Designs for Life: an essential overview of design protection, enforcement and exploitation - Part II

10 September 2015


Part II: Bringing the design to market. By John Coldham, Chris Freeth, Alice Stagg and George Sevier.

In this three-part series, we journey through the process of design, from inception to exploitation and enforcement, considering the steps from the point of view of the designer and design-led business. This will not be a dry trawl through the case law, but a practical, end-to-end guide to design.

Part I in this series (see "Designs for Life: An Essential Overview of Design Protection, Enforcement and Exploitation - Part I Design Stage") considered how a business can manage the designs process so as to protect itself when creating a new design.

This instalment will address the issues that may be encountered when bringing that design to market and how this may be done safely and securely - from striking a deal with a manufacturer or distributor, to enforcing the designs and defending against possible infringement claims.

I. Design manufacture

Arguably the most important step in bringing a design to market is choosing the right manufacturer. Not only must the candidate have the capacity to make the product, and do so at the right price; but it will also potentially be involved with, or at least have access to, the most intimate details of the product's design process.

This makes it extremely important to carry out proper due diligence on all prospective manufacturers before entering any arrangement with them. It is sensible to consider hiring an agent to help assess a potential manufacturer and provide a detailed view on their competencies and capabilities, particularly when dealing with manufacturers overseas who cannot (easily) be seen face to face.

Rights holders should be wary of the potential for counterfeiting too. The wrong manufacturer may see the product and decide it wants to cut out the design owner and make its own version, so a confidentiality agreement should be put in place before discussing any details of the product with any prospective manufacturers. To help minimise the risks, avoid providing overly detailed specifications or explanations of the design to manufacturers unless it is necessary - only provide them with what they need to do their job.

If a business operates in a market where counterfeiting is a particularly serious concern, one practical option to minimise risk can be to engage multiple manufacturers and task each of them to make different parts of the product embodying the design, thereby preventing any one manufacturer from having access to information on how to make the whole product.

From the legal perspective, the next important step is to make sure the manufacturing agreement is right. Prevention is better than cure and many disputes can be avoided in advance by a properly drafted and carefully considered agreement.

For a manufacturer to do its job, a business will need to give the manufacturer rights to use its existing intellectual property (IP). Commonly this will be done by licence. Ensure the scope of this licence is clear. It should give the manufacturer the rights it needs, but clearly limit it to only those rights it needs. Giving a manufacturer an exclusive licence can also be tempting, but be wary that while exclusive rights can be a valuable tool to forge a strong commercial relationship, markets can change as products grow and being tied to one distributor can become difficult if the market outgrows their capacity.

An alternative is a sole licence which will permit both the rights holder and the licensee to exploit the design, but exclude anyone else. Finally, a non-exclusive licence permits a business to grant further licences to anyone else, even if they overlap with the rights in the licence.

However, it is often the case that a manufacturer would also be asked to help develop a product. Even if a manufacturer is not expressly asked to help in the design process, issues encountered during manufacturing (for example, in relation to tooling) and their solutions can easily lead to the creation of additional IP rights. Ownership of such rights can become complex. Who actually came up with a design in the heat of the moment can very quickly become unclear, and if this is not dealt with up front in the manufacturing agreement then it can be a recipe for future trouble.

Generally any new IP specific to the product should vest in the design rights holder. In return, the manufacturer may seek to take ownership of any IP it develops for the manufacturing process. However, care needs to be taken here that the manufacturer does not gain ownership of any IP that is essential to make the design. Allowing a manufacturer to do so can hamper or even halt a business's ability to go elsewhere if needed.
Finally, another important part of the manufacturing agreement is the warranties. Both parties should give warranties that their existing IP is valid and does not infringe any IP of a third party. This is essentially to prevent a party from suffering loss due to an IP infringement, where it had no hand in causing that infringement.

However, these warranties should always be limited to only validity and infringement issues within the knowledge of the party giving the relevant warranty (unless a broader warranty can be secured from the other party). It is functionally impossible to say with certainty that a design does not infringe any third party rights, not least because of the existence of unregistered designs. Similarly, it can never be said with absolute certainty that a right is valid.

II. Design distribution

Similar considerations as with manufacturers come in to play when selecting distributors for a design. Again, a distributor may require a licence to the design, so a business should think carefully what type of licence should be given.

Also, be sure to consider the ownership of any new IP as well. If the distributor is involved in marketing or design activities (for example, designing packaging) you should agree whom the resulting IP will vest in and ensure that the other party is licensed to use it.

Finally, it is worthwhile keeping in regular contact with manufacturers and distributors. Explain how important the IP is and seek notification from them if they should encounter any copies on the market. Manufacturers and distributors can be invaluable sources for keeping track of new infringements, especially where manufacture is based overseas in markets that are harder to monitor, such as Asia.

III. Design protection and enforcement

Once the manufacturer(s) and distributor(s) are lined up, and the design is ready to go to market, the next step to consider (if this has not been done already) is how to go about protecting it.

Design law can give monopoly rights over how a design looks and can be a powerful tool to stop would-be copycats. Some design rights are automatic, whereas others require registration. However, it should always be kept in mind that all of these require enforcement to give any effective protection. If they are not enforced, a business will soon discover that its IP rights will have no real value.

A. What are the rights?

In the United Kingdom, a creator of a design can have a number of rights available to protect that design. These can include design rights (registered or unregistered) at either UK or European Community level. It may also include other associated rights such as copyright.

As discussed in Part I of this booklet, how one becomes eligible for each of these rights and the scope of protection afforded by each of them differs.

(i) Copyright

  • Protects artistic works (such as surface decoration) and sculptures;
  • Qualifying individuals acquire automatic protection, which typically lasts until 70 years after the death of the author [1];
  • Territorial scope is UK only, but recognised by many other countries;
  • Infringed by copying the whole or a substantial part of the copyright work (assessed qualitatively) [2].

(ii) UK Unregistered Design Rights

  • Protects the shape and configuration of the whole or part of an article, excluding surface decoration;
  • Qualifying persons acquire automatic protection, which lasts for 10-15 years (15 years from the end of the calendar year in which the design was first recorded in a design document or an article was first made to the design, whichever occurs first; or if articles made to the design are made available for sale or hire within five years from the end of that calendar year, 10 years from the end of the calendar year in which that first occurred) [3]. However, a licence of right is available in the last five years of protection;
  • Territorial scope is UK only;
  • Infringed by copying the design in which the design right subsists so as to produce articles exactly or substantially to that design [4].

(iii) UK Registered Designs

  • Protects a registered design, which can be either the whole or a part of a product, including the lines, contours, colours, shape, texture or materials of the product or its ornamentation [5];
  • Arises by registration with the UK Intellectual Property Office, and lasts for up to 25 years, subject to payment of five-yearly renewal fees [6];
  • Territorial scope is UK only;
  • Infringed by any design which does not produce upon the informed user a different overall impression to the registered design [7].

(iv) Community Unregistered Design Rights

  • Protects the appearance of the whole or part of a product resulting from the features, in particular, the lines, contours, colours, shape, texture and/or materials, of the product itself and/or its ornamentation [8];
  • Qualifying individuals acquire automatic protection, which lasts for a period of three years from the date on which the design is first made available to the public within the Community [9];
  • Territorial scope is the European Union;
  • Infringed by any design which does not produce upon the informed user a different overall impression to the registered design [10].

(v) Registered Community Designs

  • Protects the appearance of the whole or part of a product resulting from the features, in particular, the lines, contours, colours, shape, texture and/or materials, of the product itself and/or its ornamentation [11];
  • Arises by registration with the European Union Intellectual Property Office (EUIPO), and lasts for up to 25 years from the filing date, subject to renewal fees being paid every five years [12];
  • Territorial scope is the EU;
  • Infringed by any design which does not produce upon the informed user a different overall impression to the registered design [13].

In theory it is possible to have a product that is protected by all of these rights, but in practice normally only one or two will apply.

B. Which rights to sue under?

From experience, the majority of cases settle after a cease and desist letter is sent, and there is no need to commence proceedings. This is particularly the case when the claimant has a registered design to rely on (and represents a good reason to obtain such protection). However, sometimes court action does become unavoidable.

If it is necessary to sue an infringer, it is advisable to rely not only on any registered rights in possession, but also on any available unregistered rights.

Unlike for registered designs, to show infringement of unregistered rights, a claimant must show that its designs were copied by the defendant (i.e. they were not independently designed). However, while this can make it harder to rely on unregistered designs, statistically unregistered design infringement cases are much more likely to succeed in UK courts than those for registered design infringement (whether UK or Community).

The lower success rates for registered design cases may in part be due to clear cases of registered design infringement tending to be settled before trial, allowing the more borderline cases to skew the statistics. However, that is not the only reason. When pleading unregistered design infringement, the claimant can pick and choose those parts of the design which it asserts to have been infringed and rely solely on those as separate designs, directly targeting the infringing product. The claimant can leave out those parts of the design to which the alleged infringing product bears less resemblance, the net result being that the court is more likely to find infringement.

By contrast, with a registered design, the claimant has to rely on the full design as filed, and if the defendant's product differs to any material extent, it will be harder for the court to find infringement. This makes the way such designs are registered key to their success.

C. Where to sue?

With few exceptions, rights owners need to sue in the country where an infringement takes place. In the UK, the Court of Session in Scotland and the Northern Ireland High Court are able to hear design rights cases, but the vast majority are heard in the English High Court and Intellectual Property Enterprise Court (IPEC). Any of these courts can hear cases concerning the UK or Community rights, and their decisions can have effect throughout the UK or EU as appropriate.

In England, rights owners can choose between starting proceedings in the High Court or IPEC. Although it is a division of the High Court, the IPEC is intended for handling less complex and lower value IP cases - the length of the trial is typically a maximum of two days, and damages recoverable from a defendant are limited to £500,000.

The costs in IPEC are often lower than in the High Court. However, the ability for the winner to recover costs is strictly limited in IPEC. In theory, the loser can be ordered to pay up to £50,000 of the winner's costs, but it is more usual for the winner to recover around £35,000-40,000 in practice, as they are scale costs for different stages of the case, and if a particular stage is not completed, costs cannot be recovered for that stage. By contrast, in the High Court, the losing party may be ordered to pay around 60% to 80% of the winner's total costs, which is usually a significantly larger sum.

While IPEC proceedings could cost much less than in the High Court, the IPEC may not be the best forum for even simple cases. Tactically, a confident design right owner may choose to start proceedings in the High Court, because even though their costs are likely to be higher, they will be able to recover much more of their costs from the defendant when they win. Because starting proceedings in the High Court brings the threat of a substantial bill for the losing party, it has the advantage that it might promote a speedy settlement, whereas a defendant receiving IPEC proceedings has limited downside risk on costs and may be more inclined to fight.

As an alternative to court proceedings, the UK Intellectual Property Office (UKIPO) will soon be offering an opinion service on designs. It is unlikely that the opinion will be binding, but it can be obtained for relatively low cost, and might help resolve a dispute between two parties as to whether there is infringement of a UK registered design, or whether a UK registered design is valid. If the designs opinion service follows the recent changes to the equivalent patents service, where a registered design is found to be invalid, it will now be open for the UKIPO to start the process to remove the design from the register.

IV. Defending against infringement claims

When bringing a new design to market, it is also a risk that sometimes, even if a business has obtained its own rights, it may find itself accused of infringing a third party's rights. In this regard, it is important to remember that the mere granting of design registrations (as with other IP rights) to an applicant does not mean it does not infringe a third party's rights.

When accused of infringing a third party's rights, and if an amicable settlement cannot be reached, there are ways not only to defend against the claim but also to strike back. Not only can a defendant show that it does not infringe the disputed rights (as discussed above), but the validity or subsistence of the rights being asserted can also be attacked.

A. Attacking validity of registered designs

UK registered designs, registered Community designs and unregistered Community design rights are largely harmonised at a European level and so the way to attack their validity is largely the same.

As briefly discussed in Part I of this booklet, to be valid, a design must be novel and have individual character [14]. If it can be shown that a UK registered design, Community registered design or a Community unregistered design that is asserted lacks either of these characteristics, it can be invalidated, effectively defeating the claim against the defendant.

B. Novelty

Novelty means the design must be new in the sense that no identical design to it has been disclosed to the public [15]. Designs are considered "identical" where their features differ from each other only in immaterial details [16]. In practice, this tends to require that either the design itself or one almost entirely the same was disclosed before the design in question was filed (or the priority date if priority is claimed, or the date the design was first made available to the public for an unregistered design).

These types of disclosure do however, happen. For example, a product might be disclosed at a trade show and the design might not have been filed soon enough to take advantage of the grace period during which it must be registered.

It should also be remembered that a disclosure to "the public" can mean the public anywhere in the world. As such, novelty is assessed at a worldwide level, not only in the UK or Europe. As explained by Lord Justice Jacob in Green Lane v. PMS in an admittedly fanciful example, "a disclosure in a document written in Sanskrit and misplaced in the children's section of Alice Springs public library is one which is 'made available to the public' [17]".

C. Individual character

Individual character can be a more difficult concept to pin down.

A design has individual character if it produces on the informed user a different overall impression than any design which has been made available to the public before the filing date of the design (or the priority date if priority is claimed, or the date the design was first made available to the public for an unregistered design) [18]. The relevant designs available to the public are commonly referred to as the "design corpus".

Good sources of designs for the "design corpus" are often the design holder's competitors, and sometimes also the designer's own products. Drawing the line correctly between where the old design ends and a new design begins can be tricky, and can be a way to open up an avenue for attack.

Individual character will be assessed through the eyes of the informed user. The informed user is an artificial construct of design law and has steadily been defined more and more by case law. This "user" is not an expert in the design field in question, but is more discriminating than the average consumer. He can compare the designs side-by-side and is particularly observant [19], so will notice differences between designs, but he will not go as far as to notice only minimal differences [20]. He is familiar with the design field, but does not have an archival mind and will not be aware of designs that are only obscure in the field [21].

When making his assessment of the design, the informed user will also consider the design freedom available to the designer. The more freedom the designer has, the more weight the informed user will put on similarities between the designs and the design corpus.

The informed user will also consider the visual prominence of each feature of the design when comparing it to the design corpus.

The informed user then has to assess the overall impression of the design. It may sound obvious, but what matters most to this assessment is what the designs, the design corpus and the infringing designs all look like. As acknowledged by Jacob LJ in Philips v. Remington [22] and again in Procter & Gamble v. Reckitt Benckiser [23], while parties have to try and put the overall impression into words "it takes longer to say than to see".

Expert evidence will only be of limited use in this assessment. An expert can sometimes help explain the design corpus and what limitations the designer would be under in designing a new product; but when it comes to assessing overall impression they are likely to be of limited use to a court. Jacob LJ noted in Reckitt Benckiser that "anyone can point out similarities and differences, though an educated eye can sometimes help a bit [24]".

Overall, as summarised again by Jacob LJ in Dyson v. Vax [25], when it comes to design infringement "what really matters is what the court can see with its own eyes".

D. Attacking a UK registered design

The UK design right has its origins in national law so how a defendant can attack it if it is asserted against them is different to the rights set out above. Since a UK design right comes in to existence automatically, the validity of the right per se cannot be challenged, but rather a defendant would challenge whether the right should subsist in the design at all.

One way to argue that no design right should subsist in a design is to argue that the designs alleged to be infringed are not original themselves in the sense that they have been copied from elsewhere, and so are not deserving of protection [26]. The term sometimes used is that the design must not have been "slavishly copied".

Alternatively, even if the designs were not copied from elsewhere, they can still be challenged on the grounds that they were "commonplace in [the] design field in question at time of creation" [27]. However, it should be noted that the consideration of commonplace is limited to the "design field" in which the design exists (which has to be in a qualifying country). A defendant cannot draw from wholly different types of products in order to invalidate a design for a specific type of product.

Whether the design is commonplace will then be assessed by comparing the degree of similarity between the design in question and other designs in the same field. Merely because there is an existing design that has some similarities to the design in question does not necessarily mean the design is commonplace. However, the more similarities one can find with existing products and the more widespread they are in the design field, the more likely the design would be found to be commonplace.

Other common defence arguments are that the design being enforced is not protectable in the first place. For example, it may constitute surface decoration or fall foul of the 'must fit' or 'must match' exclusions. For more detail on what is excluded from design protection, refer to Part I in this series.

V. Damages

It is important to consider what damages one could either claim from an infringer or could be expected to pay if found to have infringed another's rights. Damages payments are sometimes very significant, while other times there is a risk that they can be dwarfed by the costs of the litigation (which depends both on the damages at stake, as well as the way the case has been fought).

A. General principle - damages are compensatory

Damages awards by the English courts are generally intended to put the party who has been injured, or who has suffered, in the same position as he would have been in if he had not suffered the wrong for which he is getting compensation. It is rare (but not impossible) for a claimant to be awarded "punitive" damages, namely those which are purely intended to punish the defendant for its wrongdoing regardless of the claimant's loss.

There are two different ways of assessing the level of recompense: damages, or an account of the defendant's profits. The winning claimant has the option to elect which he would like, and generally the court will order a certain level of disclosure from the defendant before the election needs to be made.

B. Assessing damages

Within the damages head, there are two ways to assess the amount due. One is loss of profits, and the other is a reasonable royalty.

If the claimant can prove that a sale made by the defendant to the design represents a sale that would otherwise have been made by the claimant, then the defendant is likely to be ordered to pay an amount equivalent to the profit that the claimant would have made on that sale. This is sometimes referred to as the "substitution principle".

It may, however, be difficult to prove that the defendant's sales have caused the claimant to lose sales. For example, if the claimant's products were more expensive than the defendant's infringing products, not all the sales by the defendant necessarily represent a lost sale for the claimant. Some of the defendant's customers might not have bought the item at all at the claimant's price.

In such circumstances, the court may adopt an alternative approach, that of the "reasonable royalty". It will calculate what hypothetical royalty the defendant might have paid the claimant, had the parties negotiated a licence for the defendant to use the claimant's design right.

What might a reasonable royalty be? The court assumes that both parties are willing to negotiate a licence; even if the parties are quite clear that in reality they would not have reached such a deal. However, the calculation is not entirely hypothetical; the court will take into account any opportunities which the licensee would have had to take a licence from elsewhere and the impact this would have had on the applicable royalty rate.

In Kohler Mira v. Bristan [28], the defendant had infringed the claimant's unregistered design rights for showers. The judge held that a reasonable royalty was 30% on the defendant's 22.2% profit margin, or a royalty of 6.7% on the sale price of the infringing products.

C. Assessing an account of profits

If elected by a claimant as an alternative to damages, the court can order the defendant to pay an account of its profits from sales of the infringing products. Historically there has been a lack of clarity about precisely what costs incurred by the defendant should be taken into account when this is assessed, but recent cases have made it clear that the profits should be calculated by reference to the defendant's retail sale price, less the purchase price (or manufacturing cost) and any direct costs that would not have been incurred but for the sales having been made.

For example, if an infringing product had a discrete sales team that was hired for the purpose, these costs can be taken into account, but if they were simply employees who would otherwise have sold other products of the defendant, that is not a relevant deduction. This position has made accounts of profits much more popular than they were in the past.

VI. Injunctions

As is often the way with IP rights, damages are not always the principal remedy sought for design infringement. Commonly, the claimant is much more interested in obtaining an injunction to prevent further infringing sales. An injunction is an order restraining a party from doing something, for example from continuing to infringe a design right.

Injunctions can be interim or final. Interim injunctions are those awarded before final judgment, often early in the proceedings. These can be a useful way to stop an infringer's acts immediately, but they are difficult to obtain and generally the party seeking one has to give an undertaking that if it goes on to lose at trial, it will pay damages to the injuncted party for the losses suffered as a result of the injunction. Therefore, they are not without risk; even where the merits of the case are strong, the balance may not be in favour of the court granting an injunction.

A final injunction is more common. A final injunction comes after trial and may end the ability of a party to use or sell products that infringe a specific IP right. These are powerful tools that halt infringement and, at least in theory, stop it from happening again.

The negative publicity of not only having to withdraw products from the market, but also being labelled an IP infringer can also be highly damaging to a company's reputation, which should not be underestimated in some industries.

VII. Alternatives to litigation

Finally, when protecting a design or defending against an infringement claim, it should be borne in mind that going to court is not the only option.

In the UK, the rules of litigation place a particular emphasis on encouraging parties to attempt alternative dispute resolution. Aside from the parties directly agreeing a settlement through negotiation, more formal approaches are mediation and arbitration.

Mediation is a form of dispute resolution where the parties agree to work towards a settlement with the assistance of a neutral third party. It is up to the parties to agree terms of settlement. Mediation can be a cost-effective and valuable tool to settlement, particularly in disputes where the costs of court action would far outstrip the potential to recover damages.

Arbitration is different in that the parties instead agree to submit to a binding decision made by an arbitrator (or panel of arbitrators) who then decide how the dispute should be resolved. This can either be done under a set of established rules or "ad hoc", where the parties determine what rules will apply themselves. Arbitration is rarely used for design infringement (unless it is part of a bigger dispute), but can be particularly useful in IP disputes with a cross-border angle, potentially resolving multiple disputes in multiple jurisdictions simultaneously in a way a court cannot.

There are other methods of alternative dispute resolution (such as expert determinations or neutral evaluations), but mediation and arbitration are the ones most commonly seen in IP disputes. The key message to remember is that there are often other options available when a party feels it is being forced into using the courts.

VIII. Conclusion

There can be many hurdles on the way to bringing a design to market. However, good preparation, an understanding of the potential pitfalls and robust legal advice can head off many of these obstacles in advance. Design law can be difficult to follow sometimes, but when used properly it can help make the journey to market as smooth and profitable as possible.

The rest of the series

Read part III, which looks at ways to exploit designs to maximise the return on investment, including licensing, licences of right, ways to extend protection, and common problems that design owners encounter in the design field.

About the Authors

John Coldham is a director in Gowling WLG's Intellectual Property Team and has a particular interest in design law. John has taken cases to the High Court and the Court of Appeal on designs, most recently for G-Star Raw in its successful claim against Rhodi for infringement in the fashion sector.

Christopher Freeth is an associate in Gowling WLG's IP Team. Christopher deals with all aspects of IP enforcement and exploitation, assisting on matters from design infringement in the IPEC to multi-jurisdictional patent disputes, with particular focus in the life sciences and medical fields.

Alice Stagg is a senior associate at Gowling WLG, with particular expertise in brands litigation and exploitation, including through a recent secondment to Hasbro, the NASDAQ-listed toys and games company owning brands such as Transfomers, My Little Pony and Nerf, where she has advised on brands and design issues.

Footnotes

[1] UK. Copyright, Designs and Patents Act 1988 ("CDPA"), s 12(2).
[2] CDPA, s 16(3)(a).
[3] CDPA, s 216(1)(a).
[4] CDPA, s 226(2).
[5] Registered Designs Act 1949 ("RDA"), s 1(2).
[6] RDA, s 8(2).
[7] RDA, s 7(1).
[8] Regulation 6/2002/EC on Community Designs ("Community Design Regulation"), Article 3(a).
[9] Community Design Regulation, Article 11(1).
[10] Community Design Regulation, Article 10(1).
[11] Community Design Regulation, Article 3(a).
[12] Community Design Regulation, Article 12.
[13] Community Design Regulation, Article 10(1).
[14] Community Design Regulation, Article 4.
[15] Community Design Regulation, Article 5(1).
[16] Community Design Regulation, Article 5(2).
[17] Green Lane Products Ltd v. PMS International Group Plc & Ors [2008] EWCA Civ 358.
[18] Community Design Regulation, Article 6(1).
[19] PepsiCo v. Grupo Promer (Case C-281/10 P).
[20] Shenzhen Taiden v. OHMI Bosch Security Systems (Case T-153/08).
[21] Procter & Gamble v. Reckitt Benckiser [2007] EWCA Civ 936.
[22] [1998] RPC 283.
[23] [2007] EWCA Civ 936.
[24] Ibid.
[25] [2011] EWCA Civ 1206.
[26] C&H Engineering v. Klucznik & Sons Limited [1992] FSR 421.
[27] CDPA, s 213(4).
[28] [2014] EWHC 1931.


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