A time­ly reminder about cal­cu­lat­ing com­pen­sa­tion claims in IP infringe­ment cases

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In brief

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.

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Ini­tial trial

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”.

Sec­tion 115(4)

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.

Result

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 [2012] FCAFC 9

For fur­ther infor­ma­tion, please con­tact us.

Authored by M Hall.