General Electric International Incorporated v Siemens (N.Z.) Limited
[2016] NZCA 591
•9 December 2016 at 11.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA421/2016 [2016] NZCA 591 |
| BETWEEN | GENERAL ELECTRIC INTERNATIONAL INCORPORATED |
| AND | SIEMENS (N.Z.) LIMITED STONEHILL TRUSTEE LIMITED CONTACT ENERGY LIMITED |
| Hearing: | 29 November 2016 |
Court: | Randerson, Miller and Asher JJ |
Counsel: | B D Gray QC and E C Gray for Appellant |
Judgment: | 9 December 2016 at 11.30 am |
JUDGMENT OF THE COURT
A The appeal is dismissed.
BGeneral Electric International Inc must pay Siemens (N.Z.) Ltd costs for a standard appeal on a Band A basis. We certify for two counsel.
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REASONS OF THE COURT
(Given by Miller J)
In May 2016 the appellant, General Electric (GE), purchased an SGT5-400F gas turbine that had been manufactured by the first respondent, Siemens, sold to the third respondent, Contact, in 1997, and serviced ever since by Siemens.
GE is a competitor of Siemens. It wants to export the machine and disassemble it, acquiring know-how that, it says, will allow it to compete in the market for maintenance contracts for such machines and which, Siemens says, will allow it to reverse-engineer the turbine and acquire trade secrets.
Siemens secured an interim injunction in the High Court prohibiting GE and its agents accessing or inspecting the inside of the turbine but allowing the turbine’s removal from its location at Otahuhu and placement into safe storage pending trial.[1]
[1]Siemens (NZ) Ltd v Stonehill Trustee Ltd [2016] NZHC 1710 [High Court judgment].
GE appeals, saying that Whata J was wrong to find that Siemens has a serious question to be tried. Its principal grounds are that Siemens has identified no confidential information in the turbine, and that Contact owed Siemens no obligation of confidence affecting such information but rather was free to sell the machine unconditionally.
Narrative
There is little dispute about the salient facts for our purposes, and a brief narrative will suffice. The turbine was installed at Contact’s Otahuhu B Combined Cycle Power Station under a 1997 contract with Siemens, and used by Contact to generate electricity. Under the contract, known as the “Plant Agreement”, property in the machine was transferred to Contact. Contact was free to sell it and, it is common ground, able to contract maintenance to anyone it chose, though Siemens was the only service provider with capability at the time. Copyright in construction documents and other design documents was retained by Siemens, and Contact was licensed to use that material. For our purposes, it is necessary to refer to a few provisions only:
(a)Clause 1.10 provided that copyright in construction and other design documents relating to the “Works” (which included the turbine) remained with Siemens:[2]
Copyright in the Construction Documents and other design documents made by or on behalf of [Siemens] shall (as between the parties) remain the property of [Siemens]. [Contact] may, at his cost, copy, use and communicate any such documents (including making and using modifications) for the purposes of completing, operating, maintaining, altering, adjusting and repairing the Works. They shall not, without [Siemens’] consent, be used, copied or communicated to a third party by [Contact] or [Contact’s] Representative for other purposes.
(b)Clause 5.10 licensed Contact to use and reproduce “Construction Documents” (which term was defined to include, inter alia, all drawings, calculations, programmes, and manuals), know-how and information for all purposes relating to the Otahuhu plant:
Notwithstanding the provisions of Sub-Clause 1.10, in so far as the patent, copyright or other intellectual property rights in the Construction Documents or any know-how and information relating to the Works shall be vested in [Siemens], [Siemens] grants to [Contact] its successors and assigns a royalty-free, non-exclusive and irrevocable licence (carrying the right to grant sub-licences) to use and reproduce any of the Construction Documents and any such know-how and information for all purposes relating to the Works (including without limitation the design, construction, reconstruction, completion, maintenance, reinstatement, extension, repair and operation of the Works).
[2]This clause appears in the Conditions of Contract for Design — Build and Turnkey (First Edition 1995) published by the International Federation of Consulting Engineers (FIDIC), which was incorporated into the Plant Agreement with some amendments.
Siemens has maintained the turbine ever since, most recently under a Long Term Maintenance Agreement (the LTMA) entered in 2014. An earlier maintenance agreement had been entered in 2004, but neither it nor earlier contracts under which Siemens maintained the machine between 1997 and 2004 is in evidence. The LTMA contained provisions protecting Siemens’ intellectual property rights and dealing with confidential information:
(a)Clause 9.4 protected Siemens’ interest in its intellectual property, including by reference to “Intellectual Property Rights”, a term defined to mean any copyright, patent, registered design, design right, trademark, trade name or any other legally protected intellectual property right. It prohibited Contact from taking any action that would infringe Siemens’ rights in its patents, trademarks, copyrights or other intellectual property:
[Contact] acknowledges and agrees that [Siemens] and its Affiliates have a considerable investment in its intellectual property rights and technology associated with the Covered Equipment [which included the turbine] and its related parts including Program Parts. [Contact] therefore agrees not to take any action, either directly or through an Affiliate, which would infringe or violate [Siemens’] or its Affiliates’ rights in its patents, trademarks, copyrights or other intellectual property. [Contact] further agrees to use its best efforts to ensure that its suppliers, contractors and other agents or third parties do not take any action inconsistent with [Siemens’] or its Affiliates’ intellectual property rights.
No right, title or interest to or in any patents, copyrights, trademarks, service marks, trade names, trade secrets, or any intellectual property of or held by [Siemens] or its Affiliates is granted hereunder.
However, [Contact] shall be entitled to use (on a non-transferable, non-exclusive and royalty free basis) such Intellectual Property without payment of any additional fee for operation and maintenance of the Station.
(b)Clause 16.1 protected drawings, documents and other information made available by one party to the other, providing that it would be treated as confidential and further that neither party would copy or reverse engineer the other’s confidential information, work or parts. It was subject to exceptions, notably for public information:
a) Drawings, documents and any other information, whether in writing or not, made available by one Party to the other Party in connection with the Agreement, including the content of this Agreement itself (“Confidential Information”), shall be treated as confidential also after termination or expiry of the Agreement and shall not be made available to third parties without the prior written approval of the Party whose Confidential Information is to be disclosed or used by either Party other than for the purpose of fulfilling its obligations under the Agreement.
This obligation shall not apply to information which
(i)is public knowledge at the date of receipt or thereafter becomes public knowledge without breach of this confidentiality undertaking;
…
b) both Parties agree not to reverse engineer, copy, modify, improve, or make derivative works of the other Party’s Confidential Information, work or parts. Both Parties further agree not to seek any Intellectual Property Rights directly or indirectly based in whole or part on the other Party’s Confidential Information, work or parts or modifications thereto without the other Party’s prior written consent. Both Parties further agree that if it obtains any such Intellectual Property Rights, it has acted or will act as an agent for the benefit of other Party for the limited purpose of obtaining and securing such Intellectual Property and assigning them to the other Party.
(c)Clause 3.4.6 protected Siemens’ know-how, providing that it might suspend services if its work was observed by anyone other than Contact personnel.
(d)Under cl 7.2 title in components or parts passed to Contact upon installation.
(e)Under cl 12.2.1 Contact might terminate the LTMA for convenience after completion of a major inspection and overhaul, and under cl 12.2.2 it might terminate for decommissioning, paying Siemens a termination and decommissioning fee.
(f)Siemens was empowered under cl 12.3(c) to terminate for change of control of Contact if Siemens reasonably believed that the change could materially affect its interests; this included the sale of any ownership interest to an entity in competition with Siemens.
The major inspection and overhaul envisaged by the LTMA was never undertaken. We were given to understand that the machine was shut down for close inspection and overhaul every few years, so the last major maintenance work may have been done around 2012. Contact decided instead to close the Otahuhu B station, which was sold to the second respondent, Stonehill, in November 2015 for redevelopment as a business park. Stonehill was to sell the plant and equipment, including the turbine, Contact using reasonable endeavours to assist.
Siemens did not object to the turbine being sold, provided its rights were protected. It was initially engaged in the sale process. It provided Contact with a letter of support dated 8 March 2016, in which it contemplated that the turbine would be sold to another electricity generator. Siemens evidently anticipated that the purchaser would need its assistance to disassemble and reassemble the turbine at a new location, and for ongoing maintenance.
In April 2016 GE learned that the turbine was available for sale. It promptly began negotiations with Contact under a mutual confidentiality agreement. When Siemens asked, Contact refused to disclose the purchaser’s identity; there is evidence that GE personnel who came on-site to view the turbine were described to Siemens’ personnel as “mystery shoppers”. An agreement for sale and purchase was entered on 13 May 2016. Stonehill was the vendor and GE the purchaser. The agreement included the turbine and spare parts. Siemens’ documents and software were not sold, the parties recognising that such material might be protected. GE agreed not to knowingly or negligently infringe Siemens’ “patents, trade marks, copyrights or other intellectual property rights” and indemnified Stonehill and Contact against liability for breach of this obligation. GE has since paid the purchase price and now owns the turbine, which it wants to ship offshore as soon as possible.
Siemens complains that GE can have no reason to buy the turbine other than to reverse engineer its parts or otherwise understand Siemens’ maintenance processes, obtaining information that it might use in its own turbine designs, to make parts, or to offer maintenance services in competition with Siemens. It says that this information is not in the public domain, which is why GE wants the turbine.
GE concedes that it wants the turbine “to further develop its own understanding and procedures” so it can better compete in servicing Siemens’ equipment. It believes that it will infringe no intellectual property rights — by which it means, to quote counsel, “copyright, designs and patents” — by disassembling the turbine to gain the information it wants. It also maintains that a good deal of information about Siemens turbines is in the public arena, and that Siemens is not the only firm presently capable of servicing them.
The appeal
GE complains that the Plant Agreement and LTMA created no obligation of confidence affecting the turbine itself, that Siemens has pointed to nothing specific about the turbine that is confidential and that Contact was accordingly free to sell the machine unconditionally. It says that Whata J erred by finding that Siemens had an arguable case.
Did the Plant Agreement impose an obligation of confidence?
Mr Gray QC for GE argued that the Plant Agreement is a “relatively standard” form of build and supply agreement, under which Contact acquired the turbine without restriction. Had Siemens wanted to protect itself from sale to a third party, it ought to have insisted on exclusive servicing rights or express confidentiality provisions.
We are not persuaded that this argument must succeed at trial. As noted above, cl 5.10 licensed Contact to use intellectual property together with know‑how and information about the “Works”. Such licence was granted “for all purposes relating to the Works”, which included the turbine. It is seriously arguable that access to know-how and information about the turbine was imparted for a specific purpose, and that Contact was not free to use it for any other purpose.[3] As Mr Galbraith QC for Siemens pointed out, such restriction is not necessarily incompatible with Contact being able to sell the machine; it may mean only that a new owner, which was most likely to be another electricity generator, would need a similar licence from Siemens. That might allow Siemens to monopolise servicing of the machine, but it would not preclude sale.
[3]See Ackroyds (London) Ltd v Islington Plastics Ltd [1962] RPC 97 (QB) at 104.
We record that it is GE’s case that Contact did not agree, and would not have agreed, to grant Siemens lifetime rights to maintain the machine. Contact itself was free to do that work, and GE claims that Contact reserved the right to engage any after‑market contractor. These submissions may be correct, and if they can be proved by admissible evidence they may affect interpretation of contractual provisions about intellectual property and know-how. But they are questions of fact and commercial context that can only be answered at trial.
Do the LTMA’s confidentiality provisions apply to the turbine?
GE contends that Contact’s obligations affecting the turbine itself, as opposed to Siemens’ maintenance practices, were governed by the Plant Agreement and not the LTMA. Mr Gray pointed out that the LTMA was entered 17 years after the Plant Agreement, and submitted that it “self-evidently” related to maintenance only and did not modify the Plant Agreement. He pointed out that no relevant services were ever provided under the LTMA.
In our opinion, Siemens’ case that the LTMA applies is seriously arguable. As the proceeding is to go to trial, our reasons should be stated shortly:
(a)The long passage of time between the two agreements may be immaterial; the LTMA was preceded by other maintenance agreements, and a subsequent agreement is capable of imposing confidentiality obligations upon an existing relationship.[4] For these reasons it may also prove immaterial that no services were provided under the LTMA.
(b)“Maintenance” is a potentially misleading term for the services to be provided under the LTMA. The services provided are substantial and sophisticated, involving periodic refurbishment and replacement. It is plausible that, as Siemens claims, past maintenance has replaced the workings of the turbine with modern equivalent parts and fittings; and if so, it would not be surprising if the LTMA imposed additional confidentiality obligations that affected the turbine itself, qualifying Contact’s power of sale.
(c)The decision whether Contact’s relevant obligations regarding the turbine are found in the Plant Agreement rather than the LTMA, as GE contends, may turn on the facts.
Did the LTMA impose an obligation of confidence?
[4]See generally Astra Pharmaceuticals (NZ) Ltd v Pharmaceutical Management Agency Ltd [2001] 1 NZLR 415 (CA) and Attorney-General for England and Wales v R [2002] 2 NZLR 91 (CA).
Mr Gray also submitted that cl 16.1(b), which prohibited reverse engineering, did not survive termination of the LTMA. Nor, on a “principled analysis”, did cl 9.4, which admittedly did survive termination, impose retrospective obligations of confidence; it was confined to intellectual property rights as defined in the LTMA (see [6(a)] above).
Again, we find Siemens’ contrary argument seriously arguable, and we will state our reasons as shortly as possible:
(a)As Mr Gray properly conceded and Whata J held, intellectual property can include confidential information, depending on context.[5]
(b)As Mr Galbraith submitted, cl 9.4 does not use the capitalised defined term “Intellectual Property Rights” and its introductory words refer not only to intellectual property but also to “technology associated with” the turbine and parts to be supplied. The clause speaks also of “trade secrets” and “other intellectual property”. It would not be necessary to refer to other intellectual property if the clause covered only intellectual property rights as defined. We observe too that in its closing words the clause records that Contact’s licence to use “such Intellectual Property” is for the “operation and maintenance” of the plant.
(c)Consistent with that, protection of confidential information under cl 16.1 extends to drawings, documents and other information “whether in writing or not”.
(d)The LTMA expressly provided in cl 19.16 that cl 16 survived termination. GE’s argument that one limb of the provision, cl 16.1(b), did not survive requires that cl 19.16 be put aside and an inference drawn from the presence of express savings words (“shall be treated as confidential also after termination”) in 16.1(a) but not in cl 16.1(b). We are not prepared to resolve the conflict, if there is one, in GE’s favour now. We find it arguable that the cl 16.1(b) prohibition on reverse engineering survived termination. Reverse engineering seems a fair description of what GE must do if it is to manufacture replacement parts.
Is GE affected by an obligation of confidence?
[5]High Court judgment, above n 1, at [55(e)]; and Coogan v News Group Newspapers [2013] 1 AC 1 at [39].
GE contended in its written submissions that it is not affected by any breach of Contact’s obligations, for it comes to court with clean hands. It agreed to protect what it understood to be Siemens’ rights, and there was good commercial reason to keep its interest in the turbine confidential from Siemens, a competitor. It claims that Siemens is engaging in anticompetitive practices and points out that Siemens is in the market for contracts to service GE turbines. As a matter of policy, the law ought not to impose restrictions upon an owner such as Contact which acquired goods without contractual restriction.
There is some evidence that GE knew of Siemens’ claim to confidentiality before it bought the turbine, and Contact and GE appear to have gone to some lengths to keep its identity from Siemens. As noted, the agreement for sale and purchase with Stonehill provided that GE must respect Siemens’ intellectual property rights and incorporated an indemnity to Stonehill for any breach of those rights. Stonehill also disclaimed any warranty that the machine could be lawfully used for any purpose. Whata J found it arguable that GE knew Siemens had an actionable claim and chose to carry on,[6] and we are not persuaded that he was wrong.
[6]High Court judgment, above n 1, at [59].
We record that for our purposes it is sufficient that, as Mr Gray properly recognised, GE apparently took a calculated risk based on its understanding that Siemens would claim rights to which GE believed it was not entitled.[7] We do not suggest that GE has acted unethically or in a blameworthy manner. Its knowledge and intention are matters for trial, and it may be vindicated there.
Is there anything confidential about the turbine?
[7]Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (HC) at 139; and Tui Foods Ltd v New Zealand Milk Corp Ltd [1997] 2 NZLR 214 (HC) at 228.
GE initially argued that nothing about the turbine itself can be “information” to which an obligation of confidence can attach in law. Mr Gray did not pursue that point before us,[8] arguing rather that gas turbines of this kind are now generic technology and Siemens failed to identify anything specific about this one that is confidential. We proceed accordingly on the basis that the machine itself might reveal information of a confidential nature.
[8]Whata J noted in the High Court judgment, above n 1, at [52] that Alfa Laval Cheese Systems Ltd v Wincanton Engineering Ltd [1990] FSR 583 (Ch) at 590–592 is illustrative of cases where apparently publicly available information and sales of products have attracted an obligation of confidence, though GE challenged his interpretation in its written submissions.
This is a difficult argument for GE to run at an interlocutory stage; after all, it bought the machine for the very purpose of disassembling it so that it can obtain information that will allow it to compete in a maintenance market by building its own replacement parts and developing its own maintenance processes. Mr Gray responded that GE needs only non-confidential information, instancing the physical dimensions of parts it must manufacture to compete in servicing, but that claim is hotly contested. There is evidence that Siemens’ component parts, especially burners, blades, vanes (fixed blades) and heat panels are unique, not only in design but also, potentially, in metallurgy and heat-resistant coatings and in construction methodology (including location and fit of parts within the turbine). Some of these features are patented, others are said to be trade secrets.
We are not persuaded that Siemens’ evidence was insufficient for interim relief purposes. The injunction was necessarily sought at short notice, so that the evidence could not be as comprehensive as it doubtless will be at trial. It might have been supplemented by now with particulars of those features said to be protected by various intellectual property rights, but we were told that the parties agreed to delay particulars until after this hearing.
Balance of convenience
GE did not appeal Whata J’s conclusion that the balance of convenience favoured interim relief.[9] The turbine is being stored on the Otahuhu site by agreement and it will soon be removed to safe storage. Mr Gray submitted that the delay caused by the injunction will cost GE dearly and restrict competition in the meantime, but he made that point in support of a submission that the Court should not lightly find there is an arguable case. An injunction having been granted and this appeal dismissed, the High Court (or an arbitrator, if, as one affidavit appears to claim, the parties are bound to that course) will doubtless set an early fixture if GE requests.
Decision
[9]High Court judgment, above n 1, at [61].
We are not persuaded that Whata J erred. The appeal is dismissed.
GE must pay Siemens costs for a standard appeal on a band A basis. We certify for two counsel.
Solicitors:
Simpson Grierson, Auckland for Appellant
Russell McVeagh, Auckland for First Respondent
Buddle Findlay, Wellington for Third Respondent
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