FEDERAL COURT OF AUSTRALIA
Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd [2006] FCAFC 188
INTELLECTUAL PROPERTY – copyright infringement – cinematograph work – pirated DVDs – pornographic films – remedies – public policy – whether ground for refusing copyright protection – discretion to grant remedy – conversion – assessment of damages for conversion generally – statutory prohibitions and restrictions on resale – impact on assessment of value for conversion damages – Classification statutes of States and Territories – onus of proof in relation to illegality – failure by magistrate to give adequate consideration to assessment of damages by reference to illegality – evidence before magistrate inadequate to raise effect of statutory prohibitions and restrictions in respect of infringing articles
TORTS – conversion – damages - illegality
Copyright Act 1968 (Cth) s 86, s 101(1), s 115, s 116,
Classification (Publications, Films and Computer Games) Act 1995 (Cth) s 3
Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW) s 6
Classification of Films Act 1991(Qld) s 39
Classification (Publications, Films and Computer Games) (Enforcement) Act 1995 (ACT)
Classification of Publications, Films and Computer Games Act (NT)Cases cited in the judgments:
Walcot v Walker (1802) 7 Ves 1; 32 ER 1
Southey v Sherwood (1817) 2 Mer 435; 35 ER 1006
Murray v Benbow [1822] Jac 474n; 37 ER 929
Stockdale v Onwhyn (1826) 5 B&C 173; 108 ER 65
Baschet v London Illustrated Standard Co [1990] 1 Ch 73
Glyn v Weston Feature Film Company [1916] 1 Ch 261
Attorney-General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109
Stephens v Avery [1988] 1 Ch 479
ZYX Music GmbH v ChrisKing and Others [1995] FSR 566
Hyde Park Residents Limited v Yelland [1999] RPC 655
Hyde Parks Residents Limited v Yelland [2001] Ch 143
Mitchell Bros Film Group v Cinema Adult Theatre (1979) 604 F2d 852
Jartech Inc v Clancy (1982) 666 F2d 403
Aldrich v One Stop Video Ltd (1987) 13 BCLR 2(d) 106
Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR 44
International Writing Institute Inc v Rimila Pty Ltd (1995) 57 FCR 135
Caxton Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178
Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1983) Aust Torts Reports, 81-244
Hall v Barclay [1937] 3 All ER 620
Kuwait Airways Corporation v Iraq Airways [2002] 2 AC 883
Tom Hopkins International, Inc v Wall & Redekop Realty Ltd (1985) 20 DLR (4th) 407
Infabrics Ltd v Jaytes Ltd [1982] AC 1
Nelson v Nelson (1995) 184 CLR 538
Holman v Johnson (1775) 1 Cowp 341; 98 ER 1120
Jackson v Harrison (1978) 138 CLR 438
Gala v Preston (1991) 172 CLR 243
Bowmakers, Ltd v Barnet Instruments, Ltd [1945] 1 KB 65
Thomas Brown & Sons Ltd v Fazal Deen (1962) 108 CLR 391
Gollan v Nugent (1988) 166 CLR 18
Blackburn v Properties Limited [1980] VR 290
Pasickniak v Dojacek [1928] 2 DLR 545
Attorney-General of the Commonwealth of Australia v Adelaide Steamship Co Ltd [1913] AC 781
North Western Salt Company Ltd v Electrolytic Alkali Company Ltd [1914] AC 461
Humphery v Wilson [1929] All ER Rep 171
Holidaywise Koala Pty Ltd v Queenslodge Pty Ltd [1977] VR 164
R v Hicklin (1868) LR 3 QB 360
John Calder (Publications) Ltd v Powell [1965] 1 QB 509
Burnett v Chetwood (1720) 2 Mer 441; 35 ER 1008
Lawrence v Smith (1822) Jac 471
R v Curl (1727) 2 Stra 788; 93 ER 849
British Oxygen Company Ltd v Liquid Air Ltd [1925] Ch 383
Mitchell Brothers Film Group v Cinema Adult Theater 604 F2d 852 (5th Cir 1979)
Devils Films, Inc v Nectar Video 29 FSupp2d 174 (SDNY 1998)
Prior v Lansdowne Press Pty Ltd [1977] VR 65
General Tire and Rubber Co v Firestone Tyre and Rubber Co Ltd [1976] RPC 197
Watson, Laidlaw & Co Ld v Pott, Cassels and Williamson (1914) 31 RPC 104
Asamera Oil Corporation Ltd v Sea Oil & General Corporation and Baud Corporation, NV [1979] 1 SCR 633
Rodocanachi, Sons & Co v Milburn Brothers (1886) 18 QBD 67
Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc [2000] FCA 660
Nichols Advanced Vehicle Systems Inc v Rees No 3) [1988] RPC 71
Manfal Pty Ltd v Longuet (1986) 8 IPR 410 (Qld Sup Ct)
O’Mara Books Limited v Express Newspapers plc [1999] FSR 49
Clark v Nicholson (1835) 1 CM&R 724
Morgan v Powell (1842) 3 QB 278; 114 ER 513
Reid v Fairbanks (1853) 13 CB 692; 138 ER 1371
Munro v Willmott [1949] 1 KB 295
Lewis Trusts v Bambers Stores Limited [1982 FSR 281
Fire Nymph Products Ltd and Alpen Holdings Pty Ltd v Jalco Products (WA) Pty Ltd (1983) 1 IPR 79
Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231
Concrete Systems Pty Ltd v Devon Symonds Holdings Ltd (1978) 20 ALR 677
Beloff v Pressdram Ltd [1973] RPC 765
Redrow Homes Ltd v Betts Brothers Plc [1998] RPC 793
Lamb v Cotogno (1987) 164 CLR 1
XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448Copinger and Skone James on Copyright (15th Edition, Sweet & Maxwell, 2005)
Cornish and Llewellyn, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights (5th Edition, Thomson Sweet & Maxwell, 2003)
Phillips J, Copyright in Obscene Works: Some British and American Problems (1977) 6 Anglo-Am L Rev 138
Rogers E, Copyright and Morals (1919-20) 18 Mich L Rev 390
Morgan O, Copyright, the Public Interest and Content Restrictions (Intellectual Property Institute of Australia Working Paper No 13/03 May 2003)
Lahore, Copyright and Designs (Butterworths)
Tettenborn, Wiley and Bennett; The Law of Damages, (LexisNexis UK 2003)Tettenborn A, Damages in Conversion: the Exception or the Anomaly (1993) 52 CLJ 128
Buckley, Illegality and Public Policy (Sweet and Maxwell, 2002)VENUS ADULT SHOPS PTY LTD, TROPHER INSTALLATIONS PTY LTD, ALAN GEORGE VASSALLO, JERRY GORDON AND PHILLIP SALVATORE DE PRIMA v FRASERSIDE HOLDINGS LTD AND CALVISTA AUSTRALIA PTY LTD
NSD 1617 OF 2005FRENCH, KIEFEL AND FINKELSTEIN JJ
20 DECEMBER 2006
PERTH (HEARD IN SYDNEY)
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 1617 OF 2005
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN:
VENUS ADULT SHOPS PTY LTD
First AppellantTROPHER INSTALLATIONS PTY LTD
Second AppellantALAN GEORGE VASSALLO
Third AppellantJERRY GORDON
Fourth AppellantPHILLIP SALVATORE DE PRIMA
Fifth AppellantAND:
FRASERSIDE HOLDINGS LTD
First RespondentCALVISTA AUSTRALIA PTY LTD
Second Respondent
JUDGES:
FRENCH, KIEFEL AND FINKELSTEIN JJ
DATE OF ORDER:
20 DECEMBER 2006
WHERE MADE:
PERTH (HEARD IN SYDNEY)
THE COURT ORDERS THAT:
1. The appeal is allowed in part.
2.The judgment made by the Federal Magistrates Court on 18 August 2005 be varied as to paragraph 9 so that the damages awarded to the respondents against the first, second, third and fourth appellants in the sum of $150,000 are reduced to $139,400 by varying the amount of damages awarded pursuant to s 116 of the Copyright Act 1968 (Cth) from $65,000 to $54,400.
3.The orders made by the Federal Magistrates Court on 18 August 2005 be otherwise undisturbed.
4.There be no order as to the costs of the appeal.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 1617 OF 2005
ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA
BETWEEN:
VENUS ADULT SHOPS PTY LTD
First AppellantTROPHER INSTALLATIONS PTY LTD
Second AppellantALAN GEORGE VASSALLO
Third AppellantJERRY GORDON
Fourth AppellantPHILLIP SALVATORE DE PRIMA
Fifth AppellantAND:
FRASERSIDE HOLDINGS LTD
First RespondentCALVISTA AUSTRALIA PTY LTD
Second Respondent
JUDGES:
FRENCH, KIEFEL AND FINKELSTEIN JJ
DATE:
20 DECEMBER 2006
PLACE:
PERTH (HEARD IN SYDNEY)
REASONS FOR JUDGMENT
FRENCH AND KIEFEL JJ:
Introduction
Fraserside Holdings Ltd (Fraserside) was incorporated in Cyprus. It produces what are known as “adult films”, a term generally used to describe pornographic films. It is part of the corporate group known as “the Private Group” and is the production vehicle for films made by or on behalf of that group. These films are referred to as “Private Films”. It also licenses the distribution of the films in DVD and VHS formats in a number of countries including Australia. Calvista Australia Pty Ltd (Calvista) has been its exclusive Australian licensee and distributor since 26 September 2001.
Venus Adult Shops Pty Ltd and Tropher Installations Pty Ltd are Australian companies which own and operate between them eight retail outlets under the name “Venus Adult Shops” (the Venus Shops). They sell adult films through those outlets. Messrs Jerry Gordon and Phillip De Prima are the directors of Venus. Mr Gordon and Mr Alan Vassallo are the directors of Tropher. The two companies are referred to collectively in these reasons as “Venus”. Their directors are referred to collectively as “the Directors”.
Fraserside holds, by assignment, copyright in films made before April 2000 previously owned by Milcorp Media Group SL (MMG), a related corporate member of the Private Group. It also owns copyright in a substantial number of films made since April 2000. Calvista has the exclusive licence to make copies, in Australia, of Private Films. Prior to 2003 Calvista supplied the Venus Shops with VHS videos and DVDs of the films.
In 2003, because of a dispute about accounts, Venus stopped dealing with Calvista. After 2003 they did not buy any of its films. The films previously supplied came in boxes or cases with feature photographs and accompanying art work known as “Slick Artwork”. Each of the films produced and distributed in DVD format has artwork on the DVD disc (“Disc Artwork”). The Slick Artwork and the Disc Artwork were produced by employees of MMG which had assigned its copyright in the artwork to Fraserside and Calvista. Both the Slick Artwork and the Disc Artwork were original “artistic works” within the meaning of ss 10 and 32 of the Copyright Act 1968 (Cth) (the Copyright Act) respectively.
In December 2004 Fraserside and Calvista instituted proceedings in the Federal Magistrates Court against Venus and the Directors alleging that the two companies had made and/or authorised the making of copies of Private Films without any licence. They alleged that Venus had sold and offered for sale counterfeit copies of the films and that the two companies knew or ought reasonably to have known that the making of the copies constituted an infringement of copyright.
Fraserside and Calvista also said, in points of claim filed pursuant to an amended application, that at least from 10 January 2005 Venus had imported copies of Private Films into Australia without any licence and had made copies of them. It was alleged that they knew, or ought reasonably to have known, that the making of the imported copies was an infringement of copyright or would have constituted such an infringement had the copies been made in Australia.
As to the Directors, it was said they:
. authorised the acts of their respective companies;
.entered into a common design with, or participated with, or induced or procured their companies to carry out the infringing acts;
.directed or procured the infringement of copyright by the respective companies.
Fraserside and Calvista claimed damages and injunctive relief to restrain repetition of the infringing conduct. They claimed nominal damages under s 115(2), conversion damages under s 116 and additional damages under s 115(4) of the Copyright Act. The additional damages were claimed on the basis, inter alia, that the acts allegedly done by the companies and their directors were flagrant and knowing and done with the intention that substantial financial benefit would accrue as a result of the infringements. After a hearing in May and June 2005 the Federal Magistrates Court delivered judgment on 21 July 2005. Injunctive relief had been agreed in the course of the hearing and consent orders made after the hearing in that connection. Although included with the injunctive relief in what purported to be “consent orders” the orders as to damages and costs were agreed for the purpose of giving effect to the magistrate’s findings. They were not true consent orders. Damages were awarded. The damages awards and orders for costs were made against Venus and each of the Directors except Mr De Prima. Venus and the Directors now appeal against the decision of the Federal Magistrates Court in relation to damages and costs.
For the reasons that follow the assessment of damages under s 116 of the Copyright Act should be reduced. On the appeal grounds as formulated no basis is shown for interfering with the quantum of additional damages. The appeal should be allowed in relation to the damages under s 116 by reducing them to $54,400. It should otherwise be dismissed with no order as to costs.
Reasons for judgment of the Federal Magistrates Court
There appears to have been no dispute that Fraserside had copyright in the Private Films and that Calvista had the rights of an exclusive licensee of that copyright to reproduce the films and to sell or exchange them in Australia.
The learned magistrate found that there was a fairly general practice, within the adult film industry, of parallel importing and distribution which extended to Private Films. None of the imported Private Film DVDs produced in evidence before him was classified under the National Classification Scheme. Calvista was aware of the practice but was not particularly concerned about the distribution in Australia of parallel imported Private Films which could not lawfully be sold because they were not classified. His Honour was not satisfied that Venus had imported any Private Films on their own account. He found however that Venus made infringing copies of Private Films imported into Australia by others and infringing copies of Private Films distributed by Calvista.Venus knowingly offered copies for sale or exchange and did in fact sell and exchange them.
His Honour found that Venus had commenced copying Private Films “… from at least the time that relations between the applicants and the respondents became less friendly”. He also found that Mr Gordon “… must have been aware that some of the sales going on in his stores were sales (and by that I include swaps) of product copied by the Venus Shops.” He found that Mr Vassallo did not know what was going on as he was not as hands on in management as Mr Gordon.
His Honour’s findings of fact in relation to the matters in dispute led him to the following conclusions:
1.By making copies of Calvista films and parallel imported films Venus infringed s 101(1) of the Copyright Act.
2.By making copies of the “Slick Artwork” and “Disc Artwork” of the Calvista films and the imported films Venus breached s 36(1) of the Copyright Act.
3.Venus had breached s 103 of the Copyright Act by selling or exposing for sale or hire the imported Private Film DVDs.
4.The Directors (in which his Honour included Mr De Prima) had accessorial liability for breaches of ss 36, 101 and 103 of the Copyright Act.
Calvista was aware of its rights as sole distributor of Private Films in Australia. By advising Mr Vassallo that it was not concerned with imported “European or American Privates” it told Venus that it would not enforce its rights with respect to them. His Honour held that it would be unconscionable to allow Calvista to enforce its rights with respect to the sale of parallel imported Private Films during the period in which it had made no complaint. On this basis Calvista would not be entitled to damages under s 103 of the Copyright Act. The correctness of this conclusion and the reasoning by which it was reached were not in issue on this appeal.
Venus and the Directors had accepted from the outset that the case was essentially about assessment. His Honour identified two matters raised by them in connection with the damages question:
1.The acquiescence of Calvista in the sale of parallel imported Private Films as to which he had found for Venus.
2.The illegality of the sale, exchange and trade of “adult films” in New South Wales and Queensland.
He also referred to a submission put by Venus that Calvista knew that Venus was selling its product illegally in New South Wales and Queensland and that therefore it was aiding and abetting a breach of the laws of those States.
After some discussion of cases in which copyright protection had been refused on public policy grounds, his Honour said, of the Private Film DVDs provided to the Court as exhibits and collected in the process of delivery up, that (at [41]):
‘The sale or distribution of these DVDs in New South Wales and Queensland is illegal. But that is not so in respect of classified material in the Northern Territory or the Australian Capital Territory and it would appear that it is not illegal in the source countries of the parallel imported product.’
The latter qualification informed his observation that a court could not act on public policy grounds on mere whim. Where no witnesses were called to allege artistic merit the court should look at the attitude towards the product in Australia and overseas. He observed that the classified Calvista product was “acceptable in at least two territories of this Commonwealth”. The unclassified material was acceptable in countries overseas “… containing hundreds of millions of people.” He could not say that the works were so grossly immoral or pornographic that they should lose the protection of the Copyright Act. There does not appear to have been any contention raised in the pleadings that copyright protection should be denied to Private Films on grounds of their immorality or pornographic character.
His Honour said (at [41]):
‘The fact is that from the evidence which I have received in this case and from articles in the press including one in the Sydney Morning Herald only a short while ago there is very little will to enforce the relevant provisions of the Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW).’
He then expressed a concern that the effect of declining to grant relief would be to give free reign to any pirate who wished to copy and publish the material. The relevance of his findings in this respect and their factual bases were not apparent. His Honour went on to say (at [42]):
‘I have decided that I will not make a finding that this material constitutes work in respect of which copyright protection should be denied. The applicants are therefore entitled to protection of their copyright and the benefits that ss 115 and 116 of the Act bestow upon them.’
The issue of refusal of copyright protection on public policy grounds was not before his Honour. The questions before him, raised in the points of defence, were whether the sale of the Private Film DVDs was contrary to law in any parts of Australia and, if so, what effect the illegality of the product in those parts would have on the amount of conversion and additional damages to be assessed.
In relation to the alleged sale of the products in New South Wales, the only evidence before the Court was that the relevant sales were made by Venus and not by Fraserside or Calvista. His Honour rejected the contention that Fraserside and Calvista were disentitled to damages because they had aided and abetted the commission of offences by Venus. Venus had not shown there was an offence in New South Wales and Queensland or Australia of aiding and abetting a breach of the relevant Classification Enforcement Acts. This is a surprising conclusion given the general provisions of the criminal law in each State and Territory relating to accessorial liability. He also suggested that such an accessorial offence would have to be proved “beyond all reasonable doubt”. This is not a requirement in civil proceedings. His Honour found that, in any event, breach of a relevant State Classification Enforcement Act by sale of Calvista product, purchased from Calvista, was not the subject of the litigation. He said (at [43]):
‘The sales complained about in these proceedings are sales of parallel imported product and copied product. There has been no evidence that Fraserside, the primary copyright owner, has been involved in any of this activity at all. To the extent that Calvista acquiesced in the respondents’ sale of parallel imported material and that such sale was illegal under both Commonwealth and State Law because it was not classified, a suggestion of aiding and abetting might be justified. But this is a long way from proof of a specific offence.’
His Honour rejected the submission by Venus that its own illegality in relation to the sale of private films constituted an effective defence to a claim for damages for infringement of copyright.
His Honour found difficulty in determining what amount of damages could be awarded to Fraserside and what amount to Calvista. He assessed damages on the basis that he should determine a global amount under each of the headings claimed and indicate the extent to which he had reduced it because of the acquiescence of Calvista in relation to the sale of imported infringing DVDs. He said (at[45]):
‘The applicants can then agree the apportionment of damages between themselves and if they are unable to do that will no doubt make an application to this or some other court on the basis of their own internal arrangements.’
Fraserside and Calvista had elected to claim nominal damages of $1 under s 115(2). They did this against the possibility that s 116 conversion damages were only available if s 115 damages were also awarded. They contended that any inability to sell the infringing material because of the provisions of the relevant film classification laws in New South Wales and Queensland was not a defence to a claim for conversion damages. They argued that the Court should make the strongest assumption against Venus as to the value of the DVDs. They submitted that the evidence of Mr Gordon indicated an estimated 1,450 “converted Private films” had been sold or swapped over 18 months. Swapping represented a cost of $20 per DVD to the swapper. They argued that, on the basis of Mr Gordon’s evidence, the average sale price of a DVD should be assessed at $60 with a reduction of $13 to take into account the fact that two thirds of the stock was acquired for $20 and the rest by way of swaps. They argued that this yielded conversion damages, under s 116, of approximately $68,000.
In written submissions on quantum made at trial Fraserside and Calvista set out a table showing an estimated figure for conversion damages of $70,934. This was based upon estimated sales of 80 Private Films per month over a period of 19 months from May 2003 to December 2004. The alternative figure of $68,000 quoted in his Honour’s judgment relied upon an 18 month period. That figure was apparently advanced by Fraserside and Calvista in oral submissions.
Mr Gordon’s evidence on the matter was described by his Honour as “opaque and contradictory”. His evidence, that 5% of his turnover came from Private Films was directed to what his Honour called “legitimate Private films”, that is Calvista Private Films and parallel imports. His Honour did not think that Mr Gordon was talking about the Private Films which had been copied by Venus. On this basis he formed the view that the amount of $68,000 proposed by Fraserside and Calvista was too generous. He said (at [50]):
‘It should not substantially affect any damages which I award under s 115(4) but I will reduce the conversion damages which I intend to award from $80,000 to $65,000 to take into account the second respondent’s acquiescence in the sale of the parallel imported films.’
It is not apparent how these figures were arrived at. His Honour held that in the special circumstances of the case, damages under s 116 were appropriate and should be awarded “over and above the s 115(2) damages of $1.00 against each of the first to fourth respondents…”.
His Honour considered the claim of additional damages under s 115(4) of the Copyright Act. He found that the conduct of Venus and their Directors was flagrant. They had deliberately set aside batches of Private Film DVDs to use as a library in order to copy them and keep their stock fresh. They knew that the copying was illegal and they knew that it was rampant in their industry. Any reluctance they had had about copying DVDs only lasted up to the point from which they were able to make copies cheaply and without difficulty.
His Honour reflected adversely upon the conduct of Venus and their Directors in connection with the proceedings. They had failed on a number of occasions to comply with court orders particularly those for delivery up. Deadlines were seldom met. His Honour would have awarded the applicants the sum of $100,000 under s 115(4) in addition to the conversion damages. However he reduced that sum to $85,000, again because of the acquiescence of Calvista in relation to the sale of imported films. He declined to make a declaration as to infringement.
On 18 August 2005 his Honour made orders to give effect to his judgment. These included injunctions, delivery up orders, an award of damages and costs. Orders 9 and 10 are in issue in this appeal:
‘9.There be judgment for the Aplicants (sic) against the first, second, third and fourth respondents in the sum of $150,000 comprised of
(a)$65,000 in damages pursuant to s 116 of the Copyright Act 1968
(b)$85,000 in additional damages pursuant to s 115(4) of the Copyright Act 1968,
plus interest on the s 116 damages payable by the first, second, third and fourth respondents to be calculated for the period from 1 July 2004 up to and including the day on which the s 116 damages and interest are paid at the rate of 10.5% per annum as prescribed by Order 35 Rule 8 of the Federal Court Rules.
10.The first, second, third and fourth respondents to pay the Applicants’ costs
(a)as agreed; or
(ii)(sic) failing agreement, in an amount equal to 80% of the Applicants’ costs taxed in accordance with the Federal Court Rules.’
A late attempt to amend
In par 30 of their points of claim filed in the Federal Magistrates Court, Fraserside and Calvista alleged:
‘By reason of the infringements set out in paragraphs 19 to 29 above, each of the Applicants has suffered, and is likely to suffer, loss and damage.’
In the points of defence filed by Venus and the Directors, they responded to par 30 thus:
‘19.So far as paragraph 30 makes an allegation against each of them respectively, each of the First, Second, Third, Fourth and Fifth Respondents:
(a)Denies paragraph 30 and says that the First and Second Applicants have not and are not likely to suffer loss and damage, including on the basis that the sale, exchange and trade of Private Films, Imported Copies, Other Imported Copies and Counterfeit Copies is illegal in New South Wales pursuant to section 6 of the Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW) and is illegal in Queensland pursuant to section 15 of the Classification of Films Act 1991 (Qld); and
(b)In further answer to paragraph 30 says that damages should be denied as the sale, exchange and trade of Private Films, Imported Copies, Other Imported Copies and Counterfeit Copies is illegal in New South Wales pursuant to section 6 of the Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW) and is illegal in Queensland pursuant to section 15 of the Classification of Films Act 1991 (Qld).’
The text of par 19(b) was repeated in par 22(b) of the points of defence. That paragraph was a response to the claim for additional damages in pars 32 and 33 which relied, in par 33, on the matters set out in par 30 and additional matters.
The hearing commenced on 23 May 2005. It proceeded on 24 May and on 8 and 9 June 2005 and concluded on 21 June 2005 with the last written submission being filed on 24 June 2005. On or about 9 June 2005 Venus and the three directors sought to amend the defence. The proposed amendment was to par 19, to add a subparagraph 19(c) in the following form:
‘In further answer to paragraph 30 says that damages should be denied because many Private films on DVD distributed for sale in Australia are not classified and/or display incorrect or misleading classification labels.’
When the amendment was foreshadowed his Honour required a notice of motion for leave to amend to be filed along with the evidence to be relied upon to prove the additional matters pleaded. His Honour’s orders required the filing of:
‘… an affidavit setting out in full by reference to documents and in the form of a schedule each and every alleged breach of the requirement to classify films distributed on DVD by:
name of film
nature of alleged breach
proof of non classification’
The requisite motion was filed on 16 June. In addition, two affidavits sworn on 16 and 18 June 2005 by Tony Barber, the solicitor for Venus and the Directors were filed.
Mr Barber’s affidavit of 18 June 2005 exhibited a table setting out the names of various films, their classifications and the features and extras to be found on the DVD versions. He also set out in the table the basis upon which it was said that the non-classification of the DVDs was proven and the nature of the alleged breach involved in selling or offering them for sale. The substance of the argument seemed to be that when a VHS film was turned into a DVD it had additional features offered which would have required it to be reclassified under the Commonwealth Classification Act and that, absent such reclassification, its resale was illegal, at least in New South Wales and Queensland.
The motion to amend was dismissed by his Honour on 21 June 2005. He referred to the affidavits sworn by Mr Barber. In an annexure to Mr Barber’s affidavit of 16 June 2005 there were extracts from the classification database of the Office of Film and Literature Classification which could be correlated with the film titles contained in the schedule to the affidavit. Yet counsel for Venus and the Directors admitted that the vast majority of the film titles had not been distributed by Calvista in Australia. They were imports or copies of imports. Secondly, in relation to the 12 titles that were directly distributed by Calvista, there was no real evidence of the allegations made. Mr Barber had not deposed to his knowledge that the DVDs may or may not run as long as the original VHS or might contain additional material. He had obtained that information from the box and compared it with the information on the classification database advanced search.
There were further problems with the evidence. The proposed amendment to the defence relied upon an assertion that a film classified in a VHS format could not lawfully be issued as a DVD, without reclassification, unless in exactly the same format. It was argued that the addition of trailers of other films or interviews with actors of the type now common in DVDs would have required the DVDs to be reclassified. No basis for this assertion was shown to his Honour. On the other hand, he was referred by counsel for Fraserside and Calvista to the Commonwealth Classification Act setting out basic requirements for the classification of films. These did not support the argument for Venus.
While sensible of the requirement laid down by the High Court in State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 that amendment should usually be permitted where there is no prejudice to the other side other than one which could be cured by costs, his Honour said it was equally clear that an amendment must have some prospect of success if it was to be allowed. Although counsel for Venus said that the DVDs were in evidence and although he obtained a concession from a witness, Mr Newnham, that they may have to be reclassified in the event that they are taken from VHS masters and additions made, his Honour was not satisfied that an admission by a lay witness could bind the Court as to the law. His Honour said (at [7]):
‘I take the view that if I was to allow the amendment on the basis of the evidence currently produced it would be bound to fail. To now adjourn the matter yet again to permit the respondents to put their case in order so that the appropriate evidence, if it exists, can be brought is not in the interests of justice given, in particular, that the question of illegality is still an issue in the proceedings and will have to be considered by the court.’
He declined to allow the amendment.
The issues on the appeal
There were 11 grounds of appeal. They are referred to in more detail below as each is considered. The principal issues arising from them and on which the appeal turns can be identified as follows:
1.Whether the magistrate erred in refusing the proposed amendment to the points of defence and limiting cross examination on the legality of the sale of the DVDs.
2.Whether the magistrate erred in his approach to quantification of damages under s 116 and of additional damages under s 115(4) particularly having regard to the content of the works and statutory provisions affecting their distribution and sale.
Statutory framework – The Copyright Act 1968 (Cth)
Part IV of the Copyright Act is concerned with copyright in subject matter other than works which includes cinematograph films. Section 86 defines the nature of copyright in cinematograph films thus:
‘For the purposes of this Act, unless the contrary intention appears, copyright in relation to a cinematograph film is the exclusive right to do all or any of the following acts:
(a) to make a copy of the film;
(b)to cause the film, in so far as it consists of visual images, to be seen in public, or in so far as it consists of sound, to be heard in public;
(c)to communicate the film to the public.’
Section 101(1) provides:
‘Subject to the Act, a copyright subsisting by virtue of this Part is infringed by a person who, not being the owner of the copyright and without the licence of the owner of the copyright, does in Australia or authorises the doing in Australia of, any act comprised in the copyright.’
Section 102 includes in the definition of infringing conduct with respect to subject matter other than works the importation of articles for the purposes of sale or hire where such articles, if made in Australia by the importer would have constituted an infringement of copyright. Section 103 covers sale or hire of an article, the making of which constituted an infringement of copyright. Each provision conditions each definition of infringement upon the fact that the importer, vendor or hirer, as the case may be, knew or ought reasonably to have known, that the making of the article would have or did constitute an infringement as the case may be.
Remedies for infringement of copyright applicable to works and subject matter other than works are provided by ss 115 and 116 of the Act. Section 115 provides:
‘(1) Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright.
(2) Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.
(3) Where, in an action for infringement of copyright, it is established that an infringement was committed but it is also established that, at the time of the infringement, the defendant was not aware, and had no reasonable grounds for suspecting, that the act constituting the infringement was an infringement of the copyright, the plaintiff is not entitled under this section to any damages against the defendant in respect of the infringement, but is entitled to an account of profits in respect of the infringement whether any other relief is granted under this section or not.
(4) Where, in an action under this section:
(a) an infringement of copyright is established; and
(b) the court is satisfied that it is proper to do so, having regard to:(i) the flagrancy of the infringement; and
(ia) the need to deter similar infringements of copyright; and(ib)the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff’s copyright; and
(ii)whether the infringement involved the conversion of a work or other subject-matter from hard copy or analog form into a digital or other electronic machine-readable form; and
(iii)any benefit shown to have accrued to the defendant by reason of the infringement; and
(iv)all other relevant matters;
the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.
And s 116:
(1) The owner of the copyright in a work or other subject-matter may bring an action for conversion or detention in relation to:
(a) an infringing copy; or
(b)a device (including a circumvention device) used or intended to be used for making infringement copies.
(1A) In an action for conversion or detention, a court may grant to the owner of the copyright all or any of the remedies that are available in such an action as if:
(a)the owner of the copyright had been the owner of the infringing copy since the time the copy was made; or
(b)the owner of the copyright had been the owner of the device since the time when it was used or intended to be used for making infringing copies.
(1B) Any relief granted by a court in an action for conversion or detention is in addition to any relief that the court may grant under section 115.
(1C) A court is not to grant any relief to the owner of the copyright in an action for conversion or detention if the relief that the court has granted or proposes to grant under section 115 is, in the opinion of the court, a sufficient remedy.
…
Subsections (1D), (1E) and (2) are not material for present purposes.
There is no global saving of common law by the Act although s 9(3) provides:
‘This Act does not affect the operation of the law relating to breaches of trust or confidence.’
Statutory framework – The National Classification Scheme – Commonwealth, New South Wales and Queensland Statutes
As the legality of the sale of the Private Films under State and Territory laws was raised, it is convenient to outline the way in which those laws operate. The classification and censorship of films in Australia is administered under a National Classification Scheme. This is a co-operative arrangement between the Commonwealth, the States and the Territories. Under the agreement the Commonwealth is responsible for the classification process and the States and Territories for the enforcement of the Act, including restrictions on the sale of films.
The Classification (Publications, Films and Computer Games) Act 1995 (Cth) (Commonwealth Classification Act) expressly provides for the classification of publications, films and computer games for the Australian Capital Territory (s 3). The Commonwealth has used the Territory’s power to set up a regulatory structure for the classification process. The classifications determined under the Commonwealth Classification Act are enforced under separate Acts of the States and Territories within their respective jurisdictions.
The Commonwealth Classification Act states, in s 3, that it is:
‘… intended to form part of a Commonwealth/State/Territory scheme for the classification of publications, films and computer games and for the enforcement of those classifications.’
As a note to the section observes, “Provisions dealing with the consequences of not having material classified and the enforcement of classification decisions are to be found in complementary laws of the States and Territories.”
The Commonwealth Classification Act, when originally enacted, set out the National Classification Code in a schedule. By s 6 of the Commonwealth Classification Act, the Code can be amended with the agreement of the Commonwealth Minister and each Minister from the participating States and Territory. The Act established a Classification Board and a Review Board. The classification of publications, films and computer games is to be made by the Board in writing, on application (s 10(1)). The Board is required to take into account, in making a classification decision, a number of matters including:
‘(a) the standards of morality, decency and propriety generally accepted by reasonable adults;’
The Commonwealth Classification Act provides for classification guidelines to be made by the Commonwealth Minister with the agreement of each State and Territory Minister. The guidelines are to assist the Board in applying the criteria in the Code (s 12). A film can be called in for classification by the Director of the Board who can require the publisher to submit an application for its classification (s 23(a)). Although this power is expressed to apply to films being published in the Australian Capital Territory, a like power is conferred upon the Director by the State Acts in relation to films published in the States. The Act provides for a review of a decision of the Board by the Review Board.
Section 7(2) of the Commonwealth Classification Act sets out the different types of classifications for films in what is called “ascending order”. They are:
GGeneral
PG Parental Guidance
M Mature
MA 15+ Mature Accompanied
R 18+ Restricted
X 18+ Restricted
RC Refused Classification
The National Classification Code in Item 3 sets out the criteria for the various film classifications. Relevantly for present purposes the criteria for the classifications RC and X 18 + are as follows:
‘1 Films that:
(a)depict, express or otherwise deal with matters of sex, drug misuse or addiction, crime, cruelty, violence or revolting or abhorrent phenomena in such a way that they offend against the standards of morality, decency and propriety generally accepted by reasonable adults to the extent that they should not be classified; or
(b)describe or depict in a way that is likely to cause offence to a reasonable adult, a person who is, or appears to be, a child under 18 (whether the person is engaged in sexual activity or not); or
(c)promote, incite or instruct in matters of crime or violence.
2Films (except RC films) that:
(a)contain real depictions of actual sexual activity between consenting adults in which there is no violence, sexual violence, sexualised violence, coercion, sexually assaultive language, or fetishes or depictions which purposefully demean anyone involved in that activity for the enjoyment of viewers, in a way that is likely to cause offence to a reasonable adult; and
(b)are unsuitable for a minor to see.’
The State Acts provide for the enforcement of the restrictions attaching to the various classifications. The Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW) (NSW Act) provides, inter alia, in s 6:
‘A person must not sell or publicly exhibit:
(a) a film classified RC or X 18+, or
(b) an unclassified film.’
The enforcement of restrictions on the sale of classified films in Queensland is done under the Classification of Films Act 1991 (Qld) (Queensland Classification Act). That Act contains a definition of “objectionable film” as:
‘(a) a film classified X 18+ or RC; or
(b) a film that –
(i)is not classified, or has become unclassified under the Commonwealth Act; and
(ii)if it were classified, would be classified X 18+ or RC.’
Section 39 of the Queensland Classification Act provides:
‘A person must not display for sale or sell, or attempt to display for sale or sell, an objectionable film….’
The Classification (Publications, Films and Computer Games) (Enforcement) Act 1995 (ACT) (ACT Act) contains a list of definitions in a dictionary at the end of the Act. It defines the term “classified” as “classified under the Commonwealth Act, and includes reclassified under that Act”. The word “film” is as defined under the Commonwealth Act. It is an offence under s 16 of the ACT Act to sell an unclassified film or a film refused classification. By s 17 a person commits an offence if the person sells a classified film “in a form other than the form in which the film is classified”. It is also an offence to possess unclassified films or films classified RC at any premises where classified films are sold (s 20).
There is a general power in the relevant ACT Minister to exempt a film from specified provisions of the Act (s 55(1)). There are also powers in Pt VI of the ACT Act for the grant of licences to sell or copy X 18+ films. The Act establishes the office of a Registrar with licensing power. Interestingly, one of the matters to which the Registrar must have regard in determining whether to grant a licence is whether the applicant has infringed copyright within the meaning of the Copyright Act in relation to a cinematograph film.
The Classification of Publications, Films and Computer Games Act (NT) adopts the classification regime under the Commonwealth Act. Section 45 imposes a prohibition on the sale of a film unless it is classified and is sold under the same title as that under which it is classified and in the same form, without alteration or addition. There is also a prohibition on the possession of an unclassified film that would, if classified, be classified RC or R 18+, or possession of a film classified RC with the intention of selling or exhibiting it (s 50C). If a film is classified X 18+ it can only be displayed in a restricted publication area. A person cannot sell or hire the film to a person who has not made a direct request for it and cannot sell or hire it unless it was contained in a package made of opaque material (s 49).
There were amendments to the Commonwealth and State Acts in 2004 which introduced the classification X 18+ in lieu of X 18. The Act, as amended in 2004, has been outlined in the preceding summary. The amendments are not material for present purposes.
Refusal to permit cross-examination on illegality – ground 1
Ground 1 of the grounds of appeal was as follows:
‘1.His Honour erred by upholding the second respondent’s objection to David Newnham for the second respondent being questioned and required to answer questions in cross examination on the illegal or possible illegal conduct of the second respondent.’
In cross examining Mr Newnham, Calvista’s general manager, counsel for Venus put to him that Calvista imported DVDs of adult films and that they were stored in Sydney or Melbourne. This drew an objection on the ground that it was irrelevant. The question was supported on the basis that it was “relevant to the question of illegality”. This was a reference to prohibitions on the sale of such films in some places. The argument, as recorded in the transcript, was not easy to follow. It proceeded on a common assumption that the sale of the Private Film DVDs in New South Wales and Queensland would have been in breach of the State Classification Enforcement Acts. Counsel for Venus took the position that, on a royalty based claim, the only relevant notional sale from Calvista to Venus of the DVDs would necessarily have been in breach of State law. Counsel for Fraserside and Calvista argued that the relevant transactions between them and Venus could have taken place in the ACT and would have been lawful. The learned magistrate at one point said “I’ll allow the question”. This elicited another round of argument. Counsel sought to canvass his Honour’s ruling. The position was confused in the transcript by the fact that the submissions made by counsel for Fraserside and Calvista were incorrectly attributed to the magistrate. That error was compounded when the same counsel was subsequently misdescribed as counsel for Venus.
Following the reopening of argument by counsel for Fraserside and Calvista, counsel for Venus was invited by his Honour to formulate the question which he wanted to put. He said:
‘What I want to explore with this witness are the activities of his company selling in various States around Australia, including New South Wales and Queensland. And it doesn’t just go to the question of whether or not there’s been a breach of copyright, it goes to the general question of damages, the type of industry, the regulation in the industry, all sort of matters your Honour will have to take into account when determining if your Honour’s (sic) determines there’s been a breach, what damages, if any, should be applied.
I intend to lead evidence about the fact this is a large and unregulated industry which has been founded on illegal copies for many years.’
His Honour then said, after a further short exchange:
‘Illegal activity seems to be allegedly illegal because of a breach of these two Acts, Queensland and New South Wales, they’re different things. I’m sure Mr Cobden won’t – well, he may do, but he may have more difficulty in objecting to questions about the way in which the industry is run, but I don’t know why – I don’t know why, I suppose and I was going let (sic) her hear it because – I’m sorry, I was going to ask the question because I didn’t really see what relevance it all was, but it was all wasting an awful lot of time having an argument about it.
Mr Cobden seems to think that it will put his client in a difficult position and I suppose it possibly could. So, if the question really doesn’t have very much relevance, I just don’t see how it does.’
Counsel for Venus was in turn misdescribed in the transcript as counsel for Fraserside and Calvista. He asserted that it was relevant to determine whether or not Venus should be penalised (under s 115(4)) for acting in flagrant disregard of the Copyright Act while those suing it had been acting “in flagrant disregard of the Act in six States in Australia”. He also made a reference to equity and clean hands.
His Honour moved finally to a ruling, the reverse of that which he had made immediately before the reopening of the debate by counsel for Fraserside and Calvista. He said:
‘I was prepared to hear the answers in order to get a move on in the case and I could easily disregard it if in the end it didn’t prove relevant. I was going to admit it subject to relevance, but it’s become rather important; I can see how it can become important and I think probably I can’t – I don’t think it is really relevant. You can ask the other questions or just ask questions and Mr Cobden will no doubt get up, argue at any – each and every time, but that question relating to that, no, sorry. So I won’t allow that question. Next question.’
Counsel for Venus then continued with his cross-examination of Mr Newnham.
The ruling made by the magistrate did not express with clarity the class of evidence excluded nor the basis upon which it was excluded. Nevertheless it was apparent that counsel for Venus was not permitted to cross-examine Mr Newnham on matters relevant to the unlawfulness of reselling Private Film DVDs in the States and Territories of Australia. Underpinning the proposed cross-examination was the assumption that the Private Films in respect of which Venus had infringed copyright could not lawfully be sold in New South Wales or Queensland.
The issue re-emerged when counsel for Venus cross-examined Mr Newnham about the fact that Fraserside and Calvista imported Private Films in VHS video format and recorded them onto DVDs, some of which had additional material such as trailers included in them. Counsel put to Mr Newnham that when Fraserside and Calvista had a title on VHS which had been classified and released the same title on DVD they did not seek reclassification of the DVD film. The objection was raised that the question took the court back into “illegality territory”. Counsel for Venus submitted that it was relevant to the determination of additional damages under the category of “other relevant matters” in s 115(4) of the Copyright Act. In the event, the magistrate would not allow counsel to further question the witness on the point. This appears to have been related, at least in part, to the necessarily imprecise nature of the answers that could be given by the witness. His Honour left it open to counsel to bring in material subpoenaed from the Commonwealth Classification Board and make the point “by tender”.
Another line of attack advanced by Venus in argument about the cross examination was that, by supplying product whose sale or supply would be unlawful in New South Wales and Queensland, Fraserside and Calvista aided and abetted Venus in relation to the commission of unlawful acts knowing full well that the products supplied would be offered for sale in those States.
The magistrate, in disallowing the questions put to Mr Newnham, also seemed to rely, in part, upon the proposition that there was no necessary connection between the infringement of copyright alleged against Venus and any infringing notional sale of Private Film DVDs, contrary to State or Territory laws, by Fraserside and Calvista. No such connection seems to have been identified in the case beyond a generalised “clean hands” argument. Let it be assumed that a Private Film DVD copied by Venus was classified X 18+ under the Commonwealth Act. It did not follow that it would have been unlawful to sell or supply that film in all States or Territories of Australia. The parties seem to have assumed that any of the Private Film DVDs could be sold or supplied in the ACT or the Northern Territory. Somewhat confusingly it was common ground on the appeal that unclassified films could not be sold anywhere in Australia. The proportion of copied X rated films saleable in the ACT and the Northern Territory to copied unclassified films not saleable anywhere, was not the subject of any finding.
Mr Newnham could not have been asked for his opinion as to the legality of selling particular DVDs in the various States and Territories. That was a matter which would have required a factual foundation, the presentation of argument and a finding by the magistrate. Indeed his Honour disallowed further questions directed to Mr Newnham on the basis that he could not really give sensible answers on the matters being put to him. Venus never laid the factual foundation and Mr Barber’s evidence in support of the proposed amendment was not evidence at the trial.
The question of the lawfulness of the sale of films which had been argued was not a question to be answered by reference to whether Fraserside and Calvista sold or supplied or offered them for sale or possessed them contrary to the provisions of particular State or Territory laws. The questioning of Mr Newnham in that respect was irrelevant and rightly disallowed. The primary basis upon which Venus raised the issue was that it was relevant to the calculation of the value of the pirated DVDs for the purposes of assessing damages under s 116. This would have required, for each film copied, evidence of its classification or lack thereof and submissions about the application of each State and Territory law to its sale, offering for sale or possession for sale. Broad common assumptions about all of the films copied and the lawfulness of their resale in New South Wales, Queensland, the ACT and the Northern Territory were not sufficient for that purpose. The first ground of appeal is not made out.
Refusal of leave to amend – ground 2
Ground 2 of the grounds of appeal reads:
‘His Honour erred by refusing leave to the first to fourth appellants to amend their defence to points of claim to include that damages should be denied as many Private films distributed for sale in Australia are not classified and/or display incorrect or misleading classification labels on the basis that that defence as to damages was bound to fail or at all.’ (sic)
In his oral argument at the appeal, counsel for Venus said at one point that he was:
‘… content not to follow, not to pursue the failure to amend so long as I can pursue the exclusion of the evidence.’
This was evidently a reference to Mr Barber’s evidence. Counsel accepted, however, that when the amendment was refused the evidence which was tendered to support it fell away. He had not sought to tender it on any other basis. He then resiled from the suggestion that he would not pursue the amendment ground.
The proposed amendment to the defence involved a narrow point. That was that “damages should be denied because many Private films on DVD distributed for sale in Australia are not classified and/or display incorrect or misleading classification labels”. The term “Private film” as noted earlier, refers to films produced by the Private film group with which Fraserside and Calvista are associated.
The question whether the amendment should be permitted involved the exercise of a discretion on the part of the magistrate. It was not suggested that there was any prejudice that might flow from the amendment which could not be cured by a costs order. However, his Honour was not satisfied that the proposed evidence was sufficient to sustain the amendment. There was no basis, in the evidence to be proffered, for the assertion that the DVDs would require reclassification. His Honour did not err in refusing the amendment. The second ground of appeal fails.
Factual errors relevant to the assessment of damages – grounds 3, 4 and 5
Grounds 3, 4 and 5 were taken together in the submissions made on behalf of Venus. The errors relied upon in such of this group of grounds as were pressed were as follows:
1.A wrong inference that Venus, Tropher, Vassallo and Gordon copied Private films from at least the time that they and Calvista had a dispute as to accounts – there being no evidence from which such an inference could be drawn (ground 3(b)).
2.That De Prima was liable as an accessory for breaches of the Copyright Act 1968 by Venus there being no such allegation made against De Prima (ground 3(c)).
3.Erroneous failure to reduce or adequately reduce the damages recovered by Fraserside and Calvista in light of the following factual findings favourable to Venus, Tropher, Gordon and Vassallo:
(a)that the evidence of Vassallo was preferred to that of Newnham;
(b)that Venus, Tropher and Vassallo did not parallel import Private films;
(c)that Calvista acquiesced in the sale by Venus, Tropher, Vassallo and Gordon of parallel imported Private films;
(d)that Calvista was not entitled to damages for breaches by Venus, Tropher, Gordon and Vassallo of s 103 of the Act in relation to parallel imported Private films; and
(e)that Venus, Tropher, Vassallo and Gordon stopped purchasing Private films from Calvista after a dispute as to accounts. (ground 4)
4.Failing to reduce or adequately reduce damages on account of there being no claim for damages as against De Prima (ground 5).
The first error of which complaint was made was the finding reflected in the magistrate’s reasons, when he said of Mr Gordon (at [29]):
‘But I believe the evidence of his involvement in the business indicates that if one infers, as I have done, that copying was going on from at least the time that relations between the applicants and the respondents became less friendly then he must have been aware that some of the sales going on in his stores were sales (and by that I include swaps) of product copied by the Venus Shops.’
This passage went to Mr Gordon’s accessorial liability but incidentally included the finding, based on inference, that copying had commenced in 2003. His Honour had earlier rejected evidence by Messrs Vassallo and Gordon that they were unaware until recently that DVDs could be copied. He said (at [14]-[15]):
‘I think that is naïve and I do not accept their evidence. I am prepared to accept that copying was not a significant problem until about 2003.
However, it was in 2003 that the Venus Shops stopped dealing with Calvista. This arose out of a dispute as to accounts. Thereafter the Venus shops did not buy any Private product distributed by Calvista.’
The period of copying adopted by his Honour was a reasonable inference in the circumstances from the evidence of copying that was before the Court. It was a feature of the case that there were few detailed records kept by Venus. The commercial desirability to Venus of maintaining continuity in Private Film offerings would support the inference, more comfortably drawn in the absence of contrary evidence, that the copying commenced at or shortly after the time of the breakdown in relations with Calvista. The first alleged error is not made out.
The second alleged error raised in ground 3(c) is that Mr De Prima was wrongly held liable as an accessory for breaches of the Act by Venus when no such allegation had been made against him. The relevant finding appears at par [31] of the reasons for judgment in which the magistrate said:
‘The third, fourth and fifth respondents as directors of the first and second respondents and as persons who have the day to day control of small proprietary limited companies have accessorial liability for the breaches of ss 36, 101 and 103 Copyright Act.’
Mr De Prima was a director and shareholder of Venus Adult Shops Pty Ltd. His Honour had earlier observed that he had consented to declarations and injunctions being made against him and that no damages or costs were sought.
The only orders made against Mr De Prima on 18 August 2005 were by way of injunctions which were made by consent. In the course of the trial in the Federal Magistrates Court, Venus and the Directors offered to consent to orders for permanent injunctions but not to pay any damages. Fraserside and Calvista said at the hearing that they would not pursue Mr De Prima for anything other than the injunctive relief to which he had offered his consent. In the magistrate’s reasons for judgment he recorded that Venus and the Directors had consented to the grant of permanent injunctions. The final orders made by his Honour, all purported to be made by consent. However those which related to damages and costs were agreed, after publication of the reasons, in order to give effect to the magistrate’s reasons. They were not true consent orders.
The magistrate’s finding of accessorial liability on the part of Mr De Prima was not justified having regard to the absence of any factual findings to ground it beyond the fact that he was a director of Venus Adult Shops Pty Ltd. However, there were no damages and no costs sought or awarded against him. The appeal by Venus and the Directors is about damages. There is no basis disclosed on which the injunctive orders could be set aside as they were made by consent. In the circumstances there is no order flowing from the allegedly erroneous finding which could be the subject of appeal. Nor is there any basis upon which the damages award, so far as it relates to damages under s 116 of the Copyright Act, could be reduced by reference to the fact that no damages were sought against Mr De Prima. The amount of the conversion damages remains the same regardless of how many people were involved in the copying. There is nothing in the submissions to indicate the way in which Mr De Prima’s position could have affected the quantum of additional damages awarded.
This disposes of both ground 3(c) and ground 5 of the appeal.
The third error, which is raised in ground 4, alleges failure on the part of the magistrate to reduce or adequately reduce the damages recovered by Fraserside and Calvista in light of certain factual findings. The relevant findings of fact cited by Venus and the Directors all went to the question whether Venus had infringed the rights of Fraserside and Calvista by the sale of parallel imported Private Films. As acknowledged in the ground of appeal itself, the magistrate found that Calvista was not entitled to damages for breaches of s 103 of the Copyright Act in relation to parallel imported Private Films. It is difficult therefore to see how the magistrate’s findings should otherwise have affected the assessment of damages. The written submissions refer to his Honour’s findings that the conversion damages of $68,000 calculated by Fraserside and Calvista on the basis of Mr Gordon’s evidence (taken by them to represent a minimum position) was too generous to Venus and the Directors. That complaint about this aspect of his Honour’s reasons was not shown to have anything to do with his findings of fact relevant to parallel importing. Ground 4 cannot succeed as a basis for challenging the assessment of damages. The question of his Honour’s substitution of a higher figure for conversion damages than that advanced at the hearing is dealt with in ground 9.
For the preceding reasons grounds 3, 4 and 5 fail.
The assessment of damages for infringement of illegal or immoral copyright works – grounds 6 and 7
Grounds 6 and 7 of the grounds of appeal were as follows:
6.His Honour erred in the assessment of damages under sections 115 and 116 of the Act by failing to:
(a)Consider or adequately consider whether damages should be denied as it is illegal to sell, trade and exchange Private films in New South Wales and Queensland, instead considering whether damages should be denied as Private films might be considered immoral, the latter being a defence as to damages the first to fourth appellants expressly did not make; and
(b)Deny damages as it is illegal to sell, trade and exchange Private films in New South Wales and Queensland.
7.His Honour erred in the assessment of damages under sections 115 and 116 of the Act by:
(a)Considering that the first to fourth appellants were required to and/or did not show that there is an offence of aiding and abetting the illegal sale, exchange and trade of Private films in New South Wales and Queensland;
(b)Considering that the first to fourth appellants were required to prove any such offence beyond all reasonable doubt;
(c)Considering that the sale of the second respondent’s Private films was not the subject of the application; and
(d)Accordingly failing to reduce damages on account of the first and second respondents’ aiding and abetting of the first to fourth appellants’ sale, exchange and trade in Private films.’
Before considering these grounds against the learned magistrate’s reasons, it is helpful to consider some questions of general principle which they raise. These include:
1.Whether copyright protection may be denied by reference to public policy considerations flowing from the content of the work.
2.The character of the conversion damages remedy.
3.The effect on the assessment of conversion damages under s 116 of statutory prohibition or restrictions upon the sale, hire or distribution of articles in which the relevant copyright subsists.
Public policy, immorality and the denial of copyright protection
There is long standing authority in England for the proposition that copyright protection will not be extended to a publication whose content is contrary to community standards or values. This seems to have originated in a judge-made doctrine emanating from the Courts of Equity – Walcot v Walker (1802) 7 Ves 1; 32 ER 1; Southey v Sherwood (1817) 2 Mer 435; 35 ER 1006. In the latter case Lord Eldon refused to enjoin infringing publication of “Wat Tyler” because of its libellous tendency. In the result, as Lord Campbell observed: “hundreds of thousands of copies of Wat Tyler were circulated over the kingdom”: Lives of the Chancellors (4th Ed, 1857). In Murray v Benbow [1822] Jac 474n; 37 ER 929 Lord Eldon said that no work injurious to religion was entitled to copyright protection. He refused to enjoin publication of a pirated edition of Byron’s “Cain”. Leach VC did the same for Lord Byron’s “Don Juan” in Byron v Dugdale (1823) 1 LJ Ch 239. In Stockdale v Onwhyn (1826) 5 B&C 173, 108 ER 65, damages were refused for infringement of copyright in the Memoirs of Harriette Wilson, a book about the love life of a courtesan. In Baschet v London Illustrated Standard Co [1900] 1 Ch 73 the Court of Appeal refused injunctive relief and damages under the Fine Arts Copyright Act 1862 to two out of seven photographs in which copyright subsisted under French law on the basis that the two were indecent.
The existence of “immoral tendency” as a basis for denying copyright protection was influentially reasserted in Glyn v Weston Feature Film Company [1916] 1 Ch 261. Younger J said that it was “… clear law that copyright cannot exist in a work of a tendency so grossly immoral as this, a work which apart from its other objectionable features, advocates free love and justifies adultery where the marriage tie has become merely irksome” (269). Glyn was cited with approval by Lords Keith, Griffith and Jauncey in the Spycatcher case: Attorney General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 at 262, 275-276 and 294. Browne-Wilkinson VC in Stephens v Avery [1988] 1 Ch 479 referred to it and said he entirely accepted the principle that “a court of equity will not enforce copyright … relating to matters which have a grossly immoral tendency” (482). The existence of a discretion to refuse copyright protection on “public policy grounds” was restated by Lightman J in ZYX Music GmbH v Chris King and Others [1995] FSR 566 at 577. The public policy grounds related to works which were “dishonest or misleading”, “of a grossly immoral tendency” or “reeking of turpitude”, the latter referring to breach of confidence.
In Hyde Park Residents Limited v Yelland [1999] RPC 655 Jacob J asserted that “in principle public policy can prevent copyright enforcement completely”. He added that while some might say it was remarkable that the courts take away what was given by parliament “… that is what the courts have done in extreme circumstances”. This is a proposition which would be constitutionally untenable in Australia in both Federal and State jurisdictions. The Court of Appeal in Yelland found legislative space and constitutional legitimacy for a public policy ground for denial of protection in s 171(3) of the Copyright Patents and Designs Act 1988 which provided that “Nothing in this Part affects any rule of law preventing or restricting the enforcement of copyright, on grounds of public interest or otherwise”. Aldous LJ considered the power of the courts to refuse to enforce copyright on public interest grounds as an aspect of their “inherent jurisdiction to refuse to allow their process to be used in certain circumstances”: Hyde Park Residents Limited v Yelland [2001] Ch 143 at 160 [44] Aldous LJ).
A more restrained judicial censoriousness was predicted in the 15th edition of Copinger and Skone James on Copyright:
‘Such readiness on the part of judges in the past to apply their own views in deciding what works should be refused protection gave rise to criticism. In the present day, in which the public perception of such matters is different, the courts can be expected to reflect this difference and to take an attitude which is far less protective of the public. Attitudes to what amounts to unacceptable irreligious material have changed, and at least in relation to sexual conduct protection is only likely to be refused to a work considered as having a grossly immoral tendency by present day standards.’
Copinger and Skone James on Copyright, (15th Edition, Sweet & Maxwell, 2005) p 183. See also Cornish and Llewellyn, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights (5th Edition, Thomson Sweet & Maxwell, 2003) p 11-56.
The Courts of the United States reflected, in a long line of cases, a doctrine of non-protection of works found to be obscene, immoral, blasphemous, libellous, irreligious and even merely misleading – see Phillips J, Copyright in Obscene Works: Some British and American Problems (1977) 6 Anglo-Am L Rev 138. An interesting and elegantly penned historical review is also to be found in Rogers E, Copyright and Morals (1919-20) 18 Mich L Rev 390. In 1979 however the Court of Appeal for the 5th Circuit rejected the contention that obscene content in a copyright work is a defence to a claim for its infringement: Mitchell Bros Film Group v Cinema Adult Theater (1979) 604 F2d 852 and was followed in Jartech Inc v Clancy (1982) 666 F2d 403. A comprehensive review of United States, Canadian and English authority was essayed by Davies J in the Supreme Court of British Colombia in Aldrich v One Stop Video Ltd (1987) 13 BCLR 2(d) 106. The cases and issues are discussed, from an Australian perspective, in Morgan J, Copyright, the Public Interest and Content Restrictions (Intellectual Property Institute of Australia Working Paper No 13/03 May 2003).
In the Phillips’ paper the author pointed quite properly to the difficulty of conditioning the existence of a property right on a legal test whose application was “no more than a value-judgment based upon a variety of psychological apprehensions which we are unable to comprehend”. He added (at 168):
‘For as long as ‘property’ depends upon ‘content’, not ‘form’, commercial practice will be subject to the caprice of this doctrine.”
Whatever the powers of English Courts past and present, Lahore makes the point correctly about the Australian Act:
‘There is nothing in the 1968 Act which denies copyright protection to obscene or blasphemous material.’
And further:
‘As copyright can subsist in all original literary, dramatic and artistic works under the 1968 Act without any exception provided that the requirements of the Act are complied with, it is preferable to accept that copyright can subsist in a seditious, libellous, immoral, blasphemous or fraudulent work, but that the court may not grant a remedy as a matter of public policy.’
Lahore, Copyright and Designs (Butterworths) par 6150
This position is consistent with the rejection, by Gummow J in Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 19 IPR 44 at 57, of a public interest defence to copyright infringement. Although lying on the other side of the moral coin the principle governing such a rejection is applicable to reject defences based upon the immorality of the copyright work. As Gummow J said of the public interest defence (at 57):
‘… there is no legislative or other warrant for the introduction of such a concept into the law of this country.’
In relation to works and subject matter other than works there is no room, in the definition under the Act, of the rights comprised in the relevant copyright, for a qualification based upon general public policy considerations. There is no equivalent of s 171(3) of the Copyright, Designs and Patents Act 1988 (UK). The closest approach to such a provision is to be found in s 9(3) which preserves the operation of the law relating to breaches of trust or confidence. There is therefore no statutory basis under existing Australian copyright law for a finding that copyright does not subsist because the content of the relevant work or subject matter offends against community values or standards. That is not to say that such considerations may not inform the discretion to award particular classes of remedy but the scope of such an exercise of discretion would seem to be narrow.
The conversion damages remedy – general principles
Accepting that copyright protection in Australia is not to be denied by reference to normative concerns about the “content” of a work or other subject matter in which copyright subsists, it is necessary to consider how statutory prohibitions or restrictions upon the production, possession, sale or distribution of an article the subject of copyright interacts with the availability of damages for its imputed conversion under the Act. This requires a brief consideration of the way in which conversion damages following infringement of copyright are assessed under s 116.
Section 116 of the Copyright Act should not be regarded as creating a fictional conversion of infringing copies. Rather, it creates a fictional ownership in them. Infringement by reproduction does not of itself establish conversion or give rise to an entitlement to damages under s 116. Conduct constituting conversion of the infringing copies according to the common law governing that tort, must be demonstrated. In an action for damages on which s 116 is invoked the facts constituting the conversion of the infringing copies should be pleaded. In International Writing Institute Inc v Rimila Pty Ltd (1995) 57 FCR 135, the Full Court said (at 139):
‘Conversion occurs when goods are dealt with in a manner inconsistent with the rights of the owner, but this must be clear ... Whilst it is possible that conversion occurs at some different point … the sale of the goods will, generally speaking, provide the necessary certainty.”
And further (at 139):
‘… there is nothing in the cases on this matter which suggests that a proper approach would be to look to some other dealing when a clear act of conversion, on sale, has been shown.’
The mere production of infringing material by copying from an original work does not constitute an imputed conversion for the purposes of s 116 because no infringing copy comes into existence until after the reproduction has occurred. This is a consequence of the language of s 116(1A) which allows the grant of remedies available in an action for conversion in relation to infringing copies “as if … the owner of the copyright had been the owner of the infringing copy since the time the copy was made.” That reflects the long-standing approach to similar provisions in English copyright statutes (which no longer contain a conversion remedy) expressed in Caxton Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178 at 202 (Lord Porter, Lords Thankerton and Roche agreeing).
The essence of conversion is interference with a right of possession. It is nevertheless properly described as a “varied and somewhat amorphous tort” serving two distinct functions. One function is tortious, whereby it compensates a person deprived of the use of goods. However it also acts as a “surrogate for the Roman vindicatio; that is, in order to give a dispossessed owner the means to recover his goods in specie, or if that is not appropriate their market value” – Tettenborn, Wiley and Bennett; The Law of Damages, (LexisNexis UK, 2003) (at 294). The conduct which may constitute conversion is diverse. It has been said to include:
(i) refusal to return;
(ii) taking;
(iii) receipt;
(iv) disposal or deprivation of title;
(v) destruction;
(vi) loss as a bailee;
(vii) keeping.
The diversity of that list raises questions about the universal appropriateness of a “market value” approach to the assessment of damages – Tettenborn A, Damages in Conversion: the Exception or the Anomaly (1993) 52 CLJ 128.Mere possession by a person of the goods of another does not necessarily constitute their conversion – Flowfill Packaging Machines Pty Ltd v Fytore Pty Ltd (1993) Aust Torts Reports, 81-244 (Young J). On the other hand there is nothing in the judgment of the Full Court in International Writing Institute Inc v Rimila supportive of a condition requiring sale of infringing copies to have taken place before damages can be awarded under s 116. When infringing copies are brought into existence for the purpose of sale or letting or some other form of disposal enough may be shown to indicate an assertion of dominion over them inconsistent with the deemed ownership of the copyright owner. So conversion may be demonstrated at that point. In the present case, on the facts found by the learned Federal Magistrate which are not in dispute, it could be inferred that conversion occurred at or about the time that the infringing copies came into existence.
The measure of damages for conversion is said to be well settled but its application may be difficult. The normal measure is the market value of the goods converted. But as Lord Porter observed in Caxton, it cannot be said that an article is to be treated as valueless to its owner because there is no means of selling it. He put the question rhetorically (at 203):
‘Has a book a different and diminished value to me who have just purchased it from what it had a moment before in the hands of the bookseller, even though the bookseller will not take it back and I have no market for its sale?’
One way of assessing value is to find out “what price for infringing matter … the public or some individual is prepared to pay or in some other way in the light of other events”: Caxton at 2043-204 (Lord Porter).
Lord Eldon explained his views more fully in Southey v Sherwood. Southey was then and still is a highly regarded poet. He sought an injunction to restrain the defendant publishing his poem, Wat Tyler. The injunction was opposed on the ground that the poem had “libellous tendency”. Lord Eldon said that if the publication was innocent the plaintiff would get his injunction. But if it were not “that is if it could not have lawfully been published by the author, the injunction would be refused”: 2 Mer 435 at 437; 35 ER 1006 at 1007. Lord Eldon said (2 Mer 435 at 439; 35 ER 1006 at 1008) that “Lord Chief Justice Eyre… has expressly laid it down that a person cannot recover in damages for a work which is, in its nature calculated to do injury to the public. Upon the same principle, this Court refused an Injunction, in the case Walcot v Walker, inasmuch as he could not have recovered damages in an action.” On my reading, Lord Eldon seems to be saying that the common law would deny copyright recognition to the work in question, so he would deny equitable relief. Presumably the common law would deny recognition because the publication of the work was illegal as being an obscene libel, as to which see R v Curl (1727) 2 Stra 788; 93 ER 849.
It was not only the Chancery Court that denied relief. In Stockdale v Onwhyn (1826) 5 B&C 173 the question was whether the plaintiff could recover damages for the unauthorised publications of a book entitled Memoirs of Harriette Wilson. The work, which professed to be the history of “the amours of a courtezan” contained “in some parts matter highly indecent, and in others matter of a slanderous nature upon persons named in the work”: Stockdale at 176. The publication of the work was a criminal act. Abbot CJ said (at 176) that for the plaintiff to establish his claim to recover damages he had to “show a right to sell; for if he has not that right, he cannot sustain any loss by an injury to the sale.” The other judges agreed, with one of them, Bayley J, basing his reasoning on Southey v Sherwood.
The true basis for denying protection to obscene works is not clear. One possibility is that there can be no copyright in an obscene work. Another is that there is copyright but the court will not lend its assistance to the owner because of the nature of the work, that is the court will not interfere on public policy grounds. This latter approach is well and good in a case where the court is being asked to grant discretionary relief, for example, an injunction or an account of profits. It is an oft stated principle that when a plaintiff seeks equitable relief he must have clean hands.
It seems to me that the only sound basis for the rule, if there be any rule, which is a basis that finds some support in the cases, is that when the plaintiff cannot turn his work to profit (as would be the situation if its publication were illegal), the plaintiff has not suffered any compensable loss. That would be an answer to a claim in law, but not when the plaintiff is seeking equitable relief. Then the doctrine of clean hands would apply. On the other hand, if the plaintiff is able to profit from his work (that is when dealings in it are not unlawful) what then? It seems to me there is no basis for denying him the usual relief whether it be in law or in equity.
The position has not been clarified by any of the recent English cases. In Glyn v Weston Feature Film Company [1916] 1 Ch 261 Younger J refused protection to a novel which advocated free love and justified adultery. It is not clear whether he founded his decision in the absence of copyright or whether he simply refused to allow copyright to be enforced on the basis that the novel was “of a tendency so grossly immoral”. There are passages in his judgment which support each position. In British Oxygen Company Ltd v Liquid Air Ltd [1925] Ch 383 Romer J granted an injunction to prevent rival manufacturers publishing a letter written by the plaintiff manufacturer to a trade customer. In the reasons of his decision he had to consider whether the writing and sending of the letter (albeit a fairly rude letter) offering the plaintiff’s goods at a low price “was an act contrary to public policy, as being in restraint of trade” and therefore disentitled the plaintiff’s to copyright protection: British Oxygen at 392. First, he found (at 391) that the plaintiff had copyright in the letter. He then held that the plaintiff should be entitled to protection because sending the letter was not unlawful or contrary to public policy. In the process he referred to Glyn v Weston. Lord Keith also referred to Glyn v Western in his speech in the Spycatcher Case, Attorney-General v Guardian Newspapers Ltd (No2) [1990] 1 AC 109 at 262. He said that “the Courts of [England would not] enforce a claim by them to the copyright in a work the publication of which they had brought about contrary to the public interest”. Accordingly, “Mr Wright [the author] was powerless to prevent anyone who chooses to do so from publishing [his work] in whole or in part in this country, or to obtain any other remedy against them”. Again it is not clear whether Lord Keith was of opinion that there was no copyright in the work or whether it was copyright, but the court would not protect it.
Finally, so far as the English cases are concerned, in Hyde Park Residence Ltd v Yelland (CA) [2001] Ch 143, Aldous LJ suggested that the rule could be justified on the basis that courts have an inherent jurisdiction to refuse to allow their processes to be used in certain circumstances. He noted (at 160), that “the courts will not give effect to contracts which are, for example, illegal, immoral or prejudicial to family life because they offend against the policy of the law”. He then referred to s 171(3) of the Copyright Act 1988 (UK) which provides that: “Nothing in this Part affects any rule of law preventing or restricting the enforcement of copyright, on grounds of public policy or otherwise.” He said this made it clear that the jurisdiction to decline hearing a case could be exercised in a copyright case. The Australian Copyright Act, however, has no equivalent provision.
Where does this leave us? For my own part, I do not accept that there is no copyright in a pornographic work. There is no such exception in the Copyright Act. In my opinion the court does not have power to create the exception. I am prepared to assume, in conformity with the early cases, that, in some circumstances, public policy may require a court to deny to a pornographer the relief that Parliament has provided to all copyright owners, but then only when the relief is discretionary. Even so, prima facie at least, the owner is entitled to discretionary relief, for example, an injunction to restrain the unauthorised publication of his work. The pornographic nature of the work will be of relevance in a claim for damages only when it is illegal to sell the work. If an author cannot sell his work he cannot suffer damage.
I take this approach because, to my mind, there are insurmountable difficulties standing in the way of denying copyright or copyright protection to works that may be regarded as obscene or pornographic. For one thing there is no satisfactory definition of what is obscene or pornographic. The inquiry will inevitably involve both moral and political considerations. The inquiry will be complicated because the question will often depend upon the audience which the publication is likely to reach. If Parliament requires such an issue to be considered by a judge then, of course, the judge must consider it. But, in truth, a judge is not well suited to the task and, as often as not, will reach the wrong result.
Here I have in mind that in Australia there have been many ill-considered decisions about which works are obscene. The list of obscene works includes (in no particular order): Lawrence’s Lady Chatterley’s Lover, Joyce’s Ulysses, Nabakov’s Lolita, Huxley’s Brave New World, Balzac’s Droll Stories, Reed’s Ten Days that Shook the World, Stead’s Letty Fox: Her Luck and A Little Tea, a Little Chat, Winsor’s Forever Amber and Roth’s Portnoy’s Complaint. Inevitably a list of non-copyright works will, at some point, contain more great literary works.
True it is that the decisions to judge these works as obscene may be explained by the fact that the standard as to whether a work is obscene varies from time to time. But that merely identifies another problem. How will one know when a work is or is not protected. Ought we have a rule which in its operation denies copyright protection on one day but permits it the next? What, in any event, is the jurisprudential foundation for a rule that gives this kind of ambulatory effect to a copyright statute? A rule that is required to work in this way is, in my view, too arbitrary for it to be adopted.
The position which I think is correct is that adopted by courts in the United States and Canada. In the United States the leading case is Mitchell Brothers Film Group v Cinema Adult Theater 604 F2d 852 (5th Cir 1979). The Court held that there is no obscenity defence to a copyright infringement claim. Several reasons were put forward, some of which do and others do not have application here. First, the court pointed out that there was nothing in the Copyright Act 17 USC §§ 1-216 which restricted copyright in obscene or non-obscene works that otherwise met the requirements of that Act. This indicated that Congress did not have in mind the worth of the work in assessing whether it was copyright. Second, such a defence would be unconstitutional, as being contrary to the First Amendment. Third, although the obscenity defence had been allowed in English cases, this approach was said (at 861) to be the “vestige of a bygone era”. The US courts said that it was wrong “in the absence of some guidance or authorization from the legislature, to interpose its moral views between an author and his willing audience”. The court also rejected what it described as a “judicially-created doctrine”, namely the theory that a person could have no property in obscene works. It rejected this doctrine because it “merely expresses by means of a legal fiction the underlying judicial moral conclusion that the work is not worthy of protection”: Mitchell Brothers at 861. The court dismissed out of hand another “judicially created doctrine” namely that of unclean hands, pointing out that, for the most part, this was an English theory not adopted in any American copyright infringement action. See also Jartech Inc. v Clancy 666 F2d 403 (9th Cir 1982).
It is, however, interesting to note that in Devils Films, Inc v Nectar Video 29 FSupp2d 174 (SDNY 1998) a district court judge refused an interlocutory injunction to restrain the publication of pirated copies of pornographic material on the basis that the plaintiff was likely to be acting in breach of a local statute by selling obscene material in the course of interstate commerce. The plaintiff’s works were also subject to forfeiture under that Act. The judge concluded (at 175) that “[G]iven the clearly criminal nature of the plaintiff’s operation, it is self-evident that the Court should not use its equitable power to come to the plaintiff’s assistance and should invoke the doctrine of unclean hands and leave the parties where it finds them”.
The Canadian courts accept that copyright subsists in an obscene work. In Pasickniak v Dojacek (1928) 2 DLR 545 an obscenity defence was taken to a book printed in the Ukrainian language whose title, when translated into English, meant “Large Dream Book”, the contents of which were offensive to some people. Fullerton JA said that under Canadian copyright law, copyright could not be denied to an obscene work. He held (at 548) that unless there was something which made the sale of the work an offence, the plaintiff had the right to restrain the defendant from infringing his copyright. Dennistoun JA added (at 554) that the court would refuse the plaintiff’s damages if it was illegal for him to publish his work, but otherwise the usual remedies including an injunction could be available. There will be occasions when certain relief might be refused. For example, in Aldrich v One Stop Video Ltd (1987) 39 DLR 362 the judge refused to order an account of profits where the defendant had sold an obscene work contrary to certain provisions in the Canadian Criminal Code. He said that by taking an account, the owner would condone the infringement and profit from the unlawful conduct.
The second issue raised by this appeal concerns the manner in which the Magistrate went about the assessment of damages. This is not the occasion upon which to discuss in detail the kinds of damages that can be awarded for copyright infringement. The general principle is that damages are awarded for the depreciation in the value of the plaintiff’s copyright: Caxton Publishing Company Ltd v Sutherland Publishing Company [1939] AC 178; Prior vLansdowne PressPty Ltd [1977] VR 65. That statement of principle is not as helpful as it might be. A better approach is to proceed on the basis that, speaking generally, the damages to which a plaintiff is entitled are those that flow directly from the infringement. In the case of a work which has a market in which the plaintiff sells or otherwise deals, the plaintiff will be entitled to the profit he would have made had he made the sales that were made by the defendant: General Tire and Rubber Co v Firestone Tyre and Rubber CoLtd [1976] RPC 197. If the plaintiff could not have made all the sales, then the plaintiff’s damages will be assessed on the basis of the sales he actually lost with a notional royalty for the rest: Watson, Laidlaw & Co Ld v Pott, Cassels and Williamson (1914) 31 RPC 104. In an appropriate case, instead of claiming damages the plaintiff may ask for an account of profits.
A plaintiff may also seek conversion damages under s 116 of the Copyright Act. Section 116 creates a legal fiction. The fiction is that the plaintiff is the owner of a work that has been brought into existence by the defendant in breach of copyright. Then, as the owner the plaintiff may sue for conversion if the work has been converted or he may bring an action in detinue.
The measure of damages for conversion is the value of the work converted. That value is usually determined at the date of conversion: Caxton Publishing [1939] AC 192 at 203. There are circumstances (such as in a rising market) when it may be appropriate to determine the value at some later point in time, for example, the date of the issue of the writ or the date of judgment: Asamera Oil CorporationLtd v Sea Oil & General Corporation and Baud Corporation, NV [1979] 1 SCR 633. In this case it was accepted by both sides that the conversion date was the appropriate date.
If there is a market for the work the value of it is taken to be the market price: Rodocanachi, Sons & Co v Milburn Brothers (1886) 18 QBD 67 at 76; Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc [2000] FCA 660 at [98]. Sometimes, the price which the defendant has obtained for the work is treated as the market price: see generally Nichols Advanced Vehicle Systems Inc v Rees (No3) [1988] RPC 71; Manfal Pty Ltd v Longuet (1986) 8 IPR 410 (Qld Sup Ct); cf O’Mara Books Limited v Express Newspapers plc [1999] FSR 49. In that event the defendant is allowed the expense of sale on the basis that the plaintiff would have incurred those expenses himself: Clark v Nicholson (1835) 1 CM&R 724. In addition, in a conversion action the defendant must be given credit for any work and materials he put into the converted work: Morgan v Powell (1842) 3 QB 278; 114 ER 513; Reid v Fairbanks (1853) 13 CB 692; 138 ER 1371; Munro v Willmott [1949] 1 KB 295. There is an English case which holds that a defendant in a copyright action is not to be given any credit for work and material he put into the infringing work, in particular the cost of manufacturing, labelling, packaging, storing, advertising the goods or distributing them to retailers: Lewis Trusts v Bambers Stores Limited [1982] FSR 281. I doubt whether this case is correctly decided. The question of credit for work and material to be allowed for in favour of a defendant was discussed by Toohey J in Fire Nymph Products Ltd and Alpen Holdings Pty Ltd v Jalco Products (WA) Pty Ltd (1983) 1 IPR 79 at 116. Lewis Trusts was referred to, but not approved, by Lindgren J in Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231 at 247-248. In Australia it matters not whether the English case is correct, for the common law principles, as I understand them to be, are given effect in relation to conversion damages by reason of s 116(1D). That subsection requires the defendant to be given credit for both pre and post conversion expenses.
The Magistrate assessed conversion damages in the following ways. First he found that the appellant companies had converted approximately 1450 DVDs. The conversion was by sale or exchange. According to the appellants an exchange involved a cost; the cost was $20 per DVD. The respondents, on the other hand, said that the average sale price of each converted DVD was $60, with a cost to the corporate appellants of $20. They submitted that the corporate appellant’s claim should be further “reduced by $7 [per DVD] to take into account the fact that one third of the stock was represented by swaps”. They argued that they should recover a sum equal to 1450 (the number of converted DVDs) multiplied by $47 (the corporate appellants’ profit after taking into account the reduction for the percentage of stock represented by swaps). This would have produced a figure for conversion damages of approximately $68 000. The Magistrate said, however, that he would “reduce the conversion damages which [he] intended to award from $80 000 to $65 000 to take into account [the second corporate appellant’s] acquiescence in the sale of the parallel imported films”.
This method of assessing conversion damages, which has some of the hallmarks of an account of profits, followed the wrong path thus leading the Magistrate to make several errors. The issue for the Magistrate was to determine the value of the DVDs as if in the fictional ownership of Fraserside. The starting point was to ascertain the market value of the DVDs at the conversion date. That value would depend upon, or be affected by, a number of factors including: (1) Whether the DVDs could lawfully be sold in the ACT or the Northern Territory; and (2) The terms of the distributorship agreement between Fraserside and Calvista. The first factor would require the Magistrate to consider several subsidiary issues including: (1) Whether the DVDs were classified RC or X 18+; (2) If the DVDs had not been classified, whether they could be classified RC or X 18+. Armed with the answers to these questions the Magistrate was then required to determine whether there was a market for the X 18+ rated DVDs. If there was a market it would then have been necessary for the Magistrate to work out the price at which the DVDs could have been sold, taking into account, if relevant, the terms of the distribution agreement. If any of the DVDs were not classified, but were capable of being classified with an X 18+ rating, then, in the absence of contrary evidence, it might be assumed that their market value would be equal to their sale price reduced by the cost (both direct and indirect) necessarily incurred in obtaining the classification. Then it would be necessary to calculate the deductions required by s 116(1D). One would then have the information necessary to calculate the conversion damages.
Now, nothing of the sort was done by the Magistrate. In my opinion the case should go back to the Magistrate for him to assess the damages. I appreciate that the errors I have identified were not complained about in the Notice of Appeal. Nevertheless they were the subject of debate on the appeal and it is only fair that damages should be reconsidered.
The Magistrate also awarded additional damages under s 115(4) of the Copyright Act in the sum of $85 000. It has been said that this section permits an award of damages that are exemplary or aggravated or even penal in nature: Concrete Systems Pty Ltd v Devon Symonds Holdings Ltd (1978) 20 ALR 677 at 683. If this be correct then the court has power to award damages that are not available in the United Kingdom under the equivalent section of their Copyright Act. In that country only aggravated damages or its equivalent can be claimed: Beloff v Pressdram Ltd [1973] RPC 765; RedrowHomes Ltd v Betts Brothers Plc [1998] RPC 793, a decision of the House of Lords.
The order for s 115(4) damages was made because the Magistrate thought the appellants’ conduct was “flagrant”. He explained that the appellants “deliberately set aside batches of DVDs to use as a library for the purposes of copying and keeping their stock fresh. They knew that copying was illegal and they knew that it was rampant in the industry, particularly in the days when VHS was the method of distribution. Their reluctance to copy DVDs lasted only until the time they were able to make copies cheaply and without difficulty.”
I would set aside the award of additional damages. Additional damages should only be awarded if, to summarise the effect of s 115(4)(b), the defendants’ conduct deserves punishment or there is a need for deterrence: see also on exemplary damages Lamb v Cotogno (1987) 164 CLR 1 at 8; XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 at 471. A defendant will deserve punishment if his conduct was vindictive, reprehensible, malicious or something of that sort. If the defendants’ conduct is not outrageous, then there is no occasion to award additional damages. That is the situation here. This conclusion makes it unnecessary to decide whether as a matter of policy a court should grant a windfall profit to a pornographer.
Finally, if it matters, there are other difficulties in the way of the award. It is not possible to calculate additional damages without knowing what are the actual damages which the respondents will recover. And, in any event, in arriving at his decision the Magistrate failed to take into account two important facts. The first is that before trial the appellants had conceded the existence of copyright in the DVDs. In the absence of this concession the respondents may not have been able to prove their case. At least it would have been an extremely messy case to make out. The appellants should be given credit for saving the respondents significant costs as well as saving the court significant time. They should also be given credit for having submitted to injunctions in the form demanded by the respondents. That also saved the parties and the Court time and expense. So, as a matter of discretion, there should have been no award. This is another way of saying that, in my view, the award was unreasonable.
For these reasons I would allow the appeal, set aside the orders relating to damages and remit the matter to be reheard on quantum. The appellants should in my view have the costs of the appeal.
I certify that the preceding thirty five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein. Associate:
Dated: 20 December 2006
Counsel for the Appellant: Mr AG Melick SC with Ms M Avenell Solicitor for the Appellant: Redmond Hale Simpson Counsel for the Respondent: Mr R Cobden SC with Mr JM Hennessy Solicitor for the Respondent: Gilbert & Tobin Lawyers Date of Hearing: 8 May 2006 Date of Judgment: 20 December 2006
- AGLC
- Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd [2006] FCAFC 188
- Case
- [2006] FCAFC 188
- Decision Date
CaseChat Overview and Summary
The primary legal issues before the court were the quantum of damages awarded under section 116 of the Copyright Act and the entitlement of Fraserside to damages under section 103. The court had to determine if the lower court's findings were supported by the evidence and if the damages awarded were appropriate. The appeal did not challenge the findings of infringement or the lower court's conclusion that Fraserside was estopped from claiming damages for the sale of the imported films. The Federal Court held that while the lower court's assessment of additional damages was sound, the damages awarded under section 116 were excessive. The Court found that a reduction to $54,400 was appropriate. It also affirmed that Fraserside was not entitled to damages for the imported films due to its inaction and acquiescence in the infringing activities.
In light of the above, the appeal was partly allowed, with the damages under section 116 reduced from $65,000 to $54,400. The remainder of the lower court's orders were upheld, and no order was made as to the costs of the appeal. The decision underscores the importance of proportionality in damages awards and the doctrine of estoppel in preventing a party from enforcing rights when they have knowingly allowed infringement to occur.
Orders
Orders of the court
1. The appeal is allowed in part.
2. The judgment made by the Federal Magistrates Court on 18 August 2005 be varied as to paragraph 9 so that the damages awarded to the respondents against the first, second, third and fourth appellants in the sum of $150,000 are reduced to $139,400 by varying the amount of damages awarded pursuant to s 116 of the Copyright Act 1968 (Cth) from $65,000 to $54,400.
3. The orders made by the Federal Magistrates Court on 18 August 2005 be otherwise undisturbed.
4. There be no order as to the costs of the appeal.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
Established by: FRENCH, KIEFEL AND FINKELSTEIN JJ
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