Australian Competition & Consumer Commission v International Technology Holdings Pty Ltd
[1997] FCA 385
•26 FEBRUARY 1997
CATCHWORDS
TRADE PRACTICES - misleading and deceptive representation - existence and ownership of technology - no question of principle
Federal Court of Australia Act 1976 s 21
Trade Practices Act 1976 ss 52, 53(c) and 53(d)
Export Market Development Grants Act 1974
AUSTRALIAN COMPETITION & CONSUMER COMMISSION v INTERNATIONAL TECHNOLOGY HOLDINGS PTY LTD
(ACN 054 128 666) & ORS
No QG 74 of 1994
SPENDER J
BRISBANE
26 FEBRUARY 1997
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY No QG 74 of 1994
GENERAL DIVISION
BETWEEN: AUSTRALIAN COMPETITION & CONSUMER COMMISSION
Applicant
AND: INTERNATIONAL TECHNOLOGY HOLDINGS PTY LTD (ACN 054 128 666)
First Respondent
AND:EUROPARK INTERNATIONAL PTY LTD (ACN 062 455 556)
Second Respondent
AND:AUSTRALIAN TECHNOLOGIES PTY LTD (ACN 054 711 081)
Third Respondent
AND:GARTH WILLIAM EATON
Fourth Respondent
AND:WILHELMINA FRANCISCA EATON
Fifth Respondent
CORAM: Spender J
PLACE: Brisbane
DATE: 14 May 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
It be declared that each of the first, second and third respondents have engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 by representing that:
(a) the first respondent has developed a mechanical carparking system known as the “Europark mechanical carparking system” as defined in cl 7(a) hereof (“the Europark System”);
(b) the first respondent is the holder of the rights to use the technology and intellectual property in the Europark System;
(c) the second respondent has exclusive lawful international rights to market and manufacture the Europark System;
(d) the first and second respondents would be able upon request to transfer to a franchisee rights to use the technology and intellectual property in the Europark System;
(e) the first and second respondents are the applicants for a provisional patent for the Europark System; and
(f) the Europark System franchise fee of $145,000.00 includes a component of $125,000.00 of tax deductible expenses.
It be declared that the fourth respondent has been directly knowingly concerned in and party to the misleading and deceptive conduct of the first, second and third respondents, referred to in paragraph 1, in contravention of s 52 of the Trade Practices Act 1974.
The first, second and third respondents by themselves, their directors, servants or agents or howsoever otherwise be restrained from making any of the representations referred to in paragraph 1 or any representation to a similar effect of any of the representations referred to in paragraph 1.
The first, second and third respondents by themselves, their directors, servants or agents or howsoever otherwise be restrained from advertising or offering for sale to any person a franchise in, an exclusive licence to, or any interest in the marketing or manufacture of the Europark System or any car parking or garaging system similar thereto unless the first, second or third respondents are able to lawfully transfer that franchise, exclusive licence or interest.
The fourth respondent by himself, his servants or agents or howsoever otherwise be restrained from being directly or indirectly knowingly concerned in or party to the making of any of the representations referred to in paragraph 1 or any representation to a similar effect of any of the representations referred to in paragraph 1 by the first, second or third respondents or by any other corporation.
The fourth respondent by himself, his servants or agents or howsoever otherwise be restrained from being directly or indirectly knowingly concerned in or party to conduct of the kind referred to in paragraph 4 by the first second or third respondents or by any other corporation.
For the purposes of s 83 of the Trade Practices Act 1974, it is found that:
(a) the Europark System as advertised by the second respondent in the “Weekend Australian” newspaper on 7-8 May 1994 is comprehended by Australian Patents Nos 606728 and 639347 recorded in the name of Willem Van der Horst;
(b) the first respondent did not develop the Europark System;
(c) the first, second and third respondents have no legal rights to the technology or intellectual property in the Europark System;
(d) the first, second and third respondents are not the applicants for a provisional patent for the Europark System;
(e) the Europark System franchise fee of $145,000.00 did not include a component of $125,000.00 of tax deductible expenses.
The first, second, third and fourth respondents pay the applicant’s costs of and incidental to these proceedings, including reserved costs, to be taxed if not agreed, such taxation not to occur before 1 July 1997.
There be no order as to costs with respect to the fifth respondent.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY No QG 74 of 1994
GENERAL DIVISION
BETWEEN:AUSTRALIAN COMPETITION & CONSUMER COMMISSION
Applicant
AND:INTERNATIONAL TECHNOLOGY HOLDINGS PTY LTD (ACN 054 128 666)
First Respondent
AND:EUROPARK INTERNATIONAL PTY LTD (ACN 062 455 556)
Second Respondent
AND:AUSTRALIAN TECHNOLOGIES PTY LTD (ACN 054 711 081)
Third Respondent
AND:GARTH WILLIAM EATON
Fourth Respondent
AND:WILHELMINA FRANCISCA EATON
Fifth Respondent
CORAM: Spender J
PLACE: Brisbane
DATE: 26 February 1997
REASONS FOR JUDGMENT
By an application filed on 19 July 1994 and last amended on 26 April 1996, the Australian Competition & Consumer Commission (‘the ACCC’) seeks a declaration pursuant to s 21 of the Federal Court of Australia Act 1976 that the respondents have contravened s 52, s 53(c) and s 53(d) of the Trade Practices Act 1976 (‘the TP Act’); an injunction restraining the respondents from making the representations the making of which constitutes the contraventions of these sections; an injunction restraining the respondents from soliciting investment in and accepting applications to invest in what is termed the ‘Europark’ carparking system; and for corrective orders pursuant to s 80A of the TP Act in respect of those representations.
The application concerns a mechanical carparking system (called the ‘Europark Carparking System’) and representations made by the respondents, particularly the second and fourth respondents, in the course of seeking franchisees for that system.
The second respondent, Europark International Pty Ltd (‘Europark’) is a subsidiary of the first respondent, International Technology Holdings Pty Ltd (‘ITH’), which in turn is a subsidiary of the third respondent, Australian Technologies Pty Ltd. (‘AT.’). The fourth respondent, Mr Eaton, and his wife, the fifth respondent, are the shareholders of the first, second and third respondents and are directors of the first, second and third respondents. There is a third director of each of those companies, who is not a respondent to this application. Mr Eaton appeared on his own behalf and, pursuant to leave granted by Drummond J on 15 February 1995, on behalf of his wife, and also for the first, second and third respondents.
It is admitted that since about June 1994 the first respondent represented that it has developed a mechanical carparking system known as the ‘Europark Mechanical Carparking System’ (‘Europark System’); that it can offer the Europark System to a market; that it is the holder of the rights to technology and intellectual property in the Europark System, and further by implication that it would be able upon request to transfer to a purchaser the rights to the technology and intellectual property in the Europark System.
It is further admitted that since May 1994 the second respondent has marketed for reward the Europark System in Australia, and has exclusive, lawful, international rights to market and manufacture the Europark System. It is further admitted that the second respondent has represented that the Europark System was commercially viable and was able to be constructed in numerous designated territories worldwide. It is further accepted that the fourth respondent made similar representations, and that since May 1993 the fourth respondent has marketed the Europark System personally.
It is accepted in the pleadings that the admitted conduct by the first respondent, second respondent and third respondent was conduct in trade or commerce.
The ACCC further alleges that the fifth respondent was knowingly concerned in the conduct of the corporate respondents, which conduct is alleged by the ACCC to be in contravention of s 52, s 53(c) and s 53(d) of the TP Act.
It is alleged by the ACCC, and denied by the respondents, that there were representations by the second respondent that the Europark System technology had the endorsement and/or approval of the Australian Government and/or Austrade, being a representation that the Europark System had sponsorship or approval which it did not have in contravention of s 53(c) of the TP Act, and that the second respondent represented that it had the endorsement and/or approval of the Australian Government and/or Austrade, which representations were said to constitute a contravention of s 53(d) of the TP Act.
Section 52 of the T P Act provides:
“ A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
Section 53 of the TP Act relevantly provides:
“ A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services -
...
(c)represent that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have;
(d)represent that the corporation has a sponsorship, approval or affiliation it does not have;”
The conduct which founds the basis of the ACCC’s application is not significantly in dispute. What is in contention is the characterisation of what in fact was represented.
By way of illustration, it is useful to refer to the full page advertisement which appeared in the “Weekend Australian” of 7 May 1994. Under the heading “WOULD YOU INVEST IN INTERNATIONALLY ACCLAIMED TECHNOLOGY?”, appears the statement “THE WORLD BANK DID!” and “OUR GOVERNMENT DID!” and later “NOW AUSTRALIANS CAN!” The advertisement described what was said to be a global problem of carparking. The advertisement stated:
“ With some 500 million registered vehicles world wide increasing at a rate of 3% per annum, the pressure to provide more efficient and more cost effective inner city and fringe city carparking is enormous.
In an attempt to solve the many problems of space and flexibility offered by conventional concrete ramp structures, various mechanical carparking systems have been developed and constructed over recent years, but suffer from high construction costs, slow vehicle recovery times and (often) unreliable technology.
The end result is that concrete ramp construction is still used in more than 90% of carparks world wide.”
Under the heading “A TIMELY SOLUTION:”, the advertisement stated:
“ Europark now offers the world a simple and reliable mechanical carparking system with exceptional design flexibility, more space saving benefits, faster vehicle recovery times, and a degree of user friendliness simply not available in any other system.
The Europark System can be used virtually anywhere that a carpark needs to be built. Moreover, Europark provides the advantages of this technology at a cost substantially less than other mechanical carparks and comparable with concrete ramp carparks.
The Europark System holds the key to solving the world’s present and future carparking problems.”
In an important part of the advertisement under the heading “A BRIEF PROFILE”, the advertisement stated:
“ Europark International Pty Ltd is the manufacturer and marketer of the Europark mechanical carparking system. This Australian based company enjoys these world wide rights as a result of World Bank funding in November 1991. The development of the system was also greatly aided by the Australian Government in providing the maximum level of Export Market Development Grant. These two vital ingredients sealed the commercial viability and success of the Europark Technology.”
The advertisement offered:
“ AN OUTSTANDING INVESTMENT THROUGH INTERNATIONAL FRANCHISE OWNERSHIP”
The details in the advertisement were as follows:
“Franchise Fee: Total $145,000.00 (Capital Cost - $20,000 plus tax deductible expenses - $125,000)
Returns: A) Product Royalties are paid on the construction of each Europark System.
B) Operating Royalties are a percentage of the gross annual revenue derived from each Europark System.
Operating Base: All International Franchises on offer are structured to be Australian Based.
Investment Only: An investor who prefers not to operate an International Franchise will be able to select a ‘Divisional Manager’ from Europark’s bank of over 140 screened applicants. These Divisional Managers are highly credentialled and well qualified to manage your Franchise.”
The advertisement referred to three two-day briefings to be held in Melbourne, Perth and Sydney on nominated dates in June 1994. The telephone number for reservations and information was given, with the name and address of the second respondent appearing in the advertisement.
It may be said at the outset that there is an inherent attraction in a system of compact storage of motor vehicles. The complaint by the ACCC is that the respondents in various ways have made numerous representations through the holding of seminars, advertising, general marketing and distribution of documents, including the “Master Franchise Agreement” and by video advertising to induce persons to pay substantial sums of money to operate a franchise based on the Europark System. Representations include that the respondents have exclusive, lawful, international rights to the manufacture and marketing of that system, that the first respondent is the holder of the intellectual property in the Europark System, that an investment by way of a franchise would create large tax deductions for the franchisee and that the system has had funding from the World Bank and the Australian Government through Austrade.
The present application arose out of a complaint by a Mr Willem Van der Horst to the predecessor of the ACCC, the Trade Practices Commission. Mr Van der Horst claimed that all patents and licences in respect of the system being marketed by the respondents were his own. Mr Van der Horst had been an employee of Fentex Developments Pty Ltd and Vaportec International Pty Ltd, of which Mr Eaton was a director. Later, agreements were drawn up between Mr Van der Horst and Parktec International Pty Ltd (‘Parktec’), of which Mr Eaton was also a director, pursuant to which Parktec was to purchase the intellectual property rights of the carparking technology for $500,000.00. After the agreement was signed, Mr Van der Horst claims that he was forced out of employment. Mr Eaton claims that Mr Van der Horst breached his agreement with Parktec, and that as a consequence of a term in the agreement, all rights in the intellectual property of Mr Van der Horst vested in Parktec. Mr Eaton claims that Mr Van der Horst repudiated his agreement with Parktec, which repudiation was accepted, yet in other correspondence Mr Eaton says that Mr Van der Horst was dismissed for “criminal fraud and impeding conduct”. In a letter dated 1 November 1991, Mr Eaton advised Mr Van der Horst that Mr Van der Horst was in default under the agreement and that his services would no longer be required.
On 22 July 1991, Vihorlat Strojarska, (‘Vihorlat’), a Slovakian engineering company from the town of Snina in what was then Czechoslovakia, signed a franchise agreement with Parktec in Brisbane. Vihorlat paid Parktec $20,000.00 on signing that agreement and a further $385,000.00 to Parktec at the end of October 1991. Vihorlat had received funding from the World Bank in the sum of $1,000,000.00, from which the franchise payment to Parktec of $405,000.00 had been made and $250,000.00 of which had been used for the construction of a prototype carparking facility in Snina.
On 5 November 1991, solicitors on behalf of Mr Van der Horst wrote to Vihorlat to place them on notice that Mr Van der Horst claimed to be the owner of the technology.
In December 1991, Parktec filed a writ of summons in the Supreme Court of Queensland seeking a declaration that it was the owner of all developments and improvements in Mr Van der Horst’s technology for a mechanical carparking system. Those proceedings were dismissed by order of Shepherdson J on 12 April 1994.
On or about 14 January 1992, Mr Van der Horst received a phone call from an officer of Vihorlat. The officer indicated that there were technical difficulties with a prototype of the carparking system constructed by Vihorlat pursuant to the franchise agreement with Parktec. Mr Van der Horst attended at the Vihorlat works in Snina from 8 February 1992 to 22 February 1992.
I am satisfied that the prototype which was constructed by Vihorlat in Snina used the technology developed by Mr Van der Horst. I am also satisfied that many of the drawings used in the construction of the prototype were versions of Mr Van der Horst’s engineering drawings. I accept the evidence of Mr Van her Horst that the Vihorlat prototype was based on the technology the subject of Mr Van der Horst’s Patent No. 639347, but that there had been a modification to the drive mechanism.
On 24 February 1993, Austrade granted to Parktec the sum of $250,000.00. That payment was made pursuant to the Export Market Development Grants Act 1974 (‘the Act’) which provided for a financial scheme of incentives in the form of taxable cash grants based on amounts spent by applicants on certain export marketing and sales promotional activities. Under that Act, “eligible expenditure” includes certain specified types of services supplied overseas or within Australia and intellectual property rights and knowhow if they are substantially a result of research or work performed in Australia.
The claim which resulted in the payment of $250,000.00 to Parktec contained a description of Parktec as “the designer, developer and franchisor of automatic carparking systems”. The total “eligible expenditure” claimed by Parktec in that application was $803,883.00. It seems curious to me that of that sum, $510,000.00 was included in the category “Free Samples”. The amount paid was the maximum that could be paid under the Act.
On 17 December 1993, Parktec was ordered by Ryan J in the Supreme Court of Queensland to be wound up.
There is a serious difficulty about the arguments for the respondents. On the one hand, Mr Eaton has repeatedly asserted that the patents of Mr Van der Horst are invalid for want of novelty. Further, he maintains that the patents of Mr Van der Horst are “of no value or relevance whatsoever to the Europark System”. He asserts that the intellectual property of Europark is quite separate from and different to the intellectual property developed by Mr Van der Horst. But on the other hand, the extensive advertising, both in newspapers and on the video, (including the reference to funding from the World Bank and from “our Government”), is clearly a reference to the carparking system, a prototype of which was constructed in Snina by Vihorlat and which is clearly based on the technology of Mr Van der Horst. It is that technology with which the funding from the World Bank was connected, and it was in respect of that intellectual property that the Austrade payment was made to Parktec.
It is one thing to say that the Europark System was developed from the technology and intellectual property of Mr Van der Horst which, by operation of cl 13
of the Vehicle Parking Technology Agreement of 15 June 1990, (and in turn by means of a Deed of Assignment dated 24 September 1992 between Parktec and Central Funding Pty Limited (a former name of Europark International Pty Ltd)), became the property of the second respondent and which thereby permitted Europark to claim that it enjoys worldwide rights to manufacture and market the Europark System. Mr Eaton denies that that is the position. According to Mr Eaton, the intellectual property of the second respondent is something quite different and separate from that which had its origins in the work of Mr Van der Horst, and it is that intellectual property which is the basis for the franchise offer.
This assertion cannot be accepted having regard to the connection drawn in the advertisement between the worldwide rights which in one way or another had the input of funding from the World Bank and Austrade, and having regard to the video advertising which clearly shows the Europark System as being represented by the prototype in Snina.
It is significant in my opinion that the international franchise agreement of 6 September 1991 signed between Parktec and Vihorlat, contains in cl 4.1 the following:
“ The International Franchisee acknowledges that the Franchisor has dedicated substantial time, effort and resources to undertake an analysis of the nature and marketing potential for the service of the AUSPARK/PARKTEC System, including the development of the System by Willem Van der Horst. The International Franchisee acknowledges that it has an obligation to:
(a) preserve the integrity of the development work undertaken by Van der Horst and made available to the Franchisor;
...”
It is clear that there is a real animus between Mr Van der Horst and Mr Eaton. Mr Van der Horst impressed me as a decent and honest witness who genuinely felt deeply wronged by the misappropriation of his intellectual property by companies of which Mr Eaton was the guiding spirit. Mr Eaton, on the other hand, in my assessment, is a glib, grandiloquent rogue.
Mr Eaton has been neither consistent nor credible in respect of the Europark System technology. At times in the course of giving his evidence he indicated that the “patentable subject matter which comprises the Europark technology” could not be disclosed, because to do so would prevent the possibility of a future patent on the grounds of lack of novelty; on other occasions he asserted that the Europark technology was to be found in two documents referred to as File 41 and File 48. These documents deal essentially with the Australian Patent application PM8186 filed on 15 September 1994 and entitled “Improvements in Relation to Automated Storage Facilities”. The application refers to “separate independent inventions”; a particular drive system, a carriage stabilisation apparatus, and a multi-level automated storage facility with a track following a generally serpentine path with bulged “transition regions” at the corner portion of the facility.
These versions are to be contrasted with the statement by Mr Eaton in a letter to Mr Guthrie, the Assistant Director of the Trade Practices Commission, as it was then called, of 24 May 1994, in which he said:
“ As a result of the World Bank drawing down funding in November 1991 in the interests of Parktec International Pty Ltd, International Technology Holdings Pty Ltd became the recipient of the Europark technology, and indeed all intellectual property, on 24 September 1992.”
Again, an advertisement in the “Courier Mail” of 29 May 1993 stated amongst other things:
“ GARTH WILLIAM EATON and WILHELMINA FRANCISCA EATON are the sole owners of Parktec International Pty Ltd through their holding companies, International Technology Holdings Pty Ltd and Australian Technologies Pty Ltd.
...
Patent Application No. PL 4819 which embraces the Key Features of the AUSPARK System is in the name of, and is the property of Parktec International Pty Ltd.
Further International Patent Applications lodged on behalf of Parktec International Pty Ltd by VIHORLAT SNINA are the property of Parktec International Pty Ltd.
PARKTEC INTERNATIONAL PTY LTD IS THE OUTRIGHT OWNER OF THE AUSPARK SYSTEM AS IT NOW STANDS IN CENTRAL EUROPE AND IS FURTHER THE OUTRIGHT AND BENEFICIAL OWNER OF ALL CURRENT PATENTING WORLDWIDE.”
The advertisement concluded with the following:
“ WARNING
Any attempts to deal with Willem Van der Horst in relation to the AUSPARK System developed by Parktec International Pty Ltd (i.e. attempts to deal independent of our company) will render such party or parties liable to:
1. An action for damages in the Supreme Court
AND
2. An action by way of Criminal Summons embracing fraud related conduct.”
The tone and expression of this warning is an instance of Mr Eaton’s manner of dealing with his critics. Further and more extreme examples are in evidence. One is contained in a letter dated 16 May 1994 to a solicitor acting for Mr Van der Horst, which letter concludes:
“ I will now extend to you the courtesy of describing the manner in which I will discipline your conduct and your clients’ in the event that criminal and defamatory offences continue against us.
1.A detailed report of your conduct will be submitted to the Queensland Law Society.
2.I will exercise my option to join you with the defendants on the subject Supreme Court Writ (I have quantified losses at in excess of $2 million).
3.I will make application to the State Attorney General requesting a full investigation into the conduct of Willem Van Der Horst and yourself as a prelude to bringing criminal charges against you both. (Willem Van Der Horst is currently before the Federal Attorney General facing an investigation into allegations of Conspiracy to Murder, Conspiracy to bring False Accusation and Interfering in Political Liberty, all of which are dealt with under the Crimes Act 1914.)
4.Irrespective of the actions of the State Attorney General, Federal Police or State Police, I will call a national media conference and invite Yourself, Willem Van Der Horst, eighteen (18) persons comprising Staff and others who have been the subject of Willem Van Der Horst’s criminal and defamatory conduct, the State and Federal Attorneys General, selected Members within the Federal and State Police and two Officers within the Australian Securities Commission. I am sure I need not acquaint you with the purpose of this conference.”
Another is contained in a letter of 7 July 1994 to the directors of Queensland Press Limited concerning an article published in the “Courier Mail” on Friday, 17 June 1994 written by one John McCarthy and approved by the Business Editor, David Hellaby. The letter, on the eighth page of its nine pages, included the following:
“ In the interests of a constructive solution to the many problems which have been created by the subject article, I propose the following:-
1.I will reserve my rights to bring criminal charges against John McCarthy and David Hellaby.
2.I will reserve my rights to take Supreme Court action (in varying forms) against John McCarthy, David Hellaby and the Directors of Queensland Press Limited and Queensland Newspapers Pty Ltd
Losses arising from the cessation of our Master Franchising Programme alone have been accurately quantified at $17.454 million.
3.I require John McCarthy to totally familiarise himself with my personal and corporate history.
In order to do so, he will need to be assigned to this project for a mutually acceptable period of time.
During John McCarthy’s time with me he will be exposed to extremely sensitive information; therefore, I will require him to sign a Confidentiality Agreement such that he will only be able to publish material with my written approval.”
In questioning Mr Ross Duus, (a chartered accountant with Ernst & Young and one of the liquidators of Parktec), Mr Eaton, referring to an offer contained in a letter of June 1995 to acquire from the liquidator all the intellectual property developed by Parktec, said that that offer:
“ ...in no way compromises the position of the respondents in their dealings with their own technology, which is divorced from that of Parktec and divorced from that of Van der Horst.”
If the technology of the respondents “is divorced from that of Parktec” and “divorced from that of Van der Horst”, it is misleading to suggest that the World Bank invested in that technology or that our “our Government” did.
Notwithstanding Mr Eaton’s repeated reference to “patentable subject matter which comprises the Europark technology”, there is in reality nothing of value that Europark has to offer as consideration for the franchise payment.
It is necessary to deal in some detail with two copy documents in evidence which are each headed “DEED OF ASSIGNMENT”. After Parktec was ordered to be wound up on 17 December 1993, a report as to the affairs of the company was filed with the Australian Securities Commission on 11 February 1994. That report was accompanied by a statement verifying the report, signed by Mr Eaton. That statement said that the particulars contained in the report “...are true to the best of my knowledge and belief”. In that report, the sum of $450,000,000.00 was included as an asset of Parktec for “Intellectual Property”. Mr Eaton says that that claim was false. He claims that the report had been prepared by one Peter Carswell and that he simply signed the statement verifying the report in ignorance of the fact that the report indicated that Parktec had intellectual property valued at $450,000,000.00.
The first document headed “DEED OF ASSIGNMENT” relevant to this aspect of the matter bears the date 24 September 1992. It is between Parktec as assignor and, as assignee, Central Funding Pty Limited, which was the former name of ITH. That deed of assignment in its recitals says:
“ The Assignor claims..:
(i) It is the inventor of the AUSPARK/PARKTEC computerised mechanical carparking system;
(ii) It is the developer of the AUSPARK/PARKTEC computerised mechanical carparking system;”
The recitals further state:
“ The Assignor has agreed to assign to the Assignee the entirety of its rights in relation to Trade Marks, Copyright and Patenting, whether present or future, relating to the AUSPARK/PARKTEC computerised mechanical carparking system and the marketing of same worldwide.”
The deed purported to assign for $10.00 to the assignee all the claims and rights described in the recitals to the deed. The deed also recited:
“ It is agreed that in the event that the Assignor or the Assignee breach their relationship as a result of any one of the following conditions then the party in default shall automatically forfeit its Intellectual Property to the other party;
...
(ii)...an order is made...for the winding up...of the Assignor or the Assignee to this Agreement...”
Mr Duus first became aware of the existence of such a document after a copy was delivered to the Australian Government Solicitor in July 1994. He says that no reference was made to this purported assignment at any of the conferences he attended as liquidator with the directors of Parktec, including Mr Eaton, and no copy nor any suggestion of such an assignment is in any of the books or records of the company of which he took possession as liquidator.
It is most curious that if this document was executed in its terms on the date it bears, the report of the affairs of Parktec, signed as correct by Mr Eaton, should contain as an asset, intellectual property worth $450,000,000.00. However, the intellectual property of Parktec or ITH (formerly Central Funding) is not what Mr Eaton says is the Europark technology the subject of the advertisement: that technology he said is “divorced from the Parktec technology” or “the Van der Horst technology”.
There is a further copy Deed of Assignment dated 4 March 1994 in which Europark as assignor agreed to assign to ITH “all enhancements and improvements to the existing Intellectual Property which shall be defined as Trade Marks, Copyright and Patenting relating to the EUROPARK System and the marketing of same worldwide.” There were, as at 4 March 1994, no trade marks or patents in existence that might be regarded as relating to the Europark System, except the patents associated with Mr Van der Horst and possibly any patent application initiated by Vihorlat. The recitals to that Deed state in part:
“ ...the Assignor now operates a comprehensive system for the business of marketing, sale and distribution throughout Australia and the rest of the world of a service for the marketing and construction of a vehicle park in accordance with the EUROPARK computerised mechanical carparking system (hereinafter called ‘the Europark system’).”
On 20 January 1993, Mr Eaton wrote to a solicitor with the Australian Trade Commission concerning Parktec’s entitlement to a development grant and enclosed a “Corporate Configuration” which contained the statement:
“ Intellectual property valuation (IP) of Parktec is $450,000,000.00.”
That chart indicated that IH, the first respondent, had nominal capital of $500 million, and “issued and paid up capital of $450 Million”. [emphasis added]
Approximately a year later, on 24 January 1994, the second respondent, then called Auspark International Pty Ltd, sent a written proposal to the liquidators providing for Parktec to give to the second respondent “unrestricted world marketing and manufacturing rights in consideration of $1,200,000.00.” It was suggested that that consideration be paid by 10% of all franchise and licence fees received and 20% of net profits after tax. That written proposal commenced with this introduction:
“ Parktec International Pty Ltd has designed and developed state of the art mechanical carparking technology. The Company has its headquarters in Brisbane, Australia, and has marketed the Auspark System through a network of International Franchisees and Licensees.”
The rights sought by the second respondent from the liquidator of Parktec included:
“ The right to enjoy the use of all Provisional Patents, Patents, Trademarks, Business names and Indicia surrounding the AUSPARK mechanical carparking Technology and the AUSPARK mechanical carparking Product, including all the enhancements developed under Agreement by Vihorlat Snina, up to 30 June 1993; and
The right to access and use the property of Parktec International Pty Ltd including the prototype in the Slovak Republic...” (from part of RAD 19)
This proposal is wholly inconsistent with the existence of the deed of assignment of 24 September 1992. I simply do not believe Mr Eaton’s attempted explanation of this proposal.
I think it more probable than not that the copy Deed of Assignment bearing the date 24 September 1992 did not come into existence until some time after 24 January 1994.
A number of franchises have been sold. Mr Eaton was asked what the purchasers of those franchises got, to which he replied:
“ They enjoy the opportunity of using the Europark technology.”
He was then asked:
“ How do they enjoy the opportunity to exploit the technology?”
To which he answered:
“ They have the right to approach manufacturers and the right to approach the buyers of the Europark System. The moment we commence to manufacture we will have our patents in place internationally.”
When asked what one gets if one pays $145,000,00, he answered:
“ What one gets is the exclusivity of using the Europark technology within that particular territory, also the right to set up a marketing structure by via consulting engineering firms and to then solicit within that territory buyers of the system.”
The manufacture of the carpark, said Mr Eaton, was paid for by the party buying the carpark. Mr Eaton said that if a purchaser of a franchise made an approach to somebody to build a carpark, then ITH “will set in motion the exercise of patenting”. Mr Eaton said that the claim in the advertisement that Europark is the manufacturer of the Europark mechanical carparking system was not a holding out that Europark was manufacturing the system.
The effect of the evidence of Mr Eaton is that the Europark technology is a secret, unknown even to the purchasers of a franchise. Payment of the franchise fee would entitle the franchisee to seek a manufacturer of a carparking facility but the basis of that facility would not then be known either to the franchisee, the manufacturer, or any buyer of the facility. For this to occur, Mr Eaton says the franchisor would immediately obtain international patenting, thus permitting the franchisee to know what was to be built. However, the franchisee or the buyer of the carparking facility would have to pay for the manufacture of the facility.
The parties are in agreement that there are four major issues in the application by ACCC. The first is the ownership of the technology advertised. The second is the commercial viability of the Europark system. The third is the representation about endorsement or approval, and the fourth the representation of tax benefit. I have no doubt that the marketing programme of the franchises is a scam, but the challengeto the commercial viability on the pleadings does not relate to the question of whether a franchise is commercially viable, but whether the Europark system is commercially viable.
I accept that the Europark system as advertised comprehended the two Van der Horst patents. The provisional patent application PN 8186 filed 15 September 1994, included with Mr Van der Horst’s patents as part of the Europark system by Mr Pizzey, patent attorney, postdates the advertisement in the “Australian” newspaper.
Both patents recorded in the name of Willem Van der Horst as owner, being Australian Patent Nos 606728 and 639347 are both in force and can be renewed until 3 August 2008 and 21 May 2011 respectively.
A representation that a carparking system is commercially viable, in my opinion, is a representation concerning a quality that the carparking system presently has. It is not a representation about a future matter. I am not satisfied that what I take to be the Europark system is not commercially viable.
As to the claim that $125,000.00 of the $145,000.00 for each franchise would be tax deductible, Mr Eaton in evidence said that the $125,000.00 would be styled as a ‘management fee’. His claim that there would be tax deductible expenses of $125,000.00 was allegedly justified by the fact that the prepayment of that management fee could then be written off over time against profits produced by the franchisee.
Clause 3.2 of the Master Franchise Agreement provided:
“ The Franchise Management Fee of one hundred and twenty-five thousand dollars ($125,000.00) shall be paid by the Master Franchisee to the franchisor on or before ........ ....1994 subject only to Clause 3.1 above.”
According to Mr Eaton, this fee was to be tax deductible against profits made by the franchisee, but there is no reference to profits or tax deductibility in the franchise agreement. The claim that of the $145,000.00 franchise fee, $125,000.00 would be for “tax deductible expenses” is untrue.
As indicated above, I generally accept the evidence of Mr John Pizzey, patent attorney, concerning the meaning of the term “Europark mechanical carparking system”. Importantly, I accept the thrust of his conclusion, namely, that there are no worldwide rights which are held by any of the respondents in relation to the Europark mechanical carparking system. I reject the Mr Eaton’s contention that the Europark system consists essentially of patentable subject matter which is at present a secret but which, if the franchisee was to seek to manufacture a parking station according to the system, would be the subject of international patents. It is incredible that technology which is a secret can at the same time be the subject of international acclaim.
I have no doubt that the marketing of franchises as outlined in the advertisement in the “Weekend Australia” is a scheme by which any franchisee would receive nothing of value for the $145,000.00 franchise fee. I am satisfied that the conduct in representing that Europark had exclusive, lawful, international rights to market and manufacture the Europark system is conduct in contravention of s 52 of the TP Act. It was similarly misleading or deceptive to represent that a significant tax deduction would be obtained by investing in the Europark system. I am satisfied that none of the respondents hold any rights to the technology and intellectual property that is in the Europark system.
On my finding as to what is comprehended by the Europark system, I am not prepared to find that there is a contravention of s 53(c) or (d) of the TP Act in the implied representation that the Europark technology had the endorsement and/or approval of the Australian Government or Austrade. I do not think there was any representation that the second respondent had the endorsement or approval of the Australian Government and/or Austrade.
I am satisfied that the first, second and third respondents have engaged in conduct in contravention of s 52 of the TP Act as earlier indicated and that the fourth respondent was knowingly concerned in those contraventions. The evidence does not permit a similar finding to be made concerning the fifth respondent.
I am prepared to grant appropriate declarations and injunctions. I do not think there is any utility in the present case in corrective advertising.
I will hear from the parties as to the form of orders that I should make in the light of these reasons, and on costs.
I certify that this and the preceding twenty-four (24) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.
Associate
Date: 26 February 1997
Counsel for the applicant : Mr P Hack
instructed by : Australian Government Solicitor
Mr G Eaton appeared for himself and on behalf of the 1st, 2nd, 3rd and 5th respondents.
Dates of hearing : 26, 29, 30 April, 1 May 1996
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