Handitags Limited v Warburton HC Auckland M1586-Sw01

[2001] NZHC 1239

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY M1586-SW01

IN THE MATTER of the Designs Act 1953

AND

IN THE MATTER of the Copyright Act 1994

BETWEEN HANDITAGS LIMITED
Plaintiff

AND JOHN JAMES WARBURTON and LEILA JUNE WARBURTON
Defendants

Hearing: 12 December 2001

Counsel: Mr B P Henry / Ms K M Alcoat for the Applicant
Mr D Marriott / Ms A Holling for the Defendants

(ORAL) JUDGMENT OF GLAZEBROOK J

Solicitors:
Knowles & Associates, PO Box 5298, Grey Lynn Auckland
James & Wells, Private Bag 11907, Ellerslie, Auckland

Introduction

[1] This case concerns tags for a mechanical labelling gun used in the timber industry.

[2] Handitags Limited says that Mr Johnson, on its behalf, designed the tag for use in an automatic labelling gun, designed in conjunction with the tag by a Mr Woods. The design was registered in 1991 with two extensions of five years granted. The registration expires in 2006. Handitags also claims copyright in a related design. Copyright would expire in 2007 in respect of that related work.

[3] Mr and Mrs Warburton are in the business of manufacturing tags and labels for use in the timber industry primarily. Recently, (I understand about a year ago) they have begun manufacturing tags for use in an automatic labelling gun. The gun is also one designed by Mr Woods but it appears, from the affidavit of Mr Woods, that it may be a variation on the gun originally designed.

[4] Handitags says that these tags manufactured by Mr and Mrs Warburton infringe their registered design and also that they infringe the copyright in the related work. It applies for an interim injunction to restrain Mr and Mrs Warburton from infringing the copyright and/or the registered design prior to full trial.

[5] The principles in terms of interim injunctions are well known. Handitags must show a serious question to be tried and the balance of convenience must then be considered in the light of the overall justice of the case and Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 is obviously the main and most usually cited authority for that proposition.

Is there a serious question to be tried?

[6] The first question is whether there a serious question to be tried. Mr and Mrs Warburton say that there is no serious question to be tried. This is first because they say that the Handitags design should not have been accepted for registration as the features of the alleged design are dictated solely by function. The second reason put forward is that the Warburtons’ tags are sufficiently different to avoid infringement. Essentially the same arguments are used to apply to the copyright infringement claim although in terms of the functional aspects argument their submission is that Handitags is seeking to protect a basic concept rather than the expression of the concept.

[7] It must be remembered that the question here is whether there is a serious question to be tried only and not whether Handitags will in fact succeed at trial.

[8] In terms of the first argument as to functionality, the functionality alleged is that the features are dictated by the features of the labelling gun and also (in oral submissions) that they are dictated by the dictates of the industry.

[9] If the labelling gun had not been developed in conjunction with the tags (and, in fact, the labelling gun in question I understand did not even exist in that form at the time of registration) then this argument may have had some validity. However, at this stage, the evidence would suggest that the inference that the functional aspects of the gun could have changed to fit the design is one that is certainly open. Therefore it is impossible at this stage to say that the design followed functionality in terms of the gun as against the functionality in effect following the design.

[10] I do not have sufficient information on the dictates of the timber industry to assess functionality in this context. In particular I do not seem to have specific evidence (although Mr Marriott indicates that I could imply this evidence from the information I am given) as to what actually happened in the industry prior to the registration of the design. Nor, in fact do I have any examples put forward of prior art or products at all. The Warburtons thus have failed in their contention that there is no serious issue to be tried on this particular ground.

[11] In terms of the second matter put forward, that is, whether the Warburton’s design is sufficiently similar, the argument is that small differences are sufficient to create a new copyright work or new registered design and this therefore would mean that small differences will be sufficient to avoid infringement. Here it is indicated that the Warburtons tag has a different width, a different length and, probably, importantly for the design question, a different ratio of width to length and a different size and shape of hole.

[12] It is further submitted that any similarities are dictated by function but, in this regard, it must be remembered that the function alleged was to fit into the gun and the design may rather in fact, as I said earlier, have dictated the function of the gun. Therefore the similarities allegedly dictated by function may, in this instance, in fact assume quite major importance at trial as design similarities. In my view, at this stage, it is not possible to find that there is no serious question to be tried on this ground either.

[13] I do note that I accept Mr Henry’s submission that, from the affidavit of Mr Warburton, it can be inferred that there was in fact a deliberate copying of the design with a deliberate attempt to ensure variations to that design. This may not be of significance in the event at trial but I think it is a point that can militate against the finding that there is no serious issue to be tried at this point. Also I do note, as Mr Henry points out, that the design registration contains no dimensions although the copyright drawings do and clearly there could be a difference between the two causes of action in this regard. This is not the time to be looking at this point however.

[14] What this means is that the Warburtons have failed in their contention that there is no serious question to be tried. It is now necessary to move onto the balance of convenience arguments and the overall justice of the case.

Are damages an adequate remedy?

[15] The first point in relation to the balance of convenience is obviously whether damages would be an adequate remedy as, if they are, then an interim injunction would very rarely, if ever, be appropriate. In this instance, Mr Henry argues that Handitags in fact have a practical monolopy because of its design registration. It is indicated it is a practical rather than an actual monopoly because of the link of the Handitags’ tag with the only labelling gun in fact in use in New Zealand. The monopoly is not an absolute monolopy as, of course, it would leave the Warburtons absolutely free to design a product for use in other guns. In a practical sense, however, because this is the only labelling gun in use in New Zealand, there is this practical monolopy because of its registration.

[16] Handitags argues that damages would not be an adequate remedy, not primarily because of the difficulties of quantification of actual sales of the particular tags which, as pointed out by the Warburtons, are likely to be relatively easy to ascertain from the Warburtons’ books, but also because of the difficulties in respect of consequential damage, that is, how much business that would normally have gone to Handitags would go to the Warburtons because of the ability for them to supply not only the other tags but also the tags for use in the automatic labelling gun.

[17] However, the main reason put forward by Handitags as to inadequacy of damages is the loss of the ability to manage their practical monolopy situation. This is because, at any stage during such a monolopy, an entry of a competitor can cause permanent damage and permanent inability to manage the monolopy and, in particular, the ending of the monolopy which will obviously occur at the end of the design and copyright period. This diminished advantage can mean a permanent effect which Handitags submits is exceedingly hard to quantify. It is noted that there is only some four years left in respect of the design and five years in respect of the copyright so the loss of a portion of the period at the end of the registration for the design and the copyright period is even more significant.

[18] These submissions are accepted. It is accepted that damages would not be an adequate remedy for Handitags.

[19] In terms of the Warburtons it is true that in a start up position the quantification of damages can be more difficult, although it is certainly true that the Warburtons are not in an absolute start up position. They are only in a start up position in respect of these particular tags. It would seem to me to be much easier to estimate damages in such a case and it certainly can be done even though there may be some difficulty. Therefore there is a difference between the positions of Handitags and the Warburtons in this regard.

What is the inconvenience to the Warburtons?

[20] Looking now at the inconvenience to the Warburtons specifically alleged. The inconvenience to Handitags has already been covered really in the discussion of the adequacy of damages. The concern of the Warburtons is that timber tags make up some 90% of their business whereas they are only a small percentage for Handitags and that Handitags is a much bigger operation than the Warburtons’ operation. In addition the concern is with the loss of market perception in terms of the Warburtons because they could be perceived as unable to keep abreast with new technology and therefore lose market goodwill.

[21] In terms of the timber tags being 90% of the Warburtons’ business the tags in question are only one of the products of the Warburtons and there is no indication of how significant the new business would be to the Warburtons, although there is obviously a concern that they could lose other business if they are not able to produce the full range wished for by a client. However, Warburtons have been in the marketplace for the whole of the design registration period without the ability to add this product to their product range and, indeed, I understand the business existed before that in perhaps a manifestation earlier than the Warburtons. While relative size can be taken into account, in the circumstances, it should not be taken into account to the extent that the larger company is not able to protect itself.

[22] There is in this case no suggestion that any interim relief would in fact be final relief. There is no bar on the Warburtons entering the market after the case has been completed if they are successful. There is merely a delay and that delay would be for a very limited period if there was an early trial. An early trial would be available with the case management procedures available at the Court and whether or not it transferred to the commercial list, an early trial could be ensured.

Status Quo

[23] Once a plaintiff in a case of this nature has proved that there is a serious question to be tried and damages are not an adequate remedy it is usually the better course to preserve the status quo. In this case there has been a recent entry of Warburtons into this part of the market and a long period of over ten years where Handitags has, in effect, had a practical monolopy in this area. The status quo therefore quite clearly favours Handitags.

Overrall Justice

[24] In terms of the overall justice it is possible at this stage to look at the strength of a plaintiff’s case I am not prepared at this stage to say, as the Warburtons would wish me to, that the Handitags case is very weak but I consider it inappropriate to make any further remarks as to the relative strengths of the respective cases at this stage.

[25] Looking at all of the matters to be taken into account earlier in terms of the status quo, the relative inconvenience, the adequacy of damages, in my view the overall justice of the case does favour the granting of an interim injunction to Handitags and the injunction is therefore granted.

[26] Counsel are to confer as to the specific terms of the injunction and file a joint memorandum on or before 5:00pm Wednesday 19 December 2001. A telephone conference is convened on Thursday 20 December at 1:00pm to finalise the terms.

[27] The matter should be called for mention in the Duty Judge list on Wednesday 19 December 2001 with a view to setting a timetable to trial.