Compensatory damages
101 The first step is to consider the availability and assessment of compensatory damages.
102 Damages for the infringement of a registered trade mark are (putting to one side the availability of additional damages under s 126(2) of the TM Act) compensatory only. The burden of proof lies on the applicant, but damages are to be assessed liberally: Paramount Pictures Corporation v Hasluck (2006) 70 IPR 293 (Paramount Pictures) at [34]. If the applicant fails to discharge its onus, nominal damages may be awarded.
103 TG Corp submits that in the circumstances of this case it can be inferred or concluded that the Counterfeit Product was sold in direct competition with the genuine 3 Ballerina Tea sold by TG Corp through Champ Trading. It has proved that the respondents were responsible for large sales of the Counterfeit Product. In those circumstances, TG Corp submits that the best, or most appropriate, measure of damages is loss of profit from lost sales.
104 In Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378 (Elwood), Gordon J said that where the applicant and the respondent are in actual or potential competition, the appropriate measure of damage was as described by Finkelstein J in TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444, where his Honour said (at [207]):
Then lost profit is usually the best measure of damage. The plaintiff must show that he has lost sales to the defendant as a result of the infringement and quantify the loss suffered. This requires the court to explore the counterfactual hypothesis of the contracts the plaintiff would have obtained absent the infringement and the costs associated with them. Necessarily the process will involve a degree of speculation, but that is no bar to recovery. The claim is not for loss of revenue but for loss of profits. The profits to be calculated are the lost net profits. By net profits I mean revenue less all costs including variable and indirect costs, but not including income tax. Care must be taken to ensure that costs savings are brought to account. If a plaintiff sells less of his products he will have less costs and that should be treated as a gain to be offset against the lost revenue which forms the basis of the computation of lost profits. The plaintiff is also entitled to recover indirect losses (such as damage to goodwill) as long as the cause is the infringement, the loss is foreseeable and is not unduly speculative. It will often be impossible to be precise in the calculation of lost profit. If needs be, the calculation can be rough and ready, with the benefit of any doubt favouring the plaintiff.
105 In Elwood, Gordon J adopted a "lost profits" method of calculating damages that had earlier been adopted by Greenwood J in Norm Engineering Pty Ltd v Digga Australia Pty Ltd (2007) 162 FCR 1 (Norm Engineering). That method involves the following six steps: first, examine the number of sales made by the respondent; second, assume that the respondent was trying to capture sales from the applicant; third, assume that the number of sales made by the respondent is equal to the number of sales lost by the applicant; fourth, discount the number in the third step to reflect that not all the sales made by the respondent can be considered sales lost by the applicant; and fifth, apply any further discount necessary in the circumstances of the case. Once a final figure for lost sales is arrived at by this method, the sixth step is to multiply the figure for lost sales by the net profit the applicant derived from sales of each unit of the relevant product.
106 A few observations should be made concerning this method of calculation of damages in the context of this case.
107 First, both Norm Engineering and Elwood were cases involving breach of copyright. Nevertheless, this method would appear to be an available and appropriate method of calculating damages in a trade mark infringement case, so as long as there is a proper evidentiary basis for it. The minimum evidentiary requirements are that there be at least some evidence that sales of the infringing product either did or would have been likely to reduce the applicant's sales, and some evidence of the applicant's profit margin.
108 Second, difficulty in estimating damages, or the need to speculate to a certain extent, does not relieve the Court of the responsibility of undertaking the exercise: Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564 at [35]; Norm Engineering at [295]; Elwood at [24]. Speculation, and even guesswork, may have a role to play where the relevant evidence is inaccessible to the applicant, particularly so where the inadequacy of the evidence is caused by a recalcitrant or uncooperative respondent, or one who has kept no adequate records of relevant dealings: Paramount Pictures at [42].
109 TG Corp has led sufficient evidence to both warrant the adoption of the lost profits method of calculating compensatory damages and to allow the Court to assess damages on that basis.
110 There is some evidence to support the inference that sales of the Counterfeit Product adversely affected TG Corp's sales of 3 Ballerina Tea in Australia. The offending sales by Mr Quach and New Leaf commenced in 2011 and continued up to early 2014. Mr Alexandrou's sales of the Counterfeit Product occurred throughout 2013. Sales figures in respect of TG Corp's sales of 3 Ballerina Tea to Champ Trading reveal that its sales dropped sharply in 2011. Whilst the sales recovered to a degree in 2012 and 2013, the sales figures were well below the sales figures for 2010. TG Corp's profit figures in respect of its sales to Champ Trading also reveal that its profits in 2011 and 2013 were lower than in previous years. Profit was up in 2012, but that appeared to be a result of increased sales of a different product.
111 Applying the evidence to the steps in the Elwood method produces the following results.
112 In relation to step one, the evidence reveals that Mr Quach and New Leaf, as joint tortfeasors or infringers, were responsible for selling 274 cartons of the Counterfeit Product to the public (plus two cartons to Mr Taylor). This figure includes the 32 cartons seen by Mr Taylor in Mr Quach's warehouse in late 2013, reduced by 20 to avoid double counting (on the basis that the 20 cartons sold to Basfoods in January 2014 most likely included some of that stock). Mr Alexandrou was responsible for sales of 48 cartons to the public (two cartons also having been sold to Mr Quach and then on to Mr Taylor).
113 Steps two and three involve the making of assumptions and do not require any further consideration or elaboration. The making of those assumptions in this case is supported by the evidence.
114 In relation to step four, the discount to be applied involves some speculation and some general impressions able to be gleaned from the nature of the product and the relevant market. TG Corp submitted that a 40 percent discount should be applied. It is, however, doubtful that 60 percent of the offending sales would otherwise have been filled by sales by TG Corp. Doing the best that can be done on the limited material, a discount of 50 percent should be applied. No further discount is required by step five.
115 After applying the 50 percent discount, it can be concluded that the conduct of Mr Quach and New Leaf was responsible for the loss of sales by TG Corp of 137 cartons of genuine 3 Ballerina Tea. Mr Alexandrou was responsible for a loss of sales by TG Corp of 24 cartons.
116 TG Corp has led confidential evidence of its profit per carton. If the average and rounded profit figure per carton is applied to sales by the respondents, it results in the following: Mr Quach and New Leaf were responsible for lost profits by TG Corp of just over US$1,700. Mr Alexandrou was responsible for lost profits of just over US$300. Given that there was approximate parity between the United States and Australian dollar during 2013, it may accordingly be concluded that TG Corp suffered losses in the order of $1,700 arising from the conduct of Mr Quach and New Leaf, and losses in the order of $300 arising from the conduct of Mr Alexandrou.
117 These figures are slightly less than the proposed damages calculation put forward by TG Corp (a total figure of US$2,700). That difference is largely the product of the slightly greater discount applied at stage four of the Elwood method. TG Corp proposed that a 40 percent discount should be applied.
118 TG Corp submitted, however, that because the respondents were uncooperative and recalcitrant, the damages figure should be increased to $50,000, as against Mr Quach and New Leaf, and $30,000 as against Mr Alexandrou. The apparent basis of that submission was that, given the inadequate discovery and unsatisfactory evidence given by Mr Quach and Mr Alexandrou, the Court should speculate, guess or estimate that they in fact made much larger sales of the Counterfeit Product.
119 Whilst it may be accepted that Paramount Pictures suggests that some element of speculation, or even guesswork, may be employed in the assessment of damages in such circumstances, the figures proposed by TG Corp cannot be properly supported by the evidence in this matter. Even accepting that the evidence of Mr Quach and Mr Alexandrou was unsatisfactory and that their discovery was inadequate, it does not follow that the Court can or should speculate that they in fact made significantly larger sales than those disclosed in TG Corp's evidence.
120 The evidence, such as it was, suggested that both Mr Quach and Mr Alexandrou were relatively small-time merchants. Mr Quach's evidence was that the combined annual turnover of Bellow & Lee and New Leaf was in the order of $200,000, though the invoice books that Mr Quach eventually produced suggested that the figure may in fact have been somewhat higher than that. There was essentially no financial evidence concerning the scale of Mr Alexandrou's business.
121 It cannot be inferred that any of Mr Quach, New Leaf or Mr Alexandrou were responsible for producing or importing the Counterfeit Product. At most, it seems that they were middle men. It also cannot be inferred that the Counterfeit Product formed a major or significant part of their business. Mr Quach and New Leaf had a number of other brands of tea and also traded in other products. There was no evidence that the sales of tea were a major part of Mr Alexandrou's business.
122 Whilst it is no doubt true that the few documents eventually produced by Mr Quach, New Leaf and Mr Alexandrou did not provide much of a basis for interrogation, counsel for TG Corp had the opportunity to cross-examine both Mr Quach and Mr Alexandrou in relation to their dealings with the Counterfeit Product. He did not squarely put to either of them that they in fact sold much greater quantities of the Counterfeit Product than that revealed in TG Corp's evidence. Counsel did not interrogate either Mr Quach or Mr Alexandrou about other sales of the Counterfeit Product to purchasers other than those revealed in the evidence. It follows that no proper evidentiary foundation was laid to support the submission that the Court should speculate or infer that significantly larger sales of the Counterfeit Product in fact occurred.
123 There is, therefore, no proper basis to infer, or even speculate, that either Mr Quach and New Leaf or Mr Alexandrou made additional sales of the Counterfeit Product which were sufficiently large to support the high figures for compensatory damages ultimately proposed by TG Corp.
124 Nonetheless, there is some basis to infer that each of Mr Quach, New Leaf and Mr Alexandrou made some additional sales of the Counterfeit Product. The invoice books eventually produced by Mr Quach had been tampered with. Almost a third of the pages had been torn out. Mr Quach's explanation for this was difficult to comprehend, at best implausible and most likely false. It may be inferred that pages were torn out to conceal additional sales of the Counterfeit Product to different customers. Mr Alexandrou's explanation for his failure to produce invoices or any other documentary records relating to his sales of the Counterfeit Product (other than his sales to Mr Quach) was also unsatisfactory. It may also be inferred that in failing to comply with his discovery and production obligations, Mr Alexandrou was seeking to conceal some additional sales of the Counterfeit Product. The inference that each of Mr Quach, New Leaf and Mr Alexandrou made at least some additional sales is also more easily drawn given the unreliability of much of their evidence and their lack of credibility as witnesses generally.
125 It is, however, doubtful that the additional sales made by Mr Quach, New Leaf and Mr Alexandrou amounted to much. Doing the best that can be done given the paucity of evidence, it may be inferred that the additional sales made by each of them were roughly the same as the sales directly disclosed by the evidence. That is, in addition to their sales to Basfoods, New Leaf and Mr Quach were responsible for selling about another 100 cartons. In addition to the sales revealed by him in his evidence, Mr Alexandrou was also responsible for selling about another 20 cartons. Employing the same 50 percent discount and the same average net profit figure as employed earlier, it may therefore be concluded that TG Corp's lost profit as a result of the infringing conduct of Mr Quach and New Leaf was in the order of $3,000 and the lost profit arising from the infringing conduct of Mr Alexandrou was in the order of $500. Compensatory damages are assessed accordingly.
126 This assessment of compensatory damages is also applicable to the damages in respect of the ACL contraventions and passing off. There is no reason or basis for assessing damages differently for those causes of action.
127 It should also be noted that the respondents' recalcitrance and lack of cooperation, including in relation to the production of documents, is a relevant consideration in relation to the award of additional or exemplary damages.