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High Court of New Zealand Decisions |
Last Updated: 30 July 2019
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2018-404-001171
[2019] NZHC 1687 |
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UNDER
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the Patents Act 2013
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BETWEEN
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THINKING ERGONOMIX PTY LIMITED
Plaintiff
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AND
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INTEG INTERNATIONAL LIMITED
Defendant
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Hearing:
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25 June 2019
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Appearances:
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B Henry, H Elcoat and S Singh for Plaintiff C Elliott QC for
Defendant
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Judgment:
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18 July 2019
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JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 18 July 2019 at 4.30 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar Date...........................
THINKING ERGONOMIX PTY LTD v INTEG INTERNATIONAL LTD [2019] NZHC 1687 [18 July 2019]
Introduction
[1] In the substantive proceeding, the plaintiff, Thinking Ergonomix Pty Ltd (Thinking Ergonomix), sues the defendant, Integ International Ltd (Integ), for patent infringement and breach of copyright. The product at issue is a monitor arm system, which is used in the design and manufacture of commercial furniture.
[2] The particular dispute relates to the design of the post and arm that attaches to the monitor and holds the computer screen upright. This was described by Integ as an “ubiquitous part of office equipment”.
[3] In the present, interlocutory proceedings, the following applications have been made:
(a) Application by the defendant pursuant to r 10.15 for a separate issue to be determined in the form of a Markman hearing (dated 15 October 2018);
(b) Application by the plaintiff for removal of the claim of confidentiality pursuant to r 8.25 of the High Court Rules 2016 in the defendant’s list of documents (dated 21 December 2018); and
(c) Application by the defendant for further particulars or more explicit pleadings pursuant to r 5.21(3) (dated 15 October 2018).
[4] It is well established that r 10.15 allows the determination of one or more preliminary questions. Its purpose is to expedite proceedings by limiting or defining the scope of the trial in advance or obviating the need for a trial altogether.1
[5] A Markman hearing is a preliminary hearing as to claim construction. It is a well-established term of United States patent law and recognised as a way of streamlining the patent litigation process and reducing court time and cost for all parties. The name derives from Markman v Westview Instruments Inc2 in which it was
1 Innes v Ewing (1986) 4 PRNZ 10 (HC).
held that claim construction (that is, interpretation of the integers of the claims) is a question of law for the court.3
Defendant’s application for separate issue to be determined
[6] Integ seeks orders as follows:
(a) That the question of the construction of certain specified terms in the claims of New Zealand patent number 585943 (the patent), namely cavity, slot, pawl, rack, gear, collar, urged, within and engagement (the patent terms) be determined as a preliminary issue separately from the question of infringement and validity, if any, of the patent; and
(b) Forming the question for decision and, to the extent necessary, a statement of case.
[7] The grounds upon which the application is based include the following:
(a) The defendant has denied infringement and foreshadowed the likelihood of bringing patent revocation proceedings;
(b) A key issue is how the patent terms in terms of the claims of the patent are construed by the court;
(c) Questions relating to the construction of the patent terms are raised by the wording of the patent, the claim for infringement reflected in the pleadings and any cross-claim for revocation.
Relevant legal principles: Preliminary hearing on separate issue
[8] Rule 10.15 of the High Court Rules reads:
10.15 Orders for decision
The court may, whether or not the decision will dispose of the proceeding, make orders for—
(a) the decision of any question separately from any other question, before, at, or after any trial or further trial in the proceeding; and
3 In the United States, patent litigation is tried by judge and jury.
(b) the formulation of the question for decision and, if thought necessary, the statement of a case.
[9] In Karam v Fairfax New Zealand Ltd, Associate Judge Osborne adopted the following general principles:4
(a) The jurisdiction is discretionary;
(b) Each case is to be considered on its own facts;
(c) There is an assumption that it is usually preferable to determine all matters in issue at one trial;
(d) There is some onus on an applicant to establish a preponderant balance of factors in favour of the determination of a separate question — the onus has been variously described as “not insignificant”, “moderate”, and “heavy”. An appropriate approach is to consider whether the applicant has established good, preponderant reasons in favour of a separate question determination.
[10] Associate Judge Osborne further held that the considerations relevant to the exercise of the discretion will vary with the facts of each case.5 Sets of considerations, gathered from the case law, are assembled in McGechan on Procedure6 and in Sim’s Court Practice.7 In recent years, further examples can be found in the judgments in Turners & Growers Ltd v Zespri Group Ltd8 and Haden v Attorney-General.9
[11] Fisher J, in Clear Communications Ltd v Telecom Corp of New Zealand Ltd, commented as follows regarding the risks of the r 10.15 procedure:10
Split trials risk a number of difficulties. It is often difficult to define with sufficient precision the demarcation between those issues to be addressed at the first trial and those left for the second (see, for example, the Arklow litigation). It is not always easy to see what matters have become the subject of issues estoppel. It may be necessary to prepare issue estoppel schedules
4 Karam v Fairfax New Zealand Ltd [2012] NZHC 1331 at [58].
5 At [59].
6 McGechan on Procedure (online ed, Thomson Reuters) at [HR10.15.06].
7 Sim’s Court Practice (online ed, LexisNexis) at [HC10.15.4].
9 Haden v Attorney-General HC Wellington CIV-2010-485-2380, 4 November 2011 at [50].
and hear argument as to their scope. A judge may inadvertently disqualify himself or herself by expressing views on matters yet to be fully addressed at the second hearing (Winton). Findings might be inadvertently made without the benefit of evidence and argument envisaged by a party as appropriate only for the second hearing. The second hearing can require the recalling of the same witnesses with needless extra time and cost to the parties and the public. There is duplication of time spent by counsel and the Court in re-acquainting themselves with issues imperfectly remembered from an earlier trial and the time spent re-traversing those matters in Court. There can be multiple appeals (in extreme cases taking the matter to the Privy Council as in Ryde v Sorenson) before returning to the Court of first instance to embark upon the second phase of the case. Even without appeals, there can be delay in embarking upon a second round of discovery and other interlocutory matters and amended pleadings following the first trial and then the delay of obtaining a fixture for the second hearing. There can be difficulties in ensuring that the same Judge is available for the second hearing, bearing in mind the usual commitments, sabbaticals, retirements and deaths which are the unhappy lot of the judiciary. If a different Judge has to preside at the second hearing there can be difficulties over earlier views as to credibility and the status of the notes of evidence from the first hearing. In my view these and other difficulties together place a heavy onus on any party seeking split trials.
(emphasis added)
[12] I adopt, as a basis for my analysis, the formulated criteria applied by Kós J in
Haden v Attorney-General.11
Question 1: Will there be difficult demarcation questions between the issues to be addressed at the first trial and those left for the second?
[13] Kós J in Haden v Attorney-General held:12
The interaction between issues in split trials is said to be the single most important question for consideration by a court considering a Rule 10.15 application. ... Issues in the two hearings desirably should be discreet.
[14] In determining this question, the court must look at:13
(a) What is pleaded?
(b) What issues arise on the separate question?
(c) What issues remain for the second hearing?
(d) In each case, what evidence is required to dispose of those issues?
12 Haden v Attorney-General HC Wellington CIV-2010-485-2380, 4 November 2011 at [50(a)].
13 At [50(a)].
[15] In Lucas v Peterson Portable Sawing Systems Ltd, Fisher J held that the relevant principles for interpreting a patent specification include:14
(a) the interpretation of a patent specification is a question of law for the court to determine but expert evidence can be received as to the meaning of technical terms and concepts found within the specification;
(b) the specification had to be construed through the eyes of a skilled but unimaginative addressee; the test was what an addressee skilled in the particular art in question would understand from the document as a whole;
(c) the specification had to be given a purposive construction;
(d) the Court had to have regard to the surrounding circumstances as they existed at the priority date, and these included matters of common general knowledge at that time ...
[16] It is well established that a patent is construed objectively, through the eyes of the skilled addressee.15 That means evidence of the patentee as to what he or she intended it to mean is not to be admitted, nor any indirect evidence which is said to point to his or her intention. It is also clear that the surrounding circumstances (the matrix) and common general knowledge do not include circumstances known only to the patentee or to a limited class of person. That is because every skilled addressee should be able to know what the patent means and therefore have equal access to material available for interpretation.16 Furthermore, a claim must not be construed with an eye on prior material, in order to avoid its effect.17
[17] Against that background of general principle, there is considerable force in the submission of Mr Elliott, for Integ, that the issue of the construction of the patents (that is, the proposed preliminary issue) is a distinct, stand-alone issue – a question of law – that must logically be addressed as the prior question. How the claims are construed will have a significant bearing over what the issues actually are. These factors provide support for the submission that the matters at issue here do not give rise to difficult demarcation questions and are eminently suited to the r 10.15 procedure. The approach, it is argued, is supported by the Markman-type procedure adopted in the United States which demonstrates the particular benefit of early
14 Lucas v Peterson Portable Sawing Systems Ltd [2003] 3 NZLR 361 (HC) at [28].
15 See Glaverbel SA v British Coal Corp [1995] RPC 255 (CA).
16 At 269.
17 Glaverbel SA v British Coal Corp, above n 13, at p 270.
determination of construction issues in patent proceedings. It is also said that New Zealand jurisprudence, which recognises that it is fairly “usual” in intellectual property cases to have split trials, also supports the Markman procedure.18
[18] I accept that Integ has sought, responsibly, to try and formulate the particular construction issues for preliminary determination. This includes the engaging of an expert witness, Mr Olson, and attempting to debate and refine the particular questions of construction by corresponding with the plaintiff. I also accept that while the 2016 patent re-examination report would not be binding on the Court, it may provide significant guidance on some of the terms in dispute. It can thus be seen as a further factor favouring a separate preliminary question.
[19] However, one of the difficulties the Court faces is that the plaintiff has not engaged either with the evidence or respond in any meaningful way to the proposal that the question of construction focus on the specified terms in the patent and, what are described in the application as the patent terms.
[20] I do not accept that the plaintiff has not had the opportunity to file evidence in relation to the substantive issue that Mr Olson addressed. It has clearly chosen not to.
[21] The parties are agreed that there will be a need for some technical evidence to be filed to address the construction issues. That is no bar to making an order under r 10.15 but the more contentious, complex and lengthy the evidence, the less likely a court would be to rule that there should be a preliminary hearing.
[22] There is also obvious merit to Mr Elliott’s submission that the words at issue here are not, on their face, complex or technical terms, but plain English words. In these circumstances there is a need only for some limited expert evidence. It may also be the case that a separate pre-trial hearing dealing with issues of construction (that is, questions of law) would be a way to discipline the process and to limit the evidence to that which truly is of substantial assistance to the Court.19
18 See NSK Ltd v General Equipment Co Ltd [2016] NZHC 1424 at [83]–[84]. Mr Elliott also argued that the scheme of the Patents Act 2013, and in particular ss 159 and 160 (application for declaration of non-infringement and proceeding for declaration of non-infringement), support a Markman-type approach.
19 See Evidence Act 2006, s 25; and see also the observations of Lord Diplock in Catnic Components Ltd v Hill & Smith Ltd (1982) 99 RPC 183 (HL) at 243.
[23] Mr Elliott disputed the plaintiff’s contention that the question of construction cannot properly be determined without the breadth of the claim being fully tested at trial (against the full background circumstances) and that it is permissible to look at infringing variants in addressing issues of construction.20 Integ contends that once the terms of the patent have been interpreted, they are construed for all purposes, including infringement, invalidity and the like; it is wrong to assert (as the plaintiffs do) that, in the light of infringement, the terms may be construed differently.
[24] Despite the force of Integ’s arguments, it is necessary, as the plaintiff contends, to consider the very practical question of whether the issues of construction can, in this case, truly be separated in a meaningful way from other issues which would need to be resolved at trial. As Associate Judge Osborne observed in Karam v Fairfax, demarcation issues arise frequently in relation to evidence that is relevant both at a separate question hearing and at trial.21 (Evidence going to liability and that going to quantum is the classic example). In this case, there is the additional complication that at a relatively early stage of the litigation, where the plaintiff has not engaged and the precise questions of construction for determination have not yet been formulated (and the plaintiff’s position is not clear), the assessment of demarcation is far from straightforward. There is also the obvious point that the r 10.15 procedure works best when the parties cooperate. Here the parties are fierce trade competitors.
Question 2: Will the separate proceedings bring the proceedings to an end?
[25] The entire proceeding will not be brought to an end if the proposed questions are answered in favour of Integ. The copyright claim will still need to be determined. Integ contends, however, that if the patent is construed narrowly in the manner for which it contends, then there will be no issue of infringement, no need for it to counterclaim for invalidity and the remaining copyright claim will be of relatively narrow compass and capable of prompt resolution. Integ also argues that interpreting the claims of the patent will be informative in determining whether the copyright claim has any merit.
20 See Nobel’s Explosives Co v Anderson (1894) 11 RPC 519 (CA) at 523 where it was held “claim construction is if the defendant had never been born”; and see also Beloit Technologies Inc v Valmet Paper Machinery Inc [1995] RPC 705 (Patents Court).
21 Karam v Fairfax New Zealand Ltd [2012] NZHC 1331 at [62].
[26] The fact that the separate question, if answered affirmatively, will not bring the proceedings to an end is not determinative.22 However, it is a consideration tending against granting the application. As Kós J held in Haden v Attorney-General, the courts need to guard against granting a separate question which absorbs the bulk of the substantive issues for trial, thus turning an interlocutory application into a substantive one.23
Question 3: What potential time saving does the separate question offer?
[27] Mr Elliott accepts that there is some tension between certainty and delay. He contends that a preliminary hearing on a separate issue may give rise to some delay but that the certainty that it will likely give rise to, even if it involves some element of delay, will ultimately be of great benefit to the parties in terms of a more efficient and streamlined process overall. If the defendant is wholly successful in its claim construction argument, then the incentives to either discontinue or settle the copyright claim will be significant.
[28] The parties do not agree on how long a preliminary hearing would take. The defendant says two to three days whereas the plaintiff says a preliminary hearing would require at least a week of hearing (its earlier estimate was two to three weeks). The Court is not well placed in this case to make a credible assessment and the plaintiff’s failure to engage is not helpful.
[29] It also appears that the quantum claim by the plaintiff is a relatively modest amount. That is not in itself decisive, but it tends to favour a trial that deals with all issues at once. There is virtually always an inevitable degree of duplication in split trials generally (in particular, counsel needing to come up to speed again).
Question 4: How will appeals be dealt with?
[30] Mr Elliott responsibly accepted that this factor does not assist his argument.
[31] The nature of the issues does lend itself to appeal as of right to the Court of Appeal and further appeal by leave. This factor tends against granting the application.
22 Haden v Attorney-General HC Wellington CIV-2010-485-2380, 4 November 2011 at [50(b)].
23 At [50(b)].
[32] The plaintiff has indicated that it will appeal in the event that any preliminary trial issue is decided against it. That may simply be a tactical indication, but I do note that the parties are intense trade competitors and there are significant matters at stake for both of them.
Question 5: Are there any other practical considerations tending one way or the other?
[33] As Associate Judge Osborne noted, this question essentially re-frames the basic question in relation to r 10.15: whether the proposed preliminary hearing is likely to expedite a proceeding, saving inconvenience and expense without any countervailing injustice.
[34] In support of its case, Integ has referred the Court to a number of articles and papers about the experience of Markman hearings in North America.24 Both counsel have also referred to the Australian Federal Court decision of Britax Childcare Pty Ltd v Infa-Secure Pty Ltd where there was a preliminary hearing of patent construction issues.25 There were ten patents at issue, and the preliminary hearing lasted 12 days.
[35] I do not see this case as one requiring an extensive review or analysis of these materials, although I acknowledge that they are helpful in understanding the North American approach and do support the arguments for which Mr Elliott contends. I would, however, make the important observation that the Canadian Court of Appeal decision of Realsearch Inc v Valon Kone Brunette Ltd concluded, (rejecting a Markman-style hearing), that the Federal Court Rules Committee might be better suited for considering the option of Markman-style hearings in Canada.26 The same might be said for the New Zealand Rules Committee. The article analysing the Realsearch approach also notes that Markman-style hearings in Canada “have not been ruled out completely” and that the Court of Appeal “left the door open to such proceedings”. I would further observe that the Britax case appears to be the only time that Markman has been adopted in Australia, and I am reluctant to express any
24 “Markman Hearing: Everything You Need to Know” UpCounsel <www.upcounsel.com>; Vincent Kovalick “Markman hearings and their critical role in U.S. patent litigation” (2009) Lexology
<www.lexology.com>; David Tait Pre-trial Patent Claims Construction: Adopting Markman-style Hearings in Canada (2004) 21 CIPR 163; and Rebecca Eyre, Joe Cecil and Eric Topor Patent Claim Construction: A Survey of Federal Court Judges (Federal Judicial Centre, February 2008).
25 Britax Childcare Pty Ltd v Infa-Secure Pty Ltd [2012] FCA 467.
26 Realsearch Inc v Valon Kone Brunette Ltd [2004] 2 FCR 514 (FCA).
concluded view as to whether that was ultimately a successful and helpful approach; the matter appears far from clear.27
Bringing all the considerations together
[36] In balancing all these factors overall, I conclude that the application for a separate preliminary question should be declined. There may well be advantages to the Markman-approach in patent litigation generally but, on the facts of this case, the defendant has failed to establish the threshold of good, preponderant reasons in favour of a separate question determination. There is an assumption in favour of a single trial. In my view, there is too much uncertainty as to whether there will be no real demarcation issues (should there be a preliminary determination) and whether ultimately inconvenience and expense would be saved. The modest quantum at issue also tends to favour all issues being dealt with at once. I further find that an issues conference pursuant to r 7.5 may provide a real opportunity to refine and define the issues in a way which might ultimately benefit both parties and address some of the legitimate concerns the defendant raises.
[37] The jurisprudence contains many warnings about preliminary issue hearings turning out to be “treacherous shortcuts”, particularly in complex cases.28 This case may not be as complex as the plaintiff claims. Equally, however, I doubt, as the defendant initially submitted, that the preliminary issue could be dealt with on the papers. On the facts of this case there are too many variables for the Court to safely conclude that the defendant has met the requisite threshold.
Application by plaintiff for removal of confidentiality
[38] The plaintiff seeks orders that:
27 Ms Elcoat, for the plaintiff, submitted that as a result of the pre-trial ruling in Britax the expert witnesses ultimately had to re-figure their evidence (because the Judge adopted a hybrid approach and the parties had not initially prepared on that basis). This is said to have all resulted in extra costs and wasted time.
28 Haden v Attorney-General HC Wellington CIV-2010-485-2380, 4 November 2011 at [48]; and see also the observations of Lord Evershed MR in Windsor Refrigerator Co v Branch Nominees [1961] 1 Ch 375 (CA) at 396, where he referred to his own experience as emphasising “the extreme unwisdom – save in very exceptional cases – of adopting this procedure of preliminary issues. My experience has taught me ... that the shortest cut so attempted inevitably turns out to be the longest way round”.
(a) The documents for which confidentiality is claimed in the affidavit of Mr Bruce Davies (sworn 22 November 2018), the Managing Director of Integ, are not confidential;
(b) Alternatively, the confidential documents can be disclosed to at least Mr Dean Kuch, the plaintiff’s instructor, for the purposes of litigation and on appropriate undertakings.
[39] The plaintiff described the confidential documents in the following way: they generally show various parts of two of the defendant’s monitor arm products brought together in a so-called “hybrid”. The first of these products is the Ar-Ray product, the subject of this proceeding. The second product is the Apollo product. The confidential documents can be broken into four types:
(a) technical drawings created on 9 October 2018 which depict various elements of the Ar-Ray and Apollo systems combined into one “hybrid” system;29
(b) photographs of “hybrid” products labelled Hybrid 5, 6, 7 and 8;30
(c) table comparing the Ar-Ray, Apollo and “hybrid” products with the plaintiff’s CMe product;31 and
(d) three-dimensional renderings of monitor arm products.32
[40] In a minute dated 15 February 2019, Associate Judge Smith granted leave to the plaintiff to file a further affidavit in support of its confidentiality application. Mr Dippie, an engineering and management consultant, was then instructed by the plaintiff and given access to the documents.
[41] The plaintiff says that the evidence of Mr Dippie has not assisted it in understanding the significance of the confidential documents.
29 INT-0600–INT-0608.
30 INT-0609.
31 INT-0610.
32 INT-0611.
Relevant legal principles
[42] Rule 8.15(2)(f) of the High Court Rules permits the discovering party to state in an affidavit of documents any restrictions proposed to protect the claimed confidentiality of any document. Rule 8.28(3) provides that a party may limit inspection of confidential documents to the person specified in the affidavit of documents, subject to the restrictions imposed in the affidavit.
[43] If a party challenges a claimed confidentiality made in an affidavit of documents, that party may apply to the Court for an order setting aside and modifying the claim under r 8.25(1). Under r 8.25(3), the Judge has a discretion to set aside or modify the claim for confidentiality, dismiss the application or make any other order.
[44] The regime in the High Court Rules therefore gives a party swearing an affidavit of documents the right to assert confidentiality and limit inspection on that basis, subject to a successful challenge by the other party that must be brought by way of a court application under r 8.25.33
[45] The Court’s power to limit access to confidential documents is well settled and is described in the following manner in The Laws of New Zealand:34
(11) Protecting Confidential or Sensitive Documents
54. Confidentiality of documents.
The power of the court to order particular discovery of documents is discretionary. That discretion is often exercised to protect confidential or sensitive information that is not privileged. Examples of documents that are not privileged but which may be commercially sensitive include documents showing the detailed costings of products or services that are provided in a competitive market, the marketing plans for a proposed new product, or a patent specification during the period before the application has been accepted and made available for inspection. The power to limit access to such documents arises from the inherent jurisdiction of the Court to prevent the abuse of its process.
(emphasis added)
33 Intercity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 2261 at [13].
34 The Laws of New Zealand (online ed, LexisNexis) Discovery at [54] (footnotes omitted).
[46] The leading authority on confidentiality claims arising in the process of discovery and inspection is the Court of Appeal decision in Port Nelson Ltd v Commerce Commission which held:35
It is a matter of balancing on the one hand the interests of justice in ensuring that [the plaintiff] is able to prepare and present its case, and on the other the interests of [the defendant] in safeguarding its confidential information in a competitive market. ... Relevant documents should generally be made available for inspection. The fact that they are regarded as being confidential, and would not be made available were it not for the requirements of the litigation, is immaterial. An order for non-disclosure can only be made when the court is satisfied in terms of r 312 that such an order is “necessary”. It must be either apparent from the document in question or shown by other evidence that disclosure would be likely to prejudice the party in some significant way. Even the possibility of prejudice may be sufficient, but that will depend on the seriousness of the possible prejudice and on the significance of the document to the issues in the proceeding, and the extent to which limited disclosure may enable the concerns of both parties to be accommodated.
Analysis and decision
[47] As the House of Lords has noted, discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant’s affairs;36 the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purposes of securing justice.
[48] I reject the plaintiff’s contention that there is no valid basis for confidentiality. I find the evidence of Mr Piper, a patent attorney and the defendant’s expert, and the submissions of Mr Elliott to be persuasive; the documents at issue are not in the public domain, are not trivial or nonsensical and are susceptible of sufficiently precise description so as to ground injunctive relief. They are, after all, 12 specific documents described in Schedule C.
[49] The critical question in my view is whether adequate safeguards can be put in place to protect the legitimate confidentiality of the defendant’s documents, while still allowing the other party (here, the plaintiff) to effectively deal with the matter.37
35 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA) at 348.
36 Harman v Secretary of State for the Home Department [1983] 1 AC 280 (HL) at 308.
37 Warner-Lambert Co v Glaxo Laboratories Ltd [1975] RPC 354 (CA).
[50] The plaintiff submits that the defendant’s claim for confidentiality lies not in the detail of the information in the confidential documents themselves but in the mere fact that it is possible to combine the Ar-Ray system with the Apollo system. However, I agree with the submission of Mr Elliott that that argument is misconceived. On the basis of the evidence of Mr Piper and Mr Davies, I find that the claim to confidentiality does lie in the detail of the information in the documents themselves; they do in fact disclose considerable technical design information.
[51] Mr Davies explains in his affidavit why the particular confidential information is confidential:
A great deal of time, energy, thought and design effort has gone into the development of this hybrid system, which I believe is unique, and will be the first in the world to offer a monitor support system allowing the infinitely variable locking mechanisms of the Apollo system and also the benefits of the ratchet mechanisms of the Ar-ray system.
[52] The important point is that the hybrid system, which the defendant regards as unique and potentially sufficiently inventive to justify patent protection, has not been disclosed to the public. That point is not answered by the plaintiff’s contention that the Apollo and Ar-Ray products themselves are in the public domain. Confidentiality can be maintained over information that is not visible or readily ascertainable despite the product being released for public sale. Similar arguments were considered and rejected by Edwards J in Dodson Motorsport Ltd v Logiical Performance Ltd:38
- [346] Once a manufacturer releases its product for public sale, it cannot maintain confidentiality over features that are either visible or readily ascertainable, absent relevant intellectual property laws. But it can maintain confidentiality over information that is not visible or readily ascertainable. This includes, for example, drawing plans, market information, or improvements made in the design and manufacturing process.
[347] Much of the information being claimed as confidential in this case is not about visible aspects of the clutch design. Nor is it limited to procedures for installing aftermarket parts, or information exchanged on group chats. The confidential information at the heart of the claim is something different to those limited categories. It is information and knowledge gained through the design, testing and manufacturing processes for the R35 clutch. This knowledge finds its end expression in the clutch parts and ancillary parts themselves, but clearly goes beyond that which is visible in the part itself. ...
(emphasis added)
38 Dodson Motorsport Ltd v Logiical Performance Ltd [2019] NZHC 918.
[53] In addressing what I see as the critical issue of whether adequate safeguards can be put in place (having established that the documents in issue are truly confidential), it is important to recall that the plaintiff’s expert witness, Mr Dippie, an engineering and management consultant, has already had access to the confidential documents. Mr Dippie concludes that the drawings at issue are “no more than a straightforward combination of the Apollo and Ar-Ray products that any engineer could produce by looking at the two products”. Despite that conclusion, the plaintiff contends that it does not understand the true relevance of the documents and that it is not satisfied with access to the documents being restricted to Mr Dippie; it seeks to have the documents disclosed to Mr Kuch. Mr Kuch is the instructor from the plaintiff and is said to have the requisite knowledge of the industry which will shed light on and assist counsel in understanding the relevance of the documents. The issue thus becomes whether, in balancing the competing interests of the parties, disclosure to Mr Kuch would prejudice the defendant in a significant way.39
[54] Asher J, in Intercity Group (NZ) Ltd v Nakedbus NZ Ltd, held (with reference to Port Nelson) that it can be “difficult if not impossible” for a trade competitor to protect from dissemination throughout its organisation, information received through discovery.40 The Court of Appeal also observed that restrictions may be justified where disclosure of the relevant confidential information would enable a party to structure its own business to better competitive effect.
[55] Wide ranging confidentiality orders were made in Pernod Ricard New Zealand Ltd v Lion-Beer Spirits & Wine (NZ) Ltd.41 In that case, Allan J declined to remove confidentiality restrictions and discovery between trade rivals, noting the clear risk of commercial harm if there was open disclosure, weighed against the general contention that discovery was necessary to enable adequate trial preparation.
[56] I find that the defendant has given a clear and persuasive explanation to the plaintiff as to the relevance of the documents at issue. I thus do not accept that it is necessary for Mr Kuch to have access to them to “shed light” on their relevance. In December 2018, in correspondence from Mr Piper, the defendant’s expert, to counsel
39 Port Nelson Ltd v Commerce Commission (1994) 7 PRNZ 344 (CA).
40 Intercity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 2261.
for the plaintiff, Mr Piper explained that the confidential documents are a series of recent 2018 drawings showing the synthesis of the old Apollo system and the new Ar- Ray system. Importantly, Mr Piper stated:
They support our client’s view that our system is completely independent of the plaintiff’s design, and as such support our client’s design philosophy in its independent design path.
[57] It is clear from this explanation, as Mr Elliott submitted, that the defendants are alleging that the Ar-Ray system, which the defendant says was designed after the plaintiff’s copyright works, was based upon and the result of the synthesis from the earlier Apollo system. The 2018 drawings showing a hybrid system, effectively combining the earlier Apollo and later Ar-Ray systems with largely similar product configurations and dimensions, are relevant to establishing that the Ar-Ray product was arrived at via an independent design path. Whether that is ultimately true or not is of course beside the point; the documents at issue are plainly relevant to the defendant’s contention that it had an independent design path.
[58] The defendant has further sought to explain the relevance of the documents at issue by reference to [15(b)] of its statement of defence. At [15(b)], the defendant denies that it has infringed the plaintiff’s copyright and asserts that it designed slotted monitor post systems (albeit with different locking mechanisms in the slot) many years prior to the alleged date on which the plaintiff claims that it commenced the design of its height-adjustable monitor arm system. That pleading makes reference to relevant earlier designs created by the defendant, which necessarily include, so the defendant alleges, the prior art Apollo system.
[59] I also find that disclosure of the documents would likely be highly prejudicial to the defendant. They are clearly of a commercially sensitive nature and the defendant’s claims, that they are the select configurations of the hybrid product that it intends to develop and eventually commercialise, must be taken seriously. There is thus considerable force to the submission that there would be significant prejudice if the documents were accessed by Mr Kuch, an agent of the plaintiff (the defendant’s direct commercial competitor).
[60] I also reject the plaintiff’s suggestion that Mr Kuch could somehow compartmentalise the information; in my view that is an unrealistic proposition. As
Mr Elliott submitted, the problem is that the parties are developing directly competing and technically similar products, and it would be very difficult in a practical sense to police any terms restricting disclosure and use of the information within the plaintiff. The real risk of “seepage” needs to be recognised.
[61] In balancing the competing interests of the parties, the better solution, if the plaintiff truly is unsure of the relevance and/or significance of the documents, is for it to engage another expert witness to examine them.42 The defendant has indicated a willingness to allow another expert (but not Mr Kuch) to have such access and to provide advice to counsel. In the circumstances here, there does seem to be merit to Mr Elliott’s submissions that Mr Dippie, a commercial engineer, may well lack the specific expertise and experience to enable him to provide a great deal of assistance to the Court. While I accept that there might be a limited pool of expert witnesses available, there is no evidence before me to suggest that another witness with suitable qualifications is not available. It is not clear why the plaintiff retained an expert in relation to thermal energy equipment and whose expertise, on the face of his affidavit, includes limited expertise and experience in the area of the technology at issue. In any event, I agree that the plaintiff should not now benefit from that fact by claiming inadequate understanding of the defendant’s evidence.
[62] For all these reasons, I conclude that the plaintiff’s application for removal of the confidentiality restrictions should be rejected. As noted, the defendant remains willing to agree to a solution whereby the plaintiff could engage another expert (with relevant expertise) and allow him or her to have access to the documents on the condition that appropriate undertakings are given.
Defendant’s application for further particulars or more explicit pleading
[63] The defendant seeks further particulars in relation to what it says are gaps in the statement of claim insofar as the copyright cause of action is concerned. These are:
42 See New Zealand Railways Corp v Auckland Regional Council (1990) 3 PRNZ 332 (CA), where the Court of Appeal upheld the High Court’s decision to restrict access to the party’s advisors (albeit varying the terms of access).
(a) each of the alleged artistic works in models in a particular or aspect/parts of the works that are alleged to be original;
(b) the basis on which the plaintiff alleges to own the copyright, including details of the authors, the relationship with the authors and details of any other means whereby copyright was acquired by the plaintiff;
(c) Full particulars of the specific features or parts of the 63 drawings relied upon as being original;
(d) specific features or parts of the Ar-Ray monitor arm which amount to substantial reproduction of the copyright works.
[64] The plaintiff, in response, claims to have “repeatedly informed the defendant” that further particulars will be provided on provision of an amended statement of claim. The plaintiff has advised that it will be in a position to file an amended statement of claim following determination of the current confidentiality application.
[65] I do not see the need, in the circumstances, to make formal orders requiring the plaintiff to file further particulars. However, the Court expects the plaintiff to now address this issue in accordance with its commitment to do so.
Result
[66] I make the following orders:
(a) The defendant’s application for a separate issue to be determined, pursuant to r 10.15 of the High Court Rules 2016, is dismissed;
(b) The plaintiff’s application for removal of the defendant’s claim of confidentiality is dismissed.
[67] As to the question of costs, I am of the preliminary view that there should be no order as to costs and costs should lie where they fall. Both parties have had a measure of success. If costs cannot be agreed, then memoranda are to be filed within 14 days.
[68] The Registrar is to allocate a case management conference for directions to be made for the disposition of the proceedings. The parties should anticipate that at the case management conference a trial date is likely to be set and relevant pre-trial timetable directions made.
Associate Judge P J Andrew
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URL: http://www.nzlii.org/nz/cases/NZHC/2019/1687.html