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Facton Ltd & Ors v Dash Industries Pty Ltd & Anor [2010] FMCA 709 (23 September 2010)

Last Updated: 27 September 2010

FEDERAL MAGISTRATES COURT OF AUSTRALIA

FACTON LTD & ORS v DASH INDUSTRIES PTY LTD & ANOR

COPYRIGHT – Infringement – default judgment – assessment of damages.


Arthur and Ors v Vaupotic Investments Pty Ltd and Ors [2005] FCA 433
Elwood Clothing Pty Ltd v Cotton on Clothing Pty Ltd (2009) 81 IPR 378; [2009] FCA 633
Facton Ltd & Anor v Chung Lim Sports Cap Pty Ltd and Ors [2010] FMCA 584
Facton Ltd & Anor v Yao [2010] FMCA 433
G-Star Raw Denim KFT and Ors v Urban Culture Pty Ltd and Anor [2009] FMCA 1317
Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd and Anor (2008) 166 FCR 358; [2008] FCA 74
Review Australia Pty Ltd v New Cover Group Pty Ltd (2008) 79 IPR 236; [2008] FCA 1589

First Applicant:
FACTON LTD

Second Applicant:
G-STAR INTERNATIONAL B.V

Third Applicant:
G-STAR AUSTRALIA PTY LTD
(ACN 096 765 123)

First Respondent:
DASH INDUSTRIES PTY LTD
(ACN 133 864 267)

Second Respondent:
HAI YIM CHEN

File Number:
MLG 20 of 2010

Judgment of:
Riley FM

Hearing date:
25 August 2010

Date of Last Submission:
25 August 2010

Delivered at:
Melbourne

Delivered on:
23 September 2010

REPRESENTATION

Counsel for the Applicants:
Mr Feder

Solicitors for the Applicants:
Middletons

Counsel for the Respondents:
No appearance

Solicitors for the Respondents:
No appearance

ORDERS

PENAL NOTICE TO THE RESPONDENTS:

IF YOU

  1. REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR
  2. 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:
(2) The first respondent has contravened sections 52 and 53 of the Trade Practices Act 1974 (Cth).
(3) The second respondent has contravened sections 52 and 53 of the Trade Practices Act 1974 (Cth) (by virtue of the operation of section 75B of the Trade Practices Act 1974 (Cth)).

AND THE COURT ORDERS THAT:

(1) The respondents, whether by themselves, their servants, employees, agents or otherwise howsoever be restrained, in trade or commerce from:
(2) The respondents, whether by themselves, their servants, employees, agents or otherwise howsoever, deliver up to the applicants:
(3) The respondents pay the applicants’ damages of $50,000.
(4) The respondents pay the applicants’ costs of the proceeding fixed in the sum of $3,815 together with disbursements fixed in the sum of $2,205.62.
(5) The applicants serve a copy of these orders on the respondents as soon as practicable.
FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

MLG 20 of 2010

FACTON LTD

First Applicant


G-STAR INTERNATIONAL B.V

Second Applicant


G-STAR AUSTRALIA PTY LTD
(ACN 096 765 123)

Third Applicant


And


DASH INDUSTRIES PTY LTD
(ACN 133 864 267)

First Respondent


HAI YIM CHEN

Second Respondent


REASONS FOR JUDGMENT

Introduction

  1. This is an application for default judgment in relation to, among other things, an alleged breach of copyright. The applicants filed a notice of motion on 31 May 2010 in which they sought orders substantially in terms of their application filed on 12 January 2010.
  2. Subrule 13.03A(2) of the Federal Magistrates Court Rules 2001 relevantly provides that:

(i) give an address for service before the time for the respondent to give an address has expired; or

(ii) file a response before the time for the respondent to file a response has expired; or
(iii) comply with an order of the Court in the proceeding; or
(iv) file and serve a document required under these Rules; or
...
(vi) do any act required to be done by these Rules; or
(vii) defend the proceeding with due diligence.
  1. Subrule 13.03B(2) of the rules relevantly provides that:

(c) if the proceeding was commenced by an application supported by a statement of claim or the Court has ordered that the proceeding continue on pleadings – give judgment against the respondent for the relief that:

(i) the applicant appears entitled to on the statement of claim; and

(ii) the Court is satisfied it has power to grant; or

(d) give judgment or make any other order against the respondent; ...

  1. In Arthur and Ors v Vaupotic Investments Pty Ltd and Ors [2005] FCA 433 at [3], Heerey J discussed the equivalent rule in the Federal Court Rules and said:
  2. The same point has been made in a number of other cases in the Federal Court and in this court. I proceed on the basis that Arthur v Vaupotic accurately sets out the relevant test.

Procedural history

  1. The evidence indicates that the application and statement of claim were served on the first respondent by post at its registered office on 13 January 2010[1] and on the second respondent personally on 12 February 2010.[2]
  2. The application stated that 17 February 2010 was the first directions hearing. The respondents did not appear on that day. Orders were made in the respondents’ absence for them to, among other things, file and serve a defence by 17 March 2010. They did not do so. In fact, the respondents have not appeared at any of the various hearings in this matter and have not filed any documents.
  3. Pursuant to orders made on 26 May 2010, the notice of motion filed on 31 May 2010 and various other relevant documents were served on the first respondent by post and email on 4 June 2010[3] and on the second respondent personally on 8 June 2010.[4] The notice of motion was returnable on 16 June 2010. The respondents did not appear on that day, and the matter was adjourned. The notice of motion eventually came on for hearing on 25 August 2010.

Default

  1. Clearly, the respondents’ failure to file a defence constitutes a default as defined in the rules.

Declarations and injunctions

  1. On the face of the statement of claim and the application, there is a claim for the relief sought, save that the amounts claimed for damages and costs were not specified. With the exception of a claim under the Trade Marks Act 1995, all of the relief sought is clearly within the jurisdiction of the court. In relation to the trade marks claim, ss.125 and 190 of the Trade Marks Act 1995 provide as follows:
  2. Although this court is not a prescribed court, I proceed on the basis that, pursuant to s.125(2), the court has accrued jurisdiction in relation to the infringement of trade marks, where the court has clear jurisdiction in relation to the copyright and other aspects of the claim.
  3. There is authority that a court should not make a declaration unless it is satisfied on the basis of evidence that it is proper to make the declaration, because of the impact of declarations on the world at large. However, in the present case, the declarations that are sought only concern the conduct of the respondents. Accordingly, I consider that it is appropriate to make the declarations and injunctions that are sought in this proceeding.

Damages

  1. Among other things, the application sought general damages (consisting of compensatory damages and damages for loss of reputation) under s.115(2) of the Copyright Act 1968 and additional damages under s.115(4) of the Copyright Act 1968. The application also sought damages under the Trade Marks Act 1995, the Trade Practices Act 1974, the Fair Trading Act 1987 (NSW), and for passing off.
  2. However, at the hearing of the notice of motion, the applicants acknowledged that they could not “double dip”. Consequently, the applicants indicated that, provided they were successful in relation to their copyright claims, they would not press their claims for damages under the other heads.
  3. Additionally, the applicants noted that, under s.115(2) of the Copyright Act 1968, they were able to seek either damages or an account of profits. The applicants elected to seek damages.

a. compensatory damages

  1. The applicants sought compensatory damages of $6,987.60. That amount was calculated on the basis of the profit that the applicants would have received if they had sold genuine items in place of the counterfeit items sold by the respondents. The respondents did not provide discovery, contrary to court orders. Consequently, the evidence available to the court concerning lost sales consisted solely of the affidavit of Mr Fahd sworn on 3 June 2010. Mr Fahd said that he attended the Druitt Dash Store and the Sussex Dash Store, which are the respondents’ stores, and noted counterfeit G-Star branded goods on display as follows:
    1. about 40 pairs of jeans for $80 each;
    2. about 20 T-shirts for $25 each;
    1. about 15 singlets for $10 each;
    1. about 15 jumpers for $45 each;
    2. about 8 polo shirts for $15 each; and
    3. about 10 T-shirts for $30 each.
  2. I understand that the respondents have not delivered up any goods to the applicants. The applicants invite the court therefore to proceed on the basis that the respondents have sold all of the garments that were seen on display by Mr Fahd. In the absence of any evidence or submissions to the contrary from the respondents, that seems a reasonable assumption to make.
  3. Christian de Bil swore an affidavit on 25 May 2010 in which he said that the first applicant licenses the use of the G-Star trade marks, the second applicant is the corporate headquarters and designer, distributer and seller of G-Star branded clothing and accessories and the third applicant is the exclusive wholesaler and distributer of G-Star products in Australia.
  4. Mr de Bil said that the third applicant sold its jeans wholesale for $112.84 and its T-shirts wholesale for $16.56.[5] Forty pairs of jeans at that price would amount to lost sales of $4,513.60. Thirty T-shirts at that price would amount to lost sales of $496.80. There was no evidence about the amounts at which the third applicant sold singlets, jumpers and polo shirts wholesale. However, I am prepared to assume that the price would average out to about the same as the price of
    T-shirts. Thirty-eight singlets, jumpers and polo shirts at that price would amount to lost sales of $629.28. On that basis, the total lost sales would amount to $5,639.68.
  5. I also assume that the applicants would have had some costs associated with their sales. In the absence of any clear evidence or explanation from the applicants about the loss of profit arising from the respondents’ actions, I consider that compensatory damages of $5,000 would be reasonable.

b. damages for loss of reputation

  1. The applicants also sought damages on the basis that the availability in the marketplace of the counterfeit garments sold by the respondents damaged the G-Star brand and the applicants’ reputations.
  2. I am satisfied on the basis of Mr de Bil’s affidavit that the third applicant has spent a good deal of money on advertising the G-Star brand, it has a large wholesale customer base in Australia and it has significantly increased its sales in Australia since 2006. I am satisfied that the applicants have a substantial reputation in Australia and overseas as “an innovative brand [of clothing] with a cutting edge style” and a level of “exclusivity”.
  3. Mr de Bil said in his affidavit, and I accept, that the applicants’ reputations were damaged by the respondents selling counterfeit G-Star products because:
    1. the exclusivity of the G-Star brand was undermined by cheaper counterfeits being available;
    2. the cheaper counterfeits were being sold in shops in close proximity to shops selling genuine G-Star products; and
    1. the cheaper counterfeits were not subject to the strict quality controls to which the genuine products are subject.
  4. The applicants submitted that the evidence of Mr Fahd showed that the respondents had offered for sale at least 120 counterfeit G-Star products. The applicants submitted that damages of $50,000 for loss of reputation would be appropriate in this case.
  5. In Elwood Clothing Pty Ltd v Cotton on Clothing Pty Ltd (2009) 81 IPR 378; [2009] FCA 633, Gordon J awarded $10,000 for damage to reputation in circumstances where 28,139 infringing garments had been sold. However, her Honour addressed the paucity of evidence of the impact of the infringing products on the reputation of the plaintiff, and the difficulties with assessing the damage to reputation in the following terms:
  6. Gordon J made it clear in that passage that there is no ready formula for assessing damage to reputation, especially not a formula based on the number of infringing garments.
  7. In Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd and Anor (2008) 166 FCR 358; [2008] FCA 74, Jessup J awarded $7,500 for damage to reputation under the Designs Act 2003. His Honour said at [30] and [31]:
  8. In G-Star Raw Denim KFT and Ors v Urban Culture Pty Ltd and Anor [2009] FMCA 1317, O’Dwyer FM awarded $35,000 for damage to reputation in circumstances where 100 counterfeit products were displayed for sale and two had been sold. However, as Gordon J explained in Elwood, the number of infringing products is not in itself a useful guide to an assessment of damages for loss of reputation.
  9. In Facton Ltd & Anor v Chung Lim Sports Cap Pty Ltd and Ors [2010] FMCA 584, Burchardt FM awarded $15,000 for damage to reputation. In Facton Ltd & Anor v Yao [2010] FMCA 433, Riethmuller FM awarded $10,000 for damage to reputation.
  10. The case put by the applicants in relation to damage to their reputation was somewhat speculative. There was no evidence about the actual damage to their reputations, much less what the monetary value of that damage might be. Nevertheless, I accept that there would have been some damage to the applicants’ reputations. Doing my best, in all of the circumstances of this case, I consider that damages of $15,000 would be appropriate for loss of reputation.

c. additional damages

  1. The applicants claimed additional damages under s.115(4) of the Copyright Act 1968. That subsection provides that the matters that the court may take into account in assessing a claim for additional damages include:
    1. the flagrancy of the infringement;
    2. the need to deter similar infringements;
    1. the conduct of the infringer after the infringement or, if relevant, after being informed of the infringement; and
    1. the benefit to the infringer from the infringing conduct.
  2. The applicants submitted that this was an appropriate case for an award of $100,000 in additional damages for the following reasons.
  3. Firstly, the respondents had taken no part in the proceedings. Clearly, the respondents could have ameliorated their infringement by making appropriate admissions, providing discovery, and reaching and honouring a reasonable settlement. They have not done so.
  4. Secondly, it was submitted that the counterfeit products were extremely good copies and are therefore flagrant infringements. There was no expert evidence about the quality of the copies. Although two garments were made available for the court’s inspection[9], I do not consider that the court is able to assess the quality of the copies without the benefit of expert evidence. In any event, examples of all of the relevant types of garment were not provided to the court.
  5. Thirdly, the applicants submitted that the respondents had gained a considerable commercial advantage by selling products with the G-Star brand, as they were able to charge a premium for their products.
    Mr de Bil said in his affidavit that genuine G-Star jeans were sold in Australia at an average recommended retail price of $280 and genuine G-Star t-shirts were sold in Australia at an average recommended retail price of $40. Mr Fahd said in his affidavit that the respondents’ counterfeit jeans were offered for sale $80 and their counterfeit t-shirts were offered for sale at $25 or $30.
  6. This does not strike me as selling the counterfeits at a premium. Again, there was no expert evidence about these matters. However, ordinary experience suggests that not many jeans and t-shirts are sold in shops, as opposed, perhaps, to markets, for much less than $80 and $30 respectively.
  7. The applicants also submitted in its third point that the fact that the respondents sold their counterfeit products in shops, as opposed to markets, would have indicated to consumers that the products were genuine. I accept that argument in relation to the t-shirts, where the price differential was only about 25 or 30 per cent. However, the argument is less compelling in relation to the jeans. The respondents were selling counterfeit jeans at less than a third of the recommended retail price of the genuine product. That is an extraordinary price reduction for an exclusive product. I consider that many consumers would have been alerted by the very large price reduction to the respondents’ products not being genuine.
  8. Fourthly, the applicants reiterated that the respondents had not participated in these proceedings.
  9. Fifthly, the applicants submitted that the respondents, as sellers of a substantial quantity of merchandise, ought to be good corporate citizens, and, consequently, the principles of specific and general deterrence required an award of additional damages. There was no particular evidence about the size of the respondents’ retailing venture, except that they have two shops. However, I accept that it is appropriate that there be some level of deterrence for conduct of the type engaged in by the respondents.
  10. Sixthly, the applicants submitted that the respondents, despite being put on notice that they were infringing the applicants’ copyright, continued to sell counterfeit copies of the applicants’ products: Fahd affidavit at [8]. I accept that evidence and accept that it warrants an award of additional damages: see Review Australia Pty Ltd v Innovative Style Investments Pty Ltd (2008) 166 FCR 358; [2008] FCA 74.
  11. In the Elwood case, $150,000 was awarded in additional damages, partly because the respondents had continued to sell infringing garments after being put on notice.
  12. In Urban Culture, O’Dwyer FM awarded $50,000 in additional damages. The same amount was awarded in Review Australia Pty Ltd v New Cover Group Pty Ltd (2008) 79 IPR 236; [2008] FCA 1589 and in Facton Ltd & Anor v Yao [2010] FMCA 433. However, in Facton Ltd & Anor v Chung Lim Sports Cap Pty Ltd and Ors [2010] FMCA 584, Burchardt FM awarded only $15,000 for additional damages.
  13. Taking into account all of the circumstances of this case, I consider that an appropriate award of additional damages is $30,000.
  14. As the applicants are to be given an award of damages for breach of copyright, it is unnecessary for me to consider whether there should be an award of damages in relation to the other claims made by the applicants.

Costs

  1. The applicants seek party-party costs on scale. More particularly, they seek $2,350 for initiating the proceeding and $1,465 for the final hearing. Actually, the sum of $1,465 is the amount allowed for an interim or summary hearing, which is the correct description of the hearing of the notice of motion. I consider that both amounts should be allowed.
  2. Additionally, the applicants sought disbursements of:
    1. $420 for an agent’s fee for investigation;
    2. $543.72 for an agent’s fee for personal service;
    1. $150 for an agent’s fee for an affidavit;
    1. $745 for the filing fee for the initial application;
    2. $447 for the filing fee for the notice of motion;
    3. $297 for the fee for mediation; and
    4. $22.90 for ASIC and personal name searches.
  3. There was no evidence that these fees had actually been incurred. However, the court fees are obvious, and the other amounts all seem to me to be proper and reasonable, except for the agent’s fee for investigation. It seems likely that the investigation preceded the institution of proceedings and, as such, it is not recoverable. Otherwise, there will be an order for costs in the amount claimed.

I certify that the preceding forty-seven (47) paragraphs are a true copy of the reasons for judgment of Riley FM


Date: 23 September 2010

[1] Affidavit affirmed by Shalini Jayaweera on 16 February 2010 and company search dated 25 August 2010 and marked exhibit A.
[2] Affidavit sworn by Andrew Ng-Saad on 15 February 2010.
[3] Affidavit sworn by Jessilyn Chen on 10 June 2010.
[4] Affidavit sworn by Morrie Michael Fahd on 16 June 2010.
[5] The applicants initially said that these figures were commercial in confidence but withdrew that claim to enable these reasons for decision to set out a rational basis for the calculation of compensatory damages.
[6] Review Australia Pty Ltd v New Cover Group Pty Ltd (2008) 79 IPR 236; [2008] FCA 1589.
[7] Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd and Anor (2008) 166 FCR 358; [2008] FCA 74.
[8] Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472
[9] Exhibits MMF-1 and MMF-2 to the affidavit sworn by Morrie Michael Fahd on 3 June 2010

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