Spotlight thrown on Key IP Agreements

Spotlight thrown on Key IP Agreements: February 2019

A common mistake when acquiring a product is to assume that because you have paid for it then you own the IP rights. Often that is not the case and I have seen a number of examples of people finding that out too late. One of the first IP cases handed down this year serves as a reminder of that point and of the importance of having key agreements in place and getting the terms right – particularly with suppliers.

Dempsey Group Pty Ltd (Dempsey) trades under the MORGAN & FINCH brand (or Bed Bath N’ Table). They claimed that Spotlight had infringed their rights by selling three quilt cover and pillow sets which reproduced a substantial part of their (copyright) fabric designs. The products were sold under the names “Bosphorus”, “Rimona” and “Constantinople”. Click here to view a comparison between Dempsey’s products and those sold by Spotlight.

Both Dempsey and Spotlight had engaged the same Chinese manufacturer, Yantai Pacific Home Fashions (Yantai), to produce their quilt covers and each had been dealing with Yantai for several years. There was a dispute at trial as to whether Yantai had warned Spotlight that the designs, which Spotlight selected from Yantai’s showroom, belonged to Dempsey. Dempsey alleged that Spotlight instructed Yantai to make new products based on the Dempsey designs. Spotlight claimed it was unaware that the designs were the subject of copyright belonging to Dempsey.

About a month after Dempsey made contact with Spotlight to provide evidence of its claims of copyright and set out detail of its claim of infringement, Spotlight began a nationwide recall of its products.

The Trial Judge (Justice Davies in the Federal Court):

• Accepted Spotlight’s position that it did not know its products were based on Dempsey’s until it was put on notice by Dempsey.
• Found that the products were not identical based on certain details, including colours and design features.
• Considered that Spotlight had reproduced a substantial part of Dempsey’s designs as the “look and feel” of an artistic work, is capable of protection, viz: “…it is unnecessary that the two works bear an overall resemblance to each other nor is it appropriate to dissect the copyright work piecemeal and focus on the differences. The similarities are identified, the question is the qualitative significance of such similarities. Reproduction does not strictly require a complete and accurate correspondence to a ‘substantial part’ of the work”.
• Found that prior to notification by Dempsey, as a result of their trading history, Spotlight was entitled to rely on Yantai to notify it if there was a copyright concern.

After Spotlight was put on notice, then damages for copyright infringement were appropriate. That is because sections 37 and 38 of the Copyright Act 1968 (Cth) require that the infringer must know, or ought reasonably to have known, that their actions would have constituted a copyright infringement and is entitled to rely on the defence of innocent infringement (set out in s 115) if there is a subjective lack of awareness that there was an infringement of copyright.

Dempsey claimed the following damages:

1. Loss of profits $261,531 (reduced by 80% as Spotlight was not a main competitor and on evidence that the companies operated in different markets as Bed Bath N’ Table was “upmarket” and Spotlight was “discount”);
2. loss of reputation $100,000 (awarded $10,000);
3. devaluation of the artistic works $30,000 – $45,000 (rejected) and;
4. additional damages $350,000 – $500,000 (rejected).

Key messages

It is crucial to have agreements in place with suppliers that clearly identify key points, including who is to own the IP. A common mistake is to think that because you pay for a product (which could be a physical product, software or even an artistic work or logo) then you own the IP rights. Often that is not the case.

Agreements should contain warranties and indemnities in favour of the buyer, in relation to ownership of intellectual property and protection (see Item 5 of our 10 commandments of IP).

It is important to move quickly and take appropriate action if an allegation of infringement is made, to minimise the scope of potential claims.

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