Australia: Despite Success, Trade Mark Holder Left Carrying The Bag On Costs: What Are The Lessons?

What do you do if you go to the trouble of suing someone for infringement of your trade mark, successfully obtain an order against them to restrain them from continuing to infringe and they breach that order?

The answer is you can sue them for contempt of court and for further infringement.

The issue that then arises is how do you attempt to settle those proceedings brought for contempt while maintaining or strengthening your claim for the costs of those contempt proceedings if your offer is not accepted?

The Federal Court’s decision in Louis Vuitton Mattier SA v Design Elegance Pty Ltd¹ provides valuable guidance to trade mark holders (and all intellectual property rights holders) on this issue.

In late 2003, Design Elegance and its sole director (Director) (together the Respondents) signed consent orders restraining:

1. The Respondents from infringing ‘Louis Vuitton’ trade marks in respect of specified classes of goods (Louis Vuitton trade marks).
2. The Director from being in any way, directly or indirectly, knowingly concerned in or a party to an infringement of the Louis Vuitton trade marks.

It was alleged by Louis Vuitton that the Respondents then breached the consent orders by reason of their importation for sale, offering for sale, keeping for sale or sale of products that bore one or more of the Louis Vuitton trade marks, which trade marks were not applied with the licence or authority of Louis Vuitton. These such products included a hair clip, jewellery pouch, shoulder bag, wallet, bag, belt, dog bag, diary and other products.

Proceedings were commenced in the Federal Court for contempt (contempt proceedings).

In June 2005, Louis Vuitton’s lawyers wrote to the Director on a without prejudice basis to settle the contempt proceedings if the Respondents agreed to provide, amongst other things:

• An undertaking which would provide Louis Vuitton with information regarding a group dealing with the counterfeit Louis Vuitton products which leads to:

• Louis Vuitton obtaining payments for damages of $250,000 or more for delivery of counterfeit Louis Vuitton products valued at $250,000 or more.
• Australian Customs seizing counterfeit Louis Vuitton products valued at $250,000 or more.
• A Statutory Declaration providing details of sales of counterfeit Louis Vuitton products.
• The identity of importers and sellers of counterfeit Louis Vuitton products in Australia or elsewhere of which the Director was aware.
• Monthly reports on the Director’s progress in obtaining the relevant information and documentary evidence for a period of one year.

This offer was not accepted by the Respondents, and Louis Vuitton commenced proceedings against the Respondents for both infringement of its trade marks and contempt.

Federal Court decision

Justice Merkel of the Federal Court imposed a fine of $20,000 against the Respondents on the basis that the Respondents had breached the consent orders on a number of occasions and that conduct gave rise to a claim for civil contempt.

The Court has a general discretion over costs of all proceedings. It was open for the Court to order the costs of proceedings to be paid by the Respondent as they were found to be in contempt of the court orders. Equally, it was open for the Court to order the costs of the proceedings to be paid by any one of the parties to the order or to make no order for costs.

In this case, despite Louis Vuitton being successful, the Court ordered Louis Vuitton to bear its own costs and to pay the Respondents’ costs in relation to certain issues and to bear its own costs of the contempt proceedings.

Where breach of a court order gives rise to claims for contempt as well as claims for relief, the Court held that private claims for relief may be settled. However, in saying that, the Court was quick to point out that the trade mark holder and its solicitors should exercise prudence and caution when offering to settle contempt claims arising out of the contravening conduct. The basis for the Court saying that was that, given the criminal nature of contempt, there is a real risk of impropriety and possibly illegality, if an offer to settle is not reasonably based on a legal relief that the intellectual property right holder has.

The Court explained further that if the threat or prospect of contempt proceedings is used to obtain a settlement beyond that which the intellectual property right holder would be entitled to as a matter of law, that threat could amount to ‘improper pressure, duress or even extortion’. The Court stated that the offer to settle should specify the private claims that are being settled and make it clear what is or is not intended in respect of the contempt claim.

When identifying its findings, the Court stated that the settlement offers made by the lawyers for Louis Vuitton did not satisfy those elements and indeed went beyond the reasonable or the reliable estimate of Louis Vuitton’s entitlement and as such, Louis Vuitton made demands that were unreasonable.

Practical considerations for intellectual property right holders and their advisors

When an order of the court is breached by the infringing party, the intellectual property right holder is well guided to obtain legal advice and carefully prepare a letter of demand and the offer to settle the civil claims.

In this respect, legal advisors should identify that the offer only relates to civil claims and that any acceptance by the infringer would not preclude contempt proceedings, or should ensure that the offer does not go beyond the legal entitlement of the intellectual property rights holder and make it clear what is intended in respect of the contempt claims.

The trade mark holder should be careful where the infringing party is unrepresented as this places a higher burden upon the intellectual property rights holders and their advisors.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.