G-Star Raw Denim KFT & Anor v Urban Culture Pty Ltd & Anor [2009] FMCA 1317 (9 December 2009)

Last Updated: 22 January 2010

FEDERAL MAGISTRATES COURT OF AUSTRALIA

G-STAR RAW DENIM KFT & ANOR v URBAN CULTURE PTY LTD & ANOR

[2009] FMCA 1317

COPYRIGHT – Breaches of copyright – counterfeit garments – damages – damages for loss of reputation – additional damages – proceeding undefended – conduct of respondents – award for damages made for $90,727 – injunctions and declarations made – costs.

Copyright Act 1968, ss.115(2), 115(4) Federal Magistrates Court Rules 2001, rr.13.03A(2)(vii), 13.03B(2)(c) & (d) and 13.03C(1)(e)

Amalgamated Mining Service Pty Ltd v Warman International Ltd [1992] FCA 542; (1992) 24 IPR 461 Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (In Liquidation) & Ors [2007] FCAFC 40; (2007) 71 IPR 437 Bailey v Namol [1994] FCA 1401; (1994) 30 IPR 147 Crimson SRL & ANOR v Claudia Shoes Pty Ltd and Ors (No.7) (2008) ASAL Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd FCA 633 Foxtel Management Pty Ltd & Anor v Mod Shop Pty Ltd [2007] FCA 463; (2007) 72 IPR 1 Fraserside Holdings & Anor v Venus Adult Shops & Ors [2005] FMCA 997 Microsoft v Goodview (2000) 49 IPR 578 Microsoft Corporation and Others v PC Club Australia Pty Ltd and Others [2005] FCA 1522; (2005) 67 IPR 262 Milpurrurru and Others v Indofurn Pty Ltd and Others (1994) 30 IPR 209 Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd and Anor [2008] FCA 74 Review Australia Pty Ltd v New Cover Group Ltd [2008] FCA 1589

First Applicant:

G-STAR RAW DENIM KFT

Second Applicant:

G-STAR AUSTRALIA PTY LTD (ACN 084 011 852)

First Respondent:

URBAN CULTURE PTY LTD (ACN 120 503 175)

Second Respondent:

ABDUL SALAM AUIEDA

File number:

MLG 843 of 2009

Judgment of:

O’Dwyer FM

Hearing date:

9 December 2009

Date of last submission:

9 December 2009

Delivered at:

Melbourne

Delivered on:

9 December 2009

REPRESENTATION

Counsel for the Applicants:

Mr Feder

Solicitors for the Applicants:

Middletons

The Respondents:

No appearance

Solicitors for the Respondents:

J.A. Buda & Associates

ORDERS & DECLARATIONS

PENAL NOTICE TO THE RESPONDENTS:

IF YOU

(A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR

(B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING,

YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT.

ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED.

THE COURT DECLARES THAT:

(1) The Respondents have:

• (a) infringed the G-Star Trade Marks (as defined in paragraph 5 of the Claim) in breach of section 120 of the Trade Marks Act 1990 (Cth);
• (b) infringed or authorised the infringement of the Copyright Works (as defined in paragraph 6 of the Claim) in breach of section 36 of Copyright Act 1968 (Cth);
• (c) contravened sections 42 and 44 of the Fair Trading Act 1987 NSW (FTA); and
• (d) engaged in conduct which constitutes the tort of passing off.

(2) The First Respondent has contravened sections 52 and 53 of the Trade Practices Act 1974 (Cth) (TPA)
(3) The Second Respondent has contravened sections 52 and 53 of the TPA (by virtue of the operation of section 75B of the TPA).

AND THE COURT ORDERS THAT:

(4) The Respondents whether by themselves, their servants, employees, agents or otherwise howsoever be retrained, in trade or commerce from:

• (a) importing, manufacturing, promoting, advertising, distributing, offering for sale, selling or exhibiting in public, the Infringing Products (as defined in paragraph 10 of the Claim) ;
• (b) disposing or dealing with the Infringing Products in any other way than in accordance with order 5 below;
• (c) authorising, causing, procuring or inducing any person to do any act which would be an infringement of the injunction referred to in paragraph (4)(a) above;
• (d) representing that the Infringing Products are imported, manufactured, advertised, promoted, offered for sale and/or sold with the sponsorship or approval of the Applicants or either of them;
• (e) representing that the Infringing Products are the G-Star Products (as defined in paragraph 3 of the Claim);
• (f) representing that the Infringing Products emanate from the same trade source as the G-Star Products;
• (g) representing that the Infringing Products are made by the Applicants or either of them;
• (h) representing that the Respondents or either of them are licensed, authorised, sponsored, approved or endorsed by the Applicants or either of them;
• (i) passing off themselves as the Applicants or either of them; and
• (j) passing of the Infringing Products as:
  • (i) and for the G-Star Products; and
  • (ii) having the sponsorship, approval or a connection or affiliation in the course of trade with the Applicants or either of them and the G-Star Products.

(5) The Respondents whether by themselves, their servants, employees, agents or otherwise howsoever, deliver up to the Applicants:

• (a) all the Infringing Products in their possession, custody or control;
• (b) any and all brochures, pamphlets, advertising, labels, swing tags, promotional or marketing materials and the like in their power, possession, custody or control which bear the G-Star Trade Marks and the Copyright Works; and
• (c) any materials, products or things in the Respondents’ power, possession or control exploitation of which by the Respondents would be an infringement of the foregoing injunctions.

(6) The Respondents pay the Applicants $40,727 in general damages and $50,000 in additional damages pursuant to section 115(4) of the Copyright Act 1968 (Cth).
(7) The Respondents pay the Applicants' costs for this proceeding fixed in the sum of $7,149.44.
(8) The Applicants serve a sealed copy of these orders on the Respondents as soon as practicable.

FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE

MLG 843 of 2009

G-STAR RAW DENIM KFT

First Applicant

G-STAR AUSTRALIA PTY LTD (ACN 084 011 852)

Second Applicant

And

URBAN CULTURE PTY LTD (ACN 120 503 175)

First Respondent

ABDUL SALAM AUIEDA

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. On 9 December 2009 I gave summary judgment in this matter, together with brief ex tempore reasons.
2. Hereafter is set out an expansion of those reasons given.

Background to Summary Judgment

3. Summary judgment was delivered pursuant to Rules 13.03A, 13.03B and 13.03C(1)(e) of the Federal Magistrates Court Rules 2001.
4. There was no appearance by the respondents at the hearing in circumstances where I am satisfied they were aware of the hearing.
5. On 27 November 2009 Notices of Address for Service were filed by the respondents after effective service on them pursuant to orders made for substituted service on 17 August 2009. The address for service given in respect of both respondents was: J.A. Buda & Associates, Solicitors of 52 Park Road, Cabramatta, 2166.
6. On 7 December 2009 a Response was electronically filed by the respondents under cover of a letter from the respondents’ solicitors.
   In that letter the respondents acknowledged the matter was listing for hearing on 9 December 2009.
7. In the Response, the respondents simply opposed the orders sought in the application save for order (5) which was consented to. Order (5) sought:
   • At the election of the applicants, an inquiry as to damages or an account of profits and payments of all sums found to be due under such inquiry or the taking of such accounts.
8. In the Response, where provision is made for a brief statement of the grounds of opposition, they simply wrote, “Nil”.
9. On 8 December 2009 a letter from the respondents’ solicitor was faxed to the court. That letter, omitting formal particulars, stated:
   • We act on behalf of the directors of Urban Culture Pty Limited.
   • We have recently been given instructions.
   • Our client appreciates that it had previous solicitors and unfortunately did not carry out their work.
   • Due to limited time our firm filed:
     • a) Appearance,
     • b) Response,
     • c) Affidavit herein.
   • We shall not be able to appear, nor have we been able to brief any Melbourne firm.
   • We apologise to the court and do not wish to show disrespect to the court by not appearing.
   • Should the court wish to proceed with this matter, we have to appreciate the process the court adopts.
10. This letter, to say the least, is perplexing and lacks precision as to its intended meaning. It does not ask for an adjournment, but seems to accede to the hearing proceeding. This meaning is, perhaps, given some weight by the fact that the second respondent has provided an affidavit which purports to give evidence of the number of offending clothing items sold, with the implicit suggestion that any award made by the court at the hearing be limited to the amounts alluded to by the second respondent; namely, $1820.
11. I am unsure of whether the respondents, through their solicitors, are expressing their naivety about, or contempt of, the court and proper process. In any event, it is clear that the respondents did not seek any adjournment, hoped to engage in the hearing by filing an affidavit and for reasons not adequately explained, did not appear at the hearing, whether in person or through an agent.
12. As highlighted by the applicants in their written submissions, there was also ground to proceed as undefended pursuant to Rule 13.03B(2)(c) and (d) for any default by the respondents as set out in Rule 13.03A(2). The conduct of the respondents in their failure to comply with the Rules of the court and their failure to, “defend the proceedings with due diligence,” warrants the matter proceeding as undefended (see Rule 13.03A(2)(vii)).
13. In all of those circumstances I decided it was appropriate that the hearing proceed as undefended.

The Claims

14. The applicants sought relief under the Copyright Act 1968 (the Act) resulting from the respondents’ infringement of the applicants’ copyright in the copyright works (designer clothing), being:
    1. Declarations as to the respondents’ infringement and authorisation of the infringement of the copyright works;
    2. Injunctive orders restraining the respondents from further infringements and sale of the copyright works;
    100. general damages pursuant to s.115(2) of the Act, including damages for loss of reputation; and
    4. additional damages pursuant to s.115(4) of the Act.
15. The background to these claims relate to the sale by the first respondent, at one of its stores, garments labelled as the copyright works of the first applicant.
16. In support of their claims the applicants filed two affidavits.
    One was by Mr Christian De Bil, who is the general counsel of G-Star International located in the Netherlands and who is able to depose to matters relevant to the ownership of the copyright, the nature of the copyright works, the expense to which the copyright owner is put in the creation and maintenance of the copyright works in the marketplace, and the position and value of such works in the marketplace.
    His evidence provided a basis to determine damages for loss of reputation, and additional damages under s.115(4).
17. The other affidavit was provided by Mr Musulin. He gave evidence of:
    • sighting counterfeit garments, bearing the labels of the applicants, being offered for sale by the respondents;
    • the number of such garments being offered for sale in one retail outlet being conducted by the respondents; and
    • the purchase by him of some of the offending garments.
18. His evidence established:
    • the breaches of copyright; and
    • a basis for calculation of loss of profit.
19. In respect of the claim for general damages for copyright infringement I am satisfied, based upon the affidavit of Mr Musulin and the lost sales associated with the items seen, and their number, that the claimed amount of $5,727 is made out and appropriate.
20. In respect of the other component in s.115(2) of the Act for compensation for loss of reputation, I looked at similar cases where similar items and numbers were involved. In Review Australia Pty Ltd v The New Cover Group Pty Ltd [2008] FCA 1589 the court ordered $35,000 based upon 700 infringing garments being sold. In this case, I am satisfied that the applicants’ products have a well-defined and strong position in the marketplace and that they are at risk of, and on balance, have suffered a loss of reputation by the sale of these counterfeit garments and that the figure of $35,000 is an appropriate award. In determining that amount, I am conscious of lesser amounts being awarded for loss of reputation in the range of $7500 to $10,000, but this case, in my view, is distinguished from them by the following factors, which cumulatively heighten the real prospect of damage to reputation to a degree not so prevalent in the other cases:
    • the second applicant loses sales of the G-Star products as consumers refuse to pay the higher prices for the G-Star products when similar looking counterfeit “G-Star” products are available in the marketplace for cheaper prices;
    • the second applicant loses customers as they no longer purchase the G-Star products as they are no longer considered “exclusive” as cheaper copy product is available in the marketplace;
    • the second applicant’s retail customers no longer wish to purchase the G-Star products as counterfeit “G-Star” products are being sold in retail stores within close proximity to their store and at cheaper prices; and
    • the applicants ensure strict quality control for any product sold under or by reference to the “G-Star” marks and the Urban Culture products are not subject to these controls.

(See Crimson SRL & ANOR v Claudia Shoes Pty Ltd and Ors (No.7) (2008) ASAL, Review Australia Pty Ltd v New Cover Group Ltd [2008] FCA 1589, Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd and Anor [2008] FCA 74, Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633)

Additional Damages

21. Under s.115(4) of the Act the court has a discretion to award an amount in additional damages and in the exercise of that discretion the court may have regard to:
    • the flagrancy of the infringement;
    • the need to deter similar infringements of copyright;
    • the conduct of the respondents after being informed of the infringement; and
    • the benefit to the respondents arising from the infringement.
22. In determining to exercise my discretion in favour of making an award for additional damages I have taken the following into account:
    • There needs to be a general deterrent to prevent similar infringements of copyright, a deterrent that is known and understood in the marketplace. It is important to protect copyright owners in the marketplace from the destructive conduct of those who seek to pass off counterfeit products as being those of the rightful copyright owner. The conduct seriously jeopardises the fiscal wellbeing of not only the copyright owners in the first instance, who have, I am satisfied, invested a great deal in establishing the copyright works, but also those aligned industries that are dependent on the subsistence of protection of copyright works to provide a viable market, leading to wealth creation and employment.
    • The respondents have failed to take any active role in these proceedings;
    • The second respondent evaded personal service and denied stocking any “G-Star” branded products in the Urban Culture retail stores. However, this is not true as evidenced by the affidavit filed by the applicants in support of their case.
      At least 100 units of the counterfeit garments were on offer for sale in one shop. The second respondent also refused to accept service of the letter of demand putting the respondents on notice of the applicants’ rights.
    • The counterfeit garments are extremely good copies of the G-Star products and are therefore flagrant infringements.
      The respondents offered for sale and sold the counterfeit garments as if they were the G-Star products. Mr Abdul Auieda wore “G-Star” branded cap in store and there was a black box on the counter with “G-Star” written on it. There is a need to deter similar conduct in the marketplace.
    • The respondents have gained a significant commercial advantage in selling products which bear the “G-Star” brand as the respondents were able to charge a premium on what they would otherwise have charged for such products, unrightfully trading on the status and standing of the name in the marketplace without having exercised the creativity to design the product or been put to the expense of establishing the name in the marketplace.
      The respondents were also able to trade on the long and substantial investment of the applicants in promoting the G-Star products and the G-Star brand. Two of the retail stores operated by the respondents are located in Westfield Shopping Centres, which suggests to customers that the products being sold by the respondents are genuine.
    • The respondents have shown a complete disregard for these court proceedings and the orders made by the court. The respondents have also failed to appear at any of the directions hearings scheduled in these proceedings. In addition, the respondents have filed a response and affidavit the day before a scheduled hearing in an attempt to derail the applicants’ application for a default judgment. The respondents’ defence, also, fails to disclose any real defence to the claims made.
    • The first respondent owns and operates three retail stores that sell a substantial volume of merchandise. Therefore, the first respondent has a responsibility not to infringe the legal rights of other parties and it should be seen to be, and expected in fact to be, a good corporate citizen by the public. There is certainly a public interest in deterring the first respondent from taking part in such conduct again and also to deter other potential infringers from conducting themselves in a similar way. There is also a public interest in deterring directors of such companies from authorising such conduct. This, I am satisfied, is therefore an appropriate case for the court to make an order for additional damages.
23. The applicants sought an award of $100,000 under this head.
    In support of that award the applicants referred to various cases where awards under this head were made in the range of $3 million against a corporation to $30,000 against a director of such. In my view, proportionality dictates that against these respondents, an award of $50,000 will serve as a specific deterrent to them, and a general deterrent to those in their industry who may be tempted. (See Amalgamated Mining Service Pty Ltd v Warman International Ltd [1992] FCA 542; (1992) 24 IPR 461, Bailey v Namol [1994] FCA 1401; (1994) 30 IPR 147, Milpurrurru and Others v Indofurn Pty Ltd and Others (1994) 30 IPR 209, Microsoft v Goodview (2000) 49 IPR 578, Microsoft Corporation and Others v PC Club Australia Pty Ltd and Others [2005] FCA 1522; (2005) 67 IPR 262, Fraserside Holdings & Anor v Venus Adult Shops & Ors [2005] FMCA 997, Foxtel Management Pty Ltd & Anor v Mod Shop Pty Ltd & Ors [2007] FCA 463; (2007) 72 IPR 1, Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in Liquidation) & Ors [2007] FCAFC 40; (2007) 71 IPR 437 and Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633)

Question of Declarations and Injunctions

24. The applicants also sought declarations and injunctions as set out in their application and the attached statement of claim. Those sought are appropriate and shall be ordered.

Question of Costs

25. The applicants sought an order for costs in the sum of $6,160 plus disbursements of $989.44, making a total of $7,149.44. I am satisfied that these costs are reasonable and should be paid by the respondents.

Conclusion

26. I am satisfied on the evidence presented that there have been infringements of the applicants’ copyright by the sale, and attempted sale, of counterfeit garments bearing the applicants’ labels which entitled the applicants to awards of compensation in the sum of $40,727 pursuant to s.115(2) of the Act, and additional damages of $50,000 pursuant to section 115(4) of the Act, for which the respondents are jointly and severally viable.

I certify that the preceding twenty-six (26) paragraphs are a true copy of the reasons for judgment of O’Dwyer FM

Associate: Sam Parker

Date: 14 January 2010