Brilliant Digital Entertainment Pty Ltd v Universal Music Australia Pty Ltd

Federal Court of Australia (Full Court)|2004-10-08|Before: Wilcox J, Black CJ, Stone JJ

The application for leave to appeal from Order 1 made by Wilcox J on 4 March 2004 in N 110 of 2004 be refused.

The applicants for leave pay the respondents' costs of the application. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

N329 OF 2004 BETWEEN: BRILLIANT DIGITAL ENTERTAINMENT PTY LIMITED

N333 OF 2004 BETWEEN: SHARMAN LICENSE HOLDINGS PTY LTD

FESTIVAL RECORDS PTY LIMITED AND MUSHROOM RECORDS PTY LIMITED T/AS FESTIVAL MUSHROOM RECORDS

Black CJ and stone j: 1 We have had the benefit of reading, in draft, the reasons of Emmett J and gratefully adopt his Honour's account of the factual background to this application for leave to appeal as well as his summary of the reasons of the primary judge. We also adopt his Honour's nomenclature and where necessary in these reasons to distinguish between the applicants for leave refer to them as the 'Sharman Parties' and the 'Brilliant Parties', and to the respondents to the applications as the 'Music Companies'. The orders that are the subject of the leave applications are referred to as the 'Challenged Orders'.

GENERAL PRINCIPLES 2 The requirement in s 24(1A) of the Federal Court of Australia Act 1976 (Cth), that appeals from interlocutory decisions shall be brought only with leave, gives a judge an unfettered discretion to grant or refuse that leave. However, the provision also reflects an important policy of restraint concerning the review of decisions regulating the preparation of a case for trial. The potential for orderly preparation to be disrupted by frequent interlocutory applications is considerable and, as Gummow J pointed out in Bomanite Pty Ltd v Slatex Corp Aust Pty Ltd (1991) 104 ALR 165 ('Bomanite')at 173, the public has an interest, beyond that of the litigants in a case, 'in maintaining the integrity and vigour of the procedures of this court, including, as they do, the immediate involvement of a judge at all stages in the progress of cases to trial.' In Bomanite French J, at 176, also referred to the importance of this policy: 'Absent such a policy there is a risk that the pre-trial process in hotly contested cases would become fragmented and more expensive and lengthier than it has to be. Moreover, the authority of judges charged with giving directions affecting the management of cases to the point of trial would be diminished.' 3 It is for this reason that, generally, an application for leave to appeal from an interlocutory decision will not be allowed unless the party seeking such leave is able to show that a substantial injustice would result if leave were refused and that the decision is attended with sufficient doubt to warrant it being reconsidered by a Full Court; Décor Corporation Pty Ltd v Dart Industries Inc ('Decor') (1991) 33 FCR 397 at 398-9. However, a court is not to apply these criteria rigidly or exhaustively but must take into account the circumstances of the particular case; Adam P Brown Male Fashions Pty Ltd v Philip Morris Incorporated (1981) 148 CLR 170 ('Philip Morris')at 177; Décor at 399. Clearly enough there are important differences to be borne in mind between steps taken in the management of a case towards trial and orders such those challenged here. Moreover, as Burchett J noted in Sharp v Deputy Commissioner of Taxation (1988) 88 ATC 4,184 at 4,186, '[T]he sufficiency of the doubt in respect of the decision and the question of substantial injustice should not be isolated in separate compartments. They bear upon each other, so that the degree of doubt which is sufficient in one case may be different from that required in another. Ultimately, a discretion must be exercised on what may be a fine balancing of considerations.'

These comments were quoted with approval in Décor at 398-399. 4 The policy underlying the requirement of leave to appeal also supports that approach where the decision under consideration concerns a matter of practice and procedure. Sir Fredrick Jordan expressed the position succinctly in Re Will of Gilbert (1946) 46 SR (NSW) 318 at 323: '[T]here is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept on interference with the orders of judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretions in interlocutory applications from a judge in Chambers to a Court of Appeal.'

This passage was quoted with approval in Philip Morris at 177; see also Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at 584 per French J with whom Beaumont and Finkelstein JJ agreed.

SUBSTANTIAL INJUSTICE 5 On the assumption that the Challenged Orders were wrongly made, the Sharman applicants have identified three consequences that they claim would occasion substantial injustice if leave to appeal were refused. The first relates to the undertaking as to damages given by the Music Companies pursuant to a condition precedent to the making of the Challenged Orders. The Sharman Parties claim that if the Challenged Orders were to be set aside they would be immediately entitled to proceed on that undertaking. The second is that if the Challenged Orders were to be set aside the materials obtained pursuant to those orders would be delivered into the custody of the applicants for leave to appeal. Finally it is claimed that if the Challenged Orders were set aside the slur on the reputations of the applicants for leave that is implied by the making of those orders would be removed. 6 In addition to those matters, in their written submissions, the Brilliant Parties referred to the 'very considerable invasion of privacy' that has occurred and 'real economic loss' that has flowed from the publicity attending the grant and execution of the Challenged Orders. 7 In our view these matters would not, either individually or cumulatively, occasion injustice to the applicants of such a character and to such a degree as to justify the grant of leave. While it is neither necessary nor appropriate to attempt to define the concept of substantial injustice some observations may be ventured. The flexibility of the principles governing the grant of leave to appeal indicates that the concept of substantial injustice must also be flexible. The requirement of leave. to appeal indicates however that substantial injustice requires something more than that the subject decision is incorrect, otherwise the criterion would be superfluous. The qualification of 'injustice' by 'substantial' points to a detriment that, while not necessarily irreparable, is more than mere inconvenience or delay in the exercise of a right. 8 The distinction between interlocutory decisions concerning matters of practice and procedure and those that concern the substantive interests of the parties recognises both the greater likelihood of an incorrect decision as to a substantive right causing substantial injustice and the importance of preserving a judge's power to supervise the orderly preparation of a matter for trial. In determining whether there has been substantial injustice it is appropriate for the Court to take these factors into account. The need to keep a tight rein upon interference with orders at first instance that do not determine substantive rights has even more force today in the context of procedural reforms and active case management undertaken with a view to the early identification of the real issues between the parties and the expeditious and efficient resolution of them. 9 The interests of justice in complex litigation over intellectual property concerning rapidly developing global technologies are peculiarly vulnerable to the type of delay referred to by Sir Fredrick Jordan; see [4] above. This factor needs to be given weight in considering whether or not leave to appeal should be given. 10 In this case we are not persuaded that for the Sharman Parties to have to wait to enforce the usual undertaking as to damages is an injustice at all, let alone a substantial injustice. The consequences of delay can be reflected in any award of damages and there is no suggestion that the Music Companies would not be in the position to meet such an award. 11 The material seized under the Challenged Orders is in the custody of a third party. It is not contended that the material is insecure or vulnerable in any way. The claim seems to amount to no more than that it would be more convenient for the material to be in the custody of the applicants for leave. There has been no allegation that the material is physically or geographically inaccessible or that there are other obstacles to access. While the present situation is undoubtedly inconvenient for the applicants for leave we do not see this as amounting to substantial injustice. 12 The complaints about the damage to the applicants' reputations or invasion of privacy need to be considered in the context of the constant flow of commercial news and the relative sophistication of the readers who give attention to such matters. When these matters are borne in mind it by no means follows that such publicity as did occur would be seriously or permanently detrimental to the applicants' reputations or that a favourable decision on appeal (were there to be one) would reverse an unfavourable impression that might have been created. 13 The Challenged Orders were plainly directed to matters of practice and procedure and did not determine any substantive rights. They were directed to the capture and preservation of certain data and information and this purpose has now been effected. Importantly, the applicants for leave do not seek to reverse this by destruction of the material seized pursuant to the Challenged Orders. The primary judge has now made orders relating to the use of the material seized including its safekeeping by an independent party and, subject to appropriate confidentiality undertakings, the making of a safety or backup copy of the material. Orders have also been made granting preliminary access to the material for the purpose of any application that includes material not falling within the Challenged Orders. The Music Companies are to have only such access to the seized material as would be normally available on discovery. This shows that there is presently in train an orderly process for the management of the seized material in which the interests of both parties will receive due consideration. 14 In these circumstances we are far from satisfied that substantial injustice would follow from refusing the application for leave to appeal and, on that basis, we would refuse leave to appeal. That being so we do not propose to comment on the correctness or otherwise of the decision of the primary judge. Nothing we have said should be taken as suggesting that the making of the Challenged Orders was not a serious matter requiring very careful consideration by the primary judge; plainly, whether or not the applicants are correct in their contention that his decision was erroneous, the application for the Challenged Orders and the subsequent application to set them aside did receive consideration of that character. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Black & Justice Stone.

N329 OF 2004 BETWEEN: BRILLIANT DIGITAL ENTERTAINMENT PTY LIMITED

FESTIVAL RECORDS PTY LIMITED AND MUSHROOM RECORDS PTY LIMITED T/AS FESTIVAL MUSHROOM RECORDS

N333 OF 2004 BETWEEN: SHARMAN LICENSE HOLDINGS PTY LTD

FIFTH APPLICANT AND: UNIVERSAL MUSIC AUSTRALIA PTY LTD

FESTIVAL RECORDS PTY LIMITED AND MUSHROOM RECORDS PTY LIMITED T/AS FESTIVAL MUSHROOM RECORDS

EMMETT J: 15 The Court has before it two applications for leave to appeal from orders made by a judge of the Court on 4 March 2004. By those orders, the primary judge dismissed applications to set aside orders made by him ex parte on 5 and 6 February 2004 ('the Challenged Orders'). The principal ground upon which his Honour was asked to set aside the Challenged Orders was alleged non-disclosure of material matters at the time of the ex parte application. 16 The Challenged Orders were made at the instigation of Universal Music Australia Pty Ltd, Festival Records Pty Ltd and Mushroom Records Pty Ltd trading as Festival Mushroom Records, EMI Music Australia Pty Limited, Sony Music Entertainment (Australia) Limited, Warner Music Australia Pty Limited and BMG Australia Limited ('the Music Companies'). Each of the Music Companies is engaged in the business of making and licensing the reproduction of music sound recordings in Australia. Each of them claims to be exclusively licensed to make copies and authorise the making of copies in Australia of sound recordings in respect of which copyright subsists under the Copyright Act 1968 (Cth) ('the Copyright Act'). Accordingly, each of the Music Companies claims to be the owner or the exclusive licensee of the copyright in Australia in respect of a body of sound recordings. 17 The applicants for leave to appeal are involved in the 'Kazaa system'. The Kazaa system is described as a scheme using computer software that permits users to distribute and receive digital files, including music files, to and from each other. The first group of applicants for leave (together 'the Sharman Parties') consists of Sharman License Holdings Ltd ('Sharman License'), Sharman Networks Ltd ('Sharman Networks'), LEF Interactive Pty Ltd ('LEF Interactive'), Nicola Anne Hemming ('Ms Hemming') and Phil Morle ('Mr Morle'). The other group of applicants for leave (together 'the Brilliant Parties') consists of Brilliant Digital Entertainment Pty Ltd ('Digital') and Kevin Glen Bermeister ('Mr Bermeister'). 18 The Music Companies assert that Sharman Networks, Sharman License and LEF Interactive have developed, marketed and supplied to members of the public in Australia certain computer software applications known as Kazaa Media Desktop and Kazaa Plus ('the Kazaa Software'). They say that the Kazaa Software has certain features and capabilities such that users of the Kazaa Software have made available for download by other users of the Kazaa Software, and have downloaded and made copies from other users of the Kazaa Software, digital music files constituting copies of the recordings in respect of which copyright subsists in the Music Companies. They assert that such acts of copying were facilitated by the Kazaa Software and that the conduct of Sharman Networks, Sharman License and LEF Interactive in supplying the Kazaa Software to members of the public was done knowing and intending that Kazaa users would engage in such downloading and copying. 19 The Music Companies allege that, by reason of those facts, matters and circumstances, each of Sharman License, Sharman Networks and LEF Interactive has infringed the copyright of the Music Companies in their respective recordings. They also assert that Ms Hemming and Mr Morle authorised the doing of the acts alleged to have been carried out by Sharman License, Sharman Networks and LEF Interactive. 20 In the proceeding, as originally constituted, the Music Companies claimed declarations that the Sharman Parties had infringed their copyright in the respective sound recordings in respect of which they were the owners or licensees of copyright. The Music Companies also claimed permanent injunctions restraining the Sharman Parties from:

making a copy of;
authorising the making of a copy of;
communicating to the public, including via certain web sites and services located at certain specified URLs ('the Web Services');
authorising the communication to the public, including via the Web Services of; or · distributing articles embodying the whole or a substantial part of any of

the sound recordings of the Music Companies without the licence of the Music Companies. 21 The Music Companies also claimed damages or an account of profits pursuant to the Copyright Act. Claims were also made against the Sharman Parties in relation to alleged contraventions of the Trade Practices Act 1974 (Cth) ('the Trade Practices Act'). 22 When the Music Companies initiated the proceeding, they also claimed by way of interlocutory relief, on an ex parte basis, orders set out in a notice of motion filed with their application on 5 February 2004. By the notice of motion, the Music Companies claimed relief against the Brilliant Parties as well as against the Sharman Parties.

THE CHALLENGED ORDERS 23 Following an ex parte hearing the primary judge made orders on 5 February 2004, which were subsequently amended on 6 February 2004, being the Challenged Orders. The Challenged Orders included Order 4 to the effect that the Sharman Parties, together with the Brilliant Parties, permit a total of not more than five persons ('the Attending Representatives') to enter upon premises described in the order and to remain on, or if necessary to re-enter, those premises until the balance of the orders had been complied with. His Honour also made Order 5 to the effect that each of the Sharman Parties and the Brilliant Parties permit the Attending Representatives to: (a) search for, identify, observe, monitor and examine: · any electronic materials which contain information or data listed in Schedule 2 to the orders ('Kazaa Party electronic materials'); · any documents in non-electronic format which contain information or data listed in Schedule 2 to the orders ('Kazaa Party documents'); (b) copy or capture from any of the Kazaa Party electronic materials or Kazaa Party documents any information or data listed in Schedule 2 to the orders; (c) remove into the possession and safekeeping of the solicitors for the Music Companies any information or data copied or captured pursuant to par (b). 24 His Honour also made Order 6 to the effect that the Sharman Parties and the Brilliant Parties: (a) disclose to the Attending Representatives the whereabouts of, and make available to the Attending Representatives, all Kazaa Party electronic materials and Kazaa Party documents; (b) provide to the Attending Representatives such assistance as they might require to carry out the purposes described above; (c) operate any Kazaa Party electronic materials to enable the observation and recording of the ordinary operation of any of the things listed in Schedule 2 to the orders. 25 The Challenged Orders also included Order 13 to the effect that, for the avoidance of doubt, Order 5 described above extends to making 'bitstream images of files and records' as follows: · where the files are in a static environment, extracting the files and securing a copy; · where the files are in a dynamic environment, isolating the files, making a bitstream image and then securing a copy. 26 The Challenged Orders also included orders that certain third parties, being University of Queensland, Monash University and University of New South Wales (described as 'Supernode Parties'), permit the Attending Representatives to enter and remain upon specified premises in relation to a particular Supernode Party and to remain on, and if necessary to re-enter, those premises until the further orders had been complied with. His Honour also ordered that each of the Supernode Parties permit the Attending Representatives to: (a) search for, identify, observe, monitor and examine: · any electronic materials which contain information or data listed in Schedule 4 to the orders; · any documents in non-electronic format which contain information or data listed in Schedule 4 to the orders; (b) copy or capture from such electronic materials or documents any information or data listed in Schedule 4 to the orders.

APPLICATION TO SET ASIDE THE CHALLENGED orders 27 The Challenged Orders were executed over 5 and 6 February 2004. On 10 February 2004, the Sharman Parties applied, by notice of motion, for orders that Orders 4, 5 and 6 be set aside. On 13 February 2004, the Brilliant Parties also applied by notice of motion for orders that Orders 4, 5 and 6, and other of the Challenged Orders, be set aside. 28 On 4 March 2004, for reasons published on that day, the primary judge ordered that, in so far as they sought orders setting aside the Challenged Orders, the notices of motion be dismissed. His Honour also ordered that the costs of the motions be the costs of the Music Companies in the principal proceeding. Those orders were made following a hearing before the primary judge on 20 February 2004. Oral submissions on behalf of the Sharman Parties and the Brilliant Parties as well as the Music Companies were supplemented by detailed written submissions. The Sharman Parties and the Brilliant Parties now seek leave to appeal from those orders made by the primary judge on 4 March 2004. 29 On 16 April 2004, another judge of the Court ordered that the applications for leave and the appeals, if leave were to be granted, be heard separately. His Honour also ordered that each application be expedited and gave directions for the exchange of written submissions prior to the hearing of the applications for leave to appeal. Those directions were substantially complied with and the Court has had the benefit of detailed written submissions as well as substantial oral submissions by senior counsel for each of the parties on the question of whether leave to appeal should be granted.

THE REASONS OF THE PRIMARY JUDGE 30 The primary judge observed that the ex parte application was supported by four volumes of material, which included an outline of submissions, a draft order for ex parte relief and numerous affidavits. In the outline of submissions, the Music Companies referred to the release of Kazaa Software in June 2003. They asserted that the Kazaa system, which they said promoted enormous infringement of sound recording copyright, was now substantially administered from Australia. The affidavit evidence of Mr Jorg Michael Speck, filed in support of the motion for ex parte orders outlines key features of the Kazaa software. Mr Spek is the manager of Music Industry Piracy Investigations, an organisation controlled by the Music Companies. Mr Speck asserts that files downloaded by one user and retained in that user's default folder are automatically accessible for upload by other users as part of default setting of the software. Downloading of files from one remote user to another is facilitated through the interposing of a 'supernode'; a user's computer that retains a local central index of the files stored on nearby users' computers. 31 It was the Music Companies' evidence at the time of the ex parte application that the Kazaa software actively designates the computers of some users to this supernode functionality. Each supernode computer indexes and facilitates downloads of music files from users within the 'neighbourhood' of that supernode. The Music Companies' evidence was that the computer systems of the relevant universities were operative supernodes. The Music Companies' asserted that there remained significant features of the Kazaa system about which the Music Companies had not been able to obtain detailed knowledge. The Music Companies therefore moved for relief against the Sharman Parties and analogous orders against a number of third parties, including the Brilliant Parties and the Supernode Parties, whose computer systems were believed to be involved in the operation or facilitation of the Kazaa system or the provision of the Kazaa Software and were likely to contain specific information relevant to the proceeding. The submissions asserted that the relief then sought related to the inspection and, in certain cases, preservation of information and data relating to aspects of the Kazaa system and its operation. 32 His Honour said that it was desirable to note the evidence put before him as to the nature of the risk of destruction of evidence if the ex parte relief claimed were not obtained. His Honour referred to the evidence of Mr Speck, who has been deeply involved with investigations into the Kazaa system. In his affidavit, Mr Speck said that information gained from files contained on the computers of servers or site operators was likely to reveal information about the structure, operation and monitoring of the Kazaa system. 33 Mr Speck's evidence was that he believed that there would be a very high risk of the destruction, dissipation or unavailability of documents and computer records in the event that notice were given to the Sharman Parties of the allegations of copyright infringement. He said that this was not a case in which the Music Companies could simply seek to make document and data requests in the ordinary way and expect that any of that information would be recoverable. 34 Mr Speck gave a number of reasons for his belief, including the following: (a) There was a real risk that, with notice of the application, some, or all of the Sharman Parties, and their associates, would destroy documents and data. (b) Much of the information to which the Music Companies sought access for use in the proceeding was inherently vulnerable to destruction or loss. He said that electronic files can be moved quickly and information is frequently overwritten or lost by the ordinary operation of computer systems. Once overwritten the information becomes much more difficult to retrieve. (c) Supernodes are transitory, existing for anywhere from hours to days, only to disappear without warning. It was not feasible for evidence about the activity of Supernodes to be gathered without being able to take a snapshot of the system. He said that any notice of such a proposal was likely to enable the operators of the Kazaa system time to remove or alter the processes to prevent the analysis of individual network elements, thereby denying the Music Companies the opportunity of analysis of the information. (d) The enormous scale of copyright infringement alleged and potentially very large number of people involved in the infringements of copyright meant that there was likely to be a large number of participants who would seek to conceal themselves from detection by the Music Companies by deleting data and changing their behaviour for the period of observation. 35 In his reasons, the primary judge twice said that the sole ground upon which he was asked to set aside the Challenged Orders, was material non-disclosure, on 5 February 2004, of facts concerning certain proceedings in the United States. His Honour also observed that the submissions of counsel referred to many matters that he was 'not required to determine at this time' and said that he did not need to 'set them out or make any comment about them'. 36 In an affidavit relied upon by the Sharman Parties, evidence was given that, on 2 October 2001, a proceeding ('the US Proceeding') was instituted in the United States District Court for the Central District of California ('the US Court'), by 28 plaintiffs, all of whom claimed to be owners of copyright in motion pictures and sound recordings. Those parties ('the US Plaintiffs') included companies associated with the Music Companies. The US Plaintiffs sought injunctive relief in relation to alleged breach of copyright and an account of profits or award of damages. 37 On 8 July 2002, the US Court granted the US Plaintiffs leave to add Sharman Networks and LEF Interactive as defendants in the US proceeding. On 8 January 2003, the US Court denied applications by Sharman Networks and LEF Interactive for summary dismissal of the US Proceeding. However, on 25 April 2003, the US Court ordered summary dismissal of the claim against the original defendants of the US Proceeding. That decision was based on a conclusion that the software then being used by those defendants did not infringe the US Plaintiffs' copyright. On 23 May 2003, the US Plaintiffs filed a notice of appeal from the decision of the US Court and on 3 February 2004, the Court of Appeal for the 9th Circuit heard oral argument in that appeal and reserved its decision. 38 The Music Companies relied upon an affidavit sworn 20 February 2004 by Mr Michael John Williams, a partner of Gilbert & Tobin, the solicitors for the Music Companies. In that affidavit, Mr Williams deposed to certain information recently received from the attorneys acting for the US Plaintiffs in the US Proceeding. Mr Williams was cross-examined on that matter. He accepted that he had acted for the record industry for a long time and had previously applied for Anton Piller orders. He accepted that, in making an application for such orders, the applicant has a duty to make full and frank disclosure to the Court of all material facts. Mr Williams also agreed that Gilbert & Tobin played a role in joining LEF Interactive and Sharman Networks as defendants in the US Proceeding. Mr Williams said that, when the application was made to the primary judge, Mr Williams knew that LEF Interactive and Sharman Networks were defendants in the US Proceeding and that he knew the nature of that proceeding. 39 Mr Williams was cross-examined as to whether it occurred to him that it may have been relevant for the primary judge to know how the defendants in the US Proceeding were conducting themselves in relation to their defence of that proceeding. He responded that not all of the respondents in the present proceeding were defendants in the US Proceeding and not all of the defendants in the US Proceeding were respondents in this proceeding. When asked again whether it occurred to him that it may be relevant for the primary judge to know how the defendants in the US Proceeding were conducting themselves in their defence he responded: 'Yes, separate set of proceedings in another country to do with different copyrights in a differently constructed case, yes.' 40 The primary judge then engaged in the following exchange with Mr Williams: His Honour: '…A primary purpose of the Anton Piller orders is to prevent the destruction of records and obviously one's attitude to that depends a little bit on the nature of the person or organisation that has the records. There are some people against whom you would be very slow to make that assumption and there are other people that you would much more readily make it, so therefore the character of the respondent is, at least in my mind, an important matter.' Mr Williams: '…my belief was, because of a significant amount of material that appears in the evidence in this case… that documents may be in LEF's possession and may be claimed to be documents of Sharman and therefore the danger was and remains that documentation relating to the business of Kazaa or the effective operation of Kazaa that might be in the hands of LEF is there only in… a fairly artificial fashion, which is as a management company, and could be removed, erased, even disappear during the ordinary course of its operations on behalf of Sharman or at the direction of Sharman. We don't know who are the ultimate controllers of Sharman and we're not allowed to find that out because they're Vanuatuan companies and it's an offence to actually make that inquiry in Vanuatu.'

41 His Honour said that he was not in a position to form any view about the merits of the dispute between the parties as to the degree of cooperation shown by the Sharman Parties and the Brilliant Parties in disclosing material in the US Proceeding. However, his Honour considered that if such cooperation was relevant to the desirability of making the Challenged Orders, that cooperation ought to have been mentioned by counsel appearing on behalf of the Music Companies in seeking the Challenged Orders. The issue however, so his Honour observed, was whether such cooperation was relevant to the question of whether the Challenged Orders should be made. 42 His Honour referred to the submissions made on behalf of the Sharman Parties and the Brilliant Parties that, if there was material information known to the United States attorneys, non-disclosure of that information would not be excused by the fact that Mr Williams was personally unaware of it. The Sharman Parties and the Brilliant Parties contended that Mr Williams was aware of the existence of the US Proceeding and that Sharman Networks and LEF Interactive were parties to the US Proceeding. Accordingly, if Mr Williams did not have knowledge of any particular fact, he should have asked. The Sharman Parties and the Brilliant Parties contended that the behaviour of Sharman Networks, LEF Interactive and the Brilliant Parties, in relation to non-destruction of evidence in the US Proceeding, would have furnished guidance as to the likelihood of their destroying evidence relevant to the present proceeding. His Honour accepted that it would be no answer to an allegation of non-disclosure of a material fact for the Music Companies to say that Mr Williams was personally unaware of that fact, if it was something about which he could have asked the United States attorneys. 43 However, his Honour considered that the critical issue in the case was whether the conduct of Sharman Networks and LEF Interactive, in the US Proceeding, was a material fact to the question of whether or not it was appropriate to grant the Challenged Orders. His Honour accepted that it was reasonable to work on the assumption that, if Sharman Networks and LEF Interactive conducted themselves in a particular way, in relation to non-destruction of evidentiary material in the US Proceeding, they would be likely to conduct themselves in a similar way in respect of similar material relevant in the present proceeding. His Honour considered that, if the purpose of the Challenged Orders was to prevent the destruction of such material, information as to how Sharman Networks and LEF Interactive had conducted themselves in the US Proceeding, in relation to similar material, ought to have been disclosed when the Music Companies made the ex parte application. 44 His Honour observed that there was no suggestion that the Brilliant Parties, or anybody associated with them, had attempted to destroy any of the documents required by a subpoena addressed to them in the US Proceeding. Consequently, his Honour accepted that, if the material identified in Schedule 2 of the Challenged Orders was similar in nature to the documents required by that subpoena, it would be reasonable to suppose that the Brilliant Parties would not attempt to destroy that material either. His Honour considered that the same comment could be made in favour of the Sharman Parties. 45 On the other hand, his Honour considered that, if the materials that were the subject of the Challenged Orders were of a different character from that required to be produced by the subpoena in the US Proceeding, and that material was at risk of loss irrespective of the attitudes and intentions of the Sharman Parties and the Brilliant Parties, their conduct in relation to the US Proceeding might fairly be regarded as irrelevant. His Honour then observed that the subpoena in the US Proceeding addressed to the Brilliant Parties defined 'documents' as including 'writings in electronic form'. However, the material in Schedule 2 of the Challenged Orders included 'perishable material', which was inherently transitory, rather than material that would continue to exist until it was deliberately destroyed. 46 His Honour analysed the description of documents in the subpoena in the US Proceeding and concluded that none of the items included material, even in electronic form, recording transitory information, being data concerning the moment to moment transactions undertaken by users of the Kazaa system. On the other hand, Schedule 2 to the Challenged Orders included such data. His Honour's orders authorised the recovery of data that must be constantly changing. 47 The primary judge accepted that there may be elements of the information identified in Schedule 2 that are of a static nature. However, the possibility of picking up some static data was anticipated by Order 13 described above, which provided that Order 5 was to extend to files that are 'in a static environment'. His Honour observed that the idea was that anything of a static nature would be treated like a discoverable document and was not to be inspected until the appropriate time, pursuant to orders for discovery. However, to the extent that the seized material was of a dynamic nature, it was to be copied and so preserved for future use as evidence. 48 His Honour considered that, where the case sought to be made by a party depends upon demonstrating the operation of a dynamic scheme, it was difficult to see any alternative to the taking of 'snapshots' of the scheme in operation, thereby preserving the evidence of what the dynamic system was doing at the moment of inspection. His Honour referred to Mr Speck's evidence that material may be lost without destructive intent and considered that, if that were so, it was not to the point that the Sharman Parties and the Brilliant Parties had not deliberately destroyed documents containing static data that were required for the US Proceeding. 49 His Honour observed that evidence about a dynamic operation was available on relevant computers 'from moment to moment, as the transactions occur'. His Honour considered that, if that evidence was to be available at the trial, there must be snapshots showing the changing data in the system from moment to moment. His Honour considered that the scheme of the Challenged Orders was to allow those snapshots to be taken and, thereby, to preserve that changing data. 50 His Honour characterised the making of the Challenged Orders as an exercise 'designed to preserve evidence'. While his Honour accepted that the situation seemed unusual, because it involved preserving data momentarily held in computer memory, rather than data recorded in a more permanent medium such as writing on paper, it was 'preservation' nonetheless. 51 His Honour observed that it was one thing to expect the parties to litigation not to destroy existing evidence but that it was another thing to expect parties to litigation to conscientiously cooperate in the creation and recording of evidence useful to their opponents. Thus, his Honour considered that it should not be assumed that, just because the Sharman Parties and the Brilliant Parties were not willing to destroy documents relevant to the US Proceeding, they would be willing to cooperate in an arranged demonstration of the Kazaa system in operation at a future date so that evidence of its changing operational data could then be obtained. 52 His Honour also observed, moreover, that the operation of the Kazaa system did not depend only, or even principally, upon action being taken by the Sharman Parties or the Brilliant Parties. Rather, its operation depended upon the actions of countless other participants using the Kazaa system. His Honour considered that it could not be assumed that such participants would act in a normal and natural way in an organised demonstration of the system. 53 Thus, while his Honour accepted that the detail of the US Proceeding was not disclosed to him on 5 February 2004, his Honour considered that the non-disclosure was not material. His Honour considered that the non-disclosed material would not have affected his decision to make the Challenged Orders. For that reason, his Honour declined to set aside the Challenged Orders.

THE PROPOSED GROUNDS OF APPEAL 54 Each group of applicants for leave to appeal has filed a draft notice of appeal. The Sharman Parties contend that several issues of law would be raised by the appeal. Those issues can be summarised as follows: (1) The primary judge erred in treating the cooperation of the Sharman Parties in the US Proceeding as immaterial because his Honour fundamentally misconceived the Court's function in granting Anton Piller orders. The Challenged Orders largely authorised the creation of documents in order to ensure the preservation of data that was constantly changing. His Honour erred in making those orders in the absence of a finding that there was a risk of destruction of relevant documents by the Sharman Parties. (2) His Honour erred in not concluding that the failure to disclose the decision of the US Court was a serious matter because it was highly relevant to the question of whether the Music Companies could establish a strong prima facie against the Sharman Parties, a prerequisite for the grant of Anton Piller orders. (3) The Challenged Orders potentially authorised the interception of communications contrary to s 7(1) of the Telecommunications (Interception) Act 1979 (Cth) ('the Interception Act') and they were, in consequence, invalid. (4) His Honour erred in failing to give reasons for his decision to make the Challenged Orders in the first place. 55 In addition, the Brilliant Parties contended that, even if it were appropriate to grant orders in order to take 'snapshots' in respect of transitory or ephemeral evidence, the Challenged Orders went beyond that object in so far as they authorised the seizure of substantial parts of electronic materials that were not in any sense ephemeral or transitory.

PRINCIPLES FOR THE GRANT OF LEAVE 56 It is clear that the orders of 4 March 2004 were interlocutory. There is no dispute between the parties as to the appropriate principles to be adopted by the Court in considering whether or not leave to appeal should be granted, as is required by s 24(1A) of the Federal Court of Australia Act 1976 (Cth). While s 24(1A) confers on the Court an unfettered discretion, leave to appeal from an interlocutory judgment on a matter of practice and procedure should generally not be granted unless each of the following prerequisites is satisfied:

the decision is attended by sufficient doubt to warrant being reconsidered by a Full Court;
a substantial injustice would result if the decision was wrong and leave were refused. The discretion in granting leave is not to be constrained by rigid rules and each application must be dealt with according to its own special circumstances: Decor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 398-400, Imperial Chemical Industries PLC v EI Dupont De Nemours & Co [2002] FCAFC 264 at [8]. Nevertheless, a tight rein must be kept on interference with the orders of judges at first instance in the exercise of discretion on matters of practice and procedure: In re the Will of FB Gilbert (Deceased) (1946) 46 SR (NSW) 318 at 323.

PROPOSED NEW GROUNDS 57 It is common ground that certain of the grounds were not raised before the primary judge. That is to say, the question of illegality under the Interception Act was not mentioned. Nor was the failure to give reasons for making the Challenged Orders ex parte raised before the primary judge. The contention of the Brilliant Parties, that the orders made went beyond what was necessary for preservation of transitory or ephemeral evidence, was also not advanced before the primary judge. 58 As to the question of illegality, evidence might have been adduced on behalf of the Music Companies in relation to that question. The appropriate course, if that matter is to be pursued, would be to approach the primary judge with a view to inviting his Honour to consider the matter afresh on the basis of the new ground. It is inappropriate to grant leave to appeal from the interlocutory orders in order to raise a ground of that kind that was not raised before his Honour. 59 In the absence of complaint before the primary judge concerning a failure to give reasons for making the Challenged Orders, the appropriate course, if that complaint is to be pursued, would be to ask his Honour to give reasons. In practical terms, little would be achieved by such an application. There was no error on the part of his Honour, in those circumstances, in failing to give detailed reasons for the orders that he then made. 60 So far as the question raised by the Brilliant Parties is concerned, the primary judge recognised that the orders might require the production of material other than transitory or ephemeral evidence. His Honour appears to have taken the view that it was appropriate to authorise taking such materials at the same time as a matter of convenience. Thus, his Honour observed in his reasons at [76] that the possibility of pushing up some static data was anticipated by Order 13. The idea, it seems, was that anything of a static nature would be treated like a discoverable document; it was not to be inspected until the appropriate time. 61 In so far as his Honour did not deal with a complaint by the Brilliant Parties that Order 13 went too far, it appears that that was because his Honour took the view that no such matter was in issue. That being so, it would have been appropriate, in an interlocutory proceeding, to go back to his Honour to ask him to deal with a matter that a party considers has been overlooked.

NON-DISCLOSURE 62 The primary judge considered that the only issue raised in support of the application to set aside the Challenged Orders was non-disclosure by the Music Companies in respect of the US Proceeding. That non-disclosure has two aspects. 63 The first aspect of the non-disclosure is the contention that the cooperation by the Sharman Parties and the Brilliant Parties in relation to the production of documents in the US Proceeding and the non-destruction of documents by them should have been disclosed to the primary judge. It is said that, if that cooperation and failure to destroy had been disclosed, his Honour might have been persuaded that there was no risk of destruction of evidence and would not have made the Challenged Orders. 64 The primary judge addressed that aspect by concluding that the likelihood of the destruction of documents by the Sharman Parties or the Brilliant Parties was irrelevant. His Honour considered that the Challenged Orders were justified because of the need to preserve evidence of a transitory or ephemeral nature. That conclusion, of course, leads into the question raised by the Brilliant Parties that the orders made went beyond what was necessary to preserve evidence of that kind. 65 The second aspect of non-disclosure is that, in the US Proceeding, the US Court had dismissed summarily certain of the claims brought by the US Plaintiffs. While the copyright protection afforded by the law of the United States is different from that afforded in Australia under the Copyright Act, it was contended that the decision in the US Proceeding cast doubt on the prospects of success for the Music Companies in the proceeding. The Sharman Parties contended that the decision in the US Proceeding has the consequence that the Music Companies could not be said to have a strong prima facie case, as is required before orders in the nature of Anton Piller orders should be made. 66 His Honour did not address the question of whether or not the Music Companies have a strong prima facie case against the Sharman Parties. The Music Companies say that, on a fair reading of the submissions for the parties before the primary judge and the oral argument, that issue was not fairly raised. They point to several instances during the hearing when his Honour observed that the only question before him was whether there had been non-disclosure of cooperation in the US Proceeding. 67 Orders in the nature of Anton Piller orders are a severe interference with the rights of citizens. Such orders should be made only in exceptional circumstances. Apart from the question of whether or not the applicant for such orders should be able to demonstrate a strong prima facie case against the object of the orders, something more must normally be demonstrated. That is to say, it must be shown that the rights of the applicant might be frustrated by the pursuit of ordinary interlocutory proceedings inter partes for the gathering and preservation of evidence. In the nature of things, evidence concerning infringement of intellectual property rights will be in the possession of the alleged infringer. The justification for orders in the nature of Anton Piller orders is the possibility that, once the object of the orders is alerted to the fact that the applicant is seeking relief in respect of alleged infringement of intellectual property rights, such a claim may be frustrated by the destruction of evidence. 68 However, there may be another justification. The Music Companies contended that the making of the Challenged Orders was justified, not so much by the risk of possible destruction of evidence by the objects of the orders, as by the need to capture evidence of a transitory and ephemeral nature that existed at the time when the orders were made. Specifically, they refer to the position of the Supernode Parties. The contention was that the Kazaa system makes use of the electronic processing equipment and computers of third parties such as the Supernode Parties, unbeknownst to those parties. In order to investigate the Kazaa system, it was necessary to identify supernodes, in this case the three universities. 69 The evidence of Mr Speck indicated that supernodes are themselves transitory. Once supernodes have been identified, it is highly desirable, so it was contended, to take a snapshot while the supernode was capable of being identified. Only by taking that step could the overall position of the operation of the Kazaa system be determined. His Honour did not make specific findings concerning the Supernode Parties. However, it is tolerably clear that his Honour's reasons for refusing to set aside the Challenged Orders included acceptance of the proposition that the timing was right. 70 The Federal Court Rules include provisions for interim preservation of property (O 25) and for inspection of property (O17). Order 17 would permit the making of orders such as the Challenged Orders. Similarly, Order 25 could authorise such orders. While it would have been possible to apply, on notice to the Sharman Parties and the Brilliant Parties, after commencement of the proceeding, for orders under Order 17 or Order 25 to obtain the material that was ultimately obtained, the time taken to do so may have resulted in loss of the opportunity that was then present. It may be that the opportunity to obtain the materials including, the materials from then identified supernodes, would not arise for some time thereafter. The question is whether in such circumstances such orders should be made ex parte at an early stage in a proceeding. Of course, it is a matter for speculation as to whether, if the Challenged Orders had not been made by the primary judge, it would have been possible to obtain access to the seized materials by application, under Order 25 or Order 17, on notice to the relevant objects of the orders. 71 The question of whether Order 25 or Order 17 would justify the making of the Challenged Orders is a significant one and has not been considered in detail either at first instance or by a Full Court. It may, therefore, be appropriate that leave to appeal should be given to enable that question to be considered in an appropriate case. Whether the present case is an appropriate one will depend upon whether substantial injustice would arise if leave were denied. 72 Clearly, the question of non-disclosure of the US Proceeding was raised as a significant factor. However, his Honour treated the US Proceeding as relevant only to the question of whether the Sharman Parties were likely to destroy documents. His Honour did not consider the failure to disclose the result of the US Proceeding as a material non-disclosure in relation to the question of whether there was a strong prima facie case. 73 The reason why his Honour did not consider those matters in the context of a strong prima-facie case is that his Honour was clearly under the impression that the only question raised for decision was whether the non-disclosure was material to the question of the likelihood that the Sharman Parties would destroy documents. His Honour concluded that the non-disclosure was not relevant for the reasons explained at [64] above. If, as the Sharman Parties and the Brilliant Parties now assert, disclosure of the US Proceeding may have led to the conclusion that there was not a prima facie case against the Sharman Parties, that was a matter that was material to the question of whether the Challenged Orders should be set aside. If that matter was fairly raised before his Honour, and not taken into account, the appropriate course was to take the matter up with his Honour , requesting that the matter be addressed.

SUBSTANTIAL INJUSTICE 74 Three matters have been advanced on behalf of the Sharman Parties as indicative of the substantial injustice that would result if leave were refused in circumstances where the Challenged Orders ought to have been set aside. The matters are as follows: (1) If the Challenged Orders are set aside, the Sharman Parties would be entitled to proceed immediately on the undertaking as to damages given on behalf of the Music Companies. (2) At present, the materials seized or brought into existence pursuant to the execution of the Challenged Orders are in the possession of independent solicitors. If the Challenged Orders were set aside, those materials would be delivered into the custody of the Sharman Parties or the Brilliant Parties as the case would require. (3) The making of the Challenged Orders carried with it at least an implication that the Sharman Parties and the Brilliant Parties are persons who would or might destroy evidence. The setting aside of the Challenged Orders would vindicate their respective reputations. 75 If leave were granted and the appeal were upheld, the Sharman Parties and the Brilliant Parties might be in a position to proceed forthwith on the undertaking as to damages. However, at worst, the refusal of leave would do no more than delay the making of a claim on the undertaking. That is not a substantial injustice. 76 The primary judge made orders on 14 May 2004 that the Sharman Parties and the Brilliant Parties be given access to the materials that were seized in the execution of the Challenged Orders for the purpose of undertaking discovery. His Honour also ordered that, for that purpose, those parties be permitted to copy any of the materials considered to be discoverable. Thus, even if the materials were delivered into the respective custodies of the Sharman Parties and the Brilliant Parties, the position would not be materially different so far as they are concerned. This is not a case where the Sharman Parties and the Brilliant Parties seek delivery up of the materials for destruction. Rather, the most that was sought in the motions to set aside the Challenged Orders was that the materials be given into the custody of the solicitors for the Sharman Parties for safekeeping until further order. There is no substantial injustice in relation to the custody of the seized materials. 77 The primary judge did not give reasons for making the Challenged Orders. However, in advance of the ex parte application, his Honour was furnished with detailed written submissions in support of the application. It is tolerably clear that his Honour made the Challenged Orders for reasons that included those set out in the written submissions. At least in part, those submissions were based on the evidence of Mr Speck that there was a real risk that some or all of the Sharman Parties would destroy documents and data. However, his Honour ultimately concluded that the Challenged Orders were justified even though there was no such risk. His Honour's reasons for that conclusion have been published. Setting aside the original orders would not vindicate the reputations of the Sharman Parties to a greater extent than the publication of those reasons.

CONCLUSION 78 The applications for leave to appeal should be refused. The applicants for leave should pay the Music Companies' costs of the applications. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate: Dated: 7 October 2004 In proceeding N 329 of 2004 Counsel for the First and Second Applicants: M J Leeming

Solicitor for the First and Second Applicants: Landerer & Company

Counsel for the First, Second, Third, Fourth, Fifth and Sixth Respondents: AJL Bannon SC , R Cobden, C Dimitriadis

Solicitor for the First, Second, Third, Fourth, Fifth and Sixth Respondents: Gilbert + Tobin

Date of Hearing: 8 June 2004 Date of Judgment: 8 October 2004

In proceeding N333 of 2004 Counsel for the First, Second Third Fourth and Fifth Applicants: R J Ellicott QC, M R Ellicott

Solicitor for the First, Second Third Fourth and Fifth Applicants: Clayton Utz

Counsel for the First, Second, Third, Fourth, Fifth and Sixth Respondents: AJL Bannon, R Cobden, C Dimitriadis

Solicitor for the First, Second, Third, Fourth, Fifth and Sixth Respondents: Gilbert + Tobin

Date of Hearing: 8 June 2004

Date of Judgment: 8 October 2004

Trade Practices Act 1974(Cth)

Telecommunications (Interception) Act 1979(Cth)

At a glance

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Judgment (39 paragraphs)

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