10 Jul 2014

Sheesh! Kebab sellers' unauthorised trade mark certification a costly mistake

by Brett Doyle

The recently inserted provision for additional damages can lead to substantial awards and an aggrieved trade mark owner can now recoup more than its legal costs if successful.

Certification of goods and services is becoming increasing important and widespread in the Australian market. Although most commonly associated with food products, it can also extend to clothing, mechanical equipment and to services, such as the sustainability or environmental credentials of products or services and even to taxation services. Since there is a stringent registration process for certification marks under the Trade Marks Act (including approval by the ACCC), many groups are simply allowing their trade marks to be used for goods and services that comply with their standards.

What if one of these marks is infringed? What (if any) damages can be awarded? A recent Federal Court case gives some guidance (Halal Certification Authority Pty Limited v Scadilone Pty Limited [2014] FCA 614).

Briefly, some kebab shops sought assurances from their supplier, Quality Kebabs Wholesalers, that the kebabs were halal. A certificate to that effect was given to the shops.

These certificates used the trade mark of the Halal Certification Authority. Unfortunately, they were not issued by the Authority, which sued two kebab shops and the wholesalers under the Trade Marks Act and the Australian Consumer Law. The Federal Court found that the marks had been infringed by the wholesalers and the shops.

Halal Certification Authority

What are additional damages for trade mark infringement?

Additional damages for infringement were inserted into the Trade Marks Act in 2012 by section 126(2) as a deterrent, principally with trade in counterfeit luxury goods in mind. Additional damages impose a liability on the infringer of a trade mark when the brand owner does not suffer any actual loss or the profit derived by the counterfeiter cannot be easily quantified or is small.

In this case, only nominal standard damages of $10 were imposed on the wholesaler and on each of the two kebab shops that displayed the certificates that reproduced the trade mark.

Justice Perram of the Federal Court awarded additional damages saying they are not meant to compensate the trade mark owner but are intended "to make infringement unattractive".

Factors that the Court can consider include:

  • the flagrancy of the infringement;
  • the need to deter similar infringements;
  • the conduct of the infringing party; and
  • any benefit from the infringement.

The managing director of the wholesalers sought to blame an ex-employee, now conveniently living in Germany, for producing false certificates that his company's meat was prepared in accordance with Islamic law and was halal. This "ridiculous" suggestion, along with other aggravating factors, meant that "additional damages" under the Trade Marks Act were awarded, totalling $91,015.00. This sum was 150% of the annual licence fees that would have been payable had the wholesaler been properly certified by the trade mark owner.

The premium (150% of the usual licence fee) was imposed to avoid a situation that would amount to "use now, pay if caught".

The award of additional damages may have been increased if it had been proved that the meat was not in fact halal, leading to devout Muslims inadvertently eating non-halal meat. There was no evidence on this point. Damages may also have been greater if, as was likely, it was proved that a large number of false certificates had been issued.

Lessons for trade mark owners

This decision shows that the recently inserted provision for additional damages can lead to substantial awards and an aggrieved trade mark owner can recoup more than its costs if successful. The ancillary claims for breach of the ACL – misleading and deceptive conduct – though made out, did not sound in monetary benefit for the trade mark owner because under the ACL only actual damage can be compensated.

This case also shows the importance of vigilance by a trade mark owner in safeguarding its reputation if it certifies goods and services and also the need to establish by evidence all factors relevant to the alleged infringement.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.