Full Federal Court ponders restrictions on parallel importation of trade marked goods

Full Federal Court ponders restrictions on parallel importation of trade marked goods

Subsection 123(1) of the new Trade Marks Act 1995 provides that a person who uses a registered trade mark in relation to registered goods does not infringe the mark so long as the mark has been "applied to, or in relation to, the goods by, or with the consent of, the registered owner of the trade mark". Montana Tyres Rims and Tubes Pty Ltd v Transport Tyre Sales Pty Ltd (29 March, 1999) is concerned with the effectiveness of a revocable assignment of its Australian registered trade marks by a foreign manufacturer to its Australian distributor in order to prevent parallel imports. Unfortunately, the decision does not fully resolve this contentious issue.

Facts

Until the events that gave rise to the proceedings Ohtsu Tire & Rubber Company Ltd of Japan ("Ohtsu") was registered under the Australian Trade Marks Act as the owner of the marks OHTSU, FALCON and FALCON RX in respect of tyres and associated products. Ohtsu is a leading tyre manufacturer whose products are sold all over the world. Its tyres bear its trade marks, along with the words "Made in Japan" and a type identification number which are all moulded into the side walls of the tyres as part of the manufacturing process. Transport Tyre Sales Pty Ltd ("Transport") was Ohtsu's exclusive Australian distributor. In order to prevent the parallel importation of Ohtsu's tyres, it was agreed that Ohtsu would assign the Australian registrations for the marks to Transport but that Transport would give a written commitment to reassign the marks. Two documents were executed. First, a deed of assignment whereby Ohtsu assigned the three Australian trade mark registrations to Transport together with the goodwill of the business concerned. However, this deed did not affect the way business was conducted between Ohstu and Transport. Transport continued to import and distribute tyres manufactured by Ohstu. Secondly, an option deed was executed whereby Transport irrevocably granted to Ohtsu an option to re-purchase the assigned trade marks and goodwill, to be exercised initially in certain circumstances and after 2 years at any time. The option deed also prohibited Transport from assigning the marks and goodwill to any third party unless Transport obtained prior written consent from Ohtsu. On 15 May 1997 Transport requested the Register of Trade Marks to record the assignments of the three marks and in support of its application filed a copy of the deed of assignment. No reference was made to the option deed. Once the assignments were recorded Transport wrote to Montana Tyres Rim and Tubes Pty Ltd ("Montana") threatening to sue for trade mark infringement unless Montana undertook to stop the importation and sale of Ohtsu's products. Eventually Montana instituted proceedings in which it ultimately sought cancellation of the entries recording the assignments of the trade marks from Ohtsu to Transport and relief for groundless threats of infringement proceedings. Transport counterclaimed for trade mark infringement.

Validity of the assignments

The trial judge considered that Transport was not responsible for the tyres in a way a registered trade mark owner must be; it was not responsible for the design, manufacture, or control of the quality of tyres imported and distributed in Australia. The trial judge concluded "there is not such a nexus between the marks and [Transport] as to make those marks registrable as [Transport] trade marks." The trial judge considered the marks are intended to distinguish, and do distinguish, the tyres as being goods manufactured by Ohtsu as distinct from any other tyre manufacturer. For these reasons the trial judge found the use of the marks by Transport was likely to deceive or cause confusion. This prima facie constitutes a ground for rectifying the Trade Marks Register. However, adopting a particular interpretation of the new rectification provisions in the Trade Marks Act, the trial judge held the marks could not now be removed on this basis.

The trial judge went on to hold the entries recording the assignment of the marks were subject to cancellation because they were made as a result of fraud, false suggestion or misrepresentation. This was largely because of Transport's failure to lodge a copy of the option deed when it sought recordal of the assignments. On appeal the Full Federal Court overturned this finding of the trial judge. The Full Court considered that Transport's application for recordal of the assignments was in accordance with the Act and pointed out that a registered trade mark is a form of personal property and may be subject to legal and equitable rights vested in third parties.

The Full Federal Court did not consider whether the assignment recordals were liable to cancellation because use of the marks by Transport was likely to deceive or cause confusion.

Infringement

The Full Federal Court adopted the natural meaning of subsection 123(1) set out above holding that the provision applies where the Australian registered owner has applied the trade marks to the goods or consented to their application regardless of where the application takes place and the then intended destination of the goods. However, the acts of infringement alleged against Montana were in respect of tyres and associated products which had been imported into Australia by Montana before the date on which Transport applied to register the assignments of the trade marks. The Full Court therefore held that Montana's uses of the trade marks by selling and promoting the tyres and associated products were excused by subsection 123(1) and thus there had been no infringement of the trade marks.

Misleading & deceptive conduct

It followed from the infringement findings that an unqualified assertion that sales of any tyres bearing the trade marks was an infringement was a false statement and was groundless. The Trade Marks Act gives a right of action to any person who has received groundless threats of legal proceedings for infringement of a registered trade mark, but such an action is not available if a trade mark infringement action is commenced and pursued with due diligence. The Full Court held that Transport's conduct satisfied the due diligence requirement but remitted the case back to the trial judge to determine whether Montana had suffered any loss or damage by Transport's groundless threats on the basis that such threats breached the provisions of the Trade Practices Act proscribing misleading and deceptive conduct. The Full Court also remitted the case back to the trial judge to determine whether Montana's conduct in importing, selling and promoting the tyres was misleading or deceptive contrary to the Trade Practices Act.

Conclusion

Most trade mark owners will be reluctant to unconditionally assign their Australian trade mark registrations to their Australian distributor in order to prevent parallel imports. The Full Court makes it clear that "revocable assignments" are effective to transfer title to a trade mark. However, it should not be assumed that such assignments provide an easy and safe means of preventing parallel imports. The Full Federal Court did not consider whether the registrations of the marks remain valid in the hands of Transport. As indicated above, the trial judge was clearly concerned with the fact that the arrangement between Ohtsu and Transport while vesting apparent title to the marks in Transport left the power to control use and disposition of the marks with Ohtsu. He found the use of the marks by Transport was likely to deceive or cause confusion. The trial judge did not order cancellation of the assignment recordals on this ground because of the manner in which he interpreted the relevant rectification provisions of the Act. The trial judge's interpretation of these provisions may not always be followed or applied and, if this is so, assignments effected purely for the purposes of preventing parallel importation may invalidate the registration of the marks themselves. These problems are not necessarily overcome by assigning the Australian registrations to a subsidiary company. Thus it is important that decisions to assign Australian trade mark registrations to prevent parallel importation only be taken after full consideration is given to the particular facts surrounding the trade marks in question.