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Court of Appeal of New Zealand |
Last Updated: 2 February 2018
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IN THE COURT OF APPEAL OF NEW
ZEALAND
BETWEEN INTELLECTUAL PROPERTY DEVELOPMENT CORPORATION
PTY LTD
First Appellant
AND HEFTY NZ LTD
Second Appellant
AND PRIMARY DISTRIBUTORS NEW ZEALAND LTD
First Respondent
AND D J GRAHAM
Second
Respondent
Hearing: 28 April 2009
Court: Glazebrook, Chambers and Arnold JJ
Counsel: G C Williams for Appellants
F M R Cooke QC and C D Boell for Respondents
Judgment: 23 September 2009 at
4.00 pm
|
JUDGMENT OF THE COURT
|
____________________________________________________________________
REASONS OF THE COURT
(Given by Glazebrook J)
Table of Contents
Para No
A trade mark infringement [1]
Relevant statutory
provisions [6]
Background [8]
IPDC’s knowledge of the
trade mark infringement [21]
The parties’ arguments
before the High Court [29]
The High Court judgment [32]
Did IPDC become aware of the trade mark infringement
on 18
January 2006? [45]
Should an account of profits have been ordered for the
whole
period? [47]
Submissions on behalf of IPDC [47]
Submissions on behalf of Primary Distributors [50]
Questions to be addressed [54]
Is IPDC bound by the concession in the High Court? [55]
Can mere delay lead to an account of profits being denied? [57]
Did Asher J take other factors into account? [70]
Could the other factors taken into account by Asher J
have
legitimately led to the remedy being denied? [73]
Conclusion [87]
Should Asher J have ordered an account of profits
against
Mr Graham and Mr Jones? [88]
Should Asher J have dealt with the passing off cause of action? [93]
Result and costs [96]
A trade mark infringement
[1] Intellectual Property Development Corporation Pty Ltd (IPDC) is the owner of a number of trade marks registered in New Zealand. IPDC and Hefty NZ Ltd (Hefty NZ) brought an action in the High Court seeking an account of profits from Primary Distributors New Zealand Ltd (Primary Distributors) for infringement of its trade marks by unlawful sales of products under the brand name Hefty.
[2] Primary Distributors accepted (in a memorandum filed just before the trial was scheduled to begin) that it had breached the Hefty trade marks and conceded the claim for an account of profits up to 31 August 2005. It resisted the claim for an account of profits in respect of sales of imported Hefty-labelled products from 31 August 2005 to 13 July 2006 when the infringement ceased, on the basis that there had been acquiescence by IPDC, waiver or laches. It also asked the Judge to exercise his discretion not to order an account of profits for that period because IPDC had neglected to take action immediately after it became aware of the infringement.
[3] Asher J made consent orders for an account of profits up to 31 August 2005: Intellectual Property Development Corporation Pty Ltd & Anor v Primary Distributors New Zealand Ltd & Ors [2008] NZHC 576; (2008) 8 NZBLC 102,274. With regard to the disputed period, Asher J rejected the positive defences and ordered an account of profits with regard to the trade mark breach for the period 31 August 2005 to 18 January 2006, the date he held that IPDC became aware of the trade mark infringement in New Zealand.
[4] IPDC and Hefty NZ (referred to collectively in this judgment as IPDC) appeal against that decision on a number of grounds which can be summarised as follows:
(a) Asher J was wrong to hold that IPDC became aware of the trade mark infringement on 18 January 2006.
(b) It was in any event irrelevant that IPDC became aware of the infringement but took no action. An account of profits should have been ordered for the whole period of the infringement.
(c) Asher J should have ordered an account of profits against Mr Graham and Mr Jones, the two directors of Primary Distributors.
(d) Asher J failed to deal with the passing off cause of action.
[5] Before examining these grounds we set out the relevant statutory provisions and the background in more detail. We then summarise the evidence as to when IPDC became aware of the trade mark infringements. This is largely taken from Asher J’s judgment. We also summarise the parties’ arguments before the High Court and Asher J’s reasoning in his judgment.
Relevant statutory provisions
[6] Section 9 of the Trade Marks Act 2002 confirms that a registered trade mark is a property right:
9 Nature of registered trade mark
(1) A registered trade mark is personal property.
(2) Equities in respect of a registered trade mark may be enforced in the same way as equities in respect of any other personal property.
[7] The relief available for the infringement of a registered trade mark is governed by s 106 of the Trade Marks Act:
106 Types of relief available for infringement of registered trade mark
If an application is made to the Court for relief, the relief that the Court may grant includes—
(a) an injunction on any terms that the Court thinks fit:
(b) either damages or an account of profits.
Background
[8] The Hefty range includes cling-film wraps, papers and other domestic products. Until March 2005 Hefty-labelled products were sold in New Zealand by an Australian company, Cartigny Pty Limited (Cartigny), which was the registered proprietor of three New Zealand-registered Hefty trade marks through its New Zealand subsidiary, Cartigny (NZ) Limited (Cartigny NZ).
[9] From the mid-1990s, Primary Distributors was the exclusive distributor of Hefty-labelled products for Cartigny in New Zealand. Primary Distributors did not purchase the Hefty products from Cartigny. Rather, it acted as Cartigny’s agent. Primary Distributors’ main customer for the Hefty products in New Zealand was the Foodstuffs Group (Foodstuffs) through its supermarket chains including New World, Pak’N’Save and Four Square.
[10] Prior to 2003 the Hefty-labelled products had been manufactured in Australia. From 2003 they were manufactured in Thailand by a Thai company, Cartigny (Thailand), which, despite being called ‘Cartigny’, was an entirely separate company from Cartigny in Australia and New Zealand. Cartigny (Thailand) shipped the manufactured product direct to Cartigny NZ and Primary Distributors arranged the marketing and distribution once the products arrived. In 2006 a different Thai company, Care Siam Pty Co Ltd (Care Siam), took over the manufacture of the product.
[11] In March 2005 Cartigny was placed in receivership in Australia. The Sydney office of the accounting firm Ferrier Hodgson was appointed as administrator under the Australian insolvency legislation. On 31 March 2005 Primary Distributors, through its directors Mr Graham and Mr Jones, entered into a trade mark licence agreement with the administrator of Cartigny for a period of three months. By that agreement, Primary Distributors had three months to sell the Hefty stocks left in New Zealand. The licence related only to Hefty products purchased by Primary Distributors from Cartigny NZ. The agreement did not give any general licence to import Hefty-branded products from Thailand.
[12] Under the licence agreement, the nature of Primary Distributors’ role changed from agent to purchaser and distributor for the three month licence period. Primary Distributors agreed that, on expiry of the licence, it would promptly cease all use of the trade marks and return to Cartigny or its nominee all products on which the trade marks appeared. It also acknowledged that the trade marks remained the property of Cartigny.
[13] On 1 April 2005 Cartigny was placed in liquidation. The administration of its assets continued in the hands of Ferrier Hodgson. On 22 April 2005 Primary Distributors offered $8,000 to the administrators to purchase the Hefty trade marks in New Zealand. Mr Graham and Mr Jones thought that they had a good chance of acquiring these, given Primary Distributors’ knowledge of the product and history of marketing the brand in New Zealand. The administrators did not respond to the Primary Distributors bid. In the course of 2005, unbeknown to Primary Distributors, they were negotiating with IPDC for the purchase of various trade marks, including the Hefty trade marks.
[14] In the meantime, Primary Distributors decided to purchase Hefty-labelled products direct from the Cartigny (Thailand) as it waited for a decision on its purchase offer, despite having no licence to use the Hefty trade marks that were owned by Cartigny. In April 2005 Primary Distributors made an initial purchase of two containers of product from Cartigny (Thailand) and then imported further supplies regularly. After the expiry of the three-month licence agreement on 31 June 2005, Primary Distributors also continued to sell the remainder of the stock that it had purchased from Cartigny NZ. This was a breach of the 31 March agreement and an infringement of the Hefty trade marks owned by Cartigny.
[15] From mid-2005 Care Siam had also been endeavouring to acquire the Hefty trade marks. From late 2005 Mr Jones and Mr Graham had accepted that Primary Distributors’ offer to acquire the Hefty trade marks was probably going to be superseded by the higher offer of Care Siam. However, even if Care Siam acquired the Hefty trade marks, Primary Distributors expected to remain the New Zealand supplier because of its existing supply relationship with Care Siam.
[16] During the trial, Primary Distributors acknowledged its infringement of the Hefty trade marks but advised that, as it hoped to be selling products lawfully in New Zealand once its tender was accepted, its directors had thought it reasonable to continue to sell in the meantime.
[17] By agreement dated 20 December 2005, Cartigny’s administrators sold the Hefty trade marks to IPDC. The agreement provided not only for the assignment of the various trade marks (including the New Zealand-registered Hefty trade marks), but also, in clause 2(e), for the assignment of:
the right to sue and claim (and retain) any damages and other remedies (including but not limited to an account of profits) for past infringements of and wrongful interference to any of the registrations which arose before this assignment.
[18] In early February 2006 Care Siam informed Primary Distributors that it had been unsuccessful in acquiring the Hefty trade marks. From that point Primary Distributors was aware that a different party had acquired the New Zealand trade marks, although it was not informed who that was. Despite this, Primary Distributors continued importing and distributing Hefty-labelled products that were manufactured by Care Siam.
[19] However, realising it may not have been able to arrange with the new owner to continue to use the Hefty label, arrangements were made with Care Siam to change the label to “By Care”. Through the first half of 2006, work to achieve this change progressed in a somewhat leisurely way, as no one appeared to take issue with Primary Distributors’ sale of Hefty-labelled products in New Zealand. The first load of wrap and floor products labelled “By Care” arrived in New Zealand on 25 June 2006 and sales were made under that label from July onwards.
[20] On 13 July 2006 IPDC wrote to Primary Distributors advising that it had recently become aware that Primary Distributors was distributing products bearing the Hefty label in New Zealand. The letter required an undertaking by Primary Distributors to desist distribution and demanded financial compensation. In response, Primary Distributors gave undertakings, as sought by IPDC, not to market any Hefty-labelled products in New Zealand pending further order of the court. The High Court proceedings followed.
IPDC’s knowledge of the trade mark infringement
[21] The first ground of appeal relates to the timing of IPDC becoming aware of the trade mark infringement by Primary Distributors. It is convenient for us now to summarise evidence on this point.
[22] Primary Distributors and IPDC were first in contact in mid-August 2005, when Mr Jones of Primary Distributors was approached by Ms Jill Williams, the then marketing manager of IPDC. At that point Primary Distributors had no connection with IPDC and IPDC had no connection with the Hefty brand. Ms Williams was interested in Primary Distributors acting as agent or distributor for IPDC and launching a new cling-wrap product in the New Zealand market bearing the trade mark “Hercules”.
[23] There was a conflict of evidence as to whether at that point IPDC was made aware that the Hefty brand was still being sold in New Zealand. Asher J held that Mr Withers, IPDC’s managing director, had been told by Mr Jones in August 2005 that Primary Distributors was no longer distributing Hefty products in New Zealand. One of the reasons for Asher J reaching this conclusion was an email sent by Mr Withers to Ferrier Hodgson on 16 August 2005 in the following terms:
Spoke with a distributor in NZ and he confirms no business remains. We would need to start again irrespective of the brand. No shelf space remains. As each day goes by, it will be increasingly difficult, perhaps impossible ...
[24] After some further discussions, on 20 October 2005 Mr Jones indicated by email to Ms Williams that it was probably not the right time to be launching a new brand of foil and wraps in New Zealand. On the same day Ms Williams indicated that she would be resigning from IPDC after ten years with the company.
[25] On 18 January 2006 Primary Distributors sent an email, it seems by mistake, to Ms Williams’ email address at IPDC. Mr Withers responded to this email that day, advising that Ms Williams had retired and that he had taken over her responsibilities for New Zealand. He asked:
Could you update me [on] your position on the interest in continuing the bags, wraps, foils project with ICB [that] Jill discussed with you and please confirm if all Hefty stock [have] now been cleared from shelves in NZ or is some still on sale?
[26] Mr Graham responded to Mr Withers on the same day as follows:
Hi Philip,
Thanks for your email.
I will take Jill’s name off my address book, plus re send the email below to the right person.
In regards to Hefty, the company in Thailand has been sold to Care Siam.
We have met with the new owners this week and have agreed to be the agents for them. The Hefty brand will now continue in New Zealand.
We were keen after initial discussions with Jill [Williams] to sell and distribute your products, however it is more practical to run with Hefty as the brand has been in New Zealand for 8 years.
Kind regards.
Don Graham
[27] Mr Withers’ response, still on 18 January 2006, was: “I am not familiar with Care Siam – do you have a website?” He did not mention that IPDC had acquired the New Zealand-registered trade marks. This was the only communication that Primary Distributors received from IPDC about Hefty products until 13 July 2006 when the cease and desist letter was sent to Primary Distributors by Bell Gully on IPDC’s behalf.
[28] Mr Withers also deposed that he visited New Zealand in March 2006 and saw Hefty-labelled products in various Foodstuffs outlets. He explained that he thought this product was the old Cartigny product left over from the lawful marketing period a year earlier. He said that it was only some communications he had received in May 2006 that alerted him to the fact that Primary Distributors was marketing newly acquired Hefty-labelled products in New Zealand.
The parties’ arguments before the High Court
[29] The essence of Primary Distributors’ position before Asher J was that IPDC should not be entitled to an account of Primary Distributors’ profits in respect of the period of approximately eleven months from the beginning of September 2005 to July 2006. Primary Distributors asserted that IPDC’s staff or executives were aware that Primary Distributors was infringing the Hefty trade marks during that period through its marketing of the Hefty-labelled products but made no protest.
[30] Primary Distributors’ submission to the High Court was that, as an account of profits is an equitable remedy, IPDC had through its actions lost its right to that remedy for the period in question. Alternatively, Primary Distributors claimed that IPDC’s conduct amounted to waiver or acquiescence, or should invoke the doctrine of laches. It abandoned a defence founded on the Fair Trading Act 1986.
[31] For its part, IPDC asserted that it did not know of Primary Distributors’ infringement of the Hefty trade marks until July 2006. It did not accept in any event that any of the alleged conduct on its part would found a case for the pleaded defences or disentitle it to an account of profits. IPDC emphasised that it did not even own the trade marks until December 2005 and was not in any position to take any action or even protest until that date.
The High Court judgment
[32] Asher J was not satisfied that IPDC knew that Hefty was still being actively marketed in New Zealand in August 2005. He rejected Primary Distributors’ submission that Mr Withers was at that time carrying on a duplicitous game, dealing with Primary Distributors knowing that it was marketing the Hefty brand while pretending to the receivers that he thought that the Hefty brand was not being marketed in New Zealand: at [33].
[33] Asher J recorded that even if, contrary to his findings, IPDC did have some knowledge that Primary Distributors was marketing Hefty-labelled products from September 2005, IPDC did not own the trade mark until 20 December 2005 and had no right to complain about, let alone stop, Primary Distributors’ activities: at [35]. During 2005 it was not unfair that IPDC was silent as to its intentions in regard to the trade mark.. It was competing with others to acquire the trade mark and had no rights to it. Any protest would have been futile and would have disclosed its activities to a potentially competing bidder.
[34] Asher J also rejected the submission that IPDC became aware that Primary Distributors was distributing Hefty products in New Zealand when the trade mark assignment was executed in December 2005. He did, however, conclude that IPDC became aware of Primary Distributors’ activities on 18 January 2006 and that this understanding was confirmed in March 2006 at the time of Mr Withers’ visit to New Zealand: at [48].
[35] Asher J accepted that the 18 January email from Mr Graham, set out at [26] above, was somewhat ambiguous as to whether the Hefty brand had been marketed in the months prior to January 2006. He considered that the statement in that email that the Hefty brand will “now continue in New Zealand” could be read as signalling either a change or a continuity: at [32](e). What the Judge found to be clear and unambiguous, however, was that this letter was a communication to IPDC that Primary Distributors would be selling the Hefty brand in New Zealand in the future from a source in Thailand: at [45].
[36] Asher J thus held that the exchange of emails on 18 January 2006 resulted in Mr Withers and IPDC becoming aware that product bearing the Hefty brand was being marketed by Primary Distributors in New Zealand in breach of the trade mark. The Judge considered it significant that Mr Withers’ rather bland response contained no protest about Primary Distributors using the Hefty brand and marketing the Care Siam product: at [45]. Although he considered that it would go too far to construe Mr Withers’ response as an assent to use the brand, the Judge did say that it could be seen as some comfort to Primary Distributors in its efforts to market Hefty-labelled products. Mr Withers took no steps in respect of what was clearly going to be an infringement of the Hefty trade marks: at [46]. Asher J considered that Mr Withers’ March visit to the Foodstuffs store in New Zealand confirmed his understanding that Hefty products were still being marketed: at [48].
[37] Asher J accepted that Mr Withers might have received telephone calls in May 2006 indirectly concerning the sale of Hefty products in New Zealand. These calls may have advanced his thinking to the point that he decided to take action against Primary Distributors. However, the Judge held that these calls were not what revealed to Mr Withers the fact that Primary Distributors was marketing Hefty-labelled products in New Zealand. He had already been informed of that. Asher J said:
[46] I reject as disingenuous Mr Withers’ statement that he could not “understand” how the product he saw in the supermarkets in March came to be there. Rather, I conclude that for some reason he decided in January that it suited his business interests to allow Primary Distributors to continue to market the Hefty-labeled products in New Zealand, and this was still his view in March when he visited New Zealand. Just as he had in January, Mr Withers chose in March to do nothing about the infringements. He did not call Primary Distributors or write to them despite the fact that it was most likely that Primary Distributors was responsible for putting the product on the shelves.
[38] Turning then to the period over which an account of profits should be ordered, Asher J rejected the positive defences pleaded by Primary Distributors with regard to the period from August 2005. He noted that, in Farmers Build Ltd v Carier Bulk Materials Handling Ltd [1999] RPC 461 at 487 (CA), the English Court of Appeal had held that mere delay in commencing proceedings after learning of the infringement was insufficient of itself to prevent a plaintiff from seeking compensation through the doctrine of acquiescence. He also noted that, in Electrolux v Electrix (No. 2) (1954) 71 RPC 23 at 40 (CA) it was held that a mere failure to sue without some positive act of encouragement to the guilty party was held insufficient to give rise to the affirmative equitable defence of acquiescence. Asher J also noted that some conduct was needed by the plaintiff from which consent could be inferred, citing Halsbury Laws of England (4ed re-issue vol 16(2)) at [924].
[39] On the basis of those authorities, Asher J considered that the doctrine of acquiescence did not arise in this case. IPDC’s inaction in the first half of 2006 was not such an event that assent to the infringement could reasonably be inferred from it. Indeed, Mr Jones did not claim that any assent by Primary Distributors could be inferred and did not suggest that Primary Distributors did anything relying on any inferred assent. For the same reason, namely the lack of any implied representation or reliance, Asher J did not consider that waiver or estoppel applied: at [64].
[40] With regard to laches, Asher J held that the delay in this case of some six months from knowledge of the infringement in January 2006 to action in July 2006 was not of sufficient length to amount to laches. Moreover, there was no evidence of significant prejudice resulting from the delay or a sufficient change of circumstances for laches to apply: at [62].
[41] Turning to the question of whether he should use his discretion to deny IPDC a remedy, Asher J noted that it was not in contention that equitable principles attending the remedy of an account of profits apply equally in the context of an infringement of a trade mark. This is despite the reference to “account of profits” in s 106(b) of the Trade Marks Act, the remedy therefore having the imprimatur of statute. He said that both sides accepted the statement in Kitchen and others (eds) Kerly’s Law of Trade Marks and Trade Names (13ed 2001) at [18159]:
The Court may refuse to order an account of profits, or order it to be taken only from the date of the letter before action, where the claimant has neglected to take proceedings after becoming aware of the infringement.
[42] Asher J considered that the statement in Kerly’s reflects the observations in Lever Bros, Port Sunlight Ltd v Sunniwite Products Ltd (1949) 66 RPC 84 (Ch) at 102, where Romer J appeared to accept a remark by counsel that, where the plaintiff has been aware that infringement has taken place and a substantial period of time has taken place from that awareness before proceedings were taken, the account should date from the date of complaint. See also Edward Young & Co Ltd v Holt (1948) 65 RPC 25 at 31 (Ch). Asher J, at [60], did not consider that the comments in Farmers Build or Electrolux (referred to below at [57] [61]) related to the equitable basis of the remedy of an account of profits (although noting that this was one of the number of claims in Farmers Build.
[43] As a result, Asher J declined to award an account of the profits earned from 18 January 2006. He was, however, satisfied that there was no conduct on the part of IPDC prior to that date which disentitled it to a remedy. Asher J said:
[55] It must be remembered that a trade mark owner claiming for loss of profits may have suffered no actual loss if it was not in a position to trade in the market itself. Nevertheless, it may be in a position to make a substantial claim based on the infringer’s trading. It is not fair that a trade mark owner who knowingly permits a competitor to infringe its trade mark and cannot prove any actual loss should be able to claim the infringer’s profits. A protest might well halt the infringement, and cut short a claim for an account of profits. To award profits in such a situation would be to give the owner a boon that it has not earned and indeed may reward its failure to protest.
[56] From 18 January 2006 IPDC knew that Primary Distributors was infringing the Hefty trade marks by distributing Hefty-labelled products in New Zealand, but it took no action. Its reasons for not taking any action are not clear. It may have been contemplating entering into an arrangement with Primary Distributors, or exploring alternative marketing options, but the motive is irrelevant in any event. On the basis of the principle already outlined, plaintiffs who seek a remedy in equity cannot stand by and take no steps to stop a defendant making profits over a period, and then claim such profits for themselves. A trade mark owner who knowingly stands by cannot claim an infringer’s profits. IPDC permitted the infringement to continue and does not claim for any actual losses. It did not try to trade itself in the first half of [2006], and does not appear to have been in a position to do so. In such circumstances, having known of the infringement and not protested, it is not entitled to any reward for that infringement.
[44] We now consider each ground of appeal in turn.
Did IPDC become aware of the trade mark infringement on 18 January 2006?
[45] Mr Williams, on behalf of IPDC, submits that the email exchange on 18 January 2006 was not sufficient to alert IPDC to the fact that Hefty products were being marketed in New Zealand, being a statement of intention only. Further, he submits that the products Mr Withers saw in the Foodstuffs outlets in March 2006 appeared to be old Cartigny stock and not new Care Siam stock.
[46] This is a reprise of the arguments in the High Court, which were rejected by Asher J. In our view, Asher J’s conclusion was inevitable for the reasons he gave: see above at [32] – [37].
Should an account of profits have been ordered for the whole period?
Submissions on behalf of IPDC
[47] Mr Williams, on behalf of IPDC, submits that Asher J was wrong to restrict the period of the account of profits merely on the basis of IPDC not commencing proceedings immediately after gaining knowledge of the infringement. While he concedes that there may be cases where delay is so inordinate that a Court might refuse relief, that cannot possibly apply to the delay in this case of a mere five or so months.
[48] In this regard, Mr Williams refers to Vidal Dyes Ltd v Levinstein (1912) 29 RPC 245 at 259 (CA), Electrolux at 41, H P Bulmer Ltd v J Bollinger SA [1978] RPC 79 at 136 (CA) and Farmers Build at 487. In his submission, those cases overrode the cases referred to by Asher J: see above at [42]. Mr Williams submits that Asher J wrongly saw Electrolux and Farmers Build as limited to acquiescence.
[49] Mr Williams accepts that he made the concession, noted at [41] above, but says that this was meant only to extend to inordinate and exceptional delay of the kind mooted in Electrolux. He also says that he did not accept that equitable and statutory remedies can be equated.
Submissions on behalf of Primary Distributors
[50] Mr Cooke QC, for Primary Distributors, submits that Asher J was correct to hold that an account of profits is a discretionary remedy and that delay can lead to that remedy being denied. As well as the cases cited by Asher J (see above at [42]), Mr Cooke relies for this proposition on Edge v Jarvis [1958] 2 All ER 336 (Ch), International Scientific Communications Inc v Pattison [1979] FSR 429 (Ch), Aquaculture Corporation Ltd v Green Mussel Co (No 3) [1986] 1 NZIPR 22 (HC) and Wellington City Council v New Zealand Law Society [1990] NZCA 18; [1990] 2 NZLR 22 (CA).
[51] In Mr Cooke’s submission, however, Asher J did not refuse relief merely on account of delay. He took into account all the circumstances, including that IPDC was not in a position to exploit the trade mark in New Zealand in the first half of 2006 and that it suited its purposes to have the Hefty brand continue in New Zealand until it was ready to enter the market. In Mr Cooke’s submission, it was open for the Judge to conclude that the distribution network established by the efforts of Primary Distributors had significance in itself. It was significant that IPDC and Hefty NZ would be receiving a “boon” by obtaining an account of profits while they stood by and took no action in circumstances where they were incapable of making the profit themselves.
[52] Mr Cooke also submits that there was detriment to Primary Distributors in IPDC’s delay in that Primary Distributors was not given the opportunity to rebrand the products it was importing from Thailand from January 2006. What Primary Distributors effectively achieved for IPDC and Hefty NZ was the continued presence of the Hefty brand in the market until they were ready to continue it, thus paving the way for IPDC and Hefty NZ to act as Primary Distributors’ competitor.
[53] In any event, in Mr Cooke’s submission, it is not open to IPDC’s counsel to withdraw the concession he made in the High Court as to the discretionary nature of the remedy of account of profits: Otago Station Estates Ltd v Parker [2005] NZSC 16; [2005] 2 NZLR 734 (SC).
Questions to be addressed
[54] The questions therefore with regard to this issue are:
(a) Is IPDC bound by the concession in the High Court?
(b) Can mere delay lead to an account of profits being denied?
(c) Did Asher J take into account factors other than delay?
(d) Could other factors taken into account by Asher J have legitimately led to the remedy being denied?
Is IPDC bound by the concession in the High Court?
[55] We accept Mr Williams’ submission that his concession in the High Court with regard to the discretionary nature of the account of profits remedy extended only to cases of inordinate and exceptional delay as outlined in Electrolux.
[56] In any event the concession at issue in Otago Station, which the Supreme Court held could not be withdrawn, related to a factual matter. Mr Williams’ concession in the High Court in this case was a concession as to law rather than fact. A concession as to a matter of law cannot be binding. It is for the courts and not the parties to determine the law: Walsh v Walsh (1984) 3 NZFLR 23 at 29 (CA). We thus reject Mr Cooke’s submission recorded at [53] above.
Can mere delay lead to an account of profits being denied?
[57] We accept Mr Williams’ submission that Electrolux stands for the proposition that mere delay is not a bar to a trade mark owner seeking a remedy, unless the delay is inordinate or unless something more is present. In Electrolux, Sir Raymond Evershed MR said at 34:
I think, upon analysis, that Mr Shelly’s argument must, in the end, come to this, that the owner of a registered trade mark who for a substantial period of time has lain by and not asserted his rights has lost those rights, notwithstanding that they are rights conferred upon him by statute. I think so to hold, at any rate in a case where the length of time involved is no greater than in this case, would be to introduce a wholly novel – nay, revolutionary – doctrine, and I think also that it would be contrary to the principles laid down by the decided cases. Indeed, Mr Shelly himself admitted that mere delay, without more, can be no bar to the exercise by the owner of a registered trade mark of his statutory right. The cases, I think, are clear to that effect; for example, to quote but two, Fullwood v Fullwood (1878) 9 Ch. D p 176, another decision of Fry J in a passing off case, and Vidal Dyes v Levinstein (1912) 29 RPC 245 at p 259, a patent case, where the proprietor had lain by for a long a period there as ten years.
[58] Similar comments were made by Jenkins LJ in the same case and the third judge, Morris LJ, agreed with the decisions of both Sir Raymond Evershed MR and Jenkins LJ. Jenkins LJ said at 41:
I will not say that there might not be a case of delay so inordinate as to make it proper for a Court to refuse relief in respect of the infringement of a trade mark, but in general mere delay after knowledge of infringement does not, in my opinion, deprive the registered proprietor of a trade mark of his statutory rights or of the appropriate remedy for the enforcement of those rights; and I may here refer to the case of Vidal Dyes Ltd v Levinstein at p 259, where it was clearly stated that, in the case of a patent, mere delay in enforcing rights did not affect the legal position.
[59] The passage of Vidal Dyes to which both Sir Raymond Evershed MR and Jenkins LJ referred is as follows:
The circumstances under which the actions are brought are in some respects peculiar. The alleged infringement is, substantially, the making of a dye which, it is admitted, has been made for many years (ever since the year 1900) in enormous quantities and sold openly in the market. It was known to be made under, and in accordance with, Letters Patent granted in January 1900 to Charles Denton Abel on behalf of the well-known Berliner Company. The writs in these actions, however, were not issued until the 22nd of July 1910, that is to say, two days before the expiry of the Letters Patent sued upon. It is, of course, settled law that a patentee need not attempt to stop an infringement when he first learns of it, and if the Plaintiffs succeed in establishing their case in the present actions they will be entitled to damages, or to an inquiry into profits for infringement occurring within six years before the date of the writs. None of these circumstances affect the legal rights of the Plaintiffs, but the fact that the Letters Patent were granted fourteen years ago increases the difficulty of the Court in deciding the issues before it.
[Emphasis added]
[60] Mr Williams also referred to Bulmer where Goff LJ discussed delay in the context of laches and acquiescence, referring to Electrolux. Goff LJ said at 136:
The Electrolux case is a particularly strong one, since there the plaintiffs had deliberately delayed in order to strengthen their position by using their trademark in the meantime. It seems to me, therefore, that the true test whether equitable relief should be withheld in the case of a continuing legal wrong on the ground of delay by the plaintiff in enforcing his rights is that the facts must be such that the owner of the legal right has done something beyond mere delay to encourage the wrongdoer to believe that he does not intend to rely on his strict rights, and the wrongdoer must have acted to his prejudice in that belief; that is to say the case approximates to what would totally destroy his right... Applying this test to the present case, I agree with the learned judge that the appellants failed to make out a sufficient defence on the ground of laches or acquiescence.
[61] As Mr Williams submits, the Electrolux decision was applied in Farmers Build, where the English Court of Appeal held that mere delay could not remove a plaintiff’s rights to equitable remedies. This comment was applied by the Court in Farmers Build to all such remedies, including an account of profits, contrary to Asher J’s view recorded at [42] above. In the Court’s view, to hold otherwise would mean that a claim was effectively statute barred before the limitation period expired. Mummery J, in a judgment concurred in by Sir Christopher Slade and Simon Brown LJ, concluded at 487:
As a matter of law the judge was wrong to hold that standing by and taking no steps to pursue a claim for infringement of unregistered design made it unconscionable for Farmers Build to claim an account of profits or an inquiry as to damages: see [Electrolux].
[62] We accept Mr Williams’ submission that Electrolux, Bulmer and Farmers Build overrode the cases referred to by Asher J. We also do not consider that the cases referred to by Mr Cooke (at [50] above) support his clients’ position. Edge v Jarvis was not a case involving infringement of intellectual property rights. It was a case of breach of fiduciary duty, where the plaintiff claimed profits from the trustee’s business. The business had been very successful due to the work of the defendant. Upjohn J held that the plaintiff’s claim was barred by laches. There was inequity in awarding an account of profits where the plaintiff had avoided bearing the risks of the business and had not asserted her rights for some six years before bringing the claim. Hence it was not a case of mere delay. An element of unconscionability was present.
[63] In International Scientific Communications there were factors other than delay present. The plaintiff avoided complaining of a breach of a contractual term restraining trade for eight months while continuing to negotiate other commercial matters directly with the defendant (see at 438 439). Moreover, the refusal of an account of profits was made in relation to the claim of breach of contract. In such cases an account is awarded only exceptionally: see Attorney-General v Blake [2000] UKHL 45; [2001] 1 AC 268 at 285 (HL). The High Court decision in Aquaculture was effectively reversed in this Court: see Aquaculture Corporation v New Zealand Green Mussel Co Ltd [1990] 3 NZLR 299 at 301 (CA).
[64] Mr Cooke submits that Wellington City Council at 26 is authority for the proposition that an inference can be drawn that delay prejudiced the defendant (and submits that such an inference should be drawn on this case). Wellington City Council has been discussed, in the context of laches, by the Supreme Court in Eastern Services Ltd v No 68 Ltd [2006] NZSC 42; [2006] 3 NZLR 335 (SC). The Supreme Court held at [37]:
We share the caution indicated by Cooke P ... about endorsing an unqualified principle concerning mere delay without prejudice. This is because the doctrine of laches requires a balancing of equities in relation to the broad span of human conduct. In the abstract, facts and the weight to be given to them are infinitely variable. But in a particular case they have to be identified and weighed for what they are, as a singular exercise.
[65] There was no suggestion by the Supreme Court that mere delay could lead to a denial of a remedy in any other context. We note further that Electrolux has been applied in New Zealand in the context of acquiescence, also without there being a suggestion that there was any other residual discretion to refuse a remedy on the basis of mere delay. Wham-O MFG Co v Lincoln Industries [1984] 1 NZLR 641 (CA) concerned Wham-O’s delay of some eight years in bringing a claim for breach of copyright. This Court, citing Shaw v Applegate [1978] 1 All ER 123 (CA), held that the touchstone in relation to acquiescence was whether it was unconscionable for the plaintiff to rely on his or her legal rights: at 671. Counsel for the defence had submitted that to award a remedy after such a delay would allow the plaintiff to “claim a substantial and quite unconscionable windfall.” This Court said at 676:
Apart from the mere delay there is no evidence of any representation or similar conduct on Wham-O's part which could reasonably have induced Lincoln to believe that it was not going to pursue its claims. Wham-O as from September 1976 gave notice of such an intention.
Lincoln's claim to the benefit of this defence of acquiescence... rests simply on the basis of delay and to find acquiescence proved where the delay has been of the period established here would be as Sir Raymond Evershed MR said [in Electrolux]: “to introduce a wholly novel - nay revolutionary - doctrine, and I think also that it would be contrary to the principles laid down by the decided cases.”
[66] We also refer to the comments in the latest edition of Kitchen and others (eds) Kerly’s Law of Trade Marks and Trade Names (14ed 2005) at [14-192] which states that mere delay after finding out about a trade mark infringement does not deprive the owner of its statutory rights or remedies for enforcement. Kerly’s recognises, however, that inordinate delay can exceptionally provide a defence or form a major ingredient in acquiescence. Further, it is stated that:
[19-146] The court may refuse to order an account of profits, or order it to be taken only from the date of the letter before action, where the claimant has neglected to take proceedings after becoming aware of the infringement. There have been passing off cases in which damages were refused to the claimant on the ground of delay verging on acquiescence; but it is not easy to see on what principle, nor how this could be right in actions for infringement.
[Emphasis added and footnotes removed]
[67] The whole of [19-146] appeared as [18-159] in the 2001 edition of Kerly’s. Only the first part of this paragraph was referred to by Asher J (see at [41] above).
[68] In summary, the principles set out in Vidal Dyes, Electrolux, Bulmer and Farmers Build are applicable in the New Zealand context. In this case the delay of a mere five months comes nowhere near the type of delay contemplated in Electrolux as being inordinate. Therefore, if Asher J had denied a remedy solely for delay, this would have been an error.
[69] Finally on this point, we note that Mr Williams was at pains to distinguish between equitable remedies generally and the statutory remedies for trade mark breaches. Mr Cooke was equally at pains to stress that the principles are the same. There is no need for the purposes of this decision to come to a view on the general question of whether there are any differences between equitable remedies and the statutory remedies in s 106 of the Trade Marks Act. What is clear is that the principles set out above in Electrolux and Farmers Build regarding delay apply to equitable remedies generally. Meagher, Gummow and Lehane Equity Doctrines and Remedies (4ed 2002) at [3-150] state that, while it is a general maxim of equity to favour the diligent, “mere delay of itself has never been regarded as a bar to equitable relief – except, perhaps, in the case of an interlocutory injunction.”
Did Asher J take other factors into account?
[70] We do not consider that there is a basis in Asher J’s judgment for the assertion that one of the factors taken into account by the Judge was that the infringement was allowed to continue because it suited IPDC. While at [46] of Asher J’s judgment (set out at [37] above) there is some suggestion that the delay was for IPDC’s own purposes, this was not one of the reasons given by Asher J at [56] for restricting the period of account: see at [43] above. Indeed, Asher J, at [56], stated that it was unclear why IPDC took no action and that in any event IPDC’s motive was irrelevant. In any event, the existence of a possible motive for inaction cannot be translated into a representation of implied assent. The Judge found no causal connection between IPDC’s failure to act and Primary Distributors’ continued breach. He also said, in the context of his discussion of acquiescence, that IPDC’s inaction did not constitute assent to the trade mark use: see at [39] above. This is inconsistent with an assertion that the infringement positively suited IPDC and that it wanted it to continue.
[71] Asher J also does not seem to have made any findings on, and thus did not specifically take into account, any prejudice to Primary Distributors of the kind Mr Cooke submits was present: see at [52].
[72] The main additional factor influencing Asher J’s decision appears to have been that IPDC suffered no actual loss (not being in a position to trade itself in that period) and that awarding it an account of profits in such circumstances “may give [it] a boon it has not earned and indeed may reward its failure to protest”: see at [55] of his judgment, set out at [43] above. It is clear from the tenor of the Judge’s comments in both [55] and [56] of his judgment that he considered it unfair that an owner (and particularly one who cannot show any loss) should be able knowingly to allow an infringement to continue and then claim an account of profits.
Could the other factors taken into account by Asher J have legitimately led to the remedy being denied?
[73] In Electrolux, Sir Raymond Evershed MR said that mere delay “without more” cannot lead to the denial of a remedy. He did not define what has to be present, in addition to mere delay, to lead to the denial of a remedy. In this case Asher J rejected the defences of laches or acquiescence (see at [39] [40] above) and there is no appeal from that decision. For a remedy to be denied because of factors outside the recognised defences, there would, in our view, need to be an element of unconscionability involved.
[74] Turning to the specific factors relied on by Asher J, his comment that giving an account of profits may “reward” IPDC’s “failure to protest” presupposes that there is some duty on a trade mark owner to protest, which is contrary to Electrolux. It must not be lost sight of that Primary Distributors is the wrongdoer. Not requiring Primary Distributors to account for its profits in the first half of 2006 effectively rewards it for its knowing infringement because the result of Asher J’s decision is that IPDC would effectively be forced to provide a free licence to it for that period. That must be wrong in principle.
[75] Further, Asher J’s comment that awarding an account of profits would give IPDC a “boon it has not earned” fails to take into account the nature of the remedy of account of profits. The concentration is on the wrongful actions of the infringer and not on the position or the actions or omissions of the owner. The fact that IPDC was not in a position to use the trade marks during that period is thus irrelevant and should not have been taken into account by Asher J.
[76] The notion of accounting for profits is at base concerned with the gain made by a defendant and is designed to prevent unjust enrichment. Kerly’s (2005) at [19143] states “an account is confined to profits actually made, its purpose being to deprive the defendant of unjust enrichment rather than to punish him.” See also Cornish & Llewelyn Intellectual Property (5ed 2003) at [244] and Grantham & Rickett “Restitutionary Remedies” in Blanchard (ed) Civil Remedies in New Zealand (2003) 363 at 399.
[77] Case law supports the view that an account of profits is a restitutionary remedy. In Celanese International Corp v BP Chemicals Ltd [1999] RPC 203 at [36] (Ch) Laddie J said that, instead of looking to the harm inflicted on the plaintiff, an account of profits considers the profit made by the infringer. Defendants are treated as if they conducted their business and made profits on behalf of the plaintiff. In Spring Form Inc v Toy Brokers Ltd [2002] FSR 276 at [7] (Ch) Pumfrey J, in the context of a patent infringement, that an account of profits is a restitutionary remedy whose purpose is to deprive the defendant of the profits which he or she has improperly made by wrongful acts committed in breach of the plaintiff’s rights and to transfer those profits to the plaintiff. The purpose is to prevent the unjust enrichment of the defendant.
[78] Similar comments were made by the High Court of Australia in Dart Industries Inc v Décor Corp Pty Ltd [1993] HCA 54; (1993) 179 CLR 101 at 114. The High Court (per Mason CJ, Deane, Dawson and Toohey JJ) said at 110 111:
Damages and an account of profits are alternative remedies. An account of profits was a form of relief granted by equity whereas damages were originally a purely common law remedy. As Windeyer J pointed out in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd [(1968) [1968] HCA 50; 122 CLR 25, at 34] even now an account of profits retains its equitable characteristics in that a defendant is made to account for, and is then stripped of, profits which it has dishonestly made by the infringement and which it would be unconscionable for it to retain. An account of profits is confined to profits actually made, its purpose being not to punish the defendant but to prevent its unjust enrichment. The ordinary requirement of the principles of unjust enrichment that regard be paid to matters of substance rather than technical form is applicable.
[Footnotes omitted].
[79] Mr Cooke submitted that the High Court of Australia, in Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 557 – 558, retreated from the position in Dart Industries. We do not accept that proposition. In Warman at 557, it is clearly stated that the purpose of ordering an account in infringement cases is to prevent unjust enrichment. The High Court went on to explain the different bases on which accounts could be ordered against fiduciaries, including in cases where there has been no “transfer of value” from the beneficiary to the fiduciary, but that does not detract from its characterisation of an account of profits in infringement cases as restitutionary.
[80] The principle behind the grant of a restitutionary remedy in infringement cases is to restore to a plaintiff the “transfer of value” to a defendant which has resulted from the defendant’s wrong: see Edelman Gain-based Damages (2002) at 66. In the case of trade marks this transfer of value has occurred through the use of the plaintiff’s property to generate profit (see s 9(1) of the Trade Marks Act, set out above at [6], where a trade mark is characterised as personal property). User damages recognise the fair value of a right of which the defendant wrongly deprives the plaintiff.
[81] Such remedies are awarded even if the plaintiff would not have sought to use that right and so incurred no loss: see the discussion of user damages for breaches of property rights in Devenish Nutrition Limited v Sanofi-Aventis SA (France) and Ors [2008] EWCA Civ 1086; [2009] 3 All ER 27. Arden LJ at [38] explained that user damages are in general awarded “because the defendant has made improper use of an asset of the claimant. In economic terms, there has been a transfer of value for which the wrongdoer must account.” Birks Unjust Enrichment (2ed 2005) at 85, in the context of trespass, sets out the principle thus: “[i]gnoring the wrong, he [the plaintiff] could say that it was money obtained, interceptively, from him: from his property and therefore from him.”
[82] Professor Edelman also makes it clear that a restitutionary remedy is not dependent on the plaintiff being able to exploit the asset. We interpolate that Professor Edelman draws a distinction between knowing infringement (where a full account of profits should be ordered as disgorgement damages) and innocent infringement (where a reasonable royalty rate should be struck as restitutionary damages). In either case, however, the fact that a plaintiff was unable to use the property is irrelevant. A remedy is granted whether or not a defendant’s actions might exploit an opportunity the plaintiff could never have exploited and even when the actions might benefit the plaintiff by enhancing the plaintiff’s wealth as well as the defendant’s: at 72. He says (at 227) that:
as a compensatory award it would indeed be anomalous if the measure of damages exceeded the loss suffered by a claimant ... but once viewed as restitutionary damages there is no anomaly at all. The damages are based on the defendant’s (transferred) gain.
[83] Professor Edelman’s distinction between disgorgement and restitutionary damages is not one which other commentators have drawn. For example Virgo The Principles of Restitution (2ed 2006) at 472 considers the distinction unwarranted. We do not need to make any finding on the Edelman distinction. In this case, Primary Distributors’ infringement was not an innocent infringement. Further, in modern times, the existence of the register may amount to constructive knowledge and thus there may no longer be any “innocent” trade mark infringements: see Morcom, Roughton and Malynicz The Modern Law of Trade Marks (3ed 2008) at [19.103]. We also note that there is no reference to a requirement of knowledge in s 106 of the Trade Marks Act (see at [7] above).
[84] What seems to be the basis for Primary Distributors’ complaint is that, despite there being no obligation on a trade mark owner to do so, Primary Distributors should have been alerted by IPDC to what Primary Distributors already clearly knew (that it was infringing the trade marks). It then says that this would have given it the opportunity to change marks and to have time to block or inhibit the entry into the market of the rightful owner of the Hefty trade marks.
[85] This is an unattractive proposition. That Primary Distributors may have suffered a loss in failing to change trade marks early enough resulted from its own wrongdoing. Indeed, it could be argued that Primary Distributors was more culpable in the first half of 2006 than in the earlier period. While it knew all along it was infringing the trade marks, by early 2006 it knew that neither it nor Care Siam had been successful in their attempts to purchase them and that a third party had done so. We do not understand there to be any evidence of Primary Distributors even attempting to find out who had purchased the trade marks, let alone seeking to regularise its position with the owner.
[86] In summary, given the nature and purpose of an account of profits in trade mark infringement cases, the fact the IPDC was not in a position to exploit the trade mark was irrelevant and should not have been taken into account by Asher J. Nor do we consider that other factors relied on by IPDC should have led to a denial of remedy.
Conclusion
[87] For the reasons set out above, we consider that the account of profits should have been ordered for the whole period claimed. It should not stop at 18 January 2006 but continue up to the time the infringement ceased in July 2006. The order of the High Court must be extended accordingly.
Should Asher J have ordered an account of profits against Mr Graham and Mr Jones?
[88] Mr Williams submits that Mr Jones and Mr Graham should have been ordered to provide an account of any profits they made as a result of the trade mark infringement.
[89] In the amended memorandum of 12 February 2008 filed by the respondents in the High Court, it was accepted that any order for an account of profits earned by them on sales of Hefty branded products in the period between 1 July 2005 and 31 August 2005 would be made against all the respondents.
[90] It was conceded by Mr Cooke that, if the period over which the account is ordered is extended, there is no reason why an order should not also be made against the directors for that extended period. No separate defence in relation to that period was raised on behalf of the directors.
[91] However, Mr Cooke submits that any order for an account of profits made against the directors should be limited to an order that the directors be jointly and severally liable for amounts payable by Primary Distributors. In his submission, if IPDC had been claiming the disgorgement of any personal profits of the directors (aside from the profit earned by Primary Distributors), then that should have been squarely raised in the pleadings. As it was not, an order for an account of profits of any personal profits of Mr Graham and Mr Jones should not be made.
[92] It was agreed at the hearing of the appeal that the pragmatic course was to remit this matter back to the High Court for determination by that Court as to whether any order for an account of profits with regard to Mr Jones and Mr Graham should also extend to any personal profits made as a result of the infringement.
Should Asher J have dealt with the passing off cause of action?
[93] Mr Williams submits that Asher J wrongly failed to address the passing off cause of action. This was a live issue, as shown by IPDC’s opening submissions in the High Court. While it was not covered in IPDC’s closing written submissions, Mr Williams says that he did cover it orally. He also says that the issue is important to IPDC as, in his submission, a judgment in passing off would avoid potential arguments that could arise in a trade mark context, that there should be apportionment of the profit that Primary Distributors is liable for: see Colbeam Palmer [1968] HCA 50; (1968) 122 CLR 25 at 37 and 42 43.
[94] We are not surprised that Asher J did not deal with the passing off cause of action. While it was mentioned in the opening for IPDC and orally in closing, it appears the Judge was not told of any possible differences in remedy. Nor was he, as we understand it, given any assistance in assessing if the elements of the cause of action had been proved.
[95] We remit this issue to the High Court for reconsideration, on the basis that Primary Distributors is free to argue that passing off should not be dealt with by the High Court because it had effectively been abandoned by IPDC in that Court. We are of course not to be taken as making any comment on whether or not that is the case.
Result and costs
[96] The appeal is allowed.
[97] The appellants are entitled to an account of profits from the time the infringement began until the infringement ceased. The High Court award of an account of profits is accordingly extended to the period from 31 August 2005 to 13 July 2006.
[98] The matter is remitted to the High Court to be dealt with in accordance with this judgment: see at [92] and [95].
[99] The respondents must pay the appellants costs for a standard appeal on a band A basis plus usual disbursements.
Solicitors:
Bell Gully, Auckland for
Appellants
Short and Partners, Auckland for Respondents
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