You will remember that Winnebago (USA) successfully sued the Knotts for passing off in Australia but (in large part because of Winnebago (USA)’s delay in asserting its rights) the Knotts had developed their own reputation in Australia and so could continue using WINNEBAGO here provided it was used with an appropriate disclaimer (here and here). The damages were to be assessed.
Now we know what the damages will be:
Knott Investments, the company that built and supplied the “Australian” Winnebagoes will have to pay a royalty calculated at 1% of its sales on all sales made from 6 years before the proceedings were started until the disclaimer was put in place.
The dealers who sold the vehicles will also have to pay a royalty of 1% on their sales in addition, but only from the date proceedings were actually commenced.
Winnebago (USA) claimed damages on the basis of a reasonable royalty. The respondents resisted. It was clear that Winnebago (USA) would never have granted them a licence and, equally, they would never have taken a licence from Winnebago (USA). In those circumstances, the respondents said, the court could not impose a royalty on the basis of an assumed agreement that would never have happened:
the applicant suffered no damage by way of a lost royalty (in effect, no lost “sale”) because the applicant would not have licensed the respondents to use the Winnebago marks in the first place.
Yates J rejected that defence and held that compensation was required to be paid on what has been called “the user principle”:
Under this principle, a plaintiff is entitled to recover, by way of damages, a reasonable sum from a defendant who has wrongfully used the plaintiff’s property. The plaintiff may not have suffered actual loss from the use, and the wrongdoer may not have derived actual benefit. Nevertheless, under the principle, the defendant is obliged to pay a reasonable sum for the wrongful use. The reasonable sum is sometimes described as a reasonable rent, hiring fee, endorsement fee, licence fee or royalty (amongst other expressions), depending on the property involved and the nature of the wrongful use.
Black CJ and Jacobson J in a copyright case in the Full Court had appeared to reject the application of that principle. Yates J, however, considered the principle could and should be adopted in the context of passing off (and trade mark infringement) on the basis of a long line of English and Australian cases applying the principle in the context of trespass to real property, conversion, detinue and intellectual property infringements. Otherwise, the respondents would escape liability for damages as a result of the very thing that made their conduct unlawful: the lack of consent by Winnebago (USA).
The respondents also argued that no damages should be payable because, as the Full Court found, they had a concurrent reputation in WINNEBAGO in Australia. Yates J rejected this too. His Honour considered that the existence of concurrent reputations – one which did not require a disclaimer and one which did – meant there was value in being able to use the reputation without any disclaimer. Yates J arrived at the royalty of 1% on the basis that Winnebago (USA) had granted a licence to an Australian licensee at that rate and, while various other considerations were entered into, that was an appropriate round number.
Three points in relation to the dealers.
Yates J rejected their first argument: that they should not be liable for anything as the supplier, Knott Investments would already have paid a royalty. However, the dealers’ sales of vehicles in passing off were separate wrongs to those of the manufacturer and so required separate compensation.
Secondly, while Winnebago (USA) did not submit evidence about what damages the dealers’ actions caused, it claimed a royalty of 4 or 5%. Yates J considered, in the absence of evidence, that a royalty of 1% would be consistent with that imposed on the supplier.
Thirdly, the dealers (and for that matter, the Knotts) would be liable for damages for passing off only where they acted with fraud: that is, with knowledge of Winnebago (USA)’s reputation in Australia and its desire to assert those rights here. In the absence of evidence avout what the dealers knew, Yates J considered that they could only be held to have acted with fraud once proceedings were initiated:
The difficulty for the applicant is that the evidence does not address the question of what the dealers knew or thought. Even if they might have been aware of the applicant’s activities in the United States or in other overseas markets, it does not follow that they also understood that the applicant had a reputation of any significance in Australia, let alone one that was capable of legal protection, or, more importantly, that, prior to the commencement of this proceeding, the applicant was claiming that it had rights in Australia in respect of the Winnebago marks and that the commercial activities of the first respondent and its dealers constituted an infringement of those rights. However, from the time of commencement of this proceeding, when the applicant’s claims were exposed, the position of the second to twelfth respondents was different. From that time, they were on notice of the applicant’s claimed rights. Their persistence in using the Winnebago marks after this notice constitutes fraud in the relevant sense.
The need to show “fraud” is another difference between the tort of passing off and the action for misleading or deceptive conduct under the Australian Consumer Law.
Winnebago Industries Inc v Knott Investments Pty Ltd (No 4)  FCA 1327