Verrocchi v Direct Chemist Outlet Pty Ltd [2016] FCAFC 104

The Full Federal Court has dismissed an appeal by Mario Verrocchi and Jack Gance (the appellants), co-owners of the Chemist Warehouse business and found that Direct Chemist Outlet (DCO) had not engaged in misleading and deceptive conduct.

The background to the appeal was that the appellants and DCO are direct competitors and the appellants alleged that DCO had engaged in misleading and deceptive conduct by adopting a similar get-up and colour scheme on their pharmacy storefronts which was likely to cause consumers to be misled into believing that the pharmacies were related.

The appellants’ stores looked like this:

The primary judge, Middleton J, dismissed the misleading and deceptive conduct claim and found that the colour yellow was a colour commonly used by retailers for various reasons including to denote value and for visibility reasons, that the appellants’ branding devices lacked uniformity and consistency in design and layout and that DCO had sufficiently distinguished their trade indicia.

The Full Court considered each of the 19 grounds of appeal in detail and found that Middleton J had not erred in his findings. In particular the Full Court agreed with the primary judge’s finding that the appellants’ use of the primary (yellow, red and blue) colour palette was not distinctive and had a functional aspect:

“…no error has been shown in his Honour’s findings that the primary colour palette used by Chemist Warehouse was not distinctive. First, there was considerable variability in the nature of the Chemist Warehouse get-up. The primary judge distinguished other authorities where secondary branding had been accepted on the basis of a consistent presentation of colours in a particular juxtaposition. Second, the colours had a functional aspect. Colour can be used for its practical or functional utility, for example, high visibility for a road sign. In the present case his Honour appears to have accepted that the colour yellow was used to take advantage of the attributes of visibility and its association with discount value; but such a function could apply to any type of discount goods, not just pharmacy goods. The use of yellow to create the so-called “yellow box” was also to draw the attention of potential consumers on the street; it cannot be said that the use of the colour yellow in that way denoted trade origin. His Honour accepted the functionality of yellow (see at [9], [10], [12], [14] and [100]). He also accepted that the yellow, blue and red combination served a functional purpose (see at [240]).”

The appellants argued that the fact that the colour yellow was used by other stores like JB Hi-Fi and Ted’s Camera’s should not be relevant as to whether its use on pharmacies was distinctive and argued that ‘predominant use of a yellow background on a pharmacy storefront had never been done prior to the appellant’s usage, was rarely done for other retailers and was not necessarily associated with “cheapness”’. The Full Court did not agree and found, quite correctly in our view, that it was irrelevant whether the appellants were the first “predominantly yellow pharmacy or yellow, blue and red pharmacy”. It was clear on the facts that these colours are commonly used by other discount retailers in a similar fashion and the mere fact that the appellants were the first to use functional colours does not entitle them to claim a monopoly.

“Primary colours such as yellow, blue and red are commonly used in high visibility street signs. Discount retailers use these colours to grab attention and the presence of yellow communicates that the products are low priced items. But, as his Honour correctly found, such colours do not denote trade origin. They have more of a functional quality as his Honour rightly discussed at [9], [10], [12], [100] and [240] of his reasons. Again, the appellants’ arguments rise no higher than mere assertion, rather than identification of error on his Honour’s part.”

The Full Court also agreed with Middleton J’s view that the relevant date for assessing the alleged misleading or deceptive conduct was when DCO first commenced use of the get-up on 26 May 2006, some eight years prior to the litigation commencing between the parties. The appellants argued, in the alternative that a geographical approach should be followed which would assess the appellants’ reputation in each area as at the date that DCO opened each individual store. However, Middleton J found that following this approach would not have changed the result and the Full Court agreed with this approach.

Turning to the intention required, the Full Court pointed out that, although it was not necessary to show an actual subjective intention to mislead, in a border line case, proof of such intention could well lead to the inference being drawn that there was such a deception (Australian Woollen Mills Ltd v FS Walton (1937) 58 CLR 641 at 657. The court also observed that there is a distinction between an intention to copy and an intention to deceive. For the inference identified in Australian Woollen Mills to arise, intention to deceive must be established. The Full Court found that the DCO had the intention to copy but not an intention to mislead.

In summary, none of the appellants’ grounds of appeal were found to be made out and the appeal was dismissed.

The lesson from this decision is that colours can be both functional and descriptive and are commonly used as marketing tools. Brand owners should adopt targeted plans if they intend relying on rights in a specific colour or a colour combination, particularly if these colours are commonly used by others in the marketplace.