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In brief

• The Respondents had been involved in the manufacture and distribution of counterfeit “UGG AUSTRALIA” boots. Deckers Outdoor Corporation Inc (Deckers) is the owner of the relevant trade mark, copyright and reputational rights in the UGG AUSTRALIA brand.
• Justice Tracey of the Federal Court found that two Respondents, Hepbourne Pty Ltd and Mr Mykhalovskyi, had infringed Deckers’ copyright in a number of copyright works and had engaged in the tort of passing off, misleading and deceptive conduct and false representations in breach of the Trade Practices Act 1974 (Cth) and / or the Fair Trading Act 1999 (Vic).
• Deckers was awarded $3 million in compensatory damages and $3.5 million in additional /
  

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  exemplary damages against Hepbourne Pty Ltd. Hepbourne’s conduct was also in breach of previously agreed terms of settlement, and Deckers was awarded $150,000 for this breach.

• Deckers was also awarded $40,000 in compensation damages and $50,000 in additional / exemplary damages against Mr Mykhalovskyi.

Deckers Outdoor Corporation Inc v Farley (No 5) [2009] FCA 1298

Deckers Outdoor Corporation Inc (Deckers) is the manufacturer of the UGG AUSTRALIA branded UGG boots.

This proceeding was the final stage in a long-running and complex claim by Deckers against 23 respondents in relation to the manufacture, distribution, sale and marketing of counterfeit UGG boots.

At the date of this proceeding (13 November 2009), Decker’s claims against the other 21 respondents had been resolved.

This proceeding related to Deckers’ claims of copyright infringement, passing off, and misleading and deceptive conduct against Hepbourne Pty Ltd (Hepbourne) and Mr Mykhalovskyi. Deckers’ claims of trade mark infringement against these respondents had been dealt with in previous proceedings.

Deckers’ claims against Hepbourne

Copyright infringement

Deckers claimed that Hepbourne had infringed the copyright in its:

• “Sun Device”;
• “UGG AUSTRALIA Logo”;
• “UGG AUSTRALIA Information Booklet”;
• “UGG AUSTRALIA Care Instruction Card”; and
• photographs in the UGG Australia Information Booklet (collectively, the Copyright Works),

by reproducing, or authorising the reproduction of a substantial part, of the Copyright Works on the counterfeit boots it manufactured, and by distributing, or authorising the distribution, of the counterfeit products which incorporated the reproduced Copyright Works.

• In response, Hepbourne claimed that:
• the Sun Device lacked sufficient substance to constitute a work in which copyright could subsist; and
• Deckers was not able to establish that it was the owner of the copyright in the Information Booklet and Care Instruction Card.

However, both of Hepbourne’s arguments were unsuccessful. Justice Tracey was of the view that the Sun Device “is of sufficient complexity to attract copyright protection” pursuant to section 32 of the Copyright Act 1968 (Cth) (Act).

Justice Tracey also held that the evidence given by Deckers in Deckers Outdoor Corporation Inc v Farley (No 2) [2009] FCA 256 established that the Information Booklet and Care Instruction Card were created by employees of Deckers in the course of their employment, and therefore Deckers became the owner of the copyright in these works pursuant to section 35(6) of the Act.

Further, Justice Tracey was satisfied that Deckers’ copyright had been infringed by Hepbourne’s manufacture and distribution of the counterfeit UGG boots, which reproduced the Copyright Works, or a substantial part thereof. Justice Tracey also held that Hepbourne had infringed Deckers’ copyright by authorising the infringement of the Copyright Works by the individuals who manufactured the counterfeit boots at Hepbourne’s factory.

Passing off and misleading and deceptive conduct

Deckers asserted that Hepbourne’s conduct in manufacturing, distributing and selling the counterfeit UGG boots also amounted to:

• passing off;
• misleading and deceptive conduct in contravention of section 52 of the Trade Practices Act 1974 (Cth) (TPA) and / or section 9 of the Fair Trading Act 1999 (Vic) (FTA); and
• false representations in contravention of sections 53(c) and (d) of the TPA and / or sections 12(e) and 12(f) of the FTA.

In considering these claims, Justice Tracey restated that the three core elements required to establish passing off (or “the classical trinity”) are reputation, misrepresentation and damage.

Deckers claimed it had an exclusive reputation in the words and devices which form parts of its get-up (Get-Up). To establish its reputation in the Get-Up, Deckers adduced evidence of its marketing activities and expenditure, and the substantial Australian and international sales of its products. This evidence satisfied Justice Tracey that Deckers had a well-established reputation in the Get-Up, sufficient to make out the first element of passing off (reputation).

Justice Tracey was also satisfied that the evidence of Hepbourne’s conduct indicated that there had been a deliberate attempt by Hepbourne to persuade purchasers that its products were “genuine UGG Australia” products, by replicating Deckers’ Get-Up. Justice Tracey was of the view that this conduct was likely to mislead consumers in breach of sections 52 and 53 of the TPA (and / or sections 9 and 12 of the FTA), and also constituted the second element of passing off (misrepresentation).

In addition, Justice Tracey held that Hepbourne’s conduct had resulted in damage to Deckers, by way of lost sales and undermining consumer confidence in Deckers’ brand due to the poor quality of the counterfeit products. Therefore the third element of passing off (damage) was successfully made out.

Breach of terms of settlement

Hepbourne’s conduct was also found to be in breach of the terms of settlement, pursuant to which an earlier proceeding (VID 1114/2003) had been settled. Under those terms of settlement, Hepbourne was prohibited from manufacturing or distributing UGG boots labelled as “UGG AUSTRALIA” or containing the “UGG Logo”, the word “UGG” or any of Deckers’ copyright works. As a result of this breach, Hepbourne was required to pay Deckers $150,000.

Damages

Although Deckers was able to establish damage to its reputation and lost sales as the result of Hepbourne’s conduct, Deckers was only able to adduce limited evidence as to the quantum of damage suffered by it.

In assessing the award of compensatory damages to Deckers, Justice Tracey considered the number of boots sold by Hepbourne, the profit made by Hepbourne and the awards of damages made to Deckers in previous decisions. Justice Tracey awarded Deckers $3 million in compensatory damages.

Deckers also submitted that it was entitled to additional damages pursuant to section 115(4) of the Copyright Act. Justice Tracey considered that Hepbourne’s conduct, in total disregard of Decker’s rights and the Court’s previous orders, was deliberate and flagrant and warranted an award of additional damages.

Deckers also submitted that it was entitled to an award of exemplary damages on account of Hepbourne’s passing off. Justice Tracey stated:

“This case must be adjudged as one of the worst of its kind to come before the Court. It is probably too generous to describe it as ‘flagrant’. General deterrence must be a significant consideration.”

Justice Tracey awarded Deckers an additional $3.5 million by way of additional damages but did not make a separate order for exemplary damages.

Cross claim

Hepbourne also cross-claimed for the cancellation of Decker’s trade mark registration 785466 UGG AUSTRALIA & Sun Device Logo. Deckers argued that Hepbourne was precluded from bringing such a cross-claim on the basis that Hepbourne had previously given an undertaking that it would not challenge the validity of the trade mark. Justice Tracey dismissed the cross-claim, holding that Hepbourne was bound by the undertaking.

Deckers’ claims against Mr Mykhalovskyi

Deckers also claimed that the second remaining respondent, Mr Mykhalovskyi, had infringed its copyright, and had engaged in misleading and deceptive conduct and passing off.

Mr Mykhalovskyi was one of the individuals regularly engaged by Hepbourne to manufacture the counterfeit boots at Hepbourne’s factory between 2005 and 2007. Mr Mykhalovskyi was also a director of a number of companies that received proceeds from the sales of the counterfeit boots and sometimes purchased raw materials used to manufacture the counterfeit boots.

However, Justice Tracey was not convinced that Mr Mykhalovskyi’s association with these companies was anything more than the use of his name and details on corporate records. Accordingly, Justice Tracey considered that Mr Mykhalovskyi’s primary contribution was labour in manufacturing the counterfeit boots. Justice Tracey held that Mr Mykhalovskyi had infringed Deckers’ copyright, and had engaged in misleading and deceptive conduct and committed the tort of passing off, and ordered Mr Mykhalovskyi to pay $40,000 in compensatory damages to Deckers.

Deckers also sought an award for additional and / or exemplary damages against Mr Mykhalovskyi. Justice Tracey considered that Mr Mykhalovskyi had also displayed a “flagrant disregard” for Deckers’ rights (including continuing to manufacture the counterfeit boots in breach of the Court’s order) and awarded Deckers additional damages in the amount of $50,000 against Mr Mykhalovskyi. As with Hepbourne, Justice Tracey did not make a separate order for exemplary damages.