Sunday, May 4, 2014

Seafolly Pty Limited v Fewstone Pty Ltd – Copyright Infringement in Artistic Works

The Federal Court’s recent ruling in the Seafolly Pty Limited v Fewstone Pty Ltd is interesting because it addresses issues related to imitation, modification, and even deliberate use of a competitor’s designs in the fashion industry, where the practice of using samples and images of existing artwork is commonplace. Some years ago I appeared in an television interview on the habit of Australian companies and their plagiarism of foreign designers - see http://frockwriter.com/2009/11/fashion-copies-back-on-the-australian-current-affairs-agenda . And so this decision is an interesting and welcome development.

Background

Both Seafolly and City Beach are designers, manufacturers, and sellers of swimwear and beachwear, with the latter’s products being on the low end of the price spectrum. It also occupies a niche category – that of girls and young women, instead of Seafolly's target market of women of all ages. The two companies’ products are never sold at the same retail outlets.

Seafolly alleges that three of its artworks, or at least substantial parts of them, were reproduced in material form by a corresponding print or embroidery used in manufacturing City Beach beachware garments without permission, licence, or intent to inform, citing the following:

· City Beach’s Rosette print reproduced a substantial part of Seafolly’s English Rose artwork
· City Beach’s Sienna print reproduced a substantial part of Seafolly’s Covent Garden artwork
· City Beach’s Richelle embroidery reproduced a substantial part of Seafolly’s Senorita artwork.

It was also argued that City Beach specifically purchased Seafolly garments bearing the artwork, and gave specific instructions to their designer, 2Chillies, alternatively to their manufacturer, Welon (China) Ltd, suggesting an intent to copy or imitate the artwork.

An email from City Beach to 2Chillies contained various photographs that include Seafolly’s English Rose bikini, along with a request to create a “rose print similar to Seafolly print” and to create the art work in sizes similar to Seafolly’s product. Additionally, 2Chillies repeatedly warned City Beach that the Rosette print was too similar to the English Rose artwork and tried to modify the designs in order to reduce the similarities, but City Beach repeatedly rejected those attempts.

Similarly, in relation to Seafolly's Sienna print, City Beach sending 2Chillies photos of a Seafolly Covent Garden garment and a City Beach dress, along with instructions to provide “direction with flowers and colour,” to which 2Chillies replied with “We have developed this print referring to the picture you sent us and using similar flowers and colours.”

For the Richelle embroidery, City Beach sent a one piece Seafolly Senorita swimsuit to Welon (China) Ltd., and asked for a bandeau with shirred pattern “as per the original” with a note to make it “as close as possible.” A City Beach employee admitted that to providing instructions “to copy the shirring in the [Seafolly] garment.”



City Beach’s Defence

City Beach denied any infringement of Seafolly’s copyright, arguing that there are not enough objective similarities between the two, with parts taken from Seafolly’s original artwork being insubstantial. Additionally, it also argued that any originality being derived from Seafolly’s artwork is limited to the grouping of features that are themselves commonplace and derivative of other art work.

City Beach also posited that an adaptation of an artistic work cannot infringe copyright because the exclusive rights of the owner of the copyright in an artistic work exclude the right of adaptation, contending that a copyright infringement would only occur in an exact reproduction of a substantial part of an artistic work.

Judge’s Ruling

Dodds-Streeton J rejected City Beach’s argument regarding the right of adaptation, citing that the term “adaptation” was given a very specific meaning in the Copyright Act 1968 (Cth), which was not applicable to artistic works, and that numerous authoritative cases recognised that copyright in artistic work could be infringed by reproductions which were not complete or exact.

The judge also rejected City Beach’s argument that intention to steal (which was proven in all three cases due to their correspondence with the designer and the manufacturer) is no longer relevant to copyright infringement. Dodds-Treeton J stated that animus furandi (intention to steal) was not irrelevant to substantiality and copyright infringement – its relevance might not be consistently upheld but it does not mean that it is always excluded. It was also noted that City Beach was warned of the legal risk by the 2Chillies, and was provided with several variants that would have diminished the similarities to Seafolly’s artwork, but it had insisted on using substantially similar designs.

City Beach argued that the Senorita artwork was a “corresponding design." This means that the copyright protection for the artistic work is avoided if it was applied as the shape of a product instead of being rendered in two dimensional form. City Beach (novelly) argued that the use of shirring in the Senorita garments as responsible for making a three dimensional embodiment of the Senorita artwork, which had become part of the garment’s structure after weaving.

The judge did not consider the garments to be a "corresponding design" simply because they were each created using shirring and smocking: this was considered to be only a small part of the final product. The court otherwise ruled that there was no need for an infringing work to bear an overall resemblance to the copyright-protected work, and coupled with the correspondence between City Beach and its designer and manufacturer proving intent to steal as well as their foreknowledge of the legal risks, ruled in favor of Seafolly.

Seafolly chose to claim compensatory damages instead of an account of profits (not unusual - expenses can mean that defendants can run at a loss). The court calculated damages by taking the number of sales made by City Beach multiplied by Seafolly’s average wholesale profit margin for the relevant garments, and then discounting the number by 75% in order to cover the fact that not all of the sales can be considered sales lost due to other relevant factors. The final figure was $80,333.06. This discount would have been a cause for considerable dismay to Seafolly. It mean that the damages award was much less than they would have hoped and was almost certainly outweighed by the costs of the litigation.

The court however also ordered $150,000 in additional damages in order to serve as general deterrence from copying in the industry, and because of City Beach’s proven intention to imitate, misconduct during proceedings (they failed to disclose a relevant fact and several of their important lay witnesses were evasive, not responsive, or outright refused to make appropriate concessions), and blatant disregard for the notice regarding Seafolly’s copyright claims (City Beach had continued sales of the infringing garments even after the notice.)

It will be interesting to see if this decision has a deterrent effect upon an industry which both within Australia and overseas is notorious for copying designs.

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