22 Jul 2021

Banksy fight may paint a different picture under Australian trade mark law 02: Making out bad faith in Australia

By Dean Gerakiteys, Brett Doyle and Dunja Poljak

The threshold for bad faith in Australia is quite high, and must be conduct falling short of the standards of acceptable commercial behaviour observed by reasonable and experienced persons.

The first article in this five part series outlined the key issues arising from the EUIPO's approach to Banksy's trade marks as compared with Australian trade mark law. We will now examine in some depth what "bad faith" means in an Australia context.

When invalidating Banksy's trade marks, the EUIPO was highly critical of Banksy's conduct as not honestly intending to use the artworks as trade marks, having regard to the essential function of a trade mark. This was largely because 'use' in a trade mark sense only began after Full Colour Black sought cancellation and was only directed at satisfying the legal "use" requirements of trade mark law.

The applicable Australian provision

In Australia registration of a trade mark can be opposed if the application is made in bad faith. In 2006, when this ground of opposition was introduced into the Australian regime, a number of examples of conduct that would be considered to be bad faith were identified, including:

  • a person who monitors new property developments; registers the name of the new property development as a trade mark for a number of services; and then threatens the property developer with trade mark infringement unless they licence or buy the trade mark;
  • a pattern of registering trade marks that are deliberate misspellings of other registered trade marks; and
  • business people who identify a trade mark overseas which has no market penetration in Australia, and then register that trade mark with no intention to use it in the Australian market and for the express purpose of selling the mark to the overseas owner.

Since that time, there have been two Federal Court decisions and a number of Australian Trade Mark Office decisions that shed further light on what will be considered "bad faith". Below we summarise the relevant factors and consider in detail the two Federal Court cases that have dealt with "bad faith".

Relevant factors

  • The onus of proof lies with the opponent;
  • The threshold is conduct that falls short of the standards of acceptable commercial behaviour observed by reasonable and experienced persons in the particular area in question. There is however also a subjective element, namely the knowledge of the person at the time of making the application;
  • The conduct in question must be as at the date of filing. Bad faith cannot however be "cured" by an action after the date of application;
  • The conduct in question must relate to the making of the of the opposed application;
  • Bad faith does not require proof of deception or confusion. Evidence to that effect may however be persuasive;
  • The circumstances of the application are relevant, including for example:
    • the use of the opposed mark with other indicia that are associated with the opponent;
    • a prior business connection with the opponent; or
    • actual knowledge of the opponent's activities and brands, including for example through prolonged competition.
  • The seriousness of the allegation requires correspondingly cogent evidence however the applicable standard is the balance of probabilities (rather than beyond reasonable doubt).

Fry Consulting v Sports Warehouse Inc (No 2) [2012] FCA 81 (Sports Warehouse)

Sports Warehouse, Inc established in 1994 principally marketed its goods in the USA. It also sold goods internationally, including to Australia, through its Tennis Warehouse online store. Fry Consulting Pty Ltd was established in Australia in 2004 and sold its goods in Australia online and through retail stores. Both parties sold tennis goods.

Each applied to register a trade mark that included the words TENNIS WAREHOUSE for retail services. Each opposed the other’s application.

Sports Warehouse succeed in its opposition before the Registrar of Trade Marks to Fry's application for this mark:

Image of Tennis Warehouse Australia 

Fry Consulting opposed Sports Warehouse's application. That opposition was allowed by the Registrar's delegate. Sports Warehouse's appeal from that decision was dismissed: Sports Warehouse v Fry [2010] FCA 664.

Fry appealed to the Federal Court and succeeded. Justice Dodds-Streeton accepted that:

  • Fry Consulting was well aware of Sports Warehouse’s online retail store and that Sports Warehouse sold goods into Australia via its website;
  • Mr Fry, a director of Fry Consulting, had visited Fry's online retail store, which led him to register the business name “Tennis Warehouse” and the domain name www.tenniswarehouse.com.au, from which an online tennis retail store operated in competition with Sports Warehouse;
  • Mr Fry adopted the name knowing that it would cause confusion between Fry Consulting’s and Sports Warehouse’s online stores;
  • The potential for such confusion was why the name was chosen.

Justice Dodds-Streeton looked at the examples set out in the Explanatory Memorandum noted above and adopted the formulation of "bad faith" from UK cases dealing with a similar provision that had previously guided decisions of the Australian Registrar of Trade Marks: namely that 'bad faith' is conduct falling short of the standards of acceptable commercial behaviour observed by reasonable and experienced persons in a particular area of commerce. The conduct does not need to rise to the level of dishonesty and fraud but it cannot just be mere negligence, incompetence or a lack of prudence. Bad faith imports conduct that is of an unscrupulous, underhand or unconscientious character.

It was not sufficient that Fry had knowledge of Sports Warehouse's trade mark at the time of application. Bad faith was not made out as at the relevant date, being the date of application because:

  • Mr Fry had unequivocally indicated his willingness to cease using TENNIS WAREHOUSE if Sports Warehouse provided evidence of its entitlement, and sought a prompt response, so that if necessary he could change the name prior to significant business development and expenditure on advertising;
  • Mr Fry did not acknowledge Sports Warehouse’s ownership or rights in Australia and although misconceived, Mr Fry believed his assertions about the implications of a business name search he conducted which showed no other registered businesses by that name;
  • Sports Warehouse, did not, despite undertaking to do so, provide any documentation or evidence of its entitlement or rights to the “TENNIS WAREHOUSE” mark;
  • The subsequent application by Sports Warehouse to register TENNIS WAREHOUSE in Australia was unsuccessful;
  • Sports Warehouse failed to make any further contact or objection until Fry Consulting again initiated contact two years later; and
  • During that period, in the absence of any further objection or contact from Sports Warehouse, Mr Fry proceeded to develop his business using the words “TENNIS WAREHOUSE”, to which he added the word “AUSTRALIA”, and subsequently commissioned a logo, resulting in a composite mark.

DC Comics v Cheqout Pty Ltd [2013] FCA 478 (DC Comics)

We should contrast those findings with the conclusion in DC Comics v Cheqout Pty Ltd [2013] FCA 478 in which the application was held to have been made in bad faith.

DC Comics, the owner of various SUPERMAN trade marks, opposed Cheqout Pty Limited’s application for the SUPERMAN WORKOUT for a range of exercise and fitness services. Cheqout was successful before the Australian Trade Marks Office, including on the bad faith ground. DC Comic's appealed to the Federal Court, succeeding on the bad faith ground.

Justice Bennett applied the principles set out in the Sports Warehouse decision, but concluded that the trade mark had been applied for in bad faith.

DC Comics argued that Cheqout's application was in bad faith because it did not reflect the way the words SUPERMAN WORKOUT were used, which was together with a shield device that mimicked the Superman shield device (as shown below). The application was therefore filed in such a way as to appropriate or trade off the rights of DC Comics.

Image of Superman Workout Graphic 

Justice Bennett did not accept that the word Superman had not been chosen to associate the exercise program with the Opponent’s comic book character, as this was at odds with use of the BG Shield Device:

"the inference is clear, from the immediate use of the Trade Mark together with the BG Shield Device that, in making the application to register the Trade Mark, [Cheqout] intended to use it in combination with the BG Shield Device in order to strengthen the allusion to Superman. The inference can also be drawn that this use was designed to gain a benefit by appropriating Superman indicia and the reputation of the DC Comics superhero, so as to further the viewer’s association between the Trade Mark and the Superman word mark."

She also noted that Cheqout had used the red, white and blue colours traditionally used in conjunction with DC Comics' Superman character and that the BG Shield Device closely resembled registered trade marks for the Superman insignia. Taken together, Cheqout’s conduct fell short of the standards of acceptable commercial behaviour observed by reasonable and experienced persons.

Justice Bennett commented that bad faith does not require an opponent to establish that use of the opposed trade mark would result in deception or confusion, as this would contradict the legislative intent in introducing a new ground of opposition. The provision would be otiose because it would tie the bad faith ground to an existing ground of opposition. Evidence of the potential for deception of confusion might be persuasive but is neither determinative nor a prerequisite.

Bad faith: the EUIPO position vs Australia's

While the EUIPO was highly critical of Banksy's conduct, labelling it as in bad faith, that same conduct might not, without more, rise to the requisite level of bad faith in Australia.

An applicant's intention about use of its mark might be on factor to consider. Bad faith is, however, not to be assessed by reference merely to subjective intention. Bad faith must be objectively assessed against the objective standards of accepted business practice of reasonable and experienced traders.

The authorities to date address the conduct of competitors where the applications in issue were misappropriations of other trader's trade marks or were at least inspired those trade marks. It is doubtful that applying for a trade mark, comprised of an artwork to which the applicant is entitled, is acting in bad faith merely because it is a strategy to obtain a form of protection, when enforcement of subsisting copyright might not be an effective tool. Though possibly such protection might offer no greater surety of enforcement, the filing of the applications themselves does not seem to be tainted with the same type of nefarious conduct envisaged by the Explanatory Memorandum nor does it appear to be unscrupulous, underhand or unconscientious.

Key takeaways for trade mark owners

While establishing bad faith may be difficult, it is important to remember that it is a ground of opposition that can, in certain circumstances, succeed and might even be a useful ground of last resort when faced with a clever but unscrupulous rival. When an opposition based on likelihood of deception or confusion might fail, the intent to misappropriate a trade mark or to trade off existing goodwill might keep a problematic mark off the Register.

Next edition: When is intention to use relevant?

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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.