Wrangler Apparel Corp v Classic Boots Australia Pty Ltd
[1997] FCA 457
•2 JUNE 1997
CATCHWORDS
Copyright and Designs - whether injunctive relief under s 116 and s 135AG of the Copyright Act 1968 should be granted to the applicants restraining the first respondents access to and/or dealings with goods seized by Customs under subs 135(7) following notice given on behalf of applicants under subs 135(2) - whether injunctive relief should be granted to the applicants restraining the first respondent from importing into Australia goods the subject of the applicants copyright claim - whether there is a serious question to be tried - whether detachable labels have no substantive value so that any infringement of copyright is de minimis - whether attached labels come with the meaning of “designs” in s 4(1) of the Designs Act 1906 and therefore attract no copyright protection - whether attached labels are “corresponding designs” within the meaning of s 74 of the Copyright Act - whether attached labels are unregistrable under the Designs Act pursuant to Designs Regulation 11(1)(a) - whether dressmaking patterns are designs within the meaning of s 4(1) Designs Act 1906 - whether patterns are literary works or compilations for purposes of the Copyright Act - whether patterns are unregisterable under the Designs Act because they do not indicate features of shape or configuration which, in the finished article, can be judged by the eye - whether on balance of convenience injunctive relief should be granted - effect of parallel importing on business of exclusive distributors - likely effect of injunctive relief on first respondent - first respondent’s prior knowledge of possibility of its infringement of copyright.
Copyright Act (1968) - subs 135(7), s 116, s 1135AG, subs 218(2), s 74, s 77, s 37, s 38
Designs Act (1906) - s 4(1)
Designs Regulations (1982) - reg 11(1)(a)
R & A Bailey & Co Ltd v Boccaccio Pty Ltd (1986) 4 NSWLR 701
W H Brine Co v Whitton (1981) 37 ALR 190
Dorling v Honnor Marine Ltd [1965] Ch1.
Slick Brands (Clothing) Ltd v Jollybird Ltd [1975] FSR 470
McAfee Associates Inc v Nestor Pty Ltd 24 July 1996 unreported:
Bullock v The Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464
Re Littlewoods Pools Ltd’s Application (1949) 66 RPC 309
Re Wolanski’s Registered Design (1953) 88 CLR 278
WRANGLER APPAREL CORP & ANOR v CLASSIC BOOTS AUSTRALIA PTY LIMITED
No. NG 263 of 1997
CORAM: Lehane J
PLACE: Sydney
DATE: 2 June 1997
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 263 of 1997
GENERAL DIVISION )
BETWEEN: WRANGLER APPAREL CORP
First Applicant
WRANGLER INC
Second Applicant
AND:CLASSIC BOOTS AUSTRALIA PTY
LIMITED
(A.C.N. 063 309 348)
First RespondentCHIEF EXECUTIVE OFFICER OF THE
AUSTRALIAN CUSTOMS SERVICE
Second Respondent
CORAM: Lehane J
PLACE: Sydney
DATE: 2 June 1997
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The applicants file and serve, not later than Friday, 6 June 1997, minutes of orders to give effect to these reasons.
NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 263 of 1997
GENERAL DIVISION )
BETWEEN: WRANGLER APPAREL CORP
First Applicant
WRANGLER INC
Second Applicant
AND:CLASSIC BOOTS AUSTRALIA PTY
LIMITED
(A.C.N. 063 309 348)
First RespondentCHIEF EXECUTIVE OFFICER OF THE
AUSTRALIAN CUSTOMS SERVICE
Second Respondent
CORAM: Lehane J
PLACE: Sydney
DATE: 2 June 1997
REASONS FOR JUDGMENT
LEHANE J:
The applicants have instituted proceedings in which they claim that the first respondent (Classic Boots) has infringed the applicants’ copyright in certain works: those works are dressmaking patterns for various styles of jeans and various labels attached to jeans manufactured and sold by the corporate group of which the applicants are members. The aspect of the proceedings now before me is the applicants’ claim for interlocutory relief, relating principally to jeans imported by Classic Boots and seized by the second respondent (the Customs) under subs 135(7) of the Copyright Act 1968 following a notice given on behalf of the applicants under subs 135(2). The seized jeans, as they are described in the application and as I shall continue to refer to them, comprise 5,047 pairs of jeans to which various labels are attached and which are said to have been made in accordance with certain styles or patterns. The applicants seek an order, pending determination of the proceedings or until further order, for delivery up of the seized jeans to the applicants or their solicitors; or, alternatively, that the seized jeans not be released to Classic Boots but continue to be held by Customs; or, as a further alternative, that the seized jeans be delivered up to Classic Boots on condition that Classic Boots not sell, let for hire, or by way of trade offer or expose for sale or hire, the seized jeans or distribute them for the purpose of trade.
Additionally, the applicants seek an order restraining Classic Boots, pending the determination of the proceedings or until further order, from importing into Australia for the purpose of sale etc (without the licence of the applicants) articles incorporating or constituting a copy of any of the labels or dressmaking patterns. Finally, the applicants, in their application, seek an order requiring the filing and service of an affidavit on behalf of Classic Boots as to various particulars concerning articles, imported into Australia without the licence of the applicants, incorporating or constituting copies of the labels of patterns; no submissions, however, were made to me in relation to such an order.
It was common ground, correctly so in my view, that the claims for interlocutory relief under the Copyright Act should be approached in the same way as a claim for an interlocutory injunction is considered: that is, by asking, first, whether there is a serious question to be tried and then, if there is, turning to the balance of convenience.
Facts
There are issues between the parties both as to whether there is a serious question to be tried and as to the balance of convenience. However, for the purposes of the interlocutory proceedings, there was no substantial challenge to the account of the basic facts given in evidence tendered by the applicants. For present purposes, accordingly, I accept that account. It may be summarised as follows.
Wrangler garments were first manufactured in 1947 by a company called Blue Bell Inc. That company was acquired in 1986 by VF Corporation, the holding company of each of the applicants. In 1994 Blue Bell Inc merged “with and into” the first applicant, with the consequence that the first applicant acquired all its property and rights and assumed all its obligations and liabilities. Wrangler jeans, including the seized jeans, when sold by the applicants, have attached to them a number of labels, most of which at least (including all those which I shall discuss specifically) are intended to remain attached until the jeans are purchased from a retailer by a consumer. Some of them plainly are not intended to be detached at all.
In the latter category are a so called “rope logo” which is embroidered in “rope lettering” on a piece of cloth stitched to the pair of jeans near the belt loops. Of the various patterns of jeans making up the seized jeans, the rope logo is stitched to all but one, that one comprising only twelve pairs of jeans. Then there is a leather patch stitched to a back pocket of a pair of jeans on which is reproduced what looks like a larger version of the rope logo (I shall call this the leather patch logo). The leather patch logo is stitched to all but 137 of the 5,047 seized jeans ‑ that is, those made according to six of the eight patterns represented among the seized jeans. Thirdly, there is what was called the “Wrangler casual” label, which is embroidered on a square piece of cloth stitched to what appears to be a somewhat larger than standard belt loop: that label comprises the word “Wrangler” (written in much the same way as it is in the rope logo) under which is a triangular device under which, in turn, the word “casual” is printed in capital letters. The Wrangler casual label is attached to 12 pairs of the seized jeans, those made according to one of the eight patterns: the one pattern on which the rope logo does not appear and also one of the two patterns to which the leather patch logo is not attached.
In a somewhat different category is what was called the W shaped stitching design. That is a somewhat stylised “W” stitched across each pocket to which the leather patch logo is attached, below the leather patch logo.
There are then the paper and cardboard labels. There are several of these but, for reasons which will appear, I think it is necessary for present purposes to refer only to three of them (while noting that I am not thereby intending to exclude the possibility that considerations applicable to those three apply also to other labels). One of those was conveniently described in the notice given on behalf of the applicant’s under s 135 of the Copyright Act as including “representations of the words ‘WRANGLER’, ‘COWBOY CUT’, ‘PRORODEO’, etc, a picture of a cowboy and a bovine animal”; the second is similar, but does not include the word ‘PRORODEO’; the third was described as including “representations of the words ‘WRANGLER’, ‘COWBOY CUT’, ‘CLASSIC FIT LONG RISE’, etc”. One or a combination of those labels are attached to all the seized jeans except the twelve bearing the “Wrangler casual” label. Each is stapled to the back pocket of a pair of jeans, and each incorporates a cut out oblong “window” through which the leather patch logo, attached to the pocket, appears. It may be inferred, I think, that those labels are intended to remain attached to the jeans until they are sold by retail and that the retail purchaser is likely to remove them.
The evidence on behalf of the applicants is that each of the labels was created by an employee of Blue Bell Inc, an employee of the second applicant or an independent contractor whose rights have been assigned to one of the applicants. Where a label was created by an employee, the creation of the label was in the course of that employee’s employment. The creation of each of the labels was, it is said, a result of substantial skill and effort; none was copied. The rope logo, the leather patch logo and the W shaped stitching design were created before, and the other labels after, the Copyright Act took effect.
Pausing there, I accept ‑ it was not suggested that I should not ‑ that, subject to the question of the interaction between the Copyright Act and the Designs Act 1906 (a question to which I shall return), the evidence establishes that there is a serious question to be tried as to whether each of the labels which I have described is an artistic work (or possibly, in the case of the third of the labels, a literary work) in which copyright subsists and as to whether one of the applicants owns the copyright in each of those works.
The evidence as to the dressmaking patterns is rather less clear. It is, however, to the effect that the pattern from which each of the seized jeans (or its component parts) was made was first created by employees of the second applicant or of Blue Bell Inc in the ordinary course of their employment and as a result of substantial skill and effort and without copying. I have mentioned that there are eight patterns among the seized jeans: that is a slight over simplification, because within a number of the basic patterns there are several variants, resulting, apparently, mainly from the need to adapt the basic style to the particular kind of denim used. Thus the number of dressmaking patterns to which the evidence refers is substantially greater than eight. Of the basic patterns and their respective variants, all but one represented by seized jeans were created after the Copyright Act took effect; the one which was created earlier, however, accounts for 3,615 pairs of the seized jeans, slightly more than 70% of them. The dressmaking patterns are on very large sheets of paper; they comprise a series of “pattern pieces” (outlines of various parts of a pair of jeans) and printed matter indicating, among other things, what part of the jean each pattern piece represents. Subject again to questions of the interaction of the Copyright Act and the Designs Act, I think it is appropriate to accept for present purposes, as I do, that there is a serious question that the various patterns are works (I shall defer discussion of the question whether they are literary or artistic works) in which copyright subsists, the owner of the copyright being in each case one of the applicants.
The evidence on behalf of the applicants is that their policy (and their practice) is to sell their products to retail establishments in the United States only for resale in the United States to consumers. A statement of their policy appears on invoices issued by the applicants as follows:
It is the policy of Wrangler to sell its Wrangler products only to retail establishments for re‑sale in the USA to the ultimate consumers of those products.
Sales will not knowingly be made to nor solicited from any source other than as described above.
For sales outside America the applicants’ policy is to appoint authorised distributors. The exclusive distributor appointed for Australia is Thomas Cook Boot and Clothing Co Pty Limited (Thomas Cook), which was appointed with effect from 1 July 1994. The first applicant has also granted a licence to Just Jeans Pty Ltd to use certain intellectual property in relation to Wrangler products which do not include the seized jeans. The applicants have not authorised (at least, have not expressly authorised) Classic Boots to import their products into Australia for sale. On 28 January 1997 the first applicant gave its notice to the Customs under s 135 Copyright Act. The Customs gave notice of seizure of the seized jeans on 7 March 1997.
The picture may be made somewhat more complete by referring to some matters deposed to by Ms Press, a director of Classic Boots. Those matters, also, can be accepted for the purposes of this interlocutory application. Classic Boots was incorporated on 9 February 1994. Its business is conducted in South Australia and comprises the importation and wholesaling of what is described as western wear apparel; apparently Wrangler jeans fall within that general description. The company acquired a business which had for some time been carried on in partnership by its present directors. Ms Press estimated that about 70% of Classic Boots’ business is the importation and wholesaling of Wrangler western wear. The seized jeans were bought by Classic Boots from Waco Army Navy Surplus Inc, which carries on business in Texas; the invoices addressed to it, and passed on to Classic Boots, incorporated the note concerning Wrangler’s policy that United States purchasers of the applicants’ products sell only to retail customers in the United States. Classic Boots has imported Wrangler western wear products since 1990.
Before 27 July 1994 Classic Boots had purchased Wrangler products directly from the applicants. On that day, Classic Boots received the following facsimile transmission from VF International Division, a subsidiary of the applicants’ holding company:
As you may be aware, Wrangler International has signed an agreement, effective July 1 1994, with Thomas Cook Boot & Clothing Co Pty Ltd, for the exclusive distribution of Wrangler western products that are made in the United States, in the markets of Australia and New Zealand.
We are very excited about this partnership and truly believe that this is the most effective way to supply consumers in Australia and New Zealand with authentic Wrangler products.
I hope you share this enthusiasm and I want to take this opportunity to thank you once again for your interest in Wrangler over the years. Your business is highly appreciated and we look forward to continuing our relationship with your valued company.
Please contact Mr. Mark Dumbrell, National Sales Manager of Thomas Cook, at 03‑894‑1277 (phone) 03‑894‑2330 (fax) for any information you require about our products.
Since about September 1994, Classic Boots has purchased Wrangler western wear products through Waco Army Navy Surplus Inc.
Serious question to be tried?
The contentious “serious question” relates to the applicants’ allegation that there is a breach, or threatened breach, by Classic Boots of the indirect infringement provisions of the Copyright Act, particularly ss 37 and 38. Section 37 provides:
Subject to section 44A [a provision which has no application here], the copyright in a literary ... or 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, ... or by way of trade offering or exposing for sale ..., the article;
(b) ...; or
(c) ...;
if the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright.
Subsection 38(1) provides:
Subject to section 44A, the copyright in a literary ... or artistic work is infringed by a person who, in Australia, and without the licence of the owner of the copyright:
(a)sells, ... or by way of trade offers or exposes for sale ..., an article; or
(b)...;
if the person knew, or ought reasonably to have known, that the making of the article ..., in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted [an infringement of the copyright].
The applicants claim that one of them owns the copyright in each of the labels attached to the seized jeans (and similar products of the applicants) and in the dressmaking patterns of which the seized jeans are reproductions (or reproductions of which are incorporated in the seized jeans). Classic Boots, they say, had and has no licence to import or sell the labels or the jeans; had Classic Boots made the labels or the jeans in Australia that (as Classic Boots knew or ought reasonably to have known) would have constituted a breach of the applicants’ copyright. Classic Boots imports in order to sell. Accordingly, the importation of the seized jeans for sale constituted an infringement, as would the importation of other Wrangler products bearing labels, or made from patterns, in which one or other of the applicants owns the copyright. If Classic Boots sold such products in Australia, that equally would infringe the applicants’ copyright. The applicants say that the evidence to which I have referred sufficiently establishes, for the purposes of this application, all the necessary elements of infringement and threatened infringement. In relation to the labels, the applicants rely on R & A Bailey & Co Ltd v Boccaccio Pty Ltd (1986) 4 NSWLR 701 in which it was held that the sale in Australia of imported bottles of Baileys Original Irish Cream to which were attached labels in which there was copyright, without the consent of the copyright owner, would constitute infringement. The applicants rely also on W H Brine Co v Whitton (1981) 37 ALR 190 in which, for the purposes of s 116 of the Copyright Act, imported soccer balls were held to be “infringing copies” of various marks and devices (which were works in which there was copyright) appearing on them.
Senior counsel for Classic Boots accepted that there was a complex issue of copyright law as to whether the labels to which I have specifically referred may be said to be artistic works, within the definition in s 10 of the Copyright Act, so that to that extent there is a serious question to be tried. He submitted, however, that the labels other than the W shaped stitching, the rope logo and the leather patch logo are (by contrast with the labels in R & A Bailey and Brine) readily detachable, and intended to be detached, from the jeans and are, accordingly, to be regarded as articles separate from the jeans: being disposable and likely to be disposed of by a purchaser, they have no substantial value so that any infringement of copyright in them is to be regarded as de minimis. The rope logo, the W shaped stitching and the leather patch logo, senior counsel submitted, are in a different category because they are not severable from the jeans: however, all of them were created before the Copyright Act took effect and any copyright that might subsist in them is forfeited under subs 218(2) because they are designs which have been applied to the mass production of goods but have not been registered under the Designs Act.
As for the detachable labels, the applicants’ response was that cardboard labels such as the three to which I have referred are not items of minimal value. They are not intended to be detached until the jeans reach the hands of the retail purchaser. Until that time they perform an important function of identifying the jeans, attracting custom and providing information. In my view, that submission, so far as it goes, should be accepted. It does not necessarily follow, of course, that ultimately (all other relevant matters being decided in favour of the applicants) the jeans, rather than the labels, will be held to be infringing copies. But I cannot hold that there is no serious question to be tried in this respect: after all, although it may well be that a label glued to a bottle of liquor is less readily detachable, and is considerably less likely to be detached, than a cardboard label stapled to a pair of jeans, it must at least be arguable that the effect and value of the label on the bottle is substantially similar to those of the label on the pair of jeans and that the effect and value of each are equally ‑ or nearly so ‑ spent once the principal product reaches the consumer.
The W shaped stitching, the rope logo and the leather patch logo raise a somewhat more complex question. Each, it will be recalled, was created before the Copyright Act took effect. Subsection (1) of s 218 provides that Division 8 of Part III does not apply to artistic works made before the commencement of the Copyright Act; I shall return to that subsection and Division 8 later in these reasons. Subsection (2) provides:
Copyright does not subsist by virtue of this Act in an artistic work made before the commencement of this Act which, at the time when the work was made, constituted a design capable of being registered under the Designs Act 1906, or under that Act as amended and in force at the time, and was used or intended to be used, as a model or pattern to be multiplied by an industrial process.
Subsection 4(1) of the Designs Act defines a “design” which is capable of registration:
“Design” means features of shape, configuration, pattern or ornamentation applicable to an article, being features that, in the finished article, can be judged by the eye, but does not include a method or principle of construction.
It was submitted that the W shaped stitching, the rope logo and the leather patch logo all fell within that definition and that each, at the time it was made, was used or intended to be used as a model or pattern to be multiplied by an industrial process. That argument has obvious force in relation to the W shaped stitching: it is easy enough to see that it might be regarded as a feature of pattern or ornamentation which, in a finished article (jeans), is capable of being judged by the eye and also that the work might be regarded as a model or pattern to be multiplied by an industrial process in the course of the manufacture of the jeans. The rope logo and the leather patch logo, however, are not so easily disposed of. The rope logo is not applied directly to a pair of jeans: it is applied to a piece of cloth which, in turn, is stitched to the jeans. Similarly, the leather patch logo comprises lines and the word “Wrangler” imprinted on a leather patch which in turn is sewn on the jeans. It is, in my view, clearly arguable that the piece of cloth or leather patch is to be regarded no differently from the piece of paper with which Re Littlewoods Pools Ltd’s Application (1949) 66 RPC 309 was concerned. Then, the argument proceeds, what is applied to a pair of jeans is not a “design” ‑ a feature of pattern or ornamentation ‑ but a piece of cloth or a leather patch which bears on its face an artistic work in which copyright subsists. Those arguments raise questions of some complexity on which there seems to be little direct authority. Once again it is impossible, in my view, to hold that there is no serious question to be tried.
The Wrangler casual label falls into yet another category. It was created in 1993: accordingly, subs 218(2) does not apply to it. It is, however, necessary to consider the provisions of Division 8 of Part III. Assuming there to be a “corresponding design” (s 74) in relation to the Wrangler casual label, the evidence is that that corresponding design has not been registered under the Designs Act. It is necessary, therefore, to turn to s 77. That section provides:
77 (1) [Application] This section applies where:
(a)copyright subsists in an artistic work (other than a building or a model of a building, or a work of artistic craftsmanship) whether made before the commencement of this section or otherwise;
(b)a corresponding design is applied industrially, whether in Australia or elsewhere, by or with the licence of the owner of the copyright in the work in the place where the industrial application happens;
(c)at any time on or after the commencement of this section, articles to which the corresponding design has been so applied (in this section called “articles made to the corresponding design” are sold, let for hire or offered or exposed for sale or hire, whether in Australia or elsewhere; and
(d)at that time, the corresponding design is not registrable under the Designs Act 1906 or has not been registered under that Act.
(2)[Not an infringement]
It is not an infringement of the copyright in the artistic work to reproduce the work, on or after the day on which articles made to the corresponding design are first so sold, let for hire or offered or exposed for sale or hire, by applying that, or any other, corresponding design to an article.
(3)[Exclusions]
This section does not apply in relation to any articles in respect of which, at the time when they were sold, let for hire or offered or exposed for sale or hire, the corresponding design concerned was excluded from registration by regulations made under the Designs Act 1906, and, for the purposes of any proceedings under this Act, a design shall be conclusively presumed to have been so excluded if:
(a)before the commencement of the proceedings, an application for the registration of the design under that Act in respect of those articles had been refused.
(b)the reason, or one of the reasons, given for the refusal was that the design was excluded from registration under the Act by regulations made under that Act; and
(c)when the proceedings were commenced, no appeal against the refusal had been allowed or was pending.
(4)[Applied industrially]
The regulations may specify the circumstances in which a design is, for the purposes of this section, to be taken to be applied industrially.
If subs (2) would otherwise apply (that is, on the assumption that the conditions in subs (1) are met, a question which itself is not altogether easy), the applicants’ argument is that Wrangler casual, as a label, is excluded from registration by regulations under the Designs Act: Designs Regulation 11(1)(a) provides that:
Subject to sub‑regulation (2) [which appears not to apply], ... the Registrar shall not register under the Act any designs for the following articles, being articles that are primarily literary or artistic in character:
(a) articles on which there is printing, being ‑
. . .
(vi) labels ...
There is, therefore, in my view a serious question to be tried in relation to the Wrangler casual label. It follows, since all the seized jeans have attached to them at least one of the labels which I have specifically discussed, that there is a serious question of infringement to be tried in relation to the seized jeans. Senior counsel for Classic Boots submitted that if there was a serious question to be tried, the prima facie case established by the applicants, on the material before me, was not a strong one and that I should take that into account in dealing with the balance of convenience. It is unnecessary and inappropriate to say more than that what I have already written will indicate why I do not accept that submission.
As I have reached that conclusion in relation to the labels, a consideration of the patterns strictly is not necessary for the purpose of deciding whether there is a serious question to be tried. I think it is appropriate, however, that I indicate briefly why in my view there is a serious question to be tried in relation to the patterns as well. Senior counsel for the respondents submitted that there was no serious issue in relation to the pre‑1968 patterns (which, it will be recalled, account for about 70% of the seized jeans) because those patterns constitute designs capable of being registered under the Designs Act and are used or intended to be used as models or patterns to be multiplied by an industrial process: consequently, s 218 produced the consequence that copyright does not subsist in those patterns. On the other hand, counsel for the applicants submitted that it was arguable that the dressmaking patterns were literary works (rather than artistic works) because, for the purposes of the Copyright Act 1912, “literary work” includes maps, charts, plans, tables, and compilations and possibly, if the definition in the present Copyright Act were applicable, because the patterns were to be regarded as “compilations”. Her principal argument, however, was, as I understood it, that the dressmaking patterns are not in any event designs such as are registrable under the Designs Act: that, she submitted, was so because the outlines on the patterns of the various component parts of a pair of jeans do not indicate features of shape or configuration which, in the finished article, can be judged by the eye ‑ in other words, one cannot look at a pair of Wrangler jeans and recognise in it features of shape or configuration comprised in the pattern. A registrable design of a pair of jeans would represent the completed pair of jeans, perhaps viewed from various angles, so as to show a conception of shape or configuration applicable to a pair of jeans: Re Wolanski’s Registered Design (1953) 88 CLR 278. Clearly, in my view, that is at least an arguable submission; it may derive some support from Dorling v Honnor Marine Ltd [1965] Ch1. It follows that, in this respect as well, there is a serious question to be tried.
Classic Boots’ submission on the post 1928 dressmaking patterns was that there was no infringement because subs 77(2) of the Copyright Act applied. The exemption in Design Regulation 11 (“articles on which there is printing being ... (iv) dressmaking patterns”) was inapplicable because it excluded from the operation of s 77 only a design for a pattern, not a pattern of some other article, e.g. jeans. That could be seen, for example, by comparing the category “(iv) dressmaking patterns” with some of the other categories listed in the regulation, e.g. greeting cards, labels, leaflets or maps. There is force in that argument (and a similar argument would be available in relation to the predecessor of Regulation 11, Regulation 20A of the Designs Regulation 1969). That, however, is not necessarily the end of the matter: the argument depends upon the dressmaking patterns being, within the definition in s 74, “corresponding designs” in relation to jeans. The definition is as follows:
“Corresponding design”, in relation to an artistic work, means a design that, when applied to an article, results in a reproduction of that work, but does not include a design solely of features of two‑dimensional pattern or ornament applicable to a surface of an article.
It seems to me that the question whether one of the dressmaking patterns is a “corresponding design” which, when applied to a pair of jeans, results in a reproduction of the pattern raises questions of a very similar kind to those which arise under s 218 in relation to the pre‑1968 pattern. The questions are by no means easy; I do not think it can be said that they are not serious questions to be tried.
Balance of convenience
There can be no doubt that the indirect infringement provisions in ss 37 and 38 of the Copyright Act, reinforced by the provisions for notification to and seizure by the Customs, reflect a policy that a foreign copyright owner is entitled to determine how, and by whom, articles reproducing its copyright work may be imported into Australia and distributed or sold here. The evidence of Ms Tarnoski, who is both President of the first applicant and Secretary of the second applicant, was that the applicants believe that the appointment of an exclusive distributor in Australia (and particularly the appointment of Thomas Cook in that capacity) is the best means of marketing and selling their products in Australia by ensuring availability of the products, a full range of product styles and a high level of brand support and “quality service” for retailers. Because a distributor such as Thomas Cook must make substantial investments in marketing, advertising, promotion and the provision of service, and because an unauthorised parallel importer need make no such investment, an exclusive distribution arrangement is imperilled if parallel importing continues. That will have adverse consequences for customers, and also ultimately (in the case) for the applicants as sales will in the end be maximised through a successful exclusive distribution arrangement, and diminished if that arrangement is put at risk or its effectiveness is impaired.
That evidence was amplified by the evidence of Mr Murray Cook, the managing director of Thomas Cook. Thomas Cook is based in Victoria. It sells clothing and footwear both by wholesale (including by way of export) and retail; it supplies a number of categories and brands of clothing, one of which has since 1 July 1994 been Wrangler western products. Mr Cook’s evidence includes a description of the investment made by Thomas Cook for the purpose of distributing Wrangler products: the investment includes the employment of two people, visits to the United States, warehouse extensions, the establishment of a data base and various marketing activities. Mr Cook expresses the opinion that exclusive distributors can engage in advertising and sponsorship and embark on a coordinated marketing strategy for a brand, and as a result an exclusive distributor can achieve higher overall sales of a brand than can be achieved by piecemeal distribution by a number of unconnected distributors. Mr Cook gives examples of the way in which, he says, his exclusive distribution of Wrangler products is adversely affected by parallel importing activity: he refers to particular discussions with a potential customer details of which were provided in a confidential exhibit. He provides details of difficulties encountered by Thomas Cook in meeting agreed minimum purchase targets, a difficulty he attributes in large part to parallel imports. He points to the number of the seized jeans in relation to Thomas Cook’s present stock of Wrangler jeans and (apparently) jeans on order by Thomas Cook as an indication of both the likely disruptive result of the seized jeans entering the market and (perhaps a specific aspect of the same point) the effect of parallel imports of that magnitude upon Thomas Cook’s likely sales and, consequently, its capacity to order more products. He points out that if Thomas Cook is unable to meet its agreed purchase targets, the applicants are entitled to terminate the exclusive distribution agreement.
For Classic Boots, evidence was given by Ms Press, a director of Classic Boots, and Mr Horne, a partner in the firm of accountants employed by Classic Boots since its inception and by the partnership which formerly carried on the business. According to that evidence the business of Classic Boots is principally the importation and wholesaling of western wear apparel and footwear. Ms Press estimated that about 70% of Classic Boots’ business is the importation and wholesaling of Wrangler western wear. Mr Horne, on the other hand, deposed, on the basis of sales records in his possession, that Wrangler western products comprised 53.4% of total sales in the period which ended on 30 April 1997 (presumably the period commencing on 1 July 1996). It was pointed out by counsel for the applicants that Wrangler western wear products cover a range extending beyond the seized jeans and jeans of kinds in relation to which relief is now sought. Accepting that, and taking Mr Horne’s percentage as representing the current state of affairs (it is, after all, said to come directly from Classic Boots’ books) it can nevertheless safely be accepted that Wrangler jeans comprise a significant portion of Classic Boots’ sales. The very number and value of the seized jeans reinforce that conclusion, in the context of evidence given by both Ms Press and Mr Horne as to Classic Boots’ total sales: $817,914 for the year ended 30 June 1995, $1,177,216 for the year ended 30 June 1996 and $840,000 for the period up to 30 April 1997. Ms Press says that the seizure of the jeans is presently tying up approximately $126,630 of Classic Boots’ capital by way of the cost of the jeans (about $92,071) and customs duty, at the rate of 37%, which has been paid. It may be noticed in passing that Ms Press does not appear to say that the goods have actually been paid for (though the duty has): it may be accepted, however, that Classic Boots is liable to pay for the goods if it has not in fact done so. In any case, to describe the situation as the tying up of capital equal to the value of the goods of the duty is not inappropriate. Mr Horne gave evidence, additionally, that Classic Boots, at 30 April 1997, had approximately $45,000 in the bank and stock on hand worth $175,000. It had a liability for company tax of $45,120.40 which was payable on 1 March 1997 (shortly before the seizure of the seized jeans) only $20,000 of which had been paid. The directors had unpaid tax liabilities which would normally have been discharged by drawings from Classic Boots. Additionally, a quarterly instalment of company tax amounting to 416,257.60 would become payable on 1 June 1997 and group tax of $13,000 on 14 July 1997. Mr Horne expressed the opinion that if Classic Boots were denied access to the seized jeans and future imports, and the opportunity to sell the seized jeans, Classic Boots would have difficulty in paying its debts as they fell due.
Additionally, Ms Press gave evidence that Wrangler western products are the principal marketing focus of Classic Boots: if it were unable to sell those products, its sales of other products would suffer also.
Ms Press gave evidence as to some other circumstances. She deposed to receiving the letter of 27 July 1994 from VF International Division, quoted earlier in these reasons. She gave evidence of an order of Classic Boots which was supplied shortly after 1 July 1994 and of the applicants agreeing to supply (and presumably supplying) orders placed before receipt of the letter of 27 July. She said that Classic Boots then decided that it could not continue to sell Wrangler goods if it had to buy them from Thomas Cook and decided to cease wholesaling Wrangler western products in Australia. However, after receiving (as she says) numerous complaints from customers about Thomas Cook (in particular its requirement that orders be in a minimum amount of $5,000) Classic Boots decided to reconsider whether it should distribute the products; and in the course of September 1994 the arrangements with Waco Army Navy Surplus Inc, which I have already mentioned, were instituted. Ms Press gives evidence of Classic Boots’ commitment to Wrangler western products and of its promotion of those products.
I have, of course, considered all the evidence tendered on both sides. I have described parts of it which seem to me to have particular significance.
On that evidence, each party contended that the balance of convenience fell in its favour. Each suggested that the evidence tendered by the other was of little weight in the balance. Thus, counsel for the applicants pointed out that the financial evidence on behalf of Classic Boots had regard entirely to gross sales: although it was said that deprivation of its access to Wrangler western products would cause severe financial problems to Classic Boots, there was no evidence as to Classic Boots’ trading results or financial position. She drew my attention to the fact that the company tax payment which remains in part outstanding had fallen due before the seizure of the seized jeans. She pointed out that the customer complaints said to have induced Classic Boots to reconsider its decision to cease supplying Wrangler western products occurred very early in Thomas Cook’s distributorship, at a time when (according to evidence given on information and belief by a solicitor in the firm acting for the applicants) Thomas Cook had not yet delivered any Wrangler western products. She referred to Classic Boots’ knowledge of the appointment of an exclusive distributor and of the legend on the applicants’ invoices to Waco Army Navy Surplus Inc. Counsel relied, positively, on observations of Oliver J in Slick Brands (Clothing) Ltd v Jollybird Ltd [1975] FSR 470 at 475 as to the significance of the effect of a defendant’s activities upon goodwill, however difficult to quantify that effect may be; and she relied particularly on observations of Davies J in McAfee Associates Inc v Nestor Pty Ltd 24 July 1996 unreported: in dealing with an application for interlocutory relief in circumstances where he considered that considerations of convenience were evenly balanced, his Honour said, at 10, 11:
But in matters of this nature, I think, weight should be given to the fact that [the applicant] holds intellectual property rights which rely very much for their value upon support by the courts through injunctions should the copyright be infringed. Further, in my opinion, it is in the interests of all the [applicant’s] licensees, that is to say the users of the software, that they should be serviced by a firm which is an agent of [the applicant] and which has an interest in marketing and promoting [the applicant’s] products. It does not seem to me that it would be in their interests to continue to be serviced by a firm which is not [the applicant’s] agent. On the whole, therefore, I think that the balance of convenience favours the granting of the injunctions sought.
Counsel contended also that Classic Boots would not, by an injunction, be deprived of access to Wrangler western wear: it could buy from Thomas Cook.
Senior counsel for Classic Boots, on the other hand, sought to contrast what he described as clear evidence of financial detriment immediately facing Classic Boots with the substantially more remote and “ultimate” harm which, on the applicants’ evidence, might be suffered by the applicants if they were denied interlocutory relief. He referred to Bullock v The Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464 and submitted that this was a case, as was Bullock, where the balance is substantially all one way.
Senior counsel submitted that, on the evidence, the applicants suffered no loss by the activities of Classic Boots: Classic Boots are selling the applicants’ jeans: they are not (cf Slick Brands) an imitation; in that respect, therefore, there is no loss of goodwill. He submitted also that there was an element of public interest to be taken into account: it could be inferred from the evidence that country town retailers and hawkers could not afford minimum orders of $5,000, as are required by Thomas Cook. He sought to take advantage of the assertion of counsel for the applicants that Classic Boots might buy what they required from Thomas Cook and carry on its business unimpeded: he asked rhetorically how, if that was so, could there really be a concern as to brand positioning, support, advertising and quality service?
As often happens, this is not in my view a case in which the balance plainly favours one side or the other. The weight of the evidence given on behalf of Classic Boots is, I think, affected by the failure to tender any material from which it is possible to judge, with any degree of conviction, what its financial position is and the extent to which it would in reality be affected by being deprived, whether temporarily or permanently, of the ability to import and sell the products with which this interlocutory application is concerned. Additionally, it is clear that Classic Boots knew that an exclusive distributor had been appointed (and initially decided to cease dealing in Wrangler western products) and knew also what was on the Wrangler invoices. It seems unlikely that Classic Boots did not realise that some risk of legal action against it was involved in the course which it took: of course, they took it without apparently encountering difficulties for about two and a half years and that and possibly other circumstances (but there is no evidence which indicates what those other circumstances might have been) may have induced a sense of security. All that being said, however, it is evident on the material which is in evidence that a loss, possibly for some months, of the ability to sell the seized jeans and to import and sell similar products must have a seriously detrimental financial impact on Classic Boots. And I accept that, if Classic Boots cannot sell products which have formed a large part of its range, its sales of other products may be detrimentally affected.
On the other hand, I do not think that senior counsel’s submissions as to the weight to be given to the applicants’ evidence are to be accepted by any means in full. Although what is primarily to be considered is the balance of convenience as between the parties (though perhaps not exclusively: see, for example, Bullock at 474) the evidence of Mr Cook is reasonably detailed and, in several respects, in my view significant. There can be little doubt, I think, of the justice of his evidence on the effect of parallel importing, on a large scale, on the credibility and success of an exclusive distributor; and I refer also, particularly, to his evidence as to recent negotiations with retailers, as to Thomas Cook’s difficulties in meeting its minimum purchase obligations and as the comparison between the number and value of the seized jeans and Thomas Cook’s stock on hand and (apparently) on order. It is perfectly true, of course, that there is no evidence that the applicants will suffer what might be regarded, in the context of their total operations, as serious financial detriment. On the other hand, what is threatened is, on the evidence, a substantial disruption of the method of distribution of their products in Australia which they have legitimately chosen as commercially appropriate. I should perhaps add, however, that with respect I doubt that, for the purposes of this case, much assistance is to be derived from observations such as those of Davies J in McAfee. Much depends, in any given case, on what precisely is in issue. In this case, it may be that more elements of the claims which the applicants seek to make will, on a final hearing, be disputed than apparently were likely to be in dispute in McAfee.
I do not think any particular weight should be given to the “public interest” identified by Classic Boots. The applicants are entitled to decide to whom, and on what terms, they will sell their products in Australia and Thomas Cook (subject to their distribution agreement) are entitled generally to determine on what terms they will sell. If the applicants make good their claims in relation to copyright, then they are entitled to restrain parallel importing. If they are not, then Classic Boots are free to import and sell as they choose. In that context, the suggested public interest does not add anything to the balance on one side or the other. Similarly, the arguments about the effect of Classic Boots’ freedom to purchase from Thomas Cook may be regarded (I hope without undue disrespect) as on each side a rhetorical flourish. Although there was little if anything in the way of evidence or argument specifically directed to the point, I think it may be inferred that there is a significant commercial difference between Classic Boots purchasing from Thomas Cook and Classic Boots buying in the United States and importing independently: a reasonably secure basis for that inference may, no doubt, be found in the initial decision of Classic Boots not to buy from Thomas Cook and the reasons for that decision given by Ms Press.
There are, however, two other matters to be taken into account. One is the obvious truth that the extent of the prejudice to one side or the other which may arise from the grant or withholding of interlocutory relief will depend in large measure on the time which will elapse until the proceedings are finally heard and determined. This is plainly a case which should proceed with expedition and be finally disposed of as soon as practicable. The other is that, towards the close of argument, counsel for the applicants made an offer that the applicants would buy the seized jeans, subject to verification of the amount paid for them by Classic Boots, the purchase price being payable in two instalments: half immediately, and the balance as the seized jeans are sold. In answer to a question from me, counsel agreed that she was in effect proposing an offer of that kind, without any admission as to the way in which the balance of convenience might otherwise fall, as a condition of interlocutory relief. Counsel for Classic Boots had not, of course, the opportunity to obtain instructions; but he made the point that such a condition would not overcome any loss of goodwill which Classic Boots might suffer or deal with the question of future importations. The offer is, however, in my view of considerable significance, despite its late arrival. The release to the market of the seized jeans, given their number and value and taking into account particularly the evidence of Mr Cook, seems to me likely to cause substantial difficulties, cumulative upon difficulties already encountered, with the applicants’ chosen means of distribution: difficulties sufficient, on the evidence, to place it in real jeopardy. That, it seems to me, is a powerful factor in favour of the applicants. The particular matter which might otherwise, however, have led me to find that the balance favoured Classic Boots is the immediate and, as I think I must accept, serious impact of the tying up of its capital in the seized jeans. That problem is, I think, to a large extent overcome if a condition of the kind suggested is imposed. I appreciate that such a condition will not remove all prejudice which Classic Boots may suffer if interlocutory relief is granted; but the process of weighing the balance of convenience assumes that the unsuccessful party, whichever it is, will suffer prejudice. In my view, if the problem of the tying up of capital in the seized jeans is substantially overcome, the balance favours the applicants. For those reasons it is appropriate, in my view, subject to the applicant offering the usual undertaking as to damages and to the condition to which I have referred, that an order be made in terms substantially of the first or third prayer for interlocutory relief.
I have heard no argument as to which of the alternative orders sought, should I decide that interlocutory relief is appropriate, is the order which should be made. I am inclined to think that the substance of order 3 ‑ that is, an order for delivery up of the seized jeans to Classic Boots or its solicitors, subject to a restraint on dealings except by way of sale as contemplated by the applicants’ offer, is appropriate. The precise terms of the offer must also, of course, be formulated in a way which (if not agreed) is satisfactory to the Court.
If such an order is made, and on the footing that directions will be given for the expeditious prosecution of the proceedings, it seems to me that an order such as that sought in the applicants’ fourth prayer for interlocutory relief should be made: that is, in substance, an order restraining, until the determination of the proceedings or further order, further importation for sale etc. The order should relate to jeans bearing the label which I have discussed in these reasons, or made in accordance with a pattern according, to which (on the evidence before me) any of the seized jeans were made. Given my conclusions as to the seized jeans, I think it almost inevitably follows that such an order should be made; but as that prayer for relief was not the subject of substantial argument, I shall hear counsel if they wish to make further submissions about it.
The claim for an order requiring the filing of an affidavit as to previous importations was not pursued before me, and accordingly it is not appropriate now to make such an order.
Orders
In consequence, I order that the applicants file and serve, not later than Friday, 6 June 1997, minutes of orders appropriate to give effect to these reasons. Upon delivery of these reasons, I shall discuss with counsel the appropriate arrangements for setting the matter down for any argument which may be necessary as to the orders proposed by the applicants.
I certify that this and the preceding 29 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.
Associate:
Dated:2 June 1997
Heard: 16 May 1997 and 23 May 1997
Place: Sydney
Decision:2 June 1997
Appearances: J R Baird of counsel instructed by Mallesons Stephen Jacques appeared for the applicant
Mr A J Besanko QC with Mr M Manetta of counsel instructed by Voumard Bell appeared for the respondent.
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