By: Melinda UptonJessie Buchan, Valiant Warzecha, and Alexandra Moore 

The Federal Court of Australia (FCA) recently handed down its decision in the case that all Australian burger lovers have been eagerly watching – infringement proceedings brought by US burger chain, In-N-Out Inc. (INO), against Sydney based burger chain, Hashtag Burger Pty Ltd, trading as D#wn-N-Out (DNO).

Having regard to overwhelming evidence, the court found for INO on all grounds – namely, that DNO had infringed the “IN-N-OUT BURGERS” trade mark, engaged in misleading and deceptive conduct under the Australian Consumer Law (ACL) and satisfied the tort of passing off.

Unfortunately for DNO, the FCA’s decision is likely to mean a re-brand and payment of substantial damages and costs.  However, the case also usefully highlights a number of considerations for foreign brand owners (particularly food businesses) considering entry or enforcing their IP rights in Australia.

Key Takeaways

 The key takeaway from this case are:

  1. businesses should not select brands as a “homage to”, based on inspiration from a well-known brand or intended to trade off a third party’s reputation;
  2. foreign brand owners should take steps to register trade marks in Australia as soon as possible, even if they do not have a local presence or immediate plans to enter.  Foreign brand owners should also proactively monitor and enforce their rights in the market – where appropriate;
  3. in circumstances where a foreign brand owner doesn’t have registered trade mark rights in Australia, it can be found to have reputation in Australia through its trade in other countries;
  4. business record keeping and social media related evidence have an important role to play in trade mark infringement proceedings; and
  5. Australian courts have the power to make suppression or non-publication orders to protect commercially sensitive or confidential business information that is filed as part of evidence in infringement proceedings i.e. annual revenue, total sales merchandise revenue.

Background

INO’s claims against DNO related to conduct commencing in June 2015, when a pop-up burger event was held at an inner-Sydney pub promoted by express reference to INO. In May 2016, DNO launch a new Sydney pop-up called “DOWN-N-OUT” with signage designed to match “In and Out branding” and accompanied by a media release entitled “SYDNEY’S ANSWER TO IN-N-OUT BURGERS HAS FINALLY ARRIVED!”

Despite visual changes to DNO signage overtime, the business continued to trade under the name “Down-N-Out”, offer menu items that mirrored INO (e.g. a “secret menu”, and “Animal Style” and “Protein Style” burgers), promote itself on social media, and conduct pop-up stores including on Queensland’s Gold Coast and at two additional sites in the greater Sydney area.

Issues

 INO put on evidence to demonstrate that DNO had deliberately branded itself to create a perceived affiliation with INO for its own commercial advantage.  The court agreed and found for INO on the following grounds:

Trade mark infringement

To prove infringement under Section 120 of the Trade Marks Act 1995 (Cth), INO was required to establish that DNO was using marks that are deceptively similar to the “IN-N-OUT BURGER” marks (INO Marks) registered in Australia, with respect to the same or similar goods and services. The only contested issue for this ground was whether “DOWN-N-OUT” and variations such as “D#WN-N-OUT” (DNO Marks) were “deceptively similar” to the INO Marks such that they were likely to deceive or cause confusion among burger consumers in Australia.

The FCA considered that the words “IN-N-OUT” were the essential feature of the INO Marks. Looking to the overall impression, the aural similarities between “Down-N-Out” and “In-N-Out” and the directional function of the words “in” and “down”, the FCA concluded that DNO had infringed the INO Marks because persons with an imperfect recollection of the INO marks might be caused to wonder whether “a burger restaurant called DOWN-N-OUT was IN-N-OUT BURGER or was in some way related to it” (see [155]).

ACL and “Spillover Reputation”

INO alleged that DNO had breached the ACL by making false representations to consumers, including that there was an association between it and INO. However, because INO did not have any established outlets in Australia, it was necessary to demonstrate to the court that it’s overseas reputation had ‘spilled over’ into the Australian market – without this evidence, INO could not establish that Australian consumers were capable of being misled by DNO.

The spill over evidence led by INO included:

  • local media mentions of the US burger chain dating back to 2006, which promoted the brand and encouraged Australians to try the products when in the United States;
  • the prominent positioning of its Californian outlets in high traffic tourist areas such as LAX and Anaheim, as well as statistics on short term departures from Australian airports to the United States; and
  • statistics relating to the widely publicised and highly popular pop-up events INO had held in Australia over a number of years, and at which its marks and branding were prominently displayed.

The FCA accepted that INO had sufficient reputation in Australia amongst the relevant class of consumers at the time of DNO’s conduct, and concluded that DNO had engaged in misleading and deceptive conduct.

In reaching the conclusion that a “not insignificant number” of consumers were likely to be led into thinking that there was some kind of association between the two brands, the FCA observed that:

  • the term “Down Under” is widely considered to be connected to Australia, therefore use of the word “Down” in this context might lead consumers to think that DNO was an Australian branch of INO;
  • use of known INO menu features (e.g. the “secret menu”) would have likely added to a sense of confusion or affiliation between the two brands; and
  • because members of the relevant class of Australian consumers might not have visited an INO restaurant, the physical differences between DNO and INO restaurants were not relevant.

Passing off

INO also claimed that DNO had committed the tort of passing off.  To succeed on this basis, INO needed to establish that:

  • INO had acquired reputation in its goods and services;
  • DNO had made a misrepresentation leading to deception or confusion; and
  • INO had or would suffer actual damage as a result of DNO’s misrepresentation(s).

The FCA found that INO’s reputation in Australia was “a real commercial position or advantage” and, in reliance on the “user principle”, it was entitled to damages – under this principle damages are assessed on the basis of a reasonable fee for the wrongful use of the proprietary rights in the business’ reputation.

Record keeping and suppression orders

Notably, in an unopposed application, INO was granted suppression (or non-publication) orders under section 37AG of the Federal Court of Australia Act 1976 (Cth) in respect of commercially sensitive revenue figures used in evidence. In granting the orders, the FCA accepted INO’s arguments which included the submission that disclosure of commercially sensitive information would operate as a disincentive to bring future legal proceedings in Australia.

The matter is due in court shortly for a further hearing on the question of remedies and costs.

For advice on brand protection and enforcement, and food regulation in Australia, please contact Melinda Upton, Jessie Buchan and Valiant Warzecha.