Universal Music Australia Pty Ltd v Sharman License Holdings Ltd
[2005] FCA 1242
•5 SEPTEMBER 2005 (CORRIGENDUM 22 SEPTEMBER 2005)
FEDERAL COURT OF AUSTRALIA
Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242
CORRIGENDUM
UNIVERSAL MUSIC AUSTRALIA PTY LTD, FESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS, EMI MUSIC AUSTRALIA PTY LIMITED, SONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED, WARNER MUSIC AUSTRALIA PTY LIMITED, BMG AUSTRALIA LIMITED, UMG RECORDS, INC., SHADY RECORDS, INC./INTERSCOPE RECORDS, AFTERMATH RECORDS, REAL HORRORSHOW PTY LTD, THE LIVING END PTY LTD, VIRGIN RECORDS AMERICA, INC, EMI RECORDS LTD, CAPITOL RECORDS, INC, ARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.), CIRCA RECORDS LTD, CHRYSALIS RECORDS LTD, SONY MUSIC (AUSTRALIA) PTY LTD, SONY MUSIC ENTERTAINMENT (CANADA) INC., SONY BMG MUSIC ENTERTAINMENT, MAYER MUSIC LLC, TIMOTHY JAMES FREEDMAN, WARNER BROS. RECORDS, INC., ATLANTIC RECORDING CORPORATION, WARNER MUSIC UK LTD, J RUBY PRODUCTIONS, INC. DBA SLASH RECORDS, ZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION), BMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT), BMG UK & IRELAND LTD, LAFACE RECORDS v SHARMAN LICENSE HOLDINGS LTD, SHARMAN NETWORKS LTD, LEF INTERACTIVE PTY LTD, NICOLA ANNE HEMMING, PHILIP MORLE, ALTNET INC, BRILLIANT DIGITAL ENTERTAINMENT INC, BRILLIANT DIGITAL ENTERTAINMENT PTY LTD, KEVIN GLEN BERMEISTER, ANTHONY ROSE
NSD 110 of 2004
WILCOX J
5 SEPTEMBER 2005 (CORRIGENDUM 22 SEPTEMBER 2005)
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 110 of 2004
BETWEEN:
UNIVERSAL MUSIC AUSTRALIA PTY LTD
FIRST APPLICANTFESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS
SECOND APPLICANTEMI MUSIC AUSTRALIA PTY LIMITED
THIRD APPLICANTSONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED
FOURTH APPLICANTWARNER MUSIC AUSTRALIA PTY LIMITED
FIFTH APPLICANTBMG AUSTRALIA LIMITED
SIXTH APPLICANTUMG RECORDS, INC.
SEVENTH APPLICANTSHADY RECORDS, INC./INTERSCOPE RECORDS
EIGHTH APPLICANTAFTERMATH RECORDS
NINTH APPLICANTREAL HORRORSHOW PTY LTD
TENTH APPLICANTTHE LIVING END PTY LTD
ELEVENTH APPLICANTVIRGIN RECORDS AMERICA, INC
TWELFTH APPLICANTEMI RECORDS LTD
THIRTEENTH APPLICANTCAPITOL RECORDS, INC
FOURTEENTH APPLICANTARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.)
FIFTEENTH APPLICANTCIRCA RECORDS LTD
SIXTEENTH APPLICANTCHRYSALIS RECORDS LTD
SEVENTEENTH APPLICANTSONY MUSIC (AUSTRALIA) PTY LTD
EIGHTEENTH APPLICANTSONY MUSIC ENTERTAINMENT (CANADA) INC.
NINETEENTH APPLICANTSONY BMG MUSIC ENTERTAINMENT
TWENTIETH APPLICANTMAYER MUSIC LLC
TWENTY-FIRST APPLICANTTIMOTHY JAMES FREEDMAN
TWENTY-SECOND APPLICANTWARNER BROS. RECORDS, INC.
TWENTY-THIRD APPLICANTATLANTIC RECORDING CORPORATION
TWENTY-FOURTH APPLICANTWARNER MUSIC UK LTD
TWENTY-FIFTH APPLICANTJ RUBY PRODUCTIONS, INC. DBA SLASH RECORDS
TWENTY-SIXTH APPLICANTZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION)
TWENTY-SEVENTH APPLICANTBMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT)
TWENTY-EIGHTH APPLICANTBMG UK & IRELAND LTD
TWENTY-NINTH APPLICANTLAFACE RECORDS
THIRTIETH APPLICANTAND:
SHARMAN LICENSE HOLDINGS LTD
FIRST RESPONDENTSHARMAN NETWORKS LTD
SECOND RESPONDENTLEF INTERACTIVE PTY LTD
THIRD RESPONDENTNICOLA ANNE HEMMING
FOURTH RESPONDENTPHILIP MORLE
FIFTH RESPONDENTALTNET INC
SIXTH RESPONDENTBRILLIANT DIGITAL ENTERTAINMENT INC
SEVENTH RESPONDENTBRILLIANT DIGITAL ENTERTAINMENT PTY LTD
EIGHTH RESPONDENTKEVIN GLEN BERMEISTER
NINTH RESPONDENTANTHONY ROSE
TENTH RESPONDENTJUDGE:
WILCOX J
DATE OF ORDER:
5 SEPTEMBER 2005 (CORRIGENDUM 22 SEPTEMBER 2005)
WHERE MADE:
SYDNEY
CORRIGENDUM
1.At page 143, paragraph 449 in the Reasons for Judgment of the Honourable Justice Wilcox delivered on 5 September 2005, delete the last sentence which reads:
‘There is no material that rebuts, and I see reason to reject, this evidence.’
And replace with:
‘There is no material that rebuts, and I see no reason to reject, this evidence.’
I certify that the preceding one (1) numbered paragraph is a true copy of the Corrigendum to the Reasons for Judgment of the Honourable Justice Wilcox. Associate
22 September 2005
FEDERAL COURT OF AUSTRALIA
Universal Music Australia Pty Ltd v Sharman License Holdings Ltd
[2005] FCA 1242SUMMARY
UNIVERSAL MUSIC AUSTRALIA PTY LTD & ORS v SHARMAN LICENSE HOLDINGS LTD & ORS
NSD 110 OF 2004
WILCOX J
SYDNEY5 SEPTEMBER 2005
SUMMARY
In accordance with the practice of the Federal Court in certain cases of public interest, the Court has prepared a summary to accompany the judgment that is to be delivered today. However, it must be emphasised that the summary forms no part of the judgment. The only authoritative statement of the Court’s reasons is the judgment itself.
This summary is intended to assist in understanding the principal conclusions reached by the Court, but it is necessarily incomplete. The published reasons for judgment and this summary will be available on the internet align="center">Universal Music Australia Pty Ltd v Sharman License Holdings Ltd
[2005] FCA 1242I am about to deliver judgment in a case that has attracted widespread interest. Extensive evidence was presented at the trial. Much of it was of a technical nature. The facts of the case and the relevant law are both complex. My reasons for judgment are, therefore, necessarily lengthy. Because of those factors, I have prepared this statement in which I will attempt briefly to explain the nature of the case and my major conclusions. This statement is not intended comprehensively to set out my findings of fact, conclusions about the law or reasons for making the orders I will shortly announce. Those interested in obtaining full information about those matters should refer to the Court’s website ( upon which my full Reasons for Decision will shortly be published.
The case concerns the operation of the Kazaa Internet peer-to-peer file-sharing system. This system operates world wide. Since early 2002, it has been controlled by Sharman Networks Ltd, one of the present respondents, out of premises in Sydney. Four of the other respondents are directly associated with Sharman Networks.
The Kazaa system is available to users free of charge. It enables one user to share with other users any material the first user wishes to share, whether or not that material is subject to copyright, simply by placing that material in a file called ‘My Shared Folder’. A user who is interested in obtaining a copy of a particular work, such as a musical item, can instantaneously search the ‘My Shared Folder’ files of other users, worldwide. If the file is located, the title will be displayed against a blue icon on the first user’s computer as a ‘blue file’. The work can then be downloaded onto the first user’s computer. The technology used to carry out those operations is called FastTrack.
Shortly after Sharman Networks took control of Kazaa, the system was expanded so as to add a second type of search. This was done by arrangement with Altnet Inc, a United States company which is also a respondent in this case. Four other respondents are associated with Altnet.
Altnet controlled technology called TopSearch, which enables the provision to Kazaa users of licensed works; that is, works made available to users pursuant to arrangements made with the owners of the copyright in those works. Search results for these works are displayed on a user’s computer against a gold icon; they have been called ‘gold files’.
There are 30 applicants in this case. They include companies associated with the world’s major distributors of sound recordings, mostly in the form of compact discs. The applicants claim the sharing of blue files between users constitutes an infringement of their copyright. They do not contend the sharing of gold files directly infringes their copyright. However, they have joined the Altnet parties because, they say, the arrangements made between the Sharman parties and the Altnet parties constitute a joint enterprise; so all the respondents are involved in the relevant infringements of copyright. Also, they say, Altnet personnel assisted Sharman personnel in constructing the Kazaa website, which contains material encouraging users to infringe copyright in blue file works.
The Kazaa system is extremely popular. Documents produced by the respondents contain claims that, at any particular time, several million people are using the system to share files. At the beginning of 2004, the Kazaa website said over 317 million people, worldwide, had downloaded Kazaa onto their computers, thereby enabling them to share files. A banner on the Kazaa website, at the time of the commencement of this proceeding, claimed Kazaa was ‘[t]he world’s most downloaded software application’. A document produced by the respondents stated that Kazaa was used for 79% of worldwide peer-to-peer file-sharing activities.
It is clear that a major proportion of Kazaa’s shared blue files are works (mostly musical works) that are subject to copyright. The files are shared without the approval of the relevant copyright owner. It follows that both the user who makes the file available and the user who downloads a copy infringes the owner’s copyright.
In this case, the applicants made claims of copyright infringement, contravention of the Trade Practices Act and conspiracy. It is convenient to say immediately that the evidence does not support either the Trade Practices Act or conspiracy claims. Those claims will be rejected. The more arguable claim is infringement of the applicants’ copyright.
Before I indicate my conclusions about that claim, I wish to identify two matters that this case is not about.
First, many people (including the respondents) argue that the Internet is here to stay, it is being used by an ever increasing number of people and peer-to-peer file-sharing is one of its most valuable potential uses. They say that copyright owners, such as the present applicants, could eliminate (or at least substantially reduce) infringement of their copyrights if they were willing to make copyright works available on a licensed basis for a fee, in the way in which Altnet offers gold files. Second, it was suggested at one stage of this case that it would have been possible for the applicants to have made their compact discs less vulnerable to being ‘ripped’ into a computer program by issuing them in a digital rights managed, rather than open, format.
Neither of these matters fall for decision in this case. I understand the argument in favour of more widespread licensing of copyright works. No doubt that course would have commercial implications for sound recording distributors. Whether or not they should take it is a matter to be determined by them. Unless and until they do decide to take that course, they are entitled to invoke such protective rights as the law affords them. Similarly in regard to making compact discs less susceptible to ripping; although, in regard to that matter, I add the evidence is insufficient for me to reach any conclusion about the feasibility of doing this.
I return to the true issue in the case: the applicants’ copyright claim. Here again, the applicants overstated their case. It cannot be concluded, as the applicants claimed in their pleadings, that the respondents themselves engaged in communicating the applicants’ copyright works. They did not do so. The more realistic claim is that the respondents authorised users to infringe the applicants’ copyright in their sound recordings. Section 101 of the Australian Copyright Act provides that copyright is infringed by a person who, not being the owner of the copyright and without the licence of the copyright owner, authorises another person to do in Australia an infringing act.
I have concluded that this more limited claim is established against six of the ten respondents. My reasons may be summarised in this way:
(i)despite the fact that the Kazaa website contains warnings against the sharing of copyright files, and an end user licence agreement under which users are made to agree not to infringe copyright, it has long been obvious that those measures are ineffective to prevent, or even substantially to curtail, copyright infringements by users. The respondents have long known that the Kazaa system is widely used for the sharing of copyright files;
(ii)there are technical measures (keyword filtering and gold file flood filtering) that would enable the respondents to curtail – although probably not totally to prevent – the sharing of copyright files. The respondents have not taken any action to implement those measures. It would be against their financial interest to do so. It is in the respondents’ financial interest to maximise, not to minimise, music file-sharing. Advertising provides the bulk of the revenue earned by the Kazaa system, which revenue is shared between Sharman Networks and Altnet.
(iii)far from taking steps that are likely effectively to curtail copyright file-sharing, Sharman Networks and Altnet have included on the Kazaa website exhortations to users to increase their file-sharing and a webpage headed ‘Join the Revolution’ that criticises record companies for opposing peer-to-peer file-sharing. They also sponsored a ‘Kazaa Revolution’ campaign attacking the record companies. The revolutionary material does not expressly advocate the sharing of copyright files. However, to a young audience, and it seems that Kazaa users are predominantly young people, the effect of this webpage would be to encourage visitors to think it ‘cool’ to defy the record companies by ignoring copyright constraints.
A question arose as to the form of relief that might be made against the six respondents that I hold to have authorised infringement of the applicants’ copyright. The applicants are entitled to declarations as to past violations of their rights and the threat of future violations. They are also entitled to an order restraining future violations. However, I have had to bear in mind the possibility that, even with the best will in the world, the respondents probably cannot totally prevent copyright infringement by users. I am anxious not to make an order which the respondents are not able to obey, except at the unacceptable cost of preventing the sharing even of files which do not infringe the applicants’ copyright. There needs to be an opportunity for the relevant respondents to modify the Kazaa system in a targeted way, so as to protect the applicants’ copyright interests (as far as possible) but without unnecessarily intruding on others’ freedom of speech and communication. The evidence about keyword filtering and gold file flood filtering, indicates how this might be done. It should be provided that the injunctive order will be satisfied if the respondents take either of these steps. The steps, in my judgment, are available to the respondents and likely significantly, though perhaps not totally, to protect the applicants’ copyrights.
The formal orders that I make are as follows:
1.Leave be granted to Australian Consumers’ Association Pty Ltd, Electronic Frontiers Australia Inc and New South Wales Council for Civil Liberties Inc to intervene in this proceeding to the extent necessary for them to put submissions that do not depend on material not already in evidence.
2.It be declared that each of the six respondents named below (‘the infringing respondents’) have infringed the copyright in each of the sound recordings whose title appears in column 2 of the attached Schedule, being a copyright of the applicant (‘the relevant applicant’) whose name is set out opposite the title of that sound recording in column 4 of that Schedule by:
(i)authorising the doing in Australia by Kazaa users of the following acts (‘the infringing acts’) in relation to the said sound recording:
(a) making a copy of the sound recording;
(b)communicating the recording to the public;
in each case, without the licence of the relevant applicant; and
(ii)entering into a common design, with each of the other infringing respondents, to carry out, procure or direct the said authorisation;
The infringing respondents are Sharman Networks Ltd, LEF Interactive Pty Ltd, Nicola Anne Hemming, Altnet Inc, Brilliant Digital Entertainment Inc and Kevin Glen Bermeister.
3.It be declared that each of the infringing respondents threatens to infringe the copyright of the applicants in other sound recordings by:
(i)authorising the doing in Australia by Kazaa users of the infringing acts; in each case, without the licence of the applicant who is the relevant copyright owner; and
(ii)entering into a common design with each of the other infringing respondents, to carry out, procure or direct the said authorisation.
4.The infringing respondents be restrained, by themselves, their servants or agents, from authorising Kazaa users to do in Australia any of the infringing acts, in relation to any sound recording of which any of the applicants is the copyright owner, without the licence of the relevant copyright owner.
5.Continuation of the Kazaa Internet file-sharing system (including the provision of software programs to new users) shall not be regarded as a contravention of order 4 if that system is first modified pursuant to a protocol, to be agreed between the infringing respondents and the applicants or to be approved by the Court, that ensures either of the following situations:
(i):that:
(a)the software program received by all new users of the Kazaa file-sharing system contains non-optional key-word filter technology that excludes from the displayed blue file search results all works identified (by titles, composers’ or performers’ names or otherwise) in such lists of their copyright works as may be provided, and periodically updated, by any of the applicants; and
(b)all future versions of the Kazaa file-sharing system contain the said non-optional key-word filter technology; and
(c)maximum pressure is placed on existing users, by the use of dialogue boxes on the Kazaa website, to upgrade their existing Kazaa software program to a new version of the program containing the said non-optional key-word filter technology; or
(ii)that the TopSearch component of the Kazaa system will provide, in answer to a request for a work identified in any such list, search results that are limited to licensed works and warnings against copyright infringement and that will exclude provision of a copy of any such identified work.
6.The operation of order 4 be stayed for a period of two months from today’s date, or for such extended period as a judge may, on application, allow.
7.The applicants’ claims for pecuniary relief against the infringing respondents be reserved for determination at a hearing to be fixed on application for that purpose.
8.There be liberty to all parties to apply, on seven days notice:
(a)within a period of one month from today’s date, in respect of the form of order 4 or 5;
(b)generally, in respect of any Court approval required for the purposes of order 5, or any order required for purposes related to order 6 or order 7.
9.The applicants’ claims under the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (NSW) and in respect of the tort of conspiracy all be dismissed.
10.The infringing respondents pay 90% of the costs incurred by the applicants to date in relation to this proceeding.
11.The proceeding be wholly dismissed as against the following four respondents (‘the dismissed respondents’): Sharman License Holdings Ltd, Philip Morle, Brilliant Digital Entertainment Pty Ltd and Anthony Rose.
12.The applicants pay the costs incurred in relation to this proceeding by each of the dismissed respondents, provided that, in the case of those dismissed respondents who were represented at the trial jointly with infringing respondents, such costs shall be limited to costs other than those that would have been incurred, in any event, in connection with representation of the relevant infringing respondents.
Wilcox J
Sydney
5 September 2005FEDERAL COURT OF AUSTRALIA
Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242
COPYRIGHT – Authorisation – Internet file-sharing – Suit by owners of copyright in sound recordings against parties involved with Kazaa peer-to-peer file sharing system – Whether respondents authorised infringements of copyright by Kazaa users – Issues as to respondents’ knowledge of, and intentions concerning, users’ activities – Extent of respondents’ control of those activities – Whether Kazaa system includes a central server – Termination, filtering and other technological controls – Non-technological controls – Whether the respondents merely provided the facilities used by Kazaa users – Application of s 101 of Copyright Act to each respondent.
TRADE PRACTICES – Alleged misleading and deceptive conduct.
CONSPIRACY – Alleged combination – Whether sole or dominant purpose to injure applicants – Whether agreement to use unlawful means to injure applicants.
Copyright Act 1968 (Cth) ss 10, 13(2), 22(6), 85, 101, 112E
Trade Practices Act 1974 (Cth) ss 52, 52AWEA International Inc v Hanimex Corporation Ltd (1987) 17 FCR 274 considered
University of New South Wales v Moorhouse (1975) 133 CLR 1 considered and applied
CBS Songs Ltd v Amstrad Consumer Electronics PLC [1988] 1 AC 1013 distinguished
Australian Tape Manufacturers Association Ltd v Commonwealth of Australia (1993) 176 CLR 480 considered
Australasian Performing Right Association Ltd v Metro on George Pty Ltd (2004) 61 IPR 575 followed
Australasian Performing Right Association Ltd v Jain (1990) 26 FCR 53 applied
King v Milpurrurra (1996) 66 FCR 474 considered
Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231 followed
Root Quality Pty Ltd v Root Control Technologies Pty Ltd 177 ALR 231 appliedUNIVERSAL MUSIC AUSTRALIA PTY LTD, FESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS, EMI MUSIC AUSTRALIA PTY LIMITED, SONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED, WARNER MUSIC AUSTRALIA PTY LIMITED, BMG AUSTRALIA LIMITED, UMG RECORDS, INC., SHADY RECORDS, INC./INTERSCOPE RECORDS, AFTERMATH RECORDS, REAL HORRORSHOW PTY LTD, THE LIVING END PTY LTD, VIRGIN RECORDS AMERICA, INC, EMI RECORDS LTD, CAPITOL RECORDS, INC, ARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.), CIRCA RECORDS LTD, CHRYSALIS RECORDS LTD, SONY MUSIC (AUSTRALIA) PTY LTD, SONY MUSIC ENTERTAINMENT (CANADA) INC., SONY BMG MUSIC ENTERTAINMENT, MAYER MUSIC LLC, TIMOTHY JAMES FREEDMAN, WARNER BROS. RECORDS, INC., ATLANTIC RECORDING CORPORATION, WARNER MUSIC UK LTD, J RUBY PRODUCTIONS, INC. DBA SLASH RECORDS, ZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION), BMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT), BMG UK & IRELAND LTD, LAFACE RECORDS v SHARMAN LICENSE HOLDINGS LTD, SHARMAN NETWORKS LTD, LEF INTERACTIVE PTY LTD, NICOLA ANNE HEMMING, PHILIP MORLE, ALTNET INC, BRILLIANT DIGITAL ENTERTAINMENT INC, BRILLIANT DIGITAL ENTERTAINMENT PTY LTD, KEVIN GLEN BERMEISTER, ANTHONY ROSE
NSD 110 of 2004
WILCOX J
5 SEPTEMBER 2005
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 110 of 2004
BETWEEN:
UNIVERSAL MUSIC AUSTRALIA PTY LTD
FIRST APPLICANTFESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS
SECOND APPLICANTEMI MUSIC AUSTRALIA PTY LIMITED
THIRD APPLICANTSONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED
FOURTH APPLICANTWARNER MUSIC AUSTRALIA PTY LIMITED
FIFTH APPLICANTBMG AUSTRALIA LIMITED
SIXTH APPLICANTUMG RECORDS, INC.
SEVENTH APPLICANTSHADY RECORDS, INC./INTERSCOPE RECORDS
EIGHTH APPLICANTAFTERMATH RECORDS
NINTH APPLICANTREAL HORRORSHOW PTY LTD
TENTH APPLICANTTHE LIVING END PTY LTD
ELEVENTH APPLICANTVIRGIN RECORDS AMERICA, INC
TWELFTH APPLICANTEMI RECORDS LTD
THIRTEENTH APPLICANTCAPITOL RECORDS, INC
FOURTEENTH APPLICANTARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.)
FIFTEENTH APPLICANTCIRCA RECORDS LTD
SIXTEENTH APPLICANTCHRYSALIS RECORDS LTD
SEVENTEENTH APPLICANTSONY MUSIC (AUSTRALIA) PTY LTD
EIGHTEENTH APPLICANTSONY MUSIC ENTERTAINMENT (CANADA) INC.
NINETEENTH APPLICANTSONY BMG MUSIC ENTERTAINMENT
TWENTIETH APPLICANTMAYER MUSIC LLC
TWENTY-FIRST APPLICANTTIMOTHY JAMES FREEDMAN
TWENTY-SECOND APPLICANTWARNER BROS. RECORDS, INC.
TWENTY-THIRD APPLICANTATLANTIC RECORDING CORPORATION
TWENTY-FOURTH APPLICANTWARNER MUSIC UK LTD
TWENTY-FIFTH APPLICANTJ RUBY PRODUCTIONS, INC. DBA SLASH RECORDS
TWENTY-SIXTH APPLICANTZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION)
TWENTY-SEVENTH APPLICANTBMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT)
TWENTY-EIGHTH APPLICANTBMG UK & IRELAND LTD
TWENTY-NINTH APPLICANTLAFACE RECORDS
THIRTIETH APPLICANTAND:
SHARMAN LICENSE HOLDINGS LTD
FIRST RESPONDENTSHARMAN NETWORKS LTD
SECOND RESPONDENTLEF INTERACTIVE PTY LTD
THIRD RESPONDENTNICOLA ANNE HEMMING
FOURTH RESPONDENTPHILIP MORLE
FIFTH RESPONDENTALTNET INC
SIXTH RESPONDENTBRILLIANT DIGITAL ENTERTAINMENT INC
SEVENTH RESPONDENTBRILLIANT DIGITAL ENTERTAINMENT PTY LTD
EIGHTH RESPONDENTKEVIN GLEN BERMEISTER
NINTH RESPONDENTANTHONY ROSE
TENTH RESPONDENTJUDGE:
WILCOX J
DATE OF ORDER:
5 SEPTEMBER 2005
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.Leave be granted to Australian Consumers’ Association Pty Ltd, Electronic Frontiers Australia Inc and New South Wales Council for Civil Liberties Inc to intervene in this proceeding to the extent necessary for them to put submissions that do not depend on material not already in evidence.
2.It be declared that each of the six respondents named below (‘the infringing respondents’) have infringed the copyright in each of the sound recordings whose title appears in column 2 of the attached Schedule, being a copyright of the applicant (‘the relevant applicant’) whose name is set out in the same row as the title of that sound recording in column 4 of that Schedule by:
(i)authorising the doing in Australia by Kazaa users of the following acts (‘the infringing acts’) in relation to the said sound recording:
(a)making a copy of the sound recording;
(b)communicating the recording to the public;
in each case, without the licence of the relevant applicant; and
(ii)entering into a common design, with each of the other infringing respondents, to carry out, procure or direct the said authorisation;
The infringing respondents are Sharman Networks Ltd, LEF Interactive Pty Ltd, Nicola Anne Hemming, Altnet Inc, Brilliant Digital Entertainment Inc and Kevin Glen Bermeister.
3.It be declared that each of the infringing respondents threatens to infringe the copyright of the applicants in other sound recordings by:
(i)authorising the doing in Australia by Kazaa users of the infringing acts; in each case, without the licence of the applicant who is the relevant copyright owner; and
(ii)entering into a common design with each of the other infringing respondents, to carry out, procure or direct the said authorisation.
4.The infringing respondents be restrained, by themselves, their servants or agents, from authorising Kazaa users to do in Australia any of the infringing acts, in relation to any sound recording of which any of the applicants is the copyright owner, without the licence of the relevant copyright owner.
5.Continuation of the Kazaa Internet file-sharing system (including the provision of software programs to new users) shall not be regarded as a contravention of order 4 if that system is first modified pursuant to a protocol, to be agreed between the infringing respondents and the applicants, or to be approved by the Court, that ensures either of the following situations:
(i):that:
(a)the software program received by all new users of the Kazaa file-sharing system contains non-optional key word filter technology that excludes from the displayed blue file search results all works identified (by titles, composers’ or performers’ names or otherwise) in such lists of their copyright works as may be provided, and periodically updated, by any of the applicants; and
(d)all future versions of the Kazaa file-sharing system contain the said non-optional key word filter technology; and
(e)maximum pressure is placed on existing users, by the use of dialogue boxes on the Kazaa website, to upgrade their existing Kazaa software program to a new version of the program containing the said non-optional key word filter technology; or
(ii)that the TopSearch component of the Kazaa system will provide, in answer to a request for a work identified in any such list, search results that are limited to licensed works and warnings against copyright infringement and that will exclude provision of a copy of any such identified work.
6.The operation of order 4 be stayed for a period of two months from today’s date, or for such extended period as a judge may, on application, allow.
7.The applicants’ claims for pecuniary relief against the infringing respondents be reserved for determination at a hearing to be fixed on application for that purpose.
8.There be liberty to all parties to apply, on seven days notice:
(a)within a period of one month from today’s date, in respect of the form of order 4 or 5;
(b)generally, in respect of any Court approval required for the purposes of order 5, or any order required for purposes related to order 6 or order 7.
9.The applicants’ claims under the Trade Practices Act 1974 (Cth), the Fair Trading Act 1987 (NSW) and in respect of the tort of conspiracy all be dismissed.
10.The infringing respondents pay 90% of the costs incurred by the applicants to date in relation to this proceeding.
11.The proceeding be wholly dismissed as against the following four respondents (‘the dismissed respondents’): Sharman License Holdings Ltd, Philip Morle, Brilliant Digital Entertainment Pty Ltd and Anthony Rose.
13.The applicants pay the costs incurred in relation to this proceeding by each of the dismissed respondents, provided that, in the case of those dismissed respondents who were represented at the trial jointly with infringing respondents, such costs shall be limited to costs other than those that would have been incurred, in any event, in connection with representation of the relevant infringing respondents.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
SCHEDULE
No Recording Artist Copyright Owner 1. Passenger Powderfinger Universal Music Australia Pty Ltd 2. My Happiness Powderfinger Universal Music Australia Pty Ltd 3. Love Your Way Powderfinger Universal Music Australia Pty Ltd 4. On My Mind Powderfinger Universal Music Australia Pty Ltd 5. Rockin' Rocks Powderfinger Universal Music Australia Pty Ltd 6. Sunsets Powderfinger Universal Music Australia Pty Ltd 7. Here Without You 3 Doors Down UMG Recordings, Inc. 8. Lose Yourself Eminem Shady Records, Inc. /Interscope Records 9. Superman Eminem Aftermath Records 10. Clap Back Ja Rule UMG Recordings, Inc. 11. It Wasn’t Me Shaggy UMG Recordings, Inc. 12. No need to argue The Cranberries UMG Recordings, Inc. 13. Ode to my family The Cranberries UMG Recordings, Inc. 14. Zombie The Cranberries UMG Recordings, Inc. 15. Daffodil’s Lament The Cranberries UMG Recordings, Inc. 16. Empty The Cranberries UMG Recordings, Inc. 17. Linger The Cranberries UMG Recordings, Inc. 18. Talk About Love Christine Anu Mushroom Records Pty Ltd 19. Island Home Christine Anu Mushroom Records Pty Ltd 20. Breathe In Now George Mushroom Records Pty Ltd 21. Coming Home Alex Lloyd EMI Music Australia Pty Ltd 22. Rollover DJ Jet Real Horrorshow Pty Ltd 23. Maitland Street The Living End The Living End Pty Ltd 24. Tabloid Magazine The Living End The Living End Pty Ltd 25. Come To This The Sleepy Jackson EMI Music Australia Pty Ltd 26. Steal my kisses Ben Harper Virgin Records America, Inc. 27. Please Bleed Ben Harper Virgin Records America, Inc. 28. The Woman In You Ben Harper Virgin Records America, Inc. 29. Clocks Coldplay EMI Records Ltd 30. God Put a Smile Upon Your Face Coldplay EMI Records Ltd 31. The Scientist Coldplay EMI Records Ltd 32. Don't Panic Coldplay EMI Records Ltd 33. Shiver Coldplay EMI Records Ltd 34. Yellow Coldplay EMI Records Ltd 35. Don't Dream It's Over Crowded House Capitol Records, Inc. 36. Milkshake Kelis Arista Records, LLC 37. Teardrop Massive Attack ft. Tricky Circa Records Ltd 38. Come Away With Me Norah Jones Capitol Records, Inc. 39. Seven Years Norah Jones Capitol Records, Inc. 40. The nearness of you Norah Jones Capitol Records, Inc. 41. Don't know why Norah Jones Capitol Records, Inc. 42. Paranoid Android Radiohead EMI Records Ltd 43. Karma Police Radiohead EMI Records Ltd 44. Creep Radiohead EMI Records Ltd 45. Kids Robbie Williams Chrysalis Records Ltd 46. Sergeant Pepper's Lonely Hearts Club Band The Beatles EMI Records Ltd 47. Son of a Gun Janet Jackson Virgin Records America, Inc. 48. Innocent Eyes Delta Goodrem Sony Music (Australia) Pty Ltd 49. Predictable Delta Goodrem Sony Music (Australia) Pty Ltd 50. Animal Jebediah Sony Music (Australia) Pty Ltd 51. Benedict Jebediah Sony Music (Australia) Pty Ltd 52. Harpoon Jebediah Sony Music (Australia) Pty Ltd 53. Ana’s Song (Open Fire) Silverchair Sony Music (Australia) Pty Ltd 54. Feeler Pete Murray Sony Music (Australia) Pty 55. Freedom Pete Murray Sony Music (Australia) Pty Ltd 56. Down Under Men At Work Sony Music (Australia) Pty Ltd 57. I'm Alive Celine Dion Sony Music Entertainment
(Canada), Inc.
58. If You Had My Love Jennifer Lopez Sony BMG Music Entertainment 59. Still Jennifer Lopez Sony BMG Music Entertainment 60. My Stupid Mouth John Mayer Mayer Music LLC 61. Better Man Pearl Jam Sony BMG Music Entertainment 62. Daughter Pearl Jam Sony BMG Music Entertainment 63. Elderly Woman Behind the Counter in a Small Town Pearl Jam Sony BMG Music Entertainment 64. Immortality Pearl Jam Sony BMG Music Entertainment 65. Fat Cop Regurgitator Warner Music Australia Pty Ltd 66. Track 1 Regurgitator Warner Music Australia Pty Ltd 67. Blow Up The Pokies The Whitlams Timothy Freedman 68. Thank You The Whitlams Timothy Freedman 69. Breathing You In The Whitlams Timothy Freedman 70. From the Inside Linkin Park Warner Bros. Records, Inc. 71. Disease Matchbox 20 Atlantic Recording Corporation 72. When Doves Cry Prince Warner Bros. Records, Inc. 73. Purple Rain Prince Warner Bros. Records, Inc. 74. Meat Is Murder The Smiths Warner Music UK Ltd 75. How Soon Is Now The Smiths Warner Music UK Ltd 76. Winter Tori Amos Atlantic Recording Corporation 77. Crucify Tori Amos Atlantic Recording Corporation 78. The Music Box Trans-Siberian Orchestra Atlantic Recording Corporation 79. Please Do Not Go Violent Femmes J. Ruby Productions, Inc. dba Slash Records 80. By Myself Linkin Park Warner Bros. Records, Inc. 81. In The End Linkin Park Warner Bros. Records, Inc. 82. Music Madonna Warner Bros. Records, Inc. 83. All I Need Is You Guy Sebastian BMG Australia Limited 84. Just As I Am Guy Sebastian BMG Australia Limited 85. What About Me Shannon Noll BMG Australia Limited 86. Sk8er Boi Avril Lavigne Arista Records, LLC 87. Toxic Britney Spears Zomba Recording LLC 88. Fighter Christina Aguilera BMG Music (BMG Music dba The RCA Records Label, a Unit of BMG Entertainment) 89. The Voice Within Christina Aguilera BMG Music (BMG Music dba The RCA Records Label, a Unit of BMG Entertainment) 90. Thank You Dido BMG UK & Ireland Ltd 91. White Flag Dido BMG UK & Ireland Ltd 92. Don’t Think Of Me Dido BMG UK & Ireland Ltd 93. Here With Me Dido BMG UK & Ireland Ltd 94. Honestly Ok Dido BMG UK & Ireland Ltd 95. My Life Dido BMG UK & Ireland Ltd 96. Slide Dido BMG UK & Ireland Ltd 97. The Way You Move Outkast LaFace Records 98. Trouble Pink LaFace Records
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 110 OF 2004
BETWEEN:
UNIVERSAL MUSIC AUSTRALIA PTY LTD
FIRST APPLICANTFESTIVAL RECORDS PTY LTD AND MUSHROOM RECORDS PTY LTD TRADING AS FESTIVAL MUSHROOM RECORDS
SECOND APPLICANTEMI MUSIC AUSTRALIA PTY LIMITED
THIRD APPLICANTSONY MUSIC ENTERTAINMENT (AUSTRALIA) LIMITED
FOURTH APPLICANTWARNER MUSIC AUSTRALIA PTY LIMITED
FIFTH APPLICANTBMG AUSTRALIA LIMITED
SIXTH APPLICANTUMG RECORDS, INC.
SEVENTH APPLICANTSHADY RECORDS, INC./INTERSCOPE RECORDS
EIGHTH APPLICANTAFTERMATH RECORDS
NINTH APPLICANTREAL HORRORSHOW PTY LTD
TENTH APPLICANTTHE LIVING END PTY LTD
ELEVENTH APPLICANTVIRGIN RECORDS AMERICA, INC.
TWELFTH APPLICANTEMI RECORDS LTD
THIRTEENTH APPLICANTCAPITOL RECORDS, INC
FOURTEENTH APPLICANTARISTA RECORDS, LLC (FORMERLY KNOWN AS ARISTA RECORDS, INC.)
FIFTEENTH APPLICANTCIRCA RECORDS LTD
SIXTEENTH APPLICANTCHRYSALIS RECORDS LTD
SEVENTEENTH APPLICANTSONY MUSIC (AUSTRALIA) PTY LTD
EIGHTEENTH APPLICANTSONY MUSIC ENTERTAINMENT (CANADA) INC.
NINETEENTH APPLICANTSONY BMG MUSIC ENTERTAINMENT
TWENTIETH APPLICANTMAYER MUSIC LLC
TWENTY-FIRST APPLICANTTIMOTHY JAMES FREEDMAN
TWENTY-SECOND APPLICANTWARNER BROS. RECORDS, INC.
TWENTY-THIRD APPLICANTATLANTIC RECORDING CORPORATION
TWENTY-FOURTH APPLICANTWARNER MUSIC UK LTD
TWENTY-FIFTH APPLICANTJ RUBY PRODUCTIONS, INC. DBA SLASH RECORDS
TWENTY-SIXTH APPLICANTZOMBA RECORDING LLC (FORMERLY KNOWN AS ZOMBA RECORDING CORPORATION)
TWENTY-SEVENTH APPLICANTBMG MUSIC (BMG MUSIC DBA THE RCA RECORDS LABEL, A UNIT OF BMG ENTERTAINMENT)
TWENTY-EIGHTH APPLICANTBMG UK & IRELAND LTD
TWENTY-NINTH APPLICANTLAFACE RECORDS
THIRTIETH APPLICANTAND:
SHARMAN LICENSE HOLDINGS LTD
FIRST RESPONDENTSHARMAN NETWORKS LTD
SECOND RESPONDENTLEF INTERACTIVE PTY LTD
THIRD RESPONDENTNICOLA ANNE HEMMING
FOURTH RESPONDENTPHILIP MORLE
FIFTH RESPONDENTALTNET INC
SIXTH RESPONDENTBRILLIANT DIGITAL ENTERTAINMENT INC
SEVENTH RESPONDENTBRILLIANT DIGITAL ENTERTAINMENT PTY LTD
EIGHTH RESPONDENTKEVIN GLEN BERMEISTER
NINTH RESPONDENTANTHONY ROSE
TENTH RESPONDENT
JUDGE:
WILCOX J
DATE:
5 SEPTEMBER 2005
PLACE:
SYDNEY
REASONS FOR JUDGMENT
WILCOX J:
This proceeding raises important issues about Internet file-sharing.
My reasons are structured as follows:
I THE LITIGATION
(i) The parties paras 3 to 11
(ii) The proceeding paras 12 to 21
(iii) The trial paras 22 to 30
II THE PARTIES’ POSITIONS
(i) The applicants’ claims paras 31 to 51
(ii) The Sharman respondents paras 52 to 53
(iii) Mr Morle paras 54
(iv) The Altnet respondents paras 55 to 56
(v) Mr Rose paras 57
III THE KAZAA SYSTEM
(i) Electronic sound recordings paras 58
(ii) Description of Kazaa system paras 59 to 66
(iii)A user’s perspective
(a) The Kazaa website paras 67 to 71
(b) KMD v2.6 paras 72 to 84
(c) Kazaa Plus v2.6 para 85
(d) KMD of v3.0 and Kazaa Plus v3.0 paras 86 to 87
(e) The End User Licence Agreement paras 88 to 91
(f) The ‘Sharman team’ paras 92 to 93(iv)Sharman and the Kazaa System
(a) Control of Sharman paras 94 to 99
(b) The Sharman-Kazaa agreements paras 100 to 101
(c) The Sharman-Joltid agreements paras 102 to 106
(d) The Sharman-Altnet relationship paras 107 to 128(v) The technical experts’ agreed propositions para 129
(vi)The relationship between gold and blue
files paras 130 to 135
IV MAJOR FACTUAL ISSUES IN THE CASE
(i)Knowledge and intention
(a)Documentary evidence paras 136 to 162
(b) Mr Morle’s evidence paras 163 to 180
(c)Conclusions about knowledge
and intention paras 181 to 194
(ii)Technological controls
(a)Direct control through a
central server paras 195 to 235
(b) The range of indirect controls paras 236
(c) Monitoring of Kazaa users’ files paras 237 to 244
(d) User identification system paras 245 to 249
(e) Termination paras 250 to 253
(f) Keyword filtering paras 254 to 294
(g) ‘Persuaded’ upgrades paras 295 to 309
(h) Gold file flood filter paras 310 to 330(iii) Non-technological controls
(a) Warnings paras 331 to 340
(b) Enforcement by legal action paras 341 to 351V THE AUTHORISATION ISSUE
(i) The statutory provisions paras 352 to 362
(ii) Submissions of counsel paras 363 to 394
(iii) The application of s 112E paras 395 to 399
(iv) The application of s 101 to Sharman
and Sharman Holdings paras 400 to 420(v) The application of s 101 to LEF and
Ms Hemming paras 421 to 447(vii)The application of s 101 to Mr Morle paras 448 to 451
(viii)The application of s 101 to the Altnet
companies paras 452 to 473
(viii) The application of s 101 to Mr Bermeister paras 474 to 479
(ix) The application of s 101 to Mr Rose paras 480 to 488
(x) Conclusions on authorisation paras 489 to 490
VI THE TRADE PRACTICES CLAIMS
(i)Misleading conduct paras 491 to 502
(ii)Unconscionable conduct paras 503 to 509
VII THE CONSPIRACY CLAIMS paras 510 to 516
VIII DISPOSITION paras 517 to526
I THE LITIGATION
(i) The parties
There are 30 applicants in the proceeding. The first to sixth applicants commenced the proceeding. Those applicants are all Australian companies, although most (if not all) of them are substantially owned and controlled by overseas parent companies. Those six applicants distribute sound recordings in Australia. They claim copyright in their respective sound recordings pursuant to the Copyright Act 1968 (Cth) (‘the Act’). I will refer to these six applicants as ‘the original applicants’.
The 7th to 30th applicants were added by amendment of the Application. Most of these applicants are companies incorporated outside Australia, although two are Australian companies and one is a natural person. These 24 applicants also claim copyright in sound recordings.
There are ten respondents. The first five respondents were original parties. The second five respondents were added as parties following the execution of Anton Pillar orders made by me on the day the proceeding was commenced.
It is convenient to divide the ten respondents into four groups, reflecting their representation at the trial.
The first group (the first to fourth respondents) consists of three companies, Sharman License Holdings Ltd (‘Sharman Holdings’), Sharman Networks Ltd (‘Sharman’), LEF Interactive Pty Ltd (‘LEF’) and one natural person, Nicole Anne Hemming (‘Ms Hemming’). Sharman Holdings and Sharman (‘the Sharman companies’) were both incorporated in Vanuatu. LEF is an Australian company. The sole director and shareholder of LEF is Ms Hemming. She is also the Chief Executive Officer (‘CEO’) of Sharman. Ms Hemming is not a director of that company or of Sharman Holdings. Consistently with the course taken at trial, I will refer to the three companies and Ms Hemming, collectively, as ‘the Sharman respondents’.
The fifth respondent, Philip Morle, was at material times Director of Technology of LEF. His services were made available to Sharman, apparently on a full-time basis. His responsibilities at Sharman were consistent with him having been Director of Technology of Sharman itself. I will regard him as having filled that position.
The first to fifth respondents have sometimes collectively been called the ‘Sharman parties’. They have also been referred to as the ‘Kazaa parties’, on account of the fact that, with the possible exception of Sharman Holdings, they are all concerned with the operation of the Kazaa computer software system which lies at the heart of this case.
The third group (the sixth to ninth respondents) also consists of three companies and one natural person. The three companies are Altnet Inc (‘Altnet’) and Brilliant Digital Entertainment Inc (‘BDE’), both American companies, and Brilliant Digital Entertainment Pty Ltd (‘BDE Pty Ltd’), an Australian company. I will call these three companies ‘the Altnet companies’. The natural person is Kevin Glen Bermeister (‘Mr Bermeister’), a person who has a significant role in the affairs of all the Altnet companies. I will refer to the Altnet companies and Mr Bermeister, collectively, as ‘the Altnet respondents’.
The tenth respondent is Anthony Rose, a person who is said to be Chief Technical Officer of BDE. I will refer to the Altnet respondents and Mr Rose, collectively, as the ‘Altnet parties’.
(ii) The proceeding
The proceeding was commenced on 5 February 2004. On that day, I made Anton Pillar orders authorising representatives of the applicants and their solicitors, not more than two identified ‘forensic experts’ and one identified ‘independent solicitor’, to enter and search various premises apparently occupied by one or more of the Kazaa parties. I also made orders authorising such people to enter and search the premises of three identified universities. These universities were referred to as ‘supernode parties’, on account of an allegation that each of their computers was being used as a ‘supernode’ in Internet file sharing. The applicants did not claim the universities were knowingly involved in wrongdoing and did not join them as respondents in the proceeding.
The orders made on 5 February 2004 were executed. They were subsequently amended. It is unnecessary to refer to the detail of either the execution or the amendments. It is sufficient to say that, as a result of execution of the orders, the applicants took possession of a quantity of electronic data, most of which was provided in computer disc (‘CD’) form.
Between the institution of the proceeding and the commencement of the trial, on 29 November 2004, numerous interlocutory applications were made. I need not mention them all. However, I note three important interlocutory orders.
On 23 March 2004, I directed that ‘[a]ll issues of the quantum of pecuniary relief be determined separately from and after all other issues’ and, unless otherwise ordered, interlocutory steps be confined to the other issues; that is, interlocutory steps were not to be taken in relation to the issue of the quantum of pecuniary relief (damages or an account of profits). It was on that day that I granted leave to the applicants to serve an Amended Application adding the Altnet parties to the proceeding.
On 14 September 2004, as a result of argument in connection with one interlocutory application, the applicants obtained leave to add the 7th to 30th applicants. They also obtained leave to amend their Statement of Claim so as to confine their claims of past infringement of copyright to 98 specified sound recordings (‘Defined Recordings’) that were subsequently listed in Schedules A to F of the Amended Statement of Claim filed on 15 October 2004 (‘the S of C’). The Schedules identify each claimed copyright owner.
There is uncontested evidence that each of the Defined Recordings has been able to be downloaded, and has been downloaded, through the file-sharing facility of the Kazaa system.
In limiting their claims to the Defined Recordings, the applicants did not concede the copyright infringements that had been allegedly committed by the respondents were confined to those recordings. The applicants’ decision to limit their claims arose out of their logistical difficulty in establishing the copyright chain of title for each of the many sound recordings whose copyright the respondents are alleged to have infringed.
On 1 November 2004, I heard argument, pursuant to a notice of motion filed on 26 October 2004, concerning an application by three organisations for leave to intervene in the proceeding. The applicants for leave were Australian Consumers’ Association Pty Ltd, Electronic Frontiers Australia Inc. and New South Wales Council for Civil Liberties Inc. (‘the Amici’). The Amici expressed concern that the decision in this case might unduly constrain freedom of speech.
The application for intervention was opposed by the applicants in the principal proceeding but supported by all the respondents. On 1 November 2004, I did not finally dispose of the application for intervention. I considered it would be preferable to defer a decision on the application until consideration of final submissions and having regard to the content of the submissions offered by the Amici. I indicated I would not be prepared to allow intervention to prolong the hearing of the matter or to increase significantly the costs burden of other parties; however, I would be prepared to receive and consider a submission at the end of the case that was relevant, and not repetitive of points made by other parties.
In due course, counsel for the Amici provided a written submission. The submission presents a number of difficulties, as counsel for the applicants have pointed out. In particular, the submission seeks to have the Court consider documentary material that is not in evidence. This course is not open to me. On the other hand, the submission makes some useful comments about the proper interpretation of the Act. I will grant leave to the Amici to intervene to the extent necessary for them to put submissions that do not depend on material not already in evidence. I have given consideration to their submissions and will refer to them later.
(iii) The trial
Sixty-one affidavits, many lengthy, made by 34 witnesses, were read at the trial. Seventeen of those witnesses also gave oral evidence. The taking of evidence was substantially completed on 17 December 2004. There remained some problems about documents. Those problems were addressed on 17 and 31 January 2005, following which counsel for all parties supplied written submissions that were discussed at a hearing on 22-23 March 2005. At the conclusion of that hearing, I reserved my decision.
An enormous quantity of evidence was tendered at the trial. Little of it was the subject of objection by other parties; probably correctly, as most of the material was not irrelevant to the wide issues raised by the pleadings and was not otherwise inadmissible. However, much of the material was unnecessary. There was considerable repetition, and over‑elaboration, of evidence, even in relation to matters not seriously in dispute. Much of the material concerned peripheral matters that were never likely to be important.
Voluminous though it was, the evidence was also notable for what it lacked: direct evidence from those responsible for establishing and operating the Kazaa system, with its adjunct Altnet technology. Between them all, the respondents called only one witness who was directly involved in the operation of either the Kazaa or Altnet technology. That witness was Mr Morle. As Sharman’s Director of Technology, he might have been expected to have a comprehensive knowledge of both the Kazaa and Altnet technology. However, he made a disappointing contribution to my knowledge of those matters. He claimed ignorance of many matters about which I would have expected him to be informed.
A further notable omission from the evidence was direct and definite identification of the Kazaa source code. Some expert witnesses examined what they thought to be a copy of the source code. Mr Morle gave evidence, under cross-examination by counsel for the Sharman parties, that he had instructed another person to send a library copy of what was thought to be the source code to Professor Keith Ross, one of the Sharman respondents’ expert witnesses. However, neither Mr Morle nor anyone else confirmed the identity of the code perused by Professor Ross. Uncertainty about the content of Kazaa’s source code complicated the hearing.
The principal parties relied heavily on evidence from so‑called ‘independent experts’. Much of this evidence was helpful, some of it extremely valuable. Some of this evidence was not helpful, either because it related to a peripheral, even irrelevant, matter or because I was compelled to form an adverse view about the objectivity or intellectual integrity of the witness. I mention, in this context, particularly Dr Roger Clarke, whose evidence on behalf of the Altnet parties was little more than a partisan polemic, and, to a lesser extent, Professor Ross.
As my task is to decide a lawsuit, rather than to write a book about the trial, I do not propose to summarise, or even mention, all the evidence. During the course of the trial, I paid close attention to all the evidence that was tendered, whether documentary, affidavit or oral. I have revisited most of that evidence in considering my decision and in formulating these reasons. However, I propose to refer only to those portions of the evidence that bear on the issues I need to decide, being guided in my selection by counsel’s submissions.
These submissions were generally helpful. However, they are lengthy. Excluding supplementary material, they total 649 pages. Although I have read and reread them all, I will not attempt to respond to every point they raise.
From time to time, before and during the trial of this proceeding, reference was made to a proceeding then making its way through the United States courts. On 25 April 2003, the Federal District Court in Los Angeles summarily dismissed an action brought by various copyright holders against corporations allegedly associated with two United States-based peer-to-peer file-sharing systems, ‘Grokster’ and ‘StreamCast’. The Court of Appeals for the Ninth Circuit affirmed that decision. However, after I had reserved judgment in this case, the United States Supreme Court unanimously reversed the lower courts and allowed the suit to go to trial. On 27 June 2005, the judgment was delivered: see Metro-Goldwyn-Mayer Studios Inc v Grokster Ltd 125 S.Ct 2764; 73 USLW 4675 (‘Grokster’).
It had always been obvious that there were similarities between the Kazaa system and the Grokster and StreamCast systems. There were also differences in the conduct of the systems’ respective operators. Moreover, much of the Australian statutory law had no counterpart in United States law. So there was a question in my mind as to whether the Supreme Court’s decision provided any guidance to the resolution of this case. On 30 June 2005, I invited the parties to comment about that matter. They all did so. Their comments confirmed my impression that the differences, both factual and legal, are such as to render Grokster of little assistance to me.
II THE PARTIES’ POSITIONS
(i) The applicants’ claims
Paragraphs 17 to 46 of the S of C relate to the subsistence and ownership of copyright. It is alleged that each of the original applicants controls a catalogue of ‘sound recordings’, within the meaning of the Act, which catalogue includes the sound recordings listed in a particular Schedule – that is, one of Schedules A to F – to the S of C. The S of C goes on to allege that the particular original applicant ‘is exclusively licensed to make copies and authorise the making of copies in Australia’ of those sound recordings in the relevant catalogue of which it is not the copyright owner.
Paragraphs 47 to 84 of the S of C make copyright claims against the Sharman companies. A cumulative and alternative claim is made against each company that it has, ‘by itself or through or by its agents, developed, marketed and supplied to members of the public, including in Australia, certain computer software applications known as Kazaa Media Desktop [‘KMD’] and Kazaa Plus’ (collectively, ‘the Kazaa Software’).
By para 50 of the S of C, the applicants allege that each of the Sharman companies has, by itself or through or by its agents:
‘(a) marketed the Kazaa Software to members of the public in Australia;
(b)offered the Kazaa Software for download by members of the public in Australia;
(c)supplied the Kazaa Software to members of the public in Australia;
(d)developed and maintained and maintained [sic] the Kazaa Software;
(e)developed, maintained and made available technical features, resources and information required for the effective operation of the Kazaa Software, including the provision of indexes of supernodes;
(f)established, operated and maintained infrastructure used in the operation of the Kazaa Software or by users of the Kazaa Software, including multiple websites resolving to the URL operated and maintained websites and services relating to the Kazaa Software located at the URLs and >
Paragraph 51 of the S of C alleges that Kazaa Software has the following features and capabilities:
‘(a)features that permit users of the Kazaa Software to search for, identify, locate and download MPEG-1 Audio Layer-3 (MP3) and other digital music files from other users of the Kazaa Software over the Internet;
(b)features that permit users of the Kazaa Software to make available MP3 and other digital music files for searching, identification, location and downloading by other users of the Kazaa Software over the Internet;
(c)the ability to designate the computers of certain users of the Kazaa Software as supernodes;
(d)features that permit the easy handling of MP3 and other digital music files by users of the Kazaa Software, including music specific searches, playlists and an inbuilt music player;
(e)features designed to encourage end users of the Kazaa Software to make available files and reward to them according to the number of files made available by them relative to the number of files downloaded by them from other users of the Kazaa Software, including the “Participation Level”;
(f)features that permit users of the Kazaa Software to search for, identify and download digitally rights managed files, including music files, from or via Altnet or through or by its agents;
(g)the features and capabilities of the Altnet Technology pleaded in paragraph 97 below.’
The S of C goes on, in para 52, to claim that users of the Kazaa Software (‘Kazaa Users’) have, by means of that software:
‘(a) made available for download by other users of the Kazaa Software;
(b)searched for and located, on the computers of other users of the Kazaa Software;
(c)downloaded from other users of the Kazaa Software; and
(d)thereby made copies of,
MP3 or other digital music files constituting copies of the whole or a substantial part of’ the recordings over which the applicants claim rights as owners or licensees of the copyright.
Para 54 of the S of C contains an allegation that each of the Sharman companies did the acts complained of ‘knowing and intending that, or being recklessly indifferent as to whether … Kazaa Users would do the acts pleaded in’ para 52 of the S of C.
The S of C proceeds to claim five different types of infringement:
(i)infringement by communication; that is, making available online, or electronically transmitting, to the public MP3, or other digital music file, constituting copies of the whole or a substantial part of the relevant sound recordings;
(ii)infringement by authorisation; that is, authorising Kazaa users to make available online, or electronically transmit, to the public MP3 or other digital music files constituting copies of the whole or a substantial part of the relevant sound recordings;
(iii)infringement by authorisation of the acts of each other Sharman company;
(iv)infringement by exhibition or distribution; that is, each of the file-shared sound recordings is an infringing copy of the relevant applicant’s sound recording that is distributed by one or more of the Sharman companies; common design between those companies being alleged; and
(v) infringement as joint tortfeasors with Kazaa users.
The applicants pleaded that the file-sharing actions of Kazaa users were done without the licence of the relevant applicant. They alleged common design between each of the Sharman companies and Kazaa users and that the acts of the Sharman companies were done without the licence of the relevant applicant.
By paras 85 to 92 of the S of C, the applicants allege that Ms Hemming and Mr Morle authorised the acts of each of the Sharman companies and entered into a common design with them in respect of those acts.
Paragraphs 93 to 120 of the S of C make copyright claims against the Altnet companies. It is pleaded that each company, by itself or through or by its agents, ‘developed, marketed and supplied for use in the Kazaa Software certain computer software technology (the Altnet Technology)’. Paragraph 96 alleges that each of the Altnet companies developed and designed the Altnet Technology ‘in such a manner as to work in a complementary way with and form part of the Kazaa Software’, and licensed that technology to Sharman and supplied it (and maintained it as part of the Kazaa Software) to members of the public in Australia. In particular, it is said each Altnet company ‘established, operated and maintained infrastructure’ that included ‘computer servers from which Gold files are supplied to members of the public using the Kazaa Software’. Features and capabilities of the Altnet Technology are pleaded in para 97 of the S of C.
Paragraph 98 alleges that the infringing acts of Kazaa users ‘were enabled or facilitated’ by the Altnet Technology and the pleaded acts of the Altnet companies.
The S of C goes to make infringement claims of the same five types as were earlier made against each of the Sharman respondents.
It is convenient immediately to note that, although the parties put some submissions about infringement types (i), (iv) and (v), the only types of infringement that are seriously arguable, having regard to the evidence, are (ii) and (iii). Realistically speaking, the applicants’ copyright infringement claim depends entirely on the question whether the respondents, individually and/or jointly, authorised Kazaa users to infringe the applicant’s copyright.
Paragraphs 121 to 128 of the S of C make claims against each of Mr Bermeister and Mr Rose that correspond, in relation to the Altnet companies, to those made against Ms Hemming and Mr Morle in relation to the Sharman companies.
Paragraphs 129 and 130 of the S of C contain allegations of accessorial liability (both authorisation and common design) each way, as between each Sharman party and each Altnet party.
Paragraphs 131 to 138 of the S of C contain allegations relevant to relief, including claims of flagrancy, knowledge and reckless disregard of copyright. These allegations were apparently intended to enliven s 115(4) of the Act.
Paragraphs 139 to 144 of the S of C claim that each of the Sharman companies made representations that were false and that constituted misleading or deceptive conduct, in contravention of s 52 of the Trade Practices Act 1974 (Cth) (‘the TP Act’) and s 42 of the Fair Trading Act 1987 (NSW) (‘the FT Act’). Ms Hemming, Mr Morle and Mr Bermeister are said to have aided and abetted, or been knowingly concerned, in the contraventions.
The particular false representations claimed by the applicants against each of the Sharman companies are:
‘(a)that it is not possible for them [the Sharman companies] to exercise control over the nature, quality or content of files that can be made available for download or downloaded by users via the Kazaa Software;
(b)that it is not possible to exercise central control over the nature, quality or content of files that can be made available for download or downloaded by users via the Kazaa Software;
(c)that a significant or substantial portion of the revenue generated via the Kazaa Software comes from payment for distribution of rights managed content;
(d)that all files containing rights management information appear as gold icons in version 2.6 of the Kazaa Software;
(e)that the performance of a personal computer will not be, or is unlikely to be, noticeably affected by its functioning as a supernode for the purposes of the Kazaa Software;
(f)that functioning as a supernode for the purposes of the Kazaa Software will not, or is unlikely to, increase the cost of operating a personal computer;
(g)that a user of the Kazaa Software may avoid liability by altering the file data or metadata relating to infringing files;
(h)that a significant or substantial portion of files made available for download or downloaded by users via the Kazaa Software are non-infringing files.’
The applicants also pleaded claims of unconscionable conduct (paras 145 to 148 of the S of C) and conspiracy (paras 151 to 158 of the S of C).
The applicants’ Second Further Amended Application, filed on 15 October 2004, sets out the relief claimed by them at the trial. The applicants claim declarations of infringement of copyright by each of the respondents; a permanent injunction against each respondent in relation to each sound recording in each particular applicant’s catalogue, including each of the 98 Defined Recordings; damages (including damages pursuant to s 115(4) of the Act and for conversion pursuant to s 116(1)) or , at the option of the applicants, an account of profits; and delivery up of infringing copies and devices. The permanent injunction is proposed to be one restraining the particular respondent, personally or by servants or agents from:
(a)making, or authorising the making of, a copy of any of the Defined Recordings;
(b)communicating or authorising the communication of the whole or a substantial part of any of the said sound recordings to the public; or
(c)distributing articles embodying the said sound recordings.
Declarations, injunctions and damages are also sought in relation to the alleged false representations, misleading conduct, unconscionable conduct and conspiracy.
In view of the direction for separate trial made on 23 March 2004 (para 15 above), the parties have not tendered evidence, or made submissions, concerning the quantum of pecuniary relief. However, they (rightly) devoted attention at trial, and in their submissions, to the question whether the Court ought to grant declaratory and/or injunctive relief and, if so, in what form.
(ii) The Sharman respondents
In their Closing Submissions, counsel for the Sharman respondents expressed their clients’ position in this way:
The principal issue in the proceeding is whether by distributing the bundle of software known as [KMD], the Sharman Respondents “authorise” infringements of copyright which may take place if users of the KMD make available in Australia infringing sound recordings (by placing them in their My Shared Folder and permitting them to be shared) or download in Australia digital files of such recordings using that software.
The Sharman Respondents' position in relation to that issue, broadly stated, is as follows –
(a)the KMD includes a Graphical User Interface (GUI) which permits access to the peer-to-peer (or P2P) network known as FastTrack. By doing so it enables users with the software to search for and download files in a digital format from other users of FastTrack;
(b)the KMD is capable of being used, and is used, to make available and download files which do not involve any infringement of the Applicants' or any one else's copyright;
(c)the software is content neutral and the Sharman Respondents do not and are unable to control either the files (whether video, music, text or otherwise) which users might make available by placing them in their My Shared Folder or the content which they search for and choose to download using the software;
(d)in the context of “authorisation” there is a critical distinction between giving a person the power to do an infringing act and purporting to grant a person the right to do that act.
It is the Sharman Respondents' case that whilst, by distributing the KMD, they confer on users of the software the ability to make available for download by other users any files in digital format, they do not authorise any infringing acts in circumstances where it is conceded that the KMD software is capable of being used to communicate or download non-infringing material and the evidence establishes that they have no control over the user's use of the distributed software.
It is not to the point that the Sharman Respondents distribute the KMD in circumstances where they are aware that it is being used to engage in copyright infringing activity. … Nor is it to the point that the Sharman Respondents receive revenue as a result of the distribution of the KMD.’
After noting the principal copyright claims made against their clients by the applicants, counsel said their clients’ position was:
‘(a)they have not communicated any infringing sound recordings to the public by reason of the fact that users of the KMD have either made those recordings available online or electronically transmitted them;
(b)an MP3 or other digital music file is not an "article" to which s.103 applies and they have not, by distributing the KMD, distributed “articles” within the meaning of s.103 of the Act;
(c)they have not authorised any infringements of copyright by users of the KMD by reason of those users doing in Australia acts comprised in the copyright (by either making recordings available online or electronically transmitting them); and
(d)they are not joint tortfeasors and have not conspired to injure the Appellants' or to do so by “unlawful means”.
(iii) Mr Morle
In Closing Submissions, counsel for Mr Morle noted that the infringement allegations against him ‘are effectively the same as those of the Sharman companies’. Counsel went on:
‘It is important to keep clearly in mind the claims actually made against Mr Morle because the applicants’ written outline … habitually makes submissions addressed to the conduct of the respondents’ collectively. This has the consequences that:
(a)in particular respects an impression is created that broader claims are asserted against Mr Morle than are pleaded; and
(b)all of the conduct of all of the respondents is treated as relevant to a determination of the claims against Mr Morle as though it was all his conduct.
All the claims made against Mr Morle rest on the fact that since January 2002 he has been an employee of the third respondent (“LEF”) which has provided his services on a contract basis to the second respondent (“Sharman Networks”). Further they are all of an accessorial nature, save for the conspiracy claim.
There is no principle (an inverse of the employer’s vicarious liability for an employee’s wrongs) which operates to make an employee responsible for the wrongs of his or her employer. Yet the unspoken assumption in the applicants’ outline is that Mr Morle is to be treated as thus liable for any breaches of the Sharman companies, and by reason of their relationship with the Altnet companies, any breaches of the latter as well. No attention is given to specifically identifying facts from which it might be found that Mr Morle was an accessory of the companies in any instance.’
(iv) The Altnet respondents
The Closing Submissions of counsel for the Altnet respondents commence with this statement in relation to the applicants’ copyright claims:
‘Irrespective of the Court’s findings on issues of primary infringement by users and authorisation by Sharman, the principal case mounted against the [Altnet] respondents … fails on the facts because the applicants have not shown that the Altnet Technology enables or facilitates any infringing conduct by users of [KMD]. To the contrary, the evidence points squarely to the conclusion that the Altnet Technology does not enable or facilitate any infringing acts, but instead is wholly directed to the provision of Gold Files. That finding, which is especially conspicuous by the contrary not being put by the applicants in their [Closing Submissions] is determinative of all copyright allegations made against the [Altnet] respondents.’
Counsel put particular submissions concerning the other causes of action, to which I will return.
(v) Mr Rose
Counsel for Mr Rose adopted the submissions put by other respondents’ counsel. They asserted these points ‘apply with even greater force to Rose given his position in relation to the various corporate entities, and the fact that … Rose is not a significant figure in the scheme of things’ (original emphasis).
III THE KAZAA SYSTEM
(i) Electronic sound recordings
Before going to the Kazaa system itself, it may be useful for me to set out a slightly‑edited general statement about electronic copying of sound recordings that was made at paras 131-136 of the Closing Submissions of counsel for the applicants. I believe this statement accords with the evidence and is uncontroversial.
‘By the use of a computer installed with appropriate copying software, it is possible to create a high-quality “digital copy” of a sound recording embedded in a CD. This process is often referred to as “ripping” a CD. Such a process results in the production of a digital file or computer file. The digital file can be “played” on the computer which created the digital file using software which recognises such a file and uses it to generate audible sound. It can be transferred to a recordable CD and played in other equipment which recognises such files. It can be transferred to equipment which recognises and plays such files. It can be transferred over the Internet to other computers. Using appropriate software, the file can be converted to an audio file, transferred to a CD and played in an ordinary audio CD system.
Different copying software produces computer files in different “formats”. For example, a readily-available program is Windows Media Player. That enables a person to insert a commercially-released audio … into the disc drive of a computer and create on the computer a digital copy of that sound recording in “.mp3” format.
The mp3 format is a compressed format. The advantage of that format is that it constitutes a smaller computer file than a copy of the sound recording in an uncompressed format. The smaller computer file occupies less space on a computer drive and takes less time to transfer over the Internet. An mp3 file can be played in an mp3 player or on a computer. It can be downloaded over the Internet. It can be converted to an uncompressed audio file and burned onto a CD and played in an ordinary audio CD player. The ease by which this copying takes place is one of the causes of the problem of widespread infringement faced by the Applicants with the growth of file swapping. It is not, however, a basis to look favourably on the Respondents’ exploitation of file swapping.
It is possible to apply digitally rights managed technology (“DRM”) to certain formats. One such format is the “WMA” format. DRM systems prevent the playing of a file except by a permitted user. For example, a user will normally require a unique licence number to play a file which may permit the playing of the file only on a particular computer. The mp3 format does not support DRM technology.
There are legitimate Internet download music sites authorised by one or more of the Applicants. One example is “bigpondmusic.com” launched by Telstra on 15 January 2004. The legitimate music download services only make available digital copies of sound recordings with the DRM feature, usually in WMA format. They are not made available in mp3 format.
The mp3 format is most commonly used for the creation and transfer of unauthorised copies of the Applicants’ sound recordings. Virtually all of the acts of infringement of copyright in the Defined Recordings relates to mp3 copies of those recordings on the computers of Kazaa users.’ (footnotes and headings omitted)
(ii) Description of the Kazaa system
The Closing Submissions of the Altnet respondents include a useful overview of the Kazaa system. The acronym ‘KMD’ refers to Kazaa Media Desktop, the free option of the program made available to users. The overview reads:
‘(a)The KMD is a graphical user interface (“GUI”) which permits access to two separate networks of computers connected to the internet: FastTrack and Joltid PeerEnabler, via means of which digital files including audio files may be transferred.
(b)By means of FastTrack, KMD users can:
i.Make available to other users files in their “My Shared Folder”;
ii.Search for files from other users in their “My Shared Folder”;
iii.Download such files from other users; and
iv.Save such files in their My Shared Folder, in turn making them available to other KMD users.
(c)The Joltid PeerEnabler network is quite different. First, Altnet controls all of the files which may be transferred on channels licensed by it – a user cannot choose to make available his or her own file (whether obtained lawfully or unlawfully) unless Altnet causes it to happen. Secondly, there is a list of files available on the PeerEnabler network resident on every participant’s computer, from which it follows that there is no need to communicate with any supernode in order to respond to a search request. Thirdly, it is no part of the applicants’ case that any of their copyright is infringed by the gold files distributed by Altnet through Joltid PeerEnabler.’
The respondents claim the Kazaa system is an example of ‘peer‑to‑peer’ or ‘P2P’ technology. In their Closing Submissions, counsel for the applicants explained what that means:
‘The name describes the capability of the software to enable the direct transfer of computer files between “peers” or individual computer users in a “network” in contradistinction to:
·a system in which computer files are supplied from a single central computer to multiple individual computer users (eg, client/server), or
·a system where even if files are not stored centrally, indexes are so stored…’
Counsel for the applicants did not accept that Kazaa is truly a P2P system. They said that, ‘while the software has P2P characteristics, it is now clear that it has many features in common with client/server and centrally indexed systems.’
At paras 178-201 of their Closing Submissions, counsel for the applicants set out a description of the Kazaa system. Their description was supported by numerous references to the evidence given in this case. Whether or not the Kazaa system is truly P2P, most of this description is uncontroversial. Consequently, although it is lengthy, I will set it out, with only minor excisions, mostly to remove controversial comments. Footnote references have been omitted. Counsel said:
‘The Kazaa system consists of millions of individual Kazaa users each having the Kazaa software installed on their own computers. Each such computer is referred to as a “node”. A feature of the Kazaa system is that a small percentage of those computers (but still a large number in total) must function as “supernodes”. A supernode computer must be a powerful computer with a fast Internet connection. There is an option available to a Kazaa user within the Kazaa software to ensure that his computer does not function as a supernode. It is to be inferred that ordinary users interfacing with the software at the basic operational level would not explore advanced functionality of that kind. Generally speaking, the software itself identifies potential supernode computers and causes them to function as supernodes. A Kazaa user is not told if his computer is being used as a supernode. However, as appears below, Sharman is able to force a computer to become a supernode.
The Kazaa software is designed so that each supernode computer is connected (via the Internet) to a certain number of node computers. It appears that the number is between 100 and 200. A supernode is in constant communication with its nodes. Thus, each time a Kazaa user launches the Kazaa programme on his node computer (i.e., on the default option, on starting the computer), that computer will connect to and communicate with its supernode computer. Each supernode is connected to its nearest supernodes which in their turn are connected to other supernodes.
A supernode is geographically proximate with its nodes.
Once the Kazaa software is installed on a computer that is connected to the Internet, that computer forms part of a network or system consisting of all other computers connected to the Internet on which the Kazaa software is running. The user of that computer becomes a new Kazaa user. Every time the user connects to the Internet and launches the Kazaa program he is again connected up to the Kazaa system or network and to the Kazaa website.
The Kazaa software creates a My Shared Folder on a user’s computer upon installation of the software on the computer. The Kazaa software is designed so that the supernode computer operates to search the My Shared Folder of each of the ordinary nodes to which it is connected every 60 seconds. It assembles an index of all of the files in each of those My Shared Folders.
The index contains the “metadata” and “filehash” of each file, along with the “IP Address” of the computer holding that file.
“Metadata” is data associated with and which forms part of a file. It can include the name of the file such as the title of a sound recording, the name of the artist, a description of the quality of the file or the sound recording and the size of the file in bytes. The creator of the file or the recipient of the file can usually alter or add to metadata such as the name of the file and other descriptive material. However, “ripping” programs can typically access and automatically enter this information.
A “filehash” is assigned by the Kazaa software to each file in a user’s My Shared Folder based on the digital sequence of the file. It represents a shorthand version of the file which is the application of a mathematical algorithm to the longhand version of the file. The effect of it is to produce a short sequence of digits which, for all practical purposes, uniquely identifies that file. The same sound recording may be copied or “ripped” by different persons using different technologies to produce files which will sound the same when played but nevertheless will produce different filehashes due to idiosyncrasies in the different digital copying processes. Because the filehash is based on the content of the file, changing the name of the file - or in most circumstances the metadata - does not alter its filehash. The filehash of a file forms part of the file description included in the file indexing system. One benefit is that filehashing minimises the size of the index.
The “IP Address” or “Internet Protocol Address” is a unique number, akin to a telephone number, used by machines (usually computers) to refer to each other when sending information through the Internet using the Internet Protocol. This allows the machine passing the information onwards on behalf of the sender to know where to send it next, and for the machine receiving the information to know that it is the intended destination.
When an individual (ordinary node) Kazaa user types in a search term in the Search for Files box or in the appropriate box on the search page, that search request is sent to that computer’s supernode. That communication is encoded and requires the relevant source code to be able to read the content of the communication. The supernode responds to the search request by reference to the index which it is constantly generating of all the files in the My Shared Folders of all of its connected nodes. The supernode may also forward the search request to other supernodes.
If the terms of a search request match any part of the metadata (eg artist name, or song title) of the files in the indices to which the search request is referred, those files are returned as matching Blue File search results to the user’s computer as described above, distinguished by the blue Kazaa icon. Each matching result includes the title of the file, the name of the artist, the file size, an integrity rating and the username of the user in whose My Shared Folder the file is located …
By clicking on the download icon next to the Blue File that represents a matching search result, the Kazaa software causes that file to be downloaded from the My Shared Folder of the Kazaa user where that file is located. A direct Internet link is established between the requesting user’s computer and the supplying user’s computer and the file is transferred via such direct link. The mechanism employed is to attach to each file in the search results the IP address of the computer holding that file. When the searching user clicks on the download icon for that file in the search results, the searching user’s computer sends a request to that IP address for the file specifying the file by its filehash. The supplying user’s computer responds by sending that file to the IP address of the searching user’s computer, which IP address is provided with the request.
The Kazaa software also permits the simultaneous download of different parts of the same file from different sources in order to speed up the download process. In circumstances where the search result identifies files with the same filehash located in the My Shared Folders of different Kazaa users, clicking on the download icon of the requested file sends requests for transfer to the different sources simultaneously. Different parts of the same file are supplied by different Kazaa users and are linked up to form a single file in the computer of the requesting user.
The direct transfer of files between users classifies the Kazaa system as a “peer-to-peer” network or system or “P2P”. The description P2P is used to distinguish this method from a system which uses a central server or bank of servers to provide file content, although there is a difference between the Applicants and the Respondents about the extent to which the Kazaa system has server/client characteristics.
The supply by a Kazaa user of a file in his My Shared Folder to another Kazaa user requesting that file does not involve any additional act or step on the part of the supplying user. Once a file is in the supplying user’s My Shared Folder and the user is online and with KMD running - the default option - is that the file can be the subject of a search result provided to another Kazaa user and a copy of that file can be transferred from the supplying user’s My Shared Folder to the searching user’s computer. …
Files enter a Kazaa user’s My Shared Folder in one of two ways. Firstly, a Kazaa user may transfer a file from another folder in his computer to his My Shared Folder or may cause a file being created by him or received by him from other sources to be saved in his My Shared Folder. For example, a Kazaa user who “rips” a sound recording to create an mp3 file might place that file in his My Shared Folder within the Kazaa programme in order that it can be “shared” with other Kazaa users.
Secondly, every time a Kazaa user downloads a file from another Kazaa user by clicking on the download icon next to a Blue File search result, a copy of the requested file is automatically transferred to the requesting user’s My Shared Folder. Unless the requesting user takes the conscious step of removing the new file from his My Shared Folder to another folder in his computer, it is immediately available to be searched and downloaded by another Kazaa user. … It is a design feature of the Kazaa software that downloads are automatically placed in a user’s My Shared Folder. That has the tendency to maximise the number of files available to be shared on the system, which in turn makes it a more attractive system for putative file sharers to use. While a user can disable this feature, again, doing so is an advanced function that the ordinary user interfacing at the basic operational level is unlikely to select.
Files in the My Shared Folder of a Kazaa user cannot be searched and accessed by external users using search engines such as Google. They are not available to ordinary Internet users. Access to the files in the My Shared Folders of existing users is obtained by downloading and installing the Kazaa software. Those existing files are then available to the new Kazaa user. …
Further, it is the capability of the Kazaa software to prepare indices of files in the My Shared Folders of Kazaa users, to match search requests by reference to those indices, to deliver the results of the search to a Kazaa user and to provide the mechanism for delivery of the requested file from one user to another, which makes the files available to users. The search results mechanism is a key aspect of the system. If a file does not appear in the search results, it is not available to be downloaded.
The Kazaa system or network may be described as a “distributed system”. The system takes advantage of the resources of the computers owned or used by the individual Kazaa users. One obvious benefit of this is that the suppliers of the software do not have to supply the hardware or facilities on which the software and system is operated. A key benefit is that the files which users are interested in and searchable indices of those files can be located physically on a large number of different computers which are geographically spread around the world.
This has two advantages. First, it avoids the problem of a single computer or a single bank of computers having to deal with and respond to search requests and having to hold copies of all relevant files and respond to requests for those files. Such a centralized system may result in delays or a requirement of a large number of computers to be able to cope with the demand.
Secondly, the geographic spread of nodes and supernodes along with the design feature of the software of organising a supernode and its nodes in the same proximate geographical area has the consequence that the distance which most communications must travel is small and hence the response time is quick. …
Hence the continuous addition of new Kazaa users to the system by the supply of the Kazaa software benefits both existing users and also makes the system more attractive for both existing and new users. As Mr Morle described it, every user gained adds value greater than one to the network and every user lost removes that value.
Equally, the more files of interest to other users that an individual user makes available in his My Shared Folder, the more attractive the system is likely to be to both existing and potential new users. The Kazaa software is designed so that Kazaa users are rewarded by participation levels based on the amount of files being uploaded from a user’s My Shared Folder. The participation level of a user is automatically determined by the ratio of the amount of data downloaded by an individual Kazaa user as opposed to the amount uploaded from that user’s computer, and is displayed as a number and level name in the bottom left hand corner of the Kazaa software. A user who has a high participation level receives a greater priority from the Kazaa system over other users when attempting to download files. Therefore, a user who is sharing many popular files will be more easily able to download desired files.’
It is true that BDE pre-dated Sharman; even the creation of the Kazaa system. However, Altnet was formed within weeks of the incorporation of Sharman. From the date of its incorporation, Altnet’s sole director was Mr Bermeister, a person who had already had a working relationship with Ms Hemming and who knew of her entry into the area of peer-to-peer file sharing.
The ‘simple matter of geography’ is singularly unconvincing in an age of instant global communication. Geography provides no reason to reject the possibility of a joint venture between American and Australian interests.
The documentary evidence is full of examples of consultation and close co-operation between officers of Altnet (including Mr Bermeister and Mr Rose) and officers of Sharman (including Ms Hemming and Mr Morle). The consultation and co-operation embraced a wide range of matters, from broad policy formation to operational details. Graphic evidence of Altnet’s involvement in the Kazaa system is provided by the fact that it was Altnet (not Sharman) which proposed the commissioning of Syzygy to conduct focus groups and that Mr Bermeister took the time to attend all four focus group discussions and to report his observations to others, including Ms Hemming and Mr Morle. It is plain that Altnet had a lively, ongoing interest in the operation of the Kazaa system and its profitability.
Although the gold files supplied to the Kazaa system by Altnet through TopSearch are assumed all to have been non-infringing files, Altnet knew this was not the case with the KMD blue files. Altnet knew there was substantial copyright infringement in this area. Notwithstanding that knowledge, it took no steps to prevent or avoid users’ copyright infringements. In particular, it took no steps to take advantage of what BDE said in the SEC report was ‘its ability to communicate with the KMD technology’. BDE went on:
‘The KMD permits end users to exchange files with other KMD users over the Fasttrack network. Tens of millions of search requests each day are being made using the KMD by users worldwide. These search requests can be accessed by Altnet, and pursuant to our agreement with Sharman Networks, relevant Altnet search results are displayed in the KMD to end users in response to their search requests.’
As noted at paras 312-313 above, Mr McKemmish agreed this technology would have enabled Altnet to respond to a request for a listed unlicensed work by flooding the user’s screen with empty gold files. Altnet did not take advantage of that capacity, no doubt because that would have been contrary to its financial interests.
The joint enterprise agreement is very persuasive. Not only does it recite the fact that Sharman was created with the intention of working jointly with Altnet to develop the Kazaa business (para 113 above), it grants Altnet a licence to use Sharman’s name, trademarks and logos (para 116) and provides for the sharing of search results (para 117) and revenue (para 119). Moreover, Altnet has the right, and ability, to monitor users’ KMD searches and to impose its gold file offers on the Kazaa UI. This looks like a business partnership. That this is the way Altnet (and BDE) saw the relationship is apparent from the SEC report quoted at para 133 above.
I see no reason why I should not take the joint enterprise agreement at face value and find that Altnet is a co-principal, with Sharman, in the provision of the Kazaa system to members of the public. Such a finding is not inconsistent with the other documentary evidence or Mr Morle’s evidence. On the basis that Altnet and Sharman jointly provide Kazaa, Altnet is a person to whom s 112E of the Act applies. Altnet ‘provides facilities’, in conjunction with Sharman, within the meaning of that section. However, on the stated basis, Altnet does more than provide facilities for making, or facilitating the making of, a communication. It is involved in Sharman’s additional activities.
Moreover, Altnet has made its own contribution to Kazaa. As Mr Morle explained, one of his first tasks was to rebuild the Kazaa website. Shortly afterwards, he added TopSearch to KMD. He did this in collaboration with Mr Rose. They installed the promotional features that persuade me that Sharman did more than provide facilities able to be used by copyright infringers: see para 403 above. Altnet must have known about those features. During the time that he was installing the features, Mr Morle was working in close collaboration with Mr Bermeister and Mr Rose. Altnet seems to have taken a close interest in everything Mr Morle did. For example, an undated document entitled ‘The Altnet Research Network – Sharman Networks Planning Document’ makes this specific reference to the Kazaa website:
‘Kazaa.com promotion
The web site is becoming a positive educational and promotional tool, with reasonable integrity and trust. We will preview, review and educate customers through the various stages of the launch. This information has to be plain language, including both clear summaries and comprehensive detail. Preview (‘coming soon’) information should be placed on the site long enough to allow reference groups to debate and discuss the issues and feel comfortable with trying the new product.’A specific example of consultation in relation to the Kazaa website is provided by an exchange of emails in September 2003. On 3 September, Mr de Re of Sharman sent to Mr Bermeister an email headed ‘URGENT. Feedback required’. The email commenced:
‘As you know we are working on the redesign of the KMD interface. I have collated form [sic] SNL and Altnet a list of requirements for what the interface needs to achieve. I would be grateful if you could prioritise this list starting from what you think are the most important objectives down to the least. I will then pass this on to Nikki for final approval before the design is executed.’
Then followed a list of objectives of the redesign and a request for feedback.
Two days later, Mr Bermeister provided his own list of desirable features of the website. He did not mention warnings about copyright infringement.
Altnet is implicated, equally with Sharman, in the conduct that causes me to find that Sharman authorised Kazaa users to infringe the applicants’ copyright.
The issue of authorisation should be resolved adversely to Altnet and BDE.
(viii) The application of s 101 to Mr Bermeister
It is not necessary for me to rediscuss the principles that are relevant to determination of the question whether Mr Bermeister should be held to have personally authorised users’ infringement of the applicants’ copyright, as distinct from having done this on behalf of Altnet and BDE. There is no doubt that Mr Bermeister procured and directed the acts and omissions of Altnet and BDE which, I have concluded, require a finding that those companies authorised the infringements. However, as in the cases of Ms Hemming and Mr Morle, I prefer to adopt the more demanding test postulated by Finkelstein J in Root Quality.
I think Mr Bermeister’s degree of personal involvement in Altnet’s and BDE’s authorising conduct was such as to make it just that he be rendered liable for infringement of the applicants’ copyright. Altnet is not a ‘one-man’ company, in the sense that it is owned by one person. It is owned by BDE and Joltid, with BDE having the majority of the issued shares. However, since its formation, Mr Bermeister has been the sole director of Altnet. No doubt he has exercised his powers in accordance with the best interests of the shareholders. Nevertheless, Mr Bermeister has enjoyed total control over Altnet’s management. The major activity of the company – perhaps its only activity – has been the establishment, maintenance and expansion of the Altnet file-licensing system. A dominant aspect of that activity has been Altnet’s relationship with Sharman and Altnet’s participation in the Kazaa system.
Moreover, as will be apparent from the material already mentioned, Mr Bermeister himself has played a key role in the Altnet-Sharman relationship. It seems he was instrumental in creating that relationship. He introduced Ms Hemming to Kazaa BV. In a manner left unexplained by the evidence, this led to the incorporation of Sharman and its entering into agreements with Kazaa BV and Joltid. Altnet then made a joint venture agreement with Sharman. The combined effect of these various agreements was to enable Sharman to operate the Kazaa system. It was apparently always envisaged that Altnet’s TopSearch technology would be part of the Kazaa system. Mr Bermeister was personally involved in ensuring this would be so.
Mr Bermeister was not content merely to set up the Sharman relationship and to cause the pooling of the relevant technologies. The documentary evidence shows he took a close personal interest in the operation of Kazaa. He offered opinions, or was consulted, about many operational matters, including the content of the Kazaa website. He attended the focus groups, at which he must have come to realise, if he did not know before, the extent to which the Kazaa system was used for unauthorised file-sharing. Yet he did nothing about that problem. He allowed Altnet to remain in the relationship with Sharman, enjoying the profits of that relationship, without making even a suggestion as to how the incidence of unauthorised file-sharing might be reduced.
Mr Bermeister has always been only one of several BDE directors; although, as President and CEO, he may reasonably be assumed to have played an influential role in BDE’s affairs. I assume it has been his practice regularly to report to the BDE board of directors, including in relation to Altnet’s involvement in the Kazaa system. However, there is no suggestion in the evidence that any of his actions and omissions, in relation to Altnet and the Kazaa system, were forced upon him by the board. In the absence of evidence to the contrary, from Mr Bermeister or anyone else in BDE/Altnet, it may be inferred that Mr Bermeister is, and always has been, the driving force in relation to this area of BDE’s activities, and that his fellow-directors have been content to allow him free rein.
In my opinion, the degree of Mr Bermeister’s personal involvement in the acts and omissions of Altnet and BDE, which constitute authorisation of the users’ infringing conduct, is such as to render it just to conclude that Mr Bermeister has himself authorised that conduct.
(ix) The application of s 101 to Mr Rose
The evidence provides little information about Mr Rose. In their Closing Submissions, counsel for Mr Rose made some assertions about his history and positions with BDE. I cannot act on those assertions; they are not supported by evidence. There is evidence as to the identity of the directors of BDE and Altnet; Mr Rose is not among them. So I can accept counsel’s submission that he has never been a director of either company. It also appears to be correct, as asserted by counsel, that Mr Rose has never been named in a BDE report to the SEC as a ‘key person’ in its business. Apparently, at one stage, he was called ‘Vice President of Technology’; later he became ‘Chief Technology Officer’. Counsel also asserted that Mr Rose was located in Australia, remotely from BDE in America. However, there is no evidence about that. Nor is there any evidence to support counsel’s assertions: first, that Mr Rose’s role with BDE was limited to ‘implementing the decisions of others’; and, second, that he had no connection with the establishment of Sharman or its acquiring the Kazaa business. All I can say about those two assertions is that there is no evidence contradictory of them.
Counsel also submitted that Mr Rose ‘had no connection with [Sharman] except insofar as he was required to deal with persons working for that company in carrying out the duties of his employment with [BDE]’. That may be true; once again, there is no evidence to the contrary. However, if the statement is true, that is not enough to resolve the issue of his personal liability. It is still necessary to consider the evidence as to what he did in relation to the Sharman connection.
In a Schedule to their Closing Submissions, counsel for the applicants identified 59 documents, included in the evidence, that are connected in some way with Mr Rose. Counsel claimed these documents demonstrate that ‘Mr Rose is deeply involved in the day to day management of [Altnet]’.
Counsel for the applicants went on to submit: ‘Mr Rose had primary responsibility for technical issues in Altnet’. They identified 18 documents which, they claimed and I agree, support that statement. These documents show Mr Rose played a role in the design of TopSearch; that he collaborated with Mr Morle in the integration of the TopSearch and FastTrack technology; and that he was involved in monitoring and improving the operation of the Kazaa system, including the design of upgrades and new versions. The documents also show that Mr Rose devoted attention to the collection of statistics. In short, the documents show what might be expected about someone in his position: Mr Rose was totally familiar with the technological aspects of the Kazaa-Altnet system. He was aware of the objectives of Altnet in connection with that system and he endeavoured to achieve those objectives.
However, counsel for the applicants went further. They said ‘Mr Rose was involved in a wide range of business and marketing decisions’. In support of that assertion, they cited 15 documents. Those documents indicate Mr Rose’s involvement in particular issues. However, leaving aside cases where he was a mere recipient of information – for example, Mr Bermeister’s memo commenting on the focus groups – in each case, Mr Rose’s involvement was limited to providing information or comment about a technical matter. He suggested changes to both TopSearch and the Kazaa website. However, he is not shown ever to have been involved in basic policy decisions.
During the course of his oral evidence, Mr Morle made several references to interaction with Mr Rose. Those references did not add anything to the impression that, in any event, is gained by perusing the 59 documents.
As counsel for the applicants submitted, the documents demonstrate that Mr Rose was aware of Kazaa users’ widespread copyright infringing activity and that he took no steps to prevent copyright infringement.
The evidence is not sufficient to make out the applicants’ case against Mr Rose. At all material times, Mr Rose occupied an important position in the BDE/Altnet organisation. He was deeply involved in the technological aspects of the Kazaa system. However, there is no evidence to suggest he was involved in strategic policy decisions or was free to determine whether Altnet should seek to remove from the Kazaa website the material that had the effect of encouraging users to infringe copyright, or to take an active role in countering the users’ copyright infringements. Although Mr Rose occupied a senior position, he was always subservient to Mr Bermeister. I have no reason to believe any proposal Mr Rose might have advanced about measures to deal with copyright infringement would have been implemented.
The authorisation claim against Mr Rose must fail.
(x) Conclusions on authorisation
I have found that three of the Sharman parties (Sharman, LEF and Ms Hemming) and three of the Altnet parties (Altnet, BDE and Mr Bermeister) authorised infringement of the applicants’ copyright by Kazaa users. They did this both individually and as joint tortfeasors pursuant to a common design. There is no doubt as to the close collaboration of Sharman and Altnet in developing and operating the system, and the involvement in that collaboration of Ms Hemming and Mr Bermeister on behalf of LEF and BDE respectively.
The authorisation claim fails as against Sharman Network, Mr Morle, BDE Pty Ltd and Mr Rose.
VI THE TRADE PRACTICES ACT CLAIMS
(i) Misleading conduct
At para 47 above, I set out the particular false representations pleaded by the applicants in support of their claim that the respondent corporations infringed s 52 of the TP Act and s 42 of the FT Act.
In their Closing submissions, counsel for the applicants dealt with the first two representations together. The gist of these representations was the inability of Sharman, or anyone else, to exercise control over the nature, quality or content of files that can be made available for download, or that was downloaded, by Kazaa users. There is no doubt the representations were made. However, as counsel for the Sharman respondents pointed out, the representations were in a section of the Kazaa website Guide, headed ‘Information for Parents’, that dealt with ‘adult or other offensive or age inappropriate content’. Considered in that context, the representations were not misleading.
The third representation was pleaded as stating: ‘that a significant or substantial portion of the revenue generated via the Kazaa Software comes from payment for distribution of rights managed content’. However, the relevant website statement, in both v2.6 and v3.0, was that revenue comes from content (distribution of licensed material), advertising and sales of products and services. That statement was true.
There is also evidence that, in a media interview, Mr Morle answered a question as to Sharman’s ‘main revenue stream’ by saying:
‘Multiple revenue streams. But certainly advertising is an enormous one. It’s getting very colourful [sic] now because of the content we’re putting through, which is the Altnet system.’
It is common ground that advertising provides a main revenue stream for the operators of the Kazaa system. Mr Morle probably exaggerated the proportion of Sharman’s revenue that was attributable to Altnet content. However, there is no evidence as to the proportions of Sharman’s revenue that emanates from particular sources. Contrary to an implication in the applicants’ submissions, it was not incumbent on Sharman to adduce evidence ‘to substantiate the proposition that licensed files represent their main revenue source’. It was for the applicants to establish that the statement was misleading. They have not done so.
The fourth pleaded representation is ‘that all files containing rights management information appear as gold icons in version 2.6 of the Kazaa Software’. A statement to that effect would probably be untrue. However, as counsel for the Sharman respondents pointed out, the statement actually made in the Guide section of the website was the converse: ‘All files marked with Gold icons are digitally rights managed …’. That statement was true.
The fifth and sixth pleaded representations concerned the effect of a user’s personal computer functioning as a supernode: this will not, or is unlikely to, noticeably affect the performance of the computer or increase the cost of its operation. The evidence does not establish that either of these representations was untrue.
The seventh representation pleaded by the applicants is: ‘that a user of Kazaa Software may avoid liability by altering the file data or metadata relating to infringing files’.
The applicants’ submission justifies this claim by referring to a statement on the Kazaa website about dealing with bogus, fake or illegal files. The existence of this statement does not make good the pleaded representation.
Finally, the applicants pleaded that the respondents had represented ‘that a significant or substantial proportion of files made available for download or downloaded by users via the Kazaa Software are non-infringing files’.
Counsel for the applicants asserted the respondents have repeatedly made this representation. However, they failed to identify any evidence to that effect. Furthermore, as counsel for the Sharman respondents pointed out, there is no evidence as to the proportion of files made available for download by KMD that are non-infringing files. On the evidence, it would be impossible to say the statement, if made, was false.
The applicants also rely on s 51A of the TP Act, and s 41 of the FT Act, in claiming that, to the extent that the representations were made in respect of future matters, the corporate respondents did not have reasonable grounds for making them at the time they were made. The pleading ties these two claim to the eight particularised representations, none of which is a representation about a future matter. There is no merit in the claim under s 51A of the TP Act and s 41 of the FT Act.
(ii) Unconscionable conduct
The applicants pleaded that the Sharman companies each engaged in unconscionable conduct in connection with the supply, or possible supply, of goods or services and that the other respondents were knowingly concerned in that conduct. Paragraph 146 of the S of C particularised this allegation in the following manner:
‘(i)At all material times the respondents knew that the primary use of the Kazaa Software involved the infringement of copyright in commercial sound recordings.
(ii)In the course of the ordinary use and operation of the Kazaa Software, users of the Kazaa Software are exposed to liability for infringement of copyright or authorisation of infringement of copyright by other users of the Kazaa Software, whether by making available unauthorised digital music files from their own computers, or by reason of their computers operating as supernodes indexing unauthorised digital music files made available on the computers of other users of the Kazaa Software.
(iii)Users of the Kazaa Software are contractually required to indemnify the suppliers of the Kazaa Software in respect of any infringements of copyright arising from their conduct, by reason of the terms of the Kazaa End User License.
(iv)The respondents have taken steps to minimise their liability in respect of or otherwise distance themselves from the consequences of infringing uses of the Kazaa Software, including by the imposition on users of the Kazaa Software of the indemnity referred to in sub-paragraph (iii) above.
(v)In supplying the goods or services pleaded above, the respondents knowingly exploit the practical difficulties faced by the applicants in detecting, monitoring and taking action in relation to infringements of copyright by users occurring by means of the Kazaa Software.’
However, in their Closing Submissions, the applicants’ counsel put a somewhat different case. They said:
‘The applicants rely on two aspects of the conduct involved in the supply of those services.
The first consists of the circumstances in which the respondents fuelled the use of Kazaa without delivering adequate warnings to consumers about the possible legal consequences to those consumers of the use of the system to distribute music files (i.e. infringing copyright and becoming personally liable) and simultaneously imposed indemnity obligations on those consumers in relation to any liability that the respondents may face.
The second aspect is the fact that knowing the special disability that the applicants would face in relation to the supply of their goods and services to consumers in an environment of substantial use of the Kazaa software by Kazaa users, the Kazaa operators continued to supply, operate and encourage the use of the Kazaa software without any steps being taken to minimise the impact on the applicants.’
Counsel for the Sharman respondents replied by denying their clients supplied goods or services to consumers. I agree they did not supply goods. I prefer to reserve my position in relation to services. Whether or not the Sharman respondents supplied services, I agree with their counsel that neither aspect of the unconscionable conduct claim can succeed.
The first aspect of the Sharman companies’ conduct fails on the facts. The Kazaa website contained warnings about copyright infringement. The EULA was clear. These steps were substantially ineffective. However, that was not because users were not warned; it was because they were unwilling to allow the warnings to affect their behaviour. The fact that this unwillingness was encouraged by other material on the Kazaa website does not mean there were no warnings.
The second aspect complains of unconscionability, not towards the recipients of the supplied goods or services, but towards the present applicants. However, in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCA 197 at [116], Heerey J (with whom Black CJ and Tamberlin J agreed) held that s 51AC of the TP Act is not concerned with the impact of conduct on third parties. The wording of the relevant portions of s 51AB and s 51AC is almost identical, so this statement must also be true of s 51AB.
The unconscionable conduct claims must fail.
There is no merit in any of the TP Act or FT Act claims. The claims were not well thought-out. It would have been preferable if the applicants had refrained from further burdening an already heavy case by including these claims.
VII THE CONSPIRACY CLAIMS
The applicants pleaded that, on a date or dates unknown to the applicants, one or more of the respondents agreed with one or more of the other respondents to develop (or further develop), promote, distribute and operate the Kazaa system and that the predominant purpose of the agreement was to injure the first to sixth and eighteenth applicants. The applicants alleged it was part of the agreement that unlawful means would be used to effect that injury. The applicants claimed this agreement was carried out and has caused loss to the applicants.
In their Closing Submissions, counsel for the applicants made clear that they advanced two alternative bases for their conspiracy claim: conspiracy to injury and conspiracy by unlawful means. It is necessary to give separate consideration to these two alternatives.
Conspiracy to injure involves three elements:
(i)an agreement between the alleged conspirators, not necessarily a legally enforceable agreement. The agreement may be an agreement which individual conspirators can join or leave from time to time;
(ii)that the predominant purpose of the agreement was infliction of injury upon a particular person or persons; and
(f)that the agreement was carried into effect, and thereby caused damage to that person or those persons.
In the present case, there is no direct evidence of the formation of an agreement. That situation is not uncommon; conspirators commonly act in secret. A conspiratorial agreement often has to be inferred from other evidence, particularly evidence about the conduct of the alleged conspirators. Counsel for the applicants submitted that, when Sharman acquired the Kazaa business from Kazaa BV, its principals knew that the operation of the Kazaa system had caused, and would continue to cause, damage to sound recording companies, including the first to sixth and eighteenth applicants. Yet the people concerned with the management of Sharman determined to operate the business. It is said those concerned with the management of Altnet, having the same knowledge, joined them in doing so.
I do not doubt that, at all material times, those concerned with the management of Sharman and Altnet realised that the operation of the Kazaa system routinely caused significant loss to sound recording companies, including the first to sixth and eighteenth applicants. I also do not doubt such losses have been sustained. However, this is not sufficient. In McKernan v Fraser (1931) 46 CLR 343 at 362, Dixon J said it was ‘settled that, for a combination or acts done in furtherance of the combination to be actionable in such circumstances, the parties to the alleged conspiracy must have been impelled to combine, and to act in pursuance of the combination, by a desire to harm the plaintiff, and that this must have been the sole, the true, or the dominating, or main purpose of the conspiracy’. That cannot be said in the present case. Those of the respondents who were involved in making the agreements relating to Kazaa were almost certainly unconcerned about the adverse effect of those agreements on the applicants, but that effect was neither the sole nor main purpose of the agreements. The dominant purpose of the agreements was to make money.
Conspiracy by unlawful means includes the element that the conspirators agreed to carry out their objectives by unlawful means. It may be assumed, for present purposes, that those respondents who participated in the Kazaa agreements realised, and at least tacitly agreed, that implementation of their agreements would involve them in authorising infringements of copyrights and, therefore, acting unlawfully. However, that is not sufficient. It is true that, where the conspiracy involves unlawful means, it is not essential that its purpose be solely or mainly to injure the plaintiff. However, this must be at least one of the purposes of the conspiracy: see McWilliam v Penthouse Publications Ltd [2001] NSWCA 237 at [12] and Dresna Pty Ltd v Misu Nominees Pty Ltd [2004] FCAFC 169; [2004] ATPR 42-013 at [7]. The evidence in the present case does not establish such a purpose. It is not enough that the conspirators were indifferent to the effect of their actions on the plaintiff.
Neither of the argued bases of the tort of conspiracy has been established. That part of the applicants’ claim fails.
VIII DISPOSITION
The applicants’ copyright claim succeeds against six respondents: Sharman, LEF, Ms Hemming, Altnet, BDE and Mr Bermeister. I propose to make two declarations concerning those respondents. One declaration will state that the six respondents have infringed the copyright in each of the Defined Recordings by, first, authorising Kazaa users to make a copy of the said recording and to communicate the recording to the public, in each case without the licence of the relevant applicant; and, second, by entering into a common design to carry out, procure or direct that authorisation. The other declaration will be that the six respondents threaten to infringe the copyright of the applicants in other sound recordings in the same way.
On several occasions, before and during the trial, I emphasised that this trial was the occasion for the parties to put forward any evidence they thought to be relevant to the nature and form of relief, other than pecuniary relief. However, I mentioned the possibility of allowing the parties an opportunity to make submissions in relation to the form of any injunctive relief.
I have formed some views about the appropriate form of injunctive relief and have drafted some orders. It is convenient immediately to make the orders. However, I will do so on a provisional basis, in the sense that I will be prepared to reconsider the form of the orders, if so requested by any party. I will not receive further evidence in relation to the nature and form of the orders.
Subject to that comment, I think it is appropriate to grant an injunction to restrain future infringements of the applicants’ copyrights. This injunction should be couched in general terms, reflecting the relevant respondents’ general obligation not further to infringe the applicants’ copyright. However, I am anxious not to make an order which the respondents are not able to obey, except at the unacceptable cost of preventing the sharing even of files which do not infringe the applicants’ copyright. There needs to be an opportunity for the relevant respondents to modify the Kazaa system in a targeted way, so as to protect the applicants’ copyright interests (as far as possible) but without unnecessarily intruding on others’ freedom of speech and communication. The evidence about keyword filtering and gold file flood filtering, indicates how this might be done. It should be provided that the injunctive order will be satisfied if the respondents take either of these steps. The steps, in my judgment, are available to the respondents and likely significantly, though perhaps not totally, to protect the applicants’ copyrights.
Accordingly, I propose to make an order restraining the six infringing respondents from further infringing the applicants’ copyright in any sound recordings by authorising the doing in Australia by Kazaa users of any infringing acts, in relation to any sound recording, the copyright of which is held by any of the applicants, without the licence of the relevant copyright owner.
There will be orders providing, in effect, that continuation of the Kazaa Internet file-sharing system will not be regarded as a contravention of the general injunctive order if the system is first modified, in a manner agreed by the applicants or approved by the Court, to ensure keyword filtering or gold file flood filtering. To allow this to happen, the operation of the injunction will be stayed for two months.
The copyright claims will be dismissed as against Sharman Holdings, Mr Morle, BDE Pty Ltd and Mr Rose.
The TP Act and conspiracy claims will be dismissed as against all respondents.
Costs orders will be made in favour of the parties who have succeeded in relation to the copyright claims. However, in recognition of the fact that the costs incurred by the infringing respondents have been increased by the applicants’ inclusion of unmeritorious TP Act and conspiracy claims, the costs payable to the applicants by those respondents will be reduced by 10%.
One or more of the parties may wish to appeal against aspects of my orders. As the orders do not provide final relief in the proceeding, leave to appeal would be necessary. It may be helpful if I indicate I would be disposed to grant leave to appeal, on application for that purpose, subject to two conditions: first, that the applicant for leave undertakes to prosecute the appeal diligently and with a view to obtaining a hearing in the February 2006 Full Court sittings; and, second, that, during the pendency of the appeal, the parties discuss, and endeavour to agree, the terms of the protocol referred to in order 5.
I certify that the preceding five hundred and twenty-six (526) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox. Associate:
Dated: 5 September 2005
Counsel for the Applicants: Mr A J L Bannon SC, Mr J V Nicholas SC,
Mr R Cobden, Mr J M Hennessy, Mr C Dimitriadis, Mr S W BalafoutisSolicitors for the Applicants: Gilbert + Tobin Counsel for the First to
Fourth Respondents:Mr A J Meagher SC, Mr N R Murray Solicitors for the First to
Fourth Respondents:Clayton Utz Counsel for the Fifth
Respondent:Mr R J Webb SC Solicitors for the Fifth
Respondent:Ebsworth & Ebsworth Counsel for the Sixth to
Ninth Respondents:Mr S G Finch SC, Mr M J Leeming Solicitors for the Sixth to
Ninth Respondents:Landerer & Co Counsel for the Tenth
Respondent:Mr B W Walker SC, Mr K M Connor Solicitors for the
Tenth Respondent:Ebsworth & Ebsworth Counsel for the Amici Curiae (Australian Consumers Association Pty Ltd, Electronic Frontiers Australia Inc and New South Wales Council for Civil Liberties Inc): Mr G McGowan SC, Ms L De Ferrari Solicitors for the Amici Curiae (Australian Consumers Association Pty Ltd, Electronic Frontiers Australia Inc and New South Wales Council for Civil Liberties Inc): Communications Law Centre Dates of Hearing: 29, 30 November 2004
1, 2, 3, 7, 8, 9, 10, 11, 15, 16, 17 December 2004
17, 31 January, 2005
22, 23 March 2005Date of Judgment: 5 September 2005
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