IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2010-470-848

BETWEEN	POLLEN-PLUS LIMITED Plaintiff

AND	ZNEL LIMITED First Defendant

AND	LENZ EQUIPMENT LIMITED Second Defendant

Hearing:	7 October 2010 (Heard at Rotorua)

Appearances: PJ Crombie for the Plaintiff
No appearance for the First Defendant
G Hazel and V Veerakumar for the Second Defendant

Judgment:	20 October 2010 at 3:00 p.m.

JUDGMENT OF WOODHOUSE J

This judgment was delivered by me on 20 October 2010 at 3:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.

Registrar/Deputy Registrar

……………………………………

Solicitors:
Mr P J Crombie, CooneyLeesMorgan, Solicitors, Tauranga
Mr G Hazel, Baldwins Law Ltd, Solicitors, Auckland
Copy to:
Mr I Finch, James & Wells, Solicitors, Auckland (for Znel Limited)

POLLEN-PLUS LIMITED V ZNEL LIMITED AND ANOR HC TAU CIV-2010-470-848  20 October 2010

[1]       The plaintiff (Pollen-Plus) seeks an interim injunction to restrain the second defendant (Lenz) from manufacturing, selling or supplying to any third party any pollen mill or cyclone copied from drawings created by the first defendant (Znel). The injunction is sought on the grounds that Pollen-Plus is the owner of copyright in the drawings.

The factual background issues

[2]       A broad outline of the factual background is in the following paragraphs. Some of the detail from the evidence is noted when dealing with particular issues.

[3]       The pollen mills and cyclones (the equipment) are used for harvesting and processing kiwifruit pollen.    Between 2004 and 2009 Znel designed and manufactured  equipment  which  was  sold  to  Pollen-Plus.     Drawings  for  the equipment were made by an employee of Znel.   Pollen-Plus claims that it commissioned and paid for the drawings and is therefore the owner of copyright in them: Copyright Act 1994, s 21(3).

[4]       In March 2010 Znel sold most of its assets, including all intellectual property, to Lenz.   In either July or August 2010 there was a discussion between a representative of Pollen-Plus and representatives of Lenz relating to the equipment and whether Pollen-Plus had any rights in that regard.  At about the same time Lenz agreed to supply the same pollen mills and cyclones to Seeka Kiwifruit Industries Limited (“Seeka”).  These matters are more fully set out at [66].

[5]       Znel has provided an undertaking to the Court which is acceptable to Pollen- Plus.   The application for an interim injunction against Znel has therefore been withdrawn with costs reserved.

[6]       The broad enquiries on an application for an interim injunction are whether there is a serious question to be tried and, if there is, whether the balance of convenience and overall justice favours the plaintiff or the defendant.  Lenz opposes

the application on the grounds that there is not a serious question to be tried and, if there is, the balance of convenience and overall justice favours Lenz.

[7]       Whether there is a serious question to be tried turns on whether some of the essential  elements  of  a  copyright  infringement  action  are  seriously arguable for Pollen-Plus.  Lenz accepts that the drawings created by Znel are capable of giving rise to copyright.  But Lenz contends, in broad outline:

a)       Pollen-Plus is not the owner of the drawings because it did not commission  them  and pay for  them.    Because  the  drawings  were created by an employee of Znel, Znel was the owner of the drawings and Lenz is now the owner following the purchase by Lenz of the assets of Znel.

b)	The copyright works have not been pleaded.

c)        Copyright does not subsist in the drawings through lack of originality: the mechanical parts are common place and other aspects are in the public domain.   Additionally, what Pollen-Plus seeks to protect is ideas, not the expression of ideas through drawings, and the ideas cannot be protected by copyright.

d)	There has been no infringement.

[8]       The points raised on both sides in respect of balance of convenience include conventional arguments about the adequacy of damages, the status quo, and whether an interim injunction will be determinative of the substantive issue.  There are some further considerations arising from the particular facts of this case.

The proceeding and the deponents

[9]       On 23 August 2010 Pollen-Plus was advised by Lenz that Lenz intended to supply Seeka with a number of pollen mills, being the same as those earlier supplied by Znel to Pollen-Plus.   On 22 September 2010 Pollen-Plus filed its substantive

claim  together  with  the  application  for  an  interim  injunction  and  affidavits  in support.  I infer that the documents were served on the defendants on about the same date.

[10]     Three  affidavits  were  filed  in  support  of  the  application.    The  principal affidavit is from Pollen-Plus’s managing director, Mr Steven Saunders.  The second affidavit is from Mr David Johnson, managing director of Northern Bay Pollen Company Limited (“Northern Bay Pollen”) a former competitor of Pollen-Plus but now involved in a joint venture with Pollen-Plus in the harvesting and sale of pollen. The third affidavit is from Ms Maxine Stacey-McAfee, a legal secretary employed by the solicitors for Pollen-Plus.  Ms Stacey-McAfee produced copies of a number of letters dated on and after 14 September 2010 between Pollen-Plus’s solicitors and representatives of Lenz, Seeka and Seeka’s solicitors.

[11]     Five affidavits were filed in opposition to the application.  All of these were sworn on 6 October 2010, the day before the hearing and around 14 days after the application and affidavits in support had been served.  The affidavits for Lenz were filed well out of time and unreasonably late in relation to the hearing date. Notwithstanding this Mr Crombie, counsel for Pollen-Plus, did not argue that the defendant’s affidavits should not be read.  Nor did he seek an adjournment because of the urgency of the matter to which I will come.  Nevertheless, the very late filing, without any evidence to explain the reason, is a matter I take into account.

[12]     The deponents for Lenz are as follows:

a)        Mr Robert Shaw is a director of Lenz and general manager of Compac Sorting Equipment Limited.   Compac owns all the shares in Lenz. Compac entered into the agreement to purchase the assets from Znel on behalf of a company to be formed, which company is now known as  Lenz.     (The  first  defendant  was  formerly  known  as  Lenz Equipment Limited.  That name was taken by the second defendant on sale of the assets of the first defendant.)

b)        Mr Barry Stevenson is a mechanical design engineer.   He was an engineering technician with the New Zealand Ministry of Agriculture and Forestry and then with the Horticultural and Food Research Institute of New Zealand from 1982 to 1992.   Over this period Mr Stevenson was involved in the design and manufacture of pollen harvesting and milling equipment.  From 1992 (it appears) to 2010 Mr Stevenson worked as a mechanical design engineer for Znel.   He moved to Lenz, in the same capacity, following the purchase in 2010.

c)	Mr Michael Edwards is the business manager for Lenz.

d)        Mr Andrew Wichers became a shareholder in and director of Znel in June  2005.    This  was  approximately  15  to  18  months  after  Mr Saunders  approached  Mr Des  Langdon  of  Znel  when  the  original contract between Pollen-Plus and Znel was made.  Mr Wichers is now a manager employed by Lenz.

e)        Mr Gilbert Franks is the chief executive of Seeka.  Mr Franks refers to the agreement for purchase of the equipment from Lenz, including reference to an annexed copy of the agreement although it was not annexed.    Mr  Franks  also  describes  the  way in  which  Seeka  and Pollen-Plus compete in aspects of the kiwifruit market, although not at present in the harvesting of kiwifruit pollen.  There is evidence as to the benefits to Seeka in acquiring the equipment and losses that may arise if the equipment is not delivered.

[13]     There is no affidavit for the defendants from Mr Langdon, the director and substantial shareholder of Znel with whom Pollen-Plus’s representative, Mr Saunders, originally contracted.  There is no evidence before the Court, from any of the other deponents for Lenz, as to why Mr Langdon did not provide an affidavit, notwithstanding the central issue of ownership arising from dealings between Mr Langdon  and  Mr  Saunders  and  notwithstanding  the  fact  that  numbers  of  the deponents for the defendant provide hearsay evidence as to what Mr Langdon said.  I did receive some advice from the bar from Mr Hazel, for Lenz, as to why there is no

affidavit from Mr Langdon.   There was also some advice from the bar from Mr Crombie as to the availability of Mr Langdon.   The absence of evidence from Mr Langdon is relevant because there is a reasonable amount of the evidence for the defendants on the question of ownership.

Is there a serious question to be tried?

Ownership

[14]     The  question  for  trial  is  whether  Pollen-Plus  became  the  owner  of  the drawings created between 2004 and 2009 by commissioning them and paying for them.  The question on this application for an interim injunction is whether there is sufficient evidence presently before the Court for that issue to go to trial; is it a serious question for trial?  The task at this stage is not to make a final determination one way or the other.  This important distinction needs to be borne in mind in respect of all issues that need to be addressed at this stage.

[15]     The only direct evidence on ownership, from a deponent, comes from Mr Saunders.  Mr Saunders referred to the original approach he made to Mr Langdon of Znel towards the beginning of 2004.   The approach was made with Mr Keith Garnham of Pollen NZ Limited.  Pollen NZ Limited bought one machine and then, in effect, dropped out of the picture and does not require further consideration for the purposes of this application.

[16]     In unchallenged evidence Mr Saunders said:

17.       An  oral  agreement  was made  with  Lenz,  through  Des  Langdon, under which Keith Garnham and I on behalf of Pollen NZ Limited and Pollen-Plus respectively, commissioned Lenz [now Znel] to design and then to build a new pollen mill and cyclone machine which would have the ability to produce significantly greater quantities of pollen and which would be superior to the existing pollen mill and cyclone equipment that was available at that time.

18.       Lenz agreed to take on the project on the basis we would work closely with them in providing as much practical information as possible on the pros and cons of the existing equipment that was on the   market   and   in   explaining   the   various   modifications   and

improvements we wanted and what we thought would and would not work.  We worked closely with Barry Stevenson and Des Langdon throughout the design phase.   It was understood and agreed by us that the time Lenz spent on design, through their research and development of the new equipment to our requirements, would be built into the cost of the new equipment they would manufacture for us.  I made a number of visits to Lenz’s premises in Te Puke during the design phase to assist in the design.

[17]     As already indicated, there is no evidence from Mr Langdon.  There are the affidavits from Mr Wichers and Mr Stevenson, but Mr Wichers did not join Znel until 2005 and Mr Stevenson does not claim to have been involved in relevant contractual discussions.   Mr Wichers produced two Znel documents from 2004, when the first equipment was designed and manufactured.  One is described as “Mr Stevenson’s pricing notes”.   This is a handwritten calculation of hours and dollar amounts under the heading “Pollen Mill” and dated 27 May 2004.   Mr Stevenson said that the prototype was produced between 22 April and 27 May 2004 and that “on 27 May 2004 and 28 May 2004 I calculated the price of the production of the milling equipment and the larger pollen separator”.   The handwritten calculations include two columns recording hours, one under the heading “Workshop” and the other under the heading “Barry”.  The latter obviously relates to Mr Stevenson.  Mr Stevenson in his affidavit described what he did under the general description of “my redesign”.  The total of hours for Mr Stevenson was rounded up to 100 hours and converted to a total of $4,600.   On the basis that Pollen-Plus and Mr Garnham’s company would buy a total of 12 machines, Mr Stevenson has recorded “$384/Machine Design”.  The figure was increased to $500 to cover an item which is not   clear   from   Mr   Stevenson’s   handwritten   note,   although   it   may   be “administration”.   This design cost per machine was included in a total cost per machine of $11,634 for parts, materials, labour and design, based on production of a total of 12 mills.

[18]     These calculations are reflected in a letter of 9 June 2004 from Mr Langdon on behalf of Znel (under its former name) to Pollen NZ Limited for the attention of Mr Garnham.  The letter records in part, under the heading “Proposal to manufacture pollen mills”:

Thank  you  for  the  opportunity  to  research,  develop  and  then  build  a prototype drum pollen mill and screen.

The cost to build further mills and screens the same as the prototype as viewed on our workshop floor would be $11,650 + GST each.

This price includes the research and development cost spread equally over
12 machines at $500 each.  Should you (and/or) Pollen-Plus Ltd only require
7 machines, this residual cost left from the 5 units not required (i.e. $2,500 + GST) would still need to be paid by your company and Pollen-Plus Ltd on a pro rata basis.

(emphasis added)

[19]     Pollen-Plus and Pollen NZ Limited actually bought fewer mills than the 12 anticipated, but the details are not presently relevant and do not bear on whether there is a serious question as to ownership.

[20]     Mr  Saunders  gave  evidence  of  further  manufacturing  and  design  work between 2005 and 2009, with the production of what he described as version 2, 3 and
4 of the cyclone equipment.  New drawings were created for relevant changes.  The fact that new drawings were created is not in issue.

[21]     There is an e-mail from Mr Langdon to Mr Saunders of 25 August 2009 and an attachment to that e-mail.  The e-mail includes the following:

Have spent the best part of 3 days working over the Mills and cyclones pricing from last year.  And pricing of Labour and material for this year.  As we are using design from last year we are able to hold any price increase to about 5-7% on most item.  The main worry I have is with the new idea and design of the ‘pollen mesh driven rotary air cleaner’.  Would like to build one and some way [sic] to test to allow for changes if needed …

(emphasis added)

The attachment to the e-mail has a breakdown of prices with details of the items covered by the prices.   The items covered include: “Lab R&D and design”.   Mr Saunders also produced some invoices from 2008 from Znel to Pollen-Plus charging Pollen-Plus reasonably substantial sums for “design & manufacture vacuum extracting cyclones for bee pollen”.

[22]     For Lenz Mr Hazel submitted that the documents do not prove ownership as a result of commissioning and payment.  He submitted that the word “design” may be taken to mean no more than what was required for tooling up and other preparation for  manufacture  with  the  notations  in  the  handwritten  document  made  by  Mr

Stevenson simply recording particulars of materials and labour.  Mr Hazel developed this submission but did agree, when I put it to him, that the relevant words in the documents are capable of indicating commissioning.  The fact of payment by Pollen- Plus to Znel for the invoiced sums is not in issue.

[23]     Mr Hazel pointed to other considerations which he submitted are contrary to Pollen-Plus’s claim to ownership.  These include: the absence of any clear evidence of a request to make drawings; the fact that Mr Stevenson, who did the drawings, was  a  person  with  the  skill  and  experience  from  his  MAF  employment  which suggests that Znel would not have readily signed away the drawings, particularly for a low price; and that there is no evidence of drawings being submitted for approval by Pollen-Plus.  These are reasonable points.  They will, no doubt, be fully explored at trial, but they are not sufficient to indicate that there is not a serious question to be tried in relation to ownership.

[24]     There is a further consideration.   There is presently unchallenged evidence from Mr Saunders that in 2008 Znel was approached by two competitors of Pollen- Plus asking Znel to manufacture and supply cyclones of the same design as had been manufactured for and supplied to Pollen-Plus.  Mr Langdon contacted Mr Saunders on both occasions because he considered, in essence, that he was not able to supply either of these other companies without Pollen-Plus’s consent.  There is a little more detail than I have provided, but it is not presently relevant.   This provides some support to Pollen-Plus’s claim to ownership of copyright.

[25]     Mr Wichers, who was then a director of Znel and who is now employed by Lenz, said that Mr Langdon’s referral of these enquiries to Pollen-Plus arose simply from what was a described as a “gentleman’s agreement”.   Mr Wichers said that, following the  approach  by these  other  companies  in  2008  the  directors  of  Znel discussed the issue.  Mr Wichers said:

We decided not to supply third parties as a marketing gesture to Pollen-Plus, not because of any agreement or obligation to them.  I had never seen any agreement on exclusivity.  This was a gesture in the hope of additional future business from Pollen-Plus.

(emphasis in the affidavit)

[26]     This reason for turning down business with the other companies may be established at trial.  On the face of it at this stage, and in the absence of any evidence from Mr Langdon who spoke to Mr Saunders, and on two separate occasions following the enquiries from the other companies some time apart, what Mr Wichers says is not very convincing.

[27]     Lenz’s contention that there was merely a “gentleman’s agreement” between Znel and Pollen-Plus, without any legal obligations binding on Znel in respect of copyright or anything else, was carried through to correspondence between Pollen- Plus and Znel which occurred at the time Znel was negotiating with Seeka.  Pollen- Plus’s contentions differed from those of Lenz.  I am satisfied that there is sufficient evidence on the question of ownership for the issue to go to trial.   The timing of these matters – communications between Pollen-Plus and Znel and the separate dealings between Znel and Seeka – is relevant when considering the balance of convenience and some of the detail is set out at that point, in particular at [66].

Particulars of drawings

[28]     There are no particulars of drawings in the statement of claim.   Mr Hazel cited the decision of the Supreme Court in Henkel KgaA v Holdfast New Zealand Ltd in which the Court held that the failure of the plaintiff clearly and accurately to identify the copyright works in question was fatal.

[29]     The statement of claim is deficient in this regard, but I do not consider that this demonstrates an absence of a serious question for trial.  The evidence effectively identifies the drawings as all of the drawings made by Mr Stevenson, or others at Znel, in the period 2004 to 2009 for the equipment bought by Pollen-Plus.  Some examples have been produced.   From memoranda filed following the hearing it appears that all of the drawings have been in the possession of Lenz following that company’s  acquisition of the business  of  Znel.   If all of the drawings are still available they can be readily identified and the statement of claim amended.  If some drawings have disappeared that is not fatal to a claim because the existence of the

drawings may readily be inferred from the evidence, including evidence already before the Court from Mr Stevenson.  In this respect, and in relation to some other copyright issues for a defendant, Lenz has an advantage many copyright defendants do not have.   This is that Lenz now employs Mr Stevenson, the creator of the drawings.

[30]     Generally, a plaintiff should not only identify the drawings in respect of which copyright is claimed, but also the particular features which the plaintiff claims to be entitled to copyright – at least with technical drawings as in this case.   Mr Hazel submitted that Lenz faces real difficulties in identifying features entitled to copyright because, it was submitted, much is common place and because there is only a limited number of ways in which pollen mills and cyclones can be designed.
He cited Viscount Plastics Ltd v Lamnei Plastics Ltd.    This case concerned plastic

crates designed to carry bread.   Mr Hazel referred to it as an illustration of the constraints on design arising from the underlying idea; in that case the idea of making a crate to carry bread.

[31]     I  am  not  persuaded  that  there  is  any  useful  analogy  that  can  be  drawn between the idea and the expression of the idea for bread crates, and the idea and the expression of the idea for pollen mills and cyclones.   The latter are reasonably complex pieces of machinery and, for that reason alone, likely to be capable of finding expression in more ways than plastic containers for carrying rectangular loaves of bread.  It is also a matter for trial, not an interlocutory hearing, as to the precise nature of relevant constraints on design arising from the underlying concept in this case.  The concepts in this case might be defined as machines for collecting flowers and for separating the pollen.   If that is an appropriate definition of the concept  it  may  permit  reasonably  wide  scope  for  different  expressions  of  the concept.

[32]     In  relation  to  the  particular  features  that  may  arguably  be  original,  and therefore entitled to copyright, Lenz is again able to draw on the expertise of Mr Saunders  who  was  responsible  for  the  original  work.    There  is  also  a  body of

evidence on this in the affidavits and, in particular, from Mr Saunders, sufficient to give some notice to Lenz of the individual aspects of the drawings in respect of which copyright is claimed.

[33]     There is a further consideration which diminishes the present weight of the argument for Lenz.  This is that Pollen-Plus is not merely claiming copyright in parts of drawings.  Although not fully articulated, Pollen-Plus’s claim is directed also to the overall arrangement of all of the parts for its mills and cyclones.  Numbers of parts may be common place, but copyright may subsist in the particular arrangement of otherwise common place things, or things which have been in the public domain
for many years.

Does copyright subsist? Originality

[34]     Lenz accepts as a matter of law that copyright could subsist in drawings of the equipment in question, but contends that there is none, or very little, in the drawings in this case.   Two reasons were advanced.   The first is that Pollen-Plus claims copyright not in drawings but in ideas or concepts for the equipment in question.  The second was touched on above; this is that, to the extent that the claim relates to drawings, they are drawings of mechanical parts which are common place, and in the case of pollen mills and cyclones as a whole, drawings of equipment long in the public domain.

[35]     Mr Hazel’s first submission, directed to the statement of claim, does appear to be correct in large measure.   A substantial part of the pleading is directed to concepts or function, and this is carried through in Mr Saunders’ affidavit.   This, however, goes to the pleading point already dealt with.   The claim clearly does implicitly relate to the drawings.   In addition, the technical descriptions, in the statement of claim and Mr Saunders’ affidavit, of what Pollen-Plus was trying to achieve, is relevant when considering the question of originality in the drawings. Original  ideas  for  improving  well  known  machinery  may  very  well  indicate  a

3  

reasonable amount of skill, time and effort going into creation of the drawings to give effect to the ideas.  This in turn would indicate originality in the drawings, and therefore the drawings  would  be entitled  to  a  reasonable measure of  protection through copyright.

[36]     Mr Hazel’s second submission was expressly directed to the question of originality.   There was a reasonable amount of evidence on the point, including copies of MAF patents put in evidence by Mr Stevenson, together with Mr Stevenson’s direct evidence based on long experience.

[37]     To an extent, as with other questions, I was implicitly being asked, by Mr Hazel on behalf of Lenz, to determine questions that can only be resolved at trial.  In my judgment there is ample evidence to indicate that there are serious questions about originality.   This evidence includes the evidence given for Lenz as to the amount of time, effort and skill put in by Mr Stevenson in doing what he himself, and Mr Wichers, described as “redesign”.  It may also be inferred that Pollen-Plus’s success in the market, which I will come to when discussing the balance of convenience, and the present contest over this equipment, is indicative of drawings of some considerable originality.

Infringement

[38]     Having  regard  to  the  conclusions  to  this  point,  it  becomes  reasonably arguable that the manufacture and sale of the equipment proposed to be sold to Seeka will infringe Pollen-Plus’s copyright.  This is because, on the basis of the evidence before  the  Court  at  this  stage,  including  much  of  the  evidence  for  Lenz,  the equipment is substantially the same as the equipment designed and built for Pollen- Plus.

[39]     There is evidence of some modifications made, or proposed to be made, by Lenz to avoid infringement of copyright if Pollen-Plus is the owner.   I am not persuaded that this evidence is sufficient to lead to a conclusion that there is no longer a serious question to be tried on the question of infringement.  I come back to

the question of modifications when considering the balance of convenience, to which

I now turn.

Balance of convenience

[40]     The fact that Pollen-Plus has established that there is a serious question for trial does not of itself entitle Pollen-Plus to an interim injunction.   It remains necessary to weigh the consequences for Pollen-Plus if there is no injunction and Pollen-Plus ultimately succeeds, and the consequences for Lenz if there is an injunction and Lenz ultimately succeeds.   These matters are generally considered under the heading “the balance of convenience” but, as has been pointed out in a number of cases, it is not a question of “convenience”.  An alternative description is
“the balance of the risk of doing an injustice”.  The Court of Appeal has emphasised

the need to determine where overall justice lies.   That must, of course, be done on the basis of the preliminary evidence available at this early stage of the proceeding.  I will discuss the relevant considerations under appropriate sub-headings.

Adequacy of damages

[41]     Since 2004 Pollen-Plus has established a successful business in harvesting, milling and selling kiwifruit pollen.  It now has three complete pollen mills and eight cyclones in production, all of which were designed and manufactured by Znel.  Mr Saunders said:

In the last financial year we produced over 800 kilograms of artificial pollen using this equipment that we commissioned, paid for and had built for us by [Znel].  The retail price that we sold pollen for last year was approximately
$2,300 per kilogram.  This equates to about $1.84 million of retail sales per annum.

[42]     The plaintiff has also formed what it calls a “co-operative” with two other companies to whom it has on-sold a total of five cyclones manufactured by Znel and sold initially to Pollen-Plus.   Pollen-Plus has 50% of the shares in the company

formed for the co-operative.   In the last financial year the co-operative company marketed and sold 1.6 tonnes of pollen.

[43]     Mr Saunders said:

A key part of the growth and success of our business over the last six years has been because of the money and time we have invested in the commissioning of [Znel] to design and manufacture new artificial pollen producing equipment for our requirements.

[44]     There  is,  as  required,  an  undertaking  from  Pollen-Plus  to  pay  damages supported by evidence of its ability to pay.  The defendants have not challenged the evidence of the ability of Pollen-Plus to pay damages.

[45]     It appears that Pollen-Plus, directly or through the co-operative, has secured a substantial part of the pollen market.   This is notwithstanding competition.   Mr Franks, of Seeka, said that to his knowledge there are six businesses in New Zealand that mill kiwifruit pollen.  One of these is a company called Opotiki Packaging and Coolstorage Ltd which is 19.2% owned by Seeka.

[46]     For  Pollen-Plus,  Mr  Crombie  submitted  that  damages  would  not  be  an adequate remedy.  This is because, if an interim injunction is not granted, but Pollen- Plus establishes infringement of copyright, it is bound to lose some of its market to Seeka and will lose it as a consequence of Seeka’s improper use of Pollen-Plus’s copyright in the drawings.   Mr Crombie submitted that quantification of damages would be difficult, with that difficulty compounded by losses likely to be sustained by the co-operative.   Mr Crombie pointed to the particular difficulty in assessing losses arising from longer term loss of market share notwithstanding success at trial with the grant of a permanent injunction.

[47]     Mr Crombie cited a number of cases in support of a submission to the general effect that the adequacy of damages may be less significant in cases where a plaintiff

is  seeking  to  protect  a  claimed  intellectual  property right,  compared  with  other cases.

[48]     Mr Hazel submitted that damages would be an adequate remedy for Pollen- Plus for two principal reasons.  One was that the on-sales by Pollen-Plus of cyclone equipment to two other companies indicates that Pollen-Plus is a party “willing to give up a monopoly position for money”.   Mr Hazel submitted: “In truth, such a party cannot then assert that damages would be inadequate”.   Mr Hazel cited T J
Smith & Nephew Ltd v 3M United Kingdom PLC  in support of that submission.

What the Court said in that case, on the general point, does not support the submission.  The Court said, at 102:

As a general principle, I accept that if there is clear evidence of a willingness to accept a royalty payment, then that may well entitle the Court to infer that damages would be adequate.  But everything depends upon the facts of the particular case and, as I have already indicated, in this case the facts fall far short of indicating a willingness to accept a money payment for a licensing agreement in the United Kingdom.

I will come back to the facts of this case.

[49]     Mr Hazel’s second principal point was that damages for Pollen-Plus could be readily calculated, particularly having regard to the evidence already before the Court on matters such as the price per kilo of pollen.   Mr Hazel submitted that Pollen-Plus’s records, and those of the “new competitor” (which in this case means Seeka), would enable calculations to be made of the loss to Pollen-Plus.

[50]     Mr Hazel submitted that damages would not be an adequate remedy for Lenz. He noted that, if an injunction is granted, Lenz will be exposed to a possible breach of contract claim for failing to deliver the equipment to Seeka.  He submitted that there is also a risk of loss of reputation and, in consequence, a loss of other possible sales.

[51]     It is relevant to Lenz’s position that there is already a substantial business relationship between Lenz’s parent, Compac, and Seeka.  Mr Shaw noted that Seeka is one of Compac’s “top five global customers”.   The affidavits indicate that the decision  to  proceed  with  the  sale  to  Seeka,  notwithstanding  the  objection  from Pollen-Plus, was based in considerable measure on the existing business relationship between Compac and Seeka.  In this context Mr Hazel submitted, in respect of the consequences for Lenz:

Its  reputation  and  consequently  other  sales  it  may  make  will  likely  be affected in ways which will be impossible to quantify.   It will face letting down a major player with whom it seeks to expand its business [that is to say Seeka], not just in the pollen market, but in many other fields.  Seeka may sue the second defendant for breach of contract and might seek recovery of losses and expenses flowing from its need to buy pollen elsewhere and its inability to enter the market not only in New Zealand, but ultimately internationally.  It will be impossible to say [what] the second defendant may have lost if it fails a major player going forward.

[52]     In  respect  of  Mr  Crombie’s  submission  that,  in  effect,  the  adequacy  of damages may be less decisive for an intellectual property claimant than in other cases, Mr Hazel referred to other intellectual property cases where an interim injunction  has  been  declined  because  of  a  conclusion  that  damages  would  be
adequate (two of which were also cited by Mr Crombie).

[53]     I am satisfied that considerations relating to the adequacy of damages favour the grant of an injunction. My reasons are as follows.

[54]     Even if there was evidence that Pollen-Plus was clearly willing to “give up a monopoly position for money” that would not be decisive.    All relevant considerations need to be weighed; the adequacy of damages is an important one, but not the only one.  However, in this case, I am not satisfied that the evidence supports the submissions for Lenz.  Pollen-Plus did on-sell cyclones to two other companies, but both of those companies are part of the co-operative company which is 50% owned by Pollen-Plus.   From the information presently available this arrangement

would appear to have expanded the market for Pollen-Plus, rather than to have allowed others into the market to compete with Pollen-Plus in exchange for a licence fee or royalty.

[55]     The fact that Pollen-Plus is seeking to protect claimed copyright, and through that to protect its position in the market, is an important consideration when considering the adequacy of damages.  In The New Zealand Rugby Football Union (Incorporated) v Saint Publishing Ltd Williams J said:

Those  owning  intellectual  property  rights  should  not  have  a  de  facto licensing regime forced upon them by those who infringe those rights and then assert, as justification of their conduct, that owners’ rights can be adequately compensated in damages.  It is for the owner of those rights to decide  how best to utilise them and to reap the rewards.   It  is not  for infringers to dictate the results.

[56]     Considerations of this nature cannot be decisive, but warrant appropriate weight in the particular circumstances of the case.   In this case I consider that the point as expressed by Williams J, and made in different ways in the other cases earlier cited, has considerable weight when assessed in relation to the further considerations that follow.

[57]     The loss to Lenz, if an interim injunction is granted and Lenz succeeds at trial, is a loss sounding in damages alone, unlike the loss to Pollen-Plus.  Indeed, the present substantive claim by Pollen-Plus is solely for a permanent injunction.   If Lenz is restrained from making the sale to Seeka, the direct loss will be the loss of profit on that sale which is readily calculated.  If a judgment is entered against Lenz on an  action by Seeka for breach of contract, and that becomes a loss in turn recoverable by Lenz from Pollen-Plus, that is a loss which sounds only in damages. The evidential foundation for possible losses beyond those is rather uncertain.

[58]     The evidence does not indicate that it is a foregone conclusion that Seeka will sue Lenz if the equipment is not supplied.  Mr Franks said, having outlined possible losses to Seeka:

If Seeka is not supplied the equipment to be supplied under the Supply
Agreement, then it will have a claim in damages against the Defendants.

Mr Franks did not go on to say that Seeka would sue Lenz.  Whether it is able to sue Lenz may also depend on the terms of the agreement between Lenz and Seeka for supply of the equipment, but that document was not produced.  When Lenz entered into the contract with Seeka, Lenz at the least knew that Pollen-Plus claimed some sort of exclusive right in relation to the equipment.   A prudent vendor in these circumstances would endeavour to include a protective provision in the contract of sale.

[59]     In any event, further potential losses to Seeka, arising from a claim by Seeka, are losses which can be met by payment of damages, with the quantum seemingly capped in the light of further evidence from Mr Franks.  He said, in reference to the possible losses to Seeka:

These  losses  will  accumulate  until  such  time  as  Seeka  can  source  an alternative supplier of pollen mills, which is unlikely to be possible until
2011.

There would therefore  be losses arising from one harvesting season  only.   The season is a short one of a few weeks in or about November of each year.   The quantum of potential losses to Seeka may be further reduced by Seeka’s obtaining pollen from other suppliers, as discussed below.

[60]     From Pollen-Plus’s perspective, if an interim injunction is not granted, but Pollen-Plus succeeds at trial, the right of continuing protection of copyright will have been lost in the intervening period.  The loss to Pollen-Plus in the intervening period, if it is correctly calculated by comparing financial data before and after Seeka’s entry into the market, may be capable of calculation.  However, it would not necessarily be straightforward because there are, as Mr Franks makes clear, others in the market, including the company part owned by Seeka.  There will be possible uncertainty as to whether Pollen-Plus would have preserved its relative share of the market. Importantly there will also be uncertainty as to whether Pollen-Plus would have increased its share of the market had it not faced what would be, on this present assumption, competition arising from misuse of Pollen-Plus’s copyright.   To the

extent that damages for Pollen-Plus can be calculated, there is no evidence as to

Lenz’s capacity to pay.

[61]     Beyond this is the possibility of losses into the future for Pollen-Plus.  If there is  no  interim  injunction  Pollen-Plus  will  presumably  seek  to  join  Seeka  as  a defendant.  If Pollen-Plus then succeeds at trial remedies would be granted against Seeka as well as Lenz, including a permanent injunction.  That would require Seeka to make appropriate modifications to the existing equipment, or to buy new equipment, in either case being non-infringing equipment.  But at that stage Seeka would have gained a position in the market which Mr Franks candidly acknowledged would be likely to be at Pollen-Plus’s expense in terms of market share.   This position will have been secured by Seeka’s infringing Pollen-Plus’s copyright but this, and the permanent injunction and any damages, may make no difference in the longer term to Seeka’s market share acquired in the first place by improper means. This may result in losses to Pollen-Plus well into the future which are not compensatable.

[62]     When  considering  the  balance  of  convenience,  the  submissions  for  both parties focussed in considerable measure on the adequacy of damages.  I am satisfied that this consideration firmly favours Pollen-Plus.

Third parties : Seeka

[63]     When assessing the balance of convenience it will usually be appropriate to consider any effect on third parties.   So far as Seeka is concerned there will be adverse consequences if an interim injunction is granted.  I have discussed some of these and others, referred to in Mr Franks’ affidavit, have been taken into account.  I do not consider they are sufficient to warrant declining the application.  There are also some countervailing factors.   One is that Seeka is not at present involved in harvesting pollen.    In  consequence,  an  interim  injunction restraining Lenz from making a sale to Seeka will not interfere with any existing business of Seeka.   A second consideration is that, to the extent that Seeka may need to acquire pollen, it can do so from the six businesses in New Zealand that mill kiwifruit pollen.   Mr Franks anticipated the point in his affidavit by noting that, of the six businesses,

“none are acceptable suppliers to Seeka”.  He said that in some cases the businesses are  too  small  to  meet  Seeka’s  requirements  or  are  operating  at  capacity.    The company part-owned by Seeka, Opotiki Packaging and Coolstorage Ltd, is in this category.

[64]     Other businesses, including Pollen-Plus, are said to be unacceptable because they compete with Seeka in other areas of the kiwifruit industry.  Seeka is entitled to make its business judgments based on considerations such as this, but it is not a consideration justifying any significant weight being attached to the interests of Seeka as a third party when considering whether an interim injunction should be granted against Lenz.

Timing

[65]     I draw conclusions adverse to Lenz from the evidence of the dates of Lenz’s discussions with Mr Saunders and Lenz’s dealings with Seeka.

[66]     To explain this, and some further considerations, I will firstly record relevant dates, all in 2010, in an abbreviated chronological form:

12 February               Compac  agreement,  on  behalf  of  a  company  to  be formed, with Znel; to buy the Znel assets.

31 March                    Settlement of purchase from Znel.  This was followed by a “settling in phase” of about four months: Mr Shaw’s affidavit.

June                            Mr Edwards said: “In or about June 2010 I was made aware  by  Des  Langdon  and  Andrew  Wichers  of  a
‘gentlemen’s  arrangement’  on  the  supply  of  pollen mills to Steven Saunders at Pollen-Plus Limited.”

23 July                       Mr Edwards said he and Mr Wichers had a meeting with Mr Shaw on this date.  Mr Saunders said the first

meeting was in August.   Mr Edwards said: “We discussed his business needs going forward and we indicated that if we were to go that way, it would be good to get an agreement on the role of each party; I said I would get back to him.”

Mr Saunders said: “In August 2010 I had a meeting with Mike Edwards …  I sought the meeting because I felt it was important to try and get acknowledgement from [Lenz] that Pollen-Plus had commissioned all the design work for the new pollen mills and cyclone equipment that [Znel] had designed and manufactured since 2004.  I also wanted to formalise the agreement we had with [Znel] over the exclusive supply of the equipment  to  Pollen-Plus  as  a  result  of  the  sale  of [Znel] business to [Lenz].”

26 July                       This was the next working day after the meeting Mr Edwards said he had with Mr Saunders on 23 July.  Mr Edwards said he “received a call and a visit from Tony Beale of Seeka … in which they indicated a keen interest to order pollen mills directly from us.   I informed  Mr  Beale  that  we  had  previously  referred such enquiries to Pollen-Plus and suggested that they contact Mr Saunders.”

Over the next two days there were further enquiries from Mr Beale of Seeka.

29 July                       Mr  Franks  and  the  operations  general  manager  of Seeka contacted Mr Shaw to discuss Seeka’s wish to buy the equipment.   Mr Shaw told them he would discuss the matter further with Mr Edwards and Mr Wichers.   On the same day Mr Edwards advised Mr

Franks that Lenz would supply the equipment sought by Seeka.

2 August                    Quote from Lenz to Seeka.  This was two working days after Mr Franks contacted Mr Shaw.

16 August                  E-mail  from  Mr  Saunders  to  Mr  Shaw  referring  to problems with parts that had been supplied to Pollen- Plus on some earlier date, for which payment had not been made because of the problems.  Mr Saunders then said: “In going forward in good spirit as we discussed at our last meeting, I will be happy to settle up if we can tidy up our exclusive agreement between the two parties.   That will show goodwill and value from our part.”

23 August	Seeka accepted the quote from Lenz.

23 August                  E-mail from Mr Edwards to Mr Saunders.  Mr Edwards referred to a “recent meeting” with Mr Saunders to discuss “establishing a gentleman’s agreement on the exclusive supply of pollen mills”.    Mr Edwards elaborated on that.   He then referred to the approach from  Seeka  “a  major  customer  for  Compac  …  Bob Shaw advised me that he must make a pragmatic decision and maintain the relationship with Seeka.  On that basis he asked me to advise that Lenz will supply Seeka  direct  and  will  be  unable  to  enter  into  an exclusive arrangement.”

23 August                  E-mail from Mr Saunders to Mr Edwards, one hour later: “As you are aware we had an agreement with Des [Langdon] in respect of the pollen milling and cyclone equipment and intellectual property developed on our

behalf.   This was on the basis for [sic] investing in Lenz to help develop and build this equipment and for us not to go off and replicate the equipment elsewhere, for this we paid Lenz a premium … We had two meeting [sic] to discuss the agreement and we all confirmed our rights to the intellectual property. Consequently no third party has the right of access too [sic] or use of the intellectual property without our consent.”

[67]     There was further direct correspondence from the solicitors.  It is unnecessary to go into the detail of that.

[68]     As I have noted more than once, on an application of this nature the Court has to reach some conclusions based on incomplete evidence.  When the matter goes to trial and all of the evidence is before the Court, including evidence from cross- examination of witnesses, the ultimate findings of fact may differ from conclusions that need to be made at this stage on the basis of incomplete evidence.  At this stage, on this evidence, the inference I draw in respect of the conduct of Lenz, is that it took a calculated risk for commercial reasons.  Moreover, it did so having at the least given some form of assurance to Pollen-Plus followed by a failure to be open with Pollen-Plus until the position had been cemented with the existing client, Seeka.  In weighing the overall justice, Lenz’s conduct weighs against it in the light of the evidence presently available to the Court.

Other considerations

[69]     Mr Hazel submitted:

An interim injunction will likely mean the end of this case.  Collection is a highly seasonal activity and an injunction now will mean the entire season will be missed, that season being imminent.  The second defendant believes that is the true aim of this action, including its timing.  If the plaintiff had properly particularised in a timely fashion, the second defendant may have been able to, regardless of its denial of any liability, redesign the equipment to remove any doubts and meet its contract.

Indeed it has shown a willingness to do this still and suggested a mechanism for it which the plaintiff has rejected.

[70]     This admirably concise submission covers a number of points.  The first is that an interim injunction will be determinative of the substantive claim.   I do not agree.  It will mean that Lenz is not able to supply the equipment to Seeka for the season which is about to start, but that is only one season of many.  The imminence of the harvesting season is not a consideration which can be weighed against Pollen- Plus.  The evidence already recorded in the chronology points the other way.  Had Lenz been more open with Pollen-Plus, and matters had not been resolved by agreement, this application would have been before the Court earlier.   When considering the timing consequences for Seeka, as a third party, the difficulties it faces may be seen as arising, at least in part, from its approach to Lenz having been made rather late in relation to the commencement of the harvesting season and from its then putting pressure on Lenz with knowledge of the competing claim of Pollen- Plus.   Pollen-Plus did not commence this proceeding, with the interim injunction application, until a month after it had received notice of Lenz’s contract with Seeka. There was correspondence over this period.  I do not consider that there was material delay in this regard by Pollen-Plus.

[71]     The remaining matter referred to in Mr Hazel’s submission concerns an offer by Lenz to redesign the equipment once particulars of the alleged breach had been provided to it.  I do not consider that this favours Lenz for two reasons.  The first concerns the difficulties for Pollen-Plus in providing particulars, already dealt with. The second is that the offer from Lenz would still have resulted in the unmodified equipment being supplied to Seeka for the current harvesting season.   It is also reasonably apparent that any subsequent modifications would depend on whether Lenz agreed that the features said to breach copyright in fact did so.

[72]     The remaining consideration is the status quo.  As Lord Diplock said in the leading case of American Cyanamid Co v Ethicon Ltd:

Where other factors appear to be evenly balanced it is a counsel of prudence to take such measures as are calculated to preserve the status quo.

[73]     The conclusion I have reached is that other considerations favour the grant of an interim injunction.   Preserving the status quo lends weight to that conclusion. What is the status quo may be open to reasonable argument in some cases, but not in this case.  Until very recently the equipment in question was only ever supplied to Pollen-Plus and, at the very least, it was understood between the manufacturer and Pollen-Plus that Pollen-Plus alone would be supplied.  Supply only to Pollen-Plus is the status quo.

Terms of the order

[74]     At the conclusion of the hearing I asked counsel to confer on the terms of an interim  order  in  the  event  that  the  application  was  granted.     I  received  a memorandum from Mr Crombie, dated 15 October 2010.  As I was completing this judgment I received a memorandum from Mr Hazel, dated 20 October 2010.  Copies of the drawings have just been delivered to Pollen-Plus’s solicitors.   There is correspondence attached to both memoranda.  Counsel were not able to agree on the terms.

[75]     The draft order proposed for Pollen-Plus broadly follows the terms of the principal order sought in the application; an order to restrain the defendants from supplying any equipment made from the drawings created by Znel.  However, there is the addition of the following, after reference to the drawings:

… including all expressions in the design drawings of the aspects of design as referred to in paragraphs 5(b)(ii) through (vi) and 12(d) of the plaintiff’s statement of claim dated 22 September 2010 …

[76]     I apprehend that Mr Crombie has included the quoted words in an endeavour to provide more precision given the complaints from Lenz and questions from me. Mr Hazel objects to these words on the grounds that the statement of claim paragraphs contain descriptions of functions, not to a copyright work or a substantial part of it.  For example, paragraph 5(b)(ii) refers to “portals for the main tower to enable the operator to see the anthers tumbling in the chamber of the tower”.   He also submits that the words do not provide certainty.

[77]     Mr Crombie has recognised the first difficulty by referring, not to functions, but to “expressions in the design drawings” of the functions as described in the statement of claim.  I tend to the view that the debate between counsel is somewhat academic at this stage of the proceeding.   However, the addition of the disputed words may add complexity to something which should be as clear as possible.  For that  reason,  and  because  the  terms  of  the  order  without  the  disputed  words effectively cover them in any event, I will make an order in terms of the draft in Mr Crombie’s memorandum, but excluding the words in question.

[78]   The application sought supplementary orders including ones relating to manufacture of equipment and supply of drawings to third parties.   I will make further orders in terms of those applications with appropriate modifications.

Result

[79]     There are orders as follows:

a)        Until further order of the Court, the second defendant is restrained from selling or supplying any pollen mill and/or cyclone equipment to Seeka Kiwifruit Industries Ltd or to any other third party which is made from design drawings, diagrams, plans or specifications that were made by the first defendant between 2004 and March 2010 as a result of requests by the plaintiff and/or Pollen NZ Ltd for the design and later the manufacture of such equipment (“design drawings”), but excluding  the  design  expressed  in  drawings  that  formed  part  of expired  New  Zealand  Patent  Number  208929  dated  18  July 1984 (“patent drawings”).

b)        Until further order of the Court, the second defendant is prohibited from manufacturing or building any pollen mill and/or cyclone equipment using any of the design drawings, excluding the patent drawings.

c)        Until further order of the Court, the second defendant is restrained from supplying or providing to Seeka Kiwifruit Industries Ltd or any other third party any copy of any of the design drawings, excluding the patent drawings.

d)        Until further order of the Court, the second defendant is prohibited from aiding, abetting, permitting, authorising or encouraging any third party  to  copy  any  of  the  design  drawings  by  manufacturing  or building the pollen mill and/or cyclone equipment using those design drawings, excluding the patent drawings.

[80]     Costs are reserved.

[81]     The plaintiff is to file and serve an amended statement of claim containing full particulars of the matters in respect of which the second defendant has sought particulars in correspondence and submissions and otherwise meeting the requirements of an infringement of copyright statement of claim.  This is to be filed and served within 21 days of the date of this order with leave to apply for an extension if difficulties arise.

[82]     The proceeding is to be listed for a case management conference before an

Associate Judge on the first available date after 28 days from the date of this order.

Peter Woodhouse J