On Your Marks

19 Aug 2008

Factors Relevant to Accounts of Profits for Infringement

Intellectual Property Development Corporation Pty Limited (IPDC) and Hefty NZ Limited (Hefty NZ) sought an account of profits against Primary Distributors New Zealand Limited (PDNZ) for unlawful sales of products sold under the brand name Hefty. PDNZ accepted that it had infringed the Hefty trade mark, but contested IPDC’s claim for an account of profits. This case examines the failure of the trade mark owner to act promptly to protect its rights in the Hefty trade marks and the impact of that delay on the amount of profits that is recoverable.

Factual Background

Cartigny Pty Limited (Cartigny) was the registered proprietor of the Hefty trade marks in New Zealand. PDNZ acquired a three-month trade mark licence to sell products branded with the Hefty trade marks from 31 March 2005 until end of June 2005. However, PDNZ continued to sell the remainder of the stock past the expiration of the licence agreement, which amounted to a breach of that agreement and infringement of the Hefty trade marks. When Cartigny went into liquidation, IPDC acquired the rights to the Hefty trade marks from 20 December 2005. In January 2006, IPDC became aware that PDNZ was infringing its Hefty trade marks, but did not issue a cease and desist letter until July 2006.

Legal Question

There was no question that PDNZ had infringed IPDC's Hefty trade marks. IPDC sought an account of the profits made by PDNZ from infringement of the Hefty trade marks (a period of eleven months from the beginning of September 2005 until July 2006). However, PDNZ argued that it should not have to account for all profits made on the sale of products branded with the Hefty trade marks during that period, since IPDC were aware of PDNZ’s continued sale of Hefty products, and had not taken steps to enforce its rights in the trade marks. Alternatively, PDNZ claimed that IPDC’s conduct amounted to waiver or acquiescence, or should invoke the doctrine of laches.

Account of profits

A plaintiff may seek an account of profits under section 106 of the Trade Marks Act 2002. Despite its incorporation in the statute, an account of profits is originally an equitable remedy and is to be treated as having an equitable character in relation to trade mark infringements. The analysis in this case is, therefore, likely to have general application to infringements of intellectual property. According to the equitable maxim, a plaintiff cannot stand by and permit the defendant to make profits over a period of years, and then expect to claim those profits. 

IPDC claimed an account of profits on the sale of Hefty branded products from September 2005 until July 2006. PDNZ responded that IPDC had knowledge of PDNZ's continued sale of the Hefty products for that period and had not complained. As IPDC did not even acquire rights in the Hefty trade marks until December 2005, until that time IPDC had no rights on which to base a complaint. As noted, IPDC delayed putting PDNZ on notice of its rights in the trade marks from January 2006 until July 2006. Furthermore, the fact that IPDC did not itself attempt to trade under the trade marks during the first half of 2006, weighed against IPDC. 

Asher J considered that it was not fair for a trade mark owner who knowingly permits a competitor to infringe its trade mark and cannot prove any actual loss to be able to claim the infringer’s profits. Therefore, Asher J found that IPDC was entitled to an account of profits from September 2005 until January 2006, but declined to extend the award past 18 January 2006 (when  IPDC became aware of the infringement).

Doctrines of acquiescence, waiver or laches

In its submissions, PDNZ also relied on the equitable remedies of acquiescence, waiver and laches. PDNZ argued that IPDC’s inaction amounted to an assent to PDNZ’s continued sale of the Hefty products and disentitled IPDC from claiming relief for that infringement.

The court followed the established principle that a mere failure to sue without some positive act of encouragement to the guilty party is insufficient to give rise to the affirmative equitable defence of acquiescence.

In considering the doctrine of acquiescence, the court noted that there is some doubt as to whether the doctrine survives on its own, separate from laches and waiver. Asher J found that acquiescence requires some kind of conduct from which assent can be inferred, as well as reliance by the defendants on the assent. Asher J concluded that the doctrine of acquiescence was not applicable because IPDC’s inaction did not amount to an assent to IPDC’s infringement of the trade marks.

Due to the lack of any implied representation or reliance, Asher J also found that waiver did not apply in these circumstances.

The doctrine of laches requires such a delay that it would be unfair to allow a remedy against the defendant. The defendant must also show some change of circumstance consequent on the delay, which makes pursuit of the remedy inequitable. The court held that the doctrine of laches did not apply because the delay of six months was not of sufficient length to amount to laches. 

Lessons for trade mark owners

Once a trade mark owner becomes aware of possible trade mark infringement, it is imperative that it takes immediate action. This case suggests that rights to an account of profits will be at risk if a trade mark owner delays taking action after it becomes aware of an infringement. In addition, failure to take steps to prevent the continued infringement also risks damaging the value of the brand in the marketplace (and thus affects the calculation of any damage). This case also acts as a reminder that it can be essential to retain evidence of, and document, the infringement.

Authors

Earl Gray

Partner - Intellectual Property

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John Shackleton

Partner - Dispute Resolution

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Tracey Walker

Partner - Dispute Resolution

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Richard Watts

Partner - Intellectual Property

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Sarah Chapman

Senior Associate - Intellectual Property

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Claire Foggo

Senior Associate - Intellectual Property

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Sonya Hill

Senior Associate - Corporate & Commercial

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