FEDERAL COURT OF AUSTRALIA Swarbrick v Burge [2003] FCA 1176 INTELLECTUAL PROPERTY – COPYRIGHT – DESIGNS – interlocutory injunction – applicant prepared drawings of a yacht – applicant then made a "Plug" in the shape of a yacht – purpose of Plug was to make mould for manufacture of fibreglass yacht by vacuum infusion – applicant's licensee manufactured and sold 32 such yachts in Australia and overseas – respondents obtained an identical yacht from former employee of applicant's licensee and, by reverse engineering, were in process of preparing a mould for purpose of manufacturing yachts – whether applicant lost copyright protection through industrial application of an unregistered corresponding design – whether the applicant's Plug, mould or yacht were "sculptures" and also works of artistic craftsmanship – whether a sculpture can be a work of artistic craftsmanship for copyright purposes. Copyright Act 1968 (Cth), ss 10(1)(c), 77 Coogi Australia Pty Ltd v Hysport International Pty Ltd (1998) 86 FCR 154 applied Wham-O Manufacturing Co v Lincoln Industries Ltd [1982] RPC 281 applied Kambrook Distributing Pty Ltd v Delaney [1984] 4 IPR 79 applied United Pacific Industries Pty Ltd v Madison Sports Pty Ltd [1998] FCA 614 applied Kevlacat Pty Ltd v Trailcraft Marine Pty Ltd (1988) 79 ALR 534 distinguished Shacklady v Atkins (1994) 126 ALR 707 distinguished Cuisenaire v Reed [1963] VR 719 referred to The Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 147 CLR 39 JOHN HARLEY SWARBRICK v BRENT BURGE, TREVOR ROGERS BENJAMIN WARREN and BOLDGOLD INVESTMENTS PTY LTD W195 of 2003 CARR J 24 OCTOBER 2003 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W195 OF 2003 BETWEEN: JOHN HARLEY SWARBRICK APPLICANT AND: BRENT BURGE FIRST RESPONDENT TREVOR ROGERS SECOND RESPONDENT BENJAMIN WARREN THIRD RESPONDENT BOLDGOLD INVESTMENTS PTY LTD FOURTH RESPONDENT JUDGE: CARR J DATE OF ORDER: 24 OCTOBER 2003 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The respondents' motion, notice of which was filed on 3 October 2003, be dismissed. 2. The questions of (a) the costs of the above motion, (b) the costs of the applicant's motion, notice of which was filed on 12 September 2003, and (c) whether the issues of liability and relief should be heard separately and, if so when, be heard and determined at a directions hearing on a date to be fixed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W195 OF 2003 BETWEEN: JOHN HARLEY SWARBRICK APPLICANT AND: BRENT BURGE FIRST RESPONDENT TREVOR ROGERS SECOND RESPONDENT BENJAMIN WARREN THIRD RESPONDENT BOLDGOLD INVESTMENTS PTY LTD FOURTH RESPONDENT JUDGE: CARR J DATE: 24 OCTOBER 2003 PLACE: PERTH REASONS FOR JUDGMENT introduction 1 I have to decide whether an ex parte interim injunction which I granted on 12 September 2003 and modified at an interlocutory hearing (where both sides were represented) on 15 September 2003 should, in response to a motion, notice of which was filed by the respondents on 3 October 2003, be discharged or further varied. 2 When the respondents' motion was heard, it was their first real opportunity to argue the question whether the interim injunction should have been granted in the first place. Accordingly, I treated the proceedings as being both a continuation of the applicant's original motion for an interim injunction (filed with his application) and the hearing of the respondents' motion to discharge or vary the interim injunction. The applicant accepted that such an approach was appropriate. factual and procedural background 3 I should emphasise that in referring to the facts, I must not be taken to be making any final findings of fact. My references to the facts are to those facts which emerge from the affidavits filed to date. When the matter goes to trial, the facts may be found to be otherwise. On the state of the evidence to date the facts are as follows. 4 The applicant, Mr John Swarbrick, is a naval architect. He claims to be the owner of the copyright in certain artistic works being: (a) a number of drawings for the construction of a yacht known as the "JS 9000 yacht" ("the Drawings"); (b) moulds for the same purpose ("the Moulds"); (c) a plug model ("the Plug") handcrafted by him for the purpose of constructing the JS 9000 yacht; and (d) the JS 9000 yacht 5 In his first affidavit, i.e. that sworn on 12 September 2003 in respect of which there are no confidentiality orders, the applicant has deposed to the fact that over a period of ten years he developed the Drawings which involved design skill and elements of judgment. He says that he had a concept in mind, in particular, a light displacement mono hull that would be of a high longitudinal prismatic co-efficient to achieve a high average top speed per displacement/ length ratio regime which would be above contemporary designs. 6 The applicant handcrafted the Plug which is a full scale model, developed from the Drawings, from which a mould was cast. The mould was used to manufacture mouldings which form part of the finished yacht. 7 The applicant has licensed a company, Swarbrick Yachts International Pty Ltd ("Swarbrick Yachts International"), a company controlled by him and of which he is a director, to use the Drawings, specifications, Plug and Moulds to manufacture the JS 9000 yacht. 8 The hull of the JS 9000 yacht is constructed of fibreglass and is built by using a process known as vacuum infusion. The applicant says that, so far as he is aware, Swarbrick Yachts International is the only production boat builder in Western Australia using vacuum infusion technology. 9 Swarbrick Yachts International has constructed 32 of the JS 9000 yachts with over half of them having been delivered to customers overseas. The countries to which Swarbrick Yachts International has exported JS 9000 yachts include England, Germany, Switzerland, Croatia, United States of America and Bermuda. The price for the yachts varies between $50,000 and $65,000 depending on options selected. The JS 9000 has generated significant interest within Australia and overseas as is reflected in certain magazine articles which are in evidence. Swarbrick Yachts International has received almost 4,000 email enquiries in relation to the JS 9000 since February 2002. The applicant says that the development of the Drawings and the crafting of the Plug involved considerable time and expense. He estimates that an amount in the order of $300,000 has been spent by him in the promotion and development of the Drawings and the Plug as well as thousands of man hours over ten years. 10 In or about November or December 2002 the applicant gave a hull and deck moulding of the JS 9000 yacht to one of Swarbrick Yachts International's employees, a Mr Trevor Rogers. He says that he did so by way of a bonus for his good work and that Mr Rogers was a keen yachtsman. Mr Rogers is the second respondent to these proceedings. 11 There is evidence, which I shall summarise in a moment, that in about early July 2003, the first respondent, Mr Burge (it later emerged that he was an employee or sub-contractor of the fourth respondent), had started to make a copy of the JS 9000 yacht by using that hull and the deck moulding. Mr Burge has fibreglass and resin expertise. 12 The applicant says that the first respondent was "a long time associate of his". The fourth respondent has hired the first respondent for his fibreglass and resin expertise, and has also given him the responsibility for the administrative management of a shed in which the fourth respondent was, until restrained by the interim injunction, making a Plug for the purpose of constructing JS 9000 yachts for sale. 13 Swarbrick Yachts International had three key employees, namely, Mr Rogers, the third respondent, Mr Benjamin Warren, and a Mr Jamie Bruce Bell. The second and third respondents did the moulding of hulls and decks for Swarbrick Yachts International while Mr Bell built keels, rudders and the like. The second and third respondents left the employment of Swarbrick Yachts International in about early June 2003. Mr Bell left that employment about two weeks later. 14 The third respondent is now also employed by the fourth respondent. He is its infusion technician. Mr Glen Peter Bosman, a director of the fourth respondent, says that the third respondent has local experience in building yachts utilising infusion technology. The fourth respondent intended (and presumably still intends) that a Mr Lindsay Varcoe, whose services have been secured until the end of this year, will provide further training to the third respondent and that the third respondent will assume the role of production manager of the fourth respondent when Mr Varcoe departs at the end of the year. 15 In or about late June 2003 the first respondent arrived at Swarbrick Yachts International's premises in Albany and spoke to Mr Bell. He told him, in effect, that Swarbrick Yachts International was about "to go broke" and that he (Mr Bell) would be out of a job. He invited Mr Bell to work for a company with which he (the first respondent) was involved. 16 In about early July 2003, the first respondent visited Mr Bell, this time at his residence, and had a conversation with him which lasted approximately four hours during which he discussed the venture in which he (the first respondent) was involved. The first respondent told Mr Bell that he was in the process of copying the JS 9000 yacht using the hull and deck mouldings given to Mr Rogers by the applicant. He said, in effect, that he believed that there was no patent on the JS 9000 yacht because it had been rushed to the market and there had been no time and money to obtain a patent. He said that the second and third respondents were involved in copying the JS 9000 yacht and that another man named Donald was involved. He proposed that Mr Bell take Donald's position when he returned to Ireland. The person funding the venture had supplied a house in Peel Street, Mandurah where the people working on the copying of the JS 9000 yacht could live from Monday to Friday with the first respondent driving them back to Perth each weekend. Mr Bell decided not to be involved with that venture. 17 Part of Mr Bosman's evidence on behalf of the fourth respondent discloses the following. The fourth respondent commenced business at the end of June 2003 with the objective of manufacturing, marketing and selling the JS 9000 yacht. It borrowed $300,000 as working capital, entered into an agreement to lease premises at Pinjarra in which the JS 9000 yachts were to be "developed and manufactured" and entered into sub-contract arrangements with, amongst others, the first, second and third respondents who would be involved in the "development" and manufacture of those yachts. 18 In August 2003, Mr Bosman and a Mr Sergio Zaza spent approximately three weeks overseas visiting, primarily, European countries for the purpose of investigating and establishing contacts in the overseas market for the yacht. Mr Zaza thereafter visited contacts in the United States of America. 19 The fourth respondent then engaged sub-contractors with the appropriate expertise who were, until the interim injunction order, in the process of "developing" and manufacturing the JS 9000 for sale, whereupon the fourth respondent proposed to promote and market the yacht initially in Europe and the United States of America. 20 Apart from the individuals whom I have already mentioned i.e. Mr Varcoe and the first, second and third respondents, it appears that the fourth respondent has also engaged an experienced painter/laminator/fairer and another experienced laminator. Mr Bosman says that it has taken three months for the fourth respondent to assemble this team. I return below to the fourth respondent's submissions and the further factual allegations put forward on its behalf in support of its motion that the interim injunction be either discharged or varied. 21 In early September 2003, Mr Bell telephoned Mr Swarbrick and told him what he had been told by the first respondent. The applicant then made telephonic and other contact with Mr Bosman and the second respondent. 22 On 4 September 2003, the applicant had a meeting with the second respondent. The second respondent told the applicant that he had sold the hull and deck mouldings, which had been given to him, to the first respondent who was going to take a flop mould of them so that the hull and deck mouldings could be reproduced. He said that the first respondent had told him that the applicant "knew all about it" and was to receive a royalty of $7,000 per JS 9000 yacht built. Swarbrick Yachts International United Kingdom's agent, so he said, had been involved in providing technical assistance to the first respondent in the copying process. The second respondent also confirmed that the third respondent was working for the first respondent and assisting in the copying. The second respondent then disclosed the location of the factory in Pinjarra where the copying was taking place. The applicant had previously, without success, attempted to locate that factory. 23 On the same day, 4 September 2003, the applicant arrived at the factory in Pinjarra and took a series of photographs. Those photographs formed part of the evidence in support of the application for an urgent ex parte interim injunction. They are said to show the second respondent's JS 9000 yacht in the Pinjarra factory on 4 September 2003. 24 In his first affidavit in support of the urgent interim injunction, the applicant expressed his concern that because the respondents were on notice of his claim they might ship the JS 9000 hull and deck mouldings overseas. If that occurred, his ability to protect and enforce his copyright would be seriously hampered. He sought orders for the preservation of the hull and deck mouldings and the flop mould then located in the Pinjarra factory. 25 On 12 September 2003, I made ex parte orders restraining the first, second and third respondents (being the only respondents to the proceedings at that stage) from reproducing or authorising the reproduction in a material form of any of the Drawings or the Plug. I also ordered the respondents within 24 hours of service of the order on them to deliver up to the Court the JS 9000 hull and deck mouldings and any other mould (including a flop mould) or moulding in their possession, custody or control being a reproduction or a substantial reproduction of the Drawings or the Plug. The injunction was limited in duration to the conclusion of a further hearing which I then listed for 16 September 2003. 26 On 15 September 2003, at the request of the respondents, the matter came before me, again on an urgent basis. 27 The respondents adduced evidence to the effect that if the mould, hull and deck were moved from the Pinjarra factory in their present state of construction they would be irreparably damaged. 28 For that reason, the respondents had not complied with the second of the orders which I had made on 12 September 2003. 29 Although the applicant disputed, and still disputes, the respondents' assertion that the mould, hull and deck could not be moved in their present state of construction without being damaged, I decided to discharge some of the orders made on 12 September 2003, with effect from the rising of the Court on 15 September 2003. Instead, interim orders were made to lock and secure the Pinjarra factory in which various items referred to above were located. Those premises remain under the joint control of the solicitors for the applicant and respondents respectively. 30 During the course of the proceedings on 15 September 2003, I made an order, by consent, joining Boldgold Investments Pty Ltd as the fourth respondent. 31 I also adjourned the application to 1 October 2003 for consideration of directions, the continuation or otherwise of any injunctive order, amendments to pleadings and other matters that might then conveniently be dealt with. 32 On 1 October 2003, the parties asked me to make certain consent orders, which I did. Those orders were that the applicant file and serve on or before 8 October 2003 an affidavit detailing his income and expenditure and assets and liabilities, in support of his undertaking as to damages which had been filed. 33 The respondents were given liberty to apply for the issue of copyright infringement to be determined as a preliminary question. I also ordered that the application proceed on pleadings, as to which directions were made. Directions were also made for the filing and serving of any further affidavits. Curiously, so I thought at the time, there was no reference to the continuation or otherwise of the interim injunction. 34 On 3 October 2003, the respondents filed their notice of motion to discharge or in the alternative vary the interim injunction. They sought primarily the discharge of the injunction. Alternatively, if the injunction were to be varied, they asked that it be varied so as to permit the fourth respondent to manufacture and offer for sale and sell the JS 9000 hull and deck mouldings. This, so it was proposed, would be on the basis that the fourth respondent kept an account of all sales and causes any "monetary receipts" from any such sales to be paid into an account in the names of the solicitors for the respective parties to be maintained in a recognised financial institution. The fourth respondent, in those circumstances, would seek liberty to apply on two days written notice "in respect of the release of funds, for the purposes of carrying on its business". 35 The motion was allocated an urgent return date of 10 October 2003. 36 On that date, counsel for the applicant sought an adjournment on the basis that Mr Swarbrick was overseas and he wished to file further affidavit material in opposition to the motion. That evidence was said to relate to the existence of a triable issue of part of the respondents' proposed defence under s 77 of the Copyright Act 1968 (Cth), and in particular the question of industrial application and whether the Plug and JS 9000 yacht are works of artistic craftsmanship. 37 The respondents opposed the application for an adjournment, but I considered that it was in the interests of justice that a short adjournment be granted. The motion was adjourned to 4.30 pm on Friday 17 October 2003. 38 A further affidavit, (the applicant's third affidavit) sworn on 15 October 2003 by Mr Swarbrick has been filed. 39 In that affidavit Mr Swarbrick describes his intention when he designed the JS 9000 yacht as being to build a yacht that had great aesthetic appeal. He says that he tried, and believed he had achieved, a yacht design that captured the contemporary lines of modern yachts, but had a classic timeless quality. 40 Mr Swarbrick explains in that affidavit how he first set about designing the JS 9000 yacht in the late 1980s. That started with a series of freehand drawings which were then digitised into a computer. From the resultant drawings he built by hand a timber quarter-scale model of the hull and deck structure. He then took a mould from that scale model and made a fibreglass quarter-scale model which in 1989 or 1990 he tank-tested in Southampton, England. He used the results of that tank-test to develop further the computer model and Drawings. 41 In about 2001, so Mr Swarbrick deposes, the idea for the JS 9000 yacht had so sufficiently advanced that he decided to build the Plug, which was a handcrafted full-scale model of the finished yacht. He says that it was in all respects visually identical to the hull and deck of the finished yacht. He describes the process by which he crafted the Plug, largely by hand, and says that this process involved hundreds of man hours and specialised skills and tools. He used the computer to generate a full-size body plan, based on his Drawings. I shall not set out here the details which are contained in Mr Swarbrick's (third) affidavit. Mr Swarbrick says that one step, strip planking the Plug, took on average ten days. Then there was a hand-fairing process to ensure that the surface of the Plug was smooth. That process took approximately 500 man-hours to complete. Fairing the surface was a two-man job for which he used an assistant who worked under his direction. 42 In both of these processes Mr Swarbrick swears that he made many adjustments to the appearance of the Plug based purely on aesthetic grounds, to make sure that it was as aesthetically pleasing as he could make it. He details the adjustments. Mr Swarbrick then gives details of the process of making moulds. Mr Swarbrick explains that the Plug for the JS 9000 yacht was destroyed. As it was of timber and not constructed as an actual yacht, there was movement due to climate change. Should a new Plug be needed for further moulds, a yacht taken from the mould is the most economical means. 43 Mr Swarbrick expresses the view that both the Plug and the JS 9000 yacht are works of artistic craftsmanship. 44 Mr Swarbrick then refers to Mr Bosman's affidavit sworn on 3 October 2003. He deposes to the belief that the potential European distributor or agent referred to by Mr Bosman is the one already used by Swarbrick Yachts International to market and sell the JS 9000 yacht in Europe. He sets out the basis for that belief. 45 Mr Swarbrick says in his third affidavit that if the injunction is discharged and the respondents produce a yacht identical to the JS 9000, the value of his copyright in the JS 9000 yacht will be greatly diminished. His inability to ensure that proper quality control is maintained will, so he believes, lead to damage to the reputation of the JS 9000 in the marketplace. He says that he does not believe that an award of damages, or an account of profits could properly compensate him for that. Mr Swarbrick gives evidence of his fear that the presence of copy JS 9000 yachts in the market-place, bearing a name other than the JS 9000, diminishes the professional kudos he would expect to receive as a result of the success of the JS 9000. Reputation, so Mr Swarbrick says, is one of the primary factors that assists new designs to be accepted in the marketplace which leads to increased commissions (I infer as a naval designer or architect) over time. 46 Mr Swarbrick then sets out some information in relation to his assets and liabilities. He asserts that his net assets amount to about $7.7 million. Of that sum, $7 million is said to represent intellectual property comprising boat plans, models, technical research and advice. Design office infrastructure is shown at $150,000. He has $3,000 at Challenge Bank and a loan owing to him by Swarbrick Yachts International of $117,000. Moulds and Plugs are listed at $150,000 and work in progress shown at $158,000. There is then an item of royalties (presumably an entitlement to royalties) of $118,000. 47 It is difficult, but not impossible, on that evidence, for me to make a firm assessment of Mr Swarbrick's ability to satisfy a judgment if he is called upon to honour his undertaking as to damages. The first stage in that assessment process is to estimate the likely period of the injunction, if granted. That is, how long will it be until there is a final (subject to appeal) judgment? In that regard, at this stage I have considerable reservations about the advisability of making a direction that the issue of copyright infringement be determined as a preliminary question on agreed facts. However, I consider that it may be appropriate to have a full hearing on the question of liability, leaving the matter of damages (if any) or other remedies for a subsequent hearing if necessary. 48 Assuming that the matter came on for hearing on the question of liability in February next year and judgment were given fairly soon thereafter, I consider that, on the respondents' figures, the amount of damages which Mr Swarbrick may be called upon to pay if he loses the case is about $240,000 i.e. 6 months at $40,000 per month, being a figure deposed to by Mr Bosman to which I refer later in these reasons. In oral submissions Mr R J L McCormack, counsel for the respondents, pointed out that this figure makes no allowance for the fourth respondent's loss of profits. I accept that, but the expenses figure of $40,000 per month is not fully particularised or substantiated. Whether the new venture would generate profits and to what extent is very difficult to assess. I think that for present purposes $240,000 is a reasonable estimate of damages on the present state of the evidence. 49 Based on the limited evidence to date, I would assess the prospects of Mr Swarbrick's ability to satisfy a judgment in that amount as being reasonable. By that I mean it is more likely than not that he will be able to do so. I should add that Mr Swarbrick says that he receives a salary from Swarbrick Yachts of $1,000 per week and has weekly expenses of approximately $450. I now turn to consider other matters relevant to the question whether the interim injunction should continue in force. The respective arguments and my reasoning 50 There is common ground between the parties that the injunction should not continue in force unless there has been demonstrated a serious question to be tried (the respondents say there must be some admissible probative evidence going to each of the elements making up the cause of action relied upon) and that the balance of convenience should favour such continuation. 51 The authorities show that the two factors of a serious question to be tried and the balance of convenience are not in watertight categories. They are to be considered jointly. That is, if one or other party appears to have a strong case or defence then this is to be taken into account when weighing the balance of convenience, and vice versa. There are other discretionary factors to be taken into account when considering whether to grant an interlocutory injunction. I do not propose to recite the authorities. Serious question to be tried 52 The respondents have chosen not to adduce evidence to challenge the factual background which I have recited and which is largely based (but not completely) upon the applicant's evidence. 53 In those circumstances, subject to the defence which the respondents say is "a complete statutory defence" it seems to me that the applicant has established a strong case to the effect that he is the author and owner of the copyright in the Drawings, the Moulds, the Plug and also in the JS 9000 yacht. He has also established a strong case that the respondents, in particular the fourth respondent, have embarked on a course of deliberately infringing the applicant's copyright, the fourth respondent having enticed into its employment or sub-contract relationship two of the applicant's licensee's former employees. The first respondent has also, on the evidence to date, attempted to entice another such employee (Mr Bell) into the project in which he and the other respondents are engaged. 54 The respondents say that they have a complete statutory defence under s 77 of the Copyright Act. 55 Section 77 of the Copyright Act is in the following terms: 'Application of artistic works as industrial designs without registration of the designs 77 (1) [Application] This section applies where: (a) copyright subsists in an artistic work (other than a building or a model of a building, or a work of artistic craftsmanship) whether made before the commencement of this section or otherwise; (b) a corresponding design is applied industrially, whether in Australia or elsewhere, by or with the licence of the owner of the copyright in the work in the place where the industrial application happens; (c) at any time on or after the commencement of this section, articles to which the corresponding design has been so applied (in this section called "articles made to the corresponding design" are sold, let for hire or offered or exposed for sale or hire, whether in Australia or elsewhere; and (d) at that time, the corresponding design is not registrable under the Designs Act 1906 or has not been registered under that Act. (2) [Not an infringement] It is not an infringement of the copyright in the artistic work to reproduce the work, on or after the day on which articles made to the corresponding design are first so sold, let for hire or offered or exposed for sale or hire, by applying that, or any other, corresponding design to an article. (3) [Exclusions] This section does not apply in relation to any articles in respect of which, at the time when they were sold, let for hire or offered or exposed for sale or hire, the corresponding design concerned was excluded from registration by regulations made under the Designs Act 1906, and, for the purposes of any proceedings under this Act, a design shall be conclusively presumed to have been so excluded if: (a) before the commencement of the proceedings, an application for the registration of the design under that Act in respect of those articles had been refused; (b) the reason, or one of the reasons, given for the refusal was that the design was excluded from registration under that Act by regulations made under that Act; and (c) when the proceedings were commenced, no appeal against the refusal had been allowed or was pending. (4) [Applied industrially] The regulations may specify the circumstances in which a design is, for the purposes of this section, to be taken to be applied industrially.' 56 In relation to s 77(4), Regulation 17 of the Copyright Regulations 1969 is relevant. Regulation 17 provides as follows: 'Circumstances in which design is taken to be applied industrially 17 (1) For the purposes of section 77 of the Act, a design is taken to be applied industrially if it is applied: (a) to more than fifty articles; or (b) to one or more articles (other than hand-made articles) manufactured in lengths or pieces. (2) For the purposes of paragraph (1) (a), any 2 or more articles: (a) that are of the same general character; and (b) that are intended for use together; and (c) to which the same design, or substantially the same design, is applied; are taken to constitute a single article. (3) For the purposes of this regulation, a design is taken to be applied to an article if: (a) the design is applied to the article by a process (whether a process of printing, embossing or otherwise); or (b) the design is reproduced on or in the article in the course of the production of the article.' 57 The respondents say that the applicant's alleged copyright, having been brought into existence, at the earliest, in February 2002 has to be considered in terms of copyright protection in artistic works. They say that the JS 9000 yacht, as represented by the hull and the deck mouldings is a "corresponding design" which has not been registered under the Designs Act 1906 (Cth) and has been, prima facie, "applied industrially" within the meaning of that expression in s 77(1)(b) of the Copyright Act. Accordingly, so the respondents contend, by operation of s 77(2) any copyright protection available to the applicant's alleged artistic works in the Drawings or the Plug is denied. 58 The respondents submit that Regulation 17 is a deeming provision only, with the result that it is a question of fact whether an industrial application of the design has occurred in a case where less than 50 applications of the design have taken place. 59 They say that having regard to the type of article represented by the JS 9000 hull and deck mouldings, together with the particular market involved, and the fact of manufacture for sale of thirty-two JS 9000s, it is open to the Court to conclude that the applicant's design of those articles constituted an "industrial application" for the purposes of s 77. 60 I deal separately below with the balance of convenience. the applicant's response 61 In summary, the applicant's response is as follows. The Plug and the Mould (henceforth referred to by me in the singular as being the Mould for making the hull of the JS 9000 yacht) are sculptures or are capable of being sculptures. They are also works of artistic craftsmanship. The reproduction by the respondents of the JS 9000 yacht in the manner which they have adopted constitutes a sufficient causal connection to satisfy the tests for infringement. There is clearly a serious case to be tried. The balance of convenience lies in favour of the applicant. The respondents went into their project with their eyes wide open, deciding to take the risk. Where infringement of copyright is shown, an injunction is usually the appropriate remedy. Mr Swarbrick would be able to satisfy his undertaking as to damages if called upon to do so. MY REASONING 62 I do not think that the respondents have demonstrated, as was submitted on their behalf, that they have a complete statutory defence to the applicant's claims. On the state of the evidence to date, I think that it is strongly arguable that the Plug, handcrafted by the applicant and shown in Exhibit JHS1 to the applicant's first affidavit, and the JS 9000 yacht are "work(s) of artistic craftsmanship". If so, each of them would be expressly excluded by the words in parenthesis in s 77(1)(a). That is, the respondents would not obtain the protection which might otherwise have been conferred upon them by s 77(2) of the Act. It is not necessary for present purposes separately to consider the Mould. 63 There is apparently some debate, see Lahore "Copyright and Designs" Vol 1 p 64,115 about whether the term "work of artistic craftsmanship" in s 77(1)(a) has the same meaning as "work of artistic craftsmanship" within the definition of "artistic work" in s 10(1)(c) of the Copyright Act. The author says that "presumably, this is the intended meaning". For present purposes I shall work on that assumption. 64 Section 10(1) relevantly provides as follows: 'artistic work means: (a) a painting, sculpture, drawing, engraving or photograph, whether the work is of artistic quality or not; (b) a building or a model of a building, whether the building or model is of artistic quality or not; or (c) a work of artistic craftsmanship to which neither of the last two preceding paragraphs applies; (emphasis added) but does not include a circuit layout within the meaning of the Circuit Layouts Act 1989.' 65 The Plug, once the Mould was taken from it and the vacuum infusion process carried out, resulted in the JS 9000 yacht, several photographs of which are in evidence. The evidence is that the JS 9000 yacht, not surprisingly, looks very much like the Plug. If it is permissible (and I think the authorities say it is) to look, for example, at the hull of the JS 9000 yacht, I would have little hesitation, at this stage of the proceedings, in assessing that hull as being a work of artistic craftsmanship. In my view, the same applies to the Plug as pictured in Exhibit JHS1. They are items with considerable aesthetic quality comparable, for example, to a sculpture of artistic merit. 66 The authorities about what is a work of artistic craftsmanship were reviewed by Drummond J in Coogi Australia Pty Ltd v Hysport International Pty Ltd (1998) 86 FCR 154 at 164 to 168. 67 His Honour prefaced that very useful review by the observation that the law as to what is a work of artistic craftsmanship is not in a very satisfactory state. His Honour then listed a number of propositions which he thought were supported by current authority. 68 On the present state of the evidence, and applying those propositions, I think that there is a very strong argument that the Plug and the JS 9000 yacht itself are works of artistic craftsmanship. I select a few of those propositions. First, the phrase "work of artistic craftsmanship" is a composite phrase, to be construed as a whole, in which the words are used in ordinary senses. Secondly, a work will qualify as one of artistic craftsmanship if it has an element of real artistic, that is aesthetic, quality whether or not it is a utilitarian article. Thirdly, the article need not have such a high level of aesthetic quality as to make it a work of fine art. Fourthly, the level of aesthetic appeal is higher than mere visual appeal. Fifthly, it is for the Court to make a judgment on the evidence before it whether the work has a sufficient level of aesthetic appeal to be of artistic quality. This must be determined objectively. 69 As I have mentioned, the applicant's intent was to make an article possessing aesthetic quality. That is an important factor, as it is the intent of the creator and its result which will determine whether a work is one of artistic craftsmanship. 70 On the evidence to date, the Plug and the JS 9000 yacht are manifestations of pride and sound understanding resulting from the exercise by the applicant of his craft skill. I do not have to decide at this stage whether the applicant's Mould is also a work of artistic craftsmanship. 71 At this stage of the proceedings the respondents do not deny that the applicant owns the copyright in the Plug, the Mould and the JS 9000 yacht. Nor do they deny that they are in the process of infringing any such copyright as may exist. The question whether the interim injunction should remain in force was argued in the context of the application or otherwise of s 77 of the Copyright Act. It was argued on the assumption that the applicant had not registered any relevant design under the Designs Act 1906 (Cth). 72 On the basis of cases such as Wham-O Manufacturing Co v Lincoln Industries Ltd [1982] RPC 281, a decision of the High Court of New Zealand, which was followed by Falconer J in the Chancery Division of the High Court of Justice in Kambrook Distributing Pty Ltd v Delaney [1984] 4 IPR 79; and United Pacific Industries Pty Ltd v Madison Sports Pty Ltd [1998] FCA 614 (Finkelstein J), I consider that the Plug and the JS 9000 yacht are, on a strongly arguable basis, sculptures within paragraph (a). Furthermore, as I have just indicated above, my provisional view, at this stage, is that they are sculptures which are also works of artistic craftsmanship. 73 Again on a provisional basis, I do not regard the steps which the applicant took before he crafted the Plug (starting with the freehand drawings and moving forward in the method described in paragraphs 40-42 above) detract from the degree of artistic craftsmanship reflected in the finished product. The process described is one of intellectual conception followed by the application of skilled manual and visual craftsmanship to create the Plug. The applicant was aided by his own drawings (which reproduced his original thoughts) but he made adjustments some of which were concerned with aesthetics. The Plug is a combination of intellectual effort and considerable artistic craftsmanship. In my view, once again on a provisional basis, the artistic craftsmanship of that work should not be denied just because some drawings were used. 74 In oral argument, Mr McCormack submitted that sub-paragraphs (a), (b) and (c) of the definition of 'artistic work' were in effect, mutually exclusive. That is, if the Plug for example were a sculpture (and the authorities referred to above suggest that that is the case), then it could not be a work of artistic craftsmanship. 75 On a provisional basis, I reject that proposition. Each of the categories of works described in paragraphs (a) and (b) of that definition may or may not be of artistic quality. If a particular work were not of artistic quality, it seems to me highly unlikely that it would fall within paragraph (c) as a work of artistic craftsmanship. But I see no reason why, for example, a sculpture of sufficient artistic quality cannot be a work of artistic craftsmanship. If it is, then it falls within the words in parenthesis in s 77(1)(a). 76 The words which I have underlined in paragraph (c) of the definition set out above do not have the result that the paragraphs are mutually exclusive. To construe the definition in that manner would be to find that a sculpture can never be a work of artistic craftsmanship. I simply cannot accept that proposition. To do so would, in my view, be not to give effect to ordinary English words. A sculpture which is artistically meritorious and has been crafted into a "work" by the application of the traditional skills and labour of a sculptor, or similar skills exhibited by the craftsmen referred to in the cases cited at [72] above, fits very neatly into the description of "a work of artistic craftsmanship" being the words used in parenthesis in s 77(1)(a); see Cuisenaire v Reed [1963] VR 719 at 729. 77 It seems to me, as a matter of construction, that the words which I have underlined above in paragraph (c) strongly suggest that there may be works of artistic craftsmanship to which the categories of items referred to in paragraphs (a) and (b) apply. Those words, in my view, raise such an implication. 78 I am comforted to find that the same view is expressed in Lahore at Vol 1 para [6125], where the author says this: 'Works of artistic craftsmanship comprise only those works not falling within the other categories of artistic work, although it is not clear whether a work such as a sculpture, included in category (a) of the definition, may not also be a work of artistic craftsmanship. Category (c) does not exclude this possibility. On the contrary, the definition suggests that categories (a) and (b) may apply to a work of artistic craftsmanship. Such works will, however, include all kinds of applied art such as jewellery, metal work, pottery, furniture, glassware, and works of "artistic" design or representation. In many cases preliminary sketches or drawings will be made and copyright may subsist in these as artistic works. But the finished work of artistic craftsmanship may itself be a separate subject-matter of copyright." 79 Mr McCormack relied quite heavily upon two first instance decisions of this Court. The first was Kevlacat Pty Ltd v Trailcraft Marine Pty Ltd (1987) 79 ALR 534. It is not necessary for me to set out the details of that case for present purposes. It is only necessary for me to make two points. The first is that when Kevlacat was decided s 77(1)(a) was in a materially very different form, because it did not have the exception expressed in parenthesis which includes the reference to a work of artistic craftsmanship. Secondly, there was no plea in that case based on the proposition that the moulds of the yacht were artistic works. A possible amendment to the statement of claim was foreshadowed – see p 544. At the same page his Honour acknowledged that if the moulds could be classed as "artistic works" in their own right, then the respondents' moulds in that case might be indirect, and therefore infringing, copies of them. 80 The second case upon which Mr McCormack placed considerable reliance was Shacklady v Atkins (1994) 126 ALR 707, a decision of Davies J. In that case a model of a yacht was prepared from which drawings were developed. Davies J held that there was copyright in the model and the drawings. His Honour held that subject to s 77 of the Act, the reproduction of the hull and deck of the yacht through a process of flop moulding, using an existing yacht rather than the direct application of the drawing would constitute a substantial reproduction of the design and an infringement of the copyright. His Honour then focused (see p 713) on whether the design reflected in the drawings had been applied industrially. He found that it had and that the design was registrable under the Designs Act. 81 In that context (see pp 715-717) Davies J considered the application of former Regulation 20A(1) of the Designs Regulations. This was in relation to a model (Exhibit E – see p 710) which, according to a passage at p 717 was only the port half of a solid timber model yacht. In relation to that exhibit his Honour found that the design, that is, the design being the shape and configuration of the yacht set out in the drawings, was not a design of a sculpture but of a yacht. The following passage, at p 717, contains the core of his Honour's reasoning on this point: 'The former reg 20A is not relevant. The design was not a design of a sculpture but of a yacht. Although Mr Adams' design could possibly be gleaned from Ex E, which is the port half of a solid timber model yacht, if one were an expert and if Mr Adams' answer given in re-examination which I have set out above were entirely correct, nevertheless, the design was not of a work of sculpture. The model was simply an early step taken in the development of Mr Adams' concept of the yacht. The design which was to be applied industrially was a design of the Adams 10.' 82 In my view, Shacklady is distinguishable on the basis that there was no claim that the model itself was a work of artistic craftsmanship within the meaning of s 77(1)(a). 83 His Honour reached the above conclusion despite the agreement of counsel that Ex E was an artistic work at least on the footing that it was a sculpture – see p 710. But a sculpture may be an "artistic work" without being of artistic quality – see paragraph (a) of the definition of that term. 84 Mr McCormack submitted that Davies J in Shacklady had proceeded on the assumption that a sculpture could not be a work of artistic craftsmanship. In my view, his Honour did no such thing. Counsel had agreed that Ex E in that case (the 64 cm model) was an artistic work on the footing that it was a sculpture. His Honour was not called upon to consider whether it was a work of artistic craftsmanship. The explanation why that was so can, I think, be gleaned from the description of Ex E at page 717. 85 The Plug in this matter is not the port half of a model yacht (as was the case in Shacklady), but a hand-crafted model of what later becomes the whole yacht. Shacklady turned on whether the drawings disclosed a design in respect of which a corresponding design could have been registered under the Designs Act. The issue in the present case is, in my view, very different. 86 As I have said above, I consider that on the evidence to this stage, the applicant has a strong case that the Plug and the JS 9000 yacht fall within the exception provided in parenthesis in s 77(1)(a). 87 Accordingly, at present, I would assess the respondents' defence based on s 77(1)(a) of the Act, as being a weak one. 88 I do not accept Mr McCormack's submission that the manner in which the respondents are copying the JS 9000 yacht (by reverse engineering) somehow breaks the "causal nexus" between the applicant's copyright in the Plug and the JS 9000 yacht, and the steps which have been taken by the respondents towards manufacturing and selling identical yachts. In my view, there is sufficient evidence not just of indirect infringement but of direct infringement of the applicant's copyright in at least these two works of artistic craftsmanship. 89 In those circumstances it is not necessary to consider the question of industrial application within s 77(1)(b). Even so, I note Mr McCormack's concession that there is a serious question to be tried on that point. Mr McCormack argued that the applicant's case on that issue was not a strong one. He is probably right, but the question does not arise. I now turn to the balance of convenience, i.e. the risk of doing an injustice to one or other of the parties. the balance of convenience 90 The applicant's fears are that if the injunction is discharged, the fourth respondent will take the JS 9000 hull and deck mouldings, together with any other mould or mouldings at present in the factory, overseas and that he will thereby lose control of his copyright. 91 Given the manner in which the fourth respondent and its directors have behaved to date, I would regard that as a real risk. What they have done may well (for all I know) accord with currently acceptable standards of commercial morality, but their conduct suggests to me that they would be quite prepared to move these items offshore for the purposes of their business. Mr Bosman and Mr Zaza have very recently travelled overseas on the fourth respondent's business and their intent is to promote and market the JS 9000 yacht initially in Europe and the United States of America. 92 Even if the injunction were not discharged, but varied in the manner suggested by the respondents, the same real risk would exist. In the latter circumstance there would be the potential for considerable prejudice to the business of the applicant's licensee and thus in turn to the applicant as licensor. Between them they have built up a market in the various countries to which I have earlier referred and thirty-two JS 9000 yachts have been sold in that market throughout the world. 93 There is a very real question whether an award of damages, if the applicant is successful in these proceedings, would be adequate compensation. It would be quite difficult to obtain the proofs and assess the damage to the goodwill so far generated throughout the world by the applicant and his licensee in the JS 9000 yacht. I refer also to the applicant's latest affidavit in that regard. 94 In the context of an interlocutory injunction, I also take into account what evidence there is of the financial position of the respondents. There is no evidence about the financial position of the individual respondents. But such evidence as there is in relation to the financial position of the fourth respondent suggests that it has been set up on fairly limited loan funds. In paragraph 6.2 of Mr Bosman's affidavit sworn on 30 September 2003, he says that the fourth respondent borrowed and has expended the sum of $300,000 as working capital. It has committed itself to the agreement for lease of the premises at Pinjarra and has (see Mr Bosman's affidavit sworn 3 October 2003) also committed itself to a substantial weekly amount in "contract fees" to various skilled contractors. 95 Not only am I unconvinced that damages would be an adequate remedy readily assessed, but I regard the prospect of the applicant recovering such damages as being speculative. The applicant is not, of course, entitled to any sort of security for whatever damage he may have sustained to date, but the damage to which I am referring is prospective damage if the injunction is discharged or varied and the applicant is eventually successful in the proceedings. 96 There is High Court authority, in the context of an application for an interlocutory injunction, that infringement of copyright is ordinarily restrained by injunction – see The Commonwealth of Australia v John Fairfax & Sons Ltd (1980) 147 CLR 39 at 58. 97 The fourth respondent has given evidence of the financial outgoings which it is incurring each week of the period during which the injunction is in force. There is a contract fee of $2,300 to Mr Varcoe, which would come to an end in December 2003. As to the third respondent, there is evidence that he is actively seeking alternative employment. The fourth respondent has not seen to put on evidence as to its legal entitlement if any to terminate the services of the other contractors referred to in paragraph 3 of Mr Bosman's affidavit of 3 October 2003. 98 But the respondent advances other matters as indicating that it will suffer irreparable damage and effectively be put out of business in the event that it remains restrained from carrying on its proposed business. Not only is the difficulty of replacing the team of contractors to which Mr Bosman refers, but there are the market problems referred to in paragraphs 7 to 14 of Mr Bosman's affidavit of 3 October 2003. He also refers to delays in delivery of yachts to prospective clients and distributors, promises made to distributors and agents in Europe, the fourth respondent's desire to compete with the applicant in the overseas market and other like concerns. As I have mentioned earlier, Mr Bosman estimates that the fourth respondent's costs would run at the rate of at least $40,000 per month which in turn would affect the price for which the yachts could be sold commercially. Mr Bosman deposes to his belief that should there be any further delay in resuming production, the business conducted by the fourth respondent will be irretrievably lost. 99 I accept that the injunction places a very substantial burden on the fourth respondent and, for that matter, the three contractors who comprise the first, second and third respondents. I have regard to Mr Burge's affidavit sworn on 16 October 2003, Mr Warren's affidavit sworn on 17 October 2003 and two further affidavits sworn by Mr Bosman on 3 October 2003 and 16 October 2003 respectively. They reveal that if the fourth respondent's business closes down, Mr Burge and Mr Warren will be out of work and they will be under substantial financial pressure. 100 The question of convenience, so it seems to me, is fairly evenly balanced as between the respective concerns of the parties. I have endeavoured to summarise those concerns. 101 The respondents complain about (and raise as a matter going to discretion) certain articles which have appeared on the internet and which were annexed to the affidavit which Mr Bosman swore on 30 September 2003. Mr Burge and Mr Warren say that the references in those articles are damaging to their reputations and are distressing. Each states that they propose to obtain legal advice concerning any remedies available to them. 102 I have had regard to that evidence but I am not persuaded that relief should be denied on the basis of those matters. 103 The respondents also submit that the applicant had not fully disclosed all material facts when he applied ex parte for the interim injunction. He had not disclosed the risk of damage to the mould, hull or deck moulding if those items were moved. That is true, but the applicant has sworn that he denies that there would be such a risk. Secondly, the respondents complain that the applicant did not inform the Court that the design of the JS 9000 yacht was not registered under the Designs Act. Given the provisional which I have expressed above on this subject, I do not think that such an omission weighs against the continuation of the interim injunction. 104 The respondents challenge the applicant's financial ability to meet his undertaking as to damages if he is unsuccessful in the proceedings. But, as I have already mentioned, I think that the evidence establishes on a balance of probabilities that he will be able to do so if the matter of liability can be resolved by next March. Conclusion 105 Taking into account all of the factors which I have mentioned I consider that the appellant's case is, at this stage, very substantially stronger than the respondents' defence. The risk of a greater injustice to one or other party depending upon the outcome of the matter, is not quite so clear. But, weighing up the balance of convenience as best I can on the evidence, I consider it lies in favour of maintaining the interim injunction. The respondents, on the evidence, were aware that they were in an area where the laws of intellectual property applied. They thought that because the applicant had not registered a patent, they were free to act as they did. To a considerable extent they have brought their present predicament upon themselves. 106 However, as I have mentioned, I think that the interests of justice might well require that the questions of liability and quantum be separated, and that the former question be brought on for trial as soon as possible. I propose to list the matter for trial on the question of liability during the first week of February 2004, probably the 3rd, 4th and 5th of that month. Directions will be made for the interlocutory matters necessary in the meantime. But before taking such a course I will hear the parties. 107 In those circumstances, I consider that the injunction should not be discharged or varied. The respondents' motion will be dismissed. I certify that the preceding one hundred and seven (107) numbered paragraphs are a true copy of the Reasons for Judgment herein of Justice Carr. Associate: Dated: 24 October 2003 Counsel for the Applicant: Mr D M Stone Solicitor for the Applicant: Messrs Williams & Hughes Counsel for the Respondents: Mr R J L McCormack Solicitor for the Respondents: Messrs Stables Scott Date of Hearing: 17 October 2003 Date of Judgment: 24 October 2003