Damages
79 Jennings says that its policy regarding the use of its plans is that it does not allow members of the public to build a house using a Jennings plan without using Jennings as the builder of that home. Therefore, it follows that the profit derived by Jennings in connection with any particular home project is a function of both design and the construction activity it undertakes on behalf of a client. Jennings says this approach is particularly the case in geographical areas called the Jennings "build areas" where Jennings conducts building operations. Locations such as that of the respondents' land, falling outside the "build areas" attract a surcharge between 1% and 2.5% applied to the contract price for the design, construction and handover of a particular home.
80 Mr Henesey‑Smith says that Jennings, as a project home builder, does not grant a licence of the copyright in any of its plans to members of the public to build a home based on any of its plans. The management process adopted by Jennings in relation to its design and construction activities is described by Mr Henesey‑Smith as a "rigorous" one. It involves documenting and maintaining the plans and building specifications applicable to each home. Jennings documents all of its plans through the use of computer‑aided design software. The drawings are maintained by the "senior draftsman" as part of the Jennings archive of drawings. The company also maintains detailed "bills of quantity" for each home and the Jennings "estimating and purchasing manager" maintains a master bill of quantities for each home on an estimating package called the "Business Craft" estimating software.
81 Mr Henesey‑Smith says that the standard direct building cost for a Cortona 290 home in January 2004 was $118,912.00. Mr Henesey‑Smith says that the respondents relocated the garage off the square configuration on the right hand side of the house, extended the porch/patio area and added a study to the home. Had Jennings built the Bogdan home, the cost of those variations would have been $16,424.00. The total direct cost of building the Bogdan home would then have been $135,336.00. Jennings says it seeks to achieve a profit margin of 25%. On one view that may mean a margin of 25% over and above the direct building cost. That margin would amount to $33,834.00 based on direct building costs of $135,336.00. However, Jennings says its "turnover", that is, the gross sale price (excluding GST) would be $180,500.00 to construct the Cortona 290 including the Bogdan variations. A turnover price of $180,500.00 (excluding GST) represents a dollar margin over cost of $45,164.00 which is a margin over cost of 33.37%. However, a margin of 25% struck on the turnover price (excluding GST) which is the method of calculation adopted by Jennings in determining its expected profit, is $45,125.00 which is a margin over cost of 33.34%. No doubt a margin of 25% calculated on the turnover price is the margin designed to recoup all fixed and variable costs of conducting the business undertaking across the portfolio of anticipated design and construction work undertaken in any year.
82 Jennings claims it has suffered a loss of $45,125.00 by reason of the infringement of the copyright in its plan.
83 It can immediately be seen that the profit component derived by Jennings is a function of aggregated activity. That aggregation involves the design of plans for a family of homes, the cost of maintaining an archive of plans and costs associated with providing a client with a house plan for a particular home Jennings will build for that client. The aggregation of services also involves the maintenance of accurate and up‑to‑date building specifications for each home and the maintenance of detailed bills of quantity for all materials used and deployed in the construction of any particular home. Importantly, that aggregation of services involves the planning, supervision, construction, practical completion and handover of a home to a client.
84 Mrs Bogdan made submissions on behalf of the respondents which go to damages. She did not give evidence on these questions but having regard to the credit finding made by Magistrate Payne, I proceed on the footing that the statements made by Mrs Bogdan in submissions reflect the evidence she would have given from the witness box had she turned her mind to these matters in giving evidence, as she did in making submissions to the Magistrate.
85 In making submissions, Mrs Bogdan said this. Initially, Jennings sent Mr and Mrs Bogdan a letter of demand in which an amount of $20,000.00 was claimed. The letter of 19 November 2003 put the matter on this footing.
We are instructed that unless you pay to our client within seven days from receipt of this letter a fee for use of its plan in the sum of $20,000.00, being the profit our client would generate from the construction of the Verona 245 on your land had it been engaged to do so, our client will commence proceedings against you for infringement of copyright.
[emphasis added]
86 It can be seen that there is an inherent inconsistency in the letter as the amount of $20,000.00 is both described as a fee for the use of the Jennings plan, and the profit Jennings would have derived had it built the home. Mrs Bogdan notes that by para 12 of the Amended Statement of Claim, Jennings pleads that it has suffered loss and damage by reason of the denial of a proper fee "for use of the plan" of $20,000.00 or, alternatively, by the denial of the profits it would ordinarily have made from the construction of either the Verona 245 or the Cortona 245 (and now the Cortona 290) including the Bogdan variations, of $45,164.00. Although Mr Henesey‑Smith says that Jennings does not licence the copyright in its plans, Jennings has made a claim for damages, alternatively put, on the footing that $20,000.00 represents a proper fee for use of the plan (para 12(a)). Mrs Bogdan says that she cannot understand how both claims can be maintained. The Amended Statement of Claim however makes the claim in the alternative.
87 Mrs Bogdan says that if the respondents had agreed to pay a licence fee to Jennings of $20,000.00, it would follow that Jennings would have no claim for the construction profit as the respondents would not have engaged Jennings to do the work. Mrs Bogdan says that conversely, if an assumption is made that Jennings would have been engaged to construct the respondents' house, there would be no licence fee. More fundamentally, Mrs Bogdan says that Jennings has not suffered any loss of profit based on construction because "we weren't intending to hire A V Jennings to build our house". Mrs Bogdan said that she had obtained advice from lawyers who advised her that on the authority of New England Country Homes Pty Limited v Bradley Moore [1998] FCA 345, per Burchett J, the appropriate fee for use of a project home drawing was found to be $750.00 and that the case is authority for the proposition that no claim for loss of profit can be sustained in the face of evidence that the infringing respondent would not have engaged the plaintiff to construct the home. Mrs Bogdan says:
This is exactly the case here.
There is no evidence or even suggestion that the respondents would have engaged Jennings to construct the house in question and indeed such a claim is not even alleged in the statement of claim.
88 More generally, Mrs Bogdan in making the point that the respondents are not project home builders or in the business of building houses, said this:
… to close, we say that we're not business. We're not intending to make business out of our home. We built it for us. We're not builders. We've got an owner/builder permit to do our own home.
89 Although an award of damages pursuant to s 115(2) of the Copyright Actmight in an appropriate case be the measure of the depreciation in the value of the exclusive bundle of rights comprising the copyright, as a chose in action (Sutherland Publishing Co. Ltd v Caxton Publishing Co. Ltd [1936] 1 Ch. 323 per Lord Wright MR; Microsoft Corporation v Atifo Pty Ltd (1997) 38 IPR 643), it is not the right measure in a case such as this (Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 at 475 per Wilcox J; Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales (1975) 6 ALR 445, Bowen CJ at Eq 446). There is, understandably, no evidence of a discounted cash flow valuation of the copyright as a capital asset nor, equally understandably, any evidence of any diminution, by reason of the infringement, in the capacity of Jennings to derive revenue by exploiting the copyright work, that is, by using the plan and constructing houses representing a three‑dimensional reproduction of the plan, for clients. In this case, the respondents built a single house as their residential dwelling. They are not project home builders and they are not in the business of repetitious infringing conduct. Since there is no demonstrated impact on the exploitation revenues Jennings derives from the use of the Cortona 290 plan, there is very likely to be no corresponding impact on the value of the copyright as an incorporeal right.
90 However, the formulation of Lord Wright in Sutherland has been described as "no more than a convenient label for the various ways of assessing damages which are available in any particular case" (Australasian Performing Rights Association v Grebo Trading Co. Pty Ltd (1978) 23 ACTR 30 per Blackburn CJ at 31) and the question to be answered is, what loss has Jennings suffered as a result of the infringement of its copyright? (Interfirm at 446) As to the general principles concerning the assessment of damages for breach of copyright, see Autodesk v Cheung (1990) 94 ALR 472 at 474 - 477; Amalgamated Mining Services Pty Ltd v Warman International Ltd (1992) 111 ALR 269 at 285; Microsoft Corporation v TYN Electronics Pty Ltd (in liq) (2005) 63 IPR 137 and Eagle Rock Entertainment Ltd & Anor v Caisley (2006) 66 IPR 554. Jennings contends that it does not licence its copyright to enable third party construction to occur. It keeps its copyright in a Jennings safe harbour and uses it solely in its own construction activity. Therefore, it is said, Jennings ought not to be treated in an analogous position to an architect who might, by reason of the nature of the professional work an architect undertakes, be subject to an implied licence of the copyright in a work produced in connection with particular projects. Nor, it is said, should the hypothetical "construct" of a notional willing licensor and licensee be adopted as the framework for determining a surrogate measure of damages by reference to a licence fee. The pleading claims damages on the alternative bases of either a fee for use of the plan or lost profits in the construction of the Bogdan home. Presumably, the pleading does so in order to preserve alternative possible formulations of a remedy in damages in respect of proven infringing conduct. However, it is clear that the letter of demand from Jennings dated 19 November 2003 made a claim for a fee for use of the plan for an amount which remains the amount claimed as a fee for use in the amended pleading.
91 Mrs Bogdan referred to the authority of New England Country Homes Pty Limited v Bradley Moore (supra) and observations made by Burchett J. In that case, Burchett J considered a claim for compensatory damages in circumstances where, like this case, the respondent "did not construct a house for sale, but as a home to live in" (p 7). His Honour at p 8 referred to a number of authorities that support the proposition that the Court may adopt as a measure of damages where it thinks the course appropriate, a fair fee for the use of the plan the subject of the infringement. Burchett J noted that the applicant sought an assessment of damages on the basis of the profit it would have earned by the sale of a kit for the construction of the respondents' house. However, the evidence demonstrated that the respondent would never have purchased a kit home from the applicant "under any circumstances" and thus the infringement did not cause the loss of profit on the sale of a kit home. The applicant sought an assessment of damages on the basis of a licence fee of $6,000.00 for the use of the kit home construction plans. His Honour referred to evidence that suggested a licence fee based on a fee paid to a draftsman of $535.00 was a more likely fair licence fee and thus awarded the applicant damages of $750.00, as mentioned in submissions by Mrs Bogdan.
92 In this case, it is equally clear that had Jennings quoted to the respondents an amount of $198,550.00 (including GST) as the price for the construction of the Bogdan home including the variations to the plan the subject of the amount of $16,424.00 mentioned in the evidence of Mr Henesey‑Smith, the Bogdans would not have accepted that quote. Jennings would not have undertaken the project and would not have derived the construction profit or any profit.
93 In Autodesk v Cheung, Wilcox J did not apply the licence fee approach to the assessment of damages because his Honour could not draw the inference, on the facts of that case, that the respondent, presented with a choice between paying a licence fee or not using the work, would have paid the licence fee. It was simply not a likely event. Similarly, Tamberlin J took the view on the facts before his Honour in Columbia Pictures Industries Inc. & Anor v Luckins (1996) 34 IPR 504 at 509 that a licence was unrealistic. His Honour observed at 509:
In my view, the licence fee approach is not appropriate in a situation where it is clear that there never would have been a licence granted by the applicants because of the disruption such a licence would inflict on the applicants' basic strategic marketing timetable in Australia.
94 In that case, Tamberlin J was addressing the assessment of damages arising out of the importation into Australia by the respondent of copies of films distributed on laser disks in the United States by Columbia Pictures. In that context, Tamberlin J rejected the utility of the licence fee approach. A similar view was taken in Eagle Rock v Caisley which concerned the assessment of damages arising out of the sale of DVD copies of an unauthorised recording of a live performance by Eric Clapton and his band. In Eagle Rock at [12], Tamberlin J said this:
12. … I do not consider that Eagle would, if requested, have granted a licence to Caisley or that Caisley would have paid the licence fee if he was given the choice between so doing or not using the copyright work. The two parties were in direct competition.
95 The evidence in this case does not suggest any element of a competitive threat by the respondent, Mr Bogdan, to the activities of Jennings nor is there any suggestion of any disruption to the applicant's activities manifest in the class of case reflected in the decisions in Autodesk v Cheung, Columbia Pictures v Luckins and Eagle Rock v Caisley. Equally clearly, the element of disruption was the factual foundation upon which their Honours came to the conclusion that the applicants in each case would not have granted a licence. It is clear in this case that had a licence been sought by the respondents from Jennings it would either not have been granted or alternatively a licence fee of $20,000.00 might have been nominated by Jennings. That possibility is at least consistent with the letter of demand and the pleading. Nevertheless, had Jennings sought a licence fee from the respondents of $20,000.00, plainly enough, the respondents would not have taken up that licence.
96 It follows that applying a licence fee in the present circumstances is an inappropriate measure of damages. Thus, damages should be assessed on the footing that damages are, in this case, at large (Fenning Film Service Limited v Wolverhampton, Walsall and District Cinemas Limited [1914] 3 KB 1171; Gaunt v Hille [2007] FCA 2017 at 75 - 79).
97 Accordingly, in assessing the damages on that footing, I take into account these matters. In this case, the respondents, like the respondent in New England Country Homes, chose to devise a plan for and then construct a home to live in rather than a house for sale. In doing so, Mr Bogdan engaged in conduct of reproducing the appellant's plan in a material form. There is no suggestion that either respondent will engage in any further infringing conduct. Nor is there any evidence that Jennings has suffered a diminution in its revenue by reason of this transactional act of infringement. Moreover, the evidence demonstrates that Jennings would not have derived any profit from the project as the respondents would not have either paid a licence fee to or contracted with Jennings for the design and construction of their home.
98 Nevertheless, the fact that the respondents would not have contracted with Jennings is not an answer to the Jennings' claim for damages suffered as a result of the infringement. It is necessary to formulate the damages referable to the act of infringement by attempting to disaggregate the bundle of services Jennings supplies to a client so as to isolate the best estimate of damages possible on the evidence available as a measure of the appellant's loss directly related to infringement. In undertaking that exercise, it is not appropriate to bring into account the cost of the additions to the Bogdan plan not reflected in the Cortona 290. Jennings says that the direct cost of design and construction of a Cortona 290 in January 2004 was $118,912.00. A margin of 25% based on those foundation costs would amount to $29,728.00. Jennings, of course, says that its 25% margin is struck on the gross turnover value excluding GST which in respect of the Cortona 290 excluding the Bogdan additions seems to be $164,076.00 representing a margin of $41,019.00 on the preferred method adopted by Jennings. That method of calculating a margin on the turnover value excluding GST is a calculation of its design and construction profit. Damages ought not to be calculated on that footing. An examination of these approaches to the calculation of profit is simply an indication of the net loss Jennings might have derived had it undertaken the project (leaving aside the variations for this purpose). One way of forming a view of the contribution of the copyright in the plan to that profit is to appreciate the aggregation of services which give rise to the profit and to then disaggregate those services and apportion some part of the profit to the use of the plan as an analogue of loss suffered by Jennings by reason of the use by Mr Bogdan of the Jennings plan as joint author with Mr Florien Bogdan. The profit calculation is simply a base starting point. Doing the best I can on the available evidence which is very limited, I estimate the contribution of the copyright in the plan at about 10%. The vast majority of the profit is, no doubt, referable to the quantities of materials supplied and the construction, supervision and completion of the home itself.
99 On that footing, the damages would range between $2,972.00 and $4,101.00. It seems to me that the appropriate amount is the average of the two namely, $3,536.00. There is no basis for an award of exemplary damages.
100 Accordingly, the orders will be these. The appeal as against Mrs Bogdan is dismissed. The appeal as against Mr Bogdan is allowed. The plaintiff in the Court below is awarded damages of $3,536.00. The appellant will pay the costs of Mrs Bogdan of and incidental to the appeal to this Court and the costs of Mrs Bogdan of and incidental to the proceedings in the Court below. The respondent, Mr Bogdan, will pay the appellant's costs of and incidental to the appeal to this Court and the costs of the appellant of and incidental to the proceedings in the Court below.
I certify that the preceding one hundred (100) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.