[1992] FCA 584; (1992) 39 FCR 147

Intellectual Property - Circuit Layouts Act 1989-El rights - circuit layout - integrated circuit - integrated circuit in computer games consoles - consoles imported for sale prior to commencement of Act - whether later sales infringed EL rights - secondary infringement - innocent commercial exploitation - remedies.

Statutes - interpretation - no action to lie "in respect of any act" done before commencement of Act - whether importation followed by sale constitutes a single "act" - construction of statutes interfering with proprietary rights.

Appeals - point of law not raised at trial successful on appeal - pleadings inadequately raised issues - costs of trial and appeal.

Circuit Layouts Act 1989 - ss. 7, 8, 16, 19, 20.

American Dairy Queen (Qld) Pty. Ltd. v. Blue Rio Pty. Ltd. [1981] HCA 65; (1981) 147 CLR 677,

National Australia Bank Ltd. v. K.D.S. Construction Services Pty. Ltd. [1987] HCA 65; (1987) 163 CLR 668,

Leigh v. Lillie (1860) 30 LJ Ex 25, considered.

Counsel and Solicitors for Appellants: Mr G. Nash QC with

Mr P. Freckleton instructed

by Xerri Rubinstein and Co.

Counsel and Solicitors for Respondents: Mr R. Macaw QC with

Mr B. Caine instructed by

Purves Clarke Richards

1. The appeal be allowed.

2. Orders 1, 2, 3, 4 and 7 made at first instance be set aside;

in lieu thereof, it be ordered that:

(a) in respect of the claims the subject of orders 1, 2, 3

and 4 made at first instance the application be

dismissed, and

(b) the applicant pay two-thirds of the respondents' costs

at first instance.

3. There be no order as to the costs of the appeal.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

NORTHROP J. This appeal, brought by leave, raises important questions relating to the construction and application of Sections 19 and 20 of the Circuit Layouts Act 1989. That Act, the substantive provisions of which came into operation on 1 October 1990, creates rights in the nature of intellectual property rights and which are described as EL rights. The Act contains many technical expressions, but in essence EL rights are rights conferred on the owner of an original circuit layout which can be described as the drawing of a plan, in a material form, for an integrated circuit, the purpose of which is to perform an electronic function and being a circuit in which the active and passive elements, and any of the interconnections, are integrally formed in or on a piece of material. An integrated circuit is the device made in accordance with a circuit layout. Thus, there is a similarity between the drawings of a plan prepared by an architect for the construction of a building and a circuit layout prepared for the construction of an integrated circuit. The EL rights apply both to the circuit layout and to an integrated circuit made in accordance with the circuit layout. Integrated circuits form part of electronic equipment such as computers and electronic games.

2. The Circuit Layouts Act was amended by sections 40 to 48 of the Law and Justice Legislation Amendment Act 1990. The amendments came into operation on 21 December 1990. Initially reference will be made to the Circuits Layouts Act as amended.

3. Under s17 of the Act, the owner of the EL rights in an eligible layout has the benefit, for a period normally of 10 years, see the definition of "protection period" in s5, of a number of exclusive rights. The section is set out in full:

"17. The owner of the EL rights in an eligible layout has, during

the protection period of the layout, the following exclusive

rights:

(a) to copy the layout, directly or indirectly, in a material

form;

(b) to make an integrated circuit in accordance with the layout

or a copy of the layout;

(c) to exploit the layout commercially in Australia."

4. Each of the rights is important but it is to be observed that (a) refers to the right to copy the layout, (b) refers to the right to make an integrated circuit in accordance with the layout and (c) refers to the right to commercially exploit the layout in Australia. As will appear later, this third right extends to the layout , a copy of the layout and an integrated circuit made in accordance with the layout or a copy of the layout. In this appeal the relevant exclusive right sought to be relied upon is that created by para 17(c).

5. To understand EL rights, it is necessary to refer to a number of definitions contained in s5 of the Act and to a number of other sections of the Act. Only some of these provisions will be referred to immediately namely:

""eligible layout" means an original circuit layout:

(a) the maker of which was, at the time the layout was made, an

eligible person; or

(b) that was first commercially exploited in Australia or in an

eligible foreign country;"

""circuit layout" means a representation, fixed in any material

form, of the three-dimensional location of the active and passive

elements and interconnections making up an integrated circuit;"

""material form", in relation to a circuit layout, includes any

form of storage (whether visible or not) from which the layout, or

a substantial part of it, can be reproduced;"

""integrated circuit" means a circuit, whether in a final form or

an intermediate form, the purpose, or one of the purposes, of

which is to perform an electronic function, being a circuit in

which the active and passive elements, and any of the

interconnections, are integrally formed in or on a piece of

material;"

Under subs 16(1), and subject to that section, the person who makes an eligible layout is the first owner of the EL rights in it. The other EL rights flow from and are dependant upon the original circuit layout.

6. Nintendo Company Ltd (Nintendo) claimed to be the owner, by way of assignment, of EL rights in an eligible layout described as the Nintendo PPU circuit layout or PPU layout. It is not disputed that the maker of the PPU layout was an eligible person under the Circuit Layouts Act. The PPU refers to a peripheral processing unit. Nintendo claimed that an integrated circuit had been made in accordance with that layout. The integrated circuit had been made in the form of a read only memory chip and is described as the 2CO7 chip. The relevant circuit layout, which was made in the year 1985, forms the basis of the EL rights the subject of this appeal. Nintendo claims its EL rights with respect to the circuit layout exist until 31 December 1995. The 2CO7 chip is contained in electronic equipment being electronic video game machines which were available for sale in Australia. Nintendo claimed EL rights in Australia in the PPU layout, the 2CO7 chip being an integrated circuit made in accordance with that layout.

7. Section 19 of the Act specifies conduct which constitutes an infringement of an EL right. The section contains provisions complementary to the provisions specifying the nature of the EL rights referred to in s17. The whole of s19 is set out.

"19. (1) Subject to this Act, the EL right in an eligible

layout, being the right referred to in paragraph 17(a), is

infringed by a person who, during the protection period of the

layout and without the licence of the owner of that right, copies,

or authorises the copying, of the layout in a material form.

(2) Subject to this Act, the EL right in an eligible

layout, being the right referred to in paragraph 17(b), is

infringed by a person who, during the protection period of the

layout and without the licence of the owner of that right, makes,

or authorises the making of, an integrated circuit made in

accordance with the layout.

(3) Subject to this Act, the EL right in an eligible

layout, being the right referred to in paragraph 17(c), is

infringed by a person who, during the protection period of the

layout, without the licence of the owner, commercially exploits,

or authorises the commercial exploitation of, the layout in

Australia if the person knows or ought reasonably to know, that he

or she is not licensed by the owner of that right to do so."

8. It is to be observed that the EL right in a circuit layout is infringed if a person, without the licence of the owner, among other things, sells an integrated circuit made in accordance with the layout in which the owner has the EL rights. An integrated circuit is commonly referred to as a silicon chip since silicon is the material in which the integrated circuit is constructed. Normally an integrated circuit is constructed to perform a particular function. In the Circuit Layouts Act, the words "in accordance with" when used in the phrase "made in accordance with the layout" have been given no defined meaning.

9. Section 13 provides some guidance. For relevant purposes, that section provides that in the Act a reference to an integrated circuit made in accordance with an eligible layout includes a reference to an integrated circuit made in accordance with a substantial part of the layout, see para 13(c). However this provision does not assist in the construction of the words "in accordance with" in relation to the layout or substantial part of the layout.

10. The words "in accordance with" have been considered in many authorities normally in the context of whether a particular document is in accordance with a prescribed form. In the context of the Circuit Layouts Act, the words are to be understood as meaning that the integrated circuit must have been constructed in substantial conformity with the relevant circuit layout. In particular cases, questions of fact might arise as to whether the integrated circuit has been made in accordance with a particular circuit layout. That question does not arise on this appeal, but was an issue at the trial. Normally, the question of fact would be determined by a comparison between the layout circuit and the integrated circuit. A comparison between two competing integrating circuits need not be of any assistance unless it had been established or accepted that one had been made in accordance with a particular circuit layout and the question in issue was whether the other integrated circuit had been made in accordance with the same circuit layout. This would seem to involve an unnecessary complication. The better course would be to compare the relevant circuit layout with the alleged offending integrated circuit. The fact that two integrated circuits perform the same function normally would not establish that each had been made in accordance with the same circuit layout. This can be illustrated by a reference to Autodesk Inc and Anor v Dyason and Others [1992] HCA 2; (1992) 173 CLR 330. There each of the Auto CAD lock and the Auto Key lock contained an integrated circuit within the meaning of the Circuit Layouts Act. Each performed the identical function. Nevertheless, it is clear that each integrated circuit was made in accordance with circuit layouts which were completely different.

11. In the present appeal, the relevant infringement alleged is that referred to in subs 19(3) of the Circuit Layouts Act. This is the complementary provision to the right conferred by para 17(c). In para 17(c) and subs 19(3) reference is made to "commercial exploitation". The meaning to be given to those words is contained in s8 which provides as follows:

"8. (1) For the purposes of this Act, a circuit layout shall

be taken to have been commercially exploited if the layout, a copy

of the layout, or an integrated circuit made in accordance with

the layout (whether or not the integrated circuit is incorporated

in another thing) is:

(a) sold, let for hire or otherwise distributed by way of trade;

(b) offered or exposed for sale or hire, or other distribution

by way of trade; or

(c) imported for the purpose of sale, letting for hire, or other

distribution by way of trade.

(2) For the purposes of this Act, a copy of a circuit

layout or an integrated circuit made in accordance with a circuit

layout shall be taken to have been commercially exploited if it is:

(a) sold, let for hire or otherwise distributed by way of trade;

(b) offered or exposed for sale or hire, or other distribution

by way of trade; or

(c) imported for the purpose of sale, letting for hire, or other

distribution by way of trade."

12. In this appeal, Nintendo alleges that Centronics Systems Pty Ltd (Centronics) commercially exploited the Nintendo PPU layout by importing for the purpose of sale, by offering to sell and by selling, by way of trade, an integrated circuit made in accordance with that PPU layout and which had been incorporated in electronic equipment being electronic video game machines which Centronics had imported and was offering for sale and selling in Australia. Centronics had imported, by way of trade, those video game machines before the Circuit Layouts Act came into operation on 1 October 1990 and thus para 8(1)(c) could have no application. Reference will be made later in these reasons to questions relating to this issue. The Centronics integrated circuit which Nintendo alleged were made in accordance with the Nintendo PPU layout is described as the UMC chip. The UMC refers to United Microelectronics Corporation, the manufacturer of the chip. The UMC chip is described as the UA 6538 chip.

13. It is to be observed that the EL rights and infringements of the EL rights referred to in paras 17(a) and (b) and subs 19(1) and (2) relate to what can be described as a primary infringement where the infringer copies a circuit layout in a material form or makes an integrated circuit in accordance with the circuit layout. The right and infringements referred to in para 17(c) and subs 19(3) relate to what can be described as a secondary infringement where the infringer, without the licence of the owner, commercially exploits the circuit layout in Australia. The commercial exploitation of the layout includes the offering for sale or selling of an integrated circuit made in accordance with a circuit layout in which EL rights exist. It does not matter whether, for this purpose, the integrated circuit is incorporated in another piece of equipment or not. What is important is that in relation to the secondary infringement, in order to succeed, an applicant must prove that the person who is alleged to be the infringer knew, or ought reasonably to have known, that the importation for the purpose of sale, the offering for sale or the selling was being done without the licence of the owner of the EL rights in the circuit layout. By contrast, the question of knowledge is not relevant in so far as primary infringement is concerned.

14. In the present case the infringement alleged relates to the UMC chip which was contained within equipment which had been imported for sale and was being offered for sale and being sold by Centronics where that chip had been made in accordance with the Nintendo PPU layout. It follows that in this case the alleged infringement constitutes a secondary infringement.

15. Section 27 of the Act specifies the remedies by which an owner of an EL right may enforce that right. Subs (1), (2) and (3) are set out:

"27. (1) Subject to this Act, the owner of EL rights may bring

an action for an infringement of those rights.

(2) Subject to this Act, the relief that a court may grant in an

action for infringement of El rights includes an injunction

(subject to such terms, if any, as the court thinks fit) and

either damages or an account of profits.

(3) Where, in an action for an infringement of EL rights, it is

established that an infringement was committed but that, at the

time of the infringement, the defendant was not aware, and had no

reasonable grounds for suspecting, that the act constituting the

infringement was an infringement, the plaintiff is not entitled to

any damages against the defendant in respect of the infringement

but is entitled to an account of profits in respect of the

infringement, whether any other relief is granted or not."

16. It is observed that subs(3) enables a person charged with infringement to raise by way of defence, that at the time of the infringement, the defendant was not aware and had no reasonable grounds for suspecting that the act constituting the infringement was an infringement. If this defence is established the remedies available to the owner of the EL rights are limited to the extent specified. This provision is to be contrasted with the requirements of subs 19(3). Finally on this aspect of the matter it is noted that s47 confers jurisdiction on the Federal Court of Australia with respect to actions brought under s27 of the Act.

17. Centronics was offering for sale and selling electronic equipment known as SPICA Entertainment Units. Each unit comprised a computerized games console, a hand operated gun and a finger operated joy stick with computerized games cartridges. The console contained within it a number of integrated circuits which enabled the electronic games to be played. One of the integrated circuits in the console was the UMC chip. This chip was contained in a plastic seal from which pins protruded to enable the chip to be connected to the mother board within the console. The plastic seal was solid and could not be opened to reveal the chip except by skilled persons. The only markings on the seal indicated that the chip had been made by UMC. There was no indication on the seal to indicate that the chip had been made in accordance with the Nintendo PPU layout; compare s39 of the Circuit Layouts Act.

18. On 1 December 1989, being at a time after the Circuit Layouts Act had been assented to but before it had come into operation, a frantic series of conversations and correspondence occurred. These events included a telephone conversation between an officer of Nintendo and Mr Latin, an officer of Centronics, a facsimile letter from Centronics to Mr Danny Chen, an officer of the company in Taiwan, Keyman Electronics Co Ltd (Keyman) which had supplied the SPICA Entertainment Units to Centronics, a facsimile letter from Keyman to Centronics, a facsimile letter from Centronics to Nintendo and a facsimile letter from the solicitors for Nintendo, namely Messrs Purves Clarke Richards, to Centronics. All these activities occurred on 1 December 1989. Centronics sought advice from its patent attorneys, and on instructions, the patent attorneys wrote to Purves Clarke Richards on 5 December 1989 in relation to the issues raised in the correspondence of 1 December 1989. Essentially, the correspondence related to alleged infringements of copyright and trade marks arising from the proposed importation for sale in Australia by Centronics of the SPICA Entertainment Units from Taiwan. The correspondence made no reference to EL rights. This was not surprising since the Circuit Layouts Act was not yet in operation. Following this activity Centronics imported 1500 SPICA Entertainment Units. Some variations, not relevant for present purposes, may have been made with respect to some of those units particularly with respect to the cartridges, but Centronics continued selling the cartridges until late 1990. After the equipment had been imported, Centronics offered the equipment for sale and sold a number of the units.

19. By letter dated 31 August 1990 Messrs Purves Clarke Richards wrote a letter to Centronics making complaint in relation to a number of matters. The letter referred to the earlier correspondence in respect of the SPICA Entertainment Unit. Essentially, it related to claims based upon alleged infringement of copyright, but it contained the following paragraph:

"After a thorough technical examination, our client has now

established that the PPU in the Spica Unit is a copy of that

contained in the Nintendo Entertainment System. Furthermore, we

reassert that games cartridges sold with the Spica Entertainment

Unit are unlawful copies of games in which our client owns the

copyright."

20. A reading of the letter makes it clear that the main complaint was in relation to breaches of copyright. The reference to "the PPU in the Spica Unit" is a reference to the UMC chip in the console of the SPICA Entertainment Unit, although at the time the letter was written the Circuit Layouts Act had not been proclaimed, was not in force and Nintendo had no EL rights in relation to the layout on which that chip was based. Nevertheless it appears that Centronics referred the latter to its patent attorneys who gave advice to Centronics by letter dated 7 September 1990. Part of the letter was as follows:

"This will confirm our discussions yesterday evening relating to

the letter received from Purves Clarke Richards.

I have responded to that letter on the basis of our discussion and

a copy of my response is attached.

Basically if the PPU chip is purely a digital device, that is it

is not itself a programmed device then, under the normal

construction of Copyright Law, even if the chip was the same and

copied there is doubt that there could be any infringement.

The Australian Parliament passed, in 1989, a Circuits Layout Act

which is arranged to provide protection for particular chip

constructions but to date this Act has not been proclaimed."

The letter referred to in the second of these paragraphs is not in evidence in this case.

21. At the same time, Centronics contacted Mr Danny Chen who confirmed the advice that the UMC chip had been made by UMC and was not a copy of the Nintendo chip.

22. By application to the Federal Court issued on 5 December 1990, Nintendo sought relief against Centronics and three of its officers. The relief sought was based on allegations of infringement of copyright in the computer programs used in connection with the SPICA Entertainment Units (the copyright claims), infringement of trade marks (the trade marks claims) and infringement of its EL rights in the PPU layout. Nintendo sought injunctions and consequential relief. At a directions hearing on 12 December 1990, Centronics and its officers gave undertakings "to keep a record of unit articles and the number of systems sold and the price at which they are sold until the hearing and determination of this matter or until further order."

23. When the application came on for hearing, the parties announced that agreement had been reached with respect to the copyright claims and the trade marks claims and that the hearing would be limited to the claims based upon the EL rights. The question of liability was to be determined as a preliminary issue. In due course, orders, by consent, were made for injunctions restraining Centronics from infringing Nintendo's rights the subject of the copyright claims and the trade marks claims. No consequential orders were made in relation to those injunctions. On 9 December 1991, the Court, in addition to making the consent orders, made the following orders:

"THE COURT ORDERS THAT

1. The respondents and each of them be restrained from -

(a) selling, letting for hire or distributing by way of

trade;

(b) offering or exposing for sale, hire or other

distribution by way of trade; or

(c) importing for the purpose of sale, letting for hire or

other distribution by way of trade; whether as part of

Spica video game consoles or otherwise, PPU chips in

the form of the UMC PPU chip a photographic

representation of the integrated circuit of which is

Exhibit TR-1 herein or otherwise howsoever infringing

the applicant's EL rights in the circuit layout a

photographic representation of which is Exhibit TR-2

herein.

2. The respondents within seven days of the date

hereof -

(a) deliver up to the applicant each of the UMC PPU chips

referred to in paragraph 1 hereof;

(b) make file and serve an affidavit verifying that all

such UMC PPU chips have been delivered up as

aforesaid.

3. There be an inquiry as to damages or at the applicant's

option an account of profits made by the respondents and

each of them by infringement of the applicant's said EL

rights and payment of the sum found due.

4. (a) The respondents within fourteen days of the date

hereof make file and serve an affidavit setting out

details of all sales made of Spica video games units

containing the UMC PPU chip referred to in paragraph 1

hereof;

(b) within fourteen days thereafter, the applicant make

its election referred to in paragraph 3 hereof and

communicate the same to the respondents;

(c) the applicant have liberty to apply thereafter as to

the conduct of the said enquiry or account (as the

case may be)."

24. In addition, the Court ordered that the appellants pay Nintendo's costs.

25. The appellants appealed against the orders numbered 1 to 4 and the order for costs. By their amended notice of appeal, the appellants relied upon a large number of grounds but during the hearing, the appellants by their counsel, abandoned most of those grounds. In the result, the appellants relied upon two grounds of appeal only, namely:

"GROUNDS

1. The learned judge:

(a) erred in law in the interpretation which he placed on

sub-section (3) of section 19 of the Act, and in

particular in the meaning which he attributed to the

clause "if the person knows or ought reasonably to

know that he or she is not licensed by the owner of

that right";

(b) ought to have held that there was no infringement

within section 19(3) of the Act.

2. The learned judge erred in law in the interpretation he

placed on section 20 of the Act, and in particular in the

meaning which he attributed to:

(a) the expression "did not know, and could not reasonably

be expected to have known, that EL rights subsisted in

the layout" in sub-section (1) thereof as originally

enacted;

(b) the expression "becomes aware, or could reasonably be

expected to have become aware, that EL rights subsist

in the layout" in sub-section (2) thereof as

originally enacted;

(c) the expression "did not know, and could not reasonably

be expected to have known, that the circuit was

unauthorised" in sub-section (1) thereof as amended by

the Law and Justice Legislation Amendment Act 1990;

(d) the expression "becomes aware or could reasonably be

expected to have become aware that the integrated

circuit is unauthorised" in sub-section (2) thereof as

amended by the Law and Justice Legislation Amendment

Act 1990."

26. Apart from the bare reference to s20 of the Circuit Layouts Act made at the beginning of these reasons, no reference has been made to the provisions contained in that section. That section, as contained in the original enactment, has been changed by the Law and Justice Legislation Amendment Act 1990 which came into operation on 21 December 1990, i.e. after this action had been commenced on 5 December 1990. In my opinion, on the facts of this case, the effect of the section in both of its forms is the same, but it is necessary to set out the terms of the section in its original form and in its amended form. In each case, s20 appears in Division 3 of Part II of the Act. Division 3 is headed "Acts that are not infringements of EL rights." In its original form, s20 provides as follows:

"20. (1) The EL rights in an eligible layout are not infringed

by a person who commercially exploits, or authorises the

commercial exploitation of, the layout in Australia if, at the

time when the person acquired the layout, the copy of the layout

or the integrated circuit made in accordance with the layout, as

the case may be, the person did not know, and could not reasonably

be expected to have known, that EL rights subsisted in the layout.

(2) Where a person referred to in subsection (1) becomes aware,

or could reasonably be expected to have become aware, that EL

rights subsist in the layout, that subsection ceases to apply to

any subsequent commercial exploitation of the layout, unless the

person pays to the owner or exclusive licensee of those rights

such equitable remuneration as is agreed, or as is determined by a

method agreed, between the person and the owner or exclusive

licensee or, in default of agreement, as is determined by the

Federal Court of Australia on application made by either of them."

Since 21 December 1990, s20 has provided as follows:

"20. (1) The EL rights in an eligible layout are not infringed

by a person who commercially exploits, or authorises the

commercial exploitation of, an unauthorised integrated circuit in

Australia, being a circuit made in accordance with the layout, if,

at the time when the person acquired the circuit, the person did

not know, and could not reasonably be expected to have known, that

the circuit was unauthorised.

(2) Where a person referred to in subsection (1) becomes aware,

or could reasonably be expected to have become aware, that the

integrated circuit is unauthorised, that subsection ceases to

apply to any subsequent commercial exploitation of the circuit,

unless the person pays to the owner or exclusive licensee of the

EL rights in the layout such equitable remuneration as is agreed,

or as is determined by a method agreed, between the person and the

owner or exclusive licensee or, in default of agreement, as is

determined by the Federal Court of Australia on application made

by either of them.

(3) In this section:

"unauthorised", in relation to an integrated circuit made in

accordance with an eligible layout, means made without the licence

of the owner of the EL rights in the layout."

27. At the trial of this proceeding, a major issue was whether the UMC chip had been made in accordance with the Nintendo PPU layout or a substantial part of that layout. Much evidence was directed to that issue. On the appeal, this issue did not arise and for the purpose of the appeal, it is accepted that the UMC chip used in the SPICA Entertainment Unit console had been made in accordance with the Nintendo PPU circuit layout or a substantial part of that layout. Further, the pleadings make it clear that the appellants admitted that at all relevant times Nintendo was the owner of the EL rights in the PPU circuit layout. Nintendo alleged that Centronics commercially exploited the PPU layout in Australia by importing and selling in Australia the SPICA Entertainment Unit console which contained an integrated circuit (the UMC chip) which had been made in accordance with the PPU layout. The appellants admitted they had imported the consoles and that the consoles contained the UMC chip, but denied that the UMC chip had been made in accordance with the Nintendo PPU layout or a substantial part of that layout. Nintendo alleged that Centronics imported and sold the consoles in circumstances where it knew, or ought reasonably to have known, that it was not licensed by Nintendo to do so. To this allegation, the appellants pleaded that they admitted Centronics had no licence but said "they believe and at all relevant times have believed that the circuit layout for the Spica PPU was independently created by UMC in Taiwan and that (Nintendo) has and had no rights of any kind regarding it."

28. This pleading seems to have been taken as a plea that the UMC chip had not been made in accordance with the Nintendo PPU layout or a substantial part of that layout. Thus, the trial proceeded on the basis that the appellants knew that Nintendo had EL rights in the PPU circuit layout, that Centronics had no licence from Nintendo to commercially exploit an integrated circuit made in accordance with the PPU layout but that the UMC chip was not made in accordance with the PPU layout. In addition the appellants pleaded defences based upon sections 20 and 23 of the Circuit Layouts Act. On the appeal, the defence based on s23 was abandoned.

29. On the evidence before him, the learned trial judge found that the UMC chip was made in accordance with the Nintendo PPU layout or a substantial part of that layout. His Honour did not make any express finding that on the evidence he was satisfied that Nintendo had proved that Centronics had imported, offered for sale or sold the UMC chips in circumstances where it "knows or ought reasonably to know" that it was not licensed by Nintendo to do so. After an analysis of the evidence, his Honour said:

"In its final written submissions (Nintendo) reviewed those

similarities and the differences relied upon by the respondents

and contended that the Spica layout was made in accordance with

the whole of the Nintendo layout but quite plainly was made in

accordance with a substantial part of it. I accept these

submissions and, as I have already indicated, I believe that the

differences identified by the respondents were insignificant. If

no more appeared, (Nintendo) would have made out its case."

30. His Honour then turned to consider the defences based upon s20 and s23 of the Act. He rejected the defence based upon s23. In considering s20, his Honour referred to the letter dated 31 August 1990 from Purves Clarke Richards to Centronics, the relevant part of which has been set out earlier in these reasons, and said with respect to the Nintendo PPU layout:

"Those proprietary rights have now been admitted. Centronics has

always known that it was not licensed by Nintendo. In my

opinion, it could reasonably be expected to have known that the

circuit was unauthorised from the date on which the Act came into

operation, 1 October 1990.

I am satisfied that (Nintendo's) EL rights in the Nintendo PPU, an

eligible layout, have been infringed by Centronics, and that (the

appellants) have caused or permitted that infringement."

His Honour then rejected the defence based upon s20 of the Act. He referred to s27 and rejected the limitation imposed by subs 27(3).

31. On one view, it may be said that it was not until 9 December 1991, being the date of the judgment appealed from, that Centronics first knew that the UMC chip was made in accordance with the PPU layout. The first question raised by the appeal, namely the construction and application of s19 of the Circuit Layouts Act, must be decided on the facts that at all material times Nintendo was the owner of EL rights in the PPU layout, that Centronics imported consoles containing the UMC chip and commenced selling the consoles at a time before these EL rights came into existence but continued to sell those consoles after 1 October 1990, and that at all material times Centronics knew it did not have the licence of Nintendo to sell integrated circuits made in accordance with the PPU layout.

32. Earlier in these reasons, the infringement of EL rights coming within para 17(c) and subs 19(3) of the Circuit Layouts Act was described as a secondary infringement. The policy of the Act appears to be that the owner of EL rights has absolute rights of enforcement against a person who, by conduct described in subs 19(1) and (2), infringes those rights conferred by paras 17(a) and 17(b), but those absolute rights should not apply with respect to an infringement under subs 19(3). In the latter case, if the secondary infringer did not know or reasonably could not be expected to know, that he or she was not licensed by the owner of the EL right to commercially exploit the layout in Australia, the owner cannot enforce those rights.

33. On a literal application of subs 19(3), the apparent limitation on the absolute right of the owner of EL rights becomes illusory. This can be illustrated by reference to the importation, for the purpose of sale, of electronic equipment which contains within it an integrated circuit made in accordance with a circuit layout in which a person "A" has EL rights. The importer "X" imports the electronic equipment from a person "B". X knows of the existence of the integrated circuit within the electronic equipment. The integrated circuit is marked with the mark or name of B. It is not marked with the mark or name of A. X does not know that A has EL rights in the integrated circuit. Logically, and of necessity, in those circumstances X must know that he or she is not licensed by A to import the electronic equipment. Thus, if A, in an action against X, proved the existence of the EL rights, a case may have been established under subs 19(3). This could depend upon the form of the pleadings and involve a consideration of the rules of construction of a statute discussed by Mason C.J. and Wilson J in Cooper Brooks (Wollongong) Pty Ltd v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 at pages 319 - 321.

34. In essence, this is what happened in this case. Centronics admitted that Nintendo had EL rights in the PPU circuit layout. It admitted the SPICA Entertainment Unit console had within it the UMC chip. That chip was marked as having been manufactured by UMC. Centronics admitted it had no licence from Nintendo to import or sell equipment containing an integrated chip made in accordance with the Nintendo PPU layout. Of necessity, that admission had to be made. The substantial issue at the trial was whether the UMC chip was made in accordance with the Nintendo PPU circuit or a substantial part of that circuit. On the finding that it was so made, it appears that, on the pleadings, Nintendo had established its case under subs 19(3). On the appeal, counsel for Nintendo contended that this construction and application was correct.

35. The Circuit Layouts Act contains provisions relating to exclusive licences; see the definition of "exclusive licence" contained in s5 and the provisions contained in Division 3 of Part III. None of those provisions are applicable to the facts of this case. Section 45 provides that EL rights are personal property. At the very least, if an importer acquires from an exporter who has EL rights in a circuit layout, electronic equipment containing an integrated circuit made in accordance with that layout, for the purpose of sale, that importer would have an implied licence from the owner of the EL right in that circuit to import, to sell and to offer to sell the integrated circuit. The licence need not be exclusive. It need not be in writing.

36. Counsel for the appellants contended that if subs 19(3) of the Circuit Layouts Act was applied literally, any protection given to an innocent secondary infringer would be nugatory and meaningless. He contended that EL rights were analogous to copyright. In each case, no system of registration of rights was required. For practical purposes, it is impossible for a person commercially exploiting literary or other types of works subject to copyright to know whether any particular work is subject to copyright. Likewise, for practical purposes, it is impossible for a person commercially exploiting electronic equipment to know if the sale of that equipment involves an infringement of EL rights in an integrated circuit contained in the electronic equipment. Counsel referred to the Copyright Act 1968 and in particular to sections 36, 37 and 38. Sections 37 and 38 relate to what can be described as a secondary infringement. Under these provisions, the copyright is infringed by a person who, without the licence of the owner imports into Australia or sells within Australia an article "where to his knowledge the making of the article if made in Australia would have constituted an infringement of copyright". The knowledge, whether actual or constructive, is to the existence of the copyright, not the licence. Counsel referred to a number of authorities which discussed the concept of knowledge in relation to copyright and contended that subs 19(3) of the Circuit Layouts Act should be construed in the same way by examining whether the alleged secondary infringer had knowledge, actual or constructive, that the person claiming EL rights had those rights.

37. In my opinion, on the facts and pleadings in this case it is not necessary for me to express any final opinion on this submission. For present purposes I am prepared to accept that the clear words of subs 19(3) of the Circuit Layouts Act do not allow this construction. This acceptance is supported by the provisions of subs 20(1) which prevent an infringement occurring in circumstances discussed later in these reasons.

38. On the material before the Court, it seems clear that Centronics did not infringe any EL rights of Nintendo when it imported the SPICA Entertainment Units in December 1989. After the Circuit Layouts Act came into operation on 1 October 1990 and until 5 December 1990, when the application was issued, Centronics continued offering for sale and selling the SPICA Entertainment Unit console. To that extent it was engaging in conduct described in paras 8(1)(a) and (b) of the Act with respect to SPICA Entertainment Unit consoles containing the UMC chip. Since then it has continued to sell the consoles but subject to the undertaking given on 12 December 1991. That undertaking extended to matters beyond circuit layouts namely to the copyright and trade marks claims.

39. It remains to consider whether Centronics has established a defence under s20 of the Circuit Layouts Act. Division 3 of Part II of the Act is headed "Acts that are not infringements of EL rights." Division 3 comprises sections 20 to 25 inclusive. At the trial, Centronics relied upon sections 20 and 23. By way of interest, a Full Court of the Federal Court has considered the defence referred to in s24; see Avel Pty Ltd and Others v Wells [1992] FCA 308; (1992) 108 ALR 97. Section 24 is based upon what is often described as parallel importing. At pages 100 to 103 the Court gives a very helpful explanation of the background to the passing of the Circuit Layouts Act. The trial Judge found against the appellants on each defence under s23 and s20. The appellants now appeal only against the finding of no defence under s20. The defence arises only if pleaded and the onus of proof appears to be on a defendant raising the defence.

40. In considering the defence raised by the appellants and based upon s20 of the Circuit Layouts Act the learned trial Judge referred to the section in its current form. No reference was made to s20 in its form as at 5 December 1990 when the application was issued. This matter was referred to during the course of the hearing of the appeal but, on reflection, it appears that on the facts of this case both forms of s20 had the same effect. Nevertheless, it should be noted that the trial Judge made no finding that at the time when Centronics acquired the UMC chips, namely December 1989, the Circuit Layouts Act had not come into operation. Thus on the application of subs 20(1) no infringement could have arisen in relation to the importation of the consoles.

41. Section 20, as originally enacted, has been set out earlier in these reasons. In its then form it was complementary to the three types of EL rights created by s17 and applied to each form of infringement referred to in subs 19(3). In its then form it overcame the problems, or rather the implicit problems, referred to earlier in these reasons in relation to the operation of subs 19(3). Even though an applicant could establish an infringement in relation to any of the three groups of EL rights infringed by conduct referred to in subs 19(3), subs 20(1) enabled a respondent to prove a defence to the infringement. A reference to the then form of subs 20(1) makes this clear. The amendments made to come into effect on 21 December 1990 limited the defences that could be raised to those cases where the infringement related to integrated circuits only. The defence no longer applied to the other forms of infringements implicit in subs 19(3). The amendment, therefore, highlights the apparent differences which still arise from the form of subs 19(3). Possibly, the amendment was made to bring the Circuit Layouts Act into conformity with Article 6 and in particular with paragraphs (1)(a)(i) and (ii) and (4) of Article 6 of the Treaty on Intellectual Property in Respect of Integrated Circuits of 26 May 1989. Those paragraphs are set out:

"(1)(a) Any Contracting Party shall consider unlawful the

following acts if performed without the authorization of the

holder of the right:

(i) the act of reproducing, whether by incorporation in an

integrated circuit or otherwise, a protected layout-

design (topography) in its entirety or any part

thereof, except the act of reproducing any part that

does not comply with the requirement of originality

referred to in Article 3(2),

(ii) the act of importing, selling or otherwise

distributing for commercial purposes a protected

layout-design (topography) or an integrated circuit in

which a protected layout-design (topography) is

incorporated. ...

(4) Notwithstanding paragraph (1)(a)(ii), no Contracting Party

shall be obliged to consider unlawful the performance of any

of the acts referred to in that paragraph in respect of an

integrated circuit incorporating an unlawfully reproduced

layout-design (topography) where the person performing or

ordering such acts did not know and had no reasonable ground

to know, when acquiring the said integrated circuit, that it

incorporates an unlawfully reproduced layout-design

42. Extracting from subs 20(1) of the Circuit Layouts Act those parts which related to integrated circuits, the subsection, as originally enacted provided, as follows:

"... The EL rights in an eligible layout are not infringed by a

person who commercially exploits ... the layout in Australia if,

at the time when the person acquired ... the integrated circuit

made in accordance with the layout ... the person did not know,

and could not reasonably be expected to have known, that EL rights

subsisted in the layout."

43. The defence essentially related to knowledge either actual or constructive of the existence of EL rights in the integrated circuit, not to any question of licence.

44. Subs 20(1) in its amended form has the same effect. Subs 20(3) gives a definition of "unauthorized" in relation to an integrated circuit made in accordance with an eligible layout. In that context, "unauthorized" means that the integrated circuit was made without the licence of the owner of the EL rights in the layout. The word "unauthorized" is used twice in subs 20(1) in relation to an integrated circuit made in accordance with an eligible layout. When first used in subs 20(1) the draughtsman appears not to have placed sufficient reliance on the definition and has, from a sense of security, inserted additional words. Where first used in subs 20(1) the words "unauthorized integrated circuit" of necessity are used in relation to an integrated circuit made in accordance with an eligible layout and made without the licence of the owner of the EL rights in the layout. The draughtsman, however, then inserts the words "being a circuit made in accordance with the layout." These latter words appear to be superfluous but this does not alter the meaning of the subsection. The construction of subs 20(1), as now in operation, is that the EL rights in an eligible layout are not infringed by a person who commercially exploits an unauthorized integrated circuit in Australia, if at the time when the person acquired the integrated circuit, the person did not know and could not reasonably be expected to have known that the circuit was unauthorized. This construction is identical with the construction of the relevant parts of subs 20(1) in its unamended form. It follows, therefore, that the fact that the trial Judge did not refer to the section in its unamended form does not invalidate his reasons.

45. On any view of the evidence it is clear that on the facts of this case, subs 20(1) of the Circuit Layouts Act had the effect that Centronics did not infringe the EL rights of Nintendo in the Nintendo PPU layout by importing or acquiring the SPICA Entertainment Unit consoles in December 1989 even though those consoles contained within them the UMC chip which was made in accordance with the PPU layout. In these circumstances Centronics could not know or have reasonably been expected to have known of the existence of non-existing rights. The trial Judge did not make that finding.

46. In order to understand the nature of this appeal in so far as it relates to the defence based upon s20 of the Circuit Layouts Act, it is necessary to note the defence raised, the orders made and the reasons given for the making of the orders. From what appears earlier in these reasons, Nintendo established its claim that the UMC chip was an integrated circuit made in accordance with its layout. It proved facts which established an infringement based on subs 19(3). That, however, is not the end of the action. Sub-section 20(1) creates a defence that denies that apparent infringement. Centronics, by its defence raised that defence. The defence so raised was:

"30.4 Further, or in the alternative, they say that if the Spica

PPU contained an integrated circuit made without the licence

of the Applicant as owner of the EL rights in the layout

(which is specifically denied) then at the time when they

acquired the circuit they did not know and could not

reasonably be expected to have known that the circuit was

unauthorised and therefore there has been no infringement by

them as provided for in section 20 of the Circuit Layouts

Act (Clth) 1989."

47. That defence is based upon subs 20(1) of the Act. The defence does not make clear whether the sub-section was in its original form or its amended form, but, for reasons already given, that makes no difference. What is important is that on the facts which are not and cannot be disputed, that defence was made out. Thus on the pleadings, the application should have been dismissed irrespective of whether there was an infringement under subs 19(3).

48. It is important to note that Nintendo make no reply to the defence based upon subs 20(1) of the Circuit Layouts Act. In particular, Nintendo did not, by a pleading in the form of a reply, raise facts to support what can be described as a confession and avoidance based upon subs 20(2). Thus, it could have been expected that Nintendo, if it desired to rely upon a secondary line of attack, would, by reply, have pleaded facts to establish that subsequent to Centronics acquiring the UMC chip, it had become aware or could reasonably be expected to have become aware that the UMC chip was unauthorized within the meaning of subs 20(2). Thus an issue would have been raised and the Court and the parties would have been able to determine that issue on the facts alleged and proved. None of this was done.

49. In his reasons for judgment, the learned trial Judge said:

"The respondents (Centronics) also sought to rely on s.20 of the

Act. They submitted that Centronics did not know or could not

reasonably be expected to have known that the UMC PPU was

unauthorised at the time when it acquired the circuit (s.20(1));

and that it had not become aware or could reasonably be expected

to have become aware at any later time that the circuit was

unauthorised (s.20(2))."

50. It is noted that the last part of that paragraph had not been raised by the pleadings. In any event, the shifting onus of proof on that issue should have been on Nintendo, if it had raised the matter.

51. His Honour then set out s20 in its amended form and said:

"As the applicant (Nintendo) correctly submitted, Centronics knew

from shortly after 31 August 1990 that Nintendo claimed

proprietary rights in the PPU layout, when it received the letter

from the applicant's solicitors, bearing that date, which read as

follows:"

52. His Honour then set out the letter from Purves Clarke Richards to Centronics dated 31 August 1992, the relevant part of which has been set out earlier in these reasons. In any event, this was at a time after the SPICA Entertainment Unit consoles had been acquired by Centronics and before the time the Circuit Layouts Act had come into operation. His Honour then continued:

"Those proprietary rights have now been admitted. Centronics has

always known that it was not licensed by Nintendo. In my opinion,

it could reasonably be expected to have known that the circuit was

unauthorised from the date on which the Act came into operation, 1

October 1990.

I am satisfied that (Nintendo's) EL rights in the Nintendo PPU, an

eligible layout, have been infringed by Centronics, and that (the

appellants) have caused or permitted that infringement.

Section 20 is concerned with the state of mind of a respondent in

relation to the question whether a circuit was unauthorised.

Section 27 deals with a respondent's state of mind in relation to

the question whether it was aware or had no reasonable grounds for

suspecting that the act constituting the infringement was an

infringement."

53. His Honour then set out s27, which has been referred to earlier in these reasons and which contains provisions relating to a limitation on the nature of relief that can be obtained by a successful applicant. It has no bearing on a defence based upon subs 20(1). His Honour then said:

"In my opinion Centronics had reasonable grounds for suspecting

that it had infringed the applicant's rights from the date of its

receipt of the letter of 31 August 1990. These grounds and this

suspicion must have been strengthened by the issue of proceedings.

Nintendo has received no payment or offer of payment.

Centronics purported to rely on assurances from Keyman conveyed to

it by Danny Chen, of that company, in support of its general

contention that it was not in breach of the Act. The worth of any

such assurances must have been seen to be very slight when

Centronics received the letter from Keyman dated 1 December 1989,"

54. The letter is then set out. It is one of the letters referred to earlier in these reasons as constituting "a frantic series of conversations and correspondence" written in December 1989. His Honour referred to one paragraph of that letter relating to a copyright claim which indicated that Danny Chen did not have a high standard of business morality. That fact is not relevant to the defence based upon subs 20(1) since that defence is based on the fact that the EL rights did not exist at the time Centronics acquired the UMC chips. His Honour then said "I make the following orders" and set out orders 1 to 4 inclusive, the consent orders, and the order for costs.

55. These lengthy extracts have been set out to establish that, because of the lack of proper pleadings, the real issue between the parties was not identified at the trial of this action. The defence based on subs 20(1) the Circuit Layouts Act should have succeeded. No issues were raised by the pleadings involving subs 20(2). The confusion continued as is apparent from ground 2 of the grounds of appeal relied upon by Centronics. Grounds 2(b) and 2(c) relate to subs 20(2). Grounds 2(a) and 2(d), although not clearly expressed, are sufficient to raise as a ground of appeal issues based on the defence pleaded under subs 20(1). That ground has been made out. Accordingly, Centronics has established its defence and the appeal should be allowed.

56. Before concluding this part of the reasons, some further comments are made. These days it is unusual for pleadings to extend beyond a formal reply. This appeal illustrates that in some cases it is necessary for further pleadings to be had in order to define the issues between the parties. Order 11 of the Federal Court Rules provides for the conduct of pleadings. A pleading should contain a statement, in a summary form, of the material facts on which the party relies; r2. Rule 10 of O11 is set out:

"10. In a pleading subsequent to a statement of claim a party

shall plead specifically any matter of fact or point of law (for

example, performance, release, any relevant statute of limitation,

fraud or any fact showing illegality) that:

(a) he alleges makes a claim or defence of the opposite party

not maintainable;

(b) if not specifically pleaded might take the other party by

surprise; or

(c) raises issues of fact not arising out of the preceding

pleading."

57. In the present case, upon the defence of Centronics based on subs 20(1) of the Circuit Layouts Act being delivered, Nintendo, in conformity with r10(a), should have pleaded facts based upon subs 20(2) which would have made the defence not maintainable. If that had been done, Centronics possibly could have pleaded facts raising the issue that if the reply succeeded, Centronics should have the benefit of the compulsory licence created by that sub-section. The wording of subs 20(2) is unusual. That sub-section has been set out earlier. The opening words contain provisions which, if established by evidence, would make the defence based upon subs 20(1) not maintainable. The second part of the sub-section commencing with the word "unless" does give rise to difficult questions of construction. The meaning to be given to the word "unless" in its context in subs 20(2) is not easy. The relevant meanings given to "unless" in the Shorter Oxford English dictionary are "Except if ... not"; "Except but". In the Macquarie Dictionary the following relevant meanings are given; "except on condition that; except if it be, or even, that; except when,".

58. Subs-section 20(2) takes away the defence of "innocent acquisition" created by subs 20(1) from the time an infringer "becomes aware, or could reasonably be expected to have become aware, that the integrated circuit is unauthorized." From that time, the defence created by subs 20(1) "ceases to apply to any subsequent commercial exploitation of the circuit, unless". This does not mean that subsequent commercial exploitation of unauthorized integrated circuits innocently acquired constitutes an infringement. The sub-section then creates a licence in favour of the person who has commercially exploited or is commercially exploiting the integrated circuit, to continue to commercially exploit but to pay to the owner of the EL rights a fee, described as equitable remuneration, the amount of which is determined in accordance with the provisions of the sub-section. In this context, the word "unless" is to be construed as meaning "except on condition that." This conclusion is supported by the opinion expressed in Leigh v Lillie (1860) 30 LJ Ex 25. In that case, a lessee's covenant not to do a thing "unless" he makes a stipulated payment gave him permission to do the thing on making the payment. The facts of that case were rather complex and the matter involved a pleading issue. It is helpful to set out what Pollock C.B. said at pages 27-28:

"But it appears to me that although the party covenants that he

will not do this, yet the covenant is under certain conditions;

that is the only way in which one can read it sensibly - he

covenants he will not do it unless he pays an increased rent of

10l. per ton. If it is a covenant not to do that unless so and so

be done, then it would be a permission to do it, if the matter

contained in the stipulation was performed. The effect of this

covenant, therefore, is, that though it is absolute that the

lessee shall not do these acts, yet from the expression "under an

increased rent," it is as if a man were to put up in his shop "You

are not permitted to take away these goods under a certain price;

if you pay that price, you may have them." So it appears to me

here, that the defendant is quite right and justified in doing

what is complained of, provided he pays the increased rent."

59. In that case, as in s20(2) of the Circuit Layouts Act the word "unless" is to be construed as "except on condition that; except but", meanings given in the dictionary. This construction is logical. To this extent, s20 constitutes a code. Thus, where a defence under s20(1) is successful, all integrated circuits so acquired are freed from the danger of orders being made under s27 with respect to infringements made after the alleged infringer became aware or could reasonably be expected to have become aware, that the integrated circuits were unauthorized as defined. The alleged infringer has a compulsory licence to commercially exploit those integrated circuits but must pay a fee for that privilege.

60. If in this case the matter had been pleaded according to the requirements of the Rules, a reply by Nintendo would have pleaded facts giving rise to the application of subs 20(2). By way of rejoinder Centronics would have joined issue on the knowledge point, presumably saying it was not aware and could not reasonably be expected to be aware that the UMC chip was unauthorized, and, more particularly, claim that it was licensed to continue to exploit commercially the UMC chips which it had acquired innocently upon payment of an equitable remuneration. If this had been done, the basis would have been established to enable the Court to determine, in the absence of agreement by the parties, the amount of the remuneration. That fee would have been paid with respect to each integrated circuit exploited after the time that Centronics had become aware or could reasonably be expected to have become aware that the UMC chips were unauthorized. This could apply with respect to past sales as well as to future sales. At the same time Centronics would have been free to contest the claim that the UMC chips were unauthorized without the danger, if unsuccessful, of orders being made by s27. In other words, the EL rights can no longer be enforced by an action for infringement.

61. Centronics must succeed on its defence based upon subs 20(1) of the Circuit Layouts Act. There is no evidence to suggest that Centronics was threatening to import other unauthorized circuits. Nintendo has shown no basis for an injunction being granted.

62. Accordingly, orders numbered 1, 2, 3 and 4 of the orders made on 9 December 1991 should be set aside.

63. Before turning to consider what further orders should be made, one further matter should be mentioned. Section 7 of the Circuit Layouts Act provides:

"7. This Act applies in relation to a circuit layout, whether

made before or after the commencement of Part II, but an action

does not lie under Part III in respect of any act done before that

commencement in relation to the layout, a copy of the layout, or

an integrated circuit made in accordance with the layout."

64. During the hearing of the appeal, the Court drew attention to this section. Centronics did not seek leave to amend its grounds of appeal to rely on this section. The section was not relied upon as a defence at the trial. There are very strong arguments to support the view that on the facts of this case, s7 prevents the Act from applying to any form of commercial exploitation of integrated circuits acquired before the Act came into operation. Counsel for Nintendo opposed the determination of the appeal on this ground. Subsequently, pursuant to leave, counsel submitted written reasons why leave should not be granted to include this as a ground of appeal and, if granted, the ground should not be upheld. Having come to the view that the appeal should be allowed, it is not necessary to express any concluded opinions on the effect of s7 on the facts of this case. In any event, it would appear that, on the facts of this case, Nintendo could not succeed in an action under Part III in respect of the commercial exploitation of the UMC chip by Centronics, since a defence under subs 20(1) would succeed thereby bringing subs 20(2) into operation.

65. There are many unsatisfactory features of this appeal. Matters not raised at the hearing were discussed on the appeal. It is apparent that the issues remaining between the parties involve very little in monetary terms. The substantial issue at the trial, whether the UMC chip was made in accordance with the Nintendo circuit layout, was not raised on the appeal. In the circumstances it is not appropriate to direct that there be a new trial since the pleadings do not raise the real issues between the parties. In all the circumstances I would, apart from the consent orders being orders 5 and 6, set aside the orders 1, 2, 3 and 4 made on 9 December 1991. In lieu thereof I would order that the application otherwise be dismissed.

66. I would allow the appeal with costs. The question of the costs of the trial gives rise to some difficulty. On the facts found, apart from the consent orders 5 and 6, the application had to fail. Nintendo won on its claim under s19(3) of the Circuit Layouts Act, but in the event, should have lost the case. In all the circumstances I would set aside the order for costs and in lieu thereof order that the respondents to the application pay the applicant's costs up to and including the first day of the trial and that the applicant pay the respondents' costs of and from the second day of the trial.

BEAUMONT AND BURCHETT JJ. This is an appeal from orders made by a Judge of the Court under the Circuit Layouts Act 1989 ("the Act") enjoining the appellants from infringing eligible layout (EL) rights of the respondent under the Act by "commercially exploiting" those rights within the meaning of the Act. The case is now reported: see [1991] FCA 609; (1991) 23 IPR 119.

2. The learned primary Judge dealt in the first place with the question of liability and, if liability were established, the further question whether an injunction should go, deferring the issue of an inquiry as to damages or, at the election of the respondent, an account of profits. Since his Honour's decision was necessarily interlocutory, leave to appeal was required. We granted leave.

3. The main questions on the appeal are concerned with the interpretation of the Act and, in particular, ss.19 and 20 and their possible application in the circumstances of the case.

4. In order to understand the issues arising on the appeal, it is first necessary to refer to the background and history of the legislation and to its presently relevant terms.

THE CIRCUIT LAYOUTS ACT

5. The Act was assented to on 22 May 1989. The date of the commencement of its substantive provisions was 1 October 1990. The Act was amended, in relevant respects, on 21 December 1990.

6. The background to the Act was described by Sheppard, Lee and Hill JJ. in Avel Pty. Ltd. v Wells [1992] FCA 308; (1992) 23 IPR 353 (at 357) as follows:

"The Circuits Layout Bill 1988 was introduced into Parliament on 3

November 1988 in anticipation of the holding of a diplomatic

conference in Washington held in May 1989 which adopted, on 26 May

1989, the Treaty on Intellectual Property in respect of Integrated

Circuits drafted by the World Intellectual Property Organisation.

That treaty bound contracting States to secure intellectual

property protection throughout their territory in respect of

'layout-designs (topographies)'. Australia has not yet signed

the Treaty.

The commercial background to the adoption of the Layout Act is to

be found in the Second Reading Speech of the then

Attorney-General, the Honourable Mr Lionel Bowen, to the Copyright

Amendment Bill 1988 which was introduced at the same time

(Hansard, 3 November 1988 p 2393). The Attorney-General noted

that the Australian computer chip industry was small but

nevertheless important and growing. Australian computer chips

were used in a number of items including bionic ears, heart

pacemakers and the conversion of sunlight to power. Australian

specialised computer chips had found valuable overseas markets.

On the other hand, Australia imported most of its chips, either

inside consumer products or for installation in products actually

made in Australia.

The different commercial interests of Australia are reflected in

the two strands of thought which run through the legislation. The

first gives what the Attorney-General (Hansard at 2399) referred

to as 'sui generis, copyright-style, protection'. That

protection ensures (sic) for a period of ten years after the

calendar year in which the circuit layout was first commercially

exploited, but if that commercial exploitation does not take place

within ten calendar years after the calendar year in which the

layout was made, the protection comes to an end at the end of the

period of ten calendar years after the calendar year in which the

layout was made: see definition of 'protection period' in s.5.

As the Attorney-General observed in the Second Reading Speech, a

consequence of reforms both to the copyright law and the design

law, following upon the Designs Law Review Committee Report of

1973, was that neither copyright law nor design law provided

suitable protection to designers of computer chips. There was a

necessity, therefore, for the question of appropriate protection

to be separately addressed. This protection is granted in the Act

to the owner of the 'EL rights'."

7. The long title of the Act is: "An Act to provide for the protection of certain layouts for integrated circuits, and for related purposes."

8. Part I (ss.1-15) of the Act deals with "Preliminary" matters, Part II (ss.16-25) with EL rights, Part III (ss.26-41) with "Remedies for Infringement of EL Rights" and Part IV (ss.42-49) with "Miscellaneous" matters.

(a) Application to circuit layouts made before commencement

9. By s.7 (in Part I of the Act), it is provided that the Act applies in relation to a "circuit layout", whether made before or after the commencement of Part II (1 October 1990), but an action does not lie under Part III in respect of any act done before that commencement in relation to the layout, a copy of the layout, or an integrated circuit made in accordance with the layout.

10. By s.16(1) (in Part II), the person who makes an eligible layout is the first owner of the EL rights in it.

11. By s.5, the interpretation provision, an "eligible layout" means an original circuit layout:

(a) the maker of which was, at the time the layout was made, an

eligible person; or

(b) that was first commercially exploited in Australia or in an

eligible foreign country.

12. Section 11, without otherwise limiting the meaning of the word "original", provides that a circuit layout shall be taken not to be original if: (a) its making involved no creative contribution by the maker; or (b) it was commonplace at the time it was made.

13. By s.5, "eligible person" means, broadly speaking: (a) an Australian citizen or resident, or a body incorporated in this country; or (b) a citizen, national, resident or a body corporate of an eligible foreign country. By s.5, an "eligible foreign country" means a foreign country so declared by regulation. For instance, Japan has been so declared but Taiwan has not. The significance of this will be explained later.

14. By s.8(1), a circuit layout shall be taken to have been "commercially exploited" if the layout, a copy of the layout, or an integrated circuit made in accordance with the layout (whether or not the integrated circuit is incorporated in another thing) is: (a) sold, let for hire or otherwise distributed by way of trade; (b) offered or exposed for sale or hire, or other distribution by way of trade; or (c) imported for the purpose of sale, letting for hire, or other distribution by way of trade. By s.8(2), a similar definition is given for the commercial exploitation of a copy of a circuit layout or of an integrated circuit made in accordance with a circuit layout.

15. By s.5, "integrated circuit" means a circuit, whether in a final or an intermediate form, the purpose, or one of the purposes of which is to perform an electronic function, being a circuit in which the active and passive elements, and any of the interconnections, are integrally formed in or on a piece of material.

16. By s.5, a "circuit layout" was defined to mean a plan comprising a two-dimensional representation, fixed in any material form, of the three-dimensional location of the active and passive elements and interconnections making up an integrated circuit. (By Act No. 115 of 1990, which relevantly commenced on 21 December 1990, this definition was amended by omitting the words "plan comprising a two-dimensional".)

17. By s.16(2), where a layout is made by a person under the terms of his or her employment by another person under a contract of service, that other person shall be taken to be the maker of the layout.

18. By s.17, the owner of the EL rights has, during the layout's protection period of ten years (as provided in s.5), the following exclusive rights: (a) to copy the layout, directly or indirectly, in a material form; (b) to make an integrated circuit in accordance with the layout or a copy of the layout; (c) to exploit the layout commercially in Australia.

19. (By s.9, the exclusive right to do a relevant act includes the exclusive right to authorise a person to do that act.)

20. Section 19 is, importantly, as follows:

"19. (1) Subject to this Act, the EL right in an eligible

layout, being the right referred to in paragraph 17(a), is

infringed by a person who, during the protection period of

the layout and without the licence of the owner of that

right, copies, or authorises the copying, of the layout in a

material form.

(2) Subject to this Act, the EL right in an eligible

layout, being the right referred to in paragraph 17(b), is

infringed by a person who, during the protection period of

the layout and without the licence of the owner of that

right, makes, or authorises the making of, an integrated

circuit made in accordance with the layout.

(3) Subject to this Act, the EL right in an eligible

layout, being the right referred to in paragraph 17(c), is

infringed by a person who, during the protection period of

the layout, without the licence of the owner, commercially

exploits, or authorises the commercial exploitation of, the

layout in Australia if the person knows or ought reasonably

to know, that he or she is not licensed by the owner of that

right to do so." (Emphasis added)

(By s.13 of the Act, it is provided as follows:

"In this Act:

(a) a reference to doing an act (other than making) in

relation to an eligible layout includes a

reference to doing that act in relation to a

substantial part of the layout;

(b) a reference to a copy of an eligible layout includes a

reference to a copy of a substantial part of the

layout; and

(c) a reference to an integrated circuit made in

accordance with an eligible layout includes a

reference to an integrated circuit made in accordance

with a substantial part of the layout.")

21. By s.20, which is also important, it was originally provided:

"20. (1) The EL rights in an eligible layout are not

infringed by a person who commercially exploits, or

authorises the commercial exploitation of, the layout in

Australia if, at the time when the person acquired the

layout, the copy of the layout or the integrated circuit

made in accordance with the layout, as the case may be, the

person did not know and could not reasonably be expected to

have known, that EL rights subsisted in the layout.

(Emphasis added)

(2) Where a person referred to in subsection (1) becomes

aware, or could reasonably be expected to have become aware,

that EL rights subsist in the layout, that subsection ceases

to apply to any subsequent commercial exploitation of the

layout, unless the person pays to the owner or exclusive

licensee of those rights such equitable remuneration as is

agreed, or as is determined by a method agreed, between the

person and the owner or exclusive licensee or, in default of

agreement, as is determined by the Federal Court of

Australia on application made by either of them."

(Emphasis added)

22. Amendments made by s.43 of Act No. 115 of 1990, were as follows:

"Section 20 of the Principal Act is amended:

(a) by omitting subsection (1) and substituting the

following subsection:

'(1) The EL rights in an eligible layout are

not infringed by a person who commercially

exploits, or authorises the commercial

exploitation of, an unauthorised integrated

circuit in Australia, being a circuit made in

accordance with the layout, if, at the time when

the person acquired the circuit, the person did

not know, and could not reasonably be expected

to have known, that the circuit was unauthorised.';

(Emphasis added)

(b) by omitting from subsection (2) 'EL rights

subsist in the layout' and 'layout' (second

occurring) and substituting 'the integrated

circuit is unauthorised' and 'circuit', respectively;

(c) by omitting from subsection (2) 'those rights'

and substituting 'the EL rights in the layout';

(d) by adding at the end the following subsection:

'(3) In this section:

'unauthorised', in relation to an

integrated circuit made in accordance with

an eligible layout, means made without the

licence of the owner of the EL rights in

the layout.'."

23. As a consequence of these amendments, s.20 now reads:

"20 (1) The EL rights in an eligible layout are not

infringed by a person who commercially exploits, or

authorises the commercial exploitation of, an unauthorised

integrated circuit in Australia, being a circuit made in

accordance with the layout, if, at the time when the person

acquired the circuit, the person did not know, and could not

reasonably be expected to have known, that the circuit was

unauthorised. (Emphasis added)

(2) Where a person referred to in subsection (1) becomes

aware, or could reasonably be expected to have become aware,

that the integrated circuit is unauthorised, that subsection

ceases to apply to any subsequent commercial exploitation of

the circuit, unless the person pays to the owner or

exclusive licensee of the EL rights in the layout such

equitable remuneration as is agreed, or as is determined by

a method agreed, between the person and the owner or

exclusive licensee or, in default of agreement, as is

determined by the Federal Court of Australia on application

made by either of them. (Emphasis added)

(3) In this section:

'unauthorised', in relation to an integrated circuit made in

accordance with an eligible layout, means made without the

licence of the owner of the EL rights in the layout."

24. By s.27(1), the owner of EL rights may bring an action for infringement of those rights. By s.27(2), the relief that a court may grant includes an injunction and either damages or an account of profits. By s.27(3), where it is established that an infringement was committed but that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement, the plaintiff is not entitled to any damages against the defendant in respect of the infringement but is entitled to an account of profits.

25. By its Application dated 5 December 1990, the present respondent, Nintendo Co. Ltd. ("Nintendo") sought, inter alia, an injunction restraining the appellants, Centronics Systems Pty. Ltd. ("Centronics Systems") and Messrs M. and F. Latin and Salice (collectively, "Centronics") from, inter alia, selling by way of trade, or importing for sale by way of trade, "integrated circuits made in accordance with the PPU layout referred to in paragraph 27 of the Statement of Claim."

26. Paragraphs 27 to 30 of the Statement of Claim were as follows:

"27. At all times material, (Nintendo) is and has been the

owner, within the meaning of section 16 of the Circuit

Layouts Act Cth 1989, of EL rights in an original

circuit layout ('the PPU layout').

PARTICULARS

(a) The PPU layout was made in Japan by Hiroo Ueda

and Hiromitsu Yagi under the terms of their

employment by and under a contract of service

with Ricoh Co. Ltd ('Ricoh') a company

incorporated according to the laws of Japan.

Ricoh subsequently assigned all its rights in

the layout to (Nintendo).

(b) The PPU layout is an original circuit layout in

accordance with which (Nintendo) has made an

integrated circuit in the form of a Read Only

Memory Chip ('the PPU chip') contained in the

video game machine produced and sold by

(Nintendo). A video game machine containing a

copy of the said chip has been marked with the

letter 'C' and can be inspected by prior

appointment at the offices of (Nintendo's)

solicitors.

28. Between a date unknown to (Nintendo) and the date of

issue of the Application herein, (Centronics Systems)

has, without the licence of (Nintendo), commercially

exploited the PPU layout in Australia.

PARTICULARS

Between a date unknown to (Nintendo) and the date of

issue of the Application herein, (Centronics Systems),

without the licence of (Nintendo), has imported, sold,

let for hire, distributed by way of trade and offered

or exposed for sale or hire, and imported for the

purpose of sale, letting for hire or other

distribution by way of trade, integrated circuits made

in accordance with the PPU layout. The said

integrated circuits are contained in a system of video

games known as the Spica system. The system contains,

inter alia, Read Only Memory chips made in accordance

with the PPU layout.

(Nintendo) is unable to supply further particulars of

infringement until discovery and interrogation.

29. (Centronics Systems) did the acts alleged in

paragraphs 27 and 28 herein in circumstances where it

knew, or ought reasonably to have known, that it was

not licensed by (Nintendo) to do so.

30. By the acts alleged in paragraphs 27, 28 and 29 hereof

(Centronics Systems) has infringed, and continues to

infringe, (Nintendo's) EL rights in the PPU layout,

within the meaning of section 19 of the Circuit

Layouts Act Cth 1989."

27. By their defence dated 17 December 1990, Centronics admitted that the computerised games console of the Spica Entertainment Unit contained a PPU (peripheral processing unit, also called "picture processing unit") chip ("the Spica PPU") manufactured by United Manufacturing Corporation ("UMC") in Taiwan. Centronics went on to respond to paragraphs 27 to 30 of the Statement of Claim as follows:

"27.1 They deny each and every allegation in paragraph 27.

27.2 They deny that EL rights subsist in the PPU layout.

27.3 Further, they specifically deny that the PPU layout is

an original circuit layout.

27.4 Specifically they deny that (Nintendo) is and has been

the owner of EL rights in the PPU.

28.1 They refer to and repeat the contents of sub-paragraph

21.3 above.

28.2 Otherwise they deny each and every allegation in

paragraph 28.

29. They admit that (Centronics Systems) has no form of

licence from (Nintendo) however they say further that

they believe and at all relevant times have believed

that the circuit layout for the Spica PPU was

independently created by UMC in Taiwan and that

(Nintendo) has and had no rights of any kind regarding it.

30. They deny each and every allegation in paragraph 30."

28. By their amended defence dated 22 August 1991, Centronics pleaded the following additional defences:

"30.2 Further, they refer to and repeat the contents of paragraph

29 above.

30.3 Further, or in the alternative, they say that if the

circuit layout for the Spica PPU was not independently

created by UMC in Taiwan then it is an original

circuit layout that was made by UMC in Taiwan based on

an evaluation or analysis carried out with the use of:

(a) a copy or copies of the Nintendo circuit layout

referred to in paragraph 27 ('the Nintendo

circuit layout') and/or;

(b) an integrated circuit made in accordance with

the Nintendo circuit layout or a copy of the

Nintendo circuit layout ('the Nintendo

integrated circuit');

made for the purpose of evaluating or analysing the

Nintendo circuit layout as provided for in section 23

of the Circuit Layouts Act (Clth) 1989.

(Although this defence was pressed at the trial, it was abandoned during the appeal.)

30.4 Further, or in the alternative, they say that if the

Spica PPU contained an integrated circuit made without

the licence of (Nintendo) as owner of the EL rights in

the layout (which is specifically denied) then at the

time when they acquired the circuit they did not know

and could not reasonably be expected to have known

that the circuit was unauthorised and therefore there

has been no infringement by them as provided for in

section 20 of the Circuit Layouts Act (Clth) 1989."

29. On 26 August 1991, at the commencement of the final hearing at first instance, Nintendo amended its application and (on 27 August) its statement of claim in respects which are not presently material.

30. By an amended defence dated 2 September 1991, Centronics amended the earlier defence as follows:

"27. They admit paragraph 27.

(Thus, Nintendo's ownership of the relevant "EL" rights was

admitted.)

28.1 They admit that in December 1989 (Centronics Systems)

imported into Australia and began to sell 1,500 Spica

Entertainment Units from Taiwan which comprise a

computerised games console, a hand operated gun and a

finger operated joy stick with a computerised games

cartridge.

28.2 Further, they admit that (Centronics Systems) bought

the Spica Entertainment Units from Keyman Electronics

Co Ltd, a manufacturer based in Taipei, Taiwan.

28.3 Further, they admit that the computerised games

console of the Spica Entertainment Unit contains a PPU

chip ('the Spica PPU') manufactured by United

Manufacturing Corporation ('UMC') in Taiwan.

28.4 Otherwise they deny each and every allegation in

paragraph 28."

31. Thus, although ownership of the EL rights was admitted, Centronics denied any infringement and also relied on innocent commercial exploitation under s.20. His Honour found that there was an infringement and although it was in issue at first instance, it is no longer in issue that there was a "copying" in that the UMC layout was made in accordance with the Nintendo layout. THE RELEVANT EVIDENCE AT FIRST INSTANCE

32. In order to understand the questions that now arise for determination, it will be necessary to refer to the relevant evidence at first instance. Some of the issues raised at first instance are no longer in contention. The evidence which is presently material may be summarised as follows. (a) Nintendo's evidence

33. For present purposes, the main evidence relied upon by Nintendo in its case in chief was given by Raoul Dylan Bedford in his affidavit sworn 7 December 1990. Mr Bedford was employed by Mattel Australia Pty. Ltd. as the product manager for Nintendo Products. In his affidavit, Mr Bedford said:

"5. In about October of 1989 I was informed by MATTEL's

Area Manager, Barry Nolan, that units called Spica

Units were being sold and that they could play

Nintendo games. He provided me with the address of a

shop known as 'Centronics Systems' located at 83

Johnson Street, Fitzroy. On or around 26th October

1989 I went there with Dennis O'Keefe, who is MATTEL's

Sales Manager for Victoria. The premises comprise a

glass fronted shop. I noticed that there were Spica

Units displayed for sale in the windows. They were

video games machines. The shop also contained

computer software for sale. I entered the shop and

spoke to a female sales assistant. I said that I saw

the units in the window and was thinking of buying a

Nintendo game and was wondering what Spica was. She

explained that Spica Units would play all Nintendo

games. She said that this was just a cheaper way to

buy the hardware. I purchased a Spica Unit. That

unit included the games SUPER MARIO BROS. and DUCK

HUNT on a Four-in-one games cartridge. I gave that

unit to David Webber on 27th February 1990. In early

March, 1990 I gave to him a Nintendo unit and Nintendo

cartridges including the games SUPER MARIO BROS. and

DUCK HUNT provided by the Applicant herein.

6. On the following day I returned to the premises

referred to above. I then purchased another unit. I

shipped that unit to Nintendo Co. Ltd. in Japan.

...

8. The cartridges will not operate to enable a game to be

played unless the PPU chip (referred to in the

Affidavit of David Brian Webber sworn 6th December

1990. is present in the games unit.

9. On 28th June 1990 I returned to the Centronics shop

referred at 83 Johnson Street, Fitzroy. I there

purchased another Spica unit. On 29th June I

personally delivered this unit and another Nintendo

unit to David Webber Davies and Collison, Patent

Attorneys. On or around 21st July 1990 I purchased

another Spica Unit which I forwarded by courier to Tim

Rogers of the Telecom Australia Research Laboratories."

34. Centronics called, on the issues presently relevant, the appellants Maurice Latin, Fabrizio Latin and Tiberio Salice and relied on the following documentary material. (i) The evidence of Maurice Latin

35. In his affidavit sworn 12 December 1990, Mr Latin, a Director of Centronics Systems, said:

"3. In 1986 I went into partnership with the third

Respondent Tiberio Salice in a business known as

'Centronics' which imported computers and installed

and fitted security systems including computerised

alarm systems.

4. (Centronics Systems) was incorporated in 1987 to carry

on the existing business of Centronics however the

nature of the business changed as it began to import

television sets. Only Tiberio Salice, Fabrizio Latin

and I are active in the business of Centronics...

5. In July 1989 an unsolicited sample of twenty Spica

Entertainment Units was sent to (Centronics Systems)

by a company in Taipei, Taiwan, Keyman Electronics Co

Ltd ('Keyman') with which (Centronics Systems Pty.

Ltd.) had had prior dealings. Keyman was the

manufacturer of the Spica units which comprised a

computerised game console with a slot for a cartridge

to be inserted, a four-in-one games cartridge with

four games, Twin Bee, B-Wings, Mario Bros, Duck Hunt,

a hand operated gun and a finger operated joy stick.

6. I was aware of games made by ... Nintendo however I

was not aware that it had intellectual property claims

over any of the items making up the sample Spica

Entertainment Units. In fact I negotiated for three

months from about July 1989 with representatives from

Nintendo's distributor in Australia, Mattel Australia

Pty Ltd ('Mattel') with a view to their buying the

Spica unit. At no time during this period was any

complaint made to Centronics that there were

intellectual property problems.

7. Centronics imported a first consignment of one

thousand five hundred units of the Spica Entertainment

Units before Christmas in 1989. Only about one

hundred and fifty of these were sold at a retail price

of $199.00. Between 20 and 50 were stolen from

premises where Centronics had stored them at 83

Johnston Street, Fitzroy.

8. On 1st December 1989 I received a telephone call from

Raoul Bedford the Nintendo Product Manager for Mattel

complaining about intellectual property rights

belonging to Nintendo being infringed by the Spica

system. I immediately referred these enquiries by fax

to Keyman. I received a reply from Keyman dated 1st

December 1989 by fax..."

36. The fax to Mr Latin from Keyman dated 1 December 1989 was, verbatim, as follows:

"RE: IW-701 GAME

Dear Maurice,

I would like to answer your question as follows:

POINT 1 GAME CARTRIDGES

I think I have told you before, some game cartridges are

designed by Nintendo. These cartridges will have copyright

problems. But, not every cartridge has that copyright

problem, because there are lots of software house in Japan,

they also design the software of cartridges.

For this point our solution are:

1. We don't offer any cartridge together with 1Q-701 game

machine. The end-user could buy the cartridges from

local market.

2. We have some other game cartridges which is designed

by a USA company named 'TENSEN' and compatible with

Nintendo. We could get the licence from them very

soon, but the price will be a little high, as we have

to pay the licence costs.

But another way is (just for your personal reference):

You could consider to set-up another sales channel to

sell the cartridges under table (but you know it is

illegal. Of course we could arrange the course for you.

POINT 2 NINTENDO TRADE MARK

When you take any advertisement, you only can specify your

machine is 'NINTENDO compatible', and please add a small

description: NINTENDO IS A REGISTER TRADE MARK OF NINTENDO

CO., LTD. It is similar with our advertisement of IBM

compatible computer. The best way is: You could check from

Trade Mark Office in your country what trademark was

registered by NINTENDO and yet should avoid these trade mark.

POINT 3 POWER ADAPTER

He could 100% confirm the adapter will have no any patent

right problem. As it is a very normal and standard adapter.

You can very easy to find such an adapter for Walk-man

radio/recorder, rechargeable battery of some electronic

equipment.

POINT 4 LIGHT GUN

For this item we also can absolutely confirm that it without

patent right problem. The tooling shade of light gun is

designed by ourselves and the 'INFRARED' principle is a

normal principle. If Nintendo say they own a patent right,

it means that all of remote control equipment like TV sets

etc. will against the law.

Dear Maurice, according to our experience of selling lots of

TV games to several countries, we find the Nintendo always

like to ask nothing for trouble. I hope you should have a

preparation in your mind, the Nintendo will keep on to ask

for trouble. But, every time they always conclude without

resell.

I hope the above explanation will be helpful for you.

Thanks and regards,

Danny Chen"

37. On the same day, 1 December 1989, Mr Latin sent a fax to Mr Bedford as follows:

"Further to our telephone conversation today, please be

advised of the following:

1. All chips used in the Spica Entertainment unit are

covered by individual licences or patents and do not

infringe any used by Nintendo.

2. Patent and licence numbers are available in our office,

as supplied by the manufacturer.

3. Any legal action taken by Mattel, will be treated as a

deliberate act to prevent Centronics Systems P/L from

being able to make sales of these units during the

christmas period and accordingly our company will take

whatever legal action required to recover damages and

loss of profits."

38. In his affidavit, Mr Latin went on to say that later on 1 December 1989, he received a fax from Purves Clarke Richards, Solicitors, as follows:

"Spica Entertainment Unit

We advise that we act for Mattel Pty. Ltd. Our client is

the sole and exclusive distributor in Australia for Nintendo

Entertainment System products.

We have recently been instructed by our client as to the

existence of the 'Spica Entertainment Unit' and today we

have been provided by our client with a copy of a letter

from you dated December 1, 1989.

1. The game cartridges included in the Spica Unit would

appear to be counterfeit copies of Nintendo games. We

have advised our client that, under the provisions of

the Copyright Act 1968 the importation of such

products into Australia, and their subsequent

distribution will constitute an offence.

2. The names set out on the games cartridges and on the

games themselves are names of Nintendo games for which

trade mark registration is being sought. The use of

these names is in breach of our client's rights.

3. The adaptor which is an optional inclusion with the

unit may well constitute a breach of patents and

designs of Nintendo.

4. The 'gun' included with the unit appears to be a

direct copy of the Nintendo gun.

At this stage we do not have the benefit of full and

complete reports as to all of the components of the Spica

system. It may well be that other breaches of our client's

rights will be discovered. Our client is not intimidated by

the comments made in Point 3 of your letter of December 1,

1989 and instructs us to take the strongest possible action

against you and any other parties involved in the

importation and distribution of offending products to

preserve and protect its rights.

Accordingly, we require you to provide us by 5.00 p.m. on

Monday December 4, 1989 with the following:-

(a) The name and address of the manufacturer of the Spica

Entertainment Unit.

(b) Details of the relationship between your company and

the manufacturer.

(c) The information referred to in Point 2 of your letter

of December 1, 1989.

If this information is not provided by the time specified,

our client will proceed on the basis of the material and

information which it has and will pursue all legal remedies

which are available to it."

40. In his affidavit, Mr Latin said that he sought the advice of A. Tatlock and Associates, Patent and Trade Mark Attorneys, who on 5 December replied to Purves Clark Richards as follows:

"Re: Mattel Pty. Ltd. and

Centronics Systems Pty. Limited

Spica Entertainment Unit

We have had an opportunity to discuss this matter with our

client and to examine both the Spica unit and the Nintendo

unit and on behalf of our client we respond to the four

statements in your letter as follows:-

1. Our client has available to it a large number of games

cartridges and we understand that the ones to which

you object are the games which our client sells as

Super Mario and Duck Hunt.

As far as the first of these is concerned we

understand that a game called Mario Brothers is

generic in this particular industry and is certainly

available on arcade machines and possibly from other

sources.

We obviously have not had an opportunity to consider

our clients, or your clients code but we have been

informed that our clients code was developed

independently and thus believe that it is not an

infringement of copyright.

As far as Duck Hunt is concerned the same situation applies.

We are informed that there are other games called Duck

Hunt and of course as these words are completely

descriptive of what the game is they would certainly

not be registrable as a trade mark.

Again we have been informed that the code was

developed independently and thus there would not

appear to be any copyright infringement.

As we believe this may well be the only area where

there could be a possibility of conflict which needs

to be determined, our client is prepared to undertake

to maintain complete records of the sale of the

cartridges which include these two games so that after

the relevant codes can be compared to see whether

there is any copyright infringement, if there is

infringement then if the code does appear sufficiently

similar for there to be infringement, then a

reasonable royalty could be paid.

We stress that we have been informed by the developer

of the game that there is in fact no infringement but

of course there is at the present time sufficient

(sic) information for an objective opinion to be made.

2. As far as the second query is concerned we refer to

the comments made above.

We do not believe your client has any proprietary

rights in either of the two games referred to and

certainly as far as the second is concerned do not

believe that it could ever be registered as being

fully descriptive.

3. We do not really understand the basis for this objection.

Assuming the adapter is the adapter which enables

connection either to composite video or to a monitor

and audio amplifier such adapters are well known, have

been available in a number of applications for a

number of years and there is certainly no proprietary

rights in these.

4. As far as the guns are concerned you have made no

comments as to whether or not your client has

registered the design of its gun.

You will of course be well aware that whilst there may

be copyright in certain drawings once a corresponding

article has been industrially applied then the

protection under the Copyrights Act is lost and,

unless the article has been registered under the

Designs Act, there is no property which can be infringed.

Thus unless there is a registration of the design of

your client's gun then an identical copy could be made

without breach of any rights.

In any case we have examined the two guns and, whilst

they have a basic similarity, there are many other

guns which have been proposed for analogous

applications which are also similar and it is our

opinion that even if your clients design was

registered there would be no infringement.

You state that you do not have full information as to our

clients system but on examination of the two we can see

absolutely no rights which could be breached.

Our client's system has been sold in other countries of the

world side by side with the Nintendo product and to the best

of our clients knowledge there has been no objection

whatsoever from Nintendo.

Of course if your client does have any industrial property

which could be infringed we would be pleased to consider

this but, in the absence of any further information, we

believe our client has done nothing which could in anyway be

an infringement of your clients rights, or the rights of

your client's Principal.

It is not proposed to provide you with the information set

out under paragraphs a, b and c of your letter as we do not

believe that this is information to which you are entitled."

41. In his affidavit, Mr Latin then said that Purves Clarke Richards replied to A. Tatlock and Associates by fax dated 4 January 1990 as follows:

"Mattel Pty. Ltd. and Centronics Systems Pty. Ltd.

Spica Entertainment Unit

We refer to previous correspondence in this matter and in

particular to your letter of 5th December, 1989.

We are still seeking instructions in respect of some of the

matters raised in your letter. However, we note that your

client has placed large advertisements for the Spica

Entertainment Unit in the daily press in Melbourne and

accordingly you should now note as follows:-

1. The games to which these names relate all originated

from 'Nintendo' and may well be the most famous series

of video games ever developed. Through widespread

promotion and sales around the world the names have

acquired distinctiveness. The views you have

therefore expressed in respect of these names is

totally rejected.

Moreover, the name 'Mario Brothers' is registered by

our client as a trade mark in Australia. Both names

are subject to overseas copyright registration.

In these circumstances we strongly assert that our

client has proprietary rights in the names referred to

and we are instructed to take immediate action to

prevent the unauthorised use of our client's trade marks.

2. We do not know what particular game cartridge you have

examined but we are confident, that on any objective

view, the games contained in the cartridge which we

have seen as part of the Spica Entertainment Unit will

infringe our client's copyright. We simply do not

accept the view that the code of your client's game

has been independently developed.

3. We are most concerned that the advertisement placed by

your client and referred to above misuses the trade

mark 'Nintendo' and may well constitute a breach of

various provisions in Part V of the Trade Practices

Act. The prominent reference to our client's trade

mark (and indeed the fact that it is a trade mark)

suggests that your client's product has an association

with that of our client. In fact, your client has no

right to use our client's trade mark.

In these circumstances you should note that if any

further advertisements are placed which use the

'Nintendo' trade mark in this manner our client will

immediately seek injunctive relief.

4. Inquiries we have made from our client overseas

suggests that there are no circumstances known to

Nintendo where the Spica Entertainment Unit has been

sold side by side with Nintendo products without

objections from Nintendo.

As indicated above we are seeking further instructions in

respect of other matters raised in your letter.

However, in respect of the matters we have raised you should

note that our client intends to take the strongest possible

action to protect its interests. Any action of your client,

either by way of advertisement or in selling products, which

infringes our client's proprietary rights will result in

immediate action being taken.

Pending us obtaining full instructions from our overseas

suppliers, our client would be prepared to refrain from

action at this stage if you were to undertake -

(a) Not to include in the Unit any games cartridges which

include games the names of which are marketed by our

client or which breach our client's copyright.

(b) To delete all reference to 'Nintendo' from your

advertisements and packaging.

We would be pleased to hear from you within seven (7) days

of the date hereof."

"13. As a result of the protests made to Centronics by

Mattel Centronics withdrew the four-in-one cartridge

from its unit..."

43. Later, Mr Latin said, Centronics received from Purves Clarke Richards a letter dated 31 August 1990, which is important for present purposes, as follows:

"As you are aware we act for Nintendo Co. Ltd. and its

exclusive Australian distributor, Mattel Pty. Ltd.

Some time ago we corresponded with you in respect of the

Spica Entertainment Unit.

After a thorough technical examination, our client has now

established that the PPU in the Spica Unit is a copy of that

contained in the Nintendo Entertainment System.

Furthermore, we reassert that games cartridges sold with the

Spica Entertainment Unit are unlawful copies of games in

which our client owns the copyright.

We now require you to provide us with the following by

Friday, 7th September 1990:-

(a) Details of the number of games cartridges, containing

Nintendo games, which you have imported into Australia

or manufactured or caused to be manufactured in

Australia.

(b) Details of the number of Spica Entertainment Units

which you have imported into Australia or manufactured

or caused to be manufactured in Australia.

(c) Details of the number of games cartridges and Spica

Entertainment Units currently in your possession or

under your control.

(d) A written Undertaking that you will forthwith:-

(i) deliver up to our client all offending games

cartridges and entertainment units which are or

subsequently come into your possession or

control; and

(ii) cease and desist from importing, manufacturing,

selling, marketing or otherwise dealing in such

game cartridges or Spica Entertainment Units.

Unless these details and Undertakings are provided to us by

10.00 a.m. on Friday 7th September 1990 we are instructed to

immediately commence proceedings without any further notice

to you."

"15. I immediately made enquiries of Keyman regarding the

history of the PPU chip ('the Spica PPU') used in the

Spica Entertainment Unit. I was informed by Danny

Chan a director of Keyman and believed that the Spica

PPU was developed by United Manufacturing Corporation

('UMC') the major producer of electronic switch

devices in Taiwan.

16. I also compared a PPU chip from a Nintendo games

machine with the one in a Spica machine at that time.

The Nintendo PPU chip fitted on the mother board in

the games console but was not operational because of

having different pin assignments that is certain

functions were at a different position on the chip.

For instance, power and each were located in a

different logic sequence.

17. The Spica PPU used is a standard commercial chip that

can be bought off the shelf. On 11th December 1990 I

examined ten PPU chips selected at random out of about

eight hundred Spica Entertainment Units. They all

carried the UMC logo which is a globe with a grid map

across it. Further, they were labelled UA6538P. I am

informed by Keyman and believe that the UMC chip which

is the Spica PPU was 'announced' by UMC in July 1987.

By this I understand that it was placed on the market

on that date.

18. The Spica PPU is a standard industrial chip. It is

a(n) integrated circuit connecting the CPU (Central

Processing Unit) and the Visual Output Device.

...

22. At all times when there has been a question of

possible infringement of intellectual property rights

I have made extensive enquiries as to the basis of the

complaints. I have been assured by the supplier

Keyman, that the UMC chip comes from a thoroughly

reputable manufacturer, a government sponsored company

in Taiwan. I do not believe that a PPU chip of

general application would be subject to copyright but

if Nintendo do have copyright over the circuit layout

of their chip I believe the assurances of Centronics'

supplier that the UMC chip was created independently.

23. If there were to be an order prevent(ing) Centronics

from importing and selling its games console it is

doubtful whether Centronics could remain in business.

The whole Spica system would have to come off the

market. The business of Centronics is importing

televisions and importing the Spica Entertainment

Unit. Approximately forty percent of the business is

in the televisions and sixty per cent in the Spica

Units and associated games cartridges which are sold

separately.

24. At present about $85,000.00 worth of games cartridges

stock are in storage in Melbourne. It has all been

paid for and it is not possible to return any of it to

Taiwan. Further, Centronics has just concluded a

contract to sell one thousand units per year to NAPF

Electronics in Sydney. By that same contract,

Centronics will supply $100,000.00 worth of Italian

Formenti televisions of mixed size every quarter. If

the Spica Units cannot be supplied the whole contract

will be lost. It is worth $1,700,000.00 to Centronics

over the next four years.

25. Further Centronics has a contract for two hundred Spica

Units per quarter to a Melbourne based partnership Zecha.

This is worth $28,000.00 - $30,000.00 a quarter. At present

Centronics is waiting on a contract in Adelaide. If

Centronics is unable to supply it would damage its

reputation for reliability and make it almost impossible for

it to come back into the market place."

45. Mr Latin was examined in chief and elaborated the evidence given in para.5 of his affidavit as follows:

"MS STRONG: Coming to paragraph 5 where you refer to the

set of 20 samples being sent; you said a moment ago that

when you received the samples you undertook some kind of

assessment of them; what did you do?---Virtually, the only

thing we did is take the leads from the units mainly; we

examined virtually just the top of the units. We made sure

there was identifying logos throughout the inside circuitry

not inside circuitry, the logo on the chips covers. We ---

And if perhaps you could have a look at the mother board of

the SPICA unit as you are describing what you did when you

took the top off the console; what did you see when you

took the top off?---We saw two large units, we assumed them

to be one obviously a processor, one a peripheral unit of

some order. They were both---

Peripheral processing unit is commonly referred to as what,

Mr Latin?---It is called a - referred to a picture

processing unit, but---

Yes, or in initials?---a PPU.

Yes; and are the markings that you see on that example of

the SPICA set the same as those you saw back in 1989?---

Exactly identical.

Yes; and what markings do you see on the CPU there?---

UA6527.

And what does UA mean to you?---Made by UMC.

And is there any other mark on it to identify it as being

made by UMC?---There is a world-map symbol which is just a

circle with a grid on it, and that signifies the UMC symbol.

HIS HONOUR: That is their logo, is it?---Yes, it is.

MS STRONG: And were you familiar with that logo at that

time?---Yes, I am.

Yes; and were you familiar with UMC at that time?---Yes, I

was.

And what did you know about it?---Well, I know they were one

of the biggest companies of chip manufacturers in Taiwan

sponsored by the Taiwanese Government.

Yes; and did you have any personal knowledge of UMC?---On

not personal knowledge, but indirect knowledge of their

existence.

Yes; had you been to Taiwan?---Yes, I have.

Yes; and had you had any contact with UMC there?---Yes, I

have.

Yes; what was that?---Mainly a discussion with some of the

people in Taiwan regarding the manufacturing and process

controls.

Right; now, when you saw the marking - well, immediately

when you saw the two chips were you able to identify which

was the CPU and which was the PPU?---To be honest, not

straight off at first.

Why was that?---Mainly because we knew that the 6538 and the

6527 obviously one had to be a processor and one had to be

some kind of a peripheral to it, but at the time circuit

layouts of the actual mother board were not given to us.

The only way we have managed to sort of have a look at these

units at a later date was when we have actually purchased

the units, which was a large order, they have actually

labelled them 'PPU' and 'CPU' on the actual mother board.

That was not there in the original 20 unsolicited samples.

And I may have taken you too quickly - I asked you questions

about the identifying marks on the CPU; what about the

identifying marks on what you came to understand was the

PPU; were there any?---Identifying marks on the unsolicited

samples or the order itself?

On the unsolicited samples that you investigated?---No.

I mean, a marking on the casing of the PPU?---On the casing

of the PPU? Oh, I am sorry, you are talking about the chip

number which is UA6527, yes.

Is 6527 though, the CPU?---CPU.

Yes; and was there a similar marking on the PPU?---6538.

Right; and did it have any other form of identifying mark

on it?---No.

Did it have a prefix?---UA6538.

Yes; and UA, you told us earlier, was the identifying---

?---UMC.

Yes; and did it also have a world symbol?---Yes, it did.

Right; was there anything about the marking of either the

CPU or the PPU when you first examined the sample set that

caused you any alarm?---No.

Were you familiar with the 65 range of chips?---Very

familiar with the 6500.

And what did you know about them?---I knew that the 6500

series of chips were mainly processors of some sort. They

varied from specification to specification. I was very

aware of the 6502 at the time, which was just an 8-bit

processor with 16-bit address lines. I came to the

deduction that obviously I was looking at a processor of

some sort which would have been an 8-bit processor with

16-bit address lines, that is about as far as it went.

Were you at all concerned over any area of intellectual

property protection for the SPICA unit?---This is one of the

areas that you can - for example, the first thing you do in

a case like this, you make sure that the chips are labelled

by some sort of manufacturer, and that they have got a

replacement coded part. What happens is, if the numbers are

scrubbed from the top or if you have got no identifying

mark, then you know that you might have a problem with a

particular unit. These were clearly labelled in all cases

and of course, replacement parts were available for them.

Yes; but were there other aspects about the protection for

the SPICA unit itself that concerned you when you were

looking at it first of all?---No."

46. Mr Latin was then examined as to his concerns with respect to patent protection, if any, in respect of the SPICA unit. He went on to give this evidence:

"But from a business point of view, why would you worry

about a patent?---How can you import a large number of unit

in the country and spend that kind of money and not be sure

about a patent.

Were you discussing with Keyman, the manufacturer, to be the

sole distributor in Australia for the SPICA system---

Australia and New Zealand.

Right. And what difference would it have made to those

discussions if you thought there were no patent over the

unit?---You wouldn't import that unit in the country in the

first place.

Yes, but why not?---You cannot put an investment of this

sort. We are not the company who can afford to do something

of that nature without making sure we are covered.

And what kind of protection did you think that patent would

give the SPICA unit?---No infringement of copyright.

You say in your affidavit that you had discussions with

Mattel, that you negotiated - this is paragraph 6 - that you

negotiated for three months from about July 89 with

representatives from Nintendo's distributor Mattel. Now, if

I handed you a document - your Honour, what I have done is I

have made a working copy that I would be able to make

available to - this is document 66 on the respondent's list.

HIS HONOUR: What is this exactly, Ms Strong?

MS STRONG: Well I'll ask Mr Latin to identify it.

What is that document, Mr Latin, do you recognise it?---Yes,

I do. It was a document that was provided to Mattel

regarding some information on the price of the units to tie

up exclusivity.

Yes, and in fact it is headed what?---Sales exclusive agreement.

Right. And it is a draft document that was prepared by

whom, Mr Latin?---This was prepared by Keyman Electronics.

I see. And what did you decide to do; how did you decide

to handle the SPICA units if you decided to take them?---

Well, there was two ways that we could handle the proposal.

It was, one way was to try to market it ourself but of

course it is a very difficult task because you are entering

a market with a lot of competition so the second best thing

was to approach the distributor of a similar item.

Yes, and did you approach such a distributor directly or did

you go through someone else?---We thought that we didn't

have a high profile that probably was needed for something

of this sort, so we went to a marketing company which at the

time was called Unlimited - I am sorry, it just slipped my

mind. Unlimited Information or something of that nature;

it is a marketing company.

Right?---And we asked them on our behalf to approach Mattel

and - - -

Do you recall the name of the person with whom you dealt at

that marketing company?---Yes, the gentleman name is - I am

sorry.

HIS HONOUR: The name eludes you?---Yes, I am sorry.

MS STRONG: It is not a controversial point, my friend

agrees that I can lead. It was Mr Graham Waters - - -?---

Graham Waters.

- - - of Wealth Accumulators Proprietary Limited wasn't it?

---Correct.

HIS HONOUR: Wealth Accumulators.

MS STRONG: Yes. Optimistic name.

And - so you said that you used the marketing company to

represent you and approach companies already in the market?

---Correct.

And as you say in your affidavit one of those companies was

Mattel?---Correct.

Now, and at that time you were aware that Mattel was the

distributor for Nintendo?---Correct.

Now, this document then that you have identified was a draft

sales exclusive agreement between whom?---Between Centronics

and the new proposed buyer.

And who was that proposed to be at this time?---Mattel."

47. Later in his evidence, Mr Latin said that by fax dated 2 November 1989, Mattel sought from Wealth Accumulators information about, inter alia, intellectual property rights in respect of the SPICA Entertainment series. This information was sought in order that Mattel could consider whether it should accept the offer of sole distribution rights for the SPICA Entertainment series.

48. Mr Latin went on to say that, at about this time, he decided that the negotiations with Mattel should be terminated and that Centronics should market the products directly. By fax dated 9 November 1989, Mr Latin informed Wealth Accumulators accordingly.

49. Then Mr Latin said that in "mid-November" 1989, Centronics ordered from Keyman 1,500 units of the SPICA Entertainment series. The units arrived in two shipments, one of 1,000 units in early December 1989 and the other of 500 units around "22 or 20 December". In the meantime, on 1 December 1989, Mr Latin said he had received Mr Bedford's telephone call, the fax from Purves Clarke Richards and Mr Chen's fax, and sent his own fax to Mattel. Mr Latin also referred to his patent attorney's letter dated 5 December 1989, together with the fax sent by Purves Clarke Richards dated 4 January 1990. Mr Latin said that he received a fax from Keyman dated 6 March 1991 as follows:

"After discussions held with UMC we are able to provide to

you the following information as requested by you. The

picture processing unit was designed by UMC and its original

purpose was to produce and generate a video output signal

for Pal system TV's. The PPU in question was designed in

1987 and manufactured commercially a short time later. As

you are aware through your technical training it is more

difficult to copy an original layout than to produce an

original integrated circuit. The PPU was designed with aid

of CAD tools using existing functional blocks available in

its library. There are many types of PPU's available on the

market and we would be surprised if not all but most carry

some kind of resemblance due to their design characteristics

and their end result in terms of functionality. This

similarity can be noticed with a large number of integrated

circuits available on the market today.

The two devices cannot be directly replaced for each other.

Hence the two devices are not functionally compatible. The

UA-6538 can process the cartridges designed for NTSC TV

systems whereas the RP2007-0 cannot do this due to its

inferior design. The interrupt signal timing between these

two devices are quite different from each other. This can

be tested by measuring on the TV game module (pin 19 on

PPU). The DRAM refresh circuits on the RP2007-0 for data

retention are not necessary for UA 6538, and please note

most importantly that the control timing and data retention

method for these two devices are totally different."

50. Mr Latin was then examined in chief concerning the letter to Centronics Systems from Purves Clarke Richards dated 31 August 1990:

"Mr Latin, when were you - when did you first become aware

of a complaint regarding the PPU in the SPICA unit?---It

would have been around the August period, late August, 1990.

Yes. And you are able to identify the document that is

exhibit ML6?---Yes, I am.

Yes. And was this the first - was your getting that letter

the first that you had heard of a complaint regarding the

PPU?---Correct.

...

And on receiving that letter what did you do, did you seek

any advice?---The first thing that I did on the receipt of

that letter would have been - well, right along we went to

see our patent solicitors and, of course, get in touch again

with Danny Chen and UMC.

Yes. And did your - well, if I hand this letter to you.

When you went to see the patent attorneys, with what purpose

did you go?---To find out whether we - there was any

problems with the actual PPU chip.

And are you able to identify this letter?---Yes, I am.

Yes. And it is?---It is a letter made to Purves Clark

solicitors on behalf of (Centronics Systems).

Right. I tender that letter dated 7 September, 1990, your

Honour."

51. The letter, tendered as S11, dated 7 September 1990 and written by A. Tatlock and Associates to Centronics, was relevantly as follows:

"Re: Nintendo Co. Pty. Limited

This will confirm our discussions yesterday evening relating

to the letter received from Purves Clarke Richards.

I have responded to that letter on the basis of our

discussion and a copy of my response is attached.

Basically if the PPU chip is purely a digital device, that

is it is not itself a programmed device then, under the

normal construction of Copyright Law, even if the chip was

the same and copied there is doubt that there could be any

infringement.

The Australian Parliament passed, in 1989, a Circuits Layout

Act which is arranged to provide protection for particular

chip constructions but to date this Act has not been

proclaimed.

Also, as I have previously reported to you under the normal

tenents (sic) of Copyright Law, copyright is infringed only

if copying can be proved, although there is a certain onus

on the alleged copier to prove that they did not copy rather

than a complete onus on the proprietor to show that copying

was effected.

I have also incorporated into the letter a direct warning

that if proceedings are not instituted against you and if

there are further threats in the future, we shall proceed on

the basis of instituting proceedings to restrain these threats.

I think at an earlier stage I suggested you attempt to

gather evidence that such threats had been made, and that

such an attempt was not successful as the persons to whom

the threats had been made did not wish to appear in Court

proceedings. I would again suggest that you endeavour to

obtain this type of information.

I confirm that there are two ways in which Nintendo could

proceed if they decided to take proceedings against you.

The first would be to attempt to be granted an Interlocutory

Injunction, and to proceed later with the action."

52. (The copy of Tatlock's response to Purves Clarke and Richards, said to be attached, was not tendered.)

53. Mr Latin was further examined in chief as follows:

"Now, Mr Latin, you have given evidence about an order in

mid-November, 1989, first for 2000, but ultimately for 1500

units, have there been any further orders placed by

Centronics for SPICA systems?---No.

How many, if any, of the original 1500 units does Centronics

still have?---At approximately at this stage, roughly about 100.

About 100. And does that mean that 1400 have been sold?---

Not correct. There was quite a number stolen from our

premises in Johnston Street, Fitzroy, about - roughly about

50 units, so I would imagine 1350 have been sold.

Right. And are you able to estimate how many, if any, have

been sold since 1 October, 1990?---About 200.

And how much did they sell for?---140 wholesale.

140 Australian dollars?---Correct.

And what is your current belief regarding the legality of

the PPU in the SPICA system?---I still do not believe that

is a copy."

54. In cross-examination, Mr Latin gave the following evidence:

"Mr Latin, you say that the first time you became aware of

any claimed rights in relation to the PPU chip was in August

1990?---Correct.

Well, you had had discussions with Mr Danny Chen, had you

not, back in November 1989?---Correct.

Those discussions included discussions about the CPU and PPU

chips?---Correct.

In the SPICA unit?---Correct."

(ii) The evidence of Fabrizio Latin and of Tiberio Salice

55. Their evidence was that, although both were directors of Centronics, the management decisions that were relevant for our purposes were taken by Mr Maurice Latin.

56. In summary, his Honour found: (1) that the SPICA layout was made in accordance with the Nintendo layout or a substantial part of it (this is no longer a live issue); (2) that a case of secondary infringement under s.19(3) had been made out; and (3) that none of the statutory defences under ss.20, 23 or 27(3), had been established (the defence under s.23 is no longer pressed).

57. With respect to finding (2) of secondary infringement under s.19(3), the primary Judge made no specific finding concerning Centronics' knowledge at that stage or as to what Centronics ought reasonably to have known. However, his Honour had earlier (23 IPR at 122) referred to Centronics' defence as follows:

"In para 29 of the amended defence, the respondents admit

that Centronics did not have a licence from the applicant

but stated that it believed that 'the circuit layout for the

Spica PPU was independently created by UMC in Taiwan and

that the applicant has and had no rights of any kind

regarding it'."

58. His Honour, having made finding (1) above, and having earlier referred to the admission in para.29 of the amended defence, appears to have proceeded upon the footing that the ingredients of s.19(3) were thereby established.

59. Later in his reasons, the Judge considered the possible application of the special defences provided by ss.20 and 27(3). These defences called for an examination of Centronics' state of knowledge at relevant times.

60. His Honour, having first quoted s.20 in its form after it had been amended on 21 December 1990, said (23 IPR at 135):

"As (Nintendo) correctly submitted, Centronics knew shortly

after 31 August 1990 that Nintendo claimed proprietary

rights in the PPU layout, when it received the letter from

the applicant's solicitors, bearing that date..."

61. Having set out the contents of the letter, his Honour said (23 IPR at 135-6):

"Those proprietary rights have now been admitted.

Centronics has always known that it was not licensed by

Nintendo. In my opinion, it could reasonably be expected to

have known that the circuit was unauthorised from the date

on which the Act came into operation, 1 October 1990.

I am satisfied that the applicant's EL rights in the

Nintendo PPU, an eligible layout, have been infringed by

Centronics, and that the second, third and fourth

respondents have caused or permitted that infringement.

Section 20 is concerned with the state of mind of a

respondent in relation to the question whether a circuit was

unauthorised. Section 27 deals with a respondent's state of

mind in relation to the question whether it was aware or had

no reasonable grounds for suspecting that the act

constituting the infringement was an infringement.

...

In my opinion Centronics had reasonable grounds for

suspecting that it had infringed the applicant's rights from

the date of its receipt of the letter of 31 August 1990.

These grounds and this suspicion must have been strengthened

by the issue of proceedings. Nintendo has received no

payment or offer of payment.

Centronics purported to rely on assurances from Keyman

conveyed to it by Danny Chen, of that company, in support of

its general contention that it was not in breach of the Act.

The worth of any such assurances must have been seen to be

very slight when Centronics received the letter from Keyman

dated 1 December 1989..."

62. Having set out the letter, his Honour said (23 IPR at 137):

"Paragraph number 2 under the heading 'Point 1 Game

Cartridges' was a particularly eloquent indication of the

author's conception of business morality."

THE TERMS OF THE INJUNCTION GRANTED AT FIRST INSTANCE

63. The primary relief granted by his Honour was an injunction in the following terms (23 IPR at 137):

"1. The respondents and each of them be restrained from:

(a) selling, letting for hire or distributing by way of trade;

(b) offering or exposing for sale, hire or other

distribution by way of trade; or

(c) importing for the purpose of sale, letting for hire or

other distribution by way of trade;

whether as part of Spica video game consoles or otherwise,

PPU chips in the form of the UMC PPU chip a photographic

representation of the integrated circuit of which is Ex TR-1

herein or otherwise howsoever infringing the applicant's EL

rights in the circuit layout a photographic representation

of which is Ex TR-2 herein."

64. By its amended notice of appeal, Centronics contends that the application at first instance should have been dismissed on the grounds, inter alia, that the primary Judge should have held: 1) that no secondary infringement under s.19(3) had been established; and (2) that a defence under s.20 had been established.

65. As s.20 is one of the provisions amended after the date of the institution of the proceedings, it should be pointed out that the relevant form of it was that which was current when the application was filed. As Brennan J. stated in Esber v Commonwealth of Australia [1992] HCA 20; (1992) 106 ALR 577 at 590:

"...in a judicial proceeding brought to enforce an alleged

right accrued at the time when the proceedings were

instituted, the question for decision is determined

according to the law existing when the proceedings were

instituted unless statute otherwise provides."

See also Oh Ho v Minister for Immigration and Ethnic Affairs (1987) 72 ALR 43. This does not appear to have been appreciated when the case was presented at first instance.

BY VIRTUE OF S.7 OF THE ACT, DID AN ACTION LIE UNDER PART III IN RESPECT OF THE CONDUCT COMPLAINED OF?

66. During the course of the argument on the appeal, a threshold question was raised whether, by reason of the provisions of s.7 of the Act, an action did lie under Part III in respect of the conduct complained of.

67. It will be recalled that s.7 is as follows:

"This Act applies in relation to a circuit layout, whether

made before or after the commencement of Part II (i.e. 1

October 1990), but an action does not lie under Part III in

respect of any act done before that commencement in relation

to the layout, a copy of the layout, or an integrated

circuit made in accordance with the layout."

68. It is common ground that the SPICA units in question were imported into Australia before 1 October 1990 ("the commencement date"). By that date, all but about 200 of the units imported in December 1989 had been sold.

69. It will be recalled that by the provisions of s.19(3), subject to the Act, the EL right in an eligible layout is infringed when, during the protection period, a person "commercially exploits" the layout in Australia "if the person knows or ought reasonably to know, that he or she is not licensed by the owner of that right to do so." It will further be recalled that, by the provisions of s.8, a circuit layout shall be taken to have been "commercially exploited" if, for instance, an integrated circuit made in accordance with the layout is:

"(a) sold, let for hire or otherwise distributed by way of

trade;

(b) offered or exposed for sale or hire, or other

distribution by way of trade; or

(c) imported for the purposes of sale, letting for hire,

or other distribution by way of trade."

70. So far as concerns importation for sale of the subject goods, imported in December 1989 and before the commencement of Part II, the provisions of para.(c) above could not apply, by reason of the provisions of s.7. That is, no action could lie under Part III in respect of the "commercial exploitation" which took the form of the importation for the purpose of sale or other distribution by way of sale. But the question remains whether, as Nintendo contends, there can be "commercial exploitation" in the sense described in paras.(a) and (b) above, notwithstanding that the importation for sale ("commercial exploitation" in the para.(c) above sense) took place before the commencement date, that is to say, in respect of the relatively small proportion of the units sold after 1 October 1990.

71. Thus since an action did not lie under Part III of the Act in respect of the importation of the goods in December 1989 (para.(c) above), the question is, was it nonetheless open to Nintendo to claim that the subsequent sale of the layout, in some instances before 1 October 1990 and in other instances after that date, is as regards sales after that date a "commercial exploitation" in the sense described in paras.(a) or (b) above?

72. This point was not raised at first instance. However, it is a question of law only, being a question of the construction of the Act in respect of which the facts could not be, and are not, controversial. Nintendo could not have wished to call evidence in response to it. The position here is similar in principle, in this respect, to the situation in National Australia Bank Ltd. v K.D.S. Construction Services Pty. Ltd. [1987] HCA 65; (1987) 163 CLR 668 per Mason C.J., Brennan, Deane, Dawson and Toohey JJ., at 679-680, where the High Court allowed a point to be relied upon successfully by an appellant notwithstanding that the point had not been taken in the courts below. (See also Rheem Australia Ltd. v Collector of Customs (NSW) (1988) 78 ALR 285 per Burchett J. at 305-6.) In our opinion, it is "expedient and in the interests of justice to entertain the point" (see Banque Commerciale S.A., en liquidation v. Akhil Holdings Limited (1990) 169 CLR 279 per Mason C.J. and Gaudron J. at 284). As has been said, the point is one of statutory construction and, in particular, the true interpretation of s.7.

73. In the Explanatory Memorandum, the following explanation of cl.7 of the Circuit Layouts Bill 1988 was given:

"Clause 7 - Application to circuit layouts made before

commencement

21. The Bill applies to all circuit layouts, including

those made before the commencement of the Bill. However it

is intended that only the unauthorised exercise of exclusive

rights after commencement of the Bill may give rise to an

infringement action."

74. As has been noted, under s.7, an action does not lie "in respect of" any act done before 1 October 1990. Here, the act of importation for sale was before 1 October 1990. But, is it proper to construe s.7 as applicable to exclude an action based on the sale itself, even if that sale takes place after 1 October 1990?

76. We accept that, in some contexts, the act of importation, even if for sale, and the act of sale, even of the same goods, may be capable of being distinguished for some purposes. But, in the present context, to separate and distinguish the relevant conduct of Centronics in this way, even if literally possible would, we think, give an unjust, irrational, and inconvenient result. In such circumstances, the literal reading of the statute should be rejected (see Cooper Brookes (Wollongong) Pty. Ltd. v Federal Commissioner of Taxation [1981] HCA 26; (1981) 147 CLR 297 per Mason and Wilson JJ. at 321). A literal interpretation of the Act would mean that goods could be lawfully imported for sale but not lawfully sold although imported for that very purpose. That would give a "capricious" result which should only be adopted if the language is "intractable" (see Cooper Brookes at 320).

77. In our view, the language is not intractable. For present purposes the critical question is the meaning to be given to the words "in respect of any act". It has been said that the words "in respect of" have the "widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the words refer" (per Mann C.J. in Trustees, Executors and Agency Co. Ltd. v Reilly [1941] VicLawRp 22; (1941) VLR 110 at 111). See also Tarea Management (North Shore) Pty. Ltd. (in Liq.) v Glass (1991) 28 FCR 93 at 100.

78. These words should be given a wide meaning in the present context, so that no action lies under Part III, not only for the importation of the subject goods, but also for any other conduct connected or related to that importation. Since the importation was made for the purpose of sale, there is a sufficient connection or relation between the importation of the goods and their subsequent sale.

79. This interpretation is, we think, reinforced by the general rule of construction that legislation is presumed not to interfere with vested proprietary interests. As Mason J. said in American Dairy Queen (Qld) Pty Ltd v Blue Rio Pty Ltd [1981] HCA 65; (1981) 147 CLR 677 at 682-3:

"The general rule is that the courts will construe a statute

in conformity with the common law and will not attribute to

it an intention to alter common law principles unless such

an intention is manifested according to the true

construction of the statute. ... This rule certainly

applies to the principles of the common law governing the

creation and disposition of rights of property. Indeed,

there is some ground for thinking that the general rule has

added force in its application to common law principles

respecting property rights."

80. See also D.C. Pearce and R.S. Geddes, Statutory Interpretation in Australia, 3rd ed. at 102-3; Wade v New South Wales Rutile Mining Co. Pty. Ltd. [1969] HCA 28; (1969) 121 CLR 177 at 181, 182; Balog v Independent Commission against Corruption [1990] HCA 28; (1990) 169 CLR 625 at 635-6; and Wentworth v N.S.W. Bar Association [1992] HCA 24; (1992) 66 ALJR 360 at 363-4.

81. If Nintendo's contentions are upheld, goods that were lawfully imported for sale will be sterilised in terms of trade by virtue of a statute coming into operation 10 months after their importation. Bennion, Statutory Interpretation, 2nd ed. at 584-6, observes that the presumption against imposition of a statutory detriment to a person's property or other economic interests without clear words is an aspect of the general principle against "doubtful penalisation", that is, that a person should not be penalised under a doubtful law if the right of the owner of property to dispose of it is protected by this presumption (see also Trade Practices Commission v Tooth and Co. Ltd. [1979] HCA 47; (1979) 142 CLR 397 at 414). Moreover, there is an assumption that legislation is not retrospective so that, prima facie, it is to be construed as not attaching new legal consequences to facts or events which occurred before its commencement (see Pearce and Geddes, op. cit. at 18). That is, in the absence of explicit language, the Act should not, in our view, be interpreted so as to prohibit the resale of goods lawfully imported for that purpose.

82. It follows, in our view, that no action lies under Part III for the sale of the goods imported in December 1989, notwithstanding that the sale of some of the goods took place after 1 October 1990.

83. Although it further follows that no injunction could have been granted in respect of the sale of the subject goods, a question arises whether the injunction granted by the primary Judge was justified on the footing that Centronics threatened to import similar goods in the future. Although Centronics, until recently, contended that there was no copying involved, there was no evidence or other material before his Honour to justify the conclusion that Centronics intended, in the future, to import more of the SPICA units. That being so, no basis for the grant of an injunction on a "quia timet" basis has been made out.

84. In the result, we are of the opinion that no injunction should have been granted at first instance.

DOES s.20 HAVE ANY APPLICATION HERE?

85. It will be recalled that s.20 is in Part II of the Act, so that the provisions of s.7 which refer to Part III do not apply to s.20. However, much of the reasoning which leads us to conclude that the provisions of Part III did not apply to the subject shipments of goods is also applicable to s.20. It will be remembered that by s.20(2), in both its original and amended form, the protection of s.20(1) may be lost in certain circumstances, unless the "commercial exploiter" pays remuneration as prescribed. If the provisions of s.20(2) are applicable, their operation will amount to a real restraint so far as Centronics is concerned (cf. Stenhouse Ltd. v Phillips [1973] UKPC 1; (1974) AC 391 at 402-3) because the lawful act of importation for sale occurred well before the commencement of the Act. For the reasons previously given, in the absence of clear words, and none are present here, s.20(2) should not be construed so as to apply to the subject shipments.

86. For the sake of completeness, it should, in any event, be noted that at no stage has any party suggested that remuneration under s.20(2) is payable in the circumstances of the present case.

87. In addition to the grant of the injunction, the primary Judge made the following consequential orders:

"2. The respondents within seven days of the date hereof -

(a) deliver up to the applicant each of the UMC PPU

chips referred to in paragraph 1 hereof;

(b) make file and serve an affidavit verifying that

all such UMC PPU chips have been delivered up as

aforesaid.

3. There be an inquiry as to damages or at the

applicant's option an account of profits made by the

respondents and each of them by infringement of the

applicant's said EL rights and payment of the sum

found due.

4. (a) The respondents within fourteen days of the date

hereof make file and serve an affidavit setting

out details of all sales made of Spica video

games units containing the UMC PPU chip referred

to in paragraph 1 hereof;

(b) within fourteen days thereafter, the applicant

make its election referred to in paragraph 3

hereof and communicate the same to the respondents;

(c) the applicant have liberty to apply thereafter

as to the conduct of the said enquiry or account

(as the case may be)."

88. It must follow from the foregoing, in our view, that these orders should be set aside also.

89. (Other orders were made by consent in respect of separate causes of action. They are not the subject of this appeal.)

90. We propose that the appeal be allowed, that orders 1, 2, 3 and 4 made at first instance be set aside and that, to this extent, the application be dismissed.

91. Consistently with the approach taken by the High Court in National Australia Bank Ltd. v K.D.S. Construction Services Pty. Ltd., above, at 680, it is proper to deny the appellants their costs of the appeal but to allow them appropriate costs at first instance. Since other issues were then agitated (and settled) it is appropriate that the appellants have two-thirds of their costs at first instance. Consequently, Order 7 made at first instance must also be set aside.