The rightful owners
Date: 07 January 2010
Issue: Vol 159, Issue 7381
Categories: Features, Intellectual property, In-House, Profession
Manufacturers often buy components from third parties. In economically healthier times, order books were full and outsourcing allowed manufacturers to free space within their factories.
As the manufacturing industry matured, competition within it increased and costs could be saved by buying from suppliers that served many companies within the same sector.
With economic health came complacency. Forecasted high volumes demanded that deals were done quickly; supplier drawings were e-mailed to manufacturers for approval, often without a supporting non-disclosure agreement or supply agreement in place.
Manufacturers are now looking to buy components from cheaper sources or to bring their manufacture in-house. Times are gloomier and such moves are desirable both to save costs and to reduce the potential impact of supplier insolvency.
Buying teams must cut costs but are often unfamiliar with the intellectual property issues involved. This is unsurprising given the myriad registered and unregistered rights which can co-exist.
Registered rights
If the supplier owns a patent or registered design, they have a monopoly right to use that design for the period of protection (20 years from the date of filing for patents; 25 years for registered designs) subject to the payment of regular renewal fees.
On a practical note, in the UK and the European Community, applications to register designs enjoy less rigorous examination than patents so, while the very fact of registration will deter many potential infringers, it is always prudent to consider whether the validity of an intellectual property registration can be challenged.
Registered designs are capable of reciprocal protection in one application to the World Intellectual Property Organization (WIPO) if the country is a signatory to the Hague Agreement.
Copyright in designs
The Copyright Designs and Patents Act 1988 (CDPA 1988) protects proprietary rights in original artistic works.
Design documents, such as supplier drawings, are within the scope of the definition of artistic works. However, copyright in design documents is not infringed by copying the design, unless the article the subject of the design is itself an artistic work (CDPA 1988, s 51).
The surface decoration of a design is still protected if separable from the general shape of the design. The court in The Flashing Bade Company Ltd v Brian Groves (t/a Flashing Badges By Virgo & Virgo Distribution [2007] EWHC 1372 (Ch), [2007] All ER (D) 128 (Jun) was willing to find two separate aspects in one design document: the shape of the article itself (which will fall within the scope of s 51) and the surface decoration (which will not).
Generally, components in the manufacturing industry will be functional rather than artistic and free from surface decoration. Section 51 will therefore operate as a defence against copyright infringement proceedings (Apps v Weldtite Products [2001] FSR 39, [2000] All ER (D) 1976). Sending a supplier’s drawing of a functional component to third parties is unlikely to infringe the supplier’s copyright.
Where the subject of the design document is artistic, the effect of s 52 is to shorten the period of copyright protection in articles made by an industrial process to 25 years from the end of the calendar year in which the articles are first marketed. Articles are “industrially produced” for the purpose of s 52 if more than 50 are made.
Unregistered design right
Copyright will offer little assistance to the supplier, but Pt III of CDPA 1988 will still protect the appearance of his original design, once recorded or made (CDPA 1988,s 213). In the UK, protection lasts for a period of 10 years from the date the articles were first marketed or 15 years from the creation of the design document, whichever is the shorter (CDPA 1988, s 216).
In addition, Community unregistered design right allows relief to be granted for infringement anywhere in the EU for a period of three years from the date the design was first made available to the public.
Whereas copyright in an article is infringed by copying the whole or a substantial part of it (CDPA 1988, s 16(3)), the position is different for design right. In L Woolley Jewellers and A & A Jewellery Limited and anor [2002] All ER (D) 489, it was confirmed that in assessing whether design right has been infringed, the overall design must be considered rather than its constituent parts.
If manufacturers send suppliers’ designs to third parties (or a new design document created using the article itself), they risk primary infringement of design right under CDPA 1988, s 226 (1) when articles are made to that design as CDPA 1988 applies to direct and indirect reproduction (s 226 (4)).
Furthermore, s 227 provides than anyone who imports or sells in the course of a business articles which they know or believe to be infringing copyright commits secondary infringement.
The issue of commissioning
If a design has been commissioned, the commissioner owns the design right (CDPA 1988, s 215). This is quite different to the position on copyright, which, absent an assignment, provides that the copyright will vest in the author of the design (CDPA 1988, s 11(1)).
While manufacturers will often send out a technical specification of sorts to the supplier who will design a part to that specification, if this is achieved without the manufacturer paying for the supplier’s efforts in designing a component, the design will not have been commissioned and will be owned by the supplier.
Outsourcing to Asia to reduce costs was common before the downturn and it is even more so now. If a UK-based customer sends its supplier’s designs to a third party manufacturer in Asia, then owing to the s 51 defence, copyright protection is unlikely to be available.
Whereas the Berne, UCC, Paris and WIPO conventions operate to give reciprocal protection to copyright works created in signatory countries, there is no equivalent protection for unregistered design right and it will not therefore be possible to maintain an action against the Asia-based third party.
Unregistered design right will, however, be infringed by the UK-based manufacturer when he imports the infringing articles into the UK.
Where no contractual duty of confidentiality exists, the three-stage test put forward by Megarry J in Coco v AN Clark (Engineers) Ltd [1969] RCP 41 will still operate to protect information which:
- has the necessary quality of confidence;
- was imparted in circumstances where a duty of confidence can be inferred; and
- has been used by the recipient in an unauthorised manner and to the detriment of the disclosing party.
In Inline Logistics Ltd v UCI Logistics Ltd [2002] All ER (D) 435 (Mar), the court found that design documents had the necessary quality of confidence (though the case was decided against the claimant on other issues).
However, the courts are often reluctant to imply an equitable duty of confidence where other intellectual property rights are available. An action for breach of confidence may appear outdated, but it remains useful where CDPA 1988, s 51 operates to remove copyright protection and where design right has expired.
Testing times
These are testing times for every level of the manufacturing industry. Suppliers must not assume that their designs enjoy the benefit of copyright protection and customers must not forget that unregistered design right and the duty of confidence will also be available to an aggrieved supplier.
Both parties must remember that when the upturn comes (which it must) new products will be developed which will require the innovative design expertise of reliable suppliers rather than the copycat methods of cheaper alternatives.
Manufacturers need to ensure that they do not alienate a valuable supplier base and suppliers must remain as attractive a source to their customers as possible in these lean times, or risk insolvency long before the economic recovery.
Jo Lloyd-Davies, group solicitor, J C Bamford Excavators Limited. E-mail: jo.lloyd-davies@jcb.com
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