Burger Wars: IN-N-OUT vs DOWN N’ OUT

Imagine if a food vendor had the foresight to trademark the word ‘BURGER’ when hamburgers first became popular, which was at the 1904 St Louis World’s Fair. Today, the licence fees from burger sales would be astronomical.

These days, ‘BURGER’ is not distinctive enough to be registered. Instead, trademark wars are fought over copycat names used as trading names and for menu items, especially by a new burger business which looks to trade off the reputation of an existing burger business.

In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd [2020] FCA 193 (26 February 2020), a decision of the Federal Court of Australia (Katzmann J) illustrates how one such burger war was fought and won.

The Facts

In-N-Out Burgers was founded in 1948 in California. It has over 300 permanent restaurants in the USA. It provides “a significant and competitive presence in the US chain restaurant industry” (according to its Vice-President of Operations).

In-N-Out burgers owns word trademarks in Australia: IN-N-OUT BURGER, ANIMAL STYLE and PROTEIN STYLE, as well as trademarks with logos.

Its online store was established in 2004 and sells branded merchandise including T-shirts, caps, key rings, and similar accessories. It has a Facebook page, an Instagram page and a Twitter account.

Since 2012, In-N-Out has held eight very popular pop-up restaurant events in Australia with long queues and burgers selling out within hours. These were single day events, promoted on social media, at which In-N-Out sold food and merchandise.

In June 2015, five months after an In-N-Out pop-up event in Parramatta in January 2015, the directors of Hashtag Burgers held a ‘Funk-N-Burgers’ pop-up burger event at the Lord Gladstone Hotel in Chippendale, promising a ‘Down’N’Out burger served up ANIMAL STYLE’. They held another ‘Funk-N-Burgers’ pop-up event in January 2016. In June 2016 they announced a “Down-N-Out’ event at the Sir John Young Hotel on social media in this way:

Hashtag Burgers are bringing In-N-Out inspired burgers to Sydney’s CBD ... the menu will be similar to the original In-N-Out, with … secret menu hacks such as Animal Style and Protein Style … you can find some hints on the DOWN-N-OUT Facebook page.

Following a visit to the event, In-N-Out’s General Counsel issued a cease and desist letter to Hashtag Burgers:

… we note that as part of the event you have used the names ANIMAL STYLE and PROTEIN STYLE, which are our registered trade marks, and adopting the name “Down-N-Out” displayed with a yellow arrow sounds and looks very similar to In-N-Out’s name and logo.

We therefore request you do not use the … trade marks. We also request you select a different name … that does not adopt In-N-Out’s name and logo.

Acting on the letter, Hashtag Burgers changed their name to D#WN N’ OUT and removed the arrow.

   
 In-N-Out trade mark with logo      Hashtag mark June 2016      Hashtag mark new version

They grew the business: They set up pop-up restaurants in Penrith and on the Gold Coast. They opened burger restaurants at the Sir John Young Hotel, in Liverpool Street, in Wollongong and in Crows Nest.

In-N-Out commenced legal proceedings to restrain Hashtag from using its trade marks, and for damages and restraining orders for misleading and deceptive conduct and for passing off.

The Decision

The first claim was for trade mark infringement, for using a deceptively similar trade mark.

For the purposes of the Trade Marks Act 1995 (s 10) a ‘trade mark is taken to be deceptively similar if it so nearly resembles that other trade mark that it is likely to deceive or cause confusion’

The Court formulated the question to be answered as being:

whether people with imperfect recollections of the In-N-Out marks might be confused or deceived when coming across the Down N’ Out marks.

The Court found that:

• The overall impression created by the Down N’ Out marks is of fast food, particularly burgers, and fast service, the same impression as the In-N-Out marks.
   
• The intention of the directors of Hashtag was to capitalise upon the reputation of In-N-Out; by similarities in the menus and use of In-N-Out’s terms: “Animal Style” and “Protein Style”.
   
• The failure by the directors of Hashtag to produce documents under discovery indicated that they had something to hide in terms of documents which might assist In-N-Out’s case.
   
• There is both visual and aural similarity between the marks, particularly the use of ‘N-OUT’
   
• The changes made to the Down N’ Out trade mark (the use of an apostrophe, and a hashtag) did not affect the sound of the mark (when spoken) or materially affect its appearance.
   
• There was a real, tangible danger of confusion.

The second claim was for breach of the Australian Consumer Law (s 18(1)), for misleading and deceptive conduct by suggesting an association between In-N-Out and Down N’ Out, which did not exist.

The Court said that:

to deceive means to mislead into thinking that In-N-Out is the source of the goods or services carrying the Down N’ Out mark – that there is a “real risk” that a number of persons will be caused to wonder or have reasonable doubt about the matter – which is based on recollections of people of ordinary intelligence and memory and the impression they would have on seeing the Down N’ Out marks.

The Court found that:

• In-N-Out has established that the brand enjoyed a reputation in Australia, as at the relevant date which was 26 May 2016, when the Down N’ Out Facebook page was launched.
   
• The In-N-Out name and brand were known to a substantial number of people who were its potential customers, whether from visiting an In-N-Out restaurant or from hearing about the restaurants and its burgers (in the media or from the pop-ups in Australia). They include Australian consumers and visitors to Australia, particularly visitors from the United States.
   
• The directors deliberately used significant features of the In-N-Out marks with the intention of confusing consumers in order to appropriate part of In-N-Out’s reputation. They appropriated significant components of the marks, substituted “DOWN’ for ‘IN’ to evoke an association with Australia (‘Down Under”), the common use of the names to describe burgers and burger restaurants, the use of colours, and by following the ‘In-N-Out’ pop-up events in Australia.
   
• The changes made to the name (the hashtag, the apostrophe) made no material difference, and so gave rise to a ‘hangover effect’, which is that the original impression is reinforced.

The third claim was for passing off, for reputational damage.

The Court said:

The three essential elements of the tort, often referred to as “the classical trinity” are the goodwill or reputation acquired by the claimant in his goods or services, name or mark; a misrepresentation by the respondent leading to deception and confusion; and damage caused by the misrepresentation.

The Court was satisfied that there was passing off by the same conduct and for the same reasons as the breach of the Australian Consumer Law.

Comments

Justice Katzmann commenced her judgment by asking:

What is the line between inspiration and appropriation? This is the question at the heart of the dispute in the present case.

After reviewing the facts and the law, she concluded:

They sailed too close to the wind.

What should Down N’ Out have done? Justice Katzmann offered this advice:

Down N’ Out appropriated aspects of In-N-Out’s registered marks in order to capitalise on its reputation. If this were not their intention, why choose DOWN-N-OUT? Why not stick with FUNK N BURGERS?

The judgment makes clear that incremental changes made to an offending mark will not be enough. The trade mark will continue to infringe because of the potential ‘hangover effect’. That is, the prospect that previous customers would recognise and patronise the new premises.

The judgment underscores the value of registering a distinctive trade mark. Registration opens the door not only to restraining the use of a deceptive or confusing trade mark, but also to claims for damages and other orders available under the Australian Consumer Law and for passing off.

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