Spare parts and the ‘repair defence’ against infringement

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The Federal Court of Australia (‘the Court’) in GM Global Technology Operations LLC v S.S.S. Auto Parts Pty Ltd[1] has handed down its judgement in relation to, amongst other things, the operation of section 72 of the Designs Act 2003 (Cth) (‘the Act’). This is a significant decision since it is the first time this provision has been tested by an Australian court.

 

Summary

In a relatively lengthy decision manifested in some 200 pages, the Court ultimately decided in favour of the respondents (being the alleged infringers in the matter) on the basis that the applicant (being the registered design owner in the matter) failed to discharge the burden placed on it by section 72 to prove that the respondents knew or ought reasonably to have known that the impugned uses were not for the purpose of repair so as to restore the overall appearance of a complex product in whole or in part. The number of fact issues considered by the Court in coming to this decision demonstrate the complexity of the operation of the repair defence pursuant to section 72 of the Act. The respondents were also successful in relation to their cross-claim for unjustified threats insofar as they relate to designs that were never certified in accordance with the Act.[2]

 

Relevant Law

Section 71(1) of the Act provides that a person infringes a registered design if, during the term of registration of the design, and without the licence or authority of the registered owner of the design, the person uses a product in relation to which the design is registered, which embodies a design that is identical to, or substantially similar in overall impression, to the registered design. The Act defines “use”, in relation to a product, as:[3]

  1. to make or offer to make the product; or
  2. to import the product into Australia for sale, or for use for the purposes of any trade or business; or
  3. to sell, hire or otherwise dispose of, or offer to sell, hire or otherwise dispose of, the product; or
  4. to use the product in any other way for the purposes of any trade or business; or
  5. to keep the product for the purpose of doing any of the things mentioned in paragraph (c) or (d).

Section 72(1) of the Act (commonly referred to as ‘the repair defence’) provides a complete defence against infringement where a component part embodying a registered design is used for the purpose of repair of a complex product (that is, a product comprising at least two replaceable component parts permitting disassembly and re-assembly of the product).

To satisfy this provision, the complex product needs to be repaired, and to have its overall appearance restored in whole or in part. This provision does not provide a defence against infringement where the use of a component part embodying a registered design is for the enhancement of the appearance of the complex product.

Section 72(2)(b) places an onus on the registered design owner during infringement proceedings to prove that the alleged infringer knew, or ought reasonably to have known, that the use or authorisation was not for the purpose of repair of the complex product.

Further, in accordance with the Act, a design application is not subjected to substantive examination prior to registration. Rather, new design applications proceed directly through to registration following formalities examination. An owner of a registered design may not bring infringement proceedings until the design is examined in accordance with the Act and a certificate of examination has been issued.[4] If a certificate of examination has not been issued in respect of a design, a threat to bring infringement proceedings in respect of that design is an unjustified threat.[5] A court may grant relief from unjustified threats sought by an applicant unless the respondent satisfies the following elements:[6]

  1. the design concerned is registered, has been examined and a certificate of examination has been issued; and
  2. acts about which the threats were made infringe or would infringe the registered design.
 

Facts of the Case

The applicant in this matter, GM Global Technology Operations LLC (‘GMGTO’), is the owner of a number of designs registered under the Act in respect of car body parts (such as bumper bars, lights, bonnets and grilles).

The respondents, S.S.S. Auto Parts Pty Ltd, S.S.S. Auto Parts (Sydney) Pty Ltd and S.S.S. Auto Parts (QLD) Pty Ltd (collectively ‘SSS’) are an importer and wholesale distributor of aftermarket parts, original manufacturer parts and parallel imported automotive parts.

GMGTO sought, amongst other things, a declaration that SSS has infringed its registered designs in breach of section 71 of the Act. SSS accepted that it has used (that is, imported and sold) the products (impugned parts) in relation to which there is a registered design and that each impugned part embodies a design that is identical, or substantially similar in overall impression, to a registered design owned by the applicant, but sought to rely on the repair defence against infringement.[7]

The decision turned on whether or not GMGTO has discharged the onus placed on it by section 72 of the Act, that is, the burden of proving that SSS knew, or ought reasonably to have known, that the use or authorisation of use of the impugned parts was not for the purpose of repair of the complex product (in this instance, the vehicle).

SSS gave evidence that its business model is directed toward a customer base in the wholesale mass repair industry and that its focus has always been directed to crash repair customers such as insurers, wreckers and panel beaters.[8]

SSS had introduced a series of policies (‘repair only policies’) designed to ensure and demonstrate that sales it made were for a repair purpose. A notable example of this was a directive that was signed and dated by each of the sales staff employed by SSS that set out, amongst other things, an acknowledgement that SSS was committed to its policy of supplying parts only for the purpose of replacing parts in the repair of damaged vehicles and takes all steps it can to prevent sale for any other purpose.[9] Additional procedures were implemented with the intention of having the ‘repair only’ message reinforced at every stage of any transaction by the sales staff. Such procedures included computer prompts, a requirement that customers provide the vehicle identification number (VIN) number of the car sought to be repaired, and cessation and recording of enquiries which would not comply with the above procedures.[10]

In its submissions, GMGTO stated that there need only be an overriding, significant, substantial, predominant purpose of repair. In this regard, GMGTO submitted that if the registered owner proves that the alleged infringer knew or ought reasonably to have known that the product might be (rather than would be) used for a non-repair purpose (such as enhancing the appearance of the vehicle), then the repair defence will fail.[11]

In relation to the unjustified threats claim, SSS submitted that GMGTO sent letters of demand to a number of SSS’ customers who were engaged in the supply of the impugned parts to the motor industry, with the letters alleging that some of GMGTO’s registered designs have been infringed. Some of these designs had not yet been certified in accordance with the Act. SSS submitted that GMGTO had no defence at a time when a design which is the subject of the threat was not certified in accordance with the Act.[12] In further support of the unjustified threats claim, SSS submitted that GMGTO had no evidence to discharge its onus under section 72 to prove that parts were being made or used for non-repair purposes.[13]

 

Key Considerations of the Court

The following key considerations were made by the Court:

  • Section 72 contemplates that a part may have a dual purpose, that is, either for a permitted repair purpose or a non-permitted purpose (for example, enhancement of a vehicle), and it is the knowledge of the person who has imported, offered for sale or sold the product that separates the two.[14]
  • Section 72 focuses on the intention of the respondent (in this instance, SSS) and that it does not require that the respondent maintain control over the part after its importation, sale or keeping to ensure that it is ultimately applied to a vehicle for repair.[15]
  • The Applicant (in this instance, GMGTO) must establish on the balance of probabilities that the respondent must have known or ought reasonably to have known that the use was not for the repair purpose and that proof that the respondent knew it “might not” will be insufficient.[16]
  • The relevant inquiry in the operation of section 72 requires the focus to be on the alleged infringer’s purpose of use of the product not that of its customers. On the question of importation, the Court’s relevant inquiry was not what might happen to the impugned parts once they are sold, but whether SSS knew that the importation of the impugned parts was not for the purpose of repair.[17]
  • The use of the word “replacement” was considered by the Court to not be particularly helpful to GMGTO in establishing a non-repair purpose in respect of the impugned parts.[18]
  • Section 72 does not contemplate combining the knowledge of individuals in order to arrive at a complete picture of knowledge.[19] The Court did reason that the provisions in section 72 contemplate that the knowledge of individuals who have the requisite authority regarding transactions will be relevant for the consideration of the repair purpose of the corporation. A single example of conduct by a person in a junior role within SSS was found to provide little assistance to the Court in considering the focus of the company as a whole.[20]
  • Even though a small proportion of the business of SSS sold and promoted parts used for customisation of vehicles as opposed to repair, this was found by the Court to not reflect a general view on the part of SSS that its business was not for the supply of parts for repair.[21]
  • The absence of such repair only policies implemented by SSS is not determinative of a lack of a repair purpose.[22]
  • GMGTO had succeeded in respect of a relatively small number of representative transactions between SSS and its customers in proving that SSS had the requisite knowledge that these transactions were not for a repair purpose.[23] In arriving at this conclusion, the Court concluded that the relevant sales person within SSS having the requisite authority would have been aware that the nature of the business of the customer was to supply parts for the purpose of enhancement rather than repair. The Court reasoned that the sales person would have been alerted in this regard by the name of the customer’s business (being Instinct Vehicle Enhancements) and through information displayed on the customer’s website to the effect that the business was engaged in customisation of vehicles.[24]
  • In relation to the unjustified threats claim, the Court did not accept SSS’ submission that a registered owner of a design cannot issue a letter of demand threatening infringement without first being in a position to establish that the recipient did not have the repair purpose within the meaning of section 72(2).[25] Further, the Court found that a threat will not be unjustified (in other words, will be ‘justified’) pursuant to section 78(a) if an uncertified design is subsequently certified.[26]
 

Significance

This decision provides legal authority in the first instance for the operation of section 72 of the Act under common law. In particular, the decision highlights the relatively onerous responsibility placed on registered design owners when the repair defence of section 72 is raised during infringement proceedings to prove that the alleged infringer knew or ought reasonably to have known that the impugned uses were not for the purpose of repair so as to restore the overall appearance of a complex product in whole or in part. It is also an important reminder for design owners to ensure their registered designs are certified in accordance with the Act if commencing infringement proceedings.

For manufacturers, importers or sellers of spare parts, it is important to ensure those in a position of authority in the manufacture, importation or sale of parts embodying registered designs are cognisant that the use of the parts is for the purpose of repair only. Implementing policies to ensure staff are aware that the manufactured, imported or sold parts are used only for the purposes of repair may assist in this regard. Accordingly, the protection afforded by the repair defence should not be relied on where there is knowledge that the use is not for the purpose of repair.

The considerations outlined above demonstrate the complexity of the operation of the repair defence pursuant to section 72 of the Act. Should you have any questions or require our assistance in this regard, please do not hesitate to contact us.


[1] GM Global Technology Operations LLC v S.S.S. Auto Parts Pty Ltd [2019] FCA 97.

[2] Designs Act 2003 (Cth) ss 67, 77.

[3] Ibid s 72.

[4] Ibid s 73(3).

[5] Ibid s 77(3).

[6] Ibid s 78.

[7] GM Global Technology Operations LLC v S.S.S. Auto Parts Pty Ltd [2019] FCA 97 at [18].

[8] Ibid [119].

[9] Ibid [190].

[10] Ibid [200].

[11] Ibid [77].

[12] Ibid [546].

[13] Ibid [597].

[14] Ibid [78].

[15] Ibid [82].

[16] Ibid [85].

[17] Ibid [236].

[18] Ibid [121].

[19] Ibid [100].

[20] Ibid [136].

[21] Ibid [134].

[22] Ibid [436].

[23] Ibid [498].

[24] Ibid [294]-[296].

[25] Ibid [608].

[26] Ibid [609].

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