First published as part of Miriam Zanker and Courtney White 'Current Developments – Australia': "Down-N-Out's Appeal Dismissed and Directors' Liability Extended: Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 (23 December 2020) 123 Intellectual Property Forum 73.
Hashtag Burgers Pty Ltd, an Australian company that operated a number of pop-up events and burger restaurants under the name Down-N-Out ("Down-N-Out"), has lost its appeal of the Federal Court decision published on 26 February 2020 in which Down-N-Out was found liable for trade mark infringement, misleading or deceptive conduct and passing off in relation to the marks owned by In-N-Out Burgers, Inc ("In-N-Out"). In addition to upholding the primary judge's decision that the directors of Down-N-Out were personally liable for engaging in misleading or deceptive conduct, the Full Federal Court of Australia (the "Full Court") allowed the cross-appeal by In-N-Out and held that Down-N-Out's directors were also liable as joint tortfeasors for trade mark infringement and passing off.
Down-N-Out appealed the decision of the Federal Court on the grounds that Katzmann J (the Primary Judge) erred in:
- her evaluation of deceptive similarity;
- her conclusion that the directors of Down-N-Out adopted the marks for the deliberate purpose of appropriating the marks, branding or reputation of In-N-Out;
- her findings in relation to allegations of misleading or deceptive conduct and the tort of passing off; and
- relation to holding that Down-N-Out's conduct constituted passing off by applying the principle in ConAgra Inc v McCain Foods (Aust) Pty Ltd  FCA 176.
The Full Court, comprising Nicholas, Yates and Burley JJ, rejected each of the grounds of Down-N-Out's appeal, ultimately agreeing with the decision of the Primary Judge, with one minor exception in relation to the second ground of the appeal.
Appeal Ground 2 – Directors' Dishonesty
In the Federal Court decision, the Primary Judge concluded that the directors of Down-N-Out adopted the Down-N-Out marks for the deliberate purpose of appropriating the marks, branding or reputation of In-N-Out. The Primary Judge reached this conclusion based upon a range of matters. However, the Primary Judge stated she would not have been disposed to reach that conclusion "but for two pieces of evidence1
- Down-N-Out's reply to the letter of demand denying their use of certain In-N-Out marks, ANIMAL STYLE and PROTEIN STYLE, on the Down-N-Out menus. Given that there was a Down-N-Out media release that referred to these marks on their secret menu, the primary judge considered this to be a knowingly false statement; and
- Down-N-Out's failure to comply with discovery obligations, particularly in relation to its communications with graphic designers.
The Full Court considered that this part of the primary judgment involved some error and that it was "unnecessary for her Honour to proceed to consider the two additional items of evidence". 2 Despite the Full Court's consideration that the Primary Judge erred in making findings of dishonesty, the Full Court considered that the error did not:
vitiate the primary judge's conclusions as to intention or deceptive similarity for two reasons: first, 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 [the directors].3
Deceptive Similarity – the role of a mark's idea or meaning
It is well recognised that the idea or meaning of a mark has a role to play in the analysis of deceptive similarity, but this only forms part of the "overall analysis" that is required to satisfy the statutory requirements for deceptive similarity as set out in s.10 of the Trade Marks Act 1995 (Cth). 4 Despite this, the Full Court noted that "there may be room for debate" 5 on the question of whether commonality of ideas conveyed by the marks is sufficient in itself for a finding of deceptive similarity. However, given the marks in dispute shared aural and visual similarities, in particular "N-OUT" as the latter part of the mark, it appears that a finding that the marks conveyed different meanings would have been unlikely to change the outcome on trade mark infringement in this case.
In-N-Out's Cross-Appeal – Directors' Liability
At first instance, the Primary Judge did not consider that Down-N-Out's directors were personally liable for trade mark infringement and passing off following incorporation of the company. In-N-Out cross-appealed that finding and submitted that the Primary Judge's failure to hold the directors liable as joint tortfeasors for trade mark infringement and passing off involved three errors. The three errors were:
- The various findings of fact and conclusions reached by the Primary Judge, (such as the findings that the directors did not use the company as an instrument whereby infringement was perpetrated), were unnecessary to establish the directors' liability as joint tortfeasors. In-N-Out submitted that the findings in relation to the directors' deliberate use of significant features of the In-N-Out marks, (as demonstrated from communications with graphic designers), the directors' roles as sole shareholders and directors of the company, and their knowing involvement in the wrongdoing, was sufficient to establish joint tortfeasorship. 6
- The Primary Judge's finding that the evidence did not disclose the nature or extent of the directors' involvement in the company's wrongdoing and that it was not possible to say which of the two directors directed or procured the relevant conduct, was inconsistent with earlier findings of fact made by the primary judge.
- It was not necessary for In-N-Out to prove that the directors knew or believed that the use of the Down-N-Out name or logos was infringing or likely to infringe.
The Full Court put the test for director's liability of a tort plainly:
to incur personal liability for a tort committed by a company, a director must be acting beyond their proper role as director. 7
The Full Court considered that "the combined effect of five matters" led them to the conclusion that the directors were in fact joint tortfeasors. 8 The five factors included that the directors were sole directors; the directors alone made decisions as to the company's management; the directors alone received the profits derived from the company; there was no significant difference between the way they operated the business before and after incorporation; and that the directors were knowingly involved in the company's wrongdoing.
Given that Down-N-Out's appeal was dismissed and In-N-Out's cross-appeal was allowed, the primary judge's orders were amended to include declarations that the two directors of Down-N-Out had infringed the In-N-Out marks and engaged in the tort of passing off as joint tortfeasors. Down- N-Out and its directors were jointly ordered to pay the costs of the appeal, and the directors were ordered to pay the costs of In-N-Out's cross-appeal.
The appellate decision reinforces the key points from the primary decision, in particular that the latter part of a mark can be the distinctive or memorable feature of a mark in some cases. In that regard, the Full Court agreed with the assessment that "N-OUT: was a "key visual and aural feature of the IN-N-OUT BURGER mark".9 The appellate decision also highlights that directors cannot always hide behind the corporate veil, and provides guidance on the combination of factors that may result in the lifting of the corporate veil.
1. In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd  FCA 193 .
2 Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 .
3 Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 .
4 Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 .
5 Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 .
6 Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 .
7 Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 .
8 Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 .
9 Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc  FCAFC 235 .
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