It is common practice in the fashion industry to use others' garments and artwork as 'inspiration' for new designs. A recent decision in the Federal Court illustrates the financial consequences for those who cross the line where inspiration ends and infringement begins.

In Seafolly Pty Limited v Fewstone Pty Ltd [2014] FCA 321, Dodds-Streeton J found that Fewstone (trading as City Beach) infringed Seafolly's copyright in three artistic works by instructing its designers and manufacture to make swimwear based on pictures and samples of Seafolly's swimwear.

Seafolly's and City Beach's artistic works

Images of Seafolly's three artistic works and the corresponding infringing City Beach prints or embroidery are set out in the decision.

City Beach infringed Seafolly's copyright in all three artistic works

Dodds-Streeton J found that City Beach infringed, or authorised the infringement of, Seafolly's copyright in all three artistic works by:

1. reproducing them without licence; and

2. importing and selling swimwear made of fabric containing the infringing prints when City Beach knew, or ought reasonably to have known, that the making of the swimwear would have infringed Seafolly's copyright if they had been made in Australia.

City Beach used Seafolly's swimwear for more than just inspiration

Based on expert evidence, objective similarity was found in respect of all three of Seafolly's artworks on the basis of similarity between a number of elements and similarity in the combination of elements.

What is perhaps more interesting is Her Honour's consideration of whether the artworks had actually been copied or merely used as inspiration. As the case progressed, City Beach eventually conceded that it purchased Seafolly's swimwear and used it to instruct its designers and manufacturer. However, it contended that the swimwear was to be used as 'inspiration' only.

There was evidence that it is common practice in the fashion industry to use others' garments and artwork to give designers a sense of what is desired for new garments.  In fact, even Seafolly took this approach when developing its own copyright works, providing its designers with photographs of rose designs as part of the designers' brief to indicate what Seafolly wished to achieve.

However, it was clear from the evidence that City Beach intended to use Seafolly's swimwear for much more than inspiration as the evidence established that City Beach provided photographs of:

1. Seafolly's English Rose swimwear to City Beach's designers requesting a 'Rose Print Similar to Seafolly Print'.  The designers were also clearly of the opinion that they were to create a similar design, referring to the print designed  as a 'Seafolly knock off' .  City Beach also rejected the designers' request for City Beach to accept responsibility for the design given their concerns about the similarities to Seafolly's design and any attempts to change their designs to make them less like Seafolly's swimwear;

2. Seafolly's Covenant Garden swimwear to City Beach's designers as 'direction' for the types and shapes of flowers and colours to be used; and

3. Seafolly's Senorita swimwear (and no others) to City Beach's manufacturer with instructions to make a sample as close as possible.

In respect of Seafolly's English Rose artwork, City Beach argued that the elements it had taken from the artwork were unoriginal as Seafolly had taken the elements from the 'prior art', there being voluminous examples of fabric showing a motif of traditional English roses, and merely collocated the elements.

However, Her Honour was not persuaded by this argument, finding that there was considerable scope for originality in the expression of traditional English roses and that it was clear from the evidence that Seafolly's designers had only used the prior art as inspiration for the creation of the English Rose artwork.  In contrast, what City Beach took from the English Rose artwork far exceeded the mere idea of an old-fashioned rose print.

The copyright/designs overlap - Senorita artwork/embroidery not a 'corresponding design'

The decision also considers the often vexed issue of the copyright/designs overlap under section 77 of the Copyright Act 1968 (Cth) in respect of Seafolly's Senorita artwork/embroidery. 

Her Honour ultimately found that there was no relevant overlap (and therefore City Beach's defence relying on this overlap failed) as the embroidery was not a 'corresponding design' of the Senorita artwork.  This decision was based on the fact that the Senorita artwork occupied only part of the swimwear and the swimwear itself was not made in the shape or configuration of the artwork.

The consequences

Whilst Seafolly had sought damages in the amount of $610,999.18, only about 40% of this amount was awarded ($250,333.06), with the case providing a useful illustration of how courts will approach the assessment of damages in copyright infringement cases. 

The damages that Dodds-Streeton J ordered that City Beach pay Seafolly consisted  of:

1. compensatory damages for lost profits of $80,333.06 (Seafolly sought $240,999.18);

2. compensatory damages for damage to reputation of $20,000 (Seafolly sought $70,000); and

3. additional damages of $150,000 (Seafolly sought $300,000).

Her Honour declined to order conversion damages as she was of the opinion that the damages awarded above would sufficiently compensate Seafolly.

Her Honour also ordered an injunction against City Beach preventing it from manufacturing, importing, selling and advertising the infringing swimwear (or any items made from the associated fabric) and delivery up of the infringing swimwear and associated fabric.

Compensatory damages for lost profits

Her Honour found that Seafolly and City Beach compete in the same market.  However, it could not be concluded that Seafolly's lost sales would be equivalent to the sales made by City Beach as:

1. City Beach's infringing swimwear was considerably cheaper than Seafolly's swimwear;

2. the target demographic was different (City Beach targeting women between the ages of 8 and 21, and Seafolly targeting women of every age); and

3. the garments were never sold in the same stores (although it was probable that a customer who had access to the infringing swimwear also had access to Seafolly's swimwear).

Given these considerations (and the fact that Seafolly's fixed overhead costs had not yet been factored in due to the difficulty in apportioning them to particular swimwear), Her Honour discounted the profit Seafolly would have made on the swimwear sold by City Beach by 75%.

Compensatory damages for damage to reputation

Her Honour found that Seafolly has a reputation in Australia for originality and exclusivity in swimwear, and that the sale of the infringing swimwear would diminish and damage this reputation.

This was weighed against the fact that there was no evidence of confusion and the infringing swimwear was sold in different stores, targeting a different demographic, to come to the $20,000 sum.

Additional damages

As far as copyright decisions go, the award of $150,000 in additional damages is significant. However, it is perhaps unsurprising that Her Honour was inclined to award such a significant amount, given that:

1. despite repeated warnings from its designers (and rejected attempts by the designers to sufficiently alter the designs to make then different to Seafolly's swimwear), City Beach took the risk that its use of the artwork on Seafolly's English Rose print would infringe copyright;

2. in respect of Seafolly's Senorita swimwear, City Beach merely sent a picture of the swimwear to its manufacturer which was, according to Her Honour, tantamount to an instruction to copy;

3. City Beach continued to sell its infringing swimwear after it was put on notice of Seafolly's copyright claim;

4. a number of City Beach's important lay witnesses were frequently evasive, refused to make appropriate concessions and attempted to deny or explain away their reliance upon Seafolly's swimwear;

5. City Beach obtained the considerable benefit of sales of 11,638 of products incorporating the infringing designs;

6. City Beach initially failed to disclose that it had reference to Seafolly's swimwear in its pleadings; and

7. it was necessary to deter copying in the industry generally, as well by City Beach.

Post case

While City Beach filed an application for leave to appeal against the decision of Dodds-Streeton J on 17 April 2014, its application was withdrawn shortly thereafter.  Meanwhile, the case continues in relation to further garments that were not disclosed until later in the proceedings, with City Beach ordered to provide information and give discovery relating to the further garments and the referral of the matter to mediation.