Attachmate Corporation v Commonwealth of Australia (No 1)

[2013] FCA 896

FEDERAL COURT OF AUSTRALIA

Attachmate Corporation v Commonwealth of Australia (No 1) [2013] FCA 896

Citation:		Attachmate Corporation v Commonwealth of Australia (No 1) [2013] FCA 896
Parties:		ATTACHMATE CORPORATION v COMMONWEALTH OF AUSTRALIA
File number:		NSD 1774 of 2011
Judge:		PERRAM J
Date of judgment:		3 September 2013
Catchwords:		PRACTICE AND PROCEDURE – Discovery – Application for discovery prior to the serving of evidence
Legislation:		Copyright Act 1968 (Cth) s 138
Cases cited:		Foley v Gunns Ltd [2012] FCA 595 cited
Date of hearing:	Heard on the papers
Place:	Sydney
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	15
Counsel for the Applicant:	Mr S M Anderson SC, Mr P Wallis
Solicitor for the Applicant:	Griffith Hack Lawyers
Counsel for the Respondent:	Mr M J Colbran QC, Mr T Cordiner
Solicitor for the Respondent:	DLA Piper

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION	NSD 1774 of 2011

BETWEEN:	ATTACHMATE CORPORATION Applicant
AND:	COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	PERRAM J
DATE OF ORDER:	3 SEPTEMBER 2013
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1.The applicant give discovery in accordance with the amended discovery category 2.5.

2.Respondent’s costs in the cause.

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 1774 of 2011

BETWEEN:	ATTACHMATE CORPORATION Applicant
AND:	COMMONWEALTH OF AUSTRALIA Respondent

JUDGE:	PERRAM J
DATE:	3 SEPTEMBER 2013
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. On 18 April 2013 the respondent (‘the Commonwealth’) filed an amended interlocutory application seeking discovery of certain identified classes of documents described compendiously as categories 2.2 and 2.5 to 2.9.

2. In its written submissions dated 12 August 2013 the Commonwealth indicated that it no longer sought categories 2.6, 2.8 or 2.9 and did not press currently categories 2.2 or 2.7.  In the event, this left only category 2.5 which it now sought in an amended form as follows:

   The portions of T the record of the deposition of:

   (i)       Philip Swadener;

   (ii)      Cheryl Fusaro; and

   (iii)     Lee Taylor

   given in the United States District Court (Western District of Washington at Seattle) case number 2:09-cv-01161-MJP between Attachmate and Health Net, Inc (US Case) as exhibited to the Second Declaration of Christopher Jackson dated 20 December 2010 and filed in the US Case that relate to:

   (a)the salaries and bonuses paid to Attachmate employees in relation to licensing or copyright compliance;

   (b)the bonus schemes or structures in place in Attachmate in relation to licensing or copyright compliance; and

   (c)the licensing or copyright compliance revenue received by Attachmate,

   for the period 1 January 1999 to date.

3. This was opposed.

4. The issue arises this way. In June 1999 the Commonwealth, through its Department of Defence (‘Defence’), entered into a written agreement under which the applicant’s wholly owned Australian subsidiary, Attachmate Australasia Pty Ltd, would provide for Defence’s use IBM 3270 terminal emulation software called ‘Extra!’. The written agreement related to the right to use 8000 units of the software. This agreement was subsequently renewed automatically on its licence terms. In October 2009, following an audit, the applicant (‘Attachmate’) came to the view that Defence had used Extra! on more than 8,000 machines. Defence countered that it was entitled to use Extra! as much as it wanted provided it did not do so on more than 8,000 machines at once. Attachmate then sued in this Court alleging copyright infringement. At the same time, lest Defence’s use be authorised as Crown use by s 183 of the Copyright Act 1968 (Cth), it commenced parallel proceedings in the Copyright Tribunal of Australia: CT 1 of 2011 Attachmate Corporation v Commonwealth of Australia.  The basic question then is the meaning of the 8,000 unit limitation. 

5. The Commonwealth also deploys some additional defences of estoppel, delay and acquiescence.  It is said that Attachmate knew what was going on from a very early date and did nothing.  The dispute about the amended discovery category 2.5 concerns these defences.

6. The Commonwealth now points to certain litigation in the United States District Court for the Western District of Washington sitting in Seattle.  This litigation is entitled Attachmate Corporation v Health Net Inc and was assigned to the docket of Pechman J.  It is not clear to me whether that proceeding has yet been tried.  In that proceeding Attachmate sues for breach of copyright in relation to its software.  The basic allegation is that Health Net ‘over-installed’ Attachmate’s software (that is, installed it upon more machines that it was entitled to do under its licence).  In written submissions filed by Health Net Inc in those proceedings on a motion to dismiss in limine it submitted as follows:

   First, Attachmate as a company seeks “damages” from over-installation and lack of license compliance far in excess of what it would receive in licensing revenue for the same number of units.  For example in this case, Attachmate seeks over $24 Million in damages for lack of compliance, as compared to the approximately $4 Million HNI has paid Attachmate in fees over 10 years.   Thus, Attachmate as a company is motivated to sit back and not conduct audits that would reveal any lack of compliance, in favor waiting years while alleged damages are racked up.

   Second, in furtherance of this financial strategy, Attachmate implements a bonus structure for its entire “license compliance team” that encourages each member to look the other way for years and years, rather than initiate an audit when they should have known that a customer was out of compliance.  More specifically, each member of the compliance team is paid a salary, and a substantial bonus based on the amount of compliance revenue Attachmate brings in from over-installed customers.  Jackson Decl. II, Exs. B (Swadener Depo. 41:4-47:12), C (Taylor Depo. 80:19-85:23), and D (Fusarao Depo. 23:24-24:19).  If the compliance team members catch over-installations early, when they are small and only in existence for a short period of time, the compliance team member earns no bonus.  On the other hand, if the compliance team member sits back, and waits years, and then initiates an audit, the over-installations may have grown, and the number years of over-installations multiplied many times over.  In that case, the compliance team members earn a substantial bonus, sometimes more than their salary.  Thus, Attachmate’s compliance team members, like their employer, are motivated to sit back and not conduct audits that would reveal any lack of compliance, in favour waiting years while alleged damages are racked up.

7. The reference to the three depositions will be noted and their correspondence with the discovery now sought.  In this case, the Commonwealth paid Attachmate a fee of $200,000 per year until 2008.  Attachmate has discovered an email of 13 February 2008 containing an internal communication as follows:

   That document you sent is pretty useless to you.  It was a proposal that was never adopted.  It was a half arsed attempt to increase the revenue stream from Defence.  I remember the kick-back was that they had $200K in the budget, and we were best not to ask any questions about how many licences may/may not be in use, or try to lift our profile, and the money would just come every year (as it basically has, up until now, since that time).

8. The Commonwealth’s suggested thesis is that Attachmate conducts its affairs by not pursuing infringements of which it has notice in order to maximise ‘compliance revenue’.  The submission set out above suggests that three employees of Attachmate gave evidence on deposition that the bonus arrangements at Attachmate encouraged such behaviour amongst its staff.  The email of 13 February 2008 is capable of lending credence to this view.

9. Attachmate submits that the depositions ought not to be discovered because:

   (a)this thesis is implausible and speculative;

   (b)Defence has not pointed to any documents suggesting a link between any delay in complaining and such a strategy;

   (c)it has admitted that its compliance team receives bonuses based on achieving compliance revenue goals;

   (d)discovery should, in any event, be postponed until Attachmate serves its evidence in reply on the issues of estoppel, delay and acquiescence; and

   (e)the material is not related directly to the issues raised by the pleadings.

10. I do not accept (a) or (b).  The two documents set out above show such a case is not merely speculative.  I do not accept (c) either.  The suggested admission relates only to members of the compliance team receiving bonuses based on achieving compliance revenue goals.  The material in the depositions appears to link that directly to over-installed customers.

11. Although I accept the soundness of (d) as a general principle, there can nevertheless be cases where issues may be sufficiently clarified before evidence is delivered to warrant an early discovery order as I explained in Foley v Gunns Ltd [2012] FCA 595. This, I think, is one of those cases.

12. I do not accept (e).  The material goes directly to the acquiescence defence.

13. Lastly, Attachmate submitted that the confidentiality regime it was subject to before Pechman J provided good reason not to order it to discover this material.

14. The material in question are depositions discovered by Attachmate.  As I read Pechman J’s amended stipulation and protective order of 9 March 2010, it imposes restrictions on the party receiving a discovered document from the other party and not on the party providing the discovered document.  Since the documents in question were produced by Attachmate I do not see that the protective order has any relevance. 

15. I will order that Attachmate give discovery in accordance with the amended discovery category 2.5 to its amended interlocutory application of 18 April 2013.

I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate:
Dated:       3 September 2013