A timely reminder about calculating compensation claims in IP infringement cases
Recently, the Full Court of the Federal Court of Australia handed down its decision in Facton Ltd v Rifai Fashions Pty Ltd involving the importation into Australia and sale of counterfeit G‑STAR branded clothing and accessories.1
The case provides a useful discussion on the law of damages for counterfeit goods and is a timely reminder of the importance of carefully drafting any claims for damages, and carefully assessing which claims for compensation are likely to produce the most beneficial result.
At first instance, the respondents admitted all claims of offending conduct and so the Court made declarations that both respondents had infringed the applicants’ trade marks, infringed the applicants’ copyright and engaged in passing off and misleading and deceptive conduct. The respondents were ordered to pay the compensatory damages under section 115(2) of the Copyright Act of $9,213 (to reflect the damages suffered by reason of the sale of the counterfeit goods) and additional damages under s115(4) of the Copyright Act of $11,000 (to reflect the profits made by the respondents in the sale of the counterfeit clothing).
However, the Court did not award any damages for loss of reputation, holding that the applicants failed to identify the value of the reputation or goodwill concerned and the damage suffered as a result of the infringing conduct, as they did not lead any evidence on those issues. Without that evidence, the Court had no capacity to measure loss of reputation.
Exemplary damages for passing off were also not awarded, because the respondents’ conduct did not constitute one of those “rare occasions” where an award of exemplary damages was appropriate because it was “not wanton, there was no malice or insolence or the like disclosed”, despite finding that the conduct was both “knowing and deliberate” and that there was a conscious disregard for the applicants’ rights.
Appeal to Full Federal Court of Australia
The rights holders appealed the decision to the Full Court. On appeal, the Full Court was asked to consider whether the trial judge erred in deciding:
- not to award exemplary damages for passing off;
- not to award general damages for loss of reputation pursuant to s115(2) of the Copyright Act 1968;
- to limit the additional damages award under s115(4) of the Copyright Act 1968.
On appeal, the Full Federal Court noted that if the appellants receive both compensatory damages and additional damages under s 115 of the Copyright Act, they should not receive any further damages, including exemplary damages, for the passing off. Accordingly, having determined that the appellants should receive an award of compensation under sections 115(2) and s115(4), the Court did not regard it as necessary to consider the claim for passing off or the appellants’ claim for exemplary damages. It was only necessary to address the appellants’ claims under section 115 of the Copyright Act.
Section 115 of the Copyright Act
The purpose of an award under s 115(2) “is to compensate the plaintiff for the loss which he has suffered as a result of the defendant’s breach”. It allows for damages or an account of profits to compensate the owner for the loss suffered or for the profit made. Consequently, a copyright owner who has obtained an award under s 115(2) will have been fully compensated by way of damages or by an account of profits, and would therefore not be entitled to any further compensation.
According to the Court, the appellants advanced a flawed case, in which they sought both damages and an account of profits by claiming the profits made by the respondents as additional damages. It was not open to the Court to award compensation for loss or damage and also award a further sum that represents the profits made by the respondents, pursuant to s115(4).
Damages for loss of reputation
The majority of the Full Court held that a copyright owner’s “loss of reputation sounds in compensatory damages and may be awarded under s 115(2) of the Copyright Act if the evidence justifies such an award”. The Court held that the evidence did in fact justify an award of reputational damages under s 115(2) as the appellants had adequately established a reputation in Australia in relation to their trade marks, brand and goods. In particular, the trial judge acknowledged that “the brand would be diminished by the sale of counterfeit items, and that customers would be lost because the goods are no longer considered exclusive”.
In assessing damages for infringement, section 115(4) allows the Court to award such additional damages as it considers appropriate in the circumstances having regard to the flagrancy of the infringement, the need to deter similar infringements, the conduct of the respondent after the act constituting the infringement, any benefit shown to have accrued to the defendant by reason of the infringement and any other matters. The provision is directed to both aggravated and exemplary damages. However, the trial judge erred in calculating additional damages under s115(4) by reference to respondents’ profits.
In determining the additional damages to be awarded under s 115(4), the Court held that the respondents’ flagrant disregard of the appellants’ rights in infringing the copyright, the respondents’ breach of the respondents’ own undertakings, the respondents need to be deterred from similar conduct and the respondents’ conduct after and during the proceedings, ought to be taken into account, and the award must be tailored to reflect those circumstances.
The amount of damages awarded by the trial judge was set aside. The respondents were required to pay the appellants damages in the sum of $14,213 and the second appellant additional damages in the sum of $25,000, together with the costs of the trial and the appeal.
1Facton Ltd v Rifai Fashions Pty Ltd  FCAFC 9
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Authored by M Hall.