Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd [2008] FCA 74 (15 February 2008)

Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd [2008] FCA 74

REGISTERED DESIGN – Infringement of design – Rival trader making and selling product in same market as product of registered owner – Whether owner suffered diminution of sales of own product – Whether owner’s reputation for sale of original products affected – Quantum of damages to reflect dilution of reputation – Whether compensatory damages discretionary – Whether damages should be reduced by reason of owner’s misleading representations in connection with sale of own product – Additional damages – Whether warranted by proof of copying – Whether warranted when rival trader on notice of registration of design.

DAMAGES – Infringement of registered design – Quantum of damages to reflect dilution of reputation of registered owner – Whether compensatory damages discretionary – Whether damages should be reduced by reason of owner’s misleading representations in connection with sale of own product – Additional damages – Whether warranted by proof of copying – Whether warranted when rival trader on notice of registration of design.

Angelides v James Stedman Henderson’s Sweets Ltd [1927] HCA 34; (1927) 40 CLR 43
Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472
Ford v Foster (1872) LR 7 Ch App 611
Kettles & Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108
MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1998) 43 IPR 275
Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 76 FCR 565
Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88
The Leather Cloth Company Ltd v The American Leather Cloth Company Ltd (1865) 11 HLC 523

Designs Act 2003 (Cth)

REVIEW AUSTRALIA PTY LTD ACN 067 634 360 v INNOVATIVE LIFESTYLE INVESTMENTS PTY LTD ACN 107 012 260 AND CLOTHING OUTLETS PTY LTD ACN 056 273 851
VID 1028 OF 2006

JESSUP J
15 FEBRUARY 2008
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1028 OF 2006

BETWEEN:	REVIEW AUSTRALIA PTY LTD ACN 067 634 360 Applicant
AND:	INNOVATIVE LIFESTYLE INVESTMENTS PTY LTD ACN 107 012 260 First Respondent CLOTHING OUTLETS PTY LTD ACN 056 273 851 Second Respondent

JUDGE:	JESSUP J
DATE OF ORDER:	15 FEBRUARY 2008
WHERE MADE:	MELBOURNE

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1028 OF 2006

BETWEEN:	REVIEW AUSTRALIA PTY LTD ACN 067 634 360 Applicant
AND:	INNOVATIVE LIFESTYLE INVESTMENTS PTY LTD ACN 107 012 260 First Respondent CLOTHING OUTLETS PTY LTD ACN 056 273 851 Second Respondent

JUDGE:	JESSUP J
DATE:	15 FEBRUARY 2008
PLACE:	MELBOURNE

1 In the facts leading to this proceeding, the applicant was the owner of a design registered pursuant to the Designs Act 2003 (Cth). The design related to a ladies’ dress. The applicant alleges that the respondents made and sold a dress in infringement of the applicant’s design, and seeks declarations, damages and injunctions.

2 Until 28 February 2007, the applicant was a designer and retailer of women’s clothing, particularly clothing said to be of interest to fashion-conscious women in their 20s and 30s. Under its name "Review", the applicant retailed its clothing in its own stores, of which there were some 15 throughout Australia, and through concession sites within Myer stores, of which there were some 19 throughout Australia. Those stores, and sites, sold the applicant’s branded garments and accessories only. The applicant’s branded clothing was not available elsewhere.

3 The respondents too were engaged in the design, distribution and sale of women’s clothing. In the evidence and submissions before the court, no distinction was made between the first respondent (Innovative Lifestyle Investments Pty Ltd) and the second respondent (Clothing Outlets Pty Ltd): the case was conducted, by both sides, on the basis that the conduct of which the applicant complains was done by the respondents, without differentiation. In much of the evidence, the respondents were referred to as "The Discovery Group". Save for these very general observations, it is not possible to describe the respondents’ business, as they did not give evidence on the subject.

4 In the period leading to May 2005, Ms Jayne Ellis, a director of, and designer employed by, the applicant, designed a new original dress for retail distribution by the applicant. The design for that dress was included within a number of representations which were the subject of a design application made by the applicant, pursuant to s 21 of the Designs Act, on 24 June 2005. In late June 2005, the applicant dispatched commercial quantities of dresses made in accordance with the design to its stores and outlets, and these were shortly thereafter placed on display for retail sale.

5 On 14 November 2005, the applicant requested registration of the design pursuant to s 35 of the Designs Act. On 9 December 2005, the Registrar notified the applicant that its application met the minimum filing requirements, and had been given a filing date of 24 June 2005. The product to which the design related was described, in the particulars recorded by the Registrar, as a "ladies’ garment".

6 By at least the second week of September 2005, the respondents had commenced the process of causing a new dress to be manufactured. In evidence was a "costing sheet" dated 12 September 2005 upon a document headed "The Discovery Group". It related to the respondents’ new dress, and set out, in considerable detail, the design of the dress, the structure of the make-up of the dress, the materials and accessories of which the dress was to be made and the proposed time line for bringing the dress into production. That time line (the details of which were, I infer, inserted on the various later dates upon which relevant events occurred) suggested that the respondents’ dress was "passed to production" in late January 2006.

7 Also in evidence was a "Specification Sheet", a document of "The Discovery Group" dated 30 January 2006. As its name suggested, the document contained a detailed specification for the manufacture of the respondents’ new dress. It was to be branded "Lili". The specifications for various different sizes were set out.

8 Also in evidence was a purchase order of the respondents dated 22 January 2006, addressed to a company called Jedda Pleating Pty Ltd. It related to a sample pleating job (one unit) for the respondents’ new dress. It may be that this order was raised after the event, since the Jedda invoice for this sample pleating was dated 18 January 2006. However these anomalies may be, it seems fairly clear, and I would infer, that, at some time in January 2006 or thereabouts, the respondents caused Jedda Pleating Pty Ltd to perform work upon a sample of what was intended to be their new dress.

9 In February or March 2006, the respondents placed orders with a business called "Thuan Loi Fashion" for the manufacture of what appear to have been commercial quantities of their new dress. Documents in evidence suggest that, by 17 March 2006, Thuan Loi Fashion had manufactured some 157 dresses, and delivered them to the respondents.

10 There were in evidence two sales history reports, discovered by the respondents, for the "Lili" dress. One report was headed "Discovery Clothing", from which heading, and from the content of the report generally, I infer that it related to the respondents’ wholesale sales of that dress over the period 1 July 2005 to 23 February 2007. Curiously, the report shows some sales activity prior to what I have considered to be the manufacture of commercial quantities of the dress. The numbers were very small, and seem to have included a "staff" transaction. The respondents led no evidence about these minor anomalies. The date upon which reasonable wholesale quantities of the dress were, according to the report, first sold by the respondents was 14 March 2006. A total of 150 units (net of returns) was sold in March and April 2006. A further eight sales were made in May. There was one sale (and there appear to have been two returns) in June, and there was a further sale in December 2006. The other report was headed "Discovery Retail" and I infer that it related to the respondents’ retail sales of the "Lili" dress over the period 1 July 2005 to 31 March 2007. It shows eight sales in April, five sales in May, three sales in June (all subsequent to 2 June), 10 sales in July and one sale in September 2006.

11 On 5 May 2006, an employee of the applicant attended at a "Charlie Brown" store located at Direct Factory Outlets in Moorabbin and purchased one unit of the respondents’ dress.

12 On 2 June 2006, the Registrar of Designs issued a Certificate of Registration in respect of the applicant’s design.

13 On 7 June 2006, solicitors for the applicant wrote to the respondents, drawing attention to the then recent registration of the applicant’s design and warning that, should a certificate of examination be issued under Part 3 of Ch 5 of the Designs Act in relation to that design, continued sale by the respondents of the "Lili" dress would entitle the applicants to damages. The letter suggested that the respondents should cease selling their dress. By letter dated 21 June 2006 to the applicant’s solicitors, the respondents said that they were "a designer, manufacturer, distributor of ladies wear fashion clothing in the Australian market". In various ways, they said that the design of the "Lili" dress was the result of the respondents having derived inspiration from current fashion trends in Australia and overseas. They denied that the respondents had copied the design of the applicant’s dress.

14 On 13 July 2006, the Registrar certified, pursuant to s 67 of the Designs Act, that examination had been completed in relation to the applicant’s registered design.

15 On 19 September 2006, the applicant commenced the present proceeding against the respondents. It sought a declaration that the respondents had infringed the registered design, and injunctions to restrain the respondents from infringing the design, from manufacturing, importing, exhibiting in public, marketing, promoting, offering for sale and selling the "Lili" dress and from disposing of possession of that dress, save in accordance with orders for delivery up which the applicant also sought. The applicant sought damages or, at its election, an account of profits.

16 For reasons which were seemingly unconnected with the present litigation, in October 2006 there was what was described as a "private equity buy-out" of the applicant. What actually happened, according to the evidence of Mr Peter Strain, a director of the applicant, was that, in that month, a majority interest in the shareholding of the applicant was sold. On 28 February 2007, the business of the applicant was transferred to a company then called Review Holdings Pty Ltd (ACN 122 295 836). On the same day, the design registration with which this proceeding is concerned was transferred from the applicant to Review Holdings. On 13 March 2007, the applicant changed its name to Review 2 Pty Ltd, and Review Holdings changed its name to Review Australia Pty Ltd. The latter change in name was recorded on the design register. To avoid confusion, I shall refer to the company previously called Review Holdings Pty Ltd, and now called Review Australia Pty Ltd, as "Review Holdings".

17 On 13 June 2007, the applicant appointed liquidators for the purposes of a members’ voluntary winding up pursuant to Division 2 of Part 5.5 of the Corporations Act 2001 (Cth). Mr Strain accepted that the purpose of the appointment of the liquidator had been that of "closing out the applicant’s affairs".

18 In its Statement of Claim dated 18 September 2006, the applicant alleged that the respondents had, without its licence or authority –

It will be noted that these allegations correspond to the different categories of infringing conduct set out in s 71(1) of the Designs Act. In their Amended Defence filed on 10 December 2007, the respondents denied that their dress was identical to the applicant’s design, but otherwise admitted the allegations in subpars (c), (d) and (e) of the applicant’s pleading. They denied every allegation in subpars (a) and (b). There was no evidence of importation as alleged in subpar (b) of the applicant’s pleading and, at trial, it was not submitted on behalf of the applicant that that allegation had been made good.

19 In the result, the position before the court is that the respondents have admitted that they sold, offered to sell or disposed of a product (the "Lili" dress) which was substantially similar in overall impression to the applicant’s design. They admitted also that they used such a product for the purposes of their trade or business, and that they kept such a product for the purposes of sale etc. A remaining issue is whether, in addition to being substantially similar in overall impression to the Review design, the respondents’ dress was identical to that design. The other issue, relevantly to s 71 of the Designs Act, relates to subpar (a) of the applicant’s pleading. Although, strictly speaking, all of the relevant allegations were denied by the respondents, they conducted the trial on the basis that, consistently with their admissions in relation to subpars (c), (d) and (e), their dress was substantially similar in overall impression to the applicant’s design. The point which they made in relation to subpar (a) was that they themselves neither made nor offered to make the "Lili" dress. It was said that the dress was made by independent contractors, not by the respondents.

20 The respondents’ dress that was purchased by an employee of the applicant at Charlie Brown was tendered in evidence. Although I can well appreciate why the respondents have admitted that that dress was substantially similar in overall impression to the applicant’s design, I would not go to the extent of finding that it was identical thereto. There were points of difference, at the level of detail, between the respondents’ dress and the applicant’s design which were pointed out to the court during the course of the evidence. Those points of difference preclude me from finding that the dress was identical to the design.

21 With respect to subpar (a) of the applicant’s pleading, I do not accept the distinction, sought to be made by the respondents, between a product made by those directly employed by a company, on the one hand, and a product made by an independent contractor at the behest of a company, on the other hand. In the policy context of the Designs Act, I consider that the reference, in s 71(1)(a) thereof, to a person who "makes" a product includes a reference to a person who directs, causes or procures the product to be made by another, whether or not an employee of the person. To accept, as the respondents did, the application of the provision to a situation in which the product is made by an employee of the person necessarily excludes the construction that the word "makes" refers only to the manual task of making by the person himself or herself. That being so, there is no intelligible point, consistent with the scope and purpose of Part 2 of Ch 6 of the Designs Act itself, at which a line should be drawn so as to exclude the making of a product by a contractor to, but at the direction of, the person.

22 In the result, I would find that, by the commercial development, production, distribution and sale of the "Lili" dress, the respondents –

To the extent indicated, the applicant has made good its allegations of infringement.

23 I consider next the question of compensatory damages, for which the applicant has opted pursuant to s 75(1)(b) of the Designs Act. Here the respondents have made no admissions. At one level, it might be thought difficult to sustain the proposition that, by doing no more than making their dress, the respondents caused the applicant to suffer loss or damage. It might be thought that the infringement referred to in item (a) in the previous paragraph, as such, could not produce any loss or damage. This would, however, be to take too narrow a view of the realities apropos an infringement of the kind to which s 71(1) of the Designs Act refers. The sale of a product cannot be harmful to another trader unless the product has been made; or, to put it the other way around, the damage which a trader suffers as a result of the sale of a product necessarily results from the circumstance that the product has first been made before being sold. And I would express the same conclusion with respect to item (d) above: if damage has been suffered by the sale of the product, the person who previously kept the product for the purposes of it being sold might, in an appropriate case, be regarded as having contributed to that damage. In the circumstances of the findings set out in the previous paragraph, I think it proper to find that the respondents engaged in an integrated course of conduct which involved each of the infringements to which I have referred, the end result of which was that they placed on to the market, and sold, an infringing product which had the potential to cause loss or damage to the applicant. That potential arose, of course, because both parties were sellers of similar products in much the same market.

24 The most obvious way in which the applicant might have made good its claim for damages would have been to demonstrate that the respondents’ distribution and sale of the "Lili" dress had a detrimental impact upon sales of its own dress, made in accordance with the registered design. It is here that, for reasons which were never made clear to the court, the applicant’s evidentiary case was curiously deficient. As I have said, the applicant placed its own dress on to the market at about the end of June 2005. The respondents did not commence to make any significant retail sales of their dress until March 2006. The applicant did not give any evidence of the sales volumes achieved by its own dress, save with respect to a very short initial period terminating on 4 July 2005. In that period, it seems that the applicant sold five units of its dress, and held a further 170 units in stock. This evidence was set out in a detailed table, obviously printed from computer records, of sales, costs, stocks and profits relating to a range of the applicant’s products, including the dress in question. There was neither evidence nor explanation as to why similar data might not have been produced with respect to the whole of the period down to the point at which the respondents’ "Lili" dress was placed on to the market, and with respect to the period thereafter, when both dresses were on the market together. Intuitively, it would seem that an examination of the sales achieved by the applicant’s dress by reference to the presence, or absence, of the respondents’ dress in the same market would have had at least the potential to provide an intelligible starting point for the calculation of damages suffered by the applicant as a result of the respondents’ infringements. However, save for the very short period to which I have referred, the applicant placed no sales history before the court.

25 I have referred above to the respondents’ sales of their "Lili" dress. It seems that they sold something in the region of 185-190 units over the period in question. However, without corresponding details of the applicant’s own sales, I am in no position to make an informed assessment as to the extent, if any, to which those sales suffered as a result of the respondents’ sales to which I have referred.

26 Counsel for the applicant did not invite me to infer that, had the respondents’ dress not been on the market, the applicant itself would have achieved sales of about another 185 units of its own dress. Neither would the evidence sustain any such conclusion. There was no evidence as to the proximity of the applicant’s outlets to those outlets which offered the respondents’ dress for retail sale. Because the applicant’s products were sold only in its own outlets, and because those outlets sold nothing but the applicant’s products, the situation would never have arisen, I infer, where the applicant’s dress and the respondents’ dress were offered for sale side-by-side. In the circumstances, I could not conclude that it was probable that a consumer who bought the respondents’ dress would, if that dress had been unavailable, have bought the applicant’s dress instead. There are too many other rational possibilities which, in the absence of any evidence on the subject, would have to be regarded as at least equally probable: for example, the consumer may have bought some other dress, or some other garment, of the respondents, or of some other manufacturer; or she may have bought nothing at all. The product with which this proceeding is concerned was, I consider, highly discretionary and not such as the court should infer would necessarily have been purchased from the applicant, if it were not purchased from the respondents. It is sufficient, however, for me to conclude, as I do, that the incomplete state of the evidence of itself precludes the drawing of any such inference.

27 Counsel for the applicant submitted that I should award his client general damages upon the same footing as was done by Wilcox J in Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472. Cheung was a retailer of computer hardware. If a customer bought particular hardware from him, Cheung was prepared to give the customer, free of charge, certain software as required by the customer. The software was "pirated", in the sense that it had been produced, and copied on to disk, without the authority of the relevant copyright owners. In the facts of the case itself, Autodesk made a trap purchase of hardware from Cheung, and received, free of charge, a pirated version of software of which it was the copyright owner. Autodesk then commenced proceedings in this court, and obtained an Anton Pillar order from Burchett J, pursuant to which a search of Cheung’s premises was carried out. Wilcox J said (94 ALR at 477):

In the present case, counsel for the applicant submitted that I should take the same approach as Wilcox J, and assess damages "at large".

28 The present case is of course quite different factually from Autodesk. There, the pirated software was the means by which the computer bought from Cheung could be caused to perform certain functions. It is safe to assume that potential purchasers of the software would see commercial benefit in the performance of those functions. Because it owned the copyright, Autodesk was the only entity which could lawfully satisfy that need. Thus it was reasonable for Wilcox J to infer, as his Honour appears to have done, that the probable consequence of Cheung distributing pirated copies of the software in question would be that customers who were, ex-hypothesi, concerned to have their new computer working in these ways would not obtain legitimate software from Autodesk. As Wilcox J pointed out, Cheung’s activities cost Autodesk some sales, because at least some of the customers would otherwise have purchased programs from Autodesk. In the present case, however, I am not prepared, in the absence of evidence, to equate a ladies’ fashion dress with copyrighted software intended to cause a computer to perform a commercially valuable function. I could not follow Wilcox J and find that it was probable that the respondents’ infringement cost the applicant some sales of its own dress.

29 However, counsel for the applicant did not base his case for damages wholly – or even mainly – upon the proposition that I should find that his client had probably lost some sales as a result of the market presence of the respondents’ dress, but that the value thereof was required to be the subject of estimation, if not guesswork (as to which see Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 196 ALR 257, 266 [38]). Rather, counsel submitted that the market presence of the respondents’ dress had damaged the applicant’s reputation. He relied upon a passage in Mr Strain’s affidavit (which I allowed to be read over the objection of the respondents) as follows: "When Review’s designs are copied by other traders who sell their garments to a similar market to Review, the claim to originality in the Review’s design is lost." I take it that when Mr Strain said "are copied" he intended a reference also to the production of a substantially similar garment, whether or not by a process of copying.

30 I think there is sense in the applicant’s position in this regard, particularly with respect to so much of the respondents’ infringement as concerns offering to sell, and selling, their own dress. I accept the applicant’s evidence that it put considerable value by the perceived originality of its garments. It was an important aspect of the applicant’s image in the market. I can well understand that, if the applicant had a reputation, however diffuse, for originality of design, a consumer might well show a particular interest in the applicant’s range of products, and be alert to the appearance of new designs from time to time. And if she took that approach, she would have to enter one of the applicant’s stores or outlets to satisfy her curiosity. If garments bearing a substantial similarity to those of the applicant started to appear in other outlets and under other brands, the consumer’s perception of the originality of the applicant’s designs would necessarily be weakened. In an extreme case, the consumer’s perception may be that the applicant’s garments were nothing very special at all, and that she might as well spend her discretionary dollar at any outlet where she noticed something to her taste. I could not, of course, find that the present was anything like an extreme case, but I am prepared to find, on the probabilities, that the market presence of the respondents’ dress did bring about some minor dilution of the applicant’s reputation for originality.

31 Although different from Autodesk with respect to the matter of actual lost sales, I consider that the present case is one in which the approach of Wilcox J may be taken with respect to the reputational damage which the applicant alleges. Because of the uncertainties involved, and because the applicant has made an apparently conscious choice not to put satisfactory sales figures before the court, I must be very cautious in my assessment. By conducting its case in the way that it has, the applicant has made the task of assessment entirely a matter of impression. Doing the best I can, I am prepared to place a capital value of $7,500 upon the probable diminution of the applicant’s reputation for originality brought about by the respondents’ infringement.

32 Counsel for the respondents made certain submissions the thrust of which was that the compensatory damages which I would otherwise be minded to award either should not be awarded at all or should be reduced. They submitted that, the applicant now being in liquidation, it could suffer no further damage which was to any extent related to its trading position (such as damage to its reputation). Indeed, they submitted that 28 February 2007 was necessarily the cut-off point for the estimation of such damages as the applicant had suffered, since that was the date when it transferred its business to Review Holdings. Counsel pointed to the absence from the evidence (and from the applicant’s discovery) of any reckoning of the value of the applicant’s reputation for the purposes of that transfer. I am not persuaded that I should qualify the conclusions which I would otherwise reach by reason of the considerations to which counsel referred. I think that the damage to the applicant’s reputation upon which I have based my assessment above was almost wholly complete by the time of the institution of the present proceeding in September 2006, although the financial impact of that damage may have taken some time thereafter to be fully felt. My assessment was of the probable damage to the applicant’s reputation, as at the commencement of the proceeding. It should not be qualified as proposed by counsel for the respondents.

33 Counsel for the respondents next submitted that the court had a discretion whether to award compensatory damages under s 75(1) of the Designs Act, and that, in the circumstances of the present case, I should exercise that discretion in their clients’ favour. As to the existence of the discretion, counsel pointed to the words of the section "the relief may include". They were unable, however, to point to any decided case in which these words, or similar words in analogous legislation, had been held to be sufficient to give rise to a discretionary basis for the denial of damages, where otherwise a proper case had been made out. For my own part, I consider that the words "the relief may include" do no more than introduce an identification of the range of remedies that would be available to a court in accordance with well-established principles. In the case of par (b) of s 75(1), the remedies identified are damages or an account of profits. Each is a description of a remedy with which the general law is familiar. Putting to one side the special case of damages in equity, the remedy of an award of damages has traditionally been treated as non-discretionary in the sense that, if the wrongful act of the plaintiff causes damage to the defendant, damages should be awarded. I do not accept that the way in which s 75(1) of the Designs Act is expressed is intended to make an award of damages discretionary, as though it were analogous to an equitable remedy.

34 Counsel for the respondents next submitted that the applicant should fail in its claim for damages because of its own misleading, and possibly unlawful, conduct in relation to its own sale of garments made in accordance with the registered design. Counsel relied upon a short but authoritative line of cases commencing with The Leather Cloth Company Ltd v The American Leather Cloth Company Ltd (1865) 11 HLC 523. Before turning to those cases, I should mention the facts of the present case which are relevant to this submission by counsel.

35 Ms Ellis gave evidence that, since about March 2005, the applicant had made a practice of endorsing the "swing tag" on each of its garments with the following statement: "Review styles are registered designs". The applicant’s own dress, made in accordance with the registered design the subject of this proceeding, was, when offered for sale, accompanied by a swing tag containing such a statement. Indeed, the applicant relied upon the presence of that statement as being sufficient to put the respondents on notice that the dress which it was alleged they copied was the subject of a registered design; that, however, is a matter to which I shall return.

36 In point of fact, it was not until 2 June 2006 that the design in question was registered – about 11 months after the corresponding dress was first put on to the market by the applicant. For the whole of that time, the statement on the swing tag that the applicant’s styles were registered designs was incorrect in its application to the dress in question. Additionally, counsel for the respondents extracted evidence from Mr Strain, under cross-examination, the general purport of which was that no more than about 2-3% of all the new garment styles placed on to the market by the applicant ever became the subject of registered designs and, therefore, that the broad statement that the applicant’s styles were registered designs was incorrect. According to the submission of counsel for the respondents, the conduct of the applicant in making the statement was effectively fraudulent in the sense identified in Leather Cloth and similar cases, and was an offence under s 132(3) of the Designs Act.

37 The authorities upon which the respondents rely all had two presently relevant features. First, they concerned causes of action which relied upon the plaintiffs in question having established a reputation for the use of a particular mark or word in connection with their products. Leather Cloth and Ford v Foster (1872) LR 7 Ch App 611 were what might be called common law trade mark cases. Angelides v James Stedman Henderson’s Sweets Ltd [1927] HCA 34; (1927) 40 CLR 43 and Kettles & Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108 were passing-off cases. In each of these cases the plaintiff’s title to relief depended on the establishment of a trading reputation with respect to the use of the mark or word upon which the proceeding was based. None of these cases involved a claim that a registered mark had been infringed; much less was any of them concerned with a registered design.

38 It is clear from a reading of the judgments upon which the respondents relied that in each case the argument (which succeeded in Kettles and which was taken to be correct in the other authorities) was to the effect that a plaintiff could not rely, as a basic ingredient of his or her cause of action, upon a reputation which had been built up with the assistance of fraudulent or misleading conduct. In the present case, by contrast, the applicant’s cause of action is to no extent reliant upon its trading reputation. Its cause of action is complete upon proof of its registered design and the respondents’ admissions of infringement. So far as the issues raised in this proceeding are concerned, it was not necessary that the applicant ever have made a dress in accordance with its registered design, much less that it have acquired a reputation in relation to that dress, or to the design upon which it was based.

39 The second feature of difference between the authorities upon which the respondents relied and the present case is that each of those authorities was concerned with the equitable jurisdiction of the court. None of them involved an award of damages. As was made clear in Leather Cloth, Angelides and Kettles, a plaintiff who sought the protection of his or her intellectual property in relevant respects would not be regarded as coming to equity with clean hands if the right which he or she sought to protect was to continue to mislead the public by the use of a trade mark or the like which contained a misrepresentation. Although also a case in equity, only in Ford v Foster was the position which would obtain at law discussed. Of that position, Mellish LJ said (7 Ch App at 630-631):

His Lordship would have applied the same reasoning if the plaintiff’s trade, relevant to the product to which the mark was attached, was fraudulent. However, it is clear that his Lordship’s observations would have no application to circumstances in which the plaintiff obtained his or her right not by a pattern of trading leading to the establishment of a reputation, but by registration under statute.

40 I would hold that, apart from the operation of s 75(2) of the Designs Act, an award of compensatory damages in favour of a successful applicant should not be regarded as discretionary. In the present case, upon proof of infringement, the applicant’s entitlement to have its damages assessed is, subject only to the specific provisions of s 75, complete. No question as to the honesty or integrity of the applicant’s own trade arises; nor does any question of clean or unclean hands.

41 Counsel for the respondents next submitted that I should refuse to award damages, or should reduce the damages that would otherwise be awarded, under the power given by subs (2) of s 75 of the Designs Act, which reads as follows:

(2) The court may refuse to award damages, reduce the damages that would otherwise be awarded, or refuse to make an order for an account of profits, if the defendant satisfies the court:

(i) that at the time of the infringement, the defendant was not aware that the design was registered; and

(ii) that before that time, the defendant had taken all reasonable steps to ascertain whether the design was registered; or

(b) in the case of secondary infringement--that at the time of the infringement, the defendant was not aware, and could not reasonably have been expected to be aware, that the design was registered.

42 The respondents’ reliance on s 75(2) draws attention to what appears to be a curiosity, if not an anomaly, in the Designs Act. The subsection takes no account of the period between the filing of the design application and the registration of the design in question. That period is within term – s 46(1)(a) – and is, therefore, a period during which the making, sale etc of a product embodying the design would amount to an infringement of the design – s 71(1). However, at least on a natural reading of its terms, s 75(2) operates only with respect to a period in which the design is in fact registered. If that is the position, a defendant is, during so much of the term as precedes registration, denied the protection of the subsection and is, accordingly, in a worse situation than he or she would occupy post-registration.

43 Counsel for the respondents submitted that s 75(2) could not possibly have been intended to operate in this way. They pointed to the fact that, in the present case, had their clients made every possible inquiry in the first half of 2006, they would have been able to discover only that the applicant had many pending applications for registration, each of which was unrevealingly described as a "ladies garment". The design itself was not publicly available before registration. Counsel asked rhetorically: why should a potential defendant be in a worse position in the circumstances of the present proceeding than would be the case if the design were actually registered?

44 Although the facts of the case have illuminated the problem of the operation of s 75(2) in rather sharp focus, a construction of the subsection must, in my view, proceed according to conventional, objective, considerations, rather than by reference to those facts. Inconvenient as it may be, it is simply impossible to distort the words of the provision to make them apply in a circumstance where the design was not registered, but merely in term. Had the legislature desired to cover that circumstance, it could have done so by a deeming provision. However, it is not at all obvious what the legislature might have said about the subject, given that the design itself is not publicly available before registration. In other words, this is not, in my view, simply a case in which it is obvious what the legislature intended but in which that intention has not been effectuated in the words used. This is a case in which there is no reason to believe that the legislature ever turned its mind to a situation such as that disclosed by the facts before the court. I do not believe that I am in any position to do otherwise than give effect to s 75(2) according to the terms actually used by the legislature.

45 I take the view that s 75(2) operates only in relation to a design which is in fact registered "at the time of the infringement", the temporal point of reference used in the subsection. On the facts of the present case, the primary infringement occurred in February 2006 or thereabouts, in which circumstances the defence under par (a) was not available. To the extent that the respondents’ secondary infringements were constituted by sales of their dress, most of those infringements occurred before the design was registered on 2 June 2006 and did not, therefore, attract the defence under s 75(2). As I have found above, there were some further infringements after the date of registration, but, in the light of the letter from the solicitors for the applicant dated 7 June 2006 to which I have referred, it could not seriously be suggested that the respondents were not then aware that the design was registered.

46 For the sake of completeness, I shall say something about the facts which might, in other circumstances, have borne upon the prospects of a defence under s 75(2) of the Designs Act. With respect to the respondents’ primary infringement, they led no evidence of any steps which they had taken to ascertain whether the design was registered. Even if the subsection had applied in the period when an application for registration was pending, a defence under s 75(2)(a) would necessarily have failed, because the respondents had not taken the steps referred to in subpar (ii) thereof.

47 As to the matter of secondary infringement, I shall assume that the question is whether the respondents could reasonably have been expected to be aware that a design application was pending. Here I am required to refer to the circumstances which led to the design of the respondents’ dress. The respondents led no evidence on that subject. As I have set out above, documents discovered by the respondents disclose that the design of the respondents’ dress was at least substantially completed by the second week of September 2005. That was a little more than two months after the applicant’s dress, made in accordance with the design which was later registered, was placed on to the retail market. A version of each dress was tendered in evidence. The general impression I got was that the respondents’ dress is strikingly similar to the applicant’s dress, particularly with respect to the more eye-catching features of each. If it were the fact that the respondents’ dress was designed independently of the applicant’s dress, or even designed as a result of the relevant designer’s general impressions of market trends, including, possibly, those represented by the applicant’s dress, it would have been an easy matter for the respondents to have led evidence from the designer himself or herself. No such evidence was led. Neither was there any explanation for the respondents’ failure to lead such evidence. I am bound to conclude that evidence as to the circumstances leading to the design of the respondents’ dress would not have assisted their case. I consider that the striking visual similarity between the two dresses, together with the timing of the commencement of the production of the respondents’ dress apropos the first appearance of the applicant’s dress on the retail market, justify the inference that the respondents’ dress was a copy of the applicant’s dress. In the absence of evidence to exclude that inference, I am confident that it should be drawn in the circumstances.

48 Returning to s 75(2)(b) of the Designs Act, therefore, my starting point is that, in about August 2005, the respondents embarked upon a process of design which involved copying the design of the applicant’s dress. It is common ground that the applicant’s dress was sold with a swing tag stating (whether or not accurately) that the applicant’s styles were registered designs. I must assume that, acting reasonably, the respondents would have noticed the words on this swing tag at the time when they examined the applicant’s dress for the purposes of copying. This ought to have put them on notice of the prospect that the dress might well have been made in accordance with a registered design. It is true that the only information which the respondents could have obtained from the Designs Office was that a number of "ladies’ garments" were the subject of pending applications, but, as counsel for the applicant pointed out, the respondents at least knew that they were dealing with the applicant, and a phone call might have put the matter beyond doubt. This was not done. Aware that they were copying one of the applicant’s dresses, and aware that the design of that dress might well have been registered, the respondents proceeded nonetheless to cause their dress to be manufactured and to be placed upon the retail market.

49 For the above reasons, I would not find that the respondents could not, at any time before 2 June 2006, reasonably have been expected to be aware that the applicant’s design was the subject of an application under the Designs Act. Indeed, I would make the positive finding that the respondents did not take all reasonable steps to ascertain whether such an application was pending, acting conscientiously with a concern for the observance of the law as I must assume they should have been. In other words, on the facts of the present case, it is not merely that the respondents have been deprived of what might appear to be a good defence on the merits by the unhappy drafting of s 75(2): it is also that, had the subsection been drafted in a way which dealt also with so much of the term of a design as precedes registration, the respondents would have been unlikely to have been able to bring themselves within it.

50 These findings are relevant also with respect to the next point which I must consider, namely, the submission of the applicant that additional damages should be awarded under s 75(3) of the Designs Act. It was submitted that the conduct of the respondents, in copying the applicant’s design and in marketing and selling a dress made from that copy, in circumstances where the respondents must be assumed to have been aware of the wording on the applicant’s swing tag, was flagrant. Counsel for the respondents submitted that, because of the misrepresentation involved, I should take no notice of the swing tag. They submitted that at all (or at least nearly all) stages of the infringements which their clients had admitted, the suggestion made on the swing tag that this design was registered was wrong, and that the suggestion itself was made in contravention of s 132 of the Designs Act. They submitted also that, absent rights under that Act, there was nothing wrongful about their clients’ copying (if that is what happened) the design of a competing product. This was not a case of copyright, and the respondents were, it was submitted, prima facie entitled to adopt the design of any competing product.

51 I propose to consider first the matter of the applicant’s swing tag. Although I have taken the existence of the swing tag into account in the findings of fact which have led me to the conclusion that the respondents could reasonably have been aware of the applicant’s pending design registration application, different considerations apply when the applicant seeks to invoke the court’s discretionary power under s 75(3) for an award of additional damages. At this level, reliance upon the swing tag would place the applicant in a position of special advantage by reason of its own misrepresentation. Not only was the swing tag wrong to imply that the dress in question was the subject of a registered design, it was wrong to suggest, as it did, that the applicant’s styles generally were the subject of registered designs. I am not prepared to hold that the applicant should be permitted to use these misrepresentations to its particular advantage for the purpose of securing an award of additional damages under s 75(3).

52 I approach the question under s 75(3) therefore, as though the swing tag did not exist. The facts then would be, as I have otherwise found them, that the respondents noticed the applicant’s dress on the market, copied the design of that dress, and caused dresses corresponding generally with the design to be manufactured and sold. They so proceeded without any inquiry as to whether the dress which they copied was the subject of a registered design. However, there is nothing in the evidence from which it would be proper to conclude that the respondents ought to have presumed that the dress was the subject of a registered design. Save for the practices of the applicant itself, the court knows nothing about the prevalence of registered designs with respect to garments of the kind presently in issue. The applicant’s own practices, of course, appear to be such that a small minority of its garments in fact become the subject of registered designs. The most I could conclude was that the respondents might well, and perhaps ought reasonably, have taken the view that the dress which they copied might have been the subject of a registered design. In copying that dress, of course, the respondents took the risk that it was. Using an adjective different from that implied by s 75(3), I might conclude that the respondents were somewhat cavalier in their decision to produce and sell their dress without making appropriate inquiries. However, the authorities make clear that something more is required if flagrancy is to be found: see Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88, 92-93; Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 76 FCR 565, 575-576; MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1998) 43 IPR 275, 281-282. In the circumstances, I am not prepared to find that the respondents’ infringement was accompanied by flagrancy within the meaning of s 75(3) of the Designs Act.

53 That, of course, is not the end of the matter under s 75(3). The court’s power to award additional damages requires me to take into account also "all other relevant matters". I have been referred to some of the cases in which the jurisprudence arising under s 115(4) of the Copyright Act 1968 (Cth) has been developed. Two things, however, need to be said about this analogy. First, the specific headings of matters to be taken into account set out in par (b) of that subsection do not appear in s 75(3) of the Designs Act. There is, for example, no reference to deterrence in the latter. Secondly, of its nature, an infringement of a registered design is quite different from an infringement of copyright. In the case of copyright, it is the copying itself which constitutes the delict. Under the Designs Act, an infringement occurs by the making, sale, etc, of a product which is identical or substantially similar, whether or not copying has taken place. That is to say, subject perhaps to such policy considerations as are embodied in s 75(2) of the Designs Act, an infringement might be constituted by an act which, in general terms, is quite innocent. This has the result, in my view, that considerations such as deterrence play out quite differently under the Designs Act from the way they do under the Copyright Act, and that this circumstance might explain the absence from s 75(3) of the former of the particular matters required to be taken into account under s 115(4) of the latter.

54 This does not mean that the existence of copying, in a case in which it has occurred such as the present, will always be irrelevant to the matter of additional damages under s 75(3). However, I must recognise that it is no part of the policy of the Designs Act to prevent copying per se. I accept the submissions made on behalf of the respondents that, unless they were appropriately put on notice that the dress which they copied was the subject either of an existing registered design or of an application that was pending, I should not view as especially culpable their conduct in copying that dress. I reach that conclusion only on the facts of this particular case, in which it has not been established that the existence of registered designs should, by a reasonable participant in the relevant industry, be viewed as the norm. This was not, therefore, a case in which the respondents proceeded to manufacture and sell their own dress notwithstanding that they ought reasonably to have supposed that the design of the dress which they copied was most probably registered, or in the process of becoming so.

55 The conduct of the respondents subsequent to their receipt of the letter from the applicant’s solicitors dated 7 June 2006 raises further considerations. According to the respondents’ discovered documents (which were not the subject of any evidence on behalf of the respondents themselves), there was a single sale by wholesale on each of 19 June and 7 December 2006, and there was a single sale by retail on each of 25 June, 1, 4, 6, 7, 12, 13, 17, 23, 27 and 30 July, and on 27 September 2006. The continued making of sales, even on this fairly modest scale, is not the conduct of traders which, having been specifically informed of the applicant’s registered design, were conscientious to observe their legal obligations. Indeed, the respondents’ letter of 21 June 2006 contained a denial of the respondents’ copying of the applicant’s dress; a denial with which the respondents did not persevere in their evidentiary case before the court.

56 I consider that the respondents’ continued trade in their "Lili" dress, once having been directly informed of the applicant’s registered design, was such as should attract an award of additional damages pursuant to s 75(3) of the Designs Act. I would fix those additional damages at $10,000.

57 The applicant also sought a declaration that the respondents had infringed its registered design, and injunctions restraining the respondents from continuing to do the things which have been found to constitute infringements. I can see no point in making a declaration. The applicant has been successful in its action for damages, and the basis of that success appears sufficiently from these reasons. In my view, a declaration would not add further to the appropriate judicial resolution of the dispute which has brought the parties to court.

58 Neither do I consider that the present circumstances warrant the grant of injunctive relief. The respondents’ admissions make it tolerably clear that they recognise that the further manufacture and sale of the "Lili" dress would be unlawful. They do not come to court to assert an entitlement to continue to do the things which I have held to constitute infringements of the applicant’s registered design. Additionally, it is Review Holdings, not the applicant, which now owns the registered design, and which, I infer, engages in such exploitation of that design as is done by any member of the group of which the applicant is (or was) a member. I consider that it is Review Holdings, rather than the applicant, which would be the proper applicant for an injunction. Review Holdings is not a party to this proceeding. For each of the reasons referred to in this paragraph, therefore, I decline to enjoin the respondents in the terms sought by the applicant.

59 In the result, and for the reasons expressed above, there will be judgment for the applicant on its damages claim in the sum of $17,500. I shall hear the parties on the matter of costs.

I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.

Counsel for the Applicant:	Mr M Wise

Solicitor for the Applicant:	Middletons

Counsel for the Respondents:	Mr J D Elliot SC & Mr E J Heerey

Solicitor for the Respondents:	Home Wilkinson Lowry

Date of Hearing:	10, 18, 19 December 2007

Date of Judgment:	15 February 2008

Federal Court of Australia

Review Australia Pty Ltd v Innovative Lifestyle Investments Pty Ltd [2008] FCA 74 (15 February 2008)