Koninklijke Douwe Egberts BV v Cantarella Bros Pty Ltd

THE COURT ORDERS THAT:

1. The applicants pay the respondent's costs of the proceeding (including the cross-claim) on a party and party basis.
2. By 4.00 pm on 6 February 2025, the parties submit to the Chambers of the Hon. Justice Wheelahan proposed consent orders relating to the procedure for the assessment of those costs. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (Ex tempore, revised) WHEELAHAN J:
3. The respondent (Cantarella) seeks its costs of the proceeding in consequence of the dismissal of the applicants' claims and the most substantial elements of Cantarella's cross-claim: Koninklijke Douwe Egberts BV v Cantarella Bros Pty Ltd [2024] FCA 1277 (J). The applicants oppose the application for costs and submit that there should be no order for costs.
4. The applicants' claims of trade mark infringement, contravention of the Australian Consumer Law (ACL), and passing off failed. However, a cross-claim brought by Cantarella seeking cancellation of the first applicant's trade mark and other relief, which involved a substantial root and branch attack on the entitlement of the first applicant (KDE) to maintain registration of its trade mark, also substantially failed. In these circumstances, there is a dispute as to what order for costs of the proceeding should follow. There is an additional question whether the rejection by the applicants of an offer by Cantarella to compromise the proceeding which was made prior to trial should result in an order for costs in favour of Cantarella on an indemnity basis from the time of expiration of the offer.

Summary of the issues at trial

1. The applicants and Cantarella market and sell freeze-dried instant coffee in glass jars. KDE is the registered owner of a three-dimensional trade mark (KDE shape mark) which depicts a cylindrical container with a lid. The applicants alleged that their competitor, Cantarella, used the shape of a cylindrical glass jar for its 400-gram coffee product as a trade mark, and that for trade mark infringement purposes it was deceptively similar to the KDE shape mark. The applicants also alleged that Cantarella had contravened the ACL and engaged in the tort of passing off. These claims resulted in several issues arising on the claim and the cross-claim which were formulated by the parties and which were set out at J [229]-[231] -
2. Should the KDE shape mark be cancelled on the ground that it lacks distinctiveness?
3. Should the KDE shape mark be cancelled on the ground that, as at the priority date, KDE did not intend to use or authorise the use of the KDE shape mark in Australia as a trade mark in relation to instant coffee?
4. Should the KDE shape mark be removed from the Register on the ground that at no time in the period of three years prior to the filing of the cross-claim did KDE use the KDE shape mark in Australia as a trade mark in relation to instant coffee?
5. Should the KDE shape mark be cancelled on the ground that the Registrar accepted the application for registration on the basis of evidence or representations that were false in material particulars, or on the ground that it was entered on the Register as a result of false suggestion or misrepresentation?
6. Should the KDE shape mark be cancelled on the ground that the application for registration was made in bad faith?
7. Should the Court exercise statutory discretions in favour of KDE to refuse to cancel or remove the KDE shape mark?
8. Is the second applicant (JDE AU), and has JDE AU been at all material times, an authorised user in Australia of the KDE shape mark?
9. Has Cantarella's marketing and sale of its Vittoria 400-gram product in a glass jar involved the use of the shape of that jar as a trade mark?
10. Is the jar of the Vittoria 400-gram product deceptively similar to the KDE shape mark?
11. Has the applicants' promotion and sale in Australia of coffee products in a clear glass jar resulted in the acquisition of substantial distinctive goodwill and reputation?
12. By its marketing and sale of coffee in the Vittoria 400-gram product, is Cantarella likely to mislead a number of ordinary and reasonable consumers of coffee in Australia into the erroneous belief that the Vittoria 400-gram product emanates from the applicants or is otherwise connected, associated or affiliated with the applicants and their coffee products?
13. Has Cantarella thereby injured the goodwill and reputation of the applicants?
14. Did the applicants make unjustified threats to bring an action against Cantarella on the ground that Cantarella has infringed the KDE shape mark?
15. Issues (1) to (6) arose on the cross-claim, and were logically anterior to the applicants' claims of trade mark infringement. Issues (7), (8), and (9) related to the applicants' claims of trade mark infringement. Issues (10), (11) and (12) related primarily to the applicants' claims of contravention of the ACL and passing off. However, there was much overlap between some of the issues. For example, the question of authorised use of the trade mark by the second applicant arose in relation to both issues (3) and (7). The question of any acquired distinctiveness of the KDE shape mark, which was relevant to the challenge to the registration of the mark, was also relevant to issue (10) concerning the applicants' goodwill and reputation. The extent of the distinctiveness of the KDE shape mark was also relevant to the question of deceptive similarity under issue (8). And the rejection of the applicants' claim of deceptive similarity for trade mark infringement purposes led to a similar result in relation to the applicants' claims of contravention of the ACL and passing off, while noting that the elements of the causes of action were different, and the factual enquiries that they invited were not identical. On a broader level, there were some common legal issues. For instance, the use of marks as a trade mark was a common issue. It was held for the purposes of the cross-claim that during the relevant periods the applicants had used the KDE shape mark as a trade mark, but for the purposes of the applicants' claim that Cantarella had not used its 400-gram jar as a trade mark.
16. On the other hand, issues (4) and (5) raised on the cross-claim, namely the claims of false suggestion and bad faith, were more distinct. In the overall scheme of things, the false suggestion claim did not occupy significant time, as it did not depend on witness evidence, but turned on the documentary evidence.
17. As to issue (13), the finding of unjustified threats followed necessarily as a result of the rejection of the applicants' claims of trade mark infringement. However, Cantarella's cross-claims for declarations and injunctive relief were rejected. Its cross-claim for damages and additional damages was compromised after judgment, with the result that a consent order was made by which damages were assessed in the nominal sum of $1.

The terms of Cantarella's Calderbank offer

1. Prior to the commencement of the proceeding, correspondence was exchanged between the parties and their solicitors. The applicants made certain demands on Cantarella, which it rejected. Cantarella foreshadowed that if the applicants commenced proceedings, it would defend the proceedings, including by challenging the validity of the KDE shape mark.
2. On 21 December 2023, which was after the parties had filed their evidence, but before written opening submissions were due, the solicitors for Cantarella sent a considered letter to the solicitors for the applicants setting out a proposal for the compromise of the proceedings on a non-admissions basis. The proposal was as follows -
3. the Applicants agree to: (a) discontinue the proceedings against Cantarella; (b) pay Cantarella's legal costs incurred in the proceedings on a party- party basis up to and including 15 December 2023 (assuming a 60% recovery of total costs incurred, excluding GST), such payment to be made by 28 February 2024; and (c) subject to compliance by Cantarella with paragraph 2 below, not assert the Shape Mark against Cantarella Bros Pty Ltd or its related entities, or allege contraventions of the Australian Consumer Law or passing off, in relation to the Vittoria 400g Product; and
4. Cantarella agrees to: (a) subject to compliance with paragraphs 1(a) and (b) above, discontinue the cross-claim against the applicants; and (b) subject to compliance with paragraph 1 above, not challenge or seek to have cancelled or revoked the registration of the Shape Mark, nor assist any third parties to challenge or seek to have cancelled or revoked the registration of the Shape Mark.
5. Four features of Cantarella's proposal should be noted. First, Cantarella sought payment of its legal costs of the proceeding, which I interpret to include its costs of the cross-claim. Secondly, although Cantarella sought payment of its costs "on a party-party basis", it appears that the substance of the proposal was that the applicants should pay 60% of the costs that Cantarella had actually incurred, because payment was required by 28 February 2024 and there was no other mechanism in the offer for the assessment of party and party costs. Thirdly, subject to discontinuance and payment of legal costs by the required date, Cantarella would abandon its cross-claim and agree not to make any further challenge to the KDE shape mark. Fourthly, the letter stated that the offer was made in accordance with the principles set out in Calderbank v Calderbank [1976] Fam 93, and that if the offer was rejected and the proceedings were determined in a manner that was as favourable or less favourable to the applicants than the terms of the offer, then Cantarella would seek costs on an indemnity basis from the date of expiry of the offer, which was initially 10 January 2024, and was later extended.
6. The applicants did not accept the Calderbank offer, with their solicitors asserting by letter dated 31 January 2024 that the applicants were confident that they would succeed at trial. Cantarella submits that the applicants' failure to accept the offer was not reasonable.
7. One of the premises of Cantarella's reliance on the Calderbank offer is that the result at trial was no more favourable to the applicants than the terms of the offer. A consideration of Cantarella's claim that it was unreasonable or imprudent for the applicants not to accept its Calderbank offer requires that consideration be given to the terms of the offer in the circumstances that existed at the time the offer was rejected: Anchorage Capital Partners Pty Ltd v ACPA Pty Ltd (No 2) [2018] FCAFC 112 at [6] (Nicholas, Yates and Beach JJ). That consideration includes the question of costs of the whole proceedings, which by its Calderbank offer Cantarella sought up until 15 December 2023. Therefore, before considering the consequences of the applicants' failure to accept the Calderbank offer, I will address the question of costs of the cross-claim.

Cantarella should have its costs of the cross-claim

1. There was no dispute between the parties that an award of costs is the subject of a broad discretion that must be exercised judicially, and that the starting point is ordinarily that costs should follow the event: see Plaintiff M76/2013 v Minister for Immigration, Multicultural Affairs and Citizenship [2013] HCA 53; 251 CLR 322 at [241] (Kiefel and Keane JJ); Northern Territory v Sangare [2019] HCA 25; 265 CLR 164 at [25] (Kiefel CJ, Bell, Gageler, Keane and Nettle JJ). There was also no dispute that, where appropriate, the discretion as to costs may be exercised to apportion or reduce costs if a successful party fails on some discrete issue that took up significant time and resources, or for other reasons.
2. The principal issue in contest between the parties in relation to costs was the identification of the relevant "event". In broad terms, Cantarella submitted that it has been successful in the litigation which had its genesis in claims made by the applicants prior to the commencement of the proceeding that were directed to preventing Cantarella from selling coffee in its 400-gram jar, and which following trial have been wholly unsuccessful. Cantarella submitted that its cross‑claims were a defensive response to those unsuccessful claims. Cantarella submitted that the claims and cross-claims should be viewed globally as the same dispute.
3. On the other hand, the applicants submitted that their claims and Cantarella's cross-claims should be viewed as separate events. The applicants submitted that both sides have been unsuccessful in their respective claims and that the appropriate order is that there should be no order as to costs. The applicants submitted that an approach typically taken in patent cases involving a claim of infringement and a cross-claim challenging the validity of the patent is to treat the claim and cross-claim as separate events for costs purposes. In support of these submissions, the applicants cited Davies v Lazer Safe Pty Ltd (No 2) [2019] FCAFC 118 at [7] (Greenwood, White and Burley JJ); GlaxoSmithKline Consumer Healthcare Investments (Ireland) (No 2) Ltd v Generic Partners Pty Ltd (No 2) [2018] FCAFC 100 at [8] (Middleton, Nicholas and Burley JJ); PAC Mining Pty Ltd v Esco Corp (No 2) [2009] FCAFC 52 at [11]-[12] (Sundberg, Jessup and Middleton JJ); and Damorgold Pty Ltd v Blindware Pty Ltd (No 2) [2018] FCA 364 (Damorgold) (Middleton J). The applicants submitted that this approach has been applied in trade mark cases, citing Global Brand Marketing Inc v YD Pty Ltd [2008] FCA 605; 76 IPR 161 (Global Brand) at 190 (Sundberg J); Hansen Beverage Co v Bickfords (Australia) Pty Ltd (No 2) [2008] FCA 601 (Hansen Beverage) (Middleton J); and Swancom Pty Ltd v The Jazz Corner Hotel Pty Ltd (No 3) [2021] FCA 729 at [25] (O'Bryan J). I pause to note that the report of Global Brand does not include any reasoning supporting the separate orders for costs made on the claim and the cross-claim, but only the orders themselves.
4. Although there are many instances where claims and cross-claims, and appeals and cross-appeals, have been treated as separate events for the purposes of costs orders, not every case is the same. The cases do not dictate the way in which the broad discretion as to costs should be exercised. Each case involves an exercise of discretion that turns on its own facts and circumstances. There is no doubt that, where appropriate, a global approach to costs may be taken: Damorgold at [32]. Thus, there are some cases where success on different issues has led to orders for payment of a percentage of costs incurred, without endeavouring to allocate costs on an issue-by-issue basis with any degree of precision: JMVB Enterprises Pty Ltd v Camoflag Pty Ltd (No 2) [2007] FCAFC 6 at [8] (Emmett, Stone and Bennett JJ). There are other cases where the failure of a party on some discrete issue has not affected an overall appraisal of substantial success: DSI Australia (Holdings) Pty Ltd v Garford Pty Ltd [2013] FCA 268 at [8] (Yates J). Another approach is to determine the ultimate position of the parties on a global or commercial basis, and then to apply some discount: H Lundbeck A/S v Alphapharm Pty Ltd (No 2) [2009] FCAFC 118 at [10] (Bennett and Middleton JJ); Tramanco Pty Ltd v BPW Transpec Pty Ltd (No 2) [2014] FCAFC 58 at [12] (Allsop CJ, Greenwood and Nicholas JJ). On the other hand, Hansen Beverage is an instance where the parties had competing claims to a reputation in Australia in the name "Monster" in relation to beverages. The parties failed in their respective claim and cross-claim with the result that there was no order as to costs. The cross-claim was not defensive, because each party was seeking to assert a right of exclusive use of a name in the market: see Hansen Beverage at [12] and [23].
5. The applicants, by seeking an order that there be no order as to costs, recognise that separate orders as to costs of the claim and the cross-claim would result in a process of costs assessment that would be difficult and time-consuming. For this reason alone, I accept that in the exercise of the Court's discretion, separate orders for costs on the claim and the cross-claim should not be made. It would be oppressive to any person called upon to formulate a claim for costs, or to assess costs, to make separate orders for costs because there would be much work that could not readily be attributed to one claim or the other.
6. However, a conclusion that there should be no order as to the costs of the proceeding would not be a just outcome. Before the proceeding was filed, the solicitors for Cantarella foreshadowed in correspondence that it would vigorously defend any claim, including by challenging the validity of the shape mark. The applicants instigated this dispute, and failed. It is clear from the correspondence, the pleadings, and the way in which the case was run that the cross-claim was defensive, and would not have been brought independently of the applicants' claim of trade mark infringement.
7. It might be said, in line with observations in other cases, that it was open to Cantarella simply to defend the infringement claim without making a cross-claim and for that reason it should bear the costs of the cross-claim. In this case at least, such an observation would be the product of hindsight. And having regard to the circumstances of this case and the true nature of the whole matter of dispute, the observation is just not realistic. There was real merit to the substantial elements of Cantarella's cross-claim, as the reasons for judgment show. The applicants did not submit otherwise. The cross-claim was properly arguable, and was a reasonable forensic response to the applicants' claims.
8. More significantly, for reasons to which I alluded earlier, there was no bright line between much of the evidence and argument that was relevant to the applicants' claims, and the evidence and argument which was relevant to the cross-claim. That is also likely to be the case in relation to a significant amount of other general work undertaken in preparation for, and in the conduct of, the proceeding.
9. It is appropriate in the circumstances of this case to view the whole proceeding as one event or matter: see New South Wales Dairy Corp v Murray Goulburn Co-operative Co Ltd (1989) 14 IPR 75 at 79 (Gummow J). To the question who succeeded in the matter, the conclusion that Cantarella was the successful party is inescapable. I do not see why Cantarella's cross-claim, which was properly brought as a reasonable response to the applicants' claims, should not be regarded as part of its defence costs that were reasonably incurred. I acknowledge that other approaches have been taken in other cases, including by Full Courts in patent litigation. I do not need to distinguish those cases, and it is not appropriate to reason from the facts and circumstances of one case to another. The point is that in this case the cross-claim was only ever defensive, the applicants brought their infringement claim knowing that Cantarella had foreshadowed a cross-claim, the applicants have been unsuccessful, and Cantarella reasonably incurred its costs of the cross-claim as part of a proportional, reasonable, and integrated response to the applicants' unsuccessful claim.

Cantarella's costs should be assessed on a party and party basis

1. Cantarella's Calderbank offer effectively required the applicants to abandon their claims and to pay Cantarella's costs. This was not so much an offer to compromise, as an invitation to surrender and pay reparations. The offer to abandon the cross-claim was not really a compromise either, because I accept Cantarella's submission that the cross-claim was only ever defensive, as the terms of the offer itself would indicate. While for the reasons set out in the primary judgment the applicants' claims might be said to have been problematic, that is not the correct lens through which to evaluate whether it was unreasonable for the applicants not to accept the Calderbank offer at the time it was made. Although I did not give much weight to the expert marketing evidence that was filed by the parties, the reports of the applicants' marketing expert and the evidence on which they were based provided a cogent foundation for the applicants to pursue their claims. And while Cantarella has submitted on this application that the applicants' prospects were objectively poor, it is difficult to see that this submission is not also the product of hindsight. Moreover, Cantarella does not submit that the applicants' case was so hopeless that it was unreasonable for the applicants to pursue it. Had such a submission been made, I would reject it. It follows that it was not unreasonable for the applicants not to accept the Calderbank offer.
2. For the foregoing reasons, Cantarella's application that its costs be assessed on an indemnity basis from 19 January 2024 is refused. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Wheelahan.