Time Warner Entertainment Company, LP v Stepsam Investments Pty Limited

REASONS FOR JUDGMENT WILCOX J: 1 The issue in this appeal is the entitlement of the respondent, Stepsam Investments Pty Limited ('Stepsam'), to register the trade mark 'harry potter' ('the trade mark') in respect of clothing. The appeal 2 Stepsam applied to register the trade mark (application 755905), in class 25 of the Trade Marks Register, in relation to 'clothing and accessories'. However, prior to acceptance and advertising of the application, it was amended to delete the reference to accessories. The application for registration was opposed by the present applicant, Time Warner Entertainment Company, LP ('Time Warner'). After a hearing, the delegate of the Registrar of Trade Marks ('the delegate') dismissed the opposition and permitted the application to proceed to registration. 3 Pursuant to s 56 of the Trade Marks Act 1995 (Cth) ('the Act'), Time Warner appealed to this Court against the delegate's decision. By its notice of appeal, Time Warner sought orders that the delegate's decision be set aside and the application for registration be refused. However, at an early stage of the hearing, Time Warner's counsel, Ms Julia Baird, modified her client's position. She said her client was no longer totally opposed to Stepsam's application for registration, but contended that registration of the trade mark should be limited to adults' clothing. Specifically, Ms Baird contended that registration of the trade mark should not extend to children's clothing. Mr Stephen Burley, counsel for Stepsam, indicated his client did not accept that limitation. He argued Stepsam was entitled to have the trade mark registered in relation to all types of clothing. 4 Both parties approached this case upon the basis that an appeal under s 56 of the Act is a hearing de novo in which the Court must decide the opposition issues for itself. That view is consistent with the approach of Bennett J in Torpedoes Sportswear Pty Limited v Thorpedo Enterprises Pty Limited [2003] FCA 901 at [15]. An appeal under s 56 is similar to an appeal under s 35(b) of the Act against a decision by the Registrar to reject an application. That is a hearing de novo: see Ocean Spray Cranberries Inc v Registrar of Trade Marks [2000] FCA 177; 47 IPR 579 at [16] and the authorities there cited. 5 It follows that the parties have the right to put before the Court evidence additional to that considered by the delegate. Both parties have taken advantage of that right. Each of them has adduced considerable additional evidence. Much of it was, in my opinion, unnecessary; or, at least, unnecessarily detailed. There is really no dispute about the crucial facts. The parties' interests (i) Stepsam 6 Stepsam is a company controlled by a married couple, Les Jack Farah and Claire Jennifer. They have been the sole shareholders and directors of the company since May 1992. Since July 1990, Mr Farah and Ms Jennifer have also been the sole shareholders and directors of Wombat Enterprises Pty Ltd ('Wombat'). 7 Since 1992, Mr Farah and Ms Jennifer have conducted the affairs of the two companies upon the basis that Stepsam is the owner of all assets used by Wombat, including real property and intellectual property, and that Stepsam authorises Wombat to use those assets in conducting a chain of retail clothing shops under the name 'Wombat Boutique'. 8 Apparently, the first Wombat Boutique store was opened by Ms Jennifer in 1988. Within a short time thereafter, she opened other stores. After Wombat was acquired by Ms Jennifer and Mr Farah, that company took over management of the stores. In December 1994, Ms Jennifer and Mr Farah devised the name and trade mark 'harry potter' and commenced to use that trade mark in connection with clothing promoted and sold through Wombat Boutique stores. The unchallenged evidence of Mr Farah is that Wombat did this as exclusive licensee of Stepsam. 9 As at the priority date of the trade mark application, 26 February 1998, Wombat operated 17 clothing stores in New South Wales and Queensland. There are presently 50 Wombat Boutique stores. They are located in four States: New South Wales, Queensland, Victoria and South Australia. Stepsam and Wombat together employ approximately 260 sales and administrative staff. 10 In his affidavit, Mr Farah explained the organisation of the company. He said: 'From about 1988 to about 1994, the Wombat Boutique stores only resold women's clothing manufactured by third party clothing manufacturers such as those made under the labels JAG, TABLE EIGHT, OJAY, DG DESIGNS and CMC. As Wombat's business grew and it moved into more and larger shopping centres, there were increasing restrictions as to the third party clothing which Wombat could sell due to existing retailers in those shopping centres having exclusive rights to sell the same third party clothing in those shopping centres. My wife and I decided, therefore, that Wombat could not continue the development of its business relying on such third party clothing manufacturers. We decided to develop our own line of clothing (something that we had wanted to do for some time) which would also enable Wombat to increase margins on sales. This led to the conception of the HARRY POTTER trade mark and label'. 11 Mr Farah said that 'harry potter' was selected as a trade mark because he and Ms Jennifer thought it 'would have wide appeal as an Australian masculine name'. He said that, at that time, they did not imagine there would, in the future, be a popular fictional character of that name. 12 Mr Farah said it was the intention of Ms Jennifer and himself 'to develop a strong brand that could be used for a wide range of clothing'. He went on: 'When we chose the HARRY POTTER trade mark we thought that it would work well for our line of women's clothing and that we could expand with it into other clothing lines. My understanding at the time was (and still is) that male names are generally suitable for women's clothing but female names do not work in the marketing sense for men's or boys' clothing. As, in our experience, it is women who tend to shop for men's and children's clothing, we believed that developing a brand identity under the name HARRY POTTER would be a good way to develop the brand to expand our market segment by offering our existing customer base clothing for other members of the family such as men's wear and children's wear.' 13 Although the words 'Harry Potter' are capitalised in Mr Farah's affidavit, the words on the clothing labels that have been tendered in evidence are all printed in lower case letters, including the initial letters in each word. That is consistent with the presentation of the words in the trade mark application. 14 Mr Farah deposed that, in each year since 1994, Wombat Boutique stores have sold hundreds of thousands of units of harry potter clothing. Sales in the financial year ended 30 June 1998 exceeded 216,000 units. In that year, Wombat spent $125,000 on promotion of its stores and, in particular, the harry potter label. The cost of promotion increased in subsequent years. 15 Mr Farah explained that, after a transition period following the December 1994 decision to adopt the harry potter label, all merchandise sold by Wombat Boutique stores has borne this label. In a confidential exhibit, he revealed Wombat's trading results for each of the financial years ended 30 June 1995 to 30 June 2000. I need not reveal those figures. It is enough to say that, in the financial year containing the priority date, that is, the year ended 30 June 1998, the company achieved sales exceeding $9,000,000, a gross trading profit of over $4,000,000 and a significant net profit. In each year since that time, each of those items has increased significantly. 16 In his affidavit, Mr Farah referred to the intention of Stepsam and Wombat. He said: 'the intention of Stepsam and Wombat was to expand their market in relation to clothing to other market segments than women's. This has, to a great extent, slowed down by the uncertainty caused by the advertising, promotion and merchandising of the Applicant's HARRY POTTER motion picture and related media, as well as the Applicant's opposition to the Application. At the time that Stepsam applied to register the trade mark, it intended that HARRY POTTER would be used in relation to a broader range of products including men's and children's clothing. The Wombat Boutique stores were well positioned, in my opinion, to be able to move into such lines and, in my opinion, they still are.' 17 In her cross-examination of Mr Farah, Ms Baird challenged this evidence. Mr Farah acknowledged that the use covenant in the leases of all of Wombat's existing stores referred to the sale of women's clothing, as distinct from clothing generally. He said this was intentional; it would not be appropriate to put a second range of clothing into an 80 or 90 square metre shop. Mr Farah said the company would have to have to take up leases for larger stores 'should we want to run them all in the one banner, in the one store name under one floor space'. Nonetheless, he insisted that he and Ms Jennifer had men's and children's clothing in mind when they applied for the trade mark. He explained: 'At the time we looked at the trade mark we were convinced we were unbeatable. We'd won every award under the sun, there's nothing we couldn't do, we were all younger and we were strong and we were winners and there was absolutely every reason to believe we'd make a good go of it now and then.' (ii) Time Warner 18 Time Warner is an American corporation. It has a wide range of commercial interests, especially in the sphere of entertainment. Time Warner acquired from Ms J K Rowling the right to make films based on the Harry Potter books written by her. 19 The first of those books, Harry Potter and the Philosopher's Stone, was published shortly before the date of Stepsam's trade mark application. However, as at that date, only some 2000 copies had been sent for sale in Australia; the book had not made any substantial impact in this country. 20 After the date of the trade mark application, demand for the book increased considerably. In time, three more Harry Potter books were published, all of them written by Ms Rowling. They all featured the same fictional characters, with magician Harry Potter as the principal protagonist. The title of each book contained the words 'Harry Potter'. The impact of the four books, and the films made out of them, was enormous. 21 A report of the world-wide sales of books discloses that, by 30 November 2002, each of the first four titles in the series had sold more than one million copies in Australia. The first film, also Harry Potter and the Philosopher's Stone, was released in Australia in November 2001. It was exhibited in cinemas around Australia, with more than four million tickets being sold. The second film, Harry Potter and the Chamber of Secrets, was released in November 2002. As at February 2003, ticket sales exceeded three million. Publication of the more recent titles, and the release of each of the films, caused media frenzies. 22 Time Warner licensed various companies to market products featuring J K Rowling's characters. The evidence includes photographs of some of the licensed products. The photographs demonstrate that, as might be expected, licensees have endeavoured to emphasise the connection between their products and the magical one by including sketches of J K Rowling's characters and objects described in the books. The licences provided by Time Warner extend to clothing designed for teenagers and younger children. I understand that, presumably because of Stepsam's trade mark application, no licences for clothing have been granted in Australia. The issues 23 In submissions furnished at the conclusion of the evidence, Ms Baird indicated that Time Warner relied on four grounds of opposition to Stepsam's application for registration of its trade mark. The four grounds are that: (i) the trade mark is not capable of distinguishing Stepsam's goods from the goods or services of other persons (s 41 of the Act); (ii) the use of the trade mark by Stepsam would be contrary to law (s 42(b)); (iii) Stepsam does not intend to use, or authorise the use of, the mark in Australia, or to assign it to a body corporate for use in Australia (s 59); and (iv) the Registrar accepted the application for registration on the basis of representations that were false in material particulars (s 62(b)). 24 I will deal separately with each of these issues. The onus of establishing any particular ground of opposition lies on the opponent; in this case, Time Warner: see Lomas v Winton Shire Council [2002] FCAFC 413; (2003) AIPC 91-839 at [36].