Columbia Pictures Industries Inc v Luckins

[1996] FCA 542

CATCHWORDS

INTELLECTUAL PROPERTY - COPYRIGHT - assessment of damages for infringement of copyright under ss 115 & 116 of the Copyright Act 1968 (Cth) - importation and sale of laser discs in breach of copyright - three categories of damages; infringement under s 115(2), conversion and additional damages - claim for damages for infringement of copyright is a claim for a wrong done to an incorporeal right - whether depreciation caused by infringement to the value of the copyright as a chose in action as a measure of damages should be rigidly applied - difficulty in application of principle in present case due to the difficulty in the quantification of the diminution in the value of the rights - "licence fee" approach to damages - whether compensatory damages are "at large" in the sense that the Court must award an amount which it thinks is right as if it were a jury - "licence fee" approach inappropriate - compensatory damages assessed by estimate of loss of income arising through sale and importation of laser discs - conversion damages inappropriate - additional damages awarded for flagrant infringement and benefit accrued through infringement.

Copyright Act 1968 (Cth) ss 115, 116

Federal Court Rules O 62, r 36A

Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales (1975) 6 ALR 445, applied

Sutherland Publishing Co Ltd v Caxton Publishing Co ltd (1936) 1 Ch 323, considered

Australasian Performing Right Association Ltd v Grebo Trading Co Pty Ltd (1978) 23 ATCR 30, considered

Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69, considered.

COLUMBIA PICTURES INDUSTRIES INC. &
TRI-STAR PICTURES INC. v STEPHEN RICHARD LUCKINS
No NG 922 of 1993

Tamberlin J
Sydney
5 July 1996

IN THE FEDERAL COURT OF AUSTRALIA )                 
NEW SOUTH WALES DISTRICT REGISTRY )    No.  NG 922 of 1993    
GENERAL DIVISION                 )

BETWEEN:          COLUMBIA PICTURES
  INDUSTRIES INC.
  First Applicant

TRI-STAR PICTURES INC.
  Second Applicant

AND:              STEPHEN RICHARD LUCKINS
  Respondent

CORAM:       TAMBERLIN J
PLACE:       SYDNEY
DATED:       5 JULY 1996

MINUTE OF ORDERS

THE COURT ORDERS THAT:

1. The respondent pay damages to the applicants in the amount of $38,000.

1. The respondent pay the applicants' costs of this proceeding on an indemnity basis.

1. O 62 r 36 A of the Federal Court Rules shall not apply.

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

IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )    No. NG 922 of 1993
GENERAL DIVISION                 )

BETWEEN:          COLUMBIA PICTURES
  INDUSTRIES INC.
  First Applicant

TRI-STAR PICTURES INC.
  Second Applicant

AND:              STEPHEN RICHARD LUCKINS
  Respondent

CORAM:       TAMBERLIN J
PLACE:       SYDNEY
DATED:       5 JULY 1996

REASONS FOR JUDGMENT

On 12 April 1995 Hill J made consent orders restraining the respondent from infringing the Australian copyright of the applicants in specified cinema films, identified in schedules to the Statement of Claim. In addition, the respondent was restrained from importing into Australia, without licence, reproductions in the form of laser discs of the film and from selling or distributing such imported discs or procuring such activities.

His Honour ordered that the respondent deliver up reproductions of the films imported into Australia without the licence of the first applicant. The orders also included an order that the respondent pay damages for infringement under ss115 and 116 of the Copyright Act 1968 (Cth).

There was argument before his Honour as to whether costs should be awarded on an indemnity basis. His Honour awarded the applicants' costs on an indemnity basis. In the course of his reasons for so doing he noted that at the time of the hearing all but one of the respondent's defences had been abandoned and that the only remaining relevant issue in relation to damages was whether respondent had knowledge of the infringements. His Honour held that it was apparent the respondent clearly had that knowledge and considered that it was probably for that reason that the respondent ultimately assented to the above orders.

For present purposes the relevant provisions are ss102, 115 and 116 of the Copyright Act 1968 (Cth) ("the Act"). Those sections provide as follows:

"Infringement by importation for sale or hire

1. Subject to section 112A, a copyright subsisting by virtue of this Part is infringed by a person who, without the licence of the owner of the copyright, imports an article into Australia for the purpose of:

(a)selling, letting for hire, or by way of trade offering or exposing for sale or hire, the article;

(b)distributing the article:

(i)for the purpose of trade; or

(ii)for any other purpose to an extent that will affect prejudicially the owner of the copyright; or

(c)by way of trade exhibiting the article in public;

if the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright."

"Actions for infringement

1. (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 (subject to such terms, if any, as the court thinks fit) 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 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."

"Rights of owner of copyright in respect of infringing copies.

1. (1) 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.

(2) A plaintiff is not entitled by virtue of this section to any damages or any other pecuniary remedy, other than costs, if it is established that, at the time of the conversion or detention:

(a)the defendant was not aware, and had no reasonable grounds for suspecting, that copyright subsisted in the work or other subject-matter to which the action relates;

(b)where the articles converted or detained were infringing copies - the defendant believed, and had reasonable grounds for believing, that they were not infringing copies; or

(c)where an article converted or detained was a plate used or intended to be used for making articles - the defendant believed, and had reasonable grounds for believing, that the articles so made or intended to be made were not or would not be, as the case may be, infringing copies."

Factual Background

The laser disc films in suit are set out in the schedules to the Statement of Claim. The infringement complained of was the importation into Australia of copies of those films in laser disc format.  The films were made legally in the United States of America for playing in home laser disc players. These laser
discs are about the size of long-playing records. They are manufactured in a similar way to musical compact discs and the information on them is encoded digitally with the result that the reproduction quality of the film embodied in the disc is very much higher than on standard video tape. They are also less resistant to deterioration as a result of use or age.

The laser discs are in a format which is playable on the television system used in the United States. This is known as the NTSC format. There are technical differences between the television system used in the United States and countries such as Australia, England and European countries, which use a second generation technology, known as PAL. In order to play NTSC or PAL laser disc films it is necessary to have a machine with a capacity to do so. PAL discs and tapes cannot be played on dedicated NTSC players and vice versa. However many of the new players now have both a PAL and NTSC compatibility. The players connect to a television set through which the film is shown.

In about 1989 PAL laser discs were introduced into Australia. The PAL format was chosen by the applicants because of its claimed technical superiority. The applicants do not market NTSC laser discs in Australia.

The applicants claim that the importation and distribution of NTSC laser discs in Australia has made it very difficult, if not impossible, for the applicants to establish a PAL laser disc market in Australia anywhere near the size of the NTSC laser disc market which has developed. The primary reason for this is in the timing of the release, as the NTSC laser discs are claimed to be made available in Australia at the time of the first cinema screening of the film.

The evidence for the applicants is to the effect that the first cinema (theatrical) release of major films in the United States generally occur in the June to August period. Approximately 6 months thereafter, from December onwards, the studios then release films in NTSC laser disc format for American domestic consumption.  During this later period the studios also distribute the cinema films for release in Australia to coincide with the Southern hemisphere summer. Accordingly, the American NTSC laser disc release occurs at about the time of the first cinema release in Australia. The distribution pattern then is said to be that about 6 months after the cinema release in Australia, the films are released by the studios in PAL video and laser disc format by the applicants. From the date of that release over the next 6 months PAL videos are sold by the applicants to clients for rental to consumers. This rental period is referred to in the evidence as the "rental window", whereas the preceding period is known as the "theatrical window".

During the ensuing 6 months PAL videos and laser discs are sold by the applicants to retail clients for on-sale to the consumers and this is known as the "sell through window".
At the conclusion of the "sell through window" period, the applicants further exploit the copyright in each film by meeting direct orders from consumers for PAL videos and laser discs and this is known as the "direct order window".

In some instances this pattern is not followed and on occasion films are released through the cinemas in Australia before release in the United States on NTSC. However, I am satisfied that in general, release and distribution follows broadly the pattern set out above.

The evidence indicates that as a result of the respondent's importation of NTSC laser discs and the activities of other importers of NTSC laser discs, the applicants' sales of PAL laser discs have been considerably diminished. There is evidence from directors of large video distribution outlets to support the view that customers can generally purchase NTSC laser discs well before they become available in the video rental stores around Australia which causes some prospective customers to access the NTSC laser disc market instead of the video rental market.

In or around 1989, a company known as Columbia Tri-Star Hoyts Home Video Pty Ltd ("Columbia Tri-Star") commenced to distribute films in Australia using laser disc technology in the PAL format with the authority and licence of the applicants. The only distributor of PAL laser discs in Australia with authority and licence was a company known as DIA Multi Media which carries on business in Melbourne. I accept that there has not and there never has been any importation or distribution of NTSC laser discs with authority or licence of either the applicants or members of the Motion Picture Association, which includes the applicants' present corporation and seven other large film production companies.

Claim for Damages

The claim for damages fall into three categories:

•Damages for infringement - s115(2) of the Act.

•Conversion damages - s116(1)

•Additional damages - s115(4)

Damages for infringement - s115(2)

A claim for damages for infringement of copyright is a claim for a wrong done to an incorporeal right.

The purpose underlying the award of damages for infringement was expressed by Bowen CJ in Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales (1975) 6 ALR at 445 at 446:

".... it would, in my opinion, be wrong to treat the measure of damages for breach of copyright stated by Lord Wright in Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd ... as having in effect, the force and rigidity of a 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. Somewhat different considerations may apply to unpublished works from those which apply to published works. Furthermore, the circumstances in which the breach of copyright arises vary widely. Various measures of damages appropriate to the particular circumstances have to be applied."

In Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd (1936) 1 Ch 323 at 336, Lord Wright said in relation to a copyright case:

" ...the measure of damages is the depreciation caused by the infringement to the value of the copyright as a chose in action".

The principle can be shortly stated but the difficulty in the application of the principle is manifest in the present case. That difficulty is to establish that the infringing importation has caused a quantifiable diminution in the value of the rights comprised in the copyright.

One approach taken in the authorities is what is known as the "licence fee" approach. An example of the application of this approach is the decision in Australasian Performing Right Association Ltd v Grebo Trading Co Pty Ltd (1978) 23 ACTR 30, where Blackburn CJ said at 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 these musical 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 would 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'".

In Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69, Wilcox J considered a claim for damages under s115(2) of the Act. That case involved infringement of copyright in computer programmes. His Honour was not convinced that the infringing activities had the effect of depriving the applicants of the particular sums of money which they claimed. He did not consider that it was open to apply the "licence fee" approach in that case because he could not draw the inference that, presented with a choice between paying the "licence fee" and not using the work, the infringer would have paid the "licence fee". He did not think that an assumption could be made in the circumstances of that case, that if forced to obtain a licence the defendant would have copied the work or copied it to the
same extent. See 17 IPR 69 at 75. Accordingly, he concluded that the Court must treat the damages as being "at large" in the sense that the Court should award an amount which it thought right as if it were a jury. See Fenning Film Services Ltd v Wolverhapmton, Walsall and District Cinemas Ltd [1914] 3 KB 1171 at 1174.

In the present case, the applicant contends that the "licence fee" approach is inappropriate. This submission is based on an argument that the applicants would not have granted a licence to import NTSC laser discs and that he would not have sold the discs if he could have bought a licence from the applicants for each disc he sold. Rather, it is said, he saw an opportunity to profit by importing discs in breach of s102 and competing with the applicants' business by exploiting their copyright in the films in the Australia market.

It is further said that if a "licence fee" approach is used the Court could not be confident that it is properly compensating the applicant because of uncertainty in the records and the lack of candour of the respondent which indicates an improbability that the figures kept by him could give any accurate indication of the true level of sales.

In my view, the licence fee approach is not appropriate in a situation where it is clear that there never would have been a licence granted by the applicants because of the disruption such a licence would inflict on the applicants' basic strategic marketing timetable in Australia. Staged timing in the exploitation of the copyright in Australia is central to the applicants' business plans. Moreover, I accept that the respondent was in competition with the applicants in the Australian market.

Accordingly, as in Autodesk (supra), the damages should be approached as being "at large".

There is no doubt, in my view, that the importation by the respondent, in contravention of s102, has caused significant depreciation in the value of copyright of the applicants. To a large extent this arises from the business edge which the unlawful importation has given to the respondent in marketing the NTSC laser discs by reason of the fact that, for the most part, PAL laser discs or videos will be released substantially later than the time at which the American NTSC discs become available.

The applicants submit that it is reasonable to assess the depreciation of the copyright arising from the infringement by assuming an average value of the copyright in the 24 films to be valued as $100,000 and then assuming that the respondent's wrongdoing over a period of over 4 years, between August 1989 and November 1993, led to a 2% depreciation in the value of the copyright.  This is said to produce a result of an amount of $48,000, which could justify on a subjective assessment of
compensatory damages a figure within a range of $35,000 and $50,000.

I do not accept this approach because the figures are too general and arbitrary, particularly the critical suggestion of a 2% depreciation.

In my view, the preferable approach is to endeavour to estimate the loss of income, arising from the importation and sale of the discs.

There has been discovery in this matter and an analysis was made by a solicitor, Mr Tsovolos, from records made available by the respondent. These records are on their face, incomplete and it is more probable than not, that the respondent has made many more sales of the applicants' laser discs than was admitted by him or which can be derived from the incomplete discovered documents.

The respondent argued that the Tsovolos figures were unreliable because they took into account records as to deposits for the sale of discs and also second hand discs. However, the respondent's evidence as to the taking of deposits was that they were generally followed by a completed sale. As to second hand sales only four of them were noted as second hand. The double counting argument was not raised by the respondent before the hearing and under cross-examination he agreed that the theory that there had been double counting was something that had just occurred to him in the witness box.

On the documents and the evidence before me, I am satisfied that the respondent imported NTSC laser discs to Australia without consent, in contravention of s102, from at least June 1990 through November 1993, a period of 41 months and probably over a longer period. Such evidence as there is, provides an indication that a rate of 5 discs a month were imported, at a cost of in the order of $25 per disc. This figure affords a rough general guide, as to the costs of importation. These figures generally indicate an expense of importation of $5,125. It is reasonable to suppose that the sale of the NTSC discs, particularly given its advantageous timing, would indirectly lead to a broadly corresponding reduction in the sales of PAL discs marketed by the applicants. There is support in the evidence for the view that the PAL discs were sold at a price in the order of $115, which leads to a total income of $23,575. This would indicate a loss in income of $18,450.

However, I consider this figure to be unduly conservative, because there are likely, in my view, to have been significantly more sales than those shown in the discovered documents and the sales are likely to have been made over a longer period.

Having considered all the evidence advanced, in my view, a figure of $23,000 is the appropriate amount to award by way of infringement damages.

Conversion damages - s116(1)

The applicant pressed for conversion damages based on similar lines to that which I have set out above concerning infringement damages.

Although it is well settled that conversion damages are cumulative with and can be granted in addition to infringement damages, I do not think that conversion damages are appropriate in this case. The infringement damages which I have estimated overlap and take into account the damage which might otherwise be granted by way of conversion damages and the authorities indicate that in such circumstances the Court should take care not to over compensate.

The principle which underlies conversion damages is that the copyright owner is entitled to treat an infringing copy as its property so that any dealing with it inconsistent with that proprietary right amounts to conversion of that article. See Sutherland Publishing Co v Caxton Publishing Co (1936) 1 Ch. where Lord Wright MR at 338, made it clear that the remedy in conversion is a different legal method of compensation devised to prevent a stranger from acquiring, taking or selling infringing copies which in itself amounts to a wrong additional to infringement of the copyright. The legal principle is that compensation for infringement is in respect of a wrong done to an incorporeal right, namely copyright, whereas conversion is for conversion of the particular chattels which comprise the infringing copies.

As Greene LJ said in that case:

"But in a case where damages are awarded in respect both of the infringement and of the conversion the tribunal which fixes the damages must be careful to see that no injustice is done. Damages under the two heads may or may not overlap in whole or in part. In so far as they do overlap that circumstance must in my judgment, be taken into account."

For the above reasons, conversion damages are not, in my view, appropriate in the present case.

Additional damages - s115(4)

In this case infringement of copyright has been established.

Under s115(4) the matters to be taken into account in assessing additional damages are: (i) the flagrancy of the infringements; (ii) any benefits shown to have accrued to the defendant by reason of the infringement; and (iii) any other relevant matters.

The relevant principles were considered by Wilcox J in Autodesk (supra) at 76-77 and I will not repeat them here.

The evidence satisfies me that the respondent was knowingly, directly or indirectly, concerned in the importation of infringing laser discs from at least June 1990 through November 1993.  For about a year, prior to that period, the respondent was aware that a predecessor company, Rypo Pty Ltd imported laser discs. Since at least August 1989, he was aware of the existence of copyright claims by the applicants, and from at least 1 August 1989, he knew that to import a copy of a film without a licence of the copyright owner was an infringement of copyright.  The respondent conceded that he imported laser discs for years in the full knowledge that the American copyright owners claimed it was illegal.  He was aware since August 1989 that the applicants had licences to distribute their films in Australia.

Since about August 1989 the respondent has knowingly breached s102 of the Act. In short, the infringements were a deliberate course of conduct pursued consistently over a considerable period of time.

The respondent apparently genuinely holds a strong opinion that the operation of the Copyright Act 1968 (Cth), in relation to importation is unfair, and he has a philosophical disagreement with the principles involved in the legislation. However, although this might serve to explain why the respondent has deliberately breached the Act, it in no way mitigates the seriousness or flagrancy of the continuing infringements. In relation to benefit, it is clear that the respondent by importing infringing copies has gained a significant advantage over his competitors, including the applicants, by reason of the contemporaneity of the distribution by him of films in NTSC format, with those being shown for the first time in cinemas in Australia. The probable motive for doing this, apart from his philosophical objection to the legislation, is that he stood to gain a substantial profit as a result of so doing. It is fair to say that the respondent has acted in a defiant manner since August 1989 in relation to the applicants' claim for copyright. It is likely, in my view, that there were substantially more extensive infringements of the applicants' copyright than the records obtained from the respondent indicate.

In considering the question of damages under the three heads, I have taken into account the submissions by the respondent that, to some extent, purchasers of NTSC laser discs would be specialist buyers such as film buffs or collectors who are particularly concerned with high quality and long term quality of the NTSC discs. I have also taken into account, in a case of a number of individual films, there has been nearly simultaneous release of films in Australia with those in the United States. In arriving at an appropriate figure I have made due allowance for these considerations. In addition, I have taken into account the submission that the damages arose from the substantial delay on the part of the applicants in commencing proceedings. I do not accept that this consideration should be taken to reduce the amount of additional damages to any significant extent.

Having regard to the above I consider that the sum of $15,000 is an appropriate sum to award as additional damages.

I am of the opinion that the costs of the hearing before me, in relation to the determination of damages, should be awarded to the applicants on an indemnity basis.

Accordingly, my conclusion is that the respondent should pay to the applicants by way of total damages, the sum of $38,000 together with the applicants' costs of this proceeding on an indemnity basis. Although the total amount recovered is less than $100,000, having regard to the complexity and nature of the matter, I am satisfied that it was properly brought and continued in this Court and I direct that O62 r36A of the Federal Court Rules not apply.

I certify that this and
the preceding eighteen (18)
pages are a true copy of the
Reasons for Judgment herein of
his Honour Justice Tamberlin.

Associate:

Date:  5 July 1996  

Counsel for Applicant:           Mr T J Hancock  
Solicitor for Applicants:        The Argyle Partnership
Respondent in Person:           Mr Richard Luckins
Date of Hearing:               17 & 18 April 1996  
Date Judgment Delivered:              5 July 1996