18 September 2013

Stripes, Silks and Software

Disagreement about stripes, confusion and the Apollo Shoe, the Indigo Shoe, the Stingray Boot, Apple Pie Runner, Stingray Runner, Basement Shoe, Apple Pie Shoe and Apple Pie Pink Runner? Problematical practice in the IT sector?

In Adidas AG v Pacific Brands Footwear Pty Ltd (No 3) [2013] FCA 905 the Federal Court of Australia has found that Adidas was entitled to relief for infringement under s 120 of the Trade Marks Act 1995 (Cth) by Pacific Brands Footwear Pty Ltd of the three-stripe trade mark on Adidas branded shoes.

Adidas has been using the stripe mark in Australia since at least 1957. Pacific Dunlop (later Pacific Brands) had agreement with Adidas to distribute the footwear. Pacific Dunlop between 1992 and 1996 had a controlling stake in Adidas' Australian offshoot, complementing the licensing agreements.

The dispute dates from at least 2011, with the Federal Court in 2011 - in Adidas AG v Pacific Brands Footwear Pty Ltd [2011] FCA 1205 dismissing the application by Pacific Brands to prevent Adidas from relying upon survey evidence, Pacific Brands not having initially raised its objections to the survey with Adidas, as required by the Court’s published procedures. Procedure matters!

Pacific Brands was said to have added a fourth "deceptively similar" stripe to cheap - and "low performance" trainers, which were distributed through bargain outlets and were not widely advertised. Some consumers might however have thought that they'd had a win, ie the come across a premium product in a bargain store because of the vagaries of wholesaling or bulk buying by the retailer. Stranger things happen.

In 2011 Adidas indicated that although Pacific Brands had ceased distributing the shoes the litigation was necessary to discourage infringers and stop further damage to the brand.

In the latest judgment the FCA has referred to Australian Woollen Mills Ltd v FS Walton & Co Ltd [1937] HCA 51, Crazy Ron’s Communications Pty Ltd v Mobileworld Communications Pty Ltd [2004] FCAFC 196 and Southern Cross Refrigerating Co v Toowoomba Foundry Pty Ltd (1954) 91 CLR 592 before ruling that some of Pacific's goods - with four stripes - had a "real and tangible danger of confusion" regarding Adidas' products, with a likelihood that people would wonder whether the products came from the same source.

The judgment helpfully features illustrations of the different shoes and an item by item analysis of whether there was confusion and thus infringement.-

Damages are to be agreed.

The judgment is useful for law students for its information about licencing and marketing practice, and empirical information regarding confusion.

In Attachmate Corporation v Commonwealth of Australia (No 1) [2013] FCA 896 the Commonwealth has sought discovery of the record of the deposition in the US District Court (Western District of Washington at Seattle) between Attachmate and Health Net, Inc, which appears to indicate problematical practice regarding copyright infringement.

In the current judgment the FCA notes that
In June 1999 the Commonwealth, through its Department of Defence (‘Defence’), entered into a written agreement under which the applicant’s wholly owned Australian subsidiary, Attachmate Australasia Pty Ltd, would provide for Defence’s use IBM 3270 terminal emulation software called ‘Extra!’. The written agreement related to the right to use 8000 units of the software. This agreement was subsequently renewed automatically on its licence terms. In October 2009, following an audit, the applicant (‘Attachmate’) came to the view that Defence had used Extra! on more than 8,000 machines. Defence countered that it was entitled to use Extra! as much as it wanted provided it did not do so on more than 8,000 machines at once. Attachmate then sued in this Court alleging copyright infringement. At the same time, lest Defence’s use be authorised as Crown use by s 183 of the Copyright Act 1968 (Cth), it commenced parallel proceedings in the Copyright Tribunal of Australia: CT 1 of 2011 Attachmate Corporation v Commonwealth of Australia. The basic question then is the meaning of the 8,000 unit limitation.
The Commonwealth also deploys some additional defences of estoppel, delay and acquiescence. It is said that Attachmate knew what was going on from a very early date and did nothing. The dispute about the amended discovery category 2.5 concerns these defences.
The Commonwealth now points to certain litigation in the United States District Court for the Western District of Washington sitting in Seattle. This litigation is entitled Attachmate Corporation v Health Net Inc and was assigned to the docket of Pechman J. It is not clear to me whether that proceeding has yet been tried. In that proceeding Attachmate sues for breach of copyright in relation to its software. The basic allegation is that Health Net ‘over-installed’ Attachmate’s software (that is, installed it upon more machines that it was entitled to do under its licence). In written submissions filed by Health Net Inc in those proceedings on a motion to dismiss in limine it submitted as follows:
First, Attachmate as a company seeks “damages” from over-installation and lack of license compliance far in excess of what it would receive in licensing revenue for the same number of units. For example in this case, Attachmate seeks over $24 Million in damages for lack of compliance, as compared to the approximately $4 Million HNI has paid Attachmate in fees over 10 years. Thus, Attachmate as a company is motivated to sit back and not conduct audits that would reveal any lack of compliance, in favor waiting years while alleged damages are racked up.
Second, in furtherance of this financial strategy, Attachmate implements a bonus structure for its entire “license compliance team” that encourages each member to look the other way for years and years, rather than initiate an audit when they should have known that a customer was out of compliance. More specifically, each member of the compliance team is paid a salary, and a substantial bonus based on the amount of compliance revenue Attachmate brings in from over-installed customers. Jackson Decl. II, Exs. B (Swadener Depo. 41:4-47:12), C (Taylor Depo. 80:19-85:23), and D (Fusarao Depo. 23:24-24:19). If the compliance team members catch over-installations early, when they are small and only in existence for a short period of time, the compliance team member earns no bonus. On the other hand, if the compliance team member sits back, and waits years, and then initiates an audit, the over-installations may have grown, and the number years of over-installations multiplied many times over. In that case, the compliance team members earn a substantial bonus, sometimes more than their salary. Thus, Attachmate’s compliance team members, like their employer, are motivated to sit back and not conduct audits that would reveal any lack of compliance, in favour waiting years while alleged damages are racked up.
The reference to the three depositions will be noted and their correspondence with the discovery now sought. In this case, the Commonwealth paid Attachmate a fee of $200,000 per year until 2008. Attachmate has discovered an email of 13 February 2008 containing an internal communication as follows:
That document you sent is pretty useless to you. It was a proposal that was never adopted. It was a half arsed attempt to increase the revenue stream from Defence. I remember the kick-back was that they had $200K in the budget, and we were best not to ask any questions about how many licences may/may not be in use, or try to lift our profile, and the money would just come every year (as it basically has, up until now, since that time).
The Commonwealth’s suggested thesis is that Attachmate conducts its affairs by not pursuing infringements of which it has notice in order to maximise ‘compliance revenue’. The submission set out above suggests that three employees of Attachmate gave evidence on deposition that the bonus arrangements at Attachmate encouraged such behaviour amongst its staff. The email of 13 February 2008 is capable of lending credence to this view.
Attachmate submits that the depositions ought not to be discovered because: (a) this thesis is implausible and speculative; (b) Defence has not pointed to any documents suggesting a link between any delay in complaining and such a strategy; (c) it has admitted that its compliance team receives bonuses based on achieving compliance revenue goals; (d) discovery should, in any event, be postponed until Attachmate serves its evidence in reply on the issues of estoppel, delay and acquiescence; and (e) the material is not related directly to the issues raised by the pleadings.
The Court was not persuaded by that submission.