Copyright Agency Ltd v Victoria University of Technology

COPYRIGHT AGENCY LIMITED, ROUTLEDGE AND KEEGAN PAUL, PRENTICE HALL I NC.,
JOHN WILEY AND SONS LIMITED, HARPER COLLINS PUBLISHERS INC., JOSSEY-BASS INC.,
PUBLISHERS, HARPER EDUCATIONAL (AUSTRALASIA) PTY LTD, PENGUIN BOOKS AUSTRALIA
LIMITED, GEORGE ALLEN AND UNWIN AUSTRALIA PTY LIMITED, LONGMAN GROUP PTY LTD,
McGRAW-HILL BOOK COMPANY AUSTRALIA PTY LIMITED, J.B. LIPPINCOTT AND HARCOURT
BRACE JOVANOVICH GROUP (AUSTRALIA) PTY LIMITED v VICTORIA UNIVERSITY OF
TECHNOLOGY
No. NG829 of 1992
FED No. 702/94
Number of pages - 15
Copyright
(1994) AIPC 91-104
(1994) 53 FCR 56
(1994) 29 IPR 263

COURT

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
GUMMOW J

CATCHWORDS

Copyright - multiple copying of works by educational institutions - whether unauthorised sale or use of copies so made - operation of licensing scheme comprised in Part VB of Copyright Act 1968.

Copyright Act 1968
Copyright Amendment Act 1980
Copyright Amendment Act 1989
Copyright Amendment (Re-enactment) Act 1993

HEARING

SYDNEY, 29-30 August, 1 September 1994
#DATE 30:9:1994

Counsel and solicitors Mr D.K. Catterns QC
for the applicants: instructed by Phillips Fox

Counsel and solicitors Mr A.R. Emmett QC and
for the respondent: Mr I.M. Jackman instructed by

Baker and McKenzie

ORDER

(1) Orders that the application be dismissed.

(2) Orders that the applicants pay the costs of the respondent of the application.

(3) Declares that the making by the respondent of the copies now comprised in Exhibits A1, A2, A3, A4 and B was copying done with the licence of the first applicant.

(4) Orders that the cross-claim otherwise be dismissed.

(5) Orders that the applicants pay the costs of the respondent of the cross-claim.

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

JUDGE1

GUMMOW J There has been a large measure of cooperation between the parties in the preparation of this proceeding for trial. It is a test case concerning the construction and operation of certain provisions of Part VB of the Copyright Act 1968 ("the Act"). Part VB (ss. 135ZB-135ZZH) is headed "Copying of Works etc. by Educational and Other Institutions".

It is common practice for universities and other institutions of tertiary education to make multiple copies of extracts from different literary works which relate to a particular course, to collect those extracts, sometimes bound in book form, and to supply them to students enrolled in that course. Put broadly, the issues in this case concern the applicability of Part VB to that practice.
Part VB, in general, operates in respect of "eligible items", a term defined in s. 135ZC as including a wide range of copyright material. However, nothing in Part VB applies to literary works being computer programmes or compilations of computer programmes (s. 135ZE). Division 2 (ss. 135ZG-135ZM) deals with the copying of works by educational institutions. There is provision for multiple copying of insubstantial portions of works (s. 135ZG), copying of published editions (s. 135ZH), multiple copying of periodical articles (s. 135ZJ) and multiple copying of works published in anthologies (s. 135ZK). This case is concerned with s. 135ZL.
It will be necessary to set out later in these reasons the full text of s. 135ZL. It is sufficient at this stage to say that sub-s. 135ZL (1) provides that, subject to the "reasonable portion" provision of sub-s. 135ZL (2), copyright in a literary, dramatic, musical or artistic work, other than an article contained in a periodical publication, is not infringed by multiple copying of the whole or part of the work by or on behalf of a body administering an educational institution if there is compliance with certain conditions. Two of these are concerned with the record keeping requirements and the bringing into operation of the equitable remuneration provisions (ss. 135ZU-135ZZA). The other condition is that the copies be "made solely for the educational purposes of the institution or of another educational institution". The respondent is an "educational institution" within the meaning of the lengthy definition in sub-s. 10 (1) of the Act, and therefore within the meaning of s. 135ZL.
Of course, if the conditions I have described are not satisfied, the immunity is lost and there has been primary infringement under s. 36 of the Act.
Nothing in the present case turns directly upon Division 3 (ss. 135ZN-135ZQ), which deals with the copying of works by institutions assisting handicapped readers, nor upon Division 4 (ss. 135ZR-135ZT), dealing with copying by institutions assisting intellectually handicapped persons.
Division 5 (s. 135ZU-135ZZA) deals with equitable remuneration and establishes a system of remuneration notices given to collecting societies whose activities are controlled by the Attorney-General pursuant to Division 6 (ss. 135ZZB-135ZZE).
Division 7 (ss. 135ZZF-135ZZH) deals with miscellaneous matters. Sub-section 135ZZF (1) confirms that nothing in Part VB affects the right of owners of copyright in works to grant licences to bodies administering educational institutions. Section 135ZZH is an important provision for this case. Section 135ZL provides that in certain circumstances copyright in certain works is not infringed by the making of copies. Section 135ZZH is concerned with the use (with the consent of the body by whom or on whose behalf they were made) of copies in circumstances which then result in removal of the immunity otherwise provided by "prescribed provisions". The user need not have been the maker, provided there is the necessary consent.
Section 135ZL is a "prescribed provision" for the purposes of s. 135ZZH. The effect of s. 135ZZH may be to remove, apparently retroactively, the immunity from infringement conferred by s. 135ZL. Section 135ZL does not apply, "and shall be taken never to have applied", to the making of the copies in question if, with the consent of the administering body by whom, or on whose behalf, the copies are made, the copies are either "sold or otherwise supplied for a financial profit" or "used for a purpose" other than that specified in s. 135ZL. That purpose, as I have indicated, is the making of the copies solely for the educational purposes of the institution or of another educational institution. This scheme of conferring an immunity or granting a liberty, which is withdrawn if conditions are not met, may be compared with the provisions of Division 6 of Part III of the Act (ss. 54-64) which deal with the mechanical royalty; see the discussion of s. 55 by Aickin J in RCA Limited v The Commissioner of Taxation (1977) 137 CLR 583 at 592-593; see also as to the operation of what was Part VC, Australian Tape Manufacturers Association Ltd v The Commonwealth (1993) 176 CLR 480 at 496-499, 517-518, 530-531.
If the initial copying has the immunity conferred by s. 135ZL upon the maker, subsequent sale should not infringe, because the making of the copies did not infringe (s. 38). Conversely, if the immunity is lost and the making does infringe, then, given the degree of knowledge of which s. 38 speaks, subsequent use will infringe; cf the remarks by Lockhart J upon the unsatisfactory form now taken by s. 38, in International Writing Institute Inc v Rimila Pty Ltd (1993) AIPC para.91-035 at 39,748-9.
This case is concerned particularly with questions of construction in the application of ss. 135ZL and 135ZZH to particular facts. Whilst, as I have indicated, the parties view this as a test case, it is necessary at the outset to appreciate that any result that is achieved is the product which flows from the particular facts put before the Court.
The second - thirteenth applicants between them are the owners or exclusive licensees of 14 literary works in which copyright subsists pursuant to the Act. The first applicant ("CAL") is a company limited by guarantee, the members of which include the second - thirteenth applicants. CAL is the agent of the other applicants for various purposes including claiming payments of remuneration under Part VB of the Act.
On behalf of parties including the other applicants, on 29 October 1989 CAL entered into an agreement relating to the photocopying of literary works with the Footscray Institute of Technology. In January 1992, that institute and the Western Institute were incorporated into the Victoria University of Technology (the respondent) by virtue of the Victoria University of Technology Act 1990 (Vict). This statute provided for the assumption by the respondent of certain rights, liabilities and obligations of the former bodies. The premises of the Western Institute became the St Albans campus of the respondent.
In 1994 the total operating budget of the respondent was $98.51m.; operating grants from Commonwealth and State govern-ments represented 93.8% of the total. That percentage contribution by government grant is typical of recent years.
The 1989 agreement was varied by further written agreements made between CAL and the respondent on 12 February 1991 and 12 January 1992; as amended from time to time the agreement is referred to in these reasons as the "License Agreement". The 1989 agreement had followed upon the entry of CAL on 29 September 1989 into a head agreement ("the head agreement") with the Australian Vice-Chancellors' Committee ("the AVCC") and the Australian Committee of Directors and Principals Ltd. These arrangements have legal effect largely outside Part VB, but this is permitted by sub-s. 135ZZF (1).
As I have indicated, ss. 135ZZB-135ZZE provide for the declaration by the Attorney-General of approved collection societies for the purposes of Part VB. CAL was declared to be such a collecting society on 13 June 1990. However, its primary significance in the present litigation is as party to the License Agreement. The effect of the License Agreement is to license the respondent to copy the whole or part of literary and other works where, but for the availability of the statutory licence under Part VB of the Act, this would involve infringement of copyright in those works. The licence conferred by the License Agreement is subject to payment of what is defined therein as the "Remuneration Payment Amount". This contractual licence operates without the need for the respondent to maintain and provide the records called for by Part VB and without the need to pay any further amount over and above the Remuneration Payment Amount for copying pursuant to the licence. The royalty is computed by use of a formula which uses sampling techniques to obtain what in evidence was called a "nationwide average".
However, the provisions of Part VB remain important to the operation of the contractual arrangement. This is because those acts which do not infringe because they fall within what might loosely be called the statutory licence also will fall within the License Agreement. The applicants contend that the particular activities with which this case is concerned fell outside the statutory licence and so outside the License Agreement, thus leaving the respondent in the position of an infringer. This has the result that, although the respondent relies upon its contractual licence rather than the statutory licence, the provisions of the latter are vital to the determination of the issues arising under the former.
The litigation was instituted after correspondence in 1992, first between CAL and the AVCC and later between CAL and the respondent. On 15 June, CAL wrote to the AVCC expressing what was then its "formal position" on the sale of anthologies of works. This was that the making and sale of anthologies was contrary to the head agreement and this was so whether or not (i) the materials were sold only to students enrolled in the relevant institution, and (ii) the amount charged to students was based on recovery of no more than normal administrative costs in the production of the materials. Then on 29 September 1992, the solicitors for CAL wrote to the respondent stating that it had come to the attention of CAL that the respondent was compiling and selling collections of materials entitled "Readings on Organisations, Work and Personnel Psychology" (being comprised in booklets 1 - 4) and "Psychosocial Aspects of Health and Illness". These anthologies were said to contain photocopied chapters of works copyright in which was held by the members of CAL.
At the trial the four booklets became Exs. A1 - A4, and the other anthology became Ex. B. Exhibit A1 comprises 76 pages, A2 - 36 pages, A3 - 48 pages, and A4 - 63 pages. Exhibit B comprises 153 pages. Exhibit A1 contains extracts from 4 literary works, A2 from 2 works, A3 and A4 each from 3 works. Exhibit B contains 4 short papers or articles and extracts from 8 longer works.
It is appropriate now to return to the provisions of Part VB. Part VB has an unusual legislative history. Initially it replaced Divisions 5A and 5B of Part III of the Act (ss. 53A - 53D). These had been added to the Act by the Copyright Amendment Act 1980 ("the 1980 Act") and had established a compulsory licensing scheme for educational institutions and for institutions assisting handicapped readers in respect of the copyright of works. These provisions of the 1980 Act were repealed by the Schedule to the Copyright Amendment Act 1989 ("the 1989 Act").
The 1989 Act inserted Part VA, dealing with copying of broadcasts by educational and other institutions, and Part VB dealing with copying of, inter alia, works by educational and other institutions, and Part VC dealing with the use of blank tapes for private and domestic copying. Part VC comprised ss. 135ZZJ-135ZZZB. Divisions 3 and 4 of Part VC dealt with the blank tape royalty and the use of collecting societies to recover it. On 11 March 1993, the High Court declared that Divisions 3 and 4 of Part VC were invalid: Australian Tape Manufacturers Association Ltd v The Commonwealth, supra. This was because, in the terms of the Court order (176 CLR at 532-533):

"(i) they constitute a law with respect to taxation within the meaning of s. 51 (ii) of the Constitution and a law imposing taxation within the meaning of s. 55 of the Constitution; and

(ii) the Copyright Amendment Act 1989 (Cth) and/or the Act as amended by that Act deal or deals with the imposition of taxation as well as with other matters."

It will be apparent that the terms of para. (ii) of the Court order suggested its effect went beyond establishing the invalidity of the particular Divisions 3 and 4 of Part VC; see Air Caledonie International v The Commonwealth (1988) 165 CLR 462.

The Parliament responded with the Copyright Amendment (Re-enactment) Act 1993 ("the 1993 Act"). Part VA had been inserted in the Act by s. 14 of the 1989 Act, Part VB by s. 15 and Part VC by s. 16. Section 13 of the 1993 Act repealed the 1989 Act. It went on to re-enact certain provisions of the 1989 Act. In particular, the effect of para. 4 (a) is to amend the Act in the terms set out in s. 14 of the 1989 Act, that is to say by the reintroduction of Part VA. This is done with effect on 29 January 1990, that being the date on which s. 14 of the 1989 Act had commenced its operation. There was no re-enactment of any Division of Part VC dealing with blank tapes for private and domestic copying. Part VB, that with which this case is concerned, was dealt with in s. 5 of the 1993 Act. This inserted in the Act the Part which had been set out in s. 15 of the 1989 Act, with effect from 1 July 1990, the day on which s. 15 of the 1989 Act had commenced its operation.
It is appropriate now to turn to the particular provisions of Part VB upon the construction of which this case turns.
Section 135ZL is as follows:

"135ZL (1) Subject to this section, the copyright in a literary, dramatic, musical or artistic work (other than an article contained in a periodical publication) is not infringed by the making of one or more copies of the whole or a part of the work by, or on behalf of, a body administering an educational institution if:

(a) a remuneration notice, given by or on behalf of the body to the relevant collecting society, is in force;

(b) the copy is made solely for the educational purposes of the institution or of another educational institution; and

(c) the body complies with subsection 135ZX (1) or (3), as the case requires, in relation to the copy.

(2) This section does not apply in relation to copies of the whole, or of more than a reasonable portion, of a work that has been separately published unless the person who makes the copies, or causes the copies to be made, for, or on behalf of, the body is satisfied, after reasonable investigation, that copies (other than second-hand copies) of the work cannot be obtained within a reasonable time at an ordinary commercial price." (Emphasis supplied)

The expression "reasonable portion" is the subject of a definition in sub-s. 10 (2) of the Act. This states:

"10 (2) Without limiting the meaning of the expression 'reasonable portion' in this Act, where a literary, dramatic or musical work is contained in a published edition of that work, being an addition of not less than 10 pages, a copy of part of that work, as it appears in that edition, shall be taken to contain only a reasonable portion of that work if the pages that are copied in the edition:

(a) do not exceed, in the aggregate, 10% of the number of pages in that edition; or

(b) in a case where the work is divided into chapters exceed, in the aggregate, 10% of the number of pages in that edition but contain only the whole or part of a single chapter of the work."

Sub-section 135ZL (1) is a prescribed provision for the purposes of s. 135ZZH, the other principal provision in this litigation. Section 135ZZH states:

"135ZZH (1) Where a copy, record or version of a work, a sound recording or a cinematograph film, being a copy, record or version referred to in a prescribed provision of this Part:

(a) is sold or otherwise supplied for a financial profit;

(b) is used for a purpose other than the purpose specified in the prescribed provision; or

(c) is given to an administering body where there is not in force a remuneration notice given by that body to the relevant collecting society;

with the consent of the administering body by whom, or on whose behalf, it is made, the prescribed provision does not apply, and shall be taken never to have applied, to the making of the copy.

(2) For the purposes of this section, subsection 135ZG (1), subsection 135ZJ

(1), section 135ZK and subsections 135ZL

(1), 135ZP (1) and (2) and 135ZS (1) are prescribed provisions." (Emphasis supplied)

As I have indicated, the present dispute arises from the preparation and distribution of Exs. A1 - A4 and Ex. B. Exhibits A1 - A4 were compiled in approximately August 1991 by Mr John Alder. He was then lecturer in the Psychology Department of the Faculty of Arts at the Western Institute and has since become lecturer in the Psychology Department of the Faculty of Arts of the respondent. Exhibit B was first assembled in March 1991 by Anne Graham who was then a senior lecturer in the same faculty as Mr Alder. Like him, she is now senior lecturer in the same faculty of the respondent. Both have taught at all material times at the St Albans campus.
I turn to consider the role played by the two lecturers in the preparation of those collections. In 1991 and 1992, Mr Alder was co-ordinator for the following four subjects: "Organisations and Work", "Personnel Psychology", "Organisational Psychology I" and "Organisational Psychology II". The last three were fourth year units for students in the graduate diploma in Applied Psychology. The first was a third year course for Bachelor of Arts students. Each subject was taught by a mixture of lectures and class discussions, and students were provided with a subject outline including the sequence in which the subjects were to be taught. Students were provided with a reading list and a textbook was prescribed for use in relation to each subject. However, there was no single textbook available which dealt with all aspects of any of the four subjects. Accordingly, students were required to supplement their reading by going to parts of various other texts. Mr Alder set out to produce supplementary collections of readings for distribution to students, extracting and collecting together some of those parts of other works which were relevant to the four subjects.
Mr Alder selected a series of articles and extracts from textbooks which were arranged approximately in the order in which they would be reached in the subjects to which they were relevant. The extracts were divided into four booklets so as to allow students to buy some but not all of the collections where appropriate. Another objective was to make it easier in subsequent years to replace or to add to the collection without the need to scrap the whole of a large volume each time a change was made.
When the respondent became aware that CAL, on behalf of the publishers of certain of the works extracted in Exs. A1 - A4, objected to what was happening, of the 40 copies of each of the four booklets which had been supplied to the bookshop, there were still unsold 8 of Ex. A1, 10 of Ex. A2, 14 of Ex. A3 and 13 of Ex. A4. These were withdrawn from sale.
Anne Graham was co-ordinator of the subject "Psychosocial Aspects of Health and Illness". This was a compulsory subject for students taking the Bachelor of Health Science, formerly the Diploma of Applied Science (Nursing). The students taking the course were training as nurses. She shared the teaching load with three or four other lecturers. There was no suitable textbook available for the whole of the subject, none covering both psychological and sociological aspects of health and illness in the way they were treated in the course. Before 1991 the main reading necessary for students enrolled in the subject was made available by placing photocopy articles and sections from textbooks on counter reserve in the library. In practice, it was not possible for many of the students to read all of the reserve material, and there were complaints to Ms Graham from students that they had been unable to get access to the relevant material from closed reserve.
Therefore, she assembled a collection of relevant readings and the print room produced approximately one copy of the materials, Ex. B, for each student registered for the course. The total was 145 but this proved to be too many because not every student purchased a copy. A number of copies was left over for sale in the following academic year. Students were told in lectures of the availability of the booklets, and further reference to them was made in the "handout" to students who enrolled in 1992. Remaining copies of Ex. B were withdrawn from sale upon complaint by CAL.
In order to appreciate the case sought to be made by the applicants, something first must be said of the financial system used by the respondent and of the activities of the print room and bookshop at the St Albans campus.
The financial management of the respondent is based upon annual budget allocations of operating income to "cost centres", the faculties and various non-academic departments. The cost centres are expected to meet the direct costs of their activities from the budget allocations but are not required to fund from those allocations what are referred to as university wide costs. The latter are separately budgeted and include property services and management costs, building costs, insurance and employee entitlements.
Certain cost centres are identified as "self funding". This means they are expected by the respondent to cover from self-generated revenues direct costs, apart from some university wide costs. These "self funding" cost centres include the bookshop, the print room, and the cafeteria and bistro. These charge for goods and services which may be provided, whether to other "cost centres" or to staff and students and occasionally to bodies outside the university. It is important to appreciate that when such a centre succeeds in recovering from charges an amount equal to its directly accounted operating costs, so that in a sense it breaks even as a separate accounting entity, nonetheless it is being subsidised by the general administration of the respondent at least to the extent of the provision of some university wide services.
Since 1990 the print room has been located in a free standing but prefabricated building. It has contained two large leased modern commercial photocopying machines and some related printing and binding equipment owned by the respondent or its predecessor. The print room was staffed by one employee occasionally supplemented by casual help. Among the activities of the print room was the production of copies of reading materials selected by academic staff for particular courses. Binding or stapling in booklet form also was attended to in the print room. The product of these labours then was supplied to the person on the staff who requested it or, if so directed, to the bookshop. The print room did no photocopying other than for the respondent or its predecessor.
In 1991, the year in which there occurred the events with which this case is concerned, the print room at St Albans was treated as part of the Corporate Services Department of the Western Institute and not as a distinct "cost centre". The print room was budgeted to break even and neither to contribute to nor draw upon the budget of Corporate Services. The practice was to cost production with the objective of recovering annual direct equipment costs, paper costs and operator costs by taking into account the expected production in the print room. However, this break even point did not take into account the cost of depreciation of university owned equipment and of the print room itself. The profit and loss statement for 1991 shows that on a turnover in excess of $200,000 for 1991, the print room made an operating surplus of $1,400. This means that the amount charged on internal invoices to departments exceeded the direct and other costs of the print room by $1,400. However, the calculation of this operating surplus took no account of the depreciation in value of print room equipment owned by the university, or of the building in which the print room was located, nor of maintenance and repairs to that building.
In March and August 1991 respectively, the St Albans print room copied, bound and supplied to the bookshop the booklets, copies of which are Exs. A1 - A4 and Ex. B. Production by the print room was costed in accordance with the practices described above and the St Albans bookshop then, in accordance with its practice, added a 30% margin to reach the final selling price charged in the bookshop.
Each campus of the respondent has a bookshop. One of these is on the St Albans campus. Each bookshop sells textbooks, course materials (including the collections at issue in this case), stationery, calculators and sundry items. The bookshops do not stock any general titles such as works of fiction, other than texts prescribed by university courses. Each is positioned on the campus away from passing trade. In particular, the St Albans bookshop, in 1991-1992, occupied a temporary site at the back of the campus. It was located in a room containing piles of books sorted according to courses and no effort was made to stimulate sales. There was a staff of two, one of whom worked 30 hours a week and the other 12 hours. The general public did not enter the bookshop, customers consisting of students and members of staff.
The Manager of the bookshops of the respondent prepares a budget and business plan for each year. The aim is break even but in the result the bookshops operate at a loss. The budget is for a cash surplus from which to account for operating costs such as the proportion of university occupancy costs for security, maintenance, accounting services and the like, which are attributed to the operation of the bookshops. The objective is for receipts from sales to exceed operating expenses paid from the bookshop budget, so as to provide for occupancy costs borne by the central administration of the respondent. In 1991 and 1992 this ambition was not achieved and the bookshops required a subsidy. For example, in 1992 on net sales at the campus bookshops at Footscray, St Albans, Werribee and Melton, of $1,862,957, there was a net loss of $3,620. Approximately 2.1% of annual turnover is attributable to theft by students of material from the bookshops.
The bookshop marks up by 30% the cost of printed materials received from the print room. It does this in order to cover its identified costs of supplying the printed materials to students. The costs intended to be covered by the mark up include salaries for staff, including provision for payroll tax and superannuation, together with such things as insurance, telephone, packaging, wrapping and computer maintenance. The margin is also intended to allow for occupancy costs including lighting and heating, cleaning services, and building maintenance, and for accounting services which are provided by the central administration of the respondent.
In all, the copying for Exs. A1 - A4 and Ex. B comprised 31,481 pages. It is an agreed fact that CAL received $6,300.69 as the Remuneration Payment Amount computed under the License Agreement in respect of copying at the Western Institute in 1991. As indicated, the copying with which this case is concerned took place in that year. The formula pursuant to which the amount of royalty was computed used an element for "Copy Pages" which was an average number of pages per student determined by a survey conducted for the parties in 1989 and 1990. The result, the respondent submits, is that the parties were operating upon a stated aim of averaging for 1991 a charge of 2.244 cents per copy page, less a 10% deduction under the License Agreement. On that footing the 31,481 pages might properly have attributed to them a total royalty of $706.42 less the 10% discount. On the other hand, the applicants dissect and apply the sum of $6,300.69 in such a fashion as to calculate a royalty paid at the rate of 0.42 cents per copy, rather than 2.244 cents. The results, as the applicants would have it, is a total royalty in respect of the 31,481 pages of $132.23.
If in respect of the four anthologies (Exs. A1 - A4) there is brought into account not only direct print room costs, the 30% mark up and the total sales revenue generated by the bookshop, but also the royalty as computed by the respondent, what is the result? The total royalty would be $184.65 and this would eliminate what otherwise would have been the gross profit of $165.68. In respect of Ex. B, the total royalty of $451.13 would eliminate the gross profit of $351.79.
If the royalty as computed by the applicants were applied in respect of Exs. A1 - A4, the total licence fee of $38.41 would not eliminate the gross profit of $165.68. Likewise, in respect of Ex. B, the total royalty of $93.82 would not eliminate the gross profit of $351.79. However, if allowance then were made for bookshop costs to establish the net profit or loss, then in the case of all the anthologies there would be a net loss.
The applicants submit that the statutory licence provided for in Part VB is a major derogation from the rights of copyright owners, and that the entire purpose of the statutory licence is to provide access for educational institutions so that "any question of profit" is antithetical to the new scheme. It is submitted that s. 135ZL is designed to permit teachers to make multiple copies and to hand them to students so that a "business of quasi-publishing" and of book selling is quite outside what was contemplated. However, on the facts as I have outlined them, I would not characterise the activities of the respondent as a business of quasi-publishing or bookselling.
The applicants further submit that it follows from the nature of copyright infringement, the statutory licence and what counsel dubbed the "deemed retrospective absence of licence", that the only proper focus in the construction of sub-s. 135ZZH (1) is upon the characterisation of the individual transaction. The result is said to be that consideration of overall profit, whether as a matter of intention or of result, is irrelevant. In the alternative, it is submitted that if purpose be relevant, the respondent set up a system designed to make a gross profit on each transaction and to break even on a net basis. It is then submitted that even if "actual result" is relevant, the respondent, as a matter of result, did make a gross or incremental profit on each transaction.
Sections 135ZV (1), and 135ZW (1) indicate that at the time of the sale in question, the amount of equitable remuneration may not be known or ascertainable. This is because where a records notice has been given to the relevant collecting society, it carries with it an undertaking to pay equitable remuneration for each licensed copy in such amount as is determined by agreement and, in default thereof, by the Copyright Tribunal; where a sampling notice is given, the undertaking is to pay equitable remuneration being such annual amount per student of the institution concerned as is determined by agreement and, in default thereof, by the Copyright Tribunal. A remuneration notice of either variety may come into force on the day on which it is given to the collecting society (sub-s. 135ZU (3)). Whilst it is in force, and there is compliance with the other conditions in s. 135ZL, there will be no infringement. This is so even though the amount of equitable remuneration has not been fixed and is not ascertainable at the time of what would otherwise be infringements.
Further, in the present case, there is, as I have indicated, disagreement between the parties as to that sum which, having regard to the operation of the License Agreement, should properly be attributed as the royalty per page in respect of Exs. A1 - A4 and Ex. B.
Counsel for the applicants rely upon the effect of ss. 135ZV and 135ZW as a factor supporting a construction of the phrase "sold or otherwise supplied for a financial profit" in s. 135ZZH which does not involve calculations of royalty. But without an allocation for royalty, a direct cost, any computation of the loss or profit on any actual sale must be illusory.
In my view, this supports a construction that the legislation does not contemplate that the decision as to (i) whether a copy is made solely for the educational purposes of the institution or (ii) whether, even if so, the copies were sold or otherwise supplied for a financial profit, will turn upon subsequently ascertainable facts to show if such a profit indeed was made. The complexities in day to day administration of educational institutions to which such a construction would give rise serve to emphasise the point. It is further emphasised by the facts of this case. After extensive evidence there is left the barren dispute whether on accounts which are necessarily imperfect, given the difficulty in computing the proper allowance for royalty, regard should be had to the "gross" or "net" profit, in either case with very small sums being involved. The proper construction of Part VB must, in my view, be approached on a broader footing.
Counsel for the applicants emphasises, quite correctly, that when in an infringement case an account of profits is taken, attention necessarily is directed to the economic significance of each infringing act as an individual transaction. This is so although, as illustrated by Dart Industries Inc. v The Decor Corporation Pty Ltd (1993) 179 CLR 101, there has been great difficulty in practice with the proper allocation of overheads. Be that as it may, the taking of an account of profits, as the last step in a successful infringement action, involves different concerns to those in determining whether an immunity to infringement has been lost because copies, the making of which otherwise would not infringe, have been sold or otherwise supplied "for a financial profit". The phrase in para. 135ZZH (1) (a) in terms does not ask the question which would be appropriate on the taking of an account of profits, namely whether the copy was sold or otherwise supplied at a financial profit. Rather, it asks whether the copy was sold or otherwise supplied for a financial profit. This directs attention to the state of affairs at the time of sale or supply and to the object or purpose with which the sale or supply was effected.
I find that the booklets which are Exs. A1 - A4 and Ex. B were produced and distributed by the respondent with the objective of providing copies to students at minimum cost. It was no part of the objective of the respondent to attempt to maximise sale of these materials. Rather, the objective was to ensure that students enrolled in the relevant courses would be able to find and obtain copies of the materials at a price which covered costs. Of course, the notion of "costs" included provision (including the 30% mark up by the bookshop) for some of the indirect costs as described above.
The facts illustrate the way in which there is some coalescence between the issues presented under ss. 135ZL and 135ZZH. Nevertheless, it is necessary first to ask whether the copies were made solely for the educational purposes of the respondent within the meaning of para. 135ZL (1) (b). In argument, there was reference to various provisions in Part VA and Part VB itself where the adverb "solely" qualified references to purpose, and others where reference was to purpose alone. For example, in dealing with multiple copying of periodical articles by educational institutions, and multiple copying of works published in anthologies, paras. 135ZJ (1) (b), and 135ZK (b) respectively, follow the same form as para. (b) in sub-s. 135ZL (1). On the other hand, s. 135ZH (which deals with copying by educational institutions of published editions) merely requires that the reproduction be made "for the educational purposes" of the relevant institution. Likewise, sub-s. 135ZG (1), which deals with multiple copying of insubstantial portions of works, requires that the copying be carried out "for the purposes of a course of education" which is provided by the educational institution in question. Counsel for the applicants makes the point that the drafting of s. 135ZG follows that of its predecessor, s. 53A, which had been part of the compulsory licensing scheme established by the 1980 Act.

In my view, even without the express force given by the term "solely", there would be much to be said for the view that within the meaning of a provision such as s. 135ZG a reference to copying being carried out for the purposes of a course of education requires more than a primary or predominant purpose of that nature.
Where, as in s. 135ZL, that for which the copying is made is identified as educational purposes, assistance is provided by sub-s. 10 (1A) of the Act. This states:

"10 (1A) Without limiting the meaning of the expression 'educational purposes' in this Act, a copy of the whole or a part of a work or other subject-matter shall be taken, for the purposes of the provision in which the expression appears, to have been made, used or retained, as the case may be, for the educational purposes of an educational institution if:

(a) it is made or retained for use, or is used, in connection with a particular course of instruction provided by the institution; or

(b) it is made or retained for inclusion, or is included, in the collection of a library of the institution."

Accordingly, in the present case one asks of each copy whether it was made for use in connection with a particular course of instruction provided by the respondent. The copies were so made and, in my view, were made only or exclusively with the objective that they be used in connection with the particular courses of instruction suggested by the statements on the covers of Exs. A1 - A4 "Readings on Organisations, Work and Personnel Psychology" and, on Ex. B, "Psychosocial Aspects of Health and Illness". Paragraph 135ZL (1) (b) operated to confer immunity from infringement. But did s. 135ZZH then operate to remove that immunity?

There is no evidence to suggest that the copies of the booklets which were supplied to students were used for a purpose other than in connection with the relevant courses of instruction provided to them by the respondent. It follows that para. 135ZZH (1) (b) has no application to them.
The evidence includes material relating to a "trap purchase" of the 5 booklets apparently made by an officer of the seventh applicant. As I understand it, counsel for the applicants submits that the sale was a use for a purpose not in connection with the relevant courses of instruction. Therefore, it is submitted, there was at least in these instances an operation of para. 135ZZH (1) (b) so as to remove in respect of those particular copies so purchased the immunity that would otherwise apply to the making of the relevant copies.
There is a degree of artificiality in this argument. First, a "trap purchase" for the purposes of the preparation of litigation, where the purpose of the transaction is not immediately brought home to the seller, is an unusual form of dealing; see Bryant v Keith Harris and Co. Ltd (1980) 33 ALR 437. Further, the use to which the booklets have been put, by their tender by the applicants in their case as Exs. A1 - A4, and Ex. B, is a use by the applicants themselves not by the respondent. Finally, I accept the submission for the respondent as to the relationship between paras. (a) and (b) of sub-s. 135ZZH (1). Counsel submitted, and I accept, that where what is said to be a use within the meaning of para. 135ZZH (1) (b) is a sale or other supply, the structure of the sub-section directs one not to para. (b) but to para. (a). The issue in this case is whether the sale was made by the respondent for a financial profit. If it was not, then the threat posed by the sub-section to the immunity otherwise conferred by s. 135ZL is removed. It is not renewed by going on to ask whether, whilst the sale was not made for a financial profit, the sale nevertheless was a use for a purpose outside that specified in s. 135ZL.
There remains for consideration the reliance placed by the applicants, as regards all sales by the respondent, upon para. (a) of sub-s. 135ZZH (1). The sales here were made in the course of a system established and operated by the respondent, the aim of which was to enable students to acquire the materials at a price which covered the costs of the respondent, including indirect costs. The facts of this case show that what was done by the respondent did not involve sales with the object or purpose of returning a profit to the respondent. It follows that para. (a) of sub-s. 135ZZH (1) had no application.
The application should be dismissed with costs.
By its cross-claim the respondent seeks to establish its position by declaratory relief. Care has been taken to avoid a claim for a declaration which is hypothetical and suffers from the vices exposed in University of New South Wales v Moorhouse (1975) 133 CLR 1. In particular, the respondent seeks declaratory relief to the effect that the making of the copies now comprised in Exs. A1 - A4 and Ex. B was done with the licence of CAL. The result will be to make clear that there has been no breach of the License Agreement.
The respondent should have a declaration to that effect, together with its costs on the cross claim. These will be added to the costs in its favour upon the dismissal of the application.

[1994] FCA 702

30 SEPTEMBER 1994