Permanent Promotions Pty Limited v Independent Liquor (NZ) Limited

Heath J, High Court, Auckland, CIV 2004-404-4219, 10 June 2004

This decision concerned an application by the plaintiff for an interim injunction in proceedings for infringement of a New Zealand registered design. (Breach of copyright was also alleged but was not argued in support of the injunction application). The application was defended on the basis that there was a strong argument that the design was invalid both for lack of novelty and for being dictated solely by the function which it was to perform (purely functional designs are not registrable in New Zealand). The defendant also sought security for costs on the grounds that the plaintiff was resident outside the jurisdiction with no assets in New Zealand.

The registered design in question was for a shot glass featuring a vertical, helical divider giving the glass a twisted appearance and a sealed lid. The design claim however was limited only to the top 10% or so of the glass.

The judge set himself four questions to be answered in determining whether there was a seriously arguable case of infringement:

What was the effect of s25(3) of the Designs Act 1953 which states “the register of designs shall be prima facie evidence of any matters required or authorised by this Act to be entered therein”?
Was the particular design capable of registration under the Act as being non-functional?
Was the particular design capable of registration under the Act as being novel?
Was the defendant’s product impermissibly similar to the plaintiff’s?

In relation to s25(3), the judge held that there is an assumption underlying the scheme of the Act that the Commissioner of Designs examines design applications for compliance with the Act in terms of novelty and the statutory definition of design (which excludes designs solely dictated by their function). He found that registration was therefore prima facie evidence that examination had occurred and that the design satisfied the criteria of the Act. The defendant’s argument that an entry in the register was merely prima facie evidence of the fact that the entry had been made was rejected. In relation to registrability, the judge stated that “the court must be slow to second guess the findings of the Commissioner”.

Evidence had been brought by the defendant that in fact no substantial examination as required by the Act had been undertaken by the Commissioner. The judge said in relation to this:

“On the evidence before me, there is much to be said for the view that the Commissioner’s examination fell well below acceptable standards. But, I am not prepared to make any findings in that regard as the Commissioner has not yet been heard on the issue”.

Unusually, and perhaps uniquely, as a consequence the judge exercised his power under the Act to direct the Commissioner to appear before the Court at the trial to explain the examination process.

The judge held that the fact of registration conferred a prima facie right sufficient to overcome the hurdle of establishing that a serious question exists to be tried. He said further that the onus on a defendant who counterclaims in a situation such as that is heavy.

In relation to the functionality of the challenged design, the judge referred to the Privy Council’s observations in Interlego AG v Tico Industries Inc [1989] 1 AC 2.7 but declined to express a final view on the exact test for functionality to be applied. The judge stated however that the defendant’s argument that the design was void for functionality was “strongly arguable” although not sufficient to overcome the prima facie presumption of validity.

The judge also declined to rule as to the similarity of the designs, however the defendant had not seriously contested this point separately from the functionality argument.

The balance of convenience was held to be in “a state of equipoise” favouring neither party.

The judge considered that the interests of justice would best be served if an interim injunction were issued, an expedited trial ordered, and leave reserved for the defendant to apply to the Court for a declaration that any modified design of shot glass would not breach the design or the injunction. The plaintiffs were also ordered to post a bank guarantee supporting their undertaking as to damages.

Comment

This case gives significant protection to registered design owners in New Zealand. The presumption of validity of a registered design is very strong. If this decision were to be followed, then defending an interlocutory injunction application on the grounds that the design is arguably invalid appears to require extraordinarily strong evidence of such invalidity. In this case, an injunction was awarded despite the judge recognising both that the examination of the design application (upon which a presumption of validity must rely) had probably been insufficient and that the defendant had a “strongly arguable” case of invalidity based on functionality. It seems that for an alleged design infringer to resist an injunction, it must prove that the registered design is certain to be invalid. This puts such parties in a difficult position especially as there is no opposition procedure in the New Zealand design regime and examination standards appear to be below that required by the Act.

Interestingly, in Australian proceedings (Permanent Promotions Limited v Independent Liquor (Australia) Pty Limited [2004] FCA 794, Heerey J, 18 June 2004) between the same plaintiffs and the defendants related Australian company regarding a virtually identical registered design, an injunction was refused despite functional designs being registrable under the Australian legislation. Heerey J said:

“Where a firm has a genuine belief on reasonable grounds that a rival’s intellectual property is invalid or that a rival’s product may be contested with a non-infringing product, there is no reason why that firm should not enter the rival’s market. Especially that is so, when as in the present case, the firm takes prompt legal action to challenge the validity of the rival’s intellectual property.”

Heerey J also took a similar approach in World Brands Management Pty Limited v Cube Footwear Pty Limited [2004] FCA 769. It seems that the prima facie protection afforded to registered designs in Australia is significantly lower than that now applied in New Zealand.