Restraint of trade
85 It is submitted for Goldspar that if clause 10 of the Conditions of Contract is to be construed in the manner sought by the Council, then it is an invalid restraint upon trade. Reference is made to the relief sought by the applicant to enforce that clause being a restraint of indefinite duration and unlimited in geographical operation and circumstance. Furthermore, it is submitted that the clause is (and the orders sought to enforce it are) not restricted to use of confidential information - it is not alleged or proved that the Issue C drawings contain any information that was confidential and there was no confidentiality once the poles were erected. It is submitted that the applicant has neither pleaded nor proved reasonableness, and that, in any event, the clause is not reasonable in the requisite sense. The restraint operates against the background of the Copyright Act 1968 (Cth) and the law with respect to breach of confidence, which are all that is reasonably required to protect the Council's legitimate interests.
86 It was submitted for Council that the effect of the clause was to vest copyright (and other intellectual property) in the drawings in it and so was not a restraint of trade subject to the doctrine. The clause gives Council the right to the information in the drawings. It was submitted that if it was a relevant restraint, then it was reasonable. Goldspar was paid a large consideration in return for this obligation, amongst other obligations. The clause was part of the bargain and the rights in question arose out of that bargain. In any event, s 4(3) of the Restraints of Trade Act 1976 (NSW) would permit an appropriate order to be moulded effectively limited to obligations co-extensive with copyright. Goldspar in reply submits that the Council did not plead the New South Wales Restraints of Trade Act.
87 As the discussion in chapter 3 of JD Heydon, The Restraint of Trade Doctrine, 2nd Edition, 1999, illustrates, the question as to what contractual provisions are regarded as restraints of trade is far from settled. The subsequent analyses by the Full Court in Australian Capital Territory v Munday (2000) 99 FCR 72, the New South Wales Court of Appeal in ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640 at 669-674 and the High Court in Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 and Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 provide no universal answer. In Peters (WA) Ltd v Petersville Ltd the High Court was critical of a number of the tests suggested in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269 but did not propose any single test (see the summaries in Maggbury by Gleeson CJ, Gummow and Hayne JJ at [55] and Callinan J at [95]). In Maggbury itself, Gleeson CJ, Gummow and Hayne JJ appeared to indicate that licences to use intellectual property would not be caught by the doctrine (at [54]). Neither Kirby J (at [64]-[73]) nor Callinan J (at [90]-[96]) would have applied the doctrine to a covenant not to use information provided by an inventor to a potential backer although unrestrained as to time, place or circumstance. Callinan J held that as he was constrained to apply the doctrine, the restraint was reasonable and enforceable (at [97]).
88 According to Heydon it has been held reasonable to take a covenant restricting the vendor of technical intellectual property falling short of a trade secret from competition with the buyer, referring to Bakers Aid, A Davison of M Raubvogel Colne v Hussmann Food Service Co 730 F Supp 1209 (USDC, EDNY 1990). In relation to licensees of patents and exclusive licences, Heydon says (at page 193):
'RESTRAINTS ON LICENSEES OF A PATENT
Licensees of patents often agree to use only that patent in their business, (Jones v Lees (1856) 1 H & N 189; Re the Brownie Wireless Co of Great Britain Ltd (1920) 45 TLR 584), or not to compete with the licensor except by using the patent, (Standard Fireproofing Co v St Louis Expanded Metal Fire-Proofing Co 76 SW 1008 (SC Mo, 1903); Mouchel v William Cubitt & Co (1907) 24 RPC 194; Bonda v Wagenmaker [1960] NSWR 40), or to pay the licensor compensation if production of goods under the licence exceeds a certain level (Tool Metal Manufacturing Co Ltd v Tungsten Electric Co Ltd (1953) 71 RPC 1; [1954] 2 All ER 28; [1955] 2 All ER 657). These agreements are usually held valid, provided their scope is not too wide to protect the licensor's interests (Bonda v Wagenmaker [1960] NSWR 40) and they do not last too long: a limitation to the period of the licence will be valid (Mouchel v Willaim Cubitt & Co (1907) 24 RPC 194; cf Henschke v Moore 101 A 308 (SC Pa, 1917)).
EXCLUSIVE LICENCES
The grant of an indefinite exclusive licence to use a computer system in a city has been held reasonable where the licensee had wholly financed the development of the system (Avtex Airservices Pty Ltd v Bartsch (1992) 107 ALR 539 at 569-70 (Fed C of A)).
A covenant taken restricting competition after the expiry of a licence to use a trade secret has been upheld (Tank Lining Corp v Dunlop Industrial Ltd (1982) 40 OR (2d) 219).'
89 Avtex Airservices Pty Ltd v Bartsch (1992) 107 ALR 539, to which Heydon referred, went on appeal but the judgment was unfortunately not reported (Bartsch v Avtex Airservices Pty Ltd (unreported,Federal Court of Australia, Gummow, French and Heerey JJ, 27 August 1993). It is perhaps the closest decision to the present circumstances. The case concerned a computerised system for teaching flying known as the ACE system. It was developed by one Bartsch and interests connected with him by arrangement with Avtex Aviation which effectively financed the venture. Bartsch, who had expertise in teaching flying theory, enlisted the aid of a computer expert in the development. Bartsch proposed to franchise the system. It was held that Avtex was entitled to an indefinite exclusive licence to exploit the system in the Sydney area. Bartsch's interests had purported to grant a licence to use the system to a third party in the Sydney area. It was held that Avtex was entitled to restrain such an appointment. That gave rise to a question as to whether the contract so construed was in restraint of trade. At first instance Hill J said at 559-560:
'In the present case, there is little dispute that the development of the "system" was wholly financed by Avtex. The parties could, if they were so minded, have agreed that the "system", by which I mean the industrial property rights therein, was to be owned by the applicants, but with a licence to the respondents to grant rights of user to others outside Sydney. The parties did not purport to adopt this commercial solution, but impliedly left the industrial property rights to fall where they would under the general law. They agreed to exploit these rights by permitting the fifth respondent to license others for reward outside the Sydney area (subject to the payment of a "royalty") and permitting the use of those rights in Sydney by the first applicant or its successor. In these circumstances, the legitimate interests of the applicant were the right to use in Sydney and for its own business purposes the industrial property rights the development of which it had wholly paid for. It was, in my view, entitled to protect the goodwill of the business which it was developing against the competition of others in the Sydney area and the restraint implicit in that protection was no more than was adequate for that purpose.
In one sense it can be argued that there was no relevant restraint as the fifth respondent had not given up any right or freedom which it might formerly have had: cf Esso Petroleum at 298 per Lord Reid, at 309 per Lord Morris, at 316-17 per Lord Hodson and at 335 per Lord Wilberforce. But whether or not such an analysis is now acceptable after Rocca Bros and Queensland Co-operative Milling Association v Pamag Pty Ltd (1973) 133 CLR 260; 1 ALR 47 or is confined to the special case of leases need not be here considered. For accepting that there is here a relevant restraint of trade, the protection given under the restraint is no more than is reasonably necessary to protect the legitimate interests of Avtex and its successor and does not infringe any relevant public interest. It is thus not unreasonable.'
90 On appeal Gummow, French and Heerey JJ noted that at the date of the contract Bartsch and his interests did not have any existing right to trade in relation to the ACE system which was to be developed in the future with finance provided by Avtex. It was submitted on behalf of Avtex that that fact was sufficient to dispose of any question of restraint of trade based upon the decision of the House of Lords in Esso Petroleum Co Ltd v Harper's Garage (Stourport) Ltd [1968] AC 269. After referring to authority and indicating that they would prefer not to consider whether Esso was confined to the special case of leases, the Court went on to say (at 31):
'However, the primary Judge went on to find that the relevant restraint was no more than was reasonably necessary to protect the legitimate interests of Avtex and its successor, and did not infringe any relevant public interest. It followed that the restraint was not unreasonable in terms of the restraint of trade doctrine.
As we have earlier observed, it is Avtex which was financing the development of the ACE system. As such, it might be thought that Avtex was to be treated as the "owner" of that system. In the event, the contract, which was negotiated between the parties with a view to the protection of their individual positions, put Avtex in the position of a licensee. The restraint was reasonable for the purpose of protection of the goodwill of the business which was being developed with the finance from Avtex. We agree with his Honour's conclusion upon this issue (107 ALR at 559).
In reaching that conclusion, we have taken into account the appellants' submission that the emphasis upon the financing of the development of the ACE system by Avtex should be diminished by the consideration that the contractual arrangements did not involve the vesting in Avtex of the copyrights in various materials used for the ACE system. The absence of such arrangements does not, in our view, militate against the conclusion in favour of the reasonableness of the restraint which was obtained by Avtex as part of the contractual arrangements.
This conclusion makes it unnecessary to consider any question of severance under s.4 of the Restraints of Trade Act 1976 (NSW) - a matter which, in any event, was not raised at the trial.'
That was a case of a licence of intellectual property rather than an out and out disposition of it.
91 I have held as a matter of contract as between the parties that clause 10 vests copyright in the Issue C drawings in the Council. It is now clear enough that the only other potential author, KWA or those associated with it, is not the owner of any copyright in any relevant drawings. As Council is not the author, there may be a need for a formal assignment of copyright to perfect the contractual obligations. That is not relevant in this proceeding between these parties.
92 In my opinion that part of clause 10 which prohibits use of any of the Intellectual Property except for the purposes of manufacturing and supply of the pole in accordance with the contract is part of and ancillary to the vesting of the exclusive property in the copyright in the Council. As such it is either not caught by the restraint of trade doctrine at all or, if it is, then it is reasonable as between the parties. It was negotiated over a long period with the benefit of legal advice on both sides. It is a conventional part of such a transaction. The agreement as to the vesting of copyright would require permanent protection along the lines of clause 10 to be effective. To do otherwise would derogate from the grant. Goldspar have not, in my opinion, established that to give effect to the clause would be against the public interest. Copyright, and other recognised forms of intellectual property, are properly regarded as intangible property and it is not against the public interest that there should be free dealing in those property interests. Clause 10 is not an invalid restraint of trade. If clause 10 were considered in purely contractual terms there would be much to be said for Goldspar's argument, particularly as the poles are effectively in the public domain.