Australian courts have shown an increased willingness to award additional damages in the context of intellectual property infringement. Two recent decisions in particular have dealt with the award of damages in the context of design, copyright and trade mark infringement.

The decision of the Federal Circuit Court in Ahiida Pty Ltd v JB Trading Group Pty Ltd [2016] FCCA 3146 concerned design infringement relevant to the Islamic swim suits known as a Burquini or Burkini (the Burkini decision), while the Federal Court decision in Geneva Laboratories Limited v Prestige Premium Deals Pty Ltd (No 5) [2017] FCA 63 concerned the production and sale of counterfeit skin-care product Bio-Oil, giving rise to trade mark and copyright infringement, as well as contravention of the Australian Consumer Law (the Bio-Oil decision).

In both cases, damages for lost profits and loss of reputation were sought, along with additional damages.

In general, it is the nature of additional damages to punish the infringer and deter similar conduct, rather than strictly compensate the rights holder for loss suffered. The award of additional damages is highly discretionary, and in Australia there is no principle that any sum awarded should be proportional or comparable to the compensatory damages award.[1] Among other considerations, the flagrancy of infringing conduct is typically taken into account in deciding whether to award additional damages.

In a recent commentary[2] on remedies in intellectual property disputes, Justice Yates of the Federal Court noted that although the provisions enabling the award of additional damages under the Copyright Act 1968 (Cth), Trade Marks Act 1995 (Cth), Designs Act 2003 (Cth) and Patents Act 1990 (Cth) are phrased in somewhat different terms, there should be uniformity in the approach to assessing and awarding additional damages under each of these Acts. Please see here our discussion of additional damages in the context of patent infringement.

The Burkini decision

It had previously been found that JB Trading Group Pty Ltd had infringed two registered designs held by Ahiida Pty Ltd in relation to Islamic swimsuits which Ahiida sold under the trade mark Burquini or Burkini. JB Trading had imported and offered for sale two swimsuit sets said to embody those designs.

The claim for lost profits

The claim for lost profits was unsuccessful on the basis that there was no evidence that any purchaser of an infringing swimsuit would otherwise have purchased Ahiida's product. It was held that merely showing that JB Trading, as the infringer, had sold infringing product of a certain volume did not establish that but for those infringing sales, Ahiida, as the rights holder, would have sold the same amount of stock.

The claim for loss of reputation

Ahiida argued that the mere existence of the infringing product in the marketplace damaged the reputation and goodwill in the Burquini/Burkini product, particularly given the (apparently) inferior quality of the infringing product and the alleged misrepresentations made as to its Australian origin.

However, Ahiida failed to lead evidence in support of these allegations, with the court finding that there was no evidence:

  • that the reputation in the Burquini/Burkini brand had been damaged by the commercially insignificant sales of JB Trading;
  • that the designs had been featured prominently in local or international media so as to establish a significant reputation; and
  • that any purchaser of the infringing product had made their purchase under the mistaken impression that they were buying a garment of the Burquini/Burkini brand.

Consequently, the claim for damages for loss of reputation failed.

The claim for additional damages

Ahiida sought additional damages in the order of $150,000 on the basis that JB Trading, despite being on notice of Ahiida's rights, elected to infringe the designs by continuing to sell the infringing product.

The court found that Ahiida did not properly place JB Trading on notice of its rights, as despite notifying JB Trading of its registered designs, it did not particularise how its conduct might be infringing.

However, the court held that, in general, a new trader entering a market has a responsibility to inform itself of the registered rights of its competitors, and what limitations those rights may place on its own operation within the market.

It was this failure on JB Trading's part to make such enquiries that lead the court to describe its conduct as "cavalier", although falling short of flagrant. In the circumstances however, the court awarded additional damages of $20,000 'to reflect appropriate penalty and deterrence’.

The Bio-Oil decision

Prestige Premium Deals Pty Ltd was found to have contravened the Copyright Act, the Trade Marks Act and the misleading or deceptive conduct provisions of the Australian Consumer Law (as well as other state based consumer law provisions) by virtue of the importation and sale of counterfeit Bio-Oil.

The counterfeiting scheme was described as a sophisticated operation which presented a protracted and planned attack on the intellectual property rights of Geneva Laboratories Limited, the owner of the intellectual property concerning Bio-Oil in Australia.

The claim for lost profits

Here the applicants were able to demonstrate that every sale of the counterfeit product was a lost sale of the genuine product, and direct compensatory damages were awarded on this basis in the sum of $425,000.

The claim for loss of reputation

Despite there being no evidence of reputational damage resulting from the inferior quality of the counterfeit product in the eyes of the end-consumer, it was held that an inference of reputational damage could nevertheless be drawn as a consequence of the widespread knowledge of the counterfeit product within the pharmacy industry. In these circumstances, the Court awarded $50,000.

That is, the fact of widespread counterfeiting was found to be inherently damaging to Geneva's reputation. This was particularly so given the product concerned was a healthcare product routinely recommended by doctors to patients including pregnant women.

The claim for additional damages

Additional damages of $30,000 were sought under the Copyright Act and Trade Marks Act.

Despite the fact that, as described above, there is no need for additional damages to be proportional to compensatory damages, the court noted that there is nothing to indicate that proportionality would be a 'forbidden benchmark'.

The highly discretionary nature of additional damages gives rise to the fact that precise mathematical calculation or detailed legal justification is generally unattainable.

In these circumstances, given the flagrancy and scope of the infringing conduct, the substantial need to punish and deter, the behavior of Prestige Premium following detection of the scheme, and the substantial financial gain the infringers were set to obtain, the court awarded additional damages of exactly half the compensatory damages award (approximately $212,000). The Judge noted that the compensatory damages sum was a useful yardstick and provided a coherent rationale for the figure arrived at.

Key lessons

  • These decisions serve as a useful reminder that the court will not readily find that the sales of an infringing product necessarily represent the lost sales of an original brand. Specific evidence of any such interchangeability must be put forward.
  • The court may be more likely to award damages for lost reputation where the product complained of is counterfeit (and thus involves a direct and deliberate misappropriation of intellectual property) and is sold in a context where unauthorised or unregulated imitation may give rise to consumer safety concerns.
  • The court is prepared to award additional damages even where the applicant has been unable to establish on balance that damage warranting a compensatory award has occurred.
  • Entering a competitive market without taking steps to inform yourself of the rights of your competitors is conduct which may give rise to the award of additional damages against you, even if you did not deliberately infringe your competitor's rights, or did not do so to a commercially significant extent.
  • The award of additional damages is highly discretionary and is heavily linked to the conduct of an infringer, both before and after they are notified of the infringing nature of their activities.