Texoprint B.V. v Demcy International P/L

[1991] FCA 659

Re: TEXOPRINT B.V. and FURNISHING IMPORTS PTY. LTD.
And: DEMCY INTERNATIONAL PTY. LTD. and TARGET AUSTRALIA PTY. LTD.
No. Q G117 of 1991
FED No. 659
Copyright and Designs

COURT

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.(1)

CATCHWORDS

Copyright and Designs - interlocutory application - whether requisite knowledge of breach of copyright shown - protection of foreign copyright - adequacy of proof of title to copyright - balance of convenience.

Copyright Act, ss.32, 35, 37, 38, 119, 184

Copyright (International Protection) Regulations, Reg. 4(1)

HEARING

BRISBANE

#DATE 31:10:1991

Counsel for the applicants: Mr S.W. Sheaffe

Solicitors for the applicants: John M. O'Connor and Co.

Counsel for the respondents: Mr G.A. Thompson

Solicitors for the respondents: Phillips Fox

ORDER

The application for interlocutory relief be dismissed.

The costs of and incidental to the application be costs in the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This is an application for an interlocutory injunction in a copyright case. The first applicant, which is a Dutch company, sues under the Copyright Act 1968 ("the Act") as the owner of the copyright in two designs intended to be imprinted on cloth. The second applicant has put forward the case that it made an agreement with the first applicant under which it was granted the exclusive right to sell fabrics embodying the designs in this country. I shall call the applicants "Texoprint" and "F.I." respectively.

1. The first respondent ("Demcy") is a New South Wales company which imported material bearing designs which appear to be based on a copy of the first applicant's designs. The second respondent ("Target") has sold quantities of such material and still has much of it. Only one sample of cloth bearing the applicant's design which is in evidence has a close resemblance to the respondents' cloth; it is the sample of the fabric "Mosaique" with a colour scheme of greens, pinks and buff which is exhibit B to the affidavit of Mr N.J. Russell filed 5 September 1991. The sample of the respondents' "Dawn" design fabric has a noticeably similar colour scheme and design, although it does not have the metallic silver backing of the applicants' material. On casual inspection, the other samples of the applicants' fabric, which are in evidence, do not closely resemble the respondents' cloth, but the differences are not such, in my opinion, as to leave one in any doubt about the truth of the proposition that the latter were based on the former. No doubt at the trial it might be argued that enough change has been made to differentiate one from the other, but it is my opinion that, at least for the purposes of interlocutory relief, the applicants have an ample case on the issue of whether the designs are similar enough to warrant a finding of infringement.

2. It is not alleged that there was any direct infringement. The applicants' case is based on allegations of importing and sale. They rely upon ss.37 and 38 of the Copyright Act 1968 and say that they have a case against Demcy under s.37 and against Target under s.38.

3. Section 37, so far as relevant, reads as follows:
   

"The copyright in (an) ... artistic work is infringed by a person who,

without the licence of the owner of the copyright, imports an article

into Australia for the purpose of:

(a) selling, letting for hire, or by way of trade offering or

exposing for sale or hire, the article;

(b) distributing the article:

(i) for the purpose of trade; or

...

where, to his knowledge, the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright".

1. Section 38 reads, so far as relevant, as follows:
   

"The copyright in (an) ... artistic work is infringed by a person who, in Australia, and without the licence of the owner of the copyright:

(a) sells, lets for hire, or by way of trade offers or exposes

for sale or hire, an article; or

...

where, to his knowledge, the making of the article constituted an infringement of the copyright or, in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted such an infringement".

1. Here, there is no question of licence from the owner and it seems plain that Demcy imported articles into Australia for the relevant purposes and that Target sold them.

2. It is a question, however, whether an adequate case has been made on the question of knowledge. There is no evidence that the respondents had relevant knowledge, other than from the assertions and evidence of the applicants. Last April, an assertion of breach was made on behalf of the applicants and from that time on, there was correspondence in which the applicants' case was explained to the respondents. What ss.37 and 38 require, however, is not knowledge of the applicants' claims, but knowledge of the fact that the acts specified would in truth have constituted an infringement in the circumstances postulated in the sections.

3. That requirement of knowledge is to be contrasted with the provisions of s.115, which entitles the copyright owner to bring an action for infringement. Sub-s.(3) of that section establishes a defence of innocence on the basis that "the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright ...". If those matters are proved, then the plaintiff cannot obtain damages. More than suspicion is necessary to establish a case under ss.37 or 38 and it is impossible to accept the suggestion that knowledge of facts giving rise to a suspicion, however strong, can be enough.

4. It was held by the Court of Appeal of New South Wales in R.C.A. Corporation v Custom Cleared Sales Pty. Ltd. (1978) 19 ALR 123 that actual, not constructive, knowledge must be shown, although it may of course be inferred from the circumstances; so much seems clear. What is not so clear is whether it is enough merely to show knowledge of facts which, as a matter of law, should properly lead to a conclusion that what was being done would be a breach of copyright. If an alleged infringer is proved to be aware of facts which in law are enough to show infringement but firmly believes there is no infringement, or no copyright, it can hardly be accurately said that there is an infringement of copyright to his or her knowledge. But it has been decided in the United Kingdom that what counts is whether the facts which the defendant knows do in law constitute an infringement: Sillitoe v McGraw-Hill Book Company (U.K.) Ltd. (1983) FSR 545; I find it unnecessary to express a view as to whether or not that is an impermissible gloss upon the statute: cf. Deming No. 456 Pty. Ltd. v Brisbane Unit Development Corporation Pty. Ltd. (1983) 155 CLR 129 at 150, 151, apparently disapproved on the relevant point in Boheto Pty. Ltd. v Sunbird Plaza Pty. Ltd. (1984) 2 Qd R 9 at 12, 13. But one must analyse the matters which the applicants asserted to be true, in correspondence with the respondents or in evidence, to determine whether, if accepted, they would fix the respondents with the requisite knowledge. It seems plain that a bald assertion by an applicant or plaintiff that copyright has been infringed cannot be enough.

5. The correspondence has made complaint about the use of three designs called by the respondents "Newbury", "Dawn" and "Iceberg". The application relates only to the first two. It is not of central importance, but still worth noting, that the identification of those two, "Newbury" and "Dawn", seems a little uncertain.

6. "Newbury" is the name the respondents use for what the applicants call "Picasso" and "Dawn" is the respondents' name for the applicants' "Mosaique". In the principal affidavit filed on behalf of the applicants, that of Mr N.J. Russell, "Picasso" is said to be numbered 411/25603 and "Mosaique" 409/26505 at some places and 409/25604 at others. But a document executed on 9 August 1991 on behalf of Texoprint identifies the designs by the names "Newbury" and "Dawn", they being the respondents' names for them - and gives the numbers as 413/25603 and 41325604. The confusion continues; in an affidavit filed for the applicants on 5 September, "Mosaique" is said to be number 409/25604 at some places and number 409/26504 at others, but in a further affidavit filed on 17 September, there is a reversion to the original numbering of 409/26505, as in Mr Russell's affidavit.

7. It may be that these variances do not reflect any real uncertainty on the applicants' side, but nevertheless they do not enhance one's confidence in the accuracy of the information supplied. The case is one in which the applicants' assertions that the respondents have the necessary knowledge to fix them with liability are based on the proposition that the respondents should accept the correctness of what the applicants say about the matter.

8. In summary, the course of correspondence leading up to the institution of proceedings was as follows. A letter was written dated 15 April to Target on behalf of F.I. complaining of the sale by Target of curtain material under the names "Iceberg" and "Newbury". It will be recalled that the designs whose copyright the applicants seek to protect in this suit are those corresponding to "Newbury" and "Dawn". It is not known why the initial complaint makes no mention of "Dawn".

9. That complaint sets out no facts from which one could conclude that copyright in the design on which "Newbury" is based is such a copyright as would be recognised in this country; it merely says that the relevant original design is "held by Texoprint Furnishings Holland" which is presumably intended to be a reference to the name of the first applicant.

10. On 18 April, a letter was written on behalf of Demcy, making inquiries directed to the matter just mentioned and other subjects. It inquired as to the authors of the designs from which "Iceberg" and "Newbury" were said to have been copied and their countries of residence and tried to inquire about the chain of title, if any. On 6 May, a fax was sent on behalf of Demcy asking for a reply. That came by letter of 7 May written for F.I., describing the correspondence as a "delaying and time wasting exercise". It is difficult to understand this assertion, since the inquiries made seem to have been pertinent ones. On 18 June, a letter was written on behalf of F.I. answering the queries with respect to "Iceberg" and saying, as to "Newbury" and "Dawn", that the author of the designs was Hafina A.G. of Switzerland. The oddity about this letter is that no complaint had previously been made about "Dawn" and that was pointed out in a reply on behalf of F.I. sent on 21 June. On 28 June, a further reply was sent on behalf of F.I. raising the question of the application of s.77 of the Act, to which further reference is made below.

11. It seems unnecessary to refer to the further correspondence. When it terminated there was an evident gap in the information supplied. It was partially filled on 17 September 1991 when an affidavit was filed on behalf of the applicants to the effect that the deponent had been advised by the Managing Director of Texoprint that the "Picasso" design was first published in the United Kingdom on 23 December 1985 and the "Mosaique" design was first published in the United Kingdom on 14 October 1985, and that the author of each was domiciled in Switzerland. That information was given in an endeavour to show that the foreign copyright in question is protected under Australian law.

12. The Act itself, in general, protects copyright in works produced by foreigners (to put the matter rather loosely) where the first publication of the work takes place in Australia but not otherwise: see s.32. But Part VIII and, in particular, s.184 makes further provision for protection of foreign copyright; under that section, regulations may be made for that purpose. Regulation 4(1) of the Copyright (International Protection) Regulations applies the provisions of the Act in relation to artistic works made or first published in certain countries -
    

"... in like manner as those provisions apply in relation to ... artistic works ... first published ... in Australia".

Those countries include the United Kingdom. Assuming that it is established at the trial, then, that the works were first published in the United Kingdom, Regulation 4(1) will make the Act apply as if they were first published in Australia. Under s.32(2) of the Act, copyright subsists in a published artistic work if the first publication of the work took place in Australia. Thus, combining the effect of Regulation 4(1) with that of s.32(2), the result is that the provisions of the Act will, on that assumption, be held to apply to these works.

1. The evidence is that certain unnamed persons were the authors of the works; there is no evidence as to the nature of the agreement those persons had with Hafina A.G. which apparently employed them, either on contract or otherwise, to make them. It appears to me that one of the provisions of the Act which is made applicable to these works by Regulation 4(1) is s.35, sub-s.(2) of which says:
   

"Subject to this section, the author of a literary, dramatic, musical or artistic work is the owner of any copyright subsisting in the work by

virtue of this Part".

Under sub-s.(6), such works as that in question belong to the author's employer where made -

"... by the author in pursuance of the terms of his employment by another person under a contract of service or apprenticeship ..."

1. Here, there is no evidence on which one could find whether or not s.35(6) applies. This is an odd gap in the evidence, as some care has been taken to attempt to establish title in other respects, by production of copies of assignments from Hafina A.G. to Texoprint and translations of the same, and production of a document executed by Texoprint in favour of F.I. The author of the design which resulted in "Iceberg" has been identified, but not the authors of the two designs in question; perhaps they are unknown.

2. It is necessary to mention two other matters, as to the applicants' proofs. First, F.I. sues on the basis of an oral agreement made in 1985 or 1986 for the supply to it by Texoprint of fabrics bearing the designs in question; that is sworn to by Mr Russell. He also says that it was agreed that F.I. would have the exclusive right to sell the fabrics in Australia for an unlimited period; this agreement was reduced to writing on 9 August 1991. Assuming that F.I. claims to sue as an exclusive licensee, it had no cause of action during most of the relevant period because, apart from any other difficulty, it had no writing: see s.119 and the definition of "exclusive licence" in s.10 of the Act. That, however, does not seem to be of any consequence because Texoprint is joined.

3. Secondly, I have given some consideration to the operation of s.77 in the form it had before 1 October 1990. I have not, however, found it necessary to reach a conclusion on the question whether it destroyed any rights the applicants might otherwise have had under the Act. It seems to me undesirable to decide that question even provisionally, in the absence of comprehensive argument upon it.

4. The result is that the applicants would, without doubt, have shown a serious question to be tried but for the gap referred to above, namely that there is no proper evidence on which it could be held, even prima facie, that Hafina A.G. (said to be the source of Texoprint's copyright) ever became the owner of the copyright for the purposes of our Act. The matter has been before the Court twice but I would be inclined to list it again to provide an opportunity to show copyright in Hafina A.G., were it not for the view I have formed about the exercise of discretion and in particular the balance of convenience, a topic to which I now pass.

5. The evidence is that fabric bearing the "Newbury" design was first imported into Australia about January 1990 and last imported in May or June 1991. According to the evidence, the last shipment of the "Newbury" fabric was ordered before the first complaint made about the fabric, in April this year. It will be recalled that complaint was not made about the "Dawn" fabric until June. The evidence is that when it received the April complaint, Demcy notified its supplier (in Pakistan) that it would order no further such material. Demcy has undertaken, amongst other things, that it will not import or sell any further quantities of either "Dawn" or "Newbury" fabric without the licence of Texoprint.

6. But the applicants' concern and the real issue at this stage has to do with Target's stocks of these fabrics. An affidavit on behalf of Target estimates that last month it held about 5,400 metres of "Dawn" design curtains and about 27,100 metres of "Newbury" design curtains and materials in other forms. Target says that to keep its remaining stock from sale, it would have to send instructions to each of its 79 stores Australia-wide, restock the shop floor with alternative products, remove reserves on and off site and perform other rather onerous tasks. One of the difficulties is said to be that the quantity of material held would, as to partial rolls, have to be measured manually. The affidavit says that the costs of these operations would be at least $35,000 and that the loss of gross profit by Target would be $227,000. There are also other expenses likely to be lost. Target does not want to withdraw the fabrics from sale pendente lite but offers to keep, preserve and maintain records of the quantities of these fabrics sold by it in the past and to be sold in the future. If either or both of the applicants succeeds against Target, then presumably Target will be able to pay the amount of any judgment; there is at least no suggestion to the contrary. There is, on the other hand, some reason for apprehension about the second applicant's capacity to meet a substantial claim for damages resulting from interlocutory relief requiring Target to take the steps to which I have alluded. Texoprint is said to be a large company, but there is no evidence that it has any assets in this country. On the face of it, the convenient course would seem to be to let the material be sold, rather than perhaps wasted.

7. But the applicants contend, in effect, that the selling of the respondents' material is likely to spoil the market for their designs, applied to higher quality material and selling at a higher price than the respondents'. This contention seems to me to have substance. Although, as I have mentioned, the similarity between the two sets of materials is not really striking on casual observation, no doubt there would be some customers who would, having seen the applicants' materials and then the respondents', identify the latter as based on the former, but I should not have thought that to be a very large group. The samples of "Mosaique" and "Dawn" with similar colour scheme, mentioned above, are the only sets of material in evidence likely to cause any substantial confusion. However, given the lack of similarity between the other samples, it seems unlikely that the detrimental effect on the market for the respondents' material would be sufficiently substantial to justify a grant of interlocutory relief.

8. There is no evidence from which one could infer that either of the respondents has deliberately breached copyright. As I think I have explained, the applicants' case is merely that the respondents have acquired the requisite knowledge necessary to found liability under ss.37 and 38 of the Act, in consequence initially of the applicants' assertions in correspondence and latterly of the applicants' proofs. The case is one in which the trial would not be lengthy and one would expect that a final determination of the matter should be able to be arrived at without too much delay.

1. In the circumstances, it appears to me that the convenient course, assuming the respondents give undertakings along the lines mentioned in the material, is to refuse interlocutory relief and give directions intended to produce a fairly early trial. I shall hear counsel as to the form of the undertakings.

2. The costs will be costs in the proceedings.