Nintendo Co. Ltd v Centronics Systems Pty Ltd
[1991] FCA 791
•09 DECEMBER 1991
Re: NINTENDO CO. LTD
And: CENTRONICS SYSTEMS PTY LTD; MAURICE LATIN; TIBERIO SALICE and FABRIZIO
LATIN
No. V G359 of 1990
FED No. 791
Circuit Layouts Act 1989
(1992) AIPC 90-854
23 IPR 119
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Sweeney J.(1)
CATCHWORDS
Circuit Layouts Act 1989 - owner of EL rights in an original circuit layout - whether another commercially exploited layout without licence - whether made in accordance with original circuit layout - whether evaluation or analysis - whether knowledge that integrated circuit unauthorised - whether awareness that act constituting infringment was infringement
Circuit Layouts Act 1989 ss.5, 8, 11, 13, 16, 17 19(3) 20(1), 20(2), 23(1), 27
HEARING
MELBOURNE
#DATE 9:12:1991
Counsel for the Applicant: Mr R. Macaw QC Mr B. Caine
Solicitors for the Applicant: Purves Clarke Richards
Counsel for the Respondents: Ms E. Strong
Solicitor for the Respondents: Mr A. Tatlock
ORDER
The respondents and each of them be restrained from -
(a) selling, letting for hire or distributing by way of trade;
(b) offering or exposing for sale, hire or other distribution by way of trade; or
(c) importing for the purpose of sale, letting for hire or other distribution by way of trade;
whether as part of Spica video game consoles or otherwise, PPU chips in the form of the UMC PPU chip a photographic representation of the integrated circuit of which is Exhibit TR-1 herein or otherwise howsoever infringing the applicant's EL rights in the circuit layout a photographic representation of which is Exhibit TR-2 herein.
The respondents within seven days of the date hereof -
(a) deliver up to the applicant each of the UMC PPU chips referred to in paragraph 1 hereof;
(b) make file and serve an affidavit verifying that all such UMC PPU chips have been delivered up as aforesaid.
There be an inquiry as to damages or at the applicant's option an account of profits made by the respondents and each of them by infringement of the applicant's said EL rights and payment of the sum found due.
(a) The respondents within fourteen days of the date hereof make file and serve an affidavit setting out details of all sales made of Spica video games units containing the UMC PPU chip referred to in paragraph 1 hereof;
(b) within fourteen days thereafter, the applicant make its election referred to in paragraph 3 hereof and communicate the same to the respondents;
(c) the applicant have liberty to apply thereafter as to the conduct of the said enquiry or account (as the case may be).
By consent the respondents be restrained from importing selling or authorising the importation or sale of any article which reproduces or substantially reproduces -
(a) the Super Mario program referred to in paragraph 4 of the Statement of Claim or the Super Mario program referred to in paragraph 12 of the Statement of Claim;
(b) the Duck Hunt program referred to in paragraph 8 of the Statement of Claim or the Duck Hunt program referred to in paragraph 16 of the Statement of Claim.
By consent, the respondents be restrained from infringing Australian registered trade marks -
(a) A443265;
(b) A443266;
(c) B444110;
or any of them and in particular from using the trade marks-
(i) Super Mario Bros.;
(ii) Super Mario Brothers;
(iii) Mario Bros.
or any name word or mark substantially identical with or deceptively similar thereto in the course of trade on or in relation to any of the goods in respect of which the said registered trade marks are respectively registered.
The respondents pay the applicant's costs of the proceeding including any reserved costs.
Note: Settlement and entry of orders is dealt with in O.36 of the Federal Court Rules.
JUDGE1
Nintendo Co. Ltd ("the applicant"), a foreign corporation which manufactures and distributes video games including the games "Super Mario Brothers" and "Duck Hunt", claimed to have copyright in those two programs and in cinematographic films of the same names. It alleged that the first respondent, Centronics Systems Pty Ltd ("Centronics") imported systems into Australia which infringed the applicant's copyrights in the "Super Mario" and "Duck Hunt" programs. These claims do not now need to be determined as the parties have reached agreement in respect of them.
The applicant also claims rights in a computer program known as a "PPU" (picture processing unit) ("the Nintendo PPU"). It alleges that Centronics imported a reproduction of the Nintendo PPU into Australia, manufactured by United Microelectronics Corporation ("UMC") in Taiwan and known as a 6538 PPU ("the UMC PPU"), which infringed the applicant's EL rights in the Nintendo PPU within the meaning of the section 19 of the Circuit Layouts Act (Cwth) 1989 ("the Act"). It further alleges that the directors of Centronics, Maurice Latin, Tiberio Salice and Fabrizio Latin, who are the second, third and fourth respondents, caused or permitted this conduct and thereby authorised the infringements alleged. The unit in which the UMC PPU has been used has been referred to as "the Spica entertainment unit" or the "Spica unit".
By an Amended Application filed in court on 26 August 1991, the applicant seeks the following orders:
"1. An injunction restraining the Respondents from:
(a) selling, letting for hire or distributing by way of trade,
(b) offering or exposing for sale, hire or other distribution by way of trade, or
(c) importing for the purpose of sale, letting for hire or other distribution by way of trade; integrated circuits made in accordance with the PPU layout referred to in paragraph 27 of the Statement of Claim.
2. An order for delivery up on oath to the Applicant copies of all the Spica systems which include infringing copies of the said integrated circuits made in accordance with the PPU layout.
3. Damages for infringement of EL rights.
4. Further or alternatively (at the Applicant's option) an account of the profits made by the first Respondent by reason of the infringements referred to in 3.
5. All necessary accounts and enquiries.
6. An injunction restraining the Respondents from importing, selling or authorising the importation or sale of any article which reproduces or substantially reproduces:-
(a) the Super Mario programme referred to in paragraph 4 of the Statement of Claim or the Super Mario programme referred to in paragraph 12 of the Statement of Claim.
(b) the Duck Hunt programme referred to in paragraph 8 of the Statement of Claim or the Duck Hunt programme referred to in paragraph 16 of the Statement of Claim;
7. An injunction restraining the Respondents from infringing Australian Registered Trade Marks:-
(a) A443265;
(b) A443266;
(c) B444110;
or any of them and in particular from using the trademarks:-
(i) Super Mario Bros;
(ii) Super Mario Brothers;
(iii) Mario Brothers
or any name, word or mark substantially identical with or deceptively similar thereto in the course of trade on or in relation to any of the goods in respect of which the said registered trademarks are respectively registered.
8. Such further or other orders, directions or relief as may be necessary or as to the Court shall seem fit.
9. Costs."
During the first day of the hearing I directed that the applicant file an Amended Statement of Claim to reflect the issues remaining to be determined. This was filed on 27 August 1991.
Paragraphs 27-30 set out the applicant's contention that it had EL rights in the Nintendo PPU layout within the meaning of s.19 of the Act and that these rights were infringed by the first respondent. These paragraphs read as follows:
"27. At all times material, the Applicant is and has been the owner, within the meaning of section 16 of the Circuit Layouts Act Cth 1989, of EL rights in an original circuit layout ('the PPU layout').
PARTICULARS
(a) The PPU layout was made in Japan by Hiroo Ueda and Hiromitsu Yagi under the terms of their employment by and under a contract of service with Ricoh Co. Ltd
('Ricoh') a company incorporated according to the laws of Japan. Ricoh subsequently assigned all its rights in the layout to the Applicant.
(b) The PPU layout is an original circuit layout in accordance with which the Applicant has made an integrated circuit in the form of a Read Only Memory Chip ('the PPU chip') contained in the video game machine produced and sold by the Applicant. A video game machine containing a copy of the said chip has been marked with the letter 'C' and can be inspected by prior appointment at the offices of the Applicant's solicitors.
28. Between a date unknown to the Applicant and the date of issue of the Application herein, the First Respondent herein has, without the licence of the Applicant, commercially exploited the PPU layout in Australia. ...
29. The First Respondent did the acts alleged in paragraphs 27 and 28 herein in circumstances where it knew, or ought reasonably to have known, that it was not licensed by the Applicant to do so.
30. By the acts alleged in paragraphs 27, 28 and 29 hereof the First Respondent has infringed, and continues to infringe, the Applicant's EL rights in the PPU layout, within the meaning of section 19 of the Circuit Layouts Act Cth 1989."
By an Amended Defence filed in court on 2 September 1991 the respondents admit the allegations contained in paragraph 27 of the Amended Statement of Claim.
In paragraphs 28.1-28.3 the following admissions are made in the Defence, which otherwise denies each and every allegation in paragraph 28 of the Amended Statement of Claim:
"28.1 They admit that in December 1989 the first Respondent imported into Australia and began to sell 1,500 Spica Entertainment units from Taiwan which comprise a computerised games console, a hand operated gun and a finger operated joy stick with a computerised games cartridge. 28.2 Further, they admit that the first Respondent bought the Spica Entertainment Units from Keyman Electronics Co Ltd, a manufacturer based in Taipei, Taiwan. 28.3 Further, they admit that the computerised games console of the Spica Entertainment Unit contains a PPU chip ('the Spica PPU') manufactured by United Manufacturing Corporation ('UMC') in Taiwan."
In paragraph 29 of the Amended Defence, the respondents admit that Centronics did not have a licence from the applicant but stated that it believed that "the circuit layout for the Spica PPU was independently created by UMC in Taiwan and that the applicant has and had no rights of any kind regarding it."
The respondents deny the allegations made in paragraph 30 of the Amended Statement of Claim and add the following, amongst other things,
"30.3 Further, or in the alternative, they say that if the circuit layout for the Spica PPU was not independently created by UMC in Taiwan then it is an original circuit layout that was made by UMC in Taiwan based on an evaluation or analysis carried out with the use of:
(a) a copy or copies of the Nintendo circuit layout referred to in paragraph 27 ('the Nintendo circuit layout') and/or;
(b) an integrated circuit made in accordance with the Nintendo circuit layout or a copy of the Nintendo circuit layout ('the Nintendo integrated circuit');
made for the purpose of evaluating or analysing the Nintendo circuit layout as provided for in section 23 of the Circuit Layouts Act (Clth) 1989. 30.4 Further, or in the alternative, they say that if the Spica PPU contained an integrated circuit made without the licence of the Applicant as owner of the EL rights in the layout (which is specifically denied) then at the time when they acquired the circuit they did not know and could not reasonably be expected to have known that the circuit was unauthorised and therefore there has been no infringement by them as provided for in section 20 of the Circuit Layouts Act (Cwth) 1989."
Paragraphs 32-34 of the Amended Statement of Claim read:
"32. The First Respondent has made profits by its acts of infringement referred to in paragraphs 5-7, 9-11, 13-15, 17-19, 26 and 28-30.
33. The Applicant has suffered substantial loss and damage by reason of the infringements alleged. ...
34. The directors knowingly caused or permitted the first respondent to engage in the conduct referred to in paragraphs 5 to 19 and 24-30 and thereby authorised the infringements alleged."
The respondents denied the allegations contained in paragraphs 32, 33 and 34, but after the close of evidence conceded that if there were infringement by Centronics, it was authorised by all directors of that company.
The applicant's allegation of ownership of EL rights in an original circuit layout within the meaning of section 16 of the Act was briefly set out in the particulars to paragraph 27 of the Amended Statement of Claim and was admitted by the respondents.
Section 16 sub-s(1) of the Circuit Layouts Act 1989 ("the Act") reads:
"Subject to this section, the person who makes an eligible layout is the first owner of the EL rights in it."
"EL rights" are defined in section 5 of the Act as being "the exclusive rights specified in section 17 in relation to an eligible layout". Section 17 reads:
"The owner of the EL rights in an eligible layout has, during the protection period of the layout, the following exclusive rights:
(a) to copy the layout, directly or indirectly, in a material form;
(b) to make an integrated circuit in accordance with the layout or a copy of the layout;
(c) to exploit the layout commercially in Australia."
An "eligible layout" is defined in section 5 of the Act as meaning an original circuit layout:
"... (a) the maker of which was, at the time the layout was made, an eligible person; or
(b) that was first commercially exploited in Australia or in an eligible foreign country."
An "eligible person" is amongst other things: "a citizen, national or resident of an eligible foreign country". It is common ground between the parties that Japan, where the Nintendo PPU unit was made, is an eligible foreign country.
Section 11 of the Act reads:
" Without otherwise limiting the meaning of the word 'original' in this Act, a circuit layout shall be taken not to be original if:
(a) its making involved no creative contribution by the maker; or or
(b) it was commonplace at the time it was made."
Mr Toyofumi Takahashi ("Mr Takahashi"), an employee of Ricoh Company Ltd ("Ricoh") and a designer of the applicant's circuitry and semiconductor chips, swore an affidavit on 26 August 1991 and gave evidence about the development of the Nintendo PPU chip and its precursor the 2C02 PPU chip ("the Nintendo 2C02").
Mr Takahashi explained that in mid May 1982 Ricoh received a request from the applicant to consider the development of a PPU for home video game machines. By mid June 1982, Ricoh received instructions from the applicant to create "a new custom chip".
In his affidavit, Mr Takahashi deposed that between October and December 1982 he prepared the mask layout diagrams for the Nintendo 2C02 and that he and six others worked approximately 80 hours per week for two months and a further 80 hours in order to bring into existence the circuit designs for the Nintendo 2C02. Data for the Nintendo 2C02 was fed into a computer assisted tool ("CAD") and a computer produced mask was made showing each process layout. The CAD tool made no contribution to the creative design of the Nintendo 2C02 chip as its design was complete when the hand drawn mask diagrams were produced. The CAD tool performed a drafting function. In paragraph 15 of his affidavit, Mr Takahashi said:
"To the best of my knowledge the design of the 2C02 chip is unique to Nintendo".
Mr Takahashi further deposed that in about February 1984 changes were made to the circuitry of the Nintendo 2C02, such circuitry being incorporated into the present Nintendo PPU chip. The purpose of the redesign was, in part to give rise to a chip designed to operate under a PAL television broadcasting system. The Nintendo 2C02 chip had been designed to operate under the NTSC television broadcasting system.
In paragraph 18 of his affidavit Mr Takahashi detailed the changes that gave rise to the present Nintendo PPU chip's new circuit design as follows:
"(i) A change to the circuitry of the demultiplier ...
(ii) A change to part of the circuitry relating to the vertical decoder.
(iii) A change to the circuitry relating to the colour generator (which enables the colour generator to generate appropriate colour horizontal scanning signals for the PAL system)."
During his cross-examination, Mr Takahashi explained that the changes to the circuitry of the demultiplier, to the circuitry relating to the vertical decoder, and to the circuitry relating to the colour generator were effected in order to make the Nintendo PPU suitable for use with the PAL television system. He also explained that it took two years from the hand mask stage to the shipping of the mass produced RP2C07 chips, with one of those two years being spent in revision.
In the agreed chronology filed in court on 9 September 1991, 1985 is given as the first year of commercial exploitation of the present Nintendo PPU chip.
It is common ground between the parties that UMC are the manufacturers of the UMC chip. It is also common ground that Centronics was an importer and seller in Australia of Spica entertainment units being computer game sets manufactured by Keyman Electronics Co. Ltd ("Keyman") in Taiwan which incorporated the UMC chip.
The designer of the UMC PPU was neither identified by the respondents during the course of the hearing nor called to give evidence. Inferences that the design was original and not made in accordance with the applicant's design were said to be justified by the evidence of experts called by the respondents', Mr Beckett and Mr Osborne, who made comparisons between the photograph of the integrated circuits of the UMC PPU and that of the Nintendo PPU.
On 30 August 1991, the respondents, by their counsel, Ms Strong produced in court a document entitled "Areas of Significant Visible Difference". It read as follows:
"1. Bonding Pads and Circuitry (Pad Drivers) The bigger and quite differently designed circuitry attached to the 42 bonding pads of the UMC providing more power to the circuit.
2. Two Extra Bonding Pads and Circuitry
The two extra bonding pads on the top and the left side of the UMC chip with their circuitry including orange blocks
(capacitors) which provide the substrate bias function for the chip in the absence of a refresh circuit.
3. TOP LEFT HAND CORNER:
Visible features of the UMC referable to its dual function that is its ability to accept and play on a PAL TV cartridges designed for the NTSC system and also those designed for the PAL system.
(a) Formation of the Transistors of the PAL in the Vertical Decoder
The different position of the transistors in the array structure of the PLA block which constitutes the Vertical decoder. These can be seen by the 'contact cuts' which show as small circles or dots on the 'grid' or array structure of the block. This PLA block containing the transistors controls the vertical timing of the image on the TV screen.
(b) The Extra Timing Circuitry
The additional block present in the timing circuitry of the UMC (which has been referred to as a clock divider and also as a demultiplexer) which in the lay out sketched in TR3 is within the area marked as 'Clock Gen and Video Output Generator' and is placed to the left of the area marked 'H decoder'.
(c) The Interconnect Metal
The different shape of the pale speckled area of the metal layer in the UMC in the border area on the top left hand side of the photo TR2. The metal layer which initially covers the whole area of the chip is partially etched away to provide the electrical connections therefore the shape of the remaining metal reflects the design of the circuitry."
The respondents submitted that an analysis of these areas of significant visible difference justified a conclusion that the Nintendo and the UMC PPU's were intrinsically different. Mr Rogers, one of the applicant's expert witnesses, accepted the fact that the bonding pads on the two PPU's were of different designs, which he explained was the result of manufacturers having their own bonding pad designs saying:
"If you go along to a semi-conductor fabrication house with a design normally, unless you specify you want your own pads put on, the normal situation is that they will provide them for you."
The respondents also submitted that the two extra bonding pads on the UMC PPU were not evident on the Nintendo PPU nor was the linked circuitry. In the course of evidence, Mr Beckett identified these extra bonding pads in his report as follows:
"5. SUBSTRATE BIAS CIRCUITS
The UMC 6538 chip has two additional pads at its periphery (i.e. 42, as opposed to 40). These are related to the functions of substrate bias generators included in the 6538 but not in the 2C07. This simply reflects the slightly different processes used to fabricate the chips.
A substrate bias generator typically comprises an oscillator circuit, a diode and a capacitor, just as I have observed in this case. The pad would be used to monitor the substrate bias during testing and has no function once the chip is bonded out."
The applicant submitted that the substrate bias generators' inclusion in the UMC PPU are "dictated by the smaller transistor size (a result of manufacturer's specification) and perform no part of the operational circuitry". Mr Rogers explained the presence of the two extra bonding bands and the sub-strate bias generator at T/R 171 as follows:
"You were asked questions about what were described in the evidence as orange formations on the speaker or UMC circuitry/---Yes. And, you agreed, I think, that they were likely to be capacitors?---Yes. And, likely, if so, to be a means of stabilising circuit performance?---Yes, particularly with the small size transistors. Well, that was what I wanted to ask you about. Your evidence, as I noted it, was that with a reduction in size of transistors, that kind of stabilising means might become necessary?---It does. Could you explain why that is so, please?---The basic reason is that as the transistors get smaller, it is necessary to adjust the amount of doping materials which are used to form the diffusion layers and the areas which form under the poly-silicone which is the gate of the transistor. The effect of that is that it can take more voltage or less voltage depending upon the particular type of transistor you are looking at, to turn the device on or off properly. That can be counteracted by means of a substrate bias generator which holds the bulk of the transistor which is within the silicone at a different potential to that which it would be without the substrate bias generator. So, it stores the normal range of operation in terms of switching voltages of the transistors.
Would it be correct to infer from that set of answers that the existence of a capacitor to stabilise circuit performance as a result of the shrink of the circuit?---Yes, it would follow from that."
I accept the evidence of Mr Rogers and the applicant's submission based upon it.
I am satisfied that the "visible differences" relating to the Bonding Pads, Circuitry and the Substrate Bias Generators resulted from manufacturers' specifications and were insignificant design changes.
In respect of the "areas of significant visible difference" the respondents also submitted that there were visible features of the UMC PPU directly referable to its ability to accept and play on a PAL television receiver cartridges designed to operate on the NTSC system as well as those designed to operate on the PAL system ("dual functionality"). This submission of "dual functionality" was a major part of the respondents' case.
I suggested to the parties that a joint experiment be conducted to save the time and expense of separate experiments and cross-examination of the witnesses who conducted them. This joint experiment was conducted by the applicant and the respondents on 29 August 1991. The agreed results of that experiment were included at p 320 of the transcript. They read:
"TITLE NINTENDO SPICA NINTENDO SPICA
(NINTENDO PPU) (SPICA PPU) SPICA PPU) (NINTENDO
PPU) Wrestle Operated Unsatisfactory Unsatisfactory Operated
Mania Satisfactorily Picture lacks Picture lacks Satisfactorily
(PAL) vertical vertical
synchronisation synchronisation
Mach Rider Operated Unsatisfactory Unsatisfactory Operated
(PAL) Satisfactorily Jitter and Jitter and Satisfactorily
horizontal horizontal displacement displacement of image of image
Silent Operated Character Character Operated
Service displacement displacement satisfactorily
(PAL) due to timing due to timing
Satisfactorily Will not proceed Will not proceed to game to game
Rocketeer Operated Operated As per
(NTSC) Satisfactorily Satisfactorily Nintendo
to the end to the end /Nintendo Unsatisfactory of stage one of stage one Character
displacement at
beginning
due to timing
Then plays
with stable
characters to
end of stage
one
Off Road Operated Operated Operated As per
(NTSC) Satisfactorily Satisfactorily Nintendo
Satisfactorily to< /Nintendo game entry
stage then
cuts out
Xenophobe Plays with Plays with Intermittent
Intermittent
(NTSC) character colour phase colour character
displacement problem phase displacement mainly due to (colour problem mainly due to horizontal sub-carrier (colour horizontal timing phase does sub-carrier timing problem problem not lock) does not
not lock)
Indiana Character Operated Operated Character
Jones satisfactorily displacement
displacement Satisfactorily
(NTSC) in top in top
quarter of quarter of screen at the screen at the start then start then plays plays satisfactorily satisfactorily
Road-Blasters
Gross Horizontal Horizontal Gross character synchronisation character displacement synchronization
(NTSC) problems causing problem displacement
due character causing due to horizontal displacement character horizontal and and Far better vertical problem vertical than Nintendo displacement timing Far better problem than Nintendo
Paperboy Operated Playable but Same as for Slight
Satisfactorily
(UK PAL) there is a Spica/Spica colour
colour phasing PPU but phasing problem less problem significant otherwise colour satisfactory phasing
Bubble Operated Operated Operated Operated
Bobble Satisfactorily Satisfactorily
(PAL) Satisfactorily Satisfactorily
except for a but very minor very minor colour phase colour phase problem at problem at beginning beginning
Black Operated Operated Operated Operated
Satisfactorily Satisfactorily
Manta Satisfactorily Satisfactorily
(PAL) but very except for a
minor colour very minor slight colour phase problem at colour phasing problem beginning phase
problem.
Iron Operated Operated Operated Operated
Satisfactorily Satisfactorily
Sword Satisfactorily Satisfactorily
(PAL) except for
a very minor except for colour phasing a very
at the minor colour beginning phase problem at the
beginning
World Operated Operated Operated Operated
Satisfactorily Satisfactorily
Wrestling Satisfactorily Satisfactorily
(NTSC)
Unsatisfactory
B. Operated Operated Unsatisfactory
Satisfactorily
ZELDA Gross Satisfactorily Gross
(NTSC) Vertical vertical timing
timing problem at problem at beginning of beginning game of game Playable but Playable there is a but there is a horizontal horizontal timing timing problem in problem the scoring in the zone at the scoring zone top at the top
C. Operated Operated Operated Operated
Castlevania Satisfactorily Satisfactorily
(NTSC) Satisfactorily Satisfactorily"
After the agreed results of the joint experiment had been included in the transcript, Ms Strong indicated that there had been a misunderstanding about the basis of the experiment. At pp 405-6 of transcript, she said:
"The evidence regarding those PAL games that were tested was that they were the games about which customers complained to Centronics. The testing did not cover the Pal games about which I have assumed it was common ground that both the Nintendo and the Spica unit played perfectly adequately ... the cartridges that played equally - the PAL cartridges that played equally well on Spica, equally well on Nintendo did not form part of this test."
I then asked Ms Strong whether she wished to challenge the results of the experiment, and she replied that both parties prior to the joint experiment accepted that the PAL cartridges, Wrestlemania, Mach Rider and Silent Service, would not "work properly on the Spica unit, because it was those about which the customers had complained over the Christmas." Mr Macaw QC, who, with Mr Caine, appeared for the applicant, did not dispute this.
In re-examination, Mr Beckett said:
"The conclusion that I can draw from that testing which was done initially by me and then later in the agreed - that resulted in the agreed report was that the characteristics of the picture that we observed or that I observed were due to the PPU and that in fact the characteristics of the picture moved from the Nintendo unit to the Spica unit according to the selection of the PPU and that therefore the actual characteristics of the picture must depend to a large degree on the PPU."
He also said:
"My opinion is that the UMC PPU was more capable of supporting a - was capable of supporting broader range of NTSC based games than the Nintendo PPU based on the sample that we have taken."
Mr Beckett agreed that a colour phasing problem described a situation where, for example, there was a rainbow effect on lettering rather than showing white lettering. Mr Beckett also agreed that the modulator of the Spica unit contributed to the perceived colour phase problems.
Mr Macaw QC asked Mr Beckett whether the colour phase problem is one which "could have something to do not with the chip but with some other aspect of the unit" and he replied:
"No. I believe that it is something to do with the colour burst timing of the system. The problem is that there is a fairly critical timing relationship between the generation of the colour information in both PAL and NTSC and if that phase relationship between what is known as the colour burst and the actual colour signals are not right on, then in fact you will get that sort of colour smearing and changes in colour."
Overall, the agreed results of the joint experiment showed that the UMC PPU plays some PAL and some NTSC games cartridges but does not play all PAL and all NTSC cartridges satisfactorily. In relation to the PAL cartridges which did not play well on the UMC PPU, Mr Beckett said:
"My understanding of it was that is what they were supposed to play. So they may have a marketing problem there."
The NTSC games World Wrestling and Castlevania "operated satisfactorily" on the Nintendo PPU.
Mr Beckett's statement in his report that "the 2C07 will support only PAL based games" was not an accurate assessment of the position, as he himself later conceded.
In support of their "dual functionality" submission, the respondents relied upon evidence of Mr Beckett and Mr Osborne. In the report of the former filed on 29 August 1991 he drew conclusions based on his own pre-trial experiments that:
"... the UMC PPU device contains altered or additional timing functionality which enables it to generate the necessary PAL timing signals (ie colour and synchronisation information) from the NTSC based games."
In Mr Osborne's report filed 29.8.91 he says, amongst other things:
"... the shift in the timing of the interrupt pulse was the key to allowing NTSC games to be played using the UMC PPU. The observations described above led me to conclude that the UMC PPU chip is electrically different from the Nintendo chip in at least two ways that can be seen externally, namely that the initial default video output and the interrupt signal timing relating to the vertical synchronising pulse are both clearly different."
The applicant submitted that the changes to the vertical decoder layout are minor, contending that "if the respondents' principal independent expert (Mr Beckett) is correct, the change in horizontal line 5 involves a negligible change in layout (Beckett 384.5)".
The applicant also submitted:
"Even if one focused attention exclusively on the circuitry in the vertical decoder there is no necessary inference of originality of expression of the form of the layout because the change is likely to have been the product of the work of an unidentified programmer feeding into a computer the electrical characteristics designed for the UMC circuit (Becket 385) and/or using circuitry available in CAD libraries (Beckett 359, Osborne 475-6, 478.1, 478.8, 479.5). (Compare clause 27 explanatory memorandum.)"
Both Mr Osborne and Mr Beckett attached grids to their reports plotting PLA (programmable logic arrays) encoding patterns. The applicants submitted that:
"The reliability of Mr Osborne's grid and the conclusions he draws from it are doubtful in view of its inconsistency with Beckett's grid and its doubtful provenance and Mr Osborne's reliance on some unidentified informant for his conclusions (supplementary report p 5), but even if those changes to the layout have been made they are a minuscule part of the circuit layout, involving as it does in the order of 10,000-15,000 transistors (Rogers para 14(g))."
In short, the applicant submitted that the changes to the vertical decoder layout are insignificant in design terms. It contended that the evidence of its experts, Mr Jones and Mr Rogers supports this conclusion.
The applicant further submitted that:
"Clock Divider Circuitry
Both sections of circuitry divide the input by five and are identical (Takahashi 96.5, 97.4). The circuitry is identical but part has been relocated in the UMC circuit, probably as a result of shrink (Rogers 131-2). Mr Beckett's evidence (at 393) relied on by the respondents (pp 20-21 submissions) is of no weight. He did not look at the chips under a microscope (367.2) as Mr Rogers did (Rogers para 4). He had not looked at this point in any detail (398).
Interconnecting (speckled) Metal
The difference in shape at the top left corner results merely from the relocation of the clock divider (see Jones 214-5)."
Where the evidence of the applicant's witnesses Mr Rogers and Mr Jones differs from that of Mr Beckett and Mr Osborne, I accept the former. In support of their inferences of originality, Mr Beckett and Mr Osborne resiled from their earlier evidence. Mr Osborne's supplementary report departed from his original opinion that the UMC PPU circuit was the product of an automatic CAD design tool. The attempt to provide the UMC PPU with a satisfactory dual function did not succeed.
The applicant's case was based upon s.19(3) and s.13 of the Act. Sections 19(3) reads as follows:
"Subject to this Act, the EL right in an eligible layout, being the right referred to in paragraph 17(c), is infringed by a person who, during the protection period of the layout, without the licence of the owner, commercially exploits, or authorises the commercial exploitation of, the layout in Australia if the person knows or ought reasonably to know, that he or she is not licensed by the owner of that right to do so."
Section 8 deals with "commercial exploitation" as follows:
"(1) For the purposes of this Act, a circuit layout shall be taken to have been commercially exploited if the layout, a copy of the layout, or an integrated circuit made in accordance with the layout (whether or not the integrated circuit is incorporated in another thing) is:
(a) sold, let for hire or otherwise distributed by way of trade;
(b) offered or exposed for sale or hire, or other distribution by way of trade; or
(c) imported for the purpose of sale, letting for hire, or other distribution by way of trade.
(2) For the purposes of this Act, a copy of a circuit layout or an integrated circuit made in accordance with a circuit layout shall be taken to have been commercially exploited if it is:
(a) sold, let for hire or otherwise distributed by way of trade;
(b) offered or exposed for sale or hire, or other distribution by way of trade; or
(c) imported for the purpose of sale, letting for hire, or other distribution by way of trade."
Section 13 provides as follows:
"In this Act:
(a) a reference to doing an act (other than making in relation to an eligible layout includes a reference to doing that act in relation to a substantial part of the layout;
(b) a reference to a copy of an eligible layout includes a reference to a copy of a substantial part of the layout; and
(c) a reference to an integrated circuit made in accordance with an eligible layout includes a reference to an integrated circuit made in accordance with a substantial part of the layout."
The applicant's contention was that its EL rights in the Nintendo PPU, an eligible layout, were infringed by the respondents, who, during the protection period of the layout, without the licence of the owner commercially exploited the layout or a substantial part of the layout.
The applicant relied upon the very close similarity between the layout of the Nintendo PPU and the Spica PPU, submitting that even if the degree of protection afforded by the Act were, as the respondents contended, analogous with that afforded to architectural plans, that degree of protection would cover the substantially handcrafted Nintendo PPU.
The similarity even extended to the inclusion in the Spica PPU of circuitry which had become redundant in the Nintendo PPU but had been left in position.
In its final written submissions the applicant reviewed those similarities and the differences relied upon by the respondents and contended that the Spica layout was made in accordance with the whole of the Nintendo layout but quite plainly was made in accordance with a substantial part of it. I accept these submissions and, as I have already indicated, I believe that the differences identified by the respondents were insignificant. If no more appeared, the applicant would have made out its case.
The respondents sought to rely upon s.23 of the Act which reads as follows:
"(1) The EL rights in an eligible layout are not infringed:
(a) by making a copy or copies of the layout for the purpose of evaluating or analysing the layout;
(b) by making an original circuit layout based on an evaluation or analysis carried out with the use of a copy or copies referred to in paragraph (a);
(c) by making an integrated circuit in accordance with an original circuit layout referred to in paragraph (b); or
(d) by copying or commercially exploiting in Australia an original circuit layout referred to in paragraph (b)."
The parties agreed that the onus rested upon the respondents to establish the elements of this section. The respondents, unlike the applicant, called no evidence of design although it became clear during the trial that they were in communication with UMC.
In its written submissions the applicant said:
1. that evaluation or analysis, within the meaning of s.23, required sufficiently detailed work to understand the functioning of the circuit so as to enable the making of an original layout to perform the functions so identified;
2. that the respondents had failed to establish such evaluation or analysis;
3. that the respondents had failed to establish the purpose prescribed by s.23; and
4. that the respondents had failed to establish that UMC had made an original circuit layout.
It also cited extensive passages from the evidence in support of these propositions.
On the question of "evaluation or analysis" the applicant submitted, amongst other things: that the UMC PPU was copied using the shrink process; the manifestations of shrink tell against evaluation or analysis; the copying of redundant circuitry is a clear indication that there has not been evaluation or analysis; and the respondents' submissions "have confused the distinct steps of copying on the one hand and evaluation or analysis on the other".
Both Mr Rogers and Mr Jones believed shrinking occurred with the UMC PPU. I accept Mr Jones' explanation of shrinking and his opinion that the UMC PPU was shrunk, which is as follows:
"Shrinking is significantly different from 'reverse engineering'. Instead of the 'reverse designer' making an evaluation or analysis with a view to understanding the design and then creating his own design, shrinking essentially involves a computer scaling operation and no intellectual or unique design work is carried out. When a module is shrunk from one technology (bearing in mind manufacturers design rules and/or line widths. The betraying factor of a shrink is that each transistor is still in its same location with the same connections made to it, going to the same locations. This process requires no detailed knowledge of the circuit design (though a detailed analysis could be done after the event). The practice is performed by numerous companies who design their own chips. Some reasons for a company to do this can be to increase the speed of the device (shrinking the line width has the effect of increasing speed, being able to make the chip from another manufacturer (the first or primary manufacturer may go out of business, or start charging too much for the chip), securing a second source for a mass produced product (at time manufacturers can have chip manufacture problems that severely impact upon the companies buying those devices), or a host of other legitimate reasons.
When a chip is scaled, or shrunk, the fundamental process is to modify the layout of the chip, to yield an increased performance and (possibly) a cost saving. The process, basically, is to decrease everything by a factor, however, not always does everything decrease by a uniform amount. For example the original design may have been implemented in a process which uses a line width of three microns and has transistors of 20, 40 and 60 microns square in area. The target process may use two micron line widths, and the desired scale factor is 2/3. This would yield a line width of two micron and a transistor area of 13.3, 26.6 and 40 units respectively. But the target 2 micron process transistors may have areas of 10, 20 and 30 units, a 50 per cent reduction. In this case the scaling typically does not operate uniformly. Moreover, the pads around the outside of the chip typically cannot be scaled. There are physical requirements on their size, as these are the interconnection to the outside world. When shrinking a design, not all modules may reduce by a common amount, and the result of this can be clearly seen in blank areas, or areas of extra metallisation. Similarly, some features can be modified or removed in the shrink, as the new set of design rules or criteria fed into the computer performing the shrink task, make some of the old features redundant. This can be shown in staggered interconnects made straight.
Two effects of this type of reduction can be seen as a module that is dominated by transistors can reduce in size by nearly 50 per cent and a second module, that is dominated by wires/traces, reduce nearly 33 per cent. When viewing this effect, it will be noticed that a module appears smaller, in comparison to others, on the shrunk die. The second aspect of this can be a grater reduction in one direction than in the other, ie the width may be principally determined by the transistor geometry (and is shrunk by 50 per cent), and the length governed by the traces (which is shrunk by 33 per cent). If the original size of the block were 100 (width) by 300 (height), ie the original had an aspect ratio of 100:300 (or 1 to 3) and the new shrunk block has an aspect ratio of 50:200 (or 1 to 4).
Accordingly, scaling is revealed not by placing one layout over another but by comparing the physical transistor layout (or placement) within blocks, the metallisation within and between blocks and modules and the relative position of transistor or groups of transistors and/or metal traces to each other. Inspection of the Nintendo and Spica integrated circuits shown on the photographs shows that the relative transistor layouts, block and module position and tracking layout and level are substantially identical.
In my opinion the Spica integrated circuit is a shrunk copy of the Nintendo circuit. I base this conclusion on the substantial identify referred to above and other indications of shrink on the photograph of the Spica circuit. These are that a change in the geometric relativity of parts of the circuit has been dictated by a reduction in width of the metal interconnects (a manufacturing constraint) and that blank areas (which show as empty green spaces on the photograph) have been left by the scaling down. These blank areas serve no useful purpose and would be avoided in the interests of economy if possible. Some tidying up has occurred in the Spica circuit in the course of the computer shrink but to the extent that that reflects differences, they are minor and cosmetic."
The respondents submitted that the word "evaluate" means, amongst other things, "to work out the value of" and the word "analyse" means, amongst other things, "to take to pieces". According to the respondents, the UMC PPU was "reverse engineered" and they rely upon the description given by Mr Osborne in his 29 August 1991 report which reads in part:
"the first step would have been to open and inspect the Nintendo design, noting the various functional blocks and their interconnections. Chips of this type use circuitry which is well known to designers of video display systems, so that most of the interconnections and functions could be inferred from microscopic examination without detailed copying of the circuit. Large areas of the chip are occupied by well known components such as gates, flip-flops, programmable logic arrays, static and dynamic memory. All major semiconductor design houses have extensive libraries of such parts which have already been designed and well proven. Thus each of the parts so identified would have been replaced by similar elements from UMCs parts library. Some area where library parts were unavailable may well have been hand copied at the geometric level but would still need to have been understood and analysed to allow the design to be modified and simulated. At the completion of this process, a schematic diagram of the original design would have been generated, which almost certainly would then have been simulated to ensure that it was correct and to provide a starting point for reworking.
The next step would have been to modify the existing circuitry and add any extra circuits to achieve the required performance, simulate the new design and then fabricate it. The whole process is not much less demanding than design from scratch, the only difference being that the outcome is more certain because a largely proven design is being used, and time is saved in not needing to create a new floor plan. In some ways it is actually more demanding because it requires analysis of the existing circuit which is not easy.
The combination of similarities at the structural level, substantial differences at the detailed level and the presence of extra circuitry in the timing generator area in particular convince me that the reverse engineering scenario that I have described is the most likely one."
Such steps, according to the respondents, constitute "evaluation or analysis".
Alternatively, they submit that the procedures described by Mr Jones as "shrinking" constitute "evaluation or analysis" sufficient for the purposes of s.23(1)(a); that is, "there has been a separating, distinguishing or ascertaining of the elements of the various process layers of the chip".
Accepting, as I do, the evidence of Mr Jones and the submissions of the applicant, I reject these submissions of the respondents. I am satisfied that s.23 affords them no comfort.
The respondents also sought to rely on s.20 of the Act. They submitted that Centronics did not know or could not reasonably be expected to have known that the UMC PPU was unauthorised at the time when it acquired the circuit (s.20(1)); and that it had not become aware or could reasonably be expected to have become aware at any later time that the circuit was unauthorised (s.20(2)).
Section 20 reads:
"(1) The EL rights in an eligible layout are not infringed by a person who commercially exploits, or authorises the commercial exploitation of, an unauthorised integrated circuit in Australia, being a circuit made in accordance with the layout, if, at the time when the person acquired the circuit, the person did not know, and could not reasonably be expected to have known, that, the circuit was unauthorised.
(2) Where a person referred to in subsection (1) becomes aware, or could reasonably be expected to have become aware, that the integrated circuit is unauthorised, that subsection ceases to apply to any subsequent commercial exploitation of the circuit, unless the person pays to the owner or exclusive licensee of the EL rights in the layout such equitable remuneration as is agreed, or as is determined by a method agreed, between the person and the owner or exclusive licensee or, in default of agreement, as is determined by the Federal Court of Australia on application made by either of them."
As the applicant correctly submitted, Centronics knew from shortly after 31 August 1990 that Nintendo claimed proprietary rights in the PPU layout, when it received the letter from the applicant's solicitors, bearing that date, which read as follows:
"As you are aware we act for Nintendo Co. Ltd. and its exclusive Australian distributor, Mattel Pty. Ltd.
Some time ago we corresponded with you in respect of the Spica Entertainment Unit.
After a thorough technical examination, our client has not established that the PPU in the Spica Unit is a copy of that contained in the Nintendo Entertainment System. Furthermore, we reassert that games cartridges sold with the Spica Entertainment Unit are unlawful copies of games in which our client owns the copyright.
We now require you to provide us with the following by Friday, 7th September 1990:-
(a) Details of the number of games cartridges, containing Nintendo games, which you have imported into Australia or manufactured or caused to be manufactured in Australia.
(b) Details of the number of Spica Entertainment units which you have imported into Australia or manufactured or caused to be manufactured in Australia.
(c) Details of the number of games cartridges and Spica Entertainment Units currently in your possession or under your control.
(d) A written Undertaking that you will forthwith:-
(i) deliver up to our client all offending games cartridges and entertainment units which are or subsequently come into your possession or control; and
(ii) cease and desist from importing, manufacturing, selling, marketing or otherwise dealing in such game cartridges or Spica Entertainment Units. Unless these details and Undertakings are provided to us by 10:00 a.m. on Friday 7th September 1990 we are instructed to immediately commence proceedings without any further notice to you."
Those proprietary rights have now been admitted. Centronics has always known that it was not licensed by Nintendo. In my opinion, it could reasonably be expected to have known that the circuit was unauthorised from the date on which the Act came into operation, 1 October 1990.
I am satisfied that the applicant's EL rights in the Nintendo PPU, an eligible layout, have been infringed by Centronics, and that the second, third and fourth respondents have caused or permitted that infringement.
Section 20 is concerned with the state of mind of a respondent in relation to the question whether a circuit was unauthorised. Section 27 deals with a respondent's state of mind in relation to the question whether it was aware or had no reasonable grounds for suspecting that the act constituting the infringement was an infringement.
Section 27 reads in part as follows:
"(1) Subject to this Act, the owner of EL rights may bring an action for an infringement of those rights.
(2) Subject to this Act, the relief that a court may grant in an action for infringement of EL rights includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.
(3) Where, in an action for an infringement of EL rights, it is established that an infringement was committed but that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement, the plaintiff is not entitled to any damages against the defendant in respect of the infringement but is entitled to an account of profits in respect of the infringement, whether any other relief is granted or not ..."
In my opinion Centronics had reasonable grounds for suspecting that it had infringed the applicant's rights from the date of its receipt of the letter of 31 August 1990. These grounds and this suspicion must have been strengthened by the issue of proceedings. Nintendo has received no payment or offer of payment.
Centronics purported to rely on assurances from Keyman conveyed to it by Danny Chen, of that company, in support of its general contention that it was not in breach of the Act. The worth of any such assurances must have been seen to be very slight when Centronics received the letter from Keyman dated 1 December 1989, which read as follows:
"Dear Maurice,
I would like to answer your question as follows: POINT 1 GAME CARTRIDGES
I think I have told you before, some game cartridges are designed by Nintendo. These cartridges will have copyright problem. But, not every cartridge has the copyright problem, because there are lots of software house in Japan, they also design the software of cartridges.
For this point, our solution are:
1. We don't offer any cartridge together with IQ-701 game machine. The end-user could buy the cartridges from local market.
2. We have some other game cartridges which is designed by a USA company named 'TENGEN' and compatible with Nintendo. We could get the licence from them very soon, but the price will be a little high, as we have to pay the licence charge. The another way is (just for your personal reference): You could consider to set-up another sales channel to sell the cartridges under table (emphasis included in original letter) (but, you know it is illegal. Of course we could arrange the source for you.
POINT 2 NINTENDO TRADE MARK
When you take any advertisement, you only can specify your machine is 'NINTENDO compatible'. And please add a small description: NINTENDO IS A REGISTER TRADE MARK OF NINTENDO CO., LTD. It is similar with our advertisement of IBM compatible computer. The best way is: You could check from Trade Mark Office in your country what trademark was registered by NINTENDO. And you should avoid these trademark.
POINT 3 POWER ADAPTER
We could 100% confirm the adapter will have no any patent right problem. As it is a very normal and standard adapter. Your can very easy to find such an adapter for Walk-man radio/recorder, rechargeable battery or some electronic equipment. POINT 4 LIGHT GUN
For this item, we also can absolutely confirm that it is without patent right problem. The tooling shade of light gun is designed by ourselves. And the 'INFRARED' principle is a normal principle. If Nintendo say they own a patent right, it means that all of remote control equipment like TV sets ... etc will against the law. Dear Maurice, according to our experience of selling lots of TV game to several countries, we find the Nintendo always like to ask something for trouble. I hope you should have a preparation in your mind, the Nintendo will keep on to ask for trouble. But, every time they always conclude without result. I hope the above explanation will be helpful for you. Thanks and regards
Danny Chen"
Paragraph number 2 under the heading "Point 1 Game Cartridges" was a particularly eloquent indication of the author's conception of business morality.
I make the following orders:
1. The respondents and each of them be restrained from -
(a) selling, letting for hire or distributing by way of trade;
(b) offering or exposing for sale, hire or other distribution by way of trade; or
(c) importing for the purpose of sale, letting for hire or other distribution by way of trade; whether as part of Spica video game consoles or otherwise, PPU chips in the form of the UMC PPU chip a photographic representation of the integrated circuit of which is Exhibit TR-1 herein or otherwise howsoever infringing the applicant's EL rights in the circuit layout a photographic representation of which is Exhibit TR-2 herein.
2. The respondents within seven days of the date hereof -
(a) deliver up to the applicant each of the UMC PPU chips referred to in paragraph 1 hereof;
(b) make file and serve an affidavit verifying that all such UMC PPU chips have been delivered up as aforesaid.
3. There be an inquiry as to damages or at the applicant's option an account of profits made by the respondents and each of them by infringement of the applicant's said EL rights and payment of the sum found due.
4. (a) The respondents within fourteen days of the date hereof make file and serve an affidavit setting out details of all sales made of Spica video games units containing the UMC PPU chip referred to in paragraph 1 hereof;
(b) within fourteen days thereafter, the applicant make its election referred to in paragraph 3 hereof and communicate the same to the respondents;
(c) the applicant have liberty to apply thereafter as to the conduct of the said enquiry or account (as the case may be).
5. By consent the respondents be restrained from importing selling or authorising the importation or sale of any article which reproduces or substantially reproduces -
(a) the Super Mario program referred to in paragraph 4 of the Statement of Claim or the Super Mario program referred to in paragraph 12 of the Statement of Claim;
(b) the Duck Hunt program referred to in paragraph 8 of the Statement of Claim or the Duck Hunt program referred to in paragraph 16 of the Statement of Claim.
6. By consent, the respondents be restrained from infringing Australian registered trade marks -
(a) A443265;
(b) A443266;
(c) B444110;
or any of them and in particular from using the trade marks-
(i) Super Mario Bros.;
(ii) Super Mario Brothers;
(iii) Mario Bros.
or any name word or mark substantially identical with or deceptively similar thereto in the course of trade on or in relation to any of the goods in respect of which the said registered trade marks are respectively registered.
7. The respondents pay the applicant's costs of the proceeding including any reserved costs.
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