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05 May 2009
The Full Federal Court recently handed down its decision in the Barefoot Radler appeal.(1) The decision addresses three key issues:
The case involved a particularly unique set of facts. Mr Houlihan, who operated the BAREFOOT CELLARS mark in the United States, registered the trademark BAREFOOT in Australia for wines, but subsequently assigned the mark to giant US winemaker Gallo Bros in 2005. In 2001 Barefoot Cellars had sold wine under the mark into various overseas markets, including Germany. An Australian importer imported some of the stock originally sold to Germany and this was sold in Australia until 2007, but Gallo itself never sold wines under the mark into Australia or to any other dealer for sale in Australia. Some time later, brewer Lion Nathan launched a beer under the mark BAREFOOT RADLER in Australia. Gallo sued for trademark infringement. Lion Nathan filed a counterclaim on the basis that Gallo's mark had not been used by Gallo or with its authority in Australia within three years and that its registration was therefore vulnerable to removal for non-use.
Australia stands far isolated from the economic giants of the West and East, but it has a remarkably similar market profile. It is hardly surprising, then, that foreign-based brand owners seek to protect trademarks in Australia that are primarily used overseas, or that these marks become embroiled in international trademark disputes. Therefore, Australian law has its fair share of foreign-use related legal conundrums, from use of a mark through sales overseas to local dealers for resale,(2) sales to Australian consumers for ultimate consumption(3) and even to protectable Australian reputation based exclusively on overseas use.(4) However, what had not been settled in Australian law until Barefoot Radler was whether 'accidental' use of a trademark - through unintended importation of goods - could amount to sufficient use of a trademark in Australia to defeat a non-use removal action.
Gallo argued that use is an objective criterion and that a mark is 'used' by its owner for the purposes of the Trademarks Act whenever goods bearing the mark are sold in Australia. However, the trial judge found that because Barefoot Cellars had not intended to sell goods under the mark into Australia, but only to Germany, it (and its successor Gallo) could not have been said to have used or authorized the use of the mark in Australia. On appeal, the Full Federal Court agreed. It emphasized that 'use' is a subjective concept requiring "conduct by, or on behalf of the owner, associated with a witting or deliberate use of the trademark in Australia".(5) The unintentional importation of wines under the mark via Germany, and of which Barefoot Cellars and Gallo were not even aware at the time, was therefore not sufficient 'use' to defeat Lion Nathan's removal application, regardless of the fact that goods had been sold under the mark in Australia during the relevant period.
The court also noted that the definition of 'trademark' in Section 17 of the Trademarks Act referred to "a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade". Neither Gallo nor Barefoot Cellars had directed goods into Australia. The fact that there was no course of trade between Barefoot Cellars or Gallo in Australia further suggested that neither had 'used' the mark for the purposes of the act. The court therefore agreed with the trial judge's order to remove Gallo's registration.
The parties also disputed the date on which the non-use order should take effect. Gallo argued that the trial judge had correctly decided that the order was only prospective in nature and that the effective date of removal was the date of the judge's order. Lion Nathan argued that the order should operate retrospectively to the date on which the requisite period of non-use had been established. Its argument was that if the order did not operate retrospectively, it would be potentially subject to a trademark infringement claim in relation to a registration which was in fact invalid.
The court agreed with the trial judge that the Trademarks Act did not allow for a retrospective order for removal for non-use and that the effective date of the order was the date given by the judge. At first glance this may appear unjust, if not absurd. However, the fact remains that, questions of statutory interpretation of the Trademarks Act aside, there is a public interest in the integrity of the Trademarks Register and in rights appearing on that register being enforced until otherwise removed. The court's decision is undoubtedly correct, even though it may have the unfortunate result of exposing innocent traders to infringement actions brought on the basis of ultimately invalid trademark registrations. While it might be desirable to commence non-use actions in advance of significant market use of competing new marks,(6) removal actions can take years to resolve and it would in practice be impossible for traders in Lion Nathan's position to pursue a removal action in advance of their own launch of a similar mark.
Following the finding regarding the timing of the non-use order, the court was required to consider whether Lion Nathan's use of the BAREFOOT RADLER mark infringed Gallo's trademark registration. Both the trial judge and the Full Federal Court held that Lion Nathan's BAREFOOT RADLER mark was deceptively similar to Gallo's BAREFOOT mark. However, Gallo's registration covered wine, while Lion Nathan had used the BAREFOOT RADLER mark for beer. Therefore, the main question was whether Lion Nathan's beer was a good "of the same description" as the wine goods covered by Gallo's registration.
Classically, beer and wine are regarded as quite different. They are covered in different classes of the Nice classification system, with beer classified together with soft drinks in Class 32 and wine classified with spirits in Class 33. However, Gallo argued that in modern beer and wine production, manufacture, distribution and sale arrangements are consolidated, with many companies producing and selling both beer and wine, and retail outlets selling both products in relatively close proximity. The trial judge disagreed, holding that beer and wine are not goods of the same description, in part based on the classical view that beer is intended as a thirst quencher while wine is to be "sipped". The trial judge also held that the get-up of Lion Nathan's beer, including the mark RADLER, the barefoot device and the packaging of bottles in six-packs, meant that the manner in which Lion Nathan had used the mark was in any event not confusing, which is sufficient to avoid a finding of infringement where the allegedly infringing goods are not the same as the goods for which the mark is registered.
On appeal, the Full Federal Court disagreed. It held that based on the consolidated nature of modern beer and wine markets, beer and wine are goods of the same description. It also held that Lion Nathan's use of the mark was confusing as the barefoot device reinforced the significance of the BAREFOOT brand. The court was of the view that a consumer seeing beer and wine products branded BAREFOOT would assume that they had a common source. The court added that the principal relevant factors for considering whether allegedly infringing use is in fact confusing are, on the one hand, the similarity of the goods, and on the other, the similarity of the marks (ie, the very factors involved in the assessment of infringement itself).
The case has now been remitted to the trial judge on the question of damages. It remains to be seen whether the fact that Gallo's trademark registration had not been used will reduce any damages payable or impact on the assessment of an account of profits.
The Barefoot Radler decision is a cautionary tale. It is common practice during trademark clearance searching to flag trademark registrations as carrying low practical risks where investigations indicate that the marks covered are not in use. However, Lion Nathan has potentially been exposed to an award of damages or an account of profits for a mark in exactly those circumstances.
(1) E&J Gallo Winery v Lion Nathan Australia Pty Ltd  FCAFC 27 (March 24 2009) (Barefoot Radler).
(2) Estex Clothing Manufacturers Pty Limited v Ellis & Goldstein Limited (1967) 116 CLR 254.
(3) W D & H O Wills (Australia) Ltd v Rothmans Ltd (1956) 94 CLR 182.
(4) ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 23 IPR 193.
(5) Barefoot Radler at .
(6) As the Trademarks Act has now been amended to remove the requirement for a non-use applicant to demonstrate that it is aggrieved by the ongoing registration of the relevant mark, it is now possible to commence non-use actions in the absence of competing rights in a similar mark.
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