FEDERAL COURT OF AUSTRALIA

Brooks Sports, Inc v Paul’s International Pty Ltd (No 2) [2011] FCA 1000

OTHER MATTERS:

A.    The Court noted that, the Applicant may have access to the Affidavit of Damien Dwyer sworn on 18 July 2011 (save for the exhibits thereto), the Affidavit of Damien Dwyer sworn 20 July 2011 and the affidavit of Rajeev Jain made 20 July 2011.

B.    The Respondents undertake that they will not until further order or determination of these proceedings supply or offer any footwear bearing both any of the Trade Marks as defined in paragraph 7 of the Statement of Claim dated 8 July 2011 and the word “Adrenaline” which are presently in the possession of the Respondents or come in their possession pursuant to orders already placed or placed prior to 26 August 2011 (the quarantined goods) save that the Respondents may sell the quarantined goods as follows during that time:

(a)    it will notify the Applicant (via its solicitors) and nominate which of the quarantined goods it proposes to supply, offer or sell (the nominated goods);

(b)    within five (5) days of providing that notification allow the Applicant and its nominated representative an opportunity to inspect each and every one of the nominated goods; and

(c)    may, unless an order is made to the contrary, within 7 days of the aforementioned notification sell the nominated goods; and

(d)    except that they may sell any shoes returned to them by the Independent Solicitor with the letter dated 18 July 2011 may be sold.

C.    The Respondents undertake to notify the Applicant’s solicitors within 14 days of the date of the Respondents’ undertaking in paragraph B above the number of the quarantined goods in its possession and within 5 days allow access to the Applicant’s solicitors and a nominated representative of the Applicant for the purposes of inspecting the quarantined goods.

THE COURT ORDERS THAT:

1.    By 4pm, 5 August 2011, the Respondents file and serve an affidavit by a proper officer of the Respondents setting out, to the extent practicable, the following things in relation to all shoes purchased and/or sold by the Respondents from January 2007 which shoes bear both any of the Trade Marks as defined in paragraph 7 of the Statement of Claim dated 8 July 2011 and the word “Adrenaline” (the Adrenaline Shoes):

(a)    The name and address of the supplier of each Adrenaline shoe (a supplier);

(b)    The number of Adrenaline shoes purchased from each and which supplier and when;

(c)    The number of Adrenaline shoes sold by any of the Respondents, including a breakdown of which of the Respondents’ stores have sold those shoes;

(d)    For each Adrenaline shoe sold by any of the Respondents, the name of the supplier of that shoe and when the supply occurred;

(e)    For each Adrenaline shoe in the Respondents’ possession, power or control, the name of the supplier of that shoe and when the supply occurred;

(f)    For each Adrenaline shoe referred to in paragraph 9 of the Second Affidavit of Mr Rajeev Jain made 20 July 2011, the name of the supplier of that shoe and when the supply occurred; and

(g)    The basis of the belief asserted in paragraph 28 of the Affidavit of Damien Dwyer made 20 July 2011.

2.    The Respondents file and serve a Statement of Defence by 1 August 2011.

3.    The Applicant file and serve any Reply by 8 August 2011.

4.    Each of the exhibits marked confidential to the Affidavits of Mr Damien Dwyer sworn 18 July 2011 and, any other further confidential exhibits filed and served by the Respondents, be restricted to the Applicant’s solicitors and Counsel and to Mr Michael Hicks, Legal Counsel for the Applicant and a nominated senior executive within the Applicant.

5.    That all materials seized during the search order conducted on 12 July 2011 be provided to or kept by the Independent Solicitor identified in the search order until further order or determination of these proceedings.

6.    That the proceeding be referred to mediation to be conducted on or before 26 August 2011.

7.    The transcript of the hearing on 21 July 2011 be kept confidential until further order.

8.    Costs be reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

INTRODUCTION

1    On 21 July 2011, upon the return of the application for an Anton Piller order which I made on the ex parte application of the applicant, Brooks Sports Inc (“Brooks”), on 11 July 2011, I accepted undertakings from the respondents, Paul’s International Pty Ltd (“International”), Paul’s Retail Pty Ltd (“Retail”), PW Trading Pty Ltd (“Trading”) and St George Wholesale Distributors Pty Ltd (“St George”), and made orders for the further conduct of the proceeding, as set out above. My reasons for making the orders are as follows.

2    The background to the Anton Piller order is set out in Brooks Sports Inc v Paul’s International Pty Ltd (No 1) [2011] FCA 999.

3    At the return of the application on 21 July 2011, Brooks principally sought an interim injunction restraining the respondents for five days from selling any shoes bearing any of the relevant trade marks and the words “Brooks” or “Adrenaline”, and orders permitting the applicant access to the exhibits to the first affidavit of Mr Dwyer, general manager of Retail, comprising invoices of suppliers of the Brooks Adrenaline shoes and the sales reports (for which the respondents claimed commercial confidentiality) and permitting the applicant’s legal representatives to have access to certain results of the independent computer expert’s searches.

4    The respondents opposed the ordering of interim relief, the applicant’s access to the confidential exhibits and the access of the applicant’s legal representatives to the results of the computer searches, but offered an undertaking, the terms of which were broadened during the course of the hearing.

5    The applicant relied on:

(a)    the Independent Solicitor’s Report dated 20 July 2011;

(b)    the Independent Computer Expert’s Report dated 20 July 2011;

(c)    the affidavit of Rajeev Jain sworn on 20 July 2011; and

(d)    written submissions dated 20 July 2011.

6    The respondents relied on:

(a)    the affidavits of Damian Paul Dwyer sworn on 18 July 2011 and 20 July 2011; and

(b)    written submissions dated 20 July 2011.

EVIDENCE

7    By an Independent Solicitor’s Report dated 20 July 2011 made pursuant to the Anton Piller order, Miriam Stiel, a partner of Allens Arthur Robinson (“Allens”), deposed to a search she conducted together with Ms Nicholson and Mr Mawby of the applicant’s solicitors, and Mr Carson, a partner of Korda Mentha, as the independent computer expert, on 12 July 2011, of the head office of Paul’s Warehouse at Parramatta Road, Homebush, pursuant to the Anton Piller order.

8    Ms Stiel reported on her introduction of the search party to employees at the premises, service of the orders, her telephone and email communications with the solicitor for Paul’s Warehouse, Mr Ajit, and the conduct of the search.

9    Ms Stiel deposed that a sales manager, Mr Van Den Hooven, informed her that Paul’s began to receive Brooks Adrenaline shoes in approximately March 2010 and had since received orders every six weeks. He further stated that all sales data for all Paul’s warehouse and retail shops was held at the Homebush premises, from where everything covered in the order could be accessed.

10    Mr Nicholson and Mr Mawby searched for shoes falling within paragraph 1 of the Anton Piller order and located 70 pairs, the bar codes of which were scanned in order to prepare a list. A description of the shoes and a document containing their details provided by Mr Van Den Hooven were added as items on a list prepared by Mr Mawby.

11    Two employees provided Ms Stiel with a total of six invoices which were said to record all the purchases of Brooks Adrenaline shoes. The invoices were listed on the list prepared by Mr Mawby.

12    An employee also explained the computer system to Mr Carson, who reviewed the files.

13    After an initial discussion of whether Mr Carson could take a copy of the whole T Drive (which contained the whole Retail Management System (“RMS”)), Mr Carson made a copy of an “orders” folder and the RMS from the T Drive onto his USB hard drive, which was added as an item on the list.

14    Ms Stiel deposed that she then went through the list with Mr Van Den Hooven.

15    Ms Vanyi, of the solicitors for the respondents, expressed concern because the T Drive contained very confidential information, upon which Ms Stiel explained that she and Mr Carson were subject to relevant undertakings.

16    On the conclusion of the search, Ms Stiel took the shoes and documents to Allens’ offices and Mr Carson took the USB hard drive.

17    On 15 July 2011, Mr Jain and Ms Nicholson inspected the shoes at Allens’ office under the supervision of an employee, Ms Lu, and, as Mr Jain concluded that 12 of the 70 pairs were genuine, they were returned to the respondents.

18    On 20 July 2011, Ms Stiel received a copy of Mr Carson’s Independent Computer Expert’s Report.

19    Ms Stiel retained the shoes and documents in her custody pending further orders of the court.

20    The Independent Computer Expert, Mr Carson, by his Report dated 20 July 2011, reported that he did not take a copy of the entire RMS, but exported data from the “All Movement” report to obtain the information sought in the orders.

21    Mr Carson identified that the “orders” folder, a subfolder of the T Drive, was relevant to the supply of shoes listed in the orders. The orders folder contained over 50,000 files, so he took a copy of the whole file to search it. He later searched the orders folder using the words “Brooks” and “Adrenaline”.

22    Mr Carson attached the USB hard drive and a DVD containing a subset of files containing the words “Brooks” and “Adrenaline” from the orders folder.

23    By his affidavit sworn 20 July 2011, Rajeev Jain deposed that on 15 July 2011, he examined the 70 pairs of Adrenaline shoes seized during the search and considered that 58 pairs were counterfeit and 12 were probably genuine.

24    Damian Dwyer deposed that he was a general manager of the second respondent, Retail, and was authorised to swear the affidavit on the respondents’ behalf.

25    By an affidavit sworn on 18 July 2011, he deposed that according to the records of the respondents, all the trading locations operating under the name Paul’s Warehouse in paragraph 23(v) of the Anton Piller order sold footwear bearing the name “Brooks” or “Adrenaline”, and all the documents and records regarding the footwear were kept at the Homebush head office premises.

26    Mr Dwyer deposed that all details of suppliers were contained in seven invoices from three different suppliers comprising his confidential exhibit “DD1”.

27    Mr Dwyer deposed that Paul’s Warehouse offered the footwear for sale to the general public, and in confidential exhibit DD2, exhibited copy sales reports of Paul’s Warehouse stores which showed the place and date of sales from 2007 up to the present.

28    Mr Dwyer deposed that the Paul’s Warehouse stores were run and operated by Retail, as Trustee for the Paul’s Warehouse discretionary trust.

29    By his second affidavit sworn 20 July 2011, Mr Dwyer deposed that Retail operated the retail outlets trading under the name Paul’s Warehouse. The Paul’s Warehouse business operated “in the retail industry specifically the competitive sale of sporting goods and equipment”. Its head office was at Parramatta Road, Homebush.

30    Mr Dwyer denied that the respondents would destroy information. He deposed that the Paul’s Warehouse business was a large enterprise employing 350 people with a turnover of over $40 million last year. Mr Dwyer denied that Brooks “Adrenaline” shoes were kept in the storeroom under a deliberate policy. Further, he deposed that the respondents had dealt with Brooks through Texas Peak, its distributor, from which they purchased genuine Brooks shoes during 2008, 2009 and 2010 for over $1.1 million, although they had since begun primarily to parallel import Brooks shoes.

31    Mr Dwyer deposed that the documents seized during the search included confidential business documents containing supplier details, pricing and sales strategies and purchase records, which could harm the respondents in the hands of a business rival.

32    Mr Dwyer deposed that the seized information extended significantly beyond the Brooks shoes. He regarded Brooks and its distributor, Texas Peak, as competitors of the Paul’s Warehouse business as a seller of sporting footwear.

33    Mr Dwyer deposed that he had not as yet reviewed the information and sought an opportunity to explain further why the seized documents were confidential. He expressed concern that if Brooks received information about the purchase of shoes that were parallel imported, it could jeopardise the respondents’ ability to continue to sell them and consequently, the respondents would have to acquire such shoes from Texas Peak for a higher price. He therefore asserted that the invoices and sales report of the Paul’s Warehouse business were confidential.

34    Mr Dwyer deposed that following the search, the respondents had quarantined the Adrenaline footwear in all the stores and placed them in storage until the proceedings were finalised.

35    Mr Dwyer deposed that the respondents were investigating the origin of the counterfeit shoes referred to in Mr Jain’s affidavit and believed that they were obtained from China Fancy Enterprise Co Ltd in China, from which the respondents would purchase no more Brooks Adrenaline shoes until the proceedings were finalised.

36    Mr Dwyer objected to a five day restraint from parallel importing Adrenaline shoes lawfully. He also expressed a concern that the applicant was a foreign company, from which it may be difficult to recover costs.

37    He noted that the ABN on the website www.paulswarehouse.com.au was that of St George Wholesale Distributors, which in fact had no involvement in operating the warehouse, and stated that the mistake would be rectified on the webpage.

DISCUSSION

38    On the return of the application, the applicant had not yet searched or examined the Adrenaline shoes at any of the respondents’ many retail stores save for the respondents’ head office in Homebush, and could not determine which, if any, Adrenaline shoes in those other retail locations were counterfeit. It thus sought to restrain, for a short period, the sale of any shoes bearing both any of the trademarks and the word “Adrenaline”, until it ascertained a means of discrimination between genuine and counterfeit shoes enabling it to frame an application for interlocutory relief sought with sufficient precision.

39    The applicant sought access to the invoices to determine the source of supply for the various Adrenaline shoes, as that information was likely to permit the identification of counterfeit shoes independently of physical inspection. It would also facilitate the restraint of further potential infringements which could arise because the respondents regularly placed further orders for Adrenaline shoes, an indefinite quantity of which could arrive pursuant to orders already placed or placed in the near future.

40    Following the execution of the search order, the respondents had removed all Adrenaline shoes in their stores to a central location and undertook not to sell them before affording the applicant an opportunity to examine them. The applicant submitted, however, that although the respondents were willing to extend that regime to all future supplies of Adrenaline shoes pending the determination of the proceeding (or an early mediation), disclosure of the source of supply of the shoes would constitute the most effective means of discrimination, and would require the input of representatives of the applicant with the requisite industry knowledge.

41    Further, the applicant sought disclosure of the numbers of the respondents’ past sales of Adrenaline shoes and some means of determining whether they were infringing sales of counterfeits or, rather, sales of genuine Adrenaline shoes. The applicant accordingly proposed a regime for its legal representatives, subject to the respondents’ claims to privilege or other objections, to have access to the results of the independent computer interrogation of the respondents’ stock records by reference to the words “Brooks” or “Adrenaline”.

42    The respondents resisted an order for injunctive relief, contending that their undertaking not to sell any “Adrenaline” shoes prior to affording the applicant an opportunity to inspect them sufficiently addressed the applicant’s concerns, while permitting the respondents to continue to sell genuine “Adrenaline” shoes.

43    The respondents resisted disclosure of the confidential exhibits to Mr Dwyer’s affidavit to representatives of the applicant (although it contained information required to be disclosed to the applicant by the Anton Piller order), and resisted access to computer search results by the applicant’s legal representatives.

44    The respondents contended that they, as retailers of many brands of shoes, were trade rivals of the applicant (a designer and wholesaler of one brand sold by the respondents) and of its exclusive distributor, Texas Peak. Accordingly, disclosure of the source of the supplies of the Adrenaline shoes to the applicant would hinder the respondents’ ability to obtain lawful parallel imports, and disclosure of information about dates and places of sales of shoes would advantage Brooks as a trade rival. Disclosure of the results of the computer search, even if, at this stage, only to the applicant’s legal representatives, would require the respondents first to assess the material in order to make any necessary objections, which would be unduly burdensome.

45    The respondents submitted that the scope of the material in question potentially extended beyond the Adrenaline shoes, and their examination would exceed the legitimate goal of an Anton Piller order, which was simply to preserve evidence. In the present case, the measures to preserve the evidence were already in place and the information should be available to the applicant only through discovery and particulars. The respondents relied, in that context, on Metso Minerals (Australia) Ltd v Kalra (No 3) [2008] FCA 1201 (“Metso Minerals”).

46    In Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd [2006] FCA 1707 (“Aristocrat Technologies”), Jacobson J observed that consistently with the usual practice which had evolved in relation to search orders, although provision were made for protection of privileged or confidential material, an applicant could typically examine the seized materials without a prior determination of relevance. While it could be a matter of concern where the seized materials were obtained from a trade competitor, the applicant must satisfy stringent conditions laid down in O 25B r 3, and, in the case at hand, the search was not limited to the precise cause of action known to the applicants at the date of the order.

47    His Honour rejected the respondents’ contention that, on a proper construction, the purpose of a search order previously made against them was simply to preserve evidence, and that access to the materials should be only through the usual discovery process.

48    Jacobson J observed that in Microsoft Corp v Adelong Electronics Pty Ltd (1997) 37 IPR 283, Lindgren J indicated that a copyright owner could ordinarily inspect all the evidence in the possession of an alleged infringer without being confined to documents relating to the cause of action then known to the copyright owner.

49    In Metso Minerals, the Anton Piller order was confined to the applicants’ own documents allegedly remaining in the possession of their former employees and contractor. Following seizure, the applicants’ solicitors had access to the documents, essentially by consent, and drafted an amended statement of claim facilitated by that access.

50    The applicants subsequently sought continuing access to the seized materials as an aid to the discovery process and to further particularise their claims. The respondents, who had also consented to an order for general discovery, resisted the applicants’ application.

51    Flick J noted the extraordinary nature of relief under O 25B. His Honour acknowledged that applicants could, with leave, inspect seized documents, for the identified purposes of assessing whether there was compliance with the order, whether any further order was warranted, and ascertaining whether those documents did or did not provide evidence, pending the hearing and determination of the proceeding.

52    In Metso Minerals, it was necessary to determine whether, and the extent to which, a review of seized documents could proceed in tandem with, and as an adjunct to, the discovery process and as an aid to the provision of particulars.

53    Flick J observed that Aristocrat Technologies did not authorise, in the absence of consent, the inspection of the seized documents as an adjunct to the discovery process or to facilitate the provision of particulars (at [43]).

54    His Honour concluded that O 25B did not permit the seizure of documents to isolate and preserve a pool from which the applicants could conduct a self-determined regime of preliminary discovery.

55    Further, in the case before him, the respondents had consented to an order for general discovery, which was sufficient in the circumstances, so his Honour declined to exercise any discretion to permit continued access in order to facilitate discovery and the provision of particulars.

56    In the present case, I was satisfied that it was unnecessary to order the interim relief sought by the applicant, because the respondents’ alternative regime of quarantining the Adrenaline shoes (with their undertaking, until an early mediation was concluded, not to sell the Adrenaline shoes currently in stock, or which come into their possession pursuant to the orders already placed, without affording the applicant an opportunity to examine them prior to an early mediation), would sufficiently address the problem of discriminating between counterfeit and genuine shoes in the very short term.

57    The respondents did not comply, in terms, with the Anton Piller order which required the respondents to inform the applicant in writing of the location of the shoes, the name and address of everyone who had supplied or offered to supply the respondents with the Adrenaline shoes, the names and addresses of those to whom they were supplied and the details of the supply. Mr Dwyer’s affidavit failed to state the locations, other than in the most general way (although that deficiency was largely overtaken by the quarantining of all Adrenaline shoes in a central location). Further, while the exhibits to Mr Dwyer’s affidavit contained information as to sources of supply and details of sales, they were provided only to the applicant’s legal representatives, as the respondents asserted that the exhibits were commercially confidential.

58    In contrast to Metso Minerals, on which the respondents relied, the applicants in the present case did not seek access to the seized documents as an alternative or supplementary means of discovery, but merely sought compliance with the terms of the Anton Piller order.

59    Non-privileged documents are protected by the obligation recognised in Home Office v Harman [1983] 1 AC 280 (“Harman”) and Hearne v Street (2008) 235 CLR 125 not to make use of documents save for the purposes of the action, and ordinarily, they are not exempt from disclosure. It is, however, recognised that the Harman undertaking may be difficult to apply or may afford insufficient protection in the case of a trade rival, as information once learnt may not be forgotten and the obligation not to use secrets may be impossible for the trade rival to perform.

60    Consequently, where trade rivals are involved, it will be necessary to strike a fair balance between the needs of the party wishing to litigate and the legitimate concerns of a party to maintain the secrecy of commercially sensitive information. The court should, in such cases, inspect the documents in question and consider their nature, content, who is proposed to inspect them and the reason why such inspection is said to be necessary in assessing whether they may be inspected.

61    In this case, the evidence did not permit me to determine whether the respondents were trade rivals of the applicant. Further, the provision of the information required by paragraph 23 of the Anton Piller order prior to trial was, in my view, appropriate, and the respondents’ interest in keeping it confidential, if established, would be outweighed by the applicant’s interest in assessing prior to trial the likely source or sources, and the likely extent of past sales, of any counterfeit Adrenaline shoes. The applicant required access to the respondents’ relevant documents and computer records principally due to the respondents’ failure to provide the required information only in the form of confidential exhibits. Noting the respondents’ claim to the commercial confidentiality of the exhibits, I accepted that access by someone with industry knowledge would be necessary but restricted access to a single nominated representative of the applicant. I accepted the respondents’ undertaking that they would provide the information required in the Anton Piller order to the applicant.

Associate:

Dated:    21 July 2011