Paul's Retail Pty Ltd v Lonsdale Australia Limited

THE APPEAL 15 Because her Honour's orders were interlocutory, leave was necessary to enable Paul's to appeal. Leave was granted by a judge of the Court, who also ordered that the hearing of the appeal be expedited. 16 The issues which justified the grant of leave to appeal concern the proper construction of s 123 of the Act and whether s 123 is an exhaustive statement of the circumstances in which the mere sale by an importer of goods already marked constitutes an infringement of the rights of the owner by the importer. 17 To appreciate the arguments advanced in relation to these issues, it is necessary to refer first to the principal provisions of the Act and to the terms of the Punch licence. We will then refer, in a summary way, to the primary judge's reasons (Reasons) and to the arguments raised on appeal before we turn to a consideration of those arguments.

THE ACT 18 Infringement is defined in s 120 of the Act as follows: 120 When is a registered trade mark infringed? (1) A person infringes a registered trade mark if the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered. 19 Section 123(1) of the Act provides a defence to s 120. It states that : 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.

THE PUNCH LICENCE 20 Clause 2.1 of the Punch licence provides that: Licensor [LSL] grants to Licensee [Punch], subject to the provisions set out in this Agreement 2.1.1 the non exclusive [sic] right to promote, distribute and sell Products bearing the Trade Marks in the Territory subject to the conditions contained in the Schedules; and 2.1.2 the non-exclusive right to manufacture the Products in and outside the Territory. 21 Clause 2.5 of the Punch licence provides: Licensee shall not sell nor actively solicit orders for the Products outside the Territory but shall not be prohibited from accepting any unsolicited orders for the Products which it may receive from any other country from time to time being a member of or a state within the European Economic Area; but Licensor gives no warranty that the sale of the Products outside the Territory will not infringe any third party rights of whatsoever nature and Licensee shall indemnity Licensor and/or IBML against all Liabilities which Licensor and/or IBML incurs in connection with or arising from the acts and/or omissions of Licensee outside the Territory including the sale of the Products outside the Territory. All orders and details relating thereto for Products received by Licensee from outside the Territory shall be immediately notified by Licensee to Licensor or IBML.

The DECISION OF THE PRIMARY JUDGE 22 The primary judge accepted the submission of Lonsdale Australia that the importation, promotion and sale of the Paul's goods by the appellants involved the use of trade marks of which it was the registered owner under the Act. The appellants had argued that the words "trade mark", where they appear in s 123 of the Act, mean the registered trade mark, save for the last occasion when the words are used to mean simply the mark or sign attached to the goods. The appellants contended that the relevant trade marks were the Lonsdale marks which Punch was licensed to use by LSL. 23 Her Honour construed all the references to "trade mark" in s 123 of the Act to mean "the registered trade mark". On this basis, her Honour concluded that, because Lonsdale Australia had not consented to the application of the Australian registered trade marks to the Paul's goods, s 123 did not afford a defence to Lonsdale Australia's claim of infringement. 24 The trial judge said at Reasons [18]: The issue for this Court was whether Lonsdale Australia's exclusive rights given to it by registration of the Lonsdale Australia Trade Marks had been infringed. The issue was not whether the Paul's Goods bore one or more of the Punch Marks. As is readily apparent, identification of the relevant issue is critical. If you ask the wrong question, you get the wrong answer. 25 The appellants then argued that the primary judge should follow and apply the decision of the Court of Appeal in England in Revlon Inc v Cripps & Lee Ltd [1980] FSR 85 and hold that the consent given by LSL in the Punch licence was also a consent by Lonsdale Australia by reason of their membership of a group of companies under the ultimate control of Sports Direct International. The primary judge rejected that argument. 26 Her Honour held that there was no evidence that Lonsdale Australia had played any role in the application of the marks to or in relation to any of the Paul's goods. There was separate ownership of the marks in Australia and Europe and separate manufacture (under licence) of goods to which the relevant registered marks in each jurisdiction are applied. There was no evidence that Lonsdale Australia took any step or failed to take any step that could be considered consent by it to the application of Lonsdale Australia's registered trade marks to the Paul's goods or any of the Lonsdale marks to the Paul's goods. 27 The appellants also argued that there can be no infringing use where the goods are "genuine goods", a proposition which was said to have been enunciated in Champagne Heidsieck et Cie Monopole Societe Anonyme v Buxton [1930] 1 Ch 330. 28 The primary judge rejected this argument for three reasons, only one of which need be noted here, namely that the "Champagne Heidsieck principle" does not apply to s 120 of the Act.

The appellants' arguments 29 In this Court, the appellants argue that under s 123 of the Act, the relevant enquiry is whether or not the physical application of the Lonsdale marks to the goods was by or with the consent of LSL as the then registered owner of the Lonsdale trade marks registered under the Act. The appellants contend that the primary judge erred in failing to consider that the Punch licence from LSL predated the assignment of the Australian registered Lonsdale marks to Lonsdale Australia. The appellants argue that her Honour erred in failing to take account of the fact that Punch paid royalties under the Punch licence in respect of its sales to Unicell. 30 The appellants argue that the primary judge erred in failing to act upon Lonsdale Australia's concession that no point was taken by it as to the distinction between LSL and Lonsdale Australia for the purpose of the Punch licence; and in failing to take account of the close relationship between the two companies. If it is the consent of Lonsdale Australia which was necessary for the purposes of s 123 of the Act, then LSL gave that consent for Lonsdale Australia by reason of their membership of a group of companies under common control and ownership. The appellants apply to adduce further evidence of features of common control in support of that proposition. 31 The appellants also contend that the primary judge erred in holding that the Champagne Heidsieck principle did not have the same application under the Trade Marks Act 1995 as it did under earlier legislation. 32 Finally, the appellants contest the primary judge's interpretation of "use" under s 120 of the Act. They argue that, by merely importing and dealing with the Lonsdale branded goods, the appellants did not themselves use the marks applied to those goods.

The respondent's arguments 33 Lonsdale Australia argues that all of the goods manufactured by Punch for Unicell, and later dealt with by the appellants, were manufactured and marked after the assignment. Punch's payment of royalties is not relevant because it was a payment to LSL, not to Lonsdale Australia. Further, the payment was made after the goods were manufactured; there was no evidence led at trial that LSL knew that the royalties paid to it by Punch related to goods made for distribution and sale outside of the territory of the Punch licence. 34 Lonsdale Australia argues that it was insufficient to establish consent by Lonsdale Australia to refer to the corporate relationship between LSL and Lonsdale Australia. No concession such as that alleged by the appellants was made at trial: the concession on which the appellants seek to rely was made during the interlocutory hearing and was made only in that limited context. It was directly contradicted by Lonsdale Australia's primary argument at trial viz, that it had not consented to the application of the registered trade marks to the Paul's goods. 35 Lonsdale Australia contends that LSL's grant of the licence to Punch did not manifest consent by LSL to the application of the trade marks for goods sold by Punch in China. LSL did not authorise, by cl 2.1 of the Punch licence, the application of the Lonsdale marks to the goods the subject of the Unicell sale because Punch knew at the time the marks were applied that those goods were to be supplied by Punch outside the territory. The appellants respond to this contention with the argument that the goods were sold by Punch in Germany to Unicell in Cyprus, and that title transferred upon payment (within the territory) and not delivery (outside the territory): consequently, the sale was within cl 2.1 of the Punch licence.

Section 123 36 It is not necessary to reach a final conclusion in relation to Lonsdale Australia's argument that s 123 of the Act affords a defence to a claim of infringement only if the person charged with infringement can point to a consent to the use of the Australian registered trade marks by the registered owner of those marks. One may also, for the sake of argument, accept (without deciding) that LSL, as the registered owner of the trade marks at the time of the Punch licence, consented thereby to the use of trade marks by Punch which were the same as the Australian registered trade marks. Indeed, it even might be assumed that, by the Punch licence, LSL consented to the use of the Australian registered trade marks. Irrespective of the assumption, it is at the next step in the appellants' argument that it falls down. 37 The consent given by LSL to Punch on which the appellants rely was limited in its terms to "the non exclusive right to promote, distribute and sell Products bearing the Trade Marks in the Territory". Whether one looks at the issue through a strict legal analysis of the Punch licence and the Punch-Unicell sales agreement, or from a broader commercial perspective, the use of the Lonsdale marks for the purposes of the sale by Punch to Unicell cannot be seen to be within the limited consent given by the Punch licence. 38 Under the sales agreement between Punch and Unicell, Punch agreed to sell the goods "on an 'Ex-Warehouse' China basis". Unicell agreed to pay a deposit on execution of the agreement and the full balance of the purchase price "after inspection in China and before transferring title to [Unicell]". Unicell agreed "to move the cargo from [Punch's] facility in China after receipt of payment within a reasonable time". 39 The sales agreement between Punch and Unicell is written in English, and provides that it "shall be interpreted under and governed by the laws of Switzerland". No party sought to suggest that the law of Switzerland in relation to the passing of title under a sale of goods is different from the law of Australia. One may therefore proceed on the assumption that the law of Switzerland is relevantly the same as the law in Australia: Bowden Bros & Co v Imperial Marine and Transport Insurance Co (1905) 5 SR (NSW) 614. 40 The position under Australian law was stated by Dixon J in James v The Commonwealth (1938-1939) 62 CLR 339 at 377-378: The seller in shipping a definite parcel of goods in performance of a contract for the sale of unascertained goods by description ascertains the goods, and prima facie he appropriates them to the contract. The terms of the contract import the prior assent of the buyer to his doing so, and accordingly, if the appropriation is unconditional, the presumption is that he intended that the property should pass without more. If he does not reserve the right of disposal of the goods, as it is called, his delivery of the goods to the shipowner as a carrier for the purposes of transmission to the buyer is deemed an unconditional appropriation of the goods to the contract. 41 On that view, title to the goods passed on appropriation by Punch of the goods to the contract. That occurred in China. 42 Clause 2.1 of the Punch licence does not authorise "sales" outside the territory. In cl 2.1.1, the term "sell" does not encompass agreements for sale made within the territory to be completed by delivery outside the territory. The ordinary meaning of the word "sale" in various statutory and contractual contexts is an exchange of commodities for money: See Sun World Inc v Registrar, Plant Variety Rights (1997) 75 FCR 528 at 540 and the authorities there cited. 43 In the context of a sale of goods, an agreement to sell is simply a contract, while a sale is understood to be both a contract and a conveyance, under which the property in the goods is transferred to the buyer. Thus the Sale of Goods Act 1893 (UK), Sir Mackenzie Chalmers' great synthesis of the rules of the common law and law merchant, in s 1(3) provided: [W]here under a contract of sale the property in the goods is transferred from the seller to the buyer the contract is called a sale; 44 And s 1(4) provided: [A]n agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. 45 The meaning of "sale" may be extended either expressly or by necessary implication; but there is nothing in the context of cl 2.1 in the Punch licence which would suggest that "sell" does not involve conveying title to goods. 46 If "sell" in cl 2.1 of the Punch licence meant "agree to sell" it would mean that Punch might make agreements to sell in the territory and complete them by deliveries outside the territory. That would make a nonsense of the express inclusion of "distribution" as licensed activity only within the territory because Punch would be at liberty to distribute, i.e. deliver, goods outside the territory. That would subvert the territorial limits of the licence. Further, the express provision in cl 2.1.2 permitting "manufacture …outside the Territory" tends to confirm that it was not contemplated by the Punch licence that there would be sales involving not only manufacture but also delivery outside the territory. 47 If one looks at the issue more broadly, a characteristic feature of the licence is the grant of authority to supply marked goods in a defined geographic area. One would not readily accept that an agreement for sale that involves delivery outside the territory is authorised by the grant of permission "to promote, distribute and sell … in the Territory ". To accept that the licence should be construed in that way would be to deny the evident intention of the parties that the authorised supply of goods bearing the mark should be confined to the defined geographic area. 48 This conclusion cannot be avoided by construing "with the consent of" in s 123 narrowly as the appellants submitted. Neither the language of s 123 nor the statutory context as a whole support construing these words as if they necessarily exclude any limit or condition on the grant of a right to apply a mark to goods. The appellants' stated concern about the reach of s 120 of the Act does not support such a construction; s 120 does have a potentially broad reach but this gives s 123 work to do. 49 Nor is the appellants' approach supported by the reasoning of Nicholas J in Sporte Leisure Pty Ltd v Paul's International Pty Ltd (No 3) (2010) 275 ALR 258; [2010] FCA 1162 at [78] referred to by the primary judge at Reasons [42]. Justice Nicholas in Sporte Leisure at [76]-[78] said no more than that consent to the application of a mark may be conditional and that the operation of the conditions is a question of fact relevant to resolving the ultimate question of fact whether the mark was applied with the consent of the registered owner. Contrary to the appellants' submissions, Nicholas J was not articulating a principle distinguishing between conditions precedent and subsequent to the application of a mark and, by reference to any such distinction, identifying a system by which conditions may be characterised as affecting or not affecting the fact of consent. 50 To the extent that the appellants relied on Transport Tyre Sales Pty Ltd v Montana Tyres Rims & Tubes Pty Ltd (1999) 93 FCR 421 to support this aspect of their case the reliance was misplaced. The outcome in Transport Tyre Sales depended on the difference between "the rights which arise from the registration of a trade mark under the Act on the one hand and the physical representation or manifestation of the sign which is registered on the other hand" (at [72]). As made apparent at [78] of the reasons in Transport Tyre Sales the territorial limitations on the competency of the Parliament of Australia has nothing to do with "the physical representation or manifestation of the sign which comprises a trade mark". This is because, as explained at [79], "the term "trade mark" imports no territorial limitation at all" so that a sign may be applied in any part of the world which is "nevertheless capable of being a trade mark within the meaning of the Act, notwithstanding that it is applied to the goods or in relation to goods or services outside of Australia". The issue, accordingly, was not consent but the fact of application of the mark. 51 Finally, the ordinary meaning of the language of s 123 cannot be confined by reference to the competing theories described as the doctrine of "exhaustion of rights" and the doctrine of "territoriality". These competing theories were also considered in Transport Tyre Sales, the former doctrine being said to involve "the exhaustion of a trade mark proprietor's rights to control the disposition of goods bearing its mark once the goods are put on the market" and the latter said to provide that a "proprietor's rights in one country should be completely independent of the rights in another country" (at [83]). Where the only question is application of the mark, as in Transport Tyre Sales, the intention of the registered owner of the mark is necessarily irrelevant to the operation of s 123 as explained at [90]. Where, as here, the question is whether the mark was applied with the consent of the registered owner the objectively determined manifestations of the owner's intention must be relevant. Section 123 requires that the question - whether the mark was applied with the consent of the owner - is to be resolved as one of fact in the circumstances of the particular case; it cannot be resolved by adopting an approach to the construction of the section on the assumption that one theory, the doctrine of "exhaustion of rights", trumped the other, the doctrine of "territoriality". 52 For the sake of completeness, we note that the appellants did not seek to suggest that they could rely on cl 2.5 of the Punch licence. That is not surprising as cl 2.5 allows Punch to meet unsolicited orders from a country outside the territory only where a consequent sale would involve delivery in a country which, while not in the territory, is nevertheless in the European Economic Area.

New evidence 53 Because the appellants' argument in relation to s 123 of the Act fails at this point, it is unnecessary to determine the issue whether Lonsdale Australia's consent was necessary to engage s 123 of the Act or the appellants' counter-argument that the commonality of ultimate control obviates the need for explicit consent by Lonsdale Australia or the application of Revlon v Cripps & Lee to this case. 54 It is also unnecessary to consider whether, as the appellants contend, Lonsdale Australia is bound by a concession made by its Senior Counsel at the hearing for the interim injunction that he was taking no point about LSL and Lonsdale Australia being separate entities. 55 For the sake of completeness, however, we should say that, in our view, Lonsdale Australia did not concede that the consent of LSL to the application of the Lonsdale Australia trade marks to the Paul's goods could be taken as the equivalent of a consent by Lonsdale Australia. At the highest for the appellants, it may be said that Senior Counsel for Lonsdale Australia agreed that no point was being taken about the existence of separate entities for the purpose of the hearing in relation to the interim injunction. That was understandable, given that the hearing for the interim injunction was not concerned finally to determine rights but to address the balance of convenience in the light of serious questions to be tried. There was no suggestion that the point was abandoned for the purposes of the trial. 56 It is apparent that, at trial, the appellants conducted themselves as if they appreciated that they bore the burden of proof on this issue. Lonsdale Australia put the absence of proof of consent by Lonsdale Australia at the forefront of its submissions; and to the extent that this provoked a complaint on the part of Paul's in its final address that the point had been conceded, Paul's also advanced its case on the express footing that the point was in issue. That being so, we do not accept that the appellants relied on the concession in terms of the evidence they chose to adduce. 57 We would reject the application for leave to adduce further evidence.

Champagne Heidsieck 58 In Champagne Heidsieck [1930] 1 Ch 330 at 339-341, Clauson J held that: [T]he "exclusive right to use the mark conferred on the registered proprietor…is the right to use the mark as a trade mark - i.e., as indicating that the goods upon which it is placed are his goods and to exclude other from selling under the mark wares which are not his". 59 His Lordship refused to accept that the language of the legislation then in force "operated to extend the rights of the proprietor of a trade mark from a right to prevent deception as to the origin of goods into a right to control dealings with the goods" (at [340]). His Lordship went on to hold that: [T]he use of a mark by the defendant which is relied on as an infringement must be a use upon goods which are not the genuine goods, i.e., Those upon which the plaintiffs' mark is properly used, for anyone may use the plaintiffs' mark on the plaintiffs' goods, since that cannot cause the deception which is the test of infringement. 60 In E & J Gallo Winery v Lion Nathan Australia Pty Ltd (2010) 241 CLR 144 at [34] the majority of the High Court formulated the Champagne Heidsieck principle in these terms: …[A] trade mark is not infringed by a third party importing, offering for sale and selling, without the owner's consent, goods to which the registered owner (or its licensee) has affixed the mark. 61 Their Honours observed in a footnote to these observations: Section 123 of the Trade Marks Act, which provides that it is not an infringement of a trade mark if a trade mark in respect of goods has been applied with the consent of the registered owner, reflects the principle established by Champagne Heidsieck. 62 There are difficulties in articulating how the Champagne Heidsieck principle operates with the Act as an integral part of the law regulating the use of trade marks in Australia. It may be said, for example, that s 123 of the Act is a statutory expression of the principle; but if this is so, then it would follow that the principle so expressed could now operate only in accordance with the terms of s 123 of the Act. It would add nothing to the provisions of s 123 of the Act. 63 In the upshot, we consider that, to the extent that the appellants failed to make a case in accordance with the terms of s 123 of the Act, there is no other principle available to fill the gap in their case.

"Use" 64 The appellants raised another variation on the theme that s 123 of the Act is not an exhaustive statement, for the purposes of this case, of the circumstances in which the importation of goods already marked by the owner of the mark or its licensee does not constitute an infringement of the mark. The focus of this argument is the concept of "use" in s 120 of the Act. The argument is to the effect that the importation and sale of goods marked with the consent of the owner of the trade mark or its licensee does not involve a use of the trade mark by the importer or seller. 65 If this argument were correct, an importer would not infringe the trade mark merely by acts of importation and sale even if the mark had been applied to the goods without the consent of the owner of the trade mark. This Court has previously expressed the view that "…absent s 123 the mere sale by an importer of goods already marked would be an infringing use of the mark by the importer": See E & J Gallo Winery v Lion Nathan Australia Pty Ltd (2009) 175 FCR 386 at [58]; quoted in Paul's Retail Pty Ltd v Sporte Leisure Pty Ltd (2012) 202 FCR 286 at [66]; see also Transport Tyre Sales at [94]. 66 In our respectful opinion, the view expressed by this Court in these decisions is correct. It is hardly surprising that there is no authority supporting the proposition that a trader in goods who imports and sells goods distinguished from other goods by a particular trade mark is not using the trade mark when he or she sells the goods in the course of trade. Where an importer of marked goods is a trader in, rather than a consumer of, marked goods, it is no more than an ordinary and natural use of language to say that the importer has used the mark in the course of its trade: See WD & HO Wills (Australia) Ltd v Rothmans Ltd (1956) 94 CLR 182 at 188; see also Pioneer Kabushiki Kaisha v Registrar of Trade Marks (1977) 137 CLR 670 at 688. 67 The appellants' argument does not sufficiently recognise the concern of the Act to provide for what Gummow J described in Wingate Marketing Pty Ltd v Levi Strauss & Co (1994) 49 FCR 89 at 118 as "the creation of a distinct species of proprietary right". In that case Gummow J, speaking of the Act's predecessor, said at 117-118: It is generally accepted that the tort of passing off is concerned with the protection of the business goodwill of the plaintiff against damage by the misrepresentations made by the defendant. Neither protection of goodwill nor deceptive conduct are the primary concern of the action for trade mark infringement under the present legislation. However, arguments were propounded before us which assumed that the contrary was the case. We were referred, for example, to the remark of Clauson J in Champagne Heidsieck et Cie Monopole Société Anonyme v Buxton [1930] 1 Ch 330 at 341, that deception is the test of infringement. We were also referred to the discussion in Fender Australia Pty Ltd v Bevk (1989) 25 FCR 161 at 168, of the applicable principles where the alleged infringement involves the retention on second hand goods of a trade mark affixed by the manufacturer. Burchett J there referred to "the fundamental nature of a trade mark ... as an aspect of the goodwill of a particular business". However, for myself, I accept the comment by Mr M J Davison in his article "Parallel Importing: Unlawful Use of Trade Marks" (1990) 19 FL Rev 420 at 422: Even at the time of the Champagne decision, trade mark legislation had eliminated the need for trade mark owners to establish that goodwill attached to their trade mark before succeeding in infringement actions. Traders were permitted to become owners by registration of trade marks, even before using them and to launch their marked products with confidence that any goodwill subsequently generated would not be appropriated by another. In at least this one important respect the new trade mark legislation was more than a statutory recognition of existing common law or equitable principles and the implication in the judgment of Clauson J that that was its sole objective is incorrect. (See also New South Wales Dairy Corporation v Murray-Goulburn Co-operative Co Ltd (1989) 86 ALR 549 at 582-584.) Further, in Mr Rothnie's article "Gray Privateers Sink into Black Market: Parallel Imports and Trade Marks" (1990) 1 IPJ 72 at 88-89, the learned author, in discussing Fender, says: ... Burchett J introduces considerations of passing off where they were not previously appropriate. In passing off, questions of goodwill are the very foundation of the action. What the goodwill actually represents to the relevant public is crucial because it is on that representation that the question of deception turns. However, the issue under the Trade Marks Act is whether the defendant is using the registered trade mark without permission as a trade mark. This is a different test, not dependent on questions of goodwill ... Accordingly, in my respectful submission, the question of the respective business goodwills involved is irrelevant in an infringement action. The real issue is whether the defendant is using the registered trade mark as a trade mark inconsistently with the registered proprietor's exclusive rights. 68 The surest guide to the nature and extent of the proprietary right created by the registration of a trade mark under the Act is the text of the Act. In that regard, the language of ss 120 and 123 of the Act leaves little room for doubt that an importer who sells goods which bear the same marks as have been registered as a trade mark under the Act is liable to an action for infringement by the registered owner if those marks were not applied by the registered owner or with its consent.

CONCLUSION AND ORDERS 69 The decision of the primary judge was correct. 70 The application to adduce further evidence should be dismissed. 71 The appeal should be dismissed. 72 The appellants should pay the respondent's costs of the application and appeal to be taxed if not earlier agreed. I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Keane CJ, Jagot and Yates JJ.