A recent Federal Court case highlights just how critical it is for parties to be absolutely vigilant about their intellectual property rights.
The intellectual property rights in relation to the branding and sale of wine also remains a hot topic. In Rutter v Brookland Valley Estate Pty Ltd, the issue concerned copyright infringement associated with the branding and labelling of wine sold under the "Verse 1" label.
Jane Rutter, the well known flautist was approached by the then owners of Brookland Valley in early 1999 and asked to provide an original piece of music which could be incorporated on the label. Brookland Valley already had an existing wine label and this was to be their second, issued under the name Verse 1.
Ms Rutter had written an original piece of music which was entitled "Blo". The parties agreed that 12 bars of the melody of "Blo" would be depicted on the label. Those 12 bars were described as the centrepiece of the composition. The label showed an image of a young impish male flautist together with the 12 bars of Ms Rutter's music and the words "Pans Song written by Jane Rutter".
The parties discussed the terms of a licence for the use of Ms Rutter's intellectual property. Despite discussions about the terms, during which drafts were exchanged in the course of correspondence, a final version was never agreed or signed. However, the Court found that there was sufficient terms agreed between the parties, including that the licence arrangement was to be:
- for a period of 12 months;
- for a maximum of 90,000 bottles; and
- for two varieties of wine namely Semillon Blanc and Cabernet Merlot.
The Court found that contrary to the terms which were agreed, Brookland Valley:
- produced a far greater number of bottles of wine (in excess of 5,000,000);
- used the label in relation to a number of different varieties or blends; and
- continued to use the copyright work well beyond the 12 month period contemplated by the parties without any endeavour to renew the licence to use the work. In fact, the Court found that Brookland Valley had breached the agreement even within the original 12 month term by producing Chardonnay to which the label was applied, when that was not within the terms of the arrangement.
The Court was critical of Brookland Valley which it said appeared to consider that the copyright work was "under its unilateral control". Of course that would have been the case had the work been assigned to it. However, as Brookland Valley only sought a licence to use the work from Ms Rutter it did not have that right.
Sometime after the licence expired, Ms Rutter had her lawyers write to Brookland Valley in relation to her position. Despite the matter having been brought to their attention they continued to use the work, which the Court found was in contravention of Mr Rutter's copyright. In particular, the Court found that even though the whole of Ms Rutter's original work (that is the entire musical composition) was not reproduced, there was a reproduction of a substantial part of the work in that the 12 bars which were copied and used on subsequent labels were a significant, essential and material part of the composition. In that regard it found that there was breach of Ms Rutter's copyright as the copying amounted to the infringement of a substantial part of the work.
The Court ordered Brookland Valley to pay Ms Rutter $293,000.00 in compensatory damages, calculated on the basis of a royalty of 2c per bottle (which the Court decided was appropriate for every bottle sold over the initial 90,000 bottle limit) and interest. Interestingly however the Court also awarded the sum of $150,000.00 in additional damages for what it described as the "unsatisfactory and flagrant disregard" by Brookland Valley of Ms Rutter's right, which were ignored even after she had pointed out her position to Brookland Valley.
We consider that there are four take home points raised by the case:
- The parties must ensure that they scope their agreements carefully and record their terms accurately at the outset. The matter may never have come to the Court if each of the parties' rights and responsibilities had been clearly set out in their initial agreement. We have seen a number of cases recently in which terms are either not accurately identified or not recorded in writing. Alternatively, we have recently seen on a number of occasions where agreements are made without the parties agreeing on sufficient commercial terms and conditions to support the framework of the agreement. Once the deal is done, it can be too late.
- Parties must make sure that they know what their rights are and correctly frame their agreements. It appears that Brookland Valley considered themselves as being entitled to treat Ms Rutter's work as their own. Of course, that would have been the case in the event that the work was assigned or transferred to them rather than being the subject of a licence.
- Parties must know when the term of any agreement expires so that an extension can be negotiated, if required. It is critical not to assume that there will be some form of "holding over" or that it is simply ok to continue as before in the event that the agreement is not formally terminated by one party on the end date.
- Do not ignore or sweep aside any complaints from the other party. If the other party brings to your attention the fact that (in their view) you are not complying with the agreement then you should investigate that thoroughly and deal with that as soon as possible. The Courts have clearly indicated that "punitive damages" may apply where there is a flagrant disregard for the rights of the other party, which is quite unusual in Australian courts.