Eagle Rock Entertainment Limited v Caisley

[2005] FCA 1238

FEDERAL COURT OF AUSTRALIA

Eagle Rock Entertainment Limited v Caisley [2005] FCA 1238

INTELLECTUAL PROPERTY – copyright – assessment of damages under s 115 of the Copyright Act 1968 (Cth) – making of master copies of infringing DVD in Australia – authorisation of Australian and foreign licensees to make copies of the infringing DVD for sale – “licence fee” approach to damages inappropriate – compensatory damages assessed by estimate of losses caused to copyright owner by the competition posed by the respondent’s sale of infringing DVDs – additional damages awarded for flagrant, deliberate and serious infringement of copyright

Copyright Act 1968 (Cth) s 115

Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd [1936] 1 Ch 323 referred to
Microsoft Corp v Atifo Pty Ltd (1997) 38 IPR 643 referred to
Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 referred to
Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 111 ALR 269 applied
Columbia Pictures Industries Inc & Tri-Star Pictures Inc v Luckins (1996) 34 IPR 504 cited
Microsoft Corporation v TYN Electronics Pty Ltd (in liq) (2004) 63 IPR 137 cited
Raben Footwear Pty Limited v Polygram Records Inc (1997) 75 FCR 88 referred to
Sullivan v FNH Investments (2003) 57 IPR 63 referred to

EAGLE ROCK ENTERTAINMENT LIMITED AND MARSHBROOK LIMITED v ROBERT CAISLEY (T/AS RBC ENTERTAINMENT)

NSD 834 OF 2004

TAMBERLIN J
SYDNEY
5 SEPTEMBER 2005

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 834 OF 2004

BETWEEN:

EAGLE ROCK ENTERTAINMENT LIMITED
FIRST APPLICANT

MARSHBROOK LIMITED
SECOND APPLICANT

AND:

ROBERT CAISLEY (T/AS RBC ENTERTAINMENT)
RESPONDENT

JUDGE:

TAMBERLIN J

DATE OF ORDER:

5 SEPTEMBER 2005

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.The respondent is to pay damages in the amount of $365,000.00 to the applicants.

2.The respondent is to pay the applicants’ costs on this application for assessment of damages.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 834 OF 2004

BETWEEN:

EAGLE ROCK ENTERTAINMENT LIMITED
FIRST APPLICANT

MARSHBROOK LIMITED
SECOND APPLICANT

AND:

ROBERT CAISLEY (T/AS RBC ENTERTAINMENT)
RESPONDENT

JUDGE:	TAMBERLIN J
DATE:	5 SEPTEMBER 2005
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1. These reasons relate to the assessment of damages for copyright infringement of a cinematograph film made from live performances of Eric Clapton and his band on 14 and 15 July 1986 (“the film”).

   BACKGROUND

2. On 21 May 2004, proceedings were commenced by Eagle Rock Entertainment Limited (“Eagle”) and Marshbrook Limited, which were respectively the exclusive licensee and the owner of the copyright in the film.  The respondent, Robert Caisley (“Caisley”), has not opposed the application nor proffered any explanation as to his non-appearance on this hearing.

3. On 30 June 2004, Beaumont J made consent orders restraining Caisley from infringing copyright by doing any of the following acts without the licence of the applicants:

   (a)making, or authorising the making of, a copy of the film;

   (b)communicating, or authorising the communication of, the film to the public;

   (c)importing the film for sale, hire or dealing (including licensing);

   (d)selling, letting for hire or, by way of trade, offering for sale or hire or distributing the film; and,

   (e)by way of trade, exhibiting the film in public.

   In addition, Beaumont J ordered Caisley to deliver up all copies of unauthorised DVDs, advertising and promotional material.  Discovery was ordered in respect of all documents regarding the quantum of damages or compensation for the purpose of assessing the extent of the infringements.  Caisley was also restrained from making certain representations, in trade or commence, including that the unauthorised DVDs did not infringe copyright.

4. Section 115 of the Copyright Act 1968 (Cth) relevantly provides as follows:

   “(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.

   …

   (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; and

   (ia)the need to deter similar infringements of copyright; and

   (ib)the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright; and

   (ii)whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and

   (iii)any benefit shown to have accrued to the defendant by reason of the infringement; and

   (iv)       all other relevant matters;

   the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.”  (Emphasis added)

5. Caisley has repeatedly failed to comply with the orders for discovery and has withheld information about his licensing of the DVD in territories outside Australia.  These matters go to the applicants’ claim for additional damages under subssec 115(4).

6. In May 2005, the applicants notified the then solicitors for Caisley of their election to pursue a remedy in damages rather than an account of profits.  Particulars were given on 12 April 2005.

7. The issues before me are confined to assessment of the quantum of damages.  The solicitors who had earlier acted for Caisley filed a Notice of Ceasing to Act on 2 June 2005 and notification was given to Caisley of the present hearing.

8. The substance of the allegation that Caisley infringed copyright in the DVDs is that Caisley made master copies in Australia and authorised others to make copies of the DVD for sale.

9. The claims for damages for copyright infringement fall into two categories.  First, the making of master copies of the unauthorised DVD in Australia and supplying them to Caisley’s licensee in Australia enabling the sale and copying of unauthorised DVDs in Australia.  Secondly, the making of master copies of the unauthorised DVD in Australia and supplying them to Caisley’s licensees overseas, that is to say, in Spain and Brazil, for the purpose of copying and selling the unauthorised DVDs in overseas territories.

   COMPENSATORY DAMAGES

10. Damages under s 115(2) are compensatory in nature and the primary approach is that damages are measured by the depreciation caused by the copyright infringement to the value of the copyright as a chose in action: see Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd [1936] 1 Ch 323 at 336 per Lord Wright MR; Microsoft Corp v Atifo Pty Ltd (1997) 38 IPR 643 at 647 per Tamberlin J. The principles concerning the quantum of damages for breach of copyright are outlined by Wilcox J in Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 at 474-477 and it is not necessary to restate those principles here. The principles referred to by his Honour have been applied in later cases: see, for example, Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 111 ALR 269 at 285 per Wilcox J (Warman); Columbia Pictures Industries Inc & Tri-Star Pictures Inc v Luckins (1996) 34 IPR 504 per Tamberlin J; Microsoft Corporation v TYN Electronics Pty Ltd (in liq) (2004) 63 IPR 137 at [38] per Stone J.

11. In the circumstances of this case, there are two alternative approaches to the assessment of damages in relation to the infringements in Australia.  The first is the licence fee approach.  The relevant question in relation to this approach is whether the applicant and respondent are in actual competition.  Where this is the case, an issue arises as to whether the respondent might have been granted a licence by the applicant if it had been sought.  In a case where a licence would probably have been granted, the measure of damages can be assessed by taking account of the licence fee or royalty that the respondent would have been made to pay by the applicant for a licence.  However, in referring to these general guiding principles, it is important to bear in mind that they are not immutable and that the relevant factors on which damages can be assessed are broad and extensive.  An applicant is not normally under a compulsion to grant licences.  If the applicant would probably not have granted the respondent a licence, the Court will take into account the losses caused to the copyright owner by the competition posed by the respondent’s sale of unauthorised DVDs.  This will normally involve a consideration of any loss that the copyright owner has suffered by diminution of the sales of the copyright work or the loss of the profit that the copyright owner (or exclusive licensee) might otherwise have made.

12. In the present case, having regard to the extensive material before me and the applicant’s detailed submissions, I do not consider that the appropriate approach to take is one based on the licence fee that Eagle could have charged for the making and selling of the DVD.  I do not consider that Eagle would, if requested, have granted a licence to Caisley or that Caisley would have paid the licence fee if he was given the choice between so doing or not using the copyright work.  The two parties were in direct competition.  I note that, in some instances, the authorised DVD and the unauthorised DVDs were sold from the same website.  Therefore, there was a direct deprivation of profits that the applicant would otherwise have made.

13. On the evidence, projected sales of the Eric Clapton disk in Australia were between 5,000 to 7,500 units and in fact only 1,700 units were sold.  Accordingly, there were lost sales of between 3,300 and 5,800, giving rise to a claim of between $13,708.00 and $24,093.00.  I accept that it is probable that in the order of 7,500 units would have been sold.  There is evidence as to this projection and nothing to contradict it.  I am therefore persuaded that it provides a useful working basis for calculating Eagle’s lost sales.  The appropriate damages are therefore $24,000.00.

14. The second basis on which damages (as opposed to additional damages) are sought relates to the making of master copies of the program in Australia and the provision of those copies under licence to entities outside Australia, in particular, “Whamo” in Spain and “Flashstar” in Brazil.  In relation to the master disks that were made available to the entities in Spain and Brazil, it is important to note that the making of the master disks and the licensing of them to the overseas entities were activities that occurred in Australia and involved provision of disks from Australia.  This is not a case in which damages are being sought for infringements that occurred in Spain and Brazil.  Rather, the damages are being sought as a measure of the consequences flowing from the making of the infringing master disks and the provision of them to overseas entities with the result that Eagle’s sales were lessened in those countries.

15. In Warman, Wilcox J considered a case in which infringing drawings had been made available from Australia to overseas entities and used in relation to the manufacture of pumps.  The engineering drawings had been sold to an American corporation as part of a sale of business assets.  At 286, his Honour said:

    “There is no doubt that Peko has suffered considerable damage … The damage is impossible to quantify precisely.  It is probable that, over the period of the infringements, Peko lost substantial sales of parts, and perhaps licence fees, because of the fact that AMS and Mr Fica put replica products onto the market, or enabled others to do so. … There is no evidence to suggest that it derived income otherwise than from the making of pirate Warman drawings and Warman replica parts.

    … How much damage Peko will eventually suffer because of the sale of the drawings to Comlas is impossible to say.”

16. In my view, by analogy, this line of reasoning is applicable to the circumstances of the present case and is a proper basis on which to assess the quantum of damages.  The making of the master copy has enabled the overseas entities to make infringing copies in Brazil and Spain and this has resulted in a loss of sales for Eagle, having regard to the projected sales in those countries as compared with the sales which in fact took place after the infringements arising from the provision of the master copies to Brazilian and Spanish entities.  Accordingly, I consider that there is justification in the present case for awarding damages to Eagle in the amount of the losses of sales it suffered as a consequence of Caisley’s making and furnishing of the infringing master copies of the program to the entities in Brazil and Spain.

17. Under the agreements in evidence, Caisley agreed to supply masters and cover artwork to the Brazilian and Spanish entities in order to make copies of the program for sale in Brazil and Spain.  The claim is that damages should be awarded in respect of this conduct because the conduct occurred in Australia and enabled the overseas entities to sell the program and thereby caused Eagle to lose sales that it would otherwise have been made.  The action of Caisley in arming those entities with the ability to make the infringing DVDs directly led to the losses of sales in Spain and Brazil.

18. The evidence in relation to Brazil shows that sales of about 50,000 units had been projected, based on previous successful sales of another title featuring Eric Clapton with other artists.  Actual sales by Eagle’s Brazilian licensee were only 3,622 units.  The evidence persuades me that the loss of sales was probably due to the conduct of the licensee in Brazil in flooding the market with a cheap version of the DVD.  The evidence of Mr Silberberg indicates that there was massive undercutting of the proposed purchase price of the authorised DVD to be launched by Eagle’s Brazilian licensee.  Based on lost sales of 46,378 (50,000 less 3,622), the direct loss to Eagle was in the order of $200,165.00.  Having regard to the fact that there is some evidence that sales of the unauthorised DVD in Brazil may have been as high as 80,000 units, this is a relatively conservative estimate of the loss to Eagle.  Accordingly, I am satisfied on the material before me that damages in the order of $200,000.00 are appropriate.

19. In Spain, the applicant licensed a Spanish entity, under an agreement of 11 March 2002, to sell the authorised DVD.  Projected sales were in the order of 40,000 units.  The royalty payable to Eagle by its Spanish licensee was 0.80 euros per unit.  The original agreement entitled Eagle to a much higher royalty, however, the royalty was lowered as part of a proposed Spanish promotion.  Actual sales by Eagle were in the order of 1,500.  The actual sales of the unauthorised DVDs in Spain are not known, however, Caisley admitted that he received an upfront fee of US$24,000 for the provision of master copies of the Eric Clapton film to the Spanish entity.  Eagle’s claim is made on the basis of lost sales of 40,000 units in Spain.  I am satisfied that this is a proper basis for an award of damages and that the appropriate amount of damages is $51,000.00 for those lost sales.

    ADDITIONAL DAMAGES

20. Section 115(4) of the Act empowers the Court to award additional damages, having regard to the flagrancy of the infringement, the need for deterrence of similar infringements, the respondent’s conduct after the infringement, any benefit to the respondent and all other relevant matters. The power to award additional damages is not limited to a compensatory award. Additional damages are intended to punish the respondent for flagrant infringement of copyright: see Raben Footwear Pty Limited v Polygram Records Inc (1997) 75 FCR 88 at 103-104 per Tamberlin J (Raben) and Sullivan v FNH Investments (2003) 57 IPR 63 at [85] per Jacobson J. The reference to “flagrant infringement” is to infringement that is “glaring, notorious, scandalous or blatant”: Raben at 103 per Tamberlin J. The intention of the respondent is of primary importance in relation to this matter and, in this case, I infer that Caisley did intend to infringe copyright.

21. The considerations here are whether the conduct was deliberate, deceitful and serious and involving a calculated disregard of the applicant’s rights rather than mere carelessness or inadvertence.

22. Relevant considerations in the present case which I have taken into account are Caisley’s experience in the film distribution industry for over 28 years and his awareness of the need to acquire licences, and the fact that the infringements involved deliberate undercutting of the sales prices of the applicants’ authorised versions.

23. In this matter, there have been breaches by Caisley of undertakings to cease the infringing conduct and there have been persistent infringements after notice.  In particular, on 25 September 2003, the solicitors for Eagle wrote a letter of demand seeking undertakings from Caisley.  Caisley responded to this letter on 7 October 2003 by making a false claim that he had a licence to distribute the film.  Caisley also made false statements that he had desisted and deleted the Eric Clapton title from his catalogue and that it had been removed from offending websites.  There were additional failures by Caisley to respond to persistent requests by Eagle’s solicitors for him to comply with the undertakings.  There were further undertakings breached and orders in relation to discovery that were not complied with including the continuing advertisement of the product up to at least February 2005.

24. Additional damages are at large. The assessment depends on the particular circumstances of the case. I have been referred to several cases where large amounts of additional damages in the order of $500,000.00 and $350,000.00 were awarded. In the present case, I am satisfied that there has been serious and deliberate infringement by Caisley and that the conduct falls within s 115(4). I regard the infringements and associated conduct referred to by Eagle as flagrant, deliberate and serious. In these circumstances, I consider that additional damages in the order of $90,000.00 are appropriate. In reaching this conclusion, I have taken into account the very substantial amount of damages awarded by way of the other head of damages. I note that, in Warman, Wilcox J had regard to the large amount and burden of compensatory damages awarded in that case when considering what amount should be awarded by way of additional damages.

25. Accordingly, the order of the Court is that the respondent pay total damages in an amount of $365,000.00 to the applicants.

26. The respondent is to pay the applicants’ costs on the application for assessment of damages.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin.

Associate:

Dated:             5 September 2005

Counsel for the Applicant:	S J Goddard and C Cochrane
Solicitor for the Applicant:	Phillips Fox
The Respondent did not appear.
Date of Hearing:	28 July 2005
Date of Judgment:	5 September 2005