Otoy New Zealand Ltd v Kozlov
[2017] NZHC 1485
•30 June 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-1773 [2017] NZHC 1485
UNDER the Copyright Act 1994 IN THE MATTER
of Copyright Infringement and Breach of
ConfidenceBETWEEN
OTOY NEW ZEALAND LTD Plaintiff
AND
ANDREY KOZLOV First Defendant
PINKSOFT S.R.O. Second Defendant
Hearing: 14 June 2017 Counsel:
J C Dickson for Plaintiff
No appearance by or on behalf of DefendantsJudgment:
30 June 2017
JUDGMENT OF BREWER J
This judgment was delivered by me on 30 June 2017 at 11:30 am pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Simpson Grierson (Auckland) for Plaintiff
OTOY NEW ZEALAND LTD v KOZLOV [2017] NZHC 1485 [30 June 2017]
Introduction
[1] The plaintiff sues Mr Kozlov for breach of confidence and infringement of copyright in relation to a computer program known as Octane Render. Mr Kozlov is a former employee of the plaintiff. He was employed to help develop Octane Render. But, after he left, he started promoting a computer program known as FStormRender.
[2] On 29 July 2016, Woodhouse J granted the plaintiff a without notice interlocutory interim injunction and ancillary orders. The orders of Woodhouse J were sealed on the same day, 29 July 2016.
[3] The orders made included that Mr Kozlov be restrained (in broad paraphrase) from offering, directly or indirectly, for sale or download the infringing software FStormRender. The orders extended to all forms of the copyright works claimed by the plaintiff.
[4] Mr Kozlov, who appears to be living in the Russian Federation, was served with the interim injunction orders and with the substantive proceedings. On
23 August 2016, Mr Kozlov filed a statement of defence. He did so on his own behalf.
[5] The gist of the defence (if it is a defence) is that through the work that he did on Octane Render, he has proprietary rights to the intellectual property he developed. The following gives the flavour of the statement of defence:
5.I informed Otoy 5 January 2015 about I am going to leave Otoy in the middle of April – almost 4 months’ notice period. My last working day is 10 April. Since I left the company, OctaneRender users missed me as the developer. There are many complains about
3ds max plugin development and OctaneRender core. I was tired of moving whole company forward and made a decision of making my own product (FStormRender).
6.To avoid any competition with Otoy, I had to leave New Zealand and come back to Russia. That was a hard decision. 12 years experience gave me a huge development boost. I worked almost a half of year without any days off. I used only my personal knowledges, ideas and experience, no OctaneRender source code or Otoy Copyrights. In February 2016, the first product version was ready for the public
tests. I had to use Dron Kozy alias on the Facebook account to avoid any Otoy reputation losses. Too many users know my name.
7.The product popularity increased very rapidly. In the next 5 months, almost every 3ds max user knew about FStormRender. I get many positive feedbacks from FStormRender users. They claim FStormRender render has better quality and higher speed than Octane. FStormRender has many unique features, which other products do not have. They also admit, that the development speed is very high and my reaction on user’s requests is very fast.
[6] Throughout the statement of defence, Mr Kozlov intersperses copies of messages from users which he feels backs up his assertions about the merits of his work.
[7] Mr Kozlov goes on to allege that the two products cannot use the same source code and says:
19.During my long developing experience, I have formed my own coding style and user interface (UI) style. I used these styles before I came to Otoy, I used it during my work for Otoy and I continue using these styles in my own products. This is my personal styles, how I do my work. This why the results of my work looks similar no matter what company I work for. This is why some UI parts of FStormRender and OctaneRender look similar. It is the same as having a personal handwriting. Personal handwriting cannot be a copyright of any company. My personal working experience cannot be considered as Otoy copyrights.
[8] The plaintiff, on 1 March 2017, filed an interlocutory application for orders striking out Mr Kozlov’s statement of defence (in the alternative, debarring him from defending the substantive proceedings). The grounds are, broadly, that Mr Kozlov has ignored Woodhouse J’s injunctive orders and has continued to market his own FStormRender product.
[9] The plaintiff’s interlocutory application has been served on Mr Kozlov at the address for service in New Zealand which he gave in his statement of defence.
[10] On 10 April 2017, Associate Judge JP Doogue, at the second case management conference, made timetable orders. These included the stipulation that if Mr Kozlov did not file his electronic notice of opposition and affidavit within
10 working days, he would be debarred from defending the application to strike out.
Mr Kozlov did not file any further documents. In a memorandum of counsel for the plaintiff dated 12 May 2017, it was accepted that there had been some compliance with the orders of Woodhouse J.1 Nevertheless, the plaintiff was concerned at ongoing breaches and determined to pursue the application before me now.
[11] On 1 June 2017, Muir J decided:
[10] Because of the seriousness of the consequences for the defendant of the orders sought I consider that this matter is appropriately adjourned to a one hour fixture. This will enable better consideration of the detailed evidence now advanced by Mr Brettler than possible in the Duty Judge list and provide an opportunity for the plaintiff to file written submissions in support of the application, which in my view is appropriate.
[12] The plaintiff’s application is now before me, accordingly.
Discussion
[13] The plaintiff has provided extensive affidavit evidence which makes clear that Mr Kozlov is continuing to sell the infringing software.
[14] As a result, the plaintiff has already taken steps overseas to force compliance:2
(a) issuing notices under US legislation (the Digital Millennium Copyright Act) requiring the hosts of webpages on which FStormRender has been offered for sale and/or download to remove or disable access to the software;
(b) filing proceedings in the Russian Federation where it is understood that the first defendant resides. An interim injunction was ordered by the Moscow City Court.
[15] The plaintiff relies on High Court Rule 7.48:
Enforcement of interlocutory order
(1) If a party (the party in default) fails to comply with an interlocutory order or any requirement imposed by or under subpart 1 of Part 7 (case management), a Judge may, subject to any express provision of these rules, make any order that the Judge thinks just.
1 Internet users with New Zealand IP addresses were blocked from accessing the website, US legislation is the Digital Millennium Copyright Act 17 USC § 512.
(2) The Judge may, for example, order—
(a) that any pleading of the party in default be struck out in whole or in part:
(b) that judgment be sealed:
(c) that the proceeding be stayed in whole or in part: (d) that the party in default be committed:
(e) if any property in dispute is in the possession or control of
the party in default, that the property be sequestered: (f) that any fund in dispute be paid into court:
(g) the appointment of a receiver of any property or of any fund in dispute.
(3) An order must not be enforced by committal unless the order has been served personally on the party in default or that party had notice or knowledge of the order within sufficient time for compliance with the order.
[16] For good reason, the Courts are reluctant to strike out a defendant’s defence.3
It means the case will not be decided on its merits. The defendant will be deprived of his defence. As a result, an intermediate step is often deemed appropriate: the Court makes an “unless” order. This dictates that unless the specified action is taken by the specified time, the stated sanction will automatically result.4
[17] But the Court has accepted that there are occasions where it will be
appropriate to strike out a defendant’s defence without resorting to such a measure:5
[25] … The conduct has to [come] within the category of “contumaciousness or contumelious conduct” … or there must be some substantial prejudice to the applicant through the non[-]compliance … On the other hand in appropriate cases the courts have not hesitated. It is clear, however, that such an order cannot be made to punish the defendant …
[18] In McKay Shipping Ltd v Miu, Harrison J struck out the defendants’ defence because they were in wilful default of the Court’s orders.6 He also referred to the fact that the plaintiff was suffering ongoing prejudice as a result of the breach and that he saw the plaintiff as having a strong, if not overwhelming, case.
[19] A similar range of factors is present in this case. I start with wilful default.
3 Commonwealth Reserves v Chodar HC Auckland CP73-SW/00, 18 July 2000 at [25].
4 SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494 at [29].
5 Commonwealth Reserves v Chodar, above n 3. Citations omitted.
6 McKay Shipping Ltd v Miu HC Auckland CIV-2007-404-1038, 28 June 2007 at [12].
[20] As Young J has stated, “wilful default means more than knowing that there is an order and not in fact complying with it”.7 The Courts generally look for wilful endeavour to avoid complying with Court orders.
[21] In this case, Mr Kozlov had notice of the application and filed a memorandum for its first call. The telephone number he gave went to a Russian voicemail account and so he did not participate in the first call.
[22] The memorandum filed by Mr Kozlov (dated 29 January 2017) said in part:
2.The defendant stands by his initial statement: FStormRender does not contain any source code unique to Octane Render developed by Otoy New Zealand.
3.The order of The Honourable Justice Woodhouse on 29 July 2016 cannot be comply by the defendant because the order compliance would prevent the defendant from any business activity and lead to bankruptcy. The order restraints are too strong.
[23] A further memorandum, dated 2 April 2017, was filed for the next call. It says, in part:
3.The dispute software (FStormRender) website is not available for New Zealand users at the moment and they are not able to download the dispute software by legal way.
[24] I am satisfied that Mr Kozlov has made a token effort to comply with Woodhouse J’s orders by blocking New Zealand IP users from accessing his Russian website. Other than that, as submitted by the plaintiff, he wilfully disobeys the orders:
12.There is substantial evidence to show that the first defendant has been, and continues to be, in wilful default of the orders of Woodhouse J:
(a) Following the issue of the interim injunction, the plaintiff was able to get the host of the defendants’ US hosted website, (through which the FStormRender software was originally made available for sale and download) to disable download links on that website for the FStormRender software. In direct response to this, the first defendant migrated the US hosted website to a new Russian hosted website, at on
7 Lees Trading Co (NZ) Ltd v Loveday HC Christchurch CP70/96, 3 June 1998.
which the first defendant again made the FStormRender software available for download.
(b) The first defendant created a new company in the Russian Federation as a vehicle for selling the FStormRender software after the orders had been made.
(c) There were links on the .ru website in May 2017 from which the FStormRender software could be downloaded. As a result of the plaintiff’s actions, those links that it had managed to identify have been disabled.
(d) Mr Kozlov is engaged in conduct where he arranges to contact, and contacts, people who want to purchase or download the FStormRender software through private messages and emails:
(i) On around 3 May 2017 Mr Kozlov made a post to the FStormRender group Facebook page telling a person who expressed an interest in purchasing FStormRender: “I’ve sent you pm” and “Please check message request at Facebook messages”;
(ii) On around 5 May 2017 Mr Kozlov (or his agent) posted a comment on an FStormRender forum page, in response to a person saying that the download link is not working and asking to know how to download the latest version: “We will fix it soon” and then “What is your email address?”;
(iii) On around 11 May 2017 Mr Kozlov (or his agent) posted a comment on an FStormRender forum page, in response to a person asking if it was possible for Mr Kozlov to put a link inside the forum directly, “I will upload a new version tomorrow on temporary resource”;
(iv) On around 17 May 2017 Mr Kozlov (or his agent) posted a comment on an FStormRender forum page announcing “All licenced users, who need latest fstorm version, please email me [email protected] with your registration details (registration email)”.
(e) Following Mr Kozlov’s post on around 11 May 2017 (refer (d)(iii) above), the plaintiff has located and successfully arranged for a number of downloadable links to the FStormRender software to be disabled.
(f) The plaintiff has identified at least 4 active hyperlinks from which a user can still download versions of the FStormRender software. These files are downloadable from the fstormrender.com or fstormrender.ru domains. As the administrator of those domains, it is within the first defendant’s power to disable those links.
[25] I am satisfied further that Mr Kozlov’s actions are causing the plaintiff
substantial prejudice.
[26] Ms Dickson for the plaintiff refers to five areas of prejudice in her written submissions. I accept them all and will highlight two:
(c) The risk of exposure of the plaintiff’s proprietary source code because the version of the software released by the first defendant does not have sufficient security mechanisms in place to protect against reverse engineering;
…
(e) The first defendant is undermining the plaintiff’s market standing and reputation, and this will result in loss in terms of the number of customers obtained and licenses sold, and therefore the plaintiff’s revenue.
[27] It follows from the findings I have set out above that I find the plaintiff to have a strong prima facie case.
[28] Ultimately, “[t]hose who choose to disobey Court orders must live with the consequences.”8
Decision
[29] The plaintiff’s application is granted. Mr Kozlov’s defence is struck out.
[30] Mr Kozlov must pay the plaintiff’s costs on the strike out application. These
are to be the plaintiff’s actual and reasonable costs and may be set by the Registrar.
[31] Costs are awarded to the plaintiff on the application for interim injunction decided by Woodhouse J. These are to be calculated on a 2B basis and may be set by
the Registrar.
Brewer J
8 McKay Shipping Ltd v Miu, above n 6, at [12].
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