First published as part of Mattia Pagani, Courtney White, Chris Carter and Miriam Zanker, 'Current Developments – Australia: Patent infringement by supply of a product: Quaker Chemical (Australasia) Pty Ltd v Fuchs Lubricants (Australasia) Pty Ltd (No 2) [2020] FCA 306 and The line between inspiration and appropriation: In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd [2020] FCA 193′ (2020) 120 Intellectual Property Forum 69.

In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd [2020] FCA 193 (26 February 2020) is a case of deliberate appropriation of an overseas brand. It demonstrates that making incremental changes to an infringing mark will not always be enough to avoid breaches of consumer law. The case also explores personal liability of directors and highlights the latter part of a trade mark can be significant in the minds of consumers, despite many legal authorities emphasising the weight and significance of the first syllable of a mark.

Background

American burger chain, In-N-Out Burgers was founded in 1948. It has operated over 300 restaurants in the United States of America ("US") and showcased its brand through "pop-up events" in other parts of the world, including in Australia between 2012 and 2018. In-N-Out Burgers owns a range of Australian trade mark registrations including for IN-N-OUT BURGER, ANIMAL STYLE and PROTEIN STYLE.

Australian company, Hashtag Burgers Pty Ltd, has operated a number of pop-up events and burger restaurants in Australia, initially under the name "Funk N Burgers" and subsequently "Down-N-Out" or a variant thereof. Prior to Hashtag Burgers' incorporation in June 2017, the succeeding directors held their first pop-up event in June 2015 called Funk N Burgers where they served ANIMAL STYLE burgers. Notably, their pop-up event was held five months after one of In-N-Out's Australian pop-up events.

The proceedings

In-N-Out Burgers sent a cease and desist letter to Hashtag Burgers requesting them to stop using the ANIMAL STYLE and PROTEIN STYLE trade marks and to select a different name and logo. Hashtag Burgers denied use of the ANIMAL STYLE and PROTEIN STYLE marks and argued the "Down-N-Out" name was not infringing. Despite this, they made incremental changes to their "Down-N-Out" logo, including removing the yellow arrow and hyphens (common features of the In-N-Out logo) and replacing the "O" in DOWN with a hashtag.

Notwithstanding these changes, In-N-Out Burgers commenced legal proceedings against Hashtag Burgers claiming trade mark infringement, misleading or deceptive conduct and passing off.

Trade mark infringement

The allegations of trade mark infringement concerned Hashtag Burgers' use of various "cheeky" references to the In-N-Out Burger marks, and the use of various iterations of the Down-N-Out mark.

In-N-Out relied on evidence of Hashtag Burgers' promotional materials for the Funk N Burgers and Down-N-Out pop-ups/restaurants and communications between Hashtag Burgers' director and a graphic designer regarding the Funk N Burgers and Down-N-Out signs. Hashtag Burgers' promotion of these pop-ups and restaurants repeatedly referenced In-N-Out, with the Facebook promotion stating, "this time on the menu we have the legendary In'N'Ou. I mean the Down'N'Out burger", another Facebook promotion titled an "In-N-Out Tribute" and the media release entitled "Sydney's answer to In-N-Out Burgers has Finally arrived!" with the body of the text referring to the "cheekily named DOWN-N-OUT". Further to this, Hashtag Burgers' director had asked the graphic designer to make "a Funk N Burgers sign like In N Out Burger" and had requested Down-N-Out branding that "matches In and Out branding".

In response, Hashtag Burgers made the following arguments:

  1. the phrases Down N Out and In N Out did not convey the same ideas;
  2. the marks incorporated important visual differences, including that "down" looks nothing like "in" and the arrow was missing in Hashtag Burgers' sign;
  3. the essential features of competing marks are different; and
  4. no witness was called to give evidence that they were confused by the marks.

Justice Katzmann of the Federal Court of Australia held that the latter part of the mark, N-OUT, was the distinctive and significant feature and essential ingredient of In-N-Out's mark.1 Her Honour found that Hashtag Burgers had "sailed too close to the wind"2 and had infringed In-N-Out's trade marks because the marks were deceptively similar.

Misleading or deceptive conduct

Hashtag Burgers' conduct relevant to the misleading and deceptive conduct claim was categorised as follows:

  1. initial representations at the Sir John Young Hotel during the period 6 June 2016 to August/September 2016 (the use of colours in a specific way i.e. red letters for the name and a bent yellow arrow);
  2. incremental changes at the Sir John Young Hotel during the period August/September 2016 to July 2018 - substituting a hashtag for the "O" in DOWN;
  3. representations at the Down-N-Out restaurants in Penrith, Ryde, Wollongong, and Crows Nest;
  4. representations at the relocated central business district restaurant;
  5. representations at the relocated Ryde restaurant; and
  6. website and social media use.

Before determining whether Hashtag Burgers' conduct was misleading or deceptive, the Court had to determine whether In-N-Out enjoyed a reputation in Australia as at 25 May 2016, when Hashtag Burgers launched their "Down-n-Out" Facebook page.

By relying on statistics from the Australian Bureau of Statistics about short term departures of Australian residents to the US, numerous articles from popular Australian press encouraging Australians to visit an In-N-Out restaurant and the various pop-ups held in Australia between 2012 and 2018, her Honour was satisfied In-N-Out had reputation in Australia. Significantly, although In-N-Out's pop-up events had limited advertising (only one or two days before the event), they still attracted long queues and were nearly or completely sold out within the first two hours of opening.

Katzmann J considered the incremental changes of removing the hyphens, inserting apostrophes and substituting the "O" with a hashtag. However, these changes were not enough to avoid a potential "hangover effect" which occurs when a respondent does not take steps to correct earlier representations.

In reaching the decision that all categories of Hashtag Burgers' conduct were misleading or deceptive, the Court held that another long-standing authority (TGI Fridays Australia Pty Ltd v TGI Friday's Inc (1999) 45 IPR 43, which had reached the opposite conclusion) did not apply because of the obvious differences between the cases, that TGI Friday's did not operate pop-ups and that TGIF was not a distinctive name and a range of Australian businesses used it.

Passing off

While In-N-Out were unable to show they had suffered actual damage, they argued they were entitled to damages under the "user principle". The principle, which entitles a plaintiff to recover damages from a defendant who has wrongfully used the plaintiff's property, was relied on successfully in Winnebago Industries Inc v Knott Investments Pty Ltd (No 4) (2014) 241 FCR 271. The Court held there was no apparent reason why the user principle should not apply and ultimately was satisfied the tort of passing off had been made out.

Director's liability

The final substantive question considered by the Court was whether the two directors were jointly liable for the infringing conduct from the time of incorporation of Hashtag Burgers. In-N-Out relied on circumstantial evidence that they were the sole shareholders of Hashtag Burgers, were intimately involved in the decision to adopt the infringing names and logos, and carried out the business for over a year before the company was incorporated. In relation to the misleading or deceptive conduct claim, both directors were held to be knowingly concerned in the infringing conduct. However, the directors held not to be jointly and severally liable with Hashtag Burgers for trade mark infringement and passing off.

Key points

The decision demonstrates that:

  1. even a "cheeky" version of a name can contribute to a finding of trade mark infringement;
  2. evidence of intention can be relevant to trade mark infringement in some cases;
  3. in some cases the latter part of a mark is the distinctive or memorable feature of the mark; and
  4. incremental changes made to an infringing mark will not always be enough to avoid a finding of breach of the Australian Consumer Law.

Footnotes

1. In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd [2020] FCA 193, [109].

2. In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd [2020] FCA 193, [152].

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