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1 INTELLECTUAL PROPERTY QUARTERLY 2016 ISSUE 4 INTELLECTUAL PROPERTY QUARTERLY EDITOR: PROFESSOR MARGARET LLEWELYN ALEXANDRA SIMS COPYRIGHT PROTECTION OF FUNCTIONAL OBJECTS IN NEW ZEALAND Copies of articles/cases from the Intellectual Property Quarterly, and other articles, cases and related materials, can be obtained from DocDel at Sweet & Maxwell's Yorkshire office. Current rates are: copyright charge + VAT per item for orders by post, DX and . Fax delivery is guaranteed within 15 minutes of request and is charged at an additional 1.25 per page ( 2.35 per page outside the UK). For full details, and how to order, please contact DocDel on Tel: Fax: Go to: docdel.aspx. Please note that all other enquiries should be directed to Sweet & Maxwell, Friars House, 160 Blackfriars Road, London, SE1 8EZ. Tel: Fax: Issue JANE CORNWELL UNDER-REFERRED, UNDER-REASONED, UNDER-RESOURCED? RE-EXAMINING EU DESIGN LAW BEFORE THE COURT OF JUSTICE AND GENERAL COURT JASEM TARAWNEH A NEW CLASSIFICATION FOR TRADE MARK FUNCTIONS ALPANA ROY AND ALTHAF MARSOOF NEGLIGENT OMISSIONS AS A BASIS FOR HOLDING ONLINE HOSTS LIABLE FOR INFRINGEMENTS OF TRADE MARK RIGHTS: AN AUSTRALIAN PERSPECTIVE MOSHOOD ABDUSSALAM, JANE NIELSEN AND DIANNE NICOL THE SUPERIORITY OF THE RESTITUTIONARY MODEL IN THE COMPUTATION OF REASONABLE ROYALTIES FOR PATENT INFRINGEMENT: A COMPARATIVE DISCUSSION *666644*

2 EDITORIAL BOARD Editor Professor Margaret Llewelyn Members of the Editorial Board Lord Hoffmann Mr Jack Black Ms Montserrat Ballester, International Affairs Director, Esteve Dr Mike Barlow, Fairoaks IP Professor Lionel Bently, University of Cambridge Professor Michael Blakeney, Queen Mary IP Research Institute Mr Hugh Brett, Solicitor Mr Roger Burt, IP Law Counsel, IBM UK Ltd Mr Michael Butler, Partner, Patent and Trade Mark Attorney, Frank B Dehn & Co Mr Henry Carr QC,11 South Square Mr Tony Clayton, Intellectual Property Office Mr Trevor Cook, Partner, Bird & Bird Dr Duncan Curley, Innovate Legal Professor Gerald Dworkin, Kings College London Mr Michael Flint, Solicitor Professor Christine Greenhalgh, St Peter s College Mr Michael Hart, Partner, Baker & McKenzie Mr John Hornby, Solicitor Advocate Mr Carl Horton, Chief IP Counsel, General Electric Sylvie Jaguelin, Les Laboratories, Servier The Rt Hon Lord Justice Jacob, Court of Appeal Philip Johnson, Barrister The Hon Mr Justice Kitchin, High Court of Justice Professor James Lahore, Emeritus Professor in Intellectual Property Law, Queen Mary University of London and currently Consultant in IP at Corrs Chambers Westgarth, Melbourne International Advisory Board Professor Ernesto Aracama Zorraquín, Universidad Catòlica Argentina, Marval O Farral & Mairal, Buenos Aires, Argentina Dr Walter Dillenz, Universities of Linz and Vienna, Austria Professor William T Fryer, University of Baltimore, Maryland, U.S.A. Professor Spyros Maniatis Centre for Commercial Law Studies, Queen Mary University of London Professor Duncan Matthews, QMIPRI Mr Christopher Morcom QC, Hogarth Chambers Mr Chris Parker, Director, Law and Corporate Affairs, Microsoft Limited Mr David Perkins, Partner, Milbank Tweed Hadley & McCloy Dr Jeremy Phillips, IP Consultant, Olswang Dr Robert Pitkethly, Said Business School Gwilym Roberts, Kilburn & Strode Dr Tony Rollins, European Patent Dept, Merck & Co David Rosenberg, Glaxo Smith Kline Mr Martin Sandford, Intellectual Asset Consulting Mr Hamish Sandison, Partner, Field Fisher Waterhouse LLP Professor Aubrey Silberston CBE, Professor of Economics Emeritus, Imperial College London Dr Steve Smith, NuPharm Intellectual Property Professor Stefan Szymanski, Cass Business School Dr Puay Tang, SPRU Professor Takis Tridimis Sir John Lubbock Professor of Banking Law, Centre for Commercial Law Studies, Queen Mary University of London Professor David Vaver, formerly Emeritus Professor of IP & IT Law, University of Oxford Dr Victoria Wang Professor Evelyn Welch, Vice-Principal, Queen Mary, University of London Robert Weston, Phillips and Leigh Mr Philip Westmacott, Partner, Bristows Ms Vanessa Winspeare, Associate Director, Forensic Services, Smith & Williamson Dr Anselm Kamperman Sanders, University of Maastricht, Netherlands Prof James Lahore, University of Melbourne, Mallesons Stephen Jaques, Melbourne, Australia Mr Zbyynek Loebl, Sipovic and partners, Prague, Czech Republic Dr Alberto Musso, University of Bologna GUIDELINES FOR AUTHORS We welcome the submission of articles for consideration by the Editor with a view to publication. In general, the most acceptable length of articles for IPQ is 10,000-15,000 words. However, shorter contributions will be welcomed and longer ones may be considered for publication. All contributions must be in English. Please note the journal does not consider unrevised undergraduate or postgraduate dissertations or theses and all submissions should be in a form suitable for publication. Method of submission Papers to be considered for publication should be sent to: Professor Margaret Llewelyn at The manuscript is required to be paginated, double spaced (including footnotes), and in Microsoft Word format. A summary in no more than 150 words should be included. Submission of a paper will be held to imply that it contains original unpublished work and is not being submitted for publication elsewhere. Any queries concerning house style and layout should be addressed to Editorial changes may be made to reflect Sweet & Maxwell house style. Copyright in all contributions remains with the contributors. The publishers acquire all publication rights. Please send books for review to Jane Hyatt, Sweet & Maxwell, Intellectual Property Quarterly, The Hatchery, Hall Bank Lane, Mytholmroyd, Halifax, HX7 5HQ Annual subscription: 742 (4 Issues) 1078 (Bound Volume Service) Orders to: Sweet & Maxwell, PO BOX 1000, Andover, SP10 9AF. Tel: The views expressed in the material contained in the Intellectual Property Quarterly are not necessarily those of the Editor, the Editorial Board, the publisher, or other contributors.

3 Intellectual Property Table of Contents Quarterly Issue Articles Copyright Protection of Functional Objects in New Zealand Alexandra Sims 297 Under-Referred, Under-Reasoned, Under-Resourced? Re-Examining EU Design Law Before the Court of Justice and General Court Jane Cornwall 318 A New Classification for Trade Mark Functions Jasem Tarawneh 352 Negligent Omissions as a Basis for Holding Online Hosts Liable for Infringements of Trade Mark Rights: An Australian Perspective Alpana Roy and Althaf Marsoof 371 The Superiority of the Restitutionary Model in the Computation of Reasonable Royalties for Patent Infringement: A Comparative Discussion Moshood Abdussalam, Jane Nielsen and Dianne Nicol 393

4 ISSN: X Intellectual Property Quarterly is published by Thomson Reuters (Professional) UK Limited trading as Sweet & Maxwell, Friars House, 160 Blackfriars Road, London, SE1 8EZ (Registered in England & Wales, Company No Registered Office and address for service: 2nd floor, 1 Mark Square, Leonard Street, London EC2A 4EG). For further information on our products and services, visit Computerset by Sweet & Maxwell. Printed and bound in Great Britain by Hobbs the Printers Ltd, Totton, Hampshire. No natural forests were destroyed to make this product; only farmed timber was used and replanted. Each article in this issue has been allocated keywords from the Legal Taxonomy utilised by Sweet & Maxwell to provide a standardised way of describing legal concepts. These keywords are identical to those used in Westlaw UK and have been used for many years in other publications such as Legal Journals Index. The keywords provide a means of identifying similar concepts in other Sweet & Maxwell publications and online services to which keywords from the Legal Taxonomy have been applied. Keywords follow the Taxonomy logo at the beginning of each item. The index has also been prepared using Sweet & Maxwell s Legal Taxonomy. Main index entries conform to keywords provided by the Legal Taxonomy except where references to specific documents or non-standard terms (denoted by quotation marks) have been included. Readers may find some minor differences between terms used in the text and those which appear in the index. Please send any suggestions to Crown copyright material is reproduced with the permission of the Controller of HMSO and the Queen s Printer for Scotland. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any retrieval system of any nature without prior written permission, except for permitted fair dealing under the Copyright, Designs and Patents Act 1988, or in accordance with the terms of a licence issued by the Copyright Licensing Agency in respect of photocopying and/or reprographic reproduction. Application for permission for other use of copyright material including permission to reproduce extracts in other published works should be made to the publishers. Full acknowledgement of author, publisher and source must be given. Thomson Reuters and the Thomson Reuters Logo are trademarks of Thomson Reuters. Sweet & Maxwell is a registered trademark of Thomson Reuters (Professional) UK Limited. The journal should be cited as follows: [2016] I.P.Q. XX Thomson Reuters (Professional) UK Limited and Contributors

5 Copyright Protection of Functional Objects in New Zealand Alexandra Sims * Commissioned works; Copyright; Functional designs; Infringement; New Zealand Abstract Functional objects, such as skis, chainsaw chains, kiwi fruit trays and even pregnancy testing devices, are protected by copyright in New Zealand, albeit the object itself is not protected by copyright; rather, the drawings and other works underlying such objects are protected. Functional objects create challenges for copyright law and are not protected as broadly as more creative and expressive works: the designer of an office chair faces limitations imposed by physics, but the artist painting a chair on canvas has no such obstacles. It is common for drawings that are necessary for the object to be manufactured to be done by people who did not generate the idea for the functional object. Sometimes the drawings will have been commissioned, other times not. Questions of ownership of drawings for functional objects can arise, and then there is the question of infringement. This article explores the issues of commissioning, ownership and infringement of functional objects in New Zealand through the lens of litigation over a machine cup for an automatic asparagus grading machine. Introduction Arguments over utilitarian functional objects dominate New Zealand copyright disputes. 1 By contrast, there is little in the way of litigation concerning the creative outpourings of literary and artistic genius that copyright purports to encourage. 2 Such a state of affairs is hardly surprising given that copyright s original purpose was to protect capital (publishers) rather than authors. 3 The courts decisions in Oraka Technologies Ltd v Geostel Vision Ltd 4 continue New Zealand s rich and predictable tradition in copyright litigation: in this case the cup assembly for an asparagus grading machine. * Associate Professor, Department of Commercial Law, the University of Auckland. 1 Foot Science International Ltd v Xu [2015] NZHC 1739 (orthotics); Burden v Debonaire Furniture Ltd [2016] NZHC 312, and Burden v ESR Group (NZ) Ltd [2015] NZHC 1649; (2015) 113 IPR 594 (furniture); Gallagher Group Ltd v Robertson Engineering Ltd (t/a Strainrite) [2015] NZHC 1321 (pigtail post); Inverness Medical Innovations, Inc v MDS Diagnostics Ltd (2010) 93 I.P.R. 14 (pregnancy testing devices); Tiny Intelligence Ltd v Resport Ltd [2009] NZSC 35 (toy sword and toy trumpet); Fleming v Fletcher Concrete and Infrastructure Ltd, HC, Auckland, CIV , 1 December 2006 (cattle stops); Steelbro NZ Ltd v Tidd Ross Todd Ltd [2007] NZCA 486 (sideloading trailers); Husqvarna Forest & Garden Ltd v Bridon New Zealand Ltd [1997] 3 N.Z.L.R. 215 (chainsaw chains); Composite Development (NZ) Ltd v Kebab Capital Ltd (1996) 7 T.C.L.R. 186 (second-hand skis); Criterion Manufacturing Ltd v Eurofurn Industries Ltd (1996) 7 T.C.L.R. 277 (entertainment centre units); UPL Group Ltd v Dux Engineers Ltd [1989] 3 N.Z.L.R. 135 (toilet seats); Beckmann v Mayceys Confectionery Ltd (1995) 33 N.Z.I.P.R. 543 (crocodile shaped sweets); Alwinco Products Ltd v Crystal Glass Industries Ltd [1985] 1 N.Z.L.R. 716 (CA) (caravan window frames); Lakeland Steel Products Ltd v Stevens (1995) 6 T.C.L.R. 745 HC (timber processing machine); Dennison Manufacturing Co v Alfred Holt & Co Ltd (1987) 2 T.C.L.R. 301 (labelling tags); Mono Pumps (New Zealand) Ltd v Karinya Industries Ltd (1986) 1 T.C.L.R. 337 (pumps); Wham-O MFG Co v Lincoln Industries Ltd [1984] 1 N.Z.L.R. 641 (frisbees); Frank M Winstone (Merchants) Ltd v Plix Products Ltd [1985] 1 N.Z.L.R. 376 (CA) (kiwi fruit trays) and P S Johnson & Associates Ltd v Bucko Enterprises Ltd [1975] 1 N.Z.L.R. 311 (toilet pan connector). 2 Rare cases where artists have been before the courts include Radford v Hallenstein Bros Ltd, HC, Auckland, CIV , 22 February 2007 (sculptor). 3 See Lucasfilm Ltd v Ainsworth [2012] UKSC 39; [2012] 1 A.C. 208 at [14]: the original legislative purpose of copyright was the protection of the commercial interests of stationers (the early publishers) and booksellers, and the control of unlicensed (and possibly subversive) publications, rather than the vindication of the legal and moral rights of authors. 4 Oraka Technologies Ltd v Geostel Vision Ltd (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 CA; Oraka Technologies Ltd v Geostel Vision Ltd (No.2) [2013] NZCA 111 CA; Oraka Technologies Ltd v Geostel Vision Ltd (No.1) HC, Hamilton, CIV , 18 February 2009 and Oraka Technologies Ltd v Geostel Vision Ltd (No.2) HC, Hamilton, CIV , 7 April On 12 September 2013 the Supreme Court 297

6 298 Intellectual Property Quarterly While copyright is a broad church, it does not treat everything equally. Copyright makes allowances for the mundaneness of functional utilitarian objects by not protecting such objects as broadly as other works. For example, in New Zealand copyright protection for functional objects is relatively short, some 16 years, 5 whereas other works, such as paintings and books, can be protected for over 100 years. 6 In addition, copyright does not protect the functional object directly; rather it protects the underlying works, such as the drawings for that object. 7 The scope of protection too is normally more limited for functional objects, as relatively small changes can avoid copyright infringement. 8 The limits on the protection of functional objects are deliberate and reflect policy considerations of providing some protection for the designers and makers of such objects from unfair competition in contrast to the indiscriminate protection of literary copyright. 9 Indeed, the designers and makers of functional objects are fortunate that copyright law comes to their aid. In the US, functional objects are not protected by copyright. 10 To non-copyright experts, copyright can appear mercurial. A pile of bricks may or may not be protected by copyright law. 11 The test for protection depends on the location of those bricks, who arranged (or dumped) those bricks and the person s state of mind at the time. 12 Thus a pile of bricks will not be protected if they were dumped by a builder, but will be if they are arranged in the Tate Modern by a sculptor. 13 There is, however, a rhyme and reason for the seemingly strange results; copyright law has its own internal logic. 14 The litigation in Oraka Technologies Ltd v Geostel Vision Ltd deals with a range of issues that strike at the core of copyright s protection of functional objects: commissioning, ownership and infringement. While the courts reasoning and findings have a seductive logic, some are problematic 15 and require attention so that the courts can better steer the law in a more principled direction when similar issues arise, which they undoubtedly will. in Napier Tool and Die Ltd v Oraka Technologies Ltd [2013] NZSC 86 dismissed Napier Tool s leave to appeal against the Court of Appeal s second decision; however, the grounds of appeal were narrow and do not deal with the substantive issues argued in this article. 5 Copyright Act 1994 s.75(1): in effect, if more than 50 copies of a three-dimensional object is made for the purposes of sale or hire, copyright will last for 16 years. 6 Copyright Act 1994 s.22: the duration of literary, dramatic, musical or artistic works lasts for 50 years after the death of the author. If a painter paints a painting (artistic work) in 2013 when she is 20 and lives to 90, copyright will not expire until 31 December 2133 some 120 years of protection. 7 Drawings are artistic works. Section 2 of the Copyright Act 1994 defines artistic work as meaning a graphic work. Graphic works are further defined under s.2 as including any drawing. Also see Henkel KGaA v Holdfast New Zealand Ltd [2006] NZSC 102; [2007] 1 N.Z.L.R. 577 at [16] where the Supreme Court was scathing of the plaintiff s claim that it had copyright in the packaging rather than in the artistic work underlying the packaging and that it was necessary to distinguish the commercial product from the artistic work underlying it the packaging is no more than a lawful copy of the original graphic work. As a copy it has no such originality as would justify its being regarded in itself as an independent copyright work. The distinction between the drawings (protected work) and the final object (unprotected thing) can be crucial; for example, in Henkel, because the underlying artistic works (drawings) were not pleaded correctly, the plaintiff was unsuccessful in its copyright infringement claim: Henkel at [29]. 8 Oraka (No.2) [2013] NZCA 111 at [132]: [i]f the claimant s design is very ordinary (commonplace) given the constraints imposed by the function of the object and there is nothing new added, then the originality of the claimant s work might be non-existent or so low that the defendant can easily avoid breach by adding something of his or her own to the design. See also Henkel [2006] NZSC 102; [2007] 1 N.Z.L.R. 577 at [52]. 9 Lucasfilm v Ainsworth [2012] UKSC 39; [2012] 1 A.C. 208 at [14]. While the law in the UK is not identical to New Zealand s, nevertheless the different classes of works are still accorded different levels of protection. 10 See Copyright Act 17 USC s.101 (2000) (US) where useful articles are excluded from copyright protection. A useful article is defined as an article having an intrinsic utilitarian function that is not merely to portray the appearance of the article or to convey information. As the US Copyright Office states: [c]opyright never protects the mechanical or utilitarian aspects of an article. See US Copyright Office, Useful articles: Factsheet FL-103, [Accessed 15 September 2016]. 11 See Lucasfilm Ltd v Ainsworth [2008] EWHC 1878 (Ch); [2009] F.S.R. 2 at [118(viii)]. 12 Lucasfilm v Ainsworth [2008] EWHC 1878 (Ch); [2009] F.S.R. 2 at [[118(viii)]. 13 Lucasfilm v Ainsworth [2008] EWHC 1878 (Ch); [2009] F.S.R. 2 at [[118(viii)]. 14 The approach of copyright has been described as the metaphysics of the law, where the distinctions are, or at least may be, very subtle and refined, and, sometimes, almost evanescent : Folsom v Marsh 9 F. Cas. 342, 344 (CCD Mass., 1841), per Justice Story. 15 As has been argued in relation to other copyright law cases: Cases such as this are problematic for law, for while the end result has institutive force it is based on entirely unconvincing reasoning : Justine Pila, Works of Artistic Craftsmanship in the High Court of Australia: The Exception as Paradigm Copyright Work (2008) 36 F.l. Rev. 363, 376.

7 Copyright Protection of Functional Objects in New Zealand 299 The Oraka litigation The facts 16 Over many years Mr Schwarz (the third plaintiff) developed an automatic asparagus grading machine (the Oraka grader). Mr Schwarz approached Napier Tool to make a mould for the machine s cup assembly unit (the Schwarz cup). Napier Tool produced a series of drawings in February and March 1993 from which a mould was created. 17 Mr Schwarz then purportedly assigned the copyright in the Oraka grader, including the Schwarz cup, to the first plaintiff, Oraka Technologies Ltd (Technologies), a company that he owned. Mr Schwarz brought in two partners, Mr Bell and Mr Kinder, and the three formed Oraka Technologies Holdings Ltd (Holdings). Holdings was used as the commercial vehicle that exploited the sales of the Oraka grader. In 2001 the second plaintiff, Oraka Graders Ltd (Graders), was formed and it took over the commercial activity relating to the Oraka grader. Holdings ceased trading and was struck off the Register of Companies. In 2001 Napier Tool was approached by Mr Armstrong, who was associated with Flextrak, the manufacturer of the belt mechanism used in the Oraka grader. Flextrak supplied Oraka s customers with replacement Schwarz cups manufactured by Napier Tool. Napier Tool paid the plaintiffs royalties for the Schwarz cups that it supplied to Flextrak. The second respondents, Mr Daynes and Mr Robertson, incorporated the first respondent, Geostel Vision Ltd, to create a competing cup assembly for the Oraka grader. 18 Mr Armstrong met with Napier Tool about designing the competing cup assembly. The result was that Napier Tool created the competing Geostal cup assembly (the Geostal cup). Mr McKinlay, an employee of Napier Tool, was involved in much of the design and drafting process for both the Schwarz and Geostel cups. The plaintiffs claimed that the Geostal cup infringed the copyright in the Schwarz cup. The litigation and the courts findings In the first High Court judgment, 19 Allan J held that the plaintiffs had failed to establish ownership of the copyright in the Schwarz cup. Allan J found there was no agreement between the plaintiffs and Napier Tool about payment for Napier Tool s work and therefore there was no commission. 20 Napier Tool, as the author of the work, owned the copyright in the Schwarz cup. The plaintiffs appealed. In the Court of Appeal s first judgment, 21 the Court reversed Allan J s decision about commissioning, finding that the appellants had commissioned Napier Tool to prepare the drawings for the Schwarz cup. The appellants were declared the copyright owners. The case was remitted back to the High Court to determine which of the appellants owned the copyright and whether infringement had occurred. In the second High Court decision, 22 Allan J found that Oraka Technologies owned the copyright in the Schwarz cup but found that copyright had not been infringed. The appellants appealed. The Court of Appeal in its second judgment 23 upheld the appeal, finding that the copyright in the Schwarz cup had been infringed. 16 A number of different issues and copyright works were also dealt with in Oraka (No.1), HC, Hamilton, CIV ; however, as they were not dealt with by the Court of Appeal they are not included in this article. 17 See Oraka (No.2) [2013] NZCA 111 at [70]. 18 There were grumbles from those using the Oraka grader that the Schwarz cup was not robust enough and the after-market service was inadequate. Ironically, whereas the Schwarz cup lasted for approximately two seasons, the Geostel cup lasted around three weeks, Oraka (No.2) [2013] NZCA 111 at [34]. 19 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103, Copyright Act 1962 s.9(3). As the relevant works were created in 1993 or 1994 the Copyright Act 1962 applied to the ownership of those work as the Copyright Act 1994 did not come into effect until 1 January 1995: see Oraka (No.1) HC, Hamilton, CIV at [22]. 21 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103, Oraka (No.2), HC, Hamilton, CIV Oraka (No.2) [2013] NZCA 111.

8 300 Intellectual Property Quarterly The decisions of High Court and Court of Appeal dealt with a number of issues. First, what exactly was the work (or works) allegedly infringed? Secondly, had Mr Schwarz commissioned that work or works? Thirdly, did the appellants (or even one of them) own the copyright? Finally, had the copyright been infringed? What was the work that was allegedly infringed? Three-dimensional utilitarian functional objects such as cup assemblies are not protected by copyright directly. 24 Instead, the underlying drawings and other works such as patterns, 25 dies, 26 moulds 27 and models 28 are protected, and the copying of the three-dimensional object indirectly copies the underlying works. 29 For the appellants to sue for copyright infringement, they had to demonstrate that they owned the copyright in one or more of the underlying works of the Schwarz cup. Schwarz s sketches or Napier Tool s drawings? In the first High Court decision the following artistic works were pleaded 30 : (a) drawings and sketches created by Mr Schwarz of the workings of the cup chassis and trigger of the Oraka cup assembly. These were alleged to have been drawn on the back of a beer coaster at Perth International Airport, and were said to have been followed by approximately three drawings prepared by hand by Mr Schwarz for, and given to [Napier Tool], by him; (b) a prototype comprising a cup made from PVC piping with a chassis and trigger each made from sheet metal and incorporating springs; (c) some 18 drawings being: (i) one drawing dated 3 February 1993; (ii) three drawings dated 10 February 1993; (iii) 11 drawings dated respectively either 1 March 1993, 15 March 1993 or 25 March 1993; (iv) three drawings, two of which are dated 13 November 2003 and the last 16 December d) a mould created by reference to the foregoing works. Allan J accepted that the sketches and the prototype had existed and that Napier Tool had seen them, but they were no longer in existence. 31 Allan J found correctly that the destruction or loss of the drawings and prototypes was not fatal to a claim of copyright 32 ; however, secondary evidence of their appearance was needed. 33 In Plix Products Ltd v Frank M Winstone (Merchants) Ltd, 34 the High Court accepted secondary evidence of lost original drawings as there were finished patterns and moulds for kiwi fruit pouches. 35 In 24 Some three-dimensional objects are protected, such as sculptures and works of artistic craftsmanship. However, there are relatively strict rules on what is and what is not a sculpture or a work of artistic craftsmanship. The courts have been clear that three-dimensional utilitarian objects are not sculptures; see Wham-O [1984] 1 N.Z.L.R. 641 at 662. For a full discussion on the meaning of sculpture see Lucasfilm v Ainsworth [2012] UKSC 39, [2012] 1 A.C. 208 at [28] [48]. For works of artistic craftsmanship see George Henscher Ltd v Restawile Upholstery (Lancs) Ltd [1976] A.C. 64 HL; and Pila, Works of Artistic Craftsmanship in the High Court of Australia (2008) 36 F.l. Rev. 363, Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd [1989] 3 N.Z.L.R. 304 CA. 26 Wham-O [1984] 1 N.Z.L.R Wham-O [1984] 1 N.Z.L.R Wham-O [1984] 1 N.Z.L.R. 641; and Thornton Hall [1989] 3 N.Z.L.R. 304 at 310: dress sample treated as a model. 29 See fn Oraka (No.1), HC, Hamilton, CIV at [11]. 31 Oraka (No.1), HC, Hamilton, CIV at [31] and [34]. 32 Oraka (No.1), HC, Hamilton, CIV-at [32] 33 Oraka (No.1), HC, Hamilton, CIV at [32] [33], citing Plix Products v Frank M Winstone (Merchants) Ltd [1986] F.S.R. 63; (1984) 1 T.C.L.R 176 and Wham-O [1984] 1 N.Z.L.R Plix Products [1986] F.S.R. 63; (1984) 1 T.C.L.R Oraka (No.1), HC, Hamilton, CIV at [32], citing Plix Products [1986] F.S.R. 63; (1984) 1 T.C.L.R. 176.

9 Copyright Protection of Functional Objects in New Zealand 301 Wham-O, the shape of the missing wooden model could be determined by the final moulded plastic product. 36 Allan J found there was no evidence of the precise form of the sketches and that the prototype did not form the basis of the Napier Tool design. 37 Allan J concluded by stating that [t]he Court is accordingly unable to conclude that copyright existed in the missing works. 38 While it made no substantive difference to the outcome of the case, the inability to produce the work or provide secondary existence of the nature of the work in which copyright is claimed does not necessarily mean that copyright did not exist in that work. 39 Rather, whether copyright subsisted in those works (and their degree of originality) was unresolved. Because it was not clear what form the drawings took, the copyright owner could not sue for copyright infringement. The relevant drawings for the case were therefore the ones drawn by Napier Tool. Mr Schwartz rejected the first, dated 3 February, as unworkable. 40 Mr Schwarz deemed the three dated 10 February to be satisfactory. From these later drawings the tooling drawings were made. A series of drawings The Court of Appeal, when addressing the question of infringement, 41 did not look at each drawing individually; rather, it looked at the drawings as a series. The court dismissed the respondents argument that it should have assessed infringement in relation to each drawing independently by citing Copinger 42 and AHI Operations Ltd v New Lynn Metalcraft Ltd (No.1) 43 and stating that 44 : It is open to the Court to consider a series of independent drawings or diagrams in determining infringement where it is apparent that those drawings relate to the same subject and are intended to form part of a series or a whole. While we are not required to address the matter in the appeal, it is certainly arguable that the tooling drawings prepared by Napier Tool formed part of the design series in this case. The key is independent drawings or diagrams. Although the Court of Appeal did not go into detail as to what the drawings showed, if drawings or diagrams are a series of drawings showing the same thing with variations, i.e. drawings that document the development of an object with changes each time, they will not be independent drawings, and thus cannot be part of a series of drawings. 45 Nor will the drawings attract their own copyright if they are copies of earlier drawings, whether manually redrawn or photocopied. 46 It is the first drawing of a thing that is protected, not later ones. For example, in AHI Operations v New Lynn Metalcraft Ltd (No.1) copyright was claimed in 77 drawings, yet the court found that only 11 attracted copyright. 47 It is not clear on the facts of Oraka just what all the drawings depicted, so it was open to the Court of Appeal to treat the drawings in this case as a series. 36 Oraka (No.1), HC, Hamilton, CIV at [33], citing Wham-O [1984] 1 N.Z.L.R. 641 at Oraka (No.1), HC, Hamilton, CIV at [34]. 38 Oraka (No.1), HC, Hamilton, CIV at [35]. 39 See Lucas v Williams & Sons (1892) 2 Q.B. 113 CA; and see Justine Pila, An Intentional View of the Copyright Work (2008) 71 M.L.R. 535, Oraka (No 1), HC, Hamilton, CIV at [37]. 41 See section Infringement below. 42 Copinger and Skone James on Copyright, online looseleaf edn, edited by Hodge M. Malek QC, para AHI Operations Ltd v New Lynn Metalcraft Ltd (No.1) (1982) 1 N.Z.I.P.R. 381 at 393 HC. 44 Oraka (No.2) [2013] NZCA 111 at [12] (footnotes omitted). 45 See generally, Cala Homes (South) Ltd v Alfred McAlpine Homes East Ltd [1995] F.S.R. 818 Ch D at AHI Operations (No.1) (1982) I N.Z.I.P.R. 381 at AHI Operations (No.1) (1982) I N.Z.I.P.R. 381 at 387.

10 302 Intellectual Property Quarterly Tooling drawings and the mould Allan J found that the tooling drawings (the drawings from which the mould and thus the three-dimensional object was made) and the mould itself were not protected by copyright. Allan J s justification was that: The tooling drawings simply copy or adapt the concept and design drawings and in effect are no more than a mirror image of those drawings. They are therefore of insufficient originality to qualify for separate copyright protection. The mould itself is in the same category. 48 The Court of Appeal noted that it had very real reservations 49 about Allan J s finding that there was no copyright in the tooling drawings. The Court of Appeal thought that it was likely that there was copyright in the tooling drawings and stated that [l]abour alone is enough to create an original work. 50 The Court of Appeal s statement is a curate s egg that must be analysed. First, the Court of Appeal was correct with regard to the mould because, if Allan J was correct, it would mean that, for example, if a sculptor had produced drawings from which she had created a sculpture faithfully, the actual sculpture would not be protected by copyright; only the underlying drawings would be protected as the sculpture would be a mirror image of the drawings. However, a sculpture is protected in its own right even if it is a direct copy of a drawing. 51 Moreover, the courts have made it clear in New Zealand that a series of different works in a manufacturing process, for example, moulds or dies which all derive from underlying drawings, can be protected as works in their own right. 52 Secondly, the Court of Appeal provided no authority for the statement that [l]abour alone is enough to create an original work, no doubt because it is unsupported by authority: labour is not the sole test for establishing original works. Indeed, the Court of Appeal, immediately prior to stating that labour alone was sufficient, stated that [t]o be original a work must not be copied. 53 If a work is copied that work cannot be original. Interlego AG v Tyco Industries Inc 54 deals with the issue of labour and originality. One of Lego s competitors produced bricks of the same design as Lego s bricks. Copyright had expired in Lego s original drawings of the bricks. The drawings had been redrawn, albeit with minor changes. 55 Were the new drawings protected by copyright? While there was no doubt that considerable skill had gone into the new drawings, the Privy Council held that: What is important about a drawing is what is visually significant and the re-drawing of an existing drawing with a few minimal visual alterations does not make it an original artistic work, however much labour and skill may have gone into the process of reproduction. 56 If labour alone was the criterion for copyright protection it would mean that copyright could be perpetuated indefinitely. 57 Similarly, if labour was always enough to create an original work, it would mean that any 48 Oraka (No,1), HC, Hamilton, CIV at [62]. 49 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [63]. 50 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [63]. 51 See generally Radford v Hallenstein, HC, Auckland, CIV For a detailed discussion of the meaning of sculpture see Lucasfilm v Ainsworth [2012] UKSC 39; [2012] 1 A.C. 208 at [28] [48]. 52 Plix Products [1986] F.S.R. 63; (1984) 1 T.C.L.R. 176 (patterns, moulds, and kiwi fruit pocket packs) and Wham-O [1984] 1 N.Z.L.R. 641 (mould or die, and, for one of the frisbees, a wooden model). Note, however, that the finding in Wham-O that a wooden model was protected as a sculpture was criticised in Lucasfilm v Ainsworth [2008] EWHC 1878 (Ch); [2009] F.S.R. 2 at [118]. The UK Supreme Court in Lucasfilm v Ainsworth [2012] UKSC 39, [2012] 1 A.C. 208 at [32] was more forceful in its condemnation of the finding that the wooden model was a sculpture, stating that it offends common sense and in our view is wrong. 53 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [63]. See also Copyright Act 1994 s.14(2)(a): A work is not original if (a) it is, or to the extent that it is, a copy of another work. 54 Interlego AG v Tyco Industries Inc [1989] 1 A.C. 217 PC (Hong Kong). 55 For example, changing skirt dimension from 0.83mm to 0.84mm and increasing the inner coring out of knob from 2.5mm to 2.6mm: see Interlego [1989] 1 A.C. 217 at Interlego [1989] 1 A.C. 217 at 258 (emphasis added). But see Pila, An Intentional View of the Copyright Work (2008) 71 M.L.R. 535, 552 who has argued that Interlego was wrongly decided as the new specifications were technically significant. 57 Interlego [1989] 1 A.C. 217 at 258.

11 Copyright Protection of Functional Objects in New Zealand 303 person could gain copyright by reproducing an existing work faithfully, even if copyright in the existing work was owned by another person. Such a situation cannot, of course, occur. Indeed, the reproduction would, in the absence of a licence to make the reproduction, result in copyright infringement. Thirdly, the Court of Appeal s observation that the tooling drawings would attract their own copyright is unsupported by authority. Laddie J in Cala Homes (South) v Alfred McAlpine Homes was clear that copyright attaches to the first drawing in this case either the concept or design drawings ( the original drawings ). 58 If the later drawings, such as the tooling drawings, are copied, the alleged infringing thing will indirectly infringe the original drawing. Alternatively, the Court of Appeal s reference to labour may be an allusion to the sweat of the brow test. 59 The test is used to protect the labour of a person even though that person is compiling information that exists, and copyright would not protect individual bits of information. 60 Thus, a telephone directory that reproduces subscribers phone numbers and other contact details faithfully can be protected by copyright (as a literary work). 61 In a sense more suited to the current case, it is possible for a copier to obtain copyright if the copier has invested labour in transforming a pre-existing work. In Sawkins v Hyperion Records Ltd 62 the plaintiff took musical scores composed by Lalande and reworked them to create modern performing editions. 63 Indeed, without the plaintiff s labour the music could not have been played or performed from the original scores. 64 Copying a pre-existing work exactly (or with minor changes), however, does not and cannot afford copyright to the second work. Allan J s finding that the tooling drawings were mirror images of the concept and design drawings and were not protected directly by copyright was correct is a straightforward application of Interlego. Commissioning Another feature of functional objects, which, of course, is not the sole domain of such objects, 65 is that often the person (X) who comes up with the idea for the functional object is required to commission another person (Y) who has the necessary skills to make technical or engineering drawings or moulds and dies (the underlying works) which are used to make the final object. Provided that X did not make relatively detailed drawings of sketches of the object before asking Y to make further drawings, Y is treated as the author. 66 While Y as the author will normally own the first copyright, 67 in New Zealand the presence of a commission means that X will be treated as the first owner of the copyright in the works created under that commission. 68 If no commission is found, Y will be the copyright owner, not X. While it may appear strange that it is possible for a person with the idea not to be regarded as the copyright owner, that is how 58 Cala Homes [1995] F.S.R. 818 at See generally Alexandra Sims, Copyright s Protection of Facts and Information (2006) 12 N.Z.B.L.Q See, e.g. Autospin (Oil Seals) Ltd v Beehive Spinning [1995] R.P.C. 683 Ch D at 698: [I]t is not the mere form of words or notation which justifies copyright protection for a compilation, it is the author s skill and effort expended in gathering together the information which it contains When someone copies a directory he infringes because he reproduces the product of the author s skill and effort in compiling the information, not his literary style. 61 Desktop Marketing Systems Pty Ltd v Telstra Corp Ltd [2002] FCAFC 112. However, the High Court of Australia in IceTV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA 14 (22 April 2009) at [188] expressed doubt over Desktop Marketing Systems Pty Ltd v Telstra Corp Ltd in relation to compilations, that it may be out of line with the understanding of copyright law over many years. 62 Sawkins v Hyperion Records Ltd [2005] EWCA Civ 565; [2005] 1 W.L.R For a detailed discussion of this case, see Ian Eagles, Reclaiming the Baroque: Copyright and Moral Rights for Musicologists (2005) 11 N.Z.B.L.Q Sawkins [2005] EWCA Civ 565, [2005] 1 WLR 3281 at [8]; for example, for one score the plaintiff added a figured bass line and made 1,139 corrections and additions to the notation necessary to make the music playable. For another score the plaintiff recreated missing viola parts in respect of 153 of Lalande s 268 bars; 64 Sawkins [2005] EWCA Civ 565, [2005] 1 W.L.R at [25]. 65 A range of works are also commonly commissioned, including software: see, e.g. Pacific Software Technology Ltd v Perry Group Ltd [2004] 1 N.Z.L.R See Kenrick v Lawrence (1890) Q.B.D. 99 QBD. 67 Copyright Act 1994 s.21(1): the person who is the author of a work is the first owner of any copyright in the work. 68 Copyright Act 1994 s.21(3) Where (a) a person commissions the making of a drawing and (b) the work is made in pursuance of that commission, that person is the first owner of any copyright in the work. Note that the commissioning rule does not change the authorship of the work and as Y is the author she has moral rights in relation to the work.

12 304 Intellectual Property Quarterly copyright operates: Copyright does not subsist in ideas; it protects the expression of ideas, not the ideas themselves. 69 It was Y who created the expression, not X. Before looking at commissioning it must be noted that had Mr Schwarz s drawings been in existence there might have been no need for the commissioning argument. In Fleming v Fletcher Concrete and Infrastructure Ltd 70 a rough sketch of a cattle stop was held to have copyright protection as it showed the dimensions and materials to be used. Later technical drawings drawn by another were found to be a copy of the rough sketch and did not attract a fresh copyright. 71 Given that Mr Schwarz wanted a cup to fit a machine he designed, it would be likely that he would have included key measurements as well as the materials it was to be constructed from. As Cala Homes 72 and Fleming v Fletcher Concrete and Infrastructure Ltd show, it is the first drawing that copyright attaches to; the later drawings do not enjoy separate copyrights. 73 However, because Mr Schwarz s drawings had not survived and there was insufficient secondary evidence as to the nature of those drawings, the appellants were unable to show that they had a work in which they could claim copyright. The appellants therefore needed to demonstrate that Mr Schwarz had commissioned Napier Tool to produce the drawings. The Copyright Act 1962 was the Act that set out the commissioning rule for the drawings 74 ; however, the parties and the courts agreed that for the purposes of the case there was no difference between the 1962 Act and the Copyright Act 1994 in relation to the facts of the case. 75 Section 21 of the Copyright Act 1994 provides that: (1) Subject to the provisions of this section, the person who is the author of a work is the first owner of any copyright in the work. (3) Where (a) a person commissions, and pays or agrees to pay for, the making of a drawing ; and (b) the work is made in pursuance of that commission, that person is the first owner of any copyright in the work. (4) Subsections (2) and (3) apply subject to any agreement to the contrary. Therefore, in New Zealand for a person (X) to own the copyright in a drawing drawn by Y, X needs to pay or agree to pay Y for that making of that drawing before the drawing is made. In contrast, in the UK, for a commissioner to gain first ownership of copyright in the commissioned work the commissioning contract must state this. 76 The strictness of the UK commissioning law means that commissioning is a fraught area of the law in that jurisdiction. As one commentator described it: The treatment of ownership [in the UK] where a work has been commissioned must be the biggest trap for the unwary in the law of copyright If you pay someone to do something for you, you generally expect to own the product of their labour Baigent v Random House Group [2007] EWCA 247, [2007] F.S.R. 24 at [5]; and see also Oraka (No.2) [2013] NZCA 111 at [130]. 70 Fleming, HC, Auckland, CIV Fleming, HC, Auckland, CIV at [105] [109]. 72 Cala Homes [1995] F.S.R. 818 at Cala Homes [1995] F.S.R. 818 at The Napier Tool drawings had been done before the Copyright Act 1994 came into force on 1 January The Copyright Act 1994 Act simply extended the possible subject-matter or a commission, for example, it now includes computer programmes; see Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [26]. 76 Copyright, Designs and Patents Act 1988 s.91(1) (UK): Where by an agreement made in relation to future copyright, and signed by or on behalf of the prospective owner of the copyright, the prospective owner purports to assign the future copyright (wholly or partially) to another person, then if, on the copyright coming into existence, the assignee or another person claiming under him would be entitled as against all other persons to require the copyright to be vested in him, the copyright shall vest in the assignee or his successor in title by virtue of this subsection. 77 Peter Groves, Copyright in Commissioned Work: Court of Appeal put the Boot in [2005] Ent. L.R. 56.

13 Copyright Protection of Functional Objects in New Zealand 305 New Zealand has to all intents and purposes lifted its copyright law from the UK (with a few minor changes), 78 so the difference in the treatment of commissioners in the two jurisdictions is surprising. Australia, New Zealand s closest trading partner, also provides that, with one narrow exception, the author is the first copyright owner of a work. 79 New Zealand s commissioning rule is therefore generous to the commissioner of the works included in s.21(3) such as drawings. The Court of Appeal observed that the Regulatory and Competition Policy Branch of the Ministry of Economic Development had reviewed the law on commissioning relatively recently. 80 The resulting Discussion Paper, The Commissioning Rule, Contracts and the Copyright Act 1994, 81 had invited submissions. In the Court of Appeal s view, none of the submissions had criticised or expressed concern with the Court of Appeal s decision in Pacific Software Technology Ltd v Perry Group Ltd, 82 which the court inferred meant that Pacific Software was regarded as New Zealand s leading case on commissioning. 83 The court in Pacific Software noted that the law on commissioning when there was no specific commissioning agreement was well settled, although it can be difficult to apply, 84 and it set out a list of guidelines for assessing whether there had been a commission 85 : [T]o commission simply means to order or request. [T]his commissioning must be antecedent to the work. It must have been arrived at before the work is made. [Section] 21 requires, in terms, a commission and an agreement to pay. Whilst an antecedent commissioning does not necessarily imply an obligation to pay, usually it will do so. And the very existence of a payment obligation can lend force to the notion of the commission itself. An agreement to pay can be express or implied That said, matters can be left so vague that the supposed commission becomes unenforceable. (For a reported instance of this kind, see Leah v Two Worlds Publishing Co Ltd [1951] Ch 393). [T]his payment is a quid pro quo for the copyright: that is, the making of the copyright work, not the physical embodiment of the work itself. [T]he copyright in the commissioned work belongs to the commissioning party so soon as part of it is done. That is, the commission applies to incomplete as well as complete works. [A] commission is closer to a term of art which is employed in the copyright area for the resolution of first ownership issues. To put this another way, the notion of a commission is sui generis to copyright law. It involves the Court finding an arrangement of the requisite character between the parties, and what the terms of it are. The very existence of the commission may be inferred. With respect to the Court of Appeal in Pacific Software, describing the law on commissioning as well settled, although it can be difficult to apply in practice, is akin to the complexity in determining where the idea stops and the expression starts: it all depends on what you mean by ideas. 86 More importantly, though, the Court of Appeal in Pacific Software was playing a little bit too fast and loose with its summary 78 For example, nearly all the sections of the Copyright Act 1994 refer at the end to the comparable section of the Copyright, Designs and Patents Act 1988 (UK). And see Ministry of Economic Development, The Commissioning Rule, Contracts and the Copyright Act 1994: A Discussion Paper (March 2006), para.33, where the Discussion Paper notes that the UK has provided the model for New Zealand s Copyrights Acts of 1913, 1962 and The exception is when a person makes, for valuable consideration, an agreement with another person for the taking of a photograph for a private or domestic purpose, the painting or drawing of a portrait or the making of an engraving by the other person; and the work is made in pursuance of the agreement : Copyright Act 1968 s.35(2) (Cth). 80 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [31]. 81 Ministry of Economic Development, The Commissioning Rule, Contracts and the Copyright Act 1994 (March 2006). 82 Pacific Software Technology Ltd v Perry Group Ltd [2004] 1 N.Z.L.R Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [31] [34]. 84 Pacific Software 2004] 1 N.Z.L.R. 164 at [54], quoted in Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [30]. 85 Pacific Software [2004] 1 N.Z.L.R. 164 at [54]. 86 LB (Plastics) Ltd v Swish Products Ltd [1979] R.P.C. 551 HL at 629 per Lord Hailsham. See also Designers Guild Ltd v Russell Williams (Textiles) Ltd [2000] 1 W.L.R HL at 2422 per Lord Hoffmann.

14 306 Intellectual Property Quarterly of the guidelines on commissioning. The High Court in Plix Products, which preceded Pacific Software, was clear that [c]ommissioning means ordering it means more than requesting or encouraging. 87 Granted, the Court of Appeal in Pacific Software could have overruled the High Court s finding in Plix Products that requesting was not sufficient, but Plix Products was not mentioned in Pacific Software. Indeed, Copinger 88 which the Court of Appeal in Oraka relied upon in its second decision also cited Plix Products as authority that a request was not sufficient to establish a commission. 89 Curiously there was no reference in Oraka to Copinger on commissions. 90 The Court of Appeal s guidelines in Pacific Products were not anchored in the prior cases. The Court of Appeal in Oraka, after reviewing the law on commissioning, 91 omitted any reference to the requirement that there be an order and concluded that a commission required the satisfaction of three elements: (1) a request to make the drawings; (2) an antecedent payment or an agreement to pay for them in money or money s worth; and (3) the making of the drawing. The critical issue [in this case] is element (2), and such an obligation may be express or implied. 92 Was there an antecedent payment or an agreement to pay for the drawings in money or money s worth? The court noted the question was difficult to determine given that the events occurred 18 years ago, no contemporary records were produced, and the witnesses who gave oral evidence had difficulty remembering what had occurred. 93 The Court of Appeal was forced to draw inferences from what was alleged to have happened, just as Allan J in the High Court had done. 94 Mr Schwarz stated that when he asked Napier Tool to do the drawings, he was assured by Napier Tool that any work produced by Napier Tool would entirely belong to [the appellants] if the appellants chose to go to another manufacturer. 95 Mr Schwarz claimed it was implicit in that advice that as the appellants had the right to control production from the mould, they would also own the copyright in the mould and the Schwarz cup s final design. 96 Napier Tool accepted that this chain of events could have occurred. 97 After Napier Tool produced the 3 February and 10 February drawings, it prepared a written quote which Mr Schwarz accepted. The written quote, however, was no longer in existence. 98 The parties agreed at trial that a price of $26,000 was agreed for Napier Tool to produce the tooling. The Court of Appeal found that 99 in broad terms this is a case that progressed from the expression of a concept by Mr Schwarz accompanied by some of his drawings and a physical prototype, through to early drawings prepared by Napier Tool that, when approved by Mr Schwarz, were evolved by Napier Tool into far more detailed industrial design drawings which were then utilised to produce a tool. The appellants paid Napier Tool $26,000 for its work. 87 Plix Products [1986] F.S.R. 63; (1984) 1 T.C.L.R. 176 at Copinger (looseleaf). 89 Copinger (looseleaf), para In contrast, Copinger was cited as authority in Oraka (No.2) [2013] NZCA 111: for the ability to use a series of drawings at [12]; in relation to the explanations as to the similarities between the plaintiff s and defendant s works at [113]; for the ability to evaluate evidence that may be that no copyright infringement actually took place at [114]; stating the essential test for determining whether a substantial part had been copied at [129]; stating that the line between ideas and expressions is notoriously ill defined at [130]; and explaining that the spare parts exception is being increasingly limited in the UK at [139]. 91 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [19] [39]. 92 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [40]. 93 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [41]. 94 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [41]. 95 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [44]. 96 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [44]. 97 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [44]. 98 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [46]. 99 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [49].

15 Copyright Protection of Functional Objects in New Zealand 307 The Court of Appeal found that it would have been extremely difficult to argue that no commissioning had occurred. 100 There was, however, a complicating feature. Napier Tool argued that the drawings were produced as part of its free design service. Napier Tool was paid only if the client, the appellants in this case, went ahead to the tooling stage. It was the free design service which had swayed Allan J to reach the conclusion that no commissioning had taken place as no plaintiff made any payment in money or money s worth to [Napier Tool] for those drawings. 101 The Court of Appeal found that Allan J considered that two transactions had occurred between Mr Schwarz and Napier Tool 102 : first, an instruction to prepare the design drawings the free service; secondly, for the later drawings, the production of the tool and the manufacture of components. The Court of Appeal thought that making a division into two transactions artificial and did not accord with the commercial realities 103 ; instead, [t]he commercial reality was that what transpired was one seamless transaction. 104 There was still, however, the requirement that Mr Schwarz must have paid or agreed to pay, for the drawings before they were done. The Court of Appeal found that: In commercial terms the agreement was that if Napier Tool could come up with satisfactory drawings it would get to do the manufacturing work and be paid for it if an appropriate price could be worked out. 105 Alternatively, from the request to prepare the drawings, there arose an implied obligation that the appellants would pay if satisfactory drawings led to the manufacturing work. 106 Crucially the Court of Appeal found it did not matter that the appellants made no specific payment for the drawings; it was sufficient if they had agreed to pay expressly or by implication for those drawings. 107 The implied obligation to pay was sufficient. 108 Thus the Court of Appeal found that Mr Schwarz commissioned Napier Tool to make the drawings and therefore owned the copyright in those drawings. There is no doubt that the commissioning rule on its face favours the commissioner, not the author: under the Act there is no need to pay for the commission, an agreement to pay is sufficient. 109 The Court of Appeal s finding, however, that all is required is an implied obligation to pay stretches the already generous legislative wording and the inaccurate summary of the law on commissioning in Pacific Software 110 there was no agreement to pay for the drawings in Oraka. The question is whether the Court of Appeal s decision that Mr Schwarz as commissioner was the first owner of the copyright in the works produced by Napier Tool can be justified on the basis of Pacific Software; after all, the Court of Appeal in Oraka was adamant that Pacific Software was the leading case on commissioning in New Zealand. 111 Drilling down into the guidelines laid down in Pacific Software becomes interesting. The incorrect finding that a request was sufficient was not the only place where the guidelines departed from the previous cases. The Court of Appeal in Pacific Software in its treatment of an implied obligation to pay, cited Alwinco Products Ltd v Crystal Glass Industries Ltd. 112 In Alwinco the Court of Appeal dealt with commissioning very briefly as it had not been raised in the High Court; the Court of Appeal simply noted that 113 : 100 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [49]. 101 Oraka (No.1), HC, Hamilton, CIV at [44]; and see Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [50]. 102 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [51]. 103 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [56]. 104 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [56]. 105 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [57]. 106 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [58]. 107 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [59]. 108 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [59]. 109 Copyright Act 1994 s.21(3)(a): pays or agrees to pay. 110 That a commission requires an order, rather than a request. 111 Oraka (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [34]. 112 Alwinco Products Ltd v Crystal Glass Industries Ltd [1985] I N.Z.L.R. 716 CA. 113 Alwinco [1985] I N.Z.L.R. 716 at

16 308 Intellectual Property Quarterly It is implicit in the correspondence and in McKechnies [the company alleged to have been commissioned to create the works in question] own understanding as evidenced by its submission of the drawings to [the alleged commissioner]. And having considered the evidence we are of opinion that there was an implication that McKechnies would be paid. Thus the issue of whether there had been a valid commissioning was dealt with superficially by the Court of Appeal in Alwinco. The court in Pacific Software noted that this Court thought it sufficient that it be established that the work is to be paid for. 114 In Oraka there was no agreement that the drawings would be paid for as they were part of the free design service, thus the facts cannot be brought within Alwinco. Next, the court in Pacific Software noted that Laddie, Prescott and Vitoria 115 cited PS Johnson & Associates Ltd v Bucko Enterprises Ltd approvingly for the proposition that there can be an implied commissioning arrangement, where it can only be assumed that [the work] would ultimately be paid for. 116 The court in PS Johnson & Associates, however, made much of the fact that the client bore the cost of preparing drawings that it requested, 117 and, in particular, the company that produced the drawings did not claim copyright in the drawings. 118 Moreover, even the rudimentary discussion in PS Johnson & Associates on commissioning has not gone unnoticed. In Apple Corps Ltd v Cooper 119 Micklem J was critical of the court in PS Johnson & Associates taking a cavalier attitude to contract law and finding a commission, describing it as a perilous path. 120 It is difficult therefore to see how Pacific Software can be used to justify the finding of a commission on the facts of Oraka. A valid question at this juncture is whether the UK decisions can cast any light on commissioning. (Albeit, the fact that commissioning (and paying) is not sufficient in itself in the UK to vest ownership of copyright in the commissioner means that the UK cases on commissioning are of limited value the focus in the UK is on what type of term (if any) to imply into the contract. ) 121 As we have seen, Copinger is clear that commissioning in the UK requires an order and not simply a request. 122 Copinger notes that to have a commission there must therefore come into existence a contract with mutual obligations, namely an obligation to create a work and an obligation to pay. 123 An obligation to pay was addressed in Sasha Ltd v Stoenesco, 124 where the court stated that the real ultimate question was whether, in the requests to the various persons concerned there was by implication any legal liability to pay for work done if no copies were [subsequently] ordered. In Oraka there was no legal liability for Mr Schwarz to pay for the first drawings if they were inadequate, thus in the UK there would have been no commission. In summary, the Court of Appeal in Oraka found that a commission allowed commercial realities to sweep aside the legislative wording and the jurisprudence on commissioning. However, as will be seen later, the court could still have taken into account the commercial realities, albeit not through the vehicle of commissioning. The Court of Appeal s finding of implied is also important for another reason, which the court might not have appreciated. It would mean that if Mr Schwarz had rejected the drawings that had been produced 114 Pacific Software [2004] 1 N.Z.L.R. 164 at [57]. 115 Hugh Laddie, Peter Prescott and Mary Vitoria, The Modern Law of Copyright and Designs, 2nd edn (London: Butterworths, 1995), para PS Johnson & Associates Ltd v Bucko Enterprises Ltd [1975] 1 N.Z.L.R. 311 at PS Johnson & Associates [1975] 1 N.Z.L.R. 311 at PS Johnson & Associates [1975] 1 N.Z.L.R. 311 at Apple Corps Ltd v Cooper [1993] F.S.R. 286 Ch D. 120 Apple Corps [1993] F.S.R. 286 at See Ray v Classic FM Plc [1998] F.S.R. 622 Ch D at 625, where Lightman J explained in his first point in relation to the respective rights of the contractor and client in relation to a work commissioned by a client, the contractor is entitled to retain the copyright in default of some express or implied term to the contrary effect. 122 Copinger (looseleaf), para Copinger (looseleaf), para.5-34, citing Ultraframe (UK) Ltd v Fielding [2003] EWCA Civ 1805; [2004] R.P.C. 24 at [30]. 124 Sasha Ltd v Stoenesco (1929) 45 T.L.R. 350, cited in Copinger (looseleaf), para.5-34.

17 Copyright Protection of Functional Objects in New Zealand 309 as part of the free design service and had got someone else to do the drawings, or did not do anything else in respect of commercialising the Schwarz cup, copyright in the Napier Tool drawings would have vested in Mr Schwarz, not Napier Tool. To be sure, copyright not vesting in Napier Tool in such a situation would again accord with commercial realities. It would be strange if a person or company who produced drawings that were deemed substandard obtained ownership of the copyright in those drawings with the effect that it could use copyright law to prevent others from commercialising that object. Yet, New Zealand s copyright legislation is clear that there must be an agreement to pay or agree to pay for works produced. As Lord Hailsham observed in LB (Plastics) Ltd v Swish Products Ltd, we must take copyright law as we find it. 125 However, copyright law is not entirely blind to reality. In Alwinco Products Ltd v Crystal Glass Industries Ltd the Court of Appeal in obiter appeared to find that an author of technical drawings would, if no commission was found, be unable to exploit the drawings as it would have been a breach of confidence or an implied term of the arrangements between the putative commissioner and the author. 126 Alternatively, the Court of Appeal could have implied a term into the agreement. There is no doubt that the courts can imply terms into agreements. 127 The UK courts have implied various terms into contracts where copyright protected works have been produced, ranging from limited licences, 128 through to assignments, albeit assignments are rarely ordered. 129 Here, the relevant agreement would have been the second transaction as it is difficult to see how the first transaction, the free design service, could amount to a contract. The Court of Appeal cited Lightman J in Ray v Classic FM 130 approvingly, and observed that it had the ability to imply terms into the agreement. 131 Lightman J noted that 132 circumstances may exist when the necessity for an assignment of copyright may be established [T]hese circumstances are, however, only likely to arise if the client needs in addition to the right to use the copyright works the right to exclude the contractor from using the work and the ability to enforce the copyright against third parties. According to Lightman J, determining whether an assignment should occur involved consider[ing] the price paid, the impact on the contractor of assignment of copyright and whether it can sensibly have been intended that the contractor should retain any copyright as a separate item of property. 133 The facts in Oraka would appear to fit the situation described by Lightman J: $26,000 was paid; Napier Tool would suffer no detriment if copyright was assigned; the Court of Appeal found that it could not sensibly be argued that Napier Tool should retain ownership of the copyright; and the appellants needed to prevent both Napier Tool and the other respondents from using the drawings. It is difficult to see why the Court of Appeal did not take the route of assignment of copyright, instead of mangling the commissioning rule. One reason could be that the Court of Appeal simply took a wrong turn. One of the examples given by Lightman J of circumstances justifying the assignment of copyright was 134 where the contractor creates a work which is derivative from a pre-existing work of the client, e.g. when a draughtsman is engaged to turn designs of an article in sketch form by the client into formal 125 LB (Plastics) [1979] R.P.C. 551 at 630 per Lord Hailsham. 126 Alwinco [1985] I N.Z.L.R. 716 at See, generally, Nielsen v Dysart Timbers Ltd [2009] NZSC 43; [2009] 3 N.Z.L.R. 160 at [25] and [42]. 128 See, e.g. Blair v Osborne & Tomkins [1971] 2 Q.B. 78 CA: implied licence for architect s plans to be used to erect houses on the site the plans had been drawn up for. See also Ray v Classic FM [1998] F.S.R. 622: commissioner entitled to use database for its own business purposes (radio station), but could not exploit the database overseas and sell licences for others to use. 129 Sofia Bogrich v Shape Machines, 4 November 1994, Patent Court, cited in Ray v Classic FM [1998] F.S.R. 622 at Ray v Classic FM [1998] F.S.R Oraka (No.1) (CA) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [37] [39]. 132 Ray v Classic FM [1998] F.S.R. 622 at Ray v Classic FM [1998] F.S.R. 622 at Ray v Classic FM [1998] F.S.R. 622 at 642.

18 310 Intellectual Property Quarterly manufacturing drawings, and the draughtsman could not use the drawings himself without infringing the underlying rights of the client. Here, the Court of Appeal and the High Court had accepted that there was no sketch in existence, so it was not the case of the draughtsman infringing her client s copyright in the sketches if she used those drawings herself. 135 Thus the Court of Appeal may have been led astray by this example. Alternatively, a reason why the Court of Appeal found that a commission had occurred rather than implying a term into the contract assigning copyright to the appellants may be because it wanted to broaden commissioning further than it had done already in Pacific Software to include the situation which arose in the first transaction in Oraka: that a commission can occur in the absence of an agreement to pay or even an obligation to pay. To expand the law to this point, however, is Parliament s prerogative, not that of the courts. Indeed, given that New Zealand s law on commissioning is not aligned with the UK or Australia (the first the jurisdiction from which NZ has taken its copyright law, and the second its closest trading partner), it would make sense not to expand New Zealand s already generous treatment of commissioners. Before leaving commissioning, Allan J made a statement that the Court of Appeal did not correct. Allan J stated that the result of the commissioning rule was in effect to make the commissioner of the work the author of that work and entitled to take action thereby for infringement. 136 Authorship of a work protected by copyright and ownership of the copyright in a work are two different concepts. Section 9 of the Copyright Act 1962 and s.21 of the Copyright Act 1994 deal with first ownership of copyright and do not disturb or displace the author s identity. When a valid commission is found, the commissioner will be the first owner of the copyright and the author remains the author. The distinction between authorship and ownership is a crucial one. For example, notwithstanding that an author will lose the ownership of copyright in certain works created under a commission (unless there is an agreement to the contrary), the author retains her moral rights, for example, the right to sue for derogatory treatment of a work. 137 It is the author and the author alone who can sue for breach of her moral rights, 138 and the author is unable to assign her moral rights to the copyright owner, 139 albeit she can waive her moral rights. 140 Ownership of copyright For a person (whether a company, 141 a natural person or another entity capable of owning property) to sue for copyright infringement, that person must own the copyright in that work. 142 Therefore, determining the owner of the copyright is vital in a copyright dispute. Working out who owns the copyright in any given work can be difficult because, even if a valid commission is found, commissioning establishes merely the first ownership of the copyright in the work. Ownership of copyright is often assigned 143 and 135 Indeed, Lightman J s example is a little puzzling as the draughtperson s drawing would be a copy of the client s work and thus would not obtain a separate copyright. 136 Oraka (No.1), HC, Hamilton, CIV at [24]. 137 Copyright Act 1994 s.98. Other moral rights of an author are the right to be identified as the author of the work (s.94) and rights against false attribution of a work (ss ). 138 See Benchmark Building Supplies Ltd v Mitre 10 (New Zealand) Ltd [2004] 1 N.Z.L.R. 26 at [41], where the Court of Appeal was very clear that Mitre 10 (the employer) was unable to sue for breach of moral rights, because, while it was the copyright owner, the moral rights belonged to the authors (its employees) who had created the work in question. 139 Copyright Act 1994 s.118: The rights conferred by Part 4 [moral rights] are not assignable. And see Alexandra Sims, Shop Wars: Copyright, Moral Rights, and Comparative Advertising (2004) 10 N.Z.B.L.Q. 9, Copyright Act 1994 s.107(2). 141 Corporate vehicles normally exploit most commercially valuable works that copyright protects. While a company cannot create a work protected by copyright itself it cannot physically wield a pen or tap away on a keyboard copyright law provides pragmatically that, for example, the first ownership of copyright in literary, dramatic, musical or artistic works created by a employees will vest in the employer (Copyright Act 1994 s.21(2)); thus if the employer is a company it will own the copyright in its employee s drawings if they were produced in the course of employment. In the course of employment is a term of art; for cases where works created by employees were found not to be created in the course of employment, see Fleming, HC, Auckland, CIV ; and University of Western Australia v Gray [2009] FCAFC Henkel [2006] NZSC 102; [2007] 1 N.Z.L.R. 577 at [34]. 143 Copyright Act 1994 s.113(1)(a).

19 Copyright Protection of Functional Objects in New Zealand 311 it is common for copyrights to pass through a succession of owners. Moreover, companies, while not mortal, are born and can die 144 : if matters such as the assignment of copyright are not attended to properly, companies can take their assets, such as copyrights, to their graves. The finding therefore that Mr Schwarz was the first owner of the copyright in the Schwarz cup did not necessarily mean that he or another of the appellants remained the copyright owner. The appellants argued that Technologies was the copyright owner of the Schwarz cup as Mr Schwarz had assigned the copyright to Technologies under a deed entered into by Mr Schwarz on 19 March 1993 (a month or so after the appellants had commissioned Napier Tool to do the February drawings). As assignments of copyright must be in writing, 145 prima facie the deed satisfied the writing requirement. The respondents, however, argued that the deed was ineffectual because of an earlier purported sale and thus the deed could not therefore operate as a written assignment. 146 Allan J found that the requirements for writing and a signature were to be approached in a broad fashion. 147 There was also no need for the term assigned to be used, or any particular wording so long as the intention was clear. 148 Indeed, the word copyright did not have to be used. 149 Nor was any particular form of documentation required: messages, receipts and invoices may be sufficient. 150 Allan J took a wide view of whether a document amounted to a valid assignment of copyright, saying that it depend[ed] on the intention of the parties and [v]ery considerable weight will be placed on the declarations of the parties intention. 151 Allan J had no doubt that the deed was effective in assigning the copyright to Technologies. The respondents had also argued that if copyright had been assigned to Technologies prior to the deed, then Mr Schwarz had no rights which could justify royalty payments. 152 Allan J found that the ongoing royalty payments were not fatal as it was common in assignments of copyright for the assignor to receive such royalties. 153 The respondents, having lost the argument that the deed was ineffectual to transfer the ownership to Technologies, argued that Holdings was the owner of the copyright, not Technologies. As Holdings had been struck off the Companies Register, there was no copyright owner able to sue for copyright infringement. The respondents argument that Holdings was the copyright owner was based on two events. First, in 1999, Holdings applied to a state funding organisation for a grant to upgrade the Oraka grader. As a condition of the grant, the parties were required to enter into an intellectual property agreement that set out who would own any intellectual property generated by the project. Following Holdings gaining the grant, an agreement was signed in November 1999 on behalf of Holdings which stated that Holdings owned the technology associated with the Oraka grader. 154 Allan J found that the clear purpose of the agreement was to ensure that Holdings was the owner of all proprietary rights in the software package associated with the technology. There was no mention of the Schwarz cup or any other items of hardware in the agreement A company s birth takes place when it is incorporated under the Companies Act Its death is occasioned by the Registrar removing it from the register (s.317) and its remaining assets go to the Crown (s.324(1)). It is possible for a company to be resurrected (restored to the register, s.330); however, the grounds of restoration are narrow (see s.329). For example, it is a ground to have a company restored to the register if the company was a party to legal proceedings at the time the company was removed from the register. 145 Copyright Act 1994 s.114: An assignment of copyright is not effective unless it is in writing signed by or on behalf of the assignor. 146 Oraka (No.2), HC, Hamilton, CIV at [15]. 147 Oraka (No.2), HC, Hamilton, CIV at [18]. 148 Oraka (No.2), HC, Hamilton, CIV at [18], citing Paul Sumpter, Intellectual Property Law (Auckland: CCH, 2006), p.51, and Lacy v Toole (1867) 15 L.T Oraka (No.2), HC, Hamilton, CIV at [18] citing Cray Valley Ltd v Deltech Europe Ltd [2003] EWHC (Ch) 728 at [69]. 150 Oraka (No.2), HC, Hamilton, CIV at [18], citing Brendan Brown, Clive Elliott, Jeremy Finn, Earl Gray, Ken Moon, Owen Morgan, Paul Sumpter and Kevin Glover, Copyright & Design, looseleaf edn (Lexis Nexis), para.cop Oraka (No.2), HC, Hamilton, CIV at [19]. 152 Oraka (No.2), HC, Hamilton, CIV at [16]. 153 Oraka (No.2), HC, Hamilton, CIV at [20], citing Copinger (looseleaf), para.5-206(d). 154 Oraka (No.2), HC, Hamilton, CIV at [29]. 155 Oraka (No.2), HC, Hamilton, CIV at [31].

20 312 Intellectual Property Quarterly Secondly, there was an arrangement between the shareholders in Holdings. Mr Kinder and Mr Ross wanted to quit their interest in Holdings and, on 3 March, Mr Schwarz had written to Mr Kinder on the letterhead of Holdings 156 : I hereby assigned the rights to the Oraka Asparagus Grader plastic dies, which are held by Napier Tool and Die Ltd., to Tim Kinder and Ross Bell in return for their guaranteeing an overdraft for Oraka Technology Holdings Ltd of up to $50,000. This arrangement is to continue until I have found a buyer for Tim and Ross s shares in Holdings for $60,000. The document was signed by Mr Schwarz in his own name and was on the letterhead of Holdings, not Technologies. There was nothing to suggest that Mr Schwarz purported to be acting on behalf of Technologies. 157 Allan J accepted the respondents argument that the appellants claim to ownership was muddled and contradictory 158 : a) In the first version of the statement of claim, Oraka Graders Ltd (not now a party), was alleged to have been the owner of the copyright. In subsequent pleadings ownership was alleged to vest in Technologies, Holdings and Mr Schwarz respectively; b) The statement of claim refers to the plaintiffs collectively with respect to ownership issues and does not plead which of them is the owner. Although copyright may be the subject of co-ownership, that is not pleaded; c) There is evidence before the Court that in respect of the manufacture of the collection chutes, invoices were rendered to Oraka Enterprises, although there appears to have been no such corporate entity. Notwithstanding the problems surrounding the appellant s claim to ownership, Allan J accepted that on the balance of probabilities Technologies became the owner of the copyright works through the deed of 19 March The appellants as owners of the copyright were entitled to sue for copyright infringement. Infringement Once it is established that the plaintiff or plaintiffs own the copyright in the work or works, the final question is whether the allegedly infringing object infringes the plaintiff s copyright. When two things are not identical, infringement is notoriously difficult to determine. 159 Functional objects further increase the complexity of the analysis as they differ from other types of copyright protected works. When an artist stands before her easel, or, increasingly, computer screen, her constraints are her skill, time and materials; anything is possible. In contrast, the designer of a functional object faces limitations and restrictions imposed by physics and other external factors 160 : a chair is not much use if it falls apart when someone sits on it. In the High Court, Allan J found no infringement, despite finding that the respondents had used the Schwarz cup as a starting point and there was a degree of resemblance between the Schwarz cup and the Geostel cup. 161 The finding of no infringement was because many of the similarities between the two were due to functional constraints. In particular, Oraka (No.2), HC, Hamilton, CIV at [40]. 157 Oraka (No.2), HC, Hamilton, CIV at [45]. 158 Oraka (No.2), HC, Hamilton, CIV at [49]. 159 See, for example, Designers Guild [2000] 1 W.L.R. 2416, where the Law Lords could not agree as to the test for to determine whether a substantial part had been copied; see also Ronan Deazley, Copyright in the House of Lords: recent cases, judicial reasoning and academic writing [2004] I.P.Q See generally, Steelbro NZ [2007] NZCA 486 at [96]: the trailers in question could not be any wider than 2.5 metres by law. 161 Oraka (No.2), HC, Hamilton, CIV at [176]. 162 Oraka (No.2), HC, Hamilton, CIV at [173].

21 Copyright Protection of Functional Objects in New Zealand 313 given the constraints imposed by the structure and operations of the grading apparatus (over which the plaintiffs enjoy no intellectual property protection) the similarities identified by the plaintiffs are no greater than might be expected even if completely independently designed. They are similarities in principles, but not in expression. On appeal, the Court of Appeal began by observing that while copying is a restricted act under the Copyright Act 1994 reserved to the copyright owner, copying is not usefully defined in the Act. 163 Instead, the courts have been left to flesh out copying. 164 The court set out the current test in New Zealand for copyright infringement as laid down in Whamo-O. 165 For a plaintiff to be successful, the plaintiff must prove three elements 166 : (a) (b) (c) Substantiality: The reproduction must be either of the entire work or of a substantial part. Objective similarity: There must be sufficient objective similarity between the infringing work and the copyright work, or a substantial part thereof. Causal connection: There must be some causal connection between the copyright work and the infringing work. The copyright must be the source from which the infringing work is derived. The court noted that the court in Wham-O did not mandate the order in which the elements were to be worked through; indeed, the court thought that the most logical way would be to approach it in the order of objective similarity, causal connection and substantiality. 167 Substantiality must come last because if there is no causal connection, for example, if the alleged copier has not seen the copyright work directly or indirectly (or had it described in detail 168 ), there can be no infringement. The Supreme Court, in dismissing Napier Tool s appeal, agreed that it was possible for courts to deal with the Whamo-O test in the order set out in Oraka. 169 The Court of Appeal in Oraka was careful to note that the substantiality element was to be decided on what was actually copied from the work in question, rather than on wider issues of copying and noted that the High Court was wrong to apply the substantiality test to the appellants allegations, rather than to what was actually copied. 170 Objective similarity The Court of Appeal found that there was objective similarity in: the length of the Schwarz cup and the Geostel cup; the two cup assemblies in relation to the dimensions A, B and C; the V shape of the cup and depth of the cup; the presence of flared or ramped ends on the cut; use of a bracket to mount the cup; the location of the trigger; the use of a flat leaf spring to hold the trigger in place; and the pivot points, 163 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [83] [84]. Copyright Act 1994 ss.2, 29 and 30. While the Copyright Act 1962 applied to the ownership of the works, as the alleged infringement occurred after the Copyright Act 1994 came into force, the latter Act applied to the infringement issue. 164 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [84]. 165 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [85]. 166 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [85]. 167 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [87]. 168 House of Spring Gardens Ltd v Point Blank Ltd [1985] F.S.R. 327 SC Ireland. 169 Napier Tool and Die v Oraka Technologies [2013] NZSC 86 at [4]: Henkel illustrates that the question of derivation may often be conveniently considered before questions of substantiality, themselves requiring assessment against what was actually copied, a point made here by the Court of Appeal. 170 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [87].

22 314 Intellectual Property Quarterly latch arrangement and chassis plate measurements. 171 There were, however, significant differences, such as the integration of the chassis with the chain link, the spring that joined the bracket to the pivot pin, and different trigger mechanisms. 172 Other minor differences were: the pin holding the Geostel cup to the chassis; the number of conveyor links in the chassis; the shape of the chassis; and the use of ribbed rather than square weights at the butt end of the cups. 173 The appellants argued that the last feature was in fact evidence of copying as later testing had demonstrated that the weights were unnecessary to the functioning of the cup. The Court of Appeal, while not expressly accepting this point, did note that Allan J had appeared to accept that the evidence supported the appellants argument. 174 Crucially the Court of Appeal found that both the appellants and respondents experts accepted that the Geostel cup assembly resembles a second generation model of the Schwarz cup assembly. 175 Therefore, there was objective similarity between the Geostel and Schwarz cups. 176 The Court of Appeal was correct to find that differences between the copyright work and an alleged infringing work are not fatal and do not detract from the similarities. 177 Causal connection The Court of Appeal noted that where the plaintiff s and defendant s work were objectively similar there were four possible explanations 178 : the similarities occurred through mere chance or coincidence; the works were derived from a common source; the plaintiff copied the defendant s work; or the defendant copied the plaintiff s work. Copyright infringement could only occur if the final explanation had occurred. 179 The Court went on to state 180 : In most cases, copying can only be deduced by inference from all the surrounding circumstances. It is unusual for there to be evidence of actual copying from someone observing the person making his or her work. In Henkel KGaA v Holdfast New Zealand Ltd the Supreme Court remarked that causality is the ultimate issue in a copyright case. The Court said that the degree of similarity between two works has evidentiary significance and is of assistance in satisfying causality: the greater the similarity between the two works, the stronger the inference is likely to be that the one was copied from the other. The Court went on to say that, if an alleged infringer has had access to, and therefore an opportunity to copy, the copyright work, and the similarity between the works supports an inference of copying, it may well be appropriate for the court to conclude that there was copying. This, however, is subject always to the evaluation of any evidence there may be that no copying actually took place [Henkel at [43]]. The court also observed that two other factors came into play in determining whether infringement had occurred. First, evidence of independent design could be used to assist in rebutting inferences of copying. 181 Secondly, the failure of a defendant to provide evidence that indicated how the allegedly infringing work 171 Oraka (No.2) [2010] NZCA 232 (2010) 9 N.Z.B.L.C. 103,010 at [109]. 172 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [110]. 173 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [110]. 174 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at fn.64, referring to Oraka (No.2), HC, Hamilton, CIV at [153]. 175 Oraka (No 2) Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [111]. 176 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [112]. 177 See generally Beazley Homes Ltd v Arrowsmith [1978] 1 N.Z.L.R 394 at Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [113], citing Copinger (looseleaf), para Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [113]. 180 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [114] (footnotes omitted). All references to Henkel [2006] NZSC 102; [2007] 1 N.Z.L.R. 577 are to [43]. 181 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [115], citing UPL Group v Dux Engineers [1989] 3 N.Z.L.R. 135.

23 Copyright Protection of Functional Objects in New Zealand 315 was created could be taken in account. 182 Indeed, in Steelbro NZ v Tidd Ross Todd 183 the defendant discovered the hard way that failure to document the design process fully was instrumental in a finding of copyright infringement when the defendant attempted to produce a competing product a sideloading trailer and had referred back to the plaintiff s product in the design process repeatedly. Despite the respondents arguments to the contrary, the Court of Appeal was adamant that the Geostel cup had not been designed independently and that the starting point of the Geostel cup was the Schwarz cup. 184 In addition, the Court of Appeal found that Allan J should have drawn an adverse inference against its failure to call Mr McKinlay an employee of Napier Tool who drew the Napier Tool drawings to give evidence. 185 Moreover, the Court of Appeal found that Allan J failed to give appropriate weight to his finding that the respondents had made constant references to the Schwarz cup during the Geostel cup s development. 186 The Court of Appeal found that the causal connection element had been made out. Substantial part The Court of Appeal began by observing correctly that the essential test to determine whether a substantial part has been copied is whether a claimant can show substantial use by the defendant of those features of the claimant s work that, by reason of the knowledge, skill and labour employed in their production, constituted it as an original copyright work. It is wrong to jump to the conclusion that a substantial part was taken simply on the basis that copying occurred. What constitutes a substantial part is necessarily a question of fact and degree. The quality or importance of what has been taken is much more significant than the quantity. The court went on to explain that the issue of substantially was tied up with the originality of the work: what is or is not substantial is closely associated with how original the work, or respective part of the work, is. The law of copyright is not concerned with originality of ideas but with originality of expression. Protection is given to a work (being a pattern of ideas), not a general idea or principle. The line between ideas and their expression, however, is notoriously ill-defined. Originality, in the sense of the contribution of the author s skill and labour, tends to lie in the detail with which the basic idea is presented. The greater the originality, the greater the protection that copyright law will afford it. The Court of Appeal s explanation of the law on this aspect is correct. The practical difficulty in the case, however, lay in the functional constraints. The Geostal cup was designed to fit the Oraka machine and it had to do the same job as the Schwarz cup. As the Court of Appeal noted, if the function of the item in question dictated the similarities between the two works, those similarities are simply an inevitable consequence and no infringement will result. 187 The UK courts have grappled with functional constraints, albeit the term commonplace was used. 188 The Court of Appeal summed up the UK law by stating 189 : 182 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [115]. 183 Steelbro NZ [2007] NZCA Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [119] and [125]. 185 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [124]. 186 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [125]. 187 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [131]. 188 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [132]. 189 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [132].

24 316 Intellectual Property Quarterly If the claimant s design is very ordinary (commonplace) given the constraints imposed by the function of the object and there is nothing new added, then the originality of the claimant s work might be non-existent or so low that the defendant can easily avoid breach by adding something of his or her own to the design. Notwithstanding the Court of Appeal s explanation of functional constraints/commonplace, the court found that with one exception 190 the restraints on the design of the Schwarz and Geostal cups were not functional constraints in the conventional sense, 191 and that Allan J had erred in treating the constraints imposed by the Oraka grader as market constraints. 192 The finding that the constraints were not dictated by the function of an asparagus grader or the market was because there was no evidence or argument that the Oraka grader was the only way an asparagus grading machine could be built. 193 However, while the Court of Appeal found that there were no truly functional constraints; the width and angle of the cups were largely dictated by third-party technology and thus had a low level of originality. 194 The respondents had argued that the V shape of the cups was commonly used to hold round or cylindrical items in various industries. The court observed that frequent use of a feature does not mean that it was the only design that would work. 195 However, the common use of the V shape did mean that it had a low level of originality. 196 The length of the Schwarz cup had low originality because, despite the similar lengths of two other cups that were used internationally, a third cup used overseas was significantly longer. 197 If the respondents had copied one of the low originality features, no infringement would have resulted. The respondents, however, had copied a combination of features with low originality. 198 In addition, the court found features of the Schwarz cup that had been copied that were not commonplace. 199 The Court of Appeal accepted the appellants argument that other combinations of dimensions could also have worked. The Court of Appeal was clear, therefore, that a substantial part had been copied. 200 The Supreme Court in its dismissal of Napier Tool s application for leave to appeal appears to have accepted that the Court of Appeal s description of the Geostel cup as a second generation was sufficient for the infringement finding. 201 Conclusion This article has not challenged the Court of Appeal s ultimate finding of infringement; indeed, the Supreme Court dismissed Napier Tool s application for leave to appeal. The clear and compelling lesson from Oraka is that a person wanting to make a competing functional object must use a separate design process, although the designers of the second object are free to copy the idea of the first object. Copyright, after all, prevents copying, not independent creation. The reasoning of both the High Court and Court of Appeal on a number of different and fundamental aspects of copyright law, however, deserves further attention. First, in determining copyright infringement, 190 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [141] the flare at the end of the cups to prevent damage to the asparagus heads. 191 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [139]. 192 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [139]. 193 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [139]. The Court of Appeal justified its finding that there were no functional or market constraints by noting that the spare parts exception had been rejected in Mono Pumps (1986) 1 T.C.L.R. 337 and Husqvarna Forest & Garden v Bridon [1997] 3 N.Z.L.R. 215 at Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [140]. 195 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [142]. 196 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [142]. 197 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [143]. 198 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [146]. 199 Oraka (No.2) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 at [146] the interrelated dimensions A, B and C. The dimensions were reproduced in Appendix 1 of the judgment. 200 The matter was remitted to the High Court on the matter of damages. 201 Napier Tool and Die v Oraka Technologies [2013] NZSC 86 at [2].

25 Copyright Protection of Functional Objects in New Zealand 317 only those works in which copyright subsists can be used to determine copyright infringement. If a series of works is looked at, those works in which copyright does not exist must be excluded from the assessment. Secondly, and this is related to the first, if a drawing in the design or manufacturing process is simply a version of an earlier drawing or is an exact copy of an earlier drawing (whether it has been redrawn, is a scanned or photocopy or is a technical or engineering drawing), the later drawing does not attract a separate copyright. Thirdly, labour, no matter how much, is not sufficient to provide a drawing with copyright if that drawing is a copy of an earlier drawing. Fourthly, if a commissioning arrangement is found, the commissioner does not transform into the author; the author of the work remains the author. Finally, commissioning under the Copyright Act 1994 requires there to be an order and an agreement to pay before the work in question is made. The Supreme Court has demonstrated a willingness to change an earlier misdirection by the Court of Appeal on copyright law. 202 However, the Supreme Court missed the opportunity to clarify the above points in its decision not to hear Napier Tool s appeal (albeit none of the points raised above as points of concern was the subject of the appeal). 203 It would be useful for the Court of Appeal or Supreme Court to clarify the matters set out above. The danger is that if the Court of Appeal s reasoning is permitted to stand, New Zealand s law on core copyright concepts will drift away from the UK, and New Zealand would be unable to utilise the UK s rich and measured jurisprudence on copyright law See, e.g. Henkel [2006] NZSC 102; [2007] 1 N.Z.L.R. 577 at [46] [48] where the Supreme Court corrected the Court of Appeal s misdirection when the Court of Appeal appeared to conflate novelty with originality there is no requirement that something be novel to be protected by copyright law. 203 The grounds of appeal were that (a) the Court of Appeal approached the elements for copyright infringement as set out in Wham-O in the wrong order, and (b) the Court of Appeal was wrong to overturn the trial judge s assessment and exceeded its proper appellate function by substituting its own assessment. 204 New Zealand s reliance on UK jurisprudence is underscored by that fact that the principal text used by the Court of Appeal in Oraka (No.2) (CA) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 was a UK text: Copinger (looseleaf).

26 Under-Referred, Under-Reasoned, Under-Resourced? Re-Examining EU Design Law Before the Court of Justice and General Court Jane Cornwell * Community designs; EU law; European Court of Justice; General Court; Legal methodology Abstract EU design law, as enacted by the Designs Directive and Community Design Regulation, has now been in effect in one form or another for over 14 years. However, despite the bold innovations, complexities and importance of the EU design regime, the subsequent development of EU design law has attracted relatively little detailed examination. Against the backdrop of growing interest in the process of the Europeanisation of IP law generally, this article will review how from an institutional and methodological perspective design law has developed before the Court of Justice of the EU and the General Court. Institutionally, it will demonstrate that a major role reversal has taken place between the Court of Justice and General Court in terms of leadership between the two EU-level courts in interpreting the new design regime. In terms of judicial methodology, through close re-examination of the General Court s case law and the underlying intentions and objectives for the EU design regime, this article will identify significant difficulties in the General Court s methods. Reflecting on possible explanations for the severely reduced role of the Court of Justice in the field of designs to date, this article will address the consequences of the General Court s methodological difficulties for the legitimacy of the General Court s rulings, their place in the overall EU design jurisprudence, and the implications for the process and effectiveness of harmonisation at Community and national levels. Reviewing potential causes of the deficiencies in the General Court s approach including institutional shortcomings and constraints this article will conclude by looking at impact of ongoing procedural and institutional reform at the General Court. Introduction Recent decades have been dubbed the age of Europeanisation in IP law. 1 The methodological and institutional aspects of this process of Europeanisation are, however, said to have received little sustained consideration. 2 This article aims to contribute to an increasing body of work by Pila, Ohly, Geiger and others examining these matters, 3 focusing here specifically on the under-researched area of designs. While considerable recent commentary has been directed to the expansive harmonising role played by the Court of Justice of * Lecturer in Intellectual Property Law, School of Law, University of Edinburgh. 1 A. Ohly, Introduction: The Quest for Common Principles of European Intellectual Property Law Useful, Futile, Dangerous? in A. Ohly (ed.), Common Principles of European Intellectual Property Law (Tübingen: Mohr Siebeck, 2012), p.3. 2 J. Pila, Intellectual Property as a Case Study in Europeanization: Methodological Themes and Context in A. Olhy and J. Pila (eds), The Europeanization of Intellectual Property Law (Oxford: Oxford University Press, 2013), pp For example: Ohly and Pila (eds), The Europeanization of Intellectual Property Law (2013); C. Geiger (ed.), Constructing European Intellectual Property: Achievements and New Perspectives (Cheltenham: Edward Elgar, 2013); E. Rosati, Originality in EU Copyright: Full Harmonization through Case Law (Cheltenham: Edward Elgar, 2013); C. Geiger (ed.), La Contribution de la Jurisprudence à la Construction de la Propriété Intellectuelle en Europe (Strasbourg: CEIPI/LexisNexis/Université de Strasbourg, 2013). 318

27 Re-Examining EU Design Law Before the Court of Justice and General Court 319 the EU in copyright and trade marks and, with the forthcoming Unitary Patent, there is also great interest in the present and future workings of Europeanised patent law, EU design law has in contrast attracted far less attention. Registered design protection was harmonised across the EU by Designs Directive 98/71 (the DD); a new unitary pan-eu design right, the Community design, was also introduced in registered and unregistered form by Community Design Regulation 6/2002 (the CDR). 4 Registered designs are powerful IP rights, conferring patent-strength monopoly rights for up to 25 years. Although prompting high-profile litigations, most notably the dispute between Samsung and Apple played out across European jurisdictions, compared with other IP rights there has been surprisingly little analysis of the state of the EU design regime since its enactment. This is unexpected given the bold new direction of, and uncertainties that surrounded, the new regime. With now 14 years of EU design protection in force in one form or another, it is time for a closer look at this much less examined area of Europeanised IP law. Acknowledging the enormous importance of the role played by the art.267 preliminary reference procedure in IP law, 5 this article will focus on how EU design law has developed before the EU-level courts. It will examine, from an institutional perspective, how the EU-level case law has developed between the Court of Justice (CJ) and General Court (GC) and, from a methodological perspective, the way in which the GC in particular has tackled the interpretation of the many new concepts with which it has been faced. Viewed afresh from these institutional and methodological perspectives, it will be argued that, between the EU-level courts at least, the present state of design case law is far less satisfactory than the relative lack of detailed commentary tends to suggest. While debate in other fields of IP has tended to focus on over-interventionism on the part of the CJ, in design law new and different problems emerge. As this article will explain, designs have taken a different path from other IP rights before the EU-level courts. In institutional terms, there has been a major role reversal between the CJ and GC, the GC acting effectively alone between the two EU-level courts in interpreting the new provisions of the CDR and DD. On the most challenging issues which have come before it, however, in judicial methodological terms the GC s case law is marked by an exceptional dearth of reasoning. In its most recent decisions, the GC has also begun to show a worryingly cavalier disregard of the legislative texts. Substantively, these matters have led to little remarked upon but significant departures from the scheme for design protection intended by the EU legislators. Institutionally, they pose challenges for the legitimacy of the GC s judgments, for their place in the overall EU design jurisprudence and, given the GC s particular precedential status for Community designs, for the coherence and progress of harmonisation at Community and national levels. This article will begin by outlining the key provisions of the EU design regime. It will then investigate the role reversal between the CJ and GC which has taken place in design law. Focusing on the GC, it will go on to examine closely the judicial methodology adopted by the GC in interpreting the CDR and DD and how far the GC has engaged (or not engaged) with the underlying legislative intentions and objectives of the EU design regime. It will conclude by addressing the wider structural and systemic consequences of the GC s approach and possible contributing factors including institutional shortcomings and constraints which may lie behind the inadequacies in the GC s case law. 4 Directive 98/71 on the legal protection of designs; Regulation 6/2002 on Community Designs. The deadline for transposition of the DD was October 2001 (although a number of Member States were late); unregistered Community design protection became available from March 2002 and the first registered Community designs were granted with effect from April J. Pila, Intellectual Property as a Case Study in Europeanization: Methodological Themes and Context in The Europeanization of Intellectual Property Law (2013), p.20.

28 320 Intellectual Property Quarterly Background the EU design regime In structural and institutional terms, the new EU design regime looked familiar. Based on the same two-tier model as the EU registered trade mark system, it was to operate at two levels: the DD harmonising national registered design laws; and the CDR creating the Community design, a new unitary EU-level right available in registered and unregistered form effective across Member States. 6 EU-level case law interpreting the CDR and DD was also to come about by two familiar routes: preliminary references from national courts to the CJ; and appeals against Community registered design decisions by OHIM, first to the OHIM Boards of Appeal, then to the GC and thereafter to the CJ. By either route, the CJ would be the ultimate arbiter of the interpretation of the CDR and DD. 7 This is, however, where the familiarity ended. Reflecting deep-rooted difficulties in situating the discipline-hopping subject-matter of design within the global IP framework and enacted against the backdrop of Member State national laws which could scarcely have been more divergent, the new EU design regime purposely marked a complete break from existing models for design protection. 8 In a ground-breaking move, the definition of protectable designs was not to be dependent on aesthetics or functionality. 9 Underpinning the CDR and DD was a new design approach, derived from an initial proposal from the Max Planck Institute and focused on the value of design as a marketing tool in the modern marketplace. 10 Reflecting the new design approach, the substantive scheme of the CDR and DD was also entirely new. Described as deceptively short, and full of obscurities, compromises and anachronisms, 11 the relative brevity of the CDR and DD belie their complexity. Adopting a purposely broad definition, potentially protectable designs were to exist simply in the appearance of the whole or part of a product, products being broadly defined to capture industrial items, works of craftsmanship and even intangibles such as graphic symbols. 12 To be protected, a design had to be new and to have individual character. 13 A design would only be new if no identical design or design differing only in immaterial details had previously been made available to the public. 14 A design would only have individual character if the overall impression it produced on the informed user differed from the overall impression produced on such a user by any earlier publicly available design. 15 In assessing individual character, the degree of freedom of the designer in developing the design was to be taken into consideration Strictly, the DD only approximates national laws since some matters (ownership, procedure, remedies) were left to Member States. However, the requirements for protection, exclusions, infringement, defences and invalidation have essentially all been harmonised. As for trade marks, the common provisions of the CDR and DD are to be interpreted consistently, with CJ opinions interpreting the CDR equally applicable to the DD and vice versa: Hasselblatt commentary in G. Hasselblatt (ed.), Community Design Regulation (EC) No 6/2002: A Commentary (Munich: C.H. Beck, 2015), pp.14 and L. Brazell, Egyptian Goddess Inc v Swisa Inc: Is design law in the US and EU converging? The Egyptian Goddess faces up to the snake [2009] E.I.P.R. 576, 576; D. Stone, European Union Design Law (Oxford: Oxford University Press, 2012), para U. Suthersanen, Function, art and fashion: do we need the EU design law?, Queen Mary University of London, School of Law, Legal Studies Research Paper No.88/2011 (2011), p.19, SSRN, [Accessed 16 September 2016]; D. Musker, Community Design Law: Principles and Practice (London: Sweet & Maxwell, 2002), para.int-025. Dinwoodie highlights that, pre-harmonisation, no area of IP law was more disparate at national level: G. Dinwoodie, Federalized Functionalism: The Future of Design Protection in the European Union (1996) 24 AIPLA Q.J. 611, 619 n Dinwoodie, Federalized Functionalism (1996) 24 AIPLA Q.J. 611, Max Planck Institute, Towards A European Design Law (copy provided by the Max Planck Institute and on file with the author) pp.1, 6, 8 10 and in particular; Commission, Green Paper on the Legal Protection of Industrial Design (Brussels, June 1991), III/F/5131/91-EN (Green Paper), paras 1.4 and 5.4.1; Commission, Proposal for a Regulation on the Community Design, COM(93) 342 final COD 463 (Brussels, 3 December 1993) (Proposal for a Regulation), paras 1.4 and 3.2. See also A. Kur, The Green Paper s Design Approach : What s wrong with it? [1993] E.I.P.R.374; Franzosi commentary p.40, n.19 and Levin commentary, pp in M. Franzosi (ed) European Design Protection: Commentary to Directive and Regulation Proposals (The Hague: Kluwer Law International, 1996). 11 D. Musker, The Design Directive (CIPA, 2001), author s foreword, commenting on the DD. 12 CDR art.3(a) and 3(b)/DD art.1(a) and 1(b). 13 CDR art.4(1)/dd art.3(2). 14 CDR art.5(1) and 5(2)/DD art CDR art.6(1)/dd art.5(1). 16 CDR art.6(2)/dd art.5(2).

29 Re-Examining EU Design Law Before the Court of Justice and General Court 321 Aside from limited exceptions for confidentiality, abusive disclosures and a grace period, novelty and individual character were to be assessed against all publicly disclosed prior designs save only for disclosures which could not reasonably have become known in the normal course of business to the circles specialised in the sector concerned, operating within the Community. 17 Protection was not to subsist in features of product appearance solely dictated by technical function, certain forms of interconnection or in designs contrary to public policy or accepted principles of morality. 18 Designs for component parts of complex products were only to be protected to the extent that features of the component visible in normal use displayed novelty and individual character. 19 Different forms of design have different durations 25 years from the date of filing for registered Community and national designs, but only three years for unregistered Community designs. 20 Whether an allegedly infringing design would fall within the scope of a protected design registered or unregistered was to be determined by the same overall impression test as used in the assessment of individual character. 21 Again, the degree of freedom of the designer was to be taken into consideration. 22 While registered designs were to confer an absolute monopoly, the Community unregistered design protected against copied infringements only. 23 A design could be declared invalid for lack of novelty or individual character and on various other grounds, including conflict with earlier unpublished designs and other earlier IP rights. 24 Early commentaries highlighted questions over almost all aspects of the new regime. 25 The language chosen for the exclusion for designs dictated by technical function was already well known from domestic experience to be highly ambiguous and capable of bearing divergent interpretations. 26 Central provisions including critically important new concepts such as the informed user, degree of freedom of the designer and overall impression were also completely undefined. Given this high degree of normative uncertainty, preliminary rulings from the CJ were expected by commentators and practitioners alike. The CJ and GC an institutional role reversal As it transpires, however, the CJ s involvement in design law has been very limited indeed. Since the CDR and DD came into effect, as at the end of October 2015 only five preliminary references dealing with matters of substance on the scheme of design protection in the new EU regime had been decided by the CJ. 27 None of these tackled any of the most critical normative uncertainties. Instead, the focus has been 17 CDR art.7/dd art CDR arts 8 and 9/DD arts 7 and CDR art.4(2)/dd art.3(3). Normal use means use by the end user, excluding maintenance, servicing or repair work : CDR art.4(3) CDR/DD art.3(4). 20 CDR arts 11 and 12/DD art.10. Community unregistered design protection commences as at the date upon which the design is first made available to the public within the Community. 21 CDR art.10(1)/dd art.9(1). 22 CDR art.10(2)/dd art.9(2). 23 CDR art.19/dd art.12. Defences covering, in particular, private and non-commercial acts, acts done for experimental purposes and reproduction for the purpose of making citations and teaching can be found in CDR art.20/dd art CDR art.25/dd art For example: V. Saez, The unregistered Community design [2002] E.I.P.R. 585; C.-H. Massa and A. Strowel, Community design: Cinderella revamped [2003] E.I.P.R. 68; D. Musker, Hidden meaning? UK perspectives on invisible in use designs [2003] E.I.P.R. 450; G. Scanlan and S. Gale, Industrial design and the Design Directive: continuing and future problems in design rights? [2005] J.B.L. 91; U. Koschtial, Design law: individual character, visibility and functionality (2005) 36(3) I.I.C. 297; T. Headdon, Community design right infringement: an emerging consensus or a different overall impression? [2007] E.I.P.R Similar language in pre-harmonisation UK law suffered from notorious ambiguity : J. Lahore, The protection of functional designs: the amended proposal for a European Designs Directive [1997] I.P.Q. 128, 129. See further: Russell-Clarke & Howe on Industrial Designs, 8th edn, edited by M. Howe (London: Sweet & Maxwell, 2010), paras to 2.030; U. Suthersanen, Design Law: European Union and United States of America, 2nd edn (London: Sweet & Maxwell, 2010), paras to 6-015; Stone, European Union Design Law (2012), paras 6.02 to There have also been two decisions in preliminary references concerning the cumulation of copyright and design protection under the CDR/DD: Flos SpA v Semeraro Casa e Famiglia SpA (C-168/09) EU:C:2011:29, [2011] E.C.D.R. 8; and Cassina SpA v Alivar Srl, Galliani Host Arredamenti Srl (C-198/10), 9 September While Flos is highly controversial, neither of these references addressed the substance of the new scheme of EU design protection itself. A further reference on copyright cumulation, Vitra Patente AG v High Tech Srl (C-219/09), was withdrawn in light of Flos.

30 322 Intellectual Property Quarterly on more ancillary matters. In the CJ s first design decision, FEIA, the court addressed ownership of Community designs produced on commission 28 ; in its second, Celaya, the court confirmed the ability of a Community design owner to bring infringement proceedings against the holder of a later conflicting design. 29 In Gautzsch Großhandel, the CJ considered disclosure of a design for prior art purposes and for unregistered Community design subsistence, the burden of proof of copying in unregistered Community design infringement and various questions on remedies. 30 In Karen Millen, the CJ addressed the presumption of validity for unregistered Community designs and whether the comparison of overall impression should be against the prior art on a design-by-design basis or using a notional amalgam of features from various earlier designs. 31 Most recently, in Ford Motor Co, the CJ confirmed that the must-match spare parts defence at art.110 CDR does not confer on the makers of replacement parts the right to use on their products the registered trade marks of the makers of the original design-protected parts. 32 As at the time of writing, there have to date also been only two decisions on substantive design matters by the CJ in appeals from the GC. 33 Only one such appeal Grupo Promer involved any new interpretative activity on the part of the court and even then (as discussed further below) addressed only relatively limited issues on the informed user and aspects of the process of comparing competing designs. 34 In all, this makes a grand total of seven substantive design decisions from the CJ in 14 years. Although there has been a substantial volume of design litigation at a national level in this time, 35 in terms of preliminary references very few cases have been referred and the questions put by national courts have only gradually begun to circle towards the key issues. In terms of appeals, the CJ has opined substantively on matters of interpretation effectively in only one case, and even then only to a limited extent. At the time of writing, nothing in the pipeline of preliminary references and appeals currently pending before the CJ looks set to change this overall picture. 36 The contrast with the CJ s levels of activity on other IP rights is sharp. EU copyright law, although explicitly only partially harmonised, generated 40 preliminary reference decisions in the period to 2014, 28 of those references having been filed in the period from 2007 to The difference from the early years of the EU trade mark regime the most natural comparator to the EU design system is even more stark. In the 14 years after the Trade Mark Directive s entry into force, the CJ decided over 30 preliminary references on the substantive scheme of protection set out in the Directive and Community Trade Mark 28 Fundación española para la innovación de la Artesanía (FEIA) v Cul de Sac Espacio Creativo SL (C-32/08) [2009] E.C.R. I-5611; [2009] E.C.D.R. 19; Principal only gets Community right in commissioned design if assigned (2009) 258 EU Focus Celaya Emparanza y Galdos Internacional SA (CEGASA) v Proyectos Integrales de Balizamientos SL (C-488/10) EU:C:2012:88, [2012] E.C.D.R. 17; R. Sciaudone, Community design: prior in time, stronger in right (2012) 7(6) J.I.P.L.P H Gautzsch Großhandel GmbH & Co KG v Münchener Boulevard Möbel Joseph Duna GmbH (C-479/12) EU:C:2014:75, [2014] E.C.D.R. 14; H. Hartwig, Unregistered and registered Community design rights: further guidance expected from CJEU (2013) 8(3) J.I.P.L.P. 241; Designs: Interpretation of the Community Designs Regulation (2014) 43(3) C.I.P.A.J Karen Millen Fashions Ltd v Dunnes Stores (C-345/13) EU:C:2014:2013, [2014] Bus. L.R. 756; K. Mikeev and J. Tumbridge, Karen Millen v Dunnes [2014] J.B.L. 689; H. Atherton, Case Comment: Karen Millen Fashions Ltd v Dunnes Stores and Dunnes Stores (Limerick) Ltd (Case C-345/13) [2015] E.I.P.R Ford Motor Co v Wheeltrims Srl (C-500/14) EU:C:2015:680; [2016] E.C.D.R The CJ has also heard appeals on procedural matters (Franssons Verkstäder AB v OHIM (C-290/10 P), 9 September 2010; Bell & Ross BV v OHIM (C-426/10 P) EU:C:2011:612, [2012] 1 C.M.L.R. 31) and has summarily dismissed another appeal, Kastenholz v OHIM (C-435/13 P), 17 July 2014, for manifest inadmissibility and lack of foundation. 34 PepsiCo Inc v Grupo Promer Mon Graphic SA (C-281/10 P) [2011] E.C.R. I-10153; [2012] F.S.R. 5. In its other substantive appeal decision, Neuman v José Manuel Baena Grupo SA (C-101/11 P and C-102/11 P) EU:C:2012:641; [2013] E.C.D.R. 3, the CJ essentially repeated the relevant PepsiCo rulings on all decided matters; any other issues raised were procedural, were held to be based on a misreading of the decision under appeal or inadmissible. 35 For example: H. Hartwig (ed.), Design Protection in Europe (Cologne: Wolters Kluwer Deutschland GbmH), Vol.3 (2009) and Vol.4 (2012). 36 As at end October 2015, the only preliminary reference currently pending before the CJ concerned the standing of licensees in design infringement proceedings: Thomas Philipps GmbH & Co KG v Grüne Welle Vertriebs GmbH (C-419/15). As at end October 2015, the CJ s only pending design appeals related to the GC s judgment in Group Nivelles (discussed further in the section entitled Complex products and the prior art below; appeal by OHIM (C-405/15 P); appeal by Easy Sanitary Solutions BV (C-361/15 P)). These appeals will afford an opportunity to correct the erroneous innovation on art.7(1) CDR discussed further in the main text, but will not substantively enhance the CJ s case law on the core new concepts of the EU design regime. 37 M. Favale, M. Kretschmer and P. Torremans, Is There an EU Copyright Jurisprudence? An Empirical Analysis of the Workings of the European Court of Justice, CREATe Working Paper 2015/07 (August 2015), SSRN, [Accessed 16 September 2016], and (2016) 79(1) Modern Law Review 31.

31 Re-Examining EU Design Law Before the Court of Justice and General Court 323 Regulation more than six times as many preliminary references it has decided in the first 14 years of the EU design regime. Those trade mark preliminary references spanned almost all of the trade mark regime, from the requirement of graphic representation, distinctiveness and descriptiveness (including for a range of different non-conventional marks), through the exclusion of technical shape marks and repeated examination of all three separate grounds for trade mark infringement to defences and revocation. The CJ s judgments were marked by notable judicial breakthroughs, 38 its proactive approach even leading it to explicit and purposeful contra legem interpretation of key infringement provisions of the TMD and CTMR. 39 In the same time period, the CJ also handed down almost 20 judgments in substantive trade mark appeals from the GC compared with the two such decisions handed down for Community designs including a number of seminal judgments on shape marks, the highly disputed BABY-DRY decision and subsequent judgments retreating therefrom. Since then, the scale of the CJ s trade mark case law has moved one commentator to remark that it is sometimes tempting to think that national trade mark law within Europe is purely a construction of the CJEU. 40 With well over 100 trade mark decisions from the CJ to date, both quantitatively and qualitatively, the CJ has at all times been at the forefront of the development of EU trade mark law. In contrast, for the EU design regime it is the GC which, between the two EU-level courts, has taken the lead in having to tackle interpretation of the new concepts and provisions of the CDR and DD. Sitting one step down from the CJ at the apex of the Community design appeal structure, the GC s decisions are binding on OHIM. 41 The GC s case law is therefore directly binding on the principal decision-making organs OHIM and its Boards of Appeal of the Community design system. The GC s case law is cited extensively in OHIM s design examination and invalidation guidance. 42 In the period to the end of October 2015, the GC had delivered almost 35 decisions in substantive Community design appeals. 43 While not always dealing successfully with the issues in hand (as this article will go on to discuss), across this body of case law the GC has been the first of the two EU-level courts to have to deal with key points of normative uncertainty across the EU design regime. In decisions preceding the appeal to the CJ in Grupo Promer, for example, the GC was the first EU-level court to tackle conceptualising the informed user ; the GC has also addressed in more detail how the informed user perceives the overall impression created by a design and has considered evolving complexities such as the situation in which there may be more than one informed user of the relevant design. 44 On design freedom, the GC has ruled on what constitute relevant design constraints, confirmed the irrelevance to design freedom of aesthetic considerations and design trends, and set out how design constraints affect the assessment of overall impression. 45 On overall impression and individual character, the GC has addressed how to identify the relevant product by which to assess validity, developed a four-step test for assessing overall impression, and confirmed as relevant or irrelevant a range of factors relied upon for or against contested designs, most particularly the relevance of saturation of the design corpus in a crowded design field. 46 Well before the CJ decision in Karen Millen, the GC had confirmed that the comparison with the 38 S. Maniatis, Whither European Trade Mark Law Arsenal and Davidoff: The Creative Disorder Stage (2003) 7 Marq. Intell. Prop. L. Rev. 99, Davidoff & Cie SA and Zino Davidoff SA v Gofkid Ltd (C-292/00) [2003] E.C.R. I-389; [2003] E.T.M.R G. Dinwoodie, The Europeanization of Trade Mark Law in The Europeanization of Intellectual Property Law (2013), p Stone, European Union Design Law (2012), para OHIM, Examination of Applications for Registered Community Designs (version 1.0, 1 August 2015); Examination of Design Invalidity Applications (version 1.0, 1 February 2015), both at [Accessed 16 September 2016]. 43 The GC has also disposed of two purely procedural appeals (Franssons Verkstäder AB v OHIM (T-98/10), 10 May 2010; Reisenthel v OHIM (T-53/10) EU:T:2011:601, as well as deciding numerous procedural and evidential issues throughout its design case law. 44 Grupo Promer Mon Graphic SA v OHIM ( T-9/07) [2010] E.C.R. II-981; [2010] E.C.D.R. 7; Shenzhen Taiden Industrial Co Ltd v OHIM (T-153/08) EU:T:2010:248; Sphere Time v OHIM (T-68/10) EU:T:2011:269; [2011] E.C.D.R Grupo Promer v OHIM [2010] E.C.R. II-981; [2010] E.C.D.R. 7; Shenzhen Taiden v OHIM EU:T:2010: Grupo Promer v OHIM [2010] E.C.R. II-981; [2010] E.C.D.R. 7; Shenzhen Taiden v OHIM EU:T:2010:248; Kwang Yang Motor Co Ltd v OHIM (T-10/08) EU:T:2011:446; [2012] E.C.D.R. 2; Antrax It Srl v OHIM (T-83/11 and T-84/11) EU:T:2012:592; Bell & Ross BV v OHIM (T-80/10) EU:T:2013:214; Danuta Budziewska v OHIM (T-666/11) EU:T:2013:584; El Hogar Perfecto del Siglio XXI SL v OHIM (T-337/12) EU:T:2013:601, [2014] E.C.D.R. 1.

32 324 Intellectual Property Quarterly prior art should be conducted on a design-by-design basis rather than by amalgamating features from different earlier designs. 47 The GC has also addressed the boundaries of what constitutes a protectable design and how to interpret the representations used to depict protected designs on the register. 48 The GC has defined more precisely the concept of novelty and has considered various aspects of the assessment of validity for component parts of complex products. 49 The GC has addressed uncertainties in the interpretation of the invalidity provisions of the CDR, confirming their exhaustiveness and clarifying the rules on conflict with earlier rights in trade marks, copyright and prior unpublished designs. 50 On the prior art, the GC has also addressed the CDR s grace period, has expanded on the CJ s ruling in Gautzsch, and (as discussed further below) has even gone so far as to engage in radical re-definition of the scope of the relevant art in certain cases. 51 This de facto balance of leadership at the EU level between the CJ and GC is not simply a quantitative matter of the size and scope of the two courts relative caseloads. On the limited matters pertaining to the informed user and the comparison of competing designs considered by the CJ in the Grupo Promer appeal, the GC s findings were upheld with little, if anything, added by the CJ in substantive terms. 52 Otherwise, the GC has been working effectively without supervision from the CJ: not one of the other wide-ranging and, in some instances, potentially highly controversial rulings by the GC noted above has been considered by the CJ. This is mostly because the GC s decisions have not been appealed. However, in the two design appeals which have been heard, the CJ has taken a restrictive line on admissibility, thereby rejecting opportunities to take on a bigger interpretative role. In the Grupo Promer appeal, the CJ refused as inadmissible an appeal on the issue of design freedom on the ground that it constituted an impermissible challenge to the GC s findings of fact. 53 There were, however, notable difficulties with both the GC s articulation of the legal test for identifying relevant design constraints and the GC s apparent classification of the relevant facts in its application of that test; it is suggested here that there was accordingly scope for the CJ to review this aspect of the GC s decision. 54 In both design appeals, the CJ also declined to address appeals against aspects of the GC s assessment of overall impression and individual character. 55 While these points were 47 Shenzhen Taiden v OHIM (T-153/08) EU:T:2010: Biscuits Poult v OHIM (T-494/12) EU:T:2014:757; Sphere Time v OHIM (EU:T:2011:269; [2011] E.C.D.R Kastenholz v OHIM (T-68/11) EU:T:2013:298; Kwang Yang Motor v OHIM EU:T:2011:446; [2012] E.C.D.R. 2; AIC SA v OHIM (T-615/13) EU:T:2015:31; Cezar Przedsiebiorstwo Produkcyjne Dariusz Bogdan Niewinski v OHIM (T-39/13) EU:T:2014: Grupo Promer [2010] E.C.R. II-981; [2010] E.C.D.R. 7; Beifa Group Co Ltd v OHIM (T-148/08) EU:T:2010:190; [2010] E.T.M.R. 42; Chen v OHIM (T-55/12) EU:T:2013:219; [2014] E.C.D.R. 2; Beifa Group Co Ltd v OHIM (T-608/11) EU:T:2013:334; [2013] E.T.M.R. 49; Viejo Valle SA v OHIM (T-566/11 and T-567/11) EU:T:2013: Sphere Time EU:T:2011:269; [2011] E.C.D.R. 20; Senz Technologies BV v OHIM (T-22/13 and T-23/13) EU:T:2015:310; [2015] E.C.D.R. 19; Cezar v OHIM EU:T:2014:852; Group Nivelles v OHIM (T-15/23), 13 May PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [2012] F.S.R. 5. As noted by the Court of Appeal, on the issue of the informed user the CJ effectively simply endorsed the GC: Samsung Electronics (UK) Ltd v Apple Inc [2012] EWCA Civ 1339; [2013] E.C.D.R. 2 at [12]. On the two further issues considered substantively by the CJ (whether the informed user would make a direct (i.e. side by side) or indirect comparison of the relevant designs and the extent to which it is permissible for a court to look at the actual, physical goods produced by the parties as part of assessing overall impression) the GC was also upheld. 53 PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [2012] F.S.R. 5 at [43] [46]. 54 cf. Stone, European Union Design Law (2012), para It is well established that an appeal to the CJ must be on points of law, save where it is manifest from the documents in the case that the court s findings of fact are substantially incorrect or have been distorted: K. Lenaerts, I. Maselis, K. Gutman and J. Tomasz Nowak (eds), EU Procedural Law (Oxford: Oxford University Press, 2014), pp However, the CJ may review the GC s legal categorisation of the facts as this may have resulted in the relevant legal rule being incorrectly applied: Lenaerts et al. at pp In Grupo Promer, having ambiguously apparently ruled as a matter of law that design freedom was established by two specific matters, the constraints of the features imposed by the technical function of the product or an element thereof and statutory requirements applicable to the product, the GC concluded on the facts that design freedom was severely constrained as a result of further, unrelated matters including market acceptability, cost, general non-statutory safety considerations and fitness for purpose: Grupo Promer [2010] E.C.R. II-981; [2010] E.C.D.R. 7 at [67] [70]; see further fn.105. This raises immediate questions over whether the GC accurately stated the relevant legal test and/or correctly legally categorised the relevant facts. On appeal, the CJEU did not address these matters, holding that the appellant had not challenged the criteria identified by the GC: PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [2012] F.S.R. 5 at [44]. 55 In Grupo Promer, the appellant alleged distortion of the facts by the GC in its assessment of overall impression, by limiting its findings on the informed user s perceptions of the disputed designs to the view of those designs from above and, in any event, on the basis that, from that top-down view, the differences between the designs were immediately perceptible: PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [2012] F.S.R. 5 at [76]. The CJ rejected this as inadmissible: [78] [82]. In Baena, the appellants argued that the GC had erred in law in its conclusion that the overall impression produced by the two silhouettes in issue was determined by their facial expressions, arguing that the GC had not taken into account other relevant

33 Re-Examining EU Design Law Before the Court of Justice and General Court 325 not as well pleaded as they could have been, it is again suggested here that the CJ could have dealt with them: the fineness of the dividing line (such as it is) between law and fact in this context is highlighted by the disagreement between A.G. Mengozzi and the court on the admissibility of a number of aspects of the Grupo Promer appeal, and pleading the relevant legal issues more clearly should have resolved any potential doubt. 56 In the meantime, given the CJ s approach to admissibility on matters pertaining to overall impression, it has been noted that the GC will in effect be the court of final instance in most appeals from OHIM: it is therefore GC s approach which will have the utmost impact on future developments and which is fundamental for understanding EU design law. 57 Where does this leave the development of design law in institutional terms? At the EU level, there has been a major role reversal between the GC and the CJ. Whereas it was the CJ which played the most pivotal and proactive role in the early years of the TMD and CMTR and which continues to drive current development of both copyright and trade mark law, the reality is that whether by preliminary reference or by appeal over the last 14 years the CJ has had very little input into EU design law. Instead, between the two courts it is the GC that has led the way in interpreting the CDR and DD, effectively alone at the EU level. This role reversal seems to have passed unremarked upon. For those who would see the CJ take a reduced role in IP, this may seem on its face like a positive development. As this article will go on to argue, however, a close re-examination of the GC s case law gives rise to serious concerns about the judicial methodology by which the court has gone about reaching its decisions, concerns which coupled with institutional shortcomings and constraints which this article will go on to identify have important potential implications for the coherence and process of design harmonisation. The GC s design case law interpretation, expectation and a methodological void Interpretation and expectation The GC had at its disposal a range of different interpretative techniques to assist in the task of interpreting the new EU design law. It is most notably the CJ s well-established practice that EU legislative instruments should be interpreted adopting a purposive (or teleological ) approach. 58 As observed by the CJ in the copyright case, Rafael Hoteles: According to settled case law, in interpreting a provision of Community law it is necessary to consider not only its wording, but also the context in which it occurs and the objectives pursued by the rules of which it is part. 59 factors such as the identity between the products to which the disputed designs were applied, the identity of the public to which they were addressed and the GC s finding that there was a high degree of design freedom. CJ held that the appeal was an impermissible challenge to the GC s findings of fact: Neuman v José Manuel Baena Grupo EU:C:2012:641; [2013] E.C.D.R. 3 at [63] [67]. 56 cf. H. Hartwig, European Union: Council Regulation 6/2002, arts. 6, 61 Herbert Neuman, Aldoni Galdeano del Sel, and Office for Harmonisation in the Internal Market (Trade Marks and Designs) (OHIM) v Jose Manuel Baena Grupo SA (2013) 44(2) I.I.C. 248, 252. Although agreeing with the CJ on admissibility with respect to design freedom, A.G. Mengozzi rejected as inadmissible other matters accepted as admissible by the CJ: PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [ 2012] F.S.R. 5. It is submitted here that, had the applicants approached their concerns by identifying the GC s alleged errors as errors of law, for example pleading the GC s articulation of its approach as an error as to the level of generality at which, as a matter of law, overall impression should be assessed (see further the section entitled Overall impression below), there would not have been the same difficulties. 57 Hartwig, European Union: Council Regulation 6/2002, arts. 6, 61 (2013) 44(2) I.I.C. 248, See also H. Hartwig, Community design law: further guidance from the General Court of the European Union (2013) 8(11) J.I.P.L.P. 862, G. Conway, The Limits of Legal Reasoning and the European Court of Justice (Cambridge: Cambridge University Press, 2012), pp.11, 27 and 82; U. Neergaard, and R. Nielsen, Where Did the Spirit and Its Friends Go? On the European Legal Method(s) and the Interpretational Style of the Court of Justice of the European Union in U. Neergaard, R. Nielsen, and L. Roseberry (eds), European Legal Method: Paradoxes and Revitalisation (Copenhagen: DJØF Publishing, 2011), p SGAE v Rafael Hoteles (C-306/05) [2006] E.C.R. I-11519; [2007] E.C.D.R. 2 at [34].

34 326 Intellectual Property Quarterly The CJ often takes what has been described as a fused or cumulative approach, bringing a number of different interpretative methods together. 60 Among other methods, including literal interpretation and consequentialist reasoning, by which the consequences of adopting various different possible interpretations are compared, in a form of historical or originalist interpretation, the CJ may refer to the travaux préparatoires. 61 As noted by Arnold J: As is well known the CJEU routinely refers to the recitals of the measure as well as its operative provisions and frequently refers to pre-legislative materials such as the Explanatory Memoranda which accompany the Commission s legislative proposals. 62 It accordingly was and remains the expectation among commentators and practitioners across jurisdictions that the DD and CDR should be interpreted purposively and with appropriate reference to the Recitals and travaux. 63 The CDR and DD are accompanied by a substantial body of pre-legislative material, including amended proposals from the Commission as well as inputs from the European Parliament and Council which resulted in significant changes during the legislative process. Consistently with expectations, across its designs preliminary references, the CJ has used a range of interpretative methods, including reference to the travaux, purposive and consequentialist reasoning. 64 Across their design case law, the English courts have also been more than ready to engage in European-style interpretation, reasoning purposively, from a consequentialist perspective and by reference to the Recitals and travaux. 65 This contrasts sharply, however, with the approach of the GC. On fresh re-examination it becomes apparent that, across the GC s decisions on the most challenging aspects of the CDR and DD, the GC s conclusions have not been justified by reference to any of the expected interpretative techniques. Instead, the GC has not offered up any reasoning at all. Significant interpretative choices have been made without acknowledgement of those choices and without any attempt to justify the court s position through the identification of its interpretative methods. To assess the position further and to highlight the difficulties ensuing, it is to an examination of the legal reasoning underpinning the GC s decisions on the most challenging issues it has tackled the informed user, design freedom, overall impression / individual character, complex products and the relevant prior art to which this article now turns. 60 G. Beck, The Legal Reasoning of the Court of Justice of the EU (Oxford and Portland, OR: Hart Publishing, 2012), p.283. The CJ s recent copyright case law is a good example on the different techniques deployed, see E. Derclaye, The Court of Justice copyright case law: quo vadis? [2014] E.I.P.R Conway, The Limits of Legal Reasoning (2012), pp Reference to the travaux has been noted as a particular feature of the CJ s approach to secondary legislation: Neergaard and Nielsen, Where Did the Spirit and Its Friends Go? in European Legal Method (2011) pp These approaches may overlap to some degree: Conway, p Bayerische Motoren Werke AG v Round & Metal Ltd [2012] EWHC 2099 (Pat); [2013] F.S.R. 18 at [56]. 63 Russell-Clarke & Howe on Industrial Designs (2010), para.2-011; M. Vitoria et al., Laddie, Prescott and Vitoria: The Modern Law of Copyright and Designs, 4th edn (LexisNexis, 2011), para.2.7; Stone, European Union Design Law (2012), para.2.01; Hasselblatt commentary in Community Design Regulation (2015), pp.9 and FEIA v Cul de Sac [2009] E.C.R. I-5611; [2009] E.C.D.R. 19 (literal interpretation including different language versions of the CDR, review of travaux, requirement of uniformity and the principle of equality, purposive reasoning based on the overall objectives of the EU design regime); CEGASA v Proyectos Integrales de Balizamientos EU:C:2012:88, [2012] E.C.D.R. 17 (literal interpretation, schematic reasoning based on other provisions of the CDR, mixture of purposive and consequentialist reasoning based on the so-called priority principle and objectives/operation of the design regime); Karen Millen v Dunnes Stores EU:C:2014:2013, [2014] Bus. L.R. 756 (literal interpretation, purposive, schematic and consequentialist observations about the nature of CDR protection and compatibility with other provisions of the CDR); H Gautzsch Großhandel v Münchener Boulevard Möbel Joseph Duna EU:C:2014:75, [2014] E.C.D.R. 14 (literal and schematic reasoning, purposive arguments about uniformity, effectiveness and equivalence). 65 Notably: Green Lane Products Ltd v PMS International Group Ltd [2007] EWHC 1712 (Pat); [2007] E.C.D.R. 16; and [2008] EWCA Civ 358; [2008] E.C.D.R. 15; Bayerische Motoren Werke v Round & Metal [2012] EWHC 2099 (Pat); [2013] F.S.R. 18, commented on by P. Joseph and C. Saunderson, Alloy wheels are not spare parts (2013) 8(3) J.I.P.L.P. 196, and J. Cornwell, BMW v Round & Metal: first UK decision on the Community design repair clause [2013] E.I.P.R. 548.

35 Re-Examining EU Design Law Before the Court of Justice and General Court 327 The informed user The GC s very first design decision, Grupo Promer, was the first EU-level case to address the concept of the informed user. 66 This was followed a couple of months later by the GC s decision in Shenzhen. 67 Grupo Promer and Shenzhen immediately cemented themselves as key judgments the language of which the GC has since repeated in almost all later decisions, first alone and then often with equal billing alongside the CJ s limited further statements on the issue in the Grupo Promer appeal. The informed user is of central importance to infringement and validity, being the fictional legal person through whose eyes overall impression is to be assessed for individual character and infringement purposes. There were, however, many uncertainties. From whose perspective should the perception of the informed user be judged from the perspective of a product end-user or from a more discriminating perspective, perhaps more akin to that of a professional active in the relevant sector? What is the standard of the informed user s knowledge how informed should he be taken to be? And what exactly should the informed user be taken to be informed about design matters, technical constraints, costs, manufacturing considerations, safety requirements or other issues? None of these matters are addressed in the CDR or DD. Opinions and court practice have differed on these issues. 68 The GC s judgment in Grupo Promer contained no hint of any of these questions. Instead, after noting the applicant s challenge to the Board of Appeal s findings, adopting a declaratory tone the GC proceeded directly to pronounce (emphasis added): It must be found that the informed user is neither a manufacturer nor a seller of the products in which the designs at issue are intended to be incorporated or to which they are intended to be applied. The informed user is particularly observant and has some awareness of the state of the prior art. 69 Despite its brevity, this short passage conceals a significant interpretative choice by the GC, pitching the informed user s attention to detail at a high level (not just observant but particularly observant ). This is, however, not acknowledged by the court. No reasons are given to support the formulation adopted. In Shenzhen, a differently constituted GC offered a slightly longer formulation. This came, however, with little more by way of reasoning. Ostensibly, the GC adopted a literal interpretation. The word user was said to imply that the relevant perspective was that of the product end-user: With regard to the interpretation of the concept of informed user, the status of user implies that the person concerned uses the product in which the design is incorporated, in accordance with the purpose for which that product is intended. 70 The word informed was said to imply the standard of the informed user s knowledge and to exclude knowledge of detailed technical design considerations: The qualifier informed suggests in addition that, without being a designer or a technical expert, the user knows the various designs which exist in the sector concerned, possesses a certain degree 66 Grupo Promer v OHIM [2010] E.C.R. II-981; [2010] E.C.D.R Shenzhen Taiden v OHIM EU:T:2010: Levin commentary in European Design Protection (1996), pp (sometimes an ordinary consumer but in other instances a specialized mechanic or repairer ); Musker, Community Design Law (2002), para (the end-user, not a repair man ); T. Headdon, Community design right infringement: an emerging consensus or a different overall impression? [2007] E.I.P.R. 336, 337 (wholesale buyer); Laddie, Prescott and Vitoria: The Modern Law of Copyright and Designs (2011), para ( similar knowledge to that of a trade customer accustomed to examining and selecting from a large number of designs in a fairly narrow area of commerce ). For remarks on differing approaches which had been taken among national courts, see M. Franzosi, Design protection Italian style (2006) 1(9) J.I.P.L.P. 599, 601; D. Stone, Some clarity, some confusion: 12 P&G v Reckitt Benckiser decisions to help explain registered Community designs (2008) 3(6) J.I.P.L.P. 376, See further also various interpretations noted in Hartwig, Design Protection in Europe, Vol.4 (2012) and Vol.3 (2009). 69 Grupo Promer v OHIM [2010] E.C.R. II-981; [2010] E.C.D.R. 7 at [62]. 70 Shenzhen Taiden v OHIM EU:T:2010:248 at [46] (emphasis added).

36 328 Intellectual Property Quarterly of knowledge with regard to the features which those designs normally include, and, as a result of his interest in the products concerned, shows a relatively high degree of attention when he uses them. However that factor does not imply that the informed user is able to distinguish, beyond the experience gained by using the product concerned, the aspects of the appearance of the product which are dictated by the product s technical function from those which are arbitrary. 71 Although notionally more reasoned than Grupo Promer, this passage also conceals the exercise of significant interpretative choice by the court. A literal interpretation of the expression informed user cannot fully sustain the GC s chosen interpretation: most importantly, while the word informed may give some indication of the relevant standard of knowledge, 72 it cannot, as the GC maintains, carry any implication as to what is included or excluded from the subject-matter of that knowledge. Although not remarked upon at the time, what is particularly striking when re-examining the passages quoted above is that despite their being the first EU-level cases on this issue no attempt was made by the GC in either decision to examine the purpose or legislative intent underlying the adoption of the informed user as the perspective for assessing overall impression and individual character, or to look at the consequences flowing from different possible interpretations. This is despite the fact that these matters play a fundamental role in determining the direction and impact of the EU design regime as a whole. Take, for example, the issue of the standard of the informed user s knowledge the question of how informed the informed user should be taken to be. Stone summarises the possibilities and their potential consequences thus: How the informed user is determined will have a significant influence on the outcome of both invalidity proceedings and infringement litigation. If an informed user is found to have very detailed product knowledge and experience, even minor differences between products may well create a different overall impression: many designs will be valid but few will be infringed. This would create limited monopolistic rights for lots of small innovations. If the informed user has insufficient knowledge, then a broader range of products will create the same overall impression: few designs will be valid, but those that are will be infringed. This would create wide monopolies for a limited number of designs. The balance must be found somewhere between the two positions. 73 The travaux also contained guidance on this issue. Originally, the Commission s 1991 Green Paper indicated that overall impression should be judged from the perspective of the ordinary consumer of the products in question. 74 By the time the Commission issued its Proposals for the CDR and DD in 1993, however, the ordinary consumer had been replaced by the concept of the informed user. 75 The Commission explained that, because the informed user had a certain level of knowledge or design awareness, he was more likely than the ordinary consumer to notice differences between designs: without assessing designs at the level of design experts, the informed user may find striking differences, 71 Shenzhen Taiden v OHIM EU:T:2010:248 at [47] [48] (emphasis added). 72 Howe suggests that the word informed must mean at least reasonably well informed : Russell-Clarke & Howe on Industrial Designs (2010), para Stone, European Union Design Law (2012), para (without original footnotes). These considerations have only much more recently been acknowledged by the GC in Danuta Budziewska v OHIM EU:T:2013:584 at [32] albeit without clearly linking to the particular interpretation adopted by the court. 74 Commission, Green Paper (1991), para ; A. Horton, Industrial design law: the future for Europe [1991] E.I.P.R. 442, 444. At the time of the Green Paper, overall impression was the second part of a two-part combined test of distinctive character which also encompassed novelty. 75 Commission, Proposal for a Regulation (1993), Explanatory Memorandum, para.8.3 and Draft Regulation, arts 6 and 11; Commission, Proposal for a Directive on the legal protection of designs, COM(93) 344 final COD 464 (Brussels, 3 December 1993) (Proposal for a Directive), Draft Directive arts 5 and 9.

37 Re-Examining EU Design Law Before the Court of Justice and General Court 329 which would totally escape the attention of an ordinary consumer. 76 There was no substantive disagreement on this formulation from either of the European Parliament or Council going forward. 77 This conceptualisation of the informed user tends towards the more discriminating end of the spectrum away from the few but wide monopolies towards the many but narrow monopolies model outlined by Stone in the passage quoted above. On this specific issue, the findings of the GC in Grupo Promer and Shenzhen do broadly align with the purpose and intentions of the EU regime. Given this, it is odd that the GC does not mention the travaux or offer any purposive reasoning, or indeed any other rationale, by way of justification for adopting what seems to be the correct approach. It is suggested here that this may be because, on other matters, the GC has taken an approach which is divergent to the EU legislators intentions and the underlying purpose of the informed user concept. The first such point of divergence is the extent to which the informed user is said to be informed on technical matters. In Shenzhen (quoted above), the GC asserted that the informed user s technical knowledge extends no further than to technical considerations which would be apparent from using the relevant product. However, this is hard to square with the evidence of legislative intent in CDR Recital 14/DD Recital 13, which, in specifying the nature of the relevant product, its industrial sector and design freedom as matters which should be taken into account in the assessment of overall impression, strongly indicate that technical considerations should feature more prominently among the matters upon which the informed user is taken to be knowledgeable. 78 Neither of the judgments in Grupo Promer or Shenzhen mentions this in their discussion of these matters. 79 The upshot is conceptual confusion: although the underlying purpose of considering design freedom is to reduce the importance of necessarily standardised design features in the assessment of overall impression (which might otherwise result in too many designs being considered too close to one another and thereby inhibit the availability of design protection in certain design fields), the less the informed user is taken to be informed on technical matters, the less likely he is to discount such features when comparing designs. 80 If design freedom is to be fully taken into account as instructed in CDR arts 6(2) and 10(2)/DD arts 5(2) and 9(2), according to the GC at least it seems that this must be some other way than through the perception of the informed user. The second, and perhaps even more central, point of divergence from the EU legislators intentions is on the perspective from which the perception of the informed user should be assessed. In Shenzhen, the GC asserted that the informed user should be taken to be the end-user of the relevant product that is, the person who uses the product in which the design is incorporated, in accordance with the purpose for which that product is intended (see above). This is not, however, how the perspective of the informed user was conceptualised in the travaux. In the Commission s 1991 Green Paper, the emphasis was not on the end-user of a design but on those persons who are supposed to be the purchasers of the products in which the design is or is going to be incorporated. 81 For many designs, the end-user would categorically not be the purchaser of the relevant product. The disputed design in Shenzhen itself, a conferencing speaker/audio unit of the kind used at large-scale conferences and international meetings, is a good example: the informed user identified by the Board of Appeal and approved by the GC ( anyone who regularly attends conferences or formal meetings at which the various participants have a conference unit with a microphone on the table in front 76 Commission, Proposal for a Regulation (1993), commentary, art.6,(1) (p.12) and art.11(1) (pp.15 16). 77 The ESC proposed deleting the word informed as it was said to be ambiguous given the intention that similarity between designs was not to be assessed at the level of design experts (Economic and Social Committee Opinion [1994] OJ C388/03 (ESC Opinion), para.3.2.1), but this was not taken up by the European Parliament and was not in any event a substantive divergence of view. 78 Russell-Clarke & Howe on Industrial Designs (2010), para.2-043; Laddie, Prescott and Vitoria: The Modern Law of Copyright and Designs (2011), para.55.32; Stone, European Union Design Law (2012), paras to 11.12; J. Jorge, Who is the informed user in Community registered designs? (May 2014) I.P.M. 45, The only reference to Recital 14 in either judgment is in the court s general introduction to the legislative background in Shenzhen: Shenzhen Taiden v OHIM EU:T:2010:248 at [43]. 80 See also Laddie, Prescott and Vitoria: The Modern Law of Copyright and Designs (2011), para Commission, Green Paper (1991), para (emphasis added).

38 330 Intellectual Property Quarterly of them ) is most certainly not the person who would research and select one brand of unit in preference to another, influenced by their respective design qualities. That would be a conference organiser or venue provider, motivated by an overlapping but different set of design considerations. 82 For other products, particularly more technical ones, while the design may be an important part of the decision by an intermediary such as a professional tradesperson to stock, recommend, acquire or fit a particular product, those design qualities may be of little or no import to the ultimate end-user. The Commission s focus on the perspective of persons active as purchasers on the market was an important reflection of the new design approach underpinning the CDR and DD, with its underlying objective of protecting design for its value as a marketing tool in the marketplace. 83 In the 1991 Green Paper, the Commission observed that adopting the perception of a potential purchaser would ensure that a protected design is perceived on the market as something different from any known design, its overall impression being assessed at the level where the economic value of the design product is exploited, i.e. on the market. 84 In the Commission s 1993 Proposals, which first adopted the expression informed user, the Commission continued explicitly to emphasise that the relevant perspective was not necessarily that of the end-user, but could include other persons: This may be, but is not necessarily, the end consumer who may be totally unaware of the appearance of the product, for example, if it is an internal part of a machine or a mechanical device replaced in the course of a repair. In such cases the informed user is the person replacing the part. 85 This approach was endorsed in the 1994 Opinion of the European Parliament s Economic and Social Committee, which stated that an informed user was someone with either a professional or personal interest in acquiring or reproducing a design. 86 Thus we can see that the expression informed user was intended by the EU legislators not to place focus on the end-user (as held by the GC in Shenzhen) but, rather, to emphasise the relatively discerning perspective of a person active on the relevant market where the qualities of the design will be assessed as part of the decision of whether or not to purchase. In short: it is the word informed which is most important, not the word user. As Koschtial noted in commentary pre-dating the GC s decisions in Grupo Promer and Shenzhen, the European legislature did not inten[d] to stress the consumer position of the informed user by employing this term, but aimed at requiring a certain knowledge and familiarity with the market of the person judging the design Shenzhen Taiden v OHIM EU:T:2010:248 at [49]. Phillips has noted: What I find interesting here is the identification of the informed user with anyone who regularly attends conferences or formal meetings at which the various participants have a conference unit with a microphone on the table in front of them. Such people are certainly users, since it is they who press the buttons and speak into the mike. But is there then any meaningful difference between an informed user and a user? The person who is informed is probably a person employed by a conference organiser or conference venue provider, who will be concerned with the appearance, functionality and technical specifications of such systems but who doesn t use them in the generally accepted colloquial sense of the word (emphasis added): J. Phillips, Conference systems and informed users (26 July 2010), Class 99 Blog, There are numerous examples of designs the end-user of which would have no role in the process of actually assessing the design as part of the process of choosing the product to be acquired or used see for example: Stone, Some clarity, some confusion (2008) 3(6) J.I.P.L.P. 376, 380 ( an informed user of a pacemaker is probably the doctor who installs it, rather than the patient who benefits from it ); and, more light-heartedly, J. Phillips, Crunch time as court rules on Benelux dog-biscuits (26 December 2014), Class 99 Blog, ( while the user of a dog biscuit is the dog, the informed user is the person who buys it for him ) [Both accessed 16 September 2016]. 83 As noted by Levin: The intention is to emphasize following from the design approach, that the reaction on a design in the market should be decisive, appreciated as a difference to what is previously known there by those who have some grounds to react (emphasis added): Levin commentary in European Design Protection (1996), p Commission, Green Paper (1991), para (emphasis added); see also para Commission, Proposal for a Regulation (1993), commentary, art.6.(1) (p.12), noted by A. Horton, European design law and the spare parts dilemma: the proposed regulation and Directive [1994] E.I.P.R. 51, Economic and Social Committee Opinion [1994] OJ C388/03, para There is thereafter no further discussion on this issue in the travaux, indicating consensus on this particular issue. In much later proposed amendments to the CDR issued in 2000, the European Parliament proposed adding a definition of the informed user using different terminology, but by then the DD had already been adopted and this proposed amendment was not accepted in order to ensure that the CDR and DD remained in the same terms. 87 Koschtial, Design law (2005) 36(3) I.I.C. 297, 301.

39 Re-Examining EU Design Law Before the Court of Justice and General Court 331 What are the consequences of the GC s different approach? The GC s focus on the end-user, rather than the purchaser, has tended to distance the court from assessment of how a design would be perceived on the relevant marketplace. In Shenzhen, the GC went on to hold that, because the informed user was the end-user of the product in question, overall impression must necessarily be determined in the light of the manner in which the product at issue is used, in particular on the basis of the handling to which it is normally subject on that occasion. 88 Thus, according to the court in Shenzhen, features of the contested design which were outside the user s immediate field of vision during use of the product were deemed not to have any major impact on the informed user s perception of the design. 89 Although subsequently criticised as of questionable value, potentially subjective and a test which does not belong in the world of design law, 90 this intended-use test has been repeated, rote-like, in a number of GC decisions. This has contributed to some oddly restrictive rulings on matters which could and should more properly and openly have been assessed from a design perspective (for example, to the effect that the overall impression created by a watch is effectively confined only to the shape and characteristics of the watch face because this is all that can be seen when the watch is worn on the wrist, or that the configuration of slats making up the seat of a chair is of little importance because they could not be seen below a seat cushion while being sat upon). 91 In the recent decision in Argo, an almost extreme focus on the in-use perception of the contested design for a form of concertina-style folded advertising signboard (the GC highlighting as important, for example, the fact that the holes forming the banner s handles were perforated in the contested design and needed to be pushed out before use compared with pre-formed holes in the prior art, and that users would not necessarily hold the boards with all of their fingers but may use only some of them such that differences in the shape of the handle-holes could be exposed) contributed to the somewhat surprising finding that the contested design did not produce the same overall impression as the very closely similar prior art. 92 The intended-use test has caused also considerable difficulties in cases where the end-user s in use field of view is so severely restricted as to render almost meaningless any exercise of design comparison so much so that, in the GC s 2015 decision in Senz, the GC repudiated the confines of this line of case law and reverted explicitly to the perspective of a potential purchaser, appreciating the design in suit from all angles instead Shenzhen Taiden EU:T:2010:248 at [66]. 89 Shenzhen Taiden EU:T:2010:248 at [65]. On the facts, the GC concluded that different decoration on the backs of the lids of the two competing speaker units did not affect the assessment of overall impression as it would only be seen by the user at a distance on the reverse of other peoples units. Without disagreeing with the GC s ultimate conclusion on overall impression (the two designs in suit being, as a whole, very close indeed), as a general proposition the design of the rear of the lid of a speaker unit is an example of a design feature which would likely be appreciated differently by the purchaser of a conferencing unit compared with the user of the unit, the purchaser being concerned with appearance not only when open and in use but also when shut and viewed within the scheme of the overall décor of the conference venue. 90 Hartwig, Community design law: (2013) 8(11) J.I.P.L.P. 862, 866 n Bell & Ross v OHIM EU:T:2013:214 at [133] [137], criticised in Hartwig, Community design law (2013) 8(11) J.I.P.L.P. 862; Sachi Premium-Outdoor Furniture Lda v OHIM (T-357/12) EU:T:2014:55 at [56]; and Gandia Blasco SA v OHIM (T-339/12) EU:T:2014:54; [2014] E.C.D.R. 15 at [32]-[34]. 92 Argo Development and Manufacturing Ltd v OHIM (T-41/14) EU:T:2015:53; [2015] E.C.D.R. 21 at [51] [56] in particular. 93 In Senz, the contested design was for an asymmetric highly wind-resistant umbrella. While the competing designs had interesting and significant design features when viewed from their side and top profiles, the view from underneath was all that the end-user would see when the product was in use. The GC rejected the argument that the underneath view was what mattered: the fact that the user views the umbrella inter alia from underneath is irrelevant to the assessment of the individual character of the contested designs [I]f decisive weight were to be attached to the perspective during use for the assessment of the perception of an appearance by the user, all the objects which the user puts on (such as clothing), wears (such as hats, bonnets, glasses or helmets) or on or in which the user may habitually find himself or herself (such as bicycles), are, in principle, devoid of individual character because they have no distinctive appearance when used (glasses, helmets, hats) or a barely perceptible appearance and similar contours (bicycles, clothing). Clearly such a consequence does not reflect the reality in which the user makes his or her decision to purchase and decision to use these types of objects, which in most cases is based on their design. Moreover, even if the user sees certain products from only a limited perspective when using them, he or she will be aware of all the other perspectives at the time of use : Senz v OHIM EU:T:2015:310; [2015] E.C.D.R. 19 at [97] (emphasis added). The GC had run into similar difficulties in its earlier decision in El Hogar Perfecto because, when open and being held in the hand in use, the design in question (for a corkscrew) would be barely visible: El Hogar Perfecto v OHIM EU:T:2013:601; [2014] E.C.D.R. 1 at [45]. The GC attempted to get round this by suggesting somewhat tenuously that a corkscrew would be in use when closed as well as when open: El Hogar Perfecto at [46].

40 332 Intellectual Property Quarterly Admittedly, the choice of the word user in the expression informed user was a poor one on the part of the EU legislators. However, if anything more than an unreflectingly literal interpretative approach is adopted, the underlying legislative intent and purpose are clear: to give effect to the new design approach underpinning the CDR and DD, overall impression should be assessed from the perspective of a notional person knowledgeable and active at the point of exploitation of the design on the market. 94 That entails conducting a fuller and more rounded exercise of design comparison, nowhere near so hidebound by the limitations of how the end-user would perceive the design during actual use. These nuances have been appreciated elsewhere. When transposing the DD into national law in France, for example, the French legislature chose to refer to the impression formed on the observateur averti (informed observer) not the utilisateur averti (informed user). 95 In earlier national case law, numerous national courts had also proceeded on the basis that the informed user should be taken as a potential purchaser or observer. 96 In more recent English case law, H.H. Judge Birss has explicitly favoured the perspective of a professional purchaser over that of the end-user where it was the professional purchaser who would be able closely to inspect the relevant design as part of the decision of whether or not to acquire the relevant product. 97 In the Magmatic Trunki litigation, Arnold J has also expressed hesitation about including within the definition of the informed user a person (in that case, a child) who would not be the actual purchaser of the relevant product. 98 By limiting itself in Shenzhen to what is, at best, a superficial (and ultimately unhelpful) literal interpretation and by failing to deploy any wider interpretative methods, it is submitted here that in Grupo Promer and Shenzhen the GC has laid down a test for the characterisation of the informed user which loses sight of the underlying rationale of the EU design regime. It is perhaps because of this that while still reciting the end-user test from Shenzhen the GC has been also been so ready, on so many occasions, to accept that there may be two embodiments of the informed user for one single design, the first being the end-user of the product and the second being a professional involved in the decision of whether to acquire or distribute products made to the relevant design. 99 It is presumably also because of this that while all the while still reciting the end-user mantra the GC has been so ready on the facts to uphold Board of Appeal decisions in which the informed user has been personified explicitly as a potential purchaser or, in some cases, even a reseller of the design in question See also, in a different but related context, Franzosi s criticism of the definition of normal use of component parts for complex products. Franzosi argues that the validity of designs for component parts should not be assessed as perceived in use but at the moment when the relevant person examines the article in order to buy it : The design which is protected is the one which comes to the attention of the prospective buyer, and may transform a prospective buyer into a buyer. It is not a design that may have an influence on other moments : Franzosi commentary in European Design Protection (1996), p.48. See also Koschtial: Given the market approach preferred in the rest of the Design Regulation, it would have been more consistent to choose the moment of sale to determine visibility of the product. A producer has the same interest in protection of its product configuration at the moment of sale as at the moment of its visibility after integration into a complex product. The design is created to further the sale of the product : Koschtial, Design law (2005) 36(3) I.I.C. 297, Koschtial, Design law (2005) 36(3) I.I.C. 297, In the CDR and DD themselves, the French language version uses the expression utilisateur. Koschtial argues that, given the intended meaning of the expression informed user the expressions utilisateur and observateur are not substantively different. 96 See variously throughout Hartwig (ed.), Design Protection in Europe, Vol.3 (2009) and Vol.4 (2012). 97 Louver-Lite Ltd v Harris Parts Ltd (t/a Harris Engineering) [2012] EWPCC 53 at [24] [32]. H.H. Judge Birss QC commented: Generally it seems to me to be safe to start from the premise that a user of a product is likely to be a person who is involved in buying or selecting it, as well as in operating it : at [27]. 98 Magmatic Ltd v PMS International Ltd [2013] EWHC 1925 (Pat); [2013] E.C.C. 29 at [55]. 99 In Grupo Promer, where on the facts the informed user was held to be a child in the approximate age range of 5 10 or a marketing manager, the GC justified this on the basis that the contested design had been registered specifically with a product indication ( promotional item[s] for games ) indicating a dual purpose (i.e. both children s play and marketing purposes): Grupo Promer v OHIM [2010] E.C.R. II-981; [2010] E.C.D.R. 7 at [64]. Multiple embodiments of the informed user (including a professional distributor) have, however, also been upheld by the GC in cases where there was no such dual marketing purpose to the product indication, on the basis that the product could be used in practice for promotional purposes: for watches (Sphere Time v OHIM EU:T:2011:269; [2011] E.C.D.R. 20 at [52] [54]); and for corkscrews (El Hogar Perfecto v OHIM EU:T:2013:601; [2014] E.C.D.R. 1 at [26] [27] and [29]). 100 For example: Kwang Yang Motor v OHIM EU:T:2011:446; [2012] E.C.D.R. 2 at [28] ( someone wishing to use a mower, who, for example, needs to purchase one and who has become informed on the subject ); Antrax v OHIM EU:T:2012:592 at [41] ( someone who purchases radiators for heating in order to install them in his home ); Gandia Blasco v OHIM EU:T:2014:54; [2014] E.C.D.R. 15 at [13] ( any person who habitually purchases armchairs and puts them to their intended use and who has acquired information on the subject, inter alia, by browsing through catalogues of armchairs, going to relevant shops, downloading information from the internet, or who is a reseller of those products ).

41 Re-Examining EU Design Law Before the Court of Justice and General Court 333 Looking to the perception of a potential purchaser or distributor is far more meaningful than looking rigidly to the in-use perception of an end-user in terms of pinning the assessment of overall impression to the market impact by which the design owner realises the value of his design. Such an approach is more consistent with the design approach underpinning the CDR and DD, and is far more likely to result in a design being assessed and appreciated for its design qualities rather than on some other basis. It is, however, an uncomfortable stretch if not direct contradiction of the narrow, end-user focused formulation set out in Shenzhen and repeated throughout the GC s case law. With uncertainty in the GC s case law introduced by the repudiation of the in-use perception test in Senz, 101 we are left in the meantime with a disparity between, on the one hand, what the GC tells us the characterisation of the informed user should be and, on the other, how the GC proceeds on the facts of the cases before it. This disparity appears to have entrenched itself in the GC s case law without comment, yet all of these complications could have been avoided had a deeper and more transparently reasoned approach to interpretation of the informed user been taken from the outset. Design freedom The lack of reasoning from the GC continues into its case law interpreting the requirement that, in the assessment of overall impression, the degree of freedom of the designer must be taken into consideration. 102 What is meant by this was not defined in the CDR or DD. There were two principal questions: first, as to the type of design constraint (technical requirements or wider market-oriented factors and other considerations) to be taken into account; and, secondly, as to the impact of the evaluation of design freedom on the assessment of overall impression. Again, the leading GC judgments and, indeed, the leading decisions at an EU-level generally are Grupo Promer and Shenzhen. 103 Again, the tests articulated in these two cases have also been repeated by the GC throughout subsequent case law. 104 In Grupo Promer, the General Court looked first at the type of design constraint relevant to the assessment of design freedom. Although there has been some disagreement over the exact findings of the GC, the legal test articulated in Grupo Promer specifically identified two relevant types of design constraint: features imposed by the technical function of the product or an element thereof and statutory requirements applicable to the product. 105 In Shenzhen, the court held that general design trends and 101 There are also obvious potential problems in cases involving more than one embodiment of the informed user, if any might perceive the contested design differently. This was considered by the GC in Sphere Time, but (perhaps unsurprisingly) the GC felt able summarily to dispose of the issue stating baldly (emphasis added): in any event, the fact that one of the two groups of informed users perceives the designs at issue as producing the same overall impression is sufficient for a finding that the contested design lacks individual character : Sphere Time v OHIM EU:T:2011:269; [2011] E.C.D.R. 20 at [56]. This outcome is problematic: between two embodiments of the informed user, it is the person who is least attuned to differences between designs and who is the least discerning in terms of attention to detail, knowledge and awareness who will most readily perceive two designs as producing the same overall impression. In cases with two informed users, applying Sphere Time it will therefore be the least informed informed user (i.e. the person least likely to notice differences) whose perception determines the assessment of overall impression/individual character: Stone, European Union Design Law (2012), para CDR arts 6(2) and 10(2)/DD arts 5(2) and 9(2). 103 Although the GC s ruling on design freedom in Grupo Promer was appealed to the CJ, the CJ considered this part of the appeal to be inadmissible: PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [2012] F.S.R In Shenzhen, the GC also held (also followed in later cases) that, to be relevant, design constraints must impact on the specific configuration of the features of the design in issue, rather than simply requiring those features to be present in the design in some form: Shenzhen Taiden EU:T:2010:248 at [54]. 105 Grupo Promer v OHIM [2010] E.C.R. II-981; [2010] E.C.D.R. 7, [67]. While the GC referred specifically only to technical and statutory constraints, it went on to take into account other considerations: the need for the products to be accepted in the marketplace, inexpensive, safe for children and fit to be added to the products which they promoted: Grupo Promer at [68] [70]. Some commentators have taken the view that the GC thereby endorsed the inclusion of both technical and market-oriented considerations in the assessment of design freedom: e.g. Suthersanen, Design Law (2010), para.6-028; Stone, European Union Design Law (2012), paras to Others have taken the view that constraints must be of a technical (or at least similarly mandatory) nature to be relevant: e.g. L. Brazell, The overall impression of registered design rights (April 2014) I.P.M. 53, 54; Laddie, Prescott and Vitoria: The Modern Law of Copyright and Designs (2011), para In the appeal to the CJ, the Advocate General read the decision as espousing a rule that relevant constraints must be of a functional nature: PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [2012] F.S.R. 5 at [AG30]. Somewhat unsatisfactorily, what the GC meant to say may ultimately turn on its extremely loose use of the words inter alia in the opening of [67] of its judgment.

42 334 Intellectual Property Quarterly aesthetic or commercial considerations should not be taken into account. 106 On the impact of relevant design constraints, the GC in Grupo Promer held that common design features relating to relevant design constraints should be taken to have only minor importance in the overall impression produced on the informed user; the more design freedom is restricted, the more it is likely that minor differences will produce different overall impressions. 107 With most modern designs blending form and function to some degree and thus falling within the reach of these rules, the GC s conclusions are highly significant. Again, however, on all of these points there was no attempt any at reasoning by the GC. Instead, the GC remained resolutely declaratory. In Grupo Promer, the GC asserted baldly that it must be noted that design freedom is constrained by technical function or statutory restrictions. 108 On the question of how relevant constraints should be taken to impact on overall impression, this was said to follow automatically ( thus ) from the requirement that design freedom be taken into account. 109 And in Shenzhen, the GC pronounced simply that it should be observed that design trends and aesthetic perceptions are not relevant to the examination of individual character. 110 Between them, Grupo Promer and Shenzhen seek to convey the impression that logic dictates only one possible reading of the provisions on design freedom. This is untenable. The issue of relevant types of design constraint is, in particular, open to a range of interpretations, with significant consequences. If a narrow view is taken (for example, limiting relevant constraints only to technical or other strictly mandatory requirements), fewer similarities between designs can be discounted as the subject of standardisation between products. Greater variation between designs will be required and fewer designs will be protected a result, albeit with a wider scope of protection. In contrast, the wider the net is cast in terms of relevant constraints (for example, including more market-oriented or consumer-driven considerations), the more often design features may be treated as resulting from standardisation and the more often small differences in design may be taken to stand out in the eyes of the informed user, thereby conferring individual character. The threshold of entitlement to protection will be lower: more designs will be protected but with a narrower scope of protection. Standing the uncertainty over the precise content of its ruling in Grupo Promer, the GC in Grupo Promer and Shenzhen appears to have chosen a narrow view of the relevant design constraints. There are, however, purposive and schematic arguments to suggest that a wider approach should be adopted. 111 Either way, the range of different interpretative options is readily apparent from the travaux. While, on the issue of the impact of design constraints, the travaux do support the court s approach indeed, on that issue the General Court seems to be drawing closely from the 1991 Green Paper, albeit without acknowledging as much on what may constitute the type of relevant design constraint, the travaux serve to highlight just how far from clear-cut the position really is. In its 1991 Green Paper, the Commission initially indicated that relevant design constraints were not to be limited solely to technical matters, but could also include considerations such as marketing requirements and fashion: The provision expresses the principle that, the more limited the freedom of the designer is in developing his design due to technical or marketing constraints (standardization, mechanical or physical constraints, necessity of taking into account deep-rooted marketing requirements by the 106 Shenzhen Taiden v OHIM EU:T:2010:248 at [58]. 107 Grupo Promer v OHIM [2010] E.C.R. II-981; [2010] E.C.D.R. 7 at [72]. 108 Grupo Promer v OHIM [2010] E.C.R. II-981; [2010] E.C.D.R. 7 at [67].The GC observed that relevant constraints result in a standardisation of certain features which will therefore be common to designs applied to the products in issue: [67]. While this explains the underlying purpose of requiring design freedom to be taken into consideration, this observation does not however provide any justification for the particular categories of design constraint considered relevant by the GC. 109 Grupo Promer v OHIM [2010] E.C.R. II-981; [2010] E.C.D.R. 7 at [72]. 110 Shenzhen Taiden EU:T:2010:248 at [58]. 111 Brückner-Hofmann commentary in Community Design Regulation (2015), p.86; Stone, European Union Design Law (2012), paras and

43 Re-Examining EU Design Law Before the Court of Justice and General Court 335 clients, features imposed by fashion), the more weight has to be given to small differences or variations as constituting an independent development. 112 However, by the time of the 1993 Proposals for the CDR and DD, the Commission s position appeared to have changed to focus on technical functionality alone: Highly functional designs where the designer must respect given parameters are likely to be more similar than designs in respect of which the designer enjoys total freedom. Therefore, paragraph 2 also establishes the principle that the freedom of the designer must be taken into consideration when the similarity between an earlier and a later design is being assessed. 113 The issue is not thereafter mentioned any further in the travaux. In the Grupo Promer appeal, the Advocate General took this to indicate that design freedom was to be limited to functional constraints only. 114 Whether or not this reading of the travaux is correct or, indeed, whether the travaux are at all conclusive on the issue, what does emerge very clearly from the pre-legislative materials is the range of possible interpretations which could have been adopted. Had the GC engaged in a fully articulated process of reasoning engaging with these different possible interpretations in Grupo Promer, it seems likely that the considerable apparent confusion in its decision on the facts in which the GC appeared to conflate more market-oriented considerations with technical and statutory constraints could have been avoided. In the meantime, the GC s bald conclusions and declaratory style again conceal the exercise of significant interpretative choice by the court. Overall impression The interpretation of the concept of overall impression is of critical importance, determining both (from a validity perspective) whether a design will have individual character and (from an infringement perspective) whether a later design will fall within the scope of protection of an earlier design. Overall impression has been highlighted by one commentator as the key area of contention in the majority of invalidity claims, and the essential element in all infringement claims, and by another as the most vital element of the whole system. 115 Although CDR Recital 14/DD Recital 13 (outlined above) contain some guidance on relevant considerations, the operative provisions of the CDR and DD are silent on how overall impression should be assessed, most particularly on the key question of the level of generality at which overall impression should be evaluated. Most of the GC s decisions on overall impression have tended to jump straight into a factual appraisal of the competing designs. Only in relatively few cases has the GC attempted to articulate the test which it is applying and, specifically, the level of generality to which it is working. None of this has been considered substantively by the CJ on appeal. 116 Even on this most critical issue, however, on re-examining the GC s case law it becomes clear that there has been no greater attempt at reasoning or justification by the GC. In Grupo Promer, the GC dealt surprisingly quickly with the assessment of overall impression, pronouncing simply: The designs at issue must be compared by reference to the criteria set out at paragraph 72 above [on design freedom], by examining their similarities and their differences, in order to ascertain, taking 112 Commission, Green Paper (1991), para (emphasis added). 113 Commission, Proposal for a Regulation (1993), p.16, commentary, art.11(2) (emphasis added). 114 PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [2012] F.S.R. 5 at [AG33] although, like the CJEU, he ultimately concluded that this part of the appeal was inadmissible. 115 Stone, European Union Design Law (2012), para 11.05; Levin commentary in European Design Protection (1996), p.69. See also Brückner-Hofmann commentary in Community Design Regulation (2015), p In Grupo Promer, the CJ concluded that the appeal against the GC s assessment of overall impression was inadmissible: PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [2012] F.S.R. 5.

44 336 Intellectual Property Quarterly into account the degree of the designer s freedom in developing the contested design, whether the Board of Appeal was entitled, without committing any error, to conclude that the designs at issue created a different overall impression on the informed user. 117 If anything, this reference to the examination of similarities and differences is suggestive of a relatively close degree of scrutiny of the competing designs. Since then, however, the court has implicitly shifted away from this initial, relatively detailed focus. In Kwang Yang Motor Co, the GC asserted: The shape, dimensions and arrangement of the various components are more important than differences in details. The two designs at issue produce identical impressions on account of the shape and arrangement of their principal components and have the same basic structure The details relied upon by the applicant cannot have any impact on the overall impression produced on an informed user An informed user will be guided by the basic structures alone and not by differences in the details, which do not produce different overall impressions on him. 118 In Antrax, the court focused on the shapes, arrangement and proportional relationships of the different elements of the contested designs. 119 In El Hogar Perfecto, the GC upheld an assessment of overall impression focused on the shape, position and relative size of various features of the contested design. 120 The GC has put its current position most explicitly in its decision in Puma where (somewhat misleadingly presenting its conclusion as a continuation of its earlier case law, which had not mentioned the concept), the GC equated a difference in overall impression to an absence of déjà vu : [I]t is proper to recall that the individual character of a design results from a different overall impression, or absence of déjà vu, from the point of view of the informed user, compared to any prior design within the design corpus. 121 Across this case law, there is a significant implicit shift in the level of generality at which the GC has said that the assessment of overall impression is to be carried out. Again, however, no reasons are given to support any of the GC s conclusions. Yet, as with the other interpretative issues discussed in this article, it is possible to take a range of different approaches, with significant implications for the overall functioning of the EU design system. Koschtial summarises the dangers of fixing the overall impression test at too low a standard of generality: [T]he lower the required level of individuality, the more the monopolised range of designs grows. This leads to the danger of hindering development and freedom of the market by monopolising forms that show no distinctive development to other forms, but are urgently needed by competitors on the market. In such a case, average evolution on the market is monopolized instead of progress rewarded. 122 Conversely, set the bar too high and an insufficient number of designs may qualify for protection, thereby defeating the overall objective of the CDR and DD to encourage investment in good design. Given the centrality of these issues to the functioning of the EU design system, the GC s lack of reasoning is deeply unhelpful. It is all the more extraordinary when we consider that the travaux préparatoires clearly indicate with unequivocal unanimity across the Commission, Parliament and Council the EU 117 Grupo Promer v OHIM [2010] E.C.D.R. 7 at [76] (emphasis added). 118 Kwang Yang Motor Co OHIM EU:T:2011:446; [2012] E.C.D.R. 2 at [43] [44] (emphasis added). 119 Antrax v OHIM EU:T:2012:592 at [61]. 120 El Hogar Perfecto v OHIM EU:T:2013:601; [2014] E.C.D.R. 1 at [40]. 121 Danuta Budziewska v OHIM EU:T:2013:584 at [29] (emphasis added, translated by the author from the French version of the judgment). For a case summary and translation of this passage from the Polish version of the judgment, see: K. Maciaszek, Crouching domestic cat when landing vs. Hidden wild puma when jumping (30 November 2014), Class 99 Blog, [Accessed 16 September 2016]. 122 Koschtial, Design law: individual character, visibility and functionality (2005) 36(3) I.I.C. 297, 304. See also Levin commentary in European Design Protection (1996), pp and pp

45 Re-Examining EU Design Law Before the Court of Justice and General Court 337 legislators intentions for the overall impression test, intentions which the GC s approach directly contradicts. In the 1991 Green Paper, validity and infringement were both initially intended to depend on an overall impression of substantial similarity, to be assessed by adopting a synthetic approach with a judge letting the design act on him as a whole rather than analysing and comparing details of the relevant designs. 123 In the 1993 Proposal for a Regulation the Commission also highlighted that the intention was to introduce a high threshold test for entitlement to protection. 124 A design was not to have individual character if the overall impression was one of déjà vu, even if the relevant design differed from earlier designs in an important number of details. 125 The 1993 Draft Regulation stipulated that a design only had individual character if the overall impression it produced on the informed user differed significantly from the overall impression produced by any earlier design. 126 This high threshold test was said explicitly to be the counterpart for the conferral of a broad scope of protection: The provision introduces a high threshold of dissimilarity in comparison to existing designs, thereby at the same time providing for a broad scope of protection European industries need a protection which goes beyond the protection against identical reproductions and which is far more sweeping in scope. The counterpart of such efficient protection is, however, a high threshold as regards individual character. 127 However (although sometimes overlooked in commentary), the Commission s proposals did not survive the legislative process. The 1994 Economic and Social Committee opinion on the draft CDR and DD, endorsed in the European Parliament s 1995 amendments to the draft DD, sought deletion of the word significantly from the tests for validity and infringement: to avoid too many designs being excluded from protection (a concern raised, in particular, by the European textile industry), a design was to be taken to have individual character simply if it produced an overall impression which was dissimilar to any other design. 128 This explicit lowering of the requirements for protection was accepted by the Commission and the Council, albeit with reluctance on the part of the Commission because of the consequent lowering in the threshold for protection. 129 When the Council added a precursor to CDR Recital 14/DD Recital 13 stating that individual character required that the relevant design clearly differs from the existing design corpus, the European Parliament objected again and sought to delete the word clearly. 130 This deletion was also accepted, although some instances of use of the word clearly (or equivalent) remained in certain parts of certain language versions by mistake. 131 This shift from a higher to a lower threshold for protection is apparent even in the drafting history of provisions which did not make it into the final versions of the DD or CDR. To avoid a so-called intelligent 123 Commission, Green Paper (1991), para and Draft Regulation arts 7 and Commission, Proposal for a Regulation (1993), commentary, art.6(1) (pp.12 13). 125 Commission, Proposal for a Regulation (1993), commentary, art.6(1) (p.12), noted: G. Dinwoodie, Federalized Functionalism: The Future of Design Protection in the European Union (1996) 24 AIPLA Q.J. 611, Commission, Proposal for a Regulation (1993), Draft Regulation art.6(1); see also art.11(1) ( significantly similar overall impression for infringement). See also Commission, Proposal for a Directive (1993), Draft Directive arts 5(1) and 9(1). 127 Commission, Proposal for a Regulation (1993), commentary, art.6(1) (p.12). See also Commission, Green Paper (1991), para on the need to extend protection beyond slavish reproductions to substantially similar designs. 128 Economic and Social Committee Opinion [1994] OJ C388/03, paras 3.2.3, and 3.3; European Parliament amendments to the DD, [1995] OJ C287/157, amendments nos 5 and 8 on arts 5(1) and 9(1) DD; noted in Franzosi (ed.), European Design Protection (1996), p.6 and Franzosi commentary p.62; and Musker, Community Design Law (2002), para Amended Proposal for a European Parliament and Council Directive on the legal protection of designs, COM(96) 66 final COD 464 (Brussels, 21 February 1996), Explanatory Memorandum, p.3, commentary art.5(1) (p.6) and art.9(1) (p.8); Council Common Position 28/97 [1997] OJ C237/1, Statement of Reasons, paras 12 and 22; noted in Dinwoodie, Federalized Functionalism (1996) 24 AIPLA Q.J. 611, 660; Musker, The Design Directive (2001), p Council Common Position 28/97 [1997] OJ C237/1, new Recital 13 and Statement of Reasons, para.12; European Parliament amendments to the common position [1997] OJ C339/53, amendment no.2 on Recital Hartwig (ed.), Design Protection in Europe, Vol.3 (2009), pp , and 232. This initially led the English Court of Appeal to take an erroneous approach to the assessment of individual character and infringement, but this was explicitly reversed and corrected: Dyson Ltd v Vax Ltd [2011] EWCA Civ 1206; [2012] F.S.R. 4 at [34].

46 338 Intellectual Property Quarterly copy (whereby a competitor adds unimportant variations to an existing design), the Commission had initially proposed specifying that common features should be given more weight than differences when assessing the similarity of designs. 132 However, the Commission s position was rejected by the Economic and Social Committee and the European Parliament, which proposed that common features should be given the same weight as differences. 133 This was accepted by the Commission and Council as consistent with the overall lowering of the threshold for protection sought by the European Parliament, and the provision deleted as redundant. 134 It is therefore clear that, by the time of the enactment of the CDR and DD, while the terminology ( overall impression ) remained the same, the EU legislators had explicitly settled on a lower threshold requirement for entitlement to protection than had originally been proposed. Despite this, although unremarked upon in commentary, the GC s interpretation of the overall impression test has, if anything, moved in the opposite direction: starting initially in Grupo Promer, in line with the legislators final intentions, by requiring an examination of similarities and differences but moving in subsequent cases, most specifically as stated in Puma, to a broad déjà vu -based approach much more akin to and indeed using the same language as the high threshold for protection explicitly rejected during the legislative process. Following the GC s approach, Puma is now relied upon in the OHIM design invalidation guidelines as authority for the proposition that the dissimilar or similar impression produced in the informed user can be identified as the presence or absence of a déjà vu. 135 By following GC authority in this way (as it must), OHIM has adopted a model for assessing overall impression which was explicitly rejected and dropped during the legislative process. This contrasts with UK case law, in which the English courts have taken a markedly different line, more in step with the final threshold for overall impression settled on by the EU legislators, in which it has been stressed that attention to detail matters. 136 At the same time, looking at recent factual determinations by the GC (particularly in recent cases such as Argo and Senz) it is hard to avoid the inference that, having adopted a higher-than-intended threshold for what constitutes different overall impression, the GC in fact also prefers to take a more detailed analytical approach to the comparison of designs, albeit that it achieves this indirectly through other means, such as taking a very narrow view of the definition of the products in suit. 137 The GC s failure to engage in a proper process of reasoning has again led it to set a standard which marks a significant departure from the purpose and intentions behind the CDR and DD. Complex products and the prior art The issues discussed above are not the only examples of the GC engaging in important interpretative activity without providing any reasoning. 138 Three further recent examples stand out in particular. 132 Commission, Green Paper (1991), para ; Commission, Proposal for a Regulation (1993), commentary, art.6(3) (p.13) and art.11(2) (p.16), and Draft Regulation arts 6(3) and 11(2); Commission, Proposal for a Directive(1993), Draft Directive arts 5(3) and 9(2); noted in A. Horton, European design law and the spare parts dilemma: the proposed regulation and Directive [1994] E.I.P.R. 51, European Parliament amendments to the DD [1995] OJ C287/157, amendments nos 6 and 9 on arts 5(3) and 9(2) DD. 134 See Amended Proposal for a Directive on the legal protection of designs, COM(96) 66 final COD 464 (Brussels, 21 February 1996), commentary on art.5(2) (p.6); Council Common Position 28/97 [1997] OJ C237/1, Statement of Reasons, paras 13 and 24; noted in Musker, The Design Directive (2001), pp.40 and 68; Musker, Community Design Law (2002), paras and OHIM, Examination of Design Invalidity Applications (version 1.0, dated 1 February 2015), p.37, -of-designs-practice [Accessed 16 September 2016]. 136 Samsung Electronics v Apple [2012] EWCA Civ 1339; [2013] E.C.D.R. 1 at [58]. 137 See further: K. Maciaszek, Advertising articles narrow, narrower or the narrowest degree of design freedom (6 February 2015), Class 99 Blog, [Accessed 16 September 2016]; V. Torelli, The informed user s perception and a design s individual character (2015) 10(10) J.I.P.L.P The GC has, for example, without any reasons created a new perceptibility test for the concept of novelty: Kastenholz v EU:T:2013:298 at [37]. On overall impression, the GC has also bounced back and forth all the time with no reasoning on whether saturation of the art (i.e. a high concentration of aesthetically similar designs) in a crowded design field should be taken into account. This was first explicitly confirmed as relevant, without reasoning ( it must be held ), in Antrax v OHIM EU:T:2012:592 at [89]. However, the GC failed to apply this principle in its subsequent decision in Bell & Ross EU:T:2013:214: Hartwig, Community design law (2013) 8(11) J.I.P.L.P. 862, This inconsistency has continued

47 Re-Examining EU Design Law Before the Court of Justice and General Court 339 First, in AIC v ACV the GC addressed the issue of how to apply the requirement of visibility in normal use for component parts to a scenario in which the relevant component part is capable of being used in different complex products. 139 Such a component will be visible to different extents in different applications. Although there is no guidance in the travaux (which appear to have assumed rather naively that a component part would only ever be used in one complex product), there was a great deal for the GC to consider from purposive and other perspectives in resolving how to apply the visibility in use test to such a scenario. Article 4(2) CDR and art.3(3) DD were introduced relatively late in the drafting process, as part of lengthy negotiations over the treatment of automotive spare parts, and commentators have argued that the provisions on complex products should be construed narrowly: design features of multi-use component parts should therefore only be excluded from protection if invisible in all possible applications. 140 In AIC, however, without acknowledgement of any of these issues, the GC took the opposite approach pinning the assessment of visibility entirely to the evidence of how the specific design in suit was being marketed by the design right holder at the time of the application for registration. 141 No reasons were given. There was, however, a dramatic result: although the right holder adduced evidence showing that the contested design was for a category of component parts (heat exchangers) that could be used in a range of complex products, because his products were at that time only marketed for use in only one such complex product (domestic boilers) in which they could not be seen at all in normal use, no part of the contested designs was taken ever to be visible. There was therefore nothing to protect as a Community design. The implications of this approach are both severe and unpredictable. If the validity of a design for a multi-use component part is to be assessed by reference only to how that specific design is marketed by the right holder at the time of the application, validity becomes dependent on the marketing strategy of the right holder, not any intrinsic qualities of the design itself. As predicted by Hasselblatt, arbitrary outcomes are the result. 142 Two very recent decisions on the prior art against which validity is to be judged are, if anything, even more problematic. In Cezar, the GC has created an entirely new exclusion from the prior art, holding that an earlier design for a component part of a complex product can only be treated as a relevant prior art disclosure if that earlier design was visible in normal use. 143 As a result, although depicted in an earlier published catalogue, because it was a component which would not have been visible in actual use the prior art design in that case could not be relied upon at all. In Group Nivelles, the GC has gone even further, ruling out of the assessment of individual character although not the assessment of novelty any prior art design not known to the informed user by reason of the limitations of the informed user s field of interest. 144 Both of these decisions have been described as remarkable. 145 Both, it is submitted here, cut directly across the clear and unambiguous drafting of art.7 CDR which (aside from its subsidiary rules on confidentiality and so on) contains only one exception the so-called safeguard clause for obscure prior art (noted in the section entitled Background the EU design regime above) to its otherwise strict worldwide prior art regime. Article 7(1) CDR itself also explicitly requires, in its opening words, that the same rules be applied to both novelty and individual character. into more recent case law, Antrax being followed in Danuta Budziewska v OHIM EU:T:2013:584, but not in Sachi EU:T:2014:55, then followed again in Tubes Radiatori Srl v OHIM (T-315/12) EU:T:2014: AIC v OHIM EU:T:2015:31. Two further decisions in linked decisions T-616/13 and T-617/13, 20 January 2015, both unreported) were also handed down. See further: Designs: Heat exchanger designs invalid as not visible during normal use (2015) 44(2) C.I.P.A.J. 109; and N. Wolfs, Out of sight, out of protection (2015) 247 M.I.P Koschtial, Design law: individual character, visibility and functionality (2005) 36(3) I.I.C. 297, 313; Hasselblatt commentary in Community Design Regulation (2015), pp.51 52, and AIC v OHIM EU:T:2015:31 at [23] [31]. 142 Hasselblatt commentary in Community Design Regulation (2015), p Cezar v OHIM EU:T:2014:852 at [51] [52]. See also: Designs: Validity of Community design for a component part of a complex product (2014) 43(11) C.I.P.A.J Group Nivelles v OHIM, 13 May 2015 at [132]. 145 On Cezar v OHIM EU:T:2014:852, see H. Hartwig, Reciprocity in design law: another brick in the wall (2015) 10(6) J.I.P.L.P. 465, 466 (Hartwig considers this to be a noteworthy extension of the concept of reciprocity, which he has argued should have a central role in EU design law: pp ); on Group Nivelles, 13 May 2015 see G. Hartman, Multiple personality disorder amongst the public for Community designs? (7 July 2015), IPKat, [Accessed 16 September 2016].

48 340 Intellectual Property Quarterly It is simply astonishing that the GC should feel free without any textual basis whatsoever to innovate on the language of the CDR to the extent that it has done in Cezar and Group Nivelles. The GC has effectively written into art.7(1) CDR new carve-outs from the relevant prior art that directly conflict with the detailed wording that had been extensively negotiated during the legislative process. It is abundantly clear from the travaux that, with the safeguard clause in place, there were to be no further exceptions to art.7(1) CDR. 146 It is, of course, not unheard-of for the CJ to adopt a contra legem interpretation of a provision of harmonised IP law. However, in the best-known example of this, Davidoff v Gofkid, the CJ in that case fully articulated the basis involving a full exercise of schematic, purposive and consequentialist reasoning upon which it acted. 147 In Cezar, the GC s new carve-out was explained only by a passing (and questionable) mention of working by analogy with the visibility requirement in the rules on entitlement to protection for component parts at art.4(2) CDR 148 ; in Group Nivelles, the GC s new carve-out was claimed baldly simply to follow from a rote-like recitation of Recital 14 CDR and the general case law on the informed user. 149 The shallow purported reasoning in Group Nivelles is markedly different from the much more thoughtfully articulated conclusions of the English courts on this issue, who have carefully distinguished between the scope of the design awareness of the informed user (which may be limited) and the extent of the relevant prior art (which is not). 150 In neither Cezar nor Group Nivelles did the GC acknowledge the underlying objective of art.7(1) to prevent the re-monopolisation of designs already known in the public domain. 151 This is an outcome which Cezar and Group Nivelles now both permit. It is hard to avoid the sensation that the GC in AIC, Cezar and Group Nivelles had only a limited grasp of the context to, and implications of, its decisions. Consequences and causes some lessons from the Europeanisation of EU design law A reduced role for the CJ? The CJ cannot, of course, control the flow of cases that come before it. Nonetheless, it is extraordinary that, in 14 years of the EU design regime, not one of the issues in the discussion of the GC s design case law above reached the CJ on a preliminary reference from a national court. It is, after all, almost impossible to decide a design dispute, whether on infringement or validity, without adopting a view on how to interpret 146 Although the Green Paper initially sought to limit the prior art against which novelty was to be assessed, this had been dropped by the time of the 1993 Proposals for the CDR and DD, a strict worldwide novelty test being adopted instead: A. Horton, European design law and the spare parts dilemma: the proposed regulation and Directive [1994] E.I.P.R. 51, 52; Hasselblatt, commentary in Community Design Regulation (2015), p.12. For individual character, the 1993 Proposals initially proposed that individual character be assessed only against earlier designs which were being commercialised on the market and un-expired design applications or registrations: Horton, at 52. However, this was explicitly abandoned and the same worldwide prior art test as novelty adopted, as part of the overall process of negotiation between European Commission and Parliament on the threshold for entitlement to protection: Franzosi (ed.), European Design Protection (1996), pp.6 and 62 63; G. Dinwoodie, Federalized Functionalism: The Future of Design Protection in the European Union (1996) 24 AIPLA Q.J. 611, 660 n.135; Musker, Community Design Law (2002), para Davidoff v Gofkid Ltd [2003] E.C.R. I-389; [2003] E.T.M.R. 42, debated in C. Morcom, Extending protection for marks having a reputation: what is the effect of the decision of the European Court of Justice in Davidoff v Gofkid? [2003] E.I.P.R. 279; and J. Cornwell, The Davidoff v Gofkid case comment [2003] E.I.P.R Cezar v OHIM EU:T:2014:852 at [51]. No attempt was made to articulate on what grounds such analogy was said to be legitimate. However, the terms, purpose and scheme of the rules in art.7 CDR, not to mention the travaux and the General Court s own earlier case law, all make it clear that a piece of prior art does not have to constitute an actual protected design to constitute a relevant prior art disclosure see for example Senz EU:T:2015:310; [2015] E.C.D.R. 19 at [24] noting that whether there is a design for prior art purposes does not turn on how it is legally protected. Use of a prior design is in any event only one of the many ways in which a design may be made available to the public. 149 Group Nivelles, 13 May 2015 at [125] [132]. 150 In particular: Gimex International Groupe Import Export v Chill Bag Coy Ltd [2012] EWPCC 31; [2012] E.C.D.R. 25 at [36] [47]. H.H. Judge Birss QC likened this to the difference in patent law between the scope of the skilled man s common general knowledge and the state of the art: [44] [45]. See also the Court of Appeal in Green Lane Products v PMS [2008] EWCA Civ 358 [2008] E.C.D.R. 15 at [41]: Whatever the informed user should be considering and whatever his notional attributes is not material to the inquiry as to what prior art is to be excluded. The informed user only comes in once the prior art to be considered is identified. Although there was a suggestion to the contrary at first instance in the Trunki litigation, that has been roundly criticised as erroneous: D. Stone and W. Corbett, Magmatic v PMS: no RCD infringement on appeal (2014) 9(8) J.I.P.L.P. 635, See generally also Brückner-Hofmann commentary in Community Design Regulation (2015), pp C. Gielen and V. von Bomhard, Concise European Trade Mark and Design Law (Alphen aan den Rijn: Kluwer Law International, 2011), p.371.

49 Re-Examining EU Design Law Before the Court of Justice and General Court 341 the concepts of the informed user, design freedom and overall impression, and to establish the relevant prior art. Although the travaux contain clear guidance on some of the relevant issues as outlined above, overall none of these fundamental new concepts in the CDR and DD can realistically be regarded as acte clair. While there has been criticism of the readiness with which some courts may make IP references, 152 as far as designs are concerned it is clear that a number of national courts have declined to make references when they could or should have done so. 153 Why, then, are we seeing so few design preliminary references? There are, of course, fewer Community designs than CTMs which, together with the almost non-existent process for the examination of design applications at OHIM and elsewhere (including the UK), has reduced the pool of potentially appealable or referable design disputes. The more limited value and shelf-life of many designs may also make protracted disputes (and thus preliminary references or appeals to the CJ) unlikely. 154 However, the preliminary reference process itself has been getting quicker in recent years and high-profile design litigations have been pursued throughout Europe between major right holders, some of whom were very active before the CJ in the early years of the CTM regime. 155 Numerous design cases have also reached different Member States supreme courts. 156 There have been plenty of opportunities for the key new concepts of the CDR and DD to be referred to the CJ had national courts been so minded. With continuing divergence of approach at a national level on important issues such as overall impression and the art.7(1)/8(1) functionality exclusion, 157 there also remains plenty of scope for references to be made. It has been suggested, in the trade mark context, that there would be benefit in allowing issues more to percolate for a while at the national level, rather than immediately referring questions to the CJ. 158 Although it is outwith the scope of this article to test this, it may be that national courts, operating more confidently than in the early years of the trade mark regime, are now choosing to take this path on design 152 J. Pila, Intellectual Property as a Case Study in Europeanization: Methodological Themes and Context in The Europeanization of Intellectual Property Law (2013), pp In terms of UK case law, see for example: Green Lane Products v PMS [2008] EWCA Civ 358; [2008] E.C.D.R. 15 at [11] (concluding somewhat optimistically that the meaning of the sector concerned at art.7(1) CDR was acte clair note the disagreement on this in Hartwig (ed.), Design Protection in Europe, Vol.3 (2009), pp ); Dyson Ltd v Vax Ltd [2010] EWHC 1923 (Pat); [2010] E.C.D.R. 18 at [47] (noting that some of the issues decided were not acte clair but that no reference would be made as they were unlikely to be determinative on the facts of the case); Bayerische Motoren Werke AG v Round & Metal Ltd [2012] EWHC 2099 (Pat); [2013] F.S.R. 18 at [76] (noting that no reference would be made on the art.110(1) spare parts defence as the issues were reasonably clear ); Magmatic v PMS International [2013] EWHC 1925 (Pat); [2013] E.C.C. 29 at [35] (noting that questions were already with the CJ on the interpretation of the art.7(1) safeguard clause and that neither party wished a reference to be made). It has been argued that the CA should have referred its (now explicitly reversed) finding that different standards applied to the assessment of overall impression for validity and infringement purposes in Procter & Gamble: A. Carboni, Design validity and infringement: feel the difference [2008] E.I.P.R. 111, 115. It has also been suggested that the issues on design representation and surface decoration arising in the Court of Appeal s decision in Magmatic Ltd v PMS International Ltd [2014] EWCA Civ 181; [2014] E.C.D.R. 20 (appealed to the Supreme Court) warrant a reference to the CJ: D. Meale, Horned animal, insect or tiger with floppy ears? Trunki loses out in the Court of Appeal (4 March 2014), IPKat, although no reference was ultimately made: see the Supreme Court judgment at [2016] UKSC 12, [2016] Bus. L.R Preliminary references have been requested and declined in other jurisdictions as well. For example, in Karen Millen the Irish High Court had initially refused to make a reference, the case only being referred to the CJ after appeal to the Irish Supreme Court: H. Atherton, Case Comment: Karen Millen Fashions Ltd v Dunnes Stores and Dunnes Stores (Limerick) Ltd (Case C-345/13) [2015] E.I.P.R Commentators have also noted the refusal of preliminary reference requests in Germany (H. Hartwig, The concept of reciprocity in European design law (2010) 5(3) J.I.P.L.P. 186, 186 n.8), Denmark (P.G. Olson, Danish Supreme Court keeps RCD questions from CJEU (16 September 2014), Class 99 Blog, and Italy (E. Marchesoni, Milan Court refuses CJEU reference request, takes aesthetic approach to design problem (13 March 2015), Class 99 Blog, [All accessed 19 September 2016]. 154 T. Headdon, Community design right infringement: an emerging consensus or a different overall impression? [2007] E.I.P.R. 336, In the Karen Millen litigation, for example, although the whole dispute ran from 2007 to 2015, the preliminary reference was disposed of in a year see the timeline in D. Stone, Justice delayed: Karen Millen s 2007 design infringement case comes to an end [2015] E.I.P.R. 617, 617. In 2012, the average processing time for a preliminary reference was at the shortest it had been since official records began: M. Broberg and N. Fenger, Preliminary References to the European Court of Justice, 2nd edn (Oxford: Oxford University Press, 2014), p.23. See further the CJ annual reviews at [Accessed 19 September 2016]. 156 Including in: Austria (J. Strobl, Supreme Court dismisses design infringement action (2014) 236 M.I.P. 118; J. Strobl, Design dispute over flower of life (2014) 238 M.I.P. 68); the Netherlands (A. Folliard-Monguiral and M. Miniotas, Apple v Samsung: The Hoge Raad legacy (2013) 8(12) J.I.P.L.P. 925; Spain (J.A. Garcia-Zapata, Spain: Supreme Court confirms the partial nullity of an RCD for a lollipop container (27 May 2014), Class 99 Blog, [Accessed 19 September 2016]); and in the UK (Magmatic v PMS [2016] UKSC 12, [2016] Bus. L.R. 371). 157 Stone, European Union Design Law (2012), para ; J. du Mont and M. Janis, Functionality in Design Protection Systems, Maurer School of Law Legal Studies Research Paper Series, Research Paper No.210 (2012) 19 J. Intell. Prop. L. 261, Dinwoodie, The Europeanization of Trade Mark Law in The Europeanization of Intellectual Property Law (2013), pp See also G. Dinwoodie, Trade mark harmonisation national courts and the European Court of Justice (2010) 41(1) I.I.C. 1.

50 342 Intellectual Property Quarterly matters. It is, however, also plausible to ask whether experiences with other IP rights may have made national courts reference-shy when it comes to designs. As Weatherill has noted in another context, national courts may refrain from making preliminary references to avoid unwelcome rulings 159 ; early design commentary certainly warned that unexpected outcomes might well ensue from CJ judgments given the court s propensity for issuing judgments of unparalleled opacity and, at times, inconsistency in trade mark law. 160 National courts dealing with design cases may also be fearful of kick-starting the cycle of further references which seems to be triggered once the CJ has spoken on an issue. 161 It is also possible to speculate that appetite among right holders to appeal Community design disputes may have been reduced for the same reasons, particularly among major right holders with large design portfolios the usefulness of which could be put at risk by an adverse ruling from the CJ. On top of this, the limited role taken by the CJ to date has been made even smaller by the court s own approach to appeal admissibility. As outlined earlier in this article the CJ has been notably reticent in taking on the matters arising in the few design appeals to date. Although the CJ s position in principle is not unlike that of the English Court of Appeal on its entitlement to re-open first instance findings, 162 on the specifics of the appeals before the CJ there was, it was argued above, scope to intervene. The court s hands-off approach contrasts sharply with its interventionism in other fields of IP. 163 The CJ s apparently high level of attachment to the limitations of the technical niceties (or otherwise) of the appeal parties pleadings also contrasts markedly with the readiness with which the court is happy to reframe and rewrite the questions sent to it under the preliminary reference procedure, both to correct poorly drafted references and to allow the court to shift the focus of the preliminary reference to where it feels the focus should be. 164 It seems highly undesirable to leave in the hands of the parties pleadings the question of whether a major point of normative uncertainty in the EU design regime is properly ventilated before the CJ. One is left with an uneasy sense that, just as national courts and parties seem unwilling to take the CDR and DD to the CJ, so too perhaps mindful of its own workload and the high level of trade mark appeals which reach it every year the CJ itself is perhaps less than willing to get involved. Is the GC s case law up to the job? Legitimacy and influence between Community and national jurisdictions A situation in which the CJ takes a step back should be manageable, within the Community design appeal structure at least, if the GC is capable of stepping into the CJ s shoes. As the discussion of GC s design case law above has demonstrated, however, there are major methodological difficulties with the GC s design case law. These raise serious questions as to whether the GC s case law is up to the job of serving as lead design jurisprudence at the EU level. 159 S. Weatherill, The Court s Case Law on the Internal Market: A Circumloquacious Statement of the Result, Rather than a Reason for Arriving at It? in M. Adams, H. de Waele, J. Meeusen and G. Straetmans (eds), Judging Europe s Judges: The Legitimacy of the Case Law of The European Court of Justice (Oxford: Hart Publishing, 2013), p Brazell, Egyptian Goddess Inc v Swisa Inc: Is design law in the US and EU converging? [2009] E.I.P.R. 576, J. Cornwell, Keywords, Case Law and the Court of Justice: The Need for Legislative Intervention in Modernising European Trade Mark Law (2013) 27(1 2) International Review of Law, Computers and Technology For the English Court of Appeal to re-open first instance findings, the first instance judge must have erred on a point of principle: for example, Samsung v Apple [2012] EWCA Civ 1339; [2013] E.C.D.R. 2 at [26]. 163 On trade mark law, see: Dinwoodie, The Europeanization of Trade Mark Law in The Europeanization of Intellectual Property Law (2013); M. Senftleben, Adapting EU trademark law to new technologies: back to basics? in Constructing European Intellectual Property (2013), p.137. On copyright, the CJ s recent case law has attracted particular criticism for its deployment of principles such as the principle of the autonomous and uniform interpretation of EU law to extend harmonisation beyond the remit of the relevant legislative texts: M. van Eechoud, Along the Road to Uniformity Diverse Readings of the Court of Justice Judgments on Copyright Work (2012) 3(1) J.I.P.I.T.E.C. 60; L. Bently, Harmonization by Stealth: Copyright and the ECJ, Fordham 20th Annual Intellectual Property Law & Policy Conference 2012, -content/uploads/2010/08/bently_harmonization.pdf [Accessed 19 September 2016]; Derclaye, The Court of Justice copyright case law [2014] E.I.P.R Cornwell, Keywords, Case Law and the Court of Justice (2013) 27(1 2) International Review of Law, Computers and Technology 85. See generally also Broberg and Fenger, Preliminary References (2014), pp

51 Re-Examining EU Design Law Before the Court of Justice and General Court 343 While the focus of most recent methodological commentary on IP matters has been criticism of the almost over-abundance of reasoning emanating from the CJ in its copyright case law, 165 the difficulties in the design field are, in essence, the opposite: to support the major design rulings of the GC there is, quite simply, no reasoning at all. Instead even in case law innovating on, and conflicting with, the clear text of the CDR there is an almost complete lack of justification to support the GC s interpretative choices. Indeed, not even the existence of those interpretative choices has been acknowledged by the GC. In its lack of reasoning, the GC s design jurisprudence seems to be aping some of the more controversial recent unreasoned trade mark jurisprudence from the CJ such as L Oréal v Bellure although that style of judgment is a more recent phenomenon in trade mark law, the court having engaged in much fuller exercises of legal reasoning in its early trade mark decisions as the system matured. As noted above, the CJ has also engaged in extensive reasoning in the design preliminary references decided to date. One critique of the GC s design methodology which is shared, to a limited extent, with recently discerned tendencies for other IP rights is the GC s failure to refer to the travaux. Recent inconsistency by the CJ in its use of the travaux in its copyright case law sometimes referring to the travaux and sometimes not, even where highly relevant has met with criticism. 166 This has prompted a call for the CJ to clarify how it uses different interpretative techniques and, in particular, when and how it will deploy the historical method to interpret by reference to the travaux. 167 Although such clarification would be highly desirable, it is perhaps wishful: the CJ rarely expressly identifies its interpretational methods and, with obvious strategic benefits in terms of maximising judicial freedom, avoids fixing any hierarchy between different techniques. 168 In the meantime, the GC s design case law provides a far worse case study than the CJ s copyright jurisprudence when it comes to apparent ambivalence to the travaux: in the GC s principal design rulings, the travaux have, quite simply, not been acknowledged at all. There is, furthermore, no other articulated process of reasoning in the GC s design case law, most notably no attempt at any kind of purposive interpretation, which might serve to justify the outcomes reached. It has been noted in wider EU law commentary that the reasoning of the CJ can, at times, be superficial, creating an impression of inevitability, but in substance simply concealing choices. 169 The GC s designs case law is a case in point: time after time, adopting a bald and declaratory tone, the GC has presented its decisions as the result of compulsion, not choice. The GC has, in effect, cut second-order justification (that is, the justification of choices between rival possible rulings) entirely out of its judgments on the most important interpretative issues. 170 This is despite a very great deal to consider in terms of the travaux, the purpose of the EU design regime, both as a whole and at a more granular level, and the consequences of adopting different possible interpretations. At the same time, the GC s most recent case law in Cezar and Group Nivelles shows a startlingly relaxed disregard for the text of the CDR. In its key case law, the GC has singularly failed to apply anything like the methodological standards required by Rafael Hoteles and more generally. What are the consequences of this? While it is not the intention of this article to suggest that the CJ s reasoning in IP cases is perfect (far from it), 171 the difficulties posed by poor reasoning in the GC s design case law are particularly acute. 165 Derclaye, The Court of Justice copyright case law [2104] E.I.P.R The deployment of so many different interpretative methods leads Derclaye to question whether, in the CJ s copyright case law, they are just a means to an end : at Van Eechoud, Along the Road to Uniformity Diverse Readings of the Court of Justice Judgments on Copyright Work (2012) 3(1) J.I.P.I.T.E.C. 60, 73 74; Derclaye, The Court of Justice copyright case law [2014] E.I.P.R. 716, The CJ has also been criticised for a misreading of the travaux in Flos: L. Bently, The return of industrial copyright? [2012] E.I.P.R. 654, Derclaye, The Court of Justice copyright case law [2014] E.I.P.R. 716, Beck, Legal Reasoning (2012), p.281; Conway The Limits of Legal Reasoning (2012), pp.22, 24 and 26. Beck has argued that, overall, the CJ does not favour the historical method, thereby increasing its discretion: pp ; G. Beck, The legal reasoning of the Court of Justice: a response to Michael Bobek (2014) 39(4) E.L. Rev. 579 n Conway, The Limits of Legal Reasoning (2012), p N. MacCormick, Legal Reasoning and Legal Theory (Oxford: Oxford University Press, 1994), p For example, the CJ s decisions in Grupo Promer and Baena have been criticised as unduly influenced by trade mark law: H. Hartwig, European Union: Council Regulation 6/2002, arts. 6, 61 Herbert Neuman, Aldoni Galdeano del Sel, and Office for Harmonisation in the Internal Market (Trade

52 344 Intellectual Property Quarterly As Conway has noted, legal interpretative culture can contribute to uncertainty in the law. 172 With this re-examination of the GC s case law revealing the court s near-total lack of reasoning, expectations about the importance of construing the CDR and DD purposively and with appropriate reference to the Recitals and travaux are confounded. This poses intractable challenges in predicting or advising on how the GC s case law (and thus the approach which will be taken by OHIM, following GC authority) may develop: not only is the legal position substantively uncertain, but so too are the mechanisms by which that uncertainty will be resolved. At the same time, the GC s apparently unconstrained sense of freedom to engage in contra legem interpretation makes it difficult to predict how far the court may in future again elect to innovate on the legislative regime. Quite aside from the obvious concern as to whether users are getting, in substantive terms, the design system expected and legislated for, it is now impossible to foresee how the GC will go about addressing major, still unresolved issues such as the interpretation of DD art.7(1)/cdr art.8(1) functionality exclusion. It is important to remember that designs are not subject to any meaningful examination before grant, yet carry patent-strength monopoly rights for up to 25 years. With, it seems, little prospect of the GC s rulings being re-examined by the CJ in the near future and with the certainty that there must be at least a relatively strong contingent of invalidly registered designs in the system, 173 the additional layers of uncertainty arising from the GC s apparent disregard for the need for articulated legal reasoning may tip the balance of de facto legal power in favour of parties with the capacity tactically to exploit them during the conduct of design disputes. Of course, these would be concerns also if it was the CJ which was the author of such poorly argued judgments. For the GC s case law, however, there are also further significant implications for the perceived legitimacy and, thereby, the precedential status and influence of the GC s design rulings. Although there is no single common understanding of the concept of legitimacy, one approach is to distinguish substantive from procedural legitimacy substantive legitimacy arising when rules or interpretations are perceived to embody the correct end or standard, and procedural legitimacy arising when a rule or interpretation arises from a rightful source of authority and comes into being in accordance with generally accepted due process. 174 The importance of formal legal reasoning to procedural legitimacy has been highlighted across legal fields. 175 As noted by Conway, the process of justifying decisions through dialectical legal reasoning that is, the studied consideration of alternative possible interpretations requires a court to explain how one interpretation is preferable to another, thereby avoiding outcomes resulting from subjective inclination. 176 Procedural legitimacy requires inter alia that judicial decisions should be motivated in a way that they can be perceived as resulting from a proper judicial decision-making process, should be bounded by an adequate judicial methodology of finding the law, should be coherent and should provide for legal certainty in the sense that the law is interpreted and applied in a way that remains reasonably predictable to participants in the legal interpretative community. 177 The GC case law discussed in this article fails roundly when judged against these standards. This is not simply the cultural critique of a common lawyer: against the backdrop of such highly divergent prior national laws and the bold new direction of the EU Marks and Designs) (OHIM) v Jose Manuel Baena Grupo SA (2013) 44(2) I.I.C. 248; P.G.F.A Geerts, The informed user in design law: what should he compare and how should he make the comparison? [2014] E.I.P.R Conway, The Limits of Legal Reasoning (2012), p Hasselblatt commentary in Community Design Regulation (2015), p M. Adams, H. de Waele, J. Meeusen and G. Straetmans, Introduction: Judging Europe s Judges pp.4 5; and Weatherill, The Court s Case Law on the Internal Market, p.87 in Judging Europe s Judges (2013). 175 For example: K. Lenaerts, The Court s Outer and Inner Selves: Exploring the External and Internal Legitimacy of the European Court of Justice, p.14; J. Mazák and M.K. Moser, Adjudication by Reference to General Principles of EU Law: A Second Look at the Mangold Case Law, p.66; and J. Snell, The Legitimacy of Free Movement Case Law: Process and Substance, p.110, all in Judging Europe s Judges (2013). In the IP context, see: J. Pila, A Constitutionalized Doctrine of Precedent and the Marleasing Principle as Bases for a European Legal Methodology in The Europeanization of Intellectual Property Law (2013), p Conway, The Limits of Legal Reasoning (2012), p Mazák, and Moser, Adjudication by Reference to General Principles of EU Law in Judging Europe s Judges (2013), pp

53 Re-Examining EU Design Law Before the Court of Justice and General Court 345 design regime, it was imperative that the early EU-level case law should make explicit (as the CJ s own early design case law has done) the underlying process of legal reasoning and justification for the chosen interpretation of the DD and CDR, if that case law was to function effectively in promoting consistency and harmonisation of practice across Member States and between the national and Community levels. In IP, the status required to perform that function does not come automatically to the GC. While the GC s decisions, whatever their merits, will be directly binding on OHIM, they do not have the same erga omnes effect as judgments of the CJ vis-à-vis Member States national courts. 178 National courts have been urged follow the GC s rulings on Community design matters. 179 However, a lack of persuasive reasoning may create a perceived lack of procedural legitimacy. There is a real risk that, if the GC s judgments are of an insufficient quality, national courts may quite understandably disregard them in their own interpretation of the CDR and DD. This risks driving a wedge between the treatment of Community designs at OHIM (where the GC s case law must be followed) and the treatment of national and Community designs before Member States national courts (where the GC s decisions may not even be mentioned, if the court so wishes). In short: if it is important, as has been noted, for the CJ to ensure that its judgments are persuasive to ensure national court buy-in, 180 then that is doubly so for the GC: if the GC is to help, rather than hinder, the promotion of coherence between Community and national design systems, the GC needs to work even harder than the CJ for its judgments even to be accepted as persuasive, let alone authoritative, in the eyes of national courts. A quick snapshot review of the reception of GC case law by national courts suggests that the GC is not succeeding in this. In the UK, from the GC s perspective there was a promising start: in Dyson v Vax, the first UK design decision coming only a matter of months after the GC s decisions in Grupo Promer and Shenzhen, Arnold J in the High Court immediately adopted and applied the GC s formulation of the informed user to the exclusion of any mention on this issue of the then-leading (and high-profile) UK appeal court authority, P&G v Reckitt Benckiser. 181 Grupo Promer and Shenzhen have been cited and applied by the English courts on the informed user ever since, from 2012 onwards explicitly alongside the CJ s ruling in the Grupo Promer appeal. 182 The English courts have also cited Grupo Promer and Shenzhen on other issues including the determination of the relevant product, relevance of the general design corpus to the comparison of competing designs, types of design constraint relevant to design freedom, and how design freedom impacts on the assessment of overall impression and scope of protection. 183 The weight accorded by the English courts to the GC s decisions in Grupo Promer and Shenzhen has, however, not been afforded to GC case law on other issues. A striking example of a very different attitude is their treatment of the GC s case law on the use of dotted lines in design representations. The use of dotted lines as a form of visual disclaimer is important in the EU design regime, which explicitly permits registration of the design for part of a product while, at the same time, not including any provision for a determinative statement of novelty or similar which would perform the job of identifying the relevant 178 On which see Broberg and Fenger, Preliminary References (2014), pp D. Stone, Transparency over the use of dotted lines? (2013) 8(6) J.I.P.L.P. 437, Weatherill, The Court s Case Law on the Internal Market, pp.89 90, and Snell, The Legitimacy of Free Movement Case Law p.126, in Judging Europe s Judges (2013). 181 Dyson v Vax [2010] EWHC 1923 (Pat); [2010] E.C.D.R. 18 at [19] [20]. 182 Samsung v Apple [2012] EWCA Civ 1339; [2013] E.C.D.R. 2 at [12]. The CA noted that the decision of the CJ in the Grupo Promer appeal endorsed and maintained unaltered the earlier GC decision on the issue of the informed user. The Court of Appeal s ruling that it is correct to refer to both the GC s and CJ s rulings was highlighted by H.H. Judge Birss QC in Louver-Lite v Harris Parts [2012] E.W.P.C.C. 53 at [9]. 183 In particular: Dyson v Vax [2010] EWHC 1923 (Pat); [2010] E.C.D.R. 18 at [22], [32] [35] and [38] (on design constraints, the High Court read the GC s judgment in Grupo Promer as including marketability and economic considerations as relevant); Gimex v Chill Bag [2012] EWPCC 31; [2012] E.C.D.R. 25 at [62] [64]; Samsung v Apple [2012] EWCA Civ 1339; [2013] E.C.D.R. 1 at [40] [41] and [48] (on design constraints, the court noted uncertainties over the proper interpretation of the GC s decision in Grupo Promer; but concluded that it did not need to decide the issue: at [41]); Mainetti (UK) Ltd v Hangerlogic UK Ltd [2012] EWPCC 42 at [22]; Louver-Lite v Harris Parts [2012] EWPCC 53 at [11]; Sealed Air Ltd v Sharp Interpack Ltd [2013] EWPCC 23 at [15]; Magmatic v PMS [2013] EWHC 1925 (Pat); [2013] E.C.C. 29 at [48] [49]; Utopia Tableware Ltd v BBP Marketing Ltd [2013] EWHC 3483 (IPEC); [2014] E.C.C. 34 at [80] [83]; Whitby Specialist Vehicles Ltd v Yorkshire Specialist Vehicles Ltd [2014] EWHC 4242 (Pat); [2015] E.C.D.R. 11 at [26].

54 346 Intellectual Property Quarterly part. 184 Dotted lines are therefore commonly used to denote aspects of a product for which design protection is not sought. In Sphere Time, the GC endorsed the practice on use and interpretation of dotted lines set out in OHIM s examination guidelines, holding that the elements shown in dotted lines in the contested design did not form part of the protected design. 185 The decision in Sphere Time was welcomed by commentators, and has been adopted in subsequent GC cases and by OHIM. 186 In marked contrast, however, Sphere Time has not been treated by the English courts as authoritative or even persuasive on this issue. In Samsung v Apple, the highest level UK case addressing the matter directly, Sphere Time was not mentioned by either the High Court or Court of Appeal. Both courts took the opposite approach to Sphere Time, holding that each design representation must be interpreted on its own merits and concluding, on the facts, that the key contested design feature shown in dotted lines (the border around the screen of the tablet, under the glass front surface although not other elements shown in dotted lines) was a visible part of the protected Apple design. 187 In the more recent case of Kohler Mira v Bristan, H.H. Judge Birss QC explicitly rejected the suggestion that Sphere Time should be treated as persuasive authority on the exclusion of dotted elements, saying that Sphere Time is simply a case in which that conclusion was reached. It does not purport to lay down any general principle on the issue. 188 In substantive terms, this divergence between GC/OHIM and UK practice creates significant uncertainty without knowing how his design representations will be interpreted, a design applicant cannot know how to depict his design when filing a design application; a person consulting the design register also cannot know what a protected design actually comprises. 189 The Samsung v Apple dispute provides a case in point: some months after the English courts decisions, OHIM s Invalidity Division (explicitly following the GC in Sphere Time) adopted directly the opposite interpretation of Apple s registered Community design, holding that the elements shown in dotted lines including the border around the screen did not form part of the Apple design. 190 As a result, the very same registered Community design has been interpreted in two fundamentally contradictory ways: whether Apple s design does or does not include the border depends not on anything to do with the design, but on the forum before which the point is being argued. Going beyond the substance of this particular issue, Samsung and Kohler Mira are suggestive of a wider possible ambivalence to the perceived status of GC jurisprudence. As indicated in the discussion of the GC s design case law above, the English courts have taken quite different approaches to the GC on a number of important issues. Cases in other jurisdictions suggest that other national courts may also be declining to follow, or simply ignoring, the GC on various matters. In the Dutch Samsung v Apple litigation, for example, the Gerechthof te s-gravenhage declined to follow Sphere Time on the use of dotted lines. 191 In the same litigation, the Dutch Supreme Court concluded that individual character should be assessed against the prior art taken collectively rather than individually, thereby either disagreeing with or ignoring 184 See Laddie, Prescott and Vitoria: The Modern Law of Copyright and Designs (2011), para Sphere Time v OHIM EU:T:2011:269; [2011] E.C.D.R. 20 at [58] [64]. OHIM s examination guidelines stated that elements shown in dotted lines would be taken to indicate either that the dotted elements were not visible in the design view in question or that no protection was sought for them. 186 Stone, European Union Design Law (2012), paras to ; Stone, Transparency over the use of dotted lines? (2013) 8(6) J.I.P.L.P. 437, Samsung v Apple [2012] EWHC 1882 (Pat); [2013] E.C.D.R. 1 at [9] [11]; Samsung v Apple [2012] EWCA Civ 1339; [2013] E.C.D.R. 2 at [21] [24]. It was held at first instance that the use of dotted lines for other features shown in the design drawings (sockets for connectors) clearly indicate[d] that those features were not part of the protected design: Samsung v Apple [2013] E.C.D.R. 1 at [9]. The Court of Appeal s comments have been described as surprising : D. Smyth, How is the scope of protection of a registered Community design to be determined? (2013) 8(4) J.I.P.L.P. 270, Kohler Mira Ltd v Bristan Group Ltd [2013] EWPCC 2; [2014] F.S.R. 1 at [52]. On the facts, H.H. Judge Birss QC concluded that, for one element shown in dashed lines (around the front face of the representation of the shower control unit design), the dashed lines indicated that the face was transparent or translucent: at [29]. For the other element shown in dotted lines (control knobs), the dotted lines were intended to indicate that no protection was sought: at [55]. 189 See further: Smyth, How is the scope of protection of a registered Community design to be determined? (2013) 8(4) J.I.P.L.P. 270; Stone, Transparency over the use of dotted lines? (2013) 8(6) J.I.P.L.P Decision of OHIM Invalidity Division, 5 July 2013, ICD 8539, on Community design no Stone, European Union Design Law (2012), para.22.82, criticising the Dutch court s attempts to distinguish Sphere Time.

55 Re-Examining EU Design Law Before the Court of Justice and General Court 347 the GC s ruling in Shenzhen that the comparison with the prior art should be on an individual design-by-design basis. 192 To have made its reference to the CJ on the same issue, the Irish Supreme Court, originator of the Karen Millen preliminary reference, must also either have been unpersuaded by or must have disregarded as insufficiently authoritative the GC s much earlier ruling on the point in Shenzhen. 193 It is beyond the scope of this article to review the reception of GC case law by national courts comprehensively. However, this very brief snapshot of mixed response to GC case law at the national level is suggestive of divergence in how GC case law is treated before OHIM, where the GC s rulings are binding, and before national tribunals, where they are not. It also gives rise to its own, further system-level unpredictability for commentators and practitioners. The strong inference is that national courts will cite GC case law only when it is perceived by them to be substantively legitimate that is, where the national court perceives the GC as having come to the right answer on the legal issue in suit. However, where (rightly or wrongly) the national court disagrees on the substance of the ruling, the GC s indeterminate precedential status and the lack of procedural legitimacy underpinning its judgments combine to offer the national court considerable leeway simply to ignore or disregard the GC s rulings. If this inference is correct then it becomes impossible to predict the likely reception which GC decisions will be given by national courts unless it is also possible to predict whether the national court will agree on the substance or not. Institutional shortcomings and constraints It is not the intention of this article to argue that national courts must necessarily defer to the GC, or that the GC should be taken to have hierarchical precedence among the plurality of national courts involved in the interpretation and application of the CDR and DD. It is also not intended to suggest that national courts play a less important role than the GC in the Europeanisation of design law. National case law, certainly in the UK at least, is in many respects well ahead of the EU-level case law in getting to grips with the detail and complexities of the CDR and DD. A process of harmonisation achieved among and between Member State national courts has much to commend it. It is, however, the view of this author that the GC bears a responsibility to ensure that its judgments are of sufficient quality in terms of the substantive decision reached and the supporting methodology applied both to provide proper direction to OHIM and to contribute to the process of design harmonisation. What is particularly damning about its poor handling of the issues discussed in the review of the GC s design case law above is that the GC is not incapable of engaging in a fully articulated process of reasoning when it so wishes. Grupo Promer itself is a good example of the GC s inconsistent practices. Despite offering no reasoning at all to justify its conclusions on key questions over the informed user, design freedom, overall impression and other matters discussed above, on other, far more straightforward issues the General Court was more than able to set out a fully reasoned position, using a range of different interpretative techniques. 194 Further decisions on other, much simpler design issues have also shown the General Court more than capable of using different modes of interpretation and setting out a reasoned justification for its conclusions A. Folliard-Monguiral and M. Miniotas, Apple v Samsung: The Hoge Raad legacy (2013) 8(12) J.I.P.L.P. 925, although it is not indicated whether the Dutch Supreme Court made any reference to Shenzhen. 193 Note that the Supreme Court decision to refer is not published. 194 On the (ir)relevance of bad faith as a ground for invalidity and the exhaustiveness of the grounds for invalidation in art.25(1) CDR, the GC took a literal approach: Grupo Promer [2010] E.C.R. II-981; [2010] E.C.D.R. 7 at [30]. To determine the meaning of the words in conflict with in art.25(1)(d) CDR, the GC combined a schematic assessment of art.25(1)(d) and other provisions of the CDR and DD with a consequentialist assessment of the impact of the possible different interpretations: at [47] [53]. On identifying the relevant product, the GC took a schematic approach: at [55] [56]. 195 In Beifa the General Court was called upon to interpret what was meant by the reference to a distinctive sign being used in a contested design for the purposes of art.25(1)(e) CDR. Concluding that this extended to a situation in which the contested design was similar (not just identical) to the earlier mark relied upon, the General Court reasoned by reference to a literal reading of art.25(1)(e), the Recitals to the CDR, the provisions of and need for compatability with the EU trade marks regime, the consequences of the different possible interpretations and the EU legislature s intentions:

56 348 Intellectual Property Quarterly Why, then, has the GC been so unable to deploy these interpretative techniques and to state its reasons on the most important issues to have come before it? Those issues were not straightforward, and the CDR and DD are not always as well drafted as they could have been. With so little by way of common understanding at an international level on the purpose of design protection, there was also no international consensus or pre-harmonisation case law from the CJ to draw from as there was, for example, with the CJ s early essential function jurisprudence in trade mark law. 196 On the other hand, as explained above there was ample material in the travaux preparatoires to guide the GC on the legislators intentions on a number of issues, and to help discern purposively the underlying objectives of the CDR and DD. There was also no shortage of commentary and parallel national case law to help crystallise the issues which the court needed to address. Given this, a question which has to be asked is whether the GC is simply institutionally unable to deal with more difficult design law questions. The lack of reasoning in the GC s judgments goes far beyond the limitations imposed by the collegiality of the GC s single-judgment system. In organisational terms, there seems to have been little appreciation of the impending challenges of handling a completely new and unprecedented IP regime. Presumably applying the GC s usual strict rotational allocation of work, its design cases have been scattered across a host of chambers; exacerbated by the GC s often poor handling of case law which it wishes to characterise as precedent and with a noted tendency of each chamber simply not to refer to decisions of the others, the result has been that the case law appears to consist of separate pieces of a puzzle, rather than as a coherent whole. 197 No lessons appear to have been learned from the special case management arrangements instituted for the early years of the CTM regime. From the first CTM cases through to around 2003, in order to achieve consistency in the early case law all CTM cases were allocated to two GC chambers appointed to specialise in trade mark matters; those specialist chambers were also supported by a task force of three IP-specialist referendaires. 198 It would have been beneficial to follow a similar practice of case allocation in the early years of the Community design system. The GC s standard modus operandi cases determined by three-judge chambers without the support of an Advocate General is also not particularly conducive to the airing, and resolution, of major new interpretative issues of the kind facing a completely new IP regime. It is worth remembering that early trade mark cases were treated with special significance by the CJ: in 1999, all bar one of its trade mark preliminary references were heard by the full court. 199 In contrast, the GC s design cases have only ever been decided by its standard three-judge chambers. At the same time, the GC s design decisions have also been denuded of the wider and deeper discussion which an Advocate General s Opinion would have Beifa v OHIM EU:T:2010:190; [2010] E.T.M.R. 42 at [50] [59]. In Sphere Time, the General Court dealt a dispute over the application of the art.7(2) CDR grace period: although self-evidently not engaged on the facts, the GC nonetheless examined purposively the objectives of art.7(2) to determine its applicability: Sphere Time EU:T:2011:269; [2011] E.C.D.R. 20 at [24] [29]. In Kastenholz, the court rejected the argument that a design could not be granted which copied an earlier idea: the GC drew schematically and purposively from arts 1 and 3 CDR, holding that they made it apparent that the law was intended to protect the appearance of the whole or part of a product, but not the abstract idea behind a design: Kastenholz v OHIM EU:T:2013:298 at [72]. 196 The CJ s three pre-harmonisation designs decisions (Keurkoop BV v Nancy Kean Gifts BV (144/81) [1982] E.C.R. 2853, [1983] F.S.R. 381; Volvo AB v Erik Veng (UK) Ltd (238/87) [1988] E.C.R. 6211, [1989] 4 C.M.L.R. 122; Renault (53/87) [1988] E.C.R. 6039, [1990] 4 C.M.L.R. 265) say little about rationales for design protection. This contrasts sharply with the court s development of the concept of the essential function of a trade mark in early free movement cases, many years before the Trade Mark Directive and Community Trade Mark Regulation. See further: I. Simon, How does essential function doctrine drive European mark trade law? (2005) 36(4) I.I.C. 401; and M. Senftleben, Adapting EU trademark law to new technologies: back to basics? in Constructing European Intellectual Property (2013), pp , referring to the clear conceptual contours of traditional trademark protection against confusion. cf. Dinwoodie, The Europeanization of Trade Mark Law in The Europeanization of Intellectual Property Law (2013), p.96, arguing that there was not any real European history on trade mark law. 197 Hartwig, Community design law (2013) 8(11) J.I.P.L.P. 862, K. Laenerts, Le Tribunal de première instance des Communautés Européennes: regard sur une décennie d activités et sur l apport du double degré d instance au droit Communautaire (2000) 36(3 4) Cahiers de Droit Européen 323, and ; P. Mengozzi, Le contrôle des décisions de l OHMI par le Tribunal de première instance et la Cour de Justice dans le contentieux relative aux droits de la propriété industrielle (2002) 2(1) Revue du Droit de l Union Européenne 315, P. Dyrberg, What should the Court of Justice be doing? (2001) 26(3) E.L. Rev. 291, 297.

57 Re-Examining EU Design Law Before the Court of Justice and General Court 349 afforded. While the Advocate General may not always get it right, 200 in the CJ design cases in which the Opinions of Advocates General have been given, they have undoubtedly offered deeper and richer insights into the EU design regime. 201 Of course, reflecting the view at the time of the GC s formation that the GC would be focused on cases with complex facts while CJ concentrated on the fundamental task of ensuring uniform interpretation of Community law, 202 there is no provision for GC chambers to be assisted as a matter of course by an Advocate General. As we have seen, however, in the design context the GC s and CJ s roles have effectively been reversed. Concerns over CJ case law decided without an Advocate General have been noted in other IP contexts. 203 Sharpston has also emphasised the importance of the Advocate General to the CJ in developing the law, both to allow more detailed reasoning than may be possible in a collegiate judgment and, more practically, to assist where the parties pleadings or submissions are inadequate and in avoiding inadvertent divergence of decisions. 204 With no other case management steps having been taken in readiness for the arrival of the GC s first design cases, it is unfortunate that breaking from the standard procedure to appoint an Advocate General also seems not to have been considered even if only for the earliest, selected design cases at the GC. Of course, none of the ways in which the institutional readiness of the GC could have been improved directing cases to designated chambers, using five-judge chambers, appointing a GC judge as an Advocate General would have been simple to implement in practice, given the GC s well-known and longstanding workload difficulties. While, at the time of writing, pending proposals to appoint extra judges to the GC have become bogged down in disagreement over the method of their appointment, the GC s already severe workload problems have continued. 205 These workload issues offer another potential explanation for the poor quality of reasoning from the GC in so many of its design decisions. It seems unlikely, however, that design law will be acknowledged as a casualty of the GC s workload crisis quite the opposite, since the ever-growing number of IP cases coming before the court is generally perceived as one of the major causes of the GC s difficulties. 206 As a result, IP actions have been singled out for procedural simplification. In 2013, the GC was given the power to dispense with the oral procedure in certain IP cases, a power then only otherwise available 200 See for example, Geerts, The informed user in design law [2014] E.I.P.R. 181, suggesting that the CJEU in Grupo Promer was put on the wrong track (at 183) by the Advocate General on the issues of direct v indirect comparison and whether it is permissible to make a comparison with actual goods. 201 For example, in FEIA A.G. Mengozzi outlined usefully the rationale for employee-employer IP ownership provisions which appear commonly in national and international laws, and the inaptness of applying those rules by analogy to other scenarios such as a commission: FEIA v Cul de Sac [2009] E.C.R. I-5611; [2009] E.C.D.R. 19. In Celaya, he discussed in detail the shortcomings of the expeditious registration procedure for Community designs and particularly high risk of abuse of that procedure, as well as issues surrounding the competing requirements of legal certainty and the potential for abuse of the CDR system were holders of later-registered designs to be immune from infringement actions: CEGASA v Proyectos Integrales de Balizamientos EU:C:2012:88; [2012] E.C.D.R. 17. In the Grupo Promer appeal, A.G. Mengozzi analysed the concept of design freedom and, drawing from the travaux, explained why, in his view, only functional design constraints should be taken into account: PepsiCo v Grupo Promer [2011] E.C.R. I-10153; [2012] F.S.R. 5. In Gautzsch Großhandel, the Advocate General usefully explained the travaux and background to the art.7(1) prior art carve-out, as well as referring to national case law and academic literature on the CDR s disclosure provisions: H Gautzsch Großhandel v Münchener Boulevard Möbel Joseph Duna EU:C:2014:74; [2014] E.C.D.R T. Millett, The Court of First Instance of the European Communities (London: Butterworths, 1990), p.8; N. Forwood, The Court of First Instance, its Development, and Future Role in the Legal Architecture of the European Union in A. Arnull, P. Eeckhout and T. Tridimas (eds), Continuity and Change in EU Law: Essays in Honour of Sir Francis Jacob (Oxford: Oxford University Press, 2008), p E. Rosati, Luxembourg, we have a problem: where have the Advocates General gone? (2014) 9(8) J.I.P.L.P Even with its procedural rules now enabling the CJ to proceed without an Advocate General s Opinion in certain cases, an Opinion should nonetheless be sought when a case raises a new question of law: E. Sharpston, The Changing Role of the Advocate-General in Continuity and Change in EU Law (2008), p Sharpston, The Changing Role of the Advocate-General in Continuity and Change in EU Law (2008), pp (endorsing previous comments from Sir Francis Jacobs) and pp See further: D. Hadroušk and M. Smolek, Solving the European Union s General Court (2015) 40(2) E.L. Rev In the period from 2000 to 2010, the number of new IP cases commenced at the GC each year increased from 34 to 207: Court of Justice proposal under art281 TFEU for amendment to the Statute of the Court of Justice (28 March 2011) attached to European Council Document 8787/11, interinstitutional file 2011/0901 (COD), Annex 2. Since 2010, the GC s IP case load has continued to rise, with IP cases consistently amounting to between 30 to 40% of new GC cases each year and reaching a total of 295 new IP cases commenced before the GC in 2014: Court of Justice Annual Reports , [Accessed 19 September 2016]. See also Hadroušk, and Smolek, Solving the European Union s General Court (2015) 40(2) E.L. Rev. 188,

58 350 Intellectual Property Quarterly in relation to appeals from the EU Civil Service Tribunal. 207 In 2015, the written procedure in IP cases was reduced to a single exchange of pleadings, pleading page limits were cut and, perhaps of most concern for the still-evolving EU design law, IP actions added to the list of categories of case which can be decided by a single judge, something which had previously been explicitly prohibited for IP disputes. 208 The inclusion of IP cases in the list of actions which can be heard by a single judge is not subject to the precondition (specifically included for certain other categories of case) that the issues in suit have been already clarified by established case-law. 209 This process of procedural simplification must, it is submitted here, increase the concern that design cases raising new and difficult issues will not be adequately addressed by the GC. Although the GC s Rules of Procedure only permit the allocation of cases to a single judge where they are suitable for being so heard by reason of the lack of difficulty of the questions of law or fact raised the limited importance of those cases and the absence of other special circumstances, 210 nothing in the GC s handling of designs cases to date engenders confidence that the GC will correctly identify the difficulty or importance of its designs appeals, even those raising really difficult outstanding questions such as the art.7(1)/art.8(1) functionality exclusion. Quite aside from the reported unpopularity of IP work among GC judges, 211 there is evidence of a sense among GC judges that Community right holders may be unduly privileged in the extent of their access to the EU-level courts. 212 With the GC s CTM caseload frequently dismissed by EU actors and non-ip commentators as repetitive and unchallenging, 213 there is considerable danger that design cases will be regarded the same way, without appreciation of the very different developmental stage at which the EU designs project finds itself. There is already evidence suggesting that that is how design cases are regarded within the GC, a former GC judge writing in 2011 of the GC s trade mark and design cases together that [t]he systematic implications are very limited and that [t]he case-law is widely settled. 214 At least far as designs are concerned, these statements could hardly have been less accurate. To generalise from the CTM experience to the new EU design regime in this way is suggestive of a significant lack of awareness as to the role which the GC is currently playing in the Community design regime and of the complexities of and challenges posed by the CDR and DD. There are, it is submitted here, real grounds to be concerned that the quality and depth of the GC s design jurisprudence may continue to suffer as a result of both the GC s workload and the procedural reforms that have been introduced specifically to push IP cases as quickly as possible through the system. When implemented, the proposed increase in judicial personnel at the GC is intended to be coupled with more by way of chamber specialisation. The European Council has noted that these measures will mean that the GC will be able to improve the depth of its deliberations by deciding cases more often in five-judge chambers and, where necessary, by calling upon GC members to act as an Advocate General. 215 It is to be hoped that the GC will take up these options in future design cases as appropriate to the challenges 207 General Court Rules of Procedure of 2 May 1991 art.135a, as last modified on 19 June 2013, /pdf/ /txt7_ _ _431.pdf [Accessed 19 September 2016]. 208 Rules of Procedure of the General Court [2015] OJ L105, Recitals 3, 7 and 8 and arts 14, 29, 181, 186 and 189; Practice Rules for the Implementation of the Rules of Procedure of the General Court [2015] OJ L152, Part IV, point A See by way of contrast 2015 Rules of Procedure art.29(1)(b) Rules of Procedure art.29(1). 211 In the early period of specialist CTM chambers, the resulting focus on trade marks was reportedly unpopular among GC judges: House of Lords European Union Committee, The Workload of the Court of Justice of the European Union, 14th Report of Session , HL Paper 128 (6 April 2011), p.34, [Accessed 19 September 2016]. 212 With appeals available as of right to the OHIM Boards of Appeal, GC and CJ, a GC judge has commented that [a]pplicants for trademarks have become incredibly protected citizens : F. Dehousse, The Reform of the EU Courts The Need of a Management Approach, Egmont Papers (20 December 2011), p.16, [Accessed 19 September 2016] For example: Court of Justice proposal under art.281 TFEU for amendment to the Statute of the Court of Justice (28 March 2011), attached to European Council Document 8787/11, interinstitutional file 2011/0901 (COD), Section II, p.8 ( [r]epetitive cases which can be dealt with relatively quickly ). 214 Dehousse, The Reform of the EU Courts (20 December 2011), p.22, [Accessed 19 September 2016]. 215 European Council Statement of Reasons on its position on amendment of the Statute of the Court of Justice (24 June 2015), document 9375/1/15, interinstitutional file 2011/0901B (COD), para.14.

59 Re-Examining EU Design Law Before the Court of Justice and General Court 351 and complexities which they pose. In the meantime, the design experience has highlighted the problems of relying, formally or otherwise, on the GC as the lead interpretative court for IP matters at an EU level. There have from time to time been calls for the transfer to the GC under art.256(3) TFEU of jurisdiction for dealing with trade mark preliminary references (calls which would presumably also now encompass design references as well) and for the creation under art.257 TFEU of a specialised IP tribunal, sitting below the GC and with the GC as its appellate jurisdiction, to deal with CTM and other IP appeals. The experience with design law to date must surely militate against such a move. While there is considerable attraction in increasing the domain expertise of judges adjudicating IP disputes at the EU level, within any such revised court and appeal structure the scope for ultimate recourse from the GC to the CJ would be extremely limited (much more so than currently), appeal to the CJ only being available in exceptional circumstances, a consideration which the CJ itself has previously viewed as being of concern. 216 In view of the difficulties demonstrated here which the GC has faced in responding adequately to the challenges of interpreting the CDR and DD, it seems highly undesirable that the GC should be more widely positioned, de facto or otherwise, as a court of last resort for any IP matters at the EU level unless and until it has demonstrated sustained and clearly improved performance in its handling of new IP issues and the related legal interpretative challenges. Conclusion As we have seen in this article, with minimal design case law reaching the CJ by preliminary reference or appeal, there has been a major role reversal between the EU level courts in interpreting the CDR and DD. On close examination, however, the GC s case law on the most important issues before it has been shown to be seriously wanting. The GC s near-total lack of formal legal reasoning has led the court into substantive confusion on important issues and into significant divergence from the scheme of protection intended by the EU legislators. In institutional terms, the GC must recognise that it is currently and for the foreseeable future looks set to remain the lead EU-level court dealing with designs. In judicial methodological terms, the GC also urgently needs to raise its game. With some evidence that national courts may be picking and choosing the extent to which they acknowledge or follow GC case law, the lack of procedural legitimacy created by the GC s lack of reasoning risks division between the Community and national levels in the EU design system. With the GC s lack of erga omnes authority and indeterminate precedential status, the court needs to step up very considerably the rigour and persuasiveness of its reasoning if it is to work towards contributing to coherence between the Community and national design jurisdictions, rather than driving a wedge between these two levels in the EU design regime. While the signs to date are not auspicious, it is to be hoped that the GC will form a better appreciation of the role it is playing, particularly within the Community design system, and will organise itself and act accordingly. Ultimately, a well-functioning GC could even be better placed than the CJ to promote EU design harmonisation in practice. In not only interpreting the law but also applying the law to the facts, well-articulated and reasoned GC decisions have the potential to offer even more useful case law examples for national courts to consider in their own deliberations. For this stage ever to be reached, however, the quality and procedural legitimacy of the GC s output must be very dramatically improved. 216 Court of Justice proposal under art 281 TFEU for amendment to the Statute of the Court of Justice (28 March 2011), p.10. See also art.256(2) and 256(3) TFEU on the right of appeal from the GC to the CJ in any such new court structure and allocation of competences: Decisions given by the General Court may exceptionally be subject to review by the Court of Justice where there is a serious risk of the unity or consistency of Union law being affected.

60 A New Classification for Trade Mark Functions Dr Jasem Tarawneh * EU law; Trade marks Abstract Trade marks are among the most ubiquitous and powerful symbols seen in the world today. Whether they symbolise a clothing company, a chain of restaurants or a beverage manufacturer, trade marks have the ability to inform the consumer as to what they are buying and who is responsible for marketing what they are purchasing. Questions, however, do arise as to the proper scope of their protection and whether legal protection should be afforded to their ability to deliver intangible benefits through their modern functions which is above and beyond their essential function. This article seeks to address the evident gaps in the existing literature. Of particular note is the lack of a formal definition of trade mark functions. Consequently, a new classification for trade mark functions as indicators, incentives and stimulators is proposed. These three umbrella functions could each contain a number of other functions, in particular the stimulator function, which could encompass all the modern functions of a trade mark. Introduction The legal protection of trade marks is mainly justified by their ability to provide undistorted information that reduces both the pecuniary and psychological search costs for consumers. 1 Indeed, it is generally accepted that the information provided by trade marks is integral to most commercial transactions involving irrational economic operators such as consumers. 2 Nonetheless, modern business and marketing practices are increasingly driving a change in the role of trade marks from being consumer protection tools to being investment protection tools, utilised to establish and protect trade mark proprietors commercial interests as their primary target. 3 This trend seems to have been endorsed in recent years by the Court of Justice of the EU (CJEU) in a series of decisions which recognised the link between the legal protection of trade marks and the promotion of commercial investment. As a result, the CJEU acknowledged the existence of a number of modern functions such as the communication, advertisement and investment functions. 4 * Lecturer in Intellectual Property and Commercial Law, School of Law, University of Manchester. The author would like to thank Hazel Carty and Professor Andrew Griffiths for their invaluable insight and guidance which helped shape this article. 1 Search costs theory will be discussed in detail below. For a comprehensive explanation see William Landes and Richard Posner, Trademark Law: An Economic Perspective (1987) 30 Journal of Law & Economics 265, revised and reprinted as a chapter in William Landes and Richard Posner, The Economic Structure of Intellectual Property Law (Cambridge, MA: Harvard University Press, 2003), Ch.7; however, for an alternative view on the role of search costs in modern trade marks law, see Jeremy Sheff, Biasing Brands (2010) 32 Cardozo Law Review 1245, 1252; Shahar Dillbary, Famous Trademarks and the Rational Basis for Protecting Irrational Beliefs (2007) 14 George Mason Law Review For a general discussion of consumers rationality see Daniel L. McFadden, The New Science of Pleasure, National Bureau of Economic Research, Working Paper (January 2013), [Accessed 19 September 2016]. 3 The focus of traditional trade mark protection is consumer oriented. See J. Thomas McCarthy, Proving a Trademark Has Been Diluted: Theories or Facts? (2004) 41 Houston Law Review 713, 727; William Cornish et al., Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights, 8th edn (London: Sweet & Maxwell 2013), p.647. However, this assertion has been challenged. See Mark McKenna, The Normative Foundations of Trademark Law (2006) 82(5) Notre Dame Law Review L Oréal SA v Bellure NV (C-487/07) [2009] E.C.R. I-5185; [2009] E.T.M.R. 55 at [58]; Die BergSpechte v Günter Guni (C-278/08) [2010] E.C.R. I-2517; [2010] E.T.M.R. 33 at [31]; Google France Sàrl v Louis Vuitton Malletier (C-236/08, 238/08 and C-237/08) [2010] E.C.R. I-2417, [2011] All E.R. (EC) 411 at [77]; Interflora Inc v Marks & Spencer Plc (C-323/09) EU:C:2011:604; [2012] E.T.M.R. 1 at [38]; Portakabin Ltd v Primakabin BV (C-558/08) [2010] E.C.R. I-6963; [2010] E.T.M.R. 52 at [30]; Budejovicky Budvar Narodni Podnik v Anheuser-Busch Inc (C-482/09) EU:C:2011:605; [2012] E.T.M.R. 2 at [71]; Viking Gas A/S v Kosan Gas A/S (formerly BP Gas A/S) (C-46/10) EU:C:2011:485, [2011] E.T.M.R. 58 at [23] and [37]. 352

61 A New Classification for Trade Mark Functions 353 Unfortunately, the ambiguous language used by the CJEU in defining these modern functions and the lack of clear boundaries between these newly recognised roles has created a deep tension at the heart of trade mark law and deterred recent attempts to formulate a coherent body of law. 5 This uncertainty was underlined by A.G. Jääskinen, who stated in L Oréal v ebay that there is no terminological or substantial consensus as to how the functions of the trade mark should be understood. 6 Therefore, the aim of this article is to try to introduce a new classification for trade mark functions; an endeavour all the more vital given the recent adoption of a new European Trade Marks Directive (TMD) 7 which was followed by unprecedented political events in the UK that led to the so-called Brexit. 8 It will be argued in this article that in order to decide what we want and should protect in trade marks there is a need for a new classification for trade mark functions. This classification is based on their justification and rationale rather than the vague overlapping concepts that have been developed by the CJEU to fill the gap left by the current and the new European Trade Mark Directives. 9 The new proposed classification for trade mark functions is based on three umbrella 10 functions: indicators, incentives and stimulators. The adoption of this new classification allows us on one hand to emphasise the importance of the legal and economic functions of trade marks in indicating the trade origin and incentivising repeat purchase from loyal consumers by guaranteeing the quality of the trade marked products. 11 On the other hand, this classification will enable us to use the modern stimulators function to acknowledge the social and economic transformation of trade marks into symbols that engage with consumers on both a psychological and an emotional level and allows them to identify themselves, rather than simply identifying the trade origin of the trade marked products. 12 Traders have come to appreciate the importance of symbols and trade marks in satisfying the needs of consumers, whether these needs are real or artificial. This evolving nature of trade marks was long acknowledged by Schechter, who identified the three crucial functions of trade marks as: (1) differentiating the products from those sold by others; (2) a product guarantee; and (3) an advertiser for the products and 5 See the Max Planck Institute for Innovation and Competition (previously known as the Max Planck Institute for Intellectual Property and Competition Law), Study on the Overall Functioning of the European Trade Mark System, Presented in Munich (15 February 2011), _market/indprop/docs/tm/ _allensbach-study_en.pdf [Accessed 19 September 2016]; See also Dev Gangjee and Robert Burrell, Because You re Worth It: L Oréal and the Prohibition on Free Riding (2010) 73(2) Modern Law Review L Oréal v ebay (C-324/09) EU:C:2011:474; [2011] E.T.M.R. 52 at n Until recently the main instruments of European Trade Mark Law were Directive 2008/95 to approximate the laws of the Member States relating to trade marks, which codified Directive 89/104 (as amended), as well as Regulation 207/2009 on the Community Trade Marks (CTMR). However, as a result of the reform process, the new EU Trade Mark Regulation, 2015/2424, for EU trade marks (EUTMs) entered into force on 23 March Moreover, Trade Mark Directive 2015/2436 to approximate the laws of the Member States relating to trade marks (Recast) entered into force on 15 January 2016 and Member States have three years to implement it. That said, the law for the purpose of this article is the Trade Marks Act of 1994 (1994 TMA), introduced to implement Directive 89/104. In addition to the current Directive itself and its amendments unless otherwise stated. 8 On 23 June 2016 the UK voted to leave the EU in what has been referred to as Brexit. Although the full implications of Brexit are far from clear, the potential impact on trade mark rights could be dramatic owing to the harmonised nature of the law. As explained earlier, the EU trade mark law forms an integral part of UK law, which means that UK courts must interpret the 1994 TMA, which was introduced to implement the European Trade Marks Directive, in line with the case law of the CJEU. Such an approach seems unlikely to continue unless a post-brexit UK government follows the so called Norway model and enters into an agreement with the EU in which it becomes a member of the European Economic Area (EEA) and the European Free Trade Association (EFTA). Without such an agreement it is implausible that the UK courts would allow decisions by EU courts to affect the interpretation of UK trade mark law. This in turn could transform the entire basis for the interpretation of trade mark law in the UK and could have a major effect on the accepted nature of trade mark functions, scope and protection. Moreover, it could be argued that after Brexit is finalised the UK will no longer need to worry about harmonisation and will not be obliged to implement the 2015 Trade Mark Directive. For a general view on the impact of Brexit see [Accessed 19 September 2016]. 9 A.G. Mengozzi stated that neither Directive 89/104 nor, as far as I am aware, the case-law of the Court has provided a list or a description of the functions of a trade mark other than that as a guarantee of origin : L Oréal v Bellure [2009] E.C.R. I-5185; [2009] E.T.M.R. 55 at [50]. Despite various attempts to clarify this part of the law since L Oréal, the scope of trade mark functions and their impact is still not clear as will be explored later in the article. 10 The umbrella term was used by Ramello but in a different context. See Giovanni Ramello, What s in a Sign? Trademark Law and Economic Theory (2006) 20(4) Journal of Economic Surveys The recent decisions of the CJEU have started dividing the essential function into two functions: the legal function and the economic function. In practice, both these functions significantly overlap. See Andrew Griffiths, Quality in the European Trade Mark Law (2013) 11(7) Northwestern Journal of Technology & Intellectual Property 621; see the CJEU cases cited in fn Thomas Drescher, The Transformation and Evolution of Trademarks: From Signals to Symbols to Myth (1992) 82 Trademark Reporter 301; Annette Kur, Trade Marks Function Don t They? CJEU Jurisprudence and Unfair Competition Principles (2014) 45(4) International Review of Intellectual Property and Competition Law 434; Mohammad Amin Naser, Re-Examining Functions in Trademark Law (2008) 8(1) Chicago-Kent Journal of Intellectual Property 102.

62 354 Intellectual Property Quarterly the manufacturer. 13 Similarly, Cornish recognised that there are three functions for a trade mark: the origin, quality and investment functions. 14 The division of trade mark functions by Schechter and Cornish into three main categories will be used in this article as the basis of the three umbrella functions within the new suggested classification. Despite the common grounds that this new classification shares with previous categorisations, this article will show that the flexible nature of the umbrella functions will allow us to cater for the evolving nature of trade marks and will help us reduce the current overlapping between the functions, in particular the recently recognised modern functions. That said, it is important to bear in mind that the so-called protectionists, in the context of European trade mark law, argue that the identification of a function itself justifies legal protection; while the so-called free traders argue that only certain functions warrant such protection. 15 The tension between these two groups has shaped the current, and to a large extent, the new European trade mark system. Therefore, the article will attempt to clarify the attitudes of both camps and will try to reconcile their arguments in order to create a new classification for trade mark functions that reduces the constant re-interpretation by the CJEU of trade mark functions and their appropriate legal protection. To achieve this goal the article will first analyse the European trade mark system and its recent reform. The article will then examine the classical function of trade marks, which covers the legal function and the economic function of trade marks, 16 as well as their newly recognised modern functions. Then it will assess the rationale for the protection of these functions and the validity of their justifications. Finally the article will try to assess the degree of protection that needs be given to these functions in order to create a coherent body of law. The new European trade mark system Historically, rights awarded under the intellectual property regime have sought to confer legal and economic exclusivity in the market; such exclusivity aims to preserve the integrity of human endeavour while taking into account market freedom and consumer protection. However, the grant of exclusive rights to trade marks has divided opinions because of their position on the edge of the labels intellectual and property. 17 This is more than simple semantics and has a serious impact on the level of protection granted to trade marks. Moreover, there are other decisive factors, emotive as much as rational, which split opinions towards the legal protection of trade marks, now more than ever. There are basically two sides to this divide: the protectionists who argue for generous and extensive protection for trade marks based on the recognition of trade marks as information tools as well as investment tools, and the free traders who are in favour of limited and controlled protection which is explained by the recognition of trade marks as information tools that prevent consumer deception. 18 Tensions between the cautious and the liberal perceptions of trade mark protection are not new in the field and they represent, with some simplifications, the varying national attitudes towards trade marks in Continental Europe. These contrasting attitudes produced clear differences in the national scope of protection conferred on trade marks prior to the TMD and the harmonisation process, and influenced the recent reforms of the European trade mark system. These tensions continued to fuel the debate, which has been compounded by the fact that legal issues within European trade mark law were, and still are, politically charged. It is imperative that these patterns are identified and explained, as they illuminate some of the entrenched parts of the academic and judicial 13 Frank Schechter, The Rational Basis of Trade Mark Protection (1927) 40 Harvard Law Review William Cornish, Intellectual Property: Omnipresent, Distracting, and Irrelevant? (Oxford: Oxford University Press, 2004), p These two characters were introduced by Jacob LJ; see Robin Jacob, When is a Trademark Not a Trademark? in Hugh Hansen (ed.), International Intellectual Property Law and Policy, Vol.5 (New York: Edward Elgar Publishing, 2003), pp It must be noted that the economic function of a trade mark is basically an extension of the legal function. In a nutshell, in order for trade marks to assure consumers about the quality of the trade marked product and reduce search costs they must be able to perform their role as source identifiers. See Andrew Griffiths, Trade Mark Monopoly: An Analysis of the Core Zone Absolute Protection under Art.5.1.a [2007] I.P.Q. 312, Beverly Pattishall, Trade-Marks and Monopoly Phobia (1952) 50 Michigan Law Review 967, Jacob LJ, When is a Trademark Not a Trademark? in International Intellectual Property Law and Policy (2003).

63 A New Classification for Trade Mark Functions 355 debate that has raged over the years about the proper functions of trade marks and their scope of protection. Unsurprisingly, this part of the law has been the source of many exchanges, perhaps most famously the loud discussion between the UK and Benelux 19 schools of thought. 20 This division in the interpretation of trade mark law in general, and the functions theory in particular, was also reflected in the recent attempts of the European Commission to reform the European trade mark system. 21 The European Commission concluded after a number of consultations that the current landscape of European trade mark law was still characterised by wide and somewhat significant disparities, in substance and practice, between the different national rules and procedures and the Community trade mark system. It was argued that the existing divergences of trade mark laws limited accessibility to the systems of trade mark protection, involved a great deal of legal uncertainty, and endangered the complementary relationship between the Community trade mark and national trade mark systems. Furthermore, such an apparent lack of harmonisation would have an adverse impact on the competiveness of the EU as a whole. As a result, the European Commission decided that the European trade mark system should be reviewed and in 2009 commissioned the Max Planck Institute (MPI) 22 to carry out the required study. The MPI report was submitted in 2011 and kick-started the reform process. Throughout the reform process it was acknowledged that in order to truly reform the European trade mark system, the law needed to better clarify the uncertainty surrounding the function theory. 23 To that end, it was recommended that, while it is essential to recognise the role played by trade marks as advertising and investment tools, it should also be accepted that the primary purpose of the European trade mark system is to protect the origin function. One of the most contentious reforms in relation to the function theory was the recommendation by the European Commission to restrict the double-identity clause under art.5(1)(a) of the TMD (s.10(1) of the 1994 TMA) to trade mark use that is only capable of affecting/harming the origin function. 24 This suggested amendment to the law came under heavy criticism despite its apparent positive impact on the infringement criteria as well as practices such as comparative advertising and parallel importation. 25 Opponents of the reform argued that acknowledging that the primary focus of trade mark law is the protection of the origin function will curtail the proprietary rights enjoyed by trade mark owners and will affect their ability to protect their trade marks adequately, even if the impact of this acknowledgment was limited to the double identity clause under art.5(1) (a) of the TMD. 26 These opponents seemed to have the upper hand with the European Parliament and Council, and as a result the double-identity clause under art.5(1) (a) was not amended. Following a process of legal reviews, the European Parliament finally approved the European trade mark reform package in December 19 This is a politico-economic union of three neighbouring states in central-western Europe: Belgium, the Netherlands and Luxembourg. 20 See the often amusing academic blows exchanged between Peter Prescott (UK) and Anselm Kamperman Sanders (Benelux); A. Kamperman Sanders, The Wagamama Decision: Back to the Dark Ages of Trademark Law [1996] E.I.P.R. 3; P. Prescott, Think Before You Waga Finger [1996] E.I.P.R. 521; A. Kamperman Sanders, The Return to Wagamama [1996] E.I.P.R. 521; P. Prescott, Has the Benelux Trademark Law Been Written into the Directive? [1997] E.I.P.R Commission Proposal for a Directive to approximate the Laws of the Member States relating to Trade Marks (Recast), COM(2013) 162 final, 2013/0089 (COD). See also the exchange between Senftleben and Kur, which will be explored later in the article. 22 See Max Planck Institute, Study on the Overall Functioning of the European Trade Mark System (15 February 2011), _market/indprop/docs/tm/ _allensbach-study_en.pdf [Accessed 19 September 2016]. 23 See the Proposal for a Directive to approximate the Laws of the Member States relating to Trade Marks (Recast), COM(2013) 162 final, Explanatory Memorandum, p Martin Senftleben Trademark Protection A Black Hole in the Intellectual Property Galaxy (2011) 42 International Review of Intellectual Property and Competition Law Senftleben welcomed the Commission Proposal as a means to end the inconsistent and unpredictable approach of the CJEU to the modern functions: see Martin Senftleben, Function theory and international exhaustion: why it is wise to confine the double identity rule in EU trade mark law to cases affecting the origin function [2014] E.I.P.R. 518, Kur argued that the proposal would cause confusion and puzzlement rather than enhance legal certainty: see Kur, Trade Marks Function Don t They? CJEU Jurisprudence and Unfair Competition Principles (2014) 45(4) International Review of Intellectual Property and Competition Law 434, 439; Annette Kur, The EU Trademark Reform Package (Too) Bold a Step Ahead or Back to Status Quo? (2015) 19(1) Marquette Intellectual Property Law Review 31.

64 356 Intellectual Property Quarterly The new Trade Mark Regulation and Trade Mark Directive were published in the Official Journal of the EU on 24 and 23 December 2015 respectively. 27 Through the use of established legal principles and the comprehensive consideration of case law, this article will demonstrate how total harmony on the issue of trade mark functions and their appropriate protection, despite the recently adopted European trade mark package, may be unrealistic unless a new classification of trade mark functions is introduced. Such a classification would allow the CJEU to peruse a well-structured approach to trade marks protection instead of the hotchpotch of casuistic rulings from which we are currently suffering. 28 Trade mark functions classical versus modern A trade mark is defined in the 1994 TMA as any sign capable of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings. 29 Accordingly, the purpose of a trade mark is to guarantee the origin of the products bearing it and to enable consumers to distinguish the trade mark owner s goods and services from those that do not have the same origin. 30 The term origin refers to the economic entity that is responsible for the production of the product, whether the product was manufactured by the entity itself or by sub-contractors. 31 The alternative term trade origin will be used in this article, to emphasise its special meaning. 32 The primary legal function of a trade mark is to indicate the trade origin of the products associated with it. 33 This essential function is beneficial for both trade mark owners and consumers. On one hand, trade mark owners will be able to communicate their reputation to consumers by simply attaching the trade mark to their products and using it as a reference point. On the other hand, consumers will also benefit since they can rely on the information received from trade marks to reduce their search costs. Search costs in this context refers to the various costs incurred by consumers owing to the lack of sufficient information about the products they wish to purchase, in particular, information about the quality of these products or any other attributes that cannot be ascertained by mere external examination. In addition to performing their legal function, trade marks perform their economic function of guaranteeing quality. 34 Using a trade mark as a point of reference allows producers to build a reputation and associate it with their trade mark. This reputation becomes the focus of their goodwill. 35 Traders 27 For a comprehensive view on the new European trade mark package and the timeline for its adoption, see /europeanuniontrademarksystem.aspx [Accessed 19 September 2016]. 28 Tobias Cohen Jehoram, The function theory in European Trade Mark Law and the holistic approach of the CJEU (2012) 102(6) Trademark Reporter 1243, Section 1(1) of the 1994 TMA which implements art.2 TMD. It is worth noting that art.2, which was recast as art.3 of the 2015 TMD, has undergone some important changes that fall outside the remit of this article. 30 This article will use the term products to refer to goods or services unless the context requires otherwise. 31 Ian Kilbey, Baby-Dry : A Victory for the Ephemera of Advertising [2002] E.I.P.R. 493, 494; Robert C. Danicola, Some Thoughts on the Dynamics of Federal Trademark Legislation and the Trademark Dilution Act of 1995 (1996) 59 Law and Contemporary Problems 75, Schechter, The Rational Basis of Trade Mark Protection (1927) 40 Harvard Law Review 813, 816; Andrew Griffiths, An Economic Perspective on Trade Mark Law, New Horizons in Intellectual Property Series (Cheltenham: Edward Elgar Publishing, 2005), pp.63 71; Barton Beebe, The Semiotic Analysis of Trademark Law (2004) 51(3) UCLA Law Review 621, Hoffmann-LaRoche & Co AG v Centrafarm Vertriebsgesellschaft Pharmazeutischer Erzeugnisse mbh (102/77) [1978] E.C.R. 1139; [1978] 3 C.M.L.R. 217 at [7]; SA CNL- Sucal v Hag AG (HAG II) (C-10/89) [1990] E.C.R. I-3711; [1990] 3 C.M.L.R. 571 at [13] and [14]; Arsenal Football Club Plc v Matthew Reed (C-206/01) [2002] E.C.R. I-10273; [2003] 19 E.T.M.R. 19 at [48] [55]; Major Bros v Franklin [1908] 1 K.B. 712 KBD; Primark v Lollypop Clothing [2001] E.T.M.R. 334 Ch D; see also the 10th Recital to the current TMD, which states that the function of the legal protection obtained from a registered trade mark is in particular to guarantee the trade mark as an indication of origin. This function is also considered as the core function under the US trade mark law: see Qualitex Co v Jacobson Prods Co 514 U.S. 159, (1995). 34 It has been argued that the term quality guarantee is not an accurate description of the economic function of trade marks since trade marks do not provide consumers with assurances about a certain standard of quality but rather an assurance that the products originating from the same source represented by the trade marks enjoy a consistent quality. It has been suggested that the term quality assurance replace the term quality guarantee since the quality notion is in principle a neutral term which can mean good or bad quality associated with a certain source of the product. See Griffiths, Quality in the European Trade Mark Law (2013) 11(7) Northwestern Journal of Technology & Intellectual Property 621, 630; Andreas Rahmatian, Trade Mark Infringement as a Criminal Offence (2004) 67(4) Modern Law Review 670, Lord Macnaghten gave what has come to be regarded as a classic description of goodwill, in his judgment in Commissioners of Inland Revenue v Muller & Co s Margarine [1901] A.C. 217 HL at : It is the benefit and advantage of the good name, reputation, and connection of a business. It is the attractive force that brings in custom. It is the one thing which distinguishes an old-established business from a new business at its first start.

65 A New Classification for Trade Mark Functions 357 use this goodwill to secure consumers loyalty and generate a solid consumer base for their products, noting that it is much less costly to retain customers than to attract new ones. 36 In turn, consumers will also benefit; producers have an incentive to maintain their goodwill by consistently providing products of premium quality to meet their customers expectations. 37 On the other hand, trade marks may also adopt the role of a warning signal. If consumers have been displeased with a previous experience in relation to a product associated with a specific trade mark, they will rely on the trade mark to avoid making another unsatisfactory purchase. At first glance, it seems that the economic justification of trade mark protection under the cost reduction and quality guarantee function is sound. As posited by McKenna, these models are valued as they are reconcilable with the law and economic approaches which have dominated the intellectual property debate. 38 More imperatively, these models provide certainty and reciprocity since they allow the quantification of the law. However, it can be rationally suggested that this justification for trade mark protection is insufficient as it disregards essential features of modern trade marks. Over time the role of some trade marks has evolved from being signs that indicate trade origin and quality, to symbols that represent positive and desirable values, such as luxury lifestyle, exclusivity, adventure, youth, etc. 39 Once a trade mark conveys such messages, the value of the products bearing it increases significantly. It is arguable that such trade marks have a commercial value of their own. 40 Trade marks nowadays stimulate transactions through their ability to engage with consumers on an emotional and psychological level. 41 As a result, traders are currently willing to invest substantial time and resources in choosing and protecting their trade marks and the more expansive roles they have come to assume in contemporary society. Practically speaking, this evolution of trade marks is what forms the basis of the modern trends for trade mark protection. The additional functions of trade marks have often been referred to as the trade mark s communicative functions. 42 This description recognises the mark as a quality indicator, an advertising tool and as a vehicle for investment. 43 These three important features of a trade mark were deemed to be within the legitimate interests of the trade mark proprietor in terms of trade mark protection by the CJEU in Parfums Christian Dior. 44 Moreover, the fact that trade marks may have an advertising function was confirmed by A.G. Colomer in Arsenal, where he noted that trade marks may also be used for advertising purposes in order to inform and persuade consumers. 45 Colomer s assertions about the additional functions of trade marks were taken further by A.G. Sharpston in Intel CPM, 46 where she concluded that infringement can in some circumstances arise when the trade mark s other functions, such as the advertisement function, are impaired, even if the essential function is not harmed. The goodwill of a business must emanate from a particular centre or source. See also Robert Bone, Hunting Goodwill: A History of the Concept of Goodwill in Trademark Law (2006) 86 Boston University Law Review 547, , where he defined it as the favourable regard of the purchasing public. 36 Richard Spinello, Online Brands and Trademarks Conflicts: A Hegelian Perspective (2006) 16(3) Business Ethics Quarterly 343, 344; Mira Wilkins, The Neglected Intangible Asset: The Influence of the Trade Mark on the Rise of the Modern Corporation (1992) 34 Business History A.G. Jacobs explains the way in which, in his opinion, a trade mark functions as a guarantee of quality to the CJEU in Hag II [1990] E.C.R. I-3711; [1990] 3 C.M.L.R. 571 at [13] and [16]. 38 Mark McKenna, A Consumer Decision-Making Theory of Trademark Law (2012) 98 Virginia Law Review Drescher, The Transformation and Evolution of Trademarks: From Signals to Symbols to Myth (1992) 82 Trademark Reporter 301, ; Hollywood SAS v Souza Cruz SA (R 283/1999-3) [2002] E.T.M.R. 705 at [66] [67], which was confirmed in Elleni Holdings BV v Sigla SA [2005] E.T.M.R. 7 at [40] [41]. 40 Hannes Rosler, The Rationale for European Trade Mark Protection [2007] E.I.P.R. 100, Schechter, The Rational Basis of Trade Mark Protection (1927) 40 Harvard Law Review 813, 819; Katya Assaf, Brand Fetishism (2009) 43 Connecticut Law Review 83; Jeremy Sheff, Biasing Brands (2010) 32 Cardozo Law Review 1245; Jacob Jacoby, The Psychological Foundations of Trademark Law: Secondary Meaning, Genericism, Fame, Confusion and Dilution (2001) 91 Trademark Reporter Jerre Swann et al., Trademarks and Marketing (2001) 91 Trademark Reporter 787; Colin Davies, To Buy or not to Buy: The Use of a Trade Mark as a Communication Tool Rather than as a Link Between a Product and its Source a Further Consideration of the Concept of Dilution [2013] E.I.P.R Charlotte Waelde et al., Contemporary Intellectual Property Law and Policy, 3rd edn (Oxford: Oxford University Press, 2013), pp Parfums Christian Dior v Evora (C-337/95) [1997] E.C.R. I-6013; [1998] 1 C.M.L.R. 737 at [39] [48]; Griffiths, Trade Mark Monopoly [2007] I.P.Q. 312, 322 and n Arsenal [2002] E.C.R. I-10273; [2003] 19 E.T.M.R. 19 at [43]. 46 Intel Corp Inc v CPM United Kingdom Ltd (C-252/07) [2008] E.C.R. I-8823; [2009] E.T.M.R. 13, A.G. Opinion at [13].

66 358 Intellectual Property Quarterly Though the CJEU in Arsenal, 47 and subsequently in Opel, 48 only discussed in detail the essential function of trade marks while referring to trade mark functions in the plural, this ambiguous approach seemed to change in its 2009 decision in L Oréal v Bellure. 49 Here it was ruled that the protected functions include not only the essential function of the trade mark, which is to guarantee to consumers the origin of the goods or services, but also its other functions, in particular that of guaranteeing the quality of the goods or services in question and those of communication, investment or advertising. After L Oréal the CJEU elaborated on the meaning of the advertising function in Google France. 50 In particular, it was stated that the advertising function involves using a trade mark as a strategic commercial instrument to inform consumers about the trade marked product and to create a loyal base for the trade mark among its targeted consumers. Moreover, in the Interflora 51 case, the CJEU provided an intricate discussion on the investment function and concluded that this function involves the use by the proprietors of their trade mark to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty. More importantly, it is apparent that the CJEU does not feel constrained by the statutory language of the TMD and may continue to stretch the boundaries of trade marks and their functions. 52 It has become obvious, notwithstanding the views of the free traders, that the transformation of the trade mark s role in today s society has stimulated the recognition and protection of these additional modern functions by the CJEU. However, one cannot help but notice the flawed linguistic and structural approach followed by CJEU in its attempts to acknowledge the modern roles played by trade marks. 53 The use of ambiguous and muddled language to identify the modern functions, as well as the lack of a clear link with the rationale for such an extension, highlights the need for a new, clearer classification for trade mark functions. Such a classification would use the flexibility of the umbrella functions to acknowledge the existence of the modern functions without stretching the boundaries of the owner s monopoly. This flexible but clear classification would help develop a coherent European trade mark law that promotes a system of undistorted competition as envisaged by the architects of European trade mark law. 54 Accordingly, in the next section we need to explore the rationales for trade mark protection. 47 Arsenal [2002] E.C.R. I-10273; [2003] 19 E.T.M.R. 19 at [42] [51] and [54]. 48 Adam Opel v Autec (C-48/05) [2007] E.C.R. I-1017; [2007] E.T.M.R. 33 at [21]. 49 L Oréal v Bellure (C-487/07) [2009] E.C.R. I-5185; [2009] E.T.M.R. 55 at [58]; Copad SA v Christian Dior Couture SA (C-59/08) [2009] E.C.R. I-3421; [2009] E.T.M.R. 40 at [24], where the CJEU accepted that the mental value of a trade mark or aura is part of the actual quality of a product. On the other hand see, Whirlpool Corp v Kenwood Ltd [2009] EWCA Civ 753; [2010] E.T.M.R Google v Louis Vuitton [2010] E.C.R. I-2417; [2011] All E.R. (EC) 411 at [91] [92]. 51 Interflora v Marks & Spencer EU:C:2011:604; [2012] E.T.M.R. 1 at [60]. 52 This was referred to as the expansionist approach to trade mark law; see Martin Senftleben, Bringing EU Protection Back into Shape Lessons to Learn from Keyword Advertising, Vrije University Amsterdam, p.7, /SENFTLEBEN%20Martin.pdf [Accessed 19 September2016]; Graeme Dinwoodie and Mark Janis, Confusion Over Use: Contextualism in Trademark Law (2007) 92 Iowa Law Review For example, the communication function is yet to receive extensive judicial coverage and there is little guidance as to its scope and effects. A.G. Jääskinen in L Oréal v ebay EU:C:2011:474; [2011] E.T.M.R. 52 at [58] stated that the main elements of the communication function are to a large extent covered by the distinguishing and origin function, advertising function and the investment function. See Andrew Bailey, Trade Mark Functions and Protection for Marks with a Reputation (2013) 8(11) Journal of Intellectual Property Law & Practice 868; Senftleben, Function theory and international exhaustion [2014] E.I.P.R As for the investment function, it was correctly noted by the High Court in Interflora v Marks & Spencer Plc [2013] EWHC 1291 (Ch); [2013] E.T.M.R. 35 at [271] that it is difficult to understand what the investment function is, and how it differs from the advertising function. This overlap was indirectly confirmed by the CJEU itself when it stated that the investment function of a trade mark differs from its advertising function although it may overlap with the latter; see Interflora EU:C:2011:604; [2012] E.T.M.R. 1 at [61]. Therefore, it must be noted that the ECJ guidance on the investment function is far from enlightening ; see Darren Meale, Interflora The Last word on Keyword Advertising (2012) 7(1) Journal of Intellectual Property Law & Practice 11, 13. Finally, and despite the increasing recognition of the advertising function, see Specsavers International Healthcare Ltd v Asda (C-252/12) EU:C:2013:497; [2013] E.T.M.R. 36, this function remains.vague and ill defined, as observed in L Oréal SA v Bellure NV [2010] EWCA Civ 535; [2010] E.T.M.R. 47 per Jacob LJ at [30]. 54 According to the current TMD Preamble, Recital 2, trade mark harmonisation was necessary because disparities between the protections granted in different Member States might impede the free movement of goods and freedom to provide services and may distort competition within the common market. Therefore, trade mark rights and their protection under the current TMD are justified as a part of the EU system of undistorted competition and the application of these rights should always aim to enhance rather than distort competition. See also Max Planck Institute, Study on the Overall Functioning of the European Trade Mark System (15 February 2011), -study_en.pdf [Accessed 19 September 2016]. That said, it must be noted that the notion that trade marks are essential to a system of undistorted

67 A New Classification for Trade Mark Functions 359 The rationale(s) for trade mark protection Traditionally, trade mark protection was founded on preventing consumers confusion about the trade origin of the products, whether that confusion was direct (where consumers mistake one mark for another) or indirect (when consumers mistakenly assume some kind of link between the two marks). 55 However, as has been noted, it has become commonly recognised that trade marks are valuable economic assets in their own right. 56 A trade mark s value is not determined by its ability to indicate the source and the quality of the products, but its selling power, which in turn depends on the image and reputation of the owner. 57 This increase in the value of trade marks has been mirrored in the newly recognised modern functions, the acceptance of such functions being premised on the recognition that successful trade marks are the fruits of enormous investments by business entities which should exclusively harvest the benefits of these expenditures. 58 What is essentially being claimed under these functions is a monopoly right analogous to the property rights of patents or copyright. 59 This has led to understandable fears that recognising these functions may create unjustified property rights over trade marks that only benefit trade mark owners while reducing social welfare overall. 60 It is argued that the incentive rationale 61 which legitimises other intellectual property rights does not apply to trade marks as they merely act as a vessel for the property (the product) rather than being the property. 62 Even if they are seen as property owing to their intrinsic worth, it is questionable whether this is sufficient to justify their legal protection under these grounds. 63 Hence, it is important to consider the rationales offered for the legal protection of the different functions performed by trade marks. Only after such examination we will be able to decide which of them the law should protect and how. The core rationale for trade mark protection facilitating communication to indicate and incentivise The main justification for the protection of trade marks was provided by the pioneers of the Chicago School, 64 namely the search cost theory. This theory provides an economic case for ensuring that trade competition is no longer identified as an explicit objective in the Preamble to the 2015 TMD. Instead, Recital 8 of the 2015 TMD Preamble justifies the recent reform of European trade mark law and its harmonisation as a necessary step to create a well-functioning internal market that is needed to enhance the competitiveness of European businesses. 55 See Sir Laddie in Wagamama Ltd v City Centre Restaurants Plc [1995] F.S.R. 713 Ch D; Sabel BV v Puma AG, Rudolf Dassler Sport (C-251/95) [1997] E.C.R. I-6191, [1998] R.P.C. 199 at There are several organisations that attempt to value and rank the leading brands, although there is no agreed basis for doing this and brand valuation is far from being an exact science. For example, Interbrand produces an annual ranking of the Best Global Brands by brand value in conjunction with Business Week magazine. See [Accessed 19 September 2016]. 57 Schechter, The Rational Basis of Trade Mark Protection (1927) 40 Harvard Law Review 813, Alice Blyth, Attempting to define unfair advantage: an evaluation of the current law in light of the recent European decisions [2012] E.I.P.R Patricia Loughlan, Trade Marks: Arguments in a Continuing Contest [2005] I.P.Q. 294, Critics have labelled this type of protection as property mania ; see Glynn Lunney, Trademark Monopolies (1999) 48 Emory Law Journal 367, Despite the fact that the new classification suggested by this article proposes labelling trade marks as incentives, it must be noted that unlike copyright and patents, the protection of trade marks is not an incentive to produce trade marks, but rather an incentive that stimulates aspects of the trade in the underlying products. Accordingly, if trade mark owners have reliable means to communicate information about their products then they will not engage in opportunistic behaviour and will have an incentive to maintain the integrity of their trade marks to ensure repeat future purchase. See Nicola Bottero et al., The Extended Protection of Strong Trademarks (2007) 11(2) Marquette Intellectual Property Law Review 265, ; See Ramello, What s in a Sign? (2006) 20(4) Journal of Economic Surveys 547, 553; Richard Posner, When is Parody Fair Use? (1992) 21 Journal of Legal Studies Mark Lemley, The Modern Lanham Act and the Death of Common Sense (1999) 108 Yale Law Journal 1687, Rochelle Dreyfuss, Expressive Genericity: Trademarks as Language in the Pepsi Generation (1990) 65 Notre Dame Law Review 397, 412. Jessica Litman agrees with this, noting that major corporations have managed to survive without legal protection: see Jessica Litman, Breakfast with Batman: The Public Interest in the Advertising Age (1999) 108 Yale Law Journal 1717, 1729; Gangjee and Burrell, Because You re Worth It: L Oreal and the Prohibition on Free Riding (2010) 73(2) Modern Law Review The most notable proponents of this school of thought are: Landes and Posner, Trademark Law: An Economic Perspective (1987) 30 Journal of Law & Economics 265; Stacey Dogan and Mark Lemley, Trademark and Consumer Search Costs on the Internet (2004) 41 Houston Law Review 777; Nicholas Economides, The Economics of Trademarks (1988) 78 Trade Mark Reporter 523; Ramello, What s in a Sign? (2006) 20(4) Journal of Economic Surveys 547,

68 360 Intellectual Property Quarterly marks can perform their legal function of identifying and distinguishing products according to their trade origin. This theory identifies trade marks as valuable communicative indicators that facilitate consumers transactions by enabling them to find a product with the desired characteristics especially when the purchasing decision involves unobservable attributes. 65 In order to lower search costs via the use of trade marks, it is necessary for the proprietor to have a monopoly over part of the English language as represented by their trade mark. This monopoly will ensure that proprietors have a unique mark that can epitomise their reputation in the minds of consumers. This exclusivity over the use of a certain mark prevents distortion of the goodwill attached to the mark and therefore protects the communication and search costs function of the mark. Thus, relying on this economic model, trade marks function as indicators and incentivisors and can be rationalised as tools to enhance social welfare through enabling consumers to recognise beneficial product differentiation. The basis of this rationale is a form of cost-benefit analysis where property rights are not extended to the hindrance of others unless the sum benefit exceeds the sum cost. 66 Moreover, Chicago School scholars see the reputation that a trade mark can acquire as a fundamental part of the protection rationale. Once a reputation has been established, then the trade mark holder can attain greater profits owing to the effects of repeat purchases and word of mouth recommendations. Consumers are likely to be incentivised to pay more to reduce their search costs in expectation of satisfaction as regards the attributes to which they attach significance. Producers are in turn provided with an incentive to invest in meeting consumers expectations and their own quest for greater profits. 67 Accordingly, trade mark proprietors with strong reputations should be unwilling to reduce the quality of their products owing to the probable resulting capital loss. 68 The trade mark is now increasing the predictability of the products offered under the mark, thereby decreasing the risk of disappointment to the consumer. 69 Landes and Posner refer to this as the trade mark s self-enforcing feature. 70 Accordingly, trade mark owners benefit from the consumer s ability to identify the mark with the quality and features of their products, and consumers benefit from their ability to discriminate between products according to the reputation of the mark. Though the source of the marked products may not be a single factory, owned and run by a single company, but a multiple of different producers and distributors, trade marks provide an indication to consumers that one undertaking has overall control and responsibility for the marked products they consider purchasing. 71 The logic behind this rationale is that trade marks act as indicators and incentives for both consumers and owners. In other words, the trade mark possesses consequential informational value due to its ability to assure consumers that the products under the mark have been placed on the market by one particular undertaking or what we refer to as the indicating function. This indicating function will ensure, at least in the eyes of the consumers, that a commercial entity has unitary control over the quality of the products and therefore the trade marks also perform an incentive function, incentivising consumers to repeat their purchases and for trade marks owners to guarantee a certain standard of quality to their products. This 65 Mathias Strasser, The Rational Basis of Trademark Protection Revisited: Putting the Dilution Doctrine into Context (2000) 10 Fordham Intellectual Property, Media & Entertainment Law Journal 375, This method of evaluating the efficiency of trade mark law is referred to as the Kaldor-Hicks efficiency. See Charles Rowley and Francesco Parisi (eds), Origins of Law and Economics: Essays by the Founding Fathers (Cheltenham: Edward Elgar Publishing, 2005), pp George Akerlof, The Market for Lemons : Quality Uncertainty and the Market Mechanism (1970) 84 Quarterly Journal of Economics 488, This involves a cost-benefit analysis as explained by Aldred: see Jonathan Aldred, The Economic Rationale of Trade Mark: An Economic Critique in Lionel Bently et al. (eds), Trade Marks and Brands: An Interdisciplinary Critique (Cambridge: Cambridge University Press, 2008), Ch Loughlan, Trade Marks: Arguments in a Continuing Contest [2005] I.P.Q. 294, Landes and Posner, Trademark Law: An Economic Perspective (1987) 30 Journal of Law & Economics 265, 275; Frederick K. Beier, Territoriality of Trade Mark Law and International Trade (1970) 1 International Review of Intellectual Property and Competition Law 48, Celia Lury, Brands: The Logos of the Global Economy (London: Routledge, 2004), p.18; Barton Beebe argues that consumers nowadays are not interested in knowing the physical source of the product but are more interested in the information and themes associated with the trade mark itself: see Beebe, The Semiotic Analysis of Trademark Law (2004) 51(3) UCLA Law Review 621, 678.

69 A New Classification for Trade Mark Functions 361 ability to indicate trade origin and guarantee the quality of products provided to consumers is what has been termed the essential function of a trade mark by the CJEU. 72 However, as detailed above, by using promotion and advertising a trade mark can convey information beyond the trade origin or the functional attributes of the products associated with it. This transformation in the nature of trade marks from simple indicators to symbols that reflect positive and desirable images, depends on their distinctiveness and reputation. 73 In other words, it has become apparent that the role of trade marks is not confined to their ability to guide consumers to make rational choices through their indicating and incentivising functions but more controversially includes encouraging consumers to make choices solely based on the appeal of the trade marks and their magnetic ability to attract customers. This transformation in the role played by trade marks necessitated the need to identify these new roles and their appropriate protection within European trade mark law. These new functions and their protection involve a radically different justification that carries its own conditions and restrictions and revolves around the recognition of the stimulator function, as will be explained in the next section. 74 The extended rationale for trade mark protection salience as a stimulator 75 Trade marks are now evidently much more than just an information source, and it has been recognised that this additional quality may encompass significant value that should be protected properly. Griffiths appreciated that a trade mark may add value not only through reducing search costs but more significantly through establishing itself as a reference point for linking products on the market to an attractive set of values or images. 76 Moreover, trade marks and the brands they represent have become potent vehicles for self expression and personal affirmation of beliefs and values. 77 Trade mark proprietors have sought protection for these effects, created as a result of product differentiation and successful advertising investment, primarily by claiming a moral entitlement. They have argued for extended protection in neighbouring markets even where there is no evidence of potential confusion about trade origin. Furthermore, they uphold the belief that where they have invested, they should be legally assisted in protecting their investment. Unauthorised use of the mark, in their view, would allow competitors to appropriate some of their value and free-riders to prevail. This belief tallies with the view that a piece of private property has been created that is deserving of legal protection. 78 In economic terms, they are of the opinion that the absence of such anti-dilution protection would compromise their investment in creating a reputable trade mark that meets consumers expectations. 79 However, although the Chicago School s economic analysis upholds trade mark protection on the basis of the information provided as to trade origin, it is not conclusive whether there is an increase in social welfare in protecting the trade mark as a form of a valuable intangible output. 80 The fact that the firms seeking such protection have made significant investments in trade marks, going beyond what is merely necessary to plug a gap in the information deficit, indicates that trade marks have 72 See for example, Hoffmann-La Roche v Centrafarm (102/77) [1978] E.C.R at 1164; [1978] 3 C.M.L.R Drescher, The Transformation and Evolution of Trademarks: From Signals to Symbols to Myth (1992) 82 Trademark Reporter 301, 308 and ; Hollywood v Souza Cruz [2002] E.T.M.R. 705 at [66] [67]. 74 Sabine Casparie-Kerdel, Dilution disguised: has the concept of trade mark dilution made its way into the laws of Europe? [2001] E.I.P.R. 185, Salience is the positive feeling which consumers associate with a particular trade mark which transforms it from a sign among signs to a sign above other signs. See Ramello, What s in a Sign? (2006) 20(4) Journal of Economic Surveys 547; Andrew Ehrenberg et al., Differentiation or Salience (1997) 37 Journal of Advertising Research 7; Alan Baldinger and Joel Rubinson, Brand Loyalty: The Link between Attitude and Behavior (1996) 36(6) Journal of Advertising Research For a comprehensive analysis on the changing nature of trade marks from an economic perspective, see Griffiths, Trade Mark Monopoly [2007] I.P.Q Deborah R. Gerhardt, Consumer Investment in Trademarks (2010) 88 North Carolina Law Review 427, 459 and n Rebecca Tushnet, Gone in Sixty Milliseconds: Trademark Law and Cognitive Science (2008) 86 Texas Law Review 507, Tony Martino and Werner Ullah, The Quality Guarantee Function of Trade Marks: An Economic Viewpoint [1989] E.I.P.R. 265, ; see Strasser, The Rational Basis of Trademark Protection Revisited (2000) 10 Fordham Intellectual Property, Media & Entertainment Law Journal Ramello, What s in a Sign? (2006) 20(4) Journal of Economic Surveys 547.

70 362 Intellectual Property Quarterly a purpose beyond their informative role. However, the attempt to protect any such role was a concern for many academics such as Ralph Brown. 81 Brown argues that the protection of links and associations in the minds of consumers may well be unrealistic and that the protection of the advertising capabilities of trade marks is of dubious social utility. 82 It is indeed important to remember that the monopolies granted to trade mark proprietors are limited in nature in order to ensure that ideas and concepts are free for public use. 83 Misappropriation principles that are based on unfair competition doctrine deviate from the Chicago School basis of protecting information and favour traders attempting to limit free competition. 84 One alternative theory for the search cost rationale is that trade marks enable consumers to obtain emotional, spiritual or psychological value from the marked product. 85 This intangible output has led trade marks, in particular famous or reputable trade marks, to be termed the experience economy. 86 It is suggested that trade marks today go beyond a functional role by acting as a series of value propositions, which allow a trade mark proprietor to command a premium. 87 Reputable or famous trade marks therefore possess intrinsic value and allow consumers to derive additional benefits from a product. They can also act as a form of self-expression or provide a sense of community and belonging. 88 The success of famous trade marks depends on the creation of a goodwill that is independent of the product itself, and arguably a goodwill that goes beyond something as mundane as a reassurance of quality. Swann agrees with this, and notes that quality today is expected as standard and so alternative means are needed to ensure product differentiation. 89 Under this model, product differentiation is achieved through the connotations associated with the mark which collectively give the mark its overall image. A cognitive theory that is based around the notion of salience has been used to explain this developed economic role for trade marks. Salience occurs where the trade mark is so persuasive that it draws in consumers and influences their decision-making ability. 90 This theory rejects the idea that classical functional product differentiation is the deciding factor in a brand s success. Instead, value is attached to the number of consumers to whom the mark stands out and appears positive. 91 Advertising is said to be able to maintain or develop the extent to which salience applies. This once again illustrates the interlinked nature of trade marks and advertising. 92 Proponents of the salience based justification argue that trade marks have become stimulators that sell the products through their ability to engage with consumers on an emotional and psychological level. 93 The difference between inducing and stimulating consumers into making a purchasing decision lies in the motive behind such a decision. When trade marks act as incentives they facilitate and enhance the informed purchasing decisions made by the consumers. In this case, the desire and the physical need to obtain the product exist in the mind of consumers. However, instead of purchasing any other product on offer, 81 Ralph Brown, Advertising and the Public Interest: Legal Protection of Trade Symbols (1948) 57 Yale Law Journal 1165, reprinted in (1999) 108 Yale Law Journal Brown, Advertising and the Public Interest (1948) 57 Yale Law Journal 1165; Barton Beebe, Search and Persuasion in Trademark Law (2005) 103 Michigan Law Review 2020, Loughlan, Trade Marks: Arguments in a Continuing Contest [2005] I.P.Q Robert Bone, Enforcement Costs and Trademark Puzzles (2004) 90 Virginia Law Review 2099, Psychological theories provide the basis for further explanation of the economic role of trade marks and these can be thought of as the Neo Chicago School : Giovanni Ramello and Francesco Silva, Appropriating Signs and Meaning: the Elusive Economics of Trademark (2006) 15(6) Industrial and Corporate Change 937, 949; Swann et al., Trademarks and Marketing (2001) 91 Trademark Reporter 787, B. Joseph Pine and James Gilmore, The Experience Economy: Work is Theatre and Every Business is a Stage (Boston: Harvard Business School Press, 1999), p.5. It should be noted that the terms famous and reputable will be used interchangeably in this article. 87 Pine and Gilmore, The Experience Economy (1999), p Gerhardt, Consumer Investment in Trademarks (2010) 88 North Carolina Law Review 427, where she argues that consumers are not mere passive recipients of the intangible output of trade marks but that they invest in the trade marks formation as a valuable informational tool; see also Thorstein Veblen, The Theory of the Leisure Class (Boston, MA: Houghton Mifflin, 1973). Veblen s conspicuous consumption theory argues that one of the main objectives for consumers when acquiring branded products that cost a premium is to be able to publicly display economic power. 89 Jerre Swann, An Interdisciplinary Approach to Brand Strength (2006) 96 Trade Mark Reporter 943, Ramello, What s in a Sign? (2006) 20(4) Journal of Economic Surveys 547, Beebe terms this differential distinctiveness : Beebe, Search and Persuasion in Trademark Law (2005) 103 Michigan Law Review This link was explored in some detail in the O2 case. See O2 v Hutchison 3G (C-533/06) [2008] E.C.R. I-4231, [2008] E.T.M.R. 853; Ehrenberg et al., Differentiation or Salience (1997) 37 Journal of Advertising Research 7, Rosler, The Rationale for European Trade Mark Protection [2007] E.I.P.R. 100.

71 A New Classification for Trade Mark Functions 363 consumers are induced into buying the product associated with the trade mark. The reason behind the consumers decision is a combination of a real need for the product and the effect of the trade mark on their thought process. On the other hand, when trade marks act as stimulators they trigger the purchasing decisions made by consumers. In this situation, the physical need for the functional attributes of the product may not exist. Thus, the motive for such purchases is to acquire the trade mark itself and the intangible allure it symbolises. 94 Salience is an integral part of the composition of any famous trade mark and it forms the basis for its advertising and investment functions. 95 These functions have modern significance owing to the emergence of an abundance of competing products and relative parity between the qualities of the products on offer, thereby increasing the importance of the emotional pull of the mark. 96 However, it is always important to remember that the modern additional functions are merely derivatives of the essential function, as was pointed out by A.G. Jacobs in the Dior case. 97 In essence, all the functions of a trade mark are dependent upon its ability to perform its essential functions of indicating trade origin and guaranteeing quality. 98 Still, significant numbers of consumers have become interested in using trade marks as a vehicle to identify themselves and reflect their status, beliefs or even feelings. Accordingly, unauthorised use of a reputable trade mark might result in attaining an undeserved commercial advantage by capitalising on its additional intangible output, even if such use was not confusing to the general public. 99 Consequently, trade mark law recognised that this intangible output warranted protection under the monopoly awarded to trade mark owners. The result of this recognition was the addition of a third layer of trade mark protection that was introduced by art.5(2) of the TMD (s.10(3) of the 1994 TMA). 100 This additional protection is designed to protect the stimulation function of the trade marks and is aimed at trade marks with reputation. This protection will be triggered if there was unauthorised use of an identical or similar sign on identical, similar or dissimilar goods or services. Here, trade marks owners need to prove that the unauthorised use either took unfair advantage of or is detrimental to the trade marks distinctive character or repute. 101 However, the acceptance of the intangible output theory and salience as a justification for trade mark protection seems to have encouraged the CJEU to extend the protection resulting from this rationale to the core infringement ground under art.5(1)(a) of the TMD (s.10(1) of the 1994 TMA). 102 This development has generated a great amount of debate and has shifted the focus from the acceptance of the modern functions per se to the acceptance of their application under art.5(1)(a). This development has highlighted the need for a new classification for trade mark functions that will allow us to better apply these newly recognised roles within the infringement framework as a whole. However, the article will first assess the impact of salience as a rationale for trade mark protection against dilution and the type of harm that dilution is supposedly protecting against. This in turn will help us understand the impact of the modern functions on the whole infringement framework within European trade mark law. 94 Swann et al., Trademarks and Marketing (2001) 91 Trademark Reporter 787, Po-Jen Yap, Making Sense of Trade Mark Use [2007] E.I.P.R. 420, Charles Gielen, Harmonisation of Trade Mark Law in Europe: The First Trademark Harmonisation Directive of the European Council [1992] E.I.P.R A.G. Jacobs stated that the trade marks other functions seem to be merely derivatives of the origin function. See Dior [1997] E.C.R. I-6013; [1998] 1 C.M.L.R. 737, Opinion of A.G. Jacobs at [42]. 98 Paul Torremans, The Likelihood of Association of Trade Marks: An Assessment in the Light of the Recent Case Law of the Court of Justice [1998] I.P.Q. 295, 302. In this article Torremans concludes that the trade mark now has multiple functions, but that indicating trade origin should remain the primary function of a trade mark; Martin Senftleben, The Trademark Tower of Babel Dilution Concepts in International, US and EC Trademark Law (2009) 40(1) International Review of Intellectual Property and Competition Law 45, Andrew Griffiths, A Law and Economic Perspective on Trade Marks in Lionel Bently, Jennifer Davis and Jane Ginsburg (eds), Trade Marks and Brands: An Interdisciplinary Critique (Cambridge: Cambridge University Press, 2008), pp Anna Carboni, Two Stripes and You re Out: Added Protection for Trade Marks with a Reputation [2004] E.I.P.R Griffiths, Trade Mark Monopoly [2007] I.P.Q. 312, See Interflora v Marks & Spencer EU:C:2011:604; [2012] E.T.M.R. 1 at [40]: there are no grounds for holding that only trade marks with a reputation are capable of having functions other than that of indicating origin.

72 364 Intellectual Property Quarterly There were notable criticisms to protection against dilution mainly because such protection was no longer dependent upon consumer misinformation but on the value of the trade mark. 103 Davies, for example, argued that the dilution rationale minimises the interests of consumers to the extent that it harms them. 104 Others, such as Carty, argued that trade marks are only worthy of protection where they act as vehicles for communication between consumers and producers in the marketplace. 105 Carty perceives claimants in a dilution action as attempting to engender protection against misappropriation without any real proof of detriment; she concludes that the focus should be on the public interest and not on extensive notions of misappropriation and unfair competition. In a similar context, Gerhardt contends that by granting trade mark owners a protection that is based on a dilution rationale, the courts will be overlooking the significant investments consumers make in brands. 106 Furthermore, by protecting trade mark owners beyond confusion, the legal system will be aggravating the dangers associated with the human inclination towards irrational behaviour. 107 It is also argued that the dilution action could be seen to undermine the utility of registering trade marks within a class according to actual use, the result, again, being the potential prohibition of uses where no verifiable damage occurs at all, forming a quasi-copyright action. 108 Klein takes her criticism a step further by stating that too much monopoly power is given to reputable trade marks and that this overprotection can have a harmful effect on consumers and society as a whole. She even argues that reputable marks are useless and dangerous since they create artificial needs as well as inducing socially undesirable behaviour. 109 Others argue that famous trade mark owners might use them to differentiate their products and to insulate themselves from the pressures of competition by introducing irrational elements into consumer choices. In consequence, the competitive system fails to perform its function of allocating available resources efficiently. 110 Famous trade mark owners are also accused of using consumer loyalty, or consumer inertia, to erect barriers to entry to the market. 111 The counter-argument would be that just because it may be difficult to verify or quantify the damage that results from the dilution of the brand, it does not preclude the fact that a damage of some sort may have occurred. An example can be found in the Dior 112 case, where the CJEU recognised that an association weakening consumer perception of a luxury trade mark may result in consumers no longer wishing to purchase the product. Accordingly, some argue that if the ultimate aim of trade mark protection is to reduce the problem of adverse selection and moral hazard, then we have to forbid the unauthorised use of reputable trade marks. 113 However, this approach would seem to go too far; the interpretation of trade mark law provided by A.G. Jacobs in Dior would seem preferable. His approach recognises that the communicative functions arise from the investment in promotion built around the trade mark. Thus, trade 103 Jonathan Moskin, Dilution or Delusion: The Rational Limits of Trademark Protection (1993) 83 Trademark Reporter 122, 125 (describing the dilution doctrine as a murky theory that courts cannot coherently apply); Kenneth Port, The Unnatural Expansion of Trademark Rights: Is a Federal Dilution Statute Necessary? (1994) 18 Seton Hall Legislative Journal 433, noting that [t]here is also no satisfactory theoretical justification supporting a federal dilution cause of action. 104 Jennifer Davis, To Protect or Serve? European Trade Mark Law and the Decline of the Public Interest [2003] E.I.P.R Hazel Carty, Do Marks with a Reputation Merit Special Protection? [1997] E.I.P.R Gerhardt, Consumer Investment in Trademarks (2010) 88 North Carolina Law Review 427, 499; Devin Resai, From Trademarks to Brands (2012) 64(4) Florida Law Review 981, See Katya Assaf, Magical Thinking in Trademark Law (2012) 37(3) Law and Social Inquiry 595, where she argues that famous marks are legally treated as magical, sacred objects which in turn encourages and somewhat endorses the religion of brands. 108 Norma Dawson, Famous and Well-Known Trade Marks: Usurping a Corner of the Giant s Robe [1998] I.P.Q. 350, 376; Lemley, The Modern Lanham Act and the Death of Common Sense (1999) 108 Yale Law Journal 1687, Conversely see Cahoy, where he argues that property protection of a trade mark is similar in a broad sense to patent and copyright protection: Daniel Cahoy, Changing the Rules in the Middle of the Game: How the Prospective Application of Judicial Decisions Related to Intellectual Property Can Promote Economic Efficiency (2003) 41 American Business Law Journal 1, Naomi Klein, No Logo: Taking Aim at Brand Bullies (London: Flamingo, 2001). 110 Smith v Chanel Inc 402 F. 2d 562, 567 (9th Cir. 1968). See also Robert Klieger, Trademark Dilution: The Whittling Away of the Rational Basis for Trademark Protection (1997) 58 University of Pittsburgh Law Review 801, Ramello, What s in a Sign? (2006) 20(4) Journal of Economic Surveys 547, Dior [1997] E.C.R. I-6013; [1998] 1 C.M.L.R Strasser, The Rational Basis of Trademark Protection Revisited (2000) 10 Fordham Intellectual Property, Media & Entertainment Law Journal 375, 415.

73 A New Classification for Trade Mark Functions 365 marks deserve protection even when there is no abuse arising from misrepresentations about either origin or quality. 114 This also seems to be the favoured view of the CJEU in its recent decisions. 115 A convincing counter-argument to Klein s point is that whether consumers need is real or artificial can only be decided with regard to a prescribed benchmark. Without an overriding public interest, the best benchmark is the marketplace and the collective decisions made by the market participants, including the consuming public. While consumers decisions may be influenced by persuasive advertisement, the ultimate social welfare effects of such practices are, nonetheless, not so obvious. 116 Though this view is not universally shared, 117 it finds support in the economic literature, which has shown that there is no clear borderline between informational advertising and persuasive advertising. 118 Dawson in fact goes further, stating that persuasive advertising may be the only way of enabling trade marks to work in a complex impersonal marketplace. 119 Every advertisement is persuasive since the very purpose of advertising is to convince consumers to buy a particular product. Moreover, no matter how persuasive an advertisement may be, it will always contain some useful information since consumers would otherwise avoid the advertised product. Furthermore, persuasive advertising rarely exists on its own and is often a part of a broader advertising campaign. 120 Moreover, Dawson states, correctly in my view, that there is no clearly identifiable public interest against prohibiting non-deceptive use of trade marks, since allowing such use would only aid the unscrupulous rival trader. 121 It has also been recognised that any commodity with commercial selling power is often copied; therefore the balance must lie in favour of the trade mark s owner when observing any type of parasitic use that exploits the emotional attributes of a reputable trade mark rather than the functional attributes of the product. 122 Therefore, use by a competitor should not be allowed if the cost incurred by the trade mark owner outweighs the benefits enjoyed by the competitor and the consumer. It is true that the information some advertisements convey is unrelated to the physical aspects of a product but instead concerns a certain lifestyle. Still as long as the information conveyed by the trade mark is accurate in the sense that it does not misrepresent verifiable facts, the law should not interfere. Reputable trade marks create certain benefits to owners and interested consumers. Obviously, this does not mean that famous trade marks deserve more protection. What it means is that one should at least avoid condemning them and the protection afforded to them merely because the kind of information they convey to the consuming public is not product related. 123 That said, the boundaries of this protection should be clear and the medium used to deliver such protection should be appropriate and fit for purpose. It could be argued that the acceptance of salience as a justification for trade mark protection is a natural result of embracing modern commercial realities. Still, the recognition of salience and the resulting acknowledgement of trade marks modern functions should not automatically mean granting trade mark owners extended rights. 124 Therefore, the recognition of these modern functions within the 114 Dior [1997] E.C.R. I-6013; [1998] 1 C.M.L.R Copad [2009] E.C.R. I-3421; [2009] E.T.M.R. 40; Google France [2010] E.C.R. I-2417; [2011] All E.R. (EC) 411; Portakabin [2010] E.C.R. I-6963; [2010] E.T.M.R. 52; and Interflora EU:C:2011:604; [2012] E.T.M.R Paul Klemperer, Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics and International Trade (1995) 62 Review of Economics Studies Klieger, Trademark Dilution (1997) 58 University of Pittsburgh Law Review 801, 858, where he noted that: Most advertising is not informational, but persuasive, and persuasive (or transformational) advertising, directed at creating a brand personality and aimed at the consumer s heart rather than his mind, plays a more dubious role. 118 Philip Nelson, Advertising as Information (1974) 82 (4) Journal of Political Economy Dawson, Famous and Well-Known Trade Marks [1998] I.P.Q. 350, Brown, Advertising and the Public Interest (1948) 57 Yale Law Journal Dawson, Famous and Well-Known Trade Marks [1998] I.P.Q. 350, Conversely Dinwoodie intimates that linking trade mark protection to consumer confusion imposes a rational limit on the extension of trade mark law. He also argues that without such linkage the public interest will be harmed; Graeme Dinwoodie, The Rational Limits of Trademark Law in Hugh Hansen (ed.), U.S. Intellectual Property: Law and Policy (Cheltenham: Edward Elgar Publishing, 2006), p.59 at pp Ruth Annand and Helen Norman, Blackstone s Guide to the Trade Marks Act 1994 (London: Blackstone, 1994), p Strasser, The Rational Basis of Trademark Protection Revisited (2000) 10 Fordham Intellectual Property, Media & Entertainment Law Journal 375, William McGeveran and Mark McKenna, Confusion Isn t Everything (2013) 89 Notre Dame Law Review 253.

74 366 Intellectual Property Quarterly flexibility of the suggested new classification, as explained in the next section, will allow the law to embrace these modern functions while limiting the worrying transformation of art.5(1)(a) of the TMD into a super infringement ground 125 that surpasses all other grounds in its reach and impact. 126 In particular, if the harm protected against under art.5(1)(a) is the type of harm discussed by A.G. Sharpston in the Intel case and advocated by the CJEU as the type of harm that should be protected against under art.5(2)of the TMD. 127 The new classification structured flexibility The history of trade mark law indicates an uneasy relationship between fundamental trade mark principles and the necessity for the law to evolve. The increased level of recognition of the communicative and investment functions of the trade mark has culminated in the inevitable outcome of the trade mark monopoly extending beyond that for which it was originally intended. However, this was both unavoidable and imperative as the trade mark now represents much more than just the trade origin. In particular, trade marks have evolved to become a tool which lingers in the mind of the consumer to which visual image, psychological connections and positive (or negative) associations can be attached. Nonetheless, a satisfactory law requires the balancing of the competing interests of the trade mark proprietor, rival traders and the public. The trade mark owner will naturally be seeking to protect their image and reputation; the rival trader is seeking to compete on a level playing field against a monopoly that does not inhibit legitimate competition; and the consumer will wish not to be confused when faced with different products. 128 Of course, traditional doctrine suggests that trade marks should protect against consumer misinformation and that, in recognising the additional functions, the fear is that trade marks will stray into a protection approach impregnated and heavily influenced by unfair competition principles. Though such fears are legitimate, it should be remembered, as pointed out by Carty, that the impact of this extended protection will only be determined by the judicial interpretation of the law and its key phrases. 129 A balanced interpretation of the key elements such as the trade mark use requirement (to restrict the impact of recognising the modern function on the core protection available to trade marks under art.5(1)(a) of the TMD) 130 and the due cause proviso (to restrict the impact of recognising the modern functions on the additional protection available to trade marks under art.5(2) of the TMD) 131 might prove valuable tools in ensuring that the law serves its stated objective. 132 Still, to avoid the uncertainty surrounding trade mark protection, the law needs to create a balance between trade mark owners rights and the interests of consumers and free trade. However, to create such a balance the law must establish the proper scope of trade mark protection, to determine what functions 125 In her criticism of the Commission s reform of art.5(1)(a) of the TMD, which was recast as art.10(2)(a) of the 2015 TMD, she argued that adopting the reform will create a super-origin-function. See Kur, Trade Marks Function Don t They? CJEU Jurisprudence and Unfair Competition Principles (2014) 45(4) International Review of Intellectual Property and Competition Law 434, n Senftleben, Function theory and international exhaustion [2014] E.I.P.R. 518, According to the Advocate General, detriment to distinctiveness need not necessarily involve economic detriment, so that a change in economic behaviour is not essential. In her Opinion, harm occurs to the earlier mark if the later mark derives commercial benefit from being linked to the earlier mark. In other words, unfair advantage is the harm that we should be protecting against. See Intel [2008] E.C.R. I-8823; [2009] E.T.M.R. 13, Opinion of A.G. Sharpston at [74]. 128 Christine Greenhalgh and Elizabeth Webster, Have Trademarks Become Deceptive? [2015] W.I.P.O.J Carty, Do Marks with a Reputation Merit Special Protection? [1997] E.I.P.R. 684, 688; Michael Grynberg, The Judicial Role in Trademark Law (2011) 52 Boston College Law Review Margreth Barrett, Internet Trademark Suits and the Demise of Trademark Use (2006) 39 U.C. Davis Law Review 371; Margreth Barrett, Finding Trademark Use: The Historical Foundation for Limiting Infringement Liability to Uses In the Manner of a Mark (2008) 43 Wake Forest Law Review 893; Stacey Dogan and Mark Lemley, Grounding Trademark Law Through Trademark Use (2007) 92 Iowa Law Review 1669; Dinwoodie and Janis, Confusion Over Use (2007) 92 Iowa Law Review 1597, Jens Hemmingsen Schovsbo, Martin Senftleben et al., Recommendations on Measures to Safeguard Freedom of Expression and Undistorted Competition in the EU Trademark Law [2015] E.I.P.R. 337; see also Maniatis, who argued almost 20 years ago that Due Cause establishes a public interest defence: Spyros M. Maniatis and Ellen Gredly, Parody: A Fatal Attraction? Part 2: Trade Mark Parodies [1997] E.I.P.R. 412, See fn.54; see also Jonathan Cornthwaite, Say it with flowers: the judgment of the Court of Justice of the European Union in Interflora v Marks & Spencer [2012] E.I.P.R. 127, 129.

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75 A New Classification for Trade Mark Functions 367 trade marks actually perform and whether legal rights should extend to protect each function. As demonstrated earlier, identifying the functions of trade marks depends on the justifications we subscribe to and on whether we follow the protectionist position or the free trader stance. 133 These two conflicting views are causing the uncertainty surrounding trade mark protection and hindering the creation of a coherent body of law. Therefore, this article recognises the need for the creation of a new flexible classification for trade mark functions that is consistent with the underlying policy of trade mark law but recognises the economic realities facing this rapidly changing branch of the law. This classification accepts the proprietary status of trade marks as long as this property right is balanced by social needs and the aims of trade mark law. In other words, trade marks should be considered as private property with an inherent limitation. Accordingly, trade marks will be treated as private property only when it is necessary to promote economic efficiency, which involves the maximisation of the public welfare. In this context it is important to bear in mind that the failure to protect the interest of the public jeopardises greater values than would the limitation on the extension of private proprietary interests. 134 In addition, this classification recognises the wider economic functions of trade marks which are based on the intangible output justification. Still, it notes that these functions are circular in nature. As a result, the economic value of these functions reflects the extent and the scope to which they are legally protected and not vice versa. 135 In other words, the intangible allure of any trade mark is created through the protection provided to these trade marks as signs that indicate trade origin. Thus, the underlying foundation of any protection criteria should be the protection of the informational role of a trade mark as an indicator of trade origin and quality. Protection provided to these functions must be kept within acceptable bounds when applied because of their adverse effect on competition. Therefore, we need to avoid the rigid labels advanced by the CJEU to describe and define these functions. Instead we should promote flexible umbrella functions, recognising the need to protect the informational and intangible output of trade marks while giving the judiciary the flexibility to limit the application of these functions when other public policy considerations are at risk. 136 After all, trade mark law is not applied in a vacuum; factual contexts, public interest consideration and the role consumers play should influence the interpretation of law and its application. 137 The need for this structured flexibility was evident in the approach followed by some of the Advocates General in recent CJEU cases. In his opinion in Google France, A.G. Poiares Maduro underlined the importance of appropriate protection for trade marks when he stated that whatever the protection afforded to innovation and investment, it is never absolute. It must always be balanced against other interests. 138 Similarly, A.G. Jääskinen in his Opinion in Interflora invited the CJEU to reconcile trade mark protection with competition. In that case Jääskinen proposes not to condemn the advertising simply because Marks & Spencer is taking advantage of the repute of Interflora s trade mark, but to focus on the use itself. 139 In Viking Gas, A.G. Kokott identified that the need to facilitate competition and protect consumer rights should be taken into consideration when assessing the appropriate protection for trade marks. 140 As can be seen from these opinions, trade mark functions and their level of protection should depend on the circumstances of the particular case and should be balanced against other competing interests such as freedom of expression, fair competition and consumer welfare. 133 Jacob LJ, When is a Trademark Not a Trademark? in International Intellectual Property Law and Policy (2003). 134 Patricia Loughlan, Trade Marks: Property Rights and Their Limits (2005) 31(2) Monash University Law Review 273, Felix Cohen, Transcendental Nonsense and the Functional Approach (1935) Columbia Law Review 809, Lisa P. Ramsey and Jens Schovsbo, Mechanisms for Limiting Trade Mark Rights to Further Competition and Free Speech (2013) 44 International Review of Intellectual Property and Competition Law Vlotina Liakatou and Spyros Maniatis, Red soles, gas bottles and ethereal market places: competition, context and trade mark law [2012] E.I.P.R. 1, Google France [2010] E.C.R. I-2417; [2011] All E.R. (EC) 411, Opinion of A.G. Poiares Maduro at [102]. 139 Interflora EU:C:2011:604; [2012] E.T.M.R. 1, Opinion of A.G. Jääskinen at [76]. 140 Viking Gaz EU:C:2011:485; [2011] E.T.M.R. 58, Opinion of A.G. Kokott at [65].

76 368 Intellectual Property Quarterly Conclusion what do we want to protect in a trade mark? Over recent times the role of some trade marks has evolved from being signs that indicate trade origin and quality, to symbols that represent positive and desirable values. 141 As a result, traders nowadays are willing to invest considerable time and resources in choosing and protecting their trade marks and the more expansive roles they have come to assume in contemporary society. The transformation of the trade mark s role has necessitated the recognition and protection of additional modern functions. The extended protection which was recently endowed on trade mark owners has fuelled considerable controversy within the legal vernacular. The recognition and protection of the modern trade mark functions have been condemned by many academics for explicitly encouraging monopolistic and rent-seeking behaviour. 142 Others disagree, arguing that rather than manipulating purchase decisions and deluding consumers, trade marks create an emotional connection between a product and its consumer. This connection is accepted and in fact embraced by the consumer and thus should be preserved by the law. 143 While this conflict of views is not in itself new to trade mark law, the approach adopted by CJEU in the integration of the modern functions into the European trade mark system has raised justifiable concerns over whether the balance of the system has been disrupted. These concerns were exacerbated by the recent adoption of the 2015 TMD, which did not elaborate on trade mark functions despite the recent debate generated by these functions and their legal protection. Consequently, this article has tried to propose a new classification for trade mark functions as indicators, incentives and stimulators. This new classification provides three umbrella functions, each of which could contain a number of other functions, in particular the stimulator function which could encompass all the modern functions of a trade mark. As explained earlier, this new classification reflects the legal and economic significance of trade marks and better defines the proper scope of their legal protection. This proposal is mainly motivated by the fact that despite the recent clarifications by the CJEU on the functions of the trade mark, one still wonders how many functions a trade mark has. The CJEU has identified four overlapping by name, but it could credibly be argued that there are many more functions of trade marks. 144 This observation is supported by the incessant evolvement of trade marks as legal and economic concepts. 145 The lack of clarity on the functions of trade marks and their overlapping nature is further complicated by the fact that the underlying policy of trade mark law is different from that of its intellectual property counterparts such as patents and copyrights. Patents and copyrights provide limited exclusive rights, in particular limited in duration, which encourage invention and impose social costs in the form of supracompetitive pricing and potentially delayed subsequent creation. 146 Hence, these intellectual property systems try to balance creator or inventor incentives with the resulting societal costs. 147 Trade mark protection, on the other hand, is based on a fundamentally different balancing exercise. On the cost side, trade marks are similar to other forms of intellectual property in that they impose exclusionary rights that narrow the public domain. Still, a major difference on the cost side is that a trade mark is potentially 141 A global web of logos is what Klein calls trade marks: Klein, No Logo (2001), p.xvii. 142 As a leading example of this school of thought, see Brown, Advertising and the Public Interest (1948) 57 Yale Law Journal 1165, Apostolos Chronopoulos, Legal and Economic Arguments for the Protection of Advertising Value Through Trade Mark Law (2014) 4(4) Queen Mary Journal of Intellectual Property 256, 258; Swann, An Interdisciplinary Approach to Brand Strength (2006) 96 Trade Mark Reporter 943, Budějovický Budvar EU:C:2011:605; [2012] E.T.M.R. 2, Opinion of A.G. Trstenjak at n Martin Senftleben, Adapting EU Trade Mark Law to New Technologies Back to Basics? in Christophe Geiger (ed.), Obstructing European Intellectual Property: Achievements and New Perspectives (Cheltenham: Edward Elgar Publishing, 2013), p.137; Dev S. Gangjee, Property in Brands: The Commodification of Conversation in H. Howe and J. Griffiths (eds), Property Concepts in Intellectual Property Law (Cambridge: Cambridge University Press, 2013). 146 Michael Heller, The Tragedy of the Anticommons: Property in Transition from Marx to Markets (1998) 111 Harvard Law Review 621, (discussing cost balancing for the creation of effective rights of exclusion in scarce resources under anticommons property doctrines). 147 William Ridgway, Revitalising the Doctrine of Trademark Misuse (2006) 21 Berkeley Technology Law Journal 1547, 1559.

77 A New Classification for Trade Mark Functions 369 perpetual in duration, at least for as long as it continues to be used as a trade mark. On the benefit side, trade marks serve the society more directly by protecting against consumer confusion. 148 Trade marks therefore impose costs in order to achieve a different kind of benefit from that achieved through other forms of intellectual property. This difference, along with their much longer durability, magnifies the consequences of overprotection. For patents and copyrights, there may well be overprotection at the static level in so much as the marginal societal costs exceed marginal benefits to the inventor or the creator. However, this overprotection has to be weighed against the dynamic benefits to society in the form of new inventions and new creative output. It is arguable that these outweigh or at least mitigate the cost of overprotection. However, for trade marks, overprotection is virtually all costs. Although overprotection benefits the trade mark owner, this benefit could be harmful to the overall social and economic welfare of the society. 149 Differences in the benefits achieved from the protection system appear to cut the other way with respect to underprotection, as withholding protection for trade marks imposes costs on society at large rather than on individual inventors or authors. In other words, a lack of trade mark protection would result in an informational deficit in the marketplace, which in turn would cause consumer confusion and misallocation of resources within society. Moreover, some commentators argue that withholding protection would harm the trade mark s reliance interest and therefore eliminate the incentives to develop valuable trade marks in the first place. 150 This argument blurs trade mark policy with patent and copyright policies and runs the risk of turning trade mark protection into a protection against misappropriation. Indeed, to reach a doomsday scenario of a world devoid of trade marks would require significant underprotection. To achieve an efficient system of trade mark protection, problems of over- and underprotection should be avoided by striking a balance between protection and access to trade mark rights. Striking such a balance needs an element of flexibility that allows us to examine the economic and social issues underlying trade mark rights and inform our discussion in establishing a fair scope of protection that can be tested against the developing case law. 151 The flexibility of the suggested classification will allow us to acknowledge the wider economic functions of trade marks which are based on the intangible output justification while giving us the ability to adapt our application of these functions in different parts of the law to fit the overall objective of the law. The objectives guiding the enactment of the European trade mark system were primarily economic. 152 Still, merely because the economic approach can identify and explain some or even many aspects of trade mark law, this does not permit one to conclude that trade mark jurisprudence ought to be driven by such considerations. A successful interpretation of the law must not only fit but also justify the practice it interprets. 153 Therefore, using the umbrella approach within the suggested classification should give us a holistic approach to the interpretation of trade marks functions and their impact on the law in general. The legal protection provided to trade marks enables their owners to restrict activities of rival traders that affect their trade mark functions. This restrictive ability stems from the owners exclusive rights over the use of their marks. The scope of these restrictions will depend on the system of protection we adopt, which in turn will depend on the justification we subscribe to and the functions we recognise. Regardless of the system we choose, we should make sure that the price paid to achieve the protection-stipulated ends does not exceed the benefit of achieving those ends. In an efficient trade mark system the overall benefits 148 Ridgway, Revitalising the Doctrine of Trademark Misuse (2006) 21 Berkeley Technology Law Journal 1547, Alex Sundakov and Anna McKinlay, Intellectual Property and Price Discrimination: Do As You Please in the Name of Innovation? (2004) 16(1) Information Economics and Policy 31, Landes and Posner, Trademark Law: An Economic Perspective (1987) 30 Journal of Law & Economics Horacio Spector, An Outline of a Theory Justifying Intellectual and Industrial Property Rights [1989] E.I.P.R. 270, These objectives include ensuring the expansion of the European Community economy through the free movement of goods and free competition of marked goods and services. See Memorandum on the Creation of an EEC Trade Mark, adopted by the European Commission on 6 July 1976, SEC(76) 2462, final Bulletin of the European Communities, Supplement 8/76; Andrew Griffiths, Modernising Trade Mark Law and Promoting Economic Efficiency: An Evaluation of the Baby-Dry Judgement and its Aftermath [2003] I.P.Q Chad Doellinger, A new Theory of Trademarks (2007) 111 Penn State Law Review 823, 838 and n.76.

78 370 Intellectual Property Quarterly generated for the protected party, the trade mark owner, should not exceed the aggregate costs imposed on the restricted party, competitors and consumers. Otherwise, this protection system will become the object of scrutiny, criticism and feeble amendments as highlighted by the newly adopted European Trade Marks Directive.

79 Negligent Omissions as a Basis for Holding Online Hosts Liable for Infringements of Trade Mark Rights: An Australian Perspective Alpana Roy * Althaf Marsoof ** Australia; Duty of care; Omissions; Online infringement; Online services; Third parties; Tortious liability; Trade marks; Website operators Abstract The Trade Marks Act 1995 (Cth) as it currently stands does not provide a remedy for trade mark owners against online hosts, in the circumstances where the services offered by such hosts are utilised by third-party users to commit trade mark infringements. There is also no comparable authorisation-type liability that could be made use of under trade mark law, authorisation being a concept familiar to the copyright domain. Holding online hosts liable as joint tortfeasors, or under the provisions of the Australian Consumer Law (formerly, the Trade Practices Act 1974 (Cth)) is equally difficult. In the circumstances, this article explores the possibility of holding online hosts liable for infringements of trade mark rights committed by third-party users, on the basis of common law principles applicable to cases involving negligent omissions. Introduction Online hosts are entities that store (or host) content at the request of third-party users. While some hosts merely provide the space in which their users upload and store their own content (e.g. typical web hosts), others provide additional services and tools that are aimed at assisting users in creating and storing the content they desire. Typical examples of the latter include search engines, such as Google, that provide keyword advertising services, and online marketplaces like ebay. However, because hosts store content created by third-party users, there is a good chance, and this is often the case, that their services are used for the hosting of content that infringes trade mark rights. Although trade mark owners have a cause of action under the Trade Marks Act 1995 (Cth) against those who create and publish content promoting the sale of infringing goods or services, it is often the case that the actual infringers are difficult to identify in view of the anonymity the internet provides. Even if they could be traced, they often operate in jurisdictions that adopt a lax approach to the protection and enforcement of intellectual property rights. In any case, infringers may not have sufficient assets capable of recompensing aggrieved trade mark owners in the event a judgment is made in their favour. In these circumstances, trade mark owners have shifted their focus from actual infringers to online actors, whose services are used for the purposes of committing infringements. Cases filed by trade mark owners against * Associate Professor, School of Law, Western Sydney University, Australia; BA (UTS), LLB (Hons) (Syd), MA (UTS), DipLegPrac (College of Law), PhD (Syd), GCHETL (UTS), Solicitor and Barrister of the Supreme Court of NSW and the High Court of Australia, Accredited Mediator. ** PhD candidate, Dickson Poon School of Law, King s College London and Visiting Scholar, Applied Research Centre for Intellectual Assets and the Law in Asia, Singapore Management University, Singapore; BSc (Curtin), LLM (Hons) (Cantab), MPhil (Qld), Attorney-at-Law (Sri Lanka). 371

80 372 Intellectual Property Quarterly service providers that host third-party content in the US 1 and in European countries such as the UK, 2 Belgium, 3 France 4 and Germany, 5 are a manifestation of this trend. In fact, this approach of holding online actors accountable has attracted scholarly support on economic, pragmatic and moral grounds. 6 However, in the Australian context, holding online hosts liable for hosting third-party content that infringes trade mark rights has proven to be difficult, if not impossible. The most obvious remedy available to any aggrieved trade mark owner is the action for trade mark infringement in terms of the Trade Marks Act 1995 (Cth). However, s.120 of the Trade Marks Act 1995 (Cth) (read with s.20(2)), which deals with infringement, permits actions to be brought only against parties that had made use of a registered trade mark as a trademark. In Shell Co of Australia Ltd v Esso Standard Oil (Australia) Ltd, the Australian High Court held that only uses of a trade mark as a badge of origin would amount to use as a trademark. 7 However, when hosts provide space to their users allowing users to upload and store content, they do not make use of any trade mark, let alone as a badge of origin. Thus, in the absence of the use requirement under s.120 of the Trade Marks Act 1995 (Cth) being satisfied, it would be impossible for aggrieved trade mark owners to bring an action for infringement against hosts whose services are used by those engaging in trade mark infringements. It is also noteworthy that the Trade Marks Act 1995 (Cth) does not contain any provision that is capable of imputing secondary trade mark liability, 8 in contrast to the position under trade mark statutes in jurisdictions such as the UK. Thus, under s.10(5) of the UK Trade Marks Act 1995, parties such as printers that apply trade marks on labels and other materials may become liable for infringement in the event it could be shown that they knew that the parties engaging their services were intending to commit trade mark infringements. Yet, even if such a provision was available in the Australian trade mark statute, it would be unlikely to provide any assistance in holding hosts liable, as hosts do not make any use of trade marks capable of triggering liability under such a provision. Nor does the Trade Marks Act 1995 (Cth) contain any provision that is capable of imputing liability on persons who had authorised a trade mark infringement, 9 unlike in the copyright context where authorisation liability is frequently found. Had there been such a possibility, hosts may be regarded to have authorised their users trade mark infringements, in the event they acquire knowledge of such infringements and fail to take reasonable steps to prevent them from occurring. The chances of holding hosts jointly liable with their users for the latter s infringing conduct are also slim. In Louis Vuitton v Toea, 10 the Australian Federal Court had the opportunity of considering the liability of a flea market owner for the infringing conduct of parties who had leased stalls in the flea market. The 1 See, e.g. Rosetta Stone v Google 676 F. 3d 144 (4th Cir. 2012); Louis Vuitton Malletier SA v Akanoc Solutions Inc 658 F. 3d 936 (9th Cir. 2011); Roger Cleveland Golf Co Inc v Christopher Prince, Prince Distribution LLC and Bright Builders Inc No (D.S.C. 14 March 2011); Tiffany (NJ) Inc and Tiffany and Co v ebay Inc 600 F. 3d 93 (2nd Cir. 2010) (Tiffany v ebay); Rescuecom Corp v Google Inc 562 F. 3d 123 (2nd Cir. 2009) (Rescuecom v Google); and Gucci v Mindspring 135 F. Supp. 2d 409 (S.D.N.Y. 2001). 2 See L Oréal SA v ebay International AG [2009] E.T.M.R. 53 Ch D (L Oréal v ebay). 3 See Lancôme Parfums Beauté & Cie SNC v ebay International AG, ebay Europe Sàrl and SPRL, Commercial Court of Brussels Docket No.A/07/06032 (31 July 2008) (Lancôme v ebay). 4 See ebay Inc v LVMH ( , 3 May 2012); SA Louis Vuitton Malletier v ebay Inc and ebay International (30 June 2008) [2010] E.T.M.R. 10; Hermes International v Mme Cindy F., ebay France and ebay International AG (4 June 2008) (unreported); and SA L Oreal v SA ebay, Tribunal de Grande Instance de Paris) 3e ch., No.07/11365 (Fr) (13 May 2009)). 5 See Case I ZR 304/01 (Internet Auction I) [2005] E.T.M.R. 25 (against Ricardo, a website similar to ebay); Case I ZR 35/04 (Internet Auction II) [2007] E.T.M.R. 70 (against ebay); and Case I ZR 73/05 (Internet Auction III) (unreported) (against ebay) (all of these cases were brought by the famous watch manufacturer Rolex). 6 See, e.g. Patrick R. Goold, Corrective Justice and Copyright Infringement (2014) 16 Vand. and J. Ent. & Tech. L. 251, 260; Dianne Rowland, Uta Kohl and Andrew Charlesworth, Information Technology Law, 4th edn (London: Routledge, 2011); Doug Lichtman and Eric Posner, Holding Internet Service Providers Accountable (2006) 14 S. Ct Econ. Rev. 221; Assaf Hamdani, Who s Liable for Cyberwrongs (2002) 87 Cornell L. Rev. 901, ; Stephen G. Gilles, Negligence, Strict Liability, and the Cheapest Cost-Avoider (1992) 78 Va L. Rev. 1291, 1306; and Reinier H. Kraakman, Gatekeepers: The Anatomy of a Third-Party Enforcement Strategy (1986) 2 J. L. Econ. & Org. 53, Shell Co of Australia Ltd v Esso Standard Oil (Australia) Ltd [1963] HCA See Joanne Steer, Counterfeit Goods, Genuine Problem Secondary Liability for Trade Mark Infringement in Australia (2008) 74 IP Forum 10, See also Robert Burrell and Michael Handler, Australian Trade Mark Law (Melbourne: Oxford University Press, 2010), p See Aristocrat Technologies Australia Pty Ltd v Vidtech Gaming Services Pty Ltd [2006] FCA 275. Here the Australian Federal Court held that [t]he Trade Marks Act does not have a comparable doctrine to the law of authorisation such as operates under copyright law (at [134] [135]). See also Unilever Australia Ltd v PB Foods Ltd [2000] FCA Louis Vuitton Malletier SA v Toea Pty Ltd [2006] FCA 1443 (Louis Vuitton v Toea).

81 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 373 operations of a flea market could be regarded as the offline equivalent of an online marketplace, such as ebay. The court denying relief held that the stallholders and the owners of the flea market did not share a common design, 11 which was a precondition before someone could be held liable as a joint tortfeasor. 12 Thus, in the event that a similar action were brought against a host such as ebay, the outcome would probably be the same. In a more recent attempt, the Australian Competition and Consumer Commission (ACCC) sought to hold Google, in its capacity as a host for third-party advertisements, liable under the provisions of the former Trade Practices Act 1974 (Cth) 13 on the basis that Google had engaged in misleading and deceptive conduct when it displayed its customers advertisements that infringed several registered trade marks. 14 However, the Australian High Court concluded that Google did not engage in misleading and deceptive conduct, as the advertisements were authored by Google s customers and not by Google, although the latter provided the facilities for the advertisements to be created, stored and displayed. The reasoning of the Australian High Court in Google v ACCC is equally applicable in respect of any type of online host, as they merely provide the space in which third-party users create and store content (of which some may be purposely aimed at committing trade mark infringements, thus misleading and deceiving consumers, particularly as to the origin of the goods or services concerned). Thus, the effect of Google v ACCC is that online hosts are unlikely to be held liable under the provisions in the Australian Consumer Law (formerly, the Trade Practices Act 1974 (Cth)) that proscribe misleading and deceptive conduct for hosting infringing content authored by third-party users. 15 In the circumstances, it becomes necessary to consider an alternative approach under which online hosts whose services are utilised by third-party users to commit trade mark infringements could be held liable. This article investigates an approach premised on a distinct area of the law of torts i.e. the law of negligence. However, before moving on to consider the applicability of the law of negligence to online hosts, the article first justifies the adoption of a tort-based approach. Thereafter, common law principles applicable to cases involving negligent omissions are explored in search for a possible basis to hold online hosts liable for trade mark infringements committed by third-party users. Justifying a tort-based approach Burrell and Handler, considering the scope of Australian trade mark law, have argued that anyone who is connected in the course of trade with infringing goods and who is put on notice of an infringement ought to be subject to a duty to ensure that the goods are not used or dealt with in breach of the proprietor s rights. 16 They have suggested that the duty to assist the trade mark owner has an historical connection with the development of the so called Norwich Pharmacal orders. 17 Norwich Pharmacal orders originate from an English case concerning the protection of patent rights. Thus, in Norwich Pharmacal v Customs Commissioners, 18 the appellants were the owners and licensees of a patent for a chemical compound. It appeared that the patent was being infringed by illicit importations of the chemical manufactured abroad. 11 Louis Vuitton v Toea [2006] FCA 1443 at [152]. 12 A similar outcome was reached in an English case concerning an online marketplace. Thus, in L Oréal v ebay 2009] E.T.M.R. 53, the English High Court held that ebay, in providing its users space (on its online marketplace) to list their products for sale, did not share a common design with its users. In effect, the argument that ebay ought to be liable (as a joint tortfeasor) for the infringing conduct of its users failed. 13 The provision concerning misleading and deceptive conduct (i.e. s.52) and the other provisions of the Trade Practices Act 1974 have now been incorporated in Sch.2 to the Competition and Consumer Act 2010 (Cth), which is known as the Australian Consumer Law. 14 Google Inc v Australian Competition and Consumer Commission [2013] HCA 1 (Google v ACCC). 15 It should be noted, however, that the Australian Consumer Law (just as the former Trade Practices Act 1974 (Cth)) does contain provisions for accessorial liability. These provisions were not relied upon by the ACCC in pleading its case against Google. It has been suggested that had the ACCC done so, there might have been a better basis to find Google liable in the factual setting of that case (see Althaf Marsoof, Serving the goals of trademark owners through the Australian Consumer Law: A reflection on Google v ACCC (2015) 23 A.J.C.C.L. 244). 16 Burrell and Handler, Australian Trade Mark Law (2010), p Burrell and Handler, Australian Trade Mark Law (2010), p Norwich Pharmacal Co v Customs and Excise Commissioners [1974] A.C. 133 HL (Norwich Pharmacal v Customs Commissioners). This case was followed in Australia in Nokia Corp v Truong [2005] FCA 1141 (Nokia v Truong).

82 374 Intellectual Property Quarterly In order to obtain the names and addresses of the importers the appellants brought an action against the Commissioners of Customs and Excise alleging infringement of the patent and seeking orders for the disclosure of the relevant information. Lord Reid observed that if through no fault of his own a person gets mixed up in the tortious acts of others so as to facilitate their wrong-doing he may incur no personal liability but he comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers. 19 The principle formulated in Norwich Pharmacal v Customs Commissioners was introduced in Australia in Nokia v Truong, 20 where the Australian Federal Court found that a company and its sole director had acted as joint tortfeasors, as the latter had allowed the former to continue selling infringing goods even after becoming fully aware of the infringing nature of the goods. While Norwich Pharmacal v Customs Commissioners provides an example where a court intervened and imposed a duty on a party that possessed information about third parties who were engaging in patent infringements, Burrell and Handler have utilised this judicial authority to support their proposition that the law ought to impose a duty on anyone who is connected in the course of trade with infringing goods and has knowledge as to the infringing nature of such goods. However, Burrell and Handler do not provide any insights as to the exact nature and scope of this duty, and merely state that the circumstances in which such a duty might be breached remains murky, at best, in the Australian context. 21 Therefore, it is necessary to expand on the suggestion put forward by Burrell and Handler, that any person who somehow becomes connected in the course of trade with infringing goods and has knowledge of the infringement must be subject to a duty in favour of trade mark owners to terminate or prevent the infringement from occurring or continuing. Although online hosts do not themselves engage in trade mark infringements, their services are responsible for the storage of content that lead to the infringement. For instance, when ebay offers its users the space to list products on its online marketplace, ebay becomes connected in the course of trade with the activities of its users. Burrell and Handler do not define what they mean by connected in the course of trade, although from a liability perspective the impugned acts (or omissions) of the connected party must be of the type that would normally attract blame for the wrong (or infringement) complained of. 22 In the context of civil law (as opposed to criminal law), there are numerous ways in which a duty may be imposed on a person, the breach of which gives rise to a potential claim for damages. Thus, when two or more parties enter into a contract, each party to that contract will acquire rights and duties corresponding to rights and duties acquired by the other party or parties. Yet, in the context of online infringements of trade mark rights, it is not possible to suggest that a person who engages in an act of infringement, by creating and uploading infringing content for which the services of a host is utilised, would have any contractual relationship with the aggrieved trade mark owner. 23 Any contract, if at all, is between the infringer and the host providing the service. On the other hand, it is also possible for duties to be imposed on individuals or entities under the law of torts. The most common duty imposed on parties is the duty to take reasonable care a duty capable of being breached by either wilful or negligent conduct. Thus, it may be posited that a plausible basis for imposing a duty, as envisaged by Burrell and Handler, on hosts may be derived from principles applicable to the tort of negligence. Adopting a tort-based approach is also logical in view of the origins of the current body of law that governs trade marks. As Sir Fredrick Pollock has pointed out: 19 Norwich Pharmacal v Customs Commissioners [1974] A.C. 133 at Nokia v Truong [2005] FCA 1141 at [40]. 21 Burrell and Handler, Australian Trade Mark Law (2010), p Paul S. Davies, Accessory Liability (Oxford: Hart Publishing, 2015), p There could be instances where an aggrieved trade mark owner is also a customer of a host whose services were utilised to commit an infringement by one of its other customers. This possibility is considered in the next section of this article.

83 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 375 The protection of trademarks and trade names was originally undertaken by courts on the ground of preventing fraud. The right to a trademark, after being more and more assimilated to proprietary rights, has become a statutory franchise analogous to patent rights and copyright, and the wrong to be addressed is now, in cases within the statute, conceived no longer as a species of fraud, but as being to an incorporeal franchise what trespass is to the possession, or right to possession, of the corporeal subjects of property. 24 Bently and Sherman have suggested that courts first began to protect trade marks at the behest of traders in the 16th century through the common law action of deceit, acknowledging that such signs operated as indications of source and if third-party traders were allowed to use the same sign, this would allow a fraud to be committed on the public. 25 As such, a fall-back on common law tort principles to expand the scope of trade mark protection stands to reason. In fact, a tort-based approach is being increasingly used to impose liability on online actors, including hosts, in actions filed against them by trade mark owners. For instance, in Tiffany v ebay, the US Court of Appeals (2nd Circuit) applied the principles of contributory trade mark infringement in determining the liability of an online marketplace, which acted as a host for third-party content. 26 The court observed that [c]ontributory trademark infringement is a judicially created doctrine that derives from the common law of torts. 27 The concept of contributory trademark infringement was coined in Inwood v Ives 28 in relation to manufacturers and distributors of goods: If a manufacturer or distributor intentionally induces another to infringe a trademark, or if it continues to supply its product to one whom it knows or has reason to know is engaging in trademark infringement, the manufacturer or distributor is contributorially responsible for any harm done as a result of the deceit. 29 In Hard Rock Cafe v CSI, 30 which concerned the liability of a flea market owner for the trade mark infringements committed by stall-holders (thus resonating almost identical facts to Louis Vuitton v Toea), the court observed: CSI characterizes its relationship with Parvez as that of landlord and tenant Hard Rock calls CSI a licensor, not a landlord. Either way, the Restatement of Torts tells us that CSI is responsible for the torts of those it permits on its premises knowing or having reason to know that the other is acting or will act tortiously The common law, then, imposes the same duty on landlords and licensors that the Supreme Court has imposed on manufacturers and distributors. In the absence of any suggestion that a trademark violation should not be treated as a common law tort, we believe that the Inwood Labs. test for contributory liability applies. CSI may be liable for trademark violations by Parvez if it knew or had reason to know of them. But the factual findings must support that conclusion. 31 Accordingly, the court in Hard Rock Cafe v CSI 24 P. A. Landon, Pollock s Law of Torts, 15th edn (London: Stevens and Sons Ltd, 1951), p Lionel Bently and Brad Sherman, Intellectual Property Law, 4th edn (Oxford: Oxford University Press, 2014), p Tiffany v ebay 600 F. 3d 93 (2d Cir. 2010). 27 Tiffany v ebay 600 F. 3d 93, 103 (2d Cir. 2010) (emphasis added). 28 Inwood Laboratories Inc v Ives Laboratories Inc 456 U.S. 844 (1982) (Inwood v Ives). 29 Inwood v Ives 456 U.S. 844, 854 (1982). 30 See Hard Rock Cafe Licensing Corp v Concessions Services Inc 955 F. 2d 1143 (7th Cir. 1992) (Hard Rock Cafe v CSI). 31 Hard Rock Cafe v CSI 955 F. 2d 1143, 1149 (7th Cir. 1992) (emphasis added).

84 376 Intellectual Property Quarterly treated trademark infringement as a species of tort and analogized the swap meet [i.e. flea market] owner to a landlord or licensor, on whom the common law imposes the same duty [as Inwood] impose[s] on manufacturers and distributors. 32 What is noticeable in the US approach on contributory trade mark infringement is the willingness on the part of the US courts to impose a duty on the part of one party obligating that party to terminate or prevent an infringement being committed by another in appropriate circumstances. Similar developments have taken place in civil law (as opposed to common law) jurisdictions. The French case of SA Louis Vuitton v ebay 33 is a sound example to demonstrate the use of a tort-based approach to impute liability on a host for infringements on the part of its users. In this case, Louis Vuitton sued ebay under arts 1382 and 1383 of the French Civil Code, on the basis that ebay s users had infringed Louis Vuitton s trade mark. The said provisions in the Civil Code provide as follows: Art Any act whatever of man, which causes damage to another, obliges the one by whose fault it occurred, to compensate it. Art Everyone is liable for the damage he causes not only by his intentional act, but also by his negligent conduct or by his imprudence. Louis Vuitton s primary complaint was that in spite of repeated warnings since 1999, ebay had failed to take effective measures aimed at preventing infringement, such as for instance forcing the sellers to state that they guarantee the genuineness of the product offered for sale, or again finally terminating the account of any seller at the first offence. 34 It should be noted that the claim by Louis Vuitton is based on ebay s failure to act, rather than on any positive act on its part. The court appears to have imposed a duty on ebay to take effective measures to fight infringement on its website, the failure of which would result in liability. 35 In Belgium, a similar case was filed against ebay, 36 and the Brussels Commercial Court held that ebay had no general obligation to monitor the information it hosted and would not be liable for such information unless it was aware of illegal information and did not act promptly to remove it. 37 Essentially, what saved ebay was its VeRo notice and takedown programme, which it implemented effectively. 38 In other words, arguably, ebay was under an implicit duty under the law to ensure that its platform was not used to infringe trade mark rights, a duty that it discharged through its VeRo programme. The approach adopted in the several cases discussed above reflects similarities to the suggestion made by Burrell and Handler, who envisage that all parties connected in the course of trade with infringing goods, and have acquired knowledge of the infringements, ought to be subject to a duty to ensure that trade mark rights are not infringed. In fact, these cases suggest that the principles underpinning tortious 32 Tiffany v ebay F. 3d 93, 104 (2d Cir. 2010) (citations and internal quotation marks omitted). 33 Louis Vuitton v ebay, Tribunal de Grande Instance de Paris, 3e ch., no.07/11365 (13 May 2009). 34 Louis Vuitton v ebay, Tribunal de Grande Instance de Paris, 3e ch., no.07/11365 (13 May 2009) at [36]. 35 Louis Vuitton v ebay, Tribunal de Grande Instance de Paris, 3e ch., no.07/11365 (13 May 2009) at [38]. 36 Lancôme v ebay, Commercial Court of Brussels Docket No.A/07/06032 (31 July 2008). See also Benoît Michaux, Emmanuel Cornu and Pierre Bruwier, ebay v. Lancōme: Judgement of the Commercial Court in Brussels (September 2008), en/news/news-ip-it-and -trade-practices/1136-ebay-vlancome-judgement-of-the-commercial-court-in-bruss [Accessed 4 November 2015]. 37 See Fei Lanfang, Liability for an online marketplace provider s trademark infringement practice and latest development of Chinese law (2013) 44 I.I.C. 569, 580. See also Dennin Lievens, L Oreal v. ebay welcomed in France, resented in England (2012) 43 I.I.C. 68, 75; and Anne S.Y. Cheung and Kevin K.H. Pun, Comparative study on the liability for trade mark infringement of online auction providers [2009] E.I.P.R Lievens, L Oreal v. ebay (2012) 43 I.I.C. 68, 75.

85 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 377 liability could be a suitable means for expanding the scope of trade mark liability. As such, it stands to reason to consider common law principles applicable to cases of negligent omissions in order to overcome the current limitations in Australian law that prevent trade mark owners from holding online hosts liable in circumstances where their services are utilised by third-party users to commit trade mark infringements. The next part of this article systematically considers the extent to which common law principles could be utilised in making a case for the liability of online hosts. Negligent omissions as a basis for liability The tort of negligence deals with circumstances where one party breaches the legal duty owed to another to take reasonable care resulting in damage to the party to whom such duty was owed. Thus, the existence of a duty of care is a precondition for the finding of liability on the basis of negligence. One of the first formulations of the concept of this duty was put forward by Lord Brett MR in Heaven v Pender: Whenever one person is by circumstances placed in such a position with regard to another that everyone of ordinary sense who did think would at once recognise that if he did not use ordinary care and skill in his own conduct with regard to those circumstances he would cause danger or injury to the person or property of another, a duty arises to use ordinary care and skill to avoid such danger. 39 The formulation in Heaven v Pender was further improved by Lord Atkin in the seminal, and oft-cited, case of Donoghue v Stevenson: The rule that you are to love your neighbour becomes in law, you must not injure your neighbour; and the lawyer s question, Who is my neighbour? receives a restricted reply. You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour. Who, then, in law is my neighbour? The answer seems to be persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question. 40 This formulation, which is famously known as the neighbour principle, became a general test for determining whether a duty of care should exist in any given situation, 41 and has been applied in the Australian context. 42 Lord Atkin s reference to omissions (nonfeasance) in addition to acts (misfeasance) in stating that [y]ou must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbour, is of significance to the context of online hosts. This is so, because hosts do not engage in positive acts that by themselves cause infringements of trade mark rights. Rather, it is always the case that infringements are committed by the third-party users of a host s services. Therefore, liability as propounded under Lord Atkin s formula may only be imposed on hosts on the basis of an omission (or nonfeasance) and not otherwise. As such, it would be necessary to consider as to when liability for a negligent omission is capable of being imposed under the common law of Australia. There are several instances where an omission could be regarded as an actionable wrong under the common law. The first instance is where an omission is preceded by positive conduct creating a risk of harm. The second instance is where there is an omission notwithstanding specific knowledge of, and control over, a source of harm or party causing the harm. The third is where there exists a special relationship between the party harmed and the wrongdoer. The last-mentioned basis upon which liability 39 Heaven v Pender (1883) 11 Q.B.D. 503 CA at Donoghue v Stevenson [1932] A.C. 562 HL at John Cooke, Law of Tort, 9th edn (Harlow: Pearson, 2009), p See, e.g. Tame v New South Wales [2002] HCA 35.

86 378 Intellectual Property Quarterly for an omission may be imposed is the least applicable to the context of online hosts, and is therefore considered first, although only briefly. Typical examples of relationships in which an omission could lead to liability include the relationship between employer and employee, 43 boat owner and crew, 44 parent and child, 45 educational authority and child 46 and hospital (or doctor) and patient. 47 In all these instances, a duty of care is imposed in terms of the law between persons in a particular type of relationship. This type of a relationship does not usually exist between a host whose services are used to infringe trade mark rights, and a trade mark owner whose rights are infringed, except in the very limited (and perhaps rare) instance where a contractual relationship might subsist between an aggrieved trade mark owner and the host concerned. Such a possibility exists in the context of keyword advertising and online marketplaces. In the context of keyword advertising, it has been suggested that upon a trade mark owner subscribing to a keyword advertising service (such as Google s AdWords service), an agency relationship comes into being whereby the trade mark owner is designated as the principal and the host (providing the advertising service) as its agent. 48 Accordingly: An agent has a duty not to use property of the principal for the agent s own purposes or those of a third party. This is the inverse of the principal s right to exclude others from using the property. 49 Thus, the argument follows that a trade mark which is the property 50 of a host s principal cannot be used for any purpose of the agent (the host) or any third party (the host s other advertisers). Therefore, a host s omission to prevent its other users (or advertisers) from using the principal s trade mark in third-party advertisements, thus infringing trade mark rights, could result in a civil claim. The cause of action is directly against the host for a breach of fiduciary duty under the law of agency. However, it is difficult to pursue an argument predicated on agency principles, at least at face value, as most agreements between hosts and their customers are agreements for the provision of a service, rather than one creating an agency. In contrast, the context of online marketplaces might be different, at least when it relates to entities such as ebay. ebay has been recognised as a broker by a French court, 51 and this description might lead to the conclusion that ebay is the agent of sellers who list products for sale on its platform. These sellers could include owners of trade marks who have sought ebay s services to sell their branded goods on its platform. In these circumstances, the unauthorised use of a trade mark belonging to one of ebay s customers (or sellers) in third-party product listings may arguably be regarded as a breach of ebay s fiduciary duty towards its principal, the trade mark owner, in failing to prevent the misuse of the principal s property (namely, the trade mark). However, it must be noted that the inference of an agency relationship would depend on the facts of each case, in particular by the conduct of the parties, and there cannot be a set code 43 Reid v Rush and Tompkins Group Plc [1989] 3 All E.R. 228 CA (Civ Div). 44 See, e.g. Davis v Stena Line Ltd [2005] EWHC 420 (QB); [2005] 2 Lloyd s Rep Although in the context of a case involving a shipwreck, the following observation made by Saville LJ in Marc Rich & Co v Bishop Rock Marine [1994] 1 W.L.R CA (Civ Div) at 1077 as regards the duty owed to a child is of relevance and is therefore reproduced: Walking down the street I see a blind person about to cross the road in front of a vehicle. It is foreseeable that he will be injured. I am under no legal duty to take care to save him from danger. But if I am in charge of a child in the street and the child starts to run in front of the traffic, I am under a legal duty to take care to save the child from danger, and indeed other road users from the danger the child may create. The difference in the two cases lies in the difference between the relationship of the parties concerned and in the fact that in the one case but not the other considerations of justice, fairness and reasonableness demand that those injured or damaged should have a remedy. However, it must be noted that the parent-child relationship in itself is insufficient to give rise to a duty of care on the part of the parent. See to this effect, Hahn v Conley (1971) 2 C.L.R. 276; St Mark s Orthodox Coptic College v Abraham [2007] NSWCA 185; and Tweed Shire Council v Carly Eden Howarth (by her Tutor Trent Howarth) [2009] NSWCA See, e.g. X v Bedfordshire CC [1995] 2 A.C. 633 HL. 47 See, e.g. Rogers v Whitikar [1992] HCA Kathryn S. Hatfield, Google s use is your illusion: proposing an agency analysis to trademark infringement lawsuits against online advertising service providers Google v. Louis Vuitton Malletier SA (2011) 25(2) Temple Int. Comp. Law J. 423, Hatfield, Google s use is your illusion (2011) 25(2) Temple Int. Comp. Law J. 423, In this regard, suffice to note that the Australian High Court has recognised that trade marks are the property of the trade mark owner (see JT International SA v Commonwealth of Australia [2012] HCA 43 at [264] and [267]). 51 See Louis Vuitton v ebay, Tribunal de Grande Instance de Paris, 3e ch., no.07/11365 (13 May 2009).

87 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 379 of conduct that could serve as guidance to the creation of an agency in the online context. 52 In any case, ebay has expressly excluded the creation of an agency relationship with its sellers, 53 though it charges a final value fee calculated at a rate derived from total amount of the sale for every item sold on ebay s site (which is akin to a payment of a commission). 54 Accordingly, the inference of an agency relationship between an aggrieved trade mark owner and a host (such as Google or ebay) would depend on a variety of factors, and is extremely far-fetched. Thus, it is very unlikely that a civil claim on the basis of a contractual relationship would arise. Nevertheless, it is important to consider whether the existence of a contractual relationship could give rise to a negligence claim. Although this is a possibility, 55 a court would not recognise a duty of care, which runs counter to the terms agreed between the parties under the underlying contract between them. 56 Therefore, assuming that a contractual relationship gives rise to a duty of care, in the circumstances where a host expressly excludes any responsibility for the protection of its customer s intellectual property rights, it is unlikely that a court would impose a duty on the part of a host to terminate or prevent any infringement of its customer s trade mark rights. This type of exclusion is a common feature in agreements between online service providers and their customers. In any event, circumstances in which an aggrieved trade mark owner is also the customer of a host whose services are used (by a third-party user) to infringe the former s rights are going to be very rare, unless the host concerned is a popular one such as Google or ebay, whose services are commonly utilised. Therefore, alternative approaches under the common law must be considered upon which a duty could be imposed on hosts in favour of trade mark owners whose rights are infringed by those who utilise hosting services. It is argued in the following section that the first two approaches of imputing liability on the basis of a party s omission (i.e. where an omission is preceded by a positive act or where the omission takes place in circumstances where a party has knowledge of, and control over, the source of harm (or persons causing the harm)) could be extended and applied to the context of online hosts in appropriate circumstances. 52 See Branwhite v Worcester Works Finance Ltd [1969] 1 A.C. 552 HL at 587: While agency must ultimately derive from consent, the consent need not necessarily be to the relationship of principal and agent itself (indeed the existence of it may be denied) but it may be to a state of fact upon which the law imposes the consequences which result from agency. 53 See ebay s User Agreement, [Accessed 20 September 2016], which provides that No agency, partnership, joint venture, employee-employer, or franchiser-franchisee relationship is intended or created by this User Agreement. 54 See ebay s Fee Schedule, [Accessed 20 September 2016]. It was this feature that persuaded the French court to regard ebay as a broker that acted for and on behalf of the seller: see Louis Vuitton v ebay, Tribunal de Grande Instance de Paris, 3e ch., no.07/11365 (13 May 2009). 55 See Astley v Austrust Ltd (1999) 197 C.L.R. 1, where the Australian High Court held that an implied term of reasonable care arises by operation of law in a contract for professional services and an action may be brought for professional negligence in both contract and tort. See also Lomsargis v National Mutual Life Assn of Australasia Ltd [2005] QSC 199 at [53]: Of course there are many situations in which the common law now imposes concurrent contractual and tortious duties. In at least some of those, the recognition of the tortious duty has occurred against an already well established contractual duty. A more notable instance where concurrent liability was discussed was in Lord Macmillan s speech in Donoghue v Stevenson [1932] A.C. 562 at 610: Of this the best illustration is the right of the injured railway passenger to sue the railway company either for breach of the contract of safe carriage or for negligence in carrying him. 56 See, e.g. Bryan v Maloney [1995] HCA 17, where it was observed: In some circumstances, the existence of a contract will provide the occasion for, and constitute a factor favouring the recognition of, a relationship of proximity either between the parties to the contract or between one or both of those parties and a third person. In other circumstances, the contents of a contract may militate against recognition of a relationship of proximity under the ordinary law of negligence or confine, or even exclude the existence of, a relevant duty of care.

88 380 Intellectual Property Quarterly An omission preceded by a positive act As a general rule, although nonfeasance is less likely to lead to negligence than in the case of misfeasance, 57 it is only a pure omission that is normally exempted from negligence liability. 58 The rationale against liability for pure omissions was articulated by Lord Hoffmann in Stovin v Wise in the following terms: In political terms it is less of an invasion of an individual s freedom for the law to require him to consider the safety of others in his actions than to impose upon him a duty to rescue or protect. 59 However, an omission could become an actionable wrong where it is preceded by positive conduct creating the circumstance leading to the harm complained of. 60 This type of omission is not a pure omission, as the omission is preceded by a proximate positive act. A typical, and familiar, example of such an omission is a motorist s failure to brake in time to prevent a collision. 61 The positive conduct here is the act of driving, which gives rise to the duty to take reasonable care, which could be breached by failing to brake on time, which is the omission concerned. Thus, although the most proximate reason for the damage caused is an omission, it is merely an aspect of carrying out a positive act with due care and nothing more. Yet another example is that of someone digging a pit (positive act) and the subsequent failure to fence it (omission) that results in injury to someone falling into it at night. 62 Here it is foreseeable to a person digging the pit that unless it is properly fenced it could be a source of danger. In fact, Lord Atkin s reference to omissions in the extract of his speech quoted above is not a reference to pure omissions, but rather to omissions in the course of positive conduct. After all, Donoghue v Stevenson concerned the liability of a manufacturer of ginger beer for failing to exercise the greatest care in order that snails would not get into the bottles, render the ginger-beer dangerous and harmful, and be sold with the ginger-beer. 63 Thus, the omission occurred in the course of the positive act of manufacturing a product. However, in all these examples, it is important to note that the omission that directly caused the harm complained of is proximately interlinked to an overall act that had been initiated. The Australian High Court has acknowledged this approach in the context of a public authority s liability in negligence: A public authority which enters upon the exercise of statutory powers with respect to a particular subject matter may place itself in a relationship to others which imports a common law duty to take care which is to be discharged by the continuation or additional exercise of those powers. An absence of further exercise of the interconnected statutory powers may be difficult to separate from the exercise which has already occurred and that exercise may then be said to have been performed negligently. These present cases are of that kind. They illustrate the broader proposition that, whatever its further scope, Lord Atkin s formulation in Donoghue v Stevenson includes an omission in the course of positive conduct which results in the overall course of conduct being the cause of injury or damage See Kit Barker, Peter Cane, Mark Lunney and Francis Trindale, The Law of Torts in Australia, 5th edn (Melbourne: Oxford University Press, 2012), p See Bernadette Richards, Melissa de Zwart and Karinne Ludlow, Tort Law Principles (Rozelle: Lawbook Co, 2013), p Stovin v Wise [1996] A.C. 923 HL at Flemming s The Law of Torts, 10th edn, edited by Carolyn Sappideen and Prue Vines (Pyrmont: Lawbook Co, 2011), p Flemming s The Law of Torts (2011), p Winfield and Jolowicz on Tort, 18th edn, edited by W.V.H. Rogers (London: Sweet & Maxwell, 2010), p Donoghue v Stevenson [1932] A.C. 562 at Pyrenees Shire Council v Day [1998] HCA 3. But see (in relation to the liability of highway authorities), Brodie v Singleton Shire Council [2001] HCA 29, where the Australian High Court reconsidered this longstanding immunity of highway authorities for nonfeasance and held that such an immunity should no longer be afforded. Rather, the tortious liability of highway authorities should be determined according to the general principles of negligence. This was no doubt a move in the right direction, as otherwise a highway authority that takes positive steps to repair and/or maintain a highway may be open to a risk of being held liable for a negligent omission, whereas those authorities that fail to repair or maintain roads altogether will be at no risk. This development, however, is of little importance to the discussion in this section, as the focus here is on online hosts that introduce a particular tool that is capable being used as a means of infringing trade mark rights. As such, this section focuses on liability for an omission (the

89 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 381 However, the application of this approach to the imposition of liability to online hosts is not straightforward. This is because of the involvement of third parties (i.e. the users of the hosting services) who are more directly responsible for the harm complained of (i.e. infringements of trade mark rights). Thus, for instance, where a host, apart from providing its passive hosting services, engages in a positive act (such as the introduction of a tool) that, although by itself does not infringe any trade mark rights, is capable of providing the means to third-party users to engage in infringements, it may be argued that the host s failure or omission to ensure that trade mark rights are not infringed in any manner could lead to its liability. There are useful analogies that may be drawn from the offline context, which support the imposition of liability on hosts in the circumstances described above. However, before moving on to discuss these analogies, it is useful to set out a real scenario where a host s failure to control a tool which it introduced to assist its customers might ensue in the commission of trade mark infringements on the part of third -party users. This example concerns Google s Keyword Suggestion Tool. The Keyword Planner (or the Keyword Suggestion Tool, as it was formerly called) is used in relation to Google s keyword advertising service, AdWords. Essentially, AdWords allows advertisers to pick keywords for a price, resulting in the advertiser s ad appearing every time a Google user performs a search on its search engine utilising that keyword. The Keyword Planner assists users to pick keywords that are most likely to be triggered. In Rescuecom v Google, the US Court of Appeals (2nd Circuit) observed that Google s Keyword Suggestion Tool was designed to improve the effectiveness of advertising by helping advertisers identify keywords related to their area of commerce, resulting in the placement of their ads before users who are likely to be responsive to it. Thus, continuing the example given above, if Company Y employed Google s Keyword Suggestion Tool, the Tool might suggest to Company Y that it purchase not only the term furnace repair but also the term X, its competitor s brand name and trademark, so that Y s ad would appear on the screen of a searcher who searched Company X s trademark, seeking Company X s website. 65 This description of the Keyword Suggestion Tool of Google might be slightly exaggerated, 66 but assuming that the court s description was accurate, it is noteworthy that the discretion whether to accept the keyword suggestion or not always remains with the advertiser. Google had created a tool that is capable of suggesting popular keywords, which may include competing brand names, and which if adopted by an entity that had no authority to do so could give rise to trade mark infringement. Currently Google describes its Keyword Planner in the following terms: With Keyword Planner, you can find new keyword ideas for your Search Network campaigns that are relevant to your product, service, and target customers. Keyword Planner will show you historical statistics such as search volume data for these keywords so you can decide whether to add them to your campaigns. 67 Accordingly, when a search was performed using the keyword DSLR cameras in the Keyword Planner, the results in Fig.1 were displayed. 68 It is noteworthy that the results included two well-known camera brands, namely, Canon and Nikon, which reflect a relatively higher number of average monthly searches, in contrast to some of the generic keywords. In effect, this may persuade potential advertisers to pick failure to control the use of a tool) that is preceded by a positive act (the introduction of the tool), the kind of omission that was regarded as actionable even before Brodie v Singleton Shire Council. 65 Rescuecom v Google 562 F. 3d 123, 126 (2nd Cir. 2009) (emphasis added). 66 As Google s Keyword Planner (as it is called today) merely provides statistical information relating to search terms that relate to a particular keyword selected by a potential advertiser. 67 See Google s support website under the heading Understanding Keyword Planner Columns, / ?hl=en&ref_topic= [Accessed 20 September 2016]. 68 This analysis was performed on 27 May 2016 using Google s Keyword Planner.

90 382 Intellectual Property Quarterly Canon and Nikon as keywords to trigger their own ads, which could lead to an infringement of trade mark rights. The question that must be posed in these circumstances is whether Google ought to be held liable for any ensuing trade mark infringements, on the basis that it had introduced a tool (prior act), which it failed to control (the omission). There is no doubt that the Keyword Planner is within the control of Google, as the tool runs on Google s platform. Yet, does the prior act, coupled with an element of control over the circumstances that unfolds as a result of that act, alone suffice to impose liability on the basis of a failure to ensure that infringements do not take place? Figure 1 Google s Keyword Planner: DSLR cameras It is quite possible for Google to argue, if an action is filed on this basis, that the statistical data that the Keyword Planner generates are a representation of the state of internet searches over a given period, and that it is completely automated and does not require any input on the part of Google. Therefore, the tool does no more than make available information to prospective advertisers pertaining to searches made on the Google search engine. There is no real positive act on the part of Google which is proximate enough to render actionable its failure to exercise control in the manner in which third-party users make use of the Keyword Planner. A similar argument was made by Google in the defamation cases filed against it 69 concerning inter alia its auto complete search function. 70 In all these cases, Google argued that the words suggested by the auto complete tool were not under the direct control of Google, since they were automatically generated by software which was based on prior user queries over a period of time, and therefore Google was only representing the popularity of the search terms used in performing searches on its search engine. However, this argument failed, leading to Google being held liable for publishing defamatory content. The basis for liability was not the introduction of the auto complete function, and the control Google had over the tool, alone. Rather, liability was premised on Google s knowledge of the defamatory content presented by the tool. For instance, in Duffy v Google, the Supreme Court of South Australia held that 69 See, e.g. Duffy v Google Inc [2015] SASC 170 (Duffy v Google); Trkulja v Google Inc (No.5) [2012] VSC 533; Dr Yeung, SauShing Albert v Google Inc [2014] HKCFI 1404; and Padova Maria Luisa v Google Inc Case No.10847/ See Eleonora Rosati, Searching responsibilities for service providers: Italian courts and AGCOM find (too) many results [2011] Ent. L.R. 169 ( The service consists of an autocomplete algorithm which, when searching something in Google, offers searches which might be similar to the one the Internet user is trying (at n.14)).

91 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 383 because Google was not a primary publisher, it is necessary that Google knew or ought to have known of the existence of the paragraphs. Google had no such knowledge before Dr Duffy s notifications in or in some cases after September 2009 and cannot be regarded as a publisher of the paragraphs before that time. However, if Google acquired knowledge of the paragraphs by reason of Dr Duffy s notifications and failed to remove them within a reasonable time thereafter the necessary mental element will be present. 71 Accordingly, the automation defence is a weak defence, and this is possibly right, as otherwise online service providers, including hosts, may opt to automate their systems with the strategic intention of avoiding liability. However, it is clear that liability is dependent on the existence of a knowledge element. In the circumstances, it is necessary to consider whether the supply of a tool (such as the Keyword Planner) by an online host could give rise to a duty on its part to ensure that the tool is not used to infringe trade mark rights. It is in this regard that an analogy from the offline context becomes useful in considering a host s liability in circumstances where they have introduced a tool for the benefit of their users, thus going beyond their passive hosting functions. This analogy concerns the liability of parties who are in control of a dangerous thing or substance, which results in damage or harm to third parties or their property. A case that aptly illustrates the common law position on the imposition of liability on parties having control of a dangerous thing or substance is Burnie Port Authority v General Jones. 72 In this case, the owner of a building retained an independent contractor to do work on extensions to the building. The work involved welding activities in close proximity to cardboard cartons containing Isolite, an insulating material which burns fiercely if brought into contact with flame. Owing to the contractor s negligence, sparks or molten metal fell on the containers and caused the Isolite to burn. The ensuing fire spread to an area of the building occupied by a licensee and caused damage to its stock. The High Court of Australia, affirming the decision of the lower court, held that the owner of the building owed the licensee a non-delegable duty of care which extended to ensuring that its independent contractor took reasonable care to prevent the Isolite being set alight as a result of the welding activities, and was in breach of that duty and accordingly was liable to the licensee in negligence. In applying the principle that was set out in Rylands v Fletcher, the High Court observed: The relationship of proximity which exists, for the purposes of ordinary negligence, between a plaintiff and a defendant in circumstances which would prima facie attract the rule in Rylands v Fletcher is characterized by such a central element of control and by such special dependence and vulnerability. One party to that relationship is a person who is in control of premises and who has taken advantage of that control to introduce thereon or to retain therein a dangerous substance or to undertake thereon a dangerous activity or to allow another person to do one of those things. The other party to that relationship is a person, outside the premises and without control over what occurs therein, whose person or property is thereby exposed to a foreseeable risk of danger. In such a case, the person outside the premises is obviously in a position of special vulnerability and dependence. He or she is specially vulnerable to danger if reasonable precautions are not taken in relation to what is done on the premises. He or she is specially dependent upon the person in control of the premises to ensure that such reasonable precautions are in fact taken. Commonly, he or she will have neither the right nor the opportunity to exercise control over, or even to have foreknowledge of, what is done or allowed by the other party within the premises. Conversely, the person who introduces (or allows another to introduce) the dangerous substance or undertakes (or allows another to undertake) the 71 Duffy v Google [2015] SASC 170 at [205] (citation omitted). 72 Burnie Port Authority v General Jones Pty Ltd [1994] HCA 13 (Burnie Port Authority v General Jones).

92 384 Intellectual Property Quarterly dangerous activity on premises which he or she controls is so placed in relation to [the other] person or his property as to assume a particular responsibility for his or its safety. 73 In many ways, the above observations made by the High Court could be applied to the context of online hosts. First, the relationship between hosts and their users are characterised as something similar to that of landlords and tenants. 74 In essence, online hosts have control over the space and environment utilised by their users to upload and store content. This is very similar to a party who has control over premises and takes advantage of that control to introduce thereon or to retain therein a dangerous substance or to undertake thereon a dangerous activity or allow another person to do one of those things. In the Keyword Planner example, Google has clear control over its own servers and the Keyword Planner that it introduces to its users. The Keyword Planner can be compared to Isolite in Burnie Port Authority v General Jones. Isolite by itself is not a dangerous substance. It could become dangerous when ignited, and this is precisely what happened in the cited case. Similarly, the Keyword Planner itself is not the cause of the infringements. However, the keyword suggestions made by the tool incorporating popular trade marks as potential keywords for purchase could lead to an infringement of trade mark rights. Secondly, in the specific example cited above that concerns Google s Keyword Planner (see Fig.1), trade mark owners (whose trade marks are suggested by the tool) have no control either over how the tool operates, or over the parties that make use of the tool. In contrast, the host introducing the tool has control over both the tool and those who make use of it. Trade mark owners whose marks are suggested by the Keyword Planner are vulnerable to infringement, unless Google takes reasonable measures to prevent infringements. Trade mark owners have neither the right, nor the opportunity, to exercise control over the tool. All that an aggrieved trade mark owner could do is to notify the host supplying such a tool of its potential use as a means of infringement. As such, it is reasonable to draw an analogy between an online host that has introduced a tool capable being used as a means to infringe trade mark rights and a landowner who has introduced a dangerous substance (or allows such a substance to be introduced or used by a third party) in his or her land and fails to exercise necessary control over it leading to harm being caused to neighbouring property. If the analogy does hold, it may be argued that the liability principles applicable in cases such as Burnie Port Authority v General Jones could be applied in determining the liability of online hosts that have introduced a tool such as the Keyword Planner. There are, however, two difficulties with this analogy. The first concerns the lack of physical proximity between the aggrieved trade mark owner on the one hand and the online host, and its users, on the other. In the case of a dangerous substance, such as a fire, proximity would be a necessary factor in determining the foreseeability of the danger. In the case of a tool available in the online environment, such physical proximity becomes irrelevant given the borderless nature of the internet. In any case, physical proximity is not an indispensable requirement for a finding of a duty of care. 75 The second difficulty with this analogy relates to the element of knowledge. After all, in view of the automated nature of some of these online tools, it may not be reasonable to expect a host introducing the tool to constantly keep monitoring its use. This would run counter to efficient business practices and the efficacy of the internet as a whole. Therefore, it might seem that the incorporation of a knowledge requirement into the online context dilutes the strength of the analogy that is made use of here. However, this is not the case. In Stoneman v Lyons (cited in Burnie Port Authority v General Jones), it was observed by the Australian High Court that: 73 Burnie Port Authority v General Jones [1994] HCA 13 at [36]. 74 See Hard Rock Cafe v CSI 955 F. 2d 1143, 1149 (7th Cir. 1992). 75 This position was made clear in Lord Atkin s speech in Donoghue v Stevenson [1932] A.C. 562 at 581: I think that this sufficiently states the truth if proximity be not confined to mere physical proximity, but be used, as I think it was intended, to extend to such close and direct relations that the act complained of directly affects a person whom the person alleged to be bound to take care would know would be directly affected by his careless act.

93 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 385 The principle that in the case of dangerous operations there is a special responsibility to take care does not exclude the liability of a person who engages an independent contractor to undertake an operation which is inherently dangerous and which injures a third party. But to make the principal liable it must appear that he himself was guilty of some negligent act or omission or that he authorized some negligent act or omission by the contractor in executing the operations which the latter was employed to carry out. Thus it may appear that the principal is liable because he has failed to take care to engage a competent contractor or because, having knowledge that the contractor proposed to execute the work in an unsafe manner, he did nothing to eliminate the danger. 76 Thus, although the liability of anyone who introduces a dangerous thing or substance could arise from a subsequent omission to take necessary precautions to prevent harm being caused, there are instances where an element of knowledge becomes relevant, particularly where third parties (such as independent contractors) are involved. This is not so different from the context of the Keyword Planner example, because any harm to trade mark owners would depend in the manner in which Google s users put the tool to use. However, in these circumstances, where a trade mark owner has notified Google of the fact that the tool suggests a registered trade mark as a potential keyword for purchase, the failure on the part of Google to exclude that mark from the list of suggestions could form a basis for Google s liability. After all, the online host has introduced a tool (having the potential of being used as a means of infringing trade mark rights) which it knows is being made use of by third-party users to create and display advertisements in an infringing manner. It may be therefore posited that the common law basis for the imputation of liability on parties that introduced a dangerous thing or substance could be used in the analogous online scenario concerning online hosts that introduce a specific tool capable of being used as a means of infringing trade mark rights. An omission notwithstanding knowledge and control In the previous section, the focus was on hosts that introduce tools (such as Google s Keyword Planner) that have the potential of being used as a means of committing trademark infringements the tool s introduction constituting a positive act, and the failure to exercise control over the tool s use constituting the actionable omission. The closest analogy in the offline context is the duty imposed on a party that introduces, and possesses control over, a dangerous thing or substance (or activity in relation to such thing or substance) to ensure that the thing or substance does not cause harm to third parties. However, there are hosts that limit their activities to providing a passive hosting service. Unlike in the case of hosts that have introduced a tool, which constitutes a means of infringement, the mere act of supplying hosting facilities does not induce, encourage or in any way lead to infringements of trade mark rights. The infringing acts are based on the nature of content created, uploaded and stored by third-party users of a host s services. In that sense, there is a lack of proximity between the act of providing the hosting service, and the acts that lead to infringements. Not only are the infringing acts traceable to a party other than the host, the provision of hosting services by a host is not the most proximate cause for the infringement. The omission on the part of a host to exercise control over third-party users that make use of its services in order to infringe trade mark rights cannot be characterised in the same way as an omission proceeded by a positive act. In these circumstances, the question that is posed in this section is whether a passive host that is merely engaged in the supply of hosting services could be held liable on the basis of its omission to ensure that its platform remains free of infringing content. It is quite clear that hosts have a contractual relationship with their users. They also possess technical control over the content stored on their platform. While it would not be reasonable to expect hosts to constantly police their platforms so that infringing content may be filtered out and deleted, the expectations 76 Stoneman v Lyons [1975] HCA 59 at [23] (emphasis added).

94 386 Intellectual Property Quarterly change when they acquire specific knowledge of the existence of infringing content. Thus, it would be reasonable for the law to impose a duty on a host that has acquired specific knowledge of infringing content in relation to which it has control to take reasonable steps to remove the infringing content. The failure to remove the infringing content would in turn lead to a breach of this duty, resulting in the host s liability. In the copyright context, this outcome could be achieved through the provisions in the Copyright Act 1968 (Cth) that impose liability for authorising copyright infringement s.36(1), applicable in relation to literary, dramatic, musical or artistic works, and s.101(1), applicable to subject-matter other than works covered by s.36(1). A case in point is Roadshow v iinet, 77 which concerned the authorisation liability of an internet service provider (ISP) whose customers utilised peer-to-peer file sharing software to infringe copyright subsisting in certain films and television programmes. In determining the liability of the ISP under s.36(1) of the Copyright Act 1968 (Cth), the Australian High Court considered three factors prescribed under that provision. These factors are: (1) the extent (if any) of the ISP s power to prevent the doing of the act resulting in the infringements; (2) the nature of any relationship existing between the ISP and the persons engaging in the infringing acts; and (3) whether the ISP took any other reasonable steps to prevent or avoid the infringing acts being committed, including whether the ISP complied with any relevant industry codes of practice. Accordingly, the court came to the conclusion that: 1. [On power to prevent]: iinet did not possess the technical power to prevent the infringements from happening. This was so because iinet had no direct technical power at its disposal to prevent a customer from using the BitTorrent system [the peer-to-peer software] to download the appellants films on that customer s computer [On taking reasonable steps]: The only step iinet could have taken was to terminate the infringing users accounts, which would have effectively prevented the users from gaining access to the internet. However, in view of the uncertainties surrounding the notices of infringement that was served on iinet, the court found that it would not have been reasonable for iinet to have suspended its users accounts. 79 In determining whether suspending user accounts was a reasonable step, it seems that the court also considered the effectiveness of such an approach [r]egrettably, however, on receiving a threat of such termination, it is possible for a customer to engage another ISP for access to the internet on that computer or access the internet on another computer using a different ISP. Whilst any new infringement would be just as serious as the specific primary infringements about which the appellants complain, this circumstance shows the limitations on iinet s power to command a response from its customers, or to prevent continuing infringements by them [On the relationship between parties]: There clearly was a contractual relationship pursuant to a customer relationship agreement between the ISP and its users, but the relationship did not give rise to a possibility on iinet s part to control the choice of its subscribers and other users to utilise the BitTorrent software [the means of infringement] Roadshow Films Pty Ltd v iinet Ltd [2012] HCA 16 (Roadshow v iinet). 78 Roadshow v iinet [2012] HCA 16 at [65]. 79 Roadshow v iinet [2012] HCA 16 at [138]. 80 Roadshow v iinet [2012] HCA 16 at [73]. 81 Roadshow v iinet [2012] HCA 16 at [137].

95 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 387 Based on the above findings, the High Court exonerated iinet from authorisation liability. Yet, if the facts of Roadshow v iinet were slightly altered so that authorisation liability was sought to be imposed on an online host, and not an ISP, the outcome of the case might have been different. This is because an online host possesses the technical power to prevent or terminate an infringement from occurring, when the infringement arises from content residing on its servers. This is possible because the host could simply remove the content causing the infringement. The removal of the infringing content would also constitute a reasonable step. It is not as drastic as terminating the user s account, but it is an effective remedy with a proportionate outcome. The host has a clearly defined contractual relationship with its customers, under which it could exercise its power to remove any infringing content, and most service contracts incorporate a provision to that effect. Therefore, in circumstances where a party notifies a host giving particulars about the content causing the infringement, the failure on the host s part to remove the identified content could lead to a finding of authorisation liability under the Copyright Act 1968 (Cth). However, as was stated in the introductory part of this article, there is no comparable regime under the Trade Marks Act 1995 (Cth) that provides for authorisation liability. As such, it is necessary to pose the question whether suitable common law principles exist according to which hosts could be held accountable in circumstances where they have acquired specific knowledge of the existence of infringing content, but fail to take steps to remove that content. Although it is clear that knowledge of the infringing content and the control exercised over the content are grounds that will have to be considered in determining an appropriate approach under the common law as regards a host s liability, it must be emphasised that the infringement complained of in actuality is caused by a third-party user, and not the host itself. The common law does not normally impose a duty on one party to control the actions of another. The following statement made by the High Court of Australia in Smith v Leurs reflects this position: It is, however, exceptional to find in the law a duty to control another s actions to prevent harm to strangers. The general rule is that one man is under no duty of controlling another man to prevent his doing damage to a third. There are, however, special relations which are the source of a duty of this nature. 82 It is often the case that special relations between parties give rise to power on the part of one to control the other, which has been a factor that is considered in determining the existence of a duty of care. 83 For instance, in Modbury Triangle Shopping Centre Pty Ltd v Anzil, 84 the High Court refused to hold the owner of a shopping centre liable for injuries caused to an employee of a party that had leased out premises in the complex, the injuries arising as a result of a criminal attack carried out by some third parties who had entered the premises. The court held that [t]he appellant had no control over the behaviour of the men who attacked the first respondent, and no knowledge or forewarning of what they planned to do. 85 Perhaps more relevant to the context of online hosts (in view of providing a better analogy) is NSW v Godfrey. 86 This case concerned the liability of a prison authority for the acts of an escaped prisoner causing injury to a third party. The case turned on the degree of control the prison authority had over the escapees. The court applied the principles established in Home Office v Dorset Yacht 87 (which was an English case) and held: If Dorset Yacht does represent the law in Australia, its application should, in my opinion, be confined to the course of the escape, where control is capable of being reasserted by the persons who should 82 Smith v Leurs (1945) 70 C.L.R. 256 at (emphasis added). 83 JL v State of South Australia [2004] SADC 110 at [21] (JL v State of SA). 84 Modbury Triangle Shopping Centre Pty Ltd v Anzil [2000] HCA 61 (Modbury Triangle v Anzil). 85 Modbury Triangle v Anzil [2000] HCA 61 at [19]. 86 New South Wales v Godfrey [2004] NSWCA 113 (NSW v Godfrey). 87 Home Office v Dorset Yacht Co Ltd [1970] A.C HL.

96 388 Intellectual Property Quarterly have prevented the escape. No such duty has ever been found to encompass conduct hundreds of kilometres from, and months after, an escape. 88 In addition to control over the party causing the harm, it has also been recognised that a plaintiff s vulnerability to harm and in particular knowledge by the defendant of such vulnerability is a relevant consideration 89 in determining whether a duty of care should exist. Thus, in Perre v Apand, the Australian High Court observed that knowledge (actual, or that which a reasonable person would have) of an individual, or an ascertainable class of persons, who is or are reliant, and therefore vulnerable, is a significant factor in establishing a duty of care. 90 For instance, in Swan (By His Next Friend) v South Australia, 91 the Supreme Court of South Australia found that the Department of Correctional Services owed a duty in circumstances where information has become available revealing that there is or may be a breach of a parole condition on the part of someone released by the Parole Board, which breach is reasonably foreseeable as being likely to cause harm to a particular person or persons, the requirement of proximity is met giving rise to a duty of care towards the person or persons likely to be injured. Thus, in this case, although there was no general duty of care, once the Parole Board become aware of the breach of parole conditions on the part of a person who was released, a duty of care came into being, the failure on the part of the Parole Board to take reasonable steps to avoid the harm complained of giving rise to a breach of that duty. These principles could be readily applied to the context of online hosts. Thus, although a general monitoring obligation ought not to be imposed on hosts, in circumstances where a host is notified about the existence of infringing content on its own servers (satisfying the knowledge element), it may be argued that the host ought to be subject to a duty to take reasonable care in ensuring that no infringement takes place. Accordingly, it may be posited that an approach to hold online hosts liable on the basis of their knowledge of, and control over, the infringing content, and the party responsible for it, may find support under existing common law principles applicable in Australia. This article does not recommend a general duty of care on the part of hosts to ensure that its platforms are not used to infringe trade mark rights. The only way of discharging such a duty would be to engage in constant monitoring of user activities and content, which is something that is neither practical, nor conducive to the development of the internet. As such, the more pragmatic approach is a more specific duty a duty that arises only in circumstances where a host has been notified by an aggrieved trade mark owner of the existence of content that infringes trade mark rights over which the host has technical control. In these circumstances, the omission or failure on the part of the host to take steps to remove the identified content ought to lead to its liability. Would an Australian court impose a duty of care on online hosts? Although it is argued in this article that a duty must be imposed on online hosts in the circumstances discussed above, it is important to consider the current approaches adopted by Australian courts in determining whether a duty of care should be imposed in novel situations. Such an inquiry is necessary given the recent High Court decision in Roadshow v iinet, where the court refused to apply common law principles in determining the liability of an ISP for the acts of copyright infringement carried out by its users NSW v Godfrey [2004] NSWCA 113 at [34]. 89 JL v State of SA [2004] SADC 110 at [21]. 90 Perre v Apand Pty Ltd [1999] HCA 36 at [10] (Perre v Apand). 91 Swan (By His Next Friend) v South Australia (1994) 62 S.A.S.R See Roadshow v iinet [2012] HCA 16 at [116]. The High Court observed (per Gummow and Hayne JJ):

97 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 389 It is suggested that the Australian High Court has utilised three fundamental approaches to determine the existence of a duty of care. 93 The first of these approaches is the incremental or categories approach that relies on deduction and analogy with precedents in establishing categories of duty. 94 The second approach is known as the salient features approach, 95 which is meant to evaluate the totality of the relationship between the plaintiff and the defendant. It is a multi-faceted inquiry to determine if a duty of care is owed. 96 The third approach involves an examination of the criteria of reasonable foreseeability, proximity and competing policy to determine the existence of a duty. 97 Despite the frequent use of these approaches by the Australian High Court, they have succumbed to criticism. The incremental approach is heavily reliant upon the existence of precedent. However, it is to be noted that judicial precedent might not be too helpful in cases involving the use of technology, as technology evolves rapidly, and there might be a considerable difficulty in using analogical methods in applying the law as it is to novel technological situations. Such an incremental method may also lead to unnatural extensions of the law, a drawback identified by Gummow J in the following terms: [T]he making of new precedent will not be determined merely by seeking the comfort of an earlier decision of which the case at bar may be seen as an incremental development, with an analogy to an established category. Such a proposition, in terms used by McCarthy J in the Irish Supreme Court, suffers from a temporal defect that rights should be determined by the accident of birth. 98 Under this approach, the analogy made earlier between a host s supply of a tool to its users capable of being used as a means of infringement, and the possible harm that a third party may suffer from the wrongdoer s control over a dangerous thing or substance, might seem a giant leap and not an incremental step. Any analogy between the physical world and the virtual environment might be difficult to fit into an incremental approach, unless the comparisons are made between identical circumstances, the only permitted difference being the environment in which the event takes place (i.e. whether in the online or offline environments). Therefore, the incremental approach may not be the most suitable in the pursuit of a duty of care on the part of hosts. Similarly, the salient features approach has been criticised for its use of an arbitrary list of potentially relevant legal policy factors, the significance of which would depend on a value judgment, lacking a proper methodology to determine the existence of a duty of care. 99 Yet, given that this approach considers policy factors as opposed to merely legal principles, it might be useful in the context of novel situations posed by the internet. For instance, one of the factors that might be given due consideration under this approach is the knowledge actual or constructive of the defendant that its act will harm the plaintiff. 100 Thus, this approach might be suitable in finding a duty of care on the part of hosts in the circumstances discussed in this article. However, given the subjectivity involved in this approach, this is something that cannot be predicted with certainty. It may be accepted that the application of the tort of negligence can render liable parties whose failure to take economically responsible precautions has resulted in harm to the plaintiff. However, the width of the terms in which the proposed duty is cast would present iinet and other ISPs with an uncertain legal standard for the conduct of their operations. Further, as counsel for Alliance submitted, this would achieve for copyright owners, but at the expense of the ISP, the suspension or disconnection by their ISP of subscribers from the internet, a remedy which would not be available to the copyright owners were they themselves to sue the subscribers. 93 Norman Katter, Who then in law is my neighbour? Reverting to First Principles in the High Court of Australia (2004) 12(2) Tort L.R Katter, Who then in law is my neighbour? (2004) 12(2) Tort L.R Katter, Who then in law is my neighbour? (2004) 12(2) Tort L.R Ian Malkin and Tania Voon, Social hosts responsibility for their intoxicated guests: Where courts fear to tread (2007) 15 Torts L.J. 62, Katter, Who then in law is my neighbour? (2004) 12(2) Tort L.R Perre v Apand [1999] HCA 36 at [199]. 99 Katter, Who then in law is my neighbour? (2004) 12(2) Tort L.R Katter, Who then in law is my neighbour? (2004) 12(2) Tort L.R. 85.

98 390 Intellectual Property Quarterly The third approach seeks to establish a duty of care in situations involving reasonable foreseeability and proximity. The test of proximity is not based on any measure of closeness or directness of the relationship between the party that has suffered a loss and the party on whom the law looks to impose a duty, but rather encompasses policy issues. 101 Thus, in Hill v Van Ero, 102 the High Court found that a duty of care was owed by a solicitor to a beneficiary under a will, despite the fact that there was no contractual relationship between the parties, no assumption of responsibility by the solicitor, or reliance on the part of the beneficiary. Justice Dawson s summation on the matter of proximity is of importance and is therefore reproduced below: I am of the view that a solicitor retained to draw up and attend to the execution of a will is in a relationship of proximity with an intended beneficiary under the will. That relationship gives rise to a duty to exercise reasonable skill and care in the performance of those tasks. That will be so whether or not the intended beneficiary knows of the bequest. The duty arises from the special considerations involving testamentary dispositions which I have discussed above The duty of care which I would recognise in the present case arises from the particular relationship between the parties, that relationship being analogous to other relationships of proximity in which a duty of care has been held to arise. It is that which, in addition to the foreseeability of harm, provides the basis in this case for the recognition of tortious liability for negligence. 103 The question that is relevant to this article is whether a court would find a proximate relationship between a host and a trade mark owner whose trade mark rights are infringed by the host s users, resulting from the manner in which the service is supplied. In cases where a trade mark owner notifies a host that one of its users is utilising the online service without respecting the notifier s trade mark rights, it could be argued that the notice supplies the relationship of proximity and completes the reasonable foreseeability test giving rise to a duty of care. However, it is suggested that the manner in which Australian courts have sought to establish a duty of care in a novel situation, based on the criteria of proximity, has been marred with uncertainty and doctrinal chaos, 104 so much so that this approach has now been abandoned. 105 Instead, the recent cases in the Australian High Court 106 suggest a revival of the first principles echoed in Donoghue v Stevenson. This is confirmed by Gleeson CJ s observation in Annets v Australia Stations: Lord Atkin, in Donoghue v Stevenson, spoke of the effect of acts or omissions on persons who are so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question. It is the reasonableness of a requirement that a defendant should have certain persons, and certain interests, in contemplation, that determines the existence of a duty of care. 107 Yet, one might suspect that the reference to persons who are so closely and directly affected would hinder the imposition of a duty of care on hosts that are often neither so closely connected to persons whose rights are infringed, nor the actions of which might be as direct as in physical reality. However, 101 Katter, Who then in law is my neighbour? (2004) 12(2) Tort L.R Hill v Van Ero (1997) 199 C.L.R Hill v Van Ero (1997) 199 C.L.R See Andrew Barker, The duty of care and the search for certainty: Sullivan v Moody, Cooper v Hobart, and problems in the South Pacific [2003] N.Z.L.J See Sullivan v Moody [2001] HCA 59 at [48]: Notwithstanding the centrality of that concept, for more than a century, in this area of discourse, and despite some later decisions in this Court which emphasised that centrality, it gives little practical guidance in determining whether a duty of care exists in cases that are not analogous to cases in which a duty has been established. It expresses the nature of what is in issue, and in that respect gives focus to the inquiry, but as an explanation of a process of reasoning leading to a conclusion its utility is limited 106 See, e.g. Annets v Australia Stations Pty Ltd [2002] HCA 35 (Annets v Australia Stations); Graham Barclay Oysters Pty Ltd v Ryan (2002) 77 A.L.J.R. 183 (Graham v Ryan); and Ryan v Great Lakes Council (2003) 77 A.L.J.R Annets v Australia Stations [2002] HCA 35 at [9].

99 Negligent Omissions as Basis for Holding Online Hosts Liable: Infringements of Trade Mark Rights 391 Kirby J s statement in Graham v Ryan provides significant assistance in this regard, and is reproduced here: The difficulty with this formulation is that the reference in it to the relationship of the parties as one so close that a duty arose could quite easily slip back into the discredited notion that proximity, alone, is a sufficient criterion for the assignment of a legal duty. However, so long as the closeness of the relationship contemplated is not confined to physical closeness, I see no great difficulty now (and some advantage) in leaving the features of the relationship of neighbourhood undefined and simply asking whether, in all the circumstances, it is such as to make it reasonable to impose upon the one a duty of care to the other. This is always the ultimate question that must be answered in all cases of a disputed duty of care in negligence. 108 Therefore, in finding a duty of care on the part of hosts, Lord Atkin s neighbour principle should provide the necessary guidance. Accordingly, in cases where a host ought to have in its contemplation the interests and rights of trade mark owners, a duty of care must be imposed on that host to ensure that the use of its service by online users does not infringe trade mark rights. It is submitted that in the circumstances discussed at length hitherto an Australian court would find in favour of the existence of a duty of care on the part of hosts, requiring them to promptly act upon acquiring knowledge of the commission of a trade mark infringement on their platform and to ensure that tools that are supplied along with its otherwise neutral hosting services are not abused by their users to the detriment of trade mark owners. 109 Conclusion The purpose of this article was to draw on common law principles relating to negligent omissions and apply them to the context of online hosts, in an attempt to make a case for holding them liable for the infringements of trade mark rights that are committed by those who make use of their hosting services. Given that historically trade mark infringements were seen as a species of tort, as well as the judicial trend of expanding trade mark liability beyond its original scope by using distinct principles familiar to the law of torts, it was considered apt to adopt a tort-based approach in considering the liability of online hosts for trade mark infringements. The absence of a remedy against hosts under the Trade Marks Act 1995 (Cth), and the difficulties in holding hosts liable as joint tortfeasors or under the provisions of the Australian Consumer Law (formerly, the Trade Practices Act (Cth)), justified the need to investigate principles surrounding negligent omissions as a basis for liability. Although the law will not impose a general obligation on the part of hosts to prevent trade mark infringements from occurring on their platforms, they may be obligated to do so under limited circumstances. One instance where a duty may be imposed on a host is where there is a failure to act preceded by some positive conduct that was proximate enough and entailed a reasonable foresight of trade mark infringement. The introduction of a tool by a host (such as Google s Keyword Planner) in the course of providing its hosting services is an example where the law may impose a duty on its part to ensure that the tool so introduced is not utilised to infringe trade mark rights. Another instance where it would be reasonable to hold a host liable is where it fails to remove infringing content upon acquiring specific knowledge of its existence. The acquisition of knowledge typically justifies the imposition of a duty, 108 Graham v Ryan (2002) 77 A.L.J.R. 183 at [242] (citations omitted) (emphasis added). 109 Unlike in the case of Roadshow v iinet [2012] HCA 16, the basis of liability for a negligent omission on the part of a host to remove identified infringing content or to prevent its users from using a tool that it had introduced as a means of committing an infringement (as proposed in this article) does not amount to the circumstances that led the High Court to relieve iinet of authorisation liability. Unlike in Roadshow v iinet, where the ISP had neither any control over the tool (software) that was used for the infringements nor the technical ability to take down the infringing material (at [112]), the circumstances upon which it is argued in this article that a duty of care must be imposed on a host to take action concerning the trade mark infringing content or conduct of its users are instances where the host has knowledge of an actual or imminent infringement and control over the content or tool that is used as a means of infringement.

100 392 Intellectual Property Quarterly particularly because the host has control over the content and the parties authoring such content. This approach validates the suggestion of Burrell and Handler 110 that seeks to extend the scope of the Trade Marks Act 1995 (Cth) to anyone who becomes connected in the course of trade to infringing goods, and is put on notice about the infringement. Despite the numerous approaches adopted by Australian courts in determining the existence of a duty of care in novel factual situations, the more recent cases decided by the Australian High Court demonstrate a fall-back on Lord Atkin s celebrated neighbour principle advocated in Donoghue v Stevenson. Accordingly, a host s liability for neglecting to terminate an infringement on its platform would depend on whether the host in the provision of its service ought to have had in contemplation a class of persons who would so closely and directly be affected by the conduct of the host, the class of persons in this case being trade mark owners. It is submitted that in the circumstances where a host introduces a tool capable of being used as a means of infringement, or is made specifically aware of the existence of infringing content on its servers or platform, the criteria set out by Lord Atkin become satisfied. 110 Burrell and Handler, Australian Trade Mark Law (2010), p.512.

101 The Superiority of the Restitutionary Model in the Computation of Reasonable Royalties for Patent Infringement: A Comparative Discussion Moshood Abdussalam * Jane Nielsen ** Dianne Nicol *** Compensatory damages; Infringement; Measure of damages; Patents; Restitutionary damages; Royalties Abstract This article argues that the restitutionary model of reasonable royalties, in the context of patent law, should be upheld and that the compensatory model should be dispensed with. The compensatory model of reasonable royalty computation appears to be the customary standard in the context of patent law. This model is, however, unsuitable for the peculiarities of the patent market as it encourages room for opportunism. It does so for the reasons that: (1) the model is founded on a hypothetical bargaining process; (2) the patent market is inherently characterised by information costs; and (3) patents are meant to promote utilitarian ends, not to promote property rights in inventions. However, the use of the restitutionary model obviates the incidence of opportunism and suits the purposes of patent law as it: (1) is suitable for the peculiarities of the patent market; and (2) simply determines reasonable royalties on the basis of the value of infringing engagements to the infringer. Introduction reasonable royalties and the problem of opportunism One of the many intractable problems in patent law is how to determine the right level of recompense for a patent holder who succeeds in an action for infringement. If the monetary remedy is too high, this encourages patentees to aggressively pursue users of their claimed technologies, including the type of behaviour that has come to be known as patent trolling. A patent troll acquires patent rights for the specific purpose of extracting a toll from the users of the patented subject-matter, with no intention of commercially developing the subject-matter in their own right, or genuinely entering into licensing arrangements with other parties for that same purpose. In contrast, if the monetary remedies available to wronged patentees are too low, this encourages others to exploit the patented subject-matter without seeking permission from the patentee. Both types of behaviour either on the part of patentees when monetary remedies are overly generous, or on the part of would-be infringers when those remedies are too modest are examples of opportunism. Opportunism arises when entities engage in behaviour that, although legal, unfairly enables them to secure private gains and causes others to suffer inordinate social costs. 1 * PhD Candidate, University of Tasmania. ** Senior Lecturer, Faculty of Law, University of Tasmania. *** Professor of Law and Director of the Centre for Law and Genetics, Faculty of Law, University of Tasmania. 1 Henry Smith, Why Fiduciary Law Is Equitable in Andrew S. Gold and Paul B. Miller (eds), Philosophical Foundations of Fiduciary Law (Oxford: Oxford University Press, 2014). 393

102 394 Intellectual Property Quarterly Three types of monetary remedies are available to patentees who succeed in infringement actions: compensatory damages, which are aimed at putting the patentee in the position they would have been in had the infringement not occurred; reasonable royalties, aimed at putting the patentee in the position they would have been in had the would-be infringer sought permission to exploit the patented subject-matter; and accounts of profits, aimed at requiring the wrongdoer to disgorge their ill-gotten gains. There is a large body of jurisprudence associated with each form of monetary remedy. However, there is little academic commentary, particularly in Commonwealth jurisdictions, on the extent to which the courts properly assess the consequences of choosing a particular award from the perspective of encouraging opportunism. The courts take monetary remedies as a given and apply them religiously with little or no advertence to their possible negative third-party or dynamic implications. This article focuses specifically on the reasonable royalties remedy, where the risk of opportunism is high because of the way in which it can shape trends in the patent marketplace. Just as a market in ordinary parlance is an arrangement by which buyers and sellers of a commodity or commodities interact to determine its price and the quantity of the subject matter of exchange, 2 the patent system creates a market for patented technologies. A patent market is an arrangement whereby owners of patented technologies and intending users (commonly known as licensees) can meet to determine the terms and conditions for the use of or access to patented technologies. 3 The chief element of these terms and conditions is usually royalties. How royalties are determined is usually left to the mutual agreement of the parties to a licensing contract. Judicial attitudes, as reflected in case law on the computation of reasonable royalties, can have an influential impact on how parties privately determine royalties. 4 In other words, judicial precedents on reasonable royalties furnish private parties with a default benchmark on how to determine royalties for the purposes of voluntary licensing. 5 The competing juridical bases of reasonable royalties Reasonable royalties have their foundation in the user principle ; that is, an infringer of another s proprietary right must make reparations for the use or incursion of that right, even though that user or incursion causes no financial loss to the owner. 6 A classic case on the user principle can be found in Owners of the Steamship Mediana v Owners, Master and Crew of the Lightship Comet. 7 There Lord Halsbury gave an analogy of a person who took the chair of another, and could show that the owner would not have used the chair at all within the period it was taken the aim being to show that the owner lost nothing owing to the incursion. His Lordship reasoned that an argument by the infringer that the owner should recover only nominal damages would be absurd. Rather, a jury seised with the responsibility of determining compensation for the unjust and unlawful withdrawal of the chair from the owner would have asked: Well, if you wanted to hire a chair, what would you have to give for it for the period? 8 A further illuminating analogy was proffered by Lord Shaw in Watson Laidlow & Co Ltd v Potts, Cassels and 2 Paul Samuelson, William Nordhaus, Sue Richardson, Graham M. Scott and Robert Wallace, Economics, 3rd Australian edn (Sydney: McGraw Hill, 1992), p See Naomi Lamoreaux and Kenneth Sockloff, Inventors, Firms, and the Market for Technology in the Late Nineteenth and Early Twentieth Centuries in Naomi Lamoreaux, Daniel Raff and Peter Temin (eds), Learning by Doing in Markets, Firms, and Countries (Chicago: University of Chicago Press, 1999). 4 See James Bessen and Michael Meurer, Lessons for Patent Policy from Empirical Research on Patent Litigation (2005) 9 Lewis and Clark Law Review 4; see also James Bessen and Michael Meurer, The Private Costs of Patent Litigation, Boston University School of Law Working Paper No (2008), SSRN, [Accessed 20 September 2016]. 5 Daniel Crane, Bargaining in the Shadow of Rate-Setting Courts (2009) 76 Antitrust Law Journal 307; see also Suzanne Michel, Bargaining for RAND Royalties in the Shadow of Patent Remedies (2011) 77 Antitrust Law Journal See W & J Wass Ltd v Stoke on Trent City Council [1988] 1 W.L.R CA (Civ Div); see also John Glover, Restitutionary Principles in Tort: Wrongful User of Property and the Exemplary Measure of Damages (1992) 18(2) Monash University Law Review 169; see also Mitchell McInnes, Gain, Loss and the User Principle (2006) 14 Restitution Law Review Owners of the Steamship Mediana v Owners of the Lightship Comet [1900] A.C. 113 HL. 8 Owners of the Steamship Mediana [1900] A.C. 113 at 117.

103 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 395 Williamson 9 of someone who takes the horse of a liveryman on a ride, without the permission of the latter. His Lordship stated that it is not a good answer for the man to say the liveryman suffered no loss, or that the horse was not injured and was better taken on an exercise. The man must pay a price for that user of the horse. In Wrotham Park Estate Co Ltd v Parkside Homes Ltd (Wrotham Park) Brightman J further consolidated the user principle, stating that the wrongdoer must pay the right owner the quid pro quo of an incursion. 10 Two principal models govern judicial assessment of the user principle in the award of reasonable royalties: the compensatory and restitutionary models. 11 When adopting the former approach in the context of patent law, courts commence on the footing that the patentee has lost an opportunity to bargain with the infringer and accordingly seeks to ascertain what the patentee would have charged had there been a proper contractual licence negotiation. 12 This involves invoking the fiction of a hypothetical negotiation between a willing licensor and a willing licensee. The restitutionary model, conversely, involves consideration of the value of the infringement to the infringer, without relying on a fictional construction of hypothetical licensing negotiations. 13 It is unfortunate that early judgments on the application of the user principle in the context of reasonable royalties did not disclose the basis upon which it was applied whether restitutionary or compensatory. This has left judges and academics in contention over which of the two bases is proper. 14 The major substantive implication for electing either model was identified by Edelman J in Hampton v BHP Billiton Minerals Pty Ltd (No.2) 15 : When the claim for user damages is for compensation then the central question is the price which would have been demanded by a reasonable person in the plaintiff s position. When the damages are sought on a restitutionary basis the question is upon which price would be paid by a reasonable person in the defendant s position. 16 The compensatory model enjoys a reasonable share of judicial and academic support. For example, Kit Barker identifies at least six rationales, 17 albeit on the same theme, upon which this model can be explained. These can be summarised under two headings: loss of an opportunity to bargain for the user ex ante; and loss for the invasion of the right. In Jaggard v Sawyer 18 Bingham MR and Millett LJ saw the Wrotham Park decision as essentially compensatory in nature. Millett LJ reasoned that Brightman J in Wrotham Park had sought to measure the damages by reference to what the plaintiff had lost, not by reference to what the defendant had gained. 19 Similar reasoning was adopted in Bracewell v Appleby 20 and in World Wide Fund for Nature v World Wrestling Federation Entertainment Inc. 21 In Australia Allsop J in Bunnings Group Ltd v CHEP Australia Ltd (Bunnings v CHEP), 22 in obiter, categorically described patent royalties as compensatory in character. Various academics have likewise made a case for the compensatory model Watson Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 R.P.C. 104 HL at Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 W.L.R. 798 Ch D at John Jarosz and Michael Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages: The Tail Wagging the Dog (2013) 16 Stanford Technology Law Review Jarosz and Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages (2013) 16 Stanford Technology Law Review 769, Jacosz and Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages (2013) 16 Stanford Technology Law Review 769, See David Brennan, The Beautiful Restitutionary Heresy of a Larrikin (2011) 33 Sydney Law Review Hampton v BHP Billiton Minerals Pty Ltd (No.2) [2012] WASC Hampton v BHP Billiton Minerals (No.2) [2012] WASC 285 at [345]. 17 Kit Barker, Damages Without Loss : Can Hohfeld Help? (2014) 34 Oxford Journal of Legal Studies Jaggard v Sawyer [1995] 1 W.L.R. 269 CA (Civ Div). 19 Jaggard v Sawyer [1995] 1 W.L.R. 269 at Bracewell v Appleby [1975] Ch. 408 Ch D. 21 World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2008] 1 W.L.R. 445 CA (Civ Div). 22 Bunnings Group Ltd v CHEP Australia Ltd [2011] 82 N.S.W.L.R. 420 at Graham Martin, Restitutionary Damages: The Anvil Struck (2004) 120 Law Quarterly Review 26; Robert Sharpe and S.M. Waddams, Damages for Lost Opportunity to Bargain (1982) 2 Oxford Journal of Legal Studies 290.

104 396 Intellectual Property Quarterly Yet the restitutionary model also has its proponents. Lord Denning in Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd 24 viewed the user principle as restitutionary, and thus concerned with an assessment of what the wrongdoer gained. 25 Lord Hoffmann took a similar position in Ministry of Defence v Ashman 26 and Ministry of Defence v Thompson. 27 In Attorney General v Blake, 28 Lord Nicholls reasoned in similar fashion, stating that monetary remedies awarded under a user principle may be measured by the benefit gained by the wrongdoer from the breach. 29 More interestingly, Giles J in Bunnings v CHEP, in contrast with Allsop J in the same unanimous judgment, considered the remedy to be restitutionary. 30 Additionally, a number of academics have argued in favour of the restitutionary model. 31 In other quarters the view taken is that, whether compensatory or restitutionary, the purpose of the user principle is for the wrongdoer to pay a price for the user, so that it does not really matter the model followed. 32 Thus in Gafford v Graham 33 Nourse LJ said: Whatever the correct analysis may be, Jaggard v Sawyer, as both sides agree, is clear authority for the adoption of the Wrotham Park basis of assessing damages in this case. I therefore proceed to assess them by reference to the sum which the plaintiff might reasonably have demanded as a quid pro quo. 34 Some academics have suggested that the choice of competing models should be dictated by the nature of the events or the context in issue. 35 This is because in some cases the substantive outcomes of the user principle when following either of the competing models would be materially the same, yet in others (and patent reasonable royalties is one of them), it would be materially different. The next sections elaborate on the nature and implications of each model in the specific context of patent law. At the outset, it is critical to note that this article argues for the application of a restitutionary model, as it better reduces the risk of opportunism on the part of both patentees and infringers. The compensatory model substance and implications for the patent market The pith of the compensatory model The compensatory model is built on the rhetoric of patents as property rights, with a view to ensuring that the exclusivity of the patentee is maintained. It pivots on the theory that only the patentee can autonomously set a price on the user of his or her patent. The definition of reasonable royalties propounded in AlliedSignal Inc v Du Pont Canada Inc 36 exemplifies the compensatory model. In this case, Heald J, 24 Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 Q.B. 246 CA. 25 Strand Electric and Engineering v Brisford Entertainments [1952] 2 Q.B. 246 at 255, per Lord Denning: It is an action against him because he has had the benefit of the goods. It resembles, therefore, an action for restitution rather than an action of tort. 26 Ministry of Defence v Ashman (1993) 25 H.L.R. 513 CA (Civ Div) at Ministry of Defence v Thompson (1993) 25 H.L.R. 552 at Attorney General v Blake [2001] 1 A.C. 268 HL. 29 Attorney General v Blake [2001] 1 A.C. 268 at Bunnings Group v CHEP Australia [2011] 82 N.S.W.L.R. 420 at Elizabeth Cooke, Trespass, Mesne Profits, and Restitution (1994) 110 Law Quarterly Review 420; James Edelman, The Measure of Restitution and the Future of Restitutionary Damages (2010) 18 Restitution Law Review 1; Craig Rotherham, Wrotham Park Damages and Accounts of Profits: Compensation or Restitution? [2008] Lloyd s Maritime and Commercial Law Quarterly 24; Ralph Cunnington, Changing Conceptions of Compensation (2007) 66 Cambridge Law Journal See Graham Virgo, Hypothetical Bargains: Compensation or Restitution? (2006) 65 Cambridge Law Journal Gafford v Graham (1999) 77 P. & C.R Gafford v Graham (1999) 77 P. & C.R. 73 at Andrew Burrows, Are Damages on the Wrotham Park Basis Compensatory, Restitutionary or Neither in Djakhongir Saidov and Ralph Cunnington (eds), Current Themes in the Law of Contract Damages (Oxford: Hart Publishing, 2008), p AlliedSignal Inc v Du Pont Canada Inc (1998) 78 C.P.R. (3d) 129.

105 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 397 building on existing Canadian dicta, 37 defined reasonable royalties as that rate which the infringer would have had to pay if, instead of infringing the patent, [the infringer] had come to be licensed under the patent. 38 It is founded on the assumption that the patentee and the infringer are willing parties negotiating with the purpose of drawing up a licence. In General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd 39 (General Tire v Firestone Tyre) the House of Lords decided what appears to be the foremost foundational judicial authority on the compensatory model in Commonwealth jurisdictions. The court reasoned that, in determining what the parties would have agreed, it is essential to have a full understanding of the circumstances of the parties to the hypothetical negotiations. As Lord Salmon observed, the court must first have regard to the amount of benefit which the invention confers upon him who uses it. 40 However, his Lordship went on to emphasise that [a]ll aspects of the trade in question must be taken into account. 41 In other words, the bargaining positions of the parties must be duly assessed in the reconstruction exercise. Lord Wilberforce, who gave the leading judgment, reasoned likewise, remarking that market factors, independent of the validity of the patent, which would have ordinarily reduced that patentee s bargaining powers in a proper commercial setting, ought to be factored into the hypothetical negotiation process. 42 The House of Lords considered it material that evidence revealed a pattern on the part of the patentee having lower royalty rates in response to the US dominance in the rubber industry such that licences in foreign territories were to be set at equivalent rates. From this, the court then reasoned the patentee could not resile from that pattern of royalty rates and therefore, that was what it had lost to the infringer. 43 Just how to properly compute reasonable royalties in following this model has remained a source of consternation to the courts. In the US case of Fromson v Western Litho Plate & Supply Co, for example, the process was described as a difficult judicial chore, seeming often to involve more the talents of a conjurer than those of a judge. 44 In the same vein, Russell Denton observes that academic literature has been scathingly disdainful of prevailing reasonable royalty methods, describing them as crude, inappropriate and inherently unreliable. 45 This stems from a muddled variety of factors or considerations and approaches that go into determining the outcomes of the judicially reconstructed bargaining process. These factors are essentially aimed at mimicking the attitudes or postures of the bargaining parties. In the patent reasonable royalties context, they include: settled royalty rates; the 25 per cent (rule of thumb); valuation methods; and other factors, including testimonies of experts and consumer surveys. Each of these enumerated matters is discussed individually below, with a view to demonstrating how they are punctuated by uncertainty. Settled royalty rates The primary step in pursuing the compensatory model is to inquire into whether or not there is a settled or going royalty. 46 This is because an established rate serves as a guidepost to determining what the patentee forfeited in terms of royalties. Settled royalty rates may be garnered from court settlements or 37 Unilever Plc v Procter & Gamble (1993) 47 C.P.R. (3d) 479; and Consolboard Inc v MacMillan Bloedel (Saskatchewan) Ltd (1983) 74 C.P.R. (2d) AlliedSignal v Du Pont Canada (1998) 78 C.P.R. (3d) 129 at [199]. 39 General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1976] R.P.C. 197 HL. 40 General Tire v Firestone Tyre [1976] R.P.C. 197 at 228 per Lord Salmon. 41 General Tire v Firestone Tyre [1976] R.P.C. 197 at 228 per Lord Salmon. 42 General Tire v Firestone Tyre [1976] R.P.C. 197 at 221, per Lord Wilberforce. 43 General Tire v Firestone Tyre [1976] R.P.C. 197 at Fromson v Western Litho Plate & Supply Co 853 F. 2d 1568 (Fed. Cir. 1988) at [49]. 45 Russell Denton, Rolling Equilibriums at the Pre-Commons Frontier: Identifying Patently Efficient Royalties for Complex Products (2009) 14 Virginia Journal of Law and Technology 49, Allan Shampine, Reasonable Royalties and the Sale of Patent Rights (2009) 4 Journal of Intellectual Property Law and Practice 545.

106 398 Intellectual Property Quarterly previous licensing practices of the patentee. 47 In circumstances where the question of a settled royalty arises, the court s first task is to ascertain the comparability of the licences (also known as comparables) previously granted by the patentee as a guide in the construction of hypothetical bargains. 48 This is a notoriously difficult undertaking. Courts are often sceptical about royalty rates reached by private settlement in the face of litigation, as these are likely to be tilted favourably towards the party with the best prospects of winning in court. 49 For example, if the validity of the patent is contested and the patentee fears that he or she might not have the means to properly defend its validity, the patentee is likely to agree to royalties at heavily discounted rates. 50 On the other hand, if the infringer fears the imposition of an injunction should the patent be found valid and infringed, it is highly likely that the patentee would have superior bargaining power and thus secure high royalties. 51 In Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd 52 (Ultraframe v Eurocell) a different possible source of guidance for determining comparable licences was identified. The court stated that a comparable licence might not be one previously granted by the patentee, but one that is previously granted in the relevant industry to which the patent exploitation relates. Kitchin J, building upon Gerber v Lectra said that [w]here there are truly comparable licences in the relevant field these are the most useful guidance for the court as to the reasonable royalty. 53 His Lordship reasoned that since the customary royalty rate in the industry to which the applied was 5 per cent, it was fair to allow the patentee an 8 per cent royalty on this occasion. 54 In Gerber 55 Jacob J s reasoning, approved on appeal, was that a settled royalty rate would only be treated as a comparable if the circumstances of the previous licences and the infringement were similar. 56 In Gerber the infringer claimed that it should be allowed to pay the royalty rate the patentee had fixed for its patent when it was endorsed under licence of right. His Lordship rejected this argument because the infringer could not be fairly regarded as entitled to a rate based on licence of right: the infringer had judicially contested the validity of the patent something a licensee would not have done. 57 Jacob J reasoned that an injunction could still have been issued against the infringer, in contrast with another party who voluntarily agrees to take the licence of right. 58 Therefore, the licence of right rate was not considered to be governing, and a royalty rate pegged at 15 per cent of the profits earned by the infringer from the sales of 11 of the infringing machines, adjudged not to have been lost by the patentee, was awarded as a reasonable royalty. 59 In some other instances licences might not be considered comparable because the nature of the licensing arrangement is divorced from that of the circumstances of infringement. The House of Lords in General Tire stated that courts are entitled to disregard settled royalties if 47 Shampine, Reasonable Royalties and the Sale of Patent Rights (2009) 4 Journal of Intellectual Property Law and Practice 545. See also General v Firestone Tyre [1976] R.P.C See, for example, the exchange between Justice Jacob and counsel in Coflexip SA v Stolt Offshore MS Ltd [2002] EWHC 1686 (Pat) at [7] [8]. 49 See Layne Keele, Res Q ing Patent Infringement Damages after ResQNet: The Dangers of Litigation Licenses as Evidence of a Reasonable Royalty (2012) 20 Texas Intellectual Property Law Journal 181; see also Tejas Narechania and Jackson Kirklin, An Unsettling Development: The Use of Settlement-Related Evidence for Damages Determinations in Patent Litigation (2012) 2 Journal of Law, Technology and Policy See John Barnhardt, Revisiting a Reasonable Royalty as Measure of Damages for Patent Infringement (2004) 86 Journal of the Patent and Trademark Office Society 991. See also Martin West, Collateral Damages: How Smartphone Patent Wars Are Changing the Landscape of Patent Infringement Damages Calculations (2013) 41 Fordham Urban Law Journal See Joseph Farrell and Carl Shapiro, How Strong Are Weak Patents? (2008) 98 American Economic Review Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd [2006] EWHC 1344 (Pat). 53 Ultraframe v Eurocell [2006] EWHC 1344 (Pat) at [47]. 54 Ultraframe v Eurocell [2006] EWHC 1344 (Pat) at [153]. 55 Gerber Garment Technology Inc v Lectra Systems Ltd [1995] R.P.C. 383 CA (Civ Div). 56 Gerber v Lectra [1995] R.P.C. 383 at Gerber v Lectra [1995] R.P.C. 383 at Gerber v Lectra [1995] R.P.C. 383 at Gerber v Lectra [1995] R.P.C. 383 at 420.

107 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 399 the bargains which led to these royalties being agreed were reached in circumstances differing from those which must be assumed when the court is attempting to fix a bargain as between patentee and infringer. 60 Examples include circumstances where the patentee engages in licence pools, block licensing arrangements or licences according to fair, reasonable and non-discriminatory (FRAND) commitments (in situations of standard essential patents). In British Thomson-Houston v Naamloose Vennootschap Pope s Metaaldraadlampenfabriek 61 the Scottish Court of Session refused to accept the patentee s patent pool or block licensing arrangements with other manufacturers as representative of a generally acceptable standard of comparison, explaining that: It is by no means clear to me that a royalty of this kind, obtained by a combination of Patentees, affords in itself any trustworthy measure of the price that could be successfully exacted by one of the Patentees for the right to use anyone of his own Patents, either in isolation, or along with other patents associated with it. 62 This reasoning applies to standard essential patents because FRAND commitments are usually made on the basis of the combination of varying proprietary technologies and in consonance with the common expectations of parties to it. For this reason it becomes difficult to determine the reasonable royalty value of an isolated standard essential patent on the basis of its FRAND agreements. 63 In the US the attitude towards discerning comparable licences is very much similar, if not identical, to that of many Commonwealth countries. 64 The 25 per cent rule Beyond resorting to settled or established royalties, another popular path to the compensatory model is to award the patentee 25 per cent of the net profits gained by the infringer from the infringement (the 25 per cent rule). The rule, attributed to Robert Goldscheilder, a foremost US-based licensing lawyer and consultant, 65 was somewhat popular in the US. It was recognised as a possible avenue (though not applied) in the Canadian Federal Court case of Jay-Lor International Inc v Penta Farm Systems Ltd (Jay-Lor), 66 and in the English Court of Appeal decision of Coflexip SA v Stolt Offshore Ltd (Coflexip v Stolt). 67 Goldscheider conceived the 25 per cent rule as context-specific rather than a universally applicable approach to determining royalties. He envisaged that the rule proceeds on a patentee-licensee split of anticipated profits in a 25:75 ratio, but only as a starting point that could be adjusted upwards or downwards according to factors peculiar to the parties. 68 Proponents of the rule explain it the following way: 60 General Tire v Firestone Tyre [1976] R.P.C. 197 at British Thomson-Houston v Naamloose Vennootschap Pope s Metaaldraadlampenfabriek [1923] R.P.C British Thomson-Houston [1923] R.P.C. 119 at Mark Lemley and Carl Shapiro, A Simple Approach to Settling Reasonable Royalties for Standard-Essential Patents (2013) 28 Berkeley Technology Law Journal Parker Kuhl, Rescue Me: The Attack on Settlement Negotiations after ResQNet v Lansa (2011) 26 Berkeley Technology Law Journal 270; see also Michael Chapman, Using Settlement Licenses in Reasonable Royalty Determinations (2009) 49 IDEA: Intellectual Property Law Review Ted Haglin, Valuation of Patent Licenses (2004) 12 Texas Intellectual Property Law Journal 424; see also Alexander J. Stack, A. Scott Davidson and Stephen R. Cole, Reasonable Royalty Rates and the 25% Royalty Rule for Intellectual Property (1999) 18 Business Valuation Review Jay-Lor International Inc v Penta Farm Systems Ltd (2007) F.C In fact, in Jay-Lor it was termed the AlliedSignal Approach because it had been applied in AlliedSignal v Du Pont Canada 78 C.P.R. (3d) Coflexip SA v Stolt Offshore Ltd [2003] EWCA Civ 296; [2003] F.S.R Robert Goldscheider, Negotiation of Royalties and Other Sources of Income from Licensing (1996) 36 IDEA 1; see also Robert Goldscheider, The Art of Licensing Out (1988) 19 Les Nouvelles: Journal of the Licensing Executives 84; see also Robert Goldscheilder, The Classic 25 Percent Rule and the Art of Intellectual Property Licensing (2011) 6 Duke Law & Technology Review 115; Robert Goldscheider, The Current Realities Of The Classic 25% Rule: An Attempt To Put The House In Order (2012) 46 Les Nouvelles 148.

108 400 Intellectual Property Quarterly An estimate is made of the licensee s expected profits for the product that embodies the IP at issue. Those profits are divided by the expected net sales over that same period to arrive at a profit rate. That resulting profit rate, say 16 per cent, is then multiplied by 25 per cent to arrive at the running royalty rate. In this example the resulting royalty would be 4 per cent. Going forward the 4 per cent royalty rate is applied to the net sales to arrive at royalty payments due to the IP owner. 69 The reasoning for this approach is that other commercial factors applying to the circumstances of the parties could prompt a further adjustment of the royalty rates (up or down), 70 such that the 25% rule was merely a guideline and a starting point. Despite these arguments in favour of the 25 per cent rule, it was soundly rejected by the US Federal Circuit in Uniloc USA Inc v Microsoft Corp (Uniloc), 71 where it was described as arbitrary and unreliable. Recent academic commentary has taken a similar tack, most notably because using 25 per cent as a threshold would likely bias the royalty rate upwards in circumstances where the patent was vital to the infringing product. 72 The 25 per cent rule has also been attacked for lacking a definitive conception of profits against which it is to be applied. 73 A further criticism can be levelled in situations where a manufacturer infringes several patents, so that the effect of applying the 25 per cent rule to each infringement could be a dissipation of the manufacturers profits. 74 Valuation models Reasonable royalties can also be computed in reliance on valuation methods. American courts customarily follow what are known as the Georgia Pacific factors, a compendium of factors first espoused in the case of Georgia Pacific Corp v US Plywood Corp 75 to guide courts in computing royalty rates for the purposes of the hypothetical bargaining construction. While the Georgia Pacific factors have been the subject of a plethora of academic discussions, one of their salient flaws is that they are repetitive or duplicative. 76 The Georgia Pacific factors are not traditionally used in Commonwealth jurisdictions, at least not in the same fashion as in the US. Rather, Commonwealth jurisdictions tend to use a selection of valuation factors considered likely to influence licensing outcomes. Generally, three factor-based paths cost, income and market adopted in the valuation of equities or property rights are also applicable to the valuation of patents for licensing purposes in Commonwealth jurisdictions. 77 The cost-based approach is considered the least helpful of the three when following the compensatory model because it values a patent based on what it would have cost the infringer to independently acquire patented technology and so determines royalties on this basis. This approach has been considered very difficult to apply because it is not evident what concept of costs is appropriate. 78 There are varying concepts of costs namely marginal costs, average variable costs, average total costs 69 Robert Goldscheider, John Jarosz and Carla Mulhern, Use of the 25 Per Cent Rule in Valuing IP (2002) 37 Les Nouvelles 123, Goldscheider, Jarosz and Mulhern, Use of the 25 Per Cent Rule in Valuing IP (2002) 37 Les Nouvelles 123, Uniloc USA Inc v Microsoft Corp 632 F. 3d 1292, 1317 (Fed. Cir. 2011). 72 Roy Epstein and Paul Malherbe, The Reasonable Royalty Patent Infringement Damages after UNILOC (2011) 39 AIPLA Quarterly Journal 3, Epstein and Malherbe, The Reasonable Royalty Patent Infringement Damages after UNILOC (2011) 39 AIPLA Quarterly Journal 3, Damien Geradin and Anne Layne-Farrar, Patent Value Apportionment Rules for Complex, Multi-Patent Products (2010) 27 Santa Clara High Technology Law Journal 763, Georgia Pacific Corp v US Plywood Corp 318 F. Supp (S.D.N.Y. 1970). 76 Mark Lemley and Daralyn Durie, A Structured Approach to Calculating Reasonable Royalties (2010) 14 Lewis and Clark Law Review 627, 628. See also Roy Epstein and Alan Marcus, Economic Analysis of the Reasonable Royalty: Simplification and Extension of the Georgia-Pacific Factors (2003) 85 Journal of Patent and Trademark Office Society See also Damien Geradin and Anne Layne-Farrar, Patent Value Apportionment Rules for Complex, Multi-Patent Products (2010) 27 Santa Clara High Technology Law Journal 763, ; see also Mohammad S. Rahman, Patent Valuation: Impact on Damages (1998) 6 University of Baltimore Intellectual Property Law Journal 150; see also John Dubiansky, An Analysis for the Valuation of Venture Capital-Funded Startup Firm Patents (2006) 12 Boston University Journal of Science and Technology Law 170, Damien Geradin and Anne Layne-Farrar, Patent Value Apportionment Rules for Complex, Multi-Patent Products (2010) 27 Santa Clara High Technology Law Journal 763,

109 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 401 or long-run average incremental costs. Even when one these concepts is elected, it remains difficult to compute costs with certainty in view of R & D expenses and then to apply that uncertain outcome for determining royalty purposes. 79 In contrast, the market-based approach is based on market comparison. This approach relies on four assumptions: the existence of a market; previously conducted transactions from which to draw comparison; equal access to information by the parties; and free bargaining between parties. 80 By and large, this market approach is similar, if not identical, to the settled royalty rate approach discussed above because it largely involves seeking guidance from past analogous practices. The remaining income-based approach is the most popular path followed in Commonwealth jurisdictions, taking one of two forms: anticipated profits and profits available. The anticipated profits approach determines reasonable royalties on the basis of the infringer s expected profit outcomes from the infringement. It was judicially acknowledged in Coflexip 81 and Jay-Lor. 82 The profits available approach, as applied in Gerber, involves ascertaining the profit made by the licensee absent a licence and apportioning this between the patentee and the licensee. 83 There the court reasoned that a royalty of 15 per cent on the sales made by the infringer, for which lost profits was not awarded, should go to the patentee as royalties. The profits available approach was also applied in Ultraframe, although in so doing the High Court of Chancery reasoned that the profits earned by the infringer could not be apportioned between the patentee and the infringer on a 50:50 basis, and for this reason awarded an 8 per cent royalty on those infringing sales. 84 Royalty rate and base In applying income-based pathways, the courts compute royalties on the basis of two integral components: royalty rate and royalty base. 85 Royalty base has been defined as the revenue pool implicated by the infringement. 86 In other words, it represents the basis upon which the infringement is connected to the infringer s profits. 87 The royalty base is determined according to how the infringement drove consumer demand. If the infringement is responsible for the demand of the entirety of the infringing product, then the product is the royalty base. This is called the entire market value rule (EMVR). 88 In some cases, the effect of the EMVR is that sales of non-patented convoyed goods sold along with the infringing products are incorporated in the royalty base. This has occurred in several US cases, but has also been criticised in dissenting judgments. 89 It has also aroused academic criticism, the tenor of which is that convoyed goods 79 Geradin and Layne-Farrar, Patent Value Apportionment Rules for Complex, Multi-Patent Products (2010) 27 Santa Clara High Technology Law Journal 763, Rahman, Patent Valuation (1998) 6 University of Baltimore Intellectual Property Law Journal 150; Geradin and Layne-Farrar, Patent Value Apportionment Rules for Complex, Multi-Patent Products (2010) 27 Santa Clara High Technology Law Journal 763, Coflexip v Stolt [2003] EWCA Civ 296; [2003] F.S.R. 41 at [7]. 82 Jay-Lor v Penta (2007) F.C. 358 at [141]. 83 Gerber v Lectra [1995] R.P.C. 383 at 419 per Jacob J. 84 Ultraframe v Eurocell [2006] EWHC 1344 (Pat), at [152] [153]. 85 Whitserve LLC v Computer Packages Inc 694 F. 3d 10 (Fed. Cir. 2012). 86 Dan McManus, Incentives Must Change: Addressing the Unpredictability of Reasonable Royalty Damages (2013) 5 American University Intellectual Property Brief 3, See Merritt Hasbrouck, Protecting the Gates of Reasonable Royalty: A Damages Framework for Patent Infringement Cases (2011) 11 John Marshall Review of Intellectual Property Law See Michael Greene, All Your Base Are Belong to Us: Towards An Appropriate Usage and Definition of the Entire Market Value Rule in Reasonable Royalties Calculations (2012) 53 Boston College of Law Review 233; see also Ravi Rohan, Analysis of the Entire Market Value Rule in Complex Technology Litigation: Arduous Royalty Base Determinations, Unjust Damage Rewards, and Empirical Approaches to Measuring Consumer Demand (2010) 27 Santa Clara Computer and High Technology Law Journal 639; see also Anthony Raucci, A Case against the Entire Market Value Rule (2012) 69 Washington and Lee Law Review Justice Nies, dissenting in Rite-Hite Corp v Kelley Co Inc 56 F. 3d 1538, 1576 (Fed. Cir. 1995), said: A royalty based on unprotected goods unlawfully exploits the patent.

110 402 Intellectual Property Quarterly that are not infringing should not form part of the royalty base. 90 Yet this approach to delineation of royalty base remains recognised as legitimate in Commonwealth jurisdictions, as appears from Jacob J s remarks in Gerber that the licence would enable the licensee to generate further profits from associated sales of CAD, spares and servicing. I think it entirely realistic to take these into account, though Lectra s expert asserted otherwise. These other profits would be a real incentive to pay for a licence, not an adventitious bonus. 91 The EMVR was applied in Ultraframe, also to non-infringing convoyed goods, albeit with the concession of the infringer, Eurocell. 92 A similar approach was adopted in the Australian case of Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd. 93 Where, however, the infringement was not singularly responsible for the demand but contributed to it, the practice in the US is that the royalty base is determined on the basis of an apportionment. 94 That is, the royalty base is appropriated or carved out from the entire product. This is more likely in situations where an assemblage of both infringing and non-infringing elements constitute the infringing product, which is most likely in complex technologies. However, there remains no clear statement of apportionment in the reasonable royalties context in Commonwealth case law, except in Jay-Lor. 95 The royalty rate can be defined as a percentage of that revenue pool adequate to compensate the plaintiff for that infringement. 96 Expressed another way, the royalty rate is that percentage that is applied to a selected royalty base. If the EMVR rule is applied, such that the entire infringing matter is the royalty base, a royalty rate of a given percentage of the profits earned or sales made in the merchandise of the infringing products is awarded to the patentee. But if an apportioned base is adopted (i.e. where EMVR does not apply), a royalty rate of a given percentage is applied to that percentile measure of value attributable to that infringed patent as it relates to the infringing product. To illustrate this, assume that a multi-component product has an infringing component. If that infringing component accounts for, say, 10 per cent (being an apportioned royalty base) of the infringing product, a royalty rate is applied to that 10 per cent. The result could be, for example, 30 per cent (royalty rate) of the 10 per cent apportioned royalty base. The royalty rate and base must be carefully selected. Improper selection can inordinately reward the patentee at the cost of the infringer or under-reward the patentee to the infringer s benefit. Even when a small royalty rate is applied to a large and disproportionate royalty base, the patentee might end up being over-rewarded. 97 If, however, a large royalty rate is applied to a small and improperly chosen royalty base in circumstances where the infringed patent considerably drove demand, the patentee could be shortchanged. This has been a subject of considerable judicial and academic treatment in the US. Recent US Federal Circuit cases such as Uniloc, 98 Cornell University v Hewlett-Packard Co, 99 Lucent Technologies Inc v Gateway Inc 100 (Lucent) and LaserDynamics Inc v Quanta Computer Inc 101 have particularly fulminated 90 Mark Lemley, Distinguishing Lost Profits from Reasonable Royalties (2009) 51 William & Mary Law Review 655; see also Brian Love, Patentee Overcompensation and the Entire Market Value Rule (2007) 60 Stanford Law Review 263; see also Brian Love, The Misuse of Reasonable Royalty Damages as Patent Infringement Deterrent (2009) 74 Missouri Law Review Gerber v Lectra [1995] R.P.C. 38 at Ultraframe v Eurocell [2006] EWHC 344 (Pat) at [151]. 93 Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd [2001] FCA 1098 at [199]. 94 See also Elizabeth M. Bailey, Gregory K. Leonard and Mario A. Lopez, Making Sense of Apportionment in Patent Damages (2011) 22 Columbia Science and Technology Law Review Jay-Lor v Penta (2007) F.C. 358 at [196]. 96 McManus, Incentives Must Change (2013) American University Intellectual Property Brief 3, See Thomas Cotter, Four Principles For Calculating Reasonable Royalties in Patent Infringement Litigation (2011) 27 Santa Clara Computer and High Technology Law Journal Unicloc USA Inc v Microsoft Corp 632 F. 3d 1292 (Fed. Cir. 2011). 99 Cornell University v Hewlett Packard Co 609 F. Supp. 2d 279 (N.D.N.Y. 2009). 100 Lucent Technologies Inc v Gateway Inc 580 F. 3d 1301 (Fed. Cir. 2009). 101 LaserDynamics Inc v Quata Computer Inc 694 F. 3d 51 (Fed. Cir. 2012).

111 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 403 against an indiscriminate or unguided choice of royalty base. The prevailing position, in the light of these cases, is that the royalty base must be chosen on the basis of the value contributed by the infringed patent to the infringing matter, and so too must the royalty rate be justified. The hypothetical bargaining outcomes are usually based on the general value of the patent (but not its peculiar value to the infringer). The question of patent value is not straightforward. Some argue that it is best measured in contradistinction with other non-infringing alternatives (NIAs). 102 In Commonwealth jurisdictions it is unlikely that NIAs would count in the determination of value. In Catnic Components Ltd v Hill & Smith Ltd, 103 Falconer J refused to take NIAs into account in assessing reasonable royalty, on the authority of United Horse Shoe & Nail which prohibits an assessment of NIAs for damages purposes. 104 Consideration of NIAs could weaken the patentee s bargaining power in the hypothetical bargaining process. 105 The US, by contrast, allows NIA considerations, though their impact on royalty computation remains debatable. Cases such as Grain Processing Corp v American Maize-Products Co (Grain Processing), 106 Zygo Corp v Wyko Corp (Zygo) 107 and Riles v Shell Exploration & Production Co (Riles v Shell) 108 suggest that what the infringer would have paid, or costs likely to be suffered in using NIAs, should serve as a ceiling to cap whatever the patentee might have expected to receive in the bargaining process. This is because NIAs would have propped up the infringer/licensee s bargaining position and reasonably eroded the patentee s, to the extent that the NIA is a viable alternative. 109 Yet there are more recent cases to the contrary. In Aqua Shield v Inter Pool Cover Team 110 the Federal Circuit stated that the royalty the particular infringer could profitably pay by going about its business in its particular way does not set the market value that the hypothetical negotiation aims to identify. 111 Other factors That the infringer was the patentee s competitor might also affect hypothetical bargaining outcomes. In Jay-Lor it was observed that [b]y agreeing to allow Penta to manufacture and sell the patented technology, JAY-LOR would be accepting the loss of sales that it arguably could have made. 112 Yet in Gerber Jacob J reasoned that since the patentee could not obtain compensatory damages for lost sales, its right to exclude infringers from so competing should not be factored into reasonable royalties. This is because, his Honour opined, such sales were not lost and the patentee could not have secured them. 113 To follow this reasoning might have the effect of turning reasonable royalty into compulsory licensing, as the fact remains that the infringer did not seek consent and also because the infringer cannot be considered a true negotiator in the proper sense. Expert testimony can be influential to reasonable royalty outcomes, and in establishing the royalty rate/base. 114 While it is allowed in both Commonwealth jurisdictions and the US, judicial circumspection is brought to bear in assessing expert opinion. In fact Judge Posner, presiding over the district court by 102 See, for example, Cotter, Four Principles for Calculating Reasonable Royalties in Patent Infringement Litigation (2011) 27 Santa Clara Computer and High Technology Law Journal 725, Catnic Components Ltd v Hill & Smith Ltd (No.2) [1983] F.S.R. 512 Ch D; see also Gerber v Lectra [1995] RPC 383, Catnic v Hill & Smith (No.2) [1983] F.S.R. 512 at Sven Bostyn and Nicholas Petit, Patent=Monopoly: A Legal Fiction (31 December 2013), SSRN, _id= [Accessed 20 September 2016]. 106 Grain Processing Corp v American Maize-Products Co 840 F. 2d 902 (Fed. Cir. 1988). 107 Zygo Corp v Wygo Corp 79 F. 3d 1563 (Fed. Cir. 1996). 108 Riles v Shell Exploration & Production Co 298 F. 3d 1302 (Fed. Cir. 2002). 109 See Christopher Seaman, Reconsidering the Georgia-Pacific Standard for Reasonable Royalty Patent Damages [2010] Brigham Young University Law Review Aqua Shield v Inter Pool Cover Team 774 F. 3d 766 (Fed. Cir. 2014). 111 Aqua Shield v Inter Pool 774 F. 3d 766, 771 (Fed. Cir. 2014). 112 Jay-Lor v Penta (2007) F.C. 358 at [166]. 113 Gerber v Lectra [1995] R.P.C. 383 at 419, See Erika Mayo, Gatekeeping Post-Uniloc: Export Testimony in Multi-Component Patent Litigation (2013) 9 Hastings Business Law Journal 539; see also Bo Zeng, Lucent v Gateway: Putting the Reasonable Back Into Reasonable Royalties (2011) 26 Berkeley Technology Law Journal 329.

112 404 Intellectual Property Quarterly designation, in Brandeis University and GFA Brands Inc v Keebler Co 115 (Brandeis) and Apple Inc v Motorola Inc 116 (Apple v Motorola) accentuated the likely implications of relying on expert testimony by reason of their self-serving tendency. 117 He also highlighted the importance of ensuring that the expert has not only technical understanding of the field to which the patent relates but also proper licensing experience. 118 Market surveys present yet another influential factor. They involve using feelers to determine how much the infringed patent s technical effects account for consumer demand. Both Patricia Dyck 119 and Jaimeson Fedell 120 have sought to highlight the unreliability of market feelers. They maintain that market feelers require an inquiry into the psychology of consumers to determine what gave impetus to consumer demand, which is a complex task, and that the outcomes of such surveys are inherently biased towards one feature of a product over another. Another factor that could determine the rate/base question is the concept of bargaining range, a game theory tool used by economists. 121 As explained in Merck & Co Inc v Apotex Inc, the bargaining range concept involves determining a rate that falls within the mid-point of the minimum the patent holder is willing to accept (MWA) and the maximum of what the infringer is willing to pay (MWP). 122 If a proposed royalty exceeds the MWP, the infringer would reject it and the licensing process would break down. If, however, a proposed royalty is below or around the MWP, a licence contract would come to fruition. 123 The converse applies to the patentee, such that if the proposed royalty is around or above the MWP the licence negotiation would succeed, but if it is below the MWP the licence negotiation would break down. 124 Tomlin has argued against the need for the mid-point between MWP and MWA to be struck, 125 reasoning that the patentee should be able to receive more than the MWP even in circumstances where the infringer suffers a loss because it is inefficient. 126 Pitfalls of the compensatory approach The disadvantage of the compensatory model stems largely from the fact that it is based on a fictional simulation of what the patentee and the infringer would have agreed to as the price to enable the latter to gain access to the patent. In Surrey CC and Mole DC v Bredero Homes Ltd 127 Lord Steyn aptly described the loss of opportunity foundation of the model as a fiction. This view has been shared in several US cases: for example in Rite Hite it was disparaged as an inaccurate, and even absurd, characterization. 128 As the preceding discussion indicates, the outcome of this fictional negotiation process is usually fashioned by three major elements: the bargaining powers of both parties; the value of the patent right; and the timing 115 Brandeis University and GFA Brands Inc v Keebler Co, Order of 18 January 2013, No.1:12-cv Apple Inc v Motorola Inc, No.1:11-cv-08540, 2012 WL See Patrick Doll and L. Joseph Denbina, Daubert for Dummkopfs Judge Posner Hypothetically Disparages Patent Damages Experts in Apple and Brandeis (2013) 21 Texas Intellectual Property Law Journal Brandeis University v Keebler, Order of 18 January 2013, No.1:12-cv Patricia Dyck, Beyond Confusion Survey Evidence of Consumer Demand and the Entire Market Value Rule (2012) 4 Hastings Science and Technology Law Journal Jaimeson Fedell, A Step in the Right Direction: Patent Damages and the Elimination of the Entire Market Value Rule (2014) 98 Minnesota Law Review Jonathan Tomlin, Mars v. Coin Acceptors and the Hypothetical Negotiation Approach to Reasonable Royalty Calculations (5 August 2008), Navigant Economics, [Accessed 20 September 2016]. 122 Merck & Co Inc v Apotex Inc [2013] F.C. 751 at [155] [172]. 123 Merck & Co v Apotex [2013] F.C. 751 at [155] [172]. 124 Merck & Co v Apotex [2013] F.C. 751 at [155] [172]. 125 See Tomlin, Mars v. Coin Acceptors and the Hypothetical Negotiation Approach to Reasonable Royalty Calculations (5 August 2008), Navigant Economics, [Accessed 20 September 2016]. 126 Tomlin, Mars v. Coin Acceptors and the Hypothetical Negotiation Approach to Reasonable Royalty Calculations (5 August 2008), Navigant Economics, [Accessed 20 September 2016]. 127 Surrey CC and Mole DC v Bredero Homes Ltd [1993] 1 W.L.R CA (Civ Div) at Rite-Hite Corp v Kelley Co Inc 56 F. 3d 1538, n.13 (Fed Cir. 1995).

113 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 405 of the negotiation. 129 Having identified these elements, it is essential to discuss how they negatively impact on the usefulness of the compensatory model. The holdup power of the injunction The bargaining power of the patentee and the infringer as putative licensor and licensee, respectively, is an essential factor in making an approximation of what they would have agreed upon. 130 In this regard, the nuisance value of an injunctive remedy against the infringer, in favour of the patentee, can inflate the bargaining position of the patentee. 131 Patentees are said to possess holdup power in such circumstances, because they are able to opportunistically obtain undue rewards that have no bearing on the economic or technological value of their patented invention. 132 This is so because redesigning or switching costs likely to be incurred by an infringer in trying to change from an infringing use to a non-infringing use are usually of an inordinate amount. 133 In such a holdup situation, the patent holder could extract royalties that go beyond the technical or use value of the patent. 134 Basing the patentee s bargaining posture on his or her entitlement to an injunction would naturally tilt the hypothetical negotiation balance in the patentee s favour. Assessment based on patent value The value of a patent is another essential element in the hypothetical bargaining exercise. While an assessment of an invention s technical value to the infringer should be the quintessence of a reasonable royalty inquiry, the compensatory model ignores this. Instead, courts seek to assess the value of the patented invention in the light of market factors. Where established licensing practices are available to be followed, courts simply build upon them, in disregard of the independent value of the patented technology. Thus, in General Tire, the House of Lords found an established licensing precedent to follow and refused to take into account the fact that the invention enabled the infringer to secure increased savings in the cost of production. Their Lordships reasoned that while the utility and advantages of a patent should be considered, market factors surrounding the patent should be determinative. Lord Wilberforce explained: I accept that it was shown that, over a period, the use of the invention produced a cost saving of 1.8 old pence per pound of T.T.S. But there was no evidence to show that the cost saving was, in this industry, ever used as a basis for royalty. 135 Where there are no licensing practices to rely upon, it is the legal power of the patent as claimed (i.e. the right to exclude) that influences the outcome. In other words, the patentee is able to secure royalties based not only on the patent s inventive concept but also on other non-inventive integers or embodiments upon which the patent claim is founded. 136 Reasoning of this kind can be found in Gerber. 137 There has been 129 See David Taylor, Using Reasonable Royalties to Value Patented Technology (2014) 49 Georgia Law Review 79; see also Mark Lemley and Carl Shapiro, Patent Holdup and Royalty Stacking (2007) 85 Texas Law Review Taylor, Using Reasonable Royalties to Value Patented Technology (2014) 49 Georgia Law Review Lemley and Shapiro, Patent Holdup and Royalty Stacking (2007) 85 Texas Law Review 1991, 1992; see also Elizabeth Siew-Kuwan Ng, Evolving Landscape of Patent Remedies in a Changing Market Place (2012) 24 Singapore Academy of Law Journal 634; see also Thomas Cotter, Patent Holdup, Patent Remedies, and Antitrust Responses (2009) 34 Journal of Corporation Law See Joseph Farrell, John Haynes, Carl Shapiro and Theresa Sullivan, Standard Setting, Patents and Holdup (2007) 74 Antitrust Law Journal Lemley and Shapiro, Patent Holdup and Royalty Stacking (2007) 85 Texas Law Review 1991, Lemley and Shapiro, Patent Holdup and Royalty Stacking (2007) 85 Texas Law Review 1991, General Tire v Firestone Tyre [1976] R.P.C. 197 at See Amy Landers, Let the Games Begin: Incentives to Innovation in the New Economy of Intellectual Property Law (2006) 46 Santa Clara Law Review 307. See also Amy Landers, Patent Valuation Theory and the Economics of Improvement (2009) 88 Texas Law Review Gerber v Lectra [1995] R.P.C. 383 at

114 406 Intellectual Property Quarterly some criticism of this approach of valuing the patent claim, rather than the patented technology, for the purposes of computing reasonable royalties. 138 David Taylor identifies three factors that control the value of a patent right: validity; the possibility of proving infringement; and the likelihood of securing favourable remedies, especially an injunction. 139 He argues that if the focus is solely on the patent claim only the third factor would be taken into account as validity and proof of infringement would be taken as a given. 140 Mark Lemley also argues in support of valuing the inventive concept instead of the patent claim. 141 Describing the inventive step of the patent as the point of novelty, he contends that it should be the basis of determining reasonable royalties, rather than the patent claim, because it is the heart or gist of the invention. 142 Timing of the negotiation The time setting that forms the backdrop of the hypothetical negotiation is also material to the outcomes of the reasonable royalties inquiry. The court s exercise of discretion governs what time setting is elected. In Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd 143 Neuberger LJ reasoned that, when determining negotiating damages, there is no absolute rule regarding the choice of negotiation time, as it could be based on facts before breach or arising in the course of litigation. His Lordship remarked that although negotiating damages (i.e. reasonable royalties) are usually assessed at the date of breach, ex post valuation based on factors arising after breach is also possible because of the quasi-equitable nature of the remedy. 144 Whichever of the two is chosen rests on judicial discretion. Where time setting is based upon considerations that would have preceded infringement, the infringers circumstances (especially their anticipated profits) are taken as the basis for computing reasonable royalties. 145 As John Jarosz and Michael Chapman opine, the general attitude of US courts is to adopt pre-infringement time setting. 146 This is because, they argue, the courts acknowledge that real life licensing is based on information available ex ante before access to the patent is allowed. 147 In support of this view they cite the words of the Federal Circuit in Lucent 148 that [t]he hypothetical negotiation tries, as best as possible, to recreate the ex-ante licensing scenario. 149 However, where the selected time of negotiation is based on facts available in the light of litigation, post-infringement the infringers circumstances, especially profits earned from the infringing activities, serve as the fulcrum for the computation of royalties. This is usually known as the profits available approach, as discussed above under the valuation methods of the compensatory model. In such a case, the profits actually earned by the infringer become the substratum for computing a royalty. In the US case of Fromson v Litho Plate & Supply Co 150 Gunn J adopted this approach, reasoning that the law does not forget that the parties are not true contracting parties, and that the purpose of the exercise is to redress the wrong of the infringer. His Honour relied on the words of Cardozo J, in the old Supreme Court case of Sinclair 138 Taylor, Using Reasonable Royalties to Value Patented Technology (2014) 49 Georgia Law Review Taylor, Using Reasonable Royalties to Value Patented Technology (2014) 49 Georgia Law Review 79, Taylor, Using Reasonable Royalties to Value Patented Technology (2014) 49 Georgia Law Review 79, Mark Lemley, Point of Novelty (2011) 105 Northwestern University Law Review Lemley, Point of Novelty (2011) 105 Northwestern University Law Review 1253, Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd [2006] EWCA Civ 430; [2007] L. & T.R. 6. See also Amec Developments Ltd v Jury s Hotel Management (UK) Ltd [2001] 7 E.G Lunn Poly v Liverpool & Lancashire Properties [2006] EWCA Civ 430; [2007] L. & T.R. 6 at [29]. 145 See, for example, Coflexip v Stolt [2003] EWCA Civ 296; [2003] F.S.R Jarosz and Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages (2013) 16 Stanford Technology Law Review 769, See also Axel Schmitt-Nilson, The Unpredictability of Patent Litigation Damage Awards: Causes and Comparative Notes (2012) 3 Intellectual Property Brief Jarosz and Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages (2013) 16 Stanford Technology Law Review 769, Lucent Technologies Inc v Gateway Inc 580 F. 3d 1301 (Fed. Cir. 2009). 149 Jarosz and Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages (2013) 16 Stanford Technology Law Review 769, Fromson v Litho Plate & Supply Co 853 F. 2d 1568, at [49] [60] (Fed. Cir. 1988).

115 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 407 Refining Co v Jenkins Petroleum Process Co, 151 who described ex post events as providing a book of wisdom that the courts are not forbidden from looking into. 152 As it transpires, this time setting is more commonly used in Commonwealth jurisdictions, as is evidenced by the majority of patent reasonable royalty case law. Yet it suffers from a significant deficiency in that it is likely to reconstruct the bargaining process on account of the infringer s asset specificity and thus the patent holder s holdup power. This is because an ex post reconstruction is fashioned around facts as they exist after infringement. It goes without saying that whichever of the two time settings is adopted comes with its own consequences. 153 If the anticipated profits approach is applied to determine royalties in circumstances where the infringer realises poor profits from sales, the patentee still receives royalties based upon the infringer s expectations. 154 But if the infringer makes windfall profits that exceed their expectations, the patentee s royalties would be capped at the infringer s expectations. 155 In contrast, if the profits available approach is used, the patentee can have its royalties incrementally adjusted to the infringer s profits arising from the infringement. 156 It is only when infringers earn profits that match their expectations that the use of either time setting would impart no material difference. 157 It has been posited by Norman Siebrasse and Thomas Cotter that a hybrid time setting should be applied to take advantage of divergent time settings and avoid their disadvantages. 158 Termed a contingent ex ante time setting, in application it would be founded on ex ante negotiation, but based on ex post information. 159 Using this model, holdup implications are eschewed, and profits earned by the infringer, rather than anticipated profits, form the basis for computation of royalties. Because NIAs are excluded in Commonwealth jurisdictions, the hybrid time setting effects little change, if any at all, because the patent would be given a specious monopolistic status and the patentee is considered entitled to an injunction. The upshot is that the patent s valuation is inflated nonetheless. But Siebrasse and Cotter propose the inclusion of NIAs in the hybrid time setting, in which case the putative monopolistic status of the patent evaporates to the extent that the infringer would have adopted an alternative technology. Factoring an injunction into the bargaining process before there is asset specificity on the infringer s part does not inflate the valuation of the patent, as the value of an infringer s NIA would be included to counter any likely adverse effects of an injunction. In fact, it would accurately mirror the true value of the patent to the infringer. The hybrid time setting would nonetheless still suffer two major deficiencies: 1. a reliance on the value of the patent as claimed, as opposed to the value of the patent s inventive concept, which represents the patentee s true contribution to knowledge; and 2. a reliance on counterfactual characterisations to reconstruct the bargaining process. To summarise, there are a number of difficulties with computation methods intrinsic to the compensatory model, which render it inherently unsuitable for the calculation of reasonable royalties. The next section demonstrates that the restitutionary model is better equipped to provide an accurate representation of the damages to which the plaintiff is entitled. 151 Sinclair Refining Co v Jenkins Petroleum Process Co 289 U.S. 689 (1933). 152 See also Honeywell Intern. Inc v Hamilton Sundstrand Corp 370 F. 3d 1131 (Fed. Cir. 2004). 153 cf. Gerber v Lectra [1995] R.P.C. 383 at 413 where Jacob J denied that it bears any material difference what time of assessment is chosen. 154 Michael Carozza, Are Royalties Reasonable in Patent Infringement Suits? Using Hindsight at the Hypothetical Negotiating Table (2012) 12 John Marshall Law Review 241. Note that this model was first articulated by Mario Mariniello, Fair, Reasonable and Non-Discriminatory (FRAND) Terms: A Challenge for Competition Authorities (2011) 7 Journal of Competition Law and Economics 523, Carozza, Are Royalties Reasonable in Patent Infringement Suits? (2012) 12 John Marshall Law Review Carozza, Are Royalties Reasonable in Patent Infringement Suits? (2012) 12 John Marshall Law Review Carozza, Are Royalties Reasonable in Patent Infringement Suits? (2012) 12 John Marshall Law Review Norman Siebrasse and Thomas Cotter, A New Framework for Determining Reasonable Royalties in Patent Litigation, Florida Law Review (forthcoming). 159 Siebrasse and Cotter, A New Framework for Determining Reasonable Royalties in Patent Litigation, Florida Law Review (forthcoming).

116 408 Intellectual Property Quarterly The restitutionary model The restitutionary model is chiefly concerned with the gain derived by the infringer from the infringement, and determines royalties on this basis. Both the first instance judgment 160 and that of the English Court of Appeal in General Tire 161 are classic examples of the application of the restitutionary model. The Court of Appeal accepted the argument of the patentee s counsel, holding that the court is not concerned to work out the consequences of any hypothetical contract between the parties but to discover the value to the infringer of the use of the invention: to discover, that is, not what Firestone U.K. would have paid but what they should have paid. 162 The court placed emphasis on the value of the infringement to the infringer, considering that the infringer gained increased profits by reason of the infringement, but also savings in costs. 163 The relative bargaining powers of the parties in the negotiation process were considered to be irrelevant. 164 The Scottish Court of Session s judgment in United Horse Shoe and Nail Co v Stewart & Co 165 likewise applied the restitutionary model, before the House of Lords overturned its decision for failing to find a lost profits claim in the patentee s favour. The Court of Session awarded the patentee a nominal sum of 50 because it considered that the infringed manufacturing process was of immaterial value to the infringer. The court identified the question to be determined as: what advantage did the infringer derive from using the invention over what he had in using other processes then open in the public? 166 The House of Lords rejection of the restitutionary model in General Tire has meant that this approach has had little traction in Commonwealth jurisdictions. In the US, however, there appear to be signs of resurgence. The tour de force judgment of Posner J in Apple v Motorola, although later overturned on appeal, made the following case for treating reasonable royalties as restitutionary: The difference between conventional damages and a royalty is that often a royalty is actually a form of restitution a way of transferring to the patentee the infringer s profits, or, what amounts to the same thing, the infringer s cost savings from practicing the patented invention without authorization. 167 Judge Posner reasoned that since the infringers could have made use of NIAs, the patent mattered nothing to them, and so nothing of value had been usurped from the patentee by the infringement. 168 For this reason, nominal damages were sufficient as reparations, but in fact his Honour awarded nothing! Judge Posner s view has since garnered support from some patent law scholars who have continued to call vociferously for the use of nominal damages in circumstances similar to Apple v Motorola. 169 It seems on first blush that awarding nominal damages is anathematic to the provisions of 284 of the US Patent Act, which states that monetary reparations to the patentee must be no less than a reasonable royalty. 170 Judge Posner, however, considered that the provisions of 284 do not place a floor on how reasonable royalties might be determined. He reasoned that the rationale behind the provision was that the patentee must show economic injury in order to be entitled to reasonable royalties; otherwise all that the patentee would be entitled to was nominal damages General Tire v Firestone Tyre [1973] F.S.R General Tire v Firestone Tyre [1975] R.P.C General Tire v Firestone Tyre [1975] R.P.C. 241 at General Tire v Firestone Tyre [1975] R.P.C. 241 at General Tire v Firestone Tyre [1975] R.P.C. 241 at United Horse Shoe and Nail Co v Stewart & Co [1887] R.P.C. 130 HL. 166 United Horse Shoe and Nail v Stewart [1887] R.P.C. 130 at Apple Inc v Motorola Inc, No.1:11-cv-08540, 2012 WL , p Apple v Motorola, No.1:11-cv-08540, 2012 WL See Oskar Liivak, When Nominal is Reasonable: Damages for the Unpracticed Patent (2015) 56 Boston College Law Review 1031; see also Nathaniel Love, Nominal Reasonable Royalties for Patent Infringement (2008) 75 University of Chicago Law Review Doll and Denbina, Daubert for Dummkopfs (2013) 21 Texas Intellectual Property Law Journal 301, Doll and Denbina, Daubert for Dummkopfs (2013) 21 Texas Intellectual Property Law Journal 301, 342.

117 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 409 The gist of the restitutionary model In an inquiry into value of the benefit received by the defendant, the courts strive first to determine the objective value of the infringement. But if it appears that special circumstances (such as information costs) caused the infringer to infringe when they would otherwise have refrained from doing so or would have sought a cheaper alternative, the value of the infringement to the infringer is what the court should use in determining a reasonable royalty. As stated by Smith LJ in the trespass case of Gondal v Dillon Newsagents Ltd, 172 where there are special circumstances, the inquiry into value involves an objective determination of what the wrongful occupation was worth to the trespasser. 173 This reasoning was founded on Birks s theory of subjective devaluation concerning unjust enrichment. 174 According to Birks, the value of a benefit to its receiver in an unjust enrichment claim should be adjudged by taking into account the receiver s circumstances and not solely by the basis of the market value of that benefit. 175 This reasoning accords with Beatson s economic analysis of enrichment, as it postulates that a party is only to be judged enriched if he or she had been left better off by the receipt of a benefit than would have otherwise been the case. 176 Although transposed from unjust enrichment to restitution for wrongs, this concept of subjective devaluation serves the same purpose in these two fundamentally different remedial contexts. 177 In the unjust enrichment context the purpose of the concept is to vindicate the autonomy or choice of the enriched party who has been supplied, without request, with a benefit. 178 On the other hand, in the restitution for wrongs context it serves to ascertain the real value of the user to the defendant who, barring special circumstances, would have taken advantage of alternative resources according to his or her means. 179 In 2014, the UK Supreme Court in Benedetti v Sawiris 180 acknowledged that [a]n example of subjective devaluation in practice is perhaps Ministry of Defence v Ashman although caution is required because that was a case about restitution for a wrong (trespass). 181 In the restitution context, it becomes essential to analyse the tenor of the subjective devaluation doctrine as it would apply to patent remedies. The doctrine of subjective devaluation applied to patent infringement The objective value of a patented invention lies in its inventive step over the prior art. However, its value to a given infringer can only be ascertained on account of the infringer s NIAs. Thus, where the infringer had been induced by factors such as information costs, transaction costs (e.g. the thickets problem) or high switching costs to infringe in circumstances where they would ordinarily have resorted to cheaper alternatives, it would not be fair to require the defendant to pay the market value of the user. 182 This is 172 Gondal v Dillon Newsagents Ltd [2001] R.L.R Gondal v Dillon [2001] R.L.R Peter Birks, An Introduction to the Law of Restitution (Oxford: Oxford University Press, 1985), p Birks, An Introduction to the Law of Restitution (1985), p Jack Beatson, The Use and Abuse of Unjust Enrichment (Oxford: Clarendon Press, 1991), pp Andrew Burrows, Ewan McKendrick and James Edelman, Cases and Materials on the Law of Restitution (Oxford: Oxford University Press, 2007), pp See Mitchel McInnes, Enrichments and Reasons for Restitution: Protecting Freedom of Choice (2003) 48 McGill Law Journal 435; Michael Garner, The Role of Subjective Devaluation in the Law of Unjust Enrichment (1990) 10 Oxford Journal of Legal Studies James Edelman, Gain-based Damages: Contract, Tort, Equity and Intellectual Property (Oxford: Hart Publishing, 2002), p.126. See also Shi v Jiangsu Native Produce Import and Export Corp [2010] EWCA Civ Benedetti v Sawiris [2014] A.C. 938 SC. 181 Benedetti v Sawiris [2014] A.C. 938 at Andrew Burrows, Damages and Rights in Donal Nolan and Andrew Robertson, Rights in Private Law (Oxford: Hart Publishing, 2012), pp at p.286; see also Wan Yee, Restitution For Wrongs [1998] Singapore Journal of Legal Studies 299, 307.

118 410 Intellectual Property Quarterly because the defendant would not value the user more than the alternative to which resort could have been made. 183 It has been argued that assessing the value gained by the infringer does not cease at the incremental value of the invention, but also involves an account of NIAs available to the infringer. 184 This assessment appears to be lacking in the first instance and Court of Appeal judgments in General Tire in their application of the restitutionary approach. In determining the value of the patent to the infringer, the first instance court, which influenced the Court of Appeal, simply judged by commonsense and a broad axe. 185 It did not specifically inquire into the value of the patent over other NIAs available to the infringer. A restitutionary approach should ideally ascertain the objective value of an infringed right and also determine what that value would be to the infringer if the infringer s circumstances (e.g. information, transaction or switching costs) were taken into account. As Hoffmann LJ reasoned in Ministry of Defence v Ashman, this is because a benefit may not be worth as much to the particular defendant as to someone else. 186 The reasoning of Lord Hoffmann aligns with the reasoning of Judge Posner in his (overturned) US District Court judgment in Apple v Motorola. His Honour reasoned that as Apple s patent claims would be easy for Motorola to design around to avoid further infringement, the only thing Apple lost as a result of the alleged infringements was royalties capped at the minimum design-around cost. 187 In other words, the cost of designing around the patent should form the basis for assessing the value usurped from the patentee, because Motorola would not value Apple s patent more than a non-infringing technology that would serve essentially the same technical function. In reversing Judge Posner s decision, the Federal Circuit did not appear to disagree with this reasoning, but only with the construction of the claims that had narrowed the scope of the patent claims. Similarly, in Brandeis, Judge Posner held that the defendant should not pay reasonable royalties that exceed its costs of avoiding infringement. 188 As explained by Jarosz and Chapman, the costs of avoiding infringement to the infringer are largely of two kinds: accounting costs and economic costs. 189 Accounting costs encompass the financial expenses the infringer would have to incur in terms of research and development, to devise an NIA. 190 Economic costs encompass possible lost opportunities or difficulties that the infringer might have suffered if it did not possess an NIA, such as delayed market entry or business inefficiencies. 191 Guidance can also be taken from early US cases on reasonable royalties that, before statutory enshrinement, had computed reasonable royalties using a restitutionary approach. 192 For example, in Dowagiac Manufacturing Co v Minnesota Moline Plow Co 193 the Supreme Court ruled that where there was no established royalty, the value of the infringement to the infringer would serve as the basis for determining reasonable royalties. The court saw it as permissible to show the value by proving what would have been a reasonable royalty, considering the nature of the invention, its utility and advantages, and the extent of use. 194 This value to the infringer is essentially the incremental technical-cum-economic benefit inherent in the invention over non-infringing alternatives. In the earlier decision in Suffolk Co v Hayden (Suffolk), 195 Judge Nelson reasoned that in determining the value to the infringer nothing could 183 See Sarah Worthington, Reconsidering Disgorgement for Wrongs (1999) 62 Modern Law Review Jacosz and Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages (2013) 16 Stanford Technology Law Review 769, General Tire v Firestone Tyre [1976] R.P.C. 197 at Ministry of Defence v Ashman (1993) 25 H.L.R. 513 at Apple v Motorola, No.1:11-cv-08540, 2012 WL No.1:11-cv-08540, p Brandeis University v Keebler Co, Order of 18 January 2013, No.1:12-cv Jacosz and Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages (2013) 16 Stanford Technology Law Review 769, Jacosz and Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages (2013) 16 Stanford Technology Law Review Jacosz and Chapman, The Hypothetical Negotiation and Reasonable Royalty Damages (2013) 16 Stanford Technology Law Review 769, See Eli Fink, The New Measure of Damages in Patent Cases (1947) 29 Journal of the Patent and Trademark Office Society 822, Dowagiac Manufacturing Co v Minnesota Moline Plow Co 235 U.S. 641 (1915). 194 Dowagiac Manufacturing v Minnesota Moline 235 U.S. 641, 648 (1915). 195 Suffolk Co v Hayden 3 Wall. 315 (1865). See also Faulkner v Gibbs 199 F. 2d 635 (1952).

119 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 411 be more appropriate and pertinent than that of the utility and advantage of the invention over the old modes or devices that had been used for working out similar results. 196 A recent landmark case that adopted this restitutionary line of reasoning was Grain Processing Corp v American Maize-Products. 197 In this case the infringer had a non-infringing alternative process of producing low-dextrose malto-dextrins, but carried on using an infringing process after several unsuccessful attempts at inventing around the patent. The decision to continue with the infringing use was based on the incremental costs of using the non-infringing process being about 3 per cent more than the infringing process. Presiding over the case in the District Court, Easterbrook J reasoned that the difference in the incremental costs was not materially sufficient as to cause the infringer to increase the price of their products. As acknowledged by the patentee, the infringer had a high profit margin and was able to sell at the same price whether it was infringing or not. The patentee s claim for lost profits was refused, as the infringement had no effect on the patentee s sales advantage. 198 As regards reasonable royalties, the judge reasoned that no reasonable putative licensee would have been willing to pay royalties which cost more than the cost of avoiding infringement. Since the value of the infringement to the infringer was 3 per cent in cost savings, the court held that a reasonable royalty should equate to 3 per cent of the infringer s sales. The US Federal Circuit upheld the reasoning of the judge. 199 More recent US cases, such as Zygo 200 and Riles v Shell, 201 also bear hints of restitutionary reasoning because in these cases it was the infringers cost of avoiding infringement that the courts took into account in determining reasonable royalties. A nuanced version of the restitutionary approach, the analytical approach, was first applied in the US case of TWM Manufacturing Co Inc v Dura Corp. 202 On this approach the infringer s usual net profits are deducted from the anticipated net profits gained from the infringement. In TWM Manufacturing v Dura, this amounted to a 30 per cent royalty rate, representing the difference between the infringer s historical profits from non-infringement, and the profits from infringement. The Federal Circuit Court of Appeals reasoned that although there were NIAs that the infringer could have used, none of them could be proved to have the same beneficial features as the invention. The infringement accordingly had real and substantial value to the infringer. The court refused to accept the infringer s argument that no putative licensing parties would have agreed to such an extortionate royalty rate. Citing Cincinnati Car Co v New York Rapid Transit Corp, 203 the court declared that the willing licensee/licensor construct is only to be used as a device in the aid of justice. 204 The pertinence of the restitutionary model to patent law The restitutionary approach enjoys several advantages over its compensatory counterpart. One is that it obviates the need to rely on counterfactual characterisation to arrive at reasonable royalties, and the inevitable preconception that courts may hold as to what is fair in the circumstances. The compensatory model also attracts a likelihood of bias in favour of the patentee, 205 particularly where the likelihood that an injunction could have been secured against the infringer is incorporated into the hypothetical negotiation effectively reinforcing the patentee s bargaining position. Rather than treat an award of reasonable royalties as an attempt at correcting a failed bargaining process, the restitutionary approach simply assesses the value of the infringement to the infringer and computes 196 Suffolk Co v Hayden 3 Wall. 315 (1865). 197 Grain Processing Corp v American Maize-Products Co 840 F. 2d 902 (Fed. Cir.1988). 198 Grain Processing v American Maize-Products 893 F. Supp (N.D. Ind. 1995). 199 Grain Processing v American Maize-Products 840 F. 2d 902 (Fed. Cir. 1988). 200 Zygo Corp v Wygo Corp 79 F. 3d 1563 (Fed. Cir. 1996). 201 Riles v Shell Exploration & Production Co 298 F. 3d 1302 (Fed. Cir. 2002). 202 TWM Manufacturing Co Inc v Dura Corp 789 F. 2d 895, 900 (Fed. Cir. 1986). 203 Cincinnati Car Co v New York Rapid Transit Corp 66 F. 2d 592 (2d Cir. 1933). 204 TWM Manufacturing v Dura 789 F. 2d 895, 900 (Fed. Cir. 1986). 205 See William Lee and Douglas Melamed, Breaking the Vicious Cycle of Patent Damages (2016) 101 Cornell Law Review 385.

120 412 Intellectual Property Quarterly royalties on that basis. This way, the patentee s holdup powers and their consequent effects are circumvented. Another equally significant merit of this model, under the head of avoiding counterfactual characterisations, relates to its simplicity. Occam s razor value proposes that when confronted with competing hypotheses to solving a problem, the hypothesis which is most simple should be applied. 206 In applying the restitutionary approach, the court simply asks one question: what was the value of the infringement to the infringer? This enables the courts to focus on one holistic formula rather than scouring through a multitude of formulae to utilise in computing damages. Moreover, the restitutionary approach focuses on an assessment of the value of the gist, heart or inventiveness of the patent, not on the claim itself. It thus assesses the value of the patented technology, but not the value of the patent right. 207 In Suffolk the US Supreme Court categorically distinguished the value of patented technology from that of the patent right itself, stating that: [L]ooking at the term value, in the connection in which it was used, it is quite clear that it had reference only to the utility and advantages, or value of the improvement over the old mode of cleaning cotton; not the value of the patent itself. 208 Amy Landers, a proponent of the restitutionary model, argues that patent claims are only an abstraction of the inventive concept (distilled in the specification) that primarily forms the basis of patent grants and claims. 209 For this reason, the value of infringement to the infringer should be judged solely by the quality of the inventive concept contained in the specification, not the patent claims or its construction. 210 Amanda Frye reasons on a similar basis that taking such an approach would help ensure that the infringer s fault and the patentee s reparations are commensurate. 211 According to her, this would help promote fairness among players in the patent market and also curb abusive patent assertion practices. 212 As patented inventive technical knowledge is no more than an addition to the pre-existing stock of knowledge, it becomes only reasonable that a patent owner should be entitled to credit(s) for the value he or she has contributed to the state of the art, but no more than that. 213 This position finds corroboration in the much earlier work of Alfred Kahn that: Each novel element arises inevitably from the past and itself sets up a complex interplay of causes and effects which in turn induce still further change. These novel elements are what we call inventions. They are, of course, created by individuals; but these individuals merely make explicit what was already implicit in the technological organism which conditions their thought and effort and within which they must work. Strictly speaking, no individual makes an invention, in the usual connotation of the term. For the object which, for linguistic convenience, we call an automobile, a telephone, as if it were an entity, is, as a matter of fact, the aggregate of an almost infinite number of individual 206 See Richard Helmholz, Ockham s Razor in American Law (2006) 21 Tulane European and Civil Law Forum 109. See also Kit Barker, Wielding Occam s Razor: Pruning Strategies for Economic Loss (2006) 26 Oxford Journal of Legal Studies Thomas Cotter, Four Principles for Calculating Reasonable Royalties in Patent Infringement Litigation (2011) 27 Santa Clara Computer and High Technology Law Journal Suffolk Co v Hayden 3 Wall. 315 (1865). 209 Amy Landers, Patent Claim Apportionment, Patentee Injury and Sequential Invention (2012) 19 George Mason Law Review 471, 477; see also Oskar Liivak, Finding Invention (2012) 40 Florida State University Law Review 57, 59; Jeanne Fromer, Patent Disclosure (2009) 94 Iowa Law Review 539, 567. Jacob J in Markem Corp v Zipher Ltd [2005] EWCA Civ 267; [2005] R.P.C. 31 at [98] describes inventive concepts as representing the inventor s Eureka moments or moments of contribution to the advancement of knowledge. 210 Landers, Patent Claim Apportionment, Patentee Injury and Sequential Invention (2012) 19 George Mason Law Review 471; see also, John Schlicher, Measuring Patent Damages by the Market Value of Inventions The Grain Processing, Rite-Hite and Aro Rules (2000) 82 Journal of the Patent Office and Trademark Society Amanda Frye, Inextricably Commingled : A Restitution Perspective in Patent Remedies (2013) 26 Harvard Journal of Law and Technology Frye, Inextricably Commingled (2013) 26 Harvard Journal of Law and Technology See Landers, Patent Claim Apportionment, Patentee Injury and Sequential Invention (2012) 19 George Mason Law Review 471; see also Amanda Frye, Let the Games Begin: Incentives to Innovation in the New Economy of Intellectual Property Law (2006) 46 Santa Clara Law Review 307.

121 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 413 units of invention, each of them the contribution of a separate person. It is little short of absurdity to call any one of the interrelated units the invention, and its creator the inventor. 214 For this reason, it is submitted that reasonable royalties should, as a general rule, be determined on the basis of the value of an infringement to the infringer. In this way, the courts would primarily be concerned with the incremental value of the infringed patent compared with the NIAs the infringer could have taken advantage of rather than infringing. Focusing on the incremental value of patents addresses the problems associated with information and transaction costs in the patent market. Information costs, as described by Henry Smith, relate to the costs of generating information about rights in the process of delineating and publicizing them, as well as the costs incurred by third parties in the processing of information about the scope, nature and validity of those rights. 215 The significance of these information costs to determining patent value should not be understated. Importantly, the determination of patent validity is generally problematic, as the grant of a patent by the patent office is never final. 216 Moreover, the outcome of judicial determination of patent validity is not final until all avenues of appeal have been exhausted. 217 A patent right can best be said to be probabilistic. 218 A second factor is that the scope of patent rights cannot be delineated in the abstract, as tangible property rights can. 219 The scope of patents is best left to judicial determination, which is influenced by the economic and discretionary considerations of judges. 220 A third factor is that ascertaining the existence of patents by third parties is always difficult, even with the use of patent registration and patent-mapping technologies. 221 Menell and Muerer label these facilities as notice externalities because users are likely to inadvertently infringe and thereby be exposed to demands for royalties 222 The overall effect of information costs is that they render the patent market illiquid, thus making it largely unworkable as compared with markets for tangible matters or rights over tangible matters. Rebecca Eisenberg posits that information costs are a major reason for widespread infringement in the patent system. 223 Empirical studies reveal that the majority of infringers have non-literally infringed patent claims, and as such are non-copyists. 224 Studies have also confirmed that ascertaining patent validity and patent existence are likely to be inefficient in cost terms. 225 Consequently, reasonable royalties should be determined on the basis of the incremental value of patents, not on the basis of property rhetoric. For those infringements 214 Alfred Kahn, Fundamental Deficiencies of the American Patent Law (1940) 30 American Economic Review 475, Henry Smith, Exclusion and Property Rules in the Law of Nuisance (2004) 90 Virginia Law Review 965, Joseph Farrell and Robert Merges, Incentives to Challenge and Defend Patents: Why Litigation Won t Reliably Fix Patent Office Errors and Why Administrative Patent Review Might Help (2004) 19 Berkeley Technology Law Journal 2; see also Mark Janis, Reforming Patent Validity Litigation: The Dubious Preponderance (2004) 19 Berkeley Law Journal Farrell and Merges, Incentives to Challenge and Defend Patents (2004) 19 Berkeley Technology Law Journal Mark Lemley and Carl Shapiro, Probabilistic Patents (2005) 19 Journal of Economic Perspectives 75; see also Doug Litchtman and Mark Lemley, Rethinking Patent Law s Presumption of Validity (2007) 60 Stanford Law Review Gretchen Bender, Uncertainty and Unpredictability in Patent Litigation: The Time is Ripe for a Consistent Claim Construction Methodology (2001) 8 Journal of Intellectual Property Law 175. See also Tun-Jen Chiang and Lawrence B. Solum, The Interpetation-Construction Distinction in Patent Law (2013) 123 Yale Law Journal 530, ; Robert Merges and Richard Nelson, On the Complex Economics of Patent Scope (1990) 90 Columbia Law Review See Nicolas Pumfrey, Martin Adelman, Shamnad Basheer, Raj S. Dave, Peter Meier-Beck, Yukio Nagasawa, Maximillian Rospatt and Martin Sulsky, The Doctrine of Equivalents in Various Patent Regimes Does Anybody Have it Right? ( ) Yale Journal of Law & Technology 264, ; Hugh Laddie, Kirin Amgen the End of Equivalents in Europe? (2009) 40 International Review of Intellectual Property and Competition Law Frederic Caillaud and Yann Meniere, Strategic Intelligence on Patents in Thierry Madies, Dominique Guellec and Jean-Claude Prager (eds), Patent Markets in the Global Knowledge Economy: Theory, Empirics and Public Policy Implications (Cambridge: Cambridge University Press, 2014), pp Peter Menell and James Meurer, Notice Failure and Notice Externalities (2013) 5 Journal of Legal Reasoning Rebecca Einsenberg, Patent Costs and Unlicensed Use of Patented Inventions (2011) 76 University of Chicago Law Review 53, 58. See also Mark Lemley and Nathan Myhrvold, How to Make a Patent Market (2008) 36 Hofstra Law Review Kimberlee Weatherall and Elizabeth Webster, Patent Infringement in Australia: Results from a Survey (2010) 38 Federal Law Review 21; see also Eric Wrzesinski, Breaking the Law to Break into the Black: Patent Infringement as a Business Strategy (2007) 11 Intellectual Property Law Review See Madies et al. (eds), Patent Markets in the Global Knowledge Economy (2014).

122 414 Intellectual Property Quarterly that are proven to be wilful, however, it is submitted that exemplary or punitive reasonable royalties should be awarded as deterrence. A further significant advantage of the restitutionary approach is that it avoids the dilemma of selecting a time setting, and the attendant instability in outcomes that could arise depending upon what time setting is selected. In applying the restitutionary approach, the court is only concerned with knowing the duration of time within which the infringement endured. Once this is ascertained, the court simply applies its judgment on the quantum of value of the infringement to the infringer over that infringing period in order to determine reasonable royalties. Critiquing the restitutionary model The restitutionary model is not without its critics. The cardinal concern is that it poses negative dynamic implications by deflating the value of patents and thus discouraging investment in inventive activities. This is primarily because the model is likely to under-reward the patentee, thus encouraging rather than deterring infringement. 226 Arguably it encourages infringers to infringe with impunity, and when asked to make reparations, to argue they could have relied on NIAs. 227 On this logic, the determination of royalties should be based on what the infringer has gained, not what is the value of the infringement to the infringer in comparison with the infringer s NIAs. 228 It has been argued that where infringers feel emboldened to infringe because of the perceived leniency of legal remedies, patent holders could be exposed to a state of reverse holdup the infringer s version of opportunism. 229 Reverse holdups occur when patentees are unable, owing to infringement, to recoup their marginal costs, and are also unable to convert resources already invested towards applying patents to other alternative ends. 230 A second criticism of the restitutionary approach is also concerned with negative dynamic effects, in that it can depress the value of patents. According to Scott Shane, a determination of royalties based on the value of the infringement to the infringer could produce the following adverse implications: a general erosion in the value of patents possessed by economic entities; a fall in the value of corporations that rely on patents and adverse effect on their shares and equities too; a diminution in research and development incentives; a risk to employment security for workers in the manufacturing sector because of the attenuation of patent value which their employers rely on to embark upon commercialisation; and patent protection that would be more favourable to industries that rely on fewer workers than to those that rely on more workers. 231 A third criticism of the restitutionary model is that it is unconcerned with whether profits are made by an infringer. Whatever the fortunes of an infringer from infringing, the model would require the infringer to pay a price for the value usurped from the patentee. In Strand Electric and Engineering Co Ltd v Brisford 226 See Caprice Roberts, The Case for Restitution and Unjust Enrichment Remedies in Patent Law (2010) 14 Lewis and Clark Law Review Jerry Hausman, Greg Leonard and J Gregory Sidak, Patent Damages and Real Options: How Judicial Characterization of Noninfringing Alternatives Reduces Incentives to Innovate (2007) 22 Berkeley Technology Law Journal Hausman, Leonard and Sidak, Patent Damages and Real Options (2007) 22 Berkeley Technology Law Journal See Damien Geradin, Reverse Holdups: the (Often Ignored) Risks Faced by Innovators in Standardized Areas in The Pros and Cons of Standard Setting (Swedish Competition Authority, 2010), p.101; see also Scott Kieff and Anne Layne-Farrar, Incentive Effects from Different Approaches to Holdup Mitigation Surrounding Patent Remedies and Standard-Setting Organizations (2013) 9 Journal of Competition Law and Economics Geradin, Reverse Holdups in The Pros and Cons of Standard Setting (2010), p.101. See also F. Scott Kieff, Richard A. Epstein and Daniel F. Spulber, The FTC, IP, SSOS: Government Hold-Up Replacing Private Coordination (2012) 8 Journal of Competition Law and Economics Scott Shane, The Likely Adverse Effects of an Apportionment-Centric System of Patent Damages, Manufacturing Alliance on Patent Policy (14 January 2009), -marketplace / pdf [Accessed 21 September 2016].

123 Superiority of Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement 415 Entertainments Ltd 232 Somervell LJ, following a restitutionary view and likening the user principle to mesne profits, observed that the damages could not, in my view, be increased by showing that the defendant had made his use much more than the market rate or higher. Equally they cannot be diminished by showing he made less. 233 This contrasts with the outcome of a compensatory approach, where the court would expect that some profit must be left for the infringer. The first and second criticisms of the restitutionary model outlined above essentially focus on the concern that this form of royalty calculation removes from the patent system the capacity to inspire inventors with the incentive to invent. The flaw of this reasoning is that it neglects the fact that the patent system is ultimately aimed at enhancing social welfare. 234 The patent system was conceived and operates to enable inventors and their sponsors to recoup the marginal costs they incurred towards inventive engagements, but not to enrich them for their inventions. 235 The provision of indiscriminate and generous incentives for inventors to engage in inventive activities does not necessarily benefit society as a whole. 236 Indeed, there is a decided lack of empirical evidence to confirm the much-touted claims that patents incentivise the act of invention, the commercialisation of inventions and the disclosure of inventive ideas. 237 Rather, there is increasing scepticism over the value of the patent system to society. There are particular concerns that excessive incentives are provided to encourage inventive engagements. 238 It is well accepted that society must incur some costs to enable inventors and their sponsors to recoup their marginal expenditure by protecting patented technologies from third-party access. 239 In return for these costs, it is society s expectation that it would reap dynamic gains from these inventive activities. 240 The patent system is thus optimal when the gains to society from protecting patents are at least equal to the costs borne by society towards that end. 241 If the private benefits to patentees from the patent system outweigh the social benefits to society, the patent system is not operating optimally. The compensatory model for calculating reasonable royalties has the propensity to overly reward the patentee and for the utilitarian (or social welfare) purposes of the patent system to be defeated. This is because it enables patentees to secure excessive private gains that dwarf social gains. In effect, the compensatory model enables opportunism on the part of patentees. The restitutionary model, though not without its flaws, is much less likely to encourage this opportunistic behaviour. 232 Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 Q.B. 246 CA. 233 Strand Electric and Engineering v Brisford Entertainments [1952] 2 Q.B. 246 at 252. See also Inverugie Investments Ltd v Hackett [1995] 1 W.L.R. 713 PC (Bahamas). 234 See David Olson, Taking the Utilitarian Basis of Patent Law Seriously: The Case for Restricting Patentable Subject Matter (2009) 82 Temple Law Review 181; see also Tun-Jen Chiang, A Cost-Benefit Approach to Patent Obviousness (2008) 82 St John s Law Review Mark Lemley, Property, Intellectual Property and Free Riding (2005) 83 Texas Law Review See also Mark Lemley, Ex Ante versus Ex Post Justifications for Intellectual Property (2004) 71 University of Chicago Law Review See Ted Sichelman, Purging Patent Law of Private Law Remedies (2014) 92 Texas Law Review 529; see also Arnold Plant, The Economic Theory Concerning Patents for Inventions (1934) 1 Economica Fritz Machlup, An Economic Review of the Patent System, Study No.15, US Senate, Committee on the Judiciary, Subcommittee on Patents, Trademarks, and Copyrights, 85th Cong., 2d sess., Washington, 1958), p.56; see also Frederic Scherer, The Political Economy of Patent Policy Reform in the United States (2009) 7 Journal on Telecommunications and High Technology Law 167, Michele Boldrin and David Levine, Against Intellectual Monopoly (Cambridge: Cambridge University Press, 2010). See also Michele Boldrin and David Levine, Does Intellectual Monopoly Help Innovation? (2009) 5 Review of Law and Economics 991; Bronwyn Hall, Incentives for Knowledge Production with Many Producers, ESRC Centre for Business Research, University of Cambridge Working Paper No.292 (2004). 239 Alan Devlin, Fundamental Principles of Law and Economics (Abingdon: Routledge, 2014), p See Brett Frischmann and Mark Lemley, Spillovers (2007) 107 Columbia Law Review 257; see also Frederic Scherer, The Economics of the Patent System in Frederic Scherer and David Ross, Industrial Market Structure and Economic Performance, 2nd edn (Chicago: Rand McNally, 1980), pp Harold Dutton, The Patent System and Inventive Activity During the Industrial Revolution (Manchester: Manchester University Press, 1984), p.4; see also Alfred Pigou, Economics of Welfare, 4th edn (London: Macmillian Publishers, 1932), p.185.

124 416 Intellectual Property Quarterly Conclusion As the force of remedial sanctions determines the bargaining positions of parties in both the ex ante and ex post market states, this article makes a case against the continued use to the compensatory model for the calculation of reasonable royalties for patent infringement. In the place of that model, this article supports the application of the restitutionary model. The restitutionary approach places a ceiling on whatever the patentee can demand in both market states (ex ante and ex post), the effect of which could erode the patentee s bargaining posture. This might embolden infringers to infringe with impunity, knowing that the patentee s monetary remedy is capped at the value of the patent over the infringer s NIA. For this reason, the incidence of reverse holdup may increase, potentially leading to widespread infringement. At the same time, a broad-brush approach towards deterring infringing activities, under the guise of the compensatory model, does not appear to be a reasonable response because factors relevant to patent market failure, such as information costs and high switching costs, might be the reason for the infringement. Using the compensatory model for the calculation of reasonable royalties might result in punishing innocent infringers. It also creates room for opportunism on the part of patentees. For this reason, it is more appropriate, in the face of the realities of patent market conditions, to determine the value of the infringement to the infringer. In order to avoid opportunism from infringers, however, it will be necessary to find a mechanism to sieve out wilful infringers and impose deterrent measures against them. Much judicial effort by US courts has been expended in endeavouring to find the optimal balance in applying a restitutionary model. Commonwealth courts should be cognisant of this extensive body of jurisprudence in determining an appropriate approach to computation of royalties.

125 Intellectual Property Quarterly

126 Intellectual Property Quarterly Volume Editor Professor Margaret Llewelyn

127 This volume should be cited as [2016] I.P.Q. 00 Published in 2016 by Thomson Reuters (Professional) UK Limited trading as Sweet & Maxwell, Friars House, 160 Blackfriars Road, London, SE1 8EZ (Registered in England & Wales, Company No Registered Office and address for service: 2nd floor, 1 Mark Square, Leonard Street, London, EC2A 4EG). For further information on our products and services, visit Computerset by Sweet & Maxwell. No natural forests were destroyed to make this product; only farmed timber was used and replanted. A CIP catalogue record for this Book is available from the British Library. ISBN Each article and case commentary in this volume has been allocated keywords from the Legal Taxonomy utilised by Sweet & Maxwell to provide a standardised way of describing legal concepts. These keywords are identical to those used in Westlaw UK and have been used for many years in other publications such as Legal Journals Index. The keywords provide a means of identifying similar concepts in other Sweet & Maxwell publications and online services to which keywords from the Legal Taxonomy have been applied. Keywords follow the Taxonomy logo at the beginning of each item. The index has also been prepared using Sweet & Maxwell s Legal Taxonomy. Main index entries conform to keywords provided by the Legal Taxonomy except where references to specific documents or non-standard terms (denoted by quotation marks) have been included. Readers may find some minor differences between terms used in the text and those which appear in the index. Please send any suggestions to Orders to: Sweet & Maxwell, PO Box 1000, Andover, SP10 9AF. Tel: Copies of articles from Intellectual Property Quarterly and other articles, cases and related materials can be obtained from DocDel at Sweet & Maxwell s Yorkshire office. Current rates are: copyright charge + VAT per item for orders by post, DX and . Fax delivery is guaranteed within 15 minutes of request and is charged at an additional 1.25 per page ( 2.35 per page outside the United Kingdom). For full details, and how to order contact DocDel on: Tel: Fax: Go to: Please note that all other enquiries should be directed to Sweet & Maxwell, Friars House, 160 Blackfriars Road, London, SE1 8EZ. Tel: Fax: Thomson Reuters and the Thomson Reuters logo are trademarks of Thomson Reuters. Sweet & Maxwell is a registered trademark of Thomson Reuters (Professional) UK Limited. Crown copyright material is reproduced with the permission of the Controller of HMSO and the Queen s Printer for Scotland. All rights reserved. No part of this publication may be reproduced, or transmitted in any form, or by any means, or stored in any retrieval system of any nature, without prior written permission, except for permitted fair dealing under the Copyright, Designs and Patents Act 1988, or in accordance with the terms of a licence issued by the Copyright Licensing Agency in respect of photocopying and/or reprographic reproduction. Application for permission for other use of copyright material, including permission to reproduce extracts in other published works, shall be made to the publishers. Full acknowledgement of the author, publisher and source must be given Thomson Reuters (Professional) UK Limited and Contributors

128 Table of Contents Articles Abdussalam, Moshood, Nielsen, Jane and Nicol, Dianne: The Superiority of the Restitutionary Model in Computation of Reasonable Royalties for Patent Infringement: A Comparative Discussion Bellido, Jose and Macmillan, Fiona, Music Copyright after Collectivisation Bostyn, Sven J.R., Personalised Medicine, Medical Indication Patents and Patent Infringement: Emergency Treatment Required Bostyn, Sven J.R., Medical Treatment Methods, Medical Indication Claims and Patentability: A Quest into the Rationale of the Exclusion and Patentability in the Context of the Future of Personalised Medicine Broes, Stefanie, Schumacher, Sarah, Preuveneers, Geert and Huys, Isabelle: Intellectual Property Rights and Regulatory Exclusivities in the Pharmaceutical Sector: Challenges and Future Improvements Cheng-Davies, Tania, A Work of Art is not Just a Barrel of Pork: The Relationship between Private Property Rights,Moral Rights Doctrine and the Preservation of Cultural Heritage Cornwall, Jane: Under-Referred, Under-Reasoned, Under-Resourced? Re-examining EU Design Law before the Court of Justice and General Court Dent, Chris, Nineteenth-Century Patent Law and Classical Economics: Patents as Exchangeable Sites of Value Farrand, Benjamin, Human Embryonic Stem Cells and Patent Law in the EU and China: Convergence in Standards through Divergence in Institutions Griffin, James G.H: A Call for a Doctrine of Information Justice Hunter, Dan and Thomas Julian: Lego and the System of Intellectual Property, Koutras, Nikos, History of Copyright, Growth and Conceptual Analysis: Copyright Protection and the Emergence of Open Access Lai, Jessica C.: A Right to Adequate Remuneration for the Experimental Use Exception in Patent Law: Collectively Managing our Way Through the Thickets and Stacks in Research? Makeen, M.F., Rationalising Performance in Public under UK Copyright Law Pérez, Rafael García: Injunctions in Intellectual Property Cases: What is the Power of the Courts? Roy, Alpana and Marsoof, Althaf: Negligent Omissions as a Basis for Holding Online Hosts Liable for Infringements of Trademark Rights: An Australian Perspective Shao, Ken, Beyond the Patent Totem: Australian and Chinese National Innovation Systems in the Asian Century Sims, Alexandra: Copyright s Protection of Functional Objects in New Zealand Tarawneh, Jasem: A New Classification for Trade Mark Functions Book Review MacQueen, Hector: IP and Other Things: A Collection of Essays and Speeches by Robin Jacob v

129 Table of Cases United Kingdom Actavis UK Ltd v Merck & Co. Inc. [2008] EWCA Civ 444; [2009] 1 W.L.R. 1186; [2008] 1 All E.R. 196; [2009] Bus. L.R. 573; [2008] R.P.C. 26; (2008) 102 B.M.L.R. 125; (2008) 31(6) I.P.D ; (2008) 158 N.L.J. 824; Times, June 5, 2008, CA (Civ. Div.); [2007] EWHC 1311 (Pat); (2007) 30(7) I.P.D , 26, 217, 219, , 226 Amec Developments Ltd v Jury s Hotel Management (UK) Ltd [2001] 7 E.G Apple Corps Ltd v Cooper [1993] F.S.R. 286 Ch D Attorney General v Blake [2001] 1 A.C. 268; [2000] 3 W.L.R. 625; [2000] 4 All E.R. 385; [2000] 2 All E.R. (Comm) 487; [2001] I.R.L.R. 36; [2001] Emp. L.R. 329; [2000] E.M.L.R. 949; (2000) 23(12) I.P.D ; (2000) 97(32) L.S.G. 37; (2000) 150 N.L.J. 1230; (2000) 144 S.J.L.B. 242 HL Autospin (Oil Seals) Ltd v Beehive Spinning [1995] R.P.C. 683 Ch D Baigent v Random House Group [2007] EWCA Civ 247; [2008] E.M.L.R. 7; [2007] F.S.R. 24; (2007) 104(15) L.S.G Banks v EMI Songs Ltd (formerly CBS Songs Ltd) (No.2) [1996] E.M.L.R. 452; (1996) 19(9) I.P.D Baxter s Patent (1849) 5 H.P.C , 115 Bayerische Motoren Werke AG v Round & Metal Ltd [2012] EWHC 2099 (Pat); [2012] E.C.C. 28; [2013] F.S.R. 18; (2012) 109(34) L.S.G. 25; [2013] Bus. L.R. D Beaumont v George (1815) 1 H.P.C Beddow v Beddow (1878) 9 Ch. D Benedetti v Sawiris [2013] UKSC 50; [2014] A.C. 938; [2013] 3 W.L.R. 351; [2013] 4 All E.R. 253; [2013] 2 All E.R. (Comm) 801; 149 Con. L.R Bickford v Skewes (1841) 1 Q.B Blair v Osborne & Tomkins [1971] 2 Q.B. 78; [1971] 2 W.L.R. 503; [1971] 1 All E.R. 468; 10 B.L.R. 96; (1970) 114 S.J. 865 CA Bloxam v Elsee (1825) 1 Car. & P Boosey & Co. v Goodson Gramophone Record Co. [1930] 1 Ch. 448, CA Boulton v Bull (1795) 2 H. Bl Bracewell v Appleby [1975] Ch. 408; [1975] 2 W.L.R. 282; [1975] 1 All E.R. 993; (1975) 29 P. & C.R. 204; (1974) 119 S.J Branwhite v Worcester Works Finance Ltd [1969] 1 A.C. 552; [1968] 3 W.L.R. 760; [1968] 3 All E.R. 104; (1968) 112 S.J. 758 HL Bristol Myers Squibb Co. v Baker Norton Pharmaceuticals Inc. [2000] E.N.P.R. 230; [2001] R.P.C. 1; (2001) 58 B.M.L.R. 121; (2000) 23(8) I.P.D ; Independent, July 10, 2000, CA (Civ. Div.); [1999] 1 C.M.L.R. 557; [2000] E.N.P.R. 57; [1999] R.P.C. 253; (1999) 49 B.M.L.R. 173; (1998) 21(12) I.P.D , 155, 205, 206, , 223, 224, 228 British Thomson-Houston v Naamloose Vennootschap Pope s Metaaldraadlampenfabriek [1923] R.P.C Brooke v Ripley (1831) 2 H.P.C C and W s Application (1914) 31 R.P.C , 208 Cala Homes (South) Ltd v Alfred McAlpine Homes East Ltd [1995] F.S.R. 818 Ch D , 303, 304 Cantor Gaming Ltd v GameAccount Global Ltd [2007] EWHC 1914 (Ch); [2007] E.C.C. 24; [2008] F.S.R. 4; [2007] L.L.R. 591; (2008) 31(1) I.P.D Catnic Components Ltd v Hill & Smith Ltd (No.2) [1983] F.S.R. 512 Ch D Coflexip SA v Stolt Comex Seaway MS Ltd [2001] 1 All E.R. 952 (Note); [2001] R.P.C. 9; (2000) 23(10) I.P.D , CA; [1999] 2 All E.R. 593; [1999] F.S.R. 473; (1999) 22(4) I.P.D ; (1999) 22(4) I.P.D ; (1999) 149 N.L.J. 196; Times, February 4, 1999; Independent, February 3, Coflexip SA v Stolt Offshore Ltd [2003] EWCA Civ 296; [2003] F.S.R. 41; (2003) 147 S.J.L.B , 401, 406 Coflexip SA v Stolt Offshore MS Ltd [2002] EWHC 1686 (Pat); (2002) 25(10) I.P.D Commissioners of Inland Revenue v Muller & Co s Margarine [1901] A.C. 217 HL vi

130 Table of Cases vii Coventry (t/a RDC Promotions) v Lawrence [2014] UKSC 13; [2014] A.C. 822; [2014] 2 W.L.R. 433; [2014] 2 All E.R. 622; [2014] P.T.S.R. 384; [2014] B.L.R. 271; 152 Con. L.R. 1; [2014] Env. L.R. 25; [2014] H.L.R. 21; [2014] 2 P. & C.R. 2; [2014] 1 E.G.L.R. 147; [2014] L.L.R. 423; (2014) 158(9) S.J.L.B. 37, SC; [2012] EWCA Civ 26; [2012] 1 W.L.R. 2127; [2012] 3 All E.R. 168; [2012] P.T.S.R. 1505; 141 Con. L.R. 79; [2012] Env. L.R. 28; [2012] 1 E.G.L.R. 165; [2012] L.L.R. 343; [2012] 10 E.G. 88 (C.S.); (2012) 109(11) L.S.G. 21; (2012) 156(9) S.J.L.B. 31, CA , 92 Cranway Ltd v Playtech Ltd [2009] EWHC 1588 (Pat); [2009] Info. T.L.R. 357; [2010] F.S.R Cray Valley Ltd v Deltech Europe Ltd [2003] EWHC (Ch) Davis v Stena Line Ltd [2005] EWHC 420 (QB); [2005] 2 Lloyd s Rep Derosne v Fairlie (1835) 2 C.M. & R Designers Guild Ltd v Russell Williams (Textiles) Ltd [[2000] 1 W.L.R. 2416; [2001] 1 All E.R. 700; [2001] E.C.D.R. 10; [2001] F.S.R. 11; (2001) 98(3) L.S.G. 42; (2000) 144 S.J.L.B. 290 HL , 312 Dolland v Champneys (1758) 1 C.P.C , 109 Donoghue v Stevenson [1932] A.C. 562; 1932 S.C. (H.L.) 31; 1932 S.L.T. 317; [1932] W.N. 139 HL , 379, 380, 384, 392 Downton s Patent (1839) 3 H.P.C Duck v Bates (1884) 13 Q.B.D. 843, CA; (1883) 12 Q.B.D , 130, 131 Dudgeon v Thompson (1877) L.R. 3 App. Cas Dyson Ltd v Vax Ltd [2010] EWHC 1923 (Pat); [2011] Bus. L.R. 232; [2011] E.C.C. 9; [2010] E.C.D.R. 18; [2010] F.S.R. 39; affirmed [2011] EWCA Civ 1206; [2013] Bus. L.R. 328; [2012] F.S.R , 341, 345 Eli Lilly & Co. s Application [1975] R.P.C Ernest Turner Electrical Instruments Ltd v Performing Right Society Ltd; Performing Right Society v Gillette Industries [1943] Ch. 167; [1943] 1 All E.R. 413, CA , 127, 128, 131, Ferguson v Wilson ( ) L.R. 2 Ch. App. 77, CA Fisher v Dewick (1838) 4 Bing. N.C Forsyth v Riviere (1819) 1 C.P.C Foxwell v Bostock (1864) 4 De G.J. 7 S Gafford v Graham (1999) 77 P. & C.R. 73; [1999] 3 E.G.L.R. 75; [1999] 41 E.G. 159; (1998) 95(21) L.S.G. 36; (1999) 96(40) L.S.G. 44; (1998) 142 S.J.L.B. 155; [1998] N.P.C. 66; (1998) 76 P. & C.R. D18 CA (Civ Div) General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1975] 1 W.L.R. 819; [1975] 2 All E.R. 173; [1975] F.S.R. 273; [1976] R.P.C. 197; (1975) 119 S.J. 389 HL , 399, 405, 410 General Tire v Firestone Tyre [1973] F.S.R General Tire v Firestone Tyre [1975] R.P.C Generics (UK) Ltd (t/a Mylan) v Warner-Lambert Co. LLC [2015] EWHC 2548 (Pat) , 172, , 184, , 199 George Henscher Ltd v Restawile Upholstery (Lancs) Ltd [1976] A.C. 64; [1974] 2 W.L.R. 700; [1974] 2 All E.R. 420; [1974] F.S.R. 173; [1975] R.P.C. 31; (1974) 118 S.J. 329 HL Gerber Garment Technology Inc v Lectra Systems Ltd [1995] R.P.C. 383 CA (Civ Div) , 401, 402, 403, Gimex International Groupe Import Export v Chill Bag Coy Ltd [2012] EWPCC 31; [2012] E.C.D.R , 345 Gondal v Dillon Newsagents Ltd [2001] R.L.R Green Lane Products Ltd v PMS International Group Ltd [2007] EWHC 1712 (Pat); [2008] Bus. L.R. 338; [2007] E.C.C. 29; [2007] E.C.D.R. 16; [2008] F.S.R. 1; (2007) 30(8) I.P.D ; affirmed [2008] EWCA Civ 358; [2008] Bus. L.R. 1468; [2008] E.C.C. 28; [2008] E.C.D.R. 15; [2008] F.S.R , 340, 341 Grimme Landmaschinenfabrik GmbH & Co KG v Scott (t/a Scotts Potato Machinery) [2010] EWCA Civ 1110; [2011] F.S.R. 7; [2011] Bus. L.R. D , CA; [2009] EWHC 2691 (Pat); [2010] E.C.D.R. 4; [2010] F.S.R Harmer v Playne (1809) 11 East , 107 Harms (Inc.) Ltd v Martans Club Ltd [1927] 1 Ch. 526, CA; [1926] Ch , 124, 125, 131, Harris v Williams-Wynne [2006] EWCA Civ 104; [2006] 2 P. & C.R. 27, CA; [2005] EWHC 151 (Ch) Harrison v Harrison [2010] EWPCC 3; [2010] E.C.D.R Heaven v Pender (1883) 11 Q.B.D. 503 CA Hesse v Stevenson (1803) 3 Bos. & Pul

131 viii Table of Cases Home Office v Dorset Yacht Co Ltd [1970] A.C. 1004; [1970] 2 W.L.R. 1140; [1970] 2 All E.R. 294; [1970] 1 Lloyd s Rep. 453; (1970) 114 S.J. 375 HL Hooper v Rogers Court of Appeal [1975] Ch. 43; [1974] 3 W.L.R. 329; [1974] 3 All E.R. 417; (1974) 28 P. & C.R. 272; (1974) 118 S.J. 600, CA; HTC Corp. v Nokia Corp. [2013] EWHC 3778 (Pat); [2014] Bus. L.R. 217; [2014] R.P.C , 96, 97, 172 Huddart v Grimshaw (1803) 1 H.P.C , 115 Interflora v Marks & Spencer Plc [2013] EWHC 1291 (Ch); [2013] E.T.M.R. 35; [2013] F.S.R. 33; (2013) 157(21) S.J.L.B Interlego AG v Tyco Industries Inc [1989] A.C. 217; [1988] 3 W.L.R. 678; [1988] 3 All E.R. 949; 1 B.L.R. 271; [1988] 2 F.T.L.R. 133; [1988] R.P.C. 343; (1988) 132 S.J. 698 PC (Hong Kong) Inverugie Investments Ltd v Hackett [1995] 1 W.L.R. 713; [1995] 3 All E.R. 841; [1996] 1 E.G.L.R. 149; [1996] 19 E.G. 124; [1995] E.G. 37 (C.S.); [1995] N.P.C. 36; (1995) 69 P. & C.R. D48 PC (Bahamas) Jaggard v Sawyer [1995] 1 W.L.R. 269; [1995] 2 All E.R. 189; [1995] 1 E.G.L.R. 146; [1995] 13 E.G. 132; [1994] E.G. 139 (C.S.); [1994] N.P.C. 116; Independent, August 22, 1994, CA , 92, 98, 395, 396 Jennings v Stephens [1936] Ch. 469; [1936] 1 All E.R. 409, CA; [1935] Ch , 122, , , 240 John Wyeth and Brothers Ltd s Application and Schering AG s Application [1985] R.P.C Jupe v Pratt (1836) 2 C.P.C KCI Licensing v Smith & Nephew [2010] EWHC 1487 (Pat); [2010] F.S.R Kenrick v Lawrence (1890) Q.B.D. 99 QBD Kohler Mira Ltd v Bristan Group Ltd [2013] EWPCC 2; [2014] F.S.R Lacy v Toole (1867) 15 L.T LB (Plastics) Ltd v Swish Products Ltd [1979] F.S.R. 145; [1979] R.P.C. 551 HL , 309 Leah v Two Worlds Publishing Co Ltd [1951] Ch. 393; [1951] 1 T.L.R Leeds Industrial Cooperative Society Ltd v Slack See Slack v Leeds Industrial Cooperative Society Ltd L Oréal SA v Bellure NV [2010] EWCA Civ 535; [2010] Bus. L.R. 1579; [2010] E.T.M.R. 47; [2010] R.P.C. 23; (2010) 107(22) L.S.G. 17; (2010) 154(21) S.J.L.B L Oréal SA v ebay International AG [2009] EWHC 1094 (Ch); [2009] E.T.M.R. 53; [2009] R.P.C. 21; (2009) 32(7) I.P.D ; (2009) 106(23) L.S.G , 372, 373 Louver-Lite Ltd v Harris Parts Ltd (t/a Harris Engineering) [2012] EWPCC , 345 Lucasfilm Ltd v Ainsworth [2011] UKSC 39; [2012] 1 A.C. 208; [2011] 3 W.L.R. 487; [2011] 4 All E.R. 817; [2012] 1 All E.R. (Comm) 1011; [2011] Bus. L.R. 1211; [2011] E.C.D.R. 21; [2012] E.M.L.R. 3; [2011] F.S.R. 41; 7 A.L.R. Int l 711; (2011) 161 N.L.J , 298, 300, 302 Lucasfilm v Ainsworth [2008] EWHC 1878 (Ch); [2008] E.C.D.R. 17; [2009] F.S.R. 2; (2008) 105(33) L.S.G Lunn Poly Ltd v Liverpool & Lancashire Properties Ltd [2006] EWCA Civ 430; [2007] L. & T.R. 6; [2006] 2 E.G.L.R. 29; [2006] 25 E.G. 210; [2006] 12 E.G. 222 (C.S.) Magmatic Ltd v PMS International Ltd Magmatic Ltd v PMS International Ltd [2013] EWHC 1925 (Pat); [2013] E.C.C. 29; [2014] R.P.C. 23; reversed [2014] EWCA Civ 181; [2014] E.C.D.R. 20; [2014] R.P.C. 24; affirmed [2016] UKSC 12; [2016] Bus. L.R. 371; [2016] E.C.D.R. 15; [2016] R.P.C , 341, 345 Mainetti (UK) Ltd v Hangerlogic UK Ltd [2012] EWPCC Major Bros v Franklin [1908] 1 K.B. 712 KBD Marc Rich & Co v Bishop Rock Marine [1994] 1 W.L.R. 1071; [1994] 3 All E.R. 686; [1994] 1 Lloyd s Rep. 492; [1994] C.L.C. 133 CA (Civ Div) Markem Corp v Zipher Ltd [2005] EWCA Civ 267; [2005] R.P.C. 31; (2005) 28(6) I.P.D Merck & Co. Inc. s Patents [2003] EWHC 5 (Pat); [2003] F.S.R , 224 Merrell Dow Pharmaceuticals Inc. v HN Norton & Co. Ltd [1996] R.P.C. 76; (1997) 33 B.M.L.R. 201; (1996) 19(1) I.P.D ; (1995) 92(45) L.S.G. 31; (1995) 139 S.J.L.B. 245; Times, October 27, 1995, HL Ministry of Defence v Ashman (1993) 25 H.L.R. 513; (1993) 66 P. & C.R. 195; [1993] 40 E.G. 144; [1993] N.P.C. 70 CA (Civ Div) , 409, 410 Ministry of Defence v Thompson (1993) 25 H.L.R. 552; [1993] 40 E.G. 148 CA (Civ Div) Monsanto Co. v Stauffer Chemical Co. [1985] R.P.C. 515, CA Morris v Kelly (1820) 1 Jac. & Walker , 120 Murray v Elliston (1822) 5 B. & Ald Navitaire Inc. v EasyJet Airline Co. Ltd (No.4) [2005] EWHC 282 (Ch); [2006] R.P.C Newbery v James (1817) 2 Mer Nickels v Haslam (1844) 7 Man. & G

132 Table of Cases ix Norwich Pharmacal Co v Customs and Excise Commissioners [1974] A.C. 133; [1973] 3 W.L.R. 164; [1973] 2 All E.R. 943; [1973] F.S.R. 365; [1974] R.P.C. 101; (1973) 117 S.J. 567 HL , 374 Oracle America Inc. v M-Tech Data Ltd See Sun Microsystems Inc. v M-Tech Data Ltd Owners of the Steamship Mediana v Owners of the Lightship Comet [1900] A.C. 113 HL Performing Right Society Ltd v Bradford Corp. ( ) Mac. C.C Performing Right Society Ltd v Bray Urban District Council [1930] A.C. 377, PC Performing Right Society Ltd v Camelo [1936] 3 All E.R Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 K.B. 1, CA; [1923] 2 K.B Performing Right Society Ltd v Gillete Industries Ltd [1945] Ch Performing Right Society Ltd v Hammond s Bradford Brewery Co. Ltd [1934] Ch. 121, CA , 126, 240 Performing Right Society Ltd v Harlequin Record Shops Ltd [1979] 1 W.L.R. 851; [1979] 2 All E.R. 828; [1979] F.S.R. 233; (1979) 123 S.J , 130 Performing Right Society Ltd v Hawthorns Hotel (Bournemouth) [1933] Ch , 244 Performing Right Society Ltd v Kwik-Fit Group Ltd [2008] E.C.D.R. 2; 2007 G.W.D , Court of Session (Outer House) Performing Right Society Ltd v London Theatre of Varieties Ltd [1924] A.C. 1; [1922] 2 K.B. 433, CA Performing Right Society Ltd v Mitchell & Booker (Palais de Danse) Ltd [1924] 1 K.B Performing Right Society Ltd v Rangers FC Supporters Club, Greenock 1974 S.C. 49; 1974 S.L.T. 151, Court of Session (Inner House, Second Division) , 122, 128, 131 Phonographic Performance Ltd v Maitra [1998] 1 W.L.R. 870; [1998] 2 All E.R. 638; [1998] E.M.L.R. 370; [1998] F.S.R. 749; (1998) 21(5) I.P.D ; (1998) 142 S.J.L.B. 75; Times, February 10, 1998; Independent, February 5, 1998, CA Primark v Lollypop Clothing [2001] E.T.M.R. 334 Ch D R. v Arkwright (1785) 1 H.P.C , 116 R. v Wheeler (1819) 2 B. & Ald. 345; 106 E.R Ray v Classic FM Plc [1998] E.C.C. 488; [1999] I.T.C.L.R. 256; [1998] F.S.R. 622; (1998) 21(5) I.P.D ; (1998) 95(17) L.S.G. 32; (1998) 148 N.L.J. 445 Ch D , 309 Reid v Rush and Tompkins Group Plc [1990] 1 W.L.R. 212; [1989] 3 All E.R. 228; [1989] 2 Lloyd s Rep. 167; 27 Con. L.R. 4; [1990] R.T.R. 144; [1990] I.C.R. 61; [1989] I.R.L.R. 265; (1989) 139 N.L.J. 680 CA (Civ Div) Rowntree s Case (1800) 1 H.P.C Russell v Smith (1848) 12 Q.B Russell s Patent (1838) 2 H.P.C , 108 Rylands v Fletcher (1868) L.R. 3 H.L. 330, HL; ( ) L.R. 1 Ex. 265; [ ] All E.R. Rep. 1; (1866) 4 Hurl. & C , 288, 383 Samsung Electronics (UK) Ltd v Apple Inc Samsung Electronics (UK) Ltd v Apple Inc [2012] EWHC 1882 (Pat); [2013] E.C.D.R. 1; affirmed [2012] EWCA Civ 1339; [2013] E.C.D.R. 2; [2013] E.M.L.R. 10; [2013] F.S.R , 338, 342, 345, 346 Sarpy v Holland and Savage [1908] 2 Ch. 198, CA Sasha Ltd v Stoenesco (1929) 45 T.L.R Sawkins v Hyperion Records Ltd [2005] EWCA Civ 565; [2005] 1 W.L.R. 3281; [2005] 3 All E.R. 636; [2005] E.C.D.R. 33; [2005] E.M.L.R. 29; [2005] R.P.C. 32; 2 A.L.R. Int l 761; (2005) 28(6) I.P.D Schering AG s Application [1971] 1 W.L.R. 1715; [1971] 3 All E.R. 177; [1971] F.S.R. 383; [1971] R.P.C. 337; (1971) 115 S.J. 809, Patents Appeal Tribunal , 227, 228 Sealed Air Ltd v Sharp Interpack Ltd [2013] EWPCC Shelfer v City of London Electric Lighting Co. (No.1) [1895] 1 Ch. 287, CA Shi v Jiangsu Native Produce Import and Export Corp [2010] EWCA Civ Shrimpton v Laight (1854) 18 Beav. 164; 52 E.R Slack v Leeds Industrial Cooperative Society Ltd (No.1) [1924] A.C. 851; [1924] All E.R. Rep. 264, HL; [1923] 1 Ch. 431, CA Sofia Bogrich v Shape Machines, November 4, 1994 Patent Court Specsavers International Healthcare Ltd v Asda Stores Ltd (Costs) [2012] EWCA Civ 494; [2012] F.S.R. 20, CA Stead v Williams (1844) 7 Man. & G Stovin v Wise [1996] A.C. 923; [1996] 3 W.L.R. 388; [1996] 3 All E.R. 801; [1996] R.T.R. 354; (1996) 93(35) L.S.G. 33; (1996) 146 N.L.J. 1185; (1996) 140 S.J.L.B. 201 HL Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 Q.B. 246; [1952] 1 All E.R. 796; [1952] 1 T.L.R. 939; (1952) 96 S.J. 260 CA , 414, 415

133 x Table of Cases Sun Microsystems Inc. v M-Tech Data Ltd [2012] UKSC 27; [2012] 1 W.L.R. 2026; [2012] 4 All E.R. 338; [2012] Bus. L.R. 1631; [2012] 3 C.M.L.R. 28; [2012] E.C.C. Iron art of copenhagen. 27; [2012] Eu. L.R. 727; [2012] E.T.M.R. 43; [2012] Info. T.L.R. 173; [2013] F.S.R. 14; Times, July 16, 2012, SC; [2010] EWCA Civ 997; [2011] 1 C.M.L.R. 43; [2011] E.C.C. 4; [2011] Eu. L.R. 117; [2010] E.T.M.R. 64; [2010] Info. T.L.R. 315; [2011] F.S.R. 2, CA; [2009] EWHC 2992 (Pat); [2010] 2 C.M.L.R. 7; [2010] E.T.M.R. 13; [2010] F.S.R. 9; (2010) 33(2) I.P.D Surrey CC and Mole DC v Bredero Homes Ltd [1993] 1 W.L.R. 1361; [1993] 3 All E.R. 705; [1993] 25 E.G. 141; [1993] E.G. 77 (C.S.); (1993) 137 S.J.L.B. 135; [1993] N.P.C. 63 CA (Civ Div) Thompson v Warner Bros Pictures Ltd [1929] 2 Ch. 308, CA Ultraframe (UK) Ltd v Eurocell Building Plastics Ltd [2006] EWHC 1344 (Pat) , 401, 402 Ultraframe (UK) Ltd v Fielding [2003] EWCA Civ 1805; [2004] E.C.D.R. 34; [2004] R.P.C. 24; (2004) 27(3) I.P.D ; (2004) 101(5) L.S.G United Horse Shoe and Nail Co v Stewart & Co [1887] R.P.C. 130 HL Upjohn Co. (Robert s) Application [1976] F.S.R. 87; [1977] R.P.C. 94, CA (Civ. Div.) Utopia Tableware Ltd v BBP Marketing Ltd [2013] EWHC 3483 (IPEC); [2014] E.C.C Virgin Atlantic Airways Ltd v Premium Aircraft Interiors Group [2009] EWCA Civ 1513; [2010] F.S.R. 15; (2010) 33(3) I.P.D , CA; [2009] EWHC 26 (Pat); [2009] E.C.D.R. 11; (2009) 32(4) I.P.D , 97 W & J Wass Ltd v Stoke on Trent City Council [1988] 1 W.L.R. 1406; [1988] 3 All E.R. 394; 87 L.G.R. 129; (1989) 153 L.G. Rev. 586; [1988] E.G. 121 (C.S.); (1988) 85(40) L.S.G. 44; (1988) 132 S.J CA (Civ Div) Wagamama Ltd v City Centre Restaurants Plc [1997] Eu. L.R. 313; [1996] E.T.M.R. 23; [1995] F.S.R. 713 Ch D Wall v Taylor (1882) 9 Q.B.D , Warner-Lambert Co. LLC v Actavis Group PTC EHF [2015] EWCA Civ 556; [2015] R.P.C. 25; (2015) 145 B.M.L.R. 216, CA (Civ. Div); [2015] EWHC 485 (Pat); [2015] R.P.C. 24; (2015) 144 B.M.L.R. 194; [2015] EWHC , , 167, 168, , 177, 178, 180, 183, 187, Watson Laidlaw & Co Ltd v Pott, Cassels and Williamson (1914) 31 R.P.C. 104 HL Whirlpool Corp v Kenwood Ltd [2009] EWCA Civ 753; [2010] E.T.M.R Whitby Specialist Vehicles Ltd v Yorkshire Specialist Vehicles Ltd [2014] EWHC 4242 (Pat); [2015] E.C.D.R World Wide Fund for Nature v World Wrestling Federation Entertainment Inc [2008] 1 W.L.R. 445 CA (Civ Div) Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 W.L.R. 798; [1974] 2 All E.R. 321; (1974) 27 P. & C.R. 296; (1973) 118 S.J. 420 Ch D , 396 WYETH and SCHERING/Second medical use [1986] OJ EPO 175, High Ct X v Bedfordshire CC [1995] [1995] 2 A.C. 633; [1995] 3 W.L.R. 152; [1995] 3 All E.R. 353; [1995] 2 F.L.R. 276; [1995] 3 F.C.R. 337; 94 L.G.R. 313; (1995) 7 Admin. L.R. 705; [1995] E.L.R. 404; [1995] Fam. Law 537; (1996) 160 L.G. Rev. 103; (1996) 160 L.G. Rev. 123; (1995) 145 N.L.J. 993HL European and International European Court of Justice Actavis Group PTC EHF v Boehringer Ingelheim Pharma GmBH & Co. KG (C-577/13) EU:C:2015: , 38, 41 Actavis Group PTC EHF v Sanofi (C-443/12) EU:C:2013:833; [2014] R.P.C , 31, 38, 42 Adam Opel v Autec (C-48/05) [2007] E.C.R. I-1017; [2007] E.T.M.R Adidas-Salomon AG v Fitnessworld Trading Ltd (C-408/01) [2004] Ch. 120; [2004] 2 W.L.R. 1095; [2003] E.C.R. I-12537; [2004] 1 C.M.L.R. 14; [2004] C.E.C. 3; [2004] E.T.M.R. 10; [2004] F.S.R. 21; Times, October 31, AHP Manufacturing BV v Bureau voor de Industriele Eigendom (C-482/07) [2009] E.C.R. I-7295; [2010] F.S.R AIC SA v OHIM (T-615/13) EU:T:2015: , 339, 340 Antrax It Srl v OHIM (T-83/11 and T-84/11) EU:T:2012: , 332, 336, 338, 339 Argo Development and Manufacturing Ltd v OHIM (T-41/14) EU:T:2015:53; [2015] E.C.D.R , 338 Arsenal Football Club Plc v Matthew Reed (C-206/01) [2002] E.C.R. I-10273; [2003] 19 E.T.M.R , 357, 358 Astrazeneca AB v Comptroller General of Patents, Designs and Trade Marks (C-617/12) EU:C:2014:28; [2014] R.P.C , 43 Beifa Group Co Ltd v OHIM (T-148/08) EU:T:2010:190; [2010] E.T.M.R , 347, 348 Beifa Group Co Ltd v OHIM (T-608/11) EU:T:2013:334; [2013] E.T.M.R

134 Table of Cases xi Bell & Ross BV v OHIM (C-426/10 P) EU:C:2011:612, [2012] 1 C.M.L.R , 323, 331, 338 Best-Lock (Europe) Ltd v OHIM and Leg Juris A/S (T-395/14) EU:T:2015: , 17 Biogen Inc. v SmithKline Beecham Biologicals SA (C-181/95) [1997] E.C.R. I-357; [1997] R.P.C. 833; (1997) 38 B.M.L.R , 38, 41 Biscuits Poult v OHIM (T-494/12) EU:T:2014: Brüstle v Greenpeace ev (C-34/10) [2011] E.C.R. I-9821; [2012] 1 C.M.L.R. 41; [2012] All E.R. (EC) 809; [2012] C.E.C. 383; [2012] Bus. L.R. D Budejovicky Budvar Narodni Podnik v Anheuser-Busch Inc (C-482/09) EU:C:2011:605; [2012] E.T.M.R , 368 Cassina SpA v Alivar Srl, Galliani Host Arredamenti Srl (C-198/10), September 9, Cassis de Dijon See Rewe-Zentral AG v Bundesmonopolverwaltung fur Branntwein CEGASA v Proyectos Integrales de Balizamientos EU:C:2012:88, [2012] E.C.D.R , 349 Celaya Emparanza y Galdos Internacional SA (CEGASA) v Proyectos Integrales de Balizamientos SL (C-488/10) EU:C:2012:88, [2012] E.C.D.R , 349 Cezar Przedsiebiorstwo Produkcyjne Dariusz Bogdan Niewinski v OHIM (T-39/13) EU:T:2014: , 339, 340 Chen v OHIM (T-55/12) EU:T:2013:219; [2014] E.C.D.R Circ & Variete Globus Bucuresti v UCMR-ADA (C-283/10) EU:C:2011: Copad SA v Christian Dior Couture SA (C-59/08) [2009] E.C.R. I-3421; [2009] E.T.M.R , 365 Daiichi Sankyo Co. v Comptroller General of Patents, Designs and Trade Marks (C-6/11) EU:C:2011: , 42 Danuta Budziewska v OHIM (T-666/11) EU:T:2013: , 328, 336, 339 Davidoff & Cie SA and Zino Davidoff SA v Gofkid Ltd (C-292/00) [2003] E.C.R. I-389; [2003] E.T.M.R , 340 Die BergSpechte v Günter Guni (C-278/08) [2010] E.C.R. I-2517; [2010] E.T.M.R El Hogar Perfecto del Siglio XXI SL v OHIM (T-337/12) EU:T:2013:601; [2014] E.C.D.R , 331, 332, 336 Eli Lilly & Co. Ltd v Human Genome Sciences Inc. (C-493/12) EU:C:2013:835 [2014] R.P.C , 39, 42 Elleni Holding BV v Sigla SA [2005] E.T.M.R Flos SpA v Semeraro Casa e Famiglia SpA (C-168/09) EU:C:2011:29, [2011] E.C.D.R Football Association Premier League Ltd v QC Leisure (C-403/08) [2012] Bus. L.R. 1321; [2011] E.C.R. I-9083; [2012] 1 C.M.L.R. 29; [2012] All E.R. (EC) 629; [2012] C.E.C. 242; [2012] E.C.D.R. 8; [2012] F.S.R. 1; (2011) 108(40) L.S.G. 22; (2011) 161 N.L.J. 1415; Times, November 23, , 122, 127 Ford Motor Co v Wheeltrims Srl (C-500/14) EU:C:2015:680; [2016] E.C.D.R Forsgren v Osterreichisches Patentamt (C-631/13) EU:C:2015:13; (2015) 143 B.M.L.R , 38, 41 Franssons Verkstäder AB v OHIM (C-290/10 P), September 9, Franssons Verkstäder AB v OHIM (T-98/10), May 10, Fundación española para la innovación de la Artesanía (FEIA) v Cul de Sac Espacio Creativo SL (C-32/08) [2009] E.C.R. I-5611; [2009] E.C.D.R , 326, 349 Gandia Blasco SA v OHIM (T-339/12) EU:T:2014:54; [2014] E.C.D.R , 332 Georgetown University v Comptroller General of Patents, Designs and Trade Marks (C-422/10) EU:C:2011: , 30, 39, 42 Georgetown University v Octrooicentrum Nederland (C-484/12) EU:C:2013: , 30, 39, 42 GlaxoSmithKline Biologicals SA v Comptroller-General of Patents, Designs and Trade Marks (C-210/13) [2014] R.P.C , 38, 39, 41 Google France Sàrl v Louis Vuitton Malletier (C-236/08, 238/08 and C-237/08) [2010] E.C.R. I-2417; [2011] All E.R. (EC) , 358, 365, 367 Group Nivelles v OHIM (T-15/23), 13 May , 339, 340, 343 Grupo Promer Mon Graphic SA v OHIM (T-9/07) [2010] E.C.R. II-981; [2010] E.C.D.R , 324, 327, 328, , 332, 333, 334, 335, 338, 343, 345, 347, 349 H Gautzsch Großhandel GmbH & Co KG v Münchener Boulevard Möbel Joseph Duna GmbH (C-479/12) EU:C:2014:75, [2014] E.C.D.R , 326, 349 Hoffmann-LaRoche & Co AG v Centrafarm Vertriebsgesellschaft Pharmazeutischer Erzeugnisse mbh (102/77) [1978] E.C.R. 1139; [1978] 3 C.M.L.R , 361 Hollywood SAS v Souza Cruz SA (R 283/1999-3) [2002] E.T.M.R , 361 Interflora Inc v Marks & Spencer Plc (C-323/09) EU:C:2011:604; [2012] E.T.M.R , 358, 363, 365, 367 Intel Corp Inc v CPM United Kingdom Ltd (C-252/07) [2008] E.C.R. I-8823; [2009] E.T.M.R , 366 International Stem Cell Corp. v Comptroller General of Patents, Designs and Trade Marks (C-364/13) EU:C:2014:2451; [2015] Bus. L.R. 98; [2015] 2 C.M.L.R. 26; [2015] All E.R. (EC) 362; [2015] C.E.C. 895; [2015] R.P.C. 19; (2015) 142 B.M.L.R , 272

135 xii Table of Cases ITV Broadcasting Ltd v TVCatchup Ltd (C-607/11) EU:C:2013:147, [2013] Bus. L.R Karen Millen Fashions Ltd v Dunnes Stores (C-345/13) EU:C:2014:2013, [2014] Bus. L.R , 323, 326, 341, 347 Kastenholz v OHIM (C-435/13 P), July 17, , 324, 338, 348 Keurkoop BV v Nancy Kean Gifts BV (144/81) [1982] E.C.R. 2853, [1983] F.S.R Kwang Yang Motor Co Ltd v OHIM (T-10/08) EU:T:2011:446; [2012] E.C.D.R , 324, 332, 336 L Oréal SA v Bellure NV (C-487/07) [2009] E.C.R. I-5185; [2009] E.T.M.R , 353, 358 L Oréal v ebay (C-324/09) EU:C:2011:474; [2011] E.T.M.R , 358 Massachusetts Institute of Technology v Deutsche Patentamt (C-431/04) [2006] E.C.R. I-4107; [2006] R.P.C , 38, 39, 41 Medeva BV v Comptroller General of Patents, Designs and Trade Marks (C-322/10) [2011] E.C.R. I-12051; [2012] R.P.C , 31, 39, 42 Merck Sharp and Dohme Corp. v Deutsches Patent-und Markenamt (C-125/10) EU:C:2011: , 36 Ministre de l Economie v Millennium Pharmaceuticals Inc. (C-252/03) [2005] E.C.R. I-3209; [2005] R.P.C Monsanto Technology LLC v Cefetra BV (C-428/08) [2011] Bus. L.R. 1498; [2012] 3 C.M.L.R. 7; [2011] All E.R. (EC) 209; [2011] F.S.R Neuman v José Manuel Baena Grupo SA (C-101/11 P and C-102/11 P) EU:C:2012:641; [2013] E.C.D.R , 324, 325, 343 Neurim Pharmaceuticals (1991) Ltd v Comptroller-General of Patents (C-130/11) EU:C:2012:489; [2013] R.P.C , 39, 42 Nokia Corp v Wardell (C-316/05) [2006] E.C.R. I-12083; [2007] 1 C.M.L.R. 37; [2007] C.E.C. 393; [2007] E.T.M.R. 20; [2007] Bus. L.R. D Novartis AG v Comptroller-General of Patents, Designs and Trade Marks (C-207/03) [2005] E.C.R. I-3209; [2005] R.P.C , 42 Nycomed Danmark ApS v European Medicine Agency (EMA) (T-52/09) EU:T:2011: O2 v Hutchison 3G (C-533/06) [2008] E.C.R. I-4231; [2008] E.T.M.R Ochranný svaz autorský pro práva k dílům hudebním o.s. (OSA) v Lécěbné lázně Mariánské Lázně a.s. (C-351/12) EU:C:2014:110, [2014] 4 C.M.L.R Parfums Christian Dior v Evora (C-337/95) [1997] E.C.R. I-6013; [1998] 1 C.M.L.R , 363, 364, 365 PepsiCo Inc v Grupo Promer Mon Graphic SA (C-281/10 P) [2011] E.C.R. I-10153; [2012] F.S.R , 323, 324, 325, Poland v European Commission (C-185/10) EU:C:2012: Portakabin Ltd v Primakabin BV (C-558/08) [2010] E.C.R. I-6963; [2010] E.T.M.R , 365 Reisenthel v OHIM (T-53/10) EU:T:2011: Renault (53/87) [1988] E.C.R. 6039; [1990] 4 C.M.L.R Rewe-Zentral AG v Bundesmonopolverwaltung fur Branntwein (120/78) [1979] E.C.R. 649; [1979] 3 C.M.L.R SA CNL- Sucal v Hag AG (HAG II) (C-10/89) [1990] E.C.R. I-3711; [1990] 3 C.M.L.R Sabel BV v Puma AG, Rudolf Dassler Sport (C-251/95) [1997] E.C.R. I-6191, [1998] R.P.C Sachi Premium-Outdoor Furniture Lda v OHIM (T-357/12) EU:T:2014: , 339 Seattle Genetics Inc. v Osterreichisches Patentamt (C-471/14) EU:C:2015:659; (2016) 147 B.M.L.R Senz Technologies BV v OHIM (T-22/13 and T-23/13) EU:T:2015:310; [2015] E.C.D.R , 331, 333, 338, 340 Shenzhen Taiden Industrial Co Ltd v OHIM (T-153/08) EU:T:2010: , 324, 327, 328, , 331, 332, 333, 334, 345, 347 Sociedad General de Autores y Editores de Espana (SGAE) v Rafael Hoteles SL (C-306/05) [2007] Bus. L.R. 521; [2006] E.C.R. I-11519; [2007] E.C.D.R , 325, 343 Specsavers International Healthcare Ltd v Asda (C-252/12) EU:C:2013:497; [2013] E.T.M.R Sphere Time v OHIM (T-68/10) EU:T:2011:269; [2011] E.C.D.R , 324, 332, 333, Svensson v Retriever Sverige AB (C-466/12) EU:C:2014:76, [2014] Bus. L.R Thomas Philipps GmbH & Co KG v Grüne Welle Vertriebs GmbH (C-419/15) Tubes Radiatori Srl v OHIM (T-315/12) EU:T:2014: University of Queensland CSL Ltd v Comptroller General of Patents, Designs and Trade Marks (C-630/10) EU:C:2011: , 42 Viejo Valle SA v OHIM (T-566/11 and T-567/11) EU:T:2013:

136 Table of Cases xiii Viking Gas A/S v Kosan Gas A/S (formerly BP Gas A/S) (C-46/10) EU:C:2011:485, [2011] E.T.M.R , 367 Vitra Patente AG v High Tech Srl (C-219/09) Volvo AB v Erik Veng (UK) Ltd (238/87) [1988] E.C.R. 6211; [1989] 4 C.M.L.R Von Colson v Land Nordrhein-Westfahlen (C-14/83) [1984] E.C.R. 1891; [1986] 2 C.M.L.R Yeda Research and Development Co. Ltd and Aventis Holdings Inc. v Comptroller General of Patents, Designs and Trade Marks (C-518/10) EU:C:2011: , 42 European Patent Office ABBOTT RESPIRATORY LLC/Dosage Regime (G2/08) [2010] E.P.O.R , 25, 26, 37, , 205, 217, 218, 225, 226 BOARD OF REGENTS, UNIVERSITY OF TEXAS SYSTEM/Cancer treatment (T1780/12), January 30, DUPHAR/Pigs II (T19/86) [1989] OJ EPO , 221 EISAI/Second medical use (G5/83) [1985] OJ EPO , 26, 151, 157, , 217, 218, 226 GENENTECH, INC/Arthritis patients with an inadequate response to a TNF-alpha inhibitor (T734/12), May 17, , 221 ICOS/V28 receptor (T1191/01) [2002] OJ EPO KOS LIFE SCIENCES INC./Dosage regimen (T1319/04), April 22, MEDICO RESEARCH/Adrenaline (T233/96) May 4, , 221 MOBIL OIL III/Friction reducing additive (G2/88) [1990] OJ EPO , 220, 222 PROTISTA/Alpha-ketoglutaric acid and pharmaceutically acceptable salts thereof for use in increasing HDL plasma levels (T1570/09), May 16, QUEEN S UNIVERSITY KINGSTON /Controlling bleeding (T893/90), July 22, , 221 SCHERING/Combination therapy HCV (T1399/04), October 25, , 221 WARF/Use of embryos (G2/06) [2009] 5 OJ EPO Australia Advanced Building Systems Pty Ltd v Ramset Fasteners (Aust) Pty Ltd [2001] FCA Annets v Australia Stations Pty Ltd [2002] HCA Aristocrat Technologies Australia Pty Ltd v Vidtech Gaming Services Pty Ltd [2006] FCA Astley v Austrust Ltd (1999) 197 C.L.R Bristol Myers Squibb v Faulding [2000] F.C.A Brodie v Singleton Shire Council [2001] HCA , 381 Bryan v Maloney [1995] HCA Bunnings Group Ltd v CHEP Australia Ltd [2011] 82 N.S.W.L.R , 396 Burnie Port Authority v General Jones Pty Ltd [1994] HCA , 384 Desktop Marketing Systems Pty Ltd v Telstra Corp Ltd [2002] FCAFC Google Inc v Australian Competition and Consumer Commission [2013] HCA Graham Barclay Oysters Pty Ltd v Ryan (2002) 77 A.L.J.R , 391 Hahn v Conley (1971) 2 C.L.R Hampton v BHP Billiton Minerals Pty Ltd (No.2) [2012] WASC Hill v Van Ero (1997) 199 C.L.R IceTV Pty Ltd v Nine Network Australia Pty Ltd [2009] HCA Interlego AG v Alex Folley (Vic.) Pty Ltd [1987] F.S.R Interlego AG v Croner Trading Pty Ltd (1992) 111 A.L.R. 577, Fed. Ct , 6 JL v State of South Australia [2004] SADC , 388 JT International SA v Commonwealth of Australia [2012] HCA Lomsargis v National Mutual Life Assn of Australasia Ltd [2005] QSC Louis Vuitton Malletier SA v Toea Pty Ltd [2006] FCA , 373, 375 Modbury Triangle Shopping Centre Pty Ltd v Anzil [2000] HCA National Research Development Corp. s Application [1961] R.P.C , 208 New South Wales v Godfrey [2004] NSWCA , 388 Nokia Corp v Truong [2005] FCA , 374 Perre v Apand Pty Ltd [1999] HCA , 389

137 xiv Table of Cases Pyrenees Shire Council v Day [1998] HCA Roadshow Films Pty Ltd v iinet Ltd [2012] HCA , 387, 388, 391 Rogers v Whitikar [1992] HCA Ryan v Great Lakes Council (2003) 77 A.L.J.R Shell Co of Australia Ltd v Esso Standard Oil (Australia) Ltd [1963] HCA Smith v Leurs (1945) 70 C.L.R St Mark s Orthodox Coptic College v Abraham [2007] NSWCA Stoneman v Lyons [1975] HCA , 385 Sullivan v Moody [2001] HCA Swan (By His Next Friend) v South Australia (1994) 62 S.A.S.R Tame v New South Wales [2002] HCA Trkulja v Google Inc (No.5) [2012] VSC Tweed Shire Council v Carly Eden Howarth (by her Tutor Trent Howarth) [2009] NSWCA Unilever Australia Ltd v PB Foods Ltd [2000] FCA University of Western Australia v Gray [2009] FCAFC Belgium Lancôme Parfums Beauté & Cie SNC v ebay International AG, ebay Europe Sàrl and SPRL, Commercial Court of Brussels Docket No.A/07/06032 (31 July 2008) , 376 Canada AlliedSignal Inc v Du Pont Canada Inc (1998) 78 C.P.R. (3d) , 397, 399 Consolboard Inc v MacMillan Bloedel (Saskatchewan) Ltd (1983) 74 C.P.R. (2d) Jay-Lor International Inc v Penta Farm Systems Ltd (2007) F.C , 401, 402, 403 Kirkbi AG and Lego Canada Ltd v Ritvik Holdings Inc.-Gestions Ritvik Inc. (2005) 43 C.P.R. (4th) 385, Sup. Ct Unilever Plc v Procter & Gamble (1993) 47 C.P.R. (3d) France Alfuzosine [1995] OJ EPO 252, Cour de cassation, 26 October 26, 1993, ebay Inc v LVMH ( , 3 May 2012) Hermes International v Mme Cindy F., ebay France and ebay International AG (4 June 2008) (unreported) Huston v Turner Entertainment (1992) 23 I.I.C. 702, Cour de cassation SA L Oreal v SA ebay, Tribunal de Grande Instance de Paris) 3e ch., No.07/11365 (Fr) (13 May 2009) , 378 SA Louis Vuitton Malletier v ebay Inc and ebay International (30 June 2008) [2010] E.T.M.R Germany Antivirusmittel, BGHZ 101, 159 [1987] G.R.U.R , 184, 214 Badewasser, Beschwerdeabteilung II des Kaiserlichen Patentamtes, Bl.f.PMZ 1905, Benzene sulfonyl urea X ZB 13/75 BPatG [1978] I.I.C. 42, [1977] G.R.U.R. 652, January 20, 1977, BGH , 214 Carvedilol II X ZR 236/01 [2007] I.I.C. 479, BGH, December 19, Case I ZR 304/01 (Internet Auction I) [2005] E.T.M.R. 25 (against Ricardo, a website similar to ebay) Case I ZR 35/04 (Internet Auction II) [2007] E.T.M.R. 70 (against ebay) Case I ZR 73/05 (Internet Auction III) (unreported) Deckenheizung, BGH X ZR 153/03 [2006] G.R.U.R Glatzenoperation Ia ZB 1/65 [1968] G.R.U.R. 142, BGH, September 26, , 207 Hydropyridine X ZB 4/83 [1984] I.I.C. 215, BGHZ 88, 209, BGH, September 20, , , 224, 225 Imidazoline, Patentänderungsgesetz of 4 September 1967 [1972] G.R.U.R. 541, BGH Silikoseverhütung 7 BPatGE 83 (85), German Fed. Patent Ct., May 11, Warner-Lambert Co. LLC v Aliud Pharma GmbH, 327 O 140/15, BeckRS 2015, 08822, LG Hamburg, April 2, 2015, , 185, 225

138 Table of Cases xv Hong Kong Dr Yeung, SauShing Albert v Google Inc [2014] HKCFI Interlego AG v Tyco Industries Inc [1989] A.C. 217; [1988] 3 W.L.R. 678; [1988] 3 All E.R. 949; 1 B.L.R. 271; [1988] 2 F.T.L.R. 133; [1988] R.P.C. 343; (1988) 132 S.J. 698; Times, May 6, 1988; Financial Times, May 11, 1988, PC; [1987] F.S.R. 409, CA Ireland House of Spring Gardens Ltd v Point Blank Ltd (No.1) [1985] F.S.R. 327 Supreme Court (Ireland) Italy Mega Bloks Inc. v Lego System A/S [2008] E.T.M.R. 73, Corte di Cassazione Padova Maria Luisa v Google Inc Case No.10847/2011 March 31, Netherlands NL/Second medical use, Appeal Division of the Patent Office [1988] OJ EPO Novartis AG v Sun Pharmaceutical Industries, CA The Hague, January 27, , 183, 194 Schering Corp. (Merck Sharp & Dohme Corp.) v Teva Pharma BV, CA The Hague, July 14, , 176 Sun Pharmaceutical Industries (Europe) BV v Novartis AG, The Hague Ct, November 25, , 184 New Zealand AHI Operations Ltd v New Lynn Metalcraft Ltd (No.1) (1982) 1 N.Z.I.P.R. 381 HC Alwinco Products Ltd v Crystal Glass Industries Ltd [1985] 1 N.Z.L.R. 716 (CA) , 307, 308, 309 Beckmann v Mayceys Confectionery Ltd (1995) 33 N.Z.I.P.R Benchmark Building Supplies Ltd v Mitre 10 (New Zealand) Ltd [2004] 1 N.Z.L.R Burden v Debonaire Furniture Ltd [2016] NZHC Burden v ESR Group (NZ) Ltd [2015] NZHC 1649; (2015) 113 IPR Composite Development (NZ) Ltd v Kebab Capital Ltd (1996) 7 T.C.L.R Criterion Manufacturing Ltd v Eurofurn Industries Ltd (1996) 7 T.C.L.R Dennison Manufacturing Co v Alfred Holt & Co Ltd (1987) 2 T.C.L.R Fleming v Fletcher Concrete and Infrastructure Ltd, HC, Auckland, CIV , 1 December , 304, 310 Foot Science International Ltd v Xu [2015] NZHC 1739 (orthotics) Frank M Winstone (Merchants) Ltd v Plix Products Ltd [1985] 1 N.Z.L.R. 376 (CA) Gallagher Group Ltd v Robertson Engineering Ltd (t/a Strainrite) [2015] NZHC Henkel KGaA v Holdfast New Zealand Ltd [2006] NZSC 102; [2007] 1 N.Z.L.R , 310, 314, 317 Husqvarna Forest & Garden Ltd v Bridon New Zealand Ltd [1997] 3 N.Z.L.R , 316 Inverness Medical Innovations, Inc v MDS Diagnostics Ltd (2010) 93 I.P.R Lakeland Steel Products Ltd v Stevens (1995) 6 T.C.L.R. 745 HC Mono Pumps (New Zealand) Ltd v Karinya Industries Ltd (1986) 1 T.C.L.R , 316 Napier Tool and Die Ltd v Oraka Technologies Ltd [2013] NZSC , 313, 316 Nielsen v Dysart Timbers Ltd [2009] NZSC 43; [2009] 3 N.Z.L.R Oraka Technologies Ltd v Geostel Vision Ltd (No.1) [2010] NZCA 232; (2010) 9 N.Z.B.L.C. 103,010 CA , 299, 302, 304, , 307, 308, 309, 310, 313, 314, 315, 316, 317 Oraka Technologies Ltd v Geostel Vision Ltd (No.1) HC, Hamilton, CIV , 18 February , 299, 300, 301, , 312, 314 Oraka Technologies Ltd v Geostel Vision Ltd (No.2) [2013] NZCA 111 CA , 298, 299, 301, P S Johnson & Associates Ltd v Bucko Enterprises Ltd [1975] 1 N.Z.L.R , 308 Pacific Software Technology Ltd v Perry Group Ltd [2004] 1 N.Z.L.R , 305, 307, 308, 310

139 xvi Table of Cases Plix Products v Frank M Winstone (Merchants) Ltd [1986] F.S.R. 63; (1984) 1 T.C.L.R , 302, 306 Radford v Hallenstein Bros Ltd, HC, Auckland, CIV , 22 February , 302 Steelbro NZ Ltd v Tidd Ross Todd Ltd [2007] NZCA , 312, 315 Smith Kline & French Laboratories Ltd v Attorney-General (NZ) [1991] 2 N.Z.L.R Thornton Hall Manufacturing Ltd v Shanton Apparel Ltd [1989] 3 N.Z.L.R. 304 CA Tiny Intelligence Ltd v Resport Ltd [2009] NZSC UPL Group Ltd v Dux Engineers Ltd [1989] 3 N.Z.L.R , 314 Wham-O MFG Co v Lincoln Industries Ltd [1984] 1 N.Z.L.R , 300, 301, 313, 317 South Africa Duffy v Google Inc [2015] SASC , 383 Sweden Hydropyridine/SE [1988] OJ EPO 198, Court of Patent Appeals Switzerland Lego System A/S v Mega Brands Inc., decision 4A_20/2012, Fed. Sup. Ct United States Apple Inc v Motorola Inc, No.1:11-cv-08540, 2012 WL , 408, 410 Aqua Shield v Inter Pool Cover Team 774 F. 3d 766 (Fed. Cir. 2014) Brandeis University and GFA Brands Inc v Keebler Co, Order of 18 January 2013, No.1:12-cv , 410 Cincinnati Car Co v New York Rapid Transit Corp 66 F. 2d 592 (2d Cir. 1933) Clemens v Press Pub. Co 122 N.Y. Supp. 206 (S. Ct 1910) , 294 Cornell University v Hewlett Packard Co 609 F. Supp. 2d 279 (N.D.N.Y. 2009) Crimi v Rutgers Presbyterian Church in the City of New York 89 N.Y.S. 2d 813 (S. Ct 1949) Depomed Inc. v Actavis Elizabeth LLC, Civil Action No (JAP) (D.N.J. 2014) Dowagiac Manufacturing Co v Minnesota Moline Plow Co 235 U.S. 641 (1915) ebay Inc. v MercExchange 547 U.S. 388 (2006) Faulkner v Gibbs 199 F. 2d 635 (1952) Folsom v Marsh 9 F. Cas. 342, 344 (CCD Mass., 1841) Fromson v Western Litho Plate & Supply Co 853 F. 2d 1568 (Fed. Cir. 1988) , 406 Georgia Pacific Corp v US Plywood Corp 318 F. Supp (S.D.N.Y. 1970) Grain Processing Corp v American Maize-Products Co 840 F. 2d 902 (Fed. Cir. 1988) , 411 Grain Processing v American Maize-Products 893 F. Supp (N.D. Ind. 1995) Gucci v Mindspring 135 F. Supp. 2d 409 (S.D.N.Y. 2001) Hard Rock Cafe Licensing Corp v Concessions Services Inc 955 F. 2d 1143 (7th Cir. 1992) , 384 Herbert v Shanley Co. 242 U.S 591 (1917) Honeywell Intern. Inc v Hamilton Sundstrand Corp 370 F. 3d 1131 (Fed. Cir. 2004) Inwood Laboratories Inc v Ives Laboratories Inc 456 U.S. 844 (1982) John Church Co. v Hilliard Hotel Co. 221 F. 229 (2d Cir. 1915) LaserDynamics Inc v Quata Computer Inc 694 F. 3d 51 (Fed. Cir. 2012) Louis Vuitton Malletier SA v Akanoc Solutions Inc 658 F. 3d 936 (9th Cir. 2011) Louis Vuitton v ebay, Tribunal de Grande Instance de Paris, 3e ch., no.07/11365 (13 May 2009) Lucent Technologies Inc v Gateway Inc 580 F. 3d 1301 (Fed. Cir. 2009) , 406 Madey v Duke University (2002) 307 F.3d 1351 (Fed. Cir. 2002) Merck & Co Inc v Apotex Inc [2013] F.C Qualitex Co v Jacobson Prods Co 514 U.S. 159, (1995) Rescuecom Corp v Google Inc 562 F. 3d 123 (2nd Cir. 2009) , 381 Riles v Shell Exploration & Production Co 298 F. 3d 1302 (Fed. Cir. 2002) , 411 Rite-Hite Corp v Kelley Co Inc 56 F. 3d 1538, 1576 (Fed. Cir. 1995) , 404 Roche Products Inc. v Bolar Pharmaceutical Co. (1984) 733 F.2d 858 (Fed. Cir. 1984)

140 Table of Cases xvii Roger Cleveland Golf Co Inc v Christopher Prince, Prince Distribution LLC and Bright Builders Inc No D.S.C. 14 March 2011) Rosetta Stone v Google 676 F. 3d 144 (4th Cir. 2012) Sinclair Refining Co v Jenkins Petroleum Process Co 289 U.S. 689 (1933) Smith v Chanel Inc 402 F. 2d 562, 567 (9th Cir. 1968) Suffolk Co v Hayden 3 Wall. 315 (1865) , 411, 412 Tiffany (NJ) Inc and Tiffany and Co v ebay Inc 600 F. 3d 93 (2nd Cir. 2010) , 375, 376 TWM Manufacturing Co Inc v Dura Corp 789 F. 2d 895, 900 (Fed. Cir. 1986) Tyco Industries, Inc. v Lego Systems Inc. 5 U.S.P.Q. 2d 1023 (D.N.J. 1987), aff d 853 F.2d 921 (3d Cir. 1988) Unicloc USA Inc v Microsoft Corp 632 F. 3d 1292 (Fed. Cir. 2011) , 402 Whitserve LLC v Computer Packages Inc 694 F. 3d 10 (Fed. Cir. 2012) Zygo Corp v Wygo Corp 79 F. 3d 1563 (Fed. Cir. 1996) , 411

141 Table of Legislation United Kingdom Statute of Monopolies (21 Jac. 1 c.3) , 140, 207 s , 207 s Statute of Anne (8 Ann. c.19) , 116, 141, 143, Patents, Designs and Trademarks Act (46 & 47 Vict. c.57) , 107, 109 s Copyright Act (51 & 52 Vict. c.17) s Public Health Acts Amendment Act (53 & 54 Vict. c.59) Dramatic Copyright Act (3&4 Will. 4 c.15) , 119, 120, , 133 s Lord Brougham s Act (5&6 Will. 4 c.83) , 110 s Copyright Act (5&6 Vict. c.45) , 121, 124 s Patent Law Amendment Act (15&16 Vict. c.83) , 112, 114 s s s , 114 s s s s s s (c) s s s s s s s s s Common Law Procedure Act (17&18 Vict. c.125) Chancery Amendment Act (21&22 Vict. c.27) , 90, 98, 100, 101 Musical Compositions Copyright Act (45 & 46 Vict. c.40) Patents and Designs Act (7 Edw. 7 c.29) Copyright Act (1&2 Geo. 5 c.46) , 124, 239 s.1(2) Patents Act (12, 13&14 Geo. 6 c.87) s.74(4) Copyright Act (4&5 Eliz. 2 c.74) s Patents Act (c.37) , 207, 209 s s.4a s ss s s.60 (1) (a) , 174 (b) , 167, 170, 171, 183 (c) , 170, 171, 183 (2) , 166, 167, 179, , 184, 187 (5)(a) , 161, 173 (b) (c) , 171 Senior Courts Act (c.54) s , 91, 100 Copyright, Designs and Patents Act (c.48) , 92, 117, 122, , 289, 305 s.1(1) s , 118, 122 s s.28b s.296zg s , 132 s.34(1) , 132 s , 132 xviii

142 Table of Legislation xix 2004 s.91(1) s Patents Act (c.16) European and International Australia China France Germany Copyright Act , 387 s.35(2) s.36(1) s.101(1) s.195ak Trade Practices Act (Cth) , 373, 391 s Patents Act (Cth) , 140 s.119c(2) s s Trade Marks Act (Cth) , 387, 391, 392 s.10(5) s.20(2) s Competition and Consumer Act (Cth) Sch Property Laws Amendment (Raising the Bar) Act Patent Law Patent Law , 269 art , 269 art Decree, January art Intellectual Property Code (Act No ) art.l French Civil Code arts.1382, Copyright Act s Patent Act , 214 s s.5(1) (2) , 225 s.11(1) New Zealand Switzerland Patents Act s s Copyright Act , 304 s.9(3) Companies Act s s.324(1) s s Copyright Act , 304, 305, 313, 317 s s.14(2)(a) s , 305 (1) (2) (3) , 305 s s.75(1) s s ss s.107(2) s.113(1)(a) s s Trade Marks Act s.1(1) s.10(1), (3) United States 1909 Patents Act s Patents Act art (g) art Copyright Act art.15(1) Copyright Act

143 xx Table of Legislation s.1(e) Patent Act (35 U.S.C.) s (c) s s s s s.287(c) Copyright Act , 130, s s s Visual Artists Rights Act , 281 Digital Millennium Copyright Act s s Copyright Act 17 USC s

144 Table of Statutory Instruments United Kingdom 2014 Copyright and Rights in Performance (Personal Copies for Private Use) Regulations (SI 2014/2361) xxi

145 Cumulative Index This index has been prepared using Sweet & Maxwell s Legal Taxonomy. Access copyright digital technology, Artistic works cultural property, moral rights, ownership, Australia innovation national systems, trade marks online infringement, Biotechnological inventions China patents, EU law patents, China innovation national systems, patents stem cell research, Collecting societies copyright musical works, patents experimental use, Commissioned works copyright functional designs, Community designs European Court of Justice, General Court, Comparative law innovation national systems, patents stem cell research, Compensatory damages patents infringement, Copyright collective rights management, digital technology open access, musical works collecting societies, New Zealand functional designs, public performance, toys, 1 18 Courts' powers and duties intellectual property injunctions, Cultural property artistic works, Damages intellectual property injunctions, Designs toys, 1 18 Digital technology copyright open access, intellectual property doctrine of 'information justice', Discretionary powers intellectual property injunctions, Doctors patents personalised medicine and medical indication claims, Duty of care Australia online trade mark infringement,

146 Cumulative Index Economic theory patents legal history, Embryology China patents, EU law patents, EU law Community designs European Court of Justice, General Court, exclusive rights pharmaceuticals, intellectual property injunctions, patents pharmaceuticals, stem cell research, trade marks classification of functions, European Court of Justice Community designs, Excluded subject matter medical treatment personalised medicine, Exclusive rights pharmaceuticals, Exemptions patents experimental use, Experimental use patents remuneration, Functional designs New Zealand copyright, General Court Community designs, Generic medicines patents personalised medicine and medical indication claims, Information intellectual property doctrine of 'information justice', Infringement copyright functional designs, patents personalised medicine and medical indication claims, restitutionary damages, Injunctions intellectual property, Innovation Australia national systems, China national systems, Intellectual property doctrine of 'information justice', injunctions, Jurisprudence intellectual property doctrine of 'information justice', Legal history copyright musical works, open access, patents economic theory, public performance rights in performances, Legal methodology European Court of Justice Community designs, General Court Community designs, Licensing copyright musical works, intellectual property toys, 1 18 Measure of damages patents infringement, Medical technology patents personalised medicine and medical indication claims,

147 Cumulative Index Medical treatment patents personalised medicine, personalised medicine and medical indication claims, Moral rights artistic works, Music industry copyright collecting societies, Musical works copyright collecting societies, New Zealand copyright functional designs, Omissions Australia online trade mark infringement, Online infringement trade marks website operators, Online services Australia online trade mark infringement, Ownership artistic works, Patentability medical treatment personalised medicine, Patents Australia national innovation systems, China national innovation systems, stem cell research, EU law stem cell research, experimental use remuneration, infringement personalised medicine and medical indication claims, restitutionary damages, legal history economic theory, pharmaceuticals, toys, 1 18 Pharmaceutical industry patents personalised medicine and medical indication claims, Pharmaceuticals exclusive rights, patents, Pharmacists patents personalised medicine and medical indication claims, Public performance rights in performances, Remuneration patents experimental use, Research and development patents remuneration, Restitutionary damages patents infringement, Rights in performances public performance, Royalties copyright musical works, patents infringement, Specifications patents legal history, Stem cell research China patents, EU law patents, Supplementary protection certificates pharmaceuticals, Third parties Australia online trade mark infringement,

148 Cumulative Index Tortious liability Australia online trade mark infringement, Toys intellectual property, 1 18 Trade marks Australia online infringement, EU law classification of functions, toys, 1 18 Trade secrets toys, 1 18 TRIPs copyright open access, Website operators Australia online trade mark infringement,

149 REUTERS/Stephen Hird Intellectual Property Enterprise Court: Practice and Procedure 2nd Edition Angela Fox The only book dedicated to the inner workings of the Intellectual Property Enterprise Court (IPEC), this is a must-have for seeking guidance on the key features and relevant materials of the court. This title helps clarify the court s procedures, outlining the most appropriate options for cost-effective dispute resolution. It also advises on pre-action matters and applicable special considerations, allowing you to determine whether the IPEC is the right forum for your case. AVAILABLE ON WESTLAW UK Hardback Publishing October PLACE YOUR ORDER TODAY sweetandmaxwell.co.uk MAIN FEATURES Exhaustive coverage of the issuance of proceedings, illustrating the key differences between the IPEC and the High Court Includes a detailed look at case management and the conduct restrictions of the court, making it essential reading for litigants Examines the application procedure, the principles relating to specific disclosure, trial conduct, and the rules of appeal and judgment enforcement Offers a comprehensive analysis of the IPEC s costs rules and the cap on recoverable costs Dedicated chapter on the small claims track examining the eligibility of claims, proceedings, costs, and the appeals process Includes additional commentary on the history of the IPEC and its jurisdictional coverage Looks at the administrative procedures for domain names and company names Highly practical in content and language, with the inclusion of diagrams of the schedule of costs, sample statements for patent actions and draft codes of practice for pre-action conduct

150 Reuters/Pichi Chuang MORAL RIGHTS 2nd Edition Gillian Davies; Kevin Garnett, QC Moral Rights is the essential text for an increasingly relevant and significant area. It objectively looks at the impact and protection of moral rights in the UK whilst also providing a comparative analysis of these rights in key jurisdictions across the world. It remains the definitive resource on moral rights on the national and international stage. Main Features 1. Provides an international perspective on the origins, principles, and law governing moral rights. 2. The 2nd edition has expanded its jurisdictional coverage to include analysis of: Czech Republic, Egypt, Hungary, India and Slovakia. 3. Detailed commentary on the law in over 20 key jurisdictions, with an additional table summarising moral rights in more than 160 countries. Price: 265 Publication date: October 2016 Format: Hardback ISBN: Assesses the position, role and growing importance of moral rights in the contemporary world whilst addressing key questions of assignment and duration, infringement, remedies, penalties and the waiving of rights. ORDER NOW Quoting reference: A sweetandmaxwell.co.uk

151 Reuters/Pillar Lee THE LAW OF PASSING-OFF: UNFAIR COMPETITION BY MISREPRESENTATION 5th Edition Professor Christopher Wadlow Also Available on WestlawUK and as an ebook on Thomson Reuters ProView The Law of Passing-Off: Unfair Competition by Misrepresentation offers a succinct and comprehensive explanation of the key issues surrounding the Classic Trinity of goodwill, damage and misrepresentation. MAIN FEATURES: 1. Explains the importance of goodwill, its creation, ownership, and issues of extinction and revival. 2. Outlines the key requirements necessary to prove damage. 3. Advises on the basis of an action for misrepresentation, addressing what makes a representation false and who is liable. 4. The latest edition reflects upon recent case law in the UK and Commonwealth, including the Court of Appeal judgment in Fenty v Arcadia and the Supreme Court decision in Starbucks v British Sky Broadcasting Group. Part of the Intellectual Property Library Price: 335 Publication date: September 2016 Format: Hardback ISBN: SAVE 10% on the current and future editions when you request a standing order. Cancel at anytime, no hassle, no obligation. PLACE YOUR ORDER TODAY Quoting reference: A sweetandmaxwell.co.uk

152 REUTERS/Tim Wimborne CIPA GUIDE TO THE PATENTS ACTS FIRST SUPPLEMENT TO THE 8TH EDITION by the Chartered Institute of Patent Attorneys The CIPA Guide to the Patents Acts, 1st Supplement to the 8th edition updates the mainwork with the latest developments in patent law. KEY UPDATES Comprehensively reviews significant UK court decisions and practice directions, IP Office decisions and EPO Appeal Board decisions up to 31 October Outlines the proposals of the Intellectual Property (Unjustified Threats) Bill. Summarizes the Practice Direction for the new Shorter Trials Scheme. Explains the Patents (Amendment) (No. 2) Rules 2016 and their implications. Summarises developments concerning patent eligibility in UK, Europe and Australia. Outlines eligibility developments in the US where the law remains in a state of flux. Reviews recent decisions for novelty and enablement as a condition for novelty. Outlines the latest Enlarged Appeal Board reference concerning disclaimers. Analyses recent inventive step developments, explaining the contrary outcomes in Apple v Samsung (US) and HTC v Apple (UK). Summarises post-grant developments including infringement by supply of brochures, the experimental use defence, interlocutory cross-undertakings in damages, enquiries as to damages and the latest decisions on procedure and costs. Summarises recent decisions regarding SPCs. Introduces contents paragraphs for the more lengthy and significant sections to facilitate reader awareness and navigation December 2016 Paperback PLACE YOUR ORDER TODAY VISIT CALL QUOTING REFERENCE A

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