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Why an entitled person is important - the Designs Act 2003 (Cth)

Section 13 of the Designs Act 2003 (Cth) (”the Act”) specifies who is entitled to be registered as the registered owner of a design.  Those people include:

• (a) the person created the design (the designer);
• (b) if the designer created the design in the course of employment, or under a contract, with another person-the other person, unless the designer and the other person have agreed to the contrary;
• (c) a person who derives title to the design from a person mentioned in paragraph (a) or (b), or by devolution by will or by operation of law;
• (d) a person who would, on registration of the design, be entitled to have the exclusive rights in the design assigned to the person.

 

Incorrectly identifying the entitled person can have severe consequences, as a certified registered design may be revoked by a Court under section 93(3) of the Act if:

• one or more of the original registered owners was not an entitled person in relation to the design when the design was first registered; or
• each of the original registered owners was an entitled person in relation to the design when the design was first registered, but another person or persons were entitled persons in relation to the design at that time.

Nb: original registered owner, in relation to a design, means each person entered in the Register as the registered owner at the time the design was first registered.

 

The Court’s findings

Mr Collymore’s employment contract did not specify whether he or Metroll would own any designs or inventions he created which related to Metroll’s business.  Metroll argued that its ownership of the designs should be implied, because Mr Collymore created the design “in the course of his employment”.  The Court disagreed with Metroll.  Instead, the Court accepted Mr Collymore’s evidence that he created the designs outside of the course of his employment.  The Court also accepted Mr Collymore had told Metroll that he owned the designs and that he proposed to charge Metroll a royalty for the use of his modular tank designs. 

 

Evidentiary issues

The Court rejected various pieces of evidence given on behalf of Metroll as to what was discussed in certain meetings regarding the creation and ownership of the designs.  In particular, evidence was given for Metroll from one person that a “tank-making team”, of which Mr Collymore was said to be a part, was given instructions to create the tank designs.  However, that evidence was not corroborated by anyone else who was said to be part of the “tank-making team”.  The Court said

“Their absence is unexplained, and I infer that none of those witnesses would have provided evidence helpful to Metroll.” (at [34]).

 

Conclusions

In practice, a design application may proceed to registration in a matter of weeks if registration of the design is requested at the time of filing the application.  It is therefore very important to know who is an entitled person(s) under the Act before filing any design application.  If an entitled person is left off or incorrectly included in an application, the design application could quickly proceed to registration and may ultimately be susceptible to revocation. 

 

Of course, ownership of intellectual property should always be clarified as early as possible, such as by including relevant provisions in employment contracts. 

 

This case also shows that when ownership of intellectual property, such as designs, inventions or copyright, is unclear, people’s recollections of discussions which took place many years before may become very important in resolving any ownership dispute.  If contemporaneous notes of relevant conversations and meetings exist, such documents may end up being very important when people have different recollections of what was previously discussed.

 

A further point to be taken from this case is that design registrations may provide effective protection of designs which, at least at first glance, look relatively simple.

Condoms are medical devices under the TG Act and must be registered on the Australian Therapeutic Goods Register (“ATGR”) before being imported into Australia.  Failure to register such goods before importation gives rise to civil and criminal liability under the TG Act.   

The Delegate found the assessment as to whether use of the mark was contrary to law was to be undertaken as at the priority date but looking forward to prospective conduct after registration was effected.  So whilst there had been no importation of the condoms as at the priority date, it was a relevant consideration that the Applicant had later imported the condoms in breach of the TG Act. 

In his decision, the Delegate noted that an applicant for trade mark registration may file an application whilst it is still finalising business arrangements, such as, obtaining the appropriate regulatory approvals.  The Delegate considered a number of earlier decisions where an applicant’s use of a trade mark would have been contrary to law unless the necessary approvals, licences or permissions were obtained.  In those cases, the Delegate found the applicants had been given the ‘benefit of the doubt’ in the sense that it was presumed an applicant would obtain the necessary approvals before actual use of the trade mark commenced. 

The present case was distinguished as the importation of the condoms had already occurred and the mark had been used illegally.  The Delegate also accepted Virgin Enterprises’ submissions that the labelling for the imported condoms did not comply with the TG Act’s labelling requirements.  Registration of the trade mark was therefore refused on the basis its use was, on the balance of probabilities, in contravention of the TG Act which was said to have the result of “effectively determin[ing] the hypothetical question of whether use of the mark would be contrary to law as of [the Priority Date]”.
 
Virgin Enterprises also attacked the application on the basis that the Applicant had no intention to use the trade mark at the time of filing, which is a ground of opposition pursuant to s.59 of the Trade Marks Act.  Virgin Enterprises had undertaken various investigations which had found inter alia: there was no listing on the ATGR for the condoms; the Applicant’s principal place of business was a residence with no apparent commercial activity taking place; and no contact details or a website could be located for the Chinese manufacturer. 

The Delegate accepted the Applicant’s evidence that it intended to sell condoms bearing the trade mark to various hotels and pubs throughout Australia despite the lack of documentary evidence to support this statement.  He also accepted that the Applicant’s relationship with its Chinese manufacturer had broken down so the Applicant was unable to produce invoices or shipping documents to support its statement.  Virgin Enterprises’ evidence of the apparent lack of business activity was not considered sufficient to find the Applicant did not have an intention to use the trade mark at the time of filing of its application.

This decision illustrates the importance of obtaining advice from a lawyer or trade mark attorney who can identify all relevant grounds of opposition, based on the circumstances of use and adoption of a particular trade mark.

The evidence of Larrikin, the copyright owner, was to the effect that taking into account percentages that were agreed in other instances of sampling, a fair remuneration for the licence to use the copyright in Kookaburra for the purpose of writing and exploiting Down Under negotiated on an arm’s length basis between willing parties would have been a royalty in the order of between 25% and 50% of the total income of Down Under. Reference was made to a number of examples where royalties in the range of 20 to 40% had been negotiated. However, following cross-examination, it became apparent that these supposed “comparables” involved factual circumstances significantly different to those in the present case. By contrast, the respondents pointed to examples of royalty arrangements involving a figure of 5% or less.

In calculating an appropriate royalty by considering a hypothetical bargain between the copyright owner and potential licensee, Jacobson J considered the musical significance of Kookaburra in Down Under, the thematic significance, the significance of certain performances of Men at Work front man Colin Hay in which he would sing the words of Kookaburra during Down Under and the visual association with Kookaburra as found in the Down Under music video.

Each of these considerations was found to point toward an appropriate royalty being at the lowest end of the scale. In relation to the musical significance of the part of Kookaburra reproduced in Down Under, the Court placed significant emphasis on the fact that the resemblance between the two was not identified for over twenty years and was only made apparent to Larrikin by a third party.

The Court concluded that:

Although the quotation from Kookaburra in the 1981 recording is, in my view, sufficient to constitute an infringement of copyright, other factors are to be taken into account in assessing the percentage interest payable in a hypothetical licensing bargain.

The most obvious factor is the difficulty in detecting the similarity between the flute riff and the bars from Kookaburra. A further strong indicator of a low percentage is to be found in a qualitative and quantitative consideration of Kookaburra’s contribution to Down Under, looked at a whole.

Accordingly, Jacobson J considered “the figures put forward by Larrikin to be excessive, overreaching and unrealistic” and found that a figure of 5% of the income paid by APRA and AMCOS was an appropriate calculation of damages.

The U.S. Federal Circuit had previously decided that the “machine-or-transformation” test was the sole test for patentability of processes in the US. The “machine-or-transformation” test requires that there be the transformation of a physical article, or a least data representative of a physical article, or that the invention be performed by a particular machine (and not a general purpose computer) in order for patentable subject matter to exist. The software and IT industry feared that many U.S. software patents would fail this test, and that entire U.S. software patent portfolios could be invalid.

The U.S. Supreme Court decision overturns the Federal Circuit’s opinion. Whilst the “machine-or-transformation” test may be useful as an investigative tool, the Court has decided that the “process” category of patentable subject-matter should not be tied to this test only.

The claims of the Bilski patent itself were rejected as covering an unpatentable abstract idea, just like the algorithms at issue in the famous trilogy of U.S. Supreme Court decisions relating to the patentability of software inventions Gottschalk v Benson, Parker v Flook and Diamond v Diehr.

The “machine-or-transformation” test is certainly not dead. In the immediate aftermath of the U.S. Supreme Court decision, the U.S. Patent and Trademark Office has issued a Memorandum instructing U.S. Patent Examiners to continue to examine U.S. patent applications for compliance with the machine-or-transformation test as a tool for determining whether a process is patentable. If the machine-or-transformation test is not met, a patent applicant will need to argue why the invention is not drawn to an abstract idea. The U.S. Patent and Trademark Office is reviewing the Bilski v Kappos decision and will develop further guidelines for U.S. Examiners.

The U.S. Supreme Court decision means that business methods which are not implemented using technology are unlikely to be patentable, but that not all “processes” (and computer programs) need necessarily satisfy the “machine-or-transformation” test.

(The position of the U.S. Courts as to the patentability of business methods and software is now very similar to that of the Australian Courts, as set out in Grant v Commissioner of Patents [2006] FCAFC 120. See our commentary on this case here)

Ownership

The Court found the primary judge had erred in ruling that Television had made out a prima facie case that The Food Channel Pty Ltd (“Channel”) (the applicant at the time of filing) was not the owner of the trade mark pursuant to s.58 ground of opposition.

Issues as to ownership arose because the application was filed for FOOD CHANNEL (logo) in August 2003 in the name of Channel and was later assigned to Network. Paul Lawrence controlled both the Network and Channel entities.

The trial judge found that the evidence as to whether Channel or Network was the owner of the mark was confusing. Her Honour ruled that the onus shifted to Network to establish that Channel was the owner of the trade mark at the time of filing the application and that Network had not discharged this onus.

However, the Full Federal Court found it was incorrect for the onus to be shifted to Network. On the facts, it was unclear as to which entity was the first user and therefore, owner of the trade mark. As such, the court found that Television had failed to demonstrate that there was a prior user of the mark which defeated Network’s claim to ownership.

Intention to use

The Court also overturned the trial judge’s decision that Channel had no intention to use the trade mark or authorise use of the trade mark at the filing date of the application and that Television had established the s.59 ground of opposition.

The trial judge considered Television had made a prima facie case that neither Channel or Network had an intention to use because the evidence as to use was from Mr Lawrence who was not an applicant and that this evidence further confused the issue as to which entity used the mark. The onus therefore shifted to Network to establish there was an intention to use at the time of filing which it had failed to do. The trial judge considered the fact that Network and Channel had the same director and shareholder to be of no relevance for the purposes of determining intention to use.

However, the Full Court found the relevant intention was that of Mr Lawrence, as the party controlling both Network and Channel, and that his evidence suggested an intention to use the trade mark. It also considered that on the evidence Network had used the trade mark on recipe cards it supplied to butchers to give to their customers and had used the mark on class 16 goods. As such, Television had failed to establish the s.59 ground of opposition.

Deceptive similarity

On the issue of deceptive similarity, the Full Court found the trial judge had made two errors in principle. Firstly, by expressly declining to consider the comparison of the marks as a whole and also by failing to appreciate that the comparison was of marks used in different trades (class 16 in the case of the Network mark and class 41 in the case of the Television marks).

The Full Court found there were three significant factors that pointed against the marks being deceptively similar. It found the marks did not look the same, did not sound the same and shared only the common element ‘food’.

It also considered that a comparison as to deceptive similarity, one had to bear in mind the difference in trade between the class 16 goods of the FOOD CHANNEL mark and Television’s class 41 services of ‘education; providing of training; entertainment, sporting and cultural activities.

The court said “The differences between the two marks are so significant, considered in relation to the different trades in which they are used, that we are unable to conclude that Network’s mark is likely to deceive or confuse confusion that goods bearing its mark originate from Television”.

Accordingly, the s.44 ground of opposition was not established.

In a further blow for Television, the Court upheld Network’s appeal against an award of costs which had been made on the basis of a finding that Network’s conduct had frustrated an earlier mediation.

Gallo submitted that in assessing whether there was use of the trade mark it was necessary to consider three basic propositions:
a)      that use means use of the trade mark as a badge of origin indicating a connection between the goods and the trade mark owner;
b)      that use of the trade mark was to be determined objectively without reference to the subjective trading intentions of the trade mark owner; and
c)      that goods relevantly remain in the course of trade until they are acquired for consumption.

The High Court considered that each of these propositions were consistent with long standing authority.

Lion Nathan sought to uphold the Full Court’s decision by reference to Estex Clothing Manufacturers v Ellis and Goldstein (1967) 116 CLR 254, and in particular statements made in that decision about the need for a trade mark owner to project their goods into the course of trade in Australia in order for there to be the necessary trade mark use. The High Court found that Lion Nathan’s contention that it was a necessary condition to establish a use in Australia that an overseas manufacturer knowingly “projects” his goods into the course of trade in Australia was a misreading of the judgment in Estex.

The High Court stated that:

The capacity of a trade mark to distinguish a registered owner’s goods from those of others, as required by s 17, does not depend on whether the owner knowingly projects the goods into the Australian market.  It depends on the goods being in the course of trade in Australia.  Each occasion of trade in Australia, whilst goods sold under the trade mark remain in the course of trade, is a use for the purposes of the Trade Marks Act.

Further:

An overseas manufacturer who has registered a trade mark in Australia and who himself (or through an authorised user) places the trade mark on goods which are then sold to a trader overseas can be said to be a user of the trade mark when those same goods, to which the trade mark is affixed, are in the course of trade, that is, are offered for sale and sold in Australia.  This is because the trade mark remains the trade mark of the registered owner (through an authorised user if there is one) whilst the goods are in the course of trade before they are bought for consumption.

Accordingly, on the facts of this case, there was use of the registered trade mark on vendible products offered for sale and sold in Australia sufficient to defeat the non-use application.

In its judgement, the High Court considered the history between the parties to highlight “the curious character of the Full Court’s conclusion, where there are two rival traders who have lost no opportunity to attack each other’s attempts to register trade marks both before the Registrar and in four sets of court proceedings which have so far been heard by 10 judges, that neither of them is aggrieved, and each is to be regarded as falling within a class of inter-meddlers, lacking any interest to be protected”.

The High Court found the Full Federal Court erred in adopting the exhaustive test for standing from the case of Kraft v Gaines, which included the requirement that a rival have a desire, or intention to use the mark to qualify as a ‘person aggrieved’.   Instead, the Court found the test of whether a party was a ‘person aggrieved’ was whether the parties were trade rivals in relation to the goods to which the mark was applied, as stated by Lord Pierce in Powell v The Birmingham Vinegar Brewery Co Ltd.  The Court said it did not matter whether or not they intended to use the mark on those goods.   As Health World and Shin-Sun were rivals in selling the health products, Health World was held to be a ‘person aggrieved’ for the purposes of s.88 and s.92.

Crennan J whilst concurring with the majority of CJ French, Gummow, Heydon and Bell JJ that Health World was a ‘person aggrieved’, considered an important element of Lord Pearce’s test to be the potential for, or actuality of a business being “affected”.   She considered the fact that Health World was asserting its right to conduct business in goods of the same description as Shin-Sun’s goods, under its trade mark INNER HEALTH PLUS, without having that business affected by a concurrent registration of the trade mark HEALTHPLUS, which Health World contended was erroneously registered, satisfied Lord Pearce’s test of whether a party is a ‘person aggrieved’.  Accordingly, Crennan J did not consider it necessary to decide the issue of whether it is sufficient for a ‘person aggrieved’ to prove no more than trade rivalry with the registrant of the trade mark sought to be removed. 

These matters have been remitted back to the Full Federal Court which must now consider whether to uphold the primary judge’s findings that Shin-Sun’s mark should be removed from the Register pursuant to s.88 and s.92(4)(b).

Note:  The Act no longer requires a party to establish it is a ‘person aggrieved’ to lodge an application for removal pursuant to s.92(1).