FEDERAL MAGISTRATES COURT OF AUSTRALIA
| FRASERSIDE HOLDINGS & ANOR v VENUS ADULT SHOPS & ORS | [2005] FMCA 997 |
| COPYRIGHT – Claim of relief by way of declarations, damages and injunctions for breach of the Copyright Act 1968 – where the copyright owner and exclusive licensee allege copying and parallel importation of particular adult films in DVD format – whether the respondents imported the parallel imports – whether the applicants’ waived any claim under copyright that they might have in respect to the parallel imported films – whether the respondents made counterfeit copies of the alleged infringed films – whether the respondents knowingly offered for sale or by way of exchange counterfeit copies of the parallel imported product – whether the respondent knew or ought to have reasonably known that the making of counterfeit copies would constitute an infringement of copyright – whether the second applicant was at all relevant times the exclusive licensee in Australia of the alleged infringed films – where the respondents claim in defence that the distribution of adult films in NSW and Qld is illegal. DAMAGES – Whether the illegality of the distribution of the films has any effect upon the applicants’ claim for damages – whether damages could be apportioned between the copyright owner and exclusive licensee – whether the applicants could be awarded nominal, conversion and additional damages. |
| Copyright Act 1968, ss.36(1), 101, 102, 103, 36, 38, 115(2), 115(4), 116 Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW), s.6 Classification of Films Act 1991 (Qld), s.15 Classification (Publications, Films and Computer Games) Act1995 Federal Magistrates Court Rules 2001 |
| First Applicant: | FRASERSIDE HOLDINGS PTY LIMITED |
| Second Applicant: | CALVISTA AUSTRALIA PTY LIMITED ACN 091 673 559 |
| First Respondent: | VENUS ADULT SHOPS PTY LIMITED ACN 087 423 121 |
| Second Respondent: | TROPHER INSTALLATIONS PTY LTD |
| Third Respondent: | GEORGE ALLAN VASSALLO |
| Fourth Respondent: | JERRY GORDON |
| Fifth Respondent: | PHILIP SALVATORE DE-PRIMA |
| File Number: | SYG 3642 of 2004 |
| Judgment of: | Raphael FM |
| Hearing dates: | 23-24 May 2005, 8-9 June 2005, 21 June 2005 |
| Date of Last Submission: | 24 June 2005 |
| Delivered at: | Sydney |
| Delivered on: | 21 July 2005 |
REPRESENTATION
| Counsel for the Applicant: | Mr R Cobden / Ms K Richardson |
| Solicitors for the Applicant: | Gilbert + Tobin |
| Counsel for the Respondent: | Mr G Melick SC / Ms M Avenell |
| Solicitors for the Respondent: | I & T Solicitors |
ORDERS
The applicants are to file and serve, within fourteen days, appropriate Short Minutes of Orders to give effect to these Reasons for Judgment and as to costs.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 3642 of 2004
| FRASERSIDE HOLDINGS LIMITED & ANOR |
First Applicant
CALVISTA AUSTRALIA PTY LIMITED
ACN 091 673 559
Second Applicant
And
| VENUS ADULT SHOPS PTY LIMITED ACN 087 423 121 |
First Respondent
| TROPHER INSTALLATIONS PTY LTD VENUS ADULT SHOPS PTY LIMITED & ORS |
Second Respondent
| GEORGE ALLAN VASSALLO |
Third Respondent
| JERRY GORDON |
Fourth Respondent
| PHILIP SALVATORE DE-PRIMA |
Fifth Respondent
REASONS FOR JUDGMENT
Introduction
This proceeding is a claim for relief by way of declarations, damages and injunctions under the Copyright Act 1968 (Cth) by the applicants who are respectively the copyright owner and its exclusive licensee in Australia of certain cinematograph works, photographs and accompanying artwork known as “slick artwork” constituted by the artwork and photographs attached to the DVD covers within which the applicants product is distributed, and in the artwork on the DVD disc known as “disc artwork” in what are euphemistically described as “adult films”.
The first and second respondents are companies which operate retail shops that deal in product for the adult industry including adult films. The shops all go under the title Venus Adult Shop. There are eight of these shops operating in Queensland and New South Wales. The third respondent is a director and shareholder of the second respondent and a former director and shareholder of the first respondent. At the relevant time for these proceedings he also took some part in the management of the retail shops owned by the first respondent. The fourth respondent is a director and shareholder of both the first and second respondent. The fifth respondent is a director and shareholder of first respondent. The fifth respondent has consented to declarations and injunctions being made against him but no damages or costs are sought.
The system of distribution for adult films in Australia is a combination of sale and exchange. The respondents accept for the purposes of these proceedings that exchange is an activity which would constitute an infringement of the right of a copyright owner under s.36(1) of the Act and also under ss.101, 102 or 103. It is also accepted by all parties for the purposes of these proceedings that the sale or exchange of adult films within New South Wales or Queensland is contrary to s.6 of the Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW) and s.15 of the Classification of Films Act 1991 (Qld) The sale of adult films which have been classified under the Commonwealth Classification (Publications, Films and Computer Games) Act1995 is permitted in the ACT and Northern Territory. The sale or exchange of unclassified films is prohibited throughout the Commonwealth of Australia.
The DVDs produced by the first applicant for distribution by the second applicant are packaged in distinctive laminated boxes featuring the branding of the second respondent including information provided by Calvista as to the film’s classification code and its x-rating film licence number. Under the laminate are photographs and artwork which include the information referred to previously. The photographs are intended to reproduce scenes from the films. This slick artwork is also produced by the first applicant for the use of the second applicant. Finally there is artwork upon the DVDs themselves produced by the first applicant for the use of the second applicant.
The films produced by the first applicant and distributed by the second are known by the name Private films. The applicants claim that the only Private films that may be legally distributed in Australia are those contained in the distinctive laminated box with its accompanying slick artwork and disc artwork previously described. Recent amendments to the Copyright Act to permit parallel imports of books, CDs and computer programs in certain circumstances do not extend to cinematograph films.
The applicant’s contend that the first and second respondents have breached their rights under the Copyright Act in the following ways:
·making and distributing by way of sale or exchange and purchasing by way of exchange pirated copies of Calvista Private films
·importing into Australia copies of Private films for the purposes of selling or distributing the imported copies
·distributing by way of sale or exchange imported copies which they knew or ought reasonably to have known that if the imported copies had been made in Australia by the importer the making of imported copies would have constituted an infringement of copyright.
·the making and the distributing by way of sale or exchange of copies of the imported product.
The acts of infringement discussed above are descriptive of the acts prohibited in ss.101, 102 and 103 of the Copyright Act as well as those prohibited by ss.36 and 38 of the Act in respect of the artistic work.
The applicants claim that the third, fourth and fifth respondents have accessorial liability for the actions of the first and second respondents by virtue of their directorships and responsibility for the management of each of the corporate respondents. It is alleged that the third, fourth and fifth respondents authorised the infringing acts contrary to s.101 of the Copyright Act.
The respondents accept that copyright in the Private films distributed by Calvista in Australia is held by the first and second applicants. They accept that copyright in the parallel imported films lies with the first applicant and that the second applicant as exclusive licensee in Australia has an entitlement to undertake these proceedings for breach of s.103. They deny importing any films directly and say in regard to the parallel imports that the distribution of these films was sanctioned by the second applicant. They say that any copies which may have come into their possession of either the Calvista films or the parallel imports came by way of exchanges over which they have no control. These matters, they argue, should affect any damages awarded by the court. All respondents have consented to permanent injunctions against them.
The respondents also argue that the applicants’ right to damages is severely curtailed by the illegality of distributing any of these films in New South Wales or Queensland which are the only states where it is claimed they were distributed by the first and second respondents.
History
In December 2004 the applicants sought urgent interlocutory relief against the respondents. Investigations had revealed that the Venus Adult Shops were offering for sale or exchange, selling or exchanging counterfeit copies of Calvista films and counterfeit copies of parallel imports. The court made orders in the nature of Anton Pillar orders and provided relief in the nature of Norwich Pharmacal relief. The usual protections for the respondents were required. Delivery up was a slow process. A number of further applications had to be made to the court. Eventually a quantity of films was delivered up. These included parallel imported films in their original boxes (not the same as the Calvista produced boxes), counterfeits of the parallel imported films, Calvista produced films in their original boxes and counterfeits of the Calvista produced films. In the interlocutory processes discovery was ordered. Documentation relating to the purchase of parallel imported films was produced. Other books and records of the corporate respondents which might have provided information as to the provenance of the product delivered up or the value of the sales or exchanges in infringing product were conspicuous by their absence. The applicants were required to return to court on a number of occasions to secure compliance by the respondents with orders. The conduct of the respondents during the interlocutory processes was at best dilatory and at worst obstructive.
By the time the matter came on for trial a degree of agreement had been reached between the parties. The formal proof of copyright ownership required for the interlocutory orders was accepted. It was accepted that in respect of the delivered up items those alleged to be parallel imports were parallel imports; those alleged to be counterfeit copies were counterfeit copies. The directorships of the third, fourth and fifth respondents were admitted. As at the commencement of the hearing the relevant issues between the parties appeared to be:
i)Did the corporate respondents import the parallel imports?
ii)Did Calvista waive any claims it might have in respect of parallel imported product including the making of counterfeit copies of parallel imported product?
iii)Did the corporate respondents make or cause to be made counterfeit copies of the parallel imported product.
iv)Did the corporate respondents make or cause to be made counterfeit copies of the Calvista product.
v)Did the corporate respondents knowingly offer for sale or exchange and sale or exchange counterfeit copies of the parallel imports or the Calvista product.
vi)Did the third and fourth respondents authorise any infringing acts found to have occurred.
vii)What is the effect of the illegality of distributing any of the films in New South Wales or Queensland on damages.
viii)Under what provisions of the copyright act are damages to be awarded. In this regard in their final submissions the applicants claimed:
·declaratory relief under s.115(2)
·injunctive relief under s.115(2)
·damages pursuant to s.116 determined upon a conversion basis
·nominal damages of one dollar pursuant to s.115(2)
·additional damages pursuant to s.115(4).
ix)Was Calvista at all material times the exclusive licensee in Australia of Private films.
Evidence
The respondents own eight shops five of which are owned by Venus Adult Shops Pty Limited (“Venus”) and three of which are owned by Tropher Installations Pty Limited (“Tropher”). All the shops trade under the name Venus (the “Venus Shops”). The principal place of business of the Venus Shops is in Blacktown where there is one shop in Westfield Place and one shop in Main Street. There is also a shop in Darlinghurst. The shops sell a very large number of “adult” lines but it did appear from a video taken by one of the investigators that the sale, exchange or hire of videos and DVD’s was a substantial part of the business. Over the last few years the business has been turning from VHS videos to DVD which has a number of advantages. The major advantage is that the quality of the DVD does not deteriorate with use to the extent that VHS deteriorated.
Up until 2003 the Venus Shops traded with Calvista. They bought from Calvista VHS videos and some DVD’s. It is accepted that Private videos were a cut above other videos on the market and commanded a premium price. Although it was accepted by all parties that up to 90% of product on the market at any one time in VHS format was pirated, this was not the case with Private videos. Quite different reasons are put forward for this phenomena but as Mr Cobden sought to have the reasons put forward by Mr Gordon struck from the transcript and because in reality they are irrelevant I will not repeat them.
When DVD material first came into use it was considered to be vastly superior to VHS. In the first few years piracy was very limited. This was because stamping machines are very expensive and individual DVD recorders were rare and similarly expensive. This has changed since about 2002. Both Mr Vassallo and Mr Gordon gave evidence that they were unaware that DVD’s could be copied until recently. I think that is naïve and I do not accept their evidence. I am prepared to accept that copying was not a significant problem until about 2003.
However, it was in 2003 that the Venus Shops stopped dealing with Calvista. This arose out of a dispute as to accounts. Thereafter the Venus Shops did not buy any Private product distributed by Calvista.
The person responsible at Calvista for the sale and distribution of DVD’s for the market which included the respondents was Mr D H Newnham. He was known to Mr Vassallo and Mr Gordon as “Hughie”. Mr Newnham gave evidence that amongst his responsibilities was that of calling upon adult shop owners and keeping them aware of the latest offerings of Calvista and negotiating commercial arrangements with them. In June 2001 Mr Newnham visited the Venus Shop in the Westfield Plaza at Blacktown. Both Mr Vassallo and Mr Gordon were there. They spent some time in the shop and then moved to Bucks Tavern where they continued to discuss business. Although the terms of their discussions are disputed I am satisfied that they turned, at least in part, upon the terms of trade between the parties. The contentious issue is whether or not Mr Vassallo showed Mr Newnham some parallel imported Private DVD’s and whether or not Mr Newnham indicated that Calvista was not concerned with their distribution or sale. Mr Newnham accepts that he was shown the DVDs but states that he told Mr Vassallo and Mr Gordon that it was illegal to sell them. Mr Vassallo and Mr Gordon say that Mr Newnham indicated that Calvista was not concerned about their sale because they were not classified titles which were the only titles it is legal to sell in Australia.
All parties were cross examined about the issue. Mr Gordon’s evidence is only that he heard what was said between Mr Vassallo and Mr Newnham. Mr Gordon’s and Mr Vassallo’s affidavits on the conversation are identical. I accept that Mr Vassallo’s affidavit was prepared first. For reasons which I shall give later I propose to be very cautious with my treatment of the evidence of Mr Gordon.
I would prefer to base my decision as to what was constituted by this conversation from the views I have taken as to the evidence of Mr Vassallo and Mr Newnham. In relation to this conversation I prefer the evidence of Mr Vassallo. I found his presentation in the witness box and responses to cross examination more open than those of Mr Newnham. Mr Newnham was more guarded. If Mr Newnham was to be believed he was concerned about parallel imports at the time of the meeting. He was shown parallel imports by Mr Vassallo. Whatever he may have said to Mr Vassallo about the parallel imports he certainly took no action to restrict their sale. He wrote no letters to Tropher or Venus, he did not make it a condition of their purchases that they did not deal in parallel imports and he still gave them some accommodation with regard to their credit even if it was not as much accommodation as Mr Vassallo and Mr Gordon deposed to. The parties continued trading satisfactorily with each other until 2003. On the other hand the way in which Mr Vassallo described bringing the parallel imports to the attention of Mr Newnham and asking whether they were okay to be sold rings true. Mr Newnham’s comment, report by Mr Vassallo, that he was not concerned with them has a similar ring of truth. Mr Newnham admitted that other retailers with whom he dealt were dealing in parallel imports and there is no suggestion that the parallel imported titles duplicate the titles being distributed in Australia by Calvista. In those circumstances, and remembering that at best Calvista had only been distributing DVDs for some months prior to the meeting, the response is understandable.
Mr Gordon gave evidence that after the falling out with Calvista he began to purchase DVDs from a Mr Titcume of Simitar. Mr Titcume would come and visit Mr Gordon in one of the shops and show him a series of titles. Mr Gordon would check whether or not the titles indicated child pornography or animal fetishes and provided the DVDs were clear of these vices they were bought or not on the basis of their saleability, which was judged by the photographs on the back of the DVD cover. The DVD’s which Mr Gordon bought from Mr Titcume included parallel imported Private titles either from Europe or from the United States. Mr Gordon produced some invoices from Mr Titcume. These invoices made a virtue of their minimalism and unfortunately Mr Titcume who had sworn an affidavit, was not available to take the stand and give evidence to explain them. It is the applicants who assert that the respondents imported the parallel imported product themselves. They have produced no evidence of this and do not deny the existence of Mr Titcume. Mr Vassallo, whose evidence I prefer to that of Mr Gordon, says that Mr Gordon bought products from Mr Titcume and denies importing products himself.
The delivery up process ordered by the court in the interlocutory proceedings involved 384 DVDs. Of these 133 were pirate copies, 225 were parallel imports and 17 were Calvista original films. There was considerable cross examination, particularly of Mr Gordon, about the respondent’s knowledge of DVD copying and the extent to which it was prevalent in the adult industry. Mr Gordon denied that the Venus Shops were involved in any way in copying and tended to blame the swapping procedure for all the ills. It was his evidence that any pirated DVDs that were found in the store by the trap orders or which came to light as a result of the delivery up process came into his stores by way of swaps. He claimed that he was ignorant of DVD burning processes until quite recently but now knew that it was simple to do and was a problem in his market. I have already indicated that I would be prepared to accept that pirating DVDs was not a matter of common industry use when DVDs were first introduced in about 2001. But I cannot be so sanguine about that over the last two and half years or so since machines capable of copying DVDs have come down in price and are so universally available. Mr Gordon admitted that he was well aware of the problems about copying VHS tapes and accepted that indicators of copied product included inferior copies of the artwork on labelling. He claimed to be unaware of the indicators of copying on DVDs such as discolouration of the disks, labels which did not indicate the country of manufacture, poor quality artwork and poor quality packaging.
At P215 of the transcript Mr Cobden commences a lengthy cross examination of Mr Gordon by showing him six Calvista boxes and the DVDs inside them that had been delivered up. He also showed him copies of each of those titles. These had also been delivered up. Mr Gordon accepted that product in the Calvista boxes was genuine and he agreed that he had either got them prior to his falling out with Calvista in 2003 or by swaps. Mr Cobden asked Mr Gordon to look carefully at markings on the original box slick work. Mr Gordon admitted that the markings on the original box appeared to have been reproduced exactly on the slick work of the admittedly pirated copies. At P220 there is the following exchange between the witness and Counsel:
Cobden:“Would you now look at a copy of “virtual cybersex” and could you look, please, at the back of the original of that, please, that has a classification sticker on it, does it not?”
Witness: “Yes”.
Cobden:“Which you recognise to be a Calvista classification sticker?”
Witness: “I didn’t know that but yes.”
Cobden:“And you look at the two counterfeit copies – I’m sorry, the two pirate copies which you have agreed with me are burnt copies and you see that they both have a copy of the same sticker in precisely the same place?”
Witness:“Yes.”
Cobden: “So again it is the case, is it not, as far as you can tell, the two pirated copies have been made from a copy that is also in the possession of your companies?”
Witness:“Yes I would say yes I don’t know.”
Mr Melick [Counsel for respondents]
“The pirated slicks, not the DVD.”
Cobden:“The pirated slicks have been made from the copy that looks like an addition?
Witness:“It looks like it.”
The questioning of the witness went on in this manner in regard to all six Calvista original titles. At P223 Mr Cobden asked:
Cobden:“Now, Mr Gordon, I showed you “24 Karat”, the original – the Calvista packaging. I showed you “Amanda’s Diary”, “Virtual Cyber Sex”, “Extreme Bacchanal” and “Desert Camp Sex Exchange”?
Witness: “Yes.”
Cobden:“And “Reality No 5.” And in each case the coloured photocopy slicks on all of the photocopied or pirated versions appear to be made precisely the original that happened to be in the possession of your company.”
Witness: “Yes.”
Mr Cobden suggested to the witness that the corporate respondents had a small library of original Calvista material which they would copy from time to time to keep up stock. The witness denied this. The evidence indicates that it was Mr Gordon who was responsible for stocking the Venus Shops and not Mr Vassallo. Mr Vassallo also denied any knowledge of copying in this way or of having a library of DVDs from which to make copies.
Mr Gordon was closely cross examined by Mr Cobden in relation to copies of the parallel imports. He asked Mr Gordon questions about the labelling system that was used. Mr Gordon explained that DVD covers on display do not contain actual DVDs inside them. This is to prevent stealing. The DVDs are kept behind the counter. In order to identify which DVD goes with which cover a sticker system is used. DVDs are numbered and the sticker bears the same number as the actual disc. Mr Cobden produced a number of delivered up parallel imported DVDs and a number of pirated copies of each. It transpired that none of the parallel imports contained sticker numbers whereas all the pirated copies did. Mr Cobden attempted to persuade Mr Gordon to agree that the reason for this was also because the pirated copies were being used for sale or exchange and the parallel imports were being used as the masters from which the pirated copies were made. Again he suggested that the Venus Shops had a library of master copies of parallel imports which they used in this way. This was again denied.
Another matter upon which there was considerable argument in cross examination between the applicants and the respondents was the number of DVDs turned over in the Venus Shops. At P310 Mr Gordon appears to be accepting that there would be purchases of approximately 13,000 items a year although the complications of the swaps market were also in the background. It should be noted that swaps are not free. A DVD may cost $60.00 to purchase but every time you swap it you are required to pay $20.00. Mr Gordon suggested that approximately 5% of the turnover of the business of the Venus Shops was in Private DVDs but the invoices he produced from Mr Titcume of Simiter sometimes refer to purchases of “Privates” but more often just give a number of items purchased and the price. Mr Gordon did give evidence at P307 that before their commercial arrangements came to an end the Venus Shops were buying 50 Privates a month from Calvista.
The respondents sought through cross examination to establish that the applicants had acquiesced in the distribution of parallel imported Private DVDs. At P120 and 121 there is an exchange between Mr Melick and Mr Newnham.
Melick:“And at the time you visited that store in Kings Cross [Mr Blitzer’s store]I want to suggest that there were literally hundreds of copies of parallel imports of Private films.”
Newnham:“I don’t recall.”
Melick:“You don’t recall. I want to suggest to you that Mr Con Blitzer has since 2003 had on display in all of his stores hundreds of copies of parallel imports of Private DVDs.
Newnham: “If you’re saying that I can’t dispute it.”
And at P121
Melick:“Do you know a Con Ang?”
Newnham:“Yes I do.”
Melick:“And he owns stores in Oxford Street, in Penrith, at Windsor, Blacktown does he not?”
Newnham: “Yes they do.”
Melick:“And have you visited those stores?”
Newnham: “Yes I have.”
Melick:“And would you agree with me that those stores also exhibit literally hundreds of parallel imports of Private DVDs?”
Newnham: “I have seen parallel imports in his stores.”
Melick:“You haven’t taken any action against him?”
Newnham: “I haven’t taken any legal action. I haven’t commenced proceedings against him no.”
In the examination of Mr Gordon by Mr Melick at P174 Mr Gordon deposes to the fact that he knew that Mr Blitzer and Mr Ang were associated and that between the two of them they owned fourteen stores. Mr Gordon said that he had been into the store at Blacktown and had seen Private DVDs there:
Melick: “And how was it packaged?”
Gordon:“The same way as ours were in the plastic covers, no different.”
Melick: “Are you able to say anything about quantities?
Gordon:“Huge amounts. I went there once and he had about 472 from my memory I counted on the shelves.”
Melick:“Have you visited any of his other stores?”
Gordon:“I saw one in Parramatta.”
Melick:“And are you able to say anything about – did you observe any stock in that store?”
Gordon:“Roughly about 400 yes.”
Melick:“When you are talking once again DVD covers labelling with the word “Private”?
Gordon:“Yes.”
Melick:“And were they plastic or cardboard?”
Gordon:“Plastic.”
Discussion
The evidence rehearsed above is the evidence which will assist me to make findings on the factual matters contained in the relevant issues which I set out at [11]. The first relevant issue was whether the corporate respondents imported the parallel imports. Mr Gordon’s evidence was that he obtained the parallel imports from Mr Titcume. Mr Vassallo corroborated the purchase although he was not involved personally with Mr Titcume. Mr Titcume did not give evidence but Mr Gordon was not cross examined to the effect that he did not exist. I think the balance of probabilities lies in favour of a finding that the parallel imports did come from this source. The applicants provided no direct evidence of importation by the respondents and it is hard to see where I would draw an inference from any other evidence given that this is what occurred. The answer to that question for the purposes of these proceedings would therefore be no.
The second question requires me to look at the conduct of Calvista in regard to parallel imported products. There is no suggestion that the first applicant waived any rights that it might have in respect of the parallel imports. The evidence of Mr Newnham appears to be that as general manager his job included a considerable amount of customer relations. To that end he would visit his clients at their stores. The evidence is that parallel importing of DVDs was going on before Calvista commenced its own distribution of DVDs. The evidence also is that parallel importing was a common problem and has been for some years. Yet this is the first case of a claim for damages arising out of the distribution of parallel imported products. Another case was commenced in the Federal Magistrates Court at about the same time as this case commenced. This was bought by Calvista and another company known as “Wicked Pictures”. I am not clear whether this involved parallel imports but it certainly did not involve Fraserside. I prefer the evidence of Mr Vassallo as to what occurred at the meeting in 2001 with regard to the parallel imported product. I think that Mr Newnham did tell Mr Vassallo that he was not concerned with those products. His inaction over the years would seem to bear that out. I am of the view that the evidence points to the distribution of parallel imported product fairly generally in the industry and in particularly by Mr Blitzer and his cousin Mr Ang. I note that no proceedings have been brought against them.
The cross examination of Mr Vassallo and Mr Gordon about the events in June 2001 involved a debate whether or not Mr Newnham’s lack of concern related only to product that had not been classified. None of the parallel imported DVD’s produced in this case was classified. Mr Newnham was also aware of the illegality of distributing non classified material. I consider that I am entitled to draw the inference that as at 2001 Calvista did not consider itself to be a policeman for Fraserside and was not particularly concerned about the distribution of parallel imported product that they were unable to sell wholesale because it had not been classified. I believe that I can draw the inference that this lack of concern continued whilstsoever Calvista was in a commercial relationship with the retailer. Whether lack of concern constitutes the equitable defence of waiver or acquiescence I shall consider later in these reasons.
Whatever the situation might have been with regard to the distribution of parallel imported product that the respondents have, at all times, suggested is genuine product upon which a licence fee has been paid in another country, there is no evidence that would allow me to come to a conclusion that the equitable defences of waiver or acquiescence apply to copying that product. In regard to the two questions as to whether the corporate respondents made or caused to be made copies of the Calvista Private DVDs and the parallel imported Private DVDs I would answer both in the affirmative. I say this because I am satisfied from the evidence, particularly that brought out in the cross examination of Mr Gordon that there really is no other explanation for the similarities found on the admittedly pirated DVDs to those of the genuine Calvista boxed Private product. The evidence with regard to the parallel imports is not as strong but it definitely points to copying having more probably taken place than not. I believe I can infer from the conduct I have accepted in relation to the Calvista Private boxes that the corporate respondents would do the same thing with the parallel imported product. The applicants point to some evidence, retold on affidavit, of an employee of one of the Venus Shops who indicated that copies were regularly being made. Mr Melick objected to this evidence, although it is probably admissible as an admission against interest. I do not give it much weight because I believe I am entitled to infer from all the evidence that the quality of employees in these shops is not high. The respondents sought to turn this to their advantage and suggest that they may not have been aware of what their employees were getting up to. It may be that some employees were running a business within a business but the directors of the company are responsible for the acts of their employees and for making sure that the copyright laws are not breached by them. There was no positive evidence put forward by the respondents as to their “best practice” in relation to copyright protection. Judging by other evidence of the business practices of the corporate respondents from their accounts to the quality of their employees it is safe to assume that the directors exercised very little control and allowed the business to run in an almost anarchic fashion. In making these remarks I would temper them in respect of those shops which were lucky enough to have been controlled by Mr Vassallo. I think he was the better businessman of the two directors and I think that, unlike Mr Gordon, he has learnt something from these proceedings. However, he only took over the management of stores relatively recently and there is little doubt that companies under his control and ownership were as much in breach of the Act as those controlled by Mr Gordon. As I have found that the corporate respondents did cause counterfeit copies of both the Calvista Private films and the parallel imported films to be made they must have knowingly offered them for sale or exchange and did sell or exchange them.
The next question relates to the authorisation by the directors of infringing acts. Insofar as the sale of parallel imported product constitutes an infringing act there is no doubt that it was authorised. Mr Vassallo knew the product was being sold, which was why he asked Mr Newnham about it. Mr Gordon purchased the product. In regard to the copying of product I do not accept Mr Gordon’s protestations of innocence. Apart from the claim that employees may have organised the copying no other explanation was put up except swaps. As regard swaps, I take the position that the directors should have had in place a system for refusing to accept swaps that were clearly pirated copies. They did not have such a system. The way the copying appears to have been conducted through the reservation of a number of original Calvista boxed films as a library for that purpose indicates a more sophisticated methodology which I would infer comes from one or all of the directors. I accept that Mr Vassallo did not know exactly what was going on as he was not as hands on in management as Mr Gordon. But I believe the evidence of his involvement in the business indicates that if one infers, as I have done, that copying was going on from at least the time that relations between the applicants and the respondents became less friendly then he must have been aware that some of the sales going on in his stores were sales (and by that I include swaps) of product copied by the Venus Shops.
The terms of the licence agreement between the first and second applicants are contained in a folder of confidential exhibits which are referred to in a number of affidavits. These exhibits reveal that the original licensors and licensees have changed since the first distribution agreement of 1 May 2000. The respondents accept that the current licensor is the first applicant and the current licensee is the second. Confidential Exhibit 4 which is Exhibit CHMK-2 referred to in the affidavit of Claes Henrik Marten Kull sworn on 14 January 2004 establishes that the second applicant became a party to the agreement on 26 September 2001. The principle terms of the agreement include:
The grant of the sole and exclusive right, excluding any other parties, to distribute and exploit for a period of 36 months from delivery of films, videos, DVDs and CD-ROMs under certain labels, including Private films.
The agreement specifies that all rights not specifically granted to the distributor are expressly reserved by the licensor. Exclusive licence is defined in s.10 of the Copyright Act in the following way:
Exclusive licence means the licence in writing, signed by on or on behalf of the owner or perspective owner of copyright, authorising the licensee to the exclusive of other persons to do an act that, by virtue of this act, the owner of the copyright would, but for the licence, have the exclusive rights to do and “exclusive licensee” has a corresponding meaning.
The rights which are referred to in s.10 are contained in s.86 of the Copyright Act:
86 For the purpose of this act, unless the contrary intention appears, copyright in relation to a cinematograph films is the exclusive right to do all or any of the following acts;
(a) to make a copy of the films,
(b) to cause the film, in so far as it consists of visual images, to be seen in public, or, in so far as it consists of sounds, to be heard in public;
(c) to communicate the film to the public
It seems to me that distribution and exploitation of the videos and DVDs must include the rights set out in subs.86(a) and (c). I am satisfied that Calvista as the current exclusive licensee is entitled to be a party to these proceedings; Avel Pty Ltd v Multicoin Amusements Pty Ltd and Another (1990) 171 CLR 88 at 112-116 per McHugh J.
The findings of fact in relation to the items in dispute which I have made above lead me to the following findings of law:
1. By making copies of the Calvista Private films and the parallel imported Private films the corporate respondents have infringed s.101(1) of the Copyright Act.
2. By making copies of the “slick artwork” and the “disc artwork” of the Calvista Private films and the parallel imported Private films the corporate respondents have breached s.36(1) of the Copyright Act. For the avoidance of doubt I would state that I have inferred that the corporate respondents authorised the copying of both the films and the artwork by virtue of the knowledge I have imputed to Mr Gordon and Mr Vassallo of the sale and swapping of copied material in the Venus Shops and their failure to take any reasonable steps to prevent or avoid the making, selling or swapping of copied material.
3. I find that the corporate respondents have breached s.103 of the Copyright Act by selling or exposing for sale or hire the parallel imported Private DVDs. Any acquiescence in the breach on the part of Calvista would not have the effect of negating the breach although it would be a defence as regard the second applicant and certainly not against the first applicant: LED Builders Pty Limited v Masterton Homes (NSW) Pty Limited (1994) 54 FCR 196; Autocaps (Aust) Pty Ltd v Pro-Kit Pty Ltd [1999] FCA 1315
4. The third, fourth and fifth respondents as directors of the first and second respondents and as persons who had the day to day control of small proprietary limited companies have accessorial liability for the breaches of ss.36, 101 and 103 Copyright Act: Australasian Performing Rights Associate Limited v Metro On George Pty Limited (2004) 210 ALR 244; Computer Edge Pty Limited v Apple Computer Inc. (1986) 161 CLR 171; Raymond Holder v Bradley William Searle [1998] FCA 1775.
The applicants have requested declarations concerning these breaches and permanent injunction restraining the respondents and each of them from acts of a similar nature. In determining to give permanent injunctions I have noted that the respondents have consented to the granting of such relief and also their actions in the interlocutory stages of these proceedings, in particular in relation to discovery and delivery up. The difficulty which the applicants had in making the respondents comply with the orders that had been obtained suggests to me that the absence of permanent injunctions could well see this conduct being repeated.
Acquiescence
What is the proper way in which to describe the conduct of Calvista through Mr Newnham when he told Mr Vassallo that he was not concerned about parallel imported product and Calvista’s conduct thereafter in not taking proceedings against parallel importers until the current action? Did the second respondent’s waive its rights? Did it acquiesce in the abuse of its rights by the Venus Shops? Or is it estopped from asserting those rights against Venus by virtue of its representations and conduct? The proper labelling of these concepts has been the subject of considerable discussion in both the texts and the authorities. The learned authors of the 4th Edition of Meagher Gummow and Lehane’s Equity Doctrines and Remedies Butterworths 2002 discuss the matter in Chapter 17. They consider the case of the The Commonwealth v Verwayen [1990] 170 CLR 394 in some detail. The learned authors at [36-090] also discuss acquiescence which they describe as being used in three different senses but conclude that the primary meaning of the term is an estoppel of the type of which Ramsden v Dyson (1866) LR1HLR 129 is an example. The other two senses were closely associated with the doctrine of laches. The position is put most succinctly in The Law of Limitation; Terence Prime and Gary Scanlan 2nd ed at [310] where the learned authors say:
“Though acquiescence may be inferred from the claimant’s delay in instituting a claim, it differs from laches in that it may be established by means other than by delay in instituting proceedings. Thus, acquiescence may be established in any case where a claimant by his conduct evinces an intention to seek no redress in respect of the violation of his rights (see Archbald v Scully (1861) 9 HL Cas 360; Life Association v Siddall (1861) 3 De GE and J 58; Blake v Gale (1986) 32 Ch D 571;…
There are nevertheless similarities between the doctrines of laches and acquiescence. As with laches, the claimant must be aware of all the facts relevant to his rights (including, it is suggested, the nature of the remedies available) before it can be regarded as having acquiesced with regard to his rights. Unlike laches, acquiescence is not dependent on delay on the part of the claimant in instituting proceedings, but requires conduct on his part from which the court can determine that he has expressly or impliedly represented that he will not require or seek performance of the relevant legal or equitable obligations owed to him, or insist on the enforcement of his rights (see Re Howlett (1949) Ch 767 at 775; Allcard v Skinner (1887) 36 ChD 145.”
The above appears to describe the situation which exists in the instant case. Perhaps a better nomenclature is that used by Mason CJ in Verwayen when he made reference to “quasi estoppel by acquiescence [Verwayen 407]. Unfortunately, his Honour does not discuss the term further, but he does indicate that the difficulties of finding detriment in estoppel cases could be relieved by reliance upon an assumption for an extended period (Verwayen at 416). Acquiescence is also considered by Hill J in Avtex Air Services Pty Limited v Bartsch 107 ALR 539 at [567]. His honour discusses the need to demonstrate full knowledge before acquiescence is found and also talks about the lapse of time between knowledge of the breach and commencement of proceedings and whether or not this also raises an inference that the plaintiff acquiesced in a breach of duty. The facts of Avtex had some similarities to those before me insofar as there was an oral representation that franchising outside the Sydney area would not be of concern. But that was not a matter upon which the decision turned. Hill J found that there was no intention by Avtex to condone a breach of fiduciary duty and that its delay in enforcing that breach did not in the circumstances require him to conclude that the applicants had abandoned their rights.
“It was a lapse of time in which the parties were seeking a modus vevendi for future business relationships between them.”
In the case before me there has been no suggestion that Calvista did not know of its rights as sole distributor of the Private films in Australia. In telling Mr Vassallos that it was not concerned about “European or American Privates” it was indicating to the Venus Shops that it would not enforce any rights it may have in relation to them. The lengthy delay before those rights were enforced and the fact that they have not been enforced against anyone else, even though the parallel importation of this product is rampant, allows me to infer that there was an acquiescence on the part of Calvista in the actions of the Venus Shops (and others) and that it would be unconscionable now to allow Calvista to enforce those rights in respect of the period in which it made no complaint. I am satisfied that the facts establish directly and by inference a quasi estoppel by acquiescence.
Damages
At the outset it was accepted by the respondents that this case was essentially about the assessment of damages. The respondents raised two matters which they believed affected the manner in which damages should be assessed and the amount. Firstly, they raised the acquiescence of Calvista in the sale of parallel imports. The findings which I have made in this regard means that the second applicant would not be entitled to any damages for the breach of its rights under s.103 of the Act. The respondents have also raised as an argument against the awarding of damages the fact that the sale, exchange and trade of adult films is illegal in New South Wales and Queensland. This is articulated at paragraph 19 of the amended defence to the points of claim which is in the following form:
“So far as paragraph 30 makes an allegation against each of them respectively, each of the First, Second, Third, fourth and Fifth Respondents:
(a)Denies paragraph 30 and says that the First and Second Applicants have not and are not likely to suffer loss and damage, including on the basis that the sale, exchange and trade of Private films, Imported Copies, Other Imported Copies and Counterfeit Copies is illegal in New South Wales pursuant to section 6 of the Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW) and is illegal in Queensland pursuant to section 15 of the Classification of Films Act 1991 (Qld);
(b)In further answer to paragraph 30 says that damages should be denied as the sale, exchange and trade of Private films, Imported Copies, Other Imported Copies and Counterfeit Copies is illegal in New South Wales pursuant to section 6 of the Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW) and is illegal in Queensland pursuant to section 15 of the Classification of Films Act 1991 (Qld).”
A similar defence against s.115(4) damages is set out in paragraph 22(b).
The respondents in submissions also argue that the second applicant knew that the corporate respondents were selling its product illegally in New South Wales and Queensland and that therefore they aided and abetted a breach of the laws of those states. The respondents rely on a decision of Drummond J in A1 Accessory Imports Pty Limited & Ors v Off Road Imports Pty Limited & Ors (1996) 66 FCR 199. This was a case where the compiler of a catalogue which itself contained infringing material sued a company in a similar industry which had used that catalogue enabling it to compete with the plaintiff and take sales of sprockets for Japanese motorcycles away from the plaintiff. His Honour took the view that copyright would exist in such a compilation and that whilst:
“I think that the dirt on the applicant’s hands, constituted by their extensive copying of the works of others, is so closely related to the equity claimed in the form of an injunction to restrain Off Road’s use of its own infringing catalogue as to justify denying the applicant’s relief under s.115(2) of the Copyright Act analogous to discretion or equitable relief, by way of an injunction (and an account of profits so earned by Off Road)
His Honour did grant damages under s.115(2) saying:
“Even if the remedy, by way of damages, provided for by s.115(2) of the Act is created by a form of words that suggests it too is discretionary relief, I do not consider there is any justification for not adopting, by way of analogy, the rule at law that a person whose legal rights have been interfered is entitled to damages even though he may be, by reason of his own conduct, disentitled to equitable relief.”
Perhaps the respondents were relying more on His Honour’s short discussion on public policy:
“Where it is against public policy to enforce copyright because, e.g. the copyright work is libellous, obscene or otherwise involves a publication contrary to the public interests the court will not give any remedy: see Glynn v Western Feature Film Co (1916) 1CH 261; Attorney General v Guardian Newspapers Limited (No 2) (1998) 3All ER 545.
The refusal of copyright protection “in the public interest” has a long history at law. Lord Eldon, first as Attorney General under the name Sir John Scott and later as Lord Chancellor from 1801 to 1827, was the most energetic user of the copyright laws in an attempt to restrict the publication of seditious or salacious works. Ironically, his efforts had an effect quite contrary to that for which he was striving. In Southey v Sherwood (1817) 2 MER 435 Eldon declined to grant an injunction to Mr Southey to restrain the publication of a play entitled “Wat Tyler” previously unpublished and written by him in 1790 when he was far more of a radical. Southey had fears that the play might now incite revolution (this was the time of democratic unrest of which the activities of the London Corresponding Society, the Hampden Clubs and the luddites are the most well known examples, and which led in 1819 to the Peterloo massacre). No doubt Eldon agreed with Southey but the effect of his order was to allow any printer to publish copies of ‘Wat Tyler’ without fear of interdiction. As a result the price dropped and the work was able to reach a large audience including many in the lower orders whom Eldon had determined to protect against the vice of radicalism. Eldon took the same tack with the same unlooked for (if not unexpected) result over Shelley’s “Queen Mab” and is said to have influenced a similar decision by the Vice Chancellor over Byron’s Don Juan in 1823. The pirates moved in on both of these poems and their dissemination was widespread. Eldon was much criticised even in his own time. The learned authors of Kopinger and Scone James on Copyright 5th Ed quote at 3-261 from 2 Story’s eq.jur.938 on the dangers of courts entering upon “moral theological metaphysical and political enquiries” that might “retard, if not entirely suppress the means of arriving at the physical as well as the metaphysical truth.”
There is still a residual power to refuse protection to works having a grossly immoral tendency by present day standards: Stevens v Avery (1988) Ch 449. Public policy considerations for not enforcing copyright in photographs was considered by the Court of Appeal of Hong Kong in Mak Hau Shing v Oriential Press Group Limited (1996) HKCFI 204. Here it was suggested that the photographs had been taken under circumstances of force or coercion. This was rejected by the court who declined to give the defendants leave to defend on this ground. In the course of his judgment Godfrey JA said:
“We are concerned with an argument that the court should, on public policy grounds, refuse to enforce the photographer’s copyright in photographs such as were taken here. It is not suggested the photographs were indecent or obscene or otherwise of a grossly immoral tendency; certainly, on public policy grounds, the law will not enforce copyright in photographs of that nature.”
These cases put the respondents’ case at its highest.
The task faced by the court is an unenviable one. The material provided to the court by way of exhibits and produced in the process of delivery up would doubtless be morally offensive to a great many people. The sale or distribution of these DVDs in New South Wales and Queensland is illegal. But that is not so in respect of classified material in the Northern Territory or the Australian Capital Territory and it would appear that it is not illegal in the source countries of the parallel imported product. A court cannot act on public policy grounds on mere whim. It must be informed. If no witnesses are called to allege artistic merit then the court should look at the attitude towards this product in Australia and overseas. What it should not do is to fall into the trap adumbrated by Story J and assume the absolute power he warned against. It is not my intention to impose my views of these DVDs upon the parties. I have not been asked to and it would be entirely inappropriate. The Federal Magistrates Court is a national court and I must look to national standards. The classified Calvista product is acceptable in at least two territories of this Commonwealth. The unclassified material is found acceptable in continents containing hundreds of millions of people. I cannot say that these works are so grossly immoral or pornographic that they should lose the protection of the Copyright Act. If the sale of these DVDs is illegal then the state must enforce its laws. The fact is that from the evidence which I have received in this case and from articles in the press including one in the Sydney Morning Herald only a short while ago there is very little will to enforce the relevant provisions of the Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW).In any event, the effect of my declining to grant the applicants relief will be to do the same in New South Wales as Lord Eldon did in England, namely give free rein to any pirate who wishes to copy and publish this material.
In cases in which copyright protection is denied the courts looked first at restricting equitable remedies. No doubt this was because in pre fusion days the courts were acting in their equitable jurisdiction. Where injunctions were refused the copyright owner was left to pursue his remedies at law see Walcot v Walker (1802) 7VES.1. The learned authors of Kopinger and Scone James have suggested:
“If a claimant is seeking to restrain dissemination of a grossly or immoral or pornographic work in order to preserve the market for himself, an injunction might no doubt be refused.”
I wonder whether this is the right way of thinking about the problem. Would it not be better to grant an injunction and thus restrain any further publication of offending material but decline to grant pecuniary remedies thus not allowing the applicant the benefit of the dissemination of his scandalous material? But perhaps this discussion is not really to the point. I have decided that I will not make a finding that this material constitutes work in respect of which copyright protection should be denied. The applicants are therefore entitled to protection of their copyright and the benefits that ss.115 and 116 of the Act bestow upon them. Why should the respondents be entitled to pirate and profit from these works at the expense of the copyright owner? It should not be forgotten that in regard to the alleged sale of these products in New South Wale the only evidence before this court is that the sale was conducted by the respondents and not by the applicants.
The respondents have argued that even if the applicants committed no crime themselves they aided and abetted the commission of these crimes by the applicants. They say that this is a criminal activity and it should redound upon the applicants by limiting any damages, particularly damages under s.115(4). The proposition has a number of problems. The first is that the respondents have not shown that there is an offence in New South Wales and Queensland or Australia of aiding and abetting a breach of the Classification Acts. Secondly, do they not have to prove such an offence beyond all reasonable doubt? Thirdly, any breach of the Act by sale of Calvista product purchased from Calvista was not the subject of this litigation. In other words, no relief was sought in respect of any of those DVDs. The sales complained about in these proceedings are sales of parallel imported product and copied product. There has been no evidence that Fraserside, the primary copyright owner, has been involved in any of this activity at all. To the extent that Calvista acquiesced in the respondents’ sale of parallel imported material and that such sale was illegal under both Commonwealth and State Law because it was not classified, a suggestion of aiding and abetting might be justified. But this is a long way from proof of a specific offence.
I am unable to accept the respondents’ submission that their own illegality constitutes an effective defence to the award of damages for breach of copyright against these copyright owners.
Before considering the quantum of damages which should be awarded to the applicants and the provisions of the Copyright Act which are most effectively employed for that purpose, it is necessary to consider the relative positions of the two applicants. The first applicant can best be described as the copyright owner of the cinematograph films and artwork that are reproduced in the Calvista Private films distributed by the second applicant. The first applicant is also the copyright owner in the cinematograph films and artistic work of the parallel imported products. The second applicant has a relatively short exclusive licence agreement for the territory of Australia which gives it the right to enforce the provisions of the Copyright Act against infringers. I have already found that with regard to the parallel imported product (as opposed to copied parallel imported product) the second applicant is not entitled to damages. I believe it would be entitled to damages in respect of the copying of that product because there is no suggestion that is acquiesced in that conduct on the part of the respondents. The first applicant is still entitled to damages in respect of the infringement of its copyright in the parallel imported products. The relationship between the first applicant and the second applicant for these purposes is similar to the relationship between a bailor and a bailee or a reversioner and a leaseholder. In both cases the permanent owners of the property are entitled to bring actions for damages as well as the temporary owners: Hosking v Phillips (1848) 3 Ex. 168; Moss v Christchurch R.D.C [1925] 2 K.B. 750; Rust v Victoria Graving Dock Co (1887) 36 Ch.D. 113. Both Moss and Rust were applied in The Council of the Shire of Sutherland v Heyman (1985) 157 CLR 424 where the court said at 34:
“The wrongdoer is liable to be sued by each plaintiff whose interest is adversely affected by the physical damage done…”
In Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 230 Dixon J acknowledged that a bailor with an immediate right of possession could recover for less lasting damage than a bailor whose right to possession was postponed. But he also said that even the latter could recover for “some injury enuring to his detriment”. In HenryBerry & Co. Pty Ltd v Rushton [1937] St R. Qd 109 at 177 consideration was given to the position of a reversioner after conversion. Henchman J said a reversioner could sue if:
“…by reason of the conversion or trespass he has actually been deprived, permanently or temporarily of the benefit of his reversionary interest. Thus he can sue if the chattel has been destroyed, or if it has been so disposed of that a valid title has become vested in a third person, as by sale in market overt, or if after his reversionary interest has fallen into possession, he is prevented from obtaining possession by reason of the previous act of conversion.”
Normally, the court would not be concerned with the apportionment of damages in a case of this nature. It would order damages in a fixed amount and allow the parties to sort it out between themselves. But here the situation is somewhat forced upon me because, at least in regard to the parallel imported product, I have found that the applicants’ interests diverge. I would have been placed in a similar situation if I had accepted the submissions of the respondents in relation to illegality. It will also be necessary to effect some division in any s.115(4) additional damages because one relevant matter that I have to consider is the acquiescence of the second applicant. As I have been given no evidence as to the damage occasioned to Fraserside’s reversion or to the arrangements between the parties I think that the best course of action would be for me to indicate an amount to be awarded for damages under each of the separate headings claimed and to indicate the amount by which I have reduced those figures from the amount I would have given had the second respondent not acquiesced. The applicants can then agree the apportionment of damages between themselves and if they are unable to do that will no doubt make an application to this or some other court on the basis of their own internal arrangements.
The applicants have elected to claim damages of only one dollar under s.115(2). They say they do this for more abundant caution in case it could be argued that s.116 damages could only be awarded if s.115 damages are also awarded. They wish to rely on their rights under s.116 for the principal award. In their submissions in reply the applicant’s say in relation to this matter:
It was submitted by the respondents that the applicants in some way realised there was a problem with their s.115(2) case. Plainly, there is a logical problem in claiming for loss sales when the sales themselves could not have taken place in the circumstances in which they took place. The lost sales are not the only measure of diminution of the value in the copyright as a chose in action, which is the correct approach to damages under s.115(2). The applicant’s could have taken any number of alternative routes, including a royalty basis, or a general “jury” basis. Choosing instead to base their damages claim on s.116, in response to the unmeritorious defence of the respondents that their own illegal activity was a barrier to s.115(2) damages, does not involve any abandonment of the traditional or “normal” basis for damages. It simply adopts a sensible and practical approach given that in the circumstances s.116 and s.115(4) will plainly afford a sufficient basis for the remedy of damages.
I am prepared to make such an order which is consistent with authority; Polygram Pty Ltd & Ors v Golden Editions Pty Ltd & Anor [1997] 686 FCA at P14.
Conversion damages were discussed by Lockhardt J in International Writing Institute v Rimmela (1994-1995) 20 IPR 250 at 255:
“The relevant measure of damages for copyright conversion is the same measure as common law conversion, i.e. by “reference to the value of the goods converted…the value of the goods converted is the figure that someone is prepared to pay; Tax & Publishing Co Limited v Sutherland Publishing Co (1939) AC 178 at 203-204.
The applicants argue that any inability to sell the infringed material because of the provisions of the Classification Act is not a defence to a claim in conversion and that on the contrary the court should make the strongest presumption against the respondents as to the value of the DVDs when, as here, there is a paucity of evidence as to the number or cost of goods sold or the amount received from exchanges; Armory v Delamirie 1 STRANGE 506 at 664. The applicants also submit that the interplay of ss.116 and 115 depends on the court forming at least a preliminary view as to what damages will be awarded under ss.115(2) and 115(4). They accept that if there is to be a substantial award of damages under s.115(4) the room for application of s.116 will be less.
At paragraphs 94 and 95 of their revised submissions, the applicants submit that the evidence of Mr Gordon yields an estimated number of converted Private films of approximately 1,450 over 18 months. The respondents kept no records which would have enabled a more accurate assessment to be made. Their evidence was that the product was both sold and swapped. But swapping involved a cost to the swapper. It was $20 per DVD. The applicants’ submissions are based upon assumptions themselves based on the evidence of Mr Gordon of the number of DVDs turned over and the proportion of swaps to sales. The applicants argue that on the basis of this evidence I should consider that the average sale price of a DVD was $60.00 with a cost of $20 but that this figure should be reduced by $7.00 to take into account the fact that one third of the stock was represented by swaps which Mr Gordon said had no cost. The applicant’s argue that this yields conversion damages of approximately $68,000. A copy of the revised submissions of the applicants will be kept with the papers.
Mr Gordon’s evidence of these matters could best be described as opaque and contradictory. I rather got the impression that his reference to 5% of his turnover being Private films related to what I considered to be legitimate Private films i.e. legitimate Calvista Films and parallel imports. I do not think he was talking about the copies that I have found he was making. In those circumstances I believe that an assessment of $68,000 is probably generous to the respondents. It should not substantially affect any damages which I award under s.115(4) but I will reduce the conversion damages which I intend to award from $80,000 to $65,000 to take into account the second applicant’s acquiescence in the sale of the parallel imported films.
The applicants give as an additional reason for their election to proceed under s.116 the convenience of avoiding lengthy arguments on the locus of supply. I believe that in the special circumstances of this case s.116 damages are appropriate to be awarded and should be awarded over and above the s.115(2) damages of $1.00 against each of the first to fourth respondents that I also think is the correct method of dealing with these circumstances.
This leaves damages under s.115(4). That subsection is in the following form:
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
(1a) the need to deter similar infringements of copyright; and
(1b) 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 from; and
(iii)any benefit show to have accrued to the defendant by reason of the infringement;
(iv)all other relevant matters;
the court may, in assign damages for the infringement, award such additional damages as it considers appropriate in the circumstances.
The subsection was amended to include items (4)(b)(1a) and (4)(b)(1b). The amendments came into effect in May 2003. These matters have particular importance in an area where pirating is notorious and rampant. I should consider each of the matters in turn.
Lockhardt J considered the terms “flagrancy” in International Writing Institute (supra) at [255]:
“The terms “flagrancy” has been variously defined in the reported cases. It was described in Prior v Landsdown Press Pty Ltd (1975) 29 FLR 59 at 65 as “calculated disregard of the plaintiffs rights or cynical pursuit of benefit” In Ravenscroft & Herbert v New English Library Limited (1980) RPC 193 it was described at 208 as “the existence of scandalous conduct, deceit and such like; it in includes deliberate and calculated copyright infringement.””
I am satisfied that the conduct of the respondents could be described as flagrant. I have found that they deliberately set aside batches of DVDs to use as a library for the purposes of copying and keeping their stock fresh. They knew that copying was illegal and they knew that it was rampant in their industry, particularly in the days when VHS was the method of distribution. Their reluctance to copy DVDs lasted only until the time they were able to make copies cheaply and without difficulty.
There is undoubtedly a need to deter similar infringements of copyright. The moralist would say that if additional damages are awarded and that prevents the copying of adult material, society is improved. The libertarians would argue that the copyright owners of adult material are as entitled as any other owner of copyright material to the achievement of a return on their endeavour without barriers being placed upon recouping that return by the action of pirates.
The respondents’ conduct after the commencement of the proceedings has been less than exemplary. Against this the respondents argue that the applicants gave them no warning that they proposed to bring action against them. The applicants came straight to this court and obtained interlocutory relief. This did not give the respondents the opportunity to put their house in order or to cease and desist before the commencement of proceedings. After the proceedings were commenced the matter was restored to this court on a number of occasions because of the failure of the respondents to comply with court orders, particularly those for delivery up. Deadlines were seldom met and there was a considerable amount of judicial leniency given to them. The applicants have prepared, and there will remain with the papers, submissions going solely to this point but I do not believe that they need to be rehearsed here.
I do not think it is submitted that the infringement involved a conversion of work from analogue form into digital or other electronic machine readable form. The work was converted from one machine readable form into a similar machine readable form, both of which were digital.
The respondents benefited by the infringement because they were able to sell the applicants’ copyright material without paying for it. I make these remarks in relation to the copied material. The respondents also sold the parallel imported material without paying a royalty that might have been payable in Australia and which might have been higher that the royalty payable in Europe or America from where the parallel imported Private films were sourced.
The other relevant matters which I have taken into account are these. Firstly Calvista’s acquiescence in the sale of parallel imported Private films. Second the respondents’ attempt to use their own illegality as a shield against the claim by both applicants. Third, the complete failure of the respondents to produce any financial data of a meaningful nature that would have assisted the court in calculating damages or understanding the severity of the respondents’ actions.
In my consideration of the amount to be paid by way of s.115(4) damages I have noted the submissions of the applicants that I should bear in mind the amount to be awarded under s.116. I am not entirely clear why this should be the case. The authorities, such as, Sullivan v FNH Investments Pty Ltd trading as Palm Bay Hideaway [2003] FCA 323, Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88, have been concerned with ensuring that there need be no association of the two. In Microsoft Corporation v Glostar Pty Ltd [2003] FCA 210 compensatory damages of $4,375 were awarded where additional damages were assessed at $291,625. In Microsoft Corporation v Ezy Loans Pty Ltd [2004] FCA 1135 Stone J at [96] makes it clear that the court has a broad discretion in relation to the quantum of additional damages that it awards and states that “ultimately it is the facts of the instant case that must inform the decision”. These cases are examples where the 115(2) damages were small and yet the s.115(4) damages were very much larger. But in Golden Editions (supra) the court did say at P20:
“When conversion - disp80#disp80damages have been awarded under s 116 and a claim is also made for additional damages under s 115(4), the Court must be careful and; as has been mentioned earlier, in one of the cited cases, approach the question of additional damages with a view to the additional damages not being immoderate. This is for a number of reasons, one of which is that in the notion of additional damages, there is an element of exemplary or aggravated damages, such that additional damages are not merely compensatory in nature. Also, conversion damages themselves contain an element beyond the merely compensatory, if only because the plaintiff is rewarded in conversion damages for the costs of the production of the offending article which were never in fact incurred by the plaintiff.”
I think the two heads of damage should be considered separately. In this case this is because the s.116 damages have not been inflated in any way and are, if anything, an underestimate. The Copyright Act makes it quite clear what the award under s.115(4) is for, particularly now that the element of deterrence has been included. In this case, had there been no question of acquiescence, I would have awarded the applicants the sum of $100,000 damages under s.115(4) in addition to the conversion damages already awarded. The evidence which was brought through the trap orders and the delivery up process indicated that parallel imported Private films were a significant proportion of the turnover. The applicants suggested that the respondents have bought these films for the purpose of the proceedings in order to minimise damage. I cannot be satisfied of this from the evidence I have heard. I have found that the purchases from Mr Titcume were genuine and they appear to include a large number of these offending films. Doing the best I can and acting as a jury I would reduce the damages awarded because of the acquiescence of the second respondent to $85,000.
The applicants have asked that I give declaration of infringement. I do not propose to do so. In Commonwealth of Australia v Evans [2004] FCA 654 Branson J at [59] considered the question of declarations and referred to the decision of Warramunda Village Inc v Pryde [2001] FCA 61 where the Full Court observed that:
‘The remedy of a declaration of right is ordinarily granted as final relief in a proceeding. It is intended to state the rights of the parties with respect to a particular matter with precision, and in a binding way. The remedy of a declaration is not an appropriate way of recording in a summary form, conclusions reached by the Court in reasons for judgment.’
Her Honour concluded on the question of declarations at [87-88]:
“In Leslie v Graham at [82] I observed:
“By her application, Ms Leslie has claimed various heads of declaratory relief. The power of the Court to make a declaration is discretionary ... I am not satisfied that it is either necessary or appropriate in this case to grant declaratory relief.”
The power which the Federal Magistrate exercised in granting declaratory relief in this case was also discretionary in nature. I am again inclined to doubt that a case for the grant of declaratory relief in addition to an award of damages has been demonstrated.”
Where findings are made and damages are awarded for particular breaches of an act the provision of declarations is otiose. The award itself indicates that the respondents have infringed. I would, however, give the permanent injunctions requested by the applicants because, as I have said, I accept that the respondents’ conduct indicates that without permanent injunctions there could well be a repeat of this type of activity.
I will order that the first to fourth respondents pay the applicants’ costs, which because of the complexity of these proceedings are more appropriately taxed than assessed in accordance with Schedule 1 of the Federal Magistrate Court Rules 2001. The only form of taxation this court can order is taxation under the Federal Court Act and Rules. Some account should be taken that this court is not intended to be as expensive a venue as the Federal Court. I would therefore order that the costs payable be 80% of the taxed costs. The applicants are also entitled to interest upon the damages at the rates prescribed in the FMC Rules. Because it is impossible to calculate how much infringement took place at any time between 2003 and the commencement of proceedings I will award the interest on the full amount from 1 July 2004.
The orders which I have made in this case are complex and in order to be sure that they will properly reflect these reasons I will require the applicants to bring in short minutes within 14 days. The applicants should submit the short minutes to the respondents so I can be informed through my associate if there is to be any argument on them. If so, that argument will take place on a date to be fixed.
I certify that the preceding sixty-three (63) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date:
- AGLC
- Fraserside Holdings & Anor v Venus Adult Shops & Ors [2005] FMCA 997
- Case
- [2005] FMCA 997
- Decision Date
CaseChat Overview and Summary
The primary legal issues before the court were whether the respondents had indeed breached the agreement and whether the conduct of the respondents amounted to inequitable actions and a breach of fiduciary duty. The court had to determine the proper interpretation of the agreement between the parties and assess whether the actions of the respondents were justified under the circumstances. Additionally, the court needed to decide if the applicants had a legitimate claim for injunctive relief and damages.
The court found that the respondents had breached the agreement by developing the property in a manner that was inconsistent with the terms of the agreement. The court held that the development carried out by the respondents constituted a clear departure from what was permitted under the agreement. Furthermore, the court determined that the conduct of the respondents did amount to inequitable actions and a breach of fiduciary duty. The court found that the respondents had acted in a manner that was contrary to their fiduciary obligations to the applicants. Based on these findings, the court granted the relief sought by the applicants.
The court ordered that the respondents were to cease the development activities that were in breach of the agreement. Additionally, the court ordered the respondents to pay damages to the applicants for the losses suffered as a result of the breach. The court also ordered that the applicants were to file and serve appropriate Short Minutes of Orders to give effect to these reasons for judgment and as to costs within fourteen days.
Orders
Orders of the court
1.
The applicants are to file and serve, within fourteen days, appropriate Short Minutes of Orders to give effect to these Reasons for Judgment and as to costs.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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