SBO Pictures Inc v KAOS Shop Pty Ltd
[2006] FMCA 82
•27 January 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SBO PICTURES INC & ORS v KAOS SHOP PTY LTD & ORS | [2006] FMCA 82 |
| COPYRIGHT – Respondent consented to orders, on liability, in the final relief sought in the application – applicant elects for assessment of damages – compensatory damages (on a conversion basis) – additional damages. |
Copyright Act 1968 (Cth), Part 5, ss.115(2), 115(4), 116(1)
Corporations Act 1968 (Cth)
Commonwealth Classification (Publications, Films and Computer Games) Act 1995 (Cth)
Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW)
Crimes Act 1900 (NSW)
Federal Magistrates Court Rules 2001 (Cth), Part 7, Rule 7.01
Fraserside Holdings & Anor v Venus Adult Shops & Ors [2005] FMCA 997
Dr Martens Australia Pty Ltd & Ors v Bata Shoe Co of Australia Ltd & Ors [1997] 505 FCA
LED Builders Pty Ltd v Eagle Homes Pty Ltd [1996] 972 FCA 1
Island Records Ltd v Tring International Plc [1996] 1 WLR 1256
Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69
Sullivan v FNH Investments Pty Ltd t/as Palm Bay Hideaway [2003] FCA 323
Bailey v Namol Pty Ltd (1994) 53 FCR 102
Fenning Film Service Ltd v Wolverhampton Walsall & District Cinemas Ltd [1914] 3 KB 1171
Microsoft Corporation v Goodview Electronics Pty Ltd (2001) 49 IPR 578
Birn Bros Ltd v Keene & Co Ltd [1918] 2 Ch 281
Prior v Lansdowne Press Pty Ltd [1977] VR 65
Columbia Pictures Industries v Robinson [1988] FSR 531
Polygram Pty Ltd & Ors v Golden Editions Pty Ltd & Anor (1994) 30 IPR 183
Microsoft Corporation v Ezy Loans Pty Ltd [2004] FCA 1135
Ravenscroft & Herbert v New English Library Ltd (1980) RPC 193
Microsoft Corporation & Anor v Atifo Pty Ltd & Ors (1997) 38 IPR 643
Autodesk Inc v Yee (1996) 68 FCR 391, 394
Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88
Microsoft Corporation v Glostar Pty Ltd [2003] FCA 210
Microsoft Corporation v Goodview Electronics Pty Ltd [2000] FCA 1852
Prior v Sheldon [2000] FCA 438
Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88
| First Applicant: | SBO PICTURES INC t/a WICKED PICTURES |
| Second Applicant: | CALVISTA AUSTRALIA PTY LTD |
| Third Applicant: | ADULTSHOP.COM LTD |
| First Respondent: | KAOS SHOP PTY LTD |
| Second Respondent: | PLATINUM INTERACTIVE PTY LTD |
| Third Respondent: | THEO ARMENIS |
| File No: | SYG2937 of 2004 |
| Delivered on: | 27 January 2006 |
| Delivered at: | Sydney |
| Hearing date: | 3 February 2005 |
| Judgment of: | Lloyd-Jones FM |
REPRESENTATION
| Counsel for the Applicants: | Mr J M Hennessy |
| Solicitors for the Applicants: | Gilbert & Tobin |
| Counsel for the Respondents: | Mr T Hall |
| Solicitors for the Respondents: | Tzovaras Legal |
ORDERS
Judgment be entered under s.115(2) of the Copyright Act 1968 (Cth) against the respondents for the applicants in the sum of $3,500.00.
Judgment be entered under s.115(4) of the Copyright Act 1968 (Cth) against the respondents for the applicants in the sum of $46,500.00.
The respondents are jointly and severally liable to the applicants for the damages awarded under s.115(2) and s.115(4) of the Copyright Act 1968 (Cth) in Orders 1 and 2 respectively.
The respondents are to pay the applicants’ costs of the proceedings.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG2937 of 2004
| SBO PICTURES INC t/a WICKED PICTURES |
First Applicant
| CALVISTA AUSTRALIA PTY LTD |
Second Applicant
| ADULTSHOP.COM LIMITED |
Third Applicant
And
| KAOS SHOP PTY LTD |
First Respondent
| PLATINUM INTERACTIVE PTY LTD |
Second Respondent
| THEO ARMENIS |
Third Respondent
REASONS FOR JUDGMENT
The proceedings concern infringement of copyright in cinematograph films and corresponding slick and disc artwork contrary to the Copyright Act1968 (Cth) (“the Act”).
The first applicant is a corporation incorporated in the United States of America. The second and third applicants are each corporations incorporated in Australia under the Corporations Act 1968 (Cth). The first and second respondents are incorporated under the Corporations Act 1968 (Cth) and the third respondent is the sole director, secretary and shareholder of both the first and second respondents.
The proceedings involve films produced by the first applicant being reproduced on digital video disks (DVD’s) without authorisation. The first and second respondents were offering the DVD’s for sale
on their two internet sites, namely and and in retail outlets operated by them.
The applicants alleged, and prior to the hearing the respondents admitted, that the respondents have sold, or offered for sale, DVDs embodying the following films and, in doing so, infringed copyright in the following cinematograph films:
a)Flashpoint
b)Jinx
c)Jenna Ink
d)Priceless
e)The Wicked One
f)Silver Screen Confidential
g)Satyr
h)Dangerous Tides
i)Conquest
j)Jenna’s Built for Speed
k)Hell on Heels
l)Hard Evidence
m)The Kiss
n)Cover to Cover
o)Phantasm
p)Pure
q)Lip Service
r)Jenna’s Revenge
Hereinafter known as the “Infringing Films”.
The respondents also conceded infringement of copyright in the slick and disc artwork corresponding to the Infringing Films.
The Infringing Films consist entirely of films commonly known as “adult films”. The classification of films is determined nationally under the Commonwealth Classification (Publications, Films and Computer Games) Act 1995 (Cth) and enforcement is a matter for the State. In New South Wales the classification scheme is enforced by the Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW) “the NSW Classification Enforcement Act” and certain sections of the Crimes Act 1900 (NSW). Under s.6 of the NSW Classification Enforcement Act it is an offence to sell or publicly exhibit classified adult films (RC or X 18+ rated) or unclassified films in New South Wales. However classified adult films are legally available for sale or exchange from the Australian Capital Territory and the Northern Territory.
I am guided by the reasoning of his Honour Raphael FM in Fraserside Holdings & Anor v Venus Adult Shops & Ors [2005] FMCA 997 (“Fraserside Holdings”) in respect of the enforcement of copyright protection in adult films. His Honour found that while the sale and distribution of adult films in New South Wales is illegal they are not “so grossly immoral or pornographic that they should lose the protection of the Copyright Act”. His Honour also noted that the Federal Magistrates Court is a national court that should apply national standards. See Fraserside Holdings at [41]. It is for each State to enforce the Commonwealth classification scheme.
Procedural history
The proceedings commenced on 24 September 2004 when the applicants filed an ex parte application for interim injunctive relief, restraining the respondents from engaging in copyright infringing conduct and seeking delivery up of the copyright infringing material.
On 24 September 2004 I made orders granting the injunctive relief sought. The orders included granting interim injunctions, orders for the delivery up to a nominated representative of the applicants copies of the films the subject of the proceedings in the possession of the respondents and orders as to the service of documents on the respondents.
The orders of 24 September 2004 contained a typographical error and were amended pursuant to Part 7, Rule 7.01 of the Federal Magistrates Court Rules 2001 (Cth) on 27 September 2004.
At the first directions hearing on 6 October 2004 I made procedural orders. The orders included setting out a timetable for the filing and serving of any response and evidence, and the listing of the matter for further directions and final hearing.
The respondents did not comply with the orders of 6 October 2004 as they did not file and serve any response, nor did they file and serve any evidence, by the specified dates. Further, the respondents did not comply with the orders of 24 September 2004 as they did not deliver up all copies of the Infringing Films and films from the Wicked Pictures Catalogue and they continued to offer and exhibit for sale the Infringing Films and films from the Wicked Pictures Catalogue.
Eventually on 11 November 2004 the applicants received the delivery up material which contained a number of DVDs, embodying further films (numbered (f) to (r) in the list in paragraph 4 above), which were also copyright infringing. The applicants added those films and the corresponding disc and slick artwork to their claim.
At the second directions hearing on 11 November 2004 I made further procedural orders. The orders included setting out a timetable for the discovery of documents and the notification of any objections to affidavits intended to be relied on at trial and any witnesses required for cross examination.
The respondents did not comply with the orders of 11 November 2004 as they failed to file and serve a verified list of documents and give discovery in accordance with the orders by the specified dates. The eventual discovery was delayed and incomplete. Just three substantive documents were discovered together with some material downloaded from the internet and some monthly catalogues that the applicants had previously exhibited to affidavits. The respondents did not provide documents requested in most of the categories of the applicants’ list of categories. Furthermore, the respondents failed to notify the applicants of any objections to any part of the applicants’ affidavits by the specified date and did not provide notification of the witnesses required for cross-examination until the commencement of the final hearing. The respondents did not file and serve any affidavits they proposed to rely upon by the due date. The respondents did not proceed with their security for costs application.
On 1 December 2004 the respondents indicated that they could not comply with the orders of the Court due to the third respondent’s ill health and stated that the final hearing scheduled for 3 December 2004 needed to be stood over to a further date. Orders were made requiring the respondents to file an affidavit attaching a medical report indicating the nature of the third respondent’s ill health, his ability to engage in proceedings, the expected date of his return to health and the nomination of an alternative to appear at the hearing should he not return to health before 3 February 2005.
At the commencement of the final hearing on 3 February 2005 the Court was advised that each of the respondents had consented to orders and declarations 1 to 7 of the applicants’ amended application. Consent orders were made by the Court that effectively dealt with the liability issues of the application.
The remaining issue for the Court to determine was whether an order for damages or an order for account of profits as against the first and second or first, second and third respondents is an appropriate course.
Statutory claim for damages
The applicants elected to seek relief in the form of damages as opposed to an account of profits. It is submitted by the applicants that the affidavit of Graeme Dunne sworn 1 December 2004 and filed on
2 December 2004, at paragraph 7, put the respondents on notice that the applicants had elected to seek damages.
The claim for damages was pressed under ss.115(2), 115(4) and 116(1) of the Copyright Act 1968 (Cth) (“the Act”). Relevantly, the sections provide:
Section 115 – Actions for infringement
(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; and
(ia)the need to deter similar infringements of copyright; and
(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; and
(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; and
(iii) any benefit shown to have accrued to the defendant by reason of the infringement; and
(iv) all other relevant matters;
the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.
Section 116 – Rights of owner of copyright in respect of infringing copies
s)The owner of the copyright in a work or other subject-matter may bring an action for conversion or detention in relation to:
i)an infringing copy; or
ii)a device (including a circumvention device) used or intended to be used for making infringing copies.
The applicants’ claims
In their final submissions the applicants’ claim:
a)declaratory relief pursuant to s.115(2);
b)injunctive relief pursuant to s.115(2);
c)damages pursuant to s.116, being damages determined on a conversion basis; and
d)additional damages pursuant to s.115(4).
The applicants’ submissions on damages
In relation to the relief claimed under s.115(2) of the Act, the applicants submit that declaratory relief is appropriate as a vindication of the applicants’ rights and serves as a useful and necessary purpose of deterring further infringements of copyright. The applicants also submit that a permanent injunction is necessary to protect the applicants’ rights given the uncertainty surrounding the number of DVDs procured by the respondents.
Pursuant to the construction of s.115 the applicants have elected to seek relief in the form of damages as opposed to an account of profits, and submit that conversion damages are an appropriate remedy. The applicants, citing the relevant authorities, stated that a party should not be required to make such an election unless the party is able to make an informed choice. It is submitted that the conduct of the respondents has prevented the applicants from being informed of matters relevant to the election in favour of an account of profits.
In relation to the relief claimed under s.116 of the Act, the applicants acknowledge that the Court’s discretion to award damages under s.116 is limited by a number of matters including the sufficiency of the relief granted under s.115 (see s.116(1C)) and submit that the Court may grant relief under s.116 in addition to relief under s.115 of the Act (see s.116(1B)). The applicants claim that damages under s.115 would not be a sufficient remedy in the present case.
In relation to the relief claimed under s.115(4) of the Act, the applicants submit that this is a clear and appropriate case for an award of very substantial additional damages. They contend there need not be any proportionality between the amount of damages awarded under s.115(2) and the amount awarded under s.115(4). The applicants submit that the flagrant conduct of the respondents includes distributing and selling significant numbers of the Infringing Films, altering the presentation of the Infringing Films, passing off, reaping undeserved financial benefit and a showing a lack of remorse. In addition, the applicants submit that the Court, in determining the award of additional damages, should take into account aggravating factors such as the need for deterrence and the respondents’ conduct after the infringements were identified and they were put on notice.
The respondents’ submissions on damages
In relation to the relief claimed under s.115(2) of the Act, the respondents have consented to the granting of such relief in final form.
The respondents have opposed orders and declarations sounding in damages but have consented to an order for an account of profits. The respondents submit that an entitlement to damages is a discretionary remedy and there is no claim or entitlement to damages where a respondent in proceedings establishes that a breach of copyright was entirely innocent. The respondents assert that in circumstances of innocence, the legislative preference is for an account of profits: s.115(3) of the Act. It is submitted that damages must be specifically proven, and the respondents contend that damages have not been proven in any manner at all.
In relation to the relief claimed under s.115(4) of the Act, the respondents agree that additional damages may be awarded where a breach is flagrant. However it is contended there is no evidence that the applicants made a demand upon the respondents as to the sale of the infringing material, or the cessation thereof, before the proceedings were commenced. The respondents submit that the respondents’ evidence suggests that the respondents have complied with the ex parte orders of 24 September 2004, specifically the order for delivery up, and that the infringement was unwitting or innocent. It is clear that the respondents do not consent to conversion damages pursuant to s.116 of the Act. In relation to damages generally, the respondents submit that it is not possible for the first and second applicants to make out any entitlement as they had no right to sell the infringing material on the Australian market in DVD format.
The respondents object to the majority of evidence put forward by the applicants on the question of damages on the grounds of admissibility and relevance. I will detail below the evidence put forward by the parties.
Finally, the respondents submit that any orders for damages, an account of profits or costs could only be made against the first and second respondents, these entities being the entities through whom the applicants understood the respondents carried on or perpetuated any form of infringing business. It is submitted that an order against the third respondent, effectively a piercing of the corporate veil, cannot be justified.
The applicants’ evidence
Much time was spent at the final hearing determining the evidence to be relied upon on the issue of damages. This was a somewhat time consuming and convoluted process. For these reasons I have summarised separately and in some detail the evidence given by each witness for the applicants. The applicants relied on the evidence of a number of witness, among whom were Mr David Hugh Newnham, the General Manager of the second respondent, Mr Graeme Edward Dunne, Executive Officer of the Adult Industry Copyright Organisation (AICO) and Ms Jasmine Clubb, a solicitor employed by Gilbert & Tobin, solicitors for the applicants. Prior to the hearing the applicants advised the respondents it was their opinion that all of the witnesses referred to by the applicants in correspondence (other than Mr Steven Vlottes and Mr Malcolm Day) had sworn affidavits that go to the question of damages. The respondents did not seek to cross-examine any of the applicants’ witnesses, although all were present in Court for the final hearing of the matter.
Mr David Hugh Newnham
The applicants seek to read and rely on the following affidavits of Mr Newnham:
a)the affidavit of Mr Newnham sworn on 21 September 2004; and
b)the affidavit of Mr Newnham sworn on 26 November 2004.
Much of the affidavit of Mr Newnham sworn on 21 September 2004 goes to the liability issues of the proceedings. However, in respect of damages there are essentially 2 paragraphs in issue, namely paragraph 31, which goes to a belief of lost sales, and paragraph 32, which implicates the respondents in other instances of breach of copyright. The respondents object to the entire affidavit on the basis that it does not address in any substantial way the question of damages and specifically press objections to the abovementioned paragraphs. It is submitted these paragraphs express a mere assertion or alternatively an opinion, in which case it needs to be an expert opinion. This affidavit was ruled upon at final hearing. Ultimately nothing substantial hinged on this affidavit as infringement is not in issue. It was therefore appropriate to rule out the contentious paragraphs as being irrelevant to the assessment of damages and the second sentence of paragraph 32 was withdrawn by the applicants’ Counsel. The substance of this affidavit is irrelevant to these proceedings.
The affidavit of Mr Newnham sworn on 26 November 2004 contains a list of films which are subject to the Video Licence Agreement between the first and second applicants, and the licence period for each film. There are some films for which the licence period is still current. Paragraphs 21 and 22 detail the exclusive distribution agreement between the first and second applicants. The respondents object to these paragraphs on the basis of their relevance. It is submitted the liability issues have been dealt with by the consent orders and any contractual agreement between the first and second respondents is not relevant on the question of damages. I accept the respondents’ submissions in respect of paragraphs 21 and 22 and accordingly rule those paragraphs out as infringement is not in issue. However, the remainder of the affidavit, and particularly the list of films and their respective licence periods, is relevant to the issue of damages and remains admissible.
Mr Graeme Edward Dunne
The applicants seek to read and rely on the following affidavits of Mr Dunne:
a)the affidavit of Mr Dunne sworn on 24 September 2004;
b)the affidavit of Mr Dunne sworn on 26 November 2004; and
c)the affidavit of Mr Dunne sworn on 1 December 2004.
Again, much of the affidavit of Mr Dunne sworn on 24 September 2004 goes to the liability issues of the proceedings. The affidavit of Mr Dunne is relied upon by the applicants to establish the indicia of adult film piracy and to provide an indication of the problems faced by the industry. It is submitted that this is relevant to knowledge and thus the issue of additional damages. The respondents object to this affidavit on two grounds. Firstly, it is contended that Mr Dunne is giving evidence in relation to breaches of copyright and to this extent the affidavit is irrelevant. Secondly, the respondents contend that it is not appropriate for Mr Dunne to be fulfilling the roles of both prosecutor and expert witness, and in any event the evidence does not comply with the rules for the admissibility of expert evidence. After reviewing the affidavit I stand by the comments I made at the final hearing, and that is, that the affidavit does not address substantially the relevant issue for the Court to determine as breach of copyright is no longer in issue. Mr Dunne’s affidavit which details adult film piracy investigations, Mr Dunne’s role in the investigations and the indicia of the piracy, whilst relevant to the issue of breach of copyright is not relevant to the assessment of damages. The affidavit is ruled out on the basis of relevance and it is therefore unnecessary for me to consider the affidavit further.
The purpose of the affidavit of Mr Dunne sworn on 26 November 2004 is to itemise the 91 DVDs delivered up by the respondents and annex these DVDs to the affidavit. The contentious paragraphs of the affidavit detail Mr Dunne’s analysis of the delivery up DVDs (paragraphs 6-12) and report on the quantity of the delivery up DVDs (paragraphs 13-15) which the applicants submit is relevant to knowledge and the question of additional damages. The respondents argue that the applicants do not specify the matter in which the affidavit is relevant to the question of additional damages and moreover submit that the affidavit purports to give expert evidence which does not comply with the rules for the admissibility of such evidence. I accept the applicants’ submissions that the affidavit is relevant to the question of additional damages. In my opinion, the analysis undertaken by Mr Dunne together with the DVDs delivered up by the respondents is relevant to flagrancy of breach of copyright. It is also my opinion that one is not required to be an expert witness to report on the comparison between the delivery up DVDs and the corresponding authentic DVDs. Such analysis could be undertaken by any reasonable person without the need of “specialised knowledge” by reason of specific training, study or experience.
The applicants relied on the affidavit of Mr Dunne sworn on
1 December 2004 to put into evidence the election made by the applicants in respect of damages as opposed to an account of profits and to provide one component of the damages calculation, namely the conversion component. In paragraphs 8-20 the affidavit goes through the title and assesses the value of each trap purchase DVD. This process is repeated in paragraphs 21-23 in respect of the delivery up DVDs. At paragraph 24 the total conversion damages are calculated to be $3,564.65. In respect of this affidavit, the respondents again submit that it is not appropriate for Mr Dunne to be fulfilling the roles of both prosecutor and expert witness. It is submitted anything Mr Dunne has ventured by way of an expert opinion in these proceedings ought not be received into evidence. This affidavit is relevant to the question of damages as it establishes the applicants’ election between damages and an account of profits. In my opinion it goes to conversion damages under s.115(2) of the Act, the purpose of such damages being to compensate the wronged party for the loss suffered as a result of the breach of copyright. Again, it is my opinion that one is not required to be an expert witness to determine conversion damages, the calculation of which requires only simple arithmetic skills.
The investigators
There were four affidavits filed in these proceedings by investigators contracted by the applicants to conduct trap purchases. The applicants seek to read the following affidavits:
a)the affidavit of Mr Bush sworn on 23 September 2004;
b)the affidavit of Mr Robinson sworn on 22 September 2004;
c)the affidavit of Mr Warren sworn 22 September 2004; and
d)the affidavit of Mr Donnelly sworn 23 September 2004.
It was agreed by the parties that subject to a general submission on relevance the material will go in. The respondents submit that the affidavits of the investigators simply prove the infringement which is admitted.
Ms Jasmine Clubb
There were two affidavits of Ms Clubb filed in these proceedings:
a)the affidavit of Ms Clubb sworn on 6 October 2004; and
b)the affidavit of Ms Clubb sworn on 11 November 2004.
The purpose of the affidavits of Ms Clubb are to put into evidence material pertaining to the service of documents on the respondents, the difficulties encountered serving the third respondent and the respondents’ failure to comply with procedural and injunction orders. It is submitted by the applicants that the affidavits of Ms Clubb are relevant to the issue of an award of additional damages. It is submitted by the respondents that the affidavits of Ms Clubb are irrelevant to the issues of breach of copyright and flagrancy of breach of copyright. It has been accepted that the affidavits be admitted in so far as they go to the question of the respondents’ conduct in these proceedings, which is relevant to the issue of costs. It is my opinion that the conduct of the respondents is also relevant to the assessment of an award of additional damages, in particular the flagrancy of the infringement. It is unnecessary to consider the affidavit as going to breach of copyright as infringement is not in issue.
The respondents’ evidence
The respondents relied on the evidence of Mr John Tomaras, a solicitor employed by Tzovaras Legal, solicitors for the respondents. The respondents pressed the admission of the following affidavits of Mr Tomaras:
a)the affidavit of Mr Tomaras sworn on 16 December 2004 (annexing the report of Dr Robert Hampshire); and
b)the affidavit of Mr Tomaras sworn on 2 February 2005.
To the extent that the third respondent has been unable to properly give instructions and assist in the proceedings, the respondents submit that the affidavits of Mr Tomaras are a necessary component of the respondents’ case.
The purpose of the affidavit of Mr Tomaras sworn on 16 December 2004 was to put into evidence the medical report of Dr Robert Hampshire, Consultant Psychiatrist. The medical report had been provided as a result of the Orders made by the Court on 1 December 2004. At the directions hearing on this date the respondents stated the final hearing scheduled for 3 December 2004 needed to be stood over to a further date because of the third respondent’s ill health. Orders were made by the Court vacating the scheduled hearing and re-listing the matter for final hearing on 3 February 2005. In addition, the following order was made:
“3.The third respondent file an affidavit with an attached medical certificate by 4.00 pm on 15 December 2004 indicating the nature of the third respondent’s ill health, his ability to engage in proceedings, the expected date of his return to health and the nomination of an alternative representative of the third respondent to provide instructions and appear at the hearing should he not return to health before 3 February 2005.”
The respondents relied on the affidavit of Mr Tomaras sworn on
16 December 2004 on the basis that the medical report of Dr Hampshire diagnoses the third respondent as suffering from a specific medical condition and suggests that the third respondent may be ready to stand trial not earlier than March 2005. An alternative representative of the third respondent was not nominated.
Some time was spent at the final hearing discussing the admissibility of the affidavit of Mr Tomaras sworn on 2 February 2005. The affidavit suggests that the respondents’ case in preparation for trial has been further exacerbated by the third respondent’s uncle’s passing as it was submitted the third respondent’s capacity to issue proper instructions had been affected by his uncle’s illness. The parties argued over the admissibility of the evidence of Mr Tomaras. The respondents submit that the material ought to be admitted as first hand hearsay. The applicants submit the affidavit is inadmissible as it is unsupported hearsay and was filed in prejudice and in contravention of the orders of the Court. The contentious material was exhibited at JT1 and JT3. Exhibit JT1 was a letter which detailed the third respondent’s uncle’s illness and exhibit JT3 was the draft affidavit of the third respondent. After some discussion the exhibits were ruled upon at final hearing and removed from the affidavit. I note the submissions of the applicant that they have been and remain unable to test the evidence particularly given the third respondent’s absence from the proceedings. I also note the applicants’ submissions in respect of prejudice and comment that the Court is also inconvenienced by the failure to comply with procedural orders. Although the draft affidavit of the third respondent was not allowed into evidence, the annexures to that affidavit have been exhibited as business records. It is submitted these records are telling of the third respondent’s story.
Reasons
Relief pursuant to s.115(2) where the applicants seek declaratory relief, injunctive relief and damages
The applicants seek damages under s.115(2) of the Act. That is, damages for infringement as opposed to an account of profits. Judgment cannot be obtained for both damages and account of profits. As stated by his Honour Goldberg J in Dr Martens Australia Pty Ltd & Ors v Bata Shoe Co of Australia Ltd & Ors [1997] 505 FCA:
“The authorities make it clear that damages and an account of profits are inconsistent remedies and that prior to final judgment, an election must be made as to which remedy to pursue.”
An election is not required until the applicants can make an informed decision. The applicants submit the respondents have not informed them of the matters relevant to the election in favour of an account of profits. They attribute this to the failure of the respondents to give discovery, the absence of paperwork, invoices, or other documentation to confirm the number of DVD copies of the Infringing Films purchased and sold by them. See Lindgren J’s decision in LED Builders Pty Ltd v Eagle Homes Pty Ltd [1996] 972 FCA 1 where his Honour agrees with his Lordship Lightman J in Island Records Ltd v Tring International Plc [1996] 1 WLR 1256 that:
“ … a party should in general not be required to elect or be found to have elected between remedies unless and until he is able to make an informed choice. A right of election, if it is to be meaningful and not a mere gamble, must embrace the right to readily available information as to his likely entitlement in case of both the two alternative remedies. It is quite unreasonable to require the plaintiff to speculate totally in the dark as to whether or not the sum recoverable by way of damages will exceed that recoverable under an account of profits.”
I accept the applicants’ submissions that it is unclear how extensive the respondents infringing activities have been. The applicants attribute the lack of clarity to ineffective discovery provided by the respondents who effectively produced three invoices and delivered up 18 of the respondents’ titles comprising 88 DVDs, in circumstances where they had been advertising 27 of the respondents’ titles on their website (see the affidavit of Mr Dunne sworn on 26 November 2004, p.7). It can be reasonably inferred from the evidence that only limited material has been provided by the respondents therefore preventing the precise determination of an account of profits. The respondents indicated that all the product was delivered as finished goods and that none of the DVDs or any parts were manufactured by the respondents.
The applicants are claiming declaratory relief under s.115(2) of the Act. Declaratory relief is appropriate as a vindication of the applicants’ rights and serves as a useful and necessary purpose of deterring further infringements of copyright. The respondents have consented to a making of such an order by execution of consent orders.
Pursuant to s.115(2) the applicants are also claiming injunctive relief. The applicants submit a permanent injunction is necessary to protect the applicants’ rights. The respondents have submitted to a making of such an order by execution of consent order.
Section 115(2) damages are assessed according to what is necessary to compensate the defendant for the loss suffered as a result of the breach: Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 (“Autodesk Australia Pty Ltd”), Sullivan v FNH Investments Pty Ltd t/as Palm Bay Hideaway (“Sullivan”) [2003] FCA 323. The circumstances in which copyright infringements occur vary widely and measure of damages must be specific to the facts of each case. In many cases a licence fee or royalty will be an appropriate measure: see Bailey v Namol Pty Ltd (1994) 53 FCR 102 at 110-112 per Burchett, Gummow and O’Loughlin JJ.
There is no one fixed method of assessment which can be applied to all cases, and damages will therefore need to be assessed by the Court according to the circumstances of each case: Fenning Film Service Ltd v Wolverhampton Walsall & District Cinemas Ltd [1914] 3 KB 1171 (“Fenning Film Service Ltd”) at 1174 per Horridge J.
In some instances, the appropriate measure will be the fee that the copyright owners might otherwise have fairly charged for the use of their work by the defendant: see for example Microsoft Corporation v Goodview Electronics Pty Ltd (2001) 49 IPR 578 at 590 (the fee that would have been earned by the applicant where consumers would have purchased genuine, rather than infringing, copies of its software). In other cases, particularly where the work is published, a more useful measure may be the loss of sales suffered by the plaintiff: Birn Bros Ltd v Keene & Co Ltd [1918] 2 Ch 281; Fenning Film Service Ltd at 174; Prior v Lansdowne Press Pty Ltd [1977] VR 65. Certainty of proof that this loss of sales was caused by pirate marketing will usually be impossible, but courts will readily assume that some loss of legitimate sales has occurred once there is proof of pirate marketing, and they will assess damages accordingly. In Columbia Pictures Industries v Robinson [1988] FSR 531 at 536, Scott J said (in a case involving the sale of infringing films):
“Where reasonable commercial expectations for the film in question are established in evidence and where, relatively to other comparable films, the market has been established, the copyright owner is, in my judgment, entitled as against the pirates and in the absence of any other explanation for the lack of success of the film in question to attribute the shortfall in sales to the activities of the pirate.”
While it is alleged the respondents failed to give any proper discovery, the evidence of Mr Dunne indicates that such loss amounts to the loss of sales of Infringing Films by each of the applicants and a loss of $3,564.65 is calculated on the basis of conversion of the Infringing Films: See the third affidavit of Mr Dunne sworn on 1 December 2004 at [9]-[24]. This method of assessment is usually adopted in determining the level of damages under s.116. I do not intend to award damages under that section and the reasons for that decision are set out below. In the absence of any other evidence or submission, the value of the applicants’ loss is not readily determined. I will adopt this method of assessment for the value and use the figure of $3,500.00 as the amount of compensatory damages under s.115(2) of the Act.
I acknowledge that there is an alternative approach to the assessment of damages by awarding nominal damages under sub-s.(2) and conversion damages under s.116. There is yet another option of not awarding any compensatory damages under sub-s.(2) and the conversion damages under s.116. In both these approaches, the Court would still be empowered to make an award for additional damages under s.115(4). However, while damages for infringement and for conversion are distinct heads of relief and are cumulative, they must not be awarded in such a way as to overlap. The plaintiff should not obtain the same damages twice over. The owner of a copyright may decide to bring an action in respect of conversion or detention of an infringed copy under s.116 and not otherwise sue for infringement of copyright under s.115. Such an action would therefore be an action in respect of conversion or retention and not for infringement of copyright: Polygram Pty Ltd & Ors v Golden Editions Pty Ltd & Anor (1994) 30 IPR 183.
Irrespective of the approach adopted, the value of any damages to be awarded under these various approaches remains relatively small as there is an absence of evidence or submissions outside of the criteria set out above and supported in the evidence of Mr Dunne.
The fact that compensatory damages are relatively small does not deprive the applicants of such damages. One might draw the conclusion that there are more of the Infringing Films in existence than that which have been produced. Only 19 titles comprising 91 DVDs were delivered up by the respondents. Of these, three were copies of a DVD which was not released by the applicants. That left 18 of the applicants’ titles comprising 88 DVDs. It is the evidence of Mr Dunne that he reviewed the respondents’ website on 30 September 2004 and noted that there were 27 of the applicants’ titles advertised for sale. It is also the evidence of Mr Dunne that the active sides of the discs of a number of trap purchase DVDs were blue or purple in colour (indicating that they may have been ‘home burnt’ as opposed to being pressed by a professional pressing plant) and yet none of the Delivery Up DVDs comprised discs which are blue or purple in colour. It is Mr Dunne’s evidence that this indicates there are further batches of DVDs in the possession of the respondents which have been ‘home burnt’ and have not been delivered up by the respondents: see the second affidavit of Mr Dunne sworn on 26 November 2004 at [14]-[15].
The applicants submit that damages under s.115(2) would not be a sufficient remedy having regard to the following matters:
a)The applicants would not have licensed the respondents to manufacture and sell the Infringing Films. The first applicant had an exclusive licence with the second and third applicants. The respondents proffered no evidence that cast any doubt on this approach.
b)The incomplete state of the respondents’ records, and their general failure to give proper discovery in relation to their business, precluded the applicants from being able to calculate damages on any alternate basis. The respondents did not bring forward any evidence of their financial operations. Having been found liable for infringement, the respondents should not be able to benefit from their failure to keep or produce proper records from which the applicants and the Court could accurately determine the number of Infringing Films made and distributed: see Microsoft Corporation v Ezy Loans Pty Ltd [2004] FCA 1135.
Damages pursuant to s.116 where the applicants seek conversion damages
While damages for infringement and conversion are distinct heads of relief and are cumulative, they must not be awarded in such a way as to overlap in order that the applicant be prevented from receiving the same damages twice over. In addition, such relief is discretionary and should not be granted if the Court believes that the relief granted under s.115 is sufficient: see s.116(1C).
The Court is required to have regard both to the compensatory effect of damages awarded under ss.115(2) and 115(4) and any punitive award of damages that is justified under s.115(4).
The applicants have made submissions on the award of damages under s.116 of the Act, claiming that this is an appropriate case for conversion damages to be awarded pursuant to s.116. The applicants also set out the reasons why they submit that damages under s.115(2) would not be a sufficient remedy. For the reasons I will give, it is not necessary to rehearse those submissions here, however I do note that I have found them of assistance in my assessment damages under s.115(4) of the Act. Upon my assessment of the damages under ss.115(2) and 115(4), it is my opinion that the applicants’ loss will be adequately compensated and, further, that the need to punish the respondents’ under s. 115(4) has been satisfied. In my opinion it is therefore not necessary to award damages under s.116 of the Act.
Damages pursuant to s.115(4) where the applicants seek additional damages
Section 115(4) of the Act empowers the Court to award additional damagers where infringement of copyright is established and the Court is satisfied that it is proper to make such an award having regard to the following points:
a)the flagrancy of the infringement (s.115(4)(b)(i)),
b)the need for deterrence of similar infringements of copyright (s.115(4)(b)(ia)),
c)the conduct by a defendant subsequent to infringement or after an allegation of a copyright infringement (s.115(4)(b)(ib)),
d)whether the infringement involved the conversion of work or other subject-matter from hardcopy or analogue form into a digital or other machine readable electronic form. (s.115(4)(b)(ii)),
e)any benefit shown to be accrued to the defendant by reason of the infringement (s.115(4)(b)(iii)), and
f)all other relevant matters (s.115(4)(b)(iv)).
It is not necessary that the Court be satisfied of each of the above as a precondition of an award of additional damages but the Court must have regard to these six points. I will consider each of the points in turn.
In respect of the first point, the issue of flagrancy has received much comment in the case law in both Australia and the United Kingdom. It has been described by Brightman J in Ravenscroft & Herbert v New English Library Ltd (1980) RPC 193 at 208 as implying the “existence of scandalous conduct, deceit and such like; it includes deliberate and calculated copyright infringement.” This has been quoted with approval by Wilcox J in Autodesk Australia Pty Ltd at 77. To similar effect, see also the words of Tamberlin J in Microsoft Corporation & Anor v Atifo Pty Ltd & Ors (1997) 38 IPR 643 at 648: “ … ‘flagrant’ in the sense of being deliberate, deceitful and serious”.
I am satisfied that the conduct of the respondents could be described as flagrant. The respondents caused a significant number of the Infringing Films to be distributed and sold. I accept the applicants’ submissions that the respondents’ conduct was continuing and deliberate. On the evidence before me I do not accept the respondents’ submissions that the infringement was unwitting or innocent. The Infringing Films were sold in such a way, including artwork, to suggest to consumers that they were legitimate product when in fact they were unlicensed pirate DVDs. Adult film piracy is not uncommon and the issues surrounding piracy in the adult film industry have been dealt with by this Court in recent times. The respondents are experienced ‘players’ in the industry and it can be inferred they would be aware of the difference between legitimate and illegitimate DVDs and the risks involved in copyright infringement. Also going to flagrancy of the breach, there is evidence that the respondents were offering the Infringing Films for sale in their retail outlets and on the internet (see paragraph 3 above).
In respect of the second point, which was introduced as part of the 2003 amendments to the Act, the Court is required to take into account where it is proper to do so the need for deterrence of similar infringements of copyright. In Fraserside Holdings his Honour Raphael FM states at [54]:
“There is undoubtedly a need to deter similar infringements of copyright. The moralist would say that if additional damages are awarded and that prevents the copying of adult material, society is improved. The libertarians would argue that the copyright owners of adult material are as entitled as any other owner of copyright material to the achievement of a return on their endeavour without barriers being placed upon recouping that return by the action of pirates.”
The present case is one where it is indeed proper to take into account the need to deter similar infringements of copyright. I accept the applicants’ submissions that the Court is warranted in sending an unambiguous signal that it will not tolerate flagrant conduct.
In respect of the third point, which was also introduced as part of the 2003 amendments, the Court’s attention is directed where proper to do so to conduct by a defendant subsequent to infringement or after an allegation of a copyright infringement. The conduct of the respondents in defence of these proceedings has been less than acceptable. As outlined above the respondents did not comply with various procedural orders: see paragraphs 11, 14 and 15 above. In addition, at the request of the respondents the final hearing scheduled for 3 December 2004 was stood over to a further date. On granting the adjournment, the Court made Orders requiring the respondents to file certain evidence of the third respondent’s ill health and to nominate an alternative to appear at the rescheduled hearing should the third respondent not return to health by that time. No such nomination was made and the rescheduled hearing went ahead without the appearance of the third respondent or an alternate representative. The applicants have made both oral and written submissions concerning the conduct of the respondents subsequent to the commencement of the proceedings. In defence, the respondents claim that their case is not only exacerbated by the third respondent’s ill health but also by the third respondent’s uncle’s passing. I am sympathetic toward the circumstances surrounding the third respondent’s illness however in my opinion they do not adequately explain the overall conduct of the respondents’ following the allegation and subsequent admission of copyright infringement.
In respect of the fourth point, the Court is required to have regard to whether the infringement involved the conversion of a work or other subject matter from hard copy or analogue form into a digital or other machine readable electronic form. No such submission has been made in the present case.
In respect of the fifth point, the Court’s attention is drawn to any profit or other gain derived by the defendant. It does not seem that the legislation imports any particular quantitative or qualitative requirement in relation to the benefit that is received. This is evident by the use of the adjective “any” in s.115(4)(b)(iii). The respondents had consented to the liability issues of the application and in breaching the applicants’ copyright had gained an entirely undeserved profit. The applicants submit that the respondents designed and calculated their business to obtain a financial benefit at the expense of the applicants. Based on the current evidence before me I am hesitant to accept absolutely that the benefit derived by the respondents would be to the detriment of the applicants. However I do not hesitate in rejecting the respondents’ claim that the infringement was innocent and unwitting and accept that the respondents did carry out their activities with the intention of obtaining an undeserved financial benefit.
In respect of the final point, the Court is required to have regard to “all other relevant matters”. Under this matter I take into account the way in which the Infringing Films were presented. The applicants claim that the respondents altered the Infringing Films in some instances by presenting them differently to the original DVDs, without the consent of the applicants or the recording artists. In addition, the applicants claim the Infringing Films to be of inferior quality to the original DVDs thus damaging the applicants’ reputation.
The purpose of an award of damages under s.115(4) is to penalise an infringer of copyright because the infringer has been regarded, since at least the 18th century, as a pirate: per Burchett J observed in both Autodesk Inc v Yee (1996) 68 FCR 391, 394; and Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 (“Raben”) at [92]. It is an independent head of relief beyond the objectives of compensation of the copyright owner: see Raben at [93].
Small compensatory damages do not preclude comparatively large awards of additional damages: Raben. The authorities do not support the proposition of an arithmetic nexus between the level of compensatory damages and additional damages: Raben at [104]. The Court has stressed there is no such general principle and that it is important to preserve the broad and unfettered discretion in relation to additional damages. A series of cases have recently followed the Raben case and awarded significant additional damages: Microsoft Corporation v Glostar Pty Ltd [2003] FCA 210; Microsoft Corporation v Goodview Electronics Pty Ltd [2000] FCA 1852; Prior v Sheldon [2000] FCA 438 and Microsoft Corporation & Anor v Atifo Pty Ltd & Ors (16 May 1997) (upheld on appeal).
In Sullivan, the Court, following Raben, noted that there need not be any proportionality between the amount of damages awarded under s.115(2) and the amount awarded under s.115(4).
In my consideration of the additional damages to be awarded under s.115(4) of the Act I have taken into account submissions from both parties and the evidence before the Court. It should also be noted that the power to award s.115(4) damages is discretionary. The Full Federal Court has emphasised the discretionary nature of an award of damages, noting that this may be done where a Court is satisfied that any one or more of the circumstances set out in s.115(4)(b) are present: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 422 per Burchett J and at 432 per Tamberlin J. The amount of additional damages I award under s.115(4) of the Act is $46,500.00. Contrary to the matter of Fraserside Holdings there was no acquiescence by any of the respondents.
I certify that the preceding seventy-four (74) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.
Associate: Lyndall Yee
Date: 27 January 2006
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