Microsoft Corporation v Leonidas
[2010] FMCA 986
•20 December 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MICROSOFT CORPORATION & ANOR v LEONIDAS | [2010] FMCA 986 |
| COPYRIGHT –Damages – whether an order for compensatory damages under s.115(2) of the Copyright Act 1968 (Cth) should be made – whether an order for additional damages should be made pursuant to s.115(4) of the Copyright Act 1968 (Cth). |
| Copyright Act 1968 (Cth), ss.115(2); 115(4); 37 and 38. |
| Aristocrat Technologies Australia Pty Limited v DAP Services (Kempsey) Pty Limited (in liq) (2007) 157 FCR 564 Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 Boyapati v Rockfeller Management Corporation (No 2) 2008 78 IPR 600 Flasback Holdings Pty Ltd & Ors v Showtime DVD Holdings Pty Ltd & Ors (2010) 270 ALR 54 International Writing institute Inc v Rimila Pty Ltd (1994) 30 IPR 250 Microsoft Corporation v Atifo Pty Ltd (1997) 38 IPR 643 Microsoft Corporation v PC Club 2005 67 IPR 262 Microsoft Corporation and Others v Tram (t/as Tramtek) (2010) 87 IPR 407 Microsoft Corporation & Anor v Leonidas [2010] FMCA 893 Nokia Corporation v Liu [2009] FCA 20 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257 Prior v Lansdowne Press Pty Ltd (1975) 12 ALR 685 Raben Footwear Pty Ltd v Polygram Records Inc (1997) 37 IPR 417 Ravenscroft v Herbert & New English Library [1980] RPC 193 Urban Ventures Pty Ltd v Solitaire Homes Pty Limited [2010] FCA 1373 |
| First Applicant: | MICROSOFT CORPORATION |
| Second Applicant: | MICROSOFT PTY LTD |
| Respondent: | GEORGE LEONIDAS |
| File Number: | SYG 1736 of 2010 |
| Judgment of: | Emmett FM |
| Hearing date: | 7 December 2010 |
| Date of Last Submission: | 7 December 2010 |
| Delivered at: | Sydney |
| Delivered on: | 20 December 2010 |
REPRESENTATION
| Solicitors for the Applicant: | Grant Hansen (Harris & Co) |
| There was no appearance by the Respondent |
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1736 of 2010
| MICROSOFT CORPORATION |
First Applicant
| MICROSOFT PTY LTD |
Second Applicant
And
| GEORGE LEONIDAS |
Respondent
REASONS FOR JUDGMENT
Background
On 9 November 2010, I made orders pursuant to s.36 of the Copyright Act 1968 (Cth) (“The Act”) restraining the respondent from infringing the first applicant’s copyright in certain Microsoft computer programs (Microsoft Corporation & Anor v Leonidas [2010] FMCA 893).
The applicants now seek damages pursuant to s.115(2) and s.115(4) of the Act in respect of those infringements. I note that at the damages hearing, Mr Hansen informed the Court that the applicants no longer sought damages for conversion pursuant to s.116 of the Act.
Relevant legislation and legal principles
An award of damages for breach of copyright is to compensate the applicants for the loss they have suffered as a result of the respondent’s breach (Aristocrat Technologies Australia Pty Limited v DAP Services (Kempsey) Pty Limited (in liq) (2007) 157 FCR 564 at [24]-[25]).
Perram J in Flasback Holdings Pty Ltd & Ors v Showtime DVD Holdings Pty Ltd & Ors (2010) 270 ALR 54 at [24]-[25] helpfully sets out the governing principles in the assessment of damages for infringement of copyright. Relevantly, damage is not the gist of the action, so that a plaintiff is entitled, at least, to nominal damages on proof of infringement. Compensation is not limited to pecuniary loss and may extend to matters such as goodwill. The two usual ways of assessing damages are the licence fee method and the lost profit method. The assessment of lost profits may require a degree of speculation. One should be mindful to distinguish a claim for damages where an applicant cannot produce precise evidence of what has been lost and cases where an applicant, although able to do so, has not done so (see Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; Aristocrat Technologies Australia Pty Limited v DAP Services (Kempsey) Pty Limited (in liq) (2007) 157 FCR 564).
Damages or an account of profits may be awarded in an action for infringement of copyright pursuant to s.115(2) of the Act, which states as follows:
“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.”
The applicants in this case seek damages rather than an account of profits. Additional damages pursuant to s.115(4) of the Act do not lie where an account of profits is claimed.
Section 115(4) provides that, where infringement of copyright has been established, the Court may award additional damages if it considers appropriate to do so in the circumstances, having regard to:
(i) the flagrancy of the infringement;
(ia) the need to deter similar infringements of copyright;
(ib) the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff's copyright;
(ii) whether the infringement involved the conversion of a work or other subject‑matter from hardcopy or analogue form into a digital or other electronic machine‑readable form;
(iii) any benefit shown to have accrued to the defendant by reason of the infringement; and
(iv)all other relevant matters.
The matters referred to in s.115(4) are not cumulative and the discretion to award additional damages arises if one or more of the matters are present (see Raben Footwear Pty Ltd v Polygram Records Inc (1997) 37 IPR 417).
Flagrancy has been variously described as the deliberate infringement of copyright for gain. It involves a calculated disregard of the plaintiff’s rights, or a cynical pursuit of benefit (Prior v Lansdowne Press Pty Ltd (1975) 12 ALR 685 at 690); scandalous or deceitful conduct, including deliberate and calculated copyright infringements (Ravenscroft v Herbert & New English Library [1980] RPC 193 at 208 per Brightman J; Raben Footwear Pty Ltd v Polygram Records Inc (1997) 37 IPR 417 at 432 per Tamberlin J; Microsoft Corporation v Atifo Pty Ltd (1997) 38 IPR 643 at 648 per Tamberlin J).
However, flagrancy is not established merely by proving knowledge of copying (International Writing institute Inc v Rimila Pty Ltd (1994) 30 IPR 250 at 255).
Additional damages may also be awarded where the respondent has benefitted from the infringing conduct, such as, where the business of the respondent is profitable and the use of the infringing works is a significant factor in achieving that result (see Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472).
Other matters which the Court may take into account include, relevantly, the difficulty copyright owners face in trying to protect their copyright; the likelihood of undetected instances of infringement; the lack of co-operation of the respondent, in particular the denial of knowledge of the infringement; and the improbability that the only breaches of copyright were those discovered at the time of the proceeding (Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472).
The inadequacy and shortcomings of a respondent’s Response or Defence, or the absence of a Response or Defence, and the failure to appear by the respondent are also matters to which the Court may have regard (Microsoft Corporation v PC Club 2005 FCA 1522 at [23] per Conti J).
Whether there is a need to deter will depend upon the particular circumstances of the case, including whether it is easy to copy the relevant copyright work and whether it is easy to detect such infringements (Boyapati v Rockfeller Management Corporation (No 2) 2008 78 IPR 600 at [22] per Kenny J).
Confidential information
On 9 November 2010, I directed the applicants to file and serve any further evidence in support of damages sought under s.115(2) and s.115(4) of the Act, together with submissions in support, by 1 December 2010. The Court’s Orders stated that any evidence of a confidential nature was to be filed in an envelope marked “Confidential” and accessed only with leave of the Court.
On 3 December 2010 the applicants filed documents marked “Confidential” being an affidavit by Clayton Noble, affirmed 7 December 2010, and submissions in support of the issue of damages. The confidential information appeared to be the first applicant’s profit margin in respect of sales of the relevant Microsoft programs in Australia and China. The submissions referred to that material in relation to the claim for damages under s.115(2) of the Act.
At the damages hearing, the solicitor for the applicants, Mr Hansen, told the Court that, while confidential material had been filed, neither a sanitised version, nor, a notice that evidence and submissions had been filed by the applicants on 3 December 2010, had been served on the respondent. For those reasons, I made orders at the damages hearing that the applicants notify the respondent by close of business on
7 December 2010 that material in support of the applicants’ claim for damages had been filed.
I further directed that the respondent file and serve any notice of motion and affidavit in support seeking leave to be heard on the issue of damages by 10 December 2010. No documents have been filed by or on behalf of the respondent in accordance with those directions or otherwise.
Mr Noble deposed that the first applicant’s profit details identified in his affidavit are commercially valuable and confidential information. As stated above, there has been no application by the respondent to be heard in relation to the issues of damages, despite being made aware that confidential material was filed by the applicant in support of the issue of damages.
In the circumstances, I accept that the information provided in the affidavit of Mr Noble pertaining to the first applicant’s range of profit margins of the programs is commercially valuable and confidential information and should remain confidential to be accessed only with the leave of the Court.
Compensatory damages pursuant to s.115(2) of the Act
I am satisfied that the applicants have proved that they have suffered loss as a result of the infringing programs sold in Australia (see Microsoft Corporation & Anor v Leonidas [2010] FMCA 893 at [10]) in that I infer that those sales by the respondent would otherwise have resulted in sales of the first applicant’s licensed programs. There is no evidence before me to suggest that purchasers from the respondent of the infringing programs would have otherwise bought any comparable program, other than the applicants’ licensed program. (see Autodesk v Cheung (1999 17 IPR ) at [15]. cf Aristocrat Technologies Australia Pty Limited v DAP Services (Kempsey) Pty Limited (in liq) (2007) 157 FCR 564).
In support of their application for damages, the applicants read the affidavit of Clayton Noble, affirmed 3 December 2010, and 2 further affidavits of Mr Noble, both affirmed 7 December 2010. Mr Noble is a solicitor employed by the second applicant.
Mr Noble deposed that he has access to the first applicant’s confidential pricing and policies document and is familiar with the first applicant’s pricing and policy in Australia and the People’s Republic of China. Mr Noble stated that he had reviewed the first applicant’s confidential pricing documents which disclosed the range of profit of the first applicant in respect of the Microsoft programs which are the subject of these proceedings.
Programs sold in Australia
The applicants seek compensatory damages for the sale in Australia of counterfeit copies of 2 X Microsoft Word 7 Ultimate programs; 4 X Microsoft Office 2007 Professional programs and 23 X Microsoft Windows Server 2008 Standard programs. The Court found that these programs were sold in Australia in breach of the first applicant’s copyright, pursuant to s.38 of the Act (see Microsoft Corporation & Anor v Leonidas [2010] FMCA 893 at [7] and [10]).
Mr Noble deposed to the first applicant’s minimum profit between 1 July 2009 and 30 June 2010 on the sale in Australia of a single licensed copy of the following Microsoft programs:
(i)Microsoft Word 7 Ultimate
(ii)Microsoft Office 2007 Professional
(iii)Microsoft Windows Server 2008 Standard
The applicants’ Statement of Claim pleads that the first applicant is duly incorporated in Washington in the USA. The applicants also plead that the first applicant carries on the business in the USA of manufacturing, marketing, distributing and supplying the relevant programs. Whilst there is no evidence to that effect, the respondent did not seek to file a Defence or Response denying that allegation. In the circumstances, I accept that the first applicant is duly incorporated in Washington in the USA and carries on the business in the USA of manufacturing, marketing, distributing and supplying the relevant programs.
Mr Noble also deposed to the value of the Australian dollar as against the United States of America dollar in the period 1 July 2010 to 30 November 2010. Based on that information, Mr Noble calculated the range of profit that would have been received by the first applicant for a single licensed copy of the programs sold in Australia between 1 July 2010 to 30 November 2010 using those exchange rates.
In the circumstances, I am satisfied that compensatory damages should be awarded to the applicants in respect of those 29 programs sold in Australia and identified above.
In accordance with the evidence before me, I am satisfied that the compensatory damages to be awarded to the applicant pursuant to s.115(2) of the Act are the number of illegal programs, being twenty nine, multiplied by the first applicant’s minimum profit over the relevant period and identified in the confidential material referred to in Mr Noble’s affidavits affirmed 3 December 2010 and the 2 affidavits affirmed 7 December 2010. That figure is $30,513.40.
Programs imported from China and seized by Customs
The applicants also claimed compensatory damages in respect of
20 illegal programs imported by the respondent into Australia from China and seized by Customs in Australia on 7 July 2010, pursuant to the respondent’s breach of s.37 of the Act.
Mr Noble also deposed as to the first applicant’s minimum profit between 1 July 2009 and 30 June 2010 on the sale in China of a single licensed copy of the Microsoft Windows 7 Ultimate.
In support of the applicants’ allegation that 20 programs were imported from China by the respondent, Mr Noble annexed a copy of an international (regional) express mail weigh bill. That document, annexed and marked “A” to Mr Noble’s affidavit, affirmed 3 December 2010, gave the name of the respondent and his address in Queensland. On the weigh bill, the name and description of contents are described as “accessory gifts” and the number of pieces is said to be “20 pieces”. The declared value is illegible. The date of the document is also unclear. However, a stamp on the weigh bill suggests that the goods originated from Guangzuou in China and were sent on 24 June 2010.
However, Mr Noble makes no mention in his affidavit of how the weigh bill came into his possession and there is no direct evidence before me to tie that document to the customs notice of seizure, dated 7 July 2010, a copy of which is annexure “E” to the affidavit of Mina Yu, affirmed 20 August 2010.
Mr Hansen submitted that the Court should infer that the 20 “accessory gifts” referred to on the weigh bill are the same 20 illegal software programs imported by the respondent from China and seized by Customs in Australia on 7 July 2010. In further support of that submission, Mr Hansen referred to annexure “D” of the affidavit of Mina Yu, affirmed 20 August 2010, annexing a document from the respondent stating that he bought software items in Vietnam and China.
In the light of the respondent’s admission and in the absence of his participation in this proceeding, I am prepared to draw the inference that the 20 “accessory gifts” items referred to in the weigh bill are the same 20 programs that were imported by the respondent from China and seized by Customs in Australia on 7 July 2010.
However, there is no evidence before me of any loss suffered by the applicants as a result of the importation of those 20 seized illegal programs. The 20 programs seized by Customs never found their way to the respondent or into the market.
Accordingly, I am not satisfied that any damages are payable to the applicants in respect of those 20 programs pursuant to s.115(2) of the Act (see Nokia Corporation v Liu [2009] FCA 20 at [19] per Jessup J).
Additional damages
On the evidence before me, I am satisfied that the infringement of the applicants’ copyright in respect of the programs was deliberate and for gain. Moreover, the respondent did not set up any defence pursuant to s.115(3) of the Act and indeed did not participate in the proceeding at all. The applicants had difficulty in both identifying and locating the respondent. Ultimately, the Court made an order for substituted service upon an email address belonging to the respondent. The respondent has had every opportunity to participate in the infringement proceedings and the damages hearing. For whatever reason, he has chosen not to be heard on either. Further, in the only email correspondence received from the respondent, he acknowledged that the programs he had bought from Vietnam and China may be counterfeit copies and stated “If you like, I will tell you where I bought this items (sic) from and you can close the factory they making this copy’s (sic)”. The respondent made no further contact or effort to provide those details.
In accordance with s.115(4)(b)(i), such conduct constitutes flagrant infringement (see Microsoft Corporation v PC Club 2005 FCA 1522 per Conti J). The inferences that arise from the evidence are fortified by the absence of any attempt to rebut the evidence (see Microsoft Corporation v Atifo Pty Ltd (1997) 38 IPR 643 at 648 per Tamberlin J).
In relation to s.115(4)(b)(ia), infringements of the nature engaged in by the respondent are easy to do and difficult to detect. For that reason, both specific and general deterrence should be reflected in assessing additional damages, having regard to the ease of infringement and the difficulties encountered by the applicants in locating and identifying the respondent. The award of additional damages must be sufficient to act as a real deterrent to others in the same industry. However, the burden must be proportionate to the respondent’s culpability (Urban Ventures Pty Ltd v Solitaire Homes Pty Limited [2010] FCA 1373 at [60] per Jagot J).
Further, the respondent had imported at least 20 programs from China that were seized by Customs in Australia. In particular, the respondent admitted to knowing the details in China and Vietnam of the factory, or factories, from where the programs originated. Yet, in contumelious conduct, did not provide those details to the applicants. Such conduct should attract significant specific deterrence given that the clear implication from the respondent’s admission is that he has a continuing source of supply from China and Vietnam.
In relation to s.115(4)(b)(ib), being the conduct of the defendant after the act of the infringement, I have regard to the acknowledgement of the respondent that he had imported copies from Vietnam and China. The terms of his acknowledgment suggest he was indifferent or did not care whether the copies he was importing and selling infringed the first applicant’s copyright. As stated above, his email made clear that he knew details of the factory where copies were made in Vietnam and China, yet did not provide those details to the applicants.
Moreover, I note that there is no evidence before the Court to identify the full extent of the respondent’s importations beyond the 20 that were seized by Customs in Australia on 20 July 2010 on arrival from China. The respondent himself admits that he was also importing from Vietnam. As stated above, the clear implication from the respondent’s admission is that he has a continuing source of supply from China and Vietnam.
Again, as stated above, by failing to participate at all in this proceeding, it has not been possible for the applicants to obtain discovery in respect of past and potential further infringements, although I note that no attempt was made to subpoena any such material from the respondent, having obtained an order for substituted service. However, I infer that, having regard to the silence of the respondent since his email received by Ms Yu on behalf of the applicants on 8 July 2010 (as evident from annexures “C” and “D” of the affidavit of Mina Yu, affirmed 20 August 2010, and referred to above), the respondent was unlikely to respond to any such process.
The applicants concede that s.115(4)(b)(ii) has no application to this case and, accordingly, made no submissions in respect of this sub-section.
In relation to s.115(4)(b)(iii), I am prepared to accept that benefits appeared to have accrued to the respondent, having regard to the prices at which the respondent sold the applicants’ programs and the cost of licensed copies of the programs. Those prices are referred to in reasons given by me on 9 November 2010 (see Microsoft Corporation & Anor v Leonidas [2010] FMCA 893).
Moreover, I have regard to the respondent’s admission in his email that he knows the whereabouts of the factory or factories in China and Vietnam from which these programs originated. He has not provided those contact details, thereby keeping to himself the opportunity for continuing supply.
In relation to s.115(4)(b)(iv) of the Act, being other relevant matters, I also have regard to the difficulty the applicants face in trying to protect their copyright; the likelihood of undetected instances of infringement by the respondent; the lack of co-operation of the respondent, including the denial of knowledge of the infringement; the fact that 20 counterfeit programs were imported by the respondent from China and seized by Customs in Australia; and, the improbability that the only breaches of copyright were those discovered at the time of the proceeding. I also find that the respondent was indifferent or did not care whether copies he was importing and selling infringed copyright. Further, he took no step to provide the details of the factory where he bought the infringing programs, despite having offered to do so.
In relation to the claims for additional damages, I note Mr Hansen’s submission that the additional damages should be at least $100,000. Mr Hansen referred the Court to various authorities where additional damages had been ordered. The orders of additional damages varied greatly and did not provide consistent guidance in the calculation of additional damages to be awarded.
In Microsoft Corporation v PC Club 2005 67 IPR 262, the Court awarded additional damages being 4 times those of the compensatory damages awarded in circumstances where it found aggravated conduct by the respondent in affixing forged certificates of authenticity to the product. Such conduct is similar in this proceeding in that the respondent first denied infringing then offered to provide details of the factories where the programs were made, yet, in fact provided no such information. Such conduct shows contempt for the copyright of the first applicant in the programs and by his conduct, the respondent maintained his opportunity for further supply. I find such conduct to be aggravating conduct by the respondent.
In the circumstances, I am satisfied that additional damages pursuant to s.115(4) of the Act should be awarded to the applicants. Those should attract a significant individual deterrence factor for the reasons expressed above, as well as a significant, general deterrence factor, having regard to the ease with which the applicants programs are copied and the ease with which the respondent can sell infringing copies. Accordingly, the respondent should pay to the applicants additional damages in the amount of $120,000.
Conclusion
For the reasons above, I am satisfied on the evidence before me that compensatory damages in the amount $30,513.40 should be payable by the respondent to the applicants pursuant to s.115(2) of the Act.
For the reasons above I am further satisfied on the evidence and material before me that the respondent should pay additional damages pursuant to s.115(4) of the Act in the amount of $120,000.
The respondent should pay the costs of the applicants as agreed or taxed.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of Emmett FM
Date: 21 December 2010
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