FEDERAL COURT OF AUSTRALIA

SAP Australia Pty Ltd v Sapient Australia Pty Ltd [1999] FCA 1027

TRADE MARKS – Applicants owners or licensees of registered trade marks SAP and SAPIENT COLLEGE – Marks used in connexion with computer software programs and services and a computer training institution – Alleged infringement by respondent’s use of a corporate name including the word “Sapient” – Whether this word is deceptively similar to either of applicants’ marks.

TRADE PRACTICES – Whether respondent’s use of the word “Sapient” is conduct that is deceptive or misleading or likely to deceive or mislead or is falsely suggestive of a sponsorship or association.

TORT – Passing off – Whether conduct of respondent amounts to the passing off of its business as that of the applicants.

Trade Marks Act 1995, ss120(1) and (2), 122 and 124

Trade Practices Act 1974, ss52, 53(c) and (d)

SAP AUSTRALIA PTY LTD and SAP AKTIENGESELLSCHAFT

v SAPIENT AUSTRALIA PTY LTD

N376 of 1999

WILCOX J

SYDNEY

30 JULY 1999

THE COURT ORDERS THAT:

1.                  The Application be dismissed.

2.                  The Cross-claim be dismissed.

3.                  The applicants, SAP Australia Pty Ltd and SAP Aktiengesellschaft, pay the costs of the respondent, Sapient Australia Pty Ltd, but excluding any costs referrable to the Cross-claim.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                     WILCOX J:   This is a “name” case.  The parties dispute the right to use certain words – primarily “Sapient”.  Unusually, however, there is no suggestion that one party has pirated the other’s name or trade mark; the conflict arises out of actions taken by each party in ignorance of the other.

The facts:  SAP

2                     The first applicant, SAP Australia Pty Ltd (“SAP Australia”), is a subsidiary of the second applicant, SAP Aktiengesellschaft (“SAP Ag”), a company formed in Germany in 1972.  SAP Australia has traded since 21 January 1989, originally under the name “SAP Australian Systems Applications and Products in Data Processing Pty Ltd”.  On 24 June 1994 the company changed to its present name.

3                     SAP Ag produces computer software.  Pursuant to an agreement made in 1992, SAP Australia distributes in Australia some of its parent’s products.  Initially, it seems, the main product distributed by SAP Australia was an enterprise resource planning (“ERP”) software package tabbed “SAP R/2”.  The company still distributes updates of this package but the package has substantially been superseded by a successor product, “SAP R/3”.  As the name suggests, an ERP package is software designed to allow an enterprise, typically a commercial organisation, to improve planning in all aspects of its activities.  Volker Merk, Head of Corporate Controlling for SAP Ag, deposed that his employer “was one of the pioneers of modern clients/server technology”.  He described the company as “a leading global provider” of ERP software and the fourth largest independent software supplier in the world.  Mr Volker said SAP Ag and its subsidiaries employ approximately 20,000 people worldwide.  It has 20,608 of its software systems installed worldwide, serving about 11,000 separate customers.

4                     Mr Volker described ERP in these terms:

“ERP are software solutions which allow all companies of all sizes and in all industries to manage financial, manufacturing, sales and distribution and human resource functions essential to their  operations.”

He went on:

“SAP AG’s standard ERP software is known as R/3 and its business platform includes software applications based on ALE (Application Link Enabling), Electronic data interchange (“EDI”) and the internet, running on Unix, Windows NT and AS/400 platforms.  The combination of  these ingredients makes R/3 a software platform on which companies can build integrated vendor-independent enterprise-wide applications.  The SAP architecture allows flexibility to accommodate from a few to several thousand  users.”

5                     As might be expected, having regard to the differences in the characteristics of customers using SAP’s ERP programs, a process of adaptation is usually necessary.  SAP Australia employs approximately 200 consultants.  They provide advice to customers regarding the selection and implementation of SAP products.  One of those consultants, Phillip John Soady, gave this affidavit evidence about the implementation phase:

“One of the integral services provided by SAP Australia is the implementation of SAP software.  When SAP consultants work with customers to implement SAP products, these implementation projects can take up to as long as a year from commencement until completion of the project.  SAP consultants work closely with the customer to ensure that the product is implemented into the business of the customer to provide an overall business solution.  SAP consultants use the following five stage methodology for implementation of SAP software:

a)                  stage one – project preparation stage – the purpose of this stage is to provide initial planning and preparation for the R/3 project.  Although each R/3 project has its own unique objectives and priorities, the steps in Phase 1 help identify and plan the primary focus areas to be considered.

b)                  stage two – blueprint stage – the purpose of this stage is to create the ‘business blueprint’, which is detailed documentation of the results gathered during requirements workshops.

c)                  stage three – realisation stage – the purpose of this phase is to implement business and process requirements based on the business blueprint.  The objectives are final implementation in the system, an overall test, and the release of the system for production (live) operation.

d)                  stage four – go live stage – the purpose of this stage is to complete the final preparation, including testing, end user training, system management and cutover activities, to finalize readiness to go live.  This final preparation phase also serves to resolve all crucial open issues.  On successful completion of this phase, the business is ready to run live.

e)                  stage five – post go live stage – this involves checking that the systems have been configured properly and the software running as anticipated and includes post implementation services such as performance testing.”

In cross-examination Mr Soady said implementation could take anything from 12 weeks to two years.

6                     Mr Soady said SAP’s consultancy services extended beyond the implementation of SAP software.  He cited examples of advice given to customers about methods of upgrading archiving, services and risk management and about the availability of various software products.  However, he conceded in cross-examination that these services were almost always provided to persons who already used, or were proposing to acquire, SAP products.  He was not aware of any SAP Australia consultancy not involving an R/3 element in the project. 

7                     SAG Ag registered the trade mark SAP in Australia, first on 28 March 1989 (Trade Mark A507491) in Class 9 of the Register, covering computer programs and computer programming packages, and later, on 8 February 1996 (Trade Mark 702080), in Class 42 concerning “[c]omputer programming services and consulting services in the use and application of computer programs”.

8                     SAP Australia has grown quickly.  Its turnover increased from $33 million in the 1994 financial year to $280 million in 1998.  Sixty per cent of its total revenue is drawn from services provided in the fields of training, management consulting and software maintenance, as distinct from software sales.

9                     In February 1996 Nigel Henry Hutchinson, SAP Australia’s Director, Corporate Services, had the idea of establishing a purpose built training college.  In an affidavit he described the purpose of the college as being “to educate people primarily about SAP software products and information technology issues associated with them”; but he added the plan “was not simply to provide training for SAP products but also to expand its role to general computing training and business curriculum”.  He explained:

 “Although SAP Australia conducted training within its organisation prior to February 1996, I wanted to take the training division of SAP Australia and establish it as a separate enterprise by rebranding it and widening the scope of the services it provided.  I wanted to ensure that this new business division of SAP Australia maintained a strong brand connection with SAP  Australia.”

10                  Mr Hutchinson cast about for a name for the training institution.  He decided on “Sapient College”, “sapient” having the advantages of commencing with the letters SAP and meaning “wise”.  At the time, he said – and this claim is not challenged – he was unaware of the existence of Sapient Corporation, the parent of the respondent to this proceeding.  The respondent itself had not yet been incorporated.   Mr Hutchinson instructed trade mark attorneys to apply for registration of the trade mark SAPIENT COLLEGE.  Registration was effected, in the name of SAP Ag, on 19 February 1997 in Class 41.  That class covers:

“Education; providing of training; cultural activities; the foregoing including post graduate, further and advanced education and training in business, business management, management, business administration, computers, computer peripherals and computer software, information technology, intellectual property, telecommunications, science and technology, medical technology and science, technology management, stress management and therapy, personal development, lifestyle, relaxation and remedial techniques.”

11                  SAP’s proposal to establish Sapient College was announced publicly in October 1996.  It commenced operations on 1 April 1997, in premises at Gordon, Sydney that had been fitted out for the purpose.  Subsequently, the college established operations in each of the other Australian capital cities and in several countries in the Asia-Pacific region.  Relationships have been established with a number of Australian tertiary institutions, primarily universities, as a result of which many students are exposed to SAP products and the name “Sapient College”.  The revenue of the college has expanded from $11.85 million in 1997 to a budgeted $21.24 in 1999.  The name of the college appears on the SAG Ag internet homepage, by which users are referred to a page dealing solely with the college.  The evidence establishes this is well-visited.  In addition the college has enjoyed considerable publicity in the print media.  Mr Hutchinson said that, from its inception, the college “was strongly promoted in connected with the SAP name and logo and most, if not all, promotional materials distributed in respect of Sapient College bear the SAP trade mark as well as the trade mark SAPIENT COLLEGE”.  It seems from the samples in evidence that they also usually bear the SAP logo.

The facts:  Sapient

12                  Sapient Australia Pty Ltd (“Sapient Australia”), the respondent, is a subsidiary of a United States company, Sapient Corporation.  This company was formed in 1990 in Massachusetts.  It opened for business in Cambridge, Mass in 1991.  The name was chosen by the founders of the company, Jerry Greenberg and Stuart Moore, apparently because of its association with knowledge.  Sapient Corporation subsequently opened offices in nine other American cities and in London, United Kingdom.  It was publicly listed in April 1996.  The company has expanded rapidly, from about 100 employees in 1993 to over 1,650 in 1995.  Its revenue has approximately doubled each year to exceed US$160 million in 1998.  Desmond Paul Varady joined Sapient Corporation as a Project Manager in 1993.  He is now the chief executive of Sapient International, a division of the corporation responsible for the corporation’s activities outside the United States.

13                  Mr Varady said that, when he joined Sapient Corporation in 1993, there were two ways in which it conducted “its distinctive style of business”:

“The first was that it was at the forefront of a new way of custom-designing the client’s computer systems, being a focus on the client-server as opposed to the previously used mainframe solutions.  The second was that rather than adopting the traditional ‘time and materials’ approach to consulting, Sapient adopted a fixed price/fixed time method.  This meant not only that Sapient took on a considerable risk itself, but also that it required the client to be very clear from the outset of the project as to what the final business and technical requirements would be, and indeed to ‘close’ on their needs at the beginning of the project.  This meant intense early work with the client to define the scope of each project, a characteristic which remains true of Sapient  today.”

14                  In February 1995 Sapient Corporation commenced implementation of a project, called Project Omega, for Digital Equipment Corporation, a United States corporation.  This involved setting up a sales commissioning system for Digital in numerous countries including Australia.  Mr Varady said that, “in accordance with Sapient’s usual way of managing such a project”, staff from the client’s offices were closely involved in developing the solution.  A number of Digital’s staff, including staff from Australia, attended workshop sessions in Boston from April 1995.  At those sessions, Sapient Corporation’s name and logo were prominently displayed.  Course materials also bore the name and logo.  In the period between late 1995 and finalisation of Project Omega at the end of 1996, a number of Sapient Corporation’s American staff visited Australia to work with Digital on implementation.

15                  In the period 1995-96 Sapient Corporation undertook a project for a United States supermarket company that brought it into contact with Woolworths Limited, the Australian company.  As a result, Woolworths’ staff visited Sapient Corporation in Boston in early 1997.

16                  Later in 1997, apparently about September, Sapient Corporation was approached by Vanguard Investments, a United States company, seeking Sapient Corporation’s assistance in connection with a joint venture project, called “Plum”, of Vanguard and the Australian company, MLC Insurance.  Mr Varady agreed to advise on a technology budget for the joint venture.  He came to Australia for that purpose in October 1997.   Mr Varady spent a week in Australia, conducting a workshop and meeting various government officials and commercial leaders including many MLC executives.

17                  Mr Varady has subsequently returned to Australia about a dozen times, partly in connection with the Plum project but also to seek out and pursue other business opportunities.  In August 1998 he decided it would be appropriate for Sapient Corporation to open an Australian office.  Sapient Australia was incorporated in December 1998.  It opened an office in April 1999, under the supervision of Ludovic Lacourte, a Sapient Corporation employee who was appointed Chief Executive of Sapient Australia.

18                  Mr Varady deposed that, in addition to expanding its geographical range and client base, Sapient Corporation has acquired a number of complementary businesses.  One of these was a Texas company, Exor Technology Inc.  Exor had experience in the Oracle ERP system, an integrated business system often included in Sapient’s solutions for its clients.  Exor was acquired in December 1997.  It continued to trade under its own name until June 1999 when its activities, along with those of some other acquired businesses, were integrated into Sapient Corporation itself. 

19                  In his affidavit Mr Varady offered an analysis of the differences between the businesses of Sapient and SAP Australia.  He said:

“Sapient’s primary business is a consulting business.  That business involves the provision of software consulting services.  However, the provision of software services covers a very broad range of activities.  Sapient provides consulting services of a particular kind which does not involve the selling to its clients of pre-made software applications.  The only software that Sapient licenses to its client is software written by Sapient which are general utility software solutions that, for example, convert date formats.  As a stand alone solution they would not be financially viable products.  Each of Sapient’s solutions for its clients is highly customised and unique to that client and results from Sapient’s methodology of early intensive client consultation and client definition of their unique business requirements.”

20                  In oral evidence taken by video-link with London, Mr Varady explained that enterprise resource planning systems implementation is “the process of taking a pre-made software package … and customising it and doing various things to it to adapt it to a particular client’s situation, business problem etcetera”.  He said that systems integration involves the possibility of one piece of software being integrated with other pieces of software.  Mr Varady could not think of a case where the recommended solution had not included both Oracle ERP software and some Oracle database software, but he agreed the solution might also involve off the shelf software from a supplier other than Sapient or Oracle.  He agreed that “SAP and Oracle are competing products in the ERP software market”.  In response to questions about Sapient’s Australian operations, Mr Varady gave this evidence:

“Is one of the things that the Australian operation, Sapient Australia Pty Ltd, will undertake involves the sort of systems integration and implementation that we’ve just been talking about?---It does not at this time and we have no specific plans to take on that kind of work but we may if the appropriate client situation comes up and we feel that’s the appropriate solution for the client.

In other words if an ERP type solution is relevant to the client then you would propose to provide the various services we discussed of implementation and integration under the Sapient name?---Only in a case where they were considering a Oracle ERP implementation.

But if somebody comes to Sapient Australia and says we are interested in ERP software, Sapient Australia will say yes and we suggest, if it’s appropriate, the Oracle ERP software with or without an Oracle database and other software?---That’s a possibility.  The way in which we typically engage clients for this kind of work is in combination with other services which are e-business or internet focused.  The implementation of Oracle ERP software at this point is predominantly for companies that are either considering a launch of a new business, so they don’t have any kind of back office systems and they want to get it up quickly, so the ERP solution is good for that.  Or a company that’s expanding their portfolio to handle more e-business or internet work.  In that case sometimes they need an ERP system as well.

That’s to manage the business that is generated or communicated through the Internet to that particular company?---Yes, it could be.  The ERP buffer is typically used, or most often used for with other back office processes, things like financial accounting, order management inventories.  So those are kind of core distance processes that ERP software is typically used for.  The Internet is typically used for engaging customers in some sort of relationship whether it be a relationship to purchase something or a relationship to provide them information.

If I wanted to set up a company in Australia like Amazon.com, selling books on the Internet, would you be able to provide both the consultancy services, both with respect to the interface with the consumer via the Internet but also back office functions in managing inventory orders, billing and so on?---Yes, you could.

And is the second half of what I just said in my example at least potentially an ERP type of software?---Yes.”

21                  Mr Varady was asked whether Sapient Corporation sent trainers to clients’ offices.  He replied:

“It’s more the case where we will ask various members of the client’s staff to come to one of our locations so we can help them understand the application.  It actually requires often involve all along the way to building the application, so there’s not an awful lot of training that we have to do for them.  They’ve built the application with us.  But, in some cases, we will help the client understand the application.  It’s not a service that we provide separately or have the clients pay for separately  It’s usually part of the overall project that we do.”

22                  Mr Varady went on to speak of the process he called “train the trainer”.  He said this process “involved Sapient not actually training end users on the system, but training people who will train others”.  He agreed the trainers were often taken to Boston for their training.

23                  Mr Varady has long known of SAP, his understanding being “that it was primarily a product company”, most of the implementation of its product being done by third parties.  Until the commencement of the current proceeding, he was not aware of the existence of Sapient College.

The course of the proceeding

24                  Mr Hutchinson became aware of the existence of Sapient Corporation at the end of March 1999.  He was shown a newspaper advertisement, published on 30 March by Sapient Corporation, seeking applications for employment “in its new Sydney office”.  The advertisement described Sapient as “a market and thought leader in the design and implementation of E-Commerce and Information Technology systems”.  Mr Hutchinson became concerned that the use of the name “Sapient”, in relation to such an entity, would cause confusion in the marketplace, given the reputation of Sapient College, and of SAP Australia itself.  Mr Hutchinson telephoned the person named in the advertisement.   That conversation apparently had the unintended effect of causing Sapient Corporation to lodge an application for registration, in its name, of the trade mark SAPIENT, for both Classes 9 and 42.  Subsequently, by a document dated 22 June 1999, Sapient Corporation assigned to Sapient Australia its right, title and interest in that application.  I was informed by Mr D K Catterns QC, who appeared at the hearing with Ms Angela Bowne for the applicants, that this application would be opposed by their clients.

25                  On 19 April 1999 solicitors acting for SAP Ag and SAP Australia wrote a letter to Sapient Corporation in which they asserted that the use in Australia, by Sapient Corporation, of the name “Sapient” would infringe the rights of SAP Ag and SAP Australia in the registered trade marks SAP and SAPIENT COLLEGE and would be conduct constituting passing off and misleading or deceptive conduct, contrary to ss52 and 53 of the Trade Practices Act 1974.  They demanded an undertaking that Sapient Corporation would cease using the name “Sapient” or any name that includes that word or SAP.  On 29 April solicitors acting for Sapient Corporation and Sapient Australia responded to the letter of demand.  They denied that letter’s assertions of breach of rights and rejected the demand for undertakings.  

26                  On the following day, 30 April 1999, SAP Ag and SAP Australia commenced this proceeding by filing an Application and Statement of Claim.  The proceeding was brought against Sapient Australia, not Sapient Corporation.  The Application sought the following injunctive relief:

“1.       An order that the First and Second Respondents, whether by themselves or by their directors, servants or agents, permanently be restrained from infringing Australian Registered Trade Marks No. 728126, No. 702080 and No. 507491.

2.                  An order that the First and Second Respondents, whether by themselves or by their directors, servants or agents, permanently be restrained from using in any way in the course of trade without the licence of the Applicants:

a)                  the mark ‘SAPIENT COLLEGE’ or ‘SAPIENT’ or any other word or words substantially identical or deceptively similar to the name or mark ‘SAPIENT COLLEGE’ or ‘SAPIENT’ whether alone as or as part of any other name or mark in relation to:

i)                    education and the providing of training in business, business management, business administration, computers, computer peripherals and computer software, information technology and technology management (‘training services’)

ii)                  services of the same description as training services; or

iii)                goods closely related to training services;

b)                  the mark ‘SAP’ or any other word or words substantially identical or deceptively similar to the name or mark ‘SAP’, whether alone as or as part of any other name or mark, including the names ‘SAPIENT’, in relation to:

i)                    computer programs and computer programming packages (‘computer programs’);

ii)                  goods of the same description as computer programs;

iii)                services closely related to computer programs;

iv)                computer programming services, consulting services relating to the use and application of computer programs (‘computer services’);

v)                  services of the same description as computer services;

vi)                goods closely related to computer services.

3.                  An order that the Respondents, whether by themselves, their servants or agents, permanently be restrained from representing in trade or commerce that:

a)                 Any of the Respondents have the sponsorship, approval or affiliation of the First or Second Applicants;

b)         the computer programs, computer services or training services offered by any of the Respondents are of the same standard and quality to those of the First and Second Applicants;

c)                   that the Respondents are the representatives of the First or Second Applicants;

d)                  there is some other trade or connection or association between either the First or Second Applicants and the Respondents.

4.                  An order that the Respondents permanently be restrained from passing themselves as any of the Applicants and from passing of their business or the computer goods, computer services or training services they supply, offer for supply, advertise or promote as the goods or services of the Applicants or as otherwise licensed, approved or affiliated by the Applicants.”

The Application also sought an account of profits and damages.

27                  The Statement of Claim filed on 30 April has since been amended.  Both in its original and amended form, it alleges infringement of the three trade marks owned by SAP Ag, of which SAP Australia is said to be the exclusive licensee, breaches of ss52 and 53(c) and (d) of the Trade Practices Act and passing off.

28                  Sapient Australia filed a Defence denying all the claims made against it.   It also brought a Cross-claim in which it sought rectification of the Trade Marks Register by cancelling the registration of SAPIENT COLLEGE.  Mr D M Yates SC, who appeared for Sapient Australia at the hearing with Mr R Cobden, explained that the Cross-claim was filed defensively, against the possibility that the Court concluded, contrary to his submission, that the words “Sapient” and “Sapient College” are deceptively similar.  He said, if this is so, the registration of the mark SAPIENT COLLEGE in the name of SAP Ag was contrary to law – see s42 of the Trade Marks Act 1995 – because Sapient Corporation, rather than SAP Ag, was the true owner of the name at the date of the application for registration – see s27 of the Act.  Mr Yates said, if the Court came to the conclusion that the marks were not deceptively similar, his client would not press its cross-claim.

The parties’ businesses

29                  Counsel for the applicants argue the evidence establishes their clients are specialists in the area of business information technology; they develop and distribute software and provide consulting services in the implementation and integration of software and in training.  Counsel say the software products supplied by SAP Australia may be used in conjunction with products – notably Oracle database – recommended from time to time by Sapient Australia.  Moreover, both the applicants and Sapient Australia provide services to clients in relation to ERP software.  The applicants manufacture and supply such software;  Sapient Australia advises clients in relation to the supply of such software, notably Oracle ERP.

30                  Counsel for the applicants submit their client has developed a considerable, favourable, reputation as a supplier of ERP software and related products and as an adviser on implementation of those products.  I need not detail the evidence to which they refer in support of that submission; it clearly is well founded.

31                  Counsel for the respondent emphasise the differences between their client’s business and that of SAP Australia.  They point out that SAP Australia’s business is based on the supply of ERP software manufactured by SAP Ag;  currently R/3.  They say SAP Australia’s reputation is based on that activity;  although SAP Australia supplies consultancy services, which are major revenue earners, these services are predominantly related to the supply and implementation of SAP products, or products complementary to SAP products.  Unlike Sapient Australia, they say, “SAP does not function ‘at large’ in the supply and implementation of computer software or the consulting services it may provide.  Its efforts are all directed to the SAP R/3 ‘backbone’ of its business”.  Referring to their own client’s position, they say:

“The nature of Sapient’s business in Australia is quite different.  Its primary business is as a consultant providing software consulting services, which focuses on the use of the internet in computer systems and applications particularly in the area of e-commerce.  It offers the skills of the traditional systems integrator and is involved in the development of purpose-built software which is not viable as a stand-alone product and only comes into existence to suit the particular requirements of the customer, whatever they might be.  In short, Sapient advises its customers on how best to use the internet for their particular business.  Currently this activity is divided between e-business transformations and e-business creations: … Sapient Corporation does provide services in respect of ERP software solutions but this is as an implementor of the Oracle solution.  It does not provide services other than in relation to the Oracle product.  There is no present capacity or capability within SAP to implement ERP software in Australia: … In any event, even if it could supply ERP software in Australia then it would only be in relation to the Oracle  product.”

32                  In what they say about similarities and differences, both parties are correct.  Whether a person emphasises the former or the latter depends on that person’s perspective.  There are material differences between the business of SAP Australia and that of Sapient Australia.  On the other hand, those differences are narrowing.  SAP Australia was formed to distribute in Australia the software products of SAP Ag; but it found this task required it to become involved in training, to the point where it established Sapient College.  The college has prospered and developed links with numerous tertiary institutions, especially universities.  While it emphasises the SAP name and logo, and seeks to promote the sale of SAP products, the college is, itself, now a substantial revenue earner.  Moreover,  SAP Australia finds itself increasingly asked to provide consultancy services.  These services are identified with its products, and tend to promote their sale; but they, also, are now major revenue earners.

33                  The evidence suggests the business of Sapient Australia is likely to prove equally dynamic, reflecting the dynamism and rapid expansion of its parent’s business.  Although Sapient Corporation does not produce an ERP product, it has developed a close association with the supply and implementation of Oracle ERP software.  I accept that Sapient Australia presently has a limited capacity in relation to the implementation of software; but I do not believe this will long be the situation.  In the few years since its commencement of operations, Sapient Corporation has grown enormously, both in its range of activities and its geographical coverage.  There is no reason to doubt that process will continue; including in Australia.  Mr Varady and Mr Lacourte both appear to be energetic and enthusiastic executives.

34                  The evidence shows the dual use of the name “Sapient” can cause initial confusion.  A person, knowing of Sapient College, who sees a reference to Sapient Corporation or Sapient Australia, might initially think this entity is associated with the college and, perhaps, therefore with SAP.  However, counsel for Sapient Australia emphasised the sophisticated nature and magnitude of a customer’s purchasing decision.  I accept it is unlikely that, at the point of contract, any customer would be confused as to the identity or nature of the company with whom he or she was dealing. 

The trade marks claim

35                  As already indicated, the applicants seek orders restraining Sapient Australia from infringing their registered Australian trade marks, nos. 728126, 702080 and 507491.  Sapient Australia denies infringement.  The applicants base their infringement case on s120(1) and (2) of the Trade Mark Act.  Those subsections read:

“(1)     A person infringes a registered 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.

(2)              A person infringes a registered 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:

(a)               goods of the same description as that of goods (‘registered goods’) in respect of which the trade mark is registered; or

(b)               services that are closely related to registered goods; or

(c)               services of the same description as that of services (‘registered services’) in respect of which the trade mark is registered; or

(d)               goods that are closely related to registered services.

However, the person is not taken to have infringed the trade mark if the person establishes that using the sign as the person did is not likely to deceive or cause confusion.”

36                  Insofar as the respondent conducts training services, counsel say the case is covered by s120(1); the respondent is using the mark in relation to the services for which it is registered.  In relation to consultancy services, counsel rely primarily on s120(2)(c).  Their argument in respect of both provisions is that the use of the word “Sapient”, either as part of the name “Sapient Corporation” or “Sapient Australia”, or standing alone as an abbreviation for one or other of those entities, is a use that is deceptively similar to the trade marks SAP and SAPIENT COLLEGE; and is used in relation to services of the same description as those in respect of which those trade marks are registered.

37                  Registrations 507491 and 702080 are both in respect of the trade mark SAP.  It will be recalled the registrations are respectively in Class 9 (“Computer programs and computer programming packages”) and Class 42 (“Computer programming services and consulting services in the use and application of computer programs”).  I accept that Sapient Australia supplies services that are the same, or of the same description, as those in respect of which the trade mark SAP is registered.  However, I do not think it can properly be said that “Sapient” is deceptively similar to SAP.  I say this whether or not “Sapient” is printed in block letters, as sometimes occurs in the respondent’s material.  I appreciate, as stated by Kitto J in Southern Cross Refrigerating Company v Toowoomba Foundry Pty Ltd (1954) 91 CLR 592 at 595, that it is sufficient “if the result of the user of the mark will be that a number of persons will be caused to wonder whether it might not be the case that the two products come from the same source”.  But I cannot agree that the use of the word “Sapient” meets this test, in relation to the mark SAP.  The evidence establishes that the name “SAP” is generally spoken with the letters spelled out (ess-ay-pee).  The word “sapient”, as part of “Sapient Corporation” or “Sapient Australia”, or standing alone as a synonym for either of them, appears always to be spoken in the same way as the ordinary English word “sapient”; that is, with a soft “a”.  Considered as a word, SAP is monosyllabic; “sapient” is multi-syllabic.  Nor is this a case in which it can be said the two marks convey the “same idea”:  see Cooper Engineering Company Proprietary Limited v Sigmund Pumps Limited (1952) 86 CLR 536 at 538.

38                  It seems to me the only similarity between the two marks is that one constitutes the first three of the other’s seven letters.  I agree with counsel for the respondent that to hold there was a deceptive similarity between SAP and “Sapient” would be tantamount to conferring on the applicants a monopoly, in relation to the relevant services, on all words commencing with the letters SAP.  Such a situation would clearly be beyond that contemplated by s120 of the Trade Marks Act.

39                  The applicants’ argument in respect of SAPIENT COLLEGEis, perhaps, a little stronger.  This mark is registered in respect of education and training services, including education and training in respect of computers, computer peripherals and computer software.  Sapient Australia’s use of the word “Sapient” includes use in relation to computer training services.  So I accept this is a use in relation to the same services, or services of the same description, as the registered services.  And, of course, the word “Sapient” is identical with one of the two words in the registered mark SAPIENT COLLEGE.

40                  Counsel for the applicants submit the word “Sapient” is the most significant and memorable part of their trade mark and the name of the college is likely to be contracted in ordinary speech to “Sapient”.  I accept those submissions.  I also accept it is not sufficient merely to compare the protected mark and the alleged infringing mark side by side:  see Australian Woollen Mills Limited v F S Walton and Company Limited (1937) 58 CLR 641 at 658.  Nonetheless, the relevant comparison must be made between the marks themselves, not between one mark and a contraction or corruption of the other.  The task for the Court is to determine whether the use by Sapient Australia of the word “Sapient”, standing alone or with an additional word such as “Corporation” or “Australia”, is deceptively similar to SAPIENT COLLEGE.  I think it is not, whether or not the respondent’s word is, or words are, printed in block letters.

41                  I reach this conclusion because of the contextual significance of the word “College”.  It is true many people are likely to refer to the college by the single word “Sapient”.  But they can only sensibly do that where they know the hearer or reader is aware they are referring to a training institution; otherwise their meaning will be left obscure.  To recall the example I offered in Chase Manhattan Overseas Corporation v Chase Corporation Ltd (1985) 9 FCR 129 at 138, of the use of the word “Macquarie” standing alone; in the context of discussion about tertiary educational institutions, that would readily be understood as a reference to Macquarie University, rather than the famous New South Wales governor, the Macquarie Bank or the Macquarie River.  Without a context, the word “Macquarie”, alone, would convey an uncertain meaning; it would be unlikely to be used in that manner.

42                  In the present case, the relevant context is that of a training institution.  That is different from a consultancy service, even one that also offers on-the-job training in relation to implementation of computer software programs.  Once the case is considered on the basis that a person seeking or hearing the applicants’ mark will understand it refers to a training institution, there is little prospect that the person will be deceived by the use of the word “Sapient” as a reference to a corporation or its consulting services.

43                  Against the possibility of a contrary finding on the issue of deceptive similarity, the respondent pleaded defences under s122(1)(a), s122(1)(f) and s124(1) of the Trade Marks Act.  Having regard to my conclusion about deceptive similarity, it is not necessary for me to rule on these defences.  However, I indicate I would not uphold the first of those defences, except in relation to the use of the words “Sapient Australia”, as distinct from “Sapient Corporation” or “Sapient” simpliciter.  Section 122(1)(a) protects a person’s use in good faith of “the person’s name”.  That entitlement has been held to apply to the use by a company of the whole of its name other than the concluding word “Limited”:  see Parker-Knoll Limited v Knoll International Limited [1962] RPC 265 at 275.  But the concession represented by that decision ought not be extended by permitting the jettisoning of other elements of a company’s title, to the detriment of the rights of a registered trade mark proprietor.  Neither “Sapient” nor “Sapient Corporation” can properly be regarded as the name of the respondent, Sapient Australia.

44                  Having regard to the pendency of Sapient Australia’s application for registration of the mark SAPIENT, and as it is unnecessary for me to do so, I prefer not to offer a view about the application of s122(1)(f).  The entitlement of Sapient Australia to obtain registration of that mark should be left for the Registrar to determine, unembarrassed by any comment of mine.

45                  In relation to s124, I note there is an issue between the parties as to whether the evidence demonstrates a continuous use of the name “Sapient” in Australia by Sapient Corporation (as predecessor in title of Sapient Australia) since a time before the first use of the mark SAPIENT COLLEGE by SAP Australia in October 1996.  I need not detail either the debate or the relevant evidence.  The evidence establishes some use of the name “Sapient” in Australia before October 1996, but it is far from clear this was continuous.  The use appears to have been intermittent, depending upon the progress of the Digital Equipment project.  I leave for another day the question whether use of the name “Sapient” on the Internet is relevant or sufficient. 

The Trade Practices Act claims

46                  As previously indicated, the applicants rely on s52, s53(c) and s53(d) of the Trade Practices Act.  Section 52 proscribes a corporation, in trade or commerce, engaging in conduct that is misleading or deceptive or likely to mislead or deceive.  Section 53 relevantly provides:

“A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services:

(c)        represent that goods or services have sponsorship, approved … they do not have;

(d)                represent that the corporation has a sponsorship, approved … or affiliation it does not have;”

47                  Sapient Australia is a “corporation” within the meaning of these provisions.  It has acted in trade or commerce and in connexion with the supply, possible supply and promotion of services.  The question is whether it has made a false representation about sponsorship approval or affiliation.  The applicants’ counsel argue it has done this, by using a name reminiscent of Sapient College, and this also constitutes misleading conduct contrary to s52 of the Trade Practices Act. 

48                  Counsel’s argument is that the respondent is likely to be regarded as a further diversification of SAP Australia, the entity that established Sapient College; or, alternatively, as being related to Sapient College.  Counsel repeat the submission concerning the tendency of people to shorten names, so the respondent might be referred to merely as “Sapient”.  They also make the point that it does not matter that “Sapient” is part of the name of the respondent, and of its American parent.  In that regard they cite Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177.  A Full Court there upheld a finding that the first appellant, an American company, contravened s52 of the Trade Practices Act when it commenced to operate two Sydney Mexican restaurants under the name “Taco Bell”.  The second appellant, Taco Bell Inc, a company related to the first appellant, had for some time used that name in connexion with a chain of restaurants in the United States, but not in Australia.  The respondent used the name “Taco Bell’s Casa” in connexion with a Mexican restaurant at Bondi.  Counsel for the present appellants point out that the Court found s52 to be contravened notwithstanding that the words “Taco Bell” were part of the second appellant’s name.

49                  Counsel for the respondents argue it is not misleading for their client to use a name that includes the word “Sapient”.  They say their opponent’s submissions ignore the applicants’promotion of their products and services; the identity of SAP is clear to everybody concerned with computer software.  It is also clear, they say, to everybody associated with Sapient College, whether as students at the college itself or through the college’s university affiliations, that Sapient College is linked to SAP and, in particular, its R/3 ERP program; whereas anybody who makes inquiry would know that Sapient Australia provides consultancy services in which it regularly recommends Oracle ERP. 

50                  Counsel acknowledge their client is likely to expand its Australian activities but they argue that it is too problematic for the Court to take that likelihood into account; everything depends on the direction of the change.  If there is a future problem, this may arise out of conduct of the applicants, rather than the respondent; anyway people in the computer industry will quickly learn to differentiate between the respondent and Sapient College.

51                  In Chase Manhattan at 139-140 I offered a summary of the principles pertinent to determination of the question whether the use by a corporation of a particular name amounts to conduct which is actually or potentially misleading or deceptive.  That summary escaped criticism on appeal:  see (1986) 12 FCR 375.  Nor am I aware of any later adverse comment.  So I venture to repeat it:

“(a)     Conduct cannot, for the purposes of s52, be categorised as misleading or deceptive, or likely to be misleading or deceptive, unless it contains or conveys a misrepresentation:  see Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202,

(b)               A statement which is literally true may nevertheless be misleading or deceptive:  see Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd  (1978) 140 CLR 216 at 227.  This will occur, for example, where the statement also conveys a second meaning which is untrue:  see  World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181 at 201.

(c)               Conduct is likely to mislead or deceive if this is a ‘real or not remote chance or possibility regardless of whether it is less or more than fifty per cent’:  see  Global Sportsman Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87.

(d)               The question whether conduct is, or is likely to be, misleading or deceptive is an objective one, to be determined by the court for itself, in relation to one or more identified sections of the public, the court considering all who fall within an identified section of the public ‘including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated, men and women of various ages pursuing a variety of vocations’:  Taco Company  at 202.  Evidence of the formation in fact of an erroneous conclusion is admissible but not conclusive:   Global Sportsman at 87.

(e)               Ordinarily, mere proof of confusion or uncertainty will not suffice to prove misleading or deceptive conduct:  see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd  (1982) 149 CLR 191.  However, where confusion is proved, the court should investigate the cause; so that it may determine whether this is because of misleading or deceptive conduct on the part of the respondent:  Taco  at 203.”

52                  As in the present case, the conduct complained of in Chase Manhattan was the use in Australia of a corporate name used overseas.  It was argued that Chase Corporation’s use of the name “Chase” in New Zealand since 1970 was irrelevant, that the situation ought to be evaluated on the same basis as if the name were used in Australia by a newly incorporated company.  I did not accept that submission as a general rule; there might be cases in which a company commencing business in Australia was already known to a significant number of Australians.  I take the same view about the present case, especially having regard to the specialised nature of the relevant market.

53                  The express statement made by the respondent, “I am Sapient Australia”, is true.  The argued misrepresentation is that the statement implies an association with Sapient College, or with one of its progenitors, the SAP companies.  The argument depends solely on the respondent’s use of the word “Sapient”.  It would equally apply to anybody who used that name, at least in relation to services that overlapped those of the applicants.  A similar argument was rejected in Chase Manhattan.  In the Full Court (at 12 FCR 377) Lockhart J said:

“In my opinion, for the appellants to succeed in this case would come dangerously close to conferring upon them a statutory monopoly in the word ‘Chase’.  It is not a descriptive word in the sense in which that expression is generally used in this branch of the law, namely, as descriptive of the nature of the business or the place or person by whom it is conducted.  Nor is it a concocted or fancy name.  But it is common English word and is susceptible of various meanings as a reference to the dictionaries demonstrates.”

54                  That was a comment about a matter of fact.  However, I think it may equally be applied to this case.  It is also interesting to observe that Lockhart J thought it relevant to note the finding at first instance that the name “Chase” had been chosen by the respondents in ignorance of the existence of the Chase Manhattan group.

55                  In the present case there is evidence of a number of incidents in which people assumed a connection between Sapient Corporation or Sapient Australia and SAP Australia or Sapient College.  These incidents were all related to such matters as employment or accommodation inquiries or requests for information about addresses or telephone numbers.  There was debate between counsel as to whether they amounted to more than confusion.  Perhaps it can be said, at least in some cases, that the person was misled.  In each case the situation was promptly and easily put right; no harm was done. 

56                  This evidence has given me concern.  However, it is necessary for me to bear in mind that, at the time of the hearing of this case, the respondent had been incorporated for only about six months; it had conducted an office for less than three.  Although its parent company had been involved in several projects connected with Australia, at the time of the hearing the respondent was still a new participant in the Australian computer services and software market.  The possibility of false assumption or confusion is at its maximum at that stage of a company’s life.  As the respondent establishes itself in the Australian market place, it will increasingly be recognised for what it is.

57                  It is also necessary to bear in mind that Sapient Australia’s software and services are promoted under the name “SAP”.  I agree with the observation of counsel for the respondent that, having regard to “the vast expenditure on promoting those goods and services under the SAP brand, it beggars belief that this has not become the indicium of those goods and services”.  Although the applicants’ case has focussed attention on the word “Sapient”, this is not the name of either applicant or the name under which they trade, except in relation to a specialised activity.

58                  Counsel for the respondent put some emphasis upon the fact that Sapient Corporation had commercial contact with Australia before the establishment of Sapient College.  They argue (rightly) that it could not be claimed that Sapient Corporation engaged in misleading conduct in using its own name in connection with the Digital Equipment contact.  They say this points up the fact that the applicants’ Trade Practices Act case depends on their own action in establishing Sapient College; what had hitherto been lawful then allegedly became unlawful.

59                  Neither s52 nor s53 import a mental element.  A corporation may be in breach of either section notwithstanding the absence of intent to mislead, deceive or make a false claim.  So it would not be a sufficient answer for the respondent to say it was merely continuing the use of a name that its parent had long used, without reference to the Australian market, and had legitimately used, even in the Australian market, before the applicants adopted that name for their training institution.  However, I think these matters are relevant to the factual determination whether the respondent’s use of the name is likely to mislead.

60                  Having regard to the whole of the circumstances, I am not satisfied, as a matter of fact, that the respondent has engaged, or threatens to engage, in conduct that is misleading or deceptive or likely to deceive.  The s52 claim must fail.  Similarly, I am not satisfied that the respondent has represented, or is threatening to represent, that it or its services have a sponsorship, approval or affiliation they do not have.  The s53(c) and (d) claims also fail.

Passing off

61                  One of the matters that must be established in a passing off claim is that the defendant has made a misrepresentation in the course of trade:  see Erven Warnink Besloten Vennootschap v J Townend & Sons (Hull) Ltd [1979] AC 731 per Lord Diplock at 742.  For the reasons already explained, I am of the opinion that misrepresentation is not established.  Further, there is no evidence of another element in the tort of passing off:  actual or probable damage to the business or goodwill of the trader by whom the action is brought; that is, the applicants or one of them.  The passing off claim also fails.

Orders

62                  The applicants fail in respect of each of the causes of action upon which they rely.  The Application must be dismissed with costs.  The Cross-claim ought also be dismissed.  In view of the circumstances in which the Cross-claim was brought, there ought to be no costs order in respect of that proceeding.

Associate:

Dated:              30 July 1999