Oraka Technologies Ltd v Geostel Vision Ltd
[2018] NZHC 769
•23 April 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2005-419-000809
[2018] NZHC 769
BETWEEN ORAKA TECHNOLOGIES LIMITED
First Plaintiff
ORAKA GRADERS LIMITED
Second PlaintiffMICHAEL WILLIAM SCHWARZ
Third PlaintiffAND
GEOSTEL VISION LIMITED
First Defendant
PAUL DAYNES AND GORDON ROBERTSON
Second Defendants
NAPIER TOOL & DIE CO LIMITED
Third Defendant
Hearing: 10-14 July 2017 and 1 August 2017
15 November 2017 - joint memorandum of defendants
Appearances:
B Henry and C S L Foster for the Plaintiffs
K Glover for the First and Second Defendants
P Skelton QC and C D Herbert for the Third DefendantJudgment:
23 April 2018
JUDGMENT OF HINTON J
ORAKA TECHNOLOGIES LIMITED v GEOSTEL VISION LIMITED [2018] NZHC 769 [23 April 2018]
This judgment was delivered by me on 23 April 2018 at 10.00 am pursuant to Rule 11.5 of the High Court Rules
…………………………………………………………………… Registrar/Deputy Registrar
Counsel/Solicitors:
Brian Henry, Barrister, Auckland Le Pine & Co, Putaruru
Kevin Glover, Barrister, Auckland Malloy Goodwin Harford, Auckland
Philip Skelton Queens Counsel, Auckland Hudson Gavin Martin, Auckland
[1] The question to be determined in this judgment is the quantum of damages payable to the first plaintiff as owner of a copyright, for infringing use by the defendants based on a notional licence fee or royalty.
Background
[2] The facts as set out below are taken largely from the Court of Appeal judgment of 28 November 2016.1
[3] During the 1980s the third plaintiff, Mr Michael Schwarz, invented an asparagus grading machine with a unique cup assembly (the Oraka grader). In March 1993, he formally assigned the copyright in the cup assembly to the first plaintiff, Oraka Technologies Ltd (Technologies). Mr Schwarz and his wife were the sole shareholders and directors of Technologies.
[4]The defendants infringed the copyright from mid-2001 to March 2009, when
Technologies’ copyright expired.
[5] The defendants were familiar with the Oraka grader, having been involved by Mr Schwarz in various aspects of its development and/or marketing. In 2001, Mr Daynes and Mr Robertson established their own company – the first defendant, Geostel Vision Ltd (Geostel) – and through that vehicle started manufacturing and selling a grading machine in competition with the Oraka grader.
[6] The Geostel grader incorporated a cup assembly that was a copy of a substantial part of the Oraka grader’s cup assembly. The infringing cup assembly was manufactured and sold to Geostel by the third defendant, Napier Tool & Die Ltd (Napier).
[7] During the infringement period (mid-2001 to March 2009), Technologies was no longer manufacturing and selling the Oraka grader. It had stopped trading in 1996 after running into financial difficulties. Instead, from 1996 to early 2001, the manufacturing and sale of the Oraka grader was undertaken by another company,
1 Napier Tool & Die Ltd v Oraka Technologies Ltd [2016] NZCA 554.
Oraka Technologies Holdings Ltd (Holdings). Mr and Mrs Schwarz were directors and shareholders of Holdings. Minority shares were also held by two outside investors, a Mr Kinder and a Mr Bell.
[8] In early 2001, before the defendants’ infringing conduct commenced, Holdings itself ceased trading and the business of manufacturing and selling the Oraka grader was then carried on by the second plaintiff, Oraka Graders Ltd (Graders). Unlike the position with the two previous companies (Technologies and Holdings), Mr Schwarz did not have any shareholding interest in Graders. He was also not a director. Graders was owned by Mr Schwarz’s two adult children. They were the sole shareholders and directors. Mr Schwarz still carried on the business.
[9] Technologies granted an informal exclusive licence to Holdings and then Graders, but did not claim or receive any royalty payments.
[10] In 2005, the plaintiffs issued proceedings in the High Court against the defendants for breach of copyright under the Copyright Act 1994 (the Act). There then followed a series of decisions in this Court (commencing with the decision of Allan J in December 2007), and a series of appeals to the Court of Appeal. It is not necessary to recount the detail of all those decisions. They are cited and summarised in the latest judgment of the Court of Appeal.2
[11] The net effect of the decisions is that in 2013 the Court of Appeal entered judgment for liability against all defendants in favour of the first plaintiff (Technologies) as the owner of the copyright.3 Following a further hearing, this Court entered judgment for Technologies in the sum of $4.1 million, against the defendants.4 The defendants filed appeals against that decision, not challenging quantification of the lost profits (which had effectively not been challenged during the trial), but challenging the finding that loss had been suffered by Technologies, as opposed to Graders only, being the company that was manufacturing and selling the Oraka grader.
2 Napier Tool & Die Ltd v Oraka Technologies Ltd [2016] NZCA 554 at [8] footnotes 7 and 8.
3 Oraka Technologies Ltd v Geostel Vision Ltd [2013] NZCA 111.
4 Oraka Technologies Ltd v Geostel Vision Ltd [2016] NZHC 1188.
[12] In its November 2016 judgment, the Court of Appeal upheld the appeal and remitted the case back.
The basis of remittal back
[13] The referral back is for assessment of the quantum of damages on the basis of a notional licence fee payable to Technologies.
[14] The relevant paragraphs of the November 2016 Court of Appeal judgment are set out below:
[74] However, notwithstanding the errors that have been made in prosecuting the case, the majority considers it would be unjust to leave Technologies without any relief, having regard to the fact there is another established head of damages to which Technologies is indisputably entitled and in respect of which it did not make an irrevocable election. There is no question that, as the owner of a copyright that has been infringed, Technologies is entitled to payment of what is described in the authorities as a notional licence fee or royalty. That is to say, it is entitled to receive from the infringers the price that would reasonably have been charged for permission or authorisation to carry out each infringing act. This approach, called the “user principle”, is used when it is not possible to establish a normal royalty fee because the claimant is not in the practice of licensing their property.
….
[80] In accordance with the views of the majority, the case is remitted to the High Court for the quantum of damages to be determined on the basis of a notional licence fee payable in respect of each infringing use during the period from the commencement of infringement to the expiry of the first appellant’s copyright.
Citations omitted
Relevant law
[15] The notional licence fee remedy is the third of the approaches set out by Lord Wilberforce in General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd for valuing damages in an intellectual property case:5
In some cases it is not possible to prove either (as in 1) that there is a normal rate of profit, or (as in 2) that there is a normal, or established, licence royalty. Yet clearly damages must be assessed. In such cases it is for the plaintiff to
5 General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1975] 1 WLR 819 at 826.
adduce evidence which will guide the court. This evidence may consist of the practice, as regard royalty, in the relevant trade or in analogous trades; perhaps of expert opinion expressed in publications or in the witness box; possibly of the profitability of the invention; and any other factor on which the Judge can decide the measure of loss. Since evidence of this kind is in its nature general and also hypothetical; it is unlikely to be of relevance, or if relevant, of weight, in the face of the more concrete and direct type of evidence referred to under (2). But there is no rule of law which prevents the Court, even when it has evidence of licensing practice, from taking these more general considerations into account. The ultimate process is one of judicial estimation of the available indications.
[16]Lord Wilberforce then quoted with approval the following passage from
Meters Ltd v Metropolitan Gas Meters Ltd:6
There is one case in which I think the manner of assessing damages in the case of sales of infringing articles has almost become a rule of law, and that is where the patentee grants permission to make the infringing article at a fixed price – in other words, where he grants licences at a certain figure. Every one of the infringing articles might then have been rendered a non-infringing article by applying for and getting that permission. The court then takes the number of infringing articles, and multiplies that by the sum that would have had to be paid in order to make the manufacture of that article lawful, and that is the measure of the damage that has been done by the infringement. The existence of such a rule shows that the courts consider that every single one of the infringements was a wrong, and that it is fair – where the facts of the case allow the court to get at the damages in a way – to allow pecuniary damages in respect of every one of them. I am inclined to think that the court might in some cases, where there did not exist a quoted figure for a licence, estimate the damages in a way closely analogous to this. It is the duty of the defendant to respect the monopoly rights of the plaintiff. The reward to a patentee for his invention is that he shall have the exclusive right to use the invention, and if you want to use it your duty is to obtain his permission. I am inclined to think that it would be right for the Court to consider what would have been the price which ˗ although no price was actually quoted – could have reasonably been charged for that permission, and estimate the damage in that way. Indeed, I think that in many cases that would be the safest and best way to arrive at a sound conclusion as to the proper figure. But I am not going to say a word so as to tie down future judges and prevent them from exercising their judgment, as best they can in all the circumstances of the case, so as to arrive at that which the plaintiff has lost by reason of the defendant doing certain acts wrongfully instead of either abstaining from doing them, or getting permission to do them rightfully.
[17] After quoting Fletcher Moulton LG, Lord Wilberforce summarised the principle laid down in Meters Ltd: 7
6 Meters Ltd v Metropolitan Gas Meters Ltd (1911) 28 RPC 157 (CA) at 164-165.
7 At 827.
A proper application of this passage, taken in its entirety, requires the judge assessing damages to take into account any licences actually granted and the rates of royalty fixed by them, to estimate their relevance and comparability, to apply them so far as he can to the bargain hypothetically to be made between the patentee and the infringer, and to the extent to which they do not provide a figure on which the damage can be measured, to consider any other evidence, according to its relevance and weight, on which he can fix a rate of royalty which would have been agreed.
[18] Notably, in General Tire, the House of Lords overturned the Court of Appeal because inter alia it had applied a punitive approach by searching not for what the infringer would have paid but what it should have paid.8 The remedy is not intended to be punitive. The defendants argued that the user principle is restitutionary, and it is sometimes referred to as such. However, I consider that the remedy is more properly understood as compensatory. The user principle operates as compensation by awarding to a successful plaintiff the benefit of a “negotiated” licence, which they lost when the defendant infringed their intellectual property.9
[19] There have been three New Zealand cases of intellectual property infringement that assessed damages based on a notional licence fee: Gallagher Electronics Ltd v Donaghys Electronics Ltd,10 Electroquip Ltd v Craigco Ltd (No 2)11 and Eight Mile Style, LLC v New Zealand National Party,12 a decision of Cull J which was issued some months after the present hearing.
[20] In Gallagher Electronics, Anderson J identified that in cases where “the plaintiff cannot show an impact on its own sales by reason of infringement … the infringer can be liable in damages equivalent to a royalty”13 and that the assessment is based on “the hypothesis of a willing licensor and willing licensee striking a bargain for royalties … [by] the particular parties in the particular circumstances”.14
[21] In assessing the fee, Anderson J considered that the defendant could have used a non-infringing solution, rather than infringe the plaintiff’s rights, although there was
8 At 833.
9 Attorney-General v Blake [2001] 1 AC 268 (HL) at 298; see also Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD [2012] EWHC 616 (Ch) at [386].
10 Gallagher Electronics Ltd v Donaghys Electronics Ltd (1991) 4 TCLR 344 (HC).
11 Electroquip Ltd v Craigco Ltd (No 2) HC Auckland CIV-2006-404-6719, 29 April 2010.
12 Eight Mile Style, LLC v New Zealand National Party [2017] NZHC 2603.
13 At 348.
14 At 349.
clearly an advantage to the defendant in using the plaintiff’s solution. The advantage included avoiding the cost of developing an alternative. During the litigation, the parties had negotiated on a royalty fee. The plaintiff claimed $20 per unit and the defendants $2 or $3 per unit. Anderson J rejected both of those negotiating positions. He took the view that the plaintiff must have known its stated royalty “could not reasonably be regarded as consistent with the concept of [the plaintiff] negotiating as a willing but not necessarily anxious negotiator for the grant of a licence” because of the plaintiff’s knowledge of the cost of production of the complete unit (about $83) and industry experience (meaning knowledge of alternative solutions).15 Anderson J considered also though, that the defendant did not sufficiently account for the value it saw in using the plaintiff’s solution.16 He concluded by fixing the royalty at $10 per unit.
[22] In Electroquip, the plaintiff received damages for loss of profits, but also a notional fee for additional sales it could not establish it would have made and in respect of which lost profits were therefore not available. The defendant did not contest a fee of 10 per cent on the sale price of the automatic sheep jetting machines in question.
The fee was then apportioned to reflect non-infringing aspects of the machine.17
[23] Subsequent to the hearing in the present case, Cull J issued her judgment in Eight Mile Style, which the defendants in a post-hearing memorandum submit accurately records the law. The plaintiffs made no contrary submission. I agree that Cull J’s careful decision accurately summarises the law on notional licence fees. However, the facts are very different to this case, and in the end, I do not consider it is of particular assistance here.
[24] Mr Skelton QC, for the third defendant, said that recent UK authorities provide greater assistance than the New Zealand cases, as to the relevant factors to be taken into account when assessing a notional royalty fee. He referred inter alia to
15 At 350.
16 At 350.
17 At [53].
Force India Formula One Team Ltd v 1 Malaysia Racing Team18 and to 32Red Plc v WHG (International) Ltd,19 both decisions of the High Court, the latter case being also heavily relied on by Mr Henry for the first plaintiff.
[25] I agree that the principles set out by Arnold J in Force India and substantially adopted in 32Red are particularly relevant.
[26] Force India was an organisation which operated a Formula 1 racing team. The fourth defendants, Aerolab, operated a wind tunnel and employed a staff of aerodynamicists, designers and model part makers. Force India engaged Aerolab to provide it assistance in the design of a Formula 1 racing car. When the relationship between the two parties ended, Aerolab was engaged by a competitor to provide assistance in the design of a Lotus Formula 1 racing car. Aerolab still held a substantial quantity of files containing designs for Force India car parts. Some of these designs were employed when designing the competitor’s racing vehicle. Force India claimed
£13,771,419, being most of the cost of the design and development of its Formula 1 racing car over an 18-month period. In determining quantum, Arnold J placed considerable emphasis on the value of the confidential information and the extent of its use. Accepting evidence that a vehicle’s aerodynamics system works as a whole, such that designs from one vehicle will almost never be aerodynamically compatible with another, Arnold J determined that the value of the confidential information to the defendants was small. Moreover, he accepted that the use of the confidential designs was limited and that these designs were quickly abandoned or modified into non-infringing designs. Bearing the above factors in mind, including the fact that Aerolab’s customer was a direct competitor of the plaintiff, the outcome was a fee of
€25,000.
[27]The following points can be drawn from the decision of Arnold J in
Force India:
18 Force India Formula One Team Ltd v 1 Malaysia Racing Team SDN BHD [2012] EWHC 616 (Ch).
19 32Red Plc v WHG (International) Ltd [2013] EWHC 815 (Ch).
(a)The price of obtaining information by lawful means is prima facie the sum that would be agreed between a willing licensor and willing licensee.20
(b)The date of the negotiation should be when the misuse of the information began.21
(c)The fact the information was available from an alternative lawful source was highly material and would be used by the parties making reasonable use of their respective bargaining positions.22
(d)The licensee should generally be the party that misused the information, and primarily benefited from it.23
(e)The subject matter of the negotiation is the actual information that is misused, not everything that was available, or more.24
(f)The licensor’s sunk development costs are irrelevant.25
(g)The licensee’s “design around costs” are relevant.26
(h)The fact that the licensor would not have wanted to assist a potential new competitor is relevant.27
[28] On appeal, the Court of Appeal confirmed that any alternative the negotiating parties would have considered must be taken into account:
In any negotiation the parties to the negotiation will be considering what their alternatives are to doing the deal. There is no reason why a hypothetical negotiation should be any different in that respect. It is, of course, different from a real negotiation in one respect because in the hypothetical negotiation not doing the deal at all is not an alternative. In selecting as the measure of
20 At [427].
21 At [433].
22 At [426].
23 At [435].
24 At [436].
25 At [450]-[453].
26 At [455]-[458].
27 At [435] and [454].
damages the cost of employing a consultant in order to obtain an equivalent benefit from an alternative source the judge was, in my judgment, following a well-trodden path. I see no error of principle here.28
[29] In 32Red, during a short period in 2009, the defendants infringed the plaintiff’s registered trademark 32Red, which the plaintiff used in connection with its online casino, by operating an online casino called 32Vegas. 32Red generated gross revenue of €11 million. It could not prove lost profits and sought a reasonable royalty. Newey J summarised the legal principles by looking to the decision of Arnold J in Force India. He said:29
25. In Force India, Arnold J extracted from the authorities the following principles for the assessment of such damages (see paragraph 386):
(i) The overriding principle is that the damages are compensatory.
(ii) The primary basis for the assessment is to consider what sum would have [been] arrived at in negotiations between the parties, had each been making reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that notional negotiation should have taken place.
(iii) The fact that one or both parties would not in practice have agreed to make a deal is irrelevant.
(iv) As a general rule, the assessment is to be made as at the date of the breach.
(v) Where there has been nothing like an actual negotiation between the parties, it is reasonable for the court to look at the eventual outcome and to consider whether or not that is a useful guide to what the parties would have thought at the time of their hypothetical bargain.
(vi) The court can take into account other relevant factors, and in particular delay on the part of the claimant in asserting its rights.
(Citations omitted)
[30] Newey J commented that in Force India, Arnold J referred to a patent case (as opposed to confidential information which was the subject of Force India), where it was considered impermissible to factor in alternative courses of action that the infringer could have taken at the time of the infringement. Newey J concluded that if
28 Force India Formula One Team Ltd v Aerolab SRL [2013] EWCA Civ 780 at [107].
29 At [25]-[26].
the parties are to “bargain as they are, with their strengths and weaknesses” then if an alternative course of action is known to them at the date of the hypothetical negotiation, it must be taken into account.30
[31] Newey J also considered the extent to which the characteristics and circumstances of the parties is relevant. Although the parties are to be assumed to have their actual characteristics, Newey J considered there were limits, as follows:31
(a)The parties must be assumed to be willing to make a deal, regardless of reality.
(b)The parties must be assumed to act reasonably, regardless of reality.
(c)It is the objective factors with which the parties are faced, not their personal characteristics, which are relevant.
(d)The financial position of the defendant does not prevent a notional licence fee being fixed. The Judge said that a reasonable fee is the fee the defendant would have had to pay to obtain lawfully what they did in fact obtain unlawfully. It is not the fee the defendant could have afforded to pay. It cannot be taken into account that the defendant was impecunious and could not pay.
[32] As noted, in 32Red the availability of the alternative was central. As a result, the plaintiff simply could not demand a fee which was “disproportionate to the actual financial advantages” to the defendant, compared to alternative options.32 As a result, Newey J rejected the plaintiff’s claim for damages assessed on a notional licence fee of £5 million, and awarded the plaintiff damages of £150,000.
Summary of the relevant case law
[33]The following factors distilled from the case law, appear to be relevant here:
30 At [41]-[42].
31 At [29]-[33].
32 At [102] quoting Sinclair v Gavaghan [2007] EWHC 2256 (Ch).
(a)The hypothetical negotiation is a construct to identify a reasonable price that the defendant would pay for the use of the plaintiff’s property.
(b)The task is to identify the fee that would have been agreed, not what ought to be imposed.
(c)The notional licensee should be the party who is the main beneficiary of the breach.
(d)The parties are assumed to be willing, regardless of whether they would in fact have ever agreed to grant or take a licence.
(e)The parties are assumed to have their actual characteristics, but they must make reasonable use of their respective bargaining positions.
(f)The date of assessment is the date of commencement of infringement.
(g)The fact that the licensor would not have wished to assist a potential new competitor is relevant.
(h)Alternatives are relevant at least to the extent they were known at the time and are available on the facts before the Court.
(i)Events after the relevant date are irrelevant except to the extent they are the best reflection of what the parties would have known or thought at the relevant time.33 It is useful to look at the eventual outcome and consider whether or not that is a useful guide to what the parties would have thought at the time of their hypothetical bargain.
Assessment of licence fee
[34]The following three-step process is required:
33 This was a submission by Mr Skelton, with which I agree.
(a)To ascertain the total number of infringements. I take this to be the total number of cup assemblies manufactured by Napier for Geostel. (The Court of Appeal refers to the infringing cup assembly. The pleading, the evidence, and the defendants’ arguments largely proceeded on this basis. Mr Henry’s submissions referred to the production of the die and other one-off breaches, which I put to one side for present purposes.)
(b)To estimate the notional licence fee to be applied to each item.
(c)To fix loss by multiplying the number of infringing items by the notional licence fee.
Further facts relevant to licence fee
[35] The market for asparagus graders is, or was, a niche market. I accept the evidence of Mr Schwarz and Mr Caraccioli (a Californian asparagus grower who was not called for cross-examination) that as at mid-2001, Oraka had no active commercial competitor. Mr Daynes said he had seen another machine, but had not seen it working. Mr Beach, a software engineer who gave expert evidence for the defendants, said he had seen an alternative “GP Graders” machine, but it was before his time and so he did not know much about it. He had never been involved in the asparagus grading industry, which he described as a boutique market. It seems any other machine in operation in mid-2001 was a prototype or trial machine. According to Mr Schwarz, these trial machines were failing.
[36] As at 2001, the Oraka companies had sold over 50 graders in a number of countries around the world. While the earlier grader sales were made at low profit margins, the last few sales were understood to have been much more profitable. Under cross-examination, Mr Schwarz claimed he would have expected a 50 per cent profit margin on the Oraka grader.
[37] It seems to be common ground as at mid-2001, that there was still a very large potential market for asparagus graders, far greater than the sales already made. But commercial competition from Italy and elsewhere was looming.
[38] The second defendants were both very familiar with all the detail of the Oraka business, including the apparently improved profit margins, and considered they could do materially better than Oraka. In an email to Mr Robertson dated 12 November 2000, Mr Daynes says he understands that the two machines sold that year (apparently in Greece), had been reasonably profitable for Oraka.
[39] By mid-2001, Geostel had plans in place for Graders’ Hamilton manufacturer, Ziebe to make a machine very similar to, but in Geostel’s view, better than Graders’ machine, and for Napier to make cup assemblies for it, that were very similar to, but in Geostel’s view better than Graders’ cups.
[40] Geostel’s early sales were in Greece, California and the United Kingdom. Europe and the USA were the two big markets for asparagus. Geostel had two sales lined up to Greek customers by mid-2001.
[41] There was some uncertainty about the total number of machines sold by Geostel between mid-2001 and March 2009, with original evidence supplied by the defendants suggesting around 36, but in the end, it seems the number was more like 29, with the first machine being delivered to Geostel’s customer in about February 2002. Napier had started work on Geostel’s cup tool in about July 2001 and the first Geostel cups were supplied in about December 2001.
[42] Each Geostel grader was sold with 1,000 cup assemblies, broken down into 800 cup assemblies for the machine, and 200 spares.
[43] A cup assembly broadly consists of three "parts": the cup, chassis, and trigger/pins. The significance of the cup is it holds the asparagus spear without damaging the tip so that it can be safely carried through the grader.
[44] It is not possible to identify neatly the total number of cup assemblies manufactured by Napier for Geostel during the relevant period, as sometimes the components were sold separately, but Mr Hussey, who gave expert forensic accounting evidence for the defendants, treated the total number of components (225,013) as about 85,000 cup assembly equivalents and I adopt that figure. Twenty-nine machines
involved 29,000 cup assemblies. The other 56,000 cup assemblies were presumably replacement/spare parts.
[45] Napier’s price to Geostel was NZ$6.75 per cup assembly and Napier’s sales to Geostel totalled about $525,000 over the infringing period. Mr Hussey used these numbers to make his assessment of 85,000 cup assembly equivalents having been supplied to Geostel.
[46] Napier’s price of $6.75 per cup assembly included a “royalty” of $2.50 payable to Acracorp Ltd, referred to later.
[47] Geostel's average sales price per grader was $254,629. Geostel’s actual sales for the 2001-2009 period totalled about NZ$8.5 million. Its gross profit was $981,000 and final operating profit was $294,000.
[48] The spare cup assemblies (ie not supplied with the grader) were sold by Geostel at an average price of about NZ$23 each. Deducting the cost of $6.75, Geostel’s gross margin was NZ$16.25 per cup assembly. (Geostel’s actual pricing was in Euro or
$US, but Mr Hussey allows for exchange rate fluctuations to reach the average figure of NZ$23 and I work on that basis.) Mr Hussey’s evidence is that, after overheads of about 3.5 per cent, Geostel’s average long-term profit on the spare cup assemblies was about two-thirds of the sale price, being in excess of NZ$15 per cup assembly.
[49] There was of course no price as such on the 1,000 cup assemblies included in the Geostel machine, but there was expected to be a significant profit margin on each machine. It can fairly be assumed that the effective expected profit on the cup assemblies in the machine was at least the profit on the spare cups, if not very materially more.
The parties’ positions as to the notional licence fee
[50]The first plaintiff’s position is as follows:
(a)Where the cups are provided as part of the grader sale, the licence fee should be calculated at 50 per cent of the invoice price of the whole
grader. This is premised on the cup being a pivotal part of the grader, and Mr Schwarz’s evidence that the Oraka grader had a 50 per cent profit margin.
(b)Where the cups are sold as spare parts, the notional licence fee should be 75 per cent of the invoice price of the cup.
[51] Based on the above, the plaintiffs submit that the notional licence fee is a total of $5,009,691, as set out in calculations made by Mr Black, a chartered accountant who gave expert evidence for the plaintiffs. The first plaintiff further contends that the sum of $5.009 million is consistent with the loss of $4.1 million found to have been suffered by Graders as a result of the defendants’ infringements. (I note that the
$4.1 million sum allowed for interest over a significant period.) The first plaintiff says the question of Graders’ lost profits is a valid and important consideration in the present exercise.
[52] The defendants’ position, relying on expert evidence of Mr Yorke, a lawyer who specialises in intellectual property law, is that the licence fee should be based on either a small percentage (something between 3 and 10 per cent) of Geostel’s actual long-term pre-tax operating profit, or between 5 and 10 per cent of Napier’s expected profit from manufacture and sale of the cup assembly units to Geostel. They say that the total damages, based on Mr Hussey’s calculations, should be $33,800 if Geostel is the licensee, or nil if Napier is the licensee.
Analysis
Parties to the notional negotiation
[53]Clearly the notional licensor is Technologies.
[54] The plaintiffs and Geostel both proceed, or argue, on the basis that Geostel should be the notional licensee. Mr Skelton says the hypothetical negotiation would be between Technologies and Napier. He says further that, if the negotiation is with Geostel, then Napier has no liability, as Geostel then has a licence and Napier has not infringed. That is clearly incorrect. The exercise is a notional one for purposes of
assessing damages. It does not affect any defendant’s liability. Joint liability has already been established.
[55] In my view, the appropriate licensee for purposes of the notional negotiation is Geostel. Napier is in breach by manufacturing the cup assembly, but it is in effect a middle-man. It manufactured the cups for Geostel. Any licensing fee would ultimately be borne by Geostel. Mr Skelton acknowledges in his submissions that Napier would be passing on any licence fee to Geostel. In these circumstances, it seems to me that Napier’s profits, or otherwise, are not relevant. The question is, what would Geostel reasonably pay? This approach is consistent with the course adopted in Force India where the main beneficiary of the breach was treated as the notional licensee.34
[56] Similarly, although there was much cross-examination and submission as to whether Napier should also be a licensee or sub-licensee, for present purposes, I consider I should ignore that. I should proceed on the basis of one licence. That was the general thrust of the experts’ evidence and the approach adopted in the cases.
Date of assessment
[57] The assessment is to be made at the date of commencement of infringement. The Court of Appeal has already found this was in mid-2001 and I consider the assessment should be at approximately that date.
[58] Consistently with the Court of Appeal finding, the plaintiff pleaded in its particulars that the relevant date was 16 July 2001.
[59] However, Mr Henry argues that, although the original infringement or copying commenced before 16 July 2001, it was not complete until well into 2002. He said April 2002 should be treated as the date of commencement of infringement. This was for purposes of a later argument that Geostel was under particular time pressure in
34 See [435]. It may not make much difference because, even on the basis that Napier was the licensee, again based on the Court’s approach in Force India, the facts relevant to Geostel would still be relevant to the negotiation.
early 2002, and if this was the date of “negotiation”, it would raise the fee materially higher. The defendants of course oppose that submission.
[60] As I say, I consider the date of commencement of infringement has already been determined by the Court of Appeal and I am not going to revisit it. It also seems reasonably clear from the case law, and no counsel argues otherwise, that the notional negotiation date should be approximately the date infringement commenced.
Should the notional licence be exclusive?
[61] Geostel argues that the notional licence could be non-exclusive. Geostel could, for example, be allocated certain parts of the globe. However, that does not accord with reality. Geostel was clearly intending to operate on the world stage and to quickly supersede Graders.
[62] The first plaintiff submits that Geostel’s business plan was to destroy Graders, including by denigrating the Oraka grader and business. While there may be something in that, all that is relevant for present purposes is that Geostel was clearly in the market to compete head-on with Graders and indeed, as at mid-2001 had already obtained at least fairly firm orders from the Greek market where one of the second defendants had been or still was an agent for Graders. There was no indication Geostel intended to limit its sales area and every indication it expected to supersede Graders.
[63] As Newey J observed in 32Red, the hypothetical licence should be taken to have permitted the defendant to use the terms and conditions it in fact used.35
[64] It would follow that the notional negotiation would be on the basis of an exclusive licence.
Was Technologies in financial difficulties?
[65] Mr Glover points out that Technologies, which had not traded for some years, owed a debt to Kamber Electronics Company Ltd (a company owned by Mr Daynes),
35 At [54].
which he submits it had no means to pay. Kamber in fact obtained summary judgment on an unopposed basis against Technologies in around July 2001, the very point of the notional negotiation. Mr Glover says that, in the hypothetical negotiation, Kamber could have assigned its debt to Geostel, which would then be in a position to liquidate Technologies. This would significantly reduce, if not nullify, Technologies’ notional bargaining power.
[66] In that hypothetical scenario, Technologies would no doubt have disputed the debt, which Mr Schwarz said it had grounds to dispute, but chose not to. Further, Mr Glover’s argument ignores the fact that Technologies had a significant asset by way of the copyright which is the subject of this litigation. Even if Technologies were to be notionally liquidated, it would not follow that the copyright would fall into the hands of Geostel. Clearly Graders would have competed for the purchase of the copyright, or more likely been called on to pay a licence fee to enable the debt to be paid.
[67] It was argued that Graders was also in financial difficulty and Mr Schwarz was unwell, but one way or another Mr Schwarz had kept one company or another trading for many years and found the means to pay such debts as were pressing. I note that Mr Witham, a shareholder and director of Napier until 2015, confirmed that Graders was not in debt to Napier as at mid-2001. It is also relevant that points regarding Oraka’s financial difficulties (which clearly did exist) were not such as to preclude the earlier damages finding.
Was Geostel under urgency?
[68] The first plaintiff submits that, as at mid-2001 (and certainly as at early 2002), Geostel had to have an operating cup assembly immediately, to facilitate the taking and fulfilling of orders that would otherwise have gone to Oraka or been lost to Geostel. Mr Henry refers to Napier’s email of 16 July 2001, reporting to its parent,
TruTest. He says Geostel was funding itself by the deposits of the orders it had obtained from Greece and it was irrevocably committed to selling asparagus graders by 16 July 2001. Geostel was therefore very exposed because of a tight timeframe to meet committed orders, and would have had to pay a very high price.
[69] However, the 16 July 2001 email does not convey that Geostel was firmly committed to orders. The language in that email does not convey a binding commitment on the part of Geostel. It talks about the Greek agent (Mr Robertson) having secured orders and his explaining to Mr Witham “what he is endeavouring to do”. Mr Witham says, “I am reasonably happy that it can all work …”
Alternatives available to Technologies
[70] The central thrust of the first plaintiff’s argument is that Graders’ lost profit should be, if not the basis for the user claim, the justification for it. This is premised on the assertion that, by notionally agreeing to license the defendants, Graders accepts the loss of the total business. Put differently, the plaintiffs say the granting of a licence would be the effective transfer of the whole of the plaintiffs’ asparagus grading business to Geostel. The plaintiffs say the licence fee should be, at a minimum, Graders’ lost profit, which has already been assessed at $4.1 million, including interest.
[71] I accept as correct that the granting of a notional licence to Geostel would seriously undercut if not destroy Graders’ business and that would be known or reasonably foreseeable to the parties at the date of negotiation in mid-2001.
[72] However, the “negotiation” is between Technologies and Geostel, not Graders and Geostel. Technologies was not trading. I agree with the defendants that the focus has to be on what is a fair licence fee that the defendants would pay, not to be confused with a re-run of a loss of profit claim by the plaintiffs.
[73] In this connection however, it is of particular relevance that, as matters stood at the time of the notional negotiation, Graders had an (informal) exclusive licence from Technologies. Although Graders had not been paying for the licence, it would clearly be prepared to do so, and the licence fee would be materially affected by which
party would pay more, albeit that Graders has no chance of winning this particular negotiation.
[74] Although the discussion in the cases has been around alternatives for the licensees, this must equally apply to alternatives available to the licensor. The existence of a real alternative for the licensor is of particular significance in this case. It has not arisen on the facts of the other cases, although the language used, for example by the Court of Appeal in Force India, clearly extends to alternatives available to both parties.
[75] In terms of the competitive bid for the licence, Mr Henry would no doubt argue Graders would pay to Technologies its entire (lost) profits by way of a licence fee - therefore Geostel should pay at least that amount. That is not what a reasonable party in Graders’ position would do. That sort of approach hinges too much on the particular relationship between the Oraka companies, which I consider I should ignore for present purposes, to ensure that a reasonable approach is taken to the notional negotiation. Also, the negotiation is as at mid-2001, not 2009, being the date at which Graders’ lost profits were assessed. There would be a number of factors that come into play, not the least being uncertainty as to the future and financial instability.
[76] However, Graders would obviously have been prepared to pay a material licence fee to hold onto the exclusive licence for the cups.
Alternatives available to Geostel
[77] I have already accepted that a Court applying the user principle needs to weigh up the alternatives available to the infringer.
[78] Geostel says it had ready alternatives. First, Geostel says it could have designed around the cup. Secondly, given the copyright only applied in New Zealand, not overseas, the defendants say they could have manufactured the part very cheaply elsewhere, the focus of its argument being on China.
[79] The design-around argument relies on the evidence of Mr Beach of Compac Sorting Equipment. Mr Beach is an acknowledged expert in the design of grader machines, although he had no experience of asparagus graders.
[80] The defendants suggest that there were other machines using similar cups already in existence in 2001. I have found already any machines were prototype and while a few may have been in production, they were not actually on the market. There was no tenable evidence a similar cup was available and would have worked in the Geostel grader.
[81] Mr Beach says that, in any event, within a period of about seven months and at an estimated cost of about $225,000, he considers a cup could have been produced that fitted the Geostel grader, but did not infringe Technologies’ copyright. However, Napier, who were accepted to have both expertise and direct experience with the cup, seem to have taken from about July 2001 until after April 2002, under some pressure from Geostel, trying to design or redesign a cup for the Geostel grader to Geostel’s satisfaction. In the end, what Napier came up with infringed Technologies’ copyright.
[82] I agree with Mr Davies, who is the head of intellectual property at EverEdge Global (NZ) Ltd and gave expert evidence for the first plaintiff, that there could not be any guarantee of success at the end of Mr Beach’s seven-month design period, and I consider in any event that as at mid-2001 Geostel would not have wanted to wait that out and accept that uncertainty, or would have happily paid a licence fee to avoid doing so. That is illustrated by its exasperation with Napier. It would have been prepared to pay for what it would have considered at the time to be a proven product that would enable it to secure the immediate order stream it had already accessed. Mr Daynes said as much in a fax to Mr Hickey of Napier, dated 8 January 2002. He recorded: “The Oraka cup works fine and we would have used it, our problem being that we are not able to purchase this product”.
[83] It is also particularly relevant that the design-around alternative involved a large capital outlay in a short timeframe, capital which Geostel clearly did not have, whereas a licence fee involves a small outlay over a long period.
[84] I accept, however, that there would be a limit to the quantum of any fee, bearing in mind the alternative design route.
[85] I do not consider the argument that copyright could have been circumvented by manufacturing overseas, is viable. There was some vagueness as to which country was contemplated, with focus mainly on China. The part could not be manufactured in China and transported to New Zealand to complete the assembly of the machine, as the importation of it would breach the copyright. Geostel’s business plan (as indeed Oraka’s) was based on manufacture, pre-assembly and testing in one place before dismantling and export. It was therefore not realistic for a New Zealand-made machine and Chinese-made cups to be separately transported to the buyer and assembled there without prior testing, or for the New Zealand machine to be transported to China for assembly with the cups and then re-export.
[86] There was insufficient evidence for me to conclude that as at mid-2001, there was any realistic option other than for the cups to be manufactured in New Zealand. I note that was the manufacturing process followed throughout by the defendants. It did not, for example, seek to reduce its costs by manufacturing part of, or the whole machine elsewhere, although on the surface there would be significant cost-savings by doing so. In my view, Geostel did not do that because, like Graders, its assessment was that it would not work for a machine such as this.
[87] The plaintiffs relied also on the fact that Geostel did not move any part of production of the cup offshore even when faced with copyright proceedings. However, that may have been a tactical decision, and Geostel was faced with a stop order not long after the claim was made.
[88] To conclude, I proceed on the basis that the defendants were neither in a high-stress position, nor had strongly viable alternatives as at mid-2001, although the ability to design an alternative cup placed some curb on the licence fee that would be agreed by Geostel.
The importance of the cup to the grader
[89] As noted earlier, Technologies argues that the cup is so important, the fee for the cups sold in and with the grader, should be based on 50 per cent of the selling price of the grader, which for Geostel averaged $254,629.
[90] Mr Davies gave evidence for the first plaintiff that the notional licence fee should be based on both the machine and the cup. He did not venture a view as to the figure, but he was firm in his view that in a case such as this, the value of the grader itself was very material. He said, in the absence of an alternative, the cup was essential.
[91] Conversely, the defendants contend that the cup is of relatively low importance. They stress that the software was much more important. Mr Beach gave evidence to that effect.
[92] The software may well be important, likewise the balance of the machine may be, although no-one suggested so. That does not detract from the overall weight of the evidence that unlike in Force India, the cup assembly was a valuable part of the machine and in extensive use (including replacements). Inter alia, I accept Mr Davies’ evidence in that regard. His expertise was accepted by the defendants and I considered his evidence to be very measured.
[93] I have to reject, however, the concept of a fee based on the machine, which was the basis of Mr Henry’s argument. I understand that in some circumstances this might be a valid approach, but it is clearly disproportionate here. A machine sold for
$254,000 on average. The sales price of a cup assembly was $23. Furthermore, a reasonable person in Geostel’s shoes, if confronted with the approach of, or anything like the calculation made by the first plaintiff, clearly would not agree to pay it. Geostel would clearly prefer to find an alternative.
[94] In Force India, the Court rejected the plaintiff’s argument that the subject matter of the notional negotiation would have been the entire aerodynamic design of the Force India car, since it would mean that Aerolab would pay the same licence fee
regardless of the extent of any misuse. This was contrary to principle, authority and fairness.36
[95] However, I accept the evidence of Mr Davies that the importance of the cup assembly to the machine is still a significant factor in determining a fair fee. I accept that the licence fee would not be a simple matter of a small percentage of the cup assembly profit.
Should there be two licensing fees for cups sold with or without the machine?
[96] I do not consider I should assess two different fees for cups sold with or without the machine, as the first plaintiff argues. There is no sound basis for distinguishing cup assemblies based on how they were sold by Geostel. I agree with Mr Glover that there should be a single price used as the notional licence fee, given that the infringing act is the manufacture, not the sale. However, as I have already said, the fact that the cups were important to the machine is relevant in assessing that single fee.
Should the licence fee be calculated by reference to Geostel’s actual profits or by reference to anticipated profits?
[97] Mr Glover argues that Geostel’s declared profits, assessed at the end of the infringing period, should govern the fee. He says the starting point for the licence fee is the actual available profits of Geostel. He relies on Kohler Mira Limited v Bristan Group Limited37 and Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd.38
[98]I do not agree.
[99] It is not in contention that the relevant date for determining a fair fee is the date of commencement of infringement, being in the early days of Geostel’s venture, not at the end of the infringement period. What happens afterwards is relevant only to the extent it confirms the position at the outset. Napier’s submission was to that effect, and I agree with it.
36 At [436].
37 Kohler Mira Limited v Bristan Group Limited [2014] EWHC 1931 (IPEC).
38 Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd [2006] EWHC 1344 (Pat).
[100] In Kohler, Judge Hacon considered that looking at actual profits is a fall-back position where more compelling evidence is not available to determine what a notional licence fee might have been.39 In that unusual case that may be correct, as the Court has to find a fee from somewhere.
[101]The reasoning in Ultraframe is very brief and not clear.
[102] I do not consider either of these cases changes the position recorded above, which is that the exercise involves a hypothetical assessment at the commencement of infringement. In particular, this is not a case where there is no more compelling evidence than Geostel’s final profit figures: to the contrary.
[103] As at mid-2001, the second and third defendants were very optimistic about the profitability of their venture. That is why they went to the lengths they did. They had apparently been working on “going alone” for some months already. They expected to do far better than the plaintiffs were doing.
[104] An email from Mr Robertson to Mr Daynes on 14 November 2000 is illustrative. It read:
Thanks Paul, keep me up dated as I am very worried about the situation. It’s crazy to think that there are so many people wanting to buy machines and Mike is fucking the company. This man had gold in his hands and manages to turn it to shit. See you soon, try to keep some doors open as we may be able to go it alone.
[105] Geostel knew at mid-2001 that it had two orders in place. It is reasonable to assume, given it was using Oraka’s manufacturers for both the machine and the cup assembly, and was very familiar with the Oraka business, that it knew there was a high potential profit on each grader sale and that it would be prepared to pay a proportionately high, but still numerically small licence fee for the one part – the cup assembly.
[106] It knew at mid-2001 that the cost to it per cup assembly supplied by Napier was $6.75. Napier had supplied those costings to Mr Robertson, at the latest in an
39 At [55].
email of 26 July 2001, saying that all costs totalled in the email were based on Napier remaining the supplier for not less than five years.
[107] It was not disputed that Geostel would have contemplated a profit per cup assembly of about $15. Mr Hussey’s evidence was that Geostel would have been anticipating achieving a gross margin of around $16.25 per unit. Also, Geostel was familiar with Graders’ business and would have known the price at which Graders was supplying extra cup assemblies, or at least that there was a very substantial profit margin per cup assembly.
[108] I therefore do not consider the quantum of the licence fee is limited by the actual (very modest) final operating profit made by Geostel. That, like many other points, is a “benefit of hindsight” argument. As Mr Hussey said, presumably the business was a disappointment to its owners. That would appear to be borne out by the finding that Graders would have made a significant profit over that same period were it not for the defendants’ infringement. That also has to be put to one side, but if I were considering one “outcome”, I clearly would have to consider both. That would hardly assist the defendants.
[109] I proceed on the basis that Geostel would have considered, as at mid-2001, there would be ample room for a fee on the cups that was high relative to the value of the cup, the per cup cost being a very small item relative to the value of the machine. A licence fee would have seemed relatively inconsequential as a line item.
The snap-on chassis components
[110] Of the total 225,013 components manufactured by Napier and sold to Geostel, apparently there were 24,270 snap-on chassis units, which was a new design to the original chassis.
[111] The defendants say that the cup assemblies that incorporated the snap-on chassis, did not infringe copyright. I do not know how many cup assemblies did incorporate the new component, as these could have been sold separately. I do not have evidence that would enable me to safely make the distinction.
[112] Also, it is difficult to know the answer from reading the 2013 Court of Appeal judgment, but I consider the preferable answer is that the Court noted the different chassis, but did not draw a distinction in terms of breach of copyright.40
[113] I have proceeded on the basis that the snap-on chassis components make no difference to my assessment. I note also that Mr Skelton acknowledged this was not a significant point for the defendants.
The licence fee paid to AcraCorp/Andrew Armstrong
[114] It seems from Napier’s 2001 costings and Mr Hussey’s evidence that Napier’s selling price to Geostel of $6.75 per cup assembly incorporated a $2.50 “royalty” payable to a company called AcraCorp Ltd, owned by a Mr Armstrong who had acted as a go-between on the Geostel cup assembly design between Geostel and Napier. Mr Hussey’s evidence is that Napier paid the $2.50 royalty to AcraCorp until about 2005/2006. Mr Witham was unsure about what had happened in that regard or for how long any payment had been made.
[115] I understand the $2.50 fee was not a royalty on the cup, but I note the fact of the payment, because any licence fee reasonably payable to a copyright-holder of the cup would in my view exceed that level.
Does there need to be “apportionment” as argued for by the first and second defendants?
[116] Mr Glover argues that it is necessary to apportion the notional licence fee so it relates only to the extent that the defendants have infringed the first plaintiff’s rights and does not extend to sale of non-infringing aspects. He says the fee needs to reflect
40 Oraka Technologies Ltd v Geostel Vision Ltd [2013] NZCA 111 at [110]-[112].
the value of the property used, relying on Electroquip.41 I do not consider the point is relevant here. This is not a case of assessing a royalty for a machine and then looking at the part for which there is copyright, as applied in Electroquip, but rather the reverse.
Does the Court need to err on the side of under-compensating the plaintiff?
[117] Mr Glover also submits that the Court should “err on the side of under-compensation”, relying on SPE International Ltd v Professional Preparation Contractors (UK) Ltd.42 That was a case where the plaintiffs had failed to adduce sufficient evidence. Like Cull J in Eight Mile Style, I agree that, as a general rule, there should be no need to deliberately err in either direction. Especially in a case like this, the exercise is very hypothetical already.
Other issues
[118] Mr Henry submitted in opening that Technologies was entitled to damages in relation to a “springboard” period after the expiry of Technologies’ copyright. I see no basis for that and in any event, it is outside my jurisdiction as the matter has been remitted back to assess the notional licence fee for each infringing use, down “to the expiry of the first appellant’s copyright”. I need say no more about that and it did not seem to be a matter that the plaintiffs pressed in closing submissions.
[119] Mr Henry renewed an argument for a form of additional damages to be taken into account in the licence fee, which also is not open in that I declined to make any such award in my 2016 judgment.
Conclusion
[120] The most relevant factor in this negotiation is the known competition for an exclusive licence from the incumbent and operating licensee, Graders.
41 At [52].
42 SPE International Ltd v Professional Preparation Contractors (UK) Ltd [2002] EWHC 881 (Ch) at [87].
[121] It is reasonable to assume, as at mid-2001, that Graders would pay a significant licence fee to hold on to its business. Both Geostel and Graders would know that whoever held the licence would likely capture the business for the Oraka Grader. It would be entirely artificial to ignore Graders’ position. I have to consider all of the surrounding circumstances.
[122] It is also reasonable to assume that Geostel would pay a significant licence fee, given the cup assembly would be both the remaining key to its own business and likely eliminate Graders from the market.
[123] Equally, Geostel would not pay a sum that did not leave it still confident it would make a good profit.
[124]Anything other than an exclusive licence would not be realistic.
[125] Also relevant is that, although a small part, the cup assembly is important. This does not mean that I should approach the matter on the basis of the machine as a whole, but I accept nonetheless that the licence fee could be high in terms of a proportion of the profit on the part.
[126] It logically follows that I do not agree there should be any “apportionment” of the licence fee.
[127] I do not consider financial or time constraints in respect of either Technologies/Graders or Geostel are particularly material, although some time constraint issues do link back into Geostel’s available alternatives.
[128] I consider that as at mid-2001, Geostel did have alternatives open to it, but they were not particularly viable and it would have preferred to pay a reasonable licence fee to Technologies.
[129] I assess a reasonable licence fee to be $6.00 per cup assembly, which represents about 40 per cent of Geostel’s anticipated profit margin on the non-machine cup assemblies.
[130] I consider that, as at mid-2001, Geostel would have agreed to pay that amount and would not have considered that any alternatives were preferable. In terms of the two immediate machines, it would have meant an outlay of $12,000 by early 2002 at the latest (when the first graders were delivered), as compared to its next best alternative, which would have involved a payment of $225,000 within approximately the same time period.
[131] In this notional negotiation, I have to proceed on the basis that for the same reasons, and acting reasonably, Technologies would have accepted a licence fee of
$6.00 per cup assembly.
[132] The total licence fee for the 85,000 cup assemblies supplied over the period 2001 to 2009 is therefore $510,000.
[133] I do not consider the eventual outcome, either in terms of Geostel’s reported actual profit or Oraka’s assessed loss of profits, a useful guide to what the parties would have thought as at mid-2001. I am also not helped by rules such as the 25 per cent rule of thumb, about which Mr Yorke gave lengthy evidence. That “rule” is to the effect that 25 per cent of the long-term pre-tax operating profit from the sale of cup assemblies would be paid to the licensor as a royalty. All witnesses accepted it represented at best a fall-back position and at worst was of little utility, and I see no need to adopt a fall-back position. In any event, the operation of that “rule” when applied to the profit anticipated from the cup assembly, is not so very far removed from my assessment.
Result
[134]Judgment is entered against all defendants in favour of the first plaintiff for
$510,000.
[135] The first plaintiff is entitled to interest, noting that the breach commenced in 2001. I received detailed submissions on interest from the defendants, but not the first plaintiff. The first plaintiff is to file submissions on interest (addressing the points made by the defendants) by Friday, 4 May 2018 and the defendants to file brief submissions in reply by Friday, 11 May 2018.
[136] The first plaintiff is entitled to costs. Submissions from each party should accompany the submissions regarding interest.
[137] In terms of experts’ costs, I note the submission of Mr Skelton that Mr Black’s evidence was inadmissible in significant part as inter alia he did not provide reasons for his conclusions. The first plaintiff will need to address that point and whether costs should be payable.
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Hinton J
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