Autodesk Australia Pty Ltd v Cheung
[1990] FCA 121
•04 APRIL 1990
Re: AUTODESK AUSTRALIA PTY. LTD. AND AUTODESK, INC.
And: CHARLES CHEUNG
No. G566 of 1987
FED No. 121
Copyright
(1990) AIPC para 90-665
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.(1)
CATCHWORDS
Copyright - Disposal by respondent of "pirate" copies of computer programs produced by applicants - "Pirate" copies imported from overseas and distributed free of charge to purchasers of computer hardware sold by respondent - Infringement of copyright conceded - Assessment of damages - Claim for compensatory damages based on net return to applicants if programs had been purchased from them - Difficulties in assessing compensation on this basis - Claim for additional (exemplary) damages - Discusssion of relevant factors - Damages assessed to cover both compensatory and additional damages and apportioned between applicants.
Copyright Act 1968 ss.37, 38, 115
HEARING
SYDNEY
#DATE 4:4:1990
Counsel for the Applicants: Mr A Panna
Solicitors for the Applicants: Stephens Solicitors
Counsel for the Respondent: JE Armfield
Solicitors for the Respondent: Paul Wells and Co
ORDER
1. Judgment be entered in favor of the first applicant against
the respondent in the sum of Thirty thousand dollars
($30,000).
2. Judgment be entered in favor of the second applicant against
the respondent in the sum of Twenty thousand dollars
($20,000).
3. The respondent pay to the applicants their costs of this proceeding.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
This is an action for breach of copyright. Autodesk Inc, the second applicant, creates computer programs which it distributes in Australia through a subsidiary company, Autodesk Australia Pty Ltd, the first applicant. As he now concedes, Charles Cheung, the respondent, has infringed the applicants' copyright and the sole matter requiring determination by the Court is the amount of damages payable by the respondent.
The facts
The applicants first became aware of the respondent's activities in October 1987. At that time an unrelated computer software company, HST Technology Pty Limited, received certain information regarding Mr Cheung. This evidence led it to believe that Mr Cheung was in the habit of supplying copies of programs marketed by HST Technology free of cost to purchasers of computers sold by him. That company arranged for a consultant, Mr JA Quigley, to contact Mr Cheung in the guise of a person interested in acquiring a computer. On 12 October 1987, in company with an associate, Mr Robert Lim, Mr Quigley went to premises in the Sydney suburb of Ryde where Mr Cheung conducted his business. These premises were part of his home. Mr Cheung demonstrated certain computer hardware. During the course of these demonstrations Mr Quigley expressed an interest in acquiring some software. Mr Cheung replied:
"The computer is no good without the
programs. I can give you whatever programs
you wish. They are pirated programs and it is
illegal. As long as you keep quiet about it I
can let you have whatever you want as a gift
if you buy the hardware".Mr Quigley asked for a demonstration of a technical program and Mr Cheung then produced a disk marked "AutoCAD" which he inserted in the machine and demonstrated. "AutoCAD" is a computer program created by the second applicant and distributed in Australia through the first applicant.
Mr Quigley expressed some interest in the equipment being offered by Mr Cheung but stated that he wished to have it inspected by his accountant and his engineer. Later that day he returned with Mr John Powell, an executive officer of HST Technology, and Mr Nicholas Martin of Protel Systems Pty Limited. Protel is a distributor of HST Technology products. Mr Quigley introduced these men to Mr Cheung as his accountant and his engineer and asked Mr Cheung to demonstrate the equipment to them. Mr Cheung inserted an AutoCAD program and demonstrated the machine, using that program. During the course of a demonstration of a different program, Mr Quigley said to Mr Cheung:
"You said you can supply me any software that I
wish. Will you do that and support it if we
purchase your hardware?".
Mr Cheung replied:
"Yes, but you must remember that this is
illegal and the software is all pirated
software and whatever manuals I give you are
produced in Taiwan and Hong Kong and it is all
very illegal. You must remember that the
people that make these programs spend a lot of
time and money in producing them and this
software is pirated. You must not tell
anybody that it came from me. On that basis I
can supply you with whatever program you wish
and if I do not have the program I will be
able to get it from one of my friends and I
will supply it to you free, as a gift but only
if you buy my hardware".During the course of the discussion with Mr Cheung, Mr Quigley noticed in his room a number of disks bearing the names of other well-known programs. On the following day, Mr Quigley telephoned Mr Cheung and placed an order for some computer hardware, adding that he wanted five specified software programs, including AutoCAD. Mr Cheung replied "No problem. I will give them to you but you must remember that they did not come from me". On 16 October, Mr Quigley called at Mr Cheung's premises to pick up both the hardware and software, including the AutoCAD program.
On 9 November 1987, the present proceeding was commenced. On that same day Burchett J made an Anton Piller order and, as a result, a search was made of the respondent's premises. During the course of this search 14 AutoCAD computer programs were found and removed. Upon later inspection it transpired that those 14 programs represented six different versions of the AutoCAD program, the earliest of which was first distributed in 1983. Of the 14 programs, three were so corrupt or defective as to be unusable.
Section 115 of the Copyright Act 1968 deals with damages. That section provides:
"115(1) Subject to this Act, the owner of a
copyright may bring an action for an infringement of the copyright.
(2) Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction ... and either damages or an account of profits.
(3) Where, in an action for infringement of copyright, it is established that an infringement was committed but that it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not.
(4) Where, in an action under this section -
(a) an infringement of copyright is established; and
(b) the court is satisfied that it is proper to do so, having regard to -
(i) the flagrancy of the infringement;
(ii) any benefit shown to have accrued to the defendant by reason of the infringement; and
(iii) all other relevant matters,
the court may, in assessing damages for the
infringement, award such additional damages as
it considers appropriate in the circumstances".
The claim for compensatory damages, made under subs(2), is supported by evidence as to the licence fees ordinarily payable to the applicants by dealers. It is not necessary to go to the detail of the calculation. This is not in issue. It is sufficient to say that, of the 14 programs which were taken from the respondent's premises pursuant to the authorised search, nine programs were of a type which had been distributed by Autodesk Australia following its incorporation. Had those nine programs been acquired by the respondent through Autodesk Australia, the return to that company, after allowing for licence and royalty payments to Autodesk Inc and the costs of importation, would have amounted to $21,218. Had all 14 programs been acquired from an authorized AutoCAD dealer, the return to Autodesk Inc, by way of royalties and licence fees, but after deducting the cost of manufacture and withholding tax, would have been $9,529.38. Accordingly, the applicants' counsel contends that his clients should be allowed these sums by way of compensatory damages. Counsel for the respondent disputes this approach, in terms of principle.
In Sutherland Publishing Company Limited v. Caxton Publishing Company Limited (1936) 1 Ch 323 at p 336 Lord Wright MR said that the measure of damages, in a copyright case, "is the depreciation caused by the infringement to the value of the copyright as a chose in action". This formulation is reproduced, with qualifications, in Copinger and Stone James on Copyright (12th ed) para 643 and Ricketson, The Law of Intellectual Property para 12.3. It has often been cited in judgments. But it is a formulation to be applied with caution because it is potentially misleading. It will usually be difficult, often impossible, for a copyright owner to establish that a particular unauthorized reproduction has caused a diminution in the capital value of a copyright. There may be cases where this occurs, perhaps because of low-quality reproductions or saturation of the market. But, on other occasions, unauthorized reproduction may actually increase the residual value of a copyright. For example, the unauthorized broadcasting of a song on radio may have the effect of increasing the demand for recordings of that song. No doubt, it is because of these matters that judicial warnings have sometimes been given against applying Lord Wright's test too literally. Thus in Interfirm Comparison (Australia) Pty v. Law Society of New South Wales (1975) 6 ALR 445 Bowen CJ in Eq. commented, at p 446, that it would be wrong to treat the measure of damages stated by Lord Wright as "having, in effect, the force and rigidity of statutory provision. The purpose of damages is to compensate the plaintiff for the loss which he has suffered as a result of the defendant's breach. It would, in my opinion, be wrong to regard it as the exclusive measure of damages for breach of copyright appropriate to all circumstances". In Australasian Performing Rights Association v. Grebo Trading Co Pty Limited (1978) 23 ACTR 30 Blackburn CJ said at p 31:
"The phrase 'the depreciation of the value of
the copyright as a chose in action' is no more than a convenient label for the various ways of assessing damages which are available in particular cases. In the case before me, the phrase means that the copyright has been less valuable to its owner than it was before the infringement, because it then had the potentiality of generating the income which would have been derived from the lawful performance of the music works, and it has not in fact generated that income. The difference is the income which should have been generated; that is to say, the fees which the infringers should have paid in order to perform the works lawfully. That amount, for the purposes of this case, is the 'depreciation of the value of the copyright'."
Counsel for the applicants argues for the application to this case of the "licence fee" approach taken in Grebo. He points out that the respondent obviously thought that it would assist the sale of computers if he were able to offer potential customers a selection of software programs. Counsel says that, if he had purchased those programs from the applicants in the usual way, the applicants would have earned the profits mentioned above; consequently, damages should be assessed by reference to the return to the applicants upon the supply of the 14 programs.
However, it is said on behalf of the respondent that it is commercially unlikely that Mr Cheung would have purchased this number of programs for distribution to his customers, or that those customers who obtained free copies of the program from Mr Cheung would have otherwise purchased an equivalent number directly from the applicants. Counsel argues that no loss occurs to the applicants unless and until there is a foregone sale. He says that if, as a matter of principle, it is legitimate to have regard to the net value of licence fees, the figure calculated by the applicants should be discounted to take into account commercial realities. In this connection counsel refers to Birn Brothers Limited v. Keene and Co Limited (1918) 2 Ch 281. That case involved an assessment of damages for infringement of the plaintiff's copyright in Christmas cards. Evidence was given as to the net return to the plaintiff of selling the same number of cards as was sold by the defendant. However, in assessing damages, the judge discounted that figure by about ten percent to make "some allowance for the probability that some of the cards may not have been disposed of": see p 286.
In relation to the question whether compensatory damages should be assessed by reference to the net return to the applicants if they had supplied the particular programs which were found at the respondent's premises, three points are made by the respondent. Two of them may be shortly dealt with. They are, first, that some of the programs were relatively old and, secondly, that some were incomplete or defective. I do not think that either of these considerations presents a reason for rejecting the "licence fee" approach. Notwithstanding that some of the programs had been issued a good while before October 1987, they must have been obtained in contravention of the rights of at least one of the applicants. There is no evidence to suggest that they were outmoded at the time they were acquired. As to the incomplete or defective copies, once again, there is no reason to believe that they were in that condition when acquired.
The third submission raises a more significant problem. It is said that there is no reason to believe that Mr Cheung would have acquired all of these programs from the applicants had he been required to do so at normal cost. Accordingly, so the argument runs, it cannot be said that the applicants have been deprived of sales of this number of programs. Counsel says that whether the respondent would have acquired any programs from the applicants and, if so, how many, are matters of mere speculation. Furthermore, counsel says, it should not be assumed that the applicants have lost this number of sales. Even if they had not been given free copies of the programs, purchasers of computers may still not have dealt with the applicants.
The "licence fee" approach to assessment has often been applied: see, in addition to Grebo, Meters Ltd v. Metropolitan Gas Meters Ltd (1911) 28 RPC 157, Stovin-Bradford v. Volpoint Properties Ltd (1971) 1 Ch.1007, General Tire and Rubber Company v. Firestone Tyre and Rubber Company Limited (1975) 1 FSR 273, Hunter v. Fitzroy Robinson and Partners (1977) 4 FSR 167. The approach has the attraction of precision. In a case where the court may infer that, presented with a choice between paying the licence fee and not using the work, the infringer would have paid the licence fee, the approach is also a logical one. Ex hypothesi the copyright owner has been deprived of a licence fee. But, where this inference cannot be drawn, it is much more difficult to say that the damage sustained by the copyright owner is equal to a licence fee. No assumption can be made that, if forced to obtain a licence, the defendant would have copied the work, or copied it to the same extent. It seems to me that this case falls within the latter category. It is true that Mr Cheung saw advantage in having available to his customers copies of the AutoCAD programs. No doubt he incurred some expense in obtaining these programs but I think that it is unlikely that he would have bought these programs, at least in this number, had he been required to do so at the normal price. Mr Cheung gave Mr Quigley five programs in return for a hardware order worth $3,500. Similarly, there is no reason to believe that each gift by Mr Cheung to a customer cost the applicants a sale to that customer. The fact that Mr Quigley was able to persuade Mr Cheung, apparently without difficulty, to give him five free programs with his small order suggests that it was not unusual for purchasers to take several programs. It seems to me likely that persons who had to pay the full price would be more discriminating in their selection.
I am not convinced that the activities of Mr Cheung, in relation to the programs found in his possession at the time of search, had the effect of depriving the applicants of the particular sums of money which they claim. It is probable that his activities cost them some sales, because some customers he supplied with AutoCAD programs would otherwise have purchased programs from the applicants. But that loss relates to the supply of programs before the date of the search. It has nothing to do with the number of programs which happened to be in Mr Cheung's premises at the time of the search. Under the circumstances, it is not logical to apply the "licence fee" approach. However unsatisfactory that course may seem, the Court must treat the damages as being "at large", in the words of Horridge J in Fenning Film Service Limited v. Wolverhampton, Walstall and District Cinemas Limited (1914) 3 KB 1171 at p 1174, giving "what amount I think right as if I were a jury". So approaching the matter, and bearing in mind that Autodesk Australia would have suffered a greater financial loss from foregone sales than Autodesk Inc, I allow compensatory damages of $15,000, comprising $10,000 to Autodesk Australia and $5,000 to Autodesk Inc.
The claim for additional damagesTurning to s.115(4), the respondent concedes that para (a) is satisfied in this case, the infringement of copyright has been established. The contest between the parties revolves around para (b).
Paragraph (b) follows an unusual form. In terms, para (b) does not require that particular facts be demonstated. The paragraph is satisfied if the Court is satisfied that it is proper to award additional damages. But, in determining that question, the Court must have regard to certain matters. Amongst those matters is "the flagrancy of the infringement". Paragraphs structured in this way have been interpreted in comparable overseas statutes as requiring that flagrant conduct be shown: see Ravenscroft v. Herbert (1980) RPC 193 at p 208 and Wellington Newspapers Ltd v. Dealers Guide Ltd (1984) 4 IPR 417 at pp 420-421. Without deciding the point, I am content to assume, for the purposes of the present case, that this approach is equally applicable to s.115(4). I am able to deal with the matter in this way because it is clear that the respondent's conduct constituted a flagrant infringement of the plaintiff's rights. In Ravenscroft at p 208, Brightman J described "flagrancy" as implying "the existence of scandalous conduct, deceit and such like; it includes deliberate and calculated copyright infringement". Upon the uncontested evidence of Mr Quigley, Mr Cheung admitted on two occasions on 12 October 1987 that he knew the software offered by him was pirated and its supply illegal. His reference to the people who make the programs spending a lot of time and money in producing them demonstrates, first, that his reference to illegality was a reference to infringement of copyright and, second, that he knew that the illegality was not merely a technical matter but an invasion of legitimate commercial rights. He was prepared to infringe those rights for his own financial gain. Mr Cheung's conduct amply meets the definition adopted by Brightman J. Not only does the evidence meet any condition precedent to an award of additional damages which may be imposed by sub-para.(i) of para.(b), it demonstrates a degree of flagrancy demanding attention in what is obviously a penal provision. In Wellington Newspapers at p 422 Mullin J said of the comparable New Zealand sub-section:
"It is difficult to see what is contemplated by
the additional damage unless it is something
in the nature of punishment to the defendant
for the hurt done to the plaintiff which the
conventional remedies would not provide. How
otherwise would the flagrancy of the
infringement be relevant?"
I respectfully adopt this statement subject only to the observation that, unlike the comparable New Zealand provision, the operation of s.115(4) is not limited to cases in which the conventional remedies, including compensatory damages, are insufficient to redress the wrong suffered by the copyright holder. Section 115(4) permits the award of additional damages as well as full compensatory damages: see Concrete Systems Pty Ltd v. Devon Symonds Holdings Ltd (1978) 20 SASR 79 at p85.
The next matter for consideration is "any benefit shown to have accrued to the defendant by reason of the infringement". The infringements by the respondent of the applicants' copyright included his importation of the programs - see s.37 of the Copyright Act - and his offering those programs for distribution in the course of trade - see s.38. These actions conferred upon him a commercial advantage, vis-a-vis his competitors. He was able to offer to his customers, free of charge, valuable computer programs. The evidence does not reveal the extent of that advantage in money terms. There is no evidence of the value of the total computer sales achieved by the respondent, how many of those sales were assisted by offers to supply an AutoCAD program, the profit made from those sales, or the cost incurred by the respondent in acquiring the pirate AutoCAD programs. The evidence does suggest that the respondent's operation, in October 1987, was of modest proportions, but there is no reason to believe that it was unprofitable or that the "AutoCAD" programs were unimportant to its success. Had either of these positions applied, it would have been easy for the respondent to prove them. In the circumstances, I must assume that evidence from the respondent would not have advanced this aspect of his case; see Jones v. Dunkel (1959) 101 CLR 298. Accordingly, I approach sub-para.(ii) on the basis that in October 1987 the respondent's business operated profitably and that his conduct in using pirated software, including the applicants' software, was a significant factor in achieving that result.
Turning to sub-para.(iii), one matter which is, in my opinion, relevant, is the difficulty computer program owners face in trying to protect their copyrights. Computer software is easy to duplicate, distribute and conceal. Particularly in a case where a person is supplying computer programs as an adjunct to other equipment, and is therefore not advertising the supply, infringements may be difficult to detect. And, when they are detected, proof of the facts may be a substantial task. It is noteworthy, in the present case, that Mr Cheung denied to the persons carrying out the search authorized by Burchett J any knowledge of AutoCAD programs. They were found only after an extensive search of his premises. They then had to be taken away and inserted into a computer for precise identification.
Even in the course of litigation, difficulties arise concerning proof of infringement. Counsel for the applicants informed me that the respondent had refused to answer interrogatories administered to him by the applicants, designed to establish the extent of the infringements, on the ground that the answers might incriminate him. The respondent was entitled to take that position: see the discussion in Warman International Ltd v. Envirotech Australia Pty Ltd (1986) 67 ALR 253 at pp 262-265. But the existence of that privilege must be borne in mind in weighing the difficulties of enforcing copyright in a case such as the present.
A further element to be considered in relation to sub-para.(iii) is the improbability that the only breaches of the applicants' copyright by the respondent were breaches related to the one AutoCAD program supplied to Mr Quigley and the 14 programs discovered at the time of the search. This fact is relevant both to the extent of the benefit obtained by the respondent from his infringements of copyright and the loss sustained by the applicants. Some of the seized programs then discovered were issued years before, one as early as 1983. This fact suggests that the respondent had been acquiring and distributing AutoCAD programs over a substantial time. There is no obvious reason why he should have acquired already superceded programs in or shortly before October 1987. It is probable that the respondent has infringed the applicants' copyright in connection with a substantial number of programs. Once again, I draw this inference more readily because of the absence of any evidence on the matter from the respondent.
During the course of his submissions counsel for the applicants pointed out that where a natural person is convicted of an infringement of copyright involving more than one article, Parliament has now provided for a penalty ranging as high as $50,000: see s.133(2) of the Act. Counsel did not suggest that this figure was directly relevant to this case. Indeed, he pointed out that damages under s.115 might exceed that sum. But he made the point that the size of the penalty provided by s.133(2) indicates the serious view which Parliament takes of copyright infringements. I think that the point is well made, although I do not use s.133(2) for any other purpose. It is purely coincidental that I have reached the conclusion that the total amount of damages which the respondent should pay in this case is $50,000.
Having regard to all of the matters to which I have referred, it is appropriate to award to the applicants a substantial sum by way of additional damages.
Once again, any assessment must be arbitrary, in the sense that it is impossible to demonstrate its correctness by reference to provable fact. But I think that a total sum of $35,000 -- $20,000 for Autodesk Australia and $15,000 for Autodesk Inc -- is a figure which fairly reflects the matters I have discussed. The addition of these amounts to those allowed under s.115(2) results in judgment in favour of Autodesk Australia in the sum of $30,000, and in favour of Autodesk Inc for $20,000. The respondent must pay the applicants' costs.
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