Microsoft Corp v Atifo Pty Ltd
[1997] FCA 679
•29 July 1997
FEDERAL COURT OF AUSTRALIA
COPYRIGHT - damages - quantification of damages for infringement of copyright - where respondents sold computers preloaded with unlicensed copies of the applicants’ software - compensatory damages - where evidence as to applicants’ loss inferential - license fee approach as a guide to the assessment of damages - additional damages - whether conduct “flagrant” - where evidence of deliberate pattern of infringement - where respondents’ records altered - where failure by respondents to comply with court orders as to discovery
Copyright Act 1968 (Cth), s 115
Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69, applied
Amalgamated Mining Services Pty Ltd v Warman (1992) 24 IPR 461, cited
MICROSOFT CORPORATION & MICROSOFT PTY LIMITED - v -
ATIFO PTY LIMITED, PEPEROM PTY LIMITED & JUN XUN LIAO
NO NG 344 OF 1996
TAMBERLIN J
SYDNEY
29 JULY 1997
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 344 of 1996 ) GENERAL DIVISION )
BETWEEN: MICROSOFT CORPORATION
First ApplicantMICROSOFT PTY LIMITED
Second ApplicantAND: ATIFO PTY LIMITED
(ACN 051 457 106)
trading as ABC PERIPHERALS
First RespondentPEPEROM PTY LIMITED
(ACN 064 518 412)
trading as ABC DATA LINK
Second RespondentJUN XUN LIAO
Third Respondent
JUDGE: TAMBERLIN J PLACE: SYDNEY DATED: 29 JULY 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The respondents pay to the first applicant damages in an amount of $44,000.
The respondents pay the applicants’ costs.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 344 of 1996 ) GENERAL DIVISION )
BETWEEN: MICROSOFT CORPORATION
First ApplicantMICROSOFT PTY LIMITED
Second ApplicantAND: ATIFO PTY LIMITED
(ACN 051 457 106)
trading as ABC PERIPHERALS
First RespondentPEPEROM PTY LIMITED
(ACN 064 518 412)
trading as ABC DATA LINK
Second RespondentJUN XUN LIAO
Third Respondent
JUDGE: TAMBERLIN J PLACE: SYDNEY DATED: 29 JULY 1997
REASONS FOR JUDGMENT
On 12 May 1997 Lindgren J ordered that:
“1Each of the Respondents whether by itself, himself or its or his servants, agents or otherwise be restrained from:
(a)reproducing or authorising the reproduction, in any material form, of the whole or a substantial part of any of the computer programs identified in Schedule A to the Statement of Claim filed herein (the “Microsoft Programs”) without the licence of the First Applicant;
(b)selling, offering for sale, supplying, offering to supply or distributing for the purpose of trade any CD-ROM, floppy disk or other article which reproduces, in any material form, the whole or a substantial part of any of the Microsoft Programs without the licence of the First Applicant.
2Each of the Respondents whether by itself, himself or its or his servants, agents or otherwise be restrained from representing, in trade or commerce, to persons to whom the Respondents or any of them supply or offer to supply any copy of any of the Microsoft Programs without the licence of the First Applicant (“unauthorised copy”):
(a)that the Respondents or any of them are lawfully entitled to supply any such unauthorised copy; or
(b)that such persons are or would be authorised to reproduce or authorise the reproduction of any such unauthorised copy so acquired from the Respondents.
3These proceedings be fixed for hearing of the Applicants’ claim for damages.”
These reasons concern a quantification of damages for breach of copyright, pursuant to s115 of the Copyright Act 1968 (Cth).
Section 115 relevantly reads:
“115. (2) Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.
........
(4) Where, in an action under this section:
(a)an infringement of copyright is established; and
(b)the court is satisfied that it is proper to do so, having regard to:
(i)the flagrancy of the infringement;
(ii)any benefit shown to have accrued to the defendant by reason of the infringement; and
(iii) all other relevant matters;
the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.”
The first applicant, Microsoft Corporation (“Microsoft”), seeks compensatory damages in an amount of $63,000 plus additional damages under s 115(4) which are at large.
The parties have agreed the following matters:
1.Microsoft Corporation receives from its authorised distributors payment in an amount exceeding $100.00 in relation to each supply in Australia by an authorised dealer to an end user of a licensed copy of Microsoft Windows 95.
2.Microsoft Corporation receives from its authorised distributors payment in an amount exceeding $400.00 in relation to each supply in Australia by an authorised dealer to an end user of a licensed copy of Microsoft Office.
3.Microsoft Corporation receives from its authorised distributors payment in an amount exceeding $36.00 in relation to each supply in Australia by an authorised dealer to an end user of a licensed copy of MS-DOS.
4.Microsoft Corporation receives from its authorised distributors payment in an amount exceeding $70.00 in relation to each supply in Australia by an authorised dealer to an end user of a licensed copy of Windows 3.11.”
The claim for compensatory damages is formulated by Microsoft as follows:
“SCHEDULE OF DAMAGES
1Compensatory damages under s 115(2) Copyright Act
1.1No. of computers sold between August 1995 28
and March 1996 (8 months)
Microsoft Corporation receives $100/licensed 28 x $100 2,800
copy of Microsoft Windows 95 sold to end user
Microsoft Corporation receives $400/licensed 28 x $400 11,200
copy of Microsoft Office sold to end user
Sub-total: 14,000
1.2 Plus number of computers likely to have been
sold between August 1991 (First Respondent
commenced trading in April 1991) and July
1995 (48 months)
28 computers for each 8 month period = 224 224x100=22,400
224x400=89,600
Sub-total 112,000
Assume only 50% of computers were supplied
with unauthorised copies of Microsoft Programs TOTAL $63,000”
The Evidence
The uncontradicted evidence of Microsoft is that in early 1996 a number of computer sales were made from the shop of the first respondent, ATIFO Pty Limited (“ATIFO”), at 2/260 Military Road, Neutral Bay. ATIFO traded as “ABC Peripherals”. The evidence discloses that the third respondent is a director, shareholder and secretary of ATIFO. The third respondent is also a shareholder and director of the second respondent which carries on business as “ABC Data Link” at 260 Military Road, Neutral Bay.
In broad summary, the evidence is that in the first quarter of 1996 the third respondent, who is a principal of the first respondent, sold computers which were loaded with Microsoft software. In one instance the software was MS Windows 95. No manuals, disks, or any licence for the software were supplied. After some discussions extending over many months, in early October 1996 the purchaser was given a compact disk program by the third respondent. It was entitled Microsoft CD Windows 95. The disk had no serial number, nor did it have any Certificate of Authority.
In March 1996 another purchaser bought from the third respondent a computer pre-loaded with Microsoft programs. These were MS-DOS 6.22, MS Windows 95 and Microsoft Office. The purchaser asked for a compact disk and a licence for Windows 95 and MS-DOS. The third respondent refused unless he was paid $125. The purchaser rejected this suggestion and was told by the third respondent:
“I told you on Saturday that it was an illegal copy and that you’d have to get a proper licence. I tell this to all my customers and have never had any problems before.”
The purchaser was upset and subsequently sought a refund. This was refused. In the course of further discussions, the third respondent said:
“I have sold hundreds of systems and never had this trouble before. I will sue you.”
MS-DOS and Windows 95 are operating systems which enable the computer to perform its basic functions and to run application programs. They are widely marketed and used in IBM compatible computers, which are often referred to under the generic description “PC”, in contrast to other systems which use programs such as Apple. In addition, there are other programs which can be used on PCs such as IBM DOS2.
Another purchase took place in March 1996. On that occasion the customer spoke with the third respondent. During the conversation the respondent said:
“I’ll load whatever you need on to the computer. This is not legal but the responsibility is yours.”
In response to a query that the receipt did not refer to the software supplied on the computer, the third respondent said:
“No problem. Don’t worry. I can’t put it on the receipt because it’s illegal.”
The programs loaded on this computer included Microsoft Office and Corel Draw.
None of the above evidence as to conversations or conduct was disputed in any way.
Examination of the disks purchased from the third respondent at the shop showed that they included copies of MS-DOS; Windows for WorkGroups 3.11; Microsoft Golf; MS-Works; Microsoft Office (which includes several substantial programs) and MS-Money.
There is also evidence which strongly lends support to an inference that the third respondent has been deceitful with respect to the production of records. There is evidence, which I accept, that some original carbon copies of invoices have been tampered with by obliterating important details. Moreover, the respondents have failed to comply with Court orders as to the production of documents.
Tampering with documents, or refusing to produce available documents, or suppressing material which could be relevant to the proceedings can lend strength to an inference adverse to the respondents, that they are knowingly engaged in deliberate infringement.
In the present case, I am prepared, on the material before me, to make that inference in the circumstances.
In further support of this inference the respondents have elected not to give any evidence to rebut the serious charges made. However, in a fax sent to Microsoft’s solicitors, on 24 March 1997, the third respondent denies making or giving anyone “any unauthorised duplicate of any Microsoft properties”. He also asserts that all Microsoft products sold by ABC Peripherals have been “genuine Microsoft products sourced from the local Australian distributors”.
Case Law
The principles as to compensatory and additional damages under the Copyright Act were examined by Wilcox J in Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69 at 73-78.
His Honour there indicated that prima facie the damage is the depreciation caused by the infringement to the value of the copyright. As his Honour points out, however, it will usually be difficult, if not impossible, to quantify this depreciation. He saw some merit in taking the licence fee approach, namely to attempt to measure the damage by reference to the loss of licence fees by the claimant arising as a consequence of the infringements. This, however, in his Honour’s view, depended on an inference that, forced with a choice of paying the licence fee or not using the work the buyer would have paid the licence fee (at 75).
On the facts before him, his Honour was not prepared to make the assumption that if he had been forced to pay a licence fee the infringer would have copied the work to the same extent. He therefore approached the matter as a jury might in awarding damages “at large”.
In Autodesk Wilcox J awarded compensatory damages in favour of two companies totalling $15,000 and additional damages totalling $35,000. In his reasons concerning additional damages, his Honour accepted that “flagrant” conduct existed when there was scandalous conduct, deceit or deliberate and calculated copyright infringement. He referred to “uncontested” evidence that the respondent knew that the supply of the software was illegal and that he was prepared to infringe the copyright for financial gain. He accepted that additional damages contemplated something in the nature of punishment of the defendant which conventional remedies could not provide (at 76).
His Honour reaffirmed and applied the above principles as to damages in Amalgamated Mining Services Pty Ltd v Warman (1992) 24 IPR 461, when he awarded damages in the amount of $3 million in relation to what he described as actions of “breathtaking flagrancy”.
The present case
The evidence as to loss in the present case is inferential and to a considerable extent conjectural. Although the licence fee approach cannot apply in any mathematical sense, it is nevertheless a useful guide. Of necessity there must be some considerable room for adjustment and the nature of that adjustment in any particular case will depend on the detail and precision of the estimates made.
In the present case Microsoft’s estimates are made on a broad and sweeping basis.
The direct evidence of specific sales is limited. However, there is evidence to support the conclusion that there were in the order of at least twenty-eight sales in the specified period. On the admissions made, these would probably have involved in most cases copyright infringement by selling computers with programs pre-loaded or supplying programs which were unauthorised.
The high probability in my view, is that one or more Microsoft operating systems would have been illegally supplied together with some additional Microsoft software. It is impossible to be specific in relation to such programs, but no doubt the greater the number of programs, and the greater the value of such programs pre-loaded, the greater the incentive to a prospective customer to purchase from the respondents.
Given the attitude of the respondents to copyright infringements it is likely in many instances the programs were supplied in infringement of Microsoft’s copyright.
As to the eight month period August 1995 to March 1996 I accept that there were twenty eight sales with infringements in respect of MS Windows or DOS in about eighty percent of cases. I do not accept that there were as many infringements in the case of MS Office, but there would probably have been a significant number, particularly as a number of the sales are to bodies corporate. Indeed, in some instances the invoices refer to MS Office although it does not appear to have been the practice to record the software supplied in the invoices.
On the evidence, I find that there were about twenty-five infringements in respect of MS Windows or DOS and that there were a significant number of infringements in relation to MS Office, the provision of which would have been a substantial incentive to buyers of the hardware. Given the uncertainty in the situation I think that a reasonable estimate of loss for this period is about $6,000.
As to the claim for the period August 1991 to July 1995, I accept this as an appropriate trading period for the purpose of estimating damages. However, the figures, as was conceded by Microsoft, are largely the result of informed guess-work. In view, however, of the modus operandi adopted by the respondents and admitted to in the conversations during the specific sales referred to above, it is likely that there were significant pre-loaded hardware sales in this period. Taking a rough approximation, I would consider there to have been at least 150 sales. Again, the estimate of the loss per sale must be speculative to some extent, but I consider that a loss in the order of $120 could be reasonably accepted. Using this as a rough yardstick I would estimate compensatory damages for this period as $18,000.
In relation to additional damages, the evidence satisfies me that the infringements occurred as the result of a deliberate calculated program designed to secure financial benefit to the respondents.
The respondents were well aware, on the admission, over the relevant period of the illegality of their activities. Their conduct in evidence can properly be described as “flagrant” in the sense of being deliberate, deceitful and serious.
The inferences which arise from the evidence are fortified by the absence of any attempt to rebut the evidence. I have taken into account the conduct of the third respondent in relation to the alteration of records and the failure to disclose or produce documents.
In all the circumstances I consider that additional damages in the sum of $20,000 would properly reflect the considerations relevant to such an award.
Orders
The respondents pay to the first applicant damages in an amount of $44,000
2. The respondents pay the applicants’ costs.
I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin
Associate:
Dated: 29 July 1997
Counsel for the Applicant: Mr J V Nicholas Solicitor for the Applicant: Mallesons Stephen Jaques Solicitor for the Respondent: John de Mestre & Co Date of Hearing: 8 July 1997 Date of Judgment: 29 July 1997
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