Court rules against Hashtag Burgers using Down-N-Out branding pending an appeal

In what might be its last stand, Hashtag Burgers has failed to obtain a stay of orders made to remove its DOWN-N-OUT, DOWN N’ OUT and D#WN N’ OUT names and logos immediately, despite foreshadowing an appeal against the Federal Court’s original decision in In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd [2020] FCA 193 (26 February 2020).

Justice Katzmann provided this excellent summary of her original decision in the reasons for judgment which deal with the application for stay of injunctions, orders for delivery-up and destruction of infringing materials: In-N-Out Burgers, Inc v Hashtag Burgers Pty Ltd (No 2) [2020] FCA 772 (5 June 2020).

“The parties in this case carry on business selling burgers and related goods. The applicant, In-N-Out Burgers, Inc, is a long-established American corporation. For many years it has owned and operated a growing number of burger restaurants in the United States and from time to time it has staged pop-up events in other countries, including Australia. In 2016 the second and third respondents, Benjamin Kagan and Andrew Saliba, inspired by the popularity and success of the applicant’s business, established first their own pop-up events and, later on, restaurants, settling on the name “Down-N-Out” for their business venture. About a year later they incorporated the business. Thereafter, the business was operated by the corporate entity, Hashtag Burgers Pty Ltd, the first respondent. Mr Kagan and Mr Saliba are the directors of the company. Earlier this year I held that, by using the names DOWN-N-OUT, DOWN N’OUT and D#WN N’OUT in connection with their burger business, the respondents infringed certain of the applicant’s registered trade marks, engaged in misleading or deceptive conduct in contravention of the Australian Consumer Law, and committed the tort of passing off.” [paragraph 1]

For an analysis of the earlier decision see Burger Wars: IN-N-OUT vs DOWN N’ OUT

In-N-Out sought two remedies, injunctive relief and orders for delivery-up and destruction of infringing material, while Hashtag Burgers applied for a stay of the remedies, pending an appeal.

Injunctive relief

Orders were made against Hashtag and its directors restraining the infringement of the registered In-N-Out trade marks, restraining the use of the names and logos DOWN-N-OUT, DOWN N’OUT and D#WN N’OUT, and passing off their business as a business that is associated with In-N-Out by using their names and logos of in connection with burgers or associated food and beverages, and related restaurant and take away services.

Specific orders were also made:

DOWN-N-OUT social media – remove from Facebook pages and the Instagram page all names and URLs with ‘downnout’ (and other versions) and remove all names and logos from the Facebook and Instagram accounts.
DOWN-N-OUT business name registration is to be cancelled or amended to remove all references to the name and the domain name is to be cancelled.

The delivery-up and destruction order

Orders were made for the delivery-up of all physical materials ‘including but not limited to signage, packaging, promotional material, advertising, brochures, pamphlets, merchandise, stationery and business cards’, a USB of the electronic materials; and the destruction of electronic materials ‘including but not limited to images, concepts, plans, proposals or artwork’ which bear the names and logos within 60 days of the orders being made. Some examples appear below. Financial and tax records were exempted.

DOWN N’ OUT undertook to store all materials delivered up at its own expense pending the determination of any appeal, and to return the materials if an appeal was successful.

The stay application

Hashtag Burgers sought a stay of the orders, pending the determination of an appeal.

Justice Katzmann summarised the relevant principles as follows:

“The Court has a broad discretion and special circumstances are not required. But the judgment is not to be treated as provisional. The successful party is entitled to its benefit and the presumption that it is correct. Consequently, the applicant for a stay carries the burden of demonstrating that a stay is appropriate. A stay should not be granted unless the appeal is at least arguable, although speculation as to its prospects of success is usually inappropriate. Without more, however, an arguable case is not sufficient justification for a stay. In the exercise of the discretion, the court will weigh up such factors as the balance of convenience and the competing rights of the parties, including, in particular, any prejudice to the parties that would be caused by granting or refusing a stay. A substantial factor in favour of a stay is the risk that, without a stay, the appeal would be rendered nugatory.” [paragraph 25]

In this case, the significant factors and findings were:

The proposed grounds of appeal concerning the Court’s finding of deceptive similarity between the competing marks were arguable, which favoured a stay.
Hashtag Burgers argued that the appeal would be nugatory without a stay, and even if the appeal were to succeed, there was a real risk that they would not be restored to their former position because changing the name of the business would be a costly exercise, estimated to cost between $39,000 and $61,000.
The Court took a sceptical view of these arguments. After describing the Down N’ Out cost estimates as inflated, Justice Katzmann said:
[as to the estimate of $2,000 for internal decorations and fit-out] “their décor was of a dive bar. The walls are made of exposed bricks and decorated with cartoons and posters. The marks appear on few items” [on posters and a light box sign].
“I accept that refusing a stay will be inconvenient … and will come at some cost, both in time and money. But I am not persuaded that the respondents would suffer any great hardship in the absence of a stay. Nor [would the appeal] be rendered nugatory.”
Hashtag Burgers did not offer a security or bank guarantee to In-N-Out “to secure or protect it against intermediate damage should the appeal fail”. Hashtag Burgers did not disclose any assets
The case has “a public interest dimension” because questions of consumer protection are raised, which counts against a stay.

Conclusions

Hashtag Burgers made two major errors:

The first was that Hashtag Burgers appropriated In-N-Out’s branding for their business. The changed “In” to “Down” but kept “N-Out”. The names were too similar.

Hashtag Burgers has paid the price of not creating their own distinctive branding, not only in terms of the cost and distraction of legal proceedings, but also the cost of having to completely rebrand its business and most likely being ordered to compensate In-N-Out for loss it has suffered.

The second was that Hashtag Burgers should have taken the opportunity to stop using its deceptive Down N’ Out names and logos when the legal proceedings commenced. Instead, they continued to trade even after the judgment was handed down.

By continuing to trade, it was inevitable that injunctive relief and delivery and destruction orders would be made if they failed, incurring more legal costs including payment of In-N-Out’s legal costs.

For a marketing analysis, read on.

Marketing Commentary By Michael Field from EvettField Partners
Headline: Hashtag Burgers made a hash of it!

In free markets, similar businesses routinely compete in similar categories offering similar products and services. Fast food is a highly contested market, which is cost heavy, making it unattractive to use ‘price leadership’ to compete.

Fast food companies prefer to invest heavily in their brand, products and marketing, and then protect that investment through trade marks and other mechanisms.

A good example is McDonalds and Hungry Jacks (or Burger King outside of Australia) which regularly compete head to head in the dine-in and drive through burger market. They often have similar products and imitate each other’s innovations, such as opening earlier to serve breakfast, introducing ‘kid’s meals’ or children’s play areas.

Although there may be occasions when there is a great deal of similarity, they are very careful to have their own original and distinctive trade marks. And they invest heavily in creating and protecting their own brand ‘look and feel’, down to the number of French fries in their red or white containers.

Justice Katzmann posed this question in her original judgment:

“What is the line between inspiration and appropriation?”

Simply put, the answer is be inspired, but come up with something innovative and original. Be inspired by other market participants’ products, services or even their marketing, but don’t appropriate their brand or business name by copying it with a few small changes, or by creating a deceptively similar one, because that will not comply with the law.

The fact is that Hashtag Burgers selected the deceptive Down N’ Out names and logos in the first place as their trading name and then to add insult to injury continued to use it after the judgement was handed down.

This reveals a lack of care and attention to detail in one of the fundamentals of good marketing, which is complying with the relevant laws. In this case, the trade mark law and the consumer law which outlaw deceptive practices.

Read Michael’s comments on the original judgment in Burger Wars: IN-N-OUT vs DOWN N’ OUT
https://www.lexology.com/library/detail.aspx?g=332d5ea5-2d43-4cda-a5bf-2b2de637649f