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Today, the High Court unanimously dismissed an appeal from a judgment of the Full Court of the Federal Court of Australia in the Zip Co Limited v Firstmac Limited case. The appeal concerned key aspects of the defence of honest concurrent use to an trade mark infringement claim.
This is a significant result for registered rights owners and for the law of trade marks in Australia, affirming the protection afforded to registered trade mark holders against concurrent users who cannot demonstrate honesty at the relevant time.
Background
This appeal arose from a trade mark infringement dispute concerning the registered word mark “ZIP”. Firstmac Limited, Australia’s largest non-bank lender, registered the word mark “ZIP” in Class 36 (financial affairs (loans)) on 20 September 2004 and used it in connection with home loan products from early 2005 (Firstmac Mark).
In 2012, Mr Diamond, an entrepreneur, began developing a consumer lending business and adopted the name “ZIP” apparently to evoke fast movement. By June 2013, Mr Diamond and his co-founder Mr Gray had settled on using the names “ZIP” and “ZIP MONEY” for their business, without awareness of Firstmac’s mark or registration.
In August 2013, the Zip Companies filed trade mark applications, and in October 2013 received adverse examination reports from IP Australia identifying the Firstmac Mark as an impediment to registration. Despite this, from November 2013, the Zip Companies proceeded to use marks incorporating the word “ZIP” in connection with consumer credit products. The Zip Companies’ business grew, achieving revenue exceeding $84 million and 1.3 million customers in Australia by 30 June 2019.
Firstmac commenced infringement proceedings in June 2019. At first instance, Markovic J in the Federal Court found that the Zip Companies had established defences of honest concurrent use under ss 122(1)(f) and 122(1)(fa) read with s 44(3) of the Trade Marks Act 1995 (Cth). The Full Court (Katzmann and Bromwich JJ, Perram J agreeing) reversed this finding, holding that the Zip Companies had failed to prove honesty at the date of first potential infringement in November 2013.
Our previous article on the case provides further background: ZIP – Infringe Now. Pay Later? – Spruson & Ferguson
Key issues
The High Court identified two principal issues:
- Timing of assessment: At what point in time are the defences of honest concurrent use under ss 122(1)(f) and 122(1)(fa) read with s 44(3) of the Trade Marks Act to be assessed?
- Meaning of “honest”: What is the content of the requirement of “honest” use in s 44(3)(a), and what must an alleged infringer affirmatively establish for the defences to succeed?
Decision
Gageler CJ, Gordon, Edelman, Steward and Beech-Jones JJ unanimously decided the above two issues as follows.
Timing of assessment
The High Court rejected the Zip Companies’ argument that the defences should be assessed at the date of filing the defence or the date of trial, putting to rest any residual uncertainty as to the relevant time this defence is to be considered.
The High Court reasoned that such an approach would undermine the purpose of the defences in ss 122(1)(f) and 122(1)(fa), which did not introduce a radical break in the history of the doctrine of honest concurrent use by permitting retrospective assessment of honesty.
The opening words of s 122(1) direct attention to the date of potential infringement, and the “concurrent” use to which s 44(3)(a) refers must be concurrent use at that date. The High Court emphasised that it would be “incoherent for a defence to infringement to arise based upon the potentially infringing mark being capable of registration many years later, when actual registration years later would not be sufficient”.
Importantly, the High Court clarified that the defences do not operate “once and for all” based on the first potential infringement; rather, since every occasion of use of a mark in trade can be a separate potential infringement, “the defences apply separately to each such occasion”.
Meaning of “honest”
The High Court endorsed the approach from Peters v The Queen (1998) 192 CLR 493 and Macleod v The Queen (2003) 214 CLR 230, holding that the standard of dishonesty is assessed by “the standards of ordinary, decent people” and not by the subjective standard of honesty held by the person alleged to have been dishonest. The honesty inquiry requires identification of the person’s knowledge, belief, or intent, which is then assessed against those objective standards.
While knowledge of a competing mark is an important factor, mere knowledge does not preclude a finding of honesty. However, where a party is aware of a “material impediment to the legitimate use of [its] marks” and chooses not to engage with that impediment, the evidentiary burden of proving honesty becomes extremely difficult to discharge.
On this basis, the High Court held that the trial judge erred by starting the assessment of honesty at a point earlier than the date of first potential infringement and then asking whether previously honest conduct had become dishonest, thereby distorting the onus of proof.
From November 2013, Mr Diamond knew of the Firstmac Mark and the adverse examination reports, yet the Zip Companies had not led evidence sufficient to establish that, despite this knowledge, Mr Diamond genuinely believed consumers would experience no confusion, nor that his failure to consider such matters was not reckless. These gaps in the evidentiary record were fatal.
The High Court also expressed caution regarding certain passages in the Full Court’s reasoning, noting that honesty should not be described as a purely “objective” inquiry.
Significance
This decision is significant for the following reasons:
- Clarification of the honest concurrent use defence.
The High Court has confirmed that the statutory defence of honest concurrent use under ss 122(1)(f) and 122(1)(fa) of the Trade Marks Act is assessed at the date of each potential infringement, settling conflicting approaches in the Federal Court.
- Honesty is a threshold requirement.
The High Court has confirmed that the burden lies on the alleged infringer to affirmatively prove honesty at the relevant date, not merely to rebut an allegation of dishonesty. This has practical implications for trade mark litigants, who must adduce positive evidence of their state of mind at each point of alleged infringement.
- Knowledge of an impediment is a powerful factor.
While awareness of a competing registered mark does not automatically defeat the defence, it substantially heightens the evidentiary burden. Parties who proceed to use marks after receiving adverse examination reports or becoming aware of existing registrations must be prepared to explain affirmatively why their conduct remained honest.
- Each infringement is assessed separately.
The High Court’s clarification that the defence applies to each occasion of potential infringement (rather than once and for all) means that honesty must be maintained on an ongoing basis. This may have practical consequences in cases where a party initially acts honestly but subsequently acquires knowledge that alters the assessment.
- Implications for commercial practice.
The decision underscores the importance of conducting trade mark searches and obtaining legal advice prior to adopting and using a mark. Parties who fail to engage with adverse examination reports or who adopt a strategy of attacking an incumbent mark without first resolving the impediment to their own use face significant risks in establishing the honest concurrent use defence.
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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