Polygram Pty Ltd v Golden Editions Pty Ltd
[1997] FCA 686
•30 July 1997
FEDERAL COURT OF AUSTRALIA
COPYRIGHT - assessment of damages - conversion damages - mixture of infringing and non-infringing matter - apportionment - whether conversion damages should be awarded on the value of the composite whole - whether interest should be awarded on conversion damages
COPYRIGHT - assessment of damages - additional damages - whether the award of additional damages is dependent upon relief being otherwise granted under s 115 - whether matters complained of are relevant to additional damages
Copyright Act 1968: ss 115, 116
Federal Court Act 1976: s 51A(3)(c)
A-One Accessory Imports Pty Ltd v Off Road Imports Pty Ltd (1996) 34 IPR 332
Australian Consolidated Press v Uren (1967) 117 CLR 221
Autodesk Inc v Yee (1996) 139 ALR 735
Bailey v Namol Pty Limited (1994) 53 FCR 102
Caxton Publishing Company v Sutherland Publishing Company [1939] AC 178
Infabrics Ltd v Jaytex Ltd [1982] AC 1
International Writing Inc v Rimila (1994) 30 IPR 250
Milpurrurru v Indofurn Pty Limited (1994) 54 FCR 240
Nichols Advanced Vehicle Systems Inc v Rees [1979] RPC 127
Raben Footwear Pty Limited v Polygram Records Inc, Full Court, unreported, 16 May 1997
Richmark Camera Services Inc v Neilson-Hordell Ltd [1981] FSR 413
W H Brine Co v Whitton (1981) 37 ALR 190
POLYGRAM PTY LIMITED, ISLAND RECORDS LIMITED and A & M RECORDS INC v GOLDEN EDITIONS PTY LIMITED, HOGHTON HUGHES
NG 37 of 1993
LOCKHART J
30 JULY 1997
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) G 37 of 1993 ) GENERAL DIVISION )
BETWEEN: POLYGRAM PTY LIMITED
First ApplicantISLAND RECORDS LIMITED
Second ApplicantA & M RECORDS INC
Third ApplicantAND: GOLDEN EDITIONS PTY LIMITED
First RespondentHOGHTON HUGHES
Second Respondent
JUDGE(s): LOCKHART J. PLACE: SYDNEY DATED: 30 JULY 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The applicants bring in short minutes of order on a date to be fixed to give effect to the Court’s reasons for judgment.
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 37 of 1993 ) GENERAL DIVISION )
BETWEEN: POLYGRAM PTY LIMITED
First ApplicantISLAND RECORDS LIMITED
Second ApplicantA & M RECORDS INC
Third ApplicantAND: GOLDEN EDITIONS PTY LIMITED
First RespondentHOGHTON HUGHES
Second Respondent
JUDGE(s): LOCKHART J. PLACE: SYDNEY DATED: 30 JULY 1997
REASONS FOR JUDGMENT
This is a claim for damages by the applicants against the respondents for infringement of the copyright of the applicants in certain sound recordings including a well known artist, Cat Stevens. The respondents admitted the infringement, but claimed that they were not liable to pay damages because of their defences under ss 115(3) and 116(2) of the Copyright Act 1968 (‘the Act’).
The applicants are recording companies and are part of what is known as the Polygram Group. The precise identity of the particular applicant which owns a relevant copyright is not important for present purposes; so I shall refer to the applicants as a whole in reference to the ownership of copyright.
Golden Editions Pty Limited, the first respondent, was established by Mr Hoghton Hughes, the second respondent, as an independent record and video company. It has traded in Australia since 1979 and specializes in low priced cassettes, compact discs and videos for the Australian mass market.
The matter came before another judge of the Court (Beazley J) who ordered that the defences of the respondents be determined separately from the issue of damages or an account of profits.
The respondents’ defences under s 115(3) and s 116(2) turned upon Mr Hughes’ knowledge or awareness that the applicants’ copyright was being infringed. Her Honour rejected much of the evidence of Mr Hughes and found that, even if Mr Hughes had believed that the relevant recordings were not infringing copies, he was reckless as to whether he was or would be infringing copyright by exercising his rights under certain agreements between Golden Editions and a company known as New Breed Music International. Her Honour rejected the defences and declared that the question whether Golden Editions was entitled to rely upon the defences pleaded pursuant to ss 115(3) and 116(2)(b) of the Act be answered in the negative.
Beazley J’s judgment is reported at (1994) 30 IPR 183. An appeal from her Honour’s judgment was dismissed by a Full Court of this Court and is reported at (1996) 61 FCR 479.
Polygram was ordered to elect whether it sought damages or an account of profits under s 115(2). A notice of election was filed by Polygram electing to pursue damages under s 115(2) and damages for conversion under s 116(1). The notice of election also stated that Polygram sought additional damages under s 115(4). In addition Polygram sought injunctions, a declaration and interest on any damages awarded. The injunctions and declaration are not disputed.
Conversion damages
The first issue concerns the claim for damages under s 116(1) of the Act, often described as conversion damages.
Section 116 is in the following terms:
116(1) Subject to this Act, the owner of the copyright in a work or other subject-matter is entitled in respect of any infringing copy, or of any plate used or intended to be used for making infringing copies, to the rights and remedies, by way of an action for conversion or detention, to which he or she would be entitled if he or she were the owner of the copy or plate and had been the owner of the copy or plate since the time when it was made.
(2) A plaintiff is not entitled by virtue of this section to any damages or to any other pecuniary remedy, other than costs, if it is established that, at the time of the conversion or detention:
(a)the defendant was not aware, and had no reasonable grounds for suspecting, that copyright subsisted in the work or other subject-matter to which the action relates;
(b)where the articles converted or detained were infringing copies - the defendant believed, and had reasonable grounds for believing, that they were not infringing copies; or
(c)where an article converted or detained was a plate used or intended to be used for making articles - the defendant believed, and had reasonable grounds for believing, that the articles so made or intended to be made were not or would not be, as the case may be, infringing copies.
The owner of a copyright whose work has been infringed may recover compensatory damages under s 115(2) and, by way of special remedy, additional damages under s 115(4). Section 116 confers a right to recover infringing copies or damages for conversion of those copies. Other provisions of the Act confer rights to orders for delivery up of infringing copies or for destruction. A copyright owner’s rights and remedies under s 116 are those which may be asserted in an action for conversion or detention. The hypothesis on which the remedy is conferred by s 116 is that the copyright owner is not the owner of the infringing copy, but is treated by a fiction, created by the section, of being entitled to sue for damages for conversion or detention as if he or she were the owner of the infringing copy. As Burchett J observed in Autodesk Inc v Yee (1996) 139 ALR 735, the fiction applies for particular purposes only.
The measure of damages in conversion is generally the value of the infringing copy at the date of conversion. Conversion damages are awarded on the basis that the infringing copy is deemed to be the property of the copyright owner.
Conversion damages under s 116 and statutory equivalents in other jurisdictions are discussed in many cases. I refer in particular to Caxton Publishing Company Limited v Sutherland Publishing Company [1939] AC 178; Alwinco Products Limited v Crystal Glass Industries Limited [1985] 1 NZLR 716; A-One Accessory Imports Pty Limited v Off Road Imports Pty Limited (1996) 34 IPR 332; John Lane The Bodley Head, Limited v Associated Newspapers Limited [1936] 1 KB 715; W H Brine Co v Whitton (1981) 37 ALR 190; and Infabrics Limited v Jaytex Limited [1982] AC 1.
Section 116 has a long history in copyright law which is traced by Burchett J in Autodesk at 738-744. See also the Report of the Copyright Law Review Committee 1959 (The Spicer Committee Report) paras 313-320 and the Second Reading Speech on the Copyright Bill 1968 of the Attorney-General, Hansard, House of Representatives, vol 59, p 1528.
In its modern form, s 116 has been criticized considerably. Ultimately, in the United Kingdom its equivalent was repealed by the Copyright Designs and Patents Act 1988 (UK) which followed the recommendation of the Whitford Committee in its Report of 1977 and the White Paper on Intellectual Property and Innovation, 1986, presented to the United Kingdom Parliament. The Whitford Committee described the equivalent provision in the Copyright Act 1956 (UK) at para. 702 as ‘anomalous’ and said that ‘damages which may be awarded may be out of all proportion to the injury suffered’. It recommended that damages in the field of copyright should be awarded for infringement as in the case of patents and other intellectual property. At the same time, exemplary damages (the equivalent of s 115(4) of the Australian Act) should be retained for cases of flagrant infringement. The White Paper referred to conversion damages as being ‘based on the value of infringing copies without regard to the cost of producing’ so as to be ‘out of all proportion to the loss suffered by the copyright owner’.
In Cornish on Intellectual Property, 2nd ed, 1989 reference is made at 307 to the exceptional entitlement to conversion damages which the authors said were draconian. See the article by T H W Wells, ‘Monetary Remedies for Infringement of Copyright’ (1989-90) 12 Adelaide LR 164 at 200 where the conclusion is reached that the section is anomalous and should be abolished.
However, the report on conversion damages of the Copyright Law Review Committee, chaired by Sheppard J and published in July 1990, having accepted at 14 ‘the harshness with which the section operates’, refrained from recommending its repeal. The Committee thought that amendments should be made to the Act to confer upon the Court a wide discretion to determine whether a particular case is an appropriate one in which to order delivery up or to award conversion damages. The Act has not been amended, although there is a bill, currently before Parliament, which adopts the Committee’s recommendations.
As mentioned earlier, infringement of the applicants’ copyright was admitted by the respondents. What is in dispute, so far as the claim for conversion damages under s 116 by the applicants is concerned, is the basis on which they should be assessed. The parties have in fact agreed upon the relevant figures and the respondents concede that conversion damages should be awarded to the applicants.
The parties are agreed that in calculating conversion damages for the infringing copies, the correct approach is to take the wholesale price (including sales tax) as the proper measure of damages. The dispute centres on a package of two compact discs and another package of two cassettes embodying the work of Cat Stevens and an artist known as Donovan where the only claim for copyright in the applicants rests with the Cat Stevens disc and cassette. Generally, I shall refer to the package containing the two compact discs; but the same principles govern the cassettes.
When sold to the public there is one package containing the two CDs, so that the purchaser must buy the whole package. The applicants submit that what the purchaser buys is a composite set of the two CDs in the one package, one of which contains the protected work of Cat Stevens. As the one set of two CDs is sold as a composite whole, that set is the article for the purposes of the definition of ‘infringing copy’ in s 10 of the Act, which relevantly means, in relation to a sound recording, a ‘copy of the sound recording not being a sound-track associated with visual images forming part of a cinematograph film’, being an article the making of which constituted an infringement of the copyright in the relevant work. The work is the sound recording of Cat Stevens. The applicants submit that, although only one of the two compact discs in the package infringes their copyright, the fact is that there is one undivided article containing the two discs. It was submitted that, if the consequences are harsh, that is not to the point because the fact that harsh consequences flow in this branch of the law is amply supported by authority. Reference was made to Infabrics Ltd v Jaytex Ltd [1982] AC 1 at 18 and 26, also W H Brine Co v Whitton (1981) 37 ALR 190 at 200; see also the report of the Australian Copyright Law Reform Recommendations in July 1990 (the Sheppard Committee Report) at p 43; and International Writing Inc v Rimila (1994) 30 IPR 250.
The respondents argued that the relevant infringing copy is the one compact disc embodying the Cat Stevens’ sound tracks.
The determination of this question of apportionment is of little monetary significance in the case because the issue only arises with respect to the sales of a small number of discs and cassettes. The award of conversion damages will, however, be substantial because the respondents admit liability for conversion of a large number of single pack compact discs and cassettes, where the issue of apportionment does not arise.
The applicants argued that they should receive conversion damages on the basis of the full wholesale price of the two disc set, namely, $10.83875 or a total of $5,722.86 (528 units were sold). Alternatively, the applicants argued that, if there is to be a division, it should not be by simply dividing the wholesale price by two ($5.41937 per disc) (the argument for which the respondents contend), i.e. a total of $2,861.43; rather the applicants should receive the equivalent of the full wholesale price of the Cat Stevens compact disc when sold alone, that is, $7.21375 as opposed to $5.41937 per disc.
In respect of conversion damages the parties therefore disagree on two issues. First, whether there should be an apportionment (that is, what are the infringing copies) and secondly, if there is an apportionment (that is, if only the Cat Stevens discs are the infringing copies), the manner in which damages are calculated.
Before dealing with the arguments, I should say that, although there was an inequality in the number of sound tracks on the Cat Stevens compact disc (eleven tracks) and the Donovan disc (ten tracks) no argument was founded on this by counsel for any party.
The question of conversion damages thus raises issues concerning apportionment or pro-rating, as the parties described it.
There are many cases dealing with the assessment of damages where infringing and non-infringing matter are mixed. The subject is dealt with in the Sheppard Committee Report at 43. See also Autodesk at 740 and in particular the judgment of Drummond J in A-One Accessory Imports at 335-6.
In some cases conversion damages were awarded on the basis of the value of the composite whole. I turn first to Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd [1936] 1 Ch 323 where the Court of Appeal held, in reversing the decision of Farwell J, that the remedies given by s 6(1) and s 7 of the Copyright Act 1911 (UK) were cumulative and not alternative. (Section 6(1) was the equivalent of s 115(2) of the present Act and s 7 was the equivalent of s 116.) The Court of Appeal’s judgment was affirmed by the House of Lords reported as Caxton Publishing Co Limited v Sutherland Publishing Company [1939] AC 178. See also John Lane, The Bodley Head Limited v Associated Newspapers Limited [1936] 1 KB 715 at 721.
Although the decision of the Court of Appeal in [1936] 1 Ch 323 was affirmed, a later decision of the Court of Appeal in Sutherland Publishing Co Limited v Caxton Publishing Co Limited [1938] 1 Ch 174 was reversed. The reason for the duet was that damages were not dealt with at the first trial, and they later came before Crossman J [1937] 1 Ch 294, from whose judgment an appeal was brought to the Court of Appeal (reported at [1938] 1 Ch 174). Both appeals were consolidated.
In Caxton the defendant company published a book which it caused to be printed and sold. The plaintiffs were also publishers. They alleged that the defendants infringed their copyright work by taking from their work a substantial part and including it in a book published by the defendant. Lord Porter dealt with the apportionment question at 204-5. His Lordship said that he saw no legal objection to adopting the method of determining conversion damages by taking some proportion of the total value of the volume, but after making due allowance for expenses incurred after the act of conversion, and multiplying that proportion by the number of copies sold. He said by way of analogy: where A converts three parts of a triptych belonging to three separate owners X, Y and Z and joins them together and produces an article infinitely more valuable than the sum of its parts; to hold that X, Y or Z can recover only what he would get for his part in a market in which the other parts are not procurable would be to leave the converter in the possession of a large sum of money to which none of the owners would be entitled. His Lordship said the resultant figure based on the approach that he endorsed was but a rough and ready test of the true value and must be modified by the Court which has to determine it in accordance with the facts of each case.
In that case the fact of apportionment was agreed, but it was the method of achieving apportionment that was in issue. Therefore, there was no analysis of whether to apportion. It is a different case from the present one.
Infabrics Limited v Jaytex Limited [1982] AC 1 was concerned with shirts bearing numerous drawings of three race horses in a tight finish. The plaintiff owned the copyright in the drawings and sued for conversion. It was held by the House of Lords that the shirts themselves were infringing copies within the meaning of s 18(3) of the 1956 Act and that the measure of damages was their value. Infabrics was a case where it was impossible to sever the shirts from the drawings which were the subject of the copyright.
Similarly, in W H Brine Co v Whitton (1981) 37 ALR 190, the respondent sold a number of soccer balls imported from Korea which bore various marks and devices, some of which were the property of the first applicant. The respondent admitted liability for wrongful use of the applicant’s marks. The applicant sought an assessment of damages for misleading or deceptive conduct and infringement and conversion under the Act. Fox J held that the infringing material in the form of the marks and devices used on the balls was substantial and could not be conveniently separated from the rest. Therefore, the balls as a whole were the infringing copies under s 116. The measure of damages was the value of the balls at the date of conversion in Australia by the respondent. Brine is also a case of inseverability.
In my view, when the issue is whether an article satisfies the definition of infringing copy, the task of the Court is to decide whether the making of that article constituted an infringement of the work.
If the Court is presented with goods that comprise infringing and non-infringing matter, it will be necessary to decide whether the goods can be severed into infringing and non-infringing components.
If the goods can be severed then the Court can find that it was the making of the infringing component that constituted an infringement of the work, and therefore that the infringing copy is only comprised by that component. In such a case the copyright owner is only entitled to damages that represent the value of the copyright material taken.
If the goods cannot be severed then the Court will find that it was the making of both components that constituted an infringement of a work, and therefore the infringing copy consists of both components. In such a case the copyright owner is entitled to damages that represent the value of the whole goods; Infabrics and Brine are two examples.
Similarly, in the case of an order for delivery up, where the defendant mixes the plaintiff’s work with work of his own. If it is physically possible to sever one from the other, the order for delivery up generally will apply only to the infringing material: Copinger and Skone James, 12th ed, para 648; Warne & Co v Seebohm (1888) 39 Ch 73; Nicols Advanced Vehicle Systems Inc v Rees [1979] RPC 127. But where the parts are practically inseparable, the order goes to the whole work: Stevens v Wildy (1850) 19 LJ Ch 190. See also Ravenscroft v Herbert [1980] RPC 193.
Although the two compact discs are sold in the one package they were made separately and are physically severable. As a consequence the relevant ‘infringing copy’ for the purpose of s 116 is the Cat Stevens compact disc.
The next step is to determine the appropriate value of the Cat Stevens disc. In my view, conversion damages under s 116 should be awarded in this case upon the basis of the wholesale price of the compact discs and cassettes in respect of which the applicants have copyright (including sales tax); but by apportioning on the basis of one-half of the wholesale price in the case of the Cat Stevens and Donovan compact discs and cassettes.
There is no evidence about the degree of preference of the buying public for the sound tracks of Cat Stevens or Donovan. To award the whole wholesale price with respect to the two compact discs and cassettes would, it seems to me, overcompensate the applicants. In the absence of evidence concerning the question whether the Cat Stevens or the Donovan compact disc or cassette is more popular, and likely to promote the sale of the two, the fairest way to deal with the question of apportionment is to put a line down the centre. The position may be different if there had been evidence that, for example, the Cat Stevens compact disc was far more popular than the Donovan disc; in which case there may be a case for adopting, as the conversion damages, the full wholesale price of the two compact discs; it depends on the facts of the case.
As discussed with counsel, I shall not determine the amount of the conversion damages to be awarded to the applicants. After the parties have considered my reasons for judgment, short minutes may be brought in preparatory to making the appropriate orders.
Damages under s 115(2)
I turn to the claim by the applicants for nominal damages under s 115(2) of the Act. Section 115 reads as follows:
115 (1) Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright.
(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.
(3) Where, in an action for infringement of copyright, it is established that an infringement was committed but it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not.
(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.’
Thus, the owner of a copyright may bring an action for infringement of a copyright (s 115(1)). Subject to the Act, the Court may grant relief in an action for an infringement of copyright including an injunction and either damages or an account of profits (s 115(2)).
Although the applicants elected to pursue damages under s 115(2), at one stage of the case the applicants did not press this claim. Doubtless this course was taken because conversion damages, which were also sought, are usually higher than compensatory damages under s 115(2), and applicants naturally prefer to obtain the higher award. It is unlikely that the applicants would have successfully claimed full damages under both s 115(2) and s 116 since the damages would overlap significantly and would be reduced by the extent of the overlap. See, for example, International Writing Institute Inc v Rimila Pty Limited (1994) 30 IPR 250 per Lockhart J at 255; Milpurrurru v Indofurn Pty Limited (1994) 54 FCR 240 per von Doussa J at 275-6; Columbia Pictures Industries Inc v Luckins (1996) 34 IPR 504 per Tamberlin J at 511; Ricketson, The Law of Intellectual Property at paras 12.12-13.
In any event, towards the end of the case the applicants revived their claim and sought nominal damages under s 115(2) in addition to conversion damages. The applicants’ reasons for persisting with this claim will become apparent when I deal with the additional damages issue.
Counsel for the respondents argued that the applicants should not succeed even in a claim for nominal damages. The basis for this submission was that, when there is an overlap between conversion damages and damages under s 115(2), so that the conversion damages go beyond that which would be awarded under s 115(2), s 115(2) damages are not available.
In my view, when there is an overlap between the two heads of damage it is necessary to reduce one of the heads by the overlap. However, there is no reason to reduce s 115(2) damages rather than conversion damages. Indeed, in Rimila, a case where there was an overlap, the Court reduced the conversion damages.
Since, the award of conversion damages in this case is substantial, only nominal damages of $1 are sought and will be awarded under s 115(2).
Additional damages
I turn to the claim by the applicants for additional damages under s 115(4) of the Act.
A Threshold Issue
Counsel for the respondents raised a threshold question of importance concerning the construction of s 115(4) and its relationship with ss 115(2) and 116. The researches of counsel and myself have not revealed any other case where the point has been decided.
Counsel for the respondents relied upon the opening words of s 115(4): ‘Where, in an action under this section ...’. It was argued that a claim for conversion damages under s 116 is not a claim for damages that arises in an action under s 115; but is a claim of a fundamentally different character. It was submitted that ‘an action under this section’ includes a claim for compensatory damages under s 115(2); but not a claim for conversion damages under s 116. If the only claim is for damages under s 116, it is outside the ambit of s 115(4).
As mentioned earlier, the applicants have been awarded nominal damages under s 115(2). They have also sought injunctions and a declaration. The point raised by counsel for the respondents does not therefore strictly arise; but I shall deal with it as it was fully argued and is important.
Before I do so, however, I should note that it is my view, as at present advised, that if only nominal damages are claimed and awarded under sub-s (2), the Court is entitled to make an award of additional damages under sub-s (4) provided, of course, the necessary preconditions upon which the award may be founded and prescribed by paragraphs (a) and (b) of sub-s (4) are satisfied. If the owner of a copyright seeks injunctive relief under s 115(2) and conversion damages under s 116, but not compensatory damages under sub-s (2), my present view is that the Court would still be empowered to make an award of additional damages under sub-s (4). I talk of my present view because it is not strictly necessary to decide the point in this case; but I have in deference to the argument presented to the Court dealt with the point albeit on a provisional basis.
On the other hand, the owner of a copyright may decide to bring an action in respect of the conversion or detention of an infringing copy or plate under s 116 and not otherwise sue for infringement of copyright under s 115. It was argued that such an action would therefore be an action in respect of conversion or detention and not for infringement of copyright.
If the only relief that is sought by the owner of copyright is conversion damages there may be some force in the argument that the action is not one for infringement of copyright; rather it is an action in respect of the conversion or detention in infringing copy or a plate. While I prefer to leave this question open I will make a few comments.
Section 134 was relied on by counsel for the respondent to support his argument. It provides as follows:
‘An action shall not be brought for an infringement of copyright or in respect of the conversion or detention of an infringing copy, or of a plate used or intended to be used for making infringing copies, after the expiration of six years from the time when the infringement took place or the infringing copy or plate was made, as the case may be.’
Section 134 is directed to limitation of actions. Although it speaks of an action for infringement of copyright or in respect of the conversion or detention of an infringing copy or plate, it does not follow that a claim for conversion damages under s 116 cannot be brought in an action for infringement under s 115. It would be odd if this were not so; and I do not read ss 115 and 116 as leading to a contrary conclusion. Also, it must be remembered that infringement of copyright must be established before an applicant can be entitled to conversion damages under s 116: Infabrics per Lord Scarman at 25-26. The expression ‘an action for infringement of’ copyright in sub-ss (1), (2) and (3) of s 115 should not be narrowly construed.
Counsel for the respondents also relied on the word ‘additional’ in sub-s (4) to support his argument. He argued that the word ‘additional’ is used in the sense of being an addition to an award of compensatory damages under sub-s (2) which must first be awarded.
In my view, the word ‘additional’, in conjunction with the word ‘damages’ in sub-s (4), is descriptive of the kind of damages that may be awarded, namely, additional in the sense of aggravated or exemplary damages which may contain a punitive component.
Therefore, although I recognize some attraction in counsel’s argument, I do not think it is sound. The owner of a copyright may bring an action for infringement of copyright (s 115(1)). The Court may grant various forms of relief including those mentioned in sub-s (2), namely, an injunction and either damages or an account of profits. The relief mentioned in sub-s (2) is by way of inclusion and is not exhaustive of the Court’s powers. The Court may also grant declaratory relief.
In any event, in my view there is no bar to the applicants succeeding in a claim for additional damages under sub-s (4) notwithstanding that they seek only nominal damages under s 115(2) and rely primarily on conversion damages under s 116 provided, of course, that the applicants can establish the matters of which the Court must be satisfied under s 115(4).
Principles governing additional damages
Section 115(4) of the Act empowers the Court to award ‘additional damages’ where infringement of copyright is established; and the Court is satisfied that it is proper to make such an award having regard to (i) the flagrancy of the infringement, (ii) any benefits shown to have accrued to the defendant by reason of the infringement and (iii) all other relevant matters.
It is not necessary that the Court be satisfied of each of (i), (ii) and (iii) as a precondition of an award of additional damages; but the Court must have regard to those three matters. In some cases the Court may not be satisfied that the infringement is flagrant, or that any benefit has accrued to the defendant by reason of the infringement; but it may be satisfied that there are other relevant matters which would justify an award of additional damages. The recent judgment of the Full Court of this Court in Raben Footwear Pty Limited v Polygram Records Inc (NG792/96), unreported, 16 May 1997 (the judgment of the trial Judge, Foster J, is reported at (1996) 35 IPR 426) is important. In that case the Full Court discussed the nature and purpose of s 115(4). It is authority for the question that it is necessary for the Court to consider all three matters in s 115(4)(b); but they are only matters for consideration; it is not necessary that all three be established. Also see Milpurrurru v Indofurn at 278-280; M Hall, ‘Additional damages under Section 115(4) of the Copyright Act’ (1995) 13(1) Copyright Reporter 22 at 23.
The term ‘flagrancy’ has been variously defined in the reported cases. It was described in Prior v Lansdowne Press Pty Limited (1975) 29 FLR 59 at 65 as a ‘calculated disregard of the plaintiff’s rights, or cynical pursuit of benefit’. In Ravenscroft v Herbert & New English Library Limited [1980] RPC 193 it was described at 208 as ‘the existence of scandalous conduct, deceit and such like; it includes deliberate and calculated copyright infringement’; not mere mistake or carelessness. If the infringer mistakenly believed that he or she owned the relevant copyright (Prior v Lansdowne Press) or acted in the bona fide belief that no copyright subsisted in the plaintiff’s work (International Credit Control Limited v Axelsen [1974] 1 NZLR 695) the conduct is not flagrant. See also Tyco Industries Inc v Interlogo AG [1987] 9 IPR 133 and on appeal to the Privy Council Interlego AG v Tyco Industries Inc [1988] 3 WLR 678.
The notion of ‘benefit’ accrued to the defendant by reason of the infringement, suggests that the defendant has reaped a pecuniary reward or advantage in excess of the damages he would otherwise have to pay: Ravenscroft v Herbert at 208; but it was observed by Somers J in Wellington Newspapers Limited v Dealers Guide Limited [1984] 2 NZLR 66 at 75 that the equivalent New Zealand provision (s 24(3) of the Copyright Act 1962, but now see s 121(2) of the Copyright Act 1994) is not necessarily limited to pecuniary advantages. In that case it appears that the benefit which would have accrued to the defendant by reason of the infringement was increased circulation of the defendant’s newspaper, even though no tangible financial benefit was in fact established.
The equivalent phrase in the United Kingdom Copyright Act 1956 to the phrase ‘all other relevant matters’ in the Act (s 115(4)(b)(iii)) was held by Ungoed-Thomas J in Nora Beloff v Pressdram Limited [1973] 1 All ER 241 at 267 to include the conduct of the defendant with respect to the infringement, and the motive for it, injury to the plaintiff’s feelings for suffering insults and indignities, and the plaintiff’s own corresponding behaviour. Some guidance about the matters which may be taken into account as ‘other relevant matters’ under s 115(4) may be those which are considered in a common law action for exemplary damages: see XL Petroleum (NSW) Pty Limited v Caltex Oil (Australia) Pty limited (1985) 155 CLR 448 per Gibbs CJ at 461 and Brennan J at 472.
Provisions comparable to s 115(4) exist in the United Kingdom (s 99(2) of the Copyright, Designs and Patents Act 1988 (UK), formerly s 17(3) of the Copyright Act 1956 (UK)) and in New Zealand (s 121(2) of the Copyright Act 1994 (NZ), formerly s 24(3) of the Copyright Act 1962 (NZ)).
Although assistance may be gleaned by Australian courts from cases decided in the United Kingdom and New Zealand which concern those provisions, as was observed in Bailey v Namol Pty Limited (1994) 53 FCR 102 at 113 by a Full Court of this Court, care must be observed in applying those authorities to the Australian section. While there are similarities in the comparable statutory provisions of those countries to s 115(4), there are also differences. The difference between s 115(4) of the Act and s 17(3) of the United Kingdom Act of 1956 (which was repealed in 1988) is that the latter provision contains the precondition that the Court be satisfied that effective relief would not otherwise be available to the plaintiff before it is entitled to award additional damages. The Full Court of this Court considered this difference in Bailey v Namol and said, at 113:
The United Kingdom provision was considered by Ungoed-Thomas J in Beloff v Pressdram Ltd [1973] RPC 765 at 788-790. His Lordship’s remarks provide authority for the propositions that (I) the reference to “effective relief” is directed purely to compensatory damages, (ii) accordingly, exemplary or punitive damages are outside the ambit of the subsection, and (iii) the subsection is a “code” in the sense that it replaces any aggravated damages that might otherwise have been attainable as a species of compensatory damages. Proposition (iii) would appear applicable to the Australian subsection, but not proposition (I) or (ii).
Australian courts may therefore award additional damages under s 115(4) upon principles which correspond to those governing awards of aggravated and exemplary damages at common law. Also see Autodesk per Burchett J at 739; Laddie Prescott & Vitoria, The Modern Law of Copyright and Designs, 2nd ed., 1995, vol 1, para 24.30.
It was also noted in Bailey v Namol at 113, that Australian courts, when awarding additional damages, are not constrained by the restrictions imposed in the United Kingdom upon the award of exemplary damages by Rookes v Barnard [1964] AC 1129 since that decision does not represent the common law in Australia: Australian Consolidated Press Limited v Uren (1967) 117 CLR 185. The High Court’s rejection of Rookes v Barnard was affirmed by the Privy Council in Australian Consolidated Press v Uren (1967) 117 CLR 221. The High Court subsequently reaffirmed its position in XL Petroleum (NSW) Pty Limited v Caltex Oil (Australia) Pty Limited (1985) 155 CLR 448 and Lamb v Cotogno (1987) 164 CLR 1. See also the view taken by Legoe J in Concrete Systems Pty Limited v Devon Symonds Holdings Limited (1978) 20 SASR 79 at 84-85; Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69, per Wilcox J at 76; Ricketson, The Law of Intellectual Property, 1984, at 297; Lahore, Intellectual Property in Australia, Copyright Law, 1988, para 4.15.230.
In New Zealand the Court of Appeal also rejected the limitations imposed by Rookes v Barnard in Taylor v Beere [1982] 1 NZLR 81.
It is therefore proper in an appropriate case when considering an award of damages under s 115(4) for the Court to have regard to any aggravation of the harm done to the plaintiff as a result of the infringement by the manner in which the Act was done, and also the need to mark the Court’s disapproval of that conduct: Bailey v Namol at 113-114.
Courts traditionally approach an award of additional damages under s 115(4) cautiously, as they do the award of exemplary damages generally. In Nichols Advanced Vehicle Systems Inc v Rees [1979] RPC 127 Templeman J referred at 140 to a ‘moderate, but not excessive, sum’ as the appropriate approach to be adopted in that case for assessing additional damages.
When conversion damages 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.
Admissibility of documents Marked for Identification 8 and 9
Before turning to the facts in relation to the applicants’ claim for additional damages, it is necessary to deal with the admissibility of two sets of documents which were tendered by counsel for the applicants, but objected to by counsel for the respondents.
Counsel for the applicants tendered two sets of documents which were marked for identification 8 and 9 (‘MFI 8’ and ‘MFI 9’). MFI 8 is a mixture of letters, faxes and notes relating to the infringement by the respondents of the copyright owned by the applicants of certain recordings by the artist Bob Marley.
MFI 9 is a copy of an affidavit of a solicitor employed by the solicitors for the respondents and having the conduct of this matter. The affidavit was filed in a related matter NG 629 of 1993 concerning the Bob Marley recordings. The affidavit has various annexures consisting mainly of correspondence and licence agreements. Matter 629 of 1993 is an action for infringement of the applicants’ copyright in the Bob Marley recordings and involves substantially the same issues as does the present matter.
Counsel for the respondents objected to the tender of the documents. I did not admit the documents when tendered, but said that I would rule on their admissibility when I delivered my reasons for judgment. I did not see that any prejudice would be sustained by the respondents by taking this course; nor was any identified.
I need not refer to the documents in detail. They were analyzed by counsel in oral and written submissions, and I have taken the submissions into account.
In summary, counsel for the applicants argued that the documents establish that Mr Hughes, the ‘moving mind’ of Golden Editions, with the participation of others, caused certain documents to be fabricated for the purpose of allowing the respondents to give the appearance of having a legitimate licence or legitimate ‘chain of title’ documents or documents on which in due course a defence of innocent infringement could be established in matter 629 of 1993. The principal document said to be fabricated is a licence agreement dated 12 July 1990 from the Wittington Entertainment Group Limited of the United Kingdom as licensor and Hughes Leisure Group as licensee concerning the Bob Marley recordings. I deal with these documents in my judgment in matter number 629 of 1993 concerning the Bob Marley recordings.
In my opinion, the documents included in MFIs 8 and 9 are not admissible in this proceeding (No 37 of 1993). They relate to the infringement by the respondents of the applicants’ copyright in the Bob Marley sound recordings. They do not relate to the infringement by the respondents of the applicants’ copyright in the Cat Stevens and Carpenters recordings the subject of this proceeding. I find in my reasons for judgment in matter no 629 of 1993, that the documents establish that the respondents during June 1993 caused to be fabricated for reward a purported licence in favour of Golden Editions concerning the Bob Marley recordings. But this does not bear upon the question of flagrancy of infringement in the present case or benefits shown to have accrued to the respondents by reason of the infringement or any other relevant matters (s 115(4)).
Should additional damages be awarded?
The applicants filed particulars of the matters on which they relied under s 115(4) which I need not recite. I am satisfied that, without the licence of the applicants, the respondents made or authorized the making of and sold multiple reproductions of the relevant Cat Stevens and Carpenters recordings. I am also satisfied, in relation to the infringements which have been admitted in this case, that at relevant times Mr Hughes (and therefore Golden Editions) knew that the applicants owned the copyright in the sound recordings of Cat Stevens and the Carpenters, and that they were aware that it was likely that the applicants were selling copies of the recordings in Australia at relevant times. Since at least June 1992, in relation to all the infringements, the respondents knew that the applicants asserted title to the recordings; and the respondents on more than one occasion wilfully breached undertakings given by them to the applicants on 3 July 1992 not to manufacture and/or distribute copies of any of the recordings. The respondents failed to disclose the existence of certain infringing copies of the recordings not previously disclosed to the applicants and of which the applicants were not previously aware until shortly before the commencement of the hearing of this proceeding. Notwithstanding the seriousness of this conduct by the respondents, it does not in my opinion relevantly bear on the question of additional damages under s 115(4). Whether it has a bearing on costs is a matter which may be determined later when I shall have the benefit of submissions and evidence concerning that question.
The Court declines to award additional damages under s 115(4).
Interest
Counsel for the respondents contended that, since the conversion damages awarded in the present case include an element of punitive or exemplary damages, s 51A(3)(c) of the Federal Court Act 1976 requires that interest should not be awarded upon such conversion damages or, in the alternative, upon that portion of the damages that is exemplary or punitive.
Section 51A(3)(c) reads as follows:
Where the sum for which judgment is given . . . includes. . . any amount for:
. . .
(c) exemplary or punitive damages;interest. . . shall not be given [on that amount].” (emphasis added)
The question of whether interest should be awarded on conversion damages does not seem to have been discussed in any reported case. There are cases, however, in which it has been decided that s 51A(3)(c) does not permit interest to be awarded on additional damages to the extent that they are punitive: Namol v A W Baulderstone (No 2) (1993) 47 FCR 388 per Davies J at 390; Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 per von Doussa J at 282.
Counsel for the applicants sought to draw a distinction between the ‘deeming effect’ of s 116 and the damages that result from that deeming. It was argued that, whilst the deeming may contain a punitive element, the damages that result from that deeming do not; and therefore conversion damages are not properly characterized as punitive.
In my opinion, to draw a distinction between the deeming effect and damages and to say that the former is punitive and the latter is not, is arbitrary and artificial. A brief review of the history of conversion damages reveals that their basis has always been, at least partly, to penalize. For example, under the first modern copyright legislation, the Statute of Anne (1709), it was stated that infringing copies were liable to seizure by and forfeiture to the copyright owner, who was required forthwith to ‘damask and make waste paper of them’. In addition an ‘offender’ was required to pay a penalty, in equal proportions, to the Crown and to the plaintiff.
The Copyright Law Review Committee, in its report on conversion damages, at p 12 para 32 states:
The requirements in the 1709 and 1814 Acts that infringing copies be destroyed indicate that deemed ownership of the copies by the plaintiff was not the legal basis of the requirement to forfeit.
The applicants also relied upon Richmark Camera Services Inc v Neilson-Hordell Ltd [1981] FSR 413. That case was concerned with the procedural rule that a defendant to an action for recovery of a penalty cannot be required to make discovery. The defendants submitted that conversion damages were a penalty. Dillon J said at 416:
“The right to conversion damages flows naturally from the copyright owner’s notional ownership of infringing material under section 18 [equivalent to s 116 of the Australian Act]. Conversion damages are not a penalty.”
. . .“There is no suggestion that conversion damages are a penalty: they are the consequence, by way of redress or compensation for a wrong, of the foundation laid by the statute by conferring on the copyright owner the ownership of all infringing copies. But that notional ownership is not granted, in my judgment, as a penalty for the defendant’s acts of commission of omission.”
The nature of conversion damages has also been considered in Australia. In an appendix to the Copyright Law Review Committee report on conversion damages it was stated (at p 43) that conversion damages contain punitive and exemplary elements. In Brine Fox J at 200 said:
“I think this [ie conversion damages] is an unreasonably excessive amount if the aim is simply to compensate the applicant for loss and damage he suffered. However, even a cursory examination of the history of copyright, and of the earlier Acts, discloses that there was a penalty aspect in the remedies given.”
In Autodesk v Yee Burchett J at 739 said that s 116 was:
“penal in effect. (It is not, of course, a provision in form imposing a penalty: Richmark Camera Services Inc v Neilson-Hordell Ltd [1981] FSR 413.)”
I agree with this statement by Burchett J. Although conversion damages are not a penalty per se, they may, and will often be, penal or punitive in effect.
Of course, this conclusion does not mean that conversion damages are equivalent to punitive or exemplary damages; but, in my view, they do not need to be for s 51A(3)(c) of the Federal Court Act 1976 to apply. That section contemplates that only part of an amount awarded may be punitive or exemplary.
That was the approach taken by von Doussa J in Milpurrurru. In that case von Doussa J awarded additional damages under s 115(4), but held that only part of those damages were punitive. His Honour said at 282:
“The damages under s 115(4) are in part punitive in nature, and to that extent do not carry interest”
I agree with his Honour. It follows that interest on conversion damages should be awarded to the extent that they are compensatory, but should not be awarded otherwise. The traditional test for measuring compensatory damages is the depreciation caused by the infringement to the value of the copyright. Interest should be awarded only upon that amount.
The assessment of the appropriate amount of interest is arbitrary to some extent. In my opinion the starting point is that interest should be calculated on the amount of conversion damages to be awarded, from 1 September 1990 to the date of the Court’s orders on the basis set out in the written calculations submitted by counsel for the parties. The amount so calculated should then be reduced by twenty-five per cent.
Conclusion
The only orders which the Court will make at this stage is that the matter be adjourned for a short period to enable the parties to consider these reasons for judgment. The Court directs the applicants to bring in short minutes of order to give effect to them and later to deal with the question of costs.
I certify that this and the preceding sixteen (16) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lockhart
Associate:
Dated: 30 July 1997
Counsel for the Applicants: Mr R Cobden Solicitor for the Applicants: Gilbert & Tobin Counsel for the Respondent: Dr A S Bell Solicitor for the Respondent: Banki Palombi Haddock & Fiora Date of Hearing: 2, 3 & 4 June 1997 Date of Judgment: 30 July 1997
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