Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 (23 December 2020)
Unsuccessful appeal by Hashtag Burgers (Hashtag) from the judgement of Katzmann J finding trademark infringement, passing off and misleading or deceptive conduct.
Successful cross-appeal by In-N-Out Burgers (INO) against the primary judge’s finding that Kagan and Saliba were not also jointly and severally liable with Hashtag for the infringing conduct and passing off that occurred after incorporation of the company.
The judgement of the primary judge is reported at https://www.selfmark.com.au/trademark-lawyer-sydney-federal-court-in-n-out-burger-v-down-n-out/
INO has, since at least 1967, owned and operated a growing chain of burger restaurants in the USA under the name In-N-Out and has various Australian trademark registrations for IN-N-OUT BURGER in plain word and logo form as shown below (the INO marks).
The logo mark, in use, is rendered in the colours red and yellow as shown below:
INO serves a basic menu of 3 burgers with secret menu variations including ‘animal style’ and ‘protein style’.
Since May 2004, INO has operated an online store where members of the public throughout the world, including Australia, can purchase merchandise. Also, from around 2011, INO has been active on social media. It also has hosted pop-up restaurant events outside the USA including 8 such events in Australia between January 2012 and March 2018 in Sydney, Melbourne and Perth.
INO objected to use of Down-N-Out (and variants thereof) in connection with burger restaurants in Australia. The Down-N-Out brand was initially used from 2016 by Benjamin Kagan and Andrew Saliba and subsequently by Hashtag which was incorporated on 23 June 2017.
In June 2015 and January 2016, Kagan and Saliba held a pop-up burger event in Sydney under FUNK-N-BURGERS branding as shown below and offering Down’N’Out burgers served up ANIMAL STYLE.
Indeed, there was evidence that Mr Saliba asked the graphic designer to make “a funk n burgers sign like in n out burger” and emailed him a copy of the In-N-Out logo.
In June 2016 Kagan & Saliba opened a pop-up burger restaurant in Sydney with the following Down-N-Out branding:
On 17 June 2016, INO contacted Kagan & Saliba with a polite letter asking them to change their branding. They responded with various denials, but subsequently covered up the arrows and changed their branding, an example of which is shown below:
Kagan & Saliba and then Hashtag Burgers continued to open pop-up and other restaurants before and after INO commenced these proceedings.
In finding the various versions of Down-N-Out were deceptively similar to and infringed the INO marks, Katzmann J considered intention was a relevant consideration. The Down-N-Out name was adopted, not to paint a picture of a person down on his luck, but to remind consumers of INO. Significantly, Kagan & Saliba chose to not give any evidence. Her Honour considered it was open to draw an adverse inference that they adopted aspects of the INO marks in order to capitalise on its reputation. In reaching this conclusion, her Honour was critical of Kagan & Saliba’s initial denials that they had used “Animal Style” and “Protein Style” for their menus items and lack of compliance with discovery obligations. Put simply, they “sailed too close to the wind”.
Australian Consumer Law (ACL)
The primary judge found that the conduct of Kagan, Saliba and Hashtag at their various restaurants as well as on their website and social media was misleading or deceptive under s18 of the ACL.
An initial issue was whether INO’s brand enjoyed a reputation in Australia as at the date when the impugned conduct began on 25 May 2016. Katzmann J was satisfied that a substantial number of persons in Australia were aware of INO’s brand, its restaurants and its products. Indeed, her Honour commented that it is difficult to understand why this point was contested.
The impugned conduct was broken down into 6 categories with Katzmann J upholding INO’s claims in each category. While it was noted that red and yellow colours were used by others in the fast food trade, her Honour considered that use of the Down-N-Out name in all its various forms when used in conjunction with burgers suggests an association of some kind with INO.
The passing off claim involved the same conduct as the ACL claim. While the ACL is concerned with the protection of consumers, passing-off is concerned with the protection against injury to the proprietary right in the goodwill or reputation of a business.
Katzmann J found the elements of the tort of passing off (goodwill, misrepresentation and damage) were made out. Her Honour accepted that INO’s reputation, which is intimately connected to the IN‑N‑OUT brand, gave it a real advantage in the Australian marketplace.
Liability of Kagan and Saliba
Kagan and Saliba were jointly and severally liable for their wrongful conduct up to the incorporation of Hashtag on 23 June 2017. Thereafter, only Hashtag was liable. Katzmann J found that Kagan & Saliba were not also jointly liable with Hashtag after its incorporation.
Her Honour found that Kagan & Saliba were knowingly concerned in the contraventions by Hashtag under the ACL; although this was based on a concession by the respondents.
However, her Honour considered Kagan & Saliba were not joint tortfeasors with Hashtag for passing off (common law tort) and/or trade mark infringement (statutory tort). There was no direct evidence about the circumstances of incorporation or the conduct of Kagan and Saliba after incorporation. INO’s allegations were based on circumstantial evidence arising from them being the sole shareholders and directors of Hashtag Burgers and making decisions as to its management.
Full Federal Court
Nicholas, Yates and Burley JJ unanimously dismissed Hashtag’s appeal on trademark infringement, passing off and misleading or deceptive conduct. Their Honours also upheld INO’s cross-appeal and found Kagan and Saliba were also jointly and severally liable with Hashtag for the infringing conduct and passing off that occurred after incorporation of the company.
It was unnecessary to consider the differences between INO’s registered trade marks and the variations between the appellants’ uses of the words DOWN-N-OUT because the trial was conducted on the basis that the relevant comparison was between the name DOWN-N-OUT and the word mark IN-N-OUT BURGER.
The appellants contended the primary judge erred in her evaluation of deceptive similarity by:
(a) failing to give weight to the presence of the word BURGER in the INO trade marks;
(b) failing to assess the effect of the arrows in the composite INO trade marks;
(c) placing undue emphasis on the “N-OUT” aspect of the INO trade mark and attributing insufficient significance to the difference between “DOWN” / “D#WN” and “IN”;
(d) failing to give sufficient weight to the difference in meaning between the respective marks, and the ideas conveyed by those marks;
(e) placing significant or dispositive weight on aural similarity and setting aside material visual differences between the marks;
(f) framing the central question as one focussed on imperfect recollection; and
(g) placing apparent weight on evidence of confusion from social media posts and no weight on the absence of evidence of actual confusion.
However, their Honours rejected each of these points.
The appellants also contended the primary judge erred in finding that Kagan and Saliba adopted each of the DOWN-N-OUT marks for the deliberate purpose of appropriating INO’s trade marks, branding or reputation.
Their Honours found the primary judge’s reasons involved some error, but that did not materially affect her conclusions as to deceptive similarity.
The primary judge made a finding of fact that it was “no coincidence” that Kagan and Saliba settled on the name DOWN-N-OUT and that it was selected with full knowledge of INO’s marks. That finding was amply supported. Further, the inference that DOWN-N-OUT was chosen by Kagan and Saliba for the purpose of causing confusion to consumers was based on the evidence available to the primary judge and Kagan and Saliba did not rely on any evidence to the contrary. However, the Full Court considered it was unnecessary for the primary judge to consider the two additional items of evidence, namely Kagan & Saliba’s initial denials that they had used “Animal Style” and “Protein Style” for their menus items and their lack of compliance with discovery obligations.
The Full Court went on to conclude that the primary judge’s reasons did not suggest the need for a finding of actual dishonesty before the so called “rule” in the Australian Woollen Mills case can be engaged. In that case Dixon and McTiernan JJ stated:
…when a dishonest trader fashions an implement or weapon for the purpose of misleading potential customers he at least provides a reliable and expert opinion on the question whether what he has done is in fact likely to deceive. Moreover, he can blame no one but himself, even if the conclusion be mistaken that his trade mark or the get-up of his goods will confuse and mislead the public.
This is not in the nature of a legal presumption, rather it is no more than the process of fact-finding and the factual assessment of whether deception or confusion is likely to occur. Proof of dishonesty is not a necessary step in the fact-finding process. It was not necessary for the primary judge to take the further step of determining whether Kagan or Saliba acted dishonestly, although it seems her Honour did so for the sake of completeness.
The Full Court considered that the primary judge’s conclusion that Kagan and Saliba’s denial was deliberately false was not supported by the evidence. Further, while the primary judge was entitled to be critical of the approach taken by Kagan and Saliba during discovery and to conclude that the failure to produce the relevant documents reflected a view that they had something to hide, the Full Court did not consider that these findings rationally had a bearing on the intention of Kagan and Saliba when they chose the DOWN-N-OUT name and logos.
While the Full Court concluded that the primary judge erred in her findings of dishonesty, that error did not vitiate her Honour’s conclusions as to intention or deceptive similarity because firstly, a finding of dishonesty is not a necessary part of the assessment and secondly, her Honour separately found the requisite intention to cause confusion on the part of Kagan and Saliba.
Australian Consumer Law (ACL) and passing off
The Full Court found no error in the primary judge’s reasons for finding misleading or deceptive conduct and passing off by the appellants.
The appellants also contended that INO did not have the requisite goodwill in Australia to sustain a passing off claim. However, the Full Court found no reason to depart from the longstanding principle in the ConAgra case that it is not necessary to maintain a passing off action for a plaintiff to have a place of business or a business presence in Australia; nor is it necessary that its goods are sold here. Rather, it is sufficient if its goods have a reputation in Australia to a sufficient degree to establish that there is a likelihood of deception among consumers, and potential consumers, and of damage to its reputation.
The Full Court agreed with INO that the primary judge erred in finding that Kagan and Saliba were not also jointly and severally liable with Hashtag for the infringing conduct and passing off that occurred after incorporation of the company.
To incur personal liability for a tort committed by a company, a director must be acting beyond their proper role as a director and have a sufficiently close personal involvement. Their Honours considered that, based on the findings of the primary judge, Kagan and Saliba did attract liability as joint tortfeasors after incorporation of Hashtag.
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