Assa Abloy Australia Pty Ltd v Australian Lock Company Pty Ltd

Federal Court of Australia (Full Court)|2005-12-02|Before: Allsop JJ

REASONS FOR JUDGMENT HEEREY AND ALLSOP JJ: 1 The appellant (to which we shall refer by its former name Lockwood) and the respondent (Alco) are rival manufacturers of locks and locking systems for the high security end of the Australian lock market. Alco is the proprietor of a number of designs registered under the Designs Act 1906 (Cth). Lockwood has brought this proceeding which amongst other things seeks an order under s 28 of the Act that the registration of Alco's designs be expunged and, further or alternatively, under s 39 of the Act that the register of designs be rectified by expunging the entries for those designs. 2 Under O 29 r 2 of the Federal Court Rules Alco sought determination prior to trial of the questions whether Lockwood was: (a) a "person aggrieved" within the meaning of s 39; and (b) a "person interested" within the meaning of s 28. 3 The learned primary judge answered both questions in the negative: Lockwood Security Products Pty Ltd v Australian Lock Company Pty Ltd (2005) 216 ALR 652. Lockwood now appeals pursuant to leave granted by his Honour.

The parties and their products 4 Lockwood and Alco are two of the major suppliers of high security locking systems in Australia. They sell essentially the same types of products to similar customers for the same applications. They are in direct competition with one another in a relatively small market. 5 Lockwood and Alco market their locking systems under the respective trade marks "Lockwood Twin" and "Bi Lock". In each case Lockwood or Alco supplies a key blank to a locksmith who cuts serrations (called "bittings") in the blank to create a key. Alco's blanks are in the form of a rather flat "V" which is folded inwards by the locksmith to form a double bladed key. Lockwood's blanks are in the form of a single blade. Each company is the exclusive manufacturer and supplier of key blanks that can be used to create duplicates of their products. 6 Although in competition, the keys and key blanks of the respective companies are significantly different in appearance from each other. Lockwood does not claim that Alco's products infringe any intellectual property it has in its existing products or any products which it might contemplate manufacturing. Lockwood does not allege passing off. However, Lockwood says that the registration of designs, and the duration of such registration, are critical elements in the assessment of competing products by consumers in the market in which Lockwood and Alco compete. Lockwood says that Alco uses wrongly registered designs as a commercial weapon against it. 7 For present purposes, the important aspect of design registration is that it helps to prevent unauthorised duplication of keys. Manufacturers only supply key blanks to a limited number of authorised retail outlets such as locksmiths. Those outlets are contractually bound to satisfy themselves when duplicating a key that the purchaser of the lock system has authorised such duplication. Dealings with key blanks by unauthorised retailers can be prevented by enforcement of design registration rights. 8 The Standards Association of Australia prescribes standards for locking systems: Part 2: Mechanical lock Sets for Doors in Buildings AS 4145.2 - 1993. Paragraph 1.5.3 classifies six levels of keying security. The two highest key security designations - K5 and K6 - require patents and/or registered designs. 9 In their promotional activities both parties emphasise the protection given by patent and design registration and the length of that registration. This is accepted as a "critical marketing tool" when selling keying systems to clients who want a high level of security. For example, Lockwood published a marketing document headed "Patent Protection" which stated: "As you are probably aware Patents & Design Registration provide legal protection which guarantee the security of your keying system. Without these your cylinder or key profile could be copied by anybody, dramatically reducing the security level of your system." There followed a table setting out the periods of protection for patents and registered designs for Lockwood's products compared with those of competitors, including Alco. Alco responded with a similar document which included a "Legal Protection Status Report" and another chart. It stated: "There is no doubt, current patent and design registration are essential for a Security System." 10 Potential customers see registration as critical. For example in April 2001 Yarra Valley Water published an invitation to tender for a high security lock and key system. The purpose was stated to be the need for replacement or upgrading of its exiting Lockwood system "due to the derestriction [expiry of design] of the Lockwood V7 series , and the need to re-establish a tightly controlled key management system". The specifications included (cl C1.9) the authority's expectation that the new system would remain fully serviceable until 2016. Tenders would have to document the patent lifetime and design registration of the proposed product "and any legal protection to ensure the product remains restricted and secure for the expected serviceable lifetime".

Standing for Designs Act proceedings 11 Section 39 provides for rectification of the register in the following terms: "(1) Subject to this Act, a prescribed court, on the application of any person aggrieved, may order the rectification of the register by: (a) the making of any entry wrongly omitted to be made in the register; or (b) the expunging or amendment of any entry wrongly made in or remaining on the register; or (c) the correcting of any error or defect in the register." 12 Section 28 provides for the cancellation of registration: "At any time after the registration of a design any person interested may apply to a prescribed court: (a) for the cancellation of the registration of the design on the ground that the design has been published in the Commonwealth prior to the priority date in respect of the application for registration of the design; or (b) for the grant of a compulsory licence on the ground that the design is implied by manufacture to any article in a country outside the Commonwealth and is not so applied in the Commonwealth to such an extent as is reasonable in the circumstances of the case; and the court may make such order on the application as it considers just: Provided that the court shall not make any order under this section which is at variance with any treaty, convention, arrangement or engagement with any country outside the Commonwealth." 13 The parties accepted that for present purposes there is no distinction to be drawn between a "person aggrieved" and a "person interested". 14 Section 17 provides that a design shall not be registered unless it is new or original. A design will not be new or original if it differs only in immaterial details or in features commonly used in the trade from a design that before the priority date was registered, published or used in Australia or if it is an obvious adaptation of such a design.

Judgment of the primary judge 15 His Honour pointed out that there are many authorities dealing with the expression "person aggrieved". The question can arise in the context of public rights (for example Bateman's Bay Local Aboriginal Land Council v The Aboriginal Community Benefit Fund Pty Ltd (1998) 194 CLR 247, Australian Conservation Foundation Inc v Commonwealth of Australia (1980) 146 CLR 493 and Onus v Alcoa (1981) 149 CLR 27) or application for judicial review of an administrative decision (for example Ogle v Strickland (1987) 13 FCR 306) and in particular where the administrative decision involves the grant of monopoly rights by registration of a design, patent or trade mark. 16 His Honour noted at [86] that it was common ground between the parties that what was at issue was the effect of the promotion and marketing of patent or design registration on purchasing decisions in high security keying systems. His Honour continued: "87. …Lockwood conceded that a failure to make the 'special interest' test of the type recognised in public interest cases would be fatal to its claim. It submitted that the species of interest that it has, being 'apprehended or actual injury or harm to its commercial or business or economic interests,' was sufficient to meet that test. 88. However, putting any alleged breach of s 52 of the Trade Practices Act aside, the manner in which either Lockwood or Alco chooses to promote the 'legal protection' (the rubric used in references to patent or design protection in advertising brochures) afforded to its products, would seem to be a marketing prerogative. The exploitation of a marketing edge - here said to manifest in longevity of such protection for one product as compared to another - would seem to be an efficacious emphasis on the monopoly rights that the Designs Act promotes. 89. Of course, if those rights were not legally acquired - in the sense that the designs in suit were said not to be sufficiently 'new or original' or, to use the language of s 28, had previously been published in the Commonwealth - it would throw a different light on Lockwood's complaints. However, infringement proceedings were not brought against Alco, nor by Alco against Lockwood. It was conceded that this was because there was no basis upon which either party could ground such an action. It is noted in passing that the legislation specifically provides for a remedy where the scope of the monopoly grant is at issue. Here, no such complaint is made. 90. In light of the foregoing, if the ground upon which Lockwood sought to have the designs in suit expunged from the Register was because they do not meet the criteria set out in s 17 of the Designs Act, then this would clearly be a basis for standing. As earlier mentioned, in the course of oral argument counsel for Lockwood made a brief reference to the contention that Alco's designs were not novel. Lockwood was referring to s 17 of the Designs Act, contained in Pt IV, which sets out the criteria for registration, namely that registration shall only apply to a design that is 'new or original'. A design is not new or original where design details or features differ from an existing design 'only in immaterial details' or are 'an obvious adaptation' thereof: s 17(1) of the Designs Act. It would seem that a complaint as to loss of sales and ability to maintain an existing market that is connected with the attack on the lack of innovation in the designs in suit would satisfy the requirements of an 'aggrieved' party. This is because in this context, such a complaint would be consistent with the scope and purpose of the Designs Act. 91. However, Lockwood seeks to expunge from the Register the designs in suit, not because they are not sufficiently 'new or original,' but rather because their continued existence 'permits or arms' Alco with the ability to continue to use the fact of registration in the way it does. It may well be that Lockwood is aggrieved by this competition. As the High Court observed, while speaking about the law of torts, in Campomar v Nike International (supra) at 54 'as a general proposition, the law of torts values competitive conduct between traders to keep down prices and improve products'. However, without more than the complaint that has been made, there is not a sufficient basis upon which to accede to Lockwood's claim that it is a person aggrieved within the meaning of s 39 of the Designs Act. The Designs Act promotes the commercialisation of innovation. It permits a design owner to use registration as a marketing edge."

Conclusion on the appeal 17 His Honour was not correct in saying that Lockwood did not seek to expunge Alco's designs from the register on the grounds of their not being new or original. In its grounds of invalidity Lockwood alleges that Alco's designs have been relevantly prior published. Alco had design no 86895 registered with a priority date of 31 March 1982 which conferred a monopoly until 1 April 1997. From that fundamental form Alco has, says Lockwood, developed the 33 designs challenged in this proceeding. The applications have been lodged at various dates commencing on 9 May 1991. The last eight have expiry dates in 2016. 18 Key blanks of the kind manufactured by the parties have grooves of different configurations. If the groove does not align with corresponding features of a lock it will not be possible to insert the key in the lock, let alone turn it. It is variations in these grooves which are the basis of Alco's designs. Lockwood says they are no more than trade variants which do not differ materially from the fundamental form or each other. The substantive merits of Lockwood's case have not been an issue in the Order 29 application. We only mention these matters to underline the point that Lockwood seeks to make out a case which, leaving aside any question of standing, is squarely within s 17. 19 After argument in the present case but before a decision was delivered, Heerey J considered the expression "any person aggrieved" in s 39 in Supaproducts Pty Ltd v Alesevic (2003) 132 FCR 508. His Honour there noted at [14] that the parties accepted, as did his Honour, that the interpretation of the term by McLelland J in a trade mark context in Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158 at 193 should be followed. Adopting that language to the design context, the expression would embrace any person having a real interest in having the entry expunged and thus would include any person who would be or in respect of whom there is a reasonable possibility of his or her being "appreciably disadvantaged in a legal or practical sense" by the entry not being expunged. 20 Heerey J noted that McLelland J's approach was followed by a Full Court of the Federal Court, also in a trade mark context, in Kraft Foods Inc v Gains Pet Food Corporation (1996) 65 FCR 104 at 112-113 and Campomar Sociedad Limitada v Nike International Ltd (1998) 85 FCR 331 at 363, 381. Subsequently in Macphee v Peters Foods Australia Pty Ltd (2003) 60 IPR 51 at [68]-[74] Hill J considered the term "person aggrieved" in s 39. His Honour was able to find the criteria satisfied because the party in question was a respondent to proceedings for infringement and thus was specifically empowered to counter-claim for rectification of the register. 21 Senior counsel for Alco submitted that the impugned design registration must have a "sufficiently direct and appreciable impact" on the person claiming standing and that impact must "relate sufficiently to the purpose of the legislation". 22 Subject to the overriding consideration that ss 28 and 39 must be construed by reference to the subject, scope and purpose of the statute (Allan v Transurban City Link Ltd (2001) 208 CLR 167 at [15]), we doubt that it is necessary or desirable to develop particular criteria which might limit the broad words of the statute. In Kaiser Aluminium & Chemical Corporation v The Reynolds Metal Company (1969) 120 CLR 136 at 141, dealing with the expression "a person interested" in s 59 of the Patents Act 1952 (Cth), Kitto J said it was "…not a technical legal question but a practical question which it is a mistake to attempt to answer by confining the expression…to cases falling within rigid categories. Early attempts to restrict the relevant kind of interest to an interest as a holder of patents or a manufacturing interest had to be departed from in order to admit a trading interest. These classes of interests, however, are but illustrations." 23 In any event, in the present case the registration of Alco's designs, and the period of that registration, do have a direct and appreciable impact on Lockwood's business. The Ritz formulation makes clear that such impact need not be by way of infringement of legal or equitable rights, actual or prospective; see also Alphapharm Pty Ltd v SmithKline Beecham (Australia) Pty Ltd (1994) 49 FCR 250 at 272. Indeed, Alco did not suggest such a limitation. Here the existence or absence of registered designs and the duration of registration are central considerations in the tendering of Lockwood and Alco for the same commercial contracts and otherwise in the selling of directly competing products. Lockwood can be said to be truly aggrieved if Alco's products win orders because they are based on registered designs which should not have been registered. 24 What the limits of the notion of aggrieved or interested might be in the context of the Designs Act compared to the Trade Marks Act by reference to commercial or practical disadvantage need not be explored. Indeed it is inappropriate to do so. Here, there is a close and direct connection in both a legal and practical sense between the existence and duration of the designs and potential damage to the appellant. That is we think sufficient. 25 The impact on Lockwood relates sufficiently to the purpose of the Act. Protection of a design by registration encourages innovation. But conversely, registration of designs which are not truly new and original distorts the purpose of the Act and inhibits competition. To say that the Act permits a design owner "to use registration as a marketing edge" begs the question whether a competitor should be able to use the procedures of the Act to show that such registration should not have been granted.

Orders 26 The appeal will be allowed and the orders made on 8 March 2005 set aside. In lieu thereof it is ordered that the questions be answered in the affirmative. There will be an order that Alco pay Lockwood's costs of the application under O 29 before the primary judge and of the appeal. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey & Allsop.

On Appeal from a Judge of the Federal Court of Australia

BETWEEN: ASSA ABLOY AUSTRALIA PTY LTD (FORMERLY LOCKWOOD SECURITY PRODUCTS PTY LTD)

REASONS FOR JUDGMENT FINKELSTEIN J: 27 I agree with Heerey and Allsop JJ that the appeal should be allowed but, with respect, I cannot agree in all their reasoning. 28 It may be accepted, at least for present purposes, that the test for deciding who has standing under s 22 of the Trade Marks Act 1955 (Cth) (now s 92 of the Trade Marks Act 1995 (Cth)) is that laid down by McLelland J in Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158, 193. There McLelland J said that the expression "a person aggrieved" would "embrace any person having a real interest in having the Register rectified … and thus would include any person who would be, or in respect of whom there is a reasonable possibility of his being, appreciably disadvantaged in a legal or practical sense by the Register remaining unrectified". The test has been applied by the Full Federal Court on two occasions, first in Kraft Foods Inc v Gaines Pet Foods Corporation (1996) 34 IPR 198,207-208 and then in Campomar Sociedad Limitada v Nike International Ltd (1998) 41 IPR 252, 282, 300. 29 The other judges would apply the Ritz test to s 28 (any person interested) and s 39 (any person aggrieved) of the Designs Act 1906 (Cth). The High Court has said that the meaning of expressions such as "a person aggrieved", "a person interested" or "a person affected by" is to be determined "by reference to the subject, scope and purpose of [the statute], rather than by the application of concepts derived from decisions under the general law respecting what has come to be known as 'standing'. 'Standing' is a metaphor to describe the interest required, apart from a cause of action as understood at common law, to obtain various common law, equitable and constitutional remedies": Allan v Transurban City Link Limited (2001) 208 CLR 167, 174. I would add that it is also unhelpful to apply the test for standing applicable under one statute to a different statute. 30 It is, it seems to me, difficult to justify the application of the Ritz test to the Designs Act having regard to the purpose and scope of the Act. The object of the Designs Act is to give protection to the visual form of articles that are mass-produced. A design which is capable of being registered under the Designs Act is the features of shape, configuration, pattern or ornamentation applicable to an article, being features that in the finished article can be judged by the eye: see the definition of "design" in s 4(1). That is, a design is not an article itself but something capable of being applied to an article. To obtain registration the design must be new or original: s 17(1). Registration of a design gives the registered proprietor the exclusive right to apply the design to any article in respect of which the design is registered, to import for sale or for use for the purposes of trade or business or to sell, hire or offer or keep for hire any article to which the design is registered or has been applied: s 30. The rights subsist for six years from the date of registration (s 27A(8)) but may be extended for a further five years (s 27A(12)). 31 The purpose of the Designs Act then is to protect the industrial designer or manufacturer who is entitled to the design against the unfair competition of free copying. So it must follow that the persons who have standing to bring an application under s 28 or s 39 are those whose activities are, or may immediately be, affected or inhibited by the subsistence of the monopoly in the design. It seems to me that at least the following persons would fall into this category. First, a person whose manufacturing activities are or may be affected. Second, a person whose trading activities are or may be affected. Within this latter class, the trading interest must be "real, definite and substantial". I take this qualification from the patent cases: see eg New Things Ld's Application for a Patent (1913) 31 RPC 45. It is, I think, necessary to add the requirement that the affectation must be direct; an indirect effect will not do. 32 The principal difference between the view that I take of the correct test (to the extent that it is at all possible to lay down any definitive test) and the application of the Ritz test to the Designs Act is this. In my view the Ritz test, in particular that portion that would give standing to a person "appreciably disadvantaged in a … practical sense" by the registration of a design, goes too far. It goes too far because, if applied literally, it would give standing to a person who is only indirectly affected by the registered design. It would include, for example, persons such as a shareholder in or a creditor of a company that may be infringing the monopoly in a registered design. There can be no doubt that the company itself would have standing to challenge the design. Although the company's shareholders and creditors may also be "appreciably disadvantaged in a practical sense" by the subsistence of the design registration because their fortunes may be tied to those of the company, I see no reason for extending to them (apart from, perhaps, a sole shareholder) the right to bring proceedings under s 28 or s 39. Take another example. Assume that a tenant is adversely affected by a registered design because it is prevented from manufacturing a profitable article and, as a result, will become insolvent. Would his or her landlord have standing to seek revocation? Surely not, and the reason is that although the landlord may be affected in a practical sense the effect is too indirect. Another way of looking at this is in terms of causation. In the examples I have given, the disadvantage being suffered has not been caused by the registration but by other circumstances, albeit flowing from the registration. 33 My resistance to the application of the Ritz test also stems from the ambiguity of the language employed. For example, what precisely is meant by "appreciably disadvantaged"? It is a very slippery expression. Further, how does one determine whether disadvantage is being suffered in a "practical sense"? "Practical" in whose eyes - the applicant's or the judge's? One may readily accept that a person with a manufacturing interest or a trading interest may be adversely affected in a "practical sense" by the subsistence of a registered design. But the Ritz test has wider scope. How much wider is impossible to tell. 34 I must say that, while I agree that the appeal should be allowed, I see the present case as on the borderline. On one view, which was the view substantially taken by the judge, this case is but an example of a person who, through successful advertising, has turned his registered design to profit with the appellant suffering as a result of that successful advertising. If the case involved no more than this the appellant would have no standing, in my opinion. His misfortune could only be indirectly attributed to the design's registration and on no view was caused by the registration. On another view, this case has the peculiar feature of there being a direct link between the registration of the design and the commercial success of the product (a key) to which the design is applied. That link, which is exemplified by the Australian Standards as well as the advertising material which has been tendered, is the assumption that registration produces a particular benefit, namely that the key will not be copied. Of course the assumption is false, but that is not to the point. It is that link which, in my view, provides the standing in this case. 35 For the foregoing reasons I agree in the orders proposed by Heerey and Allsop JJ. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate: Dated: 2 December 2005 Counsel for the Appellant: B N Caine SC and H M Rofe

Solicitors for the Appellant: Phillips Ormonde & Fitzpatrick

Counsel for the Respondent: R C Macaw QC and M S Goldblatt

Designs Act 1906(Cth)ss 17, 28, 39

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