Although it rejected the primary judge’s interpretation of s145 of the Patents Act 1990, the Full Court has nonetheless dismissed Regency’s appeal seeking to terminate its licence of MPEG patents.
In 2009, Regency took a licence of a bundle of patents from the MPEG patent pool so that it could make, amongst other things, DVD and Blu-Ray players. All the patents were necessary to make MPEG–2 compliant equipment, but they related to different inventions. By July 2012, some of the patents, but not all, had expired. Regency sought to terminate the licence early, relying on s145.
(1) A contract relating to the lease of, or a licence to exploit, a patented invention may be terminated by either party, on giving 3 months’ notice in writing to the other party, at any time after the patent, or all the patents, by which the invention was protected at the time the contract was made, have ceased to be in force.
(2) Subsection (1) applies despite anything to the contrary in that contract or in any other contract.
The Full Court agreed with Regency that the trial judge`s interpretation of,s145 was wrong but, even so, the right to terminate the licence under s145 did not accrue until all the patents licensed at the time the licence was granted had expired. As there were patents still on foot, therefore, Regency did not have the right under s145 to terminate.
The Full Court considered that the reference to “a patented invention”, an expression not defined in the Patents Act was simply a reference to an invention that was patented, rather than something which was patentable subject matter.
Further, s23(b) of the Acts Interpretation Act 1901 meant that the reference to the singular – a patented invention – could be read as including the plural. While recognising that s145 was intended to protect licensees from being unfairly required to pay licence fees after the patents had expired, Bennett and Pagone JJ pointed out that, as the licensor could also invoke s145, a licensee could be exposed to even greater unfairness if the licence could be terminated after the expiry of one or only some patents:
30 … if MPEG were entitled to terminate the licence when one of the patents or all of the patents for one of the inventions had expired, Regency would be in the position that, having implemented the Standard, it would be required to cease exploitation of the outstanding patents or negotiate a fresh licence.
31 The primary judge recognised the lack of commercial reality and potential unfairness in such circumstances and so do we. It would lead to the absurd result that parties wishing to negotiate for a patent pool would necessarily have to enter into multiple contracts or face the uncertainties and possible damage caused upon the expiry of a single patent of that patent pool. This would be of particular difficulty for a licensee which had “tooled up”, or entered into financial obligations on the faith of the right to exploit the necessary patent, and could also affect third party end users of a product.
Earlier at , Bennett and Pagone JJ had emphasised the importance of certainty provided by contracts:
Regency points to commercial and policy reasons why a licensee should not continue to pay royalties where an invention the subject of the licence is no longer the subject of a subsisting patent. However, this possible disadvantage to a licensee can be taken into account during negotiations for a contract. Regency negotiated a licence fee that included patents now expired but must be taken to have been aware of the expiry of patents during the term of the Contract when it negotiated that fee. This is supported by the fact that the October 2009 amendment to the Contract provided for royalty rates, those rates decreasing over specified periods of time in recognition of the ever approaching end to each of the patents (as observed by the primary judge at ).
While this case did not explicitly turn on questions of misuse of market power, that analysis does not bode well for the ACCC`s pending antitrust action against Pfizer.
First step: they have written to “industry leaders” and told them to come up with an agreed industry code for a “graduated response” regime to be registered with the Australian Communications and Media Authority (ACMA) under Part 6 of the Telecommunications Act 1997;
Second step: if the “industry leaders” cannot come up with an agreement within 120 days:
the Government will impose binding arrangements either by an industry code prescribed by the Attorney-General under the Copyright Act 1968 or an industry standard prescribed by the ACMA, at the direction of the Minister for Communications under the Telecommunications Act.
Third step: the Government will also amend the Copyright Act to enable rights holders to get injunctions ordering ISPs to block access to websites outside Australia that provide access to infringing content.
Well, at least, Option 1 in the Issues Paper seems to have died a deserved death. The media release does not mention, however, whether or not the Government will extend the “safe harbour” provisions to “service providers” and not just “carriage service providers”.
The letter the Government sent to “industry leaders” did provide some general direction about the contents of the anticipated industry code:
that ISPs take reasonable steps (including the development of an education and warning notice scheme) to deter online copyright infringement on their network, when they are made aware of infringing subscribers, in a manner that is proportionate to the infringement
informing consumers of the implications of copyright infringement and legitimate alternatives that provide affordable and timely content
providing appropriate safeguards for consumers
fairly apportioning costs as between ISPs and rights holders
ensuring smaller ISPs are not unfairly or disproportionately affected, and
include a process for facilitated discovery to assist rights holders in taking direct copyright infringement action against a subscriber after an agreed number of notices
and included the exhortation:
Any code must be sustainable and technology neutral. It should be educative and attempt to address the reasons that people are accessing unauthorised content. Consumer interests must be given genuine consideration in your negotiations.
There is no more detail on what sanctions, if any, would apply.
The media release also includes a warning, of sorts, to the right holders:
The issue of affordability and accessibility of legitimate content is a key factor in reducing online copyright infringement. The Government welcomes recent action by content owners and expects industry to continue to respond to this demand from consumers in the digital market.
It will be interesting to see if the “industry leaders” can come up with an agreed code, given they have failed to reach agreement for over a decade now. Even if the Government is forced to impose a code, it may also be interesting see which ISPs join in the scheme. If there is an industry code and significant ISPs join in, would that be a basis for reconsidering the High Court’s ruling of non-authorisation in the iiNet case which was predicated, at least in part, on the ability of subscribers to jump ship from iiNet to another ISP if sanctions were imposed.
That is a system whereby subscribers get some number of notices that their account is (allegedly) being used to infringe copyright and warning them to stop or …. All the media release says at this stage: ?
The code will include a process to notify consumers when a copyright breach has occurred and provide information on how they can gain access to legitimate content.
According to the letter the Government sent to “industry leaders”, the industry code must be agreed by 8 April 2015. (Update: you can now read the letter via this link (scroll down).At the moment, I don’t seem to be able to find a copy of the letter, which was attached to the media release, online.) ?
The media release says that the effectiveness of these measures will be reviewed in 18 months as in “a world of rapid changes in technology and human behaviour, there is no single measure that can eliminate online copyright infringement.”. ?
Last week, Besanko J dismissed Coca-Cola Co’s claims that PepsiCo’s “Carolina” bottle shape infringed Coke’s trade marks, and was passing off and misleading or deceptive conduct.
Coca-Cola Co relied on four trade marks: TM Nos 63697, 767355, 1160893 and 1160894 registered in class 32 for non-alcoholic beverages. The first two might be thought of as 2D representations of the shape of Coca-Cola Co’s “Contour” bottle, which has been in use in Australia since 1938.
The second two were essentially the silhouette of the bottle; one image in white, the other in black.
PepsiCo had introduced its Carolina bottle shape into Australia in August 2007 on a very small scale. It seems not to have been on the market at all between May 2008 and February 2009, when it was reintroduced on a larger, but still small scale. The Carolina bottle shape had apparently not been the subject of any advertising or promotion. At the time when PepsiCo introduced the Carolina bottle, there were 4, perhaps 6, other bottles used for soft drinks in the market with “waists of varying degrees” so the Contour bottle was not unique in that respect.
The trade mark infringement claims
Besanko J found that PepsiCo was using the Carolina bottle shape as a trade mark, but did not infringe because it was not deceptively similar to Coca-Cola Co’s trade marks.
In deciding that PepsiCo was using the overall shape of the Carolina bottle as a trade mark, Besanko J noted that the relevant goods were the beveage, a formless substance, and the bottle was just a container. So, the cases like Philips v Remington where the shape was the shape of the goods themselves did not apply. At , his Honour found that the shape was distinctive and intended to be so.
Besanko J was not prepared to find, however, that PepsiCo used the silhouette of the Carolina bottle as a trade mark. A number of factors played into this conclusion. His Honour accepted that the outline or shape of the bottle may be one of the first things seen by a consumer from a distance. However, that was not enough in itself. Among the factors that led to the finding, his Honour noted at :
…. All bottles have an outline or silhouette and the fact that a bottle has a waist is not so extraordinary as to lead to the conclusion that that feature alone is being used as a trade mark.
and at :
…. the outline or silhouette of the Carolina Bottle is likely to become less important in the consumer’s mind as he or she approaches the refrigerator or cooler and focuses on word marks, logos, and brands. As I have said, the fact that an aspect of a product may be seen at one point does not lead to the conclusion that consumers would see it as a badge of origin.
Besanko J agreed with the Full Court’s analysis of the shape depicted in TM Nos 63697 and 767355:
the sides of the bottle are curved rather than flat;
there is fluting on the top and lower portions of the bottle and no fluting in a central section;
the top and lower portions of the bottle have the same number of flutes; and
the bottle has a flat base and banded neck.
In contrast, PepsiCo’s Carolina bottle did not have flutes or the clear band; it had a horizontal “wave” feature and its waist was both more gradual and extended higher up the bottle. These differences at  were “significant”.
At , his Honour rejected Coca-Cola Co’s argument that the overall impression consumers would take away from the Carolina bottle was of “a bottle having a low waisted contoured shape”. Instead:
I do not accept that that is the view which would be held by the ordinary consumer. In my opinion, the waist, the horizontal wave feature, and, to a lesser extent, the frustoconical neck are the significant features of the Carolina Bottle.
Besanko J was not prepared to find that outline or silhouette of the bottle was the essential feature of thes trade marks. Rather, the vertical flutes and the clear belt band were as prominent. At :
…. It cannot be said, for example, that a bottle with a waist is so extraordinary, or a bottle with vertical flutes and a clear belt band so common, that the outline or silhouette should be considered the essential feature.
However, Besanko J also found that the Carolina bottle was not deceptively similar to the silhouette marks represented in TM Nos 1160893 and 1160894. His Honour found that the Carolina bottle was distinctive in itself and, therefore, not deceptively similar. So, at , his Honour said:
Even if the outline or silhouette is the only feature of the marks, or is the essential idea of the marks, the comparison is with the sign the alleged infringer has used as a trade mark. In this case, I have found that is the whole shape of the Carolina Bottle. The following are the distinctive features of the Carolina Bottle which I think are distinctive but are not part of the registered marks:
(1) the Carolina Bottle has a gently curving waist at a higher point than that in the marks and does not have an abrupt pinch near the base;
(2) the Carolina Bottle has a cylindrical shoulder, not a curved shoulder;
(3) the Carolina Bottle has a frustoconical neck, not a curved neck;
(4) the Carolina Bottle has a twist top enclosure, not a cap lid seal; and
(5) the Carolina Bottle has a distinctive horizontal embossed wave pattern across the bottom half of the bottle.
Then, at , his Honour pointed out that the first 4 factors related to the silhouette and “it seems to me … the outline or silhouette of the Carolina Bottle would not be deceptively similar to either [trade mark].”
I am not at all sure, with respect, that the question is whether the accused sign is distinctive in its own right. Perhaps this means that, in a market where there are other low waisted bottles, the differences were sufficiently important that consumers would not be caused to wonder whether there was a connection with the trade mark owner.
Passing off / misleading or deceptive conduct
On this part of the case, Besanko J thought it was difficult to see why the ordinary consumer would not make his or her purchase on the basis of the [famous] brand names, device marks or logos. However, “not without some hesitation”, his Honour was prepared to find at  that a sufficient number of consumers who select a bottle from the store’s refrigerated drinks cabinet themselves “may well make their selection based on overall bottle shape” as a result of their minimal involvement in the purchase.
There was no likelihood of deception or confusion, however, as the shape of the bottles was too different. At :
The difficulty for [Coca-Cola Co] is that, even accepting that and accepting that both bottles will contain dark brown cola and be sold within a similar, if not the same, context, I do not think that such a consumer would be misled or deceived, or would be likely to be misled or deceived, in the case of overall bottle shape because I think he or she would detect quite clearly the difference between the Contour Bottle and the Carolina Bottle. The most noticeable difference between the two bottles is that the Contour Bottle has the very distinctive fluting and the Carolina Bottle has the distinctive horizontal waves. Other noticeable features are the different shaped neck and shoulders and the fact that the waist on the Contour Bottle is lower and more pinched. In other words, if overall bottle shape is the cue, I do not think that there is any real likelihood of deception.
The role of intention
On all 3 aspects of the case, Coca-Cola Co contended that PepsiCo had intentionally designed the Carolina bottle to take advantage of the reputation in the Contour bottle. While Besanko J noted there were features of the relevant PepsiCo executive’s evidence “which caused me to scrutinise it carefully”, his Honour was not prepared to find an intention to deceive or cause confusion.
In any event, Besanko J did not think the resemblance of the Carolina bottle to the Contour shape was sufficiently close for PepsiCo’s intentions to lead to findings of infringement, passing off or misleading or deceptive conduct.
Yates J has rejected Apple’s attempt to register APP STORE in Australia as a trade mark for retail store services featuring computer software provided via the internet or for use on handheld mobile devices and the like.
Apple applied to register APP STORE in Australia on 18 July 2008 for retail store services featuring computer software […] in class 35 and related services in classes 38 and 42, TM App No 1252301. The application claimed Convention priority from 7 March 2008. Apple’s “App Store” launched in Australia on 11 July 2008 – that is, one week before the application was filed – with the release of the iPhone 3G. The Registrar rejected the application on the grounds that the trade mark lacked any inherent capacity to distinguish and, there having been no use prior to 11 July 2008, it was not factually distinctive of Apple as at the claimed Convention priority date.
Yates J, as noted, has rejected Apple’s “appeal” on the basis that APP STORE is not capable of distinguishing the services specified in the application. As one would expect, his Honour’s decision provides an excellent tutorial on how one should approach questions arising under s 41 including, apart perhaps from questions of onus, the new form.
The relevant date
Yates J held that capacity to distinguish fell to be assessed at the filing date of the application not, as the Registrar contended based essentially on s 72, on the priority date applicable as a Convention application. This was potentially significant as there had been no use of the trade mark at the priority date, but there had been at least one week’s use at the filing date.
Capacity to distinguish
Yates J began by pointing out that whether something has inherent capacity to distinguish depends on the occasion and circumstance. It turns on both the nature of the particular mark itself and also the nature of the particular goods or services specified in the application.
To overcome the Registrar’s rejection, Apple relied on evidence from a linguistics expert, analysis of internet usage on Google Trends and in the Internet Archive and a Newspoll online survey
Apple’s primary argument was that the expression “app store” could not be fully understood by simply combining the meanings of its component parts “app” and “store”. At :
…. In other words, the combination “app store” does not have a “compositional” meaning. According to him, “the compound APP STORE can only be fully?understood non?compositionally”. ….
The argument here was that, while the term “app” had been used as “clipped” form of application since 1985, that usage was restricted to specialised computer circles. In addition, the word “store” meant a physical place where one went to buy goods or services: Apple’s App Store introduced a new meaning: an online, virtual “place” where one did not so much buy things as a “licence” to use software. That is, in more traditional terms, the expression is at best “allusive” rather than directly descriptive.
On the evidence, however, Yates J found that both “app” and “store” had relevantly well-understood descriptive meanings in the relevant sense for the general public at the filing date. There was evidence at  –  that before the filing date “app” had been used in 83 articles in publications such as PC World, Technology Review, Rolling Stone and Atlantic Monthly to refer to software applications running on PCs in the Windows environment. At , his Honour found:
well before 2008, the word “app” had a well-established and well-understood meaning as a shorthand expression for computer software that is application, as opposed to operating, software. I do not accept that, at the filing date, this use of the word was restricted to computer experts. I am satisfied that it was the received meaning for many interested users of computer software and certainly for those involved in the trade of supplying computer programs, including by retail.
and at :
I am not persuaded that the word “store”, as used in APP STORE, ushered in a new meaning of that word. On the evidence, I am satisfied that, at the time that Apple applied for the APP STORE mark, the word “store” had a well-established and well-understood meaning among traders and the general public that was not confined to the traditional notion of a physical store, but extended, as well, to an online store for the provision of goods or services.
His Honour gave as examples Amazon.com’s launch of its e-Books store in 2000, its software download store launched in 2001 and Apple’s own iTunes Music Store launched in 2003.
Consequently, his Honour concluded that members of the public seeking to acquire application software at the filing date would have understood APP STORE to be no more than a description of a trade channel. It had no inherent capacity to distinguish:
I am satisfied on the balance of probabilities that, at the filing date, members of the public seeking to acquire application software would have understood APP STORE as no more than an expression to describe a trade channel – a store – by or through which application software could be acquired. The fact that the “acquisition” would have involved the acquisition of rights by way of licence does not, in my view, bear upon the matter.
Even if Apple was the first to use the combined expression, which Yates J does not seem to have been convinced it was, “the words in combination bore no more than their ordinary signification when applied to the designated services in Class 35.”
While his Honour drew on the Full Federal Court’s ruling in Oro / Cinque Stelle overturned by yesterday’s ruling in the High Court, these factual findings of what the terms and combined expression would mean to members of the public, unless somehow overturned, would appear to be fatal to any appeal.
Acquired distinctiveness (secondary meaning)
Yates J considered the evidence on acquired distinctiveness “opaque”. There was no real evidence about how the press releases issued with the launch of the store were used or of any other advertising or promotional steps undertaken. His Honour was prepared to accept that people had done internet searches in the week following launch of the term “app store” and “perhpas many persons” had come to associate the App Store service with Apple, but that was not enough.
The Newspoll survey
The Newspoll survey was drawn from an online pool of people who were willing to participate in market surveys for reward. It disclosed that some 65% of participants associated the term “App Store” with a particular company or brand and at least 88% of those nominated Apple as the company or brand. There were at least 2 main problems with this survey. First, it was conducted in 2011 – 3 years after the relevant date – “well after the relevant period” at . Secondly at  – , applying cases like Woolworths v BP and Chocolaterie Guylian, it was not enough to demonstrate that the expression APP STORE was associated with Apple; it was necessary to show the nature of that association was to identify the trade source of the product – i.e., as a badge of origin.
The ‘pro-active’ role of the Registrar
Apple criticised the active role the Registrar took in this case: going to the lengths of filing her own expert evidence in answer to Apple’s expert and relying on affidavits provided by solicitors acting for Microsoft. Such an active role is indeed unusual in such appeals. Yates J, however, did not accept that the Registrar’s role could fairly be described as “partisan”. His Honour pointed out that the Registrar is entitled to appear as a party and what role she should take when doing say would depend on the circumstances of particular cases:
In the present appeal, a large body of evidence, including expert evidence, was adduced by Apple. The Registrar was not bound to accept either the completeness or the correctness of that evidence. If, as here, there was a genuine alternative case available on the facts or evidence which materially qualified the case brought by Apple, then that alternative case could only be advanced by evidence adduced by the Registrar in the appeal, including by way of expert evidence, bearing in mind the nature of the proceeding as a hearing de novo. I do not think that the Registrar should be criticised for advancing a case for the Court’s consideration. To deny the Registrar that opportunity would be to deny the Court the opportunity to make findings on an appropriately-informed basis. This is not to encourage the Registrar, as a party to such an appeal, to make the case before the Court more factually complex or extensive than it need reasonably be or to take other than appropriately measured steps in the conduct of the litigation. Quite clearly, appropriate judgment must be exercised in considering what evidence is truly necessary, and what forensic decisions should be taken, to fulfil the Registrar’s role, which must be to take reasonable steps under the Act to protect the public interest in respect of the registration of trade marks in Australia. I do not think that the Registrar has over-stepped the mark in this case. ….
The Advisory Council on Intellectual Property (ACIP) has released an options paper for arising from its Review of the (Registered) Designs System.
The Options Paper identifies 3 potential routes for further development of designs law in Australia.
Option 1 would involve addressing a few specific issues in how the 2003 Act works without revisiting the policy settings. This could involve:
making the identity of Convention applicants consistent with the rules on entitlement;
expanding the rules on priority claiming so that differing formal requirements between jurisdictions do not disadvantage Convention applicants;
bringing the rules on entitlement into line with the Patents Act;
expanding the prior art base so that it is not just limited to the product the subject of the application;
expanding the situations where fraud, false suggestion or misrepresentation can be invoked for revocation purposes;
allowing exclusive licensees to sue for infringement;
making it clearer that a registered, but uncertified, design does not confer enforceable rights until certification;
removing the option to publish a design instead of registering it;
reducing the fees for multiple designs included in a single application; and
addressing anomalies that have arisen in the copyright-design overlap, especially in relation to 2D and 3D ‘embodiments’.
Option 2 would include the changes identified under Option 1, but going further to bring Australian law more into line with “major trading partners and international treaties”. That could involve amending the Act to allow accession to the Hague Agreement. Changes could involve:
extending the term of protection from 10 years to 15 including introducing a require to obtain certification on renewal after the first 5 years and a system of opposition following certification
introducing a grace period of 6 months
deferring publication to registration
introducing customs seizure provisions
Option 3 is summarised in the Executive Summary as:
a wholesale revision of the role of the designs system in Australia’s IP law, including consideration, in particular, of the need for unregistered design protection, and the scope of design protection (including the scope of secondary liability) in the context of technological developments such as 3D scanning and printing. This would also involve consideration of whether protection should be extended to partial designs and whether virtual or non-physical designs (such as screen displays and icons) should themselves be treated as products.
ACIP appears to consider Option 3 would be appropriate if the policies reflected in the 2003 Act no longer make sense or have been superseded. Examples where this might be the case include unregistered design right, full copyright proection regardless of industrial application or broader rights such as allowing registration for parts of products, such as handles, rather than for products as a whole.
The impending availability of 3D-printing, or at least its more widespread take up, is raised as a potential basis for pursuing option 2 or option 3.
ACIP does note that going down the path of Option 3 (at least) would involve costs as well as benefits and concludes:
ACIP does not presently have evidence sufficient to suggest that wholesale change would be in the national interest. ACIP envisages that Option 3 would involve consideration, not only of the designs system per se, but how it interacts with other systems: most obviously the copyright system, but also standard and innovation patents and other systems such as protection for confidential information. Ideally, such a review would also involve gathering more detailed evidence on Australia’s industrial and economic strengths, and developing strategies for industry development in the field of design, as well as more information on the operation of systems, such as those in operation in some European countries, which do not exclude industrial design from the copyright system. Such a review ought to be undertaken by specialist intellectual property economic, business and legal analysts.
In formulating these proposals, ACIP has taken into account responses to a survey it conducted as well as submissions.
ACIP would like to receive your submissions on these submissions on their return from the Christmas/Summer holidays: i.e. 23 January 2015.
In what might (with respect) be seen as a surprising decision, the High Court, by majority, has allowed Cantarella’s appeal and restored its trade mark registrations for ORO and CINQUE STELLE in respect of coffee to the Register of Trade Marks. Gageler J dissented and would have dismissed the appeal.
Modena, which had been importing and selling Caffe Molinari’s Oro and Cinque Stelle “brands”, was found to have infringed Cantarella’s registrations but for its successful cross-claim invalidating the registrations on the grounds that the marks were not capable of distinguishing the products. As a result of the High Court’s decision, therefore, this infringed Cantarella’s rights:
Cantarella registered ORO and CINQUE STELLE as trade marks for coffeee in Australia in, respectively, 2000 and 2001. Cantarella had first started using ORO to designate one of its lines of VITTORIA coffee in 1996 and CINQUE STELLE in 2000.
Caffe Molinari has been selling its Caffe Molinari Oro blend of coffee in Italy since 1965 and its Caffe Molinari Cinque Stelle blend since 1997. Its Caffe Molinari Oro products had been imported into Australia since 1996 and the Caffe Molinari Cinque Stelle products after their introduction.
Mr Pagent, one of the principals of Modena, had been selling VITTORIA products, including ORO and CINQUE STELLE in one of his previous businessnes since the mid–1990s. After he sold those businesses, through Modena he began importing and selling Caffe Molinari’s products in the UK and then, from 2009, in Australia. By the time the litigation started, there were literally “dozens” of “ORO” coffee brands in the market.
The legal question
In the High Court, the question was whether ORO and CINQUE STELLE iwere “capable of distinguishing” Cantarella’s coffee products under s 41. That in turn turned on whether each was “inherently adapated to distinguish [coffee] … from the [coffee products] … of other persons”.
Both the majority and Gageler J agreed that “inherently adapted to distinguish” was to be interpreted in accordance with the longstanding case law and the statement of the basic test from the Clark Equipment case. That is:
by reference to the likelihood that other persons, trading in goods of the relevant kind and being actuated only by proper motives – in the exercise, that is to say, of the common right of the public to make honest use of words forming part of the common heritage, for the sake of the signification which they ordinarily possess – will think of the word and want to use it in connexion with similar goods in any manner which would infringe a registered trade mark granted in respect of it.
The words in italics were emphasised by the majority. Their Honours held that those italicised words imposed an additional and limiting requirement to the test for signs which lacked inherent adaptation to distinguish. It was not enough that another trader might with improper motives wish to use the sign, the sign must also have direct reference to the quality or some other characteristic of the products in question. So, at , French CJ, Hayne, Crennan and Kiefel JJ said:
The principles settled by this Court (and the United Kingdom authorities found in this Court to be persuasive) require that a foreign word be examined from the point of view of the possible impairment of the rights of honest traders and from the point of view of the public. It is the “ordinary signification” of the word, in Australia, to persons who will purchase, consume or trade in the goods which permits a conclusion to be drawn as to whether the word contains a “direct reference” to the relevant goods (prima facie not registrable) or makes a “covert and skilful allusion” to the relevant goods (prima facie registrable). When the “other traders” test from Du Cros is applied to a word (other than a geographical name or a surname), the test refers to the legitimate desire of other traders to use a word which is directly descriptive in respect of the same or similar goods. The test does not encompass the desire of other traders to use words which in relation to the goods are allusive or metaphorical. In relation to a word mark, English or foreign, “inherent adaption to distinguish” requires examination of the word itself, in the context of its proposed application to particular goods in Australia.
In the case of foreign words, as here, their meaning translated into English was relevant, but not necessarily critical. What was critical was the meaning conveyed by the foreign term, if any, to those “who will be concerned with the relevant goods”. That is, what is the ordinary meaning, if anything, of that foreign word or expression to those in Australia who will purchase, consume or trade in the relevant products?
Then, at , their Honours explained:
…. Once the “ordinary signification” of a word, English or foreign, [if any, to those in Australia who purchase or consume or trade in such products] is established an enquiry can then be made into whether other traders might legitimately need to use the word in respect of their goods. If a foreign word contains an allusive reference to the relevant goods it is prima facie qualified for the grant of a monopoly. However, if the foreign word is understood by the target audience as having a directly descriptive meaning in relation to the relevant goods, then prima facie the proprietor is not entitled to a monopoly of it. Speaking generally, words which are prima facie entitled to a monopoly secured by registration are inherently adapted to distinguish. (footnote citations omitted)
The problem (for Modena) in this case is that apparently there are only 350,000 people in Australia speaking Italian at home. However, the trial judge found:
only a “very small minority” of English speakers in Australia would understand the meaning of the words, and that the Italian language is not “so widely spread” that the words would be generally understood as meaning “gold” and “five stars” respectively.
As a result, the majority explained at :
Like “TUB HAPPY” in respect of cotton goods, “ORO” and “CINQUE STELLE” were not shown to convey a meaning or idea sufficiently tangible to anyone in Australia concerned with coffee goods as to be words having a direct reference to the character or quality of the goods.
Gageler J’s dissent
In broad terms, Gageler J, especially at  –  disagreed that the words from Clark Equipment emphasised by the majority were an additional and limiting requirement. Rather they were merely a “parenthetical reference”, a subset of the overall test which focussed:
on the extent to which the monopoly granted on registration of a trade mark would foreclose options otherwise available to rival traders acting in the ordinary course of their businesses without any desire to benefit from the applicant’s reputation.
For example, his Honour pointed out that in Clark Equipment itself, which conerned the trade mark MICHIGAN, there was no evidence that any other trader manufactured the farm machinery in question in Michigan. Indeed, as the trade mark was registered in the USA, no-one probably could.
Extraordinary or just a decision on its facts
Given the trial judge’s finding of fact, one could argue that this case is just a decision on its facts.
That overlooks the important difference in principle on how one tests inherent adaptation to distinguish between the majority and Gageler J. It is also hard to resist an impression that Gageler J’s approach adopted a broader or more “multicultural” perspective.
One consequence of the decision is that Caffe Molinari’s products, which had been imported into Australia since 1996 / 1997 have been found to infringe so many years after the event even though Cantarella’s trade marks were registered after the infringing conduct commenced. Of course, as s 124 and s 44 illustrate, an assiduous infringer cannot gazump a trade mark owner.
Another “oddity”: Cantarella accepted that it could not stop Modena using QUALITA ORO, presumably because it is descriptive?
Further, by 2011, the evidence showed dozens of other traders in Australia using Oro or D’oro to identify their coffee products. These included Lavazza Qualità Oro, Caffè Incas Oro, Coffee Mio Brazil Oro …. A number of these uses appear to have predated Cantarella’s registrations. There were also one or two Five Stars or 5 Stelle and, of course, hundreds of businesses have Five Star in their names.
French CJ, Hayne, Crennan and Kiefel JJ discounted these; for example at :
The evidence led by Modena purporting to show that rival traders used (or desired to use) the word “oro” to directly describe their coffee products showed no more than that the word “oro” or the form “d’oro” had been employed on internet sites and coffee product packaging in respect of coffee products in a range of composite marks featuring Italian words which ostensibly were distinguishable aurally, visually and semantically. Further, the presence on the Register, before Cantarella’s trade mark “ORO” was registered, of another proprietor’s composite mark “LAVAZZA QUALITA ORO plus device” and Cantarella’s own composite mark “MEDAGLIA D’ORO” in respect of coffee products fell well short of proving that the word “oro”, standing alone, is understood in Australia by persons concerned with coffee products to be directly descriptive of the character or quality of such goods. (emphasis supplied)
One might hope that, being “distinguishable aurally, visually and semantically”, these other traders’ uses would not infringe Cantarella’s trade marks. But, putting Woolworths Metro to one side, one does not usually avoid infringement by making it clear from the surrounding circumstances that the trade source is different from, (i.e., not) the trade mark owner. Correspondingly, would someone who uses “5 star” to designate its premium coffee infringe?
This figure was apparently taken from the 2001 Census. As Gageler J pointed out in dissent , even this figure made Italian the second most spoken language in Australia. ?
French CJ, Hayne, Crennan and Kiefel JJ at . ?
The evidence is not entirely clear about the extent, if any, to which Modena’s use was different to what Caffe Molinari originally did. Gageler J and, according to his Honour, the Full Federal Court were prepared to infer it was not relevantly different. ?
Vickery J in the Supreme Court of Victoria has had to construe how long an obligation to pay royalties under a sale of patents and technology and associated consultancy agreement lasts: ruling it is as long as the purchaser is using the “invention”.
Roberts came up with the “Roberts Differential Lock”. It enables the driver of a vehicle, such as a 4-wheel drive vehicle, to lock the “dif” from the cabin without having to get out and manually adjust the wheels. The invention could be retrofitted to existing vehicles. Roberts made a provisional patent application for his invention in 1983 and a standard application followed in 1984. Corresponding applications were made in the USA, the UK and Japan in 1985. Roberts and his wife marketed the Roberts Differential Lock though their company, Altair.
In 1987, the Roberts and Altair sold all their rights in the invention to ARB. There was a lump sum payment and royalties to be paid on products made using the invention. Roberts also entered into a Consultancy Agreement for an initial period of 6 months and thereafter until terminated on 30 days’ written notice.
There were two questions before Vickery J:
(1) did ARB have to keep paying roylaties after (presumably) the (1984/1984) patents expired; and
(2) if so, to whom – the Roberts or also Altair?
The terms of the sale agreement
2. In consideration of the consideration set out in clause 7 of this Sale Agreement and subject to clause 20 hereof, the Vendors hereby jointly and severally sell transfer and assign absolutely to [ARB] all the right title and interest in and to the Roberts Differential Lock including (without limiting the generality of the foregoing) all patent applications, patent rights and proprietary rights relating thereto, and the business name ‘Roberts Diff-Lock’.
11(a). In further consideration of the rights granted hereunder the Company shall pay to the Roberts the following royalties calculated on the net invoice value arising from the sale, lease, hire and use (hereinafter referred collectively as a ‘sale’ or ‘sold’ as the case may be) of the Products by the company and its licensees:-
[a specified dollar amount for each unit sold]. (Those amounts were subject to increase according to increases in the CPI – All Groups Index – Melbourne.)
For this purpose, “Products” were defined to mean:
‘Products’ means the differentials as manufactured pursuant to the patents as specified in the First Schedule
and the First Schedule listed the 1984 Australian patent application and the pending applications in the USA, the UK and Japan – none of which had been granted at that time.
You will have noticed that clause 11(a) does not say anything about how long the obligation to pay royalties lasted. Vickery J held as a matter of construction the obligation did not end when the “patents” expired. A number of factors led to his Honour’s conclusion.
First, when the sale agreement was executed, the patent terms in the different countries where applications were pending were different. Moreover, as is typical in such agreements, the definition of “patents” extended to divisonals, re-issues, continuations, continuations in part and the like. So, his Honour concluded, the parties contemplated that there would be potentially be different expiry dates in different countries.
Secondly, although the obligation to pay royalties was imposed on sales of Products, what was sold by clause 2 were “all rights in and to the Roberts Differential Lock including … the patents and the proprietary rights relating thereto”. Then “proprietary rights” were defined not just as rights in patents, but also included copyright, confidential information, trade secrets, data, formulae and so on. So ARB was not just buying rights to the patents it was buying all rights to all the technology. Moreover, under the Consultancy Agreement, “all inventions, techniques and improvements developed in the course of the consultancy agreement ‘shall become the sole and exclusive property of ARB …’”
Together, these arrangements indicated the “ambulatory nature” of the proprietary rights ARB obtained.
Thirdly, if ARB was right and its obligations extended only to the “patents”, it had no obligation to pay royalties until at least one of the pending applications was actually registered. However, Vickery J considered it quite clear the obligation to pay was intended to apply to all products ARB sold as soon as the sale took effect whether an application had proceeded to grant or not.
109 Further, the object and purpose of the Sale Agreement may be said to be the allocation of the risks and rewards of the patent rights and the proprietary rights to be assigned to ARB by the Vendors. The risk allocation was achieved by means of the mechanism selected for determination of the price to be paid for that assignment.
110 I accept that the Vendors’ construction is commercially sensible in that it provides for an arrangement whereby each party managed its risk as to the proper price to pay (from ARB’s perspective) and to charge (from the Vendors’ perspective) in relation to the bundle of rights sold under the Sale Agreement, which at the time of entry into the contract had a value which was difficult to calculate or even estimate. Accordingly, the Sale Agreement provided for an ambulatory consideration through the royalties regime. If the rights proved to be valuable so that commercialisation of them resulted in a higher number of total sales than anticipated, then ARB would pay a higher total purchase price to the Vendors. On the other hand, if the rights proved to be valuable so that commercialisation of them resulted in a higher number of total sales than initially expected, then ARB would pay a higher total purchase price to the Vendors.
111 I also accept that such a risk-sharing arrangement is not one that had any obvious connection to the life of the patents that might be granted on the assigned patent applications, or to whether any patents became registered at all. In this regard the following is to be noted:
(a) ARB received an immediate and continuing benefit from the sales that it made using the assigned patent rights. In other words, the benefits that ARB received were not contingent upon any patent application listed in the First Schedule of the Sale Agreement proceeding to grant; and
(b) the assigned rights included proprietary rights which did not depend upon a patent proceeding to grant or remaining registered.
Vickery J then rejected ARB’s argument that it would be faced with a perpetual obligation to pay royalties: its obligation was to pay only on products that embodied the invention described in the patents. If it didn’t use that invention, it had no obligation to pay.
Pay the royalty to whom
This is one of those odd arguments where ARB was trying to contend Altair, the Roberts’ company, had no standing to sue. While cl. 11 did say that ARB had to pay “the Roberts”, Vickery J noted that the Roberts and Altair were the “Vendors” as defined and so cl. 11 should be understood as requiring payment to all three.
The conclusions reached by Vickery J, assuming there is no successful appeal, may immediately be contrasted with Maggbury Pty Ltd v Hafele Australia Pty Ltd. One obvious point of difference, is that it appears that patents did actually issue in this case. Moreover, it appears that there was, or may have been, further technology of value apart from the patents – such as copyright, confidential information and further improvements.
The conclusion may also seem at odds with the policy in s 145 of the Patents Act. Even at its strongest, however, that only gives a right to terminate and does not automatically terminate the contract. As we have recently seen, however, the operation of the provision, particularly in a multi-jurisdictional context involving many faceted technologies, is less than clear. In any event, ARB did not invoke the provision and it is not clear from the judgment whether there are other patent, or for that matter other “proprietary”, rights still on foot.
Nonetheless, if ARB could terminate the contract, it is an interesting question how Vickery J’s approach would sit with Maggbury if ARB used only technology now in the public domain.
Finally, as I am sure you have already concluded, if you are acting for the payor in this type of situation this case illustrates the importance of considering very carefully and providing specifically in the agreement for the duration of the obligation to pay royalties and what it is payable on if you are drawing a clause providing for a royalty – especially when the technology comes into the public domain and others may use it royalty free.