Intellectual property disputes

ITIC insures naval architects, designers and offshore engineers against claims from third parties for alleged infringements of intellectual property. Recently there has been an increase in litigation in this area and this article reviews some cases handled by ITIC.

Under English law, designs are capable of protection under the law of copyright and an outright copy of the protected work will be a breach of those legal rights.

The position becomes more complicated if the naval architect only used the design as a reference point for their own later work, if they made material alterations and embellishments in the later work sufficient to make the totality a new work or design, they will not be in breach of copyright. This was the issue in a recent case…

A naval architect was approached by a customer to design a catamaran workboat. The customer provided the naval architect with a plan of their existing workboat and requested the final design and specification was to be based on that boat. The customer’s stamp was on the plan and the naval architect assumed that the customer was entitled to use the plans.

The workboat was designed and a press release was issued to the trade press. Another naval architect saw the press release and claimed that the catamaran was built to their design. They issued a “Cease and Desist” letter against the naval architect. It then became apparent that the customer had placed their stamp over the third party naval architect’s details.

The naval architect, who was insured by ITIC, had made significant design and specification changes to the original plans. ITIC instructed a barrister who specialised in copyright matters to consider whether these changes created a new design. The barrister advised that the onus of proof on the naval architect was high as there was clear evidence that a third party’s design was passed to them and clearly influenced their design. He was of the opinion that the changes to the original design were only refinements and did not evolve the design sufficiently far enough from the original.

The barrister therefore advised that the only risk-free solution was to not continue with any of the existing designs otherwise if the build was to proceed the third party naval architect would seek an injunction to stop the work.

The naval architect redesigned the workboat from scratch. The copyright expert reviewed the work and confirmed that the second design appeared to be original. The project proceeded with the customer and the workboat is now in the water.

Another common question is who owns the intellectual property rights? ITIC has drafted terms and conditions for naval architects in which it states:

“All intellectual property created by virtue of Consultant carrying out the works under this Agreement, is owned by Consultant, with Client receiving a non-exclusive royalty-free licence to use the intellectual property created by Consultant under this Agreement, for the purposes referred to in this Agreement.”

The above therefore clearly shows the naval architect will retain ownership of the intellectual property.

Often however the shipyard, or buyer of a vessel, when contracting with a naval architect may impose their own intellectual property. If the naval architect is happy with this that is not a problem, however they must consider the ramifications when working on future projects.

ITIC insured a naval architect designing superyachts who was contracted to design two yachts with the same yard by two different owners, with each owner under the belief that they were to get a unique yacht. In the contract for the first of the two yachts the designer contracted on the basis that all intellectual property rights in the project would belong to the owner in perpetuity. The second yacht was built and launched with the yard using the same engineering platform.The platform dictated somewhat the overall look of the yacht, but designer went to great lengths to make material alterations and embellishments to make the totality a new work or design.

After the launch of both the yachts, they happened at the same anchorage, at which time the owner’s partner commented that the yacht next to them looked similar. Shortly afterwards the owner commenced litigation with the yacht designer for breach of their design contract. The merits of the case were strongly in favour of the designer as they could show material alterations and embellishments in the design. Moreover, any similarities were either as a result of the underlying engineering platform of the yacht or were considered to be the house style of that particular designer. The reason a buyer chooses a Porsche is they have a particular style, which can be the reason an owner chooses a particular yacht designer.

Although the merits were in favour of the designer, the dispute was brought in multiple jurisdictions and the total legal cost to defend the matter was EUR 340,000 which ITIC paid in full.

Copyright and design disputes are not the only form of intellectual property, but there are also patents disputes.

In one such dispute an offshore engineering firm was engaged by the head contractor engaged in the construction of an offshore windfarm to design a subsea pile template (“SPT”) to be used to assist in the driving of piles into the sea floor.

The engineering firm designed the SPT and it was being used in the construction of the windfarm when the firm received notice from a competing firm of engineers alleging that they held a European patent in respect of the piece of equipment and that the SPT infringed their patent.
The competing firm subsequently issued legal proceedings in which they claimed damages of US$ 2 million for the alleged infringement. They named the engineering firm, the head contractor and the end user in those proceedings.

The contract between the engineering firm and the head contractor included an indemnity in favour of the head contractor and the end user. This provided that the engineering firm was responsible for legal costs incurred in defending a claim arising out of the alleged breach of a third party’s intellectual properties. This type of indemnity is a common provision in such contracts.

Counsel’s advice was sought. The barrister concluded that there was a more than 50% likelihood that the engineering firm would be found to have not infringed the patent, and further that was a more than 50% chance that a court would find the claimant’s patent to be invalid due to a lack of novelty.

Nevertheless it was clear that there remained a significant risk associated with allowing a trial to proceed. In addition patent disputes are expensive to litigate partly due to the expert evidence required. Discussions took place with a view to settling the claim. The claim was ultimately resolved with a contribution towards the claim for damages of US$ 250,000 and on terms which included a licence providing for the engineering firm to be able to continue to use the SPT in question. The legal costs incurred amounted to another US$ 250,000.

In the claims discussed in this article the companies insured by ITIC were arguably the innocent party. Unfortunately, the cost of defending intellectual property claims is expensive and once again shows the cost of innocence can be very high.  ITIC is here to assist you.