LED Technologies Pty Ltd v Roadvision Pty Ltd

The induced breach of contract claim 4 At least some of the background to this allegation is uncontroversial. Mr Ottobre established LED Tech. It is now one of the leading suppliers of LED automotive lights to original equipment manufacturers and distributors in Australia. "LED" refers to light emitting diodes. LEDs create light with virtually no heat and, as a result, they use about one-tenth of the power of normal incandescent light globes. They do not use a filament that can burn out or break. They have expected lives of approximately 100,000 hours. 5 In 2003 Mr Ottobre came up with the idea of a square lamp, 80mm by 80mm, comprising an injection-moulded exterior lens in the shape of a shallow square pot fitted with LEDs. The lens with the LEDs, circuit board and supporting electronics sealed within it could be clipped into a base, which in turn could be fitted to a vehicle. Separate amber and red lenses, sitting side by side, could perform the same functions as conventional combination lamps, but if one broke, only it would need to be replaced. Amber and red lenses could be made using the same moulds and tools, thus keeping down the manufacturing costs. 6 Mr Ottobre attended an automotive trade show in Taiwan in April 2002. At this show Mr Ottobre noticed the use of LEDs in automotive lamps. He also met Mr Samuel Hsu from Valens. 7 Mr Ottobre was impressed by the use of LEDs in automotive lamps. He wanted to arrange for the manufacture of these items for sale in Australia. In June 2002 Mr Ottobre discussed with Mr Hsu the possibility of Valens producing LED lamps. Valens provided a quotation for the production of the lens and base moulds. Mr Ottobre thought the quote was not competitive and so did not proceed. 8 In mid July 2003 Mr Ottobre travelled to Taipei to meet Mr Chiang, the proprietor of Valens, and Mr Hsu. The purpose of the meeting was to discuss the manufacture by Valens of lamps which are similar to the designs in suite. Mr Ottobre took with him a proposed business plan and drawings of the proposed lamp. The lens size was proposed to be 80mm by 80mm. 9 Precisely what was said at the meeting forms the basis of LED Tech's claim for procuring breach of contract. It is necessary, therefore, to go into the evidence in a little detail. As well, what passed between the parties following the meeting must be considered, for it throws some light on what was said. 10 I should say at the outset that the evidence of the witnesses (apart from one or two) on all issues was unsatisfactory in many respects. For the most part, each was willing to exaggerate to support his side. 11 Mr Ottobre and Mr Chiang gave evidence about the July meeting. Mr Hsu is no longer with Valens and was not called. Mr Chiang's evidence was given through an interpreter. This made an assessment of his credibility as a witness more difficult than usual. 12 Mr Ottobre's recollection of what was said at the meeting went along the following lines. First, he produced his business plan and drawings. These disclosed Mr Ottobre's ideas for the lamp. It could be produced in three sizes (small, medium and large). The base could take a combination of two and three lenses. He said that he intended to develop lamps to fit a single bracket base. Once these had been produced, two and three lens bases could be manufactured. He described the proposed lamp in detail - ie how it would look, how the lens would fit into the bracket, the size and shape of the lens bracket, and so on. 13 There was then a discussion about the moulds needed to manufacture the lamps and the unit cost of a lamp. Mr Chiang quoted a price of $12,000 for the manufacture of moulds, which he said LED Tech would have to pay. He said the price for the lamp would be US$3.10 for a red lens and US$3.50 for an amber lens. 14 Mr Ottobre was satisfied with the unit price but not with the price of the moulds. In one of his affidavits (in all Mr Ottobre was permitted to file six affidavits) he deposed that after he said the price for the moulds was too high, Mr Chiang offered to accept a significantly lower price. Mr Ottobre put it this way: "He [Mr Chiang] presented this discount as Valens agreed to share the mould costs. It has always been my strong recollection that that [sic] the price dropped to half the original quoted price, in one step". Later emails show that the price ultimately agreed was $4000. Mr Ottobre said that after agreement on the unit price and price of the moulds had been reached, he told Mr Chiang he "wanted to share in [his] good fortune, and volunteered that Valens could use the moulds for manufacturing products for sale anywhere in the world other than Australia and New Zealand". 15 As to the ownership of the moulds, Mr Ottobre deposed: "It was my clear understanding of the agreement reached at the meeting that I and not Valens owned the moulds. I have developed the idea for the product after a lot of effort and trial and error on the basis of my long experience with the autoparts market in Australia". 16 Mr Ottobre also gave oral evidence about the meeting. In his evidence in chief he gave the following answers to questions put by Mr Ryan SC who with Ms Rofe appeared for LED Tech: Q. After the figure of $12,000 was mentioned to you, what did you say in response to that figure? A. Too expensive. Q. Yes? A. I want the cost cheaper. Q. Yes? A. How do we do it cheaper? Q. What did they say to that? A. They say that, you know, "We like your idea and we would like to share the cost with you". Q. What did you say to that proposition? A. I said, "Well, what are you talking about", as to what is the shared cost and they said, "We'll reduce it by half", or words to that effect. But it was a reduction in the cost of the original price of the mould. 17 Mr Ottobre was also asked about the use of the moulds: Q. Did you have any discussion about countries other than Australia? A. Not until after we did the deal. Q. What was said then? A. It was - what was said was that I was quite happy with the price reduction and, "Because I would like to share my good fortune with you, I would like you to sell the product if you want to overseas". Q. What did they say to that? A. Bit of a stunned silence. … Q Well did they nod or shake their heads or - ? A. - I can't remember. 18 Mr Ottobre was also questioned about this meeting by Mr McGowan SC who with Mr CH Smith appeared for the respondents. The following exchange took place: Q. So at the July '03 meeting there was no discussion about an exclusivity arrangement? A. No. Q. I'm sorry, you agree with me do you? I'm sorry to have put the question in the negative. You agree that there was no discussion about an exclusivity arrangement in the July '03 meeting? A. The discussion wasn't exclusivity as to who had what and who owned - who had what area. There was to do about mould costs and product cost. Q. Yes I see? A. And the mould cost was very important. So was the product cost. Exclusivity comes with the fact that you own the mould. Q. Yes. Well, you said, I thought, that you talked about exclusivity later. When later? A. After the deal was done. Q. Yes. And you said that you couched your language to Chiang and Hsu with a phrase you have used in your affidavits, namely, you wanted to share your good fortune with them so you offered them a particular deal? A. Yes, I did. Q. What good fortune are you referring to? A. Allowing them to be able to sell - manufacture and sell the product from my mould anywhere in the world other than Australia and New Zealand. 19 One point to observe from Mr Ottobre's evidence is the absence of any discussion about the ownership of the moulds. Mr Ottobre acknowledged this in his sixth affidavit. There he said: "Neither Mr Chiang nor Mr Hsu said I would own the moulds. However, in the circumstances there was no need for them to say it. It was never in doubt". 20 I should point out that Mr Ottobre did attempt to shift away from this position. During cross-examination he was asked about the moulds: Q. So there was no reduced price. There was a sharing of the cost, wasn't there? A. It's the same, to me it's the same. Q. In what way is it the same? A. It was - when sharing was offered it wasn't - nothing was stated in that we have any rights over this mould or what you need to do. Q. But neither did you? A. Yes, I did. Q. You didn't say that? A. Yes, I did. It wasn't my mould. It was my products. Q. When do you say you mentioned anything ownership of moulds? A. It would have been in the meeting that we had in July 2003. 21 Mr Chiang had a different version of the meeting. First of all, in an affidavit (which had been translated into English) he described the meeting as a "brainstorming session". He acknowledged that, among the topics discussed, was the appearance of the lamps Mr Ottobre wanted to develop, including the use of a diamond (or hexagon) patterned lens. This style of lens was being used by LED Tech in other products and had become a distinguishing feature of its products. According to Mr Chiang, there was a discussion about developing a single lamp and then later developing a range of twin and triple combination lenses. The means by which the lens would be attached to the base was mentioned. 22 It was agreed that the lens would be designed to clip into the base. In relation to the tooling (manufacturing) costs, Mr Chiang described the conversation as follows: I said: 'if you pay 100% of our tooling costs, you will own the moulds and we will not produce the same product for anyone else'. I said to Mr Ottobre that this was my preferred option, and I told Mr Ottobre that I estimated our tooling costs would be US $12,000. This represented the cost of buying the raw materials to make the moulds. Mr Ottobre then said 'I can't afford to pay $12,000 for tooling, I don't have enough money'. I said 'can you pay 50% of the tooling costs?' Mr Ottobre said 'I don't have enough money for that'. I said 'can you pay 30%, US$4,000, as a deposit? In return you can act as Valens' exclusive agent in Australia and New Zealand for this lamp, as long as you are buying it from us. However you must not copy us'. Mr Ottobre said 'Okay'. 23 Some of this was taken up in cross-examination: Q. Did you talk about an exclusive area for Mr Ottobre's company in respect of these products? A. Yes. We agreed that this $4000 and they covered for the agency in Australia and in New Zealand. He couldn't take it to apply for patent. Q. Did you tell him he couldn't take it to apply for a patent. Is that what you said to him? A. Yes. And also he couldn't take it to copy it - to make a copy of it. And I wanted him to sign something, but he refused to sign. … Q. I further suggest to you that Mr Ottobre said to you that you, Valens, can use the moulds for manufacture of products for sale anywhere in the world except for Australia and New Zealand? A. This is what I told him. Q. You agreed then, did you, that he was the only person able to use the moulds in Australia and - for products to be sold in Australia and New Zealand? A. Yes, but the moulds are not his. 24 Before turning to later correspondence, it is worthwhile pausing to make the following observations. First, I am satisfied that at the meeting there was no discussion about the ownership of the moulds, notwithstanding the single occasion in Mr Ottobre's evidence where he suggested there was talk about ownership (evidence which I do not accept). Second, it turns out that Valens did not have the facilities to make the moulds and outsourced their manufacture. Third, it appears to be common ground that LED Tech was to be the only organisation that could sell lamps made from the moulds in Australia and New Zealand. Mr Chiang said this was a qualified right, limited in duration to the period during which LED Tech purchased its lamps from Valens. Where the parties differ is in identifying the source of that right. Mr Ottobre would have it that he had exclusive rights to dictate to whom lamps made from the moulds could be sold. Mr Chiang's version is that the rights belonged to Valens. This, I think, explains the differences in the evidence. 25 I should also mention at this point what Mr Ottobre said was a common practise in the automotive light industry. He explained that if tooling is owned by a local (ie Australian) company, the manufacturer (he referred only to Taiwanese or Chinese manufacturers) is not free to use the moulds to manufacture products for third parties. I accept this is likely to be common industry practise. 26 Now let us look at what LED Tech says is the outcome of the discussions between Mr Ottobre and Mr Chiang. Its case is that an agreement was reached which included the following terms (which I take from the amended statement of claim): (1) LED Tech would own the moulds; (2) Valens and LED Tech would share the costs of producing the moulds; (3) Valens would not sell or manufacture for sale in Australia or New Zealand 80mm and 100mm square LED lamps made from the moulds; (4) Valens could, however, sell or manufacture for sale in countries other than Australia or New Zealand 80mm and 100mm square led lamps made from the moulds; and (5) LED Tech had the exclusive right to sell 80mm and 100mm square LED lamps in Australia and New Zealand. 27 The two key allegations are (1) and (4). It is, in my view, clear that the parties did not agree that LED Tech would own the moulds. They did agree that some part of the cost of the moulds would be paid by LED Tech: $4,000 of the approximate cost of $12,000. 28 On the other hand, I accept there was a term that Valens would not sell or manufacture for sale in Australia or New Zealand lamps made from the moulds. Both Mr Ottobre and Mr Chiang accept such a term was agreed. The difference between them is, as I have pointed out, which of them had the right to impose this limitation. But whatever party had the power, it was agreed that only LED Tech would distribute the lamps in Australia. 29 If confirmation be needed for the conclusions I have reached concerning the terms of the agreement, it may be found in what later passed between the parties. It is to those communications I now turn. 30 In late 2003 Valens started manufacturing lamps for LED Tech. The first delivery was in December 2003. LED Tech began selling the lamps in Australia in early 2004. 31 In May 2004 Mr Ottobre discovered that Valens had published a brochure in which it was offering for sale lamps similar to those being made for LED Tech. Mr Ottobre raised this with Mr Hsu at a trade show in Taipei. On 29 May 2004 Mr Hsu responded by email: Our showing square LED lights for 80x80mm, 100x100mm, 125x125mm in our new catalogue is trying to get some orders from other countries. We promised you the exclusive for selling such square LED lights with hexagon lens in Australia and New Zealand. There could be mistake that somebody at our booths said that these design can be sold to New Zealand because they didn't know. We already informed Miss Patty Chang and our other staff such things not to sell such design to Australia and New Zealand to avoid error or misunderstanding. 32 This elicited the following response from Mr Ottobre on 31 May 2004: It was not nice to find out that my LED80 was offered to a New Zealand company, I find it strange that I have shared with you my product to sell to the rest of the world. I asked for Australia and New Zealand only to discover that your staff have offered my product to a New Zealand company, I was quite happy to share my good fortune with your company but now you offered my LED80 to others in my area. Your sales staff should be informed before you start the show that LED80 is not to be sold to Australia and New Zealand company's [sic]. How many other companies have your staff offered my LED80 to in Australia and New Zealand this is not fair as we have an agreement which is benificial [sic] to both our company's [sic]. The only way to resolve this situation is for me to receive a letter from Valens company and signed by the President Mr Chiang stating that no LED80 has been sold to any Australian or New Zealand company or that any company from anywhere else in the world has or will sell to an Australian or New Zealand company. 33 Mr Hsu replied on 1 June 2004: After checking all records of visitors in this Show, we found that none of our staff offered price of LED80 to any visitors from Australia and New Zealand. The New Zealand visitor: Gruars Electrical & Battery Services Ltd. only inquired VS-L87Y and other new LED interior lamps. He didn't inquire this LED80. Patty just wrote down the record and didn't offer any price to this company. VS-L87Y is the model of side marker light similar to Hella type. So please release your worry. We didn't do anything hurt you about this LED80. It is no problem to sign a letter by Mr. Chiang about not selling LED80 to any other companies in Australia and New Zealand. We will fax it to you later on. 34 On 6 June 2004 Mr Ottobre replied: Your delay in sending me a letter stating that I am the only person to sell my product in Australia and New Zealand is very worrying. This is a letter that will take 5 minutes to write. However you are telling me that you will send me this letter sometime in the future. NOT GOOD ENOUGH SAMUEL. I told you last week I wanted this letter, you said you will fax it to me, now you changed your mind. I NEED THIS LETTER NEXT WEEK, it is to include LED100, LED125 as well as LED80. Your delay in this matter will confirm you [sic] intentions to sell my product into my market area of Australia and New Zealand. 35 Mr Hsu replied on 8 June 2004: As for the agreement, we presently can issue such agreement for LED80 for only you to sell in Australia and New Zealand. As soon as the LED100, LED125 are confirmed and accepted by you, we will issue another agreement to you accordingly. Such agreement will be issued and faxed to you today. 36 Mr Ottobre replied on the same day: It is very concerning that company's [sic] in Australia and New Zealand have a brochure on LED80, 100, 125. This was not suppose to happen if I am the only person who can sell my product in my area, this is very concerning that these other company's have been shown that you are the manufacturer of my LED'S. I presumed you would have been discreet about this matter, after all you say on your website that you are a reputable, responsible and reliable company. I think you should have told your staff not to give these company's [sic] a brochure of these LED's. 37 On 10 June 2010 Mr Hsu emailed Mr Ottobre to inform him that the agreement had been faxed. The agreement stated: We [Valens] hereby authorize Mr. Tony Ottobre of L.E.D. Autolamps, subsidiary of Auto Trade Suppliers in Thomastown, Vic.3074 Australia as only importer to sell LED lights of LED80R, LED80A, LED80W with your logo in the Australia and New Zealand. 38 On 11 June 2004 Mr Ottobre wrote to Mr Hsu: I received the agreement by fax today and you have added two things to it that were never discussed at our initial meeting, and were never agreed upon, because they were never spoken about, there was never an agreement for the following two items 1/ nothing to do about logo, it is the product which is in question 2/ [not relevant] I would like it to remind you that the original agreement is we are to share mold [sic] manufacturing costs because you liked my idea and designs, in return for this cost sharing I offered to you the ability to sell these products to the rest of the world except for Australia and New Zealand. You never asked for this but I wanted to share my good fortune with you. This was the agreement. This is what was agreed upon. The agreement is below, this is what we require to finish the matter, if this is not agreed upon by you, then your intentions are to sell to the Australia and New Zealand market which you have advertised to by handing brochures to companies in this area with my LED80, LED100, LED125. I ask you do you intend on selling my LED80 LED100 LED125 without my logo to these areas. If not you will have no problem signing the agreement below and faxing it to me. We need this signed and sent to us within the next two days, this should not be a problem to you because this is the truth. The agreement between our two companies is that we are to share mold [sic] manufacturing costs, in return for this cost sharing Valens Company can sell these products to any other country in the world except for Australia and New Zealand, which is to be supplied only by LED autolamps. (emphasis original) This is the truth, this is what is required, if you are truthfull [sic] then you will not have a problem signing to the above agreement and faxing it to me. 39 Mr Hsu replied on the same day: As informed you before, we didn't think of selling your design of this LED80 series, etc to Australia and New Zealand. So we will sign such agreement as per you request. 40 I regard the correspondence from Valens as confirmation that it had agreed not to sell lamps made from the moulds to any third party who might sell them in Australia. I think it was the intention of the parties that this arrangement would continue even if LED Tech stopped sourcing its lamps from Valens. 41 The correspondence also confirms my view that it had not been agreed that LED Tech would own the moulds. Mr Ottobre may have believed that he owned the moulds. It is clear from Mr Hsu's email of 8 June 2004 that Valens was not of the same opinion. He wrote: Yes, we sure listen to your opinion but being a manufactory we have our own thinking and ideas about how to design and produce the lamp easily, efficiently or cost-effective. If you paid all tolling charge, then we won't say anything but just listen to what you wanted us to do. We spent much more money than you paid, somehow, we shall have some of our opinions on developing these new lights. We do hope that you can understand our situation if you are in our shoes. Under investing so much money on LED80, LED100, LED125, of course we are eager to sell such LED lights to other countries except Australia and New Zealand. 42 In response, Mr Ottobre wrote: As for our agreement you were never to have control of my light. You are forcing your type of thinking on my idea's [sic], it is not working and will never work, the way we think is differant [sic] my LED80 is successful and I don't need your opinions on my other lights because they will be successful, I have proven that already. … I am quite happy to pay your half of the costs, I never thought you would be so difficult to deal with, If I had known it was going to be this hard, I would have turned down your offer to share the costs with me. 43 Valens manufactured lamps for LED Tech until approximately February 2006. Then a dispute arose between the two companies which brought an end to their relationship. It is not necessary to go into this dispute in any detail, but some aspects of it are important. Mr Ottobre said he was concerned about the quality of the products that were being manufactured by Valens. He suspected that Valens was using cheap components (especially the resin used to seal the circuit board in the lens) and exercising less quality control over workmanship. Accordingly LED Tech switched suppliers. 44 When Valens discovered in about July 2006 that LED Tech had a new supplier, Mr Hsu wrote to Mr Ottobre advising that: "Mr Chiang declared a War against LED Autolamp since you already asked other supplier copied our 3 sizes square led lamps". Mr Hsu threatened to undercut LED Tech. 45 Mr Ottobre responded in kind. He sent a number of abusive, profane emails to Mr Chiang. He published on his website photographs of allegedly defective Valens lamps with a commentary stating its products were of inferior quality. He also published a "Copyright Infringement Notice" contending that Valens was infringing LED Tech's copyright in its lamps. 46 At the same time LED Tech retained Griffith Hack to write letters of demand to Valens. On 19 July Griffith Hack sent a fax, the material parts of which read: Our instructions are that our client had an agreement with you in terms of which you would manufacture the lamps and you would be entitled to sell our client's lamp design anywhere but in Australia. Our client paid half of the tooling costs involved. Our instructions are that you have threatened to renege on your agreement and to sell our client's lamp designs into Australia. … If sales of the lamps in Australia were to occur in their present form (as instructed you could be in breach of the Trade Practices Act ("TPA"), the common law of passing off and the trade marks law. … Before any action is taken by you to sell lamps in Australia, we thought it would be wise to bring the provisions of these laws to your attention. You ought to also bring this matter to the attention of any proposed Australian distributor who you might engage to sell the goods in Australia if you choose to do so. 47 On 22 January 2007 Griffith Hack sent an email to Don Hopkins & Associates, Valens' lawyers in New Zealand, which read: We have taken further instructions from our client. We are instructed that relevant background facts include the following: … 2. Your client agreed to prepare the necessary moulds. It quoted a price for the work, to which our client agreed. Since your client liked our client's designs, and thought the lamps would be successful, as an indication of good faith it offered our client a 50% discount on the price of making the moulds that it had originally quoted. Our client paid the discounted price for the moulds, and therefore owns the moulds. 3. Our client authorised your client to use the moulds to manufacture lamps on its own behalf for sale anywhere but in Australia and New Zealand. … 9. Your client has since declared war on our client and threatened to undermine his business by dumping stock in Australia, presumably with the object of coercing our client into continuing to purchase stock from your client, rather than other manufacturers. … 11. Our client's 80 series, 100 series, and 125 series lamps are protected by Australian design registrations. … Further, and in any event, any sales of lamps made by your client into Australia or New Zealand would involve a breach of the agreement referred to in paragraph 3 above. 48 This is a convenient point at which to introduce the respondents. Mr Baxter is the director of each respondent. He established the second respondent, Baxters Pty Ltd, 33 years ago and the first respondent, Roadvision Pty Ltd, in July 2007. Both companies distribute automotive products, including automotive lighting products. The products are acquired from overseas manufacturers and local distributors. 49 In 2002 Baxters commenced purchasing lighting products from Valens to distribute in Australia. Since 2008 Road Vision has also purchased lighting products from Valens to distribute in Australia, including to Baxters. 50 As a result of his dealings with manufacturers, Mr Baxter knows that when an overseas manufacturer is asked to develop a specific product for a customer, it is common for the manufacturer to ask for a contribution towards the costs that will be incurred in developing the product. The amount of the contribution can vary, depending upon the product being made. In return the manufacturer will, according to Mr Baxter, often agree to grant exclusivity for that product range in the Australian market. Mr Baxter also knows that if the full development costs are paid, ownership of the mould can be with the customer. He maintained that if the Australian buyer no longer purchased goods (or purchased an insufficient quantity) from the overseas manufacturer any exclusivity would come to an end. For the reasons I have stated above I do not believe that this was the arrangement reached between LED Tech and Valens. 51 Mr Baxter was aware that LED Tech, a significant competitor of his companies, was sourcing its square lamp series from Valens. Mr Baxter met Mr Chiang at a trade show in Taiwan in April 2006. Mr Chiang asked whether Mr Baxter wanted to purchase from him a square lamp series. This was a series which was the same as the LED Tech lamps but with a different lens pattern and a bracket manufactured by Valens. Mr Baxter declined because he "was uncomfortable with the similarity to LED Tech's light". He preferred to develop his own lamp. 52 About the same time Mr Baxter learnt of the dispute between Valens and LED Tech. He saw copies of the notices that had been published by Mr Ottobre that were critical of Valens. 53 Because Mr Baxter was interested in having Valens manufacture its square lamps, he asked his general manager, Mr Mitchell, to speak to Ms Chang, an account manager at Valens, to see what he could discover about Valens' relationship with LED Tech. While he did not say so, I am sure Mr Baxter wanted to find out whether there was some restriction on Valens making square lamps for the respondents. 54 In response to a request for information, on 5 October 2006 Ms Chang sent an email to Mr Mitchell which read: We supply hexagon pattern lens only to Tony in Australia. After we stop doing business with him, we haven't sold any of these lamps with hexagon patterns lens to Australia. I have no idea why he declares so. Maybe he probably just wants to frighten our customers stop ordering from us. The square lamps we are going to sell are the new models as the sample we sent to Graeme few days ago. The lawyer in your country already checks the design patent for us. 55 Mr Baxter said that he understood from this email that Mr Ottobre had some kind of exclusive design rights to products featuring the hexagon (or diamond) pattern lens. He said he also believed any exclusive rights Mr Ottobre had were limited to lamps featuring this lens pattern. In light of the additional information that was available to him, I doubt that Mr Baxter believed that LED Tech's rights in respect of the square lamps were so limited. 56 In or around August 2006 Mr Baxter also had a meeting with Mr Ottobre (arranged by a staff member) to discuss the possibility of Baxters acquiring square lamps from LED Tech. The meeting was also attended by Mr Briggs, Baxters' then national sales manager, who now works for LED Tech. 57 What was said at the meeting is controversial. It is common ground that the LED square series lamps were discussed. Mr Baxter's recollection is as follows. Mr Ottobre was eager to sell lamps to Baxters. Mr Ottobre said that LED Tech owned the designs. Mr Baxter thought nothing was said about the ownership of the moulds. He does recall Mr Ottobre threatened to sue anyone who infringed his design rights in respect of the lamps. 58 Mr Ottobre recalled things differently. In his sixth affidavit, he accepted that the purpose of the meeting was to determine whether Baxters could distribute LED Tech products. He said he told Mr Baxter that LED Tech owned the designs for the square lamps and that LED Tech owned the moulds used to make the lamps. He went on to say that he could not stop Valens from using the moulds but that if someone brought the lamps into Australia he would sue them. 59 During his cross-examination Mr Ottobre put it rather differently: Q. And at the date of the meeting you had, in your armoury of rights, the registered designs? A. Yes. Q And so, it was likely, I suggest to you, that if any threats were made by you, it would have been threats concerning infringement of those designs? A. There was no threats. Q. Well, you issued warnings that you would sue people? A. If they brought a copy of my product into Australia, yes. Q. And that was reference, wasn't it, to your registered designs? A. Yes. Q. Yes. And it was not a reference to improper use of moulds? A. For that design, no. Q. Well, there was no mention at that time about mould and design? A. The design was separate and the mould is separate. These answers are a little confusing. It is not clear whether Mr Ottobre was conceding that the only rights he had said he could protect were in respect of the designs for the lamps or whether he had in fact mentioned the moulds. 60 Mr Briggs remembered the discussion about the LED square lamp. According to him, Mr Ottobre said that he had designed the square lamps and owned the tooling (or the moulds) to make the lamps. Mr Ottobre also said that he could not stop Valens from using the tooling to make lights for sale in other countries, but that if anyone brought his square lights into Australia, he would sue them. 61 I accept that Mr Ottobre threatened action against anyone in Australia who sold the square lamps. But, notwithstanding the evidence of Mr Briggs, I do not accept that Mr Ottobre told Mr Baxter that LED Tech owned the moulds (or the tooling) for the LED lamps. It is unlikely this was said because I doubt that, at the time, Mr Ottobre thought LED Tech owned the moulds, although he did make that claim later. 62 While Mr Baxter did not enter into any distribution arrangement with LED Tech, he still wanted to sell the square series because they had become very popular. He was, however, increasingly concerned about LED Tech's rights in respect of the lamps. Not only had Mr Ottobre claimed to have the exclusive rights in respect to the designs but by this time LED Tech had commenced proceedings in the Federal Court, claiming that another competitor had infringed its design rights. Accordingly, Mr Baxter made further enquiries of Valens to see what he could ascertain regarding the extent of LED Tech's rights. 63 On 2 July 2007 Mr Baxter sent Valens an email requesting information. The relevant parts of the email read: Further to our telephone conversation this afternoon, I would be most pleased if you could forward the following information: • The name and contact particulars of the Law firm that Samuel spoke to in New Zealand and any information you can supply regarding their advice on the matter, including copies of correspondence and documentation. • We need to establish who designed the initial light program in 80mm, 100mm & 125mm. Was it LED Autolamps design or did Valens design it? • Do you have relevant drawings on the above-mentioned lights with dates to substantiate that the design was originally the property of Valens? They would need to be dated prior to 2004. • Regarding the outer casting of the lamp and the method in which the lamp clicks into the mounting bracket. Was this designed by Valens or did LED Autolamps create with this concept [sic]? We believe this concept is what may have been registered. • The actual concept/design of the light, ie: the single lamp, the dual lamp and the 3 in 1 lamp. Whose idea was this? • LED Autolamps has Trade Marked the Diamond Plus pattern under Trade Mark Number 1021199. Refer to attached Scan from the website for full details. • We cannot understand how a light can be designed without regard for the mounting bracket first? • The vehicle mounting bracket that the lights click into. Was this completely designed by Tony or did Valens have some input? • Did LED Autolamps have any input into the blister packaging you sent to Baxters? Or was this designed completely by Valens? We require this information to assist with the preparation of a brief for the Attorneys, Freehills Patent & Trade Mark Attorneys. 64 Valens responded by email dated 3 July 2007. The reply stated: Regarding your questions, below are our answers. 1.) By fax, we are sending you letters from LED autolamp's lawyer (Griffith Hack) and our lawyer as Don Hopkins & Associates in New Zealand. In letter of lawyer Don Hopkins, he mentioned that our new square LED lights are allowed to sell in Australia without breaching any design registrations of LED autolamps. Our new current square led lights are with small dot lens while LED autolamp's are diamond lens. Our new current mounting base is also different from theirs. 2.) We designed initial light program in 80mm, 100mm, 125mm. By fax, we are sending you the drawings of lens and mounting base. Please refer to the drawings. The lens 80x80mm are designed on 2003.7.22 (July 22, 2003), 2003.8.15 (Aug. 15, 2003). The mounting base is designed on 2003.7.22 (July 22, 2003). Tony of LED autolamp confirmed the drawings of lens on 16-AUG-2003 and mounting base on 01-AUG-2003. Please refer to the drawings. The mount base of 100x100mm is designed on 2003.8.14 and lens is designed on 2003.8.15. Tony of LED autolamps also confirmed our drawings. 3.) Regarding the mounting bracket which the lamp clicks into, please see our drawings of mounting bracket and lens of 80x80mm. We have indicated on the drawings where such design is to let lamp click into mounting bracket. 4.) Originally we designed only single lamp. Tony use our design and concept for extending to dual and triple lamps. 5.) As mentioned above, diamond lens is designed by us. Tony used it to have it registered. Now our current lens is small dots lens which is different from diamond lens. 6.) As above-mentioned, the lamp and mounting bracket were designed by us at the same time. 7.) We designed the mounting bracket and at that time is only for single lamp. 8.) The blister packaging sent to Baxters is completely designed by us. Please kindly check all information we faxed to you and if you have any further questions, please let us know again. 65 As well as proving this information, Valens sent Mr Baxter copies of correspondence passing between it and Mr Ottobre (and their lawyers). Included among that correspondence were the Griffith Hack letters of demand. Mr Baxter said that he does not recall seeing or reading those letters at the time. I do not think he was telling the truth. In any event Mr Baxter said that he would have considered the letters to be irrelevant as the Baxters lamps had a different lens and bracket, and Baxters was paying a tooling contribution. He also said that he found it difficult to believe that Mr Ottobre owned the moulds given that he had new moulds manufactured when he switched manufacturers. I think that Mr Baxter was aware that he had to design lamps that were sufficiently different from the LED Tech lamps. 66 Mr Mitchell, Baxters' general manager, was also involved in the discussions with Valens. He read the correspondence that had come in from Valens. Mr Mitchell said that he had no reason to believe LED Tech had any ongoing exclusive design or other rights in respect of the lamps or their components, other than the diamond (or hexagon) pattern of the lens. Nor did he believe that it owned the moulds for the lamps. I do not accept that Mr Mitchell believed LED Tech had such limited design rights in respect of the lamps. 67 I also believe that both Mr Mitchell and Mr Baxter were aware of LED Tech's claim that there was an agreement which prohibited Valens from using the moulds to manufacture lamps for a third party. This is what they would have discovered from reading Griffith Hack's letters. Nothing said by Valens to the respondents provided satisfactory reasons to enable the view to be taken that LED Tech's claims were not true. 68 In any event, even if I were wrong about Mr Baxter's actual state of mind on this subject, in my view the facts justify a finding that he was recklessly indifferent to discovering what the true position was. The assertion that LED Tech paid for the moulds would not have come as a surprise to Mr Baxter given his knowledge of the trade. The contention that the payment gave LED Tech exclusive rights in respect of the moulds was not far removed from how Mr Baxter understood the industry to work. He could easily have made further enquiries on this topic (including making enquiries of Mr Ottobre) but did not do so. That indifference as to what were the actual facts is sufficient to put the respondents on notice of them: Emerald Construction Co v Lowthian [1966] 1 WLR 691, 700-1. 69 It is with this knowledge, or imputed knowledge, that Mr Baxter decided to order 80 mm, 100 mm, and 125 mm square lamps from Valens. The lamps were the same sizes as the lamps sold by LED Tech. 70 Prior to placing orders, Mr Baxter said that Valens required Baxters to pay tooling costs of US$10,000. Following brief negotiations the cost was reduced to US$2,500, with the remaining $7500 to be absorbed into the unit cost charged by Valens. 71 LED Tech contends that Baxters' lamps were made using the LED Tech-owned moulds, and that Mr Baxter knew the moulds were being used for that purpose. 72 It is necessary, first, to say a little about how moulds are used to make lenses. The lenses are made by injection moulds. Injection moulds have three parts: an inner mould which determines the size, shape and surface detail of the internal surfaces other than the top surface; an external mould which determines the size, shape and surface detail of the external surfaces; and an insert which is placed into the inner mould to imprint a pattern on the underside of the top surface of the lens. 73 It is common ground that the insert used to make Baxters' lamps was different to (or at least a substantially altered version of) the insert used to make LED Tech's lamps because the pattern was different. The crux of the dispute is whether the same inner and outer moulds were used. 74 The only evidence that the inner and outer moulds used for LED Tech's lamps were also used to produce Baxters' lamps was that given by Mr Ottobre. He said: 11. I have inspected the lenses of a BTL206 light, and compared it with a lens of 80 x 80 square series light that Valens earlier made for LED. 12. In relation to the inner surfaces of the lenses: 12.1 Both lenses have vertical ribs around the perimeter. The size and shape of the ribbing is arbitrary, but is the same in the BTL lens and the LED lens. 12.2 The sizes of the cavities created by the inner moulds are also the same. 13. In relation to the outer surface of the lenses: 13.1 The dimensions and position of the tabs on two sides of the lenses, which allow the lens to be clipped into position n the base, are the same. 13.2 The short edges of the tabs are not perpendicular to the bottom edge of the lenses, and this imperfection is the same in both lenses. 13.3 The mark left by the injection port is on the same surface and, on that surface, in the same position in both lenses. 13.4 Minor imperfections in the mould have left tiny, but visible grooves on the tabs of the both lenses [sic]. The depth and width of these grooves are the same. 13.5 The size and shape of the outer surfaces of the two lenses are the same. 14. Finally the thickness of the two lenses, which is determined by the precise size of the inner and outer moulds and their relative positions when they are closed together, is the same. 15. These eight factors taken together lead me to believe that the lenses for the BTL lights are made from LED's moulds. 75 An interesting aspect of this case is that Mr Ottobre was permitted to give this evidence. While Mr Ottobre has had many years of experience in the automotive industry, he has almost no knowledge of how injection moulding works. His experience is confined to having spent a maximum of two weeks since 2004 in factories where injection moulding was taking place. Further, during those visits, he would likely only have made fleeting observations of the manufacturing process. Mr Ottobre can hardly be described as an expert in the area. 76 Still, his evidence was not objected to. Nor, importantly, was it contradicted by an expert called by the respondents. It was, however, called into question by Mr Chiang. During his evidence Mr Chiang said that he did not manufacture lamps for Baxters using the moulds partly paid for by LED Tech - he claimed to have manufactured new moulds. He also claimed to have sold to a scrap metal dealer for about US$160 the moulds used to make LED Tech's lamps. 77 I do not accept this evidence. First of all, Mr Chiang thought the moulds used to make the LED Tech lamps were his. He said so often enough during his evidence. Second, Mr Chiang had no reason to get rid of the moulds, notwithstanding LED Tech was no longer placing orders with Valens. Mr Hsu had stated in an email to Mr Ottobre that Valens was keen to sell the lamps to countries other than Australia and New Zealand. I am convinced the inner and outer moulds were used to manufacture the lamps sold to the respondents. Mr Ottobre's observations about the similarities were explained to me and I have reached the same non-expert conclusion as he did. I believe I am entitled to rely on my own observations for this purpose. 78 The more difficult question is whether the respondents knew the moulds were used to make Baxters' lamps. To resolve this question one must go back to when Baxters placed its orders. At that point Valens had a choice: it could make the lamps from new moulds (which is what it told Baxters it would do) or it could use existing moulds in its possession. The respondents did not request Valens to use existing moulds. If Mr Baxter's evidence is to be believed, Baxters thought it was paying for new moulds to be manufactured. And it was open to Valens to satisfy Baxters' orders without infringing its agreement with LED Tech. The choice it made (ie the decision to use moulds partly paid for by LED Tech) was not procured by the respondents. It was Valens that decided to breach its agreement. 79 I acknowledge, consistently with what was said by Jenkins LJ in D C Thompson & Co Ltd v Deakin [1952] Ch 646, 694, that if the respondents knew that Valens was making its (the respondents') lamps from the moulds which LED Tech had partly paid for, they would have been committing an actionable wrong if they had continued to purchase those lamps. I do not accept, however, that the respondents knew this was occurring. Nor do I think that they were turning a blind eye to that possibility. Rather, Baxters had been asked to pay for the tooling and did make an upfront payment of US$2,500, with the remainder to be absorbed into the unit price. Baxters was entitled to assume that Valens had manufactured new moulds. I do not accept that the respondent knew, or turned a blind eye towards the possibility, that the money it had paid may not have been used to acquire new moulds for lenses and that Valens may have used existing moulds to make the lenses. 80 For these reasons the procuring breach of contract claim will be dismissed.

The designs claims 81 I will now deal with the design infringement claims and, at the same time, the claim for revocation of the registrations. For reasons that will soon become apparent it is convenient to deal with these claims together, as many issues overlap. 82 First, there is the alleged lack of certainty of the designs. The rule is that to be valid a design must be reasonably clear and succinct. Mr Funnell, an expert called by the respondents, said the designs were not reasonably clear. Mr Funnell is an automotive electrician with many years experience. Some of those years were spent in the employ of Baxters, including the time it was placing its orders for lamps with Valens. Mr Funnell was involved in that project. So, although he is an expert, he would not be characterised as an "independent" expert. 83 Mr Funnell said that the designs are confusing. He based this view on the Statement of Newness and Distinctiveness. That statement reads: Separate clip in lenses. Base to take a variety of 2, 3 or 4 combination of lenses for stop, tail, indicator, reverse LED lenses, no visible screws. 84 Mr Funnell made two points. First he said that the reference to "a variety of 2, 3 or 4 combination of lenses" creates uncertainty. He said: [I]t wasn't clear exactly how the two, three or four combination lenses were to appear. So is it four single units or is it a combination of stop and indicator within that one lens? … It was a little bit open in its wording, I believe. Second, Mr Funnell said he was concerned about the reference to "separate clip in lenses". He said he could not see from the drawings in either registered design a clip in mechanism for the lenses He suggested the lensesould be connected with the base in any number of ways. 85 I do not accept that the Statement of Newness and Distinctiveness is uncertain, although it could have been better expressed. In my view the statement indicates clearly to the relevantly informed addressee (and probably to anyone familiar with the English language) that the base could be manufactured to take a number of lenses. Reference to "separate clip in lenses", when read with the phrase "no visible screws", indicates that the lenses clips in and are not held in place by screws. There is nothing relevantly uncertain contained in the statement. 86 I can now deal with the infringement and revocation claims. A design will be registrable if it is new and distinctive when compared with the prior art base as it existed before the priority date: Designs Act s 15(1). The prior art base here includes designs publicly used in Australia and designs published in a document within or outside Australia: s 15(2). 87 The respondents will have infringed the registered designs if the Baxters lamps (which they have imported and sold or otherwise disposed of) embody a design that is identical to, or substantially similar in overall impression to, the registered designs: Designs Act s 71. 88 In determining whether an allegedly infringing design is substantially similar in overall impression to the registered design, s 71(3) provides that a court has to consider the factors specified in s 19. Section 19 provides that when assessing substantial similarity in overall impressions a person must: give more weight to similarities between the designs than to differences between them; have regard to the state of development of the prior art base; have particular regard to the features identified in the statement of newness and distinctiveness; have regard to the freedom of the creator of the design to innovate; and have regard to the amount, quality and importance of those parts of the design that are substantially similar to another design. The standard to be applied is that of the informed user. 89 The informed user is a hypothetical person who is familiar with the product to which the design relates but who is not an expert. In Review 2 Pty Ltd (in liq) v Redberry Enterprise Pty Ltd (2008) 173 FCR 450, Kenny J said (at [21]) that "the properly informed eye of the court must make its decision as a matter of degree - as a matter of overall impression: see Architectural Lighting [2006] RPC 1 at [52]". 90 The prior art base which is in evidence is extensive. But, sensibly, the respondents placed most of their case on what was known as the Rubbolite lamp. I think it is fair to say that if the Rubbolite lamp did not anticipate the designs, no other piece of prior art would. 91 There are features of the designs that are similar to the prior art base and there are other features which distinguish them from the prior art. The features that were known to an informed user as at the priority date include (a) a rectangular base for combination automotive lights; (b) square lenses, although they were not as common as rectangular lenses; (c) in combination automotive lights, lenses which are located immediately next to each other or closely abutting; (d) reasonably enclosed backs of automotive lights; (e) lenses with a significant degree of pattern; (f) edges of automotive lights being visible from the front, with a curved or bevelled edge; (g) the absence of visible screw-holes; and (h) a slim profile. 92 The features which were distinguishing features include (a) each lens being separate from the base, the lamp inserts appearing separate from the base, the top surfaces of the lenses being raised above the base and the lenses being separated from each other; (b) the lamps having a low profile; (c) the lenses and base being uncluttered and looking finished; (d) the "cut out" or "recess" at the end of the lamp; (e) the sloping rounded mounted brackets; and (f) the cut out pattern on the rear of the base. 93 With regard to the similarities and differences between the designs and the Baxters lamps, the position resulted in evidence of experts being tendered. LED Tech retained Mr Ransom as its expert. Mr Ransom's company, Van Line Distributors Pty Ltd, purchases products from LED Tech, including LED Tech's square series lamps. He is not a true "independent" expert. I have already mentioned Mr Funnell, who is the respondents' expert. 94 Mr Ransom and Mr Funnell were asked to prepare a joint report dealing with a number of topics including: (1) what features of the overall appearance of the Baxters lights and the registered designs are the same or similar; (2) in relation to the identified similarities (a) how significant the feature is to the overall appearance of the automotive light and (b) whether it is a feature that was used in relation to automotive lights in Australia prior to June 2004; (3) in comparing the Baxters lights with the registered designs, what features are both (a) different and (b) visually significant; and (4) in relation to the identified differences (a) how significant the feature is to the overall appearance of the automotive light; and (b) whether it is a feature that was used in relation to automotive lights in Australia prior to June 2004. 95 In the joint report the experts identified the following overall features that were the same or similar: (i) the shape of the lens; (ii) the rounded corners; (iii) the rolled edge; (iv) the radiused edges; (v) the overall base profile; (vi) the short edge; (vii) the lack of visible screws; and (viii) both being LED lamps. 96 The only feature on that list which the experts agreed was visually significant was the open back as shown in the registered design. But, Messrs Ransom and Funnell differed in the following respects. Mr Ransom said that the landing between the lenses was visually significant but did not attach much emphasis to that difference. Mr Funnell said that everything else looked similar without great detail, the only difference being the landing. 97 As regards the differences, the experts identified: (i) the landing/gap between the lenses was more pronounced in the design; (ii) no lens pattern was evident on the design; and (iii) the design shows the base with the long edge raised leaving short ends low, which was similar in the Baxters lamp; however, the base on the Baxters lamp showed low edges on all sides. 98 The experts also agreed that (1) the registered designs showed an open back and the Baxters lamps showed a closed back; and (2) the Baxters lamps showed electrical cable exiting the lamp but the registered design did not show this cabling. They were of the opinion that the visually significant difference was the open back in the design and the closed back in the Baxters lamp. Mr Funnell said the landing gap was visually significant. Mr Ransom did not agree. In relation to how significant the different features were in the overall appearance of the light, there were differences. As regards the open and closed back difference, both said that the Baxters lamp looked different from the registered designs but that the difference was not significant from the point of view of performance or function. 99 Messrs Ransom and Funnell were also asked to compare the Rubbolite lamps with the registered designs to see what features, if any, of the overall appearance were the same or similar and visually significant. They agreed that the similarities were: (i) the square lenses with rounded corners; (ii) the profiled edges; (iii) the lack of obvious lens screws; and (iv) the gaps between the lenses making it obvious that the lenses are separate. The item they agreed was particularly significant was the lack of lens screws. 100 As regards the differences they agreed: (i) that the bases are a totally different shape; (ii) the sides appear shallow from a front view; (iii) the profile is different on the long edge compared to the registered design; and (iv) the Rubbolite lamps show mounting bolts protruding from the rear of the base. They agreed that the differences that were visually significant were the base profile and the mounting bolts. 101 It is necessary to have regard to the oral evidence regarding the differences in the design of the base. Mr Ottobre acknowledged that the design of the base is important. This is evident from the following questions and answers: Q. So, at the time of registration of this - these two designs, the underside of the product was regarded as important? A. It was regarded as important, it stated in the registration that I had to supply the pictures in different format, such as, the side, the top, the back, the overhead view. There's quite a few pictures that you asked you [sic] to put forward. Q. Yes. And in the double registration you gave one representation of the underside and a triple 2 representations of the underside? A. Yes, by the looks of it. It looks like 6 of 6 is missing in the double, which probably was the underside of the double. Q. And the underside of the profile is regarded by you commercially as important as well, isn't it? A. No, its not. 102 Shortly after Counsel asked those questions I asked: Q. What's the advantage or disadvantage of having the base open? A. Well, the base is open so the wiring can be pulled through easy. Q. What about dust? A. There's no dust because the lenses are completely sealed with resin… 103 Mr Ransom was also asked about the underside appearance of the Baxters base and the design. The relevant part of his evidence is as follows: Q. And in the case of the Baxters light, that underside appearance is very noticeable in comparison to the registered design? A. You are talking about the taper in at the back or the back square on which we can't see? Q. The underside appearance in the design, it is a cut out appearance? A. Yes, that is right. Q. The Baxters, it is flat? A. Yes. Q. And that is a marked difference between them? A. Yes. Q. Yes. So you would accept, wouldn't you, Mr Ransom, that first of all the open base of the registered design is an important visual feature of the registered design? A. Correct. Q. The modularity and separation of the lenses is an important aspect of the registered design. And at least those two main features of the registered design are absent in the Baxters light? A. Correct, yes. Q. And that has a consequence, doesn't it, that the overall impression between the two is different? A. It is different from those two perspectives, yes. Q. And the overall impression one gains from looking at the Baxters light compared to the registered design is a difference in overall impression? A. There are some differences, yes. Q. But those differences, taken together, give a difference in overall impression? A. Again, I say there are some differences, yes. They are not equal differences. Q. I understand that? A. Yes. Q. But you accept those features are important features in the registered design? A. Yes. 104 Mr Funnell was questioned about the differences between the registered designs and the Rubbolite lamps. He acknowledged that the base of the Rubbolite lamps appeared to provide individual frames for each lens, which is not a feature of the registered designs. He said that the corners of the Rubbolite lens appeared sharper or squarer than the registered designs but said the difference was minor. He accepted there was a noticeable ledge or lip around the lens (which he referred to as the "lens housing") which was not shown on the registered designs. The ledge or lip around the lens on the Rubbolite lamps tapered inwards which made it substantially different in appearance when looked at from the side. 105 Many of the features of similarity between the registered designs and the Baxters lights are features that were common in the prior art. For example the rectangular base, the square lenses with rounded corners and edges and a slightly tapering base. 106 There are, to my mind, several important features that lead me to the conclusion that the Baxters lamps are not substantially similar in overall impression to the registered designs. The key features are the prominent cut out pattern on the underside of the designs, which is to be contrasted with the flat closed backs of the Baxters lamps, and the square lenses of the designs having a wide landing between them while the Baxters lights have no landing. Of less significance are the long sides of the frames of the registered designs which have raised edges resulting in a counter-sunk appearance, which is not present on the Baxters lamps. As well, the short sides of the frames of the registered designs are raised at their outer portions and dip down in the central portion, which is not a feature of Baxters' design. 107 Moreover, in my view, it is these features that distinguish the registered designs from the prior art such as to admit of the conclusion that the registered designs are new and distinctive.

Conclusion 108 For the foregoing reasons the application and cross-claim will be dismissed. The applicant should pay 75% of the respondents' costs and the respondents should pay 25% of the applicant's costs. The dual cost orders reflect the fact that each party failed to prove its claims. I should add that I have made a dual costs order as I have assumed that each side's costs are not identical. Had they been, I would simply have ordered that the applicant pay half the respondents' costs. I certify that the preceding one hundred and eight (108) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.