Zero Tolerance Entertainment Inc v Venus Adult Shops Pty Ltd
[2007] FMCA 155
•24 August 2007
FEDERAL MAGISTRATES COURT OF AUSTRALIA
ZERO TOLERANCE ENTERTAINMENT INC & ORS v VENUS ADULT SHOPS PTY LTD & ORS [2007] FMCA 155
COPYRIGHT – Infringement of copyright in films and related artwork – unauthorised copying and sale of “adult” films – claim for additional damages – whether respondents took adequate steps to avoid infringement considered – whether state law prohibiting the sale of adult films in New South Wales impacts upon the availability of damages considered.
Classification (Publications, Films and Computer Games) Enforcement Act 1995 (Cth), ss.6, 15, 18
Copyright Act 1968 (Cth), ss.10, 84, 86, 90, 94, 101, 103, 115, 116, 132,184
Copyright (International Protection) Regulations
Federal Magistrates Act 1999 (Cth), s.45
Federal Magistrates Court Rules 2001 (Cth)
Aristocrat Technologies Australia Pty Limited (ACN 001 660 715) v D.A.P. Services (Kempsey) Pty Limited (in liquidation) (ACN 055 803 542) [2007] FCAFC 40
Foxtel Management Pty Limited v The Mod Shop Pty Ltd [2007] FCA 463
Fraserside Holdings & Anor v Venus Adult Shops Pty Ltd & Ors [2005] FMCA 997
Jones v Dunkel (1959) 101 CLR 298
Microsoft Corporation v Glostar Pty Ltd (2003) 57 IPR 518
Microsoft Corporation v Goodview Electronics Pty Ltd (2000) 49 IPR 578
Prior v Sheldon (2000) 48 IPR 301
Microsoft Corporation & Anor v ATIFO Pty Ltd & Ors (1997) 38 IPR 643
Microsoft Corporation v Ezy Loans Pty Ltd (2004) 63 IPR 54
Microsoft corporation v PC Club Australia Pty Ltd (2005) 148 FCR 262
Raben Footwear v Polygram Records Inc (1997) 75 FCR 88
SBO Pictures Inc v Kaos Shop Pty Ltd [2006] FMCA 82
Sony Entertainment (Australia) Ltd v Smith (2995) 64 IPR 18
Sullivan v FNH Investments Pty Ltd trading as Palm Bay Hideaway (2003) 57 IPR 63
Universal Music Australia Pty Ltd v Hendy Petroleum (2003) 59 IPR 204
Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd (No 2) [2007] FCAFC 41
Vivid Entertainment LLC & Ors v Digital Sinema Australia Pty Ltd & Ors [2007] FMCA 157
First Applicant:
ZERO TOLERANCE ENTERTAINMENT INC
Second Applicant: VIVID ENTERTAINMENT LLC
Third Applicant: VIVID VIDEO INC
Fourth Applicant: WORLD WIDE RED LIGHT DISTRICT INC
Fifth Applicant: COLOSSAL ENTERTAINMENT INC
Sixth Applicant: CONWEST RESOURCES INC
Trading as FALCON STUDIOS
Seventh Applicant: MITCHELL SPINELLI
Trading as ACID RAIN PRODUCTIONS
Eighth Applicant: SBO PICTURES INC
Trading as WICKED PICTURES
Ninth Applicant: CALVISTA AUSTRALIA PTY LTD
Eleventh Applicant: GREENWICH TECHNOLOGIES PTY LIMITED
First Respondent: VENUS ADULT SHOPS PTY LTD
Second Respondent: TROPHER INSTALLATIONS PTY LTD
Third Respondent: GEORGE ALLAN VASSALLO
Fourth Respondent JERRY GORDON
Fifth Respondent PHILLIP SALVATORE DEPRIMA
Sixth Respondent: MITSY PTY LTD
File Number: SYG1340 of 2006
Judgment of: Driver FM
Hearing dates:
30, 31 October, 2 November 2006,
20, 21, 22 March 2007Date of Last Submission: 4 July 2007
Delivered at: Sydney
Delivered on: 24 August 2007 REPRESENTATION
Counsel for the Applicants: Mr R Cobden SC
Mr J Hennessy
Solicitors for the Applicants: Gilbert + Tobin
Counsel for the Respondents: Mr I Mescher
Ms M Avenell
Solicitors for the Respondents: Lloyd & Lloyd Solicitors ORDERS
Note: Defined terms appearing in these orders are set out in full in the annexure to the orders.
(1)The Court declares that each of the first, second, third, fourth, fifth and sixth respondents infringed the copyright of the:
(i)first applicant in the Zero Tolerance infringed films;
(ii)second applicant and third applicants in the Vivid infringed films;
(iii)fourth applicant in the Red Light District infringed films;
(iv)fifth applicant in the Colossal infringed films;
(v)sixth applicant in the Falcon infringed films;
(vi)seventh applicant in the Acid Rain infringed films; and
(vii)eighth applicant in the Wicked infringed films.
(1)(2)Each of the first, second, third, fourth, fifth and sixth respondents are restrained by themselves, their servants or agents from without the licence of the applicant copyright owner (and exclusive licensee) making or selling or by way of trade letting for hire or offering or exhibiting in public, any of the infringed films, and from authorising any third person to do any of the foregoing acts in relation to any of the infringed films.
(3)Each of the first, second, third, fourth, fifth and sixth respondents are restrained by themselves, their servants or agents from making or selling or by way of trade letting for hire or offering or exhibiting for sale or hire or distributing for the purpose of trade or by way of trade exhibiting in public, and from authorising any third person to do any of the foregoing in relation to, the whole or a substantial part of any of the catalogue films, without the licence of the applicant copyright owner (and exclusive licensee).
(4)The respondents shall deliver up all copies of the infringed films (including all cases and boxes relating to such copies), in the possession, custody or control of the respondents (or any of them) to the applicants’ representative.
(5)The respondents shall deliver up to the applicants’ representative all of the following items in the possession, custody or control of any of the respondents:
(i)all copies of the catalogue films; and
(ii)all catalogue materials
that have been obtained without the licence of the applicants.
(6)The respondents shall pay:
(a)damages pursuant to s.115(2) of the Copyright Act 1968 (Cth) of $1;
(b)damages pursuant to s.116(1) of the Copyright Act 1968 (Cth) of $41,465.80; and
(c)
damages pursuant to s.115(4) of the Copyright Act 1968 (Cth) of $150,000.
Annexure – Definitions
Acid Rain Infringed Films means the cinematograph film produced by the seventh applicant and entitled Gimme Some of That and I Love ‘em Natural.
Applicants’ representative means Gilbert + Tobin solicitors of Level 37, 2 Park Street, Sydney.
Catalogue Films means all cinematograph films in any format (including in electronic format) having any one or more of the following features:
(i)films produced by and the copyright in which is owned by one of the first to eighth applicants;
(ii)films the copyright in which is owned by one of the first to seventh applicants;
(iii)films marked with or displaying the label or brand Colossal, Vivid, Red Light District, Zero Tolerance, Falcon, Acid Rain or Wicked (either on its own or with other words such as, for example, WICKED PICTURES); and
(iv)films displaying or bearing a copyright notice incorporating the words Colossal, Vivid, Red Light District, Zero Tolerance, Falcon, Acid Rain or Wicked (including for example in the form © [year] Colossal, or in the form © [year] Produced by Colossal Entertainment Inc).
Catalogue Materials means all boxes, DVD cases, VHS cases, artwork, DVD slicks and VHS slicks having any of the following features:
(a)films produced by and the copyright in which is owned by any of the applicants;
(b)films the copyright in which is owned by any of the applicants;
(c)films marked with or displaying any of the following labels or brands: Vivid, Wicked, Red Light District, Zero Tolerance, Falcon, Colossal, Titan or Acid Rain (either on its own or with other words such as, for example, Vivid Entertainment Inc); and
(d)films displaying or bearing a copyright notice incorporating any of the following names (either in its own or with other words such as, for example, Vivid Entertainment Inc.): Vivid, Wicked, Red Light District, Zero Tolerance, Falcon, Colossal or Acid Rain (including for example in the form © [year] Vivid Entertainment Inc, or in the form © [year] Produced by Vivid Entertainment Inc).
Colossal Infringed Films means the cinematograph films produced by the fifth applicant and entitled Violated Beauties Volume I and Fuck the Boss.
Infringed Films means the cinematograph films produced by:
(i)the first applicant and entitled Not Just Another 8teen Movie; Blow Me Sandwich; Grand Theft Anal 3; Tic Tac Toes #2 and Who’s Your Daddy? Vol.2;
(ii)the second and third applicants and entitled Tonight and Served;
(iii)the fourth applicant and entitled One on One and Cum Dumpsters #2;
(iv)the fifth applicant and entitled Violated Beauties Volume I and Fuck the Boss;
(v)the sixth applicant and entitled Tommy’s Tale and The Crush;
(vi)the seventh applicant and entitled I Love ‘em Natural and Gimme Some of That; and
(vii)the eighth applicant and entitled Phantasm and Art of Love.
Falcon Infringed Films means the cinematograph film produced by the sixth applicant and entitled Tommy’s Tale and The Crush.
Red Light District Infringed Films means the cinematograph films produced by the fourth applicant and entitled One on One and Cum dumpsters #2.
Vivid Infringed Films means the cinematograph films produced by the second and third applicants and entitled Tonight and Served.
Wicked Infringed Films means the cinematograph films produced by the eighth applicant and entitled Phantasm and Art of Love.
Zero Tolerance Infringed Films means the cinematograph films produced by the first applicant and entitled Not Just Another 8teen Movie; Blow Me Sandwich; Grand Theft Anal 3; Tic Tac Toes #2 and Who’s Your Daddy? Vol.2
FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEYSYG1340 of 2006
ZERO TOLERANCE ENTERTAINMENT INC First Applicant
VIVID ENTERTAINMENT LLC
Second Applicant
VIVID VIDEO INC
Third Applicant
WORLD WIDE RED LIGHT DISTRICT INC
Fourth Applicant
COLOSSAL ENTERTAINMENT INC
Fifth Applicant
CONWEST RESOURCES INC
Trading as FALCON STUDIOSSixth Applicant
MITCHELL SPINELLI
Trading as ACID RAIN PRODUCTIONSSeventh Applicant
SBO PICTURES INC
Trading as WICKED PICTURESEighth Applicant
CALVISTA AUSTRALIA PTY LTD
Ninth Applicant
GREENWICH TECHNOLOGIES PTY LIMITED
Eleventh Applicant
And
VENUS ADULT SHOPS PTY LTD First Respondent
TROPHER INSTALLATIONS PTY LTD
Second Respondent
GEORGE ALLAN VASSALLO
Third Respondent
JERRY GORDON
Fourth Respondent
PHILLIP SALVATORE DEPRIMA
Fifth Respondent
MITSY PTD LTD
Sixth Repondent
REASONS FOR JUDGMENT
Introduction and background
1.This proceeding concerns a dispute between the parties about copyright arising under the Copyright Act 1968 (Cth) (“the Copyright Act”). The proceeding has some features and parties in common with earlier proceedings in this Court[1]. The applicants are either the copyright owner or its exclusive licensee in Australia of cinematograph works, photographs and artwork known as “slick artwork” constituted by the artwork and photographs attached to covers for DVDs, as well as artwork reproduced on the inactive side of the DVDs themselves, known as “disc artwork”. The DVDs contain erotic films, also known as “adult films”.
[1] Fraserside Holdings & Anor v Venus Adult Shops Pty Ltd & Ors [2005] FMCA 997
2.The first and second respondents are companies which operate retail shops that deal in adult films and other adult products. The shops trade as “Venus Adult Shops”. The respondents’ business (and the number of outlets) has declined somewhat from that described in Fraserside. The remaining respondents are individuals whose roles in the companies were described in Fraserside.
3.It is not contested that copyright subsists in the relevant works. It is also not disputed that, pursuant to s.86 of the Copyright Act, the copyright owners or their licensees enjoy the exclusive right to copy those works. The applicants assert infringements of their rights for the purposes of s.101 of the Copyright Act by doing acts comprised in the copyright or authorising the doing of those acts. This is in part disputed. The applicants also assert secondary infringement contrary to s.103 of the Copyright Act. This is also in part disputed. The claims against the third, fourth and fifth respondents depend upon their asserted roles as joint tortfeasors.
4.The applicants seek relief by way of declarations, damages and injunctions and also relief by delivery up for conversion pursuant to s.116 of the Copyright Act. At the interlocutory stage, I granted relief in the form of declarations, injunctions and orders for the delivery up of certain items. The claim for permanent relief, in particular the claim for additional damages pursuant to s.115(4) of the Copyright Act is contested.
5.The system for distribution of adult films in Australia was described by Raphael FM in Fraserside. A distinguishing feature of this case is that there is no issue of parallel importation. While the respondents in this proceeding concede certain infringements of the applicants’ copyright, they contest the claim for relief, in particular the claim for additional damages, on the basis that the sale of the films in New South Wales is unlawful[2].
[2] This defence was also raised in Fraserside. The defence was rejected by Raphael FM. His decision was appealed to the Federal Court, which allowed the appeal in part: Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd [2006] FCA 188.
The application and pleadings
6.This proceeding commenced on 9 May 2006 but the applicants now rely upon a further amended application and points of claim filed on 3 November 2006. The respondents rely upon their response filed on 22 June 2006 and their amended points of defence filed on 30 October 2006. Central to the defence are two propositions. The first is that, while the respondents admit infringing conduct in selling or offering by way of trade or exposing for sale more blatant infringing copies of the works known as “blue back” (blue back) copies, they deny liability in relation to “silver back” (silver back) copies which are said to be of higher quality and less obviously counterfeit. The third, fourth and fifth respondents seek to avoid liability by asserting that they implemented procedures to prevent infringement of copyright and that the measures taken were reasonable. Further, and as already noted, the respondents seek to avoid additional damages by reliance upon ss.6 and 18 of the Classification (Publications, Films and Computer Games) Enforcement Act 1995 (NSW).
7.In the light of the evidence given by Mr Vassallo about the involvement of a company known as Mitsy Pty Ltd I agreed to a request from the applicants that I adjourn the hearing of the matter and gave the applicants leave to amend their application and statement of claim to join Mitsy. I also gave directions for the filing of an amended response and/or points of defence, further respondents’ evidence, if any, and the parties agreed to deal with additional discovery.
The evidence
8.The applicants rely upon the following evidence:
a)the affidavit of Rebecca Jane Burridge filed on 3 May 2006 and the exhibits to it;
b)two affidavits by David Hugh Newnham filed on 9 May 2006 and 4 September 2006 and the exhibits to those affidavits (including confidential exhibit DHN-2);
c)three affidavits by Graeme Edward Dunnee filed on 9 May 2006, 26 May 2006 and 4 September 2006 and the exhibits to those affidavits;
d)the affidavit of Craig Anthony Ellis filed on 10 July 2006 and the confidential exhibit CAE-1 to it; and
e)affidavits in reply by Mr Newnham filed on 12 October 2006, Mr Dunne filed on 17 October 2006 and Matthew Corrick filed on 16 October 2006.
9.
A further affidavit by Mr Corrick filed in court by leave on 30 October 2006 was initially not read after I placed conditions upon its introduction which were not acceptable to the applicants. However, when the hearing resumed on 20 March 2007 the applicants again sought to read that affidavit. After hearing argument, and over the objections of the respondents, I received the affidavit into evidence notwithstanding that Mr Corrick was not available for cross‑examination. My ruling followed the receipt of voir dire evidence from the solicitor for the applicants as to a conversation he had with Mr Corrick, in which he explained his unavailability.
I considered that Mr Corrick’s state of mind rendered it futile to seek to compel him to attend court and would cast serious doubt on the reliability of any oral evidence he might give. I ruled that as the evidence in the affidavit was untested, I would give it reduced weight. I also gave the respondents the opportunity to introduce affidavit evidence in reply to the affidavit, which they did.
10.The respondents rely upon the following evidence:
a)two affidavits by Allan George Vassallo filed on 29 September 2006 and 20 March 2007 and the exhibits to those affidavits;
b)two affidavits by Robert John Peterson filed on 29 September 2006 and 20 March 2007;
c)the affidavit of Helen Dannoun filed on 29 September 2006;
d)two affidavits by Charles Tyler filed on 29 September 2006 and 6 October 2006;
e)the affidavit of Jerry Robert Gordon filed on 20 March 2007; and
f)the affidavit of Peter McDonald Kennedy filed on 20 March 2007.
Graeme Edward Dunne
11.Mr Dunne is the executive officer of the Adult Industry Copyright Organisation (AICO). He deposes as to his professional background and experience and the functions of AICO. He deposes as to his responsibilities within AICO and the earlier proceedings against the respondents. He further deposes as to his investigations leading to the present proceeding and the indicia of counterfeiting of DVDs. He deposes as to “trap purchases” made at Venus Adult Shops and his assessment of the counterfeit nature of various DVDs purchased. He further deposes as to the potential harm to copyright owners resulting from the infringement of their rights. In his third affidavit Mr Dunne deposes as to his inspection of DVDs delivered up by the respondents pursuant to my interlocutory orders. In his fourth affidavit he responds to the factual assertions in the respondents’ affidavits.
12.Mr Dunne was required for cross-examination. He conceded that some of the indicia of infringing copies of DVDs were not, at least taken individually, a potent indicator that a particular DVD was an infringing copy. In particular, the use of codes is not necessarily a reliable indicator. He also conceded that the quality of artwork on slicks and on the non active surfaces of DVDs varies significantly, both on infringing copies and on legitimate copies. He maintained, however, that as a general proposition, infringing copies had poorer quality and detail of artwork than genuine copies.
13.Mr Dunne also conceded that “in the main” blue back copies are infringing copies. The significance of the blue colour is that it indicates that the film has been burnt on to a blank disc commonly available for retail purchase. In contrast, a silver back DVD indicates professional factory pressing, whether by licence of the copyright owner or otherwise. Mr Dunne was willing to concede that the colour of the DVD would be the simplest and most obvious indicator of an infringing copy to a novice observer. He was also willing to concede that the silver back DVDs the subject of his affidavits were less obviously infringing copies than the blue back DVDs referred to in his affidavits.
14.Mr Dunne was also asked about the relationship between AICO and the ninth respondent (Calvista Australia Pty Ltd). He conceded that Calvista is a significant member of AICO and was largely responsible for its creation and substantially supportive of its funding. He agreed that the production and sale of infringing copies of adult DVDs is a significant problem within the industry and that as much as 85 per cent of the products sold may be infringing copies. The primary function of AICO is to reduce the incidence of such infringements.
15.In his fifth affidavit Mr Dunne deposes as to additional trap purchases at the Mount Druitt and Westfield Place, Blacktown stores on 29 October 2006. He resisted suggestions under cross-examination that he had inaccurately described the length of time he spent at the Mount Druitt shop. He admitted that the indicia of copyright infringement referred to in paragraph 30 of his fifth affidavit were additional to the indicia referred to in para.24 in his first affidavit. He accepted that the DVDs he purchased he did not compare with an authentic original which would have been necessary for a final assessment.
David Hugh Newnham
16.Mr Newnham is the general manager of Calvista Australia Pty Ltd. He deposes as to the corporate background and activities of Calvista, his role as general manager, the copyright licences held by Calvista, the DVD packaging employed by Calvista, the absence of any permission or licence being granted to the respondents for use of Calvista licensed material and the loss or damage he fears Calvista will suffer from infringing activity.
17.In his second affidavit Mr Newnham deposes as to his comparison of DVDs supplied to and by the respondents. He refers to the DVDs acquired through the trap purchases and the documents discovered by the respondents. Mr Newnham provides further evidence in relation to those aspects of the matter in his third affidavit.
18.Mr Newnham was required for cross-examination. He corroborated the evidence of Mr Dunne concerning the relationship between AICO and Calvista but disagreed with Mr Dunne as to the current state of video piracy in the adult film industry. He considers that the rate of piracy has declined from 85 per cent in recent times. Mr Newnham conceded that his assessment of DVDs supplied to and by the respondents was limited by the availability of records by reference to the time periods disclosed in his affidavits.
19.In re-examination Mr Newnham stated that he also had regard in preparing his affidavit to a stock report from the respondents for the period 1 July 2004 to 31 December 2004. This was tendered as an exhibit[3].
[3] exhibit A1
Matthew Corrick
20.Mr Corrick is a former employee of Venus Adult Shops. In his first affidavit he disputes the evidence of Mr Vassallo concerning his employment and the termination of his employment. He was required for cross-examination in relation to that affidavit.
21.Under cross-examination Mr Corrick agreed that he had had a significant number of relatively short term jobs since leaving school but denied that he had been dismissed from other employment prior to being dismissed by Venus. He also denied withholding any personal information from Venus at the time he was employed. His employment record was tendered as an exhibit[4]. Mr Corrick denied being instructed not to sell blue back discs or only to sell silver back discs. He agreed he had been instructed not to sell Calvista or Private label DVDs. He denied unauthorised absences from his employment and denied using internet facilities at the Venus shop where he worked for improper purposes. He admitted having a DVD burner at his home but denied using it to copy DVDs from the Venus shop. He asserted that the reason given for his dismissal was a suspicion of theft. He made no admission in relation to any theft.
[4] exhibit R1
22.In his second affidavit Mr Corrick details his employment of Venus Adult shops and his understanding of the delivery of new stock and pricing. He also makes allegations concerning the manufacture of DVDs by Venus by a process of copying using DVD burners.
23.The other applicants’ witnesses were not required for cross‑examination.
Respondents’ evidence
Allan George Vassallo
24.Mr Vassallo is a director of Tropher Installations Pty Ltd. He is also authorised to give evidence on behalf of Venus, of which he is not a director. He deposes as to the business operations of Tropher and Venus and the purchases of DVDs for the Venus shops between July 2004 and June 2005. He further deposes as to the purchases of DVDs between July 2005 and June 2006. Mr Vassallo deposes as to the major and incidental suppliers of DVDs to Tropher and Venus and action taken by him and Mr Gordon to stop purchases of infringing DVDs. He also deposes as to the practices used in the Venus shops to deal with sales and exchanges of DVDs. Mr Vassallo also deposes as to enquiries he caused to be made to the Office of Film and Literature Classification (“OFLC”) website about classification of certain films.
25.I permitted Mr Mescher to lead additional oral evidence from Mr Vassallo to clarify and correct his affidavit. He explained how he acted in consultation with Mr Gordon in taking steps to reduce the risk of the Venus shops trading in infringing DVDs. He also explained an invoice appearing on page 3 of the exhibits to his affidavits and referred to in paragraph 9 of his affidavit. The invoice included a reference to a substantial number of empty DVD cases. Mr Vassallo gave evidence that these were purchased at the request of some friends and were primarily used for charitable purposes at a Sicilian church. Some of the DVD covers were also used in the Venus shops to replace damaged covers. Mr Vassallo also corrected paragraph 3 of his affidavit. He stated that the Venus shop at Westfield Place had been sold to another company called Mitsy Pty Ltd in which he has an interest.
26.Mr Vassallo was required for cross-examination. He confirmed that the Westfield Venus store was now owned and operated by Mitsy Ptd Ltd. The transfer occurred in about July 2005. He agreed that this was around the time of the judgment by Raphael FM in the Fraserside proceedings. He agreed that the store owned and operated by Mitsy was operated as part of the Venus group operations. He denied seeking to conceal the transfer to Mitsy.
27.Mr Vassallo was asked what steps had been taken since April 2005 to improve record keeping within the Venus group. He said that better record keeping had been instituted in order to properly differentiate between the different company operations. He agreed that the Venus stores and their operating companies do not keep records of the titles of the DVDs acquired or sold or (with one or two exceptions) of particular studios responsible for the production of the DVDs. He was aware of the names of major studios producing adult DVDs.
28.Mr Vassallo was asked about the steps taken to deal with the risk of the Venus shops infringing copyright. He said that Mr Gordon had instructed suppliers not to supply any AICO or Calvista titles. He assumed that the suppliers understood this instruction. The instruction was given in around May 2005 and was apparently oral. He conceded that he did not start vetting compliance with his instructions until about February 2006, following the commencement of the present proceeding. He said that he had printed off a list of studio and distributor members of AICO and had made this available to Ms Dannoun (a supplier representative) but not to the other suppliers. He said that apart from the three main suppliers referred to in his affidavit evidence, ad hoc purchases were made from other suppliers in the range from 300 to 500 DVDs.
29.In his second affidavit filed on 20 March 2007 Mr Vassallo responds to the second affidavit of Mr Corrick. Mr Vassallo deposes as to the details of Mr Corrick’s employment and disputes Mr Corrick’s affidavit evidence as to the operations of the business at the time of Mr Corrick’s employment. He denies the statements attributed to him by Mr Corrick. He denies he ever delivered to Mr Corrick blue back discs. He denies the allegation made by Mr Corrick about the set up of multi disc DVD burners at the premises at 118 Main Street, Blacktown. Mr Vassallo admits travelling to China in late 2005 but denies bringing back any DVDs.
30.Mr Vassallo was further cross-examined on both of his affidavits at the resumption of the trial of this matter from 20 March 2007. Mr Vassallo confirmed the structure of the Venus group of companies and confirmed that the Venus company runs the business known as Blacktown 2, Tropher runs the businesses at Katoomba and Mount Druitt and Mitsy runs the business known as Blacktown 1. He stated that although Mitsy owns and operates the Blacktown 1 business, it is subsidised in doing so by Venus and is indebted to Venus in an amount of between $1,000 to $50,000. Internal company invoices have been raised for stock supplied to Mitsy since 1 July 2005.
31.Mr Vassallo confirmed that Mr Gordon is the principal individual in the Venus group and that he is second in charge under Mr Gordon.
32.Mr Vassallo was asked detailed questions about the operation of the Mitsy business in Blacktown. He stated that DVDs are no longer displayed at that business because of a request from the local police. DVDs have also been removed from display at the business premises run by Venus in Blacktown. Mr Vassallo stated that the business of Mitsy in particular has been depressed as a result of that action. The business has continued to trade in other adult products. The full range of business operations are conducted at the businesses run by Tropher.
33.Mr Vassallo was unable to identify any documents detailing the indebtedness of Mitsy to Venus. He said that some intermittent payments have been made to Mitsy by bank transfer. Mitsy pays its other operating expenses to external parties. Mr Vassallo stated that Venus buys all stock for the shops operated by the group and the group has one head office above the Blacktown 2 store operated by Venus. Inter company loans support the operations of Mitsy although the companies prepare separate accounts. Mr Gordon monitors the operation of the business overall. All of the businesses, when permitted to do so, deal both in the supply of new DVDs and the exchange of DVDs with customers. Mr Vassallo was unable to estimate the percentage of the total trade comprised of exchanges.
34.Mr Vassallo confirmed that the principal suppliers of DVDs to the group was Detershan and Simitar and Production DVD with one or two additional suppliers who made ad hoc supplies. He confirmed that none of the businesses keep records of titles acquired or sold. He confirmed that the businesses produce daily sales records from information derived from the barcodes on goods. He confirmed that it was impossible to tell from the sales records whether DVDs sold were new product or exchanges. He estimated that a store might receive between no and ten exchanges a day on average.
35.Mr Vassallo was asked about the procedures put in place to identify infringing DVDs. He said that staff were instructed to check DVDs received on exchange to see if they were infringing copies. The stores would accept infringing copies purchased previously from the stores but would not re-sell them. Mr Vassallo confirmed that he had caused to be issued three memoranda to staff or managers concerning the need to identify infringing copies of DVDs. He agreed that the memoranda were issued at the time of the Fraserside litigation and stated that the various indicia of infringement referred to in the memoranda were obtained either from evidence in those proceedings or from the AICO website.
36.Mr Vassallo was equivocal about whether staff or managers were expected to check for all the indicia of infringement on DVDs. He conceded that some of the indicia required an expert judgement which the staff could not make. The key indicator was the blue back colour of the active side of burnt copy discs. In response to a question from me he said that staff would not always check exchange DVDs to see whether they were playable, let alone to see whether menu items operated correctly. In response to a further question from me, Mr Vassallo agreed that the instructions to staff and managers were aspirational and, although Mr Vassallo expected the instructions to be complied with, he was realistic enough to know that they would not always be complied with. He denied suggestions that the memoranda issued were for appearance sake in connection with actual or anticipated litigation.
37.Mr Vassallo was asked questions about any interest the respondents may have in DVDs traded at stores outside the group. He confirmed that the respondents did have an interest in stock in about 20 stores outside the group which was sent on consignment. He said, however, that the stock was limited to adult products other than DVDs. He conceded that Venus had acquired the entire liquidation DVD stock of a “Kaos” store in December 2006 but excluded films from AICO members. The stock was immediately resold for a fee. Venus never took physical possession of the stock.
38.Mr Vassallo was shown his affidavit verifying discovery of documents and agreed that paragraphs 1 and 2 of that affidavit may be false but stressed that he would need to check business records. He would assume that documents existed within the categories referred to although the paragraphs stated there were no such documents. He denied that he had set out to make it as difficult as possible for the applicants to check if copyright infringements were occurring within the group but admitted that the relationship between AICO and the respondents was a hostile one and he was concerned that AICO “was not prepared to work with me”. He said that he would not co-operate with AICO given its hostile attitude.
39.In relation to Mr Corrick’s evidence, Mr Vassallo said that Mr Corrick was paid in cash and no deductions were taken from his salary. Mr Vassallo said that Mr Corrick, like all new employees, was given oral instruction by him in the exchange procedure, as well as being told to read a folder of material detailing the business operations of the business. He said that the Blacktown stores did not have internet connections at the time Mr Corrick worked there. He said that the Blacktown 2 store still does not have an internet connection, although the Blacktown 1 store had a connection intermittently from sometime in 2005 (after August). He confirmed that Venus leased a warehouse on Sunnyholt Road with a view to storing imported toys and for the purposes of a showroom. He said that the proposal did not go ahead because the Blacktown Council refused to give its approval. Mr Vassallo denied following Mr Corrick to his home.
40.Mr Vassallo was asked about the individuals he dealt with for the supply of DVDs. He was asked about invoices issued for the supply of DVDs. He agreed that the invoices from Production DVD, exhibited to his first affidavit, were not good invoices in that they provided very little detail. He said that he had not discussed the form of invoices with Ms Dannoun of Production DVD. He denied instructing suppliers not to include titles in their invoices.
41.Mr Vassallo was asked about the activities of the Adult Industry Retailers Association (AIRA) since August 2006. He said that the organisation was not functioning but that he intended it to be an organisation to serve the interests of retailers, including the respondents.
42.Mr Vassallo was asked about the purchase and sales records and tables contained in exhibit DHN3 to the affidavit of Mr Newnham. He agreed that the tables prepared by Mr Newnham based upon the respondents’ purchase and sales records appeared to be accurate, taking into account the assumptions made. He agreed that, based upon those tables, the respondents purchased 3,840 DVDs in 2004/2005 but sold 9,662 DVDs in the same year. He agreed that in 2005/2006 the respondents purchased 2,583 DVDs but sold 5,823. He denied that the apparent discrepancy was due to copying of DVDs by the respondents. He was unable to give any other explanation. He denied that Venus had any DVD burners in the storeroom at its head office.
43.Mr Vassallo accepted that, since the Fraserside proceedings, he had not had occasion to reject as counterfeit or as coming from an AICO member, any DVDs. He agreed that it was impossible to tell whether DVD covers displayed on the shelves of the businesses were supplied new or on exchange once they were placed on the shelves. He was asked about the policy on pricing DVDs and provided details. He agreed that the DVDs being GED21 and GED22, 14, 15 and 16 (which he was shown) which were purchased as trap purchases from the respondents’ stores, and that they should not have been at the stores because they were copies of DVDs produced or sold by AICO members. He was not able to say with clarity whether these were purchased new or on exchange. He was asked about a green double dragon logo appearing on these and other exhibited DVDs and, while he was able to identify the logo on the DVD slicks, he did not know what it meant (apart from what he had learned from the affidavit of Mr Dunne) and had not thought about using it as an indicator of infringing copies. He had not issued any further memorandum to staff about it. Neither had he issued any warning to suppliers about DVDs showing the dragon logo.
44.Mr Vassallo was asked about his monitoring of staff compliance with the memoranda issued. He said that he had issued a warning to an employee known as Matthew[5] at the Mount Druitt store. He said that every three or four weeks since 29 September 2006 he would take an AICO list of producer/distributors to the respondents’ stores to remind staff. New staff were briefed about his requirements. He had not used closed circuit television in place at the Mount Druitt store to monitor compliance.
[5] not Mr Corrick
45.In re-examination Mr Vassallo was shown exhibit GED21 being the DVD and cover of the film “Art of Love”. He said that the state of the cover indicated that the film could have been one year old or more.
46.Mr Vassallo was asked when he first instituted procedures to deal with the possibility of there being infringing copies of the applicants’ DVDs on the premises of the Venus group. He said that the first steps were taken in April or May 2006 at the time of the Fraserside litigation. He said that the exchange policy of the business was modified at the same time. He said that his knowledge of the membership of AICO came from the AICO website. He visited the website every two or three weeks to check updated information and produced a list of members monthly.
47.In relation to paras.7 and 11 of his first affidavit, Mr Vassallo said that the documents there identified were required by the Australian Taxation Office for an audit in February 2006 and were returned in late September 2006, shortly before he swore that affidavit.
48.In relation to exhibit A2, Mr Vassallo said that the letter was prompted by a surprise visit by an investigator from AICO to one of the Venus stores in circumstances that he regarded as intrusive and harassing.
49.Mr Vassallo clarified his evidence under cross-examination concerning his dealings with Mr Deprima. Mr Deprima is a director of the Venus company and is generally aware of its business operations but he is not involved in day to day management. He receives weekly briefings. Mr Vassallo does not deal with Mr Deprima directly because the two do not “see eye to eye”.
Robert John Peterson
50.Mr Peterson is an employee of Venus Adultshops Pty Ltd. He manages the shop at Main Street, Blacktown known as Blacktown 2. He has been employed in that capacity since April 2002. He works part time. He deposes as to a warning concerning infringing DVDs given to him by Mr Gordon in mid December 2004 and further instructions given to him in 2005 and 2006. He deposes concerning the exchange practice of the store. He deposes as to occasional refusal of exchanges of infringing copies. In his second affidavit Mr Peterson denies ever having seen computer equipment of the type referred to by Mr Corrick in his second affidavit.
51.Mr Peterson was required for cross-examination. He stated that the initial warning about infringing copies given to him by Mr Gordon in mid December 2004 he understood as relating only to private and Calvista titles. He was aware of the distinction between silver back and blue back discs but did not know what a manufacturer’s code was. He knew to look for some sort of code on the inner ring of a DVD. He was asked about AIRO and said that he thought it was established to get together a “fighting fund”. He confirmed that there was no internet connection at the Blacktown 2 store.
52.Mr Peterson was asked about the layout of the Venus head office above the Blacktown 2 store. He said that there had been a renovation at the end of 2005 at that what had been a boardroom was converted into an office for Mr Gordon. He said that the storeroom in the premises was unaffected. He had never been into the storeroom but thought that it was quite small, based on his assumption about the available space behind the door.
53.There was no re-examination of Mr Peterson.
Peter McDonald Kennedy
54.Mr Kennedy is a retired person who undertakes duties on an unpaid casual basis at the Venus shops. His activities include deliveries from head office to the shops and various administrative tasks. He deposes that he is well acquainted with the main office at 118 Main Street, Blacktown. He deposes that he has never seen DVD burners as described by Mr Corrick in his second affidavit.
55.Mr Kennedy was required for cross-examination. He stated that he had seen inside the storeroom at the Venus head office and described it as about half the size of courtroom 18B, in which the trial was being conducted, at Queens Square[6].
[6] This would indicate a size of approximately 40 square metres.
56.There was no re-examination of Mr Kennedy.
Helen Dannoun
57.Ms Dannoun is the Director of Production DVD Pty Ltd which sells adult DVDs, including to Venus. She deposes as to a discussion with Mr Gordon and Mr Vassallo in February 2006 in which they advised they did not want to buy or sell any AICO titles or Calvista titles and that they did not want any copied DVDs, only originals. She deposes that she was given a print out listing of members of AICO by Mr Vassallo and had said to him and Mr Gordon that she did not sell AICO DVDs nor Private nor Calvista DVDs. She deposes that she sent to Mr Gordon and Mr Vassallo lists of titles that Production DVD did sell. This did not include DVDs produced or sold by members of AICO.
58.Ms Dannoun was required for cross-examination. She said that her business started about four years ago but had not traded in adult DVDs until July 2005. The business has traded in adult magazines to newsagents and service stations. She denied selling adult DVDs overseas and said that she only sent promotional material overseas. Ms Dannoun was shown records of shipments of products to a South African business known as Adult World. She was equivocal in her evidence. She said that DVDs referred to were not X rated or were promotional only or that she sold only slicks which she had reproduced from originals sent to her by e-mail. She indicated that the DVDs she sold contained only excerpts from movies for promotional purposes.
59.Ms Dannoun said that she used to have records of titles sold by her business but these had been lost in a robbery at her home which occurred on 12 September 2006.
60.Ms Dannoun was familiar with Calvista but was not very familiar with AICO. She thought that AICO was just a part of Calvista. She was aware that blue back discs were likely to be counterfeit. She was shown her invoices exhibited to the first affidavit of Mr Vassallo and said that these might be a first invoice or an invoice for samples for which there was no charge. She maintained this, notwithstanding the numbers of DVDs referred to.
61.Ms Dannoun was asked further detailed questions concerning shipments of goods by her company to a business known as Adult World in South Africa. The respondents objected to the questions on the basis of relevance but I allowed them on the basis that they went to credit. Ms Dannoun accepted that an invoice from her company appeared on its face to describe a sale of a substantial number of DVDs identified by title. However, she maintained that the sale was in fact printing work on heavy envelopes with only one DVD and cover supplied which contained only promotional material. She was asked questions in relation to the described weight of the shipments and maintained that, notwithstanding that the weight of boxes sent was substantial, they only contained printed envelopes and a single DVD and cover.
62.Ms Dannoun was not able to name any supplier of DVDs to her company. She said that she sourced material from the local market from a substantial number of suppliers. She stated that all of her records relating to trading activity of her company had been lost in the burglary of her home in September 2006.
63.Ms Dannoun was asked about a meeting she attended in September 2006 at the Sheraton Hotel in Sydney with Mr Newnham. She said that the meeting did take place and that she and Mr Newnham had a discussion about infringing copies of DVDs produced or sold by AICO members. She denied that her company produces factory pressed counterfeit DVDs.
64.Mr Dannoun was asked about the green double dragon motif appearing on some of the DVDs forming exhibits in the proceedings. She said that she was familiar with the symbol and that it was an Asian symbol indicating friendship. She could not recall whether the symbol appeared on any DVDs in which her company traded.
65.Ms Dannoun resisted direct attacks upon her credibility.
Charles Stanley Tyler
66.Charles Stanley Tyler is a private inquiry agent. In his two affidavits he deposes as to purchases of apparently infringing DVDs he made at various shops around Sydney. He also deposes as to a conversation he had with a female person at the premises of Calvista Australia at Marrickville.
67.Mr Tyler was required for cross-examination. However, his cross‑examination was extremely brief and confirmed his evidence.
Jerry Robert Gordon
68.Mr Gordon is the fourth respondent and a director of Venus and Tropher and Mitsy. In his affidavit he responds to the affidavit of Mr Corrick. He deposes that in or about September 2005 Mr Corrick sold Venus a Pentium IV computer system and laptop for Mr Gordon’s own use. He deposes that he gave the laptop back to Mr Corrick because there was a problem with it which needed repair. He denies that there was any DVD burner set up in the Venus head office which had provision to burn 11 discs at any one time. He denies words attributed to Mr Vassallo by Mr Corrick. He also denies words attributed to him. He denies that he had in his office in late 2005 any stacks of brassy coloured DVD-Rs. He denies that it was part of Mr Corrick’s duties to maintain computerised records of sales or to keep manual records of sales at the Mount Druitt shop.
69.Mr Gordon was required for cross-examination. He accepted that in relation to the conversation, referred to by Mr Corrick in para.10 of his second affidavit and para.5 of Mr Gordon’s affidavit, he was in the building at the time but said he was not present. He confirmed other aspects of his evidence. He emphatically denied that Venus duplicated DVDs in a storeroom at its head office in Blacktown. He denied that such duplication was an explanation for the excess of sales over purchases of DVDs between 2004 and 2006.
Submissions
70.I invited written submissions from the parties. The applicants’ submissions were filed on 1 May 2007. They are lengthy[7] but may be relevantly summarised as follows[8].
[7] 50 pages, including annexures
[8] Paragraph references are to the paragraphs in the submissions.
71.The applicants are:
·Applicants 1-8 (“producer applicants”): These are US-incorporated companies which are owners of copyright of all the “infringed films” (these are listed in tabular form at [18] of the submissions).
·Applicant 9 (“Calvista”): This is an Australian company carrying on business as importer and wholesale distributor of adult products and films.
·Applicant 11 (“Greenwich”): An Australian company carrying on business as importer and wholesale distributor of adult products and films.
·Calvista and Greenwich have exclusive licenses to distribute the Infringed Films.
72.The corporate respondents are identified and discussed:
·There are three corporate respondents: first respondent - Venus, second respondent - Tropher, sixth respondent – Mitsy (together the corporate respondents).
·Venus, Mitsy and Tropher operate four retail businesses trading as “Venus Adult Shops”. As outlined above, Venus runs the store on Main Street Blacktown, Mitsy the Westfield Blacktown store, and Tropher the Mt Druitt and Katoomba stores: [6]. The Westfield Blacktown store was initially run by Tropher until 1 July 2005 when Mitsy took over: [10].
·Venus acquires all the stock, including DVDs, for all four stores, which it then distributes from head office to the stores: [8]. Venus acquires this stock from three suppliers: Simitar Software, Detershan Pty Ltd and Production Pty Ltd: [13].
·Effectively, Venus, Mitsy and Tropher operate as one business although there is no formal agreement dealing with this arrangement: [7]. There is also little documentation for settling of accounts after Venus distributes stock to Mitsy and Tropher: [8].
73.Management of the respondents is summarised [60]:
·Mr Vassallo – director/shareholder of Tropher and Mitsy. Former director/shareholder of Venus.
·Mr Gordon – director/shareholder of Venus, Tropher and Mitsy.
·Mr Deprima – director/shareholder of Venus.
Claims against the corporate respondents
Direct Infringement – s.101 Copyright Act
74.The applicants allege an infringement of s.101 Copyright Act in relation to the counterfeit copies [37] (the copies obtained in the trap purchases and in response to the delivery-up order).
75.The applicants submit that the following factors indicate the respondents engaged in mass copying of the films:
i)More stock has been sold than has been purchased in the last two financial years [42].
·Mr Newnham estimated that the respondents sold 9,976 more DVDs than they purchased. This calculation was accepted by Mr Vassallo: [42]-[45]. Mr Vassallo could not provide an explanation for the discrepancy between DVDs purchased and DVDs sold: [45].
ii)Mode of production – two 11-disc DVD burners at Venus’ office
·Mr Corrick in his affidavit indicates there are two DVD burners located in a back office at Venus’ office: [47].
·The respondents called witnesses (Messrs Peterson and Kennedy) to deny the presence of the DVD burners in the office. However, Mr Peterson had never been in the storeroom at Venus’ office [49] and neither of them knew what a DVD burner looked like: [48].
iii)Venus had purchased 2000 empty DVD cases from Simitar Software: [53].
·Mr Vassallo suggested that these had been obtained on behalf of friends who required them for charitable purposes: [54].
iv)One Night in Paris DVD
·An invoice from Simitar Software recorded the sale of only one copy of One Night in Paris.
·The applicants submit it can be inferred the film was copied because:
§ Mr Vassallo conceded the film was very popular and conceded that some of the respondents’ customers would be keen to get hold of popular titles and new releases;
§ Mr Vassallo conceded that in the case of a DVD like One Night in Paris, three to four copies rather than one copy would be distributed to each store.
Indirect Infringement – s.103 Copyright Act
76.The applicants allege an infringement of s.103 Copyright Act in relation to the counterfeit copies [38]:
·The corporate respondents admitted to having contravened s.103 in relation to a small subset of the infringed films, but otherwise deny liability: [39].
·In relation to the remaining films, the applicants allege that the corporate respondents knew (or ought to have known) it was necessary to have a licence in order to make the copies and that they did not have a licence: [57].
Claims against the individual respondents
77.The applicants claim that Messrs Gordon, Vassallo and Deprima are also liable for infringement of copyright on the basis of accessorial liability [36]:
·the person “authorized” the infringing acts: partly codified in s.101(1) Copyright Act where the following matters must be taken into account; or
·The person was a joint tortfeasor infringer of copyright.
78.Relevant matters are:
·The corporate respondents are small companies, with only two directors and two shareholders each. ([60]).
·The two directors and shareholders have a close association with each of the three companies and must bear an appropriate level of responsibility for their actions.
·Selling adult films is a significant aspect of Venus Adult Shops’ business.
·Mr Vassallo is involved in the day-to-day running of the companies (evidence was given to this effect).
·Mr Gordon is involved in the day-to-day running of the companies. He gave limited evidence but is not removed from the burden of available inferences under Jones v Dunkel (1959) 101 CLR 298.
·Mr Deprima did not give evidence. All available inferences under Jones v Dunkel resulting from his failure to give evidence are available against him because Mr Vassallo gave evidence that Mr Deprima is still aware of the retail trade, and is updated once or twice weekly by Mr Gordon.
Reasonable steps
79.The applicants note that the individual respondents seek to avoid liability on the basis that they took reasonable steps to prevent/avoid infringement by the corporate respondents. This is only a defence to the claim of direct infringement [62]-[63], not the claim of indirect infringement. The respondents submit this defence must fail because:
·No evidence was adduced to back their assertion that 85 per cent of adult DVDs sold in Australia infringe copyright and that Venus Adult Shops’ infringed films stock was less than 1 per cent of their stock.
·The steps the individual respondents took were inadequate and unreasonable for the purposes of s.101(1A)(c) and constituted a feeble attempt to “window-dress their own counterfeiting activities”.
·The respondents failed to address other matters that must be taken into account in s.101(1A)(a) and (b) for the purposes of s.101.
80.Steps the respondents took are asserted to be:
·Continued dealing with a known supplier of infringing films – Simitar Software had supplied Venus with the counterfeit DVDs the subject of the Fraserside proceeding. Mr Vassallo suspected this from around May 2005. Mr Gordon requested to Mr Titcume of Simitar Software that they must not be given pirated DVDs. The applicants submit that this was not an adequate step.
·Did not make enquiries of suppliers as to the legitimacy of films.
·Maintained the discredited ‘no mention of titles or studios’ policy – Mr Vassallo knew from April 2005 that the respondents did not maintain records of the titles of the DVDs acquired, nor the DVDs that were sold. Despite the Fraserside proceedings, there was no direction from Venus head office since to begin recording titles. Suppliers also omitted references to titles in invoices issued to Venus: [75].
·Did not improve the records of the business; they just said they did: [84] - Mr Vassallo put himself forward as the person responsible for the general running of the business and indicated that he had reformed their record-keeping system. The applicants allege this was not the case. Mr Vassallo’s testimony indicates:
§he referred to the existence of records that would document the transfers between stores, but produced little;
§he said there were bank transfers that recorded payments made by Mitsy to Venus, but did not produce them; and
§he said that from July 2005 Venus issued invoices to Mitsy in respect of stock it supplied. Only six invoices dating back to August 2006 were produced to Court.
·Issued instructions to staff that were unlikely to be adhered to by them [85]-[94]:
§The applicants submit that the memos issued were ‘no more than a cynical ruse’, given that the respondents had adopted the four steps outlined above.
§First memo – prepared on 24 June 2005. Mr Vassallo stated he and Mr Gordon prepared this memo and gave a talk to staff about exchanging counterfeit DVDs. Mr Vassallo conceded in cross-examination that he had an expectation that staff would not always adhere to the memo, nor play the DVD to check it (as outlined on the memo) nor would they be likely to view the menu options on the DVD in each instance. The applicants submit that the “memo was not intended to halt the sale of blue-back DVDs, but rather to avoid dealings in Private and Fraserside DVDs, for which they had just been found liable”. [89]
§Second memo – 17 April 2006. Prepared after Gilbert + Tobin had written to the respondents’ solicitors in respect of their sale of counterfeit DVDs from AICO members’ studios.
§Third memo – 24 May 2006. This memo partially reproduced the first and second memos. Mr Vassallo conceded that it was a difficult procedure to expect staff to follow, that some might not review the DVD nor would they be likely to view the menu options on the DVD in each instance.
§Non-compliance with procedures – When Mr Dunne visited the stores at Mt Druitt and Katoomba in November 2006 the sales assistants did not undertake any of the steps set out in the memos: [95]. Mr Peterson admitted there was no way the DVD menus could be checked if a customer had already selected a DVD from the store and sought to make an exchange at the time of purchase: [96].
81.Mr Gordon’s absence during the respondents’ case in chief:
·Mr Gordon did not give any evidence in chief until Mr Corrick’s second affidavit was read. He has the primary responsibility for the acquisition of DVDs.
·All available inferences remain in the case of Mr Gordon as if he had not come to court at all: Commercial Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 per Handley JA [99] and it is to be inferred that any evidence he could have given on the matters arising in chief would not have assisted the respondents’ case.
82.Mr Vassallo’s credibility:
·Mr Vassallo gave evidence in his affidavit (29 September 2006) that he ‘spent much of his time improving the policies and procedures of the companies and the shops’. The applicants submit that this is demonstrably false.
·Mr Vassallo attested that he and Mr Gordon had set up several policies and procedures to prevent infringement. The applicants submit that this is no more than window-dressing to reduce the likelihood of being caught [101].
·Mr Vassallo omitted mentioning the involvement of Mitsy and only made a late disclosure on the basis of information put to Mr Vassallo on cross-examination.
Illegality
83.The respondents allege that because of the illegality of their conduct, they are not obliged to account for it under copyright legislation (i.e. selling the infringed films in NSW is illegal on the basis of their classification) [103]:
·The applicants submit this defence is bound to fail [104]:
§the applicants are not seeking relief under s.115(2) but s.116;
§the Full Court’s decision in the Fraserside proceedings indicates the applicants are entitled to the relief they seek;
§Vivid Entertainment LLC v Digital Sinema Australia [2007] FMCA 157 indicates that in light of the Full Court’s decision, this defence is untenable.
·There is no evidence that the applicants themselves participated in any activity that was the subject of the classification legislation: [105].
·Copyright is governed by a complete statutory code and the available relief is not subject to any other legislation: [106].
·The illegality of the ultimate sale cannot be a general answer to s.116 damages because in virtually all commercial settings, the actions of the infringer will also be a crime: [107].
·The sale and distribution of the infringed films in NSW is illegal, but it is not so in respect of material classified in the NT or the ACT. The Full Court in Fraserside determined that the fact that the infringed films are acceptable in at least two territories was sufficient for the films not to lose the protection of the Copyright Act: [108].
·The respondents sold the infringed films in NSW, but there is no evidence of the applicants doing so. The applicants still have the capacity to sell the infringed films in the territories. [109].
Relief
84.Declaratory and injunctive relief is sought:
·The applicants are entitled to declaratory relief under s.115(2) of the Copyright Act [110].
·The applicants are also entitled to injunctive relief. A permanent injunction is necessary to protect the applicants’ rights for the following reasons:
§there is uncertainty surrounding the quantity of infringed films copied by the respondents;
§the respondents (other than Mitsy) have shown themselves to be disdainful of the Court’s processes; and
§the respondents have threatened the applicants with a trespass suit if they seek to observe whether the respondents are continuing to engage in copyright piracy.
85.Compensatory damages under s.115 are sought:
·The applicants have elected to seek relief in the form of damages rather than an account of profits.
·The purpose of compensatory damages is to compensate the applicant for the loss which the applicant has suffered as a result of the breach: [113]. The owner of the copyright is entitled to such damages as would reflect the position it would have been in absent the infringing conduct.
·Damages may be measured by reference to the depreciation caused by the copyright infringement to the value of the copyright as a chose in action: [114].
·There are two alternative approaches to the assessment of damages:
§“licence fee approach” – loss of licence fees as a result of the infringement: [115];
§extent of sales of the copyright owner’s trade lessened as a result of the competition posed by the respondent’s sales of the unauthorised product: [115].
·If (as in this case) the applicants would not have granted the respondent a licence, the Court will use the second approach: [116]. However, the applicants submit that the respondents’ deliberately opaque business records prevent calculations under this approach: [116].
·The applicants explicitly do not rely upon the second approach “in order to avoid a complex and technical argument on classification matters”, and because other remedies are available to them: [117].
Conversion damages: s.116
86.Outline of legal principles:
·Measurement of damages is by reference to the value of the goods converted [120].
·An inability to sell infringed films in NSW because of the classification legislation is not a defence to a claim in conversion: [121].
·These damages are discretionary: [122] and are limited by a number of requirements, including that the damages under s.115 are not a sufficient remedy: [123]. However, they can be granted in addition to relief under s.115.
·The fact that the respondents do not hold an adequate set of records means that the damages will be assessed at the highest end of the scale: [126].
·The applicants calculate damages at a total of $103,221 (as outlined in a table on page 34 of the submissions).
87.Additional damages under s.115(4) are sought:
·These are punitive in character. The applicants submit that this is a ‘clear and appropriate case for an award of very substantial additional damages’: [128].
88.Outline of legal principles:
·The applicants submit that small compensatory damages do not preclude large awards of additional damages e.g. Raben Footwear v Polygram Records Inc (1997) 75 FCR 88: [132]. The applicants list examples of cases that have applied Raben and awarded significant additional damages at [134].
89.Respondents’ conduct attracting s.115(4) [elements of s.115(4)]:
· Need for deterrence – Relevant matters for the court to consider:
§importance to the community as a whole in deterring would-be infringers has been recognised by the Federal Court: [137];
§serious copyright infringements have a significant impact on the film industry, actors and actresses and the greater community: [138(a)];
§there is a need to deter people from manufacturing and selling illegal goods and supporting the illegal activities of manufacturers of the films [138(b)];
§the respondents embarked upon a deliberate course of conduct in infringing the copyright and by way of the fact that they are significant operators in the adult entertainment industry their conduct is likely to influence the conduct of others in the industry [138(c)];
§infringement is relatively easy, but detection and prosecution by copyright owners is more difficult. These difficulties are exploited by the respondents [138(d)];
§the respondents were aware of copyright and must have been aware of the risks they were running, but nevertheless sought to gain an undeserved profit [138(e)];
§unless substantial additional damages are awarded, the damages would only amount to ‘no more than a cost of business for infringers’ [138(f)];
§respondents have shown no contrition [138(g)];
§the respondents failed to give proper discovery: [138(i)]. Very limited discovery was provided other than the daily sheets for each store and Mr Vassallo swore an affidavit verifying a list of documents for discovery on behalf of Mitsy that failed to discover a single document: [142]-[144];
§the respondents failed to comply properly with notices to produce: [138(j)]. Mitsy produced six invoices in response to a notice to produce and Mr Vassallo undertook to check on the missing documents (invoices from 1 July 2005 – 31 July 2006) but these were never produced: [146]. The profit and loss and balance sheets produced were also inadequate and incomplete: [147]-[149];
§the respondents should not benefit from their failure to keep or produce proper records: [138(k)].
· Benefit accruing to the respondents:
§applicants submit that the respondents have plainly benefitted from the infringement (on the basis of their unaccounted for sale over purchase figure being extremely large): [140]
·Determination to cloak counterfeit operation from copyright owners:
§Mr Vassallo conceded that the corporate respondents did not want AICO or any of their associated companies to know what was going on in their stores as far as the sale or display of DVDs went: [153];
§The respondents’ solicitors sent a letter threatening a trespass action if the applicants entered any of their stores: [154].
· Continuing disregard for the indicia of piracy
§The respondents continued to sell DVDs with the double dragon motif after being put on notice that it was an indicium of piracy: [155].
§Mr Vassallo agreed that he knew that each of the DVDs purchased by Mr Dunne in the trap purchase was an infringing copy: [156]. Mr Vassallo took no steps to stop the sales of the DVDs that displayed the double dragon motif, nor did he communicate with suppliers about not wanting to be provided with them: [157].
· General disregard for the law
§The respondents continued to sell films in Mt Druitt and Katoomba, but not Blacktown (as they were warned by police in Blacktown not to continue to sell DVDs): [159]. Even despite these warnings, Mitsy kept DVDs under the counter for regular customers.
· AIRA – a sham organisation
§Adult Industry Retailers Association – created by the respondents after unsuccessful mediation of this matter: [160];
§no meetings have taken place nor have there been any communications to members: [161]. Mr Vassallo indicated in cross-examination that AIRA is not an association of retailers but an in-house committee of the Venus Adult shops.
Quantum of additional damages
90.The applicants submit that the additional damages of $85,000 awarded in the Fraserside proceedings appear not to have deterred the respondents: [163]. The applicants submit that additional damages in excess of $170,000 should be awarded given the persistent nature of the infringement: [163]. This is in addition to the damages claimed of $103,221.
91.Alternatively, if the Court is minded to award the damages under s.115(4) instead, the applicants submit that the $103,221 should be a component of additional damages assessed under the benefit accruing to the respondents [140]. The total of additional damages should be at least $271,755.20.
Costs
92.The applicants seek costs and reserve the right to make submissions as to their level and method of assessment of those costs in due course.
Respondents’ submissions
93.The respondents’ written submissions were filed on 22 May 2007[9]. The respondents relevantly submit as follows:
[9] The pagination of the applicants’ and respondents’ transcript is inconsistent.
Issues and Concessions
94.The respondents concede:
a)that copyright subsists on the infringed films;
b)that an applicant is the owner or exclusive licensee of copyright in the infringed films;
c)infringed films are infringing under s.10 of the Copyright Act;
d)an applicant did not licence the respondents to make or deal in infringing copies of the infringed films;
e)the corporate respondents offered or displayed for sale or sold infringing copies of the infringed films (comprising of silver backs and blue backs); and
f)the corporate respondents indirectly infringed copyright in the infringed films under s.103(1)(a) in relation to blue backs.
95.Liability issues in dispute are:
a)did the corporate respondents make the copies, thereby directly infringing copyright under s.101? The respondents submit they did not;
b)did the corporate respondents know or ought it reasonable to have known that the making of the silver backs constituted an infringement of copyright, thereby indirectly infringing copyright under s.103? The respondents submit they did not know and ought not reasonably to have known; and
c)did an individual respondent authorise, direct, procure or otherwise join or participate in any infringement of copyright by a corporate respondent? The respondents submit the individual respondent did not.
96.Damages issues in dispute are:
a)Are applicants entitled to conversion damages under s.116? Damages should only be awarded on indirect infringement in relation to blue backs. If this submission is not accepted, then damages should only be awarded on the basis of infringement of copyright in the 27 copies.
b)Are the applicants entitled to damages under s.115(2)? Damages should only be assessed under s.115(2). The applicants are not to be entitled to elect the damages they should be awarded between damages under ss.115(2) and 116.
c)Are the applicants entitled to additional damages under s.115(4)? There is no basis for award of additional damages under s.115(4).
Burden of proof
97.The applicants carry the burden of proof in these proceedings, in particular, in relation to the liability issues and damages issues.
Parameters of the proceedings
98.These proceedings[10] involve only 17 titles referred to in the definition of “infringed films”. The total number of copies is 27. Mr Newnham’s evidence was that two other current copyright actions prosecuted by Calvista involved about 124 and 50 to 60 trap purchase DVDs. Damages under s.115(2) and/or s.116(1) should take into consideration the small number of copies. Damages should be minimal.
[10] In contrast to Fraserside.
Mitsy
99.Mr. Vassallo’s disclosure of the involvement of Mitsy during evidence was not an “anticipatory move on the respondents’ part”[11]. Also, the applicants have been aware of the existence and involvement of Mitsy since at least September 2005[12].
[11] cf applicants’ submissions (“AS”) at [11], [102]
[12] transcript, p.217 II 42-44
Discovery, notices to produce and delivery-up
100.A refrain of the applicants’ submissions is that the respondents:
· did not provide discovery;
· did not answer the notice to produce;
· complicated the assessment of the damages.
The respondents submit:
·they discovered tax invoices recording purchases of DVDs and documents evincing not insignificant sales and exchanges of DVDs over a number of years;
·intention to comply is evident in provision of documents that arguably do not assist them; e.g. Mr Vassallo providing additional tax invoices with his first affidavit;
·their records, particularly relating to their internal arrangements is irrelevant;
·discovery is not the usual practice of this Court[13]; and
·It was not suggested to Mr Vassallo that delivery-up was inadequate.
[13] s.45 Federal Magistrates Act 1999 (Cth), rule 14.02 Federal Magistrates Court Rules 2001 (Cth)
Did the corporate respondents make the copies, thereby directly infringing copyright under s.101?
101.The corporate respondents deny they made any copies and submit there is no direct evidence to suggest otherwise. The second affidavit of Mr Corrick stating that the respondents possessed equipment for copying DVDs and that a conversation took place between Mr Gordon, Mr Vassallo and Mr Corrick should be given little or no weight because:
a)Mr Corrick could not be cross-examined on his second affidavit;
b)a significant amount of evidence[14] was read in reply to Mr Corrick’s second affidavit. All were cross-examined, and no attack on the honesty of these witnesses can be made;
c)the presence of computer equipment at the head office was openly acknowledged;
d)Mr Kennedy and Mr Peterson may not have known what an 11 disc DVD burner looks like. This might suggest that the item was not pointed out to them. Accordingly, in all likelihood, the 11 disc DVD burner did not exist;
e)there is no basis for the submission that Mr Corrick was more accurate in his description of the head office than Mr Kennedy or Mr Peterson. It may be that these witnesses used differing names to identify spaces at the head office; and
f)Mr Corrick did not present as an open and honest witness.
[14] being the evidence of Mr Vassallo, Mr Gordon, Mr Peterson and Mr Kennedy
102.Further:
·Examination of the copies[15] militates against a finding of copying.
·Mr Newnhams’ observation that the records produced by the respondents disclose the sale of 7,080 DVDs more than were purchased in the 2004-05 financial year and 2,869 DVDs more than were purchased in the 2005-06 financial year, cannot be used to draw an inference that the corporate respondents must have been copying DVDs.
·Mr Vassallo’s evidence was that Simitar did not sell toys to the Venus Adult Shops, however did acknowledge that it sells “magazines and so on”[16].
·Mr Vassallo’s failure to account for the 2,000 DVD cases in his first affidavit had objections taken to it on various grounds. This was not a pre-emtive move.
·Mr Vassallo’s “concession” that some of his customers might be keen to obtain “popular titles” was in a context entirely removed from questioning about ‘One Night in Paris’. An inference of copying cannot be drawn from it.
·In light of the lack of evidence of direct infringement by the corporate respondents, no finding can be made that the individual respondents ‘authorised’ the doing of an act comprised in the copyright.
[15] especially be reference to features highlighted by Mr Dunn (1st affidavit sworn 9 May 2006)
[16] transcript, p.319 ll 35-45
Did the corporate respondents know or ought it reasonably to have known that the making of silver backs constituted an infringement of copyright, thereby indirectly infringing copyright under s.103?
103.The respondents submit:
·Knowledge by the corporate respondents is in issue. They deny liability.
·Mr Dunne is advanced by the applicants as an expert in distinguishing authentic and counterfeit DVDs. He is not independent of the applicants, and arrived at his opinion that the silver backs are counterfeit by reference to and reliance upon his “indicia of counterfeiting”. These indicia are not fallible and are no more than features of a DVD to compare with an authentic. A comparison with the authentic DVD is essential[17].
[17] excepting blue backs
·The first indicium is the absence of source ID (SID codes) or the use of SID codes from countries or pressing plants that are different to those on the authentic DVDs. However, this test is not always reliable.
·The second indicium is poor quality artwork on covers and DVDs. Mr Dunne’s evidence was that he cannot determine whether a DVD is authentic on the basis of the quality of the artwork alone. He agreed that comparison with an authentic DVD is a “crucial step”.
·The third indicium is the absence of the country of manufacture on the DVD. Mr Dunne agreed that unless one is aware of the place of manufacture, one must compare a DVD in question with an authentic DVD.
·The fourth indicium is the lower quality film recording. There is no evidence that Mr Dunne watched the copies.
·The fifth and final indicium is the use of blue backs, which Mr Dunne agreed is a simple test for determining a counterfeit DVD. The difficulty is that factory pressed counterfeit DVDs can also be silver back.
·A feature of the silver backs is the presence of a green-gold dragon motif. The respondent could not possibly be expected to have been alert to this as an indication that the silver backs were counterfeit. Indeed, even Mr Dunne did not place any significance to it in March or May 2006.
·Mr Dunne agreed that he discovered infringing DVDs in the Venus Adult shops for the first time in March 2006, seven to eight months after the decision in Fraserside.Mr Dunne did not attend a Venus Adult Shop in this intervening period, however did find counterfeit DVDs in other adult shops in this period.
·Mr Dunne agreed that counterfeiting is “extensive” in the adult DVD industry[18]. Mr Newnham agreed that piracy was an “enormous problem in Australia” and a “significant impediment to us making a return”[19] .
·Mr Dunne’s estimation that 90 per cent of the DVDs he saw in Venus Adult Shop had “poor quality slicks indicative of counterfeit DVDs” did not take into account his other indicia of counterfeiting.
143.I reject this defence for the following reasons:
a)if it is true that 85 per cent of adult DVDs sold in Australia infringe copyright then the mere involvement in the retail trade involves an acceptance of the risk of infringement;
b)the steps the individual respondents say they took were inadequate for the purposes of s.101(1A)(c) of the Copyright Act, and the other bases for accessorial liability. These were not serious steps to avoid infringement. They were steps taken in order to demonstrate that steps were being taken, however ineffective they may be;
c)Venus continued to deal with Simitar Software which supplied Venus with the counterfeit DVDs the subject of the Fraserside proceeding.[81] The purported warning given to Simitar to supply only original DVDs, not pirated copies, was no more than an evidentiary figleaf;
d)the respondents did nothing to ensure the authenticity of the DVDs they obtained from Simitar Software, Detershan or Production DVD. There is no documentary evidence relating to any enquiries to those suppliers made by any respondents in relation to the legitimacy of the infringed films;
e)the respondents maintained a policy of not keeping records of titles or studios of films sold, which is strongly suggestive of a desire not to know of infringements. This policy was maintained despite the Fraserside proceeding, and the accusation by the applicants in that case that the respondents in that case intentionally conducted transactions and otherwise dealt in documentation that omitted references to the titles of films and/or the relevant studios;
f)Ms Dannoun was an unimpressive witness. Her company is a substantial supplier of adult DVDs to the respondents, and her evidence left me with the strong impression that she was not giving frank and truthful answers to questions put to her. Her evidence about the operations of her business, and the “theft” of relevant records of it, lacks credibility; and
g)the instructions given to staff which were presented as a primary indication of the respondents’ efforts to detect and eliminate infringing copies were unworkable and all but admittedly so. They were said to be “aspirational”. Initially, the instructions related not to counterfeit copies of DVDs, but merely DVDs from AICO members, whether counterfeit or not. Even blue back DVDs continued to be sold. The instructions to staff became more prescriptive over time but no more effective. Mr Vassallo conceded that the instructions were not really expected to be followed[82]. I accept Mr Dunne’s evidence that on his observation, the instructions were not in fact being followed. Mr Vassallo’s evidence concerning the bona fide character of the policies and procedures adopted by the respondents lacks credibility and I reject it.
[81] Vassallo XXN at transcript, p.305.47
[82] Vassallo XXN at transcript, p.284.1
144.I also reject the respondents’ submissions seeking to avoid liability on the basis of illegality. I accept the following applicants’ submissions on this issue:
a)first, the applicants are not seeking relief (other than nominal relief) under s.115(2) of the Copyright Act but rather s.116. Secondly, the Full Court’s decision in the Fraserside proceeding[83] makes it plain that the applicants are entitled to the relief they seek. Thirdly, this Court has, in Vivid Entertainment LLC & Ors v Digital Sinema Australia Pty Ltd & Ors[84] stated that in light of the Full Court’s decision that defence is untenable;[85]
b)there is no evidence that the producer applicants have participated in any activity the subject of the classification legislation. Nor can it be suggested on the evidence that Calvista or Greenwich were involved in the unlawful sale of the infringed films by the respondents;
c)copyright is governed by a complete statutory code. Questions of rights, the protection of rights, infringements and remedies are to be found in the language of the statute. There is no provision in the Copyright Act that deprives a copyright owner of relief because the work or other subject-matter is somehow associated with illegal conduct. Nor is the available relief expressed to be subject to any other legislation;
d)illegality of the ultimate sale cannot be a general answer to s.116 damages. This is because in a great many commercial settings, the actions of the infringer can also be a crime: see Division 5 of the Copyright Act. Thus there cannot be a general proposition that, by reason of the illegality of the sale under some provision of the criminal law, s.116 damages are not available;
e)while the sale and distribution of the infringed films in New South Wales might be illegal, it is not so in respect of classified material in the Northern Territory or the Australian Capital Territory. This Court is a national court and must look to national standards. That the infringed films are acceptable in at least two territories of this country is a matter that the Full Court and this Court have already determined to be sufficient for the infringed films not to lose the protection of the Copyright Act on the grounds of public policy[86]; and
f)the only relevant factual issue in this proceeding is that the respondents sold the infringed films in New South Wales. There is no evidence of the applicants doing so. Nor is there any evidence that the applicants’ capacity to sell the infringed films in the territories is in any way diminished. In all the circumstances the applicants are therefore entitled to the protection of their copyright and the benefits that ss.115 and 116 of the Copyright Act bestow upon them.[87]
[83] See also Venus Adult Shops Pty Ltd v Fraserside Holdings Ltd (No 2) [2007] FCAFC 41 (28 March 2007)
[84] [2007] FMCA 157
[85] at [48]
[86] Fraserside at [41]-[42]
[87] see Fraserside at [42]
145.I place no significance on the assertion by the respondents that two of the infringed films are unclassified. The mere fact that an internet search conducted by some person on instructions from Mr Vassallo failed to disclose a classification for them does not mean that they are not classified. It certainly does not establish that those films carry a classification that would render their sale illegal anywhere in Australia.
Relief
Declaratory and injunctive relief
146.The applicants seek declaratory relief under s. 115(2) of the Copyright Act. Declaratory relief may be unnecessary and inappropriate where damages are available. On the other hand, I accept that in this case declaratory relief is appropriate as a vindication of the applicants’ rights and serves a useful and necessary purpose of deterring further infringements of copyright. The Court made declarations in the Fraserside proceeding.
147.I also accept the applicants’ submission that the applicants are entitled to injunctive relief pursuant to s. 115(2) of the Copyright Act for the following reasons:
a)there is much uncertainty surrounding the quantity of infringed films copied or otherwise procured by the respondents;
b)the respondents (other than Mitsy) have already shown themselves to be unresponsive of the Court’s processes, relief having already been granted by the Court in the Fraserside proceeding without deterring further infringements; and
c)the respondents have conducted themselves in such a way as to threaten the applicants with a trespass suit if they seek to observe whether the respondents are continuing to engage in copyright piracy[88],
[88] exhibit A2
148.I agree that a permanent injunction is necessary to protect the applicants’ rights.
Compensatory damages
149.The applicants have elected to seek relief in the form of damages as opposed to an account of profits.
150.I accept the following submissions by the applicants in relation to compensatory damages. The purpose of an award of compensatory damages for breach of copyright is to compensate the applicant for the loss which the applicant has suffered as a result of the respondent's breach.[89] Copyright infringement is a statutory tort. The copyright owner is entitled to such damages as would reflect the position it would have been in absent the infringing conduct.
[89] Interfirm Comparison (Australia) Pty Limited v Law Society of New South Wales (1975) 6 ALR 445 at 446; Autodesk Australia Pty Limited v Cheung (1990) 17 IPR 69 at 73-74 per Wilcox J.
151.The primary approach is that damages are measured by the depreciation caused by the copyright infringement to the value of the copyright as a chose in action.[90]
[90] See Sutherland Publishing Co Ltd v Caxton Publishing Co Ltd [1936] 1 All ER 177 per Lord Wright MR; Microsoft Corporation v Atifo Pty Ltd (1997) 38 IPR 643 at 647 per Tamberlin J.
152.The principles concerning the quantum of damages for breach of copyright were outlined by Wilcox J in Autodesk Australia Pty Ltd v Cheung.[91] Two alternative approaches to the assessment of damages can be taken:
a)the licence fee approach whereby the damage is measured by reference to the loss of licence fees by the claimant arising as a consequence of the infringement; or
b)by reference to the extent sales of the copyright owner’s product lessened as a result of the competition posed by the respondent’s sales of the unauthorised product.[92]
[91] (1990) 94 ALR 472 at 474-7; 17 IPR 69 at 73-6. Those principles have been applied in cases such as: Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 111 ALR 269 at 285, 24 IPR 461 at 477 per Wilcox; Columbia Pictures Industries Inc. and Tri-Star Pictures Inc. v Luckins (1996) 34 IPR 504 per Tamberlin J; Microsoft Corporation v TYN Electronics Pty Ltd (in liq) (2004) 63 IPR 137 per Stone J.
[92] see for example Eagle Rock Entertainment Ltd v Caisley (t/as RBC Entertainment) (2005) 66 IPR 554 at 556-558 per Tamberlin J.
153.I further accept that an applicant is not normally under a compulsion to grant licences and if it would probably not have granted a respondent a licence (in this case, the exclusive licence arrangements would not permit the granting of an additional licence to the respondents and in any event there could have been no prospect of any licence being granted to the respondents) the Court can and should take into account the losses caused to the copyright owner by the competition posed by the respondent’s sale of the unauthorised matter.[93] This will normally involve a consideration of any loss that the copyright owner has suffered by diminution of the sales of the copyright work or the loss of the profit of the copyright owner (or exclusive licensee) might otherwise have made. In this case the absence of any meaningful business records prevent any such calculation.
[93] Eagle Rock at 557 per Tamberlin J
154.The applicants explicitly do not rely upon lost sales by reason of the activities of the respondents in New South Wales. That is understandable, given the illegality of sales of X rated films in New South Wales. The attempted reliance by the respondents on their own conduct as an answer to copyright damages renders the alternative, discretionary, remedies under s.116 for conversion (or alternatively damages under s.115(4)) appropriate in my view.
155.The applicants, just as they did in the Fraserside proceeding, primarily seek damages pursuant to s.116 of the Copyright Act, being damages determined on a “conversion basis”, although for more abundant caution they seek at least nominal damages pursuant to s.115(2).[94]
[94] see the remarks on a “provisional” basis of Lockhart J in Polygram v Golden Editions (1997) 38 IPR 451 at 459-460. See now the decision of the Full Federal Court in Aristocrat Technologies Australia Pty Limited (ACN 001 660715) v D.A.P. Services (Kempsey) Pty Limited (in liquidation) (ACN 055 803 542) [2007] FCAFC 40 (29 March 2007) (special leave applied for)
Conversion damages
156.I accept the following applicants’ submissions in relation to conversion damages. The conversion measure is the value of the goods converted less the direct cost of sale[95]. The inability to sell infringed films in New South Wales is not a defence to a claim in conversion.[96]
[95] see the summary in International Writing Institute Inc. v Rimila Pty Ltd (1994) 30 IPR 250
[96] Armory v Delamirie (172) 1 Strange 525, 93 ER 664 (KB) and Fraserside [2005] FMCA 997 at [48] and [51]
157.Under s.116(1A) of the Copyright Act, the Court has a discretion to award damages on the basis of conversion or detention of infringing copies, or of a device used or intended to be used for making infringing copies. This discretion to award damages under s.116 is limited by a number of matters, including the requirement that the damages under s.115 are not a sufficient remedy.[97] The Court may, however, grant relief under s.116 in addition to relief under s.115 of the Copyright Act.[98]
[97] s.116(1C) of the Copyright Act
[98] s.116(1B) of the Copyright Act
158.Damages for copyright infringement are at large and a Court is free to award such amount as it thinks right as if it were a jury.[99] A damages award does not require mathematical precision and a degree of guesswork will inevitably be involved, the Court having to do the best that it can. The Court will do its best to assess damages regardless of any evidentiary difficulties.[100]
[99] Fenning Film Service Limited v Wolverhampton, Walsall and District Cinemas Limited (1914) 3 KB 1171 at 1174; Autodesk Australia Pty Limited v Cheung (1990) 17 IPR 69 at 75-76 per Wilcox J; A-One Accessory Imports Pty Limited v Off Road Imports Pty Limited (1996) 65 FCR 478 at 483 per Drummond J
[100] see, for example: Enzed Holdings Ltd v Wynthea (1984-5) 57 ALR 167 at 182-3; Typing Centre of NSW Pty Ltd v Northern Business College (1988-89) 13 IPR 627 at 641-643; Jonesv Schiffman (1971) 124 CLR 303 at 308; Poseidon v Adelaide Petroleum 105 ALR 25 at 40 (FFC) ; Alec Finlayson Pty Ltd v Armidale City Council (1997) 98 LGERA 119 at 124-129; Armidale City Council v Alec Finlayson Pty Ltd (1999) 104 LGERA 9
159.The absence of meaningful business records of the respondents is a matter that can be taken into account in assessing damages, and is a factor that means the damages can be assessed at the highest end of the scale.[101]
[101] Murphy v Overton Investments (2004) 216 CLR 388 at [74]
160.The applicants contend that the most appropriate way to calculate conversion damages is as set out in the following table. It uses Mr Newnham’s assessment of the “missing” DVDs.
A. Identified DVDs:
1
The infringed films include 10 blue-back DVDs (6 DVDs purchased at $25, 2 at $40 and 2 at $60) - allowing $1 nominal production cost: $144 + $78 + $118 (NB: average sale price = $35 on blue-back DVDs) =
$340
2
The infringed films also include 16 factory pressed counterfeit DVDs (3 at $40 and 13 at $60) - allowing the average cost of supply at $6.10 ($34,003.70 / 5,578 - see Annexure B to Newnham 12.10.06) is $101.70 + $707.70 =
$802.40
3
And finally, 6 x delivered up silver-back DVDs (normal sale price is $60) =
$323.40.
TOTAL FOR A
1 + 2 + 3
$1,465.80
B. Unidentified DVDs:
These are the 9,976 DVDs that have been unaccounted for (and were presumably copied) by Venus (assume blue-back DVD-Rs as the DVDs are burnt on Venus’ premises).
9976 units
Assuming a $1 production cost and an average sale price of $35 per disc (using average calculated from blue-back DVD sample at 1 above); 9976 x ($35-$1)=
$339,184
The proportion of DVDs that are applicant studios' DVDs cannot be assessed from discovered documents, but assuming a reasonable proportion, say 30% =
$101,755.20
TOTAL A + B
$103,221
161.I accept the applicants’ calculation of damages in relation to identified DVDs and the method of calculation of damages in respect of unidentified DVDs. However, the claim that 30 per cent of the respondents’ trade represents infringing copies of the applicants’ films is an optimistic stab in the dark. The respondents contend that their trade in infringing copies of the applicants’ films only represented about one per cent of their total trade. That is also an optimistic stab in the dark, although I accept that some effort was made following the Fraserside proceeding to reduce the exposure of the respondents to further attack from the applicants. The applicants include major USA production companies and, notwithstanding the respondents’ efforts to reduce their exposure, the general ineffectiveness of the steps taken would still have left a significant number of applicants’ title available for sale. I will apply a 10 per cent proportion as a conservative estimate of the proportion of the respondents’ trade that involved infringing copies of the applicants’ films. That results in a rounded up figure of $40,000 in respect of the unidentified DVDs plus $1,465.80 for the identified DVDs.
Additional damages
162.I accept the following submissions of the applicants in relation to additional damages. Additional damages are punitive in character and may be regarded as a statutory species of exemplary damages. [102] This is a case for an award of additional damages under s.115(4) of the Copyright Act given the respondents’ prior infringing conduct.
[102] Sullivan v F and H Investments Pty Ltd (2003) 57 IPR 63; Nominetuk UK v Diverse Internet Pty Ltd (No. 2) (2005) 68 IPR 131 at 142 per French J
163.The purpose of an award of damages under s.115(4) is to penalise an infringer of copyright because “the infringer has been regarded, since at least the 18th century, as a pirate”.[103] It is an independent head of relief beyond the objectives of compensation of the copyright owner.[104] A court may only be satisfied that one or more of the circumstances set out in s.115(4) exists in order to enliven the discretion.[105]
[103] per Burchett J observed in both Autodesk Inc v Yee (1996) 68 FCR 391, 394; and Raben at 92
[104] Raben Footwear Pty Ltd v Polygram Records Inc and Anor (1997) 75 FCR 88
[105] Sullivan v FNH Investments at [91]; Nominet at [50] and Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 93
164.Burchett J observed in Raben at 93 that:
… the flagrancy of the infringement must refer to the degree of flagrancy evinced by it, and glaring impropriety is not essential, depending on the presence or absence of other factors.
Blatant disregard of one’s obligations will suffice. I accept that the facts and circumstances of the present case are sufficient for a finding of flagrancy, as outlined in the applicants’ submissions.
165.I accept the applicants’ submission that a series of cases have recently applied Raben and awarded significant additional damages:
·In Microsoft Corporation v Glostar Pty Ltd (2003) 57 IPR 518, the Court awarded $291,625 in additional damages. The compensatory damages were $4,375.
·In Microsoft Corporation v Goodview Electronics Pty Ltd (2000) 49 IPR 578, the Court awarded $500,000 in additional damages. See also Prior v Sheldon (2000) 48 IPR 301 and Microsoft Corporation & Anr v ATIFO Pty Ltd & Ors (1997) 38 IPR 643 (upheld on appeal).
·In Sullivan v FNH Investments Pty Ltd trading as Palm Bay Hideaway (2003) 57 IPR 63, upheld by the Full Federal Court in 2003, the Court awarded $15,000 in additional damages (the compensatory damages were $7,425) and, following Raben, the Court noted that there need not be any proportionality between the amount of damages awarded under s.115(2) and the amount awarded under s.115(4).
·In Microsoft Corporation v Ezy Loans Pty Ltd (2004) 63 IPR 54, Stone J awarded $50,000 in additional damages against each respondent company and $300,000 in additional damages against their sole director. Her Honour said that the respondents’ conduct was:
a deliberate pattern of conduct by the respondents in which they recognised the illegality of the enterprise they were engaged in and actively sought to conceal it… In particular I refer to the total failure of the respondents to observe orders for discovery (including discovery of business records evidencing their dealings in Microsoft software) which, as the applicants submitted, means the applicants can never know the full extent of the infringements. It is important to more than the applicants that copyright infringers are not encouraged to think that by ignoring court proceedings they can escape the consequences of calculated infringement of the rights of others in the pursuit of profits”.
·In Sony Entertainment (Australia) Ltd v Smith (2005) 64 IPR 18, Jacobson J awarded an amount of $150,000 against a corporate respondent and $300,000 against its director for additional damages for flagrant infringements compounded by outrageous and frightening threats as well as false defences to the claims made in the proceedings. His Honour also ordered an amount of $50,000 in additional damages against an individual respondent to show the Court’s disapproval for his conduct and deter similar infringements of copyright.
·In Microsoft Corporation v PC Club Australia Pty Ltd (2005) 148 FCR 262, Conti J awarded US$188,950 in compensatory damages. In respect of additional damages, his Honour awarded: $350,000 against the corporate respondent; $350,000 against its director with control of the day to day operations of the business (Mr Lee); and amounts of $30,000 and $50,000 against the other directors who acted in accordance with the instructions of Mr Lee. In that case the fact that Mr Lee had previously been involved in copyright infringement through an unrelated corporate entity was held by his Honour to be a relevant factor in assessing additional damages:
It must therefore follow that in relation to PC Club, and also to Mr Lee personally as PC Club’s controlling mind at all material times, the applicants have established a persuasive case for an award of additional damages referable to s 115(4) factors, in particular based upon the flagrancy of infringement and the need to deter similar infringements, and upon the benefits inherently accrued from the infringements, at least of a pecuniary nature. It was not a case only of flagrancy of conduct on the part of PC Club and Mr Lee, but also a case of history of engagement in infringing conduct by the predecessor corporate vehicle controlled by Mr Lee.”[106]
·In Foxtel Management Pty Limited v The Mod Shop Pty Ltd [2007] FCA 463, the Court awarded additional damages of $300,000 against one director and $60,000 against another. In differentiating the two awards, the Court noted that the latter director’s involvement had been limited by time, that he and his wife held less than a 10% interest in the Mod Shop companies and had received no dividends from their shareholding.[107] The compensatory damages awarded in that case were $653,000.
·In Universal Music Australia Pty Ltd v Hendy Petroleum (2003) 59 IPR 204, this Court made an award of additional damages of $17,500 while only awarding $299.90 in compensatory damages.
·Further, in SBO Pictures Inc v Kaos Shop Pty Ltd [2006] FMCA 82, the Court awarded compensatory damages of $3,500 including additional damages of $46,500.
·In Aristocrat Technologies Australia Pty Limited (ACN 001 660 715) v D.A.P. Services (Kempsey) Pty Limited (in liquidation) (ACN 055 803 542) [2007] FCAFC 40, the Full Court awarded additional damages of $200,000 with nominal compensatory damages of $1.
[106] at [279]
[107] at [344]
166.There is no doubt that the respondents have shown a willingness to repeatedly infringe the copyright of cinematograph film producers and distributors in the running of the Venus Adult Shops by continuing to infringe copyright despite having been found to have infringed copyright, including the copyright of Calvista, in the Fraserside proceeding. I accept that s.115(4) now explicitly acknowledges the role of deterrence in an award of additional damages[108] (in part due to the codification of the case law[109]) and the relevance of the conduct of the respondent after the infringement occurred or the respondent was on notice.[110]
[108] s.115(4)(ia)
[109] see the Full Court’s observation in Bailey v Namol Pty Ltd (1994) 125 ALR 228 at 239
[110] s.115(4)(ib)
167.I further accept that the following matters are relevant when the Court considers the need for an award of additional damages that has the effect of deterring conduct of the kind engaged in by the respondents[111]:
a)serious infringements of copyright such as these have a significant impact on the film industry, actors[112], and the greater community, many of whom may be misled into purchasing illegitimate and inferior products, benefiting the respondents and no others (and in fact damaging the reputation of the applicants and the actors featured in the films);
b)there is a need to deter people from manufacturing and selling illegal goods and profiting from this and supporting the illegal activities of the manufacturers of these films who supply them to the market. This type of activity (the sale of unlicensed films) is extremely prevalent and has significantly increased in the market in Australia in recent years;
c)the respondents are significant operators in the adult entertainment industry. They embarked upon a course of conduct in infringing the copyright in the infringed films to advance their own commercial purposes, with disregard for the rights of the copyright owners and artists. Their conduct is likely to influence the conduct of others in the industry;
d)it is relatively easy for operators like the respondents to infringe copyright and make a significant number of films and conversely, detection and prosecution by copyright owners are difficult and these difficulties are exploited by infringers such as the respondents;
e)the respondents were well aware of copyright and the difference between legitimate and illegitimate films and they, by virtue of their experience, must have been aware of the risks that they were running but sought to gain a profit notwithstanding those risks;
f)unchecked by an award of substantial additional damages, it amounts to no more than a cost of business for infringers, such as the respondents. Evidently the award in the Fraserside proceeding was not sufficient to diminish the respondents’ appetite for running a business using counterfeit DVDs; and
g)the respondents should not benefit from their failure to keep or produce proper records.
[111] for the purposes of s. 115(4)(b)(ia) of the Copyright Act
[112] whether male or female
168.As against those factors, the respondents should be given some credit for their admissions, and for consenting to interim injunctions. They also made some effort at discovery, although there was little to discover, indicating a failure to keep business records that one would anticipate would have been kept in any business concerned to keep track of what it was selling.
169.One additional factor deserves mention. The applicants submit and I accept that the respondents’ approach to the infringement of copyright is exemplified by the fact that they continued to sell DVDs with the double dragon motif on them after being put on notice that the motif was an indicium of piracy.
170.Mr Vassallo was shown a number of DVDs purchased by Mr Dunne or Ms Burridge on 24 March 2006 that had the double dragon motif on them.[113] He agreed that since the commencement of this proceeding he had known that each of those DVDs was an infringing copy of a film.[114] He agreed that he had noticed, at the time of reading Mr Dunne’s affidavit[115] that Mr Dunne had discussed the features of the DVDs including the double dragon motif.[116]
[113] Vassallo XXN at transcript, p.328-329
[114] Vassallo XXN at transcript, p.329.26
[115] Dunne affidavit #3
[116] Vassallo XXN at transcript, p.330.46
171.Mr Vassallo did not send any memos to staff concerning the double dragon motif.[117] He took no steps to discuss or communicate to stores any instruction not to swap or exchange DVDs that displayed the double dragon motif,[118] nor did he check the respondents’ stock of DVDs for the double dragon motif.[119] Further, he did not take any steps to communicate with any of the suppliers about not wanting to be provided with DVDs with the double dragon motif on them.[120]
[117] Vassallo XXN at transcript, p.334.9
[118] Vassallo XXN at transcript, p.343.35
[119] Vassallo XXN at transcript, pp.334.35 and 334.46
[120] Vassallo at XXN at transcript, p.343.39
172.The result of Mr Vassallo’s inactivity was that the Venus Adult Shops continued to sell counterfeit DVDs with the two dragon motif on them.[121] It is also relevant that Ms Dannoun, a major supplier of DVDs to the respondents, was familiar with the double dragon motif. It is identifiably Asian. It is notorious that Asia (particularly China) is a major source of pirated films. The respondents should have been alert to the risk that DVDs bearing that logo might be infringing copies.
[121] Dunne affidavit #5
173.The applicants submit that the Court should take note that its additional damages award of $85,000 in the Fraserside proceeding does not appear to have been sufficient to deter the respondents. They submit that a doubling of that award to something in excess of $170,000 is appropriate given the persistent nature of the infringement. I accept that submission, subject to the following.
174.Care needs to be taken in the assessment of additional damages not to duplicate the award of conversion damages. The calculation of the value of sales of infringing copies in addition to those proven in evidence has already been included in my assessment of conversion damages. The applicants have properly excluded from their claim of additional damages the value of those unproven but estimated infringing sales.
175.I accept that the award of additional damages in Fraserside has proven to be an insufficient deterrent. There is precedent in this Court and the Federal Court, as outlined earlier, for the award of very substantial additional damages. The flagrancy and persistence of the infringements, the failure by the respondents to keep and disclose proper business records, and the need for deterrence all call for a substantial award of additional damages in this case. I will award $150,000
176.I will make no award of interest up to judgment. The primary award of damages is in the form of additional damages, and the lump sum awarded is sufficient, without interest up to judgment. I will hear the parties as to costs.
I certify that the preceding one hundred and seventy-six (176) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 24 August 2007
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