Interstate Parcel Express Co Pty Limited v Time-Life International

Federal Court of Australia|1996-03-14|Before: Kiefel JJ, Foster J

(a) selling, letting for hire, or by way of trade offering or exposing for sale or hire, the article; (b) distributing the article: (i) for the purpose of trade; or (ii)for any other purpose to an extent that will affect prejudicially the owner of the copyright; or

(c) by way of trade exhibiting the article in public; if the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright. 103. (1) Subject to section 112A, a copyright subsisting by virtue of this Part is infringed by a person who, in Australia, and without the licence of the owner of the copyright: (a) sells, lets for hire, or by way of trade offers or exposes for sale or hire, an article; or (b) by way of trade exhibits an article in public; if the person knew, or ought reasonably to have known, that the making of the article ... in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright." These two sections are in Part IV of the Act - copyright in subject matter other than words. They are in very similar terms. Section 102 deals with the importation of an article for the purpose of, inter alia, selling it or offering it for sale, whilst s 103 deals with the actual sale, etc, of the article. They have four broad elements which I shall consider separately in relation to this case, by way of background to the issues in contest between the parties. ELEMENTS OF SS 102 AND 103 (1) Copyright subsisting by virtue of this part The first element that must be satisfied by the applicants in order to establish an infringement under either s 102 or s 103 is that there is "copyright subsisting by virtue of this Part". As mentioned above, the particular Part IV copyright alleged to have been infringed is sound recording copyright in the PolyGram recordings. Copyright in a sound recording subsists by virtue of s 89(1) of the Act, which states that "... copyright subsists in a sound recording of which the maker was a qualified person at the time when the recording was made". A sound recording is defined in s 10(1) of the Act as "the aggregate of the sounds embodied in a record", and a record is defined as "a disc, tape, paper or other device in which sounds are embodied". Thus a CD is clearly a record for the purposes of the Act. A "qualified person" is defined in s 84 of the Act to mean, relevantly, a body corporate incorporated under Australian law. However, s 184(1)(a) allows for the regulations to extend the operation of the Act to sound recordings made in any country specified in the regulations. Regulation 4(1) of the Copyright (International Protection) Regulations ("the Regulations"), in conjunction with Parts I and V of Schedule 1 of the Regulations, extends the provisions of the Act in relation to sound recordings first made in the United States of America ("the USA"). Regulation 4(5) and Parts I and V of Schedule 1 of the Regulations extend the provisions of the Act to sound recordings made by a body incorporated under the law of a country that constitutes, or forms part of, the territory of the USA. Thus copyright subsists in a sound recording of which the maker was a body incorporated under the laws of the USA, or that was first made in the USA. It is common ground between the parties that the PolyGram recordings were made in the USA in 1979 by an incorporated entity known as Casablanca Records and Filmworks Inc ("Casablanca"). Therefore copyright subsists in the PolyGram recordings. It is convenient at this stage to set out the process by which studio sound recordings are generally made. This process was explained by Ms Meredith Brooks, an expert in the field of audio technology, who gave evidence in this regard, which I accept. The process begins in a studio where the various musicians perform their music. This performance is recorded by a recording technician onto some form of recording medium, previously a "reel to reel" tape, but now more likely to be some form of digital recording equipment. As the recording medium has several "tracks", each corresponding to a microphone in the recording studio, the resulting recording is known as a "multi-track" recording. It is also sometimes referred to as the "grand master", containing as it does the grand or original master recording. This multi-track recording is then "fed" into a mixing console, where audio effects can be added, tracks rearranged or even deleted, and the balance of the tracks varied. As part of this process, the various tracks of the multi-track recording are combined to form a final stereo (two track) master. This stereo master is then taken to a "mastering suite" where there is performed the final quality control and equalisation (known as "audio sweetening"). The resulting tape is then used by the manufacturer to, in this case, press CDs. Several two track recordings can be derived from the one multi-track recording, and each may be the result of a different "mix" of the various tracks of the multi-track recording. A two track recording can also be re-edited, by either adjusting the characteristics of the two tracks, and/or by adding additional tracks. In the latter case, the addition of extra tracks results in the recording becoming another multi-track recording, which again would need to be reduced to a two track recording before being sent to a manufacturer. However, individual tracks cannot be removed from the two track stereo master, only from the original multi-track master. This is because once the tracks of the multi-track have been mixed together to form a two track, they cannot then be "unmixed" or separated. Clearly, then, the original multi-track or "grand master" recording is a record in which sounds are embodied within the meaning of s 10(1) of the Act. Furthermore, it is the aggregate of the sounds embodied on that multi-track recording (s 10(1)) in which sound recording copyright subsists. The owner of that copyright is the maker of that multi-track sound recording (s 97(2)). In the present case the maker is admitted to be Casablanca. I shall refer to that multi-track sound recording as "the Casablanca multi-track recording". I shall deal later with the question whether PolyGram USA became the owner of that copyright, which is an issue in the case. (2) Importing or dealing for a commercial purpose The next element under s 102 is the requirement that a person (which includes a corporation) must have imported an article into Australia for one or more of the enumerated purposes. For the purpose of this application the applicants rely on s 102(a) "selling ... or ... offering or exposing for sale". Section 103 has a similar requirement, namely that a person must have done at least one of several possible acts with respect to an article. Those acts again include selling the article or offering if for sale (s 103(1)(a)). In the present case, it is admitted that Raben imported the Pilz CDs into Australia in or around June 1994, and shortly thereafter offered them for sale at its stores. Up to the period when the CDs were withdrawn from sale, Raben sold 55 of the Pilz CDs. Each of those CDs constitutes "an article" for the purposes of ss 102 and 103. (3) Without the licence of the copyright owner The acts done in relation to the article(s) must also be done without the licence of the copyright owner. In this case it is admitted that the importing of the Pilz CDs, the offering of them for sale, and the actual selling of them, all occurred without the licence of PolyGram USA or PolyGram Aust. There is, however, an issue as to whether PolyGram USA owns the copyright in the PolyGram recordings and whether the Pilz CDs are relevantly copies of those recordings. (4) Knowledge The final requirement for infringement under s 102 and s 103 is that the importer must have knowledge or deemed knowledge as required by those sections. The requirement in s 102 is that:- "... the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright." The relevant words of s 103 are identical except that the first reference to "importer" is replaced by "person", referring to the person offering the articles for sale. Since the importer and the person offering the articles for sale are the same in these proceedings (namely the respondent Raben), this difference is unimportant.

Therefore the question in relation to knowledge required to be answered in these proceedings can be formulated thus: did Raben know, or ought it reasonably to have known, that if it had made each of the Pilz CDs in Australia, that making would have constituted an infringement of the sound recording copyright in the PolyGram recordings (i.e. the Cher songs)? The hypothetical nature of this inquiry is apparent. Raben did not make nor did it intend to make the Pilz CDs in Australia. It is irrelevant in this regard whether the making of the CDs in their country of origin constituted an infringement of copyright (Interstate Parcel Express Co Pty Limited v Time-Life International (Nederlands) BV (1977) 138 CLR 534). Moreover, there is no requirement that Raben must have (or ought to have) known that the sound recording copyright infringed was that of the applicants: Golden Editions Pty Limited & Anor v PolyGram Pty Limited & Ors (Unreported, Federal Court of Australia, Burchett, Tamberlin and Kiefel JJ, 14 March 1996, at pp 2-3 per Burchett and Tamberlin JJ), a case which dealt with s 115(3), which is in substantially similar terms to ss 102 and 103. ISSUES I come then to the issues raised by the parties for determination in the case. They are as follows: (a) Does PolyGram USA own the copyright in the Pilz recordings? PolyGram USA must establish this issue in its favour. Otherwise it has no standing to claim the relief it seeks. If it is established that it does own the copyright in the PolyGram recordings, then it is further established on the evidence that PolyGram Aust is the exclusive Australian licensee of that copyright, via an interposed Dutch intermediary, PolyGram International Music BV ("PolyGram Netherlands"). During the course of the hearing, counsel for Raben objected to the admission of certain paragraphs in the affidavits of a Mr Maurice Russell regarding ownership of the copyright in the PolyGram recordings. The question of the admissibility of those paragraphs was reserved. It is necessary that I now rule on that question. The two paragraphs objected to relate to an alleged chain of title to the copyright in the PolyGram sound recordings, from Casablanca to PolyGram USA. As noted previously, Casablanca made the PolyGram recordings in 1979. On 26 January 1984, Casablanca (under a new name) entered into a written agreement with PolyGram USA (under its earlier name "Chappell & Co. Inc") whereby Casablanca transferred "all right, title and interest in certain recorded music properties, licensing agreements, trademarks, contract rights, accounts receivable, goodwill, business equipment and office furniture in connection with the recorded music business [of Casablanca]" to PolyGram USA. However, nowhere in the agreement, a copy of which was annexed to the affidavit of Mr Russell of 25 April 1995, is there a list of assets specifying what exactly was being transferred. In part of paragraph 7 of his affidavit of 25 April 1995 which was objected to, Mr Russell asserts that the PolyGram recordings were included in the assets transferred to PolyGram USA. In the paragraph of the affidavit of 12 March 1996 objected to, Mr Russell states that his knowledge of the inclusion of the PolyGram recordings in the assets transferred is based on his "access to the books and records of PolyGram [USA] and Casablanca Records, Inc.". In paragraph 2 of his affidavit of 25 April 1995, Mr Russell also states that:- "Except where otherwise expressly indicated, the facts and matters to which I depose in this affidavit are within my own knowledge. In addition, I have access to the books and records of [Polygram USA] and ... of Casablanca Records Inc." Apart from this statement, there is no clear indication, however, that Mr Russell was personally aware precisely what assets were assigned by Casablanca to PolyGram USA. Indeed there is no evidence that Mr Russell was even working for PolyGram USA at the time of the transfer in 1984. According to his affidavit, the earliest point of time at which he held a position at PolyGram USA was in 1990, some six years after the transaction concerned took place. Counsel for Raben contended that, since Mr Russell could not have personal knowledge of the facts alleged in paragraph 7, he must have derived that knowledge from certain documents, presumably the "books and records of PolyGram [USA]" that he inspected. Counsel objected to the admission of paragraph 7 therefore on the ground that Mr Russell was thus attempting to give secondary evidence of the contents of documents in a manner not permitted by law. A party seeking to adduce evidence of the contents of a document must comply with s 48(1) of the Evidence Act 1995 (Cth). Under that section, a party seeking to adduce such evidence may, so far as this proceeding is concerned, tender either the document in question (sub-s (1)), a copy or purported copy of that document (sub-s 1(b)(i)), or a business record (sub‑s (1)(e)(i)). In this case the applicants did none of the above. It is my view that in part of paragraph 7 of the affidavit of Maurice Russell dated 25 April 1995, he is attempting to adduce evidence of the contents of one or more documents. As the applicants have not complied with the requirements of s 48 of the Evidence Act, his evidence in that regard in paragraph 7 is inadmissible, and I therefore uphold counsel's objection to the admission of that part of the paragraph. However, in that paragraph Mr Russell exhibits a CD allegedly manufactured on behalf of the first applicant and embodying the PolyGram recordings. This was admitted as Exhibit B, subject to objections. This CD appears on its face to have been manufactured by PolyGram Netherlands, and the titles of eight of the Cher recordings on the CD correspond with the titles of the PolyGram recordings. Counsel for the applicant tendered the CD as evidence going to PolyGram USA's title to the copyright in the PolyGram recordings. I consider that it is relevant to the issue and that both the CD and accompanying descriptive information are admissible. I disallow the objection. I reject the tender of paragraph 2 of the affidavit of 12 March 1996. Without the admission of paragraph 7 of the earlier affidavit, it is irrelevant. Finally, I also admit into evidence the CD provisionally marked as Exhibit C and referred to in the affidavit of Ms Brooks ("the PolyGram CD"), on the same basis as the CD referred to in the affidavit of Mr Russell. This CD bears the mark "Made in Australia", and states, in its accompanying material that it is marketed in Australia by a company "Pickwick Australia Pty Ltd" under licence from PolyGram Aust. In the absence of the material excluded from Mr Russell's affidavit the applicants must rely on an inference from the admitted evidence that PolyGram USA owns the copyright in the PolyGram recordings. In my opinion, the following matters support the drawing of such an inference. First, certain assets were clearly transferred to PolyGram USA by Casablanca by the written agreement of 26 January 1984. Indeed, from the width of the wording used it could easily be inferred that the whole of Casablanca's business was sold to the first applicant. If so, that assignment would include the copyright in the recordings made in 1979, if that copyright had not already been disposed of. Secondly, the discovery affidavit of PolyGram USA indicated that it had in its possession the "original" of a "Master tape of the [PolyGram] recordings", although it is not clear whether this is a two track stereo master, or the original multi-track master. Ms Brooks gave evidence that the original multi-track master is a valuable asset for its owner, and would normally be kept under lock and key in its owner's vaults. Thus if the discovered master is the original multi-track master, the inference to be drawn is that the master was sold to PolyGram USA by Casablanca along with the copyright in the recordings. However, this inference may also be available even if the master is only a two track master: Ms Brooks also gave evidence that "sometimes the record company will store the original master in its unmixed format or they might store one that has already been mixed down [ie a two track stereo master]". Finally, the inference is assisted by Exhibit B, as well as the PolyGram CD, Exhibit C. On the back of the casing in which each of the CDs are stored is written "Casablanca Record and Filmworks" in bright colours. On the back of the casing of Exhibit B there is also a reference to the particular compilation being first published in 1990 by, and copyright owned by PolyGram Netherlands. On the booklet inside the front cover of each of the CDs' casing is another reference to PolyGram Netherlands, as well as an indication that the recordings were first published in 1979 by Casablanca. Finally, on Exhibit B itself is a reference, in large and colourful writing, to "Casablanca Records", as well as a smaller reference to the compilation being published in 1990 by PolyGram Netherlands. By agreement dated 1 January 1989, PolyGram USA had granted to PolyGram Netherlands a comprehensive and exclusive licence to manufacture, market and distribute records derived from its recordings. PolyGram Aust's exclusive licence in Australia is a sub-licence from PolyGram Netherlands. For its part, Raben tendered a bundle of five documents ("Exhibit 1") that, it was suggested, weighed against the conclusion that PolyGram USA owned the entire copyright in the PolyGram recordings, and/or that the second applicant was the exclusive licensee in all respects of the PolyGram recordings. These five documents purport to establish a chain of title with respect to eight Cher recordings with the same titles as those of the PolyGram recordings, and thus of the Pilz recordings, beginning with a document described as a "Bill of Sale" dated 30 December 1981, and ending in 1993 with a document purporting to extend a non-exclusive licence agreement with respect to those recordings, to Australia. Before dealing with the weight to be attributed to these documents, it is first necessary to look at their possible effect. Counsel for Raben submitted that these documents, together with certain inferences and conclusions drawn from the evidence of Ms Brooks, indicated that Casablanca had already disposed of certain rights in the PolyGram recordings, before it purported to assign the copyright in them to PolyGram in 1984. In particular, counsel submitted that Casablanca had most probably assigned the rights in a "dance mix" version of the PolyGram recordings that presumably Casablanca had itself made, to companies other than PolyGram (the companies detailed in Exhibit 1), before selling its business to PolyGram USA. Thus, counsel submitted, in 1984 PolyGram USA acquired only those rights in the PolyGram recordings that were left after the earlier assignment of the "dance mix" rights.

In my opinion, it would be quite feasible for Casablanca to have assigned the right, or granted a licence, to make copies of a particular mix of the PolyGram recordings to one party, before assigning the remaining rights in the recordings to PolyGram USA. Copyright is divisible property, in the sense that an assignment of copyright can be limited in any way: s 196(2) of the Act, and an assignment of copyright can clearly be limited to the right to make copies of sound recordings: see s 196(2)(a). There is no reason in principle why that assignment cannot further be limited to the right to make copies of a particular mix of a sound recording. Furthermore the act of making copies of a particular mix is, for the purposes of s 196(2)(a), a distinct class of act within the class of acts known as making copies of sound recordings that is the exclusive right of the owner of the copyright in the sound recordings to do. In order to constitute a different "mix" of the PolyGram recordings in respect of which certain rights had been assigned or licensed by Casablanca prior to 1984, it is necessary that the Pilz recordings be in fact the result of a different mix of the PolyGram recordings from the mix that resulted in the recordings embodied on the PolyGram CD. To support such a finding, Raben sought to rely on certain evidence given by Ms Brooks. Although I have dealt with Ms Brooks' evidence later in this judgment, I note at this stage that, in my opinion, on the balance of probabilities, the Pilz recordings were in fact derived from the same mix as the recordings embodied on the PolyGram CD, although with some modifications, and are not the result of a different "dance mix" of the PolyGram recordings. Furthermore, I am most reluctant to assign much, if any, weight to the bundle of documents tendered by Raben and referred to above. These documents are copies of documents purporting to establish a chain of title with respect to the PolyGram recordings. They were only admitted into evidence by direction under s 49(b) of the Evidence Act. They were admitted without any other supporting evidence as to how they came into existence. None of the documents bear the name of, or purport to have been executed by, Casablanca, the original owner of the copyright in the PolyGram recordings. The first document in the bundle is a "bill of sale". The "buyer" is stated to be "SOUNDWAVE RECORDS, Inc dba STACK-O-HITS", and the seller "VIDEO MUSIC INTERNATIONAL, INC". Indeed the only connection with Casablanca is the name "NEIL BOGARS" which appears under the title "SELLER" on the front page of the document, along with "JACK MILLMAN" and "VIDEO MUSIC INTERNATIONAL INC.". The name Neil Bogars is alleged to connect this document to Casablanca because of evidence given by Ms Brooks, who agreed in cross-examination that Mr Bogars was the "controlling mind" of Casablanca. However, there is no evidence that Ms Brooks would have been in a position to know this at the relevant time (around 1981). Furthermore even if this evidence is accepted, the bill of sale does not even purport to have been executed by Mr Bogars. Finally, whilst the penultimate document in the bundle purports to be a licence agreement wherein the licensee is expressed to be "Pilz UK", the final document, described as an "addendum to agreement" purporting to extend the licence to include exports to Australia, is executed on behalf of "Pilz GmbH & Co Media Group KG". For these reasons I do not accept that these documents can establish any valid chain of title with respect to the PolyGram recordings. In contrast, the documents from which can be drawn the inference that Casablanca assigned its copyright in the sound recordings to the first applicant, all appear on their face to be proper commercial documents, strongly supporting the inference that the first applicant owns the copyright in the recordings. I am quite satisfied, on the balance of probabilities, that the first applicant owns the copyright in the PolyGram recordings. The various licensing agreements in evidence then establish that the second applicant is the exclusive Australian licensee with respect to those recordings. (b) Are the Pilz recordings copies of the PolyGram recordings? The applicants must show that the hypothetical making of each of the Pilz CDs in Australia by Raben would constitute an infringement of PolyGram USA's sound recording copyright in the PolyGram recordings. Section 101(1) of the Act provides that:- "... a copyright subsisting by virtue of this Part is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia ... any act comprised in the copyright." An "act comprised in the copyright" is defined in s 13(1) to refer to any act that the owner of the copyright has the exclusive right to do. In relation to sound recordings, copyright includes the exclusive right to "make a copy of the sound recording" (s 85(1)(a)) (the "reproduction right"), and thus only the owner (or licensee) can make a copy of a sound recording without infringing the copyright in that sound recording. A copy of a sound recording refers to a "record embodying a sound recording or a substantial part of a sound recording being a record derived directly or indirectly from a record produced upon the making of a sound recording" (s 10(3)(c)). The making of a sound recording is dealt with in s 22(3)(a), which provides that "a sound recording shall be deemed to have been made at the time when the first record embodying the recording was produced". It is to be noted that the record which is the copy for the purposes of s 10(3)(c) may be several stages removed from the record produced upon the making of a sound recording, as s 101(1) applies "whether the [making of a copy] is done by directly or indirectly making use of a record embodying the recording" (s 101(3)). Also the record must be "an actual embodiment of the very sounds" of the sound recordings, and not a mere "sound-alike" (CBS Records Australia Ltd v Telmak Teleproducts (Aust) Pty Ltd (1987) 9 IPR 440 at 444). The question here then is whether each of the Pilz CDs embody all or part of one or more of the PolyGram recordings. It was admitted that if the Pilz CDs did embody part of any of the PolyGram recordings, the amount embodied would be at least a substantial part. To embody any of the PolyGram recordings, each Pilz CD must be derived directly or indirectly from a record produced upon the making of the sound recording, namely from the Casablanca multi-track recording. As mentioned earlier in these reasons, expert evidence was given both by affidavit and orally by Ms Brooks, who is described as an "audio engineer/recording technician". She has worked in the record industry as an audio engineer/recording technician for the past fifteen years, and has often had cause to compare various vinyl records, compact discs and pre-recorded cassettes to determine whether any two embody the same sound recordings. Although she had some initial hesitation Ms Brooks was ultimately of the view that each Pilz CD embodies substantial parts of each of the eight recordings on the PolyGram CD, and that the recordings on each of the PolyGram and Pilz CDs were derived from the same multi-track master. Because the PolyGram CD has been made by or under licence from PolyGram Aust, and PolyGram Aust is the exclusive Australian licensee of the copyright in the PolyGram recordings, and also because the titles of the relevant eight Cher tracks on the PolyGram CD are exactly the same as those of the PolyGram recordings, I readily accept the inference that the PolyGram CD is derived from the Casablanca master track, and thus embodies, as well as being a copy of, the PolyGram recordings. Ms Brooks was ultimately of the view that the Pilz recordings embody substantial and significant parts of the PolyGram recordings. She reached this conclusion by comparing various aspects of the relevant eight recordings contained on a sample Pilz CD, with the equivalent eight recordings contained on the PolyGram CD. Ms Brooks stated in her oral evidence that she undertook this process with great care, and did so by "set[ting] up equal testing reference points and compar[ing] the two sources against each other, maybe bar by bar, half a bar by bar, song by song." More detail is provided in her affidavit as to how she compared the different recordings with each other, and I am satisfied that she undertook the comparison with great care and skill. In her affidavit, Ms Brooks noted that:- "In particular the recordings of the lead and backing vocals, lead guitar solos, drumming, keyboards and other instruments embodied on the [Pilz] CD are, in my opinion, the same recordings as the respective recordings of those elements embodied on the [PolyGram] CD. I have compared the vocal and instrument intonation and have found them to be the same on both records. I have done this by listening in particular to the breathing of the singer and the delivery style of the vocalists, the playing style of the musicians and the overall sonic quality of the vocals and those instruments." A similar conclusion was reached in a report of Ms Brooks', prepared in response to a request by Gilbert & Tobin, solicitors for the applicants, on 12 October 1994, and annexed to her affidavit ("the October report"). Two earlier reports prepared by Ms Brooks in relation to the Pilz recordings were tendered in evidence ("Exhibit E"). In the first report, dated 25 January 1994, Ms Brooks stated that:- "Some of the backing vocals and instruments are missing [from the Pilz recordings], implying that this CD has come from an alternate source, before the "over dubs" in the studio. ... These assumptions imply that the PILZ CD may have come from a previous source, before the final mixing session and release." Counsel for Raben cross-examined Ms Brooks on this report, and it is convenient to set out here the transcript of that cross-examination. "MR JACKMAN: One of the findings that you made [in January 1994] was that some of the backing vocals and instruments are missing on the Pilz CD, implying that this CD has come from an alternate source before the over-dubs in the studio?---Yes. ... And they were your genuine views?---Yes, at that time. When you refer to alternative source and previous source, what precisely did you have in mind?---It could have come from a different mix. Well, that's what I felt, it was an alternate source. It might have been an earlier mix that they fixed up for release or it might have been something that was in the vaults that someone got hold of. Or it might have been, and I am now asking you about your views in January 1994, it might have been a different recording from a different recording session?---That is what I thought at the first time, yes. So when you refer to an alternate source or a previous source, that could encompass either a different recording by the same musicians on a different occasion, or a different mix taken from the one multi-track master tape?---Either way, I would say the latter. But you did not have a clear view either way?---No, no. ... I did a codicil to that. ... I changed it that on further listening I found that the backing vocals were harder to hear. In other words they had been mixed further back into the mix. Whereas in the first listen I thought they were not there because most of the music is covered by all these other heavy drums and things like that and it masks the image." As I noted above, individual tracks can only be removed from the original multi-track master, and not from a two track master. Hence in January 1994, when Ms Brooks was of the opinion that certain of the tracks from the PolyGram recordings were missing from the Pilz recordings, she concluded that either the Pilz recordings were derived from a different recording session to the recordings embodied on the PolyGram CD, or if they came from the same recording session, that they were derived from a different two track master to those embodied on the PolyGram CD. However, in an additional report dated 31 January 1994, described by Ms Brooks in cross-examination as a "codicil" to her report of 25 January, Ms Brooks clearly states Cher's vocals, as well as the guitars, organ, piano and backing singer performances are the same throughout both recordings, and concludes "[o]verall, the recordings are the same vocally and instrumentally". This is consistent with her October report, wherein she states that the vocals on both the Pilz and PolyGram CDs are the same, as are most instruments. In cross-examination, Ms Brooks stated that the two sets of recordings did come from the same recording session by the same musicians, and that that has been her view since October 1994. Ms Brooks' also concluded in her affidavit that the Pilz CD "embodies copies of sound recordings that are derived from the same multi-track master tape from which the sound recordings embodied on the [PolyGram] CD are derived". In the light of Ms Brooks' evidence, and in the absence of any countervailing evidence, I am satisfied that the Pilz recordings were substantially derived from the same recording session as the recordings on the PolyGram CD, and hence that each Pilz CD is relevantly a copy of the PolyGram recordings embodied on the Casablanca multi-track. An issue was also raised as to whether the Pilz recordings were derived from the same two track as the recordings on the PolyGram CD. In her October report, Ms Brooks stated "[i]n my opinion, the PILZ CD has been remixed and edited from the original multi-track recording." Her affidavit also appeared to indicate that she was of the view that the Pilz recordings were directly derived from the original multi-track. Hence she expressed a view, which she later abandoned after further testimony to and further consideration of the discs, that the Pilz recording could derive from a "dance" version of release by Casablanca, being itself a two-track derived from the original multi-track. This position was partly, if not fully, based on the fact that Ms Brooks thought certain differences between the Pilz recordings and the recordings embodied on the PolyGram CD could only have been effected prior to the creation of a two track master from the original multi-track master. However, during cross-examination Ms Brooks stated that she believed that the differences could have been effected from the one two track recording, and I accept that her final view was that in fact the Pilz recordings were derived from the same two track as the recordings embodied on the PolyGram CD, the differences being created by the addition of masking musical sounds, such as drumming, which produced considerable difficulty in the detection of some distinguishing sounds of the original two track. Ms Brooks' testimony was heavily criticised by counsel for Raben. There is no doubt that she changed her opinion during the course of her investigations and, perhaps, in her evidence. She was, however, not an experienced witness, and was giving evidence which by its technical nature led to difficulties in communication. I observed her closely and am quite satisfied that she was not tailoring her testimony to suit the case of the party calling her. I formed the opinion that, amongst a number of competing hypotheses, she was really in favour of the view that the Pilz recordings owed their ultimate origin to an infringing two-track copy made of a Casablanca CD. This copy was then added to, thereby converting it into a new multi-track from which a new infringing two-track was made and from which, at a later stage, most likely at some removes, the Pilz CD was pressed. I am firmly of the view that this conclusion proved the best explanation of the existence in Exhibits B and C, to a very large degree, of identical sounds which must be the "very sounds" recorded on the original Casablanca multi-track. Accordingly, I am satisfied, on the balance of probabilities, that the Pilz recordings embodied in the Pilz CDs infringe the copyright, now owned by PolyGram USA, in the original sound recordings made by Casablanca. (c) Should Raben have known that, if it had made the Pilz CD in Australia, it would have infringed copyright? It follows from the above that, if, as posited by ss 102 and 103 of the Act, Raben had made each of the Pilz CDs in Australia, that making would have constituted an infringement of PolyGram's sound recording copyright. It is now necessary to determine whether, as required by those sections, Raben knew, or ought reasonably to have known, that such a making would have constituted an infringement of copyright in the actual sound recordings. I note that ss 102 and 103 do not, in fact, require a consideration of the means by which the imported articles were actually made. Nor do they require consideration whether the actual maker infringed any sound recording copyright by the act of making the article. Of course, if the maker had infringed any copyright by the act of making the article and the importer knew of that infringement, then that fact would undoubtedly support the conclusion that the importer knew that, if he or she had made the article in Australia, that making would constitute an infringement of copyright. However, it is not established in the present case that the respondent actually knew that the making of the relevant CD by Pilz constituted an infringement of PolyGram USA's copyright (if indeed it did). How, then, should the question of knowledge raised by the sections be approached? Guidance is afforded by authority. In the case of Meccano Ltd v Anthony Hordern & Sons Ltd (1918) SR (NSW) 606, heard under an earlier form of the legislation which did not include the "ought reasonably to have known" limb of the knowledge test, Harvey J stated that knowledge of the material facts was all that the plaintiff was required to prove, and that it was also sufficient to show that there were within the knowledge of the defendant such facts as would give rise to a reasonable suspicion that copyright existed and was being infringed. A few years later, this test was refined by Harvey J in the case of Albert v S Hoffnung and Co Ltd (1921) 22 SR (NSW) 75, where his Honour stated (at p 81): "Knowledge' in the section cannot mean in my opinion any more than notice of facts such as would suggest to a reasonable man that a breach of the copyright law was being committed." This test was cited with approval by Fox and Lockhart JJ in Apple Computer Inc v Computer Edge (1984) 2 IPR 1 at 14, 40-41, where Lockhart J added (at p 40) "[k]nowledge of the law is not required: Sillitoe v McGraw-Hill reported in The Times 18 January 1982". In the case of Milpurrurru v Indofurn (1994) 30 IPR 209, von Doussa J referred to the previous authorities in the following terms (at pp225-6): "Knowledge' for the purposes of s 37 [which is in identical terms to s 102], refers to notice of facts such as would suggest to a reasonable person having the ordinary understanding expected of persons in the particular line of business that a breach of copyright was being committed: Apple Computer Inc v Computer Edge Pty Ltd (1984) 2 IPR 1, 53 ALR 225 at 238; Kalamazoo (Aust) Pty Ltd v Compact Business Systems Pty Ltd (1985) 5 IPR 213 at 240 and RCA Corp v Custom Cleared Sales Pty Ltd (1978) 19 ALR 123. ... Knowledge of the law is not required. It is sufficient that there be actual or constructive knowledge that intellectual property rights would be infringed, without knowing the precise nature of those rights: Star Micronics Pty Ltd v Five Star Computers Pty Ltd (1990) 18 IPR 225 at 235-6." I have considered the evidence on this aspect of the case in light of these principles. The only evidence concerning the knowledge of Raben was given by Mr Ron Lewy and Mr Garry Lewy, the two controlling directors of Raben. Although all that is required by ss 12 and 103 is a finding as to Raben's knowledge concerning the hypothetical manufacture of the Pilz CDs in Australia, I will address the nature and extent of the Lewys' state of knowledge on copyright in sound recordings, as this was fully argued before me. For the purposes of ss 102 and 103, the Lewys' knowledge can be imputed to Raben: Milpurrurru at p 226, either under general agency principles (Beach Petroleum v Johnson (1993) 115 ALR 411 and the authorities cited at p 568ff) or because they are the "directing mind and will" of Raben (Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705; Tesco Supermarkets Ltd v Nattrass [1972] AC 153; Hamilton v Whitehead (1988) 166 CLR 121). In evaluating the evidence given by these witnesses, I have considered their credibility as evidenced by their demeanour in the witness box and their answers to the questions put to them. On the whole I do not find either of them to be satisfactory witnesses: they were and tended to be evasive in the witness box, rarely answering directly a question put to them in cross-examination. Nor did their demeanour encourage acceptance of their testimony. The Lewys had twice before dealt with records (including cassettes and CDs) which were the subject of legal proceedings in relation to the sound recordings embodied in them. The most recent occasion was during a period of about six months from January 1994, when Raben sold CDs and cassettes supplied by the Apple House Music organisation in Adelaide, a company which was the subject of earlier proceedings in this Court (Sony Music Productions Pty Ltd v Tansing (t/a Apple House Music) (1993) 27 IPR 640; Sony Music Australia Ltd v Tansing (t/a Apple House Music) (1993) 27 IPR 649). Those proceedings concerned the retailing of records embodying recordings of the artist Michael Jackson which were not authorised by the recording company which had exclusive copyright in those sound recordings. From the evidence given by Mr Garry Lewy, I am satisfied that he was aware of those proceedings, and indeed followed them, at least through newspaper reports, and further that he was aware that a significant issue in the proceedings concerned whether or not Apple House could sell the recordings of Michael Jackson (that is to say he was aware that it was the actual sound recordings that were in issue). The other occasion was in or around 1985, when the Lewy brothers, in partnership and trading as Raben Footwear, were the subject of proceedings brought in the Supreme Court of New South Wales by several large record companies. These proceedings concerned the sale of cassettes, and were based on the record companies' asserted rights in the sound recordings embodied on those cassettes. In cross-examination Mr Ron Lewy admitted that he was aware that the basis of the case brought against him and his brother was the record companies' ownership of the copyright in the sound recordings. I am satisfied that Mr Ron Lewy's knowledge extended to an appreciation of the distinction between copyright in the underlying musical work (known as "mechanical copyright"), and copyright in sound recordings. This was demonstrated by several of Mr Lewy's answers in cross-examination. Mr Lewy was further aware that sound recording copyright was generally owned by major record companies, at least for well known artists such as Cher. Most importantly, it was also apparent from answers given in cross-examination that Mr Lewy was aware that, if Raben wished to manufacture in Australia a CD embodying sound recordings in respect of which Raben did not own the copyright, Raben would need the licence of the owner of the copyright to do so. Each of the Lewys asserted the irrelevance of this consideration, as Raben had never had any intention of entering upon such manufacture. Nevertheless the sections require that this hypothetical question be addressed. The result of doing so, in my opinion, determines these proceedings in favour of the applicants. I have already held that PolyGram USA is the owner of the relevant copyright. It is admitted that the Pilz CDs were imported by Raben into Australia without the licence of PolyGram USA and that that importation was for the purpose of sale. As Raben knew that it held no licence to manufacture these CDs from whomever the owner of the copyright might be, then it would necessarily know that if it made them in Australia it would infringe the copyright. Accordingly breaches of both ss 102 and 103 by Raben are established. This result follows even if, as it asserts, Raben believed, on reasonable grounds, that it held the copyright owner's permission to import the CDs into Australia for the purpose of sale. The extent of Raben's knowledge and belief as to its right to import the Pilz CDs for sale into Australia has, however, an important bearing on the relief sought by the applicants. It is, therefore, necessary further to consider the evidence bearing on this aspect of the case. Nowhere in the evidence is there an indication by either of the Lewy brothers that they believed that Raben had the express licence of the copyright owner to import the CDs. The closest there is to such an indication are the following statements made by each of the Lewys. First, Mr Ron Lewy asserts in his affidavit that during one telephone conversation with a representative from Pilz, that person said words to the effect that "[t]he copyright licences are in place for Australia but you will be liable to pay mechanical copyright". Because of my reservations as to Mr Ron Lewy's credit, and in light of what Pilz wrote to Raben as referred to in Mr Garry Lewy's affidavit (as set out below), I do not accept the first part of this statement. Secondly, in his affidavit dated 24 May 1995, Mr Garry Lewy stated "I believed, as a result of the correspondence referred to in paragraph 5, that Pilz had all the necessary copyright licenses to enable CD's (sic) supplied by it to be sold in Australia." The correspondence referred to comprises three letters sent by facsimile between Raben and Pilz. The first of these is dated 4 April 1994 from Raben to Pilz. The relevant portion of that letter is as follows:- "Would you also confirm that all licence and copyright conditions have been met for sale and distribution in Australia and New Zealand." Pilz's response is set out in letter dated 5 April 1994. The relevant portion of that letter reads as follows:- "Regarding copyrights and licenses, we can assure you that all necessary GEMA and MCPS licenses are paid for for distribution. As you have in Australia a similar institution which is called AMCOS you will have to notify them about how much mechanical copyrights you might have to pay in Australia." [emphasis added] The acronyms "GEMA", "MCPS", and "AMCOS" all refer to collecting societies for mechanical copyright payments, the first two being based in Europe, the third, AMCOS, in Australia. It is clear that the Lewys knew of the location and nature of these organisations. Thus it would have been clear that this reply was confined to the issue of mechanical copyright, and did not deal at all with copyright in sound recordings. Both Lewys conceded that this reply was clearly limited to mechanical copyright, and no credible explanation was offered as to why no further enquires were made with respect to sound recording copyright. Furthermore, despite the letter of 5 April 1994, the Lewys did not notify AMCOS of their importation of the Pilz CDs.

During cross-examination, Mr Garry Lewy also referred to certain conversations he had had with various representatives of Pilz during which, he claimed, assurances were given concerning the lawfulness of the importation of the CDs from Pilz into Australia. He was unable to provide any detailed recollection of those alleged conversations. Apart from the matter to which I have already made reference, no mention is made of this in his affidavit. I do not accept, on the balance of probabilities, that those conversations took place. In his affidavit, Mr Garry Lewy states that, when visiting Pilz's premises in Germany and after he had identified certain CDs which he wanted to purchase from Pilz, the export manager for Pilz said words to the effect that "You cannot sell those CD's because they are not clear for Australia". It was submitted that this amounted to an implicit representation that other CDs not so described by Pilz were available to be validly imported into Australia. However, I do not think that Raben gains much assistance from this bare statement, if in fact it was made. It would necessarily have required consideration and evaluation in light of the letter from Pilz dated 5 April 1994, wherein Pilz clearly limited any representations concerning copyright issues to mechanical copyright. Reliance was also placed, on behalf of Raben, upon Mr Garry Lewy's evidence that Pilz appeared to be a major record manufacturer, indeed the seventh largest such manufacturer in the world. He formed this impression when visiting the factory in Germany. The inference sought to be drawn was that Pilz was a reputable party to be dealing with, and thus Raben was entitled to rely on any representations made by Pilz as to copyright matters without the need for further inquiry. However, I do not consider, whatever the impression of Pilz's manufacturing capability gained by Mr Garry Lewy that that impression was, either alone or in addition to the evidence already dealt with, sufficient to absolve Raben from making proper inquiries as to the ownership of sound recording copyright on the CDs that it wished to import into Australia. Counsel for Raben submitted that, if Raben had made further inquiries with Pilz, it would have received the documents in Exhibit 1, which purport to establish a chain of title to Pilz. The receipt of those documents, it was submitted, would only have confirmed in Raben's mind the legitimacy of its importing the Pilz CDs. In light of my earlier comments on the apparent unreliability of those documents, however, such a submission cannot stand. Indeed, in my view, the receipt of the documents in Exhibit 1 could only have raised doubts in Raben's mind as to the basis of any title to the copyright in the sound recordings claimed by Pilz.

I am also satisfied that the Lewys, in view of the substantial profits that could be made from the importation and sale of these CDs, were prepared to take the risk of being involved in copyright infringement. I am also satisfied that they abstained from reporting the importation to AMCOS in the hope that it would pass unnoticed by that organisation. In my view, these matters, together with the Lewys' awareness of the legal complexities of importing CDs, which extended to knowledge of the question of "parallel importing" and the Prices Surveillance Authority's inquiry into the parallel importing of records, and of the existence of sound recording copyright as a distinct branch of copyright, clearly indicate that Raben had knowledge for the purposes of ss 102 and 103 of the Act which satisfied the tests outlined in the authorities cited above. For these reasons, I find that all elements of both s 102 and s 103 have been satisfied, and thus the copyright subsisting in the PolyGram recordings has been infringed by Raben. I turn, then, to the question of relief. RELIEF The applicants, inter alia, seek damages pursuant to s 115 and s 116 of the Act, as well as additional damages pursuant to s 115(4) of the Act. Although both ss 115 and 116 refer only to "the owner of the copyright", s 119 extends the availability of those sections to the exclusive licensee of the copyright. Damages under s 115 of the Act are for a wrong done to an incorporeal right, and are measured by the depreciation caused by the infringement to the value of the copyright as a chose in action: International Writing Institute Inc v Rimila Pty Ltd (1994) 30 IPR 250 at 254. Section 116, on the other hand, is directed at "infringing copies", and makes available to the owner of the copyright certain remedies, including damages, in respect of those copies. Although it is quite possible to recover damages under both s 115 and s 116 (Caxton Publishing Co Ltd v Sutherland Publishing Co [1939] AC 178), this Court is always careful to ensure that there is no overlap in the amounts awarded as damages (see Rimila). In this case, the applicants conceded that any damages they are entitled to receive under s 116 would exhaust the damages available under s 115. For that reason the argument for damages proceeded on the basis of s 116, however, the applicants did not abandon their claim for damages under s 115. As mentioned above, s 116 is concerned with "infringing copies". An "infringing copy" of a sound recording is defined in s 10(1) as, "in the case of an article imported without the licence of the owner of the copyright" a copy of a sound recording that "would have constituted an infringement of that copyright if the article had been made in Australia by the importer ...". Although there is no express knowledge requirement, it has been held that to constitute an infringing copy for the purposes of the s 116 remedies, there must have been an act of infringement such as under ss 102 or 103, and by that way a knowledge requirement is imported into the definition of infringing copy: Infabrics Ltd v Jaytex Ltd [1982] AC 1. Lack of knowledge is also an express defence against damages or other pecuniary remedies (apart from costs) under s 116(2), however, on the basis of the findings I have made that defence has not been made out. Clearly then each of the imported Pilz CDs is an article that constitutes an infringing copy of the PolyGram sound recordings. In respect of the infringing copies, s 116 relevantly provides that:- "... the owner of the copyright ... is entitled in respect of any infringing copy ... 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 ... and had been the owner of the copy ... since it was made." In effect then, this section deems the copyright owner, PolyGram USA, or the exclusive licensee, PolyGram Aust, to have owned the copies that are infringing copies (the Pilz CDs). The effect of the section then is to make Raben liable in detinue in respect of each of the Pilz CDs, from the date it took possession of the CDs. Furthermore, for each Pilz CD sold Raben is liable in conversion to the applicants.

Evidence was put before me that 55 copies of the Pilz CD were sold by Raben at a price of $5.00 each, and I find that Raben is liable in conversion for those 55 copies. The other 945 copies are currently being stored by Raben pending the outcome of these proceedings, and I find that Raben is liable in detinue for those 945 copies. The applicants also sought additional damages pursuant to s 115(4) of the Act. That section provides 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; (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." It was submitted by the applicants in claiming additional damages under s 115(4) that Raben's behaviour in not pursuing the issue of sound recording copyright after receiving the letter from Pilz dated 5 April 1994, amounted, in the circumstances, to a flagrant infringement of copyright for the purposes of sub-s 115(4)(b)(i). In light of my findings above I am satisfied that the infringement was

flagrant. I am quite satisfied that the Lewys were well aware of the risk they were taking in making the importation, and hoped that the infringement would pass unnoticed, leaving Raben with an undeserved but substantial profit. I award $15,000 by way of additional damages. The respondent must pay the costs of and incidental to these proceedings. I direct that within 14 days the parties bring in Short Minute of Orders to give effect to these findings.

I certify that this and the preceding forty (40) pages are a true copy of the reasons for judgment herein of the Honourable Justice M. L. Foster.

Associate: Date: 6 SEPTEMBER 1996 A P P E A R A N C E S

COUNSEL FOR THE APPLICANTS: R. COBDEN INSTRUCTED BY: GILBERT & TOBIN

COUNSEL FOR THE RESPONDENT: I. JACKMAN with M. LEEMING INSTRUCTED BY: DICKSON FISHER MACANSH

DATE OF HEARING: 18, 19, 20 MARCH 1996 DATE OF JUDGMENT: 6 SEPTEMBER 1996

I find the respondent liable in conversion for 55 copies of the compact disc referred to in Schedule B of the statement of claim.
I find the respondent liable in detinue for 945 copies of the compact disc referred to in Schedule B of the statement of claim.
I award the applicants $15,000 by way of additional damages.
I order the respondent pay the costs of and incidental to these proceedings.
I direct that within 14 days the parties bring in Short Minute of Orders to give effect to these findings.

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