Federal Court considers the “repair defence” to registered design infringement for the first time
The Federal Court recently considered for the first time the ”repair defence” in section 72 of the Designs Act 2003 (Cth) (Act): GM Global Technology Operations LLC v S.S.S. Auto Parts Pty Ltd  FCA 97.
The case relates to a number of GM’s registered designs for body parts for HSV and VE Commodore high performance cars. GM alleged that entities trading as “SSS Auto Parts” (SSS) had infringed a number of its registered designs by importing, keeping for sale, offering to sell and selling replica HSV and VE body parts. SSS defended the allegations on the basis of the “repair defence” and cross-claimed against GM for unjustified threats and misleading and deceptive conduct.
With the exception of a small number of infringing sales, GM was unsuccessful on its claim. SSS’ cross-claim was largely dismissed.
What is the “repair defence”?
The “repair defence” is a complete defence to a claim of design infringement where a product which would otherwise infringe a registered design has been used for the purpose of “repair”. The defence only applies to cases involving “complex products”, which are products containing two or more replaceable component parts (such as spare parts). Under the Act, a “repair” restores the overall appearance of the complex product.
Once an allegation of infringement has been made, the alleged infringer only needs to claim that it used the relevant product(s) for the purpose of repair, and the onus shifts to the registered design owner to prove that the alleged infringer knew, or ought reasonably have known, that the use was not for the purpose of repair.
When the defence is raised, the registered design owner is effectively required to prove that the alleged infringer is not entitled to rely on it. This type of “reverse onus” defence is relatively unusual in intellectual property law. A defence to infringement is normally only available if the alleged infringer is able to establish the defence (not when the IP rights owner cannot prove that the defence is not available). The repair defence presents a significant obstacle to owners of registered designs covering spare parts having a “dual-purpose” (i.e., which can be used for repair and non-repair purposes) from enforcing their rights.
GM v SSS
At the heart of this dispute was GM’s concerns about “lower-spec” Holden car owners purchasing replica HSV and VE Commodore body parts (being differently-shaped bumper bars, lights, bonnets and grilles) from retailers supplied by SSS to customise and enhance the visual appeal of their cars, rather than paying for (higher-priced) “genuine” parts from GM’s authorised dealer.
SSS imported the replica body parts and supplied them to traditional bricks-and-mortar repair and enhancement service providers and to online retailers who sold them direct to customers.
The main issue as far as GM’s claim was concerned was whether SSS could rely on the repair defence. This turned on whether GM could establish that SSS knew, or ought reasonably to have known, that it did not import and sell the replica body parts for the purpose of repair.
GM had to establish what SSS knew or ought reasonably to have known about the purpose of each alleged infringing use
The Court made a number of findings about the applicable principles for establishing the knowledge of a corporation.
- Attribution of knowledge: The relevant knowledge had to be attributed to SSS via one or more human actors, being the individuals who had been given actual or ostensible authority to act on SSS’ behalf. An individual so closely and relevantly connected with SSS that his or her state of mind would be treated as being that of SSS would be a relevant “human actor”.
- Aggregation of knowledge: The Court rejected submissions put by GM to the effect that the Court could aggregate the knowledge of more than one individual and attribute the aggregated knowledge to SSS. The Court held that section 72 does not permit a registered design owner to “mosaic” knowledge in this way to create “a picture of knowledge”.
Proving actual knowledge: The Court reiterated that actual knowledge can be proved by inference – an inference can be drawn based on a combination of suspicious circumstances and a failure to make inquiry. It will be important to consider “the opportunities for knowledge and lack of obstacles to the particular person acquiring the relevant knowledge and second, the credibility of any denial by the person of such knowledge”.
- Proving constructive knowledge: A person will be deemed to have constructive knowledge “of all matters of which the person would have received notice if the person had made the investigations usually made in similar transactions and of which the person would have received notice had the person investigated a relevant fact which had come to that person’s notice and into which a reasonable person ought to have enquired” (). It is important to consider the knowledge, capacity and circumstances of the person, or of a person in the same position ().
The knowledge requirement
The Court held it was insufficient for GM to prove that SSS had actual or constructive knowledge that a replica spare part might well be used for a non-repair purpose. GM had to prove that SSS knew, or ought reasonably to have known, that the relevant use was not for the purpose of repair.
One way in which GM attempted to show that SSS knew, or ought reasonably to have known, that the use of the replica body parts was not for the purpose of repair, involved a series of nine “Knowledge Factors”, which were designed to “paint a picture” of what, on GM’s case, was really going on. GM argued actual knowledge could be inferred based on the Knowledge Factors, and that the relevant individuals within SSS ought reasonably to have known the use of the replica body parts was not for the purpose of repair on the same basis.
The Knowledge Factors included assertions made by GM in relation to the greater consumer demand for body parts for customisation purposes by comparison to genuine repair purposes, and the disparity between the volumes SSS imported by comparison to what would reflect genuine demand for repair purposes.
The Knowledge Factors also included assertions about the number of body parts which SSS sold in individual transactions and the frequency of sales (higher numbers and frequency of bulk purchasers were said to reflect use for non-repair purposes) and the names and nature of different customers’ businesses. GM also relied on “Knowledge Factors” about the combination, number and relationship of the body parts relative to the overall appearance of a car (such as where GM alleged SSS had imported and sold replica spare parts in the form of “kits” including body parts for attachment to both sides of a car at the same time).
A matter which proved to be important to the resolution of the dispute was that in around 2015, SSS adopted various “repair only” policies and a “repair only directive”. These provided for and reminded staff that SSS only supplied spare parts for the purpose of repair and not for the purpose of upgrading or enhancing vehicles. Importantly, SSS required members of its sales staff to read and sign the directive. The Court placed a degree of weight on these matters in assessing whether GM had established that SSS knew, or ought reasonably to have known, that the replica body parts were not used for the purpose of repair.
The allegedly infringing transactions
GM claimed that SSS had infringed several of its registered designs in more than 1,300 transactions. However, the Court considered those claims by reference to 26 sample transactions involving the importation and sale of replica body parts.
In relation to the importation of the parts, the Court held the relevant time to assess SSS’ knowledge in relation to the purpose of each importation was the date that each act of importation occurred, not as GM submitted, the date an order was placed with a supplier.
In finding that GM failed to establish that SSS’ director, the individual responsible for authorising importation, had the relevant knowledge, Burley J accepted SSS’ director’s evidence that the focus on SSS’ business was generally to sell spare parts for repair purposes and that was how he understood and intended the business to operate.
The Court rejected GM’s attempt to infer actual knowledge or establish constructive knowledge based on a number of Knowledge Factors. This was primarily because the Knowledge Factors GM relied on assumed specialist knowledge SSS’ director did not have. This assumed knowledge included details about the number of HSV cars that were on the road in Australia at the time (which was confidential to a third party), and details about the practice of insurance companies of not authorising the use of parallel imports for the repair of cars less than 5 years old. The knowledge of the witnesses GM called about those matters was not relevant for the purposes of the repair defence. There was no evidence to establish the body parts were not imported in the ordinary course of SSS’ business, which the Court accepted was to sell aftermarket parts for repair purposes.
The Court’s findings in relation to each of the sample sales transactions were based on the particular circumstances of each transaction. For example:
- In 2015, SSS made sale to “Instinct Vehicle Enhancements”. The relevant individual within SSS for the purposes of determining what knowledge was attributable to SSS knew the name of the customer’s business included the word “enhancement” and that the business provided customisation services. He also knew end users acquired body parts for vehicle enhancement (he had, in fact, offered parts sold by SSS for customisation purposes). Consistently with his normal practice, the Court held that he would have reviewed the customer’s website to ascertain if they were in the automotive trade. The website described the customer’s customisation services but it made no mention of any panel beating or other repair services. The number of body parts ordered was also significant. For these reasons, the Court found that SSS could not rely on the repair defence because it had the relevant knowledge at the time of the sale.
- In 2014, SSS made a sale to “Oz Car Parts”. The Court held the sale occurred when the “repair only” policies were in place. At that time, the relevant individual within SSS was aware of the policies and understood the business was directed at selling body parts for the purpose of repair only. That individual gave evidence that he did not know of any sales to Oz Car Parts for any non-repair purposes. Although Oz Car Parts was an online seller (GM argued online sellers were a source of spare parts for customisation purposes), the Court held that was not determinative of the issue because it did not establish that the individual knew Oz Car Parts did not provide repair services. GM argued that a mere “cursory investigation” of Oz Car Parts would have revealed that it did not have a repair purpose as such, but the Court held GM had failed to point to any evidence suggesting a reason why the individual would have made any such enquiry. The Court also held that the fact that a large number of parts had been sold by SSS as part of this sale was not determinative because there were other explanations for Oz Car Parts making a large purchase, including to access a discount on a bulk order. Accordingly, SSS was entitled to rely on the repair defence in relation to this sale.
Overall, apart from a small number of representative transactions (including the above sale to “Instinct Vehicle Enhancements”), GM failed to establish its claims of design infringement by sale against SSS as SSS was largely entitled to rely on the repair defence.
SSS’ claim against GM for unjustified threats and contraventions of the ACL
SSS’ cross-claim against GM was largely dismissed. In doing so, the Court found generally that:
- A design owner who alleges infringement of an uncertified registered design will not be liable for unjustified threats if the uncertified design is subsequently certified.
- A registered design owner will not be liable for unjustified threats by sending a letter of demand alleging infringement if the design owner is not in a position as at that date to establish that the repair defence is not available to the alleged infringer – the design owner only has to discharge that onus if the alleged infringer asserts the repair defence in response to the infringement allegation.
- Although the contents of or omission in a letter of demand can form the basis of a claim for misleading and deceptive conduct, a rights owner does not have an obligation or duty to volunteer information in a letter of demand about the alleged infringer’s rights (such as by alerting the alleged infringer that the repair defence might be available).
The Court did hold that a limited number of unjustified threats were made in this case in relation to uncertified design registrations which were not subsequently certified and in relation to copyright works which were not owned by GM (GM accepted those threats were unjustified).
Key lessons learned
- If the repair defence is raised, the design owner bears the onus of proving that the alleged infringing activity was not conducted for a repair purpose.
- It may be difficult to demonstrate the requisite level of knowledge simply from the surrounding circumstances.
- There can be a fine line between mere notification of a design owner’s rights under an uncertified design and an assertion of infringement of that design, but a threat might not be unjustified if the design is later certified.