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Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd and Others
[2005] FCA 1521

(Decision by: Crennan J)

Gold Peg International Pty Ltd
vKovan Engineering (Aust) Pty Ltd and Others

Court:

Federal Court of Australia

Legislative References:
Copyright Act 1968 - s 196(3); s 31(1)(b)(i); s 74(1)
Trade Practices Act 1974 (Cth) - s 52; s 53(c); s 53(d)
Designs (Consequential Amendments) Act 2003 - The Act
Corporations Act 2001 - s 128(1); s 128(2); s 129(3); s 129(4); s 129(1)
Property Law Act 1958 (Vic) - s 53(1)(c)
Copyright, Design and Patents Act 1988 (UK) - s 11
Registered Designs Act 1949 (UK) - s 1(a)
Designs Act 2003 (Cth) - s 46

Case References:
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Acohs Pty Ltd v RA Bashford Consulting Pty Ltd - (1997) 144 ALR 528
Ancher, Mortlock, Murray & Woolley Pty Ltd v Hooker Homes Pty Ltd - (1971) 2 NSWLR 278
Autodesk Inc v Dyason (No 2) - (1993) 176 CLR 300; 111 ALR 385; [1993] HCA 6
BP Refinery (Westernport) Pty Ltd v The President, Councillors and Ratepayers of the Shire of Hastings - (1977) 16 ALR 363; 52 ALJR 20
Bauman v Fussell - [1978] RPC 485
Beck v Montana Constructions Pty Ltd - [1964-5] NSWR 229
Blackie & Sons Ltd v Lothian Book Publishing Co Pty Ltd - (1921) 29 CLR 396
Blair v Osborne & Tompkins - [1971] 21 QB 78
Bramwell v Halcomb - (1836) 3 My & Cr 737; 40 ER 1110
Brogden v Metropolitan Railway Co - (1877) 2 App Cas 666
Bulurri Australia Pty Ltd v Oliver - (2000) 49 IPR 384; [2000] NSWSC 580
Byrne v Australian Airlines Ltd - (1995) 185 CLR 410; 131 ALR 422; [1995] HCA 24
Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd - [1980] 2 NSWLR 851; 32 ALR 387; [1981] RPC 429
Campomar Sociedad Ltd v Nike International Ltd - (2000) 202 CLR 45; 169 ALR 677; 46 IPR 481; [2000] HCA 12
Carlill v Carbolic Smoke Ball Co - [1893] 1 QB 256
Chatterton v Cave - (1878) 3 App Cas 483
Codelfa Construction Pty Ltd v State Rail Authority (NSW) - (1982) 149 CLR 337
Collier Constructions Pty Ltd v Foskett Pty Ltd - (1991) 20 IPR 666
Commonwealth v Verwayen - (1990) 170 CLR 394; 95 ALR 321
ConAgra Inc v McCain Foods (Aust) Pty Ltd - (1992) 33 FCR 302; 106 ALR 465; 23 IPR 193
Data Access Corporation v Powerflex Services Pty Ltd - (1999) 202 CLR 1; 166 ALR 228; 45 IPR 353; [1999] HCA 49
Designers Guild Ltd v Russell Williams (Textiles) Ltd - [1998] FSR 803; [2000] FSR 121; [2001] 1 All ER 700
Designers Guild Ltd v William Russell (Textiles) Pty Ltd (t/as Washington DC) - [2001] 1 All ER 700
Eagle Homes Pty Ltd v Austec Homes Pty Ltd - (1999) 87 FCR 415; 161 ALR 503; 43 IPR 1; [1999] FCA 138
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd - (1988) 14 NSWLR 523
FAI Insurances Ltd v Advance Bank Australia Ltd - (1986) 68 ALR 133; 7 IPR 217
Fairline Shipping Corporation v Adamson - [1975] QB 180
Falcon v Famous Players Film Co - [1926] 2 KB 474
Felthouse v Bindley - (1862) 11 CB (NS) 869; 142 ER 1037
Fernald v Jay Lewis Productions Ltd - [1975] FSR 499
Francis Day & Hunter Ltd v Bron - [1963] 1 Ch 587; 1A IPR 331
Geographica Ltd v Penguin Books Ltd - [1985] FSR 208
Glamagard Pty Ltd v Enderslea Productions Pty Ltd - (1985) 1 NSWLR 138; 59 ALR 740; 4 IPR 113
Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd - [2002] FCA 910
Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd - [2004] FCA 1601
Greenfield Products Pty Ltd v Rover-Scott Boonar Ltd - (1990) 95 ALR 275
Hawkes & Son (London) Ltd v Paramount Film Service Ltd - [1934] Ch 593
Hawkins v Clayton - (1988) 164 CLR 539; 78 ALR 69
Hospital Products Ltd v United States Surgical Corp - (1984) 156 CLR 41
Hutchence v South Seas Bubble Co Pty Ltd - (1986) 64 ALR 330; 6 IPR 473
Interlego AG v Croner Trading Pty Ltd - (1992) 39 FCR 348; 111 ALR 577; 25 IPR 65
Ironside v HM Attorney-General - [1988] RPC 197
Jarrold v Houlston - (1857) 3 K & J 708; 69 ER 1294
John Richardson Computers Ltd v Flanders - (1993) 26 IPR 367; [1993] FSR 497
Kevlacat Pty Ltd v Trailcraft Marine Pty Ltd - (1987) 79 ALR 534; 11 IPR 77
Kipling v Genatosan Ltd - [1917-23] MacG Cop Cas 203
LB (Plastics) Ltd v Swish Products Ltd - (1979) 1A IPR 359
Ladbroke (Football) Ltd v William Hill (Football) Ltd - [1964] 1 WLR 273; [1964] 1 All ER 465
Liverpool City Council v Irwin - [1977] AC 239
Longman Group Ltd v Carrington Technical Institute Board - [1991] 2 NZLR 574; (1990) 20 IPR 264
MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd - (1999) 43 IPR 287
MacRobertson Miller Airline Services v Commissioner of State Taxation (Western Australia) - (1975) 133 CLR 125
Massine v De Basil - [1936-45] MacG Cop Cas 223
Meikle v Maufe - [1941] 3 All ER 144
Merchant Adventurers Ltd v M Grew & Co Ltd - [1972] Ch 242; [1971] 2 All ER 657; [1973] RPC 1
Milpurrurru v Indofurn Pty Ltd - (1994) 54 FCR 240; 130 ALR 659; 30 IPR 209
Minister for Mineral Resources v Newcastle Newspapers Pty Ltd - (1999) 40 IPR 403
Murray v King - (1984) 4 FCR 1
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Robin Ray v Classic FM Plc - (1998) 41 IPR 235
Robophone Facilities Ltd v Blank - [1966] 3 All ER 128; [1966] 1 WLR 1428
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Sands & McDougall Pty Ltd v Robinson - (1917) 23 CLR 49; [1917] HCA 14
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Waltons Stores (Interstate) Ltd v Maher - (1988) 164 CLR 387; 76 ALR 513
Wilson v Weiss Art Pty Ltd - (1995) 31 IPR 432

Hearing date: 18-22, 25-29 October, 5, 26 November 2005
Judgment date: 8 December 2005

Melbourne

Decision by:
Crennan J

Introduction

[1] This case has had a long history through the Federal Court. On 5 July 2002, the applicant filed an application seeking declaratory and pecuniary relief and certain injunctions under the Copyright Act 1968 (Cth), the Trade Practices Act 1974 (Cth) (the TPA) and at general law. In essence, the dispute arises from competing claims to copyright in certain drawings used in the development and manufacture of a Direct Steam Injection Cooking Machine (the DSI cooker). In so far as the applicant claims infringement of those rights, the claim is confined to threatened infringement. A graphic drawing of the DSI cooker is annexed to these reasons for judgment.

[2] The applicant filed an amended application on 17 July 2002. The applicant then brought a notice of motion before Sundberg J seeking interlocutory injunctions:

(a): restraining the respondents until the hearing of the proceeding or further order from reproducing or substantially reproducing the drawings the subject of the dispute, including in a three-dimensional form, or authorising such conduct; and
(b): making, promoting, offering for sale, and/or selling machines utilising the DSI cooker system.

[3] A central plank of the applicant's case at the hearing of the motion was the existence of an alleged agreement that contained, inter alia, a term vesting the intellectual property rights, including copyright in the manufacturing drawings created by the first respondent, in the applicant. Sundberg J, by order dated 18 July 2002, refused to grant the interim relief sought on the ground that the documents and conversations relied upon to support the existence of an agreement between the parties did not disclose the existence of the alleged agreement with sufficient clarity or certainty to justify the grant of the relief sought: see Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd [2002] FCA 910.

[4] The proceeding involves a dispute between two parties, each of which is essentially a company run by a family. After the transfer from the docket of Sundberg J, the matter came on for hearing before me on 18 October 2004 on an estimate that the hearing would take 10 days. On the first day of the hearing there were in excess of 3700 pages of affidavits. The affidavits had many pages of exhibits. The exhibits, in turn, included in excess of 600 manufacturing drawings and many drawings contained several views or perspectives. There were also well over 200 written objections by the respondents to the admissibility of the applicant's evidence, including objections based on relevance. The hearing went well beyond the estimated 10 days.

[5] There was a consensual attempt at mediation at one stage which appeared at first to have resulted in resolution of the proceeding, but which ultimately failed. It is worth repeating that senior counsel have an important and heavy role in the administration of justice. Not the least aspect of that is the need to ensure litigation is conducted, so far as it can be, in a manner which is not grossly disproportionate to the dispute between the parties. During the course of this hearing counsel sensibly agreed to rationalising some aspects of this dispute.

[6] It would not be practical to mention every piece of evidence, aspect or event in this judgment. I have considered all of the evidence as well as lengthy submissions advanced in respect of the evidence. Such findings of fact as I proceed to make are based on the whole of the evidence including close observation of witnesses when giving oral evidence about contested matters, particularly conversations.

[7] On 10 December 2004, the applicant sought and was granted leave to file a third further amended statement of claim: see Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd [2004] FCA 1601. The respondents filed an amended defence to the third further amended statement of claim on 5 January 2005 and the reply to the defence to the third further amended statement of claim and a cross-claim was filed on behalf of the applicant on 11 February 2005. The hearing ultimately concluded on 31 March 2005.

[8] The applicant, Gold Peg International Pty Ltd, is a company incorporated in 1977 under the name Gold Peg Pty Ltd. It was set up by Mr Robert Smith, a food technologist. The first respondent, Kovan Engineering (Aust) Pty Ltd, is a manufacturing and design company. The second and third respondents are, and each has been at all material times, directors of the first respondent. Since October 2000, the second and third respondents have been in control of the day-to-day management of the business of the first respondent. Between 1992-2002 the first respondent manufactured a total of 26 DSI cookers for sale by the applicant.

[9] The applicant's claim has three main elements:

(1): that the first respondent has breached the terms of a 1992 agreement between it and the applicant, in particular with respect to the ownership of copyright in certain drawings made by the first respondent for the assembly and manufacture of cookers which had been commissioned by the applicant (the RotaTherm drawings) and by the offering for sale of machines to third parties which utilise the RotaTherm drawings made for machines commissioned by the applicant;
(2): misleading and deceptive conduct on the part of the first respondent under the TPA and passing off; and
(3): threatened infringement of the applicant's copyright in certain drawings (the Alfa Laval drawings), which were supplied to the first respondent by the applicant and of the abovementioned assembly and manufacturing drawings; that is the RotaTherm drawings.

[10] The first respondent resists these claims on a number of grounds:

(1)

denial that there was an agreement as alleged by the applicant;

(2)

denial of infringement of any copyright belonging to the applicant, on the grounds that:

(i): manufacture by it of cookers in accordance with the RotaTherm drawings will not involve any relevant infringing act such as reproduction of drawings in respect of which the applicant owns copyright;
(ii): the copyright in the RotaTherm drawings is vested in itself;
(iii): in any event, the applicant had industrially applied corresponding designs within the meaning of s 77 of the Copyright Act.

The applicant has denied these defences and, in addition, has replied that the first respondent is estopped from denying the assignment of rights in the Alfa Laval drawings to the applicant, the existence of the agreement and by reason of the agreement the applicant's equitable ownership of copyright in the RotaTherm drawings.

[11] The first respondent also brought a cross-claim against the applicant, as cross-respondent, claiming that because of its ownership of the copyright in the drawings (which it calls the Kovan drawings) in contention, the cross-respondent will infringe the copyright therein should it use the same for the manufacture of its own cookers. This cross-claim is denied by the cross-respondent on a number of bases:

(1): in the event that the cross-claimant is found to own the copyright in any or all of the said drawings, any use thereof by the cross-respondent will be permitted under an implied licence;
(2): the cross-respondent is the co-owner of the copyright in certain of the drawings by virtue of the joint authorship contribution by its employee, Mr Smith; and
(3): in the event that the cross-claimant is found to own the copyright in all or any of the said drawings, the use of certain of these drawings by the cross-claimant will be permitted by virtue of the provisions of s 77(1)(b) and (c) of the Copyright Act (industrial application of a corresponding design). In the further alternative, the defence under s 77A of the Copyright Act, as amended, by the Designs (Consequential Amendments) Act 2003 (Cth), is also relied upon.

Background facts

[12] It is not in contest that in or about 1980, Mr Smith designed and built a continuous cooking system which before 1997 was known as the Smith DSI cooker. The DSI cooker invented by Mr Smith was designed to make processed cheese, but could also be used to cook "other pumpable food products, such as meat, starch and vegetable products". The DSI cooker was described on behalf of the applicant as follows:

[The DSI cooker] worked on the principle of having a controlled flow of product and the addition of steam to achieve consistent temperature in the out-going product. The cooker heats product, and controls other processes, such as the amount of shear or cutting force applied to the product, the hydration of functional components within the product formulae, the establishment of a homogenous product and the establishment of a stable emulsion. A key practical requirement is the avoidance of product burn. This is principally achieved by using multi-port steam injectors which can be used as required to regulate heating. The steam control valve controls the steam flow while the selection of injectors controls the steam distribution. Product mixing is regulated by an internal rotating agitator, which can be operated at difference [sic] speeds depending on product requirements. The rotor also serves to keep product from sticking to the outer walls, and assists in achieving even heating. A plug flow effect is created which eliminates laminar flow patterns, ensuring that product passes at an even flow. The design objective is to achieve reliable, burn free continuous cooking -- to enable continuous cooking for periods of days.

In the course of designing the DSI cooker, Mr Smith was the author of and owner of copyright in various sketches and concept drawings for the DSI cooker (the original drawings). Three of those original drawings were admitted into evidence under the headings: processed cheese manufacture; vertical continuous cooker; and steam jet for continuous cooker.

[13] For the purposes of this proceeding the following key components of the DSI cooker:

•: the cooking column or tube;
•: the steam header;
•: the steam injectors;
•: the rotor.

[14] There are two types of drawings subject to the competing copyright claims: the general assembly drawings (also referred to as concept drawings), which are drawings of a general nature designed to be provided to clients to explain the operation of a cooking system and the manufacturing drawings, which are drawings of a precise technical nature designed to assist a qualified tradesperson to manufacture the cooking machine and components.

Alfa Laval companies

[15] It was not seriously in contest that the ultimate holding company of the Alfa Laval group of companies, in 1984 was Alfa-Laval AB, a company registered in Sweden (Alfa Laval Sweden). In 1984 Mr Smith entered into negotiations with Alfa Laval Hamilton Pty Ltd of Australia (Alfa Laval Hamilton), a subsidiary of Alfa Laval Sweden, with a view to commercialisation of the DSI cooker which he had developed.

[16] Mr Smith dealt with persons representing several different companies in the Alfa Laval group during the negotiation process, some of which companies were based in Australia and others in Europe. In Australia, Mr Smith primarily dealt with Mr John Farmer, a manager of an Australian subsidiary, Alfa-Laval Pty Ltd (this company became Alfa-Laval Australia Pty Ltd in 1987 and is referred to hereafter as "Alfa Laval Australia"). In Europe, Mr Peter Holmskov appears to have been Mr Smith's main contact. Mr Holmskov was a director of several European companies in the Alfa Laval group of companies, including a Danish company called Danish Membranefiltration and International Dairy-Engineering A/S (Danish Membranefiltration), a company registered in the United Kingdom called Alfa-Laval Cheese Systems Ltd (ALCS), Alfa Laval Dairy Systems in Sweden and Alfa-Laval Filtration Systems, also Danish. It is worth noting here that the various Alfa Laval representatives agreed at the start of the negotiations not to make use of the material and ideas Mr Smith had provided without Mr Smith's permission.

[17] After numerous discussions, it was agreed "in principle" that Alfa Laval would cooperate with Mr Smith on the proposed commercialisation. On the strength of this oral agreement, even though a formal written agreement had not yet been entered into, ALCS filed patent applications for the DSI cooker in the United Kingdom, the United States of America and Canada using the original drawings. Mr Smith was named as the inventor of the DSI cooker on each of the patent applications.

[18] On 18 September 1985, Mr Paul Pritchard of ALCS sent a draft consultancy agreement to Mr Smith to formalise the relationship between Mr Smith and ALCS. The agreement with ALCS does not appear to have been finalised at that time.

[19] It was not until 29 April 1986 that Mr Smith executed a consultancy agreement (the consultancy agreement) with Danish Membranefiltration. Mr Holmskov signed the consultancy agreement on behalf of Danish Membranefiltration. It is relevant to note that Danish Membranefiltration is defined as "ALCS" in the consultancy agreement and subsequent correspondence refers to Alfa-Laval, ALCS and Danish Membranefiltration interchangeably; it appears from this that Danish Membranefiltration used the same trading name used by the United Kingdom company which was a party to the draft consultancy agreement referred to above, that is Alfa-Laval Cheese Systems.

[20] Mr Smith was described in the consultancy agreement as having "designed various processes and developed prototype equipment associated with food packaging". Under the terms of the consultancy agreement Mr Smith assigned to Danish Membranefiltration all rights, title and interest in the following:

3.1.1: all equipment, machinery, designs, drawings, information, machinery and any other relevant documents which may relate to the development of the Concepts;
3.1.2: all Prototypes, either wholly or partly completed;
3.1.3: all other ownership rights, including but not limited to patents, the right to apply for patents, copyright, registered designs and legal and beneficial ownership, in relation to the Concepts or in relation to any similar processes, inventions or equipment which he may develop or acquire in the course of providing Services during the duration of this Agreement or for six months after the termination of this Agreement.

[21] The "concepts" were defined in Sch 1 of the consultancy agreement to include the processed cheese cooker, and other products, which Mr Smith had developed.

[22] Mr Christopher Fenton, a director of some of the Australian subsidiaries which were members of the Alfa Laval group, Alfa Laval Hamilton and Alfa-Laval Engineering Pty Ltd (Alfa Laval Engineering), gave evidence that these companies were provided with a licence from Danish Membranefiltration to use the intellectual property rights assigned by Mr Smith in the consultancy agreement to commercialise the cooker in Australia. This licence was based on a discussion Mr Fenton had with Mr Holmskov sometime in 1986, during which Mr Holmskov indicated that if the Australian subsidiaries of the Alfa Laval group of companies wished to develop and sell the DSI cooker in Australia, they had permission to do so. I find that the Australian companies were authorised by the Danish Membranefiltration to take the steps they did.

[23] Danish Membranefiltration never proceeded to the commercial manufacture of the DSI cooker. Shortly after entering into the consultancy agreement, Mr Holmskov informed Mr Smith by letter dated 3 September 1986 under the name of Alfa Laval Filtration Systems that "due to a change in priorities they would not be proceeding with the commercialisation of the DSI Cooker". The letter also referred to the patent applications, which had already been filed. It stated that the United Kingdom patent applications would belong to Mr Smith, but that the other pending patent applications would be maintained by Alfa Laval and that it would keep the patents on Mr Smith's behalf at no further cost to Mr Smith. However, in the event that Mr Smith chose to transfer those patents to someone else, then Alfa Laval would require Mr Smith to reimburse the group for any costs incurred by it in connection with those patents. Mr Holmskov also suggested that Mr Smith continue discussions with Mr Farmer, regarding the possibility of the Australian subsidiaries of Alfa Laval proceeding with the development and sale of the DSI cooker for the Australian market.

[24] Mr Smith took Mr Holmskov's advice and on 30 September 1986, Mr Farmer under the aegis of Alfa Laval wrote to Mr Smith on behalf of Alfa Laval Australia, setting out in writing the details of the discussions between that company and Smith regarding the commercialisation of the DSI cooker. The letter indicates that although Alfa Laval was "unable to commit to proceeding with this project internationally" the Australian subsidiaries "would be more than willing to pursue the development of at least the (DSI Cooker), as set down in the agreement we will include in our pricing calculations the royalty payable to you on each sale". It appears that the "agreement" referred to in this letter was the consultancy agreement Mr Smith had entered into with Danish Membranefiltration. There is no evidence that a separate written agreement was entered into between Alfa Laval Australia and Mr Smith. Significantly for the present proceeding, Mr Smith continued to correspond directly with Mr Holmskov in Sweden regarding the future progress of the DSI cooker.

[25] Alfa Laval Australia, and its related companies Alfa Laval Hamilton and Alfa Laval Engineering, commenced the development of the engineering drawings for use in the commercial manufacture of the DSI cooker in 1986. Neither party disputes that Mr Paul Watson, who was an employee of Alfa Laval Engineering, authored and produced most of the drawings for use in the manufacture of the DSI cooker. These drawings are collectively referred to as "the Alfa Laval drawings". The applicant submits that Mr Smith also contributed to the development and design of the DSI cooker as depicted in the Alfa Laval drawings by providing technical assistance to Mr Watson and because Alfa Laval Engineering used the original drawings and confidential information, which had been assigned by Mr Smith to Danish Membranefiltration which had in turn licensed or authorised Alfa Laval Engineering to use them.

[26] In terms of the process used to produce the Alfa Laval drawings, Mr Watson's evidence was that he was given copies of Mr Smith's original drawings at the start of the project. Mr Watson stated in affidavit evidence that the final version of the Alfa Laval drawings was produced in "constant consultation with Bob Smith discussing operational issues". Mr Watson also gave evidence of the design features particular to the DSI cookers. Mr Watson attributed the following design features to Mr Smith:

•: the decision to have a vertical or upright cooking column as opposed to a horizontal cooking column;
•: the design of the rotor was based on Mr Smith's experience with the "Murray Goulburn" prototype discussed below; and
•: the number of steam injectors and the decision whether to put steam injectors down both sides of the cooking column was a collaborative effort between Alfa Laval Engineering employees and Mr Smith.

[27] According to Mr Watson's evidence, Teflon was the obvious choice of material for the steam injector nozzle, which was designed as the interface between the steam and the product as it did not produce "burn on" of food products during the cooking process. The frame of the Alfa Laval cooker supporting the motor and cooking column was hinged to allow the entire cooking system to be tilted to facilitate cleaning and maintenance. Mr Watson's evidence was that the dimensions of the cooking column and the number of steam injectors were designed to be modified according to the volume and type of produce to be processed.

[28] In 1987, Alfa Laval Engineering advised Mr Smith that it had commissioned the first respondent to manufacture the DSI cooker. According to Mr Smith's evidence he met with Mr John Miller and Mr Janis Zakis, the directors of the first respondent at that time on numerous occasions during the development stages of the DSI cooker. This is not disputed. Mr Watson also gave evidence that he told the first respondent that all changes to the design specification of the DSI cooker were to be approved by Mr Smith. Mr Watson's evidence in relation to Mr Zakis was that during the drawing and design phase of the DSI cooker Mr Zakis provided some input into the ultimate design of the DSI cooker and the drawings, which were created by Mr Watson. Mr Watson said that Mr Zakis's input "was particularly concerned with matters which might simplify the manufacture of the machine ... was quite standard input provided by a manufacturer to a designer to assist in the ease of manufacture". Mr Watson also gave evidence that, unless specifically agreed, it was not the practice of Alfa Laval Engineering to pay "companies for any advice, gratuitous or otherwise which may have been provided to assist in the manufacture of its equipment".

[29] A prototype DSI cooker was developed and installed at the Murray Goulburn Cooperative Co Ltd (Murray Goulburn) processing plant in Cobram. Following the successful trial of the prototype DSI cooker at Murray Goulburn, a commercial unit was later installed at that plant. Smith was paid $10,000 pursuant to the terms of the consultancy agreement and a further $2330 in royalties, being 5% of the fee received by Alfa Laval Australia following the successful sale of the Murray Goulburn DSI cooker.

[30] During 1988, Mr Smith continued to correspond directly with Mr Holmskov in Europe and with Mr Farmer in Australia, seeking a commitment for the future manufacture of the DSI cooker. It appears that Mr Smith was also seeking a form of joint venture with the Alfa Laval group of companies. Mr Farmer wrote to Mr Smith on 5 August 1988 to advise that without support from ALCS in Europe Alfa Laval Engineering would not be able to undertake a joint venture with Mr Smith.

[31] In or about 1989, the first respondent manufactured a second DSI cooker on behalf of Alfa Laval Engineering, for installation at the premises of Bonlac Foods Ltd (Bonlac). Mr Smith was paid $400 per day to commission the Bonlac cooker. Mr Watson gave evidence that he prepared the drawings necessary for the manufacture of the DSI cooker installed at the Bonlac processing plant, using the Murray Goulburn drawings as a base. Mr Watson further stated that he supplied those drawings, complete with manufacturing specifications, to the first respondent for use in the manufacture of the DSI cooker. None of this is disputed. Mr Miller, a principal of the respondent at the time and until 1997, gave evidence that:

The copyright notice on the drawings relating to the manufacture of the DSI Cookers manufactured by Kovan for Alfa-Laval made it clear that Alfa-Laval was the copyright owner in the drawings and I cannot recall any suggestion from anybody that Alfa-Laval was not the owner of the copyright in the drawings. As far as I am concerned Kovan did not and would not have sought to claim any copyright rights in relation to any drawing that Kovan created for the cookers it manufactured for Alfa-Laval.

[32] It appears that the relationship between Alfa Laval and Mr Smith began to deteriorate in or about June 1989. Mr Smith gave evidence that he was disappointed that Alfa Laval could not make a decision about whether to proceed the commercialisation of the DSI cooker. On 1 December 1989, Mr Smith wrote to Mr Dennis Hurran, who had replaced Mr Farmer at Alfa Laval Australia, to advise that he wished to terminate the consultancy agreement. In that letter Mr Smith stated that:

I would like to recover my assets both intellectual and physical from your organization (sic) and I think we should meet to see how this can best be executed.

[33] On 8 May 1990, Mr Smith wrote to Mr Trevor Clarke of ALCS to press his claimed entitlement to the intellectual property rights in the DSI cooker and acquired know-how. Mr Smith advised Mr Clarke that he was proceeding through his company, the applicant, with the commercial manufacture of the DSI cooker and that he needed assurance from Alfa Laval that it would not seek to enforce the consultancy agreement or make any claims to rights in the DSI cooker.

[34] On 14 September 1990, Mr Clarke wrote to advise Mr Smith that under the terms of the consultancy agreement Alfa Laval retained the sole right for commercial exploitation of the DSI cooker. However, Mr Clarke also informed Mr Smith that "Alfa Laval would be willing to procure a re-assignment to [Mr Smith] by [Danish Membranefiltration] of all rights in the DSI Cheese Cooker". Such an assignment would be subject to payment by Mr Smith of all costs incurred by the relevant Alfa Laval entity in respect of the patent applications.

[35] A further exchange of letters occurred on 25 September 1990 and 19 October 1990 in relation to the reassignment of the intellectual property rights in the DSI cooker. It is significant that on 19 October 1990, Mr Clarke of ALCS forwarded a facsimile to Mr Smith stating that:

There is only one agreement with binding terms signed between both parties, this was dated 29th April 1986. To waiver the assignment rights of this agreement, we are asking for compensation in respect of patent application costs.

[36] Mr Smith was also informed, by letter dated 30 May 1991, that the original Alfa Laval entity, which had entered into the consultancy agreement, Danish Membranefiltration, had amalgamated with another division and all correspondence would therefore be signed by Alfa Laval Dairy Systems. On the evidence before the court all subsequent correspondence with European companies in Alfa Laval was signed on behalf of either Alfa-Laval Food Engineering AB or Alfa Laval Dairy Systems. Ultimately Mr Smith wrote to Mr Holmskov on 11 February 1992, confirming the agreement to terminate the consultancy agreement was to be effective from 1 June 1991. This letter was counter-signed by Mr Holmskov on behalf of Alfa-Laval Dairy Systems on 2 March 1992. It stated in terms that Alfa Laval Dairy Systems was the "parent company of the relevant division of Alfa Laval (of which Danish Membranefiltration was a member) and that the parent company would take full responsibility for the proper fulfilment of all terms".

[37] It appears that the patent applications were allowed to lapse and consequently there were no patent rights existing at the time of reassignment, with the exception of a United States of America patent granted in respect of the casting line (US Patent No 4735817). This begs the question as to what rights, if any, were reassigned to Mr Smith upon cessation of the consultancy agreement. Mr Smith claims that the consent to the letter of 11 February 1992 reassigned to him the original drawings and transferred to him the legal ownership of the Alfa Laval drawings and any associated know-how acquired by Alfa Laval in developing the DSI cooker (the assigned rights). While the respondents do not challenge the facts they do challenge the validity of this assignment. The respondents also claim that the effect of the letter of 11 February 1992 was simply to terminate the consultancy agreement and submitted it does not have the effect of vesting any copyright in the Alfa Laval drawings in Mr Smith and/or the applicant.

[38] Mr Smith lacked the financial capacity to proceed directly to commercial manufacture of the DSI cooker without Alfa Laval's support. Consequently Mr Smith, in his capacity as director of the applicant, approached Mr Miller and Mr Zakis of the first respondent with a view to the first respondent continuing to manufacture the DSI cooker for sale by the applicant. As already explained, the first respondent had been engaged by Alfa Laval Engineering to manufacture the Murray Goulburn and Bonlac DSI cookers.

[39] Mr Smith commenced discussions with Mr Miller and Mr Zakis in or about 1990. Mr Smith claims that he advised Mr Miller that he wished the first respondent to manufacture the DSI cooker as he was intending, through the applicant, "to develop, market and sell the Smith DSI Cooker in the market place". Mr Miller's evidence was that he made it clear to Mr Smith that the first respondent would not enter into any sort of manufacturing arrangement with Mr Smith concerning the DSI cooker unless Mr Smith was able to obtain a clear assignment of rights to him from Alfa Laval. It is a point of contention between the parties in this proceeding as to whether further discussions between the parties were stalled pending the finalisation of the applicant's relationship with Alfa Laval.

[40] The parties have given conflicting evidence as to the premise upon which the initial discussions took place. Mr Zakis claims that Mr Smith approached him on behalf of the applicant and asked whether the first respondent "would be prepared to work with him in the development of a direct steam injector cooker system". On 22 May 1990, Mr Zakis furnished the applicant with a quote on behalf of the first respondent estimating the price for the manufacture of the DSI cooker. Mr Zakis attached some preliminary calculations indicating that the first respondent proposed to charge a 30% margin on direct labour and material costs for the manufacture of a cooker on the applicant's order.

[41] Although the precise terms of the arrangement between the parties is a contested issue, there is no doubt that an accord was reached whereby the first respondent would manufacture DSI cookers on order from the applicant and the applicant would be responsible for the sale and marketing of each of the DSI cookers, always provided Mr Smith was able to obtain back such rights as he had assigned to Alfa Laval.

[42] According to Mr Smith's evidence, between 1990-92, Mr Smith had numerous discussions with Mr Miller and Mr Zakis concerning the arrangements between the applicant and the first respondent for the future manufacture of the DSI cooker. Most of those discussions took place at the first respondent's offices. In or about 1991, Mr Smith commenced discussions with a Dutch company called Vonk Foods concerning purchase of a DSI cooker on an approval basis. On the strength of those discussions, the applicant obtained an initial quote from the first respondent on 19 November 1990 in which the first respondent stipulated that it would charge 20% on top of the direct costs of labour and materials of the DSI cookers it manufactured on order from the applicant. The first respondent prepared additional quotes throughout 1991 in response to further queries from the applicant in relation to the DSI cooker for sale to Vonk Foods. During this period there is also evidence that further drawings of the DSI cooker were made in preparation for the future manufacture of the cooking machine.

[43] The designs and drawings produced between 1990-92 were ultimately used in the manufacture of the Vonk Foods DSI cooker and are collectively referred to as the "Vonk drawings". There is conflicting evidence between the parties as to the input each party had in the process of producing those drawings. The applicant claims that both Mr Smith and Mr Zakis undertook further drafting and design drawing work to make modifications to the DSI cooker using the rights assigned by Alfa Laval. The respondents claim that Mr Zakis contributed the technical know-how necessary to make the modifications and that Mr Smith did not contribute to the development phase of the DSI cooker for Vonk, or any of the subsequent DSI cookers manufactured by the first respondent.

[44] One of the terms of the contract between the applicant and Vonk Foods was that in the event that the Vonk Foods DSI cooker did not perform to the specifications, the applicant would refund the deposit moneys to Vonk Foods. Mr Smith claims, and the respondents do not deny, that the applicant would have no recourse to the first respondent in that event. It is part of the applicant's submission that this was consistent with the course of dealings between the applicant and the first respondent between 1992-2002.

[45] The applicant placed an initial order with the first respondent for a DSI cooker for supply to Vonk Foods on 13 February 1992. According to the purchase order form, the first respondent was to "construct and supply" a DSI cooker and vacuum vessel with control panel for export with delivery by the first week in June of that year. In response to the Vonk Foods order, on 3 March 1992 the first respondent supplied a revised version of the initial quote provided on 19 November 1990 to the applicant. That quote identified the items that the first respondent would manufacture, the labour costs, costs of material and services that allowed a margin for overheads and other expenses and a total price with a mark-up of 40%. The total price quoted was approximately $7000 less than the actual price including margins, however, Mr Zakis maintained, in cross-examination during the hearing, that the lower price quoted represented a discount. Significantly for this case, any costs incurred by the first respondent for design and drawing work are not itemised in the quote. The applicant sent a final purchase order for the Vonk Foods DSI cooker to the first respondent on 5 March 1992.

[46] Between 1992-2002 the first respondent manufactured a total of 26 DSI cookers. From about 1997 those DSI cookers were marketed under the name RotaTherm, a trade mark owned and registered by the applicant (so that cookers called DSI cookers until 1997 were called RotaTherm cookers after 1997). In so far as any manufacturing drawings produced relate to the DSI cookers, whether sold under the RotaTherm mark or earlier, they are collectively referred to by the applicant as the "RotaTherm drawings".

[47] Although the precise details of the arrangement between the parties during the 10 years they worked together is a contested issue, it is evident that each of the DSI cookers was manufactured under an arrangement similar to that employed with respect to the Vonk cooker. Each of the DSI cookers manufactured by the first respondent during this period was manufactured to the applicant's order and installed at the premises of each customer pursuant to orders placed by the customer with the applicant. The respondents acknowledge that the applicant has paid the first respondent for the supply of the DSI cooker systems in accordance with the quotes provided by the first respondent to the applicant. However, it is the applicant's submission that the price paid for each of the DSI cookers included an amount for the tooling, development, drawing, design, consulting, advisory and drafting services provided by the first respondent's employees in respect of the DSI cookers. The respondents disclaim the existence of any agreement between the parties with respect to the copyright, confidential information or any other intellectual property rights relating to the DSI cooker and cooker system. The terms upon which the parties agreed to conduct their dealings over the course of over 10 years, is a central issue in this case. In particular, it was a contested issue whether the applicant was entitled to claim any intellectual property rights in the Vonk drawings and the RotaTherm drawings. By the end of the hearing, the first respondent had conceded the applicant was entitled to all RotaTherm drawings containing a title block naming the applicant. Essentially this covered the Vonk drawings.

Issues

[48] Put simply, the applicant's claims relate to the ownership of copyright in two sets of drawings, the subsistence of an agreement relating to copyright and threatened infringement of copyright, as well as a claim of misleading and deceptive conduct under the TPA, and passing off.

[49] The main copyright issues for determination in this proceeding are whether:

(1): the applicant is the owner of the copyright in the Alfa Laval drawings;
(2): the applicant is the equitable owner of the copyright in the RotaTherm drawings;
(3): the applicant is entitled to an assignment from the first respondent of the legal ownership in the RotaTherm drawings;
(4): the first respondent threatens or intends to infringe the applicant's claim to an exclusive right to reproduction subsisting in the Alfa Laval drawings and the RotaTherm drawings;
(5): a corresponding design (or designs) to the Alfa Laval drawings and the RotaTherm drawings has been applied industrially by or with the licence of the applicant to manufacture the RotaTherm cookers (s 77 of the Copyright Act).

It will be convenient to deal with the copyright issues in that order. However, the question of whether the applicant is entitled to an assignment in respect of the RotaTherm drawings depends on whether the applicant proves an agreement as pleaded, containing terms as pleaded. If those matters are decided in the applicant's favour, it will be convenient to deal with the issues of estoppel, breach of that agreement, then the trade practices and passing off issues, which rely on the same facts, before turning to copyright infringement issues.

[50] The main issues that arise for determination in the proceeding under s 52 of the TPA and at general law are whether:

(1): the first respondent has acted in contravention of s 52 of the TPA in asserting that it is the owner of the intellectual property rights in the RotaTherm drawings;
(2): the first respondent has made representations to the public and/or persons interested in purchasing DSI cookers that are misleading or deceptive by offering for sale DSI cookers under the name "Fusion Cookers";
(3): the first respondent has engaged in passing off its business as the business of the applicant and its products and services including the Fusion cooker as the applicant's products and services.

[51] On the basis of their dealings between 1990-2002, the applicant further claims that the first respondent should be estopped from denying:

(1): the assignment of the rights in the Alfa Laval drawings to the applicant;
(2): the agreement between the applicant and the first respondent; and
(3): by reason of the agreement, the applicant's equitable ownership of the copyright in the RotaTherm drawings.

[52] Finally, the applicant also claims that the second and third respondents have authorised or approved of the first respondent threatening or intending to infringe the copyright. Whether this aspect of the claim is successful depends on findings in relation to the claim against the first respondent.

Is the applicant the owner of the copyright in the Alfa Laval drawings?

[53] The applicant claims ownership of the reproduction rights subsisting in the Alfa Laval drawings on the basis that Alfa Laval assigned the rights in those drawings to Mr Smith. The applicant submits that if the first respondent manufactures or sells a DSI cooker manufactured in accordance with or using the RotaTherm drawings then the first respondent will infringe the copyright subsisting in the Alfa Laval drawings.

[54] In order to prove the claim that the first respondent threatens or intends to infringe the applicant's exclusive right to reproduction subsisting in the Alfa Laval drawings, the applicant must establish:

(1): that the applicant owns the copyright in the Alfa Laval drawings; and
(2): the cookers being offered for sale by the first respondent would reproduce a substantial part of the Alfa Laval drawings.

[55] The respondents have put in issue the validity of the assignment of intellectual property rights from Alfa Laval to Mr Smith, and therefore the ownership of the Alfa Laval drawings. The respondents also claim that there are significant differences between the RotaTherm drawings and the Alfa Laval drawings such that the RotaTherm drawings, and any cookers made in accordance with them, do not substantially reproduce the Alfa Laval drawings.

Relevant provisions of the Copyright Act

[56] Section 35(3) provides:

The operation of any of the next three succeeding subsections in relation to copyright in a particular work may be excluded or modified by agreement.

[57] Section 196(3) provides:

An assignment of copyright (whether total or partial) does not have effect unless it is in writing signed by or on behalf of the assignor.

[58] In order to determine whether the applicant has ownership of the copyright in the Alfa Laval drawings, it is necessary to have recourse, as foreshadowed above, to the terms of the consultancy agreement entered into between Mr Smith and Danish Membranefiltration on 29 April 1986, under which Mr Smith assigned all intellectual property rights in the DSI cooker he had designed to Danish Membranefiltration. The relevant clause of the consultancy agreement is cl 3, which is already set out above.

[59] The applicant asserts that the letter of 11 February 1992 was effective:

(a): to reassign to Mr Smith all of the intellectual property rights in the cooking machine that had originally been assigned to;
(b): Danish Membranefiltration under the terms of the consultancy agreement; and
(c): to assign the copyright in the Alfa Laval drawings created during the currency of that agreement.

[60] The relevant clause of the letter of 11 February 1992 states:

(C): With the mutual cessation of the Agreement and the cessation of Alfa-Laval's involvement then all Alfa-Laval's previously assigned rights cease and all associated information is to be returned to the inventors control without charges by either party.

[61] It was submitted on behalf of the applicant that copyright in the original drawings was included in the initial grant of rights by Mr Smith to Danish Membranefiltration. It was further submitted that Mr Smith had a beneficial entitlement to the copyright in the Alfa Laval drawings produced by Alfa Laval Hamilton and Alfa Laval Engineering for use in the manufacture of the Murray Goulburn and Bonlac DSI cookers. Counsel for the applicant submitted that the reference to all Alfa Laval's previously assigned rights "and all associated information" in the letter of 11 February 1992 can only be properly understood in the context that Alfa Laval was now vacating the field and thus transferring all of its then existing rights in the DSI cooker, including those rights which arose as a result of development during the currency of the consultancy agreement. Accordingly, the applicant submits that the letter of 11 February 1992 was "effective to assign these rights to the applicant, so that it can bring the present proceeding as the owner of the copyright in the Alfa Laval Drawings".

[62] The respondents have challenged the validity of the purported reassignment by Alfa Laval to Mr Smith of the intellectual property rights in the DSI cooker on three grounds. First, the respondents submitted that there was no evidence of an assignment of copyright by the original owners of the Alfa Laval drawings, either Alfa Laval Hamilton or Alfa Laval Engineering (employers of the authors) to Alfa Laval Dairy Systems AB. Accordingly it was argued that Alfa Laval Dairy Systems AB could not assign the copyright subsisting in those drawings to Mr Smith. Second, it was contended there is no proper evidence of Mr Holmskov's authority to act for the assignor(s). Third, the respondents claim that the letter of 11 February 1992 was only effective to reassign to Mr Smith the copyright in the original drawings and did not result in the copyright subsisting in the Alfa Laval drawings being assigned to the applicant. In fact, the parties to the letter were the applicant, on whose behalf Mr Smith signed, and Alfa Laval Dairy Systems, on whose behalf Mr Holmskov signed.

[63] In response to these assertions the applicant submitted that the evidence regarding the Alfa Laval drawings was that they were based on the original drawings by Smith, and resulted from the joint contributions of Mr Smith, Mr Watson and other employees of Alfa Laval Engineering, Alfa Laval Hamilton and/or Alfa Laval Australia. At the very least, it is submitted, Mr Smith was a joint author of the Alfa Laval drawings; or alternatively that the Alfa Laval drawings were within the "associated information" forming part of the development of the DSI cooker, and therefore successfully assigned by the letter of 11 February 1992.

Findings

[64] The letter of 11 February 1992 expressly refers to "our discussions and correspondence about our future relationship". The documents referred to include the consultancy agreement and all the correspondence that followed. For example, I note the letter dated 1 December 1989 from Mr Smith to Mr Dennis Hurran of Alfa Laval Australia in which Mr Smith specifically states that he seeks "to recover [his] assets both intellectual and physical" which the applicant submits, and I accept, encompasses the copyrights in the original drawings and the Alfa Laval drawings.

[65] As discussed above, Mr Fenton was a director of Alfa Laval Hamilton from 1982-2001, and a director of Alfa Laval Engineering from 1986-92. Mr Fenton's affidavit sets out his opinion regarding the relationships between the various Alfa Laval companies, and the nature of the assignment of rights in the consultancy agreement and the reassignment in the letter of 11 February 1992. Mr Fenton deposed that Mr Holmskov, signatory for Danish Membranefiltration to the consultancy agreement, licensed the use of the intellectual property rights to the Alfa Laval Hamilton and Alfa Laval Engineering. I accept this evidence, which is consistent with other facts in evidence. At the end of certain discussions, which Mr Fenton had with other directors (the contents of which are not in evidence), Mr Holmskov signed the letter reassigning the rights. In considering this evidence I have taken into account the objections raised by the respondents to Mr Fenton's affidavit which were overruled, and have relied on his evidence as evidence of his opinion only. His opinion that Alfa Laval Sweden was the ultimate holding company of the Alfa Laval group and that the Australian companies and the Alfa Laval Dairy Systems were subsidiaries, was based on corporate charts he received in and about all material times while he was a director of the two Australian subsidiaries who are relevant to the assignment.

[66] It is noted that a principal is bound by the acts of an agent acting with apparent authority: see s 128(1) and (2) and s 129(3) and (4) of the Corporations Act 2001 (Cth), and see also s 129(1) of the same Act embodying the "indoor management rule" explicated in Royal British Bank v Turquand (1856) 119 ER 886. On the basis of what was said, the documents I have described, the context, and the civil standard of proof, I am satisfied that Mr Holmskov had actual, or apparent, authority to assign the rights held by Danish Membranefiltration (or any successor-in-title to it) under the consultancy agreement and actual, or apparent, authority to assign the rights held by the Australian Alfa Laval companies which were proved to be subsidiaries, working under licence from Danish Membranefiltration, and which employed the draftsmen involved. I was satisfied on the evidence that all directors of the various companies involved acted reasonably: see Re Duromatic Ltd [1969] 2 Ch 365 ; [1969] 1 All ER 161. These findings dispose of two of the respondent's challenges to the assignment.

[67] The Copyright Act does not require any specific formulation or wording for the purposes of s 196(3), but it must be apparent that the document is the assignment of the copyright itself, not a mere licence, nor conveyance of rights or property other than copyright: see Murray v King (1984) 4 FCR 1 at 7 ; 55 ALR 559 at 565 per Sheppard J; Greenfield Products Pty Ltd v Rover-Scott Boonar Ltd (1990) 95 ALR 275 at 279-80 ; 17 IPR 417 at 422-3 per Pincus J; Wilson v Weiss Art Pty Ltd (1995) 31 IPR 432 at 432 per Hill J.

[68] Here, the language used in the letter of 11 February 1992 indicates that all rights, including copyrights, were to be assigned to the applicant, and that Danish Membranefiltration (or any successor-in-title) was not to retain any rights.

[69] The reference to "all Alfa-Laval's previously assigned rights" in para (c) of the letter of 11 February 1992 incorporates by reference those rights set out in 3.1.3 of the consultancy agreement set out in [20] above. This clause appears to contemplate precisely the type of drawings which constitute the Alfa Laval drawings. I am satisfied the letter of 11 February 1992 was effective to assign the rights referred to, to the applicant and the applicant is entitled to bring the proceeding as owner of the Alfa Laval drawings. This finding disposes of the respondent's third objection to the assignment.

[70] If I were wrong in the conclusions I have drawn from the evidence, and if the assigned documents under consideration were insufficient as a matter of law to pass legal title in the relevant copyrights to the applicant, it would be entitled, as against Alfa Laval Dairy Systems, to perfect his entitlements given the express intentions, words and actions of both of the parties to the assignment and of all of the Alfa Laval parties concerned.

Is the applicant the equitable owner of copyright in the RotaTherm drawings?

[71] The grounds of the applicant's claim in relation to the alleged agreement may be stated in short compass. As a matter of law, is that the author of a work is the first owner of any copyright subsisting in that work under the Copyright Act: s 35(2). This general rule is subject to certain exceptions also set out in the Copyright Act. It was conceded on behalf of the applicant, that the applicant did not have a claim to copyright in the RotaTherm drawings on the basis of authorship under the Copyright Act. Rather, the applicant claims that pursuant to the terms of the alleged agreement, the applicant is, and was at all material times, entitled to ownership of the copyright in the RotaTherm drawings. Accordingly, the applicant claims that by virtue of the alleged agreement it is the equitable owner of such copyright, and is entitled to an assignment from the first respondent of the first respondent's legal ownership of the RotaTherm drawings.

[72] It is the applicant's submission that the first respondent manufactured and supplied each of the RotaTherm cookers in accordance with the terms of an alleged agreement entered into in 1992. It was submitted for the applicant that the terms of that alleged agreement were partly oral and partly to be implied as a matter of business efficacy. To the extent that the alleged agreement is oral it is pleaded on behalf of the applicant that it was constituted by discussions between Mr Smith and Mr Miller (and Mr Zakis) at the first respondent's premises in or about 1992.

[73] The applicant claims, in its closing submissions, that the following terms were agreed to by Mr Smith and Mr Miller during the discussions at the first respondent's premises referred to above:

(a): on order from Gold Peg, Kovan would manufacture cooking machines to Gold Peg's specification utilising the Assigned Rights [the Alfa Laval Drawings], subject to an agreement on price and payment terms in relation to each cooking machine;
(b): the cost of drafting and design work, necessary to create engineering drawings to manufacture the cooking machines, undertaken by Kovan would be incorporated in the agreed contract price paid by Gold Peg to Kovan for the cooking machines;
(c): Kovan would take no responsibility for claims in relation to the cooking machines other than manufacturing or materials defects;
(d): the intellectual property rights (being rights in the nature of copyright, design or patent rights and/or any rights in the nature of confidential information) in the engineering drawings based on the Assigned Rights or any modification or enhancement of the Assigned Rights created by Kovan to manufacture the cooking machines for Gold Peg would be owned by Gold Peg;
(e): Kovan would not make any use of and would keep confidential the Assigned Rights and the drawings created by Kovan to manufacture the cooking machines for Gold Peg; and
(f): Kovan would not use the Assigned Rights and the drawings created by Kovan to manufacture the cooking machines other than for manufacturing cooking machines for Gold Peg to its order.

[74] The applicant submits that Mr Miller expressly stated his agreement on behalf of the first respondent to terms (a), (b) and (c) of the alleged agreement. In relation to term (d), the applicant submitted first that it was an express term of the agreement but, in the alternative, Mr Miller did not expressly reject the term and thus the term can be implied from both his silence and his conduct as well as being implied as a matter of business efficacy. In relation to terms (e) and (f), the applicant claims that those terms should be implied on the basis of business efficacy.

[75] The respondents deny any agreement in 1992. However, it was conceded in their closing submissions that any terms, which had been assented to and agreed by the first respondent prior to the order for the Vonk cooker being placed, became terms of the contract for the manufacture of the Vonk cooker and were not incorporated in any subsequent contract(s) for the manufacture of cookers. The respondents deny the existence of any agreement between the parties with respect to the copyright, confidential information or any other intellectual property rights relating to the DSI cookers or the RotaTherm drawings. The respondents also claim that the applicant has paid the first respondent for the supply of the RotaTherm cookers but has not paid, or agreed to pay the first respondent for any tooling, development, drawing, design, consulting, advisory or drafting services in respect of the cooker systems or the RotaTherm drawings. The respondents further claim that if there was any agreement between the applicant and the first respondent in 1992, that agreement is confined to the terms and conditions relating to the manufacture of the Vonk cooker. The respondents contend that any subsequent cookers sold by the first respondent to the applicant were not sold pursuant to the terms of any agreement made in 1992 or in respect of the Vonk cooker.

[76] In the alternative, the respondents claim that if an agreement were entered into between the first respondent and the applicant, such agreement was unenforceable and does not entitle the applicant to an equitable interest in the copyright in the Vonk and RotaTherm drawings or an assignment of that copyright because the agreement was not in writing, as required by s 196(3) of the Copyright Act or s 53(1)(c) of the Property Law Act 1958 (Vic), and the applicant has not provided the first respondent with any valuable consideration in respect of the assignment of the copyright.

Applicable principles

[77] Where, as here, the applicant asserts the existence of an implied term regulating the parties rights in the drawings then the precise definition of that implied term involves a question of construction of the alleged agreement. In Parramatta Design & Developments Pty Ltd v Concrete Pty Ltd (2005) 219 ALR 373 at [10] (Parramatta) a Full Court of the Federal Court said of such an exercise:

[10] True, it is not an "orthodox exercise in the interpretation of the language of a contract, that is, assigning a meaning to a particular provision": Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 345 per Mason J. Nevertheless the process involved is of interpreting the meaning of the contract as a whole: South Australia Asset Management Corp v Montague Ltd [1997] AC 191 at 212 per Lord Hoffmann.

[78] In Codelfa, Mason J noted (at CLR 346; ALR 370-1) that the implication of a term was appropriate to address a "deficiency in the expression of the consensual agreement". As his Honour noted, such implication might arise to address the failure of parties "to direct their minds to a particular eventuality and to make explicit provision for it". It is, of course, necessary to clarify that it is not appropriate to imply a term because it may be reasonable to do so, but rather to give business efficacy to contracts. The circumstances for implying a term were identified by the Judicial Committee of the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283 ; 16 ALR 363 at 376 (BP Refinery), as follows:

... (1) it must be reasonable and equitable; (2) it must be necessary to business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

[79] Where, as in the present case, there is no formal contract concluded between the parties a more flexible approach to the question of implying terms is warranted than that laid down in BP Refinery at CLR 283; ALR 376: see Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 121 ; 55 ALR 417 at 472; Hawkins v Clayton (1988) 164 CLR 539 at 573 ; 78 ALR 69 at 93; Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422-3 ; 131 ALR 422 at 427-8 ; [1995] HCA 24. In this kind of case all that is necessary is to show that the term to be implied is necessary for the reasonable or effective operation of the contract in all the circumstances.

[80] Also in Codelfa, Mason J referred to the "factual matrix" of a contract. I find the factual matrix of any agreement between the applicant and the first respondent for the manufacture of cookers included the following:

•: Mr Smith invented the cooker;
•: Mr Smith wished to sell the cooker through the applicant;
•: the first respondent was a manufacturer capable of manufacturing the cooker to Mr Smith's order and specifications;
•: Mr Smith assigned all his intellectual property rights, including future rights, in the cooker to Alfa Laval;
•: during the currency of that assignment the first respondent manufactured two commercial cookers on behalf of Alfa Laval;
•: the applicant obtained a reassignment of the rights and all rights associated with the rights previously assigned to Danish Membranefiltration before the first respondent manufactured any cookers on behalf of the applicant;
•: the first respondent knew of (and did not challenge) and in fact insisted upon the assignment of all Alfa Laval's rights to the cooker before to the applicant it was willing to manufacture cookers to the order and specifications of the applicant.

[81] Moving from general principles in respect of the implication of contractual terms to the more specific area of copyright, there are numerous examples where courts have been prepared to imply a condition into an agreement between the parties that the author of a copyright work will assign legal title to it when called upon to do so because equitable ownership of the copyright in the work does not belong to the author. See, for example, Massine v De Basil [1936-45] MacG Cop Cas 223 (where a choreographic work was prepared for a ballet company); Merchant Adventurers Ltd v M Grew & Co Ltd [1972] Ch 242 ; [1971] 2 All ER 657 ; [1973] RPC 1 (where design drawings for light fittings were prepared by an outside contractor); Ironside v HM Attorney-General [1988] RPC 197 (where a design for a new coin was prepared by a third party); John Richardson Computers Ltd v Flanders (1993) 26 IPR 367 ; [1993] FSR 497 at 516-17 (which involved a commissioned computer program).

[82] Frequently, such an implication will arise where there is a commissioning arrangement for the preparation of copyright material. In R Griggs Group Ltd v Evans [2004] 31 FSR 673 Peter Prescott QC, sitting as a deputy judge in the UK High Court (Chancery Division) said (at [33]):

[33] ... it is well established that [s 11 of the Copyright, Design and Patents Act 1988 (UK), which is similar, though not identical to s 35] refers to the legal title to the copyright. But it is possible for a person to own the legal title to property, not for his own benefit, but for the benefit of another person. That other person is said to be the owner in equity. It is well established that s 11 of the Copyright Act does not purport to legislate for equitable ownership, which is left to a well established body of rules that have been built up by the courts over many generations. For example, suppose a freelance designer orally agrees with a company that he shall create a website for use in its business, for payment, and on terms that the copyright shall belong to the company. Because the designer is not an employee of the company the legal title to the copyright belongs to him, because the Copyright Act says so; but the equitable title belongs to the company. This means that the designer can be called upon to assign the legal title to the copyright to the company; and, if he refuses, the law will compel him to do so.

[83] The deputy judge then considered the question of ownership in equity, which arises where a copyright work is commissioned by a client but nothing is said about who will have the copyright. He cited, with approval, the following passage from the judgment of Lightman J in Robin Ray v Classic FM Plc (1998) 41 IPR 235 at 247-9 ; [1998] FSR 622 at 640-3:

The issue in every such case is what the client under the contract has agreed to pay for and whether he has "bought" the copyright. The alternatives in each case are that the client has bought the copyright, some form of copyright licence or nothing at all ...

The general principles governing the respective rights of the contractor and client in the copyright in a work commissioned by the client appear to me to be as follows:

(1)
the contractor is entitled to retain the copyright in default of some express or implied term to the contrary effect;

(2)
the contract itself may expressly provide as to who shall be entitled to the copyright in work produced pursuant to the contract. Thus under a standard form Royal Institute of British Architects (RIBA) contract between an architect and his client, there is an express provision that the copyright shall remain vested in the architect;

(3)
the mere fact that the contractor has been commissioned is insufficient to entitle the client to the copyright. Where Parliament intended the act of commissioning alone to vest copyright in the client, eg in case of unregistered design rights and registered designs, the legislation expressly so provides: see s 215 of the 1988 Act and s 1(a) of the Registered Designs Act 1949 (UK) as amended by the 1988 Act. In all other cases the client has to establish the entitlement under some express or implied term of the contract;

(4)
the law governing the implication of terms in a contract has been firmly established (if not earlier) by the decision of the House of Lords in Liverpool City Council v Irwin [1977] AC 239(Liverpool). In the words of Lord Bingham MR in Phillips Electronique v British Sky Broadcasting Ltd [1995] EMLR 472(Phillips) at 481, the essence of much learning on implied terms is distilled in the speech of Lord Simon of Glaisdale on behalf of the majority of the Judicial Committee of the Privy Council in BP Refinery (Westernport) Pty Ltd v The President, Councillors and Ratepayers of the Shire of Hastings (1977) 16 ALR 363 at 376 ; 52 ALJR 20 at 26:
"Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express. In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract."

Lord Bingham added an explanation and warning:
"The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning of the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power

...

The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they can appear. Tempting, but wrong."

(5)
where (as in the present case) it is necessary to imply the grant of some right to fill a lacuna in the contract and the question arises how this lacuna is to be filled, guidance is again to be found in Liverpool. The principle is clearly stated that in deciding which of various alternatives should constitute the contents of the term to be implied, the choice must be that which does not exceed what is necessary in the circumstances: see Lord Wilberforce at 245F-G. In short, a minimalist approach is called for. An implication may only be made if this is necessary, and then only of what is necessary and no more;

(6)
accordingly if it is necessary to imply some grant of rights in respect of a copyright work, and the need could be satisfied by the grant of a licence or an assignment of the copyright, the implication will be of the grant of a licence only;

(7)
circumstances may exist when the necessity for an assignment of copyright may be established. As Mr Howe has submitted, these circumstances are, however, only likely to arise if the client needs in addition to the right to use the copyright works the right to exclude the contractor from using the work and the ability to enforce the copyright against third parties. Examples of when this situation may arise include: (a) where the purpose in commissioning the work is for the client to multiply and sell copies on the market for which the work was created free from the sale of copies in competition with the client by the contractor or third parties; (b) where the contractor creates a work which is derivative from a pre-existing work of the client, eg when a draughtsman is engaged to turn designs of an article in sketch form by the client into formal manufacturing drawings, and the draughtsman could not use the drawings himself without infringing the underlying rights of the client; (c) where the contractor is engaged as part of a team with employees of the client to produce a composite or joint work and he is unable, or cannot have been intended to be able, to exploit for his own benefit the joint work or indeed any distinct contribution of his own created in the course of his engagement: see Nicholas Advanced Vehicle Systems Inc v Rees [1970] RPC 127 at 139 and consider Sofia Bogrich v Shape Machines, (4 November 1994, unreported) and in particular at 15 of the transcript of the judgment of Aldous J. In each case it is necessary to consider the price paid, the impact on the contractor of assignment of copyright and whether it can sensibly have been intended that the contractor should retain any copyright as a separate item of property;

(8)
if necessity requires only the grant of a licence, the ambit of the licence must be the minimum which is required to secure to the client the entitlement which the parties to the contract must have intended to confer upon him. The amount of the purchase price which the client under the contract has obliged himself to pay, may be relevant to the ambit of the licence. Thus in Stovin-Bradford v Volpoint Properties Ltd [1971] 1 Ch 1007, where the client agreed to pay only a nominal fee to his architect for the preparation of plans, he was held to have a licence to use the plans for no purpose beyond the anticipated application for planning permission. By contrast in Blair v Osborne & Tompkins [1971] 21 QB 78, where the client was charged the full RIBA scale fee, his licence was held to extend to using the plans for the building itself. Guidance as to the approach to be adopted is provided in a passage in the judgment of Jacobs J in Beck v Montana Constructions Pty [1964-5] NSWR 229 at 235 cited with approval by Widgery LJ in Blair v Obsorne & Tompkins, above, at 87:
"... it seems to me that the principle involved is this; that the engagement for reward of a person to produce material of a nature which is capable of being the subject of copyright implies a permission, or consent, or licence in the person giving the engagement to use the material in the manner and for the purpose in which and for which it was contemplated between the parties that it would be used at the time of the engagement."

(9)
the licence accordingly is to be limited to what is in the joint contemplation of the parties at the date of the contract, and does not extend to enable the client to take advantage of as new unexpected profitable opportunity: consider Meikle v Maufe [1941] 3 All ER 144.

[84] That extensive excursus of the principles, which are applicable when parties fail to expressly provide for copyright ownership of future drawings, relieves me of the necessity of attempting the same. In R Griggs Group Ltd v Evans [2005] All ER (D) 213 (Jan) ; [2005] EWCA Civ 11, the Court of Appeal upheld the finding of the deputy judge.

[85] On the appeal, the appellant sought to argue that the designer (Mr Evans) had never been told that a composite logo he was preparing would be used by the client all over the world: rather, he had simply been told that it was point of sale material for the United Kingdom. From this, the appellant sought to argue that all that was needed was an implied licence for this use along which all rights would otherwise remain with the designer. Jacob LJ dealt with this submission as follows (at [19]):

[19] I find that conclusion fantastic. If an officious bystander had asked at the time of contract whether Mr Evans was going to retain rights in the combined logo which could be used against the client by Mr Evans (or anyone to whom he sold the rights) anywhere in the world, other than in respect of point of sale material in the UK, the answer would surely have been "or course not". Mr Evans had no conceivable further interest in the work being created -- indeed he surely would never have had the job at all if there had been a debate about this and he had asserted that that was to be the basis of his work.

[86] Turning then from statements of principle to the evidence given, the first respondent was unwilling to enter into any dealings with Mr Smith without written assurance that Alfa Laval no longer had a claim in the DSI cooker.

Mr Smith stated in evidence that Mr Miller informed him from the outset that the first respondent would not be willing to commence the manufacture of a unit for commercial sale until it had received evidence in writing of the assignment of all rights in the DSI cooker from Alfa Laval back to the applicant. However, the first respondent consented to undertake some front-end engineering design work while waiting for Smith to resolve any outstanding issues with Alfa Laval.

[87] As already indicated, Mr Smith commenced discussions with the first respondent with a view to continuing to manufacture the DSI cooker in or about May 1990. Counsel for the applicant submitted that agreement as to the terms stated above was reached in 1992. The respondents do not deny that there were a number of discussions between Mr Smith, Mr Miller and Mr Zakis in the period May 1990-February 1992 (the pre-Vonk period) concerning the future manufacture of the DSI cooker. However, neither the applicant nor the first respondent were able to produce any written contemporaneous evidence of the details of those discussions. Accordingly, any alleged agreement may only be determined by reference to the parties, evidence of what was said and conduct at the time.

[88] It was submitted on behalf of the applicant that in all dealings with the first respondent Mr Smith maintained that the applicant was to be the owner of all the intellectual property rights in the DSI cooker. Mr Smith's evidence was that he initially approached the first respondent in or about May 1990 to ascertain whether it would be able to manufacture DSI cookers for the applicant on the same terms as it had worked for Alfa Laval. It can be noted that the first respondent never challenged Alfa Laval's ownership of drawings, into which Mr Zakis had some input.

[89] Mr Smith's evidence was that:

I said on a number of occasions at these meetings, both to Mr Miller and Mr Zakis, that Gold Peg was to be "the owner of all rights" in respect of the Smith DSI Cooker as I had designed the cooking system and "it was my baby". I said that after having gone through all the trouble with Alfa-Laval Sweden to get the rights back I did not want to have any trouble with someone else claiming rights in the Smith DSI Cooker and I wanted it acknowledged that all rights in the Smith DSI Cooker were to belong to Gold Peg. Mr Miller said he accepted this position. I would not have proceeded with Kovan if I had any doubt that the position that I considered I believe I had clearly outlined to Mr Miller and Mr Zakis had not been accepted by Kovan.

[90] Mr Miller's evidence was that Mr Smith had said "that he, Gold Peg, owned all the rights in the [DSI] cooker as he had got it from Alfa Laval, of course". Mr Miller then gave evidence that:

[Mr Smith] maintained the viewpoint that all rights were his and I virtually just shrugged my shoulders and let it go. I didn't say yes and I didn't say no. I did not want to commit on that issue.

[91] When pressed under cross-examination, Mr Miller did not resile from his position that he "did not acknowledge" Mr Smith's claims to ownership of the DSI cooker. Mr Miller also stated in written affidavit evidence that "Kovan proceeded with its dealings with Gold Peg on the understanding that Gold Peg sought to be the owner of all rights in relation to the cooker". It does not appear on the evidence that any discussion was had to define what constituted the "rights" in the DSI cooker. It is a question of law whether Mr Miller's "silence and shrug" constitutes acceptance of Mr Smith's offer to do business on the terms stated.

[92] Mr Zakis disputed the evidence given by both Mr Smith and Mr Miller that any discussions had taken place concerning ownership of the intellectual property rights in the DSI cooker. Mr Zakis did agree in the context of the Alfa Laval drawings that Mr Smith "was saying that he owned everything and that he had the right to work with these things". However, it was submitted on behalf of the first respondent that there had been no agreement as to any future rights arising as a consequence of the manufacture and development of the DSI cooker. In particular, counsel for the first respondent claimed that there was no agreement to the effect that the applicant would be able to claim copyright in drawings done by the first respondent.

[93] Credit was a central issue. Counsel for the respondents has sought to disclaim the applicant's reliance on Mr Miller's evidence on the ground that Mr Miller did not depose that Mr Smith had made any reference to future rights in the DSI cooker. Counsel for the respondents submitted in closing submissions that the effect of Mr Miller's evidence, "objectively construed", was that Mr Smith only made reference to his entitlement to claim intellectual property rights in the DSI cooker at the time that he first entered into discussions with the first respondent. It was further submitted on behalf of the respondents that, even if the evidence is accepted, it should not be construed as seeking agreement from the first respondent that the applicant would own the copyright in any drawings prepared by the first respondent in the future. In addition, the respondents contend that Mr Smith's evidence should not be accepted on the basis that it is inconsistent with his previous allegations and recollections, and an unreliable reconstruction.

[94] It is the applicant's case that the Vonk order was placed on the premise that the terms alleged above had been agreed to. It seems clear that the applicant would not have continued dealing with the first respondent if the first respondent had not agreed to the alleged terms, and Mr Miller's shrugging of his shoulders occurred in that context. For the purposes of this proceeding, the main issue is whether the first respondent agreed that the applicant would have an entitlement to all future rights arising in the drawings and designs made to manufacture the RotaTherm cookers. It is clear from the evidence that both Mr Smith and Mr Zakis spent a considerable amount of time in the pre-Vonk period working on drawings of the DSI cooker. Mr Smith conceded that Mr Zakis had made some suggestions relating to changes to assist the manufacturing process, however Mr Smith continually asserted in oral evidence that all changes to the design were done "under [Mr Smith's] direction and approval". There is also evidence that initially at least the computer assisted drawings (CAD) created by the first respondent for the manufacture of the DSI cookers bore the applicant's title-block.

[95] Mr Zakis claims that the first respondent did not charge the applicant for any of the drawing work done for each of the cookers. Mr Zakis's evidence was that the first respondent agreed to do the drawings without charge as a contribution to the alleged joint venture between the first respondent and the applicant. However, Mr Zakis's evidence is inconsistent with that put forward by Mr Smith and Mr Miller. Mr Smith claims that under the terms of the alleged agreement the costs of the design and drawing work being done by the first respondent was to be amortised over the costs of each of the DSI cookers. Mr Smith further claims that he had discussions with Mr Zakis:

... concerning the issue of how the costs of creating the initial front end engineering drawings created by Kovan was to be paid for and confirmed that the costs were to be amortized over the costs of several cookers. Janis Zakis did not disagree with me when I said that that was the basis on which he had operated.

[96] Mr Miller's evidence on this issue was that he had reservations about how the costs of the drawing work should be treated. However, he agreed in oral evidence that the first respondent had been well paid for the design work by amortising the costs of design and drawing work over the cooker.

[97] Mr Zakis claims that he met with Ms Donnelly, who is Mr Smith's daughter and was employed by the applicant at the time, "in about April 2001, and told her that I would be happy to acknowledge the applicant's ownership of the intellectual property rights subsisting in the cookers if it was agreed that the first respondent was the only supplier of cookers to the applicant".

[98] It is evident from the evidence given by both Mr Zakis and Mr Miller that they were each aware that Mr Smith was claiming certain rights in the DSI cooker.

Findings

[99] I find that there was an express oral term agreed between the parties in or around 1992 that the first respondent would, on order from the applicant, manufacture cooking machines to the applicant's specification using the Alfa Laval drawings and that this was subject to agreement on price and payment terms for each machine. This is supported by the evidence of Mr Smith, Mr Miller and Mr Zakis.

[100] I also find that there was an express oral term agreed between the parties in or around 1992 that the cost of drafting and design work necessary to create manufacturing drawings for the manufacture of the cooking machines would be incorporated into the contract price to be charged by the first respondent. This finding is supported by the evidence of both Mr Smith and Mr Miller. I prefer their evidence to that of Mr Zakis on this issue. He claimed that the applicant never paid for this work and also claimed he understood the applicant and the first respondent were in a joint venture. None of the contemporaneous documents supports Mr Zakis.

[101] I also find that the parties expressly agreed orally in or around 1992 that the first respondent would not take responsibility for claims in respect of the cooking machines, other than manufacturing or material defects. This finding is supported by the evidence of all the relevant witnesses, Mr Smith, Mr Miller and Mr Zakis. Furthermore, it is consonant with the respective positions of the parties, the applicant being the inventor's company and the first respondent being a manufacturer, on behalf of the inventor. It should be mentioned that Mr Zakis's attacks on the novelty of the DSI cooker, while not strictly relevant, were not borne out by the examples of prior art which he brought forward.

[102] I am also satisfied that it is necessary to imply a term into the agreement that the first respondent would not make any use on its own behalf of, and would keep confidential, the Alfa Laval drawings and the drawings created by the first respondent to manufacture the machines. This is a clear matter of business efficacy; the applicant would not have been able to maintain its rights to exclusively manufacture its machine if its manufacturer were to assert rights in the drawings against it or to refuse to maintain confidence in the drawings. I am also satisfied that the first respondent would never have been retained by the applicant to undertake manufacture for it if the first respondent had sought to debate these issues. I am also satisfied Mr Miller and Mr Zakis well understood this at the time of commencement of manufacture for the applicant.

[103] Similarly, I am satisfied that it is appropriate as a matter of business efficacy to imply a term that the first respondent would not use the Alfa Laval drawings or the manufacturing drawings it created to manufacture cooking machines for the applicant other than for the purposes of manufacturing for the applicant. This term was, in any event, partly oral and was agreed to by Mr Smith and Mr Miller in around 1992. Both Mr Miller and Mr Zakis confirmed this was their understanding of the general agreement between the parties for the manufacture of cooking machines by the first respondent to the order and specification of the applicant.

[104] Finally, I am satisfied on the evidence that while there was no express agreement between the parties as to the ownership of copyright in manufacturing drawings produced by the first respondent, there was a term which was partly oral and which can partly be implied as a matter of business efficacy, that the intellectual property rights in manufacturing drawings based on the Alfa Laval drawings or any modification or enhancement of them in manufacturing drawings created by the first respondent would be owned by the applicant. This finding is supported by Mr Smith's evidence, which I accept, that he insisted on owning all intellectual property rights in the cooker and Mr Miller accepted this by shrugging his shoulders. Shrugging shoulders is a gesture, which a person these days might describe as "body language" or "non-verbal communication". In the context, it was capable of conveying to Mr Smith that Mr Miller accepted Mr Smith's insistence on retaining all rights. I find, as a fact, it did convey the first respondent's agreement to this condition.

[105] It should be noted that in general terms "silent acceptance of an offer is generally insufficient to create any contract": Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 at 534 per McHugh JA (Empirnall); see also Brogden v Metropolitan Railway Co (1877) 2 App Cas 666 at 692 and Robophone Facilities Ltd v Blank [1966] 3 All ER 128 ; [1966] 1 WLR 1428 at 1432. There must be some communication of the acceptance of the offer to the offeror: Felthouse v Bindley (1862) 11 CBNS 869 at 875 ; 142 ER 1037. In Empirnall McHugh J described this notion (at 534) as follows:

... The objective theory of contract requires an external manifestation of assent to an offer. Convenience, and especially commercial convenience, has given rise to the rule that the acceptance of the offer should be communicated to the offeror. After a reasonable period has elapsed, silence is seen as rejection and not a (sic) acceptance of the offer. Nevertheless, communication of acceptance is not always necessary. The offeror will be bound if he dispenses with the need to communicate the acceptance of his offer: Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 at 269. However, an offeror cannot erect a contract between himself and the offeree by the device of stating that unless he hears from the offeree he will consider the offeree bound. He cannot assert that he will regard silence as acceptance: Felthouse v Bindley (1862) 11 CB (NS) 869 at 875 ; 142 ER 1037 at 1040 and Fairline Shipping Corporation v Adamson [1975] QB 180 at 189. The common law's concern with the protection of freedom is opposed to the notion that a person must take action to reject an uninvited offer or be bound by contractual obligations.

[106] In Empirnall a property developer had refused to sign a printed form of contract provided by an architectural firm, saying that he "never signs contracts". Nonetheless, he made various payment instalments in accordance with the contract and accepted the continuing provision of services by the architects, and his assent to the contract was therefore inferred from the whole course of the circumstances of the dealings between the parties.

[107] Accordingly, acceptance of the offer occurred in Empirnall by the offeree taking the benefit of the services offered. This silence, taken in conjunction with other circumstances in a case, can indicate an offeree has accepted an offer. McHugh J in Empirnall (at 535) observed:

... where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to the tribunal of fact to hold that the offer was accepted according to its terms. A useful analogy is to be found in the "ticket cases" where an offeree, who has or ought to have knowledge of the terms of a contract of carriage or bailment, is generally bound unless he raises objection: cf Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 at 169 and MacRobertson Miller Airline Services v Commissioner of State Taxation (Western Australia) (1975) 133 CLR 125 at 136-140 ; [8 ALR 131].

The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer has been accepted.

[108] Accepting the applicant's retention of all intellectual property rights in the cooker was an essential precondition to the first respondent being retained by the applicant to manufacture the cookers. Mr Zakis conceded in evidence that he knew Mr Smith was claiming all rights in the Alfa Laval drawings. The first respondent also ascribed copyright ownership in the Vonk drawings (the first cooker it manufactured for the applicant) to the applicant and, between 1992 and 1994, the first respondent acted consistently with this partly oral and partly implied term. The first respondent never insisted it owned copyright in manufacturing drawings until the commencement of this proceeding. The evidence showed that at the highest, what the first respondent did in 1995 and 1998 and later was to refuse to "acknowledge" the applicant's rights to copyright in the manufacturing drawings. It received legal advice (in respect of which privilege is waived) in 1998 to the effect that it owned copyright in the manufacturing drawings it had created. The contemporaneous documents show the solicitors involved gave such advice on the premise that the applicant was a "mere distributor" of the cooking machines. This was not a correct basis upon which to give advice on copyright ownership issues. However, it is not necessary for me to make any determination as to how the solicitors came to misunderstand the facts.

[109] Not only did the first respondent not challenge the applicant's ownership of the copyright in manufacturing drawings while it had orders from the applicant, its refusal to acknowledge the applicant's rights started out as a mechanism or leverage to obtain an exclusive manufacturing agreement. The evidence showed the first respondent was willing at a number of points to acknowledge the applicant's ownership of the drawings in return for obtaining an exclusive manufacturing and supply agreement. Further, the evidence showed Mr Zakis had no difficulty in understanding the first respondent's entitlement to obtain an assignment of drawings made by Austek pursuant to an oral agreement with the first respondent. Austek is a consulting engineering company specialising in mechanical and electrical engineering support, including design and technical drawing services.

[110] A reasonable bystander would regard the conduct of the first respondent, in agreeing to manufacture the Vonk cooker, as part of its business, in combination with Mr Miller's shrugging of his shoulders, as signalling that the first respondent agreed to the applicant retaining all intellectual property rights in the cooker, which would be subverted unless that included copyright in manufacturing drawings to be produced.

[111] If an officious bystander had been asked in 1992 whether the first respondent could retain copyright in manufacturing drawings produced by it for manufacturing the applicant's cookers and use such drawings to produce the cookers, on its own behalf, the answer would have clearly been "of course not" and the applicant would not have retained the first respondent as its manufacturer had the first respondent ever raised such a claim.

[112] These matters are further made plain because the first respondent agreed to manufacture cooking machines according to the applicant's specifications, to the applicant's order and using the applicant's prior drawings in order to produce a machine which could be further improved always as agreed by the applicant. That is not only exactly what the first respondent did when manufacturing the Vonk machine but also what it did with all later machines. On the basis of Mr Smith's and Mr Miller's accounts of what was said, which I accept, how it was said and the context in which it was said, I conclude that the term that the applicant would own copyright in the manufacturing drawings was clear and understood by both Mr Miller and Mr Zakis. In their subsequent dealings neither of them sought to challenge this term; rather as already mentioned, they refused to acknowledge the applicant's rights as leverage to persuade the applicant to grant an exclusive supply agreement in return for an acknowledgement. Accordingly, I find the agreement as pleaded existed, and I further find it contained the terms alleged by the applicant and each order thereafter placed by the applicant with the first respondent was placed in accordance with that agreement and those terms. The payment mechanism in respect of design work undertaken by the first respondent constituted valuable consideration and I find that the terms as I have found them were in the joint contemplation of, and jointly understood by, each and all of Mr Smith, Mr Miller and Mr Zakis.

[113] These conclusions on the existence of the agreement and the terms as pleaded by the applicant are fortified by the evidence of the subsequent usual course of dealings between the parties, to which it is now convenient and logical to refer. This evidence is relevant to the applicant's estoppel case.

Usual course of dealings

[114] After the initial Vonk transaction the applicant and the first respondent dealt with manufacturing arrangements in the following way. First, the applicant requested a quote from the first respondent after telling the first respondent the specifications it required. The quote provided by the first respondent would break down costs, and included a high margin to take account of overheads and profit, although the amount of the margin was not revealed in these quotes. Once the quote was agreed, the applicant would issue a quote to its customer, allowing for its (the applicant's) margin. If the first respondent increased its quote, because of any delays, the applicant would often absorb the price increase where the client's expectation about price had been already established. Upon the applicant's quote being accepted by its customer, a purchase order would be issued on the first respondent by the applicant. Sometimes, the applicant purchased parts from other suppliers, and the first respondent's price was adjusted by the first respondent accordingly. There were invariably few if any written terms to the invoices and purchase orders. The evidence of Mr Miller, in particular, was that the first respondent has been well remunerated by the making of its mark-ups on materials and then further mark-up on its labour and marked up costs of materials. To the extent that Mr Zakis gives contrary evidence I prefer Mr Miller's evidence. Mr Zakis admitted that costs of development of design have been amortised across the business of the first respondent and has claimed that the balance of the business was subsidising the costs. This has not been proved, and no proper primary evidence was adduced to support claims made in relation to the income or profitability of other parts of the first respondent's business, or as to the time spent on design work which was suggested by Mr Zakis to be very considerable.

[115] The overall gross payment from the applicant to the first respondent for 26 machines was approximately $9m. There was no documentary support for the suggestion that there was some excessive amount of design work undertaken specifically in relation to the cookers justifying the submission that there was some inadequacy in moneys paid by the applicant covering all facets of work done (including design improvements). Nor were any quantum meruit claims made in any of the respondent's pleadings.

[116] From 1997, the machines that were made by the first respondent on the applicant's order were sold by the applicant under its trade mark RotaTherm, registered in 1992. Mr Zakis agreed in evidence that the machines were promoted and known as the applicant's RotaTherm machines. This was further supported by contemporaneous documents.

[117] All other production costs were borne by the applicant, including training and installation (often overseas), as well as the commercial risks in obtaining payment. The applicant also pursued all sales and marketing itself, with very limited input from the first respondent and participated in trade fairs and very actively sought US Department of Agriculture (USDA) approval, which involved design changes made after meetings with US federal and state officers. The applicant had a machine made up which met USDA requirements, entirely at its own cost for demonstration for $153,000. A further display machine was also made up, again at the applicant's cost. USDA gave approval for the machines to go into use in the United States of America (USA) in 1998, although formal USDA approval remains to be obtained. The first respondent supported the applicant's application for USDA approval, and did so expressly "on behalf of the applicant P/L", including a design drawing headed "the applicant 'RotaTherm'".

[118] Design changes were sometimes the subject of separate invoices from the first respondent to the applicant, as were costs associated with installation. No design changes were made without the approval of Mr Smith, and usually were made at his specific direction (the implementation of such changes being the subject of an invoice from the first respondent). The applicant also used drawings made by the first respondent in dealings with clients, including reproducing and amending them, which was done with the knowledge of the first respondent and without objection. To the extent that Mr Zakis gave evidence that he was the chief designer of the cooker system and that Mr Smith's input was very limited, I do not accept this evidence. It is inconsistent with the evidence of Mr Smith and numerous contemporaneous documents and further it exaggerates the changes during the course of development. While they were important, they did not result in a cooker which did not derive from Mr Smith's invention over and above all examples of prior art brought forward.

[119] The fact there are no patents in force only means that Mr Smith does not have a "patented invention". The evidence showed beyond argument that the first respondent had very limited communication with clients, and expressly did so "on behalf of Gold Peg". Mr Zakis wrote in October 1997 to a client of the applicant's, Pampas Pastry, "I am writing to you on behalf of the applicant P/L to whom any correspondence should be addressed".

[120] Consistently with its assertion of rights, the applicant asked customers to enter into confidentiality agreements. This was also the case with the Vonk machine (as noted in the product manual for the Vonk machine). The first respondent had copies of many of those confidentiality agreements and manuals. Control screens for the software program which operated the control panel showed the cooker as that of the applicant, and stated that the "Steam Fusion Continuous Cooking System" was "Designed & Manufactured by the Gold Peg Pty Ltd". Serial plates were attached to each machine displaying the applicant's name and logo. There were numerous other examples of the first respondent's acknowledgement of the applicant's rights.

[121] On the totality of the evidence relevant to this issue, I find the entirety of the commercial dealings with customers of the RotaTherm machines was with the applicant, which assumed complete responsibility for the manufacturing costs, marketing and sale of the machines, consistently with the agreement for manufacture which it had with the first respondent. I find the first respondent was acting as a manufacturer of the machines working at all time at the direction and under the control of the applicant, which assumed full responsibility for the machines in dealings with its customers. This accords with the terms of the 1992 agreement, oral and implied, which I had found to exist between the applicant and the first respondent.

[122] Discussions occurred from 1994 between the applicant and the first respondent seeking to document the terms of a long-term single supplier manufacturing agreement.

[123] In 1994 Mr Smith provided the first respondent with a proposed confidentiality agreement. Significantly it referred to discussion about formalising a confidentiality agreement and stated that "you agreed to sign my standard form which we should not complete since we are formalising our relationship in various ways". The proposed confidentiality agreement then described the applicant's ownership of all rights. This position was entirely consistent with the applicant's reiterated oral statements previously claiming proprietorship of all rights in the DSI cooker. Mr Zakis agreed in oral evidence that the first respondent did not seek to contradict these claims made from 1992-1994. The claims were repeated again in Mr Smith's correspondence of 1998 to the first respondent. Mr Miller did reply in terms of an agreement proposed in 1995, which Mr Smith had interpreted as an attempt to obtain the applicant's agreement to a long-term supply agreement, which he rejected. Mr Miller's evidence was that he was pursuing the commercial objective of securing a long-term supply agreement with the applicant and his proposed agreement was a starting point for negotiation. I accept Mr Miller's evidence.

[124] Mr Miller ceased to be managing director in 1997, and Mr Zakis was unable to find a partner to acquire Mr Miller's shares in the first respondent. The applicant offered to purchase the first respondent, but no agreement was concluded.

[125] It was during the course of negotiations concerning a possible sale of Mr Miller's interest to a potential purchaser, that Mr Miller and Mr Zakis took advice from their solicitors, the privilege in such advice having been waived. File notes kept at the time by the solicitors show that a plan was developed not to respond to Mr Smith's assertions of ownership of rights in 1998 in a proposed secrecy and non-disclosure agreement. This "plan" was referred to in the file note of 24 August 1998, which recorded Mr Zakis as saying that he was convinced that "they could continue to put Bob off". I have noted the solicitor's advice was not given on correct premises. In a file note of 24 August 1998, Mr Miller is recorded as acknowledging that the first respondent had been paid for "the design of the product" and that the first respondent was charging a high margin which should not be disclosed to Mr Smith. Mr Zakis agreed that Mr Miller stated to him that the margins on the cookers were high.

[126] In minuted discussions with Mr Smith in 2002, Mr Zakis refers to having received advice that there was no intellectual property protection available with respect to the cookers.

[127] In the period in which this now disclosed plan not to respond to Smith's correspondence of 1998 (including the assertion of the existence of the "gentleman's agreement") was given effect (until 2002), the applicant placed $5m of orders with the first respondent. There were extensive dealings, between the applicant and the first respondent, which would not have occurred if the first respondent rejected the applicant's claims of ownership of the intellectual property made by Mr Smith in 1998.

[128] A further attempt was made to formalise arrangements between the applicant and the first respondent in 2001. The applicant again sought formal recognition of ownership of "the RotaTherm design, system and intellectual property". Matters were in particular brought to a head in October 2001 by the first respondent quoting for a machine by the description "Kovan model direct steam injection cooker". Mr Smith complained immediately and the reference was changed at the direction of Mr Zakis.

[129] A meeting occurred in November 2001 between the parties and Mrs Zakis and Mrs Smith (the directors of each company) were present. The meeting was minuted and deposed to by the Smiths' daughter Janelle Donnelly, who was not required for cross-examination. The minutes record the following key issues:

(a): Mr Smith said that there had been more than enough revenue generated to recover early costs and interim improvement costs;
(b): Mr Smith expressed concerns about the first respondent attempting to "take ownership of what is GPI's equipment";
(c): Mr Zakis provided assurances that "It was not the intention to claim that the RotaTherm was KE's". In cross-examination, Mr Zakis sought to say that the comment was directed to the trade mark RotaTherm, and then changed his mind;
(d): Mr Smith takes Mr Zakis's comments as an assurance, as indicated by his documented response in evidence: "Needed to protect our position. I have put so much into this and Janis has put a lot of work into this, but this has been my baby for many years and could sour our relationship if threatened by these claims";
(e): Mr Zakis claimed that the cost of drawing work had not been amortised over the various cookers. Mr Smith responds that the amortising issue was "used as an excuse as to why prices are the way they are".

[130] The minutes of a further meeting of the directors on 11 December 2001 (made by Ms Donnelly) confirm the minutes of the previous meeting.

[131] At that second meeting, the following key issues arose:

(a): Mr Smith confirmed that basic changes need to be agreed by the applicant. He did not approve of changes being made without approval. He stated: "... it's my system and I need to know what I'm buying". He added that the course of working was that "over the years we have had a brainwave about something and have talked together".
(b): Mr Smith said the business relationship has been strained because it is perceived that the first respondent is trying "to get credit for the RotaTherm system and we have reacted against this. This is a big issue and was an issue back when John was a partner. Wanted to give the first respondent a sole supplier agreement and we see that KE is trying to change that system and KE thinks it has certain rights. That is a major hassle between us and this is serious if that became challenged. Has documents to prove this". The minutes then record the circulation of what was clarified by Mr Smith to be the "gentleman's agreement" letter of 1998. Mr Zakis is recorded as saying: "No claim to be inventor or creator of system as a whole" and then "as an aside -- personal satisfaction -- built for GPI by KE". Later he stated: "I don't want to do anything that is perceived as a threat to GPI and visa versa [sic]". And then: "always the intention to work with the GPI/family members".
(c): Mr Zakis stated: "KE don't have any IP rights anyway -- I've had it looked into", to which Mr Smith responded: "... my view is that you should be recognised and that you should be able to get something out of it" (Mr Zakis agreed in oral evidence that when he talked about "intellectual property rights" he understood that term to include copyright).

[132] The evidence shows and I find that Mr Zakis knew if he asserted rights over Mr Smith it would mean the first respondent would lose the business. When a response was called for to the 17 June 1998 letter and in the Sandringham meetings in 2001, the first respondent hoped the dispute would go away, although it never sought to disavow Mr Smith of the position he was repeatedly asserting concerning ownership of rights, and which Mr Smith believed to be true and to be accepted by the first respondent.

[133] In a further minuted meeting in April 2002, the following important matters arose:

(a): Mr Zakis said, "I never said we would go off and make cookers ourselves";
(b): Mr Zakis described the "Kovan machine" description on a quote to the applicant as a "mistake". When challenged on claiming intellectual property rights, Mrs Zakis responded: "the first respondent doesn't attempt to claim these rights" and then there is a quote attributed to "the first respondent" -- "at the end of the day we work for you ... This (sic) is no IP ... there is ... no patents. Never said we own this ... A handshake to me means more than a document. Don"t mind putting documents in place but a handshake is more important";
(c): Mr Zakis claimed that Alfa Laval gave "the designs" to him -- "So they are my designs and that's a fact". The contemporaneous documents from 1992 show this was not correct;
(d): On being challenged again on the first respondent claiming rights, Mr Zakis said: "There are no patents what is IP anyway?";
(e): Mr Zakis stated: "At end of the day ... while we have an agreement in place we don't have an issue with IP. We haven't done it for anyone else but GP";
(f): Mr Smith stated: "We never worked as a joint venture. We have always given you POs and you have invoiced us. Not a partnership or JV. Always done on a purchase basis. Every job you got paid for."

[134] The applicant advised the first respondent in 2002 that the applicant would cease using the first respondent as its sole engineering company for the manufacture of cookers and that it would use a competitive tendering system. In May 2002, the first respondent submitted a quote for the supply of a machine to the applicant (in response to a request for a quote made in March 2002), which included the statement that drawings for the RotaTherm cookers were "protected by the first respondent copyright". On the evidence before me, this was the first time that an express written assertion to this effect had been made by the first respondent.

Is the applicant entitled to an assignment from the first respondent of the legal ownership in the RotaTherm drawings

[135] It follows from the findings of fact which I have set out in respect of the agreement (and its terms) and from an application of the relevant authorities discussed above, that the applicant is entitled to have its equitable ownership, based on the oral and implied terms dealt with, perfected by an assignment of the legal ownership. This is made necessary by the first respondent's threatened conduct to use the drawings on its own behalf in competition with the applicant.

Estoppel

[136] As the applicant has obtained the relief it seeks in respect of the assignment of rights from Alfa Laval, the agreement between the applicant and the first respondent and the applicant's equitable ownership of copyright in the RotaTherm drawings, it is not strictly necessary to deal with the estoppel issue raised.

Applicable principles

[137] These are set out in well-known authorities binding on me: Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 ; 76 ALR 513 and Commonwealth v Verwayen (1990) 170 CLR 394 ; 95 ALR 321.

[138] I have already dealt with the evidence showing that the first respondent never challenged the Alfa Laval assignment until these proceedings, that the first respondent always acknowledged Alfa Laval's copyright ownership, that the first respondent insisted on the applicant obtaining the assignment, that the first respondent by silence and conduct encouraged Mr Smith to believe it would make no claim to either the Alfa Laval drawings or the RotaTherm drawings as a consequence of which the applicant placed orders for manufacture with the first respondent. There was also the evidence of the first respondent's placement of the applicant's name on many drawings, its possession of manuals and exposure to Mr Smith's repeated claims to the applicant's ownership of all rights, which were not denied by the first respondent. Rather, written acknowledgment was refused when written acknowledgement was sought.

[139] There was also abundant documentary evidence on invoices and other documents that showed the first respondent's acknowledgement of the applicant's rights in the RotaTherm cooker. Further, Mr Smith's claims of ownership of all rights were confirmed at the highest, and not denied at the lowest, in meetings in 2001 and 2002. I find the evidence showed the applicant's reliance on all those matters to its detriment.

[140] If the first respondent had ever acted contrary to all the evidence mentioned the applicant would not have retained it as its manufacturer. The disputes in 1994 and 1995 reflected the first respondent's attempt to leverage or encourage an exclusive manufacturing agreement by agreeing to acknowledge the applicant's ownership of all intellectual property rights if it obtained such an agreement. Accordingly, the applicant's case on estoppel is made out.

Breach of agreement

[141] It is convenient to next deal with the applicant's allegations of breach of agreement.

[142] Breach is alleged in respect of the terms set out in full in [73], above. The first respondent has asserted that it is the owner of intellectual property rights in the RotaTherm cookers, the RotaTherm drawings and that it has the right to manufacture the RotaTherm cooker using the RotaTherm drawings and the assigned rights (from Alfa Laval) without the consent of the applicant. It is asserted by the first respondent that it can make RotaTherm cookers using the RotaTherm drawings and the assigned rights for any party it chooses, as indicated by the evidence supporting the TPA claim and the analysis of similarity between the Alfa Laval drawings and the RotaTherm machines which is dealt with below.

[143] The essence of the claim of breach of agreement is that it is the applicant, not the first respondent who is entitled to ownership of the intellectual property rights in drawings based on the assigned rights or modification of the assigned rights, being the RotaTherm drawings. Given my findings in respect of the agreement, I find that the first respondent has breached those terms. The evidence supporting such findings is dealt with next in the context of the claims in respect of breaches of the TPA and passing off.

Trade practices claims

Misleading or deceptive conduct and passing off

[144] The applicant claims that the first respondent has made the following misleading or false representations to the public and/or persons interested in purchasing the RotaTherm cookers and/or persons interested in purchasing direct steam injection cookers and/or persons working in the food industry that:

(a)

the first respondent is authorised by the applicant to manufacture and/or supply cooking machines the same as or substantially the same as the applicant's RotaTherm cookers and/or to provide after-sales service for the applicant's RotaTherm cookers;

(b)

the first respondent is the owner of intellectual property rights in the applicant's RotaTherm cookers;

(c)

the first respondent is the owner of the assigned rights and/or all rights in the RotaTherm drawings and entitled to use them to manufacture and/or supply cooking machines the same as or substantially the same as the applicant's RotaTherm cookers;

(d)

the first respondent's Fusion cooker is sponsored by and/or endorsed by or affiliated with the applicant;

(e)

the first respondent's Fusion cooker:

(i): is depicted in the brochure referred to in para 15(g) of the third further amended statement of claim;
(ii): has been accepted by the marketplace as the best of its kind;
(iii): has been sold worldwide for over 12 years;
(iv): is accepted as the best direct injection steam cooker available;
(v): has been sold by the first respondent to manufacturers of cheese, sauces, pickles, pie fillings and pet foods;
(vi): is in use in the USA, Europe, Asia, Australia and New Zealand;
(vii): the body of the Vacuum Flash Vessel and the attached pump and the separate Vacuum Skid depicted in the [relevant] brochure ... were manufactured or referred to by the first respondent;
(viii): the first respondent in advertising, promoting, offering for sale, selling, supplying or attempting to supply direct steam injection cookers or parts for direct steam injection cookers does so with the sponsorship, endorsement or approval of the applicant;
(ix): the first respondent was not bound by its agreement with the applicant to keep confidential information of the applicant comprised within the assigned rights confidential from third parties and was not restricted in its right to use such confidential information; and
(x): the first respondent was not bound by its agreement with the applicant not to use the RotaTherm drawings to manufacture direct steam injection cookers other than for the applicant to its order.

Mr Zakis admitted that the first respondent made those representations. His position is the first respondent is entitled to make these representations. By engaging in this conduct the applicant claims that the first respondent has engaged in and continues to engage in conduct that is misleading and deceptive contrary to ss 52 and 53(a), (c) and (d) of the TPA.

Applicable law

[145] The applicant relied on Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 ; 42 ALR 1 ; 1A IPR 684 and Campomar Sociedad Ltd v Nike International Ltd (2000) 202 CLR 45 ; 169 ALR 677 ; 46 IPR 481 ; [2000] HCA 12. Further, the applicant claims that the first respondent has engaged in passing off.

[146] Further, counsel for the applicant asserted that to establish passing off in this case it must demonstrate:

(a): That the applicant has an established good will or reputation in a particular name, mark of get up, by reference to which it provides goods and services in the marketplace;
(b): That the first respondent has, by its conduct, whether intentional or otherwise, misrepresented itself or its goods or services as those of the applicant or in some way associated with the applicant;
(c): That this has caused or is likely to cause damage to the applicant.

[147] The applicant relied on the following authorities in support of those propositions: ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302 ; 106 ALR 465 ; 23 IPR 193; Reckitt & Colman Products Ltd v Borden Inc (1990) 17 IPR 1 ; [1990] 1 All ER 873; Cadbury Schweppes Pty Ltd v Pub Squash Co Pty Ltd [1980] 2 NSWLR 851 ; 32 ALR 387 ; [1981] RPC 429.

[148] Counsel for the respondents submitted that the applicant's claim in relation to passing off is "misconceived". It was submitted that to establish passing off, the applicant must establish that the actions of the first respondent have caused, or in all probability will cause:

(a): ordinary purchasers of the applicant's branded cookers to believe that the first respondent's cookers are manufactured by the applicant; or
(a): that the first respondent's business is that of the applicant.

[149] Accordingly, the respondents submit that any cookers marketed or offered for sale under the trade mark or name "Fusion Cooker" would not cause potential purchasers to believe that the first respondent's cookers originated from the applicant who sold "RotaTherm" cookers.

Findings

[150] The evidence showed extensive marketing, promotion and sale by the applicant of the RotaTherm cookers, under and by reference to its "RotaTherm" brand and its corporate name. The first respondent admitted through Mr Miller and Mr Zakis that the first respondent had no direct contact with the applicant's clients. To the extent that Mr Zakis gave evidence that the first respondent was in a joint venture with the applicant and the first respondent allowed all drawings going to clients to bear the applicant's name for convenience only, I reject his evidence, particularly as it is not consistent with evidence given by Mr Miller, Mr Smith or with contemporaneous records. I am satisfied on the evidence and find that the applicant acquired a substantial, exclusive and valuable reputation and goodwill throughout Australia, New Zealand, the United States of America, Europe, Asia, Canada, Jamaica, Ireland, Japan, the United Kingdom, North Africa, Central and South America, Middle East and Scandinavia in the RotaTherm cookers under the trade mark "RotaTherm". I am also satisfied on the evidence and find that in the promotion and marketing of the RotaTherm cookers, the applicant has extensively used the following phrases:

(a): "If it can be pumped it can be cooked with a RotaTherm"
(b): "If you can pump it ... we can cook it ..."

The evidence showed the phrases were part of the applicant's marketing under its trade mark "RotaTherm" and constituted a marketing slogan of the applicant, which suggested a connection in the course of trade between the applicant and the slogan.

[151] The evidence concerning the first respondent in respect of the allegations under the TPA and in respect of passing off can be summarised.

[152] Before the issue of the proceeding, the applicant found out that the first respondent was demonstrating to a third party a DSI cooker made for the applicant (and paid for by the applicant for supply to MK Cheese or Kraft USA).

Mr Zakis said he thought this machine was for Bega. The machine bore the applicant's nameplate (albeit covered with tape). The first respondent also supplied Bega Cheese with a drawing for a seal assembly, which described the seal assembly as "exclusive to the (first respondent's) direct steam injection cooker". The first respondent also made a direct approach to another of the applicant's client, Pampas Pastry.

[153] Since the issue of the proceeding, in May 2002, the applicant's distributors have advised that they have been informed by the first respondent that the relationship with the applicant had broken down and that the first respondent would be supporting clients which were "end users of the first respondent's products" which must be a reference to the RotaTherm machines because the first respondent has not yet made any products on its behalf; it has only made products for the applicant by reference to the applicant's name and trade mark "RotaTherm".

[154] In April 2003, the first respondent placed an advertisement in an industry publication, Food and Pack Magazine, stating that "Cookers manufactured by the (first respondent) have been used worldwide for 14 years and are now accepted in the marketplace as the best direct steam injection cooker available". The first respondent described itself in the advertisement as "Manufacturer of the Fusion Cooker" which had been used "worldwide for 14 years and now accepted in the marketplace as the best direct steam injection cooker available".

[155] The first respondent has also sought to promote a horizontal version of the cooker. The first respondent referred to its "established vertical Fusion Cooker". The first respondent has declined requests from the applicant's solicitors for production of any manufacturing drawings for the Fusion cooker, on the basis that the issue in this proceeding is whether there is an agreement which precludes the first respondent from making the cooker or whether the applicant is or is not entitled to ownership of copyright in drawings for the cookers built by the first respondent for the applicant and Alfa Laval.

[156] In December 2002, the applicant received the brochure of the first respondent, which attributed the genesis and development of the cooker, which it described as the (the first respondent's) Fusion cooker, and in respect of which it adopted the applicant's recognisable advertising style.

[157] On 12 January 2003, Blentec, the former USA distributor for the applicant, wrote to a customer inviting an order for a manufactured machine by the first respondent being the 2003 model of the machine previously sold, it was agreed, to H and M Foods, which occurred in 1998. Mr Zakis agreed that the cooker depicted in the Blentec letter was very similar in appearance to a RotaTherm cooker manufactured by it for Bega. Mr Zakis conceded in cross-examination that it was not proper to "try and pretend that we were selling RotaTherms".

[158] Mr Zakis disagreed that in promotional material RotaTherm cookers were being depicted in conjunction with the title "Fusion Cooker". The promotional reference to cookers made by the first respondent being used "worldwide for a considerable time" nevertheless seems to me to be an attempt to capitalise on the goodwill based on the applicant's sales of RotaTherm cookers. Mr Zakis tried to explain the first respondent's conduct by saying that the applicant sold machines "on behalf of both of us". This was contrary to the evidence.

[159] Mr Zakis said that the rights in all drawings which did not bear the applicant's copyright notices were claimed to be owned by the first respondent, and that the first respondent regarded itself as entitled to use such drawings for whatever purpose intended in the future including copying them or using them to make machines or parts for machines. The first respondent asserts in its defence that it has the right to manufacture and sell to third parties "Cooker systems and components and parts thereof" with the consent of the applicant. Further it admits the first respondent is engaging in, and proposes to continue engaging in, such conduct.

[160] I am satisfied that this evidence provides a proper foundation for the applicant's allegations of misleading or deceptive conduct in breach of the TPA. I am also satisfied on the evidence and find that by reason of the matters alleged in subparas 15(a), (e) and (f) of the statement of claim and all the matters referred to in para 18 of the statement of claim and the use by the first respondent of the phrase "If you can pump it and heat it with steam, you can cook it in a Kovan Fusion Cooker" in the brochure referred to in para 15(g) of the statement of claim, the first respondent passed off:

(a): the business of the first respondent as and for the business of the applicant; and
(b): the first respondent's products or services including the Fusion cooker as and for the applicant's products or services including the RotaTherm cookers.

[161] The activities referred to are likely to damage the goodwill and reputation, which the applicant has built up in its business and trade mark RotaTherm, if they are continued. Accordingly, I find the elements of passing off, as explicated in the abovementioned authorities, have been made out. These findings do not pre-empt the possible further success of the respondents in respect of defences to copyright infringement based on "industrial application". As matters stand, the first respondent will be able to produce components, which are the subject of the applicant's admissions, that they have been "industrially applied". Likewise, in relation to the production of any components found by the court to fall within the statutory concept of "industrial application". But, even in that event, marketing by the first respondent will need to be conducted differently from the marketing evinced in the conduct complained of, which clearly suggested a connection between the applicant, its product, its trade mark and its business and the first respondent and its products (as intended to be made and supplied) and thus gave rise to breaches of the TPA and passing off. It can also be noted that the names or trade marks "Fusion" or "Fusion Cooker" simpliciter appear distinct, both aurally and visually from the trade mark "RotaTherm". It was use of them in combination with other references and conduct which constituted breaches of the TPA and passing off.

Infringement of copyright

RotaTherm drawings

[162] Obviously manufacture of a machine by the first respondent in accordance with the RotaTherm drawings will infringe the applicant's copyright in those drawings which is to be perfected by an order for assignment, subject always to any successful defences of industrial application or "plan to plan" under ss 77 and 77A of the Copyright Act.

RotaTherm drawings containing the applicant's block title

[163] It also needs to be mentioned that counsel for the applicant submitted that Mr Zakis conceded the applicant was entitled to claim ownership of the RotaTherm drawings bearing the applicant's title block. In closing submissions, the applicant's counsel drew the court's attention to statements made by Mr Zakis under cross-examination on day 18 of the trial, Mr Golvan asked Mr Zakis:

MR GOLVAN: So there were some (drawings) which you made which you don't claim rights in?

MR ZAKIS: Well, obviously the ones that have a Gold Peg logo on we don't claim ownership.

Then it was sought to be put in slightly different terms directed to the copyright notice, but there was no real distinction between the applicant's title block and copyright notice drawings, and Mr Zakis confirmed his answer.

[164] The first respondent has thereby conceded it is not at liberty to manufacture machines in accordance with drawings bearing the applicant's title block.

Alfa Laval drawings

[165] According to the third further amended statement of claim, the applicant claims that:

[The first respondent's] conduct would infringe the exclusive reproduction right subsisting in the [Alfa Laval drawings] as original artistic works pursuant to s 31(1)(b)(i) of the Copyright Act 1968, extending to the making of any three-dimensional versions of the said drawings that are deemed reproductions of those drawings or a substantial part thereof pursuant to subsection 21(3), and including the making of any intermediate two-dimensional drawings from which such three-dimensional versions are made being also reproductions of those drawings or a substantial part thereof.

Relevant legislation

[166] Section 31(1)(b)(i) of the Copyright Act relevantly provides that copyright in relation to an artistic work is the exclusive right to reproduce the work in a material form. Manufacturing or general assembly drawings of a machine, being "drawings", are artistic works: s 10(1). Section 36(1) provides that copyright in an artistic work "is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorises the doing in Australia of, any act comprised in the copyright".

[167] Section 13(1) of the Copyright Act provides that a reference to "an act comprised in the copyright" in a work is a reference to "any act that under [the Copyright] Act, the owner of the copyright has the exclusive right to do". Section 14(1) provides:

(1)

In this Act, unless the contrary intention appears:

(a): a reference to the doing of an act in relation to a work or other subject-matter shall be read as including a reference to the doing of that act in relation to a substantial part of the work or other subject-matter; and
(b): a reference to a reproduction, adaptation or copy of a work shall be read as including a reference to a reproduction, adaptation or copy of a substantial part of the work, as the case may be.

[168] The applicant also relies on s 21(3) of the Copyright Act which states:

(3) For the purposes of this Act, an artistic work shall be deemed to have been reproduced:

(a)
in the case of a work in a two-dimensional form -- if a version of the work is produced in a three-dimensional form; or

...

and the version of the work so produced shall be deemed to be a reproduction of the work.

[169] Given the findings above in relation to the ownership of the copyright in the Alfa Laval drawings, the first respondent will infringe the applicant's copyright in those drawings if:

(1): the drawings used by the first respondent to manufacture DSI cookers or the components have been copied from the relevant Alfa Laval drawings; and
(2): the first respondent reproduces or authorises others to reproduce a substantial part of the Alfa Laval drawings in material form, as, it is submitted, would be the case with respect to DSI cookers made in accordance with the RotaTherm drawings.

[170] Counsel for the respondents submitted that even if the court finds that the first respondent has actually copied the Alfa Laval drawings the components manufactured would not be sufficiently similar to Alfa Laval's designs and drawings to constitute a reproduction of those drawings or a substantial part of them. Lindgren J, with whom Finkelstein and Weinberg JJ agreed, approached a similar submission in Eagle Homes Pty Ltd v Austec Homes Pty Ltd (1999) 87 FCR 415 ; 161 ALR 503 ; 43 IPR 1 ; [1999] FCA 138 at [70] (which succeeded before Branson J but failed before the Full Court) in the following manner:

[70] The word "reproduce" is not defined in the Act. It has its ordinary meaning of "make a copy, representation, duplicate, or close imitation of" (Macquarie Dictionary) or "repeat in a more or less exact copy; produce a copy or representation of" (New Shorter Oxford English Dictionary). But these definitions prompt such inquiries as how much of the copyright work must be reproduced before it can be said that that "work" has been reproduced and how similar must what is produced be to the copyright work? The effect of s 14(1) of the Act is that the reference in s 31(1)(b)(i) to reproducing an artistic work in a material form includes a reference to reproducing a substantial part of such a work in a material form. In terms, this provision acknowledges a distinction between the undifferentiated whole of a copyright work and a substantial part of it. The Paterson does not reproduce exactly the whole of the Kookaburra. Copinger and Skone James on Copyright (13th ed, 1991), para 8-20 states as follows:

"It is unusual for an infringement to consist of an exact copy or use of the whole of the plaintiff's work. In some cases, the defendant's work may to a greater or lesser degree resemble the whole of the plaintiff's work, in which case the question is whether the defendant's work is a colourable imitation: Sillitoe v McGraw-Hill Book Co (UK) Ltd [1983] FSR 545. Alternatively, the defendant's work may have been taken from part only of the plaintiff's work. Here, the defendant's work may be an exact reproduction of that part of the plaintiff's work or it may only to a greater or lesser degree resemble that part. In this alternative class of case, the first step is to identify the part of the plaintiff's work which is alleged to have been reproduced and then decide whether it constitutes a substantial part of the plaintiff's work. If it does, but it is not an exact copy of that part, it must then be decided whether it is a reproduction or colourable imitation of that part of the plaintiff's work: Spectravest Inc v Aperknit Ltd [1988] FSR 161."

[171] Although copyright may subsist in the whole of each of the drawings in dispute, Wilcox and Lindgren JJ held in Tamawood Ltd v Henley Arch Pty Ltd (2004) 61 IPR 378 ; [2004] FCAFC 78 at [40] (Tamawood):

[40] ... this does not mean that each individual part of it, considered in isolation, satisfies the originality test for the subsistence of copyright, that is to say, that it originated with the author. Some parts may be original only in the sense that they are part of a whole which did originate with the author.

[172] Section 14(1) of the Copyright Act raises the notion of "substantial part" which imputes questions of fact and degree. In Tamawood the Full Court considered the meaning of the expression "substantial part" in the context of plans for project homes. Wilcox and Lindgren JJ concluded at [55] that:

[55] ... it is not infringement of the part, but infringement of the whole that is in question. Whether there has been an infringement of the whole requires that the originality of the part be considered in relation to the work in suit as a whole. It must be determined whether the part is an "essential or material" feature of the whole work, regarded as a copyright work, in the present case, as an artistic work. In our opinion, it must be asked whether the part or parts taken represent a substantial part of the labour, skill and judgment of the author that made the whole work "original". Factual questions of degrees of "significance" or "importance" of the part to the whole are involved.

[173] The test for infringement of copyright was set out by Hill J in Skybase Nominees Pty Ltd v Fortuity Pty Ltd (1996) 36 IPR 529 at 531 as follows:

For there to be an infringing reproduction two elements are required, although they are not unconnected. First, there must be a "sufficient degree" of similarity between the two works: Francis Day & Hunter Ltd v Bron [1963] 1 Ch 587 ; 1A IPR 331 (CA). Secondly, there must be a "causal connection" between the two works. Such a causal connection arises, not to put too fine a point on it, where one work has been copied from the other.

[174] Thus in the present case, whether the first respondent's threatened activities will infringe the Alfa Laval drawings will be determined by two inquiries. The first inquiry involves an assessment of the similarities between the first respondent's cookers produced with reference to the Alfa Laval drawings and the RotaTherm drawings, which is a question of degree, taking into account the originality and essential nature of the elements which are found in the first respondent's cookers and the Alfa Laval and RotaTherm drawings. Another consideration which authorities establish as instructive in this inquiry is whether the first respondent's use will interfere with sales of, or compete with, the applicant's DSI cookers: University of London Press Ltd v University Tutorial Press Ltd [1916] 2 Ch 601 ; (1916) 1B IPR 186. The second inquiry determinative of infringement is whether there has been actual copying.

[175] In this matter, and in accordance with the observations by Hill J above, the evidence presented in support of the two inquiries is quite interconnected. It was submitted on behalf of the applicant that the first respondent made use of the details shown in the Alfa Laval drawings. The applicant's submissions in support of this contention may be summarised as follows:

(1)

the first respondent's DSI cookers look nothing like the prior art sought to be produced by Mr Zakis, and Mr Zakis conceded that any comparisons he made to the "alternative art" were directed to function;

(2)

there were key features of similarity between the Murray Goulburn and Bonlac cookers (made by the first respondent for Alfa Laval) and the Vonk cooker (the first cooker made by the first respondent for the applicant) and later cookers, namely:

(i): the steam injectors were the same in the Murray Goulburn, Bonlac and subsequent the first respondent built cookers and each of the cookers used 25% glass-filled Teflon in the nozzles of the injectors. The use of Teflon can be traced back to the Alfa Laval drawings. The diameter of the hole for fitting the injector into the cooking column was the same even though alternative dimensions could have been used;
(ii): the choice of Teflon and the type of Teflon was discretionary and carried across by the first respondent from Alfa Laval. The first respondent's expert witness, Mr Frost, conceded that stainless steel was a more obvious choice;
(iii): the same type and dimensions of pipe and tubing was selected for the steam header and cooking column. Mr Zakis agreed that pipe 4 inches in diameter was used for the cooking column because it worked for Alfa Laval;
(iv): the rotor was of the same configuration as adopted by Alfa Laval (four bars instead of three or five, precisely the same diameter and same close to the edge tip clearance).

[176] The applicant relies on the absence of any testing by the first respondent, as further supporting its assertion of copying. Further, the first respondent had the Alfa Laval drawings in its possession during the development period, and Mr Zakis had "experience" with the Alfa Laval cooker, so he knew the principle would work. Mr Zakis agreed that he had the Alfa Laval drawings at the time. Further, he conceded that the only method of construction provided to the first respondent was produced from the design work of Alfa Laval.

[177] It is apparent that the similarities extend across a number of cookers, and that a comparison between the relevant drawings demonstrating the overall features of design supports the applicant's claim of copying.

[178] The applicant submitted that knowledge of the assignment of copyright to the applicant from Alfa Laval can be attributed to the first respondent. I agree. It is also the applicant's submission that the first respondent reproduced elements of the Alfa Laval drawings in making the DSI cookers.

[179] Counsel for the first respondent has sought to minimise the significance of any similarities between the Alfa Laval drawings and the RotaTherm drawings on the ground that any skilled and qualified tradesperson tasked with designing and building a DSI cooker would have made the same or very similar choices in relation to dimensions and materials used. In addition, Mr Zakis claims that he did not make reference to the Alfa Laval drawings when he undertook further design work for Vonk and subsequent cookers. I do not accept this evidence. Whether or not Mr Zakis had the Alfa Laval drawings physically at hand he could not possibly have excluded them from his mind. Copying can exist even when it is unconscious: Copinger and Skone James on Copyright, K Garnett (ed), 14th ed, 1999, at 7-23, p 402. The importance of this lies in the fact that if actual copying is found to have occurred the next step is to ask whether a "substantial part" was copied. For example, in Ancher, Mortlock, Murray & Woolley Pty Ltd v Hooker Homes Pty Ltd (1971) 2 NSWLR 278, Street J said (at 289):

... I have already ... inferred that the defendant did engage in unfair copying of the plaintiffs' plans and houses. This adds significance to the similarities that do exist and diminishes significance from the dissimilarities.

[180] The relevant comparisons for the purpose of determining the question of threatened infringement in this case are set out in the third further amended statement of claim by reference to tables.

[181] Counsel for the applicant submits that a comparison of the assembly drawings for the Bonlac cooker (the second cooker, made by the first respondent for Alfa Laval) and the assembly drawings for the Vonk cooker (the third cooker, made by the first respondent for the applicant) reveals a strong resemblance. The relevant drawings show the same sequence of injectors stepped against the cooking column. The cooking column is in an upright position above an upright motor in both. There is a rotor within the cooking column and inlet and outlet pipes running at the top and bottom of the cooking column. In both cookers, the cooking column sits slightly off centre within a frame to allow space for a steam header. The steam header is the vessel used to collect steam and distribute it through a number of different outlets, it is not necessarily, but usually, a pipe. Counsel for the applicant further submits that a comparison of the drawing for the Murray Goulburn cooker (the first cooker made by the first respondent for Alfa Laval) and the Vonk cooker (the first cooker made for the applicant) puts "the issue of direct reference and copying beyond doubt". I agree.

[182] There were some design changes from the Bonlac cooker to the Vonk cooker. In particular, Mr Zakis gave evidence that the cooker made for Alfa Laval had two problems. It was difficult to lower for cleaning and maintenance and the motor became misaligned.

[183] Mr Zakis claims he completely redesigned the Vonk cooker and specifies some 10 design changes which are not documented. Mr Smith was able to produce contemporaneous documentary evidence which showed he initiated the most significant of the 10 design changes, in particular, the hinging of the cooker frame in the middle. Two of the changes claimed by Mr Zakis are to be seen in the Bonlac and the Murray Goulburn cookers and three of the claimed changes are relatively insignificant. The changes did not individually or collectively render the Vonk cooker significantly different from the Alfa Laval cookers which preceded it. All changes had to be approved by Mr Smith.

[184] Further, Mr Zakis suggested it was necessary to retain Austek to assist in designing the Vonk cooker. The Austek drawings by a cadet draftsman did not constitute design work of great significance. The Vonk machine was completed in late June 1992 and sent to Holland. There were no field trials or tests. The first respondent had a copy of the manual for the Vonk cooker, which asserted the applicant's rights. It stated:

Accordingly all the ideas, concepts, designs, knowhow, technology, equipment and information relating thereto and the specifications are to be held by you in confidence and shall not be disclosed or given to any person, and the specifications (or any documents or articles relating to the ideas, concepts, designs, knowhow, technology, equipment, or information) shall not be copied or reproduced and shall be kept in safe custody and returned to me forthwith upon a request by me. Each development of, or improvements to, the ideas, concepts, designs, knowhow, technology and equipment which may result from my association with the company shall be my sole property. [Emphasis added]

[185] The applicant's title block is on all the Vonk drawings. Although at one stage in the proceeding Mr Zakis suggested this was merely to present a "united front" to customers, by the end of the proceeding he conceded that the first respondent is not claiming copyright as against the applicant in the Vonk drawings. Mr Zakis described the Vonk cooker drawings as the start of a generic set of drawings.

[186] The same procedure of ordering, quoting, providing a purchase order and invoicing was followed with the manufacture of further machines by the applicant for the first respondent. The same procedure where the customer signed a confidentiality agreement with the applicant, in terms similar to the Vonk confidentiality agreement was also followed with copies of such confidentiality agreements generally being retained by the first respondent.

Applicable principles

[187] An infringing act need not be done in relation to the whole of the work, but it suffices if only a "substantial part" is taken. The phrase "substantial part" has always been held to refer to the quality of what is taken rather than the quantity, and courts have always refused to prescribe any arithmetical proportion as amounting to a substantial part: see Hawkes & Son (London) Ltd v Paramount Film Service Ltd [1934] Ch 593; Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 All ER 465; LB (Plastics) Ltd v Swish Products Ltd (1979) 1A IPR 359; Fernald v Jay Lewis Productions Ltd [1975] FSR 499. As Lord Cottenham LC said in an early case, Bramwell v Halcomb (1836) 3 My & Cr 737 ; 40 ER 1110 at 1110:

When it comes to a question of quantity it must be very vague. One writer might take all the vital part of another's book, though it might be but a small proportion of the book in quantity. It is not only quantity, but value that is always looked to. It is useless to refer to any particular cases as to the quantity.

[188] The taking of quite small portions of a work may still amount to a "substantial part" for the purposes of the legislation. For example, in an English case, Kipling v Genatosan Ltd [1917-23] MacG Cop Cas 203, the use of four lines from a poem of 32 lines was enough, while in Ricordi & Co (London) Ltd v Clayton & Waller Ltd [1928-35] MacG Cop Cas 154 it was held that eight bars which formed part of a particular motif in a well-known opera might be sufficient. In determining whether the quality of what is taken makes it a "substantial part", a number of factors are relevant.

[189] First and most important is a general inquiry into the importance which the part taken bears in relation to the copyright work as a whole: see Jarrold v Houlston (1857) 3 K & J 708 ; 69 ER 1294; Hawkes & Son (London) Ltd v Paramount Film Service Ltd [1934] Ch 593; Sands & McDougall Pty Ltd v Robinson (1917) 23 CLR 49 ; [1917] HCA 14; Blackie & Sons Ltd v Lothian Book Publishing Co Pty Ltd (1921) 29 CLR 396; Chatterton v Cave (1878) 3 App Cas 483. The question is, is the part taken or used an "essential" or "vital" or "material" part of the plaintiff's work? In this regard, it is not relevant to have regard to the importance that the part taken forms of the defendant's work: see Bauman v Fussell [1978] RPC 485; Designers Guild Ltd v William Russell (Textiles) Pty Ltd (t/as Washington DC) [2001] 1 All ER 700.

[190] Determining the qualitative character of what is taken is always a question of fact and degree. In Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 All ER 465 at 473 Lord Evershed expressed this requirement as follows:

... It is not in doubt that what amounts in any case to substantial reproduction ... cannot be defined in precise terms but must be a matter of fact and degree. It will, therefore, depend not merely on the physical amount of the reproduction but on the substantial significance of that which is taken.

See also Collier Constructions Pty Ltd v Foskett Pty Ltd (1991) 20 IPR 666 at 669 per Lockhart, French and Hill JJ; Longman Group Ltd v Carrington Technical Institute Board [1991] 2 NZLR 574 at 581-2 ; (1990) 20 IPR 264 at 272-3; Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 508-9 ; 114 ALR 355 at 392-3 ; 27 IPR 133 at 172 per Lockhart and Gummow JJ; Minister for Mineral Resources v Newcastle Newspapers Pty Ltd (1999) 40 IPR 403 at 410; MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1999) 43 IPR 287 at 316 per Sundberg J; Bulurri Australia Pty Ltd v Oliver (2000) 49 IPR 384 at 388-9 ; [2000] NSWSC 580.

[191] It needs to be noted that the originality of what is taken is an important indication of whether or not it is a substantial part: Data Access Corporation v Powerflex Services Pty Ltd (1999) 202 CLR 1 ; 166 ALR 228 ; 45 IPR 353 ; [1999] HCA 49 at [83], quoting with approval Mason CJ in Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 305 ; 111 ALR 385 at 389 ; [1993] HCA 6.

[192] Other factors which courts have had regard to in determining whether or not a substantial party has been taken include:

(a): the object being the defendant's taking, that is either the defendant's intention has been to take from the plaintiff's work "for the purpose of saving themselves labour": Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 at 260 ; 130 ALR 659 at 676-7 ; 30 IPR 209 at 228; Ravenscroft v Herbert & New English Library [1980] RPC 193 at 203;
(b): the effect of the taking on the market for the plaintiff's work: University of London Press Ltd v University Tutorial Press Ltd [1916] 2 Ch 601 ; (1916) 1B IPR 186; Nationwide News Pty Ltd v Copyright Agency Ltd (1996) 65 FCR 399 ; 136 ALR 273 ; 34 IPR 53.

[193] So far as the assessment of a substantial part in the particular context of artistic works is concerned, there are several cases, both Australian and English, which illustrate the above points. In Bauman v Fussell [1978] RPC 485, where the art taken from the plaintiff's photograph by the defendant's painting was the relative position of two fighting cocks, it was found to be a substantial part. To similar effect, see Geographica Ltd v Penguin Books Ltd [1985] FSR 208 at 218-19; FAI Insurances Ltd v Advance Bank Australia Ltd (1986) 68 ALR 133 at 141 ; 7 IPR 217 at 226.

[194] In Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 ; 130 ALR 659 ; 30 IPR 209 the works alleged to be infringed were paintings by Aboriginal artists where significant symbols and motifs from these works were reproduced in carpets made by the respondents. Although there were differences between the paintings and the carpets, von Doussa J found that there were "striking similarities on a visual comparison" and that a substantial part had been reproduced. In particular, his Honour made reference to the originality of the part taken and the animus furandi of the respondents as follows (at FCR 262; ALR 679; IPR 230):

Although as a proportion either of the total artwork, or the total carpet, the area of copied material in comparison with the whole is not great, in a qualitative sense the copying is substantial. The pattern taken from the artwork constitutes the striking feature of the carpet. And again a predominant consideration is that animus furandi of those responsible for the design ...

[195] In Designers Guild Ltd v Russell Williams (Textiles) Ltd [1998] FSR 803 (first instance); [2000] FSR 121 (Court of Appeal); and [2001] 1 All ER 700 (House of Lords), the works in question were fabric designs. There were clear similarities between the two fabrics, notably in relation to patterns of flowers and stripes, but there were also differences. After finding that there had indeed been copying (which had been denied), the judge at first instance found that there had been a reproduction of a "substantial part" of the plaintiff's design in the defendant's fabric, finding this to be in the overall combination of flowers and stripes, the way in which they related to each other, the way in which they were painted and the way in which there was a "resist" effect. Although on appeal to the Court of Appeal, the defendant accepted that it could not challenge the finding of copying, it contested the "substantial part" finding and this was accepted by that court, which found that the elements copied either the idea of the plaintiff's work or was a consequence of the parties using the same techniques. This finding was in turn reversed by the House of Lords, which disapproved of the way in which the lower court had isolated the similarities between the works, finding that none on its own constituted a substantial part. Thus, Lord Millett (at All ER 709) said that, once copying had been established:

... the question is whether what has been taken constitutes all or a substantial part of the copyright work. This is a matter of impression, for whether the part taken is substantial must be determined by its quality rather than its quantity. It depends upon its importance to the copyright work ... The pirated part is considered on its own (see Ladbroke (Football) Ltd v William Hill (Football) Ltd [1964] 1 WLR 273 at 293 ; [1964] 1 All ER 465 at 481, per Lord Pearce) and its importance to the copyright work assessed. There is no need to look at the infringing work for this purpose.

Findings

[196] Despite repeated denial by Mr Zakis, it is clear on the evidence that the first respondent made use of the detail of design work shown in the Alfa Laval drawings, as indicated by the following findings:

(i): Cookers built by the first respondent look nothing like the alleged prior art sought to be produced by Mr Zakis.
(ii): There were key features of close similarity between the Murray Goulburn and Bonlac cookers, and the Vonk and later cookers, as described above.
(iii): In addition, the choice of Teflon and the type of Teflon used as appropriate material which was proved to be discretionary was carried across by the first respondent from Alfa Laval.
(iv): Further, the same type of pipe and tubing (in the same dimensions) was selected for the first respondent's manufacture of the steam and header and cooking column, as had been done with Alfa Laval. While this was sought to be explained by reference to stock items being selected, the evidence was that a range of pipe and tubing standards of differing diameters were available.
(v): The rotor was of the same configuration as adopted by Alfa Laval (four bars, instead of three; as shown in Mr Smith's patent), precisely the same diameter and the same (to one hundredth of a millimetre) close to the top edge tip clearance. The rotor was mounted radially at 90°.
(vi): A comparison between drawings showing the overall features of design of the cooker evidence the claim of copying from the Alfa Laval drawings. For example, the assembly drawing for the Bonlac cooker and the assembly drawing for the Vonk cooker, indicate the latter is copied from the former by reference to the features described above.
(vii): Comparison between the process drawings for Murray Goulburn and Vonk cookers shows objective copying.
(viii): Mr Smith gave evidence that he observed Mr Zakis referring to the Alfa Laval drawings during the development period. Mr Zakis agrees he had the Alfa Laval drawings at the time. To the extent that Mr Zakis gave repeated evidence that he did not refer to the Alfa Laval drawings. I reject this evidence. There was no inhibition whatsoever on him doing so and as mentioned above he had worked with the Alfa Laval drawings with the Bonlac cooker, it is inconceivable he could exclude them from his mind when preparing drawings for the Vonk cooker.
(ix): Mr Zakis conceded that he had "experience" with the Alfa Laval cooker so he knew the principle would work.
(x): Mr Zakis stated in written evidence that in connection with the demonstration unit "the only method of construction provided to Kovan was produced from the design work of Alfa Laval", and in cross-examination he stated that the only source of construction details came from Alfa Laval.
(xi): Experts called by the applicant were able to identify similarities and Mr Winton gave evidence on behalf of the applicant that the similarities extended across a significant number of the cookers.
(xii): To the extent that Mr Frost gave evidence for the respondents emphasising the differences between the cookers he was not shown all of the drawings which were relevant to the particulars of infringement. He took into account functionality, which is irrelevant when making a visual comparison of drawings said to be the subject of copyright. He was neither an expert or even a skilled addressee, as that term is understood in patent law, in respect of the alleged prior art. Furthermore, his opinions on independent derivation of drawings by the first respondent were based on a lack of awareness of Mr Zakis's familiarity with the Alfa Laval drawings.

[197] Having regard to all the evidence outlined above, and making my own assessment of the similarities between the Alfa Laval drawings and the RotaTherm drawings (informed by the evidence of various experts) I conclude that if the first respondent were to manufacture DSI cookers in accordance with the RotaTherm drawings it will infringe the copyright held by the applicant in the Alfa Laval drawings by substantially reproducing those drawings. While it has not been possible for the court to examine actual cookers or cooker parts which have been made in alleged infringement of the relevant drawings, the court, assisted by experts, can visualise the shape and appearance of the various articles and objects depicted in the relevant drawings and conclude that these would be reproductions of a substantial part of those drawings. It follows that any drawings made by the first respondent of those articles and objects for the purposes of making them will also infringe as two-dimensional reproductions thereof ("plan to plan" copies).

[198] I find that by engaging in the conduct referred to in subparas 15(a), (b), (e), (g) and (h) of the third further amended statement of claim, the first respondent threatens or intends to infringe the applicant's copyright in:

(a): the RotaTherm drawings (claimed by the applicant pursuant to the agreement with the first respondent and which include the drawings containing the applicant's title block drawings);
(b): the Alfa Laval drawings (to which the applicant is entitled by reason of the Alfa Laval assignment).

Accordingly, in the absence of any successful defences, the applicant is entitled to claim quia timet injunctive relief against the first respondent to restrain these acts from occurring.

Defences: industrial application

Relevant legislation

[199] The respondents submit they have a complete statutory defence under s 77 of the Copyright Act. Section 77 forms part of what are often referred to as the copyright/design overlap provisions, which are calculated to prevent "double protection" under the two intellectual property regimes: see Glamagard Pty Ltd v Enderslea Productions Pty Ltd (1985) 1 NSWLR 138 at 142 ; 59 ALR 740 at 744 ; 4 IPR 113 at 117 per McLelland J. The section in its current form relevantly states:

(1)

This section applies where:

(a): copyright subsists in an artistic work ...
(b): a corresponding design is or has been applied industrially ... by or with the licence of the owner of the copyright ... and
(c): ... products to which the design has been so applied ... are sold, let for hire or offered or exposed for sale or hire ... and
(d): at that time, the corresponding design ... has not been registered under [either the Designs Act 2003] or under the Designs Act 1906.

(2)

It is not an infringement of the copyright in the artistic work to reproduce the work, on or after the day on which:

(a): products made to the corresponding design are first sold, let for hire or offered or exposed for sale or hire; or ...

by embodying that, or any other, corresponding design in a product.

[200] These provisions aim to address the practical consequences of the nature of copyright, being an unregistered interest, for which protection lasts 70 years from the author's death (s 33 of the Copyright Act), in contrast to designs which must be registered in order to be protected and are protected for only 10 years (s 46 of the Designs Act 2003 (Cth) (the Designs Act)); and the fact that it is possible for a person to produce, for example, a drawing which may come within the classification of "artistic work" under the Copyright Act, but also constitute a design which is registrable under the relevant designs regime: see Press-Form Pty Ltd v Henderson's Ltd (1993) 40 FCR 274 at 281 ; 112 ALR 671 at 678 ; 26 IPR 113 at 120 per Gummow J (Press-Form).

[201] Speaking broadly, to delineate the scope of each protection regime, and to promote the registration of registrable designs, s 77(2) has the effect that copyright protection will be lost for a drawing, which has, in effect, been applied in the way that a corresponding design would be applied, and which would more appropriately be protected as a design. In s 77(1), the term "applied industrially" has been described as "the use of an artistic work as a design for the commercial manufacture of articles in accordance with the design": see J Lahore, Lahore's Copyright and Designs, vol 1A, LexisNexis Butterworths, Sydney, 2004 at [64,000] (Lahore). Lahore further notes at [64,300] that "the broad policy is that artistic works commercially exploited as three-dimensional designs should generally be denied copyright protection and be protected, if at all, under the designs legislation".

[202] It has been observed that the interaction of copyright and registered design protection regimes "has proved a troublesome matter in a number of countries": per Wilcox J in Hutchence v South Seas Bubble Co Pty Ltd (1986) 64 ALR 330 at 342 ; 6 IPR 473 at 485. The amendments to Australia's design protection regime which came into effect as a result of the Designs Act sought to further define and resolve this complex intersection of artistic works and designs. For a comprehensive history of aspects of the overlap provisions prior to the 2004 amendments effective from 17 June 2004, see the judgment of Gummow J in Interlego AG v Croner Trading Pty Ltd (1992) 39 FCR 348 ; 111 ALR 577 ; 25 IPR 65.

[203] Section 77, as amended, provides a defence to an action for infringement of copyright in an artistic work where a "corresponding design" has not been registered as a design, but has been industrially applied. A corresponding design, in s 74(1) of the Copyright Act, as inserted by the Designs (Consequential Amendments) Act 2003 (Cth), means:

... in relation to artistic work, means visual features of shape or configuration which, when embodied in a product, result in a reproduction of that work, whether or not the visual features constitute a design that is capable of being registered under the Designs Act 2003.

[204] In the light of the amended definition, the applicant admits that there has been application of corresponding designs in respect of two features of the RotaTherm cookers, namely, the rotors and the bottom elbows.

[205] The parties agreed that the drawings of the steam injectors made by the first respondent and the drawings of the motor, motor shaft and mechanical seals have each been industrially applied. Accordingly, those drawings are outside the ambit of the claim for infringement. On 1 February 2005, the court ordered by consent of the parties that the industrial application defence at this trial would be confined to the Kraft cooking machine rotor drawings and the Great Lakes cooker bottom elbow drawings. This has the effect that the proceeding, in so far as the industrial application issues are concerned, will not be determined by the judgment in respect of this trial. This course was taken by the consent of the parties, as a method of managing an aspect of the case which would otherwise have required further particulars and further discovery, further delay and further significant hearings days. In effect, a "separate question" has been isolated by the agreed narrowing of the industrial application issues for this trial. It was always clear that the applicant reserved its position, so that the agreed narrowing of the industrial application issues to the drawings for two components would in no way restrict the applicant from obtaining further particulars in relation to other drawings or other components. Accordingly, my findings on industrial application, will be interlocutory only, confined, as they will be by agreement, to two components.

[206] It is also common ground between the parties that:

(a): the applicant has manufactured and sold one rotor made in accordance with the Kraft rotor drawings since 17 June 2004;
(b): the applicant has manufactured and sold one bottom elbow made in accordance with the Great Lakes bottom elbow drawings since 17 June 2004;
(c): no design has been registered in respect of the Kraft rotor drawings or the Great Lakes bottom elbow drawings.

These agreed facts are set out in the orders of the court made on 1 February 2005 and render it unnecessary for me to make findings for the purposes of s 77(1)(c) of the Copyright Act or any findings which involve allegations of industrial application before 17 June 2004.

[207] Counsel for the respondents submitted that the question for determination by the court in relation to the defence of industrial application is whether the corresponding designs in respect of the Kraft rotor drawings and the Great Lakes bottom elbow drawings have been "industrially applied" for the purposes of s 77(1)(b) of the Copyright Act.

[208] The definition of "industrial application" is the subject of reg 17 of the Copyright Regulations 1969 (Cth). Regulation 17 relevantly provides:

Circumstances in which a design is taken to be applied industrially

17(1)
For the purposes of section 77 of the Act, a design is taken to have been applied industrially if it is applied:

(a)
to more than 50 articles; or

(b)
to one or more articles (other than hand-made articles) manufactured in lengths or pieces.

...

(3)
For the purposes of this regulation, a design is taken to be applied to an article if:

...

(b)
the design is applied to the article by a process (whether a process of printing, embossing or otherwise); or

(c)
the design is reproduced on or in the article in the course of the production of the article.

[209] The applicant admits that the corresponding design for the rotors has been applied five times and that the corresponding design for the bottom elbows has been applied 26 times.

Applicable principles

[210] While reg 17 stipulates that a design is taken to have been applied industrially where it is applied to 50 or more articles, this is not an exhaustive definition. In an interlocutory matter where only three prototypes of the plaintiff's helmets had been made, King J in Safe Sport Australia Pty Ltd v Puma Australia Pty Ltd (1985) 4 IPR 120 at 126 noted:

... there is nothing incongruous in leaving it to be decided as a question of fact whether there is industrial application of a design in a case where less than fifty applications of the design have taken place.

[211] This approach is also apparent in Kevlacat Pty Ltd v Trailcraft Marine Pty Ltd (1987) 79 ALR 534 ; 11 IPR 77 per French J (Kevlacat) and in Press-Form where Gummow J stated (at FCR 281; ALR 678; IPR 120):

There may be designs applicable to articles of such a substantial or complex nature that whilst it is unlikely that more than 50 articles will ever be made by the owner of the design registration, in ordinary parlance the design will have been applied industrially by manufacture of something less than 50 articles. If the design is subsequently registered by the industrialist and the legislation and reg 17 has the meaning contended for by the respondents, the design will not have been applied industrially before registration. This means that the design will not be treated as invalid by reason of the previous exploitation, albeit that exploitation maximised the use to which the owner of the design wished to put it.

Clearly the type of article being manufactured is a critical matter.

[212] In Press-Form, Gummow J noted at FCR 285; ALR 681; IPR 123 that "industry" may be described as "a trade or other particular form or branch of productive labour, and something as 'industrialised' when devoted or directed to such an activity". He explained (at FCR 282; ALR 679; IPR 121):

What reg 17 does do is to supply a fairly plain measure by which there may be drawn the line beyond which there is industrialisation of the design.

[213] In Shacklady v Atkins (1994) 126 ALR 707 at 713 ; 30 IPR 387 at 393, Davies J cited Gummow J in Press-Form and held:

... In my opinion, the regular application of the design in the construction of yachts is an application of an industrial nature being the repetitive application of a design in the manufacture or construction of goods for sale ...

[214] It was contended on behalf of Gold Peg that the definition of "industrial application" denotes a "system" and "repetition", citing French J in Kevlacat. In exploring the concept of such a "process" his Honour noted (at ALR 546; IPR 90):

Whatever the outer limits of the word "process" may be, it is, in my opinion, quite wide enough to encompass the systematic use of a mould to reproduce a series of like articles.

[215] Counsel for the applicant has sought to draw a distinction between the "process" described in Kevlacat and the "process" used by the first respondent in manufacturing the rotors and the bottom elbows. In particular, it is the applicant's case that although each of the rotors and bottom elbows manufactured by the first respondent were based on the Alfa Laval and/or the RotaTherm drawings, each was tailored to the particular customer's requirements.

[216] Counsel for the respondents also sought to enlarge the applicant's interpretation of his Honour French J's decision in Kevlacat. It was submitted on behalf of the respondents that although his Honour "did conclude that an element of a 'system' seems central to both 'industry' and 'process' ... his Honour did not conclude that that 'system' must be mechanical, or must not involve care or skill, or any human involvement".

[217] Accordingly, it is the respondents' submission that the fact that some human involvement and care and skill was required to tailor each of the rotors or bottom elbows for each RotaTherm cooker that does not mean that those parts were not created by a "process" for the purposes of determining whether the drawings of those parts have been industrially applied.

[218] As the abovementioned authorities, particularly Safe Sport, Kevlacat and Press-Form make clear, the statutory concept of "industrial application" has always involved the notion that products, which incorporate the "corresponding design" have been made pursuant to a manufacturing process for the systematic production of articles. A consideration of the legislative history of both the relevant Australian and United Kingdom legislation supports this view. "Systematic" suggests questions of degree are relevant. It makes no difference whether the industrial application took place before or after 17 June 2004, as it is threatened future reproduction by the first respondent, which is in issue for the purposes of the relevant defence. Stripped to essentials, the applicant's argument is that "industrial application" requires systematic manufacture and repetition and cannot be determined merely by considering whether an item is produced as an item of commerce. The respondents' argument, stripped to essentials, is that if an item is produced for commercial purposes, even production limited to five instances (or 22) which incorporates a corresponding design (whether the item is finalised by hand or not) the corresponding design has been "industrially applied".

[219] Neither party mentioned the fact that all of the customers were subject to confidentiality agreements in respect of each of their custom-built products. This may have been relevant before 17 June 2004 because of publication issues when the "industrial application" provisions only provided a defence in respect of designs, which were registrable under the applicable Act. The insistence on systematic production or repetition or process, under the previous regime, was partly explicable by the fact that it was theoretically possible to produce a limited number of items in circumstances, which did not destroy a design's novelty prior to an application for registration. A copyright owner did not lose protection until a certain threshold had been crossed. It is conceivable, even if unlikely, that a copyright owner could reproduce a small number of items for commercial purposes (whether prototypes or not) but maintain confidentiality and secrecy to avoid such publication as would be sufficient to destroy novelty. This explains, at least in part, the reiterated requirement in the authorities that "industrial application" must be "systematic", a requirement which may seem obscure given the terms of s 77(1)(d), but it is a requirement which still has relevance because the regulations have not changed and also because the phrase "applied industrially" used in s 77(1)(b) is a term about which considerable case law has been established.

Findings

Bottom elbow

[220] The evidence which was not contradicted was that a wooden/epoxy pattern was used each time a bottom elbow was made. Then a wax die was prepared and destroyed once each bottom elbow was manufactured. Then each bottom elbow needed to be hand-milled for precision. Having regard to their simple nature, their manner of manufacture as described in the evidence, and their incorporation into all 26 of the DSI cookers made by the first respondent for the applicant, I am satisfied that the production of the elbows in question involves systematic manufacture which therefore falls within the statutory concept of an industrial application of the relevant design. To the extent that s 77(2) applies the respondents can also invoke successfully the provisions of s 77A in respect of those drawings.

Rotor

[221] The evidence of manufacture of the five rotors in question which was uncontradicted showed the rotors were a more complex component than the bottom elbows. At least 12 different versions of rotors were used in the abovementioned 26 custom-built cookers. While some parts of the rotor could be made in advance the final construction of the rotor as depicted in the drawings was a painstaking and skilful task. This was not an industrial manufacturing process involving system and repetition. Having regard to the complex nature of the rotors and their manner of manufacture as described in the evidence I am not satisfied, on the civil standard of proof, that the production of the rotors in question, involved systematic manufacture and therefore I find their production falls outside the statutory concept of an industrial application of a corresponding design. Section 77A will not avail the respondents in respect of these drawings.

Personal liability

[222] The evidence showed Mr Zakis was in control of the conduct complained of as breaching the TPA and liable as an accessory under s 75B of that Act.

[223] It is also clear that Mr Zakis was a key participant in the threats to infringe (as to which see ss 13(2) and 36(1) of the Copyright Act) which cannot be finally determined until the defence in relation to "industrial application" is concluded. It can, however, be noted "authorising" infringing conduct essentially means to "sanction, approve and countenance such conduct": University of New South Wales v Moorhouse (1975) 133 CLR 1 ; 6 ALR 193; see also Falcon v Famous Players Film Co [1926] 2 KB 474.

[224] While the evidence showed that Mrs Zakis worked for the first respondent, I could not be satisfied, on the civil standard of proof, that she was in control of the conduct complained of as breaching the TPA, or that she authorised threatened infringements. The evidence showed her to be a moderating presence when discussions took place between Mr Smith and Mr Zakis in the meetings in 2001 and 2002 and she readily acknowledged in those meetings that the first respondent did not own any intellectual property rights associated with the cookers. Her observations were consistent with the terms of the agreement pleaded by the applicant, which terms have been upheld by me. In all the circumstances, I would not be prepared to treat her as liable in respect of statutory contraventions of the TPA. Further, the question of infringement of copyright cannot be finally determined until defences are finally determined.

Cross-claim

[225] The first respondent cross-claims against the applicant for threatening to infringe the copyright in what it describes as the first respondent's drawings, being the drawings resulting from the work of the first respondent employees and consultants engaged by the first respondent in the course of manufacturing the relevant cooking systems from about 1990-2002. The first respondent seeks a declaration that it owns the copyright to the first respondent's drawings, as well as an injunction preventing the applicant from reproducing the first respondent's drawings and costs.

[226] The findings I have already made are a sufficient basis upon which to dismiss the cross-claim. However, I will briefly consider the submissions made in respect of this aspect of the case.

[227] The applicant asserts that if the first respondent is the owner of the relevant drawings, then the applicant has an implied licence to make copyright usage of the first respondent's drawings. An implied licence is supported by the relationship between the first respondent and the applicant being one of manufacturer and commissioner, respectively. The applicant further cites the payment and cost arrangements between it and the first respondent, as well as the fact that it took on ownership and responsibility for the completed cooking systems, as evidence of an implied licence. As already mentioned, I have accepted the evidence of Mr Miller and Mr Smith in respect of payment arrangements and to the extent that it differs, I have rejected Mr Zakis's evidence. Further, the applicant relies on the verbal and documentary exchanges between it and the first respondent, especially with regards to the assignment of rights from Alfa Laval.

[228] As an alternative submission in its defence to the cross-claim, the applicant submits that the ownership of the copyright in a selected group of drawings produced in the course of the first respondent's production of the cooking systems is joint; that is, that the nature of the contributions by Mr Smith and the various employees and consultants of the first respondent was such as to render the applicant and the first respondent co-owners of the copyright in the drawings. The selected group is identified in para 15(c)(i) of the defence to the cross-claim.

[229] Finally, and in the alternative, the applicant submits that if the first respondent is found to own the copyright in the drawings, the applicant will be permitted to use them by virtue of the operation of s 77(1) of the Copyright Act, which sets out the defence already described above on the basis of an industrial application of a corresponding design, concessions have been made by it in respect of certain items. Sections 77(1) and 77A can be invoked successfully where relevant concessions made are not contested.

Findings

[230] I have already found that the applicant is the equitable owner of the RotaTherm drawings, called in the cross-claim "the Kovan drawings". If I were found to be wrong in making that finding based on the evidence, I would find that the applicant has an implied licence to use the drawings by reference to well-known authorities: Beck v Montana Constructions Pty Ltd [1964-5] NSWR 229; see also Solar Thompson Engineering Co Ltd v Boston [1977] RPC 537; Stovin-Bradford v Volpoint Ltd [1971] Ch 1007 at 1012-19 ; [1971] 3 All ER 570 at 572-8 (Denning and Salmon LJJ) and at Ch 1021; All ER 579 (Megaw LJ); Acohs Pty Ltd v RA Bashford Consulting Pty Ltd (1997) 144 ALR 528 at 546-7 ; 37 IPR 542 at 560-1 (Merkel J); Ray v Classic FM Plc (1998) 41 IPR 235 at 247-50 ; [1998] FSR 622 at 640-2 (Lightman J) (quoted above) and R Griggs in the Court of Appeal (also quoted above).

[231] Again, if wrong in my previous findings on ownership, on the totality of the evidence of the circumstances in which the selected drawings in question were brought into existence, I would find that the first respondent does not own any independent copyright in the selected drawings, dependent as they were on contributions including sketches, directions and instructions from Mr Smith as established in the evidence which render Mr Smith a joint author and the two companies who respectively employed Mr Zakis and Mr Smith, joint owners.

[232] Finally, ss 77(1) and 77A can be successfully invoked on the basis of the concessions referred to given that the first respondent has not put in issue any factual matters which might render the concessions inappropriate or unreliable.

Orders

[233] The orders I propose to make will be to dismiss the cross-claim with costs. Declarations will be made in respect of the applicant's ownership of copyright in respect of the Alfa Laval drawings and in respect of the applicant's equitable ownership in copyright in the RotaTherm drawings. Successful defences of "industrial application" do not destroy the copyright in the RotaTherm drawings; they merely restrict the applicant's ability to successfully allege infringement. Accordingly, consequential orders will be made to effect the assignment of legal copyright in the RotaTherm drawings from the first respondent to the applicant. There will also be a declaration in respect of the first respondent's breaches of the agreement. No declarations will be made in respect of threats to infringe, however, I will order the first respondent to keep full accounts in respect of any products, whether cooker components, or cookers, made in accordance with the Alfa Laval drawings and/or the RotaTherm drawings or any drawings which substantially reproduce such drawings (other than the components admitted to be "industrially applied" and the bottom elbow). Declarations and injunctions will be granted in respect of the TPA breaches and passing off. There will also be an order for delivery up. It will then be necessary for the matter to be adjourned to 10.15 am on 7 December 2005 before Kenny J for orders and directions in respect of the further conduct of the proceeding.

[234] While the applicant's success on key issues of ownership which took considerable time in the trial will be an important consideration when costs of the proceeding are determined, it is appropriate to reserve the costs, other than those on the cross-claim, until such time as the extent of the applicant's success in the proceeding can be assessed in the light of final determinations on "industrial application" issues in the respondents' current defence to the applicant's claims of infringement of copyright and given the reservation of rights explained above.

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