Unsuccessful appeal leaves directors in a pickle

What you need to know

• Sydney burger business Hashtag Burgers was unsuccessful in its appeal against a decision of the Federal Court.  The Full Federal Court affirmed the findings of trade mark infringement, misleading and deceptive conduct, and passing off.
• Indeed, Hashtag Burgers may have bitten off more than they could chew.  Not only were they unsuccessful in their appeal, but the appeal court allowed In-N-Out Burger's cross-appeal finding that the directors of Hashtag Burgers were also personally liable for the infringing conduct of their company. 

What you need to do

• Directors may be found personally liable where they have a sufficiently close involvement with the actions of a company.
• Directors should ensure that their conduct as individuals does not exceed the threshold of performing their proper roles as directors.

The first instance decision

In our August 2020 Food Law Update we considered the Federal Court decision in In-N-Out Burgers, Inc. v Hashtag Burgers Pty Ltd [2020] FCA 193.  In that decision Justice Katzmann found that by its use of DOWN-N-OUT trade marks, Sydney burger business Hashtag Burgers infringed the trade marks of famous US burger chain In-N-Out Burger Inc., and was liable for misleading or deceptive conduct, and passing off.

Justice Katzmann also found that the directors of Hashtag Burger were involved in misleading and deceptive conduct contrary to the Australian Consumer Law, but that the directors were not jointly liable with the company for trade mark infringement or passing off.

The appeal and cross appeal

Hashtag Burgers and its two directors appealed the first instance decision on the grounds that Justice Katzmann incorrectly:

• evaluated the deceptive similarity of the trade marks;
• held that the directors deliberately adopted the DOWN -N-OUT marks to appropriate In-N-Out's marks; and
• made a finding of misleading or deceptive conduct, and passing off.

Hashtag Burgers also submitted that an overseas claimant could not have a sufficient reputation in Australia to establish passing off.

In a cross-appeal, In-N-Out contended that the evidence accepted by the primary judge should have led to a conclusion that the directors were also liable for trade mark infringement and passing off.

Appeal decision

Hashtag Burgers appeal was dismissed, and In-N-Out's cross appeal was upheld.  

On the appeal, the Full Court upheld the finding on trade mark infringement and also reaffirmed the principle that it is not necessary for a claimant to have local business or trade in Australia to prove that it has a reputation sufficient to establish the tort of passing off.

Interestingly, on the cross-appeal, the Full Court found that Justice Katzmann erred in her finding of dishonesty on the part of the directors.  However, the Full Court held that Justice Katzmann's judgment was sound as dishonesty was not a necessary part of the assessment, and that Justice Katzmann had correctly identified an intention by the directors to cause consumer confusion.

In determining the liability of the directors for trade mark infringement and passing off, the Full Court considered it relevant that the directors:

• were the sole directors of the company;
• had sole responsibility for management decisions;
• were the sole recipients of profits derived from the company;
• operate the business in the same way both prior to and following incorporation of the company; and
• were knowingly involved in the company's wrongdoing.

The decision services as a salient reminder that directors can find themselves personally liable for trade mark infringement and passing off.  

Authors: Carrick Brough, Lawyer; Anita Cade, Partner.