Did Ms Howitt know that the Spotlight products were based on Dempsey products in which Dempsey Group had copyright?
79 Dempsey Group submitted that the Court should prefer the evidence of Mr Chen over the evidence of Spotlight's witnesses as to what occurred at the visit in April 2016.
80 It was submitted that Ms Howitt did not adequately explain why only the Dempsey products (Bosphorus and Constantinople) had a "creat[e] a design" notation on the spreadsheet when Yantai produced designs for other products shown on the first spreadsheet which were very similar to the designs on which they were based, such as the "boat sample" and a paisley design. It was submitted that her evidence - that she did not order those designs - did not explain why, in the meeting, she had not directed modifications to those samples which both made it to the first spreadsheet, the purpose of which was to reflect the design choices already made at the meeting. As the evidence established though, both samples appeared in the spreadsheet because they were discussed at the meeting and not, as asserted, because the choice of design had already been made. There was no evidence about what was discussed about those samples and, in the absence of such evidence, there is no reason to doubt the reliability of Ms Howitt's evidence or the credibility of her explanations as to why she asked for designs to be created for the products based on the Constantinople and Bosphorus samples: in relation to Constantinople because she wanted a different patchwork design and in relation to Bosphorus because she did not want the design presented to her (which on her evidence she had not selected but which had been selected for her by Yantai's staff).
81 Another inconsistency was said to be:
… in order to explain why she made modifications to the Bosphorus, Ms Howitt asserted, "Well, I never order from their showroom"... Yet, in relation to another two products on the [priority] Print Costing List, [Ms Howitt] contradicted this:
And - well, looking at page 824, the first picture there?---Yes.
No request to create a design?---The black and white?
Yes?---That was one of their designs.
What about the third down?---That was one of their designs.
82 The premise of that submission appears to be that the two Yantai products referred to were ordered by Spotlight without modification, but it was not established that Ms Howitt placed orders for either of those Yantai products.
83 It was further submitted that Ms Howitt's evidence that the Rimona product was only ever used as a "colour sample" was untenable. In written submissions, it was put:
In relation to the Dempsey Group's Rimona product, Ms Howitt admits recognizing [Bed Bath N' Table's] MORGAN & FINCH trade mark on the packaging but denies ever seeing the full design. Mr Chen's evidence is that a Rimona quilt cover was displayed on a bed, at her request, in the Profile Room. Even if Mr Chen's version is not accepted, Ms Howitt's own photograph shows that the packaged Rimona Product which was brought to the Meeting Room had a photo insert in which the detail of the quilt is visible. In the second photograph taken by Ms Howitt of the products in the meeting room the white paper has been moved so that the photo insert is visible.
Ms Howitt's position that the Rimona product was only ever used as a "colour sample" is untenable. In the meeting room, it was denoted with a priority number "(5)" and the word "coverlet". It also appeared on the Priority Print Costing List with the specification "coverlet". Moreover, Ms Howitt 'signed off' on three documents which illustrated the Rimona Product in a [computer aided design] Drawing and/or in the MORGAN & FINCH packaging. Her explanation that Rimona was only a colour sample is unconvincing when one de-constructs the "line up" photo in the Priority Print Costing List - None of the other items in the front row have anything to do with colour and the Rimona product has a note "5 coverlet" stuck on it.
(errors in original)
84 The "line-up" photo was a reference to a photo which appears on the page of the first Yantai spreadsheet showing the three Dempsey products. There is an unfairness in the submission because the line-up photo only covers those products shown on that page of the spreadsheet and self-evidently is not a photo of the full line up of all the samples that Ms Howitt arranged. Furthermore, contrary to the submission that none of the items shown in the front row of that photo had anything to do with colour, Ms Howitt identified that the first vertical row has a computer aided design with a colour reference on top. The appearance of that colour sample at the front was consistent with her evidence that when she arranges samples the design reference is at the back and the colour reference is at the front. Consistent with Ms Howitt's evidence, the photo also shows a design at the back which Ms Howitt had given evidence was a computer aided design of a quilt cover provided by Yantai in a colour that she did not like. The colouring of the product shown as PD-P-1348C on the first spreadsheet is also consistent with Ms Howitt's version of events. In view of these consistencies, Ms Howitt's evidence that she used the MORGAN & FINCH packaged product only as a colour sample for the product shown as PD-P-1348C is tenable. If only used for that purpose, Ms Howitt's evidence that she did not see the MORGAN & FINCH product unpackaged or pay attention to the design as shown on the image of the packaging is also tenable.
85 Reliance was also placed on the email from Mr Mouradian to Ms Howitt and Mr Windsor of 23 December 2016 which, it was said, was consistent with Mr Chen's version. In cross-examination Ms Howitt had agreed that she did not, at the time, correct Mr Mouradian. However, the evidentiary value goes no further than as a record of what Mr Mouradian was told by Mr Chen at a time after the dispute had arisen. It does not provide independent corroboration of Mr Chen's version. I also place no weight on the fact that Ms Howitt did not correct Mr Mouradian at the time. In cross-examination Ms Howitt explained that she did not take issue with Mr Mouradian because the lawyers, by then, had become involved and she was "having as little as possible to do with any Yantai Pacific team staff members". I accept that explanation as credible, given that by then general counsel at Spotlight was involved in the matter and lawyers had been engaged by both parties.
86 There are a number of reasons for preferring the evidence of Ms Howitt over the evidence of Mr Chen.
87 First, I accept the evidence of the Spotlight witnesses, and find, that Mr Wang was present at the meeting. There is no reason to doubt the reliability of the Spotlight witnesses' recollection in that regard. Mr Wang was not called as a witness and there was no other evidence put before the Court which would indicate that Mr Wang was not at the visit.
88 Secondly, I place weight on what transpired when it came to the attention of Ms Howitt that the KOO Lottie design was a design in which Bed Bath N' Table had copyright and Ms Howitt cancelled the order. Also consistently Ms Howitt gave evidence that in about early September 2016 following another buying trip and visit to Yantai's showroom she became aware that another Spotlight purchase order was based on a design that Yantai had already sold to another Australian retailer. As a result she cancelled the relevant orders and placed revised orders. She sent an email to Mr Mouradian on about 21 September 2016 which stated, amongst other things:
As you know we are very disappointed that you have shown us designs that have already been sold to other Australian retailers.
We have raised this with you previously, so this is the second time that this has happened.
Please note that if this happens again, we will have no choice but to stop all future business with Yantai Pacific.
89 A similar incident transpired on a third occasion. Ms Howitt's evidence was that between August 2016 and January 2017 she worked with Mr Mouradian and Mr Wang for the purpose of placing an order with Yantai for the purchase of a bed linen design which she gave the name of KOO Elite Dianna. The design was presented to her by Mr Mouradian during one of his regular meetings with Ms Howitt at Spotlight's headquarters. She placed an order for it after requesting some alterations to darken the colour of the blue background in email correspondence. On 5 January 2017 Mr Mouradian sent her an email that stated that the original version of that design was already on the market in Australia and belonged to another retailer. In consequence Ms Howitt also cancelled that order.
90 The materiality of these three incidences within that short time frame is that on each occasion it was Yantai's fault that purchase orders by Spotlight used designs which belonged to other retailers and on each occasion when brought to the attention of Ms Howitt she cancelled the order.
91 Thirdly, Dempsey Group's reliance on the annotation "DTC" in the rows of the first Yantai spreadsheet sent by Yantai to Spotlight following the April 2016 meeting relating to the KOO Taj product does not advance Dempsey Group's case about knowledge that Spotlight had or ought to have had. Ms Howitt's evidence was that she did not know what this acronym stood for at the time and she only became aware that it was connected with Dempsey Group in the course of this dispute. The evidence of Ms Rico Estrada and Ms Frische was to the same effect.
92 Fourthly, I do not find it plausible that Mr Chen, having twice told the Spotlight buyers that Bed Bath N' Table had copyright in the three samples, nonetheless allowed the samples to be used as the basis for the Spotlight products. Tellingly, prior to the April 2016 meeting, Yantai had been placed on notice on several occasions that Dempsey Group asserted intellectual property rights in its designs and that Dempsey Group would take action against any suppliers that supplied Dempsey Group designs to other traders. Mr Chen was cross-examined at length about his awareness of this and the documents which Yantai had received from Dempsey Group concerning that matter:
MR MERRICK: And that's a standard-form copyright notice that Yantai received many times from Dempsey Group?
THE INTERPRETER: Yes.
…
MR MERRICK: Thank you. Now, just in paragraph 1 - when you read this document, you understood that to be an assertion that Dempsey Group owns all of the intellectual property in the designs it provides to Yantai.
THE INTERPRETER: Yes.
…
MR MERRICK: When you read that, you knew - didn't you - that it was saying to you that you must not sell Dempsey Group's designs to any other trader.
THE INTERPRETER: I know I can't sell. I didn't sell the Dempsey Group's products.
…
MR MERRICK: Yes. And when you read that - when you received these documents, you understood that Dempsey Group was saying to you, if you contravene these obligations, Dempsey Group might make a claim against Yantai.
THE INTERPRETER: Yes.
MR MERRICK: And having received this copyright notice on many occasions, Yantai agreed - didn't it - to abide by these terms.
THE INTERPRETER: Yes. We agreed.
…
MR MERRICK: Yes. Now, when you received this letter in about June 2015, you understood that what was being said to you in the first paragraph is that, if you sold Dempsey Group's designs to someone else, they might take action against you.
THE INTERPRETER: Yes.
MR MERRICK: And can I just ask this. When you received this letter in June 2015, you understood what it meant; didn't you.
THE INTERPRETER: I know.
…
MR MERRICK: Yes. And having read those three paragraphs to refresh your memory - when you received this letter and read those paragraphs, you understood very clearly - didn't you - that the Dempsey Group vigorously protected its intellectual property rights?
THE INTERPRETER: Yes.
MR MERRICK: And you understood that, if you as a supplier to the Dempsey Group were involved in selling Dempsey Group's designs to another trader, Dempsey Group might take legal action against Yantai.
THE INTERPRETER: Yes.
…
MR MERRICK: Sure. I'm sorry, your Honour. We will take this in little steps, Mr Chen. I've taken you to three documents which set out your obligations to the Dempsey Group in relation to intellectual property. Do you recall those documents?
THE INTERPRETER: Yes.
MR MERRICK: And you know - don't you - that those documents require you not to sell the Dempsey Group's designs to other traders.
THE INTERPRETER: Yes.
MR MERRICK: And you wouldn't knowingly sell one of the Dempsey Group's designs to another trader, would you.
THE INTERPRETER: I won't sell Dempsey's design to other merchandiser.
…
MR MERRICK: I see. Thank you. Now, just want to cover off a few things with you, Mr Chen. As at April 2016, you knew that Yantai was not supposed to sell the Dempsey Group's designs to other traders. You knew that.
THE INTERPRETER: Yes. I knew.
93 In response to questioning from the Bench, Mr Chen agreed that he was aware that the Spotlight buyers were looking at the Dempsey products and talking about changes they wanted made by Yantai and that he was aware that copyright existed in the Dempsey designs. Mr Chen gave the following answer:
THE INTERPRETER: But I did mention twice during the meeting… the buyer from the Spotlight, Katie, and asked us to change the design - for example - change the layout and some elements - for example - change this flower to another flower and take away the bird, but the colour, tone and the whole feeling shouldn't change. And also, our relationship - because the Spotlight kept changing their buyer, our relationship wasn't that good. They will have lots of requirements, and we felt hard to refuse. And also, we don't know how much change we made that there won't be any copyright issue exist in Australia; then we rely on Spotlight's legal team and the buyer to make this decision.
94 I do not find that answer credible. Mr Chen's account is contradicted by his own conduct. He was dealing with a Spotlight buyer with whom he had had many prior dealings and whom he knew was very experienced. Mr Chen also agreed in cross-examination that in his previous dealings with Ms Howitt she had never made a request of the type he now attributes to her and he was plainly on notice from Dempsey Group that Yantai could not sell Dempsey Group's designs to other traders. Mr Chen agreed that he did not tell the Spotlight buyers that Yantai could not supply the Bed Bath N' Table designs to Spotlight. Having regard to those matters, his version of events, in my view, is simply not credible.
95 The events which followed the 29 April 2016 meeting further make Mr Chen's account of the meeting implausible. It was Mr Chen who, on 29 April 2016, following the meeting, sent the first Yantai spreadsheet to Ms Howitt by email with the statement "[t]hanks very much for your like our design and product". Mr Chen's account is inconsistent with sending a spreadsheet containing products that Yantai was offering to manufacture for Spotlight which Mr Chen, on his evidence, knew were products in which Dempsey Group had the copyright.
96 Further, Mr Chen advanced evidence that during the meeting, Spotlight's buyers gave "very detailed" instructions about the products in dispute. However, there was no evidence of those instructions from Yantai. The best that Mr Chen could do was point to some (illegible) scraps of paper which appear in some of the photographs in evidence. Beyond a notation which reads "coverlet", Mr Chen was not able to provide any evidence of these detailed instructions. This lends further support to Spotlight's account of the meeting being more reliable.
97 Fifthly, I accept the submission that Mr Chen cannot be viewed as an impartial witness. Yantai has already lost Spotlight as a customer and the evidence was that Yantai is subject to the threat of a legal claim by Dempsey Group in relation to the subject matter of this dispute. Dempsey Group generates a significant amount of revenue (approximately US$8-9 million per annum) for Yantai and Mr Chen described Dempsey Group as a "very important customer". Mr Chen's email exchange with the head of Buying and Product Development at Dempsey Group, Ms Kate Mackie, in December 2016 confirmed this in terms:
MR MERRICK: Your Honour just bear with me for a moment; just back with this email, Mr Chen, I've just got one other thing to ask you about. You see towards the bottom of the page you say:
I am really scare of such issues. I really worried. I lost the reputation in Dempsey Company.
Do you see that?
THE WITNESS: Yes.
MR MERRICK: And what you were saying there is that you were very concerned that your company's involvement with the Spotlight products would create an issue for you with the Dempsey Group.
THE INTERPRETER: These are two issues. First, I was concerned I don't want these two customers have any trouble, and second, I don't want to lose my reputation with Dempsey.
98 Sixthly, the account advanced by Mr Chen is also contradicted by an email sent by Mr Chen to Ms Mackie on 21 December 2016 in response to an email from Ms Mackie to Mr Chen sent on 19 December 2016 in which Ms Mackie advised that Dempsey Group was in dispute with Spotlight over three designs that were direct copies of Dempsey Group's designs. Ms Mackie wrote that they thought that Spotlight had directed their supplier to copy their products but Spotlight was disputing that there was copyright infringement and had advised Dempsey Group that Yantai was the supplier of their versions of Dempsey Group's designs which were shown to them in a visit to the Yantai showroom. Ms Mackie sought an explanation as to how this came to be "when you are aware of how aggressively we protect our Intellectual Property". In his reply email, Mr Chen stated:
I am very sorry for that. That is my company problem
I just called back to China. Checked with our spotlight team. The manager said we supplied those three designs to Spotlight on Sep. and He also mentioned DTC team Frank asked such question weeks ago. But he didn't tell the truth story to Frank. He doesn't know the copy right is a serious problem.
Spotlight came to yantai at end of April and they saw your products in our show room. And they wanted that. Our team told them that designs below to DTC .but they give some instruction and idea to change. Our guy just followed.
am very apologise that is my management problem.
(errors in original)
99 Consistently in the 23 December 2016 email from Mr Mouradian to Spotlight, Yantai also took responsibility for submitting artworks that were too close to the Bed Bath N' Table designs.
100 The weight of the evidence supports Spotlight's account rather than Mr Chen's account. The reliability of Ms Howitt's evidence was corroborated by Ms Frische and Ms Rico Estrada to the extent that they were able to recall events or participated in the meeting. On Mr Chen's account, Ms Gao and Mr Yuan were both present at the meeting but neither of them gave evidence and the failure to call them was unexplained. In the circumstances it is reasonable to draw a Jones v Dunkel inference from the failure to call them as witnesses.
101 Accordingly I find that the Spotlight buyers did not know that the samples on which the Spotlight products were based were Dempsey products which held the copyright in those designs until put on notice on 29 November 2016.