A-One Accessory Imports Pty Ltd v Off Road Imports Pty Ltd

[1996] FCA 362

CATCHWORDS

COSTS - copyright - infringement proceedings - successful applicants' work itself involved infringement of copyright in other works - whether Court should exercise its discretion against applicants and refuse costs.

COPYRIGHT - relief for infringement - copyright work a compilation of pirated and original work - whether any reason, on grounds of public policy, to deny all relief to copyright owner.

COPYRIGHT - remedies for infringement - s 115(2) Copyright Act - relevance of analogous equitable and common law rules.

COPYRIGHT - damages - compilation of pirated and original material - measure of damages for copyright infringement.

Copyright Act 1968 (Cth) - ss 115, 115(2), 116
Federal Court Rules - O 62 r 36A

Cases Considered
Alwinco Products Ltd v Crystal Glass Industries Ltd [1985] 1 NZLR 716
Ash v Dickie [1936] 1 Ch 655
Attorney-General v Guardian Newspapers Ltd (No 2) [1988] 3 All ER 545
Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69
Caxton Publishing Company Limited v Sutherland Publishing Company [1939] AC 178
Glyn v Western Feature Film Company [1916] 1 Ch 261
Hayward Brothers v Lely & Co (1887) 56 LT 418
Hughes v Western Australian Cricket Association (Inc) (1986) ATPR 40-748
John Lane The Bodley Head Limited v Associated Newspapers Limited [1936] 1 KB 715
Led Builders Pty Ltd v Masterton Homes (NSW) Pty Ltd (1994) 54 FCR 196
Milpurrurru v Indofurn Pty Ltd (1994) 30 IPR 209
Moody v Cox and Hatt [1917] 2 Ch 71
Redwood Music Ltd v Chappell & Co Ltd [1982] RPC 109
ZYX Music GMBH v King (1995) 31 IPR 207

A-One Accessory Imports Pty Ltd & Ors
v Off Road Imports Pty Ltd & Ors
QG 111 of 1993

Drummond J
Brisbane
9 May 1996

IN THE FEDERAL COURT OF AUSTRALIA )    No. QG 111 of 1993
QUEENSLAND DISTRICT REGISTRY     )
GENERAL DIVISION                 )

BETWEEN:  A-ONE ACCESSORY IMPORTS PTY. LTD.

ACN 010 612 870

First Applicant

AND:NOEL BRUCE ROGERS and STEPHEN ARTHUR BENNETT

Second Applicants

AND:     OFF ROAD IMPORTS PTY. LTD.

ACN 002 341 531

First Respondent

AND:ROSS BARTLEY KING and JULIE ROBYN KING

Second Respondents

MINUTES OF ORDERS

JUDGE MAKING ORDER:         Drummond J
DATE OF ORDER:              9 May, 1996
WHERE MADE:                 Brisbane

THE COURT ORDERS THAT:

1. The applicants recover two thirds of their costs of and incidental to the hearing of the separate issues.

1. The applicants pay the second respondent Julie Robyn King's costs of and incidental to the proceedings, including the hearing of the separate questions.

NOTE:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA )    No. QG 111 of 1993
QUEENSLAND DISTRICT REGISTRY     )
GENERAL DIVISION                 )

BETWEEN:  A-ONE ACCESSORY IMPORTS PTY. LTD.

ACN 010 612 870

First Applicant

AND:NOEL BRUCE ROGERS and STEPHEN ARTHUR BENNETT

Second Applicants

AND:     OFF ROAD IMPORTS PTY. LTD.

ACN 002 341 531

First Respondent

AND:ROSS BARTLEY KING and JULIE ROBYN KING

Second Respondents

Coram:    Drummond J
Date:     9 May, 1996
Place:    Brisbane

REASONS FOR JUDGMENT

On 27 March, 1996 I published my reasons for answering in favour of the applicants certain questions determined separately in the proceedings.  At the request of the parties, I adjourned the matter until 15 April last.  The applicants then sought the costs of the determination of the separate questions on the basis that they were successful on all the issues litigated in this phase of the proceedings.  The respondents, however, submitted that, notwithstanding the success the applicants achieved, having regard to the findings I made, the applicants should be denied any order for costs or, in the alternative, should have an order for part only of their costs.  I had intended to make orders with respect to costs on 19 April, but both parties asked that I defer doing that until they had an opportunity to put further submissions to me, something that took place yesterday.

In support of their first submission on 15 April, the respondents pointed to the extent to which I held that A-One's catalogue itself involved infringements of copyright in the catalogues of others.  They submitted that to give the applicants any relief at all in the action would permit them to profit from their own illegal or wrongful acts of infringement and that, not being entitled to any relief, they should not recover any of their costs.  The respondents also submitted that, for much the same reasons which they said justified refusing the applicants any relief, I should, in the exercise of my discretion, also deny them their costs of the hearing of the separate issues or, in the alternative, I should award them only part of these costs.

Where it is against public policy to enforce copyright because, e.g., the copyright work is libellous, obscene or otherwise involves a publication contrary to the public interest, the courts will not give any remedy.  See Glyn v Western Feature Film Company [1916] 1 Ch. 261; Attorney-General v Guardian Newspapers Ltd. (No. 2) [1988] 3 All E.R. 545 at 654 and Copinger and Skone James on Copyright, 13th Ed., para. 2-39.  Even if copyright can exist in a compilation consisting entirely of parts pirated from other works, Copinger and Skone James, supra, at para. 3-48, suggests that public policy might well justify the court, in such a case, refusing all relief for infringement of that copyright.

However, where, as here, the work in question consists of a compilation of pirated and original work, there is no reason, on grounds of public policy, that I can see to deny all relief to the owner of copyright in the compilation:  it is the entire compilation which has copyright and there is nothing in the Copyright Act 1968 (Cth) which operates to make that entity an illegal work.  The cases I referred to in my reasons of 27 March, 1996, particularly Redwood Music Ltd. v Chappell & Co. Ltd. [1982] R.P.C. 109, show that there is good reason for holding that the owner of copyright in such a mixed work is entitled to a remedy for an infringement of that copyright. Counsel for the respondents yesterday drew my attention to the recently reported decision in ZYX Music GMBH v King (1995) 31 I.P.R. 207. The passage in Lightman J's reasons at 214-215 supports my conclusion in this regard.

Copyright is essentially a private proprietary right. Because there is no significant element of public interest involved in that statutory right or in its enforcement, it is appropriate, in my opinion, to have close regard to equitable rules governing the grant of injunctions and accounts of profit in deciding whether or not a particular copyright owner is entitled to any of those statutory forms of relief provided for by s. 115. There is a suggestion in Hayward Brothers v Lely & Co. (1887) 56 L.T. 418 at 421 that relief in respect of infringement of copyright in a compilation consisting of original material, including some original material tainted with a misrepresentation, might be limited to an injunction as to the parts not so tainted, as a consequence of the application of the equitable maxim requiring clean hands. In my opinion, since the A-One catalogue contains so much material pirated from the 1984 Phoenix catalogue and the 1991 Link catalogue, it would be inequitable to treat the applicants as standing in the position of an author of an entirely original work. Adopting the approach in Moody v Cox and Hatt [1917] 2 Ch. 71 at 87-88, I think that the dirt on the applicants' hands, constituted by their extensive copying of the works of others, is so closely related to the equity claimed in the form of an injunction to restrain Off Road's use of its own infringing catalogue as to justify denying the applicants relief under s. 115(2) the Copyright Act 1968 (Cth) analogous to discretionary equitable relief, by way of an injunction (and an account of the profits so earned by Off Road).

Although not entitled to such relief, the applicants, who have suffered a wrong, are still, in my opinion, entitled to some remedy in respect of the respondent's infringement of their rights. Even if the remedy, by way of damages, provided for by s. 115(2) of the Act is created by a form of words that suggests it too is discretionary relief, I do not consider there is any justification for not adopting, by way of analogy, the rule at law that a person whose legal rights have been interfered with is entitled to damages even though he may be, by reason of his own conduct, disentitled to equitable relief. While the grant of the remedies provided for by s. 115(2) by way of injunction and an account of profits should be governed by applying, by analogy, the equitable rules applicable to the grant of those kinds of relief, I do not think that there is a discretion to deny a copyright owner who has established an infringement of his copyright the remedy by way of damages also provided for by the section: see Led Builders Pty. Ltd. v Masterton Homes (NSW) Pty. Ltd. (1994) 54 F.C.R. 196.

I reject the respondents' submission that the applicants are not entitled to relief and should, for that reason, not recover any of their costs.

It is not my function to make a binding determination now as to the damages that are recoverable by the applicants from the respondents.  But in order to deal with the respondents' argument that the discretion to order costs should be exercised wholly or in part against the applicants, it is, I think, necessary to form a tentative view on this question.

I was not referred to, and cannot find, any authority dealing with the relevance to the assessment of damages for infringement of copyright of the fact that the copyright is in respect of a work made up of both pirated and original material, apart from the ZYX Music case, supra.  There, Lightman J, at 215, assumed that the owner of copyright in a work consisting of original material and pirated material was entitled to full damages for infringement, but subject to the Court exercising a discretion to require the owner to account from his recoveries to the owner whose copyright he himself had pirated.  (It appears Lightman J considered that such an accounting should be ordered only where the owner, who knew that his copyright had been pirated by the plaintiff, had actively asserted his own rights and was before the Court as a party in the plaintiff's action.)

There is authority dealing with the proper measure of damages where conversion damages under s. 116 the Copyright Act 1968 (Cth) are claimed in respect of matter constituting the conversion which, in part only, comprises infringing material and, in part, non-infringing material.  Conversion damages are awarded on the basis that the infringing copy article is deemed to be the property of the copyright owner.  The measure of damages is the traditional one in conversion, viz., the value of the article converted at the date of conversion.  It appears settled law that in all cases, including those involving infringements of literary works, where the conversion comprises copyright matter mixed with non-infringing matter, the copyright owner is only entitled to the damages that represent the value of the copyright material taken.  See John Lane The Bodley Head Limited v Associated Newspapers Limited [1936] 1 K.B. 715 at 723; Caxton Publishing Company Limited v Sutherland Publishing Company [1939] A.C. 178 at 185, 194, 205 and Alwinco Products Ltd. v Crystal Glass Industries Ltd. [1985] 1 N.Z.L.R. 716 at 725. This will generally be that proportion of the value of the entire infringing copy which fairly represents the worth of the copyright material incorporated in it. The estimation of this proportion is not a matter for precise calculation, but is a matter of "rusticum judicium". As Ash v Dickie [1936] 1 Ch. 655 at 663-664 shows, this approach involves assessing not just the respective quantities of copyright material and material produced by the efforts of the wrongdoer in making the infringing copy, but also the quality and significance that the copyright material has, in giving value to the whole infringing copy. The justification for the approach taken in assessing conversion damages, where the infringing copy consists of infringing and non-infringing matter, is that the innocent claimant is still not regarded as entitled to the benefit of the material incorporated, by the effort and at the expense of the wrongdoer, in the infringing copy, but is entitled to compensation only for his own property that was wrongly taken.

The applicants do not claim conversion damages, only infringement damages under s. 115(2), which are assessed on a different basis from conversion damages under s. 116. The traditional measure of damages for infringement of copyright is the depreciation caused by the infringement to the value of the copyright as a chose in action: Lahore, Copyright Law, para. 4.15.210.  A claimant will only be able to establish copyright in a compilation made up of pirated, or non-pirated but still non-original material, together with original material, if the compilation, considered as an entire work, can be regarded as the claimant's original work.  Once a claimant has surmounted this hurdle and established his copyright in such a compilation, I do not consider that a person who infringes the copyright in it can limit the damages he must pay for such infringement to something which reflects the fact that only part of the compilation consists of the compiler's own original work.  It is, in my view, inappropriate to adopt an approach like that followed in assessing conversion damages, when assessing infringement damages in relation to such a "mixed" work.  The wrongdoer does not invest significant effort and expense of his own in producing the infringing copy, where he simply takes the whole of the claimant's compilation, i.e., both the pirated and the original material, in circumstances such as the present where what gives the copyright "mixed" work its value is that it is an entity in the form of a comprehensive listing of information about a particular subject matter.  The complainant-owner of copyright in such a mixed compilation cannot be said to profit from his own wrongdoing by obtaining full damages from an infringer:  that owner is always exposed to liability to others for his own infringements of the copyright of those others involved in his compilation.  Once the complainant can establish copyright in his compilation and its infringement, then, as between the complainant and the infringer who has copied the whole of it, I do not think there is any justification for giving the infringer any benefit due to the fact that the claimant's copyright is in respect of a work comprising material pirated by the claimant mixed with the claimant's own original material.

I have referred to the usual measure of damages for copyright infringement.  This is not, however, an inflexible rule and it provides but one measure of assessment, the object of an award of damages for breach of copyright always being to compensate the plaintiff for the loss it has suffered as a result of the defendant's breach.  See Autodesk Australia Pty. Ltd. v Cheung (1990) 17 I.P.R. 69 at 73-74 and Milpurrurru v Indofurn Pty. Ltd. (1994) 30 I.P.R. 209 at 242-243. Damages for infringement of copyright are also "at large" and the Court can give damages in such amount as it thinks right, as if it were a jury. See Autodesk Australia Pty. Ltd. v Cheung, supra, at 75-76.

The reality is that Off Road has been able to get into competition with A-One earlier than it could have done if it had prepared its own catalogue afresh, rather than by copying A-One's catalogue.  I think the measure of the damages A-One suffered as a result of this wrongful conduct by Off Road is therefore the profits it lost because sales of sprockets were made by Off Road with the assistance of its infringing catalogue, which sales A-One would otherwise have made for itself.  On the evidence, these would appear to be all of the sales of sprockets for Japanese motorcycles made by Off Road, since the catalogue is the key to making such sales, less that part of those sales which it must, I think, be assumed would have gone to A-One's other competitors, including Link International.  The evidence indicates that A-One has about a 35% share of the Australian market for sprockets for Japanese motorcycles.  I therefore think A-One's damages should be assessed on the broad basis that it could have expected to have made about 35% of the relevant sprocket sales made by Off Road.  (Off Road competes with A-One in only part of the whole Australian market which A-One covers; A-One may have a share in this segment of the national market greater or lesser than 35%.  But the evidence does not enable that to be determined.)

A-One is not, however, entitled to compensation in respect of an open-ended period of trading by Off Road.  Off Road's infringement only enabled it to compete with A-One and take sales of sprockets for Japanese motorcycles away from A-One which it can be assumed Off Road would not have taken, but for the infringement, in the period during which Off Road got the advantage of having pirated A-One's catalogue.  On the evidence, Off Road could have produced a catalogue containing the range of information, similar to that contained in the A-One catalogue which it copied, by its own efforts in a period of about six months.  The evidence is that Off Road was well-established in the business of selling motorcycle sprockets prior to infringing A-One's copyright (although its sales appear to have been limited to sprockets for European motorcycles).  Off Road can therefore be expected to have reaped the benefit from its use of infringing copies of the A-One catalogue immediately it was in a position to supply the range of sprockets for Japanese motorcycles listed in its 1993 catalogue.

My tentative view is that A-One's damages should therefore be measured by identifying first, the whole of the sales of sprockets for Japanese motorcycles made by Off Road in the first six month period after it was in a position to supply the range of those sprockets listed in its infringing catalogue and then by estimating the gross profits, i.e., the total sales less only the cost of purchasing the sprockets, that A-One would have made, if it, instead of Off Road, had sold all those sprockets.  A-One would, I think, be entitled to recover, as part of its damages, the contribution those sales would have made to its business overheads, both direct and indirect, as part of its damages.  A-One will be entitled to 35% of that figure.

The applicants failed on the issue whether A-One's 1986 and 1991 catalogues were entirely original works, as they had contended:  I have found that they were, in large part, pirated from the Phoenix and the Link catalogues and I have rejected the evidence of the second applicants in coming to that conclusion.  This issue took up a significant part of the hearing.  It is appropriate, in accordance with the principles set out in Hughes v Western Australian Cricket Association (Inc.) (1986) A.T.P.R. 40-748 at 48,136, to take this into account and to deprive the applicants of the full benefit of the ordinary rule that costs follow the event.

It is very likely that the damages A-One is likely to recover from Off Road will be considerably less than $100,000.  If I were to use O. 62, r. 36A as a guide and order that the applicants recover two thirds of their costs of the hearing of the separate issues, the respondents contend that the applicants would obtain the same result in relation to costs that they would have obtained if they had been, to use the respondents' description, "model" applicants, i.e., applicants who had not run a false case on originality.  But that is not necessarily the case.  Where the judgment recovered is for less than $100,000, O. 62, r. 36A operates, in default of an order for costs, to reduce the costs recoverable by the otherwise successful applicant irrespective of the reason why limited damages are awarded, i.e., irrespective of whether that is due to the applicant's case having failed, in part, because he ran a false case on some issues or whether that is due merely to the applicant having failed to come up to proof of all the damages claimed, although he was a "model" applicant.  It is not a requirement, for a proper exercise of the discretion as to costs, that the Court must always reduce a successful applicant's award of costs from that otherwise appropriate where the applicant has failed on an issue on which he ran a false case.

I consider that O. 62, r. 36A provides a good guide to what the applicants should recover for costs.  I will therefore order that the applicants recover two thirds of their costs of and incidental to the hearing of the separate issues.  I reject the respondents' submission that the discretion to order costs should be exercised against the applicants to refuse them any order for costs.

I dismissed the applicants' claims against one of the second respondents, Mrs. King.  The applicants never attempted to make out any case against her.  Counsel therefore applies, on her behalf, for an order that she have her costs of the proceedings, to be taxed on an indemnity basis.  The applicants commenced their proceedings and promptly sought interlocutory relief.  It was, I think, legitimate in those circumstances to join Mrs. King, who was a director of Off Road, along with the other second respondent, at least initially.  There should have come a time, fairly early in the course of the litigation, which took place over an extended period in three episodes, when the applicants should either have discontinued against Mrs. King or made it clear that they would not claim any relief against her.  However, since the applicants, in my opinion, did not act unreasonably in joining her initially and since it is not suggested that she has suffered any special detriment in the way of incurring costs for her own representation by the same legal team which represented Off Road and Mr. King, I will order that the applicants pay Mrs. King's costs of and incidental to the proceedings, including the hearing of the separate questions (in so far as she may have incurred costs additional to those incurred by the other respondents), such costs to be taxed on the ordinary, i.e., party and party, basis.

I certify that this and the preceding
13 pages are a true copy of the
reasons for judgment herein of the
Honourable Justice Drummond.

Associate:

Date:        9 May, 1996

Counsel for the applicants:          G.J. Robinson

Solicitors for the applicants:       Bennett & Philp

Counsel for the respondents:         A.B. Crowe

Solicitors for the respondents:      McCullough Robertson

Dates of Hearing:  15 April, 1996 and

8 May, 1996