FEDERAL COURT OF AUSTRALIA

Austshade Pty Ltd v Boss Shade Pty Ltd [2016] FCA 287

REASONS FOR JUDGMENT

INTRODUCTION

1    At all material times the second applicant (“Mr Koehn”), was the sole director of the first applicant (“Austshade”). Mr Koehn was and is:

(1)    patentee of Australian standard patent 2003204148 (the “2003 Patent”);

(2)    patentee of Australian innovation patent 2012100717 (the “Innovation Patent”); and

(3)    owner of Australian registered design 200717590 (the “Registered Design”).

2    The third respondent (“Mr Holger Bauer”), was the sole director and company secretary of the first respondent (“Boss Shade”), formerly Revolva Shade Pty Ltd. He was also a director and member of the second respondent (“Bauer Investments”). The parties agree that at all material times, in and about the daily conduct of their respective businesses, both Boss Shade and Bauer Investments acted solely at the direction of Mr Holger Bauer.

3    At all material times, the fourth respondent (“Bernhel”), traded under the business name “Roll-a-Shade”. The fifth respondent (“Mr Stefan Bauer”), was the sole director and company secretary of, and sole shareholder in Bernhel. He is Mr Holger Bauer’s son. The parties agree that, in and about the daily conduct of its business, Bernhel acted solely at the direction of Mr Stefan Bauer.

THE DEED

4    Prior to 30 November 2010, Austshade and Mr Koehn were applicants in proceedings in this Court. Boss Shade and Mr Holger Bauer were the respondents. That litigation was settled pursuant to the terms of a deed executed on that day (the “deed”). The litigation and the deed concerned:

    the 2003 Patent;

    Patent Application No 2006207858;

    Patent Application No 2008201827 (the “Innovation Patent Application”);

    Australian Trade Marks Nos 1006337 and 1061326; and

    four domain names.

5    The current proceedings concern:

    the 2003 Patent;

    the Innovation Patent, a divisional patent, the parent of which is the Innovation Patent Application;

    the Registered Design;

    three photographs, the copyright of which is owned by Austshade (the “copyright photographs”); and

    alleged breaches of the deed by Boss Shade and Mr Holger Bauer.

6    Clauses 1-7 of the deed are as follows:

1    UNDERTAKINGS

1.1    Revolva Shade and Bauer undertake that they (and whether by themselves, their servants, agents, officers, directors or otherwise howsoever) shall not at any time from 30 November 2010 import into Australia, manufacture within Australia, or market, promote, distribute or sell any products which infringe any of the claims of the 2003 Patent other than as provided for in this Deed.

1.2    Revolva Shade and Bauer undertake that they (and whether by themselves, their servants, agents, officers, directors or otherwise howsoever) shall not at any time from 30 November 2010 import into Australia, manufacture within Australia, or market, promote, distribute or sell any products under or by reference to the Trade Marks, otherwise than in accordance with this deed.

1.3    Revolva Shade and Bauer further undertake that they shall not counsel, aid, abet or procure any person or entity to do any of the things which by clause 1.1 and 1.2 of this Deed Revolve Shade and Bauer have undertaken not to commit.

1.4    Revolva Shade and Bauer undertake to surrender and forever give up any claim to and otherwise undertake to forthwith, and in any event within 21 days, take all steps reasonably necessary, including executing all necessary documents and lodging all such documents with the appropriate party, for the purposes of transferring the following domain names to Austshade:

(a)    www.revolvashade.com;

(b)    www.revolvashade.com.au;

(c)    www.austshade.com;

(d)    www.austshade.com.au.

1.5    Revolva Shade and Bauer undertake to forthwith, and in any event within 21 days, change the corporate name of Revolva Shade to some other name which is not substantially identical with or deceptively similar to its current name, and in any .event does not use the word "REVOLVA", save that the name may include the word "shade" or any derivative of it.

2    COURT PROCEEDINGS

2.1    The Parties hereby agree to consent to an order under which the Proceedings are dismissed with no order as to costs.

2.2    For the avoidance of doubt, each party gives up any claim against the other arising from or connected with the Amended Statement of Claim filed 30 November 2010 or the Defence and Cross-Claim filed 12 March 2009 and releases and holds harmless each other party with respect to any and all claims made therein.

3    NO CHALLENGE TO PATENTS

3.1    Revolva Shade and Bauer will permanently refrain from challenging the validity of that 2003 Patent and will not take any step to seek the revocation of that 2003 Patent and nor will they counsel, aid, abet or procure any person or entity to do any of those things.

3.2    A reference in clause 3.1 to "challenging" extends to not asserting in any way the invalidity of the 2003 Patent;

3.3    Bauer withdraws the allegation pleaded at paragraph 39(e) and 58(a) of the Defence and Cross-claim filed in the Proceedings on 12 March 2009 that he is an Inventor of the 2006 Patent Application or is otherwise an eligible person;

3.4    Bauer withdraws the allegations at paragraphs 79-84 of his Affidavit filed in the Proceedings on 30 November 2010 that he co-invented the invention the subject of the 2008 Patent Application;

3.5    Revolva Shade and Bauer will permanently refrain from challenging the validity of the 2006 Patent Application and the 2008 Patent Application and will not take any step to oppose or upon registration seek the revocation of either or both of the 2006 Patent Application or the 2008 Patent Application and nor will they counsel, aid, abet or procure any person or entity to do any of those things.

4    LICENCE AGREEMENT

4.1    Austshade and Koehn grant a non-exclusive licence (the “Licence") to Revolva Shade to exploit the 2003 Patent and the 2008 Patent through the importation, marketing and sale of the umbrella currently marketed and sold as at the date of this Deed by Austshade under the name "Econoshade Deluxe" and by Revolva Shade under the name "Revolvashade Classic" (the “Licensed Article");

4.2    The Licence does not include the right to grant sub-licences and only applies to allow Revolva Shade to import, market and sell the Licensed Articles;

4.3    Without in any way limiting the matters set out in clause 4.1, the Licensed Articles may be marketed and sold by Revolve Shade under or by reference to the Trade Marks for 90 days from the date of this Deed.

5    ROYALTIES

5.1    In consideration of the grant of the Licence under clause 4.1 Revolva Shade agrees to pay to Austshade a royalty of $150 per umbrella, to be increased by CPI on 30 November 2015. The royalty amount is exclusive of GST.

5.2    The royalty under clause 5.1:-

(a)    Will apply to each Licensed Article imported into Australia after 30 November 2010;

(b)    Applies to each of the 169 Econoshade Deluxe umbrellas currently held by Revolva Shade, save for ten which Revolva Shade permits Austshade to collect free from it on or about 3 December 2010, or such other time reasonably agreed, in any event within 7 days of the date of this Deed;

(c)    Applies to the seven 2003 Patent model umbrellas from the Fourth Shipment;

(d)    Will be paid on the last day of each calendar month in respect of all sales of Licensed Articles during that calendar month;

(e)    Further, Revolva Shade will, within one month of the date of this deed, pay the sum of $3,150 plus GST on account of the 21 umbrellas sold by Revolva Shade referred to at Exhibit HB10 to the affidavit of Mr Bauer sworn 28 November 2010;

5.3    Within 7 days of a shipment of Licensed Articles being paid for by Revolva Shade or being dispatched to Australia (whichever is the earlier), Revolva Shade must provide copies of the order form and invoice documents relating to the relevant shipment of the Licensed Articles.

5.4    Revolva Shade must keep and produce for Austshade's inspection (on reasonable notice) complete records (including tax returns) to enable the royalty calculations to be verified, such inspections to occur no more than once every calendar month.

5.5    Mr Koehn or his agent may (on reasonable notice) attend Revolva Shade's warehouse to verify the number of Licensed Articles held by Revolva Shade, such inspections to occur not more than once every month.

6    TERMINATION

6.1    If an inspection under clause 5.4 of such records reveals a material discrepancy in the calculation or payment of royalties, and Revolva Shade does not make good any underpaid royalties within 21 days of written notice, then Austshade may terminate the Licence by notice in writing to Revolva Shade.

6.2    Austshade may otherwise terminate the Licence if Revolva Shade breaches any of the provisions of this Deed and such breach is not remedied within 21 days of written notification.

6.3    On termination of the Licence pursuant to clauses 8.1 or 8.2, Revolva Shade must not:-

(a)    Import into Australia or have manufactured in within [sic] Australia any of the Licensed Article; or

(b)    Market or promote distribute or sell any of the Licensed Articles within Australia.

6.4    Despite clause 6.3 Revolva Shade may, for a period of 6 months after the date of termination of the Licence market, promote, distribute and sell any stock of the Licensed Articles either held in Australia or already ordered or being shipped to Australia as at the date of termination. The royalty obligations under clause 5 will continue to apply to any such Licensed Articles.

6.5    Termination of the Licence will not affect or discharge any pre-existing liabilities including, but not limited to, any unpaid royalty amounts.

6.6    Unless the Licence is otherwise terminated under this clause, the Licence will terminate automatically on 30 November 2020.

Clause 7 relevantly provided:

7    MISCELLANEOUS

7.1    Amendment

This Deed may only be varied by the written Deed of the Parties.

7.2    Assignment

A party may only assign a right or obligation under this Deed with prior written consent of the other party, such approval will not be unreasonably withheld or delayed.

…

7.5    Further Assurance

Each party must promptly execute all documents and do all things that another party from time to time reasonably requests to effect, perfect or complete this Deed and all transaction incidental to it.

…

The references in cl 6.3 to cll 8.1 and 8.2 should be to cll 6.1 and 6.2.

TERMINATION OF THE LICENCE

7    Pursuant to cl 4 of the deed, Austshade and Mr Koehn granted to Boss Shade a non-exclusive licence to exploit the 2003 Patent and the Innovation Patent Application.

8    On 22 December 2010, Bennett & Philp wrote to Kelly Lawyers (copied to Mr Holger Bauer and Boss Shade) as follows:

We are instructed that:–

1.    Revolva Shade Pty Ltd and Mr Bauer are in breach of clause 1.4 the Deed … they have not executed and lodged all necessary documents to transfer the domain names to Austshade;

2.    Revolva Shade and Mr Bauer are in breach of clause 1.5 of the Deed in that they have not changed the corporate name of Revolva Shade to some other name which is not substantially identical with or deceptively similar to Revolva Shade, or at all;

3.    Our clients hereby give written notice that Revolva Shade and Mr Bauer are in breach of the Deed …;

4.    If the breaches referred to in paragraphs 1 and 2 hereof are not remedied within 21 days of the date of this letter then Austshade will terminate the Licence Agreement set out in the Deed …;

5.    In giving this notice our clients have not waived the requirement that clauses 1.4 and 1.5 of the Deed … be complied with within 21 days of the date of the Deed …;

6.    In addition, if the breaches referred to in paragraphs 1 and 2 hereof are not remedied within 21 days of the date of this letter then:-

(a)    Our clients will issue proceedings against Revolva Shade and Mr Bauer for specific performance of their obligations under clauses 1.4 and/or 1.5 of the Deed …;

(b)    Any proceedings issued against Revolva Shade and/or Mr Bauer will be issued without any further notice to you;

(c)    Our clients will claim the costs of any Court action from Revolva Shade and/or Mr Bauer.

Our clients will present this letter to a Court on the question of costs.

9    On 24 January 2011 Bennett & Philp again wrote to Kelly Lawyers (copied to Mr Holger Bauer and Boss Shade:

We refer to our letter dated 22 December 2010 giving notice of Revolva Shade Pty Ltd and Mr Bauer's breach of the Settlement Deed.

Revolva Shade and Mr Bauer's breaches of the Settlement Deed have not been remedied for a period in excess of 21 days as follows:-

1.    Clause 1.4

1.1    By letter dated 22 December 2010 Austshade Pty Ltd and Koehn gave notice that Revolva Shade Pty Ltd and Bauer were in breach of clause 1.4 of the Settlement Deed as they had not executed and lodged all necessary documents to transfer the domain names;

1.2    On 4 January 2011 domain name transfer forms were delivered without covering letter to Bennett & Philp in respect of www.revolvashade.com.au; www.austshade.com and www.austshade.com.au;

1.3    The domain name transfer forms supplied in respect of www.austshade.com and www.austshade.com.au were incomplete in that they did not include a copy of the transferee's certificate issued by government showing his signature;

1.4    No documents have been lodged in relation to the transfer of the domain name www.revolvashade.com.

2.    Clause 1.5

2.1    By letter dated 22 December 2010 Austshade Pty Ltd and Koehn gave notice that Revolva Shade and Koehn were in breach of Clause 1.5 of the Settlement Deed as they had not changed the corporate name of Revolva Shade Pty Ltd to some other name which is not substantially identical with or deceptively similar to Revolva Shade.

2.2    As of today, Australian Securities and Investment Commission records continue to record Revolva Shade as having that name and no forms have been lodged to change that name.

Austshade hereby gives notice under Clause 6.2 of the Settlement Deed that Revolva Shade's Licence under the Settlement Deed is terminated effective immediately.

In accordance with Clause 6.5 of the Settlement Deed, the above termination of the Licence does not affect or discharge any pre-existing liabilities. Accordingly, despite the termination of the Licence Agreement Revolva Shade Pty Ltd and Mr Bauer are still required to comply with their obligations under the Settlement Deed.

Our clients require that:-

A.    Revolva Shade Pty Ltd pay to Austshade Pty Ltd the Royalty Amount owing for December 2010. In this regard:-

(I)    Clause 5.2(b) and Clause 5.2(c) indicate that Revolva Shade had a total of 176 umbrellas;

(II)    Royalties were to be paid on 166 of the umbrellas;

(III)    Clauses 5.1 and 5.2(d) require that the sum of $150 plus GST per umbrella be paid to Austshade in respect of all sales of those 166 umbrellas during the calendar month on the last day of the calendar month;

(IV)    By document dated 9 December 2010 Mr Bauer and Mr Koehn agreed that Revolva Shade only continued to hold 157 umbrellas;

(V)    The sale by Revolva Shade of at least 9 umbrellas in the month of December 2010 resulted in an obligation by Revolva Shade to pay to Austshade at least the sum of $1485 by way of Royalties plus $150 plus GST for any umbrellas sold after that date;

(VI)    Revolva Shade has not paid Austshade any amount in respect of umbrellas sold by it in December 2010;

(VII)    Austshade hereby demands payment of $1485 for the 9 umbrellas sold on or before 9 December 2010, such payment to be made within 4 business days of the date of this letter; and

(VIII)    Austshade hereby also demands payment within 4 business days of the date of this letter of the sum of $150 plus GST for any additional umbrellas sold on or after 9 December 2010.

B.    Within 4 business days of the date of this letter Revolva Shade Pty Ltd and/or Bauer attend to lodgement of all documents with the appropriate party for the transferring to Austshade of the domain names www.revolvashade.com, www.austshade.com and www.austshade.com.au. In this regard:-

(I)    Enclosed with each copy of this letter are the domain name transfer forms for the domain names together with a copy of Mr Koehn's passport page showing his signature for lodgement with the domain name transfer forms for www.austshade.com and www.austshade.com.au;

(II)    If any additional information is required to transfer the www.revolvashade.com domain name, please contact our office.

C.    Within 4 business days of the date of this letter Revolva Shade Pty Ltd change its corporate name to some other name which is not substantially identical with or deceptively similar to Revolva Shade.

If all of our clients' requirements set out above are not complied with by the time stipulated, we are instructed to immediately apply to the Court for mandatory injunctions requiring compliance.

Given that the steps required to be taken by Revolva Shade Pty Ltd and Mr Bauer are not difficult and are solely within the ability and authority of Revolva Shade Pty Ltd and/ or Mr Bauer, we are instructed that our clients will claim the costs of any application to the Court from Revolva Shade Pty Ltd and Mr Bauer, including on an indemnity basis.

Our clients reserve their rights to present this letter to the Court on the question of costs.

10    The respondents accept that the licence was terminated on 24 January 2011. As a result, Boss Shade could, pursuant to cl 6.4 of the deed, sell the relevant umbrellas until 24 July 2011.

APPLICANTS’ EVIDENCE

11    Mr Koehn has sworn two affidavits in this matter:

    an affidavit filed on 30 April 2013, found at tab 10 of the trial book; and

    an affidavit filed on 13 June 2013, found at tab 11 of the trial book.

12    Much of the material dealt with in his affidavits has been dealt with in the statement of agreed facts. The balance of his evidence is best dealt with in other parts of these reasons. That evidence concerned:

    the effect of a certain modification by Boss Shade of the umbrellas which it was permitted to sell;

    the number of such umbrellas held by Boss Shade on and after the date of the deed;

    the provenance of the copyright photographs;

    the question of whether sale of the modified umbrellas infringed the 2003 Patent, the Innovation Patent or the Registered Design; and

    the material which is said to infringe the copyright in the copyright photographs.

13    Much of Mr Koehn’s evidence-in-chief is otherwise as to formal matters. His cross-examination focussed on the effect of the modification of the umbrellas and the nature of the payment to him by Mr Holger Bauer or Boss Shade of the sum of $24,850. As I have said, I shall deal with those matters later in these reasons. For present purposes, it is sufficient to say that his evidence concerning those matters was unsatisfactory. To the extent that I have formed any view as to his credibility that view is based on all of the evidence in the case. However those two factors are of particular importance. In the end, his credibility is relevant only in connection with the effect of the modification.

14    The applicants also rely upon two affidavits by Mr Philp, the applicants’ solicitor. Those affidavits are primarily concerned with searches conducted by Mr Philp, the history of proceedings and relevant correspondence. The applicants also rely upon the affidavit of Mr Frank Lee. He is a professional photographer, now retired. He was engaged by Mr Koehn to take photographs of umbrellas, copies of which he annexes to his affidavit. The photographs were taken on 11 June 2008. Mr Lee’s services were billed to Austshade. At some time before October 2008, Mr Lee performed “photo-shopping” procedures on the relevant photographic files and sent the altered images to Austshade. On 7 December 2011, he sent a letter to Mr and Mrs Koehn in which he stated that he transferred to Austshade ownership of all of the photographs taken on 21 October 2008. He later decided that he had taken the photographs on 11 June 2008 and amended the date accordingly. He also signed a separate document, described as a “confirmation of copyright assignment”. He has no recollection of Mr Holger Bauer, or anybody on his behalf being involved in giving instructions concerning the photographs or any of the other work performed by him in connection with them.

15    Mr Ken Taylor is a private investigator. In July 2012 he was retained by Bennett & Philp. The purpose of such retainer was to gather information concerning the respondents’ involvement in selling umbrellas and the tilting capacity of the umbrellas being sold. The letter of instructions seems to have assumed that sale of the modified umbrellas would not (or might not) infringe the Patents whereas sale of unmodified umbrellas would do so. Mr Taylor reported that on 25 July 2012 somebody called Bob, presumably Mr Holger Bauer, told him that the umbrellas being sold rotated at an angle and through 360 degrees. In a later conversation on 26 July 2012, Bob said that the umbrellas rotated through 360 degrees and tilted at different angles. On the same day Mr Taylor went to the premises of a firm called Bayside BBQs. He saw an information sheet which described an umbrella, apparently one of Bernhel’s umbrellas, as “double tilt”. An attendant explained that the umbrella would tilt and rotate through 360 degrees. The attendant tried to show Mr Taylor how to tilt it. The process described by Mr Taylor involved pushing a latch and turning a handle to make the umbrella move lower. Hence it seems that he demonstrated the raising and lowering of the umbrella rather than its tilting function. There was no suggestion that bolts should be removed in order to tilt or rotate the umbrella. I do not understand Mr Holger Bauer to have denied the conversations deposed to by Mr Taylor.

16    Mr Koehn’s wife, Sally Anne Koehn, also swore an affidavit, dealing primarily with documents concerning the sale of umbrellas by Boss Shade, prior to the making of the deed and thereafter. Jacinta Anne Goodwin swore an affidavit in which she annexed various invoices and bank documents.

RESPONDENTS’ EVIDENCE

17    At the trial the respondents read:

    two affidavits of Mr Holger Bauer, filed on 6 June 2013 and 20 March 2015;

    an affidavit of Stefan Bauer filed on 6 June 2013; and

    an affidavit of James Grant Adams filed on 13 June 2013.

18    Mr Adams’ affidavit was not relied upon as offering expert evidence, but as evidence of information provided to Mr Adams by Mr Holger Bauer, concerning the modification of the umbrellas. Mr Bauer had asked him in June 2012, to advise whether the modification to the umbrellas would avoid infringement of the 2003 Patent. Mr Adams gave advice on 23 May 2012. Mr Bauer’s request must have been prior to that date.

19    The applicants objected to para 16 of Mr Holger Bauer’s affidavit filed on 6 June 2013, particularly to the words, “so that it did not breach the applicants’ 2003 Patent”. In the end the passage was admitted upon the basis that as it swore to the issue, it was to be treated accordingly.

20    At paras 5-14 of his first affidavit Mr Holger Bauer gave evidence concerning the transfer to Bernhel of Boss Shade’s umbrellas. In particular, at para 10, he set out the terms of the agreement as follows:

So, we did not enter into any formal written agreement in respect of the umbrellas.

However we did reach an oral agreement over a number of conversations leading up to July 2011 . The express oral terms were –

(a)    That my son's company Bernhel Pty Ltd would purchase all of the umbrellas left in stock;

(b)    That he would pay a deposit of $25,000 which I would pay to Mr Koehn's lawyer for the royalty payment;

(c)    That I would ensure that all of the umbrellas that were sold were permanently fixed with non-removable bolts so that they would not breach the 2003 Patent that the applicant held;

(d)    That once he paid the $25,000 the umbrellas would be owned by his company;

(e)    On Mr Kelly's advice, we would move the umbrellas to Sefan's storage facility so they were out of my possession;

(f)    That my son would try to sell the umbrellas through his business and that he would keep $300 in respect of each umbrella and give me the rest.

In this way he could recover his $25,000 and make a profit.

21    This agreement was reached on 21 July 2011.

22    On 3 August 2011, Mr Bauer, on behalf of Boss Shade, sent a “sales report” to Austshade and Mr Koehn as follows:

We sold the remaining stock of 149 umbrellas on July 21 2011. On direction of the new owner we have to Modified [sic] the umbrellas to single tilt action before delivery to his factory. As a matter of low cashflow we have to ask for payment of $1,500 instalment per month for the outstanding royalty payment. If you want [us] to change [anything] on our Boss Shade website, please let me know and we act on it immediately.

23    Austshade responded by serving a statutory demand for $24,585, being the amount of a debt owing to it by Boss Shade as:

Moneys due and owing pursuant to the Deed of Settlement dated 30 November 2010 in that [Boss Shade] sold on 21 July 2011 149 umbrellas such that at 1 August 2011 the amount of $150 plus GST [an amount of $165 inclusive of GST per umbrella] was due and owing and overdue being in the total amount, twenty four thousand five hundred and eight-five dollars and zero cents.

24    On 15 August 2011, Bennett & Philp wrote to Kelly Lawyers, seeking to inspect records relating to the sale. On 5 September 2011, Kelly Lawyers replied, referring to the statutory demand and advising that the amount of the debt had been paid to Bennett & Philip’s trust account. Thus it is clear that the payment was for the royalties claimed in the statutory demand. The solicitors asked that the statutory demand be withdrawn. Mr Bauer gave evidence concerning the mechanics by which the royalties were paid.

25    On 31 August 2011 Mr Holger Bauer and Mr Stefan Bauer had lunch together in Sydney. Mr Holger Bauer told Mr Stefan Bauer that he needed a total of $25,000 to pay Mr Koehn his royalties pursuant to the deed. Mr Stefan Bauer had previously advanced him $8,500 to use in another business. It was agreed that of that sum, $5,000 would be applied in part payment for the umbrellas sold to Bernhel. Mr Stefan Bauer also offered to pay a further amount of $20,000. They went to a nearby branch of his bank withdrew $20,000 in cash, and deposited it into Mr Holger Bauer’s account. There is a bank statement showing a deposit of $20,000 on 31 August 2011.

26    At this stage I should interpolate that Mr Stefan Bauer said, in his evidence, that Mr Kelly, Mr Holger Bauer’s solicitor, had, on 31 August 2011, informed him that his father needed money urgently. It is probable that this communication led to the banking arrangements made in Sydney on the same day.

27    Mr Holger Bauer said that he organized for the umbrellas to be moved to Mr Stefan Bauer’s storage facility, and that the latter set about advertising the umbrellas for sale on his website. Some sales were made. All of those umbrellas had been modified in order to disable the tilt function. There is some doubt about when the umbrellas were moved.

28    In his second affidavit Mr Holger Bauer added a sentence to para 19 of his earlier affidavit as follows:

Annexure “HB 4” is a copy of the Boss Shade Pty Ltd Westpac bank statement showing the withdrawal of the sum of $24,615.

29    He also swore that, as I have said, in June 2012 he arranged for Mr Adams to inspect a sample of the umbrellas which Boss Shade had sold to Bernhel, having advised him of the modification which had been made to them. In annexure HB 1 to his second affidavit, Mr Bauer said:

We applied a shear of nuts plus Permatex Thradlocker to the bolt and drillt of the Allen key connection to make it impossible to remove the bolt

see attachment

30    The “attachment” does not appear to be in evidence. The reference to “Thradlocker” should be to “Threadlocker”. The words “drillt of” should probably read “drilled off”.

31    Mr Stefan Bauer is presently applying all of the proceeds of sale of the umbrellas against the purchase price owed to Boss Shade by Bernhel. Mr Bauer gave evidence concerning the copyright issue. I shall deal with that evidence at a later stage in these reasons.

32    In the course of cross-examination Mr Holger Bauer agreed that he was the sole director of Boss Shade and responsible for record-keeping. In July 2013 he had sought to de-register the company and informed the Australian Securities and Investments Commission that the company was not party to any outstanding legal proceedings. As these proceedings were on foot, the statement was incorrect. Mr Holger Bauer appeared reluctant to accept this inconsistency. To the extent that his credibility may be relevant, such reluctance may count against the unqualified acceptance of his evidence. His statements to Mr Taylor about the capacity of the umbrellas to tilt are also of concern. They suggest that he was either still selling unmodified umbrellas, or he was representing that they had a characteristic which they lacked (as a result of the modification).

33    Mr Bauer was cross-examined concerning:

    attempts to sell the umbrellas to purchasers other than Bernhel and Mr Stefan Bauer;

    various amounts apparently received in connection with sale transactions, some of which were sales of umbrellas;

    statements concerning the number of umbrellas in his possession;

    the payment of royalties to Mr Koehn or Austshade;

    the modification of the umbrellas;

    the advertisement of the umbrellas for sale, including use of the material which is alleged to reproduce the copyright photographs; and

    advice received from his lawyers concerning the need to ensure that any sale of the umbrellas was at arm’s length so that it would not be a sham.

As with Mr Koehn’s evidence, I shall deal with parts of this evidence in considering the discrete issues to which they relate.

34    It seems that at some stage Mr Holger Bauer was advised against entering into a contract with Mr Stefan Bauer because such a transaction might be seen as not being at arm’s length. He claims that the solicitors subsequently varied that advice.

35    Concerning the modification of the umbrellas Mr Bauer said that his employees had placed the Permatex Threadlocker on the nuts on all of the 149 or so umbrellas still in his possession. He had not, himself, performed the task. The applicants were somewhat equivocal about whether they accepted that the modification had been performed. However there seems to be no reason to doubt that the umbrellas were so modified. I shall deal with this matter in more detail at a later stage. Mr Bauer said that in describing the modification process as being “practically impossible” to reverse, he meant “very difficult” or “nearly impossible”. It was suggested to him that the nuts could be drilled out. He said that this would damage the umbrella, although it could still be used as such. It was put to him that the use of Threadlocker did not have the same effect as welding the parts together. He said that he had been advised by Mr Adams to use Threadlocker in order to prevent infringement of the Patent. It was put to him that it was possible to drill out the Allen key indentation so that the relevant bolts could be unscrewed. He did not agree. In re-examination he was asked to explain the process by which he applied a bolt and nut. He said that he had nothing to add. He said that the arrangement that he had with his son as to the payment of $300 for each umbrella sold was the same as the arrangement which had existed between him and Austshade.

36    Mr Stefan Bauer said that at about Christmas 2010 he and Mr Holger Bauer first discussed the possibility that his company might acquire the umbrellas still held by Mr Holger Bauer and/or Boss Shade. Mr Holger Bauer said that he was negotiating with other possible purchasers. There was further discussion in late June/early July, leading to an agreement between them for the sale and purchase of the umbrellas. At paras 8 and 9 of his affidavit Mr Stefan Bauer said:

8.    The agreement was oral as everything we have ever done together was oral. The terms that we agreed on were –

(a)    I agreed to pay him a deposit of an amount which would enable him to pay the royalties of about $25,000;

(b)    I would get the full ownership of the umbrellas up front, it was to be a genuine sale to ensure he complied with the Deed;

(c)    My business would on sell them;

(d)    He would help me to on sell them;

(e)    I would deduct $300 from each sale and pay the balance proceeds to my father as progressive payments. In this way I would recover my deposit plus make a profit for my troubles;

(f)    The umbrellas would remain where they were in a storage shed in Lytton which we shared.

9.    I ended up paying him the amount of $28,500. However, only $25,000 of this amount was agreed between us to be the deposit on the umbrellas. I drew the money out of my personal account at St George Bank in two cash amounts –

(a)    $8,500 on 12 July 2011 and

(b)    $20,000 on 31 August 2011.

Annexed to this Affidavit and marked "SB1 " are page 1 of statement 15 and page 2 of statement 16 being for my account with St George Bank which shows the withdrawal of the two cash amounts.

37    His account of the circumstances in which the cash transfers were made in Sydney was similar to that given by Mr Holger Bauer. Mr Stefan Bauer has tried to sell the umbrellas but business has been slow. Owing to his father’s poor financial position, he has allowed him to retain all proceeds of sale, on the basis that he, Mr Stefan Bauer, will receive $300 per umbrella sold when such payments can conveniently be made.

38    In cross-examination he was taken to para 4 of his affidavit in which he refers to the previous proceedings between his father and Mr Koehn. He said that he was not directly involved in those proceedings. He first became aware of the deed of settlement at about Christmas 2010, although he may have become aware of it on the day that it was executed, namely 30 November 2010. He subsequently received a copy and perused it, probably shortly after 30 November. By Christmas 2010 he was aware of its contents. He said that it was unlikely that he had read a copy, but he was familiar with its terms. In December 2010, he was not aware that in the event of any breach of the deed, there would be a “sell down period”, and that at the end of that period, Boss Shade and Mr Holger Bauer would no longer be able to sell the umbrellas. He said that he only became aware of those consequences when the “deed was cancelled”, on or about 24 January 2011. In fact, the deed was not cancelled, but the licence was. He knew that there was then a period of six months in which to sell the umbrellas. He said that he and his father did not reach a final agreement in January 2011. He did not know the identities of other parties with whom his father may have been negotiating for sale of the umbrellas.

39    The witness was taken to exhibit 5, a string of emails. On 31 August 2011 at 12.02pm, Mr Kelly sent an email to Mr Stefan Bauer as follows:

Dad is in a tight citation (sic). He needs funds and must pay them on time or all hell will break loose. Can you help. He need to understand he has no options.

Mr Bauer responded at 12.03pm:

He is organizing funds right now, when is the due date?

Mr Kelly responded at 12.08pm:

We need it by the 5th say to give us time but the last date is the 6th and it must be cleared funds so bank cheque or funds transfer of cleared fund.

It seems likely that Mr Kelly’s first email was sent as a result of the statutory demand. The email chain brought about the events which occurred in Sydney on 31 August 2011.

40    It was put to Mr Stefan Bauer that prior to these emails, he had not been aware that the relevant amount was due. He said that he knew that it was due but did not know the date. It was suggested that as a consequence of the exchange of emails he arranged to ensure that his father had sufficient funds to make the payment. He said, “That is when we executed the – our – deal, yes. Our agreement.” Of course, no agreement was ever executed, although an agreement was allegedly performed. He said later in his evidence that he meant that although they had agreed earlier, the money changed hands on 31 August 2011.

41    Mr Stefan Bauer was then taken to Mr Holger Bauer’s affidavit filed on 6 June 2013. It was suggested to him that the amount of $8,500 paid on 12 July 2011 had nothing to do with the contract. He agreed. However he again said that of the $8,500 initially intended for another purpose, $5,000 had been applied in paying Mr Koehn and/or Austshade. Mr Stefan Bauer was then taken to exhibit 6, a letter from Kelly Lawyers to him, dated 13 September 2011. It reads as follows:

Boss Shade Pty Ltd v Austshade

Just out of an abundance of caution I am sending you a copy of a letter I wrote to Bob on the 7th September 2011 in relation to this ongoing dispute with [Mr Koehn].

As you are aware he has now paid all the [r]oyalty moneys on the umbrellas and the possible further breaches could be a breach of [Mr Koehn]’s intellectual property rights. It is therefore very important that when you deal with the stock as purchased by you that you deal with it at arm’s length. Bob must not be seen to take any roll [sic] in the [s]ale, [m]arketing or [p]romoting of these umbrellas. Additionally we still have concerns about his website which promotes this product is still infringing [Mr Koehn]’s [i]ntellectual [p]roperty [r]ights as photographs contained on the website may be deceptively similar to or identical with the product previously promoted by Boss Shade which was the subject of the [i]ntellectual [p]roperty [l]icence granted to him under the terms of the settlement which have of course been terminated, that is Bob has no further rights to [m]arket, [p]romote or [s]ell.

42    Mr Bauer agreed that the advice given was inconsistent with para 8(d) of his affidavit which indicated that Mr Holger Bauer was to assist in selling the umbrellas. He also agreed that Mr Kelly was very concerned to ensure that there was no breach of the deed. Mr Stefan Bauer had been advised that his father should not be involved in the sale. It was suggested to him that nonetheless, his father continued to be so involved. Mr Stefan Bauer said, “Only in the early stages”.

43    The witness was then taken to Mr Koehn’s first affidavit and, in particular, to annexure ESHK 41. The annexure contains six invoices in the name of Bernhel Pty Ltd, relating to sales by that company. The invoices have no index numbers although they are dated. It may be that I was being invited to draw some inference from the fact that they were not numbered. However I see no relevant and available inference.

44    In re-examination Mr Bauer said that in the weeks leading up to 24 July 2011, he received advice from Mr Kelly to the effect that he could purchase the umbrellas in his company name and resell them through his Roll-a-Shade company.

45    The applicants sought to rely upon the emails dated 31 August 2011 as suggesting the absence of any earlier agreement between Mr Holger Bauer and Mr Stefan Bauer for the sale of the umbrellas. They also sought to rely upon Mr Stefan Bauer’s statement that he and his father had “executed” their agreement on 31 August. See ts 123, ll 18-24 and ts 124, ll 22-29. As I have said, no contract was executed. Mr Stefan Bauer said that he meant that their earlier agreement had been performed in that the money was paid.

46    It seems that for some time prior to 24 July 2011, Mr Holger Bauer had been trying to find a buyer other than his son. Even after the nominated date of sale to Bernhel, Mr Kelly was still, on 22 July 2011, writing to Mr Holger Bauer concerning a sale to another purchaser, Crownbridge Pty Ltd. See exhibit 4. Such conduct is not necessarily inconsistent with the existence of an agreement such as that alleged between Mr Bauer and Mr Stefan Bauer. Family arrangements are likely to be flexible. Mr Holger Bauer was obviously concerned to have arrangements in place to enable him to transfer the umbrellas on or before 24 July 2011. It is not surprising that he should have turned to his son for assistance, even if he still hoped to find another buyer. Given the obvious importance of a sale on or before that date, there is nothing surprising about his claim to have put in place, a back-up arrangement. Indeed, it would be surprising if he had not done so.

47    I accept Mr Stefan Bauer’s evidence that as a result of discussions in late June/early July 2011, or perhaps as late as 21 July 2011, he had agreed on behalf of Bernhel to acquire the umbrellas from Boss Shade. I think it likely, however, that both he and his father had in mind the possibility that another purchaser might still be found. To the extent that his evidence concerning the agreement and its terms differs from his father’s evidence, I prefer that of Mr Stefan Bauer. He seemed to me to be more objective concerning the matter than was Mr Holger Bauer. In any event, where an agreement emerges out of numerous conversations, there is always the possibility that the parties will have different opinions as to the point at which agreement was reached.

THE UMBRELLAS

48    Notwithstanding documentary evidence created by Mr Koehn and Mr Holger Bauer concerning their shared understanding as to the number of umbrellas held by Boss Shade as at the date of the deed and on 9 December 2011, Mr Koehn and Austshade seem to assert that they do not know how many umbrellas may have been sold since the date of the deed.

49    At one stage Mr Kelly wrote to Mr Holger Bauer, indicating that he had told Mr Kelly that he had 30 umbrellas, which Mr Koehn may not have seen, with respect to which he intended to pay royalties. The applicants at least implied that the reference to such umbrellas was a ground for suspecting that Boss Shade had acquired more umbrellas than those of which Mr Koehn was aware at the date of the deed and thereafter. However exhibit 4 must be read as a whole. It was dated 22 July 2011, just prior to the expiry of the sale period. At that stage Mr Holger Bauer understood that Crownbridge Pty Ltd had bought 100 umbrellas, notwithstanding his agreement with Mr Stefan Bauer. The letter was written by Mr Kelly to Boss Shade to confirm instructions given by Mr Bauer on that day. Mr Kelly identified four categories of umbrella, including the 30 umbrellas which Mr Koehn may not have seen. However the total number was 149, the number sold to Bernhel upon which royalties were paid. Hence there is no real basis for deriving any adverse inference from Mr Kelly’s letter.

50    Clause 5 of the deed dealt with royalties payable on any umbrella imported into Australia after the date of the deed and to the umbrellas apparently already held by Boss Shade and identified in paras 5.2(b) and 5.2(c) of the deed. Those paragraphs refer to 169 Econoshade Deluxe umbrellas, of which 10 were to be given to Austshade. It collected them on 9 December 2010. Boss Shade also possessed seven “2003 Patent model” umbrellas. Hence it seems that on 9 December 2010, Boss Shade held 166 umbrellas for sale. The applicants suggest that they do not know the total number of umbrellas acquired by Boss Shade, or the number sold. It seems that Boss Shade imported umbrellas for sale from a manufacturer not related to Austshade or Mr Koehn, but pursuant to arrangements with them. There is, however, no allegation or evidence of any further importation. The deed suggests that Austshade and Mr Koehn were aware of the number of umbrellas held by Boss Shade. Further, Mr Koehn has, since execution of the deed, inspected the Boss Shade premises on several occasions for the purpose of determining the number of umbrellas held.

51    In his evidence in these proceedings, he said that on about 9 December 2010, when he collected the 10 umbrellas, he saw 157 Econoshade Deluxe umbrellas at the premises, two fewer than the number identified in the deed, after allowing for the 10 given to Austshade on that day. He said that he saw 10 other umbrellas made to the 2003 Patent, three more than were identified in the deed. However, in a receipt dated 9 December 2010 signed by Mr Koehn and Mr Holger Bauer (annexure ESHK 3 to Mr Koehn’s first affidavit), they agreed that there were 157 umbrellas in the latter’s warehouse. Mr Koehn’s evidence is inconsistent with this receipt. The deed demonstrates that as at 30 November 2010 (the date of the deed), Boss Shade had 176 umbrellas, of which 10 were given to Austshade leaving 166 umbrellas, suggesting that nine had been sold since the date of the deed. However, if, as Mr Koehn asserts at para 54 of his first affidavit, there were 167 umbrellas in Boss Shade’s possession on 9 December 2010, then it seems that none had been sold, and that there was one more umbrella than had been agreed in the deed. A more likely explanation is that the figure at para 54 of his affidavit includes the ten umbrellas which were delivered to Austshade on that day. Even if that be so, Boss Shade would, if the count in para 54 is correct, have had one more umbrella than it should have had, assuming no sales since the date of the deed. This discrepancy may, or may not be attributable to some oversight.

52    By email dated 3 August 2011, Mr Holger Bauer informed Austshade and Mr Koehn that he had sold the then remaining 149 umbrellas. Although he did not disclose the name of the purchaser, we now know that he had sold them to Bernhel pursuant to the agreement with Mr Stefan Bauer. Mr Holger Bauer subsequently accounted to Mr Koehn for the royalties on such sale. In the amended defence the first, second and third respondents plead that they paid royalties on approximately 138 umbrellas. However there is no doubt that in September 2011, Mr Holger Bauer paid royalties on 149 umbrellas. There is evidence that he paid royalties on the sale of ten other umbrellas. Hence, since the date of the deed, he has paid royalties on the sale of 159 umbrellas. Assuming the correctness of these figures, he has sold seven umbrellas on which he has not paid royalties. In submissions counsel for the applicants submitted that Tender Document 18 (part of exhibit 2) demonstrated that Boss Shade had owned 188 Deluxe umbrellas and 7 Econoshade umbrellas. However that document shows 118 octagonal “site post” umbrellas and seven Econoshade umbrellas, a total of 125 umbrellas. There is also reference to three membrane structures. I do not understand those structures to be presently relevant.

53    These inconsistencies may be attributable to error or dishonesty on the part of either or both of Mr Koehn and Mr Bauer, or to some other cause. As I have demonstrated there are reasons for doubting the creditability of both of them with respect to specific issues.

54    Strange as it seems, the applicants do not directly claim any amount as unpaid royalties. I suspect that they did not do so because of their enthusiasm for obtaining an order for account. In any event it may be that I need not decide the number of umbrellas held by Boss Shade or Mr Bauer at any particular time. Nonetheless, for obvious reasons, I have formed the view that the most reliable figures are probably those agreed upon by Messrs Koehn and Holger Bauer. If necessary I would find that on 30 November 2010, Boss Shade held 176 umbrellas, of which ten were given to Austshade, leaving 166 umbrellas. On 9 December 2010, Boss Shade had 157 umbrellas, all of which have now been sold. Royalties have been paid on 159 umbrellas. Mr Bauer apparently owes Mr Koehn royalties on the sale of seven umbrellas. In submissions, the applicants suggested the possibility that Boss Shade or Mr Bauer had imported other umbrellas, of which the applicants were unaware. Such importation is not pleaded, and there is no evidence to that effect.

MODIFICATION OF THE UMBRELLAS

55    I have previously referred to the email dated 3 August 2011 from Boss Shade to Austshade in which Mr Bauer advised that Boss Shade had sold its remaining stock of 149 umbrellas. He also informed Austshade and Mr Koehn that:

On direction of new owner we have to Modified the umbrellas to single tilt action before delivery to his Factory.

56    As 24 July 2011 approached, Mr Holger Bauer was searching for buyers. However he had in mind the need to avoid any infringement of the 2003 Patent. It was contemplated that if Bernhel acquired them, it would, itself, on-sell them. Either Mr Holger Bauer or Mr Stefan Bauer decided that the umbrellas should be modified for the purpose of disabling a tilt function which was a significant element of the 2003 Patent. The evidence as to such modification is somewhat vague. In the email of 3 August 2011, Mr Holger Bauer said that he was to modify the umbrellas “to single tilt action” before delivering them to his purchaser. In his affidavit filed on 6 June 2013, he said that he had placed two bolts in the top arm, “so that it did not breach the 2003 Patent”. His opinion as to infringement is, of course, irrelevant to that issue. In his later affidavit, he said that he had also applied Permatex “Threadlocker” to the nuts on the bolts, making it, as he claims, “practically impossible” to unscrew the nuts. In a letter sent to his patent attorney on 7 June 2012, he indicated that he had, “applied a shear of nuts plus Permatex [Threadlocker] to the bolt and drillt of the Allen key connection to make it impossible to remove the bolts”. The words “drillt of” should be “drilled off”.

57    Mr Holger Bauer was cross-examined as to the meaning of the expression “practically impossible”. He eventually agreed that he meant that it was “nearly impossible” to unscrew the nuts. He said that if the nuts were to be drilled out, the umbrella would be damaged but could still be used as an umbrella. It was suggested to him that if it was possible to drill out the Allen key indent, one could drill out the whole bolt. He disagreed. Finally, it was put to him that whilst it was difficult to remove a screw in such circumstances, it was not impossible. He disagreed. The witness, James Grant Adams, gave some evidence concerning this matter, but as I understand it, that evidence is to be used only for very limited purposes, primarily going to the fact that he was given certain instructions by Mr Holger Bauer.

58    Mr Koehn also gave evidence concerning the modification of the umbrellas. At para 34 of his first affidavit, he said that having inspected a modified umbrella, he had concluded that if the bolts remained in place on umbrellas which were actually sold to members of the public, and if purchasers were not told how to go about removing them, or encouraged to do so, then such umbrellas “would probably not infringe the 2003 Patent”. Whilst this statement is in the form of an assertion about patent infringement, when read in context and having regarding to his oral evidence, he was actually expressing an opinion about the difficulty inherent in reversing the modification. In his oral evidence-in-chief he was taken to this passage and asked to say whether it was true or false. He said that it was false. The following passage appears in his evidence at ts 45, ll 14-18:

Do you want to exclude that from the evidence which you give to his Honour? I believe that this tilt action can be removed easily, simply, and with not much effort of its kind, and because the double tilt art of the top beam – what we call the stair – and if you easily grind it off or drill it out in a simple way, it can be – come back to the normal function of the double tilt action, what we call it.

59    In cross-examination, Mr Koehn was asked to explain why he had changed his mind about the effect of the modification. He simply asserted that the bolts could be easily removed by drilling them out. He said that he now considered that even if it were impossible to remove the bolts, he would be inclined to say that the umbrellas still infringed his Patent. He said that it was always possible, “to remove the grinder”. He said that there was at least a possibility that the bolts could be removed, allowing the umbrellas to be used with a “double tilt action”. He was again asked to explain why he had changed his mind. He offered no real explanation. He said that the modification consisted of “fixing” with, “one pin and two screws on either end” and that the bolts were, “grinded roughly off, very unprofessional and easily could be redrilled in to be used again”. He said that it may not be easy to remove the bolts with an Allen key, but that it was possible. He said that the head of each bolt had not been ground sufficiently to prevent use of an Allen key. Two photographs were tendered. They comprise exhibit  1. They are of little assistance.

60    Although I have some general reservations concerning Mr Bauer’s evidence, I see no reason to doubt that he caused the modification to be effected. Counsel for the applicants suggested in argument that Mr Bauer’s staff may not have carried out his instructions, but Mr Koehn saw at least one modified umbrella. Bennett & Philp instructed the witness, Mr Taylor to discover whether Mr Holger Bauer and Bauer Investments were selling modified or unmodified umbrellas, suggesting that they accepted that the umbrellas, or some of them, had been modified. The motivation for Mr Taylor’s engagement seems to have been a suspicion that unmodified umbrellas were still being sold. In his report, Mr Taylor does not deal directly with the presence or absence of the modification on the umbrellas which he saw. However he said that he made a point of not making “any direct enquiry about the bolts”, suggesting that he saw at least one umbrella with the bolts in place. I also note that there was no suggestion by the sales people with whom he spoke that they should be removed for any purpose. Although he was told that the umbrella could be tilted, the process was not demonstrated. These circumstances, coupled with the absence of any clear suggestion to the contrary in cross-examination of Mr Holger Bauer, lead me to infer that the umbrellas were modified as claimed by Mr Bauer. I accept that Mr Holger Bauer told Mr Taylor that the umbrellas could be tilted. However, in light of the other evidence, I am inclined to the view that Mr Bauer was trying to ensure that the umbrellas could be resold without infringing the 2003 Patent. In my view, when Mr Bauer told Mr Taylor that the umbrellas could be tilted, he was misrepresenting the position. When the sales staff said so, they were probably repeating his instructions. They were certainly unable to perform the function.

61    Two matters require resolution. The first is whether, for relevant purposes, it is possible to reverse the modification, and so to re-instate the tilt capacity. The second issue is whether any sale of the modified umbrellas infringed either Patent or the Registered Design. I shall deal with the first issue now, leaving the second to be considered as part of my examination of the relevant intellectual property.

62    I have accepted that at some stage Mr Holger Bauer decided that he should avoid infringing Mr Koehn’s Patents, and sought to do so by adding the bolts and securing the nuts with Threadlocker. In para 34 of his first affidavit, Mr Koehn tacitly conceded that Mr Holger Bauer had achieved his goal. It is true that Mr Koehn’s opinion was based upon the proposition that a purchaser had not been told how to go about removing the bolts, or encouraged to remove them. I should say that I do not understand the applicants to rely upon s 117(2)(c) of the Patents Act 1990 (Cth) (the “Patents Act”), although some of Mr Taylor’s evidence may have offered a basis for such reliance.

63    Mr Koehn offered no real explanation for the change in his opinion. The absence of any such explanation, and his obvious interest in the outcome of the case lead me to reject his evidence to the extent that it departs from para 34 of his first affidavit. That finding does not necessarily lead to any particular conclusion as to the effectiveness of such modification.

64    In considering this matter, one must keep in mind that the umbrellas were to be on-sold to ultimate consumers. It seems quite unlikely that such a person would be induced to acquire an umbrella because he or she understood that it had a capacity to tilt, which capacity had been disabled by a modification of the original design, such modification being capable of reversal by drilling out two bolts. Of course, that is not the question which I must answer, but it is the context in which the argument about the word “practically”, as used by Mr Holger Bauer, must be considered. It is not difficult to understand the mechanics of the modification. It is obvious that any attempt to reverse the modification would involve difficulty and a significant risk of damage to the umbrellas. See Mr Holger Bauer’s evidence at ts 110, ll 9-10. In particular, it seems likely that there would be a significant risk of cosmetic damage. On balance I infer that for all practical purposes, the modification was irreversible.

SUBSEQUENT PROCEEDINGS AND CORRESPONDENCE

65    On 16 March 2012 these proceedings were commenced against Boss Shade, Bauer Investments and Mr Holger Bauer.

66    In a letter dated 3 August 2012, Mr Rivett, a barrister acting for Mr Holger Bauer and Boss Shade, responded to letters said to be dated 24 and 25 July 2012. I have been able to find two letters dated 25 July 2012, one addressed to Mr Stefan Bauer as director and secretary of Bernhel, and one to Mr Rivett. I have found no relevant letter dated 24 July 2012 The first letter addresses the alleged breach of copyright in the photographs. It also enquires as to the provenance of umbrellas allegedly being sold by Bernhel. In the letter to Mr Rivett, Bennet & Philp raised, perhaps for the first time, the possible infringement of the Registered Design. Mr Rivett’s letter of 3 August 2012 was as follows:

I refer to your letters of 24 and 25 July 2012.

You may not be aware of relevant circumstances in this matter, which I am instructed to convey.

My client Mr Bauer only ever purchased one container load of umbrellas and that was the container he and your client Mr Koehn jointly sourced in China. He paid for them and took them when their partnership broke up.

These umbrellas were the subject of the previous litigation, and the Deed of Settlement of 30 November 2010.

My client sold them to his son within the 90 days provided for in Clause 4.3 of the Deed, and the royalty was paid as provided for in Clause 5.1.

In so far as my client Mr Bauer or Boss Shade have offered any umbrellas for sale since then they have all been the umbrellas owned by his son on which the royalty has been paid.

It seems to my client that your client cannot have suffered any damages even if my client's son had sold all of the umbrellas which he has not.

The design you now rely upon catches my client by surprise. Your letter is the first notice he has of this registration. He notes that it was lodged on 24 April 2007 when he was still in partnership with your client. He reserves his rights in this respect to claim part ownership of this design.

However, in so far as it was incorporated in the original container load, my client contends that the umbrellas were sold by my client pursuant to the provisions of the Deed and royalties were paid, so it is difficult to see any damages on that count either.

My client instructs me that his previous lawyer advised him that he was not breaching the Deed in assisting his son to sell the umbrellas. I have explained to my client that Clause 1.1 of the Deed might be wide enough to prevent him even acting as an agent for his son in selling the umbrellas on which the royalty has been paid, but I can't see where your client has suffered any damages as he has already been paid the royalty.

My client is prepared to cease assisting his son in selling the contentious umbrellas and is not intending to import any more umbrellas which could possibly breach your client's patents and design.

However, he intends to sell imported and locally manufactured umbrellas, which do not breach your client's patents or design.

In these circumstances, can we settle this litigation with a set of undertakings that reflect the actual position and facts?

My client also notes that certain of the photos on your client's website are his, and in the undertakings he requires that your client remove them. These were particularised in a letter to your client in January. I can provide particulars of these in due course.

He is prepared to cooperate with the alterations to the websites if you let me know what you want him to do.

My client has received a letter dated 2 August 2012 from the Court as to mediation. If we cannot settle the undertakings, he prefers mediation by the Registrar and on the 18th September. Please advise if this is suitable.

This is an open letter and might be used in a costs argument.

67    On 28 August 2012 Bennett & Philp wrote to Mr Stefan Bauer, noting that although there had been some response to the letter of 25 July 2012, not all of Austshade’s demands had been met. The letter then continued:

Mr Koehn is the registered owner of Australian Registered Design 3158154 and Extrusion ("the Design"). A print out we obtained from the Registrar of Design's website about the design is enclosed along with a copy of the Design's Certificate of Examination.

The Design is registered to 24 April 2017.

Under section 10 of the Designs Act, Mr Koehn has the exclusive right while the Design is registered to make, import, sell, hire or otherwise dispose of any product which embodies the Design or authorise any person to do any of those things with a product that embodies the Design ("exclusive rights"). Mr Koehn has exclusively authorised Austshade to make and sell products (umbrellas) embodying the Design.

We have been told by your father's lawyer that your company is selling an umbrella using a central support pole that embodies the Design ("Infringing Umbrella") and that your father's company (Boss Shade Pty Ltd) had sold Infringing Umbrellas to your company.

Mr Bauer has provided our clients with an example of an Infringing Umbrella. It has a central pole that embodied an identical replica of the Design.

Your father gave your company Infringing Umbrellas on his own admission. Your company is clearly marketing and offering to sell Infringing Umbrellas, not the least of which is through the website at that www.roll-a-shade.com.au domain name.

Your company's offering for sale and any sale of Infringing Umbrellas is an infringement of Mr Koehn's exclusive rights in the Design and also Austshade's rights as the exclusive licensee authorised to make and sell products to the Design.

Our clients say that you personally are also liable (along with your company) for the infringement of their respective rights in the Design in your capacity as the Director of your company and the person who obviously controls its day to day operations. You are the person who is causing it to commit the infringements of our clients' rights in the Design.

You are likewise personally responsible and liable to our clients for the infringements of the copyright identified in our 25 July letter to you and your company.

68    There were various demands and the threat of legal proceedings if they were not met. I note that at this stage, there seems to have been no suggestion on behalf of the applicants that Bernhel or Mr Stefan Bauer was in breach of either Patent. Bernhel and Mr Stefan Bauer were subsequently joined as respondents in these proceedings.

69    The parties admit that:

102    [Bernhel] has been offering for sale and selling Roll-a-Shade Classic Umbrellas to the public since, at the latest, from 11 July 2012.

103    [Bernhel] has been offering to sell the Roll-a-Shade Classic Umbrellas by, at the least, advertisements on the website www.roll-a-shade.com.au (“the Bernhel website”).

105    [Bernhel] has made sales of Roll-a-Shade Classic Umbrellas to (at least) the following persons or entities on or about the following respective dates:

(a)    Jim Rooney – 5 March 2012;

(b)    “Roger” – 30 October 2012;

(c)    Sandy Morrison – 30 October 2012;

(d)    Steve Cebib – 24 November 2012;

(e)    Bill Kennedy – 12 December 2011; and

(f)    Bayside Construction – 20 December 2012.

106    All sales of Roll-a-Shade Classic Umbrellas by [Bernhel] have been made under the direction and control of [Mr Stefan Bauer].

107    The advertising of Roll-a-Shade Classic Umbrellas on the Bernhel website has been done with the knowledge of and at the instance of and under the control of [Mr Stefan Bauer].

109    Since at least 12 October 2012 all of the Respondents have been aware of the existence of:

(a)    the Innovation Patent;

(b)    the Registered Design.

111    A true copy of each of the 2003 Patent and its bibliographic data details are at annexures KP-2 and KP-1 respectively to the Affidavit of Kenneth Philp filed in these proceedings on 23 April 2013 (“Mr Philp’s Affidavit”).

112    A true copy of each of the Innovation Patent and its bibliographic data details sheet are at annexures KP-3 and KP-4 of Mr Philp’s Affidavit.

113    A true copy of each of the bibliographic data details and documentation for Australian Standard Patent Application 20082001827 are at annexures KP-5 and KP-6 to Mr Philip’s Affidavit.

THE APPLICANTS’ Causes of action

70    At paras 27-42, the applicants identify their claims against Boss Shade, Bauer Investments and Mr Holger Bauer as follows:

Boss Shade

    breached cl 1.3 of the deed and cl 6.3 of the licence; and

    infringed the 2003 Patent and/or the Innovation Patent and/or the Registered Design.

Mr Holger Bauer

    breached cl 1.1 and/or cl 1.3 of the deed.

Bauer Investments

    infringed the 2003 Patent and/or the Innovation Patent and/or the Registered Design.

The reference to Boss Shade’s alleged breach of cl 6.3 of the licence should be to cl 6.3 of the deed. Clause 6 deals with termination of the licence.

71    The applicants further claim that the infringements by Boss Shade and Bauer Investments occurred in circumstances in which:

    both companies were aware of the Patents and the Registered Design and Mr Koehn’s rights under them;

    both companies were aware that the umbrellas infringed the 2003 Patent, the Innovation Patent and the Registered Design;

    were flagrant; and

    were committed at the instance and direction of Mr Holger Bauer.

72    I should make two points concerning the alleged infringements of the 2003 Patent, the Innovation Patent and the Registered Design. First, notwithstanding the allegation at para 25 of the further amended statement of claim (the “statement of claim”) that Mr Holger Bauer caused Boss Shade and/or Bauer Investments so to infringe, there is no allegation that he infringed. See para 27(b). Second, the allegedly infringing conduct of Boss Shade and/or Bauer Investments occurred after, as I have said, title had passed to Bernhel. See para 24. Hence it seems that such conduct must have been performed on behalf of Bernhel.

73    At paras 44-57, the applicants plead breach of Austshade’s copyright in the three copyright photographs by Boss Shade, Bauer Investments and Mr Holger Bauer. The photographs are of an umbrella. In one photograph the canopy is furled; in one the canopy is open and in a horizontal plane; and in the third the canopy is tilted out of the horizontal plane. The infringement of copyright is said to have been by reproduction and publication on six identified Boss Shade websites, which websites are said to have been owned by Bauer Investments. Boss Shade and Bauer Investments are said to have reproduced and published the copyright material. Boss Shade is said also to have authorized such reproduction and publication. Mr Bauer is said to have infringed by reproducing and publishing the photographs and by authorizing such reproduction and publication.

74    As against Bernhel and Mr Stefan Bauer, at paras 59-66, the applicants plead that Bernhel has, since 31 August 2011 or before:

    obtained title to the umbrellas from Boss Shade and/or Bauer Investments and/or Mr Bauer;

    marketed and offered such umbrellas for sale and sold them to the public; and

    acted in concert with Boss Shade and/or Bauer Investments and/or Mr Bauer to do such things,

so infringing the 2003 Patent, the Innovation Patent and the Registered Design.

75    It is further pleaded that Bernhel’s conduct occurred at the instance and direction of Mr Stefan Bauer, who thereby also infringed the Patents and the Registered Design. The applicants plead that the alleged infringements by Bernhel and Mr Stefan Bauer occurred in circumstances in which:

    each of them was aware of the existence of the 2003 Patent and Mr Koehn’s rights thereunder;

    each of them was aware that the umbrellas infringed the 2003 Patent; and

    such infringements were flagrant.

SALE TO BERnhel

76    Mr Holger Bauer swore that Boss Shade sold its remaining umbrellas to Bernhel on 21 July 2011. Mr Stefan Bauer said that he had agreed to do so in conversations occurring in late June/early July. The applicants seem to accept that some such transaction occurred. See the statement of claim at paras 31 and 59. In para 31, the applicants assert a purported sale in July or August 2011. At para 59, the applicants assert that Bernhel obtained title to the umbrellas on, at latest, 31 August 2011. It is not clear whether the applicants accept that the “purported” sale was effective to transfer ownership to Bernhel, or whether they suggest that some agreement was reached after the “purported” agreement, which later agreement led to the transfer of title. Obviously, it may be in the respondents’ interests to establish a sale on or before 24 July 2011, whilst it may well be in the applicants’ interests to establish that any sale took place after that date. The matter is further complicated by the fact that in argument, the applicants submitted that any sale was a “sham”, notwithstanding the fact that they allege that at some stage, title passed to Bernhel.

77    The status of the sale to Bernhel may have taken up more time than it really deserved, probably because of the equivocal approach taken by the applicants to the question. The inconsistency between the plea in para 31 and that in para 59, together with the allegation of sham (which is not pleaded) is embarrassing and should have been resolved prior to the trial. The applicants’ challenge to the validity of the sale is based upon the possibility that it occurred after 24 July 2011 and so was not authorized by the deed. If the sale was not authorized by the deed, then it may have been an infringement of the 2003 Patent, the Innovation Patent and the Registered Design. Mr Koehn and/or Austshade may have been entitled to an account of profits rather than royalties. However no such case was expressly pleaded. In particular, there seems to be no plea that the sale to Bernhel infringed in that way. The infringement claims all seem to relate to sales after the purported sale to Bernhel. In response to those claims Bernhel points to a proposition, sometimes described as the “exhaustion of patent rights”. It is appropriate that at this stage, I explain that proposition.

EXHAUSTION OF PATENT RIGHTS

78    In National Phonograph Co of Australia Limited v Menck (1911) 12 CLR 15, the Privy Council considered the resale of patented articles, which articles had been sold by the patentee to dealers. The dealers entered into contractual relations with the patentee by which they agreed not to sell at less than a standard price and that, in the event that a dealer’s name was removed from a list of dealers, it would not thereafter sell the patentee’s products. The patentee asserted that it could sell its patented goods on terms and conditions which conferred on a purchaser (including a dealer) only a limited right to deal with the goods, and that such limitation or limited licence “runs with such goods in the hands of all persons into whose possession they may come, and whether such persons acquired such goods with or without notice of the terms of such limited licence”. The dealer submitted that a patentee which imposed conditions upon the use or sale of its patented articles was not entitled “to enforce such conditions upon a subsequent purchaser of those articles apart from any contract with such subsequent purchaser”.

79    Their Lordships rejected both propositions. In delivering the judgment of the Privy Council, Lord Shaw said at 22:

To begin with, the general principle, that is to say, the principle applicable to ordinary goods bought and sold, is not here in question. The owner may use and dispose of these as he thinks fit. He may have made a certain contract with the person from whom he bought, and to such a contract he must answer. Simply, however, in his capacity as owner, he is not bound by any restrictions in regard to the use or sale of the goods, and it is out of the question to suggest that restrictive conditions run with the goods.

At 24 his Lordship continued:

All that is affirmed is that the general doctrine of absolute freedom of disposal of chattels of an ordinary kind is, in the case of patented chattels, subject to the restriction that the person purchasing them, and in the knowledge of the conditions attached by the patentee, which knowledge is clearly brought home to himself at the time of sale, shall be bound by that knowledge and accept the situation of ownership subject to the limitations. These limitations are merely the respect paid and the effect given to those conditions of transfer of the patented article which the law, laid down by Statute, gave the original patentee a power to impose. Whether the law on this head should be changed and the power of sale sub modo should be withdrawn or limited is not a question for a Court. It may be added that where a patented article has been acquired by sale, much, if not all, may be implied as to the consent of the licensee to an undisturbed and unrestricted use thereof, In short, such a sale negatives in the ordinary case the imposition of conditions and the bringing home to the knowledge of the owner of the patented goods that restrictions are laid upon him.

At 24-25, Lord Shaw referred to the decision in Betts v Willmott (1871) LR 6 Ch 239 as follows:

In that case Lord Hatherley L.C. deals with the general point both as to what arises from the ordinary case of purchase of an article and also as to the case where a patented article is sold with notice of restrictions. "When a man" says his Lordship … , "has purchased an article he expects to have the control of it, and there must be some clear and explicit agreement to the contrary to justify the vendor in saying that he has not given the purchaser his licence to sell the article, or to use it wherever he pleases as against himself." As to an ordinary vendee as distinguished from the mere agents of the patentee, what is required of the patentee is not only to show … " that there is some clear injunction to his agents, but that there is some clear communication to the party to whom the article is sold" of any restrictions in the rights. Accordingly these two points, first, as to the ordinary effect of a sale, with the presumption of the sale carrying everything, unless in the case of licensed goods there be clear agreement to the contrary; and secondly, that that agreement must be, not a communication to agents merely, but to the party to whom the article is sold, are made clear by that decision.

His Lordship continued at 25-26:

Then in 1895 there occurred the case of Incandescent Gas Light Co. Ltd. v. Cantelo [(1895) 12 RPC 262] … . As the judgment has been much canvassed, and as, in their Lordships' opinion, it forms undoubtedly a leading authority in the law of England, these passages from the opinion of Wills J. may be cited … :- " The sale of a patented article carries with it the right to use it in any way that the purchaser chooses to use it, unless he knows of restrictions. Of course, if he knows of restrictions, and they are brought to his mind at the time of the sale, he is bound by them. He is bound by them on this principle: the patentee has the sole right of using and selling the articles, and he may prevent anybody from dealing with them at all, inasmuch as he has the right to prevent people from using them, or dealing in them at all, he has the right to do the lesser thing, that is to say, to impose his own conditions. It does not matter how unreasonable or how absurd the conditions are. It does not matter what they are if he says at the time when the purchaser proposes to buy, or the person to take a licence, 'Mind, I only give you this licence on this condition,' and the purchaser is free to take it or leave it as he likes. If he takes it, he must be bound by the condition. It seems to be common sense, and not to depend upon any patent law, or any other particular law." As to the attempt, however, to bind a purchaser to a condition not brought to his notice at the time of the sale such an attempt cannot succeed. The purchaser … "had bought it subject to no condition; and the bringing of a condition to his mind after the sale was completed will not do, and it ought not to do. It would be a most oppressive thing that any person who bought a box of this kind, and who happened to find out before he used the thing that it was covered with a label of this kind-it would be a most oppressive thing if he were bound to observe the conditions which are upon it."

At 28 his Lordship continued:

In their Lordships' opinion, it is thus demonstrated by a clear course of authority, first, that it is open to the licensee, by virtue of his statutory monopoly, to make a sale sub modo, or accompanied by restrictive conditions which would not apply in the case of ordinary chattels; secondly, that the imposition of these conditions in the case of a sale is not presumed, but, on the contrary, a sale having occurred, the presumption is that the full right of ownership was meant to be vested in the purchaser; while thirdly, the owner's rights in a patented chattel will be limited if there is brought home to him the knowledge of conditions imposed, by the patentee or those representing the patentee, upon him at the time of sale. It will be observed that these propositions do not support the principles relied upon in their absolute sense by any of the Judges of the Court below. On the one hand, the patented goods are not, simply because of their nature as chattels, sold free from restriction. Whether that restriction affects the purchaser is in most cases assumed in the negative from the fact of sale, but depends upon whether it entered the conditions upon which the owner acquired the goods. On the other hand, restrictive conditions do not, in the extreme sense put, run with the goods, because the goods are patented.

80    The decision in National Phonograph establishes three primary propositions:

    First, the principle applicable to ordinary goods bought and sold is that the owner may use and dispose of those goods as he or she thinks fit. Notwithstanding any agreement which such owner may have made with the person from whom he or she bought the goods (by which he or she is bound contractually), he or she is not bound, in his or her capacity as owner, by any restrictions concerning the use or sale of the goods. Hence it is, “out of the question” to suggest that any such restrictive conditions run with the goods. The rights of an intermediate owner in that “capacity” are to be distinguished from the contractual arrangements which may bind him or her in dealing with the person from whom the goods were acquired. The point is that the intermediate owner may give to his or her purchaser, good title to the goods, notwithstanding any contractual restriction imposed upon the intermediate owner at the time of his or her acquisition of the goods.

    Second, the general doctrine of absolute freedom in the disposal of chattels of an ordinary kind is, in the case of patented chattels, subject to the restriction that the person purchasing them, having knowledge of the conditions attached by the patentee, which knowledge is clearly brought home to him at the time of sale, is bound by that knowledge and accepts the situation of ownership subject to the limitations. In other words, a patentee may bind the power of a purchaser to deal with the goods, but such limitation will only bind a subsequent purchaser from that purchaser if the former has, at the time or purchase, actual knowledge of the limitations.

    Third, in the case of such a resale, it is not presumed that conditions imposed on the vendor by the patentee will bind the subsequent purchaser. Rather, the sale will be presumed to have vested the full right of ownership in the subsequent purchaser unless the conditions imposed by the patentee have been brought home to him or her at the time of sale. Hence it is not sufficient that the ultimate purchaser may know of the patent and its application to the goods acquired. There must be actual knowledge of the limitations imposed by the patentee at the time of the first sale.

81    In Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534, the High Court considered the decision in National Phonograph. Interstate was concerned with copyright, and the proposition that the decision in National Phonograph might apply to copyright articles. The Court concluded that the decision in National Phonograph depended upon the statutory monopoly conferred upon a patentee and could not be applied in the area of copyright. At 542, Gibbs J said:

By the grant of a patent in traditional form, a patentee is granted exclusive power to "make, use, exercise and vend" the invention. The sale of a patented article, by the patentee, would be quite futile, from the point of view of the buyer, if the buyer was not entitled either to use or to resell the article which he had bought. It therefore seems necessary, in order to give business efficacy to such a sale, to imply a term that the patentee consents to the use of the patented article by the buyer and those claiming under him. The law accordingly does ordinarily imply the consent of the patentee "to an undisturbed and unrestricted use" of the patented article (National Phonograph Co. of Australia Ltd. v. Menck … ). To make such an implication, for the purpose only of avoiding the restrictions upon the use of the article that would otherwise be imposed by the patent, seems to be perfectly consistent with the ordinary rules governing the implication of terms in contracts.

At 552-553 Stephen J (with who Barwick CJ and Jacobs J concurred) said:

The origin of and reason for the existence of the concept of the grant of an implied licence to use patented goods, arising upon a sale of those goods unaccompanied by any express restriction as to their future use, lies in the patentee's monopoly which otherwise would extend to the use to which the patented goods are put after he has disposed of them by sale. Without such a licence, implied or express, a purchaser might not lawfully put those goods to use; hence the need for a licence and, on a sale by the patentee without express restriction, for the law's implication of a licence. In the case of literary work which is subject to copyright no such need arises, the concept is entirely foreign to it. The sale of a copy of the work involves no retention by the copyright owner of any power over that copy regarding the use to which it is put or any dealings in it; his copyright retains and, in consequence, the congeries of exclusive rights specified in s. 31(1)(a) of the Act, but no right whatever in relation to the subsequent use of the particular copy of the work which he has sold. As is said in the authoritative United States case of Harrison v. Maynard, Merrill & Co. … :

"... the right to restrain the sale of a particular copy of the book by virtue of the copyright statutes has gone when the owner of the copyright and of that copy has parted with all his title to it, and has conferred an absolute title to the copy upon a purchaser, although with an agreement for a restricted use. The exclusive right to vend the particular copy no longer remains in the owner of the copyright by the copyright statutes. The new purchaser cannot reprint the copy. He cannot print or publish a new edition of the book; but, the copy having been absolutely sold to him, the ordinary incidents of ownership in personal property, among which is the right of alienation, attach to it. If he has agreed that he will not sell it for certain purposes or to certain persons, and violates his agreement, and sells to an innocent purchaser, he can be punished for a violation of his agreement; but neither is guilty, under the copyright statutes, of an infringement."

The case is the clearer when as in the present case, the original sale by the copyright owner, Time Incorporated, is free of all restriction imposed by contract. From the moment of the sale the purchaser acquires all the usual incidents of ownership free of all power of control by the copyright owner (Independent News Co. v. Williams (44)).

82    Notwithstanding the changes in the patent and copyright statutory regimes, I propose to proceed upon the basis that National Phonograph continues to be the law as it applies to standard patents and innovation patents, and that the decision in Interstate still applies to copyright material.

THE INTELECTUAL PROPERTY

2003 Patent

83    The invention is said to relate to a “tilt adjustable shade apparatus”. In particular the Patent addresses the problem of adjusting the configuration of the shade apparatus to maximize the extent of shade available as the earth moves relative to the sun. According to the specification, in a shade assembly with a central shaft supporting it, the central shaft will normally be in two parts, the parts being joined at a bendable joint, enabling the shade assembly to be tilted by bending the shaft at the joint, so that one part of the shaft is at an angle to the other. In this part of the specification, the 2003 Patent seems to be describing the well-known beach umbrella or something similar. It is suggested that such an arrangement may be unsuitable where the supporting shaft is not centrally located beneath the canopy.

84    The embodiment of the invention discussed in the specification contemplates a canopy supported by an upright post located outside the perimeter of the canopy. The canopy is suspended from a short vertical support member which is mounted on the distal end of a lateral member. The words “proximal” and “distal” are used in the 2003 Patent to describe respectively, the end of the lateral member nearer to, and that further from the post. The lateral member is fitted to the post by a circular fitting which is capable of sliding along the post. Such sliding effect is controlled by the use of a winding mechanism. The lateral member is also connected to the post by a strut fixed to the top of the post, and to the lateral member at some point between its ends. This mechanism enables the canopy to be moved around the post and vertically. The invention is concerned with tilting the canopy out of the generally horizontal plane in which it rests when the canopy is open.

85    The mechanism for doing so is quite simple. The lateral arm is to be made out of rolled hollow section steel (“RHS”), having a substantially square “bore”. The lateral arm consists of two parts. In the proximal part, at its distal end, a circular section of pipe is fixed inside the square bore. The pipe is of a size which will permit it to be inserted into the proximal end of the distal part of the lateral arm, and then to rotate inside it. Such rotation of the distal part of the lateral arm will tilt the canopy. There are fixing mechanisms designed to hold the lateral arm, and hence the canopy, in the chosen tilt position.

86    I need not deal with the claims in detail. The case was conducted upon the basis that the umbrellas, as manufactured, would infringe the Patent. However, following manufacture, and apparently before delivery of the umbrellas by Boss Shade to Bernhel, they were to be modified so that, as the respondents assert, the tilt mechanism would not operate. Consideration of this problem involves only claim 1 which claims:

Tilt adjustable shade apparatus including:

umbrella-type shade means incorporating a collapsible frame assembly and a flexible cover attached thereto;

said shade means being moveable between a stowed attitude and an open attitude;

and said frame assembly having a plurality of radially extending frame members extending from a central control member;

support means operably associated with said column member for supporting said shade means from above said flexible cover;

said support means incorporating an upstanding arm for supporting said shade means at an elevation;

and a lateral arm extending from an upper portion of said upstanding arm;

said lateral arm being of a length sufficient to support said shade means from a distal end thereof;

and wherein:

(i)    said lateral arm includes a spigot and socket joint intermediate its distal and proximal ends;

(ii)    said spigot having a substantially circular cross-section whereby the distal portion of said lateral arm may be rotated about an axis longitudinally of said lateral arm;

(iii)    and said spigot and socket joint further including locking means for locking the joint against said rotation.

87    I have divided the claim into paragraphs to reflect the integers of the claim. I have numbered the last three integers for ease of reference as they are the focus of the present dispute. All other claims are dependent on claim 1. I do not understand the respondents to dispute the presence in the umbrellas of the various integers of claim 1, save for the requirement in line 1 that there be a, “tilt adjustable shade apparatus”, and the integers numbered (i), (ii) and (iii). In short, the respondents say that although the distal portion of the lateral arm, absent the modification could rotate around the spigot, the modification permanently prevents such rotation. Although the modification creates a locking means for locking the joint against rotation, it is not a locking means of the kind prescribed in the claim. That locking means is obviously meant to be capable of being unlocked. I have already found that for all practical purposes the modification is irreversible and prevents the tilting operation.

88    The question is whether the sale of the modified umbrellas infringes the 2003 Patent. The question is dependent very much upon the proper construction of the Patent. See Fresenius Medical Care Australia Pty Ltd v Gambro Pty Ltd (2005) 67 IPR 230 at [90]-[94].

89    In my view it is impossible to construe claim 1 as including a device, otherwise as claimed, in which the distal portion of the lateral arm cannot rotate about its longitudinal axis. Claim 1 is for a “tilt adjustable shade”. The modified umbrellas are not, on any view of the evidence, tilt adjustable. I find no infringement of claim 1 or of the dependent claims. The respondents also deny infringement on the basis of the deed and the decision in National Phonograph. However, in the case of the 2003 Patent, it is not necessary to consider those matters.

Innovation Patent

90    The Innovation Patent is concerned with a shade apparatus, not limited to an apparatus which is tilt-adjustable. The Patent is primarily concerned with the use of a hollow “standpost”, in which is contained a winding mechanism for adjusting the umbrella by use of a handle located at the lower end of the standpost. In the description of the background art, the Patent identifies a pending patent application which describes mechanisms for raising and lowering, folding and unfolding or otherwise manipulating a canopy.

91    The applicants rely only on claims, 1, 2 and 3 of the Innovation Patent. Claims 2 and 3 are dependent upon claim 1. I do not understand the respondents to dispute the proposition that the umbrellas contain each integer of claims 1, 2 and 3. However they assert that the sale to Bernhel was permitted by the deed, and that Bernhel took without notice of any limit upon its right to resell, again relying upon the decision in National Phonograph.

Registered Design

92    The applicants claim that Mr Koehn’s monopoly pursuant to the Registered Design is in the shape and configuration of an “extrusion” as depicted in diagrams attached to the statement of claim. These drawings replicate some of the drawings in the Innovation Patent, showing various sectional views of the standpost referred to in that patent. The drawings show the internal design of the standpost, demonstrating the way in which the winding mechanism is to be located within it. I do not understand the respondents to contest the proposition that the umbrellas contain extrusions which infringe the Registered Design. Rather, the respondents again rely upon the deed and the decision in National Phonograph.

93    The respondents also submit that the design was certified on 15 June 2012, and was not enforceable before that date. Section 73(3) of the Designs Act 2003 (Cth) (the “Designs Act”) certainly provides that infringement proceedings cannot be brought until a certificate of examination has been issued. The provision is similar to that contained in s 120(1A) of the Patents Act in connection with proceedings for infringement of an innovation patent. As I understand those provisions, they require certification before commencement of proceedings. However, once the certificate has issued, proceedings may be commenced for prior infringements.

The Photographs

94    Copies of the three copyright photographs in question are attached to the statement of claim. All three show an umbrella, one with the canopy furled; one with the canopy open and horizontal; and one with the canopy open and tilted. Curiously, it seems that although the amended statement of claim has coloured copies of the photographs, the original statement of claim and the subsequent further amended statements of claim contain only black and white photographs. I accept that the copyright photographs were taken by Mr Frank Lee, and that he transferred copyright to Austshade. The best depictions of the copyright photographs are to be found in a compact disc which is annexure ESHK 46 to Mr Koehn’s second affidavit. There are numerous photographs on the compact disc, but only three seem to correspond with the allegedly infringing material. There are 11 photographs of a green umbrella and 15 photographs of a beige umbrella. None of the photographs of the green umbrella corresponds with the allegedly infringing photographs. Of the photographs of the beige umbrella, the first, second and eighth photographs (moving from left to right in the order in which they appear on the compact disc) correspond to one or other of the allegedly infringing photographs.

95    In the statement of claim the applicants allege that the infringing publications are to be found at six Boss Shade URLs. I have asked that attempts be made to locate those publications, but I am told that they are no longer accessible at the URLs provided. The allegedly infringing photographs are to be found on the first three pages of annexure ESHK 16 to Mr Koehn’s first affidavit. Annexures ESHK 7, 13, 16, 19, 20 and the second, third and fourth pages of annexure ESHK 47 also contain copies of the allegedly infringing images, but they are much reduced in size. Perhaps the clearest impression of the allegedly infringing photographs is contained in the first three pages of annexure ESHK 16 to Mr Koehn’s first affidavit, although the photographs are in black and white and are photocopies. The respondents’ defence is that the photographs which they used were not copies of those in respect of which Austshade claims copyright.

96    My initial impression was that the most striking similarity between the copyright photographs and the allegedly infringing photographs was that Mr Lee and the alleged other photographer had both taken a set of three photographs of a similar umbrella from virtually the same perspectives. However, after viewing the compact disc, I realized that Mr Lee had taken many more photographs, and that if there had been infringing conduct, it had involved a degree of selection. Hence it was not the case that both Mr Lee and the alleged other photographer had independently come to the conclusion that the same three views of the umbrella were most likely to serve their relevant promotional purposes. The only choice of that kind was made by the alleged other photographer. I then considered why he or she should have chosen to compose the photographs in the way that he or she allegedly did. I concluded that the three photographs show the umbrella full closed, fully open in a horizontal plane and fully open, but tilted at about 45 degrees to the horizontal plane, mid-way between the two extremes of the tilt, vertical and horizontal. This seemed to me to be an obvious approach to composing photographs which showed the flexibility of the tilt action. Hence it is not surprising that both Mr Lee and the alleged other photographer should have both composed photographs showing those views.

97    There are, however, a number of similarities between the copyright photographs and the allegedly infringing photographs which raise a suspicion concerning the provenance of the latter. However direct comparison may be unreliable for a number of reasons, the most obvious of which is that most of the reproductions of the allegedly infringing photographs are very small compared to the images on the compact disc. Further, many of the reproductions are black and white photocopies of photographs or printouts of the website images. Nonetheless a number of similarities may be noted. Both photographs of the umbrella with the canopy open, and in the horizontal plane, show similar parts of the spokes of the umbrella. In the photograph of the fully furled umbrella, the creases in the canopy are very similar. A particular artefact appears in the photograph which is at p 1 of annexure ESHK 16 to Mr Koehn’s first affidavit. At the upper tip of the canopy there appears to be a small “dip” between the point at which the two outlines of the canopy meet. It may be that the appearance of a dip represents the foreshortened edge of the canopy between the ends of two spokes. The dip is not so prominent in the photograph which is part of attachment 2 to the statement of claim, but is fairly clear in the relevant photograph on the compact disc. However it seems that the three large photographs on the first three pages of annexure ESHK 16 are enlargements of quite small photographs on the website, so that I would be reluctant to make much of this matter. There is also one marked difference between the copyright photograph of the furled umbrella and some of the allegedly infringing photographs. Whilst the copyright photograph of the furled canopy shows two ties holding the canopy, the corresponding photographs in annexures ESHK 19 and 20 have only one such tie. The corresponding photographs in annexures ESHK 7 and 16 have two. An umbrella with on tie may also be seen in the following annexures to Mr Koehn’s first affidavit and his second affidavit, such an umbrella is shown in annexure ESHK 38 at p 323 of the trial book vol 2; ESHK 39 at p 348; ESHK 40 at p 353; ESHK 44 at p 370; and ESHK 47. Hence it may be inferred that some additional photographs were taken.

98    There are a number of other features which may be relevant to the question of infringement. They concern colour variations and other artefacts which may, or may not appear in both the copyright photographs and the allegedly infringing photographs. It is probably unwise to place much weight upon such matters, at least in the absence of expert evidence. Some of the photographs in the respondents’ material bear markings designed to highlight features. Such markings make comparison more difficult. The parties have made no real attempt to identify the elements of similarity and difference between the copyright photographs and the allegedly infringing photographs. There is no expert comparative evidence.

99    Mr Koehn swears that Mr Holger Bauer had access to the photographs taken by Mr Lee and invites the inference that he made them available to Boss Shade and Bauer Investments. That allegation is not denied. However Mr Bauer denies that he or Mr Stefan Bauer used Mr Lee’s photographs to promote the sale of the umbrellas. In a sense, his evidence is a little equivocal in that he uses the continuous present tense “are using” when the thrust of the applicants’ case is that such photographs had previously been used. Mr Koehn saw annexure ESHK 7 prior to the sale of the umbrellas to Bernhel, but he saw annexures ESHK 16, 19, 20 and 47 after the sale. The applicants do not allege breach of copyright as against Bernhel or Mr Stefan Bauer. However they seem to argue that Boss Shade, Bauer Investments and Mr Holger Bauer used them in promoting the sale of umbrellas on behalf of Bernhel. No point was made in cross-examination concerning Mr Bauer’s choice of verbs, and it is clear that English is not his first language.

100    The copyright issue was barely addressed in cross-examination. Mr Bauer said that that the photographs were taken by his son. He denied absolutely that the copyright photographs had been used on either the Roll-a-Shade website or that of Boss Shade. See para 25. In cross-examination it was put to him that the copyright photographs had been used on the website, which suggestion was denied.

101    Mr Koehn may have genuine concerns that the copyright photographs were used in breach of copyright. However the applicants ought to have done more to demonstrate that the impugned photographs were reproductions of the copyright photographs. In effect, they left it to me to compare the photographs, identify similarities and differences, and draw conclusions, without any expert evidence or anything in the way of submissions. There are some similarities, but in the present case, the quality of the evidence of the allegedly infringing photographs is poor. Had Mr Bauer not sworn to the provenance of the respondents’ photographs, I may have been willing to infer infringement. However, given the quality of the documentary evidence, and in light of Mr Bauer’s evidence, I am unwilling to do so. I am not satisfied, on the balance of probabilities, that the copyright photographs were copied.

SHAM

102    At para 3 of the statement of claim, the applicants plead that in about July or August 2011, Boss Shade, Bauer Investments and/or Mr Holger Bauer “purported to sell” the remaining umbrellas to Bernhel and/or Mr Stefan Bauer. At para 59 of the statement of claim they plead that Bernhel acquired title to the umbrellas not later than 31 August 2011. Nonetheless, the applicants assert that the transaction (or some part of it) was a sham. It is difficult to reconcile the pleading with the assertion of sham. It is, also, curious that the applicants should allege sham, given that Austshade acted on Mr Bauer’s letter of 3 August 2011 by serving a statutory demand for the royalties which were only payable if the umbrellas had been sold. The statutory demand asserted that such sale had taken place on 21 July 2011.

103    The applicants seek to rely upon Mr Kelly’s concern that any transaction should be at arm’s length, and upon the fact that such advice was largely ignored. However it may be that Mr Holger Bauer’s attempts to find a buyer other than his son were, to some extent, motivated by that advice. A solicitor, acting prudently, might well consider it to be important that a familial transaction be at arm’s length and advise as to methods of achieving that result. It does not follow, however, that an agreement made contrary to that advice is a sham. The parties may simply not have accepted that people would doubt that they had dealt in good faith. In any event, if they perceived the proposed transaction to be in their interests, they were not obliged to refrain from entering into such an agreement, simply because the solicitor was concerned that it might not appear to be at arm’s length. Such concern, by itself, did not mean that the transaction was a sham. This is particularly so in inter-family transactions. If a sole trader decides to incorporate his business, and to issue shares to family members, or to transfer it to a family trust, the transaction is not to be treated as a sham simply because benefits accrue to family members, whether or not the benefits so derived differ from those derived under the previous trading arrangements.

104    The High Court considered the notion of sham in Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516. At [33]-[36], Gleeson CJ, and Gummow and Crennan JJ said:

33    … The apparent discrepancy between the entitlements appearing on the face of the documents and the way in which the funds were applied gave rise to a question whether the documents were to be taken at face value. In various situations , the court may take an agreement or other instrument, such as a settlement on trust, as not fully disclosing the legal rights and entitlements for which it provides on its face. If that be so, the parol evidence rule in Australia identified with Hoyt's Pty Ltd v Spencer does not apply.

34    One such case is where other evidence of the intentions of the relevant actors shows that the document was brought into existence "as a mere piece of machinery" for serving some purpose other than that of constituting the whole of the arrangement . That, in essence, is the respondent's case with respect to the alleged existence of the "present entitlement" of the trustee of the E & M Unit Trust to the income of the Raftland Trust.

35    The term "sham" may be employed here, but as Lockhart J emphasised in Sharrment Pty Ltd v Official Trustee in Bankruptcy the term is ambiguous and uncertainty surrounds its meaning and application. With reference to remarks of Diplock LJ in Snook v London and West Riding Investments Ltd, Mustill LJ later identified as one of several situations where an agreement may be taken otherwise than at its face value, that where there was a "sham"; the term, when "[c]orrectly employed", denoted an objective of deliberate deception of third parties.

36    The presence of an objective of deliberate deception indicates fraud. This suggests the need for caution in adoption of the description "sham". However, in the present litigation it may be used in a sense which is less pejorative but still apt to deny the critical step in the appellant's case. The absence of a present entitlement within the meaning of s 100A(1)(a) of the Act may appear from an examination of the whole of the relevant circumstances, and these are not confined to the terms of the Raftland Trust instrument.

(Footnotes omitted.)

105    Although their Honours were not seeking exhaustively to define the term “sham”, the passage cited above identifies four situations in which the question may arise, namely:

    where there is a discrepancy between the entitlements appearing on the face of the documents and the way in which funds are applied;

    where evidence of the intentions of the actors shows that a document was brought into existence “as a mere piece of machinery” for serving some purpose other than that of constituting the whole of the arrangement;

    where the term is correctly employed to denote the objective of deliberately deceiving third parties; and

    where the word is used to describe conduct “less pejorative” than deliberate deception, such conduct still being apt to deny an actual step in the relevant process.

106    The concept of sham frequently arises in cases in which it appears that quite extensive documentation has been generated in order to create the appearance of a transaction which differs from the actual arrangements between or amongst the parties, so that the actual outcomes of the transaction are either different from the apparent effects, or the effects have been produced by transactions other than those identified in the documents. The concept of sham is not readily applied to a transaction which is effected by an oral agreement. In such a case, the inquiry is as to the parties’ objective intentions. If the court is satisfied that the parties intended to enter into contractual relations upon the terms propounded by them, there is really no room for the operation of the concept of sham. If the court does not accept their evidence, then there will be no agreement. I do not necessarily assume that sham can have no place in a transaction which is effected by oral agreement. However, where the parties are trying to create a false impression, documentation will generally be advantageous.

107    The applicants seek to characterize the transaction as a sham primarily because Mr Holger Bauer and/or Boss Shade were to receive subsequent resale proceeds, effectively in discharge of the sale price as between Boss Shade and Bernhel. They also point to the fact that Mr Stefan Bauer has, in the short term, forgone Bernhel’s right to payment of $300 per umbrella in order to assist his father.

108    Mr Holger Bauer and Mr Stefan Bauer wished to maintain the capacity to dispose of the remaining umbrellas. As the deadline approached, they agreed to transfer the umbrellas to Bernhel, accounting to Mr Koehn for the royalties payable on such sale. From Messrs Bauer’s point of view, achievement of their objective necessitated the transfer of title to Bernhel. Whilst their financial arrangements might arguably suggest a discrepancy between the appearance of a transfer of title and the application of relevant funds, they are not at all unusual, especially in a familial situation. Further, it is in no way unusual that the revenue from sales should be used to pay the purchase price, or that Bernhel should, in the short term forego receipt of its “profit” of $300 on each umbrella for that purpose. In business, paying debts generally precedes the identification of any profit. In the familial situation, arrangements which reflect the personal needs of family members are to be expected. In the present case, I do not accept that such arrangements suggest a sham. Nor can it be said that the parties intended that evidence of the agreement be a mere piece of machinery for serving some other purpose. The only purpose was to maintain the capacity to find purchasers for the umbrellas. Indeed, no physical evidence was created at all. The parties simply agreed to a transaction which was favourable from Mr Holger Bauer’s point of view and, no doubt, acceptable to Mr Stefan Bauer for familial reasons. It is true that the identity of the purchaser was not disclosed to Austshade and Mr Koehn, but they did not ask. They were happy to accept the royalties. There was no question of deception or of any lesser form of sham which might deprive their arrangements of efficacy. I reject the submission that the transaction was a sham.

FINDINGS AS TO ALLEGED INFRINGEMENT OF THE 2003 PATENT, THE INNOVATION DESIGN AND THE REGISTERED DESIGN

109    It is important to keep in mind the fact that the alleged infringements by Boss Shade, Bauer Investments and Mr Holger Bauer involve the alleged supply and offer to supply of umbrellas after Bernhel had obtained title to them. I have concluded that sale of the modified umbrellas did not infringe the 2003 Patent. Thus, with respect to that patent, the respondents need not rely on the decision in National Phonograph nor upon the deed. However the position is otherwise with the Innovation Patent and the Registered Design. I have found that prima facie, sale of the modified umbrellas would infringe both. Further, although the deed refers to the 2003 Patent and the Innovation Patent Application, it does not mention the Innovation Patent or the Registered Design.

110    As between Austshade and Mr Koehn on the one hand, and Boss Shade and Mr Holger Bauer on the other, all are bound by the deed. Pursuant to the deed, Boss Shade was entitled to sell the umbrellas, provided that it did so on or before 24 July 2011. As Austshade and Mr Koehn conferred on Boss Shade the right to sell the umbrellas, they were obliged to do all that was reasonably necessary to secure performance of the contract. In Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, Mason J (Gibbs, Stephen, Mason and Aickin JJ concurring) said at 607-608:

But it is common ground that the contract imposed an implied obligation on each party to do all that was reasonably necessary to secure performance of the contract. As Lord Blackburn said in Mackay v. Dick:

"as a general rule ... where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect."

It is not to be thought that this rule of construction is confined to the imposition of an obligation on one contracting party to co-operate in doing all that is necessary to be done for the performance by the other party of his obligations under the contract. As Griffith C.J. said in Butt v. M’Donald:

"It is a general rule applicable to every contract that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract."

It is easy to imply a duty to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract. It is not quite so easy to make the implication when the acts in question are necessary to entitle the other contracting party to a benefit under the contract but are not essential to the performance of that party's obligations and are not fundamental to the contract. Then the question arises whether the contract imposes a duty to co-operate on the first party or whether it leaves him at liberty to decide for himself whether the acts shall be done, even if the consequence of his decision is to disentitle the other party to a benefit. In such a case, the correct interpretation of the

contract depends, as it seems to me, not so much on the application of the general rule of construction as on the intention of the parties as manifested by the contract itself.

(Footnotes omitted.)

111    A fundamental aspect of the deed was the grant to Boss Shade of a licence to import, market and sell the patented umbrellas. Clause 6.4 was designed to provide an opportunity for Boss Shade to dispose of any remaining stock in the event that the licence was cancelled. It may be that Mr Koehn, with the benefit of hindsight, now wishes that he had limited Boss Shade’s right to sell by stipulating that any purchaser was to be an end-user, or that sale for the purpose of resale was forbidden. The applicants have not pleaded that such a term should be implied. Nor has there been any real attempt to construe the deed so as to produce that result.

112    The parties intended that Austshade and Mr Koehn would permit Boss Shade to sell the umbrellas. In those circumstances, they would be in breach of their contractual obligations if they were to seek to prevent Boss Shade from doing so by asserting infringement of the Innovation Patent and/or the Registered Design. In any event the licence was to exploit both the 2003 Patent and the Innovation Patent Application. One might expect that a licence to exploit the latter would be construed as extending to the Innovation Patent when granted. The point was not raised, and it is not necessary that I resolve it. As between the parties to the deed, the sale to Bernhel was lawful. The question is whether the resale of the umbrellas infringed the Innovation Patent or the Registered Design.

113    The applicants’ case against Bernhel is that having acquired title to the umbrellas, it marketed them, offered them for sale and sold them, or, in the alternative, acted in concert with the respondents, or one or more of them, so as to market, offer for sale or sell the umbrellas. Such conduct is said to infringe the 2003 Patent, the Innovation Patent and/or the Registered Design. I have found that there was no infringement of the 2003 Patent. As to the other infringements, Bernhel cannot rely directly on the deed, because it was not a party to it. Hence it relies on the decision in National Phonograph. I assume for present purposes that Bernhel was, prior to the sale, aware of the terms of the deed. Whilst cl 6.4 of the deed limited the period of time during which Boss Shade could sell the umbrellas, nothing in the deed limited the ownership rights which might be acquired by a purchaser from Boss Shade. No doubt Boss Shade and Mr Holger Bauer had ongoing obligations, particularly under cll 1 and 5 of the deed, notwithstanding termination of the licence. Clause 1.3 might prohibit Boss Shade and Mr Holger Bauer from encouraging a purchaser to sell infringing umbrellas, but it does not purport to restrict a purchaser’s right to sell. Knowledge that Boss Shade and Mr Holger Bauer had undertaken not to do the things identified in cl 1.1 did not limit the rights of a purchaser from them. Similar comments apply to cl 1.3. Clauses 1.2, 1.4 and 1.5 are not presently relevant.

114    As to the Registered Design, the decision in Interstate was concerned with an attempt to apply National Phonograph to copyright material. The High Court rejected that attempt, distinguishing between the statutory monopoly conferred by the patents regime and the statutory rights conferred by the copyright regime. In particular, the Copyright Act 1968 (Cth) (the “Copyright Act”) does not confer upon the copyright holder, the exclusive right of sale. Sections 37 and  38 provide that it is an infringement to sell an article if the vendor knew or ought reasonably to have known that the manufacturer of the article infringed the copyright. There is no other restriction on sale.

115    In Interstate the Court considered whether an importer of books did so “without the licence of the owner of the copyright” for the purposes of ss 37 and 38 of the Copyright Act. The importer had no such licence from the copyright owner. It sought to establish an implied licence, submitting that the decision in National Phonograph was based upon the proposition that a patentee, in selling a patented product, impliedly gave a licence to the purchaser to perform acts which would otherwise comprise infringement of the patent. The High Court accepted that view as to the effect of the decision in National Phonograph, but held that no such licence could be implied for the purposes of ss 37 and 38. The case did not deal directly with the acquisition of a copyright article from a vendor who had acquired the article subject to terms imposed by the copyright holder.

116    The rights granted by the Designs Act seem to be very similar to those conferred by the Patents Act 1952 (Cth), which legislation the High Court considered in Interstate. At 542 Gibbs J referred to the “traditional form” of a grant of patent rights which was of “the grant of power to make, use, exercise and vend” the invention. A similar approach appears in the reasons of Stephen J at 549-550. Section 10 of the Designs Act expressly confers the exclusive right to “make”, to “use” and to “sell” a product embodying the relevant design. Whilst the word “exercise” is not used, I have little difficulty in concluding that s 10(1), read as a whole, would include anything which might conceivably have been described by that word. Hence I conclude that the decision in National Phonograph applies to the sale of a product embodying a registered design. It follows that Bernhel would take free of any obligation imposed upon Boss Shade by Austshade or Mr Koehn of which obligation Bernhel was unaware. However, as it happens, there was no relevant obligation.

117    The applicants submitted that in any event, the decision in National Phonograph should be limited in its application. It is not strictly necessary that I address those submissions, but I shall do so, if briefly. The applicants submitted that the decision should not apply where the purchaser intends to resell a large number of umbrellas. Section 13 of the Patents Act provides that a patent confers upon the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorize exploitation by others. The word “exploit” is defined in Sch 1 to the Patents Act as including:

… where the invention is a product—make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things … .

118    The applicants submit (at ts 149, ll 27-45 and ts 150, ll 1-10) that:

And then the alternative limb of that definition refers to where an invention is a method or process. So the doctrine of exhaustion has as its point of departure … that a person who purchases a patented item doesn’t infringe the patent by using it, and then there’s an ordinary incident of the ownership of what might be regarded as a domestic item and entitlement to sell it.

But nothing in the doctrine permits the next step, it’s submitted, and that is, the purchase of a vast number, perhaps as many as 150 expensive umbrellas, and to set up in opposition to the patent owner, selling the patent owner’s own product which have been obtained, either by importation or some other mechanism which provides a cost benefit.

That would erode entirely – the protection that the Patents Act and other intellectual property which proceeds from a system of registration would undermine the scheme of that legislation entirely, your Honour, so it can’t be the intention of the Act, and the applicant’s submission is that where a – that the definition of exploit makes plain or includes in the – what might be called the express component of the inclusive definition, references to making, hiring or selling, but not to using. So the definition of exploit doesn’t say it would ever be an exploitation of an invention to use it, but it would be an exploitation which would ground an action for infringement to make, hire, sell or otherwise dispose of the product.

Now, what remains untested, therefore, your Honour, is whether to make, hire or sell a single item, which is purchased in a domestic purchase, say, for instance, an online sale of a car or a domestic appliance, whether that would constitute an infringement of the patent or any patents which are embodied in that appliance, but that’s not the question that is being tested here. What is being tested here is whether one is entitled to go and buy from a relative, on the applicant’s appreciation of the evidence, somewhere in the region of 15 very large umbrellas with a value of approximately $3000 each as a retail item and then set up in opposition to the patent holder. That can’t be the intention and that’s not what’s comprehended by the definition of exploit in the Act.

119    The applicants asserted (in the third paragraph) that the definition of the word “exploit” does not include use of the patented item. The submission is simply incorrect. A second error is the assertion that the decision in National Phonograph “has as its point of departure” the proposition that a person does not infringe a patent by using a patented article. The starting point is rather that where a purchase has occurred, there is a presumption that the purchaser has acquired the “full right of ownership”. The presumption may be displaced if the purchaser is shown to have known, at the time of purchase, of any limitation imposed by the patentee upon the vendor’s capacity to give good title.

120    The applicants seemed also to argue that the Patents Act must be read as prohibiting the respondents’ conduct in this case, simply because:

([I]t would erode entirely the protection that the Patents Act and other intellectual property which proceeds from a system of registration would undermine the scheme of that legislation entirely … .

121    If that were so, then it is unlikely that the decision in National Phonograph would have survived for over a century, without any judicial or statutory intervention. In fact, the circumstances in this case arise out of the licensing arrangements entered into in the deed, in order to resolve matters in dispute between the parties to it, and the arrangements made in order to deal with any conduct which might be contrary to the terms of the deed. The deed had consequences which may not have been foreseen, but these consequences do not lead me to conclude that the decision in National Phonograph must be read narrowly, merely because, in this case, its application may produce an adverse consequence for the patentee, arising out of an agreement which was freely made.

122    My conclusions concerning Bernhel lead to the conclusion that no case is established as against Mr Stefan Bauer.

BREACHES OF THE DEED

123    Boss Shade is said to have breached cll 1.3 and 6.4 of the deed. Pursuant to cl 1.3, Boss Shade undertook not to counsel, aid, abet or procure any entity to do any of the things which, by virtue of cll 1.1 and 1.2, Boss Shade or Mr Holger Bauer might not do. Clause 1.2 is not presently relevant. Clause 1.1 contains an undertaking by each of them not to import, manufacture, market, promote, distribute or sell any product which infringes the 2003 Patent other than as provided for in the deed. The references to the Innovation Patent in para 27(a)(iii) and to the Registered Design in para 27(a)(iv) of the statement of claim seem to be irrelevant to the alleged breach of cl 1.3. The alleged breach is presumably Boss Shade’s conduct in selling the umbrellas to Bernhel with knowledge that it would resell them and/or its involvement in such resale. See paras 23A, 23B, 24 and 25 of the statement of claim. As I have found that those sales did not infringe the 2003 Patent, there was no conduct contrary to cl 1.1 and no breach of cl 1.3.

124    Mr Holger Bauer is said to have breached cll 1.1 and 1.3 of the deed. Again, the relevant conduct appears to be that identified in paras 23A, 23B, 24 and 25 of the statement of claim. Again, my finding that there has been no infringement of the 2003 Patent disposes of this aspect of the case.

BAUER INVESTMENTS

125    The involvement of Bauer Investments in the circumstances of this case has never been clearly identified. At para 27(c) of the statement of claim, the applicants allege that Bauer Investments supplied, or offered to supply products which infringed the 2003 Patent, the Innovation Patent and/or the Registered Design. Again, the relevant conduct seems to be that identified in paras 23A, 23B, 24 and 25, namely supplying Bernhel’s umbrellas or offering them for supply. Bauer Investments is not a party to the deed and so is neither bound by it, nor entitled to any benefit under it. I have held that prima facie, the Innovation Patent and the Registered Design have been infringed. However Bauer Investments’ role in such infringement is unclear. The only conduct of which there is evidence seems to be that the respondents advertised the umbrellas on a website which, the applicants allege, was owned by Bauer Investments. An allegation of such ownership appears at para 34 of the statement of claim, which allegation is admitted by Bauer Investments at para 1 of its third further amended defence. However, at para 7, it is alleged that Bauer Investments owns the domain name and allows Boss Shade to use it. The subtlety of the distinction escapes me.

126    The case pleaded at paras 23A-27 does not seem to depend on ownership of the website. That matter is only pleaded in connection with the copyright claim. Save for the fact that it owned the website upon which advertising appeared, none of the evidence at trial demonstrates any particular action by Bauer Investments or to which it was a party. The case seemed to focus upon the conduct of Mr Bauer, Boss Shade, Bernhel and Mr Stefan Bauer. Bauer Investments cannot be held liable for Mr Bauer’s conduct on behalf of another company, merely because he is also a director of Bauer Investments. In the absence of any submission as to the substance of the claim against Bauer Investments, based solely on its ownership of the website or otherwise, I am unable to uphold this aspect of the applicants’ case. I should add that I do not understand the applicants to have advanced any case based on the proposition that the respondents were offering for sale any product other than the modified umbrellas.

PASSING OF TITLE TO CHATTELS

127    A point not addressed by the parties is the meaning of the term “sell” in cl 6.4 of the deed. It may have been arguable that property did not pass until the modification of the umbrellas was complete. See the Sale of Goods Act 1896 (Qld) (the “Sale of Goods Act”) at ss 19, 20 and 21, especially s 21 r 2. Absent any submissions on the question, I am inclined to the view that the need to sell the umbrellas on or before 24 July 2011 would be a basis for inferring that the intention of the parties was that title pass on or before that date, so that r 2 would not apply. The familial nature of the transaction re-inforces that view.

ACCOUNT

128    In submissions the applicants placed great emphasis upon the applicants’ prayer for an account. Clearly, their relationship with Boss Shade offered a basis upon which such an order might be made. Accounts are sought in paras 28 and 51 of the statement of claim. Paragraph 28 seems to be concerned with the case against Boss Shade, Bauer Investments and Mr Holger Bauer. Paragraph 23A suggests that the term “Respondents” refers to them, and not to Bernhel or Mr Stefan Bauer. The claim for account against Bernhel and Mr Stefan Bauer is in para 51.

129    The claim in para 28 depends upon the matters pleaded in para 27, the various breaches alleged against the first three respondents, which claims I have rejected. It follows that there is no proper basis for ordering an account.

130    The claim in para 51 depends upon the facts alleged in paras 43-50. Those paragraphs allege infringement of the 2003 Patent, the Innovation Patent and the Registered Design. I have rejected those claims. It again follows that there is no proper basis for ordering an account.

CONCLUSION

131    The statement of claim is quite complex and difficult to follow. I may have overlooked some aspect of it. Should the parties require further findings of fact, they should apply within 14 days after the publication of these reasons. Subject to that possibility, I am presently of the view that the application should be dismissed. However I shall allow the parties to make submissions as to appropriate orders and as to costs.

132    I have expressed the view that Boss Shade owes Mr Koehn or Austshade the royalties payable on the sale of a number of umbrellas. However there is no claim for any such amount. The parties may, if they wish, make submissions concerning that matter. Submissions should be exchanged and forwarded to the Court within 14 days of the publication of these reasons. There will be liberty to apply.

Associate:

Dated:    23 March 2016

SCHEDULE OF PARTIES