Intellectual Property Update - State of Escape Accessories Pty Limited v Schwartz and farewell to Peter Heerey AM QC

Intellectual Property Trade Practices
M Marcus
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[2020] FCA 1606

Copyright – artistic works – work of “artistic craftsmanship” – innocent infringement – additional damages – Passing off and ACL misleading or deceptive conduct claims – accessorial liability

Before we address this case we wish to say thanks and farewell to our former co-correspondent, Peter Heerey AM QC, who has delighted us and, we trust, readers of our posts with his poetic flair, amusing quips and his insightful knowledge from his years at the Bar and Bench. His contribution will be missed dearly.

In this case before Justice Davies, State of Escape (“SOE”) alleged that the corporate respondent, Chuchka Pty Ltd, was infringing copyright in SOE’s tote bag, as a work of artistic craftmanship, by importing and selling its own Chuchka bags, and that Chuchka had engaged in misleading or deceptive conduct and passing off. It was also alleged that Ms Schwartz, the sole director of Chuchka, was a joint tortfeasor with Chuchka in respect of the alleged copyright infringement and acts of passing off, and accessorily liable in respect of Chuchka’s alleged contravention of the Australian Consumer Law (“ACL”).

The tote bag at the centre of the dispute is SOE’s Escape bag; a soft, oversize tote bag. The essential features of the bag were said to be its composition from perforated neoprene fabric, its distinctive silhouette and shape, and sailing rope (or rope of that appearance) as handles to wrap around the body and base of the bag. Further key features included an internal, detachable pouch made of perforated neoprene rather than a stitched in pocket, and press studs at either end of the bag. The bag also had other aspects such as hand punched holes where the rope goes in, heat seal tape finish on the top lip of the bag and certain finishes on the inside of the bag. The Escape bag was created in 2013. Chuchka began selling its bags in late 2015.

Copyright claim

The issues on the copyright claim were: (a) does copyright subsist in the Escape bag as “a work of artistic craftsmanship” (within s 10(1) of the Copyright Act 1968 (Cth)? (b) Had the respondents infringed SOE’s copyright in the Escape bag? (c) If so, were the respondents able to rely upon the defence of innocent infringement under s 115(3) of the Copyright Act? (d) Was Ms Schwartz personally liable for Chuchka’s copyright infringement as a joint tortfeasor? (e) Whether there ought to be an award of additional damages pursuant to s 115(4) of the Copyright Act.

The Escape bag was not a registered design. The effect of s 77 of the Copyright Act is to extinguish copyright protection for an artistic work, except if it is a work of artistic craftsmanship, where a “corresponding design” of the work has been applied industrially with the licence of the copyright owner. By the operation of ss 32(1) and 77 of the Copyright Act, if the Court found that the Escape bag was a work of artistic craftsmanship then copyright would subsist. If not, SOE would have no protection under the Copyright Act.

The Court considered (at [77]) the guiding principles settled by Burge v Swarbrick (2007) 232 CLR 336 in determining whether the Escape bag was a “work of artistic craftsmanship”.  Justice Davies noted (at [79]) that the more the functional considerations of a work dictate the form of expression of the work, the less the scope for real or substantial artistic expression.

Applying the principles set out in Burge, Davies J concluded that the Escape bag was not a work of artistic craftsmanship, noting (at [108]):

 [i]t is undoubtedly a work of craftsmanship but I am not persuaded that it is artwork of artistic craftsmanship, notwithstanding its aesthetic and design qualities.

Her Honour concluded that determining whether the bag is a work of artistic craftsmanship turns on the extent to which the Escape bag’s artistic expression, in its form, was unconstrained by functional considerations. The matter had to be considered objectively, looking at the bag as a whole, not by disintegrating the design choices made by the creator, Ms MacGowan, within the functional limitations of the bag she created.

Her Honour concluded (at [110]) that Ms MacGowan’s design approach was constrained by functional considerations, stating that Ms MacGowan:

set out to create a stylish carry all bag and, in that endeavour, the function and utility of the bag as a carry all bag governed the overall design of the bag.

Her Honour found that the choice of various features for the bag were not merely matters of visual and aesthetic appeal but also, critically, resolved functional issues in the design of the bag. Moreover, her Honour noted that the experts agreed that the functional issues were overcome using methods that were common practice and that none of the features alone represented a departure from bags known in November 2013. Her Honour accepted that the choice of perforated neoprene was unconstrained by the function and utility of the Escape bag and was governed by considerations of appearance and aesthetics. However, once the fabric was selected, the design choices embodied within the bag were constrained by functional considerations. Moreover, Ms MacGowan did not approach the design and manufacture of the Escape bag as an artist-craftsperson. She had no special training, skill and knowledge in the design and manufacture of handbags and many of the issues she encountered were purely functional in nature.

Infringement

In case she was wrong in her conclusion on copyright, her Honour went on to consider whether the respondents had infringed copyright. SOE alleged infringement in respect of 34 of the approximately 67 neoprene tote bags with rope sold by the respondents since late 2015, by way of direct infringement under s 36 of the Copyright Act, and indirectly by importation and sale pursuant to ss 37 and 38 of the Copyright Act. Her Honour accepted that if copyright did subsist in the Escape bag, the infringement claims under ss 36, 37 and 38 of the Copyright Act would have been established, the respondents would not have been entitled to rely upon the defence of innocent infringement, but, despite continuing to sell after notice of SOE’s claimed rights, there would have been no basis for an award of additional damages because it was not obvious that copyright subsisted in SOE’s tote bag.

Consumer law and passing off claims

The ACL claims related to sale of the Chuchka bags themselves and the promotion of the bags in conjunction with certain words and phrases. SOE was only successful in relation to the latter part of the ACL claim.

The key issue with SOE’s ACL claim in relation to the sale of Chuchka bags was that Davies J was not satisfied on the evidence that SOE had established a reputation in the features of the Escape bag, as distinct from a reputation in the SOE brand, noting that there was no consumer or trade evidence.

Despite obvious similarities between the SOE Escape bag and the Chuchka bags, her Honour did not think a reasonable consumer within the relevant bag buying class would have been misled or deceived into believing that the Chuchka bags were SOE products. Key to this determination was SOE’s failure to establish a reputation in the features of the Escape bag; that the Chuchka bags were labelled with the “Chuchka” word mark or Chuchka logo and had Chuchka swing tags; that the Chuchka word mark and logo had also been used in connection with its bags in various trade channels; that given the price, these products are a considered purchase, and there was a price differential; and finally there was no evidence of actual confusion.

The respondents were engaging in misleading or deceptive conduct in relation to certain promotional representations, such as “entirely Australian designed” and “the classic original tote”. The respondents accepted this. Appropriate relief in relation to this conduct was to be assessed at a later date (see here [insert hyperlink to note of State of Escape (No 2)]). Ms Schwartz was found to be knowingly concerned in and a party to the contraventions and “involved” in the contraventions for the purposes of s 236(1) of the ACL. 

M Marcus

Melissa Marcus practises in defamation law and all aspects of intellectual property

Tom Cordiner Headshot

Tom Cordiner QC holds the dual qualification of barrister and registered patents and trade mark attorney

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