Re Nintendo Co Ltd v Centronics Systems Pty Ltd; Maurice Latin; Tiberio Salice and Fabrizio Latin [1991] FCA 609; (1992) Aipc 90-854; 23 IPR 119 (9 December 1991)

FEDERAL COURT OF AUSTRALIA

Re: NINTENDO CO. LTD
And: CENTRONICS SYSTEMS PTY LTD; MAURICE LATIN; TIBERIO SALICE and FABRIZIO
LATIN
No. V G359 of 1990
FED No. 791
Circuit Layouts Act [1991] FCA 609; 1989
(1992) AIPC 90-854
23 IPR 119

COURT

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
Sweeney J.(1)

CATCHWORDS

Circuit Layouts Act 1989 - owner of EL rights in an original circuit layout - whether another commercially exploited layout without licence - whether made in accordance with original circuit layout - whether evaluation or analysis - whether knowledge that integrated circuit unauthorised - whether awareness that act constituting infringment was infringement

Circuit Layouts Act 1989 ss.5, 8, 11, 13, 16, 17 19(3) 20(1), 20(2), 23(1), 27

HEARING

MELBOURNE
9:12:1991

Counsel for the Applicant: Mr R. Macaw QC Mr B. Caine

Solicitors for the Applicant: Purves Clarke Richards

Counsel for the Respondents: Ms E. Strong

Solicitor for the Respondents: Mr A. Tatlock

ORDER

The respondents and each of them be restrained from -

(a) selling, letting for hire or distributing by way of trade;
(b) offering or exposing for sale, hire or other distribution by
way of trade; or
(c) importing for the purpose of sale, letting for hire or other
distribution by way of trade;
whether as part of Spica video game consoles or otherwise,
PPU chips in the form of the UMC PPU chip a photographic
representation of the integrated circuit of which is Exhibit
TR-1 herein or otherwise howsoever infringing the
applicant's EL rights in the circuit layout a photographic
representation of which is Exhibit TR-2 herein.

The respondents within seven days of the date hereof -
(a) deliver up to the applicant each of the UMC PPU chips
referred to in paragraph 1 hereof;
(b) make file and serve an affidavit verifying that all such UMC
PPU chips have been delivered up as aforesaid.

There be an inquiry as to damages or at the applicant's option an account of

profits made by the respondents and each of them by infringement of the applicant's said EL rights and payment of the sum found due.

(a) The respondents within fourteen days of the date hereof make
file and serve an affidavit setting out details of all sales
made of Spica video games units containing the UMC PPU chip
referred to in paragraph 1 hereof;
(b) within fourteen days thereafter, the applicant make its
election referred to in paragraph 3 hereof and communicate
the same to the respondents;
(c) the applicant have liberty to apply thereafter as to the
conduct of the said enquiry or account (as the case may be).

By consent the respondents be restrained from importing selling or

authorising the importation or sale of any article which reproduces or substantially reproduces -

(a) the Super Mario program referred to in paragraph 4 of
the Statement of Claim or the Super Mario program
referred to in paragraph 12 of the Statement of Claim;
(b) the Duck Hunt program referred to in paragraph 8 of
the Statement of Claim or the Duck Hunt program
referred to in paragraph 16 of the Statement of Claim.

By consent, the respondents be restrained from infringing Australian

registered trade marks -

(a) A443265;
(b) A443266;
(c) B444110;
or any of them and in particular from using the trade marks-
(i) Super Mario Bros.;
(ii) Super Mario Brothers;
(iii) Mario Bros.
or any name word or mark substantially identical with
or deceptively similar thereto in the course of trade
on or in relation to any of the goods in respect of
which the said registered trade marks are respectively
registered.

The respondents pay the applicant's costs of the proceeding including any

reserved costs.
Note: Settlement and entry of orders is dealt with in O.36 of the Federal Court Rules.

DECISION

Nintendo Co. Ltd ("the applicant"), a foreign corporation which manufactures and distributes video games including the games "Super Mario Brothers" and "Duck Hunt", claimed to have copyright in those two programs and in cinematographic films of the same names. It alleged that the first respondent, Centronics Systems Pty Ltd ("Centronics") imported systems into Australia which infringed the applicant's copyrights in the "Super Mario" and "Duck Hunt" programs. These claims do not now need to be determined as the parties have reached agreement in respect of them.

2. The applicant also claims rights in a computer program known as a "PPU" (picture processing unit) ("the Nintendo PPU"). It alleges that Centronics imported a reproduction of the Nintendo PPU into Australia, manufactured by United Microelectronics Corporation ("UMC") in Taiwan and known as a 6538 PPU ("the UMC PPU"), which infringed the applicant's EL rights in the Nintendo PPU within the meaning of the section 19 of the Circuit Layouts Act (Cwth) 1989 ("the Act"). It further alleges that the directors of Centronics, Maurice Latin, Tiberio Salice and Fabrizio Latin, who are the second, third and fourth respondents, caused or permitted this conduct and thereby authorised the infringements alleged. The unit in which the UMC PPU has been used has been referred to as "the Spica entertainment unit" or the "Spica unit".

3. By an Amended Application filed in court on 26 August 1991, the applicant seeks the following orders:

"1. An injunction restraining the Respondents from:
(a) selling, letting for hire or distributing by way of
trade,
(b) offering or exposing for sale, hire or other
distribution by way of trade, or
(c) importing for the purpose of sale, letting for hire or
other distribution by way of trade;
integrated circuits made in accordance with the PPU layout
referred to in paragraph 27 of the Statement of Claim.
2. An order for delivery up on oath to the Applicant copies of
all the Spica systems which include infringing copies of the
said integrated circuits made in accordance with the PPU
layout.
3. Damages for infringement of EL rights.
4. Further or alternatively (at the Applicant's option) an
account of the profits made by the first Respondent by
reason of the infringements referred to in 3.
5. All necessary accounts and enquiries.
6. An injunction restraining the Respondents from importing,
selling or authorising the importation or sale of any
article which reproduces or substantially reproduces:-
(a) the Super Mario programme referred to in paragraph 4
of the Statement of Claim or the Super Mario programme
referred to in paragraph 12 of the Statement of Claim.
(b) the Duck Hunt programme referred to in paragraph 8 of
the Statement of Claim or the Duck Hunt programme
referred to in paragraph 16 of the Statement of Claim;
7. An injunction restraining the Respondents from infringing
Australian Registered Trade Marks:-
(a) A443265;
(b) A443266;
(c) B444110;
or any of them and in particular from using the trademarks:-
(i) Super Mario Bros;
(ii) Super Mario Brothers;
(iii) Mario Brothers
or any name, word or mark substantially identical with or
deceptively similar thereto in the course of trade on or in
relation to any of the goods in respect of which the said
registered trademarks are respectively registered.
8. Such further or other orders, directions or relief as may be
necessary or as to the Court shall seem fit.
9. Costs."
During the first day of the hearing I directed that the applicant
file an Amended Statement of Claim to reflect the issues remaining
to be determined. This was filed on 27 August 1991.

4. Paragraphs 27-30 set out the applicant's contention that it had EL rights in the Nintendo PPU layout within the meaning of s.19 of the Act and that these rights were infringed by the first respondent. These paragraphs read as follows:

"27. At all times material, the Applicant is and has been the
owner, within the meaning of section 16 of the Circuit
Layouts Act Cth 1989, of EL rights in an original circuit
layout ('the PPU layout').
PARTICULARS
(a) The PPU layout was made in Japan by Hiroo Ueda and
Hiromitsu Yagi under the terms of their employment by
and under a contract of service with Ricoh Co. Ltd
('Ricoh') a company incorporated according to the laws
of Japan. Ricoh subsequently assigned all its rights
in the layout to the Applicant.
(b) The PPU layout is an original circuit layout in
accordance with which the Applicant has made an
integrated circuit in the form of a Read Only Memory
Chip ('the PPU chip') contained in the video game
machine produced and sold by the Applicant. A video
game machine containing a copy of the said chip has
been marked with the letter 'C' and can be inspected
by prior appointment at the offices of the Applicant's
solicitors.
28. Between a date unknown to the Applicant and the date of
issue of the Application herein, the First Respondent herein
has, without the licence of the Applicant, commercially
exploited the PPU layout in Australia. ...
29. The First Respondent did the acts alleged in paragraphs 27
and 28 herein in circumstances where it knew, or ought
reasonably to have known, that it was not licensed by the
Applicant to do so.
30. By the acts alleged in paragraphs 27, 28 and 29 hereof the
First Respondent has infringed, and continues to infringe,
the Applicant's EL rights in the PPU layout, within the
meaning of section 19 of the Circuit Layouts Act Cth 1989."

5. By an Amended Defence filed in court on 2 September 1991 the respondents admit the allegations contained in paragraph 27 of the Amended Statement of Claim.

6. In paragraphs 28.1-28.3 the following admissions are made in the Defence, which otherwise denies each and every allegation in paragraph 28 of the Amended Statement of Claim:

"28.1 They admit that in December 1989 the first Respondent
imported into Australia and began to sell 1,500 Spica
Entertainment units from Taiwan which comprise a
computerised games console, a hand operated gun and a finger
operated joy stick with a computerised games cartridge.
28.2 Further, they admit that the first Respondent bought
the Spica Entertainment Units from Keyman Electronics
Co Ltd, a manufacturer based in Taipei, Taiwan.
28.3 Further, they admit that the computerised games
console of the Spica Entertainment Unit contains a PPU
chip ('the Spica PPU') manufactured by United
Manufacturing Corporation ('UMC') in Taiwan."

7. In paragraph 29 of the Amended Defence, the respondents admit that Centronics did not have a licence from the applicant but stated that it believed that "the circuit layout for the Spica PPU was independently created by UMC in Taiwan and that the applicant has and had no rights of any kind regarding it."

8. The respondents deny the allegations made in paragraph 30 of the Amended Statement of Claim and add the following, amongst other things,

"30.3 Further, or in the alternative, they say that if the circuit
layout for the Spica PPU was not independently created by
UMC in Taiwan then it is an original circuit layout that was
made by UMC in Taiwan based on an evaluation or analysis
carried out with the use of:
(a) a copy or copies of the Nintendo circuit layout
referred to in paragraph 27 ('the Nintendo
circuit layout') and/or;
(b) an integrated circuit made in accordance with
the Nintendo circuit layout or a copy of the
Nintendo circuit layout ('the Nintendo
integrated circuit');
made for the purpose of evaluating or analysing the
Nintendo circuit layout as provided for in section 23
of the Circuit Layouts Act (Clth) 1989.
30.4 Further, or in the alternative, they say that if the Spica
PPU contained an integrated circuit made without the licence
of the Applicant as owner of the EL rights in the layout
(which is specifically denied) then at the time when they
acquired the circuit they did not know and could not
reasonably be expected to have known that the circuit was
unauthorised and therefore there has been no infringement by
them as provided for in section 20 of the Circuit Layouts
Act (Cwth) 1989."

9. Paragraphs 32-34 of the Amended Statement of Claim read:

"32. The First Respondent has made profits by its acts of
infringement referred to in paragraphs 5-7, 9-11, 13-15,
17-19, 26 and 28-30.
33. The Applicant has suffered substantial loss and damage by
reason of the infringements alleged. ...
34. The directors knowingly caused or permitted the first
respondent to engage in the conduct referred to in
paragraphs 5 to 19 and 24-30 and thereby authorised the
infringements alleged."

10. The respondents denied the allegations contained in paragraphs 32, 33 and 34, but after the close of evidence conceded that if there were infringement by Centronics, it was authorised by all directors of that company.

11. The applicant's allegation of ownership of EL rights in an original circuit layout within the meaning of section 16 of the Act was briefly set out in the particulars to paragraph 27 of the Amended Statement of Claim and was admitted by the respondents.

12. Section 16 sub-s(1) of the Circuit Layouts Act 1989 ("the Act") reads:

"Subject to this section, the person who makes an eligible layout
is the first owner of the EL rights in it."

13. "EL rights" are defined in section 5 of the Act as being "the exclusive rights specified in section 17 in relation to an eligible layout". Section 17 reads:

"The owner of the EL rights in an eligible layout has, during the
protection period of the layout, the following exclusive rights:
(a) to copy the layout, directly or indirectly, in a material form;
(b) to make an integrated circuit in accordance with the layout
or a copy of the layout;
(c) to exploit the layout commercially in Australia."

14. An "eligible layout" is defined in section 5 of the Act as meaning an original circuit layout:

"... (a) the maker of which was, at the time the layout was
made, an eligible person; or
(b) that was first commercially exploited in Australia or in an
eligible foreign country."

15. An "eligible person" is amongst other things: "a citizen, national or resident of an eligible foreign country". It is common ground between the parties that Japan, where the Nintendo PPU unit was made, is an eligible foreign country.

16. Section 11 of the Act reads:

" Without otherwise limiting the meaning of the word 'original' in
this Act, a circuit layout shall be taken not to be original if:
(a) its making involved no creative contribution by the maker; or
or
(b) it was commonplace at the time it was made."

17. Mr Toyofumi Takahashi ("Mr Takahashi"), an employee of Ricoh Company Ltd ("Ricoh") and a designer of the applicant's circuitry and semiconductor chips, swore an affidavit on 26 August 1991 and gave evidence about the development of the Nintendo PPU chip and its precursor the 2C02 PPU chip ("the Nintendo 2C02").

18. Mr Takahashi explained that in mid May 1982 Ricoh received a request from the applicant to consider the development of a PPU for home video game machines. By mid June 1982, Ricoh received instructions from the applicant to create "a new custom chip".

19. In his affidavit, Mr Takahashi deposed that between October and December 1982 he prepared the mask layout diagrams for the Nintendo 2C02 and that he and six others worked approximately 80 hours per week for two months and a further 80 hours in order to bring into existence the circuit designs for the Nintendo 2C02. Data for the Nintendo 2C02 was fed into a computer assisted tool ("CAD") and a computer produced mask was made showing each process layout. The CAD tool made no contribution to the creative design of the Nintendo 2C02 chip as its design was complete when the hand drawn mask diagrams were produced. The CAD tool performed a drafting function. In paragraph 15 of his affidavit, Mr Takahashi said:

"To the best of my knowledge the design of the 2C02 chip is unique
to Nintendo".

20. Mr Takahashi further deposed that in about February 1984 changes were made to the circuitry of the Nintendo 2C02, such circuitry being incorporated into the present Nintendo PPU chip. The purpose of the redesign was, in part to give rise to a chip designed to operate under a PAL television broadcasting system. The Nintendo 2C02 chip had been designed to operate under the NTSC television broadcasting system.

21. In paragraph 18 of his affidavit Mr Takahashi detailed the changes that gave rise to the present Nintendo PPU chip's new circuit design as follows:

"(i) A change to the circuitry of the demultiplier ...
(ii) A change to part of the circuitry relating to the vertical
decoder.
(iii) A change to the circuitry relating to the colour generator
(which enables the colour generator to generate appropriate
colour horizontal scanning signals for the PAL system)."

22. During his cross-examination, Mr Takahashi explained that the changes to the circuitry of the demultiplier, to the circuitry relating to the vertical decoder, and to the circuitry relating to the colour generator were effected in order to make the Nintendo PPU suitable for use with the PAL television system. He also explained that it took two years from the hand mask stage to the shipping of the mass produced RP2C07 chips, with one of those two years being spent in revision.

23. In the agreed chronology filed in court on 9 September 1991, 1985 is given as the first year of commercial exploitation of the present Nintendo PPU chip.

24. It is common ground between the parties that UMC are the manufacturers of the UMC chip. It is also common ground that Centronics was an importer and seller in Australia of Spica entertainment units being computer game sets manufactured by Keyman Electronics Co. Ltd ("Keyman") in Taiwan which incorporated the UMC chip.

25. The designer of the UMC PPU was neither identified by the respondents during the course of the hearing nor called to give evidence. Inferences that the design was original and not made in accordance with the applicant's design were said to be justified by the evidence of experts called by the respondents', Mr Beckett and Mr Osborne, who made comparisons between the photograph of the integrated circuits of the UMC PPU and that of the Nintendo PPU.

26. On 30 August 1991, the respondents, by their counsel, Ms Strong produced in court a document entitled "Areas of Significant Visible Difference". It read as follows:

"1. Bonding Pads and Circuitry (Pad Drivers)
The bigger and quite differently designed circuitry attached
to the 42 bonding pads of the UMC providing more power to
the circuit.
2. Two Extra Bonding Pads and Circuitry
The two extra bonding pads on the top and the left side of
the UMC chip with their circuitry including orange blocks
(capacitors) which provide the substrate bias function for
the chip in the absence of a refresh circuit.
3. TOP LEFT HAND CORNER:
Visible features of the UMC referable to its dual function
that is its ability to accept and play on a PAL TV
cartridges designed for the NTSC system and also those
designed for the PAL system.
(a) Formation of the Transistors of the PAL in the
Vertical Decoder
The different position of the transistors in the array
structure of the PLA block which constitutes the
Vertical decoder. These can be seen by the 'contact
cuts' which show as small circles or dots on the
'grid' or array structure of the block. This PLA
block containing the transistors controls the vertical
timing of the image on the TV screen.
(b) The Extra Timing Circuitry
The additional block present in the timing circuitry
of the UMC (which has been referred to as a clock
divider and also as a demultiplexer) which in the lay
out sketched in TR3 is within the area marked as
'Clock Gen and Video Output Generator' and is placed
to the left of the area marked 'H decoder'.
(c) The Interconnect Metal
The different shape of the pale speckled area of the
metal layer in the UMC in the border area on the top
left hand side of the photo TR2. The metal layer
which initially covers the whole area of the chip is
partially etched away to provide the electrical
connections therefore the shape of the remaining metal
reflects the design of the circuitry."

27. The respondents submitted that an analysis of these areas of significant visible difference justified a conclusion that the Nintendo and the UMC PPU's were intrinsically different. Mr Rogers, one of the applicant's expert witnesses, accepted the fact that the bonding pads on the two PPU's were of different designs, which he explained was the result of manufacturers having their own bonding pad designs saying:

"If you go along to a semi-conductor fabrication house with a
design normally, unless you specify you want your own pads put on,
the normal situation is that they will provide them for you."

28. The respondents also submitted that the two extra bonding pads on the UMC PPU were not evident on the Nintendo PPU nor was the linked circuitry. In the course of evidence, Mr Beckett identified these extra bonding pads in his report as follows:

"5. SUBSTRATE BIAS CIRCUITS
The UMC 6538 chip has two additional pads at its periphery (i.e.
42, as opposed to 40). These are related to the functions of
substrate bias generators included in the 6538 but not in the
2C07. This simply reflects the slightly different processes used
to fabricate the chips.
A substrate bias generator typically comprises an oscillator circuit,
a diode and a capacitor, just as I have observed in this case.
The pad would be used to monitor the substrate bias during testing
and has no function once the chip is bonded out."

29. The applicant submitted that the substrate bias generators' inclusion in the UMC PPU are "dictated by the smaller transistor size (a result of manufacturer's specification) and perform no part of the operational circuitry". Mr Rogers explained the presence of the two extra bonding bands and the sub-strate bias generator at T/R 171 as follows:

"You were asked questions about what were described in the
evidence as orange formations on the speaker or UMC circuitry/---Yes.
And, you agreed, I think, that they were likely to be

capacitors?---Yes.

And, likely, if so, to be a means of stabilising circuit
performance?---Yes, particularly with the small size transistors.
Well, that was what I wanted to ask you about. Your evidence, as
I noted it, was that with a reduction in size of transistors, that
kind of stabilising means might become necessary?---It does.
Could you explain why that is so, please?---The basic reason is
that as the transistors get smaller, it is necessary to adjust the
amount of doping materials which are used to form the diffusion
layers and the areas which form under the poly-silicone which is
the gate of the transistor. The effect of that is that it can
take more voltage or less voltage depending upon the particular
type of transistor you are looking at, to turn the device on or
off properly. That can be counteracted by means of a substrate
bias generator which holds the bulk of the transistor which is
within the silicone at a different potential to that which it
would be without the substrate bias generator. So, it stores the
normal range of operation in terms of switching voltages of the
transistors.
Would it be correct to infer from that set of answers that the
existence of a capacitor to stabilise circuit performance as a
result of the shrink of the circuit?---Yes, it would follow from that."

30. I accept the evidence of Mr Rogers and the applicant's submission based upon it.

31. I am satisfied that the "visible differences" relating to the Bonding Pads, Circuitry and the Substrate Bias Generators resulted from manufacturers' specifications and were insignificant design changes.

32. In respect of the "areas of significant visible difference" the respondents also submitted that there were visible features of the UMC PPU directly referable to its ability to accept and play on a PAL television receiver cartridges designed to operate on the NTSC system as well as those designed to operate on the PAL system ("dual functionality"). This submission of "dual functionality" was a major part of the respondents' case.

33. I suggested to the parties that a joint experiment be conducted to save the time and expense of separate experiments and cross-examination of the witnesses who conducted them. This joint experiment was conducted by the applicant and the respondents on 29 August 1991. The agreed results of that experiment were included at p 320 of the transcript. They read:
"TITLE NINTENDO SPICA NINTENDO SPICA

(NINTENDO PPU) (SPICA PPU) SPICA PPU) (NINTENDO

PPU) Wrestle Operated Unsatisfactory Unsatisfactory Operated
Mania Satisfactorily Picture lacks Picture lacks Satisfactorily

(PAL) vertical vertical
synchronisation synchronisation

Mach Rider Operated Unsatisfactory Unsatisfactory Operated

(PAL) Satisfactorily Jitter and Jitter and Satisfactorily
horizontal horizontal
displacement displacement
of image of image

Silent Operated Character Character Operated
Service displacement displacement satisfactorily
(PAL) due to timing due to timing

Satisfactorily Will not proceed Will not proceed
to game to game

Rocketeer Operated Operated As per

(NTSC) Satisfactorily Satisfactorily Nintendo
to the end to the end /Nintendo
Unsatisfactory of stage one of stage one
Character
displacement at
beginning
due to timing
Then plays
with stable
characters to
end of stage
one

Off Road Operated Operated Operated As per

(NTSC) Satisfactorily Satisfactorily Nintendo
Satisfactorily to game entry
stage then
cuts out

Xenophobe Plays with Plays with Intermittent

Intermittent

(NTSC) character colour phase colour character

displacement problem phase displacement
mainly due to (colour problem mainly due to
horizontal sub-carrier (colour horizontal
timing phase does sub-carrier timing problem
problem not lock) does not
not lock)

Indiana Character Operated Operated Character
Jones satisfactorily displacement

displacement Satisfactorily

(NTSC) in top in top

quarter of quarter of
screen at the screen at the
start then start then
plays plays
satisfactorily satisfactorily

Road-Blasters

Gross Horizontal Horizontal Gross
character synchronisation character
displacement synchronization

(NTSC) problems causing problem displacement

due character causing due to
horizontal displacement character horizontal and
and Far better vertical problem
vertical than Nintendo displacement
timing Far better
problem than Nintendo

Paperboy Operated Playable but Same as for Slight

Satisfactorily

(UK PAL) there is a Spica/Spica colour

colour phasing PPU but phasing
problem less problem
significant
otherwise
colour satisfactory
phasing

Bubble Operated Operated Operated Operated
Bobble Satisfactorily Satisfactorily
(PAL) Satisfactorily Satisfactorily

except for a but very minor
very minor colour phase
colour phase problem at
problem at beginning
beginning

Black Operated Operated Operated Operated

Satisfactorily Satisfactorily

Manta Satisfactorily Satisfactorily
(PAL) but very except for a

minor colour very minor slight colour
phase problem at colour phasing problem
beginning phase
problem.

Iron Operated Operated Operated Operated

Satisfactorily Satisfactorily

Sword Satisfactorily Satisfactorily
(PAL) except for

a very minor except for
colour phasing a very
at the minor colour
beginning phase problem
at the
beginning

World Operated Operated Operated Operated

Satisfactorily Satisfactorily

Wrestling Satisfactorily Satisfactorily
(NTSC)

Unsatisfactory

B. Operated Operated Unsatisfactory

Satisfactorily

ZELDA Gross Satisfactorily Gross
(NTSC) Vertical vertical timing

timing problem at
problem at beginning of
beginning game
of game Playable but
Playable there is a
but there is a horizontal
horizontal timing
timing problem in
problem the scoring
in the zone at the
scoring zone top
at the top

C. Operated Operated Operated Operated
Castlevania Satisfactorily Satisfactorily
(NTSC) Satisfactorily Satisfactorily"

34. After the agreed results of the joint experiment had been included in the transcript, Ms Strong indicated that there had been a misunderstanding about the basis of the experiment. At pp 405-6 of transcript, she said:

"The evidence regarding those PAL games that were tested was that
they were the games about which customers complained to
Centronics. The testing did not cover the Pal games about which I
have assumed it was common ground that both the Nintendo and the
Spica unit played perfectly adequately ... the cartridges that
played equally - the PAL cartridges that played equally well on
Spica, equally well on Nintendo did not form part of this test."

35. I then asked Ms Strong whether she wished to challenge the results of the experiment, and she replied that both parties prior to the joint experiment accepted that the PAL cartridges, Wrestlemania, Mach Rider and Silent Service, would not "work properly on the Spica unit, because it was those about which the customers had complained over the Christmas." Mr Macaw QC, who, with Mr Caine, appeared for the applicant, did not dispute this.

36. In re-examination, Mr Beckett said:

"The conclusion that I can draw from that testing which was done
initially by me and then later in the agreed - that resulted in
the agreed report was that the characteristics of the picture that
we observed or that I observed were due to the PPU and that in
fact the characteristics of the picture moved from the Nintendo
unit to the Spica unit according to the selection of the PPU and
that therefore the actual characteristics of the picture must
depend to a large degree on the PPU."
He also said:
"My opinion is that the UMC PPU was more capable of supporting
a - was capable of supporting broader range of NTSC based games
than the Nintendo PPU based on the sample that we have taken."

37. Mr Beckett agreed that a colour phasing problem described a situation where, for example, there was a rainbow effect on lettering rather than showing white lettering. Mr Beckett also agreed that the modulator of the Spica unit contributed to the perceived colour phase problems.

38. Mr Macaw QC asked Mr Beckett whether the colour phase problem is one which "could have something to do not with the chip but with some other aspect of the unit" and he replied:

"No. I believe that it is something to do with the colour burst
timing of the system. The problem is that there is a fairly
critical timing relationship between the generation of the colour
information in both PAL and NTSC and if that phase relationship
between what is known as the colour burst and the actual colour
signals are not right on, then in fact you will get that sort of
colour smearing and changes in colour."

39. Overall, the agreed results of the joint experiment showed that the UMC PPU plays some PAL and some NTSC games cartridges but does not play all PAL and all NTSC cartridges satisfactorily. In relation to the PAL cartridges which did not play well on the UMC PPU, Mr Beckett said:

"My understanding of it was that is what they were supposed to
play. So they may have a marketing problem there."

40. The NTSC games World Wrestling and Castlevania "operated satisfactorily" on the Nintendo PPU.

41. Mr Beckett's statement in his report that "the 2C07 will support only PAL based games" was not an accurate assessment of the position, as he himself later conceded.

42. In support of their "dual functionality" submission, the respondents relied upon evidence of Mr Beckett and Mr Osborne. In the report of the former filed on 29 August 1991 he drew conclusions based on his own pre-trial experiments that:

"... the UMC PPU device contains altered or additional timing
functionality which enables it to generate the necessary PAL
timing signals (ie colour and synchronisation information) from
the NTSC based games."

43. In Mr Osborne's report filed 29.8.91 he says, amongst other things:

"... the shift in the timing of the interrupt pulse was the key to
allowing NTSC games to be played using the UMC PPU.
The observations described above led me to conclude that the UMC
PPU chip is electrically different from the Nintendo chip in at
least two ways that can be seen externally, namely that the
initial default video output and the interrupt signal timing
relating to the vertical synchronising pulse are both clearly
different."

44. The applicant submitted that the changes to the vertical decoder layout are minor, contending that "if the respondents' principal independent expert (Mr Beckett) is correct, the change in horizontal line 5 involves a negligible change in layout (Beckett 384.5)".

45. The applicant also submitted:

"Even if one focused attention exclusively on the circuitry in the
vertical decoder there is no necessary inference of originality of
expression of the form of the layout because the change is likely
to have been the product of the work of an unidentified programmer
feeding into a computer the electrical characteristics designed
for the UMC circuit (Becket 385) and/or using circuitry available
in CAD libraries (Beckett 359, Osborne 475-6, 478.1, 478.8,
479.5). (Compare clause 27 explanatory memorandum.)"

46. Both Mr Osborne and Mr Beckett attached grids to their reports plotting PLA (programmable logic arrays) encoding patterns. The applicants submitted that:

"The reliability of Mr Osborne's grid and the conclusions he
draws from it are doubtful in view of its inconsistency with
Beckett's grid and its doubtful provenance and Mr Osborne's
reliance on some unidentified informant for his conclusions
(supplementary report p 5), but even if those changes to the
layout have been made they are a minuscule part of the circuit
layout, involving as it does in the order of 10,000-15,000
transistors (Rogers para 14(g))."

47. In short, the applicant submitted that the changes to the vertical decoder layout are insignificant in design terms. It contended that the evidence of its experts, Mr Jones and Mr Rogers supports this conclusion.

48. The applicant further submitted that:

"Clock Divider Circuitry
Both sections of circuitry divide the input by five and are
identical (Takahashi 96.5, 97.4). The circuitry is identical but
part has been relocated in the UMC circuit, probably as a result
of shrink (Rogers 131-2). Mr Beckett's evidence (at 393) relied
on by the respondents (pp 20-21 submissions) is of no weight. He
did not look at the chips under a microscope (367.2) as Mr Rogers
did (Rogers para 4). He had not looked at this point in any
detail (398).
Interconnecting (speckled) Metal
The difference in shape at the top left corner results merely from
the relocation of the clock divider (see Jones 214-5)."

49. Where the evidence of the applicant's witnesses Mr Rogers and Mr Jones differs from that of Mr Beckett and Mr Osborne, I accept the former. In support of their inferences of originality, Mr Beckett and Mr Osborne resiled from their earlier evidence. Mr Osborne's supplementary report departed from his original opinion that the UMC PPU circuit was the product of an automatic CAD design tool. The attempt to provide the UMC PPU with a satisfactory dual function did not succeed.

50. The applicant's case was based upon s.19(3) and s.13 of the Act. Sections 19(3) reads as follows:

"Subject to this Act, the EL right in an eligible layout, being
the right referred to in paragraph 17(c), is infringed by a person
who, during the protection period of the layout, without the
licence of the owner, commercially exploits, or authorises the
commercial exploitation of, the layout in Australia if the person
knows or ought reasonably to know, that he or she is not licensed
by the owner of that right to do so."

51. Section 8 deals with "commercial exploitation" as follows:

"(1) For the purposes of this Act, a circuit layout shall be taken
to have been commercially exploited if the layout, a copy of the
layout, or an integrated circuit made in accordance with the
layout (whether or not the integrated circuit is incorporated in
another thing) is:
(a) sold, let for hire or otherwise distributed by way of trade;
(b) offered or exposed for sale or hire, or other
distribution by way of trade; or
(c) imported for the purpose of sale, letting for hire, or
other distribution by way of trade.
(2) For the purposes of this Act, a copy of a circuit layout or an
integrated circuit made in accordance with a circuit layout shall
be taken to have been commercially exploited if it is:
(a) sold, let for hire or otherwise distributed by way of trade;
(b) offered or exposed for sale or hire, or other
distribution by way of trade; or
(c) imported for the purpose of sale, letting for hire, or
other distribution by way of trade."

52. Section 13 provides as follows:

"In this Act:
(a) a reference to doing an act (other than making in relation
to an eligible layout includes a reference to doing that act
in relation to a substantial part of the layout;
(b) a reference to a copy of an eligible layout includes a
reference to a copy of a substantial part of the layout; and
(c) a reference to an integrated circuit made in accordance with
an eligible layout includes a reference to an integrated
circuit made in accordance with a substantial part of the

layout."

53. The applicant's contention was that its EL rights in the Nintendo PPU, an eligible layout, were infringed by the respondents, who, during the protection period of the layout, without the licence of the owner commercially exploited the layout or a substantial part of the layout.

54. The applicant relied upon the very close similarity between the layout of the Nintendo PPU and the Spica PPU, submitting that even if the degree of protection afforded by the Act were, as the respondents contended, analogous with that afforded to architectural plans, that degree of protection would cover the substantially handcrafted Nintendo PPU.

55. The similarity even extended to the inclusion in the Spica PPU of circuitry which had become redundant in the Nintendo PPU but had been left in position.

56. In its final written submissions the applicant reviewed those similarities and the differences relied upon by the respondents and contended that the Spica layout was made in accordance with the whole of the Nintendo layout but quite plainly was made in accordance with a substantial part of it. I accept these submissions and, as I have already indicated, I believe that the differences identified by the respondents were insignificant. If no more appeared, the applicant would have made out its case.

57. The respondents sought to rely upon s.23 of the Act which reads as follows:

"(1) The EL rights in an eligible layout are not infringed:
(a) by making a copy or copies of the layout for the purpose of
evaluating or analysing the layout;
(b) by making an original circuit layout based on an evaluation
or analysis carried out with the use of a copy or copies
referred to in paragraph (a);
(c) by making an integrated circuit in accordance with an
original circuit layout referred to in paragraph (b); or
(d) by copying or commercially exploiting in Australia an
original circuit layout referred to in paragraph (b)."

58. The parties agreed that the onus rested upon the respondents to establish the elements of this section. The respondents, unlike the applicant, called no evidence of design although it became clear during the trial that they were in communication with UMC.

59. In its written submissions the applicant said:

1. that evaluation or analysis, within the meaning of s.23,
required sufficiently detailed work to understand the
functioning of the circuit so as to enable the making of an
original layout to perform the functions so identified;
2. that the respondents had failed to establish such evaluation
or analysis;
3. that the respondents had failed to establish the purpose
prescribed by s.23; and
4. that the respondents had failed to establish that UMC had
made an original circuit layout.

It also cited extensive passages from the evidence in support of these propositions.

60. On the question of "evaluation or analysis" the applicant submitted, amongst other things: that the UMC PPU was copied using the shrink process; the manifestations of shrink tell against evaluation or analysis; the copying of redundant circuitry is a clear indication that there has not been evaluation or analysis; and the respondents' submissions "have confused the distinct steps of copying on the one hand and evaluation or analysis on the other".

61. Both Mr Rogers and Mr Jones believed shrinking occurred with the UMC PPU. I accept Mr Jones' explanation of shrinking and his opinion that the UMC PPU was shrunk, which is as follows:

"Shrinking is significantly different from 'reverse engineering'.
Instead of the 'reverse designer' making an evaluation or analysis
with a view to understanding the design and then creating his own
design, shrinking essentially involves a computer scaling
operation and no intellectual or unique design work is carried
out. When a module is shrunk from one technology (bearing in mind
manufacturers design rules and/or line widths. The betraying
factor of a shrink is that each transistor is still in its same
location with the same connections made to it, going to the same
locations. This process requires no detailed knowledge of the
circuit design (though a detailed analysis could be done after the
event). The practice is performed by numerous companies who
design their own chips. Some reasons for a company to do this can
be to increase the speed of the device (shrinking the line width
has the effect of increasing speed, being able to make the chip
from another manufacturer (the first or primary manufacturer may
go out of business, or start charging too much for the chip),
securing a second source for a mass produced product (at time
manufacturers can have chip manufacture problems that severely
impact upon the companies buying those devices), or a host of
other legitimate reasons.
When a chip is scaled, or shrunk, the fundamental process is to
modify the layout of the chip, to yield an increased performance
and (possibly) a cost saving. The process, basically, is to
decrease everything by a factor, however, not always does
everything decrease by a uniform amount. For example the original
design may have been implemented in a process which uses a line
width of three microns and has transistors of 20, 40 and 60
microns square in area. The target process may use two micron
line widths, and the desired scale factor is 2/3. This would
yield a line width of two micron and a transistor area of 13.3,
26.6 and 40 units respectively. But the target 2 micron process
transistors may have areas of 10, 20 and 30 units, a 50 per cent
reduction. In this case the scaling typically does not operate
uniformly. Moreover, the pads around the outside of the chip
typically cannot be scaled. There are physical requirements on
their size, as these are the interconnection to the outside world.
When shrinking a design, not all modules may reduce by a common
amount, and the result of this can be clearly seen in blank areas,
or areas of extra metallisation. Similarly, some features can be
modified or removed in the shrink, as the new set of design rules
or criteria fed into the computer performing the shrink task, make
some of the old features redundant. This can be shown in
staggered interconnects made straight.
Two effects of this type of reduction can be seen as a module that
is dominated by transistors can reduce in size by nearly 50 per
cent and a second module, that is dominated by wires/traces,
reduce nearly 33 per cent. When viewing this effect, it will be
noticed that a module appears smaller, in comparison to others, on
the shrunk die. The second aspect of this can be a grater
reduction in one direction than in the other, ie the width may be
principally determined by the transistor geometry (and is shrunk
by 50 per cent), and the length governed by the traces (which is
shrunk by 33 per cent). If the original size of the block were
100 (width) by 300 (height), ie the original had an aspect ratio
of 100:300 (or 1 to 3) and the new shrunk block has an aspect
ratio of 50:200 (or 1 to 4).
Accordingly, scaling is revealed not by placing one layout over
another but by comparing the physical transistor layout (or
placement) within blocks, the metallisation within and between
blocks and modules and the relative position of transistor or
groups of transistors and/or metal traces to each other.
Inspection of the Nintendo and Spica integrated circuits shown on
the photographs shows that the relative transistor layouts, block
and module position and tracking layout and level are
substantially identical.
In my opinion the Spica integrated circuit is a shrunk copy of the
Nintendo circuit. I base this conclusion on the substantial
identify referred to above and other indications of shrink on the
photograph of the Spica circuit. These are that a change in the
geometric relativity of parts of the circuit has been dictated by
a reduction in width of the metal interconnects (a manufacturing
constraint) and that blank areas (which show as empty green spaces
on the photograph) have been left by the scaling down. These
blank areas serve no useful purpose and would be avoided in the
interests of economy if possible. Some tidying up has occurred in
the Spica circuit in the course of the computer shrink but to the
extent that that reflects differences, they are minor and cosmetic."

62. The respondents submitted that the word "evaluate" means, amongst other things, "to work out the value of" and the word "analyse" means, amongst other things, "to take to pieces". According to the respondents, the UMC PPU was "reverse engineered" and they rely upon the description given by Mr Osborne in his 29 August 1991 report which reads in part:

"the first step would have been to open and inspect the Nintendo
design, noting the various functional blocks and their
interconnections. Chips of this type use circuitry which is well
known to designers of video display systems, so that most of the
interconnections and functions could be inferred from microscopic
examination without detailed copying of the circuit.
Large areas of the chip are occupied by well known components such
as gates, flip-flops, programmable logic arrays, static and
dynamic memory. All major semiconductor design houses have
extensive libraries of such parts which have already been designed
and well proven. Thus each of the parts so identified would have
been replaced by similar elements from UMCs parts library. Some
area where library parts were unavailable may well have been hand
copied at the geometric level but would still need to have been
understood and analysed to allow the design to be modified and

simulated.

At the completion of this process, a schematic diagram of the
original design would have been generated, which almost certainly
would then have been simulated to ensure that it was correct and
to provide a starting point for reworking.
The next step would have been to modify the existing circuitry and
add any extra circuits to achieve the required performance,
simulate the new design and then fabricate it.
The whole process is not much less demanding than design from
scratch, the only difference being that the outcome is more
certain because a largely proven design is being used, and time is
saved in not needing to create a new floor plan. In some ways it
is actually more demanding because it requires analysis of the
existing circuit which is not easy.
The combination of similarities at the structural level,
substantial differences at the detailed level and the presence of
extra circuitry in the timing generator area in particular
convince me that the reverse engineering scenario that I have
described is the most likely one."

63. Such steps, according to the respondents, constitute "evaluation or analysis".

64. Alternatively, they submit that the procedures described by Mr Jones as "shrinking" constitute "evaluation or analysis" sufficient for the purposes of s.23(1)(a); that is, "there has been a separating, distinguishing or ascertaining of the elements of the various process layers of the chip".

65. Accepting, as I do, the evidence of Mr Jones and the submissions of the applicant, I reject these submissions of the respondents. I am satisfied that s.23 affords them no comfort.

66. The respondents also sought to rely on s.20 of the Act. They submitted that Centronics did not know or could not reasonably be expected to have known that the UMC PPU was unauthorised at the time when it acquired the circuit (s.20(1)); and that it had not become aware or could reasonably be expected to have become aware at any later time that the circuit was unauthorised (s.20(2)).

67. Section 20 reads:

"(1) The EL rights in an eligible layout are not infringed by a
person who commercially exploits, or authorises the commercial
exploitation of, an unauthorised integrated circuit in Australia,
being a circuit made in accordance with the layout, if, at the
time when the person acquired the circuit, the person did not
know, and could not reasonably be expected to have known, that,
the circuit was unauthorised.
(2) Where a person referred to in subsection (1) becomes aware,
or could reasonably be expected to have become aware, that the
integrated circuit is unauthorised, that subsection ceases to
apply to any subsequent commercial exploitation of the circuit,
unless the person pays to the owner or exclusive licensee of the
EL rights in the layout such equitable remuneration as is agreed,
or as is determined by a method agreed, between the person and the
owner or exclusive licensee or, in default of agreement, as is
determined by the Federal Court of Australia on application made
by either of them."

68. As the applicant correctly submitted, Centronics knew from shortly after 31 August 1990 that Nintendo claimed proprietary rights in the PPU layout, when it received the letter from the applicant's solicitors, bearing that date, which read as follows:

"As you are aware we act for Nintendo Co. Ltd. and its exclusive
Australian distributor, Mattel Pty. Ltd.
Some time ago we corresponded with you in respect of the Spica
Entertainment Unit.
After a thorough technical examination, our client has not
established that the PPU in the Spica Unit is a copy of that
contained in the Nintendo Entertainment System. Furthermore, we
reassert that games cartridges sold with the Spica Entertainment
Unit are unlawful copies of games in which our client owns the
copyright.

69. We now require you to provide us with the following by Friday, 7th September 1990:-

(a) Details of the number of games cartridges, containing
Nintendo games, which you have imported into Australia or
manufactured or caused to be manufactured in Australia.
(b) Details of the number of Spica Entertainment units which you
have imported into Australia or manufactured or caused to be
manufactured in Australia.
(c) Details of the number of games cartridges and Spica
Entertainment Units currently in your possession or under
your control.
(d) A written Undertaking that you will forthwith:-
(i) deliver up to our client all offending games
cartridges and entertainment units which are or
subsequently come into your possession or control; and
(ii) cease and desist from importing, manufacturing,
selling, marketing or otherwise dealing in such game
cartridges or Spica Entertainment Units.
Unless these details and Undertakings are provided to us by 10:00
a.m. on Friday 7th September 1990 we are instructed to immediately
commence proceedings without any further notice to you."

70. Those proprietary rights have now been admitted. Centronics has always known that it was not licensed by Nintendo. In my opinion, it could reasonably be expected to have known that the circuit was unauthorised from the date on which the Act came into operation, 1 October 1990.

71. I am satisfied that the applicant's EL rights in the Nintendo PPU, an eligible layout, have been infringed by Centronics, and that the second, third and fourth respondents have caused or permitted that infringement.

72. Section 20 is concerned with the state of mind of a respondent in relation to the question whether a circuit was unauthorised. Section 27 deals with a respondent's state of mind in relation to the question whether it was aware or had no reasonable grounds for suspecting that the act constituting the infringement was an infringement.

73. Section 27 reads in part as follows:

"(1) Subject to this Act, the owner of EL rights may bring an
action for an infringement of those rights.
(2) Subject to this Act, the relief that a court may grant in an
action for infringement of EL rights includes an injunction
(subject to such terms, if any, as the court thinks fit) and
either damages or an account of profits.
(3) Where, in an action for an infringement of EL rights, it is
established that an infringement was committed but that, at the
time of the infringement, the defendant was not aware, and had no
reasonable grounds for suspecting, that the act constituting the
infringement was an infringement, the plaintiff is not entitled to
any damages against the defendant in respect of the infringement
but is entitled to an account of profits in respect of the
infringement, whether any other relief is granted or not ..."

74. In my opinion Centronics had reasonable grounds for suspecting that it had infringed the applicant's rights from the date of its receipt of the letter of 31 August 1990. These grounds and this suspicion must have been strengthened by the issue of proceedings. Nintendo has received no payment or offer of payment.

75. Centronics purported to rely on assurances from Keyman conveyed to it by Danny Chen, of that company, in support of its general contention that it was not in breach of the Act. The worth of any such assurances must have been seen to be very slight when Centronics received the letter from Keyman dated 1 December 1989, which read as follows:

"Dear Maurice,
I would like to answer your question as follows:
POINT 1 GAME CARTRIDGES
I think I have told you before, some game cartridges are designed
by Nintendo. These cartridges will have copyright problem. But,
not every cartridge has the copyright problem, because there are
lots of software house in Japan, they also design the software of
cartridges.
For this point, our solution are:
1. We don't offer any cartridge together with IQ-701 game
machine. The end-user could buy the cartridges from local
market.
2. We have some other game cartridges which is designed by a
USA company named 'TENGEN' and compatible with Nintendo. We
could get the licence from them very soon, but the price
will be a little high, as we have to pay the licence charge.
The another way is (just for your personal reference): You
could consider to set-up another sales channel to sell the
cartridges under table (emphasis included in original
letter) (but, you know it is illegal. Of course we could
arrange the source for you.
POINT 2 NINTENDO TRADE MARK
When you take any advertisement, you only can specify your machine
is 'NINTENDO compatible'. And please add a small description:
NINTENDO IS A REGISTER TRADE MARK OF NINTENDO CO., LTD. It is
similar with our advertisement of IBM compatible computer. The
best way is: You could check from Trade Mark Office in your
country what trademark was registered by NINTENDO. And you should
avoid these trademark.
POINT 3 POWER ADAPTER
We could 100% confirm the adapter will have no any patent right
problem. As it is a very normal and standard adapter. Your can
very easy to find such an adapter for Walk-man radio/recorder,
rechargeable battery or some electronic equipment.
POINT 4 LIGHT GUN
For this item, we also can absolutely confirm that it is without
patent right problem. The tooling shade of light gun is designed
by ourselves. And the 'INFRARED' principle is a normal principle.
If Nintendo say they own a patent right, it means that all of
remote control equipment like TV sets ... etc will against the law.
Dear Maurice, according to our experience of selling lots of TV
game to several countries, we find the Nintendo always like to ask
something for trouble. I hope you should have a preparation in
your mind, the Nintendo will keep on to ask for trouble. But,
every time they always conclude without result.
I hope the above explanation will be helpful for you.
Thanks and regards
Danny Chen"

76. Paragraph number 2 under the heading "Point 1 Game Cartridges" was a particularly eloquent indication of the author's conception of business morality.

77. I make the following orders:

1. The respondents and each of them be restrained from -
(a) selling, letting for hire or distributing by way of trade;
(b) offering or exposing for sale, hire or other
distribution by way of trade; or
(c) importing for the purpose of sale, letting for hire or
other distribution by way of trade;
whether as part of Spica video game consoles or otherwise,
PPU chips in the form of the UMC PPU chip a photographic
representation of the integrated circuit of which is Exhibit
TR-1 herein or otherwise howsoever infringing the
applicant's EL rights in the circuit layout a photographic
representation of which is Exhibit TR-2 herein.
2. The respondents within seven days of the date hereof -
(a) deliver up to the applicant each of the UMC PPU chips
referred to in paragraph 1 hereof;
(b) make file and serve an affidavit verifying that all
such UMC PPU chips have been delivered up as aforesaid.
3. There be an inquiry as to damages or at the applicant's
option an account of profits made by the respondents and
each of them by infringement of the applicant's said EL
rights and payment of the sum found due.
4. (a) The respondents within fourteen days of the date
hereof make file and serve an affidavit setting out
details of all sales made of Spica video games units
containing the UMC PPU chip referred to in paragraph 1
hereof;
(b) within fourteen days thereafter, the applicant make
its election referred to in paragraph 3 hereof and
communicate the same to the respondents;
(c) the applicant have liberty to apply thereafter as to
the conduct of the said enquiry or account (as the
case may be).
5. By consent the respondents be restrained from importing
selling or authorising the importation or sale of any
article which reproduces or substantially reproduces -
(a) the Super Mario program referred to in paragraph 4 of
the Statement of Claim or the Super Mario program
referred to in paragraph 12 of the Statement of Claim;
(b) the Duck Hunt program referred to in paragraph 8 of
the Statement of Claim or the Duck Hunt program
referred to in paragraph 16 of the Statement of Claim.
6. By consent, the respondents be restrained from infringing
Australian registered trade marks -
(a) A443265;
(b) A443266;
(c) B444110;
or any of them and in particular from using the trade marks-
(i) Super Mario Bros.;
(ii) Super Mario Brothers;
(iii) Mario Bros.
or any name word or mark substantially identical with
or deceptively similar thereto in the course of trade
on or in relation to any of the goods in respect of
which the said registered trade marks are respectively
registered.
7. The respondents pay the applicant's costs of the proceeding
including any reserved costs.