Additional damages
87 Additional damages were claimed by the appellant under s 115(4) in the alternative to exemplary damages for passing off.
88 Section 115(1), (2) and (4) provide as follows:
115 Actions for infringement
(1) Subject to this Act, the owner of a copyright may bring an action for an infringement of the copyright.
(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.
. . .
(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.
89 Section 115(4) which confers a broad general discretionary power to award additional damages was introduced into the copyright landscape in the 1968 Act upon the recommendation of the Spicer Committee in its Report of the Copyright Law Review Committee 1959, para 309. It pointed to the need for the courts to have power to grant "something equivalent to exemplary damages" where relief in the nature of general damages and account of profits was thought to be inadequate. The discretion is not fettered in any arithmetical or mechanical way.
90 The principles so far developed in relation to awards of additional damages under s 115(4) were summarised in Norm Engineering v Digga Australia (2007) 162 FCR 1 at [302] by Greenwood J and further in Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (No 2) (2008) 76 IPR 763 at [17].
91 To the extent that damages are awarded under s 115(4) they cannot, by reliance on the same facts, be recovered, in addition, by way of exemplary damages. The converse is the same. Indeed, an award under s 115(4) can encompass damages which, at common law, would be aggravated damages and exemplary damages: Futuretronics at [17]; Bailey v Namol Pty Limited (1994) 53 FCR 102 at 113-114.
92 I have concluded that the conduct of the respondents demonstrated, in the context of exemplary damages, a contumelious disregard for the appellants' rights. It was, in terms of s 115(4), flagrant conduct. It manifested a calculated disregard for the appellants' rights: Prior v Lansdowne Press Pty Ltd (1975) 29 FLR 59 at 65; Ravenscroft v Herbert at New English Library Ltd [1980] RPC 193 at 208. It has been otherwise described as "glaring, notorious, scandalous" or "blatant": Raben Footwear Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 103.
93 Section 115(4) speaks in terms of "additional" damages. There is a question whether there must be an award of damages under s 115(2) before additional damages are available under s 115(4). Besanko J declined in Futuretronics at [17] to answer that question as his Honour had awarded nominal damages under s 115(2).
94 Again, although only nominal damages were awarded under s 115(2) Black CJ and Jacobson J in Aristocrat Technologies Australia Pty Ltd v DAP Services (Kempsey) Pty Ltd (2007) 157 FCR 564 observed at [54] that this did not preclude an award of additional damages under s 115(4) in an amount of $200,000. Their Honours referred with apparent approval to Microsoft Corporation v PC Club Australia Pty Ltd (2005) 148 FCR 310 where Conti J said that in an appropriate case an award of additional damages may well exceed the amount of compensatory damages under s 115(2).
95 Lockhart J in Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 76 FCR 565 confronted by a submission that the power to award additional damages under s 115(4) depended upon there first being an award made under s 115(2) considered that, the better view was that the word "additional" in conjunction with the word "damages" in subs (4) is descriptive of the "kind" of damages that may be awarded, namely additional in the sense of aggravated or exemplary damages which may contain a punitive element.
96 As his Honour said at p 575:
Therefore, although I recognise some attraction in counsel's argument, I do not think it is sound. The owner of a copyright may bring an action for infringement of copyright (s 115(1)). The Court may grant various forms of relief including those mentioned in subs (2), namely, an injunction and either damages or an account of profits. The relief mentioned in subs (2) is by way of inclusion and is not exhaustive of the Court's powers. The Court may also grant declaratory relief.
97 Moreover, as Black CJ and Jacobson J observed in Aristocrat at [39] damages are not the gist of an action under s 115(1) but are merely one form of relief that the Court may grant under s 115(2).
98 It is unnecessary in the present case to determine this question. There was no contradictor on the hearing of the appeal and the Court did not have the benefit of argument on this point.
99 There is, it seems, nonetheless a relationship between the two damages provisions in s 115. Black CJ and Jacobson J in Aristocrat at [52] said:
The very nature of "additional" damages and the considerations enumerated in s 115(4)(b) of the Copyright Act suggest that the amount awarded may depend on the sufficiency or otherwise of the compensatory damages awarded under s 115(2). The setting aside of the judge's award of compensatory damages is a "relevant matter": s 115(4)(b)(iv).
100 Damages under s 115(2) for lost profits fixed at $9,213 were sought by the appellants and conceded by the respondents below. While there is some confusion in the judgment as to how this sum was characterised it was, as run at trial, the full extent of the appellants' claim for lost profits. I have treated it as such.
101 Additional damages of $11,000 were awarded under s 115(4) representing, as counsel for the appellants conceded, in effect an account of profits. Such damages will ordinarily be claimed under s 115(2) and not s 115(4).
102 In fact additional damages under s 115(4) representing lost profits were not claimed by the appellants below. Rather, they claimed additional damages of $500,000 based upon the same facts as supported the passing-off claim for exemplary damages.
103 However, evidence of the extent of infringements, the amount of sales and some measure of the profits gained will be relevant in assessing the flagrancy of the contraventions. Such evidence may also go to the "benefit accrued" provision under s 115(4)(b)(iii), not for the purpose of awarding compensatory damages for loss of profits or upon an account of profits but rather to inform the appropriate penal and deterrent elements in an award of additional damages. This, it appears, is what the Court in Aristocrat intended. Rares J at [106] and [116] observed:
[106] While an accounting for profit approach, which was adopted by his Honour, was inappropriate for the award of compensatory damages, the methodology which his Honour adopted for the calculation is apposite in considering an award of additional damages.
[116] There is a need to deter and punish those who act or seek to act as Vidtech and Mr Parry were proved to have done. … One of the important purposes served by the power to award additional damages granted in s 115(4)(b) is that market practices of the kind engaged in by Vidtech and Mr Parry can be firmly discouraged. In a case like the present where precision of assessment of damage or profit is impossible but substantial, deliberate and flagrant infringement has been proved, a substantial sum of additional damages should be awarded. (Emphasis added)
104 Black CJ and Jacobson J said at [53]:
[53] We agree with Rares J that the evidence before the primary judge demonstrated a cynical and flagrant exploitation of Aristocrat's copyright by Vidtech and Mr Parry. We also agree with Rares J that $40,000, the amount awarded by the primary judge as additional damages, is not an appropriate figure to reflect the flagrancy of the infringements, the need to deter similar infringements and the need to mark the court's disapproval of the conduct. The starting point, to reflect in a broad way the benefit obtained is, as we have said, $105,000. There should be added to this sum a substantial amount for the other factors we have identified. (Emphasis added)
105 The approach of the trial judge, fairly read, followed the same approach as the Full Court in Aristocrat.
106 The primary judge found that it was proper to award additional damages to strip the respondents of the pecuniary benefit likely to have been obtained as a result of their infringement, as well as "to punish and deter". I take the latter observation to be referring not only to the respondents but to others generally. To the extent that the reasons of the primary judge are capable of being read such that the amount of $11,000 is compensation for lost profits then I agree with the majority that this would disclose error. Where, as here, an award of damages has been made under s 115(2) there can be no entitlement to further compensation for lost profits under s 115(4).
107 His Honour then, however, identified "militating factors" which "significantly diminish the amount that might otherwise have been awarded." These militating factors included that Mr Rifai accepted his wrongdoing and that of his company, that the respondents admitted liability and otherwise cooperated and apologised. However, formal admissions were not made by the respondents as I mentioned earlier until after the trial commenced, and the appellants were put to the task of filing evidence and preparing for trial on all issues. The respondents repeatedly ignored orders to file evidence and an outline of submissions. No apology was forthcoming until the affidavit served the day before trial. That affidavit contained false sworn evidence on the key issue of whether the respondents knew that they were acquiring counterfeit goods, and other parts of Mr Rifai's evidence were exaggerated. I do not regard these matters as having a militating effect on the extent of additional damages. Rather I regard the respondents contravening conduct which I have described to have been flagrant. To that extent the conduct was co-extensive with the contumelious conduct apt to an award for exemplary damages for passing-off. The principles applicable to an award of damages under s 115(4) correspond or are akin to those that apply to an award of exemplary damages at common law: Aristocrat per Black CJ and Jacobson J at [42]; per Rares J at [113]; Autodesk Inc v Yee (1996) 68 FCR 391 at 394.
108 The primary judge took the approach that a costs award against the respondents was a factor requiring a reduction of additional damages. This in my view was erroneous. The purposes to be achieved by a costs order under s 43 of the Federal Court of Australia Act 1976 (Cth) and an award of additional damages under s 115 of the Copyright Act are separate and different. Additional damages under s 115(4) have a punitive role to play. A costs order does not: Latoudis v Casey (1990) 170 CLR 534 at 543 per Mason J.
109 Moreover, the conduct of the litigation by the respondents is another factor. The language of s 115(4)(b)(ib) is sufficiently wide to encompass such a consideration. It was a distinct and relevant factor that the respondents continued to infringe copyright after being put on notice that they were infringing. This is a significant factor in awarding substantial additional damages: see, for example Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240; Aristocrat; and Elwood Clothing Pty Ltd v Cotton On Clothing Pty Ltd [2009] FCA 633. The primary judge it appears had no or insufficient regard for this.
110 I earlier referred to the decision of Kenny J in Review Australia v New Cover where her Honour in a case under the Designs Act 2003 (Cth) awarded additional damages where the defendant discovered no relevant documents concerning the manufacture, importation and sale of the relevant products. The defendant's explanation in this respect was rejected on not being credible. Likewise there was an inadequate response to a notice to produce which was also unsatisfactorily explained and was not credible. Finally the personal respondent failed to attend Court in answer to a notice for cross-examination. These constituted deliberate attempts by the defendant to frustrate the prosecution of the plaintiff's case for design infringement.
111 Besanko J considered this point in Futuretronics at [17] in discussion of observations made by Goldberg J in Flags 2000 Pty Ltd v Smith (2003) 59 IPR 191. It arose in the context of a consideration of the reach of s 115(4)(b)(ib) which concerns the conduct of the defendant after the act constituting the infringement or, if relevant after the defendant was informed of its alleged infringement of the copyright.
112 Besanko J said:
Fourth, in the recent case of Flags 2000, Goldberg J suggested that there is a distinction between conduct of a defendant after an infringement (or after being informed that he has allegedly infringed the plaintiff's copyright) and relevant to the substantive allegations against him on the one hand, and the defendant's conduct of his defence to an action for an infringement of copyright in relation to procedural matters on the other. The former matter is within the terms of s 115(4)(b)(ib) of the Act, whereas it has been suggested that the latter matter is a matter to be taken into account in determining the appropriate order as to costs. In Flags 2000 Goldberg J said (at [45]-[46]):
[45] The applicants submitted that the insertion of subparas (ia) and (ib) was declaratory of the position which had existed prior to the amendments. There is substance in that submission as can be seen from cases such as Carson v John Fairfax & Sons (1992) 178 CLR 44 at 71; 113 ALR 577 at 597 and Microsoft Corp v Goodview Electronics Pty Ltd (2000) 49 IPR 578. However, the conduct taken into account in those cases was conduct which was relevant to the substantive allegations made against the respondents. For example, in the Microsoft case the respondent filed a defence which proved to be false. Branson J took that fact into account in conjunction with other evidence which showed an intention on behalf of the respondent to conceal the identity of their suppliers to find "a deliberate pattern of conduct by the respondents in which they recognised the illegality of the enterprise they are engaged in and actively sought to conceal it".
[46] I do not consider that the conduct of the respondent contemplated by subpara (ib) of s 115(4)(b) is referable to conduct of the defence in so far as it relates to procedural matters and matters whereby the applicants are put to the proof of their case, albeit unreasonably. I consider that these are matters more appropriately dealt with by an appropriate order for costs.
In certain circumstances, the distinction may be a difficult one to apply and there is an obvious need to avoid double-counting. Nevertheless, I agree with the distinction identified by Goldberg J in Flags 2000.
113 I too respectfully agree with the observations of Goldberg J.
114 The post infringement conduct of the respondents in the litigation complained of by the appellants falls, in my view, into the former category of conduct going not merely to procedural matters but going directly to the substantive allegations and rendering more difficult, without excuse, the appellants attempts to pursue their legal entitlements. If it was once thought that respondents are entitled to put applicants to the proof (Warman International Ltd v Envirotech Australia Pty Ltd (1986) 67 ALR 253 at 262-5) then that is now subject to s 37M of the Federal Court of Australia Act 1976 (Cth). It must, in any event, if it be a privilege, nonetheless be a relevant factor in assessing the difficulties of enforcing copyright cases as was recognised in Autodesk at 479 by Wilcox J.
115 As with exemplary damages the assessment of the amount to be awarded is, of necessity, an imprecise exercise: Bailey at 114; Aristocrat per Black CJ and Jacobson J at [52].
116 The appellants stressed the importance of an award of exemplary damages for passing-off. I have dealt with that. The claim for additional damages rests essentially on the same facts although it includes the further element of benefit accrued to the respondents. There is no cross-appeal. There is no reason to interfere with the discretion of the primary judge in that respect and the award of $11,000 should stand.