BENCHMARK BUILDING SUPPLIES LIMITED V MITRE 10 (NEW ZEALAND) LIMITED And Anor CA CA65/03

BENCHMARK BUILDING SUPPLIES LIMITED V MITRE 10 (NEW ZEALAND) LIMITED And Anor CA CA65/03 29 August 2003IN THE COURT OF APPEAL OF NEW ZEALAND CA65/03BETWEEN BENCHMARK BUILDING SUPPLIES LIMITED Appellant AND MITRE 10 (NEW ZEALAND) LIMITED First Respondent AND MITRE 10 LIMITED Second Respondent Hearing: 7 August 2003 Coram: Gault P Anderson J Glazebrook J Appearances: A H Brown QC and E C Gray for Appellant R J Asher QC and S A Grant for Respondents Judgment: 29 August 2003JUDGMENT OF THE COURT DELIVERED BY GAULT P[1] This appeal is from a judgment of Rodney Hansen J delivered in the High Court at Auckland on 17 March 2003 in which he granted an interlocutory injunction restraining a form of comparative advertising. [2] There is no real dispute on the facts. Issues of law arise and it seems clear that decisions on these will determine the proceedings. For that reason we heard no argument on the "balance of convenience".The facts[3] Mitre 10 (New Zealand) Ltd, the first respondent, under licence from the second respondent, an Australian company, has franchised in New Zealand the name and style "Mitre 10" for large super-market outlets for hardware, tools and equipment for home maintenance and improvement. To promote these businesses in a price-sensitive competitive market the first respondent (hereafter Mitre 10) produces at regular intervals promotional brochures that are delivered to householder letter-boxes. They are illustrated brochures, printed in colour, and depict photographic illustrations of various products, each accompanied by a brief description and, in prominent print, the prices at which they may be purchased. Most of the products featured show, and are described by reference to, the brand names of the manufacturers. A small number appear unbranded and some others are identified by the trade name BUTLERS which is a trade mark of Mitre 10. [4] Commencing in October 2002, the appellant (Benchmark) which operates competing retail outlets under the name "Bunnings", displayed outside its shops Mitre 10 brochures, which had been received by its employees, superimposed with bright orange stickers placed against the advertisements of some of the products and stating "Bunnings Price" with dollar amounts less than those offered by Mitre 10. [5] Mitre 10 ascertained that some of the stickers conveyed inaccurate information as to price, availability or equivalence of the products. Protests through solicitors of breaches of the Fair Trading Act 1986 eventually were accepted and they do not feature in the injunction granted. [6] Eventually the real dispute emerged and it hinges on whether, even when accurate, the practice adopted by Benchmark infringes the copyright or trade mark rights of Mitre 10.The High Court judgment[7] Rodney Hansen J decided first, with reference to the decisions in Villa Maria Wines Ltd v Montana Wines Ltd [1984] 2 NZLR 723 and P C Direct v Best Buy Ltd[1997] 2 NZLR 723, that use of the trade marks of another in the manner adopted by Benchmark in its displays of the Mitre 10 brochures would fall within s8(1A)(e) of the Trade Marks Act 1953 so as to infringe. However, with reference to the registered trade mark MITRE 10 the Judge held that, as used in the brochures, it did not constitute use of the trade mark in relation to the goods identified by the brand names of others. In relation to those goods, MITRE 10 conveyed only a reference to the retail services of MITRE 10. There being no registration of the mark in the form appearing in the brochures in respect of retail services, he considered there was no infringement. On the other hand he held that the use of the mark MITRE 10 in the brochures "can be fairly characterised as relating to unbranded goods" so that there was infringement of the registration of the mark covering those goods. [8] With reference to the registered trade mark BUTLERS, the Judge held that the use of this mark by Benchmark by displaying the brochures infringed the registration covering the goods advertised. He noted that there was a sticker against one of these products (apparently in error because BUTLERS brand goods are exclusive to Mitre 10 stores and are not sold by Benchmark). But even when the goods were not stocked he considered Benchmark used the mark in relation to those goods. [9] The Judge considered, but rejected, an argument that Benchmark was entitled to the defence in s8(3)(a) of the Trade Marks Act. That provision saves from infringement use of a registered trade mark in relation to goods to which the proprietor has applied the mark. The obvious situation covered by this is the sale of second-hand goods by reference to the trade mark under which they were originally sold. The Judge considered that the Mitre 10 trade marks were used by Benchmark not in relation to Mitre 10's goods but in relation to Benchmark's goods. [10] Accordingly, the Judge concluded that there was an arguable case of infringement of the MITRE 10 trade mark in respect of unbranded goods and of the BUTLERS trade mark in respect of goods promoted under that mark and covered by a registration (a pressure sprayer only). He considered whether there was infringement of the MITRE 10 registration covering retail services even though the pleading before him alleged infringement only by use of the marks in respect ofgoods (hardware and garden supplies). He held there was no infringement, however, because the mark as used in the brochures was in a different form from that appearing in the relevant registration covering retail services. He noted, however, that MITRE 10 could effectively stymie further use of the brochures by including the mark in its registered form. [11] On the day before the hearing in the High Court an amended statement of claim was filed introducing an allegation of copyright infringement by "adapting" the brochures. This was accompanied by an affidavit claiming that the brochures were original works produced by some twenty Mitre 10 staff assisted by its advertising agency. [12] In his judgment, Rodney Hansen J rejected an argument that by taking the brochures apart and affixing the stickers, Benchmark had done the restricted act constituting infringement under s16 of the Copyright Act 1994 of making an adaptation of the copyright works. [13] However, although neither pleaded nor argued, the Judge went on to consider whether there was an arguable case of copyright infringement by copying. He considered it arguable that, with the application of the stickers to the Mitre 10 brochures, new works came into existence which was sufficient to amount to reproducing the works. [14] It was the prospect of success of the claim of copyright infringement that persuaded the Judge that an interlocutory injunction should be granted pending trial. The order made was in somewhat question-begging form: Pending further order of the Court, the defendants, its servants or agents are restrained from using the plaintiffs' advertising brochures for comparative advertising purposes by the affixing of price stickers or by other means which infringe the plaintiffs' trade marks or their copyright in the brochures. [15] Benchmark appealed and Mitre 10 gave notice of intention to support the judgment on additional grounds that there were infringements of copyright by the making of adaptations and breach of the moral rights of the authors of the works. Afurther amended statement of claim was filed adding a cause of action for breach of moral rights of authors not to have their works subjected to derogatory treatment. No allegation of copyright infringement by reproducing the works (which the Judge had found arguable) was added. [16] Shortly before the hearing in this Court an amended notice of intention to support the judgment on other grounds was filed. That introduced an added allegation of infringement of a newly registered trade mark MITRE 10 for retail services. There is no such allegation in any of the statements of claim. An affidavit sought to be filed to prove the new registration showed that in fact it is not yet registered so no more need be said of that.The submissions on appeal[17] In support of the appeal Mr Brown QC presented careful and comprehensive submissions. In the area of copyright he argued that the Judge was wrong to find arguable that applying stickers to the Mitre 10 brochures amounted to copying so as to infringe any copyright work. He supported the Judge's conclusion that applying the stickers did not amount to making an adaptation of any work. He submitted that the claim of infringement of the author's right under s98(2) of the Copyright Act not to have his or her work subjected to a derogatory treatment must fail because Mitre 10 is not the author of any works reproduced in the brochures and the authors referred to in the affidavit evidence are not parties to the proceeding. It was submitted that, in any event, the affixing of the stickers did not amount to derogatory treatment of the author's works. [18] With reference to the trade mark claims, Mr Brown advanced a number of detailed arguments. At risk of doing injustice to them, they may be summarised in this way. In displaying Mitre 10's own brochures, Benchmark was not using the trade marks of Mitre 10 in relation to Benchmark's goods or services but in relation to Mitre 10's goods or services. The mark MITRE 10 appearing in the brochures was a use in relation to Mitre 10 retail services not the goods illustrated in the brochure, (branded or unbranded). There was no cross-notice contesting the Judge's finding that the form in which the mark was depicted in the brochure was notcovered by any registration in respect of retail services. The use of the trade mark BUTLERS in the brochures was used in respect of goods, but only the sprayer is covered by a registration. So far as Benchmark did use the trade mark BUTLERS in relation to goods of Mitre 10, that might have fallen within s8(1A)(e) and (f) "importing a reference" to Mitre 10's goods so as to infringe. But in the case of the BUTLERS mark no further comparisons would be drawn because BENCHMARK does not sell the BUTLERS range of goods. [19] The main point made by Mr Brown with respect to the alleged trade mark infringements was that under the new Trade Marks Act 2002, which came into force on 20 August of this year, comparative advertising is expressly exempted from trade mark infringement. Section 94 states:No infringement for comparative advertising of registered trade markA registered trade mark is not infringed by the use of the registered trade mark for the purposes of comparative advertising, but any such use otherwise than in accordance with honest practices in industrial or commercial matters must be treated as infringing the registered trade mark if the use, without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark. [20] Under the new Act there is no longer a provision for infringement by importing a reference to the proprietor's own goods. However, Mr Brown was inclined to accept that should comparative advertising not fall within the specific exemption, infringement may occur under s89. Because of the view we have reached, we do not need to consider that. [21] The transitional provision in s203 of the 2003 Act provides that the 1953 Act continues to apply in respect of proceedings commenced under that Act. Mr Asher QC for the respondents accepted, however, that in respect of future alleged infringements, s94 would apply. [22] Mr Asher supported the Judge's view that there is an arguable case of copyright infringement by copying. He submitted that the authorities justify a broad view of what amounts to reproduction and that by affixing stickers and displayingthe modified brochures Benchmark had created new works constituting substantial reproductions of the original copyright works. [23] Mr Asher pressed the alternative argument that Benchmark had made adaptations of the copyright works. He relied on dictionary meanings of "adapt" and "adaptation" and contended that Benchmark had adapted Mitre 10's brochures. [24] On the issue of infringement of moral rights, Mr Asher submitted that "author" could include a company for whom copyright works were produced and that Mitre 10 can sue as author. He argued that the treatment of the brochures by Benchmark was derogatory. [25] On the trade mark issues Mr Asher supported the judgment and, with reference to s94 of the new Act, submitted that the use by Benchmark of Mitre 10's trade marks was outside the exemption being otherwise than in accordance with honest practices in industrial and commercial matters in that it takes unfair advantage of, and is detrimental to, the distinctive character or the repute of the trade marks.Copyright infringement by copying[26] We address first the copyright issues. We proceed on the assumption that the brochures reproduce original works attracting copyright protection and that Mitre 10 is the owner of that copyright. Those works include artistic works (photographs and lay-out art-work) and literary works (written matter and compilations). By s16 of the Copyright Act, the owner has the exclusive rights to copy the works and to make adaptations of the works. [27] Copying is defined (inter alia) as reproducing the work in any material form. The definition of "adaptation" reads: "Adaptation", (a) In relation to a literary or dramatic work, includes – (i) A translation of the work from one language to another:(ii) A version of a dramatic work in which it is converted into a literary work or, as the case may be, of a literary work in which it is converted into a dramatic work: (iii) A version of the work in which the story or action is conveyed wholly or mainly by means of pictures in a form suitable for reproduction in a book, or in a newspaper, magazine, or similar periodical: (b) In relation to a literary work that is a computer program, includes a version of the program in which it is converted into or out of a computer language or code or into a different computer language or code, otherwise than incidentally in the course of running the program: (c) In relation to a musical work, means an arrangement or transcription of the work. [28] In reaching his conclusion that Benchmark arguably reproduced the copyright works, the Judge relied on the judgments in the Supreme Court of Canada inThéberge v Galerie d'Art du Petit Champlain Inc (2002) 210 DLR (4th ) 385. He considered dicta in the judgments of both the majority and minority supported the view that reproduction can occur even though there is no multiplication of the original work. While that may be so in particular circumstances, the conventional approach to reproduction is stated in Laddie Prescott & Vittoria, Modern Law of Copyright (3rd ed) para 14.7: But there must be some act of reproduction, that is, the making of something that did not exist before. So it is not an infringement of copyright merely to incorporate a work by reference instead of setting it out verbatim (as in "Subject to the Law Society's Conditions of Sale"). For the same reason, trading in objects already in existence is not reproduction in a material form (e.g. cutting pictures out of books and using them to make table mats) although in certain circumstances it might be a breach of the distribution right. [29] The learned authors cite Frost and Reed v The Olive Series Publishing Company (1908) 22 TLR 649. That was the case in which cards were sold on which were mounted pictures cut from pamphlets. It was held not to constitute infringement of the copyright in the original artistic works.[30] The circumstances of the Théberge case are some distance away from those with which we are concerned. Lawfully produced posters depicting paintings were purchased. By a chemical process the ink was lifted from the posters and applied to canvasses that were then offered for sale. [31] The majority concluded that there had been no reproduction. That view is consistent with the Frost and Reed case and also with the United States decision inThe CM Paula Company v Logan 355 F Supp 189 (1973) concerning the transfer of artistic images from greetings cards to ceramic plaques. They may be compared with Peker v Masters Collection 96 F Supp 2 nd 216 (2000). That case involved a process by which the ink images of posters depicting original paintings were lifted and transferred to canvas. Trained artists then applied oil paint to the image matching the colour and style of the original painting. Understandably this was found to constitute reproduction. [32] In the present case the copyright works claimed by Mitre 10 are the original artistic and literary works reproduced in the printed brochures. By displaying Mitre 10's own brochures Benchmark has done nothing to reproduce the copyright works. Nothing has been copied. Even if a new work is created incorporating the brochures (and we very much doubt that applying stickers has that affect), the representations of the copyright works remained unchanged and no new representations of them were made. [33] The Judge was influenced by what he considered to be Benchmark taking advantage of Mitre 10's economic benefits. But in the absence of copying that cannot be relevant to copyright infringement. As Mr Brown pointed out, the reference in the Théberge judgments to "economic rights" were simply for the purpose of distinguishing the reproduction and similar rights of copyright owners from the moral rights of authors. [34] With respect to the Judge, we are satisfied that there is no case of infringement by copying.Making an adaptation[35] Mr Asher placed greater emphasis on the argument that Benchmark infringed the copyright by doing the restricted act of making an adaptation of the copyright works. On this point we think the Judge was quite right to hold this could not be correct. [36] Counsel's argument equated the copyright works with the brochures. It was submitted that Benchmark had adapted the brochures for its own purpose. However, this misconceives the nature of the restricted act. It is not directed to using the copyright works or reproductions of them. The act of infringement is the making of an adaptation of the work. Infringement in this way can occur only in respect of literary, dramatic or musical works. It does not apply to artistic works. We must, therefore, concentrate on the written matter in the brochures which might constitute literary works. [37] While accepting that Benchmark's use of the brochures does not come within the specific forms of adaptation identified in the definition, Mr Asher relied on the fact that the definition is inclusive (unlike the corresponding definition in the United Kingdom Copyright, Designs and Patents Act 1988). [38] We accept Mr Brown's submission, that in making the definition inclusive (which dates from the 1962 Act) the New Zealand legislature was more likely seeking to provide for possible developments in technology than inviting the courts to expand the concept of adaptation far beyond its long-established meaning in copyright law. [39] Making an adaptation of a work involves producing a different version of the work incorporating the same product of originality of the author but expressing it in a manner which cannot be characterised as copying or reproduction but still presents substantially the same work. Writing a play or film script from a novel, producing object code from a computer program source code, are typical examples. As noted in Laddie (para 3.155) what matters is that the intellectual content of the original work has been taken. Making an adaptation of a work is quite different from makinguse of a work (or of reproductions of a work). Section 34(2) provides that an adaptation is made when it is recorded, in writing or otherwise. That language makes clear that more is involved than merely taking and using the original work without change. [40] The use by Benchmark of the brochures produced by Mitre 10 involved no conversion of, or change to, any literary works. They remained the same throughout. Mitre 10's own reproductions have been merely displayed in the form in which they were distributed. No adaptation of copyright works has been made, though the brochures may have been adapted by Benchmark for its own use.Breach of authors' moral rights[41] The claim for infringement of the right not to have a copyright work subjected to a derogatory treatment cannot succeed here. It is a right of the author not of the owner of the copyright. While Mitre 10 may be the owner of works embodied in the brochures, it is not the author. The evidence establishes that there were a number of contributors to the works. They were all individuals who are not parties to the proceeding. [42] Mr Asher argued that a company may be the author of a work. He relied on s29 of the Interpretation Act 1999 providing that a reference in an enactment to a "person" includes a body corporate. He invoked that interpretation to construe s5(1) of the Copyright Act which provides that the author of a work is the person who created it. He argued that the works in the brochures were created by Mitre 10. [43] Section 4 of the Interpretation Act makes clear that the provisions of that Act apply unless the context on an enactment requires a different interpretation. We have no doubt that in the Copyright Act the word "person" in the definition of author, except where the contrary is expressly stated, does not extend to bodies corporate. The exceptions are found in s5(2) and (3). [44] Section 98(2) defining the author's right refers to "his or her work". Section 18 qualifies works for protection in New Zealand by reference to the status of theauthor in terms of citizenship or domicile. In that section there is reference to a body corporate but that was introduced into the law at the same time as s5(2) and (3) and plainly to provide for the exceptions they introduced. Section 22 prescribes the duration of copyright by reference to the life of the author. Again there are specific provisions in ss22(2), 23, 24 and 25, providing for duration in respect of those works specified in s5(2) of which the author may be a body corporate [45] The moral rights of authors are provided to enable authors to protect the integrity of their works even though ownership passes to others. It would be contrary to the very purpose of those rights if the author's right accrued to those employing or commissioning the authors or purchasing the copyright in their works. [46] Although it is unnecessary to go further, we comment that we are not persuaded that displaying brochures in which copyright works are reproduced for comparative advertising purposes amounts to derogatory treatment of those works. They are being used for the very purpose for which they were created – to convey information about products Mitre 10 has for sale. That Benchmark is taking advantage from it cannot be said to be prejudicial to the honour or reputation of the authors whose identity is not disclosed. [47] We conclude that there is no arguable case of infringement of copyright.Trade mark infringement[48] In the course of the hearing counsel were asked to identify the particular trade mark registrations said to have been infringed. That has not been done. However, the matter can be dealt with by reference to s94 of the new Trade Marks Act 2002 which excludes comparative advertising from infringement. Given that the Act is now in force and the concession on behalf of Mitre 10 that, if the section applies no injunction could be sustained, we must determine whether the section applies. [49] Mr Asher first submitted that we should construe the section as not applying to comparative advertising of the kind engaged in by Benchmark. He argued that the type of comparative advertising contemplated is that involving comparisons preparedby the defendant, as by lists of the kind used in Bismag Ltd v Amblins (Chemists) Ltd[1940] 1 Ch 667. It should not be construed, he said, as extending to the use of the plaintiff's own material including artwork and general presentation. [50] We do not accept that distinction. It seeks to broaden the protection of a registered trade mark to include contextual material with which it is used. The focus for trade mark infringement purposes is upon the trade mark as registered and the alleged infringing use. [51] We are satisfied that Benchmark's use of Mitre 10 trade marks constitutes comparative advertising within the section. We move, therefore, to Mr Asher's second contention, that this use by Benchmark is otherwise than in accordance with honest practices in industrial or commercial matters in that, without due cause, it takes unfair advantage of or is detrimental to, the distinctive character or the repute of the trade marks. [52] It is important to consider the function of the trade marks as used by Mitre 10 in its brochures. The MITRE 10 mark plainly is used to identify or distinguish the retail source of the products advertised. It is accompanied by descriptive matter such as: "New Zealand's Number 1 Home Improvement Retailer" [53] The BUTLERS trade mark, on the other hand, is used in the brochures to distinguish particular products sold by Mitre 10. [54] When Benchmark displays the brochures it does so with the intention that the trade marks of Mitre 10 perform precisely the same function as they performed upon Mitre 10's original distribution of the brochures. The very effectiveness of the comparisons Benchmark draws depends upon the public perceiving the marks are indicating Mitre 10's retail services and (in the case of BUTLERS) its goods. It cannot therefore be said that the distinctiveness of the marks is in any way damaged. Nor is it possible to say that the use by Benchmark takes unfair advantage of the distinctiveness or repute of the trade marks to any greater extent than more conventional forms of comparative advertising. Subject to the Fair Trading Actpoints with which we are not concerned, there is no issue of people being deceived or misled by the use of the trade marks. [55] We have no evidence indicating that Benchmark's activities, so far as they would otherwise constitute trade mark infringement, are inconsistent with honest commercial matters, but we see real difficulty in characterising these open and obvious comparisons as in some way lacking in honesty. [56] In this respect there is helpful guidance on the scope of this proviso in the United Kingdom decisions cited by Mr Brown. They are collected by Jacob J inCable & Wireless plc v British Telecommunications plc [1998] FSR 383, 389. As more cases arise, as undoubtedly they will, it may be necessary to review the scope of this limit on comparative advertising. But that is not necessary in this case. [57] We have been persuaded that there is no arguable case of trade mark infringement warranting any continuing interim injunction. [58] The order made by Rodney Hansen J is accordingly discharged. [59] The appellant is entitled to costs both in the High Court and in this Court. In the High Court costs were reserved. They should be fixed by that Court in light of this judgment. In this Court we award costs against the respondents in the sum of $6,000 together with disbursements, including the costs of preparing the case on appeal and the reasonable travel and accommodation costs of counsel approved, if necessary, by the Registrar.Solicitors: Simpson, Grierson, Auckland, for Appellant Nigel Wilson, Auckland, for Respondents