Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors (No.3)
[2010] FMCA 590
•9 August 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
TOP PLUS PTY LTD & ORS v K SQUARE PTY LTD & ORS (No.3) [2010] FMCA 590
COPYRIGHT – Infringement – calculation of damages under s.115(2) and (4) Copyright Act.
Trade Practices Act 1974 (Cth), ss.51AC, 82
Copyright Act 1968 (Cth), s.115
Copyright (International Protection) Regulations 1969
Federal Court Rules
Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors (No 2) [2010] FMCA 67; (2010) AIPC 92-373
Interfirm Comparison (Aust) Pty Ltd v Law Society (NSW) (1975) 6 ALR 445
Bailey v Namol Pty Ltd (1994) 53 FCR 102
Performing Rights Society Limited v Bradford Corp [1921] MacG Cop Cas 309
Stovin-Bradford v Volpoint Properties Ltd [1971] CH 1007
TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444
Flags 2000 Pty Ltd v Smith [2003] FCA 1067Milpurrurru v Indofurn Pty Ltd (1995) 30 IPR 209
APRA v Cougars Tavern & Ors [2008] FMCA 369
Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378
Rutter v Brooklyn Valley Estate Pty Ltd (2009) 81 IPR 549
Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd (2009) 84 IPR 222
ACCC v Dukemaster Pty Ltd [2009] FCA 682
First Applicant: TOP PLUS PTY LTD (ACN 115 594 477)
Second Applicant: GOLD TYPHOON ENTERTAINMENT LTD
Third Applicant: EMPEROR ENTERTAINMENT (HONG KONG) LTD
Fourth Applicant: UNIVERSAL MUSIC LTD
Fifth Applicant: BMA RECORDS LTD
First Respondent: K SQUARE PTY LTD (ACN 102 871 778)
Second Respondent: EAST ASIA MUSIC (HOLDINGS) LTD
Third Respondent: EAST ASIA RECORD PRODUCTION CO LTD
File Number: SYG 1429 of 2009
Judgment of: Raphael FM
Hearing date: 29 July 2010
Date of Last Submission: 29 July 2010
Delivered at: Sydney
Delivered on: 9 August 2010 REPRESENTATION
Counsel for the Applicant: Mr H Bevan
Solicitors for the Applicant: DLA Phillips Fox
Counsel for the Respondent: Ms J Rawlings
Solicitors for the Respondent: Pancific Legal Solicitors ORDERS
(1)The parties to bring in within 14 days short minutes reflecting the decisions made in these reasons at [22].
FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEYSYG 1429 of 2010
TOP PLUS PTY LTD (ACN 115 594 477) First Applicant
GOLD TYPHOON ENTERTAINMENT LTD
Second Applicant
EMPEROR ENTERTAINMENT (HONG KONG) LTD
Third Applicant
UNIVERSAL MUSIC LTD
Fourth Applicant
BMA RECORDS LTD
Fifth Applicant
And
K SQUARE PTY LTD ACN (102 871 778) First Respondent
EAST ASIA MUSIC (HOLDINGS) LTD Second Respondent
EAST ASIA RECORD PRODUCTION CO LTD Third Respondent
REASONS FOR JUDGMENT
1.On 10 February 2010 I handed down Judgment in Top Plus Pty Ltd & Ors v K Square Pty Ltd & Ors(No 2) [2010] FMCA 67; [2010] AIPC 92-373. The orders which I made contain declarations that the first respondent had breached the copyright of the first applicant in cinematograph films utilised in karaoke lounges (“KTVs”) that had been produced for the second to fifth applicants and second and third respondents. I also made declarations that the first applicant had breached s.51AC of the Trade Practices Act 1974 (the “Act”) in connection with the negotiations for the renewal of a non-exclusive sub-licence between it and the first respondent for the right to use the applicant’s copyright in the KTVs. I made a finding that the first respondent had acted in a manner which justified the imposition of additional damages under s.115(4) of Copyright Act 1968 (Cth) and I reserved the position as to the calculation of all damages under s.115 and under s.82 of the Trade Practices Act for the breach of s.51AC for a further hearing. That hearing took place on 28 July 2010.
2.The applicant first claims compensatory damages under s.115(2) of the Copyright Act. In the applicant’s helpful written submissions it notes that damages for breach of copyright “are to compensate the plaintiff for the loss which it has suffered as a result of the defendant’s breach”; Interfirm Comparison (Aust) Pty Limited v Law Society (NSW) (1975) 6 ALR 445 at 446 (Bowen CJ); Bailey v Namol Pty Ltd (1994) 53 FCR 102 at 111 (Burchett, Gummow and O’Loughlin JJ) and that the method of assessing damages is the licence fee (or royalty) method where the applicant recovers the sum equal to the fee that would fairly be charged for the use of the copyright work; Performing Rights Society Limited v Bradford Corp [1921] MacG Cop Cas 309; Stovin-Bradford v Volpoint Properties Ltd [1971] CH 1007; TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd (No 3) (2007) 158 FCR 444. The respondent accepts this method as the appropriate one in the circumstances of this case.
3.I shall hereinafter refer to the first applicant as “the applicant” and the first respondent as “the respondent” because it is accepted that the applicant is the copyright owner for the purposes of these proceedings and the only person entitled to damages. The respondent had taken a sub-licence from the applicant for the years 2006, 2007 and 2008 and paid a total of $19,800.00 for 2006 and 2007 and $22,000.00 for 2008.[1]
[1] [2 Reasons 10 February 2010]
4.The 2009-10 licence was to be calculated on a per room basis and the proposal put by the applicants was for a charge of $10.00 plus GST per room per day. The cost to the respondent of a licence under these terms would have been approximately $75,000.00 per annum. The respondents also held licences from the two collecting societies APRA and PPCA in addition to the sub-licence to the applicants. These licences covered the performance of the music and words of the songs, not the cinematograph films. The APRA licence fee was approximately $5,000.00. I concluded that the fee being paid to PPCA was probably less than it should have been and that the maximum fee payable to PPCA would be approximately $7,000.00.[2] It was all times the respondent’s argument that any fee to be charged by the applicant should be reflective of the fees charged by the two collection agencies. The applicant argued that this was not an appropriate comparison and that the amount found should be calculated on the basis of the licence fees which it had obtained from other persons for the year 2009 – 10.
[2] [56] Reasons 10 February 2010.
5.At [22] of its written submissions the applicant provides a table of fees entered into with other karaoke operators for 2009:
| Outlet | Contract term | No of rooms | Licence fee | $ per room per day |
| K-Box | Jan – Dec | 10 | $54,000 | $14.8016 |
| Dragon Palace | Apr – Dec [Jan – Dec] | 26 | $64,350 [$85,470]17 | $9.00 |
| Echoes Karaoke | Jan – Dec | 21 | $61,320 | $8.00 |
| 2002 Cyber City | Jan – Dec | 12 | $25,000 | $5.71 |
| CHI Lounge Karaoke | Jan – Dec | 6 | $4,500 | $2.05 |
| Viva | Sep – Dec [Jan – Dec] | 14 | $13,664 [$40,880]18 | $8.00 |
6.The applicant obtains an average price of $8.35 per day by dividing the total licence fees on an annualised basis by the number of rooms and then dividing the product by 365. The alternative method of dividing the dollar per room per day figure in the last column by 6 being the number of outlets produced a per room rate of $7.93 average. I am of the view that the first method of calculation is the fairer as it evens out the differences in the various establishments room numbers whereas taking the latter calculation there would be an inference that each of the establishments have the same number of rooms.
7.There are two licences which appear to be out of kilter to the others. The first is the K Box licence at $14.80 per room per day. The applicant advises that this is an exclusive licence for the whole of South Australia. Whilst it does not allow the licensee to create sub-licences, its effect is that the premises are the only ones in the whole of South Australia at which these KTVs can be played. There is no explanation provided of why the licence to CHI Lounge is as low as $2.05 for the entire year. Whilst the applicant believes that the appropriate rate to award is $8.35 per room per day it would accept the deletion from the calculation of these two “abnormal” arrangements which would reduce the fee to $7.98 per room per day which is 2¢ less than the offer of compromise of $8.00 per room day that was offered by the applicant, provided the respondents signed the licence agreement between Christmas and New Year 2008/09.
8.The respondent agrees that the K Box exclusive licence agreement should be excluded from the calculation but also believes that those negotiated with Viva and Echoes should also be excluded. That is because both Viva and Echoes are associated with Mr Ben Chan and Mr Christopher Chan who are shareholders in the applicant. It would be in their interests to negotiate a fee similar to that originally proposed in order to ensure that other operators also paid the same amount. If those lounges were also excluded the average price per room per day is reduced to $7.16 or $5.59 on the alternative method of calculation which I have rejected. If Viva and Echoes are included the figure is $7.53. The respondent has also produced a table indicating the combined APRA and PPCA rate per room per day at [14] of their submissions:
APRA
APRA Rate per room per day
PPCA Rate per room per day (1/7/2008 – 30/6/2009)
PPCA Rate per room per day (1/7/2009 – 30/6/2010)
Combined APRA PPCA rate per room per day
$14.75
$0.82
$0.35
$0.36
$1.18
Whilst I believe that the rates charged by the collecting societies are a relevant consideration I have already expressed my concern at the manner in which the respondent calculated the amount payable to PPCA and I do not believe that one should too lightly interfere with the right of a copyright holder to market his product at the best possible price.
9.I think there is significant force in the arguments for excluding K Box, Viva and Echoes, leaving only the three licences that appear to be genuinely at arms length and not subject to exclusivity. Although the average figure is influenced by the very low rate payable by CHI Lounge, there are only six rooms in the calculation. The weighting is far more in favour of the Dragon Palace per day figure of $9.00. Having taken all of these matters into consideration, I am of the view that the appropriate room rate per day is $7.16 plus GST [$114,970 (total annual fee) ÷ 44 (rooms) ÷ 365 (days) = 7.16].
10.I indicated in my previous reasons[3] why I took the view that damages under s.115(4) are appropriate. I also indicated that I did not consider the respondent’s conduct between January 2009 and March 2009 should be included in any calculation of additional damages on the ground of flagrancy[4] because I was satisfied that the respondents were attempting to conduct genuine negotiations and whilst they were continuing to utilise the applicant’s copyright they fully intended to make payment of any fee that was eventually agreed for the whole year:
“After March 2009 K Square acted in a manner that had all the hallmarks of flagrancy. Firstly it told Top Plus that it had removed the 839 titles that were contained in the Phillips Fox letter of 8 January. The evidence of Ms Linda Tang establishes that a large number of these songs were still being made available to K Square customers when Ms Tang visited in March, April and May 2009. In some instances the same song was available but without the Top Plus logo. K Square was aware by this time that negotiations had broken down, indeed it made the decision not to continue with them and to resist any action by Top Plus. It was also aware that it was not just the 839 titles that were in issue but all the KTVs that had been licenced by Top Plus. K Square took no steps to remove any of those KTVs from their playlist. Also between April 2009 and December 2009 K Square obtained and utilised in its karaoke bar a large number of additional newly released KTVs that it had obtained from sources other than Top Plus the exclusive licensee within Australia …”
[3] [31-46] Reasons 10 February 2010.
[4] [38] Reasons 10 February 2010.
11.I considered that there was a clear need for deterrence in this particular case:
“K Square is only one of a number of karaoke outlets that is infringing Top Plus’ rights. There is evidence from the conduct of the parties at the meeting in December 2008 of a reluctance to pay the new licence fees and continue as sub-licensees until after the litigation. An award of additional damages would indicate to other infringers and potential infringers that to commence or continue on this path would not be advantageous to them in any way.”[5]
[5] [42] Reasons 10 February 2010
12.When I considered the respondent’s conduct after infringement as a constituent of additional damages I stated:
“I am prepared to be forgiving about the failure to appreciate the effect of s.98 of the Act and Regulation 4 of the Copyright (International Protection) Regulations 1969 as this was not raised by the applicants until the first day of the substantive hearing and was then accepted by the respondent.”[6]
[6] [44] Reasons 10 February 2010
13.It now appears from Exhibit 18 that the fact that the application of the Copyright Act as the appropriate law to determine ownership and not Hong Kong law was first raised by the respondent’s solicitors on 8 October 2009 and on 9 October 2009 the Copyright (International Protection) Regulations 1969 was specifically referred to. The exhibit contains further correspondence between the solicitors which indicates that, although the applicant’s solicitors were pressing for the concession it was not offered until the first hearing day. In Flags 2000 Pty Ltd v Smith [2003] FCA 1067 Goldberg J gave detailed consideration as to whether the conduct of a party in the proceedings and the manner in which he conducted his defence was a relevant matter to be taken into account under s.115(4)(i)(b). His Honour considered the actions of the defendant in his case and the applicant’s submission that the decision of Von Doussa J in Milpurrurru v Indofurn Pty Ltd (1995) 30 IPR 209 supported their proposition that the conduct of a respondent during the litigation, especially in relation to the respondent’s refusal to acknowledge copyright ownership and the refusal to consent to injunctions, was a relevant matter. After citing the passage at [247] of Milpurrurru upon which his applicants relied his Honour said:
“This passage does not support the proposition that the conduct of the respondent in relation to a proceeding before the court is a relevant matter to be taken into account for the purposes of s.115(4)(b)(iv) of the Act. Von Doussa J did not affirmatively accept the proposition that conduct in the course of litigation is a relevant matter for the purposes of s.115(4)(b)(iv) of the Act.”
14.His Honour then went on to consider the amendment which included sub-paragraph 115(4)(b)(ib) but noted at [45]:
“The applicants submitted that the insertion of subpars (ia) and (ib) was declaratory of the position which had existed prior to the amendments. There is substance in that submission as can be seen from cases such as Carson v John Fairfax & Sons[1993] HCA 31; (1992) 178 CLR 44 at 71 and Microsoft Corporation v Goodview Electronics Pty Ltd (2000) 49 IPR 578. However, the conduct taken into account in those cases was conduct which was relevant to the substantive allegations made against the respondents. For example, in the Microsoft case the respondent filed a defence which proved to be false. Branson J took that fact into account in conjunction with other evidence which showed an intention on behalf of the respondent to conceal the identity of their suppliers to find "a deliberate pattern of conduct by the respondents in which they recognised the illegality of the enterprise they are engaged in and actively sought to conceal it".
Before concluding at [46] and [47]:
“I do not consider that the conduct of the respondent contemplated by subpar (ib) of subs 115(4)(b) is referable to conduct of the defence insofar as it relates to procedural matters and matters whereby the applicants are put to the proof of their case, albeit unreasonably. I consider that these are matters more appropriately dealt with by an appropriate order for costs.
The applicants submitted that an award of additional damages was analogous to an award of exemplary damages. Such an approach was accepted by Burchett J in Autodesk Inc v Yee (1996) 35 IPR 415 at 419; see also Bailey v Namol Pty Ltd (1995) 30 IPR 147 at 157. However, I consider that a distinction is to be drawn between conduct which relates to the substantive allegation made against a respondent, in which case exemplary damages might be appropriate, and conduct which relates to the manner in which the trial is conducted and the procedural steps taken, which are more appropriately dealt with by an appropriate order for costs.”
15.In the instant case it is possible to divide the respondent’s conduct after infringement between matters that go to the substantive allegations and those which go to the manner in which the proceedings were run. In regard to the former I have already mentioned the continued use of the copyright material even after it was clear that the attacks on the applicant’s ownership would fail. Furthermore, Mr Chau, who appears to be the controlling minds of the respondent, involved himself in forming the Australian Karaoke Operators Association (“AKOA”) which set about trying to wrest the distributorship and copyright in the KTVs away from the applicants by direct negotiation with the record companies. The respondents pray this in aide as a mitigating factor but I cannot accept it on that basis. At best it was an example of commercial tactics. I do think that the manner in which the respondents acted in relation to the litigation seriously increased the costs of the applicant in an unnecessary manner. This is best reflected in my orders for costs which I will make after further submissions. There is, however, sufficient evidence of action subsequent to the infringement to warrant being taken into account for the purposes of the calculation of the s.115(4) damages.
16.The applicant submits that the respondent obtained a benefit by not paying the fees. When the case was in abeyance pending a decision by the applicant as to whether to seek damages or an account of profits Mr Chau of the respondent filed an affidavit on 12 March 2010 annexing a special purpose profit and loss account which showed that K Square received a pecuniary benefit directly referable to the acts of infringement in the amount of at least $23,604.97.[7] The applicant submits that not only did the respondent receive this pecuniary benefit it also received a benefit by way of enhancement of its goodwill from being a venue where the most popular KTVs were made available. This in turn ensured that more customers would come through the doors and they would not only play the applicant’s KTVs but other KTVs for which the respondent would receive a fee making the pecuniary benefit even higher.
[7] Affidavit of Terence Chau sworn 12 March 2010 at paragraph 10 and Annexure D
17.The respondent counters these matters by arguing that it has at all times understood and respected the laws of copyright. It merely put the applicant to strict proof of its entitlement. It noted that it was only by doing this that the facts upon which the s.51AC declaration was made came to light. It argues that the formation of the AKOA as an alternative organisation to license other karaoke operators was beneficial because it is clear from the evidence that compliance with the copyright laws is more honoured in the breach than the observance within this particular part of the industry. The respondent reiterated its argument that the amount demanded by the applicant was so vastly in excess of the amounts paid to the collecting societies that it was natural that there would be resistance. But it eventually acknowledged that this did not excuse the use of another person’s copyright material without payment or licence. Perhaps the strongest argument put forward by the respondent was that the conduct which led to the 51AC declaration should be taken into account as “another relevant matter” and should reduce the amount of additional damages to be awarded. The applicant concedes that this is a relevant matter.
18.In Flags (supra) Goldberg J noted at [31] and [32]:
[31]An award of additional damages under s 115(4) is not dependent upon the adequacy or inadequacy of an award of damages under s 115(2). In particular, an award of additional damages under s 115(4) does not have to bear any proportionate relationship to an award of damages under s 115(2). In Cala Homes (South) Limited v Alfred McAlpine Homes East Limited (No 2) 23 [1996] FSR 36, Laddie J, at 43, referred to additional damages as being "a head of relief independent of and not dependent upon whatever form of financial relief the plaintiff seek ..."
[32] I do not have to make a finding that there has been a flagrant infringement of the copyright; rather I have to be satisfied that it is proper to award additional damages "having regard to", inter alia, the flagrancy of the infringement: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 37 IPR 417 at 422, 432. Similarly, I do not have to make findings as to the existence of "all other relevant matters" but rather I am to have regard to them in determining whether I am satisfied that it is proper to award additional damages.”
19.In coming to my conclusion as to the quantum of additional damages I was reminded by the applicant that in APRA v Cougars Tavern & Ors [2008] FMCA 369 I took into account the views expressed in a number of past cases.[8] He then helpfully referred to some cases not mentioned there and others of a more recent vintage.[9] The respondent submitted that the pecuniary damages in TS & B Retail (supra) were calculated by reference to a sample and suggested that the amount of additional damages took into account the possibility that the pecuniary damages did not really reflect the extent of the infringement whereas in the instant case the exact extent of the infringement was known by virtue of the evidence of Ms Tang. The respondent noted that the Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378 case was a counterfeiting operation and that in Rutter v Brooklyn Valley Estate Pty Ltd (2009) 81 IPR 549 there was a long-term series of infringement from 1999 onwards until judgment. The Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd (2009) 84 IPR 222 decision was also one involving a long-term full scale counterfeiting operation.
[8] Microsoft Corporation v Goodview Electronics Pty Ltd (2000) 49 IPR 578; Microsoft Corporation v Glostar Pty Ltd (2003) 57 IPR 518; Microsoft Corporation v Ezy Loans Pty Ltd (2004) 63 IPR 54; Microsoft Corporation v PC Club Australia Pty Ltd (2005) 148 FCR 262; Universal Music Australia Pt Ltd v Hendy Petroleum (2003) 59 IPR 204; Fraserside Holdings v Venus Adult Shops [2005] FMCA 997; Sony Entertainment (Australia) Ltd v Smith [2005] FCA 228; (2005) 64 IPR 18; PPCA v Adelaide City Entertainment [2005] FMCA 923; SBO Pictures Inc v Kaos Shop Pty Ltd [2006] FMCA 82; Foxtel Management Pty Limited v The Mod Shop Pty Ltd [2007] FCA 463; Aristocrat Technologies Australia Pty Limited v D.A.P. Services (Kempsey) Pty Limited (In Liquidation) [2007] FCAFC 40.
[9] TS & B Retail Systems Pty Ltd v 3Fold Resources Pty Ltd & Ors(No 3) (2007) 239 ALR 117 - $200,000.00 pecuniary damages and $50,000.00 additional damages; Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd (2009) 81 IPR 378 - $120,000.00 pecuniary and $150,000.00 additional damages; Rutter v Brooklyn Valley Estate Pty Ltd (2009) 81 IPR 549 - $209.000.00 pecuniary and $150,000.00 additional damages; Aristocrat Technologies Australia Pty Ltd v Global Gaming Supplies Pty Ltd (2009) 84 IPR 222 - $48,870.00 pecuniary and $950,000.00 additional damages.
20.The assessment of damages is not a science. It is a matter for the discretion of the trial judge. It is important to take note of other awards but these are not to be utilised as a template. The applicant suggests that the appropriate range for me to consider should be between $90,000.00 and $150,000.00. The respondent suggests a figure no more that $10,000.00. I am of the view, having taken into consideration all the matters referred to, that the appropriate figure is $80,000.00.
21.The respondent made some submissions as to the amount of damages it should be awarded for the breach of s.51AC. It said:
“43.K Square’s primary basis for quantification of damages under s.82 is, given that the Applicants have opted for damages, the Respondent’s claim for pecuniary loss for the First Applicant’s contravention of s.51AC of the Trade Practices Act 1974 (Cth) is properly now:
43.1the difference between the amounts demanded by the First Applicant to the First Respondent for a licence for 2009 and a fair market rate for licences of the copyright in the KTVs of the Second, Third, Fourth and Fifth Applicants and the Second and Third Respondents in 2009 being the sum of the rates charged by APRA and PPCA for 2009.
43.2Alternatively the difference between the amount demanded by the First Applicant to the First Respondent for a licence for 2009 and the amount paid by the First Respondent to the First Applicant for licences of the copyright in the KTVs of the Second, Third, Fourth and Fifth Applicants and the Second and Third Respondents in 2008 on the basis that Top Plus has failed to produce any credible evidence justifying any increase in its fees over 2008.”
22.
In arguendo Ms Rawlings conceded that the damages had to be assessed pursuant to s.82 of the Act and that those damages were compensatory. She conceded that the respondent had not paid the licence fee and so had not lost any money as a result of the unlawful activity of the applicant. The case can be distinguished from ACCC v Dukemaster Pty Ltd [2009] FCA 682 where the leaseholder who had been the victim of unconscionable conduct by the lessor was awarded the difference between the amount that should have been paid and the amount which she actually paid under the lease. That is the appropriate measure of damages and, as there was no loss in this case, I am unable to award any damages for the breach of s.51AC. The two heads of damage found in the submissions of the respondent make a claim similar to that made in Dukemaster (supra) but without the payment having previously been made. The orders which I propose are that the parties bring in short minutes giving effect to these reasons and including therein interest in accordance with Order 35 of the Federal Court Rules, such interest to be calculated on the pecuniary damages from 1 January 2009 to date and on the additional damages from
1 April 2009 to date. I would order that the first respondent pay the costs of the first to fourth applicants on the claim and the first applicant pay the first respondent’s costs of the cross-claim. The short minutes shall be brought in within 14 days, at which time the parties should also file with my associate their submissions as to the basis upon which the orders for costs should be calculated. I do not propose to hold any further hearings in relation to the costs applications.
I certify that the preceding twenty-two (22) paragraphs are a true copy of the reasons for judgment of Raphael FM
Associate:
Date: 9 August 2010
2
25
4