IPC Global Pty Ltd v Pavetest Pty Ltd

Introduction 1 The applicant (IPC Global) makes equipment for materials testing. The materials concerned are asphalt and other construction materials. The operator inputs commands to the testing equipment and results are reported back. Those functions are mediated by software, with which the operator interacts, and firmware, which mediates between the software and the equipment. 2 IPC Global's firmware, as it appears in the customer's equipment, is housed in a controller known as an IMACS or Integrated Multi Access Controller. The software, which resides on a customer's personal computer, is known as UTS or Universal Testing Software. IPC Global's firmware has generally been known as the IMACS Firmware. 3 The UTS software and the IMACS Firmware exist in both object code and source code. Object code is machine-readable. Source code is human-readable (with appropriate skills). 4 In mid-2012, the second respondent (Mr Sinadinos) and the third respondent (Mr Feeley) resigned from IPC Global. They formed the first respondent (Pavetest) which later launched a range of testing products that compete with IPC Global's products. Pavetest's software and firmware in relation to the relevant Pavetest products are known as the TestLab Software and the CDAS Firmware. 5 The trial of this proceeding (on issues of liability) commenced on 14 October 2016. By that time, there had been a narrowing of the issues in dispute between the parties which I will describe in more detail later in these reasons. Subsequently, on the third day of the trial, on 19 October 2016, the issues were further narrowed by the respondents conceding liability in relation to the firmware part of the case, both as regards copyright and breach of confidence. I will explain how this came about in more detail later in these reasons. The trial continued in relation to the software part of the case. However, IPC Global submitted that it was appropriate for final orders to be made in relation to the copyright aspect of the firmware part of the case in advance of publication of my reasons on the software issues. It was arranged that, in conjunction with the making of closing submissions on the software part of the case, the parties would address on whether final orders should be made, and if so what orders, in relation to the copyright aspect of the firmware case. The parties have today made submissions on these matters. 6 There is no dispute between the parties that it is appropriate that I make declaratory orders and injunctive orders by way of final relief in respect of the copyright aspect of the firmware part of the case. There has been some debate about the form of the orders to be made. I will discuss those issues later in these reasons. For the reasons expressed later in these reasons, I will make declarations substantially in the following form: 1. The first respondent, by the creation, development, reproduction and distribution of its controller known as the Control and Data Acquisition System (CDAS), has infringed the copyright subsisting in version 1.1D (IO Module) and version 1.20 (CPU Module) of the IMACS Firmware (as defined in paragraph 32A of the Second Further Amended Statement of Claim) (IMACS Firmware). 2. The second and third respondents, and each of them, have authorised the infringement by the first respondent of the copyright subsisting in version 1.1D (IO Module) and version 1.20 (CPU Module) of the IMACS Firmware. 7 Further, for the reasons expressed later in these reasons, I will make orders by way of injunctive relief substantially in the following form: 3. The first respondent, whether by itself, its directors, servants, agents or otherwise howsoever, be permanently restrained from, without the licence of the applicant, infringing the copyright subsisting in version 1.1D (IO Module) and version 1.20 (CPU Module) of the IMACS Firmware by the reproduction, communication, importation, supply, sale or offer for sale or supply of the firmware for the CDAS the subject of the proceeding, and including versions 18, 19 and 20 of that firmware (CDAS Firmware), whether by the supply, sale, or offer for supply or sale of a CDAS containing the CDAS Firmware or otherwise. 4. The second and third respondents be permanently restrained from, without the licence of the applicant, authorising the infringement, by the reproduction, communication, importation, supply, sale or offer for sale or supply of the CDAS Firmware, whether by the supply, sale, or offer for supply or sale of a CDAS containing the CDAS Firmware or otherwise, of the copyright subsisting in version 1.1D (IO Module) and version 1.20 (CPU Module) of the IMACS Firmware. 8 The main issue of dispute in relation to the orders concerned whether an order should be made for delivery up (or destruction or erasing) of the CDAS Firmware. The issues are described later in these reasons. For the reasons expressed later in these reasons, I will make an order for delivery up (or destruction or erasing) substantially in the following terms: 5. Within 14 days of the date of these orders, the respondents: (a) deliver up on oath to the applicant's solicitors all copies of the CDAS Firmware, including as comprised in any CDAS, in their possession, custody or control (other than the reference copy and any copy the subject of a supply contract as referred to below); or (b) alternatively, file and serve an affidavit attesting to the fact that all copies of the CDAS Firmware, including as comprised in any CDAS, in their possession, custody or control (other than the reference copy and any copy the subject of a supply contract as referred to below) have been destroyed or erased, and the steps undertaken to give effect to such destruction or erasing. Subject to further order, this order does not apply to one copy of the CDAS Firmware which may be retained as a reference copy, and any copy of the CDAS Firmware installed or to be installed on equipment in respect of which a contract of supply of the equipment has been entered into before 8 November 2016.

Procedural background 9 I will now briefly describe the procedural background to the issues discussed in these reasons. 10 As originally commenced, the proceeding brought by IPC Global concerned copyright infringement and breach of confidence in relation to software only. On 11 May 2016, I gave leave to IPC Global to amend its pleading and the amended originating application to incorporate allegations of copyright infringement and breach of confidence in relation to firmware as well: IPC Global Pty Ltd v Pavetest Pty Ltd [2016] FCA 500. IPC Global's pleadings in relation to firmware were principally contained in paragraphs 32A to 32K of the further amended statement of claim. (The pleading has since been amended but those amendments are not relevant for present purposes.) 11 In paragraph 32A of the further amended statement of claim, IPC Global alleged that in or around January 2001, Mr Feeley and Mr David Poon created the first version of an original computer program within the meaning of the Copyright Act 1968 (Cth) which comprised the firmware for the IMACS. This was defined as the "IMACS Firmware" in the pleading. In paragraph 32C, IPC Global alleged that the IMACS Firmware had been updated and modified from time to time by Mr Feeley, Mr Poon and Mr Bhathiya (Bart) Fernando. In paragraphs 32H and 32J reference was made to a modified version of the IMACS CPU module known as the IMACS CPU module version 1.50 and a modified version of the IMACS IO (which stands for "In Out") module known as the IMACS IO module version 1.51. 12 By a letter from the respondents' solicitors to IPC Global's solicitors dated 6 October 2016 and by the respondents' opening submissions filed before trial, the respondents indicated that they did not contest various matters. In relation to the firmware part of the case, the opening submissions record that the respondents did not contest that: (a) "the Pavetest CDAS Program reproduces a substantial part of the particular pleaded versions of the IMACS Programs that have been the subject of infringement evidence, namely the IMACS CPU module version 1.50 … and the IMACS IO module version 1.51 …"; and (b) "if and to the extent that the primary liability of Pavetest for copyright infringement is established, authorisation liability of Mr Sinadinos and Mr Feeley will also be established". 13 In light of those concessions, it appeared at the outset of the trial that the issue to be agitated in relation to the firmware part of the case was whether IPC Global was the owner of the copyright in the IMACS Firmware. The respondents were relying on the fact that, since July 2003, Mr Feeley had been engaged, not as an employee of IPC Global, but rather pursuant to a consultancy agreement between IPC Global and Mr Feeley's family company, which is the fourth respondent. On this basis it was contended that IPC Global was not the owner of the copyright in the IMACS Firmware. 14 However, the position changed on the third day of the trial, when the respondents' counsel informed the Court that his clients had now reviewed the versions of the modules of the IMACS Firmware that were created before July 2003, and thus at a time when Mr Feeley was an employee of IPC Global and not engaged pursuant to the consultancy agreement. Upon that review, which followed receipt by the respondents of the relevant versions of the modules on the second day of the trial, it became apparent, and the respondents accepted, that the CDAS Firmware reproduced a substantial part of the versions of the modules of the IMACS Firmware created before July 2003. The respondents' counsel stated: Having considered those versions, the respondents do not contest that the Pavetest CDAS firmware reproduces a substantial part of those modules. And, accordingly, there being no other issues that are in dispute - or, rather, all other issues from the respondent's perspective raised in defence were moot - liability is admitted for infringement of copyright and breach of confidence in relation to the firmware. 15 Subsequently, senior counsel for IPC Global indicated that IPC Global would seek to have final orders made in respect of the copyright aspect of the firmware part of the case in advance of delivery of reasons on the software part of the case. On the fourth day of the trial (20 October 2016) IPC Global handed up proposed minutes of orders in relation to these matters. It subsequently provided an outline of submissions on 2 November 2016. Before the hearing today, the respondents provided their proposed minutes of orders and a short outline of submissions.

The Court's power to make the orders 16 There is no issue between the parties as to the Court's power to make final orders in respect of the relevant part of the proceeding on the basis of the respondents' admissions. Nevertheless, for completeness I note the following matters. Rule 22.07 of the Federal Court Rules 2011 provides: If a party makes an admission, another party may apply to the Court for any judgment or order to which the party is entitled on the admission. 17 Rule 22.07 replaced Order 18, rule 4 of the Federal Court Rules 1979 which was in the following terms: (1) If an admission is made by a party, whether by a pleading or otherwise, the Court may pronounce any judgment or make any order to which the applicant is entitled on the admission. (2) The Court may exercise its powers under subrule (1) notwithstanding that other questions in the proceeding have not been determined. 18 This wording corresponds to the current wording of the relevant rule in the Uniform Civil Procedure Rules 2005 (NSW), namely rule 17.7. 19 Although the current rule in the Federal Court Rules omits the wording of the former subrule (2), I do not think this was intended to effect a substantive change in the rule. Generally, the aim of the current version of the Federal Court Rules, as introduced in 2011, was not to substantially alter existing practice and procedure but rather to explain it in a way that could be more easily followed and applied: see the explanatory statement to the Federal Court Rules 2011, p 5. The wording of the current rule refers to "any" judgment or order. I think that this supports the view that rule 22.07 embraces the power to pronounce any judgment or make any order notwithstanding that other questions in the proceeding have not been determined. For completeness I note that there would, of course, be power to make an order for the determination of a separate question and then give judgment on that question. But I do not think it is necessary to invoke this power.

Declarations 20 The declarations proposed by IPC Global referred to the IMACS Firmware without specifying particular versions. In contrast, the respondents' proposed declarations frame the orders in terms of version 1.1D (IO Module) and version 1.20 (CPU Module) of the IMACS Firmware. These are the versions that existed before July 2003. The respondents' proposed wording is consistent with the scope of their admission, as discussed above. In the course of discussion, senior counsel for IPC Global indicated that IPC Global was content with this wording provided an order was made for delivery up (or destruction or erasing). As I have indicated, I propose to make such an order. 21 I will therefore make declarations substantially in the terms proposed by the respondents.

Injunctions 22 As with the declarations, a difference between IPC Global and the respondents in relation to the injunctions was whether the orders should refer to the IMACS Firmware generally or particular versions. Again, in the course of discussion, senior counsel for IPC Global indicated that IPC Global was content with the particular versions of the modules being referred to, provided an order for delivery up (or destruction or erasing) was made. 23 Another issue concerning the form of the injunctions was that the respondents proposed omitting the words "reproduction" and "communication" from the form of injunctions proposed by IPC Global. The respondents' counsel explained that the respondents were concerned that the injunction might be taken to apply to reproduction or communication of a part of the CDAS Firmware which may not reproduce any part of the IMACS Firmware. However, the respondents' counsel indicated that, if it was clear that the injunction related to reproduction or communication of the whole of the CDAS Firmware, the respondents did not have a difficulty with the words "reproduction" and "communication" being included. In my view, the injunctions proposed by IPC Global relate to the whole of the CDAS Firmware. Senior Counsel for IPC Global agreed with this. On this basis, I will include the words "reproduction" and "communication" in the injunctions. 24 I will make orders for injunctive relief as earlier indicated.

Order for delivery up or destruction 25 The main issue agitated today was whether any order should be made for delivery up (or destruction or erasing) of copies of the CDAS Firmware. IPC Global proposed such an order; the respondents opposed it. 26 The respondents' submissions were, in substance, as follows: (a) An order for delivery up is ancillary to an order for an injunction, and also discretionary. It is not made to punish the infringer, and its form should not go beyond what is necessary to protect the owner of the relevant intellectual property right. This reflects that property in an infringing product nonetheless vests in the infringer: see Streetworx Pty Ltd v Artcraft Urban Group Pty Ltd (No 2) (2015) 110 IPR 544 at [110]; Playgro Pty Ltd v Playgo Art & Craft Manufactory Limited (No 2) [2016] FCA 478 at [27]. (b) Further, "there is no principle which establishes that an infringing product cannot be modified to make it non-infringing, with the non-infringing product then lawfully used for supply" (Streetworx at [116]). Thus, delivery up should not be ordered if the product can be modified to render it non-infringing, by some alteration or the removal of some part (Streetworx at [117] and [124]). (c) Delivery up orders should not be made, or should not be made at this time, in the following circumstances: (i) IPC Global did not seek orders for delivery up in its application; (ii) the injunctive relief, whether granted in broader or narrower form, gives ample protection to IPC Global against further reproduction of the infringing CDAS Firmware; (iii) it could not be suggested that the physical controller of the materials testing equipment could not be rendered non-infringing, for example by removing the electronics in which the CDAS Firmware is embedded and replacing it with non-infringing firmware; (iv) the CDAS Firmware is not of itself a corporeal work, but is a computer program. While that program is admitted to constitute a reproduction of a substantial part of versions 1.1D (IO Module) and 1.20 (CPU Module) of the IMACS Firmware, it does not follow that none of the firmware source code that has been written by Mr Feeley for Pavetest, or the ideas that it embodies, could form part of or be used in a new, and non-infringing, work; (v) an order for delivery up would in any case be premature, as the scope of any delivery up may in part depend on other findings by the Court on liability. 27 In my view, subject to certain exceptions, it is appropriate for an order to be made for delivery up (or destruction or erasing) of copies of the CDAS Firmware. It is conceded that these computer files infringe IPC Global's copyright. In these circumstances, it naturally follows that the infringing computer files should be delivered up or destroyed. 28 However, I consider it appropriate to make two exceptions to this. The first is for the respondents to retain one copy as a reference copy. This can at least be used in the event Pavetest needs to deal with warranty claims, or similar claims or enquiries, from customers to whom it has already sold the relevant products. IPC Global accepted that it was appropriate for such an exception to be made, for this purpose. More contentiously, counsel for the respondents contended that reference should also be permitted so that the respondents could review their firmware with a view to reproducing in new firmware the parts which were created since Pavetest was established. The respondents point out that the development of the CDAS Firmware took some time (as the evidence establishes) and they have created parts of it since the establishment of Pavetest. It was contended that they should not be required to 'start from scratch' but should be permitted to have access to these parts of the firmware. I think this is a matter that requires further consideration and not something that can be conveniently dealt with at this stage of the proceeding. Accordingly, I propose to proceed on the basis that this aspect can be the subject of further submissions following publication of my reasons in relation to the software part of the case, and in conjunction with submissions on the appropriate orders to be made following publication of those reasons. In the meantime, the orders do not preclude the respondents referring to the reference copy in the way that they have indicated they seek to do. 29 The other exception I propose to make concerns contracts for the supply of equipment which Pavetest has already entered into before today. IPC Global submitted that any such carve-out should extend only to contracts of supply entered into before 19 October 2016, the date on which the respondents conceded liability in respect of the firmware part of the case. The respondents sought a carve-out in respect of supply contracts entered into before today. I consider there to be arguments both ways as to whether there should be a carve-out for existing supply contracts and the extent of any such carve-out. It essentially involves weighing vindication of the rights of the copyright owner, the severe effect of a destruction or delivery up order and practical considerations including the effect on third parties who have contracted with Pavetest. In the circumstances, I consider it appropriate for there to be a carve-out relating to contracts of supply entered into by Pavetest before today. 30 For these reasons, I will make an order for delivery up (or destruction or erasing) as indicated earlier in these reasons. 31 I will hear from the parties as to the precise form of the declarations and orders. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moshinsky.

SCHEDULE OF PARTIES NSD 1203 of 2015 Respondents Fourth Respondent: ALEUTA TECHNOLOGY PTY LTD (ACN 104 583 708)