Green light for the "spare parts" defence to design infringement

By Richard Hoad, Sarah Martine
21 Feb 2019
This case demonstrates the difficulty for registered design owners in proving infringement by spare parts suppliers.

For the first time, an Australian court has considered the scope of the repair (or "spare parts") defence to design infringement. The decision highlights that the repair defence places a heavy burden on registered design owners to prove infringement against spare parts suppliers. Equally, however, spare parts suppliers should recognise that they tread a tightrope if they cannot point to circumstances in support of their defence that they are supplying for the purposes of repair.

What was this case about?

Holden has numerous designs registered under the Designs Act covering vehicle parts such as bonnets, radiator grilles, lamps and fascias. Holden became aware that SSS Auto Parts (SSS) was importing non-genuine parts designed for use on Holden Special Vehicles and certain sports models of the VE Commodore. In GM Global Technology Operations LLC v SSS Auto Parts Pty Ltd [2019] FCA 97, Holden brought design infringement proceedings against SSS alleging that it was importing, offering for sale, keeping for sale and selling motor vehicle parts which infringed Holden's registered designs.

While SSS accepted that the parts were infringing, it argued that it had a defence under section 72 of the Designs Act because the parts were to be used for the purposes of repair.

What is the repair defence?

The repair defence in section 72 of the Designs Act provides that a person does not infringe a registered design if the person uses, or authorises another person to use, a product:

  • in relation to which the design is registered and which embodies a design that is identical to, or substantially similar in overall impression to, the registered design;
  • the product is a component part of a complex product; and
  • the use or authorisation is for the purpose of the repair of the complex product so as to restore its overall appearance in whole or part. 

A registered design protects the appearance of a product (unlike a patent, which protects functional aspects). Consistent with that distinction, the repair defence focuses on whether there has been a repair in the overall visual appearance of the product (rather than the fixing of any mechanical defect).

The issues in dispute in this case were relatively confined. Holden and SSS agreed that:

  • the SSS parts were identical, or substantially similar in overall impression, to Holden's registered designs; and
  • the SSS parts were "component parts" of a "complex product", being a motor vehicle.

Where the parties differed concerned whether the SSS parts were to be used for the purpose of repair of the complex product (the motor vehicle) so as to restore its overall appearance in whole or part.

Were the SSS parts to be used for the purposes of repair?

Importantly, the Designs Act placed the onus on Holden to prove that SSS knew, or ought reasonably have known, that the parts were not being used for repair purposes. Parliament deliberately placed the onus on the registered design owner, rather than the alleged infringer, so that new participants were not discouraged from entering the market to supply spare parts. However, this was always likely to place the registered design owner in a difficult position because the alleged infringer's purpose is self-evidently best known to the alleged infringer. This means that the registered designs owner needs to rely, to a significant degree, on documentary and circumstantial evidence.

Holden put forward various factors in support of its argument that SSS ought reasonably to have known that the parts were not to be used for the purpose of repair. These included:

  • there was consumer demand for the parts to be used for the purpose of "customisation and enhancement" of Holden vehicles;
  • there was limited demand for the parts to be used for the purposes of repairing the vehicles to which the parts were originally fitted; and
  • the nature and name of the businesses to which SSS supplied the parts indicated that the parts would not be used for a repair purpose.  

In response, SSS argued that it had implemented a number of "repair only" policies which, it said, proved an intention that the parts were to be used for the purpose of repair only. This included labelling the relevant parts with a sticker stating "authorised for use only in repairs" and requiring all sales staff to execute a "repair only directive". While Holden argued that these polices were "defensive" and only occurred after infringement proceedings were threatened, Justice Burley decided that they "represented an honest attempt… to ensure that the parts were sold for repair only".

Justice Burley held that the repair defence required Holden to establish (on the balance of probabilities) that SSS knew, or ought reasonably have known, that the parts were not intended to be used for the purposes of repair; it was insufficient that SSS knew that they might not be used for that purpose. In the absence of an admission, actual knowledge can be inferred from the facts and circumstances of the case. Constructive knowledge - ie. whether the alleged infringer "ought reasonably to have known" - is to be assessed having regard to the person's knowledge, capacity and circumstances.

There were over 1,300 alleged infringements, which were distilled down to 26 representative examples. One important factor in the case was that Justice Burley generally accepted the evidence provided by the witnesses for SSS. What might have been interpreted as just a little too cunning - the fact that SSS did not monitor the demand for particular parts or the volume purchased by particular customers - was instead interpreted by the Court as evidence of a lack of sophistication on the part of SSS. Also, Holden failed to unearth any real "smoking guns" (such as incriminating emails).

Justice Burley concluded that Holden only discharged the onus of proving that SSS did not have a repair purpose in a small number of instances. In other words, in the vast majority of the alleged infringements, SSS was entitled to take the benefit of the repair defence. The reasons for this finding differed in each case. By way of example:

  • In one instance, Justice Burley found that the name of SSS' customer, Instinct Vehicle Enhancements, "ought to have alerted [SSS] to the possibility that the purpose was not to sell or offer the parts for sale for the repair purpose", as the word "enhancement" in its business name indicated that the business engaged in the customisation (not repair) of vehicles.
  • In another instance, there was evidence that an order was made purportedly for an HSV vehicle (following a CarFacts search), despite the fact that the part could not be used for the repair of this vehicle. Justice Burley found that, while there was no evidence that SSS was aware of the mistake prior to authorising the transaction, a person in such a position "ought reasonably to have known that fact". 

Overall Justice Burley found that the business model of SSS has at all times "been to sell aftermarket parts for use in the repair of motor vehicles" and that there was "no evidence to suggest that the importation of these parts was not arranged in the ordinary course of that business".

Can the sending of a letter of demand amount to an unjustified threat?

Prior to the commencement of court proceedings, Holden sent letters of demand to SSS alleging that it had infringed Holden's registered designs, registered trade marks and copyright, and also engaged in passing off.  SSS brought a cross-claim in the proceeding alleging that the sending of these letters amounted to an unjustified threat under section 77 of the Designs Act (similar claims were also brought under the Copyright Act and the Australian Consumer Law).

Section 77 of the Designs Act provides that, if a person is threatened with design infringement proceedings, an aggrieved person may apply to a Court for:

  • a declaration that the threats are unjustified;
  • an injunction against the continuation of the threats; and
  • the recovery of damages sustained by the applicant as a result of the threats.

Before infringement proceedings can be brought in relation to a registered design, the design must first be "certified" by IP Australia. Threatening to bring infringement proceedings before a design has been certified amounts to an unjustified threat. 

While Justice Burley found that Holden's correspondence was "undoubtedly aggressive", SSS failed to establish that Holden's threats were unjustified in most instances. SSS did, however, succeed in establishing that Holden's threats were unjustified insofar as they related to designs that had not been certified.

Take-away points

This case demonstrates the difficulty for registered design owners in proving infringement by spare parts suppliers. The spare parts defence was the subject of considerable debate before it was introduced in the new Designs Act in 2003, and was strongly resisted by manufacturers including the motor vehicle industry. Typically the onus to prove knowledge (or a lack thereof) falls upon the person whose state of knowledge is in issue. Some significant changes to Australia's registered designs laws are currently on the agenda, and it remains to be seen whether industry will agitate for the repair defence to be added to the list of items under review.

In the meantime, design owners should continue to ensure that their registrations are certified before any letters of demand are sent to potential infringers to avoid the risk that their correspondence will be found to be an unjustified threat. 

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