BRIAN STEWART COWAN and INTERCONTINENTAL GRAIN EXPORTS PTY LIMITED - ACN 002 962 227 v AVEL PTY LIMITED - ACN 009 041 016 - [1995] FCA 546 - FCA 1995 case summary

Federal Court of Australia|1995-07-27|Before: Wilcox J

WILCOX J: This is a proceeding under s.202 of the Copyright Act 1968 in which two applicants, Brian Stewart Cowan and Intercontinental Grain Exports Pty Limited, claim damages against Avel Pty Limited, the respondent. In the words of its marginal note, s.202 is concerned with "groundless threats of legal proceedings". It relevantly provides: "202.(1) Where a person, by means of circulars, advertisements or otherwise, threatens a person with an action or proceeding in respect of an infringement of copyright, the, whether the person making the threats is or is not the owner of the copyright or an exclusive licensee, a person aggrieved may bring an action against the first-mentioned person and may obtain a declaration to the effect that the threats are unjustifiable, and an injunction against the continuance of the threats, and may recover such damages (if any) as he has sustained, unless the first-mentioned person satisfies the court that the acts in respect of which the action or proceeding was threatened constituted, or, if done, would constitute, an infringement of copyright. (2) The mere notification of the existence of a copyright does not constitute a threat of an action or proceeding within the meaning of this section. (3) ... (4) The defendant in an action under this section may apply, by way of counterclaim, for relief to which he would be entitled in a separate action in respect of an infringement by the plaintiff of the copyright to which the threats relate and, in any such case, the provisions of this Act with respect to an action for infringement of a copyright are, mutatis mutandis, applicable in relation to the action. (5) ..."

Intercontinental Grain Exports ("IGE"), the second applicant, is controlled by Mr Cowan, the first applicant. It seems that the company's primary business is the export of agricultural produce. But in the 1970s the company took over premises that contained some amusement games and Mr Cowan decided to operate an amusement centre. IGE began importing amusement machines from Japan and, later, expanded its operations to include providing amusement units to milk bars, hotels, clubs etc. Mr Cowan arranged to import some machines from the United States, including machines manufactured by Williams Electronic Games Inc ("Williams") of Chicago. By the early 1980s IGE was importing approximately two containers of pinball machines each year, principally from the United States and including Williams' machines. In 1986 Mr Cowan decided to rationalise his operation by importing only better quality pinball games. He thought Williams' pinball games were the best available at that time and he decided to concentrate on used games. They were cheaper than new machines and readily saleable. Mr Cowan made contact with a Tennessee-based company, Green Games Inc ("Green Games"). In September 1987, through Green Games, Mr Cowan imported a container containing 29 Williams' used pinball machines and four machines manufactured by others. The container arrived in Australia in about October. Mr Cowan contacted Zaccaria Games of Canterbury, Sydney and Coin Plan Sales of Melbourne. He arranged to send ten of the Williams' machines to Zaccaria and five to Coin Play. In each case the machines were sent on consignment. The arrangement was that, if a particular machine was sold, a specified sum would be paid to IGE. The consignee was free to sell the machine for whatever price it wished, above that figure, and pocket the difference. Mr Cowan said in his affidavit that he "was content at that stage to sell only half of the games received and sell them off as required. I intended to retain four of the games for use in my own business". At about this time, on 27 November 1987, solicitors acting for Avel wrote a letter to a Brisbane company, Multicoin Amusements Pty Limited ("Multicoin"), asserting copyright in used Williams' machines. That letter is referred to in the first item of particulars to para.4 of the Statement of Claim. It was recounted in the reasons for judgment of the Full Federal Court concerning litigation between Multicoin and Avel: see Multicoin Pty Limited v Avel Pty Limited (1990) AIPC 90-646 at 36,122. [The High Court appeal from the Full Court decision is Avel Pty Limited v Multicoin Pty Limited (1990) 171 CLR 88.] But the letter was not tendered in this case. Although there is evidence that Mr Cowan soon became aware of the Multicoin/Avel dispute, there is no evidence that either he or his customers became aware of the letter of 27 November. The applicants have not established that any damage was sustained by either of them as a result of the letter of 27 November. Nor have they proved the contents of the letters referred to in item (iv) of the particulars or any damage flowing from them. However, the applicants have proved the receipt of the letters referred to in items (ii) and (iii). On 12 January 1988 Avel's solicitors wrote a letter to Zaccaria in which they stated that they acted for Avel and went on: "Our client is the exclusive distributor in Australia of various pinball amusement games, designed and manufactured by Williams Electronics Games Inc., and known as 'Pinbot', 'Road Kings', and 'Comet'. As such our client has the exclusive right within Australia to import, advertise and sell the games. It has come to our client's attention that you have on display at your premises for sales purposes the following games:- Williams Pinbot - serial number 54012773 Williams Road Kings - serial number 54249970 Williams Road Kings - serial number 54247880 Williams Comet - serial number 54068431 Pursuant to the provisions of the Copyright Act 1968 Williams is the copyright owner of, inter alia, the computer software incorporated in the games and the artistic works contained in the games. Our client is entitled to protect that copyright within Australia. We are further instructed that the abovementioned games, offered by you for sale, were not imported into Australia with the consent of Williams or our client. It is our view that, your actions in proceeding to advertise and offer for sale the games, constitutes an infringement of both our clients' rights and also the rights of Williams in the games."

The solicitors sought undertakings that Zaccaria would forthwith withdraw the games from sale, deliver them to Avel and provide them with information concerning Zaccaria's purchase of the machines. The solicitors also required "a full account of all profits derived from you arising out of the sale of the games". They threatened injunction proceedings if the undertakings were not given within seven days. This letter came to the attention of Henry Tester, manager of Zaccaria. He telephoned Mr Cowan and informed him of the content of the letter. He said he did not wish to be a party to the dispute and would like to return the consigned games to IGE. Mr Cowan acquiesced and the games were returned. On 18 January Mr Tester sent a letter to Mr Cowan confirming the return to his store of all ten Williams' machines. He identified these, by reference to their serial numbers. They consisted of two "Pinbot" machines, three "High Speed" machines, two "Comet" machines, three "Road Kings" and one "Space Shuttle". It should be noted that Avel's solicitors' letter referred only to "Pinbot", "Road Kings" and "Comet"; it made no mention of "High Speed" or "Space Shuttle".

Mr Cowan sent a copy of the solicitors' letter to Vince Ditton of Multicoin. Apparently Mr Ditton had previously expressed interest in taking some of the container load of machines. In a covering letter, Mr Cowan said: "Mr Tester the manager of Zaccaria has sent me the attacted [sic] letter, which informs us we cannot sell 2nd hand equipment we feel this is restrictive trading and we feel we should inform you that we must withdraw from offering to you untill [sic] this is resolved. I must add that this has placed us in a very awkard [sic] fincial [sic] position to hold on to these machines, as it was our intention to sell them. For any company to be able to restrict trading in used equipment and second hand machines in our opinion is wrong. They are bltently [sic] telling our customer not to buy them as they will take them off the sites. This appears to me to have a threaten [sic] tone or should I say a protection tone. I am sorry we cannot do business under the circumstances, however we feel you should be informed and we await your comments after your perusal of the letter sent to Zaccaria." Mr Cowan subsequently contacted Multicoin's solicitors. He closely followed the Multicoin/Avel litigation. On 8 February 1988 Coin Play received a letter from Avel's solicitors claiming that their client was "the exclusive distributor in Australia of two pinball amusement games designed and manufactured by [Williams] entitled 'Grand Lizard' and 'Road King' ... As such our client has the exclusive right within Australia to import, advertise and sell the games". The letter referred to ss.37 and 38 of the Copyright Act and to a recent sale by Coin Play of a "Grand Lizard" machine. The solicitors requested undertakings similar to those sought from Zaccaria. The general manager of Coin Play, Stephen Patan, reacted to this letter in the same way as Mr Tester had reacted to the letter sent to Zaccaria. He telephoned Mr Cowan and asked him to take back the consigned machines. Mr Cowan did so. IGE eventually sold the 29 Williams machines imported in late 1987, but at a loss. The company realised $40,640. The cost of the goods, including customs duty, sales tax, coin conversion costs and transport, was $57,671. So IGE sustained a loss of $17,031. Had the 29 Williams machines been sold at the prices fixed by Mr Cowan, IGE would have realised $108,649, yielding a before-tax profit on them of $50,978. When Mr Cowan first heard of Avel's threats to Multicoin, he contacted Roger Green, of Green Games. On 17 February 1988 Mr Green faxed him a letter enclosing a letter sent to him on 5 February 1988 by Martin Glazman, Vice President Marketing/Sales of Williams. The letter read: "With reference to your fax dated January 7, 1988, please be advised that agreements which Williams enters into with distributors throughout the world relate to the sale and distribution of new games manufactured by Williams. The used-game market is not within the control of Williams and Williams is not a party to any agreements with respect to used games. Williams has no say over the sales of used pinball games."

Notwithstanding this letter, IGE has not subsequently imported any Williams (or other) pinball machines. Mr Cowan's evidence, in effect, was that, notwithstanding the letter from Williams, nobody in the trade was prepared to purchase used Williams' machines; they feared being drawn into litigation. Avel's claims quickly became known to people in the trade. And he said that there was no real alternative to Williams' machines. In the period from 1988 until the present time, Williams machines have been so far superior to other makes that no other make has been worth importing; bearing in mind that it would have to compete in the Australian marketplace against Williams machines imported by Avel. Mr Cowan said that Avel's copyright claim remained uncertain until the High Court decision on 20 December 1990. Early in 1991, he learned that Avel had entered into a new agreement with Williams and that Avel claimed this effectively remedied the defect in its position exposed in the Multicoin litigation. Mr Cowan said that, in view of that claim, he was unwilling to take the risk, even after the High Court decision, of importing Williams' machines. I accept this evidence. I thought Mr Cowan to be an honest witness. He seems to be an astute businessman who would not pass up an opportunity for a profitable transaction if it could be effected at acceptable risk. There is no doubt that the importation of Williams machines is potentially highly profitable. Mr Tester and Mr Patan gave evidence that, but for Avel's claim of copyright, their companies would have purchased more Williams' machines from IGE. There is overwhelming evidence that Williams machines have dominated the Australian pinball market since 1988. I am satisfied that, in the absence of a copyright threat, Mr Cowan would have experienced no difficulty in selling a substantial number of used Williams' machines each year. He claims that it had been his intention, prior to Avel's threats, to import two container loads each year. The applicants read an affidavit of Paul Johnson, an accountant, analysing the loss claimed by IGE as a result of Avel's threats. Mr Johnson assessed the loss at $414,500, calculated as follows: 1. Loss of profits from October 1987 shipment ($50,978 less tax of $24,979) $25,999 2. Actual loss on October 1987 shipment 17,031 3. Loss of profits from future shipments during period 1989 to 30 June 1991 (five shipments each realising a gross profit of $50,978 but taxing the first two shipments at 39%; no tax on the last three shipments because of accumulated tax losses in 1990 and 1991) 215,128 4. Interest on these losses calculated at Supreme Court of New South Wales prescribed pre-judgment interest rates 156,342 $414,500 In a letter dated 14 July 1995, forwarded to me with counsel's written submission, Mr Johnson recalculated the loss at $555,006. The reason for the difference was that he had decided that the damages awarded in this proceeding would be taxable, so no taxation deduction ought to be made. Apparently, Avel does not dispute that the damages will be taxable. This seems to me to be correct and I propose to proceed on that assumption. Mr Michael Cashion, counsel for Avel, points out in his submissions that the letters sent on behalf of his client to Zaccaria and Coin Play together referred to only four Williams models: "Pinbot", "Road Kings", "Comet" and "Grand Lizard". IGE's October 1987 importation included 29 Williams' machines, comprising ten models. Of the 29 machines, only 13 were machines of a model mentioned in the threatening letters (four "Pinbots", three "Road Kings", four "Comets" and two "Grand Lizards"). He argues that no threat was made in relation to the other 16 machines. Furthermore, only six of the ten machines returned by Zaccaria were amongst the threatened models (two "Pinbots", two "Comets" and two "Road Kings"). The evidence does not disclose the break-up of the five machines supplied to Coin Play although it does reveal that one "Grand Lizard" had been sold by Coin Play to a customer before the threatening letter was received. Mr Cashion argues that it is important to keep in mind the limited scope of the relevant threats. He says that, whilst in an action under s.52 of the Trade Practices Act - "it might have been open to conclude that a statement which strictly speaking is made only in respect of the four Williams Games identified in the two letters might reasonably have been understood by the representee to be a representation that the Respondent has exclusive rights in respect of used Williams games generally,"

that is not the proper approach under s.202. Section 202 applies where there is a threat to commence an action for infringement of copyright in respect of a particular work or other particular subject matter and "empowers the Court to award damages only in respect of loss occasioned by an unjustified threat in respect of an infringement of copyright in relation to that specific work or specific subject matter". It follows, he says, that s.202 permits no more than an award of damages for loss resulting from any impediment to the enjoyment of the copyright in those four identified Williams' games; it does not authorise damages for loss relating to other Williams' games. Moreover, as the threats were made only to two of IGE's customers, the damages must be confined to the loss occasioned by any decision on their part, caused by the threat, not to purchase more of the specific Williams' games the subject of the threat. Counsel for the applicants, Mr Philip Taylor, argues that this approach is too narrow. He says that there is no restriction upon the recoverable damages, other than that they must have been caused by the unjustified threat. In his contention there is no difference between the approach to be adopted under s.202 and that under s.52 of the Trade Practices Act, or in an action in tort; "(t)he Court determines the loss that flowed from the wrong. This is derived by comparing the position which eventuated with the position which would have resulted had there been no wrong." The nature of the right conferred by s.202 was discussed by members of the High Court in Avel. At 104-105 Dawson J applied to s.202 a comment made by von Doussa J in this Court in connection with s.121 of the Patents Act 1952, which is in similar terms. The comment was made in Townsend Controls Pty Ltd v Gilead (1989) 14 IPR 443 at 448: "The provisions of s121 give no right to a patentee to make a threat. The purpose of the section, on the contrary, is to provide a statutory remedy for a person against whom a threat is made by a patentee who embarks on 'self help' measures instead of enforcing his claimed monopoly by instituting proceedings for infringement." So the question that arises in respect of an assessment of damages under s.202 is what damage has been suffered by the person bringing the action as a result of the threat or threats. Although von Doussa J spoke of the action being brought by the person "against whom a threat is made", this being the factual situation in Townsend Controls, s.202(1) is not so limited. The condition of its operation is that "a person ... threatens (another) person with an action or proceeding in respect of an infringement of copyright". If that condition is fulfilled, "a person aggrieved may bring an action against the first-mentioned person ... and may recover such damages (if any) as he has sustained", unless the defendant establishes infringement. The term "person aggrieved" is not separately defined. It is plainly intended to include any person adversely affected by the threat or threats. The supplier to the recipient of a threatening letter of the goods the subject of the threat, who loses sales or potential sales as a result of the letter, falls within the concept of a "person aggrieved". That person may recover any damages sustained by him or her as a direct and foreseeable consequence of the threat. In considering what damages fall within that category, it is necessary to keep in mind the nature and extent of the threat. But it cannot be stated, as an absolute proposition, that the damages will be confined to losses in respect of the particular works that are the subject of the threat or threats. A threat in respect of one work may cause such a disruption of a commercial relationship as to cause losses in respect of other works. The extent of the damage is a question of fact in every case. Neither of the letters giving rise to the present case made a claim in respect of all Williams' machines. Each letter mentioned particular models. But each recipient reacted in a similar way, by returning to IGE all the Williams' machines it held on consignment. This reaction was, in my opinion, foreseeable. The recipients held the Williams' machines on consignment. They had made no significant outlay in respect of them. They had no capital interest in them. If a particular machine was sold, the consignee stood to make a few hundred dollars, perhaps a thousand dollars, but the derivable income was small. The income they could realise from the machines would be dwarfed by legal costs, if Avel chose to sue them. Furthermore, the consignees did not sell to ultimate consumers of video-games but to people who were interested in using them for commercial purposes - people in the trade. People in that category might be expected quickly to learn that Avel was making claims of copyright in respect of some used Williams' machines and to steer clear of them all. The fact is that, by reason of the threats (limited as they were), IGE lost the opportunity of selling items from this consignment through Zaccaria and Coin Play. Although IGE did eventually sell all the machines, it did so at a loss. The market was undermined by the fact that people within the trade became aware of Avel's threats. I think IGE is entitled to recover the whole of its loss on the October 1987 shipment. I mean by this not only the actual loss sustained - that is, the difference between the cost of the goods sold and the total amount realised on sale, $17,031 - but also the estimated gross profit calculated by Mr Johnson, $50,978. Although Mr Cashion contended that the consignment prices fixed by Mr Cowan might not have been realised, all the evidence is that the market was strong, and these prices realistic, until the threats were made. The two sums add up to $68,009. I propose to allow interest on that amount, but not for the whole period (about seven years) that has elapsed since these machines were sold, during which the applicants were responsible for significant delay. No doubt it was reasonable for them to await the outcome of the Multicoin litigation. But the High Court gave judgment in December 1990. If this proceeding had then been promptly commenced, and thereafter diligently prosecuted, it could have been concluded by mid-1993. Under the circumstances, interest should be awarded for a period of only five years. I do not propose to apply the rates for pre-judgment interest prescribed from time to time by the Supreme Court of New South Wales. I prefer to take a single rate for the whole five year period. Interest rates were high during the period 1988 to 1993. It would be fair, I think, to allow 15% per annum for five years; a total of $51,006. Consistently with his submissions in relation to the October 1987 shipment, Mr Cashion submits that the respondent's threats did not affect the later importation of used Williams' machines other than the four models referred to in the letters. As with the October 1987 shipment, however, I think the market was not so discriminating as that. I accept Mr Cowan's evidence that, from a practical point of view, it was likely to prove impossible to trade profitably in Williams' machines until the termination of the Multicoin litigation. I also accept Mr Cowan's evidence that, absent the threats and litigation, he would have imported further Williams' machines in the period 1988-1990. There is independent evidence that during this period, used Williams' machines were both available from America and in demand in Australia. Mr Cowan said he had intended to import two container loads each year. While I accept the sincerity of this statement, I am not prepared to assess damages on the basis that his intention would have been fulfilled. A rate of two containers per year would have been higher than that achieved by IGE (for quality machines) in the post. Estimates like this tend to prove unduly optimistic. I think it would be fair to assess damages for lost future consignments on the basis that one container load would have been imported towards the end of each of the years 1988, 1989 and 1990, in time for the Christmas holiday trading period. I adopt Mr Johnson's calculation of a gross profit of $50,978 per shipment. Consistently with the attitude previously stated, I allow interest at 15% on the 1988 shipment for 3 years and 9 months ($28,675), interest on the 1989 shipment for 2 years and 9 months ($21,028) and interest on the 1990 shipment for 1 year and 9 months ($13,381). In the result, I propose to enter judgment in favour of IGE in the total sum of $335,033. This amount is made up as follows: $ 1987 shipment actual loss 17,031 lost gross profit 50,978 68,009 interest at 15% pa on $68,009 for 5 years 51,006 119,015 1988 foregone shipment estimated loss of gross profit 50,978 interest for 3.75 years at 15% pa 28,675 79,653 1989 foregone shipment estimated loss of gross profit 50,978 interest for 2.75 years at 15% 21,028 72,006

1990 foregone shipment estimated loss of gross profit 50,978 interest for 1.75 years at 15% 13,381 64,359

$335,033

The evidence does not suggest that Mr Cowan, as distinct from IGE, has sustained any damage. His application will be dismissed. However, as the joinder of Mr Cowan has not affected the quantum of costs incurred, I will make no costs order against him. I certify that this and the preceding nineteen (19) pages are a true copy of the Reasons for Judgment of the Honourable Justice Wilcox. Associate: Dated: 27 July 1995 APPEARANCES Counsel for the Applicant: P T Taylor Solicitors for the Applicant: Rockcliffs Counsel for the Respondent: M Cashion Solicitors for the Respondent: Kemp Strang & Chippendall Dates of hearing: 10 and 11 July 1995

BRIAN STEWART COWAN and INTERCONTINENTAL GRAIN EXPORTS PTY LIMITED - ACN 002 962 227 v AVEL PTY LIMITED - ACN 009 041 016

At a glance

Court

Decision date

Before

Source

Judgment (9 paragraphs)

1990 foregone shipment estimated loss of gross profit 50,978 interest for 1.75 years at 15% 13,381 64,359

Parties

Cases Cited (2)

Cited By (2)