On 21 July 2014 the Full Federal Court (Siopis, Rares and Katzmann JJ) delivered its judgment in the Kosciuszko Thredbo Pty Ltd v ThredboNet Marketing Pty Limited Appeal1. The Appeal was wholly unsuccessful and we look below at the reasons why and what this decision means for brand owners with geographical or descriptive brands. Additionally, we review some contrasting decisions and consider the benefit that a registered trade mark may provide brand owners faced with misuse of their geographical or descriptive brands.
The Primary Decision
For those unfamiliar with the original proceedings, that decision (of his Honour Justice Cowdroy) was reviewed in our Focus Paper of 31 January 2014, titled Australia’s Evolving Legal Position on Use of Other Trader’s Brands in Online Advertising2.
To briefly recap:
- The applicants (and appellants) to this dispute were Kosciuszko Thredbo Pty Limited (KT) and Thredbo Resort Centre Pty Limited (TRC) (collectively the KT Parties) who are related companies. KT holds a lease over land in the national park which area includes the Thredbo Village and associated ski resort (Thredbo Resort).
- The respondents are ThredboNet Marketing Pty Limited (TNM) and its director Glenn Smith (Smith) (collectively ThredboNet). ThredboNet runs an online business, which competes with KT and TRC by managing and leasing competing accommodation at the Thredbo Resort.
- The KT Parties and ThredboNet each used domain names containing the term Thredbo, as well as use of the word Thredbo in their brands and advertising, in connection with the Thredbo Resort. The KT Parties alleged such use by ThredboNet was misleading and deceptive and amounted to passing off. The primary Judge disagreed and the KT Parties failed in the original proceedings, save in relation to one particular website link being used by ThredboNet, which was found could reasonably have misled consumers.
- The trial Judge also determined that clauses contained in subleases held by Smith in relation to the Thredbo Resort properties were invalid and incapable of being read down, so the KT Parties also failed to establish any actionable breach of the Subleases by Smith.
The Key Issues in the Appeal
The KT Parties appealed Cowdroy J's decision and there were two primary matters dealt with in the Appeal.
The first was whether the KT Parties had effectively established a secondary meaning in the term Thredbo (and associated terms including Thredbo Village) (apart from its geographical connotation) as a brand associated with them and the Thredbo Resort. As a result, were consumers likely to be misled that the use of the term Thredbo by ThredboNet was actually use by, or associated with, the KT Parties.
The second issue related to the two subleases which Smith had entered into with KT in relation to properties at the Thredbo Resort (Subleases). In particular, the validity and practical effect of terms which purported to prevent Smith from using the term Thredbo.
Misleading and Deceptive Conduct
The KT Parties submitted that Cowdroy J had applied the wrong test in determining this issue, requiring the KT Parties to establish an exclusive right to use the word Thredbo in order to establish the secondary meaning for which they contended. The Full Court agreed that this was not the test and that Cowdroy J had fallen into error in requiring the KT Parties to prove such exclusivity and that:
The appellants did not have to establish that they had a right to use the word “Thredbo” to the exclusion of all others in order to establish the contraventions of ss 18, 29(1)(g) and (h) they complained of.3
Adopting the principles set out by the Full Court in the Cadbury Schweppes case4, the Full Court agreed that the question to be determined was whether the KT Parties could establish, on the facts, that ThredboNet's use of the term Thredbo misled or deceived, or was likely to mislead or deceive, consumers into believing that there was a relevant connection between the KT Parties and ThredboNet and their respective offerings.5
The Full Court observed that it is not whether an applicant has shown a sufficient reputation in a particular get-up or name. The question is whether the use of the particular get-up or name by an alleged wrongdoer in relation to his product is likely to mislead or deceive persons familiar with the claimant’s product to believe that the two products are associated, having regard to the state of the knowledge of consumers in Australia of the claimant’s product.
While the Full Court agreed that the trial Judge had asked the wrong question, as to the determination of whether the conduct was likely to mislead or deceive, they nevertheless agreed with Cowdroy J's ultimate determination. They did not consider that ordinary or reasonable members of the classes of consumers likely to be purchasers of the parties' goods or services would likely understand that any uses of the term Thredbo by ThredboNet would convey that they were dealing with the KT Parties.
The Full Court also considered the fact that Thredbo was a geographical name in NSW and that operators other than the KT Parties operated businesses at, or connected with, the Thredbo Resort did not support the KT Parties' position. The KT Parties were not entitled to a monopoly as to use of the word Thredbo in connection with accommodation at Thredbo Resort and the Full Court noted that:
Ordinarily, a trader is entitled to use a geographical name honestly and accurately unless that name has become distinctive of another’s goods or services and the trader is using the name to pass off its goods or services as those of the other. The respondents did not do that here.6
Ultimately in these sorts of cases, this determination will come down to the facts of the case and the relevant use. In this matter the Full Court had some limited evidence of confusion (which it said was not widespread or suggestive of reasonable consumers likely to be misled or deceived), and otherwise determined that the use made of Thredbo by ThredboNet would not have reasonably caused consumers to make the required association between ThredboNet and the KT Parties, by reason of such use. Factors weighing against the KT Parties’ contentions, canvased by the Full Court, included:
- That Thredbo was a geographical location;
- Use of disclaimers on ThredboNet's website at http://www.thredbo.com disassociating itself and its goods/services with the KT Parties;
- Differences in get up between the respective parties' websites and the fact that ThredboNet's website only offered a limited range of accommodation at, and information about, the Thredbo Resort;
- Evidence of a large number of other businesses using the term Thredbo in connection with goods and services unrelated to the KT Parties and limited evidence of confusion; and
- The view that ordinary reasonable consumers are now use to conducting internet searches and clicking a link expecting to find a particular business only to find another, but that this does not mean they will be misled. If they are concerned as to the source of their goods or products, they will make further inquiries.7
The KT Parties' claims as to misleading and deceptive conduct were rejected.
Restraint of Trade
The questions before the Full Court included whether the relevant clauses of the Subleases amounted to a restraint of trade; were unreasonable; and whether s4(3) of the Restraints of Trade Act 1976 (NSW) (Restraints Act) could (or should) save any part of the clauses as well as whether any breach had occurred.8
The critical clause of the Subleases read as follows:
4.3 NO USE OF THREDBO
The Sublessee must not use or permit the use of the word ‘Thredbo’ in connection with any business carried on by the Sublessee, without the prior written consent of [KT].9
Other clauses of the Subleases provided KT with an absolute discretion whether or not to grant consent and to impose conditions if they did so10.
Pursuant to section 4 of the Restraints Act, the Full Court had some ability to determine that a restraint was wholly or partially invalid, if it was against public policy and unreasonable.
The Full Court determined that Clause 4.3 restricted Smith as to the manner in which he carried on business from anywhere, prohibiting use of the word Thredbo in connection with any business he conducted. As such it was not operating as a restrictive covenant as to Smith's ability to use the leased premises, but as a restriction on how he could carry on business generally.11
The KT Parties contended that there were classes of contract in which clauses of this nature were an acceptable form of restriction. The Full Court did not agree with either parties' construction of Clause 4.3, as well as the meaning and effect of related clauses (including Clause 20 which governed the permissible use of the premises). Importantly, Clause 20 required Smith to make the premises available for holiday letting subject to his maximum 26 week permitted occupancy.12
Ultimately the Full Court's view was that the parties must have contemplated that Smith, in running this holiday rental business, would have to use the term Thredbo. Moreover a reasonable person in the parties' position would also have expected Smith to be free to advertise the holiday accommodation using the term Thredbo, including on the internet. As such, they would have also understood that the effect of Clause 4.3 would only be to restrain Smith from use of the term Thredbo outside of those permissible activities provided for in the Sublease.13 While the trial Judge had found there was a breach of Clause 4.3, he had not (in the Full Court's view) had Clause 20 directed to his attention sufficiently. The Full Court determined Smith was not in breach of the Subleases.
As to the issue of the restraint itself, the Full Court rejected the KT Parties' contention as to "some unspecific practice to include restraints like cl 4.3 in commercial leasing arrangements" and noted that:
It would be extraordinary to find, without cogent evidence of commercial usage, that it was a generally necessary and accepted incident of commercial leases in shopping centres and resort complexes that a lessee trader could not use the name of the centre or resort in any connection with its business without the lessor’s consent which the lessor was at liberty to withhold in its absolute discretion. We are not prepared to infer that such a commercially absurd restriction is reflective of a reasonable and business-like construction of cl 4.314.
The terms of Clause 4.3 of the Subleases (in the context of the Subleases as a whole) in this case were not accepted as commonplace in Australia, or to be treated as being an accepted part of a trading society. The Full Court noted that each restraint and its vailidity needs to be reviewed on its own facts and in the context of the lease or contract in which it sits as a whole.15
Based on the Full Court's construction of Clause 4.3 and the Subleases as a whole and finding that Smith would not be in breach, the issue of whether Clause 4.3 was an unreasonable restraint and if it could (or should) be read down pursuant to the Restraints Act did not require determination. Notwithstanding the finding that no breach had occurred, the Full Court went on to find that Clause 4.3 was void at common law.16
The Importance of Registered Trade Marks
The KT Parties did not have any registered trade marks on which they could rely in relation to the matters raised against ThredboNet. In other cases which have dealt with geographical or descriptive brands, where the brand holder had successfully obtained a registered trade mark, the results for brand owners have been more positive. Below are a couple of examples.
REA Group Case
In the REA Group Ltd (REA) v Real Estate 1 Ltd (RE1) case17 (also dealt with in our previous Focus Paper), claims by REA for misleading and deceptive conduct and passing off against RE1 also failed. The claims related to use by RE1 of similar brands to those of REA, for example REALESTATE.COM.AU vs REALESTATE1.COM.AU (in similar stylized forms). Both of these brands are descriptive because of their use of the term Real Estate and given that both conducted businesses in that area.
REA had, however, registered trade marks upon which it could also rely and RE1's similar brands were found to infringe. Justice Bromberg expressed some discomfort and reservations in REA having been given an effective monopoly over what he described as "two highly descriptive terms when used in combination". However absent any challenge to REA's registered trade mark, his Honour was nevertheless compelled to uphold it, given that RE1's use of its similar brands amounted to an infringement of those statutory granted rights.
Finally, focusing again on geographical terms, in the case of Mantra Group Pty Ltd (Mantra Group) v Tailly Pty Ltd (No 2) (Tailly)18, the Mantra Group was also successful in restraining use of the term CIRCLE ON CAVILL by Tailly, including as part of domain names and on websites (see our Focus Paper on this case, Strata-Titled Properties – When Use of a Building Name Can Infringe Registered Trade Marks – The Mantra Decision). The Mantra Group was the owner of a registered trade mark for CIRCLE ON CAVILL.
The dispute related to a strata-titled apartment called CIRCLE ON CAVILL and Mantra Group was the exclusive onsite letting agent and owner of the trade mark, including for various property management and leasing services.
Tailly also leased apartments in the block (from owners and through sublets) and had used the term Circle on Cavill and similar variations in a variety of domain names and on its websites. Mantra Group contended such use was misleading and deceptive as well as a breach of its registered trade mark rights. Mantra Group was successful in its trade mark infringement claim (the misleading and deceptive conduct case not being determined).
Importantly, Justice Reeves determined that the defence to trade mark infringement contained in s122(1)(b) of the Trade Marks Act (Cth) 1995, as to use of a term in good faith to indicate geographical origin of the services provided (in this case) did not apply. His Honour found that the word ‘geographical’ should be narrowly interpreted and referred to concepts of place such as country, state, region, city, town or suburb and did not include a privately owned residential complex or office building. This narrow interpretation could prove useful for brand owners who may own larger developments and resorts, but can argue that they are nevertheless not places of the type to which this defence was intended to apply.
On the facts of the case Justice Reeves was also not satisfied that use by Tailly was in good faith.
Ideally, it is never a good idea to choose a brand which is (or contains) descriptive words or a geographical location. However, if your brands do fall into these categories the cases above illustrate the difficulties which can be faced in restricting use by third parties of the same or similar brands, particularly through actions for misleading and deceptive conduct and passing off.
Obtaining registration of descriptive or geographical words or phrases as brands is not a simple task but it is possible, particularly if you have extensive use of the brand. There are also ways in which you can use the brand to give yourself the best chance of achieving registration in the future, as well as uses which will help to give your geographical or descriptive brand a more distinctive flavour (such as highly stylised logos).
Given that if trade mark registration is achieved, it may provide much broader protection than reliance on reputation based claims, it should be an option which is seriously considered and be part of your brand strategy from the outset.