09 July 2010

Makers of counterfeit Ugg Boots imprisoned for contempt of court

Key point: Deliberate and repeated contraventions by counterfeit Ugg Boot makers of Court orders and undertakings lead to imprisonment.

Intellectual property disputes usually involve sums of money, but occasionally they can lead to imprisonment, as the recent case of Deckers Outdoor Corporation Inc v Farley (No.8) [2010] FCA 657, involving the makers of counterfeit Ugg Boots, shows.

A seven-year battle to defeat the counterfeiters

Deckers and its predecessor companies have designed, manufactured, marketed and sold the iconic Ugg Boot in Australia since 1978. They are now sold all over the world.

Vaysman Pty Ltd, Hepbourne Pty Ltd and the Vaysman siblings, Vladimir and Victoria Vaysman, have been making counterfeit Ugg Boots.

The dispute between Deckers and the Vaysman siblings and companies has spanned seven years. In 2003, Deckers first became aware that counterfeit Ugg boots were being manufactured and commenced proceedings in the Federal Court, seeking interlocutory injunctions against Vaysman Pty Ltd, Hepbourne Pty Ltd and the Vaysman siblings for trade mark and copyright infringement, passing off, and misleading/deceptive conduct in breach of the Trade Practices Act 1974 (Cth).

Deckers discontinued these proceedings after the respondents consented to orders under a settlement agreement restraining them from, amongst other things, manufacturing or selling sheepskin footwear bearing the names "Ugg Australia", "Ugg" or "Uggs"; orders which they then breached.

This led to further proceedings, and another settlement agreement in 2005, which was then breached. Another set of undertakings was given in 2007, which once again was breached.

Losing patience with the Vaysmans, Deckers then reinstated an earlier filed Notice of Motion and a Statement of Charge seeking declarations that the respondents were guilty of contempt.

The Federal Court in 2008 found they were guilty of contempt, but the actual penalty was only determined this year.

In the interim, the Federal Court found for Deckers on the original claims of trade mark and copyright infringement, passing off and breaches of the Trade Practices Act.

What did the Court hold?

Justice Tracey held that:

• In respect of the 10 charges proven against Vladimir Vaysman, the Court ordered imprisonment for each of the charges. The longest, a three year term, was because he had caused and encouraged the use of a factory for manufacturing and selling counterfeit Ugg Boots from December 2005 to at least November 2007. This resulted in the sale of over 30,000 pairs of counterfeit Ugg boots, and profits of more than $3 million.
• The Court had regard to "the need for both personal and general deterrence" and also the serious infringement of Deckers' rights and the severe undermining by Mr Vaysman of the Court's authority, stating that "Mr Vaysman's conduct falls within the most serious category of criminal contempt cases" and that he had "contumelious disregard of the orders made by the Court".
• In respect of the eight charges proven against Victoria Vaysman, the Court ordered imprisonment for each of the charges ranging from seven days to one year. Although she was not principally responsible for the manufacturing and marketing of the counterfeit footwear, she played a key role in assisting her brother by making the arrangements for internet sales of footwear.

The Court reduced Ms Vaysman's sentence on account of her personal circumstances and her expressions of remorse and promises not to reoffend. However, she was still required to serve two months' imprisonment on the basis that she engaged in the selling of the counterfeit Ugg Boots "knowing" that she was contravening Court orders which she "chose deliberately to ignore".

• Mr Mykhalovski, who worked at one of the factories that manufactured the counterfeit Ugg Boots, was sentenced to three months' imprisonment based on his "blatant disregard of Court order[s]". The Court noted that "considerations of general and specific deterrence weigh heavily."

What does this mean?

This decision is a crystal clear reminder of the seriousness of undertakings that are given to the court, and orders made by it, and the need to comply with them.

Previous cases in the intellectual property sphere have resulted in the imposition of fines, and rarely terms of imprisonment. The sentences are severe and give a clear indication that the Federal Court will not tolerate those who breach its orders or who do not honour undertakings, particularly where there has been a deliberate and blatant disregard of the orders or undertakings.