The Federal Court of Australia, in Verrocchi v Direct Chemist Outlet Pty Ltd [2015] FCA 234 held that deliberate copying was not sufficient to amount to misleading and deceptive conduct. Mario Verrocchi and Jack Gance (“the Applicants”) had sought restraining orders against the use of get-up, colour scheme of their pharmacy storefronts by Direct Chemist Outlet Pty Ltd (“DCO”) and Mr. Ian Tauman (Collectively “the Respondents”). The Applicants also sought relief for trade mark infringement under s 120 of the TMA.

Federal Court of Australia 

Judge: Middleton J

Date of Judgment: 17 March 2015

The Applicants, registered pharmacists in Australia, traded under “Chemi Stop” in or around 2000. In 2002, they begun to trade under “Chemist Warehouse”. The Applicants filed TM 913632 “”(“Original Chemist Warehouse Mark”) and TM913631 “”(“Chemi Stop The Chemist Warehouse Mark”) in classes 3,5,35,42,44 on the 21 May 2002. The latter mark was filed because the Applicants did not want to lose the goodwill and brand recognition associated with the “Chemi Stop” mark during the transition. By 2014, there were 110 pharmacists or pharmacist-controlled companies with more than 250 Chemist Warehouse stores across the different states and territories of Australia.

The exterior of Chemist Warehouse retail stores featured prominently the Chemist Warehouse Mark of a real house with a chimney and the words “Chemist Warehouse” in capitalised white text within the house “” (“Chemist Warehouse Mark”). The exterior featured the use of predominantly yellow and some red and blue colours (“primary colour palette”). The store fronts utilized slogans including “Up to 50% Off Prescriptions”, “Is this Australia’s Cheapest Chemist?” (where the words “Is this?” were in a smaller text size and oriented at 45 degrees to the remainder of the slogan), “Stop Paying too Much”, “Discount Chemist”, “Never Beaten on Price”, and “Lowest Price Guaranteed” in various colours (not limited to black, white, yellow, red and blue) against various backgrounds. Other signs (among others) displaying the words “Superstore”, “Discount vitamins”, “Discount cosmetics”, “Direct to public”, “Never beaten on price”, “Sale”, and “Open 7 days” were also used but not consistently across all the stores.

The Applicants developed and distributed promotional and advertising materials in the form of catalogues in a grid layout showing various products for sale and featuring the Chemist Warehouse Mark. The Applicant’s website also featured the use of Chemist Warehouse Mark despite being inconsistent in layout and colours throughout the years.

The Respondents, as direct competitors to the Applicants, traded under Direct Chemist Outlet (“DCO”) since 2006. As at 28 April 2014, there were 24 DCO pharmacy stores in Queensland, Victoria and New South Wales. The exterior of all DCO stores featured the ““(“DCO Mark”) and utilized lifestyle photographs of pharmacists or customers against the primary colour palette backgrounds. Words such as “Save” and slogans “Save up to 50% off prescriptions”, “Why pay more?”, “More than just the lowest price”, and “Lowest price guarantee” in a circular blue and white logo accompanied with a tick against red background were often featured as well. The Respondents distributed catalogues and had a website which Mr. Tauman did not consider important because online sales could not be made at the time of trial.

Allegations Against the Respondents

The Applicants alleged that the Respondents did not adequately distinguish themselves and had engaged in misleading and deceptive conduct by adopting a get-up for their stores, catalogues and website causing consumers to believe that the Respondents’ pharmacies either those of the Applicants or are associated with Applicants’ pharmacy chain. The Applicants alleged trade mark infringement by the Respondents, relying on registered trade mark TM 1195650 “” in classes 35 and 44. The Respondents countered by seeking to revoke TM 1195650 under s 88 of TMA for lack of ability to distinguish. The Respondents also denied using the “” (“alleged slogan”) as a trade mark. The relevant date is the date of commencement of the impugned conduct i.e. 26 May 2006.

Evidence of “Deliberate Copying”

Before Justice Middleton, evidence disclosed that Mr. Tauman was aware of the existence Chemist Warehouse since early 2002. Mr. Tauman had planned for a low-cost or discount chemist in early 2005 and started the first DCO store in Werribee, Victoria on the 26 May 2006 after reviewing and taking guidance of the get-ups of many well-known brands including Amcal Max, Windjet, DFO, Bob Jane T-Marts, Crazy John’s, Supercheap Auto, Kmart, Foodworks, Reflex, Bunnings Warehouse and Australia Post Office Supplies. Mr. Tauman ultimately decided on yellow, blue and red as they were the best colours functionally for his DCO stores as Discount Chemist, and not because of association with Chemist Warehouse. 

Insofar as the catalogues were concerned, the development of DCO catalogues were also inspired by the Applicants use of the yellow swish found in Chemist Warehouse catalogue with the gunplay font used in 2011 and 2012. Justice Middleton found Mr. Tauman had drawn inspiration from Chemist Warehouse and other retailers but did not cross the threshold of engaging in any misleading or deceptive conduct. His Honour found Mr. Tauman did not seek to create a perceived association between DCO stores and Chemist Warehouse stores but sought to distinguish DCO stores from the Chemist Warehouse ones.

Against the Applicants’ contentions, Justice Middleton found inconsistencies in the use of the primary colour palette in Applicant’s exterior and colour schemes that were functional in nature (yellow for “discount”), facts that distinguished the present case from Red Bull Australia Pty Ltd v Sydneywide Distributors Pty Ltd [2001] FCA 1228; (2001) 53 IPR 481. The dominant and distinctive feature of the exterior of Chemist Warehouse stores was the Chemist Warehouse Mark. 

His Honour observed notable differences between the exteriors of stores of the parties and the source identifier in the get-ups, catalogues and websites of competing parties and held that the source identifiers were the Chemist Warehouse Mark and DCO Mark respectively. His Honour was satisfied that a not insignificant number of consumers in the relevant class would not be misled or deceived into believing that the Applicants and Respondents are commercially linked and concluded that the Respondents had not engaged in any misleading or deceptive conduct.

Alleged Trade Mark Infringement

As for TM 1195650 “”, it was purely descriptive and no amount of evidence of use would have rendered it capable of distinguishing or being a source identifier. Accordingly it failed under s 41 and was revoked under s 88 of the TMA. 

Justice Middleton was not required to look into trade mark infringement claim but nevertheless found that the Respondents had not used the alleged slogan as a trade mark and therefore could not constitute infringement under s 120 of the TMA.

The Applicants eventually sought leave to appeal and the Full Court in Verrocchi v Direct Chemist Outlet Pty Ltd [2016] FCAFC 104 saw no errors in primary judge’s application of laws and consequently dismissed the appeal.

Key Takeaway

The Applicants in the present case had sought to restrain its competitors from emulating its get-up, relying on its predominant use of yellow on the exterior of its storefronts. A few things, however were against its pleaded case before the trial judge. Firstly, evidence disclosed there was functional use of yellow, being associated with discounts and denoting value proposition. Secondly, the use of yellow for its storefronts was not consistent for reasons constrained by physical factors, planning permits, etc. That inconsistency did not assist the case advanced by the Applicants. Thirdly, the use of Chemist Warehouse Mark on every storefront did not assist in the Applicants’ argument that yellow was the ‘source identifier’. The use of the Chemist Warehouse Mark in fact, ‘diluted’ the yellow (if it was meant to be the source identifier) as consumers took to the Chemist Warehouse Mark as the main source identifier. 

Disclaimer: The above is provided to assist in the understanding of the decision by the Federal Court of Australia. 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.