Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd - [2005] FCA 1521

FEDERAL COURT OF AUSTRALIA
Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd
[2005] FCA 1521
COPYRIGHT – ownership – manufacturing and assembly drawings – manufacturer employed author of drawings – whether there was an agreement for manufacture, and whether it included an express or implied term governing ownership of drawings, particularly future drawings – whether silence in conjunction with other circumstances constituted agreement to a term covering ownership of copyright drawings – whether an equitable owners of copyright entitled to legal assignment – estoppel.
COPYRIGHT – assignment – authority of assignor to dispose of subsidiary company’s copyright – efficacy of assignment.
COPYRIGHT – infringement – whether a reproduction from a subsequent set of drawings could constitute copying and/or reproduction of substantial part of an earlier set of drawings – defence to copyright infringement - overlap between copyright and design production – ‘industrial application’ – need for ‘system’ or ‘process’ in the manufacture of relevant products.
TRADE PRACTICES ACT – whether conduct contravened ss 52, 53(a), (c) and (d) – accessorial liability – whether same conduct constituted passing off.
Copyright Act 1968 (Cth) ss 10(1), 13(1), 14(1), 21(3), 31(1), 33, 35(3), 36(1), 77, 77A, 196(3)
Copyright Regulations 1969 (Cth) reg 17
Corporations Act 2001 (Cth) ss 128(1), 128(2), 129(3)
Designs Act 2003 (Cth) s 46
Property Law Act 1958 (Vic) s 53(1)
Trade Practices Act 1974 (Cth) ss 52, 53 75B
Ancher, Mortlock, Murray & Woolley Pty Ltd v Hooker Homes Pty Ltd (1971) 2 NSWLR 278 referred to
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 cited
Byrne & Frew v Australian Airlines Limited (1995) 185 CLR 410 referred to
Cadbury Schweppes Pty Ltd v Pub Squash Co Ltd [1981] RPC 429 referred to
Campomar Sociedad Ltd v Nike International Ltd (2000) 202 CLR 45 referred to
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982)149 CLR 337 applied
ConAgra Inc v McCain Foods (Australia) Pty Ltd (1992) 23 IPR 193 referred to
Eagle Homes Pty Ltd v Austec Homes Pty Ltd (1999) 87 FCR 415 followed
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd [1988] 14 NSWLR 523 followed
Felthouse v Bindley (1862) 11 CB (NS) 869 referred to
Glamagard Pty Ltd v Enderslea Productions Pty Ltd (1985) 1 NSWLR 138 referred to
Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd [2002] FCA 910 cited
Gold Peg International P/L v Kovan Engineering (Aust) Ltd [2004] FCA 1601 cited
Greenfield Products Pty Ltd v Rover-Scott Boonar Ltd (1990) 17 IPR 417 referred to
Hawkins v Clayton (1988) 164 CLR 539 referred to
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 applied
Hutchence v South Seas Bubble Co Pty Ltd (1986) 6 IPR 473 referred to
Interlego AG v Croner Trading Pty Ltd (1992) 39 FCR 348 referred to
Kevlacat Pty Ltd v Trailcraft Marine Pty Ltd (1987) 11 IPR 77 followed
Murray v King (1984) 4 FCR 1 referred to
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 cited
ParramattaDesign & Developments Pty Ltd v Concrete Pty Ltd [2005] 219 ALR 373 followed
Press-Form Pty Ltd v Henderson’s Ltd (1993) 40 FCR 274 followed
Reckitt & Colman Products Ltd v Borden Inc (1990) 17 IPR 1 referred to
R Griggs Group Ltd v Evans [2004] 31 FSR 673 followed
Robin Ray v Classic FM Plc [1998] 25 FSR 622 referred to
Royal British Bank v Turquand (1856) 119 ER 886 followed
Safe Sport Australia Pty Ltd v Puma Australia Pty Ltd (1985) 4 IPR 120 followed
Shacklady v Atkins (1994) 30 IPR 387 followed
Skybase Nominees Pty Ltd v Fortuity Pty Ltd (1996) 36 IPR 529 followed
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 followed
Tamawood Ltd v Henley Arch Pty Ltd (2004) 61 IPR 378 followed
Wilson v Weiss Art Pty Ltd (1995) 31 IPR 432 referred to
University of London Press Ltd v University Tutorial Press Ltd [1916] 2 Ch 601 referred to
University of New South Wales v Moorhouse & Angus & Robertson (Publishers) Pty Ltd (1975) 133 CLR 1 referred to
GOLD PEG INTERNATIONAL PTY LTD v KOVAN ENGINEERING (AUST) PTY LTD & JANIS ZAKIS & DIANNE MARGARET ZAKIS
CRENNAN J
28 OCTOBER 2005
MELBOURNE
INDEX
Heading Paragraph Number
Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 1
Background facts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 5
Alfa Laval companies........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 6
Issues........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 16
Is the applicant the owner of the copyright in the Alfa Laval Drawings?........ ........ ...... 18
Relevant provisions of the Copyright Act........ ........ ........ ........ ........ ........ ........ ........ ....... 18
Findings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 20
Is the applicant the equitable owner of copyright in the RotaTherm Drawings?........ .... 22
Applicable principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 24
Findings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 34
Usual course of dealings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 39
Is the applicant entitled to an assignment from the first respondent of the legal
ownership in the RotaTherm Drawings?........ ........ ........ ........ ........ ........ ........ ........ ........ 46
Estoppel........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 46
Applicable principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 46
Breach of agreement........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 47
Trade Practices........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 48
Misleading and deceptive conduct and passing off........ ........ ........ ........ ........ ........ ........ . 48
Applicable law........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 49
Findings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 50
Infringement of copyright........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 54
RotaTherm Drawings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 54
RotaTherm Drawings containing the applicant’s block title........ ........ ........ ........ ........ ... 54
Alfa Laval Drawings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 55
Relevant legislation........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 55
Applicable principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 61
Findings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 65
Defences: Industrial Application........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 68
Relevant Legislation........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 68
Applicable principles........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 71
Findings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 73
Bottom elbow........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 73
Rotor........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 74
Personal liability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 74
Cross-claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 75
Findings........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 76
Orders........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 77

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

V 429 OF 2002

BETWEEN:

GOLD PEG INTERNATIONAL PTY LTD
APPLICANT

AND:

KOVAN ENGINEERING (AUST) PTY LTD
FIRST RESPONDENT

JANIS ZAKIS
SECOND RESPONDENT

DIANNE MARGARET ZAKIS
THIRD RESPONDENT

JUDGE:

CRENNAN J

DATE OF ORDER:

28 OCTOBER 2005

WHERE MADE:

MELBOURNE

THE COURT DECLARES THAT:
1.The applicant is the legal owner of the copyright in the Alfa Laval Drawings referred to in the particulars to paragraph 7 of the third further amended statement of claim.
2.The applicant is the equitable owner of the copyright in the RotaTherm Drawings referred to in paragraph 13 of the third further amended statement of claim (which includes the ‘Gold Peg title block drawings’, as listed in Annexure A to the applicant’s closing submissions).
3.The first respondent has breached the agreement (as defined in paragraph 11 of the third further amended statement of claim).
4.The conduct of the first respondent in making the representations (as defined in paragraph 16 of the third further amended statement of claim) constitutes conduct in breach of the provisions of ss 52, 53(c) and (d) of the Trade Practices Act 1974 (Cth) (TPA).
5.The second respondent was or has been directly or indirectly knowingly concerned in or a party to the abovementioned contraventions by the first respondent of the TPA within the meaning of s 75B of the TPA, and authorised the conduct of the first respondent constituting breach of the TPA.
6.The conduct of the first respondent described by reference to paragraphs 15, 16, 18, 24 and 25 of the third further amended statement of claim herein constitutes passing off.

THE COURT ORDERS THAT:
7. The first respondent by itself, its servants or agents be restrained forthwith from representing in the course of trade or commerce that:
(a)the first respondent is authorised by the applicant to manufacture and/or supply cooking machines the same as or substantially the same as the applicant’s RotaTherm Cookers and/or to provide after sales service for the applicant’s RotaTherm Cookers;
(b)the first respondent is the owner of intellectual property rights in the applicant’s RotaTherm Cookers;
(c)the first respondent is entitled to use the RotaTherm Drawings to manufacture and/or supply cooking machines;
(d)the first respondent’s Fusion Cooker is sponsored by, approved by, endorsed by and/or affiliated with the applicant.

8.     The second respondent by himself, his servants or his agents or any of them howsoever be restrained forthwith from aiding or abetting, counselling or procuring the first respondent in engaging in the conduct referred to in Order 7 herein.
9.     The Respondents forthwith execute a Deed of Assignment transferring legal ownership of the copyright in the RotaTherm Drawings (which includes the Gold Peg title block drawings) to the applicant.
10.     There be delivery up to the applicant on oath of all copies of:
(a)the Alfa Laval Drawings;
(b)the RotaTherm Drawings (or the Gold Peg title block drawings),

in the Respondents’ possession, custody or power.

11.     The respondents, until further order, keep full and proper accounts of the sales (and profits from sales) of products, if any, whether cooker components or cookers made or authorised by them to be made in accordance with the Alfa Laval Drawings, the RotaTherm Drawings or any drawings which are copies of such drawings, save and except for drawings relating to steam injectors depicted in Exhibit JZ-94, drawings for the motor and motor shaft, drawings for mechanical seals and drawings for bottom elbows made in accordance with the Great Lakes bottom elbow drawings.
12.     The cross-claim be dismissed.
13.     The cross-claimant pay the cross respondent’s cost of the cross-claim.
14.     The costs other than those on the cross‑claim be reserved.
15.     The matter be adjourned to 10:15 am on 7 December 2005 before Kenny J for further orders and directions.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

V 429 OF 2002

BETWEEN:

GOLD PEG INTERNATIONAL PTY LTD
APPLICANT

AND:

KOVAN ENGINEERING (AUST) PTY LTD
FIRST RESPONDENT

JANIS ZAKIS
SECOND RESPONDENT

DIANNE MARGARET ZAKIS
THIRD RESPONDENT

JUDGE:

CRENNAN J

DATE:

28 OCTOBER 2005

PLACE:

MELBOURNE

REASONS FOR JUDGMENT
Introduction

This case has had a long history through the Federal Court. On 5 July 2002 the applicant filed an application seeking declaratory and pecuniary relief and certain injunctions under the Copyright Act 1968 (Cth) (‘Copyright Act’), the Trade Practices Act 1974 (Cth) (‘TPA’) and at general law. In essence, the dispute arises from competing claims to copyright in certain drawings used in the development and manufacture of a Direct Steam Injection Cooking Machine (the ‘DSI Cooker’). Insofar as the applicant claims infringement of those rights, the claim is confined to threatened infringement. A graphic drawing of the DSI Cooker is annexed to these reasons for judgment.
The applicant filed an amended application on 17 July 2002. The applicant then brought a notice of motion before Sundberg J seeking interlocutory injunctions:
(a) restraining the respondents until the hearing of the proceeding or further order from reproducing or substantially reproducing the drawings the subject of the dispute, including in a three-dimensional form, or authorising such conduct; and
(b) making, promoting, offering for sale, and/or selling machines utilising the DSI Cooker system.
A central plank of the applicant’s case at the hearing of the motion was the existence of an alleged agreement that contained, inter alia, a term vesting the intellectual property rights, including copyright in the manufacturing drawings created by the first respondent, in the applicant. Sundberg J, by order dated 18 July 2002, refused to grant the interim relief sought, on the ground that the documents and conversations relied upon to support the existence of an agreement between the parties did not disclose the existence of the alleged agreement with sufficient clarity or certainty to justify the grant of the relief sought: see Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd [2002] FCA 910.
The proceeding involves a dispute between two parties, each of which is essentially a company run by a family. After the transfer from the docket of Sundberg J, the matter came on for hearing before me on 18 October 2004 on an estimate that the hearing would take 10 days. On the first day of the hearing there were in excess of 3,700 pages of affidavits. The affidavits had many pages of exhibits. The exhibits, in turn, included in excess of 600 manufacturing drawings and many drawings contained several views or perspectives. There were also well over 200 written objections by the respondents to the admissibility of the applicant’s evidence, including objections based on relevance. The hearing went well beyond the estimated 10 days.
There was a consensual attempt at mediation at one stage which appeared at first to have resulted in resolution of the proceeding, but which ultimately failed. It is worth repeating that senior counsel have an important and heavy role in the administration of justice. Not the least aspect of that is the need to ensure litigation is conducted, so far as it can be, in a manner which is not grossly disproportionate to the dispute between the parties. During the course of this hearing counsel sensibly agreed to rationalising some aspects of this dispute.
It would not be practical to mention every piece of evidence, aspect or event in this judgment. I have considered all of the evidence as well as lengthy submissions advanced in respect of the evidence. Such findings of fact as I proceed to make are based on the whole of the evidence including close observation of witnesses when giving oral evidence about contested matters, particularly conversations.
On 10 December 2004, the applicant sought and was granted leave to file a third further amended statement of claim: see Gold Peg International P/L v Kovan Engineering (Aust) Pty Ltd [2004] FCA 1601. The respondents filed an amended defence to the third further amended statement of claim on 5 January 2005 and the reply to the defence to the third further amended statement of claim and a cross-claim was filed on behalf of the applicant on 11 February 2005. The hearing ultimately concluded on 31 March 2005.
The applicant, Gold Peg International Pty Ltd, is a company incorporated in 1977 under the name Gold Peg Pty Ltd. It was set up by Mr Robert Smith, a food technologist. The first respondent, Kovan Engineering (Aust) Pty Ltd, is a manufacturing and design company. The second and third respondents are, and each has been at all material times, directors of the first respondent. Since October 2000, the second and third respondents have been in control of the day-to-day management of the business of the first respondent. Between 1992 and 2002 the first respondent manufactured a total of 26 DSI Cookers for sale by the applicant.
The applicant’s claim has three main elements:
(1) That the first respondent has breached the terms of a 1992 agreement between it and the applicant, in particular with respect to the ownership of copyright in certain drawings made by the first respondent for the assembly and manufacture of cookers which had been commissioned by the applicant (‘the RotaTherm Drawings’) and by the offering for sale of machines to third parties which utilise the RotaTherm Drawings made for machines commissioned by the applicant;
(2) Misleading and deceptive conduct on the part of the first respondent under the TPA and passing off; and
(3) Threatened infringement of the applicant’s copyright in certain drawings (the ‘Alfa Laval Drawings’), which were supplied to the first respondent by the applicant and of the abovementioned assembly and manufacturing drawings; i.e. the RotaTherm Drawings.
The first respondent resists these claims on a number of grounds:
(1)Denial that there was an agreement as alleged by the applicant.
(2)Denial of infringement of any copyright belonging to the applicant, on the grounds that:
(i)manufacture by it of cookers in accordance with the RotaTherm Drawings will not involve any relevant infringing act such as reproduction of drawings in respect of which the applicant owns copyright;
(ii)the copyright in the RotaTherm Drawings is vested in itself;
(iii)in any event, the applicant had industrially applied corresponding designs within the meaning of s 77 of the Copyright Act.
The applicant has denied these defences and, in addition, has replied that the first respondent is estopped from denying the assignment of rights in the Alfa Laval Drawings to the applicant, the existence of the agreement and by reason of the agreement the applicant’s equitable ownership of copyright in the RotaTherm Drawings.

The first respondent also brought a cross‑claim against the applicant, as cross‑respondent, claiming that because of its ownership of the copyright in the drawings (which it calls the ‘Kovan Drawings’) in contention, the cross‑respondent will infringe the copyright therein should it use the same for the manufacture of its own cookers. This cross‑claim is denied by the cross‑respondent on a number of bases:
(1)In the event that the cross‑claimant is found to own the copyright in any or all of the said drawings, any use thereof by the cross‑respondent will be permitted under an implied licence;
(2)The cross‑respondent is the co‑owner of the copyright in certain of the drawings by virtue of the joint authorship contribution by its employee, Mr Smith; and
(3)In the event that the cross‑claimant is found to own the copyright in all or any of the said drawings, the use of certain of these drawings by the cross‑claimant will be permitted by virtue of the provisions of s 77(1)(b) and (c) of the Copyright Act (‘industrial application of a corresponding design’). In the further alternative, the defence under s 77A of the Copyright Act, as amended, by the Designs (Consequential Amendments) Act 2003 (Cth), is also relied upon.
Background facts
It is not in contest that in or about 1980, Mr Smith designed and built a continuous cooking system which before 1997 was known as the Smith DSI Cooker. The DSI Cooker invented by Mr Smith was designed to make processed cheese, but could also be used to cook ‘other pumpable food products, such as meat, starch and vegetable products’. The DSI Cooker was described on behalf of the applicant as follows:
‘[The DSI Cooker] worked on the principle of having a controlled flow of product and the addition of steam to achieve consistent temperature in the out-going product. The cooker heats product, and controls other processes, such as the amount of shear or cutting force applied to the product, the hydration of functional components within the product formulae, the establishment of a homogenous product and the establishment of a stable emulsion. A key practical requirement is the avoidance of product burn. This is principally achieved by using multi-port steam injectors which can be used as required to regulate heating. The steam control valve controls the steam flow while the selection of injectors controls the steam distribution. Product mixing is regulated by an internal rotating agitator, which can be operated at difference speeds depending on product requirements. The rotor also serves to keep product from sticking to the outer walls, and assists in achieving even heating. A plug flow effect is created which eliminates laminar flow patterns, ensuring that product passes at an even flow. The design objective is to achieve reliable, burn free continuous cooking – to enable continuous cooking for periods of days.’
In the course of designing the DSI Cooker, Mr Smith was the author of and owner of copyright in various sketches and concept drawings for the DSI Cooker (the ‘Original Drawings’). Three of those Original Drawings were admitted into evidence under the headings: Processed Cheese Manufacture; Vertical Continuous Cooker; and Steam Jet for Continuous Cooker.
For the purposes of this proceeding the following key components of the DSI Cooker:
·     The cooking column or tube;
·     The steam header;
·     The steam injectors; and
·     The rotor.
There are two types of drawings subject to the competing copyright claims: the general assembly drawings (also referred to as concept drawings), which are drawings of a general nature designed to be provided to clients to explain the operation of a cooking system and the manufacturing drawings, which are drawings of a precise technical nature designed to assist a qualified tradesperson to manufacture the cooking machine and components.
Alfa Laval companies
It was not seriously in contest that the ultimate holding company of the Alfa Laval group of companies, in 1984 was Alfa‑Laval AB, a company registered in Sweden (‘Alfa Laval Sweden’). In 1984 Mr Smith entered into negotiations with Alfa Laval Hamilton Pty Ltd of Australia (‘Alfa Laval Hamilton’), a subsidiary of Alfa Laval Sweden, with a view to commercialisation of the DSI Cooker which he had developed.
Mr Smith dealt with persons representing several different companies in the Alfa Laval group during the negotiation process, some of which companies were based in Australia and others in Europe. In Australia, Mr Smith primarily dealt with Mr John Farmer, a manager of an Australian subsidiary, Alfa-Laval Pty Ltd (this company became Alfa-Laval Australia Pty Ltd in 1987 and is referred to hereafter as ‘Alfa Laval Australia’). In Europe Mr Peter Holmskov appears to have been Mr Smith’s main contact. Mr Holmskov was a director of several European companies in the Alfa Laval group of companies, including a Danish company called Danish Membranefiltration and International Dairy-Engineering A/S (‘Danish Membranefiltration’), a company registered in the United Kingdom called Alfa-Laval Cheese Systems Limited (‘ALCS’), Alfa Laval Dairy Systems in Sweden and Alfa-Laval Filtration Systems, also Danish. It is worth noting here that the various Alfa Laval representatives agreed at the start of the negotiations not to make use of the material and ideas Mr Smith had provided without Mr Smith’s permission.
After numerous discussions, it was agreed ‘in principle’ that Alfa Laval would co-operate with Mr Smith on the proposed commercialisation. On the strength of this oral agreement, even though a formal written agreement had not yet been entered into, ALCS filed patent applications for the DSI Cooker in the United Kingdom, the United States of America and Canada using the Original Drawings. Mr Smith was named as the inventor of the DSI Cooker on each of the patent applications.
On 18 September 1985, Mr Paul Pritchard of ALCS sent a draft consultancy agreement to Smith to formalise the relationship between Mr Smith and ALCS. The agreement with ALCS does not appear to have been finalised at that time.
It was not until 29 April 1986 that Mr Smith executed a consultancy agreement (the ‘Consultancy Agreement’) with Danish Membranefiltration. Mr Holmskov signed the Consultancy Agreement on behalf of Danish Membranefiltration. It is relevant to note that Danish Membranefiltration is defined as ‘ALCS’ in the Consultancy Agreement and subsequent correspondence refers to Alfa-Laval, ALCS and Danish Membranefiltration interchangeably; it appears from this that Danish Membranefiltration used the same trading name used by the United Kingdom company which was a party to the draft consultancy agreement referred to above, i.e. Alfa-Laval Cheese Systems.
Mr Smith was described in the Consultancy Agreement as having ‘designed various processes and developed prototype equipment associated with food packaging’. Under the terms of the Consultancy Agreement Mr Smith assigned to Danish Membranefiltration all rights, title and interest in the following:
‘3.1.1all equipment, machinery, designs, drawings, information, machinery and any other relevant documents which may relate to the development of the Concepts;
3.1.2 all Prototypes, either wholly or partly completed;
3.1.3all other ownership rights, including but not limited to patents, the right to apply for patents, copyright, registered designs and legal and beneficial ownership, in relation to the Concepts or in relation to any similar processes, inventions or equipment which he may develop or acquire in the course of providing Services during the duration of this Agreement or for six months after the termination of this Agreement.’
The ‘Concepts’ were defined in Schedule 1 of the Consultancy Agreement to include the processed cheese cooker, and other products, which Mr Smith had developed.
Mr Christopher Fenton, a director of some of the Australian subsidiaries which were members of the Alfa Laval group, Alfa Laval Hamilton and Alfa-Laval Engineering Pty Ltd (‘Alfa Laval Engineering’), gave evidence that these companies were provided with a licence from Danish Membranefiltration to use the intellectual property rights assigned by Mr Smith in the Consultancy Agreement to commercialise the cooker in Australia. This licence was based on a discussion Mr Fenton had with Mr Holmskov sometime in 1986, during which Mr Holmskov indicated that if the Australian subsidiaries of the Alfa Laval group of companies wished to develop and sell the DSI Cooker in Australia, they had permission to do so. I find that the Australian companies were authorised by the Danish Membranefiltration to take the steps they did.
Danish Membranefiltration never proceeded to the commercial manufacture of the DSI Cooker. Shortly after entering into the Consultancy Agreement, Mr Holmskov informed Mr Smith by letter dated 3 September 1986 under the name of Alfa Laval Filtration Systems that ‘due to a change in priorities they would not be proceeding with the commercialisation of the DSI Cooker’. The letter also referred to the patent applications, which had already been filed. It stated that the United Kingdom patent applications would belong to Mr Smith, but that the other pending patent applications would be maintained by Alfa Laval and that it would keep the patents on Mr Smith’s behalf at no further cost to Mr Smith. However, in the event that Mr Smith chose to transfer those patents to someone else, then Alfa Laval would require Mr Smith to reimburse the group for any costs incurred by it in connection with those patents. Mr Holmskov also suggested that Mr Smith continue discussions with Mr Farmer, regarding the possibility of the Australian subsidiaries of Alfa Laval proceeding with the development and sale of the DSI Cooker for the Australian market.
Mr Smith took Mr Holmskov’s advice and on 30 September 1986, Mr Farmer under the aegis of Alfa Laval wrote to Mr Smith on behalf of Alfa Laval Australia, setting out in writing the details of the discussions between that company and Smith regarding the commercialisation of the DSI Cooker. The letter indicates that although Alfa Laval was ‘unable to commit to proceeding with this project internationally’ the Australian subsidiaries ‘would be more than willing to pursue the development of at least the (DSI Cooker), as set down in the agreement we will include in our pricing calculations the royalty payable to you on each sale’. It appears that the ‘agreement’ referred to in this letter was the Consultancy Agreement Mr Smith had entered into with Danish Membranefiltration. There is no evidence that a separate written agreement was entered into between Alfa Laval Australia and Mr Smith. Significantly for the present proceeding, Mr Smith continued to correspond directly with Mr Holmskov in Sweden regarding the future progress of the DSI Cooker.
Alfa Laval Australia, and its related companies Alfa Laval Hamilton and Alfa Laval Engineering, commenced the development of the engineering drawings for use in the commercial manufacture of the DSI Cooker in 1986. Neither party disputes that Mr Paul Watson, who was an employee of Alfa Laval Engineering, authored and produced most of the drawings for use in the manufacture of the DSI Cooker. These drawings are collectively referred to as ‘the Alfa Laval Drawings’. The applicant submits that Mr Smith also contributed to the development and design of the DSI Cooker as depicted in the Alfa Laval Drawings by providing technical assistance to Mr Watson and because Alfa Laval Engineering used the original drawings and confidential information, which had been assigned by Mr Smith to Danish Membranefiltration which had in turn licensed or authorised Alfa Laval Engineering to use them.
In terms of the process used to produce the Alfa Laval Drawings, Mr Watson’s evidence was that he was given copies of Mr Smith’s Original Drawings at the start of the project. Mr Watson stated in affidavit evidence that the final version of the Alfa Laval Drawings was produced in ‘constant consultation with Bob Smith discussing operational issues.’ Mr Watson also gave evidence of the design features particular to the DSI Cookers. Mr Watson attributed the following design features to Mr Smith:
·     The decision to have a vertical or upright cooking column as opposed to a horizontal cooking column;
·     The design of the rotor was based on Mr Smith’s experience with the ‘Murray Goulburn’ prototype discussed below; and
·     The number of steam injectors and the decision whether to put steam injectors down both sides of the cooking column was a collaborative effort between Alfa Laval Engineering employees and Mr Smith.
According to Mr Watson’s evidence, Teflon was the obvious choice of material for the steam injector nozzle, which was designed as the interface between the steam and the product as it did not produce ‘burn on’ of food products during the cooking process. The frame of the Alfa Laval cooker supporting the motor and cooking column was hinged to allow the entire cooking system to be tilted to facilitate cleaning and maintenance. Mr Watson’s evidence was that the dimensions of the cooking column and the number of steam injectors were designed to be modified according to the volume and type of produce to be processed.
In 1987, Alfa Laval Engineering advised Mr Smith that it had commissioned the first respondent to manufacture the DSI Cooker. According to Mr Smith’s evidence he met with Mr John Miller and Mr Janis Zakis, the directors of the first respondent at that time on numerous occasions during the development stages of the DSI Cooker. This is not disputed. Mr Watson also gave evidence that he told the first respondent that all changes to the design specification of the DSI Cooker were to be approved by Mr Smith. Mr Watson’s evidence in relation to Mr Zakis was that during the drawing and design phase of the DSI Cooker Mr Zakis provided some input into the ultimate design of the DSI Cooker and the drawings, which were created by Mr Watson. Mr Watson said that Mr Zakis’s input ‘was particularly concerned with matters which might simplify the manufacture of the machine . . . was quite standard input provided by a manufacturer to a designer to assist in the ease of manufacture’.Mr Watson also gave evidence that, unless specifically agreed, it was not the practice of Alfa Laval Engineering to pay ‘companies for any advice, gratuitous or otherwise which may have been provided to assist in the manufacture of its equipment.’
A prototype DSI Cooker was developed and installed at the Murray Goulburn Cooperative Co Limited (‘Murray Goulburn’) processing plant in Cobram. Following the successful trial of the prototype DSI Cooker at Murray Goulburn, a commercial unit was later installed at that plant. Smith was paid $10,000 pursuant to the terms of the Consultancy Agreement and a further $2,330 in royalties, being 5% of the fee received by Alfa Laval Australia following the successful sale of the Murray Goulburn DSI Cooker.
During 1988, Mr Smith continued to correspond directly with Mr Holmskov in Europe and with Mr Farmer in Australia, seeking a commitment for the future manufacture of the DSI Cooker. It appears that Mr Smith was also seeking a form of joint venture with the Alfa Laval group of companies. Mr Farmer wrote to Mr Smith on 5 August 1988 to advise that without support from ALCS in Europe Alfa Laval Engineering would not be able to undertake a joint venture with Mr Smith.
In or about 1989, the first respondent manufactured a second DSI Cooker on behalf of Alfa Laval Engineering, for installation at the premises of Bonlac Foods Limited (‘Bonlac’). Mr Smith was paid $400 per day to commission the Bonlac cooker. Mr Watson gave evidence that he prepared the drawings necessary for the manufacture of the DSI Cooker installed at the Bonlac processing plant, using the Murray Goulburn drawings as a base. Mr Watson further stated that he supplied those drawings, complete with manufacturing specifications, to the first respondent for use in the manufacture of the DSI Cooker. None of this is disputed. Mr Miller, a principal of the respondent at the time and until 1997, gave evidence that:
‘The copyright notice on the drawings relating to the manufacture of the DSI Cookers manufactured by Kovan for Alfa-Laval made it clear that Alfa‑Laval was the copyright owner in the drawings and I cannot recall any suggestion from anybody that Alfa‑Laval was not the owner of the copyright in the drawings. As far as I am concerned Kovan did not and would not have sought to claim any copyright rights in relation to any drawing that Kovan created for the cookers it manufactured for Alfa‑Laval.’
It appears that the relationship between Alfa Laval and Mr Smith began to deteriorate in or about June 1989. Mr Smith gave evidence that he was disappointed that Alfa Laval could not make a decision about whether to proceed the commercialisation of the DSI Cooker. On 1 December 1989, Mr Smith wrote to Mr Dennis Hurran, who had replaced Mr Farmer at Alfa Laval Australia, to advise that he wished to terminate the Consultancy Agreement. In that letter Mr Smith stated that:
‘I would like to recover my assets both intellectual and physical from your organization (sic) and I think we should meet to see how this can best be executed.’
On 8 May 1990, Mr Smith wrote to Mr Trevor Clarke of ALCS to press his claimed entitlement to the intellectual property rights in the DSI Cooker and acquired know-how. Mr Smith advised Mr Clarke that he was proceeding through his company, the applicant, with the commercial manufacture of the DSI Cooker and that he needed assurance from Alfa Laval that it would not seek to enforce the Consultancy Agreement or make any claims to rights in the DSI Cooker.
On 14 September 1990, Mr Clarke wrote to advise Mr Smith that under the terms of the Consultancy Agreement Alfa Laval retained the sole right for commercial exploitation of the DSI Cooker. However, Mr Clarke also informed Mr Smith that ‘Alfa Laval would be willing to procure a re-assignment to [Mr Smith] by [Danish Membranefiltration] of all rights in the DSI Cheese Cooker.’ Such an assignment would be subject to payment by Mr Smith of all costs incurred by the relevant Alfa Laval entity in respect of the patent applications.
A further exchange of letters occurred on 25 September 1990 and 19 October 1990 in relation to the reassignment of the intellectual property rights in the DSI Cooker. It is significant that on 19 October 1990, Mr Clarke of ALCS forwarded a facsimile to Mr Smith stating that:
‘There is only one agreement with binding terms signed between both parties, this was dated 29th April 1986. To waiver the assignment rights of this agreement, we are asking for compensation in respect of patent application costs.’
Mr Smith was also informed, by letter dated 30 May 1991, that the original Alfa Laval entity, which had entered into the Consultancy Agreement, Danish Membranefiltration, had amalgamated with another division and all correspondence would therefore be signed by Alfa Laval Dairy Systems. On the evidence before the court all subsequent correspondence with European companies in Alfa Laval was signed on behalf of either Alfa-Laval Food Engineering AB or Alfa Laval Dairy Systems. Ultimately Mr Smith wrote to Mr Holmskov on 11 February 1992, confirming the agreement to terminate the Consultancy Agreement was to be effective from 1 June 1991. This letter was counter-signed by Mr Holmskov on behalf of Alfa-Laval Dairy Systems on 2 March 1992. It stated in terms that Alfa Laval Dairy Systems was the ‘parent company of the relevant division of Alfa Laval (of which Danish Membranefiltration was a member) and that the parent company would take full responsibility for the proper fulfilment of all terms.’
It appears that the patent applications were allowed to lapse and consequently there were no patent rights existing at the time of reassignment, with the exception of a United States of America patent granted in respect of the casting line (US Patent No. 4735817). This begs the question as to what rights, if any, were reassigned to Mr Smith upon cessation of the Consultancy Agreement. Mr Smith claims that the consent to the letter of 11 February 1992 reassigned to him the Original Drawings and transferred to him the legal ownership of the Alfa Laval Drawings and any associated know-how acquired by Alfa Laval in developing the DSI Cooker (the ‘Assigned Rights’). While the respondents do not challenge the facts they do challenge the validity of this assignment. The respondents also claim that the effect of the letter of 11 February 1992 was simply to terminate the Consultancy Agreement and submitted it does not have the effect of vesting any copyright in the Alfa Laval Drawings in Mr Smith and/or the applicant.

Mr Smith lacked the financial capacity to proceed directly to commercial manufacture of the DSI Cooker without Alfa Laval’s support. Consequently Mr Smith, in his capacity as director of the applicant, approached Mr Miller and Mr Zakis of the first respondent with a view to the first respondent continuing to manufacture the DSI Cooker for sale by the applicant. As already explained, the first respondent had been engaged by Alfa Laval Engineering to manufacture the Murray Goulburn and Bonlac DSI Cookers.
Mr Smith commenced discussions with Mr Miller and Mr Zakis in or about 1990. Mr Smith claims that he advised Mr Miller that he wished the first respondent to manufacture the DSI Cooker as he was intending, through the applicant, ‘to develop, market and sell the Smith DSI Cooker in the market place’. Mr Miller’s evidence was that he made it clear to Mr Smith that the first respondent would not enter into any sort of manufacturing arrangement with Mr Smith concerning the DSI Cooker unless Mr Smith was able to obtain a clear assignment of rights to him from Alfa Laval. It is a point of contention between the parties in this proceeding as to whether further discussions between the parties were stalled pending the finalisation of the applicant’s relationship with Alfa Laval.
The parties have given conflicting evidence as to the premise upon which the initial discussions took place. Mr Zakis claims that Mr Smith approached him on behalf of the applicant and asked whether the first respondent ‘would be prepared to work with him in the development of a direct steam injector cooker system’. On 22 May 1990 Mr Zakis furnished the applicant with a quote on behalf of the first respondent estimating the price for the manufacture of the DSI Cooker. Mr Zakis attached some preliminary calculations indicating that the first respondent proposed to charge a 30% margin on direct labour and material costs for the manufacture of a Cooker on the applicant’s order.
Although the precise terms of the arrangement between the parties is a contested issue, there is no doubt that an accord was reached whereby the first respondent would manufacture DSI Cookers on order from the applicant and the applicant would be responsible for the sale and marketing of each of the DSI Cookers, always provided Mr Smith was able to obtain back such rights as he had assigned to Alfa Laval.
According to Mr Smith’s evidence, between 1990 and 1992, Mr Smith had numerous discussions with Mr Miller and Mr Zakis concerning the arrangements between the applicant and the first respondent for the future manufacture of the DSI Cooker. Most of those discussions took place at the first respondent’s offices. In or about 1991, Mr Smith commenced discussions with a Dutch company called Vonk Foods concerning purchase of a DSI Cooker on an approval basis. On the strength of those discussions, the applicant obtained an initial quote from the first respondent on 19 November 1990 in which the first respondent stipulated that it would charge 20% on top of the direct costs of labour and materials of the DSI Cookers it manufactured on order from the applicant. The first respondent prepared additional quotes throughout 1991 in response to further queries from the applicant in relation to the DSI Cooker for sale to Vonk Foods. During this period there is also evidence that further drawings of the DSI Cooker were made in preparation for the future manufacture of the cooking machine.
The designs and drawings produced between 1990 and 1992 were ultimately used in the manufacture of the Vonk Foods DSI Cooker and are collectively referred to as the ‘Vonk Drawings’. There is conflicting evidence between the parties as to the input each party had in the process of producing those drawings. The applicant claims that both Mr Smith and Mr Zakis undertook further drafting and design drawing work to make modifications to the DSI Cooker using the rights assigned by Alfa Laval. The respondents claim that Mr Zakis contributed the technical know‑how necessary to make the modifications and that Mr Smith did not contribute to the development phase of the DSI Cooker for Vonk, or any of the subsequent DSI Cookers manufactured by the first respondent.
One of the terms of the contract between the applicant and Vonk Foods was that in the event that the Vonk Foods DSI Cooker did not perform to the specifications, the applicant would refund the deposit monies to Vonk Foods. Mr Smith claims, and the respondents do not deny, that the applicant would have no recourse to the first respondent in that event. It is part of the applicant’s submission that this was consistent with the course of dealings between the applicant and the first respondent between 1992 and 2002.
The applicant placed an initial order with the first respondent for a DSI Cooker for supply to Vonk Foods on 13 February 1992. According to the purchase order form, the first respondent was to ‘construct and supply’ a DSI Cooker and Vacuum Vessel with Control panel for export with delivery by the first week in June of that year. In response to the Vonk Foods order, on 3 March 1992 the first respondent supplied a revised version of the initial quote provided on 19 November 1990 to the applicant. That quote identified the items that the first respondent would manufacture, the labour costs, costs of material and services that allowed a margin for overheads and other expenses and a total price with a mark-up of 40%. The total price quoted was approximately $7,000 less than the actual price including margins, however, Mr Zakis maintained, in cross-examination during the hearing, that the lower price quoted represented a discount. Significantly for this case, any costs incurred by the first respondent for design and drawing work are not itemised in the quote. The applicant sent a final purchase order for the Vonk Foods DSI Cooker to the first respondent on 5 March 1992.
Between 1992 and 2002 the first respondent manufactured a total of 26 DSI Cookers. From about 1997 those DSI Cookers were marketed under the name RotaTherm, a trade mark owned and registered by the applicant (so that cookers called DSI Cookers until 1997 were called RotaTherm Cookers after 1997). Insofar as any manufacturing drawings produced relate to the DSI Cookers, whether sold under the RotaTherm mark or earlier, they are collectively referred to by the applicant as the ‘RotaTherm Drawings’.
Although the precise details of the arrangement between the parties during the 10 years they worked together is a contested issue, it is evident that each of the DSI Cookers was manufactured under an arrangement similar to that employed with respect to the Vonk Cooker. Each of the DSI Cookers manufactured by the first respondent during this period was manufactured to the applicant’s order and installed at the premises of each customer pursuant to orders placed by the customer with the applicant. The respondents acknowledge that the applicant has paid the first respondent for the supply of the DSI Cooker systems in accordance with the quotes provided by the first respondent to the applicant. However, it is the applicant’s submission that the price paid for each of the DSI Cookers included an amount for the tooling, development, drawing, design, consulting, advisory and drafting services provided by the first respondent’s employees in respect of the DSI Cookers. The respondents disclaim the existence of any agreement between the parties with respect to the copyright, confidential information or any other intellectual property rights relating to the DSI Cooker and cooker system. The terms upon which the parties agreed to conduct their dealings over the course of over 10 years, is a central issue in this case. In particular, it was a contested issue whether the applicant was entitled to claim any intellectual property rights in the Vonk Drawings and the RotaTherm Drawings. By the end of the hearing, the first respondent had conceded the applicant was entitled to all RotaTherm Drawings containing a title block naming the applicant. Essentially this covered the Vonk drawings.
Issues
Put simply, the applicant’s claims relate to the ownership of copyright in two sets of drawings, the subsistence of an agreement relating to copyright and threatened infringement of copyright, as well as a claim of misleading and deceptive conduct under the TPA, and passing off.
The main copyright issues for determination in this proceeding are whether:
(1)   the applicant is the owner of the copyright in the Alfa Laval Drawings;
(2)   the applicant is the equitable owner of the copyright in the RotaTherm Drawings;
(3)   the applicant is entitled to an assignment from the first respondent of the legal ownership in the RotaTherm Drawings;
(4)   the first respondent threatens or intends to infringe the applicant’s claim to an exclusive right to reproduction subsisting in the Alfa Laval Drawings and the RotaTherm Drawings;
(5) a corresponding design (or designs) to the Alfa Laval Drawings and the RotaTherm Drawings has been applied industrially by or with the licence of the applicant to manufacture the RotaTherm Cookers (s 77 of the Copyright Act).
It will be convenient to deal with the copyright issues in that order. However, the question of whether the applicant is entitled to an assignment in respect of the RotaTherm Drawings depends on whether the applicant proves an agreement as pleaded, containing terms as pleaded. If those matters are decided in the applicant’s favour, it will be convenient to deal with the issues of estoppel, breach of that agreement, then the trade practices and passing off issues, which rely on the same facts, before turning to copyright infringement issues.
The main issues that arise for determination in the proceeding under s 52 of the TPA and at general law are whether:
(1)the first respondent has acted in contravention of s 52 of the TPA in asserting that it is the owner of the intellectual property rights in the RotaTherm Drawings;
(2)the first respondent has made representations to the public and/or persons interested in purchasing DSI Cookers that are misleading or deceptive by offering for sale DSI Cookers under the name ‘Fusion Cookers’;
(3)the first respondent has engaged in passing off its business as the business of the applicant and its products and services including the Fusion Cooker as the applicant’s products and services.
On the basis of their dealings between 1990 and 2002, the applicant further claims that the first respondent should be estopped from denying:
(1)   the assignment of the rights in the Alfa Laval Drawings to the applicant;
(2)   the agreement between the applicant and the first respondent; and
(3)   by reason of the agreement, the applicant’s equitable ownership of the copyright in the RotaTherm Drawings.
Finally, the applicant also claims that the second and third respondents have authorised or approved of the first respondent threatening or intending to infringe the copyright. Whether this aspect of the claim is successful depends on findings in relation to the claim against the first respondent.
Is the applicant the owner of the copyright in the Alfa Laval Drawings?
The applicant claims ownership of the reproduction rights subsisting in the Alfa Laval Drawings on the basis that Alfa Laval assigned the rights in those drawings to Mr Smith. The applicant submits that if the first respondent manufactures or sells a DSI Cooker manufactured in accordance with or using the RotaTherm Drawings then the first respondent will infringe the copyright subsisting in the Alfa Laval Drawings.
In order to prove the claim that the first respondent threatens or intends to infringe the applicant’s exclusive right to reproduction subsisting in the Alfa Laval Drawings, the applicant must establish:
(1)that the applicant owns the copyright in the Alfa Laval drawings; and
(2)the cookers being offered for sale by the first respondent would reproduce a substantial part of the Alfa Laval Drawings.
The respondents have put in issue the validity of the assignment of intellectual property rights from Alfa Laval to Mr Smith, and therefore the ownership of the Alfa Laval Drawings. The respondents also claim that there are significant differences between the RotaTherm Drawings and the Alfa Laval Drawings such that the RotaTherm Drawings, and any cookers made in accordance with them, do not substantially reproduce the Alfa Laval Drawings.
Relevant provisions of the Copyright Act
Section 35(3) provides:
‘The operation of any of the next three succeeding subsections in relation to copyright in a particular work may be excluded or modified by agreement.’
Section 196(3) provides:
‘An assignment of copyright (whether total or partial) does not have effect unless it is in writing signed by or on behalf of the assignor.’
In order to determine whether the applicant has ownership of the copyright in the Alfa Laval Drawings, it is necessary to have recourse, as foreshadowed above, to the terms of the Consultancy Agreement entered into between Mr Smith and Danish Membranefiltration on 29 April 1986, under which Mr Smith assigned all intellectual property rights in the DSI Cooker he had designed to Danish Membranefiltration. The relevant clause of the Consultancy Agreement is clause 3, which is already set out above.
The applicant asserts that the letter of 11 February 1992 was effective:
(a)to reassign to Mr Smith all of the intellectual property rights in the Cooking machine that had originally been assigned to;
(b)Danish Membranefiltration under the terms of the Consultancy Agreement; and
(c)to assign the copyright in the Alfa Laval Drawings created during the currency of that agreement.
The relevant clause of the letter of 11 February 1992 states:
‘(C) With the mutual cessation of the Agreement and the cessation of Alfa-Laval’s involvement then all Alfa-Laval’s previously assigned rights cease and all associated information is to be returned to the inventors control without charges by either party.’
It was submitted on behalf of the applicant that copyright in the Original Drawings was included in the initial grant of rights by Mr Smith to Danish Membranefiltration. It was further submitted that Mr Smith had a beneficial entitlement to the copyright in the Alfa Laval Drawings produced by Alfa Laval Hamilton and Alfa Laval Engineering for use in the manufacture of the Murray Goulburn and Bonlac DSI Cookers. Counsel for the applicant submitted that the reference to all Alfa Laval’s previously assigned rights ‘and all associated information’ in the letter of 11 February 1992 can only be properly understood in the context that Alfa Laval was now vacating the field and thus transferring all of its then existing rights in the DSI Cooker, including those rights which arose as a result of development during the currency of the Consultancy Agreement. Accordingly, the applicant submits that the letter of 11 February 1992 was ‘effective to assign these rights to the applicant, so that it can bring the present proceeding as the owner of the copyright in the Alfa Laval Drawings’.
The respondents have challenged the validity of the purported reassignment by Alfa Laval to Mr Smith of the intellectual property rights in the DSI Cooker on three grounds. First, the respondents submitted that there was no evidence of an assignment of copyright by the original owners of the Alfa Laval Drawings, either Alfa Laval Hamilton or Alfa Laval Engineering (employers of the authors) to Alfa Laval Dairy Systems AB. Accordingly it was argued that Alfa Laval Dairy Systems AB could not assign the copyright subsisting in those drawings to Mr Smith. Secondly, it was contended there is no proper evidence of Mr Holmskov’s authority to act for the assignor(s). Thirdly, the respondents claim that the letter of 11 February 1992 was only effective to reassign to Mr Smith the copyright in the Original Drawings and did not result in the copyright subsisting in the Alfa Laval Drawings being assigned to the applicant. In fact, the parties to the letter were the applicant, on whose behalf Mr Smith signed, and Alfa Laval Dairy Systems, on whose behalf Mr Holmskov signed.
In response to these assertions the applicant submitted that the evidence regarding the Alfa Laval Drawings was that they were based on the Original Drawings by Smith, and resulted from the joint contributions of Mr Smith, Mr Watson and other employees of Alfa Laval Engineering, Alfa Laval Hamilton and/or Alfa Laval Australia. At the very least, it is submitted, Mr Smith was a joint author of the Alfa Laval Drawings; or alternatively that the Alfa Laval Drawings were within the ‘associated information’ forming part of the development of the DSI Cooker, and therefore successfully assigned by the letter of 11 February 1992.
Findings
The letter of 11 February 1992 expressly refers to ‘our discussions and correspondence about our future relationship’. The documents referred to include the Consultancy Agreement and all the correspondence that followed. For example, I note the letter dated 1 December 1989 from Mr Smith to Mr Dennis Hurran of Alfa Laval Australia in which Mr Smith specifically states that he seeks ‘to recover [his] assets both intellectual and physical’ which the applicant submits, and I accept, encompasses the copyrights in the Original Drawings and the Alfa Laval Drawings
As discussed above, Mr Fenton was a director of Alfa Laval Hamilton from 1982 until 2001, and a director of Alfa Laval Engineering from 1986 until 1992. Mr Fenton’s affidavit sets out his opinion regarding the relationships between the various Alfa Laval companies, and the nature of the assignment of rights in the Consultancy Agreement and the reassignment in the letter of 11 February 1992. Mr Fenton deposed that Mr Holmskov, signatory for Danish Membranefiltration to the Consultancy Agreement, licensed the use of the intellectual property rights to the Alfa Laval Hamilton and Alfa Laval Engineering. I accept this evidence, which is consistent with other facts in evidence. At the end of certain discussions, which Mr Fenton had with other directors (the contents of which are not in evidence), Mr Holmskov signed the letter reassigning the rights. In considering this evidence I have taken into account the objections raised by the respondents to Mr Fenton’s affidavit which were overruled, and have relied on his evidence as evidence of his opinion only. His opinion that Alfa Laval Sweden was the ultimate holding company of the Alfa Laval group and that the Australian companies and the Alfa Laval Dairy Systems were subsidiaries, was based on corporate charts he received in and about all material times while he was a director of the two Australian subsidiaries who are relevant to the assignment.
It is noted that a principal is bound by the acts of an agent acting with apparent authority: see ss 128(1) and (2) and 129(3) and (4) of the Corporations Act 2001 (Cth) and see also s 129(1) of the same act embodying the ‘indoor management rule’ explicated in Royal British Bank v Turquand (1856) 119 ER 886. On the basis of what was said, the documents I have described, the context, and the civil standard of proof, I am satisfied that Mr Holmskov had actual, or apparent, authority to assign the rights held by Danish Membranefiltration (or any successor‑in‑title to it) under the Consultancy Agreement and actual, or apparent, authority to assign the rights held by the Australian Alfa Laval companies which were proved to be subsidiaries, working under licence from Danish Membranefiltration, and which employed the draftsmen involved. I was satisfied on the evidence that all directors of the various companies involved acted reasonably: see Re Duromatic Ltd [1969] 1 All ER 161. These findings dispose of two of the respondent’s challenges to the assignment.

The Copyright Act does not require any specific formulation or wording for the purposes of s 196(3), but it must be apparent that the document is the assignment of the copyright itself, not a mere licence, nor conveyance of rights or property other than copyright: see Murray v King (1984) 4 FCR 1 per Sheppard J at 7; Greenfield Products Pty Ltd v Rover-Scott Boonar Ltd (1990) 17 IPR 417 per Pincus J at 422-423; Wilson v Weiss Art Pty Ltd (1995) 31 IPR 432 at 432 per Hill J.
Here, the language used in the letter of 11 February 1992 indicates that all rights, including copyrights were to be assigned to the applicant, and that Danish Membranefiltration (or any successor‑in‑title) was not to retain any rights.
The reference to ‘all Alfa-Laval’s previously assigned rights’ in paragraph (c) of the letter of 11 February 1992 incorporates by reference those rights set out in 3.1.3 of the Consultancy Agreement set out in paragraph 20 above. This clause appears to contemplate precisely the type of drawings which constitute the Alfa Laval Drawings. I am satisfied the letter of 11 February 1992 was effective to assign the rights referred to, to the applicant and the applicant is entitled to bring the proceeding as owner of the Alfa Laval Drawings. This finding disposes of the respondent’s third objection to the assignment.
If I were wrong in the conclusions I have drawn from the evidence, and if the assigned documents under consideration were insufficient as a matter of law to pass legal title in the relevant copyrights to the applicant, it would be entitled, as against Alfa Laval Dairy Systems, to perfect his entitlements given the express intentions, words and actions of both of the parties to the assignment and of all of the Alfa Laval parties concerned.
Is the applicant the equitable owner of copyright in the RotaTherm Drawings?
The grounds of the applicant’s claim in relation to the alleged agreement may be stated in short compass. As a matter of law, is that the author of a work is the first owner of any copyright subsisting in that work under the Copyright Act (s 35(2)). This general rule is subject to certain exceptions also set out in the Copyright Act. It was conceded on behalf of the applicant, that the applicant did not have a claim to copyright in the RotaTherm Drawings on the basis of authorship under the Copyright Act. Rather, the applicant claims that pursuant to the terms of the alleged agreement, the applicant is, and was at all material times, entitled to ownership of the copyright in the RotaTherm Drawings. Accordingly, the applicant claims that by virtue of the alleged agreement it is the equitable owner of such copyright, and is entitled to an assignment from the first respondent of the first respondent’s legal ownership of the RotaTherm Drawings.
It is the applicant’s submission that the first respondent manufactured and supplied each of the RotaTherm Cookers in accordance with the terms of an alleged agreement entered into in 1992. It was submitted for the applicant that the terms of that alleged agreement were partly oral and partly to be implied as a matter of business efficacy. To the extent that the alleged agreement is oral it is pleaded on behalf of the applicant that it was constituted by discussions between Mr Smith and Mr Miller (and Mr Zakis) at the first respondent’s premises in or about 1992.
The applicant claims, in its closing submissions, that the following terms were agreed to by Mr Smith and Mr Miller during the discussions at the first respondent’s premises referred to above:
‘(a) on order from Gold Peg, Kovan would manufacture cooking machines to Gold Peg’s specification utilising the Assigned Rights [the Alfa Laval Drawings], subject to an agreement on price and payment terms in relation to each cooking machine;
(b)the cost of drafting and design work, necessary to create engineering drawings to manufacture the cooking machines, undertaken by Kovan would be incorporated in the agreed contract price paid by Gold Peg to Kovan for the cooking machines;
(c)Kovan would take no responsibility for claims in relation to the cooking machines other than manufacturing or materials defects;
(d)the intellectual property rights (being rights in the nature of copyright, design or patent rights and/or any rights in the nature of confidential information) in the engineering drawings based on the Assigned Rights or any modification or enhancement of the Assigned Rights created by Kovan to manufacture the cooking machines for Gold Peg would be owned by Gold Peg;
(e)Kovan would not make any use of and would keep confidential the Assigned Rights and the drawings created by Kovan to manufacture the cooking machines for Gold Peg; and
(f)Kovan would not use the Assigned Rights and the drawings created by Kovan to manufacture the cooking machines other than for manufacturing cooking machines for Gold Peg to its order.’
The applicant submits that Mr Miller expressly stated his agreement on behalf of the first respondent to terms (a), (b) and (c) of the alleged agreement. In relation to term (d), the applicant submitted first that it was an express term of the agreement but, in the alternative, Mr Miller did not expressly reject the term and thus the term can be implied from both his silence and his conduct as well as being implied as a matter of business efficacy. In relation to terms (e) and (f), the applicant claims that those terms should be implied on the basis of business efficacy.
The respondents deny any agreement in 1992. However, it was conceded in their closing submissions that any terms, which had been assented to and agreed by the first respondent prior to the order for the Vonk cooker being placed, became terms of the contract for the manufacture of the Vonk cooker and were not incorporated in any subsequent contract(s) for the manufacture of cookers. The respondents deny the existence of any agreement between the parties with respect to the copyright, confidential information or any other intellectual property rights relating to the DSI Cookers or the RotaTherm Drawings. The respondents also claim that the applicant has paid the first respondent for the supply of the RotaTherm Cookers but has not paid, or agreed to pay the first respondent for any tooling, development, drawing, design, consulting, advisory or drafting services in respect of the Cooker systems or the Rota Therm Drawings. The respondents further claim that if there was any agreement between the applicant and the first respondent in 1992, that agreement is confined to the terms and conditions relating to the manufacture of the Vonk cooker. The respondents contend that any subsequent cookers sold by the first respondent to the applicant were not sold pursuant to the terms of any agreement made in 1992 or in respect of the Vonk cooker.
In the alternative, the respondents claim that if an agreement were entered into between the first respondent and the applicant, such agreement was unenforceable and does not entitle the applicant to an equitable interest in the copyright in the Vonk and RotaTherm Drawings or an assignment of that copyright because the agreement was not in writing, as required by s 196(3) of the Copyright Act or s 53(1)(c) of the Property Law Act 1958 (Vic), and the applicant has not provided the first respondent with any valuable consideration in respect of the assignment of the copyright.
Applicable principles
Where, as here, applicant asserts the existence of an implied term regulating the parties rights in the drawings then the precise definition of that implied term involves a question of construction of the alleged agreement. In ParramattaDesign & Developments Pty Ltd v Concrete Pty Ltd [2005] 219 ALR 373 at [10] (‘Parramatta’) a Full Court of the Federal Court said of such an exercise:
‘True, it is not an ‘orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision’: Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982)149 CLR 337 at 345 per Mason J. Nevertheless the process involved is of interpreting the meaning of the contract as a whole: South Australia Asset Management Corp v Montague Ltd [1997] AC 191 at 212 per Lord Hoffmann.’
In Codelfa, Mason J noted (at 346) that the implication of a term was appropriate to address a ‘deficiency in the expression of the consensual agreement’. As his Honour noted, such implication might arise to address the failure of parties ‘to direct their minds to a particular eventuality and to make explicit provision for it’. It is, of course, necessary to clarify that it is not appropriate to imply a term because it may be reasonable to do so, but rather to give business efficacy to contracts. The circumstances for implying a term were identified by the Judicial Committee of the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283 (‘BP Refinery’), as follows:
‘(1) it must be reasonable and equitable; (2) it must be necessary to business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’
Where, as in the present case, there is no formal contract concluded between the parties a more flexible approach to the question of implying terms is warranted than that laid down in BP Refinery at 283: see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 121; Hawkins v Clayton (1988) 164 CLR 539 at 573; Byrne & Frew v Australian Airlines Limited (1995) 185 CLR 410 at 422-423. In this kind of case all that is necessary is to show that the term to be implied is necessary for the reasonable or effective operation of the contract in all the circumstances.
Also in Codelfa, Mason J referred to the ‘factual matrix’ of a contract. I find the factual matrix of any agreement between the applicant and the first respondent for the manufacture of cookers included the following:
·     Mr Smith invented the cooker;
·     Mr Smith wished to sell the cooker through the applicant;
·     The first respondent was a manufacturer capable of manufacturing the cooker to Mr Smith’s order and specifications;
·     Mr Smith assigned all his intellectual property rights, including future rights, in the cooker to Alfa Laval;
·     During the currency of that assignment the first respondent manufactured two commercial cookers on behalf of Alfa Laval;
·     The applicant obtained a reassignment of the rights and all rights associated with the rights previously assigned to Danish Membranefiltration before the first respondent manufactured any cookers on behalf of the applicant;
·     The first respondent knew of (and did not challenge) and in fact insisted upon the assignment of all Alfa Laval’s rights to the cooker before to the applicant it was willing to manufacture cookers to the order and specifications of the applicant.
Moving from general principles in respect of the implication of contractual terms to the more specific area of copyright, there are numerous examples where courts have been prepared to imply a condition into an agreement between the parties that the author of a copyright work will assign legal title to it when called upon to do so because equitable ownership of the copyright in the work does not belong to the author. See, for example, Massine v De Basil [1936-1945] MacG Cop Cas 223 (where a choreographic work was prepared for a ballet company); Merchant Adventurers Ltd v M Grew & Co Ltd [1973] 90 RPC 1 (where design drawings for light fittings were prepared by an outside contractor); Ironside v H.M. Attorney‑General [1988] RPC 197 (where a design for new coin was prepared by third party); John Richardson Computers Ltd v Flanders [1993] 20 FSR 497 at 516-517 (which involved a commissioned computer program).
Frequently, such an implication will arise where there is a commissioning arrangement for the preparation of copyright material. In R Griggs Group Ltd v Evans [2004] 31 FSR 673 Peter Prescott QC, sitting as a Deputy Judge in the UK High Court (Chancery Division) said at 682, [33]:
‘. . . it is well established that [s 11 of the Copyright, Design and Patents Act 1988 (UK), which is similar, though not identical to s 35] refers to the legal title to the copyright. But it is possible for a person to own the legal title to property, not for his own benefit, but for the benefit of another person. That other person is said to be the owner in equity. It is well established that s.11 of the Copyright Act does not purport to legislate for equitable ownership, which is left to a well established body of rules that have been built up by the courts over many generations. For example, suppose a freelance designer orally agrees with a company that he shall create a website for use in its business, for payment, and on terms that the copyright shall belong to the company. Because the designer is not an employee of the company the legal title to the copyright belongs to him, because the Copyright Act says so; but the equitable title belongs to the company. This means that the designer can be called upon to assign the legal title to the copyright to the company; and, if he refuses, the law will compel him to do so.’
The Deputy Judge then considered the question of ownership in equity, which arises where a copyright work is commissioned by a client but nothing is said about who will have the copyright. He cited, with approval, the following passage from the judgment of Lightman J in Robin Ray v Classic FM Plc [1998] 25 FSR 622 at 640-643:
‘The issue in every such case is what the client under the contract has agreed to pay for and whether he has “bought” the copyright. The alternatives in each case are that the client has bought the copyright, some form of copyright licence or nothing at all . . .
The general principles governing the respective rights of the contractor and client in the copyright in a work commissioned by the client appear to me to be as follows:
(1)the contractor is entitled to retain the copyright in default of some express or implied term to the contrary effect;
(2)the contract itself may expressly provide as to who shall be entitled to the copyright in work produced pursuant to the contract. Thus under a standard form Royal Institute of British Architects (“RIBA”) contract between an architect and his client, there is an express provision that he copyright shall remain vested in the architect;
(3)the mere fact that the contractor has been commissioned is insufficient to entitle the client to the copyright. Where Parliament intended the act of commissioning alone to vest copyright in the client, e.g. in case of unregistered design rights and registered designs, the legislation expressly so provides (see section 215 of the 1988 Act and section 2(1A) of the Registered Deigns Act 1949 as amended by the 1988 Act). In all other cases the client has to establish the entitlement under some express or implied term of the contract;
(4)the law governing the implication of terms in a contract has been firmly established (if not earlier) by the decision of the House of Lords in Liverpool City Council v Irwin [1977] AC 239 (“Liverpool”). In the words of Lord Bingham MR in Phillips Electronique v British Sky Broadcasting Ltd [1995] EMLR 472 (“Phillips”) at 481, the essence of much learning on implied terms is distilled in the speech of Lord Simon of Glaisdale on behalf of the majority of the Judicial Committee of the Privy Council in BP Refinery (Westernport) Pty Ltd v The President, Councillors and Ratepayers of the Shire of Hastings (1978) 52 ALJR 20 at 26:
“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”
Lord Bingham added an explanation and warning:
“The courts’ usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning of the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power. . .
The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they can appear. Tempting, but wrong.”
(5)where (as in the present case) it is necessary to imply the grant of some right to fill a lacuna in the contract and the question arises how this lacuna is to be filled, guidance is again to be found in Liverpool. The principle is clearly stated that in deciding which of various alternatives should constitute the contents of the term to be implied, the choice must be that which does not exceed what is necessary in the circumstances (see Lord Wilberforce at 245 F‑G). In short a minimalist approach is called for. An implication may only be made if this is necessary, and then only of what is necessary and no more;
(6)accordingly if it is necessary to imply some grant of rights in respect of a copyright work, and the need could be satisfied by the grant of a licence or an assignment of the copyright, the implication will be of the grant of a licence only;
(7)circumstances may exist when the necessity for an assignment of copyright may be established. As Mr Howe has submitted, these circumstances are, however, only likely to arise if the client needs in addition to the right to use the copyright works the right to exclude the contractor from using the work and the ability to enforce the copyright against third parties. Examples of when this situation may arise include: (a) where the purpose in commissioning the work is for the client to multiply and sell copies on the market for which the work was created free from the sale of copies in competition with the client by the contractor or third parties; (b) where the contractor creates a work which is derivative from a pre‑existing work of the client, e.g. when a draughtsman is engaged to turn designs of an article in sketch form by the client into formal manufacturing drawings, and the draughtsman could not use the drawings himself without infringing the underlying rights of the client; (c) where the contractor is engaged as part of a team with employees of the client to produce a composite or joint work and he is unable, or cannot have been intended to be able, to exploit for his own benefit the joint work or indeed any distinct contribution of his own created in the course of his engagement: see Nicholas Advanced Vehicle Systems Inc v Rees [1970] RPC 127 at 139 and consider Sofia Bogrich v Shape Machines, unreported, November 4, 1994, Pat CE and in particular page 15 of the transcript of the judgment of Aldous J. In each case it is necessary to consider the price paid, the impact on the contractor of assignment of copyright and whether it can sensibly have been intended that the contractor should retain any copyright as a separate item of property;
(8)if necessity requires only the grant of a licence, the ambit of the licence must be the minimum which is required to secure to the client the entitlement which the parties to the contract must have intended to confer upon him. The amount of the purchase price which the client under the contract has obliged himself to pay, may be relevant to the ambit of the licence. Thus in Stovin‑Bradford v Volpoint Properties Ltd [1971] 1 Ch 1007, where the client agreed to pay only a nominal fee to his architect for the preparation of plans, he was held to have a licence to use the plans for no purpose beyond the anticipated application for planning permission. By contrast in Blair v Osborne & Tompkins [1971] 21 QB 78, where the client was charged the full RIBA scale fee, his licence was held to extend to using the plans for the building itself. Guidance as to the approach to be adopted is provided in a passage in the judgment of Jacobs J. in Beck v Montana Constructions Pty [1964-5] NSWR 229 at 235 cited with approval by Widgery LJ in Blair v Obsorne & Tompkins, supra at 87:
“it seems to me that the principle involved is this; that the engagement for reward of a person to produce material of a nature which is capable of being the subject of copyright implies a permission, or consent, or licence in the person giving the engagement to use the material in the manner and for the purpose in which and for which it was contemplated between the parties that it would be used at the time of the engagement.”
(9)the licence accordingly is to be limited to what is in the joint contemplation of the parties at the date of the contract, and does not extend to enable the client to take advantage of as new unexpected profitable opportunity (consider Meikle v Maufe [1941] 3 All ER 144).’

In Designers Guild Ltd v Russell Williams (Textiles) Ltd [1998] FSR 803 (first instance); [2000] FSR 121 (Court of Appeal); and [2001] 1 All ER 700 (House of Lords), the works in question were fabric designs. There were clear similarities between the two fabrics, notably in relation to patterns of flowers and stripes, but there were also differences. After finding that there had indeed been copying (which had been denied), the judge at first instance found that there had been a reproduction of a ‘substantial part’ of the plaintiff’s design in the defendant’s fabric, finding this to be in the overall combination of flowers and stripes, the way in which they related to each other, the way in which they were painted and the way in which there was a ‘resist’ effect. Although on appeal to the Court of Appeal, the defendant accepted that it could not challenge the finding of copying, it contested the ‘substantial part’ finding and this was accepted by that Court, which found that the elements copied either the idea of the plaintiff’s work or was a consequence of the parties using the same techniques. This finding was in turn reversed by the House of Lords, which disapproved of the way in which the lower court had isolated the similarities between the works, finding that none on its own constituted a substantial part. Thus, Lord Millett at [2001] 1 All ER 700 at 709, said that, once copying had been established:
‘. . . the question is whether what has been taken constitutes all or a substantial part of the copyright work. This is a matter of impression, for whether the part taken is substantial must be determined by its quality rather than its quantity. It depends upon its importance to the copyright work. . . . The pirated part is considered on its own (see Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273 at 293, per Lord Pearce) and its importance to the copyright work assessed. There is no need to look at the infringing work for this purpose.’
Findings
Despite repeated denial by Mr Zakis, it is clear on the evidence that the first respondent made use of the detail of design work shown in the Alfa Laval Drawings, as indicated by the following findings:
(i)Cookers built by the first respondent look nothing like the alleged prior art sought to be produced by Mr Zakis.
(ii)There were key features of close similarity between the Murray Goulburn and Bonlac cookers, and the Vonk and later cookers, as described above.
(iii)In addition, the choice of Teflon and the type of Teflon used as appropriate material which was proved to be discretionary was carried across by the first respondent from Alfa Laval.
(iv)Further, the same type of pipe and tubing (in the same dimensions) was selected for the first respondent’s manufacture of the steam and header and cooking column, as had been done with Alfa Laval. While this was sought to be explained by reference to stock items being selected, the evidence was that a range of pipe and tubing standards of differing diameters were available.
(v)The rotor was of the same configuration as adopted by Alfa Laval (four bars, instead of three; as shown in Mr Smith’s patent), precisely the same diameter and the same (to one hundredth of a millimetre) close to the top edge tip clearance. The rotor was mounted radially at 90 degrees.
(vi)A comparison between drawings showing the overall features of design of the cooker evidence the claim of copying from the Alfa Laval Drawings. For example, the assembly drawing for the Bonlac cooker and the assembly drawing for the Vonk cooker, indicate the latter is copied from the former by reference to the features described above.
(vii)Comparison between the process drawings for Murray Goulburn and Vonk cookers shows objective copying.
(viii)Mr Smith gave evidence that he observed Mr Zakis referring to the Alfa Laval Drawings during the development period. Mr Zakis agrees he had the Alfa Laval Drawings at the time. To the extent that Mr Zakis gave repeated evidence that he did not refer to the Alfa Laval Drawings. I reject this evidence. There was no inhibition whatsoever on him doing so and as mentioned above he had worked with the Alfa Laval Drawings with the Bonlac cooker, it is inconceivable he could exclude them from his mind when preparing drawings for the Vonk cooker.
(ix)Mr Zakis conceded that he had ‘experience’ with the Alfa Laval cooker so he knew the principle would work.
(x)Mr Zakis stated in written evidence that in connection with the demonstration unit ‘the only method of construction provided to Kovan was produced from the design work of Alfa Laval’, and in cross examination he stated the that the only source of construction details came from Alfa Laval.
(xi)Experts called by the applicant were able to identify similarities and Mr Winton gave evidence on behalf of the applicant that the similarities extended across a significant number of the cookers.
(xii)To the extent that Mr Frost gave evidence for the respondents emphasising the differences between the cookers he was not shown all of the drawings which were relevant to the particulars of infringement. He took into account functionality, which is irrelevant when making a visual comparison of drawings said to be the subject of copyright. He was neither an expert or even a skilled addressee, as that term is understood in patent law, in respect of the alleged prior art. Furthermore, his opinions on independent derivation of drawings by the first respondent were based on a lack of awareness of Mr Zakis’s familiarity with the Alfa Laval Drawings.
Having regard to all the evidence outlined above, and making my own assessment of the similarities between the Alfa Laval Drawings and the RotaTherm Drawings (informed by the evidence of various experts) I conclude that if the first respondent were to manufacture DSI Cookers in accordance with the RotaTherm Drawings it will infringe the copyright held by the applicant in the Alfa Laval Drawings by substantially reproducing those drawings. While it has not been possible for the court to examine actual cookers or cooker parts which have been made in alleged infringement of the relevant drawings, the court, assisted by experts, can visualise the shape and appearance of the various articles and objects depicted in the relevant drawings and conclude that these would be reproductions of a substantial part of those drawings. It follows that any drawings made by the first respondent of those articles and objects for the purposes of making them will also infringe as two‑dimensional reproductions thereof (‘plan to plan’ copies).
I find that by engaging in the conduct referred to in sub-paragraphs 15(a), (b), (e), (g) and (h) of the third further amended statement of claim, the first respondent threatens or intends to infringe the applicant’s copyright in:
(a)the RotaTherm Drawings (claimed by the applicant pursuant to the agreement with the first respondent and which include the drawings containing the applicant’s title block drawings); and
(b)the Alfa Laval Drawings (to which the applicant is entitled by reason of the Alfa Laval assignment).
Accordingly, in the absence of any successful defences, the applicant is entitled to claim quia timet injunctive relief against the first respondent to restrain these acts from occurring.
Defences: Industrial Application
Relevant legislation
The respondents submit they have a complete statutory defence under s 77 of the Copyright Act. Section 77 forms part of what are often referred to as the copyright/design overlap provisions, which are calculated to prevent ‘double protection’ under the two intellectual property regimes: see Glamagard Pty Ltd v Enderslea Productions Pty Ltd (1985) 1 NSWLR 138 at 142 per McLelland J. The section in its current form relevantly states:
‘(1)This section applies where:
(a)copyright subsists in an artistic work . . .;
(b)a corresponding design is or has been applied industrially . . . by or with the licence of the owner of the copyright . . .; and
(c). . . products to which the design has been so applied . . . are sold, let for hire or offered or exposed for sale or hire . . .; and
(d)at that time, the corresponding design . . . has not been registered under [either the Designs Act 2003] or under the Designs Act 1906.
(2)It is not an infringement of the copyright in the artistic work to reproduce the work, on or after the day on which:
(a)products made to the corresponding design are first sold, let for hire or offered or exposed for sale or hire; or . . .
by embodying that, or any other, corresponding design in a product.’
These provisions aim to address the practical consequences of the nature of copyright, being an unregistered interest, for which protection lasts 70 years from the author’s death (s 33 Copyright Act), in contrast to designs which must be registered in order to be protected and are protected for only 10 years (s 46 of the Designs Act 2003 (Cth) (‘the Designs Act’)); and the fact that it is possible for a person to produce, for example, a drawing which may come within the classification of ‘artistic work’ under the Copyright Act, but also constitute a design which is registrable under the relevant designs regime: see Press-Form Pty Ltd v Henderson’s Ltd (1993) 40 FCR 274 at 281 per Gummow J (‘Press-Form’).
Speaking broadly, to delineate the scope of each protection regime, and to promote the registration of registrable designs, s 77(2) has the effect that copyright protection will be lost for a drawing, which has, in effect, been applied in the way that a corresponding design would be applied, and which would more appropriately be protected as a design. In s 77(1), the term ‘applied industrially’ has been described as ‘the use of an artistic work as a design for the commercial manufacture of articles in accordance with the design’: see J Lahore, Lahore’s Copyright and Designs, Vol 1A, ed J Lahore, Butterworths, Australia, 2004 at [64,000] (‘Lahore’). Lahore further notes at [64,300] that ‘the broad policy is that artistic works commercially exploited as three-dimensional designs should generally be denied copyright protection and be protected, if at all, under the designs legislation.’
It has been observed that the interaction of copyright and registered design protection regimes ‘has proved a troublesome matter in a number of countries’: per Wilcox J in Hutchence v South Seas Bubble Co Pty Ltd (1986) 6 IPR 473 at 485. The amendments to Australia’s design protection regime which came into effect as a result of the Designs Act sought to further define and resolve this complex intersection of artistic works and designs. For a comprehensive history of aspects of the overlap provisions prior to the 2004 amendments effective from 17 June 2004, see the judgment of Gummow J in Interlego AG v Croner Trading Pty Ltd (1992) 39 FCR 348.
Section 77, as amended, provides a defence to an action for infringement of copyright in an artistic work where a ‘corresponding design’ has not been registered as a design, but has been industrially applied. A corresponding design, in s 74(1) of the Copyright Act, as inserted by the Designs (Consequential Amendments) Act 2003 (Cth), means:
‘in relation to artistic work, means visual features of shape or configuration which, when embodied in a product, result in a reproduction of that work, whether or not the visual features constitute a design that is capable of being registered under the Designs Act 2003.’
In the light of the amended definition, the applicant admits that there has been application of corresponding designs in respect of two features of the RotaTherm Cookers, namely, the rotors and the bottom elbows.
The parties agreed that the drawings of the steam injectors made by the first respondent and the drawings of the motor, motor shaft, and mechanical seals have each been industrially applied. Accordingly, those drawings are outside the ambit of the claim for infringement. On 1 February 2005, the Court ordered by consent of the parties that the industrial application defence at this trial would be confined to the Kraft Cooking machine rotor drawings and the Great Lakes Cooker bottom elbow drawings. This has the effect that the proceeding, insofar as the industrial application issues are concerned, will not be determined by the judgment in respect of this trial. This course was taken by the consent of the parties, as a method of managing an aspect of the case which would otherwise have required further particulars and further discovery, further delay and further significant hearings days. In effect, a ‘separate question’ has been isolated by the agreed narrowing of the industrial application issues for this trial. It was always clear that the applicant reserved its position, so that the agreed narrowing of the industrial application issues to the drawings for two components would in no way restrict the applicant from obtaining further particulars in relation to other drawings or other components. Accordingly, my findings on industrial application, will be interlocutory only, confined, as they will be by agreement, to two components.
It is also common ground between the parties that:
(a)The applicant has manufactured and sold one rotor made in accordance with the Kraft rotor drawings since 17 June 2004;
(b)The applicant has manufactured and sold one bottom elbow made in accordance with the Great Lakes bottom elbow drawings since 17 June 2004; and
(c)No design has been registered in respect of the Kraft rotor drawings or the Great Lakes bottom elbow drawings.
These agreed facts are set out in the Orders of the court made on 1 February 2005 and render it unnecessary for me to make findings for the purposes s 77(1)(c) of the Copyright Act or any findings which involve allegations of industrial application before 17 June 2004.
Counsel for the respondents submitted that the question for determination by the court in relation to the defence of industrial application is whether the corresponding designs in respect of the Kraft rotor drawings and the Great Lakes bottom elbow drawings have been ‘industrially applied’ for the purposes of s 77(1)(b) of the Copyright Act.
The definition of ‘industrial application’ is the subject of reg 17 of the Copyright Regulations 1969 (Cth). Reg 17 relevantly provides:
‘Circumstances in which a design is taken to be applied industrially
17(1)For the purposes of section 77 of the Act, a design is taken to have been applied industrially if it is applied:
(a)to more than 50 articles; or
(b)to one or more articles (other than hand-made articles) manufactured in lengths or pieces.
(2). . .
(3)For the purposes of this regulation, a design is taken to be applied to an article if:
(b)the design is applied to the article by a process (whether a process of printing, embossing or otherwise); or
(c)the design is reproduced on or in the article in the course of the production of the article.’
The applicant admits that the corresponding design for the rotors has been applied 5 times and that the corresponding design for the bottom elbows has been applied 26 times.
Applicable principles
While reg 17 stipulates that a design is taken to have been applied industrially where it is applied to 50 or more articles, this is not an exhaustive definition. In an interlocutory matter where only three prototypes of the plaintiff’s helmets had been made, King J in Safe Sport Australia Pty Ltd v Puma Australia Pty Ltd (1985) 4 IPR 120 at 126 noted:
‘. . . there is nothing incongruous in leaving it to be decided as a question of fact whether there is industrial application of a design in a case where less than fifty applications of the design as taken place.’
This approach is also apparent in Kevlacat Pty Ltd v Trailcraft Marine Pty Ltd (1987) 11 IPR 77 per French J (‘Kevlacat’) and in Press-Form where Gummow J stated at 281:
‘There may be designs applicable to articles of such a substantial or complex nature that whilst it is unlikely that more than 50 articles will ever be made by the owner of the design registration, in ordinary parlance the design will have been applied industrially by manufacture of something less than 50 articles. If the design is subsequently registered by the industrialist and the legislation and reg. 17 has the meaning contended for by the respondents, the design will not have been applied industrially before registration. This means that the design will not be treated as invalid by reason of the previous exploitation, albeit that exploitation maximised the use to which the owner of the design wished to put it.’
Clearly the type of article being manufactured is a critical matter.
In Press-Form, Gummow J noted at 285 that ‘industry’ may be described as ‘a trade or other form or branch of productive labour, and something as ‘industrialised’ when devoted or directed to such an activity’. He explained at 282:
‘What reg 17 does do is to supply a fairly plain measure by which there may be drawn the line beyond which there is industrialisation of a design.’
In Shacklady v Atkins (1994) 30 IPR 387 at 393, Davies J cited Gummow J in Press-Form and held:
‘In my opinion, the regular application of the design in the construction of yachts is an application of an industrial nature being the repetitive application of a design in the manufacture or construction of goods for sale.’
It was contended on behalf of Gold Peg that the definition of ‘industrial application’ denotes a ‘system’ and ‘repetition’, citing French J in Kevlacat. In exploring the concept of such a ‘process’ his Honour noted at 90:
‘Whatever the outer limits of the word ‘process’ may be, it is, in my opinion, quite wide enough to encompass the systematic use of a mould to reproduce a series of like articles.’
Counsel for the applicant has sought to draw a distinction between the ‘process’ described in Kevlacat and the ‘process’ used by the first respondent in manufacturing the rotors and the bottom elbows. In particular, it is the applicant’s case that although each of the rotors and bottom elbows manufactured by the first respondent were based on the Alfa Laval and/or the RotaTherm Drawings, each was tailored to the particular customer’s requirements.
Counsel for the respondents also sought to enlarge the applicant’s interpretation of his Honour French J’s decision in Kevlacat. It was submitted on behalf of the respondents that although his Honour ‘did conclude that an element of a “system” seems central to both “industry” and “process” . . . his Honour did not conclude that that “system” must be mechanical, or must not involve care or skill, or any human involvement’.
Accordingly, it is the respondents’ submission that the fact that some human involvement and care and skill was required to tailor each of the rotors or bottom elbows for each RotaTherm Cooker that does not mean that those parts were not created by a ‘process’ for the purposes of determining whether the drawings of those parts have been industrially applied.
As the abovementioned authorities, particularly Safesport, Kevlacat and Press-Form make clear, the statutory concept of ‘industrial application’ has always involved the notion that products, which incorporate the ‘corresponding design’ have been made pursuant to a manufacturing process for the systematic production of articles. A consideration of the legislative history of both the relevant Australian and United Kingdom legislation supports this view. ‘Systematic’ suggests questions of degree are relevant. It makes no difference whether the industrial application took place before or after 17 June 2004, as it is threatened future reproduction by the first respondent, which is in issue for the purposes of the relevant defence. Stripped to essentials, the applicant’s argument is that ‘industrial application’ requires systematic manufacture and repetition and cannot be determined merely by considering whether an item is produced as an item of commerce. The respondents’ argument, stripped to essentials, is that if an item is produced for commercial purposes, even production limited to 5 instances (or 22) which incorporates a corresponding design (whether the item is finalised by hand or not) the corresponding design has been ‘industrially applied.’

Neither party mentioned the fact that all of the customers were subject to confidentiality agreements in respect of each of their custom‑built products. This may have been relevant before 17 June 2004 because of publication issues when the ‘industrial application’ provisions only provided a defence in respect of designs, which were registrable under the applicable Act. The insistence on systematic production or repetition or process, under the previous regime, was partly explicable by the fact that it was theoretically possible to produce a limited number of items in circumstances, which did not destroy a design’s novelty prior to an application for registration. A copyright owner did not lose protection until a certain threshold had been crossed. It is conceivable, even if unlikely, that a copyright owner could reproduce a small number of items for commercial purposes (whether prototypes or not) but maintain confidentiality and secrecy to avoid such publication as would be sufficient to destroy novelty. This explains, at least in part, the reiterated requirement in the authorities that ‘industrial application’ must be ‘systematic’, a requirement which may seem obscure given the terms of s 77(1)(d), but it is a requirement which still has relevance because the regulations have not changed and also because the phrase ‘applied industrially’ used in s 77(1)(b) is a term about which considerable case law has been established.
Findings
Bottom Elbow
The evidence which was not contradicted was that a wooden/epoxy pattern was used each time a bottom elbow was made. Then a wax die was prepared and destroyed once each bottom elbow was manufactured. Then each bottom elbow needed to be hand milled for precision. Having regard to their simple nature, their manner of manufacture as described in the evidence, and their incorporation into all 26 of the DSI Cookers made by the first respondent for the applicant, I am satisfied that the production of the elbows in question involves systematic manufacture which therefore falls within the statutory concept of an industrial application of the relevant design. To the extent that s 77(2) applies the respondents can also invoke successfully the provisions of s 77A in respect of those drawings.
Rotor
The evidence of manufacture of the five rotors in question which was uncontradicted showed the rotors were a more complex component than the bottom elbows. At least 12 different versions of rotors were used in the abovementioned 26 custom‑built cookers. While some parts of the rotor could be made in advance the final construction of the rotor as depicted in the drawings was a painstaking and skilful task. This was not an industrial manufacturing process involving system and repetition. Having regard to the complex nature of the rotors and their manner of manufacture as described in the evidence I am not satisfied, on the civil standard of proof, that the production of the rotors in question, involved systematic manufacture and therefore I find their production falls outside the statutory concept of an industrial application of a corresponding design. Section 77A will not avail the respondents in respect of these drawings.
Personal liability
The evidence showed Mr Zakis was in control of the conduct complained of as breaching the TPA and liable as an accessory under s 75B of that Act.
It is also clear that Mr Zakis was a key participant in the threats to infringe (as to which see ss 13(2) and 36(1) of the Copyright Act) which cannot be finally determined until the defence in relation to ‘industrial application’ is concluded. It can, however, be noted ‘authorising’ infringing conduct essentially means to ‘sanction, approve and countenance such conduct’: University of New South Wales v Moorhouse & Angus & Robertson (Publishers) Pty Ltd (1975) 133 CLR 1; see also Falcon v Famous Players Film Co Ltd [1926] 2 KB 474.
While the evidence showed that Mrs Zakis worked for the first respondent, I could not be satisfied, on the civil standard of proof, that she was in control of the conduct complained of as breaching the TPA, or that she authorised threatened infringements. The evidence showed her to be a moderating presence when discussions took place between Mr Smith and Mr Zakis in the meetings in 2001 and 2002 and she readily acknowledged in those meetings that the first respondent did not own any intellectual property rights associated with the cookers. Her observations were consistent with the terms of the agreement pleaded by the applicant, which terms have been upheld by me. In all the circumstances, I would not be prepared to treat her as liable in respect of statutory contraventions of the TPA. Further, the question of infringement of copyright cannot be finally determined until defences are finally determined.
Cross-claim
The first respondent cross-claims against the applicant for threatening to infringe the copyright in what it describes as the first respondent’s drawings, being the drawings resulting from the work of the first respondent employees and consultants engaged by the first respondent in the course of manufacturing the relevant cooking systems from about 1990 to 2002. The first respondent seeks a declaration that it owns the copyright to the first respondent’s drawings, as well as an injunction preventing the applicant from reproducing the first respondent’s drawings and costs.
The findings I have already made are a sufficient basis upon which to dismiss the cross-claim. However, I will briefly consider the submissions made in respect of this aspect of the case.
The applicant asserts that if the first respondent is the owner of the relevant drawings, then the applicant has an implied licence to make copyright usage of the first respondent’s drawings. An implied licence is supported by the relationship between the first respondent and the applicant being one of manufacturer and commissioner, respectively. The applicant further cites the payment and cost arrangements between it and the first respondent, as well as the fact that it took on ownership and responsibility for the completed cooking systems, as evidence of an implied licence. As already mentioned, I have accepted the evidence of Mr Miller and Mr Smith in respect of payment arrangements and to the extent that it differs, I have rejected Mr Zakis’s evidence. Further, the applicant relies on the verbal and documentary exchanges between it and the first respondent, especially with regards to the assignment of rights from Alfa Laval.
As an alternative submission in its defence to the cross-claim, the applicant submits that the ownership of the copyright in a selected group of drawings produced in the course of the first respondent’s production of the cooking systems is joint; that is, that the nature of the contributions by Mr Smith and the various employees and consultants of the first respondent was such as to render the applicant and the first respondent co-owners of the copyright in the drawings. The selected group is identified in paragraph 15(c)(i) of the defence to the cross-claim.
Finally, and in the alternative, the applicant submits that if the first respondent is found to own the copyright in the drawings, the applicant will be permitted to use them by virtue of the operation of s 77(1) of the Copyright Act, which sets out the defence already described above on the basis of an industrial application of a corresponding design, concessions have been made by it in respect of certain items. Sections 77(1) and 77A can be invoked successfully where relevant concessions made are not contested.
Findings
I have already found that the applicant is the equitable owner of the RotaTherm Drawings, called in the cross-claim ‘the Kovan Drawings.’ If I were found to be wrong in making that finding based on the evidence, I would find that the applicant has an implied licence to use the drawings by reference to well‑known authorities: Beck v Montana Constructions Pty Ltd [1964-1965] NSWR 229; see also Solar Thompson Engineering Co Ltd v Boston [1977] RPC 537; Stovin‑Bradford v Volpoint Ltd [1971] Ch 1007 at 1012-1019 (Salmon LJ) and at 1021 (Megaw LJ); Acohs Pty Ltd v RA Bashford Consulting Pty Ltd (1997) 144 ALR 528 at 546-547; (1997) 37 IPR 542 at 560-561 (Merkel J); Ray v Classic FM Plc (1998) 41 IPR 235 at 247-250, [1998] FSR 622, 640-642 (Lightman J) (quoted above); and R Griggs in the Court of Appeal (also quoted above).
Again, if wrong in my previous findings on ownership, on the totality of the evidence of the circumstances in which the selected drawings in question were brought into existence, I would find that the first respondent does not own any independent copyright in the selected drawings, dependent as they were on contributions including sketches, directions and instructions from Mr Smith as established in the evidence which render Mr Smith a joint author and the two companies who respectively employed Mr Zakis and Mr Smith, joint owners.
Finally, ss 77(1) and 77A can be successfully invoked on the basis of the concessions referred to given that the first respondent has not put in issue any factual matters which might render the concessions inappropriate or unreliable.
Orders
The orders I propose to make will be to dismiss the cross-claim with costs. Declarations will be made in respect of the applicant’s ownership of copyright in respect of the Alfa Laval Drawings and in respect of the applicant’s equitable ownership in copyright in the RotaTherm Drawings. Successful defences of ‘industrial application’ do not destroy the copyright in the RotaTherm Drawings; they merely restrict the applicant’s ability to successfully allege infringement. Accordingly, consequential orders will be made to effect the assignment of legal copyright in the RotaTherm Drawings from the first respondent to the applicant. There will also be a declaration in respect of the first respondent’s breaches of the agreement. No declarations will be made in respect of threats to infringe, however, I will order the first respondent to keep full accounts in respect of any products, whether cooker components, or cookers, made in accordance with the Alfa Laval Drawings and/or the RotaTherm Drawings or any drawings which substantially reproduce such drawings (other than the components admitted to be ‘industrially applied’ and the bottom elbow). Declarations and injunctions will be granted in respect of the TPA breaches and passing off. There will also be an order for delivery up. It will then be necessary for the matter to be adjourned to 10:15 am on 7 December 2005 before Kenny J for orders and directions in respect of the further conduct of the proceeding.
While the applicant’s success on key issues of ownership which took considerable time in the trial will be an important consideration when costs of the proceeding are determined, it is appropriate to reserve the costs, other than those on the cross‑claim, until such time as the extent of the applicant’s success in the proceeding can be assessed in the light of final determinations on ‘industrial application’ issues in the respondents’ current defence to the applicant’s claims of infringement of copyright and given the reservation of rights explained above.

I certify that the preceding two-hundred and thirty-four (234) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Crennan.
Associate:
Dated:

Counsel for the Applicant: C Golvan SC
S Ricketson

Solicitor for the Applicant: Middletons Lawyers

Counsel for the Respondents: D Collins SC
A McClelland

Solicitor for the Respondents: Brian Ward & Partners

Dates of Hearing: 18, 19, 20, 21, 22, 25, 26, 27, 28 and 29 October 2004
5 and 26 November 2004
8 December 2004
28 and 31 January 2005
1, 2, 3, 4, 7, 11 and 16 February 2005
17 March 2005

Date of Judgment: 28 October 2005

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 429 OF 2002

BETWEEN:	GOLD PEG INTERNATIONAL PTY LTD APPLICANT
AND:	KOVAN ENGINEERING (AUST) PTY LTD FIRST RESPONDENT JANIS ZAKIS SECOND RESPONDENT DIANNE MARGARET ZAKIS THIRD RESPONDENT
JUDGE:	CRENNAN J
DATE OF ORDER:	28 OCTOBER 2005
WHERE MADE:	MELBOURNE

JUDGE:	CRENNAN J
DATE:	28 OCTOBER 2005
PLACE:	MELBOURNE

Counsel for the Applicant:	C Golvan SC S Ricketson
Solicitor for the Applicant:	Middletons Lawyers
Counsel for the Respondents:	D Collins SC A McClelland
Solicitor for the Respondents:	Brian Ward & Partners
Dates of Hearing:	18, 19, 20, 21, 22, 25, 26, 27, 28 and 29 October 2004 5 and 26 November 2004 8 December 2004 28 and 31 January 2005 1, 2, 3, 4, 7, 11 and 16 February 2005 17 March 2005
Date of Judgment:	28 October 2005