Trouble brewing

In the past few years the Australian craft beer market has experienced significant growth, with hundreds of independent breweries springing up around the country.   But competition is not always friendly and in 2015 trouble began brewing between two interstate rivals, Stone & Wood and Elixir.  The dispute eventually spilled over into the courts, (see Stone & Wood Group Pty Ltd v Intellectual Property Development Corporation Pty Ltd [2016] FCA 820) with Stone & Wood commencing proceedings against Elixir alleging passing off, misleading and deceptive conduct and infringement of its registered trade mark for what they saw as misuse of the term “Pacific Ale”.

The initial claim was dismissed with costs, leaving Stone & Wood to pick up the tab.  Undeterred they appealed the decision, (see Stone & Wood Group Pty Ltd v Intellectual Property Development Corporation Pty Ltd [2018] FCAFC 29) narrowing their claim to establishing the tort of passing off.  At issue on appeal was whether Stone & Wood had a substantial reputation in the term “Pacific Ale” and that by using the term, Elixir was misrepresenting an association or connection between the two brands.

Sampling the product

For the uninitiated, craft beer is produced by independent breweries occupying the space between your uncle’s home-brew and the mass produced product available at your local RSL.  Stone & Wood and Elixir were two of the incumbent players in this emerging market.

Stone & Wood are based in the Byron Bay and Murwillumbah regions of NSW.  They sell a number of different craft beers, but the jewel in their crown is a beer called Stone & Wood Pacific Ale which accounts for roughly 80-85% of their revenue.  The judge accepted that Stone & Wood Pacific Ale was “cloudy and golden with a big fruity aroma and refreshing finish”.  Having undertaken my own market research, I can confirm that this is indeed an accurate description.

Elixir are based in Brunswick, Melbourne.  They sell beer under a number of different brands, including “Thunder Road”.  In 2015, Elixir launched a beer called Thunder Road Pacific Ale.  This was later rebranded as simply Thunder Road Pacific.  Elixir’s managing director described Thunder Road Pacific as “a light bodied beer made from Australian Galaxy hops” and characterised “by a distinct hop aroma, with pineapple, passionfruit and citrus notes.”

The first round

In 2015, Stone & Wood initiated proceedings against Elixir alleging passing off, misleading and deceptive conduct and infringement of its registered trade mark for “Stone & Wood Pacific Ale”.  Distilled down, Stone & Wood’s contention was that Elixir’s use of the words “Pacific Ale” / “Pacific” would cause either:

1. the average consumer to purchase Elixir’s Thunder Road Pacific when they intended to buy Stone & Wood Pacific Ale (mistaken identity); and / or
2. the average consumer to assume that Thunder Road Pacific had an association or connection with Stone & Wood Pacific Ale by way of sponsorship, approval or affiliation (mistaken connection).

The primary judge rejected all of Stone & Wood’s claims and even found in Elixir’s favour in relation to their cross-claim that groundless threats had been made to bring an action for trade mark infringement.  His reasoning is set out below.

Mistaken identity

The primary judge was unconvinced that the use of the term Pacific or Pacific Ale would cause consumers to mistakenly purchase the wrong beverage.

He began by pointing out the significant differences in packaging.  The dominant feature of Stone & Wood Pacific Ale is the Stone & Wood brand name, with the words “Pacific Ale” relegated to the base of the label.  In contrast, on Thunder Road Pacific, the word “Pacific” was the most prominent feature.  As such, there was not considered to be an express representation on the part of Elixir that Thunder Road Pacific was Stone & Wood Pacific Ale.

The judge proceeded to consider three examples of common environments where an innocent consumer might be misled: a bar/restaurant; a bottle shop/retail outlet; and a specific craft beer bar identified by Stone & Wood (Melbourne’s “Bar Nacional”) where Thunder Road Pacific was identified using a sign that simply read “Pacific Ale”.  In considering these environments, the judge drew extensively on the expert evidence of Mr Kirkengaard who has the much-coveted job title of “freelance beer writer, commentator, educator and consultant focused on the craft beer market”.

But even when considered in context, the primary judge did not see mistaken identity as a realistic possibility.

Mistaken connection

The primary judge proceeded to consider whether in branding their product “Pacific”, Elixir were asserting association or connection between Thunder Road Pacific and either Stone & Wood or Stone & Wood Pacific Ale.

The main focus of the primary judge was what they considered to be the “descriptive” aspect of the word “Pacific”.  “Pacific”, of course, commonly refers to the Pacific Ocean.  It is also used adjectively to refer to someone or something pertaining to the Pacific Ocean (such as a Pacific Islander or the Pacific Solution) or to simply mean peaceful and calm.  As one of Stone & Wood’s directors acknowledged, the name “Pacific Ale” is intended to generate a “calming, cool emotional response” (the irony of Stone & Wood’s aggressive litigious action clearly lost).

The primary judge concluded that, since the launch of Stone & Wood Pacific Ale, the term “Pacific” had come to serve a function of describing craft beers made from hops from Australia and New Zealand.  This descriptive quality was said to develop some three to four years before the release of Thunder Road Pacific.

In choosing a name with a descriptive aspect to it, Stone & Wood had run the risk that others in the trade would also use it descriptively.  In the primary judge’s opinion, Stone & Wood Pacific Ale was the victim of its own success.  Their claim was dismissed.

Back to the bar

Unable to stomach the original decision, Stone & Wood shook off the post-trial hangover and promptly returned to the bar table to appeal.

This time, they narrowed their focus to establishing the tort of passing off, contending that if this was made out, the rest of their claims would fall into place.  They also based their appeal exclusively on the second contention of ‘mistaken connection’.

Their main submission was that the primary judge had erred in failing to find that Stone & Wood had a distinctive reputation in the words “Pacific Ale” and “Pacific” and that by using these terms, Elixir had created the impression of an association between Stone & Wood and Thunder Road products.

Previous case law provided a useful checklist, breaking down passing off into three core requirements: reputation, misrepresentation and damage.  It also helpfully clarified that a representation that there is an association or connection between a trader’s product and another trader or their product may be sufficient to establish passing off.

Reputation

Stone & Wood challenged the primary judge’s finding that Stone & Wood no longer had a substantial reputation in the phrase “Pacific Ale”.  The court of appeal disagreed, finding that their reputation was in “Stone & Wood Pacific Ale”.  “Pacific Ale” was a subheading, inextricably linked to the Stone & Wood Brand and possessing a descriptive, not distinctive, quality.

Stone & Wood submitted that the evidence of Mr Kirkegaard that “Pacific” was “not a generally used consumer term” demonstrated that the word lacked a descriptive quality.  But the court of appeal was unconvinced.  The fact that consumers do not use the word “Pacific” was said not to detract from how it is used by Stone & Wood and others nor from its capacity to evoke description.

Misrepresentation

Whilst raising some questions around the “structured or even disingenuous” evidence of the founders of Elixir, the primary judge found that they had made no attempt to represent any association between the two products.  Whilst Elixir did intend to gain some advantage from the success of the Pacific Ale market that Stone & Wood had pioneered, they were entitled to do so.

The court of appeal found no error in the “careful and detailed findings of the primary judge” and that no misrepresentation was likely to arise in the environments in which craft beer is commonly purchased.

The morning after?

Litigation, as with alcohol consumption, is often about knowing when to call it quits.  Having failed to demonstrate any error in the findings of the primary judge, the appeal was dismissed with costs, leaving Stone & Wood to once again pick up the tab.

Their hangover compounded, Stone & Wood were left to make the walk of shame back to Byron Bay to reflect on their decisions… while looking out over the Pacific Ocean… possibly with a cool, pacifying ale.