The case of Hashtag Burgers Pty Ltd v In-N-Out Burgers, Inc [2020] FCAFC 235 is much more than a simple dispute over fast-food naming rights, i.e. it is a definitive lesson in the limits of “brand inspiration”. This decision serves as a significant warning to entrepreneurs who believe that borrowing the brand identity of a foreign entity is a harmless bit of fun. The Court made it clear that even if a brand does not have a permanent physical presence in Australia, its reputation can still be protected under trade mark law, consumer law, and the common law of passing off.
The dispute centered on the iconic American fast-food chain In-N-Out Burgers and an Australian start-up that operated under the name “Down-N-Out”. While the Australian operators argued they were merely inspired by the American giant, the Court found their conduct crossed the line into unlawful appropriation.
Background of the Dispute
In-N-Out Burgers is a legendary Californian institution founded in 1948. While it primarily operates in the United States, it has maintained a profile in Australia through highly publicized pop-up events since 2012. These events, often selling out in hours, established a strong reputation and a cult following among Australian burger enthusiasts. In-N-Out also holds several registered Australian trade marks, including its word mark and its distinctive logo featuring a curved yellow arrow.
In 2016, Benjamin Kagan and Andrew Saliba began hosting pop-up burger events in Sydney. They initially marketed these as an “In-N-Out tribute” and eventually settled on the name “Down-N-Out”. Their branding was far from subtle. They used a similar font, a nearly identical red and yellow colour scheme, and a logo that featured a yellow arrow remarkably similar to the one used by In-N-Out. Their menu even featured secret items like “Animal Style” and “Protein Style” burgers, i.e. terms that are actually registered trade marks owned by the American company.
That said, when In-N-Out discovered the Sydney operation, they issued formal demands for the Australian business to change its name and branding. While the operators made minor adjustments, such as removing the hyphens from the name or replacing the “O” in “Down” with a hashtag, they continued to use the “Down-N-Out” name. In-N-Out subsequently sued for trade mark infringement, misleading or deceptive conduct under the Australian Consumer Law, and passing off.
The Question of Deceptive Similarity
The Court’s analysis of trade mark infringement turned on whether the marks were “deceptively similar”. This does not require the marks to be identical. Instead, the test is whether a consumer with an ‘imperfect recollection” of the original mark would be confused or caused to wonder if there was a connection between the two.
The Australian operators argued that “Down-N-Out” and “In-N-Out” had completely different meanings, i.e. one suggesting someone who is destitute, and the other suggesting speed and efficiency. They also argued that the word “Down” sounded nothing like “In”. However, the Court rejected these arguments. It held that the “N-Out” component was a distinctive and essential feature of the In-N-Out marks. By adopting that specific structure, the Sydney business created a real danger of confusion.
The judges noted that in the context of a burger restaurant, consumers are not typically exercising a high degree of caution. Someone seeing “Down-N-Out” might easily think it was a local branch, a “no-frills” version, or a licensed Australian subsidiary of the famous American chain. The Court found that the visual and aural similarities were strong enough to satisfy the legal definition of deceptive similarity.
Intention and the “Cheeky” Factor
One of the most important pieces of evidence against the Australian operators was their own internal communication. In media releases, they referred to their name choice as “cheekily named”. Internal emails revealed that they had specifically instructed designers to make their logo look like the In-N-Out branding. One particularly revealing email from Mr. Kagan noted that while individual elements might not be infringing, the combination of the logo, name, and “secret menu” was enough to “fool the stupider people in society” into thinking they were In-N-Out.
The Court applied a long-standing legal principle from Australian Woollen Mills Limited v FS Walton & Co Ltd, i.e. if a trader intentionally fashions a “weapon” to mislead customers, the court will generally presume they succeeded. Because the operators clearly intended to capitalize on In-N-Out’s reputation, the Court found it much easier to conclude that the branding was likely to deceive the public. The “tribute” defense failed because the goal wasn’t just to honor a brand, but to commercially benefit from the confusion it created.
Misleading Conduct and Passing Off
The claims under the Australian Consumer Law and the tort of passing off were also successful. The Court found that by the time the Sydney pop-ups started, In-N-Out had a substantial reputation in Australia. The conduct of the Australian business, i.e. using the yellow arrow, the red font, and the “secret menu” names, falsely represented an association with the American giant.
The appellants argued that because In-N-Out did not have permanent restaurants in Australia, they couldn’t claim the tort of passing off. However, the Court reaffirmed that in Australia, a business does not need a physical storefront to have protectable “goodwill”. The reputation established through pop-up events and digital presence was sufficient.
Personal Liability of Directors
Perhaps the most significant aspect of this case for business owners is the ruling on personal liability. Initially, the primary judge had found that once the business was incorporated as Hashtag Burgers Pty Ltd, the directors were not personally liable for the company’s trade mark infringement or passing off.
The Full Court overturned this on cross-appeal. It found that Mr. Kagan and Mr. Saliba were “joint tortfeasors” with their company. The Court noted that they were the sole directors and shareholders, they alone made all management decisions, and they alone stood to profit from the company’s wrongful acts. There was no evidence that incorporation changed the way the business was run; the company was essentially their “alter ego”, as they stated. Because they were “closely and personally involved” in the infringing conduct, they could not hide behind the corporate veil. This means they are personally responsible for the legal costs and any damages awarded to In-N-Out.
Key Takeaways for Brand Owners
This decision provides several vital lessons for the modern business landscape.
Firstly, you do not need a physical shop in Australia to protect your brand. If your brand has a reputation among Australian consumers through pop-ups, social media, or international travel, you can take legal action against copycats.
Secondly, there is a fine line between being inspired by a brand and infringing on its intellectual property. Adopting the “look and feel” of a famous brand, combined with a similar name, is a high-risk strategy that likely constitutes misleading conduct.
Thirdly, the Company directors who are the moving minds behind infringing conduct can be held personally liable. This exposes personal assets to the costs of litigation and damages.
Lastly, modern litigation relies heavily on discovery. Casual comments in emails or social media posts about “fooling” customers or being “cheeky” can be used to prove an intention to deceive, which is a powerful tool for a plaintiff.
Conclusion
Thus, the decision in this case is a clear victory for established brand owners and a cautionary tale for those looking to take a shortcut or perhaps a “cheeky” way to success. It reinforces the idea that the Australian legal system prizes commercial honesty and will not tolerate businesses that seek to “sail too close to the wind”, as the judge stated, by mimicking famous brands.
While it may be tempting to “tribute” to a successful overseas business, the legal and financial risks of doing so, especially the risk of personal liability, far outweigh any temporary marketing advantage.
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