It’s Good to be Different
Background of Down-N-Out
The high-profile case of Hashtag Burgers Pty Ltd v In-N-Out Burgers Inc  FCAFC 235 (‘Down-N-Out v In-N-Out’) found Sydney burger business, ‘Down-N-Out’, liable for unlawfully imitating the well-known US burger chain, ‘In-N-Out Burger’. The Court found Down-N-Out liable for trademark infringement, passing off, and misleading and deceptive conduct.
Founded in 1948, In-N-Out Burger have over 350 separate restaurant locations across the United States. What is undoubtedly a successful business model, the Court found that Down-N-Out capitalised on In-N-Out’s already established business model and reputation for its own gain.
Trademark Infringement of Down-N-Out
Section 120(1) of the Trade Marks Act 1995 provides that:
‘[a] person infringes a registered trade mark if the person uses as a trade mark a sign that is substantially identical with, or deceptively similar to, the trade mark in relation to goods or services in respect of which the trade mark is registered’.
While it is invariably a matter of interpretation as to whether certain logos are ‘substantially identical’, the court in this case held that ‘N-OUT’ was a “… distinctive and significant feature and an essential ingredient of all In-N-Out trade marks.” The Court also found that the arrow used in Down-N-Out’s logo tended to reinforce a common directional idea with the In-N-Out logo. In coming to this conclusion, the Court also considered evidence of Down-N-Out’s director’s instructing their graphic designers to “… make a sign like In-N-Out Burger” and further comments stating that their brand was “… enough to fool stupider people in society into thinking that we are In-N-Out.”
MISLEADING AND DECEPTIVE CONDUCT
Section 18(1) of the Australian Consumer Law (‘ACL’) provides that:
‘[a] person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’.
The Court held that Down-N-Out had misled the public into believing they were associated with the US burger chain, through its use of their substantially identical branding at their pop-up restaurants, and on their website and social media.
The tort of passing off prevents one trader from misrepresenting goods or services as being the goods and services of another. In this case, the Court found Down-N-Out liable for the tort of passing off, but found its two directors (‘Directors’) liable as joint tortfeasors too. The Court found that the Directors had sufficiently close personal involvement with the actions of Down-N-Out and Hashtag Burgers as to attract liability as joint tortfeasors with the Court’s reasons as follows:
- The Directors were the sole directors of the business;
- The Directors alone made decisions as to business management;
- The Directors alone received the profits derived from business; and
- There was no significant difference between the way that the Directors operated the business before incorporation and the way in which they operated it through the corporate vehicle after it was formed.
Business directors should be wary and take note. As a director, you are responsible for the oversight and affairs of the company. That said, you must comply with your legal obligation as a director under the Corporations Act 2001 and Common Law. If you are unsure of your obligations as a director, you can seek legal advice with our experienced commercial team.
BUT IN-N-OUT ARE NOT LOCATED IN AUSTRALIA?
The Court confirmed that while In-N-Out Burger had no place of business in Australia, it was not precluded from bringing action against Down-N-Out. The Court stated that it was not necessary for In-N-Out Burger to have a place of business or a business presence in Australia; nor was it necessary that their goods be sold in Australia. The Court noted that it is merely sufficient that In-N-Out Burgers’ have ‘sufficient reputation’ to establish a likelihood of deception among consumers and potential consumers.
KEY TAKEAWAYS from Down-N-Out FOR BUSINESSES
As tempting as it may be for business owners (particularly small businesses) to follow or copy another businesses model and / or branding; it is essential that owners and directors understand the risks associated in copying or imitating another business model, even overseas businesses. Ideally, businesses should seek to be unique offering something new, fresh, and never seen within the market. Prior to starting your business or re-branding, you should first do your research on already registered trade mark’s to ensure that you are not infringing on another company’s trade mark. Once you have done your due diligence, you should then register your trade mark to protect your businesses own intellectual property.
OUR ROLE AS LITIGATION LAWYERS
If you are looking to seek legal advice, Ramsden Lawyers are able to assist you. We are happy to arrange an initial consultation to assist you in navigating the procedures set out under the relevant legislation for your circumstances. We have a litigation team to assist in any proceedings you wish to commence or defend; and a business team to assist you in understanding your obligations under relevant law.
The content of this article is intended to provide a general guide to the subject matter and must not be relied on as legal advice. Specific advice should be sought about your circumstances.
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