Australia: Chemist Warehouse's claim for misleading and deceptive conduct dismissed

The recent decision in Verrocchi v Direct Chemist Outlet Pty Ltd [2016] FCAFC 104 by the Full Bench of the Federal Court of Australia ('the FCA') has clarified the protection afforded to the reputation of goods and services in circumstances where misleading or deceptive conduct is claimed to have arisen.


Chemist Warehouse is a discount retail pharmacy chain that operates across Australia. The Chemist Warehouse chain was founded by Mario Verrocchi ('Verrocchi') who owns a significant number of the stores. Discount Chemist Outlet ('DCO') is another discount retail chemist chain which has been in direct competition with Chemist Warehouse for over eight years.

At first glance the two chains have a very similar get-up consisting of a bright yellow, blue and red colour palette, use of the words "discount chemist" and various slogans (see below).


The proceedings

This case was an Appeal from the decision of Justice Middleton in the Federal Court of Australia (FCA), who had held that DCO was not liable for misleading and deceptive conduct pursuant to the Australian Consumer Law. At trial, Verrocchi had argued that:

  1. DCO had adopted a "substantially identical or deceptively similar" store get-up, causing consumers to believe that the two pharmacy chains were associated;
  2. DCO had failed to adequately distinguish itself from Chemist Warehouse and had intentionally copied various attributes of Chemist Warehouse; and
  3. As a result, consumers were likely to be misled or deceived.

The FCA Full Court upheld Justice Middleton's decision, which rejected Verrocchi's submissions in favour of DCO. In his Honour's view:

  1. there was "insufficient uniformity in the visual branding devices" of Chemist Warehouse;
  2. there was "no sufficient common identity in the design and layout" between the two pharmacy chains; and
  3. DCO had sufficiently distinguished itself from Chemist Warehouse through, amongst other things, use of its own logo and lifestyle photos on its shopfront.

Principles of misleading and deceptive conduct

Whether conduct is misleading and deceptive is a matter of fact, considered in light of all the relevant circumstances. This means that when a Court looks at a product or service, the plaintiff cannot use one particular aspect of that product/service to establish that it is misleading or deceptive – it is a broad inquiry.

The question to be answered is whether the consumer will be, or is likely to be, misled or deceived, not merely whether it will cause them to wonder whether two products or services derive from the same trader. Where this inquiry concerns the use of a particular get-up, the Court arrives at the answer by assessing whether the goods or services have become distinctive of and associated with a particular trader by reason of their get-up.

Consistency & distinctiveness

The primary judge applied the above principles and considered all aspects of each pharmacy chain's get-up to determine whether there was misleading or deceptive conduct. As such, it was said that each get-up consisted of three primary colours in combination with a red logo and various discount slogans.

Chemist Warehouse's logo "Chemist Warehouse" was its main distinctive and consistently used branding element, but Verrocchi did not plead the logo as part of Chemist Warehouse's get-up. So how else could Verrocchi establish that Chemist Warehouse had obtained a distinctive reputation by way of its get-up? He submitted that the Chemist Warehouse colour palette was a distinctive and consistently used branding element.

The FCA held that the Chemist Warehouse get-up lacked consistency of appearance across its range of more than 250 stores. It was said that, besides the logo, the only consistent aspect of the Chemist Warehouse get-up was the colour palette.

The colour palette in Chemist Warehouse's get-up was used for visibility and to demonstrate discount quality. It was held that the functions of the primary colour palette could apply to any type of discount goods, not just pharmacy goods because various other industries use the primary colour palette to seek the attention of the public or to communicate that their products or services are at low prices. In other words, the Chemist Warehouse colour palette, specifically the use of the colour yellow, could not denote trade origin.

DCO distinguished from Chemist Warehouse

The FCA found that the distinguishable features of DCO's get-up were its lifestyle photos that appear on each shopfront, the words "Discount Chemist", relatively less signage clutter and the DCO logo (the words "Direct Chemist Outlet"). Further, it was difficult to find a high degree of similarity in get-up between the two chains because of the inconsistency of appearance in Chemist Warehouse stores. Accordingly, it was said that DCO had sufficiently distinguished itself from Chemist Warehouse.

Deliberate copying

At trial the evidence showed that DCO had deliberately (but not fraudulently) copied Chemist Warehouse's get-up. The Full Court of the FCA reiterated that evidence of deliberate copying will not necessarily constitute misleading and deceptive conduct: DCO had evinced an intention to copy, not an intention to mislead.

Significance of the case

When the Court was considering whether DCO had distinguished itself from Chemist Warehouse, consistency of appearance was a significant factor in the comparison of each get-up. Businesses that operate multiple stores must ensure that their get-up is sufficiently consistent across all stores if they wish to protect the appearance from adoption by a competitor.

In the pleadings, Verrocchi failed to include the words "Chemist Warehouse" as part of the get-up, and his later attempt to rectify the defect in his pleadings was rejected by the Full Court of the FCA. This omission could have been avoided by way of a more careful and considered approach to drafting the pleadings at trial.

We note that deliberate copying is not necessarily misleading and deceptive, since public policy deems certain aspects of a get-up (like the colour yellow) to be non-distinctive in the sense that it does not denote trade origin. The view of the Court was therefore that DCO's adoption of the Chemist Warehouse colour scheme did not confuse consumers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Lachlan Chisholm (formerly with Pointon Partners)
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