FEDERAL COURT OF AUSTRALIA Grace v Beaulieu of Australia Limited [2004] FCA 265 INTELLECTUAL PROPERTY – claim for interlocutory relief – reliance on allegation of copyright infringement for injunctive purposes – copyright and design overlap – whether exclusion in s 74 of Copyright Act applicable to applicants' carpet design – interdependence of probability of success and balance of convenience when considering whether to grant injunctive relief Copyright Act 1968 (Cth) ss 74, 75, 76, 77, 115 Designs Act 1906 (Cth) s 17 Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 applied Bullock v The Federated Furnishing Trades Society of Australasia (No 1) (1985) 5 FCR 464 applied CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 cited De Mestre v A D Hunter Pty Ltd (1960) 77 WN (NSW) 143 applied Dr Martens Australia Pty Ltd v Rivers (Australia) Pty Ltd (1999) 95 FCR 136 cited Kerridale Pty Limited v Western Exporters Pty Limited [2003] FCA 1335 cited Mary Jane Ltd v Jack Toohey & Co Ltd [1961] RPC 389 cited Muscat v Le (2003) 204 ALR 335 cited Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 cited Vetter v Lake Macquarie City Council (2001) 202 CLR 439 applied Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (4th ed, 2002) Phillips, Protecting Designs (1994) Ricketson and Creswell, The Law of Intellectual Property: Copyright, Designs and Confidential Information (2001) COLIN DOUGLAS GRACE, ANDREW KENNETH GRACE, DOROTHY JOY GRACE, GEOFFREY DAVID GRACE & PHILLIP ROBERT GRACE v BEAULIEU OF AUSTRALIA LIMITED (ACN 010 727 992), COLIN DOUGLAS GRACE, ANDREW KENNETH GRACE, DOROTHY JOY GRACE, GEOFFREY DAVID GRACE & PHILLIP ROBERT GRACE No S 855 of 2003 FINN J ADELAIDE 18 MARCH 2004 IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 855 OF 2003 BETWEEN: COLIN DOUGLAS GRACE FIRST APPLICANT ANDREW KENNETH GRACE SECOND APPLICANT DOROTHY JOY GRACE THIRD APPLICANT GEOFFREY DAVID GRACE FOURTH APPLICANT PHILLIP ROBERT GRACE FIFTH APPLICANT AND: BEAULIEU OF AUSTRALIA LIMITED (ACN 010 727 992) RESPONDENT BEAULIEU OF AUSTRALIA LIMITED (ACN 010 727 992) CROSS-CLAIMANT COLIN DOUGLAS GRACE FIRST CROSS-RESPONDENT ANDREW KENNETH GRACE SECOND CROSS-RESPONDENT DOROTHY JOY GRACE THIRD CROSS-RESPONDENT GEOFFREY DAVID GRACE FOURTH CROSS-RESPONDENT PHILLIP ROBERT GRACE FIFTH CROSS-RESPONDENT JUDGE: FINN J DATE OF ORDER: 18 MARCH 2004 WHERE MADE: ADELAIDE THE COURT ORDERS THAT: 1. The application for interlocutory relief be refused. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY S 855 OF 2003 BETWEEN: COLIN DOUGLAS GRACE FIRST APPLICANT ANDREW KENNETH GRACE SECOND APPLICANT DOROTHY JOY GRACE THIRD APPLICANT GEOFFREY DAVID GRACE FOURTH APPLICANT PHILLIP ROBERT GRACE FIFTH APPLICANT AND: BEAULIEU OF AUSTRALIA LIMITED (ACN 010 727 992) RESPONDENT BEAULIEU OF AUSTRALIA LIMITED (ACN 010 727 992) CROSS-CLAIMANT COLIN DOUGLAS GRACE FIRST CROSS-RESPONDENT ANDREW KENNETH GRACE SECOND CROSS-RESPONDENT DOROTHY JOY GRACE THIRD CROSS-RESPONDENT GEOFFREY DAVID GRACE FOURTH CROSS-RESPONDENT PHILLIP ROBERT GRACE FIFTH CROSS-RESPONDENT JUDGE: FINN J DATE: 18 MARCH 2004 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 The case for an interlocutory injunction in this matter has been advanced in a somewhat surprising manner. The five applicants are partners in a business which trades under the registered business name of Edwardstown Carpets and which designs, manufactures and sells broadloom tufted carpets. The respondent, Beaulieu of Australia Limited ("Beaulieu"), is a Queensland-based company that is the third largest manufacturer and supplier of carpet in Australia. 2 The application and statement of claim filed by the partnership claimed first and foremost that Beaulieu had infringed the partnership's monopoly in its registered design to be applied to a carpet by selling and offering for sale its own carpet to which the registered design had been applied. An alternative claim of copyright infringement was made as were associated claims for misleading or deceptive conduct under s 52 and s 53 of the Trade Practices Act 1974 (Cth) ("the TP Act") and for passing off. 3 At the hearing of the application for interlocutory relief, the applicants, while not abandoning their infringement claim under the Designs Act 1906 (Cth), have not sought to rely upon it for injunctive purposes. On the material so far before me, it is unsurprising that this course was taken. Beaulieu made clear early its intention to cross-claim for a declaration that the applicants' registered design was invalid and for orders that it be expunged from the Register of Designs. The basis of this claim is that, having regard to the "Statement of Novelty" in the Certificate of Registration of the applicants' design, that design was not "new or original" at the priority date as required by s 17(1) of the Designs Act. Rather, it had been used by some number of manufacturers in Australia for a significant period before the priority date and a body of evidence to this effect was led before me. 4 It is appropriate to say that had the applicants sought to found their claim for interlocutory relief on their Designs Act claim, I would have refused it on the material before me. This appears to be one of those exceptional instances of a "strong case" of the respondents seeking to show that the applicants' design "ought not to have been registered": Mary Jane Ltd v Jack Toohey & Co Ltd [1961] RPC 389 at 392. 5 A consequence of the course that has been taken by the applicants in relation to the Designs Act claim has been that their emphasis now lies heavily on their copyright claim. For its part Beaulieu is prepared to concede that, subject to the defence it has raised, there is a serious question to be tried as to infringement of copyright. The availability of that defence is, in my view, the issue of real importance for present purposes. As I will later indicate, on the material before me, the TP Act and passing off claims are not obviously strong ones in the sense of suggesting the likelihood of there being causes of action that are attended by such sufficient prospects of success as would justify interlocutory relief: Beecham Group Ltd v Bristol Laboratories Pty Ltd (1968) 118 CLR 618 at 620 per Kitto J (in arg.), and 622. 6 I should also note that the Application and Statement of Claim were filed on 24 December 2003 and that by at least 21 January 2004, the applicants have been made well aware of the defences and the cross-claim that were to be made by Beaulieu. There has in consequence been a considerable body of evidence put on, the applicants and Beaulieu each reading nine affidavits. While I acknowledge that it is not my function to undertake a preliminary trial, the particular nature of Beaulieu's defences and cross-claim and the quantity of evidence put on have assisted in my forming opinions as to the degree of probability of the applicants' success in their various claims: De Mestre v A D Hunter Pty Ltd (1960) 77 WN (NSW) 143 at 145. THE COPYRIGHT CLAIM AND DEFENCE 7 Given Beaulieu's concession, I need only note that the applicants claim that: (i) they are owners of all copyright in all patterns, plans, designs, drawings, sketches and all other artistic and/or literary works from which the "Seasonings" range of carpets is produced; (ii) they have not granted any licence or authority to Beaulieu to reproduce the copyright material; (iii) Beaulieu's manufacture of its "Zambezi" range of carpets amounts to a reproduction in three dimensional form of the copyright materials in breach of s 115 of the Copyright Act 1968 (Cth); and (iv) they have in consequence suffered loss and damage. 8 Beaulieu's defence is that, having registered their design under the Designs Act 1906, the applicants are in the circumstances precluded from raising a claim of copyright infringement against it in consequence of the provisions of s 75 of the Copyright Act 1968. 9 Section 75 is one of a group of provisions in the Copyright Act that reflects the philosophy that designs, not copyright, legislation provides the more appropriate regime to protect designs which have been put to commercial use: Muscat v Le (2003) 204 ALR 335; and see generally Ricketson and Creswell, The Law of Intellectual Property: Copyright, Designs and Confidential Information, Ch 24. 10 Section 75 provides, insofar as presently relevant, that: "… where copyright subsists in an artistic work … and a corresponding design is or has been registered under the Designs Act 1906 … it is not an infringement of that copyright to reproduce the work by applying that, or any other, corresponding design to an article." 11 The term, "corresponding design" is defined in s 74 of the Act in the following manner: "'corresponding design', in relation to an artistic work, means a design that, when applied to an article, results in a reproduction of that work, but does not include a design consisting solely of features of two-dimensional pattern or ornament applicable to a surface of an article." Emphasis added. 12 I have emphasised the exclusion from the definition for this reason. The applicants' response to Beaulieu's defence is that their design falls within the exclusion with the consequence that s 75 is unavailable to Beaulieu. I should also add that, in oral submissions in reply, the applicants have raised the possibility that if Beaulieu is successful in its defence to the Designs Act claim and the design is expunged from the Register on the ground that it did not satisfy the registration requirements of s 17(1) of that Act, then s 75 may have no application in that the design that "is … registered under the Designs Act" was not a design that could validly be registered in the first place. I would note, though, that counsel for the applicants made no reference to such defence as Beaulieu might then have under s 77 of the Copyright Act if expungement in this case had the effect suggested: for a discussion of this contingency see Phillips, Protecting Designs, 46 (1994). 13 To determine whether there is a serious question to be tried in relation to copyright, it is necessary, first, to refer briefly to the applicants' registered design. The Certificate of Registration names the five applicants as owners of the design and states (inter alia) the following: "Article in respect of which the design is registered: Carpet … Statement of Monopoly: Monopoly is claimed in the features of pattern and ornamentation of a carpet as shown in the accompanying representations. The design is not restricted to any specific colour combinations. Statement of Novelty: The design features a looped carpet having alternate rows of higher, thicker pile and lower, thinner pile. The alternate rows are of contrasting colour combinations. 14 The "representation" of the design attached to the certificate provides "top", "side" and "perspective" views of a carpet having the design features of the Statement of Novelty. 15 The applicants' case is that while every object (hence a carpet) is three-dimensional, their own design "consists solely of features of two-dimensional pattern or ornament", i.e. it describes the surface contours of the carpet and the surface itself is two-dimensional. The design is in consequence "applicable to a surface of" the carpet. 16 The respondent's submission is that there simply is not an article to the surface of which a pattern or ornament has been applied. Here the design is for the carpet itself. 17 The applicants appear, at least in part, to be attempting to exploit the well-recognised lack of clarity in the scope of what is excluded from the s 74 definition. Simply to illustrate the limitations of that definition I refer to the following observations in Ricketson and Creswell at [24.65]: "A further problem with the current definition of 'corresponding design' is its exclusion of designs 'consisting solely of features of two-dimensional pattern or ornament applicable to the surface of an article'. The reference to 'surface' raises particular difficulties. Does it, for example, cover features of ornament or pattern which are worked into, or otherwise incorporated into, an article but are not actually applied to the surface? Examples includes patterns that are woven into or knitted into materials, designs for two-dimensional surfaces that are raised or embossed, or even designs for materials where the pattern is to be found in the relative thicknesses of the material used. In the [Australian Law Reform Commission's] proposed amendments … these problems would have been overcome by the inclusion of such expressions as 'substantially two-dimensional' and 'applied to or incorporated in'. The ALRC also saw this as a problem, and further proposed that, if its recommended definition of 'corresponding design' was not adopted … a definition of 'applied to' should be inserted, to the effect that a 'corresponding design' should be taken 'to be applied to' any goods, material or thing if it is 'woven in, impressed on or worked into any goods, material or thing', and that there should no longer be any reference to surface application." 18 The reference to the ALRC's recommendations is to its report, Report No 74, Designs (1995) at 335 – 336. 19 It probably is the case that the question so raised by the applicants is simply a question of law: Vetter v Lake Macquarie City Council (2001) 202 CLR 439 at [24] – [27]; that question being whether the applicants design as applied to its "Seasonings" carpet satisfies the statutory description in the s 74 exclusion. While it can, on occasion, be appropriate for a court when hearing an application for interlocutory relief to decide a question of law: see generally the discussion in Meagher, Gummow & Lehane's Equity: Doctrines and Remedies, [21–390] (4th ed, 2002); the present is not such an occasion. The question raised is novel and it is not free from difficulty: cf CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 72 ALR 270 at 283. Moreover, the parties' submissions on it have been brief. 20 Having reached this conclusion, I nonetheless consider it appropriate to indicate that I consider the applicants' case at best to be a weak one. I have some difficulty with the notions that their design is two-dimensional and is applicable to a surface. Without here having to decide the matter, it seems appropriate to describe the design in question as consisting of features of shape and configuration which are incorporated in the carpet. That is, it is a three-dimensional design. 21 Finally, it is unnecessary for me to comment here on what would be the consequence, for the purposes of s 75 of the Copyright Act, of the applicants' design being expunged from the Register on the grounds raised by Beaulieu in its defence. I would indicate, though, that the applicants' submission on s 74 of the Act would remain live if it proved to be the case that Beaulieu's defence to an alleged copyright infringement was more properly to be found in s 77 of the Act. THE TP ACT CLAIM 22 The similarities between the applicants' "Seasoning" and Beaulieu's "Zambezi" range of carpets is not in dispute. As is clear from inspection, there is a reasonably close resemblance between the two. It is equally not in contest that the applicants' range of carpets is significantly more expensive; is of better quality resulting from the use of a different and superior fibre; and has markedly greater durability. Notwithstanding these differences I am satisfied on the slight material before me in this matter that there is at least significant overlap in the markets at which the two ranges respectively are directed. 23 Put shortly, the applicants' case, based on alleged representations made by virtue of the appearance of Beaulieu's range and of Beaulieu's silence, is that Beaulieu has misrepresented that its product is the applicants' product; is the same as the applicants' product; has the same qualities as the applicants' product; has the sponsorship or approval of the applicants; or that Beaulieu is affiliated with the applicants. 24 The evidence adduced to indicate misleading or deceptive conduct or conduct likely to mislead or deceive, was that of three persons engaged in the distribution of carpets and who referred to instances where they respectively were either confused by, or could not differentiate between, the two ranges of carpets. There was evidence from one of these that the name that appeared on the respective sample books of the two parties' ranges and the labelling of those ranges differentiated the two. Beaulieu tendered sample books and labelled carpet pieces which demonstrate the obvious similarity of the ranges but also the different descriptors of the sample books and the nature of the labelling of its own carpet pieces. It is Beaulieu's evidence that it advertises its carpet by way of books of samples or full size drapes that carry five separate labels on the reverse side of the carpet. 25 Beaulieu's response to the applicants' claim is that a manufacturer does not contravene s 52 of the TP Act merely by manufacturing and distributing to retailers for sale a product which, though properly labelled with the manufacturer's name, very closely resembles and is intended to be seen to closely resemble a product of another manufacturer which has been and still is advertised and marketed: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191; Dr Martens Australia Pty Ltd v Rivers (Australia) Pty Ltd (1999) 95 FCR 136. For this reason its evidence has been directed at its own labelling which, for practical purposes, provides its defence in the circumstances. 26 While I am not prepared to say that the claims made by the applicants are speculative, there is little in the material to suggest that the applicants' prospects of success are likely to be greater than was the alleged contravener of s 52 in Parkdale Custom Built Furniture. The evidence tendered to date is not particularly satisfactory. There is little in it that concerns purchasers (actual or prospective) of the applicants' carpets and the likelihood or otherwise of their being deceived or misled as such. It may be that in the circumstances the labelling to which Beaulieu points provides a complete answer to the claims: cf Parkdale Custom Built Furniture at 210 – 211. But whether it will or will not is a matter for evidence and it is part of the serious question to be tried. THE PASSING OFF CLAIM 27 For present purposes, while recognising the distinctive requirements of this cause of action, I merely note that Beaulieu's defence of it is that the claim lacks a factual foundation, but that in any event Beaulieu's "labelling defence" is a complete answer to it. 28 The evidence to suggest that there is a serious question to be tried is slight. But, as with the TP Act claim, I am not prepared to hold that there is no such question although it may well be the case that it will also be found to be conclusively answered by Beaulieu's labelling defence. DISCRETIONARY CONSIDERATIONS 29 This is one of those cases in which my appreciation of the degree of probability of success of the applicants' claim assumes particular significance in the considerations of which account should be taken in exercising my discretion. As has been noted judicially on a number of occasions, consideration of whether there is a serious question to be tried and of the balance of convenience are not necessarily independent: see Bullock v The Federated Furnishing Trades Society of Australasia (No 1) (1985) 5 FCR 464 at 472; Kerridale Pty Limited v Western Exporters Pty Limited [2003] FCA 1335 at [22]ff. The balance of convenience and of justice in this matter is against the award of interlocutory relief notwithstanding that the applicants have shown that there are questions to be tried. 30 The essence of the injury the applicants claim they will suffer focuses, predictably, on their expenditure in developing and advertising their product; on its success and repute in the market place and the threat a similar but inferior product is said to pose to that success and repute; and on the loss of opportunities to sell their product resulting both from sales to the respondent and from prospective purchasers turning away from both their and Beaulieu's products because of the inferiority of Beaulieu's product. 31 Their evidence does establish that the Seasonings range constitutes an important part of the partnership business. In the 2002-2003 financial year it recorded sales revenue of approximately $10.5 million and the Seasonings range accounted for about 20 per cent of sales. It equally establishes that the range has some following amongst retailers who pay the business for advertising stands for the product. And it does point to one instance in which it lost a prospective sale because of Beaulieu's cheaper price, although Beaulieu denies it ever obtained the contract in question. 32 Beaulieu's evidence is that it only began retailing its Zambezi range in October 2003; that once the present issue arose, it ceased active promotion or marketing of the product though it did not withdraw it from the market; and that as of late February 2004 it had sold only approximately $130,000 of the carpet. Evidence was given of the investment made in the product of over $500,000 and of the losses Beaulieu would suffer, especially in terms of a particular supply contract, if it was to be now enjoined from selling its product. Beaulieu contends as well that on the applicants' own figures the likely actual loss that they would suffer from Beaulieu's continuing to sell its product up to the final hearing of the matter would be moderate. For that, Beaulieu would be able to pay. The evidence, it is said, does not indicate that the applicants could not adequately be compensated by an award of damages. 33 For my own part I am not satisfied that such injury as the applicants might sustain if interlocutory relief is refused is likely to be of such character and dimensions as would not adequately be able to be compensated by an award of damages. I consider that the sums likely to be involved in relation to loss of opportunities are not of any real magnitude (having regard both to Beaulieu's own sales and the applicants' annual turnover attributable to the Seasonings range) and that loss of reputation damages, though difficult to assess, is equally likely to be relatively small. Against this there are the very real doubts I entertain about the likelihood of success the applicants have in the various claims they advance. That likelihood does not reach such a level as would in the circumstances justify preservation of the status quo – the more so given the detriment that Beaulieu would suffer in not being able to exploit (even limitedly) the investment it has made. 34 The application for interlocutory relief will be refused. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn. Associate: Dated: 18 March 2004 Counsel for the Applicants: S Crowe SC with D K Grigg Solicitor for the Applicants: Hunt & Hunt Counsel for the Respondent: D M Quick QC with N G Rochow Solicitor for the Respondent: Royle & Co Date of Hearing: 5 March 2004 Date of Judgment: 18 March 2004