DODSON MOTORSPORT LIMITED v LOGIICAL PERFORMANCE LIMITED & ORS

High Court of New Zealand

Edwards J

29 – 31 October, 1, 5 – 9, 12 – 16, 26 and 27 November 2018, 1, 11 and 18 April 2019; 30 April 2019

[2019] NZHC 918

Copyright – originality and subsistence – ownership – commissioned and sub-commissioned works – infringement – copying – authorising – secondary infringement – damages – user principle – relevant criteria – additional damages – ss 16, 29, 36, 121 Copyright Act 1994 (NZ).

Misleading or deceptive conduct – statements “in trade” – assurances or private undertakings not covered – ss 9, 13 Fair Trading Act 1986 (NZ).

Breach of confidence – confidential information – obligation of confidence – unauthorised use.

Conspiracy by unlawful means – intention to injure not established – no proof of damage.

Facts:

The plaintiff (‘Dodson’) was a manufacturer of aftermarket clutch and ancillary parts for the Nissan GTR R35 motorcar.  The defendants were Logiical (a company set up by Mr Hannaford, a former employee of Dodson), Mr Hannaford himself, GRD Engineering Services Limited (‘GRD’) a manufacturer of parts, and its principal Mr Gray.

Dodson contended that the defendants had breached copyright in Dodson parts by manufacturing and dealing in infringing copies.  Dodson also claimed breach of the Fair Trading Act, breach of confidence and conspiracy by unlawful means.

Copyright

The defendants denied that copyright subsisted in the Dodson parts because they were not original (being derived from original Nissan (OEM) parts) and contained commonplace features or features dictated by functional constraints. 

To the extent that copyright did subsist the third defendant manufacturer GRD claimed it owned copyright and there had been no breach.

Dodson claimed copyright in the Promax clutch and in individual parts making up the clutch assembly and assembly itself; two mechanical circlips, a gear lock and selector fork.

Dodson alleged that the Logiical parts infringed copyright in its works. It claimed both damages, additional damages and injunctive relief.

Fair Trading Act 1986

Dodson claimed that each of the defendants had engaged in misleading or deceptive conduct in breach of ss 9, 10 and or 13 of the Act.

Breach of Confidence

Dodson alleged that the defendants had used its confidential and commercially sensitive information to design and manufacture the Logiical parts.

Conspiracy by Unlawful Means

Dodson alleged that all of the defendants acted in concert with a constructive intent to injure its business.

The unlawful means pleaded was misuse of confidential information and infringement of copyright.

Held

Copyright Works

The copyright works at issue were drawings underpinning the Dodson parts and included:

(a)       Drawings by employees of Bicknell as part of a sub-commission from GRD;

(b)       Drawings by GS Works as part of a sub-commission from GS Works [43].

Originality and Subsistence

Although the OEM parts were the starting point for the Dodson designs, this did not mean that they were the end point [64] and [72].  The question was whether the design process was truly independent [68].  Here Dodson’s design pathway was generally one of trial and error [69] and followed an independent pathway [72].  Originality must be assessed on a part by part basis.  The focus of the inquiry is on the independent skill and labour evident in any modifications and whether any additional elements are sufficient to make the total work original.

Wham-O MFG Co v Lincoln Industries  [1984] 1 NZLR 641 (CA); Martin v Polyplas MF Ltd [1969] NZLR 1046 (SC); Interlego AG v Tyco Industries Ltd [1989] AC 217; (1989) 12 IPR 97 (PC) referred to.

(a)     Outer Basket

Copyright subsisted in the Dodson outer basket [83].  Although the quantity of differences between the OEM part and the Dodson part were not significant, the quality of them was.  The differences reflected independent skill and judgment in design of the part.  The quality of differences reflected an originality in the Dodson outer baskets [83].

(b)     Gear Plate

Copyright subsisted in the gear plate [92].  There was a basic similarity between the OEM and Dodson part being of the same dimension and shape and performing the same function and operation of the clutch.  But the differences reflected original design and were not driven by functional requirements or manufacturing process [87].  The quality of the Dodson features considered cumulatively and in the context of the clutch assembly as a whole were sufficient to impart originality [92].

(c)     The A Basket

Copyright subsisted in the A basket [103].  There were a number of differences between the OEM part and the Dodson part [95].  Although the differences were not quantitively numerous they were nonetheless of qualitative significance.  They evidenced Dodson’s independent skill and labour in finding design solutions to the particular issues posted by the high performance use of the R35.  The trial and error process (in one particular feature) was inconsistent with Dodson slavishly copying the OEM part.

(d)     The B Basket

Copyright subsisted in the B basket [109].  Evidence of the design pathway for this part involved trialling different tooth profiles, oil hole patterns and producing different versions as part of the design evolution of the part [108].

(e)     Inner Basket Steel (IBS)

Copyright subsisted in the IBS.  When the similarities and differences between the OEM and Dodson part were considered in total, the court was satisfied that the differences were expressions of independent design and were sufficient to impart originality [115].

(f)      The A Piston

Copyright subsisted in the A piston design.  Dodson’s trial and error process led to refinements which were entirely of Dodson’s own making and some refinements were not only original (in the copyright sense) but innovative too [121].

(g)     The B Piston Copyright subsisted in this part

Copyright subsisted in this part.  Although the B piston did not reveal the same level of innovation and design as the A piston, nevertheless the various iterations proved that they were the result of independent skill and labour [126].

(h)     Gear Lock

The features of the gear lock were original to Dodson and copyright subsisted in the gear lock [130].

(i)      Selector fork

The OEM and Dodson selector forks were not objectively similar; there was no evidence that one was derived from the other.  The difference between them could not be explained by manufacturing constraint.  Copyright subsisted in the selector fork [137].

(j)      Mechanical Circlips

The court was satisfied that the Dodson design was original [139] and that copyright subsisted in the mechanical circlips [142].

(k)     The Promax Clutch Assembly

Copyright also subsisted in the Promax clutch assembly [146].  The differences between the OEM and Dodson parts were the product of independent skill, labour and effort and an independent design pathway involving development by trial and error [149].  There was no evidence of copying of the OEM [149].  This was a case of adding innovation to existing technology and was exactly the type of innovation that copyright law was designed to protect and encourage [150].

Ownership

As to commissioned works, there are three essential elements to a commissioning [153]:

(a)     A request to make the copyright work;

(b)     An antecedent payment or agreement to pay for the copyright work in money or monies worth.  The agreement may be express or implied; and

(c)     The making of the work.

Oraka Technologies Limited v Geostel Vision Limited [2010] NZCA 232; (2010) 88 IPR 227 at [40]; Pacific Software Technology Limited v Perry Group Limited [2004] 1 NZLR 164 (CA) at [58]; Alwinco Co Products Limited v Crystal Glass Industries Limited [1985] 1 NZLR 716 (CA) referred to.

(a)     GRD Drawings

The bulk of the evidence suggested that Dodson agreed to pay GRD for all work necessary to manufacture the parts and this necessarily included any drawings made by GRD [155].  There was no real doubt that Dodson was the commissioner of the works and ownership of the copyright in the GRD drawings resided with it [166].  Mr Gray’s clear expectation was that he would be paid for all and any works undertaken in relation to the Dodson parts [158].  The design drawings were part of the manufacturing process which was what GRD was engaged to do [159]. 

(b)     The Bicknell and GS Works Drawings

Dodson was the owner of the Bicknell drawings [176].  The Bicknell drawings, although arranged between Dodson’s contractor GRD and Bicknell, formed part of Dodson’s commission.  GRD had been engaged to manufacture the parts and detailed drawings were necessary to allow that to occur [165].  Dodson expected to pay for the work and did pay for it [170].

Dodson was the owner of the GS Works drawings [176].  GS Works drawings relating to the selector fork had been arranged by Mr Gray/GRD.  GRD paid cash but did not charge Dodson [171].  Nevertheless Mr Dodson had commissioned GRD to produce the parts which one of Dodson’s directors had envisaged and designed.  The drawings required to undertake that engagement were part of the commission.  Implicit in the arrangement was the promise by Dodson to pay GRD for all steps necessary to perform that task [172].  The decision by GRD to sub-contract did not alter the terms of the commission [173].  It was not the fact of payment that was determinative of the question of commissioning but the antecedent promise to pay.  The fact that Mr Gray elected to absorb the cost of the works himself did not alter the fact that Dodson was ultimately liable to pay for the drawings and the sub-commissioning formed part of the overall commissioning of the works [175].

Copyright Infringement

The evidence of an independent design pathway for the Logiical parts was thin on the ground.  The weight of evidence pointed towards, not away fro,m an inference of copying [186].

A comparison between the Dodson copyright parts and the Logiical parts showed that the Logiical parts were copies of and infringed copyright in the Dodson parts being:

(a)     The Logiical outbasket [192];

(b)     The Logiical gear plate [198];

(c)     The A and B baskets [201];

(d)     The inner basket [208] – [209];

(e)     The A and B pistons [212];

(f)      The selector fork [215]; and

(g)     The clutch assembly [223] – [224].

As to the gear lock and mechanical circlips, there was no direct evidence regarding copying [218].  In relation to imported circlips, there was no evidence at all from which an assessment of the key element of copying could be made [220].

Liability for Copyright Infringement

(a)     GRD

GRD, which manufactured the Logiical parts, had copied the copyright works in breach of ss 29 and 30 [229].

Mr Gray was liable for authorising that copying [231].

Inverness Medical Innovations Inc v MDS Diagnostics Limited (2009) 93 IPR 14.

(b)     Logiical and Mr Hanniford

As to authorisation, there was sufficient evidence from which to draw the necessary inferences on the balance of probabilities that Logiical commissioned GRD to manufacture the Logiical clutch parts knowing that the resulting product would be a copy of the Dodson parts and therefore authorised infringement [236] – [238].

Heinz Watties Limited v Spantech Pty Limited (2006) 8 NZ BLC101,679 (CA) applied.

As to secondary infringement (by possessing in the course of business or dealing with infringing copies) the Logiical clutch parts, selector fork and clutch assemblies were infringing copies [239].  The director of Logiical, Mr Hannaford, had either actual or constructive knowledge (ie had reason to believe) that the Logiical clutch parts and selector fork were infringing copies [241]. As a result Logiical was liable for secondary infringement [242].

There was no statutory liability for authorising secondary infringement but Mr Hannaford was jointly liable with Logiical for committing a restricted act.  He was directly and intimately involved in Logiical’s tortious conduct [247].

Relief

(a)     Damages According to the User Principle

Applying the user principle, the copyright owner was entitled to receive from the infringers the price that would have reasonably been charged for permission or authorisation to carry out each infringing act [250].  The assessment was one of judicial estimation of the available indications.  It was for the plaintiff to adduce evidence to guide the court.  General considerations would be relevant but where there was evidence of actual licensing fees specific to the work and use in question, general evidence was likely to carry less weight.  The notional fee must be assessed in the commercial context as at the relevant time.  That meant that alternative courses of action open to the parties would be relevant in setting the notional fee, as would the value of the infringing use to a defendant [253].

Napier Tool & Die Limited v Oraka Technologies Limited [2016] NZCA 554, [2017] 2 NZLR 611 at [74]; Force India Formula One Team Limited v One Malaysia Racing Team SDN BHD [2012] EWHC 616 (Ch); Oraka Technologies Limited v Geostel Vision Limited [2018] NZHC 769; New Zealand National Party v Eight Mile Style LLC [2018] NZCA 596; General Tire & Rubber Co v Firestone Tyre & Rubber Co Limited [1975] 1 WLR 819 (HL) referred to.

The term of the hypothetical licence was a period of 40 months (25 February 2015 to 15 June 2018) being the first and last dates of invoices for infringing sales [259].  The subject matter was the manufacture and sale of the infringing parts [260].  The territory was both New Zealand and overseas [261].  The licence was non-exclusive [263].

There should be only one notional licensee namely Logiical.  It was the main beneficiary of the breach of the copyright [266].

Oraka Technologies Limited v Geostel Vision Limited [2018] NZHC 769 referred to.

The structure of the notional agreement would be a royalty agreement based on the number of anticipated sales without a fixed fee [278].

As to the royalty rate, the expected profits that each party may reasonably expect to be generated by the notional licence was a relevant factor to be taken into account in assessing the royalty rate [283].  In the absence of any evidence in this case as to what the parties may have considered to be an appropriate profit split between them, the 25% rule ie that the licensee would have paid 25% of the profits to the licensor on each sale of an infringing item, provided a useful starting point [288].  This led to a 20% royalty rate on the facts of this case [288].

Subjective unwillingness of the licensee is irrelevant to the determination of the notional fee as this is incompatible with the assumption of a willing licensor [290] and [291].

New Zealand National Party v Eight Mile Style LLC [2018] NZCA 596 applied.

The impact on Dodson’s business in lost sales in New Zealand and world-wide during the term of such a licence was a factor that would cause Dodson to demand a higher fee [292].  Further, Logiical would have been prepared to pay a higher royalty as the first and only licensee to be able to sell and manufacture Dodson parts [294].  In addition Dodson could make profits from selling non-licensed parts and services and thereby benefit [295].

The extent of copying required an uplift to the 20% royalty [298].  That adjustment or uplift was a matter of judicial estimation.  An overall uplift of 8% for a total royalty of 28% reflected the overall balancing of the factors already considered [302].  Applying this resulted in a rounded damages award of $69,494.00 to be awarded against all defendants jointly and severally [304].

Additional Damages for Flagrancy of Breach

The factors weighing in favour of an additional award of damages were:

(a)     The infringement was flagrant and involved an ex-employee and former manufacturer blatantly reproducing the essential and innovative elements of the Dodson parts;

(b)     The assessment of compensatory damages did not fully reflect the degree of flagrancy;

(c)     It could be inferred that by copying the parts both Logiical and GRD avoided the significant costs involved in designing the parts from scratch;

(d)     Logiical and Mr Hannaford traded off the back of Dodson’s investment in both time and money and promoted the parts as being equivalent to the Dodson brand; and

(e)     Deterrence was relevant [308].

Three factors however suggested that an award should be relatively modest:

(a)          The defendants appeared to be of limited means;

(b)          The sales of Logiical parts were relatively modest and the development of the 22-plate clutch assembly was halted when proceedings were started; and

(c)          There was no evidence that the Logiical sales caused harm to Dodson’s reputation or that Dodson’s business had in any way suffered as a result of the Logiical sales [310].

On the basis of these factors additional damages of $60,000 against all defendants jointly and severally were ordered [312].

Fair Trading Act 1986

Logiical’s statement that “Logiical Performance are New Zealand’s leaders in Nissan R35 GT-R Development” was false or misleading in breach of s 13(1)(b) [321].

Logiical’s supply of Dodson gear locks with the Dodson name shorn off constituted misleading of deceptive conduct in breach of s 9 [325].

Hannaford’s statement that he was the “head mechanic at Dodson performance for 8 years” was a false and misleading statement in breach of s 13(1)(b) [327].

The court was not persuaded that Hannaford’s statement that he “developed all this stuff when I was at Dodson’s” was false or misleading within ss 9, 10 or 13 [329].

Assurances given to Mr Dodson in a letter regarding destruction of unfinished components and tooling, the deletion of files and machine codes, the sale of machines used to manufacture the Dodson parts and the deletion of all hard drives and back ups of Dodson’s information were akin to the enforcement of contractual obligations and GRD’s responses were in the nature of a private undertaking.  This was not the type of conduct the FTA was intending to capture.

Desemone Group Limited v University of Auckland Senior Common Rooms Inc (2002) 2 NZBLC 103,580 (HC); Malayan Breweries Limited v Lion Corp (1988) 4 NZCLC 64,344 (HC).

Declarations were made as to breaches of the Fair Trading Act and orders made requiring Logiical to remove a statement from its website and to deliver up all Dodson gear locks in its possession [381].  Logiical was prohibited from posting the statement on its website again and from supplying Dodson gear locks in the future [382].  Mr Hannaford was prohibited from making the same or substantially the same representations as set out in [326] to [381].

Breach of Confidence

The Confidential Information

The information claimed to be confidential was not about visible aspects of the clutch design nor was it limited to procedures for installing aftermarket parts or information exchanged on group chats.  It was information and knowledge gained through the design, testing and manufacturing processes for the R35 clutch.  This knowledge found its end expression in the clutch parts and ancillary parts themselves but clearly went beyond that which was visible in the part itself.  The pleaded information had the necessary quality of confidence to qualify as confidential information [347].

The Obligation of Confidence

As to whether the information was imparted in circumstances importing an obligation of confidence, there was no doubt that Mr Hannaford received information subject to such an obligation.  Confidentiality obligations were in his employment agreements [349].

As to the position with Mr Gray and GRD, even if confidentiality was not specifically discussed, GRD should have understood that the information given to it by Dodson was confidential and that it could not use the information for its own purposes.  GRD would have understood that innovation and the development of Dodson’s clutch parts was the point of difference between it and its competitors and was the backbone of its business.  There was clear recognition on GRD’s website of the importance of confidentiality to customers and the circumstances in which information would be imparted [352].

AB Consolidated Limited v Europe Strength Food Co Pty Limited [1978] 2 NZLR 515 (CA) referred to.

Unauthorised Use

The cause of action was made out against GRD and Mr Gray.  There was no real doubt that both misused Dodson’s confidential information to manufacture the Logiical parts.  By using Dodson’s commercially sensitive information GRD was able to skip the design, testing and market feedback processes which formed part of the evolution of the Dodson parts.  GRD and Mr Gray wrongfully appropriated that information for their own economic advantage and to manufacture parts in direct competition with Dodson [356].

Breach of confidence against Logiical and Mr Hannaford had not been established [359].

A declaration was made that Mr Gray and GRD breached their duty of confidence owed to Mr Dodson and an order made that they destroy or deliver up any of the confidential information [382].

Conspiracy by Unlawful Means

Observed: The policy considerations in this case weighed against finding that the statutory breaches constituted “unlawful means”.  There was no “gap in the law” that needed to be filled by the conspiracy by unlawful means tort.  The Copyright Act sets out a comprehensive regime for the regulation of the unlawful conduct that issued in this proceeding [365].

Wagner v Gill [2014] NZ CA 336, [2015] 3 NZLR 157 referred to.

The court was not persuaded that the essential element – an intention to injure the claimant was shown.  It was not persuaded that the evidence of a grievance, when weighed together with all the other evidence called at trial, was sufficient to draw an inference that the defendants conduct was targeted at Dodson [371].

As to proof of damage to the claimant, there was no evidence that the conspiracy had in fact caused damage to Dodson.  The only evidence called at trial relating to loss was for the copyright cause of action.  Therefore the cause of action should be dismissed [372].