A right to damages despite no infringement?

A recent decision of the Supreme Court of Victoria (British American Tobacco Exports BV v Trojan Trading Company Pty Ltd [2010] VSC 572 (23rd December 2010)) raises some novel issues concerning the criminal provisions of the Trademarks Act, and illustrates how brand owners can use trademark law to make life difficult for parallel importers.

British American Tobacco (BAT) owns the mark CAPTAIN BLACK for cigars in Australia. Trojan Trading imported CAPTAIN BLACK cigars into Australia for resale. In order to comply with Australia’s tobacco labelling laws, Trojan applied mandatory health warnings to the CAPTAIN BLACK cartons by way of stickers. Unfortunately for Trojan, those stickers partially obscured the CAPTAIN BLACK marks.

The owner of a registered mark has the right to place a notice on goods prohibiting the full or partial obliteration of the owner’s mark from the goods. Breach of such a notice constitutes trademark infringement. However, BAT had not applied a warning notice to the relevant goods, and so Trojan partially obscured the CAPTAIN BLACK marks when applying the health warning stickers.

BAT relied on Section 145 of the Trademarks Act, which in essence makes it a criminal offence to remove or obliterate a trademark partially, without the permission of the trademark owner or an authorised user, from goods to be dealt with in the course of trade.

For the purposes of Section 145, unlike the infringement provisions, it is not necessary for the goods to bear a notice prohibiting the removal or partial removal of the mark from the goods. As such, and somewhat surprisingly, Section 145 is potentially broader in its scope than the act's infringement provisions.

BAT argued that Trojan’s conduct in partially obscuring the CAPTAIN BLACK marks by the application of health warning labels breached Section 145. In turn, BAT argued that it was entitled to sue Trojan for damages for “breach of statutory duty”, a tort that has long been recognised in the case of statutory provisions in areas such as industrial safety, but which has not previously been considered under the Trademarks Act.

Trojan applied to have BAT’s claim struck out for not disclosing a valid cause of action. In order to succeed, Trojan needed to convince the court that BAT’s case had no real prospect of success. Trojan argued that the act contains infringement provisions and that there was no basis for implying additional civil rights and remedies beyond those provisions. However, the court was not convinced that BAT’s claim was hopeless, and refused to strike out the claim.

It remains to be seen whether the case will proceed, and if so, whether BAT will ultimately prevail.