Sealegs International Limited v Zhang

[2017] NZHC 741

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-002256 [2017] NZHC 741

BETWEEN

SEALEGS INTERNATIONAL LIMITED

Plaintiff

AND

YUN ZHANG First Defendant

ORION LIMITED and ORION MARINE LIMITED

Second Defendants

SMUGGLER MARINE LIMITED Third Defendant

DARREN LEYBOURNE Fourth Defendant

GORDON LEE Fifth Defendant

VLADAN ZUBCIC Sixth Defendant contd: …/2

Hearing:	7 March 2017
Appearances:	B Henry and C J Woodroffe for Plaintiff P J K Spring and A K Hyde for First to Fourth and Sixth Defendants
Judgment:	13 April 2017

JUDGMENT OF GILBERT J

This judgment is delivered by me on 13 April 2017 at 10.30am pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Solicitors:           Woodroffe Law Partnership, Auckland

Keegan Alexander, Auckland

Counsel:            Brian Henry, Barrister, Auckland

SEALEGS INTERNATIONAL LTD v ZHANG [2017] NZHC 741 [13 April 2017]

ANDWARREN FARR Seventh Defendant

PAUL HOOD Eighth Defendant

DAVID PRINGLE and PAULINE PRINGLE

Proposed Ninth Defendants

STRYDA MARINE LIMITED Proposed Tenth Defendant

Introduction

[1]      Sealegs International Ltd claims that it owns copyright in various artistic works, being drawings and models which depict the components of an externally mounted and retractable three-wheel drive system for amphibious boats.   Sealegs’ system features a single front wheel that can be steered and two wheels at the rear, one mounted on the port side and the other on the starboard side of the transom of the boat.  Sealegs alleges that its copyright was breached by the defendants, some of whom were former employees, when developing, manufacturing and offering for sale a competing three-wheel drive system known as “S25-3WD”.

[2]      Apart  from  the  copyright  claims,  Sealegs  pursues  claims  for  breach  of  its registered design and for breach of confidential information.  A four-week trial has been allocated commencing on 25 September 2017 to determine Sealegs’ claims.

[3]      On  19  December  2016,  Peters  J  granted  Sealegs’ application  for  an  interim injunction restraining the first to fourth and sixth defendants   from “copying, issuing (whether by sale or otherwise), showing to the public or adapting the works numbered

1 to 68 inclusive annexed to the amended statement of claim dated 30 September 2016 and, in particular, from issuing (whether by sale or otherwise), showing to the public or adapting the product referred to herein as the S25-3WD or any similar product”.1

[4]      The first to fourth and sixth defendants (for convenience, I will refer to them collectively as “the defendants”) claim that the injunction was sought only in relation to the three-wheel drive system (S25-3WD) and did not extend to their four-wheel drive system (S25-4WD) even though this utilises the same rear wheel assemblies as the S25-

3WD.   Accordingly,  the defendants  seek  an  order varying the interim  injunction  to confine it to “the S25-3WD or any similar three-wheeled amphibious boat system made from substantially the same components as the S25-3WD”.   This will enable the defendants to manufacture and sell the S25-4WD system pending the outcome of the trial.  Sealegs opposes any variation to the interim injunction arguing that it was intended

to cover all components of the system, including the rear wheel assemblies.

1      Sealegs International Ltd v Orion Ltd [2016] NZHC 3143.

[5]      This judgment also deals with two other applications brought by Sealegs.   The first is to join David and Pauline Pringle as ninth defendants and Stryda Marine Ltd as the tenth defendant to the proceeding.  Sealegs alleges that Mr and Mrs Pringle, who are directors of the third defendant, Smuggler Marine Ltd, commissioned the second defendants to create infringing copies of Sealegs’ copyright works.  Stryda is owned by the first defendant, operated by the seventh defendant, and Sealegs alleges that it has purchased from the second defendants rear wheel assemblies covered by the injunction. The defendants oppose this application contending that Stryda purchased the S25-4WD system, not the S25-3WD system which they contend is the only system in issue in this proceeding, and that no proper basis has been established for joining Mr and Mrs Pringle.

[6]      Sealegs’ second application is for orders permitting specified persons to have access to an amphibious boat equipped with the S25-3WD system and to inspect design information stored by the second defendants on their computer system.  This is to enable Sealegs to identify all aspects of copyright infringement so that a fully particularised pleading can be prepared.  It will also enable its independent experts to complete briefs of evidence for the trial.   The defendants seek conditions to protect the confidential nature of this commercially sensitive information, taking into account that Sealegs is a competitor.

Should the interim injunction be varied?

[7]      The application to vary the interim injunction to confine it to the S25-3WD

system is based on the following assertions:

(a)      Sealegs  knew  of  the  second  defendants’  four-wheel  drive  S25-4WD system no later than April 2014 but only alleged copyright infringement in the development and sale of the three-wheel drive S25-3WD system;

(b)the interim injunction was accordingly intended only to restrain the defendants in respect of the S25-3WD system;

(c)      there has been a material change in circumstances in that Sealegs has, without notice to the Court or the defendants, purported to expand its claim  and  the  reach  of  the  interim  injunction  by  alleging  that  the

defendants are in contempt of court for selling the S25-4WD four-wheel drive system to Stryda; and

(d)if the injunction extends to the four-wheel drive system, the defendants will be left with no products to sell and will be forced out of business before the trial commences.

[8]      The normal rule is that a judgment of the Court must stand for better or worse unless it is appealed.  The defendants lodged an appeal against the judgment of Peters J but have abandoned it because they were unable to obtain a sufficiently early hearing date in the Court of Appeal.  In these circumstances, the Court can only re-visit the terms of the interim injunction if there has been a material change in circumstances since the order was made.  For the reasons that follow, I have concluded that there has not been any material change in circumstances and accordingly there is no justification for varying the terms of the order made by Peters J.

[9]      While the initial application for interim injunction focused primarily on the front wheel assembly and did not include reference to working drawings for the rear wheel assemblies, this changed before the hearing conducted by Peters J.

[10]     Sealegs filed an amended statement of claim dated 30 September 2016 increasing the number of working drawings in which it claims copyright from 22 to 68.   The additional drawings include drawings detailing each of the port and starboard rear wheel drive assemblies.   The body of the amended statement of claim also makes specific claims in relation to the port and starboard rear wheel assemblies.  For example Sealegs alleges:  (at  paragraph  11)  that  it  developed  an  amphibious  boat  with  key  features including “rear port and starboard powered wheels on hydraulic arms that [are] fully retractable from the water”; (at paragraph 18.3) that it owns copyright in “a retractable port rear wheel drive system either attached or unattached to the port stern of a boat”; (at paragraph 18.4) that it owns copyright in “a retractable starboard rear wheel drive system either attached or unattached to the starboard stern of a boat”; (at paragraph 19) that it owns copyright in the drawings and models shown on pages 1 to 68 annexed to the amended statement of claim; and (at paragraph 20) that the defendants have infringed copyright in respect of these artistic works, including “the front, port and starboard wheel

assemblies individually and in combination”.   Amongst other relief, Sealegs seeks a permanent injunction restraining the defendants from selling products that infringe copyright in any of the works shown in the drawings annexed to the statement of claim and numbered 1 to 68.

[11]      Sealegs also filed an amended application for interim injunction dated 7 October

2016  expanding the  scope of interim  relief  sought.   This  included  an  injunction  in relation to the “port rear assembly, attached to the amended statement of claim, pages 33 to 40” and the “starboard rear assembly, attached to the amended statement of claim pages 42 to 48”.

[12]     There can be no doubt that the defendants appreciated the significance of these changes.   Counsel then acting for them, Mr Johns, applied for an adjournment of the hearing of the interim injunction arguing that the amendments considerably increased the scope of the dispute because the number of drawings in respect of which Sealegs claimed copyright infringement had increased from 22 to 68.  The adjournment application was declined by Heath J in a judgment delivered on 18 October 2016.2

[13]     Moreover,  the  defendants’  counsel  specifically  addressed  Sealegs’  copyright claims in relation to the rear wheel assemblies in their submissions.   For example, at paragraph 14, they submitted that the Court needed to assess whether there was a serious question to be tried by comparing “Sealegs’  drawings (i.e. of its front and rear wheel assemblies and its component parts) and the [defendants’]  actual front and rear wheel assembly  and  its  actual  component  parts”  (emphasis  in  original).   At  paragraph 16, counsel  specifically  addressed  the  artistic  works  in  pages  38  to  40  and  46  to  48 describing these as “brackets and sub-components for mounting the rear wheel assemblies”.  Counsel drew attention to the differences between the defendants’ system and the Sealegs’ system for these rear wheel assemblies and provided references to the relevant evidence on this issue.

[14]     It is also clear that Peters J was persuaded that the injunction should extend to cover all of the works in which Sealegs asserts copyright as set out in drawings 1 to 68

attached to the amended statement of claim.  She recorded that she had made a visual

2      Sealegs International Ltd v Zhang [2016] NZHC 2274.

comparison between all 68 works and the images of the Orion system.3   Her formal order specifically covers all 68 works.4    It follows that Sealegs’ assertion that the injunction covers the port and starboard rear wheel assemblies is correct and does not amount to a change in circumstances.  The defendants’ application to vary the interim injunction must

accordingly be dismissed.

Should an order be made joining Mr and Mrs Pringle and Stryda Marine Ltd as defendants?

[15]     As noted, Mr and Mrs Pringle are the directors of the third defendant, Smuggler Marine Ltd.  Sealegs wishes to join them as defendants contending that they are jointly liable with Smuggler Marine Ltd for copyright infringement and breach of Sealegs’ registered design.  I accept that it is appropriate to join Mr and Mrs Pringle as defendants so that Sealegs’ claims against them can be heard in the one proceeding.  An order for joinder will not materially alter the scope of the proceeding and should not jeopardise the trial date.

[16]     I also consider that an order should be made joining Stryda Marine Ltd as a defendant.    The  defendants’ opposition  is  premised  on  the  incorrect  basis  that  the injunction was never intended to extend to the rear wheel assemblies.

Should Sealegs be permitted to have access to the allegedly infringing boat and computer data?

[17]     The  defendants  do  not  oppose  Sealegs’  application  to  inspect  the  allegedly infringing boat fitted with the S25-3WD amphibious system and the design information contained on the computer system so long as this is restricted to counsel and independent experts and is subject to conditions to protect the defendants’ allegedly confidential information.

Inspection of the boat

[18]     Sealegs  relies  on  rr  8.5  and  8.12  of the High  Court  Rules  in  support  of its application for an order permitting access to the allegedly infringing boat.   However,

3 At [30].

4 At [47].

these  rules  relate  to  discovery of  documents  and  do  not  apply.    The  boat  is  not  a document.  However, I will treat the application as having been brought in reliance on r 9.34  of  the  High  Court  Rules  which  empowers  the  Court  to  make orders  for  the inspection of any property.

[19]     The defendants accept that Sealegs’ representatives are likely to have already viewed the S25-3WD system attached to a Smuggler craft at the Auckland On Water Boat Show held in September 2016.  It is clearly desirable that they be permitted to inspect the system again with counsel and independent experts present so that they can prepare properly for the hearing.   It does not appear that the defendants seriously oppose this. However, Darren Leybourne, who is responsible for the day-to-day operations of Orion Marine Ltd, is opposed to Sealegs being permitted to dismantle the system or take it away because this would enable it to discover what he claims are the unique design features of the S25-3WD system.   I consider that this is a legitimate concern but the defendants have not, at this stage, specifically sought any order that would permit them to dismantle the system or take it away for further inspection so the issue does not arise. Accordingly, I consider that it is appropriate to grant Sealegs’ application on the terms sought.  Representatives of the defendants and their counsel shall be entitled to be present when the inspection takes place.

[20]     I record that the defendants are willing to dismantle the S25-3WD system so as to facilitate  inspection  by  Sealegs’ counsel  and  independent  experts  (but  not  Sealegs’ representatives) on condition that the dismantling is undertaken by a representative of the defendants  and  the  inspection  is  carried  out  on  specified  terms  to  protect  their confidential information.   These terms are set out in paragraph 3(f) of the defendants’ notice of opposition dated 10 February 2017.  While an order permitting the system to be dismantled is strictly outside the scope of Sealegs’ application, I consider that the terms and conditions proposed by the defendants are reasonable and should apply, at least on an interim basis, pending further order of the Court.

Inspection of computer data

[21]    The information contained on Orion’s computer systems will plainly include confidential material.  I accept the defendants’ submission that Sealegs’ representatives

should not be permitted to inspect this material.   In my view, Sealegs will be able to properly prepare for the trial if such inspection is limited to its counsel and independent experts.  I consider that the terms proposed by the defendants are reasonable and should apply pending any further order of the Court.

Result

[22]     The application to vary the interim injunction is dismissed.

[23]     I make an order pursuant to r 4.56 of the High Court Rules joining David and Pauline Pringle as ninth defendants and Stryda Marine Ltd as tenth defendant to the proceeding.

[24]     I make  an  order  pursuant  to  r  9.34  of  the  High  Court  Rules  permitting  the following persons to inspect the Smuggler boat with the S25-3WD system attached:

(a)       Counsel for Sealegs;

(b)      James Piper, patent attorney; (c)           Peter Allen, patent engineer;

(d)      Maurice Bryham, chief technology officer at Sealegs; (e)           David Wright, chief executive officer of Sealegs;

(f)       Mike Walters, research and development engineer at Sealegs; and

(g)      Brian Bellingham, independent expert.

[25]     Counsel for the defendants and a representative of the defendants shall be entitled to be present at all times during the inspection.

[26]     The following persons are permitted to inspect information stored in Orion’s computer aided design system known as “Solidworks”:

(a)       Counsel for Sealegs;

(b)      James Piper, patent attorney; and

(c)       Andrew Withell and Dr Alastair Nisbet, independent experts.

[27]     Such inspection is permitted on the terms and conditions set out in (g)(3)-(9) of the defendants’ notice of opposition dated 10 February 2017, pending further order of the Court.

[28]     Sealegs has successfully opposed the application to vary the injunction and is entitled to costs on that application calculated on a category 2 band B basis.

[29]     Sealegs has also succeeded on its joinder application and is entitled to 2B

costs on that application.

[30]     The defendants have succeeded overall on the inspection application because the real contest concerned the need to protect confidential information. Accordingly,

the defendants are entitled to costs on a 2B basis in respect of that application.

M A Gilbert J