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Oraka Technologies Limited v Geostel Vision Limited [2013] NZCA 111 (18 April 2013)

Last Updated: 30 April 2013


IN THE COURT OF APPEAL OF NEW ZEALAND
CA271/2011
[2013] NZCA 111

BETWEEN ORAKA TECHNOLOGIES LIMITED
First Appellant

AND ORAKA GRADERS LIMITED
Second Appellant

AND MICHAEL WILLIAM SCHWARZ
Third Appellant

AND GEOSTEL VISION LIMITED
First Respondent

AND PAUL DAYNES AND GORDON ROBERTSON
Second Respondents

AND NAPIER TOOL & DIE LIMITED
Third Respondent

Hearing: 11-12 July 2012

Court: Glazebrook, Randerson and Stevens JJ

Counsel: B P Henry and A E McDonald for Appellant
K J Crossland and R J Robertson for Third Respondent

Judgment: 18 April 2013 at 11.00 am

JUDGMENT OF THE COURT


  1. The appeal is allowed in part. Judgment is entered for the first appellant in respect of the claim of copyright infringement.
  2. The matter is remitted to the High Court for an inquiry into damages.

C The cross appeal is dismissed.


  1. The third respondent must pay the appellants costs for a standard appeal on a band A basis plus usual disbursements.

REASONS OF THE COURT


(Given by Glazebrook J)


Table of Contents
Para No


Introduction
Background
The Oraka grader
Development of the grader
Companies involved with the Oraka grader
Background to alleged infringement
Issues with the Geostel design
Procedural history
The copyright infringement judgment
Copyright ownership
(a) Application for grant
(b) Kinder and Bell arrangement
Infringement of copyright
(a) The parties’ submissions
(b) The legal test
(c) Reproduction of substantial part of copyright work
(d) Causal connection
(e) Sufficient objective similarity
The costs judgment: flagrancy
Structure of our judgment
Ownership of copyright
Submissions of Napier Tool
Our assessment
The law on infringement by copying
The evidence in the High Court
Schwarz evidence
Stevens evidence
Witham evidence
Hanlon evidence
Objective similarity
Causal connection
The law
Submissions
Our assessment
Substantial part
The law
Submissions of the appellants
Submissions of Napier Tool
Our assessment
Flagrancy
The parties’ submissions
Our assessment
Remedy
Result

Introduction

[1] Mr Michael Schwarz developed a machine for the automatic grading of asparagus spears (the Oraka grader). Oraka Technologies Ltd (Technologies) and Oraka Graders Ltd (Graders) are companies in which Mr Schwarz has a significant shareholding and which played a role in the development of the Oraka grader. They assert that the respondents infringed copyright in a cup assembly forming part of the Oraka grader, the Schwarz cup assembly.
[2] The copyright works are a drawing dated 3 February 1993 and three drawings dated 10 February 1993. The first drawing depicts an asparagus carriage constituting three assembled components, a chassis, a tilting cup and a trigger. The other drawings each represent one of those individual components. The drawings were prepared by Napier Tool & Die Ltd (Napier Tool) but commissioned by Mr Schwarz.[1]
[3] It was alleged in the High Court that, from 2001 onwards, Geostel Vision Ltd (Geostel) manufactured and sold a cup assembly (the Geostel cup assembly) that was a substantial copy of the appellants’ copyright works. Napier Tool was alleged to have infringed the appellants’ copyright in the Schwarz cup assembly by manufacturing infringing works both for Geostel and on its own account.
[4] Allan J in the High Court held that Technologies was the owner of copyright in the works but that there had been no copyright infringement (the copyright infringement judgment).[2] In the related costs decision (the costs judgment), Allan J rejected claims made by the appellants that the respondents had acted flagrantly.[3] The appellants appeal against the decision that no infringement occurred and the findings regarding flagrancy. Napier Tool cross-appeals against the decision that Technologies was the owner of the copyright.
[5] The first and second respondents were not represented at the hearing of the appeal and abide the decision of this Court.
[6] The issues on appeal are:

Background

The Oraka grader

[7] The Oraka grader is essentially a conveyor belt with a specialised cup assembly. For the conveyer belt the grader uses a standard, commercially available, chain made by Flextrak Enterprises Ltd (Flextrak). The cups each receive an individual asparagus spear and carry it under a camera/illumination station at the rate of about 12 spears per second.
[8] The image of the individual spear is captured by a camera, processed by a computer and each spear is graded according to its length, colour and quality, depending on the demands of the market for which the crop is destined. When the asparagus spear reaches the designated collection chute for its grade, the cup assembly is electronically tripped to tip the cup. The spear falls into a collection chute where it is packaged with other spears of the programmed weight of spears into a chute specific to the grade.
[9] At the beginning of the grading process, a small header belt pushes the asparagus spear lengthwise into the cup. The tip of the spear faces away from the chute so that when the cup trips and inclines and the spear slides out, the butt end of the spear impacts on the chute door. When the computer registers that the right number of spears are in the chute, the chute door opens and an asparagus bunch slides down to the bottom half of the chute ready for bundling.

Development of the grader

[10] Mr Schwarz’s evidence was that he had worked on developing a grader to sort asparagus since the early 1980s. After a long development period, he eventually had a machine up and running by late 1992 or early 1993. At that stage he approached Napier Tool to have a mould for the cup assembly made.
[11] Napier Tool prepared preliminary drawings in February 1993 which Mr Schwarz approved. Napier Tool then prepared tooling drawings based on the preliminary drawings. It used those drawings to make a mould and began manufacturing the Schwarz cup assembly for Mr Schwarz’s then trading company, Technologies, in 1993. As noted above, the February drawings are the relevant copyright works for the purposes of this appeal.
[12] We interpolate that Napier Tool argued that separate copyright subsists in the drawing dated 3 February and those dated 10 February. In its submission, that infringement should have been assessed in relation to each drawing independently. We disagree. It is open to the Court to consider a series of independent drawings or diagrams in determining infringement where it is apparent that those drawings relate to the same subject and are intended to form part of a series or a whole.[4] While we are not required to address the matter in the appeal, it is certainly arguable that the tooling drawings prepared by Napier Tool formed part of the design series in this case.
[13] Initially, Mr Schwarz dealt with Mr Witham, the manager of Napier Tool. He subsequently dealt with a Napier Tool designer, Mr McKinlay, who was heavily involved in much of the design and drafting process for Mr Schwarz (and also later for the respondents).[5] Mr McKinlay did not give evidence in the High Court.

Companies involved with the Oraka grader

[14] Technologies was the first Schwarz company to exploit the Oraka grader. It ran into financial difficulties and in 1996 Mr Schwarz bought in two partners: Mr Bell and his lawyer, Mr Kinder. They formed a new company called Oraka Technologies Holdings Ltd (Holdings). Holdings was, from that point, used as the vehicle for any commercial activity associated with the Oraka grader.
[15] Napier Tool’s position is that copyright was transferred from Technologies to Holdings. Mr Schwarz’s evidence was that, after its incorporation, Holdings used the copyright owned by Technologies to manufacture the Oraka grader with the licence and consent of Technologies.
[16] In the High Court, a letter from Mr Kinder to Mr Daynes was produced. In the letter, dated 8 November 1996, it was noted that Holdings had been established and that it would undertake all future business briefs being conducted by Technologies. The letter states that there was a concern that, if Technologies continued trading, it would risk allegations of reckless trading. It also records that there is no association between the old company and the new, other than the business that they conducted.
[17] Napier Tool alleges that Holdings then assigned the copyright to Messrs Kinder and Bell by way of a facsimile of 4 March 1999. That document, dated 3 March 1999, which is on Holdings’ letterhead and signed by Mr Schwarz, records that he assigns the rights to the “Oraka Asparagus Grader plastic dies, which are held by Napier Tool”, to Mr Kinder and Mr Bell in return for their guaranteeing an overdraft for Holdings of up to $50,000. The facsimile said that this arrangement was to continue until Mr Schwarz had found a buyer for Messrs Kinder and Bell’s shares in Holdings for $60,000. It says that details of this arrangement were “much as discussed by Tim [Mr Kinder] and myself” on 2 March.
[18] Mr Schwarz’s position was that the facsimile of 4 March 1999 was intended to record that the Napier Tool dies were a surety for the guarantee of the bank overdraft. Mr Schwarz also said in evidence that by March 2001 the Kinder/Bell shares had been bought back.
[19] Graders was incorporated by Mr Schwarz’s son and daughter in 2001. At the time of its incorporation, Graders took over the business previously run by Holdings and remains the entity responsible for any commercial activity associated with the Oraka grader.

Background to alleged infringement

[20] In 2001, Napier Tool was approached by Andrew Armstrong, who was associated with Flextrak and Acracorp Ltd.[6] Flextrak was the manufacturer of the belt mechanism used in the Oraka grader.
[21] Flextrak had an arrangement with Mr Schwarz whereby it supplied Oraka customers directly with replacement slat and Schwarz cup components for their machines. As the cups were subject to wear and required replacement over time, there was an ongoing market for the provision of replacement cup assemblies. To facilitate supply, Mr Schwarz had given Mr Armstrong a customer list. Napier Tool paid the appellants a royalty for the assemblies which it supplied to Flextrak under this arrangement.
[22] Mr Paul Daynes and Mr Gordon Robertson are the shareholders in Geostel, which they incorporated with the aim of providing a replacement cup assembly for the Oraka grader to compete with the Schwarz cup assembly.[7] Mr Armstrong’s evidence was that he saw an opening in the market for a more robust tip cup assembly. He also had concerns about the financial position of Mr Schwarz’s companies and said there had been a number of complaints from customers regarding the after-market service they had received.
[23] In early 2001, Mr Armstrong approached Mr Witham (of Napier Tool) about designing the competing cup assembly. On 5 April 2001, Mr Armstrong and Mr Witham met to discuss the details of the proposed cup assembly, which ultimately became the Geostel cup assembly.
[24] Mr Witham took detailed notes of the meeting. Those notes use, in places, the word “existing”. Mr Witham and the respondents’ expert accepted in evidence that “existing” was a reference to aspects of the Schwarz cup assembly.[8]
[25] Among the notes taken by Mr Witham at the 5 April meeting, the following are of special interest:

(4) Chassis to be different to existing, and part of slat. Bigger pivot holes – pin separate part.

(5) Cup – Pivot positions remain as existing ... Bulk at end of cup important – distance from end of cup to gusset important to clean slat. Section of cup to be compromise between Vee and ½ round ... Cup lead in to be similar to existing.

...

(9) Trigger cup catch to be similar to existing –

(10) Geometry to remain as existing.

[26] There were several pages of drawings made by Mr Armstrong and Mr Witham at the meeting. In the High Court, Allan J held that certain aspects of these drawings replicate aspects of the Schwarz cup assembly in sketch form, and that they contain references to the actual dimensions of the Schwarz cup.[9]
[27] Mr McKinlay was primarily responsible for the work on the Geostel cup. By 17 April 2001 (12 days after the 5 April meeting), he had completed Solidworks[10] models of the Geostel cup, chassis and trigger for the respondents. Allan J held that there was no evidence that the Oraka/Schwarz designs held in the Solidworks programme were referred to during the design of the Geostel components.[11]
[28] After Napier Tool had completed the design work, Mr Armstrong was referred to Mr Daynes who had recently severed business ties with Mr Schwarz. Mr Daynes had worked for Mr Schwarz as an independent contractor through his company, Kamber Electronics Ltd (Kamber).[12] He developed much of the computer software incorporated in the Oraka grader.
[29] Mr Armstrong met both Mr Daynes and his business partner, Mr Robertson, (formerly Mr Schwarz’s Greek representative) in Greece.[13] He took with him a rack of prototypes that Napier Tool had produced for him. The outcome of a subsequent meeting back in New Zealand was that Mr Armstrong transferred the project to Mr Daynes and Mr Robertson for an ongoing royalty.
[30] Mr Daynes had already been working with Mr Robertson on a new machine to compete with the Oraka grader. The Geostel cup was to operate on the Geostel machine as well as on the Oraka grader.
[31] In November 2001, before proceeding with manufacture of the cup assembly for Geostel, Napier Tool obtained written advice from a patent attorney. The advice was that there was no copyright breach as the two assemblies expressed the same concept in a different manner.

Issues with the Geostel design

[32] There were ongoing complaints about the unsatisfactory performance of the Geostel cup (especially when compared with the Schwarz cup). Modifications were made to the Geostel cup assembly to try to meet these complaints. Ongoing problems arose surrounding the “V” angle of the Geostel cup. Eventually, the angle of the cup was modified from less than 90 degrees to greater than 90 degrees. The appellants claim that this occurred only after Mr Daynes had analysed the Schwarz cup in detail.
[33] Similarly, in a facsimile dated 24 December 2001, Mr Daynes highlighted issues concerning the strength of the trigger mechanism on the Geostel cup assembly. He stated that he had examined the Schwarz cup and instructed Mr Witham and Mr Armstrong to resolve the Geostel trigger issue by reference to the Schwarz mechanism.[14] Mr Daynes expressed frustration with Napier Tool’s failure to refer to the Schwarz cup assembly when dealing with problems with the Geostel cup assembly. He said:

If you had simply looked at the already existing product, a lot of the problems we are now experiencing could have been avoided.

Later the same day, in a second facsimile he said:

However, as there already exists a design (the Oraka model) that meets our requirements, we can say specifically that if the new cup is made the same as the Oraka unit, we would be satisfied.

[34] On 7 May 2002, Mr Daynes complained to Mr Witham that Napier Tool had not spent enough time comparing the Geostel product with the Schwarz cup to ensure that the Geostel cup worked as well as the Schwarz cup. At that stage, Mr Daynes said that the Geostel cup was lasting only about three weeks while the Schwarz equivalent was lasting at least three seasons.
[35] Another issue that became apparent with the Geostel cup assembly was the failure to include a stop that controlled the movement of the trigger. A stop had been added to the Schwarz cup assembly in 1996. In 2002, Mr Daynes drew to Mr Witham’s attention the need for a stop to prevent the trigger slapping on the magnets. The appellants claim that, in giving this instruction, Mr Daynes was relying on the appellants’ solution to this problem.[15]
[36] In 2003, Mr Daynes expressed his frustration to Napier Tool that the Geostel cup assembly was not superior to the Schwarz one, although he understood that they were getting a second generation product designed by experts. The Judge noted that the respondents’ position was that they had set out to solve the practical problems in their own way “albeit by reference at times to what Oraka was doing to avoid or solve similar problems”.[16]
[37] It was submitted by Napier Tool that references made by Mr Daynes to the Schwarz product cannot be imputed to Napier Tool and that Mr Daynes’ suggestions were not acted upon. On cross-examination, however, Mr Witham accepted that he was aware that the solutions suggested by Mr Daynes were inspired by Mr Daynes’ examination of and experimentation with the Schwarz cup assembly. He also accepted that changes were made to the Geostel cup. He then simply stated Napier Tool had found its own solution and that Mr Daynes may not have seen it as Napier Tool did. Mr Witham did not, however, produce any concrete evidence of independent development to back up this assertion.

Procedural history

[38] The judgment under appeal is the second judgment of Allan J in this matter. At the time of his first judgment, the appellants asserted infringement of their copyright in both the Schwarz cup assembly and the collection chute. Napier Tool maintained that, as the authors of the works, they were the owners of the copyright.
[39] In a judgment delivered on 18 February 2009,[17] Allan J held that the appellants had failed to establish their ownership of copyright in either the Schwarz cup assembly or the chute. In respect of the cup assembly, he held that there had been no agreement between the appellants and Napier Tool regarding payment for Napier Tool’s work. There was therefore no relevant commissioning by the appellants of Napier Tool in terms of s 9(3) of the Copyright Act 1962.[18] That subsection provides that, where a commission arises, the copyright is vested in the commissioner, not the author.
[40] The appellants appealed to this Court against Allan J’s judgment in respect of the findings related to copyright in the Schwarz cup assembly (but not the collection chute). In a judgment delivered on 8 June 2010,[19] this Court reversed Allan J’s decision in respect of commissioning. The Court held that the appellants had commissioned Napier Tool to prepare the drawings. It rejected the possibility that this commissioning only resulted in a licence, rather than entire copyright, being vested in the appellants. The Court accordingly declared the appellants to be the owners of copyright as against Napier Tool in respect of the February drawings. It remitted the proceeding to the High Court to determine both the specific ownership of the copyright as between the appellants and whether the copyright had been infringed. This led to the copyright infringement judgment.

The copyright infringement judgment

Copyright ownership

[41] In the copyright infringement judgment, Allan J held that a deed entered into by Mr Schwarz with Technologies on 19 March 1993 (a month or so after the appellants had commissioned the February drawings from Napier Tool) was sufficiently clear in its terms to amount to an assignment of copyright ownership in the works to Technologies.[20]
[42] The Judge noted that the position became somewhat complicated because Technologies ceased to trade (at least in respect of the asparagus grading machines) in 1997. The grading machine business began to operate through Holdings, which itself has now ceased to trade.
[43] The respondents argued that evidence of two subsequent events strongly suggested that copyright resided with Holdings and not with Technologies. They argued that the proceeding could therefore not succeed, because the appellants were not able to demonstrate ownership of the relevant copyright.
(a) Application for grant
[44] The first event was an application by Holdings in 1999 to a state funding organisation for a grant in respect of a proposed upgrade of the Oraka grader. A condition of the organisation’s grant was that, where more than one party was involved in a project, the parties were to enter into an intellectual property agreement that would set out who would be the owners of any intellectual property generated by the project.
[45] An agreement was signed in November 1999 on behalf of Holdings and Kamber after Holdings obtained the grant. Allan J said that the clear purpose of the agreement was to ensure, both for the purposes of the grant and for the ongoing benefit of Holdings, that Holdings was to be the owner of all proprietary rights in the software package associated with the technology. However, the agreement did not touch on the Schwarz cup assembly at all.[21] Allan J therefore did not regard the agreement as bearing to any degree on the question of ownership of the copyright in dispute in the proceeding.[22]
[46] It was accepted by Mr Schwarz that any reasonable person reading Holdings’ proposal for the grant would assume that Holdings owned the grading system and the intellectual property rights associated with it.[23] The respondents asked the Court to infer that Holdings must have taken over the whole of Technologies’ business and assets (including all of its intellectual property) in 1997.[24]
[47] Allan J declined to draw that inference, which he considered would be “the product of mere speculation”.[25] No assignment from Technologies to Holdings was in evidence, and, as an assignment could be effected only in writing, he said that the Court had no option but to conclude that copyright remained with Technologies, and was not assigned to Holdings.[26]

(b) Kinder and Bell arrangement

[48] The second event was concerned with an arrangement made between Mr Schwarz and Messrs Kinder and Bell. Messrs Kinder and Bell were both shareholders in Holdings and wished to quit their interest in the company.
[49] The respondents argued that a document written by Mr Schwarz on 3 March 1999, addressed to Mr Kinder, amounted to an assignment of all of the rights in the Oraka grader plastic dies, which must be taken to include any copyright acquired through commissioning.[27] It was argued that Mr Schwarz had made the assignment on behalf of Technologies (because he was a director and holder of more than 75 per cent of the shares in Technologies).[28]
[50] Allan J was unable to draw that conclusion. The document was signed by Mr Schwarz in his own name, and purported to record an assignment by him. Further, it was on the letterhead of Holdings, not Technologies. The Judge considered the document was an assignment by way of security of the right to possession of the plastic dies, and no more.[29]
[51] The Judge noted that the appellants had pleaded their case and led their evidence on the ownership point in a confusing and contradictory manner.[30] However, he was satisfied that it was made out, on the balance of probabilities, that Technologies became the owner of copyright in the works, by virtue of the 1993 deed, and that there was insufficient evidence to show that Technologies ceased to be the owner thereafter.[31]

Infringement of copyright

[52] Having established copyright ownership, Allan J turned to whether Technologies had proved infringement of copyright.

(a) The parties’ submissions

[53] The appellants’ case in the High Court was that the respondents set out to make a spare part for the Oraka grader, namely a cup assembly. Copying was inevitable because the respondents’ design had to be very close to that of the appellants in order to fit the same machine and in order to perform the same function. The appellants accepted that there are some differences between the products, but maintained that these are aesthetic rather than substantive. They argued that the grading machine parameters are technical parameters determined by Mr Schwarz and not functional constraints in the conventional sense.[32]
[54] The respondents argued that the appellants’ so-called “design features” or “technical parameters” are actually functional constraints, imposed by the technical parameters of the grading machine (excluding the cup assembly). The appellants have no copyright in the grading machine as such. Nor do they own the so-called technical parameters. The respondents’ position was that, taking into account the applicable functional constraints, the respective expressions of the cup assembly differ substantially.

(b) The legal test

[55] Allan J identified three elements of the cause of action for copyright infringement: a reproduction, either of the entire work in which copyright is claimed or a substantial part of that work; a sufficient objective similarity between the infringing work and the copyright work or a substantial part thereof; and a causal connection between the copyright work and the infringing work such that the copyright work can properly be said to be the source from which the infringing work is derived.[33]

(c) Reproduction of substantial part of copyright work

[56] Allan J held that the appellants’ allegations of copyright infringement related to a substantial part of their copyright product, in respect of both quality and quantity. In particular, Allan J accepted Mr Schwarz’s evidence to the effect that each component is interdependent with the others.[34]

(d) Causal connection

[57] Moving to causal connection, while Allan J accepted Mr Witham’s evidence that the Solidworks “design tree” established that Napier Tool did not directly attempt to recreate the Schwarz cup assembly[35] components electronically, he did not consider that this was, of itself, sufficient to rebut a claim of copying.[36]
[58] Allan J was not inclined to place great weight on the speed with which Napier Tool worked. He considered that to do so would be to engage in an exercise in speculation.[37] The Judge also considered that the issue of whether or not problems with the Geostel cup were resolved by reference to the Schwarz cup was of little relevance.
[59] In Allan J’s opinion, however, the Schwarz cup assembly was very much the starting point of the Geostel cup assembly and must have been relied upon by the designer of the Geostel cup assembly to some extent, even although there was no evidence of copying from the plans and designs of the Schwarz cup assembly.[38]
[60] Allan J was thus satisfied that, if the appellants were able to prove objective similarity between the Schwarz cup assembly and the Geostel cup assembly, that would have been a result of the respondents copying from the Schwarz cup assembly. There was clearly a causal link of some degree between the two products. But, if objective similarity could not be made out, then the Judge considered that the causation issue did not arise.[39]

(e) Sufficient objective similarity

[63] The Judge outlined the alleged similarities and differences in relation to the two assemblies’ cups, triggers and chassis.[40] He held that the dimensions and parameters of the grading machine were functional constraints imposed by third party technology, including the Flextrak slat and the Kamber magnet system. He stated further that the placement and juxtaposition of those various technological items imposed the same restraints on both parties in the same way that the broad design of the side loaders in Tidd Ross Todd Ltd v Steelbro New Zealand Ltd was dictated by the dimensions of shipping containers and truck trailers.[41]
[61] The similarities identified by the appellants were therefore “no greater than might be expected even if completely independently designed”.[42] The Judge further accepted that certain aspects of the cups were likely constrained by the function of grading asparagus generally and standard industry practice.[43]
[62] Allan J noted that the appellants’ principal evidence pointing to objective similarity was Mr Schwarz’s evidence of the interdependent dimensions A, B and C.[44] The Judge accepted that they were similar but considered that this alone was not enough to establish sufficient similarity. The Judge was satisfied that, in respect of a substantial number of the features that he discussed,[45] common principles were expressed quite differently between the two cup assemblies.[46]
[63] The Judge was therefore not satisfied that the appellants had demonstrated sufficient objective similarity between their works and those of Geostel. The Judge concluded that this was “one of those rare cases” where, notwithstanding clear evidence of use of the appellants’ work as a starting point, the appellants’ claim nevertheless failed.[47]

The costs judgment: flagrancy

[64] The appellants argued before the High Court that the respondents’ infringement of the appellants’ copyright was deliberate and calculated and that they had therefore acted flagrantly. In the costs judgment, Allan J dismissed these claims.[48]
[65] He considered Mr Witham to be a straightforward, honest witness[49] and noted that Mr Hanlon (the respondents’ expert) had been cross-examined on the flagrancy issues but Mr Witham had not. The Judge stated that it was arguable that the flagrancy claims should not have been made in the first place and that they ought not to have been pursued at trial. On this basis, the Judge awarded additional costs against the appellants.[50]

Structure of our judgment

[66] The first issue we discuss is whether Allan J erred in holding that Technologies owned the copyright works.
[67] If Technologies does own the copyright works, the next issue is whether that copyright was infringed. We begin our discussion of this issue with a brief discussion of the law on infringement by copying and a summary of the evidence given in the High Court.
[68] We then examine the following specific issues:

(a) Did the Judge err in holding that there was insufficient objective similarity between the Schwarz cup assembly and the Geostel cup assembly?

(b) If there was sufficient objective similarity, was there a causal connection between the Schwarz cup assembly and the Geostel cup assembly sufficient to establish that this objective similarity was a result of the copyright work having been copied?

(c) Was there reproduction of a substantial part of the work?

[69] The final two issues discussed are:

(a) Should the Judge have made a finding of flagrancy?

(b) What is the appropriate remedy if the appeal succeeds?

Ownership of copyright

Submissions of Napier Tool

[70] Allan J determined that Mr Schwarz transferred the copyright in the drawings to Technologies by virtue of the deed of 19 March 1993.[51] This finding is not challenged by Napier Tool.
[71] Napier Tool submits that the Judge erred in holding that Technologies still owns the copyright works. It submits that those rights were transferred by operation of law to Holdings which then transferred the rights to Messrs Kinder and Bell. It is submitted therefore that the appellants had no standing to sue.
[72] Napier Tool further submits that, in establishing Holdings to take over Technologies’ business,[52] Mr Schwarz intended that this new company would fully take over the business of the former, including its assets, liabilities and goodwill. Napier Tool submits that business efficacy requires the implication of a term for copyright to be transferred with the goodwill. To conduct its business, Holdings needed the rights under copyright to continue to produce Oraka componentry.
[73] Napier Tool argues that, by operation of law (the implied term), Holdings became the owner of the copyright. Holdings did not pay Technologies royalties for the use of the copyright. If this had occurred, then this would have been evidence that copyright remained with Technologies.
[74] Napier Tool submits therefore that Holdings held the copyright on 3 March 1999 when the Kinder and Bell document was created.[53] Mr Schwarz signed the document transferring the copyright to Messrs Kinder and Bell on behalf of Holdings by signing the document on Holdings letterhead. Napier Tool argues that an assignment of the rights and the dies must include any copyright acquired through the commissioning of the dies. Napier Tool states that there was no evidence that the rights transferred back from Messrs Kinder and Bell to any of the Oraka companies.

Our assessment

[75] Section 56(1) of the Copyright Act 1962[54] provides that copyright is transmissible as personal or moveable property by assignment, testamentary disposition or operation of law. Section 56(3) provides that an assignment of copyright is not effective unless it is in writing signed by or on behalf of the assignor.
[76] We accept the appellants’ submission that an assignment by operation of law occurs when, without any voluntary act on the part of the owner, ownership passes, such as might arise upon intestacy or bankruptcy or by an order of the court.[55] To say that something operates by law means that the mode by which certain legal consequences ensue comes about independent of an act of a party, or even of the court itself.[56] The phrase “by operation of law” therefore does not apply to the implication of a term in a contract voluntarily entered into.
[77] In any event, we also accept the appellants’ submission that in this case, Holdings did not need to own the copyright, as a licence would suffice. Except in the case of an exclusive licence, there is no requirement under the Copyright Act that a licence should be in writing. It is therefore not a necessary implication that ownership of the copyright was transferred.
[78] We also accept the appellants’ submission that there was no evidence of any assignment of goodwill in this case (at least one in writing as required by the Copyright Act). There was no signed agreement for sale and purchase of the assets of the business of Technologies to Holdings. Technologies simply ceased to trade and Holdings took over the business formerly conducted by Technologies.
[79] This means that the Judge was correct when he said that copyright had not been transferred from Technologies to Holdings. As this is the case, Holdings cannot have transferred copyright to Messrs Kinder and Bell.
[80] Further, we agree with Allan J that the assignment to Messrs Kinder and Bell was of the dies (not the copyright) and was by way of security only.
[81] We also note Mr Schwarz’s evidence that, contrary to the submission of Napier Tool, the shares held by Messrs Kinder and Bell were redeemed through an agreement they entered into with Mr and Mrs Schwarz. In accordance with this agreement, Messrs Kinder and Bell were paid out for their shares incrementally. By March 2001 the shares were fully redeemed.
[82] It follows that we agree with Allan J’s conclusion that the copyright is held by Technologies.

The law on infringement by copying

[83] In combination, ss 29 and 30 of the Copyright Act 1994 prohibit the copying of a copyright work, subject to certain exceptions.[57] Section 29 states that infringement will occur where any person, not acting pursuant to a copyright licence, directly or indirectly, does a “restricted act” in relation to a work as a whole or any substantial part of it. Under s 30, copying is a restricted act.
[84] Although a definition of a “copying” is provided in s 2 of the Act, it does not provide a useful explanation of what it entails. The development of this concept has, therefore, been left for the common law.
[85] The leading test for infringement by copying was established in Wham-O MFG Co v Lincoln Industries Ltd.[58] In that case, this Court set out three main elements:

(a) Substantiality: The reproduction must be either of the entire work or of a substantial part.

(b) Objective similarity: There must be sufficient objective similarity between the infringing work and the copyright work, or a substantial part thereof.

(c) Causal connection: There must be some causal connection between the copyright work and the infringing work. The copyright must be the source from which the infringing work is derived.

[86] The Court in Wham-O was not, however, mandating the order in which the factors were to be considered in all cases. It seems to us that the most logical ordering will usually be first to examine whether there is objective similarity before turning to the question of causation and finally substantiality.
[87] The “substantiality” test can be regarded in part as a practical threshold designed to limit claims of infringement to those that are real and substantial. The appropriate place to apply a practical test such as this is at the end, once the act of copying has been established. It also means that the issue of substantiality is decided on the basis of what is actually found to have been copied rather than on what may be wider allegations of copying. The High Court was incorrect to apply the substantiality test to the appellants’ allegations, rather than to what was actually copied.
[88] Evidence that there are functional constraints on a design can be evidence supporting an inference of an independent design path (and therefore no causation). It can also be important in assessing whether a substantial part has been copied as discussed below.[59]

The evidence in the High Court

Schwarz evidence

[93] Mr Schwarz said in evidence that the Geostel cup is almost exactly the same length as the Schwarz cup (135 mm). The width of the two cups is also almost exactly the same (the Schwarz cup is 47 mm; the Geostel cup is 48 mm). It was Mr Schwarz’s evidence that his cup could have been up to 10 mm shorter and up to 20 mm longer without causing any functional problems.
[89] It was also Mr Schwarz’s contention that the dimensions for certain separate aspects of the assembly are so closely related that a change to one will necessitate a change to the others. These dimensions are set out in a diagram reproduced in appendix 1 and are:
[90] Mr Schwarz further contended that, in addition to the dimensions being interdependent, the combinations of these values that could work (and indeed could work better than those used in the Schwarz cup assembly) are infinite.

Stevens evidence

[91] Mr Stevens was called as an expert for the appellants. It was his evidence that, once the image of the Geostel cup assembly is overlaid onto the Schwarz cup assembly, it can be seen:
[92] Mr Stevens said that he was aware of no functional reason for the length of the respective cups to be identical. To a great extent, the width of the cup is dictated by the pitch of the conveyor chain but in his view there is no reason why the cup should have a “V” cross-section or why that “V” should have an angle of 90 degrees.
[93] Mr Stevens observed that both the Oraka and Geostel cups are mounted on a bracket. The Schwarz cup has two “fins” attaching it to the bracket, while the Geostel cup has only one. The Schwarz cup is attached to the chassis by pins that are moulded into the bracket. The Geostel pins are separate items that have to be pushed into place.
[94] Mr Stevens also agreed with Mr Schwarz’s explanation in his evidence regarding the interdependence of dimensions A, B and C. He also agreed that countless combinations of the three would work, with the consequence that the chances of someone starting from scratch and by pure coincidence ending up with a combination of dimensions as close to the dimensions of the Schwarz cup assembly as the Geostel cup assembly are virtually non-existent.
[95] Stepping back, Mr Stevens’ conclusion was as follows:

What I concluded was that he [Mr Witham] had carefully gone through the original [Schwarz] design and reworked it to produce what I describe as a mark [sic] 2 version. It’s basically the same design with a number of problem areas hopefully dealt with.

Witham evidence

[96] Mr Witham accepted that the notes of the 5 April 2001 meeting[60] are in his handwriting and that the sketches attached were the ones that he and Mr Armstrong had made during the meeting. He also accepted that the term “existing” used in those notes referred to the Schwarz cup assembly.
[97] Mr Witham further confirmed that a diagram headed “Attention: Andrew Armstrong Suggested cup change” shows two side by side diagrams. The first is labelled “current design”. Mr Witham agrees that this diagram looks like the Schwarz cup. The diagram on the right is labelled “suggested change”. Mr Witham agrees that what is suggested is a minor modification to the Schwarz cup. Mr Witham had no explanation for how that came to be part of the file. He does not recall seeing it before but accepts it would have been seen in April 2001 because it was in the file.
[98] Mr Witham said that, after explaining the design brief to Napier Tool he left the design largely up to the designer to formulate but checked in at regular intervals and offered his comments and advice as he considered appropriate. He accepted that Napier Tool stored samples of the Schwarz cup but said he does not believe the designer ever made reference to or looked at the Schwarz sample during that time.
[99] Mr Witham also accepted that there could have been a drawing of the Schwarz cup in Solidworks in July 2001 and anyone working in Solidworks would have had full access to the whole library of designs, including the Schwarz design. Mr Witham gave evidence of Napier Tool’s system for storing samples of customer’s product. Samples are stored in a “quality room” which is separate and quite isolated from other areas of business for client confidentiality reasons.
[100] Mr Witham said “there would have to be a conscious effort” to keep existing moulds away from the designers and while they could be accessed easily electronically, that was not what was proposed. He did, however, accept in cross-examination that Mr McKinlay, who worked on the Schwarz design, was the only one who would “precisely know” what he had done.
[101] Mr Witham gave evidence of Napier Tool’s design methodologies. One method is a “design tree”. He explained that Napier Tool used the Solidworks programme, which in each instance begins with a blank screen and builds up through a series of stages to the final design. The tree records how the design has evolved. At each stage the design can be considered in three dimensions and rolled back in order to make changes. Napier Tool also utilised a “Moldflow” programme, which enables a designer to identify potential imperfections in the moulding process, so ensuring a good quality end product. Napier Tool presented a design tree for the Geostel grader. As conceded by Mr Witham on cross-examination, however, this tree was created in 2007 well after the design process was completed. Rather than showing the evolution of the design, it simply records how the various elements of the grader fit together.
[102] Mr Witham claimed that, had the Schwarz cup been copied, there would have been no need to start from a blank design screen and build up the product. Napier Tool could simply have started with the Schwarz design and the records Napier Tool held for the appellants and made changes from there.
[103] Mr Witham accepted in cross-examination that the geometry[61] used to make the Geostel cup was based on the “same principle” as the Schwarz cup because it had to fit in an Oraka grader:

So that meant it had to have identical geometry height and pitch didn’t it? There were constraints and datums that needed to be observed yes.

[104] His evidence, however, was that the geometry Napier Tool used for the new design (while in some areas the same or similar to the Schwarz design) was independently generated from: the brief, the functional requirements imposed on the new cup assembly, Napier Tool’s own initiatives, its knowledge and understanding of fruit and vegetable grading in general and, critically to the final design outcome, a trial and error process.

Hanlon evidence

[105] Mr Hanlon was the expert called for the respondents. His evidence was that because the proposed new Geostel cup assembly design had to operate on Oraka grading machines with minimal modification to the grading conveyor belt setup, this placed a number of functional constraints on the Geostel design.
[106] Mr Hanlon summarised the functional limitations as follows:
[107] Mr Hanlon accepted that the Geostel cup assembly perhaps looked more like a later generation version of the Schwarz cup assembly than a completely new design.
[108] Mr Hanlon said that the Geostel cup assembly also contains numerous and significant improvements over the Schwarz cup assembly. Reference to proposed differences in the notes from the 5 April meeting and alterations made later during the design process suggest that the Geostel cup assembly design was, to a certain extent, an evolved one based on experience.

Objective similarity

[109] It is common ground that there is objective similarity between the length of the Schwarz cup and the Geostel cup. The Judge also accepted that there is objective similarity between the two cup assemblies with regard to dimensions A, B and C.[62] There is also objective similarity with regard to the “V” shape of the cup and the depth and width of the cup. The presence of flared or ramped ends on the cup and the use of a bracket to mount the cup is also objectively similar. In relation to the trigger, its location, the use of a flat leaf spring to hold the trigger in place and a metal disc are also present on both assemblies. The pivot points, latch arrangement and chassis plate measurements are also similar.[63]
[110] We accept that there are also significant differences between the Schwarz cup assembly and the Geostel cup assembly, especially relating to the integration of the chassis with the chain link, the spring that joins the bracket to the pivot pin and the different trigger mechanisms. Other minor differences are also present. These include the pin holding the Geostel cup to the chassis, the number of conveyor links in the chassis, the shape of the chassis and the use of ribbed rather than square weights at the butt end of the cups.[64]
[111] The experts for the appellants and for Napier Tool both accepted, however, that the Geostel cup assembly resembles a second generation model of the Schwarz cup assembly.[65]
[112] We consider that there is objective similarity between the Geostel and Schwarz cup assemblies.

Causal connection

The law

[113] Where a claimant’s and a defendant’s works are objectively similar, there are four possible explanations: the defendant copied the claimant’s work; the claimant copied the defendant’s work; both arose from a common source; or the similarities occurred though mere chance or coincidence.[66] It is only in the first case that an infringement of the claimant’s work has occurred. No infringement occurs by an act of independent creation.
[114] In most cases, copying can only be deduced by inference from all the surrounding circumstances. It is unusual for there to be evidence of actual copying from someone observing the person making his or her work. In Henkel KGaA v Holdfast New Zealand Ltd the Supreme Court remarked that causality is the “ultimate issue” in a copyright case.[67] The Court said that the degree of similarity between two works has evidentiary significance and is of assistance in satisfying causality: the greater the similarity between the two works, the stronger the inference is likely to be that the one was copied from the other.[68] The Court went on to say that, if an alleged infringer has had access to, and therefore an opportunity to copy, the copyright work, and the similarity between the works supports an inference of copying, it may well be appropriate for the court to conclude that there was copying.[69] This, however, is subject always to the evaluation of any evidence there may be that no copying actually took place.[70]
[115] Evidence of independent design will assist in rebutting any inference of copying.[71] The fact that a defendant fails to give evidence to indicate how the alleged infringing work was produced can be taken into account.

Submissions

[116] It is submitted on behalf of Napier Tool that it started with a blank screen and without reference to the Schwarz cup assembly. The submission is that any similarity in design was in fact due to the functional parameters imposed by the grading machine. The existing parameters or datums provided necessary reference points in the design of componentry suitable for retrofitting.
[117] It is further submitted by Napier Tool, in relation to the dimensions A, B and C, that, while the dimensions are similar, the similarity was not so close that the components could be intermixed. A Schwarz cup cannot be put into a Geostel chassis or vice versa. A single Geostel cup assembly cannot be slotted into an Oraka belt to replace a Schwarz cup assembly. It is submitted that the fact that the individual components are different in their expression and could not be substituted for one another provides objective evidence that one component could not bring to mind the other. There was thus no basis for finding there had been any copying of the copyright work.
[118] It is submitted by the appellants that there was direct evidence of copying. It is further submitted that any inherent aspects of the design of the Geostel cup assembly that needed to fit with aspects of the Oraka grader were taken from the Schwarz cup assembly and not from the grader. They did not represent the respondents’ trial and error but were directly appropriated.

Our assessment

[119] We consider it absolutely clear from the evidence that, contrary to Mr Witham’s assertion, there was not an independent design path for the Geostel cup assembly. An independent design path would have started with the Oraka grader or with general functional constraints of the product. Instead, as the Judge found, the design path undertaken by Napier Tool took as a starting point the Schwarz cup assembly.
[120] It is clear from the notes of the meeting of 5 April 2001 that there were certain features of the Schwarz cup assembly that were to be copied. This follows from the use of the term “existing”, which Mr Witham acknowledged in evidence meant aspects of the Schwarz cup assembly. The diagrams made at that meeting also make it clear that the Geostel cup was copied from the Schwarz cup.
[121] We note in particular that the notes of 5 April 2001 record that “geometry [is] to remain as existing”. It is submitted by the appellants that this supports a finding that the three interdependent measurements (dimensions A, B and C)[72] were copied. We accept that submission. That the components of the two cup assemblies are not interchangeable does not detract from this. Nor do the minor differences in measurement noted by Napier Tool lead us to the conclusion that these dimensions were independently arrived at by Napier Tool.
[122] The appellants also refute Mr Witham’s evidence that no reference was made to the Schwarz model or design in Solidworks because of concerns about client confidentiality.[73] They submit (and we accept) that this is inconsistent with the case advanced by Napier Tool in connection with its alleged ownership of the Schwarz copyright drawings prepared by it.[74]
[123] Napier Tool’s solicitor’s letter of 10 July 2007 stated that, in the absence of a proper commissioning arrangement, Napier Tool retained copyright in all of its design work. The letter maintained that this gave Napier Tool a competitive advantage as it could refer to its library of designs. It said that:

It is only through the retention of copyright ownership that [Napier Tool] has been able to so quickly and cost effectively propose the best possible solutions to its clients and prospective clients through drawing on its precedent base – just as any other graphic design house, lawyer, architect or other party offering solutions would do – so as to promote its point of difference in the market.

[124] It was submitted also that Napier Tool’s failure to call Mr McKinlay should have led the Judge to draw an adverse inference against Napier Tool as to the issue of copying. Mr McKinlay was the only person who knew whether or not the Schwarz material held in the Solidworks programme or the physical models were referred to during the design of the Geostel cup assembly. We accept that it would have been open to the Judge to conclude that Mr McKinlay’s evidence would not have been helpful to Napier Tool.[75] In the circumstances, including the speed with which the Geostel design was produced,[76] we consider that he should have done so.
[125] The appellants also submit that the Judge failed to give appropriate weight to his finding that the respondents referred “time and time again” to the Schwarz cup assembly during the development of the Geostel cup assembly. We agree. As noted above,[77] Mr Daynes suggested to Napier Tool on numerous occasions that specific issues with the Geostel cup assembly be resolved by reference to the solutions found in the Schwarz cup assembly. We do not accept that Napier Tool took an independent design path in resolving these issues.
[126] In the cross-appeal, Napier Tool objects to Allan J’s conclusion that, if the appellants established objective similarity between the Geostel cup assembly and the Schwarz cup assembly, that would have been the result of the defendants copying from the Schwarz cup assembly.[78] Napier Tool complains that this proposition misstates the legal test of infringement by copying as it restates the “rebuttable inference” as a strong presumption of copying.
[127] We do not accept this submission. This is an unusual case in that there was direct evidence of copying.[79] The Judge accepted this.[80] His statement must be read in light of this finding.
[128] We address Napier Tool’s submission relating to functional constraints in the next section as it more logically fits there in this case. This is because there was no independent design path and the functional elements, if any, were copied.

Substantial part

The law

[129] The essential test is whether a claimant can show substantial use by the defendant of those features of the claimant’s work that, by reason of the knowledge, skill and labour employed in their production, constituted it as an original copyright work.[81] It is wrong to jump to the conclusion that a substantial part was taken simply on the basis that copying occurred.[82] What constitutes a “substantial part” is necessarily a question of fact and degree.[83] The quality or importance of what has been taken is much more significant than the quantity.[84]
[130] This means that what is or is not “substantial” is closely associated with how original the work, or respective part of the work, is. The law of copyright is not concerned with originality of ideas but with originality of expression. Protection is given to a work (being a pattern of ideas), not a general idea or principle. The line between ideas and their expression, however, is notoriously ill-defined.[85] Originality, in the sense of the contribution of the author’s skill and labour, tends to lie in the detail with which the basic idea is presented.[86] The greater the originality, the greater the protection that copyright law will afford it.[87]
[131] The issue of functional constraints may become important at this point. If similarities between two works are dictated by the function of the item, then the similarities are an inevitable consequence of the object and its function rather than the labour and skill of the claimant, against whose misappropriation the law of copyright seeks to protect.[88]
[132] Functional constraints have been considered in the United Kingdom under the notion of “commonplace”. If the claimant’s design is very ordinary (commonplace) given the constraints imposed by the function of the object and there is nothing new added, then the originality of the claimant’s work might be non-existent or so low that the defendant can easily avoid breach by adding something of his or her own to the design. The situation has been described as follows:[89]

If a number of designers working independently of one another in the same field produce very similar designs by coincidence the most likely explanation of the similarities is that there is only one way of designing that article. In those circumstances the design in question can fairly and reasonably be described as “commonplace”. It would be a good reason for withholding the exclusive right to prevent the copying in the case of a design that, whether it has been copied or not, is bound to be substantially similar to other designs in the same field.

[133] Although the existence or otherwise of functional constraints is primarily relevant to earlier questions regarding the originality of the work and whether copying has in fact occurred, functional constraints may also assist in determining the originality of the respective works and whether a substantial part of the claimant’s labour and skill has been taken by the defendant.

Submissions of the appellants

[134] It is submitted by the appellants that Allan J proceeded on the basis that, because the Oraka grader used certain items of third party technology, any constraint imposed by that technology was dictated by the third party component alone and therefore was a functional constraint.
[135] It is submitted that the Judge should not have equated the various technological items in the Oraka grader with the dimensions of shipping containers and truck trailers in Tidd Ross Todd[90] because the selection, composition and arrangement of the items was devised by Mr Schwarz. The Oraka grader is a unique arrangement designed specifically to Mr Schwarz’s specifications. It is submitted on behalf of the appellants that the composition and arrangement of the various technological items in fact provided copyright protection in the Oraka grader.
[136] It is also submitted that the functional constraints identified by the respondents’ expert Mr Hanlon were an after-the-fact artificial narrative put forward in the expert evidence and not grounded in the circumstances of the design of the Geostel cup assembly. This is because the Schwarz cup assembly and not the Oraka grader was the starting point for the Geostel cup assembly.

Submissions of Napier Tool

[137] It is submitted on behalf of Napier Tool that it is not the Schwarz cup assembly itself that provided the starting point for the Geostel cup assembly design.[91] It is submitted that the physical and functional constraints of the Oraka machinery set the parameters within which the design needed to comport.
[138] Further, it is submitted that the contention that Mr Schwarz determined the technical parameters of the Oraka grader was not pleaded but only introduced during trial in response to Napier Tool’s submissions on its pleaded defences of functional and manufacturing constraints. In Napier Tool’s submission, it was third party technology and established market requirements that created the functional constraints. Napier Tool objects to Oraka’s attempt to claim rights in the grader on appeal.

Our assessment

[139] We accept the appellants’ submissions that, unlike in Tidd Ross Todd, the constraints imposed by the need for the cup assembly to be compatible with the Oraka grader and the third party technology included in that grader are not constraints imposed by the function of an asparagus grader. Allan J erred in treating the constraints imposed by the Oraka grader as market constraints.[92] They are specific to the Oraka grader and therefore cannot be considered functional constraints in the conventional sense.[93] There is no spare parts exception in New Zealand,[94] and it was not submitted at any stage that the way that the Oraka grader is built is the only way that an asparagus grading machine can be built.
[140] We do accept that the width and angle of the cups are dictated to a large degree by third party technology. While we do not consider that these aspects are functional constraints in the true sense, they can be seen as having a low level of originality.
[141] We accept that some aspects of the cup assembly are functional constraints in the true sense. For example, the need for a flare at the end of the cups to prevent damage to the head of the asparagus was accepted as a functional constraint by both parties’ expert witnesses.[95] On other aspects the experts disagreed.
[142] There was evidence from Mr Stevens that the “V” shape is not a functional constraint.[96] On the other hand, Mr Hanlon stated that “V” shaped cups are often used to hold round or cylindrical items in various industries.[97] In our view, frequent use of a “V” shape design does not mean that it is the only design that would work. The respondents were not constrained in their choice of cup shape in the conventional sense. The common use of the “V” shape does mean, however, that this aspect of the work must be treated as having a low level of originality.
[143] It was also argued by the respondents that the similar lengths of the Schwarz and Geostel cups were the result of a functional constraint. Evidence of three other cups (the Sammo, Strauss and GP Grader) used by grading machine manufacturers overseas was provided in the High Court. Of the three, two, the Sammo and Strauss cups, were similar in length to the Schwarz cup. On cross-examination, Mr Stevens accepted that it was likely that the similar lengths of the Schwarz, Sammo and Strauss cups were indicative of market requirements of the length of asparagus spears. There was, however, a third cup that, unlike the other two, was designed prior to the Schwarz cup. The GP Grader cup was significantly longer than the Schwarz cup. Both Messrs Witham and Daynes accepted in cross-examination that there was no similarity between the GP Grader cup and the Schwarz cup. Mr Stevens was not questioned regarding this cup. Given the existence of the GP Grader cup, we do not accept that the length of the cup was a true functional constraint. We do, however, accept that length is of low originality as it is undoubtedly related to market requirements.
[144] On the other hand, there are aspects of the Schwarz cup that were copied by Napier Tool that are not commonplace. There are the interrelated dimensions A, B and C. We note the evidence of Mr Schwarz and Mr Stevens that other combinations of the dimensions could work.[98] We thus do not accept the respondents’ submission that the dimensions were due to functional constraints.
[145] The issue is whether, discarding the similarities that are due to true functional constraints, the Geostel cup was a copy of a substantial part of the Schwarz cup assembly.
[146] In our view the answer is in the affirmative. We have held that the respondents copied a number of elements that, while not functional in the true sense, nevertheless possessed low originality. These elements are still protected, although this protection is not great. In this case it was not one such element alone that was copied but a number and it is significant that both experts agreed that the Geostel cup appeared to be a second generation of the Schwarz cup.[99] Further, there is the requisite degree of originality in the dimensions A, B and C and they are central enough to the cup assembly for the copying of those dimensions to be the copying of a substantial part of the first appellant’s work.[100] Our conclusions regarding the copying of a number of elements of lower originality support this conclusion. We therefore hold that the respondents have infringed the copyright of the first appellant.

Flagrancy

The parties’ submissions

[147] The appellants seek an order that the respondents deliberately and flagrantly reproduced the works. In the appellants’ submission, the infringement was deliberate and calculated and was accompanied by attempts at concealment of the infringement.[101]
[148] Napier Tool submits that to gain an award for flagrancy, the appellants must first establish that Napier Tool infringed and must then show that the infringement amounted to scandalous conduct and total disregard of the appellants’ legal rights and other circumstances. Damages for flagrancy will only be awarded where other remedies are inadequate to provide effective relief. We accept that this is an accurate statement of the law.
[149] Napier Tool further argues that, to warrant such damages, the appellants must show that Napier Tool gained pecuniary advantages that go beyond any quantum of loss they are able to establish arising from Napier Tool’s alleged infringement. We do not accept this submission. Flagrancy damages are analogous to exemplary damages in tort.[102] They are a punitive response to a party’s conduct. There is no requirement that the scandalous conduct be accompanied by a pecuniary gain.
[150] Napier Tool points out that, in the costs judgment, the Judge found that Mr Witham impressed as a straightforward honest witness.[103] It is also noted that Napier Tool sought advice from a patent attorney and relied upon the advice it was given. The Judge also took into account that there was no proper opportunity for Mr Witham to meet the thrust of the appellants’ flagrancy claims. Counsel for the appellants chose not to pursue the matter with Mr Witham in evidence and no evidence justifying additional damages was advanced.

Our assessment

[151] This ground of appeal must fail. The Judge was entitled to come to the view that the respondents did not act in total disregard for the appellants’ rights in circumstances where they had sought and obtained legal advice confirming that they were not infringing those rights. Further, the allegations of flagrancy were not put to Mr Witham. We therefore accept Napier Tool’s submission that the Judge did not err in rejecting the allegation of flagrancy.[104]

Remedy

[152] The appellants seek an order entering judgment in their favour in respect of the claim of copyright infringement against the respondents in relation to the Schwarz cup assembly. They also seek an order directing an inquiry into damages as a consequence of the respondents’ infringement of the first appellant’s copyright and submit that this should be conducted by an associate judge of the High Court.
[153] Napier Tool submits that the appropriate order is for the trial Judge to determine loss on the basis of evidence already filed. In Napier Tool’s submission, the High Court had earlier ruled that the hearing of the Oraka claims would cover liability and quantum and Oraka did not challenge this ruling on appeal.[105]
[154] Napier Tool says that it led evidence, including from an accountant, and made closing submissions on the question of remedy upon which the Judge would be able to rule. The appellants did not call quantum evidence. In Napier Tool’s submission, there is no basis for an order for an inquiry into damages as Oraka erred in not calling quantum evidence.
[155] In response, the appellants submit that they have consistently sought as a possible remedy an inquiry into damages and that an election to seek that inquiry and not to pursue an account of profits was made on 11 March 2008.[106] Mr Henry, for the appellants, had also made it clear at that time that the appellants were not adducing evidence as to loss because the relief sought was an inquiry and that there would be a second hearing in respect of loss if the appellants succeeded.[107]
[156] We accept the appellants’ submissions and therefore that it is appropriate that the matter be remitted to the High Court for an inquiry into damages. Whether this is conducted by Allan J or another judge or an associate judge is a matter for the High Court.

Result

[157] The appeal is allowed in part. The appellants have been successful on all grounds, except for the appeal against the flagrancy decision.
[158] Judgment is entered for the first appellant in respect of the claim of copyright infringement. The matter is remitted to the High Court for an inquiry into damages.
[159] The cross appeal is dismissed.
[160] The third respondent must pay costs to the appellants for a standard appeal on a band A basis plus usual disbursements.

Solicitors:
Tim Kinder, Putaruru for Appellants
Stace Hammond, Hamilton for Third Respondent

Appendix 1

Location of dimensions A, B and C


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[1] See this Court’s earlier finding on this point below at [40].

[2] Oraka Technologies Ltd v Geostel Vision Ltd (No 2) HC Hamilton CIV-2005-419-809, 7 April 2011 [the copyright infringement judgment].

[3] Oraka Technologies Ltd v Geostel Vision Ltd HC Hamilton CIV-2005-419-809, 22 April 2010 [the costs judgment]. This decision was made after Allan J’s first judgment on the matter, which was successfully appealed to this Court in respect of findings related to the commissioning of the Schwarz cup assembly work: see a description of the procedural history below at [38]–[40].

[4] See AHI Operations Ltd v New Lynn Metalcraft Ltd (No 1) [1982] NZHC 43; (1982) 1 NZIPR 381 (HC) at 393; see also Kevin Garnett, Gillian Davies and Gwilym Harbottle Copinger and Skone James on Copyright (16th ed, Thomson Reuters (Legal) Ltd, London, 2011) at [3–06] [Copinger and Skone James on Copyright].
[5] See below at [27].

[6] Acracorp Ltd was a company formed by Mr Armstrong for the purpose of installing and maintaining engineering maintenance products used in the horticultural and food processing industries. It operated in Hawke’s Bay, Wellington and the East Coast region.

[7] The copyright infringement judgment, above n 2, at [73]–[76].
[8] See below at [96].

[9] The copyright infringement judgment, above n 2, at [79].

[10] “Solidworks” is the name of the program in Napier Tool’s computer system where the Schwarz designs were stored.

[11] At [83]. Allan J was not required to decide whether the Schwarz mould was used in light of his earlier conclusion that the mould was not one of the copyright works: see at [62]. There was, however, no evidence suggesting that the mould was referred to either.

[12] Kamber is a company owned by Mr Daynes. For some years, Kamber worked with the appellants and assisted in the development of the Oraka grader by supplying hardware and software packages associated with the development of the electronic aspects of the overall machine.

[13] The date of this meeting is unclear. Mr Daynes’ evidence was that the meeting took place in April or May. Mr Armstrong, however, said in cross-examination that this was too early as the prototype would not have been ready. He said that he was not sure of the date.
[14] The copyright infringement judgment, above n 2, at [98]–[99].
[15] The copyright infringement judgment, above n 2, at [97].
[16] At [111].

[17] Oraka Technologies Ltd v Geostel Vision Ltd HC Hamilton CIV-2005-419-809, 18 February 2009.

[18] The Copyright Act 1962 was repealed by the Copyright Act 1994. However, by virtue of sch 1, cl 14 of the Copyright Act 1994, the question of first ownership of copyright in a work made before the commencement of the Act is to be determined in accordance with the law in force at the time the work was made. Most of the works in which copyright was claimed by the appellants came into existence in 1993 or 1994, prior to the commencement of the 1994 Act: Copyright Act 1994, s 1.

[19] Oraka Technologies Ltd v Geostel Vision Ltd [2010] NZCA 232, (2010) 9 NZBLC 103,010.

[20] At [21] and [51].

[21] At [31].

[22] At [32].

[23] At [30].

[24] At [34].

[25] At [35].

[26] At [36].

[27] At [41].

[28] At [43].

[29] At [45].

[30] At [51].

[31] At [51].

[32] See Dennison Manufacturing Co v Alfred Holt & Co Ltd [1987] NZHC 56; (1987) 10 IPR 612 (HC) at 619–621.

[33] At [53], referring to Wham-O MFG Co v Lincoln Industries Ltd [1984] 1 NZLR 641 (CA) at 666.

[34] At [106]–[107].

[35] In his judgment the Judge refers to “recreat[ing] the [Geostel cup assembly]” in expressing this conclusion. It is safe, in the context, to assume that the reference to the Geostel cup assembly, rather than the Schwarz cup assembly, is a typographical error: see at [92].
[36] At [92].
[37] At [87].

[38] At [110].

[39] At [112].

[40] At [139]–[168].

[41] At [122] referring to Tidd Ross Todd Ltd v Steelbro New Zealand Ltd HC Christchurch CIV-2004-409-1386, 1 December 2005. In that case, while some broad general constraints were recognised, the similarities were sufficient to go beyond being the natural consequence of design constraints.

[42] At [174]; see also [122]–[124].
[43] At [173]–[174]. See also [143]–[144].

[44] See below at [89].

[45] The Judge discussed the cups (at [139]–[156]); the triggers (at [157]–[163]); and the chassis (at [164]–[168]).

[46] At [175].

[47] At [176].

[48] The costs judgment, above n 3.
[49] At [48].
[50] At [48]–[51].

[51] There was a “confirmatory deed of assignment” dated 21 February 2007 (after the proceedings commenced) by which Mr Schwarz confirmed his earlier assignment of rights in the copyright works to Technologies. We do not consider that this is of any assistance in determining copyright ownership.
[52] See above at [14].
[53] See above at [48]–[49].

[54] As noted, the 1962 Act, and not the Copyright Act 1994, is the applicable Act in these proceedings: see above n 18.

[55] Hugh Laddie, Peter Prescott and Mary Vitoria The Modern Law of Copyright and Designs (4th ed, LexisNexis Butterworths, London, 2011) at [23.21]–[23.27].
[56] Fox v Police [2001] NZFLR 145 (HC) at [46].2013_11100.jpg

[57] The 1994 Act applies to all conduct occurring after 1 January 1995: Copyright Act 1994, sch 1, cl 22.

[58] Wham-O MFG Co v Lincoln Industries Ltd, above n 33. In the leading case on copyright in New Zealand, Henkel KGaA v Holdfast New Zealand Ltd [2006] NZSC 102, [2007] 1 NZLR 577, the Supreme Court did not cite Wham-O but the three elements identified in that case were discussed.
[59] See below at [129]–[146].
[60] See above at [25].

[61] We accept that Mr Witham’s use of the term “geometry” is less measurement specific than Mr Stevens’ and Mr Schwarz’s use of the same term. See for example above at [25] and [91].

[62] See above at [62]. Napier Tool submits that there were significant minor differences in measurement but we do not consider the Judge was wrong in his conclusion on this point.

[63] See generally the copyright infringement judgment, above n 2, at [128]–[168].

[64] The appellants argue, however, that, through testing, these weights were found to be unnecessary in the Schwarz cup. They submit that the appearance of a similar error in the Geostel cup is evidence of copying. Allan J noted in the High Court that the evidence from the 5 April meeting appears to support this conclusion: at [153].
[65] See the Stevens evidence above at [95] and the Hanlon evidence above at [107].

[66] Copinger and Skone James on Copyright, above n 4, at [7–14].
[67] Henkel KGaA v Holdfast New Zealand Ltd, above n 58, at [43].

[68] At [43]. The same test operates in the United Kingdom: A Fulton Co Ltd v Grant Barnett & Co Ltd [2000] EWCA Civ 513; [2001] RPC 16 (Ch) at [95].
[69] At [43].
[70] At [43]; see also Copinger and Skone James on Copyright, above n 4, at [7–17].

[71] UPL Group Ltd v Dux Engineers Ltd [1989] 3 NZLR 135 (CA).
[72] See above at [89].
[73] See above at [99]–[100].
[74] See above at [38].

[75] See Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd [1989] 3 NZLR 304 (CA) at 313.

[76] We see the speed with which the design was produced as much more significant than the Judge did. See above at [27] and [58].
[77] Above at [32]–[37].
[78] The copyright infringement judgment, above n 2, at [112].
[79] See above at [23]–[26] and [120]–[121].

[80] The copyright infringement judgment, above n 2, at [176].
[81] Copinger and Skone James on Copyright, above n 4, at [7–28].
[82] Ibid at [7–30(i)].
[83] Bonz Group (Pty) Ltd v Cooke [1994] 3 NZLR 216 (HC) at 226.
[84] Henkel KGaA v Holdfast New Zealand Ltd, above n 58, at [44].
[85] Copinger and Skone James on Copyright, above n 4, at [3–18].

[86] Designers Guild Ltd v Russell Williams (Textiles) Ltd [2001] 1 WLR 2416 (HL) at 2423.

[87] Henkel KGaA v Holdfast New Zealand Ltd, above n 58, at [38]; see also Land Transport Safety Authority of New Zealand v Glogau [1999] 1 NZLR 261 (CA) at 271.

[88] Farmers Build Ltd (in liq) v Carier Bulk Materials Handling Ltd [1999] RPC 461 (CA) at 482.

[89] Ibid at 482.
[90] Tidd Ross Todd Ltd v Steelbro New Zealand Ltd, above n 41.

[91] We rejected this submission above at [119]; Allan J also reached this conclusion: see the copyright infringement judgment, above n 2, at [110].

[92] At [173]–[174].

[93] It does not matter for the purposes of this discussion whether Mr Schwarz has copyright in the grader itself unless the Oraka grader is the only manner in which such a grader could be constructed because of external constraints.

[94] The exception has been rejected in two New Zealand High Court cases: Mono Pumps (New Zealand) Ltd v Karinya Industries Ltd (1986) 7 IPR 25 (HC) at 34; Husqvarna Forest & Garden Ltd v Bridon New Zealand Ltd [1997] 3 NZLR 215 (HC) at 223; see also Dennison Manufacturing Co v Alfred Holt & Co Ltd, above n 32. The role of the exception in the United Kingdom also appears to be increasingly limited: see Canon Kabushiki Kaisha v Green Cartridge Co (Hong Kong) Ltd [1997] AC 728 (PC) at 737; and Copinger and Skone James on Copyright, above n 4, at [13–21].

[95] See discussion of Mr Stevens’ evidence above at [91](f) and Mr Hanlon’s evidence above at [106](c).
[96] See above at [92].

[97] See above at [106](b).
[98] See above at [90] and [94].

[99] See above at [95] and [107].

[100] Because the Judge considered the issue of substantial similarity against the appellants’ allegations, rather than against what had been copied, he in fact never really properly considered whether the copying of the dimensions A, B and C meant that the respondents had copied a substantial part of the appellants’ copyright work.
[101] See Wellington Newspapers Ltd v Dealers Guide Ltd [1984] 2 NZLR 66 (CA) at 70–71.

[102] Ibid at 70–71.

[103] The costs judgment, above n 3, at [48].
[104] See discussion of that decision above at [64]–[65].

[105] Oraka Technologies Ltd v Geostel Vision Ltd HC Hamilton CIV-2005-419-809, 6 December 2007.

[106] Oraka Graders Ltd v Geostel Vision Limited HC Hamilton CIV-2005-419-809, 11 March 2008.

[107] At [5].

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