NSW disclosure requirements apply to suppliers outside NSW

Suppliers outside New South Wales

New South Wales has introduced a new law that requires suppliers, before they supply goods or services, to take reasonable steps to ensure that the consumer is aware of the substance and effect of any term or condition relating to the supply that may substantially prejudice the interests of the consumer (consumer disclosure rules).  “Consumer” can include certain business purchases as well as personal purchases.

 

This change to the Fair Trading Act applies not only to suppliers located in NSW, but also to conduct within or outside NSW that:

(a)  is in connection with goods or services supplied in NSW; or

(b)  affects a person in NSW; or

(c)  results in loss or damage in NSW.

This means that the law applies to suppliers located outside NSW who supply goods or services to consumers in NSW (including online).  Suppliers in other Australian States may not be aware of these changes.

This law came into effect on 1 July 2020, but NSW Fair Trading has not penalised businesses for its first six months.  This transitional period ended on 31 December 2020, so penalties may now apply for breaches.

 

Reasonable steps

This is a substantial change to how many companies do business.  It is often the case that contracts contain clauses that prejudice the interests of the other party, sometimes substantially.  To comply with this law the supplier must either:

  • Delete the term; or
  • Take reasonable steps to make sure that the consumer is aware of the term.

There are no specific requirements for what amounts to “reasonable steps”, but NSW Fair Trading suggests that the disclosure should be:

  • Clear and easy to understand;
  • Easily accessible so that the consumer does not need to seek out the information; and
  • A standard part of each transaction.

Examples of appropriate disclosures include:

  • Short, plain English summaries on the front page of a contract;
  • Providing information in short chunks at key times eg on the information or payment pages;
  • Scrollable text boxes on screens;
  • Comics, illustrations or icons to highlight and explain relevant information.

To determine whether a consumer is aware of the term, NSW Fair Trading recommends that the supplier check with them, either by:

  • Asking them;
  • Getting the consumer to initial the explanation in the contract;
  • Checking a box online.

 

Terms that may substantially prejudice

The legislation gives the following four examples of terms that may substantially prejudice the interests of the consumer (although contracts may contain other such terms):

  • the term excludes the liability of the supplier; or
  • the term provides that the consumer is liable for damage to goods that are delivered; or
  • the term permits the supplier to provide data about the consumer, or data provided by the consumer, to a third party in a form that may enable the third party to identify the consumer; or
  • the term requires the consumer to pay an exit fee, a balloon payment or other similar payment.

Term (a) – exclusion of liability clauses are common in contracts – where one party claims that it will not have to compensate the other party for some or all loss that it causes.

Term (c) – providing consumer data to a third party – these clauses are commonly found in privacy statements.

Term (d) – An “exit fee” is a payment to end a contract.  A “balloon payment” is a large final payment at the end of a loan to clear the debt.

 

Consequences of breach

Breaches of the consumer disclosure rules are punishable by fines of up to $110,000 (for corporations) and $22,000 (for individuals) for breaches.  Suppliers can also be ordered to compensate the consumer for any loss or damage they have suffered.  Penalty notices of $1,100 per offence (for corporations) or $550 (for individuals) can also be issued.

The NSW Civil and Administrative Tribunal can hear certain claims by consumers against suppliers where goods or services were, or would be, supplied in NSW.  NCAT has previously been prepared to hear a claim against Swiss company eBay International AG on the basis that it supplied services in NSW – the use of the eBay website and related services.  This means that a supplier outside NSW could have to pay compensation to a NSW consumer for breach of the consumer disclosure rules.

 

Rules can apply to business consumers

It is important for businesses to realise that the consumer disclosure rules can apply to some business purchases as well as individual purchases.  The rules apply to consumers as defined in the Australian Consumer Law (ACL), which means that they apply to:

 

  • goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption – for any price – even if they were actually purchased for a non-domestic purpose;
  • goods or services for a price of not more than (currently) $40,000 for a non-domestic purpose;
  • a vehicle or trailer acquired for use principally to transport goods – for any price (domestic cars are already covered by paragraph (a) above).

 

The rules will not apply in some business circumstances eg:

  • where goods are acquired for re-supply;
  • where goods will be used up or transformed in the course of production, manufacture or repairing other goods.

 

Increase of limit for non-domestic goods and services

From 1 July 2021 the cut-off figure of $40,000 is scheduled to increase substantially to $100,000, which means that many more business contracts will be caught by the NSW consumer disclosure rules.  This increase also applies to the consumer guarantee provisions of the ACL – which impose guarantees of, for example, acceptable quality and fitness for purpose in contracts for the supply of goods or services.

There is an error with the drafting of this increase to $100,000.  It is supposed to apply to supplies of both goods and services, but currently only applies to goods.  However, I do not recommend relying on this error.  It is possible that the Federal Government may fix it, even retrospectively, so that the increase to $100,000 applies to both goods and services from 1 July 2021.

 

Unfair terms in standard form contracts

For some years businesses have been subject to the provisions of the ACL which void unfair terms in standard form consumer contracts and small business contracts.  There is an overlap between these provisions and the consumer disclosure rules.  However, rather than a consumer having to wait for a Court to declare a particular term void, the NSW rules impose a positive obligation on businesses to make clear, upfront disclosure of terms that may substantially prejudice the interests of the consumer (instead of them being buried in the fine print).  Failure to do so is punishable by penalties.

 

Other issues

A second part of the consumer disclosure rules requires the disclosure of financial incentives, such as commissions, payable to an intermediary, such as a travel agent or comparator website, when a consumer is purchasing goods or services.  This is beyond the scope of this blog, but I am happy to provide further information upon request.

An update to the issue of unfair terms in standard form consumer and small business contracts is a recent announcement of Government Ministers who have decided that these terms will be made unlawful and subject to penalties.  This, however, is not yet law.

 

Action to take

Businesses who deal with parties in NSW need to review their contracts immediately for compliance with the consumer disclosure rules, if they have not done so already.

With the ACL consumer guarantees to apply to many more business contracts from 1 July 2021, a full review of standard form contracts is also important.  I can assist businesses to make their contracts compliant.

 

This information sheet provides general information only, and is not intended as legal advice specific to your circumstances.  Please seek the advice of a legal professional if you have any particular questions.

 

Liability limited by a scheme approved under Professional Standards Legislation

 

© Margaret Ryan, Melbourne, Australia, 2021

Is copying another’s product legal?

This question was answered “no” in the case of Lumen Australia Pty Ltd v Frontline Australasia Pty Ltd [2018] FCA 1807but the answer may be different in other circumstances.

The facts

Lumen supplied Frontline with electronic automotive components for inclusion in towbar kits that were supplied by Frontline to Mitsubishi and Mazda.  Frontline, for profit reasons, decided to replace these components with components made by Vision, without telling either Lumen or its customers or obtaining their approval. To facilitate this substitution, Frontline provided Vision with samples of the Lumen products (including the Engine Control Unit (ECU) which carried copyright markings) as well as Lumen engineering drawings and the Lumen installation instructions.  Vision created almost identical copies and these were supplied as part of the towbar kits by Frontline to Mitsubishi and Mazda.  When this substitution came to light Lumen sued Frontline and Vision.

Infringement by Frontline

This was a clear case of infringement of Lumen’s rights by Frontline.  At the beginning of the trial, Frontline admitted copyright infringement in the ECU markings, engineering drawings and installation instructions, as well as breach of confidence and breach of contract with Lumen and passing off its towbar kits to its customers as still containing Lumen parts.  What is significant is:

  1. There was no claim of infringement in the copied parts themselves.  This was because there was no design registration for the Lumen parts.  In addition, the Copyright Act provides that there is no copyright infringement of design drawings or the parts themselves where there is no design registration and the design of the parts is industrially applied (generally where more than 50 items are produced).
  2. Despite this, Lumen was able to rely on incidental copyrights – in the ECU markings, in the installation instructions and in drawings that were copied plan to plan.
  3. Lumen was awarded about $140,000 against both Frontline and Vision for the lost sales of its parts.
  4. Lumen was also awarded $500,000 against Frontline only as “exemplary damages” for passing off (which would have been the same for “additional damages” for copyright infringement).  This is a very substantial amount which was intended to punish Frontline and deter it from similar conduct in future, especially because of its deliberate and involved planning of the infringement over a significant period of time.

Frontline’s conduct was intentional, extremely serious, had safety implications and covered a period of roughly three years until the substitution of the Lumen parts was discovered.  $500,000 for exemplary/additional damages is at the high end for this type of damages.

Copying another’s product

Copying another’s product can be fraught with danger, especially if, as in this case, the copier owes obligations in contract or confidence to other parties.  Assuming that there are no such obligations, it may be possible to copy a product, but this involves undertaking patent and design searches as well as considering precisely what is proposed to be copied to make sure that no incidental copyrights or trade marks are infringed.  I can assist businesses if they wish to pursue this course.

This blog entry provides general information only, and is not intended as legal advice specific to your circumstances.  Please seek the advice of a legal professional if you have any particular questions.

Liability limited by a scheme approved under Professional Standards Legislation

© Margaret Ryan, Melbourne, Australia, 2018

Unity of purpose – new test for control of trade mark use

The Full Court of the Federal Court has overturned a finding that a trade mark owner did not control the use by its parent company of its marks: Trident Seafoods Corporation v Trident Foods Pty Ltd [2019] FCAFC 100 (20 June 2019).  This decision is significant because it provides a more flexible, less legalistic, approach to what amounts to control of trade marks within a corporate group.

The Facts
Trident Foods was the owner of two trade mark registrations for the word TRIDENT.  These marks were blocking Trident Seafoods’ application to register a logo mark including the word TRIDENT.  Trident Seafoods tried to remove the word mark registrations from the Trade Marks Register on the basis of non-use.

The TRIDENT marks were, in fact, being used by Trident Foods’ parent company, Manassen.  The companies had common directors, operated from the same business premises and were part of the same corporate group.  Manassen’s TRIDENT products were labelled “Registered trade mark of Trident Foods Pty Ltd”.

Non-use
It may come as a surprise to some trade mark owners that, if a registered trade mark is not used, it can become vulnerable to being removed from the Trade Marks Register for non-use.  The Trade Marks Act adopts a “use it or lose it” approach, wanting to declutter the Register of unused marks.

Control of trade mark use
If someone uses a trade mark under the “control” of the owner, that is called “authorised use” and this will protect the trade mark from being removed from the Register for non-use. A previous Full Court decision had held that “control” required actual control.  It was not sufficient to have a licence agreement which included provisions for control of the licensee’s use that were not, in fact, exercised.

Trial judge’s findings
The trial judge in the Trident case held that, because Trident Foods was a wholly owned subsidiary of Manassen, it could not control its parent.  The fact that the two companies had common directors did not, on its own, allow Trident Foods to control its parent.  There were no examples of actual control by Trident Foods over Manassen’s use of the TRIDENT marks.  This meant that the trade marks were not used by Trident Foods during the non-use period and were vulnerable to be removed from the Register.

The Full Court’s findings
The Full Court overturned this finding and held that the question was not whether one company controlled the other but whether Trident Foods had control over Manassen’s use of the TRIDENT marks.  The fact that the two companies had the same directors was significant, given that the directors of Trident Foods had a duty to maintain the value of the trade marks (which had a book value of $10 million).  Trident Foods necessarily controlled Manassen’s use of the marks by reason of the fact that it owned the marks and its directors, who were also Manassen’s directors, must have had one common purpose – to maximise sales and to enhance the value of the brand.  The two companies therefore operated with a “unity of purpose” regarding the use of the trade marks.

The lack of evidence of actual control exercised over Manassen’s use was unsurprising, in the Full Court’s opinion, given the relationship between the companies.  The Full Court also accepted one director’s evidence that it was unnecessary to give directions to Manassen, as supporting the finding of the unity of purpose of the two companies.

Significance of decision
The Full Court’s decision will be very welcome to many corporate trade mark owners where the registered owner is often not the holding company.  Several recent decisions, including that of the trial judge in the Trident case, seem to have taken a strict legal approach to corporate groups, finding sufficient control where the user is a wholly owned subsidiary of the trade mark owner, but finding a lack of control in other corporate structures.  The Full Court has taken a more realistic approach to corporate groups and has implemented a new “unity of purpose” test to determine whether owner and user are in lock step regarding the use of trade marks.

Arm’s length licences
Nonetheless, where a user is not related to the trade mark owner, as in an arm’s length licence agreement, care needs to be taken that actual control over the licensee’s use is exercised, and is recorded so that evidence can be produced if the owner needs to defend a non-use action.  I can provide advice on measures to protect a trade mark owner from the loss of valuable registered rights.

This blog entry provides general information only, and is not intended as legal advice specific to your circumstances.  Please seek the advice of a trade marks professional if you have any particular questions.

Liability limited by a scheme approved under Professional Standards Legislation

© Margaret Ryan, Melbourne, Australia, 2019

Three Myths about Commercial Agreements

Having practised for 30 years, I know that there are certain misconceptions about drafting commercial agreements:

  • All that a lawyer does to produce an agreement is just take a precedent off the shelf and insert the names and addresses of the parties.

In the area of intellectual property (“IP”) agreements, it couldn’t be further from the truth.  Apart from a few exceptions, most IP agreements eg licences, distribution agreements, software agreements etc, involve several hours of legal work.  They are bespoke agreements, specifically tailored to the client’s requirements.   Although a lawyer may base the agreement on existing agreements, the new agreement has to be drafted for the new situation.  This involves talking to the client to find out what they want in their agreement, conceptualising the new agreement, choosing from a range of clauses and amending them, free hand drafting new clauses and checking the final product.

  • It doesn’t matter which side drafts the agreement – it is all the same agreement – and it will save costs to let the other side draft the agreement.

This can be a dangerous assumption to make.  In every agreement there are two sides.  A lawyer will normally draft an agreement to benefit their side – slanting it in favour of their client.  Sometimes the first draft can be very one-sided and unfair to the other side, or the agreement may not be well-drafted and is unclear.  Not all lawyers are equally skilled at drafting agreements.  In cases such as these, it can easily cost as much to try and correct the agreement as it would to re-draft it from scratch.  My motto is always to “get hold of the drafting” if at all possible, so that I can draft for the benefit of my client.

  • The parties are in agreement over the deal so that it will be OK and cost-effective for them to use the one lawyer.

This is also a dangerous assumption.  Lawyers have ethical duties to avoid conflicts of interest and acting for both sides of a transaction is a classic conflict of interests.  As set out above, there are two sides to every agreement, and an option that will benefit one side will usually be to the detriment of the other.  This is why, if the two sides come to a lawyer’s office, the lawyer will normally have to turn one party away to seek legal representation elsewhere.

Commercial agreements, such as IP agreements, are complex beasts.  They will govern the relationship between the parties in relation to valuable IP rights, perhaps for several years.  A well-drafted agreement will clearly set out the rights and responsibilities of each party and will hopefully avoid future disputes because everyone knows where they stand.  IP agreements need to be drafted with care by an experienced IP practitioner working solely in the interests of their client.

This blog entry provides general information only, and is not intended as legal advice specific to your circumstances.  Please seek the advice of a legal professional if you have any particular questions.

Liability limited by a scheme approved under Professional Standards Legislation

© Margaret Ryan, Melbourne, Australia, 2019

Important changes to labelling of hand sanitiser

Since the start of the COVID-19 pandemic many companies have been making hand sanitiser. But issues have arisen about their effectiveness, alcohol content and the risk of ingestion.  New rules commenced on 25 November 2020 to address these issues.  The rules apply to hand sanitiser that is regulated under cosmetics regulations.  From 25 May 2021 their container must be labelled with:

  • the amount of alcohol contained in the hand sanitiser as a percentage (%), by volume per volume (v/v) on the container; and
  • compulsory wording (or pictograms) setting out the risks of the product.

Products manufactured up until 24 May 2021 can comply with either the new rules or can be labelled in accordance with the existing cosmetics regulations.

The new rules apply to hand sanitiser that, in summary:

  • is an antibacterial skin care product containing one or more antimicrobial active substances;
  • is represented as, or is likely to be taken to be:
    • for use on hands when soap and water are not available;
    • applied to the hands without rinsing off; and
    • intended to destroy bacteria on the skin; and
  • contains alcohol as the primary active ingredient;
  • but the rules do not apply to:
    • hand sanitiser regulated by the Therapeutic Goods Act 1989 (TGA) (products that claim to kill specific organisms (e.g. E. coli or viruses) or are to be used in clinics or hospitals; or
    • hand sanitiser that is excluded from the TGA (80% ethanol hand sanitiser and 75% isopropyl alcohol hand sanitiser that comply with specific requirements as to their formulation, manufacture and labelling).

I am experienced in advising on product labelling.  Please contact me for more details of the new hand sanitiser rules.

This article provides general information only, and is not intended as legal advice specific to your circumstances. Please seek the advice of a legal professional if you have any particular questions.

High penalties for misrepresentations

Penalties for making false or misleading statements about goods and services can be substantial.  Maximum penalties have dramatically increased from $1.1 million for companies to a maximum of the greater of:
  • $10 million; or
  • 3 times the value of the benefit received by the company from the breach; or
  • if the value of the benefit cannot be determined, 10% of the company’s turnover for the previous 12 months.

The law covers a wide range of misrepresentations including false representations:

  • that goods or services have a particular standard, quality, value, grade or performance characteristics;
  • that goods are new or have a particular composition or place of origin;
  • regarding testimonials for goods or services;
  • regarding the availability of spare parts;
  • regarding the existence or effect of any warranty, guarantee or remedy;
  • regarding the sponsorship or approval of goods or services or of the supplier.

Thus it is more important than ever that claims on websites, contractual material and the packaging and advertising of products and services are correct.

I can provide advice on product and service claims before publication to assist clients in minimising the risks of liability for misleading statements.

This article provides general information only, and is not intended as legal advice specific to your circumstances. Please seek the advice of a legal professional if you have any particular questions.

Is a descriptive trade mark the best mark for your business?

Businesses often choose a trade mark that exactly describes their business or product eg Smith & Co Plumbing, being the plumbing business run by Mr Smith.  There is nothing wrong with this.  The name is easy to remember and easily searchable.  If the business is likely to remain a small, family owned business that will never take legal action against anyone else with a similar name, it is a perfectly satisfactory name.

However, if the business has ambitions to grow and may wish to stake out its territory against similar businesses, a descriptive mark is perhaps not such a good idea.  This is because names that are descriptive (Plumbing) as well as names that include common surnames (Smith) are generally not registrable as trade marks before the Trade Marks Office.  Even if they do achieve registration (eg because of long and extensive use eg McDonalds) the registration may provide only limited protection against a business with a similar name because small differences may be sufficient to distinguish the two businesses.  The reason is that, as a matter of policy, trade marks law does not allow businesses to monopolise common names and words that other traders are likely to want to use as trade marks.

I acted in a trade mark opposition against an application for the logo mark: for non-alcoholic drinks.  Although the application was accepted by the Trade Marks Examiner, the decision was overturned because the word “ICY” was a synonym of the word “cold” and so descriptive of a cold drink.  The word could not work as a trade mark because other traders would want to use the mark or something similar for cold drinks.

Similar difficulties apply to descriptive words used as trade marks even if they are not registered.  The Sydney Building Information Centre Ltd tried to stop another company, Hornsby Building Information Centre Pty. Ltd., from using its name.  Customers were confused about whether the two were connected.  However, the High Court held that the problem arose not because of any misleading conduct by the Hornsby Centre, but because the Sydney Centre had chosen such a descriptive name in the first place.

The best trade mark is a mark that has an indirect reference to the business/goods or services but is sufficiently clever/vague that it does not directly describe them eg TUB HAPPY for washable clothes.

I can provide advice on the registrability of a proposed trade mark or the invalidity of a registered trade mark.

The Curious Case of Pinnacle and the Bikinis – Part 3 – Costs

Intellectual property ownership

Intellectual property is designed to provide a business with a commercial advantage.  It builds a wall of exclusivity around a product so that competitors cannot sell products with the same trade mark or that are covered by the owner’s patent or registered design.

 

IP enforcement

But there may be some who wish to breach the wall and get a share of that competitive advantage.  Then, if the product and its protection are worth it, the IP owner needs to defend the wall by sending letters of demand to infringers, negotiating settlements and, sometimes, suing a recalcitrant infringer.  The legal costs of this defensive activity are costs of the business, like R&D or marketing expenses.

 

IP enforcement action is therefore a commercial undertaking.  Its main aim is to stop the infringing conduct – stop the damage to the business – repair the wall.  If money is obtained from the alleged infringer, that is a good result and will typically be used to offset the legal costs incurred.

 

But IP court action (litigation) is not intended to be a money-making exercise.  There are no million-dollar payouts as may occur in personal injuries litigation.  A business must understand the risks of litigation, and what it is trying to achieve, before pressing the IP litigation button.

 

IP litigation

I would never lightly recommend that a client sue an infringer.  Many years ago, when I was a law student, I did work experience at a solicitor’s office.  The partner said to me words that I have never forgotten:

 

The job of a lawyer is to keep their client out of court.

 

I have blogged about the Pinnacle Runway v Triangl trade mark infringement case here and explained how it demonstrates the risks of litigation here.  Justice Murphy has delivered his third judgment in the case: Pinnacle Runway Pty Ltd v Triangl Limited (No 3) [2020] FCA 1379 (25 September 2020).  It shows, in tragic detail, what can go wrong in litigation.

 

Pinnacle v Triangl – brief facts

Pinnacle accused Triangl of infringement of the trade mark DELPHINE, which was registered for swimwear.  Before litigation was commenced, Triangl agreed to stop using DELPHINE for its bikinis and not use it again, but without offering compensation.  One would have thought Pinnacle’s commercial objectives had been achieved.  However, it chose to sue Triangl in the Federal Court and lost.

 

Legal costs

There have been several curious aspects of this litigation noted in my blogs, but, curiouser and curiouser, whilst the case is being appealed – and the result may be overturned – both parties requested the trial Judge to determine their liability for the other side’s legal costs arising from his Honour’s original decision.  The reason for this, Justice Murphy surmised was:

 

… because the costs incurred by the parties are so substantial in comparison to the damages that could have been recovered, the issue of costs looms large in the appeal.

 

Unfortunately, this case appears to have become mostly about the legal costs.   It exemplifies the need for caution in suing in the first place, and its corollary, trying to exit litigation under a settlement that is not ideal, but can be tolerated.

 

Paying the other side’s legal costs

When one party sues another for IP infringement, normally the successful party will be entitled to a proportion of the costs that they must pay to their lawyers. (In Pinnacle v Triangl the Judge estimated this to be about 60% of actual legal costs).  However, in some circumstances, a Court can award “indemnity costs”, which will pretty much cover all their legal costs.  A common situation where this can occur is where one party has made a settlement offer to the other side and the offer has been unreasonably rejected.

 

As Pinnacle was unsuccessful, it would ordinarily be ordered to pay about 60% of Triangl’s legal costs.  In Pinnacle No 3 Triangl claimed that it was entitled to more of its costs – indemnity costs – because it had made a series of settlement offers that Pinnacle had rejected.

 

Purpose of litigation

Parties to Federal Court litigation should not conduct the litigation however they like.  Section 37M of the Federal Court Act 1976 (Cth) (the Act) provides for the “overarching purpose” of litigation, which is to facilitate the just resolution of disputes as “quickly, inexpensively and efficiently as possible”, including:

 

… the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

 

The Act requires the parties to conduct the proceeding in a way that is consistent with the overarching purpose and, if they fail to do so, the Court can penalise them when it decides who is to pay the legal costs.

 

By the end of the case, Pinnacle had spent approximately $281,000 in costs, according to Justice Murphy’s estimate, whereas, if it had been successful, it could have been awarded about $2,500 in damages.  Unsurprisingly, the Judge considered that these costs were disproportionate to the value of what was being litigated.

 

The settlement offers

During the course of the litigation, Triangl had made three settlement offers – of $40,000, $45,000 and $70,000.  Pinnacle made one counter-offer of $56,000 shortly after Triangl’s $40,000 offer.  Triangl estimated that its offers were split $2,000 for damages and the rest for Pinnacle’s legal costs.

 

The problem was that Triangl’s two later offers did not come in quick succession.  The $45,000 offer was made four months after its $40,000 offer, and the final $70,000 offer was made about eight months after the $40,000 offer, nine days before the trial commenced.  By the time that Triangl increased its $40,000 offer by $5,000, Pinnacle’s legal costs had increased by about $30,000, so, financially, the negotiations were going backwards for Pinnacle.

 

Was Pinnacle unreasonable to reject Triangl’s offers?

Justice Murphy held that it was unreasonable for Pinnacle to reject each of Triangl’s monetary offers.  Pinnacle needed to come to grips with the weaknesses in its case, which were apparent by the time the $40,000 offer was made.  There was a real risk that Pinnacle would lose the case.

 

Pinnacle did not trust the profit figures that Triangl had disclosed for the sale of its bikinis (a common sentiment in litigation). However, Justice Murphy noted that, on the facts as known by Pinnacle, if successful, Pinnacle would only be entitled to, at best, a proportion of Triangl’s profits (not all) and there was a real risk that damages would be “paltry”.

 

Indeed, excluding irrelevant legal costs, the $40,000 offer probably covered both possible damages and Pinnacle’s recoverable legal costs at that time.  Pinnacle also knew that, if it rejected the $40,000 and continued with the litigation, its legal costs position would only worsen.  Justice Murphy considered that Pinnacle, by rejecting Triangl’s three monetary offers and counter-offering $56,000, was hoping to get a better offer – but this did not come.

 

Justice Murphy held that Pinnacle had to pay Triangl’s legal costs on the standard (roughly 60%) basis until the $40,000 offer, and on an indemnity basis afterwards.  This was in addition to paying its own lawyers’ costs.

 

Conclusion

The Pinnacle litigation shows that it can be difficult for a party to extricate themselves from litigation, if, for example, they believe that the other side is being unreasonable or is unwilling to negotiate, or a settlement offer is inadequate.  Care must always be taken in pressing the litigation button in the first place.  Once litigation has commenced, however, it is crucial to consider the process commercially, weighing up the potential risks and benefits as they are known at the time, always with a keen eye on what the party set out to achieve as well as the running tally of its own legal costs and those of the other side.

 

This article provides general information only, and is not intended as legal advice specific to your circumstances. Please seek the advice of a legal professional if you have any particular questions.

Appeal court flushes away ACCC claims on flushable wipes

The Full Court of the Federal Court has rejected the appeal by the Australian Competition and Consumer Commission (“ACCC”) in its unsuccessful case against Kimberly-Clark (“K C”), where the ACCC claimed that K-C had made misrepresentations about its “flushable” wipes.

Facts
K-C made wipes (moist towelettes) from fibres that were hydroentangled, or blasted by fine jets of water so as to bond the fibres together. K-C designed the wipes so that they could break down with agitation in water, such as when the wipes passed through the sewerage system.

K-C labelled the wipes with terms such as “flushable” and “safe to flush”. In one instance, K C stated that the wipes “will break up in the sewerage or septic system like toilet paper”. However, this last statement was immediately clarified by saying that in extreme cases just one sheet could plug a toilet. K-C went on to make recommendations as to use, including not to flush more than two sheets at a time.

The ACCC claimed that these statements were misleading because, it said, the K-C wipes caused, or contributed to, harm to household plumbing and public sewerage systems by causing blockages.

The trial judge held that K-C had not made misrepresentations. This was essentially because the ACCC had not been able to prove that K-C’s wipes caused, or contributed to, any harm to sewerage systems, or even presented a materially greater risk of harm than toilet paper (which was accepted as “flushable”).

Appeal
The ACCC appealed this decision but was unsuccessful. The Full Court held that the trial judge had not made any errors and had properly considered the various arguments made by the ACCC.

Much of the evidence at trial showed problems caused by wipes generally (that were not supposed to be flushable) rather than identifying any damage caused by wipes that were designed to be flushable, such as K C’s wipes. The Full Court noted that even toilet paper can cause blockages.

K-C had argued that its flushability claims were supported by the fact that its wipes passed the tests of the INDA/EDANA GD3 Guidelines. These were tests of flushability that had been developed by industry. The ACCC strongly disputed the legitimacy of these Guidelines, but the Full Court held that the trial judge was correct to accept the Guidelines as a reasonable benchmark for making a claim of flushability, in the absence of substantial evidence that the K-C wipes caused harm.

The trial judge accepted that K-C’s wipes did not break down as easily as toilet paper but there was insufficient proof of harm. The Full Court held that where K-C had stated that its wipes would break up “like toilet paper”, the fact that K-C had immediately qualified this statement was sufficient to prevent any misrepresentation.

Too late to change case
In the appeal the ACCC argued that the K-C wipes were not suitable for flushing down the toilet because there was a real risk that they could cause harm. The Full Court rejected this argument because this was not how the ACCC had run its case during the trial. Rather, the ACCC’s claims against K-C were made on the basis that the wipes caused actual harm (which it failed to prove). The Full Court noted that, if the ACCC had relied on the lower standard of “real risk of harm”, K-C might have introduced different evidence to defend this different claim. It was now too late for the ACCC to try to change its case.

There was also a late suggestion by the ACCC that K-C’s wipes could harm septic systems. Again, the Full Court rejected this argument because it was too late – the ACCC had run its case on the basis that harm was caused to sewerage systems, not septic systems.

Implications
This decision is helpful to suppliers of wipes that are designed to be flushable, but it is limited to its facts – to the case that the ACCC was trying to prove. Importantly, however, the Full Court approved the trial judge’s acceptance of the INDA/EDANA GD3 Guidelines as to flushability, provided that there is no evidence of actual harm caused by the wipes in question.

The ACCC was unable to uncover evidence of harm caused specifically by the K-C wipes. There could be a different result if hard evidence were to emerge that particular wet wipes labelled as “flushable” were causing blockages in sewerage systems to a greater extent than ordinary toilet paper.

In addition, the decision does not explore the impact of K-C flushable wipes on domestic septic systems.

Moving forward
Sections 18 and 29 of the Australian Consumer Law (“ACL”) prohibit misleading representations about goods or services. Businesses can be liable to anyone who suffers damage because of the misrepresentations, but, in addition, a misleading representation can be an offence under section 151 of the ACL. Breaches can give rise to substantial monetary penalties (which can be in the millions of dollars depending on the circumstances). The ACCC can prosecute offences under the ACL and recover these penalties.

Whether any particular labelling or marketing claims can be considered to be misleading depends on the precise claims made and their context (including surrounding words and images). But for now, the term “flushable” should be available for use in Australia if:

(a) a suppler can prove that its “flushable” products pass at least the INDA/EDANA GD3 Guidelines;
(b) the marketing and labelling refer to these Guidelines (to explain what the supplier means by “flushable”);
(c) there are no actual problems with the flushability of the products; and
(d) the supplier does not make comparisons with toilet paper, such as that the products are similar to toilet paper or will disintegrate in a similar manner to toilet paper.

However, given that this is a controversial and well-litigated area, legal advice should be sought before making flushability claims.

Attempts are currently being made to establish an Australian Standard on flushability. If a Standard is established, this may alter what can be said on labelling and marketing materials.

This article provides general information only, and is not intended as legal advice specific to your circumstances. Please seek the advice of a legal professional if you have any particular questions.

The Internet is not the Wild West – (although it can seem to be)

Some people seem to think that no laws apply to the Internet – or that anything that appears on the Internet is free to be copied and used however they like. This is not true.

Much of the material on the Internet is protected by copyright laws, both in Australia and around the world. Certain material, especially if posted on social media sites, may be designed or intended to be shared, such as funny cat videos and other memes. But this is not true of everything on the Internet.

Some websites, such as Shutterstock, permit downloading of images and videos for a fee. Other websites are essentially advertisements for their business and may also enable sales through the website. These businesses would not expect that material on their website could be copied and used, for example, by a rival trader.

Even material intended to be shared on social media may not be able to be re-purposed. A funny cat video shared by the cat’s owner cannot normally be taken and incorporated in a compilation of cat videos on a YouTube channel without permission.

An example of unlawful copying from the Internet, with expensive consequences, was the case of Henley Arch Pty Ltd v Del Monaco [2019] FCCA 3848 (13 November 2019). A photo was taken of a floor plan of a Henley Arch project home found on the Henley Arch website by either Mr Del Monaco or a friend. Mr Del Monaco then emailed the image to his builder and instructed them to prepare plans and build a house in accordance with the floor plan.

The photo, the further plans and the house were all infringements of Henley Arch’s copyright in the floor plan (copyright in a 2D drawing can be infringed by a 3D building). Mr Del Monaco was held to have authorised the plans and building the house and so had infringed Henley Arch’s copyright. He was ordered to pay compensation of $42,000 plus $4,800 in interest. He also had to pay $40,000 in “additional damages” which the Judge ordered to show her condemnation of all persons who consider it “’all right’ to appropriate copyright”. Mr Del Monaco is also likely to be required to pay a portion of Henley Arch’s legal costs.

Downloading an image or other copyright material from the Internet can seem so simple and easy. However, if this is done to save time and money instead of seeking the permission of (and possible payment to) the copyright owner, this can have very serious consequences, especially if the material is then exploited commercially.

This article provides general information only, and is not intended as legal advice specific to your circumstances. Please seek the advice of a lawyer if you have any particular questions.

© Margaret Ryan, Melbourne, Australia, 2020
Liability limited by a scheme approved under Professional Standards Legislation