That's "a Lot of Kebab"!

by K&L Gates LLP

Additional Damages Awarded for Trade Mark Infringement

The Full Federal Court of Australia (Court) has made its first award of 'additional damages' for trade mark infringement. This decision is promising news for trade mark owners, who can take encouragement from the Court's readiness to award additional damages as a deterrent from further infringement. Additional damages are a useful weapon in a brand owner's arsenal, affording the potential to obtain damages even where a claim for actual loss from an infringement cannot be made out.

In this case, Halal Certification Authority Pty Limited (HCA) owned a trade mark which it used on certificates issued to its customers whose products it had certified as 'halal' (which involves the products being treated in accordance with Shariah law). A kebab supplier, Quality Kebabs, supplied kebabs and certificates that prominently bore HCA's trade mark to two restaurants. These products were not certified by HCA and the certificates were false. The restaurant owners displayed the certificates at their restaurants.

HCA sued Quality Kebabs and the restaurant operators for, among other things, trade mark infringement. The Court found that all three companies had infringed HCA's trade mark and, while there were minimal nominal damages, awarded HCA AUD91,005 in 'additional damages'.

The Court restrained Quality Kebabs and its managing director, Mr. Kose, from using the trade mark and ordered Quality Kebabs to publish corrective advertisements, making clear that its products had not been certified by HCA. However, as there was not any evidence of loss to HCA resulting from the restaurant owners' infringements, the Court only awarded nominal damages against each restaurant of AUD10.

A complicating factor in proving that HCA suffered loss as a result of Quality Kebabs' infringement was that HCA operated in the market of certification of halal products, while Quality Kebabs operated in the market for the sale of kebabs. The Court also found that Quality Kebabs would have falsified a different certificate, rather than actually paying for a licence from HCA, and therefore it was unlikely Quality Kebabs was a 'lost sale opportunity' for HCA. Consequently HCA's loss, resulting from Quality Kebabs' conduct, was nil and nominal damages of AUD10 were again awarded.

HCA also pursued a claim for 'additional damages' against Quality Kebabs. The power to award these damages came into force under changes to the Trade Marks Act 1995 (Act) introduced on 15 April 2013.

The Court concluded that the purpose of the additional damages contemplated in the Act was to deter further infringement.

The Court concluded that it was appropriate to award additional damages, taking into account the following factors:

  • Flagrancy of the infringement – the mark was simply copied onto the false certificates "with the deliberate aim of peddling an untruth" and "showed a complete lack of respect for the applicant’s property rights" Mr. Kose became aware of HCA's complaint regarding the counterfeit certificates, through one of the restaurant owner's directors in 2012, but took no action. The Court held that this indicated an arrogant attitude on the part of Mr. Kose that he would continue to get away with his misconduct for as long as possible, which added to the flagrancy of the infringement.
  • The need for deterrence of this sort of trade mark infringement – "otherwise a trade mark will be valueless".
  • The level of cooperation from Quality Kebabs following notification of the infringement – there was some cooperation by Quality Kebabs, which was considered to weigh in its favour, but it was evidently not sufficient to offset the other factors considered by the Court.
  • The benefit that accrued to Quality Kebabs as a result of the infringement – in this case, the benefit was that Quality Kebabs could represent that it had been certified by HCA when it had not. 
  • The extent of the infringing conduct – although there was no evidence of distribution of the counterfeit certificates to any other party than the two restaurant operators, the Court held that it was unlikely that the infringing conduct was limited to those two restaurants.

In calculating the quantum of additional damages, the Court said that it would not increase the damages awarded by reference to the number of shops supplied with certificates, even if HCA could accurately quantify broader distribution. Absent any evidence of harm to the capital value of the trade mark, the Court did not think that the use by any particular shop caused HCA any loss.

Instead, the Court looked at the need for the quantum to act as a deterrent from further infringement. It found that, if the quantum was fixed at HCA's usual licence fee, this would effectively enable infringers to 'infringe now and pay if we are caught' – akin to the infringer being able to obtain a compulsory licence of the trade mark. This would move control of the use of trade marks out of their owners' hands which would be an obviously unsatisfactory result.

The Court therefore calculated additional damages at the usual licence fee plus an uplift of 50 percent. The quantum of additional damages awarded was AUD91,005 which, in the words of the Court," is a lot of kebab".

Case: Halal Certification Authority Pty Limited v Scadilone Pty Limited [2014] FCA 614

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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