Contentspage 238 50 shades of infringement: fan fiction, culture and

copyright

Paul Kallenbach and Anthony Middleton MINTER

ELLISON

page 246 Patent eligibility of diagnostic methods in Australia

versus the United States

Ylva Strandberg Lutzow CULLENS

page 250 Common signs, concealed meanings: Cantarella,

coffee and the inherent adaptability of words

Campbell Thompson BARRISTER

page 258 Copyright law in the fashion world — same old

problems

Catherine Logan LEGAL VISION

page 262 Protecting GUI Designs in Australia: more questions

than answers

Stuart Irvine FREEHILLS PATENTS ATTORNEYS

page 265 Trade marks in business — you’ve gotta fight (for

your naming rights)

Katie Dillon KING & WOOD MALLESONS

page 271 Tax implications of IP transactions: a brief overview

Samin Raihan GRIFFITH HACK LAWYERS

page 277 Breach of confidence in commercial settings:

Australian Medic-Care Co Ltd v Hamilton

Pharmaceutical Pty Ltd

Dr Jenny Ng CHARLES DARWIN UNIVERSITY

page 282 Falling in line with reg 5.9! Exploring what it takes

to be “reasonable”, “prompt”, “diligent” and

“exceptional” during a patent opposition

Donna Meredith WRAYS

page 287 Jeans go West — big time

Kate Tidbury and Earl Gray SIMPSON GRIERSON

page 290 Copyright in databases: the spectre of IceTV lives on

Tim Golder, Adrian Chang and Scott Joblin ALLENS

page 296 Utility models in China: “small” inventions, big

outcomes

Renee White WATERMARK

page 300 Competition not to be discounted: Verrocchi v Direct

Chemist Outlet Pty Ltd

Nicholas McConnell BECK LEGAL

Editorial Panel

General EditorSharon Givoni

Solicitor, Melbourne

Editorial BoardSue Gilchrist

Partner, Herbert Smith Freehills,SydneyMiriam Stiel

Partner, Allens, SydneyAllison Manvell

Senior Associate, Baker & McKenzie,SydneyJohn Fairbairn

Partner, Minter Ellison, SydneyDavid Yates

Partner, Corrs Chambers Westgarth,Perth

2015 . Vol 28 No 9–10

Information contained in this newsletter is current as at November/December

2015

50 shades of infringement: fan fiction, cultureand copyrightPaul Kallenbach and Anthony Middleton MINTER ELLISON

Key points

• Some forms of fan fiction are works which are

protected under Australian copyright law.

• Rights holders may be able to enforce their own

copyright against creators of fan fiction. However,

doing so may not only impede fan fiction creators’

freedom of expression but harm rights holders’

own business interests.

• Moral rights provisions under Australian copy-

right law provide both individual rights holders

and fan fiction creators with another means of

protecting their respective rights.

• Asserting a liability that a fan fiction creator does

not in fact have can constitute an unjustified threat

under Australian copyright law or misleading and

deceptive conduct under the Australian Consumer

Law.

• The Copyright Amendment (Online Infringement)

Act 2015 (Cth) may further sway the balance of

protection in favour of rights holders of the

underlying works.

IntroductionThe internet has unleashed expression and creativity

on an unprecedented scale,1 spurred by the ready access

by billions to a global platform that enables anyone to be

a publisher. Yet despite its facilitation of the further

progress of Science and the useful Arts,2 the internet’s

interface with copyright law continues to be an uneasy

one. This tension — between copyright law on the one

hand, and technology and evolving consumer behaviour

on the other — is exemplified in the realm of fan fiction.

Fan fiction, as we know it, has existed since at least

the 19th century.3 The internet has spurred its growth, as

likeminded fan fiction authors gather in chat rooms and

on internet forums and websites to create, discuss and

disseminate works based on their favourite stories.4 One

of the most popular fan fiction websites, www.fanfiction-.net, contains more than 700,000 stories derived from

Harry Potter alone.5 Fan fiction exemplifies the “prosumer”

or “semiotic democracy” of Web 2.0, where mash-ups,

parodies, remixes and fan tributes of cultural icons

ranging from Harry Potter to Twilight, from Barbie to

Gone with the Wind, are the norm.6

The growth of fan fiction may be beneficial to rights

holders, as it increases the community’s interest in their

underlying work, and therefore the potential for increased

sales of that work. Nevertheless, some rights holders

perceive it as a commercial threat and an infringement of

the underlying work. To the extent that rights holders

choose to wield the law of copyright against fan fiction

creators, an Australian court may be called upon to

determine the appropriate balance between fan fiction

writers’ creativity and freedom of expression on the one

hand, and rights holders’ legitimate commercial interests

in their underlying works on the other.7

What is fan fiction?The term “fan fiction” covers a wide range of works.

Rebecca Tushnet defines it as “any kind of written

creativity that is based on an identifiable segment of

popular culture, such as a television show, and is not

produced as ‘professional writing’”.8

However, Tushnet’s definition is arguably too narrow.

Fan fiction’s ambit arguably extends beyond “written

creativity”, and into the realm of video, animation and

video games. An example of this is “machinima”, which

uses existing video game character models and back-

drops to create new stories. A popular incarnation of

“machinima” is the animation series Red vs Blue, which

is based on iterations of the video game Halo. The

series, which first aired in 2003, follows two teams of

soldiers (red team and blue team) who are based on

character models that represent the elite “Spartan”

soldiers. In contrast to the Halo video game storyline,

many of the characters in Red vs Blue are depicted as

incompetent and liable to become embroiled in increas-

ingly bizarre scenarios.

Moreover, fan fiction is not necessarily confined to

the realm of amateurs. One of the most popular contem-

porary works of fiction, 50 Shades of Grey, was initially

conceived as a fan fiction work of the equally popular

intellectual property law bulletin November/December 2015238

Twilight series.9 The author of 50 Shades of Grey, E L

James, created a number of versions of the book,

refining it until it was published under its final title.10

Similarly, Naomi Novik is the published author of the

Temeraire series of novels, which are “a reimagining of

the epic events of the Napoleonic Wars with … an air

force of dragons”.11 Novik began her career as a video

game designer who wrote online fan fiction based on the

historical universe of the Master and Commander books.

The Temeraire series is partly inspired by those books,

and by Novik’s belief that interest in Napoleonic era

settings could be spurred by including fantasy elements

in her work.12 James and Novik, like their amateur fan

fiction counterparts, build on characters, settings, scenes

or other elements of popular existing works. And though

such elements may become woven into the fabric of

cultural discourse, the monopoly that copyright law

confers may nevertheless be wielded against their use.13

ThebenefitsoffanfictionandfancommunitiesLegal commentator Nathaniel Noda contends that

fan-based works can be categorised according to whether

they “complement” the underlying work or “compete

with” that work.14 Noda’s dichotomy exposes the ten-

sion between fan fiction creators and the authors of

underlying works.15 While fan fiction creators would

assert that they are building on and improving previous

works (for example, by creating an extended timeline or

story universe), many rights holders are primarily con-

cerned with the profitability of the underlying work.16

Fan fiction writers point to the commercial benefits

that a permissive attitude towards fan fiction may yield

for rights holders. In the case for Star Trek and DoctorWho, for example, fan communities sustained interest in

those works for decades after their original airings,

facilitating the subsequent creation of spin-off TV series

and “reboot” films.17

Further, when combined with sanctioned advertising,

fan fiction may assist in promoting the underlying work.

In many cases, print and advertising costs of major

studio released films now account for approximately

half the negative cost of production.18 Rights holders

can seek to mitigate these costs by encouraging less

mainstream (and less expensive) forms of advertising or

promotion — fan fiction among them.

Finally, failing to recognise the benefits of fan fiction

may have adverse public relations consequences. In

2001, for example, Warner Brothers sent a number of

cease and desist letters to online organisers of fan fiction

websites dedicated to Harry Potter.19 Many fans who

ran or contributed to those websites were children, who

had little knowledge of their legal rights and obliga-

tions.20 When a group of fans subsequently publicised

their strong dissent to the studios’ approach, Warner

Brothers backed down.21

In some countries outside of the US, fan fiction

creators have less fraught relationships with rights

holders. For instance, Japanese authors of a type of fan

fiction called doujinshi (also known as “copycat com-

ics”) take characters and background features from

manga, anime and video games, and use these elements

to create new storylines.22 Japanese rights holders are

usually tolerant of this behaviour and even allow the

authors to earn a profit from their work.23 There are,

however, apparent limits to this permissiveness — such

as where a doujinshi creator took characters from

Pokemon to create a pornographic work.24 Nintendo, as

copyright owner, claimed that this work was “destruc-

tive” of the Pokemon image, and the creator was

subsequently arrested and prosecuted for criminal copy-

right infringement.25

Protecting copyright in fan fictionThe vast majority of fan fiction works will never

enjoy the success of 50 Shades of Grey. From a

copyright perspective, however, there is no requirement

of “literary merit” for copyright to subsist in a work of

fan fiction. The relevant test, rather, is whether work is

one intended to afford “information, instruction, or

pleasure in the form of visual enjoyment”.26 The literary

quality, merit or success of a work (be it fan fiction or

otherwise) is irrelevant from a copyright perspective.

A work also must, however, articulate more than an

idea to be protected by copyright — a distinction known

as the idea-expression dichotomy.27 Copyright does not

protect ideas but the expression of those ideas, and a

work is more likely to be protected by copyright where

the idea of the underlying work can be expressed in a

number of different ways.28 For example, the Federal

Court has held that the phrase “Help-Help-Driver in

Danger call Police Ph 000” does no more than articulate

an idea, and it would be untenable to afford the pur-

ported rights holder a monopoly on that idea.29 The

thought underlying the phrase — that a driver needs

assistance and that someone should call the police —

could not be separated from its expression and as a

result, the phrase was, according to the court, not

deserving of copyright protection.30

Although fan fiction creators may appropriate ele-

ments from other works, this does not necessarily

invalidate their own claim of copyright protection. Fan

fiction creators will usually add their own expression to

those elements. For example, the creators of Red vs Blueformulated their own storylines and characters, using the

character models from Halo, rather than adapting or

intellectual property law bulletin November/December 2015 239

extending the main storyline. Similarly, in 50 Shades ofGrey, E L James added new characters (Anastasia Steele

and Christian Grey) as proxies for Twilight’s Isabella

Swan and Edward Cullen. In the latter case, it would not

be immediately apparent to someone reading both works

that one is derived from the other, despite the fact that

the story structure and ideas are quite similar.31 Ulti-

mately, whether copyright subsists in fan fiction works

will depend on whether the work is the product of

“independent intellectual effort”.32 This effort must be

directed towards the form of expression of the fan fiction

work so as to distinguish itself from the underlying

work.33

Protecting copyright in the underlying workThere is scant case law on copyright issues involving

fan fiction, as most claims by rights holders against fan

fiction creators are resolved before they reach the courts,

with little reference to the legitimacy of the asserted

rights.34

Under both Australian and US copyright law, the

nature of the underlying work — that is, whether the

work is a literary, musical or artistic work, or falls within

certain other subject matter — determines the bundle of

exclusive rights conferred on authors. Moreover, under

US law, copyright holders have the exclusive right to

prepare “derivative works” which can be asserted against

creators of unsanctioned fan fiction.35 To succeed in

such an action in the US, the copyright holder must

demonstrate that they own a valid copyright in the

underlying work, the alleged infringer actually copied

that work (or a substantial part of it), and the copying

amounted to an improper appropriation.36

The Australian Copyright Act 1968 (Cth) does not

confer on creators of works and other subject matter the

exclusive right to create “derivative works”. Rather, in

the case of literary works, the copyright owner has the

exclusive right to copy, reproduce, publish, perform and

adapt the work, as well as communicate the work to the

public.37 Video games, on the other hand, are considered

to be “cinematograph films”, and rights holders have the

exclusive right to copy and perform such works as well

as communicate them to the public.38 Infringement

depends on whether one of the above acts is done in

relation to the whole or a substantial part of the work.39

In Australia, the closest analogy to the exclusive right

to create “derivative works” is the right to adapt a

literary work. The definition of adaptation relevantly

includes “a version of a literary work in a non-dramatic

form … in a dramatic form”, “a version of a literary

work in a dramatic form … in a non-dramatic form” and

“a version of a literary work … in which a story or

action is conveyed solely or principally by means of

pictures”.40 This definition could arguably cover fan

fiction works in the form of dramatic scripts, screen-

plays, comic books or graphic novels derived from an

underlying literary work.41

There are no bright lines in Australian copyright law

as to what constitutes a “copy” or “adaptation” of an

underlying work.42 It is arguable that many fan fiction

works copy or adapt a substantial part of the underlying

work through their particular expression of characters,

settings and storylines. Infringement will depend on the

extent to which the fan fiction work appropriates these

aspects of the underlying work both individually and in

combination with other elements. By way of example, in

1982, the Victorian Supreme Court granted an interlocu-

tory injunction against the makers of the film GreatWhite in favour of the copyright holders of the film

Jaws.43 Justice Gray found that the plaintiff had “an

excellent chance at the trial of proving an infringement

of its copyright” and described in detail the extent to

which Great White had copied the main characters,

settings and storyline from Jaws.44 His Honour found

that Great White went beyond copying these basic

elements to faithful reproductions of “singular events”.45

The case provides a somewhat blatant example of

copying. By contrast, fan fiction works will usually

appropriate a smaller number of elements from the

underlying work and, even then, may deliberately distort

those elements as to express something else entirely.

Blatant copying of the underlying work, after all, is

likely to be viewed by the fan community as anathema

to fan fiction’s objective of extending, enhancing or

adding value to the underlying work.

Great White and Jaws fell within a class of films

“based upon the idea of a savage monster menacing a

community”.46 Genre films of this nature often contain

“scènes à faire”. These are scenes which are difficult to

express in another way but are nevertheless “indispensible”.47

US copyright jurisprudence has adopted a doctrine of

“scènes à faire” which arose from the use of stock

characters and features of dramatic works.48 The doc-

trine now protects stereotyped expression and standard

or common features in a wide variety of works. Copy-

right law will only intervene where there is a “virtually

identical” copy of the original work that are “scènes àfaire”.49

Similarly, Australian law recognises that “[o]f neces-

sity certain events, incidents or characters are found in

many books and plays” and that where a story is based

on various common incidents, “a claim for copyright

must be confined closely to the story which has been

composed by the author”.50 This gives a broader scope

for fan fiction creators to adopt characters and particular

expression from genre films and other works which have

limited scope for alternative expression. Applying the

Jaws example, such a scene may include where the

intellectual property law bulletin November/December 2015240

protagonist is being chased through the ocean by a

savage monster, since there are a limited number of

ways in which this scene can be expressed but such a

scene may be considered “indispensible” to the overall

work.

Defences for copyright infringementThere are defences available against copyright infringe-

ment under both Australian and US copyright law.

However, despite strong briefs to the US federal circuit

courts, these defences do not always protect fan fiction

creators when they have infringed the underlying work.51

Under the US “fair use” doctrine, whether fan fiction is

protected depends on the extent to which:52

• it transforms the underlying work (that is, takes a

part of the underlying work and adds something

new);

• it is expressive rather than informative;

• it has a purpose beyond mere copying; and

• it harms the market for the underlying work and

potential derivative works.

The equivalent defence to “fair use” in Australia is

“fair dealing” but this is narrower in scope than “fair

use”, and covers specific categories of use, namely,

whether the use is for the purpose of research or study,53

criticism or review,54 parody or satire55 or reporting of

news.56 In the case of literary works, there is also a fair

dealing defence in relation to the giving of professional

advice by a legal practitioner, patent attorney or trade

marks attorney.57

While some fan fiction works may fall within the

parody or satire defence, it is unlikely that any of the

other categories of “fair dealing” will apply. As with the

issue of infringement, the scope of the parody or satire

defence in the context of fan fiction works remains

untested in Australia.

Remedies for copyright infringementIn Australia, compensatory damages or account of

profits are available as remedies for copyright infringe-

ment.58 As an additional or alternative remedy, rights

holders may seek an injunction to prevent infringement

of the underlying work.59

In addition, the recently enacted Copyright Amend-

ment (Online Infringement) Act 2015 (Cth) (Online

Infringement Act) may enable rights holders to apply to

block access to entire fan fiction websites.

The Online Infringement Act was introduced as a

response to the increase in the use of peer-to-peer file

sharing websites (such as “ThePirateBay”) but its pro-

visions may also cover fan fiction websites (such as

www.fanfiction.net).60 To block a website, a rights holder

would need to show that the website in question has the

“primary purpose” of copyright infringement or facili-

tating copyright infringement.61 Of course, fan fiction

creators do not generally seek to disseminate the under-

lying works on these websites but rather their own

works. Nevertheless — adverse publicity considerations

aside — an aggressive rights holder that considers a fan

fiction community to constitute a commercial threat may

consider blocking an entire website as a convenient

remedy, and one that circumvents the practical difficul-

ties of identifying and taking action against individual

infringers on the internet.

Moral rights protectionAustralian copyright law also protects an author’s

“moral rights”. Moral rights are, however, only con-

ferred on the individual (human) author of the work, and

cannot be transferred or assigned.62 Both the authors of

the underlying work, as well as the fan fiction work,

enjoy moral rights protection. The moral rights con-

ferred on authors are their right of attribution of author-

ship,63 their right not to have authorship falsely attributed,64

and their right of integrity of authorship in respect of

their works.65 The last right includes their right not to

have the work subjected to derogatory treatment.66

It is the moral right relating to derogatory treatment

that is most relevant to fan fiction works. More particu-

larly, an author concerned about the integrity of their

work may assert that a fan fiction work materially

distorts, alters or otherwise mutilates the underlying

work in a way that is contrary to their moral rights.67 A

key consideration in such an action is whether the fan

fiction work has been created in a manner that is

prejudicial to the author’s honour or reputation.68 Courts

outside of Australia have considered similar provisions.

In Canada, the Ontario High Court held that Christmas

decorations draped around a sculpture were capable of

infringing the sculptor’s moral rights.69 The court con-

sidered that the words “prejudicial to his honour or

reputation” (in the equivalent Canadian law) involves “a

certain subjective element or judgment on the part of the

author so long as it is reasonably arrived at”.70 The test

therefore comprises both subjective and objective ele-

ments. Subsequent Canadian cases have emphasised the

importance of the objective limb, and have relied on

public or expert opinion.71

There is little by way of Australian case law on moral

rights, and therefore little direction as to how such rights

might be applied in the fan fiction context.72 Neverthe-

less, one benefit of moral rights protection (insofar as an

author of the underlying work is concerned) is that it

may fall within the jurisdiction of the Federal Circuit

Court of Australia.73 Although this court mostly deals

with family and employment law matters, it is also open

intellectual property law bulletin November/December 2015 241

to individual litigants who are not seeking substantial

damages to apply without the need for formal plead-

ings.74 This lack of formality, and the relatively low cost

of access to the court, may be an attractive avenue for an

author seeking to take action against fan fiction works.

Protection for fan fiction creatorsThe Australian Federal Court has recently observed

that consumers may be protected from speculative

invoices issued by copyright holders if such claims are

considered to be misleading or deceptive.75 A copyright

claim may be misleading or deceptive where it repre-

sents to a consumer a liability that they do not have.76 It

may also be misleading or deceptive to represent to a

consumer that their potential liability is “higher than it

could ever realistically be”.77 The majority of fan fiction

is not created out of a profit motive. Accordingly, it may

be difficult for a rights holder to show that they have

suffered loss for which they should be compensated.

Nevertheless, loss may be proven where a work of fan

fiction has undermined the market for the underlying

work, causing a decrease in sales. This may have been a

relevant consideration for Nintendo in relation to the

creation of the pornographic doujinshi based on Pokemon.

The work could potentially have threatened the family

friendly image of Pokemon, causing parents to avoid

buying Pokemon products for their children. It may also

be easier to obtain damages where the creator of the fan

fiction work sells their work, since that creator may be

liable to account for any profits made.78

Australian copyright law also contains sanctions

against rights holders who make unjustified threats of

litigation.79 A fan fiction creator may seek an injunction

against the continuance of the threats, a declaration to

the effect that the threats are unjustifiable, or recover

damages they have sustained arising from the threat.80

Australian courts have considered similar provisions in

the context of the Patents Act 1990 (Cth), and have held

that a communication constitutes an unjustified threat

where it would convey to any reasonable person “that

the author of the [communication] … intended to bring

proceedings for infringement against the person” and

there is no legal basis for making that assertion.81 Such

a threat may be unjustified even if it is made in good

faith.82

Of course, many fan fiction creators may not have the

resources to enforce these rights in court, or may be

unaware of them, and therefore more likely to submit to

the rights holders’ demands.83 In any event, the presence

in the fan fiction work of elements of the underlying

work — such as characters, settings, scenes or storylines

— may be sufficient to confer on the rights holder an

arguable case that the fan fiction creator has infringed

their copyright.

ConclusionWhen reflecting on Master and Commander, Naomi

Novik asked herself “How can I add to it? Zombies or

dragons or magic?”84 Fan fiction works, by their nature,

appropriate aspects of other works, and reuse, reappropri-

ate, extend, interpret or enhance them. The internet, with

its global reach and near instantaneous nature, has

facilitated the rapid growth of fan fiction communities.

Unfortunately, copyright law, with its origins firmly

rooted in the idealised conception of the romantic author

— the solitary artist scribbling away in an unheated

garret85 — does not always reflect the way in which

works are created in the Web 2.0 era of mash-ups, cover

versions, remixes, parodies, commentaries and fan trib-

utes.86

It seems unlikely that Australian copyright law’s

current shortcomings in the context of fan fiction — and,

in particular, the lack of a broad based “fair use” defence

— will be addressed by the Australian Parliament, at

least in the short term.87 In the absence of legislative

reform, it will continue to fall to the judiciary to find an

appropriate balance between the legitimate interests of

rights holders, and the contributions of myriad fan

fiction creators to the literary and cultural milieu.

Paul Kallenbach

PartnerMinter Ellisonpaul.kallenbach@minterellison.comwww.minterellison.com

Anthony Middleton

GraduateMinter Ellisontony.middleton@minterellison.comwww.minterellison.com

Footnotes1. By the end of 2015, the total amount of data traffic will amount

to 1 zettabyte. In simple terms, if a 325 ml coffee cup is 1

gigabyte, then 1 zettabyte would have the equivalent volume of

the Great Wall of China; C Gorey “More data to be created in

2019 than in history of the internet” (28 May 2015) Siliconrepublic,

available at www.siliconrepublic.com/comms/2015/05/28/more-

data-to-be-created-in-2019-than-history-of-the-internet.

2. Article I s 8 of the United States Constitution enshrines the

seminal principle of balancing authors’ rights with scienctific

and artistic development. This was also recognised 70 years

prior, in the UK Copyright Act 1709 (Statute of Anne), which

was enacted not only to protect authors’ rights but also for the

“Encouragement of Learning” and composition of “Useful

Books”.

intellectual property law bulletin November/December 2015242

3. J Bay Re-writing publishing: fan fiction and self-publication in

urban fantasy (MA Thesis), The University of Lethbridge,

2014 at p 10.

4. P McKay “Culture of the future: adapting copyright law to

accommodate fan-made derivative works in the twenty-first

century” (2011) 24(1) Regent University Law Review 117 at

121.

5. Fanfiction.net, Books, available at www.fanfiction.net/book.

6. M Wong “‘Transformative’ user-generated content in copyright

law: infringing derivative works or fair use?” (2008) 11(4)

Vanderbilt Journal of Entertainment and Technology Law 1075

at 1077, cited in P Kallenbach and J Childs, “Of kookaburras

and Campbell’s soup cans — copyright and cultural icons in a

sunburnt country” (2011) 23(10) Australian Intellectual Prop-

erty Law Bulletin 178 at 179.

7. Although this article focuses on copyright infringement, other

causes of action may be available for the rights holders of

underlying works, such as the tort of passing off, or misleading

or deceptive conduct under s 18 of the Australian Consumer

Law. These causes of action are particularly relevant where the

fan fiction work represents itself as being affiliated with the

underlying work. In general, however, fan fiction works, and

the websites and forums on which they appear, expressly

differentiate themselves from the underlying works, which

means that the risk of a successful claim on these bases is likely

to be low.

8. R Tushnet “Legal fictions: copyright, fan fiction, and a new

common law” (1997) 17(3) Loyola Los Angeles Entertainment

Law Journal 651 at 655.

9. N Bertrand “‘Fifty Shades of Grey’ started out as ‘Twilight’ fan

fiction before becoming an international phenomenon” (18 Feb-

ruary 2015) Online Business Insider Australia, available at

www.businessinsider.com.au/fifty-shades-of-grey-started-out-

as-twilight-fan-fiction-2015-2.

10. Above, n 9.

11. R Miller “Peter Jackson talks ‘Temeraire’ adaptation” (8 Decem-

ber 2009) Screenrant, available at http://screenrant.com/peter-

jackson-temeraire-adaptation-ross-36862/. In 2009, Peter Jackson

indicated that he would like to adapt the Temeraire series into

a movie. It is currently still listed as “in development” on the

IMDb website: IMDb, Temeraire, IMDb.com, available at

http://www.imdb.com/title/tt0862850/.

12. A Newitz “Naomi Novik says fanfic is part of literary history

and reveals what’s next for Temeraire” an interview with

Naomi Novik (Online Interview, 9 September 2010), available

at http://io9.com/5634183/naomi-novik-says-fanfic-is-part-of-

literary-history---and-reveals-whats-next-for-temeraire.

13. For a discussion on the repurposing of cultural icons, see E

Biggs and P Kallenbach “Intellectual property rights and the

right to freedom of artistic expression: complementary or

contradictory?” (2014) 27(4) Australian Intellectual Property

Law Bulletin 86 at 87–8; Kallenbach and Childs, above, n 6; J

Carlin, “Culture vultures: artistic appropriation and intellectual

property law” (1988–89) 13(1) Columbia VLA Journal of Law

and the Arts 103.

14. N Noda “Copyrights retold: how interpretive rights foster

creativity and justify fan-based activities” (2010) 20(1) Seton

Hall Journal of Sports & Entertainment Law 131 at 139.

15. The tension between fan fiction creators and authors of the

underlying work is discussed in R Liebler “Copyright and

ownership of fan created works: fanfiction and beyond” in M

David and D Halbert (eds), The Sage Handbook of Intellectual

Property, Sage, 2015 391 at 392.

16. Liebler, above, n 15, at 392.

17. Liebler, above, n 15, at 394.

18. K Bowrey “The new intellectual property celebrity, fans and

the properties of the entertainment franchise” (2010) 20(1)

Griffıth Law Review 188 at 195.

19. Above, n 3, at p 29.

20. Above, n 3, at p 29.

21. Above, n 3, at p 30.

22. The “What can we learn from Japanese anime industries? The

differences between domestic and overseas copyright protec-

tion strategies towards fan activities” (2014) 62(4) American

Journal of Comparative Law 1009 at 1013.

23. Above, n 22, at 1013.

24. Above, n 22, at 1014.

25. Above, n 22, at 1014.

26. Aristocrat Leisure Industries Pty Ltd v Pacific Gaming Pty Ltd

(2000) 105 FCR 153; 50 IPR 29; [2000] FCA1273; BC200005306

at [41].

27. Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2008)

172 FCR 580; 80 IPR 566; [2008] FCAFC 197; BC200811583

at 587.

28. State of Victoria v Pacific Technologies (Australia) Pty Ltd

(No 2) (2009) 177 FCR 61; 81 IPR 525; [2009] FCA

737; BC200905926 at [17].

29. Above, n 28, at [22].

30. Above, n 28, at [23].

31. Above, n 3, at pp 46–7.

32. IceTV Pty Ltd v Nine Network Australia Pty Ltd (2009) 239

CLR 458; 254 ALR 386; [2009] HCA 14; BC200902942 at

479 (French CJ, Crennan and Kiefel JJ); CBS Records Austra-

lia Ltd v Guy Gross (1989) 15 IPR 385; (1989) AIPC

90-627; BC8908481. In CBS Records Australia Ltd v Guy

Gross, one issue was whether copyright subsisted in Guy

Gross’ and Collette Roberts’ cover version of the song “Ring

my Bell” by Anita Ward. The court held that copyright did

subsist, as “independent judgment” was applied to the cover

version and original composition was required to match the

instrumental backing to the style of Ms Roberts’ singing.

33. IceTV Pty Ltd v Nine Network Australia Pty Ltd above, n 32, at

481 (French CJ, Crennan and Kiefel JJ). Sufficient labour, skill

and capital should be expended “to impart to the product some

quality or character which the raw material did not possess, and

which differentiates the product from the raw material”; this

depends largely upon “the special facts of [the] case, and must

intellectual property law bulletin November/December 2015 243

in each case be very much a question of degree” (Lord

Atkinson in Macmillan & Co Ltd v Cooper (1924) 40 TLR

186; 1B IPR 204; 93 LJPC 113 at 190).

34. For an Australian perspective see above, n 18, at 191. There is

some case law in the US concerning copyright and fan fiction

works: M Chatelain “Harry Potter and the prisoner of copyright

law: fan fiction, derivative works, and the fair use doctrine”

(2012) 15 Tulane Journal of Technology & Intellectual Prop-

erty 199.

35. Chatelain, above, n 34, at 203; Copyright Act of 1976 Title 17

USC s 106 (2011).

36. Above, n 35, at 203.

37. Copyright Act 1968 (Cth) s 31(1)(a).

38. Above, n 37, at s 86. As to the categorisation of video games

as cinematograph films see Sega Enterprises Ltd v Galaxy

Electronics Pty Ltd (1996) 69 FCR 268; 139 ALR 518; 35 IPR

161; BC9603975.

39. Above, n 37, at ss 36, 101 and 14(1).

40. Above, n 37, at s 10(1) (definition of adaptation).

41. In the case of the latter two categories, even if exact dialogue

is not reproduced because the fan fiction author has used

illustrations instead of words, similarities in “incidents and

situations [will] afford prima facie evidence of copying”:

Harman Pictures NV v Osborne [1967] 1 WLR 723; [1967] 2

All ER 324 at 737.

42. Above, n 18, at 190.

43. Zeccola v Universal City Studios Inc (1982) 46 ALR 189; 67

FLR 225; (1982) 90–019 AIPC 38,292 on appeal; (1982) AIPC

90–019.

44. Above, n 43, (1982) 90–019 AIPC 38,292.

45. Above, n 44, at 38,299.

46. Above, n 44, at 38,298.

47. Apple Computer Inc v Microsoft Corporation (1992) 24 IPR

225; 35 F.3d 1435; 63 USLW 2259, 1994 CoprLDec P 27,301,

32 USPQ 2d 1086 at 236.

48. Above, n 47, at 236.

49. Above, n 47, at 236.

50. Above, n 43, at 192.

51. Above, n 35, at 212.

52. Above, n 35, at 203–212; Copyright Act of 1976 Title 17 USC

s 107 (2011).

53. Above, n 37, at ss 40, 103C.

54. Above, n 37, at ss 41, 103A.

55. Above, n 37, at ss 41A, 103AA.

56. Above, n 37, at ss 42(1), 103B.

57. Above, n 37, at s 43(2).

58. Above, n 37, at s 115(2).

59. Above, n 37, at s 115(2).

60. As to the reaction to peer-to-peer file sharing see B Grubb,

“Australian website-blocking laws get green light” The Sydney

Morning Herald (online), 11 June 2015, available at www.smh.com.au/

digital-life/digital-life-news/australian-websiteblocking-laws-

get-green-light-20150611-ghlr0g.html.

61. Above, n 37, at s 115A(1).

62. Above, n 37, at s 190.

63. Above, n 37, at s 193(1).

64. Above, n 37, at s 195AC(1).

65. Above, n 37, at s 195AI(1).

66. Above, n 37, at s 195AI(2).

67. Above, n 37, at ss 195AJ, 195AL.

68. Above, n 37, at ss 195AJ, 195AL.

69. Snow v Eaton Centre Ltd (1982) 70 CPR (2d); [1982] OJ No

3645 at 105 (Ontario High Court of Justice).

70. Above, n 69, at 105.

71. Prise De Parole Inc v Guérin ɉditeur Ltée (1995) 60 ACWS

(3d) 390; 66 CPR (3d) 257; [1995] FCJ No 1583 (Federal

Court of Canada).

72. One of the few cases in Australia concerning moral rights is

Perez v Fernandez (2012) 260 FLR 1; [2012] FMCA

2; BC201200427. In this case Mr Perez (better known as

“Pitbull”) sued Mr Fernandez for infringement of his right not

to have his work subjected to derogatory treatment (among

other things). Mr Fernandez included a reference to Mr Perez

in his own music making it appear that Mr Fernandez was a

subject of Mr Perez’s song. These actions were considered to

be a material “distortion”, “alteration” or “mutilation” of

Mr Perez’s song. The conduct was also prejudicial to Mr Perez’s

honour or reputation because there were some listeners who

would have presumed that the altered section formed part of

the original work (as it was not yet released in Australia) and

other listeners who understood that Mr Fernandez intended to

mock Mr Perez.

73. See eg, Meskenas v ACP Publishing Pty Ltd (2006) 70 IPR

172; (2006) AIPC 92-216; [2006] FMCA 1136; BC200606303;

E Adeney “Australia’s First Moral Rights Decision: A Critical

Approach to Meskenas v ACP Publishing” (2008) 19(2)

Australian Intellectual Property Journal at 74.

74. Federal Circuit Court of Australia Act 1999 (Cth) s 50; Adeney,

above, n 73, at 75.

75. Dallas Buyers Club LLC v iiNet Ltd (2015) 112 IPR 1; [2015]

FCA 317; BC201502294 at [82].

76. Above, n 75, at [82].

77. Above, n 75, at [82].

78. Above, n 37, at s 115(2).

79. Above, n 37, at s 202.

80. Above, n 37, at s 202(1); Bell v Steele (No 3) (2012) 95 IPR

574; [2012] FCA 246; BC201201344 at 579.

81. U & I Global Trading (Australia) Pty Ltd v Tasman-Warajay

Pty Ltd (1995) 60 FCR 26; 32 IPR 494; (1995) AIPC

91–188; BC9502790 at 31.

82. Bell v Steele (No 3), above, n 80, at 579.

83. Above, n 3, at p 29.

84. Above, n 12.

85. S Scafidi “Intellectual property and cultural products” (2001)

81(4)Boston University Law Review 793 at 795.

86. Above, n 6, at 1077.

87. Last year, the Australian Law Reform Commission released a

report on the state of Australian copyright law in the digital

intellectual property law bulletin November/December 2015244

age: Australian Law Reform Commission Copyright and the

Digital Economy (Report No 122), 13 February 2014, available

at www.alrc.gov.au/inquiries/copyright-and-digital-economy. This

year, the Productivity Commission has commenced a 12-month

inquiry into intellectual property protection: Australian Gov-

ernment Productivity Commission, Intellectual Property Arrang-

ments, www.pc.gov.au/inquiries/current/intellectual-property.Although

Parliament has enacted the Copyright Amendment (Online

Infringement) Act 2015 (Cth), it has not yet addressed other

areas of suggested reform, such as incorporating a flexible “fair

use” exception to copyright infringement.

intellectual property law bulletin November/December 2015 245

Patent eligibility of diagnostic methods inAustralia versus the United StatesYlva Strandberg Lutzow CULLENS

IntroductionRecent advances in genomics and proteomics have

made it possible for scientists and biotechnology com-

panies to develop diagnostic tools and new treatments

for cancer, genetic disorders and infectious diseases that

provide significant benefits to the global population.

Thus, to ensure that there is continued development and

investment in the diagnostics and personalised medicine

areas, it is imperative that patent protection remains

available for new, and potentially life-saving, innova-

tions in these important areas of research.

This article discusses the availability of patent pro-

tection for diagnostic methods in Australia and the

United States (US), with a particular focus on three

recently issued US Court decisions that are having an

impact on the biotechnology industry worldwide.

Key points

• The tests for patentable subject matter are different

in Australia and the US. Australian courts rely

upon the “manner of manufacture” principle set

out in National Research Development Corpora-

tion (NRDC),1 while US courts use the two stage

test set forth in Mayo Collaborative Servicesv Prometheus Laboratories Inc (Mayo)2 to deter-

mine whether a diagnostic method claim meets the

subject matter eligibility threshold.

• In Australia, diagnostic methods are, “in general”,

considered to be directed to an “artificially-created

state of affairs for economic benefit” in accor-

dance with the NRDC principles and are therefore

capable of defining patentable subject matter.

• Diagnostic methods are becoming increasingly

difficult to patent in the US and there are now three

separate decisions of the US courts in which

diagnostic method claims have failed to meet the

subject matter eligibility requirement under the

Mayo test.

• In light of these US court decisions, which have

created significant uncertainty in terms of which

US diagnostic patents fall foul of these decisions

and which do not, clients are encouraged to seek

early advice from their patent attorney to ensure

that a sound patent strategy can be developed for

each jurisdiction of interest.

AustraliaTo meet the patentability requirements in Australia

pursuant to s 18(1)(a) of the Patents Act 1990 (Cth)

(Patents Act), a diagnostic claim must be for “a manner

of manufacture” within the meaning of s 6 of the Statute

of Monopolies. In Australia, the general test for patent-

able subject matter is that an invention is patentable (ie,

a manner of new manufacture) if it provides something

that is industrially useful or provides an “artificially-

created state of affairs” in a field of economic signifi-

cance. This test was broadly construed by the High

Court of Australia in the leading Australian NRDC

decision. The NRDC principles have been consistently

applied ever since and there is now a large body of

Australian case law illustrating their operation. In this

regard, it is worth noting that two recent decisions in the

biotechnology field have ruled that methods of medical

treatment and isolated nucleic acids meet the patent

eligible subject matter threshold in Australia.

Specifically, on 4 December 2013 the High Court of

Australia confirmed that methods of medical treatment

constitute patentable subject matter in Apotex Pty Ltdv Sanofi-Aventis Australia Pty Ltd.3

This decision was followed by the Myriad breast and

ovarian cancer gene patent case D’Arcy v MyriadGenetics Inc.4 In this Full Federal Court decision, the

five judges applied the decision of the High Court in the

NRDC and unanimously held that the claimed isolated

nucleic acid was, in itself, an artificially created state of

affairs that is associated with economic utility, therefore

satisfying the requirements for patentability under the

Patents Act. This decision made it very clear that the

manner of manufacture test for patent-eligibility under

Australian law is different from the test that applies in

the US under 35 USC 101, and as interpreted in Mayo.

However, the High Court has since granted Yvonne

D’Arcy special leave to appeal (D’Arcy v MyriadGenetics Inc)5 after which a Full Bench of all seven

judges of the High Court of Australia heard oral argu-

ments on 16 June 2015 and 17 June 2015. A decision is

expected late 2015 and the Australian biotechnology

intellectual property law bulletin November/December 2015246

community is of course hoping that the High Court

judges will uphold the unanimous decision of the Full

Federal Court (and of the judge at first instance) and rule

in favour of Myriad.

While diagnostic methods per se have not been

judicially reviewed, it is clear that “in general”, diag-

nostic claims are considered to be directed to an “artificially-

created state of affairs”. That is, they are man-made

processes that produce useful and concrete results of

economic significance, eg, a method that includes physi-

cal steps of, for example, isolating a serum sample,

measuring the expression levels of a panel of biomarkers

(eg, proteins and/or nucleic acid sequences) and deter-

mining whether an individual has (or is predisposed to)

a specific disease and/or will or will not benefit from a

particular therapy based on the individual’s unique

genetic profile. It is also worth noting that, in contrast to

Myriad’s isolated nucleic acid claims discussed in the

previous paragraph; the diagnostic method claims of

Myriad’s patent were never challenged.

Thus, at least for the foreseeable future, we expect

patent applications to continue to be filed and granted in

respect of many diagnostic inventions in Australia,

subject to the usual requirements of novelty, inventive

step and utility, and so on.

The United States (US)As alluded to above, unlike in Australia, the patent-

ability of diagnostic methods in the US has been

significantly weakened in light of three recent court

decisions, which are discussed in further detail below.

MayoIn Mayo, the biomarker of interest was a drug

metabolite6 and the claimed diagnostic test was based on

the discovery of a correlation between the level of the

metabolite in the patient’s blood and optimal drug

dosage. It was in this case that the Supreme Court set

forth a framework for distinguishing patents that claim

laws of nature, natural phenomena, and abstract ideas

from those that claim patent eligible applications of

those concepts. It was determined that the first step is for

the court to determine whether the claims at issue are

directed to a patent ineligible concept, such as a natural

phenomenon. If the answer is yes, the next step is for the

court to consider the elements of each claim, both

individually and “as an ordered combination” to deter-

mine whether the additional elements recited in each

claim “transform the nature of the claim”7 into a patent

eligible application. The Supreme Court has described

the second step of this analysis as:8

… a search for an “‘inventive concept’”— i.e., an elementor combination of elements that is “sufficient to ensure thatthe patent in practice amounts to significantly more than apatent upon the [ineligible concept] itself”.

Applying this test, the court found the claims at issue

in the Mayo patent ineligible.

University of Utah Research v Ambry GeneticsCorporation9

This decision, which relates to Myriad’s BRCA1 and

BRCA2-based hereditary breast and ovarian cancer test

patent, further emphasised the challenges of obtaining

diagnostic method claims in the US. Based on the

analysis set out in Mayo, the court held that Myriad’s

diagnostic method claims failed to meet the patent

eligibility requirement under the Mayo test because the

first part of the claim merely related to an “abstract idea”

(ie, the comparison of a wild-type/normal BRCA1

sequence with a patient’s BRCA1 sequence), while the

second part of the claim (ie, the hybridisation and

detection techniques used to compare the sequences)

only referred to “well understood, routine and conven-

tional techniques” that failed to add any further inven-

tive concept.

Ariosa Diagnostics Inc v Sequenom Inc10

On 12 June 2015, the US Federal Circuit issued its

decision in Ariosa Diagnostics Inc v Sequenom Incfinding that Sequenom’s method claims in US Patent

No 6,258,540 for detecting paternally-inherited cell-free

fetal DNA (cffDNA) in maternal plasma or serum were

not directed to patent eligible subject matter, and there-

fore invalid.

For a bit of background, the technology at issue is a

non-invasive prenatal diagnostic test for sex determina-

tion, blood typing, other genetic disorders (including

Down syndrome) and detection of preeclampsia using a

simple blood test that reduces or eliminates the need for

sampling from the fetus or placenta, which incur signifi-

cant risks to both mother and child. Sequenom Inc is the

exclusive licensee of US Patent No 6,258,540 (the

patent).

The claims of the patent are based on a ground-

breaking discovery by the inventors that cffDNA is

present in maternal plasma or serum, that was previously

routinely discarded as medical waste, and their subse-

quent implementation of a method for detecting a small

fraction of cffDNA in the maternal plasma or serum.

In making its decision, the court again applied the

two-part test as set forth in Mayo and held that the

method claims in the patent “begins and ends with a

natural phenomenon”,11 and that the additional elements

in the method steps “individually and ‘as an ordered

combination’”12 were not enough “to supply an inven-

tive concept”.13

To add insult to injury, the court also stated:14

While Drs. Lo and Wainscoat’s discovery regarding cffDNAmay have been a significant contribution to the medical

intellectual property law bulletin November/December 2015 247

field, that alone does not make it patentable. We do notdisagree that detecting cffDNA in maternal plasma orserum that before was discarded as waste material is apositive and valuable contribution to science. But evensuch valuable and contributions can fall short of statutorypatentable subject matter, as it does here.

This decision shows the sweeping impact the Supreme

Court’s decision in Mayo has had on the patent eligibil-

ity of diagnostic methods and further limits the possi-

bility of securing diagnostic patents in the US. Unfortunately,

this decision is likely to have devastating effects on the

diagnostics and personalised medicine industry.

Not unexpectedly therefore, on 13 August 2015,

Sequenom Inc requested an en banc rehearing,15 hoping

that the Full Court will overturn the prior panel’s ruling.

In making the request, Sequenom cautions that the

Federal Circuit’s panel decision “reads recent Supreme

Court precedent to create an existential threat to patent

protection for an array of meritorious inventions”16

beyond those in the personalised medicine and diagnos-

tics industries.

Sequenom further argues that, instead of promoting

better access to “fundamental discoveries”, the panel’s

decision will encourage inventors to keep their discov-

eries secret and discourage venture capitalists from

investing in biomedical research. To conclude, Sequenom

urges the full court to “take this opportunity to protect

patent law’s fundamental principles from being eroded

by results neither the Supreme Court nor Congress could

possibly have intended”.17

The biotechnology industry is anxiously waiting to

see if the court grants the petition and reaches a different

decision on the merits.

ConclusionIt is pleasing to see that diagnostic methods continue

to be patentable in Australia. Nevertheless, the manner

in which the US courts have recently applied Mayo to

determine the patentability of molecular diagnostic tests

could threaten the diagnostics and personalised medi-

cine industry worldwide, particularly if applied by other

courts.

Meanwhile, the US Patent and Trademark Office

(USPTO) has been proactive in issuing its own patent

eligibility guidelines,18 though these guidelines have not

been tested in a court of law. In Australia, patent

eligibility guidelines are provided by IPAustralia through

the Patent Manual of Practice & Procedure.19

Ylva Strandberg Lutzow

AssociateCullens Patent and Trade Mark Attorneysy.strandberg@cullens.com.auwww.cullens.com.au

In a High Court decision that issued on 7 October 2015(D’Arcy v Myriad Genetics Inc), seven judges unani-mously overturned the decision of the Full FederalCourt, holding that isolated nucleic acids are not amanner of manufacture under Australian law. Only theclaims to isolated nucleic acids were challenged byYvonne D’Arcy. No diagnostic method claims werechallenged. In the majority decision, four judges rein-terpreted NRDC’s concept of manner of manufacture,setting a precedent for the courts and Australian PatentOffıce to apply a new approach when consideringwhether a claimed invention is a manner of manufac-ture. It remains to be seen whether the judgment willaffect the patent eligibility of other types of naturalproducts and natural phenomena. It is possible thatnatural products and natural phenomena could havefurther bearing on diagnostic methods but that remainsto be seen. Of note, in the minority decisions the judgescommented, in obiter, that diagnostic methods andprobes were potentially patentable subject matter.

Footnotes1. National Research Development Corporation v Commissioner

of Patents (1959) 102 CLR 252; [1960] ALR 114; (1959) 1A

IPR 63; BC5900480.

2. Mayo Collaborative Services (dba MAYO Medical Laborato-

ries) v Prometheus Laboratories Inc (2012) 97 IPR 252; 182 L

Ed 2d 321; 132 S Ct 1289.

3. Apotex Pty Ltd v Sanofi-Aventis Australia Pty Ltd (2013) 304

ALR 1; 103 IPR 217; [2013] HCA 50; BC201315312.

4. D’Arcy v Myriad Genetics Inc (2014) 313 ALR 627; 107 IPR

478; [2014] FCAFC 115; BC201407309.

5. D’Arcy v Myriad Genetics Inc [2015] HCA 35; BC201509675.

6. By “metabolite” it is meant the physiological breakdown of a

drug in a patient’s blood.

7. Supreme Court of the United States, Syllabus Alice Corpora-

tion Pty Ltd v Cls Bank International et al October 2013,

ht tp: / /www.supremecourt .gov/opinions/13pdf/13-

298_7lh8.pdf.

8. Above, n 7, p 7.

9. University of Utah Research Foundation v Ambry Genetics

Corporation (Fed Cir 2014).

intellectual property law bulletin November/December 2015248

10. Ariosa Diagnostics Inc v Sequenom, Inc, 12 June 2015 (Fed

Cir 2015).

11. Above, n 10, at p 9.

12. Above, n 10, at p 8.

13. Above, n 10, at p 11.

14. Above, n 10, at p 16.

15. Petition for rehearing en banc- Ariosa Diagnostics Inc v Sequenom

Inc, 13 August 2015 (Fed Cir 2015).

16. United States Court of Appeals for the Federal Circuit, Appel-

lants’ Petition For Rehearing En Banc p 1, http://

patentdocs.typepad.com/files/sequenom-petition.pdf.

17. Above, n 13, p 15.

18. United States Patent and Trademark Office 2014 Interim

Guidance on Subject Matter Eligibility, www.uspto.gov/patent/

laws-and-regulations/examination-policy/2014-interim-guidance-

subject-matter-eligibility-0.

19. IP Australia, Australian Patent Offıce Manual of Practice and

Procedure,www.ipaustralia.gov.au/pdfs/patentsmanual/WebHelp/

Patent_Examiners Manual.htm.

intellectual property law bulletin November/December 2015 249

Common signs, concealed meanings: Cantarella,coffee and the inherent adaptability of wordsCampbell Thompson BARRISTER

Key points

1. As restated in Cantarella Bros v Modena TradingPty Ltd (Cantarella Bros),1 the assessment of the

inherent distinctiveness of a word mark involves a

threshold enquiry into the “ordinary signification”

of the word, which means how the word is

understood in relation to its designated goods by

the “target audience”.

2. The threshold enquiry constrains the familiar “other

traders” test from Registrar of Trade Marks v W &G Du Cros (Du Cros),2 relegating that test to a

residual, and largely mechanistic, role.

3. In general, after Cantarella Bros it may be harder

to displace the presumption of distinctiveness, at

least for word marks that cover ordinary consumer

goods.

IntroductionUnder the Trade Marks Act 1995 (Cth) (the 1995 Act),

trade marks are signs used by traders to distinguish their

goods3 from those of other traders”,4 and are not

registrable if incapable of distinguishing their desig-

nated goods.5 Thus, the 1995 Act reflects the general

policy that statutory property rights should be limited to

distinctive trade marks.6

A trade mark is presumed distinctive, unless proved

otherwise by certain enquiries.7 This article focuses on

the first of these, which concerns whether, and to what

extent, the mark is inherently adapted to distinguish its

designated goods or services at its filing date (inherently

distinctive).

Following the judgment of the majority (French CJ,

Hayne, Crennan & Keifel JJ) of the High Court in

Cantarella Bros, a “crucial part” of the enquiry into

whether a word mark is inherently distinctive involves

examining the word itself, in particular its “ordinary

signification” in relation to the designated goods or

services at the filing date.8 The familiar “other traders”

test from Du Cros follows and is constrained by that

examination.9

This article reflects on two related issues arising from

the majority’s analysis in Cantarella Bros. First, how is

the “ordinary signification” of a word in relation to

designated goods to be found? Second, once found, what

work (if any) is there left for the Du Cros test to do? 10

SummaryThe text of s 41 of the 1995 Act and the conventional

formulation of the Du Cros test prior to Cantarella Brosis examined. A brief summary of the decision in CantarellaBros, including its restatement of the Du Cros test is

given.

The meaning given to “ordinary signification” by the

majority in Cantarella Bros is addressed, focusing in

particular on the critical concept of the “target audi-

ence”. A semiotic perspective is introduced. It is con-

tended that, at least where the designated goods are

ordinary consumer goods, Cantarella Bros is likely to

have made it more difficult to show that a word mark is

non-distinctive.

The “other traders” test after Cantarella Bros is

addressed, and it is contended that the High Court has

relegated that test to a residual, largely mechanistic, role.

Some circumstances in which it may have some sub-

stantive work to do are mentioned.

Several Trade Marks Office decisions and Federal

Court cases since Cantarella Bros that have considered

the inherent distinctiveness test are then canvassed.

The enquiry into inherent distinctiveness

Section 41 of the 1995 ActSection 41(3) and (4) of the 1995 Act set out mutually

exclusive and exhaustive criterion for displacing the

presumption of distinctiveness of a trade mark.11 These

subsections have been in their current form only since

201212 and Cantarella Bros considered the earlier form

of s 41. However, the 2012 amendments almost certainly

did not change the substantive legal tests.13

A trade mark will be held non-distinctive under

s 41(3) if, at its filing date, the mark was not to any

extent inherently distinctive and did not in fact distin-

guish its designated goods.

Alternatively, a trade mark will be held non-

distinctive under s 41(4) if, at its filing date, the mark

was to some extent but not sufficiently, inherently

distinctive of its designated goods, and (having regard to

intellectual property law bulletin November/December 2015250

the extent of the marks’ inherent distinctiveness, use or

intended use of the mark, or other circumstances), it

does not and will not distinguish them.

It follows that the extent (if any) to which a trade

mark is inherently distinctive is critical to the overall

assessment of distinctiveness under s 41.

The Du Cros test before Cantarella BrosThe traditional test of inherent distinctiveness, articu-

lated by Lord Parker in Du Cros, asks whether the

relevant trade mark, if used as such, is likely to become

distinctive. This largely depends on whether, if the mark

were not registered, other traders having no improper

motive would be likely to want to use it, or a mark

“nearly resembling it” in relation to their goods.14 The

Du Cros test was approved by Kitto J in Clark Equip-ment Co v Registrar of Trade Marks (Clark Equip-ment),15 a case decided under the Trade Marks Act 1955

(Cth).

An honest trader might, for example, want to use a

word in relation to their goods that is apt to describe one

of its characteristics or qualities. Thus, in Clark Equip-ment, Kitto J made the (parenthetical) observation that a

trader with no improper motive may wish to exercise the

right of “the public” to use words that are “part of the

common heritage, for the sake of the signification which

they ordinarily possess”.16

The Du Cros test was applied by a five member

Bench of the High Court in F H Faulding & Cov Imperial Chemical Industries (Faulding).17 In that

case, Kitto J (who wrote the lead judgment) held that by

the filing date “the word Barrier had caught on as a word

peculiarly apt, according to its ordinary signification, for

descriptive use in connexion with skin protective creams”.

The word had “such a place in the vocabulary of persons

concerned with” those goods that honest traders in those

goods would want to use it.18

In particular, the evidence showed that pharmacists

used “barrier cream” descriptively and synonymously

with “protective”, and that this usage was evidenced in

widely circulated journal articles and reference works

aimed at the profession. The use would “show to the

ordinary reader with no technical training” that the word

refers to “a class of protective creams”, not a specific

product.19

Cantarella Bros — the decisionCantarella Bros raised the issue whether the Italian

words “cinque stelle” and “oro” were inherently adapted

to distinguish coffee.

The majority restated the Du Cros test as requiring

the points of view of both honest traders and the public

must be considered.20 In particular, whether for an

English or foreign word, it is the “ordinary signification”

of the word, in Australia, “to persons who will purchase,

consume or trade in the goods”21 that determines whether

other honest traders would want to use it.

The trial judge had found that, although an Italian

speaker would appreciate that “oro” signifies some

connection with gold, and that “cinque stelle” signifies

five stars, these words would not generally be under-

stood in Australia as having those meanings.22 Given

these findings, the words in their ordinary significations

were not shown to have sufficiently tangible meanings in

relation to coffee to be direct references to its character

or quality. On the “other traders” test, they therefore

could not be words other honest traders may want or

need to use.23

Ordinary signification

Origin of the expressionThe expression “ordinary signification” is not part of

the operative provisions of s 41,24 but was part of an

earlier legislative test of inherent distinctiveness. Sec-

tion 16(1)(d) of the Trade Marks Act 1905 (Cth)

provided that a word or words having no direct reference

to the character or quality of the goods, and not being

according to its “ordinary signification” a geographical

name or a surname, was a registrable trade mark.

The “ordinary signification” qualifier in s 16(1)(d)

was initially intended to allow registration of words that

may happen to be place names or surnames, although

this was not their primary sense (eg, “magnolia”).25 It

did not in terms apply to the question whether a word

directly referred to goods. However, the majority con-

sidered that cases such as Clark Equipment and Fauld-ing established that the ordinary signification of a word

is a crucial consideration in assessing inherent distinc-

tiveness, whatever the basis on which the word is

alleged not to be registrable.26

How, then, is a court to find the “ordinary significa-

tion” of a word, in order to decide whether the word

directly refers to the designated goods?

The “target audience”According to the majority in Cantarella Bros, the

“ordinary signification” of a word can refer to how the

word is (generally) understood in relation to the relevant

goods by its “target audience”.27 While not explicitly

defining this expression,28 the majority seemed to use it

as a shorthand label for “persons in Australia who

ordinarily purchase, consume or trade in the goods”.29

It is respectfully suggested that the majority’s analy-

sis of “ordinary signification”, while broadly echoing

that of Kitto J in Clark Equipment and Faulding,

represents a subtle shift of emphasis. In those earlier

cases, the context of the enquiry was the motives of

intellectual property law bulletin November/December 2015 251

other traders to use the word. Despite Kitto J’s refer-

ences to “the public” (in Clark Equipment) and the

“ordinary reader” (in Faulding), the test primarily directed

attention to whether other traders had actually used the

word descriptively in relation to the goods or might do

so given its ordinary meanings. In contrast, for the

majority in Cantarella Bros an enquiry into “ordinary

signification” occurs at the threshold, before turning to

consider the motives of traders. In that context, the focus

on the target audience directs attention not just to

whether a trade mark is used descriptively or has

descriptive meanings but to whether those meanings are

widely understood, including by consumers.

Mark Foy’sThe majority’s approach seems to owe much to

Dixon CJ’s judgment in Mark Foy’s Ltd v Davies Coop(Mark Foy’s)30 under s 16(1)(d) of the 1905 Act. In

Mark Foy’s, Dixon CJ was not called on to consider the

notion of “ordinary signification” as such. The ratio in

that case was that the words “Tub Happy” did not have

a direct reference to the designated goods (ie, clothing)

as it was not likely that ordinary persons would under-

stand the words applied to those goods, as “calling to

mind either their nature or some attribute they possess”.

The words, in Dixon CJ’s view, conveyed no sufficiently

tangible meaning or idea but merely had an “emotive

tendency”.31

His Honour in Mark Foy’s also observed that a search

for exact meaning, based on an assumption that words

convey a meaning, could be misconceived, as the fact a

meaning needs to be sought out may imply that no

sufficiently definite descriptive connotation of the words

exists “in ordinary English speech”. Crucially, in his

Honour’s view, language is “not always used to convey

an idea” and words can instead be used in advertising

simply “to evoke in the reader or hearer some feeling,

some mood, some mental attitude”.32

A semiotic perspectiveIt is considered that a semiotic perspective is helpful

to elucidate the potential issues with the majority’s

approach. Here semiotics is only used as a convenient

analytic model.

In a basic semiotic model, a “sign”, such as a word,

can be conceived as having two parts: namely the

“signifier” and the “signified”. The perceptible impres-

sion of the word, especially in its aural and visual

aspects is a signifier. The idea or concept that the word

represents (if any), which is created in the mind of the

interpreter is the signified.33

A semiotic perspective reveals, first, that it would be

fruitless to search for “objective” meanings of a sign as

distinct from meanings created in the minds of those

who perceive the signifier. This seems to suggest that a

focus on a “target audience” is sound.

A semiotic model also acknowledges that words may

be used purely emotively and therefore, may have a

signified that is vague, highly variable or even non-

existent. In semiotic terms, the signifier is said to be

“empty” or “floating” if it does not point to an agreed

upon meaning.34 In the language of semiotics, “Tub

Happy”, used for clothing, could be seen as an empty or

floating signifier. In contrast, at least by its filing date, it

was plain that “Barrier” had a stable and fixed descrip-

tive meaning in relation to protective cream.

However, it is respectfully suggested that a semiotic

perspective shows that the Italian words in CantarellaBros do not fit comfortably within the dichotomy described

in Mark Foy’s.

Coffee is “a commodity and a familiar beverage

consumed by many”.35 The evidence in Cantarella Brosshowed that at the filing date the words “oro” and

“cinque stelle” did not evoke a generally shared idea or

concept among the general public in Australia. However,

for non-Italian speakers, it is not that the words signified

various allusive or metaphorical ideas in respect of

coffee. They simply were not generally understood at

all.36 Conversely, for those who did know that “oro”

means “gold” and “cinque stelle” means “five stars”,

these expressions had stable meanings and no doubt

evoked the ideas and concepts with which they are

commonly associated. Used in relation to coffee, the

proper inference was not that Italian speakers under-

stood the words “allusively” or “metaphorically” but

rather that for them the words signified quality. This

reflects that, had the English translations of those words

appeared on the coffee packaging, they would have been

generally understood as descriptive (or laudatory) in that

sense.37

The Italian words in Cantarella Bros are but two

examples of words that, used in relation to designated

goods, would correctly be understood in their ordinary

and stable descriptive sense by part of the target audi-

ence, while having no “generally understood” meaning

within the target audience considered as a whole. Fur-

ther examples, it is suggested, could include a great

many words that are ordinarily (that is, in their usual

sense) used to indicate the quality or characteristics of

goods or services, or their origin, and that were conven-

tionally thought not to be inherently distinctive.38

It has been observed, for example, that wholly

descriptive words written in European languages other

than English or non-Roman scripts, as well as many

English words that are technical (or archaic) and many

place names would not be generally understood by a

target audience consisting of ordinary Australian con-

sumers.39 Indeed, it would seem that even if a word is

intellectual property law bulletin November/December 2015252

contained in a general or specialist dictionary, atlas,

encyclopedia or public register (eg, of geographical

indications or variety names) and its use in the defined

sense would be apt to directly refer to a characteristic of

goods, it will be inherently distinctive if the evidence

does not show the word was “generally understood” by

a target audience that includes consumers.

A more narrow reading of Cantarella Bros?One possibility is that, in appropriate cases, the

“target audience” would be understood in a more con-

fined way? Alternatively, it might be enough to show an

established and stable descriptive meaning that is under-

stood by part of the target audience, although not one

generally understood by the target audience?

The practical scope to define a target audience

narrowly, at least for ordinary consumer goods, seems

limited. There ought be no rational reason to infer,

merely from a trade mark’s intrinsic characteristics (eg,

the use of a foreign or technical word, or non-Roman

script), that the target audience for the designated goods

is limited to those who can correctly interpret the word

or script, rather than those who ordinarily purchase,

consume or trade in goods of the kind described in the

trade mark application.

A second possibility, that a meaning not generally

understood by the target audience could be enough to

give a mark a descriptive ordinary signification, was

moot in Cantarella Bros, as the majority held that the

evidence did not support the submission that coffee

traders at the filing date understood and used the words

“oro” and “cinque stelle” descriptively.40 However, this

possibility is supported by the fact the majority referred

disjunctively (when defining ordinary signification) to

“persons who will purchase, consume or trade in the

goods”(emphasis added),41 and explicitly considered the

position of traders in answering the threshold question.42

Nonetheless, it seems difficult to reconcile this pos-

sibility with the majority’s insistence on the need to

consider, in the test of inherent distinctiveness, the wider

interests of the public and not merely the interests of

traders.43 Further, as a practical matter, once a conclu-

sion has been reached that a word (used in relation to a

consumer good) does not have a descriptive ordinary

signification to consumers generally, it seems inevitable

that this view would infect a court’s analysis of the use

and understanding of the word by those in the trade. This

is illustrated by the majority’s analysis in CantarellaBros of the evidence of use of the word “oro”. The

evidence showed that the mark was used by several

producers of Italian coffee as a common sub-component

of different composite marks on coffee labels. Given

that, to each of those competing producers, “oro” plainly

meant “gold”, it is respectfully suggested that the more

obvious inference is that they were using “oro” as adescriptive or laudatory word. Yet the majority wouldnot draw that inference.44

Whither Du Cros?The majority held that the Du Cros “other traders”

test follows after the inquiry into ordinary significa-tion.45 However, on one view of their Honour’s analysis,there may be little or no work remaining to be done asthe initial enquiry results in a simple dichotomy. Once aword mark has been classified according to its ordinarysignification, that classification leads to a conclusion asto whether honest traders may legitimately desire to useit. Either the word is directly descriptive and is not

prima facie registrable,46 or it conveys only an allusiveor metaphorical meaning and is prima facie regis-trable.47

If so, this seems to relegate the “other traders” testnot just to a residual but to a mechanistic role in theenquiry into inherent distinctiveness.

However, Du Cros may yet have further work to do.First, if a word is, for example, held to contain a directreference to the quality of the goods, there may (if theword has been used as a trade mark) need to be a broaderdistinctiveness enquiry. In that context, a court would, inaccordance with the scheme of s 41, need to assess theextent (if any) to which the word is inherently distinc-tive.48 In other words, the inquiry into inherent distinc-

tiveness would not end merely because it is concluded

that the word is not prima facie registrable.

Second, a word that, in its “ordinary signification”,

contains no directly descriptive meaning may closely

resemble a word that is wholly descriptive. If honest

traders are likely to desire to use the descriptive word

and that word is deceptively similar to the word for

which registration is sought (such that the use of the

descriptive word might infringe), this would seem to

provide a rational basis to refuse registration of the

(non-descriptive) word based on the Du Cros test.49

Finally, the ratio in Cantarella Bros could perhaps be

read as not subordinating the “other traders” test to the

threshold test of “ordinary signification”. One finding of

the majority was that the evidence did not demonstrate

that rival traders desired to use “oro” or “cinque stelle”

to directly describe their coffee goods, and on this basis

held that criticisms that the trial judge had insufficiently

considered those desires were misconceived.50 This

seems to leave open the possibility that, on appropriate

facts, the “other traders” test could displace the apparent

outcome of the “ordinary signification” test.51

The landscape post-Cantarella

Trade Marks Office casesGiven the relatively brief time that has elapsed since

Cantarella Bros, it is too early to conclude whether it is

intellectual property law bulletin November/December 2015 253

likely to materially impact on the practice of the Trade

Marks Office. However, recent decisions indicate that its

reasoning may be causing some practical difficulties.

For example, in Garrett Electronics Inc52 the word

GARRETT was held to be inherently distinctive for

metal detectors. The registrar’s delegate held that, fol-

lowing Cantarella Bros, the question is not whether a

trader with the surname GARRETT might wish to deal

in the goods under his or her own name but whether it is

likely that, for those who purchase, use or trade in the

relevant goods, the ordinary signification of the word is

“a surname that is common to the trade or part of the

common heritage” or “an indicator of trade source”. It

was held that the word was not, in its ordinary signifi-

cation, a surname that is part of the common heritage

because a relatively small number of people have the

surname in Australia (about 2000), the manufacture of

metal detectors is not a common business, and there is

no common practice of persons in the industry using

their surname as a trade mark.53

This decision indicates that the Trade Marks Office

may be relatively more lenient with respect to the

registration of marks, such as surnames, that previously

would not have been considered inherently distinctive.54

However, with respect, the reasoning seems question-

able. The surname GARRETT does not seem so obscure

that persons seeing the name used in relation to goods

would not appreciate it to be a surname. The question of

whether it also has a secondary meaning as indicating

the source of metal detectors would not seem to be

relevant to the question of inherent distinctiveness.

Conversely, in Australian College of Natural Medi-cine Pty Ltd,55 in finding that WELLNATION was

inherently distinctive of beauty products and related

services, the registrar’s delegate did not cite CantarellaBros but merely applied the test from Clark Equipment.Although the reasoning seems consistent with CantarellaBros,56 this also suggests that there is not yet a consis-

tent practice about how to apply the case.

Federal Court decisionsOnly a few Federal Court cases have considered the

question of inherent distinctiveness under s 41 of the

1995 Act since Cantarella Bros.57

In Verrocchi v Direct Chemist Outlets Pty Ltd,58

Middleton J, while citing Cantarella Bros, appeared to

consider that the Du Cros test was applicable without

modification.59 However, his Honour was not required

to make any detailed analysis of this issue, as the

applicant had accepted that at the filing date its trade

mark was only to some extent inherently distinctive of

pharmacy retailing and related services.60

In Accor Australia & New Zealand Hospitality PtyLtd v Liv Pty Ltd (Accor),61 Rangiah J held that the word

mark HARBOUR LIGHTS but not the word mark

CAIRNS HARBOUR LIGHTS, was inherently distinc-

tive of accommodation letting services.Applying CantarellaBros, his Honour’s analysis began by considering “the

ordinary signification of the trade marks to persons who

will trade in or use” the relevant services “namely lot

owners, travel agents and potential guests”. His Honour

noted that the words HARBOUR LIGHTS were:62

… a well-known combination of ordinary English words …used in ordinary language to refer to the collection of lightsaround a harbour and the lights on boats or structures in aharbour.

However, while the words were held to “allude to” a

characteristic of the accommodation (ie, namely the

views the accommodation provides of a harbour) they

were held not to “directly describe a characteristic of the

accommodation”.63 On this basis, his Honour held that

the mark was inherently distinctive, and did not in terms

apply the Du Cros test.

However, his Honour reached a different view in

relation to CAIRNS HARBOUR LIGHTS, on the basis

that the mark would be understood as referring to

“Cairns Harbour”, which is a direct reference to the

location of the accommodation offered.64 His Honour

went on to apply the Du Cros test holding that other

honest traders would be likely to want to use “Cairns

Harbour”, a word closely resembling CAIRNS HARBOUR

LIGHTS, for their own services. However, the presence

in the mark of the element “lights” meant that the mark

was to some extent inherently distinctive.65

His Honour’s analysis in Accor is not inconsistent

with Cantarella Bros having a broad scope and is

consistent with the view that the Du Cros test while

residual and largely mechanistic has some work to do.

Sir Walter

A broad reading of Cantarella Bros would seem

inconsistent with the approach taken by Yates J in

Buchanan Turf Supplies Pty Ltd v Registrar of TradeMarks (the Sir Walter case).66 In that case, his Honour

held that the word mark SIR WALTER did not meet the

requirements for registration in s 41 in respect of a

variety of buffalo grass that was already registered under

the same name under the Plant Breeder’s Rights Act 1994

(Cth) (PBR Act).

On a conventional pre-Cantarella Bros understanding

of s 41, it is suggested that the judgment is unremark-

able. The mark SIR WALTER is a paradigm instance of

a mark that should be caught by the Du Cros test, being

“the name of the very grass variety for which registra-

tion of SIR WALTER is sought”.67

intellectual property law bulletin November/December 2015254

However, his Honour, while citing Cantarella Bros,

appears to apply a conventional Du Cros test, rather than

following the injunction of the majority in CantarellaBros to start by identifying the “ordinary signification”

of the relevant words.

Respectfully, the initial question in the light of

Cantarella Bros, is not whether SIR WALTER is the

“proper name” for a new variety of grass and thus “part

of the common stock of language that denotes this

particular variety”.68 It is instead whether SIR WALTER,

in its “ordinary signification”, is generally understood by

its target audience, namely those who purchase, con-

sume or trade in buffalo grass of the “Sir Walter” variety,

as being the name of a grass variety and hence, directly

descriptive of those goods. The Du Cros test is only to

be applied once the ordinary understanding of the words

in this sense is ascertained.

It may be thought very likely that Yates J would have

reached the same ultimate conclusion from the CantarellaBros starting point. Notably, his Honour explicitly rejected

a submission that “most members of the public would

not even be aware that Sir Walter is the name of a plant

variety distinct from the name of a soft leaf buffalo grass

associated with, and supplied by, the appellant”.69 His

Honour refused to draw this inference in circumstances

in which there was “no direct evidence as to what ‘most

members of the public’ think when they see the name Sir

Walter”, and there was promotional material that his

Honour concluded was suggestive of the descriptive use

of the words.70

Nonetheless, with respect, his Honour’s analysis

seems to have as its predicate that SIR WALTER is a

variety name that other notional traders would legiti-

mately want to use (once the relevant registration under

the PBR Act expired) and that it followed that the mark

was prima facie descriptive. It is difficult to assess to

what extent this predicate may have influenced his

Honour’s views as to the nature of the uses actually

made of SIR WALTER and how these were likely to

have been perceived by consumers. However, what the

Trade Marks Office initially had to prove was that SIR

WALTER has an “ordinary signification” among mem-

bers of the “target audience”, being those who purchase,

consume or trade in buffalo grass of the “Sir Walter”

variety. Whatever may be the legitimate desires of other

traders would not seem to be part of the analysis at the

initial stage. Further, given the presumption of registrabil-

ity under the 1995 Act, it is suggested that the lack of

direct evidence as to what consumers think when they

see the name SIR WALTER could tend against any

finding that the mark had a meaning that was “suffi-

ciently tangible” to the “target audience”.

In the light of the Sir Walter case, it may be

appropriate to conclude with a question: will Sir Walter

stand as an island, applying a pre-Cantarella Brosapproach to the enquiry of inherent distinctiveness of

word marks, or is the better view that Cantarella Broswill come to be read narrowly, as merely putting a

different emphasis on the familiar Du Cros test?

Campbell Thompson

Barrister, Victorian BarYoung’s Listcampbell.thompson@vicbar.com.auwww.youngslist.com.au

Campbell is a barrister who specialises in intellectualproperty law and related matters, including trade marks.

Footnotes1. Cantarella Bros v Modena Trading Pty Ltd (2014) 315 AR 4;

(2014) 109 IPR 154; [2014] HCA 48; BC201410159.

2. Registrar of Trade Marks v W & G Du Cros [1913] AC 624 at

634–5 per Lord Parker of Waddington.

3. This article refers to goods and services compendiously, as

goods.

4. Trade Marks Act 1995 (Cth), s 17.

5. Trade Marks Act 1995 (Cth), ss 41(1), 57 and 88.

6. See E & J Gallo Winery v Lion Nathan Aust Pty Ltd (2010) 241

CLR 144 at 162–163; (2010) 265 ALR 645; (2010) 86 IPR

224; [2010] HCA 15; BC201003137 at [41]–[42] per French

CJ, Gummow, Crennan and Bell JJ, and above, n 1, at [17] per

French CJ, Hayne, Crennan and Kiefel JJ.

7. Trade Marks Act 1995 (Cth) ss 41(2)–(4).

8. Above, n 1, at [59], [70] and [71] per the majority.

9. Above, n 1, at [71].

10. The author is indebted to the recent article on inherent

distinctiveness post-Cantarella by M Handler “All That Glitters

is Not Gold: A Critical Assessment of Trade Mark Distinctive-

ness under Australian Law, Part 1” June 2015 Intellectual

Property Forum.

11. Trade Marks Act 1995 (Cth) ss 41(2)–(4).

12. Intellectual Property Laws Amendment (Raising the Bar)

Act 2012 (Cth).

13. The amendments merely reframe the prior substantive require-

ments in terms of what needs to be proved to establish that a

mark is not capable of distinguishing. See Acts Interpretation

Act 1901 (Cth) s 15AC.

14. Above, n 2, at 634–5 per Lord Parker of Waddington.

15. Clark Equipment Co v Registrar of Trade Marks (1964) 111

CLR 511; BC6400500.

16. Above, n 15, at 513–14.

17. F H Faulding & Co v Imperial Chemical Industries of

Australia & New Zealand (1965) 112 CLR 537; BC6500260.

18. Above, n 17, at 556–7 per Kitto J with whom Barwick CJ (at

551), Taylor J (at 562) and Windeyer J (at 563) agreed. See also

intellectual property law bulletin November/December 2015 255

Burger King Corporation v Registrar of Trade Marks (Burger

King) (1973) 128 CLR 417; [1972] ALR 1361; (1973) 47

ALJR 237; 1A IPR 504 at 425 where Gibbs J held that the word

WHOPPER was one other honest traders may wish to use for

sandwiches, as it was an “ordinary English word” whose

meaning would clearly be descriptive of a characteristic of the

goods, and would probably be laudatory of them.

19. Above, n 17, at 556–7 per Kitto J with whom Barwick CJ (at

551), Taylor J (at 562) and Windeyer J (at 563) agreed.

20. Above, n 1, at [59].

21. Above, n 1, at [59].

22. Above, n 1, at [4] and [61], citing Cantarella Bros Pty Ltd

v Modena Trading Pty Ltd (2013) 299 ALR 752; (2013) 99

IPR 492; [2013] FCA 8; BC201300487 at 776 [117].

23. Above, n 1,at [73].

24. Trade Marks Act 1995 (Cth) s 41 Note 1 (which is not part of

the statutory text) refers to marks that are not inherently

distinctive as including those consisting wholly of a sign

“ordinary used to indicate” some characteristic of goods or

services.

25. Above, n 1, at [35], citing In re Magnolia Metal Company’s

Trade Marks [1897] 2 Ch 371.

26. Above, n 1, at [71]. And see also at [39], [40], [44] and [56],

citing Kitto J in Faulding at 556–57.

27. Above, n 1, at [71].

28. Compare with above, n 1, at [28] which contains the appel-

lant’s definition.

29. Above, n 1, at [59]. The majority also use variant formulations

at [73] (“anyone in Australia concerned with coffee goods”)

and [75] (“persons concerned with coffee goods”). It is

suggested these all refer to the same idea.

30. Mark Foy’s Ltd v Davies Co-op & Co Ltd (Tub happy case)

(1956) 95 CLR 190; (1956) 1A IPR 470; BC5600300.

31. Above, n 30, at 195 per Dixon CJ. Williams J (at 202) also

distinguished between words directly referring “in an ordinary

sense” to the designated goods, and words skilfully alluding to

their quality.

32. Above, n 30, at 195.

33. See U Maunsbach and G Schneider The semiotics of descrip-

tiveness — An analysis of the registrability of neologisms as

trade marks in the European Union, Lund University, 2011, at

pp 11–12. Accessed on 28 August 2015 at http://lup.lub.lu.se/

luur/download?func=downloadFile&recordOId=2026986&

fileOId=2173725.

34. Chandler, D Semiotics for beginners, 1994, accessed on 28August 2015

at http://visual-memory.co.uk/daniel/Documents/S4B/.

35. Above, n 1, at [72].

36. Above, n 1, at [61], citing Cantarella Bros Pty Ltd v Modena

Trading Pty Ltd (2013) 299 ALR 752; 99 IPR 492; [2013]

FCA 8; BC201300487 at 776 [117].

37. Above, n 1, at [112] per Gageler J.

38. See Note 1 to s 41 of the Trade Marks Act 1995 (Cth).

39. See M Handler, above, n 12, at p 25, which cites, as examples

of words that could be registrable under the majority’s approach,

the Spanish word QUESO for cheese, the technical English

word EUTECTIC (see Eutectic Corporation v Registrar of

Trade Marks (1980) 32 ALR 211; (1980) 1A IPR 550), and

obscure place names like SOLIGA (Himalaya Global Holdings

Ltd [2012] ATMO 19) and HARBIN (Harbin Brewing Co Ltd

(2012) 97 IPR 38); [2012] ATMO 48.

40. Above, n 1, at [75]–[77].

41. Above, n 1, at [59].

42. Above, n 1, at [75]–[77].

43. Above, n 1, at [44].

44. Above, n 1, at [75]–[77].

45. Above, n 1, at [71].

46. Above, n 1, at [75]–[77].

47. Above, n 1, at [73].

48. Although the majority’s analysis could be read as indicative of

a dichotomy between inherently distinctive and inherently

non-distinctive marks, s 41 does not permit such a dichotomy

49. Indeed, in Du Cros itself there were two applications for W &

G, one in block letters and one in stylized form. Lord Parker

noted that as the application for W & G in a stylized form,

would plainly be infringed by use of W & G in block letters,

the registrability of both marks had to stand or fall together.

50. Above, n 1, at [77].

51. It is possible, as Professor Handler (above, n 26) acknowl-

edges, that Cantarella Bros will be seen to have turned on its

specific facts, and especially upon the lack of convincing

evidence, first, as to the “ordinary signification” of the words in

question, and second, as to the desire of other traders to use

them for their descriptive qualities.

52. Re Garrett Electronics Inc (2015) 114 IPR 155; [2015] ATMO

48; BC201506210.

53. Above, n 52, at [23]–[30].

54. Compare with Re Abalner Pty Ltd (2015) 114 IPR 171; [2015]

ATMO 51; BC201506143, where a more conventional analysis

was applied to find that the surname BLAIR lacked sufficient

inherent distinctiveness. See also McMullen Nolan Group Pty

Ltd [2015] ATMO 68; BC201509449, in which the acronym

MNG was held registrable for software design and related

services. The Registrar’s delegate held that the test of inherent

distinctiveness requires consideration of both the ordinary

signification of a word and the legitimate desire of other traders

to use it in relation to the same or similar services. Although

some consumers and traders would recognise MNG as being

short for a file format named “Multiple-image Network Graph-

ics”, this did not mean that it would be understood, by persons

concerned in the relevant services, as directly descriptive of

their character or quality.

55. Australian College of Natural Medicine Pty Ltd [2015] ATMO

15; BC201501346. The case was argued before Canteralla

Bros. But see also Re Apple Inc (2015) 112 IPR 43; [2015]

intellectual property law bulletin November/December 2015256

ATMO 25; BC201503073, argued post-Cantarella Bros, where

the Registrar’s delegate also did not mention Cantarella Bros

(in the context of a device registration) but merely applied

Clark Equipment.

56. Above, n 57, at [16]–[22].

57. Re Apple Inc (2015) 112 IPR 43; [2015] ATMO 25; BC201503073

was handed down on the same day as the High Court’s

judgment in Cantarella Bros.

58. Verrocchi v Direct Chemist Outlet Pty Ltd (2015) 112 IPR

200; [2015] FCA 234; BC201502395.

59. Above, n 58, at [105]–[107].

60. Above, n 58, at [294]. The mark was for the words IS THIS

AUSTRALIA’S CHEAPEST CHEMIST? in a stylised format

on a blue banner.

61. Accor Australia & New Zealand Hospitality Pty Ltd v Liv Pty

Ltd (2015) 112 IPR 494; [2015] FCA 554; BC201505256.

62. Above, n 61, at [228].

63. Above, n 61, at [227]–[229].

64. Above, n 61, at [241].

65. Above, n 61, at [243].

66. Buchanan Turf Supplies Pty Ltd v Registrar of Trade Marks

(2015) 114 IPR 81; [2015] FCA 756; BC201506899.

67. Above, n 66, at [31].

68. Above, n 66, at [55].

69. Above, n 66, at [48].

70. Above, n 66, at [52], [130] and [133].

intellectual property law bulletin November/December 2015 257

Copyright law in the fashion world — same oldproblemsCatherine Logan LEGAL VISION

Takeaway tips:

• Fashion designers whose distinctiveness is carried

in their two dimensional fabric designs should be

able to use copyright to uphold their rights but

problems can arise if there is no “smoking gun”

evidence of copying.

• Those who wish to protect three dimensional

aspects of a fashion design that they propose to

industrially apply should consider applying for

design registration as copiers will have a defence

to copyright infringement.

• A fall back for all designers is to consider the

breadth of protection for many other aspects of

their designs and brand (including colour) which

may be available through trade mark registration.

• Finally, if the conduct engaged in by the infringer

misleads or is likely to mislead consumers as to

the origin of the designs, this may be the claim that

is most likely to succeed whether in Australia or

the US, that is, if the wronged designer can afford

the uncertainty and expense of the legal action

required.

IntroductionThis article uses the current MVA fashion scandal

surrounding the stage outfits of Miley Cyrus and her

dancers as a case study to illustrate the issue of fashion

designers imitating another’s eye-catching motifs and to

discuss IP protection in the world of fashion more

generally.

Miley Cyrus has for the last year or so been patronis-

ing a Melbourne fashion label called DI$COUNTUNIVER$E

whose designers, Nadia Napreychikov and Cami James,

have been for the last 6 years or so selling their

flamboyant streetwear and stagewear to big names and

ordinary Australians and others alike.

DI$COUNT UNIVER$E have adopted a number of

motifs in their designs including a Third Eye and Rolling

Stone style lips. There is a pop art sensibility and

irreverence to their work in the manner of older Austra-

lian labels such as Mambo, Wheels and Doll Baby, and

Romance was Born.

When after wearing a DI$COUNT UNIVER$E t-shirt

in photographs publicizing her Bangerz world tour last

year and publishing them to her 17 million or so Twitter

followers and using images of the shirt on some of the

tour merchandise, Cyrus presented the young label with

very valuable global publicity worth millions of dollars.

The relationship seems to have recently soured since

Cyrus’s costume designer for the 2015 VMAs, Brad

“BCalla” Callahan, who is based in the US, presented

Cyrus and dozens of drag queens in her musical perfor-

mance at the VMAs wearing outfits prominently display-

ing the Third Eye motif and other indicia recognisable as

hallmarks of DI$COUNT UNIVER$E designs. These

outfits were sufficiently derivative and redolent of the

DI$COUNT UNIVER$E oeuvre that they apparently

prompted floods of congratulations to be sent to the

designers from fashion watchers who had assumed that

the costumes were DI$COUNT UNIVER$E designs.

BCalla’s reported position is that he was inspired not

by DI$COUNT UNIVER$E but by Salvador Dali and

Kansai Yamamoto.1 The Sydney Morning Herald added

that he did not mention Jean-Charles de Castelbajac who

under his label JC/DC designed a dress for Katy Perry to

wear to the MTV music awards back in 2008 that

featured a bodice comprised of two large eyes which

look quite similar to those being debated now.

intellectual property law bulletin November/December 2015258

BCalla stated:2

Discount Universe is a major brand anyone with a slightinterest in fashion would know. I have only respect forthem. I am well aware of the challenges of being anindependent designer in this industry, but it would be adisservice to my creative inspiration in this case to sayDiscount Universe was a reference point.

As many others have pointed out, fashion is essen-

tially about recycling old ideas and passing them off as

new. Sometimes this is done by reinterpreting previous

designs and sometimes it is done by just copying them.3

I have known rag traders who go on business trips with

an extra empty suitcase to fill with “inspirations” for

their new ranges that they intend to pick up offshore.

The current MVA fashion scandal is an opportune

lens through which to view the various ways in which

fashion designers can protect their creations, albeit this

case is complicated by the fact that the alleged infringe-

ment of the DI$COUNT UNIVER$E designers rights

occurred in the US, not here in Australia. This article

does not propose to examine the US law in any detail but

will focus on the relevant Australian law.

When it comes to intellectual property protection of

apparel, accessories and the like, the stage can be

divided into three distinct areas:

1. Copyright

Copyright protection is applicable to designs that

are printed or otherwise reproduced in two dimen-

sions — like prints on fabric. The DI$COUNT

UNIVER$E t-shirt that started all this is an example

of a fabric print that would enjoy copyright

protection, as did the t-shirt design created by

Elwood that the Full Federal Court agreed on

appeal had been substantially copied by Cotton

On.4 There are many examples of two dimensional

fabric prints in the DI$COUNT UNIVER$E uni-

verse that would also qualify for this type of

protection, such as their prints incorporating large

scattered letters of their brand name, and those

consisting of images of large eyes combined with

mouths dripping with blood.5

As readers would appreciate, infringement is not

measured based on a percentage approach as is

often assumed but rather on whether the element

that is copied is a substantial part of the overall

work, a question that is answered by reference to

the quality of what has been copied, rather than the

quantity.

Difficulty may arise though, in relation to the

designs that are the subject of this article, as some

of them appear to be somewhat raised or three

dimensional, for example many are created using

sequins sewn onto the fabric. In essence, it is

certainly the law in Australia that if the article has

a raised or textured surface and this is not a feature

which has been applied to the fabric after the

underlying fabric has been manufactured,6 but is

rather a part of the original manufacturing process,

then the design for the article will be considered a

“corresponding design” and if “industrially applied”

will be unable to be protected using copyright as

discussed below.

In the US the current position is similar in that

while fabric designs are copyrightable, dress designs

are generally not, unless the design elements can

be separated from the overall function of the

article as clothing. This may well be the case in

relation to costumes such as the ones under

consideration, as opposed to other articles of

clothing.

2. Registered designs

In Australia, designers are encouraged to register

their designs7 for an article (that is not a two

dimensional design as discussed above) under the

Designs Act 2003 (Cth) for a 5–year term, with a

maximum of 10 years, if the design is going to be

“industrially applied”,8 as these designs will lose

their copyright protection under the design/

copyright overlap provisions of the Copyright

Act,9 except if the work can be considered a work

of “artistic craftsmanship” (essentially, having an

aesthetic quality and handmade with skill). The

equivalent registration under US law is known as

a Design Patent.

The expense involved in registration and the fickle

nature of fashion when compared to the relative

longevity of industrial designs has meant that this

type of protection is not often sought by fashion

houses. This is particularly the case with start-ups

who are generally not well capitalised.

3. Registered trade marks

This is the type of protection one first thinks about

when talking about a fashion house’s brand name

or logo itself. However, it also deserves serious

consideration when what is sought to be protected

is a prominent motif or element associated with

the brand, such as the motifs in the DI$COUNT

intellectual property law bulletin November/December 2015 259

UNIVER$E range (or the red colour used on the

soles of Louboutin shoes,10 the cartoon dog image

of Mambo11 or the buckle on Louis Vuitton

satchels, which is registered as a shape trade

mark12).

A vital distinction in the application of trade mark

law (in Australia as opposed to the US) is the

requirement for the alleged infringer to have been

using the image “as a trade mark”.13 Louis Vuitton

Malletier was successful in overcoming this hurdle

in Australia in claiming infringement of its flower

logo trade mark by the defendant’s use of a

deceptively similar mark on the arms of its sun-

glasses. Use of the relevant motifs “as a trade

mark” is however, less clear when one considers

the use by BCalla in the current case.

This is particularly so when the designs may have

been a one off for that particular performance and

if translated to more mass market products would

no doubt be accompanied by clear labelling mak-

ing it obvious from which fashion house they

originate. It should also be noted that had the

motifs been registered as trade marks, the relevant

infringement took place in the US so the trade

marks would need to have been registered there as

well as in Australia.

Under the US Lanham Act there is a two stage test

for trade mark infringement:

• first, whether the trade mark itself “merits

protection”; and,

• second, whether the alleged infringing mark is

likely to cause consumer confusion.

While the second test would likely be passed, it is

not clear whether a trade mark case on these facts

would have passed the first hurdle. As the Louboutin

cases showed, the US courts are fairly ready to

accord the fashion industry a low or thin level of

protection where trade marks are concerned and

will fairly readily find that they do not merit the

same level of protection as their owners assume

they will.

Other fashion cases have been founded on misleading

and deceptive conduct14 and passing off, and judging by

the number of misplaced congratulations the designers

apparently received in this case its seems there were

quite a number of people who were actually misled by

BCalla’s conduct as to the origin of the designs he

presented at the MVAs.

It is unlikely however that the designers who feel

they were wronged will seek civil remedies against him.

The costs of litigation in Australia let alone the US

would be prohibitive for such a small plaintiff as

DI$COUNT UNIVER$E. Maybe it was just a good way

to cause a stir and get some extra publicity for all

concerned, Cyrus and both sets of designers included.

Until recently the author of this article was com-

pletely unaware of DI$COUNT UNIVER$E and their

designs, and unless this scandal had broken out still

would be, and it is suspected many others would be too.

Catherine Logan

PrincipalLegal Visioncatherine.logan@legalvision.com.auwww.legalvision.com.au

Footnotes1. Clarke J “Discount Universe ‘distraught’ after Miley Cyrus’

VMA costume rip off” The Sydney Morning Herald 1 Septem-

ber 2015, www.smh.com.au/lifestyle/fashion/discount-universe-

distraught-after-miley-cyrus-vma-costume-rip-off-20150901-

gjcwv0.html.

2. Anderson S “Miley Cyrus accused of wearing copycat designs

at VMAs” The Guardian 1 September 2015, www.theguardian.com/

music/2015/sep/01/miley-cyrus-accused-copycat-designs-

vmas.

3. So Bad So Good “A shocking look at how contemporary

fashion blatantly rips off the past” http://sobadsogood.com/

2015/06/22/a-shocking-look-at-how-contemporary-fashion-

blatantly-rips-off-the-past/.

4. Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2008)

80 IPR 566; [2008] FCAFC 197; BC200811583, in which it is

noted the defendant’s employee designers admitted having had

“reference” to the plaintiff’s design, and see also the more

recent Seafolly cases, Seafolly Pty Ltd v Madden (2012) 279

ALR 337; (2012) 98 IPR 389; [2012] FCA 1346; BC201209325

and Seafolly Pty Ltd v Fewstone Pty Ltd (2014) 313 ALR 41;

(2014) 106 IPR 85; [2014] FCA 321; BC201402337, but

compare with Ladakh Pty Ltd v Quick Fashion Pty Ltd [2012]

FCA 389; BC201202324, where Ladakh was unsuccessful

(including on appeal) in prosecuting an alleged infringement of

a butterfly motif printed on fabric owing to lack of any direct

evidence of copying by the defendant.

5. See www.discountuniverse.com.au/blog/.

intellectual property law bulletin November/December 2015260

6. As in Polo/Lauren Company LP v Ziliani Holdings Pty Ltd

(2008) 173 FCR 266; (2008) 80 IPR 531; [2008] FCAFC

195; BC200811419, where the polo player logo embroidered

onto the fabric of the t-shirts, even though raised above the

fabric, was held on appeal not to have been merely applied to

and not “embodied” in the garments in the sense that the term

is used in ss 74–7 of the Copyright Act 1968 (Cth).

7. For an example of where the designers successfully prosecuted

an infringement of their registered design for a dress, see

Review Australia Pty Ltd v Innovative Lifestyle Investments Pty

Ltd (2008) 166 FCR 358; (2008) 246 ALR 119; [2008] FCA

74; BC200800601.

8. That is, applied to more than 50 articles or to one or more

articles manufactured in lengths or pieces (Copyright Act,

s 77).

9. Refer to Div 8 (Designs) ss 74–77A of the Copyright Act.

10. Australian Registered Trade Mark 1352410 and see also C

Logan “Louboutin sees rouge: can other traders colour the

soles of their shoes red?” (2011) 24(3) Australian Intellectual

Property Law Bulletin, and C Logan and W Liu “Louboutin

v YSL - Single-colour trade marks in the fashion industry: are

there any lessons for us?” (2012) 25(5) Australian Intellectual

Property Law Bulletin.

11. Registered Australian Trade Mark 1483074.

12. Registered Australian Trade Marks 1025638 and 984027.

13. Louis Vuitton Malletier v Sonya Valentine Pty Ltd (2013) 106

IPR 203; [2013] FCA 933; BC201312983, discussed in C

Logan “Fur flying in fashion cases: a roundup of last year’s

trade mark disputes involving fashion brands” (2014) 27(3)

Australian Intellectual Property Law Bulletin.

14. For example, while the court in the Louis Vuitton case did not

find that the trade marks “Louis Vuitton” and “Louis V” were

deceptively similar for the purpose of the plaintiff’s claim of

trade mark infringement, it did find that the use of the brand

name “Louis V” and the flower motif by the defendant

constituted misleading and deceptive conduct by the defendant

for the purposes of s 18 of the Australian Consumer Law.

intellectual property law bulletin November/December 2015 261

Protecting GUI Designs in Australia: morequestions than answersStuart Irvine FREEHILLS PATENTS ATTORNEYS

Many countries allow graphical user interface (GUI)

features to be protected by registered designs.

The current position in Australia is not clear.

The position of the Australian Designs Office, which

is responsible for handling design applications, is that

GUI features should not be protectable by registered

designs.1 The legitimacy of this position — or at the

very least, the manner in which it is implemented by the

Designs Office — has been questioned.2

At this stage the issues are not resolved and there are

more questions than answers.

At a high level, though, a recent review of the

Australian Designs system by Australia’s Advisory Coun-

cil on Intellectual Property (ACIP) suggests that at some

point — if not already — GUI features may be protect-

able by registered designs in Australia.

SummaryThe current view of the Australian Designs Office is

that GUI or screen display designs should not be

protectable by registered designs. This view appears to

be primarily based on a recommendation put forward by

the Australian Law Reform Commission (ALRC) in its

1995 Report on the Australian designs system.3

At a policy level, the rationale for denying protection

of a graphic displayed on a display screen by software/

hardware but allowing protection for the same graphic

when “painted” on that display screen (or printed on an

alternative material) is unclear.

Despite the view of the Designs Office, the nature of

the Australian designs system is such that it is possible

to obtain a registered design for a “display screen” or

“electronic device” or the like which is represented as

displaying GUI features.

In order to enforce a design, however, it must be

examined and certified. Under its current approach, if a

GUI design is examined the Designs Office will typi-

cally find it invalid. This approach has not been consis-

tently applied and has recently been criticised by ACIP.

More generally, ACIP has also recommended that the

treatment of GUI designs should be reconsidered sug-

gesting that further change in this area can be expected.

What are graphical user interface designs?The focus of this article is GUI designs. In this article

the term “GUI designs” is used to refer to graphics (such

as user interfaces and icons) that are displayed on a

screen due to the operation of software and/or hardware.

In its recent Review of the Designs System, ACIP

referred to such designs as “virtual or non-physical

designs”.4 In its 1995 Report the ALRC referred to these

as “screen display” designs.5

The policy

The 1995 ALRC ReportThe current Designs Act was drafted following a

1995 Report by the ALRC.6 In that report the ALRC

recommended that screen display designs should not be

protectable: “Screen displays should not be able to be

protected as designs. It is not necessary to include any

special provision in the new designs legislation to

confirm this”.7

This recommendation was based on the views that a

“screen display” — eg, an icon, GUI or other GUI

element:

• cannot adequately distinguish a computer screen

as it is not always displayed on the screen;8

• is not a product itself but rather a use of a product

(eg, a computer monitor).9

When considered against the broader rationale behind

the designs system, however, the relevance of these

views (even if correct) is not entirely clear.

In its 1995 Report the ALRC summarised the “main

objective” of Australia’s designs law to be:10

… to encourage innovation in Australian industry toAustralia’s net economic benefit. Designs law can do thisby preventing competitors free riding on design innovationsand by providing investors in design with security for theirinvestment.

The ALRC went on to state the following (which was

also referenced in ACIP’s Final Report on the Review ofthe Designs System):11

Design protection is intended to encourage innovation inindustrial design in two main ways: by preventing com-petitors free riding on design innovations and by providing

intellectual property law bulletin November/December 2015262

investors in design innovation with security for theirinvestment. Both are important elements in innovationpolicy.

Why this broad rationale for design protection should

not apply to design of a graphic which is intended to be

displayed on a screen by software, hardware or firmware

is not clear.

This is particularly the case when design protection

could be secured if the same graphic was permanently

displayed on the screen (eg, by being painted on the

screen12) or printed on a label, a textile, a bumper

sticker, a sheet material, a flag, a banner, a colour chart,

or a card (all of which are examples of products in

respect of which designs have been certified).13

The 2015 ACIP ReportGUI designs were more recently considered by ACIP

in its review of the designs system.

In its Final Report, published in March 2015, ACIP

noted that the majority of submissions received sup-

ported some protection being provided for GUI designs.14

This led to ACIP recommending that the treatment of

GUI designs should be reconsidered15 — the context

indicating that this reconsideration should be with a

view to providing some form of protection for GUI

designs.

In addition, and as discussed further below, ACIP

criticised the current practice of the Designs Office with

respect to GUI designs. Specifically, ACIP viewed the

approach of considering a product in a “resting” state to

be outdated and to lack any legislative basis.16

GUIdesignsandtheAustralianDesignsOfficeIn Australia design applications are initially subjected

to a formalities check and, if the formalities are satisfied,

the design is registered. Substantive examination of a

registered design is only performed if specifically requested.

If the registered design successfully passes examination

it is certified and becomes enforceable. If not it is

revoked.

The Designs Office view that GUIs should not be

afforded design protection has implications at both the

formalities check and substantive examination stages of

a design.

Formalities checkDuring the formalities check one question considered

by the Designs Office is whether or not an application is

for a design “in relation to a product”.

If a design application specifies the product to be a

“graphical user interface” (or “icon” or other similar

product) the Designs Office will object that this is not a

legitimate product as it is not a “thing that is manufac-

tured or hand made”17 as required by the Designs

Act 2003 (the Act).

A typical approach for forestalling such an objection

is to file GUI designs in respect of “display screens”,

“electronic devices” or like devices which are consid-

ered “products”.

Taking this approach, a design in respect of, for

example, a “display screen with a graphical user inter-

face”18 can pass the formalities check and be registered.

Conversely, an application naming the product as a

“graphical user interface” (potentially having identical

representations of the design) would not pass formali-

ties.

A search of the Designs Office Database19 for designs

with product names including “display” and “screen”

yields over 1000 results. Not all of these results are

necessarily for GUI designs but a cursory review indi-

cates that a very large percentage is. This was noted by

ACIP in its Options Paper where ACIP observed that:

“there are large numbers of registered designs that relate

to graphical user interfaces and other non-physical

designs, although very few of these registrations are

certified”.20

The requirement for a design to be in respect of a

physical product is not, in an international sense, that

unusual. The US, for example, imposes a similar restric-

tion that design patents (analogous to Australia’s regis-

tered designs) must be in respect of an “article of

manufacture”.21 This leads to US applications seeking to

protect GUIs also being filed for “display screens” (or

other articles of manufacture).

Substantive examination

A registered design is only subjected to substantive

examination if a request is made (by the design owner or

a third party) or the Designs Office itself initiates

examination.

Substantive examination involves the Designs Office

assessing whether the design is new and distinctive

when compared against the prior art base. This in turn

involves a consideration of the “visual features” of the

design, “visual features” being inclusively defined in the

Act to include “the shape, configuration, pattern and

ornamentation of the product”.22

When assessing a design the approach of the Designs

Office is that the product in question must be imagined

in an “at rest” state: “The visual features of the product

must be assessed in the context of the product ‘at rest’,

as opposed to ‘in use’”.23

It should be noted that there is no apparent statutory

basis for drawing a distinction between a product “at

rest” and a product “in use”. This was raised by ACIP in

its Final Report:24

There is nothing in the legislation which requires that visualfeatures to be observable in the ‘resting’ state or when

intellectual property law bulletin November/December 2015 263

unconnected to electricity. IP Australia should reconsider,and abandon, this aspect of its practice in assessing thevalidity of designs.

Nonetheless, when examining a design in respect of a

“display screen with graphical user interface” or similar

the Designs Office imagines the display screen in a

switched off state: “Visual features that are displayed on,

for example, the screen of a computer monitor through

the operation of software do not exist when the com-

puter is switched off”.25

The consequence is that when examined, a GUI

design ends up with only the device itself being treated

as a “visual feature”. Other features included in the

representations — but which the Designs Office believes

would not be displayed in an unpowered state — are

simply ignored.

As the device in GUI design registrations is often

depicted by a simple broken outline rectangle, it is not

considered to be distinctive over prior art display screens

and the design is revoked.

Despite their “normal” approach, the Designs Office

can be convinced to consider the features depicted on a

display screen as “visual features”. This involves, how-

ever, asserting that the features depicted exist as perma-

nent markings — eg, “paint on the surface of the

screen”26 — and would therefore exist when the screen/

device was powered off.

It should also be noted that the treatment of GUI

designs by the Designs Office does not (on the face of it)

appear to be consistent. Certified Australian designs in

respect of a “display screen with graphical user inter-

face”27 do exist.

Infringement/enforceability of certified GUI designs

also raises questions, though this is beyond the scope of

this article.

Where to from hereACIP’s Final Report suggests that GUI designs in

respect of “products” (things that are manufactured or

hand made) should already be able to be certified —

irrespective of whether the GUI features are perma-

nently or transiently displayed.

Whether this will impact the current approach of the

Designs Office to GUI designs is not certain.

More generally, though, ACIP’s Final Report recom-

mends that the treatment of GUI designs should be

reconsidered.28 This provides some cause for optimism

that even if the Designs Office does maintain its current

approach change is on the horizon.

Taken together these factors suggest that where a

commercially important GUI design is developed seri-

ous consideration should be given to filing for registered

design protection.

Stuart Irvine

Senior AssociateFreehills Patents Attorneysstuart.irvine@freehillspatents.comwww.freehillspatents.com

Footnotes1. IP Australia, Designs Examiners’ Manual of Practice and

Procedure, s D04.4.3.1, as at 9 July 2015.

2. Advisory Council on Intellectual Property, Review of the

Designs System Final Report, March 2015 at 31.

3. Australian Law Reform Commission (ALRC) Report 74,

Recommendation 20.

4. Above, n 2, at 31.

5. ALRC Report 74, at s 4.30.

6. ALRC Report 74.

7. ALRC Report 74, Recommendation 20.

8. ALRC Report 74, at 4.31.

9. ALRC Report 74, at 4.32.

10. ALRC 74, Overview.

11. ALRC 74, s 3.2. Cited in ACIP Review of the Designs System

— Final Report at 14.

12. Above, n 1.

13. These are all examples of products in respect of which designs

have been certified.

14. Above, n 2.

15. ACIP Review of the Design System, Final Report, Recommen-

dation 14.

16. Above, n 2, at 31.

17. Designs Act 2003 (Cth), s 6.

18. For example Australian registered design 352615.

19. IP Australia, Search for a Design available at http://

per ic les . ipaustra l ia .gov.au/adds2/

adds.adds_simple_search.paint_simple_search.

20. Australian Council on Intellectual Property, Review of the

Design System, Options Paper, December 2014 at 49.

21. Cornell University Law School, Legal Information Institute,

Patents for Design 35 US Code 171.

22. Designs Act, s 7.

23. Above, n 1.

24. Above, n 2, at 31.

25. Above, n 1.

26. Above, n 1.

27. See for example, Australian certified designs AU 351253, AU

350879, AU 350878.

28. ACIP Review of the Design System, Final Report, above, n 2,

at 33.

intellectual property law bulletin November/December 2015264

Trade marks in business — you’ve gotta fight(for your naming rights)Katie Dillon KING & WOOD MALLESONS

Takeaway tipsWhen acting for a client who is considering using

their name as a branding or marketing tool, there are a

number of points worth considering:

• Who will be involved in the business? Are other

family members likely to want to be involved in

the same industry? If so, it may be preferable to

use branding not associated with the family name.

• Is it possible to register an acronym, or a shorten-

ing of your client’s full name? This could be a

good mid-way point to allow your client to personalise

their brand as well as to safeguard against any

potential disputes with family members.

• What is your client’s vision for the company, and

how long will your client be involved? If their

business strategy is short-term, using their name

may not be a wise investment.

• What happens if, for some reason, your client is no

longer associated with the company or brand that

is tied to their name? If your client does not own

the rights to their name, will they be able to afford

to purchase or to licence it back (if that is even an

option)?

• Is your client in an industry which relies on names

as identifiers, or which places a lot of goodwill in

them (for example, fashion)? If so, consider the

fact that if your client is not associated with the

owner of the trade mark rights to their name it may

be difficult to begin again.

• Consider the potential pitfalls at the outset — who

will own what? Remember that there are trade

marks, domain names, business names and internet

search keywords to consider.

• If your client intends to lease the rights to use their

name from a third party owner, ensure you draft

the relevant contracts so that they effectively deal

with ownership rights on termination. This may

cost your client more upfront but may prove

invaluable in the future.

We share our lives with our families — we learn,

communicate, socialise and build our identities through

them. The significance of family can be seen in cultural

practices worldwide — names are passed from genera-

tion to generation as a means of identifying where we

come from and who we belong to.

Not only do we give our names to our families but

commonly our business, products or services too. From

Dick Smith to Dior, a name can be a valuable tool to

indicate product quality or simply a point of origin. As

with any other brand, trade mark applications are often

lodged to protect the value of these names. However this

can have interesting, and sometimes unexpected, out-

comes for those involved. Where a name is used as a

trade mark it is of course sensible (and recommended) to

protect that mark. Entrepreneurs should consider at the

outset what they can do to protect that name against the

uncertainties that the future holds. A common example

of this is where a small family business becomes a

significant operation — trade mark issues can seem

insignificant while a company is in its infancy but can

very quickly become a major issue if not properly

considered at the outset.

This is not to say that family names should not be

used as trade marks — they are often a logical branding

choice, and can be a highly effective tool — however,

there are a number of considerations that should be

taken into account in order to preserve the value of that

name in business.

This article considers the value of making a name for

yourself and the basic principles of trade marking a

name, what we can learn from examples of trade mark

protections “gone wrong” and how the good faith

defence operates to keep the application of the law

practical.

The value of the name game“What’s in a name? A rose by any other name would

smell as sweet”— the musings of Juliet in Shakespeare’s

Romeo & JulietNames can be particularly powerful and valuable —

simply look at how lucrative celebrity endorsements are.

A celebrity endorsement can significantly spike product

sales, and merchandise tied to a celebrity can take

intellectual property law bulletin November/December 2015 265

something like a fragrance from a consumable to a

collector’s item. Just ask Britney Spears — in 2013, her

perfume line brought in an estimated US$30 million.1

Even the names of celebrities who have passed away are

valuable to their estates. Think of Marilyn Monroe, who

was worth US$370,000 alive and US$27 million (and

counting) after her death.2 Other jaw-dropping celebrity

endorsements include Beyonce’s US$50 million deal

with Pepsi, Usain Bolt’s annual US$19 million endorse-

ment and sponsorship paycheck and Brad Pitt’s US$6.7

million deal to become the face of Chanel No 5.3

So, to answer Juliet’s question, “what’s in a name”:

potentially, quite a lot of money.

Each of these celebrities (and many more) likely use

trade marks to protect the value of their personal brands.

After all, Beyonce, Usain and Co will want to ensure

that their names or their likenesses are not used by just

anyone. This seems a sensible approach — until you

consider the possibility of becoming divorced from the

right to use your name.

Common names, uncommon valueCelebrity names are one thing but what about the

value in a common family name? Australian law acknowl-

edges that celebrities should be able to utilise their

reputation to endorse and sponsor other products for a

fee — but for common folk the rules are slightly

different.

Common surnames are usually not considered capable

of distinguishing goods or services (even where an

uncommon spelling of a common surname is involved)

due to their popularity. Additionally, granting exclusive

rights to common surnames is considered problematic

because of the number of people who may be deprived

of their legitimate right to use those names in connection

with their goods and services.

That said, there are exceptions to the rule. Australian

consumers will be familiar with retail giants Myer and

David Jones, and with iconic Australian food products

like Smith’s potato crisps, Paul’s dairy products and

Allen’s confectionary — all of these are registered trade

marks, and all are very common surnames. So common,

in fact, that at the time of writing this article, there were

several hundred Myer’s, Smith’s and Allen’s listed in the

telephone directory. There are likely a number of factors

which will have weighed in favour of these marks being

registered (despite the fact that they are common names),

some of which we will discuss later in this article.

Generally, words used in trade marks should be

considered in their “ordinary signification”, and where

words are common to a particular trade or indicate a

common heritage, they will not be registered as trade

marks as they are not capable of distinguishing goods or

services.4 This will not apply to names as trade marks,

however, as the “ordinary signification” of a surname

will not be descriptive of goods and services. In the

recent case of Garrett Electronics Inc,5 it was held that

the surname GARRETT was capable of distinguishing

metal detectors because it was highly unlikely that a

person manufacturing metal detectors in Australia would

have the surname Garrett — that is, the name Garrett

was not common to, or descriptive of, that particular

trade — and so the “ordinary signification” of the name

Garrett in this context would be a specific supplier of

those goods.

Outside Australia, the European Court of Justice

(ECJ) has taken a different approach to trade marking

common surnames. The ECJ considers that common

surnames are to be examined exactly the same way as

any other trade mark would be, and that strict criteria,

such as establishing a distinctiveness threshold of a

predetermined number of people who may have the

same name, must not be applied to these marks.6

It seems safe to assume that in Australia (unless your

name is very common) you will probably be able to

register your surname as a trade mark in relation to

particular goods or services (except where the same or a

substantially similar mark has been registered in the

same class of goods or services).

First (names) firstAlthough it is more common for individuals to seek

to trade mark their surnames, it is not unheard of for

protection to be sought for first names. Generally, the

same rules that apply to surnames will apply to first

names — that is, the mark must be capable of distin-

guishing goods or services, and must not deprive others

of a legitimate use of their name.

A well-known illustration of trade marking first

names is Kylie Minogue, who has trade marked KYLIE

in relation to perfumery and cosmetics.7 Perhaps it is a

Kylie thing — Kardashian step-sibling Kylie Jenner has

also applied to the US Patents and Trade Marks Office to

trade mark KYLIE. The difference between the two is

that while Kylie Minogue’s application is fairly specific,

Kylie Jenner’s are very broad — they are in relation to

“entertainment in the nature of providing information by

means of a global computer network in the fields of

entertainment, fashion, and pop culture; entertainment

services, namely, personal appearances by a celebrity,

actress and model”8 and “advertising services, namely,

promoting the brands, goods and services of others;

endorsement services, namely, promoting the goods and

services of others”.9 The potential issue is that while

there are not many perfumes branded with KYLIE,

given the popularity of social media and the number of

people called KYLIE, it seems difficult to imagine how

Ms Jenner will be able to establish that the mark will

intellectual property law bulletin November/December 2015266

distinguish her entertainment and advertising services

from those of any other Kylie out there. Ms Jenner’s

application for “advertising services” will be published

for opposition on 25 August 2015 — undoubtedly there

will be a few people interested in the outcome.

Having briefly addressed the process and require-

ments for trade marking a name, we can now turn to

consider the downsides, if any, to using a name (first or

last) as a trade mark.

That is not your nameWe take for granted the ability to use our own name

(and image). For individuals who start companies or

create brands using their personal or family name, the

ability to use that name carries even more significance.

Not only is your name part of your identity, it is also part

of your livelihood. However, trade mark protections can

be quite problematic when there is a fallout within a

business — particularly between family members, where

emotion tends to run high — and the right to use a

protected name comes into question. There are a number

of prominent examples of these cases where individuals

have actually lost the right to use their names (or have

had to licence them back at significant expense) in these

circumstances.

Take Bob Jane, for example. The former racing driver

established the Bob Jane T-Mart business in 1981, and

registered a number of trade marks to Bob Jane Corpo-

ration Pty Ltd, including BOB JANE and the below

image:

The mark BOB JANE and the above image were used

extensively over a significant period of time to promote

the Bob Jane T-Mart business.

Bob Jane was director and CEO of Bob Jane Corpo-

ration until a bitter (and very public) family dispute,

which saw him sell out of the business. Rodney Jane,

Bob’s son, took over as CEO of Bob Jane Corporation.

Bob Jane then went on to establish a number of new

companies, including “JANE TYRES” and “BOB JANE

GLOBAL TYRE CORPORATION”, all of which were

competitors to Bob Jane T-Mart. Bob Jane also used a

variety of marks which were very similar to Bob Jane

T-Mart’s to promote his new companies, including the

image below:

Things got nasty when Bob Jane began approaching

Bob Jane T-Mart franchisees and suppliers about his

new businesses (apparently in an attempt to divert their

custom). When Bob Jane Corporation asked Bob Jane to

stop, Bob Jane’s response was “Rodney, I will contact

who I like, when I like, about what I like. You are a liar

and a thief. Sue me”.

Bob Jane Corporation did exactly that, and brought

proceedings against Bob Jane’s newly formed compa-

nies for trade mark infringement, misleading and decep-

tive conduct and passing off. The Federal Court of

Australia found for Bob Jane Corporation on all grounds.10

In particular, the court found that Bob Jane’s behaviour

was antagonistic and displayed a lack of regard for the

consequences of his conduct. Not only was he found to

have breached Bob Jane Corporation’s trade mark rights,

Bob Jane’s behaviour meant that he was unable to rely

on any “good faith” defence he might have sought under

the Trade Marks Act 1995 (Cth) (Trade Marks Act).

While Bob Jane’s behaviour was perhaps not ideal, it is

easy to appreciate the immense frustration Bob Jane

must have felt, having built a business in his name, in his

field of expertise, to then be in a position where he was

unable to use that name or the goodwill he had built in

it. Comfortingly (or perhaps not) Bob Jane is not alone

in this position.

Australian fashion designer Alannah Hill found her-

self in a similarly frustrating situation in 2013. The trade

mark rights to ALANNAH HILL and the stylised AH

intellectual property law bulletin November/December 2015 267

mark synonymous with the brand are owned by Factory

X. This arrangement seemed to suit all parties involved,

until Ms Hill’s “monumental decision” to leave the

business in 2013. Media reports indicate that Ms Hill did

not leave on the best of terms, with both Factory X and

Ms Hill publicly stating that they were disappointed

with how the events unfolded. Ms Hill is now in the

unfortunate situation of having a company she is not

affiliated with selling clothes under her personal name,

while she is unable to apply that same name (which has

built up a significant following) to any future clothing

lines she designs. The extent of this likely hit home for

Ms Hill when Factory X filed a trade mark application to

use ALANNAH HILL in connection with alcoholic

beverages. For another designer, this might have been

acceptable, however, Ms Hill is a non-drinker. It is

difficult to imagine the shock and frustration of seeing

your name used in a manner which so publicly and

directly conflicts with your personal values, however

these examples serve to illustrate the true value of

intellectual property rights — particularly where your

name is on the front door.

There are many more examples of individuals who

have found themselves on the wrong side of the (trade

mark) law — luxury shoemaker Jimmy Choo had to

licence back the rights to use the mark JIMMY CHOO

from Jimmy Choo Ltd (with whom he has no connec-

tion), and Peter Morrissey had to buy back the MOR-

RISSEY trade marks after a number of trade mark

applications for PETER MORRISSEY were opposed on

the basis that they were likely to deceive or cause

confusion.11

In each of these cases, the individuals whose names

were the subject of trade mark applications did not own

the rights to use those marks. However, they were

fortunate enough to be able to purchase back the rights

to use their names. While this may be an option for high

net worth individuals, for those who are less financially

able, or where the owners of the naming rights refuse to

sell, a work-around may be more difficult (or even

impossible).

An interesting exercise is to compare the outcome in

the cases of Bob Jane and Alannah Hill to the example

of Elsa Peretti, jewellery designer at Tiffany & Co.

Peretti’s designs are amongst Tiffany’s best sellers,

accounting for 10% of Tiffany’s sales between 2009 and

2011. The difference here is that Peretti owns the trade

mark registrations for her brand, so when Tiffany and

Peretti were renegotiating the terms of her licensing

agreement Peretti had negotiating power. The parties

finally agreed to extend the licensing contract allowing

Tiffany’s to sell products under Peretti’s name for a

further 20 years at a cool US$47.2 million (plus royalty

fee and a percentage cut of net sales). Although US law

applied in this case, the outcome is clearly illustrative

for our purposes.

It seems clear that individuals who retain the rights to

use their names are much better-placed moving forward

where a parting of the ways or a dispute occurs — but

what if it is already too late? What if you find yourself

in a position where someone else owns your naming

rights? Can you use your name at all?

Good faith — on the fringe of infringement?Section 120 of the Trade Marks Act provides that a

trade mark will be infringed if:

… [a] person uses as a trade mark a sign that is substan-tially identical with, or deceptively similar to, the trademark in relation to goods or services in respect of which thetrade mark is registered.

A trade mark will not be infringed where the mark is

used in good faith to indicate a characteristic of the

goods; for example, intended purpose, value or geo-

graphical origin.12 Good faith has been interpreted to

mean an honest use, in the absence of an ulterior

motive,13 such as to deceive consumers or to make use

of the goodwill of another.14

The rationale behind this exception is to preserve the

free use of the English language as the common property

of society. The courts have recognised that it is funda-

mental to trade mark law that registration should not

interfere with the right of another person to honestly

describe his or her product.15 After all, it would be

manifestly unfair to prevent people from using certain

words which are merely descriptors. This principle is

reflected in IP Australia’s Trade Marks Application

Guide in the reasoning around the general prohibition of

trade marking common surnames.

So how might this affect individuals who do not own

the intellectual property rights to their own names? Can

they use them at all? Or will any subsequent use be

considered passing off — an attempt to misrepresent the

source of a product or service?

Section 122(1)(a)(i) of the Trade Marks Act provides

that a person does not infringe a registered trade mark if

the person uses, in good faith, that person’s name or the

name of that person’s place of business. In other words,

when a person uses a sign (that is, their name) to

distinguish their goods and services from the goods and

services of others, and the sign is substantially or

deceptively similar to a registered trade mark, the use

will not be an infringement if the person is using the sign

in good faith.

The defence is, however, subject to a number of

qualifications; for example, the defence cannot be relied

on if the mark in question is only part of a company or

intellectual property law bulletin November/December 2015268

a person’s name. This played out in a case where the

registered trade mark was SWEETHEART, and a com-

pany called Sweetheart Plastics Inc was unable to use

that mark in reliance on s 122(1)(a)(i) as it was not

characterised as a use of the company’s name (which

would have to have been Sweetheart Plastics or Sweet-heart Plastics Inc).16 It goes without saying that the

“good faith” defence is called that for a reason — if the

mark is being wrongly used to divert business, even

where the mark is the company or the individual’s name,

the defence will not be available.17

It is also worth noting that using your name as a trade

mark may also constitute misleading and deceptive

conduct where the name is protected and that use results

in consumer confusion about the origin of a product or

service.18

A slightly different take on the same issue is where a

person wants to use their name in business but the name

is already in use by someone else. In these cases, timing

of use and registration (as well as the category of goods

or services concerned) and use in good faith will be key.

This was the case for accessories designer Colette

Hayman, who ended up in dispute with fashion designer

Collette Dinnigan, over the use of the mark COLETTE/

COLLETTE. Ms Dinnigan’s brand launched in 1990

while Ms Hayman began opening stores in 2010. Each

designer clearly wanted to be able to use their own name

in relation to their own products but Ms Dinnigan was

concerned that consumers would confuse Ms Hayman’s

accessories as being part of her clothing label, and

Ms Hayman felt that Ms Dinnigan was attempting to

monoplise the market by taking out trade mark protec-

tions that were subsequently not used. The designers

were ultimately able to settle on COLETTE BY COLETTE

HAYMAN and COLETTE BY COLLETTE DIN-

NIGAN to distinguish between the two, which was also

acceptable to the Trade Marks Office.

The importance of timing of use and registration, and

the ability to prove that use, is also evident in the case of

Time Warner Entertainment Company, LP v StepsamInvestments Pty Ltd.19 In that case, a small clothing

retailer was allowed to register HARRY POTTER in

relation to clothing, despite the existence of JK Rowling’s

character of the same name, because (among other

reasons) the retailer was using the mark, and had built a

reputation based on it, before the book series became

widely known. Additionally, the clothing retailer was not

using any images associated with the book series, which

the court found served to minimise the likelihood of any

confusion.

Although these cases illustrate the possibility of

positive outcomes where a name is in concurrent use,

prevention (that is, conducting proper market research

before launching your business or product to ensure

your name is not already in use) is absolutely the best

cure here.

While there are examples of practical and legal

“work-arounds” to address scenarios where individuals

lose the right to use their names in business, generally it

seems a difficult and expensive exercise. However, if

addressed at the outset of establishing a business or

brand, many of these “name game” issues can be

avoided.

Katie Dillon

SolicitorKing & Wood Mallesonskatie.dillon@au.kwm.comwww.kwm.com

Footnotes1. Kafkaesque, Celebrities, Best-Selling Fragrances, Sales Fig-

ures & The Perfume Industry, 17 November 2013,

www.kafkaesqueblog.com/2013/11/17/celebrities-best-selling-

fragrances-sales-figures-the-perfume-industry/ and Eriq Gardner,

‘The 10 Best-Selling Celebrity Perfumes’, Hollywood Reporter

13 March 2013 www.hollywoodreporter.com/news

/jennifer-lopez-britney-spears-best-427374.

2. J Glor Marilyn Monroe still lucrative 50 years after her death

3 August 2012, CBS News, www.cbsnews.com/news/marilyn-

monroe-still-lucrative-50-years-after-her-death/.

3. News.com.au, Most outrageous celebrity endorsement deals

11 December 2012, www.news.com.au/entertainment/celebrity-

life/beyonce-signs-50m-pepsi-deal-to-become-global-brand-

ambassador/story-e6frfmqi-1226534213626.

intellectual property law bulletin November/December 2015 269

4. Cantarella Bros Pty Ltd v Modena Trading Pty Ltd (2014) 315

ALR 4; (2014) 109 IPR 154; [2014] HCA 48; BC201410159.

5. Re Garret Electronics Inc (2015) 114 IPR 155; [2015] ATMO

48; BC201506210.

6. Nichols plc v Registrar of Trade Marks [2005] All ER (EC) 1;

[2005] 1 WLR 1418; [2005] RPC 243.

7. IP Australia, Australian Trade Mark On-line Search System,

KYLIE 868867, http://pericles.ipaustralia.gov.au/atmoss/

Falcon_Details.Print_TM_Details?p_tm_number=868867=D=DETAILED=

3=FALSE=F.

8. United States Patent and Trademark Office, KYLIE 86584756,

1 April 2015 Kylie Jenner, www.uspto.gov/trademark.

9. United States Patent and Trademark Office, KYLIE 86584742,

25 August 2015 Kylie Jenner, www.uspto.gov/trademark.

10. Bob Jane Corp Pty Ltd v ACN 149 801 141 Pty Ltd (2013) 97

ACSR 127; [2013] FCA 1255; BC201315063.

11. M Webster Holdings Pty Ltd v Peter Morrissey Pty Ltd (2011)

91 IPR 624; [2011] ATMO 23.

12. Section 122(1)(b) of the Trade Marks Act 1995 (Cth).

13. Cantarella Bros Pty Ltd v Kona Coffee Roastery & Equipment

Supplies Pty Ltd (1993) 28 IPR 176; BC9305216; Johnson &

Johnson (Aust) Pty Ltd v Sterling Pharmaceuticals Pty Ltd

(1991) 30 FCR 326; (1991) 101 ALR 700; (1991) 21 IPR

1; BC9103278 at 353; Angoves Pty Ltd v Johnson (1982) 43

ALR 349; 66 FLR 216; (1982) AIPC 90-007.

14. Baume & Co Ltd v AH Moore Ltd [1958] Ch 137; [1957] 3 All

416; [1957] 3 WLR 870; [1957] RPC 459 at 463.

15. Woodward Ltd v Boulton Macro Ltd (1915) 32 RPC 173.

16. Smith & Nephew Plastics (Australia) Pty Ltd v Sweetheart

Holding Corporation (1987) 8 IPR 285; BC8700579.

17. See Anheuser-Busch Inc v Budejovicky Budvar (2002) 56 IPR

182; [2002] FCA 390; BC200201323; Baume & Co Ltd v AH

Moore Ltd [1958] Ch 907; [1958] 2 All ER 113; [1958] 2

WLR 797; [1958] RPC 226 at 921 and Australian Postal

Corporation v Digital Post Australia Pty Ltd (2013) 308 ALR

1; (2013) 105 IPR 1; [2013] FCAFC 153; BC201315501 at

[74].

18. Bob Jane Corp Pty Ltd v Bob Jane Global Tyres Corp

(Australia) Pty Ltd [2011] FCA 739; BC201104668 at [23].

19. Time Warner Entertainment Company, LP v Stepsam Invest-

ments Pty Ltd (2003) 59 IPR 343; [2003] FCA1502; BC200307818.

intellectual property law bulletin November/December 2015270

Tax implications of IP transactions: a briefoverviewSamin Raihan GRIFFITH HACK LAWYERS

Key practice pointsTransactions concerning intellectual property (IP)

rights often involve a complex overlap between tax and

IP law. Specific steps which IP lawyers may need to take

to adequately address the tax implications of IP transac-

tions and ensure the advice presented to clients is

commercially holistic, may include:

• being conscious of the commonly encountered tax

implications of various IP transactions and the

potential need to collaborate with other specialists

including tax, research and development (R&D)

and valuation specialists;

• informing clients of the potential to offset the cost

of their IP development through the general deduc-

tions, deprecation, or capital gains tax (CGT) cost

base provisions of the tax legislation. Such costs

can include overheads, purchases, salaries, annual

fees and potentially even the cost of litigation;

• recognising when the R&D tax incentive or other

government grants may be of relevance to clients

as a valuable source of funds including for further

research, development and commercialisation;

• ensuring assignment or licence agreements clearly

specify which party is liable for any applicable

goods and services tax (GST), stamp duty or other

taxes, and checking clients have obtained advice

on the more complex tax implications of entering

into such transactions; and

• recognising that transfer pricing rules and valua-

tion of IP is likely to present as issues requiring

specialist tax advice when there is a cross-border

licence or assignment between associated entities.

IntroductionWhen IP and tax law collide it pays to be aware of the

important issues. This is particularly true in the current

economic environment in which clients are increasingly

expecting their legal advisers to be acutely aware of

broader commercial issues, particularly those issues

which, like tax, can directly impact profitability.

This article aims to:

• familiarise readers with the key tax issues that can

arise in connection with transactions involving the

development, assignment and licensing of IP; and

• provide guidance on how these tax issues can be

adequately addressed in the course of providing IP

law advice.

Fundamental tax classifications for IPBefore exploring the tax implications of IP transac-

tions, it is necessary to explore two fundamental distinc-

tions under tax law which are relevant to these transactions.

The two main pieces of tax legislation are the Income

Tax Assessment Act 1997 (Cth) (ITAA 97) and the

Income Tax Assessment Act 1936 (Cth) (ITAA 36). No

IP legislation directly applies.

Type of IP right: depreciating assets versus CGTassets

Under tax law, the various forms of IP rights which

exist can broadly be classified as either depreciating

assets or CGT assets. This distinction is important as the

tax treatment for each asset is different, as explored

below.

Depreciating assets are defined as assets that have a

limited effective life and are reasonably expected to

decline in value.1 The ITAA 97 deems items of intellec-

tual property to constitute depreciating assets. However,

the tax definition of intellectual property is limited to the

rights held by the owner and any licensee of a patent,

design or copyright.2 Other intangible assets such as

in-house software and spectrum licenses are also classi-

fied as depreciating assets.3

A CGT asset is any kind of property or a legal or

equitable right that is not property4. Broadly stated,

assets which exist until disposed of and are expected to

grow in value are classified as CGT assets. Forms of IP

which constitute CGT assets include registered and

unregistered trade marks, goodwill, plant breeder’s rights,

circuit layout rights, business names and domain names.

Information by itself, such as trade secrets, know-

how and confidential information, is neither property nor

a right and therefore does not constitute a CGT or

intellectual property law bulletin November/December 2015 271

depreciating asset.5 However, a licence to use such

information or a right to compel such information to be

disclosed constitutes a CGT asset.6

Nature of amounts received or paid — capitalvs revenue

Tax law classifies amounts paid or received by an

entity in the course of earning its income as having been

received/paid either on revenue or capital account. This

classification determines when and how that amount is

taxed as income earned (for amounts received) or offset

as a deduction against any income earned (for amounts

paid).

Amounts received on revenue account are usually

taxable in the same financial year, whereas the taxation

of amounts received on capital account is deferred.

Similarly, amounts paid on revenue account can gener-

ally be deducted immediately against any income earned,

whereas amounts paid on capital account can only be

deducted gradually over a certain period (for depreciat-

ing assets) or on the occurrence of a subsequent event

(for CGT assets), as discussed later.

This distinction ensures that the tax treatment of an

amount reflects its commercial nature. For example, it

ensures that an increase in the value of a capital asset is

not unfairly taxed prior to the gain being derived upon

sale, or that an advantage is not granted by allowing a

full upfront deduction for capital expenditure that would

normally produce a benefit over an extended period

(such as the purchase of factory equipment).

The correct classification will depend on the particu-

lar facts and there is no single definitive test that can be

applied. However, it is generally accepted that where the

relevant expenditure is directed at establishing, replac-

ing and enlarging the profit yielding structure of a

business, it is likely to be of capital nature. This is to be

contrasted with working or operating expenses incurred

to operate that business or profit yielding structure,

which are of a revenue nature.7 This is often expressed

as the “tree/fruits” analogy in which capital amounts are

compared to a tree and revenue amounts to the fruits of

that tree.

In practical terms, if an amount paid or received is

one-off or non-periodic and is in respect of an enduring

benefit, it is likely to be capital in nature.8 For example,

the purchase of an office space is likely to be capital

expenditure, whereas the payment of rent for an office is

likely to be revenue in nature.

The capital versus revenue and depreciating versus

CGT asset distinctions are central to navigating through

the tax implications of the development, assignment and

licensing of IP.

Development of IPClients that have developed IP will almost certainly

be eager to find ways to recover their development costs.

This represents a unique opportunity for IP lawyers to

add value to their clients’ business by not only helping to

protect their IP but also directing them to several tax

mechanisms which allow recovery of part of the devel-

opment costs.

These tax mechanisms include:

• general deductions;9

• depreciation;10

• CGT cost base;11 and

• R&D tax incentive provisions.12

General deductions

The simplest tax mechanism for recovering the cost

of developing IP is through the general deduction

provision, s 8.1 of the ITAA 97. This is available only

where the expenditure was incurred on revenue account

for the purposes of generating assessable income or in

carrying on a business for the purpose of generating

assessable income.13 The provisions allow the expendi-

ture to be immediately offset against any income earned

just like an ordinary tax deduction.

Expenditure on the development or creation of IP will

be classified as capital in the majority of cases. How-

ever, examples of development related expenditure that

could fall within the general deduction provisions include

recurring expenses for short term benefits such as annual

renewal fees for IP rights, search fees or licence fees for

short term licences.

Legal expenses incurred in connection with litigation

involving IP can also potentially be deducted, depending

on the purpose of the litigation and regardless of

whether a successful outcome is achieved. Examples of

IP related litigation costs which have been allowed by

the courts under the general deductions provisions

include the costs of defending trade mark infringement

proceedings;14 conducting patent infringement proceed-

ings;15 protecting trade secrets;16 and opposing the

extension of a patent.17

However, such expenses can equally be capital in

nature if in the circumstances they relate to the profit

yielding structure of the business. As stated above, the

revenue versus capital distinction is complex and the tax

treatment of any item of expenditure will be entirely

dependent on the particular facts.

Although no immediate deduction is available where

the relevant expenditure is incurred on capital account,18

it may be offset against income either over the life of the

asset (for depreciating assets) or on the disposal of the

asset (for CGT assets), as outlined below.

intellectual property law bulletin November/December 2015272

DepreciationWhere capital expenditure has been incurred to develop

a depreciating asset (such as copyright, patents or

designs), the holder of that asset can deduct (or “depre-

ciate”) the cost of that asset (including its development

or acquisition costs) gradually over the “effective life” of

that asset to the extent that asset was used to generate

assessable income.19

The “effective life” differs for each type of asset.

Presently it is 20 years for a standard patent; 8 years for

an innovation patent; 15 years for a registered design;

and the lesser of 25 years or the period until expiry for

copyright other than a film.20 In most cases, the cost is

to be deducted proportionately over the effective life of

the asset (called the prime cost method).21

There are two elements that can form part of the cost

of a depreciating asset that can be depreciated in

accordance with this process. The first element of the

cost is the amount paid or taken to have been paid to

acquire or develop the asset. For instance in relation to

a patent, this would include the cost of acquiring the

patent, or alternatively, the cost of salaries, wages22 and

materials incurred to develop the patented technology.

The second element of the cost comprises amounts paid

to bring the asset to its present condition and location.

Such costs would cover a number of post-development

expenses, such as for capital improvements, modifica-

tions, transport, and certain maintenance costs.

CGT assetsWhere capital expenditure has been incurred to develop

IP which constitutes a CGT asset (such as a trade mark,

goodwill, plant breeder’s right, business or domain

name), the cost of development only becomes recover-

able when a CGT event occurs in respect of that asset.

The most common CGT event in respect of IP classified

as a CGT asset is CGT event A1,23 which occurs when

there is a disposal of the asset (such as through sale or

assignment). Prior to such a CGT event occurring, any

costs of development of that asset are recorded as part of

the CGT asset “cost base”, rather than immediately

offset against income earned.

Only certain items of expenditure can be included in

the cost base of a CGT asset, and these are broadly

divided into the following five categories:24

• money paid or received to acquire the asset (or the

market value of the asset when certain exceptions

apply, including when the asset was developed by

the taxpayer);

• incidental costs of acquiring the asset (such as the

marketing costs, search fees and the cost of

lawyers, patent attorneys or accountants to name a

few);

• costs of owning the asset (such as interest and

insurance premiums);

• capital expenditure incurred to increase or pre-

serve the asset’s value; and

• expenditure incurred to defend or preserve the

asset.

Once a CGT event such as disposal occurs, it

becomes necessary to determine whether a capital gain

or a loss has been made. A capital gain is made where

the proceeds received from the disposal are greater than

the cost base. Conversely a capital loss is made where

the proceeds are less than cost base.

Where a capital gain is made on the disposal of a

CGT asset that was held for 12 months or more by an

individual (including partners in partnerships) or a trust,

they will be entitled to a 50% discount on the capital

gain.25 In addition, there are a number of concessions

and exemptions, including certain concessions for small

business.

R&D tax incentivePerhaps the most exciting tax issue relevant to a

client that has developed IP is the R&D tax incentive.

The R&D tax incentive is a government funding pro-

gram which aims to increase investment in research and

development activities in Australia and deliver wider

economic benefits.

Claimants eligible for the R&D tax incentive receive

what ultimately amounts to a net benefit of either 15% or

10% of the eligible expenditure (depending on the

claimant’s turnover) as a tax offset. This can be applied

to reduce their tax payable, and for some clients, may

even lead to the rare occurrence of receiving a cheque in

the mail from the Australian Taxation Office (ATO).

Entities eligible to apply include Australian compa-

nies and certain foreign companies but not partnerships

or individuals. The eligibility criteria for the R&D tax

incentive aims to capture activities which, broadly

stated, involve the development of new knowledge and

the resolution of technical uncertainties through an

experimental process. This captures a wide range of

activities, and is certainly broader than what the typical

lay observer would consider to be R&D, namely the

“white lab-coat” type of R&D.

Accordingly, the R&D tax incentive should certainly

be suggested to clients that have developed new or

improved technology including those seeking to register

a patent or design, regardless of whether such clients

consider themselves as typically conducting R&D. Given

the broad nature of the legislative requirements such

clients may not necessarily need not to be successful in

obtaining a patent, design or other IP right to be eligible

for the R&D tax incentive.

intellectual property law bulletin November/December 2015 273

Eligible claimants have 10 months from the end of

their income year to register eligible R&D activities

conducted in that income year. This provides IP lawyers

a substantial window of opportunity to notify their

clients of the potential to secure significant tax savings

through the R&D tax incentive.

Assignment of IPThe tax implications of the assignment of IP can be

complex. Fortunately however, the tax implications that

are likely to be most relevant to IP lawyers in connection

with the preparation of an assignment agreement will

generally be limited to GST and stamp duty. These

issues are most likely to be impacted directly by the

wording of the relevant agreement. Of course, these

issues are of less significance where these amounts

payable under the relevant agreement are merely nomi-

nal. A number of more complex tax issues which can

arise from assignments are also explored briefly below.

Goods and services taxGST is a tax imposed on businesses which make

taxable supplies to their customers. The rate of GST is

10% and the amount is usually passed on to the recipient

of the supply through a corresponding increase in the

purchase price. The supplier must remit this amount to

the ATO (calculated as 1/11 of the purchase price if

using GST-inclusive amount or 10% if using the GST

exclusive amount). This liability can normally be offset

by the supplier using credits (input tax credits) it will

have received for GST paid on goods and services it has

purchased.

Unless certain exceptions apply, GST is payable

where there is a supply:26

• of goods or services;

• connected with Australia;

• made for consideration;

• in the course of an enterprise; and

• where the supplier is registered or required to be

registered for GST.

Most assignments and licences of IP with the neces-

sary connection to Australia (such as assignments between

Australian entities or for use of the IP in Australia) will

be subject to GST.

Most commonly the assignor/supplier will pass on

the burden of GST by including it in the consideration

payable by the assignee/purchaser; however, this can be

varied by the assignment agreement. To ensure there are

no surprises at the time of payment or at tax time

(particularly where large sums are involved), it is critical

that the assignment agreements clearly address GST,

including by stipulating whether amounts payable are

GST-inclusive.

Stamp duty

As a state tax, the rules for stamp duty vary between

the different states and territories.27 When IP is assigned,

the relevant jurisdiction will usually be determined

according to where the IP will be exploited or where the

agreement is executed. The value of the IP may need to

be apportioned across two or more jurisdictions using

methods prescribed in the legislation, such as by refer-

ence to the extent the IP is exploited in a particular

location as determined by volume of sales.

Generally, stamp duty is not imposed on any dealings

in IP in Victoria, Tasmania and the ACT. In NSW,

Queensland and WA, stamp duty is generally only

imposed on dealings in IP where the transaction also

involves other property (such as the sale of a business).

Stamp duty is imposed on all dealings in IP in SA and

the NT. It is important to note that several states and

territories are due to abolish stamp duty, although in

most cases the abolition dates have been deferred.

Where duty is payable, a rate of up to 5.75%

(depending on the relevant jurisdiction) of the greater of

the consideration paid or the unencumbered value of the

IP will apply. The amount is payable by the assignee.

However, as with GST this can be varied by agreement

hence, the key concern is to ensure the assignment

agreement clearly states whether amounts payable are

inclusive of applicable duties and/or which party is to

bear the cost.

Other tax implications

There are other more complex tax implications of

assignments. For the assignor, such implications can

include:

• tax being payable on the consideration received, if

received on revenue account. For instance, if the

fee for an assignment of a trade mark is received

on revenue account, it would result in an increase

in the assignor’s assessable income for that finan-

cial year;

• an increase or reduction in assessable income

where a depreciating asset (such as a patent,

design or copyright) is assigned, to correct any

under or over depreciation of the asset (this is

referred to as a balancing adjustment). For instance

the sale of a patent for $4,000 after the patent had

been depreciated to a tax written down value of

$5,000 would give rise to a deduction of $1,000 to

reflect the actual decline in value of the patent; and

• a capital gain or loss where a CGT asset (such as

a trade mark, goodwill, plant breeder’s right,

business or domain name) is assigned (as dis-

cussed above).

intellectual property law bulletin November/December 2015274

For the assignee such implications can include, as

discussed above:

• entitlement to claim the consideration paid as a

deduction under the general deduction provisions

if paid on revenue account;

• entitlement to depreciate the consideration paid

where a depreciating asset is assigned; and

• entitlement to record the consideration paid as part

of the CGT cost base where a CGT asset is

assigned.

Ideally, clients should be made aware of the need to

obtain specialist tax advice in respect of these more

complex tax issues if they have not done so prior to

entering into the transaction.

Transfer pricingAnother issue that will require specialist tax advice,

and one that has recently been the subject of vigorous

public debate and the focus of increasing attention from

revenue authorities, is transfer pricing.

Transfer pricing is the price paid and/or received for

the supply of goods or services (including intellectual

property rights) between related entities operating in

different tax jurisdictions. Transfer pricing can be used

by multinational companies to shift profits from high to

low tax jurisdictions. For instance, an Australian entity

could increase its allowable deductions in Australia by

acquiring a licence of intellectual property from its

overseas associate for a royalty rate that is much higher

than the rate that would be applicable for a third party.

Conversely, the Australian entity could reduce its Aus-

tralian income by licensing its intellectual property or

selling products to its associated entity at a lower price

than the price that would be applicable for a third party.

The transfer pricing rules of the ITAA 3628 seek to

prevent such profit shifting. The rules require cross

border transfers (or licences) of IP between associated

entities to be on arm’s length commercial terms, to

ensure profits are taxed in the correct tax jurisdiction. A

number of adverse tax consequences can be imposed by

the ATO where these rules have been breached, includ-

ing the imposition of a higher tax bill through a

reduction in deductions or an increase in assessable

income.

Accordingly, clients entering into such transactions

should be made aware of the need to obtain specialist

advice on the transfer pricing rules, including IP valua-

tion advice to determine appropriate arms-length pric-

ing.

Licensing of IPThe licensing of IP is treated under tax law as the

disposal of the part of the IP asset which corresponds to

the rights being licensed, and the simultaneous acquisi-

tion of a new asset by the licensor corresponding to the

rights which remain. Licensing of IP therefore raises

issues similar to those which arise in assignments.

Accordingly, the main tax issues to bear in mind

when drafting the licence agreement are GST and stamp

duty, as explored above. The more complex tax impli-

cations for licensors and licensees are largely the same

as that for assignors and assignees, and these are likely

to require specialist tax advice.

Another issue to take note of is that amounts ulti-

mately received by the licensor under the licence agree-

ment can be subject to several tax mechanisms which

should be borne in mind when deciding amounts pay-

able. For instance, consideration received under the

licence agreement is likely to be categorised as a royalty

payment under common law principles or specific statu-

tory provisions in the hands of the licensor, upon which

tax is calculated.29

In addition, a licensee may be liable for royalty

withholding tax where royalty payments are payable to

a non-resident licensor. This requires the licensee to

withhold a portion (usually 30%) of the payment for

remittance to the ATO before paying the licensor.30

ConclusionEvidently there is a considerable and often complex

overlap between tax and IP law in the context of the

development, assignment and licensing of IP. While this

presents inherent challenges for IP lawyers, it also

presents a unique opportunity for them to provide clients

with a service offering that is highly valuable and

commercially holistic.

This requires a basic familiarity with the common tax

implications of IP transactions, along with a willingness

to collaborate with other specialists including tax, R&D

and valuation specialists to ensure clients fully capture

tax benefits and avoid the tax pitfalls on the path to

developing, protecting and exploiting their IP.

Samin Raihan

LawyerGriffıth Hack Lawyerssamin.raihan@griffıthhack.com.auwww.griffıthhack.com.au

Footnotes1. Income Tax Assessment Act 1997 (Cth) (ITAA 97) s 40–30(1).

2. ITAA 97, s 40–30(2)(c) and s 995.1.

3. ITAA 97, ss 40–30(2)(d) and 40–30(2)(e).

4. ITAA 97, s 108–5.

5. Australian Taxation Office, Taxation Determination,TD 2000/

33.

intellectual property law bulletin November/December 2015 275

6. Above, n 5.

7. Associated Newspapers Ltd v Federal Commissioner of Taxa-

tion (1938) 61 CLR 337; (1938) 5 ATD 87; BC900038.

8. British Insulated & Helsby Cables Ltd v Atherton [1926] AC

205; (1925) 4 ATC 47; [1925] All ER Rep 623; (1925) 95

LJKB 336; Vallambrosa Rubber Co Ltd v Farmer (Surveyor of

Taxes) (1910) SC 519.

9. ITAA 97, s 8–1.

10. ITAA 97, subdiv 40–B.

11. ITAA 97, Div–100.

12. ITAA 97, Div–355.

13. ITAA 97, s 8–1(1).

14. Pech v Federal Commissioner of Taxation 2001 ATC 2210;

(2001) 47 ATR 1215; [2001] AATA 573.

15. (1963) 13 TBRD Case N78.

16. Consolidated Fertilizers Ltd v Federal Commissioner of Taxa-

tion (2001) ATC 4677.

17. Hallstroms Pty Ltd v Federal Commissioner of Taxation (1946)

72 CLR 634; [1946] ALR 434; (1946) 20 ALJR 277; BC4600017.

18. ITAA 97, s 8.1(2).

19. ITAA 97, Div 40.

20. ITAA 97, s 40.95(7).

21. ITAA 97, s 40.70(2).

22. Australian Taxation Office, Interpretative Decision, ATO ID

2011/42.

23. ITAA 97, s 104–10.

24. ITAA 97, s 110–25.

25. ITAA 97, subdiv 115–A.

26. A New Tax System (Goods and Services Tax) Act 1999 (Cth),

s 9.5. Currently a supplier is required to be registered if their

annual turnover is, or is projected to be, over $75,000 A New

Tax System (Goods and Services Tax) Regulations 1999

reg 23.15.01.

27. Duties Act 1997 (NSW); Duties Act 2000 (VIC); Duties

Act 2001 (QLD); Duties Act 2008 (WA); Stamp Duties

Act 1923 (SA); Duties Act 2001 (TAS); Duties Act 1999

(ACT); and Stamp Duties Act 1978 (NT).

28. Income Tax Assessment Act 1936 (Cth) (ITAA 36) Pt III

Div 13.

29. ITAA 36, s 6(2) and ITAA 97, ss 995–1 and 15–20.

30. ITAA 36, Div 11A.

intellectual property law bulletin November/December 2015276

Breach of confidence in commercial settings:Australian Medic-Care Co Ltd v HamiltonPharmaceutical Pty LtdDr Jenny Ng CHARLES DARWIN UNIVERSITY

Key takeaway pointsThe case of Australian Medic-Care Co Ltd v Hamilton

Pharmaceutical Pty Ltd1 (Australian Medic-Care) involved

a contractual relationship that was terminated due to a

breach of mutual trust and confidence, where the trust

and confidence is extremely important to the contractual

relationship. The case highlighted the following:

• the equitable duty of confidence can co-exist with

the contractual duty of confidence when the con-

tractual duty is “parasitic upon the equitable duty

of confidence”;2 and

• the two tests to apply in commercial settings when

ascertaining whether there is an equitable duty of

confidence are the “reasonable person” test and

the “purpose” test.3

The Austral ian Medic-Care case:background facts

In February1996, Hamilton sent Dr Keung three

documents which included a production formula which

listed the ingredients and their proportions, the manu-

facturing method and a product specification for the

production of Urederm. The documents were sent to

Dr Keung to enable Australian Medic-Care Co Ltd

(AMC) to procure the registration of Urederm products

in Vietnam under a distribution agreement. This agree-

ment was terminated on 15 September 2006. Thereafter,

Dr Keung discussed the possibility of producing “the

same product” with Roger Shahani of Sphere Healthcare

Pty Ltd. On 27 October, Dr Keung sent Mr Shahani the

production formula and the manufacturing method docu-

ment which he had received from Hamilton so that

Mr Shahani could try to “produce the same product”.

Mr Shahani used the production formula to produce the

urea cream that is similar to the Urederm cream.

Hamilton made claims against AMC and Dr Keung

personally for the disclosures and use of the documents

which were sent to Dr Keung. Two claims were made

against AMC, one for the breach of its equitable duty of

confidence to Hamilton and another relating to a breach

of cl 28 of the distribution agreement. Clause 28 of the

distribution agreement provides:4

28. Confidential Information

During and after the Term, Distributor may not use

or disclose confidential information (including the

contents of this agreement) about:

28.1 Supplier;

28.2 the business of the Supplier;

28.3 the Products;

except as required by law or this agreement.

Claims were made against Dr Keung for breach of

confidence in his own right and for directing and

procuring AMC’s breach of confidence. Hamilton sought

an account of profits against AMC and Dr Keung for the

profits earned by selling products containing Sphere’s

urea cream, and an order for the delivery up and/or

destruction of the originals and copies of the production

formula and manufacturing method.

Overview of the applicable principlesThe principles in relation to the confidentiality of

preparatory works which were used to produce a product

that is in the public domain were explained in the

judgment of Lord Greene MR in Saltman EngineeringCo Ltd v Campbell Engineering Co Ltd,5 where he

stated:6

The information, to be confidential, must, I apprehend,apart from contract, have the necessary quality of confi-dence about it, namely, it must not be something which ispublic property and public knowledge. On the other hand,it is perfectly possible to have a confidential document, beit a formula, a plan, a sketch, or something of that kind,which is the result of work done by the maker on materialswhich may be available for the use of anybody; but whatmakes it confidential is the fact that the maker of thedocument has used his brain and thus produced a resultwhich can only be produced by somebody who goesthrough the same process.

intellectual property law bulletin November/December 2015 277

However, a product that has been made purely from

materials in the public domain may also be confidential

in nature. Megarry J in Coco v AN Clark (Engineers)Ltd7 (Coco) observed:8

First, the information must be of a confidential nature. AsLord Greene said in the Saltman case at page 215,“something which is public property and public knowl-edge” cannot per se provide any foundation for proceedingsfor breach of confidence. However confidential the circum-stances of communication, there can be no breach ofconfidence in revealing to others something which isalready common knowledge. But this must not be taken toofar. Something that has been constructed solely frommaterials in the public domain may possess the necessaryquality of confidentiality: for something new and confiden-tial may have been brought into being by the application ofthe skill and [ingenuity] of the human brain. Noveltydepends on the thing itself, and not upon the quality of its[constituent] parts. Indeed, often the more striking thenovelty, the more commonplace its components. … Butwhether it is described as originality or novelty or ingenuityor otherwise, I think there must be some product of thehuman brain which suffices to confer a confidential natureupon the information …

The basis for an equitable action for breach of

confidence lies “… in the notion of an obligation of

conscience arising from the circumstances in or through

which the information was communicated or obtained”.9

According to Finn J in the Australian Medic-Care case,

to establish such a breach, the following key elements

must be proven:10

• the information must have “the necessary quality

of confidence about it”;11

• the information must have been conveyed in

circumstances that impose an obligation of confi-

dence;12 and

• there must have been an actual breach of confi-

dence or a threatened unconscionable use or dis-

closure of the information.13

The key elements above were elaborated in Gum-

mows J’s dissenting judgment in Coors Pavey Whiting& Byrne v Collector of Customs (Vic),14 which stated:

It is now settled that in order to make out a case forprotection in equity of allegedly confidential information, aplaintiff must satisfy certain criteria. The plaintiff (i) mustbe able to identify with specificity, and not merely in globalterms, that which is said to be the information in question,and must also be able to show that (ii) the information hasthe necessary quality of confidentiality (and is not, forexample, common or public knowledge), (iii) the informa-tion was received by the defendant in such circumstances asto import an obligation of confidence, and (iv) there isactual or threatened misuse of the information. … It mayalso be necessary… that unauthorised use would be to thedetriment of the plaintiff.

Gummows J’s dissenting judgment has been accepted

in several cases as defining the elements of a breach of

confidence action.15 Furthermore, confidential informa-

tion has been described as information that is of “rela-

tive secrecy”.16 This is a matter of degree and is

dependent on a range of criteria such as:

• whether the information is known widely or is

publicly available in the relevant industry;17

• whether the information was made public or

whether the process of reverse engineering or any

other method of ascertaining the information would

require the expenditure of time, effort, money or

experimentation;18

• whether the information was produced only after

the expenditure of time and/or money in research

or in by applying some skill and ingenuity19 and

whether another person could obtain the informa-

tion in a similar process;20

• what measures were taken to ensure that the

information is kept confidential;21

• whether the information has a quality which makes

it valuable or it is valuable to other parties;22 and

• whether a reasonable person would in all the

circumstances regard the information as the con-

fider’s “property”.23

The two tests in commercial settings: whendoes an obligation of confidence arise?

Generally, there is no single test to ascertain when the

communication of confidential information will result in

an obligation of confidence. Gowans J said in AnsellRubber Co Pty Ltd v Allied Rubber Industries Pty Ltd:24

That obligation may come into existence by reason of theterms of an agreement, or what is implicit in them, byreason of the nature of the relationship between persons orby reason of the subject-matter and the circumstances inwhich the subject-matter has come into the hands of theperson charged with the breach.

However, where commercial settings are concerned,

Finn J in the Australian Medic-Care case, suggested that

there are two tests when ascertaining whether there is an

obligation of confidence in commercial settings — the

“reasonable person” test and the “purpose” test.25 The

“reasonable person” test is derived from Megarry J’s

judgment in Coco:26

… if the circumstances are such that any reasonable manstanding in the shoes of the recipient of the informationwould have realised that upon reasonable grounds theinformation was being given to him in confidence, then thisshould suffice to impose upon him the equitable obligationof confidence.27

Whereas the “purpose” test asks:28

Has confidential information been imparted for what wasknown, or ought reasonably to have been known, to be onlyfor a particular purpose? If it has, its use must be limited tothat purpose.

intellectual property law bulletin November/December 2015278

The co-existence of contractual and equitableprinciples in an action of breach of confidence

Trade secrets are protected in equity by way of an

action for breach of confidence or through the enforce-

ment of express or implied contractual terms. Generally,

express contractual provisions are referred to when

protecting trade secrets. Reference can be made to

implied contractual terms or equity in certain situations

such as when there is an absence of any express

contractual provision creating an obligation of confiden-

tiality, when the alleged breach of confidence does not

fall within the ambits of the express contractual provi-

sion or when it is not possible to enforce the express

provision.29

However, in certain circumstances, the equitable

action for a breach of confidence can still apply even

where an express contractual obligation of confidence is

in place and enforceable. This co-existence of equitable

and contractual principles was illustrated in the Austra-lian Medic-Care case,30 as well as the later case of

Optus Networks Ltd v Telstra Corporation Ltd.31 In the

Australian Medic-Care case, the contractual duty of

confidence was found to be dependent upon the exist-

ence of the equitable duty of confidence.32

The possibility of the co-existence of equitable and

contractual principles in an action of a breach of

confidence also depends on whether the contractual

terms expressly exclude the application of equity. If no

exclusion exists then, the equitable duty of breach of

confidence can co-exist with the contractual duty of

confidence.

The judgmentIt was held that there was a breach of confidence for

the disclosure of the production formula and manufac-

turing method document as the information in both

documents was confidential information in contractual

terms and in equity, and was imparted in circumstances

importing a duty of confidence. Mr Shahani had for-

warded the production formula and the manufacturing

method document to Mr Wait, the product development

chemist of Sphere Healthcare Pty Ltd. He was asked to

use the documents for analysis and pricing if they were

able to produce the urea cream. Mr Wait had not used the

manufacturing method document. However, he had used

the production formula in his attempt to produce the

urea cream. Mr Wait was also aware that the product

Sphere Healthcare Pty Ltd was being asked to replicate

was a product that was produced by Hamilton.

In ascertaining whether there was “relative secrecy”

in the documents, a few factors were noted. The 1996

production formula and the manufacturing method was

no longer being used by Hamilton. It was also noted that

Hamilton’s urea cream could not be easily reverse

engineered. Mr Wait did not produce any evidence on

the reverse engineering of Hamilton’s products. Further-

more, the information regarding the formula’s ingredi-

ents were in the public domain. However, the proportions

of the ingredients used in the formula was not known to

the public and thus, the information amounted to confi-

dential information. In addition, Hamilton had not pro-

vided any evidence to show that any procedures or

measures had been put in place to protect the confiden-

tiality of the information. However, this lack of proce-

dures cannot be construed to mean that Hamilton had

allowed or invited AMC to use the information.

In determining the question of whether there was an

obligation of confidence, Finn J applied the two tests to

be employed in commercial settings — the “reasonable

person” test and the “purpose” test. The application of

both tests derived the same outcome, that the confiden-

tial information was imparted in circumstances import-

ing a duty of confidence upon both AMC and Dr Keung.

Dr Keung would have appreciated the sensitive charac-

ter of the documents and the fact that the documents

were supposed to be used for a specific purpose only,

and any reasonable man in Dr Keung’s shoes would

have perceived that the information was given to him in

confidence. Hence, it follows that AMC received the

information from Dr Keung in confidence.

Furthermore, in certain circumstances, the equitable

action for a breach of confidence can still apply even

where an express contractual obligation of confidence is

in place and enforceable. This was so in the AustralianMedic-Care case as the contractual duty of confidence

was found to be “parasitic upon the equitable duty of

confidence”.33

With regards the action for a breach of confidence for

the disclosure of the production formula, Hamilton’s

claims for account of profits against AMC was success-

ful as AMC had sold the product for a profit. However,

Hamilton’s claims for account of profits against Dr Keung

were dismissed as Dr Keung did not make any profits

from the sale of the product in his personal capacity. The

profit was solely derived by AMC. With regards the

disclosure of the manufacturing method document, no

loss resulted from the breach of cl 28 of the distribution

agreement and the equitable duty of confidence as

Mr Wait had not used the manufacturing method docu-

ment. There were only nominal damages arising from

the breach of contract.

intellectual property law bulletin November/December 2015 279

In relation to the claim for the order for the delivery

up and/or destruction of the originals and copies of the

production formula and manufacturing method docu-

ment, Finn J invited for further submissions as the

evidence had revealed that AMC had converted the

documents into electronic form.

Concluding remarksThe Australian Medic-Care case illustrated the co-existence

of the equitable and contractual principles in an action of

breach of confidence, in circumstances where the con-

tractual obligation of confidence is dependent on the

equitable obligation of confidence. Thus, both contrac-

tual and equitable principles can co-exist as long as the

express contractual terms do not exclude the equitable

obligation of confidence from arising. As Dean stated,

“Equitable protection … may be used in preference to an

existing contractual obligation or alongside a contractual

obligation”.34 Furthermore, commentators have noted

that different tests have been applied in various situa-

tions when determining whether there is an equitable

obligation of confidence.35 The Australian Medic-Carecase is helpful as it clarified the type of tests that apply

in commercial settings.

Dr Jenny Ng

Solicitor, LecturerCharles Darwin Universityjenny.ng@cdu.edu.audr.jennyng@outlook.comwww.cdu.edu.au

Footnotes1. Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty

Ltd (2009) 261 ALR 501; [2009] FCA 1220; BC200909776.

2. Above, n 1, at [629]. See generally, R Dean The Law of Trade

Secrets and Personal Secrets (2nd edn) Lawbook, Pyrmont

2002 at [2.55]; see also T Aplin, L Bently, P Johnson and S

Malynicz Gurry on Breach of Confidence: The Protection of

Confidential Information (2nd edn) Oxford University Press,

Oxford 2012, p 113 at [4.55].

3. Above, n 1, at [636].

4. Above, n 1, at [658].

5. Saltman Engineering Co Ltd v Campbell Engineering Co Ltd

[1963] 3 All ER 413; (1948) 65 RPC 203.

6. Above, n 5, at 215.

7. Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587; [1969]

RPC 41.

8. Above, n 7, at RPC 47 per Megarry J.

9. Moorgate Tobacco Co Ltd v Phillip Morris Ltd (No 2) (1984)

156 CLR 414 at 438; (1984) 56 ALR 193 at 208–9; (1984) 3

IPR 545 at 560–61; BC8400490.

10. Above, n 1, at [632].

11. Above, n 5, at 215.

12. Above, n 7, at IPR 590; Ansell Rubber Co Pty Ltd v Allied

Rubber Industries Pty Ltd [1967] VR 37 at 40.

13. Smith Kline & French Laboratories (Australia) Ltd & AlphaPharm

Pty Ltd v Department of Community Services (1990) 22 FCR

73 at 87 and 111–12; (1990) 95 ALR 87 at 102–2 and 125–7;

(1990) 17 IPR 545; Prince Jefri Bolkiah v KPMG (a firm)

[1999] 2 AC 222; [2000] ANZ ConvR 260; [1999] 1 All ER

517; [1999] 2 WLR 215.

14. Coors Pavey Whiting & Byrne v Collector of Customs (Vic)

(1987) 74 ALR 428; 74 ALR 428; 10 IPR 53 at 262–263.

15. Rapid Metal Developments (Australia) Pty Ltd v Anderson

Formrite Pty Ltd [2005] WASC 255; BC200510321; Ekaton

Corporation Pty Ltd v Chapman (2010) 273 LSJS 453; [2010]

SADC 150 at [17] per Brebner J.

16. Franchi v Franchi [1967] RPC 149 at 153; Interfirm Compari-

son (Aust) Pty Ltd v Law Society of New South Wales [1975] 2

NSWLR 104 at 119; (1975) 5 ALR 527 at 542; 45 FLR 21;

[1977] RPC 137 (Interfirm Comparison).

17. Above, n 7, at IPR 594; RPC 51; compare with Ansell Rubber

Co at 50; Titan Group Pty Ltd v Steriline Manufacturing Pty

Ltd (1990) 19 IPR 353 at 381; BC9003677.

18. See for example Ackroyds (London) Ltd v Islington Plastics Ltd

[1962] RPC 97; Aquaculture Corporation v New Zealand

Green Mussel Co Ltd (1985) 5 IPR 353 at 379.

19. Above, n 5, Saltman Engineering; compare with United

Sterling Corporation v Felton [1974] RPC 162; Interfirm

Comparison above, n 16, at NSWLR 117; ALR 540.

20. Cranleigh Precision Engineering Ltd v Bryant [1964] 3 All ER

289; [1965] 1 WLR 1293; [1966] RPC 81 at 89–90; Ansell

Rubber Co at 49.

21. Amber Size & Chemical Co Ltd v Menzel [1913] 2 Ch 239;

(1913) 30 RPC 433 at 438; R Dean, above, n 2, at [3.165]–[3.175].

22. Surveys & Mining Ltd v Morrison [1969] Qd R 470; Measures

Brothers Ltd v Measures [1910] 1 Ch 336.

23. Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd

[1979] VR 167 at 191; Printers & Finishers Ltd v Holloway

(No 2) [1964] 3 All ER 731; [1965] 1 WLR 1; [1965] RPC

239 at 255.

24. Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd

[1967] VR 37 at 40.

25. Above, n 1, at [640].

26. Above, n 7, at IPR 591; RPC 48.

27. R Dean, above, n 2, at [3.275]; see also Toulson and Phipps,

3–007–3–010.

28. Above, n 1, at [637].

29. AG Australia Holdings Ltd v Burton (2002) 58 NSWLR 464;

(2002) 58 IPR 268; [2002] NSWSC 170; BC200202299.

30. Above, n 1.

31. Optus Networks Pty Ltd v Telstra Corp Ltd (2010) 265 ALR

281; [2010] FCAFC 21; BC201001116.

32. See generally, above, n 2, The Law of Trade Secrets and

Personal Secrets.

intellectual property law bulletin November/December 2015280

33. Above, n 32.

34. Above, n 32. See also above, n 2, Breach of Confidence at pp

39–46.

35. Above, n 2, Breach of Confidence, p 240 at [7.02]. See also R

Arnold “Circumstances Importing on Obligation of Confi-

dence” (2003) 119 LQR 193, 198; H Carty “An analysis of the

Modern Action for breach of Commercial Confidence: When is

Protection Merited?” (2008) IPQ 416, 442–43.

intellectual property law bulletin November/December 2015 281

Falling in line with reg 5.9! Exploring what ittakes to be “reasonable”, “prompt”, “diligent”and “exceptional” during a patent oppositionDonna Meredith WRAYS

“Go, hence with diligence!”1

Key pointsWith the implementation of the Raising the Bar Act2

in 2013, IP Australia tightened the reins on granting

extensions of time to file evidence during patent oppo-

sitions. The purported aim of the tougher restrictions is

to minimise unnecessary delays, resulting in faster

decisions and reduced uncertainty.3

As the dust of the second anniversary of the amend-

ments settles, we glance back and review how IP

Australia has interpreted the new regulations and learn

from the successes and disappointments of cases past.

Upon a review of over 20 Australia Patent Office

(APO) decisions, things initially appeared grim, with

five of the first six applications refused. While still

strictly adhering to the new restrictions, the situation

appears to be improving, with the trend in recent

decisions being towards a favourable outcome for the

extension applicant. A central theme intertwining all

cases has emerged; that convincing support is imperative

if the Commissioner is to be persuaded that the exten-

sion is justified. Crucial to this support is a comprehen-

sive narrative detailing:

• the opposition strategy being followed;

• how every event fits into that strategy;

• the issues which triggered the extension request;

and

• how the strategy was modified as necessary.

Despite the upward trend in successful extensions,

the most prudent course, however, appears to be to crack

the opposition whip and avoid the need for them

altogether.

IntroductionAn application for an extension of time during a

patent opposition can be made under reg 5.9 of the

Patents Regulations 1991. This regulation specifies that

the party requesting an extension will need to convince

the Commissioner that:

• despite having acted promptly and diligently at all

times, and despite having made all reasonable

efforts, they were unable to meet the filing dead-

line; or

• that there are exceptional circumstances that war-

rant the extension.

Exceptional circumstances according to reg 5.9(5)

include:

• circumstances beyond the control of the party;

• errors by the Commissioner; or

• a stay in proceedings.

Generally only the most contentious cases go to a

hearing. Thus, a genuinely worthy case would usually

warrant an extension without fanfare. Some of the more

newsworthy decisions are discussed below.

Tred Design Pty Ltd v McCarthy4 (TRED) was the

first decision under the new restrictions.

The opponent (TRED) was twice requested to pro-

vide further and better particulars by the applicant,

which TRED claimed distracted it from preparing evi-

dence. TRED also claimed it had difficulty locating a

declarant. TRED requested an extension of time, pro-

viding little specific detail of its actions and furnishing

its application with “[b]road assertions about the public

interest”;5 namely that the “public interest will always

favour the filing of evidence in support”.6

In his decision, the delegate said that:7

An attorney does not need to account for every minute oftheir day, but they must provide enough information toenable a delegate of the commissioner to form their ownopinion on whether the party has acted reasonably, promptlyand diligently. The kind of information that could beprovided is a brief account of actions taken (for instance, anoutline of what was done, when it was done, how it wasdone, by whom it was done, as appropriate to the case)covering the period in question.

The delegate noted that providing further and better

particulars, because the first were inadequate, might

intellectual property law bulletin November/December 2015282

imply that TRED had not acted reasonably in providing

adequate particulars in the first instance. However, the

delegate declined to make a conclusion on that issue.8

The delegate ultimately determined that TRED had

not provided sufficient information to convince him that

TRED (and its attorneys) had acted reasonably, promptly

and diligently in preparing its evidence at all times but

merely made unsupported assertions of that diligence.9

Since the delegate identified no exceptional circum-

stances, the extension was refused.

In Merial Ltd v Novartis AG10 (Merial), Novartis

sought a second extension of time, claiming that its

expert was temporarily unavailable but provided no

evidence of:11

• a strategy for obtaining the evidence by the

deadline;

• the reasons for choosing (and persisting with) that

particular expert;

• the difficulties encountered in obtaining the evi-

dence; or

• a management plan to accommodate the expert’s

absence.

The delegate concluded that it would have been

“reasonable” to consider another expert (or at least to

have made better use of their time).12

In light of the above factors, and given Novartis knew

the expert would be absent, the delegate concluded that

without a clear indication of why it persisted with the

expert and without “sufficient information about the

steps taken to accommodate his extended leave”13 he

could not be satisfied that Novartis had acted promptly

or diligently at all times. The extension was refused.

Conversely, in Innovia Security Pty Ltd v VisualPhysics LLC14 (Innovia), the absence of the opponent’s

expert during the evidence in reply stage was considered

more tolerable because it was considered reasonable to

use the same expert as for the earlier evidence in support

and that this warranted some consideration of the

circumstances.15 However, the delegate still refused the

extension, asserting that, despite the absence, it “is

reasonable to expect that a diligent party could have

made significant progress … in the remaining time”.16

Thus, the delegate was not convinced that Innovia had

acted promptly and diligently at all times17 and the

extension was refused.

In Sportingbet Australia v Tabcorp International PtyLtd18 (Tabcorp), the applicant (Tabcorp) supported its

extension application with a week-by-week chronology

of its activities which omitted specific details on the

basis that disclosing those details would have waived

privilege.

The delegate, in referring to TRED,19 commented

that the “commissioner does not expect a party to

perform beyond what is humanly possible” but rather

“… a party must provide enough information to justify

its request”,20 and concluded that a party may not use

privilege to avoid providing adequate support.21

Consequently, due to insufficient detail, the delegate

was not convinced that Tabcorp had acted promptly and

diligently22 and the extension was refused.

In Quaker Chemical Corp v T & T Global SolutionsPty Ltd23 (T&T), with 7 weeks until the deadline, the

applicant (T&T) changed attorneys. It did not file

evidence and requested an extension but provided no

“cogent account of what was done, when it was done,

how long it took and who was involved”,24 in relation to

its first attorney’s inaction; instead relying on “vague

statements alluding to ‘obtaining advice and considering

all available options’”.25

The delegate determined that the second attorney had

acted reasonably, promptly and diligently at all times but

that, collectively, the attorneys for T&T appeared to

have not done so, due to the lack of support for the

actions of the first attorney.26

As there were no exceptional circumstances identi-

fied27 to explain the delay the extension was refused.

In Mineral Technologies Pty Ltd v Orekinetics Invest-ments Pty Ltd28 (Orekinetics), the extension was allowed,

which provides an intriguing contrast with the refusal of

an extension in T&T above.

The patent applicant (Orekinetics) was a small com-

pany of four employees. A single employee managed all

the IP matters but he became temporarily unavailable

when attending to his farm during a drought.

Orekinetics was not informed by its attorney of the

evidence deadline until a month before the due date,

despite being provided with the opponent’s evidence in

support prior to its employee’s absence. Concerned that

the attorney did not have sufficient opposition experi-

ence or technical expertise to handle the matter29 Orekinet-

ics transferred the case back to an attorney who previously

handled the matter but who had since changed firms.

In its extension request, Orekinetics filed no evidence

of any action being taken by the first attorney on its

behalf during its employee’s absence. The delegate

commented that it “is not reasonable to totally suspend

the preparation of evidence during the period of a

drought …” and that “… preparation of evidence should

continue … as promptly and diligently as possible in thecircumstances”30 (emphasis added). He then held that

Orekinetics’ employee “acted quickly once he became

aware of the deadline”;31 with the drought and case

transfer placing his inaction into context. The delegate

concluded that Orekinetics’ actions were reasonable,

prompt and diligent given the circumstances32 and

allowed the extension without expressly mentioning the

“at all times” requirement in the legislation.

intellectual property law bulletin November/December 2015 283

At first glance, this decision appears to be inconsis-tent with T&T above, where a first attorney’s delayresulted in a second attorney’s failure to meet thedeadline. Further, the Explanatory Statement to theIntellectual Property Legislation Amendment (Raisingthe Bar) Regulation 2013 (Explanatory Statement) saysthat:33

… the Commissioner will not be required to give adirection to extend a period solely because of delays causedby an agent or a legal representative failing to act promptlyor diligently …

It is not entirely clear how the inaction of the firstattorney in Orekinetics did not result in a finding thatOrekinetics lacked diligence at all times, pursuant toreg 5.9. However, the notable distinction between thetwo cases is that Orekinetics provided the delegate with

an additional (and apparently convincing) explanation

for the delay. In this regard, it appears that the context of

the delay fulfilled the “at all times” requirement in

reg 5.9 because Orekinetics was deemed to have acted

reasonably “in the circumstances”.34

Exceptional circumstancesIn TRED, exceptional circumstances were described

as “matters outside the normal evidentiary process, and

outside the control of the party, where it would be

unreasonable to insist on a party filing their evidence”.35

Consistent with this, the delegate in Tabcorp rejected

the submission that the Spring Racing Carnival (which

strained Tabcorp’s resources) was an exceptional circum-

stance calling it an annual event that could be “antici-

pated and acted upon”.36

In Cantarella Bros Pty Ltd v Nestec SA37 (Cantarella)

another “predictable event”38 which “does not automati-

cally entitle the party to an extension of time”39 was

observed when the Christmas/New Year period coin-

cided with Nestec’s evidentiary period as “Christmas is

no less foreseeable than the Spring Racing Carnival”.40

As mentioned above in Merial, a delay caused by the

expected absence of an expert was not an exceptional

circumstance due to the prior knowledge that the expert

would be absent. This is consistent with the Explanatory

Statement which expressly excludes “difficulties in obtain-

ing expert evidence that could have been anticipated and

acted on”41 as sole justification for an extension.

Intriguingly, the delegate in Orekinetics recognised

that a drought was “outside the normal evidentiary

process, and outside the control of Orekinetics”,42 yet

stopped short of concluding if this constituted an excep-

tional circumstance.

Thus, other than the specific examples in reg 5.9, the

bounds of what constitutes “exceptional circumstances”

have yet to be determined; although we have some

examples of what does not constitute an “exceptional

circumstance”.

Public interestThe public interest argument in TRED was quickly

dismissed by the delegate who commented that the new

provisions were there to “speed up oppositions”43 and

that “[b]road assertions about the public interest cannot

be used to sweep aside the words of the regulation and

the statements in the [Explanatory Statement]”.44

Furthermore, IP Australia considers that delays in

proceedings for private negotiations are contrary to

public interest.45 An unwillingness to allow a delay due

to settlement proceedings is supported in the Explana-

tory Statement, which expressly states that settlement

discussions are not a proper basis for an extension of

time; a sentiment which was upheld in Fonterra Co-operativeGroup Ltd v Meiji Dairies Corp.46

The intent behind the new legislation, which has been

affirmed by the APO, is that the public interest is best

served by a swiftly resolved opposition.

However, in cases where no evidence is filed by a

party, the opposition would be decided without both

sides being heard. This is a timely reminder to attorneys

that an extension of time cannot be relied upon in any

circumstance. But in a case such as T&T above, how

could this situation have been avoided, given the cir-

cumstances?

Had T&T amended its claims prior to the deadline, in

a genuine attempt to resolve at least some of the issues

of the opposition, it may have been possible to obtain a

stay in proceedings. As a stay is expressly mentioned in

the regulations as a legitimate ground for an extension,

T&T may have also received an extension of time to

submit evidence relating to any unresolved opposition

issues.

In such dire circumstances, an amendment on an

applicant’s own terms might have proved a better

outcome than being forced into a less than favourable

settlement, or a decision made without the applicant’s

evidence.

Take home messageThe new restrictions clearly represent significant

changes in opposition practice, which now requires a

much more assiduous approach by the parties.

Extensions of time remain available but in order to

fall in line with reg 5.9, parties must demonstrate that

they have acted reasonably, promptly, and diligently at

all times and that, despite a carefully executed and

adaptable strategy, the circumstances got the better of

them.

Below, we set out some useful tips for navigating an

opposition under the tough new restrictions:

intellectual property law bulletin November/December 2015284

• prepare a formal strategy for managing the entire

opposition, outlining the critical pathway and

including key milestones and nominal deadlines;

• modify the strategy as necessary;

• act reasonably, promptly and diligently at all times

(not just sometimes);

• engage experts early;

• identify and/or retain back-up experts and con-

sider using them if your preferred expert will be

absent at any time;

• enquire early with all parties (attorneys, clients

and experts) about foreseeable interfering events;

• plan for delays but more preferably avoid them

altogether; problem solve quickly as any obstacles

arise;

• always continue preparing evidence, in spite of

any distractions, setbacks or settlement negotia-

tions;

• record all activity for preparing evidence, includ-

ing action taken to address potential delays;

• in an extension application, detail all activities,

especially delays and explain any periods of appar-

ent inactivity;

• consider requesting extensions early so that the

matter is decided before the evidence deadline;

• file what you have or in “desperate” times (and to

avoid impending doom) consider attempting to

resolve the opposition by amending and request-

ing a stay; and most importantly

• do not expect the delegate to “assume diligence”,

convince them of it.

Despite the tough approach employed by the APO, it

appears that the trend in recent decisions is currently

towards grant of an extension. However, it is clear from

these decisions that the days of short and easily obtain-

able extension of time requests are behind us. Opposi-

tions are becoming a specialised area of practice, requiring

sophisticated project management strategies. While exten-

sions are still obtainable, they are no longer a faitaccompli and instead should be regarded as an absolute

last resort.

Below is a table setting out in chronological order the

patent opposition extension of time decisions made

since the new regime commenced in 2013.

Donna Meredith

Patent and Trade Marks AttorneyWraysdonna.meredith@wrays.com.auwww.wrays.com.au

With special thanks to Tim Francis, Principal

Footnotes1. W Shakespeare The Tempest Act I, Scene II.

2. Intellectual Property Laws Amendment (Raising the Bar)

Act 2012.

3. Explanatory Statement to the Intellectual Property Legislation

Amendment (Raising the Bar) Regulation 2013 (Explanatory

Statement) at p 1.

4. Tred Design Pty Ltd v McCarthy (2013) 105 IPR 291; [2013]

APO 57.

5. Above, n 4, at [26].

6. Above, n 4, at [25].

7. Above, n 4, at [76].

8. Above, n 4, at [61].

9. Above, n 4, at [75] and [76].

10. Merial Ltd v Novartis AG (2013) 105 IPR 133; [2013] APO

65.

11. Above, n 10, at [19].

12. Above, n 10, at [20].

intellectual property law bulletin November/December 2015 285

13. Above, n 10,at [22].

14. Innovia Security Pty Ltd v Visual Physics LLC (2014) 106 IPR

568; [2014] APO 15; BC201403613.

15. Above, n 14, at [23].

16. Above, n 14, at [23].

17. Above, n 14, at [25].

18. Sportingbet Australia v Tabcorp International Pty Ltd (2014)

107 IPR 161; [2014] APO 21.

19. Above, n 4, at [51].

20. Above, n 18, at [45].

21. Above, n 18, at [42].

22. Above, n 18, at [65].

23. Quaker Chemical Corp v T & T Global Solutions Pty Ltd

(2014) 111 IPR 291; [2014] APO 69; BC201411988.

24. Above, n 23, at [17].

25. Above, n 23, at [17].

26. Above, n 23, at [27].

27. Above, n 23, at [28].

28. Mineral Technologies Pty Ltd v Orekinetics Investments Pty

Ltd [2014] APO 63; BC201419294.

29. Above, n 28, at [16] and [17] of Annex A.

30. Above, n 28, at [46].

31. Above, n 28, at [39].

32. Above, n 28, at [41].

33. Above, n 3, at p 19.

34. Above, n 28, at [41].

35. Above, n 4, at [64].

36. Above, n 18, at [68].

37. Cantarella Bros Pty Ltd v Nestec SA (2015) 112 IPR 172;

[2015] APO 15; BC201503067.

38. Above, n 37, at [29].

39. Above, n 37, at [27].

40. Above, n 37, at [29].

41. Above, n 3, at p 19 relating to reg 5.9.

42. Above, n 28, at [45].

43. Above, n 4, at [26].

44. Above, n 4, at [26].

45. IP Australia, Resolving patent opposition proceedings faster -

Toward a stronger and more effıcient IP rights system, Consul-

tation Paper (2009) p 4.

46. Fonterra Co-operative Group Ltd v Meiji Dairies Corp (2014)

106 IPR 196; [2014] APO 11; BC201403104.

intellectual property law bulletin November/December 2015286

Jeans go West — big timeKate Tidbury and Earl Gray SIMPSON GRIERSON

Takeaway tips

• Australian and New Zealand laws around design

protection are very different. It is important to

understand both regimes if your business trades in

fashion or other design led industries in both

countries.

• New Zealand courts are awarding larger amounts

of additional damages for flagrant copyright infringe-

ment.

• Creating, importing and selling infringing copies

can give rise to both primary and secondary

copyright infringement in New Zealand.

In 2013, G-Star Raw (G-Star) was successful in its

claim of secondary copyright infringement against Jeanswest

Corporation (New Zealand) Ltd (Jeanswest) in the High

Court. In the weeks after the decision was released, the

meagre award of NZ$325 in damages to G-Star made by

the High Court for copyright infringement of the “5620

Elwood” jean design was a popular topic of discussion

among New Zealand intellectual property practitioners.

Unsurprisingly neither party was satisfied with the

result. Jeanswest appealed the High Court’s finding of

copyright infringement and G-Star cross-appealed the

failure to find primary infringement and the damages

award.

Following the release of the Court of Appeal deci-

sion,1 the damages award is once again a topic for

discussion but G-Star is likely to be feeling significantly

happier with the outcome.

Background and High Court judgmentThe case has its origins in the south of France.

Monsieur Morisset, a French clothing designer con-

tracted by G-Star was sitting in a café. It was a wet day.

A motorcyclist arrived at the café in a rather damp state,

with his jeans stretched over his knees. Inspired by the

crinkled shape the jeans made around the biker’s knees,

M Morisset spent half an hour sketching out a design

that captured the shape of the biker’s jeans.

M Morisset’s design was branded the Elwood jean

and subsequently became G-Star’s signature design.

More than 10 million pairs of Elwood jeans have been

sold worldwide.

In the High Court, G-Star alleged Jeanswest had

infringed its copyright in the original drawings for the

Elwood design by manufacturing, retailing and import-

ing into New Zealand the “Dean Biker Slim Straight”

jeans (Dean Biker Jean). G-Star claimed that the Dean

Biker Jean was a copy of the jean design it released in

2006 in celebration of the tenth anniversary of M

Morisset’s original creation. Jeanswest admitted that it

had imported and sold 63 pairs of the Dean Biker Jean

in New Zealand but denied the Dean Biker Jean was an

infringing copy of G-Star’s Elwood design.

Following his analysis of the two jean designs, Heath

J, the trial judge in the High Court, found that there were

“telling similarities” between the two designs. As a

result, he concluded that Jeanswest had copied the

Elwood Jean and was liable for secondary infringement.

Heath J found that Jeanswest was not liable for primary

copyright infringement.

The appealThere were seven issues on appeal:2

(1) Copyright work:Did the Judge err in the way heidentified the nature of the copyright work? Essen-tially, what was the copyright work?

(2) Copying: Did the Judge err in the way he went aboutassessing whether Jeanswest had copied the originalwork?

(3) Primary infringement: In finding no primary infringe-ment by Jeanswest, did the Judge err?

(4) Secondary infringement: Conversely, did the Judge[err] in finding there was secondary infringement byJeanswest?

(5) Additional damages: Was Heath J wrong not toaward G-Star additional damages?

(6) Permanent injunction: Was Heath J wrong to grantG-Star a permanent injunction?

(7) Costs in the High Court: Heath J awarded increasedcosts to G-Star. Did he [err] in doing that?

The court agreed with Heath J on four of the seven

issues. It found that Heath J had not erred in the way in

which he identified the copyright work, and that Jeanswest

had copied the Elwood design. The finding of secondary

infringement was upheld and no change was made to the

award of increased costs.

The Court of Appeal overturned Heath J’s findings in

relation to primary infringement, the permanent injunc-

tion and the damages award. After dealing with the

preliminary issue of whether G-Star had actually pleaded

primary infringement, the Court of Appeal found that

primary infringement was made out. In its view, this

intellectual property law bulletin November/December 2015 287

followed from the fact Jeanswest had copied the Elwood

jean and had admitted importing the Dean Biker Jean

into New Zealand.

In relation to the permanent injunction restraining

Jeanswest from selling, manufacturing, importing or

otherwise disposing of or dealing with the infringing

Dean Biker Jean, the court found this was wrongly

granted. G-Star’s jean design had been industrially

applied, meaning that G-Star, under New Zealand law,

was only entitled to prevent copies of the Elwood jean

being sold for 16 years after the launch of the Elwood

design in 1996. The 16-year period ended in March

2012, before the trial in the High Court, meaning that

there was no basis for the permanent injunction.

Finally and perhaps most significantly, the Court of

Appeal awarded G-Star additional damages.

Additional damagesUnder s 121(2) of the Copyright Act 1994, the court

has discretion to award such additional damages as it

considers the “justice of the case requires, having regard

to all circumstances”. The section specifically refers to

flagrancy as being relevant to the assessment of addi-

tional damages.

Previously, New Zealand courts have rarely made

additional damages awards. Prior to the Court of Appeal’s

decision, the highest award of additional damages, by

some margin, was NZ$20,000 in the relatively recent

Court of Appeal decision in Skids Programme Manage-ment Ltd v McNeill (Skids)3.

In the High Court, Heath J decided not to award

G-Star additional damages under s 121(2) for two

reasons. First, there was no evidence that Jeanswest

intended to initially sell a small number of Dean Biker

Jeans to test the market for risks of infringement claims

before selling a larger order in New Zealand. Second,

Heath J concluded that the primary reason for the

infringement was Jeanswest’s ignorance of the differ-

ences between New Zealand and Australian copyright

law. Jeanswest’s parent company, the designer of the

Dean Biker Jean, was based in Australia where copying

of this nature is not copyright infringement.

The Court of Appeal took a different approach to the

High Court. In consideration of Jeanswest’s design

process, which involved copying the features of gar-

ments designed by others and collected by Jeanswest

personnel on trips around the fashion world, it found the

infringement to be flagrant.

The court also considered four other factors in

assessing whether an award of additional damages

should be made, namely (at [129]):

• The decision to import a very small number of

jeans (63 pairs) into New Zealand was held to be

intended to test the market to determine consum-

ers’ appetite for the style with a view to further

importation if the Dean Biker Jean sold well.

• Following a cease and desist letter from G-Star’s

solicitors, Jeanswest immediately desisted selling

the Dean Biker Jean. However, Jeanswest’s deci-

sion to do so had little impact as by that point the

jeans had all been sold.

• A number of the ways in which Jeanswest con-

ducted its defence prior to and during the trial

reflected unfavourably on it. For example:

— the sample order, which recorded the design

process for the Dean Biker Jean and became a

critical document at trial, was disclosed less

than a month before the trial following direc-

tions made in relation to further discovery;

— Jeanswest objected to a pre-trial application by

G-Star to join two related Jeanswest companies

to the proceedings on the basis of the availabil-

ity of a witness. The judge considered this to be

a key reason to decline the joinder application.

However, the witness was later not called by

Jeanswest at trial; and

— Jeanswest persistently denied copying the Elwood

jean but opted not to call the two witnesses that

could have substantiated the denial. The Court

of Appeal considered this to be a “glaring

inconsistency”.

• The failure by Jeanswest, a relatively substantial

international business, to obtain legal advice on

New Zealand copyright law showed a lack of

effective internal systems. Jeanswest had taken

steps to educate its staff on copyright laws but

failed to appreciate the differences between New

Zealand and Australia. “It should have been a

simple matter to obtain the required legal advice”.

The court then undertook a review of additional

damages awards made in comparable copyright cases in

New Zealand and Australia. (This analysis is helpfully

set out in an appendix to the judgment.) After weighing

the four factors considered above in the context of the

recent additional damages awards, the court awarded

NZ$50,000 to G-Star in additional damages.

The Court of Appeal’s willingness to make more

sizeable awards of additional damages suggests that the

New Zealand courts have no patience for flagrant

copyright infringement, and are alive to the need to deter

such behaviour and compensate the plaintiffs. While

awards are yet to reach the heady heights of those made

by our Australian neighbours, additional damages are

finally starting to be taken seriously in New Zealand.

intellectual property law bulletin November/December 2015288

Kate Tidbury

AssociateSimpson Griersonkate.tidbury@simpsongrierson.comwww.simpsongrierson.com

Earl Gray

PartnerSimpson Griersonearl.gray@simpsongrierson.comwww.simpsongrierson.com

Footnotes1. Jeanswest Corporation (New Zealand) Ltd v G-Star Raw CV

[2015] NZCA 14; BC201560328 per E Rance, Randerson and

Wild JJ.

2. Above, n 1, at [8].

3. Skids Programme Management Ltd v McNeill [2012] NZCA

314,; [2012] 1 NZLR 1; BC201262600 at [126] per E France,

Venning and Asher JJ.

intellectual property law bulletin November/December 2015 289

Copyright in databases: the spectre of IceTVlives onTim Golder, Adrian Chang and Scott Joblin ALLENS

As with any copyrighted work, an applicant alleging

infringement of copyright subsisting in their database

must show that the answers to two questions fall in their

favour: first, the applicant must demonstrate that copy-

right subsists in the database; and second, the applicant

must demonstrate that a substantial part of the work has

been copied.1 While early cases concentrated on the first

question, the 2009 case IceTV Pty Ltd v Nine NetworksAustralia Pty Ltd2 (IceTV) so dramatically changed the

way database infringement cases are treated that the full

consequences of the case have yet to be determined (or

fully appreciated) 6 years later.

BackgroundDatabases are considered literary works for the pur-

poses of s 32 of the Copyright Act 1968 (Cth) (the Act).

They are treated as “a table, or compilation, expressed in

words, figures or symbols”.

To establish infringement, the first question is whether

the database is sufficiently original to attract copyright.3

“Originality” in the context of determining the existence

of copyright in compilations refers to the human effort

that has gone into the work’s creation. Originality is

therefore generally assessed in terms of the degree of

skill, judgment or labour exerted by the author in order

to create the work.4

The requirement for skill, judgment or labour can be

met by showing that the process of determining what

items go into the compilation requires substantial intel-

lectual thought, expertise or curatorship. However, origi-

nality can also be established in the case of compilations

of mundane facts, by demonstrating that compiling those

facts requires substantial effort or cost.5 The work must

also originate from an individual author or from multiple

authors who have demonstrated some collaboration.6

In practice, many modern databases fit into the

second type of compilation — that is, compilations of

mundane facts. The creators of those databases therefore

rely on the difficulty or expense of compiling the

information subsisting in the database to attract copy-

right protection.

Once copyright is determined to subsist, the assess-

ment turns to whether the work has been infringed.

Copyright in a literary work is directly infringed where

a person, without authority, does or authorises any of the

acts comprising the exclusive rights of the copyright

owner.7 It is sufficient for infringement that an infringing

act is done in relation to a “substantial part” of the

work.8

While cases in the first decade of the millennium

focused on adapting law which had been developed to

deal with bound tomes to work for digital databases, we

consider that cases in this space in the coming decade

will be characterised by how the courts will answer a

different question: if copyright subsists in a database,

what is the scope of its protection? The significance of

this new question was revealed by the High Court’s

decision in the IceTV case.

IceTV and the narrowing of databasecopyright protection

In the IceTV case, an IceTV Pty Ltd employee spent

3 weeks watching television in order to write down the

time and title of the programs broadcast over that period.

Employees then compared the information in IceTV’s

schedule with publically available television schedules

published by Nine Networks and others. In almost all

cases where there was a discrepancy, IceTV would

amend its guide to match the schedules published by

others. In doing so, Nine alleged that IceTV had

infringed the copyright in its scheduling database. IceTV

conceded that copyright subsisted in the material it was

reviewing, so the judgment of the High Court focused on

infringement — in particular whether IceTV had copied

a substantial part of Nine’s schedules.

All six justices ultimately reached the conclusion that

IceTV had not infringed Nine’s copyright in its program

schedules. There were two judgments and while each

judgment approached the issues from different perspec-

tives they arrived at the same conclusion.

The broad thrust of the judgments was to highlight

the distinction between the various types of effort

exerted to create a compilation. Their Honours recognised

that while it took effort, skill and judgment to determine

what shows should play at what times in order to

maximise viewership, they did not consider that copy-

right protection extended to protect that effort.

intellectual property law bulletin November/December 2015290

For example, French CJ and Crennan and Kiefel JJ

emphasised the importance of the particular form in

which the underlying facts which make up the compila-

tion are expressed and held that it was only skill and

labour directed to that expression which could be taken

into account. Their Honours then noted that the expres-

sion of the time and title information was essentially

dictated by the nature of the underlying information

(being the scheduling determined by the station’s pro-

grammers). Therefore, the bulk of the effort of setting

out the schedules was not directed towards “the origi-

nality of the particular form of expression”.9 Accord-

ingly, the mere time and title information lacked sufficient

mental effort or exertion to constitute a substantial part

of the work.10

Similarly, the judgment of Gummow, Hayne and

Heydon JJ held that the part of Nine’s work that attracted

copyright was the presentation of the material, not the

factual content underlying that presentation. Since the

presentation was not copied by IceTV, there was no

infringement.11

Nine’s schedules were essentially a catalogue of their

shows and running times — mere facts. The High Court

recognised that a compilation of mere facts can attract

copyright if compiling those facts takes great effort or

expense. However, the degree of protection offered by

copyright does not extend to protection of those facts.

This point was driven home by Gummow, Hayne and

Heydon’s JJ observation that the European Parliament

has passed a directive protecting the arrangement and

layout of databases from reproduction in Directive

96/9/EC. Similarly, Copyright, Designs and Patents

Act 1988 (UK) provides protection both for databases

and works produced through the use of computer soft-

ware. By contrast, Australia’s copyright protection regime

does not grant a monopoly to information — only the

expression of information. Accordingly, there is no per

se action in copyright due to appropriation of effort.

The High Court’s judgment has the consequence of

substantially limiting the protection afforded by copy-

right to database owners. If copyright were to exist in a

compilation created through great effort, it appears that

the scope of that protection is limited to the form of that

compilation’s presentation. Accordingly, the outcome of

the IceTV case appears to be that copyright will not

assist a database owner where the information in the

database is copied but the presentation of the database is

not.

The post IceTV landscapeSince IceTV, one could argue that the question of

whether copyright subsists in a database is reduced in

relevance — the real question is what copyright would

actually protect.

The scope of protection offered by copyright has been

neatly encapsulated by the words of Justice Stone in

Primary Health Care v Federal Commissioner of Taxa-tion:12

Given that copyright protects the expression of an idea notthe idea itself, it is necessary to bear in mind that theindependent intellectual effort that is required to produce anoriginal literary work must be effort directed to the expres-sion of the idea.

In some cases, where the value of the database lies in

the information, the scope of protection would likely be

very narrow. For example, in Telstra Corp v PhoneDirectories Co Pty Ltd (Telstra), the Full Federal Court

held that Phone Directories Company had not infringed

Telstra’s hard copy White and Yellow Pages phone

directories. The Full Federal Court based its decision on

the fact that Telstra’s directories were the product of a

computer program, not of a human author or authors and

that the human effort that did go into creating the

directories was not directed to the layout of the directo-

ries.13 The court also rejected Telstra’s arguments that

the directories were the result of joint authorship, noting

that each “author”, being a Telstra employee tasked with

inputting information into the database, did not collabo-

rate, which in the view of the court, is the principal

feature of joint authorship.14 Accordingly, no copyright

subsisted.

However, if the court had ruled on the question of

copyright subsistence differently, the question of whether

Telstra’s copyright would have been infringed would be

worthy of consideration in light of the High Court’s

formulation of infringement in the IceTV case.

In the case of Telstra’s White Pages, clearly it would

not have been infringed. The White Pages is essentially

a database of mere facts — names and phone numbers

— and if copyright subsisted by virtue of the effort of

collecting that information, there is no art in its presen-

tation at all.

In the case of Telstra’s Yellow Pages, it is likely the

outcome would be less clear cut. It is arguable that there

is some artistic, or at least thoughtful consideration, of

the layout and presentation of the various advertise-

ments that appear on each page of the Yellow Pages.

Accordingly, the authors could expect to at least have

copyright over the presentation of each manuscript,

though they could not expect copyright over the infor-

mation contained therein.

To help illustrate this point, consider the scenario in

Dynamic Supplies Pty Ltd v Tonnex International PtyLtd.15 In that case, a Dynamic Supplies employee was

said to have expended considerable effort devising a

customer-friendly means of arranging a table to allow

convenient cross-referencing of the compatibility of

various computer and printer parts. The list of parts and

intellectual property law bulletin November/December 2015 291

their compatibilities was kept on a database maintained

by Dynamic Supplies’ employees but the layout of the

customer catalogue involved considerable effort by one

employee.

Dynamic Supplies alleged that its competitor, Tonnex

International, copied Dynamic Supplies’ catalogue, which

included the compatibility chart. Tonnex argued that no

copyright subsisted in the catalogue. Justice Yates held

that copyright subsisted in the catalogue, for the follow-

ing reasons:

• first, the selection of material for the compatibility

chart was “informed by Mr Campbell’s personal

assessment of what information might be valuable

to a customer searching a website”;16

• second, the selection of information and its expres-

sion in a certain form reflected an understanding

of the “greatest utility” of the chart to consum-

ers;17 and

• third, the arrangement of the information in the

compatibility chart into columns was a result of

intellectual effort.18

His Honour went on to hold that Tonnex International

had infringed Dynamic Supplies’ copyright.

While it would be reasonable to assume that there

would be no copyright in the mere information pre-

sented in the catalogue, in the circumstances, the bulk of

the utility of the compilation lay in the presentation of

the information, not in the information itself. Accord-

ingly, copyright provided an effective remedy for the

compilation owner.

Infringement of selected partsAnother issue facing database owners in enforcing

their rights is that in many instances the database in

question comprises only a small portion both of the

owners’ and of the alleged infringers’ materials. Can one

focus on a specific aspect of this subject matter and

argue that it has separate protection?

This issue was flagged by Wigney J in the recent case

of Sports Data Pty Ltd v Prozone Sports Australia PtyLtd.19 In that case, his Honour posed the question in the

following terms: “Can a person alleging copyright

infringement effectively skirt around the ‘substantiality’

element by confining the relevant works to a small part

of a much larger whole?”20

The case involved an interlocutory injunction appli-

cation lodged by Sports Data, a company engaged in the

business of providing match analysis and statistics to the

National Rugby League (NRL) and its clubs. This

involved providing a database of events that occur

during each game (of which there are hundreds). In

order to create such a database, one must first create a

list and description of the events that are to be tracked

(input criteria). There are therefore two separate but

related compilations — one compilation being the sub-

stance of the database, being a compilation of events

during every NRL match (a compilation of facts), and

the other being the input criteria (a compilation of

original ideas). Under its agreement with the NRL, the

NRL would own the contents of the database, while

Sports Data would own all other information, including

the input criteria.

In 2013, the NRL changed statistics providers to

ProZone, though at that time, ProZone had not yet fully

developed its own input criteria. Sports Data alleged that

sometime around December 2013 or January 2014,

ProZone obtained a copy of Sports Data’s input criteria

and copied them into its own.

His Honour accepted that compiling the input criteria

involved sufficient effort to attract copyright protection.

However, the input criteria were in truth only a very

small part of Sports Data’s whole database. This gave

rise to the issue of whether it was legitimate for Sports

Data to claim that the input criteria were a distinct,

independent work, rather than simply a part of the

database as a whole.

Ultimately, his Honour declined to resolve that issue

in his judgment, and relied on other reasons to find that

Sports Data had not demonstrated that a substantial part

of its works had been copied. However, it seems this is

an issue that litigants will want to consider very care-

fully in the future.

Although we are yet to see resolution of this issue in

relation to databases, it has arisen for consideration in

two other areas, namely, television broadcasts and com-

puter programs.

Television broadcastsIn TCN Channel Nine Pty Ltd v Network Ten Pty Ltd

(No 2),21 the Full Federal Court considered whether

Network Ten had infringed Channel Nine’s copyright by

re-broadcasting short extracts from some of Nine’s

television programs in episodes of The Panel.Prior to remitting the decision back to the Full

Federal Court, the High Court had already determined

that each of the Channel Nine programs from which the

extracts were taken were separate television broad-

casts.22 However, the majority had reserved consider-

ation of whether a particular segment of a program can

constitute a separate “television broadcast”.23

The parties were at odds as to whether the High Court

had left open the possibility that the programs at issue in

this proceeding could be segmented for the purposes of

analysing infringement. Nine’s position was that, if a

program can be divided up into distinct parts in terms of

theme, story and impact, then the various segments of

intellectual property law bulletin November/December 2015292

that program should be treated as separate broadcasts.24

The issue was ultimately left unresolved by the Full

Federal Court.

One of the programs being considered was a broad-

cast of the 1999 National Rugby League Grand Final on

Wide World of Sports. The Panel had used an 8-second

extract of Melbourne Storm captain Glen Lazarus, who

was playing his last ever rugby league game, doing a

cartwheel after the match while celebrating his team’s

victory. If works can be segmented in the way that Nine

contended, then it might be argued that the relevant

work for analysing infringement is the post-match cov-

erage (approximately 8 minutes), rather than the entire

program (almost 5 hours).

Justice Finkelstein (with whom Sundberg J agreed)

thought that the High Court had left it open to find that

Nine’s programs could be divided into segments with

separate copyright protection. Ultimately, however, it

was not necessary for him to resolve the issue.25 In

relation to the footage of the Glen Lazarus cartwheel,

Finkelstein J held that this was “on any view, a ‘high-

light’”.26 In contrast, Hely J thought that the High Court

had authoritatively determined the question but, on

either view, he thought that the footage of the cartwheel

was “trivial, inconsequential or insignificant”27 in terms

of the source broadcast.

This case suggests that courts are at least open to

arguments around carving out separate works from

larger works in situations where there is an ability to

identify and label discrete portions of those larger

works.

Computer programsThe issue has also arisen in the context of computer

programs and “macros”.28 A macro is a command in

computer software “which, when executed, causes a

sequence of other functions to be executed, so that the

overall effect of performing a more complex function is

achieved”.29

In CA Inc v ISI Pty Ltd,30 it was argued that a macro

met the definition of “computer program” as defined in

the Act. Under s 10(1) a “computer program” is defined

as “a set of statements or instructions to be used directly

or indirectly in a computer in order to bring about a

certain result”.

Justice Bennett of the Federal Court emphasised the

wording of this definition in finding that a set of macros

was a “computer program” in its own right (making it a

literary work for the purposes of the Act). In reaching

her conclusion on this point, Bennett J rejected the

argument that, because the macros required the partici-

pation of various other components to bring about a

result, the macros did not constitute a complete “set of

statements or instructions”. Her Honour held that, despite

this, the macros still constituted a set of instructions used

to indirectly bring about a result.

Although this decision leaves open the issue of the

minimum amount of code that can be protected as a

separate computer program, it makes it clear that smaller

segments of whole software packages can be the subject

of copyright protection. However, given that it is the

definition of “computer program” in the Act which

enables this to occur, there is perhaps little scope for

analogous arguments in relation to databases.

ConclusionFollowing IceTV, the key issue in this space (and in

copyright law generally) is arguably not whether copy-

right will subsist in a database but the extent to which

copyright law will protect that database. There is often a

substantial amount of effort or cost involved in collating

data for a database, and it now seems reasonably clear

that such effort or cost will attract copyright protection.

Whether copyright subsists in a particular database,

however, is almost completely irrelevant if the informa-

tion has not been presented in a way that can be

protected. The distinction between the underlying infor-

mation in a database and the way in which that infor-

mation has been presented is crucial.

Tim Golder

PartnerAllensTim.Golder@allens.com.auwww.allens.com.au

Adrian Chang

Allenswww.allens.com.au

Scott Joblin

Allenswww.allens.com.au

Footnotes1. Copyright Act 1968 (Cth), ss 36, 31 and 14.

2. IceTV Pty Ltd v Nine Networks Australia Pty Ltd (2009) 254

ALR 386; (2009) 80 IPR 451; [2009] HCA 14; BC200902942.

3. See Victoria Park Racing and Recreation Grounds Co Ltd

v Taylor (Victoria Park case) (1937) 58 CLR 479; (1937) 1A

IPR 308; BC3700015 at 511.

intellectual property law bulletin November/December 2015 293

4. Boyapati v Rockefeller Management Corp (2008) 77 IPR

251; [2008] FCA 995; BC200805370 at [42].

5. Desktop Marketing Systems Pty Ltd v Telstra Corp Ltd (2002)

192ALR 433; (2002) 55 IPR 1; [2002] FCAFC 112; BC200202458

at [593].

6. Telstra Corp v Phone Directories Co Pty Ltd (2010) 273 ALR

725; (2010) 90 IPR 1; [2010] FCAFC 149; BC201009581 at

[57] and [92].

7. Above, n 1, at ss 36 and 13(1).

8. Above, n 1, at s 14(1).

9. Above, n 2, at [49].

10. Above, n 2, at [56].

11. Above, n 2, at [167]–[170], [185].

12. Primary Health Care v Federal Commissioner of Taxation

(2010) 267 ALR 648; (2010) 86 IPR 259; [2010] FCA

419; BC201003082 at [38].

13. Above, n 6, at [101].

14. Above, n 6, at [92].

15. Dynamic Supplies Pty Ltd v Tonnex International Pty Ltd

(2011) 91 IPR 488; [2011] FCA 362; BC201102048.

16. Above, n 15, at [78].

17. Above, n 15, at [79].

18. Above, n 15, at [82].

19. Sports Data Pty Ltd v Prozone Sports Australia Pty Ltd (2014)

316ALR 475; (2014) 107 IPR 1; [2014] FCA595; BC201404485.

20. Above, n 19, at [83].

21. TCN Channel Nine Pty Ltd v Network Ten Pty Ltd (No 2)

(2005) 216 ALR 631; (2005) 65 IPR 571; [2005] FCAFC

53; BC200503457 per Sundberg, Finkelstein & Hely JJ.

22. This was because they were “… put out to the public, the object

of the activity of broadcasting, as discrete periods of broad-

casting identified and promoted by a title … which would

attract the attention of the public”, Network Ten Pty Ltd v TCN

Channel Nine Pty Ltd (2004) 205 ALR 1; (2004) 59 IPR

1; [2004] HCA 14; BC200400864 at [75].

23. Above, n 22, at [76].

24. Above, n 21, at [4].

25. Above, n 21, at [6].

26. Above, n 21, at,[34].

27. Above, n 21, at [65].

28. Above, n 1, at s 10(1), a “literary work” includes “a computer

program or compilation of computer programs”.

29. CA Inc v ISI Pty Ltd (2012) 95 IPR 424; [2012] FCA

35; BC201201297 at [116], citing Data Access Corp v Powerflex

Services Pty Ltd (1999) 166 ALR 228; (1999) 45 IPR

353; [1999] HCA 49; BC9906268 at [99].

30. Above, n 29. The case involved a complex factual background,

which it is not necessary to set out in this article.

intellectual property law bulletin November/December 2015294

intellectual property law bulletin November/December 2015 295

Utility models in China: “small” inventions, bigoutcomesRenee White WATERMARK

Tips

• utility models are short term second tier patent

species available in many countries;

• utility models can be useful and cost effective

particularly in fast moving industries; and

• evidence suggests that Chinese utility model pat-

ents might be well suited to Australian companies.

Utility models are a so-called “second tier patent”

similar to a standard patent but generally having a lower

threshold of patentability balanced with a shorter term of

protection. Typically the term is 7 to 10 years. Protect-

able subject matter varies across jurisdictions, notably

excluding processes, chemical and pharmaceutical prod-

ucts. Examination is generally faster and cheaper; so it

can be a cost effective mechanism in rapidly developing

industries such as those involving fast moving consumer

goods (FMCG), certain types of software such as apps,

and novelty consumer goods.

HistoryGermany established a utility model system in 1891

in order to protect incremental innovations that repre-

sented a technical step forward in the art but which were

not otherwise patentable due to the high threshold of

inventive step. These “small patents” encouraged domes-

tic inventors to protect minor inventions.

In 1979, Australia initiated its first utility model-like

system, which was called the petty patent system. This

was later replaced by the innovation patent system,

introduced by the Patent Amendment (Innovation Pat-

ents) Act 2000 (Cth). Throughout the years, numerous

other countries have established a similar scheme; includ-

ing Argentina, Brazil, China, France, Italy, Japan, Mexico,

Republic of Korea, Russian Federation and Spain. Nota-

bly, Canada, the United Kingdom and the United States

do not offer an equivalent system.

Currently there is no Patent Cooperation Treaty

(PCT) route provided for utility models and therefore

the applicant must file individual applications in each

jurisdiction. Each country has distinguishable differ-

ences in terms of what subject matter is patentable,

novelty and inventive step requirements and substantive

examination practice. Following upon the recently signed

Free Trade Agreement between China and Australia, it is

worth exploring the differences between the Chinese and

Australian utility model systems since trends suggest

that Chinese utility models may be well suited to

Australian companies.

Comparison of Australian and Chineseutility model systems

Australia

• An Australian innovation patent may contain a

maximum of five claims and has an 8 year term of

protection.

• After filing, the application undergoes a formali-

ties check.

• A notice of grant is typically issued within 4 to 8

weeks.

• However, the patentee may only enforce their

rights to the patent if the application undergoes

substantive examination, and a certificate of exami-

nation is issued pursuant to Patents Act 1990 (Cth)

s 101E(2)(c).

China

• The Chinese Utility Model system has no restric-

tion on the number of claims and allows for a

10–year term of protection.

• The preliminary examination provides marginally

higher requirements than that of the Australian

formalities check, including examining for obvi-

ous substantive defects in the description, draw-

ings and claims. In addition, clarity, unity and

support are examined at this time.

• Typically, the application proceeds to grant in 3 to

4 months.

• Analogous to the Australia system, enforcement is

only allowed following an evaluation report, which

is akin to the Australian patent certification, made

by the Chinese State Intellectual Property Office

(SIPO) to the Chinese People’s Court.

intellectual property law bulletin November/December 2015296

Patentable subject matterThe technology eligible for protection by an Austra-

lian innovation patent is subject to the same restrictions

as a standard patent. For example, an innovation patent

cannot be granted for:1

• the use of the invention which would be contrary

to law,

• a substance that is capable of being used as food or

medicine and is a mere mixture of known ingre-

dients,

• a process producing such a substance by mere

admixture, or

• claims that include the name of a person as the

name, or part of the name of the invention.

In comparison, under Chinese Patent Law, a utility

model can be granted for “any new technical solution

relating to the shape, the structure, or their combination,

in a product, which is fit for practical use”.2 Therefore,

three elements must be present:

• the utility model must be a product, not a process;

• must include improvements relating to the shape,

structure and/or their combination; and

• the technical solution is adopted to solve a tech-

nical problem in observance with the eligible

subject matter.

Similar to Australian law, patentable subject matter

does not include any invention that is contrary to law or

social morality or is of plant and animal varieties.3

NoveltyThe novelty of innovation patent applications is

examined according to the same tests that are applied to

the respective standard patent applications in both Aus-

tralia and China. This includes the 12-month grace

period in Australia which covers the disclosure of the

invention made by, or with the consent of, the applicant

or patentee.4

Innovative/inventive stepIn Australia the Patent Amendment (Innovation Pat-

ents) Act 2000 (Cth) introduced the requirement for an

“innovative step”.5 However, this test was not fully

considered until 2009 in Dura-Post v Delnorth.6

In this landmark case, the Full Federal Court con-

firmed that the threshold requirement for an innovative

step is lower than that required for the inventive step of

a claim in a standard Australian patent application. To

establish an innovative step, four key elements are to be

identified and considered in accordance with ss 7(4) and

(5) of the Patents Act 1990 (Cth):

• the nature of the invention “so far as claimed in

any claim”;

• the “person skilled in the relevant art”;

• the common general knowledge as it existed in

Australia before the priority date; and

• whether the invention varies from the prior art

information in ways that make a “substantial

contribution to the working of the invention”.

In this context, it is worth noting that the claimed

invention may be innovative in light of the prior art,

provided that there is support for a “substantial contri-

bution to the working of the invention”. This is unlike

the standard for inventive step which requires that the

contribution was not obvious to a skilled person, irre-

spective of what difference it may make to the working

of the invention.

The Patent Law of China provides a more restrictive

test for the inventiveness of a utility model; specifically

in the number of prior art documents that can be cited

against the application and the technical elements required

to overcome the prior art.

The inventiveness of a utility model patent is based

on the invention “having substantial features and repre-

senting progress”.7 Despite this broad statement, there is

a lower threshold applied compared to standard patents,

in which inventiveness is tested as having “prominent”

substantial features and representing “notable” progress.

In practice, the inventiveness of the utility model is

determined by identifying the differences in “technical

hints” between the prior art and that of the invention.

Specifically, the examiner will consider two aspects:

• the field of the prior art; and

• the number of cited prior art documents.

Both standard patent and utility patents will be

assessed relative to prior art that encompasses the exact

technical field to which the invention or utility model

belongs. However, other technical fields will only be

considered relevant for utility patents if there is explicit

description in the prior art indicating that a skilled

person should look for technical means there. In addi-

tion, examiners rely heavily on the International Patent

Classification (IPC) to determine whether the prior art is

in a similar technical field to the utility model.

For example, in invalidation decision number 13581,

the subject matter of the utility model patent is a battery,

specifically the housing configuration of the battery

assembly. The IPC for the invention was H01M2/10.

The opponent cited D1–D4 in the opposition proceed-

ings, which fall into classifications other than H01M2/

10. The board ruled that as the current invention had a

different IPC to that of the prior art, it fell into a different

technical field and therefore the utility model was valid.8

intellectual property law bulletin November/December 2015 297

The number of prior art documents that can be cited

against a single Chinese utility model patent is restricted.

According to the Examination Guidelines 2012, a maxi-

mum of two prior art documents may be cited unless the

invention is directed to a simple combination of features,

in which case two or more prior art documents may be

cited. In practice, Chinese Patent law regards a “simple

combination of features” as features that are:

• known from the prior art; and

• even after combining said features, they provide

no new or unexpected synergism or outcome.

Nevertheless, it is not enough for an opponent to

assert that the utility model is a simple combination of

features; the opponent must provide evidence and/or

convincing arguments.

Filing strategy and infringementA patentee may file a Chinese utility model or an

Australian innovation patent at the same time as a

standard patent. This provides a low cost mechanism to

enable the establishment and enforcement of rights

quickly, in lieu of the lengthy time taken to obtain a

grant of a standard patent.

In Australia, an innovation patent can be converted

into a standard patent and vice versa. It is worth noting

that, in the event of a divisional innovation patent being

divided from a pending standard patent application, the

courts have deemed that the patentee may be entitled to

claim compensation from an infringer from the date of

filing the “original patent application”, being the stan-

dard parent application.9 Furthermore, it is irrelevant

that the claims of the innovation patent are present or

foreshadowed in the parent application, as a valid

standard patent shall provide fair basis for any claims at

the time of filing. Strategically, this ruling may provide

a broader scope of infringement rights to the patentee;

however, one must be mindful that those rights are not

enforceable until the innovation patent has undergone

substantive examination and certification.

Although a patentee may file an innovation patent

and a standard patent application for the same invention

in parallel, s 64(2) of the Patent Act 1990 (Cth) prohibits

the grant of more than one application for the same

invention where:

… an application for a standard patent claims an inventionthat is the same as an invention that is the subject of apatent and is made by the same inventor.

Typically, the patentee will withdraw the innovation

patent before the standard patent proceeds to grant. This

legislation was in issue in one of the ongoing litigation

cases of Samsung v Apple. In 2012, Samsung filed an

application with the Federal Court of Australia, under

the Administrative Decisions (Judicial Review) Act 1977,to petition a review of the validity, or lack thereof, of

four ofApple’s standard patents (2006330724, 2007283771,

2008201540 and 2009200366). Samsung alleged that

the commissioner should have never granted the stan-

dard patents, as they were essentially duplicating the

previously granted innovation patents, hence, they were

null and void. However, this matter was settled out of

court and therefore the issue was never decided.

As in Australia, an applicant may file a Chinese

utility model and a Chinese standard patent application

simultaneously for the same technology. Once SIPO

grants the standard patent, the applicant must abandon

the utility model, continuing their patent rights with the

standard patent until the end of the 20 year term. The

abandonment of the utility model must be within a

specific time period before the grant of the standard

patent.

Unlike Australia, which does not provide any proce-

dural requirements around simultaneous filings of this

nature, SIPO enforces specific practices to ensure events

similar to those in the Samsung v Apple case are

circumvented. These include the following require-

ments:

• the same applicant(s) must file the applications on

the same filing date; and

• a declaration must accompany each application at

the filing stage verifying that the application is for

two patent rights relating to one invention.

These requirements ensure that the Chinese examiner

is aware of both the utility model and standard patent

applications, preventing the applicant from “double

patenting”. This is not the case in Australia and thus may

enable the applicant to enforce rights against both an

innovation patent and a standard patent for the same

invention, effectively taking “two bites of the cherry”.

China has had its own share of high profile utility

model infringement cases as well. Despite the lower

threshold for inventiveness, the amount of compensation

for damages caused by the infringer is the same for both

utility model and standard patents. Typically the court

may award damages between RMB10,000—1 million,

depending on the nature and circumstances of the

infringing act. In 2007, Schneider Electric Low Voltage

(Tianjin) Co Ltd (Schneider) was found to have infringed

a utility model patent for a miniature circuit breaker,

owned by Chinese-based company Chint Group.10 In a

landmark decision, the court ordered Schneider to pay

RMB355 million in compensation to the Chint Group.

This was based on the amount of profits earned as a

result of the infringement, however, the case was later

settled for RMB157 million (USD$23 million).

intellectual property law bulletin November/December 2015298

Given the increased interest in intellectual property inChina, the government has responded by establishingthree specialised IP courts in Beijing, Shanghai andGuangzhou. The Beijing court opened in 2014 and hasalready accepted its first case, re-enforcing the ChineseIP legal system and China’s commitment to complianceand protection of IP rights.

Renee White PhD

IP ProfessionalWatermarkr.white@watermark.com.auwww.watermark.com.au

Footnotes1. S 101B(2)(d)–(g) of the Patents Act 1990 (Cth).

2. See Art 2 of Patent Law of the People’s Republic of China.

3. Above, n 2, at Arts 5 and 25.

4. See ss 9(e) and 18(1) (d) of the Act.

5. See s 18(1A)(b)(ii) of the Act.

6. Dura-Post (Aust) Pty Ltd v Delnorth Pty Ltd [2009] FCAFC

81; (2009) 81 IPR 480; BC200905629.

7. Above, n 2, at Art 22.

8. Q Ge and S Chen Four cases and their lessons for utility

models, (2013),ManagingIntellectualProperty,www.managingip.com.

9. Britax Childcare Pty Ltd v Infa-Secure Pty Ltd (No 3) [2012]

FCA 1019; BC201207132.

10. CHINT Group (Wenzhou, Fujian Province) vs. Schneider

Electric (Tianjin) Case: ZL97248479.5.

intellectual property law bulletin November/December 2015 299

Competition not to be discounted: Verrocchiv Direct Chemist Outlet Pty Ltd1

Nicholas McConnell BECK LEGAL

Takeaway tips:

• Establishing a claim under the misleading or

deceptive conduct provisions of the Australian

Consumer Law will be difficult to prove when it

relates to the trade indicia of retail outlets due to

the ever changing nature of branding and adver-

tising.

• While each case will be judged on their own

merits, provided that a trader does enough to

distinguish their brand from a competitor a trader

might not be seen to have engaged in misleading

or deceptive conduct even if the trader copies or is

shown to have been heavily influenced by the

marketing or branding of a competitor.

• Using descriptive advertising and marketing get-up

such as popular colours, slogans and layouts may

place significant barriers in front of an applicant in

their attempt to establish a misleading or deceptive

conduct claim.

• Extensive use of a trade mark might not necessar-

ily prevent a court stripping a trade mark owner of

its registered trade mark.

• In this particular case as the respondent was able

to distinguish key features of its get-up, such as

the logo, from that of the applicants, the court was

satisfied that consumers were unlikely to be mis-

led or deceived.

• As the applicant discovered in this case, trade

mark registration does not guarantee that a trade

mark owner will be able to enforce their rights as

removal from the trade mark register post the

priority date is possible.

BackgroundA recent decision of the Federal Court of Australia

(the court) considered whether a business could mislead

or deceive consumers by using similar get-up to that of

a competitor.

Mario Verrocchi and Jack Gance (the applicants) are

business partners of the discount chemist group, Chem-

ist Warehouse. The applicants license the use of the

Chemist Warehouse trade marks, slogans and related

intellectual property rights to registered pharmacists

who trade under the name “Chemist Warehouse”.

Direct Chemist Outlet Pty Ltd and Ian Tauman (the

respondents) are a competitor of the applicants, who

similarly licences the use of the name Direct Chemist

Outlet (DCO) and related intellectual property to phar-

macists within the DCO group.

The main focus of the proceeding involved the court

comparing the trade indicia of the Chemist Warehouse

and DCO brands, which included the store exterior, store

interior, catalogues, websites and other advertising mate-

rial while also determining the extent to which a trader

could obtain a monopoly in such indicia. In this respect,

the Federal Court was asked, among other things, to

consider whether since 2006 DCO had breached s 18 of

the Australian Consumer Law (the ACL)2 by adopting

similar trade indicia to that of the applicants which

misled or deceived consumers into thinking that that

DCO chemists are either those of the applicants, or are

at least associated or affiliated with the applicants.

The applicants also alleged that the respondents

infringed the applicants’ registered trade mark which

contains the slogan “Is this Australia’s Cheapest Chem-

ist?” (Trade Mark).3 In response to this claim, the

respondents lodged a cross claim challenging the valid-

ity of the Trade Mark pursuant to ss 41 and 88 of the

Trade Marks Act 1995 (Cth).

Comparing the trade indicia of theapplicants and the respondents

The applicants submitted that consumers have come

to recognise the visual branding of Chemist Warehouse

which has resulted in such branding being associated

with the applicants’ business.

In particular, the applicants submitted that the follow-

ing key elements had become a part of their get-up:

• a predominately yellow store exterior which aimed

to “surprise and shock” consumers supported by

red or blue banners containing certain slogans

such as the Trade Mark coupled with a logo in the

form of a red shaped house with a chimney

(Chemist Warehouse Logo);

intellectual property law bulletin November/December 2015300

• a vertical shelf display within the store interior

with wide aisles, painted concrete floors, bright

fluorescence coloured price ticketing containing a

logo and inexpensive rack-self-racking which gave

the stores a distinctive cluttered look;

• widely distributed broadsheet catalogues with a

certain font, colour scheme and layout; and

• a website which shared certain key elements of the

colour schemes and contained the relevant slogans

and allowed for online sales.

The applicants claimed that the respondents had

replicated or moreover, copied many of the key features

of the Chemist Warehouse brand. In response, the

respondents dismissed this allegation and argued that

while it did not dispute it had copied elements of the

Chemist Warehouse brand, it had done enough to

distinguish itself from Chemist Warehouse to ensure that

consumers would not be misled or deceived. Specifi-

cally, it was contended by the respondents that:

• the exterior of most DCO storefronts used a

primary colour palette, and only some had a

yellow background;

• unlike Chemist Warehouse storefronts, the exte-

rior of some DCO storefronts incorporated lifestyle

photographs of families and pharmacists;

• DCO’s logo was a shape of a red half sunburst

(DCO Logo) and was sufficiently different from

the Chemist Warehouse logo;

• DCO store interiors were often cleaner in appear-

ance through the use of lower shelving similar to

that of a traditional chemist; and

• the DCO website was restricted in its functions (as

it does not allow for online sales) but rather aimed

to provide information about the DCO group to

consumers.

Did the respondents engage in misleadingor deceptive conduct?

The court was not convinced that the respondents had

engaged in misleading or deceptive conduct and found

in favour of the respondents for two key reasons.

1. The ever-changing nature of the ChemistWarehouse trade indicia

A key problem which the applicants’ faced was

establishing the extent in which the Chemist Warehouse

get-up obtained its own distinctive appearance. Despite

the submissions of the applicants, Middleton J was of

the view that:

• there was an overall lack of consistency from store

to store of the store exteriors as while the exterior

of some stores was predominately yellow, other

stores exteriors contained little to no yellow;

• the catalogues had changed in their appearance

over the years in their layout, colour schemes and

the slogans used; however, the distinctive Chemist

Warehouse Logo had been consistently present;

and

• the website lacked consistency over time in appear-

ance as it changed regularly.

In light of this, his Honour held that the only

consistent characteristic of the Chemist Warehouse brand

was the distinctive nature of the Chemist Warehouse

Logo.

2. Distinguishing between the ChemistWarehouse and DCO brands

When comparing the trade indicia of both applicants

and the respondents, while the court did not doubt that

the respondents had been heavily influenced by the

applicants trade indicia in developing the DCO brand,

the court made several observations:

• in regards to the store exteriors, the Chemist

Warehouse storefronts were consistently loud and

cluttered with slogan bearing banners, while the

exterior of the DCO storefronts were compara-

tively less cluttered with the banners often limited

to uncapitalised wording while also including

lifestyle photos;

• in relation to the store layout and shop interior, the

Chemist Warehouse interior was cluttered while

the DCO interior more closely resembled a typical

retail chemist;

• while both parties catalogues were printed on

broadsheet, both had changed over time with the

logos of both parties remaining the consistently

present feature; and

• the respective websites both lacked consistency

over time which was further exacerbated by the

fact the Chemist Warehouse website focused on

online sales while the DCO website did not.

Further, his Honour acknowledged that both Chemist

Warehouse and DCO had built their respective brands on

the use of colours such as blue and red but in particular,

yellow. With respect to the use of yellow, while the

applicants argued that the respondents did not need to

use this colour but had rather copied the idea from the

applicants, the court made certain observations, includ-

ing that yellow:4

• aims to provide high visibility to consumers in an

attempt to attract consumers to a trader’s store;

and

• denotes a value proposition, in that it used to

promote heavily discounted goods which create a

look of “cheapness”.

intellectual property law bulletin November/December 2015 301

His Honour held that this use was not distinct to

either the applicants or respondents but rather is some-

thing that many discount stores including JB Hi Fi and

Bob Jane T-Mart utilise as a marketing strategy to attract

consumers’ attention.

The decisionWhile his Honour was satisfied that the respondents

had copied and applied many of the ideas and concepts

of the Chemist Warehouse branding and marketing

strategies, his Honour was not convinced that consumers

would likely be misled or deceived into thinking that the

DCO stores were Chemist Warehouse stores, or in some

way had an affiliation with the Chemist Warehouse

group.

Ultimately, his Honour ruled (at [280]) that the

relevant class of consumers “are more concerned with

the identity of the store by reference to its logo than by

any other feature of the get-up” and in the circum-

stances, his Honour was satisfied with the fact that the

DCO Logo was sufficiently distinctive from the Chemist

Warehouse Logo.

Further, his Honour reaffirmed the longstanding prin-

ciple that confusion of consumers is not enough to

establish liability under the ACL (or its predecessor the

Trade Practices Act 1974 (Cth)).5 On this point, while

consumers may be drawn to recognise the similarity

between the get-up of Chemist Warehouse and DCO,

this was seen not be enough to establish that consumers

are likely to be misled or deceived.

Trade mark infringement or a case of aninvalid trade mark?

In addition to their claim of misleading or deceptive

conduct, the applicants also contended their registered

trade mark “Is this Australia’s Cheapest Chemist?”

registered in classes 35 and 44 had been infringed by the

DCO slogan “Who is Australia’s Cheapest Chemist?”.

Figure 16

While his Honour noted the distinct similarities

between the two slogans, the respondents, in a cross

claim, alleged that the Trade Mark was not valid on the

grounds that the Trade Mark failed to distinguish the

applicants’ goods and services from the goods of other

persons as a descriptive or non-distinctive word cannot

be inherently adapted to distinguish a registered trade

mark owner’s brand from its competitors.

In assessing whether the Trade Mark failed to distin-

guish itself from other persons goods or services, his

Honour noted that the last three words of the Trade Mark

“Australia’s Cheapest Chemist” contained three separate

parts signifying geographical location, price and the

nature of the business. Further, the words “Is this” was

seen to add to the non-distinctiveness nature of the

phrase. As a result, his Honour also held that the Trade

Mark was invalid and consequently, incapable of being

infringed by the respondents. In particular his Honour

held that “… minor variations on such a word cannot be

protected by trade mark registration, because to grant

such a monopoly would create trade mark infringers of

others who make other ordinary ‘deceptively similar’

use of that word”.7

As a result of the court’s findings, the Trade Mark has

been removed from the register.8

ConclusionThe applicants claim under s 18 of the ACL failed as

while the court was satisfied that the respondents had

been influenced by the trade indicia of the applicants, the

court was not satisfied that consumers would be misled

or deceived into drawing the conclusion that DCO stores

were Chemist Warehouse stores or in any way affiliated

with Chemist Warehouse.

The ruling is arguably a win for competition in that

traders will have trouble in monopolising the use of

descriptive and non-distinctive advertising and market-

ing strategies.

Furthermore, the decision may also encourage traders

to make their brand as distinctive as possible, rather than

attempting to argue this has been achieved by using

popular colours or marketing material layouts.

Nicholas McConnell

SolicitorBeck Legalnmcconnell@becklegal.com.auwww.becklegal.com.au

Footnotes1. Verrocchi v Direct Chemist Outlet Pty Ltd (2015) 112 IPR

200; [2015] FCA 234; BC201502395.

2. Being Sch 2 of the Competition and Consumer Act 2010 (Cth).

3. Australian registered trade mark number 1195650. Note that

this trade mark is no longer registered as a result of the rulings

in this case.

4. Above, n 1, at [9] and [12].

5. Equity Access Pty Ltd v Westpac Banking Corp (1989) 16 IPR

431; (1990) ATPR 40-994 at 440–441.

6. The slogans were cited and appeared in his Honour’s judgment,

above, n 1, at [288]–[292].

7. Above, n 1, at [297].

8. Trade mark 1195650.

intellectual property law bulletin November/December 2015302

intellectual property law bulletin November/December 2015 303

PRACTICE AREA LEAD: Genevieve Corish SUBSCRIPTION INCLUDES: 10 per year plus binder SYDNEY

OFFICE: Locked Bag 2222, Chatswood Delivery Centre NSW 2067 Australia

For further information on this or other LexisNexis products, call Customer Relations: 1800 772 772 Monday to

Friday 8.00am–6.00pm EST; email: customer.relations@lexisnexis.com.au; or visit www.lexisnexis.com.au for

information on our product catalogue.

Editorial enquiries: Genevieve.Corish@lexisnexis.com.au

ISSN 1035–1353 Print Post Approved PP 255003/00767 Cite as (2015) 28(9–10) IPLB

This newsletter is intended to keep readers abreast of current developments in the field of intellectual property law. It

is not, however, to be used or relied upon as a substitute for professional advice. Before acting on any matter in the area,

readers should discuss matters with their own professional advisers. This publication is copyright. Except as permitted

under the Copyright Act 1968 (Cth), no part of this publication may be reproduced by any process, electronic or

otherwise, without the specific written permission of the copyright owner. Neither may information be stored

electronically in any form whatsoever without such permission.

Printed in Australia © 2015 Reed International Books Australia Pty Limited trading as LexisNexis

intellectual property law bulletin November/December 2015304