What you need to know
- On 5 December 2019, the Full Court of the Federal Court handed down its decision to dismiss both the appeal by PKT Technologies Pty Ltd and cross-appeal by Peter Vogel Instruments Pty Ltd in respect of a range of damages orders made by the remittal judge below.
- The Court reduced the additional mitigation damages that had been awarded to PVI by the remittal judge, but agreed with the remittal judge's approach to assessing the reliance damages and account of profits awarded to both parties.
- The Court also upheld the remittal judge's decision not to allow the recovery of profits made from sales of products attributable to infringing use of a trade mark where the sales were made to consumers in other countries.
What you need to do
- When bringing proceedings before court, consider submitting a claim for reliance damages as an alternative to expectation damages. Noting, however that it may be difficult for parties to predict how the court will assess and quantify such damages.
- When relying on a particular section of an Act ensure that this is sufficiently clear in pleadings and properly covered in submissions and argument.
- Ensure that trade marks are registered in jurisdictions where goods using the mark may be exported or sold. It may otherwise be difficult to recover profits from sales made to customers in other countries as a result of infringing use that occurred in Australia.
Background
PKT Technologies Pty Ltd (formerly known as Fairlight.Au Pty Ltd) (Fairlight) entered into an agreement with Peter Vogel Instruments Pty Ltd (PVI) to license its FAIRLIGHT trade mark and provide customised software and core components for PVI's well-known digital music synthesiser products. The agreement was that PVI would own copyright in the software and components.
When PVI started selling other applications using the FAIRLIGHT mark, Fairlight terminated the agreement arguing that such use was outside the scope of the licence. What ensued was a long running battle between the parties.
Litigation history
Like many IP cases, the issues of liability and quantum of damages were split into two separate hearings.
On the question of liability, PVI argued that Fairlight repudiated the contract because the agreement contained a licence to use the trade mark as well as a separate arrangement in relation to the provision of software and components. Fairlight in turn argued trade mark infringement.
The Full Federal Court agreed with PVI that the agreement was not confined to the licence. It also contained a separate arrangement that Fairlight would provide software to PVI and that PVI would own the copyright in it. As a result, Fairlight had indeed repudiated the agreement.
While the agreement had been repudiated, the Court agreed that the use of the trade mark in relation to the additional applications was outside the scope of the licence and amounted to trade mark infringement.
On this basis, each party was entitled to seek compensation from the other.
These matters were determined by the remittal judge. PVI claimed damages for repudiation of the agreement and copyright infringement while Fairlight sought an account of PVI's profits for PVI's trade mark infringement.
The remittal judge ordered:
- Fairlight to pay to PVI reliance damages and additional mitigation costs for repudiation of the agreement, and compensatory damages for copyright infringement; and
- PVI to pay Fairlight for trade mark infringement, the amount being assessed based on the value of goods sold to consumers in Australia.
On appeal to the Full Federal Court
PVI's claim for expectation damages
The remittal judge rejected PVI's claim for expectation damages (its claim for the profits it would have received had the agreement been performed). This was largely because the remittal judge did not accept PVI's sales forecasts as reliable guides of the sales it would have made.
PVI argued that the remittal judge erred in diminishing the reliability of its projected sales performance. PVI also submitted that the projected profits should include profits from all products and not simply those covered by the trade mark licence.
The Court dismissed both challenges by PVI. Projections that formed the basis for PVI’s claims were dramatically undermined by actual performance in the two years prior to repudiation and were therefore rightly rejected as reliable performance indicators. The Court also rejected PVI's claim for profits on products not covered by the licence. It was not established that Fairlight knew that PVI contemplated such sales and that these sales depended on the successful performance of the agreement.
PVI's claim for reliance damages
Both parties challenged the remittal judge's approach to assessing reliance damages as 30% of PVI's original claim.
First, Fairlight submitted that a claim for reliance loss could not be advanced as an alternative to an expectation loss claim. This was rejected by the Court, who noted that any losses suffered must be brought into account. Fairlight then submitted that the reliance expenses claimed by PVI were not reliable. However, the Court found that the remittal judge did not err in relying on the documentation submitted by PVI to calculate the loss.
Both parties also argued that the remittal judge erred in awarding damages to the extent of 30% of the amount claimed by PVI as this assessment was not explained or justified. While the Court noted that the reasoning behind the assessment of 30% was "sparse", this was also inevitable given the evidence available and difficulty of the task. Thus, the Court did not find any identifiable error in the remittal judge's approach.
Additional mitigation damages awarded to PVI
The Full Court also reduced additional mitigation damages awarded to PVI for losses incurred due to Fairlight's repudiation from $36,566 to $18,768.50. This was because some of the invoices relied upon by PVI did not relate to the products in question and others predated the date of repudiation.
Account of profits for trade mark infringement
Fairlight challenged the remittal judge's decision to award an account of profits based on sales as a result of the infringing trade mark use made only to Australian customers. This was because the remittal judge was not satisfied that selling goods, or offering them for sale, in a foreign country constituted infringing use of the trade mark registered in Australia.
On appeal, Fairlight essentially argued that sales of products outside of Australia constitute exports and should accordingly nonetheless be included under section 228 of the Trade Marks Act. The majority dismissed Fairlight's challenge. They held that any reliance on section 228 was not clearly put by Fairlight in the decision below and could not now be relied upon. On that basis, as sales made to overseas customers did not arise out of infringing use in Australia, Fairlight's challenge was dismissed and its relief was confined to sales to Australian customers only.
Costs
On 19 March 2020, the Full Court ordered PVI to pay 35% of Fairlight's costs of the appeal and cross-appeal. The Court considered Fairlight's moderate success in its appeal and found PVI's cross-appeal to be of greater financial significance (over $9 million) than the appeal (approximately $460,000). As attempts to carve up costs were likely to be further disputed, the Court took a pragmatic approach and refused to allocate costs between different issues in the proceedings.
Authors: Judy Zhao, Lawyer and Anita Cade, Partner.
