Lesa Systems Ltd v Canzac Ltd HC Christchurch CIV 2007-404

[2006] NZHC 1669

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV 2006-409-000624

BETWEEN  LESA SYSTEMS LTD Plaintiff

AND  CANZAC LTD Defendant

Hearing:         16 May 2006

Appearances: RKM Hawk for Plaintiff

M C Hayes and D L Marriott for Defendant

Judgment:      16 May 2006

ORAL JUDGMENT OF HON JUSTICE JOHN HANSEN

[1]      These proceedings were commenced by way of a statement of claim dated 24

March last.  At the same time the plaintiff filed a notice of interlocutory application for an interim injunction.  Both that and the substantive proceedings are opposed by the defendant.  The matter was first called on 12 April when it was not heard but was put off until today.

[2]      Ideally I would have liked time to reflect on the relatively complex issues raised by the parties, but it seems to me that given this matter was filed over two months ago they are entitled to an answer today on the application for an injunction. I also bear in mind my own programme over the next four to five weeks.

[3]      The  plaintiff  and  defendant  are  both  in  the  business  of  supply  to  the construction industry.  The particular items that this case are concerned with are used in the pouring of concrete floor slabs.  We have been concerned with two systems,

called type A and type B, in which the plaintiff claims copyright.  The substantive

LESA SYSTEMS LTD V CANZAC LTD HC CHCH CIV 2006-409-000624 [16 May 2006]

proceedings are to protect that copyright.  The application for an interim injunction is to prevent the defendant marketing or selling its own version of the type A and B system.

[4]      It is apparently common, where large areas of concrete are poured, for there to be a problem at the joints or edges which leads to spalling.  The type A product is generally used at the edge of a flooring system or in a doorway.  It is attached to a wooden frame and consists of a diamond shaped dowel sleeve and straight pieces of metal as anchors, they are inclined at approximately 45 degrees.

[5]      The type B system is, in one sense, a two sided version of type A.  Its added advantage is that it is self-supporting on feet.  It has a metal sheen between the two feet area, suspended below two steel joint edgings which are 50 x 10 metal.   As I understand it the advantage of this system is that it allows contractors to pour a floor in one continuous pour around it.  Under the type A system, if it was used in such a manner, it could only be used if the wooden frame work was removed.

[6]      There was previously a relationship between the plaintiff and Mr Canute of the defendant.  It led to the defendant marketing the plaintiff’s product.  Regrettably there was no written arrangement between the parties.  However, it came to pass that the defendant, in its former guise, attempted to market the plaintiff’s product in the Auckland region.  That led to a breakdown of relationship between the parties.   It also led to the development by the defendant of a type A and type B product.  That product, the plaintiff maintains, is copyrighted to the plaintiff and the product produced by the defendant infringes that copyright.

[7]      There has been earlier correspondence between the parties that led to a letter of 18 April 2005 in which the defendant undertook not to manufacture, market, or sell the Armour Joint system or type A system, or the Mono-Pour system which is what I have referred to as type B.   It is apparent from the photographs produced within that letter that they are very similar to the plaintiff’s product.

[8]      Following the breakdown of the relationship the defendant had developed an earlier Mono-Pour system which was dependent upon sourcing a certain part from

Australia.  Under that system the sheet of metal underneath the heavier steel jointing pieces was kinked.   The position of the plaintiff, based on the evidence of a Mr Hunter who previously worked for the defendant, but now apparently works for the plaintiff, is that this was an unsuccessful and complicated product and was not liked in the market place.  He says he was instructed to, and did, obtain a sample of the plaintiff’s product which he took to the defendant.  The plaintiff then maintains that the product, at least in exhibit T that I have referred to, was simply a copy of that.

[9]      However,   what   we   are   concerned   with   today   is   the   final   product. Photographs of the defendant’s product can be seen under exhibits 2 and 3 of Mr Canute’s affidavit.  The copyright relied on by the defendant can be found in exhibit J of Mr Mayo’s affidavit filed on behalf of the plaintiff.

[10]     Before turning to the principles and determining the application for interim injunction  it  is  sufficient  to  say  just  a  small  amount  relating  to  copyright  law. Firstly,  there  must  be  a  work  in  which  copyright  can  subsist.    Secondly,  that copyright does subsist in the work.  Thirdly, the plaintiff owns the copyright in the work.  Fourthly, the copyright in the work has been infringed.

[11]     To consider infringement it is normal to ask three questions which must be answered in the affirmative.   These were framed in Wham-O MFG Co v Lincoln Industries Ltd [1984] 1 NZLR 641:

a)       Does the alleged infringing work reproduce either the entire copyright work or a substantial part?

b)       Is there sufficient objective similarity between the infringing work and the copyright work or a substantial part?

c)       Is there  a  causal connection  between  the  copyright  work  and  the infringing work, in that the copyright work is the source from which the infringing work is derived?

[12]     The comparison, of course, must be between the copyrighted work and the alleged infringing copy; in this case between exhibit H and the defendant’s product.

[13]     It must also be borne in mind that copyright protection does not extend to the idea of the work; it protects the expression of that idea.  In a case cited by counsel, Martin v Polyplas Manufacturers Ltd [1969] NZLR 1046, it was said at 1050:

As it is put in Copinger and Skone James on Copyright, 10th ed., para. 113: Copyright  protection  is  given  to  literary,  dramatic,  musical  and

artistic works and not to ideas, and therefore it is original skill or

labour in execution, and not originality of thought which is required.

[14]     Reference was also made to the decision of Wilberforce LJ in LB (Plastics) Ltd v Swish Products Ltd [1979] RPC 551 619:

There can be no copyright in a mere idea, …  Nor is there infringement if a person arrives by independent work at a substantially similar result to that sought to be protected.   The protection given by the law of copyright is against copying, the basis of the protection being that one man must not be permitted to appropriate the result of another's labour.

[15]     In this case there is a significant dispute between the parties as to the degree of similarity.  The position taken by the plaintiff in relation to both articles is that they are no more than copies with minor cosmetic changes designed simply to avoid its copyright. On the other hand, the defendant says that there are significant differences.

[16]     It is apparent, however, that both the plaintiff’s and the defendant’s systems share a number of similar ideas.  I will not repeat them but they are set out in 4.12 of the defendant’s submissions.   It is also apparent that there have been overseas products that can be seen at exhibit 4 of Mr Canute’s affidavit.   Although, as Mr Hawk, has properly pointed out, only the first of those can be said to be a mono-pour system and it is not apparent exactly when that came into existence; he says the reference to “1983 and onwards” at the top of the advertising material is insufficient to establish that.

[17]     In the first amended statement of claim it is alleged at paragraph 7 that the first redesign, that is the one that was withdrawn from sale without admission of

liability, was a copy of the plaintiff’s type B system except that it incorporated a speed dowel instead of a diamond dowel; the  rods supporting  the  dowel are  in different  locations; and the flat  tin plate  is sandwiched  between  two  steel  joint edgings whereas in the plaintiff’s system the flat tin plate terminates at the 50 x 10 steel edgings.

[18]     At paragraph 10, dealing with the product we are ultimately concerned with today, it is said again that it is a copy except that the legs have been changed from an “L” shape to an inverted “T” shape and welded alternately; and the anchors have been joined in a “U” shape.   It is further said that the angle of the anchors is not necessary for strength and that shows copying, although I note that a number of the overseas products exhibited in the affidavit also have angled anchors.

[19]     It seems to me, with respect, when one looks at the product of the defendant there are  now  very significant  differences,  although  obviously  the  matter to  be addressed is similarity.

[20]     The first thing that is different is that the metal sheet is sandwiched between the metal steel jointing material, in that in the plaintiff’s product it terminates at the base of this.   The second thing is that the anchor is now a flattened “U” shape as opposed to simply being a straight piece of angled round metal.   It is said in Mr Mayo’s affidavit that this is cosmetic and that it does not add strength.  Mr Canute, however, says in his view it adds strength and it is a safer form within a workplace than the straight  piece of metal in the plaintiff’s design.    With respect  to  both gentlemen, in the context of a hearing of this sort I could not possibly, nor would I presume to, determine such questions of fact.

[21]     The next matter relates to the feet.  It can be seen in photograph 3F that this is different from the plaintiff’s design.  Finally, the stabilising rod is different, in that in the plaintiff’s product it seems to be welded to the metal sheet and the feet whereas in the defendant’s it is welded along the side, almost as an outrigger to the anchor and to the dowel.  In that context it seems to me that a great deal must turn on the evidence of Mr Hunter.  Mr Canute denies his evidence about taking the plaintiff’s product to him and refers to the overseas material he says was his design inspiration.

On the other hand, Mr Hawk would say this is a case where a qualified engineer has developed a product over a period of time and this Court should not accept that an unqualified, or apparently unqualified, person or persons from the defendant could independently and so quickly come up with the final product that we are concerned with here today.  Again, with all due respect to the submissions and the people who have given evidence, that is not something that can be resolved in the context of a hearing of this sort.

[22]     As well, Mr Hawk has referred me to the case of King Features Syndicate Inc v O & M Kleemann Ltd [1941] 2 All ER 403 where at 414 the judgment states:

In the present case, on a careful comparison of the brooches and the sketch, I find substantial similarity between the different editions of the brooch and sketch No 3, sufficient to raise a prima facie case of actual copying. The respondents have called no evidence to rebut that prima facie case. I agree, accordingly, with Simonds J in finding that copying is proved in respect of the brooches, equally with the dolls and toys.

[23]     There is evidence in this case to show an overseas source for the inspiration. That does leave us with the 50 x 10 plates and also the metal sheet that goes in between.  Effectively that is unique and copyrighted according to the plaintiff.  Not so says the defendant, it is inevitable from the type of product and from what is trying to be achieved here; and, in any event, that did not constitute a substantial part of the copyrighted work which can be found in the item - the dowel, the anchor and other such matters, and presumably where the stabiliser rod is welded on.

[24]     Inevitably this Court is not in a position to make any more than a tentative finding in relation to this copyright dispute at this stage.

[25]     I am satisfied, as is necessary, that there is a serious question to be tried.  I would not, however, go so far as Mr Hawk in his submissions, who said it was a strong prima facie case.   When one considers the final product it is significantly different from the defendant’s product.

[26]     The two items remaining of commonality may very well enjoy copyright after an appropriate hearing but it is impossible to determine at this stage between

the argument advanced by the plaintiff that it is copyrighted and the defendant that it is not for the reasons put forward by Mr Hayes.

[27]     That leads us to the balance of convenience.  Mr Hawk has argued that the injunction should be granted because damages are not an adequate remedy.   He points to the fact that his client has developed this product over a significant period of time and that it is only just starting to become a worthwhile product, in other words the benefits of that work are being realised.  He says the plaintiff is entitled to an injunction pending the a resolution of the substantive dispute.

[28]     On the other hand, the defendant points to a number of factors to show that damages would be an adequate remedy for the plaintiff but would not be for the defendant.  In American Cyanamid Co v Ethicon Ltd [1975] 1 All ER 504 the Court said at 510:

…    If  damages  in  the  measure  recoverable  at  common  law  would  be adequate remedy and the defendant would be in a financial position to pay them,  no  interlocutory  injunction  should  normally  be  granted,  however strong the plaintiff's claim appeared to be at that stage.  …

[29]     That, of course has been adopted in New Zealand in a number of authorities, including    Klissers    Farmhouse    Bakeries    Ltd    v    Harvest    Bakeries    Ltd [1985] 2 NZLR 129.

[30]     The defendant argues that if it is unsuccessful at trial damages can be easily quantified based on the defendant’s sales of the two systems.  Alternatively, any loss of market share by the plaintiff would be readily quantifiable as it  seems to be readily accepted there are only two central suppliers in the market.  It is further said the defendant is in a position to meet an award of damages.   As to whether the plaintiff can, I accept Mr Hawk’s undertaking from the Bar that in fact the balance sheet of the plaintiff is such that it could meet an award of damages.

[31]     The defendant says if an injunction is granted the defendant is kept out of the market pending determination of the matter, and if that was the case the Court would be placed in a speculative position in attempting to assess the level of damages payable to the defendant.  The defendant says it would be difficult to ascertain what

amount of money the defendant might have made had it remained in the market and what level of damages would be suitable to compensate a monopoly, or close to a monopoly, situation.  There is also the possibility of an overall effect on the business because of Mr  Canute’s position,  which  is not  challenged,  that  both  companies provide a total service for clients covering a range of products, and that customers prefer to deal with one supplier rather than the other.   So that the failure of the defendant to be able to supply this product would almost certainly lead to the loss of clients for other types of business.  It is said in those circumstances the harm caused to the defendant by an injunction, if an injunction was granted, outweighs the harm to the plaintiff which is quantifiable.

[32]     I accept it is a difficult exercise to try and ascertain the exact position here, but it seems to me the scales come down on the defendant’s side.  Nothing has been said by Mr Hawk today, and there is no evidence which satisfies me, that damages would not be an adequate remedy for the plaintiff, provided an adequate accounting system is put in place to ensure there is a properly verified record of any sales the defendant may make.

[33]     The  next  issue  relates  to  the  entitlement  of  the  plaintiff  to  exploit  its monopoly,  which  is  what  has  been  referred  to  as  the  “bridgehead  argument”. Counsel referred  me to  the  decision of Golden  Homes (1998)  Ltd  v  Blue  Chip Construction Ltd HC AK CIV2003-404-7090 21 June 2005.  The subject is detailed at [72] and [73] where the Judge said:

[72]    The  so-called  bridgehead  argument  will  sometimes  carry considerable weight.  In the cases just cited the plaintiffs were able to point to a registered patent and to a registered design respectively, and so had a solid platform from which to claim a right to a monopoly.

[73]     In  the  present  case  the  platform  is  no  means  as  strong.    The plaintiffs’ claim to ownership of the copyright is strongly challenged and there is a paucity of evidence as to initial authorship.  Additionally, there is countervailing evidence of independent creation, and there are assertions that a number of commonly encountered house plans are in the public domain. Although at trial Golden Homes may well (by supplementing the evidence currently available) be in a position to establish ownership of copyright to the required standard, the evidence now before the Court is equivocal.  The bridgehead argument therefore loses considerable force.

[34]     I accept in this case that  as it  relates to the plaintiff’s two  products the evidence of authorship is much stronger than in the case confronting Allan J, but whether or not there is a copy or not is another matter.  For reasons I have alluded to earlier it seems to me, in relation to type A and B, there remains argument which will no doubt require some expert evidence to ultimately resolve that the final product being sought to be marketed by the defendant is not a copy.  Mr Hunter’s evidence in relation to the type B product will be critical in that particular regard.

[35]     Next there is the question of the conduct of the parties and delay.   As I indicated to Mr Hawk when I did not need to hear from him, in my view there is nothing in delay.   The plaintiff’s actions have been proper throughout.   The only period which could lead to some criticism is the period from the Queenstown conference until some steps were taken.  The strength and merits of this case frankly are  impossible  to  resolve.    The  matter  will  turn  on  both  expert  evidence  and credibility of witnesses, in particular Messrs Hunter, Canute and Watkins.

[36]     Finally the parties addressed me on the question of status quo, the defendant relying on American Cyanamid Co v Ethicon Ltd at 511 that:

… to interrupt [a party] in the conduct of an established enterprise would cause much greater inconvenience to him since he would have to start again to establish it in the event of [it] succeeding at the trial.

They rely on the fact the product has been in the market  place for almost  nine months.

[37]     The status quo is, like delay, something I will put to one side.  I will not be critical of the actions of either party in that regard.

[38]     At the end of the day the Court must stand back and look at the overall justice of the situation.  I accept it is difficult in a case like this where there is no resolution of evidence, but I am satisfied, both on the standard test and the overall justice of the case, that it is proper to refuse an injunction.  However, I order an early trial of the substantive issues.

[39]     The  fixture  is  to  take  place  commencing  Monday,  2  October  2006  in

Christchurch.

[40]     The plaintiff is to file an amended statement of claim within 14 days.   The defendant is to file an amended statement of defence 14 days thereafter.   Lists of documents are to be verified by affidavit 42 days from today.  Briefs of witnesses to be exchanged one month before the trial.  A bundle of authorities is to be prepared and filed in standard form three days before the hearing.

[41]     There is liberty to apply on one day’s notice if there are any outstanding matters.

[42]     The parties will agree an expert accountant who will be able to verify the defendant’s sales of the product, and will file an undertaking to that effect naming the expert within seven days.

[43]     Costs on the interim injunction will be on a 2B basis.  They will be costs in the cause on the substantive hearing.

Solicitors:

Jackson Russell, Auckland for Plaintiff

James & Wells, Auckland for Defendant