Ian Cubitts Classic Home Improvements Pty Ltd v Granny Flat Projects
[2015] FCCA 2630
•30 September 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| IAN CUBITTS CLASSIC HOME IMPROVEMENTS PTY LTD v GRANNY FLAT PROJECTS | [2015] FCCA 2630 |
| Catchwords: PRACTICE & PROCEDURE – Whether matter should be disposed of by summary judgment pursuant to r.13.07 of the Federal Circuit Court Rules 2001 (Cth) – failure to comply with orders of the Court – no reasonable prospects of successfully defending claim. |
| Legislation: Copyright Act 1968 (Cth), ss.13(2), 31(1), 32, 35(6), 36(1), 115, 126 Copyright Amendment (Parallel Importation) Act 2003 (Cth), sch.4, item 1 |
| Aristocrat Technologies Australia Pty Ltd v D.A.P. Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564 Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd (2009) 84 IPR 222 Australasian Performing Right Association Ltd v Cougars Tavern [2008] FMCA 369 Australasian Performing Right Association Ltd v Monster Communications Pty Ltd (2006) 71 IPR 212 AutoDesk Australia Pty Ltd v Cheung (1990) 17 IPR 69 Bailey v Namol Pty Ltd (1994) 53 FCR 102 Corby v Allen & Unwin Pty Ltd (2013) 101 IPR 181 Dynamic Supplies Pty Ltd v Tonnex International Pty Ltd (No. 3) (2013) 312 ALR 705 Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378 Fraserside Holdings Pty Ltd v Venus Adult Stores Pty Ltd (2005) 222 ALR 388 Microsoft Corporation v Ezy Loans Pty Ltd [2004] 63 IPR 54 Microsoft Corporation v RP Distributors Pty Ltd [2006] FCA 1842 Nominet UK v Diverse Internet Pty Ltd (No. 2) (2005) 68 IPR 131 Norm Engineering Pty Ltd v Digga Australia Pty Ltd (2007) 162 FCR 1 Ravenscroft v Herbert & New England Library Ltd [1980] RPC 193 SBO Pictures Inc v Kaos Shop Pty Ltd [2006] FMCA 82 Seafolly Pty Ltd v Fewstone Pty Ltd [2014] FCA 321 TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444 University of London Press Ltd v University Tutorial Press Ltd [1916] 2 Ch 601 Urban Ventures Pty Ltd v Solitaire Homes Pty Ltd (2010) 90 IPR 289 Vawdrey Australia Pty Ltd v Krueger Transport Equipment Pty Ltd (2009) 83 IPR 1 Venus Adult Stores Pty Ltd v Fraserside Holdings Ltd (2006) 157 FCR 442 |
| Applicant: | IAN CUBITTS CLASSIC HOME IMPROVEMENTS PTY LTD ACN 068 798 158 |
| Respondent: | RADOMIR KRICKOVIC T/AS GRANNY FLAT PROJECTS |
| File Number: | SYG 509 of 2015 |
| Judgment of: | Judge Smith |
| Hearing date: | 11 August 2015 |
| Date of Last Submission: | 11 August 2015 |
| Delivered at: | Sydney |
| Delivered on: | 30 September 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr D. Meltz & Mr R. Clark |
| Solicitors for the Applicant: | Bartels Business Lawyers |
| The Respondent appeared in person |
ORDERS
Judgment be given against the Respondent pursuant to r.13.07 of the Federal Circuit Court Rules 2001 (Cth).
The Respondent, whether by himself, or by his employees or agents or otherwise be restrained from undertaking any action which infringes or would infringe the copyright in the Applicant’s Works (as defined in the Schedule to these orders), including, but not limited to:
(a)reproducing or authorising the reproduction of the Works or a substantial part thereof without the licence of the applicant; and
(b)communicating to the public the whole or a substantial part of the Works without the licence of the applicant.
The Respondent pay to the applicant damages in the amount of $120,000 pursuant to s.115(2) of the Copyright Act 1968 (Cth).
The Respondent pay to the applicant additional damages in the sum of $200,000 pursuant to s.115(4) of the Copyright Act 1968 (Cth).
The Respondent deliver up on oath to the Applicant, or their duly authorised agents, for destruction any existing hard copy material which infringes the Applicant’s copyright in the Works and delete any reproduction of the Works from any electronic medium in which it appears.
The Respondent pay the applicant’s costs and disbursements of, and incidental to, the application (including the application in a case) as agreed or in the absence of agreement, then 80% of those costs taxed in accordance with the Federal Court of Australia Act 1976 (Cth) and Federal Court Rules 2011 (Cth).
The parties file submissions concerning any orders to be made under s.76 of the Federal Circuit Court of Australia Act 1999 (Cth) within 7 days.
The matter be stood over to 23 October 2015 at 9.30am.
SCHEDULE TO ORDERS
The term “Works” as referred to in orders 2 and 5 is defined to include:
(a)floor plans of:
(i) 1 bedroom “Bottle Brush” granny flat;
(ii) 2 bedroom “Bottle Brush” granny flat;
(iii) 2 bedroom Ext “Bottle Brush” granny flat;
(iv) 3 bedroom “Bottle Brush” granny flat;
(v) 3 bedroom Ext “Bottle Brush” granny flat;
(vi) 3 bedroom with Alfresco “Bottle Brush” granny flat;
(vii) 2 bedroom (53m2) “Telopea” granny flat; and
(viii) 2 bedroom (61m2) “Telopea” granny flat;
(b)building plans of the granny flats referred to in subparagraph (a) above;
(c)computer-generated images of the granny flats referred to in subparagraph a) above;
(d)text related to the “inclusions” in each of the granny flats;
(e)a fold-out marketing brochure entitled “Granny Flats Discover the Potential” including the floor plans, text and computer-generated images referred to above;
(f)a marketing brochure entitled “A Smarter Way to Invest”;
(g)a promotional lawn sign including the floor plan referred to in subparagraph (a)(v) above; and
(h)constructed “Bottle Brush” and “Telopea” granny flats.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG509 of 2015
| IAN CUBITTS CLASSIC HOME IMPROVEMENTS PTY LTD ACN 068 798 158 |
Applicant
And
| RADOMIR KRICKOVIC T/AS GRANNY FLAT PROJECTS |
Respondent
REASONS FOR JUDGMENT
Granny flats have become big business in parts of New South Wales. They were once the domain of home builders looking to care for elderly parents by converting unused garages or laundries into separate dwellings. Since the introduction of State Environmental Planning Policy (Affordable Rental Housing) 2009 (“AHSEPP”) in New South Wales, granny flats, or secondary dwellings, are being designed and constructed on a large commercial basis.
The applicant is a leader in the field. It has spent a large amount of time and money on developing designs and marketing the construction of granny flats based upon those designs. The applicant claims that since at least December 2012, the applicant has, by itself, its employees, its agents or otherwise created materials related to the marketing, designing and construction of granny flats (“the Works”), including:
a)floor plans of:
i)1 bedroom “Bottle Brush” granny flat;
ii)2 bedroom “Bottle Brush” granny flat;
iii)2 bedroom Ext “Bottle Brush” granny flat;
iv)3 bedroom “Bottle Brush” granny flat;
v)3 bedroom Ext “Bottle Brush” granny flat;
vi)3 bedroom with Alfresco “Bottle Brush” granny flat;
vii)2 bedroom (53m2) “Telopea” granny flat; and
viii)2 bedroom (61m2) “Telopea” granny flat;
b)building plans of the granny flats referred to in subparagraph a) above;
c)computer-generated images of the granny flats referred to in subparagraph a) above;
d)text related to the “inclusions” in each of the granny flats;
e)a fold-out marketing brochure entitled “Granny Flats Discover the Potential” including the floor plans, text and computer-generated images referred to above;
f)a marketing brochure entitled “A Smarter Way to Invest”;
g)a promotional lawn sign including the floor plan referred to in subparagraph a)v) above; and
h)constructed “Bottle Brush” and “Telopea” granny flats.
The applicant claims that each of the Works is a literary and/or artistic work in which copyright subsists within the meaning of s.32 of the Copyright Act 1968 (Cth). It claims that the respondent has used its designs and some of its marketing material without its permission and has brought these proceedings seeking to prevent any further use and to obtain damages for past use.
The Court has made a number of directions in these proceedings to enable the preparation of the case for hearing. The respondent has not complied with any of those directions. In those circumstances, the applicant has asked the Court to deal with its claims summarily. The first issue, then, is whether the Court ought to accede to that request. If it does, the questions are whether there has been any infringement of copyright by the respondent and, if so, what relief, including additional damages, if any, ought to be granted.
Summary procedure
Rule 13.07 of the Federal Circuit Court Rules 2001 (Cth) relevantly provides:
Disposal by summary judgment
(1) This rule applies if, in a proceeding:
(a)in relation to the whole or part of a party’s claim there is evidence of the facts on which the claim or part is based; and
(b) either:
(i) there is evidence given by a party or by some responsible person that the opposing party has no answer to the claim or part; or
(ii) the Court is satisfied that the opposing party has no reasonable prospect of successfully defending the claim or part.
(2)The Court may give judgment on that claim or part and make any orders or directions that the Court considers appropriate.
…
The applicant relies upon a number of affidavits. The evidence in the affidavits is set out and considered in some detail below. For present purposes, it is sufficient to note that I am satisfied on the basis of these affidavits that there is evidence of the facts on which the applicant’s claims are based. Further, for reasons which I will set out later in this judgment, I am satisfied that the respondent has no reasonable prospect of successfully defending the claims. In those circumstances, the power under r.13.07 is enlivened and the question is whether it should be exercised in the applicant’s favour.
Relevant to that question is the conduct of the respondent in relation to these proceedings. As I have mentioned, the respondent has failed to comply with a single direction made by the Court. This has effectively prevented the applicant from being able to properly establish matters which are solely within the knowledge of the respondent. It is worth briefly summarising the course of these proceedings not only to understand the basis upon which I have decided to proceed summarily in this matter but also because the respondent’s conduct is relevant to the issue of additional damages under the Copyright Act.
The proceedings were commenced by an application together with a statement of claim filed on 3 March 2015. The respondent was at first represented by a solicitor, Mr Anjos, although he never filed a notice of appearance. In any event, on 27 March 2015 I made orders by consent that made provision for the filing of a response and defence, the filing and service of evidence as well as for discovery of certain categories of documents. When the respondent failed to comply with any of those directions the applicant properly sought that the matter be relisted for further directions. On 8 May 2015, the matter was again listed before me for directions. At that listing the respondent was represented by Mr Anjos, who appeared by a city agent, Mr Watson. By consent, I made orders effectively extending the time for compliance with my previous orders.
The respondent once again failed to comply with the Court’s orders. On 24 June 2015 the applicant filed an application in a case seeking judgment pursuant to r.13.07 or, in the alternative, r.13.03B of the Rules. That application came before me for the first time on 2 July 2015. On that occasion, the respondent appeared unrepresented. I made directions for the preparation of the application in the case and set the application down for hearing on 11 August 2015. The respondent did not comply with any of those directions and again appeared unrepresented on 11 August 2015.
It is clear from this brief history that the respondent has, without any excuse, failed to take an active role in the proceedings. I can only infer that he has deliberately refused to comply with the Court’s orders. In those circumstances, and particularly in light of the fact that the applicant’s case is to some extent reliant upon information solely within the knowledge of the respondent, this is a suitable case in which to proceed under the Court’ s summary power in r.13.07.
The claims and evidence
Mark Moumdjian and his brother Timothy both gave evidence for the applicant. Mark Moumdjian is the operations manager of the applicant and manages its day-to-day construction operations. Timothy Moumdjian is a “contract design and sales consultant” employed by the applicant. His role in the company is to follow-up leads obtained through marketing. This involves assessing a potential customer’s site, discussing the possible designs from the range offered by the applicant, conducting a more detailed feasibility study and, if the client wishes to proceed, then ensuring contract documents are executed.
On the basis of the evidence of Mark and Timothy Moumdjian I make the following findings.
The applicant was founded in 1994 initially specialising in residential extensions and renovations. It moved into the granny flat construction segment of the construction industry in 2005. That activity now constitutes 90% of the applicant’s business and it currently builds up to 300 granny flats per year, more than any other company in New South Wales.
The applicant undertakes an extensive marketing program for its business including website, seminars, television and radio advertising, and print, Internet and social media advertising. In addition, it produces a number of promotional brochures (which are discussed in detail further below) and lawn signs.
Since 2005 the applicant has developed a number of different designs for granny flats. These designs have required significant time, effort and expenditure given the regulatory requirements including maximum floor area, maximum height, light and ventilation regulations, property sizes and other local council regulations. Further, the designs have been adapted so that they are flexible enough to accommodate the needs of a wide range of customers but also sufficiently standardised to allow for the bulk purchase of materials and the quick construction of the end product.
Mark Moumdjian states, and I accept, that the designs of the granny flats are a central element in the promotion of the applicant’s business because the applicant is required to provide its customers with as much information as possible to enable them to make a decision as to which flat they wish to buy. However, this requirement means that the applicant is vulnerable to the use by its competitors of its designs. Indeed, the applicant has had to take steps on a number of occasions to prevent the continued unauthorised use of its designs.
The applicant does not license its designs to any other company as it considers that its designs are a key distinguishing element from its competitors.
Mathew Bodley also gave evidence for the applicant. He is a private certifier who is authorised to certify developments in New South Wales. In his role he has had extensive experience with the development of granny flats, having been involved in approximately 400 - 500 certifications of developments of such buildings. As part of the certification process Mr Bodley is given an estimate of the cost to build a particular buildings and is also familiar with the number and type of development works that his clients undertake. On the basis of his knowledge of, and experience in, the building industry in New South Wales, he says that construction businesses fall within three sizes: small, medium and large. A small business has revenue of $2-$3 million per annum with a 20% profit margin whereas a large business has revenue in excess of $10 million per annum and has 20 to 30 or more employees. He says that the applicant is a large construction business.
In evidence was a brochure produced by the applicant in 2013 (“brochure”) that contained the designs for eight different types of granny flat. These designs consisted of flats with two different titles but with different configurations. The first was the “Bottlebrush” with configurations in one bedroom, two-bedroom, two-bedroom extension, three-bedroom, three-bedroom extension, and three-bedroom with alfresco. The second was the “Telopea” that had two configurations, both with two-bedrooms, one being 53m² in total area and the other 61m². The distinct elements in the 2013 brochure were: the floorplan design, a computer-generated image of each design, and text of “Inclusions” found in each of the designs.
These designs were first developed by Mark Moumdjian in around December 2012 and took him six months to develop.
In early April 2014 Timothy Moumdjian received a lead in respect of a potential customer in Mt Druitt, a suburb of Sydney. He attended the potential customer’s home on 9 April 2014 and handed him a copy of the brochure referred to above. He then proceeded to undertake a feasibility study in accordance with his ordinary practice and made an appointment to see the potential customer in early May 2014. The customer told Mr Moumdjian that he was happy with the proposed position of the granny flat and Mr Moumdjian proceeded to obtain quotes from subcontractors. He then tried to contact the customer on a number of occasions without success before driving past his property on 14 October 2014. There he observed a builder’s lawn sign with the name “Granny Flat Projects” on it and an image of what appeared to him to be an exact copy of the Bottlebrush three-bedroom extension design which appeared in the brochure. A copy of the photograph taken by Mr Moumdjian of that lawn sign is in evidence and it does contain an exact copy of the floorplan of the Bottlebrush three-bedroom extension contained in the brochure.
The sign also had the respondent’s builder’s licence number on it.
On 17 November 2014 Timothy Moumdjian went to a property in Bonnyrigg, another Sydney suburb, to follow up a lead for a potential customer. Having discussed the details of the possible designs with the customer, Mr Moumdjian indicated that the total cost would be around $150,000. The potential customer told Mr Moumdjian that she could not afford that and that she had been quoted a lot less by other builders. When Mr Moumdjian asked who the other builders were she produced a brochure which was, according to Mr Moumdjian, a Granny Flat Projects brochure and almost identical to the applicant’s brochure referred to above. He said that, apart from the names of the particular designs the prices were identical, the photos and plans were identical and the text was identical. Mr Moumdjian did not manage to obtain a copy of that brochure. Nevertheless, I accept Mr Moumdjian’s evidence.
On 17 November 2014 Timothy Moumdjian was attending a site inspection in Marayong, another suburb of Sydney. There he saw the same builder’s sign as he had seen in Mt Druitt earlier in the year. The photograph of that sign was in evidence and confirms this.
Timothy Moumdjian told his brother Mark about what he had seen and showed him the photographs he had taken of the lawn signs. Mark Moumdjian then undertook further investigations including looking at the website The respondent is registered as the owner of that website. On the homepage of that site Mr Mark Moumdjian clicked on the hyperlink “Click to download our Presentation Document”. When he did so, he downloaded a document entitled “Granny Flat Projects: Building for the Future”. That document was in evidence and contains an exact copy of each of the floorplans, the facade images and the inclusions text in the applicant’s brochure referred to above.
On 11 December 2014 the solicitor for the applicant wrote to the respondent alleging that the respondent had, without the applicant’s permission, copied whole sections of its marketing brochure and used its copyright designs in his marketing material and on his site signage. The solicitor demanded, amongst other things, that the respondent remove all offending material from his website and deliver to the applicant all relevant marketing material, signage, plans, etc together with a statutory declaration to the effect that it had been done. The letter indicated that if the demands were not met by 18 December 2014 the applicant would commence proceedings without further reference and would seek costs on an indemnity basis.
Following this letter, the presentation document material was removed from the Granny Flat Projects website; however, several days later Mark Moumdjian checked the website and saw that the presentation document material had been put back onto it.
On 3 February 2015 the applicant’s solicitor again wrote to the respondent demanding that certain steps be taken in connection with the material said to be in breach of the applicant’s copyright. The website was extensively revised after that letter, however the presentation material was still able to be downloaded from it and that remained the case as at 17 June 2015. Indeed, there is no evidence that it has been removed. The applicant claims that it holds the copyright in the floorplans, images and inclusions text and that the respondent has infringed that copyright. It seeks a declaration to that effect, an injunction restraining future infringement, damages and additional damages under s.115 of the Copyright Act.
Is there a reasonable prospect of defending the claim?
Copyright subsists in original literary or artistic work that is unpublished where the author is a qualified person, that is, an Australian citizen or a person resident in Australia. “Literary work” is something which is expressed in print or writing, irrespective of whether the quality or style is high: University of London Press Ltd v University Tutorial Press Ltd [1916] 2 Ch 601 at 608. An artistic work includes a drawing, whether or not the work is of artistic quality: s.10 of the Act.
The respondent in these proceedings has not put in issue either the subsistence or ownership of the copyright in the floorplans, images, the inclusions text or the applicant’s brochure. In those circumstances both the subsistence and ownership of the copyright is presumed: s.126 of the Act.
In this case the relevant works were created by an employee of the applicant in the course of his duties as an employee and for that reason the copyright vests in the applicant: s.35(6) of the Act.
Under the Act, the copyright owner of a literary or artistic work is given the exclusive right to reproduce the work in material form and to communicate the work to the public or to authorise another to do either of those acts: ss.13(2) and 31(1)(a) and (b). It is an infringement of copyright in a work to do any act, or to authorise another to do any act which is the exclusive right of the copyright owner without licence: s.36(1).
In this case there is no doubt that the respondent infringed or authorised infringement of copyright by:
a)copying the brochure;
b)copying the brochure into the presentation document;
c)posting the presentation document on his website;
d)copying parts of the brochure onto lawn signs; and
e)copying the brochure into brochures or pamphlets such as that seen by Timothy Moumdjian in the hands of the prospective client at Mt Druitt.
Although it is not so clear, I infer from the other evidence that the respondent also infringed copyright in the brochure by:
a)authorising copies of the presentation document to be downloaded by members of the public; and
b)constructing granny flats in accordance with the floorplans, as suggested by the fact that lawn signs containing the copyright material were erected by or on the authority of the respondent.
As I have noted, the respondent did not put on any defence to the claims made by the applicant and did not file any evidence. At the hearing of this application he accepted that the applicant’s material had been copied and appeared in both the lawn signs and on the Granny Flat Project’s website. However, he said that he was not responsible for this and named another person who, he said, had copied the material. I do not accept what the respondent said. First, the respondent’s builder’s licence number was on the lawn sign with one of the offending images; second, he was the registered owner of the website; third, the website expressly referred to the respondent and put him forward as the person whose experience and commitment could be relied upon by potential clients. Part of that website, under the heading “Getting to Know Ray Krickovic” stated:
Granny Flat Projects founder Ray Krickovic has been in the building industry for many years, working on some unique and exciting projects throughout greater Sydney. More recently, Ray decided to address the growing nationwide housing shortage by jumping into granny flat construction. Identifying the urgent need to accommodate expanding families, retirees, elderly relatives and space deprived teenagers, Ray concluded high-quality granny flats made a suitable alternative to their more expensive counterparts, traditional brick and tile homes.
…
Ray’s excellent relationship with local government, subcontractors and suppliers has enabled him to come up with a diverse range of designs to suit the widest possible audience. Ray offers standard builds through to luxury micro homes all built to a very high standard using quality materials, fittings and appliance [sic].
This material leaves me in no doubt that the respondent was personally responsible for the infringement of the copyright in the brochure and other material. For these reasons, I consider that there are no reasonable prospects of the respondent successfully defending any part of the applicant’s claim.
Relief
Damages
The relief available to the owner of copyright which has been infringed includes an injunction and either damages or an account of profits: s.115(2). The applicant in this case has elected to receive damages. There are two types of damages available: first, compensatory damages and secondly, additional damages. The purpose of an award of compensatory damages is to put the applicant, as far as possible, in the position that it would have been had there been no infringement: TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444 (“TS & B Retail”).
Where, as here, the applicant and respondent are in direct competition and the applicant would not have licensed its copyright to a competitor, the best method of calculation is the lost profits method: TS & B Retail at [206] – [207]. The approach to calculating lost profits was explained by Gordon J in Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378 at 381 [13] referring to Norm Engineering Pty Ltd v Digga Australia Pty Ltd (2007) 162 FCR 1 (“Norm Engineering v Digga”). The approach requires the Court to:
a)examine the number of sales made by the respondent;
b)assume that the respondent was trying to capture sales from the applicant;
c)assume that the number of sales made by the respondent is equal to the number of sales lost by the applicant;
d)discount the number in (c) to reflect the fact that not all sales made by the respondent can be considered sales lost by the applicant; and
e)apply any further discount necessary in the circumstances of the case.
What is required is to ascertain, as far as possible (bearing in mind that this might involve a degree of speculation), the amount of net profits rather than revenue.
The applicant relies on Mr Bodley’s evidence about the size of construction businesses in the industry in New South Wales to argue that the respondent would usually construct 10 – 20 granny flats per year costing between $80,000 and $120,000 with a profit margin of 20%. It supports this by reference to the following evidence:
a)the website of the respondent refers to, and provides images of, five different projects and the presentation document refers to there being “Projects” in at least six different suburbs, and none of those suburbs were the three suburbs that Timothy Moumdjian visited, suggesting the applicant had the scale to build 10-20 granny flats per year, and did so;
b)the website of the respondent refers to there being three administrative assistants of the respondent, suggesting a significant amount of administrative work, which would only be the case if a significant number of granny flats were being constructed; and
c)the prospective client at Bonnyrigg had been quoted $120,000 for the construction of a granny flat plus some renovations, consistent with the range of prices outlined above.
This submission assumes that the respondent’s business was entirely based upon the applicant’s designs. However, I accept that was probably the case. Certainly, the material on the respondent’s website was entirely copied from the applicant’s brochure. This, as the applicant argues was and remains commercial theft of the very nature that the Copyright Act is intended to protect against. The very purpose of the respondent’s infringement of the copyright in the plans, images and inclusions text was to take custom from the applicant without having to pay for any of the underlying design work.
I accept on the evidence that the respondent has built between 10-20 granny flats per year with a profit margin of 20%. The applicant claims the amount of profit would have been earned by the respondent, namely $184,000. However, what must be assessed is what profit the applicant would have made upon the sales of the granny flats, not what the respondent made. Certain financial information concerning the applicant’s business is contained in confidential exhibit “MM-8”, an annexure to an affidavit of Mark Moumdjian. That information reveals that the applicant’s profit margin is considerably lower than 20%.
Further, although it is likely that all of the granny flats constructed by the respondent were in fact made on the basis of the applicant’s design, it is not certain. For that reason I consider it that it is necessary to apply a discount to the amount calculated by reference to the overall number of granny flats constructed by the respondent. Similarly, it is not certain that the applicant would have gained the work which was performed by the respondent in breach of copyright. One of the potential clients approached by Timothy Moumdjian indicated that the price offered by him on behalf of the applicant was well beyond her means. For that reason a further discount ought to be applied.
Taking a rough and ready approach to the issue, and giving any benefit of the doubt to the applicant, I find the amount of damages suffered by the applicant by way of lost profits to be $120,000. This is based upon the advertised price of the most popular of the applicant’s design (Bottlebrush-3 bedroom extension) multiplied by the profit margin revealed in the confidential exhibit with a discount of 35% of the total.
Additional damages
The Court may also award additional damages if it is satisfied that it is proper do is to do so having regard to a number of matters: s.115(4) of the Copyright Act. Those matters are:
i)the flagrancy of the infringement;
ii)the need to deter similar infringements of copyright;
iii)the conduct of the respondent after the act constituting the infringement or, if relevant, after the respondent was informed that the respondent had allegedly infringed the applicant’s copyright;
iv)whether the infringement involved the conversion of a work or other subject matter from hard copy or analogue form into a digital or other electronic machine-readable form;
v)any benefit shown to have accrued to the respondent by reason of the infringement; and
vi)all other relevant matters.
The need to mark the Court’s condemnation or disapproval of the behaviour of the respondent is relevant in determining whether to grant additional damages under this provision and, if so, the amount of such damages: Bailey v Namol Pty Ltd (1994) 53 FCR 102 at 113-114.
In order to amount to a flagrant contravention, there has to be more than mere copying. What is required is a knowing and calculated disregard of the applicant’s rights in the cynical pursuit of benefit: Ravenscroft v Herbert & New England Library Ltd [1980] RPC 193 at 208. That is what occurred here. Not only was the copyright material copied but it was made deliberately to form the centrepiece of the respondent’s advertising for work. On his website the respondent pretended that he was the author of the works and sought to enhance his own reputation and reliability by doing so and thereby to obtain a commercial benefit. It may also be noted that when the respondent was put on notice that he had infringed the applicant’s copyright, the material was only briefly removed from the website before being obviously and deliberately re-posted.
In relation to the second relevant matter, the Court is to take into account the deterring effect of additional damages on not only the respondent but also any other potential infringers: see Urban Ventures Pty Ltd v Solitaire Homes Pty Ltd (2010) 90 IPR 289 at [58] – [60] per Jagot J. The evidence shows not only that the applicant is vulnerable to infringement of its copyright by reason of its having to disclose it to potential customers and indeed to the world at large, but also that design theft is not uncommon in the construction industry. Indeed, there is evidence to suggest that the applicant has been subject to similar infringements in the past. General deterrence is of particular importance where, as here, infringement is difficult to detect and costly to enforce.
As to specific deterrence, it is clear that the respondent blithely ignored the demands of the applicant’s solicitors as well as the requirements imposed by the Court’s directions to the preparation of this case. In light of these two matters, I consider that deterrence is a particularly important consideration in determining whether to grant additional damages and their quantum.
The third matter, the conduct of the defendant after the infringement, has been considered as part of the need for deterrence.
The fourth matter is also applicable here as the applicant converted the brochure into digital photographs in order for it to be posted on the website and so to be accessible to potential clients.
Fifthly, the respondent has clearly benefited by the infringement. On at least two occasions he has used lawn signs to advertise the fact that he was undertaking work on a particular site in constructing a granny flat. I have also found that the respondent has constructed a number of granny flats making a 20% profit on each one. There is the potential for there to be an element of double punishment in taking into account the benefit obtained by an infringer, particularly in circumstances where the Court has awarded compensatory damages. As explained further below, I have taken that into account in the quantification of additional damages.
Also relevant to the question of additional damages is the conduct of the respondent in the proceedings. In Microsoft Corporation v Ezy Loans Pty Ltd [2004] 63 IPR 54 Stone J said, at [95]:
It is important to more than the applicants that copyright infringers are not encouraged to think that by ignoring court proceedings they can escape the consequences of calculated infringement of the rights of others in the pursuit of profits.
See also AutoDesk Australia Pty Ltd v Cheung (1990) 17 IPR 69, SBO Pictures Inc v Kaos Shop Pty Ltd [2006] FMCA 82, Microsoft Corporation v RP Distributors Pty Ltd [2006] FCA 1842, Australasian Performing Rights Association Ltd v Cougars Tavern [2008] FMCA 369 (“APRA v Cougars Tavern”), Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd (2009) 84 IPR 222 (“Aristocrat v Global Gaming Supplies”).
As I have noted, the conduct of the respondent in these proceedings has been reprehensible. He has, without excuse, failed to comply with any order of the Court and, by so doing, has made it difficult for the applicant to establish the amount of damages to which it is entitled. However, while I take this into account in determining the issue of additional damages, I bear in mind that it also goes to the question of costs and so have given it less prominence for present purposes.
In those circumstances the applicant claims $400,000 in additional damages. I agree that in circumstances where the breach was flagrant and there are no redeeming features of the respondent’s conduct in an industry which lends itself to infringements which are difficult to detect that there should be substantial additional damages. As there does not need to be any proportionality between the amount of compensatory damages awarded under s.115(2) and the amount of additional damages ordered under s.115(4), I do not need to take into account the amount of compensatory damages that I consider should be awarded in this case: see Aristocrat Technologies Australia Pty Ltd v D.A.P. Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564 (“Aristocrat v D.A.P”) at 571 per Black CJ and Jacobson J. That said, I consider that the Court should avoid any double penalty that might arise by reason of the relationship between compensatory damages and the element of additional damages that reflects the benefit that has accrued to the respondent by reason of his infringement.
While the broad principles in relation to additional damages are relatively clear and well-established, it is harder to get any guidance as to the quantification of those damages. In order to obtain some guidance as to the amounts which can properly reflect those considerations, I have surveyed a number of cases, noting the amount of compensatory damages under s.115(2), the additional damages awarded under s.115(4) and the reasons, if any, given for the latter amount.
Writing in 1995, Michael Hall SC (as he now is), set out a useful table of decisions indicating the total damages as well as the compensatory and additional components and the percentage of each: Additional Damages under s 115(4) of the Copyright Act (1995) 13 Copy Rep 22 (ALJI). The authors of the looseleaf service, Copyright & Designs, have included a more up to date table at [36,277]. I have paid particular attention to decisions in the last ten years noting that s.115(4) was amended in 2003 by the inclusion of sub-ss.115(4)(ia) (deterrence) and (ib) (conduct of the defendant after the infringement or being informed of the allegation of infringement): see Copyright Amendment (Parallel Importation) Act 2003 (Cth), sch.4, item 1.
It is unnecessary for me to set out my analysis of those cases. The plain fact is that each case turns on its own facts. Thus, in Fraserside Holdings Pty Ltd v Venus Adult Stores Pty Ltd (2005) 222 ALR 388, one of a number of cases involving the copying of pornographic films and images, Raphael FM reduced the amount of additional damages because he found that there was some acquiescence in the infringement. On appeal, only Finkelstein J would have interfered with that order: Venus Adult Stores Pty Ltd v Fraserside Holdings Ltd (2006) 157 FCR 442. In Nominet UK v Diverse Internet Pty Ltd (No. 2) (2005) 68 IPR 131 Lindgren J awarded $810,953 by way of compensatory damages and took that into account (together with the punitive purpose of additional damages and the need for deterrence) in awarding $500,000 additional damages.
Australasian Performing Right Association Ltd v Monster Communications Pty Ltd (2006) 71 IPR 212 was a case involving infringement of copyright in music by the sale of ringtones. Justice Rares awarded $911,516 in compensatory damages and $100,000 for additional damages, taking into account the significant financial benefit that had accrued to the respondent and the flagrancy involved in the infringement in the face of negotiations for a licence to use the copyright material. His Honour noted that additional damages should not constitute a greater punishment than would be imposed if the conduct were criminal and that the financial circumstances of the respondent were relevant to their quantification (see also Dynamic Supplies Pty Ltd v Tonnex International Pty Ltd (No. 3) (2013) 312 ALR 705 per Yates J).
In Norm Engineering v Digga Australia Greenwood J calculated additional damages in a manner reflecting the calculation of compensatory damages.
In Vawdrey Australia Pty Ltd v Krueger Transport Equipment Pty Ltd (2009) 83 IPR 1 the Full Court awarded a lower amount of additional damages ($30,000) to reflect the fact that the infringement had been indirect. By contrast, in Aristocrat v Global Gaming Supplies Jacobson J awarded a large amount of additional damages ($450,000) to reflect the cynical and flagrant breach undertaken for commercial gain and the attitude of the respondent to the litigation.
In other cases, the fact that the infringement was part of a calculated business risk was relevant to the amount of additional damages: see for example, Corby v Allen & Unwin Pty Ltd (2013) 101 IPR 181 and Seafolly Pty Ltd v Fewstone Pty Ltd [2014] FCA 321.
In Aristocrat Technologies v D.A.P. Black CJ and Jacobson J noted at 572 that the benefit obtained from the infringement can be taken as a starting point. On that basis, one would start with the amount of $300,000 being a 20% profit on 15 granny flats constructed at an average price of $100,000. I think that it would then be appropriate to discount that amount by 50% to take into account the compensatory damages figure and so to avoid a double penalty but to add an amount to reflect the need for both specific and general deterrence and to mark the Court’s disapproval of the infringement. In the circumstances, and absent any evidence of the respondent’s financial position, I conclude that the amount of $200,000 for additional damages is appropriate.
Injunctive relief and destruction of material
The applicant seeks injunctive relief restraining the respondent, his employees or agents, from undertaking any action which infringes or would infringe the copyright in the Works (as defined in [2] above), including, but not limited to:
a)the reproduction or authorising the reproduction of the works, or a substantial part thereof without the licence of the applicant; and,
b)communicating to the public the whole or a substantial part of the works without the licence of the applicant.
The applicant also seeks an order that the respondent deliver up on oath to the applicants, or their duly authorised agents, for destruction any existing hard copy material which infringes the applicant’s copyright in the Works and delete any reproduction of the Works from any electronic medium in which it appears.
In the circumstances and given my findings above, I am satisfied that the injunctive relief sought by the applicant should be ordered.
Costs
The applicant has been successful and, as is the usual course, is entitled to its costs. It says that the conduct of the respondent has significantly increased the costs of the applicant in the proceedings in that there have been multiple delays and that it has been forced to put on evidence of matters which would be particularly within the knowledge of the respondent. In this regard the submission addresses the evidence of Mr Bodley. The applicant submits that in those circumstances the Court should make an order that the costs should be awarded in accordance with the Federal Court scale although subject to a discount of 20%. A similar order was made by Raphael FM in APRA v Cougars Tavern at [30].
The award of costs in proceedings in this Court is, except as provided by the Rules of Court or any other Act, in the discretion of the Court: Federal Circuit Court of Australia Act 1999 s.79(3). Part 21 makes provision for costs. Rule 21.10 of this Court’s Rules provides that, unless the Court otherwise orders, a party entitled to costs in a proceeding is entitled to costs in accordance with Parts 1 and 2 of sch.1 and disbursements properly incurred. Part 1 of sch.1 relates to general federal law proceedings such as these. One example of the fees allowed under part one is a daily hearing fee which, for a half day hearing is $1,024. Added to that must be amounts such as in item 3 for an interim or summary hearing (being $1,706 and an advocacy loading as well as disbursements. However, on any view, the level of fees referred to in the schedule are vastly inadequate considering the nature of this claim as well as the additional work required to be engaged in by the applicant as a direct result of the respondent’s failure to comply with any of the Court’s directions.
In those circumstances I consider that it is appropriate to make the costs order sought by the applicant, namely that the respondent is to pay the applicant’s costs and disbursements as agreed and if not agreed then 80% of those costs taxed in accordance with the Federal Court of Australia Act 1976 (Cth) and Federal Court Rules 2011 (Cth).
Conclusion
For the reasons outlined above, I therefore order the following:
a)Judgment be given against the Respondent pursuant to r.13.07 of the Federal Circuit Court Rules 2001 (Cth).
b)The Respondent, whether by himself, or by his employees or agents or otherwise be restrained from undertaking any action which infringes or would infringe the copyright in the Applicant’s Works (as defined at [2]), including, but not limited to:
i)reproducing or authorising the reproduction of the Works or a substantial part thereof without the licence of the applicant; and
ii)communicating to the public the whole or a substantial part of the Works without the licence of the applicant.
c)The Respondent pay to the applicant damages in the amount of $120,000 pursuant to s.115(2) of the Copyright Act 1968 (Cth).
d)The Respondent pay to the applicant additional damages in the sum of $200,000 pursuant to s.115(4) of the Copyright Act 1968 (Cth).
e)The Respondent deliver up on oath to the Applicant, or their duly authorised agents, for destruction any existing hard copy material which infringes the Applicant’s copyright in the Works and delete any reproduction of the Works from any electronic medium in which it appears.
f)The Respondent pay the applicant’s costs and disbursements of, and incidental to, the application (including the application in a case) as agreed or in the absence of agreement, then 80% of those costs taxed in accordance with the Federal Court of Australia Act 1976 (Cth) and Federal Court Rules 2011 (Cth).
g)The parties file any submissions concerning any orders to be made under s.76 of the Federal Circuit Court of Australia Act 1999 (Cth) within 7 days.
h)The matter be stood over to 23 October 2015 at 9.30am.
I certify that the preceding seventy (70) paragraphs are a true copy of the reasons for judgment of Judge Smith
Associate:
Date: 30 September 2015
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