Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd - [2001] FCA 1800

FEDERAL COURT OF AUSTRALIA
Australian Competition & Consumer Commission v Universal Music Australia Pty Limited [2001] FCA 1800
TRADE PRACTICES – restrictive practices – proceedings for pecuniary penalty brought against each of two major record companies and executives of them in respect of refusal to supply retailers who dealt in imported compact discs following the legalisation of parallel importing – whether each record company had substantial degree of market power as a result of the need for retailers to stock chart music and back catalogue titles, notwithstanding market share of approximately 15% - whether record companies took advantage of market power in refusal of supply – whether contravention of s 46 or s 47 of the Trade Practices Act 1974 (Cth)
TRADE PRACTICES – restrictive practices – whether each of the record companies contravened s 45 of the Trade Practices Act 1974 (Cth) in requesting action to be taken in Indonesia to restrict supply by Indonesian related companies to wholesalers in Indonesia desiring to sell to Australian retailers
TRADE PRACTICES – restrictive practices – accessorial liability – whether individual respondents knowingly concerned in or party to contraventions by their employer of ss 46 and 47 of the Trade Practices Act 1974 (Cth) – whether evidence of participation sufficed to prove participation in or knowing concern of acts constituting contraventions
Trade Practices Act 1974 (Cth) ss 45(2)(a)(ii), 45(3), 45(4), 45(8), 46, 47(2), 47(3), 47(10), 47(13), 75B
Tru Tone Ltd v Festival Records Retail Marketing Ltd (1988) 2 NZLR 352 at 360 cited
United States v E I du Pont de Nemours & Co 351 US 377 (1956) discussed
United States v Eastman Kodak 853 F Supp 1454 (1994) cited
Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 applied
Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 178 ALR 253 at 258 applied
D & R Byrnes (Nominees) Pty Ltdv The Central Queensland Meat Export Co Pty Ltd (1990) ATPR 41-028 cited
Australian Competition and Consumer Commission v Boral Ltd (2000) 106 FCR 328 considered
Dowling v Dalgety Australia Ltd (1992) 34 FCR 109 cited
Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 cited
Standard Fashion Company v Magrane-Houston Company (1921) 258 US 346 considered
SWB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd (1980) 32 ALR 365 distinguished
Trade Practices Commission v Tepeda Pty Ltd (t/as Metro Motor Market) (1994) ATPR 41-319 distinguished
Hecar Investments No 6 Pty Ltd v Outboard Marine Australia Pty Ltd (1982) 41 ALR 697 cited
Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 44 ALR 173 at 191-2 cited
Monroe Topple & Associates Pty Ltd v The Institute of Chartered Accountants in Australia [2001] FCA 1056 cited
News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 cited
Brunt, “Market Definition Issues in Australian and New Zealand Trade Practices Litigation” (1990) 18 ABLR 86
S. Salop, “The First Principles Approach to Antitrust, Kodak and Antitrust at the Millennium” Antitrust Law Journal (2000) Volume 68 Issue 1, p 187
D Turner, Antitrust Policy and the Cellophane Case 70 Harv L Rev 281 (1956)
R Posner, Antitrust Law: an economic perspective (1976)
Hausman, Leonard and Zona, “Competitive Analysis with Differentiated Products” Annales, D’Economie et de Statistique, 34 (1994).
Kaysen and Turner, Antitrust Policy (1959)
Geroski, Market Dynamics and Entry (1991)
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v UNIVERSAL MUSIC AUSTRALIA PTY LIMITED (FORMERLY KNOWN AS POLYGRAM PTY LIMITED) & ORS
N925 OF 2000
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v WARNER MUSIC AUSTRALIA PTY LIMITED & ORS
N924 OF 2000
HILL J
14 DECEMBER 2001
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 925 OF 1999

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

UNIVERSAL MUSIC AUSTRALIA PTY LIMITED (formerly known as PolyGram Pty Limited) (ACN 000 158 592)
FIRST RESPONDENT

SUSAN ELIZABETH COHEN
SECOND RESPONDENT

CRAIG HANDLEY
THIRD RESPONDENT

PAUL DICKSON
FOURTH RESPONDENT

JUDGE:

HILL J

DATE OF ORDER:

14 DECEMEBER 2001

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The matter be stood over to a date to be fixed with counsel to permit argument on the form of the orders to be made and to set a timetable for the filing of such other evidence, if any, as may be desired to be filed on the question of pecuniary penalty.

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

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

N 924 OF 1999

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

WARNER MUSIC AUSTRALIA PTY LIMITED (ACN 000 815 565)
FIRST RESPONDENT

GARY SMERDON
SECOND RESPONDENT

GREGORY MAKSIMOVIC
THIRD RESPONDENT

JUDGE:

HILL J

DATE OF ORDER:

14 DECEMBER 2001

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.The matter be stood over to a date to be fixed with counsel to permit argument on the form of the orders to be made and to set a timetable for the filing of such other evidence, if any, as may be desired to be filed on the question of pecuniary penalty.

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

TABLE OF CONTENTS
INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [1] - [6]
THE COPYRIGHT ACT PROVISIONS........ ........ ........ ........ ........ ........ ........ ........ ... [7] - [9]
RELEVANT PROVISIONS OF THE ACT........ ........ ........ ........ ........ ........ ........ ... [10] - [12]
THE ACCC CASE AS PLEADED – UNIVERSAL........ ........ ........ ........ ........ ...... [13] - [22]
THE ACCC CASE AS PLEADED - WARNER........ ........ ........ ........ ........ ........ .... [23] - [26]
OUTLINE OF THE MATTERS DEALT WITH IN EVIDENCE........ ........ ....... [27] - [34]
UNIVERSAL - AUSTRALIAN CONDUCT........ ........ ........ ........ ........ ........ ........ .. [35] - [96]
The steps taken by Universal after the legalisation of parallel importation........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [35] - [47]
Other meetings attended by Mr Handley and/or Mr Dickson not the subject of pleading but which concerned communication of the PolyGram Policy
........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. [48] - [66]
The evidence relating to the formulation of the Universal policy (also referred to as “the PolyGram Policy”)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [67]
Implementation of the Policy? The refusal to sell to Mr and Mrs Delaney [68] - [85]
The refusal by PolyGram to sell to Compact City........ ........ ........ .. [86] - [96]

UNIVERSAL OVERSEAS CONDUCT - PREVENTING THE EXPORT OF RECORDINGS FROM INDONESIA TO AUSTRALIA........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [97] - [109]
WARNER OVERSEAS CONDUCT - PREVENTING THE EXPORT OF RECORDINGS FROM INDONESIA TO AUSTRALIA........ ........ ........ ........ ........ ........ ........ ........ ........ ... [109] - [114]
WARNER – AUSTRALIAN CONDUCT........ ........ ........ ........ ........ ........ ........ ... [115] - [136]
The Warner trading terms threat........ ........ ........ ........ ........ ........ ..... [115] - [118]
Action taken by Warner in refusing supply – the closure of the Raiders’ account [119] - [136]

EVIDENCE CONCERNING THE MARKET FOR CDS IN AUSTRALIA - GENERAL [137] - [140]
IMPORTERS (TEMPO)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [141] - [155]
THE RETAIL MUSIC MARKET – ITS STRUCTURE, PARTICIPANTS AND OPERATIONS [156] - [288]
Sanity........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [157] - [158]
The significance of chart music and back catalogue........ ........ ........ ........ ... [159]
Substitutability and customer behaviour........ ........ ........ ........ ........ . [160] - [167]
Wholesale unit cost variations prior to parallel importing........ ...... [168] - [171]
Trading terms between the major record companies, including Universal and Warner and major retailers, such as Sanity and HMV........ ........ ........ ........ ........ ...... [172] - [173]
The 1996 Warner price increase........ ........ ........ ........ ........ ........ ...... [174] - [182]
The hypothetical consequence of one of the record companies increasing their prices [183] - [186]
Marketing and promotion – customer buying preferences........ ...... [187] - [190]
HMV........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [191] - [197]
The reaction of HMV to parallel importing........ ........ ........ ........ [193] - [196]
Warner trading terms with HMV - before and after parallel importing.. [197]
Big W........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [198] - [205]
Target........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [206] - [211]
Kmart........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [212] - [218]
JB HiFi........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [219] - [229]
Fish Records........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [230] - [237]
Colonel Clint’s Crazy Bargains Pty Ltd (“Clints”)........ ........ ........ . [238] - [243]
Collectors Corner and Second Spin........ ........ ........ ........ ........ ........ . [244] - [250]
Wow Records and Wow Music........ ........ ........ ........ ........ ........ ....... [251] - [257]
Angel Records and related companies........ ........ ........ ........ ........ .... [258] - [261]
Evidence of Universal Activities........ ........ ........ ........ ........ ........ ..... [262] - [284]
Advertising by wholesalers........ ........ ........ ........ ........ ........ ........ ..... [285] - [288]

CONCLUSIONS FROM THE EVIDENCE ON MARKET........ ........ ........ ..... [289] - [344]
Distribution........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [298] - [299]
Wholesalers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [300] - [301]
Retailers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [302]
Music retail chains........ ........ ........ ........ ........ ........ ........ ........ ........ ... [303] - [306]
Sanity........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [303]
Leading Edge........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... [304]
HMV........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [305] - [306]
Diversified retailers........ ........ ........ ........ ........ ........ ........ ........ ........ . [307] - [310]
Coles Myer Limited Group........ ........ ........ ........ ........ ........ ........ ........ ..... [307]
Big W........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [308]
JB HiFi and other diversified retailers........ ........ ........ ........ ........ [309] - [310]
Non-traditional retailers........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [311]
Categories of customer........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [312]
Product differentiation and chart music........ ........ ........ ........ ........ .. [313] - [319]
Price and trading terms........ ........ ........ ........ ........ ........ ........ ........ .... [320] - [323]
Discounts and allowances........ ........ ........ ........ ........ ........ ........ ........ [324] - [327]
Parallel importation - an alternative source of supply........ ........ ..... [328] - [331]
Disadvantages to the retailer of parallel importing........ ........ ........ . [332] - [335]
Non-price competition........ ........ ........ ........ ........ ........ ........ ........ ..... [336] - [337]
Marketing and promotion........ ........ ........ ........ ........ ........ ........ ........ [338] - [343]
Artist and repertoire investment........ ........ ........ ........ ........ ........ ........ ........ .. [344]

ECONOMIC EVIDENCE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [345] - [401]
Market Definition........ ........ ........ ........ ........ ........ ........ ........ ........ .... [349] - [351]
The tests to establish market power........ ........ ........ ........ ........ ........ . [352] - [369]
The state of competition in the market........ ........ ........ ........ ........ .... [370] - [372]
The countervailing power of retailers........ ........ ........ ........ ........ ..... [373] - [374]
The claimed indicia of market power as suggested by Mr Ergas - General........
........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [375] - [382]
Product differentiation and substitution - the significance for market power [383] - [388]
Concentration and its significance on market power........ ........ .. [389] - [390]
Barriers to entry........ ........ ........ ........ ........ ........ ........ ........ ........ ... [391] - [396]
Retailing and the effect on market power........ ........ ........ ........ ........ ....... [397]
The significance of “free riding”........ ........ ........ ........ ........ ........ . [398] - [400]
Other matters on which expert evidence was given........ ........ ........ ........ [401]

THE CASE UNDER s 46........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [402] - [445]
General........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... [402] - [403]
Power in a market........ ........ ........ ........ ........ ........ ........ ........ ........ .... [404] - [438]
Was there a “taking advantage” of market power?........ ........ ........ . [439] - [441]
Purpose........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [442] - [445]

THE CASE UNDER s 47........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [446] - [485]
General........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [446] - [457]
Must there be a specifically identified competitor?........ ........ ........ [458] - [459]
Was there a purpose or effect of substantially lessening competition?........ .......
........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [460] - [485]

THE CASE UNDER s 45 - THE OVERSEAS CONDUCT........ ........ ........ ...... [486] - [498]
General........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... [486] - [495]
The proscribed purpose........ ........ ........ ........ ........ ........ ........ ........ ........ ....... [496]
Was there a substantial lessening of competition brought about as a result of the arrangement entered into?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ [497] - [498]

ACCESSORIAL LIABILITY........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [499] - [530]
The requirements of s 75B........ ........ ........ ........ ........ ........ ........ ...... [500] - [501]
Mr Handley........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [502] - [510]
Mr Dickson........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [511] - [517]
Ms Cohen........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . [518] - [527]
Mr Smerdon and Mr Maksimovic of Warner........ ........ ........ ........ .. [528] - [530]

CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... [531] - [532]

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

N 925 OF 1999
UNIVERSAL MUSIC AUSTRALIA PTY LIMITED (formerly known as PolyGram Pty Limited) (ACN 000 158 592)
FIRST RESPONDENT

SUSAN ELIZABETH COHEN
SECOND RESPONDENT

CRAIG HANDLEY
THIRD RESPONDENT

PAUL DICKSON
FOURTH RESPONDENT

N 924 OF 1999
WARNER MUSIC AUSTRALIA PTY LIMITED (ACN 000 815 565)
FIRST RESPONDENT

GARY SMERDON
SECOND RESPONDENT

GREGORY MAKSIMOVIC
THIRD RESPONDENT

JUDGE:

HILL J

DATE:

14 DECEMBER 2001

PLACE:

SYDNEY

REASONS FOR JUDGMENT
INTRODUCTION

The Australian Competition and Consumer Commission (“ACCC”) seeks pecuniary penalties and other relief in two proceedings brought by it under the Trade Practices Act1974 (Cth) (“the Act”). The first, (N925 of 1999), is a proceeding against Universal Music Australia Pty Limited (“Universal”); Ms Susan (“Sue”) Cohen, at relevant times Director of Legal and Business Affairs for Universal; Mr Craig Handley, at relevant times its General Manager, Sales; and Mr Paul Dickson, at relevant times the Group Managing Director, Music Operations. The second, (N924 of 1999), is a proceeding against Warner Music Australia Pty Limited (“Warner”); Mr Gary Smerdon, at relevant times the Finance and Business Affairs Director of Warner; and Mr Greg Maksimovic, at relevant times the NSW State Manager of Warner.
The two proceedings were heard together. However, much of the evidentiary material, so far at least as it concerned the market for recorded music in Australia and expert economic evidence, was common to both proceedings and hence was treated as evidence in the two proceedings. Not all the evidence admitted in respect of the conduct of the corporate respondents was admitted against the individual respondents.
Universal was formerly named PolyGram Pty Limited. It changed its name as a result of a merger in March or April 1999 between what may be referred to as PolyGram and Universal. Prior to that merger there was a company known as “Universal Music Australia” which had, as will be seen, approximately 4% to 6% of the recorded music market in Australia. It was in no way related to the entity PolyGram Pty Limited, which marketed recorded music under the PolyGram label. A consequence of the merger was to bring together the two labels of Universal and PolyGram, with the original PolyGram company (PolyGram Pty Limited) changing its name to “Universal Music Australia Pty Limited” and, at least for practical purposes, the company originally marketing recorded music under the Universal label (Universal Music Australia) ceasing to trade. To avoid confusion, the original Universal company will be here referred to as “6% Universal”. The company originally named PolyGram Pty Limited and which is now the first respondent will be here referred to as “PolyGram” when reference is made to events up to and including the merger and as “Universal” when reference is made, either to events post merger, or when reference is made to its position as a respondent in the present proceedings.
Each proceeding is concerned with conduct which is alleged to contravene the Act and which related to the marketing in Australia by Universal and Warner of compact discs (“CDs”). The background to each is the amendment of the Copyright Act 1968 (Cth) (“the Copyright Act”) in 1998 by the Copyright Amendment Act (No 2) 1998 (Cth) (the relevant amendments are here referred to as “the Copyright Amendments”) to make it possible, legally, for the importation into Australia of CDs from other countries, so long as they did not infringe the copyright laws of the country in which they were manufactured. Prior to the Copyright Amendments the importation into Australia of CDs manufactured outside Australia (at least where copyright protection was available in Australia) without the licence of the owner of copyright in Australia was an infringement of copyright and an offence. Such imports were and are popularly referred to as “parallel importing”. However, as and from 30 July 1998, as a result of the Copyright Amendments, but subject to the provisions of the Copyright Act, parallel importing was, generally speaking, no longer illegal, at least so long as the imported CD did not infringe the copyright laws of the country in which it was manufactured. The present law is set out later in these reasons. Those CDs which were able to be imported legally into Australia without the consent of the Australian copyright owner are here referred to as “non-infringing copies”. Those which were not, because they were manufactured overseas without the licence of the copyright owner, are here referred to as “infringing copies”. Where in these reasons reference is made to the legalisation of parallel importing that reference is intended to refer to the legalisation of the importation into Australia and without consent of the Australian copyright owner of non-infringing copies.

It is not surprising that the legalisation of parallel importing into Australia was not greeted with enthusiasm by those who manufactured and sold CDs in Australia with the consent of the copyright owner for Australia. Whereas prior to 30 July 1998 these manufacturers (and both Universal and Warner were such manufacturers) had a statutory monopoly on the manufacture in Australia and thus wholesale sale of CDs as a result of the copyright protection they enjoyed, that statutory monopoly substantially disappeared and the prospect opened of the importation into Australia for sale by others of non-infringing copies that were effectively the same as the Australian manufactured CDs. The importation could be effected by those who wished to sell the non-infringing copies by wholesale to record retailers or by the retailers themselves for sale to the public.
It is well known that the record companies in Australia lobbied long and hard to have the amendments to the Copyright Act defeated in Parliament. In that they were not successful. However, they did succeed in having the amendments passed in a form which, to some extent at least, rendered the position of the importer somewhat uncertain. The uncertainty arose because of the requirement of the amendments that it would continue to be an infringement of copyright in Australia to sell imported CDs (and other musical works, such as records and cassettes) unless the importer or vendor was able to establish that the musical work was manufactured with the licence of the copyright owner overseas. Given that the question of who the owner of copyright might be in other countries is not a matter of public record and given also that many of the record companies are members of international groups of companies, where the ownership of the relevant copyrights may be in the hands of more than one company in the group situated, perhaps, not in the country where the CD was manufactured, but in rather more obscure locations which international taxation laws might render advantageous, the burden of proof placed upon the importer or vendor to show the imported copy was a non-infringing copy might well be thought to be difficult if not impossible to satisfy. Indeed, as will be seen, the effect of the legislation and particularly the burden of proof provisions made it not unlikely that the manufacturers of CDs in Australia might, with little reason to believe it to be the case, allege that CDs imported or sold were infringing copies and thus stop the sale of what were alleged to be, although in fact were not necessarily, infringing copies.
THE COPYRIGHT ACT PROVISIONS
Under the Copyright Act, copyright will subsist at the least in both the words and the music of a musical work which is embodied in a CD. Such copyright is infringed if the work is reproduced on a sound recording. Likewise, copyright may subsist in the recording itself. It will be an infringement of a relevant copyright if a person not the owner of the copyright does anything in Australia without the licence of the copyright owner which the Copyright Act stipulates that the copyright owner has the exclusive right to do: ss 36 and 31 of the Copyright Act. It will thus be an infringement in Australia to reproduce a musical work as a sound recording, to reproduce a sound recording or to sell or distribute for trade the sound recording, without the licence of the relevant copyright owner. It also constitutes an infringement of copyright to import into Australia a CD for the purpose of selling it, where, if the importer had manufactured the CD in Australia, that manufacture would constitute an infringement, unless the CD imported is a “non-infringing copy of a sound recording”: s 44D. “A non-infringing copy” is defined in s 10AA of the Copyright Act to mean:
“… [a copy] made by or with the consent of:
(a)     the owner of the copyright or related right in the sound recording in the country (the copy country) in which the copy was made; or
(b)     the owner of the copyright or related right in the sound recording in the country (the original recording country) in which the sound recording was made, if the law of the copy country did not provide for copyright or a related right in sound recording when the sound recording was made; or
(c) …
(2)If the sound recording is of a work that is a literary, dramatic or musical work in which copyright subsists in Australia, the copy is a non-infringing copy only if:
(a)     copyright subsists in the work under the law of the copy country; and
(b)     the making of the copy does not infringe the copyright in the work under the law of the copy country; and
(c)     the copy country meets the requirements of subsection (3).”
[Subsection (3) is generally concerned with whether the country is a party to the international copyright convention or a member of the World Trade Organisation.]
Section 130A of the Copyright Act provides that in an action for infringement involving a copy of a sound recording:
“… it must be presumed that the copy is not a non-infringing copy unless the defendant proves that the copy is a non-infringing copy.” (emphasis added)
Each of the present cases is concerned with steps alleged to have been taken by Universal and Warner respectively to deter importers and others from parallel importing in the period shortly after the Copyright Amendments were passed. In general terms it is alleged that each engaged in conduct which constituted a breach of ss 45, 46 and 47 of the Act. Each denies that such conduct as it engaged in was a contravention of these sections. It will be convenient, before considering the evidence led in the cases, first to set out the relevant provisions of the Act said to have been contravened and then to outline the cases brought against each corporation (and its respective officers or employees) as pleaded.
RELEVANT PROVISIONS OF THE ACT
Section 45 relevantly provides as follows:
“45 Contracts, arrangements or understandings that restrict dealings or affect competition
…
(2) A corporation shall not:
(a)make a contract or arrangement, or arrive at an understanding, if:
(i) …
(ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or
(b)…
(3) For the purposes of this section and section 45A, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services.
(4)For the purposes of the application of this section in relation to a particular corporation, a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding shall be deemed to have or to be likely to have the effect of substantially lessening competition if that provision and any one or more of the following provisions, namely:
(a)the other provisions of that contract, arrangement or understanding or proposed contract, arrangement or understanding; and
(b)the provisions of any other contract, arrangement or understanding or proposed contract, arrangement or understanding to which the corporation or a body corporate related to the corporation is or would be a party;
together have or are likely to have that effect.
…
(8) This section does not apply to or in relation to a contract, arrangement or understanding, or a proposed contract, arrangement or understanding, the only parties to which are or would be bodies corporate that are related to each other.
…”
Section 46 relevantly provides as follows:
“46     Misuse of market power
(1)A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:
(a)eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;
(b)preventing the entry of a person into that or any other market; or
(c)deterring or preventing a person from engaging in competitive conduct in that or any other market.
(1A)     For the purposes of subsection (1):
(a)the reference in paragraph (1)(a) to a competitor includes a reference to competitors generally, or to a particular class or classes of competitors; and
(b)the reference in paragraphs (1)(b) and (c) to a person includes a reference to persons generally, or to a particular class or classes of persons.
(2)       If:
(a)a body corporate that is related to a corporation has, or 2 or more bodies corporate each of which is related to the one corporation together have, a substantial degree of power in a market; or
(b)a corporation and a body corporate that is, or a corporation and 2 or more bodies corporate each of which is, related to that corporation, together have a substantial degree of power in a market;
the corporation shall be taken for the purposes of this section to have a substantial degree of power in that market.
(3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:
(a)competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or
(b)persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.
(4)      In this section:
(a)   a reference to power is a reference to market power;
(b)   a reference to a market is a reference to a market for goods or services; and
(c)   a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.
…
(7) Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.”
Section 47 relevantly provides as follows:
“47     Exclusive dealing
(1) Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing.
(2)      A corporation engages in the practice of exclusive dealing if the corporation:
(a)   supplies, or offers to supply, goods or services;
…
on the condition that the person to whom the corporation supplies, or offers or proposes to supply, the goods or services or, if that person is a body corporate, a body corporate related to that body corporate:
(d)   will not, or will not except to a limited extent, acquire goods or services, or goods or services of a particular kind or description, directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation;
…
(3) A corporation also engages in the practice of exclusive dealing if the corporation refuses:
(a)   to supply goods or services to a person;
…
for the reason that the person or, if the person is a body corporate, a body corporate related to that body corporate:
(d)   has acquired, or has not agreed not to acquire, goods or services, or goods or services of a particular kind or description, directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation;
…
(10) Subsection (1) does not apply to the practice of exclusive dealing constituted by a corporation engaging in conduct of a kind referred to in subsection (2), (3), (4) or (5) or paragraph (8)(a) or (b) or (9)(a),
(b) or (c) unless:
(a)   the engaging by the corporation in that conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition; or
(b)   the engaging by the corporation in that conduct, and the engaging by the corporation, or by a body corporate related to the corporation, in other conduct of the same or a similar kind, together have or are likely to have the effect of substantially lessening competition.
…
(13)     In this section:
(a)a reference to a condition shall be read as a reference to any condition, whether direct or indirect and whether having legal or equitable force or not, and includes a reference to a condition the existence or nature of which is ascertainable only by inference from the conduct of persons or from other relevant circumstances;
(b)a reference to competition, in relation to conduct to which a provision of this section other than subsection (8) or (9) applies, shall be read as a reference to competition in any market in which:
(i)the corporation engaging in the conduct or any body corporate related to that corporation; or
(ii)any person whose business dealings are restricted, limited or otherwise circumscribed by the conduct or, if that person is a body corporate, any body corporate related to that body corporate;
supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the conduct, supply or acquire, or be likely to supply or acquire, goods or services; and
…”
THE ACCC CASE AS PLEADED – UNIVERSAL
The further amended statement of claim commenced by alleging the existence of both a wholesale recorded music market and a retail recorded music market. Alternative markets were also alleged, for example, a wholesale and retail CD market, a wholesale and retail “chart music market”, and a wholesale and retail “chart CD market”. It is not necessary to explore the alternative markets pleaded as ultimately the parties were agreed that the relevant markets were wholesale and retail markets for recorded music, of which CDs formed by far the greatest segment. By the time the events in question occurred, vinyl recordings and tape cassettes were, or were in the course of becoming, obsolete. The downloading through computers of digital information which translated into music and the burning of CDs from that information were both technologies in their infancy and for present purposes may be disregarded.
The pleading contained a number of prefatory averments. For example, it was alleged that Universal was a supplier of CDs in the wholesale market and held between 15-17% of market share. Other suppliers in that market included Warner with approximately 17-18% market share, Sony Music Entertainment Australia Pty Limited with approximately 25-27% market share, EMI Music Australia Pty Ltd with approximately 17% market share and BMG Australia Limited with approximately 7-8% market share. These five companies are referred to in these reasons as “the five major record companies”.
Next it is alleged, and of this there is no dispute, that Universal was part of a worldwide group of companies which at the relevant time manufactured and distributed CDs under the PolyGram label. PT PolyGram Indonesia (a company incorporated in Indonesia and relevant to the conduct later described as the “overseas conduct”) was also a member of that group. Each of the other four companies making up the five major record companies was likewise a member of a worldwide group manufacturing and selling throughout the world CDs under the Sony, Warner, EMI and BMG labels.
Reference is then made to what the pleading describes as “chart music”, that is to say music that is highly popular, although usually for a relatively short period, such that it appears on a chart, for example, “the Top 40”. It is said to be invariable or, alternatively, common that Universal had at any time some of its catalogue music on such a chart. For chart music in the Universal catalogue Universal was, before parallel importing was legalised, the sole source of supply in Australia. It is said to have been at all material times a “practical or commercial necessity” for all but a few music retailers to be able to obtain supplies of CDs, particularly chart music, from Universal. However, such small independent wholesalers as there were could not supply, at least prior to parallel importing being legalised, an exclusive or comprehensive range of CDs in the Universal catalogue.
The amendments to the Copyright Act, it is averred, brought about the situation that independent wholesalers (including Tempo International Pty Ltd (“Tempo”)) could import and offer for sale non-infringing copies. This, it is said, would be likely to affect competition by bringing about a downward pressure on prices of both chart music and back catalogue CDs. However, there were still difficulties for wholesalers to import non-infringing copies.
The particular behaviour alleged to contravene the Act is dealt with in the further amended statement of claim under a number of headings. The first heading is “Action against Australian retailers stocking non-infringing copies”. It relates to communications with Leading Edge Music Group Pty Ltd (“Leading Edge”); Claric 218 Pty Ltd and Palm Lake Pty Ltd, trading as Sanity Music (“Sanity”); Fish Records Pty Ltd (“Fish Records”); Centrey Music Pty Ltd, trading as Mall Music (“Mall Music”); and JB HiFi Pty Ltd (“JB HiFi”) to the effect that Universal reserved the right to review the terms and conditions of its trading relations if the other party chose to import non-infringing copies of their catalogue. For convenience, this group of allegations may be referred to as “the trading terms communications”. In fact the reference to Claric 218 Pty Ltd and Palm Lake Pty Ltd should have been a reference to a group of companies including Claric 218 Pty Ltd and Palm Lake Pty Ltd.
The second conduct complained of is the adoption by Universal of a policy and subsequent communication of that policy to a number of retailers. The policy complained of concerned retailers which stocked imports consisting, inter alia, of non-infringing copies and included a term that Universal might cease to have a trading relationship with them should they choose to stock imports which were non-infringing copies of Universal’s catalogue. For convenience this group of allegations may be referred to as “the Universal policy”.
The next conduct complained of is that Universal ceased to supply a number of retailers because they had acquired imported non-infringing CDs from a competitor of Universal. The retailers named are Trevan Enterprises Pty Ltd, trading as Bull Creek Compact City (“Compact City”); West’s (Burwood) Pty Ltd, trading as West’s Sound Bar and Ultimate Music Pty Ltd (“Wests” and “Ultimate Music”). In both cases it is alleged that trading relations were ultimately resumed.
The next conduct complained of relates to what is said to be “Curtailing imports of non-infringing copies from Indonesia”. There is averred to have been an arrangement or understanding entered into by Universal (with any one or more of a Mr Shih, PT Warner Music Indonesia, PT Sony Music Entertainment Indonesia, PT PolyGram Indonesia, PT EMI Indonesia and the relevant BMG trading entity in Indonesia) to prevent or minimise the export from Indonesia to Australia of the then PolyGram range of recorded music. In the context of the claim against Universal this is referred to as “the overseas conduct”.

The individual respondents are alleged to have aided or abetted the contraventions of the Act by Universal or to have been knowingly concerned therein, by reason of conduct which is particularised in the further amended statement of claim and need not be set out here.
THE ACCC CASE AS PLEADED - WARNER
The preliminary averments in the Warner proceedings are in similar terms, save that it is alleged that Warner had at relevant times a share of approximately 17-18% of the wholesale market by sales value.
It is alleged that Warner likewise entered into an arrangement or understanding with any one or more of Mr Shih, PT Warner Music Indonesia, PT Sony Music Entertainment Indonesia, PT PolyGram Indonesia, PT EMI Indonesia and the relevant BMG trading entity to prevent or minimise the export from Indonesia to Australia of Warner recorded music. That alleged conduct in the context of Warner is here referred to as “the overseas conduct”.
In addition it is alleged that Warner took action against Australian retailers who stocked non-infringing copies. The conduct complained of is said to be the following:
·That on or about 20 July 1998 Warner advised its Australian retailers that if they ceased to source recorded music in the Warner catalogue exclusively from Warner or sourced supply through parallel imports of non-infringing copies, Warner would no longer provide trading benefits, including support of sales and promotional teams, extensive point of sale material, television, print and radio advertising and promotional visits. This conduct is here referred to as the “Warner trading terms threat”.
·That Warner closed the account of Raiders Music Pty Ltd (“Raiders”) because Raiders had stocked parallel imports of non-infringing copies. It is alleged that the account was ultimately reopened.
The amended statement of claim alleges that the individual respondents aided and abetted Warner in the alleged conduct or were knowingly concerned therein. Particulars are supplied of what is said to give rise to their accessorial liability.
OUTLINE OF THE MATTERS DEALT WITH IN EVIDENCE
There was a veritable flood of evidence at the hearing which came to resemble a royal commission into the record industry in Australia. In essence the evidence fell into three categories.
First, there was evidence led as to the conduct alleged. That evidence was admissible only against the particular record company with which it was concerned and not against the other. Not all the evidence led against the particular record companies was admissible against the individuals charged with accessorial offences. The discussion hereafter outlines the evidence as admitted against the corporate respondents. It does not necessarily reflect the findings I would make on the more limited evidence admitted against the particular individual respondents. That is dealt with later in these reasons.
Secondly, there was evidence which went to the market, that is to say the record industry as a whole. Of course the separation between conduct evidence and evidence going to the market was not a true dichotomy. However, it can be said generally that the market evidence was admissible against all parties in all proceedings.
Finally, there was economic evidence. For the ACCC evidence was given by Mr Henry Ergas and for both Universal and Warner evidence was given by Professor Hausman. That evidence was likewise admitted not only as against the corporate respondents, but also against the individual respondents.
Although virtually all of the evidence in chief (other than the large amount of documentary evidence which was tendered, mainly by agreement but subject on many occasions to relevance) was on affidavit, many of those who gave evidence were cross-examined at some length. Generally it can be said that there was little cross-examination directed at the credit of the witnesses.
None of the individual respondents gave evidence, a matter which drew comment from senior counsel for the ACCC on the basis of “the rule in Jones v Dunkel”. That rule, applicable, without question, in civil cases generally, requires that the failure of a party, in the absence of an excuse, such as the unavailability of the witness, to call evidence from a person whose evidence might be expected to throw light on an issue in the case permits the inference to be drawn that the evidence of that party would not assist the case of the party not calling the witness. The failure to call the witness also enables the trial judge more comfortably to draw an inference that was otherwise open.
Where the proceedings are criminal (and the present proceedings are not; they are proceedings, inter alia, for the recovery of a civil penalty) it might be thought that the failure of the accused to go into evidence should not lead to the drawing of Jones v Dunkel inferences. After all it is clear that a witness can not be compelled to give evidence which is likely to incriminate the witness or expose the witness to a penalty. However, even in criminal cases it has been held that the failure of the accused, who is in a position to deny, explain or answer the evidence adduced by the prosecution, to give evidence will permit the jury to draw inferences adverse to the accused more readily: see Azzopardi v R (2001) 179 ALR 349, affirming Weissensteiner v R (1993) 178 CLR 217. A fortiori, therefore, the failure of a respondent to proceedings for recovery of a pecuniary penalty to give evidence on a matter relevant to an issue in the proceeding and deny, explain or answer the evidence adduced against the respondent will permit the Court more readily to draw the inferences to which the decision in Jones v Dunkel refers.
It will be convenient to set out the evidence under the three headings – Conduct, Market and Economic evidence. Matters of conduct will be separated into the evidence so far as concerned Universal and the evidence as concerned Warner. The conduct evidence hereafter discussed is not, however, limited to the conduct relied upon by the ACCC and pleaded by it as constituting breaches of the Act, although the evidence discussed includes that conduct. That part of these reasons as relates to conduct will deal also with other conversations, meetings or actions of the respondent record companies so far as those conversations, meetings or actions throw light on the purposes of those companies, or so far as evidence of them is otherwise necessary to place in context the conduct alleged to breach the Act. Unless otherwise indicated it may be taken that I have accepted the witnesses whose evidence is referred to as witnesses of truth and that the summary of evidence which follows represents my findings of primary fact. Indeed, it was only rarely that it could be suggested that evidence of a witness should, or even could, not be accepted.
UNIVERSAL - AUSTRALIAN CONDUCT
The steps taken by Universal after the legalisation of parallel importation
The potential amendments to the Copyright Act were the subject of concern to the record industry and the executives of Universal. PolyGram reacted as soon as 15 July 1998 by contacting a number of retailers to advise them of what Universal, in response to a notice given by ACCC (“the s 155 notice”), referred to as the “PolyGram Policy”. So on that date Mr Handley spoke with Mr Gavin Ward of Leading Edge, a cooperative buying group at that time consisting of some 200 independent retailers to which, among others, Mr and Mrs Delaney of Wests and Ultimate Music belonged. It is admitted in the response to the s 155 notice that Mr Ward was advised that PolyGram reserved its right to review the terms and conditions of its trading relationship with Leading Edge if it chose to parallel import PolyGram recordings. Universal’s response continues by asserting that Leading Edge reserved its right to parallel import but would continue to obtain PolyGram titles from PolyGram and inform it if it proposed to parallel import PolyGram recordings. Mr Ward did not give evidence.
The same day there was held what a minute recording the meeting refers to as the “parallel importing brainstorming session” (“the brainstorming meeting”). Present at that meeting were, among others, Mr Dickson and Mr Handley. There was discussion of a threat from three countries, Indonesia, Malaysia and Thailand. Both Indonesia and Malaysia manufactured CDs but needed “regional permission” to do so. The threat from imports was seen to be “mainly chart pop product, big name acts and a little classics”. The “cool” product would come in through Europe and would be quite expensive and thus not a threat.
The meeting then considered the probable reaction of retailers. It was appreciated that HMV was a “major threat”, presumably because it was big enough to withstand pressure, but also might well be large enough to import itself. Mr Handley was of the view that a 2% discount HMV was receiving on advertising should be dropped and the original trading terms (which presumably did not include that discount) should be reinstated. Big W was of less concern because it had no intention to import. It did not have the necessary “systems” to do so. On the other hand it was thought that Sanity, Central Station and Sound Waves would import. Most of the discussion, at least as recorded, focused upon a variety of discounts that could be given to retailers to allow them to reduce price. Price reduction was something that customers would expect. Those present noted that the ability of retailers to purchase at least some titles on the basis of sale or return (“SOR”) was something that could not be matched should retailers import recordings. A decision was made to mark Australian CDs as “Made in Australia” and to include an extra bar code to enable Australian product to be recognised.
On 16 July 1998 Mr Dickson and Mr Handley met with Mr Agostinelli of Sanity in Melbourne. As at mid-1998 a Mr Hazell of HMV estimated Sanity’s share of the market to be about 20%. As soon as the legislation was amended Mr Dickson had immediately phoned Mr Agostinelli and asked him not to do anything until they met, as PolyGram had a “better deal” for Sanity. According to the response to the s 155 notice, PolyGram, at the meeting which followed, reserved the right to review the terms and conditions of its trading relationship with Sanity if that company chose to parallel import PolyGram recordings. Mr Agostinelli recalled the meeting but made no reference to the “reservation” on the part of PolyGram. His evidence was that he had told Mr Dickson and Mr Handley that while Sanity would like to support the record companies, the market would be more competitive with people sourcing products from anywhere around the world and in consequence achieving lower retail prices. Mr Dickson had said that before Sanity sourced products from overseas PolyGram would match any prices that Sanity could obtain through purchasing in Asia.
Approximately a week later there were negotiations between Sanity and PolyGram concerning trading terms. Mr Handley and Mr Dickson told Mr Agostinelli that if Sanity were to go offshore it might lose the current trading terms it had in place. By trading terms Mr Agostinelli understood such advantages as sale or return as well as other benefits Sanity enjoyed. Mr Agostinelli responded by saying that if the market became competitive, Sanity would have no choice but to source product overseas.
On 20 July, according to the responses to the s 155 notice, a meeting took place between Ms Cohen, Mr Handley and Mr Dickson in an attempt to develop for PolyGram a policy in response to the Copyright Amendments. All available legal options were to be evaluated and consideration given “as well” to addressing concerns about piracy. Just what legal options are referred to is not clear.
The next day Mr Handley and Ms Allen (the NSW State Manager of PolyGram) met with Mr Nemeth of Fish Records. In 1998 Fish Records had seven retail stores in and around the city and inner suburbs including one at the international airport terminal.
According to Mr Nemeth, Mr Handley said that PolyGram’s policy regarding parallel importing was that PolyGram would be prepared to review the terms of the trading relationship if Fish Records chose not to parallel import PolyGram recordings. PolyGram would review advertising subsidies, allowances for returns of unsold recorded music and the level of support provided by sales representatives. However, according to Mr Nemeth’s evidence in chief, Mr Handley said:
“… if you parallel import, PolyGram would also review its terms of trading and it may cease to have a trading relationship with you. We won’t look upon you with any favours if you parallel import. It’s not good for the industry.”
Mr Nemeth chided Mr Handley not to threaten him, saying that he was happy with the PolyGram marketing strategy and at that point would not parallel import. However, he said that if his direct competitors, eg HMV, did, Fish Records would be obliged to take a look at it, but otherwise would stay on the fence.
It was put to Mr Nemeth in cross-examination that Mr Handley had in the passage quoted above said “could” and not “would”. Mr Nemeth indicated that he could no longer say which word had been used. However, he agreed that the meeting had ended amicably. I think it is more probable than not that Mr Handley used the word “would”.
On or about the same day (21 July 1998) Mr Dickson phoned Mr Bonouvrie of Mall Music. Mr Bonouvrie did not give evidence. Mall Music had approximately 0.3% of the retail market. According to the response to the s 155 notice Mr Dickson outlined the PolyGram Policy noting that PolyGram reserved its right to review the terms and conditions of its trading relationship should Mall Music choose to parallel import. It is said that Mr Bonouvrie was advised that PolyGram reserved its right to cease supplying PolyGram recorded music to Mall Music if that company chose to parallel import PolyGram’s recordings. It is said that Mall Music responded by reserving its right to do so.
A memorandum dated the same day from Mr Dickson to Mr Handley and others recorded the results of the brainstorming meeting. Mr Dickson advised that Big W and Sanity were not the threat it was originally thought they would be and that HMV would set the pace on parallel importing. Mr Dickson indicated that his view was that Universal could hold its price per dealer on all price points, but would have to wheel and deal and play to Universal’s strengths, not its weaknesses. He predicted that turnover would be down 7% for 1998.
Also on 21 July 1998 Mr Handley had a telephone conversation with Mr Durrant of JB HiFi. That company had stores in Victoria, NSW and Queensland with about 4 to 5% of the Australian music market, at least in Victoria. The company held itself out as a specialist in back catalogue material across all genres of music. Approximately 85% of its wholesale purchases were with the major record companies. According to the response to the s 155 notice, Mr Handley advised that PolyGram reserved the right to review terms of trade and to cease supplying PolyGram Australia recorded music if JB HiFi chose to parallel import. Mr Durrant is said to have likewise reserved the rights of JB HiFi to parallel import. Mr Durrant could not recall the terms of such a conversation, although recollected that he had had conversations with Mr Handley about parallel imports. In cross-examination by senior counsel for Universal Mr Durrant said that he had done nothing different from what he ordinarily would have done as a result of the conversation. Given the admission by Universal in the response to the s 155 notice I would find that Mr Handley did have a conversation with Mr Durrant in the terms admitted.
Other meetings attended by Mr Handley and/or Mr Dickson not the subject of pleading but which concerned communication of the PolyGram Policy
In addition to the meetings already noted, either or both of Mr Handley and Mr Dickson met with or spoke by telephone to executives of other retailers to make known their attitude to the importing of parallel imports. Among the executives with whom they met or spoke by telephone to were, according to admissions made by Universal, executives of Hockey Enterprises Pty Ltd, trading as Record Market (“Record Market”); Chatminister Pty Ltd, trading as Toombul Music Centre; The Music Shop; Vox Retail Group Limited (“Vox”); Woolworths Ltd, trading as Big W (“Big W”); Target Australia Pty Ltd (“Target”); Kmart Australia Ltd, trading as Kmart (“Kmart”); and One Stop Entertainment Pty Ltd. The responses to the s 155 notice refer to these meetings as having discussed the substance of a PolyGram Policy involving either or both of the reservation of the right to review the terms of the PolyGram trading relationship or the reservation of a right to cease supplying in the event that the retailer chose to parallel import. Apart from the tender of the responses, no affidavit or oral evidence was called by the ACCC concerning these meetings other than the evidence of Mr Holman and Ms Kells of Big W.
According to the evidence of Mr Hardiman of Target there was no meeting with him as suggested by the responses to the s 155 notice. Rather, it would seem, the meeting referred to was with his assistant Mr Shane Richardson. Mr van Wessem of Kmart did not recall a conversation on the date on which Universal suggested in its responses to the s 155 notice such a conversation had taken place, but did have a conversation some days later.
Among the most important of the meetings at which the policy was communicated, was a meeting with Mr Hazell of HMV held on 23 July 1998. Mr Hazell, who was a most impressive witness and whose evidence I wholly accept, swore affidavits in the proceedings and was cross-examined upon them.
HMV Media Group PLC was until March 1998 a wholly owned subsidiary of EMI PLC (“EMI”), an international record company. HMV Australia Pty Ltd, trading as HMV (“HMV”), was and is a wholly owned subsidiary of HMV Media Group PLC. In March 1998, as a result of a management buy out, the interest of EMI was reduced to approximately 45%. EMI continued to have representation on the board of HMV with one director.
In 1998 HMV had a little under 10% of the recorded music market in Australia, with a retail turnover of around one hundred million dollars. By the year 2000 HMV had 29 stores located in Queensland, Victoria and New South Wales (it can be assumed that the situation was not materially different in mid-1998). It is a specialist music retailer seeking to cater to a wide range of interests amongst record buyers. Mr Hazell was Managing Director of HMV from 1 January 1998 and continued in that position until 30 April 2000. Prior to that time he had had extensive experience in the recorded music industry, both with EMI and as a consultant to various record companies.
According to the Universal responses to the s 155 notice, Messrs Dickson and Handley met with Mr Hazell on 23 July 1998 and advised him that PolyGram reserved the right to review the terms of trading with HMV and to cease supplying HMV if it engaged in parallel importation of PolyGram labels. Mr Hazell in his affidavit evidence said that he arranged to meet with the senior people of the various record companies to discuss reviewing the terms and conditions of trading following the changes in the copyright law. A meeting with Messrs Dickson and Handley took place at some time in July. At that meeting Mr Dickson expressed his disappointment at the copyright law being amended, noting that the introduction of parallel imports was very bad for the industry and absolutely the wrong decision. Mr Dickson then said:
“Our legal advice is that we can withdraw supply of PolyGram product to any retailer who parallel imports as we do not have a dominant market share in the industry.”

Mr Hazell questioned this advice, pointing out to Mr Dickson that effectively PolyGram had a monopoly on PolyGram artists and that there would be no other source if a retailer wished to purchase a locally released artist who had not been released in another territory. The discussion continued with the participants referring to particular retailers who were likely to parallel import, including Big W. Mr Dickson then said that PolyGram would have absolutely no hesitation in stopping supply to Big W or to any other retailers that chose to parallel import, particularly if PolyGram did not see the retailer as contributing to the industry. He said that he felt confident that he could legally do so.
Mr Hazell signalled to Mr Dickson that HMV would purchase locally unless the commercial benefits were so attractive or HMV felt it was becoming uncompetitive in the minds of consumers. Mr Dickson then replied that he hoped PolyGram would be able to support HMV so that it did not feel it necessary to parallel import as PolyGram viewed HMV as integral to the development of the Australian music industry.
At this point Mr Handley or another PolyGram representative took out of a bag three CDs and placed them on a table, saying that the particular CDs, which were imported CDs, had been purchased by HMV prior to the change of the copyright law. A Mr Wright of HMV then checked the CDs on a computer system and on returning to the meeting said that they had been originally sold to HMV by PolyGram through the PolyGram indent system, ie they were not imported in breach of the then copyright law.
The meeting concluded with Mr Hazell stating that he would not wish to jeopardise the mutual support that characterised the relationship between PolyGram and HMV for the sake of importing one or two products. However, he said that if HMV were exposed it would have no hesitation in exercising its legal right to import.
Mr Hazell was cross-examined about this meeting. He said that either at this meeting or at another meeting there had been some discussion about the fact that those who imported CDs were “picking the eyes out of the product”, that is to say, only importing and selling the big selling items. Such retailers, it was said, gave nothing back to the industry and had an opportunity to be able to “free ride” on the marketing of the record company. Mr Hazell emphasised that he had told the PolyGram representatives that HMV would not want to jeopardise the relationship with PolyGram for the sake of importation of one or two titles. Mr Hazell, not surprisingly, did not remember all the detail of what was said at this meeting. Indeed, it would seem that the subject of parallel importing had arisen at this and other meetings, including meetings prior to the amendment of the copyright law.
Mr Hazell accepted that one of the PolyGram representatives could have said at this meeting that free riding by retailers could alter PolyGram’s business structure. At this or some other meeting there was discussion that PolyGram’s ability to invest in new artists could be inhibited and that the market could contract.
There is little doubt that Mr Hazell’s overall aim in negotiations with PolyGram and indeed other record companies both before and after the legalisation of parallel importing was to extract the best trading terms he could for HMV. Indeed, from the time he arrived in Australia, he was charged with the responsibility of improving the trading terms which HMV obtained from the record companies.
Although HMV had taken a publicly neutral position on the proposed amendments to the copyright law it had, Mr Hazell said, no firm plans to take advantage of the ability to parallel import. On the other hand, HMV was possibly in a position to be able to exploit its position in the market place with the record companies to its best advantage by seeking out better trading terms (eg discounts, rebates, etc) in return for agreeing not to import, although reserving the right to do so. HMV did, however, investigate the feasibility of importing non-infringing copies.
In around September 1998 Mr Hazell prepared a “Strengths, Weaknesses Opportunities and Threats” (SWOT) analysis of sourcing products from overseas. In that analysis Mr Hazell noted that the HMV percentage margin, although not necessarily its cash margin, could increase if it imported CDs and that retail price would fall. He noted, further, that HMV could use parallel importing as a lever to negotiate better discounts in the long term. Among the difficulties he saw with parallel importation from the point of view of HMV were the fact that not the whole range was available in Asia, that there were extended lead times, that there could be “increased out of stocks”, that importation from Europe where the range was greater would result in a higher retail price or lower margin, that there would be no contribution from the local suppliers towards marketing, no returns available for imported product and there would be a need for storage and distribution infrastructure. The strategy he arrived at by the time he had completed the analysis was to look to the various record companies for their support to neutralise the threat they and HMV faced from parallel importation. The feasibility of HMV importing non-infringing copies was deferred until at least into the new year. To this end Mr Hazell had various meetings with record industry executives.
In October 1998 Mr Hazell noted that Big W was, for the first time, advertising 5 PolyGram chart CDs for under $20. He immediately wrote to executives of the major record companies, other than PolyGram but including Warner, seeking to enquire what they intended to do to defend the margin and position on price of HMV. In the case of PolyGram, he had further discussions with either or both of Mr Handley and Mr Dickson and learned that Big W had been able to price the CDs offered for sale at reduced prices because of some bulk purchase deal done between Big W and PolyGram.
Later in the month Mr Hazell wrote to the major record companies, including the President of PolyGram in Australia, Mr Read, referring to a television program in which, apparently, HMV had been criticised for not responding to the opportunities by then available to parallel importers. Mr Hazell noted the inference that HMV competitors were selling CDs (presumably imported) at reduced prices. He stated that HMV had continued to support local supply despite the fact that competition had increased but now needed to respond if it was to maintain its strength in the retail market. He said that his commitment to PolyGram had always been to discuss all options before importing and accordingly he would be calling upon Mr Read to establish what alternatives were open to HMV. Mr Read, however, was at the time out of the country and unavailable. Because by then PolyGram was in the course of merger, no meeting took place.
In January 1999 HMV reached an interim agreement with PolyGram on trading terms. The interim agreement was to continue for about three months. The change in terms coincided with PolyGram by then matching its trading terms to those of 6% Universal as a result of the merger. By the time agreement was reached in June for an annual agreement HMV was obtaining more generous trading terms than it had previously obtained.
In February 1999 HMV made available for sale in its flagship stores in Sydney, Melbourne and Brisbane some 1000 or more copies each of three titles which had been imported. Sales of these titles were good in comparison with sales of locally manufactured product and in the result HMV imported a similar quantity of another 15 titles. The fact that HMV intended to give customers a choice of imported versus local titles was the subject of a press release at the time. These initial titles were largely Sony titles imported from an HMV related company in Canada. The selection of Sony titles appears to have been intended to put pressure on Sony to improve the trading terms that company had with HMV. Pressure was placed on Sony at this time with HMV threatening that without agreement it would increase parallel imports of Sony labels. The pressure was successful. Around the same time HMV threatened not to carry product of Festival Mushroom Group as a result of an arrangement at that time apparently entered into between Sanity and Festival Mushroom Group relating to Internet downloading of artists contracted to Festival Mushroom Group.
The evidence relating to the formulation of the Universal policy (also referred to as “the PolyGram Policy”)
The response to the s 155 notice admits that on 22 July 1998 a policy which Universal refers to as “the PolyGram Policy” was agreed at a meeting attended by Ms Cohen, Mr Handley and Mr Dickson. Legal advice had by then been taken and consultations had taken place with the PolyGram Regional Head Office in Hong Kong. As set out in the response the policy was as follows:
“PolyGram would be prepared to review the terms of its trading relationship with those retailers with whom PolyGram had an existing relationship who chose not to parallel import PolyGram recordings;
The commercial matters in respect of which PolyGram may be prepared to review its trading relationship would include:
(a)   advertising subsidies to be provided by PolyGram to retailers,
(b)   the allowances which would be provided by PolyGram for returns of unsold PolyGram Australia recorded music,
(c)   the level of support that PolyGram sales representatives would provide to retailers,
(d)   the time within which PolyGram Australia recorded music must be paid for by the retailer,
PolyGram may also review the terms of its trading relationship with those retailers who chose to parallel import PolyGram recordings.
PolyGram may cease to have a trading relationship with those retailers with whom PolyGram (sic) who chose to parallel import PolyGram recordings.”
Implementation of the Policy? The refusal to sell to Mr and Mrs Delaney
Mr and Mrs Delaney were involved in two retail outlets. The one outlet, trading as West’s Sound Bar, was a music store in Westfield Shopping Mall at Burwood. It was under the proprietorship of West’s (Burwood) Pty Ltd and was run by Mrs Delaney, who also controlled West’s (Burwood) Pty Ltd. In the year to 30 June 1998 that store had a retail turnover of around $800,000, of which approximately 90% resulted from sales of recorded music. Total music purchases were approximately $500,000. Approximately 20% of the stock sold was sourced from PolyGram, although the percentage varied depending upon perceptions of popularity. At the time the events here narrated occurred, Westfield Shopping Mall was in the course of closing down, presumably for renovations. In the result, the store itself was to close down and its closure was advertised around mid-August of 1998.
Approximately one third of sales by Wests was of chart music. The balance represented back catalogue. International (alternative musical traditions) and classical titles represented one third of sales and the remaining one third was mainly popular music and jazz. The international titles were not available in Australia through the major record companies but were purchased through small independent wholesalers including, at the relevant time, Tempo.
Mr Delaney was a director of Ultimate Music. He was not a director of Wests. Mrs Delaney, however, was a director and shareholder of Ultimate Music, although apart from an involvement in the company when it originally opened for business she did not thereafter appear to have much involvement at all. Ultimate Music operated a music retail store located in Carlingford Court shopping mall. That store was run by Mr Delaney. Recorded music comprised 70% of the turnover of Ultimate Music and of this 70%, 30% represented chart music. Turnover for recorded music was, as put to Mr Delaney in cross-examination and which he accepted, approximately $200,000. Stock purchases were made as to 15% from Leading Edge and the balance from the major record companies. In the 1998 year Ultimate purchased stock from PolyGram of approximately $55,000 to $60,000, which represented approximately 20% of recorded music sales. This would suggest turnover of a somewhat higher figure. Nothing, however, turns upon the accuracy of these figures.
On 25 August 1998, Ms Allen phoned Mrs Delaney to inform her that Wests’ account with PolyGram and the account of Ultimate Music with PolyGram had been closed. It seems that Ms Allen had, the preceding Saturday, discovered that Wests had sold some imported CDs. There had been a trap purchase involving two titles, being respectively, “Grease, 20^th Anniversary edition” and “Postcards from Heaven” by The Lighthouse Family.
Ms Allen said, according to Mrs Delaney, that Mrs Delaney was within her legal rights to sell imported CDs but that PolyGram had taken a stance to support those who supported Australian products and manufacturers. She said that it was Mrs Delaney’s choice to purchase the imported CDs but that PolyGram had made a decision. Ms Allen said that the Credit Manager of PolyGram would contact Mrs Delaney. Mrs Delaney complained that the sale of imported titles had nothing to do with the Carlingford store. Ms Allen, however, said that the two accounts were closed because Mrs Delaney was a director of both Wests and Ultimate Music. It may be noted that there was no suggestion made by Ms Allen to Mrs Delaney that the imported titles were infringing copies or, in normal parlance, “pirated”.
According to Mrs Delaney, she then telephoned her husband and told him the substance of the conversation. Senior counsel for Universal cross-examined Mr Delaney to make the point that Mr Delaney had referred to the particular titles in a conversation he narrated at hearing as having taken place with his wife on the day the trap purchase occurred, that being the first time he had learned that his wife had purchased parallel imported titles, yet in his affidavit he had stated that he had been told by his wife that she had purchased these titles, being imports, from Tempo some time earlier. I have no doubt that Mr Delaney was confused by the cross-examination, but I accept him to be a witness of truth. The detail of when he first knew is an irrelevant detail for present purpose.
The same day as Mr Delaney learned from his wife that the Ultimate account was closed, he called the Credit Manager of PolyGram and requested that an account be opened for Ultimate guaranteed by him. The Credit Manager refused, indicating that PolyGram did not have to supply anyone any more because Ultimate could source its product elsewhere. Mr Delaney said that this was impossible, that he had done nothing wrong and that Ultimate had never had an imported or pirated CD in the shop. He was told that there was nothing that could be done. There was to be a meeting with Mr Handley when a decision would be made.
That day Mr Delaney made contact with the ACCC. It would seem that he spoke directly to Professor Fels and an arrangement was made for him to meet officers of the ACCC the following afternoon. On 26 August 1998 Mr Delaney faxed to Mr Dickson a letter, which so far as is relevant said:
“On Saturday August 22 at approx. 1.15pm Joanne Tomic a previous employee of Polygram Pty. Ltd. and a part time employee of ours, observed Ms. Wendy Allen, the Sales Manager of Polygram, in the music store known as Wests Sound Bar, 5 Westfield Shoppingtown, Burwood N.S.W. Ms Allen left the store and very soon after a person unknown purchased two cd’s both of which are distributed by Polygram.
The customer was then seen by Joanne Tomic to give the cd’s to Wendy Allen who was waiting outside the store next door.
The next contact with Ms. Allen was on Tuesday morning when she telephoned my wife and in a very matter of fact way informed her that the account was closed due to the fact that the cd’s purchased on Saturday were imported and that although she was legally within her rights Polygram had to take a stand.
My wife was further informed that because of her involvement in the business at Carlingford, by way of directorship we presume, as she has no responsibility other than that, that the account was also closed.
I spoke later in the day with the Credit Manager Mr. Amar Khoury who reconfirmed Ms. Allens stand and at that time advised me that he was no longer obliged to supply me with goods as they could be sourced from another area. What a contradiction….”
Mr Delaney asked that there be reconsideration of the closing of the account, suggesting that both principle and legality were at issue. The letter indicated that Professor Fels had become involved and prominence was given to the fact that a copy of the letter had been sent to Professor Fels.
The next day Mr Dickson replied to Mr Delaney. There is a strong inference, more readily to be drawn in the absence of Mr Dickson giving evidence, that the suggestion, apparently made by PolyGram for the first time, of copyright infringement was prompted by the knowledge that the ACCC had become involved. The letter, which was headed “Wests Sound Bar Lighthouse Family ‘Postcards from Heaven’” said, relevantly:
“You are of course aware of the recent changes to the Copyright Act 1968 which permit the direct importation into Australia, for commercial sale, of non-infringing copies of CDs made overseas. Both the Australian Government and the ACCC have spent considerable time and resources explaining the so-called benefits of this new legislation to the Australian consumer, and particularly the retailer, with the emphasis on encouraging you, the retailer, to import from overseas (and not to buy locally).
This new parallel import regime provides a substantial opportunity for counterfeit stocks to come into Australia. Legitimate stocks may be mixed with infringing copies, giving the already overburdened Customs Department, a virtually impossible task of detection.
The new Legislation now places the onus on the importer/the retailer to be responsible and to satisfy all the legal requirements set out in the Legislation in every respect. Unless a retailer can do this to the satisfaction of the copyright owner (with this title, being PolyGram, for example) and also to the satisfaction of any court, then the copy will be deemed an infringing copy.
You’ve chosen to import from the South East Asian Region, a part of the world where piracy is rife and where there is a high likelihood of product being ‘infringing’. This should make you more vigilant and require you to be more cautious. A handwritten note from an exporter won’t help you to satisfy the onus of proof required by law.
Just by looking at the product you’ve imported and without yet the benefit of technical reports (currently being done), anyone can easily see that the copy purchased from your Wests Sound Bar compared to a legitimate copy, is ‘suspect’, for example:
Different wording on disc
Logos in different position and size
Different type and font
Poor artwork quality
Tray different colour
Incorrect spelling
The list could be longer.”
After a further discussion of the copyright law with emphasis on the burden of proof being upon Mr Delaney to establish that the imported recordings had been made with the licence of all relevant copyright owners in the place of manufacture, the letter continued:
“As to your point concerning the Carlingford business, we have no obligation to supply anyone.
You do have an alternative. You can stop importing PolyGram repertoire from these suppliers. We would rather have you as a customer, than as a litigant.”
It may be remarked that the tests when carried out in fact demonstrated that the copy of the Lighthouse album was not an infringing copy at all. There is no reference in the letter to the Grease CD. A suggestion was put to Mrs Delaney in cross-examination that the Grease album contained a CD-ROM track and was thus not protected by the Copyright Amendments, which apply only to audio. She said that by the time Mr Dickson’s letter was received, the Grease CDs had been sold to members of the public and that she was unable to say whether the album did in fact contain a CD-ROM track. The copy that was the subject of the trap purchase was not the subject of any test report in evidence and in fact had been lost. In cross-examination Mrs Delaney was asked whether she was aware that the CD had a CD-ROM track, to which she replied, “presumably, yes”. Immediately after that answer, however, she said that she had never looked at the “slick”, being the insert. The person who could have given evidence one way or the other as to whether the recording purchased did have a CD-ROM track on it was Ms Allen. There was no explanation of the failure to call Ms Allen.

In my view the ACCC has not proved that the overseas agreement (or any understanding or arrangement upon which it was premised) was entered into by or on behalf of Universal or Warner. Accordingly the case based on s 45 must fail.
The proscribed purpose
It is well established that the purpose to which s 45 refers is a subjective and not an objective purpose: see ASX Operations referred to earlier in the discussion on s 47. Such purpose may, and indeed will, ordinarily need to be inferred from the surrounding circumstances and the anti-competitive effect of the arrangement etc. I would have little difficulty in inferring that in acting as they did, each of Mr Smerdon and Ms Cohen acting on behalf of Warner and PolyGram respectively contacted their respective counterparts in Indonesia seeking assistance with the purpose of seeking to prevent the importation of imported CDs bearing the Warner or Universal label as the case may be into Australia. In so far as the prevention of such importation had the effect of substantially lessening competition, then I would find each had the necessary proscribed purpose.
Was there a substantial lessening of competition brought about as a result of the arrangement entered into?
In my view no different question arises under this heading than has already been discussed in the context of s 47, notwithstanding that the conduct in question is different. It is difficult to see how there could be different conclusions reached under ss 47 and 45 in the present case. The conduct proved was directed at the same end. Nor did I understand counsel to suggest otherwise. My finding that there was a substantial lessening of competition in the case of the conduct said to contravene s 47 is equally applicable to the case sought to be brought in respect of the overseas conduct of Warner and Universal under s 45.
It follows, however, that the charges brought under s 45 must nevertheless fail.
ACCESSORIAL LIABILITY
It does not follow from my finding that each of Warner and Universal contravened ss 46 and s 47 of the Act that the individual respondents likewise should be found to have contravened these sections. This comes about because not all evidence admitted against the corporations was admissible against the individual respondents. Likewise, the evidence admitted against each individual respondent was not identical to that admitted against the other individual respondents. It will accordingly be necessary to consider in respect of each individual respondent whether the evidence admitted against that respondent suffices to make out the case alleged that the respondent was a person knowingly concerned in the particular contravention.
The requirements of s 75B
I have held that by threatening to refuse supply to retailers, particularly small retailers, and thereafter acting upon that threat, Universal and Warner both contravened s 46 and 47 of the Act. The mere adoption of the Universal “policy” or a similar Warner “policy” without more could not, as I have held, have amounted to a contravention of the Act. I have also held that the ACCC had not succeeded in showing that Universal or Warner contravened s 45 of the Act in regard to the overseas conduct. Accordingly the question now to be considered is whether by force of s 75B of the Act the ACCC has shown on the balance of probabilities that Mr Handley, Mr Dickson and Ms Cohen (all in respect of the contraventions of Universal) and Mr Smerdon and Mr Maksimovic (both in respect of the contraventions of Warner) were “knowingly concerned in” or a “party to” the contraventions which I have found to have been committed.
To succeed in these proceedings against the individual respondents the ACCC must show that they had knowledge of the essential facts which constituted the particular contravention: Yorke v Lucas (1985) 158 CLR 661 at 670. In considering the case against each of the individual respondents I must ask whether the acts or omissions proved against them show a practical connection between them and the contravention: Ashbury v Reid [1961] WAR 49 at 51. In the present context it will also be necessary to show that the Respondent knew that the conduct of Universal or Warner, as the case may be, was engaged in for the purpose or had the effect or likely effect of substantially lessening competition.
Mr Handley
Mr Handley was the General Manager of Sales of PolyGram. I have no trouble in inferring that Mr Handley was aware of the pleaded Universal policy to the effect that PolyGram might cease to have a trading relationship with retailers who chose to stock parallel imports. It is necessary to observe, however, that the admissions made by Universal in the responses it gave to the s 155 notice are not admissible against Mr Handley or for that matter Mr Dickson or Ms Cohen.
As I have already held that policy on its own would not contravene the Act, if only because without more there could be no anti-competitive consequences, particularly if the policy itself was ignored by those who might be affected by it, eg retailers. Further, the policy left it open whether PolyGram would in fact cease to trade with a retailer who chose to stock parallel imports or would decide not to do so.
The evidence of Mr Handley’s participation in the brainstorming meeting of 15 July 1998 and the position he held with Universal leaves me in no doubt that, as was submitted by the ACCC, he was well aware of the conditions in the market and the likely competitive consequences of steps that were taken by PolyGram.
It is submitted on behalf of Mr Handley that to succeed against him the ACCC would need to show that the policy was adopted by Mr Handley and that a finding to this effect would rest on conjecture and not inference. With respect I do not accept this submission. The evidence to which reference will shortly be made permits, in my opinion, the making of such an inference. More significantly, and contrary to the submissions made on Mr Handley’s behalf, the evidence admitted against him makes it clear that he was knowingly concerned in and indeed participated, at least in a decision making sense, in the steps that were taken by Universal to in fact implement the policy and cease trading with retailers who had chosen to sell imported CDs.
It is clear from the evidence of Mr Nemeth of Fish Records that at a meeting which took place on or about 21 July 1998, shortly before the importation of non-infringing copies was legalised, Mr Handley indicated that Universal would be prepared to review the terms of the trading relationship with Fish Records if the latter chose to import. Mr Handley indeed said that in such a case it (ie PolyGram) “would also review its terms of trading and it may cease to have a trading relationship with you”. In that case he obtained Mr Nemeth’s assurance that Fish would not import, and in consequence, no action was taken. However, the statement is, in essence, but an abbreviated form of the so-called policy and the conversation can be seen as indicating that Mr Handley had adopted it.
A meeting between Mr Hazell of HMV and representatives of PolyGram (including Mr Handley) in July 1998 had Mr Dickson saying to Mr Hazell that the PolyGram legal advice was that it could withdraw supply and that the company would have no hesitation in stopping supply to a retailer who chose to import. It may well be that HMV would not have seen this as a threat to it. But that is not to the point. I would conclude that Mr Handley did know of and in the relevant sense adopt the policy pleaded. Reference may also be made to the comments made by Mr Dickson referred to later at a meeting with Mr Hazell of HMV at which Mr Handley attended.
Further Mr Handley clearly knew and approved of the closure of the accounts of Compact City and the Delaney’s. So much of the evidence of Mr Howson as was admissible against Mr Handley permits the inference to be drawn that Mr Handley was instrumental in ordering the Compact City account to be closed because that company had imported CDs, something that was happening all over the country and obviously a problem which Mr Handley sought to meet. The inference may more comfortably be drawn in the absence of Mr Handley going into evidence on the question. It may also be noted that Mr Howson corresponded with Mr Handley on the very issue.
The evidence of Mr and Mrs Delaney so far as admissible against Mr Handley showed that the PolyGram Credit Manager involved in the closure of the Delaney accounts reported to and it may be inferred was directed by Mr Handley (and, of course, Mr Dickson). Again the inferences open may more comfortably drawn in the absence of Mr Handley giving evidence to the contrary.
It follows, therefore, that I would hold that Mr Handley contravened s 75B in that he was knowingly concerned in the matters that resulted in Universal contravening both ss 46 and 47 of the Act.
Mr Dickson
The evidence against Mr Dickson is, if anything, stronger than that against Mr Handley.
First it is to be noted that Mr Dickson was Group Managing Director of Music Operations of PolyGram at the relevant time. In this position it can be inferred that he, like Mr Handley, had knowledge of the market conditions prevailing both before and after the legalisation of importation of non-infringing copies. Like Mr Handley, he participated in the brainstorming meeting of 15 July 1998.
Further, Mr Holman of Big W in evidence admitted against Mr Dickson but not against Mr Handley said that in a telephone conversation he had with Mr Dickson in about August 1998 Mr Dickson had said in response to Mr Holman asking him to clarify PolyGram’s position in relation to Big W selling parallel imported CDs against the background of rumours that PolyGram was considering stopping supply to retailers who sold parallel imported CDs:
“We are looking at our options and we are getting legal advice to see if we could cease supply if a retailer has an alternative source of supply for PolyGram product.”
Mr Hazell of HMV referred to a meeting at which Mr Dickson and Mr Handley were present (the date of the meeting is suggested as being in July 1998) in the course of which meeting Mr Dickson referred to the fact that Universal had been given legal advice that it could withdraw supply of PolyGram product to any retailer who parallel imported. At the same meeting Mr Dickson said:
“We would have absolutely no hesitation in stopping supply to Big W or to any other retailers that chose to parallel import particularly if we do not see them as a retailer who contributes to the industry.”
I think the inference is clearly open that Mr Dickson did participate in the formulation of the policy to consider not dealing with retailers who imported non-infringing copies, ie stopping supply to such retailers and the failure of Mr Dickson to give evidence makes me more comfortable in drawing that inference.
So far as the events concerning the Delaneys, it is clear that Mr Dickson participated in the decision making process which led to the accounts being closed. Mr Delaney in fact corresponded with Mr Dickson, writing to him on 26 August. Mr Dickson replied the next day. It is not insignificant that Mr Dickson noted in his reply that PolyGram had no obligation to supply anyone – a phrase reminiscent of the legal advice to which reference is made above. I think it is clear and I would find that Mr Dickson was knowingly involved in the implementation of the PolyGram Policy in relation to Wests and Ultimate Music.
Accordingly I would find that Mr Dickson has been knowingly concerned in the contravention by Universal of ss 46 and 47 of the Act and accordingly contravened the provisions of s 75B of the Act.
Ms Cohen
It is clear that Ms Cohen participated considerably in the overseas conduct, but since I have found that no contravention of the Act has been made out by that conduct the case against Ms Cohen of aiding, abetting, counselling or procuring that contravention or of being knowingly concerned in it can likewise not be made out.
The ACCC submits that Ms Cohen’s participation in the formulation of the Universal “policy” and its implementation is to be inferred. I use here the word “participation” to include for present purposes counselling or procuring or being knowingly concerned in or party to implementation of that which constituted the contravention of the Act by Universal under ss 46 and 47.
At the outset it must be said that the case against Ms Cohen is clearly less direct than that against Mr Handley and Mr Dickson. Indeed, it is submitted on her behalf that there is no evidence that she did participate in the specific conduct relating to the Delaneys or the Compact City account.
It is submitted on behalf of the ACCC that Ms Cohen had, by virtue of her position (she was Director of Legal and Business Affairs of PolyGram at the relevant time) and by her receipt of the minutes of the brainstorming meeting of 15 July and participation in and receipt of correspondence, knowledge of the essential market conditions and of the likely competitive consequences of the action which PolyGram took against the Delaneys and Compact City. Mere receipt of minutes or correspondence falls short of participation. Something more is necessary. It is therefore necessary to look more carefully at the evidence admitted against her.
I think that there is little difficulty in inferring that Ms Cohen was aware of the consequences both legal and commercial of the Copyright Amendments which permitted the importation into Australia of non-infringing copies. It is against that background that one must assess the evidence. She did not participate in the brainstorming meeting, although she was made aware of the discussion as a result of receiving a copy of the minutes. That discussion, while painting the background of the commercial problem which legalised parallel importing presented was not, however, concerned either with the formulation or implementation of the so-called “policy”. Her participation in the events which constituted the overseas conduct made it clear that she was aware of the need to prevent importation from Indonesia. The inference is also clearly open that she was aware that Universal feared the consequences to its business of the legalisation of parallel importation and wished to take some action to prevent it. Her failure to give evidence makes the drawing of such an inference easier. The fact that she was copied with correspondence assists in inferring that she was kept informed of the need of the company to monitor what happened with parallel importation. That falls short of permitting me to find that she participated in the formulation of the policy pleaded.
I should say that in my view the ACCC does not need to show that Ms Cohen participated in the formulation of the policy for it is not the formulation of the policy as such which involves the breach of ss 46 or 47. It suffices in my view for the ACCC to show knowledge of the policy, so long as it is also shown that she participated in the implementation of it.
Ms Cohen was not present at the meeting which took place between Mr Hazell and Mr Handley and Mr Dickson in July 1998 referred to above. Nor was she present at the meeting between Mr Nemeth and Mr Handley which took place on 21 July 1998. In my view there is simply insufficient evidence to show that Ms Cohen did participate in the formulation of the policy. However, I do think that the evidence suffices to permit the inference that in her position she was aware there was such a policy.
So far as I can see there is no evidence of Ms Cohen participating in the closure of the accounts with the Delaneys. Her only involvement, so far as the evidence showed, was to write the memo of 22 September 1998 which is set out at para 85 and discussed at para 471 of these reasons. While this memo was, in my view, written to justify the conduct of Universal after the ACCC had become involved in the matter, it does not prove Ms Cohen’s participation in the circumstances concerning the closure of the Delaney accounts.
It is clear from the letter written by Mr Howson of Compact City to Mr Handley dated 22 August 1998 of which Ms Cohen was an addressee that Ms Cohen was aware that the account of Compact City had been closed and that the closure turned upon the trap purchase of the one copy of Shania Twain’s CD “Come on Over” which had been imported from Canada. But that is as far as the evidence involving Ms Cohen goes. It does not show any involvement on her part in the implementation of the policy.
In my view the case against Ms Cohen must be dismissed.
Mr Smerdon and Mr Maksimovic of Warner
Again it is clear that so far as the case of the ACCC against the Warner executives, Mr Smerdon and Mr Maksimovic relates to the overseas conduct it must be dismissed for the simple view that the ACCC has not shown any contravention of the Act by Warner in breach of s 45 of the Act. Accordingly the case against them must be restricted to the circumstances surrounding the closure of the Raiders’ account and the consequent contravention in respect of it by Warner of ss 46 and 47 of the Act. However, the evidence of the involvement of Mr Smerdon and Mr Maksimovic in the events assists is drawing the inferences referred to in the next paragraph.
Mr Smerdon was, it will be recalled, the Finance and Business Affairs Director of Warner. Mr Maksimovic the NSW State Manager of Warner. It is easy to infer from the position each held that each was aware of the danger perceived to Warner’s business as a result of the legalisation of parallel importation and it can be inferred would be aware of the consequences of closure of the account of a retailer, the inability of the retailer to purchase Warner titles and the consequent effect on competition. It may also be inferred that each would have seen the letter of 20 July 1998 sent by Warner to all retailers under the signature of Mr Harris which is discussed at para 117 of these reasons. The failure on their part to give evidence permits this inference to be more readily drawn.
The facts found by me in relation to the Raiders’ account closures so far as they show respectively involvement of Mr Smerdon and Mr Maksimovic and which are set out in paras 119 to 136 of these reasons suffice in my view to show that each was knowingly concerned in or participated in the Warner conduct. Accordingly I am satisfied that each contravened s 79B of the Act in respect of the Warner contraventions of ss 46 and 47 of the Act.
CONCLUSION
It follows that I find that both Universal and Warner contravened ss 46 and 47 of the Act and that the individual respondents, other than Ms Cohen, contravened s 79B of the Act in respect of the conduct of Universal and Warner.
I would propose to make a declaration of contravention in due course. However, it will also be necessary to consider the quantum of pecuniary penalty and what other consequential orders should be made, including possible injunctions and cost orders. I would stand the matters over to a date to be fixed with counsel to permit argument on the form such orders should take.

I certify that the preceding five hundred and thirty-two (532) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hill.

Associate:
Dated: 14 December 2001

Counsel for the Applicant:

J Burnside QC and S Gageler SC with P Renehan and M Green

Solicitor for the Applicant:

Australian Government Solicitor

Counsel for Universal:

J Hilton SC with A J Payne

Solicitor for Universal:

Gilbert & Tobin

Counsel for the individual Respondents in the Universal proceedings:

D Yates SC with A S Bell

Solicitor for the individual Respondents in the Universal proceedings:

Coudert Brothers

Counsel for the Respondents in the Warner proceedings:

D J Hammerschlag SC with R I Bellamy

Solicitor for the Respondents in the Warner proceedings:

Tress Cocks & Maddox

Date of Hearing:

2-4, 9-12, 17-20, 24, 26-27 and 30 April 2001, 1-3 and 22-25 May 2001, 17, 24-26 and 28 September 2001, and 2 October 2001

Date of Judgment:

14 December 2001

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 925 OF 1999

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	UNIVERSAL MUSIC AUSTRALIA PTY LIMITED (formerly known as PolyGram Pty Limited) (ACN 000 158 592) FIRST RESPONDENT SUSAN ELIZABETH COHEN SECOND RESPONDENT CRAIG HANDLEY THIRD RESPONDENT PAUL DICKSON FOURTH RESPONDENT
JUDGE:	HILL J
DATE OF ORDER:	14 DECEMEBER 2001
WHERE MADE:	SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	N 924 OF 1999

JUDGE:	HILL J
DATE:	14 DECEMBER 2001
PLACE:	SYDNEY

Counsel for the Applicant:	J Burnside QC and S Gageler SC with P Renehan and M Green
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for Universal:	J Hilton SC with A J Payne
Solicitor for Universal:	Gilbert & Tobin
Counsel for the individual Respondents in the Universal proceedings:	D Yates SC with A S Bell
Solicitor for the individual Respondents in the Universal proceedings:	Coudert Brothers
Counsel for the Respondents in the Warner proceedings:	D J Hammerschlag SC with R I Bellamy
Solicitor for the Respondents in the Warner proceedings:	Tress Cocks & Maddox
Date of Hearing:	2-4, 9-12, 17-20, 24, 26-27 and 30 April 2001, 1-3 and 22-25 May 2001, 17, 24-26 and 28 September 2001, and 2 October 2001
Date of Judgment:	14 December 2001