ACP Machinery Australia Pty Ltd v Aerospace Technologies of Australia Ltd

REASONS FOR JUDGMENT 1 In my reasons for judgment in this proceeding published on 26 July 2013, I reserved for further argument the question of the remedies to which the applicant was entitled: ACP Machinery Australia Pty Ltd v Aerospace Technologies of Australia Ltd (No 3) [2013] FCA 718. The reasons which follow hereunder deal with that question. 2 I found that the second respondent, Boeing Aerostructures Australia Pty Ltd ("BAA") had infringed the applicant's copyright in certain CAD drawings when Mr Steele of BAA supplied a copy of them to Mr Sevenster of Marand Precision Engineering Pty Ltd ("Marand") at about the end of May 2005 (or shortly thereafter). The drawings depicted the engineering design of the universal holding fixture ("UHF") which had been supplied by the applicant to BAA's predecessor, Aerospace Technologies of Australia Ltd ("ASTA") in 2002. Marand's interest in the drawings arose because it had been engaged by BAA to design, construct and install a UHF for what was in 2005 a new project, namely, the production of wing panels for the aircraft which became the Boeing 787. 3 The applicant claims both compensatory damages under s 115(2) of the Copyright Act 1968 (Cth) ("the Copyright Act") and additional damages under subs (4) of that section. Its case for compensatory damages is put two ways. First, it says that, as at the end of May 2005, its quotation for the supply of actuators for use in the intended new UHF was under active consideration by Marand and BAA, that its ability to make acceptance of that quotation a condition of Marand having access to the CAD drawings would have been a powerful negotiating tool in its hands, and that it should be inferred that Marand would have met that condition as its only means of securing the drawings. On that hypothesis, the applicant says that its damages represent the gross profit which it would have derived from the sale of the actuators to BAA (ie the difference between the price it had quoted to Marand and the price which it would have paid Elmeq Nederland BV ("Elmeq") for the supply of the actuators). The applicant adds that, if the court is not satisfied that it is more likely than not that it would have secured the contract for the supply of the actuators, on any view BAA's infringement denied it the opportunity to use access to the CAD drawings in this way, and that some damages should be awarded so long as the prospect of it securing the contract was more than merely speculative: Malec v J C Hutton Pty Ltd (1990) 169 CLR 638, 643 ("Malec"). 4 Secondly, and alternatively, the applicant says that, if compensatory damages cannot be calculated in that way, a jury-like assessment of damages "at large" should be made, consistently with the judgment of Mansfield J in Spotless Group Ltd v Blanco Catering Pty Ltd (2011) 93 IPR 235, 267 [133] ("Spotless"). 5 In order to consider the first way in which the applicant puts its case for compensatory damages, it will be necessary to return to the evidence in the case. In para 33 of my reasons of 26 July 2013, I referred to the "trade study" in relation to which Marand had been contracted to BAA. It was during this phase that Marand was asked to secure, and did secure, the applicant's quotation of 21 April 2013. In para 35 of my reasons, I said that it seemed that both BAA and Marand considered that the quotation was much too expensive. That may then have been the case, but the evidence suggests that it was not until some time later that the applicant's quoted price became the subject of specific attention. 6 In the period following the receipt of the quotation, it remained BAA's preference, and it was clearly Marand's assumption, that the applicant would be the supplier of the actuators to be used in the new UHF. On 29 July 2005 (more than three months after receipt of the applicant's quotation), Marand submitted to BAA its "firm fixed price proposal" for the design, production, installation and commissioning of the trim and drill systems for the 787 panels. In that proposal, Marand said: The pogo-bed is similar to the existing system employed in the Bretton [sic] machine at HdH. The pogo's [sic] are envisaged to be acquired from the same company, for the sake of product uniformity in HdH. And: The skins are placed on a "pogo" bed, using the same technology as currently in use on the Bretton [sic] 5 axis milling machine at HdH. At some point in August 2005 (and inferentially before the proposal had been accepted), BAA asked Marand to reduce its price. According to Mr Sevenster, one of the most expensive items was the actuators. This concern for price on the part of BAA led, I would infer, to the events to which I referred in paras 41 and 43-45 of my reasons of 26 July 2013, and to the meeting with Mr Wingrove on 20 September 2005. What is of present concern, however, is the inference, which is clearly to be drawn from the objective material, that, when Marand submitted its proposal to BAA on 29 July 2005, it intended to use actuators sourced from the applicant in accordance with the latter's quotation of 21 April 2005. 7 It should not be inferred, however, that Marand intended to use a bed or frame for the new UHF that would correspond to that of the UHF supplied by the applicant in 2002. In evidence are some preliminary drawings made by Mr Sevenster towards the end of May 2005 (they were sent to Mr Steele under cover of an email dated 1 June 2005) upon which (together with other factors) he based his evidence that the new UHF would have "a different superstructure design" from that employed in 2001/2002. I accept that those drawings provide a basis for the inference, which I draw, that Mr Sevenster's then intention was not simply to use the applicant's 2002 structure to which the CAD drawings, sent very recently by Mr Steele, related. 8 The applicant's case does not, of course, depend upon Mr Sevenster then having such an intention. It is not submitted on the applicant's behalf that Marand obtained the CAD drawings because it intended to build a UHF in accordance with them. Rather, it is said that Marand's need for the drawings was so great that it would have paid the price which the applicant had sought for the actuators in its quotation of 21 April 2005; or at least that the prospect of Marand accepting that quotation would have been enhanced if the applicant could have used the drawings, in effect, as a bargaining chip. In the context of such a case, Mr Sevenster's intention is relevant in a slightly different way. It then becomes necessary to consider whether his need for the drawings was such that he would have placed a value on them sufficient to affect the recommendation that he otherwise would have made to BAA in relation to the supply of the actuators. 9 At the end of May 2005, Mr Sevenster was working on the assumption, which he had specifically been asked by BAA to make, that the actuators to be used in the new UHF would be the same as had been supplied by the applicant on the earlier occasion. He did, therefore, need no persuasion to select the applicant as the supplier of the actuators. He was not, of course, then in a position to offer the applicant a contract, as Marand itself had not at that stage put together all of the elements of the project upon which it would later submit its own proposal to BAA. In the notional conversation between Mr Sevenster and Mr Wingrove (for the sake of simplicity, I shall assume that Mr Wingrove would have been the point of contact at this stage; the analysis would not be affected if the assumed participant on behalf of the applicant was Mr Ponfoort) by reference to which the applicant invited me to decide this case - namely, one which occurred in late May 2005 as the counterfactual to Mr Steele sending the drawings to Mr Sevenster in the way that he did - if Mr Wingrove had refused Mr Sevenster's request for the drawings in the absence of an acceptance of the applicant's quotation of 21 April 2005, it would be quite unrealistic to suppose that such a condition would have been accepted then and there. 10 Moving from the hypothetical to what Mr Sevenster actually did in relation to the CAD drawings once he received them from Mr Steele, the subject was dealt with in some detail when the former was under cross-examination. The relevant evidence proceeded as follows: And now when you got these drawings, what did you - back in 2005, what did you do with them? So, your Honour, what happened - immediately we did not have time to scrutinise them at all because we were at that stage doing the quotation and so forth. But we did have - I did have a look through it, but because the construction of the machine is so vastly different it was of no real practical value to us. But as an engineer you appreciate what other designers have designed and take it on face value like that. And did this provide you with any instruction going forward as to what you might do in the task that you had in 2005? No, not at all, your Honour, not at all. This is all just standard engineering fabrication practice. If you go back to document CS10, you say there that you made the request for the drawings and you said that would be a great help. What did you imagine that the drawings might show you? From memory, your Honour, what I would - what we were interested at that stage is the use of the actuator, which ACP at that stage was the only person we would have asked for. So the information is how did they - how did they provide space around that, that's all what we would [sic] - for that size actuator. Well, weren't these drawings a great help in that respect? They do tell you how much space there needs to be around each actuator, don't they? For that actuator - if we used that actuator that would be true. For any other actuator, your Honour, that would not be true anymore. So to the extent that you were faced with choices about what to do going forward at the end of May 2005, these drawings assisted you to make that choice one way or another, didn't they? I - if I understand you correctly, no, sorry. Maybe repeat, your Honour, if we can ask the question again. Well, May 2005 you're investigating how - perhaps I will take a step back. You at Marand had never built a universal holding fixture before, had you? Your Honour, not of this kind, but in CS1 we have showed Mr Eddie Walsh's UHF, yes. You had never - but when you say "not of this kind," what's the difference between this one - that 2001 ACP one - and what Mr Walsh proposed? So, your Honour, Mr Walsh was doing research at that time, so the - that UHF was specific to a specific component of the aircraft, whereas this machine was a production tool with all the peripherals of a production tool. And you were - in 2005 you had the task of building a UHF which would be a production tool, didn't you? Correct, your Honour. Yes. And you had never done that before, had you? Your Honour, not of this kind, no, we had not. So these drawings provided you with information about how someone else had gone about a similar task, didn't they? Specifically, yes, your Honour. From this evidence, it is apparent that, to the extent that the CAD drawings were of any utility to Marand, that utility lay in the assistance that they would provide in the event that actuators sourced from the applicant were used. What Mr Sevenster meant by "specifically" in the last answer which he gave was a reference, for example, to such information as the amount of space which was needed to be provided around each actuator, information which, as Mr Sevenster earlier said, "for any other actuator … would not be true anymore" (ie would not be a great help to him). 11 In his affidavit sworn on 13 September 2013, Mr Ponfoort said that, had he been asked in late May 2005 to allow BAA to provide Marand with the CAD drawings, he would have "asked [BAA] why it wished to provide those drawings to a third party competitor" of the applicant. He "would have already suspected that Marand wished to have access to the [d]rawings so they could be used on another project". He "would have suspected that Marand was building another universal holding fixture for [BAA]" because he was aware of Marand's request which led to the quotation of 21 April 2005. He would have told BAA that it was "unreasonable to expect [the applicant] simply to give [BAA] permission to hand the [d]rawings over to Marand without [the applicant] receiving something substantial in return". He would have told BAA that, if it were "prepared to ensure at least that [the applicant] received a firm contract for the provision of [its] actuators in line with the 21 April 2005 quote", the applicant would have given the permission sought. However, while Mr Ponfoort's suspicions were well-founded to the extent that they related to BAA's intention to have Marand build another UHF, to the extent that they involved the assumption that Marand had it in mind to use the CAD drawings in conjunction with a project which did not include the applicant's actuators, they were not. As the evidence set out above shows, the utility of the drawings to Mr Sevenster would arise only in a context in which the applicant's actuators were used. 12 While on the subject of Mr Sevenster's evidence, I would add that the hypothesis by reference to which the applicant now claims damages was not put to him. That is to say, he was not confronted with a situation in which he would have known that he needed the applicant's permission before he could have access to the CAD drawings, in which he would have asked Mr Wingrove for that permission, and in which Mr Wingrove would have made it a condition of access that the applicant be given the contract for the supply of the actuators. Mr Sevenster was not asked what his response would then have been. This is not a formal deficiency in the applicant's case. It is conceivable that Mr Sevenster might have responded in a number of ways. He might have simply told Mr Wingrove that he was not interested in any such condition. He might have said that the CAD drawings were not that important. He might have said that he was not, at that early stage, in a position to give the commitment sought. Properly advised, he might have said that he could view the drawings on BAA's own computer to the extent that he needed access to them, thereby avoiding the need for any reproduction. The court has no idea what practical, financial or other considerations would then have entered into Mr Sevenster's consideration of the matter, and how he would have responded, because he was not asked. In these circumstances, the applicant is not, in my view, in any position to ask the court to estimate the probability (however slight) that Mr Sevenster would have complied with Mr Wingrove's condition. That would be pure speculation. 13 Putting that omission to one side for the moment, the position is as follows. As mentioned above, I would exclude as unrealistic the prospect that Mr Sevenster would have been prepared to contemplate awarding the actuator supply contract to the applicant at the end of May 2005 (or shortly thereafter) however much he might have been interested in seeing the CAD drawings. The applicant's case must, therefore, be that, in the course of his subsequent consideration of the matter, Mr Sevenster's need to see the drawings was so great that he would then have awarded the supply contract to the applicant as the price for obtaining the drawings. But that too posits a position which is no more realistic than the one I excluded. I can understand that Mr Sevenster might have said to Mr Wingrove that he needed the drawings to be able to make a decision on the applicant's quotation. Had Mr Wingrove refused to give access to the drawings for that purpose, Mr Sevenster might well have turned his back on the applicant and obtained the actuators elsewhere. What I cannot understand is any circumstance in which Marand would need access to the drawings for any other purpose, such as that which is implicit in the applicant's case, namely, for use in conjunction with actuators sourced other than from the applicant. 14 Moving forward to August 2005, by then Marand had submitted its proposal, which was based on acceptance of the applicant's quotation of 21 April 2005. At that stage, therefore, the applicant had no need of an additional negotiating lever. It was price which caused Mr Sevenster to revisit his then provisional decision to use the applicant's actuators. There was no suggestion in the evidence that the CAD drawings were specifically discussed at the meeting of 20 September 2005, but had they been, what would Mr Sevenster's response have been? If Mr Wingrove had said that the drawings could not be used unless the applicant's quotation was accepted, surely Mr Sevenster's response would have been that, if the applicant did not come in with an acceptable price, its quotation would not be accepted and the drawings would be of no further interest. On no conceivable view of the matter would Mr Sevenster have regarded the drawings as valuable to him in their own right, and worth paying a price that would have involved, somehow, breaking down BAA's resistance to Marand's original proposal of 29 July 2005. The facts of the case provide no sustenance for the suggestion that Marand would have had any interest in paying such a price for the drawings or that BAA could have been persuaded that the drawings had this kind of value. 15 It was submitted on behalf of the applicant that, so long as the prospect of it securing the contract for the supply of the actuators to BAA would have been enhanced to any extent if it had been able to make that outcome a condition of Marand having access to the CAD drawings, the court should assess the probability of that happening and award damages accordingly, even if it be held that it was more probable than not that the applicant would still not have secured the contract. This was based upon the line of jurisprudence associated with such cases as Malec (169 CLR at 643) and Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 350 and 355. What is proposed is that the court should estimate what would have been the percentage probability that the applicant would then have secured the contract and apply that figure to the gross profit which the applicant calculated it would have derived from the contract if it had been awarded on the basis contained in its quotation of 21 April 2005. 16 The applicant's approach is problematic at a number of levels. First, as mentioned above, any attempt by the applicant to use access to the CAD drawings as a bargaining chip in its negotiations with Mr Sevenster would have made it less, not more, likely that the applicant's quotation would have been given serious consideration. In the normal run of cases in this area of the law, the defendant's delict has presumptively cut the plaintiff out of an opportunity for commercial gain. Whether or not the opportunity would have come home in the sense of being converted into something concrete, the opportunity as such is treated as having a value: merely being in the race presents the prospect, however slight, of winning. In the present case, however, the applicant was in the race in any event, and BAA's copyright infringement did not exclude it. Its prospect of winning would not have been enhanced if Mr Sevenster, properly advised, had known that he had to seek the applicant's permission to have access to the CAD drawings and Mr Wingrove had made it a condition of that access that the applicant then and there be promised a win in the race. The probability that Mr Sevenster would have acceded to such a condition must be regarded as negligible. 17 Secondly, this is not a case in which the court is faced with estimating the probability of the applicant succeeding in a contest from which it was wrongfully excluded. The applicant was not excluded: to the contrary, it was the front-runner. Marand had the CAD drawings, and with them the wherewithal to understand the spatial and other engineering requirements which the use of the applicant's actuators would have involved. Aside from price, it is hard to think of how the applicant could have been any more favourably placed. So interested were Marand and BAA in the applicant's quotation that they arranged a special meeting (on 20 September 2005) to discuss price. In this environment, it is clear that price was overwhelmingly the consideration which stood in the way of the quotation being accepted. As it happened, the price for 110 actuators contained in the quotation of Motion Technologies Pty Ltd submitted on 22 November 2005 was only about 60% of the corresponding price which the applicant put forward in this proceeding as representing what it would have been paid had its quotation of 21 April 2005 been accepted. We are, therefore, not dealing with price differentials at the margin. The applicant's failure to secure the contract was quite unrelated to any deficiency in bargaining power which it now claims would have made a difference. 18 Thirdly, there is the evidentiary problem to which I referred in para 12 above. Without the question having been put directly to Mr Sevenster, I cannot see how the applicant can now ask me to place a percentage probability on the prospect that he would have regarded access to the CAD drawings as sufficiently important to recommend to BAA the acceptance of the applicant's quotation as priced, and that BAA would have accepted any such recommendation. 19 For the above reasons, I would reject the first way in which the applicant frames its case for compensatory damages. 20 The applicant's second approach to compensatory damages was that referred to by Mansfield J in Spotless (93 IPR at 267 [133]). In my reading of the authorities mentioned by his Honour, they followed two lines. The first was the approach adopted by Wilcox J in Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472, 477, under which, when it was established that damages had been suffered in a copyright infringement action but neither a licence fee approach nor any other sufficiently precise approach was apposite, it was open to the court to treat the assessment of damages as being "at large" and award "what amount I think right as if I were a jury": Fenning Film Service Ltd v Wolverhampton, Walsall and District Cinemas Ltd [1914] 3 KB 1171, 1174. The second line of authorities related to damages cases generally, and held that, if damages had been suffered, but the injured party, despite his or her best efforts, was unable to quantify them, resort might then be had to "a degree of estimation and guesswork": Enzed Holdings Ltd v Wynthea Pty Ltd (1984) 57 ALR 167, 183, to which must now be added (although not referred to by Mansfield J) Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257, 266 [38]. 21 However the matter is analysed, the principle referred to by Mansfield J in Spotless is concerned with a situation in which it has been held that damage was suffered, but in which assessment is problematic. That is not the present case. I am not satisfied that the applicant suffered any damage as a result of BAA's infringement of copyright. 22 I am, however, persuaded that the applicant is entitled to an award of nominal damages in respect of BAA's infringement: MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1998) 43 IPR 275, 281; Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (No 2) (2008) 76 IPR 763, 766 [16] ("Futuretronics No 2"). I shall award the applicant the sum of $10. 23 Under its claim for additional damages, the applicant relies particularly on subparas (i) and (iii) of s 115(4)(b) of the Copyright Act, which provide as follows: (4) Where, in an action under this section: … (b) the court is satisfied that it is proper to do so, having regard to: (i) the flagrancy of the infringement; and … (iii) any benefit shown to have accrued to the defendant by reason of the infringement. … the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances. The applicant contends that BAA's infringement was flagrant, and that BAA derived a benefit from the infringement. 24 Looking only at the immediate circumstances in which Mr Steele sent the CAD drawings to Mr Sevenster, it could not be concluded that the infringement was flagrant: see para 36 of my reasons of 26 July 2013. However, the applicant points to two factors which are said to shed a light on those circumstances which gives them a less innocent presentation. First, ASTA had specifically negotiated a contract which contemplated, in cl 32, that it would come into possession of works in which the applicant would own the copyright, and provided for that copyright to remain where it lay: see paras 30 and 80 of those reasons. Although Mr Steele was unaware of the terms of cl 32, it was submitted on behalf of the applicant that there was a corporate awareness on the part of BAA, the result of which was that its infringement must be categorised as wilful at least. Secondly, the CAD drawings contained what the applicant contended, and the respondents did not dispute, was a copyright notice, such as was contemplated by cl 20 of the contract. Mr Steele was, therefore, constructively on notice of the applicant's rights. 25 What amounts to flagrancy within the meaning of s 115(4)(b)(i) has been summarised by Besanko J in Futuretronics (No 2) as follows (76 IPR at 767-768 [19]): The meaning of "the flagrancy of the infringement" has been described in various ways. In Ravenscroft v Herbert & New English Library Ltd [1980] RPC 193 Brightman J referred to it as "scandalous conduct, deceit and such like; it includes deliberate and calculated copyright infringement"; in Prior v Lansdowne Press Pty Ltd [1977] VR 65 at 70, … Gowans J (at 70) referred to it as a "calculated disregard of the plaintiff's rights, or cynical pursuit of benefit"; and in Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 103 … flagrancy was said to connote conduct which could probably be described as "glaring, notorious, scandalous" or "blatant". In Polygram [Pty Ltd v Golden Editions Pty Ltd (No 2) (1997) 76 FCR 565, 575-578] … Lockhart J said that flagrancy did not include mere mistakes or carelessness and that if the infringer mistakenly believed that he or she owned the relevant copyright, or acted in the bona fide belief that no copyright subsisted in the plaintiff's work then the conduct was not flagrant. It is of some interest that, in the last case there mentioned, Polygram, Lockhart J declined to award additional damages notwithstanding that his Honour made the following findings (76 FCR at 578-579): I am satisfied that, without the licence of the applicants, the respondents made or authorised the making of and sold multiple reproductions of the relevant Cat Stevens and Carpenters recordings. I am also satisfied, in relation to the infringements which have been admitted in this case, that at relevant times Mr Hughes (and therefore Golden Editions) knew that the applicants owned the copyright in the sound recordings of Cat Stevens and the Carpenters, and that they were aware that it was likely that the applicants were selling copies of the recordings in Australia at relevant times. Since at least June 1992, in relation to all the infringements, the respondents knew that the applicants asserted title to the recordings; and the respondents on more than one occasion wilfully breached undertakings given by them to the applicants on 3 July 1992 not to manufacture and/or distribute copies of any of the recordings. The respondents failed to disclose the existence of certain infringing copies of the recordings not previously disclosed to the applicants and of which the applicants were not previously aware until shortly before the commencement of the hearing of this proceeding. 26 On the facts of the present case, I would find that BAA was aware that any copyright that may have subsisted in the CAD drawings had not been assigned to ASTA pursuant to the contract which it made with the applicant in 2001. So too ought it to have been aware of the applicant's claim to copyright in the drawings. When Mr Steele provided the drawings to Mr Sevenster in May 2005, his approach, and therefore that of BAA, was casual to the point of being careless. However, I would find that the subject of copyright protection had not specifically (ie apart from the relatively inconspicuous copyright notice on which the applicant relies) been drawn to Mr Steele's attention, and that he did not in fact turn his mind to that subject. So this is not a case in which a party proceeds to reproduce works after having been put on specific notice of the copyright owner's rights. And it could not be described as the wilful turning of a blind eye. In all the circumstances, I am not satisfied that BAA's relevant conduct was flagrant. 27 With respect to subpara (iii) of s 115(4)(b), I would hold that the benefit which accrued to BAA as the result of Mr Steele sending the CAD drawings to Mr Sevenster in May 2005 was negligible at best. The basis for this conclusion appears sufficiently from what I have written earlier in these reasons. 28 For the above reasons, I am not persuaded that this is a case proper for the award of additional damages under s 115(4) of the Copyright Act. 29 I shall hear from the parties on the question of costs. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jessup.