Bodum v Housewares International Limited [2007] FCA 44 (6 February 2007)

COSTS – cross-claim for rectification of the Register of Designs – offers of compromise rejected – cross-respondents sought the Court’s consent to the surrender of the designs – media release asserting design infringement and piracy was unreasonable – indemnity costs payable until media release qualified – costs otherwise follow the event – no costs payable after the cross-respondents informed the cross-claimant in an open letter of their intention to surrender the designs

DESIGNS – "person aggrieved" – no allegation of design infringement pleaded – adoption of features of shape and configuration alleged to constitute passing off and contravention of ss 52 and 53 of the Trade Practices Act 1974 (Cth) – threat of design infringement made but later withdrawn – arguable that cross-claimant is a "person aggrieved"

Designs Act 1906 (Cth) s 39

Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121 cited
Assa Abloy Australia Pty Ltd v Australian Lock Company Pty Ltd [2005] FCAFC 246; (2005) 147 FCR 126 applied
Black v Lipovac (1998) 217 ALR 386 cited
Hamod v New South Wales (2002) 188 ALR 659 cited
Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158 cited

PETER BODUM A/S, BODUM (AUSTRALIA) PTY LIMIED (ACN 104 809 672) AND PI DESIGN AG v HOUSEWARES INTERNATIONAL LIMITED (ACN 086 933 431)

NSD 619 OF 2005

BENNETT J
6 FEBRUARY 2007
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 619 OF 2005

BETWEEN:	PETER BODUM A/S First Applicant / Second Cross-Respondent BODUM (AUSTRALIA) PTY LIMITED (ACN 104 809 672) Second Applicant / Third Cross-Respondent PI DESIGN AG Third Applicant / First Cross-Respondent
AND:	HOUSEWARES INTERNATIONAL LIMITED (ACN 086 933 431) Respondent / Cross-Claimant

JUDGE:	BENNETT J
DATE OF ORDER:	6 FEBRUARY 2007
WHERE MADE:	SYDNEY

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 619 OF 2005

BETWEEN:	PETER BODUM A/S First Applicant / Second Cross-Respondent BODUM (AUSTRALIA) PTY LIMITED (ACN 104 809 672) Second Applicant / Third Cross-Respondent PI DESIGN AG Third Applicant / First Cross-Respondent
AND:	HOUSEWARES INTERNATIONAL LIMITED (ACN 086 933 431) Respondent / Cross-Claimant

JUDGE:	BENNETT J
DATE:	6 FEBRUARY 2007
PLACE:	SYDNEY

1 The applicants (collectively ‘Bodum’) sought the Court’s consent to the surrender of two designs (Australian Design Nos. 123181 and 129239) (‘the designs’) registered in the name of the third applicant. That consent was required by s 50(4) of the Designs Act 2003 (Cth) (‘the Act’). The Court gave its consent on 2 May 2006 without opposition from the respondent (‘Housewares’). At issue are the costs incurred in these proceedings in relation to the designs. Housewares submits that its costs of Bodum’s motion for the Court’s consent and its cross-claim for rectification of the Register of Designs should be paid by Bodum on an indemnity basis. Bodum submits that each party should pay its own costs.

3 It is necessary to set out the procedural history of this matter with respect to the designs in some detail.

4 The first design (Australian Design No. 123181) claims a monopoly in the shape and configuration of ‘a set of articles comprising a coffee maker and drinking vessel’. That design was registered on 13 April 1995 and claims priority as at 16 March 1994. The second design (Australian Design No. 129239) was registered on 21 February 1997 and claims priority as at 5 January 1995. It claims a monopoly in the shape and configuration of a bowl.

5 Bodum and Housewares each sell coffee plungers and related household products in Australia. One such product, manufactured and distributed by Bodum, is a coffee plunger called the "Bodum Chambord Coffee Plunger" (‘the Chambord plunger’). On 20 August 2004, Bodum’s solicitors wrote to Housewares and demanded that Housewares cease importing and selling three products alleged to be ‘direct copies’ of the Chambord plunger in Australia. The importation and sale of those products was said to constitute an infringement of the first design and give rise to causes of action for trade mark infringement, contravention of ss 52 and 53 of the Trade Practices Act 1974 (Cth) and passing off. No reference was made to the second design.

6 Housewares responded by its solicitors on 1 October 2004. Relevantly, Housewares’ response alleged that coffee plungers of the same shape and configuration as the first design had been available for sale in Australia well before the priority date of that design. The letter stated that Housewares would apply to the Court for an order ‘revoking the registration’ if Bodum proceeded with an action for design infringement.

7 Bodum’s solicitors proceeded to draft pleadings and in so doing received further instructions. Relevantly, those instructions were that the first design did not, in fact, relate to the shape and configuration of the Chambord plunger. It related to a different plunger instead. That fact was relayed by Bodum’s solicitors to Housewares’ solicitors in a "without prejudice" letter on 4 April 2005. The letter stated ‘[t]herefore, if litigation becomes necessary, the case will proceed based on infringement of Australian Registered Trade Mark No. 659903, breaches of sections 52 and 53 of the Trade Practices Act and passing off only’ (my emphasis). Bodum now seeks to rely on the relevant passages of that letter and waives any privilege attaching to those passages.

8 Housewares’ responded by reserving its right to apply for an order revoking the first design on 12 April 2005. Its solicitors stated in their response ‘[w]e assume that your client is not proceeding with the previously threatened design infringement claim because your client understands that your client, in 1995, had no basis upon which to seek to register the design’. A reply "without prejudice" letter was sent by Bodum’s solicitors to Housewares’ solicitors on 20 April 2005. The reply stated that ‘it is not the case that our client is no longer proceeding with a design infringement claim against [Housewares] because there was no basis for the design’s initial registration’. It also elaborated upon the explanation earlier given by Bodum’s solicitors that the first design in fact related to a different coffee plunger. That plunger was said to incorporate a plastic (rather than metal) frame and had been discontinued. Bodum also seeks to rely on the relevant passages of the letter of 20 April 2005 and waives privilege attaching to those passages.

9 These proceedings were issued by Bodum on the following day. By its application and statement of claim, Bodum alleged trade mark infringement, passing off and contraventions of ss 52 and 53 of the Trade Practices Act in respect of coffee plungers and related products distributed and sold by Housewares. Those products allegedly incorporate features of Bodum products, including the Chambord plunger. An amended statement of claim was filed by Bodum on 31 May 2005. Allegations of passing off and contraventions of ss 52 and 53 of the Trade Practices Act in respect of other products distributed by Housewares were included. No claim for infringement was made in respect of the first or second designs.

10 Pursuant to s 39(1) of the Designs Act 1906 (Cth) (‘the old Act’), a ‘person aggrieved’ by an entry wrongly made or remaining in the Register of Designs may apply to the Court for an order to rectify the Register. Housewares’ filed a cross-claim on 28 June 2005 pursuant to that section relevantly seeking an order to expunge the first and second designs. Orders for rectification were sought under the old Act as the designs were registered before the commencement of the Act (s 151(3) of the Act). The basis for expungement was an allegation that the first and second designs were not new or original in Australia at their priority date. Bodum filed its defence to the cross-claim on 15 July 2005. Bodum denied that Housewares was a "person aggrieved" and entitled to bring the cross-claim.

11 Three offers of compromise were made by the parties pursuant to O 23 r 2 of the Federal Court Rules (‘the Rules’) after the filing of Bodum’s defence to the cross-claim. Each offer was made without prejudice save as to costs.

12 First, under cover of separate letters dated 12 September 2005 in respect of the first and second designs, Housewares offered to discontinue its cross-claim for rectification of the Register on the condition that Bodum release Housewares and others (including purchasers of Housewares’ products) from any claim for infringement of the designs. According to the terms of offer, Housewares’ costs of the cross-claim would be payable by Bodum. The covering letters acknowledged that no infringement of the second design had ever been claimed by Bodum. Nevertheless, Housewares asserted it was a "person aggrieved" by the second design because sugar bowls the subject of allegations made in the amended statement of claim possessed the same shape and configuration as was covered by the monopoly of the second design. Housewares also asserted, in relation to the first design:

13 Secondly, under cover of separate letters dated 29 September 2005 in respect of each design, Bodum proposed its own offers of compromise. According to the terms of that offer, Bodum would voluntarily surrender the designs in return for Housewares discontinuing the cross-claim. Each party was to pay its own costs. No release was included in the offer. Bodum’s solicitors explained in the letters ‘[o]ur clients are of the opinion that [Housewares’] offer does not involve any real element of compromise on your client’s behalf. Acceptance of the offer would mean that [the first or second design] could never be enforced against [Housewares], and Bodum would be required to pay your client’s costs in circumstances where it did not claim infringement’ of the first design and ‘neither threatened nor claimed infringement’ of the second design.

14 A third offer of compromise was proposed by Housewares on 11 October 2005. That offer was in substantially identical terms to Bodum’s offer, save for the fact that Housewares’ costs of the cross-claim were to be payable by Bodum and each party was to give written consent to the surrender of the designs. That offer was rejected by Bodum by its solicitors on 25 October 2005. Bodum’s solicitors maintained the position that Housewares’ was not a "person aggrieved" and denied that the terms proposed by Housewares represented a genuine offer of compromise in circumstances where there was no waiver by Housewares of its entitlement to costs.

15 On 10 October 2005, after the second offer of compromise but prior to the third, Bodum issued a press release titled ‘AUSTRALIA USED AS A DUMPING GROUND FOR CAFé COPIES’ (‘the media release’). The media release identified Housewares as one of two companies targeted by Bodum in legal proceedings in this Court as part of ‘an extension of [Bodum’s] worldwide crackdown on pirate copies of its designs’. The media release further stated ‘[t]he companies who are behind the copying and manufacturing of pirated designs...target Australia and New Zealand’. Specific reference was made to ‘design infringement’ and the fact that the second applicant ‘would not tolerate importers or manufacturers pinching the innovative Bodum designs nor trading off the Bodum reputation’.

16 Not surprisingly, the media release resulted in a flurry of correspondence between the parties’ solicitors. Of particular relevance for present purposes is an open letter sent by Bodum’s solicitors to Housewares’ solicitors on 28 November 2005 seeking to ‘clarify’ the media release so far as it referred to a claim or possible claim for design infringement. According to that letter, no allegation of infringement by Housewares of any registered design owned by Bodum was ever intended to have been made by the media release. The letter reiterated that Bodum had at no stage made any allegation of design infringement by its pleadings. The letter also stated:

17 Notwithstanding the unequivocal withdrawal of any allegation of infringement in respect of the first design, Housewares’ solicitors served a notice to admit facts pursuant to O 18 r 2 of the Rules in respect of the visual features of shape and configuration applicable to the first and second designs and certain products the subject of these proceedings on 23 February 2006. Bodum’s solicitors replied on the following day by open letters stating that they had received instructions to surrender each design voluntarily in accordance with the procedure set out in s 50 of the Act. By s 50(4) of the Act, Housewares’ consent or the Court’s consent to the surrender of the designs was required. The letters proposed that, if consent from Housewares’ were not forthcoming, a notice of motion seeking the Court’s consent to the surrender of the designs would be filed.

18 Housewares’ solicitors replied on 1 March 2006 and advised that Housewares was prepared to consent to the surrender of the designs on the condition that Bodum agree to pay its costs of the cross-claim for rectification on a party and party basis. The letter complained that Bodum’s further offer to surrender the designs was made, notwithstanding Housewares’ previous offers of comprise, at a time when Housewares’ evidence on the cross-claim was substantially complete. Bodum rejected that offer on the same day in an open letter. Its letter of rejection ‘formally put [Housewares] on notice that it need not take any further steps in these proceedings relating to the [designs]’ (my emphasis).

19 A notice disputing some, but not all, facts in respect of the shape and configuration applicable to the first and second designs and products the subject of these proceedings was served by Bodum under cover of a letter dated 9 March 2006. That letter stated that a notice of motion seeking the Court’s consent to the surrender of the designs was being prepared and that:

20 Bodum filed its notice of motion seeking the Court’s consent to the surrender of the designs on 22 March 2006.

21 Bodum submits that the parties should pay their own costs of the cross-claim for rectification and of Bodum’s motion for the Court’s consent. In the event that Bodum is liable to pay any of Housewares’ costs, it submits that those costs should be limited to costs incurred up to 29 September 2005. That was the date when Bodum’s offer of compromise was formally put to Housewares ([13] above).

23 Bodum also refers to the expert evidence of Cheng Khai Voon, filed by Housewares in support of its cross-claim on 19 April 2006. Bodum submits that that evidence, which was not read by Housewares on the costs dispute, confirms that there are differences between the first and second designs and the Bodum products the subject of this litigation. Bodum also points to the fact that Mr Voon’s affidavit was affirmed on 14 March 2006, some two weeks after Bodum informed Housewares that it would surrender the designs and that the incurring of further costs was unnecessary.

24 Housewares submits that Bodum’s approach to the Court for its consent to the surrender of the designs is a clear vindication of its cross-claim alleging that the designs are not new or original and should never have been registered. In these circumstances, Housewares submits that "costs follow the event" and that such costs should be awarded on an indemnity basis because:

25 Housewares acknowledges that these proceedings do not include allegations of design infringement. However, it submits that Bodum took no step in open correspondence to withdraw the initial threat of design infringement until 28 November 2005. By then, the cross-claim had already been filed. The "without prejudice" letter of 4 April 2005 provided insufficient comfort to Housewares and no assurance about threats and claims that might be made to its customers. The risk of such claims being made is said to have been confirmed by the assertions made in the media release.

26 Housewares also disputes the proposition that it is not a "person aggrieved". It points to the broad terms of the statement of monopoly of each design and similarities between the monopolies claimed and the products the subject of these proceedings. Those similarities are said to be apparent upon "simple visual inspection" of the designs and confirmed by admissions made by Bodum in response to Housewares’ notice to admit facts. In circumstances where Bodum issued proceedings against Housewares’ for incorporating design features of Bodum products and those features are covered by designs, Housewares submits that its entitlement to bring the cross-claim for rectification is clear.

27 Fundamental to Bodum’s position is the submission that Housewares cannot establish that it is a "person aggrieved" and does not have standing to bring the cross-claim for rectification. Bodum submits that, if that submission be accepted, it follows that Housewares acted unreasonably in filing and pursuing the cross-claim and should pay its own costs.

28 Bodum’s submission that Housewares cannot be a "person aggrieved" is not accepted. Those words embrace ‘any person having a real interest in having the entry expunged’ and include ‘any person who would be or in respect of whom there is a reasonable possibility of his or her being "appreciably disadvantaged in a legal or practical sense" by the entry not being expunged’ (Assa Abloy Australia Pty Ltd v Australian Lock Company Pty Ltd [2005] FCAFC 246; (2005) 147 FCR 126 at [19]; Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158 at 193). A ‘close and direct connection in both a legal and practical sense between the existence and duration of the designs and potential damage to the appellant’ was sufficient in Assa Abloy, although Heerey and Allsop JJ thought it inappropriate in that case to express a view as to what the limits may be (at [24]).

29 The statement of monopolies in the designs is broad; for example, the monopoly in the first design does not appear to be limited to a plastic framed coffee maker (cf [8] above). Bodum concedes, by its notice disputing facts, that the visual features of shape and configuration applicable to the designs exactly reproduce some Bodum products the subject of these proceedings. The adoption of those features by Housewares in its products is said to amount to passing off and contravention of ss 52 and 53 of the Trade Practices Act. With reference to these matters, Housewares might have been able to establish a "reasonable possibility" that it would be disadvantaged in a practical or legal sense by the designs not being expunged from the Register. This is especially so in relation to the first design, in respect of which a direct threat of infringement had been made. Although Bodum informed Housewares on 5 April 2005 that it would not bring infringement proceedings in respect of the first design, the communication was "without prejudice". It gave Housewares no assurance as to allegations that might be made against potential customers. There is evidence that Bodum asserted rights in the first design against a third party’s product that allegedly incorporated features of the Chambord plunger. It was not unreasonable for Housewares to file the cross-claim for rectification and seek to establish standing. Nor was it unreasonable for Housewares to pursue the cross-claim after the "without prejudice" letter of 5 April 2005. Bodum submits that Housewares could have later relied on that letter with reference to an exception in the Evidence Act 1995 (Cth) (s 131(2)(g)) but it is by no means certain that this is the case. Such reliance on the letter may well have been disputed by Bodum.

30 Housewares filed a cross-claim for expungement of the designs and Bodum has now approached the Court for its consent to the surrender of those designs. It follows that, unless the offers of compromise or the parties’ conduct changes the position, Bodum is liable to pay Housewares’ costs of the cross-claim for rectification and the motion seeking the Court’s consent on a party and party basis.

31 Neither party referred to O 23 r 11 of the Rules for the purposes of this motion. Housewares submits that Bodum’s rejection of the first offer of compromise ([12] above) is so unreasonable as to justify indemnity costs. Housewares asserted in correspondence that it would seek indemnity costs from the date of that offer in accordance with Alpine Hardwoods (Aust) Pty Ltd v Hardys Pty Ltd (No 2) (2002) 190 ALR 121.

32 Mere refusal of an offer or a Calderbank offer does not of itself warrant an order for indemnity costs; the offeror needs to show that the conduct of the offeree was unreasonable (Alpine Hardwoods 190 ALR at [28], [35]; Black v Lipovac (1998) 217 ALR 386 at [217] to [218]). Bodum took the position that Housewares was not a "person aggrieved" in relation to the first and second designs and, for that reason, rejected the offer to release Housewares from any claim for design infringement in circumstances where Bodum would be liable to pay Housewares’ costs. While Housewares was entitled to seek to establish that it was so aggrieved, the cross-claim would fail if Housewares had no standing to bring the action. It was not unreasonable for Bodum to argue that Housewares was not a "person aggrieved" in circumstances where no allegation of design infringement had been pleaded. Mere refusal by Bodum of the first offer of compromise does not justify indemnity costs.

33 On 29 September 2005, Bodum proposed its own offer of comprise. By the terms of that offer, open for 21 days, Bodum would surrender the designs, the cross-claim for rectification would be discontinued and each party would pay its own costs. Bodum’s solicitors asserted that the offer was a genuine compromise because Bodum had never claimed infringement of the designs. That position at to infringement was contradicted by the assertions made in the media release issued 11 days later. Those assertions were not clarified until 28 November 2005, when Bodum "unequivocally withdrew" any earlier allegation of infringement of the first design by an open letter.

34 In my view, it was unreasonable for Bodum to issue the media release when the offer to surrender the designs and resolve the cross-claim had been made. The media release sent a mixed message to Housewares. It unreasonably provoked Housewares to protect its position and the position of the retailers of its products. Bodum should pay the costs incurred by Housewares in respect of its cross-claim for rectification of the Register of Designs between the issue of the media release on 10 October 2005 and the "clarification" by Bodum on 28 November 2005 on an indemnity basis (Hamod v New South Wales (2002) 188 ALR 659 at [20]).

35 That leaves for consideration whether costs are payable on an indemnity basis after 28 November 2005. By then, Housewares was aware that there was no intention on the part of Bodum to allege design infringement. There was, however, still a dispute as to Housewares’ entitlement to bring the cross-claim and costs. Bodum had offered surrender of the designs on the condition that the cross-claim for rectification be discontinued and each party pay its own costs; Housewares had offered to discontinue the cross-claim in return for the surrender of the designs on the condition that Bodum pay its costs. The cross-claim for rectification of the Register of Designs was capable of resolution subject to the dispute as to who should be liable for costs.

36 Neither party sought to bring that situation to finality. Neither party approached the Court to finalise the surrender of the designs or the cross-claim and resolve question of costs. Bodum did not approach Housewares or the Court with respect to orders for surrender of the designs. Housewares, knowing of the proposed surrender and the effect on its cross-claim for rectification, did not seek to finalise the matter with Bodum, nor approach the Court for orders as to its cross-claim. That was the time to finalise the status of the cross-claim for rectification and any costs associated with it. Instead, the matter did not progress until after Housewares served a notice to admit facts relevant to the cross-claim and the designs on 23 February 2006. It was entitled to do so because the cross-claim for rectification was still in issue; the designs had not been surrendered. Directions had been made requiring Housewares to prepare its evidence.

37 It was Housewares’ notice to admit facts that seemed to have enlivened Bodum to take the necessary steps to resolve the dispute concerning the designs. Neither party acted to resolve the cross-claim before then. Instead, in order to take positions on costs, the parties engaged in correspondence that only served to increase the costs in respect of an arid dispute over Housewares’ entitlement to bring a cross-claim in respect of designs that Bodum was prepared to surrender. While Bodum is liable to pay Housewares’ costs up to the time it formalised its position on surrender ([39] below), subject to the consequences of the media release, it is not liable to pay indemnity costs in circumstances where both parties acquiesced in the ongoing accumulation of costs.

(3) Are costs payable from the filing of the cross-claim until Bodum’s approach to the Court?

38 It follows from my reasons above that Bodum’s submission that it should not be liable for Housewares’ costs after the making of its offer for compromise on 29 September 2005 is rejected, save for the following.

39 On 24 February 2006, Bodum informed Housewares of its instructions to surrender the designs, with or without agreement from Housewares. That communication was an open letter in respect of each design. The letters stated ‘[i]f [Housewares] is not willing to consent to the offer to surrender [the designs], we propose to file a motion seeking the Federal Court of Australia’s consent to the surrender and propose to seek costs if your client unreasonably rejects this offer’. It was not unreasonable for Housewares to insist that Bodum pay its costs to date as a condition for its consent. It did so by letter dated 1 March 2006. It was, however, unreasonable for Housewares to continue to incur costs on the cross-claim after being put on notice in an open letter that Bodum had instructed its solicitors to surrender the designs. This is especially so after 1 March 2006, when Bodum ‘formally put [Housewares] on notice that it need not take any further steps in these proceedings relating to the [designs]’. Bodum should not be liable to pay the costs incurred by Housewares after the letters dated 24 February 2006.

40 Bodum should pay Housewares’ costs of its motion for the Court’s consent to the surrender of the designs. Bodum should also pay Housewares’ costs of the cross-claim for rectification of the Register of Designs incurred prior to the letters of 24 February 2006. Costs incurred by Housewares between 10 October 2005 and 28 November 2005 are payable on an indemnity basis. Costs are otherwise payable on a party and party basis. Each party is to bear its own costs in relation to the cross-claim for rectification after 24 February 2006.

I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bennett.

Counsel for the Applicants:	D K Catterns QC and S J Goddard

Solicitor for the Applicants:	Mallesons Stephen Jaques

Counsel for the Respondent:	W A Rothnie

Solicitor for the Respondent:	Arnold Bloch Leibler

Date of Hearing:	2 May 2006

Date of Judgment:	6 February 2007