Trade Mark News & Information

Trademark Lawyer-Federal Court- spare parts repair defence

GM Global Technology Operations LLC v S.S.S. Auto Parts Pty Ltd [2019] FCA 97 (11 February 2019)

This is a very lengthy case which is of particular interest because it deals with the spare parts repair defence under s72 of the Designs Act 2003 (Cth) and highlights the difficulties confronting a registered design owner in proving that an alleged infringer did not have a repair purpose.

SSS imported and distributed replica body parts for HSV and VE Commodore vehicles. GM alleged these parts were for enhancement or modification purposes and not for repair. GM ultimately relied on twenty six representative transactions involving nine customers of SSS. Only eight of these transactions involving three customers were shown to constitute infringement insofar as they related to infringement through the conduct of actually selling the offending parts and did not fall within the repair defence. GM was unable to show infringement arose through the conduct of importing, keeping for sale or offering for sale of any of the offending products. Also, GM was otherwise unable to prove that SSS knew or ought reasonably have known that the use of these parts was not for the purpose of repair of a complex product.

SSS cross claimed that the letters of demand sent to its customers by GM constituted unjustified threats. This cross claim was largely unsuccessful. However, there were unjustified threats in letters to three customers of SSS which referred to certain registered designs which were not subsequently certified and, in the case of a letter to one customer, wrongly alleged copyright infringement.

Infringement and repair defence

Burley J accepted the evidence that the business model of SSS has at all material times been to sell aftermarket parts for use in the repair of motor vehicles. Witnesses for SSS asserted on oath that SSS had a policy of selling parts for repair only and that its conduct in importing, keeping, offering for sale and selling the parts was guided by that purpose. GM largely failed to dislodge that evidence by pointing to factors which, it submitted, indicated that the evidence of those witnesses should not be accepted.

From 1 August 2012, SSS arranged for invoices to include a notice that “all parts authorised only for use in repairs’. This notice was extended, on 3 March 2014, to outer packaging of certain parts (including the offending HSV and VE Commodore parts). From 3 September 2014, SSS altered its website to include a notice that ‘SSS is not an official parts distributor of any vehicle manufacturer. All SSS Genuine Factory Parts are parallel import. All parts authorised only for use in repairs’. From 14 September 2014, the labels for all aftermarket parts included a notice that ‘All Parts Authorised ONLY for use in Repairs’. From some time before January 2015 SSS’ sales software was changed so that a code was added to HSV parts and requiring a Branch Manager or Sales Manager to approve the sale. By 21 January 2015 all sales staff employed by SSS had acknowledged the ‘repair only directive’ for Commodore and Falcon spare parts which reflected SSS’ policy of supplying parts only for the purpose of replacing parts in the repair of damaged vehicles and to take steps to prevent sales for enhancement or for any other purpose. From 6 March 2015, SSS placed point of sale notices in all of its warehouses saying that ‘ All Parts Authorised ONLY for use in repairs’. The various demand letters were issued by GM during late 2013 through 2014, and GM commenced proceedings on 28 July 2015. On 10 August 2015, SSS sent a direction to stop all sales of the offending parts; although this direction was not completely observed and same sales did occur after that date. From 5 February 2016, SSS resumed sales of the offending parts with additional procedures to have the repair only message reinforced at every stage of any transaction and these procedures were tightened in April and July 2016.

Burley J rejected GM’s submission that these steps were mere window dressing to reduce SSS’ legal exposure. His Honour considered the objective materials and evidence of the witnesses support the proposition that SSS had an earnest desire to ensure that the SSS repair only policies were enforced. These policies, taken individually and collectively, represented an honest attempt by senior management of SSS to ensure that the parts were sold for repair only and to ensure that SSS staff were aware of this fact.

The knowledge necessary to establish the repair purpose must be attributed to the relevant SSS corporation via a human actor and Burley J was critical that the case presented by GM was based on unrealistic expectations as to what certain individuals knew or ought reasonably to have known about a transaction. GM relied on actual and constructive knowledge of various individuals. The existence of actual knowledge is a question of fact, the proof of which, in the absence of an admission by a party, is always a matter of inference. By contrast with actual knowledge, constructive knowledge is notice which an agent either received or should have received had he or she made proper enquiries, which is imputed to the principal whether the notice is communicated by the agent to his principal or not.

Burley J observed that a product that falls within the s72 defence will be capable of being used for more than one purpose; a permitted repair purpose within sub-section, and a prohibited purpose, such as the enhancement of a vehicle as alleged in this case. It is the knowledge of the person who has imported, kept, offered for sale or sold the product that separates the two. If in infringement proceedings an alleged infringer asserts that it had the repair purpose within sub-section 72(1)(c), then it is to be assumed that it had that purpose, unless the registered owner proves otherwise.

The relevant test as agreed by the parties was whether at the point just prior to the relevant use, the customer’s non-repair use was actually known or a reasonable person in SSS’ position would consider that the circumstances were such as to create in that person’s mind a belief that he or she knew that the customer’s intended use was not for repair, such that if SSS proceeds with the proposed use, its use became that of the customer.

Section 72 focuses on the intention of SSS, not the person who acquires the part from them. It also does not require that SSS maintain control over the part after its importation, keeping, offering for for sale or sale to make sure that it is ultimately applied to a vehicle for repair or to track the progress of goods it sells through the supply chain. The task for the court is whether, on the basis of all of the evidence, including the positive evidence that SSS did have the repair purpose, GM has established that SSS knew or ought reasonably to have known that the importation, keeping for sale, offering for sale or sale was not for that purpose.

The issue as to whether an alleged infringer has a duty to enquire as to what a purchaser may use a product for is a distraction from the statutory question under s72 which is on the existing facts, what do the circumstances indicate the alleged infringer knew or ought reasonably to have known based on the facts as proved?

As a general proposition,  when beliefs or opinions or states of mind are attributed to a company it is necessary to specify some person or persons so closely and relevantly connected with the company that the state of mind of that person or those persons can be treated as being identified with the company so that their state of mind can be treated as being the state of mind of the company (the “directing mind and will” rule of attribution). However, this rule is not universal and the attribution of knowledge to a corporation is shaped by the relevant statute. Further, the attribution of knowledge to a company based on the knowledge of an individual is often dependent on whether or not the person has been granted authority to act on behalf of the company.

Burley J considered the repair defence under s72 does not contemplate the aggregation of knowledge from discrete individuals in order to piece together, as if in a mosaic, a picture of knowledge. In any event, GM did not raise aggregation of knowledge in its pleadings.

His Honour considered the persons within SSS whose state of mind was relevant and concluded that Mr Ung, as the sole owner and director of SSS was the relevant decision maker and it is his knowledge that is relevant under s72 in the context of the HSV parts. However, the knowledge of Mr Chua, the National Product Development Manager of SSS, was relevant in the context of the VE Commodore parts.

Burley J considered that the correct time for assessing the relevant purpose under s72 is the date on which each alleged act of infringement took place having regard to all of the relevant surrounding circumstances leading to that point.

His Honour found that GM had not established that SSS knew or ought reasonably to have known that the importation of either the HSV parts or VE Commodore parts, or the keeping or offering for sale of these parts, was not for the repair purpose. Two documents were relied upon by GM in connection with the offering for sale of these parts by SSS, but Burley J rejected those submissions and, in any event, GM had not identified a particular human actor within SSS who is said to have the non-repair purpose.

Whether SSS held a non-repair purpose in the context of selling the offending parts was considered having regard to the 26 representative sale transactions relied upon by GM and the individuals identified as the person to whom the relevant knowledge is to be attributed. His Honour considered each of them separately and found 8 of these transactions involved infringement because, in their particular circumstances, GM had established that SSS had the relevant knowledge that the parts sold in those transactions were not for a repair purpose.

Before considering these transactions is detail, Burley J made some general observations as follows.

GM’s submissions based on limited consumer demand for HSV parts for repair purposes was rejected.

GM also relied on customers of SSS who are online sellers of the offending parts being in a different category because they sell to persons other that panel beaters and smash repairers and their buyers are likely to be involved with the upgrade or customisation of vehicles. GM submitted that SSS must have known or ought reasonably to have known that customers who operate online, or eBay parts stores, were not likely to be supplying the impugned parts to those in the smash repair industry. Burley J considered that whether or not the relevant SSS party had the requisite knowledge depends on the circumstances applicable to each example transaction. This will include taking into account the name and nature of the business to whom the part is sold. However, as a general proposition, his Honour did not accept the submission that a sale to what GM characterised as an online seller will per se confer knowledge of the fact that a sale is for a non-repair purpose or that an individual necessarily ought reasonably to have known that fact.

Burley J also considered that GM’s submission that parts sold by SSS to its customers in bulk or in multiples give rise to an inference that their purpose was not for repair was too generalised and needed to be evaluated in the context of a particular transaction. His Honour considered the submissions made by GM wrongly assumed that relevant individuals within SSS have (or are expected to have) an extensive knowledge of its inventory, and track its sales closely with reference to the nature of the parts that it sells and the relationship between several parts sold at the same time.

Cross-claim and unjustified threats

Burley J considered the demand letters issued by GM having regard to the unjustified threats provisions in the Designs Act and Copyright Act, as well as in the context of misleading or deceptive conduct under the Australian Consumer Law (ACL).

His Honour considered SSS was aggrieved by the making of the threats in the demand letters. There was a sufficiently close and direct connection in a practical legal sense between SSS and the threats to the various parts suppliers (which were customers of SSS) and the potential damage to SSS so as to be characterised as aggrieved with standing to bring the cross-claim.

His Honour considered that each relevant design relied upon needs to be registered and certified at a point in time before GM relies on the defence under s78 (that the acts about which the threats were made infringe the registered design) and not at the time of making the threat.

Also, it is not a requirement for GM to be in a position to establish that the recipient of the demand did not have the repair purpose. This is because, before the s72 repair defence can be triggered, the defendant must assert in infringement proceedings that, because of the operation of s72, the relevant use will not infringe. The legislative intention is that a registered owner is not expected to assume that the repair purpose will be asserted. To the contrary, until it is asserted, a registered owner is entitled to proceed on the basis that no such defence will be advanced.

Under the ACL claim, SSS relied upon omissions in the demand letters, particularly the failure to notify the recipients of the demand letters about the right of repair defence, but Burley J considered GM does not owe a duty to inform the recipient of matters going to the legal rights of the recipient. Further, GM owes no duty to disclose detailed aspects of the designs relied upon because they are on the public register and a party being reasonably astute to protect its own interests will conduct a search to ascertain the true position. Finally, the reference to ‘counterfeit’ in the demand letters was not misleading or deceptive.

The language used in some of the demand letters went beyond mere notification of the as yet uncertified designs and conveyed that GM regarded the relevant conduct as amounting to infringement. The unjustified threats claim was upheld in regard to letters sent to three customers of SSS where the relevant registered designs relied upon by GM were not subsequently certified. The unjustified threats claim was also upheld in regard to the letters sent by GM to one customer of SSS which GM conceded wrongly alleged copyright infringement, but that particular allegation was not misleading or deceptive under the ACL merely because GM’s advisors were wrong on the law.