Autodesk Inc v Yee

[1996] FCA 812

CATCHWORDS

COPYRIGHT - infringing computer software - conversion damages - value of infringing copies - whether measured by price actually obtained or by price that would have been obtained had articles been licensed - history and interpretation of s.116 Copyright Act 1968.

STATUTORY INTERPRETATION - fictional title to copies attributed by s.116 Copyright Act - consideration of the effect of the principle that the purpose for which a statutory fiction is introduced into an Act is important for its construction.

Copyright Act, 1968 - ss.115, 116

Millar v. Taylor (1769) 4 Burr. 2303; 98 ER 201
Bailey v. Namol Pty Limited (1994) 53 FCR 102
Richmark Camera Services Inc. v. Neilson-Hordell Limited [1981] FSR 413
Infabrics Ltd v. Jaytex Ltd [1982] AC 1
W.H. Brine Co v. Whitton (1981) 55 FLR 440
Sutherland Publishing Company, Limited v. Caxton Publishing Company, Limited (1936) Ch. 323; and on appeal [1939] AC 178
Muller v. Dalgety & Co. Limited (1909) 9 CLR 693
Rheem Australia Ltd v. Collector of Customs (NSW) (1988) 78 ALR 285
Wham-O Manufacturing Co v. Lincoln Industries Ltd [1985] RPC 127
Fire Nymph Products Ltd v. Jalco Products (WA) Pty Ltd (1983) 1 IPR 79
Butler v. The Egg and Egg Pulp Marketing Board (1966) 114 CLR 185
Vivian Mansell & Co Ltd v. Harold Westleigh Ltd (1939) MacGillivray CC 288
Lewis Trusts v. Bambers Stores Limited [1983] FSR 453
Nichols Advanced Vehicle Systems Inc v. Rees (No. 3) [1988] RPC 71
Columbia Pictures Industries v. Robinson [1988] FSR 531

AUTODESK INC & ORS -V- MICHAEL YEE & ANOR

NG 610 of 1995

Burchett J.
Sydney
13 September 1996

IN THE FEDERAL COURT OF AUSTRALIA )  
  )
NEW SOUTH WALES DISTRICT REGISTRY )    NG 610 of 1995
  )
GENERAL DIVISION                 )

BETWEEN:AUTODESK INC

First Applicant

AND:     AUTODESK AUSTRALIA PTY LIMITED

Second Applicant

AND:     MICROSOFT CORPORATION

Third Applicant

AND:MICROSOFT PTY LIMITED

Fourth Applicant

AND:     MICHAEL YEE

First Respondent

AND:     PETER LEUNG

Second Respondent

CORAM:    Burchett J.
PLACE:    Sydney
DATE:     13 September 1996

MINUTE OF ORDER OF THE COURT

THE COURT ORDERS THAT:

The applicants bring in, on a date to be fixed, short minutes of orders appropriate to be made in the light of the reasons of the Court.       

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 )    NG 610 of 1995
  )
GENERAL DIVISION                 )

BETWEEN:AUTODESK INC

First Applicant

AND:     AUTODESK AUSTRALIA PTY LIMITED

Second Applicant

AND:     MICROSOFT CORPORATION

Third Applicant

AND:MICROSOFT PTY LIMITED

Fourth Applicant

AND:     MICHAEL YEE

First Respondent

AND:     PETER LEUNG

Second Respondent

CORAM:    Burchett J.
PLACE:    Sydney
DATE:     13 September 1996

REASONS FOR JUDGMENT

BURCHETT J.:

This case involves an important question of the effect of s.116(1) of the Copyright Act 1968. Because of its importance, and because no further damages would be sought if the applicant were successful on the issue it wishes to raise, an order was made for the separate determination of that issue now. What I am required to do is to assess, as a distinct sum, the amount of any damages recoverable by the applicants from Mr Yee pursuant to s.116(1), which provides:

"Subject to this Act, the owner of the copyright in a work or other subject-matter is entitled in respect of any infringing copy, or of any plate used or intended to be used for making infringing copies, to the rights and remedies, by way of an action for conversion or detention, to which he or she would be entitled if he or she were the owner of the copy or plate and had been the owner of the copy or plate since the time when it was made."

Mr Yee admits that he obtained approximately two hundred compact disks containing infringing computer software, mostly in the form of a compilation of Microsoft, Autodesk and other programmes, of which he sold 181 at prices averaging $130 each, and has yielded up nineteen.  Mr Yee's operation does not appear to have been at all sophisticated.  There is no evidence of any of the formal accoutrements of an established business, or of the existence of any shop in connection with his activities.  The majority of sales were not documented, and the purchasers cannot be identified.  Transactions were for cash.  Mr Yee may have sold the compact disks as a part-time activity, since he was also a student.

Prior to the hearing, the applicants caused to be served on Mr Yee a notice to admit that "most" of the two hundred compact disks contained "an exact reproduction of each" of a number of computer programmes.  There has been no dispute about that.  The applicants then rely on evidence of the estimated or recommended retail prices in respect of these programmes, and on evidence given by a Mr J.C. Ayre, the managing director of Cadgroup Australia Pty Limited, a company which sells both Autodesk and Microsoft products at retail.  Mr Ayre made it clear that, "[i]n practice, retail sales are often made for amounts below" recommended retail prices.  Indeed, with some programmes, which are sold to a mass market, "the average price paid by a retail customer bears little relationship" to the recommended retail price.

Mr Ayre expressed an opinion as to the value of the compact disks, having regard to a number of considerations.  Although it was not suggested that the particular programmes on the compact disks in question are normally sold together, one consideration was that some of the programmes making up the disks are sold together.  When that is done, a discount is involved compared with the total of the individual prices of the programmes sold separately.  Another consideration was the absence of manuals explaining the operation of the various programmes included on the compact disks.  However, in this regard, Mr Ayre's affidavit stated:

"It is usual for programs to be sold with manuals explaining the operation of the programs.  However, many programs have electronic versions of the manuals included with them.  Also, in some instances programs are specifically licensed without accompanying manuals.  An example of such a practice is Microsoft's Multi-Licence Packs.  The discount applied in those cases is in the 10-15% range."

Most importantly, Mr Ayre stated:

"I have been requested to express my opinion as to the market value of a CD-ROM containing licensed copies of the following programs [those in question].  For the purpose of expressing this opinion I have been asked to assume the CD-ROM was made by or with permission of the owners of the copyright in the [programs in question] recorded on it.  I have also been requested to assume that the CD-ROM is supplied without any paper manuals."

On this basis, Mr Ayre expressed the opinion that "the market value of a CD-ROM with licensed copies of the [programs in question], sold without manuals, is in the range of $11,000 -$13,000." 

The question debated before me will now be apparent. If damages, calculated on the conversion basis under s.116, are measured by the total price actually obtained for the compact disks, the damages will be equal to 181 x $130, i.e. $23,530. If, on the other hand, damages are calculated on the basis of the lowest figure allowed by Mr Ayre's valuation, the sum will be equal to 181 x $11,000, i.e. $1,991,000. Even if Mr Ayre's figure should be reduced from a retail to a wholesale basis, the result, on the evidence, would only be to reduce this very large sum by at most 15%.

Counsel for the applicants says that the price Mr Yee chose to ask for unlicensed copies of this kind, in what counsel described as "the black market", cannot determine the true market value.  This proposition, and the assumption that each CD-ROM was made by or with the permission of the owners
of the copyright, on which Mr Ayre made his valuation, is at the core of the matter to be decided.

The practical effect of the applicants' contention would be to impose a huge penalty on Mr Yee.  It would assume that the disks had the value of licensed disks, which they were not, and that he had sold them for an enormous undervalue.  In fact, I infer, since he put in a second order to his Hong Kong supplier, the prices at which he was able to sell the disks were higher than their actual import price, so that a profit was returned.  Otherwise, he would have abandoned the trade well before the litigation.  But the question raised by the applicants has really got nothing to do with the practical value of the disks.  There was no suggestion that such disks had been, or would be, sold by retail in the manner postulated by Mr Ayre's valuation.  That valuation was an entirely theoretical construct, rooted in an imposed assumption about the provenance of the disks which was known to be false.  The question is simply whether the Act requires the attribution in this way of an artificial value to these disks. 

Mr Ayre conceded the frailty of his figures in his oral evidence.  He said "the underlying assumption" of his calculations was "that it is a legitimate copy from legitimate sources".  In practice, what weight a purchaser would place "on the risk of this not being from those sources" was "something the market place would have to resolve".  Mr Ayre said "I don't feel qualified to say what that is, what that value would be" - that is, the value of an appropriate discount for the risk of illegitimacy.  He also referred to the fact that a purchaser could be "foolish to deal outside of the normal distribution channels because they form a safety net".  I take him to have included in that expression the legal responsibility of a reputable manufacturer to stand behind his products, and the practical availability of advice and assistance to which a purchaser would expect to be able to resort at need. In the case of these disks, Mr Ayre conceded that the effect on value of the absence of assurance in these respects "would be difficult to ascertain.  It would be just conjecture."

An element of penalty is an accepted feature of copyright legislation.  The infringer has been regarded, at least since the eighteenth century, as a "pirate", who ought to be treated accordingly.  In Millar v. Taylor (1769) 4 Burr. 2303; 98 ER 201 at 2323;212 reference was made to "the whole jurisdiction exercised by the Court of Chancery since 1710, against pirates of copies"; and, in the same case (at 2322;211), it was said that the statute of Queen Anne of 1709, from which modern copyright law takes its origin, "secures [the property of the copyright owner] by penalties". The Copyright Act 1968 is entirely in keeping with traditional views of the matter when it makes provision, by s.115(4), for the award of "additional damages" on grounds which include "the flagrancy of the infringement". In Australia, this means that damages may be given upon principles corresponding to those governing awards of aggravated and also exemplary damages at common law: see Laddie, Prescott and Vitoria on The Modern Law of Copyright and Designs, 2nd ed. (1995), vol. 1 sec.24.30; Bailey v. Namol Pty Limited (1994) 53 FCR 102 at 113-114. But the question is whether, in the context of an Act providing for "either damages or an account of profits" in an action for infringement of copyright (see s.115(1) and (2)), and in the context of the provision for additional damages which I have mentioned, s.116 should be construed in a sense which would make it yet more penal in effect. (It is not, of course, a provision in form imposing a penalty: Richmark Camera Services Inc. v. Neilson-Hordell Limited [1981] FSR 413.)

Section 116 has a long history, and its language has been several times amended. In its first form, it appeared in the Copyright Act 1842 (UK), as s.23:

"And be it enacted That all Copies of any Book wherein there shall be Copyright, and of which Entry shall have been made in the said Registry Book, and which shall have been unlawfully printed or imported without the Consent of the registered Proprietor of such Copyright, in Writing under his Hand first obtained, shall be deemed to be the Property of the Proprietor of such Copyright, and who shall be registered as such, and such registered Proprietor shall, after Demand thereof in Writing, be entitled to sue for and recover the same, or Damages for the Detention thereof, in an Action of Detinue, from any Party who shall detain the same, or to sue for and recover Damages for the Conversion thereof in an Action of Trover."

In the Copyright Act 1911 (UK), this became s.7:

"All infringing copies of any work in which copyright subsists, ... and all plates used ... for the production of such infringing copies, shall be deemed to be the property of the owner of the copyright, who accordingly may take proceedings for the recovery of the possession thereof or in respect of the conversion thereof."

Then, by s.18(1) of the Copyright Act 1956 (UK), it was provided that:

"[T]he owner of any copyright shall be entitled to all such rights and remedies, in respect of the conversion or detention by any person of any infringing copy, or of any plate used or intended to be used for making infringing copies, as he would be entitled to if he were the owner of every such copy or plate and had been the owner thereof since the time when it was made."

This is the final progenitor of our s.116(1): see the Report of the Copyright Law Review Committee (1959) (the Spicer Committee Report) paras. 313 - 320, and the second reading speech on the Copyright Bill 1968 of the Attorney-General (Mr N.H. Bowen, as he then was) House of Representatives Hansard vol. 59 at 1528.

In its modern form, the section has been subjected to a great deal of criticism.  Ultimately, in Great Britain, it was repealed by the Copyright Designs and Patents Act 1988, as recommended by the Report of the Whitford Committee (1977) and the White Paper on Intellectual Property and Innovation (1986) presented to the Parliament of the United Kingdom.  The Whitford Committee (at para. 702) described the provision as "anomalous", and said that the "damages which may be awarded may be out of all proportion to the injury suffered".  It recommended that damages in the field of copyright should be awarded for infringement, as in the case of patents and other intellectual property.  At the same time, exemplary damages should be retained for cases of flagrant infringement.  The White Paper referred to conversion damages as being "based on the value of infringing copies without regard to the cost of producing them", so as to be "out of all proportion to the loss suffered by the copyright owner".  At the same time, it said of the amendments it proposed that the "powers of the courts to award additional damages will be strengthened by the removal of ... limitations on their applicability".  (See paragraphs 12.2 and 12.3.)  In Infabrics Ltd v. Jaytex Ltd [1982] AC 1 at 18, Lord Wilberforce made it clear that "very harsh results might follow" from the (UK) 1956 Act. His Lordship pointed out that, at its genesis, the section did not apply to industrial designs - and I would add that it certainly did not apply to CD-ROMs. Lord Wilberforce made it clear that a question of amendment "would seem to merit consideration". Similarly, Lord Scarman (at 26) thought "the result will be injustice in some cases", adding: "If the possibility of excessive damages is to be eliminated, legislation will be needed". He pointed out that the remedy of conversion might be sought in a case where "the infringing copy [was] engraved upon a silver chalice or a gold medallion". In Australia, specific mention was made of these comments by Fox J. in W.H. Brine Co v. Whitton (1981) 55 FLR 440 at 452. Academic writers have made similarly critical observations. In Cornish on Intellectual Property 2nd ed. (1989) at 307 reference is made to "the exceptional entitlement to 'conversion damages'", which was said to be "too draconian".  In a very comprehensive review entitled Monetary Remedies for Infringement of Copyright by T.H.W. Wells in (1989-90) 12 Adelaide LR 164 at 200, it is concluded that the section "is anomalous and should be abolished".

However, the Report on Conversion Damages of the Copyright Law Review Committee, chaired by Sheppard J., published in July 1990, having accepted (at 14) "the harshness with which the section operates", refrained from recommending its repeal as in the United Kingdom. The committee thought what was required was amendment so as to confer "upon the Court a wide discretion to determine whether a particular case is an appropriate one in which to order delivery up and/or to award conversion damages." There the matter rests. But one conclusion which can be drawn from this survey of informed criticism of s.116(1) and its progenitors is that it is not a provision to which a court should be eager to give a new more expansive interpretation. Its grasp already takes in quite enough.

But how is the language of s.116(1) to be understood? Does it justify the assumption Mr Ayre was required to accept that the infringing disks were "made by or with the permission of the owners of the copyright"? The subsection expressly entitles the copyright owner to the rights and remedies in conversion to which there would be an entitlement if the copyright owner were the owner of the infringing copy and had been since the time when it was made. The Act does not say that the copyright owner is the owner of the copy; but only that certain rights are conferred as if that were so.  These rights are rights and remedies by way of an action for conversion or detention.  In effect, a fictional ownership is imposed, so as to give rise to the rights in conversion or detention which that ownership would bring.  But the limited nature of the fiction should not be ignored.  The copyright owner is not, for example, given the position of an owner so as to enable the maintenance of an action for negligent damage or trespass to goods.  His rights and remedies are limited to those asserted in an action in conversion or detention.  At the same time, as Lord Wright MR remarked in Sutherland Publishing Company, Limited v. Caxton Publishing Company, Limited (1936) Ch. 323 at 337, a right in detinue or conversion may be enforced against persons other than the infringer. But the point is that the provision does not make the copyright owner the owner of the infringing copy for all purposes; the fiction applies for particular purposes only.

What the provision does is add a right of action to recover all infringing copies or damages for conversion of those copies to the ordinary remedy of damages for infringement of copyright, the special remedy of additional damages, and the other remedies provided by the Act including the equitable remedy of delivery up of infringing copies, limited as it is to delivery up for destruction (as to which and as to its connection with the remedy in detinue or conversion, see the remarks of Lord Wright MR in Sutherland Publishing Company v. Caxton Publishing Company at 338). That requires the attribution of a fictional title, but it does not require the attribution of any fictional value, the power to award additional damages being already conferred by s.115(4). This should not be overlooked, for as Griffith CJ said in a frequently cited passage in Muller v. Dalgety & Co. Limited (1909) 9 CLR 693 at 696, speaking of the use of a deeming clause to give an artificial meaning to a term in a statute: "When used in that sense it becomes very important to consider the purpose for which the statutory fiction is introduced." In Rheem Australia Ltd v. Collector of Customs (NSW) (1988) 78 ALR 285 at 301, I referred to this and other cases as authority for the proposition that "a statutory fiction should be given only the effect that its purpose demands". Here, the purpose of the fiction is not to affect the value of an article, but to confer an entitlement in respect of it. The ordinary principles by which damages are measured apply to damages for infringement, and no reason appears why the ordinary principles by which damages are measured should not apply to any award made on the basis, artificial as it is, of conversion of infringing copies. Of course, overlapping is to be avoided. That is well settled on the cases: Sutherland Publishing Co v. Caxton Publishing Co (supra) at 337, 340-341, 342; and on appeal, Caxton Publishing Company, Limited v. Sutherland Publishing Company [1939] AC 178 at 197-198.

The measure of damages in conversion is generally the value of the infringing copies.  As Lord Wilberforce said in Infabrics Ltd v. Jaytex Ltd (supra, at 18):

"A plaintiff is entitled to such damages as would be recoverable if he were the owner, and under the general law, these are equivalent to the value."

In the same case Lord Scarman said (at 26):

"Since at common law the damages for conversion are ordinarily measured by reference to the value of the goods converted, I would not think it legitimate to construe the subsection otherwise, though the result will be injustice in some cases."

Similarly, in Caxton Publishing Co v. Sutherland Publishing Co, Lord Porter said (at 203):

"[T]here is no dispute as to the principle on which in general the measure of damages [for] conversion is calculated.  It is the value of the thing converted at the date of the conversion".

The same measure was adopted by the Court of Appeal of New Zealand in Wham-O Manufacturing Co v. Lincoln Industries Ltd [1985] RPC 127 at 179-181, and has been accepted in Australia, for example, by Toohey J. in Fire Nymph Products Ltd v. Jalco Products (WA) Pty Ltd (1983) 1 IPR 79 at 115-116.

It will be observed that several of the statements I have cited specifically limit the principle to a principle which is generally or ordinarily applicable.  That is because its function is to provide a basis for restoring a plaintiff's
position to what it was before the conversion - so far, of course, as a court can do so.  Occasionally, a mere calculation of value will bear no relation to the real loss.  This was stated in clear terms by Taylor and Owen JJ in Butler v. The Egg and Egg Pulp Marketing Board (1966) 114 CLR 185 at 191, where they said that "the general rule ... should not be allowed to obscure the broad principle that damages are awarded by way of compensation." Menzies J (at 192) took the same view, pointing out that rigid adherence to the rule would sometimes "produce an obviously unjust result".

Generally, where goods are sold by way of business in arm's length transactions, the price obtained for them is the appropriate guide to market value. Counsel did not refer me to any case, nor have my own researches found any, where it was held under s.116(1), or under any of the equivalent sections, that a special value should be attributed to infringing copies on the basis of an assumption such as that which Mr Ayre was told to make. Although, as I have said, the provision has been reproached as apt to lead to injustice, the extreme injustice which could be produced by an entirely artificial valuation (as demonstrated by the figures in the present case) has not been adduced by anyone as a crowning example in the chorus of criticism it has attracted. Instead, that criticism has highlighted the unfairness of a defendant's being unable to deduct expenses possibly far exceeding his profits, and the unfairness of awarding the plaintiff the full value of a football bearing on its surface an infringing design (as in W.H. Brine) or, in Lord Scarman's telling illustration (in Infabrics), of an engraving in silver or gold.  Typical is Copinger and Skone James on Copyright, 13th ed. (1991) at 346:

"The right to conversion damages thus arose out of the statutory fiction of the notional attribution of ownership in the substrate upon which the infringing work was reproduced and not one of actual ownership of the article alleged to be converted.  The right arose solely out of the infringement.  Copyright was the only field of intellectual property in which a claim for conversion could be made and it was recognised that the remedy might work considerable hardship, particularly in the case of mass produced products where the substrate was of much greater value than the design imposed on or embodied in the article.  In the case of three dimensional articles made of metal the damages would depend on whether the article was made of some base or noble metal.  The damages recoverable for conversion related, not only to the skill and labour of the copyright owner in the making of his drawings or other work, but also to the skills and expression involved in the production of the three dimensional article to which the copyright owner had contributed nothing.  Damages on that scale could have operated as a deterrent to future infringement but were not a fair or just measure of damage suffered by the plaintiff or profit made by the defendant."

The circumstances obtaining at the time of the sale by which the goods were converted were facts bearing on the value the goods then had.  To give, as the statute does, the remedy of conversion, entitling the applicants to the full measure of their damages, is not to change those circumstances, which are relevant to the ascertainment of that measure.  Thus, in Vivian Mansell & Co Ltd v. Harold Westleigh Ltd (1939) MacGillivray CC 288, Simonds J. (as he then was) accepted the price at which infringing goods were sold at wholesale as the measure of value, pointing out that their subsequent price in a Woolworths store reflected "the money expended by Woolworths in the provision of attractive shops and competent saleswomen".  The case involved too a problem of apportionment, since the infringement consisted of an embellishment on the cover of an article.  His Lordship, employing an expression also used by Lord Roche in Caxton Publishing Co v. Sutherland Publishing Co (supra, at 194), treated the apportionment as "a matter of rusticum judicium" - a Latin version of "palm tree justice". 

In Lewis Trusts v. Bambers Stores Limited [1983] FSR 453, the Court of Appeal was concerned with an interesting problem of the overlapping of damages awarded for infringement with damages awarded on the conversion basis. The case concerned the making of blousons, a kind of jacket, which infringed the plaintiffs' copyright in their design. A quantity of infringing blousons were sold. May LJ, who dissented, would have found no overlap between damages recovered for infringement on a royalty basis, calculated at so much per article sold, and damages recovered for conversion calculated at the sale price of the articles sold. His Lordship's reasoning was succinctly expressed at 468:

"If the defendants had actually paid a royalty for the use of the plaintiffs' copyright before they sold the garments, so that such sales would not have amounted to a conversion, then I have no doubt the price charged to the retail customer for each garment would have been greater by the amount of the royalty; certainly there was no evidence that the retail sale price upon which the [conversion] damages were assessed included anything in respect of the notional royalty.  When the awards are analysed in this way, I do not think that there is shown to have been any overlap.  A copyright owner is entitled to compensation under sections 17 and 18 respectively for two distinct and different injuries:  he is entitled under section 17 to compensation for the unlawful use of his copyright; he is entitled under section 18 to compensation for the conversion of goods which are deemed to be his property."

But the majority of the Court of Appeal looked only at the actual sale price, and held that to allow this for conversion and then allow the amount of the royalty that should have been paid as damages for infringement involved an overlap.  As Lawton LJ put it (at 461-462):

"The plaintiffs are claiming that the defendants have infringed their copyright by making copies of their blousons without paying them a royalty which they could reasonably have fixed at 50p for each garment.  Had a licence been granted requiring the payment of such a royalty the defendants would have received the sale price of each garment, less the 50p which they would have had to pay the plaintiffs.  On the total sum awarded by way of damages the defendants are being made to pay to the plaintiffs not only the sale price of each garment but an additional sum by way of royalty if one had been arranged.  It seems to me that under the Master's certificate the defendants have been made to pay a sum for doing wrong by the plaintiffs plus a sum for what they would have had to pay if they had done right by them.  This does not seem to me right."

The majority refused to add to the fictional ownership of the plaintiffs a fictional acknowledgment of that ownership, so as to vary the price to what it would have been if there actually had been an acknowledgment of the copyright owners' position.  The majority took the transaction of sale as it actually was.

Another situation where the calculation of value for the purpose of the assessment of damages on the conversion basis posed peculiar problems was encountered by the Court of Appeal in Nichols Advanced Vehicle Systems Inc v. Rees (No. 3) [1988] RPC 71. The infringement there related to the copyright in the drawings used to build a Formula One motor racing car. On the conversion basis, it was necessary to assess the value of parts made in accordance with these drawings. The difficulty was that such parts could not be bought from motor dealers, and it was plain that there was no normal market in which they were traded. Whitford J took a transaction by which a racing car was sold as a basis for calculation of the value of the relevant parts. But Lawton LJ said (at 92-93):

"There is no real market for the sale of Formula One racing cars.  One of the witnesses said, in colloquial terms, 'Well, if it happens at all, it's once in a blue moon'.  For my part I am satisfied, on the totality of the evidence, that there is no commercial market for the sale of Formula One cars.  ...  So what Whitford J was doing, in my judgment, was taking a very odd and unusual transaction as representing the real sale value of these cars.  In my judgment that was an unsound and uncertain basis for calculating the damages".

In that situation, the Court of Appeal preferred, as the measure of the value of the parts, their cost of manufacture less depreciation. 

The only case I have been able to find where a court has considered an argument of the kind raised by the applicants before me is Columbia Pictures Industries v. Robinson [1988] FSR 531. There, the defendants had infringed the copyright in certain cinematograph films, and conversion damages were sought based on an estimated price at which legitimate copies of the films were being sold to the public. Scott J pointed out (at 535) that "it is nearly always the case that the quality of the pirate tapes is inferior to the quality of legitimate tapes". However, the case did not turn on that. After referring to the fact that the defendant Robinson made 674 illicit sales to a purchaser referred to as Centre Video, Scott J stated his conclusion (at 541) as follows:

"The measure of damages for conversion is the market value of the converted article.  Mr. Baldwin, for the plaintiffs, has argued that the market value of the infringing copies ... should be taken to be the price at which the plaintiffs were selling the legitimate copies to the public, namely £27 plus the relevant rental licence fee.  However, the £27 represents the price of the tape plus the cassette box.  Conversion damages ought, in principle to be limited to the market value of the infringing tape.  Mr. Woyda, one of the deponents, estimated the cost of packaging a tape to be 32p.  In addition, it is to be noticed that £27 reflects also the cost of distribution.  A market value of £27, whether or not reduced to reflect the value of the box and the cost of distribution, is considerably higher than the price at which Mr. Robinson was selling infringing copies to Centre Video.  The documents before me on this inquiry suggest that the price to Centre Video was between £16 and £17 per tape.  In his evidence at the trial Mr. Robinson said that he had been selling to Centre Video at £12 per tape.  In my judgment, the price at which Mr. Robinson was selling is a more accurate guide than the price at which the plaintiffs were selling their own legitimate copies.  I propose therefore to allow £16 per tape for each of the infringing copies sold to Centre Video.  It follows that, in my judgment, Filmways is entitled under section 18 to damages in respect of the 674 infringing copies totalling £10,784."

In my opinion, the cases justify the conclusion that, in the absence of a legitimate market for copies of the kind with which this case is concerned, it would be inappropriate to make the assumptions on which Mr Ayre's evidence was based, or to adopt as any guide the prices at which legitimate copies of the programmes in question might be sold.  These were not legitimate copies, and I do not think the statutory fiction, imposed for the purpose of providing a particular remedy, can be stretched to make it applicable also for the purpose of the assessment of value.  There was no market for these copies, except the market in which they were actually traded and sold.  The evidence is sparse, but as I have said, I infer that the price Mr Yee obtained involved some mark-up on the cost price of the disks.  In the words of Scott J, I think it was a "more accurate guide than the price at which the [applicants] were selling their own legitimate copies."  To look at the matter in its actual context, rather than in a fictional context, is to act consistently with the approach adopted by Lord Porter in Caxton Publishing Co v. Sutherland Publishing Co (supra, at 203-205).  Indeed, a refusal to act upon a factually false assumption of legitimacy, as the majority of the Court of Appeal refused to do in Lewis Trusts v. Bambers Stores, and as Scott J refused to do in Columbia Pictures Industries v. Robinson, is also the approach which was taken by Lord Porter.  For (at 204), having considered an argument based on what would have been paid had the infringing sheets there involved been licensed, he said:

"Indeed to inquire what is the value of the infringing matter so removed from its context is to my mind an artificial way of considering the problem.  The respondents' property has in fact been incorporated in the appellants' volume [infringing sheets were bound with a legitimate book] and sold to the public.  The appellants never considered what they would have been willing to pay as each infringing copy was bound into the volume, nor the respondents what they would have been willing to receive if they had been prepared to sell at all.  The two parties have in fact combined in furnishing (though unwittingly on the respondents' part) material for a volume in which it was afterwards incorporated and sold."

So, here, disks were made which were in fact not authorized, and, accepting that they were actually exact copies, they did not wear the badge of any legitimate origin.  There was no legitimate market for them.  An award measured by the price at which legitimate disks, manufactured by or for one of the applicants, would be sold through normal channels would not be an award of compensation for the loss sustained by the conversion of these illegitimate disks.

Accordingly, I hold that the applicants are entitled, on the conversion basis, to the sum of $23,530.  I direct them to bring in, on a date to be fixed, short minutes of orders appropriate to be made in the light of these reasons.

I certify that this and the preceding twenty (20) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Burchett.

Associate:
     Date: 13 September 1996

Counsel for the Applicants:      Mr J. Nicholas

Solicitors for the Applicants:    Mallesons

Solicitors for the Respondents:   Lane & Lane

Date of hearing:                 3 April 1996