INSIGHT

In-N-Out of court again

Intellectual Property Patents & Trade Marks

Appeal loss for Hashtag Burgers 3 min read

Hashtag Burgers Pty Ltd (Hashtag Burgers) has lost its appeal against In-N-Out Burgers, Inc. (INO Burgers) in the Full Court of the Federal Court of Australia in a bid to overturn Justice Katzmann's finding of trade mark infringement, misleading and deceptive conduct and passing off.

The Full Court rejected all of Hashtag Burgers' grounds of appeal, while allowing INO Burgers' cross-appeal to hold the directors of Hashtag Burgers liable as joint tortfeasors for the company's wrongdoings after its incorporation.

Key takeaways

  • Before using a mark, businesses should understand the fine line between being inspired by, and appropriating, another mark. They should be aware of competitors' marks and ensure they are not appropriating a third party's mark and capitalising on a competitor's strong reputation; and
  • Directors can attract liability as joint tortfeasors where their conduct as individuals reaches beyond the threshold of performing their roles as directors. This occurs where they have a sufficiently close personal involvement in the actions of the business.

Background: the battle of the burgers

In 2017, California's iconic INO Burgers brought proceedings against Hashtag Burgers for its use of DOWN-N-OUT burgers. The matter was heard before Justice Katzmann at first instance. Her Honour emphasised the fine line between inspiration and appropriation, finding that Hashtag Burgers attempted to capitalise on INO Burgers' reputation across 300 restaurants and pop-up stores in the US and Australia. The judgment found in favour of INO Burgers for trade mark infringement, misleading and deceptive conduct and passing off. Her Honour held the company's directors personally liable for these wrongdoings prior to the incorporation of Hashtag Burgers. Following incorporation, her Honour found that the directors were 'involved in' contraventions of the ACL but were not joint tortfeasors for infringement and passing off.

Hashtag Burgers appealed this decision to the Full Court, before Justices Nicholas, Yates and Burley. Judgment was handed down on 23 December 2020, finding in favour of INO Burgers.

The Full Court decision

The appeal was dismissed by the Full Court and Justice Katzmann's findings as to infringement, misleading and deceptive conduct and passing off were upheld. Of particular interest is the Full Court's view that:

  • while Justice Katzmann erred in finding the directors to be dishonest, as there was no actual evidence of dishonesty, such a finding 'is not a necessary part of the assessment; and…her Honour separately found the requisite intention to cause confusion on the part of [the directors]'; and
  • in addition to a finding of personal liability before incorporation of Hashtag Burgers, the company's directors were also liable as joint tortfeasors with Hashtag Burgers for trade mark infringement and passing off after the company's incorporation date.

Relying on JR Consulting & Drafting Pty Ltd v Cummings [2016] FCAFC 20, the Full Court found that the directors' conduct went beyond the threshold of performing their proper roles as directors. The combined effect of the following factors led to the court's conclusion that the directors had a sufficiently close personal involvement with the actions of Hashtag Burgers to attract liability:

  • they were the sole directors of Hashtag Burgers;
  • they alone made decisions as to its management;
  • they alone received the profits derived from it;
  • there was no significant difference between how the two individuals operated the business before incorporation on 23 June 2017 and how they operated it through the corporate vehicle after it was formed; and
  • they were knowingly involved in the company’s wrongdoing. 

Actions you can take now

  • Businesses should review their trade mark portfolios and ensure no new or existing marks are appropriated from a competitor's mark; and
  • Directors should be cautious not to act beyond the threshold of their proper roles so as to avoid attracting liability.