Allam v Aristocrat Technologies Australia Pty Ltd

[2012] FCAFC 34

FEDERAL COURT OF AUSTRALIA

Allam v Aristocrat Technologies Australia Pty Ltd [2012] FCAFC 34

Citation:

Allam v Aristocrat Technologies Australia Pty Ltd [2012] FCAFC 34

Appeal from:

Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd [2009] FCA 1495

Parties:

RIAD ALLAM v ARISTOCRAT TECHNOLOGIES AUSTRALIA PTY LTD (ACN 001 660 715), ARISTOCRAT INTERNATIONAL PTY LIMITED (ACN 000 148 158), ARISTOCRAT TECHNOLOGIES INC, GLOBAL GAMING SUPPLIES PTY LTD (ACN 008 548 589), ANTHONY EDWARD ANDREWS, IMPACT GAMING PTY LTD (ACN 109 299 461) and FRANCIS GEORGE BERNARD CRAGEN

GLOBAL GAMING SUPPLIES PTY LTD (ACN 008 548 589), ANTHONY EDWARD ANDREWS, IMPACT GAMING PTY LTD (ACN 109 299 461) and FRANCIS GEORGE BERNARD CRAGEN v ARISTOCRAT TECHNOLOGIES AUSTRALIA PTY LTD (ACN 001 660 715), ARISTOCRAT INTERNATIONAL PTY LIMITED (ACN 000 148 158) and ARISTOCRAT TECHNOLOGIES INC

File numbers:

NSD 292 of 2010
NSD 293 of 2010

Judges:

BENNETT, MIDDLETON AND YATES JJ

Date of judgment:

21 March 2012

Catchwords:

COPYRIGHT – infringement – gaming machine games and components – circumstantial evidence – whether infringement by dealing established

EVIDENCE – whether primary judge erred by varying rulings made under s 136 of the Evidence Act 1995 (Cth) at the time of final submissions when the course of evidence had been completed

EVIDENCE – whether primary judge erred in the use of evidence not tendered as proof of facts stated in them or as tendency evidence – where evidence not relevant except as to credit or the existence of a joint venture

DAMAGES – whether liability for compensatory damages established on the evidence

DAMAGES – additional damages – whether the amount of additional damages was excessive

DAMAGES – whether damages should have been awarded in favour of all applicants – where agreement licensing relevant copyright in favour of certain applicants executed after time of infringements and commencement of proceedings

Legislation:

Copyright Act 1968 (Cth) ss 36, 38, 60, 95, 106, 115(2), 115(4), Pt 3.6
Evidence Act 1995 (Cth) ss 135, 136

Cases cited:

Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564
Autodesk Inc v Yee (1996) 68 FCR 391
Bailey v Namol Pty Limited (1994) 53 FCR 102
Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256
BMG Poseidon Corp Pty Ltd v Adelaide Bank Ltd [2009] FCA 389
Briginshaw v Briginshaw (1938) 60 CLR 336
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466
Daniel v State of Western Australia (2004) 138 FCR 254
Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167
Fox v Percy (2003) 214 CLR 118
Gambro Pty Limited v Fresenius Medical Care Australia Pty Limited [2004] FCA 1025
Neat Holdings Pty Limited v Karajan Holdings Pty Ltd (1992) 110 ALR 449
Nguyen v Cosmopolitan Homes [2008] NSWCA 246
Paramount Pictures Corporation v Hasluck (2006) 70 IPR 293
Prior v Lansdowne Press Pty Ltd [1977] VR 65
Qantas Airways Ltd v Gama (2008) 167 FCR 537
Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88
Richey-Lowe v Australasian Conference Association Limited [2001] NSWCA 447
Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262
The Commonwealth of Australia v Amann Aviation Pty Limited (1991) 174 CLR 64
The Commonwealth of Australia v Verwayen (1990) 170 CLR 394
The Film Investment Corporation of New Zealand v Golden Editions Pty Ltd (1994) 28 IPR 1
The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2009] NSWSC 132
Troulis v Vamvoukakis [1998] NSWCA 237
Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278
TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444
Universal Music Australia Pty Ltd v Cooper (2005) 150 FCR 1
Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471
Warren v Coombes (1979) 142 CLR 531

Date of hearing:

9-13 August 2010, 6-8 December 2010

Date of last submissions:

3 March 2011

Place:

Sydney

Division:

GENERAL DIVISION

Category:

Catchwords

Number of paragraphs:

445

Counsel for the Appellant in NSD 292 of 2010:

Mr M Green

Solicitor for the Appellant in NSD 292 of 2010:

Bruce Stewart Dimarco Lawyers

Counsel for the Appellants in NSD 293 of 2010:

Mr M Einfeld QC and Mr A Harding

Solicitor for the Appellants in NSD 293 of 2010:

Paul Bard Lawyers

Counsel for the Respondents:

Mr A Bannon SC and Mr J Hennessy

Solicitor for the Respondents:

Gilbert + Tobin

INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[1]
The parties........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[5]
Gaming machines........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[13]
Aristocrat’s claimed copyright........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[18]
The joint venture and its activities........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[22]
The regulation of gaming machines........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[36]
The approach of the Aristocrat parties to establishing liability........ ........ ........ ........ .....	[40]
The primary judge’s findings of fact........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[45]
Mr Channa’s evidence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[52]
The CD-ROM (Exhibit CCC-14) and the loose HDD........ ........ ........ ........ ........ ........ ..	[57]
The Georges Hall Desktop 2........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[65]
EPROMs:  Bankstown premises........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[67]
Blank compliance plates:  Botany, Georges Hall and Bankstown premises........ ........	[68]
Email correspondence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[69]
Invoices........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[79]
The primary judge’s findings on credit........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[81]
The primary judge’s findings on liability........ ........ ........ ........ ........ ........ ........ ........ ........	[84]
The 54 transactions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[93]
The primary judge’s findings on loss and damage........ ........ ........ ........ ........ ........ ........ .	[99]
The allocation of damages........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[104]
THE APPEALS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[108]
Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[108]
The finding of copyright infringement by dealing........ ........ ........ ........ ........ ........ ........ .	[112]
The first “essential” proposition........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[123]
The second “essential” proposition........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[138]
The third, fourth and fifth “essential” propositions........ ........ ........ ........ ........ ........ .......	[170]
Primary judge’s reliance on chain of emails........ ........ ........ ........ ........ ........ ........ ........ .	[171]
Conclusions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[247]
The impugned transactions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[248]
Duplicate Numbers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[266]
Transaction 13........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[270]
Transactions 20, 28, 29 and 41........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[274]
Transaction 46........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[283]
Transaction 51........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[287]
The primary judge’s conclusions on the DN category........ ........ ........ ........ ........ ........ ...	[291]
Appellants’ submissions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[292]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[299]
Machines in clubs........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[308]
Appellants’ submissions........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[318]
Consideration........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[330]
Damages under s 115 of the Copyright Act........ ........ ........ ........ ........ ........ ........ ........ ....	[363]
Compensatory damages........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[363]
Additional damages........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[391]
THE CROSS-APPEALS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[433]
Introduction........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[433]
The trade mark claim........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........	[439]
DISPOSITION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[445]

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 292 of 2010

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN: RIAD ALLAM
Appellant

AND:

ARISTOCRAT TECHNOLOGIES AUSTRALIA PTY LTD (ACN 001 660 715)
First Respondent

ARISTOCRAT INTERNATIONAL PTY LIMITED
(ACN 000 148 158)
Second Respondent

ARISTOCRAT TECHNOLOGIES INC
Third Respondent

GLOBAL GAMING SUPPLIES PTY LTD (ACN 008 548 589)
Fourth Respondent

ANTHONY EDWARD ANDREWS
Fifth Respondent

IMPACT GAMING PTY LTD (ACN 109 299 461)
Sixth Respondent

FRANCIS GEORGE BERNARD CRAGEN
Seventh Respondent

JUDGES:	BENNETT, MIDDLETON AND YATES JJ
DATE OF ORDER:	21 MARCH 2012
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.Within seven days the parties are to file agreed draft orders (including as to costs) giving effect to these reasons or, if agreement cannot be reached, file and serve proposed orders and written submissions in support thereof.  

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 293 of 2010

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

GLOBAL GAMING SUPPLIES PTY LTD (ACN 008 548589)
First Appellant

ANTHONY EDWARD ANDREWS
Second Appellant

IMPACT GAMING PTY LTD (ACN 109 299 461)
Third Appellant

FRANCIS GEORGE BERNARD CRAGEN
Fourth Appellant

AND:

ARISTOCRAT TECHNOLOGIES AUSTRALIA PTY LTD (ACN 001 660 715)
First Respondent

ARISTOCRAT INTERNATIONAL PTY LIMITED
(ACN 000 148 158)
Second Respondent

ARISTOCRAT TECHNOLOGIES INC
Third Respondent

JUDGES:	BENNETT, MIDDLETON AND YATES JJ
DATE OF ORDER:	21 MARCH 2012
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.         Within seven days the parties are to file agreed draft orders (including as to costs) giving effect to these reasons or, if agreement cannot be reached, file and serve proposed orders and written submissions in support thereof. 

Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 292 of 2010

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

RIAD ALLAM
Appellant

AND:

ARISTOCRAT TECHNOLOGIES AUSTRALIA PTY LTD (ACN 001 660 715)
First Respondent

ARISTOCRAT INTERNATIONAL PTY LIMITED (ACN 000 148 158)
Second Respondent

ARISTOCRAT TECHNOLOGIES INC
Third Respondent

GLOBAL GAMING SUPPLIES PTY LTD (ACN 008 548 589)
Fourth Respondent

ANTHONY EDWARD ANDREWS
Fifth Respondent

IMPACT GAMING PTY LTD (ACN 109 299 461)
Sixth Respondent

FRANCIS GEORGE BERNARD CRAGEN
Seventh Respondent

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

GENERAL DIVISION

NSD 293 of 2010

ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

GLOBAL GAMING SUPPLIES PTY LTD (ACN 008 548 589)
First Appellant

ANTHONY EDWARD ANDREWS
Second Appellant

IMPACT GAMING PTY LTD (ACN 109 299 461)
Third Appellant

FRANCIS GEORGE BERNARD CRAGEN
Fourth Appellant

AND:

ARISTOCRAT TECHNOLOGIES AUSTRALIA PTY LTD (ACN 001 660 715)
First Respondent

ARISTOCRAT INTERNATIONAL PTY LIMITED
(ACN 000 148 158)
Second Respondent

ARISTOCRAT TECHNOLOGIES INC
Third Respondent

JUDGES:	BENNETT, MIDDLETON AND YATES JJ
DATE:	21 MARCH 2012
PLACE:	SYDNEY

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1. There are two appeals and two corresponding cross-appeals before the Court. 

2. The appeals arise out of two separate proceedings that were consolidated on 22 June 2007.  The consolidated proceeding concerned claims of copyright infringement, trade mark infringement and contraventions of the Trade Practices Act 1974 (Cth) (the Trade Practices Act) in relation to the supply of refurbished gaming machines in Latin America (principally Peru) pursuant to a joint venture arrangement.

3. The consolidated proceeding was conducted on pleadings supplemented by detailed particulars, including an annexure setting out the details of, and participants in, various transactions relied upon as involving infringing conduct.

4. The primary judge found that the appellants had infringed the copyright of certain of the respondents and assessed damages accordingly. The primary judge declined to grant declaratory or injunctive relief. His Honour also found it unnecessary to decide the questions of trade mark infringement and contravention of the Trade Practices Act on the basis that if compensatory damages were awarded under s 115(2) of the Copyright Act 1968 (Cth) (the Copyright Act), no further damages for trade mark infringement or under the Trade Practices Act would be appropriate: [45] and [47]. His Honour’s refusal to grant declaratory or injunctive relief, and the absence of findings in relation to trade mark infringement, are matters raised in the cross-appeals.

   The parties

5. There are effectively two groups of appellants.  The first group comprises Global Gaming Supplies Pty Ltd (Global) and its principal Anthony Edward Andrews (collectively, the Global parties) and Impact Gaming Pty Ltd (Impact) and its principal, Francis George Bernard Cragen (collectively, the Impact parties).  The primary judge found, and there is no dispute on appeal, that the Global parties and the Impact parties operated as a joint venture from 1 October 2004 for the supply of refurbished gaming machines to overseas markets.  These appellants (the Global/Impact parties) bring one appeal (the Global/Impact appeal):  NSD 293 of 2010.

6. The other appellant is Riad Allam, who brings a separate appeal (the Allam appeal): NSD 292 of 2010. Mr Allam is the principal of Tonita Enterprises Pty Ltd (Tonita). Tonita is not an appellant. However, for ease of exposition, it is convenient to group it with Mr Allam (the Allam parties). In the primary proceeding, claims of copyright infringement, trade mark infringement and contravention of the Trade Practices Act were also made against Tonita. However, the primary judge found that all proven transactions relating to infringing conduct occurred before Tonita was incorporated on 14 July 2006. This finding is also challenged in the cross-appeals. The primary judge found that the Allam parties, or Mr Allam personally, carried out significant technical work and business functions for the joint venture. Indeed, Mr Allam was referred to by Mr Andrews as the joint venturers’ “technical guy”. The Allam parties are respondents in the Global/Impact appeal.

7. The other respondents in each appeal (the Aristocrat parties) are companies within the Aristocrat group of companies (Aristocrat), of which Aristocrat Leisure Limited (AL) is the holding company.  Aristocrat is engaged in the business of supplying gaming technologies and services to the international gaming industry.  Aristocrat’s activities include the manufacture and sale of electronic gaming machines and game software.

8. Aristocrat Technologies Australia Pty Limited (ATA) is the main operating subsidiary within Aristocrat.  It designs and manufactures gaming machines, gaming machine components and conversion kits for Aristocrat gaming machines.  It also sells Aristocrat gaming machines and conversion kits in Australia.

9. Aristocrat International Pty Limited (AI) and Aristocrat Technologies Inc (ATI) export Aristocrat’s products and associated intellectual property rights to places outside Australia.  AI is a wholly owned subsidiary of AL and sells products to Aristocrat companies in various markets for on-sale to customers.  It is also responsible for the export, distribution and sale of Aristocrat’s products to third parties outside Australia.

10. ATI is a wholly-owned subsidiary of AI, and is based in the state of Nevada in the United States of America.  It is engaged in the manufacture and supply of Aristocrat gaming machines in North and South America.

11. There are various organisational arrangements between the Aristocrat companies.  Although ATA is the designated holder of intellectual property, it has entered into licensing arrangements with other companies in the group.  One arrangement of significance in the present appeal is embodied in a written contract styled “Head Distribution & Intellectual Property Licence Agreement” between ATA and AI.  This written contract is expressed to give AI an exclusive licence to intellectual property in respect of products worldwide other than Australia, but including products made for export outside Australia.  The contract was executed on 19 July 2006 although the licenses were expressed to commence from 1 January 2005.  The present significance of this lies in the fact that the contract was entered into after the commencement of proceedings and after the proven infringements.  The primary judge awarded damages in favour of all of the Aristocrat parties.  The appellants in the Global/Impact appeal contend that his Honour erred in so doing and that any award of damages should only be in favour of ATA as copyright owner.

1. Before continuing to describe the activities of the parties, it is convenient to say something in a general way about the gaming machines supplied by the joint venture and the general nature of the intellectual property claimed by the Aristocrat parties as being infringed by those machines.   

   Gaming machines

2. A gaming machine consists of computers which play a game of chance based on odds of winning according to computer programs.  The games are viewed on a video screen which simulates the spinning reels of mechanical gaming machines.  A gaming machine includes the following component parts:  a cabinet; artwork panels which are fixed to the cabinet (identifying the particular game housed in the cabinet); pay scale artwork (listing the pay scale for the particular game housed in the cabinet); a video monitor; game software stored on sets of removable memory chips called Erasable Programmable Read Only Memory chips (EPROMs); system software (ie software which is more generally required for a gaming machine to function without being specific to a particular game); a logic board (electronic circuit board) into which EPROMs are plugged; a logic cage (ie a metal box with hinged door that sits within the cabinet and securely holds gaming systems such as the logic board and EPROMs); a currency validator, and mechanical meters.

3. Aristocrat gaming machines use multiple EPROMs.   A complete set of EPROMs is required before a gaming machine can be used.  The game software is “burned” onto the EPROMs using a personal computer, EPROM burning software and an EPROM burning device connected to the computer.  One proprietary portable EPROM burning device is the “Dataman”.  This device allows files contained on EPROMs to be easily uploaded to a computer hard drive and then burned onto blank EPROMs.  It enables the software contained on an EPROM to be copied and stored on a computer.

4. The artwork includes the visual themes, words, symbols and images which are physically printed and appear on the bottom (belly panel) and top (top panel) sections of a gaming machine.

5. It is possible to change the game on a gaming machine by using, for example, conversion kits, which comprise game software on EPROMs and artwork panels that correspond to the game on the EPROMs.

6. Aristocrat gaming machines come in different versions.  In the present appeals it is the “Mark V” and “Mark VI” versions that are of relevance.

   Aristocrat’s claimed copyright

7. In the present matter the Aristocrat parties claimed copyright in a number of works.  Relevantly for present purposes, copyright was claimed in game software (comprising computer programs), artwork and compliance plates.

8. The Aristocrat compliance plates are manufactured in accordance with a written design specification which sets out precise layout and design information.  The compliance plates are manufactured from aluminium with a matt-anodised finish.  In the anodising process, the surface of the compliance plate is converted so as to form a coating to which dye is added.  Each Aristocrat compliance plate has information engraved on it, including a serial number.

9. In the primary proceeding, copyright was also claimed in Aristocrat EPROM labels which were produced with every Aristocrat EPROM.  An EPROM label records a unique program number associated with the software program on the EPROM; the name of the relevant Aristocrat game; the position in the motherboard where the EPROM is to be inserted; the memory capacity of the EPROM; a unique number called a combination number (taken from a basic technical design document which describes the structure and mathematics of a particular game, called a combination sheet); the number of the EPROM in the set; and various copyright information.  However, at the time of making final submissions before the primary judge, the Aristocrat parties did not press a claim of copyright infringement with respect to the Aristocrat EPROM labels. 

10. In the primary proceeding, the appellants did not dispute the subsistence of copyright in the Aristocrat game software, artwork or compliance plates, nor, it would seem, in the Aristocrat EPROM labels, or that copyright in those works was owned by Aristocrat.

    The joint venture and its activities

11. Markets exist for gaming machines and conversion kits throughout the world, including in Australia, the Asia-Pacific region, Europe, North America and South America.  The markets in Latin America assumed importance in the primary proceeding. 

12. Mr Andrews commenced carrying on the business of selling second-hand gaming machines to overseas markets in late 1999.  Mr Andrews is the sole director, secretary and shareholder of Global and conducted these business activities using Global (under its then corporate name) as a corporate vehicle.  Global’s main office is located at Florey in the Australian Capital Territory (the Florey premises).  For a time it also used an office at Mascot in New South Wales (the Mascot premises).  In the period 2000 to 2005, Global’s general business model consisted of trading in second-hand gaming machines; advertising via a website located in Australia to attract overseas customers; dealing with prospective overseas customers contacting Global in Australia; sourcing gaming machines from suppliers in Australia; and shipping gaming machines from Australia to the overseas customers.

13. Mr Cragen commenced supplying second-hand gaming machines to overseas customers in 1997.  He did this initially through a company (Bondtren Pty Limited) and then Impact, which was incorporated on 26 May 2004.  Mr Cragen is the sole director, secretary and shareholder of Impact, which carries on business from an office and warehouse at Botany in New South Wales (the Botany premises).  Prior to dealing in the second-hand gaming machines, Mr Cragen had worked for Aristocrat from 1972 to 1983.  He had also held the position of General Manager (as well as senior sales positions) with a gaming company called IGT Australia Pty Limited, a competitor of Aristocrat.

14. The Aristocrat parties alleged that, from about April 2004, the Global parties and the Impact parties operated their gaming machine businesses on the basis of a joint venture arrangement.  The Global parties and the Impact parties disputed this, saying that no joint venture was in existence until about one year later, in April 2005.  The primary judge found that the joint venture between the Global parties and the Impact parties was in existence as at 1 October 2004.  His Honour made this finding on the basis of a chain of emails to which Mr Andrews and Mr Cragen were parties.  That chain of emails related to the provision of compliance plates to be used for a large number of refurbished Aristocrat gaming machines that were to be supplied by the joint venture to a Mr Mendelson for sale in the Russian market.

15. Neither Tonita nor Mr Allam were parties to the joint venture.Nevertheless, they played an important role in the joint venture’s activities.

16. Mr Allam is a gaming machine technician who has been involved in that activity for many years.  In 2002 he sub-contracted his services to a business called Goldstar Gaming as a field technician.  It was in that capacity that he commenced an association with the Global parties and the Impact parties in about January 2003.  By January 2004 he was performing significantly more work for the Impact parties but thereafter provided services to the joint venture.  As already mentioned, by 2005 Mr Allam was being referred to by Mr Andrews as the joint venturers’ “technical guy”.  He was also referred to as the joint venture’s “main guy”.

17. Mr Allam is a director, secretary and shareholder of Tonita, which was incorporated on 14 July 2006.  From that date, Mr Allam provided his services to the joint venture through Tonita and conducted his activities under the business name Tonita Enterprises.

18. Tonita, and before its incorporation Mr Allam, carried on business at the Botany premises (that is, Impact’s warehouse) and at Mr Allam’s residence at Georges Hall, New South Wales (the Georges Hall premises).  Tonita also carried on business at a warehouse in Bankstown (the Bankstown premises) which Mr Allam leased between May 2006 and February 2008 to store materials obtained from Behong Import & Export (Australia) Pty Ltd (Behong), a scrap merchant located in Sydney.

19. Behong provided scrap metal containment, removal, disposal and purchasing services to Aristocrat with respect to its business premises in Rosebery, with effect from 1 July 2005.  The Allam parties commenced their purchase of used gaming machines and gaming machine parts from Behong in around February 2006.

20. In the period from about February to December 2006 a Mr Channa was employed by either Mr Allam or Tonita as an assistant at the Botany premises.

21. Mr Allam undertook the refurbishment work on behalf of the joint venture at the Botany premises.  He sourced spare parts and acted as a contact point for the materials received into those premises.  Invoices were issued by Tonita to Impact, which listed items including EPROM model numbers and conversion kits.

22. The primary judge found that the joint venture’s operation included the following features:  Impact provided the capital to buy gaming machines; Global provided back-office services, including making all the freight arrangements; Global managed the refurbishment of gaming machines by Tonita; Impact and Global both sourced gaming machines and sales (although the arrangements developed so that Impact did most of the sourcing); and Impact held any licences required for the joint venture.

23. The activities of the joint venture, including obtaining supplies for second-hand gaming machines and storing them, and refurbishing gaming machines and packing them for delivery, took place at the Botany premises.

24. Global had no staff permanently located at the Botany premises, although Mr Andrews went to those premises from time-to-time to ensure that the joint venture’s activities were being conducted properly.  Mr Cragen visited the Botany premises on a daily basis.  Mr Andrews kept records relating to the joint venture at the Florey premises.  In about April 2005 the manner in which the joint venture was conducted changed in that, at Mr Cragen’s behest, all receipts were banked into Impact’s account only.

    The regulation of gaming machines

25. The regulation of gaming machines differs in each country in Latin America.  Certain Latin American countries, such as Peru, require games to be specifically approved and adapted to local conditions (known as “homologated machines”).  The primary judge found that this may require Spanish language games and artwork, but also noted evidence given by Mr Coster (Aristocrat’s Special Projects Manager) that local regulations in Peru required games and artwork on gaming machines to be in Spanish.

26. On appeal there was a dispute between the parties as to the purport of the primary judge’s findings in this regard.  The appellants contended that the primary judge’s findings should be seen as being to the effect that Spanish language games and artwork were a requirement of the regulatory system in Peru.  On the other hand the Aristocrat parties contended that the primary judge was correct to say that Spanish language games and artwork may be required because, over the course of the transactions the subject of their claim, the regulatory regime in Peru was in a period of transition.  It was not in dispute, however, that the joint venture did not supply gaming machines in Latin America with artwork other than English artwork and that it had not been suggested that the joint venture had supplied Spanish artwork.

27. The primary judge also found that it was a requirement of certain Latin American countries, such as Peru, that it be demonstrated that a gaming machine has a unique serial number and has been genuinely manufactured.  This finding was not challenged on appeal.

28. The primary judge found that, in Peru, gaming machine sales consist predominantly of refurbished machines due to a combination of high import duties and relatively low average daily revenue generated by such machines.  The primary judge found that, in the past six years, the gaming industry had been largely unregulated and that it had only recently become a more strongly regulated industry.

    The approach of the Aristocrat parties to establishing liability

29. The Aristocrat parties sought to make good their claims primarily by reference to circumstantial evidence based on physical evidence seized during the execution of Anton Piller orders.  The Aristocrat parties then sought to relate that evidence, for the purposes of damages, to 54 transactions in which some or all of the appellants were said to have exported counterfeit gaming machines to Latin America. 

30. The 54 transactions involved dealings with 618 gaming machines.  As noted, detailed particulars of the transactions were provided.  These particulars identified which of the Global/Impact parties and Allam parties were alleged to be participants in those transactions. 

31. However, with the exception of two transactions (which the primary judge found to be non-infringing transactions in any event), no gaming machines were inspected by the Aristocrat parties.  The result of this was that the Aristocrat parties did not identify which components of the gaming machines in the impugned transactions were alleged to infringe the copyright that was claimed.

32. At the outset the primary judge identified the principal question to be whether he could infer copyright infringement in the absence of direct evidence of the gaming machines which were said by the Aristocrat parties to be “counterfeited”. At [34] of the primary judge’s reasons (Reasons), the primary judge said:

    At the heart of the case is the question of whether the mass of material tendered by the Aristocrat companies is sufficient to satisfy their evidentiary onus and whether the denials of Mr Andrews, Mr Cragen and Mr Allam ought to be accepted.

33. This fundamental issue was the focus of each appeal.

    The primary judge’s findings of fact

34. The primary judge’s approach to determining the question of copyright infringement can be summarised as follows. 

35. First, the primary judge noted that inferences of infringement were said by the Aristocrat parties to flow from a vast quantity of evidentiary material which included:  materials seized on the execution of the Anton Piller orders; the evidence of Mr Channa (who was employed by either Tonita or Mr Allam as an assistant at the Botany premises); business records generated by the appellants in the course of conducting their business operations, in particular email correspondence relating to the supply of gaming machines to the Latin American market; and a very large volume of invoices generated by the Global parties and the Impact parties, which were analysed by the Aristocrat parties in a computerised data-matching exercise which was said to demonstrate that the serial numbers of certain gaming machines shown on the invoices were not genuine.

36. Secondly, the primary judge analysed this evidence and made specific findings in relation to it.

37. In relation to the seized materials, the evidence of what was seized at the Florey, Mascot and Botany premises was admitted against the Global parties and the Impact parties and then, subsequently, admitted provisionally against all appellants.  The primary judge took the same course in relation to material seized at the premises of the Allam parties (ie the Bankstown premises and the Georges Hall premises):  the evidence was admitted initially against the Allam parties but then, subsequently, admitted provisionally against all the appellants.

38. The seized material included gaming machine components and software.  His Honour found these to be indicative of copying of Aristocrat copyright materials.  Of particular importance were EPROM labels, game software, artwork and compliance plates.  The primary judge dealt with the seized materials as follows:

    ·artwork at Florey and Mascot premises;

    ·gamesheets at the Florey and Mascot premises;

    ·EPROMs and EPROM labels at the Florey and Mascot premises;

    ·game software at the Florey and Mascot premises;

    ·EPROMs at the Botany premises;

    ·EPROM label files at the Botany premises;

    ·compliance plates at the Botany premises;

    ·compliance plates at the Bankstown premises;

    ·EPROMs at the Bankstown premises;

    ·compliance plates at the Botany and the Bankstown premises;

    ·EPROM labels at the Georges Hall premises;

    ·blank EPROMs at the Georges Hall premises;

    ·compliance plates at the Georges Hall premises;

    ·Aristocrat game software at the Georges Hall premises;

    ·computers at the Georges Hall premises;

    ·a loose hard disk drive at the Georges Hall premises (the loose HDD);

    ·Desktop 1 at the Georges Hall premises; and

    ·Desktop 2 at the Georges Hall premises.

39. Another important piece of physical evidence was a CD-ROM which became Exhibit CCC-14.  It will be necessary to say something further about Exhibit CCC-14 and its relationship to other evidence that was tendered relating to the seized materials.  This evidence was the subject of criticism by the Allam parties both at the primary hearing and on appeal. 

40. It is convenient at this juncture to identify a number of the key elements of the physical evidence and the primary judge’s findings in relation to that evidence.

    Mr Channa’s evidence

41. As noted, in the period from about February to December 2006, Mr Channa was employed by Tonita or Mr Allam as an assistant at the Botany premises.  He gave evidence of his observations at those premises.The primary judge noted that, if accepted, Mr Channa’s evidence was direct evidence of copyright infringement by the Allam parties.  Mr Channa’s observations included the following:

    ·He saw “chips” being fitted into a device which Mr Allam told him was used to “load and unload” programs.  He saw Mr Allam using the device in this way approximately five times a month.  He also saw Mr Allam placing stickers on the “chips”.  Mr Allam would give Mr Channa stickers with numbers on them and Mr Channa would match the numbers on the stickers to a number in a book.  The primary judge found the effect of this evidence to be that Mr Channa saw Mr Allam burning or copying EPROMs using an EPROM burning device, and placing EPROM labels on EPROMs using numbers that Mr Channa matched with numbers in a book apparently kept by Mr Allam.

    ·Mr Allam told Mr Channa to hide compliance plates which were “illegal” or “prohibited”.  Mr Channa said that he hid the plates in various locations, including in the ceiling and in drawers.  He also gave evidence that he buried them in a plastic bag in the backyard of the workshop, although he later denied doing so.  Some of the plates had printing on them, others were blank.  He observed Mr Allam or one of Mr Allam’s other employees printing on them.

    ·He observed a man give a CD-ROM (Exhibit CCC-14) to Mr Allam which Mr Allam subsequently gave to Mr Channa.  It had the word “Riad” written in handwriting on it (that is, Mr Allam’s given name).  Mr Channa denied that he had written Mr Allam’s name on the CD-ROM.

42. The primary judge found that this evidence was consistent with other evidence in the case, particularly aspects of the email correspondence relating to the supply of gaming machines to the Latin American market, concerning offers to make compliance plates with false numbers.  Other emails had suggested that Mr Allam had burned Aristocrat games onto blank EPROMs.

43. However, the primary judge also found that there was a degree of exaggeration in Mr Channa’s evidence on some important matters of detail, as well as a reluctance to make concessions which he thought might be against the Aristocrat parties’ interests.  The primary judge also noted that there was “no love lost” between Mr Allam and Mr Channa.  Mr Channa had lost money in dealings with Mr Allam. 

1. The primary judge found that it was impossible to say to what extent Mr Channa was motivated by revenge against Mr Allam.  The primary judge noted a number of inconsistencies in Mr Channa’s evidence which adversely affected the reliability of that evidence generally.

2. The primary judge also noted another troubling aspect of Mr Channa’s evidence:  in an interview conducted before application was made for the Anton Piller orders, Mr Channa had told the Aristocrat parties’ solicitors that he hoped that Aristocrat would assist him by giving him some of the money he had lost in his dealings with Mr Allam.  Mr Channa denied having expressed that hope.

   The CD-ROM (Exhibit CCC-14) and the loose HDD

3. The Aristocrat parties had submitted in the course of the primary hearing that the contents of the CD-ROM (Exhibit CCC-14) were significant.  The primary judge accepted the expert evidence of a computer forensic specialist, Mr Carson, that it appeared to comprise binary game files and several documents that appeared to be labels and invoices for “Tonita Enterprises”.  Mr Carson had been engaged by the Allam parties to provide a report for use in the proceedings.  As things transpired, they did not seek to rely on his report.  However, the Aristocrat parties tendered it.

4. The primary judge also accepted the evidence of Mr Polaczek (the manager of Aristocrat’s Compliance Verification Laboratory) that the CD-ROM contained files which included Aristocrat game software (in particular, relating to the games called “Dolphin Treasure”, “Queen of the Nile”, “Indian Dreaming”, “Boot Scootin’”, “Chicken”, “Orchid Mist”, “Wild Thing” and “Wild Ways”).  This was relied on as evidence of direct infringement by the Allam parties of the copyright that had been claimed.

5. Mr Carson’s report had also indicated that there was strong evidence that the CD‑ROM had been viewed on the loose HDD found at the Georges Hall premises.  The primary judge accepted this evidence.

6. On examination the loose HDD contained information plainly connecting it to Mr Allam, including the fact that Mr Allam was shown as its registered owner and the fact that there was file activity as early as 19 August 2003 involving members of Mr Allam’s family.  It included files relating to university assignments and family snapshots.  It also contained Dataman software (used to burn EPROMs) and references to a Dataman directory containing file paths that included the word “Aristocrat” and names of Aristocrat games.  From his analysis, Mr McKemmish (an expert initially engaged in relation to an examination of the materials seized under the Anton Piller orders) concluded that the loose HDD had been used to burn and/or read binary data to and from EPROM chips.  The primary judge accepted this evidence.  Mr Carson also gave evidence that the loose HDD contained what appeared to be game binaries that had been created in various folders, including under a profile relating to “Riad”.  In addition, the Dataman folders identified by Mr McKemmish contained files indicating the use of the application in relation to game binaries.

7. The inference that was sought to be drawn from the files on the loose HDD and the activity related to the Dataman software was that the Allam parties had used the Dataman program to copy Aristocrat software to blank EPROMs.

8. The loose HDD was also shown, on examination, to contain 11 game sheet files under the profile relating to Mr Allam.  There was evidence that these images could be used to produce hard copy artwork that would be of “acceptable” quality, although not necessarily of a quality acceptable to the Aristocrat parties for their own use.  Mr Allam accepted that he had scanned several images from an Aristocrat catalogue which were consistent with those found on the loose HDD.

9. The primary judge also found that a large number of other files on the loose HDD appeared to belong to the Allam parties.  For example, Mr Allam identified a file on the loose HDD containing a table with a list of Aristocrat games which he had prepared when packing gaming machines for export.

10. The primary judge noted that Mr Allam accepted that the CD-ROM contained Aristocrat game software and that he also accepted that the CD-ROM had been used in conjunction with the loose HDD.  However, the Allam parties contended that the CD-ROM had never been used or accessed by Mr Allam but had been “planted” by Mr Channa.  The primary judge rejected this explanation.They also submitted that the loose HDD had been planted by Mr Channa and its contents fabricated so as to incriminate Mr Allam.The primary judge considered this submission to be, on the evidence, so extraordinary as to be untenable.

    The Georges Hall Desktop 2

11. Another computer hard drive (the Georges Hall Desktop 2) was also examined.  This computer was Mr Allam’s computer.  It contained information plainly linking it to him.  The primary judge found that it also had been used with Dataman software to write binary file data to EPROM chips.  Mr McKemmish gave evidence that a number of binary files appeared to have been read and their contents written to an EPROM, including files containing names of Aristocrat games.

12. Although the content of these files was not established, this evidence is of significance because Mr Allam claimed that he had not used any Dataman programming device or any other EPROM programmer since 2002.  Mr Allam also gave evidence that this computer was accessible by all of the workers at the Botany premises, including Mr Channa.

    EPROMs:  Bankstown premises

13. A large number of EPROMs relating to Aristocrat games were seized from the Bankstown premises.  There was evidence that a number of EPROM labels relating to these games were not genuine.  The Allam parties gave evidence that these EPROMs were obtained from Behong.  The primary judge rejected this explanation and found that the EPROMs seized from the Bankstown premises were counterfeit.  The primary judge also found that blank EPROMs seized from the Georges Hall premises were capable of being used to store Aristocrat software and were suggestive of copying by the Allam parties.

    Blank compliance plates:  Botany, Georges Hall and Bankstown premises

14. Blank compliance plates were seized at the Botany, Georges Hall and Bankstown premises.  The primary judge accepted evidence from Mr Parsons (the manager of Aristocrat’s Mechanical Platform Development) that these plates were not genuine.  The primary judge rejected the contention that these compliance plates had been “planted” by Mr Channa.  The evidence also included the important fact that Mr Allam possessed a hand engraving machine.  The primary judge found that Mr Allam had manufactured these plates.

    Email correspondence

15. In relation to the email correspondence, the primary judge noted that, initially, some pieces of correspondence were tendered against only the Global parties, some against the Global parties and the Impact parties or the Global parties and the Allam parties, and some against the Global parties, the Impact parties and the Allam parties.  However, at the conclusion of the hearing, the primary judge made orders admitting this evidence on a provisional basis against all the appellants and Tonita.  The course taken by the primary judge in this regard was the subject of objection by the appellants at the hearing.  It was one of the matters raised on this appeal as constituting a significant error on the part of the primary judge. 

16. The primary judge also noted that the emails were not tendered as proof of the facts stated in them.  It seems that the emails were admitted as going to the credit of Messrs Andrews, Cragen and Allam, however this is not entirely clear.  There was cross-examination on the emails and, plainly enough, the evidence given on cross-examination was not limited to issues going to credit.  The appellants complain that, although the emails were not tendered as proof of the facts stated in them, this is how the primary judge in fact used them.  They submitted that this also constituted a significant error on the part of the primary judge.  Moreover the appellants contended that a number of the emails had nothing to do with the case at all but, rather, related to other transactions that were extraneous to the pleaded case.  The appellants also contended that the content of the emails, even using them as they say the primary judge did, fell far short of proving the impugned transactions.

17. The primary judge made the following specific findings in relation to the email correspondence. 

18. First, the primary judge found that Mr Andrews offered to provide a customer with artwork that was digitally copied from Aristocrat artwork.

19. Secondly, the primary judge found that Mr Andrews offered to send (to a customer in South America) artwork that could be matched to games that could be copied in South America. Although the primary judge found that this offer would not constitute an infringement of copyright under ss 36 or 38 of the Copyright Act, he nevertheless found that it did indicate Mr Andrews’ willingness to assist “serial counterfeiters” in South America to carry out their actions. It is to be noted, however, that it was never suggested to Mr Andrews that he had supplied Spanish artwork.

20. Thirdly, the primary judge found that Mr Andrews had offered to arrange for Aristocrat compliance plates with fake serial numbers to be made for a customer of the joint venture.  The primary judge found that he had done so following a conversation between Mr Cragen and the customer about the supply of gaming machines.  The primary judge found that this was an acceptance (at least by Mr Cragen) that the joint venture was prepared to supply gaming machines with false Aristocrat compliance plates.

21. Fourthly, the primary judge found that Mr Allam provided to another person a CD containing Aristocrat Mark VI games which he (Mr Allam) had burned on the CD.

22. Fifthly, the primary judge found that Mr Allam was requested by a South American customer to provide blank EPROMs for Aristocrat Mark VI gaming machines and that Mr Allam knew the purpose of the request was to enable the customer to copy Aristocrat game software onto EPROMs in South America.

23. Sixthly, the primary judge found that Mr Andrews had adopted protocols to avoid detection of the joint venture’s involvement in copyright infringement, particularly by adopting a web-based Yahoo email address.

24. Although Mr Andrews, Mr Cragen and Mr Allam in cross-examination sought to give innocent explanations of the matters stated in the emails, the primary judge rejected these explanations, which he found to be quite unconvincing and at odds with the terms of the communications which, his Honour found, were reasonably clear on their face.

    Invoices

25. The Aristocrat parties carried out a data-matching exercise with respect to the serial numbers recorded on a large number of invoices that had been generated by the Global parties and the Impact parties.  The exercise was said to have identified some 3,500 serial numbers that “prima facie, were attended by very real questions”.  In this regard the Aristocrat parties had submitted that the exercise showed that fake serial numbers had been invented “because the serial numbers did not correspond to Aristocrat’s database of serial numbers affixed to genuine Aristocrat gaming machines”; that there were serial numbers for machines reportedly sold overseas by the joint venture but yet, according to records of the Office of Liquor, Gaming and Racing (the OLGR), were still present in New South Wales; and that, according to the same records, serial numbers were used in respect of games on a machine which had been recorded for different games.

26. The primary judge found that there were significant difficulties with the evidence on which Aristocrat relied.  First, he was not satisfied that the evidence established the provenance of the OLGR records which constituted the essential premise upon which the exercise depended.  Secondly, the primary judge found that the data-matching exercise was tainted by human error and also relied on incomplete data that resulted in numerous errors which called into question the reliability of the results.  In the end result, the primary judge rejected the data-matching exercise.

    The primary judge’s findings on credit

27. The primary judge made a number of damning findings with respect to credit.  The primary judge found that Mr Andrews’ evidence was lacking in candour and that answers had to be extracted from him with difficulty.  The primary judge found that some of his answers were quite evasive.  His Honour noted a number of examples of prevarication and untruthfulness. 

28. The primary judge found Mr Cragen’s evidence to be at odds with contemporaneous documents in a number of material respects.  In particular, the primary judge found Mr Cragen’s efforts to explain away and distance himself from emails which suggested knowledge of, or participation in, copyright infringement to be quite unconvincing.  The primary judge found that a number of answers given by Mr Cragen reflected badly on his credit.  His Honour did not accept him as a reliable witness.

29. The primary judge found Mr Allam to be an excitable witness who was prone to dramatic outbursts.  The primary judge gave detailed consideration to a number of aspects of Mr Allam’s evidence and found him to be untruthful.

    The primary judge’s findings on liability

30. The primary judge noted that it was incumbent on the Aristocrat parties to prove their case on the balance of probabilities.  However, importantly in this regard, his Honour noted that the claims were based largely on circumstantial evidence and that his assessment of the credit of the principal witnesses for the Global parties, the Impact parties and the Allam parties enabled him to make a number of preliminary factual findings against which the impugned transactions would fall to be considered.  The primary judge then made five findings, which he referred to as “five essential propositions”.

31. First, that the Allam parties (specifically Mr Allam) burned Aristocrat game software onto blank EPROMs.  Secondly, that the Allam parties (specifically Mr Allam) manufactured counterfeit compliance plates.  Thirdly, that Mr Andrews and Mr Cragen were aware that Mr Allam was burning Aristocrat game software onto blank EPROMs.  Fourthly, that Mr Andrews and Mr Cragen were aware that Mr Allam was manufacturing counterfeit compliance plates for export to foreign markets.  Fifthly, that Mr Andrews and Mr Cragen sent, or were aware that the joint venture had sent, original and digital artwork to South America for the purpose of having it copied.

32. The primary judge also found that the Global parties and Impact parties authorised any copyright infringements either as participants in the joint venture which commenced on 1 October 2004 or, prior to that, individually.  The primary judge found that the nature of the joint venture was such that it contemplated the very acts alleged to have taken place.  The primary judge also found that the email correspondence made it plain that the Global parties and the Impact parties had sanctioned, approved or countenanced the infringements of copyright carried out by the Allam parties.  The primary judge found that this was a case of a studied and deliberate course of action in which the Global parties and the Impact parties had decided to ignore the rights of the Aristocrat parties with knowledge that there was likely to be an infringement of copyright.

33. The primary judge also found that although Mr Andrews and Mr Cragen each had power to prevent the other from doing the acts concerned, each failed to take any reasonable steps to prevent the infringements his Honour found to have been committed in the present case.

34. The primary judge also considered the question of joint tortfeasance by reference to the principles discussed in Universal Music Australia Pty Ltd v Cooper (2005) 150 FCR 1 at [135]. He found that, whilst there was no joint venture between the Allam parties, the Global parties and the Impact parties, there was something in the nature of concerted action or agreed common action between them. The primary judge found that the evidence more than sufficiently established “tacit” agreement between the parties.

35. It is important to note the following matters in relation to these findings. 

36. First, the primary judge’s findings concerning the burning of game software onto blank EPROMs and the manufacture of counterfeit compliance plates are findings with respect to direct infringement of copyright by the Allam parties under s 36 of the Copyright Act. These findings were based substantially on the physical evidence obtained from the execution of the Anton Piller orders.

37. Secondly, the findings of authorisation by the Global parties and the Impact parties relate, necessarily, to these direct infringements (see s 36(1) of the Copyright Act) but the findings of joint tortfeasance are not, in terms, so confined. Nevertheless, the context in which the finding of joint tortfeasance was made shows that the primary judge clearly had in mind the direct infringements he had found relating to the activities of the Allam parties.

38. Thirdly, the findings of authorisation and joint tortfeasance were based substantially on the facts that the primary judge found to have been revealed by the email correspondence to which we have referred.

    The 54 transactions

39. The primary judge then turned to consider the 54 transactions to see whether they were affected by this general body of infringing conduct.  It was by reference to these transactions that the Aristocrat parties had sought to maintain their claims for damages.  Ultimately only a very small number of the transactions were found to involve infringing conduct.

40. The Aristocrat parties had categorised the transactions as falling within one of five categories, described as follows.

41. The “MC” (machines in clubs) category described transactions where the serial numbers on invoices for the goods supplied overseas coincided with the serial numbers of gaming machines said to be still located in various premises in New South Wales.  The primary judge inferred that the gaming machines with duplicate serial numbers that had been supplied overseas contained “infringing components” of Aristocrat gaming machines (in particular, false compliance plates).  The primary judge concluded that it was not possible to identify which particular components of the machines were in fact “counterfeit”.  However, on the basis that fake serial numbers had been used, the primary judge found that it was more likely than not that the infringing components included “counterfeit” Aristocrat game software.  His Honour reasoned that there would have been little point in having fake serial numbers for gaming machines containing genuine Aristocrat software.  The primary judge found that 16 gaming machines, in four transactions, involved infringing components.  The transactions were: 34, 36, 48 and 54 (transaction 54 was not included in a table of relevant transactions provided by the Aristocrat parties).

42. The “DN” (duplicate numbers) category described transactions where the Global parties and Impact parties had issued invoices for machines, the serial numbers of which were a duplicate of serial numbers on machines which had already been shipped by them in earlier transactions.  The primary judge rejected the explanation given by the Global parties and Impact parties for the duplicate numbers.  As with the MC category, it was not possible to conclude on the evidence which components were “counterfeit”.  The primary judge found that 56 gaming machines, in 7 transactions, involved infringing components.  The transactions were: 13, 20, 28, 29, 41, 46 and 51.

43. The primary judge rejected the Aristocrat parties’ claims in relation to the remaining categories “GC” (gaming changes), “II” (infringing indicia) and “NG” (non-genuine numbers).  This was because the allegations of infringement with respect to transactions in those categories were based upon the data-matching exercise carried out by the Aristocrat parties which the primary judge had rejected because the provenance of the data had not been established.

1. It is important to note that the findings the primary judge made with respect to the four “MC” category transactions and the seven “DN” category transactions were findings with respect to indirect infringement of copyright under s 38 of the Copyright Act (infringement by dealing). These findings were based on inference in light of the “five essential propositions” to which reference has been made. There was no direct evidence of infringement. No infringing article was produced. Indeed, the Aristocrat parties did not inspect any of the gaming machines involved in any of the transactions that were found to involve infringements of the copyright that was claimed. The Aristocrat parties did not identify which components of the gaming machines in the impugned transactions were alleged to infringe the copyright that was claimed. As noted earlier, the primary judge found that, on the evidence, it was not possible to conclude precisely which components in the machines were infringing or counterfeit.

   The primary judge’s findings on loss and damage

2. For the purpose of calculating damages under s 115(2) of the Copyright Act the primary judge inferred that the Aristocrat parties would have sold at least a proportion of the machines the subject of the eleven infringing transactions. His Honour found that Aristocrat would have been able to sell 50% of the machines in the South American market. His Honour accepted evidence that the lost profit was approximately USD1,545 per machine or USD1,770 per conversion kit.

3. Of the 72 machines involved in the infringing transactions (16 “MC” machines and 56 “DN” machines) the primary judge found that 16 had been supplied outside the South American market.  As there was no evidence as to the markets for second-hand gaming machines in other countries, the primary judge found that the Aristocrat parties had failed to prove that those sales were made at their expense.  He therefore paid no regard to those machines.

4. It followed that 56 infringing machines were sold in South America and, proceeding on the basis that the Aristocrat parties would have been able to sell 50% of those machines, the primary judge found that they were entitled to recover damages under s 115(2) of the Copyright Act for 28 machines.

5. The primary judge then averaged the lost profit (“machines” and “conversion kits”) and arrived at a figure of USD1,600 per machine.

6. The primary judge then held that the Aristocrat companies were entitled to damages for USD44,800 (28 x USD1,600), converted at the exchange rate prevailing on the day before judgment (AUD48,870).

   The allocation of damages

7. The primary judge allocated damages on the following basis.  Because the joint venture did not commence until 1 October 2004, any transactions prior to transaction number 34 (ie transactions 13, 20, 28 and 29, all of which were “DN” category transactions) could only be supported against the Global parties.  The remaining seven transactions (transactions 41, 46 and 51 (also “DN” category transactions) and transactions 34, 36, 48 and 54 (all “MC” category transactions)) would be maintainable against the Global parties and the Impact parties.  Mr Allam was also jointly liable in respect of these remaining seven transactions because he was the person who was supplying the technical know-how to the joint venture and his involvement in that way must have made it clear to him that he was at the very least approving the sale of infringing components to the Latin American market.  However, Tonita was only incorporated on 14 July 2006.  All of the relevant transactions occurred before that date.  On this basis, none of the 54 transactions could be maintained against Tonita.

8. In the end result, 16 machines (the subject of transactions 13, 28 and 29) were proved against the Global parties.  Transaction 20 was not proved because the machines were supplied to Cyprus.  The Global parties were therefore liable for USD12,800 or AUD13,963.

9. Global, Impact, Mr Andrews, Mr Cragen and Mr Allam, jointly and severally, were liable for the balance, being USD32,000 or AUD34,907.

10. Additional damages under s 115(4) of the Copyright Act were awarded against them, jointly and severally, in the sum of AUD450,000.

    THE APPEALS

    Introduction

11. In the Global/Impact appeal the appellants submitted that error by the primary judge was reflected in:

    (a)the finding of copyright infringement by dealing in respect of all machines;

    (b)the finding of copyright infringement by dealing specifically in respect of the 16 “MC” machines;

    (c)the finding of copyright infringement by dealing in respect of the 56 “DN” machines;

    (d)the admission of expert evidence;

    (e)the reversal of rulings on evidence based on s 136 of the Evidence Act 1995 (Cth) (the Evidence Act); and

    (f)the awarding of damages under s 115 of the Copyright Act.

12. These errors were said to be or involve:  (a) denial of procedural fairness; (b) failure to bring into account relevant evidence; (c) drawing inferences and conclusions not available on the evidence; (d) findings of infringement based on exiguous, indirect and indefinite evidence; (e) the wrongful admission of evidence against the Global/Impact parties; and (f) guesswork and speculation in the award of damages.

13. In the Allam appeal, Mr Allam adopted the submissions of the Global/Impact parties in the Global/Impact appeal (but applied specifically in relation to findings against the Allam parties), and submitted that error by the primary judge was also reflected in:

    (a)the finding of copyright infringement against Mr Allam in so far as the primary judge held that Mr Allam authorised the transactions from which his liability was found to have arisen;

    (b)the finding of copyright infringement in relation to five of the transactions (transactions 34, 36, 41, 46 and 54) because of a departure from the pleaded case;

    (c)the finding of infringement of copyright in relation to three of the transactions (transactions 28, 29 and 41) as being separate from transaction 20 (which was identical and which was not found against Mr Allam);

    (d)specific findings made against Mr Allam.

14. In seeking to make good their appeals, the appellants effectively challenged every adverse finding made by the primary judge after a hearing of 26 days.  We were taken to the detail of the evidence as it affected those findings.  The appeals themselves occupied 8 days.  Further written submissions were made after the hearing of oral argument.

    The finding of copyright infringement by dealing

15. The principal question before the primary judge was whether, in the absence of direct evidence of the gaming machines that are said to have been counterfeited, it should be inferred that the appellants, or one or more of them, infringed the Aristocrat parties’ copyright and, if so, in what respects.

16. Our reference to the Aristocrat parties’ copyright is an oversimplification of the question of copyright ownership as it was raised in the course of the appeal.  It is not necessary for us to explore that question at the present time.  It is sufficient simply to note now that, as recorded by the primary judge at [39] and [116], the appellants did not challenge the subsistence of copyright in the literary or artistic works identified as the Aristocrat game software, EPROM labels, artwork and compliance plates.

17. The primary judge noted (at [34]) that at the heart of the case before him were the questions of whether the “mass of material” tendered by the Aristocrat parties was sufficient to satisfy their evidentiary onus, and whether the denials of Messrs Andrews, Cragen and Allam ought to be accepted.

18. The appellants made a number of submissions about the correct legal approach to be adopted when dealing with a case based on inference.  These principles were not seriously contested by the Aristocrat parties.   The primary judge dealt with these principles at [590]-[605].

19. The appellants submitted that where inferences are to be drawn from primary facts the appeal court is in as good a position as the primary judge and ought to give effect to its own opinion:  Warren v Coombes (1979) 142 CLR 531 at 551; Fox v Percy (2003) 214 CLR 118 at 125-127; Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 at 271. The circumstances must give rise to a “reasonable and definite inference” of infringement: Trustees of the Property of Cummins v Cummins (2006) 227 CLR 278 at [34]. The Court must feel an “actual persuasion” that infringing conduct has occurred: Briginshaw v Briginshaw (1938) 60 CLR 336 at 361; Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262 at [136]; Nguyen v Cosmopolitan Homes [2008] NSWCA 246 at [55].

20. There was a potential issue at trial about whether “actual persuasion” was a necessary requirement.  The primary judge (at [598]) noted that the decision of the Full Court in Qantas Airways Ltd v Gama (2008) 167 FCR 537, in which Branson J at [123] and [139] considered that the Briginshaw test had been replaced by the provisions of s 140 of the Evidence Act, exposed a difference of opinion on that matter with the Full Court in Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at [31]. Regardless of that difference, the primary judge found (at [924]) that the Aristocrat parties had proved their claims to the requisite standard and that he had reach a level of actual persuasion in relation to them.

21. The appellants submitted that, in determining whether the Aristocrat parties had discharged their onus, regard must be had to the seriousness of the allegations made against the appellants and the gravity of the consequences of adverse findings against them:  Cummins at [34]; Neat Holdings Pty Limited v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450; Briginshaw at 362-363. They submitted that the consequences here are obvious in light of the primary judge’s award of additional damages of $450,000. They submitted that this onus is not satisfied by inexact proofs, indefinite testimony or indirect inferences: Briginshaw at 362-363.

22. At this juncture it is convenient to return to the reasoning process by which the primary judge reached the ultimate conclusion that infringement by dealing had been established.  We have already remarked that, in dealing with the transactions in the DN and MC categories, the primary judge, after concluding that infringement had taken place, stated that it was not possible to identify which particular components of the relevant gaming machines were in fact counterfeit:  see at [846] and [870].  This statement requires further explanation.

23. At trial the Aristocrat parties did not identify which components were alleged to have been infringed, except in relation to two transactions that are not presently relevant: see at [822]. Nevertheless, after carefully considering the “mass of material” tendered by the Aristocrat parties, and the denials of Messrs Andrews, Cragen and Allam, the primary judge concluded (at [718]-[722]) that the Allam parties burned Aristocrat game software onto blank EPROMs and manufactured fake Aristocrat compliance plates for use in export to overseas markets; that Mr Andrews and Mr Cragen were aware of this; and that Mr Andrews and Mr Cragen sent, or were aware that the joint venture business had sent, digital artwork and original artwork to South America for the purpose of having it copied there. The primary judge’s specific factual findings in that regard constituted the “five essential propositions” underlying his consideration of each of the DN and MC transactions.

24. The primary judge’s findings about the manufacture of fake compliance plates, and the burning of Aristocrat game software onto blank EPROMs, were obviously critical to his reasoning process on the question of infringement by dealing.  Those facts, and Mr Andrews’ and Mr Cragen’s knowledge of them, considered in the context of:

    (a)transactions where the Global/Impact parties’ own records showed a duplication of serial numbers across different transactions or a conflict between the serial numbers of gaming machines supplied to their overseas customers and the serial numbers of extant machines installed in local premises; and

    (b)explanations for those discrepancies which, as a matter of credit, the primary judge did not accept,

    led the primary judge to conclude (at [846], [870] and [897]) that, more likely than not, the infringing components in the infringing machines at least included fake compliance plates and counterfeit gaming software.  In this connection it has not been suggested that the gaming machines in the impugned transactions (as we would find them to be) were not fully functioning electronic gaming machines running fully functioning Aristocrat game software installed on those machines and supplied as genuine Aristocrat electronic gaming machines.

25. The appellants attacked the primary judge’s reasoning in that regard.  However, we do not consider that the primary judge erred in reasoning in this way.  The real question is whether his Honour’s findings in relation to the five “essential” propositions can be shown to have been made in error.  The appellants contended that the primary judge did err in that regard.  We turn to consider that challenge.

    The first “essential” proposition

26. The appellants challenged the primary judge’s finding at [718] that the Allam parties burned Aristocrat game software onto blank EPROMs using Dataman software.  This was the first of the primary judge’s “five essential propositions”. 

27. In order to consider that challenge it is necessary to bear in mind the primary judge’s findings which we have summarised above (at [57]-[64]) concerning the contents of a particular CD-ROM (Exhibit CCC-14) and the loose HDD, and (at [65]-[66]) concerning the Georges’ Hall desktop 2 computer. 

28. Of particular significance, for present purposes, are the primary judge’s findings that:

    (a)The loose HDD contained information plainly connecting it to Mr Allam, as well as Dataman software (used to burn EPROMs) and a Dataman directory of file paths including the word “Aristocrat” and the names of Aristocrat games;

    (b)The CD-ROM contained files which included Aristocrat game software;

    (c)Mr Channa gave evidence to the effect that he saw Mr Allam fitting “chips” into a device which Mr Allam told him was used to “load and unload” programs, and that he saw Mr Allam using the device in this way approximately five times a month;

    (d)Mr Allam accepted that the CD-ROM contained Aristocrat game software and had been used in conjunction with the loose HDD.  However, Mr Allam said that the CD-ROM had never been accessed or used by him and had been planted by Mr Channa.  He also said that the loose HDD had been planted by Mr Channa and its contents fabricated so as to incriminate him.  The primary judge (at [711]) rejected these denials as being false;

    (e)The Georges Hall Desktop 2 computer was Mr Allam’s and had been used with Dataman software to write binary file data to EPROM chips, despite Mr Allam’s claims that he had not used any Dataman programming device or any EPROM programs since 2002.

29. The Allam parties sought to challenge the primary judge’s findings by pointing to what they identified as anomalies in the use of the loose HDD and the Georges Hall Desktop 2 computer.  These were identified in a schedule forming part of additional written submissions handed up during the course of the appeal.  The Allam parties also pointed, more generally, to gaps in what they termed “the electronic record”.  An explication of a number of these identified anomalies and evidentiary gaps was given in the course of oral argument and was supplemented by further written submissions by both the Allam parties and the Aristocrat parties.  We were taken to the underlying evidence in some considerable detail, in both oral and written submissions.  The Allam parties sought to demonstrate that “the electronic record” was either exculpatory of copying as found or, at the very least, equivocal about that activity, such that an inference of copying of Aristocrat game software by the Allam parties, and by Mr Allam in particular, could not properly have been made.  We have considered the detail of that evidence and the opposing submissions of the Allam parties (which were adopted by the Global/Impact parties) and of the Aristocrat parties in respect of it.

30. Accepting, for the purposes of argument, that those anomalies and evidentiary gaps exist, they do not, in our view, gainsay the fundamental findings of fact made by the primary judge, which we have earlier summarised at [57]-[64] or, more importantly, establish error on the part of the primary judge in either making those findings or coming to his ultimate conclusion on copying at [718]. In our view those findings entitled the primary judge to conclude that the Allam parties, and Mr Allam in particular, burned Aristocrat game software onto blank EPROMs using Dataman software.

31. We note that, in coming to that conclusion, the primary judge took into account Mr Allam’s denials about his involvement in that activity, but rejected those denials on credit grounds.  The primary judge was uniquely placed to undertake that particular assessment and no basis for appellate interference in that regard has been established.  The primary judge also took into account the possibility that, at least in respect of the Georges Hall Desktop 2 computer, access may have been granted to other parties.  Nevertheless, his Honour was unpersuaded that this circumstance was exculpatory of Mr Allam’s involvement, as found.  We can discern no error in that regard.

32. Significantly, the primary judge rejected what was plainly the Allam parties’ main line of defence, namely that the loose HDD and the CD-ROM (Exhibit CCC-14) was physical evidence that had been fabricated and “planted” by Mr Channa to implicate Mr Allam in wrongdoing.  We had earlier noted that the primary judge rejected that submission to be so extraordinary as to be untenable.  No proper basis has been established to interfere with that finding. 

33. The Allam parties also submitted that the electronic record was exculpatory of Mr Allam’s involvement in each of the transactions for which the primary judge had found him to be liable.  This was because an examination of the forensic evidence with respect to the use of the loose HDD and the Georges Hall Desktop 2 computer failed to reveal operational use of those devices to burn game software at the time that those transactions had taken place (by reference to their invoice dates); that it was not possible to establish that a particular game was burned using those devices by Mr Allam in relation to the gaming machines the subject of those transaction; and that it was not established that any of the seized EPROMs comprised a full game.

34. In our view that challenge cannot be sustained for a number of reasons.  First, the evidence entitled the primary judge to conclude, as a general proposition, that the loose HDD and the Georges Hall Desktop 2 computer had been used by Mr Allam in the ways found by the primary judge.  Secondly, it ignores other evidence which the primary judge found to be influential in coming to his general conclusion in this regard.  This evidence included the seizure of a large number of blank EPROMs, which the primary judge found to be suggestive of copying, and the seizure of Aristocrat game EPROMs from the Bankstown premises which the primary judge found to be counterfeit.  In coming to this latter conclusion the primary judge was not persuaded that these were the EPROMs that had simply been stripped from used gaming machines later supplied by the Allam parties without those EPROMs.  This was a finding to which the primary judge was entitled to come upon the totality of the evidence, including his rejection, on credit grounds, of Mr Allam’s particular denials in that regard.  Thirdly, it also ignores the evidence of Mr Channa, which the primary judge ultimately accepted, that he observed Mr Allam burning EPROMs from an EPROM burning device.  Fourthly, it ignores the use of fake serial numbers for the impugned gaming machines in each of those transactions and the reasonable inference that there would be no point in using fake serial numbers on gaming machines if the game software installed in those machines was genuine. 

1. Section 115(4) provides as follows:

   Where, in an action under this section:

   (a)  an infringement of copyright is established; and

   (b)  the court is satisfied that it is proper to do so, having regard to:

   (i)the flagrancy of the infringement; and

   (ia)the need to deter similar infringements of copyright; and

   (ib)the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright; and

   (ii)whether the infringement involved the conversion of a work or other subject matter from hardcopy or analog form into a digital or other electronic machine readable form; and

   (iii)any benefit shown to have accrued to the defendant by reason of the infringement; and

   (iv)all other relevant matters;

   the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.

2. The primary judge noted that the principles upon which additional damages are awarded were described in DAP Services at [40]-[56]. To this we would add the following non-exhaustive references to the relevant principles: Bailey v Namol Pty Limited (1994) 53 FCR 102 at 113-114; Autodesk Inc v Yee (1996) 68 FCR 391 at 394; Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 92-93 and 102-104.

3. In making his assessment the primary judge noted (at [907]) that deterrence was one of the objectives in awarding additional damages and that an element of penalty is an accepted factor in the remedy.  His Honour also noted that the Court is to have regard, amongst other things, to the flagrancy of the infringement and the need to mark the Court’s disapproval of the conduct in question.

4. The primary judge found (at [908]-[909]) that, although the number of infringing transactions ultimately proved was far less than the number claimed by the Aristocrat parties, it was plain that the appellants were engaged in a commercial exercise.  Their actions were plainly flagrant and undertaken for commercial gain.  The statements made in the emails when considered with much of the material seized in the Anton Piller raids showed the willingness of the appellants to engage in counterfeiting when it suited their commercial purposes.  We interpose to observe that our conclusions on the admissibility of the emails as against certain of the parties do not affect the overall correctness of that general finding by the primary judge.

5. The primary judge (at [911]) also noted that he was entitled to take into account the conduct of the appellants after the acts constituting the infringement. In that connection he took into account the attitude of the appellants to the litigation in vehemently denying any involvement in counterfeiting.

6. In arriving at his assessment of additional damages the primary judge used the award of damages in DAP Services as a yardstick.  In that case a Full Court (of which his Honour was a member) assessed additional damages in the sum of $200,000.  In the present case the primary judge came to the view that the appellants’ infringing activities were on a scale larger than that in DAP Services.

7. The Global/Impact parties did not seek to contest the principles on which additional damages are awarded, as set out in the cases to which we have referred.  Nevertheless, they submitted that this was not a case in which additional damages should have been awarded; certainly not for the sum for which they were awarded.  Their challenge to the award of additional damages was based on essentially four contentions. 

8. First, they submitted that the Aristocrat parties had not particularised their claim to additional damages and that, for that reason alone, additional damages should not have been awarded. 

9. Secondly, they submitted that before an infringer will be liable to pay additional damages, the claimant must establish the facts upon which the Court can be satisfied, having regard to the matters specified in s 115(4): Prior v Lansdowne Press Pty Ltd [1977] VR 65 at 69. In this connection they submitted that the evidence did not establish the large-scale counterfeiting operation alleged by the Aristocrat parties, and that the primary judge made plain that no conclusion could be drawn about the identity of the components involved in the infringements.

10. Thirdly, they submitted that even though there is no requirement for proportionality between compensatory damages and additional damages, the amount awarded in the present case was wholly and unjustifiably disproportionate to the amount ($44,870) awarded as compensatory damages.

11. Fourthly, they submitted that there was no reasoned analysis by which the sum of $450,000 was determined.  In this connection they pointed to the fact that the primary judge did not use as his starting point any pecuniary benefit obtained by the Global/Impact parties from the infringing activities that had been found.  They also challenged the primary judge’s conclusion that their infringing activities were on a scale larger than that in DAP Services.

12. These submissions do not of themselves persuade us that the primary judge erred in awarding additional damages or in his assessment of the quantum of those damages.

13. We can see no substance in the Global/Impact parties’ submissions concerning any lack of particularisation of the claim for additional damages.

14. Paragraphs 46 and 47 of the amended consolidated statement of claim were as follows:

    Each of Global, Andrews, Impact, Cragen, Tonita and Allam has done the acts alleged against it or him:

    (a)       flagrantly;

    (b)      knowing that copyright subsisted in the Aristocrat Works;

    (c)knowing that the acts concerned constituted an infringement of the copyright in the Aristocrat works;

    (d)      in reckless disregard of the infringement of the copyright;

    (e)intending that substantial benefit would accrue to him or it or persons who acquired or participated in the acquisition and sale or distribution of gaming machines that embody infringing copies of the Aristocrat Works.

    By reason of the facts, matters and circumstances set out in paragraph 46 above, the Court, in awarding damages for infringement of copyright, should award additional damages under section 115(4) of the Act.

15. Although the Allam parties complained about a lack of particularisation of the claim for additional damages in their final submissions at trial (which were adopted by the Global/Impact parties), we were not taken to any material that suggested that any of the appellants sought greater particularisation than was provided by the consolidated pleading.  The basis on which the claim for additional damages was advanced was stated in that pleading, although general, not precise, particulars were given.  We cannot see how a lack of particularisation, in circumstances where no greater particularisation than that given was sought, precluded the primary judge from awarding additional damages.  The general basis of the claim for additional damages was set out and, at the end of the hearing, the primary judge had before him a substantial body of evidence which was available to the Aristocrat parties to make good their claim.

16. As to the Global/Impact parties’ challenge to the sufficiency of that evidence, we are satisfied that the evidence, and the primary judge’s rejection, on credit grounds, of the appellants’ explanations of innocence, entitled the primary judge to find that the character of the appellants’ conduct was “cynical and flagrant”, “plainly flagrant” and “undertaken for commercial gain”. 

17. In our view it is not to the point that the Aristocrat parties failed to prove their claims to the extent originally alleged.  The primary judge was plainly persuaded that, nevertheless, the appellants’ conduct was part of a “commercial exercise” and that they were prepared to “engage in counterfeiting when it suits their commercial purpose”.  These findings were open to the primary judge on the evidence.  We can see no error in them.

18. Similarly, it is not to the point that the primary judge expressed uncertainty about the components of the gaming machines that were infringing.  In this connection it is to be borne in mind that the primary judge was at least satisfied, on the balance of probabilities, that the impugned gaming machines “consisted of fake Aristocrat game software and fake compliance plates”:  see at [925]-[926].  His Honour considered these to be substantial components of the gaming machines, justifying the substantial award of additional damages he made.  In other words, in assessing additional damages, the primary judge was not persuaded that the infringements were merely de minimis infractions of the claimed copyright.

19. The Global/Impact parties’ submissions concerning proportionality are answered by their own acceptance of the proposition that there is no requirement for proportionality between compensatory damages and additional damages.  Indeed, as DAP Services demonstrates, the fact that nominal damages only are awarded is no bar to a claim for additional damages, properly brought forward.

20. As to the final matter raised by the Global/Impact parties, it is true that the primary judge did not explicitly take as his starting point the pecuniary benefit obtained by the Global/Impact parties from their infringing activities.  Nevertheless, the primary judge’s findings on infringement by dealing gave some indication of the pecuniary benefit that they had obtained.  The primary judge’s assessment of additional damages cannot be read in isolation from earlier parts of his reasons.  The primary judge was aware, for example, of the number of transactions and gaming machines involved in the infringements, as well as the invoice value of those transactions to the Global/Impact parties.  We are not persuaded that the primary judge would not have been mindful of this at the time he came to assess additional damages. 

21. More importantly, however, it is well recognised that the assessment of additional damages involves the exercise of a broad discretion, reflected in the terms of s 115(4) itself, and is a somewhat imprecise exercise: Bailey at 114. It was not necessary for the primary judge to use as his starting point the benefit derived by the appellants from the infringing activities. Here the primary judge, having sat through a lengthy hearing and having sifted through a significant body of evidence, as well as having seen and heard Messrs Andrews, Cragen and Allam give their evidence, was uniquely placed to assess the degree of flagrancy and the scale of activities involved.

22. The primary judge expressed the view that the appellants’ activities were on a scale which seemed to him to be larger than that which existed in DAP Services.  The Global/Impact parties challenged the accuracy of that statement given that, in DAP Services, there were 615 infringing artwork panels sufficient to supply about 400 gaming machines.  They submitted that this was a significantly larger scale of activity than found here.  We do not accept that submission.  It is clear that when the primary judge was comparing the activities in this case with those in DAP Services he was not merely looking at the number of infringements that had been proved.  Rather, his Honour was looking at the scope of the activities that were involved in those infringements.  As we have noted, those activities included the manufacture of counterfeit compliance plates and the burning of game software and involved the activities of three groups acting in concert to achieve sales of those gaming machines.

23. Although the primary judge’s assessment of additional damages was in the upper range available to him, we are not persuaded that his Honour’s award, because of its quantum, reflects error.

24. The Allam parties made two additional submissions.  First, they submitted that, absent statutory damages (by which they meant an award of compensatory damages), it was not open to the Aristocrat parties to obtain additional damages.  No authority was cited for that proposition.  Indeed, there is authority against that proposition:  see DAP Services.  We therefore reject that submission. 

25. Secondly, the Allam parties submitted that, on any view, Mr Allam’s involvement in each infringement by dealing was distinct from that of the other parties.  In this connection they point to the fact that a number of the transactions found to involve the supply of infringing gaming machines were not transactions alleged against Mr Allam in the Particulars.

26. This submission raises a general point affecting all the appellants.  As we have noted, the Particulars in relation to each of the impugned transactions were detailed and identified with specificity those persons who were participants in each transaction, including as a secondary infringer.  The case was also a circumstantial one.  In our view the appellants were entitled to rely on the Particulars in advancing their respective defences and in making their forensic decisions accordingly. 

27. In our view it is not open to the Aristocrat parties to call in aid the more generally pleaded allegations concerning secondary liability in their statement of claim when the Particulars themselves descended to the specific detail of identifying the participants in the alleged infringements.  To treat the Particulars otherwise would be to effectively ignore them in this regard.  Thus we can see no injustice in keeping the Aristocrat parties to the specific case they brought.  On the other hand, we can see injustice in permitting the Aristocrat parties to depart from that case, especially when they did not seek to amend those Particulars to bring the broader case ultimately considered by the primary judge.

28. Thus, had it been necessary for us to do so, we would have allocated additional damages against the appellants on a proportional basis by transaction, rather than holding them jointly and severally liable for additional damages, as the primary judge did.

29. There is another matter.  The primary judge treated the Aristocrat parties as jointly entitled to damages for infringement.  It is clear, however, that the owner of the relevant copyright was ATA.  At [68]-[73] of his reasons the primary judge set out the respective roles and identities of each of the Aristocrat parties, and the relevant licence arrangements between them (as summarised by the Aristocrat parties).  It was implicit in the Aristocrat parties’ case at trial that these arrangements were effective to confer on AI and ATI an entitlement to claim damages for copyright infringement.  This position was not challenged by the respondents at trial.  On appeal, however, the Global/Impact parties contended that ATI and AI were not entitled to damages.  This submission, as with the rest of the Global/Impact parties’ submissions on damages, was supported by the Allam parties.

30. As we have noted, the agreement of significance in this regard is entitled “Head Distribution & Intellectual Property Licence Agreement” (the Head Distribution Agreement) that was entered into by ATA and AI after the commencement of the proceeding.  However, the agreement purports to be effective, as of 1 January 2005, to appoint AI as ATA’s exclusive intellectual property licensee in respect of products worldwide other than in Australia (but including products made for export outside Australia).

31. A separate agreement entitled “Distribution Agreement” was executed on 3 May 2006 between AI and ATI and purported to be effective, as of 1 January 2006, to appoint ATI as AI’s distributor and exclusive intellectual property licensee in North America (except British Columbia), South America, the Caribbean and Latin America (except Argentina and Puerto Rico) in relation to certain defined transactions.

32. It is apparent from the manner in which the parties conducted their cases in relation to this issue on appeal (ie solely by reference to the Head Distribution Agreement), that they considered that the matter would turn on the construction and effect of the Head Distribution Agreement.  It is thus that agreement alone to which we have directed our attention.

33. The appellants submitted that, at the time the allegedly infringing transaction took place, ATI and AI were not the owners of the copyright, nor exclusive licensees of the copyright owner (ATA), as required by s 119 of the Copyright Act. Thus only ATA was entitled to recover damages. The appellants noted that the date of execution of the Head Distribution Agreement was later than that of any allegedly infringing transaction and it is only a solitary clause in the agreement which purports to give it retrospective effect. That clause was expressed as follows:

    The parties have caused this agreement to be executed by their duly authorized representatives effective as of the Effective Date.

    The “Effective Date” was defined as meaning 1 January 2005.

34. The appellants submitted that it was not open to the Aristocrat parties to retrospectively confer a legal liability against a third party by backdating a licence. They further submitted that s 119 does not contemplate that a copyright owner can unilaterally confer an entitlement to damages on another entity ex post facto.

35. The Aristocrat parties first submitted that, having not raised this point at trial, the appellants should not be permitted to raise the matter on appeal.

36. There is some merit in that argument insofar as it concerns the appellants’ challenge to the primary judge’s profit calculation undertaken for the purposes of calculating compensatory damages under s 115(2) of the Copyright Act: see our remarks at [397]. However, that challenge is no longer relevant. Insofar as the present relevance of the question lies in identifying the person to whom damages are payable, we can see no impediment to that question being raised.

37. Secondly, they submitted that third parties to the licence arrangement, such as the appellants, are bound by that arrangement.  They sought to support that position by calling in aid Deane J’s observations in The Commonwealth of Australia v Verwayen (1990) 170 CLR 394 at 444, to the effect that persons not parties to an estoppel can be affected by an estoppel. We are unable to see the relevance of that observation to the present circumstances. No issue of estoppel arises.

38. Thirdly, they submitted that “there was no criticism in the Full Court in DAP Services of the primary judge’s decision to award damages to ATA and AI, who were applicants in those proceedings”.  We do not see how that circumstance impacts upon the entitlement to damages in the present case.

39. A similar question arose in The Film Investment Corporation of New Zealand v Golden Editions Pty Ltd (1994) 28 IPR 1. In that case Burchett J said (at 15):

    But it seems to me there are even more fundamental flaws in the scheme embodied in the deed of 13 November 1990.  In the first place, it is not possible, if the exclusive licences purportedly held by FICNZ were not valid, for Mr Wass and FICNZ to make them so retrospectively.  What had been written in 1988 had been written, and they could not change a line except for the future.  They did not have Parliament’s power of retrospective legislation.  So any exclusive licence or assignment brought into existence by the deed of 13 November 1990 could only have operation as from that date.  (I am speaking, of course, of the effect of a licence or assignment so far as third parties are concerned, which is what is in issue here.)

40. In our view that passage is determinative of the present question.  It was not competent for ATA to extend unilaterally the liability of third parties (in this case, the appellants) for damages to ATI and AI via the Head Distribution Agreement, whatever effect that agreement might have had on the rights of the parties inter se.

41. Given that conclusion, damages should only be awarded in favour of the copyright owner, ATA.

    THE CROSS-APPEALS

    Introduction

1. Cross-appeals were brought by the Aristocrat parties.  Those cross-appeals concerned three issues.

2. First, the Aristocrat parties contended that the primary judge misunderstood a submission made by them to the effect that, if they were to be awarded damages for copyright infringement, it would not be appropriate for the Court to award damages in relation to the trade mark claim also.  They submitted that the primary judge incorrectly treated this submission as meaning that they did not press their trade mark claim.  In the result, they submitted that the primary judge failed to make findings of trade mark infringement.

3. Secondly, they contended that, although having found copyright infringement, the primary judge erred by declining to make declarations and to grant injunctions, when the circumstances of the case warranted the granting of that relief.

4. Thirdly, they contended that the primary judge erred by dismissing the proceeding against Tonita.  They submitted that the primary judge had found that Tonita had infringed Aristocrat’s copyright and should have found it liable for doing so.

5. In light of the conclusions to which we have come on the question of copyright infringement by dealing, it is not necessary for us to deal in any extensive way with the second and third of these issues, save to say that, had we been satisfied that such a case of infringement had been established, we would have been inclined to the view that declarations and injunctions should be made at least with respect to the infringement of copyright in the Aristocrat game software involved in the transactions we have found to have been established.  Furthermore, we are not satisfied that the primary judge erred in dismissing the case of copyright infringement against Tonita in any event.  The acts of infringement relied upon in that regard took place before its incorporation.

6. It is necessary, however, for us to deal in a substantive way with the cross-appeal in relation to the allegations of trade mark infringement.

   The trade mark claim

7. The Aristocrat parties submitted that their trade mark claim was maintained at all times and that the primary judge misunderstood their submissions with respect to damages as signifying that they did not press their claim for trade mark infringement beyond a claim for damages that was merely co-extensive with, and for practical purposes indistinguishable from, their claim for compensatory damages for copyright infringement.

8. They submitted that, having dealt with the copyright claims, the primary judge should have made a “consequential” finding of trade mark infringement.  They submitted that this error should be rectified and the Full Court should itself make findings of trade mark infringement.

9. On the other hand the appellants submitted that, as the copyright claims fail, at least in respect of infringement by dealing, so too must the trade mark claims fail.

10. We do not accept either of these submissions.  In our view there is no necessary connection between success or failure on the copyright claims and success or failure on the trade mark claims.  We do accept, however, that the primary judge erred in treating the trade mark claims as being co-extensive with the copyright claims.  Assuming that the trade mark claims, if successful, might not have resulted in an award of damages beyond that awarded as compensatory damages for copyright infringement (a matter on which we express no view), it was necessary for the primary judge to arrive at a determination on the question of trade mark infringement in order to consider the Aristocrat parties’ entitlement to the other relief they had claimed on that score. 

11. Although the Aristocrat parties have been unsuccessful in establishing a case of copyright infringement by dealing, it does not follow that they are not able to establish a case of trade mark infringement.  The present difficulty is that the primary judge made no findings of fact in relation to that issue because he saw the copyright and trade mark claims as being co-extensive in all respects, when that was not the case.  Given the absence of primary findings of fact in relation to the issue of trade mark infringement, it is neither appropriate nor practicable for us to embark upon that task, as if sitting at first instance.

12. We can see no real alternative but to remit the Aristocrat parties’ case for trade mark infringement to the primary judge for determination.

    DISPOSITION

13. We have concluded that the two appeals succeed.  It follows that orders made on 15 December 2009 must be set aside.   Each matter should be remitted to the primary judge for determination of the claims of trade mark infringement.  The parties should consult and within seven days file draft orders (including as to costs) or if agreement cannot be reached, file and serve proposed orders and written submissions in support thereof.

I certify that the preceding four hundred and forty-five (445) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Bennett, Middleton and Yates.

Associate:

Dated:       21 March 2012