ELECTROQUIP Ltd and Ors v CRAIGCO Ltd and Ors

• Jurisdiction: New Zealand
• Judge: Rodney Hansen J
• Judgment Date: 29 April 2010
• Neutral Citation: [2010] NZHC 532
• Docket Number: CIV 2006-404-006719
• Court: High Court
• Date: 29 April 2010

Between

Electroquip Limited

First Plaintiff

and

Des Carey Limited

Second Plaintiff

and

Desmond James Balfour Carey

Third Plaintiff

and

Martin Balfour Carey

Fourth Plaintiff

and

David Balfour Carey

Fifth Plaintiff

and

Craigco Limited

First Defendant

and

Patrick David Tuffin Maureen Judith Tuffin

Second Defendants

[2010] NZHC 532

Rodney Hansen J

CIV 2006-404-006719

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Damages decision following successful claim for copyright infringement — Electroquip had developed an automatic sheep jetter — Craigco's version was held to have 5 infringing features — whether compensatory damages and royalties should be awarded under the Copyright Act 1994 — whether damages and royalties should be apportioned according to the number of infringing features — whether the introduction of the infringing product prevented Elctroquip from raising the price of its product— whether the claim was limited by the Craigco's knowledge it was infringing copyright at the time under s121(1) Copyright Act 1994.

Counsel:

BP Henry and GD Church for the Plaintiffs

BM Nathan and VA Nichols for the Defendants

JUDGMENT (NO 2) BY Rodney Hansen J

Rodney Hansen J

As to damages

This judgment was delivered by me on 29 April 2010 at 2.00 p.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date: ………………………….

1 In my judgment of 3 September 2008, I held that the first defendant (Craigco) and the second defendant, Patrick Tuffin, had infringed the plaintiffs' copyright in an automatic sheep jetter which the first plaintiff (Electroquip) marketed under the trade name Electrodip. Subsequently, I made a declaration and granted the plaintiffs a permanent injunction. A further hearing was convened for the purpose of determining the damages to which the plaintiffs are entitled.

Damages

2 By s 120(2) of the Copyright Act 1994, the plaintiffs are entitled, for breach of copyright, to all such relief by way of damages, injunctions, accounts or otherwise as is available in respect of the infringement of any other property right. In addition to compensatory damages, the plaintiffs also seek additional damages, having regard to the flagrancy of the infringement and the benefit accruing to the defendants, as permitted under s 121(2). A claim for damages for loss of reputation was abandoned.

3 The defendants oppose the claim for additional damages and contend that compensatory damages should be reduced because:

• a) The defendants did not know and had no reason to believe that copyright existed in the works; and

• b) Only parts of the defendants' jetter infringed copyright.

Compensatory damages

4 The object of damages is to compensate the plaintiffs for their loss. They are entitled to be put in the position they would have been in had the infringements not occurred. 1 As I will discuss in more detail later, there are two elements to this calculation in a case such as the present. The first entitles the plaintiffs to recover

the profits they would have earned on sales of their own product lost as a result of the infringement. That requires a determination of how many sales Electroquip lost as a result of the infringement and then an assessment of the profit it would have earned on those sales

5 Electroquip's position is that it would have sold an additional 154 units if Craigco and Mr Tuffin had not infringed. That is equivalent to the total number of Craigco's sales of the machine it developed in breach of Electroquip's copyright. Marketed as the Sensor Jet, it provided an alternative to the mechanical jetter (Hi Flo) which previously had been Craigco's only line. Over the period 2002 – 2008, Craigco's sales (in number of units) were:

Year	Hi Flo	Sensor Jet	Total
2002	37
2003	29
2004	28
2005	34	11	45
2006	11	59	70
2007	6	64	70
2008	5	20	25
	150	154	210

6 Electroquip's accounting expert, Mr Kevin Gillespie, said that in basing sales on the actual sales made by Craigco, he was following the approach in Lakeland Steel Products Limited v Stevens 2 and Ultraframe (UK) Limited v Eurocell Building Plastics Limited. 3 That is not the approach taken to the calculation of compensatory damages in those cases. 4 It would be the appropriate basis for determining relief only if the plaintiffs were seeking damages for conversion or an account of profits.

Lost sales

7 The relevant inquiry is to determine how many of the 154 sensor jets sold by Craigco between 2005 and 2008 were sales which Electroquip would have made had their machine not been copied. An analysis of the sales patterns of both companies suggests that there is no direct correlation of the kind asserted by Electroquip. The analysis of Craigco's sales, set out at [5], shows that sales of Hi Flo units (the mechanical jetter) fell sharply after Craigco began marketing the Sensor Jet, while the following comparison of sales of the two companies demonstrates that sales of Electrodip machines did not decline to the extent that might have been expected if all sales of the Sensor Jet were made at the cost of the Electrodip.

JETTER SALES
	Hi Flo	Sensor Jet	Electrodip	Total electronic	Total all jetters
31/03/2000	Not available	-	94	94
31/03/2001	Not available	-	83	83
31/03/2002	37	-	93	93	130
31/03/2003	29	-	76	76	105
31/03/2004	28	-	39	39	67
31/03/2005	34	11	73	84	118
31/03/2006	11	59	69	128	139
31/03/2007	6	64	53	117	123
31/03/2008	5	20	31	51	56
TOTAL	150	154	434	765	738

8 It can be seen that, although sales of the Electrodip declined after the Sensor Jet was first marketed during the year ended 31 March 2005, the drop in sales in the next two years was much less than the sales of Sensor Jets for the equivalent period. The figures suggest that Craigco's marketing of the Sensor Jet had the effect of growing the overall market for electronic jetters. Many of the additional sales were obviously at the cost of Craigco's mechanical jetter.

9 Mr Desmond Carey, the founder of Electroquip and the driving force behind the development of the Electrodip, maintained that the development of the Sensor Jet first impacted on Electroquip's sales in the 2004 year. He believes that the drop in Electrodip sales in the 2004 year (year ended 31 March 2004), was because the market was anticipating the introduction of a sensor jetter by Craigco. I cannot reconcile that with the evidence. Mr Tuffin did not begin promoting the Sensor Jet until mid-2005 and only began its development in December 2003. If Mr Carey is right, one would expect Electrodip sales to be affected even more in the 2005 year. Instead, they bounced back to the 2003 levels. I agree with Mr John Leonard, the accountant called by the defence, that the drop in sales in 2004 is more likely attributable to a combination of increased prices (Electroquip increased the price of its jetter by 12% on 1 March 2003) and external factors, including declining sheep numbers and wool prices. It is also possible that seasonal factors such as the weather and the incidence of flystrike and other infestations, may have played a part.

10 The year ended 31 March 2008 was also a poor year for both Electroquip and Craigco. Again, this seems likely to be attributable to a combination of external factors which affected the market.

11 If these two years (2004 and 2008) are excluded as aberrant, the figures in [7] show that the electronic jetter market increased from an average of 86.5 units for the four years ended 31 March 2003 to average sales of 109.7 units for the three years ended 31 March 2007. The average increase is 23.2 units or 26.8%. If 2005 is excluded, as marketing of the Sensor Jet had only occurred in the last quarter of that year, the average sales for the later period are 122.5 units per year, an increase of 36 units or 41.6%.

12 On this basis, Mr Leonard hypothesised that the entry of Craigco into the sensor jet market had the effect of increasing the market for electronic jetters by between 26.8% and 41.6%. Using sales by reference to cash receipts over the period, he calculated that, if the lower figure of 26.8% is adopted, Electroquip would have lost sales of 81 units as a result of Craigco's entry into the sensor jetter market. If the higher figure is adopted, the loss would have been 25 units.

13 I accept that Craigco's launch of the Sensor Jet resulted in an increased demand for electronic jetters within the range postulated by Mr Leonard. In order to determine the likely measure of sales lost by Electroquip, a more detailed examination of the way in which the two companies marketed their products is necessary. That exercise, as well as the range of possible values identified by Mr Leonard, informs the final calculation of lost sales.

14 Electroquip marketed its jetters direct to the ultimate consumer — the farmer. 85% of its sales were to individual purchasers. In contrast, Craigco sold most of its jetters to retail outlets for on-sale to farmers. 125 of the 154 Sensor Jets it sold between 2005 and 2008 were to farm supply companies. Of these, 122 were sold to six customers. The largest, which had an exclusive agency for sales in the southern half of the South Island, was able to add a retailer's margin of 20%. The remainder were able to add a margin of 10%. Plainly the farm supply companies had an incentive to promote sales of Craigco jetters.

15 There were nine customers to whom both Electroquip and Craigco sold jetters over an eight-year period. They purchased a total of 52 jetters from Electroquip and 74 electronic jetters from Craigco. I accept that some of Craigco's sales to these customers would have been...