Dallas Buyers Club LLC v iiNet Limited

First Issue: Revisiting the August Judgment 11 It is well-established that there is a public interest in the finality of litigation. Consequently, in ordinary trial proceedings the judgment of the Court brings to an end the parties' dispute. Subject to minor, presently immaterial, exceptions, the judgment affords to every party to it a defence to any further action by means of the plea of res judicata. The rights and obligations which existed before the judgment cease to exist and are replaced by the rights and obligations generated by the judgment itself: see, e.g., Tomlinson v Ramsey Food Processing Pty Ltd (2015) 323 ALR 1 at 6-7 [20] (HC). 12 These proceedings, however, are not ordinary trial proceedings. An action for preliminary discovery is not about the final rights of the parties and upon the disposition of such a proceeding the legal position of no party is altered. Consequently, the consistent view in this Court is that preliminary discovery orders are interlocutory in nature: Hooper v Kirella Pty Ltd (1999) 96 FCR 1 at 4 [4] (FC). They remain, therefore, permanently exposed to the risk of alteration or even revocation. So much flows from r 39.05(c) of the Federal Court Rules 2011 (Cth), which provides: '39.05 Varying or setting aside judgment or order after it has been entered The Court may vary or set aside a judgment or order after it has been entered if: … (c) it is interlocutory…' 13 Thus it is true to say, at least as a matter of theory, that interlocutory orders of the present kind do not create res judicata or issue estoppels such as would be, in themselves, a complete answer to any attempt to re-litigate an action. 14 There is, however, a related principle which circumscribes the ability of a party to re-litigate interlocutory matters after they have been thoroughly determined. It is the concept of abuse of process. McLelland CJ in Eq explained the principle in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46-47 ('Honeysett') in these terms: 'In the present case I am dealing with an interlocutory order of a substantive nature made after a contested hearing in contemplation that it would operate until the final disposition of the proceedings. In such a case the ordinary rule of practice is that an application to set aside, vary or discharge the order must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the court on the hearing of the original application: see Woods v Sheriff of Queensland (1895) 6 QLJ 163 at 164-5; Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 at 447-8; Chanel Ltd v F W Woolworth & Co [1981] 1 All ER 745; [1981] 1 WLR 485; Adam P Brown Male Fashions v Philip Morris (1981) 148 CLR 170 at 177-8; 35 ALR 625 at 629-30; Butt v Butt [1987] 1 WLR 1351 at 1353; Gordano Building Contractors Ltd v Burgess [1988] 1 WLR 890 at 894.' 15 There is a debate as to the juridical nature of the question this gives rise to. Some Courts have thought the rule one of practice; others have seen it as involving a component of discretion. The debate is very usefully traced, with respect, by Reeves J in Australian Competition and Consumer Commission v Adata (Vic) Pty Ltd (No 2) [2015] FCA 272 at [8]-[44]. It is not necessary to resolve that debate in the present circumstances. Whether as a rule of practice or as a matter of discretion, I do not propose to permit DBC to revisit what was determined in the August Judgment unless I am satisfied that there has either been a material change in circumstances or new material has been discovered which could not reasonably have been put before the Court on the previous occasion. I am also willing to revisit the August Judgment to the extent that it be shown that I failed to deal with some aspect of DBC's case which could have a material impact on the outcome of the proceeding. 16 I turn then to the issue of licence fee damages.

Second Issue: Licence Fee Damages 17 This part of the case relates to the uploading of the Film by BitTorrent users, rather than the downloading of the Film. In both situations, what is legally involved is DBC's contention that it is entitled to seek damages from BitTorrent infringers under s 115(2) of the Act. It provides: '115 Actions for infringement … (2) Subject to this Act, the relief that a court may grant in an action for an infringement of copyright includes an injunction (subject to such terms, if any, as the court thinks fit) and either damages or an account of profits.' 18 At the hearing which led to the August Judgment, DBC advanced an argument under s 115(2) in these explicit terms: 'The Prospective Applicants contend that the infringer's conduct amounts to a distribution of DBC for which the infringer would ordinarily require a licence from the Prospective Applicants. By reason of the infringer's conduct in making DBC available online for others to download without a licence to do so, the Prospective Applicants have not received a licence fee and royalties which would have been payable had a licence been granted. The Prospective Applicants seek a fair and reasonable one-time licence fee from the infringers.' 19 DBC submitted in writing on the present application that its case under s 115(2) had been potentially broader than this might imply. I do not accept this. It was clear on the previous occasion that the only damages claim pursued by DBC was on a licence fee basis. At [29]-[30] of its submissions on s 115(5)-(8) of the Act, DBC made this submission: 'Economic Loss 29. The Prospective Applicants intend to seek damages from infringers on account of the loss suffered by reason of the illegal uploading of DBC: see Methodology Submissions at [23]-[28]. 30. While the Prospective Applicants also consider that they are entitled to damages on account of lost profits, they currently propose to recover damages by way of a licence fee representing fair compensation for the illegal distribution of DBC: see Methodology Submissions at [27]-[28]. The Likely Infringements demonstrate the reasonableness of the licence fee of $[XXX] proposed to be sought from infringers.' (emphasis added) 20 The italicised portion makes plain what DBC's case was. To the extent, therefore, that DBC now submits that it has an entitlement to revisit the question s 115(2) damages because I had left some elements of its argument unresolved in the August Judgment, I reject the submission. 21 I did not apprehend, in any event, that the above matter was the principal focus of the argument advanced by Mr Jackman SC for DBC. Rather, he sought to bring the position of DBC within the exceptions articulated in Honeysett itself. This naturally required him to identify a material change in circumstances since the August Judgment (or new material not available at that time). 22 The focus of Mr Jackman's argument was on an aspect of my reasoning in the August Judgment. At that time, I rejected DBC's argument that its s 115(2) damages case could be quantified using a notional licence fee on the basis that the licence fee approach gave rise to a factual debate. That factual debate was whether any BitTorrent infringers would have sought to negotiate a worldwide non-exclusive distribution agreement with DBC to authorise their uploading activities or whether infringers would have pursued other courses of action, for example, whether instead they would have rented the Film and paid $4.99 for the pleasure. On this factual question, I concluded that DBC's contention was wholly unrealistic; indeed, I went so far as to describe it as 'surreal'. 23 Mr Jackman now submitted that there had been a development on 2 December 2015 which meant that my conclusion that what was involved was a factual inquiry was wrong, as a matter of law. This development was the decision of Yates J in Winnebago. In a carefully considered judgment, his Honour concluded that in a damages claim for passing off a plaintiff did not need to prove that the infringer would have entered into a licensing arrangement. Damages would instead be assessed on the basis that the infringing party should pay for what it had taken and that the value of something taken without licence should be the licence fee that would have been paid. 24 There is a Full Court authority that this principle does not apply in copyright cases, such as the present: see Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (in liq) (2007) 157 FCR 564 at 569 ('Aristocrat'). There Black CJ and Jacobson J said (at [27]-[29]): '27 However, a royalty does not provide the appropriate measure of damages where the copyright owner would not have granted a licence: Columbia Pictures Industries Inc v Luckins (1996) 34 IPR 504 at 509 (Tamberlin J); Autodesk Australia Pty Ltd v Cheung (1990) 94 ALR 472 at 476-477 (Wilcox J); Microsoft Corporation v Goodview Electronics Pty Ltd (2000) 49 IPR 578 at [55]. 28 In the present case, Aristocrat did not seek to establish that it would have granted a licence to Vidtech. The plain inference was that it would not have been prepared to do so. A royalty does not therefore provide an appropriate measure of damages. 29 In any event, Aristocrat did not lead evidence that licences were granted to users at any particular rate of royalty, let alone that which was claimed as a royalty in the present case. In those circumstances, where the quantification of royalties charged by a copyright owner is entirely within its own knowledge, a court should not speculate as to what royalty might have been foregone: Paramount Pictures Corporation v Hasluck (2006) 70 IPR 293; cf Microsoft Corporation v Ezy Loans Pty Ltd (2004) 63 IPR 54 at [88].' 25 Yates J distinguished Aristocrat because it was concerned with copyright rather than passing off, a luxury which is not available to me. Mr Jackman sought to persuade me that Aristocrat was a case on its own facts. It is certainly true that the dispositive reasoning appears to be at [29]. There the Court rejected the copyright holder's claim on this basis because it had not proved what the relevant reasonable licence fee would have been. 26 In any event, I do not accept that the decision of Yates J constitutes a material change in circumstances. Winnebago is a passing off case. It is true that Yates J distinguished Aristocrat but those arguments were just as available to DBC at the previous hearing before the August Judgment. I do not see that anything has materially changed. 27 Then there is the further problem, as Mr Jackman very properly accepted, that DBC currently falls within the very evidentiary lacuna identified at [29] of Aristocrat; that is to say, DBC has not led any evidence of what its reasonable licence fee might be. Without that critical evidence the case fails for want of evidence (as it did in Aristocrat), even if one accepts the legal principle for which Mr Jackman contends. 28 Recognising the difficulty which this generated for his argument, Mr Jackman eventually sought a short adjournment of a few days to fill this lacuna. This was opposed by iiNet. I refused the adjournment application. I did so for the following reasons. 29 First, there is no reason why DBC could not have led its evidence about what a reasonable licence fee would have been at the earlier hearing. Indeed, even on the argument then being propounded this evidence was essential. 30 Secondly, beyond the mere existence of the decision of Yates J on 2 December 2015, DBC did not advance any explanation as to why this matter was not raised the first time it was argued. I do not conclude that this involved a deliberate choice on the part of DBC's advisors; I infer that it was simply overlooked. 31 Thirdly, contrary to the submissions of DBC, I do not accept that the evidence which will be involved is likely to be straightforward. DBC's argument is that BitTorrent uploaders are effectively distributing the film worldwide and should pay the fee it would charge for such a licence. For this argument, it will be necessary to prove what DBC's worldwide licence fees are. There are likely to be, so it seems to me, several difficult issues in assessing this. For example, has DBC ever granted a non-exclusive distribution licence or are the licences it has historically granted exclusive and geographical? If, as may be possible, DBC has not granted licences on the same terms as the hypothetical BitTorrent licence notionally would be, how is the fair rate of that licence fee to be determined? I do not raise these matters to suggest that they have any particular answers, rather the point is to underscore how potentially complex the inquiry may turn out to be. 32 Fourthly, it is difficult to see that, once the lid is lifted on that Pandora's Box, I could legitimately prevent iiNet, as the respondent, from seeking itself to explore what a reasonable licence fee might be. Taken together, these third and fourth matters suggest a real risk of prolongation of the case and with it further delay in the case's resolution; prolongation because there may well now be a trial within a trial on the issue of how DBC licenses the Film; delay because the preparation involved will take time and inevitably push the hearing into the new Law Term. 33 Fifthly, it needs to be kept in mind that what is before the Court is a preliminary discovery application, not Ben-Hur. The interests of justice are not served in comparatively modest procedural litigation such as the instant case by permitting no stone to go unturned. The enterprises of the parties must be kept proportionate to what they are arguing about. 34 In those circumstances, I refused the adjournment. The effect of that refusal is that the situation which existed at the prior hearing (viz. that there was no evidence of what DBC's reasonable licence fee was) continues to obtain. Even if I had accepted, therefore, that DBC should now be permitted to raise this issue, it would have inevitably failed for the reason given by Black CJ and Jacobson J in Aristocrat at [29]. 35 In all of those circumstances, I do not accept that I should permit re-ventilation of the licence fee issue.

Third Issue: Additional Damages under s 115(4) 36 At the earlier hearing, DBC had relied upon s 115(4) but without articulating any particular amount it wished to demand (apart from passing references in some worked examples). In its written submissions it identified a series of factors which it said would be relevant to the assessment of such a claim but only as a set of general observations. These factors were: the flagrancy of the infringement; the need to deter similar infringements in the future by reference to general deterrence; specific deterrence of individual infringers; the conduct of the infringer after being made aware of the conduct; whether there had been conversion of the material from hardcopy form to soft copy form; and any benefit shown to have accrued to the infringer. 37 In relation to the issue of specific deterrence, DBC also submitted at the same time that it was relevant to consider how many films other than the Film had been downloaded and uploaded by the BitTorrent user involved. In the August Judgment, I rejected DBC's case on s 115(4) because I did not accept that downloaders' activities with respect to other films was a matter relevant to s 115(4). DBC now submits that in doing so I overlooked the balance of its s 115(4) submissions. It submitted that only one of these had been related to the downloading of other films and this was the issue of specific deterrence. 38 In its written submissions for the earlier hearing, DBC did not nominate any particular approach to or metric by which these damages might be assessed. It did, however, provide worked examples in which fluctuating figures were derived, based on the varying circumstances of particular hypothetical account holders. However, insofar as the s 115(4) damages were concerned, the only thing distinguishing the worked examples were differences in the number of the other films downloaded. There is force, therefore, in iiNet's submission that, in fact, the downloading of other films formed the central feature of DBC's s 115(4) claim and that the August Judgment was complete in approaching the s 115(4) issue on that basis. 39 I propose, however, to assume in DBC's favour that the August Judgment did not deal with the entirety of its claims under s 115(4). If so, I can certainly address them now if they are material to the outcome: see for example Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 301-302 per Mason CJ; Aktas v Westpac Banking Corporation (No 2) (2010) 241 CLR 570 at 573 [6] per French CJ, Gummow and Hayne JJ. 40 The difficulty is that, assuming the issue in DBC's favour, this procedural entitlement does not entitle DBC to broaden its case beyond what it actually advanced at the previous hearing. 41 On the present application, DBC advanced actual figures relating to its s 115(4) claim which it did not previously do. Apart from that, iiNet submitted that I should not permit DBC to make any demands for s 115(4) damages for two substantive reasons. First, the legal standard I had applied in the August Judgment to determine whether I would permit a specified demand for damages to be made was to ask whether, if DBC had sued an account holder for the sum proposed to be demanded, that suit would survive a summary dismissal application (see, e.g., [23] and [33]). Secondly, bearing that test in mind, DBC is quite unable to particularise any claim against an accountholder for s 115(4) damages because there is nothing which presently points to any account holder having done anything to which s 115(4) is directed. In that circumstance, iiNet submitted that DBC would be unable to particularise any claim for additional damages and, in the absence of such particulars, the case would be summarily dismissed. 42 On the other hand, DBC submitted that I had already concluded that the claim for s 115(4) damages was 'plausible' in the April Judgment where I held that preliminary discovery should, in principle, be given. 43 This is literally true but when the full context of the remark is appreciated I do not think it assists DBC. In the April Judgment the question was whether the preconditions for the making of a preliminary discovery order had been satisfied under r 7.22 of the Federal Court Rules 2011 (Cth). I concluded, contrary to the ISPs' submissions, that they had been. One of the arguments advanced by the ISPs was that the Court would not, as a matter of discretion, order preliminary discovery for eight specified reasons. The second and fourth of these reasons were: '(ii) …the trivial nature of the demonstrated infringements… (iv) the applicants had failed to do adequate monitoring which could have revealed serious infringers…' To unpack that point a little: the software used by DBC did not detect how much downloading actually was going on, only that the Film had been shared using BitTorrent from a particular IP address. The ISPs contended that software was readily available which would have measured the extent of the infringement as well. They pointed to the litigation in Roadshow Films Pty Ltd v iiNet Ltd (No 2) (2012) 248 CLR 42 as an instance of the deployment of such software. 44 I rejected this argument in the April Judgment at [76]-[78] in these terms: '76 As to (ii) (the trivial nature of each sharing incident): it is, I think, important to be clear about what is involved in an application under FCR 7.22. It is a procedure to identify putative respondents. It is not a procedure for working out how good those claims are, other than in the sense of eliminating plainly frivolous exercises. But it is very far from apparent that the current exercise is frivolous. It may be true that for single instances of infringement the damages are likely to be modest and quite possibly limited to the foregone licence fee that would have been paid had the film been lawfully downloaded, although quaere whether this is so where the film had been shared because it was not available in the Australian market at all. 77 Regardless, I am not persuaded that a suit by the copyright owner naming individual BitTorrent users would be economically pointless. Further, in the case of multiple downloaders it must be considered at least plausible that a copyright owner may be able to obtain aggravated damages under s 115(4), which provides: '(4) Where, in an action under this section: (a) an infringement of copyright is established; and (b) the court is satisfied that it is proper to do so, having regard to: (i) the flagrancy of the infringement; and (ia) the need to deter similar infringements of copyright; and (ib) the conduct of the defendant after the act constituting the infringement or, if relevant, after the defendant was informed that the defendant had allegedly infringed the plaintiff's copyright; and (ii) whether the infringement involved the conversion of a work or other subject-matter from hardcopy or analog form into a digital or other electronic machine-readable form; and (iii) any benefit shown to have accrued to the defendant by reason of the infringement; and (iv) all other relevant matters; the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.' 78 One aspect of this provision is the need to provide deterrence. It is not beyond the realm of possibilities that damages of a sufficient size might be awarded under this provision in an appropriately serious case in a bid to deter people from the file sharing of films. There is no need to speculate on what those damages might be. For present purposes, it is enough only to observe that the ISPs' submission that what the rights owners have in mind is frivolous or de minimis is a submission which does not afford sufficient weight to the genuine rights which here exist, and which are expressly recognised by statute.' 45 What I was saying was that I did not think that DBC should be precluded from preliminary discovery (on the ostensible basis that the claims would all be modest) because it was in fact plausible that in some cases additional damages under s 115(4) would be available. 46 This proposition is not the same as saying that claims for additional damages will be plausible for each account holder. I do not accept, therefore, that what I said in the April Judgment assists DBC. 47 At that point it becomes difficult to see that DBC could file a proceeding against an account holder seeking damages under s 115(4) on the basis of what it presently knows. The first question it would be asked, by way of a request for further and better particulars, would be to state the facts, matters and circumstances alleged to give rise to DBC's entitlement to additional damages. As matters presently stand, the only answer which DBC could give would be that the account holder had been detected uploading a sliver of the Film. On that basis, it seems inevitable that the s 115(4) claim would then be struck out. That being so, the application of my reasoning in the August Judgment leads to the conclusion that I should not permit DBC to make demands for sums of this kind. 48 I therefore accept iiNet's submission about DBC's s 115(4) claims. Assuming in DBC's favour that I should even entertain this argument, I would nevertheless reject it.

Fourth issue: Electronic Commercial Infringement 49 In its original submissions DBC said nothing about s 115(5)-(8) which deal with electronic commercial infringement. These provide: '115 Actions for infringement …. Consideration for relief for electronic commercial infringement (5) Subsection (6) applies to a court hearing an action for infringement of copyright if the court is satisfied that: (a) the infringement (the proved infringement) occurred (whether as a result of the doing of an act comprised in the copyright, the authorising of the doing of such an act or the doing of another act); and (b) the proved infringement involved a communication of a work or other subject‑matter to the public; and (c) because the work or other subject‑matter was communicated to the public, it is likely that there were other infringements (the likely infringements) of the copyright by the defendant that the plaintiff did not prove in the action; and (d) taken together, the proved infringement and likely infringements were on a commercial scale. (6) The court may have regard to the likelihood of the likely infringements (as well as the proved infringement) in deciding what relief to grant in the action. (7) In determining for the purposes of paragraph (5)(d) whether, taken together, the proved infringement and the likely infringements were on a commercial scale, the following matters are to be taken into account: (a) the volume and value of any articles that: (i) are infringing copies that constitute the proved infringement; or (ii) assuming the likely infringements actually occurred, would be infringing copies constituting those infringements; (b) any other relevant matter. (8) In subsection (7): article includes a reproduction or copy of a work or other subject‑matter, being a reproduction or copy in electronic form.' 50 Notwithstanding that DBC did not rely upon these sections, they seemed to have something to do with DBC's case. On 22 July 2015, I had my associate write to the parties asking them to make submissions about their relevance. Such a submission was received from DBC. It suggested that the provisions provided a principled basis for increasing a damages award but did not seek to explain what the increase might be. In the August Judgment I disposed of the case based on s 115(5)-(8) this way: '31 There are many uncertainties about these provisions but I do not think that they presently need to be resolved. The parties had differing views about whether the requirements of s 115(5)(c)-(d) could properly be seen as having been satisfied in this case. 32 The matter can, I think, be resolved without becoming mired in that swamp. The present application is concerned with what DBC can, or cannot, demand of potential infringers. Assuming in their favour that these provisions are enlivened the question then becomes what do they want? In particular, what are they going to demand of account holders? DBC has made no submission to me about how these damages might be calculated or what they will seek, beyond asserting that these provisions lend further support to the reasonableness of the figures sought in their proposed methodology. For example, it may be that these provisions would justify the conclusion that the Film was copied many thousands of times using BitTorrent and that infringers are to be held liable for further downstream infringements. I have no particular problem with such an analysis but DBC still has to explain what it is going to demand of the people it writes to. Nothing has been submitted to me on that topic. In those circumstances s 115(5)-(8) presently goes nowhere.' 51 On the present application, DBC now seeks to put forward actual figures to be demanded. It was the absence of such articulated demands which caused the failure of the same argument in the August Judgment. The explanation proffered by DBC in its written submissions as to why this had not been done at the previous hearing appeared to be because it was said that I had misapprehended the width of its case under s 115(2) and, in particular, that it was pursuing damages under this provision on bases other than the licence fee approach. I reject this argument: there was no such misapprehension; the only case run under s 115(2) was the licence fee case. In any event, it is hard to see why, even if that were so, it would permit DBC to get a second go on the separate question of s 115(5)-(8).

Fifth Issue: The Bond 52 It will follow from the above that I do not accept that DBC should be permitted to do anything beyond what I indicated in the August Judgment. Since that is not what it is proposing to do, I am not going to lift the stay. As a matter of logic this means that the question of whether I should permit a lower bond to be posted because DBC now only proposes to pursue the smaller class of iiNet customers does not arise.

Conclusion 53 The present application must be dismissed with costs. Some finality must now be brought to these proceedings. What I will do is make a self-executing order which will terminate the proceedings on Thursday 11 February 2016 at noon, unless DBC takes some step before then. 54 Substantial questions of principle are involved in a number of the decisions which I have made in this case. I will indicate that I would be disposed to grant leave to appeal from all of the orders made by me on 6 May 2015 and 14 August 2015. 55 I make the following orders:

1. The prospective applicants' application of 23 September 2015 be dismissed with costs.
2. Unless further application be made by the prospective applicants beforehand, dismiss the proceeding in its entirety at noon on Thursday 11 February 2016. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.