FEDERAL COURT OF AUSTRALIA Yanmar Diesel Engine Co Ltd v Kama Diesel Australia Pty Ltd [2002] FCA 1330 TRADE PRACTICES – whether manner in which competitor advertised, marketed and sold diesel engines and generators amounted to misleading and deceptive conduct – whether competitor falsely attributed applicants' sponsorship or approval of goods – where applicants' goods had distinctive design and get‑up – where competitor's goods exhibited a similar design and get-up with minor variation – where representations made by competitor to applicants' customers that goods were associated with applicants – where promotional brochures used in relation to competitor's goods contained text from applicants' brochures. INTELLECTUAL PROPERTY – where brochures used in marketing of competitor's goods substantially reproduced material in applicants' brochures for similar goods – whether infringement of applicants' copyright in brochures. Trade Practices Act 1974 (Cth): s 52, s 53 Fair Trading Act 1999 (Vic): s 9, s 12 Copyright Act 1968 (Cth): s 115 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1981) 149 CLR 191, applied R & C Products Pty Limited v SC Johnson & Sons Pty Limited (1993) 42 FCR 188, applied Prince Manufacturing Inc v Abac Corporation Australia Pty Ltd (1984) 4 FCR 288, applied Gates v City Mutual Life Assurance Society Limited (1996) 160 CLR 1, applied YANMAR DIESEL ENGINE CO LTD & ANOR v KAMA DIESEL AUSTRALIA PTY LTD (ACN 089 633 312) & ORS V 786 of 2000 GOLDBERG J 29 OCTOBER 2002 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 786 of 2000 BETWEEN: YANMAR DIESEL ENGINE CO LTD First Applicant POWER EQUIPMENT PTY LTD (ACN 005 866 642) Second Applicant AND: KAMA DIESEL AUSTRALIA PTY LTD (ACN 089 633 312) First Respondent RICHARD CHARLES LEE Second Respondent DARRON RAYMOND WISE Third Respondent NANSHENG ZHENG Fourth Respondent JUDGE: GOLDBERG J DATE OF ORDER: 29 OCTOBER 2002 WHERE MADE: MELBOURNE THE COURT DECLARES THAT: 1. The first respondent has contravened s 52 and s 53 of the Trade Practices Act 1974 (Cth) in the manner in which it has promoted, offered for sale, advertised, distributed and sold diesel engines and generators. 2. The second, third and fourth respondents have been involved in the said contraventions by the first respondent. THE COURT ORDERS THAT: 3. The respondents and each of them be restrained, whether by themselves, their servants or agents or otherwise howsoever from, or being involved in, promoting for sale, offering for sale, advertising, distributing and selling, any engine or generator not manufactured, authorised or approved by the applicants: (a) by reference to or under a get‑up and colour scheme which involves a red band enclosing the name of the brand which name appears in white text and which get‑up incorporates diagonal striping to one end of the band enclosing the name in one of the following colour schemes: black and royal blue, royal blue and pale blue, and navy blue, royal blue and pale green; (b) by reproducing in any manner whatsoever the applicants' brochures, or any parts thereof, in respect of the applicants' diesel engines and generators; (c) by representing that the first respondent's engines and generators are manufactured, approved or sponsored by, or associated or affiliated with, the first applicant; (d) by representing that the manufacture of the first respondent's engines and generators is approved or sponsored by, or associated or affiliated with, the first applicant. 4. The respondents pay damages to the applicants in the sum of $28,500. 5. The respondents pay interest to the applicants on the said sum of $28,500 fixed in the sum of $3,800. 6. The respondents pay the applicants' costs of and incidental to the application which should not be reduced in accordance with O 62 r 36A of the Federal Court Rules. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 786 of 2000 BETWEEN: YANMAR DIESEL ENGINE CO LTD First Applicant POWER EQUIPMENT PTY LTD (ACN 005 866 642) Second Applicant AND: KAMA DIESEL AUSTRALIA PTY LTD (ACN 089 633 312) First Respondent RICHARD CHARLES LEE Second Respondent DARRON RAYMOND WISE Third Respondent NANSHENG ZHENG Fourth Respondent JUDGE: GOLDBERG J DATE: 29 OCTOBER 2002 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The first applicant ("Yanmar") has carried on the business of manufacturing engines, generators, agricultural and construction machinery and other equipment for many years. It distributes its products in over 130 countries. The second applicant ("Power Equipment") is the exclusive distributor of Yanmar diesel engines and equipment in Australia and is entitled to use Yanmar's trade marks. Power Equipment is a market leader in Australia of diesel engines and the Yanmar products it sells are the top selling brand of diesel engines in Australia by volume. 2 The applicants claim that the first respondent ("Kama") has offered for sale and sold diesel engines and generators in such a manner as to represent that those diesel engines and generators have an association or an affiliation with, or sponsorship of, Yanmar. The applicants allege that Kama has passed off diesel engines and generators advertised, offered for sale and sold by it as Yanmar diesel engines and has contravened s 52 and s 53 of the Trade Practices Act 1974 (Cth) and s 9 and s 12 of the Fair Trading Act 1999 (Vic). It also alleges that Kama has infringed Yanmar's copyright in its marketing brochure by copying or substantially reproducing in its marketing brochures text created for and incorporated in Yanmar's marketing brochure and accordingly brings an action for infringement of copyright pursuant to s 115 of the Copyright Act 1968 (Cth). The second, third and fourth respondents have been at various times directors of Kama and involved in the management of its business and in effective control of that business and are alleged to have been involved in the contraventions by Kama. 3 The application and statement of claim were filed on 11 October 2000 and on 3 January 2001 the first respondent and, separately the second, third and fourth respondents, filed defences. Those defences were subsequently struck out on the grounds of the failure of the respondents at various times to comply with interlocutory orders relating to discovery. In those defences the respondents made a number of admissions upon which the applicants rely. Those admissions relevantly were: (a) the second, third and fourth respondents were at the time of the commencement of the proceeding, and had been prior to that time, directors of Kama and involved in the management of its business (the second and third respondents ceased to be directors on 19 February 2001); (b) since approximately 1997 the applicants had advertised, offered for sale and sold certain diesel engines and generators under the Yanmar trade mark using what was described as the Yanmar get‑up comprising a red band enclosing the name "Yanmar" appearing in white text and which incorporated diagonal striping to one end of the mark in one of the following colour schemes, namely black and royal blue, royal blue and pale blue, and navy blue, royal blue and pale green; (c) since October 1999 Kama had been advertising and promoting, and since November 1999 Kama had been importing, distributing and supplying, diesel engines and generators which, until approximately 31 December 1999, exhibited a get‑up which was similar to the Yanmar get‑up. Since approximately 1 January 2000 the diesel engines and generators exhibited a distinctive get‑up. The new get‑up comprised the name "Kama" in red text on a yellow background; (d) since approximately 31 December 1999 promotional brochures distributed by Kama were similar to promotional brochures distributed by the applicants. Since approximately 1 January 2000 the promotional brochures distributed by Kama had been different from the promotional brochures distributed by the applicants. 4 The Yanmar diesel engines and generators are distinguished by a distinctive get‑up or presentation. The get‑up comprises a red band enclosing the name "Yanmar" which appears in white text and which incorporates diagonal striping to one end of the band enclosing the name in one of the following colour schemes: black and royal blue, royal blue and pale blue, and navy blue, royal blue and pale green ("the Yanmar get‑up"). 5 The applicants have advertised and sold their diesel engines and generators under the Yanmar name and trade mark and using the Yanmar get‑up. One particular model of Yanmar diesel engine designated as the "LA" series has a distinctive appearance and layout and it has a silver or red coloured cowl and a distinctive red fuel tank. The fuel tank sits on top of the cowl and bears the Yanmar name in white print. Another Yanmar diesel engine model is designated as the "TF" series and a generator model is designated as the "YDG" series. The TF series engine has a distinctive grey exhaust and flywheel. Its appearance is characterised by a red and charcoal structure. The YDG series generator includes two types of generator, an open frame model and a fully cased model. They both display the Yanmar get‑up. 6 In November 1999 Power Equipment became aware that Kama was marketing diesel engines in a manner which was causing confusion amongst its customers. The engines and the brochures used to market them were very similar to the Yanmar engines that Power Equipment distributed in Australia. In December 1999 advertisements depicting Kama diesel engines and generators appeared in the rural press. According to Mr Allan Foster, Power Equipment's Managing Director, the equipment pictured was identical in design, layout and appearance to Yanmar's LA series engine, its YDG series generator and its TF series engine. Mr Foster described in considerable detail the respects in which Kama's products were so identical. I accept his evidence. 7 A number of witnesses gave evidence to the effect that the engines which Kama had imported, offered for sale and sold included models which were substantially identical in design, layout and appearance to the "LA" and "TF" series engines. Those witnesses included Mr Foster and Mr Miyuki Ikari, Yanmar's Manager Legal Affairs Group, Human Resources and Corporate Affairs Department. Reference was made to the general get‑up, but in particular to the design of the cowl and fuel tank covering of Yanmar's engines. Kama's logo "Kama", like Yanmar's logo, was comprised of white lettering on a red background and was positioned in almost the same place on the engine as was the Yanmar mark on the Yanmar engines although there was a slight variation in the diagonal blue coloured striping of the Yanmar mark. Kama had also imported, offered for sale and sold a generator which was substantially identical in design, layout and appearance to the "YDG" series generator. 8 In this context it is also relevant to note that, in response to a letter of demand sent by the applicants' solicitors to the respondents, solicitors for the respondents replied by letter on 24 December 1999 stating, inter alia, that Kama proposed to modify the physical appearance and labelling of all future stock prior to its importation from China into Australia. They also said that Kama proposed to modify the physical appearance of any Kama products then in Australia to ensure that the colour, decals and logos on them were significantly different from the colour, decals and logos appearing on the Yanmar products. 9 The conduct of the respondents of which the applicants complain occurred, in general terms, between November 1999 and July 2000. In November 1999 Power Equipment, as a result of what it was told by customers, became aware that its customers had been approached by representatives of Kama who were marketing a range of diesel engines and generators which were virtually identical in terms of get‑up and presentation to the Yanmar engines which Power Equipment distributed pursuant to its distribution agreement with Yanmar. The Kama representatives were using and showing customers advertising brochures for Kama products which brochures included material which was identical to material found in Yanmar's brochures and used by Power Equipment to market Yanmar products. A number of Power Equipment customers were approached. 10 On 13 December 1999 Mr Michael Egan, Power Equipment's Industrial Product Territory Sales Manager in New South Wales, visited a customer, Aussie Pumps, and inspected a Kama diesel engine that Aussie pumps had purchased. Mr Egan said that the Kama engine was virtually identical to a Yanmar L series L48 engine, and that with one exception the casting and finishing of the engine was not distinguishable from the Yanmar L series engine. A document provided by the respondents by way of informal discovery confirms that an employee of Kama, Mr Ivan Turnbull, met with Aussie Pumps around November 1999. Mr Warwick Lorenz, the Managing Director of Aussie Pumps, was told by the person from Kama that the Kama engine was a Yanmar engine made under licence in China by Wuxi Worldbest Kama Machine Corporation of which Yanmar owned 20%. That statement was not true. There was no commercial relationship between Yanmar and the manufacturer of the diesel engines Kama was offering for sale. 11 A further incident occurred in early December 1999 when Mr Darren Boughton, the Sales Manager of Powerlite Generators Australia Pty Ltd, was approached by Mr Steve Jackson who identified himself as a representative of Kama. Mr Jackson told Mr Boughton that the Kama engine was very similar to the Yanmar engine and he gave him a Kama brochure. Subsequently Mr Jackson provided a Kama engine to Mr Broughton who concluded that it was the same in build and shape as the Yanmar engine. Powerlite Generators Australia Pty Ltd had been dealing with Power Equipment for ten years. 12 In November 1999 Mr David Trebilcock, the National OEM Sales Manager for Power Equipment, received from McCrackens, a Power Equipment dealer, a copy of a circular letter from Mr Adrian White on behalf of Kama. Mr White described himself as the Territory Manager of Kama for South Australia, Victoria and Tasmania. The letter enclosed promotional material in relation to Kama products. That material contained pictures of Kama engines and text which was identical in part to text in Yanmar's brochures. 13 In early February 2001 Mr Trebilcock was given a copy of a circular letter by a customer, Mr Karl Hohendorf, the Managing Director of A1 Roadlines Pty Ltd. The letter, directed to A1 Roadlines Pty Ltd, was from Mr White and enclosed a Kama brochure which contained text identical in part to text in Yanmar's brochures. 14 On or about 16 July 2000 Mr Thiru Saravanamuttu visited Alternative Power Systems Australia Pty Ltd, one of Power Equipment's customers. Alternative Power Systems Pty Ltd had purchased diesel engines and spare parts from Power Equipment for at least five years. Mr Saravanamuttu had visited that company on a number of occasions to attempt to sell it diesel engines. According to Mr Robin Holland, an engineer with Alternative Power Systems Australia Pty Ltd, Mr Saravanamuttu appeared to be representing a different distributor on each occasion. Mr Saravanamuttu told Mr Holland that he had Yanmar engines made in China. He said that the engines he had were a direct copy of Yanmar engines and they were probably made in the same plant as Yanmar engines. When Mr Holland said that he would be in trouble if they were a direct copy Mr Saravanamuttu said that they had had their day in court with Yanmar, Yanmar had lost and they could say whatever they liked about the engines. It did not appear that Mr Saravanamuttu was an employee or officer of Yanmar. In response to a letter of demand from Yanmar's solicitors, the third respondent on behalf of Kama replied that the person who made these statements was not an employee of Kama and had not been instructed by Kama. The third respondent said that Kama's understanding was that this person worked independently, soliciting sales on behalf of one of Kama's Victorian dealers without the authority of Kama. In these circumstances I am not satisfied, in the absence of any further evidence, that these statements were made with the authority, whether actual, ostensible or apparent, of Kama. 15 The applicants' case, which was supported by evidence, was that the general appearance and design of the Kama diesel engines, in terms of the cowl and fuel tank, were substantially similar, if not identical, to the Yanmar engines and that the "Kama" logo comprised white lettering on a red background which was positioned in almost precisely the same place on the engine as the Yanmar trade mark was placed on Yanmar engines with a slight variation of the diagonal blue coloured striping of the Yanmar trade mark. 16 I am satisfied, particularly on the evidence of Mr Ikari and Mr Foster, that Yanmar diesel engines and generators are well known in the marketplace and are distinguished by their design and the Yanmar get‑up. This design and get‑up is well‑known to persons who are in the market to purchase diesel engines and generators. 17 The evidence also established that Kama had produced and was distributing brochures which substantially reproduced parts of brochures distributed by Power Equipment in relation to the promotion and sale of the Yanmar diesel engines. 18 The applicants put their case on the basis of passing off, misleading and deceptive conduct under s 52 of the Trade Practices Act and false attribution of sponsorship or approval under s 53 of the Trade Practices Act. Although the two causes of action seek to protect different interests, the principles applicable to passing off provide "guidance by analogy as to the type of conduct which would be likely to mislead or deceive the public": R & C Products Pty Limited v SC Johnson & Sons Pty Limited (1993) 42 FCR 188 at 192. 19 Ordinarily, the mere manufacture of a product similar in design to a product manufactured by another person is not sufficient to constitute passing off or a contravention of s 52 or s 53 of the Trade Practices Act if the manufacturer making the similar product has sufficiently distinguished its product from the product being copied: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1981) 149 CLR 191 at 199‑200 per Gibbs CJ, 209‑210 per Mason J and 225‑226 per Brennan J. In the present case the Kama products and the Yanmar products are very similar in design, if not identical, in a number of respects. The question therefore arises whether Kama has taken sufficient steps to distinguish its products from the Yanmar products. The Kama products do not bear a name similar to the "Yanmar" name but rather bear the "Kama" name. However, it is necessary to look at Kama's conduct as a whole and in the context of the manner in which Kama products have been marketed and sold. As Brennan J said in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (supra) at 225: "Of course, where identical or similar goods are on the market, it may take very little evidence of conduct additional to the mere manufacture and sale of the goods to establish a case under s. 52. The degree of risk of confusion is material to an appreciation of the conduct of a trader in marking or getting up his goods for sale in competition with the goods of another trader." 20 The evidence established that in addition to the manufacture of a similar product, Kama has used a get‑up and style of branding and labelling of its products which are similar to the Yanmar products. It has also used textual material in its marketing brochures which is identical to the text in Yanmar's brochure and which I am satisfied has resulted from deliberate copying. There have also been a number of statements made by Kama representatives to potential customers which have been misleading and deceptive as to the existence of an association between Yanmar and Kama products. Notwithstanding the labelling of the Kama products with a name different from that on the Yanmar products, I am satisfied that in the context in which the Kama products have been advertised, marketed and sold, consumers in the market for diesel engines and generators would be likely to be misled or deceived as to the source of the Kama products and the extent of any association with, or sponsorship by, Yanmar and its products. Rather than seeking to have its products distinguished from Yanmar products, Kama's conduct has tended to establish a connection or an association between them. 21 I am satisfied that the second, third and fourth respondents have been involved in the contraventions of s 52 and s 53 of the Trade Practices Act by Kama. Although the defence filed by these respondents was struck out, the applicants were entitled to rely on the admissions contained in the defence that the second, third and fourth respondents were directors of Kama at relevant times and were involved in the management of its business. 22 The applicants also put their case on the basis of an infringement of copyright and accordingly brought an action pursuant to s 115 of the Copyright Act. As noted earlier, the evidence established that marketing brochures produced and distributed by Kama substantially reproduced parts of the brochures distributed by Power Equipment in relation to the promotion and sale of the Yanmar generators. 23 The brochure produced and distributed by the applicants was headed "Yanmar Air Cooled Diesel Generators" and the brochure produced and distributed by Kama was headed "Kama Air Cooled Diesel Generators". I am satisfied on the evidence that Yanmar is the owner of the copyright in its brochure and that it has not given permission to Kama to reproduce any parts of the brochure. Whilst Yanmar led evidence as to the existence of its copyright in the brochure this was not strictly necessary as the defences of the respondents were struck out hence the question whether copyright subsisted was not put in issue. Accordingly Yanmar is entitled to rely upon the statutory presumption in s 126 of the Copyright Act that copyright shall be presumed to subsist in the brochure and Yanmar is presumed to be the owner of the copyright. 24 I am satisfied that Kama has infringed Yanmar's copyright in the brochure. There are four paragraphs or sections in the Kama brochure which reproduce in identical or almost identical terms the text in the Yanmar brochure. I refer to the sections headed "Peaceful Power", "Easy Maintenance and Super Durability", "Dusk‑to‑dawn Operation without refilling" and "Silent Operation Makes the KM‑S a More Popular Form of Power". On 24 December 1999, in response to a letter of demand sent to each of the respondents, solicitors for the respondents wrote to Yanmar's solicitors acknowledging that 120 copies of the Kama brochure had been obtained from the manufacturer in China and distributed by Kama in Australia. The solicitors said that Kama would immediately contact all known recipients of the brochure and request that they destroy it. I infer from this statement that the respondents accepted that the brochure was an infringement of Yanmar's copyright in its brochure. I am satisfied that Kama has infringed Yanmar's copyright in the brochure, not only by reproducing substantial parts of the brochure but also by circulating the brochure through its agents: s 38 of the Copyright Act. 25 I am satisfied that the applicants are entitled to a declaration that Kama has contravened s 52 and s 53 of the Trade Practices Act and that the second, third and fourth respondents have been involved in those contraventions. The contraventions have been established and having regard to the manner in which Kama marketed its products and in particular its newspaper advertisements, it is appropriate that declarations be made. 26 Although it appears that Kama's conduct has not continued since the proceeding was commenced, I am satisfied that it is appropriate that permanent injunctions be granted restraining the repetition of the conduct complained of. There was evidence of confusion in the marketplace and also evidence that there was a considerable amount of unsold stock. In the absence of any further information as to the current proposals for the business of Kama I consider that permanent injunctions should be granted. 27 The applicants seek damages pursuant to provisions of the Trade Practices Act and the Fair Trading Act and at common law. The purpose of the respondents' conduct was to compete with the applicants in such a way as to attract sales away from them. The basis of Kama's marketing activities was that its products were the same as Yanmar products and could be substituted for them. The result of the respondents' activities was that they were making sales by improper conduct. Although the applicants have not produced evidence that they lost specific or particular sales, it is still open for the Court to order compensation for loss of customers if it can be expected that in the ordinary course loss of custom or loss of opportunities would have resulted: Prince Manufacturing Inc v Abac Corporation Australia Pty Ltd (1984) 4 FCR 288 at 294. 28 The measure of damages to be determined in an action for passing off or for contravention of s 52 and s 53 of the Trade Practices Act is substantially the same, namely what is required to put the person who had suffered loss in the position they would have been in had the conduct complained of not occurred: Gates v City Mutual Life Assurance Society Limited (1996) 160 CLR 1 at 6 per Gibbs CJ and 14‑15 per Mason, Wilson and Dawson JJ. In the present circumstances that measure of damages would ordinarily be the amount of profit which would have been made had the applicants rather than Kama made the relevant sales. In the present circumstances it is not easy to determine the extent of the sales which were sales of engines and generators said to be substantially identical with the Yanmar products. Discovery by the respondents was not completed but accounts were produced for the year ended 30 June 2000. An independent accountant examined those accounts and estimated that the gross profit on sales of Kama products was $181,757 and that the net profit, excluding non‑recurring establishment costs and directors' remuneration, was $31,620. 29 Not all of the products sold by Kama were products of which complaint was made. It was submitted that eighteen of the twenty products in Kama's range were products of which complaint was made but that figure did not emerge clearly from the evidence. I consider it appropriate to take into account the fact that not all of Kama's net profit is represented by the sale of products of which the applicants complain and to award damages calculated by reference to the order of ninety per cent of Kama's net profit for the relevant year. 30 I am satisfied that the respondents should be ordered to pay damages in respect of their conduct in contravention of s 52 and s 53 of the Trade Practices Act and s 9 and s 12 of the Fair Trading Act and that Kama should pay damages in respect of its passing off of its products as, and for, those of Yanmar. I am satisfied that the claims for damages for passing off and for contravention of s 52 and s 53 of the Trade Practices Act overlap in the sense that one award of damages under the Trade Practices Act will satisfy the claim for damages for passing off. Insofar as the applicants made a claim under s 115 of the Copyright Act, they elected to seek a remedy in damages rather than an account of profits. Any damages for infringement of copyright are nominal. 31 In all the circumstances I consider an appropriate award of damages to be $28,500. 32 The applicants seek an order for interest and I consider it appropriate that interest be awarded. The respondent should pay the applicants' costs of the hearing which I do not consider should be reduced in accordance with O 62 r 36A of the Federal Court Rules. I certify that the preceding thirty‑two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg J. Associate: Dated: 29 October 2002 Counsel for the Applicant: Mr P Crennan Solicitor for the Applicant: Macpherson & Kelley Lawyers Counsel for the Respondents: There was no appearance for the respondents on 17 April 2002. The fourth respondent appeared in person on 14 May 2002. Date of Hearing: 17 April and 14 May 2002 Date of Judgment: 29 October 2002