Caswell v Sony/ATV Music Publishing

The Events of 2009 10On 13 April 2009, apparently without warning, the plaintiff wrote to Mr Trotter to inform him that he still intended to pursue the matter. He added that he expected Sony: ...to ensure that its parent company in the US makes restitution to me for all the royalties generated by 'Christmas in Dixie'. 11After several more communications, Mr Trotter responded on 10 July 2009: The fact is that I have spent many, many hours of my time going through a highly complex process with Chris Gilbey, our legal and finance departments, external lawyers, independent music experts etc at our own considerable expense and time in an effort to sort through this situation methodically, accurately and honestly. ... My recollection at that point was that within the period of the statute of limitations that would apply, if there were to be royalties calculated and damages awarded they were quite minimal and would not cover the cost of any litigation. ... Chris [Gilbey] correspondence seemed to stop after he was sent the [De Wilde] report, and as I heard no more from him as your appointed representative or yourself until recently, I had assumed that you were either not pursuing it or would at least have advised what you wanted to do next. (emphasis added) 12On 13 July 2009 Mr Gilbey returned to the fray on the plaintiff's behalf. He made several contentions but noted among other things, that on the last occasion when he was in communication with Mr Trotter, namely in 2005, 'you didn't think that a legal case would be worth pursuing'. On 15 July Mr Trotter informed Mr Gilbey that he had assumed that 'you had collectively decided not to pursue it further'. The evidence did not reveal what, if any, further communications took place in 2009 but in 2010 the plaintiff chose to commence these proceedings.

The Contractual Relationship 13Unfortunately for the plaintiff, there is a threshold hurdle which he has not surmounted. The plaintiff's claim is based on the existence of a contract between him and Sony. This is not straightforward and the evidence is decidedly opaque. The position seems to be as follows. On 12 January 1979 the plaintiff entered into an agreement with ATV Northern Songs Pty Ltd (ATV). A copy of this contract cannot be located but I accept that it was in the same terms as another contract between the plaintiff and ATV entered into in 1980. 14That contract contained express terms as follows: 9. THE Publisher undertakes at its discretion to institute and prosecute any necessary action proceedings claim and demand against any person firm or company suspected of infringing the copyright in the Work and any damages recovered by the Publisher shall after deduction of costs and expenses be divided equally between the Publisher and Composer For the purpose of any such proceedings or otherwise the Composer will at the request of the Publisher at any time hereafter execute any instrument reasonably required by the Publisher for the purpose of confirming the Publisher's authority or title in respect of the Work ... 11. THE Publisher shall be entitled to assign the benefit of this Agreement and the copyright in the Work on condition that the Publisher shall not thereby be relieved of its obligations to the Composer hereunder. 15In 1994 ATV was de-registered. And in 1997 Sony was incorporated. It follows that the two entities never existed at the same time. It is not therefore possible to accept the plaintiff's pleaded allegation that in 1997, by novation or otherwise, '[ATV] ceased to be a party to the [plaintiff's] contract and the defendant became a party with materially the same rights and liabilities'. 16Similarly, there could not have been a direct assignment of the copyright in the plaintiff's song from ATV to Sony. There must have been an intermediate step involving a different entity. The evidence did not reveal what this was. Undoubtedly the plaintiff came to have some sort of relationship with Sony. Mr Trotter clearly assumed it. And Sony continued to pay royalties to the plaintiff for 'On the Inside'. But any common assumption does not assist the plaintiff to establish the contract. No estoppel is relied on. The critical pleaded allegation of 'novation, assignment or variation' was simply never established. 17That is enough by itself to dispose of the plaintiff's claim, but I propose to consider the merits of his case, assuming the existence of the contractual relationship for which he contends. To that end, Sony accepts that if there were a contract, it contained a term to the same effect as Clause 9 set out in paragraph [14] above; that Sony was subject to an implied duty to exercise its contractual discretion in good faith; and that the content of that duty required it to act honestly and reasonably.

Good Faith and Discretion 18The plaintiff's case that Sony failed to exercise its discretion at all, or failed to exercise it reasonably, depends on the inferences to be drawn from the De Wilde report, the email correspondence that I have summarised in paragraphs [3] - [12] and the unexplained absence of evidence from Mr Trotter. I will deal with each of those elements but I should first address the notion of 'good faith' and the legal principles relating to it. 19In the context of a case such as this, it should be recognised that good faith involves both subjective and objective elements. Honesty and reasonableness are usually both required; the one subjective and the other objective: Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234 at 279C (per Handley JA); Burger King Corporation v Hungry Jack's Pty Ltd [2001] NSWCA 187 at [185]; Aiton v Transfield [1999] NSWSC 996 at [116]. The proper approach may sometimes be different when the issue arises in a statutory context, for example when determining whether a good faith defence has been established in response to a claimed contravention of Section 492T of the Anti-Discrimination Act 1977 (NSW): Sunol v Collier (No 2) [2012] NSWCA 44. However, I am satisfied in this case that the resolution of whether Sony failed to act in good faith by not taking certain action necessitates consideration of the objective facts, as well as the inferences about Sony's subjective intention to be drawn from the contemporaneous documents. 20In this case, the objective evidence made clear that the 'institution and prosecution' of copyright infringement proceedings by Sony would have been commercially and legally imprudent; and that a decision to refrain from doing so would have been justified and reasonable. There are a number of reasons for this, some of which I have summarised in paragraphs [21] - [31] below. The principal issue was the likelihood of success; something to which the warning in 2004 from Mr Trotter's US colleague about the apparent absence of 'access and intent' was relevant.

Copying - Access 21Among other things, Mr Zakarin explained that United States law requires actual copying by the infringer of 'original, copyrightable elements' in the musical work. Absent direct evidence of copying or proof that the two works are 'strikingly similar' - neither of which applies in this case - a plaintiff must demonstrate from circumstantial evidence that the infringer had access to the copyrighted work and that the two works are 'substantially similar': Jorgensen v EPIC/Sony Records, 351 F.3d 46, 51 (2d Cir. 2003); Lipton v Nature Co, 71 F.3d 464, 471 (2d Cir. 1995). 22The reasonable likelihood of access to the plaintiff's song for the purpose of copying was contradicted by Teddy Gentry, whose evidence, like that of Mr Zakarin, was unchallenged. Mr Gentry is one of the three founding members of the band 'Alabama'. He recalled with obvious and detailed affection, the circumstances of the creation of 'Christmas in Dixie' on a hot, mid-summer day in 1982 at Lookout Mountain in Alabama. He said that the first time he heard the plaintiff's song was many years later, in the Nashville office of Sony US, after the plaintiff had made a complaint. 23Mr Gentry is not a television watcher and I am satisfied that it is unlikely that he could have heard the plaintiff's song by picking it up from the theme music of episodes of 'Prisoner' that may have gone to air in the United States. He lives on a farm, the same farm on which his grandfather grew cotton. His childhood was oriented to the outdoors and there was a lack of emphasis on television. In fact, he said that his television exposure has been largely limited to news, weather 'and maybe some wrestling'. 24I accept that Mr Gentry is only one of three founding members of the band who collaborated on the composition of 'Christmas in Dixie' and that there was no evidence from the other band members. I also accept that there was evidence that Patti Page's cover version of the plaintiff's song charted on 18 July 1981 for six weeks at number 66 on the Country Chart of the Billboard Top 100 listing. But speculation is not evidence. It is no more than conjecture, without rational proof. 25The difference was well expressed by Buchanan J in Tisdall v Webber [2011] FCAFC 76 at [128] - [129]: [128] It is important to bear in mind also that the inferential process is not one where speculation, guesswork or mere assumption is accommodated. So far as the work of courts is concerned, where the application of a judicial method is expected, the process of drawing an inference from available facts is not to be equated with conjecture, surmise or guesswork. The arbitrary selection of one possibility over others from an available number of possibilities by such a method is not merely lacking in logic; it fails to conform to the necessity that inferences be drawn as matters of legitimate deduction, based on probative values. [129] In Bell IXL Investments Ltd v Life Therapeutics Ltd (2008) 68 ACSR 154; [2008] FCA 1457 Middleton J said (at [14]): In considering the material before the Court, the trier of fact must be careful to distinguish between inference and conjecture. A conjecture may be plausible, but it is effectively still a mere guess. An inference is a deduction from the evidence, and if reasonable can be treated as part of the legal proof to be considered in making a factual determination in any particular proceeding. Whilst sometimes it may be difficult to distinguish between conjecture and inference, nevertheless the distinction is an important one. See also Luxton v Vines (1952) 85 CLR 352 at 358. 26And the plaintiff's last minute election not to challenge Mr Gentry, despite the Court, at the plaintiff's request, putting in place administrative arrangements to enable his counsel to do so by video link, fortifies me. I have reached the conclusion that any inference of access is too ephemeral. It is insufficient to base a finding of copying for the purpose of United States law. And, for the reasons explained below, I do not think that the essential requirement of substantial similarity has been satisfied.

Copying - Substantial Similarity 27I prefer the conclusions and reasoning of Mr Ricigliano to those in the De Wilde report in relation to substantial similarity. They satisfy me that it was reasonable not to take action to attempt to protect the copyright in the plaintiff's song. The De Wilde report addressed similarity only in a broad sense, without appearing to recognise that infringement can only occur in relation to an element of the original work that is unique and therefore 'copyrightable'. This is understandable given that Dr De Wilde is not a lawyer and did not appear to have any experience or expertise in connection with musical copyright infringement actions in the United States. 28Mr Zakarin explained the practical difficulty of proving substantial similarity as follows: Because musical works operate with a limited number of notes and sequences of notes that are pleasing, the courts have come to recognize the significance of prior art and that there are commonly used sequences of notes which do not connote infringement. As a result, in musical infringement cases, a plaintiff will often have to establish some unique signature of combination contained in its work that has been copied by the defendant in order to create a triable issue of probative similarity. 29He added that, for that reason, 'in the context of two musical compositions (as opposed to the unlicensed taking of songs), it has proved very difficult for plaintiffs to prevail in musical copyright infringement cases'. I am satisfied that that warning is apposite in this case. 30The true explanation of the provenance of 'Christmas in Dixie' is probably to be found in the song itself, and in Mr Ricigliano's detailed musical analysis of it. Like that of Mr Zakarin, his evidence was also not challenged. He concluded that any similarities between the plaintiff's song and 'Christmas in Dixie' are: ... the result of the composer of each song coincidentally choosing common musical ideas or melodic units and utilising them in a similar structural design, and not the result of copying. 31He explained that the chord pattern which is a central element of both songs is 'one of the most basic and common harmonic patterns in all music' and that its use may account for certain similarities between the melodies in each song. He concluded that 'any musical similarity between these works appears to be coincidental rather than a result of copying'. There was no contradictory evidence; no relevant attempt to challenge Mr Ricigliano in cross-examination; and no submission that I could not accept his evidence.

Minimal Recovery & Substantial Costs 32Even putting to one side the unlikely prospects of success of an infringement action by Sony and therefore the weakness of its negotiating position, the evidence was clear that the usual costs of an infringement action are substantial; and that they are almost always irrecoverable. In addition, I am satisfied in this case, that any recovery by Sony in an hypothetical infringement action, would have been minimal and would have been far exceeded by the likely costs of doing so. 33According to Mr Zakarin, copyright infringement proceedings of this nature could be expected to cost in the range of US$520,000 to US$1,350,000. These costs are generally irrecoverable, absent some egregious behaviour by the plaintiff or blatant and deliberate infringement by the defendant: Shanghold v The Walt Disney Co Ltd, No. 03 Civ. 9522(WHP), 2006 WL 71672; Margo v Weiss, No. 96 Civ. 3842(MBM), 1998 WL 765185. 34Further, pursuant to Section 507(b) of the Copyright Act of 1976 (USA) a three year limitation period applies to claims of copyright infringement in relation to United States works. Thus, in the event of a successful copyright infringement action, Sony would only be likely to recover the infringer's profits attributable to the alleged infringing portion of 'Christmas in Dixie' over the three years preceding the commencement of proceedings. The evidence satisfies me that any monetary award Sony might recover for the infringement of the copyright to 'On the Inside' during this period would be a small fraction of its likely costs. And no part of any recovery would remain for distribution to the plaintiff after deduction of the costs of recovery.

The De Wilde Report 35I should then turn to the De Wilde report itself. It did not, by itself, compel Sony to take action to protect the copyright in the plaintiff's song. Its language and reasoning were more ambivalent. The report did not suggest a compelling case. Nor did it render some form of protective action mandatory. Among other things, the De Wilde report did not address the requirements of United States law for a successful musical copyright infringement action, the costs of such an action, the quantum of any likely recovery, or even the prospects of success. These were not matters on which Dr De Wilde was qualified to express an opinion. It was natural that other legal, commercial and pragmatic matters should be considered. 36I have already mentioned that the De Wilde report only addressed musical similarities in a broad sense. From that incomplete perspective, the report expressed conclusions in language that is notable for its ambivalence and ambiguity. The timorous statement of Dr De Wilde that 'a case can be made' says nothing about whether any such proposed action had reasonable prospects of success. It is no more than the unhelpful refrain of an advisor who is not prepared to make a commitment. It called for further investigation and consideration. That is what Sony did. In my view, there is nothing about the terms of the De Wilde report that supports the contention that, at a subjective level, Sony did not act in good faith in the exercise of its discretion.

The Email Correspondence 37I have reached the same conclusion about the evidence of Sony's conduct revealed by the contemporaneous email correspondence. There was no failure by Sony to exercise its discretion and, in the circumstances, nothing unreasonable, or lacking in good faith, in the way the discretion was exercised. After the plaintiff raised the issue, Sony investigated the question. It commissioned, and no doubt paid for, the De Wilde report. Mr Trotter, Sony's managing director, reached the view that damages would be minimal. He invited the plaintiff to obtain a different opinion on the applicable limitation period. By December 2004 Mr Trotter had had 'much correspondence with our lawyers and US principles (sic) ... to see what can be done to work this through'. 38Mr Gilbey, the plaintiff's agent, sought and obtained a copy of the De Wilde report. He said that the plaintiff would be better appraised when he had reviewed the report. The report was delivered on 3 March 2005. There was no response from the plaintiff or Mr Gilbey for over four years. Neither gave evidence to explain his conduct or reasoning. One available inference is that they were satisfied at that time that any action by Sony was not warranted and could not be justified. 39When the plaintiff unexpectedly re-agitated the issue in 2009, Mr Trotter's responses revealed more information supporting the reasonableness and bona fides of Sony's conduct; conduct that amounted to an actual exercise of its discretion. Mr Trotter reiterated that, even if an action were instituted, any damages would be minimal and would not cover the cost of litigation. In any event, he had formed the view that the plaintiff, with the advice of Mr Gilbey, had decided not to pursue the matter. Nothing had relevantly changed. There was no obligation on Sony to re-visit the exercise of its discretion made in 2004/5 simply because of the plaintiff's April 2009 letter. In my view, the contemporaneous evidence goes nowhere near supporting the inference for which the plaintiff contends, namely that Sony failed to exercise its discretion or exercised it unreasonably.

Jones v Dunkel 40In these circumstances, and given the inferences that are available from the documentary evidence, the plaintiff gets no support from Jones v Dunkel (1959) 101 CLR 298. The absence of a witness cannot be used as a makeweight. A Jones v Dunkel inference may only make evidence more probable and cannot be used to make up any deficiency of evidence. To use the homely expression of the plaintiff's own counsel in this case, '[t]here must be an inference before there can be comfort'. This is an apt and abbreviated paraphrase of the true principle for which Jones v Dunkel at 308 (per Kitto J) stands, namely: ... that any inference favourable to the plaintiff for which there was a ground in the evidence might be more confidently drawn when a person presumably able to put the true complexion on the facts relies on as the ground for the inference has not been called as a witness by the defendant and the evidence provides no sufficient explanation of his absence. (emphasis added) 41In order for that principle to apply in this case, there must first be evidence sufficient to support an inference in favour of the central propositions for which the plaintiff contends, namely that Sony did not exercise its discretion at all, or did not do so reasonably and in good faith. If so, Sony's unexplained failure to call Mr Trotter would enable me to draw that inference more comfortably. As I have endeavoured to explain, the evidence does not support the inference that the plaintiff seeks to establish. Sony's failure to call Mr Trotter does not therefore improve his case. The rule in Jones v Dunkel only applies where a party is 'required to explain or contradict something' or where the course of the evidence throws up facts necessarily 'requiring an answer'. Schellenberg v Tunnel Holdings Pty Ltd (2000) 200 CLR 121 at [51]; Cubillo v Commonwealth (2000) 103 FCR 1 at [355]. That is not this case.

Sony US - The Parent Company 42The correct name of Sony US is Sony/ATV Music Publishing LLC of Madison Avenue, New York. It is the sole shareholder of Sony. The ultimate holding company is Sony Corporation. The fact that Sony US owns the copyright in 'Christmas in Dixie' does not detract from the force of the conclusions that I have reached. Sony's good faith obligation required it to act honestly and reasonably having regard to its own interests and those of the plaintiff. It was not alleged to be a fiduciary. Its good faith obligation did not require it to exercise its discretion solely in the plaintiff's interests or to subordinate its own interests to his: Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 at [144] - 145]. 43There is no support in the evidence for an inference that Sony preferred its own or its shareholder's interests to those of the plaintiff. Indeed, there is no specific allegation that it preferred the interests of Sony US. The fact that Sony US owns the copyright in 'Christmas in Dixie' might excite suspicion in some minds, but on the evidence, it is a false trail. The bare facts are no more than a source of speculation for the suspicious, the cynical and those who are unaccustomed to the discipline of legal reasoning. 44At the hearing there was no evidence that Sony, in particular Mr Trotter, favoured the position of Sony US. But even so, Sony was entitled to take its position into account. It was one of the legitimate factors that warranted consideration and which was entitled to be weighed in the balance in considering Sony's legitimate interests. The issue does not however arise, given the absence of the evidence on the point. What I am left with is evidence that demonstrates the unlikelihood of success of any copyright infringement claim and contemporaneous documentary evidence that indicates Sony's state of mind. They support the reasonableness of its decision to take no action.

Independent Good Faith Obligation 45A curious and perplexing feature of the plaintiff's case was his counsel's disavowal of the pleaded allegation that Sony had a contractual obligation to institute and prosecute proceedings against the owner of the copyright in the alleged infringing musical work, in effect, Sony US. He sought to circumvent this perceived problem (which I do not share) by contending that Sony had an independent good faith obligation, that existed outside the contractual obligation set out in paragraph [14] above, which required Sony to 'do something' - albeit something short of instituting and prosecuting proceedings against its parent. 46I doubt whether there is a sound legal basis for this contention. In any event, given my findings, it does not matter. The relationship between the plaintiff and Sony was contractual, if at all. In such a relationship, the contractual terms shape and govern the incidence of any good faith obligation. There was no controversy that Sony was required to exercise its contractual discretion in good faith. But I do not accept that Sony was subject to some independent, floating good faith obligation that existed outside its contractual obligations. The position may be different between a fiduciary and his principal, but not in a relationship such as this. 47I gratefully adopt the following statement in Carter, Peden & Tolhurst, Contract Law in Australia, (5th ed 2007, LexisNexis Butterworths) at 22: ... good faith is not an independent concept so much as something which is inherent in contract law itself and therefore a concept which must be taken into account when interpreting a contract, determining the scope of contractual rights and so on. See also Berndale Securities Limited v How Trading Pty Ltd (2010) 78 ACSR 218 at [374].

Conclusion & Orders 48For those reasons, the plaintiff's claim must be dismissed. Costs should follow the event. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 July 2014