In a somewhat embarrassing development for Waiwera Water New Zealand Limited (in liquidation) (Waiwera Water), it and other parties were recently found to have infringed copyright in the design of bottles and a logo for their Waiwera Artesian branded mineral water.

This was the result of a successful counter-claim by David Melrose, the designer of the bottles and logo, after Waiwera Water had initially claimed that Mr Melrose had infringed the same intellectual property (IP).

This case is an important reminder that it is fundamental to understand the position on IP ownership and licensing in order to conduct business and enforce rights.

The full decision is available here.

What happened?

Mr John Brown controlled rights to extract and bottle potable water from Waiwera, a town north of Auckland. In 2005, Mr Brown, through his company Siesta Holdings Ltd (Siesta Holdings), entered into business with Mr David Melrose to commercialise mineral water products. Mr Melrose would design the bottles (including label and box graphics), while Siesta Holdings would be responsible for production and marketing. The arrangement was recorded in a memorandum of understanding, which provided that each party would own its respective IP property.

Mr Brown sold his share of the business to Waiwera Water in 2009. Mr Melrose then tried, unsuccessfully, to sell his share of the business to Waiwera Water. As leverage for negotiations, Mr Melrose terminated authority to use his IP in connection with the business. The relationship between Mr Melrose and Waiwera Water subsequently deteriorated.

Waiwera Water continued to produce mineral water products using the bottle design and logo that Mr Melrose had designed. Oddly, Waiwera Water also began to allege that it owned the rights in, or had an exclusive licence to use, Mr Melrose’s IP. It also sought registered protection for the IP and made claims against third parties.

Waiwera Water issued infringement proceedings against Mr Melrose to justify its position. Waiwera Water’s claim was stayed, and Mr Melrose counter-claimed.

What did the High Court find?

The Court found that the terms of the memorandum of understanding continued to operate throughout the duration of the litigation. Mr Melrose had never sold or assigned his IP. The Court therefore found that Mr Melrose was the owner of copyright in drawings for the bottle designs and in the Waiwera Artesian logo.

Waiwera Water’s use of Mr Melrose’s IP, after Mr Melrose’s termination of authority, was held to infringe Mr Melrose’s copyright in the bottle designs and the Waiwera Artesian logo.

The Court also held that Waiwera Water breached section 9 of Fair Trading Act 1986, relating to misleading and deceptive conduct in trade. There was a clear understanding that Melrose was the owner of the IP in the bottle design and the Waiwera Artesian logo, and that Mr Melrose terminated authority to use his IP. Waiwera Water’s assertions that it had rights in, or a licence to use, Mr Melrose’s IP were therefore misleading and deceptive.

Waiwera Water’s dealings with Mr Melrose were also held to be misleading. Waiwera Water represented to Mr Melrose in the course of negotiations that it understood Mr Melrose was the owner of the IP, but it clearly did not believe this.

What remedies did the High Court grant?

The Court issued injunctions, orders for delivery up of infringing goods, and declarations of copyright infringement and breaches of the Fair Trading Act.

However, the question of damages was more difficult. The Court confirmed that Mr Melrose was entitled to damages against four of the counter-claim defendants. However, one of these parties was a company in liquidation, and another was a director who was bankrupt. Special rules attach to parties that are in liquidation or who are bankrupt, so the Court observed that Mr Melrose would have to recover any monies from those parties through the conventional liquidation and bankruptcy processes.

The Court reserved its decision as to the quantum of damages, pending further evidence to determine the quantum.

Mr Melrose had also settled, or was in the process of negotiating a settlement, with some counter-claim defendants at the time of the hearing.

Key take away for businesses

The case is a victory for Mr Melrose, whose rights have been acknowledged. However, it seems a bitter case, borne out of a breakdown of a business relationship and one party’s ill-advised attempt to claim rights that it did not have. The insolvency of Waiwera Water also leaves a question mark over what damages, if any, Mr Melrose may be able to recover.

The case does, though, prove that having a business agreement at the outset can have significant implications for IP ownership and use. It is therefore crucial that businesses consider the appropriate IP structure for new ventures, and ensure that such arrangements are properly documented.

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Get in touch with any of our contacts to discuss setting up an appropriate IP ownership structure for new ventures.

Contributors olivia.coughlan@simpsongrierson.com