Bluescope's case
166 Bluescope's case starts from the proposition that painted steel fences of the kind with which this case is concerned are substitutable. I accept that purchasers could choose any one of a number of fences for their residential property, be it timber or steel and, if steel, of many different types. While GramLine was the first symmetrical steel fence to market, there were other profiles available during the infringement period both symmetrical and non-symmetrical.
167 I accept that all of the fencing products were substitutable to varying extents. They perform the same function. A person's decision to buy one or other product involves a choice. The choice will depend on a multiplicity of factors of which the appearance of the steel fence is one factor. For some people appearance may be the most important, or determinative, factor. For others, it may be price. Some people, as the evidence shows, preference or demand Australian materials. Others, such as fencing installers in a metropolitan context, require the convenience of being able to collect the product without too much travel time. Some resellers and fencing installers, such as some of those who purchased from Bluescope, needed favourable credit terms. Others, such as those who purchased from Gram, must have been happy to pay before or on collection.
168 Given this (and the other matters discussed above), Gram's case, that its lost profits would have been multiple times more than Bluescope's sales (even allowing for Gram's lower costs and higher margins), is untenable. Equally untenable is the proposition that every Smartascreen sold necessarily represents a lost sale of GramLine. Bluescope's ultimate proposition is that, having regard to the evidence it has called and the lack of evidence from Gram, it should be inferred that 5% of sales of Smartascreen represent a lost sale to Gram. Bluescope adduced evidence from an accountant, Owain Stone, who calculated Gram's lost profits across the range of 0% to 100% including for essential accessories (posts and rails) and discretionary accessories. In this regard, it should be noted that there is no dispute that Mr Stone's calculations, which apply Gram's lower costs and higher margins to Bluescope's sales data, are correct. I consider 5% to be too low for the reasons given below.
169 The fact that Bluescope must be inferred to have intended and believed it was likely that Smartascreen would be directly substitutable for GramLine because of its infringing sawtooth profile is important. The evidence of Gram's declining sales in NSW before it stopped using Colorbond and before any other symmetrical fence entered the market apart from GramLine, Metroll's inferior product and Smartascreen, together with the evidence that Smartascreen was being substituted by being matched with an existing GramLine fence after the ACT bushfires, are strong indicators that Bluescope should be inferred to have achieved its intention to a material extent.
170 As noted, Bluescope called evidence from a number of its employees involved in the Lysaght business. Amongst other things, they gave evidence about the state of mind of regular customers with whom they dealt in Lysaght branches about why those customers chose to purchase from Lysaght. Bluescope also called evidence from a number of long-term Lysaght resellers who gave evidence about why they preferred to deal with Lysaght, as well as the purchasing habits of their customers and their competition. Much of that evidence has been referred to above. For present purposes, it is necessary to acknowledge that, although Gram called no equivalent evidence, it must not be assumed or inferred that Bluescope's evidence represents the market as a whole. Bluescope's evidence is from that part of the market which has chosen to purchase from Lysaght. In particular, the Lysaght resellers who gave evidence had been Lysaght resellers for years, whose own branding and businesses had been built off the Lysaght brand. Further, the evidence about customers was evidence either about customers such as installers who routinely purchased from a Lysaght branch or a Lysaght reseller or a person who had gone to a Lysaght branch or Lysaght reseller to purchase steel fencing. It is to be expected that such people would hold and express views about the importance of the Lysaght brand, Bluescope material, the use of Colorbond, Lysaght's favourable terms and conditions, and the fact that Lysaght did not charge separately for wholesale deliveries to its resellers.
171 We know, however, that by 2001 Gram had a greater market share than Bluescope (even if that largely depended on the Sydney market) and that after 2001 Gram remained a significant supplier, increasing its sales substantially in Queensland and Western Australia and continuing to sell large quantities of Gram products in NSW and Victoria. As a consequence, it must be inferred that the matters which Lysaght resellers and regular purchasers believed to be important were not necessarily equally important or important at all to others in the market. For example, while I accept that the use of Colorbond steel is important even determinative for some purchasers (wholesale and retail), it is apparent from Gram's increasing sales in Queensland and Western Australia and continued substantial sales in NSW and Victoria after 2005 that Colorbond was not important to a material market segment. In short, Bluescope's evidence is necessarily from that part of the market that values Bluescope's offer. It does not represent the market as a whole.
172 Bluescope noted that:
There is a complete void in evidence from any customer who said that they actually bought Smartascreen during the Period, but in the counterfactual world where Smartascreen was not sold, would otherwise have purchased GramLine. The evidence is all the other way; to the effect that if Smartascreen were not available, customers would have purchased another Colorbond product. See for example the evidence of Mr Reid and Mr Read.
173 It may be accepted that Gram did not adduce evidence from any person that had purchased Smartascreen instead of GramLine. It is also true that Bluescope adduced evidence from a number of its resellers to the effect that even if they had not purchased and sold Smartascreen, they would not have purchased and sold GramLine for numerous reasons. This submission, however, overlooks the nature of the market. Bluescope and Gram sold via branches and via resellers. The resellers are thus both wholesale customers and retail sellers. The branches and resellers sold to builders, developers, installers and end customers. Some resellers were also installers, but I infer that many were not. The relevant point for present purposes is that branches and resellers were competing for customers. It is not surprising that a reseller who has dealt with only Bluescope for years and whose main competitors included Gram via a different reseller would not have purchased GramLine if Smartascreen had not been available. The issue for present purposes is different. It is that the customers who were purchasing from resellers and branches had a choice of symmetrical sawtooth profiles as a result of Smartascreen when this choice would not otherwise have existed.
174 The availability of the choice of Smartascreen meant that Lysaght branches and resellers could satisfy the demand of customers for a symmetrical fence. This is not to suggest that some people who bought Smartascreen might not otherwise have bought a non-symmetrical fence such as Neetascreen rather than GramLine. It is merely to recognise that there was a material segment of the market who wanted a symmetrical profile, liked the sawtooth profile in particular, and that Bluescope must have satisfied some material part of that demand where Gram would otherwise have been well (perhaps even best) placed to satisfy that demand during the infringement period, even taking into account the additional competition Gram would have faced for symmetrical profiles from other suppliers from 2006.
175 This reinforces the fact that the sales of Smartascreen are a useful tool in attempting to ascertain what sales of GramLine there would have been if Smartascreen had not been on the market during the infringement period. The relevance of the sales of Smartascreen, however, should not mask the true nature of the assessment process. The relevant exercise is not to imagine what might have induced a person who had in fact purchased Smartascreen to purchase GramLine instead. Such an exercise assumes the choice presented by the infringing conduct existed, when the object of awarding damages is to place the person in the position they would have been in had no infringement occurred, insofar as possible.
176 Bluescope submitted that:
…it was an extremely limited class of customer who may have considered purchasing fencing from Gram during the Period rather than from Lysaght or another competitor, because the hypothetical purchaser from Gram, as Mr Mann agreed:
(a) had to be content to have a product made of steel imported from Taiwan and not Colorbond steel made in Australia;
(b) had to be prepared to pay cash in advance or on delivery;
(c) had to be prepared to pay freight or to drive to pick up stock from one of Gram's outlets or distributors; and
(d) had to be a person insisting on the sawtooth profile rather than one of the other profiles on the market during the Period whether symmetrical or non-symmetrical.
177 Bluescope noted that Mr Mann agreed with this evidence. I do not think much can be made of Mr Mann's agreement because the submission involves a suppressed premise that Smartascreen was available during the infringement period. Further, on the evidence, Gram made substantial sales of GramLine during the infringement period. Accordingly, the class of people who satisfied (a) to (d) was not limited, it was large. If the class was truly limited in the way Bluescope proposes, Gram would not have made such substantial sales during the infringement period including increasing its sales in some States by a significant proportion. To assume the existence of Smartascreen and that a person who bought Smartascreen would have the choice of Smartascreen (on Bluescope's terms and conditions) and GramLine (on Gram's terms and conditions) cannot be correct. In reality, but for the infringement, that choice would not have existed. Other choices would have existed, but not that choice. It is also apparent that for many people (a) to (c) presented no impediment to sale and that insofar as (d) is concerned, many people were sufficiently content with the profile of GramLine to buy it. There is no reason to assume or infer that all of the people who bought Smartascreen would consider (a) to (c) an impediment to sale or that the concept of a person "insisting" on the sawtooth profile is realistic. Factors (a) to (c) were undoubtedly important for some people as the evidence from and about Lysaght resellers and some installers discloses, but as the evidence also discloses they are a segment of the market only.
178 This is not to say that the matters which Bluescope has identified as relevant to the choice that a customer might have made had Smartascreen not existed are irrelevant. It is to say only that approaching the task as if it involved asking what might have induced a customer who purchased Smartascreen instead to purchase GramLine is conceptually incorrect and, it seems to me, likely to lead to an underestimate of the sales of GramLine Gram would have made had Smartascreen not been on the market during the infringement period.
179 Bluescope submitted that the "evidence has plainly established that Colorbond had a powerful reputation in relation to steel products, such that many customers during the Period regarded it as a sign of quality, strength and durability". I agree. I accept that for some people in the market it would have been important even determinative that the steel fence be a Colorbond fence. In this regard, again, the selection effect inherent in Bluescope's evidence is apparent (an observation made with no criticism of Bluescope, but to caution against inferring that the evidence is representative of the whole of the market). It is to be expected that people who had long-term commercial relationships with Bluescope perceived Colorbond as an important even determinative factor for their decisions. It must also be the case, however, that many customers did not see Colorbond as an important factor because GramLine continued to enjoy substantial sales after Gram stopped using Colorbond. Nevertheless, the fact remains that for some buyers in the market, wholesale or retail, Colorbond was important. As noted, however, the evidence does not enable a reliable quantification of the significance of the Colorbond factor other than that it should not be given too much weight having regard to Gram's increasing sales in expanding markets after 2005 when it stopped using Colorbond.
180 Bluescope submitted that:
The evidence shows that the Bluescope/ Lysaght brands enjoyed strong reputations in addition to the reputation of Colorbond. These independently drove sales of Lysaght's steel fencing products.
During the period, Lysaght was (and still is) a division of BlueScope which evolved from the well-known Australian business founded by John Lysaght in the 1880s. The Lysaght brand has been "associated with quality and durability for many years".
Part of the attraction of dealing with Bluescope/Lysaght during the Period related to the comfort that customers derived from the warranties - both of the BlueScope steel and the Lysaght fencing product.
181 I agree. As noted, however, this does not mean that all or even most of the purchasers in the market during the infringement period would not have purchased GramLine because it was not a Lysaght product made from Colorbond steel carrying a Lysaght and Bluescope warranty. Gram never offered a Lysaght warranty and it had greater market share than Bluescope by 2001. GramLine did not carry the Bluescope warranty on materials after 2005 when Gram ceased using Colorbond steel yet Gram increased its sales in States such as Western Australia and Queensland and continued to make a substantial number of sales in NSW and Victoria. In common with Colorbond, it is to be expected that Lysaght resellers would place importance on these factors. But it is apparent from the evidence that this could not have been the case for the market as a whole. It is also not suggested that Gram changed its warranty during the infringement period. The evidence from Mr Mann was that when Lysaght offered a warranty others in the market, including Gram, offered a comparable warranty. Gram, like Lysaght, is an Australian company. While Gram has not existed for as long as Lysaght, it has been a long-term supplier in the fencing market which had a greater market share than Bluescope by 2001. Gram ceasing to use Colorbond in 2005 meant that the materials in GramLine were no longer the subject of the Bluescope warranty on materials. However, I do not consider that this lack of the Bluescope warranty would have had a material effect on what buyers would have done if Smartascreen did not exist. Any effect would be subsumed into the Colorbond factor discussed above.
182 Bluescope contrasted Gram's requirements for payment on or before delivery and Lysaght's credit terms, noting that:
The evidence demonstrates that many of Lysaght's customers who enjoyed Lysaght's 30 or 60 day credit terms, were simply not in the position to meet Gram's cash demands and therefore would not have purchased from Gram during the Period.
183 I accept that for some people credit terms were critical. Again, it is to be expected that Lysaght resellers said that they required such terms (as this would be one of the reasons they were Lysaght resellers rather than Gram resellers). As noted, the relevant point is that these people are not the whole of the market because there were numerous Gram resellers and must have been numerous installers who purchased from these Gram resellers or from Gram directly who were willing to pay on Gram's terms. Further, the Lysaght resellers and branches were competing with the Gram resellers and Gram branches, albeit to different extents. As part of that competition, there were a large number of sales of Smartascreen. Insofar as resellers are concerned, as I have said, their purchases from Bluescope reflected the demands from their customers. And on the evidence it must have been the case that some material part of that demand was for Smartascreen when, if Smartascreen did not exist at all, the demand would have been for GramLine instead.
184 Bluescope submitted that:
BlueScope's high level of service and reliability of delivery were also key factors that differentiated it in attracting customers. Again to the extent that there is evidence about Gram's level of service, it is negative.
185 Again, the context is important. It is to be expected that Lysaght resellers and those installers who regularly purchased from Lysaght considered the service they received to be good and an important reason for their continued relationship with Lysaght. On the evidence, it is also apparent, however, that Gram was a very successful fencing supplier, which had long-term relationships with resellers and installers. If Gram did not provide those people with a good level of service, those people presumably would not have continued to purchase from Gram and Gram would not have been able to expand its business as it did. Importantly, the Lysaght customers who value the service provided are the same Lysaght customers who value Colorbond and the other perceived benefits of dealing with Lysaght. Given Gram's performance in the market, I do not see this factor as adding anything material to the proposition, which I accept, that there are some people in the market who purchased Smartascreen from Lysaght but would not have purchased GramLine even if Smartascreen had not been available during the infringement period. Insofar as resellers are concerned, it remains the fact that their purchases reflected demand from other customers not all or even most of whom could have shared the reseller's commitment to Lysaght given Gram's expansion.
186 Bluescope submitted that:
BlueScope had an extensive distribution network with outlets across Australia. Additionally, BlueScope delivered products both to its wholesale customers and to installers and end users from its branches. Many of its wholesalers also delivered to installers and end users.
187 This may be accepted but so must the evidence that, based on its market share and sales performance, Gram too must have had an effective distribution network which, like Bluescope, it continued to develop throughout the infringement period.
188 Bluescope submitted that a "considerable number of BlueScope's branches and outlets were located in regional areas in which, on the evidence, Gram did not have a branch or outlet in those locations. For example, Gram did not have a reseller in Geelong, Laverton North or Bendigo, where a number of Lysaght's customers were located". I accept that there was evidence that some Lysaght outlets and resellers did not perceive competition from Gram (such as in Brisbane) and that others did not in fact compete directly with Gram because there was no Gram branch or Gram reseller nearby. But the evidence as a whole indicates that Gram and Bluescope were major competitors. I accept that the lack of evidence from Gram identifying all of its resellers and their locations during the infringement period should be taken into account in assessing damages but the significance of this lack of evidence is tempered by the evidence of Gram's substantial sales and market share in all States and the evidence of Ms Marlin and Ms Wall in particular about the market, Gram, GramLine and Smartascreen.
189 Bluescope submitted that:
It is highly improbable that Gram would have set up additional outlets during the Period. Mr Mann made very clear that he was prepared to wait longer than many people in the industry to expand his business because he was "financially conservative" and during the Period, wished to first ensure that the business was sustainable.
190 This submission overlooks the fact that Gram had built up its substantial market share using resellers, not just Gram outlets. As a result, it is not apparent to me that this is a material consideration.
191 Bluescope submitted that "Gram required wholesalers and installers to organise their own freight or pick up the products from a Gram outlet. This added an expense and complexity that customers did not want". Again, this reflects the position of Lysaght's resellers. Lysaght did not charge separately for wholesale freight and some of its resellers preferred this to Gram's approach of charging separately for freight. Yet Gram had its own resellers who, it must be inferred, were content with Gram's terms. It follows that I also do not see this as a material factor.
192 Bluescope submitted that third party competitors were relevant to Gram's ability to sell its fencing products. I agree. This is a material factor for reasons already discussed above. However, it is also the case that Gram had effectively cornered the market in symmetrical painted steel fences up to 2002, when Smartascreen was introduced. Gram had substantial advantages over the only competing symmetrical fence from Metroll at that time, as Bluescope recognised. It must be inferred that but for Smartascreen Gram would have been well placed to have maintained a material proportion of that advantage despite the other changes in the market which I have identified above.
193 Bluescope submitted that in most areas outside of Sydney Lysaght regarded competitors other than Gram as its primary competition. Some care needs to be taken with the evidence on which this submission relies. Mr Tanks did not recognise Gram as a major competitor because it was selling via resellers who were not close enough to the Lysaght Rocklea branch which was Mr Tanks' focus. But Gram's substantial and increasing sales figures in Queensland throughout the infringement period are inconsistent with the inference that Gram was not competing with Bluescope in Queensland. Ms Wall's evidence, that Bluescope's main competitor in regional NSW was Metroll not Gram because Metroll had a similar distribution network to Lysaght whereas Gram did not, may be accepted but does not alter the fact that Bluescope's view in 2001 was that Gram had 50% of the NSW market and, overall, was Bluescope's main competitor in that market. As such, Gram's branches and resellers must have been competing with Lysaght's branches and resellers and, indeed, was out competing them by 2001. Mr Cook also recognised Gram to be a key competitor of Lysaght in Victoria through its resellers because this was the same model Lysaght used in Victoria.
194 Bluescope submitted that during the infringement period:
not only did Bluescope heavily promote the benefits of Colorbond in its own Lysaght fencing products but it increased the intensity of the marketing of the connection between other manufacturers' products and the Colorbond steel of which they were made.
195 I agree that this is a factor which would have had the potential to impact on Gram's capacity to maintain and gain sales irrespective of Smartascreen. However, Gram must also have had good marketing capacity as Ms Marlin recognised in 2001.
196 Bluescope submitted that:
It can be inferred from this evidence, and the importance of Colorbond to so many fencing purchasers, that if Smartascreen were unavailable, customers insisting on a symmetrical profile, who for some reason did not wish to purchase Lysaght's Miniscreen, would turn to another Colorbond symmetrical product such as Metroll's Metline or Metfence (while it was available) or Stratco's WaveLok.
197 This is an overstatement in that for the reasons already given it can and should be inferred only that some customers who wanted a symmetrical profile would not have purchased GramLine had Smartascreen not been available during the infringement period.
198 Bluescope submitted that:
Ms Marlin's comment in 2001 that Gram was well placed to appoint new stockists and distributors is of little if any weight not just because it was no more than her anticipation 4 years before the infringing conduct, but also because it was made in the context of Gram being a Colorbond supplier. The GramLine product was no longer a Colorbond product by the end of 2005.
199 I disagree with this submission. Ms Marlin's paper accurately reflected Gram's position as at 2001. While I accept that Gram's change from Colorbond steel to imported steel is relevant, Gram continued to compete with Bluescope throughout the infringement period gaining substantial sales in Queensland and Western Australia and continuing to sell GramLine in substantial quantities in NSW and Victoria. It must be inferred it did so because GramLine continued to be a good product, continued to be popular in the market, and that Gram continued to offer service on terms that customers were willing to accept. As such, Gram must have continued to be well placed to appoint new resellers during the infringement period and, but for Smartascreen, would have been better placed to do so.
200 I accept that Bluescope promoted Smartascreen as one product in a range and that the evidence supports the inference that some sales of Smartascreen were not lost sales of GramLine but, rather, lost sales of Neetascreen, Bluescope's largest selling product.
201 I do not accept that the sawtooth profile, which is the feature that made Smartascreen appear the same from both sides, was an insignificant element of Bluescope's marketing of Smartascreen. Bluescope created Smartascreen to compete specifically with GramLine and marketed it in a way which ensured it did compete with GramLine. All of the other features of Smartascreen, but for the profile, were already features of Neetascreen (such as Colorbond, strength, durability, colours and quality). What set Smartascreen apart from Neetascreen was the sawtooth symmetrical profile and it was the sawtooth symmetrical profile which gave rise to the infringement.
202 I accept that the evidence was that most customers who entered Lysaght outlets and resellers asked about a "Colorbond fence". As explained above, I infer that this evidence mostly concerned end customers. There was also evidence that end customers did ask for a particular profile, including the Smartascreen profile, albeit this occurred "occasionally", "rarely", or perhaps around 10% of the time or at the rate of one in 30, 50 or 100 sales depending on the witness.
203 This evidence must be weighed with Ms Marlin's paper from 2001 identifying that Gram had effectively marketed GramLine to builders, developers and end-users, as well as the evidence from Mr Read that he was being asked to match a Smartascreen to an existing GramLine fence about once a month. In common with the evidence from Lysaght resellers, care needs to be taken with evidence about what end customers at Lysaght branches and Lysaght resellers requested. As Ms Wall said, Lysaght branches and all Lysaght advertising focused on Colorbond. An end customer entering a Lysaght branch or Lysaght reseller, given this kind of advertising (including on the storefronts according to Ms Wall), was likely to focus on Colorbond. This does not mean the customer was disinterested in profile or would necessarily have purchased another Colorbond steel fence if Smartascreen had not been available.
204 Bluescope submitted that:
On the whole, the way that the fencing market worked was that customers chose a supplier and then selected a particular fencing product from the options available from that supplier, or at times, for an end consumer, from that person's chosen installer. See e.g. the evidence of Ms Wall who also observed that the colour was generally the first thing chosen after the supplier.
205 This is the way in which a part of the market operated, specifically the part involving end customers a number of whom would not have been familiar with the available products. Builders, developers, installers and resellers are not end customers, but they are still customers (wholesale or retail) of suppliers like Lysaght and Gram. There is also evidence, in any event, that some end customers knew what they wanted and asked the supplier to supply a specific profile (which is why some resellers stocked more than one range and why branches and resellers were competing for the repeat customers, who were not individual retail customers). Builders, developers and installers were also part of the market and must be inferred to have known about fencing products and profiles and what they wanted. There is evidence that some wanted Colorbond specifically, but there is also evidence that others wanted GramLine specifically.
206 Bluescope submitted that:
Gram's design registration gave it a monopoly on the profile the subject of the design but not a monopoly on the symmetrical or double-sided nature of the fencing infill sheet.
In any event, the evidence demonstrates that the "neighbour friendly" issue has been overplayed. Ms Wall, for example, said that she could not recall ever being asked for a symmetrical fence profile because a customer was in dispute with a neighbour.
207 The first proposition may be accepted but, as noted, Smartascreen embodied the Design. The second proposition is not persuasive for a few reasons. One, Ms Wall did recall customers requesting Smartascreen as a particular profile. She merely did not recall having been told that the reason was a neighbourhood dispute, which I do not find surprising. The "neighbour friendly" issue has not been overplayed in circumstances where the success of GramLine was because of its "neighbour friendly" profile, Bluescope's lack of a "neighbour friendly" profile and its consequent market decline in the five year period where GramLine was available prompted Ms Marlin's paper and the development of Smartascreen, and Bluescope marketed Smartascreen for its neighbour friendly profile intending it to be substituted for GramLine. To this must be added the evidence from Mr Read that he urged Bluescope to develop a "neighbour friendly" profile, I infer because he was well aware that GramLine was such a profile and gave the Gram reseller who was one of WR Engineering's two main competitors a desirable product which afforded it a competitive advantage.
208 Bluescope submitted that given there was little overlap between its customers (meaning, in this context, resellers) and those of Gram, there was little opportunity for any sale of Smartascreen to have been a lost sale of GramLine. As discussed above, this overlooks the fact that, on the evidence of Gram's market share and sales across Australia, there must have been extensive competition between Lysaght and Gram such as in the case of the businesses of Mr Read and Mr Reid. As also noted, the sales to resellers must have reflected demand from their customers be they builders, developers, installers or end customers. While evidence from Gram about the identity and location of all of its branches and resellers would have assisted, the evidence is sufficient to require the inference that the infringing conduct embodied in Smartascreen caused a material number of lost sales of GramLine.
209 Bluescope submitted that, insofar as the evidence goes, it was all to the effect that if Smartascreen had not been available, GramLine would not have been purchased. I have explained above why this conclusion would be incorrect. Long-term Lysaght resellers whose business was co-dependent with that of Lysaght would not have purchased Gram products but also would not have purchased or offered for sale Smartascreen during the infringement period but for the infringement. Long-term exclusive Lysaght resellers also represent one part of the market, the Lysaght exclusive reseller. But we know from the evidence that there were others, including the long-term Gram exclusive reseller, as well as the resellers who sold products from more than one supplier. We also know that if Lysaght branches and resellers had not been selling Smartascreen then from 2005 to 2006 the only symmetrical product on the market competing with GramLine would have been the inferior Metroll product. And from 2007 to 2010 the major competing products on the market would have been confined to GramLine, Metroll's inferior product, Stratco's product, Metroll's product removed after one year between 2008 and 2009, and Dunn & Farrugia's product from 2007, in circumstances where Dunn & Farrugia started in 2004/2005 and thus was years behind Gram in terms of the development of its distribution network (like Gram, starting in NSW and expanding from there), albeit willing to market at aggressively low prices to achieve market share. I do not give material weight to Bluescope's Miniscreen which was released in 2003 and did not appear the same from both sides due to the rail it required, and was a premium product which does not appear to have been considered by Bluescope itself to be the equivalent of Smartascreen or GramLine. In these circumstances, as I have said, I have no doubt that that a material proportion of the demand that sales of Smartascreen was filling would have been satisfied by GramLine if Smartascreen had not been available during the infringement period.
210 Bluescope submitted that as Gram's major market was NSW which was a mature market, it would have had to lure customers away from Bluescope to grow its market share in NSW "which is far more difficult than simply attracting the custom of new market participants in a growing market". This submission is an oversimplification. When Bluescope refers to "customers" in this context it means resellers of Lysaght products. As explained, Lysaght resellers are wholesale customers whose purchases reflected the demand by their own customers, be they builders, developers, installers or end customers. In this context, the concept of Gram having to lure Lysaght resellers away from Lysaght as customers is misplaced. Gram did not need to do so in order to sell GramLine through its own branches and resellers. But, without Smartascreen, the competition offered by Lysaght branches and Lysaght resellers would not have extended to a symmetrical fencing product.
211 Bluescope submitted that to the extent Gram's case was that people who would have purchased GramLine ended up buying Neetascreen as Smartascreen was unavailable or they changed their minds in store having been lured there by Smartascreen, the case was misconceived. I agree that this cannot be a material consideration. While it is possible that some person might have fitted this template, there is no evidence this occurred and it is unlikely to have occurred. A person intent on purchasing Smartascreen because of its symmetrical profile is unlikely to have purchased Neetascreen which does not have a symmetrical profile.
212 Bluescope submitted that Mr Hill's estimates of loss were flawed in numerous respects. As discussed above, I agree, although Mr Hill did give useful evidence about the market for painted steel fencing across Australia, and Gram's sales. Mr Stone's calculations, as I have said, are reliable. Because of the problems with Mr Hill's evidence it cannot be used to gauge the extent of the impact of Smartascreen on Gram's sales. Mr Stone did not attempt this exercise, for good reason given that he is a forensic accountant, but presented tables showing Gram's lost profits based on Gram's costs and margins assuming between 0% and 100% of Bluescope's sales represent lost sales to Gram of GramLine. Mr Stone's table for the infill sheets or panels is as follows:
213 Mr Stone did the same exercise for what he called "related sales", which are sales of posts, rails and caps. That table is as follows:
214 Mr Hill calculated Bluescope's sales of other discretionary accessories to Smartascreen (such as lattices, gates and balls and the like) in the sum of $302,238. The parties accepted this as a reasonable calculation of 100% of those sales.
215 Bluescope's description of Mr Stone's approach may conveniently be adopted. As Bluescope said:
(a) Mr Stone begins with the BlueScopes's Smartascreen sales by revenue (e.g., $700,074 in FY05);
(b) he then calculates the percentage difference between BlueScope's weighted average price for a Smartascreen 1790mm sheet and Gram's weighted average price for a GramLine 1790mm sheet, being 12.89%. The use of weighted average prices for 1790mm sheets was accepted by Mr Hill as an appropriate estimate of Gram's counterfactual sales price;
(c) Mr Stone then calculates Gram's counterfactual sales of infill sheets at 100% substitution by decreasing the Smartascreen sales revenue (sub-paragraph (a)) by a price differential of 12.89% to account for the slightly lower sales price of Gram's products (sub-paragraph (b)). For example, $700,074 - (12.89% × $700,074) ≈ $609,805 allowing for rounding;
(d) he then calculates Gram's gross margin in relation to roll-form fencing for each of FY05 to FY09, being from 25.0% to 30.7%;
(e) Mr Stone then applies Gram's gross margin (sub-paragraph (d)) to Gram's counterfactual sales of infill sheets at 100% substitution (sub-paragraph (c)). The sum of these calculations is set out in the "Total" column, 100% row of Exhibit 13, "Percentage proportion of loss for sheets" at REF;
(f) thus, at 100% substitution, Gram's loss in relation to infill sheets would be $4,664,770.
(g) at 5% substitution, Gram's loss would be $233,238. Mr Stone conveniently sets out the calculations on full range of possible rates of substitution.
216 Mr Stone's calculation process was appropriate.
217 I should record here that Gram accepted Mr Stone's calculations but submitted, for reasons dealt with above, that they were "low" estimates of Gram's loss which needed to be increased or, alternatively, that Gram's loss should be assessed at the upper end of the ranges presented by Mr Stone. I have rejected above the notion that Gram's losses could have exceeded Mr Stone's calculations. I also do not accept that Gram's losses can be estimated to be at the upper end of Mr Stone's calculations even with a liberal approach. Gram has not proved that it lost any reseller to Bluescope because of Smartascreen. It has not proved the identity or location of all of its branches and resellers or the identity or location of all of Lysaght's branches and resellers. It has not proved a representative sample or samples of such branches and resellers. It has not attempted to evaluate the impact on its sales of other factors including the change from Colorbond steel after 2005, Stratco's symmetrical product becoming available in 2006 when we know Gram was expanding into Queensland and Stratco was a major competitor in Queensland, Dunn & Farrugia's symmetrical product becoming available in 2007 when we know Dunn & Farrugia used Colorbond, started in Sydney in 2004/2005, and aggressively marketed at low prices, Metroll's product which was on the market for a year and which Mr Mann said caused two resellers to become Metroll stockists instead of Gram stockists, or Bluescope's opening of new branches in Queensland and elsewhere from 2004 onwards, coupled with Bluescope's overall marketing push of Colorbond steel from 2006 onwards. Instead, Gram largely relied upon its market share and declining overall sales to make its case.
218 This may explain in part why Bluescope has estimated Gram's lost sales as 5% of the total sales of Smartascreen. As noted, I consider this to be an underestimate for a number of reasons summarised below.
219 First, the 5% estimate appears to reflect Bluescope's case that as there was limited overlap of Bluescope's and Gram's customers there was limited opportunity for any sale of Smartascreen to be a lost sale of GramLine. I have explained above that this overlooks the fact that the customers in this submission are resellers who buy wholesale and sell on. The purchases of resellers must reflect the demand from their customers who may be developers, builders, installers or end customers. There did not need to be overlap between resellers as wholesale customers for there to be competition between them, as the evidence of Mr Read and Mr Reid demonstrated.
220 Second, the 5% estimate appears to reflect Bluescope's case based on the importance of Colorbond and other aspects of Lysaght's operations. As explained above, Bluescope's evidence in this regard reflects a part only of the market. The evidence about Gram's substantial sales requires the inference to be drawn that other parts of the market did not consider the matters on which Bluescope relied to be important. While I have accepted that Gram's decision not to use Colorbond after 2005 should be inferred to be a relevant factor, its significance should not be overestimated having regard to the fact that Gram's sales substantially decreased in NSW when Gram was still using Colorbond (but after Smartascreen was introduced) and Gram gained substantial sales in Queensland and Western Australia when it was not using Colorbond.
221 Third, the 5% estimate is difficult to reconcile with the following facts:
(1) Gram had achieved a substantial share of the NSW market (50%) and the national market (be it 35% or 37.5%) off the back of the popularity of GramLine in circumstances where, until Smartascreen was introduced in 2002, the only competing symmetrical fence which offered the same identical appearance from both sides was a product from Metroll which the evidence indicates had not obtained a material market share and was inferior.
(2) There is evidence that the market is slow to accept new profiles and, leaving aside Smartascreen and Metroll's inferior product, the competing symmetrical profiles did not enter the market until 2006 (Stratco), 2007 (Dunn & Farrugia) and 2008 (Metroll but removed in 2009). GramLine, in contrast, had been on the market since 1995. That fact and it being an obvious imitation of GramLine gave Smartascreen the capacity to be directly substituted for Gramline and thus a substantial competitive advantage over the competition.
(3) While the painted steel fencing market may be inferred to be dynamic due to (for example) growth in housing stock or the range of competitors and how their products are marketed, the evidence does not disclose any material factor impacting on Gram's sales between 2002 and 2004, yet in that period when Smartascreen was introduced Gram's total sales in its strongest market, NSW, declined by around 18%. In fact Gram's total sales in 2004 were lower than they had been in any year since 2000. This was at a time when Gram was using Colorbond steel, Dunn & Farrugia were not in or had had only just entered the Sydney market, and Stratco had not yet released its symmetrical fencing product. This shows the potential Smartascreen had to divert sales away from GramLine even in the first two years following its release and in the face of Gram's previous market dominance.
(4) Between 2005 and 2006/2007, during part of the infringement period, GramLine, Metroll's inferior product and Smartascreen were the only symmetrical fences which offered the same identical appearance from both sides. It was not until 2006/2007 that Gram had to contend with the symmetrical fencing products from Stratco and Dunn & Farrugia (in Sydney in particular) and not until 2008 that it had to contend with the second Metroll product which was only on the market for one year. Yet Gram's total sales in NSW declined by 23% between 2004 and 2007. Overall Gram's total sales in NSW declined by 38% between 2002 and 2006, when the only new competing product (apart from Smartascreen) was Stratco's product released in 2006 in circumstances where Mr Mann did not consider Stratco to be particularly competitive in NSW. Given what was happening elsewhere in the country in terms of Gram's increasing sales, I am unable to accept that most of this occurred due to Gram no longer using Colorbond steel or because of some other unidentified change in the market. The obvious inference is that much of this was likely due to the impact of Smartascreen, just as Bluescope believed likely and must be inferred to have intended. Although Gram cannot be compensated for any loss before the infringement period, this again shows the potential impact of Smartascreen on Gram's sales of its major product, GramLine.
(5) There is evidence that Mr Read was being asked to match a Smartascreen fence to an existing GramLine fence about once a month after the ACT bushfires in 2003. This must represent a fraction of the occasions on which Mr Read sold a Smartascreen fence when, had Smartascreen not been available, a GramLine fence would have been purchased. I say this because it must be inferred that a person with an existing GramLine fence would have been far more likely to purchase another GramLine fence than any other potential customer. Yet some of these customers still purchased Smartascreen, I infer because it was an obvious imitation of the Design which GramLine embodied. This evidence exposes the direct substitutability of Smartascreen for GramLine, from which it should also be inferred that material substitution did occur, just as Bluescope intended it should.
222 Taking into account all of the evidence to which I have referred, the competing factors which would weigh for or against greater or lesser estimates, and adopting a liberal approach albeit tempered by the fact that there was evidence which Gram could have but did not call in support of its case, I consider that the reasonable range within which Gram's loss during the infringement period lies is somewhere between 20% and 40% of Bluescope's total sales of Smartascreen (and thus 20% to 40% of its sales of related posts, rails and caps and discretionary accessories).
223 I do not consider that increased sales of GramLine in the ranges identified would have resulted in material additional costs such as opening new Gram branches or installing a new rolling machine or the like, although there may have been some additional costs for extra shifts being required at the upper end of the range. Based on Mr Mann's evidence I consider that Gram had sufficient capacity within its existing organisational and manufacturing structures to satisfy the increased demand within the range I have identified.
224 Doing the best I can in all of the circumstances, I assess Gram's loss during the infringement period on the basis that 25% of Bluescope's sales of Smartascreen represent lost sales of GramLine. On this basis, using Mr Stone's calculations, the loss involved is:
(1) for infill fencing sheets: $1,166,192;
(2) for rails, posts and caps: $836,586; and
(3) for discretionary GramLine accessories: $75,560 (allowing for rounding),
giving a total of $2,078,338.
225 This is at the lower end of my range for all of the reasons I have already identified about the market, changes in the market, and deficiencies in Gram's evidence.
226 I am aware that I have not specified a separate deduction for the risk that Gram would not have captured one in four sales of Smartascreen. This is because I have taken into account the risks by selecting 25% which is at the lower end of the range I consider to be reasonable. To further reduce this estimate by some arbitrary percentage for risk, in my view, would be inappropriate. I also note that this is not a case where, if Gram had adduced evidence of the kind I consider would have been of assistance and which it was within Gram's power to adduce, there would have been no requirement for speculation or guesswork. The overall evaluation would necessarily remain one based on inference, with a considerable degree of speculative assessment necessary. Anything less than 25%, to my mind, would also conflict with the general principle that a liberal approach is to be taken to damages once material loss has been proved.
227 The remaining issues are interest and costs. I propose to be brief.
228 As to tax affecting the interest calculation, Bluescope submitted that this is "a straightforward case of a profitable Australian company paying PAYG tax on its profits on a monthly basis", with the consequence that Gram would not have had the benefit of 100% of its lost profits from year to year. It would have paid tax at the relevant rate of 30% for companies. Thus, according to Bluescope, any interest component of damages should be calculated on 70% of Gram's pre-tax loss of profits. That is the amount it could have retained to its benefit. Bluescope said the present case does not raise the "international dimension" which led to the rejection of an argument to the same effect in Bayer Pharma Aktiengesellschaft v Generic Health Pty Ltd [2017] FCA 250; (2017) 124 IPR 23 at [341]-[342].
229 Bluescope acknowledged this argument was novel. I accept that a novel argument is not necessarily bad for that reason alone. Given, however, that awards of damages representing interest are routinely assessed based on the interest that could have been accrued on pre-tax rather than post-tax losses, I do not consider it appropriate to make Gram the test case for a different approach. If Bluescope wishes to run a test case in an appeal, then that is a matter for Bluescope.
230 As to delay affecting the awarding of interest, it may be accepted that Gram knew of and believed Bluescope to be infringing the Design since 2002. The notion that Bluescope should get the benefit of its infringement by confining the assessment of damages to pre-judgment interest under s 51A of the Federal Court of Australia Act 1976 (Cth) because of Gram's delay in commencing proceedings on a discretionary basis is not persuasive. Gram has already suffered by reason of its delay by being unable to claim damages for the period before 16 April 2005. Further, Bluescope has had the benefit of the money it earned because of the infringing conduct during the infringement period for the entirety of that period and to the date of judgment. Further, as Gram submitted, for a fencing specialist like Gram to take on a large corporation like Bluescope is no small matter. It is not unexpected that Gram's principal, Mr Mann, might have deferred doing so.
231 As a result, I consider that there should be pre-judgment interest calculated throughout the infringement period to the date of judgment (after which s 52 of the Federal Court of Australia Act applies for post-judgment interest). Pre-judgment interest is to be calculated in accordance with Part 2 of Interest on Judgments Practice Note (GPN-INT), that is, 4% above the cash rate last published by the Reserve Bank of Australia before the relevant periods commenced.
232 Mr Hill and Mr Stone agreed that pre-judgment interest should be calculated on the assumption that Gram's lost cash flows would have occurred in the middle of the month. I anticipate the calculation should not be difficult and may be incorporated within orders, the terms of which may be agreed between the parties within 14 days.
233 Costs should be reserved as Bluescope requested.