The Reasons of the Primary Judge
176 The primary judge introduced the judgment with a helpful overview of the matter. The proceeding concerned claims of copyright infringement under ss 36 and 38 of the Copyright Act 1968 (Cth) (Copyright Act), of misleading or deceptive conduct in contravention of s 18(1) of the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL), and of trade mark infringement under s 120(1) of the Trade Marks Act 1995 (Cth) (TM Act), arising from certain dealings alleged in relation to the computer software known as Windows 7, copyright in which is owned by Microsoft Corporation (Microsoft). The applicants (the Microsoft Parties) alleged that the third respondent, CPL Distribution Pty Ltd (CPL Distribution), supplied to the first respondent, CPL Notting Hill Pty Ltd (CPL Notting Hill), "loose" certificates of authenticity (COAs) for Windows 7, those COAs being intended by Microsoft for use in connection with refurbished computers pre-installed with Windows 7, but which CPL Notting Hill allegedly affixed to new computers on which it pre-installed copies of Windows 7 without authority, and then supplied those computers to end users: [2]. The Microsoft Parties alleged that the respondents (the CPL Parties) variously did, and authorised the doing of, the resultant acts which they alleged constituted copyright and trade mark infringements, and misleading or deceptive conduct: [2]. The alleged acts comprised: first, conduct alleged in relation to some 30 or up to 44 occasions, of which 30 occasions were largely admitted; and second, conduct alleged in relation to some 1,617 (the pleaded case being "on at least 1,467") alleged occasions, which was denied and vigorously contested, central to which were the documents defined below as the Chen Invoices, and evidence concerning or relating to that material (defined below as the Chen Related Material): [3].
177 The first of the copyright infringement cases arose from the admitted conduct of CPL Notting Hill in the period July 2015 to 16 December 2015 of custom building and supplying to order to end users 30 new computers pre-installed with Windows 7 Pro and on each of which a loose COA (that is, a COA not packaged in the same packaging with media containing a copy of Windows 7 for installation) was affixed, which COAs were intended by Microsoft for use with refurbished computers (the Retail Case). The CPL Parties acknowledged that the 30 COAs affixed to those new computers were part of a purchase of 50 COAs and Windows 7 Pro installation disks made by CPL Distribution on 9 June 2015 (the June 2015 Purchase). The CPL Parties' evidence was that 15 COA labels and some installation disks were returned to the supplier on 13 January 2016, and that five were lost or stolen. The Microsoft Parties, however, did not accept as complete the CPL Parties' concession of 30 installations arising from the June 2015 Purchase, and relied on a purchase on 13 November 2015 of a new computer pre-installed with Windows 7 Pro and to which a loose COA was affixed (the Affixed COA Label), built to order and supplied by CPL Notting Hill (the Test Purchase Computer): [6]. The Microsoft Parties contended that by that conduct, CPL Notting Hill infringed copyright in Windows 7 (making unauthorised reproductions and supplying infringing articles), and that it also authorised infringement by end users of the new computers supplied with Windows 7 pre-installed and on which COAs were affixed (that is, the end users' use of the software): [7]. The Microsoft Parties further contended that the second respondent, Ms Li, authorised CPL Notting Hill's reproduction of Windows 7 in infringement of copyright: [7]. The Retail Case thus concerned admitted conduct in relation to 30 new computers, and also encompassed claims concerning sales alleged to have been made to two businesses trading respectively as Alpine Tech Computing (Alpine) and AV2PC.
178 The Microsoft Parties also ran a second and larger case in which they alleged that the Chen Invoices showed that CPL Distribution acquired and supplied some 1,467 loose COAs to CPL Notting Hill in the period 1 August 2014 to 8 January 2016, that CPL Distribution was not licensed to supply the loose COAs, and that it must be inferred from the Chen Invoices that CPL Notting Hill then dealt with those COAs in the same manner as the admitted conduct in the Retail Case by affixing those loose COAs allegedly acquired to new computers pre-installed with Windows 7 which it built to order and supplied to end users (the Supply Case): [9]. The Microsoft Parties alleged that the provision of loose COAs to CPL Notting Hill necessarily resulted in the substantial reproduction of Windows 7, and CPL Distribution authorised CPL Notting Hill's reproduction of Windows 7 in infringement of copyright: [9]-[10]. The Microsoft Parties further alleged that having regard to the acts of CPL Distribution as shown in the Chen Invoices, the fourth respondent, Mr Wang, authorised the doing of acts in infringement of the copyright in Windows 7: [10]. The primary judge noted that the pleaded allegation against CPL Distribution that it supplied 1,467 loose COAs to CPL Notting Hill encompassed the 50 COAs comprised in the June 2015 Purchase, in respect of which the CPL Parties admitted 30 subsequent pre-installations of Windows 7 on new computers and their supply to end users. To that extent, the primary judge noted that the Supply Case intersected with the Retail Case against CPL Notting Hill and Ms Li but said that there was otherwise no allegation pleaded against CPL Notting Hill of pre-installation or supply of the alleged 1,467 unlicensed copies of Windows 7, or authorisation of that conduct by Ms Li: [11]. The primary judge referred to the submission by the Microsoft Parties that it was asking the Court to infer that for each loose COA bought by CPL Distribution there was a copy of Windows 7 installed, and Microsoft accepted that it was conceivable that there was a small amount of loss or wastage, so to fix on an exact number at or between 1,467 and 1,617 would be to strive for unnecessary exactitude: [12].
179 The primary judge noted that the conduct alleged under each of the Retail Case and the Supply Case gave rise to each of the copyright case, the ACL case, and the trade mark case: [13]. The Microsoft Parties sought declarations, permanent injunctions, and compensatory and additional damages in the order of $2.5 million plus interest and costs: [14].
180 By way of overview of the CPL Parties' response, the primary judge noted that they denied any infringement of copyright, trade marks or contravention of the ACL, and all claims of authorisation: [15]. In relation to the Retail Case, the CPL Parties admitted 30 pre-installations following the June 2015 purchase, defensively called in aid the terms of the Microsoft system builder licence then applying to CPL, and its End User Licence Terms (EULA), and relied on Microsoft's activation of the copies of Windows 7 thereby permitting use by end users, which use had not been de-activated. They also pleaded reliance on the temporary reproduction and incidental use provisions under ss 43B and 47B of the Copyright Act, and if infringement were established, raised a positive defence under s 115(3) of the Copyright Act of innocent infringement. In relation to the trade mark claims, the CPL Parties raised a defence under s 123 of the TM Act. The primary judge referred to the argument by the CPL Parties that the Supply Case was not maintainable, in that it relied on inadmissible and unreliable evidence having no probative value, namely the Chen Invoices and the Chen Related Material, and could not succeed: [17]. The primary judge referred also to the submission by the CPL Parties that the Supply Case necessarily depended on the Court rejecting other business records of CPL which were not the subject of any fraud allegation, and were supported by the evidence of the CPL Parties' witnesses: [17]-[18]. The primary judge said that central to the Microsoft Parties' case was their contention that the CPL Parties had engaged in dishonest conduct in flagrant disregard of the Microsoft Parties' intellectual property rights, and in particular mounted a vigorous and sustained attack on Ms Li's credibility: [19]. The primary judge referred to the allegations by the Microsoft Parties that the CPL Parties' witnesses had crafted a "web of deceit", and that the CPL Parties had actively concealed, altered and destroyed evidence in the proceeding in an attempt to minimise any identified infringement: [19]. The primary judge referred to the absence of any allegation along those lines in the pleading by the Microsoft Parties, and referred also to the submission by the CPL Parties that such serious allegations should have been pleaded: [20]-[21]. I will return to that issue later in dealing with the principal grounds of appeal.
181 Having provided that overview, the primary judge identified the parties to the proceedings. The first applicant, Microsoft, being a company incorporated under the laws of the state of Washington, United States of America, was the owner of the copyright in various versions of computer programs comprising the Windows operating system: [22]. It was also the registered owner of six Australian registered trade marks: [24]. The second applicant, Microsoft Pty Ltd, was a wholly owned subsidiary of Microsoft which supplied Microsoft products and services in Australia, and was an authorised user of the trade marks: [25]. The third applicant, Microsoft Regional Sales Corporation (Microsoft Sales) was a corporation incorporated under the laws of the state of Nevada, United States of America, and was a wholly owned subsidiary of Microsoft, which operated an online retail store in Australia for the distribution of Microsoft products through the retail channel: [26]. The primary judge said that the Microsoft Parties alleged that Microsoft Sales had an exclusive licence from Microsoft to resell Microsoft computer programs in Australia through the retail channel, but excluding programs distributed and licensed by Microsoft through the original equipment manufacturer (OEM) channel.
182 The first respondent, CPL Notting Hill was a retailer of computers and parts and built and sold new computers in response to customers' orders, sometimes pre-installed with a Microsoft Windows operating system, including at the relevant time Windows 7. It was an OEM "system builder", carrying on business online and from retail premises in Notting Hill, Melbourne: [28].The second respondent, Ms Li, was at all material times the sole director of CPL Notting Hill. The third respondent, CPL Distribution, was a computer parts wholesaler which bought computer parts and software from third party suppliers, and despatched those goods to CPL Notting Hill and others: [30]. CPL Distribution's warehouse was located next to CPL Notting Hill's retail premises in Melbourne: [30]. The primary judge said that the evidence established that the warehouse distribution and retail businesses of CPL Distribution and CPL Notting Hill respectively employed people having distinct roles and responsibilities, although the two companies shared some staff, and CPL Notting Hill employed sales, technical and accounting staff: [31]. The fourth respondent, Mr Wang, was at all material times the sole director of CPL Distribution, and a company associated with Mr Wang was the sole shareholder of CPL Notting Hill: [32]. The primary judge referred to CPL Notting Hill and CPL Distribution together as CPL or the CPL companies.
183 The primary judge then outlined some of the procedural history of the matter. The proceedings were commenced on 13 May 2016 against CPL Notting Hill and Ms Li by reference to the invoice of 11 November 2015 for the Test Purchase Computer (which was collected on 13 November 2015). On 7 September 2017, CPL Distribution and Mr Wang were joined, the Retail Case was expanded and the Supply Case was introduced: [35]. A hearing had taken place before what was then the Federal Circuit Court of Australia on 27 to 29 August 2018 and judgment was given ex tempore on 29 August 2018. On 5 February 2019, O'Callaghan J sitting as the Full Court of the Federal Court allowed an appeal, set aside the orders which had been made on 29 August 2018 and remitted the matter for re-hearing: CPL Notting Hill Pty Ltd v Microsoft Corporation (No 2) [2019] FCA 223. The matter was then heard by the primary judge in August and December 2019 and judgment was given on 30 September 2022. The primary judge said the following at [40]-[41] on the subject of delay:
It is obvious that I have taken considerable time to deliver these reasons. My reasons have been delayed through the lockdowns of the Covid-19 pandemic, and into 2022 by the reality and consequences of those lockdowns and the events in the period since the conclusion of the hearing, by the complexity of the proceeding, and the manner and content of the presentation of the parties' evidence and arguments, and by other unavoidable and other unrelated matters.
The time that has passed, however, has conferred the considerable benefit of a detailed review and consideration of the documentary materials and physical exhibits, and the written and oral evidence with the benefit of the complete transcript, my contemporaneous notes and recollection, the parties' lengthy written submissions, oral submissions, and supporting materials and aides memoire. Because of the passage of time, I have placed somewhat more weight on the written evidence as augmented by the transcript of the hearing. The cross-examination of the various CPL parties' witnesses did not disturb in any significant way the positions taken by the witnesses in their affidavits.
The primary judge then added at [43]:
My conclusions on all the witnesses' evidence and their credit (in the case of CPL witnesses) arises from careful attention to their written evidence, and their oral evidence in chief and under cross-examination, augmented by the transcript, and aided by my contemporaneous notes, my distinct recollections of witnesses in the witness box, specifically, the CPL parties' witnesses.
184 For completeness, I note that legislation restricting movement and gathering due to the Covid-19 pandemic in New South Wales operated from 31 March 2020 until 29 August 2021, to varying degrees of restriction, but throughout that period the relevant orders permitted people to leave their place of residence if the person could not work from their place of residence or was undertaking a legal obligation, and excluded gatherings at a court or tribunal: see, for example, the Public Health (COVID-19 Restrictions on Gathering and Movement) Order 2020 (NSW), cll 5 and 6, Items 2 and 11 of Sch 1 and Item 7 of Sch 2. However, the important question (which I deal with below in relation to Grounds 1 and 2) is not the reason or reasons for the delay in delivering judgment, but the effect of that delay on the decision-making process.
185 The primary judge conducted a detailed review of the pleadings and submissions at [44]-[119]. In the course of that review, the primary judge said that there was no express pleaded allegation of primary infringement of copyright by CPL Notting Hill in respect of the alleged supply of the 1,467 loose COAs pleaded in relation to the Supply Case: [58]. The primary judge said that the Supply Case pleaded against CPL Distribution necessarily depended on establishing primary acts of infringement by CPL Notting Hill, in that there cannot be an act of authorisation done without an act of primary infringement, and a secondary infringement is completed only when the primary infringement has taken place, referring to Roadshow Films Pty Ltd v iiNet Ltd [2012] HCA 16; (2012) 248 CLR 42 at [94] (Gummow and Hayne JJ) and Apotex Pty Ltd v Les Laboratoires Servier (No 2) [2012] FCA 748; (2012) 293 ALR 272 at [27] and [30] (Bennett J): [59]. That pleading point was also made in the introductory overview at [11]. I will return to that question later.
186 As a separate matter, the primary judge referred to the assertion by the CPL Parties that the Supply Case (and the claim for additional damages) made by the Microsoft Parties was an unpleaded fraud case (the Unpleaded Fraud Case), which could not be entertained in the absence of it having been pleaded: [99]-[100]. The primary judge referred to the Microsoft Parties' response that they did not have to plead and particularise fraud as part of a copyright infringement claim, as it was not an element of any cause of action on which they relied: [102]. Reference was made to the submission by the Microsoft Parties that it was open for Microsoft to assert that the CPL Parties, and persons on their behalf, had engaged in the destruction or concealment of documents for the purposes of avoiding discovery obligations, and the fabrication of documents for the purposes of the proceeding, and that they had complied with the rule in Browne v Dunn (1894) 6 R 67: [103]-[104]. The primary judge rejected the Microsoft Parties' submissions on this point: [105]-[119]. Her Honour accepted that concealment, dishonesty, fabrication and destruction, or fraud were not necessary elements of a cause of action for copyright infringement, or for trade mark infringement, but expressed the view that fraud need not be a separate cause of action and that it was the contention of the Microsoft Parties that those matters were relevant to her Honour's determination of their claims on liability and were foundational to their claims for additional damages: [112]. The primary judge said that the Microsoft Parties prosecuted a positive case of alteration, destruction and concealment of CPL's business records, and of fabrication of CPL's business records, as well as fabrication of the witnesses' accounts: [113]. The primary judge took the view that they were allegations which had to be pleaded. The primary judge said at [114] that the Microsoft Parties' case required the Court not merely to disbelieve the CPL Parties' evidence about certain documents and events, but to affirmatively find that:
(a) the Chen Invoices were authentic, accurate, and able to be relied upon as to the truth of their contents;
(b) the CPL/LDS Invoices (being invoices purportedly given by LDS International Pty Ltd (LDS) to CPL Distribution) and associated stock receive forms were false records created by witnesses for the CPL Parties;
(c) data that would have corroborated the Chen Invoices was deliberately concealed during discovery by fabricating a computer system crash, and that the third party data recovery efforts were either not done or were part of the CPL Parties' fabrication; and
(d) each of the CPL Parties' witnesses was part of a collusive effort to fabricate, tamper with and conceal records.
187 Turning to the Chen Invoices and Chen Related Material, the primary judge said that the Chen Invoices were among documents produced by the Commissioner of Victoria Police in the period 10 April 2017 to 11 July 2017 pursuant to a subpoena issued at the request of the Microsoft Parties on 20 February 2017 (the Microsoft Subpoena). The Chen Invoices comprised: (a) 19 invoices (and versions of those 19 invoices) purportedly created by a convicted fraudster, Mr Chen, whilst in his role as the sales representative of the computer product supplier LDS (the Chen (LDS) Invoices); and (b) five other invoices (and versions of those invoices) purportedly created by Mr Chen in the name of the company Ever Success Pty Ltd (Ever Success), a company owned by his partner's parents: [125] (the Chen (Ever Success) Invoices). In relation to the 19 Chen (LDS) Invoices, there was a version of them that contained printed text but was otherwise clean, and a corresponding version with the same invoice number as the clean version but on most of which there was some handwriting. The primary judge also referred to the Chen (LDS) invoices as comprising the Chen (LDS/laptop) invoices and the Chen (LDS/manila) invoices, being references to the sources identified by Sgt O'Sullivan in her 3 April 2018 statement: [127]. The five Chen (Ever Success) Invoices comprised one version of five invoices that contained printed text but were otherwise clean, and another version of one (or possibly two) of those five invoices, one of which had handwritten markings on it: [128]. The primary judge referred to the Chen (Ever Success) Invoices as comprising the Chen (ES/print) invoices and the Chen (ES/search) invoices: [128]. Sgt O'Sullivan was the officer investigating Mr Chen's wrongful activities, culminating in the sentencing of Mr Chen on 1 June 2017: [143]. The primary judge recorded that Sgt O'Sullivan confirmed the factual account given by the sentencing judge in the reasons on sentencing Mr Chen in Director of Public Prosecutions v Chen [2017] VCC 735, a copy of which was admitted in evidence without restriction: [145].
188 The primary judge referred to the witnesses who gave evidence at the hearing at [139]-[167].
189 The primary judge then dealt with Microsoft's supply and licensing system for Windows 7. In the relevant period, Microsoft had two main sales and distribution channels for Windows 7 in Australia:
(a) OEM channels, through which computer manufacturers and computer assemblers pre-installed Windows 7 on new computers they manufactured or built, or had manufactured for them, including under their own brand, or pre-installed Windows 7 on second-hand computers refurbished by or for them, each of which OEM computers were then sold to resellers or end users; and
(b) retail channels, comprising the physical store operated by Microsoft Pty Ltd, the Microsoft online store, and independent resellers and retailers which offered for sale a copy of Windows 7 either on an installation disk or other medium, or via download online, for the end user to then install on their own computer: [169].
190 In relation to the OEM channel, Microsoft supplied and licensed Windows 7:
(a) under "direct" OEM licences to multi-national OEMs which have a global distribution, sales and marketing presence and corresponding sales volumes, which pre-installed Windows 7 on new computers using a master copy of Windows 7 code supplied by Microsoft, and affixed a separately supplied Windows 7 COA onto each of those computers, and sold the new computers with Windows 7 pre-installed and with a COA sticker;
(b) to "commercial" OEMs under "system builder licences" which pre-installed Windows 7 using a copy of Windows 7 copied from a recovery DVD or other medium such as a disk, and affixed to the computer a Windows 7 COA, which media and COA were supplied to these OEM entities together in a "system builder pack", and like the direct OEMs, the commercial OEMs sold new computers with Windows 7 pre-installed and stickered with a COA; and
(c) to "refurbishers" under either a direct Microsoft Authorised Refurbisher or a Registered Refurbisher licence, depending upon volumes, and like the OEMs under direct OEM licences, the refurbishers used master copies of Windows 7 code to install the software, and affixed a separately supplied COA to each refurbished computer. The COAs supplied to refurbishers were identified for refurbished computers only.
In relation to the retail channel, Microsoft supplied and licensed Windows 7 to end users under an end user licence agreement (EULA). Those end users acquired a copy of Windows 7 on physical media, such as a USB storage device, or could download it from the Microsoft online store, and then installed and activated the copy on their computer. Retail copies of Windows 7 were supplied in plastic "shrink wrap" packaging.
191 A COA is a physical label or sticker with Microsoft anti-counterfeiting features: [176]. It has depicted on its face a unique 25-digit alphanumeric sequence known as a product key, which is used in the process of validating and activating a copy of Windows 7 that has been pre-installed on a computer: [176]. The COA labels in issue in the proceeding were approximately 7 cm by 2.3 cm in size: [176]. In the relevant period, Microsoft and its Authorised Replicators (which manufactured the COAs) distributed COAs both with and without an accompanying OEM copy of Windows 7: [177]. Microsoft distributed COAs separate from an OEM copy of Windows 7, being what were referred to as "loose" COAs, to direct OEM licensees and their authorised third party installers, and to refurbishers licensed as described above, under Microsoft's refurbisher program. The primary judge referred to the evidence of Mr Noble, who was responsible for Microsoft's intellectual property enforcement in Australia, that "loose" COA labels may have been stolen or leaked from an Authorised Replicator, direct OEM or Microsoft Authorised Refurbisher, or may have been forged and printed with a product key leaked by persons with access to them (for example, by an employee of a licensee that was in possession of product keys through a volume licensing licence): [177]. A COA itself was not a licence or permission to use Microsoft software such as Windows 7: [178]. In the relevant period, a product key was used to "activate" the copy of Windows 7 installed on the hard drive of the computer, but it was not mandatory to activate the copy of Windows 7 installed on the computer in order to use it: [178]. The product key and the activation process were used by Microsoft to verify that each copy of Windows was installed by an end user on no more than the limited number of computers that were permitted under an EULA: [179]. In respect of Windows obtained through a system builder pack, the product key associated with that copy of Windows permitted a limited number of activations of Windows: [179].
192 For a computer to operate, it must be installed with an operating system, which is necessary to control and manage the computer hardware and software resources such as word-processing, media player, accounting software, and web browsers. In the relevant period, Windows 7 was one such operating system: [180]. Once Windows 7 was installed onto the hard drive or solid state drive of the computer, the steps of set-up and activation would be undertaken, and it was at the activation stage that the product key would need to be used: [183]-[184].
193 The primary judge referred to the CPL companies having had a long history of purchasing system builder packs from Microsoft's authorised distributors in Australia: [201]. Since 2004, CPL Notting Hill's predecessor business, and since 2007, CPL Distribution, had been members of Microsoft's system builder program. It was not in dispute that CPL Notting Hill was a "commercial" OEM business or system builder, and that for many years, including throughout 2014 and 2015, in the ordinary course of its business it purchased from CPL Distribution several thousand Windows 7 system builder packs which it installed on new computers it built and supplied to order: [202]. It was also not in dispute that CPL Distribution purchased from Microsoft's appointed resellers and distributors and supplied to CPL Notting Hill those Windows 7 system builder packs: [202]. The primary judge found that the CPL companies did not deal with copies of Windows 7 Microsoft supplied through the retail channel: [202].
194 The primary judge found that the Windows 7 system builder packs used by CPL Notting Hill comprised a white cardboard envelope printed in black and white and sealed with a red sticker, inside which was a white envelope with a clear window containing the Windows 7 disk, and on which was a COA label, and the Microsoft Parties made no complaint about the CPL Parties' acquisition and use of Windows 7 system builder packs: [203]. The primary judge found that the CPL Notting Hill sales ledger, and the CPL Distribution copy purchase invoices from OEM suppliers for Windows 7 Pro (OEM Supplier Invoices) established that from January 2014 to September 2016, CPL Distribution purchased 2,236 Windows 7 Pro system builder packs about which the Microsoft Parties made no complaint, and that CPL Notting Hill acquired from CPL Distribution 2,180 such packs which it pre-installed on new computers which it supplied to order or which it supplied as system builder packs to customers to install themselves: [204]. The primary judge found that the CPL Parties consistently replenished their stock of Windows 7 Pro system builder packs in the relevant period to meet ongoing demand: [204]. The primary judge also found that in the period 1 January 2014 to 31 December 2016, Microsoft paid CPL Distribution rebates under its rebate program in respect of 2,345 Microsoft Windows system builder packs that had been purchased by CPL Distribution from three of its authorised OEM distributors in Australia: [205]. The primary judge said that while it was reasonable to assume that payment of rebates lagged purchases, the rebate evidence was consistent with the CPL companies' evidence of the purchases and sales: [205].
195 The primary judge said that it was not in dispute that the copies of Windows 7 pre-installed on the admitted 30 new computers built by CPL Notting Hill (that is, the admitted copies the subject of the Retail Case) were not packaged in system builder packs together with a Windows 7 Pro COA label: [206]. The primary judge said that it was not genuinely in dispute that the copies of Windows 7 pre-installed on new computers by CPL Notting Hill and in issue in the proceeding were genuine Microsoft products: [207]. The primary judge said that CPL Notting Hill did not dispute that the evidence of the "test purchase" of the Test Purchase Computer tended to establish that the 30 COAs it had used in relation to the 30 new computers it admitted it supplied (that is, within the Retail Case) were originally issued under a Microsoft refurbisher program, but said that the CPL Parties denied that they had any knowledge of that program or any knowledge that the COAs were issued under that program: [213].
196 The primary judge then turned to the subject of supplies by LDS and the wrongful activities of Mr Chen. LDS was a supplier of computer parts, hardware and software to CPL Distribution, relevantly in 2014 and 2015, and Mr Chen was LDS's sales representative (also described as a business development manager and responsible for sales of products) who principally dealt with the CPL companies: [216]. Mr Pan was the CPL Notting Hill staff member who primarily dealt with Mr Chen, and did so once or twice a month: [216]. None of the CPL Parties' witnesses said they had any suspicion about Mr Chen or his conduct: [216].
197 In April 2015, Sgt O'Sullivan commenced Operation Astucia, an investigation she conducted into alleged deception and theft committed by Mr Chen: [217]. Sgt O'Sullivan referred to a report by LDS that Mr Chen was generating false invoices of the LDS system to take stock from the warehouse and then selling those items under the guise of being from LDS to customers of LDS and presenting them with fraudulent or falsified invoices: [218]. In 2017, Mr Chen pleaded guilty to four charges of theft, four charges of false accounting and one charge of knowingly dealing with the proceeds of crime, and was sentenced to three years imprisonment with a minimum (non-parole) term of 20 months: [220]. Sgt O'Sullivan verified the facts set out in the reasons of the sentencing judge in Director of Public Prosecutions v Chen [2017] VCC 735 to the effect that Mr Chen's modus operandi was to remotely access LDS's accounting system, concealing his thefts by making unauthorised alterations to its records by reducing the individual items of stock in the inventory stock records and creating false credit notes for products purportedly returned by customers. One of the avenues through which he on-sold the products he stole was via an eBay account through Ever Success, which was owned by his partner's parents and used for his own purposes. He also introduced Ever Success to LDS as a customer: [221]. The falsified invoices created by Mr Chen from his computers and addressed to CPL were not found on LDS's computers or records, and were duplicates of invoices on the LDS system addressed to other customers of LDS: [224]. The primary judge said that there was no pleading that any of the CPL Parties were involved in Mr Chen's criminal conduct, and that there was no evidence that CPL had any involvement in Mr Chen's criminal conduct: [227]. On 29 March 2016, a liquidator was appointed to LDS pursuant to a creditors' voluntary winding up: [229].
198 The primary judge then dealt in detail with CPL's premises, employees and businesses in the relevant period: [230]-[260]. As indicated above, Ms Li was the director of CPL Notting Hill and Mr Wang was the director of CPL Distribution: [246]-[247]. The primary judge accepted Ms Li's evidence that Mr Wang was not involved with CPL Notting Hill's sales operation, and did not give her instructions about CPL Notting Hill in the relevant period, but he did give instructions to CPL Notting Hill staff which related to CPL Distribution in the relevant period, as CPL Notting Hill's staff sometimes did purchasing on behalf of CPL Distribution: [248]-[249]. The primary judge found that Mr Wang was not involved with the daily operation of CPL Distribution, which only had warehouse staff for whom Mr Lu was the supervisor, and it was only if something very abnormal happened that they would check with Mr Wang: [249]. From about 2009 until late 2016, Mr Pan was employed by CPL Notting Hill as a senior manager in charge of daily operations, in charge of the technical area and sales areas: [250]. Mr Pan was responsible for purchasing hardware and software on behalf of CPL Distribution, which was then sold to CPL Notting Hill for use in its retail business: [251]. Since 2013, Mr Guo had been employed by CPL Notting Hill full-time as a computer technician, and was the main person who assembled computers to order and who repaired computers for CPL Notting Hill, and reported to Mr Pan: [252]. Since 2008, Mr Lu had been the senior warehouse manager and supervisor, and was responsible for receiving and despatching stock on behalf of CPL Distribution, and for undertaking stocktakes: [253]. Until September 2015, Mr Lu was assisted by Mr Xu, and since then had been assisted by Mr Godby: [254].
199 The primary judge found that the usual procedure for receiving goods, dispatch, building computer systems and invoicing was as follows:
(a) the supplier delivered the goods to the warehouse receiving area, usually accompanied by the supplier's invoice or delivery document;
(b) the goods received were checked by a warehouse staff member against an internal purchasing order opened and viewed electronically in the system;
(c) the goods were checked against the supplier's invoice/delivery documents as to item, unit and total prices, and quantities;
(d) when they had been physically checked, the goods were input into the system by keying the goods, like the product codes, into the system, or as from September 2015 by scanning the barcodes and serial number;
(e) during his employment, Mr Xu's practice when he saw the supplier's invoice in the course of receiving goods was to copy it, check the goods were right, then return the original invoice back to the supplier or delivery person, and keep a copy for the company. He generally signed both invoices, the original and copy. If everything was fine, then the receiving staff member issued a receipt; and
(f) the warehouse's receipt of goods did not involve payment, and the warehouse staff did not have any role in payments or paying suppliers, which was done by the sales office. Similarly, the warehouse staff's role in dispatch was to bring the product to the specific area (the retail and sales side). Warehouse staff did not know what customer sales was doing: [256].
200 The primary judge found that on occasion Mr Chen attended the warehouse and asked Mr Xu to re-sign invoices for deliveries made a few days earlier, which Mr Xu did, saying that this was not the usual practice: [257]. The primary judge said that on occasions Mr Xu omitted to sign the supplier's invoices/delivery documents, and also found that when asked to sign an invoice for previously delivered goods, Mr Xu believed he was able to remember what goods he had received a day or so earlier: [257].
201 The primary judge said that throughout the relevant period the sales staff were not permitted to go into the warehouse area without permission, except for Mr Pan, but warehouse staff were able to go into the sales area: [258]. Mr Guo, the technician who primarily assembled the computer systems ordered by customers, was not allowed to go into the warehouse area: [259].
202 CPL Notting Hill generated an invoice for a customer's purchase, and that invoice served as the picking list for the warehouse: [260]. The warehouse staff picked the parts and software out of the stock held in the warehouse and delivered the picked stock to the technical area for assembly or to the sales area, that is, to CPL Notting Hill: [260]. The invoice was the sales invoice that the customer then received and paid: [260].
203 The primary judge then dealt with the June 2015 Purchase, comprising 50 loose COAs and disks. On 9 June 2015, CPL Distribution purchased 50 COA labels and disks for Windows 7 from LDS for a total cash price of $3,850.00, as evidenced by a tax invoice dated 9 June 2015: [261]. Mr Pan made the purchase for CPL Distribution, and Mr Chen represented the seller of the goods to be LDS, and the invoice was signed by Mr Chen: [261]. The June 2015 Purchase was of loose COA labels and disks, not system builder packs. The CPL Parties said that it was the only purchase of Windows 7 loose COA labels and disks by a CPL company: [262]. The primary judge accepted the evidence of Mr Pan to the effect that Mr Chen had said several days earlier that LDS was in financial difficulty and was running a sale and said that he had a limited quantity of genuine Microsoft Windows 7 Pro licences to sell under cost for cash on delivery: [263] and [283]. When Mr Chen came to Mr Pan's office at CPL Notting Hill on 9 June 2015, he produced a bundle of 50 separate COA labels as well as a box or bag with Windows 7 disks, which was different from the usual packaging of the Microsoft Software in a white cardboard envelope inside which there was another envelope that contained the disk and on that envelope there was a licensed sticker: [265]. Mr Chen assured Mr Pan the COA labels were genuine and that this was just one of the ways that Microsoft distributed its product keys: [265]. The disks seemed to Mr Pan to be genuine, and the same as those in the OEM system builder packs: [265]. After Mr Pan saw that the June 2015 Purchase was different (not being OEM system builder packs), and while Mr Chen delivered the goods to the warehouse to be received into stock, Mr Pan changed the stock codes for Windows 7 electronically in the manner referred to below, to distinguish between OEM stock received (that is, in a system builder pack), and the stock now received from LDS: [267].
204 The primary judge accepted the evidence of each of CPL's witnesses (Messrs Pan, Godby, Xu, Lu and Guo) that they had never seen refurbisher COA labels in CPL's stock; that is, COA labels expressly marked with the words "for refurbished PCs only" or an abbreviation of those words: [282]. The primary judge said that there was no evidence that CPL's witnesses were aware of Microsoft's refurbisher channel before CPL Notting Hill received Microsoft's letter of demand of 8 January 2016, and there was no evidence from any of the CPL witnesses that they had specific knowledge of any of Microsoft's licence terms for Windows 7: [282].
205 The primary judge then dealt with the merger of stock codes by Mr Pan on 9 June 2015. The primary judge referred to Mr Pan's evidence to the effect that commonly CPL imported the stock descriptions and stock codes from suppliers by downloading file contents or the descriptions and product codes from the supplier, with the result that more than one product code could represent the same product: [285]. Mr Pan's evidence (referred to at [286]) was that since 2009 (when he commenced employment) and prior to 9 June 2015, there were the following eight stock codes for Windows 7 software in the stock database:
(a) SOF-MS-W7PCOA with the description of Microsoft Windows 7 Professional COA Label Only (No Media);
(b) SOF-MS-W7P/64B with the description of Microsoft Windows 7 Professional OEM 64bit;
(c) SOF-MS-W7PCOA32 with the description of Microsoft Windows 7 Professional 32bits COA Label Only (No Media);
(d) SOF-MS-W7P/32B with the description of Microsoft Windows 7 Professional OEM 32bit;
(e) SOF-MS-W7H64COA with the description of Microsoft Windows 7 Home Premium 64bits COA Label Only (No Media);
(f) SOF-MS-W7H/64B with the description of Microsoft Windows 7 Home Premium OEM 64bit;
(g) SOF-MS-W7H32COA with the description of Microsoft Windows 7 Home Premium 32bits COA Label Only (No Media);
(h) SOF-MS-W7H/32B with the description of Microsoft Windows 7 Home Premium OEM 32bit.
206 As Mr Pan said, there were thus two parallel codes in the stock database for each of the various versions (32bit and 64bit) of Microsoft Windows 7 software for both Windows 7 Pro and Windows 7 Home: [287]. Mr Pan's evidence was that they both referred to the same product and that there was no difference in substance between the terms "OEM" and "COA": [287]. Mr Pan's evidence was that each of those stock codes was for an OEM product, being a system builder pack in which the COA label and the software disk were packaged together: [288].
207 Mr Pan's evidence was that on 9 June 2015, when he saw that the packaging of the stock which Mr Chen brought in to CPL Notting Hill was "slightly different", in order to remove confusion in the future he decided to merge the codes for the Windows 7 OEM products and put the new packaging under one code: [290]. The primary judge at [294] referred to the effect of Mr Pan's evidence being that on 9 June 2015, whilst Mr Chen was delivering the June 2015 Purchase to CPL Distribution for receiving, Mr Pan reduced the pre-existing four codes for Windows 7 Professional OEM products to the following two codes:
(a) SOF-MS-W7P/64B and description Microsoft Windows 7 Professional OEM 64bit; and
(b) SOF-MS-W7P/32B and description Microsoft Windows 7 Professional OEM 32bit;
and that Mr Pan then added the stock code to designate the June 2015 Purchase (being the product bought from Mr Chen on 9 June 2015) as follows:
(d) SOF-MS-W7COA and description Microsoft Windows 7 Professional COA Label Only (No Media).
208 In response to the proposition put by senior counsel for Microsoft that the previous stock records were "wiped out", Mr Pan said that the system only keeps the most recent data, so that after the merging of the codes, five new codes appeared in the system (being the three codes referred to above for Windows 7 Pro and the corresponding two codes for Windows 7 Home), not the eight old stock codes. However, every document printed from the system thereafter showed the new codes, even where the transaction took place before 9 June 2015 and to that extent the records of pre-existing transactions remained and were not "wiped out", but the stock code and product description accorded those transactions thereafter was one of the two codes and descriptions set out in subparagraph (a) or (b) in the previous paragraph: [295]. Accordingly, the primary judge rejected the Microsoft Parties' proposition that upon the stock code merger pre-existing transactions were wiped out: [295]. I will return to this topic later, but I observe at this point that there is a gap in the primary judge's reasoning, in that the effect of the stock code merger was that one could not tell afterwards what product had been sold before 9 June 2015 because one could not see what had been classified as "COA Label Only (No Media)". The primary judge found that the stock code merger was not a time consuming task, or one attended by any difficulty: [296]. The primary judge accepted Mr Pan's evidence of the stock code merger and its timing and outcome: [297]. The primary judge said that her Honour was not persuaded that the rationale for the stock code merger given by Mr Pan was implausible or unreasonable, nor that it must have taken place at some later time, or was done to hide transactions involving non-OEM supplies of COA labels for Windows 7: [297]. The primary judge noted that the sales ledger produced by Mr Pan on 6 November 2016 disclosed 30 sales of new computers built using product from the June 2015 Purchase, which was consistent with the stock merger having occurred at the time of the June 2015 Purchase rather than later, after the letter of demand of 8 January 2016 or the commencement of the proceeding on 13 May 2016: [298].
209 The primary judge found that in the period from the June 2015 Purchase until 31 December 2015, CPL Notting Hill assembled and sold 30 new computers pre-installed with Windows 7 Pro and to which it affixed a loose COA label from the June 2015 Purchase: [299]. One of those new computers was the Test Purchase Computer ordered on 11 November 2015, to which was affixed the Affixed COA Label: [300].
210 The primary judge then dealt with events in the period from September 2015 to the commencement of the proceedings, and dealt with the submission by the Microsoft Parties that the chronology of the filing of the parties' evidence and making of certain orders made by the first judge in their favour supported a submission that the CPL Parties sought to avoid challenges to the veracity of their assertion that the infringing conduct was limited to the acquisition of 50 "licences" only: [303]. The primary judge said that the chronology did not make good that contention, and that the evidence of both parties revealed that the Microsoft Parties' disclosure of the evidence on which they proposed to rely was made in a partial and piecemeal fashion over the period November 2016 to May 2018, and that it was unsurprising that such a piecemeal disclosure over time contributed to the iterative disclosure of the events and explanations by the CPL witnesses in response: [304]. The primary judge said that her Honour was not persuaded that the CPL Parties' defence was untoward, defiant and obstructionist, or unwarranted, as the Microsoft Parties contended: [304].
211 The primary judge referred to the documents annexed to Mr Ng's affidavit made on 27 July 2017 in support of Microsoft's case, Mr Ng being one of the solicitors acting for the Microsoft Parties. The source of those documents was the production made by Victoria Police in answer to the Microsoft Subpoena: [306]. The first of the documents was a purchase payable list produced by CPL Distribution pursuant to a request by Sgt O'Sullivan of goods purchased from LDS for the period 2 July 2014 to 5 October 2015 (the CPL/LDS Payables List), comprising a list of 114 entries for the period 2 July 2014 to 30 June 2015 (including the June 2015 Purchase) and a list of 16 entries for the period from 2 July 2015 to 5 October 2015: [307]. Sgt O'Sullivan made the request for that list during her visit to CPL Notting Hill's premises on 16 December 2015. The second document was an email dated 4 November 2015 purporting to be from Ms Li to Mr Chen, saying "We have paid cash to Felix [Chen] of Ever success for the following invoices", and then set out the invoice numbers and amounts for five Chen (ES/print) invoices, and the primary judge found that there were no attachments to the email: [310]. The third set of documents were copies of 22 invoices comprised within the Chen Invoices, being 17 Chen (LDS/laptop) invoices (dated in the period 17 July 2014 to 15 June 2015), and five Chen (ES/print) invoices (dated in the period 30 June 2015 to 17 August 2015). The proposition in Mr Ng's affidavit was that those 22 Chen Invoices evidenced that CPL Notting Hill had purchased Microsoft 7 Pro and Microsoft 7 Home licences in the period 17 July 2014 to 17 August 2015, totalling 1,467 licences (comprising 1,417 licences in addition to the 50 licences of the June 2015 Purchase): [311].
212 Responding to Mr Ng's affidavit of 27 July 2017, Ms Li said that in early November 2015, around 2.30 pm or 3.00 pm, Mr Chen came to CPL Notting Hill's retail shop without warning, and asked for Ms Li, who met him. Mr Chen referred to an email that he had sent to a CPL staff member, Jenny Zhang, who had forwarded it to Ms Li. That email asked Jenny Zhang to confirm by filling in various blanks in a draft letter that from June 2015 to August 2015 a CPL company had paid Mr Chen cash for invoices from Ever Success in an amount left blank. Mr Chen asked Ms Li to insert a large number, such as $100,000 to $200,000, in the draft, to which Ms Li responded that she could only provide information relating to actual sales, and could not sign false documents: [314]. Mr Chen then showed Ms Li a draft email on his computer, similar to the 4 November 2015 email, and she looked at the table and the amounts stated: [314]. The primary judge then referred to Ms Li's evidence that she was unaware whether CPL Distribution or CPL Notting Hill had any transactions with a supplier called Ever Success, and left Mr Chen alone in the sales office and went down the corridor to the accounting department to check, and was told by the accounting staff that there had been no dealings ever with Ever Success and returned to the sales office, told Mr Chen and he responded "Never mind" and left: [315]. Ms Li gave evidence that the purported Chen (Ever Success) invoices (the Chen (ES/print) invoices) were never received by the CPL companies, she never sent the 4 November email, and at no time did CPL Notting Hill or CPL Distribution have any business dealings with Ever Success: [315]. Mr Pan, Mr Lu, Mr Xu and Mr Godby gave evidence to similar effect: [317].
213 As to Sgt O'Sullivan's visit to CPL's premises and the production of the CPL/LDS Payables List, on 16 December 2015 on her visit to CPL Notting Hill's premises, Sgt O'Sullivan asked for Ms Li's help with the payables for LDS, Ever Success and FTEV International. Ms Li's evidence was that she responded: "We do have a payable list for LDS, but I have never heard of Ever Success and FTEV International", to which Sgt O'Sullivan responded: "Then, can you please provide me the payable list for LDS?": [320]. Ms Li was not told the reason for the police investigation, and did not ask: [325]. On 24 December 2015, Ms Li sent an email to Sgt O'Sullivan enclosing the CPL/LDS Payables List: [327].
214 On 8 January 2016, the Microsoft Parties' lawyers sent a letter of demand to CPL Notting Hill, alleging that CPL Notting Hill's actions in installing and selling the Microsoft Windows 7 Pro program installed on the Test Purchase Computer infringed Microsoft's copyright, and foreshadowing the relief available should court action be initiated: [328].
215 The primary judge said that by the letter of demand, CPL Notting Hill was put on notice that Microsoft identified the COA label affixed to the Test Purchase Computer (that is, the Affixed COA Label) as a label issued under Microsoft's refurbisher program, but not the visual appearance of a COA label so issued under that program: [330]. Upon receipt of the letter of demand, CPL identified that Affixed COA Label as stock forming part of the June 2015 Purchase: [330].
216 CPL Notting Hill responded to the letter of demand by email on 22 January 2016 from Ms Li. Mr Pan said that after receiving the letter of demand, he was instructed by Mr Wang to send the June 2015 Purchase back to LDS and seek a refund, and at that time CPL had 15 licences remaining which were unsold and in its possession: [332]. Mr Chen collected those 15 remaining licence labels and the several installer CDs of Windows 7 Pro, and gave a cash refund in the amount of $1,155: [334]. There was no evidence of any other loose COA labels or disks in CPL's warehouse: [336]. Ms Li gave evidence to similar effect: [338]-[340]. Ms Li also said that she discussed with Mr Chen the LDS situation and Mr Chen said that the police needed copies of invoices and that to save Ms Li time, Mr Chen said that he would give her all of the hard copy invoices, and then provided a yellow manila folder of copy LDS invoices: [344]-[345]. On 18 January 2016, Ms Li received an email from Sgt O'Sullivan thanking her for the CPL/LDS Payables List sent on 24 December 2015, and requested copies of 15 invoices referred to in that list: [346]. Ms Li said that on about 25 January 2016, she looked through the invoices in the yellow manila folder and scanned the 15 requested invoices and emailed them to Sgt O'Sullivan that day: [347]. Those invoices included some of the Chen (LDS/manila) invoices and the LDS June 2015 Invoice: [347]. Ms Li said at the time she did not contemplate that the invoices Mr Chen had provided to her in the yellow manila folder were different from the actual copy invoices that CPL had retained and thought that the invoices provided were for the actual goods purchased from LDS as part of its usual business records: [348]. The primary judge accepted Ms Li's evidence that she focused on the dates and invoice numbers sought by Sgt O'Sullivan, and not on the product descriptions: [350]. Ms Li handed copies of further Chen (LDS/manila) invoices to the police in May 2016: [351]-[352]. Ms Li gave evidence that it was only after reading Sgt O'Sullivan's statement dated 16 April 2018 that Ms Li realised that the invoices that Mr Chen had provided in hard copy were not the correct invoices that truly identified the goods that CPL purchased and received from LDS, and said that she was shocked to see that she had honestly and in good faith supplied Sgt O'Sullivan with what now appeared to be false invoices that had been provided to her by Mr Chen: [353]. Ms Li gave evidence that at the time she provided Sgt O'Sullivan the 15 invoices, and the further 11 invoices in May 2016, she was not aware that Mr Chen was under investigation for criminal activity and did not suspect that he could have given her a bundle of false invoices in the yellow manila folder: [354]. The Microsoft Parties issued a notice to produce in June 2018 for production of the yellow manila folder, but no such folder was produced: [355]. The primary judge then said that: "Beyond a general puttage [sic] that Ms Li was lying, there was no cross-examination about the folder and its contents or their number": [355]. I note at this point that the primary judge did not refer to the limits which her Honour placed on Ms Li's cross-examination, which I refer to below in relation to Grounds 3, 4 and 5.
217 The proceedings were commenced in May 2016, and until about September 2017, the Microsoft Parties alleged a single incidence of copyright infringement, relying upon the Test Purchase Computer, pre-installed with a copy of Windows 7 Pro and to which was affixed the Affixed COA Label: [373]. Consistently with the CPL companies' response to the letter of demand on about 22 January 2016 and their defence thereafter, Mr Pan swore that CPL Notting Hill had supplied 30 "licences" installed with new computers from the June 2015 Purchase (that is, the admitted 30 instances of the Retail Case), and said that CPL Notting Hill had never before engaged in any kind of copyright or trade mark infringement: [374]. In response to the first judge's orders for production of a schedule quantifying the number and price of sales by CPL Notting Hill of Windows 7 Pro up until 7 September 2016, Mr Pan made an affidavit on 7 November 2016 annexing the sales ledger: [375]. The Microsoft Parties contended that the sales ledger misdescribed at least nine "No Media" software sales as sales of a PC with OEM software and media, relying on CPL Notting Hill sales invoices to Alpine and AV2PC of sales made in 2014 and 2015. The primary judge said that those invoices were first disclosed in Mr Ng's affidavit made in June 2017: [376]. In respect of sales to Alpine, the Microsoft Parties subsequently filed an affidavit of Mr Purcell dated 28 March 2018. Mr Purcell's business, Alpine, was an IT services business that bought pre-assembled computers, and typically sold about 20 computers a year. One of the companies from which Alpine bought computers was CPL Notting Hill: [377]. The Microsoft Parties relied on four invoices annexed to Mr Purcell's affidavit (dated 28 February 2014, 12 March 2014, 11 April 2014, and 29 June 2015) of sales made by CPL Notting Hill to Alpine of new computer systems pre-installed with Windows 7 Pro, noting that the 2014 Alpine invoices pre-dated the first of the Chen Invoices. Each of the four Alpine invoices listed the Windows 7 software with the stock code "SOF-MS-W7PCOA" and the product description "Microsoft Windows 7 Professional COA Label Only (No Media)": [379]. Mr Purcell took photographs of COA labels affixed to two computers at an unidentified third party site, one of them referring to Windows 7 Pro "for Refurb PCs": [381].
218 The Microsoft Parties submitted that the Alpine invoices showed that the Windows 7 Pro pre-installed on the new computers supplied to Alpine had the same description as appeared on the invoice for the Test Purchase Computer of "COA Label Only (No Media)" and that CPL Notting Hill supplied Alpine with four new computers affixed with loose Windows 7 Pro COAs (that is, non-OEM versions of Windows 7 Pro) on dates prior to the June 2015 Purchase, and by reference to the Alpine invoice of 29 June 2015, on six new computers affixed with loose Windows 7 Pro COAs on 29 June 2015, after the June 2015 Purchase: [389]. The Microsoft Parties submitted that that showed that the sales to Alpine in the Alpine invoices in 2014 and 2015 were all of non-OEM copies of Windows 7 Pro; that is, from the refurbisher channel, and not system builder packs: [389].
219 The Microsoft Parties submitted that Mr Pan's account that the pre-stock merger codes (COA or OEM) were for the same product, namely OEM products, was implausible, pointing to a difference in pricing between the products which were differently described, and the only plausible explanation for Mr Pan merging the stock codes was to conceal all sales and purchases of COA label only Windows 7 products, that is, non-OEM versions of Window 7 Pro prior to the merger: [390]-[391]. The primary judge also noted here that "This was not the subject of cross-examination", but in my view that must be taken to be a reference to the lack of cross-examination about the price differential between differently described products. Mr Pan was cross-examined extensively about the stock code merger (T386.16-430.34), including the proposition that his evidence was absurd (T415.4-13).
220 The primary judge was not satisfied on the evidence that the Alpine invoice of 29 June 2015 was what the Microsoft Parties claimed it to be, namely for the pre-installation of copies of Windows 7 Pro and six loose COAs for Windows 7 Pro (intended by Microsoft for its refurbisher channel) on six new computers, and the sale to Alpine of those six new computers so pre-installed: [396]. Further, the primary judge was not satisfied that the Alpine invoice of 29 June 2015 related to Windows 7 Pro products pre-installed by CPL Notting Hill from the June 2015 Purchase: [397]. The primary judge said that her Honour was not able reasonably to infer from Mr Purcell's evidence that CPL Notting Hill installed non-OEM versions of Windows 7 Pro (that is, copies of Windows 7 Pro and loose COAs not bundled in a system builder pack) on any of the computer systems referred to in the four invoices issued to Alpine: [398].
221 In addition, the Microsoft Parties relied on five CPL Notting Hill invoices to AV2PC for new computers installed with Windows 7 Home dated in the period 24 April to 27 October 2014. The primary judge noted that the Microsoft Parties did not adduce evidence from the purchaser, or any customer or end user: [400]. The primary judge accepted the evidence of Mr Pan that the sales to AV2PC were of OEM products despite the Windows 7 code or description on the invoices appearing as "COA": [401]-[402]. Accordingly, the primary judge was not persuaded that CPL supplied to AV2PC anything other than Windows 7 OEM products: [402].
222 The primary judge then dealt with an incident in 2017 causing the loss of data: [407]-[425]. The primary judge set out the evidence given by the CPL Parties to the following effect. On 21 November 2017, at approximately 6.07 pm the CPL Notting Hill premises suffered a mains electricity power outage or power surge, and staff were unable to log onto the data server at the premises. Staff called Ms Li, who arrived at the premises at approximately 6.15 pm, and observed that the premises were dark. Once the power supply electrical surge trip switch was re-set, electricity was restored at about 6.20 pm, but staff were unable to log on to the data server operated by CPL Notting Hill at the premises, and sales staff had to use a physical invoice book and manually write out invoices: [407]. In her discovery affidavit of 21 December 2017, Ms Li attested that the electronic documents enumerated in Schedule 2 were no longer accessible, following a mains electricity supply outage, but expressed optimism that the electronically stored records would be recovered, and the hard drive and back up drive had been delivered to a third party supplier of the accounting system for recovery. The primary judge noted that Ms Li's written evidence referred initially to the causative event being a mains electricity supply outage, but subsequently it was described as a power surge: [409]. The steps taken to recover the data were unsuccessful. Mr Pan installed a new hard drive and imported the stock codes by downloading them from CPL's website and staff manually input the stock levels taken from the latest stocktake: [413]-[414]. Mr Pan and several staff spent until quite late the next morning manually typing in stock levels, and the business was ready to resume on 22 November 2017: [416]. Mr Pan said that the only things that existed after the fix were the product codes and the stock levels, nothing else: [418]. On 1 December 2017, the damaged hard drive was sent to Mr Chang of Digifield Technology, and the backup drive was also sent to Mr Chang on 21 December 2017. On 8 January 2018, Mr Chang informed Ms Li that he was unable to recover and restore any information: [419]. On 22 January 2018, Ms Li emailed Mr Chang asking him to provide an affidavit for the data recovery result, and to return the hard disks, but on 23 January 2018 Mr Chang said that he had already disposed of the hard disks, as he normally did directly when the process was completed, whether or not the data was recovered "unless the customer tells us they need to keep their device before we start the work": [420].
223 The primary judge referred to the submission by the Microsoft Parties that the CPL Parties' version of events was false, and was designed to minimise and prevent verification of the quantum of infringement, against the background that the CPL Parties knew that they were going to lose their appeal from the first judge's interlocutory orders relating to discovery: [421]. The primary judge noted that the application for leave to appeal had been on foot for several months but the hearing was yet to occur (although her Honour did not observe that the hearing was scheduled for only three days later on 24 November 2017), and was not limited to appealing discovery orders: [421]. The primary judge was not persuaded by the Microsoft Parties' submissions that any of the timing of the event, or employing different words in describing what happened (as a mains electricity supply outage, an electrical mains power supply failure to the premises, or a power surge), or the steps that were taken to minimise damage to the business and recover from the data loss, or who did or did not give evidence on the event, demonstrated that the loss of power and the effect on the data server and back up was a deliberate act done to destroy or render inaccessible the CPL companies' electronic records: [423]. The primary judge found that a chance power surge occurred at the CPL premises, which caused disruption to the database server and data loss, and that genuine efforts were made to recover the data which were unsuccessful: [425].
224 The primary judge then referred to the CPL/LDS Invoices, being 19 invoices that the CPL Parties had discovered that CPL Distribution received from LDS, with the same invoice numbers and amounts as the Chen (LDS) Invoices, which were for hardware, not Windows 7, and for each of which there was a corresponding stock receive form: [426]. The CPL Parties submitted that those invoices and the stock receive forms were irreconcilable with the Chen (LDS) Invoices, and that they completely destroyed the Microsoft Parties' pleaded Supply Case: [426]. Ms Li located from CPL Distribution's financial records ten of the CPL/LDS Invoices, with numbers corresponding to the Chen (LDS/laptop) invoices, none of those ten invoices being for Microsoft products: [427]. In a later affidavit, Ms Li exhibited a further nine CPL/LDS Invoices, also evidencing purchases of hardware products, and having invoice numbers corresponding to the numbers of the Chen (LDS) Invoices: [428]. Each of the CPL/LDS Invoices was signed with the name Felix (Mr Chen's first name) or an initial squiggle attributed to Mr Chen, each records a handwritten amount received, and 16 of the 19 invoices also had a date handwritten on the invoice: [429]. There were no stock receive numbers recorded on the CPL/LDS Invoices, but the goods description and the details on those invoices corresponded to the CPL stock receive forms which were in evidence: [430]. Each of the CPL/LDS Invoices was initialled or signed by either Mr Lu or Mr Xu, both of whom attested that they signed the documents at the time the goods the subject of the invoices were received: [431].
225 The primary judge then dealt with the Chen Invoices and the Chen Related Material, noting that the Chen Invoices were sourced from documents produced by Victoria Police in answer to the Microsoft Subpoena: [434]. The Chen Invoices comprised documents under 24 invoices numbers, being 19 Chen (LDS) Invoices, and five Chen (Ever Success) Invoices: [436]. The Chen (LDS) Invoices comprised two versions of the 19 numbered invoice documents referred to above as the Chen (LDS/laptop) invoices and the Chen (LDS/manila) invoices: [441]. The Chen (LDS/laptop) invoices were 19 "clean" documents which Sgt O'Sullivan said were extracted from Mr Chen's MSI Laptop seized from his house on 3 September 2015 on execution by Victoria Police of a search warrant (the reference to "clean" meaning that they were unmarked by any handwriting). The 19 Chen (LDS/manila) invoices were selected from the 26 documents which Sgt O'Sullivan stated were requested by police from CPL and provided by Ms Li to them in response to those requests, being documents selected from the 15 documents emailed by Ms Li to Sgt O'Sullivan on 25 January 2016, and the 11 documents Sgt O'Sullivan stated were obtained in May 2016: [446].
226 The primary judge then referred to two more groups of invoices with the same invoice numbers as those of the Chen (LDS) Invoices, being the CPL/LDS Invoices and LDS Invoices to third party customers as recorded in LDS's accounting records (the LDS/Chen (3rd Party) Invoices): [452]-[462]. In addition, the primary judge referred to the Chen (Ever Success) Invoices, comprising five documents in the name of Ever Success and addressed to CPL Distribution for Windows 7 Pro or both Windows 7 Pro and Windows 7 Home "Licenses", being:
(a) five Chen (ES/print) invoices, being 5 "clean" documents with printed text and unmarked; and
(b) two Chen (ES/search) invoices, one of which has the same invoice number as one of the Chen (ES/print) invoices: [463].
227 The primary judge then summarised the parties' submissions on the Chen Invoices, and said the following at [482]-[483]:
Relevantly to the Microsoft parties' pleading, the cornerstone of their supply case is the authenticity and reliability of the Chen invoices. Admitting and accepting as authentic and probative the Chen invoices necessarily depends on the Court rejecting other business records of CPL, not the subject of any fraud allegations, and the consistent, compelling, evidence of the CPL' witnesses, which evidence should be accepted.
The Microsoft parties cannot succeed in their supply case unless the Court finds that CPL staff conspired to create false documents. The Court would need to find that the CPL/LDS invoices for the supply of hardware to CPL Distribution - unchallenged - with the handwritten details I have summarised, and bearing the same invoice numbers and same total prices as the Chen (LDS/laptop) invoices, were fraudulently generated and produced (not pleaded), and that the Chen (LDS) invoices, and the Chen (Ever Success) invoices were hidden.
228 The primary judge concluded that Ms Li's evidence about Mr Chen's visit, the Chen (LDS/manila) invoices, the 4 November 2015 email, and the Chen (Ever Success) Invoices, should be accepted: [484]. The primary judge said that even if the Court were to receive the Chen Invoices as admissible evidence, little or no weight should be attached to them: [485]. As to the admissibility of the Chen (LDS) Invoices, which had been extracted by the police from Mr Chen's MSI laptop seized from his home, the primary judge inferred that they were not business records of LDS and they were drafted by Mr Chen on his laptop in the course of his criminal activities to cover his tracks: [506]-[508]. The primary judge found that the third party invoices which Sgt O'Sullivan identified as recorded in LDS's accounting system (and comprised within the LDS/Chen (3rd party) invoices) were the true LDS Invoices: [506]. Further, the primary judge concluded that no reasonable inference was open that the Chen (LDS/laptop) invoices were received by CPL Distribution, or stored in a record system belonging to or kept by or for CPL: [510]. Accordingly, the primary judge held that the Chen (LDS/laptop) invoices were not business records of LDS or CPL, and were not admissible: [511]. The primary judge held further that those invoices were not evidence that the CPL companies acquired loose Windows 7 COAs on 19 occasions in the numbers appearing on the documents: [512].
229 Turning to the Chen (LDS/manila) invoices, the primary judge said that for the reasons set out in relation to the Chen (LDS/laptop) invoices, her Honour considered that no reasonable inference was open that the documents were made, issued or kept by or on behalf of LDS for the purposes of its business, or that of CPL Distribution as its customer: [515]. However, the primary judge admitted those documents into evidence on the basis that when Ms Li provided them to Victoria Police, she arguably represented that the documents were business records of CPL: [517]. The primary judge then said that her Honour was not satisfied that the Chen (LDS/manila) invoices were authentic, and said that they were so unreliable that they had no testimonial value and accorded them no weight: [519].
230 The primary judge accepted the CPL Parties' argument on the case pleaded that both sets of invoices could not stand as authentic, genuine invoices, and concluded that the CPL/LDS Invoices were genuine: [525]. The primary judge said that given that CPL Notting Hill had required Mr Chen on behalf of LDS to take back the balance of the June 2015 Purchase following Microsoft's letter of demand and to give a refund, it was reasonable that when delivering the manila folder a few days later, a copy of the LDS invoice for the June 2015 Purchase would be intermingled with other documents included in the manila folder documents: [527]. The primary judge accepted Ms Li's evidence that the documents were given to her by Mr Chen for the specific purpose of responding to police requests for the purpose of their investigation, and were provided to the police in response to those specific requests: [528]. The primary judge concluded that, even apart from her Honour's finding that the CPL/LDS Invoices were genuine, her Honour was not satisfied that the Chen (LDS/manila) invoices were authentic, or that they were what the Microsoft Parties claimed them to be: [528]. The primary judge found that those invoices were not evidence that the CPL companies acquired loose Windows 7 COAs on 19 occasions in the numbers appearing on the documents: [529].
231 Turning to the Chen (Ever Success) Invoices, and dealing first with the Chen (ES/print) invoices, the primary judge found that no reasonable inference was available from the content of those invoices that they were business records of Ever Success or CPL Distribution: [532]. Further, the primary judge accepted Ms Li's explanation of the communication of the 4 November 2015 email from her email address, and her disclaimer that the email was from her or was her form of expression: [533]. The primary judge concluded that those emails were not authentic and were inherently unreliable and held that they were not admissible: [535].
232 Dealing with the Chen (ES/search) invoices, the primary judge admitted one of those two documents but held that it was a forgery, and rejected the other document as inadmissible: [536]-[542].
233 The primary judge concluded that the Microsoft Parties could not make out any case based on the Chen Invoices, there being insufficient evidence from which her Honour could reasonably be satisfied on the civil standard that the CPL companies, or either of them, acquired loose Windows 7 COAs in the numbers claimed by the Microsoft Parties under the Supply Case: [544]. The primary judge then said the following at [545]:
In reaching my conclusions on the Chen invoices, I have not limited my consideration to the pleaded case. For the purposes of weighing up and reaching my findings on the evidence I have assumed the counterfactual that the Microsoft parties' allegations fall within the ambit of the case pleaded in the Claim. As I have found that the Chen (LDS/manila) invoices have no testimonial value and can be accorded no weight, and I have not admitted the other purported invoices sought to be relied on by the Microsoft parties, which in whole are encompassed by the term Chen invoices, I have not assessed the Chen invoices, or any of them, on the ground whether or not their claimed relevance falls to be considered within or falls outside the pleaded case. The issue of the relevance of the Chen invoices to the pleaded case does not arise given the conclusions I have reached on the Chen invoices and each version of those documents. The supply case fails at the evidentiary stage, and apart from the limitations of the pleaded case.
I note that that passage did not refer to the limitations placed by the primary judge on the cross-examination of the CPL Parties' witnesses, being a limitation imposed by reason of the primary judge's approach to the pleaded issues (as I discuss below in relation to Grounds 3, 4 and 5).
234 The primary judge dealt with the balance of the Chen Related Material, saying that it followed from her Honour's conclusions on the Chen Invoices that the Chen Related Material was irrelevant and should be rejected: [551]-[552].
235 The primary judge then dealt with the credit of the CPL Parties' witnesses and said that her Honour had formed "a clear impression of each of the witnesses' demeanour and manner in giving evidence and under cross-examination, and aided by the transcript, and my notes, recall that impression": [554]. The primary judge concluded that each of the CPL Parties' witnesses gave clear, consistent and credible evidence, which was corroborated by the documentary evidence: [555]. Her Honour was not persuaded that the witnesses (or any two or more of them) colluded to fabricate their accounts, or documents, or to conceal purchases of loose Windows 7 COAs and installation disks, or sales of such Windows 7 products pre-installed on new computers supplied by CPL Notting Hill in the relevant period, or supplied as loose COAs: [556]. As I discuss in relation to Grounds 3, 4 and 5, they were matters on which the primary judge did not permit the Microsoft Parties to cross-examine fairly and effectively.
236 As to Ms Li, the primary judge found Ms Li to be a believable witness and accepted her evidence: [562]. The primary judge said the following at [561]:
A successful attack on Ms Li's credit is central to the Microsoft parties' case (see for example, above at [19]). Ms Li to subject to fierce and sustained cross-examination. On the key issues on which she was cross-examined my impressions of Ms Li at the time she was giving her oral evidence was that she was telling the truth. I found her explanations of her interactions with the police, with Mr Chen, and with Mr Liu, and her dealings in the documents plausible and credible, and consistent with her accountancy background and her role and duties at CPL Notting Hill and the chronology of events. I am not persuaded that she was lying, or was dishonest or deceitful. I am not persuaded that Ms Li fabricated key parts of her evidence or documents or hid or destroyed documents.
However, as I note in relation to Grounds 3, 4 and 5, they were matters on which Ms Li's cross-examination was curtailed by the primary judge's rulings.
237 The primary judge returned to the stock code merger at [570]-[581], recording the Microsoft Parties' submission that Mr Pan was lying, and that the stock code merger did not take place on 9 June 2015 but took place later, after the CPL Parties were on notice of Microsoft's allegation that the Test Purchase Computer had been pre-installed with an unauthorised copy of Windows 7 Pro, after the proceeding commenced or later, in order to avoid properly complying with the first judge's 7 September 2016 order, and that the stock code merger was done deliberately to hide evidence that would show a year later than the June 2015 Purchase that the CPL companies dealt in the numbers posited in the Supply Case: [570]. The primary judge said that if the stock code merger was done sometime in 2016 for concealment, then an elaborate process of merger of codes and post-merger item by item identification of the 30 transactions using the stock from the June 2015 Purchase, overwriting of the merged codes and reallocation of the code SOF-MS-W7COA and stock description to those transactions had to be done in order to produce the sales ledger, or alternatively some painstaking transaction by transaction alteration of codes, over a thousand times, but excepting the 30 admitted supplies: [578]. The primary judge said that those scenarios were fanciful in the extreme, had not been pleaded and were not put to any witness, and attributed a deceit, degree of connivance and level of sophistication not apparent in the evidence or demeanour of any of the CPL witnesses: [578]. The primary judge repeated her Honour's finding that Mr Pan made the stock code merger and code changes as and when he stated in his evidence, namely on 9 June 2015, and for the reasons he said, and that Mr Xu received the June 2015 Purchase stock into the system after Mr Pan had made the stock code merger and code changes as he attested: [581].
238 The primary judge then dealt with findings as to the number of loose Windows 7 COA labels in the CPL warehouse in the relevant period. Her Honour said that apart from the 15 loose COA labels and disks returned to Mr Chen, purporting to represent LDS, there was no evidence of any other loose Windows 7 COA labels or disks in CPL's warehouse in 2014 or 2015 or thereafter: [596]. The primary judge referred to the evidence of each of Messrs Lu, Xu, and Godby (the warehouse staff), and Messrs Pan and Guo (sales and technical staff) that the June 2015 Purchase was the only instance of loose COA labels they ever saw at the CPL premises: [596]. The primary judge said that no relevant "on the ground" employee witness of CPL was omitted, and that if in the relevant period the CPL companies dealt in the order of 1,467 loose Windows 7 COA labels, with or without Windows 7 installation disks, the employee witnesses would have noticed: [600] and [604]. The primary judge said that in light of the fact that the Court had accepted the evidence of the CPL employee witnesses and not made adverse credit findings about them, the Court could not then find that the CPL Parties engaged in the infringing conduct alleged in the Supply Case: [605]. The primary judge concluded that the Microsoft Parties had failed to make out the supplies of loose Windows 7 COA labels they claimed in the Supply Case, and it followed that the Microsoft Parties' allegation that it must be inferred that CPL Notting Hill dealt with each of those additional loose COA labels by affixing them to new computers on which it pre-installed a copy of Windows 7, and then sold those new computers to end users, or that it sold the loose COA labels for third parties to affix, cannot succeed: [620]. Accordingly, the primary judge said that the Microsoft Parties' submissions that CPL Notting Hill infringed Microsoft's copyright in Windows 7 by any conduct, or on any occasion other than the conduct or occasion arising from the 30 pre-installations, need not be further considered: [621].
239 The Microsoft Parties' allegations against CPL Notting Hill in respect of copyright infringement that remained for determination were allegations of unauthorised reproduction by the 30 instances of pre-installation (infringement under s 36(1) of the Copyright Act), the sale of those 30 new computers (infringement under s 38 of the Copyright Act), and the authorisation of the reproduction of Windows 7 Pro from data storage to RAM on those 30 new computers by the purchasers (infringement under s 36(1) of the Copyright Act) (the 30 relevant instances): [622]. Those allegations were within the Retail Case. The primary judge noted that in relation to the acts of primary infringement of copyright by CPL Notting Hill for the 30 relevant instances, and thence authorisation liability of CPL Distribution, the elements for establishing copyright infringement of the doing in Australia of an act comprised in the copyright in respect of the copyright work or a substantial part of the work, were not in issue in the proceeding, and the dispute turned on whether the conduct was without Microsoft's licence: [626]. The primary judge concluded that the reproduction by CPL Notting Hill of Windows 7 Pro onto the hard disks of the 30 new computers CPL Notting Hill built and to which it affixed loose COAs acquired by CPL Distribution in the June 2015 Purchase, was done without the licence of Microsoft: [629]-[649]. As to the allegation of infringement by the sale of articles pursuant to s 38(1) of the Copyright Act, the primary judge concluded that the Microsoft Parties failed to make out that case, in that they had not established that CPL Notting Hill knew or ought to have known that the process of pre-installation of Windows 7 Pro on the new computers in the 30 relevant instances and then sale of the computers amounted to an infringement of copyright: [660]-[666].
240 The primary judge then dealt with the allegation by Microsoft that CPL Notting Hill authorised the reproduction of Windows 7 Pro onto the data storage and the subsequent reproduction from data storage to RAM on their new computers by the end users in each of the 30 relevant instances, further infringing the Microsoft's copyright in Windows 7 Pro under s 36(1) of the Copyright Act: [667]. The primary judge rejected that submission on the basis that Microsoft had sole control over activation, and in the 30 relevant instances had activated the end user's copy of Windows 7 Pro and affirmatively granted permission to the end user to reproduce Windows 7 Pro into and from RAM on their computer in the course of their use of the computer: [670]. Accordingly, the end user's conduct was authorised by Microsoft upon activation, and it followed that CPL Notting Hill did not infringe copyright by authorising the authorised reproductions of Windows 7 Pro: [670].
241 The primary judge then dealt with Microsoft's authorisation cases to the effect that if there were primary infringements of copyright established by:
(a) CPL Notting Hill, then Ms Li was liable for copyright infringement because she authorised CPL Notting Hill's conduct;
(b) CPL Notting Hill, then CPL Distribution was liable for copyright infringement because it authorised CPL Notting Hill's conduct; and
(c) CPL Distribution, then Mr Wang was liable for copyright infringement because he authorised CPL Distribution's conduct: [672].
As the primary judge noted at [625] it was not in contest that to the extent that primary infringement was established against CPL Notting Hill, CPL Distribution was liable for authorising that conduct: [673]. The primary judge rejected the authorisation cases against Ms Li and Mr Wang on the basis of insufficient proof of knowledge and involvement by either of them in the conduct constituting copyright infringement: [674]-[691].
242 The primary judge then considered the CPL Parties' reliance on the defence of innocent infringement under s 115(3) of the Copyright Act: [692]-[701]. The primary judge held that such a defence was not made out, in that in the circumstances of the June 2015 Purchase, CPL Notting Hill (and Mr Pan on behalf of CPL Distribution) could have and reasonably should have made further inquiries of the OEM suppliers who had supplied Windows 7 system builder packs to CPL Distribution prior to the June 2015 Purchase by reference to the OEM supplier invoices: [701].
243 As to compensatory damages pursuant to s 115(2) of the Copyright Act, the primary judge assessed damages on the basis of a lost licence fee, that is, the opportunity to charge a fee in respect of the supply of the equivalent number of system builder packs as they established had been infringed, namely the 30 relevant instances. The primary judge said that the lost licence fee should be determined net of rebates, being an amount of US$85.45 per relevant instance: [711]. The primary judge was not satisfied that it was appropriate to award additional damages pursuant to s 115(4) of the Copyright Act or s 126(2) of the TM Act: [737].
244 As to the allegation by the Microsoft Parties of a contravention of section 18(1) of the ACL, the primary judge found that none of the pleaded alleged representations arose, and thus the ACL claim failed: [755]. As to the trade mark claims, the primary judge found that the CPL Parties had made out their defence under s 123(1) of the TM Act by reason of the trade mark having been applied to, or in relation to, the goods with the consent of the registered owner of the trade mark: [771]-[777].
245 By a separate judgment given on 6 December 2022, the primary judge declined to award injunctive relief, quantified the amount of compensatory damages pursuant to s 115(2) of the Copyright Act as AU$121.50, awarded pre-judgment interest from commencement of the proceeding on 13 May 2016, and made orders as to costs: Microsoft Corporation v CPL Notting Hill Pty Ltd (No 8) [2022] FedCFamC2G 1033.