SAP Australia Pty Ltd v Sapient Australia Pty Ltd

Introduction 1 The first appellant ("SAP Australia") is a subsidiary of the second appellant ("SAP Ag" - we will call them both "the appellants" and "the SAP companies") which has been trading in Australia since 1989, and under its present name since June 1994. SAP Australia distributes SAP Ag computer software products in Australia and has also established a training college under the name "Sapient College". SAP Ag has registered in Australia the trade marks "SAP" and "SAPIENT COLLEGE". 2 The respondent ("Sapient Australia") is a subsidiary of an American company, Sapient Corporation. Sapient Australia was incorporated in Australia in 1998, advertised for staff on 30 March 1999 and established an office in April 1999. It provides custom designed computer systems for clients and some ancillary training. SAP Ag and SAP Australia alleged in the proceeding below against Sapient Australia infringement of the registered trade marks, misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TP Act") and passing off. Their application was dismissed by Wilcox J. The case raises issues about the limits of the appellate function in relation to evaluative judgments by primary judges, the proper test of trade mark infringement and whether conduct may be characterised as misleading or deceptive notwithstanding that its effects may be short term.

Factual background 3 SAP Ag was formed in Germany in 1972. It produces and sells software systems and provides ancillary services. From 1989 to 1999, its subsidiary, SAP Australia, traded under the name "SAP Australian Systems Applications and Products in Data Processing Pty Ltd". It adopted its present name on 24 June 1994. 4 Under an agreement made in 1992, SAP Australia distributes some of the SAP Ag computer software products in Australia. The principal product is an Enterprise Resource Planning ("ERP") software package called "SAP R/3". Initially it distributed an earlier version designated "SAP R/2". 5 ERP software is applied to planning for all aspects of the activities of an enterprise. This extends to the planning and management of financial, manufacturing, sales, distribution and human resource functions. SAP R/3 is a software platform which involves software applications based on application link enabling, electronic data interchange and the Internet. It runs on Microsoft, Windows NT and AS/400 platforms. SAP Ag claims of SAP R/3 that it is a software platform on which companies can build integrated vendor-independent enterprise wide application and that the flexibility of its architecture will accommodate anything from a few to several thousand users. 6 Because of the range of clients who use ERP programs all applications must be adapted to the needs of particular clients. For this purpose, SAP Australia employs approximately 200 consultants who provide advice to customers concerning both the selection and implementation of SAP products. The implementation component of the advice can take up to a year. In addition to implementation, SAP Australia provides customers with advice about methods of upgrading, archiving, services and risk management and the availability of various software products. These services are almost always provided to persons who are already using or propose to acquire SAP products. 7 On 28 March 1989, SAP Ag registered "SAP" trade mark in class 9. On 8 February 1996 SAP Ag also registered "SAP" as a trade mark in class 42. As noted later, the registered trade mark "SAP" has not been of concern in the appeal. 8 In 1996, SAP Australia developed the idea of establishing a training college. The College was intended primarily to provide training in relation to SAP products and information technology issues associated with them, and also to provide general computing training and a business curriculum. The establishment of the proposed College was announced publicly in October 1996. SAP Australia decided to adopt the name "Sapient College" for the proposed institution. The primary judge recorded that, on 19 February 1997, SAP Ag registered the trade mark "SAPIENT COLLEGE" (Trade Mark A 728126) in class 41 covering: "Education; providing of training; cultural activities; the foregoing including post graduate, further and advanced education and training in business, business management, management, business administration, computers, computer peripherals and computer software, information technology, intellectual property, telecommunications, science and technology, medical technology and science, technology management, stress management and therapy, personal development, lifestyle, relaxation and remedial techniques." (emphasis supplied) 9 The College opened its doors on 1 April 1997 at Gordon in Sydney. It subsequently established operations in each of the Australian capital cities and in several countries in the Asia/Pacific region. It also established relationships with a number of Australian tertiary institutions, primarily universities. As a result, many of its students are exposed to SAP Ag products as well as to the name Sapient College. The College's revenue has grown from $11.85 million in 1997 to an expected $21.24 million in 1999. Its name is linked to that of SAP Ag on that company's Internet home page. Users are referred to a web page dealing with the College which has been well visited. The College has enjoyed considerable publicity in the print media. From its inception it has been strongly promoted in connection with the SAP name and logo and most of the promotional materials distributed in respect of the College carry the "SAP" trade mark as well as the trade mark "Sapient College". They also usually bear the SAP logo. 10 Sapient Australia is entirely unrelated to the SAP companies. Its US parent, Sapient Corporation, was formed in Massachusetts in 1990. Sapient Corporation opened for business there in 1991. Its business involves providing custom designed computer systems for its clients with a focus on the client-server as opposed to the previously used mainframe solutions. Rather than adopting a "time and materials" approach to consulting, Sapient Corporation applies a fixed price/fixed time method. That approach to costing requires intense early work with clients to define the scope of each project. This is a continuing characteristic of Sapient Corporation's services. 11 In December 1998, Sapient Corporation caused Sapient Australia to be incorporated in Australia as its subsidiary here. On 30 March 1999 Sapient Australia advertised for staff and in April 1999 it opened its office under the supervision of Ludovic Lacourte, a Sapient Corporation employee, who became the Chief Executive of Sapient Australia. 12 Sapient Corporation, the US parent, had already had a number of contacts with the Australian market. In February 1995 it had commenced implementation of a project called "Project Omega" for an American company, Digital Equipment Corporation ("Digital"). As part of that implementation it established a sales commissioning system for Digital in several countries, including Australia. Various members of Digital's staff, including staff from Australia, attended workshop sessions run by Sapient Corporation in Boston from April 1995. Sapient Corporation's name and logo were prominently displayed on those occasions. They were also endorsed on the course materials. A number of the staff of Sapient Corporation visited Australia to work with Digital on the implementation of Project Omega between late 1995 and the finalisation of that project at the end of 1996. 13 Also in the period 1995/1996 Sapient Corporation carried out a project for an American supermarket company that involved contact with Woolworths Ltd in Australia. As a result, Woolworths staff visited Sapient Corporation's offices in Massachusetts in early 1997. 14 In September 1997 Sapient Corporation was approached by "Vanguard Investments", a United States corporation, for assistance in connection with a joint venture project between Vanguard and MLC Insurance called "Plum". Mr Varady, a senior vice president of Sapient Corporation and the chief executive responsible for its overseas business activities and operations, agreed to advise on a technology budget for the joint venture. He visited Australia for that purpose in October 1997 where he spent a week conducting a workshop and meeting various government officials and commercial leaders, including many MLC executives. Down to the time of the hearing at first instance (in June 1999) he had since revisited Australia about a dozen times, partly in connection with that project but also to pursue other business opportunities. 15 In addition to expanding its geographical range and client base, Sapient Corporation had acquired a number of complementary businesses. One of these was a Texas company, Exor Technology Inc, which had experience in the "Oracle ERP" system, an integrated business system often included in Sapient Corporation's solutions for its clients. That acquisition by Sapient Corporation occurred in December 1997. The Texas company traded under its own name until June 1999, when its activities and those of some other acquired businesses were integrated into the Sapient Corporation's operations. 16 Mr Varady characterised Sapient Corporation's primary business as the provision of software consulting services. He accepted that that description was very broad. The consulting services in question were, however, consulting services of a particular kind which did not involve the sale of pre-made software applications. The only software licensed was software written by Sapient Corporation itself, comprising general utility software solutions which were not financially viable as stand alone solutions. Each of Sapient Corporation's solutions for its clients was highly customised and was unique to the client. This resulted from Sapient Corporation's practice of early intensive client consultation and definition of the client's special business requirements. 17 Sapient Corporation's type of business was contrasted with the ERP system marketed by SAP Australia, the implementation of which involved taking a pre-made software package, then customising it and adapting it to the particular client's circumstances. But if Sapient Australia were to be approached by a client that expressed an interest in ERP software, it was possible that the company would suggest, if appropriate, Oracle ERP software, with or without an Oracle database and other software. So, for example, if someone wanted to set up a company in Australia selling books on the Internet, Sapient Australia would be able to provide consultative services with respect to the interface with the customer through the Internet and also back office functions such as the processing of orders, invoices and the like. ERP software would be relevant to those back office functions. The SAP ERP product and the Oracle ERP product were competing in the market place. 18 In relation to the provision of training services, Sapient Corporation would sometimes have members of a client's staff come to one of its locations to help them understand the application desired by the client. There was not much training involved, however, because usually the client was engaged in building the proposed application with Sapient Corporation. Sapient Corporation would also engage in a process of training trainers from within its client organisation. 19 Mr Varady had long known of SAP and had understood "that it was primarily a product company" and that most of the implementation of its products was undertaken by third parties. Until the commencement of the proceeding at first instance, he was not aware of Sapient College. 20 Nigel Hutchinson, SAP Australia's Director Corporate Services, became aware of the existence of Sapient Corporation on or about 30 March 1999 when Sapient Australia advertised for staff for its new Sydney office. It described itself in the advertisement as "a market and thought leader in the design and implementation of E-Commerce and Information Technology systems". Mr Hutchinson telephoned the person named in the advertisement to express his concern over the use of the name "Sapient" in relation to such an entity. As a result of this contact, Sapient Corporation lodged applications for registration, in its name, of the word "SAPIENT" as a trademark for services in classes 9 and 42. On 22 June 1999 it assigned its rights in that application to Sapient Australia. 21 Following correspondence, SAP Ag and SAP Australia instituted a proceeding in this Court alleging that by using the name "Sapient Australia", Sapient Australia had infringed the registered trade marks "SAP" and "Sapient College". They also alleged that Sapient Australia had engaged in misleading or deceptive conduct, or conduct likely to mislead or deceive in contravention of s 52 and related conduct in contravention of par 53(c) of the TP Act. They also alleged passing off. They sought injunctive relief together with damages and an account of profits. Sapient Australia filed a cross-claim seeking rectification of the Register of Trade Marks by cancellation of the trade mark SAPIENT COLLEGE, but that cross-claim was expressed to be, in effect, conditional on a finding of deceptive similarity between the name Sapient Australia and the registered trade marks. The application was heard by Wilcox J and on 30 July 1999 his Honour dismissed the application. SAP Australia and SAP Ag now appeal against his Honour's decision.