Conagra Inc v McCain Foods (Aust) Pty Ltd

[1992] FCA 176
(1992) 33 FCR 302
(1992) 106 ALR 465
(1992) 23 IPR 193
(1992) AIPC 90-892

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(Judgment by: French J)

Conagra Inc
vMcCain Foods (Aust) Pty Ltd

Court:

Judges: Lockhart J
Gummow J

French J

Judgment date: 14 April 1992

Sydney

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Judgment by:
French J

Introduction

In 1991 an Australian manufacturer of frozen foods (McCain) sold certain of its products under the name "Healthy Choice" used by a manufacturer of similar products in the United States (ConAgra) and in packaging resembling that used by ConAgra. ConAgra sued McCain in this court claiming damages and injunctive relief for alleged passing off and misleading or deceptive conduct. That action having failed in so far as it related to the name and packaging of the McCain product, ConAgra now appeals. The appeal raised the question whether the tort of passing off requires proof of relevant commercial activity within the jurisdiction by the party claiming relief. The extent to which the reputation within Australia of an applicant's product marketed in a foreign country can support an action in the absence of such commercial activity and the role of fraudulent intention was debated. Issues concerning the part played by product reputation in claims under s 52 of the Trade Practices Act 1974 (Cth) were also raised.

The findings of the trial judge

The facts are set out in the judgment of Lockhart J which I have had the opportunity of reading in draft and I need not review them in detail here. In substance, the learned trial judge found that:

1. ConAgra manufactures and sells in the USA frozen dinners under the title "Healthy Choice". The product is sold under licence in New Zealand and other Pacific markets, but not in Australia. ConAgra intends to introduce the product into Australia later this year.

2. McCain adopted the name "Healthy Choice" for its product having regard to the success of the marketing of ConAgra's products under that name in the United States.

3. The package design adopted by McCain was consciously influenced by that of the ConAgra product.

4. From the outset McCain was aware that it had adopted the name of ConAgra's product and aspects of its packaging.

5. No one seeing the McCain product would believe that they were looking at ConAgra product.

6. McCain's packaging suggests to a person familiar with the ConAgra product, that there is a relationship of some kind between ConAgra and McCain or their respective products.

7. There are to be found in Australia some number of persons either originally from the United States or residents of Australia who have visited the United States who would know of or recognise the ConAgra product. The number of persons in Australia aware of the ConAgra product is "potentially large".

8. The evidence did not establish on the balance of probability that there is in Australia a sufficiently large number of persons who are aware of the ConAgra product and for whom the name "Healthy Choice" would have acquired a secondary meaning, that is to say, a meaning signifying the ConAgra Healthy Choice product.

In the course of a comprehensive examination of case law, his Honour concluded:

1. It was necessary in order for ConAgra to succeed in its action that it prove a reputation for its product in Australia. This was conceded by ConAgra.

2. The time has come to recognise that although the tort of passing off is based upon a business or trade, it does not matter whether that business or trade is carried on in the jurisdiction in which the action is brought provided that there is a reputation in the jurisdiction in respect of it.

3. The existing state of the authorities however constrains a judge at first instance to hold that the tort of passing off requires the existence of business activity in Australia (albeit slight activity will suffice) and that as ConAgra has no business in Australia it must fail in the passing off action.

Although the latter conclusion was sufficient to dispose of the case, his Honour's findings of fact also went to the question whether McCain's conduct constituted misrepresentation and whether it was fraudulent in a sense relevant to the tort of passing off. His Honour was not satisfied that there existed at the relevant time a reputation in Australia in respect of the ConAgra Healthy Choice product and this is reflected in the finding noted above that there was not a sufficiently substantial number of persons in Australia aware of the ConAgra product and for whom the name "Healthy Choice" would have acquired a secondary meaning signifying the ConAgra Healthy Choice product. It followed, therefore, that the name and get-up on the McCain product did not convey any misrepresentation.

While concluding that evidence of local business activity was necessary to establish a cause of action in passing off, his Honour was sympathetic to the approach taken by Gummow J in 10th Cantanae Pty Ltd v Shoshana Pty Ltd (1987) 79 ALR 299 at 321-2 ; 10 IPR 289 and Telmak Teleproducts (Australia) Pty Ltd v Coles Myer Ltd (1988) 84 ALR 437 at 46 ; 12 IPR 297 . The reasons for judgment in those cases suggest that proof of fraud may support an action for passing off based on local reputation derived from international rather than local business activity. Against the event of an appeal in which the question might be further agitated, his Honour considered the question whether fraud had been proven. He took the view that fraud in the context of passing off did not require proof of all the elements necessary to support an action for deceit. It could be constituted by "persistence after notice", Turner v General Motors (Australia) Pty Ltd (1929) 42 CLR 352 at 362 (Isaacs J). On the basis of his finding that McCain was aware from the outset that it had adopted the name of ConAgra's product and aspects of its packaging, his Honour concluded shortly that the company was engaging in fraudulent conduct in the sense used by Isaacs J. Whether or not the company believed that it was legally entitled to adopt the name and get-up that it did was, in his Honour's view, irrelevant to the finding of fraud.

In relation to the claim of misleading or deceptive conduct in contravention of the Trade Practices Act 1974 (Cth), his Honour was prepared to accept that the extent of reputation necessary to support that cause of action might not be as great as the reputation required to establish the cause of action in passing off. Nevertheless, he did not think that ConAgra had satisfied the onus of proof of showing that the number of persons for whom the name "Healthy Choice" and the package design would have the necessary secondary meaning was other than insignificant. Thus to the extent that ConAgra's claim of misleading or deceptive conduct depended upon the use of the name and get-up it failed. It succeeded in one other respect relating to a "trade presenter" document used by McCain but that aspect of his Honour's judgment is not in issue here.

The grounds of appeal

The cross-appeal having been abandoned, there was no challenge to his Honour's conclusions adverse to McCain.

His Honour's finding that the absence of business activity in Australia on the part of ConAgra was critical to its cause of action was challenged in the first ground of appeal (para 2 of the notice). In the light of findings as to recognition and awareness of ConAgra's product in Australia and fraud on the part of McCain, his Honour is said to have erred in failing to hold that McCain's conduct amounted to passing off (para 3). And having found fraud his Honour should have held that the reputation of ConAgra's products in Australia was sufficient for the conduct of McCain to constitute passing off (para 4). Further, it was said, he erred in failing to find that the reputation of ConAgra's Healthy Choice products in Australia was significant (para 5) and given the finding that there was a potentially large number of persons in Australia aware of ConAgra's products, his Honour erred in failing to hold that McCain's conduct was likely to mislead and deceive a "not insignificant number of relevant persons" so as to constitute contraventions of ss 52 and 53(c) of the Trade Practices Act 1974 (para 6). In determining whether the reputation was significant, his Honour was said to have erred in failing first to determine the section of the public or class of persons by reference to which that significance was to be measured (para 7). His Honour should have attributed significance to the number of persons from the United States who came to Australia and persons from Australia who visited the United States with whom Healthy Choice products had a reputation (para 8). There was also complaint about his Honour's alleged failure to distinguish between ConAgra's reputation in the name "Healthy Choice" and its reputation in the packaging and get-up of those products. This related both to the passing off and s 52 claims (paras 9 and 10). And there was error, it was said, in the requirement that relevant persons should not only have known of ConAgra's Healthy Choice products but that the words had acquired a secondary and distinctive meaning (para 11).

The question of reputation

I have had the advantage of reading the judgments of Lockhart and Gummow JJ and subject to some observations I wish to make on the question of reputation, I agree with their reasons and regard them as consistent with the general propositions that:

1. The cause of action in passing off in relation to goods or services does not require proof that the applicant for relief has engaged in business activity in relation to those goods or services within Australia.

2. It is essential to the cause of action in passing off that the applicant's goods or services have a reputation with a substantial number of persons who would be potential customers were those goods or services to be marketed within the jurisdiction.

3. The belief by a trader that the name and/or get-up of the trader's goods or services is likely to cause members of the public to associate them with the goods or services of another may be evidence that the name or get-up is likely to have that effect. According to the circumstances, persistence in the use of a name and/or get-up after notice of similarity may indicate such a belief and an intention to benefit by the similarity. Such a belief or intention does not logically supply the requirement that the use of the name or get-up complained of be deceptive.

4. The requirement in passing off that a name or get-up be deceptive in the sense of conveying a misrepresentation is met when there is an awareness among members of the public of those features of the prior product. Such awareness usually precedes the introduction of the parasitic product, although that may not always be the case. For example a new product might be released upon the market with the false proclamation of an association with a product established in some foreign country which has no existing reputation in Australia. This was the nature of the representation which his Honour found to be embodied in the trade presenter by which McCain introduced its product to the trade in Australia.

Accepting that business activity within the jurisdiction is not a prerequisite for the success of a claim in passing off and that with or without evidence of fraud, consumer awareness of the applicant's product, otherwise known as its reputation, is necessary, it is the question of reputation which is central in this case to both the Trade Practices Act claim and the claim in passing off.

It was the claim in passing off which dominated his Honour's reasons for judgment and this was a reflection of the way in which ConAgra presented its case. But as Deane and Fitzgerald JJ said in Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 , the cause of action in passing off may provide no basis for wider or more effective relief than a claim for contravention of s 52. Their Honours were considering a situation in which a primary claim was brought under s 52 and the secondary or associated claim in passing off. The learned trial judge in this case acknowledged that observation but pointed out that in the case before him the passing off claim was that primarily relied upon. Why that should have been so is not clear. The cause of action based upon s 52 and those provisions of the Trade Practices Act providing for awards of damages and injunctive relief do not involve consideration of the respondent's mental state nor argument (except for its evidentiary implication) about local business activity. Whether the name and/or get-up of a product is misleading or deceptive in the sense contemplated by s 52 depends in this case upon the issues of reputation and similarity. Deceptive similarity having been found, the question is whether there was a relevant public who, being already aware of the existence and name and/or get-up of the ConAgra product, could be deceived by the McCain product.

His Honour made two important findings of fact on the issue of reputation, both of which are embodied in the one passage of his judgment (at 101 ALR 486; 22 IPR 200): "... while there is no doubt that there are persons in Australia aware of the ConAgra product and while the evidence establishes that there is a potentially large number of such persons, I am unable to be satisfied on the evidence on the balance of probabilities that there does exist in Australia a sufficiently substantial number of persons who are aware of the ConAgra product and for whom the name "Healthy Choice" would have acquired a secondary meaning, that is to say, the meaning signifying the ConAgra Healthy Choice product."

These findings must be read in the light of the evidence relating to reputation which was reviewed in the judgment. His Honour referred to advertisements for the ConAgra product which appeared in some American magazines with limited circulation in Australia. The magazines and their Australian sales were set out in a table at ALR 483; IPR 197 as follows:

An article about the ConAgra product appeared on 22 October 1990 in an American trade journal called Food Business and his Honour inferred that some persons in the trade in Australia would have received the journal and read the article.

There was testimony from persons presently living in Australia who are aware of the ConAgra product and his Honour referred to that testimony. These were American visitors to this country and Australians who had visited America. Evidence of a more general nature related to the movement of persons between America and Australia and included reference to surveys which showed that 67% of persons tested in the United States were aware of the ConAgra product. Test evidence adduced by McCain to show an absence of awareness of the ConAgra product among persons living in Sydney and Melbourne was not given any weight. In the event his Honour found that there was in Australia "some number of persons" being either originally from the United States or returned visitors who would have seen the ConAgra product or advertisements for it. For these persons "the name 'Healthy Choice' may well have acquired a secondary meaning at the time [McCain] launched its Healthy Choice product on to the Australian market".

There was specific reference in the judgment to evidence given by Mr Steven Yung, a product manager for McCain who was involved in the preparation of the trade presenter with a view to introducing the Healthy Choice product to trade buyers. Mr Yung was asked in cross-examination if he believed that the buyers would know of the US Healthy Choice product. He replied: "I believe they would of [sic] but I can't comment that that's, you know, for certain." His Honour said in relation to that evidence (at ALR 485; IPR 199): "Mr Yung believed (and I have no reason to reject his evidence) that trade buyers would have been aware of the ConAgra product in the United States. Among that class of person, to whom the trade presenter was sent, it is clear that the ConAgra products had therefore a significant reputation."

Against the background of these findings, his Honour adopted the test to be found in Saville Perfumery Ltd v June Perfect Ltd (1941) 58 RPC 147 at 176 and Norman Kark Publications Ltd v Odhams Press Ltd [1962] 79 RPC 163 at 168 , which requires in passing off, proof of the relevant product's reputation among "a substantial number of persons". He made the evaluative judgment in the passage cited earlier, that he was not satisfied that there does exist in Australia a sufficiently substantial number of persons who are aware of the ConAgra product and for whom the name "Healthy Choice" would have acquired a secondary meaning. The reference to a "potentially large number of such persons" must, in the context in which it appears, be taken as describing a class which theoretically could be large but was not found to be so. It cannot be said in my opinion, that his Honour erred on the extent of the reputation of the ConAgra product in Australia. It was not suggested that he applied the wrong test in requiring evidence to satisfy him that there is a substantial number of persons who are aware of that product. The term "substantial" is evaluative and relative to such factors as the size and distribution of the population of prospective consumers. Having regard to the facts which he found, his Honour did not err in failing to be satisfied as a matter of evaluation that the reputation of the ConAgra product was substantial.

On the Trade Practices Act claim, his Honour adopted what may be in some circumstances a different test for the extent of ConAgra's product reputation necessary to show misleading or deceptive conduct on the part of McCain. Provided ConAgra could show on the balance of probabilities that "a not insignificant number" of persons knew of the ConAgra product, then it should be entitled to succeed. His Honour said (at ALR 488; IPR 202): "If the number of persons with the necessary knowledge is insignificant, then a fortiori the conduct complained of will not be able to be characterised as conduct that is misleading or deceptive. Once it passes, however, the threshold of insignificance, then there is much to be said for the view that the conduct in question has become misleading." But accepting the possibility that the threshold of requisite reputation under the Act is lower than that required to support a claim in passing off, he did not think that ConAgra had satisfied the onus of showing that the number of persons for whom the name "Healthy Choice" and the package design would have the necessary secondary meaning was other than insignificant.

The nature of the question to be asked about McCain's conduct for the purposes of s 52 Trade Practices Act 1974 is to be borne in mind in considering the correctness of the approach taken by his Honour. The question is one of characterisation of the conduct, not of the reactions of consumers or others to that conduct. So where some express representation is made and that representation is demonstrably false, it is not usually necessary to go beyond that finding in order to conclude that it is misleading or deceptive. The case of an obvious puff might be taken as an exception. Where conduct depends upon context or surrounding circumstances to convey a particular meaning, then those factors must be taken into account but only as a way of characterising the conduct. Where the name and get-up of a product are in issue, the question for the purposes of s 52 is whether they are misleading or deceptive in the circumstances. The fact that some members of the relevant public may be aware of a similar product in another country does not affect the characterisation of the conduct if that number is small. The word "insignificant" was used by his Honour to identify the threshold of public awareness below which such conduct is not misleading for the purposes of the section. That word is normative but not for that reason inappropriate. Attention must be paid to the policy of the relevant provision which, as the heading to Pt V and many of its provisions indicate, is one of consumer protection. If the similarity complained of is commercially irrelevant having regard to the number of people who know of it, then it can be concluded that the use of the name and/or get-up complained of is not misleading or deceptive. That is essentially the kind of evaluation which underpinned his Honour's finding in this case and on the primary facts that he found I am not persuaded that he erred in his approach.

For these reasons I agree that the appeal should be dismissed.