In Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc [2020] FCAFC 235, the Full Court dismissed the appeal by Hashtag Burgers Pty Ltd and allowed the cross claim by In-N-Out Burgers Inc. The Full Court found Messrs Kagan and Saliba liable as joint tortfeasors for trade mark infringement and passing off conduct after the incorporation date of Hashtag Burgers Pty Ltd (i.e. 23 June 2017).

Appeal from: In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd [2020] FCA 193

Judges: Nicholas, Yates and Burley JJ

Date of Judgment: 23 December 2020

Hashtag Burgers Liable at first instance

In In-N-Out Burgers Inc v Hashtag Burgers Pty Ltd [2020] FCA 193, the primary judge decided that Hashtag Burgers Pty Ltd (“Hashtag Burgers”) and Messrs. Kagan and Saliba (together as “appellants”) were liable for trade mark infringement, misleading and deceptive conduct contravening s 18 of the Australian Consumer Law (“ACL”), and passing off prior to 23 June 2017, the incorporation date of Hashtag Burgers Pty Ltd. The primary judge held Messrs. Kagan and Saliba were liable as joint tortfeasors for misleading or deceptive conduct after the incorporation (i.e. after 23 June 2017) but were not jointly and severally liable for trade mark infringement and passing off conduct. 

Hashtag Burgers and Messrs Kagan and Saliba appealed to the Federal Court of Australia (Full Court) and In-N-Out Burgers, Inc (“respondents” and “INO Burgers”) cross-appealed claiming the primary judge had erred in her finding that Messrs. Kagan and Saliba were not liable as joint tortfeasors for trade mark infringement and passing off conduct. 

However, in our view, her Honour’s earlier findings indicate that their conduct as individuals went beyond the threshold of performing their proper roles as directors. In particular, in our view, the combined effect of five matters found by her Honour at [350] and [351] (as set out above at [131] and [132]) leads us to the view that Messrs Kagan and Saliba were in fact joint tortfeasors.…..Finally, to these findings must be added her Honour’s conclusion at [351] that each of Messrs Kagan and Saliba were knowingly involved in the company’s wrongdoing.

Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc [2020] FCAFC 235 at [140]

Grounds of Appeal

The appellants contended the primary judge did not follow established principles in her finding of deceptive similarity between the parties’ marks. The appellants also challenged the primary judge’s decision that Messrs. Kagan and Saliba adopted the marks for the deliberate purpose of appropriating the INO marks’ branding and reputation. 

The appellants particularised that the primary judge erred in her finding of deceptive similarity by (a) failing to give weight to the presence of the word BURGER in the INO trade marks; (b) failing to assess the effect of the arrows in the composite INO trade marks; (c) placing undue emphasis on the “N-OUT” aspect of the trade mark and attributing insufficient significance to the difference between DOWN and D#WN; (d) failing to give sufficient weight to the difference in the meaning between the respective marks and the idea conveyed by those marks; (e) placing significant and dispositive weight on aural similarity and not giving much weight to visual dissimilarities; (f) framing the central question as one focused on imperfect recollection and (g) placing apparent weight on evidence of confusion from social media posts and no weight to absence of actual confusion.

The primary judge held the word “burger” was descriptive in nature and would not be meaningful if taken into the consideration in the evaluation of the marks similarities. The “N-Out” component is the distinctive and significant feature of the marks and therefore likely to remain in one’s mind. There is a visual resemblance of the competing marks when viewed in entirety. Aurally, the primary judge considered the tendency for people to slur the first word in a mark coupled with a phonetically weak nasal sound in “IN” and concluded that the competing marks DOWN-IN-OUT and IN-N-OUT are aurally more similar than dissimilar. 

A notional consumer with ordinary intelligence and imperfect recollection upon seeing or hearing the DOWN-N-OUT mark for burgers might wonder if DOWN-N-OUT restaurant was in some way related to it. Justice Katzmann concluded that the marks are deceptively similar and confusion is likely to occur. The Full Court saw no error in the primary judge’s evaluation of the marks. 

On the instances of confusion from social media posts, the primary judge did not reach her conclusion by placing significant weight on the evidence but instead found those evidence supported her views. The Full Court rejected the appellant’s claim that the primary judge had placed undue weight on evidence of confusion from social media posts.

Ground 1 of the appeal was not established.

Appeal for Ground 2 

The appellants contended that the primary judge’s finding of the appellant’s deliberate appropriation of various aspects the INO Burgers’ trade marks, branding and reputation was calculated to cause confusion. The appellants further contended that the primary judge had erred in her finding that Messrs Kagan and Saliba had been dishonest based on the Mr. Kagan’s response to the cease-and-desist letter and their failure to co-operate during discovery phase of the trial.

Did Messrs. Kagan and Saliba intend to cause confusion? 

The appellants denied the use of DNS marks was to leverage on the reputation of the INO marks and its branding and instead purported they were inspired by the INO marks. The primary judge took into account the knowledge of INO marks by the appellants at the time when the DNO marks were adopted. The use of “IN-N-OUT Burgers” and the registered trade marks “Animal Style” and “Protein Style” in the media release and the absence of any further clarification in the form of evidence by either Mr. Kagan or Mr. Saliba to dispel any confusion that has arisen from the media release supported the primary judge’s findings that Messrs. Kagan and Saliba had intended to cause confusion. The Full Court took the view that the primary judge was open to draw inferences and upheld the primary judge’s findings that Messrs. Kagan and Saliba did intend to cause confusion.

The Full Court accepted that the primary judge had erred in her finding of dishonesty as there was a lack of evidence to support the primary judge’s finding that “Animal Style” and “Protein Style” were indeed used as items on the menu by the appellants. However, a finding of dishonesty is not necessary and the requisite intention to cause confusion by Messrs. Kagan and Saliba has been found. The Full Court dismissed ground 2 of the appeal. 

Appeal for Ground 3: Misleading or Deceptive Conduct and Passing Off

The appellants challenge the primary judge’s finding of misleading or deceptive conduct under s 18 of the ACL and the tort of passing off. The appellants contended that firstly, the competing marks are not deceptive similar; secondly, the different trade dress, get up, uniforms, decors, menus and signs when used in combination with the parties’ trading names should dispelled any likelihood of confusion or deception; thirdly, the primary judge had wrongly applied the measure of “imperfect recollection” when considering the response of a notional consumer.

The Full Court rejected the submission that the primary judge had erred in her findings that the competing marks are deceptive similar for reasons given earlier while addressing the issue of trade mark infringement. 

Conduct is misleading or deceptive if it leads or is capable of leading a not insignificant number of people into error (primary judgment at [173]). The Full Court noted the primary judge’s finding of INO Burgers’ reputation in Australia (primary judgement at [224]). The judge’s finding that a not insignificant number of consumers in the relevant market could have known about IN-N-OUT through magazines, or newspaper online, or through word-of-mouth further reinforced her Honour’s finding that the difference in trade dress, get up of the respective pop-ups will not dispel any likelihood of deception brought about by the resemblances in the trade marks. The Full Court upheld the primary judge’s findings.

The appellants submitted that the primary judge had lowered the threshold to one where it’s sufficient for the consumer to be “caused to wonder” whether there is an association between the marks.  Where the impugned conduct is directed to members of the class of public, it must be judged by its effect on ordinary or reasonable members of the class of prospective purchasers; Campomar at [102] and that the question is whether the misconception or deceptions alleged to arise or likely to arise are properly to be attributed to the ordinary or reasonable members of that class: Campomar at [105]. It’s reasonable for the court to consider how aspects of the mark may be remembered by consumers due to imperfect recollection. 

The Full Court noted her Honour did not apply the “cause to wonder” test in her assessment of whether contravention of s 18 of the ACL or tort of passing off has been made out. The primary judge noted at [254] that conduct which misleads consumers such that they are “enticed into ‘marketing web’” by an erroneous belief engendered by the person making the representation, will be sufficient: Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 at [50]. The primary judge found in the six categories of conduct alleged by INO Burgers that the impugned conduct by the Messrs. Kagan and Saliba (along with Hashtag Burgers) would have caused a not insignificant number of consumers into thinking that there was an association between them and INO Burgers and the Full Court took the view that the primary judge was correct in making that finding. It was not suggested in her reasons in so deciding that the primary judge considered it was sufficient that the consumers be caused to wonder as to the association. Ground 3 of the appeal was dismissed.

Ground 4: Goodwill Required for Passing Off to Succeed

The appellants contended the law in United Kingdom now requires goodwill in the sense of a business with customers in the jurisdiction in order for passing off claim to succeed: Starbucks (UK) Ltd v British Sky Broadcasting Group Plc [2015] 1 WLR 2628 and the primary judge has erred to finding that INO Burgers does not need to have a place of business or be trading actively in Australia to establish goodwill. In ConAgra, the principle is that it is not necessary in Australia that a plaintiff, in order to maintain a passing off action, to have a physical business in Australia. There is no need for goods to be sold in Australia. It is sufficient if its goods have a reputation in Australia to a sufficient degree to establish that there is a likelihood of deception among consumers, and potential consumers, and of damage to its reputation: ConAgra at 342. The Full Court saw no reason to depart from this long-standing principle. 

The primary judge found that in the period from 24 January 2012 until 6 March 2018, INO Burgers hosted eight pop-up well-attended events where its products bearing the INO Burgers’ trade marks were sold. The Full Court dismissed ground 4 of the appeal. 

Cross Appeal: Liability of Messrs. Kagan and Saliba After the Incorporation of Hashtag Burgers

INO Burgers contended the primary judge had erred in not finding Messrs. Kagan and Saliba as joint tortfeasors for trade mark infringements, passing off after the incorporation of Hashtag Burgers Pty Ltd. The primary judge held Messrs. Kagan and Saliba were only liable for the contraventions of the s 18 of the ACL after the incorporation of the entity.

The appellants conceded that if Hashtag Burgers were found to contravene s 18 then the directors were knowingly concerned within s 236 of the ACL. However, the primary judge was not predisposed to find the directors went beyond performing their duties as directors of the company. 

The test for finding if a director is liable as a joint tortfeasor with the company is whether the conduct of the director was said to go beyond the proper role of director so as to descend into the realm of “close personal involvement”: JR Consulting (Full Court) at 351. 

The Full Court took the view that her Honour’s earlier finding had indeed supported the finding Messrs. Kagan and Saliba were joint tortfeasors in trade mark infringement and passing off with Hashtag Burgers for the following reasons:

1. Both individuals are sole directors of Hashtag Burgers;
2. Both individuals decide matters on the management level;
3. Both are beneficiary of the profits derived from the company;
4. There were no significant differences between the way the two individuals managed the business before and after the incorporation of Hashtag Burgers.

At [351], the primary judge found both Messrs. Kagan and Saliba were knowingly involved in the company’s wrongdoing.

The Full Court took the view that these findings supported the conclusion that both Messrs. Kagan and Saliba had a sufficiently close personal involvement with the actions of Hashtag Burgers and are liable as joint tortfeasors with Hashtag Burgers in the matters trade mark infringement and passing off. The cross appeal was thus made out.  

Disclaimer: The above is provided to assist in the understanding of the decision by the Federal Court of Australia (Full Court). It should not be relied upon as legal advice. Any errors or omissions are the author’s. For queries related to the article, please contact the author here.