Action against unauthorised extra production runs in China.
Since copyright is an international right arising automatically in many countries, it can prove to be a valuable but underestimated right, sometimes useful as a default right in situations where firms have not applied for patent or design rights, as the following example illustrates.
Our client, a UK manufacturer of consumer products, outsourced manufacture of a kitchen appliance to a Chinese factory. A first product design was supplied to the factory, which did not go into production. A second modified and improved design was supplied and went into production in China, for subsequent importation into the European Union. The product was packaged in our clients design of packaging using our clients original artwork and bearing our clients trade mark.
Our client learned of a similar product about to go on the market, coming from the same factory in China and obtained a sample of the competing product. The competing product was clearly based on our clients first design, which our client never authorised for production. However, our client had not taken out any design registrations or patent applications in China. Even so, because the designs of the were first created in the UK and were marketed in Europe, our client still had various unregistered Community designs in the products, which meant that if the product entered the European Union, then action could be taken using unregistered Community design. Since the products were in China and not the EU, then no action could be taken under unregistered design rights in China.
For the remainder of the world, our client had not filed any intellectual property rights.
We established that our client also had world wide copyright in the artwork of their packaging box, by virtue of the UK copyrights acts and the Berne convention, an international copyright convention which gives the owner of copyright in one country the same or equivalent rights as would be allowed under national law in other countries. Copyright can be used effectively against direct copies of literary and artistic works, such as found on instruction manuals, packages, brochures and the like. To be successful in copyright action, it is usually necessary to prove copying, and to prove that a substantial part of a work has been copied.
However, in this case the packaging of the copy product was completely different to our client’s box and used a different brand name. This meant that there was no infringement of our clients copyright in the artwork, and no trade mark infringement of their brand name on the box or product.
On closer inspection it turned out that the instruction manual and warranty leaflet supplied inside the competitors product packaging was a clear copy of our clients warranty and instruction manual, with some omissions. The competing instruction manual even used our clients trade mark. Our client had a registered trade mark in China, and we advised that application of the mark in the factory was an infringement, but since the trade mark was not visible at the point of sale there were complications to an action for registered trade mark infringement. After all, this meant suing our clients supplier factory in China and thereby cutting off our clients own supply of products to the EU, whilst an action for registered trade mark infringement in China directly against the competitor using the same factory was less certain.
We also advised our client that there was infringement of their copyright in their original instruction manual and warranty leaflet supplied inside the packaging of the competing product. Available remedies included seizure of infringing copies. Since the competitors product was a sealed package with the instruction manual inside, once the product had gone out onto the market, then seizure of the infringing instruction manuals would mean seizure of and opening every package of the competing product, thereby disrupting the competitors supply chain. We advised our client that waiting until the packages had left the factory, and were in the supply chain, before commencing action for infringement of copyright in the instruction manual, would place the competitor in a position whereby to deliver up the infringing instruction manuals involved recall of products and packages which had already gone out into the supply chain, thereby disrupting the competitors relationship with their distributors and customers and increasing the competitors overheads.
The alternative of raising the issue of copyright infringement whilst the products were still in the factory would have meant less disruption to the competitor. Whilst the products were in the factory, it would have been relatively easy to substitute a replacement instruction manual, which did not copy our clients manual, and which omitted the trade mark.
Historically it has been quite difficult to enforce intellectual property rights in China, but recently the Chinese legal systems have become more user friendly. Running off extra production runs of products originally intended for export form China, and to redirect them for the Chinese domestic market is still all too common in many factories.
Making a clean break with a previous employer
Copyright issues are often intermingled with other intellectual property issues as illustrated by this next example.
We acted for a manufacturer and distributor of electronic radio equipment for trade and retail customers. Our client had a long standing close working relationship with a UK design and distribution company in the same business. Due to a downturn in market conditions, the design and distribution company experienced financial difficulties and was acquired by a larger competitor of our client. However, the acquisition was not a smooth transfer, and various of the ex employees of the design and distribution company left and set up a separate company in collaboration with our client, to provide a similar service and relationship as previously. The last thing our client wanted was a legacy of ongoing litigation from their previous employment.
Our client wished to know the position on how much information and materials from the old design and distribution company could be used in the new venture.
In the UK, confidentiality and trade secret laws generally operate such that an ex employee or director can use his own skills and knowledge in his trade or profession i.e. generally restricted to his skill and knowledge, and things which he can take away in his own memory, subject to copyright laws and the laws of confidential information and the fiduciary duty of a director or employee to act in the best interests of their employer whilst they are employed.
This means that any commercial data such as lists of suppliers, technical data which is not publicly available, details of discounts or contacts lists, design details, manufacturing know how which is proprietary to the previous employer, and details of the previous employers affairs, collectively known as "trade secrets" or "confidential information", cannot be taken away. Further, such information is invariably subject to copyright by its originator i.e. the previous company.
We advised our client that the copying or transfer of data files and other information out of the old company and into the new venture would be a breach of confidentiality, and trade secrets, as well as an infringement of copyright, in addition to a breach of employment contracts and the general duty owed to the previous employer by its employees.
Our client also wished to bring to market very quickly a new product to compete with a product about to be launched under the old company. Since our clients new employees designed all the packaging and wrote the instruction manuals for previous products in their capacities as employees of their previous employer, there was a risk that those leaflets and packaging would be unintentionally or subconsciously very similar to those of their previous employer. Our client sought our advice on copyright infringement, and the design of the products. We advised our client to start afresh with new designs across the board independently and without reference to the earlier designs, so that the new company could lay claim to the design rights in their new product range. We advised on specific layouts of components to avoid unregistered design rights of their previous company.
We also advised our client, if possible to sub contract an outside company to independently generate new product literature and packaging, without giving them any copies of or pointers to any material from the old company, to avoid any risk of copyright infringement of the old company’s copyright, and showing original and independent creation.
We also advised that if any written material or electronic data from the old company was in the possession of the employees, then they should consider either sending this back immediately to the previous company by recorded delivery so as to avoid any future allegations of infringement of copyright or allegations of mis-appropriation of confidential information or trade secrets, and to do this openly and before any redesign of new products. Of course, being open and honest in returning such materials carries with it a risk of generating allegations of copying by the previous company which otherwise may not have occurred, and this needed to be considered as well.
Our general advice was not to copy anything from the old company, and to re-design everything from scratch, not to use any lists or supplier or customer contacts of their old employer, and to make their own new lists from internet searches or from trade magazines. That way, our clients would create their own trade secrets, and copyright in the lists.
We also advised that our client should take extra care in making their product literature, and packaging as different as possible from those of their previous employer, and if possible, to subcontract the exercise to a completely independent firm so as to avoid any allegation or risk of copyright infringement or confidential information/trade secret mis-appropriation. It was important to ensure that the previous company’s new owners would have no valid intellectual property claims against the new products of the new start up company, leaving our clients new start up company free to engage in fair competition in the market place, and having created their own copyright, designs and trade secrets.