The legal action brought by Deckers to try to restrain the infringement of its intellectual property rights in relation to its "UGG" branded footwear has culminated in the ordering by Justice Tracey of custodial sentences to punish contempt by three individuals who continued to make and distribute "UGG" branded footwear in breach of Court orders and undertakings given to the Court between 2003 and 2007.

As reported in the June 2010 edition of IP Update, the Court held that contempt charges were proven beyond reasonable doubt against Vladamir and Victoria Vaysman, two other individuals (one being Mr Vaysman's father) as well as two companies owned and operated by Mr Vaysman. On 24 June 2010 Justice Tracey handed down his decision on costs and penalties (other than for Mr Vaysman's father who successfully obtained an adjournment to prepare a plea).

In his decision, his Honour listed the considerations set out in Louis Vuitton Malletier SA v Design Elegance Pty Ltd (2006) 149 FCR 494 as relevant to the determination of an appropriate penalty for contempt and stated that the penalty was to serve both the interests of the Applicant and the administration of justice.

In relation to Vladimir Vaysman, his Honour noted that he had controlled the significant and highly profitable commercial operation that made, sold and distributed the counterfeit "UGG" boots. Mr Vaysman had acted with "contumelious disregard" of the Court orders and his undertakings and, rather than demonstrating any contrition, he had "continued to treat the curial processes with disdain". Justice Tracey found the conduct to be serious criminal contempt and one of the worst cases to come before the Court. In relation to Mr Vaysman's financial situation, he had entered voluntary bankruptcy after the substantial damages orders were made in September 2009. Although a sentence of imprisonment is a last resort for the Court, Justice Tracey found that nothing less would be appropriate. His Honour ordered concurrent terms of imprisonment for each of the 10 charges of contempt. The most serious offence was punished by a term of 3 years.

Victoria Vaysman had substantially admitted all charges against her but in May 2009 filed an affidavit which criticised her lawyers and suggested she resiled from some or all of those admissions. On the morning of the hearing, after receiving legal advice, Ms Vaysman filed another affidavit withdrawing the criticisms and offered apologies for her "wrongful behaviour". Both affidavits stressed the adverse impact that her imprisonment would have on her 4 year old daughter and set out her precarious financial situation. Justice Tracey weighed up the evidence and determined that a custodial sentence was appropriate, having regard to the conscious decision made by Ms Vaysman to participate in, and derive significant financial benefit from, her family's illegal conduct knowing that the conduct was in breach of Court orders. Notwithstanding her statements of remorse, Justice Tracey was also far from persuaded that Ms Vaysman appreciated the gravity of her misconduct. His Honour imposed concurrent terms of imprisonment for each charge, with a maximum term of six months. However Ms Vaysman was ordered to serve only two months with the remaining period suspended after taking into account her young daughter's circumstances.

Leonid Mykhalovski, who worked at the factory manufacturing the counterfeit boots, was found to have shown a "blatant disregard" of the Court orders and ordered to serve concurrent sentences of 1 month imprisonment for each of six charges.

Justice Tracey ordered the three individual Respondents to pay Deckers' costs on an indemnity basis.

Justice Tracey's decision, albeit in relation to unusually flagrant contemptuous conduct, reflects the seriousness with which the Court views contempt and the important role that penalties play in vindicating the authority of the Court. Imposing terms of imprisonment for contempt will undoubtedly act as a substantial deterrent to any infringer contemplating a continuation of infringing conduct in breach of a Court order or undertaking given to the Court.