This was the second appeal from a substantive decision in a long running dispute concerning copyright in asparagus grading machinery.

The third appellant (Schwarz) had developed a grader for automatically sorting asparagus spears and in 1993 commissioned the third respondent (Napier Tool) to manufacture a cup assembly (the Schwarz cup assembly) for the grader (the Oraka Grader). The relevant copyright works for the purposes of the appeal were certain preliminary drawings produced (under commission) by Napier Tool (the 1993 drawings).

The first respondent (Oraka Technologies) was the first Schwarz related company to exploit the Oraka Grader. When it ran into difficulties in 1996, a new company (Oraka Holdings) was used as a vehicle for commercial activity associated with the Oraka Grader. Oraka Holdings was eventually wound up, and the dies for the Oraka Grader were assigned to a third party. 

The Schwarz cup assembly was subject to wear and required replacement over time, so there was an ongoing market for the provision of replacement cup assemblies. In 2001, the first respondent (Geostel) developed, with the involvement of Napier Tool, a replacement cup assembly for the Oraka Grader to compete with the Schwarz cup assembly (the Geostel cup assembly). Evidence showed that reference was made to the Schwarz cup assembly at a meeting between Geostel and Napier Tool, and that drawings made at the meeting replicated aspects of the Schwarz cup assembly. Twelve days after that meeting Geostel had completed computer models of the Geostel cup assembly. There was no evidence that Napier Tool referred to the Schwarz computer models it held during the Geostel cup assembly design process. 

Before proceeding with manufacture of the Geostel cup assembly, Napier Tool obtained written advice from a patent attorney that there was no copyright breach as the two cup assemblies explained the same concept in a different manner.

The performance of the Geostel cup assembly was initially unsatisfactory. Modifications were made to correct this which the appellants claimed drew on the Schwarz cup assembly. Evidence showed that Geostel’s personnel made numerous suggestions to Napier Tool that it look to the Schwarz cup assembly for solutions. The respondents contended that they set out to solve the practical problems in their own way, albeit by reference at time to what the appellants were doing, to avoid or solve similar problems.

The appellants’ principal allegation was that Geostel and Napier Tool infringed copyright in the 1993 drawings by manufacturing and selling copies of the appellants’ copyright works.

Napier Tool also argued that the appellants lacked standing. It argued that business efficacy required that a term be implied by operation of law that copyright in the 1993 drawings was transferred to Oraka Holdings in 1996 along with the commercial activity associated with the Oraka Grader, and that such copyright was later transferred to the third party and therefore out of the appellants’ hands.

Allan J in the High Court held that Oraka Technologies was the owner in the copyright works, but that there had been no copyright infringement, because sufficient objective similarity between the 1993 drawings and the Geostel cup assembly was not made out (despite finding substantiality and a causal link).

Allan J noted that this was “one of those rare cases” where, notwithstanding clear evidence of the use of the appellants’ work as a starting point, the appellants’ claim nevertheless failed for lack of objective similarity. In particular:

(a)  The dimensions and parameters of asparagus grading machines in general were functional constraints imposed by third party technology, which imposed the same restraints on both parties; [63]

(b)  The similarities between the cup assemblies were therefore no greater than might be expected if completely independently designed; [61]

(c)  Certain aspects of the cup assemblies were likely constrained by the function of grading asparagus generally in standard industry practice; [61]

(d)  Certain dimensional similarities were not sufficient alone to establish objective similarity; [62]

(e)  In respect of a number of features in the two cup assemblies, common principles were expressed quite differently. [62]

In the related costs judgment (also appealed), Allan J awarded additional costs against the appellants for pursuing flagrancy claims against the respondents that in his view should not have been made.

The issues on appeal were:

(a)  Did the first appellant (Oraka Technologies) own the copyright works?;

(b)  If Oraka Technologies owned the copyright works, was copyright infringed?;

(c)  Should there have been a finding of flagrancy?; and

(d)  What was the appropriate remedy?

Held, allowing the appeal in part, finding that the respondents had infringed copyright, but that there was no flagrancy:

Ownership of copyright

(1)  The High Court was correct to conclude that Oraka Technologies owned copyright in the Schwarz cup assembly, and that it had not been assigned to Oraka Holdings by operation of law, and had not been further assigned to the third party, as contended by Napier Tool.
 
(2)  Assignment by operation of law occurs when, without any voluntary act on the part of the owner, ownership passes such as might arise upon intestacy or bankruptcy or by an order of the Court. “Operation of law” does not apply to the implication of a term in a contract voluntarily entered into. [76]

(3)  There was no necessity for an implied term that copyright in the Oraka componentry passed to Oraka Holdings when it took over the Oraka Grader business in 1996, since a licence would suffice. [77]

(4)  There was no evidence of an assignment of goodwill from Oraka Technologies to Oraka Holdings in writing (as required by the Copyright Act) nor of the sale and purchase of assets by Oraka Holdings. Oraka Technologies simply ceased to trade in asparagus graders and Oraka Holdings took over the business formerly conducted by it. [78] Further, the assignment to the third party was of the dies (not copyright) and was by way of security only.

(5)  Copyright had therefore not been transferred to Oraka Holdings and Oraka Holdings could not have transferred it to the third party. [79]

Infringement by copying

(6)  The leading test for infringement by copying was established in Wham-O Mfg Co v Lincoln Industries Limited. The three main elements are substantiality, objective similarity and causal connection. [85]

Wham-O Mfg Co v Lincoln Industries Limited [1984] 1 NZLR 641 (CA) applied.

(7)  The Court in Wham-O did not mandate the order in which the factors were to be considered. The most logical ordering will usually be first to examine whether there is objective similarity before turning to the question of causation and finally substantiality. [86]

(8)  The “substantiality” test can be regarded in part as a practical threshold designed to limit claims of infringement to those that are real and substantial. The appropriate place to apply such a practical test is at the end once copying is established. It also means the issue of substantiality is decided on the basis of what is actually found to have been copied rather than on wider allegations. The High Court erred in applying the substantiality test to the appellants’ allegations rather than to what was actually copied. [87]

(9)  Evidence that there are functional constraints on a design can be evidence supporting an inference of an independent design path (and therefore no causation). It can also be important in assessing whether a substantial part has been copied. [88]

Causal connection

(10)  Where a claimant’s and a defendant’s works are objectively similar, there are four possible explanations: the defendant copied the claimant’s work; the claimant copied the defendant’s work; both arose from a common source; or the similarities occurred through chance or coincidence. It is only in the first case (i.e. where the defendant copied the claimant’s work) that infringement occurs. No infringement occurs by an act of independent creation. [113]

(11)  In most cases copyright can only be deduced by inference from all the surrounding circumstances. It is unusual for there to be evidence of actual copying. [114]

(12)  Causality is the “ultimate issue” in a copyright case. The degree of similarity between two works has evidentiary significance and is of assistance in satisfying causality. If an alleged infringer has access to, and therefore an opportunity to copy, and the similarity between the works supports an inference of copying, it may well be appropriate for the Court to conclude that there was copying. This is subject always to the evaluation of any evidence that no copying actually took place. [114]

Henkel KGaA v Holdfast New Zealand Limited [2007] 1 NZLR 577 at [43] referred to.

(13)  Evidence of independent design will assist in rebutting any inference of copying. The fact that a defendant fails to give evidence to indicate how the alleged infringing work was produced can be taken into account.

UPL Group Limited v Dux Engineers Limited [1989] 3 NZLR 135 (CA) referred to.

(14)  It was absolutely clear from the evidence that there was not an independent design path for the Geostel cup assembly. An independent design path would have started with the Oraka Grader or with general functional constraints of the product. Instead the design path undertaken by Napier Tool took as a starting point the Schwarz cup assembly. [119] This was clear in part because of the numerous suggestions to Napier Tool that specific issues with the Geostel cup assembly be resolved by reference to solutions found in the Schwarz cup assembly. [125]

(15)  The judge ought to have drawn a negative inference from the respondents’ failure to call as a witness the only person who knew whether the Schwarz material, held by Napier Tool, was referred to in the design process. In this regard, the speed with which the Geostel design was produced (i.e. 12 days) was also relevant. [124]

Thornton Hall Manufacturing Limited v Shanton Apparel Limited [1989] 3 NZLR 304 (CA) referred to.

(16)  Since there was direct evidence of copying, Allan J did not misstate the law by concluding that, if the appellants established objective similarity, that would have been the result of the defendants’ copying. [126] and [127]

Substantial part

(17)  The essential test is whether a claimant can show substantial use by the defendant of those features of the claimant’s work that, by reason of the knowledge, skill and labour employed in the production, constituted it as it an original copyright work. It is wrong to jump to the conclusion that a substantial part was taken simply on the basis that copying occurred. What constitutes a “substantial part” is necessarily a question of fact and degree. The quality or importance of what has been taken is much more significant than the quantity. [129]

Bonz Group (Pty) Limited v Cooke [1994] 3 NZLR 216 and Henkel KGaA v Holdfast New Zealand Limited, supra at [44] referred to.

(18)  If similarities between two works are dictated by the function of the item, then the similarities are an inevitable consequence of the object and its function rather than the labour and skill of the claimant, against whose misappropriation the law of copyright seeks to protect. [137]

(19)  If the claimant’s design is very ordinary (common place) given the constraints imposed by the function of the object and there is nothing new added, then the originality of the claimant’s work might be non-existent or so low that the defendant can easily avoid breach by adding something of his or her own design. [132]

Farmers Build Limited (In Liq) v Carier Bush Materials Handling [1999] RPC 461 (CA) referred to.

(20)  The constraints imposed by the need for the cup assembly to be compatible with the Oraka Grader and the third party technology included in that grader were specific to the Oraka Grader and therefore could not be considered functional constraints. [139]

Tidd Ross Todd v Steelbro New Zealand Limited, HC Christchurch, CIV 2004-409-1386, 1 December 2005 distinguished.

(21)  There is no spare parts exception in New Zealand, and it was not submitted that the way in which the Oraka Grader was built was the only way that an asparagus grading machine could be built. [139]

Mono Pumps (New Zealand) Limited v Karinga Industries Limited (1986) 7 IPR 25 (HC) and Husqvarna Forests & Garden Limited v Bridon New Zealand Limited [1997] 3 NZLR 215 referred to.

(22)  The issue was whether, discarding certain similarities that were due to true functional constraints, the Geostel cup was a copy of a substantial part of the Schwarz cup assembly. It was. The respondents copied a number of elements that, while not functional in the true sense, nevertheless possessed a low level of originality. These elements were still protected, although this protection was not great. It was significant that both experts agreed that the Geostel cup appeared to be a second generation of the Schwarz cup. The respondents had infringed copyright. [145] to [146]

Flagrancy

(23)  The appellants’ plea for an order that the respondents deliberately and flagrantly reproduced the work failed including in circumstances where Napier Tool had obtained legal advice confirming that they were not infringing the appellants’ copyright. [151]

Remedy

(24)  It was appropriate for the matter to be remitted to the High Court for an inquiry into damages. [156]