Hanfstaengl v W H Smith

I understand the percentages in the royalty rate column to be a range of rates for the copyright alone ("a separate right to the licence of the technology"). The US copyright damages case put by MJA through Mr O'Dwyer was the loss of the opportunity to sell its US patent for $1,473,000. Its fall back position was the lost market approach employed in relation to the Australian market, though discounted by 50 per cent to reflect the "probability" involved. The case now put is new. Had it been flagged as a possible approach to the assessment of copyright damages, SCJ could have led evidence regarding the US requirements for directions for use and as to the royalty, if any, that might have been payable, separate from a royalty for the product and technology, for the use of the copyright in the directions for use. It would be unjust to SCJ for it now to be required to deal with a case which was not put against it and which it had no opportunity to answer by evidence and cross‑examination. In any event, such evidence as there is would have led me to hold that there was no prospect at all that American companies would have paid a royalty for the use of MJA's copyright in the directions for use. MJA made serious attempts to licence the mats in the US. It approached all the major manufacturers. Clorox was the only one interested. Clorox made an oral offer of $25,000 and a 1 per cent royalty. The matter was never formalised. It is clear that Clorox was interested in MJA's patent and not its directions for use. On the probabilities I would have found that MJA had no prospect of obtaining royalties from US manufacturers for use of its directions alone. Furthermore, the notion that a small Australian company such as MJA could have acquired a 7 per cent share of the American market is in my view fanciful. In one of his earlier reports Mr O'Dwyer had suggested that MJA may have been able to capture 2 per cent of the US market. Ms Strachan, a market researcher with over thirty years experience, said this was unrealistic. She instanced two major Australian companies, Arnotts and Meadow Lea, which had tried to enter the US market in the packaged goods area and had retreated millions of dollars worse off. Those were established brand names with a lot of wealth and marketing expertise behind them. Both were unable to crack the US market, which was very aggressive and defensive: the US market does not sit there and say, "Come here and take our market share". They go out there and fight and defend it. And, you know, they do play hard ball and they do play tough, and they keep other people out and there is no way that the US market would have allowed a small player from somewhere else in the world to just walk in and take 2 per cent of their market without hundreds of millions of dollars worth of investment. Ms Strachan thought Mr O'Dwyer's re‑assessed 7 per cent share "ridiculous". I accept her evidence. It is also to be noted that MJA's submission in relation to the US market is based on SCJ having obtained NRA approval "in circumstances other than by image registration". I refer to what I have said about this assumption under the heading Australian market. There are thus several reasons why I would have rejected MJA's claim to damages in relation to the American market if I had thought it proper to entertain the claim. Conclusion on compensatory damages Although MJA has not proved that it has suffered any damage as a result of the infringement of its copyright, it is entitled to nominal damages to vindicate the invasion of its proprietary right. Cf Hanfstaengl v W H Smith [1905] 1 Ch 519. I award $10. ADDITIONAL DAMAGES Section 115(4) of the Copyright Act 1968 provides: Where, in an action under this section: an infringement of copyright is established; and (a) the court is satisfied that it is proper to do so, having regard to: (i) the flagrancy of the infringement; (ii) any benefit shown to have accrued to the defendant by reason of the infringement; and (iii) all other relevant matters; the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances. The requirement that the court have regard to the flagrancy of the infringement does not mean that the power to award additional damages is conditional upon a finding of flagrancy: Raben Footwear Pty Ltd v Polygram Records Inc (1997) 145 ALR 1 at 6, 16. 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), 344; "the existence of scandalous conduct, deceit and such like; it includes deliberate and calculated copyright infringement": Ravenscroft v Herbert and New English Library Ltd [1980] RPC 193 at 208; Autodesk Australia Pty Ltd v Cheung (1991) 94 ALR 472 at 478. MJA's case for additional damages is based on its claim that SCJ had substantially reproduced MJA's directions in order to obtain the benefit of image registration. It is said that SCJ had deliberately set out to procure for itself the commercial benefits that might flow from image registration, and had derived a significant commercial advantage by using the image registration process, and by its own misconduct had been able to enter the market earlier than it otherwise could have done. As I have explained, image registration is a speedy method of obtaining new product registration with the NRA by the use of packaging copy similar to that of an "image" product. There is nothing scandalous or deceitful in SCJ's use of the image registration process as such. It is commonly used and its use is encouraged by the NRA. It was not SCJ's use of MJA's directions that enabled it to obtain image registration and thus enter the market earlier than if it had had to go through the more lengthy processes involved in wider claims and/or new active ingredients. Had it invented its own directions, or more substantially modified MJA's, it would still have obtained fast track registration. NRA was not concerned with the verbiage of directions for use unless they related to health and safety issues. So it is not true to say, as MJA asserts, that by its "misconduct" SCJ was able to enter the market earlier than it otherwise could have done. It is correct to say that SCJ derived a significant commercial advantage by using the image registration process. But the process was there to be used, and SCJ's use of MJA directions for use was not what enabled it to obtain the advantage of speedy registration. The fact that SCJ's use of the image registration was "deliberate", and that it "deliberately" sought the commercial benefits of speedy registration, does not establish flagrancy. It is perhaps worth nothing that s 44B of the Copyright Act, introduced with effect from 15 March 1995, provides that the reproduction on a label on a container for a chemical product of any writing on an approved label is not an infringement of any copyright in relation to that writing. So, as from 15 March 1995, what MJA alleges to be a flagrant infringement is not an infringement at all. As I have said, that fact that SCJ's use of the imaging process with MJA's directions was not a flagrant infringement is not the end of the matter, for additional damages can be awarded even in the absence of flagrancy if a case is otherwise made out. MJA claims that SCJ made a financial gain out of its use of MJA's directions: cf s 115(4)(b)(ii). If the speedy entry point be put aside, as it must be, this claim can only be that SCJ's use of MJA's directions was what caused the Raid product to sell. But customers did not buy SCJ's product because of the directions for use on its packets. Ms Strachan said that at the point of sale customers do not read directions for use. People would buy SCJ's product because they wanted a cockroach mat, and perhaps liked SCJ's get up or knew of other "Raid" products. Her evidence, which I accept, was that the fact that a Raid product bore the same directions for use as another product would be entirely irrelevant to a customer in making a judgment as to whether to purchase the first product. In the present case, she said, SCJ's use of directions similar to MJA's would have had no impact at all on the sales of either product. So I do not accept that SCJ derived any measurable financial benefit as a result of using MJA's directions. So MJA has not made a case under s 115(4)(b)(ii). MJA also alleges surreptitious conduct and dissimulation by SCJ: cf s 115(4)(b)(iii). I was referred to internal SCJ memoranda and communications with its patent attorneys and other advisers disclosing SCJ's discovery of MJA's success with its Dead End product, SCJ's decision to enter the cockroach mat market, SCJ's concern about possible patent difficulties, and its patent attorney's advice about manufacturing an SCJ product which would not infringe the patent. None of the documents relied on relates to copyright issues. They disclose an interest in developing a rival product in what appeared to be a developing market, a realisation that the patent meant that SCJ could not just copy MJA's product but would need to manufacture its own product in a different way so as not to infringe the patent, and a belief based on expert advice, correct is it turned out, that this could be done. That seems to me to be legitimate commercial behaviour. It is how successful corporations behave in the market place. Moreover, it evinces a concern not to engage in unlawful conduct. In any event, as I have said, SCJ's conduct does not relate to the directions for use, and the "other relevant matters" in s 115(4)(b)(iii) are matters relevant to copyright infringement. I do not regard the conduct disclosed by the documents to which I have referred as relevantly surreptitious, or that it amounts to dissimulation. Another batch of documents was relied on by MJA as disclosing conduct which, it said, should be marked with the court's disapproval, as a warning to others who might be tempted to infringe copyright in the way SCJ had done. These documents relate to image registration, concerns about MJA's patent, and supermarket shelving objectives and arrangements. It will be apparent from what I have said about image registration that I do not regard SCJ's use of that facility as constituting conduct worthy of punishment. I have dealt with SCJ's concern about MJA's patent rights. It will also be apparent that I do not regard SCJ's gearing up for the launch of its product, or its concern to have maximum supermarket exposure at the launch, to be anything other than competitive commercial conduct of the type one would expect to exist in the market. Thus I have not found flagrancy in SCJ's infringement, though that is not a condition for the award of additional damages. I have not found that any financial gain was derived by SCJ as a result of the infringement. I do not regard SCJ's concern to avoid patent infringement while developing a competing product, or its concern to enter the market at the possible expense of MJA, as worthy of censure. For those reasons, in the exercise of my discretion, I decline to award additional damages. There is a question whether "additional damages" under s 115(4) can be awarded when no compensatory damages (ie damages under sub‑s (2)) are awarded because an applicant has proved no loss. In Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 148 ALR 4 Lockhart J expressed the tentative view that if the owner of a copyright seeks injunctive relief under s 115(2) and conversion damages under s 116, but not compensatory damages under s 115(2), the court can award additional damages under sub‑s (4) provided the necessary preconditions are satisfied. His Honour's view was obiter because he had awarded nominal damages under s 115(2). His Honour did not deal with the case where compensatory damages are claimed but not awarded. He did, however, provisionally reject a submission that "additional" damages are an addition to an award of compensatory damages under sub‑s (2) which must first be awarded. His Honour said (at 14): In my view, the word "additional", in conjunction with the word "damages" in sub‑s (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. 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 sub‑s (2), namely, an injunction and either damages or an account of profits. The relief mentioned in sub‑s (2) is by way of inclusion and is not exhaustive of the court's powers. The court may also grant declaratory relief. Since I have awarded MJA nominal damages, I need not decide whether additional damages can be awarded where no compensatory damages are awarded. CONVERSION DAMAGES Section 116(1) of the Copyright Act provides in part: Subject to this Act, the owner of the copyright in a work or other subject matter is entitled in respect of any infringing copy, or of any plate used or intended to be used for making infringing copies, to the rights and remedies, by way of an action for conversion or detention, to which he or she would be entitled if he or she were the owner of the copy or plate and had been the owner of the copy or plate since the time when it was made. The operation of s 116 has been considered in many recent cases, and its draconian nature frequently observed upon. See, for example, Infabrics Ltd v Jaytex Ltd [1982] AC 1 at 18; W H Brine Co v Whitton (1981) 37 ALR 190 at 198; Autodesk Inc v Yee (1996) 139 ALR 735; Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 148 ALR 4. [I note in passing that the Copyright Amendment Act (No 1) 1998 replaced sub‑s (1) of s 116 by new sub‑ss (1) to (1E), though not so as to affect the present case. Instead of the entitlement to relief which the former sub‑s (1) conferred, sub‑s (1A) gives the court power to grant relief, and sub‑s (1C) provides that the court is not to grant relief under s 116 if the relief it proposes to grant under s 115 is in its opinion a sufficient remedy.] In its application SCJ sought "damages for infringement … and/or for conversion". The only evidence led at trial in support of MJA's copyright damages was from Mr O'Dwyer. Its case was limited to compensatory and additional damages. There was no evidence directed to damages for conversion, and that form of damages was not relied on in argument. In its Outline of Submissions filed before the trial MJA stated that it was entitled to injunctive relief, an enquiry as to damages or at its option an account of profits for breach of patent rights, compensatory damages for infringement of copyright ($3,309,704), and additional damages ($9,929,112). These claims were repeated in the Outline handed up at the beginning of the trial. An amended Outline was handed up in the course of closing address. In none of these documents were conversion damages mentioned, they were not mentioned by MJA's counsel in opening or closing addresses and no evidence was directed to them. Hence SCJ filed no evidence in reply, engaged in no cross‑examination and made no submissions about such damages. The submissions in SCJ's written Closing Argument (pars 90‑95) and its oral submissions were limited to answering MJA's claims to compensatory and additional damages. Thus it is clear that although conversion damages were claimed in the application - "damages for infringement and/or for conversion" ‑ MJA chose to conduct the case on the first alternative only. MJA has now filed a Supplementary Submission, eight pages of which are directed to conversion damages, including an exposition of the leading cases on the topic. At trial a document - "Damages in Copyright" - was handed up which contained summaries of the leading cases on compensatory and additional damages. To permit MJA at this late stage to make a case for conversion damages would work a serious injustice to SCJ. Had MJA asserted such a case in its initial Outline and in its evidence filed before the trial began, SCJ could have responded with evidence about the value of the mats and packets converted, and the value of the literary work component as opposed to the product itself and the Raid trade mark to which MJA could have no claim. MJA's claim to conversion damages equal to the gross selling price of the packs ($2.92 per item) was not answered by SCJ because no conversion claim was pursued. There was thus no occasion for SCJ to argue that the expression "value of the goods" in conversion discourse means something less than the converter's gross selling price, such as its wholesale price. Cf Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 148 ALR 4. Nor was there any occasion for SCJ to argue that since the directions added insignificantly to the value of the product, that value being determined by the intrinsic characteristics of the mats themselves sold under the Raid trade mark, this should be reflected in the value of the packages for conversion purposes. See A‑One Accessory Imports Pty Ltd v Off Road Imports Pty Ltd (1996) 34 IPR 332 at 336 and the cases therein cited, and compare Infabrics Ltd v Jaytex Ltd [1982] AC 1 and Polygram Pty Ltd v Golden Editions Pty Ltd (1997) 148 ALR 4. For the foregoing reasons MJA is not now at liberty to pursue a conversion damages claim. If MJA were able to claim conversion damages, it could not do so in relation to all years from 1994 to 1997. The infringing wording pleaded was used on the packaging and mats only during the 1994/1995 season. The wording was changed before the commencement of the 1995/1996 season. The effect of this on conversion damages is that MJA's loss would have been restricted to the value of the products sold in the 1994/1995 season. PATENT AMENDMENT MJA has applied under s 105 of the Patents Act 1990 to amend the patent specification so as to deal with the fact that while claim 1 is anticipated, claim 2 is not, and the other claims are not solely dependent on claim 1. However MJA subsequently informed the Court that the patent had ceased on 20 December 1997, presumably by force of s 143(a), and that it had applied to the Commissioner under s 223 for an extension of time (presumably in which to pay the renewal fee). Since there is now no patent in existence, I will not amend the specification. The amendment application can be pursued if the extension of time is granted. COSTS MJA must pay SCJ's costs of the patent infringement claim. SCJ has been largely successful in its cross claim for revocation. Claim 1 was held anticipated, and it was to this claim that most attention was directed. SCJ should have 70 per cent of its costs of the revocation issue. MJA has established infringement of its copyright, but has not proved any substantial loss, though I have awarded nominal damages. In the events that have happened there is no occasion to grant the injunction sought by MJA. It did not pursue the other non‑pecuniary relief claimed in the Application. I will hear counsel as to the costs of the copyright issues. I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sundberg

Associate: Dated: 12 November 1998 Counsel for the Applicants: J S Douglas QC and D Smith

Solicitors for the Respondent: Blake Dawson Waldron

Dates of Written Submissions: 19 August, 1, 9 and 15 September 1998