IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY

CIV 2010-404-000974

BETWEEN	PUREDEPTH LIMITED
Plaintiff

AND	NCP TRADING Defendant

Hearing:	18, 19 March and 14 April 2010

Counsel:	C Elliott and J Nolen for Plaintiff
K Glover and M Windsor for Defendant
J Hodder SC and M Sumpter for LG Display Co Limited

Judgment:	16 April 2010

JUDGMENT OF FOGARTY J

Introduction

[1]	PureDepth  seeks  an  interim  injunction restraining NCP  from  selling Konka televisions.	PureDepth   has   commenced   proceedings   contending   that   NCP   is importing  and   selling   Konka   television   sets   with   backlighting  systems   which infringe PureDepth’s New Zealand patent No. 541023.

[2]	In  preparation  for  these  proceedings  PureDepth  purchased  as  a  sample  a Konka  42  inch  television  and  had  it  disassembled. They  expected  to  find backlighting componentry made by a Chinese (Taiwan) company, CMO, with whom they  had  endeavoured  to  negotiate  a  licensing  arrangement. They  found  rather backlighting componentry branded as LG.   LG is a South Korean company.

PUREDEPTH LIMITED  V NCP TRADING  HC AK CIV 2010-404-000974  16 April 2010

[3]	PureDepth   then   purchased   a   Konka   32   inch   television   which   upon examination  had  backlighting  componentry  apparently  branded  as  coming  from Samsung, another Korean company.

[4]	LG has applied to be joined as a party.  Samsung may yet apply.

[5]	This judgment resolves the   application   for   an   interim   injunction   by

PureDepth and the application by LG to be joined.  Both applications are opposed.

Joinder issue

[6]	The question of joining LG  and  possibly  Samsung  was  first  raised  by  me when I heard oral argument in support of the interim injunction on 18 and 19 March.
I was concerned that any determination, if only to the extent that there was a serious question to be heard, which addressed LG componentry, should only be made after LG had an opportunity to be heard.  I was minded to join LG upon my own initiative but  after  an  exchange  of  memoranda  between  myself  and  counsel  the  question  of joinder  proceeded  in  the  orthodox  way  by  an  application  by  LG,  albeit  with  the timing  of  the  papers  being  truncated  in  order  to  fit  with  the  exigencies  of  this hearing.

[7]	PureDepth opposed the joinder on a number of  grounds, of which the only one I consider to be significant and worthy of examination  in this judgment is that:

The plaintiff has no cause of action against the applicant if it is joined as a defendant  and  would  therefore  be  unable  to  file  an  amended  statement  of claim raising any cause of action against the applicant as a defendant.

[8]	Whether  or  not  that  is  so,  Mr  Hodder  SC  argues  that  the  substantial proceedings  will  determine  the  validity  of,  and  any  infringement  of,  the  New Zealand patent.  The Court in that regard can provide a remedy by way of declaration to  the  advantage  or  disadvantage  of  LG.   In  that  respect  at  the  least  LG  can  be  a party.

[9]	I also raised the prospect of a cause of action drawn to address the criteria in

s 68A of the Patents Act 1953 which would argue that LG was one of the producers

of a patented product imported and sold in New Zealand infringing that patent.

[10]	Mr  Hodder  also  advised,  from  the  bar  and  by  way  of  affidavits,  of  an intention  on  the  part  of  LG,  if  joined  as  a  defendant,  to  file  a  counterclaim  for revocation of the patent as enabled by s 70 of the Patents Act.

[11]	It needs also to be kept in mind that PureDepth has the benefit of a US patent

No. 7,095,180  which it says is identical to the New Zealand patent.

[12]	If this contention is true, and if PureDepth is successful in obtaining a finding

of infringement of the  New  Zealand patent by reason of the Konka television sets having   LG   backlighting  display  units,   then   such   a   judgment   may  well   have considerable commercial ramifications in the US market place, being one of vastly greater size than that of New Zealand.

[13]	In  elaboration  of  his  argument  Mr  Elliott  submitted  that  any  claim  by PureDepth could only succeed if LG admitted that it was party to an agreement with Konka  to  bring  LG  display units  to  the  New  Zealand  market.   He  argued  that  the burden on the plaintiff would be to show that LG was akin to being a joint tortfeasor. He relied on Terrell On The Law Of Patents 15th  ed para 839 and in particular the decisions of the Koursk [1924] P.140 and Molnlycke v Proctor and Gamble (No. 4) [1992] RPC 21 at 29.  I prefer the dictum of Musill  LJ in Unilever v Gillette [1989] RPC 582 where Musill LJ said at 608 that there need not be:

… any finding that the second party has explicitly met without a plan with the  primary  offender.   Their  tacit  agreement  will  be  sufficient.   Nor,  as  it seems to me, is there any need for a common design to infringe.  It is enough if the parties combine to secure the doing of acts which in the event prove to be infringements.

[14]	It is readily apparent from  the  material  before  this  Court  that  the  Konka television sets are assembled from componentry made by a variety of companies.  It
is now common place in this globalised world for “manufacturers” to build products

by assembling  outsourced  componentry. It  seems  to  me  that  there  may  well  be  a strong argument in this case available to the plaintiff that at least from April 2010

LG is aware that its backlighting componentry is being installed in Konka television sets which are exported to New Zealand.

[15]	In my view there are therefore two bases upon which LG’s presence before the  Court  is  necessary  within  the  standard  of  r  4.6(1)(b)(ii).	They  are  that  the judgment will, at the very least informally if not formally, contain a declaration as to the  infringement  or  not  of  LG  backlighting  of  the  New  Zealand  patent,  and  the validity of the latter.   Second, there is a cause of action which can be pleaded, and which would survive strikeout, against LG.

[16]	For these reasons LG Display Co Limited is joined as a second defendant.  I

will address the question of timetable at the end of this judgment.

Interim relief

[17]	It  is  traditional  in  New  Zealand  to  examine  the  question  of  interim  relief following the two-stage  approach  enunciated in American Cyanamid Co v Ethicon Ltd [1975] AC 396 of examining whether there is a serious question to be tried and then the balance of convenience.  However, as the Court of Appeal pointed out in the decision  of  Klissers  Farmhouse  Bakeries  Ltd  v  Harvest  Bakeries  [1985]  2 NZLR 129  at  142,  that  that  approach  had  been  qualified  by the  House  of  Lords  itself  in NWL Ltd v Woods [1979] 3 All ER 614, and it was important not to seek the answer to  an  interlocutory  injunction  application  in  the  rigid  application  of  a  formula. Cooke J for the Court went on:

Whether   there   is   a   serious   question   to   be   tried   and   the   balance   of convenience are two broad questions providing an accepted framework for approaching these applications. As the NWL speeches bring out, the balance of convenience can have a very wide ambit. In any event the two heads are not   exhaustive.   Marshalling   considerations   under   them   is   an   aid   to determining, as regards the grant or refusal of an interim injunction, where overall justice lies. In every case the Judge has finally to stand back and ask himself that question.

(At 142)

Whether there are serious questions to be tried

[18]	When this case was first argued on 18 and 19 March I heard oral arguments which were ambitious.  Counsel for PureDepth were seeking a finding that they had
a  very  strong  case.	Counsel  for  the  defendant  were  seeking  a  finding  that  the backlighting  displays  were  in  accordance  with  prior  art,  as  discussed  in  the  New Zealand patent and as disclosed in a Japanese patent No. 6-301034.

[19]	Prior to the hearing on 14 April, a large number of affidavits by experts were filed on the part of LG and in reply on the part of PureDepth.  LG mounted a number
of  arguments  that  their  backlighting  was  in  accordance  with  prior  art  both  as discussed in the New Zealand patent and independently and variously argued that the New Zealand patent was invalid by reason of not being novel or that in any event that  the  LG  backlighting  display  fell  outside  the  scope  of  the  claims  in  the  New Zealand patent.  I am not a specialist Judge.  For that reason, and because of the mass of material that has been filed by the parties, it is simply not possible for me to form any reliable judgment as to the strengths of the competing arguments.

[20]	I am, however, quite satisfied as to the bona fides of PureDepth in bringing the claim and of NCP and LG in defending the same.  Nor am I prepared to draw any adverse inference against Samsung for not yet having applied to be joined.  I am left with the clear impression that the Court is presented with a significant patent dispute, the outcome of which is quite uncertain at this stage.

[21]	Other facts are more certain:

1.	The  plaintiff  is  the  New  Zealand  subsidiary  of  a  parent  company registered  in  the  United  States.   The  parent  company,  however,  has New  Zealand  roots  and  significant  investors  from  New  Zealand.   It has developed a suite of intellectual property and holds 84 patents.  It has  a  number  of  significant  licensing  agreements  overseas. This litigation is a significant diversion of its resources.

2.	NCP is a company of much smaller scale than the plaintiff.  It is also a start-up company.   Its current viability depends  on the fact that it is being  extended  credit  by  its  supplier,  Konka.   Konka  is  allowing  it time to pay for its purchases.  It appears on paper to be enjoying only a small margin, were it paying for the television sets it imports but in reality  has   more   disposal   cashflow   because   of   the   credit   being extended by Konka, no doubt to enable it to get the brand established in New Zealand.

3.	Konka is a significant sized Chinese manufacturer.

4.	LGC  is  a  very  large  and  internationally  ubiquitous  manufacturer  of electronic goods.

5.	If the plaintiff seeks in a cause of action against LG there will be no doubt that LG will meet any damages award.

6.	If the plaintiff does not succeed against LG but does succeed against

NCP, there is a real risk that a judgment would be nugatory.

7.	The  technology  is  changing  rapidly  and  there  is  a  prospect  that technological advance will render the commercial life of this patent to be short in any event.

[22]	This litigation has ramifications to the parties far greater than the recovery of royalties from the relatively few numbers of Konka television sets being sold in New Zealand while the brand gets established.  To grant the relief sought by the plaintiff would  be  to  effectively  stop  in  its  tracks,  if  not  end,  the  new  start-up  business  of NCP.	 To  not  grant  any  relief  threatens  to  deprive  the  plaintiff  of  relief  in  New Zealand should judgment be granted in favour of the plaintiff but only against NCP. That would be unjust.

[23]	Overall I am of the view that the appropriate step to be taken in this case is to require NCP to do one of two things: either  set  aside  into  an  escrow  account  a

reasonable sum to cover the royalties part of any successful recovery by the plaintiff;

or, to provide a letter of credit for the same (likely underwritten by Konka).  Second, although  I  think  it  is  barely  more  than  a  formality,  NCP  would  provide  to  an independent third party, records of sales of Konka televisions, of sufficient provision to  enable  verification  at  a  later  date  as  to  the  backlighting  componentry  in  fact installed in the units that were sold.

[24]	The  provision  for  royalties  and  the  record  would  be  in  respect  of  Konka television  sets  which  fall  into  the  following  category,  as  provided  to  me  by Mr Glover for NCP:

Konka television which contain a backlighting system where there is a direct connection  between  the  backend  circuit  board  and  the  circuit  board  which holds the componentry.

(I may not have recorded this note accurately and there is leave to apply to correct this formulation.)

[25]	There was a contest between two experts as to the royalty which PureDepth would hope to obtain from NCP on the assumption that it was selling television sets with  backlighting  componentry  the  subject  of  the  statutory  monopoly  of  the  New Zealand  patent. By  a  process  of  affidavits  in  reply  the  dispute  had  significantly narrowed by the time it came on for hearing on 14 April.  The difference between the two experts was as to the proportion to total cost of the backlighting componentry per unit.   The conflict was by independent experts.   Mr Hargreaves argued that the backlighting  componentry  was  of  the  order  of  10%  of  the  total  cost  of  the  unit. Mr MacFarlane argued that it was in the order of 26-30%.   Mr Hargreaves did not have  an  opportunity  to  reply  as  that  position  of  Mr  MacFarlane  was  itself  a compromise from Mr MacFarlane’s opening position after having studied Mr Hargreaves’ brief.   Mr Glover from the bar adopted some concerns that I have as to the ambiguity of some of the data produced by Mr Hargreaves in his affidavit in reply.   He argued that there was an available interpretation, originally suggested by the Court, that Mr Hargreaves was using the total cost of the flat screen rather than the total cost of the complete television unit including other electronic componentry and the cabinet.  Upon a recalculation on that basis Mr Glover argued the appropriate multiplier was 17% rather than 26-30% range.

[26]	Any   interim   provision   for   royalties   must   of   necessity   be   done   on   a broadbrush basis.  It is not intended to be, nor can it be, a simple equivalent of what could be achieved by commercial negotiation.  Its function is simply to provide for a measure of protection in the event that the plaintiff is successful in its proceedings against NCP, but NCP has no significant assets.   To that end I am going to select a compromise figure of 20% which when adjusting the calculations of Mr MacFarlane, who in turn was adjusting the calculations of Mr Hargreaves, results in the following royalty  equivalents  per  unit  per  class  of  Konka  television. What  I  have  done  is amended the table in paragraph 9 of the seventh affidavit of Mr MacFarlane, which is a table of values assuming the backlight value at 30%.  I have reduced those sums by one-third to assume a backlight value of 20%.  Accordingly, the table reads: (a) $2.84 for Model KL32IS65C
(b)	$2.95 for Model KL32CS62Q (c)	$4.90 for Model KL42CS62Q
[27]	Leave is reserved to apply for adjustment of those figures if the assumption that the figures equate to assuming a backlight value of 20% is not carried through into the final numbers.

[28]	I  leave  it  to  the  parties  to  agree  the  detail  of  a  periodic  reporting  system and/or the setting up on an escrow account or the alternative letter of credit.  Leave is reserve to the parties to apply to resolve these issues.

[29]	I  do  hope,  and  expect,  however,  the  parties  will  be  able  to  resolve  these mechanical details.   All parties have been partially successful in these proceedings. Costs will lie where they fall.

Future conduct of these proceedings

[30]	I have invited the parties  to  consider  co-operating  by  agreeing  to  this  case being placed on a fast track as provided by the Practice Note of the Chief High Court

Judge in 2009.  To that end there will be a telephone conference with me at 9.30 am

on Tuesday, 18 May 2010.	In the event that the parties do agree I would place this case on fast track and anticipate that its future conduct would be actively managed
by one of the High Court Judges based in Auckland.

Solicitors:
Lowndes & Associates, Auckland, for Plaintiff
Genevieve Gill, Auckland, for Defendant
Chapman Tripp, Auckland, for LG Display Co Ltd