High Court Clarifies What it Takes to “Honestly” Avoid Trade Mark Infringement

Firstmac first registered the ZIP trade mark for financial services in 2004, launching products in 2005 and later relaunching them in 2018. Zip Co, founded in 2012, began using ‘ZIP’ in its branding in 2013, despite IP Australia flagging conflicts with Firstmac’s registration. This 2013 rejection by IP Australia served as a clear warning for Zip Co, indicating its prior knowledge of the similarity of the marks.

Firstmac commenced infringement proceedings in June 2019, at which point Zip Co had on two occasions attempted to remove Firstmac’s registration from the IP Australia Trade Marks Register for grounds of non-use.

At first instance, the Federal Court initially sided with Zip Co as it was found that its use of the ZIP marks was “honest”. Two years later, on appeal in the Full Federal Court, the initial decision was unanimously reversed, holding that the trade marks were deceptively similar, and that honest and concurrent use of the marks was not established.

The High Court upheld the findings of the Full Federal Court that Zip Co had not established honest use of various ZIP trademarks. This includes the argument that Zip were aware of Firstmac’s previously registered rights in 2013, yet it continued using the Zip branding. Additionally, Zip Co did not prove that there it held a genuine belief that there was no likelihood of confusion between both trade marks.

The result of this case would typically mean that Zip Co would be prohibited from continuing use of the ZIP brand in Australia, since it was found to be infringing upon Firstmac’s trade mark rights for many years.

However, a week following the decision, Zip Co announced it had reached a settlement agreement with Firstmac, where it acquired Firstmac’s trade mark registration and would consequently continue use of the ZIP branding in Australia, rather than being forced into a rebrand.

Following the findings of the Full Federal Court, Zip Co filed their appeal with the High Court of Australia who subsequently agreed to hear the case.

Zip Co appealed on two argumentative grounds:

1. The Full Federal Court erred in using the date of first potential infringement rather than the date of defence or trial to assess honest and concurrent use; and

2. That its use of the ZIP trade marks was honest.

Date Assessing Honest and Concurrent Use

Zip Co argued that the Full Federal Court erred by assessing honesty at the date of the first potential infringement. Before commencing trade in November 2013, Zip Co filed trade mark applications that received adverse examination reports from IP Australia, citing deceptive similarity with Firstmac’s marks. Despite this warning, Zip Co proceeded to launch under the Zip branding. Zip Co submitted that honesty should instead be assessed later, either when it filed its Defence in August 2019 or at the hearing before the trial judge in March 2022. In using a later date, Zip Co sought to rely on their reputation, significant commercial success and changed circumstances to justify its ongoing use of the ZIP branding.

The High Court rejected the arguments that honesty should be judged when the defence was filed or at the trial date. Instead, the court undoubtedly clarified that the honesty of the conduct must be established at the time of each alleged infringement. This approach has represented a “radical break” in the history of honest and concurrent use.

The “honest and concurrent” use defence applies to each instance of alleged trade mark infringement which allows for separate assessment of each use. While protection can cover similar, closely timed, repeated uses, this is not a guaranteed rule.

For example, the date of first potential infringement in November 2013 was crucial to the application of the defences to later potential infringements because no subsequent event could establish honesty. Their Honours concluded that “the failure to prove honesty at first use infects the findings in relation to subsequent uses as well.”

Defining ‘Honest’

The High Court confirmed that ‘honesty’, with relation to the “honest and concurrent” use defence, refers to the defendant’s actual “state of mind” which is to be judged against the standard of “ordinary decent people.”

The key legal question is not whether the defendant was dishonest, but whether the defendant has successfully discharged their onus to prove an “honest” state of mind at the relevant time.

The High Court confirmed that knowledge of an earlier registered mark does not automatically negate honesty if the user genuinely believed no confusion would result. Conversely, a lack of knowledge will strengthen a claim of honesty, provided the party did not deliberately avoid searching the register.

The rule from Walton International Ltd v Verweij Fashion BV [2018] RPC 19 provides that a careless failure to search the Register will not necessarily establish lack of honesty and an individual may be able to establish they had honestly overlooked the importance of such a search before using any trade mark in an otherwise honest demeanour. The Court cautioned against equating carelessness with dishonesty, while emphasising that a failure to take obvious steps can make it almost impossible to prove the element of honesty.

Implications

Following Zip Co Limited v First Mac Limited, there is heightened responsibility pertaining to registration and use of intellectual property as it is no longer satisfactory for an individual to argue that continuing to use a trade mark was merely “commercially sensible”. Businesses and any legal representative must now proactively prove they conducted thorough trade mark search checks for similar marks prior to its adoption.

Additionally, current trade mark owners hold increased leverage following the High Court decision. It essentially validates the power of established trade mark registration holders. Even marginally similar pre-existing registrations now hold much more leverage, which heightens the risk and cost for new brands trying to force their way into a crowded market.

This case acts as a cautionary tale for any businesses launching new brands. If your business encounters potential issues regarding an existing trade mark, and you decide to simply ignore it, consequences have been established. These include potential liability in the form of damages, legal costs, and even rebranding expenses.

Australia’s intellectual property landscape is continuously evolving and changing and understanding how this legislation affects your trade marks is more important than ever.

At Sanicki Lawyers, we pride ourselves on assisting our clients with navigating their intellectual property rights and obligations. Our firm consists of a highly experienced team of intellectual property lawyers who are confident to deal with any content protection, enforcement or risk management issues you may have.

If you suspect someone is using your work without your permission or need assistance in understanding your rights and obligations, get in touch with us.

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