G-Star Toasted in Attempt to Prevent Pop-Up Bargain Retailing

The Australian Federal Court has issued a new decision which should serve as a timely reminder to brand owners of the difficulties inherent in controlling pricing, distribution and sales channels in a competitive marketplace.

Australian competition policy and decisions of the courts, have made it very difficult for brand owners to exert tight control over retail channels, and thus the context in which consumers encounter their brands along with the pricing of goods. Trade mark rights cannot easily be employed to prevent parallel imports, and anything which amounts to a form of retail ‘price fixing’ is liable to attract the scrutiny of the Australian competition watchdog.

The latest decision of the Australian Federal Court in this area, Facton Ltd v Toast Sales Group Pty Ltd [2012] FCA 612, reinforces this position. It also demonstrates that while copyrights might subsist in brand elements, such as logos, establishing that these copyrights are infringed by unauthorised promotional use will not necessarily result in any meaningful relief for the brand owner.

Brand owners wishing to maintain a premium image in Australia, which is not undermined by cut-price sales occurring in insalubrious surroundings, may be able to do so only by controlling global distribution channels so tightly that it is not possible for genuine branded goods to be legitimately acquired by Australian retailers at a price low enough to make them an attractive target for such bargain sales. Any strategy which is focussed solely on the Australian market, without consideration of all the channels through which genuine goods might enter the country, is unlikely to provide effective protection.

Background

The company Toast Sales Pty Ltd conducts ‘pop-up’ warehouse sales. These are sporadic ‘no frills’ sales events which occur at locations such as hotel lobbies, conference rooms or vacant retail locations. At many of these sales, genuine ‘premium’ branded goods, which Toast has acquired at discount prices from a variety of sources, are sold at ‘bargain basement’ prices. These goods have included G-Star branded clothing.

Naturally, these kinds of sales are of concern to brand owners such as G-Star, because they have the potential to devalue the brand by the manner in which they are promoted, the surroundings in which they occur, and by the sale of goods at significantly below normal retail prices.

A group of G-Star clothing companies therefore sued Toast for trade mark and copyright infringement, and misleading or deceptive conduct, based on the use of G-STAR word and logo trade marks in materials promoting its bargain sales.

The Decision

 The Australian Federal Court found that:

  • a trade mark is not relevantly ‘used’ in relation to retail services when it is, in fact, being used to identify genuine branded goods offered for sale;
  • although some of the goods were originally supplied subject to an agreement not to ‘sub-distribute’, the situation here was distinguishable from the earlier case of Paul’s Retail Pty Ltd v Sporte Leisure Pty Ltd, in which a licensee of a trade mark had knowingly made sales in breach of a clause in the license agreement;
  • copyright in G-STAR logos was infringed, but no profits could be attributed specifically to this infringing use, so no monetary orders were made against Toast;
  • there was nothing misleading or deceptive about Toast’s conduct.
Conclusions

It is not an infringement of a trade mark in Australia to promote genuine branded goods for retail sale, particularly where, as is normally the case, the retailer is clearly independent of the manufacturer of any of the goods being sold.

The use of copyrighted elements, such as logos, may be an infringement of the copyright, but is unlikely to be the cause of increased sales compared to, e.g., the use of non-copyrighted elements alone, and therefore will not usually attract monetary compensation.

Finally, so long as retailers do not create a false impression of affiliation with the owners of the brands they are selling, their conduct is unlikely to be considered misleading or deceptive.

In other words, in the absence of very carefully crafted distribution arrangements, or some clearly inequitable conduct, providing consumers with a competitive market for genuine branded goods will generally trump the intellectual property rights of brand owners in Australia.

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