Tobacco repackaging appeal runs out of puff

Trade marks – parallel importation – removal of original packaging and repackaging to comply with local regulation – whether use as a trade mark by reseller – whether section 123 defence applies.

Scandinavian Tobacco Group Eersel BV v Trojan Trading Company Pty Ltd [2016] FCAFC 91

The appellants (STG) manufacture and sell cigars under various marks, including the marks in suit.  Trojan imported and retailed genuine STG cigars in competition with STG’s authorised Australian distributor, but from a different source.  STG cigars supplied to the authorised Australian distributor complied with Australia’s plain packaging laws for tobacco products; those supplied to Trojan did not.  Accordingly, Trojan had to unpack STG’s cigars upon their arrival in Australia and repackage them in compliant packaging.  Trojan’s packaging, among other things, included the marks in suit on an area and portion of the packaging which was not the same as the packaging of STG’s authorised distributor.

STG’s claim of trade mark infringement failed at first instance, because the defence in s 123 of the Trade Marks Act 1995 (Cth) was held to apply. In particular, the learned trial judge (Allsop CJ) found that the registered owner’s “consent” was to be assessed at the time of manufacture, rather than when Trojan repackaged and arguably “re-applied” the marks in suit to otherwise genuine goods.  That interpretation was held to be consistent with the role of s 123 in “protecting as non-infringing use that which does no more than draw a connection between the goods and the registered owner”.

STG appealed against the decision, arguing unsuccessfully that the trial judge’s conclusion on the application of s 123 was erroneous (see below).  Trojan filed a notice of contention that put into issue the correctness of the trial judge’s finding (which followed Full Court authority) that Trojan’s repackaging constituted use of the marks in suit “as a trade mark” within the meaning of s 120.  At first instance, Trojan had argued that there had been trade mark use, but that the use had been by STG and not Trojan because Trojan applied the marks only to indicate a trade connection between the goods and STG.  The Full Court (Besanko, Nicholas and Yates JJ) dealt with that issue first.

The Full Court first considered the state of authorities prior to the current Act, and observed that “by the time the 1995 Act was drafted, the question whether a person uses a registered mark already applied to goods by the registered proprietor which that person later imports and sells in Australia was by no means settled”.  The Full Court also noted the conceptual difficulty in accepting (as Trojan would have it) that a reseller of goods to which a mark is applied by the trade mark owner does not itself “use” that mark, whereas on the authorities it is clear that a reseller of goods to which a mark is applied by a third party does use the mark.  The Full Court concluded that “under the provisions of the 1995 Act, a person who, in the course of trade, imports and sells goods to which a registered mark was applied by its owner at the time of manufacture will have used the mark as a trade mark”.  If that were not the case, the defence in s 123 would be little more than smoke and mirrors.

The Full Court accepted, as had the trial judge, Trojan’s submissions concerning the application of s 123.  On Trojan’s approach, if a registered owner has applied its mark to the relevant goods, then it is open to another person to purchase the goods, remove the mark, and then re-apply it for the purposes of resale.  In contrast, under STG’s approach, the re-application of a mark also would need to have occurred with the consent of the registered owner.

In preferring Trojan’s approach, the Full Court noted that “a registered trade mark may be used in many different ways which do not involve physically applying the mark to goods”, such as in advertising material (which a reseller may well create itself), invoices and other documents, and even in conversations.  There does not need to be any direct physical relationship between the owner’s use of the mark and that of the reseller.  It also is important to note that s 123 does not require that the registered owner consent to the acts of the reseller (whether they be selling a genuine product outside of the owner’s official channels, the creation of advertising material to promote those products, or some other activity in which a mark is “applied to, or in relation to,” the goods within the definition in s 9(1)).  Section 123 must be construed so as to allow it to cover a wide variety of circumstances of use.

Further, the “operation of the section is not expressly or impliedly confined to a situation in which the goods still bear the mark as applied by the owner.  The temporal requirement of the section will be satisfied if at some time in the past, which may be after the time of manufacture, the mark has been applied to or in relation to goods by or with the consent of the owner.”  The defence therefore will be available, for example, in cases where original packaging has been removed due to damage or a need to comply with local regulation.

Insofar as that result might give rise to concerns about potential impacts on a registered owner’s goodwill or reputation, the Full Court emphasised that issues of deception were not relevant to the operation of the defence (although they might arise under, for example, passing off or the prohibition of misleading or deceptive conduct).  Further, a registered owner is afforded some protection by the “notice of prohibition” mechanism under s 121 of the Act, to which s 123 does not apply.

The Full Court upheld the dismissal at first instance of STG’s claims for passing off and breach of the Australian Consumer Law.

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