Vaysman v Deckers Outdoor Corporation Inc [2011] FCAFC 17

Last year we reported on Justice Tracey’s findings that members of the Vaysman family were guilty of contempt after continuing to make and sell counterfeit "UGG" branded footwear in breach of Court orders made between 2003 and 2007. In a decision handed down recently, the Full Federal Court has declared the original custodial sentence to be excessive and has clarified the circumstances in which the Courts will order imprisonment of a person in contempt of its orders.

Background and the original imprisonment sentence

One of those found guilty of contempt at first instance was Josef Vaysman, whose son Vladamir controlled the significant and highly profitable operation which made and sold the infringing footwear. Vladamir was sentenced to 3 years imprisonment based on findings that he had committed serious criminal contempt and shown “contumelious disregard” for the Court orders. His father Josef Vaysman was also found guilty of contempt and sentenced to 18 months imprisonment, with the first 6 months to be served and the remainder of the sentence suspended on condition that he comply with the Court orders. The sentence of imprisonment was ordered despite evidence from Mr Vaysman and his doctors as to his age (74 years) and ill-health and the detrimental effect that imprisonment would have on him. Mr Vaysman appealed Tracey J’s sentencing judgment (but not the underlying findings of contempt) to the Full Federal Court.

The decision of the Full Federal Court on appeal

On 16 February 2011, Gray, Besanko and Bromberg JJ handed down separate judgments each allowing Mr Vaysman’s appeal. The Full Court by majority (Gray and Bromberg JJ) ordered that, firstly, Mr Vaysman pay a fine of $50,000, but secondly, that the time he had already spent in prison would be taken to have been served in lieu of paying the fine. Mr Vaysman had served around 50 days in prison before the Full Court ordered his release from custody after hearing the appeal. Justice Besanko, while also allowing the appeal against the orders made by Tracey J, would have imposed a sentence of 12 months and required Mr Vaysman to serve 4 months with the remainder of the sentence suspended.

Their Honours each found that the sentence imposed by Tracey J was manifestly excessive given Mr Vaysman’s age and health issues, his previous good character and the nature and circumstances of the contempts. Justice Gray was particularly critical of the first instance decision, holding that the judge's findings on the evidence did not support his conclusions as to the nature of Mr Vaysman's contemptuous conduct. Justice Gray said that he would have taken a much less serious view of the gravity of Mr Vaysman’s defiance of the court orders. When considering parity of sentencing, Gray J also said that he considered the terms of imprisonment imposed on Vladamir Vaysman and another defendant Mr Mykhalovski to be excessive, despite this not being a question for the Court (and not being the subject of any appeal by those defendants).

Gray, Besanko and Bromberg JJ each considered the previous cases in which the Federal Court had ordered imprisonment for contempt. Apart from three earlier cases involving significantly more serious conduct and a greater element of public protection, the Court had never imposed a sentence of more than six months for contempt. Their Honours emphasized that imprisonment must be regarded as the penalty of last resort and the court’s authority could be brought into disrepute, rather than enhanced, by punishing a case too severely. Rather than remit the matter to the primary judge, the Full Court elected to re-sentence Mr Vaysman.

Lessons for intellectual property owners

The decision sends a strong message that while the Federal Court clearly views contempt as a serious offence, imprisonment will only be ordered for extremely serious contempts, usually with an element of public protection, and where an alternative penalty such as a fine is inappropriate. In circumstances where the defendant is bankrupt, the Court indicated that it might nonetheless be appropriate to impose a fine with a term of imprisonment in default of payment after the defendant is given some substantial period of time to pay.