Financial Computing Services of Australia P/L v GCS P/L
[1993] FCA 369
•07 JUNE 1993
FINANCIAL COMPUTING SERVICES OF AUSTRALIA PTY LIMITED v. GCS PTY LTD; ANDREW
JOHN PHELAN; BRIAN NELSON DEAN and NIGEL PAUL GALLOP
No. G507 of 1992
FED No. 369
Number of pages - 15
Copyright Law
(1993) AIPC 91-006
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Lockhart J(1)
CATCHWORDS
Copyright Law - Infringement of copyright in computer programs - construction of agreement - whether "substantial part" of programs reproduced - ss. 10(1), 14, 36(1) Copyright Act 1968.
HEARING
SYDNEY, 19-23 April 1993
#DATE 7:6:1993
Counsel for the Applicant : D K Catterns QC with
S J Goddard
Solicitors for the Applicant: Remedios and Martin
Counsel for the Respondents : J Burnside QC with I Waller
Solicitors for the Respondents: Corrs Chambers Westgarth
ORDER
The Court orders that:
the matter be adjourned to a date to be fixed and that on that date the applicant bring in short minutes of order to give effect to the Court's reasons for judgment.
Note: Settlement and entry of orders is dealt with in Order 36 of the
JUDGE1
Introduction
LOCKHART J The applicant, Financial Computing Services of Australia Pty Limited ("FCS"), sues the respondents for alleged infringement of FCS's copyright in certain computer programs made before 31 May 1984 in Australia by the second, third and fourth respondents, each of whom was an Australian citizen or resident at the time of making the works. Those respondents made the computer programs in the course of and pursuant to the terms of their employment under contracts of service with General Computing Services (Australasia) Pty Limited ("GCSA"), the successor to whose business is the first respondent, GCS Pty Ltd ("GCS"). On 31 May 1984 GCSA assigned the copyright in the computer programs to FCS. FCS asserts that at some time thereafter, the respondents infringed, and are continuing to infringe, the copyright of FCS in the computer programs by reproducing in a material form the whole or a substantial part of some or all of them. FCS seeks to restrain them from doing this.
The respondents claim that there existed initially a single software package or program developed by GCSA for the use of non-banking financial institutions. It is asserted that before 1984, the package took on two specialized forms, one directed at credit unions and the other at non-credit unions. The two then developed in parallel and with a great deal of code common to each, because they had come from a single parent. It is alleged that on 31 May 1984 the rights in the credit union programs were sold, the rights in the others retained and thereafter each continued its development on divergent paths so that now the amount of common code is much less than it was at the time of the assignment in 1984. The respondents claim that the current software program known as ECLIPSE (previously known as FACTS) was derived from an earlier program known as BSOC which existed before 31 May 1984 and was written for financial institutions other than credit unions; that copyright in the program directed at credit unions was assigned to FCS in 1984, but not BSOC. They deny infringement of copyright.
Various software packages have been developed and marketed by GCSA and GCS. Terms such as FACTS, FACTS 100, RELEASE 100, RELEASE 12, BSOC, ECLIPSE, the CU-Software package, the GCS package, VISA, CUNET and the FCS system appear in the evidence. The evidence is not precise, and is at times unclear, as to the identification of certain of these packages, the times at which they were developed and marketed, and the precise differences between them. In the end, little turns on this for reasons which appear later. I shall frequently use the expression "the GCS financial system" or the expression "the CU software package" to refer to the basic software package developed by GCSA/GCS before 1984 which was sold to financial institutions including credit unions and building societies, albeit sometimes by different names and with modifications made to the system to meet the requirements of the particular customer.
I shall refer sometimes to GCSA and at other times to GCS; but whichever reference is used it is intended to encompass them both where appropriate. Nothing turns on this.
The critical questions for determination are:-
1. What was the subject matter of the assignment made by the agreement in writing between FCS and GCSA on 31 May 1984 ("the 1984 agreement")?
2. Were any relevant licences granted by FCS to GCS to reproduce software relating to building societies?
3. Did GCS copy the computer programs the copyright in which was assigned to FCS under the 1984 agreement?
4. Was a substantial part of the programs the subject of the assignment to FCS in 1984 reproduced by GCS?
These state broadly the principal questions for determination. Ultimately the case turns on questions of fact and to an extent on impressions of witnesses. The construction of the 1984 agreement is the threshold question to be determined.
The evidence was given by affidavit and deponents were cross-examined. FCS called the following witnesses, each of whom swore an affidavit and was cross-examined:
. Cyril Brookes, an expert witness who prepared three reports in which he investigated similarities between the two sets of programs which have been developed to support the operations of credit unions, building societies and similar financial institutions, one set of programs belonging to FCS, being the successor to the programs purchased by it from GCSA, and the other set being the current program of GCS; . John James Reid, a computer software consultant who conducts his own business and provides consulting services to various companies including FCS and who was employed as a computer programmer by GCSA between 1980 and 1989; . Stephen James Thompson, a director of a company which provides consultancy services relating to information technology and who from July 1979 to August 1984 was employed by GCSA as a computer programmer and from September 1984 to January 1993 was employed by GCSA and GCS in various management roles supervising the design and development of computer systems; and . Paul Vincent Borg, the General Manager, Operations, of FCS since May 1989 and who was the Company Secretary of FCS between May 1986 and August 1991.
The witnesses called by GCS were as follows:-
. William Reginald Marshall, currently employed as a principal systems analyst and who from 1982 to 1984 was employed by GCSA "in a mixed support and development role". On 2 July 1984 he commenced to work at FCS in a similar role and remained there for approximately six years; . Peter Kenneth MacGregor, an expert witness retained by GCS to perform the same function as Professor Brookes performed at the request of FCS;
. Andrew John Phelan, a director of GCS and the second respondent, who has been with GCSA and GCS since 1 April 1977 and who has been a computer programmer for approximately 29 years; . Brian Nelson Dean, the managing director of GCS and the third respondent, who was involved with the establishment of the businesses conducted by GCSA and GCS; . Ian Pockarier, the Operations Manager of a Queensland building society known as Wide Bay Capricorn Building Society.
These witnesses for the respondents were cross-examined with the exception of Mr Pockarier. There was also a considerable amount of documentary evidence tendered at the hearing.
I shall now state my findings of fact and then turn to most of the issues raised in the case; but in the course of making my findings of fact some issues will necessarily be determined.
The Facts
11. On 1 April 1977 Messrs. Dean, Phelan and Gallop established a business called General Computing Services in Perth with the specific objective of developing retail banking computer systems for the Australian credit union market and the Australian building society market. General Computing Services was later incorporated to form GCSA. For convenience I shall refer to the businesses of those two organizations as "GCSA". The retail banking system developed by GCSA had as its basis a system known as the software Pick Operating System. Within a few years after its development in 1977 it had been installed in many building societies and credit unions in Australia. Following the success in installing the system at a number of credit unions in New South Wales, in 1979 the Association of New South Wales Credit Unions approached GCSA with a proposal to form a joint venture to provide systems technology to its members. As a result, GCSA and the Association of New South Wales Credit Unions formed a company called Financial Computing Services Pty Limited. The shares in this lastmentioned company were held as to 51% by the Association and 49% by GCSA. GCSA provided two of the five directors appointed to the board of Financial Computing Services Pty Ltd. This company later changed its name to the name of the applicant, so I shall refer to each of them as FCS. The shareholding in FCS has changed over the years.
Various agreements were entered into after early 1984 as a result of which the Victorian Credit Co-operative Association and the New South Wales Credit Union League became the major shareholders of FCS. Also, GCSA gave up its shareholding in FCS and other companies for a cash consideration.
The shares in GCSA were purchased by Ultimate Corporation in 1984. GCSA subsequently changed its name to Ultimate Computer Limited.
Following the formation of FCS in 1979, GCSA agreed to grant marketing rights for its products to FCS in New South Wales in return for a payment of royalty on each sale. By late 1981 the GCSA product was being marketed by GCSA to credit unions in Western Australia and South Australia and to building societies throughout Australia and New Zealand; marketed by a company, GCS-Teledata Pty Limited, to credit unions in Victoria and Tasmania; marketed by FCS to credit unions in New South Wales and in Queensland.
GCSA provided significant technical support to establish the operation of its business in New South Wales. Mr Phelan spent about twelve months in Sydney providing development and training services to the new company; and Messrs. Gallop and Dean served actively as directors to 2 March 1984.
In 1981 the directors of GCSA decided to launch a project to licence its software in the United States of America. In the result Ultradata Corporation ("Ultradata") was formed in 1981 based in California; Mr Gallop is its current President and Chief Executive Officer. Ultradata was granted marketing rights to the general computing software products for the territory of North America in 1981. Numerous changes were made to the software products at Ultradata to accommodate the United States regulatory requirements and conditions in the credit union and banking industry. Many of the changes were developed in the United States by Mr Phelan and later brought back to Australia for incorporation into the Australian product.
There is some evidence that in 1982, what had been the original product assumed two specialized forms, one directed at credit unions and the other at non-credit unions, in particular, building societies; so that by 31 May 1984 they were two distinct products though derived from the same original source. However, I am satisfied on the whole of the evidence that this is not the case. Nor am I satisfied that from 1982 onwards there was a development of two products in parallel, marketed to credit unions and building societies respectively. What was developed was the GCS Financial System. From 1982 the system was marketed to credit unions and some other financial institutions including building societies, under more than one name. It was later sold to financial institutions other than credit unions under the name FACTS, a name devised by Mr Phelan standing for Financial Accounting Systems. FACTS was essentially the same system as the GCS Financial System, but with some modifications appropriate to the needs of those institutions. As mentioned earlier, the term BSOC appears in the evidence; it was used mainly internally by some GCS programmers to refer to the GCS financial system with changes to accommodate a new file known as the ACCOUNT file which was introduced soon after Mr Phelan's return from the United States for specific building societies including Town and Country Building Society of Perth and Territory Building Society. There is some evidence (from Mr Pockarier in his affidavit, which was not challenged) that from late 1982 reference was made by some building societies to the GCS financial system as BSOC. I accept that this was the fact; but basically the reference to the acronym BSOC was internal to GCS. Ultimately I think little turns on this.
In the GCS financial system as at 1982, data was stored in files called CLIENT and TRAN (transaction). Because building societies typically had more customers and therefore larger data bases, a new ACCOUNT file was created. This held the data previously stored in CLIENT and TRAN. Some of the programs had to be changed so that they called up the same data, but from a different location. This was a routine alteration and one which did not change the nature, style or structure of the programs; but it was nevertheless a time consuming task as the relevant programs had to be identified and then amended.
Developments continued to be made between the end of 1982 and May 1984 to the GCS financial system and the person involved to a substantial degree in this task was Mr Phelan. Further developments to the GCS Financial System became known as RELEASE 12 which was released in October-November 1983.
The major differences between the software packages appropriate for credit unions on the one hand and building societies and other financial institutions on the other hand were:
(a) the ACCOUNT file system to which I have referred and which was in BSOC;
(b) in BSOC, there were such elements as branch control and passbook printing which were of no interest to credit unions; and
(c) in RELEASE 12, all credit union accounts of a particular person were combined in one regular statement. Building societies were not interested in statements because their accounts were contained in passbooks.
These differences were reflected in many lines of computer code; but the main elements of the software packages appropriate on the one hand to credit unions and to building societies and other financial institutions on the other were substantially the same.
In November 1983 Release 12 was issued to FCS. After that date programming errors in RELEASE 12 were corrected by GCS programmers. The amount of programming necessary to correct the errors was minor in both significance and quantity. By the time of the May 1984 agreement, there were not two distinct systems as alleged by the respondents, but there was a single GCS financial system and it was known as RELEASE 12. GCS installed RELEASE 12 at a number of sites after October 1983 including credit unions and building societies. The core system of the time was installed in all sites, though different sites had different modifications and additions. For example, sites with the core GCS financial system were installed during 1982-4 in Tasmanian Permanent Building Society and AWA Credit Union. Sites with the core GCS financial system and with certain standard building society additions included the Rockhampton Permanent Building Society and the Hume Permanent Building Society.
I reject the evidence on behalf of the respondents that there existed as at May 1984 two versions of the GCS financial system, one specifically designed for the credit union market and the other specifically designed for building societies and other financial institutions known as BSOC and later as FACTS. In particular, I reject the evidence of Messrs. Dean, Phelan and Marshall that as at May 1984 there were two separate computer systems, one called BSOC and the other called the CU software package. I prefer the evidence of Mr Reid and Mr Thompson. There was in essence one system with appropriate modifications being made, not of a critical or major nature, to accommodate the needs of clients being building societies and other financial institutions and other clients being credit unions. It is common ground that in about 1980 the software was basically common to both credit unions and building societies, although some differences did exist. I am not persuaded that this position had changed substantially by the time of the May 1984 agreement. It is also common ground that BSOC had many similarities and many lines of code common to the GCS financial system at the time of the assignment. However, I reject the evidence that there were differences of considerable significance between the two; and I also reject the respondents' case that it is correct to regard there having been in effect two packages: BSOC on the one hand and RELEASE 12 applicable to credit unions on the other hand.
GCS has produced a number of releases of what had been previously the GCS financial system representing developments of one kind or another, one of which was ECLIPSE. These releases involve changes to the file structures to some degree, the programs being both added to and deleted from the system, and the source code being modified.
The 1984 Agreement
25. The 1984 agreement arose primarily as a result of the reorganization of the business of GCSA relating to the supply of software to credit unions and building societies.
The 1984 agreement was one of a number of agreements executed at or about the same time by various parties including the corporations which are parties to the present proceeding. I have read them all but basically the questions of construction which arise under the 1984 agreement are to be determined by reference to the document itself in the context of the matrix of facts which then existed.
The 1984 agreement is a critical document in this case. It is lengthy, so I will only refer to the vital clauses in it. It is between GCSA and FCS. It recites the fact that by an earlier agreement GCSA transferred to and vested in FCS certain marketing rights in respect of the application system software and that FCS wished to act solely as a marketer of the application system software, and to acquire all the right, title and interest of GCSA in that software as well as software otherwise referred to in the agreement, and to acquire the business of GCSA relating to the supply of that software to credit unions. Clause 1 is the definition clause and contains, amongst others, the following definitions:
"1.1 In this Agreement, unless the contrary intention appears:
'Business' means the whole of the business of GCS as the Effective Date relating to the supply of the CU Software Package to Credit Unions in the Territory (excluding book debts and accounts receivable arising prior to the Effective Date) which said business comprises the following assets:
(a) all the right, title and interest of GCS in the CU Software Package;
(b) all existing contracts held by GCS relating to the supply or maintenance of the CU Software Package in the Territory as described in Schedule 1, the premiums for which shall be apportioned as at the Effective Date;
(c) all contemplated or proposed contracts and full details of the same in respect of the current or possible supply by GCS of the CU Software Package to Credit Unions in the Territory;
(d) all documents and information relating to prospective sales by GCS of the CU Software Package in the Territory;
(e) all enhancements or improvements to the CU Software Package supplied by GCS within the Territory up to and including the Effective Date;
(f) all goodwill existing in connection with the aforesaid Business;
(g) customer and supplier lists, price lists, stock records and all other commercial information relating to the Business; and
(h) GCS's financial records relating to the Business up to the Effective Date as may be reasonably required to provide FCS with the necessary accounting and financial data to assist it in the management of the Business after the Effective Date. 'Effective Date' means 1 May, 1984; ...
'CU Software Package' means the source code programs, procedures, supporting material, documentation and application systems software known as General Computing Services On-Line Credit Union System as initially defined in the manual produced by GCS together with any derivatives, developments, enhancements or modifications devised by GCS prior to or upon the Effective Date and includes:
(a) the VISA and CUNET software packages which are jointly owned by GCS, FCS and G.C.S. - Teledata Pty Limited and have been devised by GCS and sold to Credit Unions;
(b) all copyright, trademarks, patent rights, and other intellectual property rights in and to the CU Software Package, as previously defined; ...
'Territory' means Queensland, New South Wales, the Australian Capital Territory, South Australia, Western Australia and the Northern Territory."
By clause 2. FCS agreed to purchase the business from GCSA to take effect from the Effective Date. The price for the sale and purchase of the business was $987,750. Clause 5 contains "Restrictions on Competition" which I summarize so far as presently relevant as follows. GCSA covenanted with FCS that until 1 May 1991 (a seven year restriction) it shall not in the Commonwealth of Australia directly or indirectly establish or become engaged in or be concerned with or have any interest in any business which is competitive with the business as carried on by FCS as at the date of completion of the agreement or hold any beneficial interest in any shares in the capital of any company engaged in any such business or:
"(d) sell or market software of any kind either directly or indirectly to Credit Unions (other than software included in operating system software produced by Ultimate Corporation, a New Jersey corporation, or its related corporations) without the prior written consent of FCS first had and obtained (which consent shall not be unreasonably withhold)."
Clause 5.3 imposed a restraint upon FCS whereby FCS covenanted with GCSA that for a period of five years after the Effective Date it would not:
"license or make available for use the CU Software Package (or any major part or modification thereof) to any person or corporation which is not a Credit Union and FCS covenants further with GCS that it will obtain a binding covenant enforceable by GCS in similar terms to this covenant from each and every licensee or user of the CU Software Package (or any major part or modification thereof) during the said period of five years provided that nothing in this clause shall restrict or prevent FCS from selling in good faith the whole of its rights in the CU Software Package."
Clause 7 is styled "General" and amongst other things in clause 7.1 GCSA covenanted with FCS that:
"it will not market or sell or attempt to market or sell to Credit Unions either directly or indirectly the CU Software Package (or any major part or modification thereof)."
By clause 7.2 GCSA further covenanted with FCS that:
"it will obtain a binding covenant enforceable by FCS from all purchasers and licensees of any software sold by GCS to the effect that the purchaser or licensee will not market or sell or attempt to market or sell that software to Credit Unions."
There is no dispute that since at least the end of the period of the seven year restraint imposed by the marketing agreement upon GCSA it has marketed the FACTS package and later the ECLIPSE package to credit unions and intends to continue to do so unless it is held not to be entitled to do so.
The 1984 agreement gives rise to a number of questions of construction and identification. It is plain from its terms that the parties intended that GCSA would assign to FCS the whole of its business relating to the GCS financial system (described in the agreement as the CU Software Package) insofar as it related to credit unions in the "Territory". The "Territory" means all States and Territories of Australia except Victoria and Tasmania. It was not the intent of the parties to assign to FCS the "CU Software Package" insofar as it related to building societies or other institutions other than credit unions. The assignment included the whole of the interest of GCSA in the CU-Software Package insofar as it related to credit unions and with respect to the Territory as defined in the agreement. The business that was assigned included the rights of GCSA in the CU Software package itself. GCSA retained its rights to the CU-Software Package relating to institutions other than credit unions including building societies. This was not the subject of the assignment. The parties were dividing the market between them. FCS was to have the credit union market exclusively until 1991 (clause 5.1). The restraint imposed upon GCSA with respect to the CU-Software Package operated during that seven years, not only with respect to the CU-Software itself, but to any other software in respect of which GCSA may have rights insofar as it related to credit unions, but not otherwise; hence the reference in clause 5.1 to restraint being imposed upon the sale or marketing by GCSA of "software of any kind". GCSA was to have the non-credit union market exclusively for five years (clause 5.3). But FCS was to have the additional benefit for which it paid a large sum of money, namely, the assignment to it of the rights with respect to copyright in the CU-Software Package so far as it related to credit unions, a right that would continue for the balance of the term of the copyright. During the subsistence of the copyright GCSA would not be entitled (unless licensed by FCS) to infringe FCS's copyright in the CU-Software Package insofar as it related to credit unions during the balance of the term of the copyright. It is clear that the parties to the 1984 agreement intended that the CU-Software Package would be assigned to FCS only insofar as it was referable to credit unions. Conversely, GCSA retained rights to that software in relation to bodies other than credit unions. As to an assignment of this kind, see ss. 196(1) and 30 of the Copyright Act 1968.
It is also plain that the parties intended that each of them was entitled to develop the software interests, assigned or retained by it after the date of the 1984 agreement. GCSA was entitled to develop the CU-Software Package, necessarily involving acts comprised within the copyright with respect to it, but not by sale or licence or otherwise dealing with credit unions. FCS was entitled to develop the CU Software Package with respect to credit unions, but no other financial institutions.
Thus the market was in effect divided between the parties to the 1984 agreement. GCSA was free thereafter to do what it wished in relation to the CU-Software Package and the various developments of the software comprised within it, but not so as to impinge upon the rights of FCS with respect to its interest as assignee of the interests of GCSA in the copyright of the software insofar as it related to credit unions. That was to be the sole prerogative of FCS as between itself and GCSA.
GCSA was thus entitled to develop the software embodied in the CU-Software Package, but it was not entitled to exploit its interests in the market represented by credit unions which was the territory of FCS; and that restraint subsisted beyond the seven year limitation period of 1991 and operates today, i.e. during the subsistence of the copyright. After the seven year period of restraint had expired in 1991, GCSA was free to compete in the credit union market, but not by reproducing the CU-Software Package or any developments thereof which GCSA may have made in that market, though it was free to do so beyond that market. GCSA owns its copyright in its own software including so much of the software that was the subject of the assignment to FCS, but not to the extent that it relates to credit unions or the credit union market. If it wishes to reproduce what has become FCS's copyright by assignment, then it can do it only with the licence of FCS.
This is in my opinion the correct construction of the 1984 agreement. It is an interpretation consistent with the surrounding circumstances in May 1984 and the conduct of the parties.
FCS submitted that the subject matter of the assignment under the 1984 agreement was the whole of GCSA's interest in the CU-Software Package including the software package in relation, not just to credit unions, but to non credit union institutions, although FCS accepts that GCSA had an implied licence to reproduce the software for sale to institutions other than credit unions. FCS also accepts that it knew that GCSA intended to sell applications of software to institutions other than credit unions and that GCSA could and did retain a copy of source code including Release 12. However, FCS argued that the licence did not extend to the present respondents because none of the dealings between FCS and GCSA related to the new company, GCS. I need not deal with this submission because it does not arise in the light of my construction of the 1984 agreement, which is more restricted than the construction for which FCS contended.
Consequences of the ownership by FCS of copyright in the GCS financial system in relation to credit unions
38. The copyright owned by GCSA in the GCS financial system at the time of the making of the 1984 agreement was one copyright in each of the individual programs that constituted the system. An alternative view is that it owned copyright in the total collocation of words involved in the programs; but in my view the correct view is it was the owner of copyright in each of the individual programs. There was simply the one copyright in each of the individual programs that constituted the GCS financial system or CU-Software Package. This was the subject matter of the assignment of copyright by GCSA to FCS: see Copinger and Skone James on Copyright (12th edn), 1980 paras. 5-13; Gramophone Co Limited v Stephen Cawardine and Co (1934) 1 Ch 450 at 459-460.
The copyright in the programs consisted in the particular form of expression in which the ideas or information were conveyed or in the order of words: see Computer Edge Pty Limited v Apple Computer Inc (1986) 161 CLR 171 at 181 and Dyason v AutoDesk Inc (1990) 24 FCR 147 at 155. See also Copyright Act 1968 and the language of s. 10(1) which defines "computer program" as meaning:
"an expression, in any language, code or notation, of a set of instructions (whether with or without related information) intended, either directly or after either or both of the following:
(a) conversion to another language, code or notation;
(b) reproduction in a different material form; to cause a device having digital information processing capabilities to perform a particular function."
Release 12 was essentially the work of Mr Phelan. What is plain from the evidence is that RELEASE 12 as developed by GCS and released in October-November 1983 was part of the CU-Software Package that was the subject of the 1984 agreement.
Mr Phelan was closely involved in the development of various packages. They were essentially developments and enhancements in modifications of what had been the GCS financial package. Mr Phelan from time to time developed new elements and amended the system further to produce FACTS. FACTS was later developed by Mr Phelan into ECLIPSE which is currently being provided to credit unions by GCS.
By assigning to FCS the copyright in the CU-Software Package, GCSA assigned to FCS copyright in RELEASE 12 so that FCS owned the copyright in each of the programs embodied in RELEASE 12 insofar as they related to credit unions. If GCS used RELEASE 12 to write FACTS and later ECLIPSE then the necessary causal nexus for infringement has been established. Even if that particular nexus is not established, there will be sufficient nexus if ECLIPSE is in fact a reproduction of RELEASE 12. There would remain the question whether the reproduction was substantial. The essential components of BSOC, RELEASE 12, FACTS and ECLIPSE are the same.
The evidence establishes to my satisfaction that when Mr Phelan developed the GCS financial package into the form of RELEASE 12 everything that was present in what he described as BSOC was put into Release 12. Release 12 when issued consisted of a collection or assemblage of about 850 computer programs (see s. 10(1) of the Copyright Act). The collocation of words, letters and numbers (that is the code) were 850 in number and were in the computer language PICK that then existed. I am satisfied that approximately 600 of those 850 programs were identical to 600 programs in the collection of programs that has been identified as BSOC. About 200 programs in RELEASE 12 corresponded to programs in BSOC, though they were not identical to them. The differences in code principally related to the ACCOUNT file. About 20 programs in RELEASE 12 were specific to credit unions which were mostly matched by corresponding programs in BSOC. There were about 30 programs in BSOC with no corresponding programs in RELEASE 12. The computer programs in BSOC and RELEASE 12 were substantially the same.
I should say at this point that the experts, Professor Brookes and Mr MacGregor, were largely in agreement as to certain vital matters. Each of them compared the program purchased by FCS from GCS in 1984 (the FCS program) with the present program of GCS (ECLIPSE and its predecessor FACTS). Professor Brookes found that 553 programs in the GCS set had names identical with FCS programs, of which 377 had an average of 40% duplicated lines of code. Mr MacGregor did not disagree with this figure. Mr MacGregor agreed with Professor Brookes that the degree of similarity which exists between parts of the GCS and FCS source codes could not have arisen if the two systems had been developed independently of each other. Where the experts differed initially was as to whether it followed that one was derived from the other. Professor Brookes stated in his reports that because of the similarities between the two "the security procedures and program initialization processes of the GCS programs are substantially and materially derived from, and retain much of the design concepts of, those of the FCS system" and he concluded that:
"the developers of the GCS system had access to, and made considerable use of, the 1984 version of the FCS system ... It is evident that the method of development of the GCS system was to edit those FCS programs that were useful and still relevant, to modify significantly those that were out of step with requirements, and to develop new programs for functions not addressed by the FCS system."
Although Mr MacGregor agreed with Professor Brookes that much of the GCS set was derived from the 1984 version of the FCS systems, he concluded that:
"the evidence available from the source code itself better supports the hypothesis that the GCS and FCS sets of code were undergoing separate development prior to May 1984, with some interchange of source code between them during that period, and that both systems are probably derived from one earlier common system."
Mr MacGregor said that his opinion is consistent with there having been one version of the system which was split in 1984 or as early as 1980 into two versions which began to diverge somewhat from each other in functionality; but later, probably during 1984, sharing of code and design concepts between the two programming groups ceased or became much less common. He said that the FCS set probably dates from around the time when sharing of code or design concepts had ceased or had become infrequent. Professor Brookes agreed, whilst giving oral evidence, that the similarities between the GCS system (ECLIPSE or FACTS) and the FCS system (CU-Software assigned in 1984) is consistent with derivation from a common source, although the professor did not favour that view. I favour the opinion of Professor Brookes. I am satisfied that in fact the GCS programs were derived from the CU-Software assigned in 1984.
In the end it does not seem to me that the evidence of the experts is critical to the resolution of the case. It really depends on what in fact happened and I have already made most of my findings of fact with respect to that.
The remaining question is whether a substantial part of the individual programs in RELEASE 12 (the CU-Software package) has been reproduced in FACTS or Eclipse. An alternative way of looking at the question, as mentioned earlier, is whether a substantial part of RELEASE 12 as a whole has been reproduced. FCS pleads its case in the alternative. I favour the former approach and agree with Professor Brookes's evidence with respect to that.
The case of the respondents was that BSOC was developed in the initial GCS software in one stream relevant to building societies and other financial institutions and not credit unions and that RELEASE 12 was developed with reference to credit unions. Mr Phelan referred to the CU-Software Package and RELEASE 12 synonymously and he gave evidence as to the differences between BSOC and the CU-Software package or RELEASE 12. As I said earlier, I am not impressed with the evidence that there were substantial differences between the two. In my opinion the differences were not substantial. Nor do I accept the evidence of witnesses for the respondents, in particular the evidence of Mr Phelan, that he did not copy from RELEASE 12 when producing FACTS. He says that what he did was in effect to copy BSOC. This seems to me to be inherently unlikely. There was no reason why he could not copy RELEASE 12 as it was in his possession and available to him physically; and, indeed, he had written much of it. There was no legal impediment in his path to copy RELEASE 12 at the time of the development of FACTS. There were at least 600 programs (probably more) in RELEASE 12 that could have been used by him for producing FACTS. The core program had been run for RELEASE 12. I find it difficult to understand why he would not have used RELEASE 12 as a source of copying and save himself what otherwise would be a great deal of work. In my view Mr Phelan did copy RELEASE 12 in order to produce FACTS. To the extent that Mr Dean's evidence corroborates this evidence, I do not accept it.
The evidence of Mr Phelan and Mr Dean is in conflict with the evidence of Mr Reid and Mr Thompson. As mentioned earlier, to the extent that it is in conflict I prefer the evidence of Mr Reid and Mr Thompson. I should say, however, that there was other evidence given by both Mr Phelan and Mr Dean which was important to the case and which I accept, though it is not evidence involving conflict with the evidence of other witnesses. The evidence of theirs which I have difficulty in accepting is as to the picture which they painted of developing before 1984 two distinct lines of software, BSOC for building societies and CU-Software for credit unions, as if they were two divergent streams derived from the same earlier common source. Nor do I accept their evidence that when Mr Phelan came to produce FACTS he did not copy from RELEASE 12 but from BSOC.
Whether Mr Phelan copied BSOC or RELEASE 12 to produce FACTS he used the collocation of words the subject of the copyright which had been assigned to FCS and which appeared physically in two places (BSOC and RELEASE 12) but which as to 600 programs appeared identically and as to 200 appeared substantially similarly in each of those cases. I do not regard it as material that the programs appeared in different places in BSOC from RELEASE 12; the fact is they appeared physically in both.
It is admitted by the respondents that copies of both FACTS and ECLIPSE were made for sale to credit unions. The issue is the entitlement of the respondents to do so.
The only question on the issue of infringement that remains is the question of substantiality: see ss. 36(1) and 14 of the Copyright Act. I am satisfied that a substantial part of RELEASE 12 viewed as a whole appears in the productS of GCS, namely FACTS and later ECLIPSE. I am also satisfied that a substantial part of each of the various individual programs set out in RELEASE 12 has been reproduced in FACTS and ECLIPSE; so whichever the position is (i.e. copyright in the total collocation of works or in each of the individual programs) the answer is the same, namely, that there has been a substantial reproduction.
"Substantial" in this context relates essentially to the originality of the path taken, that is to quality rather than quantity: see Ladbroke (Football) Limited v William Hill (Football) Limited (1964) 1 WLR 273; Dyason v AutoDesk Inc (1990) 24 FCR 147 at 155 and AutoDesk Inc v Dyason (No 1) (1992) 173 CLR 331; AutoDesk Inc v Dyason (No 2) (1993) 111 ALR 385. I do not understand the reasons for judgment of the members of the High Court in AutoDesk (No 1) at 336, 345 or in (No 2) at 389, 390, 394, 396, 402, 407 and 409 as supporting the proposition that functional significance is relevant, although this is a matter that is perhaps open to some debate and is neither necessary nor appropriate for this Court to decide.
Licence and Estoppel
53. An attempt was made by the respondents to establish that FCS licensed GCS to reproduce what became FCS's copyright assigned to it under the 1984 agreement. It was also argued that FCS is estopped from denying GCS the right to develop further its products (FACTS and later ECLIPSE) and selling it to credit unions. My construction of the 1984 agreement answers most of the respondents' case as to the licence. The arguments as to both licence and estoppel fail. I am satisfied that FCS did not know at any relevant time (that is until shortly before the commencement of this proceeding) that GCS was developing FACTS or ECLIPSE for sale to credit unions. I accept the evidence of the witnesses for FCS on these issues.
Conclusion
54. In the result, in my opinion the respondents have infringed the copyright of FCS in the relevant works. They should be restrained from reproducing or authorizing the reproduction in a material form of the whole or a substantial part of the works and selling or otherwise dealing with copies of computer programs which reproduce the whole or a substantial part of the works, in each case with respect to the credit unions and the credit union market.
I propose to make no orders today except to direct that short minutes be brought in to give effect to these reasons for judgment; and they should include provision for an inquiry as to damages or an account of profits. Argument may be advanced on the next directions hearing before me as to these matters.
I note that during the trial FCS abandoned its initial claim for additional damages pursuant to s. 115(4) of the Copyright Act and damages pursuant to s. 116.
Summary
57. In summary, GCSA assigned to FCS the whole of its interest as the owner of copyright in the GCSA financial system which had been developed into the form of RELEASE 12, but only in relation to credit unions. It infringed the copyright assigned to FCS by reproducing the programs as ECLIPSE. This was a substantial reproduction of FCS's copyright. The GCS programs had been refined to a degree in the form of BSOC and RELEASE 12, but the differences were not substantial, as essentially the same computer program that underpinned both of them was the essential subject matter of the assignment by GCSA to FCS by the agreement of May 1984. Stripped of all its subtleties and complexities that is the nub of the case.
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