Microsoft Corp v Goodview Electronics Pty Ltd

THE PROCEEDING 2 The application in this matter, dated 19 February 1999, seeks relief by way of permanent injunctions and damages or account of profits for claims under the Copyright Act 1968 (Cth) ("the Copyright Act"), the Trade Marks Act 1995 (Cth) ("the TM Act")and the Trade Practices Act 1974 (Cth) ("the TP Act"). The applicants also seek a specific order under the TP Act which would, among other things, rectify the alleged deception to the public as a result of the conduct of the respondents. The application makes no claim for interlocutory relief. 3 The statement of claim filed by the applicants makes claims under each of the Copyright Act, the TM Act and the TP Act. The first applicant, Microsoft Corporation, a corporation incorporated under the laws of the State of Washington in the United States of America, carries on the business of manufacturing, marketing and supplying computer programs as specified in a schedule attached to the statement of claim ("the computer programs"). The second applicant, Microsoft Pty Limited, an Australian company, is subsidiary of the first applicant, and provides marketing and technical support on behalf of the first applicant in Australia in relation to the first applicant's computer programs. 4 The first respondent is in the business of selling computer programs in North Melbourne, Victoria. The second respondent, was a director of the first respondent who resigned as a director on or around 17 March 1999. 5 The claim under the Copyright Act alleges that the first respondent, without the licence of the first applicant, has in the course of carrying on business and from time to time sold, or offered for sale, and distributed or supplied certain copies of the of the applicants' computer programs in circumstances where the making of those copies constituted an infringement of the first applicant's copyright; and that the first respondent knew or ought reasonably to have known of the above alleged infringement. The statement of claim particularises a number of instances of the sale of CD-ROMs on which a copy of a particular computer program had been allegedly reproduced without the licence of the first applicant. The particulars also allege that the respondents have sold unauthorised copies of the computer programs to persons presently unknown. The applicants claim further, or in the alternative, that the copies of the computer programs supplied by the respondents without the licence of the first applicant are infringing copies within the meaning of the Copyright Act, and in respect of such infringement the first applicant is entitled to the rights and remedies by way of an action for conversion or detention. 6 The claim under the TM Act is based on the allegation that the respondents have, without licence, used the trademark of the first applicant or a mark that is substantially identical with or deceptively similar to the trademark of the first applicant. 7 The claim under the TP Act alleges contraventions of ss 52 and 53 of the TP Act. The applicants claim that in selling and offering to sell allegedly infringing computer programs and products to which the applicants' trademark has been applied, the first respondent has expressly or impliedly represented to purchasers that such items were made by or with the licence of the first applicant, that the first respondent was lawfully entitled to sell such items, and that the purchasers of such items were entitled to use such items. The claim also alleges that the second respondent aided, abetted and procured the above contraventions, or was knowingly concerned in and party to such contraventions. 8 By their defence, the respondents have denied virtually all of the substantial allegations in the statement of claim.

CONSIDERATION 9 As Powell JA, with whom Meagher and Handley JJA agreed, pointed out in Long v Specifier Publications Pty Ltd (1998) 44 NSWLR 545 at 547: "Reduced to its essentials, an Anton Piller order is an order that the defendant to whom, or to which, it is directed, should permit the persons specified in the order to enter upon his, or its, premises, and to inspect, take copies of, and to remove, specified material, or classes of material, indicating, where appropriate, documents, articles or other forms of property. It is an extraordinary remedy, designed to obtain, and to preserve, vital evidence pending the final determination of the plaintiff's claim in the proceedings, in a case in which it can be shown that there is a high risk that, if forewarned, the defendant, would destroy, or hide, the evidence, or cause it to be removed from the jurisdiction of the court. For this reason, such orders are invariably made ex parte." 10 The power of this Court to make an Anton Piller order is to be found in s 23 of the Federal Court of Australia Act 1976 (Cth) ("the FCA Act") (Television Broadcasts Ltd v Nguyen (1988) 21 FCR 34). 11 Section 23 provides: "The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate." 12 Order 25 rules 1 and 2 of the Federal Court Rules provide: "1. In an urgent case, the Court or a Judge may, on the application of a person who intends to commence a proceeding - (a) grant an injunction; (b) appoint a receiver, or (c) make an order under rule 2 to the same extent, as if the applicant had commenced the proceeding and the application were made in the proceeding and whether or not the party against whom relief is sought has been given notice of the application. 2(1) In a proceeding concerning any property, or in a proceeding in which any question may arise as to any property, the Court or a Judge may make orders for the detention, custody, preservation, or inspection of the property. (2) An order under sub-rule (1) may authorise any person to enter any land or to do any other thing for the purpose of giving effect to the order. (3) [not here relevant]." 13 Although the power of the Court to make an Anton Piller order is now beyond doubt it is a power which will only be exercised in exceptional circumstances. As Lee J observed in Television Broadcasts Ltd v Nguyen at 38: 'The grant of an Anton Piller order is a peremptory and severe interference with the ordinary rights of a party when it is done without the support of any binding judgment and care must be taken to see that the order is only granted in appropriate cases and with due safeguards: "First, there must be an extremely strong prima facie case. Secondly, the damage, potential or actual, must be very serious for the applicant. Thirdly, there must be clear evidence that the defendants have in their possession incriminating documents or things, and that there is a real possibility that they may destroy such material before any application inter partes can be made." (Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 per Ormrod LJ (at 62))." 14 See also Gianitsios v Karagiannis (1986) 7 IPR 36 and EFG Australia Ltd v Kennedy (unreported, Supreme Court of NSW, Bryson J, 2 August 1995). 15 In the present case, the circumstances in which the applicant moved ex parte for an Anton Piller order were highly unusual. The notice of motion seeking the order was filed more than two months after the institution of the proceeding, and two weeks after the filing, by solicitors acting on behalf of the first respondent, of a notice of appearance and a defence. 16 By its defence the first respondent has pleaded that it is registered as a member of the first applicant's program for distribution of genuine Microsoft OEM (Original Equipment Manufacturer) products and that it has purchased for resale the first applicant's products from authorised distributors. The defence includes the following paragraph: "The first respondent purchased for resale the first applicant's products from its authorised OEM Product Distributors, KTX Technology (or from its related company Edge Computers, as directed by KTX Technology) and from Tech Pacific. The first respondent believed and had reasonable grounds for believing that the products it purchased from the said authorised OEM Product Distributors were Genuine Microsoft OEM products. Particulars of Purchase Orders and Invoices are in the possession of the first respondent's solicitors and may be inspected by prior appointment." 17 The applicants took up the offer to inspect the purchase orders and invoices referred to in the first respondent's defence. They did so against the background that before this proceeding was instituted, and again shortly after the institution of the proceeding, persons acting on behalf of the applicants had purchased from the first respondent "counterfeit" Microsoft product such as mice and "Windows 95" programs. What the applicant saw when they inspected the purchase orders and invoices caused them concern. 18 The purchase orders and invoices provided to the applicants for inspection showed, amongst other things, that the price that the first respondent had been charged by authorised distributors for "Windows 95" was higher than the price at which the first respondent had sold apparently counterfeit "Windows 95" to persons acting on behalf of the applicants. There was also reason to think that the first respondent's turnover of relevant products was higher than could be accounted for by reference to the purchase orders and invoices made available for inspection. Moreover, the applicants' evidence was that the first respondent had sold to persons acting on behalf of the applicants, products that could readily be identified as counterfeit "Windows 95". Despite a wide monitoring system operating over many years, the applicants were not aware of any of their authorised distributors selling counterfeit products. 19 I accept that the evidence presently before the Court demonstrates that the applicants have a strong prima facie case for final relief against the respondents. 20 On the issue of actual or potential damage to the applicants, I accept that the applicants stand to lose significant revenue as a result of activities generally which infringe the intellectual property rights of the first applicant. However, the issue for present purposes is not infringing activities generally but the alleged unlawful activities of the respondents. An employee of the second applicant gave affidavit evidence as follows: "The unauthorised copying and distribution of Microsoft Programs also poses a threat to the business viability of legitimate dealers in Microsoft Programs in Australia. Their continued survival is essential to Microsoft's effective marketing of the Microsoft Programs in Australia. Of equal concern to Microsoft is the effect which the distribution of unlicensed copies of Microsoft Programs will have on users of licensed copies. Microsoft may be forced to provide advice and support to users of unlicensed copies in order to protect their reputation and goodwill in the Microsoft Programs. This results in a deterioration in the quality of service provided to legitimate users as the inability to anticipate the need for technical support services means those support services are stretched to their limit by users of unlicensed products. Further, those services are not supported by sales of licensed copies of the programs. A further undesirable consequence of the distribution of unauthorised software is the risk that unauthorised copies of software may contain errors or a "virus". A "virus" is a computer program which can result in the loss or distortion of valuable data and computer records of anyone who uses the unauthorised program. In my experience it is common for unauthorised copies of the Microsoft Programs distributed on 'burnt' or 'cut' CD-ROMs to have been made from unauthorised copies available through such [sic] as private bulletin board systems. Frequently the unauthorised copies are infected with a virus which subsequently resides on the CD-ROM. Microsoft may be blamed for the effects of the virus, resulting in damage to Microsoft's goodwill. Further, when end-users are not provided with genuine disks containing a copy of the relevant Microsoft Program, they are unable to re-install the program when necessitated by a system malfunction of "crash", often resulting in frustration and an adverse impact on Microsoft's reputation and goodwill." 21 It is, I think, open to a judge of this Court to take notice of the facts, first, that the first applicant is a very large corporation which distributes products throughout the world, and secondly, that the applicants have instituted a number of proceedings in this Court similar in nature to this proceeding. Although it was not ultimately necessary for me to reach a concluded view on whether the applicants had sufficiently demonstrated very serious actual or potential damage, I incline to the view that the evidence of actual or potential damage placed before the Court may, by reason of its generality, have been insufficient to justify the making of the order sought. 22 As is mentioned above, it is highly unusual for an Anton Piller order to be sought after a proceeding has been commenced and the initiating documents served upon the respondents. Indeed, I am not aware of any case in which an Anton Piller order has been made in such circumstances. I see no reason to doubt that s 23 of the FCA Act is sufficient to give the Court power to make an Anton Piller order in such circumstances. The issue, in my view, is one of the appropriate exercise of the Court's discretion. 23 Although, on the evidence before the Court, I was satisfied that it is likely that the respondents had in their possession material which would support the applicants' case, and be inconsistent with the defence filed on behalf of the first respondent, I was not satisfied on 23 April 1999 that the evidence before the Court supported a finding that there was a real possibility that the respondent might destroy such material before an application inter partes could be made. First, if the respondents were minded to destroy evidence in their possession, they had had by 23 April 1999 adequate time in which to do so, having been placed on notice of the applicants' suit against them some weeks before. Secondly, the first respondent was represented in this Court by a firm of solicitors. In my view, it was appropriate to assume that such solicitors would have provided advice to the first respondent as to its obligations with respect to discovery and generally. 24 The applicants founded their application, not on the basis that there was a high risk that the respondents might destroy evidence, but on the basis that there was a high risk that they might hide evidence or remove it from the jurisdiction. The only material before me upon which I might have been satisfied that there was a high risk of that happening is the evidence that the respondents had made available to the applicants for their inspection a collection of documents which would appear to have been incomplete. That is, that there was strong reason to believe that the purchase orders and invoices referred to in the defence of the first respondent, which were made available for inspection by the applicants, provide an incomplete record of the respondents' acquisitions of product relevant to this proceeding. 25 I was not satisfied that the above material was sufficient to support a finding that there was a high risk that the respondents might hide evidence or remove it from the jurisdiction. In a sense the situation was similar to a case in which a party is shown to have made inadequate discovery. Although regrettable, it is the case that it is not uncommon for litigants to fail to comply fully with orders for discovery. Rarely does this prove to be because they have hidden evidence or removed it from the jurisdiction. Ultimately I was not satisfied that the manner in which the first respondent had deployed the purchase orders and invoices referred to in its defence provided evidence of a high risk that the respondents might hide evidence or remove it from the jurisdiction. 26 It is probably appropriate that I record my suspicion that the concern of the applicants with respect to the documentation of the respondents is not so much that it may not become available to be placed in evidence in this proceeding, but that they may not be able to inspect it for the purpose of identifying whether or not there are other persons against whom they might institute proceedings. As Bryson J observed in EFG Australia Ltd v Kennedy, the caution with which courts have entertained applications for Anton Piller orders has increased, rather than diminished, as their experience with such orders has increased. The Court must, in my view, be careful to avoid the extraordinary jurisdiction of the Court to make an Anton Piller order from being subverted to a mere investigatory tool for applicants or indeed, from being used for any purpose other than the preservation of vital evidence pending the hearing and determination of a proceeding. 27 I also consider it appropriate to record my views with respect to one aspect of the Anton Piller order actually sought in this case. The minutes of order prepared on behalf of the applicants did not provide for the appointment of an independent solicitor to serve and supervise the execution of the order and subsequently to file with the Court a report on its execution. The applicants proposed the giving of certain undertakings by the applicants or their legal representative. 28 Federal Court Practice Note No 10 concerning Anton Piller orders provides in paragraph 2: "It is desirable that the order and all relevant Court documents be served, and execution of the orders supervised, by a solicitor other than a member of the firm of solicitors acting for the applicant. Alternatively, the applicant may be required to give an undertaking that independent legal advice will be made available to the occupier of the premises to which the order relates before the order is executed. The solicitor supervising execution of the order will be required to prepare a written report about the execution of the order and a copy of that report will be required to be served on the respondent and presented to the Court as soon as practicable." 29 Although Practice Note No 10 recognises the possibility of an undertaking being given with respect to the provision of independent legal advice as an alternative to the appointment of an independent solicitor, that alternative procedure will, in my view, be an appropriate one in only limited circumstances. 30 In nearly all cases it will, in my view, be desirable for a supervising solicitor, with experience in the execution of orders of this kind, to be appointed (see Universal Thermosensors Ltd v Hibben [1992] 1 WLR 840 at 861). The service of the order by the supervising solicitor, a neutral appointee of the Court, should assist in ameliorating the shock likely to be experienced by the occupier of premises when the order is served. Further the supervising solicitor will then be in a position: (a) to give immediate and independent advice to the occupier as to the significance of the order;

(b) to ensure that the occupier has an appropriate opportunity to obtain his or her own legal advice should he or she so desire; (c) to mediate any dispute as to whether any particular member of the applicant's search team is an unsuitable member of the team on the basis, for example, that he or she might derive commercial advantage from an inspection of the premises; (d) to ensure the proper protection of privileged documents (if any); (e) to attempt to achieve agreement on a suitable search procedure; (f) to assess whether items or documents come within the terms of the court order and, in the case, of doubtful material, to ensure its safe keeping pending an order of the Court; (g) to ensure that an appropriate list is prepared of all items or documents to be removed from the premises; and (h) generally to assist in the smooth execution of the order. 31 Whilst the appointment of an independent solicitor will involve the applicant in expense (which may or may not ultimately be recoverable from the respondent), it is interesting to note that it has been experienced in England that much, if not all, of that expense tends to be saved by the more expeditious and smooth execution of the order (see Tony Willoughby, "The Role of the Supervising Solicitor" (1999) 18 CJQ 103). 32 For the above reasons I refused to make the Anton Piller order sought by the applicant on 23 April 1999. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Branson.

Associate: Dated: 4 June 1999 Counsel for the Applicant: Mr R. Cobden

Solicitor for the Applicant: Mallesons Stephen Jaques