Scandinavian Tobacco Group Eersel BV v Trojan Trading Company Pty Ltd [2015] FCA 1086 (9 October 2015)

Scandinavian Tobacco Group Australia Pty Ltd (STG Australia) is an authorised distributor of both handmade and machine-made cigars sourced from a Danish company, Scandinavian Tobacco Group Eersel BV (STG).

STG Australia manages marketing, promotion, and importation of STG’s goods within Australia. All imported tobacco material must repackaged in order to comply with Australia’s plain packaging law for tobacco products, called the Tobacco Plain Packaging Act 2011 (TPPA) for tobacco products to be sold in khaki, unattractive packaging. The legislation also requires the inclusion of large health warnings in specific locations on the boxes containing tobacco products, as well as graphic pictures of diseased body parts and the occasional toe-tagged corpse, all a consequence of smoking.

Trojan is a parallel importer of cigars, including several of STG’s products with brands such as CAFÉ CRÈME, HENRI WINTERMANS and LA PAZ. Trojan is a parallel importer of cigars. Trojan bought stock in Europe in their original packaging. Trojan then unpacked and repackaged the cigars into new TPPA-compliant packaging, bearing STG’s trade marks in plain font and type size as required by the TPPA. The court noted, “Given that Trojan admits to subsequently re-packaging the imported products for compliance with the plain packaging laws for on-sale, it may be inferred that the original packaging was non-compliant [with the TPPA] in this regard.”

Trojan also identified itself as a distributor of STG products by using the same barcodes that were originally used by STG, as well as advertising the products on its website using STG’s trade marks.

This was all done without the consent or control of STG.

The actual process for repackaging cigars is fascinating, and is the equivalent of a medical procedure. If you are an avid reader of the magazine Cigar Aficionado (and yes there is such a publication), you would know that cigars are sensitive to environmental conditions and are meant to be stored in expensive humidifiers. As it turns out, cigars are also packaged with extreme care. Here is a summary of the process of re-packaging from the judgment:

  • The repackaging rooms are humidity and temperature controlled.
  • Repackaging occurs on a “single produce at a time” basis so that different tobacco products are not located in the repackaging room at the same time.
  • Prior to commencement of repackaging, the compliant packaging is laid out in the repackaging room ready for use.
  • Usually between 8 to 12 employees are used for repackaging, depending on the volume. All employees are required to wear gloves, hairnets, facemasks and aprons.
  • Each employee has…  designated tasks. Those tasks are generally described as involving unwrapping “outers” (bulk packaging of a number of retail packets / tins) opening retail packaging, removal of the tobacco products, replacement of missing or damaged items with the same product sourced from the same batch, placement of the tobacco products into compliant retail packaging, grouping retail packets into “outers”, shrink wrapping the “outers” and placement of the repackaged goods back into stock.

STG and STG Australia filed a Federal Court application for an injunction against Trojan. STG alleged that Trojan infringed STG’s trade marks for the word marks CAFÉ CRÈME, HENRI WINTERMANS and LA PAZ, had engaged in misleading or deceptive conduct in breach of the Australian Consumer Law (ACL), and engaged in the tort of passing off. The injunction sought to prevent Trojan from using the trade marks in the new packaging and associated promotional content.

STG alleged that retailers and consumers who seek out the products could misconstrue Trojan’s repackaged cigars as products authorised for importation, when in fact the trade marks were used without STG’s consent or prior knowledge.

The court handed down its decision on 9 October 2015. The bulk of the judgment concerns trade mark law issues (the court quickly disposed of the arguments relating to the ACL and passing off).

Authorised user

One of the arguments raised by Trojan was that the wording of the distribution agreement between STG and STG Australia should be construed as preventing STG Australia from bringing proceedings as an “authorised user”.

Section 26 of the Trade Marks Act 1995 (TMA) allows distributors and licensees to bring proceedings for trade mark infringement:

“i) at any time, with the consent of the registered owner; or

 (ii) during the prescribed period, if the registered owner refuses to bring such an action on a particular occasion during the prescribed period; or

(iii) after the end of the prescribed period, if the registered owner has failed to bring such an action during the prescribed period;

...

(2) If the authorised user brings an action for infringement of the trade mark, the authorised user must make the registered owner of the trade mark a defendant in the action. However, the registered owner is not liable for costs if he or she does not take part in the proceedings.

This applies provided that there is no agreement between the trade mark owner and the distributor. (Often, out of prudence, section 26 of the TMA is expressly excluded in Australian distribution agreements or licensing agreements: trade mark owners do not want distributors running about in Australia commencing proceedings and doing the other things permitted to them as authorised users.)

The court found that the operation of the agreement between STG and STG Australia “does not have that effect of preventing suit. Secondly, even if the words of the agreement were to be construed as contractually preventing STG Australia from suing, I would infer from the facts before me that the parties have agreed otherwise thereafter.

It is a shame that clause 8 of the distribution agreement was not reproduced in the judgment, as a guide to lawyers who draft trade mark licensing agreements so better avoid or adopt certain types of wording.

The TPPA

The court did not go into the detail of what the TPPA requires tobacco-related trade mark owners and their licensees to do, other than to give this summation:

Section 18 of the TPP Act deals with the physical features of retail packaging. Some examples are that there must be no decorated ridges, embossing etc: s 18(1)(a); glue must not be coloured: s 18(1)(b); the pack must be cardboard, rectangular without rounding or bevelling, with straight edges: s 18(2); the pack must have certain dimensions, with a flip top lid with straight edges: s 18(3). Section 19 deals with colour and finish of retail packaging. All outer and inner surfaces and the lining of the pack must be of matt finish and in “drab dark brown”, except the health warnings and the text of the brand, business or company name or variant name. Section 20 prohibits trade marks and marks generally appearing on retail packaging. Except as provided by s 20(3), no trade mark may appear anywhere on the retail packaging of tobacco products: s 20(1) of the TPP Act. Also except as provided by s 20(3), no mark (defined as including any line, letters, numbers, symbol, graphic or image) may appear on any retail packaging of tobacco products: s 20(2). By s 20(3), the following may appear on the retail packaging of tobacco products:

  1. the brand, business or company name for the tobacco products, and any variant name for the tobacco products;
  2. the relevant legislative requirements;
  3. any other trade mark or mark permitted by the regulations.

As an aside, with the branding carve-out set out in s20(3) of the TPPA firmly in mind, since the TPPA was introduced, tobacco companies (and in particular, Phillip Morris) have been filing plain word marks with an abundance of exuberance.

Parallel Importation

The court touched upon the current state of play in Australia around parallel importation and followed superior courts’ decisions upholding that a trade mark owner’s rights in respect of parallel importation are not exhausted after sale. But the judge did not seem entirely comfortable about it:

“The notion that there is infringing use as a trade mark by dealing in goods bearing the mark in circumstances that indicate a connection between the goods and the registered owner has a degree of counter-intuitiveness….  It is, however, not for me to question the proposition that … the mere sale of goods already marked by the registered owner (a fortiori if a mark is applied by someone other than the registered owner) would be an infringing use of the mark by the importer. Four Full Courts can be seen so to have said in the context of the Act.”

Consent

The court agreed that the act of repackaging and reselling the goods already marked by the applicant was an infringement, if it occurred without the consent of the registered owner.

But the court affirmed that there could be no infringement if Trojan relied upon consent under s123 of the TMA. The relevant passage of this provision reads as follows:

“…a person who uses a registered trade mark in relation to goods that are similar to goods in respect of which the trade mark is registered does not infringe the trade mark if the trade mark has been applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark.”

STG Australia argued in essence that the plain word marks were not been applied to the cigars with the consent of STG, but rather were applied by Trojan without consent.

Trojan argued that the cigars themselves featured the word marks. So, the goods had the trade mark applied to them by STG. Accordingly, Trojan is free to apply the trade marks in relation to the cigars by placing them on the packets and using the trade marks by selling the goods and doing the associated activities involving invoices and so on.Consent obviously means both express and implied consent.

Trojan’s argument makes intuitive sense to anyone who has ever worked in a retail shop, and this was something the judge explored by analogy in the context of the sale of ties. A tie can be removed from a box, placed in a shop window, and the retailer can use the tie’s brand in both promoting the tie and for use on invoices. The court said:

The natural reading of s 123 is one that looks to (a) the use of a trade mark in relation to goods (b) the similarity of the goods to those in respect of which the trade mark is registered (c) an enquiry whether the trade mark has been applied to, or in relation to, the very goods as in (a); and (d) whether that application was with the consent of the registered proprietor. If one undertakes that enquiry, one finds that Trojan has used the trade marks in relation to cigars, being goods the same (and so similar: s 14(1)(a) of the Act) as those in respect of which the trade mark is registered, and the trade mark has been applied in relation to those very goods with the consent of the owner at the time of original packaging.

The same argument of implied consent applies to any number of types of goods which are pre-packaged and removed from the packaging for display and promotion. A quick straw poll of our office produced a variety of intriguing responses in respect of goods of this nature: shoes, expensive pyjamas, lingerie, expensive pens, expensive hats, handguns, and anything from Tiffanys.

No doubt trade mark owners are now busy novating their contracts of supply to expressly exclude consent, so as to close this gap for parallel importers.