E&J Gallo Winery v Lion Nathan Australia Pty Limited [2009] HCATrans 318 (9 December 2009)

Last Updated: 9 December 2009

[2009] HCATrans 318

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S189 of 2009

B e t w e e n -

E & J GALLO WINERY

Appellant

and

LION NATHAN AUSTRALIA PTY LIMITED (ACN 008 596 370)

Respondent

FRENCH CJ
GUMMOW J
HEYDON J
CRENNAN J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 9 DECEMBER 2009, AT 10.20 AM

(Continued from 8/12/09)

Copyright in the High Court of Australia

FRENCH CJ: Yes, Mr Jackman.

MR JACKMAN: Can I deal next with my learned friend, Mr Douglas’, so-called extreme example set out in paragraph 42 of his written submissions. This is the example of a:

foreign based manufacturer (who is not the registered owner of the mark in Australia but who may be the owner of a mark –

in a foreign country.

GUMMOW J: Which paragraph number, Mr Jackson.

MR JACKMAN: I am sorry, 42 of my learned friend’s written submissions on the appeal.

HEYDON J: There is actually a slight problem. Your paragraphing is out of sync with his paragraphing. One can see that by looking at your reply. Why that is so I do not know, but at one point the numbering jumps by one. It is in my 43, for example, this logical extreme example.

MR JACKMAN: Yes, our reference in paragraph 12. Your Honour Justice Heydon is correct. Our reference to my learned friend’s paragraph 43 should be to his 42.

HEYDON J: No.

GUMMOW J: The other way around.

HEYDON J: I think that if you go to paragraph 11 where it says “40-42” it should say 41 to 43 and in your paragraph 12, 43 plus one equals 44 and in your paragraph 13 the same change.

MR JACKMAN: Yes. The difference has arisen because the submissions as filed were different from the submissions as initially served and I apologise for that.

GUMMOW J: It looks like the paragraph, in this respect, is taken to its logical extreme. That is the paragraph you are addressing.

MR JACKMAN: Yes. Is that 43?

GUMMOW J: Paragraph 43, yes.

MR JACKMAN: I am so sorry. As initially served it was 42. I apologise. I should have referred to 43. That is the example that is put up as - - -

GUMMOW J: As the infringement example.

MR JACKMAN: Yes, and, in our respectful submission, first of all there is nothing remarkable about the outcome which is postulated in that example given that trademark infringement does not require any mental element, for example, by way of intention or deliberateness.

The second submission that we make in response to that is that the problem is really more theoretical than real. In the ordinary case, the owner of the mark in Australia would simply seek an injunction against the Australian importer, the local operation, being the company or person who actually does control the dealing in Australia and approaching it, thereby making the injunction immediately effective and also saving any difficulties which might arise in terms of service out of the jurisdiction or enforcing an injunction in a foreign jurisdiction.

Can I deal next with the question of onus of proof. Our primary position is that that is a question which does not matter in the present case, but if it does the submission that we put on onus of proof in an application for removal for non-use is that while the owner of the mark sought to be removed bears an evidential onus to rebut the allegation, the ultimate onus remains on the party seeking the order for removal. We advance that submission as a means of reconciling what is said in section 100 with what is said in section 101(2). Dealing with them in that order, in section 100(1)(c) relevantly the Act provides:

In any proceedings relating to an opposed application –

This is all part of Part 9 dealing with the removal of trademark from register for non-use:

it is for the opponent to rebut –

relevantly paragraph (c) –

any allegation made under paragraph 92(4)(b) that the trade mark has not, at any time during the period of 3 years . . . been used, or been used in good faith, by its registered owner –

That we would submit is the evidential onus. But the ultimate onus is imposed by section 101(2) in our submission:

Subject to subsection (3) and to section 102, if, at the end of the proceedings relating to an opposed application, the court is satisfied that the grounds on which the application was made have been established, the court may order the Registrar to remove –

Now, 101(2) does not provide that “if the Court is satisfied that the opponent has failed to rebut the allegation of non-use”. If it had been expressed in that way then it would have cast the ultimate onus on us, but expressed in the way that it is, namely:

the court is satisfied that the grounds on which the application was made have been established -

we would submit that the ultimate onus rests on the applicant for removal. Can I move then to the four points of contention and deal first with the question of quality control over the goods under subsection 8(3), and your Honours will have noticed that the consulting agreement appears in two places in the evidence. One is in volume 8, as an exhibit to the entire stock brand and purchase agreement. The other is in volume 2, and I would ask your Honours to go to the copy in volume 2. Can I begin in volume 2 at page 282, which is paragraph 7 of Mr Kalabokes’ second affidavit, and on page 282 in paragraph 7, Mr Kalabokes refers to:

Gallo Winery retained Mr. Houlihan and Ms. Harvey to provide consulting services during the transition period. This was done to make sure that the Barefoot Cellars business continued to function properly while it was assimilated into Gallo Winery’s. Because of their familiarity with the flavour profile and wine style of the existing Barefoot Cellars portfolio, one of the responsibilities of Mr. Houlihan and Ms. Harvey was to continue monitoring the quality of the wine bearing the BAREFOOT mark. This was important to maintain consistency in terms of the quality of BAREFOOT wine during the transition period.

Then Mr Kalabokes exhibits as CK 30, the consulting agreement itself, so there was no doubt we made absolutely clear the purpose of the tender of the consulting agreement in terms of proof of Mr Houlihan’s involvement in quality control. Then coming to the precise terms of clause 5(e) on page 336, we do rely upon the representations of fact in 5(e), particularly that the consultants, one of whom was Mr Houlihan, maintained the quality standards in effect over the past several years of Grape Links, Inc:

with respect to production, winemaking, bottling –

relevantly. Then, of course, it goes on to provide that:

As such, the Consultants hereby undertake . . . to monitor the quality of the goods and services produced by GLI until the Final Closing. In said capacity, the Consultants shall regularly test GLI’s products -

and so on. Now, “maintaining”, in our submission, means ensuring that the quality standards were adhered to, that is exercising quality control. We submit further that the quality control referred to in section 8(3) need not be to the exclusion of all others. It does not matter that there was an employee called Ms Jennifer Wall who held the position of winemaker, according to the documentary evidence. That does not mean that Mr Houlihan, the president of the company, did not also exercise quality control as indeed he represented in clause 5(e) of this agreement.

FRENCH CJ: Should not one read that as anything other than simply a warranty of experience grounding the capacity to provide these services?

MR JACKMAN: Yes. It is a representation of historical fact.

FRENCH CJ: Well, it is a warranty, is it not?

MR JACKMAN: No, there is no – well, with respect, there is no - - -

FRENCH CJ: How did one treat it as evidence of the historical fact?

MR JACKMAN: The first sentence of clause 5(e) makes no promise. It is simply representing the historical fact that Mr Houlihan and Ms Harvey relevantly maintained the quality standards in effect over the past several years of Grape Links, Inc in the ways set out. It is a solemn representation of fact on which the agreement depended, supported by certification of the correctness of the fact that was represented. It has a particular practical point in that it then does give a factual foundation to the promises that then followed as to the consultants undertaking to continue to monitor the quality of the goods, regularly testing them, implementing steps reasonably required to cause the quality of the goods to be maintained at a level comparable to that in effect at the date of the agreement.

So as a matter of construction it is a representation of fact and no point was taken as to the admissibility of it. No application was made that the evidence be limited pursuant to section 136 of the Evidence Act. The purpose of the tender was quite plain from paragraph 7 of Mr Kalabokes’ affidavit as going to the question of quality control exercised by, relevantly, Mr Houlihan the trademark owner.

The second point of contention deals with the question of good faith. We draw attention, as Justice Drummond did in the Woolly Bull Case, to two aspects of the Act. One is in section 92(4)(b) itself which refers to the ground:

that the trade mark has remained registered for a continuous period of 3 years . . . and. at no time during that period, the person who was then the registered owner:

. . .

(ii) used the trade mark in good faith in Australia –

“at no time” meaning not once. The concept is reinforced in section 100(1)(c) which deals with the rebutting of:

any allegation made under paragraph 92(4)(b) that the trade mark has not at any time –

that is at any single time –

during the period of 3 years . . . been used, or been used in good faith –

Hence, Justice Drummond’s conclusion in Woolly Bull that a single use in good faith is sufficient. We have not put on our list the Full Federal Court’s decision in Johnson & Johnson v Sterling Pharmaceuticals but there is a useful passage which was extracted by Justice Flick from that as to the meaning of good faith. If your Honours would go in volume 10 to page 2278, paragraph 103 of Justice Flick’s judgment refers to Johnson & Johnson v Sterling Pharmaceuticals and quotes from your Honour Justice Gummow’s judgment referring to:

Section 23(1)(b) of the [then] Act also uses the expression “use in good faith” as a criterion for expungement for non-use. There is, in relation to the comparable provisions in the Trade Marks Act 1938 (Eng), authority to the effect that in order to qualify as such use there must be a real or genuine use in a commercial sense, rather than colourable activity and “token” use designed to lead trade rivals to think that the registered proprietor was using its mark in a way which gave it the protection of the legislation.

We respectfully submit that that is an appropriate construction of the words “in good faith”. In the present case, 12 dozen bottles were offered for sale by Beach Avenue Wholesalers, having been purchased by them in the ordinary course of trade and then offered for sale and to some extent sold over a period of at least four and a half years from March 03 to September 07, including the three in non-use period and the evidence indicates that those bottles were offered for sale and sold for ordinary commercial purposes, there being nothing colourable about the use of the mark in that context.

The third ground of contention relates to the 18 months in which the goods were in Germany. We say two things about that. The first is that if it be relevant as to whether the goods remained in the course of trade between their arrival in Germany and their departure from Germany, then the inference can safely be drawn, as Justice Flick did at paragraph 114, from the fact that the cartons which were purchased in Melbourne by my instructing solicitors in September 2007 bore the same serial numbers as disclosed in the Department of Treasury documents in the US, that is, the same serial numbers that the cartons bore when they left California.

That is strongly indicative of the goods having remained in the course of trade rather than having been purchased by consumers and then re-purchased by a wholesaler during that 18-month period. But, we submit that as a matter of principle it is irrelevant whether the goods remained in the course of trade throughout that period. All that matters is that the goods were in the course of trade in Australia pursuant to sections 17 and 92(4)(b) of the Act.

The fourth ground of contention is the proposition that neither Mr Houlihan or Grape Links, Inc nor Gallo Winery used the Barefoot mark. Rather, what they used was the Barefoot mark plus an image of a bare foot. In our submission, the trial judge correctly found that the Barefoot word mark was affixed to the bottles or what was affixed was that word with additions or alterations not substantially affecting its identity, that being the language of section 7(1) of the Act.

The image of the bare foot is no more than a pictorial representation of the word “Barefoot” and, in our submission, it does not add anything which is different or distinctive to it outside the ambit of subsection 7(1). The Colorado Case is at the forefront of my learned friend’s submissions on this point. The Colorado Case of course concerned a mark which was both the geographical name “Colorado” together with an image of some stylised mountains which was referred to as the “multiple peaks device”. It is significant to note that up until the 1995 Act a geographical name as such could not be registered as a mark. That was the old provision 24(1)(d) in the 1955 Act.

That changed in the 1995 Act - 24(1)(d) does not find a counterpart in the 1995 Act. What one has are a number of tests set out in section 41 for distinctiveness of a mark so that there is no absolute rule against geographical names, hence Justice Gyles’ comment in Colorado that for most of the period from 1982 until the date of the trial you simply could not have a geographical name registered.

Now, although you can have a geographical name registered provided it meets the distinctiveness tests in section 41 it remains the case that a geographical name, by its nature, is not inherently adapted to distinguish the goods of one trader from those of others. One would ordinarily need something in addition to make it distinctive, hence, the multiple peaks device which was an essential integer of the mark in question there. The case is distinguishable from the present, in our respectful submission, because the Barefoot word mark is inherently adapted to distinguish goods of one trader from another, as distinct from the use of a geographical name.

Can I deal finally with the ground of cross-appeal in respect of which special leave is reserved, that being the question of the timing of the order for removal. My learned friend’s argument depends heavily on a perceived anomaly, or suggested anomaly, in section 127 of the Act providing that pecuniary remedies are not available in respect of the non-use period but by implication pecuniary remedies are available in respect of infringements after the non-use period ends. The answer to my learned friend’s suggestion that that is anomalous is to look also at section 122. There are two paragraphs in 122(1) which have relevance here. Section 122(1) begins by providing:

In spite in section 120, a person does not infringe a registered trade mark when –

Now paragraph (f) provides –

the court is of the opinion that the person would obtain registration of the trade mark in his or her name if the person were to apply for it –

The other relevant paragraph is (fa), namely that:

Both:

(i) the person uses a trade mark that is substantially identical with, or deceptively similar to, the first-mentioned trade mark; and

(ii) the court is of the opinion that the person would obtain registration of the substantially identical or deceptively similar trade mark in his or her name if the person were to apply for it –

Now, as it happens, Lion Nathan never pleaded or relied upon those paragraphs of 122(1), but in the ordinary case somebody seeking removal for a mark in circumstances where they are using either the same or a substantially identical or deceptively similar mark would rely upon 122(1)(f) or (fa). In Lion Nathan’s case, (fa) would seem to be the appropriate candidate and if Lion Nathan succeeded on (fa), then they would have a defence for an action for pecuniary remedies arising from an infringement that would take in not only the non-use period under section 127, but also the subsequent period by virtue of the defence that they have under 122(1).

So when one looks at the Act as a whole, one sees why it is that 127 applies only to the non-use period and it is then at that point when the non-use period has finished and the Court, on this hypothesis, is satisfied that there has not been a use or use in good faith for the three-year period, then Court then says, well, if Lion Nathan had sought to register the Barefoot Radler mark, registration would have been granted, therefore, they have a defence for the entire period.

FRENCH CJ: When was (fa) introduced?

MR JACKMAN: The note that I have in my copy is that it was introduced – well, subsection (1) was amended in 2001. I am unable to say whether (f) or (fa) were there originally in 1995, but there was certainly an amendment in 2001.

CRENNAN J: Subsection (f) was, but not (fa).

MR JACKMAN: That would make sense from the nomenclature that has been used - - -

FRENCH CJ: Yes. It looks like 2001 because that is the only amendment in the list, the more recent reprint.

MR JACKMAN: Yes, and (fa) would be an appropriate amendment in curing what my learned friend puts forward as an anomaly because it then caters for the Lion Nathan position where the mark that it would have been applying for may not have been Barefoot alone, but the words Barefoot Radler being substantially identical or deceptively similar. So the amendment does better cure the anomaly than the original drafting.

Now, having dealt with the perceived anomaly, one then comes back to the language of section 101(2) which contains no indication of any retrospective effect for the order for removal and in that regard we contrast 101(2) with two other provisions in the Act. One is section 79 which specifically contemplates retrospectivity in the registrar’s renewal of the registration of a mark. The other provision we rely upon is section 98 which again expressly contemplates retrospectivity in the registrar restoring the mark to the register.

Can I then ask your Honours to go to a passage that appears in Justice Flick’s judgment on this point in volume 10, page 2317. In paragraph 9 on 2317 his Honour referred to the position in the United Kingdom. The case is Second Sight v Novell UK. In issue there was section 32 of the UK Act which provides:

Any person aggrieved by . . . any entry made in the register without sufficient cause, or by any entry wrongly remaining . . . may apply in the prescribed manner to the Court or . . . to the Registrar, and the tribunal may make such order for making, expunging or varying the entry as the tribunal may think fit.

GUMMOW J: That was the inspiration for section 22(2) of the 1955 Act which used the same language, I think, “may make such order as it thinks fit for expunging”, et cetera.

MR JACKMAN: Yes.

GUMMOW J: So what comes out of all this?

MR JACKMAN: Mr Justice Lightman then observed that specific provision is made in the English Act where an event or decision is to have retrospective effect, which is why we draw attention to section 79 and 98:

I can find neither in the language used nor in principle any grounds upon which it can sensibly be held that such a determination under an application under section 26 or section 32 can have any retrospective effect.

Justice Flick, in our submission, correctly concluded that it provides some support for the conclusion reached and Lion Nathan could not point to an Australian decision in which an order with a retrospective operation has previously been made. Then, as I submitted yesterday on the special leave application, paragraph 11 then deals with the matter as a question of discretion if his Honour were to be found wrong on the question of construction and no House v The King type error was invoked by my learned friend in relation to that exercise of discretion if it be called for.

GUMMOW J: Now, Mr Jackman, we have to think at this stage on various contingencies as to what relief would be. Have you given any further thought on the footing that you succeed and you want an injunction? In particular, would it be an injunction immediately effective we handed down our reason or would there be a stay of 28 days of the injunction?

MR JACKMAN: Certainly no argument has ever been put in any of the courts below that the injunction should be stayed for a period such as 28 days.

GUMMOW J: Not with a view to pending a further appeal, which is obviously impossible, but with the opportunity for your opponents to get their house in order.

HEYDON J: Barefoot Radler beer is stocked all over the country, they are piled up on the floor. There may be advertising campaigns in train. You cannot suddenly criminalise, one minute after the order is handed down, conduct which would be in breach of the order.

MR JACKMAN: Well, certainly a period of 28 days is one that my client could certainly live with, but I simply make the submission that Lion Nathan has never contended in any of the courts below for such a delay and my learned friend may or may not be able to point to evidence which has been led which would justify a delay.

GUMMOW J: I know. You can assume a certain amount of experience amongst us as to how the world works in these matters.

MR JACKMAN: I take your Honour’s point and there is certainly evidence of marketing campaigns which have been conducted from which your Honours could infer that there would be practical difficulties in an immediate cessation. So while our primary contention is that the injunction, being an injunction against Lion Nathan not against retailers, the injunction against Lion Nathan could be - - -

GUMMOW J: Yes, I know, but third parties get caught up with aiding and abetting.

MR JACKMAN: That would be strongly indicative of the need for a wind-down period.

GUMMOW J: Once your diligent solicitors have turned up with a copy of the injunction.

CRENNAN J: But you accept there is a need for a wind-down period?

MR JACKMAN: There would need to be a wind-down period in a practical sense and it is certainly something that we could live with and a

period of 28 days, if the Court is minded to give such a delay, would be appropriate.

GUMMOW J: We might see what Mr Douglas says about this. Should it not be an order that the respondent by itself, its servants and agents be restrained from infringing trademark number so-and-so by or without licence or authority of the appellant selling or offering, et cetera, or any other name substantially identical with or deceptively similar to that registered trademark?

MR JACKMAN: Yes, I accept that.

GUMMOW J: We had better see what Mr Douglas says. All this is just on the contingency. We have to cover ourselves so we do not have to come back and have another hearing.

MR JACKMAN: Yes, indeed. May it please the Court.

FRENCH CJ: Thank you, Mr Jackman. Yes, Mr Douglas.

MR DOUGLAS: Just on that last point, I did raise informally with my learned friend this morning, before the Bench sat - - -

HEYDON J: We are having a bit of evidence, are we, about conversations between counsel?

GUMMOW J: It seems to be the new fashion. We are continually being regaled with conversations that have occurred we should not know about.

MR DOUGLAS: It has not been the subject of the evidence below.

FRENCH CJ: Just give us the bottom line, Mr Douglas.

MR DOUGLAS: The bottom line is we would need a period of wind-down and we do not disagree with the form of order which Justice Gummow propounded from the Bench, if that were to be the outcome of this appeal. So what we would ask, really, is either to be given leave to give some submissions in writing as to what would be an appropriate period of wind-down because I do not have sufficient instructions at the present time to say whether 28 days would be sufficient or not or, alternatively, the Court could make a declaration, if it found against us - - -

GUMMOW J: We do not want to keep coming back, Mr Douglas. You should come armed with these instructions.

MR DOUGLAS: Yes. Well, perhaps I could obtain those instructions.

GUMMOW J: We will act on the basis of 28 days at the moment.

MR DOUGLAS: Very well, your Honour. If I am told this morning - - -

GUMMOW J: Unless those behind you tell you something else this morning.

MR DOUGLAS: If it please the Court.

CRENNAN J: We can get a note.

MR DOUGLAS: Could I just deal firstly with a point which arose in discussion between my learned friend, Mr Jackman, and Justice Heydon concerning the width of our first ground of contention. On the print out of a transcript I have it is at the top of page 76 where my learned friend said that:

we would oppose any expansion of that notice of contention.

He is prepared to deal with it on the merits, he says. He says –

The argument is not one that was put that if one is looking at whether Grape Links, Inc was an authorised user, that question has always been approached by the parties in this case as a question of control at the point of manufacture. Where there was an expansion in that is in dealing with another line of argument that we put but we no longer pursue, which is whether Beach Avenue Wholesalers was an authorised user.

Then he went to the judgment. Now, it is important in that regard to have regard to the way in which the matter was pleaded, firstly, and my learned friend’s particulars of use are to be found on page 22 of volume 1 of the appeal book and he put it firstly as being:

(i) use of the BAREFOOT Trade Mark by Michael Houlihan;

(ii) use of the BAREFOOT Trade Mark by Grape Links, Inc as an authorised user by reason of the fact that Michael Houlihan licensed the BAREFOOT Trade Mark to Grape Links, Inc and Grape Links, Inc used the BAREFOOT Trade Mark in relation to wine under the control of Michael Houlihan; and/or

(iii) use of the BAREFOOT Trade Mark by Beach Avenue Wholesalers Pty Limited as an authorised user by reason of the fact that Michael Houlihan exercised quality control over the goods dealt with or provided in the course of trade by Beach Avenue Wholesalers Pty Limited and in relation to which the BAREFOOT Trade Mark was used.

That was denied by us and it then went to trial. So far as the judge was concerned - apart from that part of the judgement which I took the Court to in my opening submissions, I should draw the Court’s attention to that part of it which deals with the way in which it was put at trial and that is to be found in paragraph 110 on page 2281 where it says:

Notwithstanding the fact that neither Mr Houlihan nor Gallo Winery sold or offered for sale BAREFOOT wine in Australia during the 2004-2007 period, it is nevertheless contended by Gallo Winery that there has been a relevant use of the registered mark BAREFOOT during the period from 7 May 2004 to 8 May 2007. In support of that contention Gallo Winery advanced three arguments, namely:

(i) that Beach Avenue Wholesalers’ offering for sale and sale of BAREFOOT wine in the non-use period was a use of the BAREFOOT mark, in good faith, by Barefoot Cellars as an authorised user;

(ii) that Beach Avenue Wholesalers’ offering for sale and sale of BAREFOOT wine in the non-use period was a use of the BAREFOOT trade mark, in good faith, by Beach Avenue Wholesalers as an authorised user; and

(iii) that Gallo Winery used the BAREFOOT mark, in good faith, between September 2006 and the end of the non-use period in negotiating and preparing for the distribution of BAREFOOT wine in Australia by its Australian distributor, McWilliams Wines.

As we understand the situation, it is only the first of those which is now pressed and in relation to that Justice Flick said in paragraph 111 - - -

HEYDON J: Would it not be - - -

MR DOUGLAS:

Common to both of the former two ways - - -

FRENCH CJ: I am sorry, Justice Heydon had a question, I think.

HEYDON J: I thought it was the third that was pressed, not the first?

MR DOUGLAS: I do not see how it could be said that Gallo Wineries used the Barefoot wines in good faith between September 2006 and the end of the non-use period in negotiating and preparing for the distribution of Barefoot wine.

HEYDON J: The material which is paragraphs 152 onwards is the trial judge dealing with an issue not now an issue, right?

MR DOUGLAS: That is dealing with Beach Avenue Wholesalers as an authorised user. They no longer say that Beach Avenue Wholesalers was an authorised user.

FRENCH CJ: That is A(iii) in their particulars which is not pressed.

MR DOUGLAS: That is as we would understand it.

FRENCH CJ: That is what Mr Jackman said yesterday.

HEYDON J: In paragraph 110 is that (ii)?

MR DOUGLAS: Yes, it is (ii).

HEYDON J: Thank you. I interrupted you. You were saying (i) was the crucial one.

MR DOUGLAS: I am just trying to work out what I have agreed to, Justice Heydon.

HEYDON J: It does not matter about intentions, just did the words hit.

MR DOUGLAS: Entirely objective, your Honour. When one looks at the pleading, one has to see that (ii) and (iii) are read together, so it is an “and/or”, so that then brings in the sales in Australia into (ii), as we would read it, and that is how his Honour understood it because he then goes on to say:

Common to both of the former two ways in which Gallo Winery contends that there has been a use of its trade mark is the contention that BAREFOOT wine was sold and was offered for sale during the period 2004-2007.

That includes the use in good faith by Barefoot Cellars as an authorised user. He then goes to look at the question of sales and then offering of the sale, and he then, at paragraph 132, says:

The first contention advanced on behalf of Gallo Winery was that the prior registered owner of the trade mark, Mr Houlihan, licensed it to Barefoot Cellars and exercised quality control over the BAREFOOT wine to which the mark was applied. The fact that such wines were sold and offered for sale by Beach Avenue Wholesalers during the relevant period – it was submitted – was sufficient to constitute a use of the mark by Barefoot Cellars and, in turn, Mr Houlihan.

So they put their case entirely, as we would see it, on the basis of authorised use by Barefoot Cellars arising from the sale by Beach Avenue Wholesalers, which in turn accrues to the benefits of Mr Houlihan as a registered proprietor of the mark, and that is what I said in opening. Then the trial judge looked at the matters and in particular at paragraphs 137 and following, he says:

Notwithstanding the views expressed by [Shanahan], it is not considered that there could have been a “use” of the BAREFOOT trade mark during the 2004-2007 period by the registered owner simply by reason of the fact that BAREFOOT wine happened to be offered for sale or was in fact sold in Australia during that period.

There was certainly no agreement or other arrangement as between either Mr Houlihan or Barefoot Cellars and Beach Avenue Wholesalers whereby the BAREFOOT wine was to be imported, whether from Germany or elsewhere, and later sold or offered for sale in Australia.

In the circumstances of the present proceedings, it is not considered that there was any “use” of the BAREFOOT trade mark by the registered proprietor in Australia arising merely by reason of the fact that the BAREFOOT wine, or some of the wine exported originally to Germany, by some unexplained circuitous route ultimately arrived on Australian shores and was thereafter available for sale in Australia.

Then he went on to consider the Estex Cases, and then went to that part of the judgment which I took the Court to, which goes up to paragraph 159 which I do not have to pay any further attention to. The other matter I would wish to draw attention to - - -

GUMMOW J: So what do you seek to get out of this, Mr Douglas?

MR DOUGLAS: Firstly, what it shows, your Honour, is that they were arguing that the authorised use was one which was won by Barefoot Cellars, arising from the fact that Beach Avenue Wholesalers sold the wine or offered for sale the wine in Australia, and that that use then accrued to the registered proprietor of the mark which was Mr Houlihan. It was not a case of saying, as my learned friend now seeks to restrict his case, as we would understand it, all the court and the parties were concerned with in relation to this first point was control at the point of affixation of the label, which is, as I understand it, the way he sought to put it yesterday, and whatever happens thereafter is not meaningful.

GUMMOW J: Are you saying he cannot put that submission?

MR DOUGLAS: I am saying he can put it but it is not right, your Honour. But, as I understood it, Mr Jackman was seeking to restrict us to the exercise of quality control at the point of affixation of the mark, and the submissions went wider than that. To the extent that it is necessary, I would seek leave to hand up the submissions which were made at trial and on appeal which clearly brought out that we - - -

FRENCH CJ: How does this emerge as a matter of reply?

MR DOUGLAS: Well, it emerges as a result of the pleading point to which my learned friend seeks to take in relation to our first ground of contention. If he is seeking to restrict us, in all fairness we should be entitled to put before the Court the way in which the matter was put to the courts below. I wish to draw attention in particular to paragraph – it is the submissions in opening which is the second document in that bundle – paragraphs 13 through to 39 of those submissions, where emphasis was placed upon section 8(2) and the lack of control which Mr Houlihan had in relation to wine which was in Australia, if one goes to paragraph 25 of those submissions.

Similar but more abbreviated submissions were made on appeal in paragraph 44 of the other document. So it always was in issue before the court below and on appeal whether in fact control was exercised beyond the period where the mark was affixed and the goods were sent to Germany, contrary, as I would understand it, to the submission which has been put by my learned friend. Could I just deal with these matters too. So the case as put, which my learned friend is prepared to deal with on its merits, was a case which was put at trial and on appeal and we are entitled to put it here.

Could I then just deal with this. Yesterday Justice Gummow referred to the Time-Life decision, and we recognise that there is a difference between patents and trademarks and there are a number of authorities which discuss that, but of course a trademark owner can always insert stipulations into a licence agreement or into an authorised user agreement which enables them to exercise some degree of control. For example, if they did not push to have – well, I think there are many examples which can be given and I do not need to take up the time of the Court with that.

GUMMOW J: The point I was trying to make was that the term “control” in section 8 has to be understood as not confined to the sort of control that is permissible in the patent system because of the difference between the patent system and the trademark system.

MR DOUGLAS: Yes, it is not confined, but, of course, there are certain statutory rights of control which are given to authorised users under the 1995 Act, particularly section 26. So that, for example, an authorised user can, if one goes to that section, do any of the things which are set out there, including bringing an action for infringement.

CRENNAN J: The other point is subsections (3) and (4) of 8 function as examples of the wider notion in subsection (2) of control.

MR DOUGLAS: Which subsection is your Honour referring to there?

CRENNAN J: Subsections (3) and (4) are examples, I think, of control, whereas subsection (2) just refers to control generally.

MR DOUGLAS: I am sorry, which section, your Honour?

CRENNAN J: Section 8.

MR DOUGLAS: I am sorry, I was on section 26. The point about section 8 is that one has always, in reading section 8 and, for that matter, reading section 92(2), to have regard to the definition of “use of a trade mark” in subsection (4). So “use of a trade mark” is in this Act defined in relation to goods.

CRENNAN J: My only point is that there is no constraining of the type of control that a registered proprietor can have over an authorised user. It does not have to be quality control. It just so happens, as you said yesterday, that that was the battleground.

MR DOUGLAS: That is the battleground, yes, your Honour. But also, quite logically, a registered proprietor may not wish to exercise control because, in our submission, they would not wish to be liable for infringement. So if one goes to “use of a trade mark in relation to goods”, it is defined as meaning:

use of the trade mark upon, or in physical or other relation to, the goods.

Those are the words which are used in section 92(4). It is in that sense that one must understand the concept of trademark use and that is the sort of conduct – some connection between the registered owner and the person who is bringing it into Australia which enables it to be said that it is used by the registered proprietor. That is a very important section in determining that when one uses this expression, “use of the trademark in relation to goods”, we are not focusing as my learned friend does in paragraph 15(a) of his submissions on use as a trademark in a sense so as to show the origin of the goods, because that is always a given. I mean, an infringer to a certain extent uses the trademark in that sense, but if focuses on the conduct by the authorised user or registered owner, not on a functioning of the trademark.

That is how one then gets that concept of conduct into the Act. For example, in the case of an authorised user, once the control of a registered owner has ceased, it is not an authorised use to import for goods into Australia, but there is a defence under section 123 because the trademark was affixed with the authority of the registered proprietor in Australia. That defence does not apply if it is affixed by a foreign registered mark holder.

So when one looks at those provisions, and I am perhaps going beyond where your Honour took me to at section 8, but one can see that the Act draws a distinction between the affixation of the mark, for example, in section 123, and the use of a trademark in relation to goods. We are not submitting here, and never have submitted in any court below, that the trademark here is not used as a trademark in the Shell Company of Australia sense. That is, it is used as a badge of origin for the goods.

But the important question, and what my learned friend’s submissions elide, with respect to him, is the important words “by the registered proprietor”, and by the registered proprietor – that is, use by the registered proprietor, requires use in the meaning of the definition, in section 7(4). That is where this Act is consistent with the decision in Estex, and is consistent with the way in which we seek to put our case.

GUMMOW J: Can you just go back to section 26 for a minute, Mr Douglas?

MR DOUGLAS: Yes, your Honour.

GUMMOW J: Would it follow from what you are saying about section 26 that Mr Jackman’s client, the Californian company, on the footing that before it became the registered proprietor, it was, under those documents we looked at, an authorised user, that it could have sued itself?

MR DOUGLAS: Only if it was controlled. Only if the authorised use was subject to the control of a registered proprietor.

GUMMOW J: Yes, if Mr Jackman is correct about that, would it follow that it could have sued, provided it joined Mr Houlihan, or the then registered proprietor on 26(2)?

MR DOUGLAS: The answer to the question is yes, but you would have to have come to a view as to the extent of their authorised use.

GUMMOW J: Yes, it says “subject to” in the agreement.

MR DOUGLAS: Yes, and we do not know what the agreement was, and we know that there may have been a beer licence, and we have some vestigial evidence about the exercise of quality control - - -

GUMMOW J: The Act contemplates that this is the sort of thing an authorised user may have power to do.

MR DOUGLAS: Yes, if you had a formal agreement between the parties, or even an informal agreement between the parties - - -

GUMMOW J: And 26(1)(f) suggests a sub-licence, does it not? They may be given a power to sub-licence.

MR DOUGLAS: Yes, they can even do that, your Honour. So it is quite a formal, if I could put it that way, relationship. There can be a degree of informality, when you are just relying upon quality control, but that is why they have that provision in the Act, which says “to the extent only” that control is exercised. So once that control ceases to be exercised, then they are no longer an authorised user, and they cannot do any of these things on behalf of the registered proprietor.

GUMMOW J: So, it then becomes a question of when the authority ceases.

MR DOUGLAS: And they have got the onus of proof on that, your Honour. They have chosen to sculpt their case as they have and they put very, if I could put it that way, inadequate evidence to establish - - -

GUMMOW J: Mr Jackman’s submission, I think, is that the authorisation was to put it into trade, at least contemplating that the goods might end up in a country where there was a registration.

MR DOUGLAS: Why would one accept that, your Honour?

GUMMOW J: It is not for me to answer your questions.

MR DOUGLAS: Well, I mean, they have not tendered the licence agreement.

HEYDON J: Cross-examination of the Court is not a customary technique.

MR DOUGLAS: I am sorry, your Honour, I was allowing my familiarity with the Bench to get the better of me.

FRENCH CJ: The whole content of authorisation is to be found in the words “use under control”, is it not?

MR DOUGLAS: Yes. So the emphasis is upon control. They have to establish a control.

FRENCH CJ: The question is how far does the cognitive element go?

MR DOUGLAS: Yes. In the particular factual circumstances of this case, that is, we would say, an easy question to decide in our favour but it has been left very vague by my learned friend. The cognitive element of it certainly did not go to the goods being exported into Australia. The cognitive element of it may have gone to the goods being sent to Germany. When one looks at the label on the back of it, one can immediate negative, in our respectful submission, any suggestion that the goods were intended to come to Australia.

FRENCH CJ: I suppose it all depends upon whether you bring this notion of projection into the notion of use.

MR DOUGLAS: Rejection in the sense - - -

FRENCH CJ: Projection.

MR DOUGLAS: Projection or rejection?

FRENCH CJ: Projection.

MR DOUGLAS: I thought your Honour was suggesting that the goods may have been rejected by Germany and ended up elsewhere.

FRENCH CJ: Absolutely not, despite your reflections on the wine.

MR DOUGLAS: Well, projection is an extension of the concept of use under the old law.

FRENCH CJ: Yes.

MR DOUGLAS: When we want to consider use now, we have to look at section 7(4) and see what it is aiming at and so it has to fall within that definition. Projection is at the outer end, in our respectful submission, of what is contemplated by section 7(4), but it is there, but it is not present in this case. Of course, I am reminded, an authorised user can have some uses which are authorised and some uses which are not authorised.

Could I then turn to the timing on the injunction. I am told that we would need 60 days for any wind-down. Obviously, as Justice Gummow has said, there are marketing programs in place and we have obligations under other law and obligations to our retailers and they to us.

GUMMOW J: Well, one way of dealing with it might be an order, if it were to be done, suspending the injunction for 28 days or for such further period as within the 28 days you obtain on application to the Federal Court.

MR DOUGLAS: Yes, your Honour. I think that is - - -

GUMMOW J: Then you can debate on evidence in the Federal Court.

CRENNAN J: Debate on the evidence then.

MR DOUGLAS: We can debate it down there and not up here, yes. Would it be possible for us to have leave to give a note to the Court on the form of the orders to be made?

GUMMOW J: What do you want to say about it?

MR DOUGLAS: Your Honour, I have said what I want to say about it. I am in agreement with the proposed order of your Honour, but I am not sure that those behind me necessarily are of the same view. There is an issue about the form of the damages referral, your Honour.

GUMMOW J: That is a different point.

FRENCH CJ: That question could be covered by liberty to apply to the Federal Court on the same sort of formula, I suppose, if we get to that point.

GUMMOW J: From Mr Jackman’s point of view, the critical thing to get from us is the injunction, I imagine.

MR DOUGLAS: Yes. Then there was one other point, section 122(e) and (f). So far as that is concerned, (e) is a right which accrues to the trademark owner only, and we are not. So far as (f) is concerned, we are blocked by their registration at the present time. We have not asked the Court to form

an opinion in terms of subparagraph (f). Unless there is something further I can say to assist the Court, those are our submissions.

FRENCH CJ: Thank you, Mr Douglas. Mr Jackman, we had these submissions handed up. Was there anything you wanted to say in relation to the comment on those?

MR JACKMAN: Only a general word of caution, if I may respectfully put it that way. Your Honours will note that the submissions that my learned friend referred to, being Mr Bannon and Mr Murray’s submissions for Lion Nathan at first instance, are submissions served before the trial. They are dated 11 April 2008 and we did subsequently amend our pleading. Our amended defence to cross-claim, which begins in volume 1, page 21, is dated four days later, 15 April 2008, and the amendments principally concern the way in which we put the question of use in particular A, or the particular - - -

GUMMOW J: A(ii), is it not?

MR JACKMAN: A(ii), that is right. It was an idea that had been generated by something that Mr Bannon had said, I think, in writing, if my memory serves me correctly, but one has to be cautious about a statement of position before the trial when the relevant pleading was then amended to bring into play the very issue which is the subject of our appeal to this Court. While I am on my feet, now that the glitch in terms of paragraph numbers in our reply submissions has been drawn to my attention, would it be convenient for us to amend our reply submissions so as to refer to the correct paragraph numbers?

GUMMOW J: This is a terrific way to finish your case.

FRENCH CJ: I think that might be helpful, Mr Jackman.

MR JACKMAN: If we could do that in the next couple of days - - -

FRENCH CJ: It might test our capacity too much to have to do math along with the reading.

MR JACKMAN: Yes. I apologise for those errors and we will file and serve some amended submissions correcting those references. May it please the Court.

FRENCH CJ: Thank you.

MR DOUGLAS: Could I just raise one matter. It goes to a form of order rather than leave that matter in an unsatisfactory state. We had propounded the form of order at 2373 of the appeal book which asks for referral for consideration of the application, whereas they seek, that is, the appellant seeks, at 2378 the order at order 9, that is, it be referred to for assessment. There is an element of discretion contained in our order which is lacking in theirs.

GUMMOW J: I am sorry, 237?

MR DOUGLAS: Page 2373 and that is order 4 at 2373 and order 9 at 2378. There has been a debate about this. Our submission on that is that this Court should reserve for the discretion of the primary judge a consideration of the application rather than simply remit it for the assessment of damages.

HEYDON J: I just cannot see the difference at the moment, though.

MR DOUGLAS: There is a debate about it which is to be found in the appeal book at volume 10 at page 2369.

GUMMOW J: In other words, proposed order 4 at 2373 puts off the time for election, does it, between damages and profits?

MR DOUGLAS: It does not presume the exercise of a discretion in section 126 of the Trade Marks Act, your Honour.

GUMMOW J: You cannot have both. You cannot have damages and then account. At some stage there would have to be an election by your opponent.

MR DOUGLAS: Well, even the order sought by the appellant seeks to retain that alternative, but under section 126 of the Trade Marks Act, I believe reflected in the judgment, that is, a judgment on a form of the orders at 2369, says:

We accept, as Lion Nathan submitted, that the order remitting the matter should not be expressed in terms which pre-suppose damages will be ordered (or an account of profits taken). Whether damages should be ordered in exercise of the power conferred by s 126 of the Trade Marks Act 1995 (Cth) is said by Lion Nathan to be a discretionary matter. Whether this is so was not an issue raised in the appeal. We have not sought to investigate the question ourselves, although cases such as Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd [1994] HCA 61; (1994) 182 CLR 51 at 84-85 may be relevant. In our view, the preferable course is to remit the matter on the terms proposed by Lion Nathan and the question of

whether there is a discretion and, if so, how it should be exercised can be determined by the primary judge.

So that is fundamentally our position here too.

FRENCH CJ: Yes, thank you, Mr Douglas. The Court will consider its decision. The Court will adjourn briefly to let parties for the next matter assemble.

AT 11.24 AM THE MATTER WAS ADJOURNED