Deckers Outdoor Corporation Inc v Farley (No 5) [2009] FCA 1298

The dispute over liability for the sale of sheepskin boots featuring the "UGG" brand reached its final conclusion on 13 November 2009 when Justice Tracey handed down his decision on the last-remaining issues of copyright infringement, passing off and misleading and deceptive conduct in Deckers Outdoor Corporation Inc v Farley (No 5) [2009] FCA 1298. There had been a total of 23 respondents to the proceeding but a series of settlements and summary judgments had left Deckers Outdoor Corporation Inc to advance its claims only against Hepbourne Pty Ltd.

Justice Tracey held that copyright subsisted in Deckers' "UGG Logo" and its "sun device" and held that Hepbourne had both infringed and authorised the infringement of those copyright works on its "UGG" branded boots. His Honour also found that, based on Deckers' well-established reputation in the UGG brand, Hepbourne had engaged in passing off and misleading and deceptive conduct under ss52 and 53 of the Trade Practice Act 1974 (Cth) (the TPA). Compensatory damages were assessed at $3,000,000 and Justice Tracey ordered Hepbourne to pay $3,500,000 in additional damages for infringing conduct described as "one of the worst of its kind to come before the Court".

BACKGROUND

Deckers and its predecessor companies have designed, manufactured, marketed and sold sheepskin footwear under the "UGG" brand in Australia and a number of foreign countries for over 20 years.

In 2003 Deckers became aware that "UGG" branded boots were being made in a Melbourne factory owned by Hepbourne and sold in Australia and overseas. Deckers applied to the Court for urgent interlocutory relief and Hepbourne consented to orders restraining it from making or selling "UGG" branded footwear.

However, Hepbourne continued to make and sell its "UGG" branded boots throughout the years 2004-2007, notwithstanding the earlier Court order and a subsequent permanent injunction and settlement agreement which prevented Hepbourne from dealing with "UGG" branded footwear.

Late in 2007, Deckers discovered the ongoing activities of Hepbourne and applied for summary judgment on claims of trade mark and copyright infringement, passing off and misleading and deceptive conduct. In Deckers Outdoor Corporation Inc v Farley (No 2) [2009] FCA 256, Tracey J gave summary judgement on trade mark infringement but refused to give summary judgment for copyright infringement, passing off and misleading and deceptive conduct. His Honour held that elements of those causes of action needed to be dealt with by evidence at trial and they form the subject of his Honour's recent decision.

THE DECISION

Copyright infringement

Deckers claimed to be the owner of copyright in its "UGG Logo" (also a registered trade mark) and the "sun device" which formed part of that logo as shown here.  

Hepbourne denied copyright infringement and pleaded that the "sun device" lacked sufficient substance to constitute a copyright work. However, Justice Tracey held that that sun device was sufficiently complex to attract copyright protection because it was "plainly drawn with care, to obtain an effect" (citing Roland Corporation v Lorenzo & Sons Pty Ltd (1991) 33 FCR 111).

Hepbourne's sheepskin boots featured "UGG" and "australia" on their heels and "UGG" and the sun device on their soles. Hepbourne's packaging and marketing materials also used the "UGG australia" label and it distributed instruction cards and information booklets which were substantially identical to those distributed by Deckers. The boots were made in Hepbourne's factory and its sole director undertook, procured and oversaw the infringing conduct. Justice Tracey held that Hepbourne had both engaged in and authorised copyright infringement.

Passing off/Misleading conduct under ss52 and 53 of the TPA

To establish passing off, Justice Tracey noted that the "classical trinity" of reputation, misrepresentation and damage needed to be established (Conagra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302). In relation to the TPA provisions, his Honour said it was necessary for the Court to assess whether the conduct of Hepbourne was likely to mislead potential customers, regardless of their gullibility, intelligence or education (.au Domain Administration Ltd v Domain Names Australia Pty Ltd (2004) 207 ALR 521). His Honour did not, however, go on to refer to the case of Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at 84 in which the High Court noted the need to consider the likely effect of the misrepresentation on the "ordinary" or "reasonable" members of the relevant class of consumers. His Honour did note that it was not necessary for Deckers to establish that anyone was actually misled (Parkdale Custom Built Furniture Proprietary Limited v Puxu Proprietary Limited (1982) 149 CLR 191).

Deckers had conceded that the term "UGG boots" is used to describe a style of footwear, however it argued that the distinctive features of its boots distinguished them from the generic product and the Deckers get-up was associated with a particular level of quality or fashion. Deckers filed evidence setting out its sales and marketing activities, expenditure on advertising and promotion, and sales figures. The evidence satisfied Justice Tracey that Deckers had a well-established reputation in the get-up of its UGG boots.

His Honour found that the Hepbourne boots either replicated or closely resembled Deckers' get-up and this was a deliberate attempt by Hepbourne to mislead potential purchasers. In such circumstances, Justice Tracey inferred that the conduct was likely to mislead consumers and the TPA provisions had therefore been breached. The tort of passing off had also been committed because Hepbourne's conduct had caused damage to Deckers in the form of lost sales and diminished consumer confidence in Deckers' products due to the inferior quality of the Hepbourne boots.

Compensatory damages

Deckers adduced only limited evidence to quantify the damage it had suffered and there was no evidence from Hepbourne as to the quantum of its sales. The Court was nonetheless obliged to do its best to make a fair and just assessment of damages, even if a degree of speculation and guesswork were involved (Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 3 IPR 619.

To make its assessment, the Court estimated the number of infringing sales made by Hepbourne, the value of those sales, and the profit margin which Deckers would have secured on those sales. The Court then applied a discount factor to account for the possibility that not all of Hepbourne's customers would have purchased the genuine Deckers boots. Allowance was also made for the loss of goodwill to Deckers due to the inferior Hepbourne boots.

Justice Tracey then considered the amounts awarded against other respondents to ensure that Deckers would not "double dip" by obtaining compensation in excess of its loss. The sole director of Hepbourne had been ordered to pay Deckers $3,000,000. Justice Tracey made an order that Hepbourne was jointly and severally liable with the director for that amount.

Additional damages

Section 115(4) of the Copyright Act allows the Court to order additional damages where the conduct of the infringer is found to be particularly reprehensible. In this case, Hepbourne was found to have deliberately and flagrantly infringed Deckers' intellectual property rights over a number of years to Hepbourne's significant financial benefit and in breach of Court orders and terms of settlement. Hepbourne had shown a "contumelious disregard" of its legal obligations and Deckers' rights. Justice Tracey referred to the Court's unfettered discretion to fix the amount of additional damages and found that $3,500,000 was appropriate in this case.