FEDERAL COURT OF AUSTRALIA

The Dempsey Group Pty Ltd v Spotlight Pty Ltd [2018] FCA 2016

ORDERS

THE COURT ORDERS THAT:

    The parties are to provide orders giving effect to these reasons by 8 February 2019.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

DAVIES J:

Introduction

1    The applicant (“Dempsey Group”) and the respondent (“Spotlight”) each sell bed linen product ranges which they design in-house. Dempsey Group sells its product lines under the MORGAN & FINCH brand through its Bed Bath N’ Table stores and Spotlight sells its product lines through its Spotlight stores.

2    Dempsey Group has sued Spotlight for alleged infringement of Dempsey Group’s copyright in three artistic works, comprising the surface designs on Dempsey Group’s “Rimona”, “Bosphorus” and “Constantinople” quilt cover and pillow sets (“the Dempsey products”). Photographs of these products are at Annexure A. The alleged infringements concern Spotlight’s “KOO Jarvis”, “KOO Remy” and “KOO Taj” quilt cover and pillow sets (“the Spotlight products”). Photographs of these products are at Annexure B. Dempsey Group alleges that:

(a)    the KOO Jarvis products reproduce a substantial part of the Rimona artistic work;

(b)    the KOO Remy products reproduce a substantial part of the Bosphorus artistic work; and

(c)    the KOO Taj products reproduce a substantial part of the Constantinople artistic work.

3    Both parties’ products were manufactured in China by a commission-manufacturer, Yantai Pacific Home Fashions (“Yantai”). Dempsey Group has alleged that Spotlight knowingly instructed Yantai to copy its proprietary designs and seeks damages under s 115(2) of the Copyright Act 1968 (Cth) (“the Act”) as well as additional damages under s 115(4) of the Act for the alleged infringements.

4    Spotlight has admitted that Dempsey Group owns the copyright in the Rimona artistic work and the Bosphorus artistic work, but has disputed Dempsey Group’s ownership of the copyright in the Constantinople artistic work. Spotlight has also admitted:

(a)    importing the Spotlight products for the purpose of selling them in Australia;

(b)    offering for sale and selling the Spotlight products in Australia through its retail outlets and website; and

(c)    printing or authorising another person to print a catalogue which promotes the Spotlight products.

Spotlight has otherwise denied the infringement claims.

5    The parties identified the following issues for determination:

(1)    whether Dempsey Group has established that it is the owner of the Constantinople artistic work;

(2)    whether the Spotlight products reproduced a substantial part of any of Dempsey Group’s artistic works in suit;

(3)    whether Dempsey Group has established that Spotlight had actual or constructive knowledge that the importation and sale of the Spotlight products into Australia would have constituted an infringement of Dempsey Group’s copyright if the products had been made in Australia by Spotlight; and

(4)    if copyright in all or any of the Dempsey products is established and it is found that the Spotlight products reproduced a substantial part of all or any of the Dempsey products, the damages to be awarded and whether Dempsey Group is entitled to additional damages.

the statutory context

6    The following sections of the Act are relevant.

7    Section 31(1) provides:

Nature of copyright in original works

(1)    For the purposes of this Act, unless the contrary intention appears, copyright, in relation to a work, is the exclusive right:

…

(b)     in the case of an artistic work, to do all or any of the following acts:

(i)     to reproduce the work in a material form;

(ii)     to publish the work;

(iii)     to communicate the work to the public.

8    Section 36(1) provides:

Infringement by doing acts comprised in the copyright

(1)    Subject to this Act, the copyright in a literary, dramatic, musical or artistic work is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorises the doing in Australia of, any act comprised in the copyright.

9    Section 14(1) provides:

Acts done in relation to substantial part of work or other subject-matter deemed to be done in relation to the whole

(1)    In this Act, unless the contrary intention appears:

(a)     a reference to the doing of an act in relation to a work or other subject-matter shall be read as including a reference to the doing of that act in relation to a substantial part of the work or other subject-matter; and

(b)     a reference to a reproduction, adaptation or copy of a work shall be read as including a reference to a reproduction, adaptation or copy of a substantial part of the work, as the case may be.

10    Section 37 provides:

Infringement by importation for sale or hire

(1)    Subject to Division 3, the copyright in a literary, dramatic, musical or artistic work is infringed by a person who, without the licence of the owner of the copyright, imports an article into Australia for the purpose of:

(a)    selling, letting for hire, or by way of trade offering or exposing for sale or hire, the article;

(b)    distributing the article:

    (i)    for the purpose of trade; or

(ii)    for any other purpose to an extent that will affect prejudicially the owner of the copyright; or

(c)    by way of trade exhibiting the article in public;

if the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright.

(2)    In relation to an accessory to an article that is or includes a copy of a work, being a copy that was made without the licence of the owner of the copyright in the work in the country in which the copy was made, subsection (1) has effect as if the words “the importer knew, or ought reasonably to have known, that” were omitted.

11    Section 38 provides:

Infringement by sale and other dealings

(1)    Subject to Division 3, the copyright in a literary, dramatic, musical or artistic work is infringed by a person who, in Australia, and without the licence of the owner of the copyright:

(a)    sells, lets for hire, or by way of trade offers or exposes for sale or hire, an article; or

   (b)    by way of trade exhibits an article in public;

if the person knew, or ought reasonably to have known, that the making of the article constituted an infringement of the copyright or, in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted such an infringement.

(2)    For the purposes of the last preceding subsection, the distribution of any articles:

(a)    for the purpose of trade; or

(b)    for any other purpose to an extent that affects prejudicially the owner of the copyright concerned;

shall be taken to be the sale of those articles.

(3)    In this section:

“article” includes a reproduction or copy of a work or other subject-matter, being a reproduction or copy in electronic form.

12    Section 115 provides:

Actions for infringement

(1)    Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright.

(2)    Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.

(3)    Where, in an action for infringement of copyright, it is established that an infringement was committed but it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not.

(4)    Where, in an action under this section:

(a)    an infringement of copyright is established; and

(b)    the court is satisfied that it is proper to do so, having regard to:

    (i)    the flagrancy of the infringement; and

    (ia)    the need to deter similar infringements of copyright; and

(ib)    the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright; and

(ii)    whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and

(iii)    any benefit shown to have accrued to the defendant by reason of the infringement; and

    (iv)    all other relevant matters;

the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.

Consideration for relief for electronic commercial infringement

(5)    Subsection (6) applies to a court hearing an action for infringement of copyright if the court is satisfied that:

(a)    the infringement (the proved infringement) occurred (whether as a result of the doing of an act comprised in the copyright, the authorising of the doing of such an act or the doing of another act); and

(b)    the proved infringement involved a communication of a work or other subject-matter to the public; and

(c)    because the work or other subject-matter was communicated to the public, it is likely that there were other infringements (the likely infringements) of the copyright by the defendant that the plaintiff did not prove in the action; and

(d)    taken together, the proved infringement and likely infringements were on a commercial scale.

(6)    The court may have regard to the likelihood of the likely infringements (as well as the proved infringement) in deciding what relief to grant in the action.

(7)    In determining for the purposes of paragraph (5)(d) whether, taken together, the proved infringement and the likely infringements were on a commercial scale, the following matters are to be taken into account:

(a)    the volume and value of any articles that:

(i)    are infringing copies that constitute the proved infringement; or

(ii)    assuming the likely infringements actually occurred, would be infringing copies constituting those infringements;

(b)    any other relevant matter.

(8)    In subsection (7):

“article” includes a reproduction or copy of a work or other subject-matter, being a reproduction or copy in electronic form.

13    Section 196 provides:

Assignments and licences in respect of copyright

(1)    Copyright is personal property and, subject to this section, is transmissible by assignment, by will and by devolution by operation of law.

(2)    An assignment of copyright may be limited in any way, including any one or more of the following ways:

(a)    so as to apply to one or more of the classes of acts that, by virtue of this Act, the owner of the copyright has the exclusive right to do (including a class of acts that is not separately specified in this Act as being comprised in the copyright but falls within a class of acts that is so specified);

  (b)    so as to apply to a place in or part of Australia;

(c)    so as to apply to part of the period for which the copyright is to subsist.

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

(4)    A licence granted in respect of a copyright by the owner of the copyright binds every successor in title to the interest in the copyright of the grantor of the licence to the same extent as the licence was binding on the grantor.

Background facts and evidence

14    Dempsey Group, through its subsidiary Domestic Textile Corporation Ltd (“DTC”), has its products manufactured through a range of manufacturers, one of which is Yantai. Dempsey Group first started having products manufactured by Yantai in 2009 and Yantai, on average, has manufactured between 100–115 new and repeated products for Dempsey Group each year. Yantai began supplying Dempsey Group with the Constantinople product in September 2013, the Bosphorus product in July 2014 and the Rimona product in January 2016.

15    Yantai manufactures for a number of other well-known companies and its other customers, until recently, included Spotlight. Spotlight had been a customer of Yantai since 2008 but it stopped using Yantai following Dempsey Group’s infringement claim.

16    Spotlight buyers came to Yantai’s showroom in Shandong Province, China, twice yearly to arrange commission-manufacturing. Dempsey Group’s case is that at one of those visits, which took place on 29 April 2016, the Spotlight buyers were taken to the third floor of Yantai’s premises, where Yantai’s commission-manufactured products were displayed under the names of the commissioning clients. It is claimed that the Spotlight buyers expressed particular interest in products of Dempsey Group displayed under a “Bed Bath N’ Table” sign and that one of the buyers, Ms Kellie Howitt, selected three items from the Bed Bath N’ Table display, which were from the Rimona, Bosphorus and Constantinople ranges, and asked that they be brought to the meeting room where she discussed the products to be commission-manufactured with the Yantai representatives, including three to be based on the Dempsey products with modifications to the surface designs. The three Spotlight products said to be based on the Dempsey products are the products which became known as KOO Jarvis, KOO Remy and KOO Taj, which Yantai is said to have manufactured according to Spotlight’s specifications. Dempsey Group’s case is that Ms Howitt was told by Mr Thomas Chen, a Yantai representative who attended at the meeting, that Bed Bath N’ Table had copyright in the products selected by Ms Howitt and that the Spotlight buyers knowingly instructed Yantai to copy Dempsey Group’s proprietary designs. Mr Chen was called as a witness by Dempsey Group.

17    Spotlight’s witnesses, who included Ms Howitt, gave a very different account of the visit and meeting. On their accounts the Spotlight buyers did not know and had no reason to suspect that the designs they selected were based on artistic works in which Dempsey Group owned the copyright. In short, Spotlight’s case is that the Spotlight products came into existence through Spotlight’s conventional buying process and if the Spotlight products do reproduce a substantial part of the Dempsey artistic works, that happened as a result of Yantai’s careless (or opportunistic) conduct, rather than any wrongdoing on the part of Spotlight.

The evidence about Spotlight’s buying process

18    Ms Howitt gave unchallenged evidence about Spotlight’s buying process. Ms Howitt is employed by Spotlight as a wholesale buyer of bed linen and has been in that position since about May 2015. Prior to working at Spotlight she worked in a number of similar roles for other retail businesses and has about 15 years’ experience in this type of role. The role includes sourcing, developing and selecting multiple product ranges for sheet sets, quilt cover sets, bed cushions, coverlets, bed spreads and flannelette sheets. She is responsible for developing up to 150 new product designs every six months and as part of this work, she goes on between two and four overseas buying trips every year.

19    Ms Howitt gave the following description of a typical buying trip: a typical buying trip first involves the development of inspiration or mood boards before leaving Australia which identify themes, colours, looks or trends that will form the basis of Spotlight’s bed linen designs for seasonal or fashion products. Spotlight also stocks plain or standard types of designs which are often present in the range on an ongoing basis. The types of themes that might appear on a mood board are bohemian, tropical, botanical or coastal and, when developing seasonal or fashion products, Ms Howitt may also place emphasis on a particular colour. The purpose of the mood board is to focus her mind on particular style themes, rather than to act as a prescriptive list of particular items that she needs to purchase. The mood boards do not limit the types of designs that she might ultimately purchase on that buying trip.

20    The second stage of a typical buying trip involves travelling to Europe or the United States to visit trade shows and retail stores to identify new market trends relating to products and customer experiences, such as store layouts, ticketing (that is, small product specific signage) and the positioning of products in stores. During this stage of the buying trip Ms Howitt also gathers inspiration for new products and collects samples to take to Spotlight’s vendors. She looks for samples that comprise patterns, colours and textures that she believes could sell well in Spotlight’s stores as bed linen. She does not collect samples in Australia for this purpose. A sample may take any form and can be clothing items, curtain fabrics, swimsuits and even non-textile goods like porcelain dinner plates.

21    Once she has collected samples, she takes them to Spotlight’s vendors in China. She uses the samples she has collected as either a colour reference or a design reference. The colour references are useful because she sometimes finds it difficult to describe a particular colour accurately to Spotlight’s vendors, most of whom are based in China, as she is dealing with people for whom English is not a first language. She uses design references to help describe visual features and textures to vendors. In order to discuss these concepts with vendors she finds it useful to have physical samples that she can use to illustrate the type of design she is trying to achieve.

22    Ms Howitt gave the following description about the process of ordering products. At meetings with vendors she discusses samples, relevant colour references or design references, and the types of products that she wants to buy. In addition to the samples she has collected during her buying trip, vendors may also show her sample products which may be physical samples on display in their showroom or images of other products in catalogues. The discussions with vendors usually occur at the vendor’s showroom premises. She instructs vendors to create a design by reference to the samples discussed during their meeting and when this happens she does not provide detailed instructions on how the new design should look or where particular visual features should be placed. She does not spend a lot of time on the detail of a potential design, and relies on the vendors to do this work. The sort of instructions she provides to the vendors are general and they often relate to her observations about what has been successful from a sales perspective in recent years in Spotlight stores. She stated that the types of general instructions she provides include that:

(a)    a particular visual feature (such as a picture of a bird) in a sample be retained;

(b)    a particular design style (like patchworks) is to be used;

(c)    a particular level of colour brightness be applied – for example a washed out look, a gradually fading light to dark colour spectrum or bold and bright colours; and

(d)    particular design features be omitted if they will increase the purchase price to a point that will exceed her budget, such as a trim like a tassel or an embroidery feature.

23    Her evidence was that, with any design shown to her by vendors, she relies on the vendor to tell her if Spotlight can purchase products bearing the exact design or whether it should be used as an inspiration only, like the samples she collects from overseas. In many cases she only uses a sample provided by a vendor for inspiration. Following these discussions the vendors then send pricing proposals by email for the products that have been discussed. She then places orders for a selection of those products based on what she can afford to buy within the constraints of her budget.

24    Ms Howitt stated that Spotlight’s vendors tend to operate out of large showrooms that display both their own designs and those of their customers. Typically she walks through the showrooms and picks up samples from the display floor before sitting down with a vendor to discuss designs. During the meeting itself, she often lines up some of the samples along the floor roughly to imitate a store shelf at a Spotlight store. By doing that she gets a feel for how the various samples might come together as a product range and she then considers whether any elements of a relevant mood board are missing. Typically she places design reference samples next to each other in a back row and any colour reference samples are placed in front of them in a front row. This allows her to mix and match design themes with colours.

25    The discussions she has with the vendors during those meetings are interactive and move at a fairly quick pace. She gave evidence, by way of example, that sometimes a representative of a vendor suggests that a proposed range could be improved by adding another sample from the vendor’s range, or sometimes she realises that the proposed range is missing an aspect of the mood board and she asks the vendor to provide some additional samples to fill the gap. She also collects relatively simple designs from the vendors’ display rooms that do not correspond to a mood board or require a shelf simulation line up. She simply gives the samples to the vendor representatives that she is working with and asks them to offer her a price for them.

26    Spotlight does not receive any end products or price lists during a buying trip, nor are any orders made during the trip. After the meetings, the vendors send her a written proposal by email that incorporates details of the products discussed and pricing information. These documents usually include computer aided design drawings of the proposed designs that Ms Howitt understands are produced by the vendor’s in-house designers.

27    She deposed that sometimes she receives price lists from a vendor in iterations. This is usually done at her request because she wants pricing for some products urgently. When she reviews a price list from a vendor her primary concern is with the prices themselves rather than the details of the designs that are presented. She then responds by placing an order for the products that she wants to buy. Those products are then manufactured by the vendor and shipped to Australia (and the other countries where Spotlight has stores) for distribution.

The buying trip in April 2016

28    Ms Howitt gave evidence that she went on a buying trip in April 2016 to source a new collection of bed linen products. Before she went, she developed mood boards for this trip with Ms Corinne Rico Estrada. Ms Rico Estrada was Spotlight’s then Business Development Manager – Manchester and Ms Howitt reported directly to her. Ms Howitt’s evidence was that their inspiration for the products that later became known as KOO Jarvis, KOO Remy and KOO Taj was drawn from a number of looks including bohemian, tropical, botanical and coastal. She said that she did not retain a copy of those mood boards.

29    On about 21 April 2016, Ms Howitt and Ms Rico Estrada travelled to Los Angeles to collect sample products and spent approximately three days there. On 25 April 2016 they travelled to Shanghai, China and met with other buyers from Spotlight, who included Ms Carla Frische and Ms Aruna Singh.

30    On 29 April 2016, Ms Howitt, Ms Rico Estrada, Ms Frische and Ms Singh travelled together to visit Yantai’s showroom. Ms Howitt deposed that she had visited Yantai’s premises and placed orders with Yantai in the past and had an established working relationship with a number of its staff.

Yantai’s showroom

31    Yantai’s showroom consists of four levels. The uncontroversial evidence was that at the relevant time, the first floor (at ground level) displayed infant/children’s bed linen products. The main showroom, located on the second floor, displayed products and textiles designed by Yantai and also had a meeting room. The third level consisted of products and designs that Yantai manufactured for its retailer customers. This room was separated into individual retailer spaces consisting of a made-up display bed, with some products unpackaged to display the textile design and shelving units stacked with the retailer’s packaged bed linen products displayed in the form in which they were dispatched, including brand name and price tag. Mr Chen described the display area as “like a retail store”. The individual retailer spaces included a Bed Bath N’ Table display area under a sign labelled “Bed Bath N’ Table”. The fourth level displayed special fabric and products designed by Yantai.

The visit to Yantai on 29 April 2016

32    Evidence about what happened at the visit on 29 April 2016 was given by Mr Chen for Dempsey Group and by Ms Howitt, Ms Rico Estrada, and Ms Frische for Spotlight.

33    Mr Chen described himself as the owner, general manager and legal representative of Yantai. He gave evidence that present at the visit from Spotlight were Ms Howitt, Ms Rico Estrada, Ms Frische and Ms Singh and from Yantai were himself, Ms Ellie Gao (a designer), Mr Sean Yuan (a merchandise operator) and the sample manager (who spoke no English). His recollection was that the visit lasted “a little bit over three hours” and he was present the whole time but for two short bathroom breaks.

34    Mr Chen’s account was that Mr Yuan collected the Spotlight buyers from their hotel and they arrived around 9.00am. They went upstairs and walked through the sample room on the second floor and arrived at the meeting room where they were greeted. The Spotlight buyers chose some samples from the second floor, then went to the third floor where they expressed particular interest in the samples shown on the bed in the Bed Bath N’ Table display. Ms Howitt asked him which were the most popular, bestselling products of Bed Bath N’ Table. He asked his colleague Mr Frank Jia, who was responsible for the sales of Dempsey Group’s products, to provide images of those products.

35    In the meantime, Ms Howitt took samples of products from the Bed Bath N’ Table display shelf, which included the Rimona, Bosphorus and Constantinople products, and asked for the Rimona sample to be opened up and displayed on the bed. Ms Howitt started discussing the design with Reng Shing (another Yantai designer) at which point Ms Gao said to Mr Chen in Chinese: “This belong to DTC. Be careful”, and Mr Chen then said to Ms Howitt in English: “Be careful – this belong to DTC”. Mr Chen said that no-one paid attention. Ms Howitt asked the Yantai staff to bring the samples she had selected from the Bed Bath N’ Table display to the meeting room. As the Rimona sample had been opened, one of the Yantai staff fetched a packaged sample from the store room. On Mr Chen’s evidence they spent around 20 minutes at the Bed Bath N’ Table display. The Spotlight buyers then picked some other samples from that floor and went down to the second floor where they chose some samples from Yantai’s own design patterns before going into the meeting room.

36    In the meeting room, Mr Chen showed Ms Howitt images of the five bestselling products sent to him by Mr Jia. Ms Howitt was said to be very happy because the three samples she had selected were among the images. The Spotlight buyers spent around an hour laying out the various samples and fabrics from Yantai’s showroom and the samples and products they had brought with them, and then a discussion took place for approximately one to two hours principally between Ms Howitt, Reng Shing and Ms Gao as to the specific products that Spotlight wanted Yantai to manufacture. Mr Chen said that about 13 products in total were discussed, which included four products based on the Bed Bath N’ Table samples. It was also his evidence that during that discussion he repeated that the samples were DTC’s and that there was a copyright issue “but no-one paid attention”.

37    In cross-examination, Mr Chen agreed that:

(a)    Ms Howitt had never before made a request to see the bestselling designs of another retailer;

(b)    he knew that Dempsey Group owned the copyright in the artistic works of the Rimona, Bosphorus and Constantinople products; and

(c)    he did not tell the Spotlight buyers that Yantai could not manufacture the products that became known as the KOO Jarvis, KOO Remy and KOO Taj products because of Dempsey Group’s copyright in the Dempsey products.

38    Ms Howitt’s evidence was that in addition to Mr Chen, Ms Gao and Mr Yuan, Mr Sam Wang, the account manager, was also present. On her recollection the meeting lasted around two and a half hours. She spent very little time on the first floor, then around one hour on the second floor collecting samples and around ten minutes on the third floor. Her evidence was that she briefly inspected this room to gain intelligence about market trends, but did not choose any samples from this level. They then went to the meeting room where they discussed the samples that the Spotlight buyers had chosen and the samples they brought with them. On her recollection, they were around 30 minutes in the meeting room. Ms Howitt laid out the samples with design references in the back row and colour references in the front row and then looked to see whether there were any gaps in design and colour.

39    On Ms Howitt’s evidence, Mr Chen was only present for about half of the meeting and he came in and out of the meeting several times. Mr Wang and Mr Yuan were in the room most of the time (but both of them occasionally left temporarily). Ms Howitt led the discussion but Ms Rico Estrada, Ms Frische and Ms Singh were also present. Ms Rico Estrada oversaw the discussion and occasionally contributed, but was generally an observer rather than an active participant. Ms Howitt occasionally asked Ms Frische for some feedback on the designs they were discussing, but she was not otherwise actively involved in the discussion. Ms Singh was in the room during the meeting but she did not participate in the discussions.

40    Ms Howitt recalled that about a dozen samples were discussed. She recalled that after the meeting she ordered the KOO Jarvis, KOO Remy and KOO Taj products amongst others, including one which would become a product called KOO Lottie.

41    Her evidence was that the KOO Remy product was based on a sample that Yantai provided to her, not on a sample that she selected from the showroom. She said that the samples she had selected were very intricate and detailed and she needed something a bit cleaner, and so Yantai presented her with the sample. Ms Howitt used that sample as a design reference and as she liked the colour she did not use a separate colour reference but asked Yantai to create a design “inspired” by the sample. The notation recorded by Yantai in relation to this product was that Yantai was to “creat[e] a design”. In cross-examination Ms Howitt said that she could not recall whether she asked about the copyright in the design but she repeated her evidence that the sample was not presented to her as a Bed Bath N’ Table design and she denied that she asked for changes to be made because she knew that Bed Bath N’ Table had copyright in the design.

42    Her evidence was that the KOO Taj product was based on an unmarked sample she had selected from a display bed on the second floor showroom which she used as a design reference and as she liked the colour she did not use a separate colour reference. She stated that she really liked the patchwork and that patchwork sells very well for Spotlight, so she asked Yantai to create a design for them using the sample as a design reference. The notation recorded by Yantai in relation to this product was that Yantai was to “creat[e] a design” based on the sample. In cross-examination Ms Howitt said that she could not recall whether she asked about the copyright in this design but she repeated her evidence that the sample was taken from the showroom on the second floor and she denied that she asked for changes to be made because she knew that Bed Bath N’ Table had copyright in the design.

43    Her evidence was that she did not view any design reference samples during the meeting relating to the KOO Jarvis product. She had selected a computer aided design of a quilt cover from Yantai but she did not like the colours so she asked them to recolour that design for her. On her evidence, the first time that she saw the design that became KOO Jarvis was when she received a spreadsheet from Yantai on 29 April 2016 (“the first Yantai spreadsheet”). The complete spreadsheet is attached at Annexure C. The relevant row in that spreadsheet is next to the reference PHF15-506, which is extracted below for convenience.

44    Ms Howitt acknowledged that she had seen the sample that appears in the photograph in the third column, which is a sample of the Rimona product, which, she said, was in its packaging. She knew at the time that it was a MORGAN & FINCH product and that this was a house brand of Bed Bath N’ Table but she said she did not see it out of its packaging and she used it only as a colour reference for the design which became the sample referred to as PD-P-1348-C in the first Yantai Spreadsheet and not as a design reference for the KOO Jarvis product. Asked in examination in chief as to whether she recalled any instructions she gave about the process of recolouring, she said:

Yes. I had seen a quilt cover in its packet, and the ground colour was beautiful. So I had requested that Yantai Pacific refer to the ground colour of another quilt cover within – and asked them to recolour based on the ground colour of the [computer aided design].

45    She also gave evidence that when she received the first Yantai Spreadsheet she did not suspect that the designs depicted in the photos in the first two columns next to the reference PHF15-506 had any similarities to the design of the MORGAN & FINCH product. She said she chose PHF15-506 over PD-P-1348-C because she liked it more. It was put to Ms Howitt in cross-examination, and she denied, that she used the insert in the packaging of the MORGAN & FINCH product as a design reference. Ms Howitt was also cross-examined on whether she had asked about copyright in the design when she received the first spreadsheet. Ms Howitt’s evidence was that she did not, nor did she ask when she received the second spreadsheet (see [51]) or placed the order.

46    In cross-examination Ms Howitt also denied that:

(a)    she had spent 20 minutes at the Bed Bath N’ Table display on the third floor;

(b)    she asked Mr Chen which were Bed Bath N’ Table’s bestselling designs;

(c)    she selected the three Dempsey products from the display area on the third floor;

(d)    she asked for those samples to be taken to the meeting room;

(e)    Mr Chen showed her images of Bed Bath N’ Table’s bestselling designs;

(f)    she was pleased because three of the samples she had selected were amongst the

estsellers;

(g)    Mr Chen told her to be careful because Bed Bath N’ Table had copyright in the designs;

(h)    she knew that the samples used for the KOO Taj and KOO Remy designs were Bed Bath N’ Table’s products; and

(i)    she knew what the Rimona design looked like because she asked the Yantai representatives to display it on the bed at the Bed Bath N’ Table display.

47    Ms Rico Estrada corroborated Ms Howitt’s evidence that Mr Wang was at the meeting and that Mr Chen was not with them throughout the whole of the meeting but came and went. Ms Rico Estrada was unable to recall who selected the samples that were used to create the designs for the Spotlight products but her evidence was that the Spotlight buyers did not make any selection from the third floor, but only from the second floor showroom. When it was put to her in cross-examination that Ms Howitt selected Bed Bath N’ Table products from the third floor of the showroom and Mr Chen told Ms Howitt that Bed Bath N’ Table owned the copyright in those products, she said that was not correct and no selection was made from the third floor.

48    Ms Frische’s evidence was that until the end of 2016 she visited Yantai regularly on buying trips and Mr Chen took the lead role for Yantai. She gave only very general evidence about the visit. She could not recall any of the samples that her colleagues brought to the meeting or selected from the range presented by Yantai nor could she recall whether the staff of Yantai who attended the meeting presented any additional samples during the course of the meeting. But she did recall that Mr Wang was also present. She stated that her role during the meeting was quite passive. She observed and listened as Ms Howitt discussed particular products with Yantai’s representatives and she assessed whether that product was likely to sell well in New Zealand, Singapore and Malaysia.

49    Ms Rico Estrada and Ms Frische also each gave evidence that they generally relied on Mr Chen and his staff to advise them as to which samples Spotlight could use.

The order

50    The first Yantai Spreadsheet was sent by Mr Chen to Ms Howitt on 29 April 2016. KOO Jarvis is PHF15-506. KOO Remy is PD-P-1122 and KOO Taj is in the last row “DTC [Chinese character]”. The Chinese character means “design”.

51    On 9 May 2016 Ms Howitt received an email from Mr Wang attaching a second spreadsheet that included images of all the product designs and samples that had been discussed during the April 2016 meeting along with pricing information (“the second Yantai spreadsheet”). The second Yantai spreadsheet contained the same product images and pricing information as the first Yantai spreadsheet and consistent, but slightly more detailed, information about product specifications. The second spreadsheet also contained information about a number of additional products that were not covered by the first Yantai spreadsheet.

52    On 7 June 2016, Ms Howitt placed orders based on these proposals, including for the Spotlight products. She ordered the following quantities for each of the Spotlight products:

(a)    320 double bed sized quilt cover sets;

(b)    1,300 queen bed sized quilt cover sets;

(c)    950 king bed sized quilt cover sets; and

(d)    650 European pillowcases.

53    Each quilt set included a quilt cover and two standard size pillow cases.

54    Order forms were sent by Ms Howitt to Mr Wang on 8 June 2016 and samples were sent to Ms Howitt on or around 2 July and 5 July 2016.

55    Between 21 and 22 June 2016, Ms Howitt exchanged a series of emails with Mr Wang about the KOO Lottie product that Ms Howitt had ordered based on a sample that she said that she collected from the second floor showroom. On Mr Wang informing her that the design had previously been sold to Bed Bath N’ Table, Ms Howitt cancelled the order.

56    Ms Howitt approved the samples by emails to Mr Wang on 8 July (KOO Jarvis and KOO Taj) and 3 August 2016 (KOO Remy).

57    On 8 August 2016, Ms Howitt received an email from Mr Wang that stated (among other things):

I knew that we had got the REMY photo for the insert.

But we found problem in some place of the design,

So we make the changes as the attachment.

(errors in original)

58    The “problem” referred to in Mr Wang’s email was not explained to Ms Howitt at the time and she did not ask for an explanation.

Notification of Dempsey Group’s claims

59    On about 30 November 2016, the CEO of Spotlight, Mr Quentin Gracanin, told Mr David Windsor, the general counsel of Spotlight, that Mr Jonathan Dempsey, the managing director of Dempsey Group, had contacted him and complained that the Spotlight products infringed Dempsey Group’s copyright.

60    Mr Dempsey’s evidence was that, in an attempt to avoid a legal dispute with Spotlight and considering the impending Christmas shopping period, he telephoned Mr Gracanin on 29 November 2016. On 30 November 2016 he sent an email to Mr Gracanin attaching images of the Rimona, Bosphorus and Constantinople designs, stating that all three designs were original artwork produced by Dempsey Group’s design team and that Dempsey Group had files of the creation if required. Mr Dempsey asked Mr Gracanin to discuss the matter with his team and to come back to him as to how they handled it, stating “clearly we will also want to know the source of the product and the contact as we will need to ensure that it is not being sold elsewhere”. Mr Gracanin responded by reply email stating that he had forwarded all the information to the relevant “merch team, our GM of Spotlight and our in-house legal counsel” and that somebody would respond/contact Mr Dempsey once they had investigated. Mr Dempsey asked that they get back to him in the next day or two.

61    Mr Windsor’s evidence was that after his discussion with Mr Gracanin, he emailed Mr Dempsey asking him to provide some evidence that Dempsey Group owned the copyright in the Dempsey products. Mr Dempsey responded on 2 December 2016 by email attaching documents in support of proof of ownership. Mr Windsor also spoke to Ms Rico Estrada and Ms Howitt and asked them to contact Yantai and enquire about the origins of the designs which they had applied to the Spotlight products.

62    On 6 December 2016 Mr Dempsey again expressed Dempsey Group’s wish that the matter be “wrapped up as none of us need this at this time of the year!”

63    On 13 December 2016, Mr Windsor received a letter of demand addressed to him in his capacity as Spotlight’s general counsel from DLA Piper on Dempsey Group’s behalf formally alleging that the Spotlight products infringed copyright owned by Dempsey Group in the Dempsey products. Mr Dempsey’s evidence was that as he had not been able to resolve matters with Spotlight he instructed DLA Piper to send the letter. He deposed that the Christmas and New Year periods are the most significant sales periods of the year for Dempsey Group and bed linen retailers generally, during which time Dempsey Group’s weekly sales are generally twice that of its weekly sales in the other months. Spotlight also engaged its solicitors, Cornwall Stodart.

64    Ms Howitt’s evidence was that she had a meeting scheduled for 21 December 2016 at Spotlight’s headquarters with Mr Varouj Mouradian, Yantai’s Australian general manager, and Ms Simona Sparano, who she understood to be a designer. The original purpose of that meeting was to discuss purchasing products. Ms Howitt’s evidence was that during the meeting she told Mr Mouradian that Bed Bath N’ Table had accused Spotlight of infringing its copyright in the designs that appear on products that Yantai had supplied to Spotlight. She asked for an explanation and Mr Mouradian told her that he did not know anything about the Spotlight products and he would ask Mr Chen about them. Mr Windsor was also at that meeting and he gave similar evidence.

65    By letter dated 20 December 2016, Cornwall Stodart informed DLA Piper that Spotlight did not admit any liability in relation to the alleged infringing conduct but undertook once its current stock of Spotlight products was exhausted to the effect that it would cease sales and production of the Spotlight products.

66    DLA Piper responded with a letter to Cornwall Stodart dated 22 December 2016 in which it was stated:

Our client has been in contact with Yantai, and we are instructed that representatives of Spotlight visited the Yantai showroom in April 2016. At that time, the Spotlight representatives became aware of the Dempsey Artistic Works and, upon being informed they were proprietary designs, requested modifications to same so as to form the Spotlight [p]roducts.

67    Mr Windsor deposed that to the best of his knowledge this was the first occasion on which it had been asserted to anyone at Spotlight that its buyers had been told that the designs they were shown were owned by Dempsey (or any third party) or that they had requested that the designs be modified and applied to create the Spotlight products.

68    On 23 December 2016, Ms Howitt sent an email to Mr Mouradian asking him if he had spoken with Mr Chen. Mr Mouradian responded by email of 23 December 2016 in which he advised that Mr Chen had “reconfirmed” that when Ms Howitt visited their showroom in April she asked to be shown the bestsellers of Bed Bath N’ Table and that they showed her pillowcases and inserts from Bed Bath N’ Table. The email stated:

HI KELLIE

I HAVE SPOKEN TO THOMAS FEW MINUTES AGO, AND DISCUSSED AT LENGTH THE HISTORY OF THESE THREE DESIGNS.

THOMAS RECONFIRMED THE FOLLOWING:

1) WHEN YOU VISITED THEIR SHOWROOM IN APRIL, YOU HAVE ASKED TO BE SHOWN THE BEST SELLERS OF BED BATH AND TABLE.

THEY HAVE SHOWED YOU PILLOW CASES AND INSERTS FROM BED BATH AND TABLE.

YOU HAVE REQUESTED FROM PACIFIC HOME FASHION TO PRODUCE ARTWORK FOR FEW DESIGNS WITHIN THE SAME LOOK.

2) UNFORTUNATELY, UNAWARE OF THE COPYRIGHT LAWS IN AUSTRALIA, THEIR [INTERPRETATION] OF SAME LOOK WAS WRONG, BECAUSE THEIR COUNTER SKETCHES WERE TOO CLOSE TO BED BATH AND TABLE DESIGNS. THEY HAVE SUBMITTED TO YOU THE NEW ARTWORK, AND YOU HAVE APPROVED THE SKETCHES, AND GAVE THEM THE ORDER TO PROCEED WITH BULK, WHICH THEY DID.

3) THEY ACCEPT THE ARTWORKS SUBMITTED WERE TOO CLOSE TO BBT DESIGNS, CONSEQUENTLY THEY ARE RESPONSIBLE, AND ARE NEGOTIATING WITH BED BATH AND TABLE TO SOLVE THIS PROBLEM.

PART OF THE SOLUTION OF THIS PROBLEM, BBT HAVE ASKED FOR SPOTLIGHT TO STOP SELLING THESE THREE DESIGNS. EFFECTIVE IMMEDIATELY, WHICH IS VERY MUCH WITHIN THE RIGHT OF BBT

AND I AM ASKING YOU ON BEHALF OF [YANTAI] TO ACTIVATE THAT IMMEDIATELY.

YOU ALSO NEED TO ASK THE STORES TO RETURN ANY STOCK THEY HAVE OF THESE 3 DESIGNS BACK TO YOUR WAREHOUSE. AND ONCE YOU HAVE ALL THE STOCK BACK TOGETHER WITH ANY STOCK IN YOUR WAREHOUSE, PLEASE ADVISE US , AND PACIFIC HOME FASHION WILL REFUND YOU THE COST OF THE GOODS AND WILL SHIP IT BACK TO CHINA TO BE DESTROYED

I DO APOLOGISE FOR THE INCONVENIENCE CAUSED.

IF YOU HAVE ANY FURTHER QUESTIONS, PLEASE DO NOT HESITATE TO CONTACT ME

(errors in original)

69    This email copied in Mr Windsor, Mr Wang and Ms Sparano.

70    When Mr Windsor received this email he was already in the country with his family for Christmas. He did not take any action until the next working day, which was 28 December 2016. At 10.41am that day he sent an email to Ms Rico Estrada and Ms Howitt asking that the Spotlight products be removed from all stores in Australia and overseas. He deposed that he took this step because of the email received from Mr Mouradian on 23 December 2016.

71    The recall process was commenced and on 29 December 2016, in a periodic internal electronic newsletter that Spotlight distributes to all of its stores called “Spotlight on Communication”, there was a removal notice stating that the Spotlight products must be removed.

72    In January 2017, Spotlight sent further communications to stores reiterating the recall instructions and conducted store audits to ensure that the recall process was being complied with. As part of this process it came to Mr Windsor’s attention that some Spotlight stores had not fully complied with the recall. About this time, Mr Windsor caused steps to be taken to ensure that if any of the Spotlight products were scanned through the Spotlight store point of sale system, a message would be displayed to direct the store attendant not to complete the sale.

73    In February 2017, Mr Windsor took further steps to ensure that Spotlight stores had complied with the recall he had initiated. He instructed Ms Kendra Hounsell, who was Spotlight’s Stock Integrity Manager at that time, to take over supervision of the recall. To implement these instructions, Ms Hounsell decided that it was appropriate to individually telephone the store managers at each of Spotlight’s stores (which then totalled 123). She undertook this process with her colleague, Ms Hang Nguyen. They completed this task between 9 and 14 February 2017. During these calls, they instructed the store managers to “walk the floor” looking for relevant stock and, if any was found, to set it aside for return. The upshot of this process was that:

(a)    Spotlight was holding 7033 units in its distribution centres;

(b)    there were 54 units still held in stores to be returned (including 41 European pillowcases);

(c)    there were 26 units still held in stores as lay-by items (including 4 European pillowcases); and

(d)    Ms Hounsell and Ms Nguyen had not been able to account for 143 units (including 41 European pillowcases).

These figures include stock from overseas stores.

74    Further, as a part of Spotlight’s standard stocktake procedures in 2017, Ms Hounsell also identified that a total of 35 units had been sold between 16 January 2017 and 19 July 2017.

75    In August 2017, Mr Windsor brought the recall process to a close by “naming and shaming” within Spotlight the stores that had failed to comply adequately with the recall.

76    At a time that was not specified in the evidence, Spotlight also ceased doing business with Yantai.

77    In written submissions, Dempsey Group’s case was put as follows:

38.    The recall was unsatisfactory.

(a)    First, KOO Remy on appeared on shelves the week commencing 26 December 2016, being almost four weeks after Spotlight were put on notice of Dempsey Group’s rights on 29 November 2016.

(b)    Second, Spotlight Products remained in the stores throughout the crucial Christmas/New Year sales period. On 4 and 6 January 2017, employees of Dempsey Group were able to purchase Spotlight Products in stores in Queensland and South Australia.

(c)    Third, as at 13 January 2017, there were 2,734 units of Spotlight Products still in stores (albeit some in New Zealand).

(d)    Fourth, thirty-three Australian stores (which is over one third of Spotlight’s Australian Stores) sold Spotlight Products between 16 January 2016 and 19 July 2017.

(e)    Fifth, as at 24 August 2017, five Australian Stores still had stock on hand.

(f)    Sixth, sales of the Spotlight Products continued until the 2017/2018 financial years.

39.    Mr Windsor admitted in cross-examination that he discussed the Dempsey Group’s allegations with Ms Howitt and Ms Estrada within days of the Dempsey Group contacting Spotlight on 29 November 2016. However, no attempt was made to contact Yantai until 21 December 2016, over 2 1/2 weeks later, and then only to speak with a representative of Yantai with no knowledge of the issue, who could do nothing more than to obtain information from Thomas Chen. In cross-examination Mr Windsor’s explanation for the delay was that he did not deal with vendors directly and Ms Howitt’s explanation for the delay was that she assumed there were legal aspects being discussed. Over that period Spotlight failed to respond to correspondence of Dempsey Group who then referred the matter to their lawyers DLA Piper who wrote to Spotlight on 13 December 2016. A substantive response was not received from Spotlight’s lawyers until 20 December 2016.

40.    More than 70% of Spotlight’s sales of the Spotlight Products occurred after it was put on notice by Dempsey Group of its rights in the Dempsey Products.

(errors in original)

Destruction of recalled Spotlight products

78    On 16 February 2018, Dempsey Group agreed to the Spotlight products (save for some samples) being destroyed prior to the completion of the proceeding, conditional upon its lawyers being provided with a “Certificate of Destruction” which would include photographs of the product delivered up for destruction, confirmation of the number of products destroyed and the date of destruction. Destruction occurred on 14 and 16 March 2018 and copies of certificates of destruction received from Superior Waste, photographs and information regarding the number of products destroyed and the dates of destruction were provided to Dempsey Group’s solicitors on 21 May 2018. Dempsey Group’s case is that the destruction was not in accordance with the agreement in that the Spotlight products were destroyed without products delivered up for destruction photographed or an accounting of the number of units that were destroyed. The “Certificate of Destruction” also stated that the type of burial was “controlled face burial – 1 meter [sic]” whereas, it was said, Spotlight had previously stated that the burial would be to a depth of two to three metres.

Did Ms Howitt know that the Spotlight products were based on Dempsey products in which Dempsey Group had copyright?

79    Dempsey Group submitted that the Court should prefer the evidence of Mr Chen over the evidence of Spotlight’s witnesses as to what occurred at the visit in April 2016.

80    It was submitted that Ms Howitt did not adequately explain why only the Dempsey products (Bosphorus and Constantinople) had a “creat[e] a design” notation on the spreadsheet when Yantai produced designs for other products shown on the first spreadsheet which were very similar to the designs on which they were based, such as the “boat sample” and a paisley design. It was submitted that her evidence – that she did not order those designs – did not explain why, in the meeting, she had not directed modifications to those samples which both made it to the first spreadsheet, the purpose of which was to reflect the design choices already made at the meeting. As the evidence established though, both samples appeared in the spreadsheet because they were discussed at the meeting and not, as asserted, because the choice of design had already been made. There was no evidence about what was discussed about those samples and, in the absence of such evidence, there is no reason to doubt the reliability of Ms Howitt’s evidence or the credibility of her explanations as to why she asked for designs to be created for the products based on the Constantinople and Bosphorus samples: in relation to Constantinople because she wanted a different patchwork design and in relation to Bosphorus because she did not want the design presented to her (which on her evidence she had not selected but which had been selected for her by Yantai’s staff).

81    Another inconsistency was said to be:

… in order to explain why she made modifications to the Bosphorus, Ms Howitt asserted, “Well, I never order from their showroom”... Yet, in relation to another two products on the [priority] Print Costing List, [Ms Howitt] contradicted this:

And - well, looking at page 824, the first picture there?---Yes.

No request to create a design?---The black and white?

 Yes?---That was one of their designs.

 What about the third down?---That was one of their designs.

82    The premise of that submission appears to be that the two Yantai products referred to were ordered by Spotlight without modification, but it was not established that Ms Howitt placed orders for either of those Yantai products.

83    It was further submitted that Ms Howitt’s evidence that the Rimona product was only ever used as a “colour sample” was untenable. In written submissions, it was put:

In relation to the Dempsey Group’s Rimona product, Ms Howitt admits recognizing [Bed Bath N’ Table’s] MORGAN & FINCH trade mark on the packaging but denies ever seeing the full design. Mr Chen’s evidence is that a Rimona quilt cover was displayed on a bed, at her request, in the Profile Room. Even if Mr Chen’s version is not accepted, Ms Howitt’s own photograph shows that the packaged Rimona Product which was brought to the Meeting Room had a photo insert in which the detail of the quilt is visible. In the second photograph taken by Ms Howitt of the products in the meeting room the white paper has been moved so that the photo insert is visible.

Ms Howitt’s position that the Rimona product was only ever used as a “colour sample” is untenable. In the meeting room, it was denoted with a priority number “(5)” and the word “coverlet”. It also appeared on the Priority Print Costing List with the specification “coverlet”. Moreover, Ms Howitt 'signed off’ on three documents which illustrated the Rimona Product in a [computer aided design] Drawing and/or in the MORGAN & FINCH packaging. Her explanation that Rimona was only a colour sample is unconvincing when one de-constructs the “line up” photo in the Priority Print Costing List - None of the other items in the front row have anything to do with colour and the Rimona product has a note “5 coverlet” stuck on it.

(errors in original)

84    The “line-up” photo was a reference to a photo which appears on the page of the first Yantai spreadsheet showing the three Dempsey products. There is an unfairness in the submission because the line-up photo only covers those products shown on that page of the spreadsheet and self-evidently is not a photo of the full line up of all the samples that Ms Howitt arranged. Furthermore, contrary to the submission that none of the items shown in the front row of that photo had anything to do with colour, Ms Howitt identified that the first vertical row has a computer aided design with a colour reference on top. The appearance of that colour sample at the front was consistent with her evidence that when she arranges samples the design reference is at the back and the colour reference is at the front. Consistent with Ms Howitt’s evidence, the photo also shows a design at the back which Ms Howitt had given evidence was a computer aided design of a quilt cover provided by Yantai in a colour that she did not like. The colouring of the product shown as PD-P-1348C on the first spreadsheet is also consistent with Ms Howitt’s version of events. In view of these consistencies, Ms Howitt’s evidence that she used the MORGAN & FINCH packaged product only as a colour sample for the product shown as PD-P-1348C is tenable. If only used for that purpose, Ms Howitt’s evidence that she did not see the MORGAN & FINCH product unpackaged or pay attention to the design as shown on the image of the packaging is also tenable.

85    Reliance was also placed on the email from Mr Mouradian to Ms Howitt and Mr Windsor of 23 December 2016 which, it was said, was consistent with Mr Chen’s version. In cross-examination Ms Howitt had agreed that she did not, at the time, correct Mr Mouradian. However, the evidentiary value goes no further than as a record of what Mr Mouradian was told by Mr Chen at a time after the dispute had arisen. It does not provide independent corroboration of Mr Chen’s version. I also place no weight on the fact that Ms Howitt did not correct Mr Mouradian at the time. In cross-examination Ms Howitt explained that she did not take issue with Mr Mouradian because the lawyers, by then, had become involved and she was “having as little as possible to do with any Yantai Pacific team staff members”. I accept that explanation as credible, given that by then general counsel at Spotlight was involved in the matter and lawyers had been engaged by both parties.

86    There are a number of reasons for preferring the evidence of Ms Howitt over the evidence of Mr Chen.     

87    First, I accept the evidence of the Spotlight witnesses, and find, that Mr Wang was present at the meeting. There is no reason to doubt the reliability of the Spotlight witnesses’ recollection in that regard. Mr Wang was not called as a witness and there was no other evidence put before the Court which would indicate that Mr Wang was not at the visit.

88    Secondly, I place weight on what transpired when it came to the attention of Ms Howitt that the KOO Lottie design was a design in which Bed Bath N’ Table had copyright and Ms Howitt cancelled the order. Also consistently Ms Howitt gave evidence that in about early September 2016 following another buying trip and visit to Yantai’s showroom she became aware that another Spotlight purchase order was based on a design that Yantai had already sold to another Australian retailer. As a result she cancelled the relevant orders and placed revised orders. She sent an email to Mr Mouradian on about 21 September 2016 which stated, amongst other things:

As you know we are very disappointed that you have shown us designs that have already been sold to other Australian retailers.

We have raised this with you previously, so this is the second time that this has happened.

Please note that if this happens again, we will have no choice but to stop all future business with Yantai Pacific.

89    A similar incident transpired on a third occasion. Ms Howitt’s evidence was that between August 2016 and January 2017 she worked with Mr Mouradian and Mr Wang for the purpose of placing an order with Yantai for the purchase of a bed linen design which she gave the name of KOO Elite Dianna. The design was presented to her by Mr Mouradian during one of his regular meetings with Ms Howitt at Spotlight’s headquarters. She placed an order for it after requesting some alterations to darken the colour of the blue background in email correspondence. On 5 January 2017 Mr Mouradian sent her an email that stated that the original version of that design was already on the market in Australia and belonged to another retailer. In consequence Ms Howitt also cancelled that order.

90    The materiality of these three incidences within that short time frame is that on each occasion it was Yantai’s fault that purchase orders by Spotlight used designs which belonged to other retailers and on each occasion when brought to the attention of Ms Howitt she cancelled the order.

91    Thirdly, Dempsey Group’s reliance on the annotation “DTC” in the rows of the first Yantai spreadsheet sent by Yantai to Spotlight following the April 2016 meeting relating to the KOO Taj product does not advance Dempsey Group’s case about knowledge that Spotlight had or ought to have had. Ms Howitt’s evidence was that she did not know what this acronym stood for at the time and she only became aware that it was connected with Dempsey Group in the course of this dispute. The evidence of Ms Rico Estrada and Ms Frische was to the same effect.

92    Fourthly, I do not find it plausible that Mr Chen, having twice told the Spotlight buyers that Bed Bath N’ Table had copyright in the three samples, nonetheless allowed the samples to be used as the basis for the Spotlight products. Tellingly, prior to the April 2016 meeting, Yantai had been placed on notice on several occasions that Dempsey Group asserted intellectual property rights in its designs and that Dempsey Group would take action against any suppliers that supplied Dempsey Group designs to other traders. Mr Chen was cross-examined at length about his awareness of this and the documents which Yantai had received from Dempsey Group concerning that matter:

MR MERRICK: And that’s a standard-form copyright notice that Yantai received many times from Dempsey Group?

THE INTERPRETER: Yes.

…

MR MERRICK: Thank you. Now, just in paragraph 1 – when you read this document, you understood that to be an assertion that Dempsey Group owns all of the intellectual property in the designs it provides to Yantai.

THE INTERPRETER: Yes.

…

MR MERRICK: When you read that, you knew – didn’t you – that it was saying to you that you must not sell Dempsey Group’s designs to any other trader.

THE INTERPRETER: I know I can’t sell. I didn’t sell the Dempsey Group’s products.

…

MR MERRICK: Yes. And when you read that – when you received these documents, you understood that Dempsey Group was saying to you, if you contravene these obligations, Dempsey Group might make a claim against Yantai.

THE INTERPRETER: Yes.

MR MERRICK: And having received this copyright notice on many occasions, Yantai agreed – didn’t it – to abide by these terms.

THE INTERPRETER: Yes. We agreed.

…

MR MERRICK: Yes. Now, when you received this letter in about June 2015, you understood that what was being said to you in the first paragraph is that, if you sold Dempsey Group’s designs to someone else, they might take action against you.

THE INTERPRETER: Yes.

MR MERRICK: And can I just ask this. When you received this letter in June 2015, you understood what it meant; didn’t you.

THE INTERPRETER: I know.

…

MR MERRICK: Yes. And having read those three paragraphs to refresh your memory – when you received this letter and read those paragraphs, you understood very clearly – didn’t you – that the Dempsey Group vigorously protected its intellectual property rights?

THE INTERPRETER: Yes.

MR MERRICK: And you understood that, if you as a supplier to the Dempsey Group were involved in selling Dempsey Group’s designs to another trader, Dempsey Group might take legal action against Yantai.

THE INTERPRETER: Yes.

…

MR MERRICK: Sure. I’m sorry, your Honour. We will take this in little steps, Mr Chen. I’ve taken you to three documents which set out your obligations to the Dempsey Group in relation to intellectual property. Do you recall those documents?

THE INTERPRETER: Yes.

MR MERRICK: And you know – don’t you – that those documents require you not to sell the Dempsey Group’s designs to other traders.

THE INTERPRETER: Yes.

MR MERRICK: And you wouldn’t knowingly sell one of the Dempsey Group’s designs to another trader, would you.

THE INTERPRETER: I won’t sell Dempsey’s design to other merchandiser.

…

MR MERRICK: I see. Thank you. Now, just want to cover off a few things with you, Mr Chen. As at April 2016, you knew that Yantai was not supposed to sell the Dempsey Group’s designs to other traders. You knew that.

THE INTERPRETER: Yes. I knew.

93    In response to questioning from the Bench, Mr Chen agreed that he was aware that the Spotlight buyers were looking at the Dempsey products and talking about changes they wanted made by Yantai and that he was aware that copyright existed in the Dempsey designs. Mr Chen gave the following answer:

THE INTERPRETER: But I did mention twice during the meeting… the buyer from the Spotlight, Katie, and asked us to change the design – for example – change the layout and some elements – for example – change this flower to another flower and take away the bird, but the colour, tone and the whole feeling shouldn’t change. And also, our relationship – because the Spotlight kept changing their buyer, our relationship wasn’t that good. They will have lots of requirements, and we felt hard to refuse. And also, we don’t know how much change we made that there won’t be any copyright issue exist in Australia; then we rely on Spotlight’s legal team and the buyer to make this decision.

94    I do not find that answer credible. Mr Chen’s account is contradicted by his own conduct. He was dealing with a Spotlight buyer with whom he had had many prior dealings and whom he knew was very experienced. Mr Chen also agreed in cross-examination that in his previous dealings with Ms Howitt she had never made a request of the type he now attributes to her and he was plainly on notice from Dempsey Group that Yantai could not sell Dempsey Group’s designs to other traders. Mr Chen agreed that he did not tell the Spotlight buyers that Yantai could not supply the Bed Bath N’ Table designs to Spotlight. Having regard to those matters, his version of events, in my view, is simply not credible.

95    The events which followed the 29 April 2016 meeting further make Mr Chen’s account of the meeting implausible. It was Mr Chen who, on 29 April 2016, following the meeting, sent the first Yantai spreadsheet to Ms Howitt by email with the statement “[t]hanks very much for your like our design and product”. Mr Chen’s account is inconsistent with sending a spreadsheet containing products that Yantai was offering to manufacture for Spotlight which Mr Chen, on his evidence, knew were products in which Dempsey Group had the copyright.

96    Further, Mr Chen advanced evidence that during the meeting, Spotlight’s buyers gave “very detailed” instructions about the products in dispute. However, there was no evidence of those instructions from Yantai. The best that Mr Chen could do was point to some (illegible) scraps of paper which appear in some of the photographs in evidence. Beyond a notation which reads “coverlet”, Mr Chen was not able to provide any evidence of these detailed instructions. This lends further support to Spotlight’s account of the meeting being more reliable.

97    Fifthly, I accept the submission that Mr Chen cannot be viewed as an impartial witness. Yantai has already lost Spotlight as a customer and the evidence was that Yantai is subject to the threat of a legal claim by Dempsey Group in relation to the subject matter of this dispute. Dempsey Group generates a significant amount of revenue (approximately US$8–9 million per annum) for Yantai and Mr Chen described Dempsey Group as a “very important customer”. Mr Chen’s email exchange with the head of Buying and Product Development at Dempsey Group, Ms Kate Mackie, in December 2016 confirmed this in terms:

MR MERRICK: Your Honour just bear with me for a moment; just back with this email, Mr Chen, I’ve just got one other thing to ask you about. You see towards the bottom of the page you say:

I am really scare of such issues. I really worried. I lost the reputation in Dempsey Company.

Do you see that?

THE WITNESS: Yes.

MR MERRICK: And what you were saying there is that you were very concerned that your company’s involvement with the Spotlight products would create an issue for you with the Dempsey Group.

THE INTERPRETER: These are two issues. First, I was concerned I don’t want these two customers have any trouble, and second, I don’t want to lose my reputation with Dempsey.

98    Sixthly, the account advanced by Mr Chen is also contradicted by an email sent by Mr Chen to Ms Mackie on 21 December 2016 in response to an email from Ms Mackie to Mr Chen sent on 19 December 2016 in which Ms Mackie advised that Dempsey Group was in dispute with Spotlight over three designs that were direct copies of Dempsey Group’s designs. Ms Mackie wrote that they thought that Spotlight had directed their supplier to copy their products but Spotlight was disputing that there was copyright infringement and had advised Dempsey Group that Yantai was the supplier of their versions of Dempsey Group’s designs which were shown to them in a visit to the Yantai showroom. Ms Mackie sought an explanation as to how this came to be “when you are aware of how aggressively we protect our Intellectual Property”. In his reply email, Mr Chen stated:

I am very sorry for that. That is my company problem

I just called back to China. Checked with our spotlight team. The manager said we supplied those three designs to Spotlight on Sep. and He also mentioned DTC team Frank asked such question weeks ago. But he didn’t tell the truth story to Frank. He doesn’t know the copy right is a serious problem.

Spotlight came to yantai at end of April and they saw your products in our show room. And they wanted that. Our team told them that designs below to DTC .but they give some instruction and idea to change. Our guy just followed.

am very apologise that is my management problem.

(errors in original)

99    Consistently in the 23 December 2016 email from Mr Mouradian to Spotlight, Yantai also took responsibility for submitting artworks that were too close to the Bed Bath N’ Table designs.

100    The weight of the evidence supports Spotlight’s account rather than Mr Chen’s account. The reliability of Ms Howitt’s evidence was corroborated by Ms Frische and Ms Rico Estrada to the extent that they were able to recall events or participated in the meeting. On Mr Chen’s account, Ms Gao and Mr Yuan were both present at the meeting but neither of them gave evidence and the failure to call them was unexplained. In the circumstances it is reasonable to draw a Jones v Dunkel inference from the failure to call them as witnesses.

101    Accordingly I find that the Spotlight buyers did not know that the samples on which the Spotlight products were based were Dempsey products which held the copyright in those designs until put on notice on 29 November 2016.

ISSUE 1: whether Dempsey Group has established that it is the owner of the Constantinople artistic work

102    The issue here concerns the ownership of the Constantinople artistic work (s 35 of the Act). Dempsey Group’s case is that it owns the copyright in the Constantinople artistic work as a result of the assignment of copyright in an artistic work denoted as “AW 48778GT” created by Artwork Design (M/C) Limited, a UK company, which Artwork Design assigned to Dempsey Group pursuant to a deed of assignment dated 10 February 2014.

103    It was submitted for Spotlight that the Constantinople artistic work upon which Dempsey Group sues is different to the assigned work and there was no evidence about the authorship of the Constantinople artistic work. The only evidence put forward about this matter was in paragraph 42 of the affidavit of Ms Mackie sworn 14 September 2017 which was struck out on the basis that it was opinion evidence and speculative.

104    Dempsey Group argued that it is apparent from an inspection of the Constantinople product that the assigned artwork is repeated in the Constantinople product with inconsequential changes in scale. Dempsey Group argued in the alternative that if the differences have resulted in a new work being created, it is reasonable for the Court to infer that the changes were done by the Dempsey Group in-house design team and the Court should find on that basis that Dempsey Group owns the copyright in the Constantinople artistic work.

105    Although the assigned copyright artwork can be seen to be employed in the Constantinople product, the Constantinople product contains more detail which does not appear in the copy of the signed copyright artwork attached to the deed of assignment. The Constantinople product displays more features than the features displayed in the copy of the assigned copyright artwork annexed to the deed of assignment. I am not satisfied on the visual inspection that the Constantinople product is just a scaled down version of the assigned artwork or that the differences are inconsequential as submitted by Dempsey Group. However in my view it is reasonable to infer that the changes to the design were effected by Dempsey Group’s in-house design team. Although the deed of assignment was not made until February 2014, the evidence was that Mr Dempsey and Ms Mackie visited Artwork Design’s store at the Heimtextil trade fair in Germany in January 2013 and selected the artwork (and other artwork) for which Artwork Design sent an invoice to Ms Mackie at Bed Bath N’ Table dated 14 January 2013 and that the Constantinople product was sold in Bed Bath N’ Table stores from October 2013. The evidence left unexplained as to why the deed of assignment was not entered into until February 2014 and not when the invoice was actually paid, but the absence of that evidence does not detract from the inference that the changes were made by the Dempsey Group in-house design team. There is nothing in the evidence which would suggest that the changes were made by some third party. Accordingly I find on the evidence that Dempsey Group is the owner of the Constantinople artistic work.

ISSUE 2: whether the Spotlight products reproduce a substantial part of any of Dempsey Group’s artistic works in suit

106    The right to reproduce an artistic work in a material form and communicate the work to the public is the exclusive right of the copyright owner pursuant to s 31(1)(b) of the Act, and, by s  36(1) of the Act, the copyright in an artistic work is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia any of the acts comprised in the copyright, or authorises another to do so. By s 14(1), acts done in relation to a substantial part of the work are deemed to be done in relation to the whole. The combined effect of those sections is that only Dempsey Group (or someone authorised by it) has the right to reproduce the Dempsey Group artistic works, or a substantial part of them, in a material form or to communicate them to the public.

107    The following principles of law were not in controversy:

(a)    copyright in an original work protects the particular form of expression used by the author, rather than the underlying idea: IceTV v Nine Network Australia Pty Ltd (2009) 239 CLR 458 at [28] (“IceTV”);

(b)    the copying must be sufficiently substantial to constitute infringement;

(c)    the legal standard is imprecise;

(d)    the question of whether a substantial part of a copyright work has been taken is a question of fact to be determined in the circumstances of each case: IceTV at [32];

(e)    whether a substantial part of a copyright work has been taken is to be assessed in a qualitative sense rather than quantitatively: IceTV at [30]; and

(f)    in determining whether the quality of what is taken makes it a substantial part, it is important to consider whether the taken portion is an essential or material part of the work, and the essential or material features should be ascertained by reference to the elements that made the work an original artistic work: Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2008) 172 FCR 580 (“Elwood”) at [66].

108    Spotlight argued that the case put by Dempsey Group did not focus sufficiently on the precise form of expression of the artistic works but rather focused on the Spotlight products conveying a similar feel to the artistic works. It was argued that in approaching the matter in this way, Dempsey Group was, in effect, seeking to stretch copyright to protect the idea of its products rather than their particular form of expression. Dempsey Group argued that, contrary to this submission, the Full Court in Elwood noted that elements which contributed to the “look and feel” of an artistic work may be protectable aspects of expression. At [76]–[78] the Full Court reasoned:

In our opinion, the layout and the elements referred to by her Honour that gave rise to the “look and feel” and resulted in the creation of an artistic work were matters of expression, not merely matters of idea or concept. The look and feel arose from the selection, arrangement and style of the elements regarded as a whole.

…

… Whatever concept is chosen, the means of its expression was the layout, the selection, arrangement, and style of the various elements, as previously described, with the very objective of creating the particular look and feel. Even though the logo and numbers were different, by taking the layout and other elements of expression that created the desired “look and feel”, Cotton On took a substantial part of the copyright work.

Dempsey Group argued that this approach to substantial reproduction was taken up in Seafolly Pty Ltd v Fewstone Pty Ltd (2014) 313 ALR 41; [2014] FCA 321 (“Seafolly”) where at [294]–[295] Dodds-Streeton J stated:

It is also necessary to determine whether there is sufficient objective similarity between the copyright work and the allegedly infringing work. It is not, however, necessary that the latter work as a whole resembles the former as a whole or that what has been taken comprises a significant part of the infringing work, provided that it is a qualitatively substantial part of the copyright work.

It is primarily for the court to determine by visual inspection, assisted where appropriate, by expert evidence, whether the requisite degree of substantial similarity exists between the copyright work and the allegedly infringing work.

109    It was submitted that in this context, where it is alleged that the Spotlight buyers ordered the changes to avoid copyright infringement, Seafolly confirms that similarity is an appropriate yardstick. Reference was made to the passages at [338]–[339] where Dodds-Streeton J said of the infringing artwork in that case:

It was not alleged that the Rosette print reproduced the entirety of the English Rose artwork or any particular part thereof exactly. Nevertheless, on a visual inspection of the two designs, I discerned an objective similarity.

Both the English Rose and Rosette prints display a number of elements which are not only similar (albeit not identical) themselves but are also similarly (albeit not identically) balanced and mutually juxtaposed within the works as a whole.

Dodds-Streeton J then went on to compare the works’ similarities and found infringement. At [345]–[346] her Honour stated:

There were many other differences of detail and degree, including the precise number of roses or the inclusion of a non-rose flower. They were not of a nature or degree to negate the significant objective similarity between the works arising from their similar combination of a number of similar elements. As the evidence set out above reveals, all the experts recognised many similarities. The similarities were also obvious to the 2Chillies design team, whose repeated attempts to avoid an unduly close resemblance to the English Rose print by altering the Rosette print were successively rejected by City Beach, which consistently insisted on reversion to the similar features. It is, in any event, unnecessary that the two works bear an overall resemblance to each other. Nor is it appropriate to dissect the copyright work piecemeal and focus on differences.

In my opinion, the elements and combination taken from the English Rose print cumulatively comprised a substantial part of the work in the relevant qualitative sense. They also comprised a quantitatively significant part of the work.

110    It was submitted for Dempsey Group that animus furandi (an intention to appropriate for the purpose of saving labour) was also relevant here, citing in support Seafolly at [251]–[256].

111    Annexure D sets out the images of the relevant Dempsey and Spotlight products side by side.

Rimona/KOO Jarvis

112    The Rimona artistic work comprises a centre section and border. The centre section contains floral and bird motifs against a light teal background with a smaller, faded floral pattern on the negative space. The border of the Rimona artistic work comprises six rows of repeating patterns, each separated by a thin line. The innermost border has a light coloured floral motif against a dark blue background, taking elements of the leaves and vines in the centre section. The second border features a repeating blue and white five-pointed star pattern on a medium green background with a fine blue border on either side (one pale blue and one medium blue). The third border comprises a pink, blue and white floral pattern. The fourth border has a multi-coloured motif of leaves, flowers and vines against a dark blue background, of similar design to the flowers used in the centre section. The fifth border has a mosaic themed design with green, blue and red “tiling” against a white background. The sixth and outermost border has multi-coloured floral motifs against a medium blue background. The Rimona standard pillow case reprises the centre section and the borders.

113    The evidence of Ms Claire Norris, a full time designer at Dempsey Group, was that she designed the centre section of the Rimona product by drawing, both digitally and by hand, floral and bird motifs and then digitalising them. She used computer programs to create and moderate the colours and pattern repeats. She selected the colours, including the light teal for the background, and she designed smaller flowers which she placed into the negative space to create a fuller and more balanced look with no particular focal point, which, she said, was important in creating bed linen designs. She also added leaves attached to vines between the flowers in the centre section. She estimated that it took her around two weeks, working full time on the design, to create the centre section. She also created the borders.

114    Spotlight’s KOO Jarvis product comprises a centre section and border. The centre section contains floral motifs against a light teal background. The central floral motifs are similar, though not identical, to those in the Rimona artistic work, but the bird motifs and small flower pattern are absent. The border of the KOO Jarvis product comprises five rows of repeating patterns. The innermost border has a light coloured floral motif against a dark blue border. The second border features a repeating blue and white eight-pointed star pattern on a medium green background with a fine blue border on either side. The third border comprises a pink, blue and white floral pattern, of a different appearance and style from the floral pattern on the third border in the Rimona artistic work. The fourth border has a multi-coloured motif of leaves, flowers and vines against a dark blue background. The colouring is similar to the fourth border in the Rimona artistic work, but the leaves are relatively larger in relation to the flowers. The fifth border comprises a predominantly blue mosaic pattern. The KOO Jarvis standard pillow case reprises the centre section motif.

115    Counsel for Dempsey Group submitted that the KOO Jarvis product has similar colouring and has picked up “the feel” of the central panel, the colours, and the shapes of the flowers. Further, it was said that the borders create similar effects, with the same floral and vine patterns in similar colours, dimensions and order. Although it was accepted that the products are not the same, they were said to be “overwhelmingly similar” so that the “essence” of the Rimona product was captured.

116    Spotlight relies upon what it submits are several significant differences between the Rimona artistic work and the KOO Jarvis product. It submitted that the central sections of the design are different, claiming that the “overall feel of the Rimona artistic work is busier”, with the elements of the design placed more closely together, contending that the larger individual elements created a different feel when the whole of the product was viewed. Spotlight also relied on the absence of the bird motif and the small flower motifs on the background and the different shades of teal used in the designs. Further, Spotlight pointed to the KOO Jarvis product having borders on only three sides, and that the blue exterior border did not replicate anything on the Rimona artistic work. Spotlight also says that the pillow cases demonstrate greater differences, in that the KOO Jarvis pillow cases do not have any borders, whilst the borders are a prominent feature of the Rimona pillowcase design. The importance of the differences identified by Spotlight was said to be fortified by the evidence of Ms Norris in relation to her design of the Rimona artistic work.

117    There are differences of detail, colouring and design between the products but, in my opinion, the KOO Jarvis product reproduces a substantial part of the Rimona artistic work. As Dodds-Streeton J observed in Seafolly at [345], it is unnecessary that the two works bear an overall resemblance to each other nor is it appropriate to dissect the copyright work piecemeal and focus on the differences. If similarities are identified, the question is the qualitative significance of such similarities. Reproduction does not strictly require a complete and accurate correspondence to a “substantial part” of the work. The artistic quality of the Rimona work consists of the colour, layout and shaping of the designs in the centre and the colour, layout, structure and integers of the border, the cumulative effect of which created the desired “look and feel” sought by Ms Norris in designing the product. Whilst the bird motifs and floral background are absent from the central design of the KOO Jarvis product and the overall effect is not as “busy”, the use of teal as the dominant colour in the KOO Jarvis product and the similarity of the shaping of the designs in the centre and border design, structure and integers have sufficient objective similarity and qualitatively reproduced, in a material form, the look and feel of the Rimona product.

Bosphorus/KOO Remy

118    The Bosphorus artistic work comprises a centre section with multiple borders. The centre section has a neutral background with large and small medallions in rough diamond shapes with multiple points. The medallions comprise multiple blue, red and orange colours, with the dominant colour being a medium blue. The background also contains a range of blue, red and orange floral patterns. The border comprises three wide rows with complex motifs separated by four thin rows of coloured lines. The wide rows use images from the centre section, but with the addition of some motifs and the removal of others. The outermost border takes green interlocking shapes from the centre section motif, and places them against a dark blue background with a contrasting bright blue line. The second wide border uses an orange flower motif from the centre section with a blue stamen in a running repeat pattern against a neutral background. The flowers are “linked” by small dark motifs. The innermost border comprises the repetition of the outermost parts of the large blue motifs that dominate the centre section; the colouring and design is largely unchanged, but the motifs are oriented so that all the “points” face inwards towards the centre section. The Bosphorus standard pillow case reprises the centre section medallions, and has five border rows.

119    The evidence was that the Bosphorus artistic work was created by Ms Heather Piez, a designer at Dempsey Group. Her evidence was that she used Artwork Design artwork 50329 GT as the basis of her design. She used computer programs to adjust the scale, reduce the number of colours and manage the pattern repeats to make an artwork suitable for bed linen. She then designed the border. She decided, through trialling various options, that the border would be comprised of multiple rows of repeating patterns, each with a different design. The rows would consist of three wide rows with detailed imagery separated by four thin rows of coloured/textured lines. She designed the wide rows by selecting and combining various parts of the centre section. She could not recall how she created the thin rows. However, she thought it likely that she utilised parts of the centre section and changed the colours to create the desired balanced look on the border.

120    The KOO Remy product also comprises a neutral coloured central section, with large and small medallions and a range of floral patterns on the background. The product also has a border on one side, comprising wide and thin rows. The central medallions are in blue, pink, orange and pale green hues. Vine and floral motifs in similar colours are interspersed through the background. The KOO Remy standard pillow case reprises the centre section motif and parts of the border.

121    Dempsey Group submitted that the KOO Remy products incorporated substantially similar colouring, shapes and border design to the Bosphorus artistic work. Spotlight again pointed to what it said are significant differences evident between the Bosphorus artistic work and the KOO Remy design. First, it was said, the multiple borders of the Bosphorus artistic work surround the entire design area and are an “eye-catching and significant feature” of the design that draws attention to the perimeter. By contrast, the border of the KOO Remy product does not surround the entire area – there is only a series of rows on one side. Further, it was said, the border of the KOO Remy product is significantly different in appearance to the borders of the Bosphorus artistic work. In particular, the two most eye-catching rows of the KOO Remy product consist of a pattern that does not form part of the Bosphorus design. These rows feature the design that appears in the KOO Remy European pillow cases, which are not alleged to have infringed Dempsey Group’s copyright. The importance of the borders of the Bosphorus product was also said to be fortified by Ms Piez’s evidence about the creation of the borders. It was submitted that it is significant that a feature which is heavily emphasized by Dempsey Group as part of the creative process (i.e. the border created by Ms Piez) is markedly different in the KOO Remy product. Second, it was said, there are several significant differences in the centre sections of the designs. Though both designs include repeating medallion shapes, they contain significantly different visual features and colours, such as the inclusion of a yellow circular shaped medallion in the KOO Remy product that is absent from the Bosphorus design. The central motifs are also said to be different in shape, colour and arrangement and, additionally, the Bosphorus design includes more numerous and tightly packed elements than the corresponding elements in the KOO Remy product and has less blank space in the background.

122    I also consider that the KOO Remy product substantially reproduces the Bosphorus artistic work. I accept Spotlight’s submission that the products are distinguishable by a number of features, including the “busyness” of the design, some aspects of the colouring and the bordering design and layout. However, like the Rimona product, the substance and essence of the Bosphorus artistic work lies in the combined effect of the artistic elements that comprise it (Elwood at [66]) and even though there are discernible differences between the Rimona product and the Bosphorus artistic work, the combination of features in the design arrangement, background and overall colour scheme, taken as a whole, qualitatively reproduces a substantial part of the “look and feel” of the Bosphorus artistic work and has sufficient objective similarity with the Bosphorus artistic work.

Constantinople/KOO Taj

123    The Constantinople artistic work comprises a number of paisley motifs on a patchwork layout, incorporating larger and smaller shapes and the use of flowers for a “distinctive” design. The patchwork comprises large and small “bricks” of colour in various bold shades, such as bright reds and blues, and more neutral brown and green shades. The Constantinople pillow case reprises the basic Constantinople artwork, without border additions.

124    The KOO Taj quilt cover also comprises a number of paisley motifs on a patchwork layout, incorporating larger and smaller shapes and the use of flowers. The patchwork comprises large and small “bricks” of colour in various shades, including bright reds and blues and more neutral brown and green shades. The KOO Taj pillowcase reprises the basic quilt cover pattern, without border additions.

125    Dempsey Group submitted that the distinctive patterns of the Constantinople product are repeated in the KOO Taj product. For example, it identified similar elements of greens and browns against a raspberry colour. Although there are slight differences between the paisley designs, it was said that the overall placement and colours reproduced the same look, to the point that when the products were placed together it was difficult to distinguish them.

126    Spotlight relied on differences between the details of the individual “patch” elements. It submitted that the paisley shapes are the dominant feature of the Constantinople artwork and are an eye catching feature of the overall design, but that they assume less prominence in the KOO Taj product in which the colour contrasts between the square patch features are the most eye-catching feature. Different shades of red used in the works were also said to be immediately apparent: the Constantinople artistic work featuring dark maroon shades and the KOO Taj product using a more “striking” red colour.

127    In my opinion, the KOO Taj product substantially reproduces the Constantinople artistic work. Spotlight’s general reliance on differences in layout and arrangement provide it no relief here. The colouring, relative shape and size and arrangement of the various “bricks” that constitute the backgrounds of the paisley shapes are so similar as to be virtually indistinct, notwithstanding an alleged difference in shades of red. The only differences of note between the designs are variations in the paisley designs themselves, which are insufficient to displace the identical essences of the products – multi-coloured paisley designs on alternating panels of solid background colours of relevantly identical orientation, size, shading and layout.

Animus furandi

128    In view of my factual findings and the rejection of Dempsey Group’s case that there was deliberate copying by Spotlight, animus furandi on the part of Spotlight has not been established. However it is reasonably open to infer that there was deliberate copying of the Dempsey Group designs by Yantai in creating the Spotlight designs, given that it was Yantai that came up with the sets of designs for both companies. If and to the extent that animus furandi is relevant to the question of whether the Spotlight products reproduce a substantial part of Dempsey Group’s copyright it would fortify that conclusion (Seafolly at [251]–[256], [354]), but in the event the conclusion is reached without the need to place weight on whether the copying was deliberate.

ISSUE 3: WAS THERE INFRINGING CONDUCT?

129    Dempsey Group submitted that Spotlight infringed its copyright by:

(a)    reproducing the Spotlight products on Spotlight’s website and in the Spotlight catalogue: s 31(1)(b)(i), (iii) and s 36(1) of the Act;

(b)    importing the Spotlight products for sale in Australia: s 37 of the Act; and

(c)    selling the Spotlight products in Australia: s 38 of the Act.

130    Section 36 provides that the copyright in an artistic work is infringed by a person doing any of the acts comprised in the copyright. By s 31(1)(b)(i), the owner of copyright in an artistic work has an exclusive right to reproduce the work in a material form and by s 31(1)(b)(iii) to communicate the work to the public. Section 10(1) of the Act defines “communicate” to include to “make available online or electronically transmit” a work. Spotlight has admitted that, if its products reproduce a substantial part of the Dempsey artistic works, it has infringed Dempsey Group’s copyright by promoting the Spotlight products in Australia through the Spotlight website. The evidence only established the reproduction of the KOO Taj product in the Spotlight catalogue. Similarly, Spotlight admitted that if the KOO Taj product is a reproduction of a substantial part of the Constantinople work then it infringed Dempsey Group’s copyright in that work by illustrating the KOO Taj product in the Spotlight catalogue.

131    Spotlight has also admitted importing and selling the Spotlight products in Australia. In issue to establish infringement under ss 37 and 38 is whether Spotlight knew, or ought reasonably to have known, that the making of the Spotlight products would, if those products had been made in Australia by Spotlight, have constituted an infringement of the copyright. In Milpurrurru  & Ors v Indofurn Pty Ltd & Ors (1994) 54 FCR 240, von Doussa J observed at [68] that “knowledge” in this context:

… refers to notice of facts such as would suggest to a reasonable person having the ordinary understanding expected of persons in the particular line of business that a breach of copyright was being committed: see Apple Computer Inc v Computer Edge Pty Ltd (1984) 1 FCR 549 at 561-562; Kalamazoo (Aust) Pty Ltd v Compact Business Systems Pty Ltd (1985) 84 FLR 101 at 126-127; RCA Corporation v Custom Cleared Sales Pty Ltd (1978) 19 ALR 123. By virtue of the Copyright Amendment Act 1991 [(Cth)], s 3, it is no longer necessary to establish actual knowledge. Constructive knowledge is sufficient. Knowledge of the law is not required. It is sufficient that there be actual or constructive knowledge that intellectual property rights would be infringed, without knowing the precise nature of those rights: see Star Micronics Pty Ltd v Five Star Computers Pty Ltd (t/a Computerfair) (1990) 18 IPR 225 at 235-236.

As the cases demonstrate, constructive knowledge is an objective test which goes beyond notice of facts and focuses on the reasonableness of the conduct of the alleged infringer and whether, acting reasonably, the infringer ought to have made further inquiries which would have resulted in it acquiring the requisite knowledge. The question is not simply whether there were reasonable grounds to suspect or believe that an infringement had occurred: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 97. Spotlight has disputed that it had the requisite knowledge at the material time.

132    Dempsey Group’s case that Spotlight had the requisite actual or constructive knowledge that the manufacture and sale of the Spotlight products would, if they had been made in Australia by Spotlight, have constituted an infringement of Dempsey Group’s copyright rested on the assertion that the Spotlight buyers knew, or ought reasonably to have known, that the samples used as references to create the Spotlight products were Dempsey products in which Dempsey Group owned the copyright. The onus was on Dempsey Group to establish those factual propositions, which it has not done. On Ms Howitt’s version of events, which I have accepted in preference to Mr Chen’s version of events, she did not know that the samples used as a design reference for the KOO Remy and KOO Taj products were Dempsey products. The position is different in relation to KOO Jarvis as she was aware that the sample used as a reference for the KOO Jarvis product was a Dempsey product but on her evidence, which I have accepted, the instruction she gave to Yantai was to use it only as a colour reference for a Yantai computer aided design. I have not accepted on the evidence that Ms Howitt instructed Yantai to use the Rimona product as a design reference. Nor do I consider that it ought reasonably to have been apparent to Ms Howitt merely from the image of the packaged Rimona product on the order spreadsheets that Yantai did not follow her instructions but rather used the Rimona product not just as a colour reference but as a design reference. In view of her instruction to Yantai that it be used as a colour reference and her evidence, which I have accepted, that she did not see that Dempsey product out of its packaging, I am not persuaded that acting reasonably, Ms Howitt ought to have been put on notice just by the picture of that product in the first spreadsheet that there may have been a breach of copyright and ought to have made further inquiries at the time which would have resulted in her acquiring the requisite knowledge.

133    Dempsey Group alternatively contended that even if Ms Howitt’s evidence as to her actual knowledge was preferred over Mr Chen’s version of events, Spotlight had constructive knowledge by reason that:

(a)    the Spotlight buyers admitted that they did not make inquiries about the copyright in the Dempsey Product samples;

(b)    the Spotlight buyers instead relied upon Mr Chen and/or Yantai to tell them; and

(c)    Mr Chen and/or Yantai was not an authority on Australian copyright law.

134    On Ms Howitt’s evidence, which I have accepted, there was no reason for Spotlight to be put on notice that they ought to have made further inquiries about the copyright in the designs. First, they did not know that the samples used to create the designs of the Spotlight products were based on Dempsey products and the evidence did not support a finding that they ought reasonably to have known that fact. Secondly, the Spotlight buyers had worked with Yantai for many years and had a long established business relationship with it. The evidence was that the Spotlight buyers relied on Yantai to guide them as to which samples Spotlight could use without any change, which samples could only be used as a guideline for inspiration and which samples could not be used for any purpose. In my view, it was reasonable for the Spotlight buyers to assume that Yantai would tell them if a design could not be copied or used as a design reference. After all, Yantai was the manufacturer of the products that it made available for use as design references by the Spotlight buyers and it was Yantai that would, or ought to have known, whether it had manufactured a design exclusively for another customer. Moreover, in relation to the sample selected by Yantai that formed the basis for the KOO Jarvis product, the instruction in any event was to use it as a colour reference, not as a design reference. I am not persuaded that, acting reasonably, the Spotlight buyers ought to have made further inquiries as to whether the samples they chose for their designs could be used as design references.

135    The evidence did not establish that of any of the Spotlight products were imported by Spotlight after it was put on notice of Dempsey Group’s claims. In this I include the KOO Remy products. Although Spotlight took delivery of a shipment of KOO Remy products sometime in December 2016, the last date of order placed by Spotlight was in September. Accordingly, I reject Dempsey Group’s case that there was infringement of its copyright by the importation of the Spotlight products.

136    However, it is clear on the evidence that Spotlight, by 2 December 2016, ought reasonably to have known that the sale of its products would infringe Dempsey Group’s copyright on the hypothesis provided for under s 38, as by then not only was it aware of Dempsey Group’s claims but it had also received the documents in support of proof of ownership. Accordingly I find infringement pursuant to s 38(1) in respect of the sale of the Spotlight products after 2 December 2016.

Innocent infringement

137    Where it is established that an infringement was committed, s 115(3) of the Act provides a defence to a claim for damages if the defendant was not aware and had no reasonable grounds for suspecting that the act constituting infringement was an infringement of copyright. Section 115(3) provides as follows:

Where, in an action for infringement of copyright, it is established that an infringement was committed but it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not.

138    To qualify for the defence under s 115(3), the infringer must show:

(a)    an active subjective lack of awareness that the act constituting the infringement was an infringement of copyright; and

(b)    objectively considered, the infringer had no reasonable grounds for suspecting that the act constituted an infringement: Milwell Pty Ltd v Olympic Amusements Pty Ltd (1999) 85 FCR 436 at [52]; Golden Editions Pty Ltd v Polygram Pty Ltd (1996) 61 FCR 479 at 480.

139    As to the subjective limb of the test, I am satisfied on the basis of the findings already made that Spotlight did not know prior to being put on notice by Dempsey Group in late November 2016 that its acts of importing for sale and selling the Spotlight products in Australia constituted an infringement of Dempsey Group’s copyright.

140    Dempsey Group argued that even if the first limb was satisfied, Spotlight failed to establish that objectively it had no reasonable grounds for suspecting that its conduct infringed copyright. This submission rested on the proposition that the case law requires that the infringer demonstrate that it had made reasonable inquiries as to the source of the material that is being copied, citing Krueger Transport Equipment Pty Ltd v Glen Cameron Storage & Distribution Pty Ltd (No 2) (2008) 79 IPR 81; [2008] FCA 1493 (“Krueger”) and Milankov Designs & Project Management Pty Ltd v di Latte [2018] WASC 14 (“Milankov Designs”). In a passage in Krueger at [14], Gordon J stated:

… Even if Vawdrey mistakenly thought that Camerons was authorised to instruct Vawdrey as it did, Vawdrey was required to show that it had made reasonable inquiries to confirm that, before it completed its drawings based on those instructions: Laddie, The Modern Law of Copyright and Designs (3rd ed 2000) at [39.44] (collecting cases for the proposition that the innocent infringer defence is "not available to a defendant who has made no inquiries as to the source of the material he is copying"). It did not do that. That Vawdrey did not lead evidence of that kind is not surprising. An infringing act by Vawdrey of Krueger ’s copyright in the Krueger Drawings (see [135] of the reasons for decision) occurred after and as a result of numerous conversations between Camerons and Vawdrey in which Camerons, as Vawdrey’s own witnesses accepted, gave Vawdrey instructions: see in particular [48]-[83] and [131]-[135] of the reasons for decision. The evidence was that Camerons itself did not have any engineering expertise: at [71]. In those circumstances (i.e. where a client without engineering expertise gave precise instructions late in the design process when matters had already advanced to detailed engineering drawings), there was no basis for contending that Vawdrey did not have reasonable grounds for suspecting that the act was an infringement when it received instructions from Camerons in February 2003 to modify its drawings. On the contrary, the only reasonable assumption that Vawdrey could have made was that the ultimate source of the instructions, and the owner of the copyright in the drawings that underpinned those instructions, was some entity outside Camerons. The failure to make reasonable inquiries as to the identity of that source and Camerons’ authorisation to rely on it thus precludes Vawdrey from now maintaining an innocent infringement defence.

In Milankov Designs, Martino J held that the use of the plaintiff draftsman’s “stage one” plans by a second architect for the “stage two” construction constituted infringement and that, whilst the defendant had received legal advice and made inquiries of the Royal Australian Institute of Architects, he had not gone far enough and should have obtained a copy of the agreement under which the “stage one” plans had been prepared and/or contacted the plaintiff directly.

141    Those cases are distinguishable from the present case. First, in the present case, Yantai was the manufacturer and source of the material used as the design references for the Spotlight products and it was reasonable, in my view, for the Spotlight buyers to rely on Yantai, which had been manufacturing products for Spotlight as well as many other retailers for many years and with whom it had a long established business relationship, to tell them which samples from Yantai’s showroom Spotlight could use without any change, which samples could only be used as a guideline for inspiration and which samples could not be used for any purpose, without on each occasion the Spotlight buyers inquiring whether a design could be used.

142    Secondly, on the findings made, the Spotlight buyers were not alerted to the fact that the samples on which the Spotlight products were based were Dempsey products which held the copyright in those designs until they were put on notice on 29 November 2016. In my view, until then, objectively assessed, Spotlight had no reasonable grounds for suspecting that the sale of the Spotlight products in Australia was an infringement of Dempsey Group’s copyright. I therefore find the defence to the damages claim established in relation to the s 38 infringements in respect of sales of the Spotlight products up to the time of 2 December 2016. The defence does not apply to the s 38 infringements after 2 December 2016 as by this date there were plainly reasonable grounds for suspecting that the sale of those articles would constitute an infringement on the hypothesis that they had been made in Australia by Spotlight.

143    I also find the defence established in relation to the infringements pursuant to s 36, as there was no evidence of publication on Spotlight’s website or in its catalogue after Spotlight had been put on notice of Dempsey Group’s claim that its copyright had been infringed.

issue 4: Relief

144    Dempsey Group has elected, pursuant to s 115(2), to be compensated by an award of damages. The heads of damages that Dempsey Group seeks to recover are loss of profit, loss of reputation and devaluation of copyright in the Dempsey artistic works.

Loss of profits claim

145    Dempsey Group calculated its damages for loss of profits to be up to $261,593. That figure was calculated as follows:

(a)    based on the total sales of the Spotlight products, Dempsey Group calculated its total lost revenue figure in the amount of $447,934.65;

(b)    the figure of $447,934.65 was then divided by Dempsey Group’s gross profit margin as shown in a confidential exhibit;

(c)    and then further reduced by 20% to reflect that not all sales made by Spotlight can be considered sales lost by Dempsey Group;

(d)    to reach the figure of $261,593.

146    The calculation applied the methodology for calculating “lost profits” adopted by Gordon J in Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378; [2009] FCA 633, following the approach of Greenwood J in Norm Engineering Pty Ltd v Digga Australia Pty Ltd (2007) 162 FCR 1 at [266]-[271] (“Norm Engineering”). In those cases the following steps were identified in assessing damages for lost profits:

(a)    examine the number of sales made by the infringer;

(b)    assume the infringer was trying to capture the sales from the copyright owner;

(c)    assume that the number of sales made by the infringer is equal to the number of sales lost by the copyright owner;

(d)    discount the number referred to in sub-paragraph (c) to reflect that not all of the infringer’s sales will have been lost sales for the copyright owner; and

(e)    apply any further discount necessary in the circumstances of the case.

147    Spotlight agreed with Dempsey Group on the appropriateness of using this methodology.

148    In view of my findings on infringement and the s 115(3) defence, integer (a) must be adjusted as the calculation was based on the total number of sales made by Spotlight, not limited only to the sales after 2 December 2016 which, on my findings, constitutes the infringing conduct.

149    Spotlight disagreed with the integer in (d) put into the calculation by Dempsey Group. Dempsey Group discounted its claim by 20% on the basis that 80% of Spotlight’s sales would have been made by Dempsey Group. Spotlight submitted that there was no evidence to support the conclusion that Spotlight had diverted any customers from Bed Bath N’ Table stores. It was also submitted that 80% is an extremely high figure which Dempsey Group had not sought to justify in any way and that the figure was merely asserted as a conclusion. It was submitted that the types of evidence that would typically be used to support such a claim include:

(a)    evidence as to the parties’ retail stores being in close proximity giving rise to an opportunity for substitution;

(b)    overlapping customer base;

(c)    comparability of products and pricing;

(d)    sales data showing a decline in sales during the period of the alleged infringement; and

(e)    axiomatically, evidence of actual diversion of custom.

150    No compelling evidence of such kind was led.

151    First, it was submitted further that the evidence in fact pointed away from the likelihood of sales being lost. Reference was made to Mr Dempsey’s evidence in which he identified Dempsey Group’s main competitors which did not include Spotlight. It was submitted that Mr Dempsey plainly did not consider Spotlight to be one of Dempsey Group’s main competitors and this was borne out by the cross-examination of Mr Dempsey. When questioned about the differences between Dempsey Group and Spotlight and their respective products he gave the following evidence:

MR MERRICK: Well, having described them as inferior, are you now trying to say that they’re premium products?

MR DEMPSEY: No, I’m not saying that they’re premium products. I’m saying that they are not – it depends on what part of premium. They’re not Sheridan, or, necessarily, us. They’re not at the bottom end of the market either, though.

MR MERRICK: Well, I suggest to you that when you use the word “inferior”, implicitly, you were saying that they weren’t of the quality of the Bed Bath N’ Table products?

MR DEMPSEY: Okay. Granted, they are not.

152    Having been shown printouts from the Bed Bath N’ Table website, Mr Dempsey accepted that he regarded Dempsey Group’s emphasis on quality as “separating” it from other retailers including Spotlight:

MR MERRICK: … you say in the second paragraph there: “Our product design and quality is what separates us from others and brings our brands to life.” Do you see that?

MR DEMPSEY: Yes, I do.

MR MERRICK: Yes. And when you say “others” there, you’re talking about other retailers?

MR DEMPSEY: I am.

MR MERRICK: And you would include Spotlight in that?

MR DEMPSEY: I would.

153    It was submitted that the apparent difference in quality between Dempsey Group’s products and Spotlight’s products was significant. Reference was made to the evidence given by Mr Dempsey in cross-examination that “quality is an important consideration for the customers that shop at Bed Bath N’ Table”. Reference was also made to Ms Mackie’s cross-examination in which she described differences between the businesses of Dempsey Group and Spotlight, describing the Bed Bath N’ Table stores as “up-market” and the Spotlight stores as “discount” or “budget”. She also gave the following evidence in cross-examination:

MR MERRICK: … And have you ever been to a Spotlight store?

MR DEMPSEY: Yes.

MR MERRICK: … In your experience of going into Spotlight stores, is the feeling of the retail store very different to the feeling that one gets in a Bed Bath N’ Table store?

MR DEMPSEY: Yes, it is.

MR MERRICK: ... And is it fair to say that Spotlight stores are what you might describe as bulk retail stores?

MR DEMPSEY: Yes.

MR MERRICK: And they’ve got a vastly greater number of products in stock than a typical Bed Bath N’ Table store?

MR DEMPSEY: Well, based on their size, yes.

MR MERRICK: Yes. Now, could you just have a look at paragraph 22 of your second affidavit for me, and I will just give you the reference for that. If you’ve got volume 2 of the court book there, Ms Mackie, if you go to tab 31. And just have a read of paragraph 22 to yourself for me. Yes. Now, just so I make sure I understand this, is what you’re saying in that paragraph really that there’s a difference between Bed Bath N’ Table and Spotlight, which is – centres upon the fact that Bed Bath N’ Table has a meticulous labour intensive design process, whereas Spotlight is more of a buying business, that just has sort of a through-put of product which it sources from manufacturers?

MR DEMPSEY: Yes, that would be correct.

MR MERRICK: Yes. Thank you. And that distinction underscores the differences we were just talking about, in terms of the profile, if you like, of those two retailers?

MR DEMPSEY: Yes.

154    Secondly, it was submitted that the Dempsey products are almost twice as expensive as the Spotlight products, noting that a KOO Remy double bed quilt set retailed for $89.99 whereas a Bosphorus double quilt cover and two pillow cases cost $169.95.

155    Thirdly, it was submitted that Dempsey Group did not even try to prove by reference to the sales data that was available to it that Spotlight’s dealings with the Spotlight products had any impact at all on Dempsey Group’s sales of its products. It was submitted that the evidence provided the Court with no ability to assess what, if any, impact the presence of Spotlight products on the market had on Dempsey Group’s sales. It was submitted that it would have been a simple matter for Dempsey Group to expose these details in its evidence and the Court should infer that the sales data did not provide any support at all for this part of Dempsey Group’s claim.

156    There is considerable force in these submissions and, in my view, Dempsey Group has not justified the premise upon which its calculation is based, namely that 80% of the sales of the Spotlight products would have been made by Dempsey Group.

157    First, I am satisfied on the evidence that Bed Bath N’ Table and Spotlight do not operate in identical markets for bed linen in Australia. On Mr Dempsey’s own evidence, Spotlight is not one of Bed Bath N’ Table’s main competitors but “towards the budget end” of bed linen retailers, selling products of an inferior quality to Bed Bath N’ Table’s products.

158    Secondly, it may reasonably be inferred that price would be a factor bearing on a consumer’s choice and the evidence showed a differential in the price of the products concerned, with Bed Bath N’ Table’s products being more expensive.             

The price ranges relate to the size of the quilt cover.     

159    Thirdly, Dempsey Group led no evidence at all about the effect on its sales once Spotlight started selling its products, let alone whether it was an impact significant enough to justify the assertion that 80% of Spotlight’s sales would have been made by Dempsey Group. The only evidence provided was of the total number of units sold in relation to each of the three products as at 31 August 2017 without any breakdown of time or product type. It is reasonable to assume that Dempsey Group would have been able to supply evidence of its sales figures in the relevant period compared with its sales figures prior to the Spotlight products coming onto the market given that Bed Bath N’ Table had been selling the Rimona, Bosphorus and Constantinople products long before the Spotlight products started selling, or could have produced some other evidence to prove that its sales were detrimentally impacted by the Spotlight products coming onto the market. In the unexplained absence of such evidence I infer that such evidence would not have assisted Dempsey Group’s case.

160    Spotlight also challenged the asserted gross profit figures on the sale of the Dempsey products incorporated into the calculation of damages up to $261,593. Spotlight submitted Dempsey Group had not adequately explained the gross profit figures in its evidence, despite its ability to do so. This was said to provide a further reason for the Court to reject its claim.

161    The only evidence was furnished by Mr Dempsey in his affidavit, in which he merely asserted the gross profits made without giving any breakdown or explanation as to how those figures were calculated or producing supporting evidence. In cross-examination Mr Dempsey could not recall whether he extracted the asserted gross profits figures from Dempsey Group’s records or whether he asked somebody else to do it for him. He also accepted that the gross profits figures had not been adjusted to reflect items such as tax, administration, sales and marketing and occupancy. The evidence was left in a most unsatisfactory state.

162    Despite the unsatisfactory state of the evidence adduced in support of the claim for damages, I accept that some damage has occurred for which Dempsey Group is entitled to be compensated. It seems to me probable that some sales would have been lost, particularly over the Christmas period. Although not operating in identical markets for bed linen, nonetheless the parties are both large retailers in the business of selling bed linen and the copyrighted designs were used on the same type of goods, namely quilts and pillow cases. Although the products varied in terms of fabric, quality and cost it is reasonable to infer that some sales were lost by Dempsey Group, albeit that the Court has been unassisted by the type of evidence that would generally be expected in order to substantiate the “lost profits”. The paucity of evidence does not relieve the Court of the duty of assessing the loss merely because circumstances do not admit of damages being assessed with certainty: Norm Engineering at [295], citing McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 and Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 4 FCR 450 at 458. However, as Gordon J in Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378; [2009] FCA 633 observed at [24], citing Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liquidation) (2007) 157 FCR 564 at [39], the Court is entitled to consider the lack of assistance provided in awarding damages for lost profits. Based on my findings at [156]–[161] and given the failure of Dempsey Group to adduce the kind of evidence that would assist the Court to assess damages, any damages awarded should in my view be significantly less than the amount claimed. Although necessarily imprecise and involving speculation and guesswork, Dempsey Group has not established that the sales of its products were impacted detrimentally by the infringing conduct and on the basis that the impact was relatively negligible it seems reasonable to assess damages on the basis that Dempsey Group would have lost 20% of its sales to Spotlight. I also propose to discount the damages computation by a further 5% in reflection of the uncertainty about the reliability of the gross profits figures used in Dempsey Group’s calculation.

Loss of reputation

163    Dempsey Group have claimed up to $100,000 of damages for loss of reputation, asserting a reputation in its Bed Bath N’ Table business and its MORGAN & FINCH brand. I accept that Dempsey Group has a reputation in the Australian bed linen market based in part on its original designs and that originality is a distinctive feature of its brand. I also accept that it is likely that some damage to its reputation was suffered from the loss of exclusivity of the designs under the MORGAN & FINCH brand appearing in the inferior quality of the Spotlight products. Dempsey Group did not, however, adduce evidence of any actual damage to its reputation or justify the claim in the amount of $100,000, which has not been substantiated and is in my view inflated.

164    However, there is authority to the effect that a nominal award may be made for loss of reputation in circumstances where there is a paucity of evidence as to the actual quantum of that loss. In Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378; [2009] FCA 633, Gordon J awarded damages for damage to the applicant’s reputation in the sum of $10,000. Similarly, in Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd (2008) 166 FCR 358, Jessup J was prepared to find that the infringing conduct did bring about some minor dilution of the applicant’s reputation for originality and ordered compensatory damages of $7,500 in respect of diminution of reputation. I would allow some amount by way of damages for damage to reputation but as it has not been shown that the damage was significant I would limit the award to $10,000.

Claim for devaluation of the artistic works

165    Under this head of damage, Dempsey Group seeks to be reimbursed for the cost of creating each of the Dempsey Group artistic works, including the cost of the artworks purchased from Artwork Design, the cost of employing Dempsey Group’s designers to create the works, and an amount reflecting the loss of exclusivity in the Dempsey artistic works as fabric designs. An amount of up to $30,000 to $45,000 is claimed for the devaluation of the copyright, calculated as follows:

166    This claim is not meritorious as it assumes that the value of the artistic works has been entirely diminished, which has not been established. It is clear from the evidence that the sales of those products have continued, yet no evidence was adduced to show any decrease either in popularity or value of those ranges, let alone that the value was entirely diminished. Further, the asserted values are nothing more than speculation as they are simply based on Ms Mackie’s estimate of the cost to design those products. In estimating the cost, Ms Mackie relied on what she was told by the designers of the Rimona and Bosphorus artistic works as to how long they took to do those designs. In relation to the Constantinople artwork the designer had left and so Ms Mackie simply “made an estimation”. That evidence is not reliable evidence of value which otherwise is unsubstantiated, save for the cost of the artwork used for the Bosphorus and Constantinople Artwork Design works which cost £550 each.

167    The evidence did not substantiate that there has been any devaluation of the artistic works.

Additional damages

168    Dempsey Group also pursues a claim for additional damages under s 115(4) of the Act in the range of $350,000 to $500,000, alleging that Spotlight’s conduct showed flagrancy in selecting Dempsey Group’s products to copy and in its conduct after it was notified of Dempsey Group’s claims.

169    The first part of the claim is rejected based on the findings that I have made that the Spotlight buyers at the time did not know that the Spotlight products were based on the Dempsey products. There was no deliberate and calculated copying of Dempsey Group’s products by Spotlight.

170    Dempsey Group argued that there are several aspects of Spotlight’s conduct after being put on notice that warrant an award of additional damages:

a)    Selling the Spotlight Products at a discount: Between 7 December and 24 December 2016 Spotlight reduced the price of all KOO Quilt Cover sets by 40%.

b)    Commencing sale of KOO Remy: Spotlight did not commence selling the KOO Remy Product until the week commencing 26 December 2016, and elected to commence those sales after being placed on notice.

c)    Continuing to sell the Spotlight Products: Despite repeated requests from Dempsey Group and the provision of ownership/creation information by Dempsey Group to Spotlight, Spotlight did not cease sales (even temporarily) once they were placed on notice, and instead continued selling in the busy pre-Christmas period and only ceased sales when requested to do so by Yantai and only after Yantai agreed to pay for the stock and for it to be returned to China.

d)    Delaying response to legal correspondence: While Mr Windsor denied this in cross-examination, from the chronology of Spotlight’s conduct after being placed on notice it can be seen that Spotlight delayed responding to Dempsey Group, both directly and through its lawyers, while the products were on sale over the busy Christmas and Boxing Day sales period.

e)    Providing Incorrect Information to the Court: Spotlight’s financial information refers to the amount paid by Spotlight for the goods. That amount was used in calculating Spotlight’s alleged profits, which were asserted by Spotlight to be very low. In fact… the goods had never fully been paid for and Spotlight had not paid Yantai for other goods not the subject of these or any other proceedings.

f)    Providing an undertaking to Dempsey Group that it did not comply with: Giving an undertaking on 23 December 2016, to cease sales and withdraw stock with immediate effect, but not beginning the recall until 29 December 2016, which was well into the Boxing Day sales period. Spotlight also made repeated statements (including through its lawyers) to Dempsey Group which were designed to give the impression that sales had ceased, when that was not in fact the case.

g)    Ineffective Recall: Nguyen, Windsor and Hounsell demonstrate that the recall was ineffective. The conditions for selling thousands of units of the Spotlight Products over the Christmas/New Year’s sales period had already been created. In the event, sales continued through February and even as late as July/August 2017. Although the July/August numbers were low, offending products had remained in several Spotlight stores for months. It would not have been unreasonable for the store managers to “walk the shop floor” to physically remove remain stock, but due to lack of monitoring and systematic failures this was not done.

h)    Actions on Destruction: Finally, Spotlight’s cavalier attitude to the recall was repeated in its mismanagement of the destruction of the Spotlight Products. Spotlight sought Dempsey Group’s agreement to destroy the remaining stock on hand which Dempsey Group gave, subject to the condition that Spotlight provide Dempsey Group’s lawyers with a certificate of destruction which would include photographs of the products delivered up for destruction, confirmation of the number of units destroyed and the date of destruction. Those conditions were to enable Dempsey Group’s (and the Court’s, if necessary) satisfaction that the remaining stock of Spotlight Products had been accounted for and properly destroyed. Spotlight failed to make photographic records of the product delivered up for destruction and failed to confirm the number of product destroyed and no explanation has been given.

(errors in original)

171    I have no hesitation in dismissing this aspect of Dempsey Group’s damages claim, which I find fanciful and farfetched.

172    First of all, the fact that Spotlight continued to sell the products after first being put on notice by Dempsey Group of its copyright claims is not conduct of itself of a kind that justifies an additional damages award. There was no intentional disregard of Dempsey Group’s rights in continuing to sell the products after being put on notice by Dempsey Group. Spotlight was entitled to investigate the claim and seek further proof and legal advice before taking any action to cease selling the products. It also responsibly engaged lawyers in a timely fashion. Nor do I accept the assertion that there was delay on Spotlight’s part in responding to legal correspondence. To the contrary, the letter of demand was received on 13 December and Spotlight’s lawyers responded to Dempsey Group’s lawyers on 16 December advising that they had been retained and were working on a response. That response was sent four days later.

173    Secondly, once the recall process commenced Spotlight took active steps to stop further sales and the steps taken were reasonable and defensible. It may be that there were monitoring and systemic failures in the processes but s 115(4) is not directed at ineffectiveness in mitigating infringing conduct but at conduct that is reprehensible. Further the evidence does not show that Spotlight derived a significant benefit from the trading over that period so as to attract an award of additional damages.

174    Thirdly, whilst Spotlight might justifiably be criticised for the time taken to ensure that all infringing stock was removed from the shelves it was not a contumelious delay and the time taken was explained. The evidence did not show that the time taken was due to any deliberate or active measures to prolong the recall.

175    Fourthly the claim that an undertaking had been given to Dempsey Group on 23 December 2016 to cease sales and withdraw stock with immediate effect is inaccurate. On 23 December 2016, Spotlight gave an undertaking that with immediate effect it would never advertise, promote, offer for sale, or sell the Spotlight products or authorise any other party to do so “in or by way of any digital medium” and an undertaking that with effect from the time when all current copies of hard-copy brochures had been exhausted to never advertise, promote, offer for sale, or sell the Spotlight products or authorise any other party to do so “in hard-copy brochure format”. Those undertakings expanded on undertakings given on 20 December 2016 that “once its current stock of the Spotlight products is exhausted” it would never advertise, promote, offer for sale, or sell the Spotlight products or authorise any other party to do so and would not reproduce the Dempsey Group artistic works. Thus the claim that Spotlight did not comply with the undertakings it gave is simply not correct.

176    Fifthly there was justifiable criticism of the delay on the part of Mr Windsor in instructing the stores to remove the relevant stock. I do not accept that the fact that this happened around the Christmas period justified the non-action on the part of Mr Windsor given that Mr Windsor was aware that, although the next business day was not until 28 December 2016, the Spotlight stores nonetheless would be open on 26 and 27 December which traditionally are of high commercial value. Further, the delay had the consequence that the KOO Remy product was able to and did go onto the shelves in the week commencing 26 December 2016. Nonetheless it was not demonstrated that the failure to take steps immediately to recall the products was calculated and deliberate to take advantage of the Christmas shopping period. Rather the explanation lies in Mr Windsor’s non-action for the reasons that he gave in his evidence.

177    The remaining contentions advanced by Dempsey Group in support of its claim for additional damages do not advance the additional damages claim. To the contrary, all the evidence indicates that Spotlight, far from being uncooperative, obstructive, and acting in calculated disregard of Dempsey Group’s rights, took appropriate action, albeit that Dempsey Group considers that it was inadequate and dilatory. Even if it be accepted that Spotlight’s actions after being put on notice were dilatory or inadequate, such claims do not justify an award of additional damages when the evidence is considered as a whole.

Conclusion

178    The parties are directed to provide orders giving effect to these reasons by 8 February 2019.

Associate:    

Dated:    18 December 2018

ANNEXURE “A”

ANNEXURE “B”

ANNEXURE “C”

ANNEXURE “D”