Damages from Unsuccessful Copyright Claim Thwartable by Patent Assertion

In Orion Marine Ltd v Sealegs International Ltd 2021 NZHC 3207 the Judge found no unjustifiable prejudice or abuse of process in Sealegs patent infringement defence to the damages action brought against them after they lost their copyright infringement case.

As previously reported, Sealegs was unsuccessful before the Court of Appeal in their copyright action against various parties, where they alleged that the activities of those parties infringed their copyright in various aspects of their amphibious boat designs. Along with finding the works Sealegs claimed copyright in have negligible originality, the Court of Appeal held that the trial Judge wrongly strayed into the realm of patent law by extending copyright protection to functional equivalents when discounting the effect of the differences. The Supreme Court subsequently declined leave to appeal the Court of Appeal’s decision.

Prior to the trial Judge’s substantive decision Sealegs obtained interim injunctions over various parties which, as is standard, included Sealegs giving undertakings as to damages to those parties in the event no copyright infringement or threatened infringement was found. Following the Supreme Court bringing an end to the substantive proceedings the injuncted parties sought damages of over $6.8 million as well as interest and costs from Sealegs. In its defence and counterclaim Sealegs argued that any production, display or sale by Orion or the other parties would have infringed Sealegs’ patent and so no amount is owed on the undertaking. In response those parties sought to strike out Sealegs patent infringement defence for being an abuse of process as the patent infringement proceedings should have been brought with the copyright infringement proceedings. It was also asserted that Sealegs substantively abandoned its patent claim and that bringing it now would cause unjustifiable prejudice.

The Judge proceeded by considering whether Sealegs could have brought the patent action with the copyright proceedings and if so whether they should have done so, as well as whether strike out would be a justifiable limit on Sealegs ability to defend itself. After reviewing various UK and New Zealand cases, the Judge surmised that there is no hard and fast rule for abuse of process determinations, as all circumstances need to be taken into account, and that the determination of the ‘could have’ aspect does not necessitate the ‘should have’ aspect.

The evidence showed that in October 2016 Sealegs declared its intention to bring a patent infringement action. However, in December 2016 a September 2017 fixture date was set for the copyright action and Sealegs decided it was impractical to initiate and join a patent action as the other parties did not want further delay for the substantive proceedings. Further, in March 2017 Sealegs applied to amend its patent which on account of legislative and procedural considerations also would have made it impractical for a patent action to join the September 2017 fixture. The Judge considered both of Sealegs reasons for not commencing a patent action as more relevant to the ‘should have’ aspect and concluded that technically Sealegs could have commenced the patent action at the same time as the copyright action. Regarding the ‘should have’ aspect it was further noted that Sealegs declined the opportunity to include a patent infringement action in its 30th June 2017 amended statement of claim. However, the Judge held that this only meant that Sealegs should be declined leave to bring the patent action with the copyright action, not that it should be also declined leave to bring a patent action on a stand-alone basis. Consequently, it was found that Sealegs had not abandoned its patent claim. The Judge agreed that amendment of the patent made it impractical to join a patent action to the copyright action, while also noting that Sealegs amendment of its patent evidenced possible future reliance on it.

The Judge rejected the contention that on the facts of this case copyright and patent actions have considerable overlap. While the copyright infringement proceedings indirectly involved analysis of numerous integers of Sealegs’ patent, there was only some overlap rather than close resemblance. There are clear differences in copyright and patent monopolies with copyright protecting the expression, not the idea and a patent protecting the idea, not the expression. Further, findings of fact for copyright originality are not determinative of patent inventiveness and there can be different implications such as functionality detracting from copyright while being central for patents.

The Judge went on to hold that there was no absence of good faith on account of the delay in asserting the patent, and that strike out is not a justified limit on Sealegs’ right either to bring a counterclaim or to plead defences and so rejected the strike out application.

Author: Quinn Miller

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