Sealegs International Ltd v Zhang
[2018] NZHC 1724
•12 July 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-2256
[2018] NZHC 1724
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
CONT…
Hearing: 2, 3, 4, 5, 6, 9, 10, 11, 12, 13, 16, 17, 18, 19, 20, 24, 25, 26
October, 6, 7, 11, 12, 13 December 2017
Appearances:
B P Henry & C S L Foster for Plaintiff
P J K Spring & A K Hyde for first, second, third, fourth, sixth and ninth Defendants
Judgment:
12 July 2018
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 12 July 2018 at 4:30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Colin Woodroffe, Auckland Keegan Alexander, Auckland
SEALEGS INTERNATIONAL LTD v YUN ZHANG & ORS [2018] NZHC 1724 [12 July 2018]
AND
CONT…
VLADAN ZUBCIC
Sixth DefendantWARREN FARR
Seventh Defendant
DAVID PRINGLE AND PAULINE PRINGLE
Ninth Defendants
STRYDA MARINE LIMITED
Tenth Defendant
TABLE OF CONTENTS
Introduction [1]
Background [8]
Concept boat 1 [11]
Concept boat 2 [15]
First model – prototype boat 1 [18]
Mr Leybourne commences employment at Sealegs [24]
The Sealegs three-wheel drive system – Prototype boat 136 [29]
Project 100 [34]
Mr Leybourne resigns [37]
The Sealegs USB data stick [39]
Mr Zhang visits New Zealand and presents Mr Leybourne with a business proposition [44]
Orion is incorporated and the business established [53]
Mr Zubcic designs a wheel with an off-set rim [59]
Sealegs provides Orion with its detailed specifications [63]
Shanghai boat show in April 2014 [71]
SL100 project suspended [74]
Sealegs CEO photographs the Orion ARC600 craft [76]
Shanghai boat show in April 2015 [88]
Smuggler Marine’s use of the Sealegs system [98]
Mr Pringle approaches Orion [105]
Orion starts work on producing a three-wheel system for Smuggler [111]
Mr Pringle reports to Mr Leybourne [136]
Peter Allen visits Smuggler Marine – 7 September 2016 [148]
Sealegs commences proceedings and applies for interim injunctions [151]
The expert witnesses [155]
Dr Bruce Field [158]
Dr Shayne Gooch [163]
Mr David Dippie [168]
Mr Brian Bellingham [175]
Mr Peter Allen [179]
Law and relevant legal principles: Analysis and discussion [189]
Identifying the alleged copyright works [192]
Originality [198]
The plaintiff’s case regarding originality [208]
The defendants’ case regarding originality [212]
Analysis and discussion regarding originality [214]
Are the Sealegs prototypes or the CAD models the original expression of Mr
Bryham’s ideas? [220]
Ownership: Does the plaintiff own copyright in the three models? [226]
The plaintiff’s submissions [231]
The defendants’ response [234]
Analysis and discussion regarding ownership [235]
Infringement [246]
Objective similarity [250]
The parties’ submissions [253]
Functional constraints affecting design [259]
Objective similarity in the front leg assemblies on Orion S25-3WD
and Sealegs S60-3WD: analysis and discussion [262]
Objective similarity in the rear leg assemblies on Orion S25-3WD
and Sealegs S60-3WD: analysis and discussion [272]
Objective similarity between the Orion S25-4WD front leg assembly
and the Sealegs S60-3WD and SL100 [278]
Conclusions as to objective similarity [284]
Causality and derivation [286]
The plaintiff’s submissions as to causality [296]
The defendants’ submissions as to causality [311]
The issues [316]
Mr Leybourne and the USB data stick [319] Mr Zhang’s visit to New Zealand and the establishment of Orion [325] The Zubcic / Redpath conversation and its implications [332]
Opportunity to copy [338]
Was the Orion system developed by means of an independent design path? [341]
(i)The significance of the defendants’ conceptual design decisions [343]
(ii)The four-stage design process [356]
(iii)The defendants’ design path documentation and chronology [366]
(iv)Absence of documentation [377]
(v)Conclusion as to independent design path [388]
Functional constraints and their relevance [389]
(i)Submissions [390]
(ii)Analysis and discussion regarding functional constraints [395]
Substantiality [402]
The plaintiff’s submissions [410]
The defendants’ submissions [413]
Conclusions as to substantiality [418]
Summary and conclusions as to infringement of copyright [421]
Overview [421]
Conclusion as to alleged copyright infringement by first, second, fourth,
and sixth defendants [435]
Conclusion as to alleged copyright infringement by Smuggler Marine (third defendant) and David and Pauline Pringle (ninth defendants) [437]
Alleged copyright infringement by Stryda and its directors [448]
Relief [454]
Plaintiff ’s allegation of flagrant breach of copyright [454]
Design registration [463]
Submissions [463]
Analysis [465]
Result [472]
Costs [479]
Introduction
[1] The plaintiff, Sealegs International Ltd, manufactures amphibious kits for installation on small boats. These feature retractable legs that enable boats to be driven over land and into and out of the water. Once afloat, the legs are retracted entirely clear of the water so that they are positioned in front of the bow and at the stern of the boat. When returning to shore the retracted legs are again extended, and the craft may be driven out of the water and back up the beach or ramp. The powered wheels enable the craft to be driven at a moderate speed on land.
[2] The design and development of the Sealegs amphibious system was the work of Mr Maurice Bryham, who built and tested initial versions of his designs over a period of years commencing in 2000. Sealegs has since achieved commercial success using the core pattern or arrangement of components developed by Mr Bryham, having sold significant numbers of its amphibious craft in New Zealand and internationally.
[3] Orion Marine Limited was incorporated in 2012 to compete with Sealegs by developing amphibious leg kits for application on medium-sized runabout boats of the same size and type as those using the Sealegs amphibious system. Its business was established by the fourth defendant, Mr Darren Leybourne, a former employee of Sealegs, and the first defendant Mr Yun Zhang. Shortly afterwards the sixth defendant, Mr Vladan Zubcic, also left his employment at Sealegs and joined Orion Marine.
[4] Sealegs now alleges that Orion Marine Limited and the other defendants have infringed its copyright interests as the creator of original artistic works as expressed in three specified models of its craft, each of which are equipped with its amphibious retractable leg system. Sealegs claims that it owns copyright in the way in which it has combined and arranged the functional components of its retractable amphibious leg assembly. It says that the amphibious leg assembly constitutes a unique pattern of components, albeit using well-known engineering mechanisms and principles.
[5] On 19 December 2016 Sealegs was granted an interim injunction restraining Orion and the other defendants from doing any acts that would infringe Sealegs’ claimed copyright. Sealegs now seeks relief by way of a permanent injunction
restraining the defendants from manufacturing, displaying, offering for sale or selling copies of the plaintiff’s copyright works either in New Zealand or any other country until the expiry of its copyright interests. Sealegs also seek an inquiry as to damages or at its election an account of profits derived from the copying of its copyright pattern.
[6] There are ten defendants, although the plaintiff has discontinued proceedings against the fifth and eighth defendants. The first defendant, Mr Zhang, is the owner and director of the second defendants, Orion Limited and Orion Marine Limited. The third defendant is Smuggler Marine Limited, a boat-building company of which the ninth defendants (David and Pauline Pringle) are directors. The fourth, sixth and seventh defendants, (Darren Leybourne, Vladan Zubcic and Warren Farr respectively) are former employees of the plaintiff. The tenth defendant is a company, Stryda Marine Limited, of which Mr Zhang is the sole director.
[7] References to “the defendants” throughout this judgment should be taken as referring to the Orion defendants, namely Orion Ltd, Orion Marine Ltd, Mr Leybourne, Mr Zubcic and Mr Zhang. The specific liability of the remaining defendants will be addressed at the conclusion of the judgment.
Background
[8] As noted above, the Sealegs amphibious system was the work of Mr Maurice Bryham, now the Chief Technology Officer of Sealegs. Mr Bryham resided at a beachside location in Auckland and was inspired to design and construct a three- legged amphibious boat with supporting legs and powered wheels that could be manoeuvred while on land, driven from the beach into the water and the legs then retracted when the boat was afloat. Sealegs was incorporated on 5 October 2000, with Mr Bryham as its sole director and majority shareholder.
[9] Mr Bryham set out to design and construct a product that would appeal to the high end of the recreational boating market, and which would provide the convenience and safety of a boat that could be launched and returned to land without the occupants having to leave the craft. He explained in his evidence that while there are many different ways of attaching and retracting supporting legs fitted to the hull of a boat, his idea was to locate the legs and wheels, as well as the hydraulic actuator that would
power the extension and retraction of the legs, all entirely external of the hull. When retracted, the legs and their wheels would be elevated above the waterline so as not to compromise the hull’s hydrodynamic performance.
[10] Mr Bryham further explained that while other solutions might involve raising and lowering the wheels vertically, or incorporating a hinge to enable the legs to be folded and more compact when retracted, he decided to employ an extension/retraction movement of the front leg by attaching it to a pivot point located on the bow above the waterline, and extending and retracting it by means of a hydraulic-powered actuator lifting and rotating the leg through a semi-circular arc as it moved from a near vertical position when fully extended, up to its fully retracted position. When fully retracted into the up position, the wheel would sit in front of the bow and the tyre would act as a bumper to protect the hull from contact with a wharf or other craft. Similarly, the rear legs and their actuators would also be located on the outside of the hull. When extended or lifted by a hydraulic actuator, they would rotate around a pivot point located on the transom above the waterline, and when retracted they would be elevated above the waterline into an open position at the stern of the boat.
Concept boat 1
[11] Mr Bryham commenced his design project with the construction of his first boat and model which is conveniently described as “concept boat 1”. Mr Bryham constructed this boat entirely by himself. He purchased a 4.7 metre rigid-inflatable boat (RIB) and built wooden mock-ups of legs and wheels to create a pattern for the external legs and to work out the placement of the leg pivot points and actuator connection points on the hull, as well as the geometry of the movement they were required to perform in order to extend and retract externally of the boat. Having settled upon a system, he then had the pattern of his wooden mock-ups replicated by a stainless-steel fabricator. On this initial boat, the front and rear legs – which rotated around external pivot points – were manually lifted out of the water and the rear wheels were electrically driven. Mr Bryham considered several possible methods of steering the boat, including by means of driving and controlling the rear wheels independently. However, the solution he chose was to steer the front wheel by means of an external actuator which would turn the front wheel. Working in his garage at home, he himself
assembled the legs and attached the amphibious leg system onto the RIB he had purchased. He then tested the completed concept boat 1 by driving it from his garage to the nearby beach, and into and out of the water.
[12] After testing concept boat 1, Mr Bryham proceeded to improve and develop the design. From his test driving on the beach and from launching and returning to shore, he decided that the rather small wheels and tyres used on concept boat 1 should be replaced with larger and wider wheels and tyres with a larger diameter in order to reduce the ground pressure. He also decided to use tyres with a particularly well- defined and prominent tread pattern in order to improve traction over sand and beach terrain.
[13] During the design and development of concept boat 1, Mr Bryham and Sealegs engaged Pipers Patent Attorneys (Pipers), and on 17 December 2001 lodged a patent application for an invention described as “Motorised Retractable and Steerable Boat Wheel System”.
[14] Then on 23 December 2002, with the assistance of Pipers, Sealegs lodged a Design Registration with the New Zealand Intellectual Property Office (NZIPO). The design was registered by the NZIPO and published on 16 January 2003, and following subsequent renewals had a final expiry date of 23 December 2017. The design registration ‘Statement of Novelty’ stated that the novelty of the design resides in the shape and configuration of the boat as depicted in the accompanying representations, being computer-generated images which show the boat as having a retractable undercarriage system and which demonstrate both the wheels-up and wheels-down positions. The computer images show that when retracted, the front wheel is almost entirely concealed within a recessed cavity located at the bow between the inflatable pontoons. The computer images show the rear legs when retracted to be almost fully covered and enclosed within a recessed cavity at the rear of each of the pontoons.
Concept boat 2
[15] Mr Bryham and Sealegs then proceeded to further develop the design and system by means of “concept boat 2”. To provide the basis for concept boat 2, once again a standard RIB boat was purchased from its manufacturer for modification by
Sealegs. To assist in developing the initial design and the production of the second concept model, Sealegs and Mr Bryham engaged several businesses and consultants. Mr Thomas Gardiner of Fulcrum Solutions Ltd (Fulcrum) was engaged to produce computer-based engineering drawings of the various development pathways being considered and the amphibious legs and their associated fittings. Mr Leybourne, then the owner and principal of Central Hydraulic Services Ltd (Central Hydraulics), was engaged to provide advice regarding the hydraulic system required to power the actuators which would extend and retract the legs, and to power the hydraulic motors used to drive the rear wheels.
[16] During the early stages of the development of concept boat 2, Mr Bryham was advised by Fulcrum to dispense with his idea of rotating the front wheel forward and away from the bow, and instead retract it backwards towards the stern of the boat and into a recess created within the hull form. To demonstrate its proposed solution, Fulcrum had the hull recess built as a mock up. Mr Bryham, however, preferred his original concept boat 1 geometry with the front leg rotating forward, so that when fully retracted, the leg and wheel were positioned in the open directly in front of the bow. He then built his own mock up to demonstrate the forward pivot system he had earlier developed with concept boat 1, and which he preferred as being a simpler solution for both the front and rear legs by being fixed and functioning on the outside of the hull and without requiring any modification of the hull form to accommodate them.
[17] The concept boat 2 model had the hydraulic retraction system of the front leg located inside the hull. Part of the front wheel steering system was also contained inside the hull. The front wheel was secured by an inverted “U” shaped fork, and the rear legs were retractable by means of an external hydraulic lift cylinder. In the course of its development the system initially used electric motors to drive the wheels, then hydrostatic drive, then mechanical drive, before hydraulic power was finally selected to drive the wheels. The hydraulic drive system for the rear wheels used a hydraulic motor located inside the hull with chains running inside the rear legs, which had larger wheels and tyres with a more defined tread than had been used previously on concept boat 1.
First model – prototype boat 1
[18] With the lessons learned from the development and construction of concept boat 2, Sealegs and Mr Bryham then set about the design and construction of what was to become prototype boat 1. As had been the case with concept boat 2, once again Sealegs engaged a number of outside businesses and consultants to assist with the process, including Mr Gardiner of Fulcrum and Mr Leybourne of Central Hydraulics.
[19] In the course of developing the design of prototype boat 1, Mr Gardiner and his Fulcrum staff produced engineering drawings of alternative development pathways that could be adopted, including the partly internal steering arrangement used on concept boat 2. Mr Bryham decided, however, that the partly internal steering arrangement was too complicated as it required a number of additional mechanical parts to engage and disengage the steering mechanism when the front wheel was extended or retracted. He decided to revert to his original design as employed in concept boat 1, with both the front leg lifting actuator and the steering actuator located external to the hull, and with the rear leg lifting actuators also external to the hull. This arrangement was considered not only simpler, but also had the advantage that the legs and wheels were entirely clear of the water when retracted, without compromising the hydrodynamic qualities of the hull.
[20] Mr Bryham said in evidence that after discussions with the Fulcrum staff and consideration of a number of their drawings of his front leg and wheel design, he and Mr Gardiner sat together at Fulcrum’s design computer and prepared drawings to his specifications which were then entered into the SolidWorks CAD program1 to produce a series of computer-generated renderings, or images, of the design showing what a manufactured boat would look like. Sealegs then commissioned Metal Designs Auckland Ltd (Metal Designs) to prepare engineering drawings of the components required to construct the rear legs.
[21] Mr Bryham and Sealegs then engaged Metal Designs to construct the hull and the rear legs for prototype boat 1. Fulcrum was engaged to manufacture parts. The front leg and wheel assembly was manufactured by Gilbert Sheet Metals Ltd, which
1 CAD, computer-aided design.
was engaged and paid by Sealegs to construct the front leg in accordance with the engineering drawings prepared by Fulcrum to Mr Bryham’s design.
[22] Mr Leybourne and Central Hydraulics were also engaged by Sealegs to provide advice regarding the hydraulic system. The hydraulic cylinders or actuators were ordered by Mr Bryham and built by Victor Hydraulics for Sealegs. The plaintiff produced invoices from the consultants it engaged and Mr Bryham explained in his evidence that all of the parties engaged and commissioned by Sealegs were paid for their work, and in each case they designed or built pursuant to his instructions and specifications.
[23] Prototype boat 1 was approved for production in late 2003 to early 2004, and the retractable leg assembly developed for prototype boat 1 was known as “System 40”. Production drawings were subsequently prepared based on the prototype model, with the first production boat sold on 30 April 2004. As already noted, the initial design of the front leg had the wheel secured in an inverted U-shaped fork. The U- shaped fork was found to be subject to bearing and shaft failure and, because it used a different wheel from that on the rear legs, it also meant that a boat owner would need to have two different wheels for use as spares. Mr Bryham also wanted to produce a more aesthetically pleasing and sculpted look for the front leg, and decided that an inverted L-shaped single arm with a rectangular cross-section design would be an improvement. An engineering company was engaged to construct a prototype of this new front fork and once approved, production drawings of the new fork were commissioned by Sealegs. The new inverted L-shaped fork was brought into production and became a feature of all Sealegs boats sold from 5 September 2005.
Mr Leybourne commences employment at Sealegs
[24] In April 2004 Mr Leybourne commenced employment at Sealegs. He had earlier that year sold his hydraulics business in which he was principally involved in the servicing and repair of existing hydraulic systems, including marine-based systems. As I have already noted, he had been engaged by Sealegs during the period between 2002 and 2004, through his company Central Hydraulics, to make and supply hydraulic components and to provide technical consultant services relating to the
hydraulics to be used by Sealegs for extending and retracting the amphibious legs and for driving the rear wheels on concept boat 2 and prototype boat 1. Upon commencing employment with Sealegs, Mr Leybourne was initially engaged in a mechanical fitting role where he was involved with the construction of Sealegs boats. Subsequently, between 2004 and 2006, he also became involved in the repair and servicing of Sealegs boats within New Zealand and overseas.
[25] Around 2006 Mr Leybourne’s work at Sealegs shifted from day-to-day operational work to that of project management. This included managing the establishment of an in-house hull fabrication process, which was a significant undertaking that involved the creation of a new business unit, the leasing of premises, significant capital expenditure on equipment, and the recruitment of staff, as well as the establishment of new operational procedures and systems. Once Mr Leybourne had successfully completed this project he ceased involvement in its day-to-day operational management, while still maintaining a supervisory role. In 2009, following staff redundancies at Sealegs that resulted in a number of key operational staff leaving the company, Mr Leybourne resumed his responsibilities for day-to-day management of the hull fabrication operation.
[26] In mid-2010 Sealegs decided to bring the manufacture of machined components in-house. Mr Leybourne was given the role of managing the establishment of this new operation, which once again required Mr Leybourne to oversee and manage significant capital expenditure, the recruitment of staff, and the establishment of new systems and procedures. In the course of this project, Mr Leybourne worked closely with Mr Zubcic, who had commenced his employment at Sealegs as a mechanical and design engineer in February 2008. Once these projects had established in-house manufacturing operations and capability, Mr Leybourne and Mr Zubcic recommended the purchase and use of a computer-based material requirements planning (MRP) programme to more efficiently control and manage the production operation. Once again, the establishment of the MRP system was undertaken and managed by Mr Leybourne, and it produced significant benefits in terms of monitoring production capacity and planning.
[27] Mr Leybourne explained in his evidence that although he was a hydraulic specialist, hydraulics-related work was only a small part of the Sealegs business, and comprised only a small part of his work at Sealegs. Over time, his project management and operational management responsibilities expanded and he eventually became responsible for the on-going management of approximately 28 staff.
[28] Throughout his employment at Sealegs, Mr Leybourne was frequently critical of decisions made by Sealegs senior management and often raised his concerns in a forthright and outspoken manner. He frequently commented on what he considered to be manufacturing faults and defects, and about what he saw as being a general lack of quality control and assurance in the production of the boats. He was especially critical of Sealegs for selling boats intended for use for commercial applications, as he considered the boats and their amphibious systems had neither been designed nor proven suitable for such purposes.
The Sealegs three-wheel drive system – Prototype boat 136
[29] Around August 2009, Sealegs decided to develop and introduce a three-wheel drive system by adding drive power to the wheel of the front leg. Mr Leybourne was asked by management to take responsibility for this project. He strongly resisted being assigned to the project, saying that he had made a “unique” contribution to the success of Sealegs in his existing role where he was engaged in the fabrication of the boats. He also considered that the production of quality hulls needed to be prioritised over the creation of a three-wheel drive system. In a lengthy email sent to Mr Bryham and Mr McKee-Wright2 on 4 August 2009, Mr Leybourne wrote:
Why build a three wheel drive system when our main fuel tanks have potential leaks, our aux fuel tanks do not fabricate square, the fuel overflow boxes are custom fitted each time, or, when we employee [sic] a new fabricator he builds the hull 12 mm to [sic] long or welds on the wrong leg brackets because we do not have the build manuals, or, or, or.
You want me to walk away from continuing to set up fabrication, driving quality, improving output to build three wheel drive?
Is Sealegs suffering because we cannot build a three wheel drive boat? Not from what I can see. Production capacity restraint seems to be a bigger challenge to overcome.
2 Mr McKee-Wright was Sealegs’ CEO.
Will we suffer if we cannot produce a sufficient quantity of quality hulls? YES we will.
Interesting how the fabrication facility with all the cool stuff, router, press brake, CAD etc has become one of our most powerful sales tools.
…
Why else am I unique, because I have a vision for Sealegs that many others dont [sic]. I continue to see new ideas, new products, and new ways of doing. These I believe have considerable potential to continue to make Sealegs product a world beater.
My dossier on these products is great. Most others simply pass by these new ideas without giving any thought to how much better they can make the Sealegs product.
…
So in summary, I quote from todays [sic] meeting we have reached an impasse because I am being asked to stop doing the job that I was asked to do because there was nobody else available after the last round of redundancies, a job that I have made significant head way into, a job that I am enjoying, a job that I have been acknowledged as doing well.
…
It is madness to have an individual of my calibre being put is [sic] this position. The last 12 months have been very stressful this now just adds to the stress and anxiety.
…
[30] Despite his initial opposition, Mr Leybourne relented and became involved in Sealegs’ development of a three-wheel drive system with a powered wheel on the front leg. Mr Leybourne’s work related particularly to the hydraulic functioning and controls. The three-wheel drive system became known as ‘Prototype boat 136’ and was a three-wheel drive version of the standard Sealegs production boat. It was subsequently released to the market in 2010. The introduction of power to the front wheel meant that as the craft transitioned from floating to being supported on its legs, the craft would be drawn by the front wheel when it made contact with the beach or ramp, instead of being pushed by the outboard motor until the rear driving wheels had made sufficient contact with the ground to gain traction and provide forward motion.
[31] The introduction of a hydraulic hub motor to power the front wheel required redevelopment of the hydraulic system and its controls. Mr Leybourne was involved in the design and development of the hydraulic system. Sealegs also engaged the firm
Hydraulic Cartridge Valves Ltd (HCV) to assist with the system design. In his evidence Mr Leybourne said that his involvement was in the nature of project management and that he had suggested that Sealegs engage HCV to design the hydraulic circuit and supply the valves.
[32] A new differential lock system and a redesigned front steering arm were further modifications that were introduced on prototype boat 136. Apart from those features, prototype boat 136 was substantially the same as prototype boat 1. It was called prototype boat 136 because the boat used as the basis for development of the prototype was Sealegs’ 136th production boat.
[33] Prototype boat 136 was constructed in-house by Sealegs, as by 2010 the company had established its own fabrication and assembly workshop. Once testing of the prototype was completed, prototype boat 136 was approved for production, and production drawings were thereafter prepared by Sealegs’ own engineering and computer design staff, principally Mr Zubcic. Once in production, the three-wheel drive system was called “System 60” and became an option for customers to purchase. It proved very popular, and the fiftieth “System 60” was sold on 31 May 2011.
Project 100
[34] In mid-2010 Sealegs initiated a project to develop a new heavy-lift Sealegs system for use on larger craft. The first phase of this project became known as “Project 100”. The objective was to upscale the existing System 40 and develop a system that would support an amphibious craft weighing 5000kg with a length of around nine metres. Initially, Sealegs recruited a team of design engineers to specifically undertake Project 100. Mr Paul Hood and Mr Anthony Wraight were the principal design engineers and they were assisted by Mr Andrew Percival.
[35] Mr Percival is a qualified engineer who had previously operated an engineering manufacturing business called Allied Precision Engineering (1992) Ltd (APEL). From around 2003, APEL had been engaged by Sealegs to manufacture component parts, and Mr Percival had redesigned and made parts required for Prototype 1 and Prototype Boat 136. In 2010 he sold APEL’s assets to Sealegs; his machinery was
then relocated and set up at Sealegs’ factory, and he commenced working for Sealegs as an employee.
[36] Because of his hydraulics expertise Mr Leybourne also became involved in Project 100. He undertook the calculations of the hydraulic requirements and specifications for the proposed 5000kg craft weight. These calculations dictated the choice of hydraulic components and those choices in turn dictated aspects of the design of the functional leg assemblies’ components. Mr Hood and Mr Wraight directed the manufacture of the prototype leg assemblies which were fitted to a test platform known as the “the barge”. In around July 2011, Project 100 was suspended because of funding issues, and Mr Hood and Mr Wraight were made redundant and left Sealegs.
Mr Leybourne resigns
[37] By email dated 31 May 2011, Mr Leybourne notified Mr Bryham of his resignation. He explained that he had made his decision to resign following the announcement of a new reporting structure for the upper level of Sealegs management which would have him reporting to the Operations Manager and not directly to the new CEO who was to be based in Hong Kong. He said that he had some flexibility before taking up new employment and was happy to negotiate his final date at Sealegs. In his evidence Mr Leybourne explained that he was unhappy at Sealegs for a number of other reasons relating to the senior management of the company, and that when confronted with the new reporting structure it was the “last straw” and he had made “a bit of an impulse decision to resign on the spot.”
[38] A short time after handing in his resignation, and after Mr Hood and Mr Wraight had already left the company, Mr Leybourne was asked to finish Project 100 with the assistance of Mr Percival and Mr Warren Farr (the seventh defendant) before he left Sealegs. As a result, Mr Leybourne became involved in managing the construction of the barge, and the installation of the Project 100 amphibious leg assembly system onto it, and he was present when it was first launched in November 2011 shortly before his last day at the company on 30 November 2011.
The Sealegs USB data stick
[39] Mr David Redpath is employed at Sealegs as a Production Safety Manager and was called as a witness by the plaintiff. In 2011 he was working as a Machining Manager reporting to Mr Leybourne. He said that in the weeks before Mr Leybourne left the company, he had told him a “bizarre story” about having been given a Sealegs USB stick that had been found by a friend of his on a beach near Dunedin. Mr Redpath said that Mr Leybourne told him that a friend of his had found the USB stick while walking on a Dunedin beach, and had given it to Mr Leybourne as it contained Sealegs files. Mr Redpath said that Mr Leybourne said that he was downloading the stick onto his computer at home, and that it contained “everything including financials”.
[40] Mr Redpath said that he considered the finding of the USB stick as indicating there had been a serious security breach, and that he had commented to Mr Leybourne at the time that he thought someone would lose their job at Sealegs because of it. He said that Mr Leybourne had said it would not be possible to find out who had downloaded the information onto the data stick. Mr Redpath said that he had also commented to Mr Leybourne that there were only three or four people in the company who would have access to the information.
[41] Mr Redpath said that although he considered the matter as representing a very serious security breach by someone with access to the inner security files held in the Sealegs computer system, he himself did not report this information to anyone as Mr Leybourne was his “boss”, and he expected that Mr Leybourne would himself raise the matter with the senior executives of the company.
[42] Mr Leybourne in his evidence disputed Mr Redpath’s account of the conversation. He denies having told Mr Redpath that the USB stick had “everything including financials” on it, or that he had said that he was downloading the stick onto his computer at home. Mr Leybourne said in his evidence that he was telephoned by a friend of his, Mr Rod Nicol, who had previously done some building work for Sealegs and who knew that he worked there. He said that Mr Nicol told him that he had been in Dunedin and had found the Sealegs USB stick while walking along a beach. Mr Leybourne said that he did not remember whether the USB stick had
Sealegs’ name on it or whether Mr Nicol had opened it on a computer and had seen it contained Sealegs information. Mr Leybourne said that after Mr Nicol gave him the data stick, he would have checked what was on it using a company computer, and saw that it had pdf drawings of the Sealegs parts at that time. Mr Leybourne said that he could not recall precisely what he had done with the data stick, but suggested he had given it to “one of the CAD guys”. He said that so far as he was concerned it was a “non-issue”.
[43] Mr Rodney Nicol, who is a building contractor in Auckland, gave evidence for the defendants by means of a signed witness statement. He was not required by the plaintiff to give evidence in person or be cross-examined. In his statement he said that as a result of an introduction by his friend Mr Leybourne, he had undertaken building work at Sealegs. He said that when in Dunedin with his wife in October 2011, he had found a USB stick while walking along a beach. He said that he picked it up and saw that it had something on it which said Sealegs. He said after he returned to Auckland, he contacted Mr Leybourne, told him the story and dropped the USB stick off to him.
Mr Zhang visits New Zealand and presents Mr Leybourne with a business proposition
[44] Mr Leybourne said in evidence that at the time of his resignation and departure from Sealegs on 30 November 2011, he had no plans for any other employment, and had decided that he would take some time off work for a while and see how he felt after that. However, he says that he did undertake some contract work for hydraulics companies in New Zealand and Australia doing hydraulic system repairs and installations of the kind he had been involved with before joining Sealegs.
[45] Mr Leybourne says that once back working in hydraulics, his knowledge of the field was updated, and he started seeing where the industry was going and saw ideas that could be applied to other amphibious systems. He said that he was particularly impressed with the evolution of hydraulic controls and thought there were some great ideas and new concepts that could be applied to amphibious systems, and this sparked his thinking. However, despite undertaking research and considering the possible applications of hydraulic controls and equipment in amphibious system applications,
Mr Leybourne says that he had no intention of setting out to create a new amphibious system himself at that time.
[46] Then in mid-2012 Mr Leybourne says he received a surprise visit to his home from Mr Zhang. Between 2003 and 2007, when Mr Zhang was a student, he had lived with Mr Leybourne and his family on a homestay basis. After Mr Zhang returned to China they had maintained contact. Mr Leybourne said that Mr Zhang had travelled to Auckland from China accompanied by his wife and their young child, but until their unannounced arrival at the Leybourne residence, Mr Leybourne says he had no idea that Mr Zhang was even in New Zealand. Although he says he can remember the visit “vividly”, Mr Leybourne is unable to be specific as to the date or even the month of Mr Zhang’s visit. He says the visit was a big surprise and took place on a Friday night in the middle of winter, “possibly May, June in 2012.”
[47] Mr Leybourne says that Mr Zhang explained to him that he and his wife had come for a week to see if she would like New Zealand as a place to live. Mr Zhang said that if they decided to move to New Zealand, they would do so under the immigration entrepreneurial scheme and would establish a business which would employ a number of people. Mr Leybourne says that Mr Zhang then asked him if he would like to go into business with him. Mr Leybourne says that he suggested to Mr Zhang that he and his wife should proceed with their trip first, and then come back and see him again in a week. If they had decided to apply for residence in New Zealand, they could discuss the matter of starting a business together further.
[48] Mr Leybourne says that a week later Mr Zhang and his wife returned and said that they had decided to apply for New Zealand residence and that Mr Zhang wanted to involve Mr Leybourne in establishing a new business. Mr Leybourne says that no decision was made during Mr Zhang’s visit to New Zealand as to what type of business they would go into, and after Mr Zhang and his wife had returned to China they had initially considered exporting milk powder and Manuka honey to China. Mr Leybourne says although in hindsight it was an obvious choice, he cannot remember when the idea of an amphibious boat business came up. He said that he had seen that Sealegs had been enjoying a monopoly in the amphibious boat market and thought that he could do better than they were doing.
[49] Mr Zhang gave his evidence by way of video link from China. He gave his evidence in capable English without the need for any assistance from an interpreter. He confirmed that he is the sole director and shareholder of both Orion Marine Limited and Orion Limited, and the sole director of the tenth defendant, Stryda Marine Limited (Stryda). He said that he and his family moved to New Zealand in 2015 and that he obtained permanent residency in January 2017.
[50] Mr Zhang explained that he was born in China and had lived and studied in New Zealand from 2002 (when aged 18) until April 2007, and had lived with Mr Leybourne and his family from 2003 until his return to China. He said that since 2008 he had been a director of one his family’s companies called Jiangyin Rongxing Technology Development Co Ltd (JRTD), which was started in 2001 and which currently manufactures and markets amphibious craft in China as “Surfcon”. He said he came to New Zealand to talk to Mr Leybourne about business opportunities, and that it was Mr Leybourne who had suggested that they establish an amphibious boat business.
[51] Consistently with Mr Leybourne’s account, Mr Zhang said that he and his wife and son came to New Zealand during the winter of 2012 and met with Mr Leybourne. However, contrary to Mr Leybourne’s account, Mr Zhang says that he only met with Mr Leybourne once during that visit. He said that he did not really talk about business with Mr Leybourne other than saying he was looking for business opportunities outside China and that maybe they could work together.
[52] Mr Zhang was unable to specify or confirm the date or year of his visit to New Zealand when he came and met Mr Leybourne to discuss going into business. He said that he had renewed his Chinese passport in 2016, and could not find his previous passport, explaining that he had moved house twice in the time since that visit to New Zealand. He said that he had come to New Zealand in 2009 for a brief visit but had not been back in New Zealand again until his visit in 2012 when he met with Mr Leybourne.
Orion is incorporated and the business established
[53] On 28 September 2012, Orion Marine Limited was incorporated. Mr Zhang provided the funding and Mr Leybourne was responsible for locating and arranging to lease premises and the purchase of plant and equipment for the manufacture of components. Mr Leybourne explained in his evidence that there was never any concealment of the intention to set up Orion to design and manufacture a new amphibious system. As part of the planning for the establishment of Orion, Mr Leybourne had spoken to Mr Zubcic and offered him employment at Orion. Mr Zubcic agreed and he resigned from Sealegs effective from 2 February 2013 and straightaway commenced employment at Orion.
[54] In early 2013 Mr Bryham, who by then knew that Mr Leybourne was setting up the new business, contacted Mr Leybourne and said that Sealegs would like to be Orion’s first customer. He said that Sealegs wanted to engage Orion to assist with the completion of projects such as S60 SE, which was based on using a single engine for both marine and land power, and with System 100 (SL100) which had previously been called Project 100.
[55] Mr Leybourne and Orion agreed, and Sealegs’ terms of engagement with Orion in relation to SL100 were set out in a detailed written design brief which was negotiated during March 2013 and dated 9 April 2013. The design brief stated that Orion was to design, manufacture, install and validate an amphibious system suitable for craft up to 6000kg gross vehicle mass (GVM) and stipulated that SL100 geometry is based on the existing SL40. At Sealegs’ request the design brief further provided that:
The intellectual property of all proprietary components that are designed as part of SL100 shall be the sole ownership of Sealegs Corporation Ltd.
[56] In addition to the design brief, Orion required Sealegs to complete an account application form and provided Sealegs with its written “Terms of Trade” which stated:
These Terms apply to every supply of Goods and Services made by Orion to the Customer. By placing an Order with Orion, the Customer agrees that it is bound by these Terms and that the Customer’s own terms and conditions do not apply. These Terms may be modified by Orion’s specific terms in a Quote or Order.
…
Nothing in this agreement will be construed as transferring to the Customer any intellectual property of Orion (including in relation to any designs, manuals, drawings, or other materials or information provided to the Customer).
[57] When Mr Leybourne for Orion accepted Sealegs’ engagement to work on SL100, he realised that Orion would not have the engineering and design resources sufficient to develop its own amphibious system while also undertaking the SL100 project. Mr Zubcic was to be responsible for the design engineering of Orion’s new amphibious system project, and so Mr Leybourne employed Mr Percival to take on the design engineering for SL100. Recognising the conflicting interests of Orion and Sealegs, Mr Leybourne organised for Mr Zubcic and Mr Percival to occupy separate offices, while he “floated between both projects”.
[58] Because of the increase of the GVM from the 5000kg applicable to the Project 100 barge to the 6000kg GVM for SL100, the engineering design process had to start again from scratch. This applied not only to the hydraulic calculations undertaken by Mr Leybourne, but also to all the components that Mr Percival was required to design for SL100. In terms of the appearance of the leg assemblies, Mr Bryham wanted the design to maintain the existing curved form of the existing Sealegs assemblies. While Mr Percival was the principal design engineer during the early phase of SL100’s development, he did not have the expertise necessary to run the FEA (finite element analysis) computer simulation system which was used to analyse the strength of designed components. Consequently Mr Zubcic operated and ran the FEA of Mr Percival’s component designs during 2013, and in doing so inevitably became familiar with the SL100 components that Mr Percival had designed.
Mr Zubcic designs a wheel with an off-set rim
[59] Mr Zubcic said in evidence that one of the first things he did at Orion to commence the design and development of Orion’s amphibious system was to prepare some sketches of a wheel with an off-set rim. An off-set rim would allow a hub motor to sit substantially within the wheel, and thereby direct the effects of weight and force upon the motor to the optimal position as dictated by the motor manufacturer, compared to the sub-optimal location of weight and forces upon a motor connected to
a standard centre rim wheel. On 22 March 2013 Mr Zubcic created a computer sketch of an off-set rim wheel in the Orion SolidWorks computer programme. On 16 May 2013, Mr Zubcic sent an email to Mr Zhang attaching a copy of an off-set rim wheel, commenting that although the drawing was not fully defined, it had enough information for pricing. Mr Zhang responded to Mr Zubcic in an email sent on 21 May 2013, enquiring whether Mr Zubcic had asked Mr Bryham about the rim. Mr Zubcic replied that he had not yet done so.
[60] On 5 July 2013, Mr Zubcic sent an email to Mr Bryham attaching six computer sketches of off-set wheels. In his email Mr Zubcic referred to one of the sketches and asked Mr Bryham what he thought of it. Mr Bryham responded almost straight away to Mr Zubcic in an email saying that the sketch looked great, and made some suggestions for minor improvements.
[61] Mr Zubcic stated in evidence that he had sent the six off-set wheel designs to Mr Bryham because Mr Bryham knew he was working on designing a new wheel rim. He explained that over the preceding period, Mr Bryham had often called in to the Orion office to discuss and review drafting and machining work that Mr Zubcic was doing for him on other unrelated projects. Mr Zubcic said that he and Mr Bryham were friends at that time, and that he and Mr Bryham would discuss what he was working on. From these conversations Mr Zubcic says that Mr Bryham knew that he was working on the design of a new wheel rim for Orion’s own new amphibious system. Mr Zubcic says that the issue of copying never arose, because Mr Bryham knew he was developing his own design.
[62] Mr Zubcic did not explain why Mr Zhang had asked him whether he had asked Mr Bryham about the rim, or why Mr Bryham’s view of the rim was at all relevant to what he was doing in designing a new wheel rim for a new Orion amphibious system. I note too that Mr Bryham’s comments in his email of 5 July 2013 regarding one of the computer sketches Mr Zubcic sent to him appear to be more consistent with those of a client commenting on their own design preferences, rather than what might be expected of someone in the position that Mr Zubcic says Mr Bryham was in. It is also clear that at the time of this email correspondence regarding the new wheel rim, Orion was well underway working on the Sealegs System 100 project.
Sealegs provides Orion with its detailed specifications
[63] In an email sent by Mr Leybourne to Mr Bryham on 15 May 2013, he asked Mr Bryham to call in to Orion the following day to discuss the SL100 front assembly with Mr Percival. Mr Bryham agreed and a time was arranged. The following day Mr Leybourne sent an email to Mr Bryham saying:
We are debating the method of determining the force required to steer SL100. We want to validate our thinking against a current Sealegs. Can we pick up a Sealegs and bring [it] back to Orion for testing?
[64] As a result of the request, arrangements were made for a Sealegs boat to be made available to Orion at Sealegs premises for testing to be done, which included Orion measuring the weight over the front tyre of the Sealegs boat.
[65] On 21 May 2013, Mr Bryham sent Mr Leybourne the detailed operation specifications for Sealegs: Generation 1 System 60; 7R System 40; and 6R System 40. Mr Bryham explained in his evidence that as Orion’s design and development of SL100 involved them upscaling the existing Sealegs design, they needed the information set out in the specifications to look at what sort of stresses and forces needed to be upscaled. In particular, Orion was looking at the amount of load, stress, and force that was on the front steering system. He explained that Orion wanted the information so as to have a starting point for designing the upscaled system required for SL100. For example, Sealegs Generation 1 System 40 specifications were based on a fully-laden craft or vehicle weight of 2500kg. The specifications set out information regarding the maximum static wheel loads on the front and rear wheels as well as detailed information regarding the hydraulic system, wheel motors, tyres, the maximum inclines for which the system was designed, the maximum speed of the system over level ground, and the operating life of components.
[66] In his evidence Mr Leybourne disputed Mr Bryham’s explanation for Sealegs having provided Orion with the detailed specifications. Mr Leybourne said that the reason that Mr Bryham provided the specifications had nothing to do with the forces on the steering system. Under cross-examination, Mr Leybourne said that by the date he was sent the specifications, Orion had already undertaken the testing of a Sealegs boat and so would not have needed the specifications for that purpose. However, he
also said that his evidence on this issue was based upon his reconstruction of the events rather than his recollection. He thought that Mr Bryham had sent him the three specification documents because Mr Bryham had wanted his opinion or critique of them, as Sealegs lacked the expertise to do so. Mr Leybourne said that there had obviously been some conversation between Mr Bryham and himself prior to the specifications being sent to him, and as Orion was not working exclusively on SL100 for Sealegs, he had concluded that the specifications sent to him related to matters arising in general conversations between Mr Bryham and himself regarding the other work that Orion was doing for Sealegs at that time.
[67] On Monday 15 July 2013, Mr Bryham sent Mr Leybourne an email asking what the status of the SL100 front and rear assemblies would be by the end the following week. Mr Leybourne responded by email the following day saying:
Hi Maurice,
The design detail is being worked on by Vladan [Zubcic] and Andrew [Percival] at present.
Because Vladan has the final sign off, he is peer reviewing the design (calculations, fitment, etc.). Vladan will let you know tomorrow how this is going, along with an ideal of when the assemblies will start to be manufactured.
…
[68] In 2013 Mr Zhang, as the owner of Orion, was introduced to Mr Bryham by Mr Leybourne, who explained his background and their connection. Mr Bryham was told that Mr Zhang and his family were seeking New Zealand residency and he agreed to write a letter that could be provided to Immigration New Zealand to support Mr Zhang and his family’s residence applications. On 22 July 2013, Mr Bryham, as Founder and Chief Technology Officer of Sealegs, wrote to Orion Marine and Mr Zhang confirming that Sealegs had engaged Orion as a design partner to develop new amphibious marine solutions, and that Sealegs was already utilising the design and development services of Orion Marine. He went on:
The team and skills that Orion Marine offer complement those of Sealegs. Orion Marine adds additional expertise and experience to the knowledge base of Sealegs.
We consider the establishment of Orion Marine is positive for Sealegs as it enables new projects to be commissioned and new improved amphibious technology to be development. [sic]
Allen [Mr Zhang], we have found yourself and the team at Orion to be very professional, to have a very high level of technical expertise, and be both reliable and capable. We look forward to working with yourself and Orion as we move forward on the development of the Sealegs System 100 and associated amphibious technology.
[69] By September 2013, Orion was making progress with the development of SL100, and had made a frame on which it installed the three SL100 leg assemblies and which was for display at the Sealegs AGM that month. For the purposes of the display the leg assemblies were electric rather than hydraulically powered. Shortly after its AGM, Sealegs suspended further development of SL100 because of funding issues. Notwithstanding the suspension of the SL100 project, Orion continued to undertake other minor work for Sealegs. Mr Leybourne says that Mr Bryham was keen to ensure that Orion did not take on another project that would prevent it from resuming work on SL100 once Sealegs had secured further funding to enable the project to proceed.
[70] In early 2014 the SL100 project was resumed and Orion continued to work on its development until around the end of July, when Orion again stopped work because of Sealegs’ funding issues.
Shanghai boat show in April 2014
[71] In April 2014 Mr Bryham and Mr McKee-Wright attended the Shanghai boat show where they met and had discussions with Mr Leybourne and Mr Zhang. The parties dispute what was said between them during their discussions about Orion’s amphibious system projects.
[72] Mr Leybourne says that he attended the April 2014 boat show at Mr Zhang’s suggestion, and that they met Mr Bryham and Mr McKee-Wright who were there because Sealegs had one of their boats on display. Mr Leybourne says that by that time, Mr Bryham and Mr McKee-Wright already knew that Orion was developing its own amphibious system known as S25-4WD. He says that during their discussions, Mr Bryham and Mr McKee-Wright suggested that Orion should offer their S25-4WD
system to Sealegs for exclusive worldwide distribution, except China. Mr Leybourne says that Mr Bryham and Mr McKee-Wright said that if Orion went ahead and launched its S25-4WD system other than through Sealegs, Mr Eric Series, the Chairman of Sealegs’ board of directors, would cause Sealegs to commence legal proceedings against Orion. Mr Leybourne says that he was told that an alternative would be for Orion to offer Sealegs a “no fight fee” for each Orion S25-4WD system it sold into an established Sealegs market. Mr Leybourne says that he responded to this suggestion by saying that Orion was open to considering a “no fight fee” as a means of keeping both parties happy. He says that Mr Bryham and Mr McKee-Wright said that as soon as they were back in control of Sealegs, they would make it happen.
[73] Mr Bryham agrees that he and Mr McKee-Wright had a discussion with Mr Leybourne and Mr Zhang during the 2014 Shanghai boat show, but says that what Mr Leybourne and Mr Zhang talked about was that Orion was developing an amphibious system on a flood rescue craft for the Chinese market, and he says that they assured him that the Orion product would not infringe Sealegs’ intellectual property. Mr Bryham says that no specific details were provided by either Mr Leybourne or Mr Zhang about the Orion amphibious system or as to how many wheels it would have. Mr Bryham agrees that there was discussion around the prospect of Orion giving Sealegs distribution rights for their yet-to-be-produced amphibious flood rescue craft, which Sealegs could sell and distribute into other Asian countries where there was a need for such craft. He said that his understanding was that Orion would be producing a low-cost flood rescue product in China and that Sealegs might be able to sell that product to other Sealegs customers in Asia, especially in Malaysia where Sealegs had already sold boats for use as flood rescue craft. He said that Mr McKee-Wright, Sealegs’ Sales Manager at the time, had commented that if the price of the Orion amphibious rescue craft was $50,000 it could be sold into other Asian countries. Mr Bryham denies any discussion regarding a “no fight fee”, and says that it is not a term he has used. Mr Bryham also denies that he said that the Orion product looked like a copy of Sealegs. He says that at the time of the 2014 Shanghai boat show he had not seen the Orion amphibious system, and was in no position to make any such statement.
SL100 project suspended
[74] Mr Leybourne says that around June 2014 Orion encountered delays with Sealegs paying its invoices. On 21 July 2014, Mr Leybourne forwarded an email to Sealegs’ CEO, Mr David Glen, advising that because of the ongoing uncertainty surrounding SL100 and the sum outstanding, Orion staff would be deployed to other projects. He further said that a final invoice had been issued and it was time for a payment plan to be formalised and agreed upon.
[75] Sealegs paid the outstanding amount due to Orion, and the SL100 project was again suspended.
Sealegs CEO photographs the Orion ARC600 craft
[76] Mr David Glen was employed as Chief Executive Officer of Sealegs International Ltd in November 2011 and continued in that position until November 2014. Mr Glen was subpoenaed by the defendants to give evidence. He said that Mr Leybourne, who was regarded by senior Sealegs management as being a talented hydraulic engineer, had already departed Sealegs and was working at Orion when he joined the company as its CEO.
[77] In the course of Sealegs’ engagement of Orion on the SL100 project, Mr Glen observed Mr Bryham and Mr McKee-Wright working closely with Mr Leybourne and frequently attending meetings at Orion’s premises. Mr Glen said in evidence that from 2013, Mr McKee-Wright, Mr Bryham and himself were all well aware that Mr Leybourne was engaged in developing a new amphibious craft for the Chinese market with the financial backing of a Chinese investor. They also knew that Orion had engaged a number of former Sealegs employees, but he said that the situation was not of any major concern for Sealegs as China was not a market the company was intending to target, and moreover Mr Leybourne was not subject to a restraint of trade provision.
[78] In early to mid-October 2014, Mr Glen was driving in traffic on Auckland’s North Shore when he found himself driving behind a vehicle being driven by Mr Leybourne. Mr Glen by then knew that Mr Leybourne was working on developing an
amphibious system at Orion, and he was curious as to where he might be heading, so he followed him into a marine businesses area off Wairau Road, which was not where Orion’s principal premises were located. Upon arrival at Mr Leybourne’s destination, Mr Glen saw in a garage on the premises an amphibious craft of a kind he had not seen before. He concluded it was being developed by Orion.
[79] On 22 October 2014, Mr Glen again drove past the Wairau Road premises and on this occasion saw what he thought was the same craft on the back of a truck. Mr Glen stopped and took several photographs of the truck and boat using his cell-phone. When he returned to the Sealegs offices later that day he sent the photographs to Mr Series, and the following day he sent the photographs to Mr Bryham and Mr McKee- Wright.
[80] Mr Glen said in evidence that although difficult to tell from his photographs, the amphibious craft he photographed could only have been the Orion ARC600 four- wheel drive version that was subsequently put on display at the 2015 Shanghai Boat Show, as Orion did not produce their three-wheel drive amphibious system until 2016. It is clear from Mr Glen’s photographs, which were produced in evidence, that the craft on the truck trailer is the same red coloured craft as shown in the Surfcon brochure produced by Mr Zhang’s JRTD company in China, called the Surfcon ARC600, which has a four-wheel drive amphibious system.
[81] Mr Glen said that after he had sent copies of his photographs to Mr Bryham and Mr McKee-Wright, the three met to discuss them. Mr Glen says that at this meeting both Mr Bryham and Mr McKee-Wright indicated that they had known of the existence of a boat that Mr Leybourne was trialling, but they were surprised that Mr Glen had been able to photograph it. Mr Glen says that at that time neither Mr Bryham nor Mr McKee-Wright expressed any concerns about breach of patent or copyright. Mr Bryham says however that he could see very little design detail from the photographs, and consequently had been unable to make any assessment or other comment.
[82] On 23 October 2014, the day after Mr Glen had taken his photographs, Mr Leybourne sent an email to Mr Eric Series, Mr Glen, Mr Bryham and Mr McKee-
Wright (with copies sent to Mr Zhang and Mr Zubcic). Mr Series had telephoned him a week earlier to ask whether Mr Bryham had personally engaged Orion to develop his own amphibious system. Mr Leybourne wrote:
Hello Eric,
Thank you for calling last Friday. I appreciate you taking the time to discuss your concerns and look forward to meeting with you in November.
Too often little monsters grow because of rumours and half–truths, an honest conversation like last Fridays [sic] will put the monsters to bed. I reiterate – my comments were truthful and accurate – there is no need for us to be misleading.
Opportunities for Sealegs and Orion to work together are many, collectively we lead the world in the amphibious marine market. Continued innovative thinking solidifies our position as global leaders in this segment, thats cool. You should be proud in the knowledge that your support is a key component of this success.
A complimentary [sic] (not competitive) business, we have a combined strength that is unequalled. Thats also cool.
Lastly, one of my colleagues noticed David Glenn [sic] taking some spy photos of our customers craft yesterday. It is considered respectful to ask for permission first, we would be happy to oblige.
Additionally, I can ask our customer for approval for you to inspect the craft (in China) if you desire.
Regards Darren.
[83] On 10 December 2014, Mr Leybourne wrote to Mr Bryham suggesting that they should meet to discuss the Sealegs/Orion relationship. He said:
Allen [Mr Zhang] has asked for clarity of the Sealegs/Orion relationship sooner rather than later.
It would be great to conclude the meeting with an understanding that there is a shared vision. Equally, we have no problem if it is decided the time is right for Sealegs and Orion to head in separate directions.
We are comfortable with either outcome.
[84] The following day, on 11 December 2014, Mr Leybourne sent an email to Mr Bryham regarding the possible resumption of the SL100 project, noting that Mr Percival could have capacity to work on SL100 for the remainder of the year.
[85] Mr Leybourne says that at a meeting on 12 December 2014 he asked Mr Bryham about the suggested “no fight fee” regarding the Orion S25-4WD, and was told by Mr Bryham that Sealegs did not think it appropriate to enter into that sort of relationship.
[86] In mid-February 2015, Mr Bryham contacted Mr Leybourne regarding the resumption of the SL100 project. Mr Leybourne says that because of the previous problems encountered in relation to payment for Orion’s work on the SL100 project, he proposed a service agreement between the two companies. A service agreement was executed and took effect from 31 March 2015. The “Introduction” section of the service agreement provided:
A. Sealegs is a manufacturer and supplier of amphibious vehicles to customers throughout the world.
B. Orion Marine provides engineering design and development services to the marine industry.
C. Sealegs has engaged Orion Marine to design and develop an amphibious system to be known as SL100 (SL100 project).
D. Due to previous delays to the SL100 Project caused by a shortage of Sealegs funding, the parties have agreed to enter into this agreement to record the terms on which Orion Marine provides services to Sealegs in relation to the SL100 Project, and any further projects that may be agreed by the parties from time to time.
[87]Under the heading “Intellectual Property”, the service agreement provided:
6.1 Ownership. Unless otherwise agreed in a Statement of Work3, the parties agree that:
(a)subject to clauses 6.1(c) and 6.1(d), any Background IPR4 will remain the exclusive property of its owner;
(b)any improvements to any Background IPR will remain the exclusive property of the owner of that Background IPR;
(c)any Project IPR (and Improvements to) will be owned exclusively by Sealegs, from the date at which the relevant IPR arises; and
3 A Statement of Work Template dated 9 March 2015 set out the particulars of the SL100 project (described as RC34-SLG100).
4 The term “Background IPR” is defined in the service agreement as: “Background IPR means all Intellectual Property Rights created or developed by a party before the date of this agreement or otherwise independently of this agreement.”
(d)to avoid doubt, any Third Party Background IPR (and improvements to) will remain the property of that third party owner whether or not included in or used in the provision of the Services.
6.2 Residuals. Nothing in this agreement limits Orion Marine’s right to use its ideas, concepts, methodologies, processes and know-how that are used, developed or created in the course of providing the Services, provided that such use does not breach any confidentiality obligations owed to Sealegs under this agreement or any IPR of Sealegs.5
Shanghai boat show in April 2015
[88] The Shanghai boat show was held between 9–12 April 2015. Mr Bryham attended the boat show, and Sealegs again had a boat on display. On a stand near to the Sealegs boat was the amphibious rescue craft branded “Surfcon ARC600”, presented by Chinese company JRTD of which Mr Zhang was then the General Manager. On viewing the Surfcon craft, Mr Bryham could see that it was equipped with a retractable three-leg amphibious system, which appeared to him to be a substantial copy of the Sealegs amphibious system. Accompanying the display of the Surfcon ARC600 was a video showing the craft being driven into the water, on the water and exiting the water at a location in China.
[89] Sometime later during the boat show, Mr Bryham saw Mr Zhang in the company of Mr Leybourne and spoke to them. He says he told them that their boat’s amphibious system looked like a copy of the Sealegs system. Mr Bryham says that Mr Leybourne and Mr Zhang told him that they were only going to sell the craft in China, and that they had no intention of selling it outside the Chinese market. Mr Bryham says that while the Surfcon ARC600 craft had been built in New Zealand, he understood from what he was told at the time that further boats and amphibious systems were to be built in China. Mr Bryham says that a discussion ensued about whether the two companies and their products could exist together in the market.
5 The term “Confidential Information” is defined in the service agreement as follows:
“Confidential Information means the terms of this agreement, and all information (whether in oral or written form, or both) which is disclosed by the Discloser to, or otherwise accessed by, the Recipient, and:
(a)is identified as being confidential upon disclosure;
(b)is confidential in nature or ought reasonably be treated by the Recipient as being confidential in nature; or
(c)which relates to the Discloser’s business affairs (including its finances, customers, suppliers, products, processes, inventions, research, technologies, and Intellectual Property Rights).”
[90] In an email sent to Mr Bryham on 13 April 2015, Mr Leybourne said an offer to enter into a distribution agreement with Sealegs had merit and was worth further exploration. However, he considered that the difficulty would be in working out the detail. He emphasised again that Orion and Sealegs were complementary, not competing businesses, and invited further dialogue with the Sealegs board so that they could better understand the nature of Orion’s business. As for SL100, Mr Leybourne wrote that he was happy if the Sealegs Board wanted to cancel or postpone the project, although there would be a cost associated with this. He concluded by indicating that Orion wanted to work collaboratively.
[91] Mr Bryham prepared a written report to the Sealegs board which he sent the same day, 13 April 2015. He recorded that he had seen Surfcon’s ARC600 craft at the Shanghai boat show, and recorded the following three options:
I believe that Sealegs has 3 options with Surfcon in China;
Option 1 – Do nothing
Option 2 – Fight them legally on all IP fronts
Option 3 – Look at a possible agreement that contains them and has commercial upside for Sealegs.
Option 1 is not acceptable in the medium/long term as it could encourage others to follow in Surfcon’s path.
Option 2 is possible, but we have no Sealegs patent in China (nor in many other currently non-key Sealegs markets), so we are weak on actually trying to stop them on this front in China. There are possible copyright, ex-employee avenues, but that could all be fairly time consuming, legally expensive and with little commercial result to Sealegs.
Option 3 is a possible option that could see agreement where Surfcon only sell in China in certain markets, with a clause where Sealegs could buy the Surfcon craft to sell into our existing patented markets. This effectively would add a new flood rescue ARC to the Sealegs range at no development cost to Sealegs, and would legally lock down the Surfcon sales channel within China.
I meet [sic] with Darren Leybourne (ex-Sealegs key hydraulics engineer) and Allan (the Chinese owner of Surfcon) to discuss Sealegs concerns. For Option 2, I said that Sealegs would STRONGLY protect its IP using ALL avenues and that it would be an expensive, time consuming process for all involved.
[92] Mr Bryham went on to comment that Option 3 would be worth exploring before taking legal action. He also recorded his observations of the Surfcon ARC600 craft, including criticism of some of its features.
[93] Attached to Mr Bryham’s report to the board were several photographs of the Surfcon ARC600 craft on display at the Shanghai boat show. One of the photographs shows the promotional video seen by Mr Bryham being played in the background.
[94] At the Shanghai boat show Mr Bryham also saw a Surfcon brochure, written in both Chinese and English, which was being distributed to the public to promote the ARC600 craft. The brochure set out the company’s profile, stating that JRTD first opened its doors in 2001, but “sharpened [its] focus” on amphibious craft design and production in 2011.
[95] It is clear from Mr Bryham’s report that although Sealegs had concerns about an infringement of their copyright, the fact that he had been told that the Surfcon craft was not going to be sold outside China, and that he considered the Surfcon amphibious system looked inferior to the Sealegs system, were factors leading to his suggestion that Sealegs should endeavour to negotiate a distribution agreement.
[96] Mr Bryham responded to Mr Leybourne’s email of 13 April 2015 on 14 April, saying that it was good to adopt a collaborative approach and to try to work out an agreement. However no steps were taken by either party to follow up the possibility of a distribution agreement.
[97] On 22 April 2015 Sealegs forwarded a “Sealegs Intellectual Property Agreement” to Mr Leybourne and Orion Marine, requesting that it be signed and returned. The document, although signed by the Sealegs CEO, does not appear to have been either executed by Orion Marine or returned. The agreement contained provisions whereby Orion would confirm and agree that all intellectual property rights including copyright and the right to apply for patent or design registrations in respect of all design and product development work undertaken by Orion for Sealegs belonged to Sealegs. Despite Mr Bryham’s initial view that the Orion system was inferior to the Sealegs system, and despite Mr Leybourne’s assurances that the amphibious system
Orion had developed for Surfcon would only be marketed in China and not be in competition with Sealegs, this was an early sign that Sealegs nevertheless had concerns about Orion’s activities and wished to obtain further written acknowledgement from Orion regarding Sealegs’ ownership of intellectual property arising from the design and manufacturing work being undertaken on its behalf by Orion.
Smuggler Marine’s use of the Sealegs system
[98] Smuggler Marine is owned and operated by Mr David Pringle and his wife Pauline Pringle. Mr Pringle has extensive experience as a boat builder, having started his first boat building company in 1982. The company now known as Smuggler Marine was established in 1986, and changed its name to Smuggler in 2003 around the time it began making and marketing boats using the Smuggler brand. Smuggler Marine is now a successful business and well-known brand, selling boats both in New Zealand and overseas. It manufactures fibreglass trailer boats and tenders for large motor yachts. Included in the Smuggler range are RIB boats between four to 11 metres in length, which comprise Smuggler’s Strata branded craft.
[99] In 2011 Mr Pringle approached Sealegs CEO David Glen, whom he knew as a fellow member of the Boating Industry Board, about the possibility of Sealegs becoming an original equipment manufacturer (OEM)6 and supplying Smuggler with its amphibious system kits for installation on its boats. In May 2011 Sealegs and Smuggler reached agreement whereby Sealegs would supply its amphibious leg kits together with technical drawings and instructions to enable Smuggler to install the systems on the hulls of its craft. Sealegs committed to supplying its system to Smuggler for a term of five years. The systems to be supplied by Sealegs were a package that included the retractable legs as well as the power plant, instruments, hydraulics, drive, and controls that would be fitted to the Smuggler boats as bolt-on kits. Pursuant to the arrangements Smuggler would fit the Sealegs supplied system onto its boats, and thereafter as part of the purchase price of $65,000 plus GST, Sealegs staff would undertake the commissioning work to make the systems operative.
6 The term used where a manufacturer makes a part or subsystem that is sold and used by another manufacturer in the construction of its products.
[100] The first Smuggler craft to be fitted with the Sealegs system was known as Smuggler Strata 770 Centre Console (Strata 770 CC) and was fitted with the Sealegs System 40. Although Smuggler was not intending to sell this first Strata 770 fitted with the System 40, and intended to replace it with the bigger System 60 (capable of supporting a maximum design capability of 2,500 kg) before offering the boats for sale, it planned to display the Strata 770 at the Auckland on Water Boat Show in September 2012. Prior to the boat show, differences arose between Mr Pringle and Mr Bryham, as Mr Bryham did not want Smuggler to display the boat with the System 40 on it. Despite their disagreement, the Smuggler boat was successfully displayed at the boat show and orders for boats fitted with the Sealegs system were subsequently received.
[101] Further difficulties in the relationship between Smuggler and Sealegs arose the following year arising from what was called the TAAF project, which involved Sealegs developing a single-engine diesel amphibious boat for sale to the French government. Smuggler was engaged by Sealegs to make the hull. The project eventually failed as the hull and added components were found to be too heavy for the Sealegs System 60 fitted to it, resulting in the prototype being rejected by the French government. Sealegs maintained that Smuggler was responsible for the failure of the project, claiming that the hull it had manufactured was overweight. As a result of the failure of the project, the relationship between the two companies deteriorated further, and in September 2013 Sealegs advised Smuggler that it would no longer supply it with its amphibious kits. However, after Smuggler changed its manufacturing process to use lighter materials to reduce the weight of its hulls, Sealegs agreed to resume supply.
[102] In November 2014, following Mr Glen’s departure from Sealegs, Mr McKee- Wright (who had been reappointed as Sealegs CEO) proposed that a new agreement be negotiated between the two companies setting out the terms on which Sealegs would agree to supply its kits to Smuggler. Negotiations regarding the contents of the proposed agreement proceeded through early 2015, with Sealegs preparing a draft agreement in February 2015 setting out the key terms to be included in a new 12-24 month contract to be executed by 31 March 2015. The terms proposed by Sealegs represented a significant change to the terms of trade that had applied previously. The
proposed terms stipulated that the price of the OEM Sealegs system would be $75,000; that Smuggler was required to pay for the onsite installation support provided by Sealegs; and that Smuggler would be required to purchase and pay for five kits immediately, and a further five kits in six months’ time. Further proposed terms required Smuggler to agree to sell fully kitted-up hulls to Sealegs ready for Sealegs to install its system onto and then sell the boats in New Zealand, and through its dealers internationally, branded as “Smuggler powered by Sealegs”. Both Sealegs and Smuggler would also agree to promote and sell their respective “Smuggler Powered by Sealegs” boats at the same price in New Zealand. Under the proposed terms Smuggler would not be permitted to sell its own craft equipped with the Sealegs system overseas, and would be precluded from developing any new models or changing its existing models without Sealegs’ prior approval.
[103] While Smuggler was not willing to accept the proposed terms, Mr Pringle and Smuggler were nevertheless keen to maintain their relationship with Sealegs so as to be able to continue installing the Sealegs system on their boats. By early 2015, Smuggler had sold 15 of their boats fitted with the Sealegs system, and had been developing and marketing a new mid-cabin model it was intending to produce and which had already attracted considerable interest from existing customers. Then on 3 March 2015 the Chairman of Sealegs, Mr Eric Series, wrote an email to Mr Pringle advising him that the Sealegs Board had instructed its CEO not to supply any further Sealegs parts to Smuggler until a new agreement was executed and in place. He acknowledged the existence of a current five-year contract, but noted that it was unsatisfactory because it contained no reference to price and credit terms; nor was a sales contract agreed. Mr Series said that a new agreement was necessary to “tidy these issues up”. He also noted that Sealegs appreciated Smuggler’s commitment, investment and success to date, and said that Sealegs wished to continue the relationship.
[443] On 25 November 2015, Mr Zubcic sent Mr Pringle a computer drawing of a 3WD system from which it can be seen that the front leg retains the same key features and geometry as the Sealegs system. In further email correspondence on 11 February
2016, Mr Leybourne advised Mr Pringle that Orion was working on a solution to a problem that would result in the bow wheel no longer functioning as a bumper, and that Orion would seek legal advice as to whether the solution would avoid infringing Sealegs’ patent. While Mr Leybourne and Mr Pringle were both focussed on the issue of whether the new Orion 3WD product they were developing would infringe Sealegs’ patent rather than its copyright interest, it is nevertheless clear that Mr Pringle was actively involved in design-related discussions and decisions, and knew that the product Orion was developing was substantially derived from the Sealegs system and would emulate the Sealegs functionality.
[444] The plaintiff pleads that Mr Pringle and his wife Pauline Pringle are directors of Smuggler Marine and are joint tortfeasors with Smuggler Marine. Mr Spring realistically acknowledges that were the Court to find that Smuggler Marine did breach the plaintiff’s copyright by manufacturing and or selling its Smuggler craft with the Orion S25-3WD installed, then Mr Pringle would be liable as a joint tortfeasor. However, Mr Spring says that although Mrs Pringle is a director of Smuggler Marine, there is no evidence that she played any part in the infringing acts.
[445] Any person who infringes copyright by doing a restricted act, such as copying, will be liable. Where more than one person acts, they may be liable as joint tortfeasors.97 Company directors who themselves infringe copyright will be liable together with the company itself: they cannot rely on the rules of limited liability in company law to escape the consequences of infringement.98
[446] Here, Mr Pringle was directly involved with Orion in the copying of the Sealegs copyright work. His actions were undertaken in his capacity as director of Smuggler Marine, on behalf of the company and for the benefit of the company’s business, and his actions are therefore attributable to Smuggler Marine. I find that both Mr Pringle and Smuggler Marine are liable for the infringement of the plaintiff’s copyright.
97 Electroquip Ltd v Craigco Ltd HC Auckland CIV-2006-404-6719, 3 September 2008 at [133].
98 Electroquip Ltd v Craigco Ltd HC Auckland CIV-2006-404-6719, 3 September 2008 at [134], citing Susy Frankel and Geoff McLay Intellectual Property in New Zealand (LexisNexis, Wellington, 2002) at [5.27]. See also MCA Records Inc v Charly Records Ltd [2001] EWCA Civ 1441 at [29]–[53].
[447] There is no evidence that Mrs Pringle was directly involved in those activities or that she played any other part in the infringing acts. Accordingly, I find that Mrs Pringle is not liable to the plaintiff for any infringement of its copyright.
Alleged copyright infringement by Stryda and its directors
[448] The plaintiff alleges that the tenth defendant, Stryda Marine (Stryda) has infringed its copyright by purchasing Orion S25-4WD amphibious systems, installing them onto its craft and then selling the Orion-equipped craft to the public in New Zealand and in China.
[449] Although the plaintiff alleges that the first defendant, Mr Zhang, and the seventh defendant, Mr Warren Farr, are both directors of Stryda and are also both executives of the company, the evidence shows that Mr Farr is not in fact a director of Stryda.
[450] The plaintiff further alleges that Mr Zhang was directly involved in Orion’s actions in infringing the plaintiff’s copyright, and that Mr Farr knew that Mr Zhang was involved in the design and development of the Orion system which infringed the plaintiff’s copyright.
[451] Mr Spring says that the plaintiff has not led any evidence regarding Mr Farr’s involvement, and says that the plaintiff has failed to establish that he committed any act amounting to primary infringement of the plaintiff’s copyright.
[452] Here too, Mr Spring acknowledges that should the Court find that Stryda has infringed the plaintiff’s copyright by manufacturing and/or selling its boats with the Orion S25-4WD system installed on them, then it is accepted that Mr Zhang will be liable as a joint tortfeasor for primary infringement.
[453] As I have already said, it is clear from the evidence that Mr Zhang was closely and directly involved from the outset with the initial plans for Orion to develop an amphibious system to compete in the same market as Sealegs with a product that would be suitable for application on the same type of small craft as the Sealegs system. He was also involved in the sourcing of components necessary for the construction of
the Orion products, and he knew what Mr Leybourne and Mr Zubcic were doing by adopting and appropriating the Sealegs leg assembly pattern as the starting point of the Orion design. Accordingly I find that by arranging for Stryda to purchase the Orion S25-4WD assemblies for installation onto Stryda craft, and then arranging the sale of the Stryda boats to the public in New Zealand and China, both Mr Zhang and Stryda are joint tortfeasors and are both liable to the plaintiff for infringing its copyright.
Relief
Plaintiff ’s allegation of flagrant breach of copyright
[454] In addition to the injunctive orders sought by the plaintiff in its prayer for relief, the plaintiff also seeks an inquiry as to the damage it has incurred, or alternatively at its election an account of profits derived by the defendants from the sales of the Orion S25-3WD system including additional damages for the flagrancy of the infringement of the plaintiff’s copyright.
[455] For the plaintiff to be entitled to an award of damages for the flagrancy of the breach of its copyright, it must establish that there has been deliberate copying of the plaintiff’s copyright models, undertaken with knowledge of the plaintiff’s copyright interest and with conscious disregard for the plaintiff’s copyright interest. In Wellington Newspapers Ltd v Dealers Guide Ltd, McMullin J described what is required for conduct to be regarded as flagrant.99 He said:
The ordinary dictionary meaning of flagrant is ‘glaring, scandalous, or outrageous’. Flagrancy was described by Brightman J in Ravencroft v Herbert [1980] RPC 193, 208 as:
‘Flagrancy in my view implies the existence of scandalous conduct, deceit and such like; it includes deliberate and calculated copyright infringement.’
What is flagrant must of course be a question of fact and degree to be decided against the background of relevant facts.
[456] Here the plaintiff says that the defendants were well aware of its copyright interest in the composition and arrangement of features of its amphibious legs and, despite that knowledge, proceeded to deliberately copy the arrangement in the
99 Wellington Newspapers Ltd v Dealers Guide Ltd CA47/83, 17 August 1984.
development of the Orion product. The plaintiff refers to an email sent by Mr Leybourne to Mr Bryham and Mr McKee-Wright on 3 May 2016 in which he proposed as a compromise to the differences that were by then arising over Orion’s development of a competitive amphibious product that Orion would pay Sealegs a “no fight fee” of
$5,000.00 for each Orion system used or sold into markets protected by Sealegs patent, until 100 systems were sold or the Sealegs patent expired. In exchange for the payment of the ‘no fight fee’, Mr Leybourne sought full freedom for Orion to operate without restraints. Mr Leybourne further said that the defendants believed that they were avoiding patent infringement by using their own “core technology”, and that should infringement be a possibility, they would “simply adjust the design.”
[457] The plaintiff says that Mr Leybourne’s emailed proposal shows that he and the defendants were well aware of the plaintiff’s copyright and they had proceeded to produce their product and subsequently sell it in the full knowledge that by doing so they were acting in breach of the plaintiff’s copyright.
[458] It is clear from the evidence that the defendants had been careful to maintain confidentiality of the work they were doing to develop the S25-4WD system until it was seen by Sealegs CEO Mr David Glen in October 2014, on the Surfcon ARC600 craft being transported on a truck. The next day Mr Leybourne sent an email to Sealegs in which he referred to Sealegs CEO Mr David Glen’s sighting of the Orion system, wherein he said Mr Glen had taken “spy photos”, and said that if asked, Orion would be prepared to show the craft to them.
[459] Mr Bryham and Mr McKee-Wright subsequently saw the Orion S25-4WD at the Shanghai boat show in April 2015, and in an email sent to Mr Bryham soon thereafter, Mr Leybourne again said that although the Orion system and products would “... occupy similar space, we are complementary not competitive businesses.”
[460] Those comments by Mr Leybourne, while misleading insofar as they describe Orion as not intending to compete in the same market as Sealegs, are nevertheless consistent with a belief that the leg assemblies that Orion was producing at that time did not infringe Sealegs’ intellectual property interests.
[461] I consider that the comments made by Mr Leybourne in his email of 3 May 2016 in which he referred to the Sealegs patent, while consistent with him knowing about the Sealegs patent, do not indicate an appreciation of Sealegs’ copyright in the composition and arrangement of the features of its leg assembly. The focus of Mr Leybourne’s attention as regards possible infringement relates to the Sealegs patent, and he suggests that Orion could avoid infringing by making design adjustments. Mr Pringle similarly referred to the Sealegs patent in his email communications with Mr Leybourne regarding the design and production of the S25-3WD, and he and Mr Zubcic proceeded to design and construct a new bow section for the Smuggler craft to create a recessed cowling into which the front wheel would retract, in order to avoid the Sealegs patent by not having the tyre on the front leg wheel acting as a bumper when the leg was retracted.
[462] In my view, the understanding upon which Mr Leybourne and the other defendants proceeded was that the only restriction on the scope of the Orion design was the Sealegs patent and the need to avoid infringing it. Accordingly, I consider that the defendants proceeded without an appreciation of the existence and significance of the Sealegs copyright interest in the composition and arrangement of the features of its leg assembly. In such circumstances the defendants have not been shown by the plaintiff to have acted in a flagrant manner in disregarding its copyright interest, of which they appear to have had no appreciation.
Design registration
Submissions
[463] In its first cause of action the plaintiff alleged that the first to ninth defendants that they had jointly infringed the plaintiff’s rights pursuant to its registered design number 403199, dated 16 January 2003, by manufacturing and displaying for sale at the Auckland Boat Show in 2016 a boat fitted with an Orion S25-3WD system that is not substantially different from the plaintiff’s registered design. The plaintiff sought a permanent injunction restraining the first to ninth defendants from infringing the plaintiff’s exclusive right pursuant to the registered design, by sale or sales of infringing amphibious boat systems attached to boats.
[464] The plaintiff further alleges that prior to the interim injunction granted on 19 December 2016 the defendants caused the plaintiff damage by means of the manufacture of five Orion S25-3WD systems which were installed onto RIB craft sold to the public. The plaintiff seeks an inquiry as to the damage it has incurred due to the sales by the defendants of the S25-3WD systems, or alternatively at its election an account for the profits derived by the defendants from the sales.
Analysis
[465] The final expiry date of the registered design was on 23 December 2017, and consequently the plaintiff’s rights in the registered design have now expired, and the plaintiff can no longer maintain its claim for relief by way of an injunction.
[466] The plaintiff’s registered design includes 3-D computer drawings of an RIB boat with three retractable legs, one at the bow, and two at the stern. The computer drawings of the boat with the legs retracted show the front leg retracted by being swung forward, with the wheel located within an enclosed recess in the pontoons at the bow so that only part of the wheel and tyre extends beyond the pontoons. Similarly, the images show that when the stern legs are retracted, the wheels are swung to the rear and into a position in which they too are substantially enclosed within recesses at the rear of the port and starboard pontoons when fully retracted, so as to only partly extend beyond the pontoon. The novelty in the design:
…resides in the features of shape and configuration of the boat as shown in the accompanying representations. The boat has a retractable undercarriage system, and the accompanying representations show the appearance of the boat with its wheels up, and the appearance of the same boat with its wheels down.
[467] Section 11(1) of the Designs Act 1953 sets out the right given by registration of a design. It provides:
The registration of a design under this Act shall give to the registered proprietor the copyright in the design, that is to say, the exclusive right in New Zealand to make or import for sale or for use for the purposes of any trade or business, or to sell, hire, or offer for sale or hire, any article in respect of which the design is registered, being an article to which the registered design or a design not substantially different from the registered design has been applied, and to make anything for enabling any such article to be made as aforesaid, whether in New Zealand or elsewhere.
[468]In UPL Group Ltd v Dux Engineers Ltd, Somers J for the Court said:100
Whether there is an infringement of copyright in a registered design is a question of fact of which the eye is the Judge … It is not necessary for a plaintiff to establish a causal connection between the design and the infringing article as it is in the case of infringement of copyright under the Copyright Act. That emerges from the provisions of s 11 of the Designs Act 1953, set out above.
The test is whether the article alleged to be an infringement has substantially the same appearance as the registered design. This involves a comparison between the article complained of and the representations of the article contained in the application for registration. It is not always easy to compare a two-dimensional design with a three-dimensional object …
There is also a relationship between the degree of novelty or originality of a registered design and the issue of infringement. If there is substantial novelty or originality small variations in the article alleged to infringe will be unlikely to save the defendant. On the other hand if the features of novelty or originality are but little removed from prior art small differences may avoid an infringement.
[469] The plaintiff says that the registered design has substantial novelty as shown by the prior art searches produced in evidence which show nothing visually similar. The plaintiff says that the appearance of the registered design RIB boat as shown with the legs down and the Smuggler 770 craft produced by Smuggler Marine is identical. The plaintiff accepts that there are some minor differences; for example, in the wheels- up position all wheels on the registered design are covered, while on the Smuggler craft only the front wheel is covered by the enclosed pod at the bow. However, the plaintiff says that given the degree of novelty at the time of registration, the Court should conclude that the Smuggler RIB is visually substantially the same as shown in the computer drawings of the registered design.
[470] I consider however that while there is some similarity between the images of the registered design RIB and the Smuggler RIB fitted with amphibious retractable legs (in particular the use of three legs retracted by swinging fore and aft of the craft), there are also sufficient dissimilarities to lead me to conclude that when comparing the two they do not share substantially the same design. When retracted, the front leg of the registered design craft lifts the front wheel to an enclosed recess within the pontoons at the bow in a similar manner (in terms of appearance) to that of the
100 UPL Group Ltd v Dux Engineers Ltd [1989] 3 NZLR 135 (CA) at 139.
Smuggler RIB. However, when the rear legs and wheels of the registered design are retracted they are each located within a recess in the inflatable pontoon where they are substantially covered and enclosed. By comparison, the Smuggler wheels when retracted remain entirely visible and obvious. The overall impression is one of broad similarity but not such as to give the two craft substantially the same appearance.
[471] Accordingly, I find that the plaintiff’s first cause of action based upon its registered design fails.
Result
[472] The plaintiff has established that the first, second, third, fourth, sixth, ninth (Mr Pringle only) and tenth defendants have all infringed the plaintiffs copyright works as described in paragraphs [193] – [196].
[473] The plaintiffs’ claim against the seventh defendant and the ninth defendant (Pauline Pringle) is dismissed.
[474] I make an order by way of an injunction restraining the first to ninth defendants (excepting the seventh defendant and the ninth defendant (Pauline Pringle)) from infringing the plaintiff’s copyright and from manufacturing, displaying, offering for sale or selling copies of the plaintiff’s copyright works as particularised in paragraph
[17] of the fifth amended statement of claim, whether for sale in New Zealand or any other country including China.
[475] I make an order restraining the first, second, third, fourth, sixth, ninth (Mr Pringle only) and tenth defendants from manufacturing, displaying, offering for sale, or selling copies of, or completing the sale of, the Orion S25-4WD and/or the Orion S25-3WD either as a separate kit or installed on the hull of a craft.
[476] I make an order for an inquiry as to damages incurred by the plaintiff due to all or any sale or sales by the second and third defendants of the Orion S25-3WD system, and in the alternative at the election of the plaintiff an account for any profit derived and obtained by the second or third defendants from the sale or sales of the Orion S25-3WD system.
[477] The duration of injunctive relief comprised in the orders is to be determined by reference to the expiry date of the plaintiff’s copyright. That expiry date is to be determined following the receipt of further evidence and submissions by the parties on that issue, which will be heard together with the plaintiff’s application for an inquiry as to damages. In the meantime, the interim injunction order made by Peters J on 19 December 2016 shall remain in force.
[478] The plaintiff also seeks an order directing the defendants to deliver all and any infringing items and products in their possession or control to the plaintiff for destruction. The defendants request that they be heard in relation to that matter. Accordingly, I direct that the matter of delivery and destruction of any infringing items in the defendants’ possession shall also be heard together with the plaintiff’s application for an inquiry as to damages.
Costs
[479] The plaintiff has succeeded and is entitled to costs. I direct the plaintiff to file and serve a memorandum as to costs within 15 working days from delivery of this judgment.
[480] The defendants are to file their memorandum as to costs within a further 10 working days following their receipt of service of the plaintiff’s memorandum.
[481] The costs memoranda are not to exceed five pages in length, apart from any attached schedules and addenda comprising material relating to disbursements.
Paul Davison J
APPENDIX
Figure 3
Frpnt Assembly Design Comparison
SEALEGS S6O-3WD design compared to Orion S25-3WD desisn
Orioa G25—3 D zeor leg asseoibly fïealegs 5dO—3 /O regr leg asseazbly
Figure 5
Orion 525—41YW front leg assembly
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