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Hey! You have to pay for that!

Most holders of registered trademarks will be aware, that the value of a trade mark is that it allows its owner to build consumer goodwill in association with the mark, whilst having statutory and common law rights to prevent other traders from using the mark (or similar marks) and benefiting from that goodwill.

In some cases, however, it can be extremely difficult for the holder of the mark and the Court to calculate the damages an infringer should pay for infringement (for example, because the infringer may not have made any profit directly from the infringing use or no loss can be proven).

One way rights holders can get around these issues is to seek damages based on the “user principle” – the principle that a person who uses another’s property without permission should still have to pay for that unauthorised use (even if neither party would have been prepared to licence the property to/from the other).

One of the benefits of this approach to damages is that a claimant can recover damages even where it can’t establish a loss of profit or a loss in value of the asset.

The availability of damages calculated using the user principle was recently considered by the Federal Court in Winnebago Industries Inc v Knott Investments Pty Ltd (No. 4) [2015] FCA 1327.

The issue in this case was whether the holder of the Winnebago trademark in America was entitled to claim damages for passing off against Knott Industries based on the user principle – (liability for passing off being found by the Full Federal Court by virtue of Knott Industries using marks owned by Winnebago (but not registered as a trademark in Australia) in Knott’s business of manufacturing and selling recreational vehicles in Australia since 1978).

Damages were sought on the user principle rather than seeking a traditional account of profits because the Full Court had held that it would be extraordinarily difficult to ascertain what profits Knott had made as a result of trading on Winnebago’s reputation as opposed to trading on its own reputation given its long use of the marks.

After considering numerous authorities on the application of the principle, Yates J held that:

  1. damages could be awarded using the user principle for the tort of passing off; and
  2. previous licence arrangements entered into by Winnebago were relevant to determine the appropriate royalty or licence fee payable by Knott under the principle.

Importantly, in undertaking his review of cases, Yates J correctly distinguished the case of Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (In Liq) (2007) 157 FCR 564 (which held that the user principle was an appropriate method of assessing damages for copyright infringement) as only applying to copyright infringement cases.

Aristocrat and Winnebago were recently considered in Dallas Buyers Club LLC v IINet Limited (No. 5) [2015] FCA 1437 where Perram J noted that no evidence as to an appropriate royalty rate was led in Aristocrat and that this limited Aristocrat’s strength as an authority prohibiting the use of the user principle in copyright cases in any event.

Clients should therefore be aware that:

  1. it may be possible, on the strength of Winnebago, to obtain damages in cases of trademark infringement and for passing off even though you may be unable to prove damage or it is difficult to prove what profit the infringer has made through its infringement;
  2. the user principle may be applicable to copyright cases despite Aristrocrat if sufficient evidence of relevant royalty rates is led;
  3. past examples of licencing agreements will be relevant for the calculation of damages pursuant to this principle; and
  4. any settlement of claims for trademark infringement or passing off that involve licence fees should reflect the market value of the mark in question as they may later be referred to by a Court in order to calculate damages in actions against other infringers.

Cowell Clarke has experience in dealing with claims of trademark infringement and cases of passing off. Please contact us if you want to discuss this type of matter or any other trademark or branding related matter.

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