Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd

Before the primary judge 11 The primary judge found that a binding contract came into existence on the placing of an order by Futuretronics and acceptance of the order by Graphix. It was an express term of the contract that Graphix would manufacture skins in accordance with the order or orders, and that Futuretronics would pay for die drawings, tooling and templates required to manufacture the skins. His Honour concluded that no term was to be implied to the effect set out at [3]. 12 The primary judge upheld the artwork implied term. He noted that Graphix and Mr Atta did not dispute that Futuretronics owned the copyright in the artwork produced by Ms Hung, or that the artwork had been reproduced by Graphix in a brochure that was distributed to three customers or potential customers. He concluded that the distribution of the brochures was an infringement of Futuretronics' copyright in the artwork. His Honour also noted that Graphix had prepared a new brochure which did not show any of the artwork, and that it had given undertakings not to use the artwork in the future. 13 The primary judge then considered Mr Atta's conduct while still employed by Futuretronics. His Honour rejected the claim that Mr Atta had breached his duties under the confidentiality agreement. He then dealt with breach of fiduciary duty. It was not in dispute that Mr Atta owed fiduciary duties while he was employed by Futuretronics. His Honour concluded that by 13 September 2006 Mr Atta knew that Graphix proposed to produce and market its own skins, and he inferred that Mr Atta knew that "in some areas at least the companies may compete". The significance of 13 September 2006 is that on that date Mr Atta sent two emails (the 13 September emails) to Simon Tallent, Graphix's general manager, which Futuretronics contends constituted breaches of his fiduciary duties. 14 The first email was as follows: I have attached Plan A to D in concept form only to give … you something to work on if you are discussing the Skin Concept with the Board. You can pick the eye's out of it as I have only tried to show you the potential of the Skin concept. Plan A, shows the best opportunity as it stays within your core business. This is by no means a business plan, just my thoughts following up from our conversation we had yesterday. The opportunities are wide spread but will take time to identify our best opportunities if we go forward with this assignment. 15 The documents containing Plans A to D are headed "Graphix Labels ‑ Skins Roll Out Plan". The primary judge quoted these passages from the Plans: Plan A To exhaust all Wholesale and Retail Companies that already have a popular brand in the market place that is targeted to an age group between the years of 12 to 25. Convincing them to adopt the Skin concept and add it to their product range … Plan B Graphix Labels Presents their own Brand of Skins and take it direct to Retail … Plan C Consumer Direct … Plan D Quit Assignment and move on 16 The second email was in part as follows: I was out conducting my normal store visit to see what we are up against so I added Ipod Accessories to my list so that we can receive an idea of the amount of brands that are in the market for Ipod. Please find the following results. Mr Atta then listed 10 major retail stores he visited and 18 brands "that should be able to add the Skin Concept to their Range of Ipod Accessories". 17 The primary judge concluded that the sending of the emails did not constitute a breach of fiduciary duty or a contravention of s 182 of the Corporations Act. Section 182(1) provides that: A director, secretary, other officer or employee of a corporation must not improperly use their position to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. His Honour said at [164]: First, neither email discloses any confidential information of Futuretronics. The company did not identify any confidential information in the emails in the course of evidence or submissions. Secondly, I do not think either email contains a business opportunity diverted away from Futuretronics. Whatever their merits, the business plans are unsophisticated and would have been obvious to anyone reasonably familiar with the industry. No other specific business opportunity is identified in the emails. Thirdly, I am not satisfied that Mr Atta has used the time of his then employer … for his own purposes and not for Futuretronics' purposes…. 18 The primary judge then turned to Mr Atta's conduct after his employment by Futuretronics ceased. Futuretronics' complaint here was that Mr Atta's email exchange with Sophie Swann of Cygnett, one of the brands listed in his second email to Mr Tallent, constituted a breach of the confidentiality agreement, his fiduciary duty and s 183 of the Corporations Act. Ms Swann was Cygnett's marketing director. Cygnett is an importer and wholesaler of iPod accessories and sells such products to the major retail chains in the accessory and audio markets. Mr Atta was attempting to sell skins to Cygnett. In the course of doing so he disclosed the name of one of Futuretronics' suppliers, Storm Electronics, to Ms Swann in an email on 18 October 2006. She thanked him for "sharing the info on your suppliers with me". Mr Atta's response was that: The supplier details are companies that I have worked with for the last few years and now that I don't import I'm glad to pass on information. 19 The primary judge did not regard Mr Atta's disclosure as a breach of the confidentiality agreement. He said at [173]: Clause 2(d) of the agreement provides that information generally known is not confidential information. More than that, I think that the definition of "confidential information" in clause 1 itself requires that the relevant information not be generally known outside the company…. As far as Mr Atta's dealings with Cygnett are concerned, even if Storm Electronics is a person or company "dealing with" Futuretronics within clause 1, the information, being the name of the company, was not confidential unless it was not generally known outside the company (clause 1) or not generally known (clause 2(d)). Other than the statement by Mr Atta that now that he did not import he was "good" to pass on the name of Storm Electronics, there is no evidence that the name of that company as a supplier to Futuretronics was not generally known outside Futuretronics or not generally known. Mr Atta's statement is suggestive of that fact but by itself is not sufficient to establish that fact. (His Honour's use of the word "good" was a mistake. Mr Atta's response was that he was "glad" to pass on the name. Nothing in our view turns on the mistake.) 20 His Honour then turned to whether the disclosure was a breach of fiduciary duty or a breach of s 183 of the Corporations Act. Section 183(1) provides: A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation. 21 The primary judge observed that Mr Atta's fiduciary duty and his duty under s 183 were similar in scope. After noting that Mr Atta's fiduciary duty came to an end on the cessation of his employment save and except for confidential information, his Honour said that Futuretronics had failed to establish that the name of Storm Electronics as one of its suppliers was in any material sense confidential information. 22 The primary judge made declarations that: · Futuretronics was the owner of copyright in the artwork · by production and distribution of the brochure Graphix infringed Futuretronics' copyright in the artwork · Mr Atta authorised Graphix's infringement · it was an implied term of the agreement that the artwork would be used by Graphix for the purpose of fulfilling orders and for no other purpose, and · Graphix breached the implied term by providing samples of skins bearing the artwork to various people. His Honour made consequential orders relating to infringement. The application was otherwise dismissed. The issue of damages for infringement and breach of the implied term was set down for a later hearing. The costs of the liability hearing were to be determined after the claim for damages was disposed of.

The appeal on liability 23 Futuretronics has appealed against the dismissal of its application save as to damages for infringement of copyright and breach of the implied term. Because the primary judge dealt only with the separate question of liability as opposed to quantum, Futuretronics requires leave to appeal. Graphix did not oppose the grant of leave, and leave was given. 24 Two issues arise on this aspect of the appeal. The first is whether the primary judge erred in holding that Mr Atta did not breach his fiduciary duties or his duties under s 182 of the Corporations Act by sending the 13 September emails to Graphix while still employed by Futuretronics. The second is whether his Honour erred in holding that the evidence did not establish that the name Storm Electronics as a supplier to Futuretronics was not generally known outside the company and was not in any material sense confidential information, thus leading him to dismiss the claims based on the communication of that information by Mr Atta's email to Ms Swann.

13 September emails 25 Futuretronics did not challenge the primary judge's review of the law relating to contractual and fiduciary duties owed by an employee to an employer, including those arising under ss 182 and 183 of the Corporations Act. It is in the application of the law to the facts that his Honour is said to have erred. It is claimed that he "misapplied" Independent Management Resources Pty Ltd v Brown [1987] VR 605, which it was said properly set out the law. There Marks J held that the defendant had not used the plaintiff's confidential information in submitting, after the cessation of her employment, a tender in competition with her former employer. Dealing with the contention that the defendant's decision to tender while still employed by the plaintiff created a conflict between her own interest and that of the plaintiff, Marks J said at 613: I am not satisfied that any such conflict of interest has been demonstrated merely by evidence that in the last week of her employment the defendant contemplated submitting a tender and asked for the M.F.B. brief. "In Robb v Green [1895] 2 QB 1 at p 15 Hawkins J (who was the Judge at first instance) said: 'In what I have said I do not intend to convey that while the contract of service exists a person intending to enter into business for himself may not do anything by way of preparation, provided only that he does not, when serving his master, fraudulently undermine him by breaking the confidence reposed in him. For instance, he may legitimately canvass, issue his circulars, have his place of business in readiness, hire his servants, etc. Each case must depend on its own circumstances". (Emphasis added.) 26 Futuretronics relied on the passage in italics. It contends that the primary judge was wrong to conclude that because Mr Atta had not disclosed Futuretronics' confidential information, diverted a business opportunity away from it or used its time for his own purposes, he did not fraudulently undermine Futuretronics by breaking the confidence it reposed in him. See [17] above. However, that is not what his Honour did. He said at [165]: The authorities I have referred to indicate that an employee is entitled to do a certain amount by way of preparation for his new employment and some refer to the test in terms of whether he has fraudulently undermined the employer by breaking the confidence reposed in him. I do not need to consider whether that is the test and, if so, its precise meaning. For the reasons I have given, Futuretronics has not established a breach of fiduciary duty or a contravention of s 182 by Mr Atta in connection with the two emails dated 13 September 2006. (Emphasis added.) 27 It is apparent from a reading of his Honour's exposition of the law as a whole, that he was looking at the scope of Mr Atta's fiduciary obligation more broadly than through the prism of Hawkins J's "fraudulently undermining him by breaking the confidence reposed in him". Thus his Honour had earlier at [151] referred to the duty of fidelity and good faith, including therein a duty of confidentiality. He went on to say at [152] that: Within the fiduciary duties is a duty on an employee to act in his employer's interests and not in his own interests at the expense of his employer and also a duty not to misuse confidential information. At [155] his Honour referred to Marks J's observation that a duty of fidelity could be described as a duty to serve the plaintiff faithfully and to act in its interests and not against them. Having put aside the "fraudulently undermine" formulation in favour of one that had a more "precise meaning", the primary judge announced his conclusion by reference to the three matters set out at [17] above. Those matters bore directly on the more general formulation of the duty of fidelity referred to above. 28 No error has been shown in his Honour's eschewing the "fraudulently undermine" formulation in favour of his own, which accords much more with the balance of authority: Robb v Green [1895] 2 QB 315 at 317, 320 (Court of Appeal) and Wessex Dairies Ltd v Smith [1935] 2 KB 80 at 88. 29 We were taken to parts of the cross‑examination of Mr Tallent and Mr Atta with a view to demonstrating that the sending of the emails constituted a fraudulent undermining of the confidence reposed in Mr Atta by Futuretronics and a preference of his own interests and those of his future employer over those of Futuretronics. As we have said, Futuretronics wrongly treats the primary judge as having adopted the fraudulent undermining test, but complains that he misapplied it. Despite this, we have examined the passages relied on to determine whether they adversely affect the conclusion that there was no breach by Mr Atta of the duty as formulated by his Honour. 30 All that appears from Mr Tallent's cross‑examination is that: · he agreed that Mr Atta's list of store visits may "possibly" have provided information that was adding to Graphix's marketing plan, and · if Mr Atta had been working for Graphix and had sent Futuretronics plans such as those he sent to Graphix, Mr Tallent would have been "perturbed" if he "saw that as a competitive threat". 31 Mr Tallent's acknowledgment of that "possibility" and his conditional "perturbation" fall far short of establishing a breach of duty on Mr Atta's part. Futuretronics has not established that the first email contains any confidential information. The email did not disclose any aspect of the way in which Futuretronics' business functioned, or any secret process or strategy. It is impossible to regard the information it contained as having been acquired by him from Futuretronics in circumstances importing an obligation of confidence. See Coco v AN Clark (Engineers) Ltd [1969] RPC 41 at 47. We agree with the primary judge's observation that the business plans are unsophisticated and would have been obvious to anyone reasonably familiar with the industry. Indeed Mr Atta did not dignify the plans as business plans. He said they were "by no means" such plans. They were just his thoughts. The email disclosed no specific business opportunity of Futuretronics. 32 Counsel did not explain how Mr Atta's list in his second email of well‑known stores he had visited, such as David Jones, Harvey Norman, JB Hi Fi and Big W, could have provided information that was adding to Graphix's marketing plan. In any event, those and other household retail names have not been shown to be confidential. 33 In his cross‑examination Mr Atta: · agreed that if Graphix was selling into the same market as Futuretronics, the information in Plan B that Graphix present its own brand of skins and "take it direct to retail" could be seen as telling Graphix how to compete with Futuretronics on the production of skins, and · agreed that by telling Mr Tallent that some of the "brand" names he listed were in fact not brand names but names of distributors, he may have been "educating" Graphix about the market. 34 Neither the suggestion in Plan B nor the disclosure in the second email that "AZ Designs [b]rand name is Life" can be regarded as confidential information. What we have said at [31] is applicable here. It was not explained how Plan B would tell Graphix how to compete with Futuretronics on the production of skins. 35 The cross‑examination relied on does not disturb the primary judge's conclusion that the emails do not constitute a breach of fiduciary duty as that duty was seen by his Honour: see [27] above. 36 The primary judge concluded that no contravention of s 182 of the Corporations Act had been made out. His Honour said that the fiduciary duty owed by Mr Atta and his duties by reason of ss 182 and 183 were similar in scope. He referred to two decisions of Young J which are authority to that effect: Rosetex Company Pty Ltd v Licata (1994) 12 ACSR 779 at 784 (Rosetex) and Forkserve Pty Ltd v Pacchiarotta (2000) 50 IPR 74 at 79 (Forkserve). 37 The claim under s 182 was properly dismissed. There was no evidence that Mr Atta had improperly used his position to gain an advantage for himself or for Graphix or to cause damage to Futuretronics.

Cygnett email 38 Futuretronics attacks the primary judge's finding that there was no evidence that the name Storm Electronics was "not generally known outside Futuretronics" or "not generally known". It relies on three passages in Mr Atta's cross‑examination to show that while the 18 October email did not itself establish that the name was not generally known outside Futuretronics, when taken with the cross‑examination, it did. 39 The first contains Mr Atta's agreement that when he was working for Futuretronics he probably would have been happy to have disclosed the name of "Futuretronics' suppliers" to Ms Swann because "she was in a completely different industry". The appellant says that Cygnett was, in relation to skins for iPods, in the same industry as Futuretronics, and that the "import of [Mr Atta's] answer therefore is that he would not have disclosed the name to her". 40 The second passage related to the statement in his 18 October email that "now that I don't import I'm glad to pass on information". He agreed that if he was still in the importing business he would keep the name of a supplier to himself because he wouldn't want his suppliers doing business for others in the industry. 41 In the third passage Mr Atta agreed that he gave Ms Swann the supplier's name because he wanted to win her business, and this was one way of doing her a favour and ingratiating himself with her. This was said to show his recognition that he was providing her with something commercially valuable that he would not otherwise give away. 42 On the basis of that cross‑examination, taken with the 18 October email, Futuretronics submits that the evidence is that Mr Atta regarded the name of a quality supplier as confidential information not to be provided to a competitor, and that that is strong evidence that the name was not generally known outside Futuretronics or not generally known. Accordingly it says that the name of the supplier falls within the definition of confidential information in the agreement as a matter not generally known outside Futuretronics such as "persons or companies dealing with the Company". Mr Atta thus breached the agreement. 43 Futuretronics did not lead any evidence that Storm Electronics' name was not generally known outside Futuretronics so that it was "confidential information" as defined. Futuretronics' attempt to remedy this lacuna was not done directly, as by putting to Mr Atta that the name was not known outside Futuretronics and was not generally known. Rather Futuretronics sought to fill the gap by putting to him the hypothetical scenario recorded at [40]. In those circumstances we think Futuretronics has not discharged its onus, and that the additional evidence drawn to our attention, when added to Mr Atta's statement that he was now "glad" to pass on the name, is still no more than suggestive of what Futuretronics needed to establish as a fact. 44 Futuretronics then contends that the primary judge erred in not holding that the disclosure of the name was in breach of s 183(1). His Honour dismissed Futuretronics' reliance on s 183(1) because the information in question was not confidential. In Rosetex 12 ACSR 779 at 784 Young J said of s 232(5) of the then Corporations Law: Accordingly, in my view, 'information' in s 232(5) means the sort of information which equity would protect by injunction if a director used it in breach of his fiduciary duties. 'Improper' use of that information is in much the same plight as a breach of fiduciary duty under the general law. It follows that as there is not here any breach of fiduciary duty in the current circumstances there is no infringement of s 232(5). 45 In Forkserve 50 IPR 74 at 79 Young J expanded on the matter: [T]he general coverage of the obligations under s 232 are not to any major extent wider than the duties under the general rules of equity. There are some extensions made by the statute in that there is taken away some problems of privity, there is conferred a statutory right to receive damages or compensation where under the general law there would only be an account of profits and other ancillary advantages. However, generally speaking, if there has been no improper use of information under the general equitable principles, there is no improper use of information under the statute. This is logically so when one remembers that sections like s 232 were originally taken by the drafters of the Companies Act 1961 (Vic) and the Companies Act 1961 (NSW) from the equitable duties set out by Romer J in Re City Equitable Fire Insurance Co Ltd [1925] Ch 407. 46 No error has been shown in the course his Honour took. No breach of fiduciary duty by Mr Atta in relation to the Cygnett email has been established because his duty came to an end on the cessation of his employment save as to confidential information, and as indicated at [43], Futuretronics has not established that the supplier's name was confidential. Further, equity would not regard disclosing the supplier's name as misuse of confidential information. It would be a part of Mr Atta's knowledge, skill and experience which, as a result of his previous employment, had become his own. See Printers & Finishers Ltd v Holloway [1965] 1 WLR 1 and Forkserve 50 IPR 74.

Damages 47 The primary judge awarded the appellant nominal damages of $10 under s 115(2) of the Copyright Act 1968 (Cth) and $10,000 additional damages under s 115(4): see [2008] FCA 746. Futuretronics appeals against the latter award, complaining of its inadequacy. 48 Section 115(4) provides in part as follows: 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 … … the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances. 49 Under par (i) the primary judge concluded that the infringement was flagrant. Under par (ia) he said that in the circumstances of the case the need to deter was "a somewhat neutral factor". Under par (ib) he noted that Graphix had removed the offending artwork from its brochure soon after Futuretronics' complaint, and had given appropriate undertakings. The appeal is based on the judge's statement that deterrence was a "somewhat neutral factor". 50 An award of general damages will not be set aside on appeal merely because the court would have awarded some other figure. The appellate court will only interfere if it is shown that the primary judge erred in principle, gave improper or insufficient emphasis to a fact or was mistaken as to a relevant fact: Planet Fisheries Pty Ltd v La Rosa (1968) 119 CLR 118 at 124. 51 Futuretronics contends that the primary judge failed to give proper weight to the need to provide specific deterrence to Mr Atta and general deterrence to ex‑employees who might use their ex‑employers' copyright works for the benefit of their new employers. It was said that Mr Atta knew what he was doing and that there was a high probability of him reoffending, and thus a strong case for specific deterrence. 52 The primary judge referred to authorities to the effect that an award or larger award of additional damages may be called for if there is a real need to deter similar infringements. He distinguished Universal Music Australia Pty Ltd v Miyamoto (2004) 62 IPR 605 and Sony Entertainment (Australia) Ltd v Smith (2005) 215 ALR 788 by reference to their special features. He then said, in the passage under attack (at [23]): This case does not exhibit those features and I think that in this case the need to deter similar infringements of copyright is a somewhat neutral factor. The second respondent's conduct was fairly blatant, but at the same time, upon complaint the respondents changed the brochure and gave undertakings not to use the artworks. 53 No error of principle has been identified in that passage. The reference to changing the brochure and giving undertakings were proper matters to take into account in relation to the need to deter Mr Atta, and there was no mistake of fact on the part of the judge. No occasion has arisen for us to interfere with the award of additional damages. It is to be remembered that s 115(4)(b) requires the court to "have regard to" the listed factors. That means it must take them into account and give weight to them: R v Hunt; Ex parte Sean Investments Pty Ltd (1979) 180 CLR 322 at 329. There is no doubt that the primary judge did that.

Costs 54 So far as presently material the primary judge's orders as to costs were that Futuretronics pay two thirds of Graphix's and Mr Atta's costs of the written and oral submissions as to the appropriate order as to costs, and that otherwise Futuretronics pay their costs of the proceeding. Futuretronics takes issue with the first of these orders. His Honour considered that the appropriate order was one that reflected the submissions made by each party including the orders sought and those in fact made. The appellant accepted this as the appropriate test. However it claimed that his Honour misapplied the test because he "mistook the facts". By this Futuretronics seems to mean that his Honour gave insufficient weight to the submissions made, and had he properly taken them into account he would have left the parties to bear their own costs of the costs application. 55 A costs order is discretionary, and an appellate court will not intervene unless an error of the kind referred to in House v The King (1936) 55 CLR 499 at 504‑505 is shown to have been made in the exercise of the discretion. No such error has been established. Futuretronics' submissions amount to no more than a contention that a different order could have been justified in the circumstances. That does not establish an error of the House kind. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Tamberlin, Finn and Sundberg.

Associate: Dated: 23 January 2009 Counsel for the Appellant: M Wise

Counsel for the Respondents: P Jopling QC and M Goldblatt

Solicitor for the Respondents: Corrs Chambers Westgarth