FEDERAL COURT OF AUSTRALIA

SAP Australia Pty Ltd v Sapient Australia Pty Ltd [1999] FCA 1821

TRADE MARKS – infringement – deceptive similarity – test for – limitation of protection by reference to context – context supplied by terms of trade mark itself – college name – Sapient College – registered in respect of provision of, inter alia, training services – whether name conveys limiting reference to training institution – whether relevant to test of deceptive similarity.

TRADE PRACTICES – misleading or deceptive conduct – ordinary English word – relevance of creation of de facto monopoly – temporary and peripheral confusion or false assumption – commercial relevance of erroneous belief – characterisation of conduct by reference to transience of erroneous assumption or confusion – whether relevant to current characterisation of conduct.

Trade Practices Act 1975 (Cth) s 52

Trade Marks Act 1995 (Cth) ss 120, 122, 124

Lumley Life Ltd v IOOF of Victoria Friendly Society (1990) ATPR 40-987, cited

MID Sydney Pty Ltd v Australian Tourism Company Ltd (1998) 42 IPR 561 (FCA/FC), cited

Chase Manhattan Overseas Corporation v Chase Corporation Ltd (1985) 9 FCR 129, discussed

S & I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd  (1999) 43 IPR 581 (FCA/FC), cited

Chase Manhattan Overseas Corporation v Chase Corporation Ltd (1986) 12 FCR 375 (FC), discussed

Wingate Marketing Pty Ltd v Levi Strauss & Co (1994) 121 ALR 191, cited

Coldstream Refrigerators Ltd v Aircrafts Pty Ltd (1950) 20 AOJP 1491, cited

Australian Woollen Mills Ltd v F. S. Walton & Co Ltd (1937) 58 CLR 641, cited

Siddons Pty Ltd v The Stanley Works Pty Ltd (1991) 29 FCR 14, cited

S.W. Hart & Co Pty Ltd v Edwards Hot Water Systems (1985) 159 CLR 466, cited

Murray Goulburn Co-operative Company Ltd v New South Wales Dairy Corporation (1990) 16 IPR 289 (FCA/FC), cited

Esso Australia Resources Ltd v Commissioner of Taxation (1998) 84 FCR 541 (FC), cited

TEC & Tomas (Australia) Pty Ltd v Matsumiya Computer Co Pty Ltd (1984) 1 FCR 28, cited

State Government Insurance Corporation v Government Insurance Office of New South Wales (1991) 28 FCR 511, cited

Trade Practices Commission v Optus Communications Pty Ltd (1996) 64 FCR 326, cited

SAP AUSTRALIA PTY LIMITED & ANOR v SAPIENT AUSTRALIA PTY LIMITED

N 818 of 1999

FRENCH, HEEREY AND LINDGREN JJ

24 DECEMBER 1999

SYDNEY

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.         The appeal be dismissed.

2.         The appellants pay the respondent’s costs of the appeal.

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

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

THE COURT:

Introduction

1                     The first appellant (“SAP Australia”) is a subsidiary of the second appellant (“SAP Ag” – we will call them both “the appellants” and “the SAP companies”) which has been trading in Australia since 1989, and under its present name since June 1994.  SAP Australia distributes SAP Ag computer software products in Australia and has also established a training college under the name “Sapient College”.  SAP Ag has registered in Australia the trade marks “SAP” and “SAPIENT COLLEGE”.

2                     The respondent (“Sapient Australia”) is a subsidiary of an American company, Sapient Corporation.  Sapient Australia was incorporated in Australia in 1998, advertised for staff on 30 March 1999 and established an office in April 1999.  It provides custom designed computer systems for clients and some ancillary training.  SAP Ag and SAP Australia alleged in the proceeding below against Sapient Australia infringement of the registered trade marks, misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (“the TP Act”) and passing off.  Their application was dismissed by Wilcox J.  The case raises issues about the limits of the appellate function in relation to evaluative judgments by primary judges, the proper test of trade mark infringement and whether conduct may be characterised as misleading or deceptive notwithstanding that its effects may be short term.

Factual background

3                     SAP Ag was formed in Germany in 1972.  It produces and sells software systems and provides ancillary services.  From 1989 to 1999, its subsidiary, SAP Australia, traded under the name “SAP Australian Systems Applications and Products in Data Processing Pty Ltd”. It adopted its present name on 24 June 1994. 

4                     Under an agreement made in 1992, SAP Australia distributes some of the SAP Ag computer software products in Australia.  The principal product is an Enterprise Resource Planning (“ERP”) software package called “SAP R/3”.  Initially it distributed an earlier version designated “SAP R/2”. 

5                     ERP software is applied to planning for all aspects of the activities of an enterprise.  This extends to the planning and management of financial, manufacturing, sales, distribution and human resource functions.  SAP R/3 is a software platform which involves software applications based on application link enabling, electronic data interchange and the Internet.  It runs on Microsoft, Windows NT and AS/400 platforms.  SAP Ag claims of SAP R/3 that it is a software platform on which companies can build integrated vendor-independent enterprise wide application and that the flexibility of its architecture will accommodate anything from a few to several thousand users. 

6                     Because of the range of clients who use ERP programs all applications must be adapted to the needs of particular clients.  For this purpose, SAP Australia employs approximately 200 consultants who provide advice to customers concerning both the selection and implementation of SAP products.  The implementation component of the advice can take up to a year.  In addition to implementation, SAP Australia provides customers with advice about methods of upgrading, archiving, services and risk management and the availability of various software products.  These services are almost always provided to persons who are already using or propose to acquire SAP products.

7                     On 28 March 1989, SAP Ag registered “SAP” trade mark in class 9.  On 8 February 1996 SAP Ag also registered “SAP” as a trade mark in class 42.  As noted later, the registered trade mark “SAP” has not been of concern in the appeal.

8                     In 1996, SAP Australia developed the idea of establishing a training college.  The College was intended primarily to provide training in relation to SAP products and information technology issues associated with them, and also to provide general computing training and a business curriculum.  The establishment of the proposed College was announced publicly in October 1996.  SAP Australia decided to adopt the name “Sapient College” for the proposed institution.  The primary judge recorded that, on 19 February 1997, SAP Ag registered the trade mark “SAPIENT COLLEGE” (Trade Mark A 728126) in class 41 covering:

“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.” (emphasis supplied)

9                     The College opened its doors on 1 April 1997 at Gordon in Sydney.  It subsequently established operations in each of the Australian capital cities and in several countries in the Asia/Pacific region.  It also established relationships with a number of Australian tertiary institutions, primarily universities.  As a result, many of its students are exposed to SAP Ag products as well as to the name Sapient College.  The College’s revenue has grown from $11.85 million in 1997 to an expected $21.24 million in 1999.  Its name is linked to that of SAP Ag on that company’s Internet home page.  Users are referred to a web page dealing with the College which has been well visited.  The College has enjoyed considerable publicity in the print media.  From its inception it has been strongly promoted in connection with the SAP name and logo and most of the promotional materials distributed in respect of the College carry the “SAP” trade mark as well as the trade mark “Sapient College”.  They also usually bear the SAP logo.

10                  Sapient Australia is entirely unrelated to the SAP companies.  Its US parent, Sapient Corporation, was formed in Massachusetts in 1990.  Sapient Corporation opened for business there in 1991.  Its business involves providing custom designed computer systems for its clients with a focus on the client-server as opposed to the previously used mainframe solutions.  Rather than adopting a “time and materials” approach to consulting, Sapient Corporation applies a fixed price/fixed time method.  That approach to costing requires intense early work with clients to define the scope of each project.  This is a continuing characteristic of Sapient Corporation’s services. 

11                  In December 1998, Sapient Corporation caused Sapient Australia to be incorporated in Australia as its subsidiary here.  On 30 March 1999 Sapient Australia advertised for staff and in April 1999 it opened its office under the supervision of Ludovic Lacourte, a Sapient Corporation employee, who became the Chief Executive of Sapient Australia. 

12                  Sapient Corporation, the US parent, had already had a number of contacts with the Australian market.  In February 1995 it had commenced implementation of a project called “Project Omega” for an American company, Digital Equipment Corporation (“Digital”).  As part of that implementation it established a sales commissioning system for Digital in several countries, including Australia.  Various members of Digital’s staff, including staff from Australia, attended workshop sessions run by Sapient Corporation in Boston from April 1995.  Sapient Corporation’s name and logo were prominently displayed on those occasions.  They were also endorsed on the course materials.  A number of the staff of Sapient Corporation visited Australia to work with Digital on the implementation of Project Omega between late 1995 and the finalisation of that project at the end of 1996. 

13                  Also in the period 1995/1996 Sapient Corporation carried out a project for an American supermarket company that involved contact with Woolworths Ltd in Australia.  As a result, Woolworths staff visited Sapient Corporation’s offices in Massachusetts in early 1997. 

14                  In September 1997 Sapient Corporation was approached by “Vanguard Investments”, a United States corporation, for assistance in connection with a joint venture project between Vanguard and MLC Insurance called “Plum”.  Mr Varady, a senior vice president of Sapient Corporation and the chief executive responsible for its overseas business activities and operations, agreed to advise on a technology budget for the joint venture.  He visited Australia for that purpose in October 1997 where he spent a week conducting a workshop and meeting various government officials and commercial leaders, including many MLC executives.  Down to the time of the hearing at first instance (in June 1999) he had since revisited Australia about a dozen times, partly in connection with that project but also to pursue other business opportunities.

15                  In addition to expanding its geographical range and client base, Sapient Corporation had acquired a number of complementary businesses.  One of these was a Texas company, Exor Technology Inc, which had experience in the “Oracle ERP” system, an integrated business system often included in Sapient Corporation’s solutions for its clients.  That acquisition by Sapient Corporation occurred in December 1997.  The Texas company traded under its own name until June 1999, when its activities and those of some other acquired businesses were integrated into the Sapient Corporation’s operations.

16                  Mr Varady characterised Sapient Corporation’s primary business as the provision of software consulting services.  He accepted that that description was very broad.  The consulting services in question were, however, consulting services of a particular kind which did not involve the sale of pre-made software applications.  The only software licensed was software written by Sapient Corporation itself, comprising general utility software solutions which were not financially viable as stand alone solutions.  Each of Sapient Corporation’s solutions for its clients was highly customised and was unique to the client.  This resulted from Sapient Corporation’s practice of early intensive client consultation and definition of the client’s special business requirements. 

17                  Sapient Corporation’s type of business was contrasted with the ERP system marketed by SAP Australia, the implementation of which involved taking a pre-made software package, then customising it and adapting it to the particular client’s circumstances.  But if Sapient Australia were to be approached by a client that expressed an interest in ERP software, it was possible that the company would suggest, if appropriate, Oracle ERP software, with or without an Oracle database and other software.  So, for example, if someone wanted to set up a company in Australia selling books on the Internet, Sapient Australia would be able to provide consultative services with respect to the interface with the customer through the Internet and also back office functions such as the processing of orders, invoices and the like.  ERP software would be relevant to those back office functions.  The SAP ERP product and the Oracle ERP product were competing in the market place.

18                  In relation to the provision of training services, Sapient Corporation would sometimes have members of a client’s staff come to one of its locations to help them understand the application desired by the client.  There was not much training involved, however, because usually the client was engaged in building the proposed application with Sapient Corporation.  Sapient Corporation would also engage in a process of training trainers from within its client organisation. 

19                  Mr Varady had long known of SAP and had understood “that it was primarily a product company” and that most of the implementation of its products was undertaken by third parties.  Until the commencement of the proceeding at first instance, he was not aware of Sapient College. 

20                  Nigel Hutchinson, SAP Australia’s Director Corporate Services, became aware of the existence of Sapient Corporation on or about 30 March 1999 when Sapient Australia advertised for staff for its new Sydney office.  It described itself in the advertisement as “a market and thought leader in the design and implementation of E-Commerce and Information Technology systems”.  Mr Hutchinson telephoned the person named in the advertisement to express his concern over the use of the name “Sapient” in relation to such an entity.  As a result of this contact, Sapient Corporation lodged applications for registration, in its name, of the word “SAPIENT” as a trademark for services in classes 9 and 42.  On 22 June 1999 it assigned its rights in that application to Sapient Australia.

21                  Following correspondence, SAP Ag and SAP Australia instituted a proceeding in this Court alleging that by using the name “Sapient Australia”, Sapient Australia had infringed the registered trade marks “SAP” and “Sapient College”.  They also alleged that Sapient Australia had engaged in misleading or deceptive conduct, or conduct likely to mislead or deceive in contravention of s 52 and related conduct in contravention of par 53(c) of the TP Act.  They also alleged passing off.  They sought injunctive relief together with damages and an account of profits.  Sapient Australia filed a cross-claim seeking rectification of the Register of Trade Marks by cancellation of the trade mark SAPIENT COLLEGE, but that cross-claim was expressed to be, in effect, conditional on a finding of deceptive similarity between the name Sapient Australia and the registered trade marks.  The application was heard by Wilcox J and on 30 July 1999 his Honour dismissed the application.  SAP Australia and SAP Ag now appeal against his Honour’s decision. 

The reasons of the primary judge

22                  The factual background set out above is distilled from a more comprehensive and detailed treatment of the facts in his Honour’s reasons for judgment.  After setting out that factual history, his Honour made some general findings of fact about the businesses of the parties, then considered in turn the claims based upon infringement of trade mark, contravention of the TP Act and passing off.

23                  His Honour accepted at the outset that SAP Australia had a considerable favourable reputation as a supplier of ERP software and related products and as an adviser on implementation of its products.  While he found that there were differences between the businesses of SAP Australia and Sapient Australia, he also found that those differences were narrowing.  SAP Australia had been formed to distribute the software products of SAP Ag in Australia, but found that this task required it to become involved in training to the point where it had established Sapient College.  The College had prospered and had links with numerous tertiary institutions.  While it emphasised the SAP Ag name and logo and sought to promote SAP Ag products, it was a substantial revenue earner in its own right.  In addition, SAP Australia found itself increasingly being asked to provide consultancy services in relation to the SAP Ag products it sold.  Moreover, those services promoted sales of the products.  The consulting services had become a major revenue earner in their own right.

24                  His Honour thought that the business of Sapient Australia was likely to prove equally dynamic.  The parent corporation had a close association with the supply and implementation of Oracle ERP software.  While Sapient Australia had a limited capacity in relation to the implementation of software, his Honour did not believe that this would remain the situation for long.  Since the commencement of its operations, Sapient Corporation had grown enormously in its range of activities and geographical coverage and there was no reason to doubt that the process would continue and be reflected in the activity of Sapient Australia.

25                  His Honour made a general observation at this point which was the subject of some comment and criticism by counsel for the appellants.  He said:

“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.”

26                  In addressing the trade mark infringement claims, his Honour first considered the alleged infringement of the trade mark SAP.  He held that the word Sapient was not deceptively similar to the trade mark SAP.  This finding was not challenged on appeal and it is unnecessary to refer to it further.

27                  The argument in respect of the trade mark “Sapient College” his Honour regarded as “perhaps, a little stronger”.  His Honour noted that the mark was 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” included use in relation to computer training services.  His Honour accepted that that was a use in relation to the same services, or services of the same description, as those in respect of which the trade mark “Sapient College” was registered.  He thought that the word “Sapient” was the most significant and memorable part of the trade mark “Sapient College” and that the name of the College was likely to be contracted in ordinary speech to “Sapient”.  Nevertheless, he said that the relevant comparison to be made was “between the marks themselves, not between one mark and a contraction or corruption of the other”.  That was an observation expressly accepted by counsel for the appellants.  His Honour concluded that the use by Sapient Australia of the word “Sapient” standing alone or with an additional word such as “Corporation” or “Australia” was not deceptively similar to SAPIENT COLLEGE, whether or not Sapient Australia’s word or words was or were printed in block letters.  The reasons for his Honour’s conclusion in this respect were set out in two paragraphs of his judgment as follows:

“          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.

            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 [sic – “seeing”] 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 service.”

28                  His Honour then went on to consider, although it was unnecessary for him to do so in the light of his finding referred to above, defences pleaded by Sapient Australia under ss 122(1)(a), 122(1)(f) and 124(1) of the Trade Marks Act 1995 (Cth).  Having regard to our conclusions about his Honour’s findings, expressed below, concerning the elements of infringement to be established by the SAP companies, it is unnecessary for us to consider that aspect of his reasons further.

29                  His Honour next turned to the claims under the TP Act.  Referring to counsel’s submissions, he set out principles pertinent to the determination of the question whether the use by a corporation of a particular corporate name amounts to conduct which is actually or potentially misleading or deceptive.  The principles on which his Honour relied were as set out by himself at first instance in Chase Manhattan Overseas Corporation v Chase Corporation Ltd (1985) 9 FCR 129 at 139-140.  Omitting reference to authorities, the stated principles were, in summary, as follows:

(a)        Conduct cannot, for the purposes of s 52, be categorised as misleading or deceptive, or likely to be misleading or deceptive, unless it contains or conveys a misrepresentation.

(b)        A statement which is literally true may nevertheless be misleading or deceptive, as where, for example, the statement also conveys a second meaning which is untrue.

(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.

(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 will consider all who fall within the identified section or sections, “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”.  Evidence of the formation in fact of an erroneous conclusion is admissible but not conclusive.

(e)        Ordinarily, mere proof of confusion or uncertainty will not suffice to prove misleading or deceptive conduct.  However, where confusion is proved, the court should investigate whether the cause is misleading or deceptive conduct on the part of the respondent.

We accept, with respect, the correctness of those principles with a qualification in relation to paragraphs (a) and (d).  As to (a), while in most cases misleading or deceptive conduct will convey a misrepresentation, we would not wish to be taken to assent to the proposition that this is required in all cases.  A statement of principles similar to that made by his Honour in the Chase Manhattan case was recently made by the Full Court in S & I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd  (1999) 43 IPR 581 at 587-588.  Their Honours said (at 587):

“Section 52 operates in a variety of situations.  It may not be limited to cases where the conduct complained of is a misrepresentation although that is the normal case which presents itself: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 at 93 per Lockhart J.”

In the event, it is unnecessary to labour the point as it is not critical to the outcome of this appeal.  As to (d), the principle is perhaps too widely stated, in the light of what was said by the Full Court in Siddons Pty Ltd v The Stanley Works Pty Ltd (1991) 29 FCR 14 at 17-18.

30                  As in Chase Manhattan, his Honour accepted that it was not appropriate to apply a general rule that the use, for the first time in Australia, of a corporate name used overseas should be assessed without regard to its foreign antecedents.  His Honour, correctly in our view, acknowledged there might be cases in which a company commencing business in Australia was already known to a significant number of Australians.  He said: “I take the same view in the present case, especially having regard to the specialised nature of the relevant market.”

31                  His Honour then considered the arguments in relation to s 52.  By using the name “Sapient Australia”, Sapient Australia was said to be falsely implying an association with Sapient College or with one of its progenitors, the SAP companies.  According to his Honour, that argument, if correct, would apply equally to anybody who used a name containing the word “Sapient”, at least in relation to services that overlapped those of the SAP companies.  His Honour rejected that argument on the same basis upon which a similar argument was rejected in Chase Manhattan.  He referred to the judgment of Lockhart J in the Full Court in that case at (1986) 12 FCR 375 where his Honour said (at 377):

“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 a common English word and is susceptible of various meanings as a reference to the dictionaries demonstrates.”

32                  It is necessary to bear in mind that the passage which his Honour quoted from the judgment of Lockhart J did not set out the basis on which the claim of misleading or deceptive conduct was rejected in Chase Manhattan.  It was, at best, an incidental comment about the undesirable consequences of giving too broad an application to s 52, particularly an application which would catch conduct that merely caused “some degree of confusion … in the minds of the public or relevant members of the public” (at 377).  At its highest the appellant’s case in Chase Manhattan established simply that it was possible that some confusion or uncertainty might be created in the minds of the relevant public if Chase Corporation Ltd carried on its activities in Australia and expanded them into fields in which Chase AMP Bank Ltd proposed to engage.  That a finding of contravention might confer a de facto monopoly in a word or words when used in a particular context is not to the point in deciding whether conduct is misleading or deceptive or likely to mislead or deceive.  Ultimately, that was not the basis on which Chase Manhattan was decided.  The other judge in the majority in that case, Neaves J, made no reference to the desirability of avoiding the creation of a monopoly in a word or words.  Although on one reading of his reasons for judgment, the learned primary judge in the present case may be said to have reached his conclusion on the s 52 claim at this point in his reasoning, his overall conclusion was based upon broader considerations to which he next turned. 

33                  His Honour referred to some incidents in which people had assumed a connection between Sapient Corporation or Sapient Australia and SAP Australia or Sapient College.  They related to matters such as employment, accommodation inquiries, or requests for information, and in each case, his Honour found, the situation was promptly and easily put right and no harm was done.  While the evidence gave his Honour some concern, he bore in mind that at the time of the hearing of the case, Sapient Australia had been incorporated for only six months (from December 1998 to June 1999) and that its office had been operating for less than three months.  He thought that the possibility of false assumption was at its maximum at that stage of Sapient Australia’s corporate life and that as it established itself more firmly in the Australian market place, it would increasingly be recognised for what it was.

34                  Moreover SAP Australia’s software and services were promoted under the name “SAP”, and the SAP brand had become the indicium of those goods and services.  The word “Sapient” was not in the name of either SAP Ag or SAP Australia or the names under which they traded except in relation to the specialised activity of the Sapient College.  His Honour accepted a submission for Sapient Australia that it could not be claimed that Sapient Corporation had engaged in misleading or deceptive conduct in using its own name in connection with the Digital Equipment contracts.  This highlighted the fact that the SAP companies’ claims under the TP Act depended upon the action of SAP Australia in establishing Sapient College; “what had hitherto been lawful, allegedly became unlawful”.  However, given that neither s 52 nor s 53 imported a mental element, it would not be sufficient for Sapient Australia 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 name was adopted by SAP Australia for its training institution.  Nevertheless, his Honour considered those matters relevant to the determination of the factual issue whether the use of the name “Sapient” or “Sapient Australia” or “Sapient Corporation” was likely to mislead.

35                  On that basis the claim under the TP Act failed. 

36                  In relation to the passing off claim, his Honour was of the opinion that the misrepresentation in the course of trade, which is a necessary element of the tort, was not established for the reasons he had set out in relation to the TP Act claim.  The passing off claim also failed because no element of actual or probable damage to the business or goodwill of either SAP Ag or SAP Australia was proved.

The role of the appellate court

37                  It is appropriate in considering the arguments in this case that we bear in mind the role of the Court in the exercise of its appellate jurisdiction involving judicial evaluation of primary facts which are not in dispute.  Absent a degree of restraint at the appellate level in the review of evaluative judgments, there is a risk, particularly in intellectual property cases, that the lodgment of an appeal will answer Ambrose Bierce’s definition as “in law, to put the dice into the box for another throw”.

38                  The issue was considered recently in S & I Publishing Pty Ltd (above) at 585-587 in connection with alleged misleading or deceptive conduct involving magazines with similar mast heads.  Although it allowed the appeal in that case, the Full Court accepted the general proposition that on questions of fact and degree involving matters of judgment and impression, minds may differ, so that in a doubtful case the Court should give respect and weight to the views of the trial judge: see also S.W. Hart & Co Pty Ltd v Edwards Hot Water Systems (1985) 159 CLR 466 at 478 (Gibbs CJ); Murray Goulburn Co-operative Company Ltd v New South Wales Dairy Corporation (1990) 16 IPR 289 (FCA/FC) at 296; Esso Australia Resources Ltd v Commissioner of Taxation (1998) 84 FCR 541 (FC) at 554. The general approach described is not of course to be a fetter on the appeal court in giving effect to its own conclusion where it is definitely of a contrary view to that taken by the primary judge.

The trade mark infringement issues

39                  Section 20 of the Trade Marks Act 1995 confers upon the registered owner of a trade mark, subject to Part 3 of the Act, the exclusive rights:

“(a)     to use the trade mark; and

(b)       to authorise other persons to use the trade mark;

in relation to the goods and/or services in respect of which the trade mark is registered.”

Subsection 20(2) provides that the registered owner of a trade mark has also the right to obtain relief under the Act if the trade mark has been infringed.  Section 120 sets out the circumstances under which a registered trade mark is infringed.  Relevant for present purposes are subsections 120(1) and (2):

“120(1)  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.

     (2)  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:

(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”.

40                  The concept of deceptive similarity is defined in s 10 of the Act, which provides:

“For the purposes of this Act, a trade mark is taken to be ‘deceptively similar’ to another trade mark if it so nearly resembles that other trade mark that it is likely to deceive or cause confusion”.

41                  His Honour’s consideration of this limb of the case with respect to the trade mark “SAPIENT COLLEGE” began with a finding, favourable to SAP Ag, that Sapient Australia’s use of the word “Sapient” was a use in relation to “the same services, or services of the same description, as the registered services [the services in respect of which the trade mark was registered].”  It could not be said, and was not contended, at least on appeal, that the expression “Sapient Australia”, or “Sapient”, was “substantially identical with” the trade mark SAPIENT COLLEGE.  The question therefore was whether they or any of them were deceptively similar to that trade mark.  This required the judgment mandated by s 10 of the Act, namely, whether the former (“Sapient Australia” or “Sapient”) “so nearly resembles” the latter (SAPIENT COLLEGE) “that it is likely to deceive or cause confusion”.  It was common ground that the comparison to be made, for this purpose, was with the registered mark SAPIENT COLLEGE itself and not with some contraction or corruption of it, such as the single word “Sapient”. 

42                  There was, in our opinion, some force in Sapient Australia’s contention that his Honour erred, favourably to the appellants, in finding that Sapient Australia’s use of “Sapient” was in relation to the same services, or services of the same description, as the services in respect of which SAPIENT COLLEGE is registered.

43                  While Sapient Australia provides instruction to its customers on how to use the software solutions it has specifically designed and implemented for them, the provision of that instruction is no more than an incident to the provision of the more broadly based consulting service.  Sapient Australia is simply not engaged in the general activity of providing education and training in computer software.  Its trade is quite different: see MID Sydney Pty Ltd v Australian Tourism Company Ltd (1998) 42 IPR 561 at 565-568.  In the light of the conclusion we have reached it is not necessary to consider whether we should depart from his Honour’s finding on this point.  Nevertheless, the distinction between the different kinds of business operations run by the parties – albeit that both are concerned with computer software – has some relevance to the TP Act issues which we address later.

44                  His Honour formed his view that there was no deceptive similarity because of what he called “the contextual significance of the word ‘College’ ”.  His reasoning centred on the proposition that a person using the words “Sapient” or “Sapient Australia” in relation to the provision of computing services, even services offering on-the-job training in relation to computer programs, would be unlikely to be understood as referring to a training institution, that is, the College. 

45                  His Honour’s finding that Sapient Australia’s use of the word “Sapient” was a use “in relation to the same services as the registered services” meant that he was required to consider the issue of infringement under s 120(1). It is true that his Honour did refer to a “use in relation to the same services or services of the same description” (emphasis supplied) and the latter alternative reflects the wording of s 120(2), but if he had intended to make findings in the alternative, he surely would have gone on to consider the defence available under s 120(2) when he discussed the other statutory defences raised by Sapient Australia (the defence under s 120(2) had been expressly pleaded in para 31 of Sapient Australia’s Defence to the Amended Statement of Claim). The defence available under s 120(2) in respect of use in relation to services “of the same description” as the registered services therefore need not be considered.  That defence would require consideration of whether the particular actual use of the words made by Sapient Australia was “likely to deceive or to cause confusion.”  The question for decision by his Honour was, by reference to the principal provision of s 120(1), whether the sign SAPIENT or the sign SAPIENT AUSTRALIA so closely resembled the registered trade mark SAPIENT COLLEGE that it was likely to deceive or cause confusion when used in relation to the services of education or the provision of training in computers, computer peripherals or computer software or information technology.

46                  It is important in referring to authority in cases such as the present to bear in mind the distinction between the roles played by the term “deceptively similar” in registration and opposition proceedings on the one hand and in infringement proceedings on the other.  In the former class of case, the risk of deception or confusion is to be assessed having regard to the notional use of the proposed mark in a normal and fair manner for all of the goods or services to be covered by the registration: see Coldstream Refrigerators Ltd v Aircrafts Pty Ltd (1950) 20 AOJP 1491 at 1496 per Dixon J; Wingate Marketing Pty Ltd v Levi Strauss & Co (1994) 121 ALR 191 (FCA/FC) at 228 per Gummow J.  However, in infringement proceedings the primary comparison is between the registered mark on the one hand and the mark as used by the alleged infringer on the other.  Elaborating upon the approach to deceptive similarity in the context of infringement, Gummow J in Wingate said (at 229):

“(i)      The comparison is between any normal use of the plaintiff’s mark comprised within the registration and that which the defendant actually does in the advertisements or on the goods in respect of which there is the alleged infringement, but ignoring any matter added to the allegedly infringing trade mark…

(ii)       …evidence of trade usage, …is admissible but not so as to cut across the central importance of proposition (i).

(iii)      …in making an aural comparison of the marks, whilst ordinarily one is concerned with what appears to be the natural and ordinary pronunciation, evidence … is admissible that those in the trade pronounce the defendant’s mark in a manner which otherwise might be thought to vary from the normal fashion.

(iv)      Evidence of cases of deception or confusion may be taken into account…

(v)       …evidence is admissible that the defendant’s mark was adopted with a view to ‘sailing close to the wind’…”.

47                  The nature of the comparison to be made between the marks was described by Dixon and McTiernan JJ in Australian Woollen Mills Ltd v F. S. Walton & Co Ltd (1937) 58 CLR 641 as follows (at 658-659):

“In deciding this question, [whether the mark in question infringed the plaintiff’s mark] the marks ought not, of course, to be compared side by side.  An attempt should be made to estimate the effect or impression produced on the mind of potential customers by the mark or device for which the protection of an injunction is sought.  The impression or recollection which is carried away and retained is necessarily the basis of any mistaken belief that the challenged mark or device is the same.  The effect of spoken description must be considered.  If a mark is in fact or from its nature likely to be the source of some name or verbal description by which buyers will express their desire to have the goods, then similarities both of sound and of meaning may play an important part.  The usual manner in which ordinary people behave must be the test of what confusion or deception may be expected.  Potential buyers of goods are not to be credited with any high perception or habitual caution.  On the other hand, exceptional carelessness or stupidity may be disregarded.  The course of business and the way in which the particular class of goods are sold gives, it may be said, the setting, and the habits and observation of men considered in the mass affords the standard.  Evidence of actual cases of deception, if forthcoming, is of great weight.

….

The main issue in the present case is a question never susceptible of much discussion.  It depends on a combination of visual impression and judicial estimation of the effect likely to be produced in the course of the ordinary conduct of affairs.”

48                  The primary judge’s judgment was criticised for his reference to the “contextual significance of the word ‘College’ ” in the expression “Sapient College”.  The proper context, it was said, in which the trade mark was to be considered was the provision of training services – the services in respect of which the mark was registered and not that of a particular training institution.  His Honour, it was said, continued the wrong approach of looking at actual use of the mark in respect of a training institution rather than making a comparison of the marks themselves in his statement that:

“Once the case is considered on the basis that a person seeking [sic – “seeing”] or hearing the applicant’s 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.”

That understanding, it was submitted, wrongly insists on the word “College” being recalled by the hearer despite his Honour’s finding that “Sapient” is more significant and memorable, wrongly imports knowledge of the actual use of the term “Sapient College” by SAP Ag and SAP Australia, and wrongly confines the registration to a training institution rather than to training services. 

49                  It is necessary to keep in mind that the registered mark is “SAPIENT COLLEGE” not “Sapient”.  The latter contraction is not protected.  The marks said to infringe are “Sapient” and “Sapient Australia”.  While it is true, as submitted for the appellants, that the comparison must be between the marks themselves, the contextual setting to which his Honour referred derives not from the use of the registered mark but from its content.  That content bespeaks an educational or training institution of some kind, although the registration is in respect of services.  That context limits the range of cases in which deceptive similarity can be attributed to the use of the word “Sapient” by another party.  This approach is present in his Honour’s observation quoted in the immediately preceding paragraph of these reasons.

50                  This is an evaluation which was plainly open on the facts before his Honour.  Even if another view were open, we are not persuaded that his Honour’s assessment is infected by any error that requires interference by this Court on appeal.

The TP Act issues

51                  The first criticism of his Honour’s reasoning on the TP Act claims focused on his observation that while the evidence showed that the dual use of the name “Sapient” could cause initial confusion, given the sophisticated nature and magnitude of the purchasing decisions of the relevant class of customer, it was unlikely that at the point of contract a customer would be confused as to the identity or nature of the company with which he or she was dealing.  In response, it was rightly observed that misleading or deceptive conduct in trade or commerce is not limited to conduct which induces or is likely to induce entry into a transaction.  So to propose would be to limit s 52 of the TP Act in a way not justified by its terms.  Conduct which misleads a customer so that, under some mistaken impression of a trader’s connection or affiliation, he or she opens negotiations or invites approaches may be misleading or deceptive even if the true position emerges before the transaction is concluded – TEC & Tomas (Australia) Pty Ltd v Matsumiya Computer Co Pty Ltd (1984) 1 FCR 28 at 38; State Government Insurance Corporation v Government Insurance Office of New South Wales (1991) 28 FCR 511 at 563; Trade Practices Commission v Optus Communications Pty Ltd (1996) 64 FCR 326 at 340.  It is consistent with that general proposition, however, to accept that conduct may not be misleading or deceptive or likely to mislead or deceive, notwithstanding that it may engender temporary and commercially irrelevant error – see Lumley Life Ltd v IOOF of Victoria Friendly Society (1990) ATPR 40-987 at 50,838 per Lockhart J.  The characterisation of conduct as “misleading or deceptive or likely to mislead or deceive” involves a judgment of a notional cause and effect relationship between the conduct and the putative consumer’s state of mind.  Implicit in that judgment is a selection process which can reject some causal connections, which, although theoretically open, are too tenuous or impose responsibility otherwise than in accordance with the policy of the legislation.  In some cases there will be a selection process analogous to that which arises under s 82 of the TP Act in a determination of whether or not a claimed loss was caused by a contravention – State Government Insurance Corporation  at 562.

52                  In the present case it is necessary to consider how, if at all, his Honour’s observations about transient confusion informed his disposition of the claim based on misleading or deceptive conduct.  In considering the incidents in evidence in which people had assumed a connection between Sapient Corporation or Sapient Australia on the one hand and SAP Australia or Sapient College on the other, his Honour noted that they related to matters such as employment, accommodation inquiries and requests for information, and in each case he found the situation was “promptly and easily put right and no harm was done”.  In the context of that finding and the subsequent finding that the possibility of “false assumption or confusion” would diminish as Sapient Australia established itself in the Australian market place, it can be said that his Honour treated the evidence of the incidents referred to as commercially irrelevant.  In any event, they involved a “false assumption” and “confusion” neither of which is necessarily an indicium of misleading or deceptive conduct.  This was reinforced in his Honour’s following observation that the SAP brand had become the indicium of the goods and services promoted under it.  The way in which his Honour evaluated the evidence of incidents in which people assumed a connection between Sapient Corporation or Sapient Australia on the one hand and SAP Australia or Sapient College on the other hand, indicates that he made findings of fact about the nature of those assumptions and their significance, which he was entitled to make and which were not informed by any error of principle in the characterisation of Sapient Australia’s conduct under s 52. 

53                  Much of the argument advanced in support of the appeal involved revisiting his Honour’s assessments and evaluation of the primary facts.  It is true, as counsel for the appellants submitted, that the relevant date for the characterisation of the conduct complained of is the date of commencement of the proceeding.  It was said that his Honour appeared to have, in effect, held that the respondent’s conduct was misleading at that date but was of a kind that was not likely to be misleading at a later date once Sapient Australia’s business became well established.  However, his Honour was entitled to have regard to the transience of the confusion, of which there was only limited evidence, in his characterisation of the conduct complained of as at the time when that conduct occurred.  That is a different process from deciding that conduct is not misleading or deceptive because, although misleading or deceptive today, it is unlikely to be misleading or deceptive at some time in the future.

54                  His Honour’s evaluation of the evidence involves, in our opinion, a realistic assessment of the commercial significance of the conduct of Sapient Australia which is complained of by the SAP companies.  On his Honour’s findings of fact, and having regard to the various aspects of the evidence to which we were taken, there was an air of unreality in the attempted characterisation of Sapient Australia’s conduct in using its own name as misleading or deceptive.

Passing off

55                  Although it was a ground of appeal that the primary judge erred in failing to hold that Sapient Australia has passed off itself as them and its business, products and services as theirs, the appellants did not address independent submissions to this ground and therefore we need say nothing further of it.

Conclusion

56                  For the above reasons the appeal should be dismissed with costs.

Associate:

Dated:              24 December 1999