The relief to be awarded
22 Mr Thomas and Flags 2000 sought the following relief against Mr Smith:
(a) a permanent injunction restraining Mr Smith from infringing Mr Thomas' copyright in the Aboriginal flag;
(b) an order for the delivery up of all infringing copies or in the alternative destruction upon oath of all such infringing copies;
(c) damages for infringement of copyright;
(d) additional damages pursuant to s 115(4) of the Act in the sum of $30,000.
23 I am satisfied that it is appropriate to grant a permanent injunction in the terms sought. Although Mr Smith has asserted that he no longer has any Aboriginal flags available for sale in his business, the applicants have not been able to test that assertion by cross‑examination as Mr Smith did not appear at the hearing, either by counsel or in person. Mr Smith filed material with the court in which he said that after his conversation with Mr Richardson in July 1999 he destroyed the two remaining Aboriginal flags he had in stock for sale but he nevertheless kept Aboriginal flags for hire purposes. Mr Smith gave no explanation as to why he did not destroy what he called the "hire" flags after July 1999. Having regard to the fact that Mr Smith maintained a number of Aboriginal flags for the purpose of hiring them and that he made at least two further sales after being put on notice in July 1999 of Mr Thomas' copyright and Flags 2000's exclusive licence in relation to the Aboriginal flag, I consider that a permanent injunction will provide an appropriate protection for Mr Thomas in respect of the copyright in the Aboriginal flag.
24 I am satisfied that the applicants are entitled to an award of damages pursuant to s 115(2) of the Act. The applicants have claimed damages or alternatively an account of profits but at the hearing they elected for damages rather than an account of profits. In his defence Mr Smith said he had not manufactured any Aboriginal flags since July 1998. He said he had manufactured eight Aboriginal flags, of which six were sold prior to July 1999. Mr Smith produced copies of the invoices in relation to the two sales which occurred after July 1999 and these showed sale prices of $54.54 and $59.09. Making an appropriate allowance for some costs in acquiring those flags, I assess damages pursuant to s 115(2) of the Act in the sum of $320.
25 The applicants submitted that this was an appropriate case for an award of additional damages under s 115(4) of the Act. At the time of the infringements and at the time the application was filed, s 115(4) provided:
"(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
(ii) whether the infringement involved the conversion of a work or other subject‑matter from hardcopy or analog forminto 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."
26 The applicants submitted that in assessing such damages I should take into account the manner in which Mr Smith had conducted his defence and the fact that he had only indicated that he would not be appearing at the hearing on the evening before the day fixed for the commencement of the trial. The applicants also submitted that I should take into account the fact that Mr Smith had advertised the Aboriginal flag for sale over the internet.
27 Mr Smith did not specifically deny Mr Thomas' authorship and ownership of the copyright subsisting in the Aboriginal flag, nor did he deny the existence of the licence agreement between Mr Thomas and Flags 2000. However, he did not admit those allegations thereby putting the applicants to their proof.
28 On 21 May 2003 the applicants served a notice to admit on Mr Smith requiring him to admit, for the purpose of the proceeding, that Mr Thomas was the author of the Aboriginal flag and the owner of the copyright subsisting in it, that his authorship and ownership had been confirmed by declaratory order of the Federal Court on 9 April 1997 and that the licence agreement between Mr Thomas and Flags 2000 was current, valid and subsisting. Mr Smith's then solicitors responded by stating that he did not admit authorship or ownership or their confirmation by the Federal Court on 9 April 1997. Mr Smith did admit the authenticity of the licence agreement.
29 A directions hearing was held on 5 June 2003 at which Mr Smith appeared personally by video link. He made it clear on that occasion that he would be resisting the claims made against him with some vigour and that Mr Thomas' authorship and ownership of the copyright in the Aboriginal flag was definitely in issue.
30 Section 115(4) of the Act conditions an award of additional damages upon the establishment of infringement of copyright and the satisfaction of the Court that it is appropriate to award additional damages. Infringement of copyright in the Aboriginal flag is established for the purposes of s 115(4)(a). That leaves for consideration in relation to the awarding of additional damages the flagrancy of the infringement and "all other relevant matters".
31 An award of additional damages under s 115(4) is not dependent upon the adequacy or inadequacy of an award of damages under s 115(2). In particular, an award of additional damages under s 115(4) does not have to bear any proportionate relationship to an award of damages under s 115(2). In Cala Homes (South) Limited v Alfred McAlpine Homes East Limited (No 2) 23 [1996] FSR 36, Laddie J, at 43, referred to additional damages as being "a head of relief independent of and not dependent upon whatever form of financial relief the plaintiff seek …"
32 I do not have to make a finding that there has been a flagrant infringement of the copyright; rather I have to be satisfied that it is proper to award additional damages "having regard to", inter alia, the flagrancy of the infringement: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 37 IPR 417 at 422, 432. Similarly, I do not have to make findings as to the existence of "all other relevant matters" but rather I am to have regard to them in determining whether I am satisfied that it is proper to award additional damages.
33 The degree of flagrancy of the infringement is not extreme. The applicants submitted that Mr Smith's conduct showed a conscious and continued disregard for the applicants' rights and that Mr Smith ought to be deterred from committing such conduct again. If such a conclusion was open then a significant award of damages might be appropriate: XL Petroleum (NSW) Pty Ltd v Caltex Oil (Australia) Pty Ltd (1985) 155 CLR 448 at 471. However, the evidence does not support the conclusion that there was a continuous disregard for the applicants' rights. Once the claim of copyright was brought to the attention of Mr Smith in July 1999 he removed any reference to the Aboriginal flag from his website. Further, the evidence does not disclose a significant number of sales post‑July 1999.
34 The extent to which Mr Smith's disregard for the applicants' rights was conscious is tempered by his statement that, on the basis of his telephone conversation with Mr Richardson in July 1999, he decided that it would be prudent to delete any reference to the sale of Aboriginal flags and the Aboriginal flag was removed from his business website not long after the conversation. It is also tempered by Mr Smith's statement, albeit not tested by cross‑examination, that, as a result of research on the issue of copyright and the origins of the Aboriginal flag and the reading of the judgment of Sheppard J, he concluded that irrespective of whether Mr Thomas was the author and owner of the copyright, it did not preclude Aboriginal people using the design or purchasing flags carrying the design. This conclusion or assumption of Mr Smith was not warranted but it is relevant to take into account on the issue of the flagrancy of the infringement. Mr Smith said that it was on the basis of that assumption that he sold the flag to the employee of Flags 2000 who had held himself out to be a representative or member of an Aboriginal community. As noted above, Mr Smith said that the only other Aboriginal flag he had sold was also to an Aboriginal community.
35 There is a useful discussion by Lockhart J of the principles governing the award of additional damages under s 115(4) of the Act in Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 38 IPR 451 at 461‑463 and by Sundberg J in MJA Scientifics International Pty Ltd v SC Johnson & Son Pty Ltd (1999) 43 IPR 275 at 281‑284. In particular, Sundberg J said at 282:
"It has been said that 'flagrancy' involves 'calculated disregard of the plaintiff's rights, or cynical pursuit of benefit': Prior v Lansdowne Press Pty Ltd [1977] VR 65 at 70; 'scandalous conduct, deceit including deliberate and calculated infringement where a defendant reaps a pecuniary advantage in excess of the damages he would otherwise have to pay': Copinger and Skone James on Copyright, 13th ed, 1991, p 344; 'the existence of scandalous conduct, deceit and such like; it includes deliberate and calculated copyright infringement': Ravenscroft v Herbert & New English Library Ltd [1980] RPC 193 at 208; Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69; 94 ALR 472 at 478."
36 There may have been a misunderstanding by Mr Smith in relation to his interpretation of the judgment of Sheppard J, but I do not consider that he has acted significantly in calculated or deliberate disregard of the applicants' rights. Although the concept of flagrancy includes a deliberate and calculated copyright infringement, the conduct of Mr Smith lies at the lower end of flagrancy.
37 The applicants submitted that the relevant matters to which the Court is to have regard in order to be satisfied that it is proper to award additional damages include the conduct of Mr Smith in the proceeding and the manner in which he conducted his defence. The applicants pointed, in particular, to the consequence of Mr Smith's refusal to admit that Mr Thomas was the author of the Aboriginal flag and the owner of the copyright in it. As a result of that refusal the applicants and their legal advisers were put to considerable effort and expense in preparing the evidence necessary to establish such authorship and ownership. Those efforts included locating the witnesses who had given evidence before Sheppard J, obtaining a copy of the transcript of that proceeding and preparing affidavits for execution by six witnesses.
38 The applicants also pointed to the fact that Mr Smith did not file or serve any affidavits in support of his defence on any issue of authorship of the Aboriginal flag or ownership of the copyright in it, notwithstanding his statement at the directions hearing on 5 June 2003 that these matters were in issue. Although directions were given for the preparation of the court book and the filing of contentions of fact and law, Mr Smith did not file any such outline and did not contribute to the preparation of the court book. After the time had expired for Mr Smith to comply with the directions to file and serve his outline of contentions of fact and law, a message was left on his voicemail by my associate enquiring as to when he would be filing and serving his contentions and whether he wanted to cross‑examine any of the applicants' witnesses. On 15 September 2003, one week before the date fixed for the trial, Mr Smith sent a letter by facsimile transmission to the Court, which was copied to the applicants' solicitors, in which he said that he would not be submitting any contentions of fact and law, he would like to cross‑examine all the witnesses who provided affidavits and that he would be attending the proceeding in Melbourne in person. It was only the evening before the date fixed for trial that he informed the Court he would not be attending the hearing.
39 On 15 September 2003, after Mr Smith sent his letter by facsimile transmission, the solicitors for the applicants sent a letter in reply by facsimile transmission in which they noted that the applicants were seeking additional damages pursuant to s 115(4) of the Act and they provided the particulars on which they relied. Those particulars covered the sale of Aboriginal flags after Mr Richardson's conversation with Mr Smith in July 1999 and a number of respects in which Mr Smith had failed to comply with procedural directions and also his failure to admit authorship and ownership of the copyright in the Aboriginal flag.
40 I do not consider that the manner in which Mr Smith approached the trial of the proceeding and conducted his defence is "a relevant matter" for the purposes of s 115(4)(b)(iv) of the Act. The context in which the "relevant matters" appear in s 115(4) demonstrates that the matters must be relevant to the nature of the infringement and the consequences of the infringement in relation to the subject‑matter of the copyright. If there be matters which have had an aggravating consequence on the incurring of costs by the applicants in proving their case, I consider that such matters should be taken into account in any order for costs but not in relation to the quantification of additional damages under s 115(4).
41 The applicants relied on Milpurrurru v Indofurn Pty Ltd (1995) 30 IPR 209 in support of their proposition that the conduct of a respondent during litigation, especially in relation to the respondent's refusal to acknowledge copyright, ownership and a refusal to consent to injunctions, was a relevant matter for the purposes of s 115(4) of the Act. The issue before the court in Milpurrurru v Indofurn Pty Ltd was a claim by a number of Aboriginal artists for breach of copyright in certain artworks including bark paintings, a lino cut and Papunya style paintings in acrylic paint on canvass. The subject‑matter of the artworks concerned creation stories of spiritual and sacred significance to the artists and the cultures of the group to which they belonged. The respondents arranged for a carpet factory to manufacture a number of carpets which reproduced several of the artworks in full and reproduced other designs which were said to be reproductions of a substantial part of three of the artworks.
42 The court made an order for additional damages pursuant to s 115(4) of the Act in respect of flagrant infringement. In support of their claim for additional damages the artists submitted that the additional damages should be increased by the conduct of the respondents in the course of the litigation. von Doussa J did not accept that submission and was not satisfied that the respondents' conduct bore the characterisation claimed by the artists. von Doussa J left the conduct of the respondents to be taken into account in making the relevant costs orders.
43 The applicants relied upon the following passage at 247:
"The applicants have strenuously contended that the additional damages should be inflated by the conduct of the respondents in the course of the litigation, in particular the persistent refusal to recognise that the proceedings had been brought on the instructions of the artists, the refusal to acknowledge copyright ownership, and a refusal during the course of trial to consent to an injunction restraining the continued sale of the snake, the green centre and the waterhole carpets. I have already commented that the tactical decisions involved in the first two of these matters are extraordinary, and on several occasions both in pre‑trial directions hearings, and during the trial, it was pointed out to the respondents and their advisers that the course they were adopting could be viewed as a matter of aggravation. However, and with some hesitation, I have decided that these matters should not be so treated. Having observed Mr Bethune in the witness box, I am left with the impression that his approach to the predicament in which he and Beechrow found themselves was largely dictated by wrong‑headed emotions and at times inappropriate advice. I am not satisfied that the conduct of the litigation was wilfully contemptuous. The tactical decisions are likely to lead to orders for costs compensating the applicants for the additional expense to which they have been put, and in the circumstances I think that is the appropriate way in which the conduct of the proceedings should be reflected."
This passage does not support the proposition that the conduct of a respondent in relation to a proceeding before the court is a relevant matter to be taken into account for the purposes of s 115(4)(b)(iv) of the Act. von Doussa J did not affirmatively accept the proposition that conduct in the course of litigation is a relevant matter for the purposes of s 115(4)(b)(iv) of the Act.
44 Section 115(4) of the Act was amended by the Copyright Amendment (Parallel Importation) Act 2003 (Cth), sch 4, item 1. The amendment inserted sub‑pars (ia) and (ib) in subs 4(b) of s 115. Section 115(4) now reads:
"(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 forminto 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."
45 The applicants submitted that the insertion of subpars (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 and Microsoft Corporation 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 subpar (ib) of subs 115(4)(b) is referable to conduct of the defence insofar 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.
47 The applicants submitted that an award of additional damages was analogous to an award of exemplary damages. Such an approach was accepted by Burchett J in Autodesk Inc v Yee (1996) 35 IPR 415 at 419; see also Bailey v Namol Pty Ltd (1995) 30 IPR 147 at 157. However, I consider that a distinction is to be drawn between conduct which relates to the substantive allegation made against a respondent, in which case exemplary damages might be appropriate, and conduct which relates to the manner in which the trial is conducted and the procedural steps taken, which are more appropriately dealt with by an appropriate order for costs.
48 Overall I am satisfied that this is an appropriate case for the award of additional damages having regard to the fact, in particular, that further sales were made after Mr Smith was put on notice of Mr Thomas' claim to be the author of the design of the Aboriginal flag and the owner of the copyright in it. However, as I have noted earlier, the degree of flagrancy is at the lesser end of the scale particularly having regard to the fact that the availability of the Aboriginal flag for sale was removed from Mr Smith's website shortly after his conversation with Mr Richardson. I therefore assess additional damages under s 115(4) of the Act in the sum of $1,000.
49 I turn to the issue of costs. In substance the applicants seek an order for indemnity costs. The usual order for costs in litigation in the type presently before the Court is that costs are awarded on a party and party basis. It has been made clear in numerous cases that the court ought not to depart from an order for costs on a party and party basis unless the particular circumstances of the case warrant a departure from the usual course. A clear and well‑known exposition of the relevant principles is to be found in the judgment of Sheppard J in Colgate‑Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 at 232‑234. The circumstances which have been established as warranting an order for costs other than on a party and party basis include commencing or continuing proceedings in wilful disregard of known facts or clearly established law: Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; J‑Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 at 303. The making of groundless contentions which unduly prolong a case has also been recognised as justifying an order for indemnity costs: Ragata Developments Pty Ltd v Westpac Banking Corporation (unreported, Davies J, Federal Court of Australia, 5 March 1993).
50 I am satisfied in the present case that the conduct of Mr Smith warrants an award of indemnity costs in part. Although he put the authorship and ownership of Mr Thomas in issue in his defence, he did not attempt to adduce evidence challenging Mr Thomas' authorship and ownership. At the directions hearing held on 5 June 2003 one of the issues specifically raised for consideration was the extent of the controversy between the parties. At that time Mr Smith maintained he was contesting the issue of the existence of copyright in the Aboriginal flag. He maintained this position notwithstanding the judgment of Sheppard J (see par [3]). Shortly prior to that hearing Mr Smith had been given the opportunity to admit Mr Thomas' authorship and ownership by way of response to a notice to admit but he had not done so, although he had accepted the authenticity of the licence agreement between Mr Thomas and Flags 2000 and the variation of it. The affidavit sworn by Mr Smith on 14 February 2003 responded to Mr Richardson's affidavit and dealt only with Mr Smith's conduct after the existence of the copyright in the Aboriginal flag was brought to his attention in July 1999.
51 The applicants were therefore compelled to prepare their case and their evidence on the basis that authorship and ownership of copyright in the Aboriginal flag were contested. Indeed that position was maintained by Mr Smith when he sent his facsimile transmission on 15 September 2003 in which he said he would be appearing and he wanted to cross‑examine all the applicants' witnesses. In these circumstances I consider that there should be a departure from the usual rule of costs being awarded on a party and party basis in respect of the work undertaken by the applicants and their costs incurred after the directions hearing on 5 June 2003, including the trial of the proceeding.
52 Although the total amount recovered by the applicants is less than $100,000, I consider that the proceeding was properly brought and continued in the Federal Court. In reaching this conclusion I have taken into account the significance of the issue of a challenge to the copyright in the Aboriginal flag which had been proclaimed pursuant to the provisions of the Flags Act and the fact that it was a case in which it was appropriate to grant a permanent injunction. I therefore direct that O 62 r 36A of the Federal Court Rules not apply.