Burden v ESR Group (NZ) Ltd
[2016] NZHC 1542
•7 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-002456 [2016] NZHC 1542
BETWEEN IAN JAMES BURDEN
First Plaintiff
AND
PLANTATION GROWN TIMBERS (INTERNATIONAL) LIMITED Second Plaintiff
PLANTATION GROWN TIMBERS (VIETNAM) LIMITED
Third Plaintiff
ESR GROUP (NZ) LIMTIED First Defendant
MORROW MARKETING MANAGEMNT LIMITED Second Defendant
CRAIG MORROW Third Defendant
GALAXY HOME (VIETNAM) LIMITED
Fourth Defendant
CHIEF EXECUTIVE OF NEW ZEALAND CUSTOMS
Fifth Defendant
Hearing: 7-11, 14-16, 18, 21-24, 28 September 2015
Further submissions filed 6, 7 & 8 October 2015
Counsel:
G Hazel, S Rosanowski & R Stone for the Plaintiffs
A J Pietras for the DefendantsJudgment:
7 July 2016
JUDGMENT OF DUFFY J
BURDEN & ORS v ESR GROUP & ORS [2016] NZHC 1542 [7 July 2016]
This judgment was delivered by me on 7 July 2016 at 4.30 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors:
James & Wells, Ellerslie, Auckland for Plaintiffs
A J Pietras & Co Ltd, Lower Hutt, for Defendants
[1] Together the plaintiffs are involved in the business of designing, producing and exporting furniture products, the main markets for which are North America, Europe and Australasia. They claim copyright in the artistic works that underlie the designs of their furniture. To protect their copyright in their designs they have filed copyright notices with the New Zealand Customs Service (NZ Customs).1
[2] The first defendant, ESR, is a New Zealand registered company that has imported furniture products from a competitor of the plaintiffs’ for the purpose of sale in New Zealand. On arrival in New Zealand, these products were identified by NZ Customs as pirated goods under the copyright notices and so the products were
seized and detained.2
[3] When the plaintiffs learned that NZ Customs had seized the furniture imported by ESR they commenced the present proceedings against ESR and others claiming that ESR is liable as a secondary infringer for breach of copyright. They further claimed that ESR’s conduct constitutes misleading and deceptive conduct under ss 9 and 10 of the Fair Trading Act 1986 (FTA) and involves the making of false and misleading representations in breach of s 13 of that Act.
[4] ESR counterclaims that the plaintiffs’ copyright notices are invalid. ESR denies the plaintiffs’ claims in copyright and under the FTA. It also makes counter- allegations against the plaintiffs’ copyright claims by challenging the originality of the works in which the plaintiffs claim copyright and their ownership of any copyright that might subsist in those works, as well as disputing the second and third plaintiffs’ eligibility to enforce copyright in New Zealand.
[5] The plaintiffs elected to proceed to trial against ESR only. The fifth defendant, NZ Customs, abides the decision of the Court. The claims made against
the second, third and fourth defendants are yet to be heard.3
1 These notices were filed pursuant to s 126 of the Copyright Act 1994.
2 The plaintiffs had filed notices with NZ Customs pursuant to s 136 of the Copyright Act. Acting in reliance on those notices NZ Customs issued notices of determination pursuant to s 137 of the Copyright Act which resulted in the imported furniture products being seized and detained by NZ Customs.
3 I understand the plaintiffs have encountered difficulties serving these defendants.
[6] The proceedings raise a number of complex factual and legal issues, namely:
(a) Whether companies registered in the Virgin Islands and in Vietnam, where the second and third plaintiff companies are respectively registered, can enforce copyright in New Zealand;
(b)Whether the alleged copyright works are original works, or copies of another company’s works as contended by ESR in its affirmative defence;
(c) Whether the first plaintiff (Ian Burden) is the author/first owner of the alleged copyright works; and if he is, whether the other plaintiffs have acquired from him an exclusive licence in respect of those works, or whether they are co-owners of those works;
(d) Whether the furniture products imported into New Zealand by ESR
are copies of the plaintiffs’ alleged copyright works;
(e) If the imported furniture products are copies, whether the plaintiffs have proved that at the relevant time ESR had the necessary knowledge for it to be liable for breach of copyright as a secondary infringer;
(f) Whether ESR breached the relevant provisions of the FTA; and
(g)Whether ESR can establish that the copyright notices which resulted in the seizure and detention of the furniture products are invalid.
[7] I will deal first with the issues regarding the eligibility and entitlement of the second and third plaintiffs to bring these proceedings because for those parties this is a threshold issue.4 Then I will deal with the remaining issues in the above sequential
order.
4 This involves considering if each of them is eligible to enforce copyright in New Zealand as well as the status of a licence agreement between them as licensees and Mr Burden as licensor.
Background
[8] Ian Burden is an Australian citizen who resides in Queensland, Australia. He is the managing director of the second and third plaintiffs. He has had a long involvement in the design and manufacture of furniture which goes back to the early
1990s. The second plaintiff, (PGT International), is a limited liability company registered in the British Virgin Islands. It was incorporated by Mr Burden in 1998 and was originally known as Plantation Grown Timber Ltd or more simply as PGT. It engages subcontractors to make furniture to a semi-finished state in accordance with designs allegedly produced by Mr Burden. The third plaintiff, PGT Vietnam, is a limited liability company registered in Vietnam. Its employees include persons who make technical drawings of the designs allegedly produced by Mr Burden. Other employees process and finish the furniture products made by the subcontractors to PGT International. These arrangements are adopted to conform with legal requirements in Vietnam.
[9] ESR is a New Zealand registered limited liability company which carries on business as a furniture importer and retailer. Amongst other things, ESR imports furniture into New Zealand that is supplied by the second defendant, including the subject furniture products, which form part of what is known as the Roseberry Collection. These are the items that are currently held by NZ Customs.
The pleadings
[10] The plaintiffs allege they own copyright in the design drawings, from which the Irish Coast Collection of furniture is produced (the copyright works), and that the items of Roseberry Collection furniture held by NZ Customs are infringing copies of those works.5 Whilst the plaintiffs have identified certain design drawings in the schedule to their statement of claim, the scope of their claim extends beyond those drawings. In this respect the plaintiffs contend that there are earlier artistic works6
from which the identified design drawings are derived, as well as later more
5 The infringing items of furniture are identified in sch 1 of the third amended statement of claim;
this is the current pleading and I shall refer to it herein as the “statement of claim.”
6 These works no longer exist or if they do the plaintiffs have been unable to locate them.
technical drawings of the same designs. ESR is alleged to be liable for breach of copyright as a secondary infringer.
[11] The plaintiffs also claim that the sale of the same items of Roseberry furniture in New Zealand constitutes misleading and deceptive conduct under ss 9 and 10 of the FTA, and involves the making of false and misleading representations in breach of s 13 of that Act.
[12] ESR disputes the plaintiffs’ claim to ownership of the copyright works on the
grounds that:
(a) Mr Burden is not the owner of the artistic works from which the Irish Coast Collection is produced, these being owned by a business called Hillsdale Furniture based in Louisville, Kentucky in the United States of America (USA);
(b)insofar as Mr Burden may be the author of those works they are not original, being instead copies of a collection of furniture known as the Broyhill Attic Heirlooms collection, which at the material times was produced by another furniture maker;7 and
(c) none of the plaintiffs is eligible under the Copyright Act to enforce any copyright that may subsist in the artistic works from which the Irish Coast Collection is produced. ESR also disputes the plaintiffs’ claims under the FTA.
[13] ESR makes two counterclaims. First, it claims that copyright notices issued by the plaintiffs alleging that items of Roseberry furniture were “pirated” goods should not have been accepted and acted upon by NZ Customs. ESR seeks to have those notices revoked. During the hearing ESR limited the scope of its counterclaim
to the notices of determination that affected the plaintiffs’ Irish Coast Collection of
7 This is pleaded as an affirmative defence. However, no particulars of the items alleged to have been copied have been provided. The items that ESR relied upon were only identified in the evidence. The plaintiffs coped with this at trial, but seek to have their efforts recognised by an award of costs.
furniture. Secondly, ESR claims that by filing the copyright notices the plaintiffs have acted in a manner that amounts to misleading and deceptive conduct. ESR seeks damages for lost sales of the furniture seized by NZ Customs.
Have the parties properly pleaded their respective cases?
[14] Concerns about the way in which the plaintiffs and ESR had pleaded their cases emerged during the parties’ closing addresses. In relation to one of those concerns ESR argued that the plaintiffs were restricted to relying on the drawings that they had identified in the schedule to their statement of claim as constituting the copyright works that were allegedly infringed. I ruled that the plaintiffs were not so limited.8 I found that the statement of claim gave notice to ESR that the plaintiffs relied upon other drawings of those specific items as well.
[15] The plaintiffs responded to ESR’s attempt to restrict their statement of claim by complaining about the lack of particulars that ESR had provided to support its affirmative defence that the alleged copyright works were themselves copies of another’s designs. The outcome of this complaint was that ESR was given leave to file an amended statement of defence that provided particulars of the affirmative
defence based on copying.9
[16] I note that whilst an amended statement of defence was later filed, ESR did not update the pleading to remove a number of its denials that were to the effect that in the absence of particulars, the allegations by the plaintiffs were denied. Insofar as ESR’s current statement of defence might suggest that the plaintiffs had not filed properly particularised allegations of copyright infringement, my view is that any such suggestion is wrong. Arguments about whether the plaintiffs had properly particularised the copyright works that were allegedly infringed were dealt with in the ruling dated 24 September 2015, and for the reasons given in that ruling the statement of claim was found to withstand scrutiny.
[17] Further in the closing stage of the trial the plaintiffs and ESR had ample opportunity to address any concerns about the pleadings that emerged from the
8 See ruling dated 24 September 2015.
9 See minute dated 25 September 2015.
closing addresses. Certain pleadings matters were raised by them then and addressed by me at the time. I consider that the ruling of 24 September 2015 and the minute of
25 September 2015 as well as the amendments the parties made in light of the directives contained therein were dispositive of all arguments as to whether the statement of claim or the statement of defence were deficient.
Burden of proof
[18] In a copyright proceeding it is for the plaintiff to prove that the works for which it claims copyright are original. Unless the plaintiff can rely on one of the statutory presumptions regarding authorship and ownership of copyright works it will need to prove those as well.10
[19] In this proceeding ESR denies that the plaintiffs own the copyright works and that the copyright works are original. However, in addition ESR makes counter- allegations which specifically allege that persons other than the plaintiffs are responsible for the authorship of the copyright works and that, insofar as the plaintiffs may have a hand in their authorship, all that they did was to copy the work of designers employed by another company.
[20] By pleading the counter-allegations ESR has complied with the law of pleadings, which requires a defendant to state any special defence or any new fact on which it will rely at trial so as to avoid the plaintiff being taken by surprise:11
These fresh facts must be pleaded in a summary form, and yet with sufficient particularity to enable the plaintiff to know what is the case which he will have to meet; the evidence by which they are to be proved need not, of course, be stated.
[21] However, once ESR made those counter-allegations, it assumed the burden of proving them. The authors of Garrow and Casey’s Principles of the Law of Evidence
where the authors state that:12
10 In relation to artistic works, s 126 of the Copyright Act sets out when authorship will be presumed and s 127 sets out when ownership will be presumed.
11 See IH Jacob Bullen and Leake and Jacob’s Precedents of Pleadings (12th ed, Sweet and
Maxwell, London, 1975) at 87.
12 See Maurice Casey Garrow & Casey’s Principles of the Law of Evidence (8th ed, Butterworths, Wellington, 1996) at 13.
In general, [the burden] lies upon the party, whether plaintiff or defendant, who makes the allegation; it lies on the one who affirms, not upon the one who denies. This rule has been described as an ancient one founded on considerations of good sense, and should not be departed from without strong reasons: Joseph Constantine Steamship Line Ltd v Imperial Smelting Corporation Ltd [1942] AC
154.
[22] And further:13
Sometimes the defendant finds it convenient to admit the facts alleged by the plaintiff in the statement of claim and to set up counter- allegations which will defeat the plaintiff’s cause of action. By doing so the defendant changes the burden of proof.
Whilst this was written in the context of a defendant having admitted the plaintiff’s claim and then having made counter-allegations, I see no reason why it should not also apply to circumstances where the plaintiff’s claim is denied, and then the denial is buttressed by specific counter-allegations that affirm the denial. In the latter case the defendant’s counter-allegations are affirmatively pleaded, and so for the reason expressed in Joseph Constantine Steamship Line Ltd it seems reasonable and proper
that the party asserting the affirmative case bear the burden of proving it.14
Eligibility/entitlement to enforce copyright in New Zealand
[23] To enforce copyright in New Zealand, a plaintiff must establish one of the required statutory connections with either New Zealand or a foreign prescribed country.15 None of the plaintiffs can establish a requisite statutory connection with New Zealand. Thus, before one or more of them can enforce copyright in New Zealand they each must establish that either they or the alleged copyright works have the requisite statutory connection with a foreign country that qualifies for recognition
under New Zealand law.16
13 At 14.
14 The discussion on who bears the civil burden of proof in Howard and others (eds) Phipson On
Evidence (15th ed, Sweet and Maxwell, London, 2000) at [4-03] is to like effect.
15 See ss 230 and 232 of the Copyright Act.
16 See ss 18, 19, 230 and 232 of the Copyright Act.
Do the plaintiffs have the necessary connection with a prescribed country?
[24] At all material times Mr Burden was and is an Australian citizen. Australia is one of the prescribed countries referred to in s 18(2) of the Copyright Act.17 Thus, if he can establish that he is the author or owner of the alleged copyright works he can enforce copyright in those works in New Zealand.
[25] PGT International is registered in the Virgin Islands, which are an overseas territory of the United Kingdom.18 These islands are commonly known as the British Virgin Islands in order to distinguish them from the neighbouring Virgin Islands of the United States.19 The Government of the United Kingdom is responsible for the international relations of the British Virgin Islands.20 This control is exercised through a Governor appointed by Her Majesty the Queen on the advice of her Ministers in the United Kingdom.21 The legal status of the British Overseas Territories is described thus:22
The territories themselves have no international legal personality and no international legal treaty-making capacity separate from that of the United Kingdom. The United Kingdom is therefore, as a matter of international law, responsible for the external relations of the territories, which includes responsibility for concluding treaties and for compliance with the international obligations under them.
[26] The United Kingdom is one of the prescribed countries in terms of s 232 of the Copyright Act.23
[27] The definition of “country” in s 2 of the Copyright Act includes territories for whose international relations the Government of that country is responsible. Since
the Government of the United Kingdom is responsible for the international relations
17 See s 232 of the Copyright Act and sch 1 to the Copyright (Application to Other Countries) Order 1995.
18 See s 50(1) and sch 6 of the British Nationality Act 1981 and s 1(1) of the British Overseas
Territories Act 2002.
19 See Ian Hendry and Susan Dickson British Overseas Territories Law (Hart Publishing, Oxford,
2011) at 347. I shall refer to the territory as the British Virgin Islands.
20 Ibid, at 348-351.
21 Ibid, and see The Overseas Territories: Security, Success and Sustainability (Foreign and Commonwealth Office, Cm 8374, 28 June 2012) at 14. In the British Virgin Islands, the Governor has responsibility for the external affairs, defence (including the armed forces), internal security (including the police) and the administration of the courts and public service.
22 Hendry and Dickson, above n 19, at 253 (emphasis added).
23 See the Copyright (Application to Other Countries) Order, sch 1.
of the British Virgin Islands I consider that for the purpose of enforcing the provisions of the Copyright Act, the British Virgin Islands should be seen as being part of the United Kingdom.
[28] ESR sought to separate the British Virgin Islands from the United Kingdom and so to argue that PGT International could not enforce copyright in New Zealand. ESR’s argument depends upon an interpretation of s 232 of the Copyright Act that I reject.
[29] Section 232 provides:
232 Application of Act (other than Part 9) to other entities
(1)On the recommendation of the Minister, the Governor-General may by Order in Council apply any provision or provisions of this Act (other than a provision of Part 9) to any entity specified in the order (whether a State, part of a State, a territory for whose international relations a State is responsible, a political union, an international organisation, or any other entity).
(2)To the extent that the nature of the entity permits, an order may apply a provision to an entity so that it has all or any of the following effects:
(a) it applies to persons who are citizens or subjects of, or domiciled or resident in, the entity as it applies to persons who are citizens or subjects of, or domiciled or resident in, New Zealand:
(b)it applies to bodies incorporated under the law of the entity as it applies to bodies incorporated under the law of New Zealand:
(c) it applies to works first published in the entity as it applies to works first published in New Zealand:
(d)it applies to communication works communicated from any convention country as it applies to communication works communicated from New Zealand.
(3) An order—
(a) may apply a provision unconditionally, or subject to conditions, modifications, or both; and
(b) may apply a provision generally, or in relation to works
or cases of a particular class or classes.
(4)The Minister must not recommend the making of an order applying any provision of this Act to any entity unless satisfied that—
(a) the entity is a convention country; or
(b)provision is or will be made under the law of or applicable to the entity giving reciprocal protection to copyright owners in respect of works generally or (as the case requires) works or cases of the class or classes to which the order applies that provision of this Act.
(5)If the Government of a State is responsible for the international relations of 1 or more territories, an order may apply a provision to—
(a) both the State and the territory (or 1 or more of the territories) concerned; or
(b) just the State; or
(c) just the territory (or 1 or more of the territories)
concerned. (6) If—
(a) an unpublished work is of unknown authorship, but there are reasonable grounds to suppose that the author was at the material time a citizen or subject of, or domiciled or resident in, an entity other than New Zealand; and
(b)an order under this section has applied a provision of this Act to that entity so that it applies to persons who are citizens or subjects of the entity, or are domiciled or resident there, as it applies to persons who are citizens or subjects of, or domiciled or resident in, New Zealand; and
(c) a person is authorised under the law of or applicable to the entity to represent the author, or protect and enforce the rights of the author in relation to the work,—
the authorised person must be treated as if he or she were the author of the work for the purposes of the provision.
[30] ESR argues that s 232 directs itself to an entity and that the statutory language makes it clear that such entity may be a state; part of a state; a territory or a political
union. From this basis ESR argues that under s 232 “states” and “territories” are different entities, and so the listing of a state in sch 1 of the Copyright (Application to Other Countries) Order 1995 (the Order) is distinguishable from listing a territory. On this view the omission of an express reference to the British Virgin Islands in the Order would exclude it from qualifying as a prescribed country under the Copyright Act.
[31] As ESR would have it, s 232 mandates the explicit listing of a state and each of its territories in the Order before a territory of a foreign state could enforce copyright in New Zealand.
[32] ESR’s interpretation of s 232 is at odds with the definition of “country” in s 2 of the Copyright Act. I consider that if possible s 232 should, be read in a way that fits with the s 2 definition of “country”. I am satisfied that this can be done. Section
232 is expressed in permissive terms. I see this as reflecting Parliament’s intent to ensure the widest available options for listing states and their territories. This is quite different from and inconsistent with the mandatory approach for which ESR argues. All of which supports an interpretation of s 232 that does not require the British Virgin Islands to be explicitly listed in sch 1 of the Order.
[33] Furthermore, s 232 impinges on how New Zealand discharges its obligations under the various international treaties on copyright to which it is a party. Therefore, the section should be read in a way that is consistent with those obligations.24
Article 29 of the Vienna Convention on the Law of Treaties 1969 concerns the territorial scope of treaties. It provides that “unless a different intention appears from the treaty or is otherwise established a treaty is binding upon each party in respect of its entire territory”, which includes its metropolitan and its non- metropolitan territories.25 Article 29 reflects the “position under international
customary law.”26 The definition of “country” in s 2 of the Copyright Act is
consistent with art 29, which to me indicates that Parliament was alive to the need to
24 See Ye v Minister of Immigration [2009] NZSC 76; [2010] 1 NZLR 104 at [32] where the Supreme Court referred to the principle of statutory interpretation that views Parliament as having legislated consistently with international obligations unless the contrary is clearly shown or unless the language used does not allow that outcome. None of the provisos apply here.
25 See Hendry and Dickson, above n 19, at 255.
26 Ibid.
accommodate the position of convention countries in a way that accorded with international law. This is a further reason for reading s 232 in a manner that is consistent with s 2 of the Copyright Act.
[34] Moreover, as has been identified by the plaintiffs, the United Kingdom specifically extended the Universal Copyright Convention to the British Virgin Islands in 1973. Thus, the Government of the United Kingdom has taken every step that it can take to extend international copyright protections to this colony/overseas territory.27 It would be entitled to expect that, just as it enjoys prescribed country status under New Zealand law, so should its overseas territory.
[35] I am satisfied that s 232 is no more than permissive, and that the listing of the United Kingdom in sch 1 of the Order should be read to include the British Virgin Islands. It follows that PGT International can establish the requisite connection with a prescribed country through the United Kingdom.
[36] ESR attempted to argue that this Court has previously ruled on the eligibility of residents of the British Virgin Islands to enforce copyright in New Zealand.28 I reject that submission. The reference ESR gives to the decision of Muir J is erroneous in that at the relevant paragraph Muir J found no more than that the British Virgin Islands were not “at this stage” recognised by the Order. In saying that, Muir J was simply ruling on matters as they were presented to him at an interlocutory stage. He was careful to make no definitive ruling on the status of the British Virgin Islands. Throughout his judgment Muir J was careful to acknowledge that he was dealing with the ESR application29 as an interlocutory application brought in the context of these proceedings. The Judge was very much aware that the issues raised in ESR’s interlocutory application would also be the subject of argument in the trial of this proceeding. Muir J’s judgment is written in a way that
properly recognises the interlocutory nature of the application before the Court and
27 At the time when the Universal Copyright Convention was extended to the British Virgin Islands, it was a British colony. Under sch 1 to the Interpretation Act 1978 (UK) it continues to be defined as a British colony.
28 See Burden v Plantation Grown Timbers International Ltd [2015] NZHC 1649.
29 The application was for an order under s 141(2) of the Copyright Act.
leaves ample room for the possibility of the trial Judge taking a different view on the facts and the law.
[37] Vietnam is not one of the countries listed in sch 1 of the Order. A literal reading of s 230 of the Copyright Act would lead to the conclusion therefore that a company registered in Vietnam could not enforce copyright in New Zealand. Section 230 provides:
230 Application to convention countries
(1)Subject to subsection (2), the provisions of this Act, other than the provisions of Part 9, shall—
(a) apply in relation to persons who are citizens or subjects of any convention country or are domiciled or resident there, as they apply in relation to persons who are New Zealand citizens or are domiciled or resident in New Zealand:
(b)apply in relation to bodies incorporated under the law of any convention country as they apply in relation to bodies incorporated under the law of New Zealand:
(c) apply in relation to works first published in any convention country as they apply in relation to works first published in New Zealand:
(d)apply in relation to communication works communicated from any convention country as they apply in relation to communication works communicated from New Zealand,—
until the close of 31 December 1995 or, in relation to any particular convention country, the coming into force in respect of that convention country of an Order in Council made under section 232, whichever is the earlier.
(2)For the avoidance of doubt, it is hereby declared that subsection (1) applies, in relation to a state of affairs or an action referred to in that subsection as existing or taking place in a convention country, whether or not the country in which the state of affairs existed or the action was taken was, at the time the state of affairs existed or the action was taken, a convention country.
(3)No provision of this Act shall apply, pursuant to subsection (1), to a work made before the commencement of this Act unless—
(a) copyright existed in the work under the Copyright Act
1962 immediately before the commencement of this
Act; or
(b)the work enjoyed protection in the nature of copyright in any convention country and, at the commencement of this Act, the term of that protection had not expired; or
(c) the work was first published in a convention country.
[38] PGT Vietnam asserts that Vietnam has acceded to international conventions including: the Berne Convention for the Protection of Literary and Artistic Works; the WIPO Convention (Convention Establishing the World Intellectual Property Organisation) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). Accordingly it argues that I should treat Vietnam as having prescribed country status under the Copyright Act, despite that country not being listed in sch 1 of the Order. However, such an approach would require me to
do violence to the language of s 230.30
[39] It is clear to me that under s 230, the Copyright Act only applies to persons having the necessary connection with convention countries who seek to protect their rights of copyright in New Zealand until the close of 31 December 1995 or the coming into force of an Order made under s 232 which lists the convention country as a prescribed country. The first qualifier has passed and the second has not been applied to Vietnam. This answers the arguments that the plaintiffs make for reading s 230 in a way that would see the first qualifier in that section continue to operate beyond 31 December 1995.
[40] Furthermore, I have been given no explanation for why Vietnam has not been listed in sch 1 of the Order.31 This may be because there are reasons which preclude
30 The circumstance I face here strikes me as falling clearly within the proviso to the legal principle that an interpretation consistent with international obligations was intended by Parliament: see Ye v Minister of Immigration above n 24.
31 An approach to the relevant Government department may have produced an explanation as to why Vietnam has not been listed in the Order, which could then have been produced in evidence.
it from being recommended for listing in sch 132 or alternatively its omission from sch 1 may be the result of undue delay on the part of officials responsible for advising the Minister. Thus, I do not know if the omission to list Vietnam in sch 1 is by default or by design. In such circumstances I am in no position to contemplate adopting an interpretation of s 230 that departs from the natural meaning of the section’s words, even if I were otherwise persuaded to do so.
[41] It follows that PGT Vietnam is not eligible to enforce in New Zealand any copyright ownership that it might have.
Are PGT International and PGT Vietnam licensees under an exclusive licence?
[42] Mr Burden claims to be the author and therefore the first owner of the copyright works. One of the bases on which PGT International brings these proceedings is that it can enforce copyright as the holder of an exclusive licence for those works.33 The same claim is made in relation to PGT Vietnam; however, because I have found that company cannot enforce copyright in New Zealand, through Vietnam not being a prescribed country, this finding determines PGT
Vietnam’s inability to sue for breach of copyright. Nonetheless, as PGT Vietnam also claims under the same licence agreement that PGT International relies upon it follows that the view I take of PGT International’s rights under this licence agreement will be equally applicable to PGT Vietnam. For completeness I have included PGT Vietnam in this consideration.
[43] A licensee can only sue for infringement of copyright if the licensee has an exclusive licence to use the copyright works. Section 123 of the Copyright Act
provides:
32 Vietnam may not have complied with all the requirements of the treaties to which it is said to have acceded; further s 232(4)((b) effectively prevents the Minister who is responsible for the administration of the Copyright Act from recommending the making of an order listing a convention country whose legislation fails to give reciprocal protection to copyright owners.
33 This is an alternative claim that is made by both PGT International and PGT Vietnam. They contend that a licence agreement dated 10 September 2012 between Mr Burden as licensor and them as licensees constitutes an exclusive licence under New Zealand law which entitles them to sue ESR for infringement of copyright.
123 Rights and remedies of exclusive licensee
(1) An exclusive licensee has, except against the copyright owner, the same rights and remedies under any of section 120 to 122P in respect of matters occurring after the grant of the licence as if the licence were an assignment.
(2) The rights and remedies of the exclusive licensee under any of sections 120 to 122P are concurrent with those of the copyright owner.
(3) In proceedings brought by an exclusive licensee pursuant to this section, a defendant may avail himself or herself or itself of any defence that would have been available if the proceedings had been brought by the copyright owner.
[44] An exclusive license is defined in s 2 of the Copyright Act:34
exclusive license means a licence in writing, signed by or on behalf of a copyright owner, authorising the licensee, to the exclusion of all other persons (including the copyright owner), to exercise a right that would otherwise be exercisable exclusively by the copyright owner (emphasis added)
[45] Thus, it is necessary to consider whether either PGT International or PGT Vietnam are exclusive licensees.
[46] Counsel for the defendants argues that since both PGT International and PGT Vietnam claim to be licensees, neither can be defined as an exclusive licensee.
[47] Counsel for the plaintiffs argues that copyright should be conceived as a bundle of rights, and that each of the rights can be independently and exclusively licensed to separate entities.35 In the present case, the plaintiffs contend that PGT International and PGT Vietnam are both exclusive licensees of separate rights and therefore each is entitled, as exclusive licensees, to enforce those rights and initiate
proceedings under s 123 of the Copyright Act.
34 Emphasis added.
35 There appears to be support for this proposition. See, for example, the discussion in Fisher & Paykel Financial Services Ltd v Karum Group LLC (No 3) [2012] NZHC 794 at [17]–[25] and
the statement in Paul Sumpter Intellectual Property Law: Principles in Practice (2nd ed, CCH
New Zealand Ltd, Auckland 2013) at 54 that “[t]he exclusivity of the licence may be in relation only to some restricted acts and not others.” In Karum Group LLC v Fisher & Paykel Financial Services Ltd [2014] NZCA 389, [2014] 3 NZLR 421 at [97], the Court of Appeal held that the appellant’s case “raise[d] questions about divisibility of copyright and what the Act means by exclusive licensee” but declined to decide those questions in the case at hand.
[48] However, the more significant problem that PGT International and PGT Vietnam face regarding the licence agreement is that on the face of this agreement it appears that Mr Burden, as the copyright owner, retains his original rights in the copyrighted works. In other words, the licence agreement does not appear to confer rights on PGT International or PGT Vietnam that are “to the exclusion of all other persons (including the copyright owner)”, as is required under s 2 of the Copyright Act. There are a number of relevant provisions in the license agreement which lead to this conclusion.
[49] First, the term “licence” is defined in the licence agreement as follows:
“Licence” means the revocable, non-exclusive and non-transferable right to use the Intellectual Property for the Purpose.
[50] Clause 8 provides:36
8.The Licensees acknowledge that all rights in the Intellectual Property will at all times remain the sole and exclusive property of the Licensor.
[51] Clause 11 provides:37
11. The Licensees must ensure that all copies of the Intellectual Property that are manufactured, printed, published, reproduced, exported, displayed or otherwise communicated by them to Customers and the public, and by Customers to the public (including electronically) are accompanied by a written statement confirming that the Licensor owns the Intellectual Property and no other party has any rights to it.
[52] Finally, cl 24 provides:38
24.No failure, delay, or indulgence on the part of a party in exercising any power in terms of this Agreement shall operate as a waiver of such power or right, nor shall any single or partial exercise of any such power or right preclude any other or further exercise of, or the exercise of any other power or right. The rights and remedies in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.
36 Emphasis added.
37 Emphasis added.
38 Emphasis added.
[53] The general tenor of these clauses could perhaps be overcome by an explicit provision conferring certain exclusive rights to PGT International and to PGT Vietnam in respect of the copyrighted works against the world, including the copyright owner Mr Burden. However, no such provision appears in the license agreement.
[54] Therefore, it appears that neither PGT International nor PGT Vietnam has an exclusive licence in respect of the copyrighted works, and so there is no jurisdiction to make orders in their favour under s 123 of the Copyright Act.
[55] The findings that I have reached on the status of the licence agreement mean that neither PGT International nor PGT Vietnam can rely upon being an exclusive licensee to found a claim for breach of copyright.
[56] This leaves claims by Mr Burden and PGT International as owners or co- owners of copyright in the alleged copyright works.39
Infringement of copyright: key principles
[57] The elements of copyright infringement are helpfully summarised and conveniently outlined by Rodney Hansen J in Fisher and Paykel Financial Services Ltd v Karum Group LLC:40
[145] In order to establish breach of copyright, [the plaintiff] has to establish that:
(a) It is the owner of a copyright work; and
(b) [The defendant] has infringed its copyright.
[146] In order to establish ownership, [the plaintiff] must show:
(a) The subject matter in which it claims copyright (the subject matter) is a work in which copyright can subsist;
(b) Copyright in fact subsists in the [subject matter]; and
39 See [21] of the third amended statement of claim. PGT Vietnam also pleads in the alternative that it is an owner or co-owner of the alleged copyright works but it is prevented from bringing an action for infringement in this country by the findings that I have made that Vietnam is not a prescribed country under the Copyright Act.
40 Fisher and Paykel Financial Services Ltd v Karum Group LLC (No 4) [2012] NZHC 3314.
(c) [The plaintiff] owns the copyright in the [subject matter]. [147] In order to prove infringement, [the plaintiff] must show:
(a) Objective similarity between the relevant part or parts of [the allegedly offending subject matter] and [the plaintiff’s subject matter];
(b) [The allegedly offending subject matter] reproduces the whole or a substantial part of [the plaintiff’s subject matter]; and
(c) A causal connection between the respective parts of [the allegedly offending subject matter] and [the plaintiff’s subject matter] such that [the plaintiff’s subject matter] is the source from which the relevant part or parts of [the allegedly offending subject matter] has been taken.
[58] I will approach the copyright issues for determination in these proceedings in accordance with the above outline.
Ownership of the copyright works
[59] The statement of claim pleads that Mr Burden is the owner of the copyright works. These are said to fall into two categories. First, there are the concept drawings and preliminary sketches from which the listed items of Irish Coast furniture were realised (the preliminary copyright works).41 They were allegedly drawn by Mr Burden. Secondly, there are more detailed drawings (the technical copyright works) which were done by employees of PGT Vietnam. With those drawings, the initial sketches produced by Mr Burden were allegedly developed under his instruction into more detailed works, which included information such as
height, depth, width and the use of tongue and groove joinery. Mr Burden allegedly then reviewed and amended those later works where appropriate.
[60] The statement of claim pleads that with the technical copyright works the simplest product has at least one page of technical drawings, and others may have multiple pages depending on the complexity of the product. These works were
completed by hand and/or with the use of a computer and software.
41 See sch 1 of the third amended statement of claim.
[61] Together the preliminary copyright works and the technical copyright works form the copyright works on which the plaintiffs’ claim for infringement of copyright rests.
[62] The statement of claim pleads that Mr Burden as owner of copyright in the technical copyright works entered into the licence agreement dated 10 December
2012 with the other plaintiffs.
[63] In the alternative, the statement of claim pleads that together with Mr Burden, PGT International and PGT Vietnam are owners or co-owners of the copyright works.42 This alternative claim is made to cover the possibility that Mr Burden is found to have drawn the preliminary sketches in the course of his employment by one or other of those companies, so that the technical copyright works are owned by one or both of those companies.43
Can copyright subsist in the alleged copyright works?
[64] The plaintiffs claim that the design drawings on which the Irish Coast Collection of furniture is based are original artistic works in terms of s 14(1)(a) of the Copyright Act. Design drawings of furniture, including concept and preliminary sketches and technical drawings, qualify as artistic works under that section.44 At the hearing ESR did not quarrel with this assertion.
Does copyright in fact subsist in the alleged copyright works?
[65] For copyright to subsist in any artistic work it must be an original work. To be original for copyright purposes, design drawings must originate from their author, and they must be the product of more than minimal skill and labour.45 Relevantly for the present case, the Supreme Court in Henkel KGAA v Holdfast New Zealand Ltd
observed that:46
42 This co-ownership either includes or excludes Mr Burden as an owner.
43 See s 21 of the Copyright Act which gives ownership of employees’ work to employers.
44 See Shanton Apparel Ltd v Thornton Hall Manufacturing Ltd [1989] 3 NZLR 304 (CA) at 310.
45 See Henkel KGAA v Holdfast New Zealand Ltd [2006] NZSC 102, [2007] 1 NZLR 577 at [37].
46 Ibid, at [38].
The threshold for originality is a low one and it can be material for other purposes how original the work is; that is, how much skill and labour has gone into its creation.
[66] The requirement for originality is not to be confused with novelty. In Wham- O MFG Co v Lincoln Industries the Court of Appeal confirmed that artistic works need not be novel:47
The meaning of "original" is not defined in the Act but it was discussed (in relation to literary work and his judgment is equally applicable to an artistic work) by Peterson J in University of London Press Ltd v University Tutorial Press Ltd [1916] 2 Ch 601, 608-609, and his judgment has been frequently cited with approval in subsequent cases.
The word 'original' does not in this connection mean that the work must be the expression of original or inventive thought. Copyright Acts are not concerned with the originality of ideas, but with the expression of thought, and, in the case of
'literary work', with the expression of thought in print or writing. The originality which is required relates to the
expression of the thought. But the Act does not require that
the expression must be in an original or novel form, but that the work must not be copied from another work - that it should originate from the author."
[67] And later:48
The question of novelty is immaterial where the author has produced the result without reference to any pre-existing subject-matter because he has not copied.
[68] Whilst the level of originality can be low, this will affect the level of protection.49 In Henkel, the Supreme Court stated:50
In general terms the greater the originality, the wider will be the scope of the protection which copyright affords and vice versa.
[69] Artistic works need not meet any particular aesthetic standard, so the mundane is generally protected.51 Artistic works of commonplace items will be
protected by copyright where their expression is found to be original. Thus, in Tiny
47 See Wham-O MFG Co v Lincoln Industries [1984] 1 NZLR 641 (CA) at 664 (emphasis added);
and see Henkel KGAA v Holdfast NZ Ltd, above n 45, at [37].
48 At 665.
49 See Land Transport Safety Authority of New Zealand v Glogau [1999] 1 NZLR 261 (CA).
50 Henkel KGAA v Holdfast New Zealand Ltd, above n 45, at [38].
51 See Brendan Brown, Delia Brown and Clive Elliot Intellectual Property Law (looseleaf ed, LexisNexis) at 14.3.
Intelligence Ltd v Resport Ltd a flat urethane foam sword and a plastic trumpet designed for use at rugby matches were found to be protected by copyright.52 John Hansen J described the basis of the claim in this way:53
In neither case does the First Plaintiff assert that a sword or a trumpet is an original work. The First Plaintiff relies on its expression of the sword and trumpet as original.
[70] The fundamental principle of the law of copyright that it “is not concerned with originality of ideas but with originality of expression”54 takes on greater importance when it comes to copyright claims regarding common place items. In such cases originality “in the sense of the contribution of the author’s skill and labour, tends to lie in the detail in which the idea is presented.”55 Function also has a greater impact here as with many common place items functional constraints will lead to similarities between two works through the limits they can impose upon a design.56
[71] The nature of the initial artistic works that underlie the design of a product need not be proved by direct evidence. Instead, secondary evidence can be relied upon to prove their existence, in which case whether such evidence will do so is a matter of degree dictated by the circumstances of the case.57
[72] In cases where secondary evidence is relied upon it can be a matter of reasoning backwards from the finished product as well as any prototypes that have been produced in evidence to infer the existence of the initial design drawing.58 For example, in Wham-O MFG Co for the claim that copyright subsisted in the Frisbee model known as “Professional”, the following was not produced in evidence: (a) the preliminary drawings; (b) the wooden model; (c) the mould or die; or (d) the
working drawings. The plaintiff did produce a facsimile of the wooden model, with
a subtle difference that was explained to the Court’s satisfaction. The finished
product, Professional Frisbee, was also produced. The plaintiff gave evidence to
52 Tiny Intelligence Ltd v Resport Ltd HC Christchurch CIV-2003-409-352, 21 November 2005.
53 At [45].
54 See Oraka Technologies Ltd v Geostel Vision Ltd [2013] NZCA 111 at [130].
55 Ibid.
56 Ibid, at [131] to [133].
57 See Wham-O MFG Co v Lincoln Industries, above n 47, at 652.
58 Ibid, at 653.
explain there were preliminary drawings, a wooden model, a mould or die and working drawings. From this evidence the Court reasoned as follows:59
From that facsimile [of the wooden model] therefore it was possible to determine the nature of the wooden model which the facsimile represented and also to determine the nature of the preliminary sketch from which that wooden model was made, which model represented a three-dimensional form of that preliminary sketch.
…
Although neither the working drawings nor the injection mould were produced, the finished plastic product was, and there can be little doubt that the finished plastic product was a representation in three-dimensional form of the working drawing and a reproduction of the object embraced by the mould produced from the working drawings and possibly the wooden model.
There is therefore, we think, ample evidence to prove the form of the materials in which copyright was claimed to exist and to link up those materials in a causative chain to the creation of the final plastic product.
[73] In Fleming v Fletcher Concrete & Infrastructure Ltd60 and Tiny Intelligence Ltd v Resport Ltd61 the absence of direct evidence to prove the existence of copyright works was no bar to the plaintiffs establishing their existence, the Courts being content to rely upon indirect evidence. So, provided there is sufficient evidence to
support the inference of the existence of copyright works this will be enough to prove that they once existed.
[74] The authors of Copinger and Skone James On Copyright formulate the test for originality in the United Kingdom in this way:62
A work need only be “original” in the limited sense that the author originated it by his efforts rather than by slavishly copying it from the work produced by the efforts of another person. … Nevertheless it no doubt remains generally true that particularly where the copy is in the same medium as the original, there must be more than an exact reproduction or facsimile enlargement or reduction if the copy is to secure copyright; there must usually be some element of material alteration or embellishment which suffices to make the totality of the new work an original work. In this, the quality of the alteration is likely to be more important than the quantity. …
59 Ibid.
60 Fleming v Fletcher Concrete & Infrastructure Ltd HC Auckland CIV-2005-404-4598,
1 December 2006.
61 Tiny Intelligence Ltd v Resport Ltd, above n 52.
62 Gillian Davies, Nicholas Craddick and Gwilym Harbottle Copinger and Skone James on Copyright (17th ed, Sweet & Maxwell, London, 2016) vol 1 at [3-235] citing Hyperion Records Ltd v Sawkins [2005] EWCA Civ 565, [2005] 1 WLR 3281.
and, in the case of an artistic work, the visual impact of the alteration or embellishment on the work as a whole is more important than its technical significance. It is originality in relation to visually significant matters that is important here. Mere change of scale will therefore not normally be regarded as visually significant. If the original, in the case of an artistic work, is used merely as a model to give the idea of the new work, then the new work may well be entitled to protection, but if the result is simply a slavish copy, it will not usually be protected.
[75] Provided the work “was not slavishly copied from some other work” and the author has “expended more than negligible or trivial labour skill and judgment” in its creation, it will be considered original work. This statement appears to me to accurately reflect New Zealand copyright law on originality as well.
[76] Ordinarily, Mr Burden’s evidence on how he developed the design of the Irish Coast furniture would be assessed in accordance with the relevant principles relating to originality. Whilst those principles still need to be considered here, there are also ESR’s two specific counter-allegations that the Irish Coast designs were drawn by someone employed by Hillsdale, and that to the extent Mr Burden did draw any Irish Coast designs he copied these from Broyhill’s Attic Heirlooms furniture. These counter-allegations form part of a general attack on the originality of the copyright works, and so they need to be dealt with in this context. The first counter-allegation is simply a question of fact. But the second counter-allegation raises questions of law as to the tests to be applied when determining a defendant’s specific counter-allegation of copying by the plaintiff. I was directed to no authority to assist me to determine what those tests should be. Logic suggests to me that the tests should be the same as the tests for determining if a defendant has copied a
plaintiff’s copyright works.63 This is the approach I propose to take.
[77] I now turn to consider: (a) whether Mr Burden is the author of original preliminary design drawings of Irish Coast furniture, including the items of furniture in sch 1 of the statement of claim; and (b) whether Mr Burden is the author of the alleged technical copyright works. After that I will deal with the question of
ownership of the alleged copyright works. Once originality and ownership of the
63 These tests are well settled and will be referred to later when the counter-allegation of copying comes to be determined.
copyright works is determined it will then be a matter of determining whether ESR
has infringed copyright in those works.
Is Mr Burden the author of original preliminary design drawings of the Irish Coast furniture?
[78] Mr Burden said that the Irish Coast Collection was developed sometime between July or August 2002, with the naming of the collection as Irish Coast coming last, by which time particular items of Irish Coast furniture were already in existence. One of the design features of Irish Coast furniture is that it is made by an old fashioned method of construction that involves floating tongue and groove panels of recycled or caste off wood (flotsam construction) rather than from modern
methods and virgin wood or wood composite materials.64 This gives the furniture a
rustic look as well as better accommodating the characteristics of the type of timber that is used in its construction.65
[79] Mr Burden described how he had developed the idea of making furniture with a rustic appearance that harks back to earlier times, and how this furniture came to be called the Irish Coast Collection. He said the Irish Coast Collection represented his first big break-through as a manufacturer of furniture working out of Vietnam and it was the first range of furniture he designed and manufactured that expressed a total “story”, which means that it provided a full range of furniture items for different rooms of a household. If a purchaser had wanted to, he or she could have fitted out an entire household with Irish Coast furniture.
[80] Mr Burden gave evidence that he drew the original preliminary design drawings from which the Irish Coast Collection of furniture is derived. However, those drawings were not in evidence. So, the existence of such drawings must be
established by secondary evidence.66
64 It was Mr Burden who used the term flotsam construction.
65 Recycled timber from around the world was being used and different species of timber would have had different rates of shrinkage and different temperature tolerances. Constructing
furniture out of floating tongue and groove panels of timber held together with breadboard ends floating allowed for the timber to swell and contract.
66 Following the principles applied in Wham-O MFG Co v Lincoln Industries, above n 47; Fleming v Fletcher Concrete & Infrastructure Ltd, above n 60; and Tiny Intelligence Ltd v Resport Ltd, above n 52.
[81] Mr Burden described the design process for the Irish Coast Collection, which started with him making rough preliminary sketch drawings of the items of furniture. This was followed by working drawings made by others under his supervision, and then samples were made to test the design. Once he was satisfied with the samples, more detailed technical drawings were made from the sample. Ultimately the point would be reached where the type of detailed technical drawings necessary for the mass production of furniture could be drawn. Mr Burden’s evidence was that a preliminary drawing was an essential first step in the production of any item of the Irish Coast Collection. Whilst he could not remember specific preliminary drawings that he had made for a particular item of Irish Coast furniture he was insistent that
such drawings had once existed.67
[82] Mr Burden described his lengthy involvement in the design and manufacture of household furniture, which included designing ranges of rustic/colonial furniture well before the Irish Coast Collection. This shows that he would have had the necessary experience, skill and ability to draw preliminary designs of Irish Coast furniture.
[83] Other witnesses for the plaintiffs, Mr Trinkler, Mr Hung and Ms Mai, gave evidence that confirmed Mr Burden having such skills.
[84] Schedule 1 of the statement of claim lists 14 drawings of items of Irish Coast furniture, none of which identifies Mr Burden as the author. Instead, on the face of the drawings, the authors are identified as persons with Vietnamese names, and ownership of the drawings is ascribed to a company identified as “Plantation Grown Timbers Ltd”. This is the former name of PGT International. However, all those drawings appear to me to be working drawings that reveal differing degrees of technical detail. None of the drawings resembles a preliminary sketch or concept
drawing as I understand those words.68 Instead, the level of precision and detail in
67 At times Mr Burden referred to these as preliminary sketches or concept drawings. I understand him to have been talking about the type of initial hand drawings that depict a broad outline of the particular design of a particular item of furniture.
68 Mr Burden was able to provide in evidence copies of preliminary drawings that he had made of other furniture so as to give the Court an idea of what such drawings might look like. These drawings were rougher, less precise and more basic in appearance than the drawings listed in sch
1 of the statement of claim.
those drawings suggests they were not the initial preliminary drawings of the designs depicted in the sch 1 drawings. So, their existence does not undermine Mr Burden’s evidence.
[85] The only direct challenge to Mr Burden’s evidence that he authored the preliminary design drawings of the Irish Coast Collection was evidence that ESR called from Edwin Elting of Hillsdale, which was an early purchaser of Irish Coast furniture. Mr Elting asserts that one of Hillsdale’s employees, Jim Hembree, designed all or part of the Irish Coast Collection.
[86] Mr Elting’s evidence was that while he was at the annual Highpoint furniture trade show in Camden, North Carolina, USA in October 2002 he met Mr Burden and Mr Morrow, who were representing a company that Mr Elting knew as PGT.69 They showed him photographs of heritage style furniture PGT designed and manufactured from recycled timber. Mr Elting was interested in this furniture, which he described as “old world basic designs”, “very utilitarian looks” and said that the attraction for Hillsdale was that the furniture was made from recycled timber, which was then a relatively new concept in the USA. He acknowledged under cross-examination that
the photographs showed different items of furniture including beds, dressers, chests, dining tables, and that there was more than one collection, each with a “marginally different look.”
[87] Then in November 2002 Mr Elting and others from Hillsdale, including Mr Hembree, went to Vietnam where they viewed physical samples of PGT’s heritage furniture. They decided to order some of the existing heritage products, but they also wanted additional products made in accordance with traditional designs. Mr Elting gave PGT a copy of a Broyhill Attic Heirlooms catalogue to show PGT the
type of traditional designs he had in mind.70
69 Mr Burden gave evidence that there was a company called Plantation Grown Timbers which was known as PGT and it later changed its name to Plantation Grown Timbers International. It would seem therefore that the company that Hillsdale was dealing with and which Mr Elting spoke of in his evidence was the second plaintiff, which is now known as PGT International.
70 Mr Elting described the Attic Heirlooms furniture as a “virgin product” and “a very well and clean produced product line” whereas the range Hillsdale sought from PGT was “reproductions, old world designs, something similar that was done with recycled timber”.
[88] Hillsdale did not want to place bulk orders for items it had not seen, and so samples of the new end products were requested. These were received in early 2003.
[89] Mr Elting recalled that some time shortly after the November 2002 meeting, the furniture Hillsdale was purchasing from PGT was being called Brittany and then it later came to be called Irish Coast. He accepted that it was PGT that gave the furniture this name and not Hillsdale. He described finding some examples of loadings on the Hillsdale system which referred to Irish Coast furniture as early as February 2003, which shows the use of this name by then.
[90] Mr Elting said that while he and other Hillsdale representatives were in Vietnam in November 2002 they asked PGT to make alterations to the furniture to be supplied to Hillsdale. He said that Mr Hembree produced sketches of these alterations. He described these sketches as being “very rough”.
[91] At times in his evidence Mr Elting said that the alterations Mr Hembree sketched were primarily related to scale and size of an item of furniture as well as details such as the depths of the drawers of furniture items. He also referred to Mr Hembree making little sketches of details such as whether some moulding should be added to an item of furniture or not. However, at another time in his evidence Mr Elting said that Mr Hembree had sketched new items of furniture in order “to make the collection a collection.” Mr Elting was unable, however, to specify just what item of furniture was sketched for this purpose.
[92] Mr Elting had no memory of Mr Hembree sending sketches to PGT, which led him to conclude that those sketches were done in Vietnam. Hillsdale has no copies of those sketches. Apart from the references to scale, size and moulding depth, Mr Elting could not remember other alterations that Hillsdale had sought, but he said the request for alterations happened a lot. He said that PGT were instructed to take Mr Hembree’s sketches, to build samples and these were to be reviewed when Mr Elting returned to Vietnam the following month.
[93] As Mr Elting described it, Hillsdale controlled the extent of any changes to the furniture designs and PGT was compliant in this regard. His belief was that
Hillsdale would provide PGT with direction, they would do drawings from which samples could be made, and he would then review those samples on a return trip to Vietnam, which he did in December 2002. However, Mr Elting could not identify any instructions that could relate to each of the items of Irish Coast furniture shown in sch 1 of the statement of claim. Nor could he point to any documentary evidence recording communications of that type between PGT and Mr Burden on the one hand and Hillsdale on the other.
[94] Mr Elting did not resile from his evidence when under cross-examination. But he did accept that PGT personnel may have contributed to the design of the Irish Coast Collection, and he did not know whether that was Mr Burden or someone else associated with PGT.
[95] Mr Elting did concede when questioned by me that he did not have a clear memory about the specifics of each furniture product. He also acknowledged in answer to a question from me that he could not remember now who was responsible for the sketch of a particular design to which his attention was directed.
[96] It became clear from the cross-examination of Mr Elting that he and Hillsdale have an ongoing relationship with the third defendant, Mr Morrow, who has a controlling interest in the second and fourth defendants.71 Mr Elting described the second defendant as an “important” and “significant” supplier of product to Hillsdale. He acknowledged that Hillsdale’s relationship with Mr Morrow and the second defendant was important to Hillsdale. However, he denied the suggestion
that his evidence was affected by the importance of Hillsdale’s relationship with
Mr Morrow and the companies associated with him.
[97] Apart from the evidence of Mr Burden and Mr Elting, the only other evidence relevant to determining authorship of the Irish Coast designs is: (a) an email from Mr Hembree to PGT dated 23 November 2002; and (b) an invoice from PGT to Hillsdale dated 31 January 2003, which records nine different types of items
of furniture described as Irish Coast being shipped to Hillsdale.
71 Mr Morrow is a former associate of Mr Burden’s and a director of the plaintiffs. Mr Morrow
was present when Mr Elting met with Mr Burden and PGT in November 2002 in Vietnam.
[98] In the email of 23 November 2002, Mr Hembree enquires about the samples Hillsdale requested for the “Attic Heirlooms” which was the design name given to the Broyhill furniture range. There is nothing sinister in the reference to “Attic Heirlooms”. In November 2002 the name Irish Coast had not yet been identified. Hillsdale wanted a range of furniture which, like Attic Heirlooms, represented an old world style; however Mr Elting was adamant that there was no intention to copy
Broyhill’s design.72 This fits with Mr Burden’s denial of any copying of Attic
Heirlooms.
[99] The email from Mr Hembree asks how PGT is proceeding on the projects and asks if PGT is clear on the bedroom and dining room samples that Hillsdale requires. The email also contains an offer: “I can have our guys in Louisville put a set of sketches together with dimensions if this will help. You already have the sizes however.”
[100] Under cross-examination Mr Burden accepted that alterations were made to the Irish Coast furniture for Hillsdale, but on his evidence this range of furniture was already established, and the only alterations that were made for Hillsdale were to upsize the items of furniture as the USA market demands a bigger scale of furniture than other markets. In this regard Mr Burden’s evidence is consistent with the email dated 23 November 2002 in which Mr Hembree offers the assistance of Hillsdale’s employees to put a set of sketches together with dimensions “if this will help”, which is followed up by the statement “you already have the sizes, however.” This suggests no more to me than that Hillsdale had given PGT the dimensional sizes of the furniture it wanted and because of the time pressure on PGT to make delivery of up-scaled items of furniture Mr Hembree was offering to have Hillsdale employees
prepare the necessary technical drawings for PGT to help speed up the
72 Mr Elting explained that old world designs like the Attic Heirlooms range would not be protected under copyright law in the USA so these could have been readily copied and the copies sold in the USA. Thus Mr Elting had no incentive to deny copying of the Attic Heirlooms range. However he saw the range PGT was to produce as something different from the Attic Heirlooms range as this range was made from virgin product and used modern materials that were made to look old through distressing techniques whereas the PGT heritage style furniture was made from old recycled timber that was naturally distressed and made in accordance with old methods of construction.
manufacturing process.73 Therefore, I see no conflict between the email of
23 November 2002 and Mr Burden’s evidence.
[101] The invoice dated 31 January 2003 shows nine types of furniture from the Irish Coast Collection delivered to Hillsdale.74 From their description in the invoice it seems to me that the sample furniture items sent to Hillsdale in January 2003 were actually examples of a final end product rather than the type of samples that Mr Burden described as forming part of the initial design process. So, by 31 January
2003 PGT already had finished end products in the nine types of furniture that were shipped to Hillsdale.
[102] Mr Burden said that given Hillsdale’s visit in November 2002 it would not have been possible for a new range of furniture to be developed and manufactured to the point where sample end products could be sent to Hillsdale by 31 January 2003. He said that PGT was only in a position to deliver nine types of furniture items in January 2003 because some of those items were already in existence before Hillsdale came to Vietnam. In this regard Mr Burden was adamant that when the Hillsdale representatives visited Vietnam in November 2002, PGT had furniture products built from recycled timber in a heritage style on display for them to view and Mr Elting, in his evidence, confirmed seeing such products. Mr Burden said that all that was missing in November 2002 was the concept of having a matching range of furniture for an entire household. He said that this was achieved by PGT using some of its existing furniture items, adapting some other existing furniture items and designing others, with the naming of the collection Irish Coast coming last.
[103] The way in which Mr Elting described the rough sketches occurring at the meetings in Vietnam in November 2002 seems to me to preclude Mr Hembree
coming up with nine actual designs of the complexity of the items shipped to
73 By this I mean the type of technical drawings that precede and are necessary for the mass manufacture of an item of furniture.
74 At the relevant time Hillsdale had a different name, which appears on the invoice. The items were described as: two classic colonial style beds; six ladder back dining chairs; one butterfly
extension dining table; one buffet with three drawers two doors and four adjustable shelves; one
recycled glass door hutch with six spice drawers; one landscape mirror with turning bevelled glass and heavy wall hooks or dresser mounts; one landscape mirror with turning bevelled glass and dresser mouldings; one single drawer bedside or end lamp table with shelf; one two drawer eight leg sofa multi-purpose side table with two shelves; one two long drawer coffee table with shelf.
Hillsdale in late January 2003. Therefore, I do not believe that in the time available in November 2002 when Mr Hembree was in Vietnam he could have drawn preliminary sketches of all the items of furniture that were shipped to Hillsdale in January 2003.
[104] Secondly, even if Mr Hembree did draw some rough sketches of items of furniture it is not possible to identify a specific item of Irish Coast furniture for which he may have drawn the preliminary design sketch. Thus, it is not possible to connect any preliminary sketch that he might have drawn with any specific item of Irish Coast furniture. On the other hand, Mr Elting’s evidence confirms that when he met Mr Burden and Mr Morrow at the furniture trade fair in Camden, USA in October 2002, PGT already had heritage style furniture made from recycled timber, which is consistent with PGT being in a position to ship items of such furniture to Hillsdale in late January 2003.
[105] Thirdly, Mr Elting’s evidence on Mr Hembree making preliminary sketches is general and vague. He could not remember the specific items that Mr Hembree sketched, and when pushed to give details he used words such as “little sketches of detail such as whether some moulding should be added to an item or furniture of not.” This description is consistent with Mr Elting’s evidence that Hillsdale was concerned about scale and size and drawings were made of things like “moulding depths on drawers”, which suggests to me that Mr Hembree’s sketches were probably limited to those matters.
[106] Fourthly, Mr Elting’s evidence of Mr Hembree being present at meetings with PGT in November 2002 in Vietnam and drawing rough sketches of designs for furniture that Hillsdale wanted PGT to manufacture was never put to Mr Burden directly in cross-examination. Accordingly, Mr Burden had no opportunity to comment upon this evidence, and so I do not know what Mr Burden’s response would have been to the suggestion that the design of the Irish Coast Collection sprang from preliminary sketches that Mr Hembree did while he sat in at meetings with PGT personnel in Vietnam in November 2002. The omission to give
Mr Burden the opportunity to comment on this aspect of Mr Elting’s evidence reduces the weight that I can place on it.75
[107] Finally, I was given no explanation for why Mr Hembree did not give evidence. Under cross-examination Mr Elting said that when he had learned of this proceeding his initial response as to what he remembered of the creation of the Irish Coast collection as well as the response of “the Hillsdale team Jim Hembree in particular … was …”. The reference to Mr Hembree in this context suggests to me that he still works for Hillsdale. In this proceeding, evidence was given by audio- visual link. So, it could have been possible for Mr Hembree to give evidence by audio-visual link, if there were reasons why he could not come to New Zealand to give evidence. The account Mr Elting gives of Mr Hembree’s contribution to the design of Irish Coast furniture is somewhat removed, and it would have been better if I had heard directly from Mr Hembree on the topic of the impact of his sketches on the development of the Irish Coast Collection of furniture. Mr Hembree is the person who was best placed to outline to the Court the nature of the sketches he did in November 2002.
[108] I do not find Mr Elting a reliable witness.76 Mr Elting is someone who through Hillsdale purchased furniture from PGT from 2003 to 2005. The relationship then ended as a result of Hillsdale not being happy with the quality of some of the furniture supplied by PGT. A decade has elapsed since then. In my view Mr Elting cannot be expected to have an accurate recall now of events that would have had no significance for him once the relationship with PGT had come to an end.77 In addition, given the present relationship Hillsdale has with Mr Morrow and the second and fourth defendants, Mr Elting may be concerned to assist them, and this coupled with the passage of time may have led him to remember events in a way that is more favourable to them than the view that I have formed of those
events.
75 See s 92 of the Evidence Act 2006.
76 Mr Elting said he had a good memory but in my view this opinion was not borne out by his evidence.
77 There is nothing to suggest that before the commencement of these proceedings Mr Elting would have had any cause to delve into his recollection of the interactions between PGT and Hillsdale in November and December 2002.
[109] On the other hand Mr Burden struck me as a credible witness who gave a reliable account of the development of the design of the Irish Coast Collection and the role he played in that development. As someone who was responsible for the design and development of Irish Coast furniture I would expect Mr Burden to have an accurate recall of those events. His account of events is consistent with Mr Hembree’s email and the invoice of January 2003. Furthermore, his account is supported by evidence of other witnesses: namely, Joseph Trinkler and Mai Dang, whose evidence I found to be reliable and credible.
[110] Looked at overall I am satisfied that Mr Elting’s description of Mr Hembree’s sketches is not consistent with Mr Hembree being the author of preliminary drawings that underlie the design of the Irish Coast Collection of furniture, let alone the specific Irish Coast items of furniture that are listed in sch 1 of the statement of claim. The concerns I have outlined above regarding Mr Elting’s evidence lead me
to reject his evidence.78 On the question of who created the design of the Irish Coast
Collection I prefer the evidence of Mr Burden to that of Mr Elting.
[111] I also accept Mr Burden’s evidence on how the designs of the Irish Coast Collection developed over time. Despite the submissions of ESR to the contrary, I see no reason to be troubled by Mr Burden’s inability to remember sketching actual items of Irish Coast furniture. I do not think that he could reasonably be expected to remember now each actual preliminary drawing for each item of Irish Coast furniture. He has described the practices and processes that he followed in developing the design of the items in the Irish Coast Collection, and his evidence makes sense to me.
[112] So, I am satisfied on the balance of probabilities that the sch 1 drawings in the statement of claim are derived from earlier preliminary drawings of the same
items of furniture. I am also satisfied on the balance of probabilities that Mr Burden
78 In Burden & Ors v ESR Group & Ors [2016] NZHC 1537 I found Mr Elting’s evidence to be contradictory. This finding was made in the context of deciding whether ESR could amend its statement of defence to include a commissioning defence under s 21(3) of the Copyright Act. One of the reasons I gave for refusing the amendment was because it came so late in the day which meant the plaintiffs had no opportunity to test the contradictory aspects of Mr Elting’s evidence by cross-examination. The findings I made and the views I expressed in that judgment have not been taken into account in my assessment of Mr Elting’s evidence for the purposes of the present judgment.
[249] Further a letter dated 7 August 2014 written by AJ Park on behalf of PGT International to ESR records that NZ Customs had seized and detained items of
132 See LA Gear Inc v Hi-Tec Sports Plc, above n 117, at 129, which was cited with approval in
Husqvarna Forest & Garden Ltd v Bridon NZ Ltd [1997] 3 NZLR 215 (HC) at 226.
133 See LA Gear Inc v Hi-Tec Sports Plc, above n 117, at 129.
134 Ibid.
135 Such notices are filed under s 136 of the Copyright Act.
136 Included here are images of the items of Irish Coast furniture listed in sch 1 of the statement of claim.
Roseberry furniture that ESR had purchased from the second defendant. The letter goes on to state that ESR has been:
…on notice as to the risks involved in trading with the [second defendant]
since PGT wrote to your associated company [ESR Australia] on 13 May
2013. Despite you being aware of the risks involved in dealing with the [second defendant], and being advised of PGT’s intellectual property rights, you have imported the [second defendant’s] furniture. Your importation of the [second defendant’s] furniture constitutes copyright infringement.
[250] Starting on 4 September 2014, NZ Customs issued two notices of determination under s 137 of the Copyright Act that identified certain items of Roseberry furniture that were imported on 30 July 2014 at Auckland as having been seized on the grounds that they were pirated copies.137 One of the notices issued on
4 September 2014138 was amended on 12 September 2014 to include a reference to
the seized goods “bearing The Irish Coast Collection designs”. Those items of furniture pre-date the letter from AJ Park dated 7 August 2014; however, they are subsequent to 13 May 2013, which was when ESR Australia was advised of “PGT’s” claims that furniture sold by the second defendant was infringing “PGT’s” copyright.
[251] On 17 October 2014, NZ Customs issued a further notice of determination in relation to items of Roseberry furniture that ESR had imported into New Zealand on or about 5 September 2014.139 Also on 22 October 2014 a separate notice of determination was issued in relation to further items of Roseberry furniture that were imported into New Zealand on or about 12 September 2014.140 Further, on
22 October 2014 a notice of determination was issued in relation to certain items of Roseberry furniture and Westbury shoeshine boxes that were imported into New Zealand on or about 28 August 2014.141 All those importations occurred after the letter from AJ Park dated 7 August 2014 was sent to ESR.
[252] The present proceedings were commenced on 18 September 2014, which is subsequent to the dates of all importations of Roseberry furniture by ESR.
137 These notices were referenced as INV/17912 and INV/17913.
138 The notice reference INV/17913.
139 This notice was referenced as INV/18043.
140 This notice was referenced as INV/18064.
141 This notice was referenced as INV/18061.
[253] Ms McLennan gave evidence that ESR and ESR Australia have one common director, Stephen Stone. She said that she was unaware of disputes that Mr Burden had with ESR Australia over breach of his copyright by Mr Morrow and the second and fourth defendants until the commencement of these proceedings, which is when she informed ESR Australia, and so learned herself of the earlier disputes between the plaintiffs and ESR Australia. She did concede that she was sure that when the earlier disputes had arisen in Australia, the Chief Operations Officer (COO) of ESR Australia, Simon O Mahoney, would have advised Mr Stone.
[254] Ms McLennan had no memory of when she first became aware of the copyright notice dated 20 May 2013, and she could not say if it was before or after NZ Customs detained the Roseberry Collection furniture that ESR had imported into New Zealand. Ms McLennan said that she did not check the NZ Customs data base for copyright notices.142 Thus, the plaintiffs could not prove that ESR had the requisite knowledge that the Roseberry furniture infringed copyright through Ms McLennan.
[255] However, Ms McLennan was “sure” that the COO of ESR Australia would have informed Mr Stone when the dispute with PGT arose in Australia, which from reference to the AJ Park letter was on or about 13 May 2013. Armed with this knowledge Mr Stone could then have initiated enquiries in New Zealand, or advised the other New Zealand directors, including Ms McLennan to do so. As at 20 May
2013 the copyright notices issued by Mr Burden as owner and PGT International as exclusive licensee were posted on the NZ Customs website. So if ESR had made enquires or sought legal advice regarding possible copyright infringement of the Roseberry Collection it would have learned of the copyright notices posted by the plaintiffs. It seems however that ESR did nothing throughout 2013 and through the first half of 2014.
[256] AJ Park’s letter of 7 August 2014 would have put ESR on further notice of
Mr Burden and PGT International’s claims of breach of copyright on the part of
Mr Morrow and the second and fourth defendants. Yet ESR appears to have taken
142 She referred to them as Customs notices but it was the copyright notices dated 20 May 2013 to which she was taken by counsel for the plaintiffs when she was being questioned about the notices.
no steps to stop the three importations of Roseberry furniture that post date this letter.
[257] I have no reason to doubt Ms McLennan’s evidence regarding her lack of actual knowledge of the plaintiffs’ claim of copyright infringement until NZ Customs seized the Roseberry items of furniture that ESR had imported into New Zealand.
[258] However, the knowledge that Mr Stone possessed from May 2013 onwards is sufficient in my view to require ESR to take steps to find out more about the plaintiff’s claims of infringement of copyright. By filing the copyright notices with New Zealand Customs on 20 May 2013 the plaintiffs had taken reasonable steps to inform entities in New Zealand of the copyright infringement. Between May 2013 and June 2014 (one month before the first importation) ESR took no steps to discover if the copyright works were infringed; it neither obtained legal advice nor did it make enquires necessary to inform itself as to whether the Roseberry Collection infringed the copyright works.
[259] The basis for ESR being on notice that it was importing infringing works would have been strengthened by AJ Park’s letter dated 7 August 2014 to ESR.
[260] I consider that before the arrival of the first importation on 30 July 2014, ESR had enough information and sufficient time to lead it to make the type of enquiries a reasonable person would have made. I am satisfied, therefore, that by June 2014 a reasonable person would have made the necessary enquiries and so be sufficiently informed for him or her to have reason to believe items of furniture in the Roseberry Collection were infringing copies of the copyright works. Thus, I find that the first importation of seized Roseberry furniture was imported into New Zealand at a time when ESR had reason to believe it infringed the copyright works.
[261] In the alternative, and if I have incorrectly found that ESR had the requisite constructive knowledge by June 2014, I am nonetheless satisfied that after ESR received the letter from AJ Park dated 7 August 2014 this additional information would have left no reasonable person in doubt as to the belief that the Roseberry furniture ESR had imported into New Zealand was infringing the copyright works.
[262] In its closing submissions ESR complained that the plaintiffs had failed to cross-examine Ms McLennan about whether ESR had knowledge or reason to believe the Roseberry furniture it had imported into New Zealand was infringing the copyright works. I reject that submission. Ms McLennan was adequately cross- examined on the matters within her direct knowledge. As regards whether or not she had actual knowledge that ESR was importing infringing works, she was asked a series of questions, the answers to which revealed her to have no such knowledge. I acknowledge that she was never asked whether ESR had reasonable grounds to believe it had imported infringing works into New Zealand, but nor should she have been. Whether the plaintiffs have established that ESR had the requisite constructive knowledge is a question for the Court to determine inferentially from the evidence. In this regard the plaintiffs properly established the evidential foundation from which the Court could draw the inference that the plaintiffs sought.
[263] It follows that I find ESR is liable as a secondary infringer from June 2014 at the earliest and by receipt of the 7 August 2014 letter at the latest, which I infer to be no later than seven days after that date.
[264] The plaintiffs also sought a declaration that the Roseberry items of furniture listed in sch 1 to the statement of claim were pirated copies of the copyright works in terms of s 141(3) of the Copyright Act. Whether that is so turns on whether the infringing goods were imported for the purpose of sale or for private or domestic use. There was no contest at the trial that ESR had imported the Roseberry items of furniture for the purpose of sale in New Zealand. It follows that the infringing goods are also pirated goods in terms of s 141(3) of the Copyright Act.
Plaintiffs’ Fair Trading Act claim
[265] The items of Roseberry furniture listed in sch 1 of the statement of claim look remarkably like the equivalent Irish Coast items of furniture that are also listed therein. The only difference is that the Irish Coast Collection has a natural wood finish whereas the Roseberry Collection is a mix of wood finish and white paint. The plaintiffs rely on this likeness as proof of their claims under ss 9, 10, 13(a) and
13(e) of the Fair Trading Act 1986 (FTA). They assert that this is a case of “initial interest confusion”:
That is that the prospective purchaser, having seen the genuine Irish Cost collection, will be likely to take an interest in the Roseberry Collection, as it is effectively identical. … The conduct about which complaint is made is the offer for sale of a confusingly similar range of furniture. The [damage is] done when purchasers opt for the (typically) lower price[d] items – which may also be of inferior quality.
[266] The plaintiffs claim that they clearly have significant reputation in the genuine Irish Coast products in New Zealand, and that the defendants are “free- riding” on that reputation. They claim that there is a risk that customers will be deceived into believing that the defendants’ products originate from the plaintiffs.
[267] In closing submissions ESR stated that the claim must fail on the basis that ESR had not claimed copyright ownership of the Roseberry Collection. The submissions then went on to discuss issues relating to trademarks. These submissions failed to address the legal essence of the plaintiffs’ claim under the FTA. However, one point which may be relevant to the plaintiffs’ claim under this head was expressed as follows:
We submit that the plaintiffs have not demonstrated any reputation-based rights in their furniture shapes in New Zealand. On the contrary, the sales figures … are nowhere near the level that would be required.
[268] The issue of the plaintiffs’ reputation in New Zealand is relevant in
determining whether the defendants’ conduct is “likely to mislead or deceive”.
Initial interest confusion
[269] Initial interest confusion arises when an infringing product initially attracts a customer’s interest because of its similarity to another, legitimate product. The fact that the customer’s interest is piqued in this manner is sufficient to justify legal relief, regardless of whether the customer subsequently realises that the infringing product is not, in fact, the legitimate product. In this respect the concept of initial interest confusion differs from the well known tort of “passing off”.
[270] The plaintiffs submit that the case Trust Bank Auckland Ltd v ASB Bank Ltd recognises that any sort of operative confusion which has an effect on how consumers behave should be actionable.143 That case concerned the appellant’s use of the product name “HIT” (meaning High Interest Trust/ee) in relation to one of its savings account products. ASB Bank had prior use of the product name and claimed that Trust Bank’s use of the same term was misleading and deceptive conduct under the FTA. The Court of Appeal held:144
There seems to us to be no reason why s 9 should not protect the public from being led into business premises by being misled as to the ownership of the business. Once a prospective customer has entered, he or she will often be more likely to buy.
…
[T]he effect of the statute is that members of the public have a right not to be misled about with whom they are dealing.
[271] On the particular facts of the case, the Court found that:145
… a mistaken impression on the part of a significant number of the Auckland public that there is some link in savings accounts is inevitable if [Trust Bank] promotes what it described in an initial advertisement as “a trust bank HIT account”.
[272] The plaintiffs also referred to the cases The Zone Corporation Ltd v American Express Marketing & Development Corp146 and Och-Ziff Management Europe Ltd v Och Capital LLP.147 The first of those cases was a New Zealand decision and does not discuss the concept of initial interest confusion in any detail, other than to say that the appellants might have a seriously arguable case.148 Dobson J also cited the Och-Ziff case as a leading English authority on regarding “initial interest
confusion”.149
143 Trust Bank Auckland Ltd v ASB Bank Ltd [1989] 3 NZLR 385 (CA).
144 At 389.
145 At 389.
146 The Zone Corporation Ltd v American Express Marketing & Development Corp HC Wellington
CIV-2011-485-1274, 7 September 2011.
147 Och-Ziff Management Europe Ltd v Och Capital LLP [2010] EWHC 2599 (Ch).
148 The Zone Corporation Ltd, above n 146, at [38].
149 Och-Ziff Management Europe Ltd v Och Capital LLP was a 2010 decision of the English High Court. The case incorporates a reasonably lengthy discussion regarding the history of “initial interest confusion”, an expression which is apparently derived from US trade mark law.149 That decision concerned an alleged trade mark infringement and therefore adopts a definition of “initial interest confusion” which is not particularly helpful in the present case.
[273] Some other New Zealand cases have referred to the concept of initial interest confusion, although not necessarily by name.
[274] In Eveready New Zealand Ltd v Gillette New Zealand Ltd, Elias J held that there was a serious question to be tried following allegations that the respondent’s product stand was overly similar to that designed by the plaintiff:150
The conflict on the affidavit evidence is whether it is the configuration and design of the stands which attract purchasers or whether it is the brand and promotional material which attracts the attention. If the former, and if the defendant’s stands are found to be reminiscent of the plaintiff’s, the plaintiff’s claim to protection under s 9 may be made out on the basis that once a prospective customer has been attracted to the stand, he is likely to buy, particularly where brand loyalty is insignificant[.]
[275] In Neumegan v Neumegan & Co, the appellant barrister sought to establish a law partnership with his cousin to be titled Neumegan & Neumegan.151 The respondent firm brought proceedings alleging, amongst other claims, that the appellant’s use of that name would constitute misleading and deceptive conduct under the FTA because it would cause confusion amongst the respondent’s existing and potential future clients. The Court of Appeal found in favour of the respondent, holding:152
[T]he use of the name by the appellant would operate as a false representation to the consumer, notwithstanding that Peter Neumegan had no intention that it should do so. … [T]here is, of course, the possibility that, after an initial contact with the appellant’s firm, the existence of the client’s mistake will come to light and Peter or Mark Neumegan will redirect the client (if, upon reflection, the client can then be bothered going into the city and starting again with Neumegan and Co). However, the breach of s 9 has already occurred when the client relied upon the appellant’s conduct by going to the “wrong” firm[.]
[276] In Bonz v Cooke, the High Court appeared to reject the argument that conduct leading to initial interest confusion would amount to a breach of the FTA on the basis that any confusion would be cured when potential purchasers examined the labels
attached to the products.153 However, this finding was rejected on appeal.154 The
150 Eveready New Zealand Ltd v Gillette New Zealand Ltd HC Auckland M1130/98, 28 August
1998.
151 Neumegan v Neumegan & Co [1998] 3 NZLR 310 (CA).
152 At [320].
153 Bonz v Cooke [1994] 3 NZLR 216 (HC) [Bonz No 1].
154 Bonz Group Pty Ltd v Cooke (1996) 7 TCLR 206 (CA) [Bonz No 2].
Court of Appeal held that, whilst the labelling of products would be relevant to a Court’s overall assessment of whether certain conduct was misleading and deceptive, it was not determinative.
Misleading and deceptive conduct
[277] Sections 9 and 10 of the FTA prohibit misleading and deceptive conduct in trade. Those sections provide:
9 Misleading and deceptive conduct generally
No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
10 Misleading conduct in relation to goods
No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability for a purpose, or quantity of goods.
[278] The case law regarding the interpretation of these sections is extensive however it is possible to identify a few key points. There is no particular legal test for determining whether conduct is misleading or deceptive. Rather the Court must consider the ordinary meaning of those terms and make its own assessment of the
conduct in the circumstances of the particular case.155 The sections are intended to
regulate conduct which, in the objective assessment of the Court, has the effect of being misleading or deceptive, regardless of whether the vendor intended to mislead or deceive potential purchasers.
[279] It is not necessary to prove that any person has in fact been misled or deceived as a result of the impugned conduct. It is sufficient if the conduct would be likely to mislead or deceive reasonable members of the relevant section of the public.156 There must be a real risk of this occurring and not a mere possibility.157 It is necessary to identify the relevant section of the public which might be misled or
deceived on the facts of a particular case.
155 Taylor Bros Ltd v Taylors Textile Services Auckland Ltd [1988] 2 NZLR 1 (CA) at 39.
156 Bonz No 2, above n 154, at 205.
157 The Coca-Cola Company v Frucor Soft Drinks Ltd [2013] NZHC 3282 at [224].
[280] Bill Wallace Foods v Tulloch concerned a complaint by a Christchurch fast food vendor that the respondent had breached s 9 of the FTA in the operation of his fast food business in Queenstown.158 The High Court held that the relevant section of the public was the inhabitants of Queenstown who, given the nature of the business and the geographical distance separating the respective businesses, were unlikely to be misled or deceived by the respondent’s conduct.
[281] Geddes v New Zealand Dairy Board involved a challenge to a new animal evaluation system that had been introduced by the respondents for New Zealand’s dairy industry.159 The relevant section of the public was dairy farmers, of whom “virtually all would have a reasonably good knowledge of systems like the [animal evaluation system].”160 There was no evidence to suggest that those persons had been or were likely to be misled or deceived by the respondent’s conduct.
[282] In Weitmann v Katies Ltd, the Federal Court of Australia considered whether
the respondent’s conduct amounted to a breach of s 52(1) of the Trade Practices Act
1974 (Cth), which provided that “[a] corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive.”161 The applicant was a boutique fashion designer and had applied for the registration of the term “Saint Germain” as a trade mark. Meanwhile the respondent, a large-scale retailer of women’s clothing, was selling t-shirts which were embroidered with the words “Saint Germain”. Franki J identified the relevant section of the public as being “those likely to be
buying shirts from a Katies retail store” and suggested that such a person would not be “seeking to purchase a particularly high fashion article, but seeking what might be described as good value for money.”162 That section of the public was unlikely to be
misled or deceived by the respondent’s conduct.
158 Bill Wallace Foods Ltd v Tulloch (1992) 4 TCLR 579.
159 Geddes v New Zealand Dairy Board CA180/03, 20 June 2005.
160 At [78].
161 Weitmann v Katies Ltd (1977) 29 FLR 336. Section 52(1) of the Trade Practices Act 1974 (Cth) is almost identical to s 9 of the Fair Trading Act 1986 (FTA). New Zealand courts have often cited Australian case law in relation to s 52(1) of the Trade Practices Act when determining cases under the FTA. On 1 January 2011, the Trade Practices Act was renamed as the Competition and Consumer Act 2010 (Cth).
162 At 343.
[283] If the number of affected persons is small and the impact of the allegedly unlawful conduct is minimal, then it may be appropriate for a Court to determine that the conduct is not misleading or deceptive.163
Section 10 of the Fair Trading Act 1986
[284] In Sound Plus Ltd v Commerce Commission, Anderson J noted that s 10 of the FTA prohibits conduct which is “liable to mislead the public”.164 This wording differs from that in s 9 of the FTA, which refers to conduct that is “misleading or deceptive or is likely to mislead or deceive.” Anderson J considered that the difference in wording was deliberate and that clearly “the legislature intended that different tests should be applied in respect of the differing statutory provisions”.165
He defined “liable to” as connoting “a potential which is less restricted in scope than likelihood or probability.”166 However, this distinction may be difficult to apply in practice.167
False representation
[285] The relevant subsections in s 13 of the FTA provide as follows:
13 False or misleading representations
No person shall, in trade, in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services,—
(a) make a false or misleading representation that goods are of a particular kind, standard, quality, grade, quantity, composition, style, or model, or have had a particular history or previous use; or
…
(e) make a false or misleading representation that goods or services have any sponsorship, approval, endorsement, performance characteristics, accessories, uses or benefits[.]
…
163 Neumegan v Neumegan & Co, above n 151, at 317; Cellular Improvements Ltd v Topline
International Ltd HC Auckland CP92-SD02, CP144-SW02, 17 March 2003.
164 Sound Plus Ltd v Commerce Commission [1991] 3 NZLR 329 (HC).
165 At 332.
166 At 333.
167 Thomas Gault (ed) Gault on Commercial Law (online looseleaf ed, Brookers) at [FT10.01(4)].
[286] It has been suggested that if a plaintiff is unable to establish a cause of action under s 9, it will impossible to succeed under s 13.168
[287] Gault on Commercial Law identifies five elements which must be established in order to attribute liability under s 13:169
(a) The defendant made a representation; (b) The representation was made in trade;
(c) The representation was made in connection with the supply or possible supply of goods and services or with the promotion by any means of the supply or use of goods and services;
(d) The representation concerned the matter stated in the Act; and
(e) The representation was false or misleading.
[288] Although a breach of s 13 is a criminal offence under s 40 of the FTA, in proceedings for civil remedies the standard of proof is on the balance of probabilities.
[289] In this case the critical issues would appear to be first, whether the defendants have made a representation; and secondly, whether any representation concerns either of the matters set out in subs (a) or (e) of s 13. The case law regarding the definition of “representation” is surprisingly sparse. In Marcol Manufacturers Ltd v Commerce Commission, Tipping J held:170
The essence of a representation for present purposes is that the representor must be saying something to the representee either by words (whether spoken or written) or other means. The representee may of course be a specific person or group of persons or indeed persons generally such as shoppers who may come into a particular shop. The representor must be communicating a statement of fact to the representee either directly or by clear and necessary implication. It will usually be convenient to consider
168 Coory v ARI Realty HC Dunedin CP53/93, 4 August 1993.
169 Gault, above n 167, at ch 13 “Synopsis”.
170 Marcol Manufacturers Ltd v Commerce Commission [1991] 2 NZLR 502 (HC) at 506.
whether a representation has been made alongside the question of the subject-matter of the analysis.
[290] Tipping J also referred to the definition of “representation” given in the
Australian case Given v Pryor:171
A representation is a statement made by a representor to a representee and relating by way of affirmation, denial, description or otherwise to a matter of fact. The statement may be oral or in writing and arise by implication from words or conduct.
[291] Section 13(a) of the FTA prohibits false or misleading representations that goods are of a particular kind, standard, quality, grade, quantity, composition, style, or model, or have had a particular history or particular previous use. These terms appear to be relatively self-explanatory. There does not appear to be any particularly significant case law regarding the meaning of the provision.
[292] Section 13(e) of the FTA prohibits false or misleading representations that goods have any sponsorship, approval, endorsement, performance characteristics, accessories, uses, or benefits. Australian courts have recognised that there is some overlap between the analogous section of the Trade Practices Act (now the Competition and Consumer Act 2010 (Cth)) and a claim of passing off. The extent
of the plaintiff’s reputation in the relevant market may be relevant:172
[I]t would be necessary, in a case such as the present, that the use of a trade name on a package would need to be such that the name had acquired a secondary meaning before that use could be said to be a representation as to sponsorship or approval. The same can be said of the use of a get up similar to that used for another product.
[293] The plaintiffs in the present case have not provided, and I have not been able to locate, any factually analogous cases in which a respondent has been found to have breached s 13(a) or (e) only by virtue of producing a similar product, without
any further representation.
171 Given v Pryor (1979) 24 ALR 442 at [1005] per Franki J.
172 ConAgra Inc v McCain Foods (Aust) Pty Ltd (1991) 16 ALR 181.
Did the defendants’ conduct breach the Fair Trading Act?
[294] I have carefully considered the available evidence. There is no evidence to support the existence of a representation by ESR that the Roseberry Collection is anything other than a separate collection of furniture. It may look very like the Irish Coast Collection, but to establish liability under s 13 of the FTA I am satisfied that something more is required. Accordingly, the plaintiffs cannot prove ESR has contravened s 13 of the FTA.
[295] Regarding ss 9 and 10 of the FTA and the claim based on initial interest confusion, my understanding of the relevant law is that a plaintiff must prove it has a reputation in New Zealand. Further, the plaintiff must identify the relevant section of the New Zealand public who are likely or liable to be misled or deceived, and establish that there is a real risk of either of those outcomes occurring rather than a mere possibility.
[296] Mr Burden gave evidence that shows that between January 2009 and May
2015, 1815 items of Irish Coast furniture came into New Zealand for retail sale here. His evidence included printouts of computer websites for furniture retailers in New Zealand. The evidence did not locate the sales to any specific area of New Zealand.
[297] The best view I can take of the plaintiffs’ evidence is that 1815 items of Irish Coast furniture have been sold nationally over a period of just over six years. This is not enough in my view to develop a reputation for the Irish Coast Collection. Without such a reputation it is difficult to see how there might be a risk of purchasers confusing the Roseberry furniture for the Irish Coast furniture. Thus, the available evidence does not support an inference that persons might initially confuse Roseberry furniture with Irish Coast furniture.
[298] The plaintiffs did not present any direct evidence of there being confusion between the two collections of furniture. Nor did they present expert evidence from persons with knowledge of marketing furniture in New Zealand that would support there being any likelihood of confusion or any prospect of purchasers being liable to confuse Roseberry furniture with Irish Coast furniture.
[299] Accordingly, the plaintiffs’ claims under ss 9 and 10 of the FTA fail for want
of proof.
ESR’s counterclaims
[300] At the hearing ESR restricted its counterclaim to a challenge to the validity of the NZ Customs determinations detaining the subject items of Roseberry furniture.
[301] The copyright notice that the plaintiffs posted on 20 May 2013 identifies Mr Burden as the author and owner of the copyright works with the plaintiff companies being exclusive licensees. The copyright notice is incorrect insofar as it describes the plaintiff companies as exclusive licensees of the copyright works. However, those errors are not in my view sufficiently fundamental to the copyright notice to invalidate it.
[302] I have found Mr Burden to be the author and owner of the copyright works. I have also found ESR to have infringed those copyright works. I consider that the findings that I have made herein support the copyright notice remaining in force and effect.
[303] ESR also brought counter-claims under the FTA in respect of the copyright notice issued by the plaintiffs. Given the findings that I have already made against ESR those counter-claims must fail.
[304] It follows that ESR has failed to establish its counter-claims and accordingly they are dismissed.
Relief
[305] Of the three plaintiffs Mr Burden is the only one who has succeeded in proving the claim for copyright infringement against ESR. The other plaintiffs, for the reasons expressed herein, are not entitled to bring claims for infringement of copyright.
[306] The findings made in relation to infringement of Mr Burden’s copyright pertain only to the items of furniture listed in the schedule to the statement of claim (being the third amended statement of claim).
[307] Mr Burden is entitled to the following relief:
(a) a declaration that infringing items of Roseberry furniture as itemised in the schedule to the third amended statement of claim (hereafter the infringing Roseberry products) reproduce the first plaintiff’s copyright works and therefore each is an infringing copy for the purposes of s 12of the Copyright Act;
(b)a declaration that the infringing Roseberry products reproduce the first plaintiff’s copyright works and therefore each is a pirated copy imported other than for private and domestic use within the meaning of s 141(3) of the Copyright Act;
(c) an injunction to restrain ESR, its servants, officers, marketers, distributors or agents, from reproducing, importing, distributing, advertising, offering for sale, selling or otherwise dealing with the infringing Roseberry products or otherwise infringing the plaintiffs’ copyright or converting the same for its own use;
(d)an order for delivery up of all goods and any related documents in the possession, custody, power or control of ESR, the sale, supply or use of which by ESR or its servants or its agents would be an infringement of the abovementioned injunction;
(e) an order that ESR makes and serves upon Mr Burden’s solicitor an affidavit:
(i)detailing quantities of the infringing Roseberry products that have been imported into New Zealand by itself or in concert with any other party, including but not limited to the second
and third defendants; and
(ii)detailing the name, address and contact details of each person, firm or company to whom ESR has supplied or offered to supply the infringing Roseberry products; and listing and exhibiting copies of all documents relating to each such importation, supply or offer to supply;
(f) an order that ESR make and serve on Mr Burden’s solicitors an
affidavit:
(i)detailing quantities of the infringing Roseberry products that have been exported to New Zealand whether by itself or in concert with any other party;
(ii)detailing the name, address and contact details of each person, firm or company to whom the second and/or third defendant has supplied or offered to supply the infringing Roseberry products; and listing and exhibiting copies of all documents relating to each such importation, supply or offer to supply;
(g) interest pursuant to s 87 of the Judicature Act 1908; and
(i)costs incidental to this proceeding, including costs for transport, storage and destruction of the infringing Irish Coast products.
[308] The relief I have granted is narrower than that sought by Mr Burden in the statement of claim. He sought declarations and injunctions that would cover other products that were a substantial reproduction of his copyright works, or that otherwise infringed his copyright works. I consider that language to be too general. Until such time as a judicial determination is made on whether products other than the infringing Roseberry products are a substantial reproduction of his copyright works my view is that he has no entitlement to legal orders that go so far.
[309] Mr Burden has acted promptly to protect his rights. I am satisfied that he is entitled to the relief sought in the statement of claim. Leave is reserved to Mr Burden (as requested) to come back to Court to pursue the relief by way of damages (including additional damages pursuant to s 121 of the Copyright Act) or an account of profits with interest should he choose to do so.
Result
[310] Mr Burden has established the claims made in the statement of claim for infringement of copyright as against ESR, and accordingly judgment is entered in his favour against ESR.
[311] The copyright claims made by the second and third plaintiffs were unsuccessful for the reasons stated herein, and accordingly those claims are dismissed. Judgment on those claims is entered in ESR’s favour.
[312] The claims of all plaintiffs under the FTA were unsuccessful, and accordingly
are dismissed. Judgment on those claims is entered in ESR’s favour.
[313] ESR’s counterclaim was unsuccessful, and accordingly it is dismissed.
Judgment on the counterclaim is entered in favour of the plaintiffs. [314] Mr Burden is entitled to the relief as stated above.
[315] The parties have leave to file memoranda as to costs.
Duffy J
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