Diving Deeper Into the Amendments to the Australian Designs Act: Tips, Tricks and Risks (Part 2)

In part 1 of this series (here), we considered the welcome introduction of a 12 month grace period that came into effect as of 10 March 2022. The grace period protects a design owner against inadvertent disclosure of a design before an application for protection of the design is filed – previously, this was fatal to having enforceable design rights. In part 2, we delve into the prior use infringement exemption that concurrently came into effect to mitigate the commercial risks that might arise as a result of the grace period.

Prior Use Infringement Exemption

A consequence of the grace period is that a publicly disclosed and unregistered design may later become registered, and the registration enforceable. A question therefore arises as to whether a registered design can be enforced against a third party who has been using the design since before its registration. In this regard, the amended Designs Act 2003 (Cth) (Act) now also includes an infringement exemption for prior use, the aim of which is to maintain a balance between the rights of design owners and a third party’s freedom to operate. The rationale is that a third party who was not able to identify the design owner’s rights, because they were not yet searchable on the designs register, should not be penalised for making use of the same or similar design.

The prior use exemption covers any design (termed a “comparable design”) that is identical or substantially similar in overall impression to a registered design. The prior use exemption is intended to preserve a third party’s right to use a comparable design prior to and after the priority date of a registered design (typically the filing date).

Key points:

1. The prior use exemption applies only in relation to a registered design that has a priority date on or after 10 March 2022.
2. The exemption covers acts that would otherwise be considered an infringement, as well as acts that would otherwise lead to an infringement (termed as “definite steps”).
3. The meaning of “definite steps” isn’t defined in the Act, but according to the Explanatory Memorandum the legislators intended it to be more than “preparatory steps”. If decisions are yet to be made about how a product, or part of a product, might be manufactured, then definite steps have not yet been taken. “Definite steps” are where the plans to make a product are finalised, and the process of acquiring or making all components has started.
4. The location of the prior use and definite steps is relevant. Only prior use of a comparable design in Australia will trigger the exemption provisions. If someone has made prior use of a comparable design overseas, that person won’t be able to rely on the exemption if they then start using their comparable design in Australia after the priority date of a registered design.
5. “Definite steps” can be taken anywhere in the world, but they must be taken towards doing an infringing act in Australia. For example, manufacturing a product embodying a comparable design overseas and taking definite steps to import the product into Australia would trigger the exemption provisions. Merely manufacturing the product overseas is not enough to establish prior use.
6. The third party must have been using its comparable design immediately before the priority date of the registered design. A third party may still be liable for infringement where their use of a comparable design ceased before the priority date but recommenced after registration (for instance, to capitalise on the success of a registered design). However, the prior use exemption may apply if the acts of prior use (or definite steps) are only temporarily paused before the priority date of the registered design and recommenced afterwards.
7. A third party can claim the prior use exemption if they derive a comparable design from a public disclosure made by or with the consent of the registered owner within the 12 month grace period prior to filing for registration. By contrast, a third party cannot claim the exemption if they derive a comparable design from information that was not made public, or that was made public without the consent of the registered owner. The intention here is that the registered owner should not suffer the consequences of unauthorised disclosure by an employee or contractor.
8. The prior use exemption may be wholly assigned to another party, though it cannot be partly assigned or licenced.
9. Distributors and downstream users who obtain a product embodying a comparable design from a prior user are exempt from infringement though only for limited purposes including on-selling and use for the purposes of trade or business.

Conclusion

As noted in our first article, reliance on the grace period should be avoided if possible – keeping a design secret until filing an application to protect it is still best practice for design owners. If reliance on the grace period is absolutely necessary, the reality is that inadvertent public disclosure of the design could still render any subsequent design registration unenforceable against prior users who can rely on the exemption. Design owners should apply to register their design as soon as practicable after an inadvertent disclosure to mitigate third parties adopting their design.

Whether a design owner can pursue third party infringement of a design registered under grace period provisions, or whether a third party can successfully rely on the prior use exemption, will require both sides to carefully examine the facts surrounding creation/adoption and use of a design. If anything, the new grace period and prior use exemption provisions place greater emphasis on maintaining accurate records of design creation and use.

For third parties, there is always risk in adopting and using an unregistered design. The prior use exemption may alleviate the risk of design infringement, but only under very particular circumstances. Notably, as a product may be protected by different overlapping intellectual property rights (such as patents, copyright and/or trade mark as well as designs), a broad assessment of infringement risk before taking commercial steps to adopt and use an unregistered design should be a priority.

Stay tuned for part 3 of this series, where we will delve into changes to design filing and examination procedures.

Additional Information

Below we provide fictional scenarios which demonstrate the prior use exemption from infringement. These scenarios are for illustration purposes only, and do not consider all avenues of legal protection afforded under Australian law:

Question 1:

In May 2022, Tamar shares her design of a hat featuring an intricate floral pattern on her Instagram.

In June 2022, Fashion Co becomes aware of Tamar’s Instagram post and, after checking the Designs register to confirm Tamar’s hat design is not registered, Fashion Co begins preparations to manufacture an identical design.

In July 2022, Tamar files her hat design for registration. At the same time, Fashion Co has the materials to manufacture the hat in Australia but does not come to a decision on how to assemble the hat’s intricate floral pattern until August 2022.

Tamar’s hat design is registered in November 2022.

Can Fashion Co continue to manufacture and sell Tamar’s design after its priority date relying on the prior use exemption?

Answer:
No – “definite steps” towards manufacture of the design as a whole are not considered to have occurred if there are yet decisions to be made about manufacture of a part of the design. Fashion Co will not be able to establish that they took “definite steps” immediately before Tamar’s priority date.

Additionally, Fashion Co could be liable for copyright infringement, depending on the characteristics of the hat and floral pattern (noting that Australia prohibits dual protection under copyright and designs law under specific circumstances).

Question 2:

In May 2022, Tamar shares her hat design on her Instagram.

In June 2022, Fashion Co views Tamar’s Instagram post and begins manufacturing a hat identical to Tamar’s design in Australia. However, due to an issue in the supply chain, Fashion Co runs out of necessary materials and in July 2022 stops production of the hat.

In August 2022, Tamar files an application to register her hat design. By September 2022, Fashion Co is able to source the required materials and resumes manufacturing the hat.

Tamar’s design is registered in December 2022. Fashion Co is unaware of the design registration.

Is Fashion Co liable for infringing Tamar’s design registration?

Answer:
Not likely – although Fashion Co was not manufacturing the design immediately prior to its priority date, the pause in manufacturing was only intended to be temporary and Fashion Co had the intention, before Tamar’s priority date, to resume manufacturing notwithstanding it resumed after Tamar’s priority date. Therefore, Fashion Co could likely rely on the prior use exemption if Tamar was to assert infringement of her registered design. However, Fashion Co may still be liable for copyright infringement (as noted in the answer above).

Question 3:

Berengaria is employed by Fashion Co to design hats. Her employment contract stipulates that Fashion Co exclusively owns the intellectual property of her hat designs. In May 2022, Berengaria shares her hat design on her Instagram. Fashion Co had not authorised or consented to Berengaria’s Instagram post.

In June 2022, Darius is inspired by Berengaria’s post and immediately begins ordering materials to mass produce and sell a hat with a comparable design.

In July 2022, Fashion Co files Berengaria’s hat design to become its registered owner and the design is registered in December 2022.

Can Darius continue to manufacture and sell his comparable design after registration of Berengaria’s design?

Answer:
No – Darius derived his comparable design from a public disclosure not authorised by or consented to by the party who became the registered owner of the design. Had the Instagram post been made under authorisation by Fashion Co, Darius could rely on the prior use exemption if he continued to manufacture and sell the comparable design after December 2022, and were Fashion Co to assert infringement. Again, whether Darius would be liable for copyright infringement is a separate consideration.

By Dadar Ahmadi-Pirshahid, Olivia Coburn, Kerry Dick and Chris Vindurampulle