A series of cases, including Knott Investments Pty Ltd v Winnebago Industries, Inc [2013] FCAFC 59 (7 June 2013) have dealt with the tale of a US company and an Australian company that copied its foreign trade marks. In 2010, American company, Winnebago Industries, Inc. (Winnebago US), sued Australian company Knott Investments Pty Ltd and its dealers for passing off and misleading and deceptive conduct. What was unusual about this case was that Winnebago US took 25 years from first finding out about Knott’s conduct until it sued. This delay was at the core of Knott’s defence and it shaped the remedy that the Court ultimately gave.
Background
Winnebago US commenced business in the 1950s, making recreational vehicles (RVs). By 1978, the WINNEBAGO brand was huge in the US and had expanded to the United Kingdom
and Canada. Importantly, it had not sold any RVs in Australia. It did, however, possess a ‘spill-over’ reputation in Australia, due to advertisements and the movement of people between the US and Australia. Knott Principal, Mr Binns, didn’t help his case by conceding that there would have been a proportion of Australians who knew of the American WINNEBAGO brand.
In the 1960s, Mr Binns visited the US and saw the WINNEBAGO brand. In 1978, he and his wife began selling RVs under the trade mark WINNEBAGO. Four years later they incorporated as Knott, and continued to make and sell WINNEBAGO RVs. By the time of the litigation, Knott had numerous dealerships, sold about $560 million worth of RVs, had won industry awards and employed 215 people.
Initial discovery
Winnebago US first discovered Knott’s activities in Australia in 1985. Despite this, they waited until 1991 to send a letter of demand. A Settlement Agreement was signed by the parties which had a critical impact on the subsequent litigation. Under the Settlement Agreement, Knott promised not to use the WINNEBAGO trade marks anywhere except Australia, but Winnebago did not release Knott from liability in Australia. Instead it ‘reserved its rights’ to take action in Australia in the future.
Basically, Australia was put in the ‘too hard’ basket. Knott was clearly not prepared to agree to stop using the WINNEBAGO trade marks in Australia, and Winnebago US was not prepared to force the issue. However, when the Full Court came to decide on what the Settlement Agreement meant, it held that the Agreement defeated Knott’s defence of delay. The Agreement told Knott that Winnebago US had not given up on Australia. Thus Knott, by continuing to use the WINNEBAGO trade marks, took the risk that someday Winnebago US might sue Knott in Australia. This meant
that Winnebago US’s extraordinary delay did not operate as a defence for Knott to the claim of passing off and misleading and deceptive conduct.
However, the delay was not irrelevant. The trial judge, finding that Knott and its dealers had passed themselves off as or associated with Winnebago US, granted an injunction stopping them from continued use of the trade marks altogether after a sell-out period. The Full Court considered that this failed to take into account the fact that Knott had built up its own reputation and goodwill over the past 25 years to the knowledge of Winnebago US. Winnebago US, upon entering the Australian market, would take advantage of Knott’s goodwill. Justice Jagot considered that this would be ‘unreasonable or plainly unjust’.
Litigation continues
The Full Court came up with a solution that probably pleased neither party – Knott and its dealers could still use the WINNEBAGO trade marks in Australia, but they had to apply a disclaimer to all advertisements, sales and other dealings with their RVs, including placing a disclaimer on the RVs themselves, making it clear they were not connected to Winnebago US.
This was not the end of the litigation. In Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) [2015] FCA 1327, Winnebago US tried to recover damages for the passing
off that had occurred between 14 October 2004 and the date of the Full Court judgment. 14 October 2004 was six years before the commencement of the court case. This is the maximum period that anyone can claim damages for a passing off or misleading and deceptive conduct case, even if the infringing conduct commenced before then.
On 2 December 2015, Justice Yates decided that Winnebago US was entitled to recover damages from Knott and the dealers on the basis of a reasonable royalty (as if Knott had been licensed). This was despite the fact that Winnebago US admitted that it would not have willingly granted a licence of the WINNEBAGO trade marks to Knott if it had been asked. This is significant because the Full Court of the Federal Court in a previous copyright case held the opposite – that if the plaintiff would not have licensed the defendant, they are not able to obtain damages on the basis of a reasonable royalty. Justice Yates distinguished this decision on the basis that it was a copyright case, not a passing off case. In our respectful view, this is a distinction without a difference. Although copyright is a statutory right, whereas passing off protects unregistered goodwill, both laws protect proprietary rights that can be licensed.
Justice Yates then had to determine what the rate of the royalty would be. Winnebago US argued for 4–5%, and Knott and the dealers argued for nothing or at most 1%. Justice Yates decided upon 1%. One of the reasons his Honour gave was because ‘another person’ (i.e. Knott), could use the WINNEBAGO trade marks at the same time with a disclaimer (i.e. the licence was only non-exclusive). The curious thing about this was that Knott was the other person.
Knott has recently appealled this decision. It also has another action pending in the Federal Court against Winnebago US alleging misleading and deceptive conduct, presumably on the basis of Winnebago US’s entry into Australia.
The danger of delay
Delay can prejudice or even lose you your legal rights. In intellectual property matters, delay can be relevant in three ways.
(a) If your rights are being infringed and you wish to seek urgent relief from a court to stop the infringement (called an interlocutory injunction), delay can result in the court refusing the injunction.
(b) Generally, if you conduct yourself so as to encourage an infringer to believe that you will not exercise your rights, or you knowingly stand by and let the infringer build up a business without acting to stop it, this may prevent you from obtaining any remedy.
(c) As seen in the Winnebago cases, even if delay does not entirely prevent a remedy, it may reduce the strength of the remedy – the defendant may not be prevented from using a trade mark altogether. The fact that the defendant has built up a business and reputation may also mean that damages are reduced.
If you believe that a third party is infringing your intellectual property, it is very important to seek legal advice immediately. Waiting to see whether the rival may cause substantial damage to your business, could mean that you have already lost valuable rights.
Please contact us if you have any questions.