Do you have to pay for a software licence when you buy the business

war / / Copyright

It’s not an uncommon scenario: the client has bought a business, but some mission critical software is outdated and the licence is not transferable except on payment of a fee. What do you do: Pay the fee or “save” the money and keep using? Thawley J found that the licensor’s consent to some time to evaluate options meant Shepparton Partners (SPC) had an implied licence but thereafter infringed. Injunctions and $1,162,428.80 damages flowed.

I am guessing pretty much everyone in Australia at some point or another has experienced SPC’s canned fruit, vegetables or maybe fruit juices.

Some facts

To run its business, SPC Ardmona (SaleCo) used QAD’s enterprise resource planning ERP software. It used the ERP software for everything: for sales orders and inventory management, procurement, manufacturing planning and control, service and support project management, distribution and finance. SaleCo had a perpetual licence, but it was not transferable. SaleCo also paid an annual maintenance fee, which was paid up to 31 July 2019.

The version SaleCo used was the 2008 version. In 2018, however, QAD had approached SaleCo with a proposal to upgrade to the new, current 2017 version. SaleCo’s IT personnel agreed with the proposal but the price was sufficiently high that agreement required sign-off by SaleCo’s ultimate owner – Coca-Cola Amatil.

Coca-Cola Amatil had decided to sell the SPC business and didn’t want to spend that money. The sale eventually went through in June 2019 to SPC. Before the purchase went through, QAD had written to SaleCo and SPC stating it would consent to the transfer of the licence provided 3 conditions were met:

  1. Payment of a transfer fee of $424,392 and a maintenance fee for the next year of $177,816;
  2. Execution of an appropriate transfer agreement and a new licence agreement
  3. Satisfaction of conditions 1 and 2 before 30 June 2019, otherwise the offer was automatically withdrawn.

There was also a quote to upgrade to the new, current cloud-based version of $755,000 per annum (although the amount seems to have been negotiable).

SPC, however, considered the QAD 2008 version was not “fit for purpose” although not “useless” and persuaded QAD it needed more time to consider its options. By letter dated 27 June 2019, QAD extended the time for acceptance initially to 31 July. There were further meetings, discussions and email so that ultimately the time for acceptance was extended until November 2019.

In November 2019, QAD suspected that SPC was likely to go with a different vendor. It wrote to SPC pointing out it had had 5 months to make a decision and decision was required. SPC wrote back saying that responsibility for paying the transfer/licence fee was the responsibility of Coca-Cola Amatil or SaleCo.

SPC continued to use the QAD 2008 software until 28 September 2020 when it implemented Microsoft Dynamic 365 as its ERP software.

Even after 28 September 2020, however, SPC continued to use the QAD 2008 software for “non-production purposes” such as extracting historical information for quality control or financial reasons. Amongst other things:

  • before the changeover to Microsoft, SPC used the software in “day to day” use;[1]
  • SPC made modified or customised copies of the QAD 2008 software including “test and development reproductions”;
  • after the changeover to Microsoft, it made an ‘historical copy’ of the QAD 2008 software on a different server;
  • it also made “back-up” copies on its servers.

It appears that SPC expected it would need to keep using the QAD 2008 software for “non-production purposes” for another seven years.

An implied licence

Thawley J held (one would think largely uncontroversially) that the various ways SPC continued to use the QAD 2008 software involved reproductions of the whole or substantial parts of the software.

However, in the period from 27 June 2019 to SPC’s November letter,[2] SPC had an implied licence to use the software so use in that period was not infringing. The implied licence arose from the 27 June 2019 letter and the course of conduct between the parties until November.

Infringement and damages

Use after that period was not licensed and therefore infringed.

Thawley J awarded QAD $662,428.80 in compensatory damages and an additional $500,000 by way of additional damages.

The $662,428.80 amount was the transfer fee plus a maintenance fee for one year plus GST. Given the compensatory nature of damages under s 115(2), that was the loss QAD suffered.

Additional damages were appropriate as SPC at all times knew it needed QAD’s consent to the transfer of the licence and that it was its responsibility to obtain that consent. Consequently, its infringement was flagrant. Also there was a need for deterrence.

Cross-claim against the vendors

SPC did run a cross-claim against Coca-Cola Amatil and SaleCo arguing that they had breached the business purchase agreement by failing to pay QAD the transfer and licence fees.

These claims were said to arise essentially from the vendors’ obligations to use “best endeavours” to obtain a transfer of the licence and do whatever they lawfully could, including rendering all reasonable assistance, to permit SPC to have the benefit of the licence of the QAD 2008 software. There were also obligations on SaleCo to hold its rights in the assets of the business on trust for SPC.

The wording of the business purchase agreement was perhaps not as clear as it could be: it did make specific provision that the vendors did not have an obligation to pay fees and charges for certain key assets.

In the result, however, Thawley J concluded there had been no breach of their obligations by the vendors. At all times, the managing director of SPC knew that payment of the transfer and maintenance fees would be SPC’s responsibility. A key indicator of this had been the fact that all negotiations with QAD were undertaken throughout the enitre period by SPC. Coca-Cola Amatil and SaleCo were never involved.

If you are a software vendor in this sort of situation, you may need to be careful about the terms you let the new owner evaluate your software. In the end, it wasn’t a financial problem for QAD because it only intended to charge a one-off fee. If the fee had been time based, say annual, it could have lost out. Purchasers and vendors also need to be clear about whose responsibility it is to pay the fees. Even if it were the vendor’s responsibility, the purchaser in SPC’s position was the one directly liable for infringement. An indemnity, or claim for breach of contract, would not be much help if the vendor has disappeared or distributed its assets after completion.

QAD Inc v Shepparton Partners Collective Operations Pty Ltd [2021] FCA 615 (Thawley J)

  1. Day to day use involved users connecting to the software using a user name and password. The QAD 2008 object code on SPC’s application software was then loaded into the server’s RAM and the code stayed in RAM until the server was shut down or (more likely) the user logged off: [79]  ?
  2. Or possibly 10 December 2019 when QAD formally notified SPC the licence was terminated.  ?

AGL, Greenpeace and free speech

war / / Copyright, Trade marks

AGL, one of Australia’s largest suppliers of electricity, gas and telecommunications, owns copyright in and has registered as a trade mark its AGL “logo”:

TM No 1843098

Greenpeace started running a campaign about AGL’s business “Still Australia’s Biggest Climate Polluter” which included the online banner:

You can see why that might upset someone at AGL.

That caused AGL to sue Greenpeace for copyright infringement and trade mark infringement.

Burley J has largely dismissed the claims.

Burley J held that there was no copyright infringement for uses like the example above as they were fair dealing for purposes of parody or satire.

Some other uses, however, did not make such use of irony, sarcasm or ridicule, or humorous juxtaposition, as to qualify as parody or satire. This seems largely to have turned on the absence of the pointed tag line Australia’s Greatest Liability in an example such as:

A Greenpeace protest poster image

These uses also did not qualify for the defence of fair dealing for the purposes of review or criticism. They did not, for example at [92], “rise above the level of protest statements that are critical of AGL as a company, and would not be understood to represent criticism of review, whether of the AGL logo or any other work.”

Burley J also rejected AGL’s case on trade mark infringement: Greenpeace was not using the AGL logo as a trade mark. At [102], his Honour explained

The use of the modified AGL logo is to identify that brand, and the company that it represents, as the subject of criticism. [Consumers]would not perceive Greenpeace to be promoting or associating any goods or services by reference to that mark. Rather, it is the use of the modified AGL logo to refer in terms to AGL and the goods and services that AGL provides: see, for example, Irvings Yeast-Vite Ltd v Horsenail (1934) 51 RPC 110 at 115 (Lord Tomlin), cited in Shell Company at 426 (Kitto J).

This, with all due respect, has to be right. His Honour’s approach, however, demonstrates with stark clarity the problem with the reasoning in the “parallel import” cases like the Full Court’s (overruled) decision in E & J Gallo Winery v Lion Nathan Australia Pty Ltd, most recently confirmed in the Scandinavian Tobacco case at [21] – [56] (although one could argue, apart from the Gallo case, the goods weren’t in fact parallel imports).

AGL Energy Limited v Greenpeace Australia Pacific Limited [2021] FCA 625 (Burley J)

p.s. AGL might feel doubly aggrieved by this as, back in the 1980s, it had successfully sued for copyright on the basis that there was no parody defence. It only took another (almost) 20 years, but the Act did finally get amended to bring in that revolutionary development.

Fearless Girl – the sequel

war / / Copyright, Trade Practices

The Fearless Girl replica statue is currently on display in Federation Square without any disclaimer (and has been for some time). In the wash-up from his Honour’s earlier reasons dismissing State Street Global’s claims, Beach J has now ordered that it can continue to be displayed either without any plaque or alternatively, with a plaque which states:

This statue is a limited edition reproduction of the original “Fearless Girl” statue in New York that was sculptured by the artist Kristen Visbal. The original statue was commissioned and is owned by State Street Global Advisors Trust Company. This reproduction is owned by Maurice Blackburn who purchased it from the artist. Maurice Blackburn has no association with State Street.

In his Honour’s principal reasons, Beach J had ruled that the display of the Fearless Girl replica and the way it had been used by Maurice Blackburn did not make any of the misrepresentations of association alleged by State Street Global. His Honour did also observe that the use of disclaimers for a period including about 3 months pursuant to an interlocutory injunction ordered by his Honour would have dispelled any misrepresentation of association (if it had been made).

State Street Global argued that a disclaimer should be required because of the uncertainty about what Maurice Blackburn might do with the replica statue in the future and might even sell it. Maurice Blackburn pointed out that, as his Honour had dismissed the claims of misrepresentation, there was no basis for any disclaimer. It also argued any disclaimer should await the determination of any appeal.

At [19], Beach J considered “SSGA seek too much, and MBL concede too little.”

At [21], Beach J considered there was sufficient material to warrant the exercise of his discretion. This appears to reflect his Honour’s summary of State Street Global’s contention:

SSGA say that absent appropriate disclaimers, there is nothing to stop MBL from engaging in the conduct that led to the present proceeding. SSGA say that having regard to uncertainty around MBL’s future intentions regarding the use or display of the replica, there remains a real risk that MBL’s use of the replica could give rise to future contraventions of the Australian Consumer Law. They note that I did accept that members of the Australian public may have known about the original Fearless Girl statue and the name “Fearless Girl”, and that such members may have associated the original statue and the name “Fearless Girl” with certain gender equality issues.

Pointing out that State Street Global’s proposed disclaimer was “an incomplete statement, fashioned to facilitate commercial advantage.  After all, MBL owns the replica, not SSGA.  And the artist was quite entitled to sell the replica to MBL for a use not inconsistent with the master agreement”, his Honour made an order in the form indicated.

One might think it unusual that there would be an injunction against future conduct which has not been found to occur. The “no plaque” option reflects this, but also means the name “Fearless Girl” cannot be used in a way which dilutes State Street Global’s association.

State Street Global Advisors Trust Company v Maurice Blackburn Pty Ltd (No 3) [2021] FCA 568

Artificial intelligences and inventions Down Under

war / / Patents

The Commissioner of Patents has rejected the DABUS application Down Under.

Stephen L. Thaler applied for a patent, AU 2019363177, entitled “Food container and devices and methods for attracting enhanced attention”. The application named the inventor as:

DABUS, The invention was autonomously generated by an artificial intelligence

The application being made under the PCT, there was a formalities check, which, in reg. 3.2C(2)(aa), requires the Commissioner to check whether the named inventor has been identified.[1]

When the Delegate objected that an inventor had not been identified. Thaler explained why he considered DABUS was the inventor (in part):

The sole contributor to the invention is DABUS, an artificial intelligence machine that includes artificial intelligence programs written by the applicant. DABUS is capable of devising inventions without the involvement of a natural person who traditionally qualifies as an inventor. For the present invention, the machine only received training in general knowledge and proceeded to independently conceive of the invention and to identify it as novel and salient. How DABUS functions is described in detail in US Patent 10,423,875 and other patent specifications.

The Delegate understood from this response that DABUS is not a person as understood in law – an individual, a corporation or a body politic.[2]

There is no definition of “inventor” in the Act. Thus, Wilcox and Lindgren JJ had declared that the word bears its ordinary English meaning.[3]

At [12], the Delegate said:

…. Any standard dictionary shows that the traditional meaning of inventor is a person who invents. At the time that the Act came into operation (in 1991) there would have been no doubt that inventors were natural persons, and machines were tools that could be used by inventors. However, it is now well known that machines can do far more than this, and it is reasonable to argue that artificial intelligence machines might be capable of being inventors. I have no evidence whether the ordinary meaning of “inventor”, assessed at the present day, can include a machine. But if this were the ordinary meaning, would this be consistent with the other provisions of the Act?

So far as the other provisions and context provided any (limited) assistance, the Delegate considered at [20] that it was clear a patentee must be a person. This implied that an inventor also needed to be a person and, in any event, an inventor who was not a person could not be a patentee.

Although it was not part of the decision, it may also be noted that an author for the purposes of copyright must be a natural person. A computer-generated work is not an original work for the purposes of copyright as there is no author.[4] Of course, a patent can protect ideas or function while copyright protects the “expression” of ideas. At least to the extent that the rationale for granting protection in either system is the natural rights of a person to the fruits of their mental labour,[4] one would think the same considerations should apply.

Thaler has enlisted the services of Allen’s pro bono and appealed, No. VID 108/2021.

Stephen L. Thaler [2021] APO 5]

  1. Correct identification of the inventor(s) is important as a patent can be revoked if it is not granted to an “entitled person” (or all the “entitled persons” (see s 138(3)(a)) and a person can be an “entitled person” only if they can trace their chain of title back to the inventor(s): s 15(1)(a).  ?
  2. Citing Acts Interpretation Act 1901 (Cth) s 2C.  ?
  3. Atlantis Corporation Pty Ltd v Schindler [1997] FCA 1105; 39 IPR 29 at 54.  ?
  4. Telstra Corporation Limited v Phone Directories Company Pty Ltd [2010] FCAFC 149 at [90] (Keane CJ) and [117] – [119] (Perram J).  ?

Fearless Girl!

war / / Copyright, Enforcement, Trade marks

Beach J has ruled that Maurice Blackburn did not breach any of State Street Global’s rights in the Fearless Girl statue by arranging for a replica to be displayed at the launch of a campaign to address the gender pay gap.

Image of Fearless Girl bronze sculpture in alley with tour group in background
Image by maggavel from Pixabay

In 2016, State Street had commissioned Kristen Visbal to create a life-size bronze statue which became known as “Fearless Girl” in connection with a campaign to promote State Street’s Gender Diversity Index exchange traded fund, known as the “SHE fund”.

The completed statue was installed and unveiled in Bowling Green Park on Wall Street, famously appearing to confront the Charging Bull statue.[1] This had been a wildly successful campaign with, amongst other things, over 4.6 billion Twitter impressions (?) and a “mere” 745 million Instagram impressions (?) in the first 12 weeks!

In 2019, Maurice Blackburn and a number of corporate and super fund backers negotiated an agreement with Ms Visbal for a fee of USD250,000 permitting them to display a Fearless Girl replica in Federation Square Melbourne[2] in connection with a campaign for Equal Pay Day.

After Maurice Blackburn sent out invitations to the unveiling of the Fearless Girl replica in Federation Square, State Street sued Maurice Blackburn and some of its co-funders for pretty much everything they could think of:

  • interference with contractual relations;
  • false, misleading or deceptive conduct in trade and commerce contrary to the Australian Consumer Law and passing off;
  • trade mark infringement; and
  • copyright infringement.

All the claims failed.

Beach J’s reasons for judgment run for some 1191 paragraphs over 274 pages. So, more considered analysis will have to await a later day (or days).

The central issue seems to have been the very specific nature of State Street’s rights to control further reproductions of the work and the careful way Maurice Blackburn had used Fearless Girl.

The terms State Street and the artist had negotiated included a clause granting State Street the exclusive rights:

to display and distribute two-dimensional copies, and three-dimensional Artist-sanctioned copies, of the Artwork to promote (i) gender diversity issues in corporate governance and in the financial services sector, and (ii) SSGA and the products and services it offers. …. (emphasis supplied)

and Ms Visbal also agreed that no other party could be authorised to use “the Artwork” as a logo or brand ….

Beach J held that the way Maurice Blackburn had used Fearless Girl in connection with the Equal Pay Day campaign did not fall within the scope of State Street’s exclusive rights. It also was not use as a logo or brand. Michaela Whitbourn has a nice summary.

However, it looks like there will need to be a further hearing to determine whether, and if so, how Maurice Blackburn may use and display its Fearless Girl replica in the future.

State Street Global Advisors Trust Company v Maurice Blackburn Pty Ltd (No 2) [2021] FCA 137

  1. Those of you out there with long(-ish) memories, might recall that that juxtaposition caused its own ‘moral rights’ controversy. Fearless Girl was later moved in April 2018 to its current position in front of the New York Stock Exchange.  ?
  2. Fed Square, of course, is not without its own controversies!  ?

IP Australia and Indigenous Knowledge – consultations

war / / IP generally, Patents, Trade marks, Trade Practices

In September 2020, IP Australia published its work plan to make provision for the better protection of Indigenous Knowledge in Australia’s Intellectual Property System.

Now it has released a consultation paper on four topics from that work plan it wishes to advance.

As summarised in the Introduction, the consultation paper raises four topics:

  1. Establishing an Indigenous Advisory Panel – providing a formalised Indigenous voice to IP Australia.
  2. Measures for trade mark or designs using Indigenous Knowledge – changes to processes to ensure IK owners benefit from, or have consented to, the use of their IK as the basis for rights.
  3. New requirements to declare the source of Indigenous Knowledge used in new innovations – make it easier to determine if IK has been used in a patent or plant breeder’s right, and encourage conversations about access and benefit sharing.
  4. Labelling to promote authentic Indigenous Products – exploring interest in labelling schemes that distinguish authentic Aboriginal or Torres Strait Islander goods.

Topic 2, relating to trade marks and designs, notes that IP Australia may currently reject an application if the application uses “IK” which is secret or sacred; the name of a group or a nation where there is no connection to that group or nation or uses a an Aboriginal or Torres Strait Islander word which should be available for other business to use.

Noting the limitations in that range, the consultation paper seeks input on a range of issues including:

(a) whether people would have concerns providing a statutory declaration etc. as evidence to support an objection to an application;

(b) whether IP Australia should ask applicants whether they have consent to use the “IK”;

(c) the introduction of a check to assess whether an application would cause cultural offence to a community or communities;

(d) whether IP Australia should assess whether the the application involves a use of “IK” in a way which falsely suggests a connection to an Indigenous person, community or nation.

Other questions relate to tools for better identifying applications which involve the use of “IK”.

Topic 3 raises questions about whether patent applicants should be required to declare the source of (1) genetic resources and/or (2) traditional knowledge included in their applications or on which an application is based.

Additional questions relate to how such requirements would be implemented, enforced and, if not complied with, penalised.

The Overview page states that consultations close on 24 May 2021.

News media “use” right

war / / Copyright

The Government has introduced into Parliament the Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill 2020.

This is the Bill to enact legislation to make Google and Facebook pay the news media owners for “use” of their news.

For some commentary on the earlier exposure draft, see here.

There have been some notable changes. These include:

  • When setting the amount of the payment, there will now be a requirement that the value the media organisation receives from having its material “used” by Facebook or Google, as the case may be, is taken into account: see proposed section 52ZZ;
  • The public broadcasters, the ABC and the SBS, reportedly will be able to negotiate for payment whereas previously they were excluded;
  • Opinion pieces, not just “news”, may qualify as material the “use” of which must be paid for, not just “news” written by journalists: s 52A

The Channel 9 newspaper reports that the retiring MD of Channel 9 is spitting chips over the inclusion in the value calculus of the benefit the news organisation receives from Facebook’s, or Google’s, “use”.

It still remains far from clear what, if any, rights of the news publishers are actually being “used” and for which payment will be required. What impact, if any, will the definition of “making content available” as including “a link to the content is provided on the service” have on the scope of the communication right conferred by copyright? Similarly, will the inclusion within that definition of “an extract of the content is provided on the service” affect the interpretation of what is, or is not, a fair dealing?

There is a little peep behind the curtain into the sausage making process here.

Meanwhile, media reports indicate the bill will be referred to a Senate committee for inquiry.

Treasury Laws Amendment (News Media and Digital Platforms Mandatory Bargaining Code) Bill 2020

More on the Designs ACIP bill

war / / Designs

Following Friday’s post, the text of the Designs Amendment (Advisory Council on Intellectual Property Response) Bill 2020 and the Explanatory Memorandum are now available.

So:

  • Schedule 1: the 12 month ‘grace period’ before the priority date for prior use/publication by or with the consent of the design. Publications by the Registrar of Designs (i.e. on the Register of Designs) or by an equivalent overseas person or body will not be able to claim the benefit of this ‘grace period’. On the other hand, if some third party starts using, or publishes, the design or a substantially similar design after the design owner, there will be presumption that the third party derived its design from the design owner. In other words, if the registered owner is relying on the ‘grace period’, the onus will be on the person asserting invalidity by prior use or publication in the 12 month ‘grace period’ to prove the prior art relied on was not derived from the registered owner or the owner’s predecessor in title.
  • Schedule 2: will introduce new s 71A to provide an exemption from infringement for persons who start using a design during the 12 month ‘grace period’ introduced by Schedule 1. The exemption will continue to operate after the design is registered. The exemption extends not only to those who actually engage in an otherwise infringing act but also to a person who: had taken definite steps (contractually or otherwise and whether or not in Australia) to do [the otherwise infringing] act…. According to the EM, ‘definite steps’ will not be satisfied by mere ‘initial steps’. The plans must be finalised and the process of acquiring or making all components must have started. Under 71A(4), the person entitled to the exemption may “dispose” of their entitlement so that the exemption passes to the disposee – presumably, it follows from the disposal of the entitlement that the disposer cannot continue to claim the benefit.
  • Schedule 3: removes the publication option – the nice flowchart of the options for requesting registration and the formalities check is now on p. 23 of the EM.
  • Schedule 4: will amend s 75 to provide a further ‘innocent infringer’ defence for acts done prior to registration of the design (when the design representations are first published). The amendment will give the Court a discretion not to award damages where the defendant satisfies the Court that, when the infringing acts were done, the defendant was not aware, and could not reasonably have been expected to be aware, that the design application had been filed.
  • Schedule 5: will give an exclusive licensee standing to sue for infringements. By proposed s 5A, an exclusive licensee will be defined to be as a person to whom the registered owner has granted the exclusive rights in the design.[1] An exclusive licensee may be empowered to sub-license. A person will not be disqualified as an exclusive licensee, however, if their exclusive rights do not include the right to sub-license.
  • Schedule 6: will empower the Registrar to specify the formal requirements for design applications by publishing notices – these formalities will no longer by specified in the regulations and such notices will not be “legislative instruments”
  • Schedule 7
    1. Repeals “the standard of the informed user” and replaces it with the “standard of the familiar person” adopted in Multisteps.
    2. Will give the Court a discretion whether or not to revoke a registered design on grounds of lack of entitlement unless satisfied in all the circumstances it is just and equitable to do so – this will bring the revocation power on this basis in line with s 138 of the Patents Act.
    3. Will permit revocation on grounds of fraud, false suggestion etc. perpetrated at the examination stage.
    4. Makes provision for ‘revived’ designs where the renewal fees are not paid until after the expiry of the initial 5 year term:
      1. If the renewal fees are paid within 6 months after expiry of the initial term (the so-called ‘renewal grace period’), the registration will be treated as remaining in force and never to have ceased;
      2. But if the renewal fees are paid after 6 months (on the basis of an application for an extension of time), the registration will be treated as having ceased on the expiry of the 5 year term.
      The significance of these differences is that a third party should not start using the design in the 6 month ‘renewal grace period’. The protections under s 140 will be available only to persons who start using after the expiry of the ‘renewal grace period’.
  1. Strictly speaking, the exclusive rights conferred by s 10(1)(a) to (e) only. Can anyone think of a rational reason why s 10 confers on the registered owner the exclusive licence to authorise people to do the acts in s 10(1)(a) to (e), but authorising an infringement is not an infringing act under s 71?  ?

Designs Amendment (Advisory Council On Intellectual Property Response) Bill 2020

war / / Designs

The Designs Amendment (Advisory Council On Intellectual Property Response) Bill 2020 was introduced into Parliament on Wednesday, 2 December.

At the time of writing the links to the text of the Bill and the Explanatory Memorandum are inactive.[1] You can read, however, the Minister’s Second Reading speech.

Also there has already been consultation on an exposure draft and IP Australia’s response to that public consultation. So we know broadly what is in the Bill, although there were a number of details to be worked out following IP Australia’s response.

According to the Minister’s Second Reading speech:

  • the Bill introduces the 12 month ‘grace period’ for design owners who make their designs publicly available before they file their design applications – this was Sch. 1 in the exposure draft. As the Minister pointed out, this will align Australia’s registered design law with “many of our major trading partners” (including the EU and the USA);
  • the Bill will give exclusive licensees standing to bring infringement proceedings – this was Schedule 4 in the exposure draft. In the exposure draft at least and as with patents, the exclusive licensee had to be the exclusive licensee of the whole right;
  • the Bill will remove the “rarely used” publication option so that every application will be an application for registration – one consequence of this reform as implemented in the exposure draft was that a design application will automatically proceed to formalities examination and registration 6 months after filing if registration was not requested earlier;[2]
  • there will also be a prior user defence for a person who commences using a design during the ‘grace period’ before the design application is filed – this was Schedule 2 in the exposure draft;
  • in addition, in cases where registration is delayed (up to 6 months from the filing date), there will be some sort of “innocent infringer” defence for a person who commences using the design in the period between filing and registration (as it is only on registration that the design representations are published);
  • there are also “smaller technical corrections and improvements” including revocation of a design for fraud, false representation etc. during certification.

Although the Minister’s Second Reading speech does not mention it, the exposure draft also included in Schedule 6 the amendment of s 19(4) to abandon the “informed user” test and adopt the “familiar person” test.

The Minister also indicated the Bill “is just the first stage of the Government’s ongoing program of designs reform, with more improvements to come after further consultation.” According to IP Australia’s consultation page (scroll down), the following matters are still on IP Australia’s Policy Register:

  • Protection of partial designs – Policy ID 42 This issue apparently has “high priority”;
  • Protection of virtual, non-physical and active state designs – Policy ID 43 This issue apparently has “high priority”;
  • Clarify ambiguity in section 19 of the Designs Act – Policy ID 35 A third issue with “high priority”;

(This is in addition to the change from “informed user” to “familiar person”.)

  • Clarification of ‘registered’ and ‘certified’ designs – Policy ID 37 Also “high priority”;
  • Some of the amendments proposed in Recommendation 18 of the ACIP Designs Review (18b, 18d, 18e and 18g are not progressing at this time) – Policy ID 45

For the research reports arising from the longer term Designs Review Project, see here.

Debate on the Bill itself has been adjourned to the first sitting day of the next period of sittings – presumably, in 2021.

Lid dip: Genevieve Corish at LexisNexis

  1. When they do appear (presumably in the next few days), they should be accessible from here and/or here.  ?
  2. This was Sch. 3 in the exposure draft. The exposure draft Explanatory Memorandum at p. 22 had a nice flowchart illustrating the application and registration process under the proposed regime.  ?

A case about works of artistic craftsmanship

war / / Copyright

Spoiler alert: it wasn’t!

State of Escape (SOE) sells the Escape bag:

2 images of a soft carry-all tote bag in blue perforated neoprene with sailing rope handles; one image with the sides expanded; the other closed.

SOE claimed Ms Schwartz and her company, Chuchka, were infringing copyright in the Escape bag as a work of artistic craftsmanship by importing and selling the Chuchka bags. SOE also alleged that the sale of the Chuchka bags was misleading or deceptive conduct and passing off.

Despite Ms Schwartz’ denials, Davies J found that the Chuchka bag was copied from the Escape bag and, if copyright subsisted in the Escape bag, numerous versions of the Chuckha bag would be infringements. SOE did not have a registered design and SOE was selling at least 50 or 60 Escape bags a day. So, subsistence of copyright came down to whether or not the Escape bag was a work of artistic craftsmanship.[1]

The Escape Bag

The Escape bag is a soft, oversized tote bag. It is made from perforated neoprene fabric with handles made from sailing rope which wrap around the body and base of the bag. It also has an internal, detachable pouch made from perforated neoprene and press studs at either end for expansion.

The bags are made by hand. They feature hand punched holes where the rope goes in, a heat seal tape finish along the top line of the bag and other contact points.

The Escape bag was designed over several months of trial and error in 2013 by Ms MacGowan who, with Ms Maidment, is a co-founder and director of SOE.

Ms MacGowan gave evidence that she designed the bag to be both beautiful and practical. She chose perforated neoprene as it was aesthetically pleasing and light:

The bag did not have any lining. I did not want it to have any embellishments. I did not want anything disguising something that was not beautiful. I wanted the whole thing to be beautifully created. I hand cut all the patterns. I wanted the inside to be as beautiful as the outside. I wanted to challenge ingrained ideas that a bag had to be a certain way. My focus was, ‘This is what it is’. I did not want the bag to be like something else. Everything in the design had to be there for a reason. For instance, there was a risk that binding could ruin the curve of the bag. I ended up putting binding on the top edge because I was concerned it would fray. There were a lot of things that I felt strongly about.

Ms MacGowan said she did not want to use leather or webbing for the handles as she considered they did not fit with the design aesthetic. She spent many months with her sewing machine working out how to fix the rope to the bag so it retained its round profile and was not merely glued. Ms MacGowan explained:

It really complemented the neoprene beautifully. And also it was very important that I had to find rope that matched back with the fabric beautifully because it was really about creating an impression of the whole than the individual parts. So that was also very, very important.

Ms MacGowan’s evidence explained design issues she had to confront and resolve including:

  • how to sew the rope on to the bag rather than glue it;
  • how to stop the fabric from ripping at pressure points where the rope joined the bag;
  • stopping the raw cut neoprene edges at the top of the bag from fraying;
  • reinforcing the pressure points under the press studs and rope entry points;
  • using a glue lined heat shrink black tubing to fix the rope to the bottom of the bag;
  • attaching the rope to the four bottom corners which would otherwise be exposed to the risk of damage;
  • providing a pocket for valuables;
  • finishing the inside seams to look like the rest of the bag.

Burge v Swarbrick

At [77], Davies J and counsel for the parties managed to divine nine guiding principles from the High Court’s decision in Burge v Swarbrick to determine whether the Escape bag qualifed as a work of artistic craftsmanship:

(a) the phrase “a work of artistic craftsmanship” is a composite phrase to be construed as a whole: Burge at 357 56, 360 [66]. It is not permissible to inquire separately into whether a work is: (a) artistic; and (b) the manifestation of craftsmanship;

(b) in order to qualify as a work of artistic craftsmanship under the Copyright Act, the work must have a “real or substantial artistic element”: Burge at 356 52;

(c) “artistic craftsmanship” does not mean “artistic handicraft”: Burge at 358 59;

(d) a prototype may be a work of artistic craftsmanship “even though it was to serve the purpose of reproduction and then be discarded”: Burge at 359 60;

(e) the requirements for “craftsmanship” and “artistic” are not incompatible with machine production: Burge at 358–9 59–60;

(f) whilst there is a distinction between fine arts and useful or applied arts, when dealing with artistic craftsmanship there is no antithesis between utility and beauty or between function and art: Burge at 359 61;

(g) a work of craftsmanship, even though it cannot be confined to handicraft, “at least presupposes special training, skill and knowledge for its production… ‘Craftsmanship’… implies a manifestation of pride and sound workmanship – a rejection of the shoddy, the meretricious, the facile”: Burge at 359 61, citing George Hensher Ltd v Restawile Upholstery (Lancs) Ltd [1976] AC 64 (Hensher) at 91 per Lord Simon;

(h) although the matter is to be determined objectively, evidence from the creator of the work of his or her aspirations or intentions when designing and constructing the work is admissible, but it is neither determinative nor necessary: Burge at 360 [63]–65. In determining whether the creator intended to, and did, create a work possessing the requisite aesthetic quality and requisite degree of craftsmanship, the Court should weigh the creator’s evidence together with any expert evidence: Burge at 360 64 and 65; and

(i) in considering whether a work is one of “artistic craftsmanship”, the beauty or aesthetic appeal of the work is not determinative. The Court must also weigh in the balance the extent to which functional considerations have dictated the artistic expression in the form of the work: Burge at 364 83–84.

Having set out the High Court’s statement of principle at 83, Davies J emphasised at [79] the High Court’s factual conclusion at [73] in application of that principle:

Taken as a whole and considered objectively, the evidence, at best, shows that matters of visual and aesthetic appeal were but one of a range of considerations in the design of the Plug. Matters of visual and aesthetic appeal necessarily were subordinated to achievement of the purely functional aspects required for a successfully marketed “sports boat” and thus for the commercial objective in view.

The Escape bag was not a work of artistic craftsmanship

Ms MacGowan’s evidence at [84] was that “the overall appearance of the bag as an object was fundamentally the most important thing.” She explained that “simplicity, beauty and originality” were her guiding principles:

“something free of embellishments, that was so pure in its form, structure and makeup that it embodied beauty in simplicity.”

SOE’s expert, a Ms Beale, agreed; considering the Escape bag “unique”. In cross-examination, however, she accepted that the uniqueness arose from the “decision decision” to use perforated neoprene and sailing rope “rather than in any contribution to the creation of those underlying materials.”

Ms Schwarz’ expert, Mr Smith, considered the use of perforated neoprene and sailing rope to be “strong design features”, but neither of them in itself was “new”. Mr Smith considered that combining 2 or more features that had been in common use over many years “[was] an evolution in styling rather than a completely new design”.

While Davies J reported that the experts agreed the Escape bag was a quality product, at [105] her Honour reported the experts agreeing that:

the Escape Bag is constructed using a standard construction method of “stitched together and then turned out” and other elements conform to what is generally expected of this style of bag – significant skill, training or knowledge was not required beyond what was expected in the design or manufacturing process”.

Davies J accepted that Ms MacGowan aspired to produce something of beauty, but that was not determinative as, following Burge, whether something was a work of artistic craftsmanship had to be determined objectively. At [109], her Honour declared that assessment required looking at the bag as a whole and “not by disintegrating the design choices made by Ms MacGowan within the functional limitations of the bag she created.” (emphasis supplied) While Ms MacGowan set out to design a stylish bag, at [110] her Honour found that “the function and utility of the bag as a carry all bag governed the overall design of the bag.”

Davies J considered on the evidence that significant design features resulted from and served functional considerations.

In the result, Davies J considered that, in designing the Escape bag, Ms MacGowan was not an “artist-craftsperson”: she had no special training, skill and knowledge relating to the design of handbags. The central aesthetic choices were the decisions to use perforated neoprene and sailing rope. Those two choices alone were not sufficient to constitute the resulting bag as a work of artistic craftsmanship.

At [121] – [122], her Honour explained:

[121] I also accept the submission for the respondents that Ms MacGowan did not approach the design and manufacture of the Escape Bag as an artist-craftsperson. She had no special training, skill and knowledge relating to the design and manufacture of handbags and many of the issues she encountered were purely functional in nature – for example, preventing the raw edges of neoprene from fraying, reinforcing the point where the rope handle enters the bag, and how to sew the sailing rope onto the bag while retaining the roundness of the rope.

[122] Further, I do not regard the selection and use of perforated neoprene as the fabric for the Escape Bag or its use in combination with sailing rope as involving an act of artistic craftsmanship. Both materials were readily available commercial materials capable of being used to manufacture a carry all bag without some particular training, skill or knowledge. At its highest, the use of those materials to make an everyday bag was an evolution in styling. Whilst Ms Beale was of the view the combination of those materials made the Escape Bag “unique” she accepted in cross-examination that the uniqueness to which she referred related to “design decision” to use those materials, rather than in any contribution to the creation of those materials.

At one level, the decision can be seen as raising a high bar for designs applying the “form follows function” theory of design rather the embellishment of embellishment’s sake. That seems to follow, however, from Burge. The suggestion that “revolution” rather than “evolution” is required might also be thought concerning.

While Davies J emphasised at [121] the functional nature of issues to be resolved, one might question the ways they could be resolved and the aesthetic choices that might be involved.

There may also be troubling aspects of the level of skill required to be demonstrated. The experts agreed that the level of skill exhibited by Ms MacGowan was not “beyond what was expected in the design or manufacturing process”. Are then works of artistic craftsmanship limited only to those exhibiting rare levels of skill? It is important to remember that the point of protecting works of artistic craftsmanship is to encourage real artistic effort by silversmiths, potters, woodworkers, hand-embroiderers and many others whose work does not qualify as a sculpture, engraving, drawing, painting or any of the other categories named in paragraphs (a) and (b) of the definition of artistic work.[2]

In that respect, it does not appear that Ms MacGowan could be characterised as an “artist-craftsperson”. Davies J appears to have considered that the innovation lay in the choice of materials – perforated neoprene and sailing rope – in an otherwise fairly standard bag design. In that case, the result should be uncontroversial especially as the objective was always large scale production.

Nonetheless, the decision highlights yet again the problematic decision to include what was intended to be an expansive, and expanding, category of subject matter as an exception to a defence.

On the “passing off” related allegations, Davies J (mercifully) found SOE did not a reputation in the features of the bag alone reputation. Her Honour also considered, where the competing bags sold for around, respectively, $300 and $100, the branding of the products brought into play the well-known principle from Parkdale v Puxu:

Speaking generally, the sale by one manufacturer of goods which closely resemble those of another manufacturer is not a breach of s 52 if the goods are properly labelled. There are hundreds of ordinary articles of consumption which, although made by different manufacturers and of different quality, closely resemble one another… the normal and reasonable way to distinguish one product from another is by marks, brands or labels. If an article is properly labelled so as to show the name of the manufacturer or the source of the article its close resemblance to another article will not mislead an ordinary reasonable member of the public.

State of Escape Accessories Pty Limited v Schwartz [2020] FCA 1606

  1. See Copyright Act 1968 s 77 and see paragraph (c) in the definition of artistic work in s 10(1). Copyright was claimed in the first, finished bag Ms MacGowan made or, alternatively, the first 8 bags supplied to the first customer. At [47], the first finished bag differed from the 8 bags supplied to the customer in that it did not include heat shrinkable tubing, the internal pouch was differently designed and there was no branding.  ?
  2. See paragraph 260 of the Gregory Committee report quoted by the High Court in Burge at para. 49  ?