FEDERAL COURT OF AUSTRALIA Muscat v Best Direction Pty Ltd [2004] FCA 88 Copyright Act 1968 (Cth), ss 36, 37, 38 and 77 Muscat v Le [2003] FCA 1540 cited THERESA MUSCAT v BEST DIRECTION PTY LTD and OTHERS V69 OF 2004 SUNDBERG J 13 FEBRUARY 2004 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V69 OF 2004 BETWEEN: THERESA MUSCAT APPLICANT AND: BEST DIRECTION PTY LTD (ACN 007 210 835) and OTHERS RESPONDENTS JUDGE: SUNDBERG J DATE OF ORDER: 13 FEBRUARY 2004 WHERE MADE: MELBOURNE UPON THE APPLICANTS, by their Counsel, undertaking to the Court: (a) to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of the orders hereunder; and (b) to pay the compensation referred to in (a) to the person there referred to, THE COURT ORDERS THAT: 1. Until the trial of this proceeding or further order, each respondent other than the eleventh respondent, its servants, agents and assigns, be restrained from: (a) reproducing or substantially reproducing the applicant's dressmaking pattern for "Mytiko pants", being exhibit TM1 to the affidavit of Theresa Muscat sworn 27 January 2004; (b) manufacturing, importing into Australia, selling, offering or exposing for sale, distributing or exhibiting in public any reproduction or substantial reproduction of the Offending Products specified in the said affidavit (the Offending Products), including without limiting the generality of the above, the importation, sale or distribution of: (i) women's pants of the type attached as exhibit TM7 to the said affidavit being labelled "Carisma" style number 5384; (ii) women's pants of the type attached as exhibit TM8 to the said affidavit being labelled "Xcepsion" style number W4PN005; and (iii) women's pants of the type attached as exhibit TM9 to the said affidavit being labelled "Face Off" style number FP 0502; 2. Each respondent other than the third and eleventh respondents forthwith deliver up to the applicant's solicitors, Kliger Partners, level 2, 280 Queen Street, Melbourne (or to such other address as may be specified by Kliger Partners), each and every Offending Product within their possession, custody or control, including each of the items specified in Order 1(b) above. 3. The applicant's solicitors retain the property delivered up in accordance with Order 2 until further order. 4. On or before 20 February 2004 each respondent other than the eleventh respondent file and serve an affidavit setting out full details of each Offending Product that was formerly, but is not now, within their possession, custody or control, including details of the number and type purchased or ordered by each respondent, and the number sold or otherwise disposed of, together with the name and address of each commercial purchaser or other purchaser for resale (excluding purchases by individual consumers) to whom such Offending Products were sold or disposed of. 5. The costs of this application be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V69 OF 2004 BETWEEN: THERESA MUSCAT APPLICANT AND: BEST DIRECTION PTY LTD (ACN 007 210 835) and OTHERS RESPONDENTS JUDGE: SUNDBERG J DATE: 13 FEBRUARY 2004 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 By application filed on 29 January 2004 the applicant claims: (a) a declaration that each of the eighteen respondents has infringed its copyright in the Mytiko design, the cardboard dressmaking pattern, the graded dressmaking pattern and the scanned pattern (the Copyright works) pursuant to ss 36, 37 or 38 of the Copyright Act 1968 (the Act); (b) injunctions restraining each respondent from; (i) reproducing or substantially reproducing the Copyright works and; (ii) manufacturing, importing into Australia, selling, offering or exposing for sale, distributing or exhibiting in public any reproduction or substantial reproduction of the Copyright works including each of the Offending Products specified in the affidavit of Theresa Muscat sworn 23 January 2004 (the Offending Products); (c) an order that each respondent deliver up to the applicant all of the following within their possession, custody or control: (i) all Offending Products; (ii) any other items reproducing or substantially reproducing the Copyright works, whether in two or three dimensional form; (iii) all design drawings, dressmaking patterns, plans, specifications, and all drafts, copies and extracts thereof in any way relating to the above items; (d) damages or alternatively an account of profits of each respondent; (e) remedies for conversion and detinue pursuant to s 116 of the Act, including; (i) an order for delivery up to the applicant of the items referred to in (c); (ii) damages; (iii) an account of profits of each respondent made from the conversion and detention since the Offending Products were made. 2 By way of interlocutory relief the applicant seeks injunctions in the form referred to above and orders for delivery up. The application for such relief was heard on 9 February 2004. Sixteen of the respondents were represented or attended in person. There was no appearance for the sixth and eleventh respondents. Only the third respondent (Krishna) filed affidavits in answer to the applicant's affidavits. Some of the respondents handed up invoices, and one handed up an unsworn statement together with some invoices. 3 The applicant's evidence can be summarised as follows. Karen Muscat, the applicant's partner in the Mytiko business, deposed that the partners create all designs for Mytiko and produce their garments in Melbourne. They retail their merchandise from their shop in Chapel Street, Prahran. Ms Muscat described Mytiko pants designed and made by the applicant as V fronted flared ladies stretch fashion pants. These pants represent a large percentage of the total sales of stock from the shop. They sell for $55 each. In August 2003 Ms Muscat noticed a substantial decrease in the sales of the Mytiko pants. In December 2003 judgment was delivered in Muscat v Le [2003] FCA 1540 in which the present applicant was held, amongst other things, to be the owner of the copyright in the dressmaking pattern for the Mytiko pants. Ms Muscat deposed to making various purchases of the "offending products" after the delivery of the judgment. 4 The applicant herself swore an affidavit in which she repeated some of the matters in her partner's affidavit. She produced a pair of the Mytiko pants and the cardboard dressmaking pattern for them. In August 2003 she became aware of the sale throughout Australia of offending products. Sales of Mytiko pants were significantly reduced during October to December 2003. She identified the three labels under which the offending products were sold: Carisma, Xcepsion and Face Off. By means of a schedule for each label, she identified the respondents' stores where the offending products had been purchased by Mytiko employees. The applicant said that the market for Mytiko pants consists of teenage schoolgirls who mainly purchase them to wear to school. The December/January period is the peak period for purchases for the start of the school year. 5 Glenys Jardine, the applicant's solicitor, gave evidence about the despatch to each respondent of a letter of demand dated 16 January 2004, and of her conversations with some of the respondents who contacted her after receiving their letters. She deposed to her instructions that there has been a fall off in sales of Mytiko pants since January 2004, describing it as a "significant decrease". She spoke also of "serious irreparable damage" likely to result from the sale of the offending products because a significant proportion of the sales occur in the early part of the school year. 6 There was evidence from four Mytiko employees about their purchases of offending products from the respondents' stores. The stores and the products purchased there were identified. 7 Kumi Malcolm, a self employed pattern maker, gave evidence that in January 2004 she was asked by the applicant to make copy patterns of Carisma, Face Off and Xcepsion pants that had been purchased by the applicant as aforesaid. She took these pants and Mytiko pants apart and made cardboard patterns of each of them. The patterns were in evidence. She compared the patterns and expressed the opinion that dress making patterns used to create the offending products were essentially the same as the patterns used to create the Mytiko pants. She said: "If two designers set out to independently create a pair of flared pants with a low waist by reference to the same picture or drawing, the chances of the resulting patterns being close to identical is so remote as to be almost impossible." Ms Malcolm then explained the reasons for this conclusion, and concluded: "In my opinion, due to the fact that the patterns I have created from the Offending Products are virtually identical to the dress‑making patterns I created from each of the Mytiko Pants in exhibit KM8, the Respondent's garments must have been created by pulling apart the Applicant's Mytiko Pants and creating the patterns in the same way that I have done from the Offending Products as outlined above." 8 I will deal first with the respondents other than Krishna. As I have said, only Krishna filed answering material. The other respondents who appeared or were represented adopted the submissions made by counsel for Krishna. To a large extent Krishna's submissions were founded on its answering affidavit material, so that the adoption of its arguments by other respondents does not greatly assist them. To the extent that Krishna's submissions were independent of its evidence, the other respondents have not persuaded me that interlocutory relief should not be granted to the applicant. Counsel for the ninth and eighteenth respondents made submissions additional to adopting Krishna's submissions. His submissions have not persuaded me that interlocutory relief should not be granted against the respondents for whom he appeared. There is a serious question to be tried as to the applicant's ownership of copyright in the patterns. That was not an issue before Finkelstein J in Muscat v Le. It is in issue in the present case. There is a serious question as to infringement, assuming the applicant is the copyright owner. There is a serious question as to applicability of Muscat v Le to the present case, a matter that will require careful examination. 9 The balance of convenience favours the grant of interim relief. The offending garments sell much more cheaply than the Mytiko pants. The applicant's evidence is that her business has suffered and is suffering a loss of sales in the busiest part of the year when schoolgirls are going back to school. Although the evidence about loss and damage is not satisfactory, because of its lack of particularity, I am satisfied that the applicant is likely to suffer loss as a result of the activities of the respondents, and that it will be difficult, if not impossible, to quantify that loss should she ultimately succeed at trial. On the other hand, if injunctions are granted and the respondents succeed at trial, their loss should be readily ascertainable and will be covered by the applicant's undertaking as to damages. Although Krishna made submissions about the worth of the undertaking, no evidence was adduced as to the applicant's inability to support its undertaking. 10 In order to deal with the case against Krishna, it is necessary to record in summary form the evidence it filed in answer to the applicant's case. Krishna's principal affidavit is that of Bob Uppal, the sole director of the company. He deposes that about half of Krishna's sales are made through its own retail stores trading as "Deborah K". The other half are made by wholesale to stores in Perth and South Australia. Krishna does not manufacture the goods it sells. All clothing is imported from overseas, mainly from China. Krishna is not involved in the design of the clothes it sells. Its direct competitors include Carisma Collection and Face Off. Mr Uppal described the way Krishna goes about acquiring the goods it sells. He goes overseas to the United States and London and buys samples of garments that appeal to him. He takes them to Shanghai and shows them to manufacturers there. They show him samples of their clothing. In relation to the Xcepsion pants sold by Krishna, what happened was this. In September 2003 Mr Uppal purchased samples in Los Angeles, New York and London. None of them were pants such as those in question. He then went to Shanghai. One of the manufacturers there, Changshu, showed him a flared V pant. He purchased a quantity. He was not shown any patterns on this or any other occasion in Shanghai. He did not have a sample V pant with him when he made the purchase from Changshu. He has never had any dressmaking patterns for the Changshu pants. The pants arrived in mid December 2003 and sales commenced late that month. They sold for $20 each. They did not sell well, and Mr Uppal reduced the price to $12 in order to clear the stock. He now holds about 500 Changshu pants. He has no intention of ordering any more. 11 Mr Uppal says that prior to the receipt of the applicant's letter of demand he had never heard of Mytiko or its pants. He says that retailers of young women's clothes in Chapel Street, "South Yarra" operate in a different market from those in which the Deborah K stores operate, and this is reflected in the much lower price Krishna charges for the Xcepsion pants. 12 Mr Uppal says that in 1993/1994 he ordered from China flared V pants the same as the Mytiko pants, and that V pants are widely sold throughout the world. He concludes by saying that Krishna keeps accurate records of all sales made by it (including of the Changshu pants) and will continue to do so. 13 Vanessa Carey, a buyer employed by Krishna, made a diagram of size 10 Mytiko and Xcepsion pants, and pointed out the difference in many of the measurements of the two garments. 14 Andrew Samuel, Krishna's accountant since 1994, confirmed Mr Uppal's story that about ten years ago Krishna had imported pants that were the same as the Mytiko pants. Clarita Delatorre, a Krishna employee, said she had sold pants of the same style as the Mytiko pants some time between 1993 and 1996. Alla Papava, a wholesaler of Xcepsion pants purchased from Krishna, deposed that there was nothing special or distinctive about them. She had seen many pants of the same style over the last fifteen years. About ten to twelve years ago she had sold pants of the same style as the Xcepsion pants. 15 Katherine Gove, Krishna's solicitor, said she and an assistant had traced Mytiko, Xcepsion, Carisma and Face Off patterns on cardboard and cut out a pattern of each garment. Each pattern was accorded a different colour. This was done in order to point up differences between the shapes and measurements of the patterns. 16 By reference to this material Krishna's counsel made a spirited attack on the applicant's case. It was contended, amongst other things, that for want of originality the applicant was not the owner of copyright in the pattern, and that if she was, there was no infringement because there had been no copying on Krishna's part. It was also submitted that Muscat v Le was distinguishable, and it was pointed out, as I have said, that the existence of copyright was conceded in that case. Krishna relied on s 77 of the Act as a defence. That is a difficult section in its application to this case. The evidence as to copying in [7], although disputed by Mr Uppal, gives rise to a serious question as to whether the section is available to Krishna. Although counsel's submissions disclosed several hurdles that the applicant will have to surmount in order to succeed at trial, the force of the submissions has not dispelled my impression that there exist the serious questions identified earlier. A serious question remains a serious question even though a serious case can be mounted against it. That I think is the position here. The Krishna material is impressive and persuasive. But, as the applicant's counsel pointed out, it has yet to be tested by cross‑examination. I must consider the whole of the material. Having done so, I think the applicant is entitled to interlocutory injunctive relief against Krishna as well as the other respondents. On the balance of convenience I refer to what I have said at [9]. In order to reflect my concern about the ultimate viability of the case against Krishna, in the exercise of my discretion I will not grant the delivery up relief sought by the applicant against Krishna. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg. Associate: Dated: 13 February 2004 Counsel for the Applicant: R A Millar Solicitors for the Applicant: Kliger Partners Counsel for the First Respondent: W Stark Solicitors for the First Respondent: Septimus Jones & Lee The Second Respondent appeared in person. Counsel for the Third Respondent: G S Clarke SC and I Horack Solicitors for the Third Respondent: Pasricha Partners Solicitor for the Fourth Respondent: David Cheung Solicitors for the Fifth and Seventh Respondents: Vincent Verducci & Associates (A Singh) The Eighth Respondents appeared in person. Counsel for the Ninth and Eighteenth Respondents: E Heerey Solicitors for the Ninth and Eighteenth Respondents: Henley Legal The Tenth Respondent appeared in person. The Thirteenth Respondent appeared in person. Mr Xin Zhang represented the Fourteenth Respondent. Solicitors for the Fifteenth Respondent: Lennon Settle Solicitors (N Mattzeo) Counsel for the Sixteenth Respondent: S L Bingham Solicitors for the Sixteenth Respondent: Lim Whalen & Co Mr Wan Jing Zhang represented the Seventeenth Respondent. Date of Hearing: 9 February 2004 Date of Judgment: 13 February 2004