Copying a Competitor’s Product – Is it Legal?

Copying better ideas and products is in our DNA.  In earlier times this instinct might been driven by survival but nowadays the primary motivations in a business context are to make better products, attract more customers and make more profit. 

So is it legal to copy a competitor’s product because it is better, or just because you think it might be a new business opportunity?  The short answer is that you can, but you would need to be very clear about the limits of copying.  Even then, you may still be sued by the original owner despite having taken every imaginable step to make sure your copy was legal.

Before looking at the rules around copying, it is worth mentioning another scenario which sometimes arises.  There are some cases of copying where a component or its spare parts are no longer available.  Or perhaps the component is failing or not functioning properly and the original manufacturer cannot provide the necessary engineering support to correct the problems. The goal in such reverse engineering cases is to generate the necessary technical information to replace or improve the component.

However, even these cases of seemingly innocent copying, done simply because there is no alternative, can also land the copier in trouble if the original owner reappears.

There have been some recent examples of blatant copying of a competitor’s product.  One involved the fast-growing New Zealand toy company Zuru New Zealand Limited, the maker of the “Bunch O Balloons Slingshot” which allows multiple balloons to be filled with water at once, and then launched into the air.  A company in the US copied Zuru’s product and was successfully sued by Zuru for US$29 million (around NZ$43.7m). 

Engineering, and particularly after-market spare parts for cars, is another sector which generates high levels of copying.  Often this is due to the costs of Original Equipment Manufacturer (OEM) spare parts prices which can be very high.  In a recent New Zealand case (Dodson Motorsport Limited v Logiical Performance Limited & Others [2019] HC 918) the High Court set out some very useful guidelines on copying products. 

The facts of the case are quite easy to follow although there are a number of parties involved. 

Dodson wanted to improve the standard clutch assembly for the Nissan GT-R R35, which was a successor to the iconic Nissan Skyline.  The cars were being raced and the OEM Nissan clutch was proving unreliable.

Dodson itself took the original Nissan design of the clutch and developed it for higher performance and reliability.  Dodson then engaged one of the other defendants, GRD Engineering Services Limited, to manufacture the Dodson designed clutch using Dodson’s improved design.

The relationship between Dodson and GRD ended as Dodson was sourcing the parts elsewhere.  After that, GRD was persuaded by Logiical, a spare parts retailer, to restart the manufacture of the Dodson-designed clutch. 

Dodson then sued both the retailer Logiical, and the manufacturer GRD, for breach of copyright.  But Dodson had to prove first that it owned the copyright in the Dodson drawings of the revised Nissan clutch.  Of course if Dodson had breached Nissan’s copyright first then Dodson could not argue that it had created new copyright in its own drawings of the Dodson clutch.  This was the argument of Logiical and GRD.

The Court found that Dodson had not infringed Nissan’s copyright, so the copyright claim against Logiical and GRD could go ahead.

Dodson’s clutch parts, and the drawings that showed them, were noticeably different from the OEM Nissan clutch.  In contrast, GRD had taken the Dodson clutch and essentially copied it almost identically.

What were the main pointers in the Dodson case that tripped up the defendants?  Why was Dodson allowed to copy the OEM Nissan clutch but GRD and Logiical were not allowed to copy and sell their clutch based on the Dodson clutch? 

  • Ideas cannot be protected by copyright law.  Dodson was entitled to take the idea of the overall clutch design from Nissan.  Similarly, there was nothing stopping GRD from copying ideas from the Dodson clutch.
  • However, the precise differences between the OEM Nissan clutch and the Dodson clutch were critical; the differences were the product of Dodson’s independent skill, labour and effort.
  • In addition, Dodson had followed an independent design path involving development by trial and error.
  • Dodson was adding innovation to existing technology.  Many features of the Dodson clutch were not copied, in fact quite the opposite – they were original and innovative. 
  • Where a work (such as the Dodson clutch) shows a high degree of originality, even a small similarity in a copy will lead to a more likely finding of infringement.  In other words, the more original and innovative a product is the harder it is to copy it without infringing.  (In fact, the GRD clutch showed a high similarity to the Dodson clutch, so the finding of infringement was even easier for the Court.)
  • The GRD clutch made by GRD and then sold by Logiical, showed little or no evidence of independent skill and labour. 
  • Specifically, there was very little evidence that any testing had been done on the GRD clutch parts. 
  • There was no evidence of refinements or adjustments made as a consequence of the testing, so there was no evidence of an evolution of the part.  This was in stark contrast to the way the Dodson clutch had been developed from the OEM Nissan clutch.

The outcome of the case was that:

  • all of the defendants were found liable for infringing copyright in the Dodson drawings;
  • Logiical and one of the individual defendants were in breach of the Fair Trading Act 1986; and
  • GRD and one of the individual defendants had breached Dodson’s confidential information.

In both the Dodson and the Zuru cases the infringing party certainly knew of the competitor’s identical (or nearly identical) product and went ahead with the copying anyway. 

There is an added twist to both the cases mentioned above, as if more evidence were needed to show the pitfalls of copying a competitor’s products.

First, the Dodson case has been appealed and will go to the Court of Appeal.  Secondly, the famous water balloon company Zuru mentioned earlier, is itself now being sued by the giant Danish toy company Lego.  Lego claims that Zuru copied its Minifigurines, Friends figurines and block tape.

In summary, while there is nothing wrong in principle with copying a competitor’s product, ignoring or misunderstanding the rules around copyright can be costly.  Understanding those rules can also be a challenge, as the Dodson case shows.

by Chris Appleby.July 2019