some nuance to the description of this as the "first stay application" given that no formal application was filed, but it is nonetheless convenient to do so: see [10] below.
4. The second stay application was brought afresh in the context of the appeal of the Liability Judgement, under r 36.08(2) of the Federal Court Rules 2011 (Cth). Having been successful in staying the rectification orders, this application sought only a stay of the injunction. It was determined by me, as duty judge: Fanatics, LLC v FanFirm Pty Limited [2024] FCA 920 (Second Stay Judgment or SJ-2).
5. I ordered a short complete stay of the injunction to ensure Fanatics could comply with its terms, and thereafter a limited stay of the injunction in substance being terms proffered by FanFirm as a compromise to the wider stay sought by Fanatics: see SJ-2 [10], [34]. That compromise was offered to meet Fanatics' concerns about the difficulties in complying with the injunction:

(a) that it would affect its websites that facilitated customer returns; and

(b) Fanatics could not sell garments that used the impugned marks only on the care label, and these care labels could not be changed without great expense as they were designed for use in a number of countries and must comply with a wide range of regulations.

1. Fanatics seeks order that the costs of the stay applications be costs in the cause of the appeal, or alternatively reserved for determination by the Court determining its appeal. FanFirm contends it should have its costs in both stay applications.
2. There are two central disagreements between the parties, which I deal with in turn:

(a) on the characterisation of the stay applications, and specifically as to whether they can properly be characterised as successful or partially successful, and whether the conduct of FanFirm contributed to their cost;

(b) on the legal principles applicable to the award of costs in interlocutory applications.

1. On 17 July 2024, the primary judge delivered the Liability Judgment, including orders for rectification of the Register of Trade Marks and the injunction, each with immediate effect. Shortly thereafter, Fanatics contacted the chambers of the primary judge urgently seeking a stay of the injunction order: SJ-1[2]. The primary judge stayed the injunction and rectification orders until 24 July 2024.
2. The primary judge's chambers replied to Fanatics' request, stating that her Honour proposed a further stay of the rectification and injunction orders until 28 days after the resolution of the appeal.
3. The following day, FanFirm objected to the proposed orders and requested a hearing. Fanatics responded asking to be heard on the matter as well. Although Fanatics had not proposed the stay of the rectification orders, it clearly embraced it by its request to be heard in response to FanFirm's objection. While no interlocutory application was filed, it is convenient to refer to the form of stay orders proposed by the primary judge as the first stay application.
4. A hearing on the first stay application was convened at short notice, on Tuesday 23 July 2024. The outcome, as noted above, was a stay of the rectification orders (subject to Fanatics proffering the undertaking set out at SJ-1[18]), and a short stay of the injunction to enable Fanatics to ensure compliance with its terms. The primary judge also granted leave for Fanatics to appeal the Liability Judgment, which was necessary due to it being interlocutory in nature: see Monash Health v Singh [2023] FCAFC 166; 327 IR 196 at [38]- [44].
5. On the day of the hearing of the first stay application, FanFirm advised it no longer opposed a stay of the rectification orders, but pressed its objection in relation to the injunction order. Thus, while stay of the rectification orders was not in dispute at the first stay application hearing, FanFirm's prior indication that it objected to that stay meant that some resources were expended by Fanatics in preparation for argument on that point. FanFirm submits that it was an order affecting both parties, referring to SJ-1[31], but that is beside the point. Fanatics pressed for and was granted this order, which had been contested until the time of hearing.
6. That said, there was not much to this aspect of the first stay application. The evidence adduced by Fanatics at the first stay application largely related to the stay of the injunction. Evidence on the effect of the rectification order on Fanatics was limited to the following statement in the affidavit of Ms Katherine Hay:

[18] Based on my many years of conducting intellectual property litigation, and based on matters on which I have been informed by Lan Nguyen, Senior Vice President and Head of Litigation and Regulatory at Fanatics as discussed below, I believe that if the Proposed Further Stay Order is not granted and Fanatics' appeal is ultimately successful, the granting of the Injunction and the Removal of the '633 and '681 FANATICS Marks and '688 Mark in Class 35 would deprive Fanatics of the fruits of its appeal and cause irreparable harm to it. In particular, I believe this because:

(a) ...

(b) once its registered FANATICS and Marks are removed from the Register of Trade Marks, to the best of my knowledge, I am not aware of any mechanism under the Trade Marks Act 1995 (Cth) (or otherwise) whereby they can be reinstated with retrospective effect.

1. I turn then to the injunction order, which was the core of the first stay application. Fanatics contends that the short stay of the injunction order should also be considered a partial success of this part of its application. I am unable to accept that as a fair characterisation.
2. The primary judge ordered the short stay to allow Fanatics to make arrangements to comply with the injunction, including geo-blocking: SJ-1[63]. At the hearing of the first stay application, Fanatics had pressed for a stay until after the determination of its appeal and contended that far longer would be needed to implement such arrangements. There was a particular dispute between the parties on the question of how long it would take to implement geo-blocking of its websites: see SJ-1[29(c)], [46]. FanFirm adduced expert evidence that this would be a relatively short process, which was preferred by the primary judge over the general statement of belief in the affidavit of Ms Hay that this would be a longer process: SJ-1[21]-[24]. [29(c)], [61].
3. Finally, Fanatics complains that it only had a short period to prepare evidence for hearing, and that FanFirm criticised that evidence adduced as lacking detail. While that may have been the reality of the situation, it does not change the fact that Fanatics bore the onus of establishing that it had a prima facie case on appeal and that the balance of convenience favoured the stays sought. That its stay application might be challenged should have come as no surprise to Fanatics. FanFirm's challenges to the evidence Fanatics had adduced were legitimate and, in large part, successful.
4. Clearly the short stay that was ordered was far short of the remedy Fanatics sought, and was the outcome of evidence adduced by FanFirm to the effect that the necessary arrangements could be made relatively quickly. The short stay granted therefore cannot fairly be characterised as even a partial success for Fanatics in this part of the first stay application, at least for costs purposes.

1. The second stay application was filed by Fanatics on 1 August 2024 on the same day as its appeal of the Liability Judgment. It was heard by me on 12 August 2024 in my capacity as duty judge, with judgment delivered on 14 August 2024. As noted above, this application sought only the stay of the injunction until determination of the appeal, the stay of the rectification orders having been granted ultimately without opposition.
2. Prior to the hearing of the second stay application, Fanatics filed an affidavit of Mr Jeffrey Patrick Budway, an executive of the Canadian and Australia New Zealand divisions of Fanatics, affirmed 1 August 2024. In his affidavit, Mr Budway outlined two key concerns if the injunction was not stayed:

(a) The first concern was that Fanatics would only be able to sell garments where the only use of the impugned marks was on their small internal care labels. That internal care label was used on Fanatics garments sold globally, and had been developed to comply with the clothing information requirements for a number of countries. Fanatics would either need to develop and implement an Australian-specific care label for only use on its Australian garments, or develop and implement a new global care label. Either process would onerous and disrupt its global supply chain.

(b) The second concern was that the geo-blocking of Fanatics' e-Commerce stores in Australia would make it difficult for customers to return garments, as they would not be able to access return portals on its websites.

1. In response to these concerns, on Friday 9 August 2024, ahead of the hearing of the second stay application on Monday 12 August 2024, FanFirm proffered a limited stay of the injunction. In substance, the limited stay permitted the use of the impugned marks on the care label and in connection with customer returns. The precise terms of the limited stay proffered were provided by FanFirm in the afternoon of the day of the hearing of the second stay application.
2. In its written submissions, Fanatics attempts to make something of the fact that this limited stay was proffered only shortly before the hearing. However, even in the face of the limited stay proffered, Fanatics pressed its application for a complete stay of the injunction until the determination of the appeal. Indeed, at the hearing, Fanatics expressed reservations that a limited stay would adequately meet its concerns about customer returns: SJ-2[29].
3. There was no obligation for FanFirm to offer such a compromise, and its attempt to address Fanatics' concerns in this way was prudent and reasonable. At no point did Fanatics itself proffer a form of compromise. No evidence has been adduced by Fanatics to show that it would have accepted the compromise if it had been proffered sooner. I am therefore not inclined to consider the late stage at which the compromise was offered materially weighs against FanFirm on the question of costs.
4. In substance, the second stay application failed apart from a limited and pragmatic delay, largely to facilitate compliance. The nature of the stay that I ultimately ordered was far short of that sought by Fanatics.

1. There is some dispute between the parties as to whether there is a general rule or practice of the Court that costs should be in the cause or reserved to the Court determining the appeal where an application has been wholly or partially successful. Fanatics contends there is such a rule or practice; FanFirm contends there is not. I had the opportunity to summarise the general principles in Al Muderis v Nine Network Australia Pty Limited (No 3) [2024] FCA 204 at [5]:

The award of costs is at the discretion of the Court: Federal Court of Australia Act 1976 (Cth) s 43(2). The discretion is not unconfined; rather, it must be exercised judicially, not arbitrarily or capriciously or on grounds unconnected with the litigation, having regard to relevant principles and the justice of the case in all the circumstances: Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs v Mukiza [2022] FCAFC 105 at [4] (Markovic, Thawley and Cheeseman JJ). Where no order is made as to costs following an interlocutory application or hearing, r 40.04 of the Federal Court Rules 2011 (Cth) provides that costs will follow the event, often referred to as the "default position" on costs: see Australian Securities and Investments Commission, in the matter of Whitebox Trading Pty Ltd v Whitebox Trading Pty Ltd (No 2) [2017] FCA 385 at [5] (Gleeson J), citing James v Commonwealth Bank of Australia (No 2) [2015] FCA 599 at [20] (Katzmann J); cf DHP19 v Secretary of the Department of Health (No 2) [2019] FCA 1531 at [4] (Thawley J).

1. As reflected by the default position identified in the passage above, the general position is that a successful party gets its costs. Viewed in that way, it was for Fanatics to persuade me to depart from that starting proposition. Weighing against that is consideration of any irreparable harm that may be done to a party that is unsuccessful in an interlocutory application, but ultimately successful in its appeal, if it must pay the costs for that failed (or substantially failed) application. Where an application was successful only in part, or led to an outcome short of that sought by the applicant for interlocutory relief, the position on costs is complicated further: see, eg, Dyer v Chrysanthou (No 4) [2022] FCA 51 at [49]. Here the failure was all but complete, and Fanatics' limited success was largely immaterial when it came to the question of costs.

1. Despite the submissions as to principle from both parties, I do not consider these principles ultimately to be controversial. The real dispute of significance as to costs, is the proper characterisation of the outcome of the stay applications, which I have largely determined in favour of FanFirm. Though Fanatics contends otherwise, it was truly only successful in one relatively small part of one of its stay applications as to rectification, and not really at all as to the injunction. It is not generally desirable to apportion costs upon that sort of basis.
2. I do not find compelling Fanatics' argument that the outcome of the appeal has any substantial part to play in the determination of the costs of the two applications in the particular circumstances of this case. Weighing all of the competing considerations, I have concluded that costs should follow the event in accordance with the default position suggested by r 40.04 of the Federal Court Rules. It follows that Fanatics must be ordered to pay FanFirm's costs of the two stay applications and, for clarity, the costs of the two related costs applications.

I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Bromwich.