9 April, 2019
The Dempsey Group Pty Ltd v Spotlight Pty Ltd [2018] FCA 2016
What you need to know
- A Chinese manufacturer supplied bed linen designs to Spotlight Pty Ltd that had been copied from artwork provided to the manufacturer by Dempsey Group Pty Ltd (Dempsey).
- Dempsey alleged that Spotlight Pty Ltd (Spotlight) infringed its copyright by reproducing the artwork and by importing, selling and advertising quilts and pillows bearing the artwork.
- Spotlight was held liable for copyright infringement for sales that occurred after it was put on notice of Dempsey's rights.
What you need to do
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Traders should take steps to assure themselves that goods sourced from suppliers will not infringe the intellectual property rights of third parties and include appropriate indemnities in supply contracts.
- Traders should develop robust product recall plans and policies to ensure that products can be removed from sale quickly and effectively. A failure to remove infringing products from stores can increase liability and damage brand reputation.
The copyrighted works
When we think of copyrighted works we usually think of films, or music and literature. But copyright can subsist in ordinary household items too. In this recent Federal Court case, copyright in the artwork on bed linen was the subject of infringement proceedings between the companies behind Bed Bath N'Table and Spotlight stores.
Dempsey claimed that it owned copyright in artwork depicted on quilt and pillow sets sold in its Bed Bath N' Table stores (Dempsey Products), and that certain Spotlight quilt and pillow sets (Spotlight Products) sold in Spotlight stores, infringed that copyright.
Dempsey's claim
Dempsey alleged that Spotlight infringed copyright in the artwork depicted on the Dempsey Products by:
- reproducing the Dempsey artwork on the Spotlight Products;
- placing images of the Spotlight Products on the Spotlight website and in its catalogue;
- importing the Spotlight Products for sale into Australia; and
- selling the Spotlight Products in Australia.
Dempsey alleged that Spotlight had deliberately copied the artwork in the Dempsey Products, whereas Spotlight argued that it was an unwitting infringer, and claimed the innocent infringer defence under section 115(3) of the Copyright Act 1968 (Cth) (Act).
The Court heard evidence that Dempsey had provided the artwork designs for the Dempsey Products to a Chinese manufacturer, Yantai Pacific Home Fashions (Yantai) for production. The designs were later seen by a buyer from Spotlight who visited Yantai's showroom in Shandong Province, China on a buying trip.
A Yantai representative gave evidence for Dempsey that he had repeatedly warned Spotlight's buyer that the designs belonged to Dempsey and that there were copyright issues. The Spotlight buyer's evidence was that two of the designs she selected for the Spotlight Products were unmarked samples laid out on a display table in the Yantai showroom, with a third selected from a computer design shown to her by Yantai.
Spotlight's recall
Spotlight was put on notice of the copyright infringement by Dempsey on 29 November 2016, and on 2 December 2016, Spotlight received documents supporting Dempsey's claims of copyright ownership.
Spotlight initiated a recall on 29 December 2016, advising stores to remove the Spotlight Products from sale, however Spotlight experienced some issues with stores complying with the recall. Spotlight's head office sent further correspondence to its stores in January 2017, and in February 2017, the manager of each of Spotlight's 123 stores was telephoned personally to ensure the recall was being complied with. Despite this, the Spotlight Products remained on sale in some stores and 35 of the Spotlight Products were sold between January and July 2017.
Spotlight's infringement
The Court found that Dempsey was the owner of the copyright in the artwork on the Dempsey Products, and that the Spotlight Products reproduced a substantial part of the original artistic work. Spotlight admitted prior to trial to promoting the products on its website and in its catalogue, and to importing and selling the Spotlight Products. However, the parties were in dispute as to whether Spotlight knew that in doing so it was infringing Dempsey's copyright.
The Court preferred the evidence of Spotlight's buyer, finding that Spotlight had not deliberately copied Dempsey's designs.
The Court placed weight on three prior instances where Spotlight had cancelled orders when it learned that Yantai had sold a design to another Australian retailer. The Court held that Spotlight had no reason to suspect that it was infringing Dempsey's copyright, until put on notice by Dempsey in late November 2016.
Spotlight was therefore availed of the defence of innocent infringement by virtue of section 115(3) of the Act, and held not to be liable for reproducing the artwork on the Spotlight Products, importing them into Australia, or for any sales that occurred prior to 2 December 2016.
But the Court found that from 2 December 2016 onwards, Spotlight ought reasonably to have known that sale of the Spotlight Products would infringe Dempsey's copyright. Spotlight was accordingly held liable for infringement as a result of sales that occurred after that date.
Award of Damages
Although Dempsey had initially sought over $900,000 in damages including some $360,000 in damages for loss of profits and reputation, the Court ultimately awarded just over $45,000 for Spotlight's infringement. The Court applied a substantial discount to the figures proffered by Dempsey having observed that the gross profit evidence was unsatisfactory and finding that Spotlight and Dempsey operated in different markets, selling products at different price points, and that the sale of a Spotlight Product did not automatically correspond to lost revenue for Dempsey.
The Court also declined to award any damages for any devaluation in the value of the artworks nor any additional damages, finding that Spotlight's copying had not been deliberate, and although the recall had been badly managed, Spotlight had actively tried to mitigate the infringement and it was not the kind of flagrant or reprehensible conduct that additional damages is designed to penalise.
Authors: Carrick Brough, Lawyer; and Kellech Smith, Partner
For further information, please contact:
Lisa Ritson, Partner, Ashurst
Lisa.ritson@ashurst.com
