Avel Pty Ltd v Wells, J

Re: AVEL PTY LIMITED; CAPCOM CO. LIMITED and TAD CORPORATION LIMITED
And: JONATHAN WELLS
No. G401 of 1991
FED No. 763
Circuit Layouts
(1992) AIPC 90-846
(1991) 22 IPR 305
105 ALR 635

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Gummow J.(1)

CATCHWORDS

Circuit Layouts - parallel importation of printed circuit boards for video games - whether infringement of EL rights in circuit layouts - whether infringement of copyright in computer programs - meaning of expression "an integrated circuit made in accordance with an eligible layout".

Copyright Act 1968

Circuit Layouts Act 1989

Law and Justice Legislation Act 1990

Circuit Layouts Regulations

Semiconductor Chip Protection Act 1984 (U.S.)

Interstate Parcel Express Co. Proprietary Limited v Time-Life International (Nederlands) BV (1977) 138 CLR 534

S.W. Hart and Co. Proprietary Limited v Edwards Hot Water Systems (19 85) 159 CLR 466

Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 97 ALR 460, affd. (1991) ATPR 46-071

Netcomm (Australia) Pty Ltd v Dataplex Pty Ltd (1988) 81 ALR 101

Thorp v C.A. Imports Pty Ltd (1990) ATPR 40-996

Siddons Pty Ltd v The Stanley Works Pty Ltd (1990) ATPR 41-044

HEARING

SYDNEY

#DATE 2:12:1991

Counsel and solicitors Mr P.G. Hely QC and Mr R.J. Webb,
for the applicants instructed by Kemp, Strang and
(cross-respondents): Chippindall.

Counsel and solicitors Mr J.D. Heydon Q.C. and Mr J.V. Nicholas
for the respondent instructed by Corrs Chambers Westgarth
(cross-claimant):

ORDER

The parties bring in short minutes to give effect to the Reasons for Judgment delivered today.

The proceeding stand over to a date to be fixed for directions as to the disposition of the remaining issues in the proceeding.
NOTE: Settlement and entry of orders is dealt with by Order 36 of the Federal Court Rules.

JUDGE1

This proceeding raises important questions concerning the operation of the Circuit Layouts Act 1989 ("the Layouts Act") as amended by Part 3 of the Law and Justice Legislation Amendment Act 1990 ("the Amendment Act"). The Layouts Act commenced on 1 October 1990 and the Amendment Act on 21 December 1990.

In particular, questions arise concerning the inter-relation of the new monopoly rights created by the Layouts Act, and rights in literary works which are conferred by the Copyright Act 1968 ("the Copyright Act"), where the articles in respect of which complaint is made have been manufactured outside Australia by or with the licence or consent of the owner or owners of all the rights in question, but imported into Australia for sale or hire here, without such licence or consent. This activity of unauthorised importation of legitimately manufactured articles has been described in the evidence and in submissions as "parallel importing".
Whilst no formal order under Order 29 Rule 2 has yet been made, the expeditious resolution of the essential issues in this proceeding has been assisted by the efforts of counsel. They have agreed a number of facts and sought the deferral of the remaining issues for later consideration. However, some of the agreed facts involve conclusions of law; others are perhaps too tersely stated. But there was a large body of affidavit evidence and some short oral evidence.
The first applicant ("Avel") trades in Australia under the business name "Leisure and Allied Industries" and its activities include the importation and sale of electronic video games in kit form. Avel operates "Time Zone Amusement Centres" where the games are operated by players who insert a coin into a slot in a cabinet. Thereafter, the player operates a joy stick attached to the cabinet so as to control the interaction between computer generated characters which appear on a video display unit on the cabinet. When the game is not in play, a series of images known as the "attract mode" appear on the screen. These games have but an ephemeral commercial life; popularity for six to nine months is a sign of significant commercial success.
This case involves four such games. They are entitled "Final Fight", "Street Fighter II", "Carrier Air Wing" and "Blood Brothers". The second applicant ("Capcom") and the third applicant ("Tad") are Japanese corporations, each of which designs, manufactures and sells video game kits. Capcom is responsible for "Final Fight", "Street Fighter II" and "Carrier Air Wing", whilst Tad is responsible for "Blood Brothers".
Avel imports these and other video amusement games into Australia pursuant to exclusive distribution agreements between it and Capcom and Tad. The Layouts Act contains (in s. 5) a definition of "exclusive licence" which follows the terms of that in sub-s. 10 (1) of the Copyright Act. Section 30 of the Layouts Act confers rights upon exclusive licensees in relation to infringement. The existence of exclusive licences was not admitted on the pleadings, but nothing turns upon the point for the purposes of this judgment. What is important is that no such licence has been granted to the respondent (Mr Wells). However, he has imported for sale and sold the four video games in question. The applicants seek injunctive and other relief against Mr Wells to restrain importation of, and other dealings with, those video games.
The game kits to which I have referred each comprise a printed circuit board ("PCB"), an operator's manual, and stickers for use as later described. Each of the PCBs embodying the "Final Fight", "Street Fighter II" and "Carrier Air Wing" games, imported and sold by Mr Wells, was manufactured by Capcom. Each of the PCBs embodying the "Blood Brothers" game, imported and sold by Mr Wells, was manufactured by Tad.
In relation to the game kits for each of "Final Fight", "Street Fighter II" and "Carrier Air Wing", Capcom is the owner, pursuant to the Copyright Act, of copyright in literary works being (a) the computer programs contained in the memory storage devices in integrated circuit form which are fitted to the PCBs and known as ROMS, EPROMS and OTPROMS, and (b) the written materials contained in the operator manuals included in the kit, and the written materials included on stickers designed to be placed on the exterior of the video game cabinet into which the PCB is installed for use. Capcom, in relation to each of the three game kits, is also the owner, pursuant to the Copyright Act, of copyright in artistic works being the drawings and diagrams contained in the operator manuals included in the game kits and the drawings and diagrams reproduced on the stickers.
Likewise, in respect of the "Blood Brothers" game kit, Tad is the owner, pursuant to the Copyright Act, of copyright in literary works being (a) the computer programs contained on the ROMS and OTPROMS fitted to the PCBs, and (b) the written materials contained in the operator manuals included in the kit, and the written instructions included on the stickers. Tad is also the owner, pursuant to the Copyright Act, of copyright in artistic works being the drawings and diagrams contained in the operator manuals, and the drawings and diagrams reproduced on the stickers.
At all material times, the definition in sub-s. 10 (1) of the Copyright Act of "literary work" included "a computer program or compilation of computer programs". In turn, the expression "computer program" was there defined as meaning:
"an expression, in any language, code or notation, of a set of
instructions (whether with or without related information) intended,
either directly or after either or both of the following:

(a) conversion to another language, code or notation;

(b) reproduction in a different material form;

to cause a device having digital information processing

capabilities to perform a particular function."

However, the definition in sub-s. 10 (1) of "artistic work" was so defined as to "not include a circuit layout within the meaning of the Circuit Layouts Act 1989". By this means there is avoided the overlapping between the two legislative regimes which would be caused by giving concurrent protection in respect of the same subject matter.

As a "parallel importer" of the artistic and literary works which I have described, Mr Wells would, unless provided with an answer by some other legislative provision, be faced with the liabilities imposed by ss. 37 and 38 of the Copyright Act; see Interstate Parcel Express Co. Proprietary Limited v Time-Life International (Nederlands) BV (1977) 138 CLR 534. Section 37 provides that the copyright in, inter alia, a literary or artistic work is infringed by a person who, without the licence of the owner of the copyright, imports an article into Australia for the purpose of, inter alia, selling the article or distributing it for the purpose of trade, where, to the knowledge of the importer, the making of the article would, if it had been made in Australia by the importer, have constituted an infringement of the copyright in the literary or artistic work. Section 38 provides that the copyright in, inter alia, a literary or artistic work is infringed by a person who, in the case of an imported article, inter alia, sells or offers it for sale without the licence of the owner of the copyright, where to the knowledge of the seller, if the article had been made in Australia by the importer, that activity would have constituted an infringement of the copyright in the literary or artistic work.
The rights of Capcom and Tad in respect of the artistic works in question and the literary works (other than the computer programs) will be protected by an undertaking given the Court on 11 November 1991 by Mr Wells' counsel. The undertaking, given without admissions, is not to import for sale or hire or sell or by way of trade offer or expose for sale any of the operator manuals or stickers referred to in paras. 3 and 4 of the Statement of Claim filed 7 August 1991. Therefore, of the various copyright works, only the computer programs call for attention in these reasons.
In that regard, Mr Wells submits that upon its true construction, s. 24 of the Layouts Act relieves him, as a parallel importer, of what otherwise would be liability for infringement, not only of the rights of Capcom and Tad conferred by that legislation, but also from the operation of ss. 37 and 38 of the Copyright Act insofar as the imported articles contain a copy or adaptation of literary works being the computer programs contained on the memory devices included in the kits.
The Layouts Act confers a new species of monopoly right in respect of certain "circuit layouts". In his evidence, Dr Matheson described a circuit layout as a representation of the transistors and other components which form part of the integrated circuit memory device when fabricated. The expression (after a change effected by s. 41 of the Amendment Act) is defined in s. 5 of the Layouts Act as meaning:
"a representation, fixed in any material form, of the three-dimensional
location of the active and passive elements and inter-connections
making up an integrated circuit." (Emphasis supplied).
The phrase "material form" includes:
"any form of storage (whether visible or not) from which the layout,
or a substantial part of it, can be reproduced."
The expression "integrated circuit" is defined as meaning:

"a circuit, whether in a final form or an intermediate form, the purpose, or one of the purposes, of which is to perform an electronic function, being a circuit in which the active and passive elements, elements, and any of the interconnections, are integrally formed in or on a piece of material."

The evidence shows that an integrated circuit or "chip" as understood in the science of electronics is a complex of minuscule switches joined by "wires" etched from extremely thin films of metal; the etching process is generally accomplished by "masks" or stencils used to etch a given pattern of circuiting upon the chip.

In s. 5 of the Layouts Act, an "eligible layout" is defined as meaning an original circuit layout, the maker of which was at the time a layout was made an "eligible person", or which was first commercially exploited in Australia or "in an eligible foreign country". Japan is, within the meaning of the legislation, an eligible foreign country, and a citizen, national or resident of Japan is therefore an "eligible person"; see the Circuit Layouts Regulations. A circuit layout will not be original if it was commonplace when made or its making involved no creative contribution by the maker (s. 11).
In relation to eligible layouts, the Layouts Act confers monopoly rights (described as "EL rights") for a period which, in the present case, is ten years from the first commercial exploitation of the layout. (That, of course, is a period far shorter than those provided for in the Copyright Act; the disparity may have a significance in construing a provision such as s. 24 of the Layouts Act in which the two species of monopoly are yoked, but no such submission was made in this case.) The nature of the EL rights is spelled out in s. 17. One of those rights is the exclusive right to exploit the layout commercially in Australia: para. 17 (c). Another is the exclusive right to make an integrated circuit in accordance with the layout or a copy of the layout: para. 17 (b). The exclusive right to perform those acts includes the exclusive right to authorise another person to do so: s. 9.
A circuit layout shall be taken to have been commercially exploited if the layout, a copy of it, or an integrated circuit made in accordance with it (whether or not that integrated circuit is incorporated in another thing) is, inter alia, imported for the purpose of sale, letting for hire or other distribution by way of trade. That follows from para. 8 (1) (c).
It is an agreed fact that each of the ROMS, EPROMS and OTPROMS fitted to the PCBs imported and sold by Mr Wells was made from an "eligible layout" within the meaning of s. 5, and it was so made by or with the licence of the owner of the EL rights therein. The right to exploit those eligible layouts commercially in Australia, being that referred to in para. 17 (c), is infringed by a person who, during the period of protection of the layout, without the licence of the owner, commercially exploits or authorises the commercial exploitation of the layout in Australia, if that person knows or ought reasonably to know that he or she is not licensed by the owner of that right to do so. Sub-section 19 (3) so provides.
Mr Wells did not conduct his activities with the licence of either Capcom or Tad. Accordingly, on the footing that they are the respective owners of the EL rights concerned, their exclusive rights were infringed by Mr Wells, subject to him having known or being one who ought reasonably to have known that he was not so licensed. Mr Wells did have that knowledge.
However, it is then necessary to turn to the provisions of Division 3 of the Layouts Act. This specifies various activities which are not infringements of EL rights. Section 24 is included in Division 3. As I have indicated, this is the crucial provision upon which Mr Wells relies to provide an answer to what otherwise would be his liability in respect of his activities as a parallel importer, both under the Copyright Act and under the Layouts Act.
Sub-section 24 (1) applies to the infringement of EL rights the principles involved in what in certain United States decisions have been described as the "exhaustion of monopoly rights" and "first sale" doctrine; it does so by fixing upon commercial exploitation whether in Australia or elsewhere by or with the licence of the owner of the EL rights. The sub-section provides as follows:
"24. (1) Where:

(a) an eligible layout is commercially exploited, whether in Australia or elsewhere, by, or with the licence of, the owner of the EL rights in the layout: and

(b) a person acquires a copy of the layout, or an integrated circuit made in accordance with the layout, as a result of that commercial exploitation; it is not an infringement of the EL rights in the layout if the person commercially exploits the copy or the integrated circuit in Australia."

That provision may be compared with s. 906 (b) of Title 17 of the United States Code, introduced by the Semiconductor Chip Protection Act 1984; this entitles the owner of a particular semiconductor chip product which was lawfully made under Chapter 9 of Title 17 (headed "Protection of Semiconductor Chip Products"), or any person authorised by such owner, to sell or otherwise dispose of that semiconductor chip product without the authority of the owner of the "mask work". The result is that the "first sale" doctrine in the United States copyright law is expressly carried into the new legislation: Kastenmeier and Remington, "The Semiconductor Chip Protection Act of 1984: A Swamp Or Firm Ground?" (1985-6) 33 Jo. of the Copyright Soc. of the USA 110 at 146. Indeed, as is pointed out in "Nimmer on Copyright" ss 18.06(E), 8.12(B)(3), the 1984 law may go further than the copyright law, because the application of the "first sale" doctrine to immunise liability for unauthorised importation remains questionable under the copyright law. See also Feingold, "Parallel Importing Under The Copyright Act of 1976", (1984-5) 32 Jo. of the Copyright Society of the USA 211 at 222-7.
Sub-sections 24 (2), (3) of the Layouts Act deal with the infringement of copyright in works. They provide:
"24. (2) In spite of section 37 of the Copyright Act 1968 and section

38 of that Act to the extent that section 38 applies to imported articles, where the commercial exploitation of an integrated circuit containing a copy or adaptation of a work (being an integrated circuit made in accordance with an eligible layout) is not, under this section, an infringment of the EL rights in the layout, that commercial exploitation is not an infringement of the copyright in that work unless the making of that copy or adaptation was an infringement of that copyright.

(3) Expressions used in subsection (2) that are used and defined in the Copyright Act 1968 have the same respective meanings in that subsection as they have in that Act."

(One of the exclusive rights of the owner of copyright in a literary work is to make an adaptation of the work (as provided by para. 31 (1) (a) of the Copyright Act) and in relation to a literary work being a computer program, "adaptation" (as defined in sub-s. 10 (1)) includes a version of the work, whether or not in the language code or notation in which it was originally expressed, which is not a reproduction of the work.)

In the present case, Mr Wells commercially exploits integrated circuits made in accordance with eligible layouts, which contain copies or adaptations of, relevantly, literary works (being computer programs) . By force of sub-s. 24 (1), that commercial exploitation of the integrated circuits is not an infringement of the EL rights in the layouts. Counsel for Mr Wells further submits that this commercial exploitation is not an infringement of the copyrights in the works because the making in Japan of the copies or adaptations of the works was not a copyright infringement. Counsel relies upon sub-ss. 24 (2), (3) for that result. The consequence, counsel submits, is that in a case such as the present, parallel importing is fully permitted and there is no infringement either under the Copyright Act or the Layouts Act; the respondent escapes the grasp of ss. 37, 38 of the Copyright Act by means of s. 24 of the Layouts Act.
On the other hand, counsel for the applicants contends that the respondent cannot make out a case under sub-ss. 24 (2), (3). He points out that whilst the ownership of the EL rights and of the copyright in the literary works may, as in this case, rest in the same hands, that will not necessarily always be so. Counsel for the applicants contends that where the ownership of the copyright in the relevant computer program is vested in a party other than the owner of the EL rights, the effect of the interpretation contended for by counsel for the respondent will be that sub-s. 24 (2) of the Layouts Act will effect a subtraction in the rights of the copyright owner by subjecting that owner to the operation of first sale doctrine. (But, of course, sub-s. 24 (2) would only achieve this result where, in accordance with its terms, the making of the copy or adaptation of the program was not an infringement because, for example, it was made with the licence or authority of the copyright owner.)

From that proposition, counsel for the applicants developed two submissions as to the construction of sub-s. 24 (2) which, if accepted, and on the further facts of the case, would mean that the sub-section could not be relied upon by Mr Wells to escape the operation of ss. 37, 38 of the Copyright Act. Before dealing with those two propositions, it is necessary to refer further to the facts.
Video games are but one example of the uses to which integrated circuit memory devices are put in a wide range of items. They are also used in such things as cash registers, washing machines, television sets, mobile phones, word processors and printers, and cardiac monitors and pacemakers. I have referred to the three species of such devices which are used in the PCBs for the four video games with which this game is concerned, namely ROMS, EPROMS and OTPROMS.
The four games include graphic images which are generated whilst the game is being played ("graphics data") and sound effects, background music and other auditory phenomena ("sound data") together with the sound program itself ("the sound program") and the elements of the game ("the main program").
For the game "Street Fighter II" the PCB includes:
(i) for the storage of the main program, 8 EPROMS (each with

a capacity of 1 megabyte),

(ii) for the storage of graphics data, 12 ROMS (each with a

capacity of 4 megabytes and each made in Japan by Fujitsu),

(iii) for the storage of the sound program, 1 EPROM (with a

capacity of 0.5 megabytes) and

(iv) for the storage of the sound data, 2 EPROMS (each with

a capacity of 1 megabyte).

For the game "Final Fight", there is:
(i) for the main program, 4 EPROMS (each with a capacity

of 1 megabyte),

(ii) for the graphics data, 5 ROMS (each with a capacity of

4 megabytes and each made in Japan by Hitachi),

(iii) for the sound program, 1 EPROM (with a capacity of 0.5

megabytes) and

(iv) for the sound data, 2 EPROMS (each with a capacity of

1 megabyte).

For the "Carrier Air Wing" game, only EPROMS are used, 8 for the main program, 16 for the graphics data, 1 for the sound program and 2 for the sound data. In the case of the main program, the graphics data and the sound data, each EPROM has a capacity of 1 megabyte. The EPROM used for storage of the sound program has a capacity of 0.5 megabytes.
Finally, for the "Blood Brothers" game:
(i) 4 OTPROMS (each with a capacity of 1 megabyte) are used for

storage for the main program,

(ii) for the graphics data, there are used 2 OTPROMS (each with a

capacity of 0.5 megabytes) and also 2 ROMS (each with a capacity of 8 megabytes and produced by an unstated manufacture),

(iii) for the sound program, 1 OTPROM is used (with a capacity of

0.5 megabytes) and

(iv) for the sound data, 1 OTPROM is used (with a capacity of 1

megabyte).

It is appropriate now to turn to the first two submissions by the applicants to which I made earlier reference.
Upon these facts, the applicants submit that Mr Wells cannot escape ss. 37 and 38 of the Copyright Act by reliance upon sub-s. 24 (2) of the Layouts Act, because it would apply only if he exploited commercially an integrated circuit containing a copy or an adaptation of the literary work comprising one of the computer programs, not merely a part thereof. Whilst the sound programs for each of the four games is contained each on one integrated circuit, that does not deal with the whole of the matter. For example, the main programs for all four games are stored in a plurality of integrated circuits. Accordingly, it is submitted, that in that category one cannot say that there is, within the text of sub-s. 24 (2), an integrated circuit containing a copy or an adaptation of the relevant literary work.
However, it will be recalled that sub-s. 24 (2) uses various expressions which are used and defined in the Copyright Act, and that sub-s. 24 (3) provides that when so used those expressions are to have the same meanings as they bear in the Copyright Act. Sub-s. 14 (1) of the Copyright Act states:
"14. (1) In this Act, unless the contrary intention appears:

(a) a reference to the doing of an act in relation to a work or other subject-matter shall be read as including a reference to the doing of that act in relation to a substantial part of the work or other subject-matter; and

(b) a reference to a reproduction, adaptation or copy of a work shall be read as including a reference to a reproduction, adaptation or copy of a substantial part of the work, as the case may be."

On the evidence, each of the integrated circuits includes a substantial part of the literary work concerned, being the relevant computer program. That part of the program which pertains to each device is a vital part in the working of the game as a whole. In this field, the concept of substantiality is to be judged by considerations of quality as well as quantity: S.W. Hart and Co. Proprietary Limited v Edwards Hot Water Systems (1985) 159 CLR 466 at 478; Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 97 ALR 460 at 465-466, affd. (1991) ATPR 46-071.
If sub-s. 24 (2) of the Layouts Act did not exist and the direct question was whether the importation of any particular one of these integrated circuits infringed the copyright in the relevant computer program, by reason of s. 37 of the Copyright Act, the answer would be in the affirmative because each circuit reproduced a substantial part of that program.
When sub-s. 24 (2) of the Layouts Act is read with sub-s. 14 (1) of the Copyright Act in the manner I have suggested, the result is that the commercial exploitation by Mr Wells of each of the relevant integrated circuits is not an infringement of the copyright in the relevant computer program, a substantial part of which is contained in that integrated circuit. Such a construction of the legislation avoids what would otherwise have been the curious consequence that sub-s. 24 (2) might, as counsel for Mr Wells put it, be walked around by a manufacturer who ensured that more than one integrated circuit was used for each computer program. Accordingly, I reject the first of the two submissions for the applicants.
That brings me to the second of the submissions for the applicants. It first requires further reference to statutory provisions.
The first owner of the EL rights in an eligible layout is the person who makes the eligible layout or the employer of that person (s. 16). An eligible layout shall be taken to have been made when first fixed in a material form (para. 10 (b)). The expression "material form" includes any form of storage, whether visible or not, from which the layout, or a substantial part of it, can be reproduced (s. 5). And a person who used a computer to make an eligible layout shall be taken to have made the layout (para. 10 (a)).
Counsel for the applicants correctly stressed that the purpose of the Layouts Act was to give protection to those who first fix in a material form the representation of the three-dimensional location of the active and passive elements and inter-connections making up an integrated circuit.
It will be recalled that in the case of the graphics data for three of the games ("Street Fighter II", "Final Fight" and "Blood Brothers") the integrated circuits that were used were ROMS, ROMS or "mask ROMS" are the cheapest type of memory storage device in integrated circuit form. The data is contained in an arrangement of the circuit layout within the ROM. The particular computer program to be encoded is delivered to a manufacturer of ROMS who then prepares a circuit layout or "mask" which incorporates the data concerned, and from it quantities of the mask ROM are manufactured containing the particular circuit layout. Mask ROMS are generally used when the program to be stored is simple and to be utilised in mass-produced consumer products. On the other hand, OTPROMS and EPROMS can be used where there may be a need to modify the program in the device. The OTPROM is produced in a "blank" form; the circuit is a large matrix at the intersections of which are a number of data storage locations, usually of one byte capacity. The program may then be loaded directly onto the blank device. EPROMS are similar to OTPROMS, save that a program loaded into a EPROM can be erased so that the EPROM can be re-used indefinitely. On the other hand, an OTPROM is not designed to enable such erasure of a program and OTPROMS are not re-useable. Both OTPROMS and EPROMS are more expensive to manufacture than mask ROMS.
The distinctions between these three species of integrated circuit are of great significance to the second submission for the applicants. I should add that the evidence of Dr Matheson shows that there are other species of integrated circuit and that in all memory chip fabrication the creation of a circuit layout is an essential step.
In the case of the graphics data for "Street Fighter II", "Final Fight" and "Blood Brothers", graphic designers employed by Capcom or Tad (as the case may be) produced various illustrations and graphics which were then converted by them into digital dot graphics and supplied to an outside manufacturer. It then mass produced the mask ROMS, incorporating that graphics data, which were later fitted to the PCBs.
A different procedure was followed by both Tad and Capcom with EPROMS and OTPROMS. A "blank" (or set of blanks, as the case required) which had been purchased from an integrated circuit manufacturer was taken in the Research and Development Laboratory of Tad or Capcom and the relevant program was copied from the object code in the hard disc of a micro-computer onto the blank by use of a device connected to the computer. The resulting "masters" were then used by the Manufacturing Departments of the corporations in the mass production of the EPROMS or OTPROMS in question. In my view, the "masters" produced from the computer in this way were each an original circuit layout, in the sense of s. 5 of the Layouts Act, from which was made integrated circuits fitted to the PCBs imported by the respondent.
In that regard, it may be noted that in its original form (before the change effected by s. 41 of the Amendment Act) the definition of "circuit layout" read:
"circuit layout means a plan comprising a two-dimensional
representation, fixed in any material form, of the three-dimensional
material form, of the three-dimensional location of the active and
passive elements and interconnections making up an integrated circuit."
The words I have emphasised were omitted by the Amending Act. Their omission emphasised that the definition is not restricted to two-dimensional representations of an integrated circuit.
Counsel for the applicants accepts that so far as the ROMS are concerned, one can readily see the applicability of sub-s. 24 (2) of the Layouts Act. This is because these integrated circuits "as made" had the graphics data encoded thereon by the "chip manufacturer". But, counsel submits, the EPROMS and OPTROMS stand in a different position. This is because the relevant computer programs were encoded by Capcom or Tad (as the case may be) subsequent to the production of the blanks by the supplier concerned. Those suppliers (the evidence discloses) included Japanese corporations (Hitachi, Mitsubishi Electric and Oki) and United States corporations (Advanced Micro Devices and Intel). The encoding on the blanks was done not by the "chip manufacturer" but by the maker of the PCB, namely Capcom or Tad.
However, in my view, that submission does not reflect the true operation of the legislation.
It is to be borne in mind that one of the exclusive rights given the owner of the EL rights in an eligible layout is "to make an integrated circuit in accordance with the layout or a copy of the layout" (para. 17 (b)). Those words are reflected in the phrase in sub-s. 24 (2) "being an integrated circuit made in accordance with an eligible layout". The "making" of an article ordinarily includes the steps and procedures which resulted in the formulation or composition of the article in its final state as an object of commerce: Netcomm (Australia) Pty Ltd v Dataplex Pty Ltd (1988) 81 ALR 101 at 107; Thorp v C.A. Imports Pty Ltd (1990) ATPR 40-996; Siddons Pty Ltd v The Stanley Works Pty Ltd (1990) ATPR 41-044 at 51,596.
It would be an odd outcome if in using "masters" supplied by the Research and Development Laboratories to produce the OTPROMS and EPROMS in their state as later imported with the PCBs brought in by Mr Wells, Capcom and Tad were not taken as having exercised their exclusive rights as owner of the EL rights in eligible layouts to make integrated circuits in accordance with those layouts.
Further, the evidence is that (questions of cost differential aside) all three types of device, OTPROMS, EPROMS and mask ROMS, can be used inter-changeably in micro-processor based products. The ROMS are preferred, inter alia, because of the lesser cost. It would, as counsel for the respondent submitted, be a curious result if the impact of s. 24 upon copyright in works had a different operation when integrated circuits were used, which, though different, were inter-changeable.
Sub-section 24 (2) of the Layouts Act does not qualify EL rights. That is the function of sub-s. 24 (1). Sub-section 24 (2) deflects what otherwise would be the operation of ss. 37 and 38 of the Copyright Act upon the commercial exploitation of an integrated circuit containing a copy or adaptation of a work protected by the Copyright Act. When sub-s. 24 (2) applies, that commercial exploitation will not be an infringement of the copyright in the work. Sections 37 and 38 are concerned with certain activities in Australia which themselves are not the reproduction of the relevant work in a material form. On the facts of this case, the first of the two sections to apply would be s. 37, and it would operate when Mr Wells imported the games for a purpose spelled out in that section.
At that time, if there is to be no infringement of copyright, the integrated circuit must satisfy two criteria. The first is concerned with the character of the integrated circuit in relation to the copyright law. That is to say, the integrated circuit must contain a copy or adaptation of the relevant work. The applicants' first submission concerned that limb of sub-s. 24 (2) and I have not accepted it. The second criterion presented by sub-s. 24 (2) is concerned with the character of the integrated circuit in relation to the EL rights conferred by the Layouts Act. The integrated circuit must have been made in accordance with an eligible layout. And, by reason of sub-s. 24 (1), the relevant commercial exploitation of the integrated circuit (in this case, as the primary step, the importation into Australia) must not be an infringement of the EL rights in the layout. In this case, the applicants did not deny that sub-s. 24 (1) applied to the activities of the respondent, so that he derived the benefit conferred by that provision.
The debate concerns the phrase in sub-s. 24 (2), "(being an integrated circuit made in accordance with an eligible layout)". That phrase supplies the link in the structure of sub-s. 24 (2) between the double character of the integrated circuit, as containing a copy or adaptation of a copyright work and as representing the exercise of EL rights. In my view, in this setting, an integrated circuit answers the description in question if at the time at which the operation of sub-s. 24 (2) is to be assessed (for example, in this case, importation into Australia) one can say of the integrated circuit that in the form in which it then stands it was "made" in accordance with an eligible layout. Each EPROM and OTPROM which was fitted to the PCBs imported by Mr Wells was made in accordance with an eligible layout, being the relevant "master" previously produced in the Research and Development Department of Tad or Capcom. That is so notwithstanding the use in the making of that "master" and of the imported integrated circuits of "blanks" purchased by Tad or Capcom from an integrated circuit manufacturer.
In my view, the respondent has made out its defence based upon sub-ss. 24 (2), (3) of the Layouts Act. I will stand the proceeding over for a short time for the bringing in of short minutes to give effect to the findings that have been made and for the further conduct of the case to dispose of any remaining issues.

[1991] FCA 763

02 DECEMBER 1991