In Facton Ltd v Rifai Fashions Pty Ltd [2011] FCA 290 Bromberg J considered the Copyright Act 1968 (Cth), Fair Trading Act 1987 (NSW), Trade Marks Act 1990 (Cth) and Trade Practices Act 1974 (Cth), finding that the first and second respondents infringed the applicant's Trade Marks and Copyright Works, contravened ss 42 and 44 of the Fair Trading Act, contravened ss 52 and 53 of the Trade Practices Act, and engaged in conduct which constitutes the tort of passing off. They were ordered to pay costs and to pay damages of $20,213.
Rifai, an Australian clothing manufacturer and retailer, had purchased and offered for sale counterfeit GStar jeans, belts, handbags, t-shirts and other items (ie goods featuring unauthorised use of G-Star trade marks). Rifai had been alerted that the goods were counterfeits (for example in connection with seizure by the Australian Customs & Border Protection Service of a shipment from Thailand) and had made an undertaking to "cease from manufacturing, importing and selling infringing products". However it continued to sell the infringing goods, resulting in an Anton Piller order covering its premises.
Bromberg J referred to the articulation by Gordon J in Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633 of principles for the award of damages under s 115(2) of the Copyright Act. He commented that -
Rifai Fashions and Mr Rifai admit that the applicants had established a substantial, exclusive and valuable reputation and goodwill in Australia by reference to the G-Star Trade Marks and the G Logos. They further conceded that the G-Star Trade Marks and G Logos are, and have been at all material times, known to be distinctive of and signify exclusively the business and goods of the applicants.
I would infer that, as the exclusive distributor of G-Star Products in Australia and given the evidence as to its very substantial turnover, G-Star Australia has a valuable reputation or goodwill which is, to a significant degree, generated by and reliant on the reputation of the “G-Star” brand. I would therefore agree that the value of the goodwill attached to the business of G-Star Australia will be affected by damage sustained to the “G-Star” brand, including because G-Star Australia:
Loses some sales of G-Star Products, because counterfeit products are available at cheaper prices; and
In discussing the application for exemplary damages, or alternatively additional damages under s 115(4) of the Copyright Act he went on to comment that -Loses customers because some customers no longer purchase G-Star Products, as that apparel is no longer considered exclusive.In relation to the loss suffered by G-Star International, the damage to reputation was pressed on the basis that, as the owner of the copyright in the G Logos, loss of reputation is manifested in the probable diminution in the value of the copyright as a chose in action. I accept that, as a chose in action, the G Logos are likely to hold significant value.
The basis upon which Facton claims damage by way of lost reputation was not identified, despite the claim that Rifai Fashions had damaged the reputation of each of the applicants.
The applicants jointly seek general damages to reputation in the amount of $100,000. The applicants made no attempt to distinguish between the goodwill or reputation held respectively by each. Nor was any attempt made, either by way of evidence or even submission, to identify the value of the reputation or goodwill concerned. The value of the reputation or goodwill held by each of the applicants is clearly a matter in relation to which evidence could have been called by each of the applicants. In the absence of that evidence, the Court is left to wholly speculate as to the value of the goodwill held by G-Star Australia and as to the commercial value of the G-Star Logos as a chose in action. If the Court had been provided with that evidenciary starting point, it may then have been possible to quantify, with some degree of speculation and guess work, the loss that may have been occasioned by reason of the infringing conduct. However, without evidence as to the value of the reputations concerned, I have no capacity to measure loss.
Whilst I accept that some degree of speculation and guess work may be appropriate in assessing the diminution of an asset by reason of infringing conduct, that task needs to be performed on the basis of a secure foundation. If the Court is left to do nothing but guess at the value of the intangible asset involved, the task of assessing the diminution in value of that asset becomes wholly speculative. In circumstances where the applicants could have adduced, but have failed to adduce, evidence to demonstrate the value of each of their goodwill or reputation, I am not prepared to wholly speculate as to that value. I have no basis from which to assess any diminution in that value resulting from the infringing conduct of Rifai Fashions and Mr Rifai. In those circumstances, I am not able to award damages for loss of reputation.
I have no hesitation in finding that Mr Rifai’s conduct (and thus that of Rifai Fashions) was knowing and deliberate. It can be said that the continued selling of a small number of counterfeit goods after the giving of undertakings involved wilfulness. However, the conduct was not wanton, there was no malice or insolence or the like disclosed. Whilst there was conscious disregard for the applicants’ rights, that disregard was not both conscious and contumelious. This is not one of those rare occasions where an award of exemplary damages is appropriate.In relation to additional damages the Court held that -
Where an infringement of copyright is established a court may, in assessing damages, award additional damages if it is satisfied that it is proper to do so having regard to the matters referred to in s 115(4)(b): Aristocrat at [40]. As Black CJ and Jacobson J said in Aristocrat at [43]: “the objectives of an award of additional damages include deterrence”, and “an element of penalty”. One of the purposes of an award of additional damages is to strip the infringer of the pecuniary benefits received from the infringement: Aristocrat at [44] and [48]. There is no need for any proportionality between the amount of compensatory damages awarded under s 115(2) and any additional damages ordered: Aristocrat at [45].On appeal the Full Court ordered that
I am satisfied that it is proper to award additional damages. My satisfaction, in particular, is based upon the need to strip Rifai Fashions and Mr Rifai of the pecuniary benefit likely to have been obtained as a result of their infringement and also because of the need to punish and deter. There are however militating factors which, whilst not negating the need for an award of additional damages, significantly diminish the amount that might otherwise have been awarded.
Mr Rifai claimed that he had made less than $10,000 from selling G-Star branded counterfeit goods. No substantiation was given and because of my view that Mr Rifai tended to play down the level of his wrongdoing, it is likely that the profits made were significantly larger and in the order of twice the amount that was actually conceded. An award of damages totalling $20,000 would likely strip Rifai Fashions and Mr Rifai of all pecuniary benefits received by reason of their infringements. Given the amount of compensatory damages which I intend to award, that analysis suggests that a further sum of $11,000 be awarded by way of additional damages.
There are factors that militate against a larger award of additional damages. Firstly, because I intend to require the respondents to pay the applicants’ costs of this proceeding, there will be a substantial impost upon the respondents which will likely substantially exceed the damages awarded. Secondly, I take into account that a significant and costly lesson would have been learnt by Mr Rifai when the goods purchased in Bangkok were forfeited by Customs, at a cost of some $32,000. Thirdly, the need for deterrence is diminished by Mr Rifai’s acceptance of his wrongdoing and that of his company. Rifai Fashions admitted liability at a very early stage of the proceedings. Mr Rifai admitted that he was a joint tortfeasor when that allegation was first raised. Other appropriate admissions and concessions have been made and together with the cooperation shown, the apology given, and Mr Rifai’s candid acknowledgment of his foolishness, I have come to the view that any need for punishment or specific deterrence which remains is already addressed by the damages and costs orders that I intend to make. I have, in relation to deterrence and punishment, also taken into account Mr Rifai’s evidence as to the respondents’ poor financial position.
the first and second respondents pay the appellants’ damages in the sum of $14,213;It stated that -
The first and second respondents pay the second appellant’s additional damages in the sum of $25,000.
The respondents pay the appellants’ costs of the appeal.
The appellants sought compensatory damages, including reputational damages and additional damages under s 115 of the Copyright Act. They also sought damages, including exemplary damages, in the tortious claim for passing off.In a useful discussion for law students about damages as distinct from account of profits the Court commented that -
Although the tort of passing off is quite distinct from the statutory remedies that are given under the Copyright Act, in this case and often where a claim is made both in tort and under the Copyright Act, the same facts support both the tort and the statutory cause of action, and any damages which flow in respect of both causes of action.
Therefore, it seems that, and we do not understand the appellants to contend otherwise, if the appellants receive both compensatory damages and additional damages under s 115 of the Copyright Act, they should not receive any further damages, including exemplary damages, for the tort of passing off.
Because we think the appellants should receive an award of damages under s 115(2) and s 115(4), there is no need to consider further the tortious claim or the appellants’ claim for exemplary damages. It is only necessary to address the appellants’ claim under s 115 of the Copyright Act.
In this case it seems that the appellants advanced a case in which they sought both damages and an account of profits. They did so by claiming the profits made by the respondents as additional damages. That course was in our opinion impermissible, and led to the error made by the primary judge in awarding $11,000 by way of additional damages pursuant to s 115(4).The judgment goes on -
If the sum of $9,213 compensated the appellants for their loss or damage they were not entitled to the further sum of $11,000 on account of the respondents’ profits. It might be, and probably is the case, that the sum of $9,213 does not accurately reflect the damage suffered by the appellants. The real damage suffered by the appellants probably included the loss of the profits that the respondents made on the various counterfeit items: Colbeam Palmer Ltd v Stock Affiliates Pty Ltd at 32 per Windeyer J. However, there was a lack of clarity about the way in which the appellants put their case in relation to damages, and it is not possible to go behind the award of damages under s 115(2).
The appellants also claim they are entitled to two other heads of damage under the Copyright Act. First, they claim they are entitled to reputational damages. Secondly, they claim they are entitled to additional damages under s 115(4) apart from those already awarded.In considering the additional damages Lander J and Gordon J stated that
The primary judge declined to award the appellants reputational damages on the basis that they had not made out their case on the evidence because they should have identified the value of the appellants’ reputation as an “evidentiary starting point”.
An owner’s loss of reputation sounds in compensatory damages and may be awarded under s 115(2) of the Copyright Act if the evidence justifies such an award. Damages would flow if the owner establishes that the infringement has caused a depreciation in the copyright as a chose in action: Sutherland Publishing Co. Ltd v Caxton Publishing Co. Ltd [1936] Ch 323 at 336 per Lord Wright MR; Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633; (2009) 81 IPR 378 at [31]- [34] per Gordon J. The evidence in this case did justify an award of reputational damages under s 115(2). On the primary judge’s own findings the appellants established a substantial, exclusive and valuable reputation in Australia in relation to their trademarks, brand and goods. He also found that the brand would be diminished by the sale of counterfeit items, and that customers would be lost because the goods are no longer considered exclusive.
However, his Honour declined to include in the award of compensatory damages a sum to reflect reputational damage because, as we have said, he found that the appellants had failed to adduce evidence to demonstrate the value of the goodwill or reputation, and in those circumstances he was not prepared to speculate as to that value.
We cannot agree with that conclusion because we cannot think of any further evidence that the appellants could have adduced in relation to the damage to their reputation.
It is not easy in any given case to establish a reputation and to identify in monetary terms the value of the loss of that reputation. However, in our opinion the appellants established the former, and the Court was obliged to consider the latter: Enzed Holdings Ltd v Wynthea Pty Ltd [1984] FCA 373; (1984) 4 FCR 450. In The Commonwealth of Australia v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 at 83, Mason CJ and Dawson J said:
The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can. Indeed, in Jones v. Schiffmann Menzies J. went so far as to say that the “assessment of damages ... does sometimes, of necessity involve what is guess work rather than estimation”. Where precise evidence is not available the court must do the best it can. And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages.It is a matter of judgment as to the loss of value in a party’s reputation. Although at first blush we would have thought the damages would have been higher than that arrived at by Gilmour J, we do not disagree with his Honour’s award of $5,000.
The pecuniary benefits which flowed to the respondents in this case were relevant in assessing the additional damages which were to be awarded, but there were other factors to be taken into account, all of which have been referred to by Gilmour J, and all of which in our respectful opinion are relevant.Lander J and Gordon J concluded that
If the primary judge was of the opinion that a pecuniary benefit of $11,000 had accrued to the respondents or either of them, he was wrong in our respectful opinion to limit the additional damages to that amount. To do so meant that there was no recognition of punishment in the award and no element of punitive damages at all.
We think the factors which have been identified by Gilmour J cause s 115(4) to be engaged in this case. We think the respondents acted in flagrant disregard of the appellants’ rights in infringing the copyright. We think the respondents’ breach of the respondents’ own undertakings demonstrates the flagrancy of that conduct. The respondents need to be deterred from similar conduct. There is a need for general deterrence to deter like-minded people who would act in the same way as the respondents and infringe other owners’ copyrights.
We think the respondents’ conduct after the proceeding was brought, and during the proceeding, ought to be taken into account, much like it would for an award of aggravated damages in a defamation case. It was only at the last minute that the respondents acknowledged their wrongful conduct, and they denied the infringement until that last minute.
The amount which ought to be awarded for exemplary damages is not easy to fix. The appellants sought an award of $500,000 at trial and $200,000 on appeal. We think both of these sums are significant overstatements of the award that ought to be made. Although there need not be any proportionality between the amount of compensatory damages awarded under s 115(2) and the amount of additional damages awarded under s 115(4) (Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd at 571 per Black CJ and Jacobson J), the sums sought by the appellants both at trial and on appeal are so disproportionate to the damage suffered that the claims must be rejected.
Because this aspect of the award is meant to act as a punishment, the individual circumstances of the respondents must be taken into account, and the award must be tailored to reflect those circumstances: Amalgamated Mining Services Pty Ltd v Warman International Ltd [1992] FCA 542; (1992) 24 IPR 461 at 479 per Wilcox J.
... we do not think the sum of $11,000, which the primary judge ordered for additional damages, was in fact additional damages. However, because there is no cross appeal this Court cannot ignore that assessment, although the Court can take into account the fact that that sum is payable by the respondents in assessing the overall amount to be awarded under s 115(4).
In our opinion an appropriate award of additional damages under s 115(4) would be in the order of $25,000. Such an amount would reflect the purpose of s 115(4) and would include the figure of $11,000.
In the end, the total figure that we fix is only marginally higher than the figure Gilmour J would fix, but we have reached that conclusion for different reasons.
