Microsoft Corporation v Ezy Loans Pty Ltd - [2004] FCA 1135 - FCA 2004 case summary — Zoe

CTHFCA

Microsoft Corporation v Ezy Loans Pty Ltd

[2004] FCA 1135

Federal Court of Australia|2004-09-02|Before: Stone J

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Source facts

Court

Federal Court of Australia

Decision date

2004-09-02

Before

Stone J

Source

Original judgment source is linked above.

Judgment (59 paragraphs)

[1]

THE COURT ORDERS THAT: 1. In these orders, terms defined in the annexure to these orders shall have the meanings set out in that annexure; 2. Judgment be entered for the applicants against the first and second respondents jointly in the sum of $70,000 being: (a) $20,000 for damages for infringement of copyright pursuant to s 115(2) of the Copyright Act 1968 (Cth) (b) $50,000 for additional damages for infringement of copyright pursuant to s 115(4) of the Copyright Act 1968 (Cth). 3. In addition judgement be entered for the applicants against the second respondent in the sum of $520,625 being: (a) $220,625 for damages for infringement of copyright pursuant to s 115(2) of the Copyright Act 1968 (Cth) (b) $300,000 for additional damages for infringement of copyright pursuant to s 115(4) of the Copyright Act 1968 (Cth). 4. The respondents and each of them, whether by their servants, agents or otherwise, be permanently restrained from: (a) Reproducing or authorising the reproduction of the whole or a substantial part of any of the Microsoft Programs without the licence of the first applicant; (b) Selling, offering for sale, supplying, offering to supply or distributing any Infringing Microsoft Program; (c) Selling, offering for sale, supplying, offering to supply or distributing any Incomplete Microsoft Program; and (d) Authorising, directing or procuring any other company or person to engage in any of the conduct sought to be restrained by the orders in subparagraphs (a), (b) and (c) of this order. 5. The respondents deliver up on oath within 7 days, each infringing Microsoft Program and any equipment used to make any such infringing copy in the possession, power, custody or control of the respondents or any of them. 6. The respondents and each of them, whether by their servants, agents or otherwise, be permanently restrained from infringing the Microsoft Trade Marks by: (a) manufacturing, procuring the manufacture of, importing, purchasing, selling, offering to sell, supplying, offering to supply or distributing any Infringing Microsoft Product; and (b) authorising, directing or procuring any other company or person to engage in any of the conduct sought to be restrained by sub-paragraph (a) above. 7. The respondents deliver up to the solicitors of the applicants on oath all Infringing Microsoft Products and any equipment used or intended to be used for making Infringing Microsoft Products in the possession, custody or control of the respondent or any of them. 8. The first respondent, whether by its servants, agents or otherwise, be permanently restrained from representing in trade or commerce to persons to whom the first respondent supplies or offers to supply any Infringing Microsoft Programs, Incomplete Microsoft Programs, or Infringing Microsoft Products: (a) that the first respondent is lawfully entitled to supply any such product; or (b) in the case of Infringing Microsoft Programs and Infringing Microsoft Products, that any such product has been made with the licence of the first applicant. 9. The second respondent be restrained from aiding, abetting, counselling, procuring or being in any way directly or indirectly a party to or concerned in the conduct sought to be restrained by order 7. 10. The first respondent, whether by its servants, agents or otherwise, be permanently restrained from representing in trade or commerce to persons to whom the first respondent supplies or offers to supply any Infringing Microsoft Programs, Incomplete Microsoft Programs, or Infringing Microsoft Products: (a) that the first respondent is lawfully entitled to supply any such product; or (b) in the case of Infringing Microsoft Program and Infringing Microsoft Products, that any such product has been made with the licence of the first applicant. 11. The second respondent be restrained from aiding, abetting, counselling, procuring or being in any way directly or indirectly a party to or concerned in the conduct sought to be restrained by order 9. 12. The second respondent, whether by his servants, agents or otherwise, be permanently restrained from representing in trade or commerce to persons to whom the second respondent supplies or offers to supply any Infringing Microsoft Programs, Incomplete Microsoft Programs or Infringing Microsoft Products: (a) that the second respondent is lawfully entitled to supply any such product; or (b) in the case of Infringing Microsoft Programs and Infringing Microsoft Products, that any such product has been made with the licence of the first applicant. 13. The respondent to pay the applicants' taxed costs including all reserved costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

[3]

SCHEDULE to the orders of Stone J 2 September 2004 MICROSOFT PROGRAMS All versions of the following computer programs and associated manuals and documentation (including versions created or released subsequent to the date hereof): Microsoft Access Microsoft Access Developers Toolkit for Windows Microsoft Access Distribution Kit Microsoft Access Solution Pack for Windows Microsoft Access Upsizing Tools for Windows Microsoft Age of Empires Microsoft Age of Empires Expansion: The Rise of Rome Microsoft Age of Empires II: The Age of Kings Microsoft Allegiance Microsoft Ancient Lands Microsoft Arcade for Windows Microsoft Asheron's Call Microsoft BackOffice Microsoft Beethoven for Windows: The Ninth Symphony Microsoft Best of Entertainment Pack Microsoft Biz Talk Server Microsoft Biz Talk Server Enterprise Microsoft Bookshelf Microsoft Caribbean Scenery Microsoft Casino CD-ROM Fun and Fact Pack for Windows Microsoft Cinemania Microsoft Close Combat Microsoft Close Combat Russian Front Microsoft Combat Flight Simulator Microsoft Commerce Microsoft Complete Baseball 1995 for Windows Microsoft Complete NBA Basketball 1995 for Windows Microsoft Cordless Wheel Mouse Microsoft Crimson Skies Microsoft Creative Writer Microsoft Dangerous Creatures Microsoft Dinosaurs Microsoft Dogs Microsoft Encarta Microsoft Entertainment Pak Microsoft Entertainment Pak: The Puzzle Collection Microsoft Excel Microsoft Exchange Microsoft Explorapedia: World of Nature Microsoft Explorapedia: World of People Microsoft Fine Artist Microsoft Flight Simulator Microsoft FORTRAN Compiler Microsoft FORTRAN PowerStation Microsoft FoxPro Microsoft FrontPage 2000 Microsoft FrontPage 1.0 Macintosh Edition Microsoft Golf 2001 Edition Microsoft Greetings 2001 Microsoft Host Integration Server Microsoft Intellimouse Explorer Microsoft Intellimouse Optical Microsoft Intellimouse Trackball Microsoft Interix Microsoft International Soccer 2000 Microsoft Internet Explorer Microsoft Internet Keyboard Microsoft Internet Keyboard Pro Microsoft ISA Server Microsoft ISA Server Enterprise Edition Microsoft Japan Scenery Microsoft LAN Manager Microsoft LAN Manager Resource Kit Microsoft Links 2000 LS Microsoft Links 2001 Microsoft Links Courses Microsoft Macro Assembler Microsoft Mastering Enterprise Microsoft Mastering MFC Microsoft Mastering Visual Basic Microsoft Mastering Visual Studio Ent Microsoft Mastering Web Development Microsoft Mail Microsoft Mechwarrier Microsoft Metal Gear Solid Microsoft Midtown Madness Microsoft Money 2001 Microsoft Money for Windows Microsoft Monster Truck Madness Microsoft Motocross Madness 3D Version 2 Microsoft Mozart for Windows - The Dissonant Quartet Microsoft MSDN Library Microsoft MSDN Professional Microsoft MSDN Universal Microsoft MS-DOS Microsoft Multimedia Composer Collection Microsoft Musical Instruments Microsoft My Personal Tutor Pre-K Microsoft Natural Keyboard Pro Microsoft New York Scenery Microsoft NT Server Enterprise Microsoft Office Microsoft Outlook Microsoft Pandoras Box Microsoft Paris Scenery Microsoft PhotoDraw 2000 Microsoft Picture It! Premium Microsoft Picture It! Publishing Gold Edition Microsoft Picture It! Publishing Silver Microsoft Pinball Arcade Microsoft PowerPoint Microsoft PowerPoint 2000 Microsoft Plus Entertainment Pack Microsoft Project Microsoft Proofing Tools Microsoft Proxy Server Microsoft Publisher Microsoft Rabbit Ears for Windows: How The Leopard Got His Spots Microsoft Racing Madness Microsoft Return of Arcade Microsoft Scenes - Brain Twister Collection Microsoft Scenes - Flight Collection Microsoft Scenes - Hollywood Collection Microsoft Scenes - Impressionists Microsoft Scenes - Sierra Microsoft Scenes - Sierra Club Nature Collection Microsoft Scenes - Sierra Club Wildlife Collection Microsoft Scenes - Sports Extremes Collection Microsoft Scenes - Stereogram Collection Microsoft Scenes - Undersea Collection Microsoft Scholastics' Magic School Bus Microsoft Schubert for Windows: The 'Trout' Quintet Microsoft Services for Netware Microsoft Services for Unix Microsoft SGML Author for Word Microsoft Sidewinder Dual Strike Microsoft Sidewinder Force Feedback Pro Microsoft Sidewinder Force Feedback Steering Wheel Microsoft Sidewinder Freestyle Pro Microsoft Sidewinder Gamepad Pro Microsoft Sidewinder Game Voice Microsoft Sidewinder Joystick Microsoft Sidewinder Plug & Play Game Pad Microsoft Sidewinder Precision Pro 2 Microsoft Sidewinder Precision Racing Wheel Microsoft Sidewinder Strategic Commander Microsoft Sidewinder Site Server Microsoft Sidewinder Site Server Internet Connector Microsoft Small Business Server Microsoft Small Business Server Client Add On Microsoft Smart Cards Microsoft SNA Microsoft SoundBits - Classic Cartoons from Hanna Barbera Microsoft SoundBits - Classic Hollywood Movies Microsoft SoundBits - Musical Sounds from Around the World Microsoft SourceSafe Microsoft Space Simulator Microsoft SQL Server Microsoft Starlancer Microsoft Strauss for Windows Microsoft Stravinsky for Windows: The Rite of Spring Microsoft Systems Management Server Microsoft Systems Management CAL Microsoft Systems Management Server Microsoft Test for Windows Microsoft TrueType Font Pack Microsoft Visio Microsoft Visual Basic Microsoft Visual Basic Enterprise Microsoft Visual Basic Pro Microsoft Visual Basic Standard Microsoft Visual C++ Microsoft Visual C++ Enterprise Microsoft Visual C++ Professional Microsoft Visual C++ Standard Microsoft Visual FoxPro Microsoft Visual FoxPro Professional Microsoft Visual InterDev Microsoft Visual J++ Pro Microsoft Visual J++ Standard Microsoft Visual SourceSafe Microsoft Visual Studio Enterprise Edtn Microsoft Visual Studio Professional Microsoft Wheel Mouse Microsoft Wheel Optical Microsoft WinCE Took Kit for VB Microsoft WinCE Took Kit for VC++ Microsoft Windows Microsoft Windows 95 Microsoft Windows 98 Microsoft Windows 2000 Advanced Server Microsoft Windows CAL Microsoft Windows 2000 Internet Connector Microsoft Windows 2000 Professional Microsoft Windows 2000 Server Microsoft Windows Trmnl Services CAL Microsoft Windows for Workgroups Microsoft Windows CAL Microsoft Windows Millennium Edition Microsoft Windows NT Microsoft Windows NT CAL Microsoft Windows NT Server Microsoft Windows NT Workstation Microsoft Wine Guide Microsoft Word Microsoft Works

[11]

9 Mr Davis appeared for himself and, with leave of the Court, for the first respondent. The proceedings were attended by many of the difficulties that commonly arise with litigants in person. Where one party is represented by highly experienced solicitors and counsel and the other is self represented, the Court needs to be especially diligent to ensure that hearing is fair and reasonable and that the issues raised by the unrepresented party, despite lacking legal sophistication, are given due consideration. In this regard I am conscious of the High Court's comment in Neil v Nott (1994) 121 ALR 148 at 150: 'A frequent consequence of self-representation is that the court must assume the burden of endeavouring to ascertain the rights of parties which are obfuscated by their own advocacy.' 10 In discharging this burden, however, the Court must maintain the balance between the interests of the parties and not give an advantage to the unrepresented party; Platcher v Joseph [2004] FCAFC 68 at [105] per Tamberlin and Emmett JJ; see also Minogue v Human Rights and Equal Opportunity Commission (1999) 84 FCR 438 at [27]-[29] and [33]. What is necessary to maintain the balance varies from case to case and requires some assessment of the difficulties confronting the individual litigant, the litigant's intelligence and his or her understanding of the case; Abram v Bank of New Zealand [1996] ATPR 41-507 ('Abram'). 11 It seems to me that the difficulties confronting Mr Davis were less formidable than is often the case for unrepresented litigants. As noted above, the dispute was basically factual and concerned facts that Mr Davis was well placed to know; he did not have to grapple with questions of law or fine legal distinctions. The applicants said that the respondents used their software without a licence. A defence to such a claim had to be either (a) the respondents were licensed, or (b) that the respondents did not use the software, or a combination of those two responses. At various points in the hearing Mr Davis appeared to assert both of these defences. In addition, in their further amended defence (filed on 10 April 2002), the respondents claimed that the applicants had impliedly waived their copyright on some or all of the relevant software. 12 Although Mr Davis cross-examined all but two of the applicants' witnesses, he seemed to have very little idea of what he was trying to achieve. In particular, as was put to Mr Davis when he was himself being cross-examined, he did not take issue with many unequivocal statements that were adverse to the respondents' defence. I did not, however, get the impression that this was because Mr Davis did not understand the issues and, in the circumstances, I do not think that intervention by the Court would have been appropriate; see generally the comments in Abram on the dangers of judicial intervention in cross-examination.

[15]

17 The software, which was kept in the storeroom at the rear of Harmony premises, included the following: · Microsoft Windows 95; · Microsoft Windows 95 B release; · Microsoft Windows 98 · Microsoft Windows 98 Second Edition; · Microsoft Windows 2000; · Microsoft Office 95 Professional; · Microsoft Office 97 Professional; · Microsoft Office 2000 Professional; and · Microsoft Works. Mr Clamp also described CDs kept in the same storeroom as being either: '(a) gold writable CD-ROMs which are commercially available blank CD-ROMs on to which software and other data may be copied …; (b) Microsoft OEM CD-ROMs …; or (c) Genuine Microsoft software that is sold by retailers to retail customers.' 18 Mr Clamp said he was aware that the gold CD-ROMs contained unlicensed copies of Microsoft software and that the software being loaded on to the hard drives from those CD-ROMs was also unlicensed. He recalled a conversation in which Mr Davis had told him that the original copy of Windows 98 had been stolen by one of the other technicians when Mr Clamp was not there. Mr Clamp also said that some of the software being loaded onto the computers being sold by Harmony was installed using genuine OEM CD-ROMs and explained how he was able to recognise those CDs as genuine. He said that he was aware that OEM software was licensed by Microsoft to be supplied only with personal computers. Mr Clamp explained his understanding of Microsoft's licensing procedures as follows: 'The purchaser is required to receive a copy of the original disk, a Certificate of Authenticity and a End-User Licence Agreement. If it is installed on a computer and the purchaser does not receive the original disk, a Certificate of Authenticity and a End-User Licence Agreement, the person who purchases it will not have a licence to use it. A Certificate of Authenticity is a security certificate or label that accompanies all Microsoft software products. The End-User Licence Agreement is a written agreement that comes with all genuine Microsoft software products.'

[17]

19 Mr Clamp said that from September 1999 to March 2001, under Mr Davis' instructions, he loaded about 210 computers with unlicensed copies of Windows 98 and either Office 95 Professional or Office 97 Professional. Each of these computers was provided to a Harmony customer on a hire-sell basis. He added that he had also loaded approximately 560 computers with unlicensed copies of Microsoft Works. Mr Clamp's affidavit included a table showing the numbers of copies of each Microsoft program that had been installed on computers hired or sold with Microsoft programs installed. That table showed, in addition to the numbers already mentioned, the number of computers on which, according to Mr Clamp, the following programs were installed: · Microsoft Windows 95 or Microsoft Windows 95 'B' Release - 56 computers; · Microsoft Office 95 Professional - 56 computers; · Microsoft Windows 98 Second Edition - 48 computers; and · Microsoft Office 2000 Professional - 24 computers. 20 Mr Clamp testified that customers would often ask why they did not receive a CD-ROM for the software they purchased with their computers. On two or three occasions Mr Davis gave the customer a gold CD with a copy of the software program on it. Once he instructed Mr Clamp to do so. Mr Clamp said that when, in September 1999, he queried Mr Davis' use of unlicensed software, Mr Davis told him that he had a 'multi-user licence with Microsoft' and was allowed to use the software. Mr Clamp also raised the matter with Mr Robert Schrocroft (see [21]-[24] below) who, he said, was initially concerned but later told Mr Clamp that Mr Davis had a multi-user licence. Mr Clamp says that he did not ever see such a licence. Finally Mr Clamp testified that in March 2000 he saw a letter from Microsoft to Mr Davis on Mr Davis' desk. He said: 'I had a quick read of the letter and understood that it was warning [Mr Davis] about hardloading and the unauthorised copying of Microsoft software. From my experience in the computer industry it is my understanding that hardloading is where computer users load unauthorised copies of software on to the hard disk of a personal computer as an incentive for their customers to purchase a computer …. The dealer does not supply the original disks, manuals, Certificates of Authenticity or End-User Licence Agreement which always comes with legitimate copies of software products.' This letter was the subject of evidence given by Ms Vanessa Hutley and is described below at [38]-[39].

[18]

Mr Robert Schocroft 21 Mr Schocroft said he worked as a 'contractor' for Mr Davis in the Harmony business from June to September 2000. According to Mr Schocroft, Mr Davis was responsible for the day-to-day running of the Harmony business. On cross-examination by Mr Davis, Mr Schocroft denied that he had ever acted as manager and Mr Davis did not pursue the point. Mr Schocroft's description of the business was generally consistent with the account given by Mr Clamp. He said that there were two technicians in addition to Mr Clamp who worked on reconfiguring the computers bought at auction and loading them with software. He said that Mr Davis had instructed the technicians that all computers sold by Harmony must have Microsoft Windows and Office installed on them. His evidence generally confirmed what Mr Clamp had said about the use of OEM disks and copies of other Microsoft programs. In particular, he described how Mr Davis had advised one of the technicians of the licence key numbers that he should use in installing the Windows and Office 97 programs. As Mr Schocroft explained, a 'Licence key', also known as a product key, is a number that is printed on the Certificate of Authenticity supplied with genuine Microsoft software. The numbers provided by Mr Davis were used each time a copy of Windows 98 or Office 97 was installed on the hard drive of a computer. Mr Schocroft said that during the initial period of his employment with Harmony (June to September 2000) the three technicians then employed by Harmony installed Windows 98 and Office 97 on at least 40 computers each. He commented: 'Based on my understanding of Microsoft's licensing procedures, I was aware that the copies of Microsoft Windows 98 and Microsoft Office 97 reproduced and loaded on to the hard drives of computer systems supplied to Harmony's customers … were not licensed because the customers were not supplied with genuine Microsoft CD-ROMs, a manual, a [Certificate of Authenticity] or an End-User Licence Agreement.' 22 Mr Schocroft referred to a letter from Microsoft concerning the unauthorised use of the Microsoft software, apparently the same letter referred to by Mr Clamp; see [20] above. He said that Mr Davis told him not to worry about the letter as he had a multi-user licence and was entitled to use the software. 23 Mr Schocroft ceased working in the Harmony business on 18 September 2000. He was then employed from June 2001 to 13 May 2002 by Ezy Loans, which acquired the Harmony business at the end of April 2001. The directors of Ezy-Loans were Mr Davis and Ms Ellis-Davis. By this time Mr Clamp and one of the other technicians had left and the third technician left in July 2001. Mr Schocroft then took over some of the work of preparing computers for sale that had previously been done by the technicians. The process continued as before except that Office 97 was no longer included as a standard item. 24 Mr Schocroft described how in the last week of July 2001, Ms Ellis-Davis was served with the application and statement of claim in this proceeding. He claimed that following this he was present when Ms Ellis-Davis discussed the matter with Mr Davis. Mr Schocroft said that for three weeks following this discussion, licensed software was installed in the computers but in the last week of August 2001 Mr Davis again directed him to use the unlicensed software because the costs of buying licensed software were 'horrendous'. Mr Schocroft left Harmony on 13 May 2002 but said that during visits to the Harmony premises between that date and the end of June 2002 he observed Mr Davis loading the unlicensed software onto computers for customers.

[29]

MPL and the respondents 38 MPL operates an 'anti-piracy hotline' ('hotline') and website to which members of the public may report suspected instances of piracy of Microsoft Programs. Ms Hutley stated that on 30 March 2000, following a report to the hotline, MPL wrote to Mr Davis in terms that included the following: 'It has been brought to our attention that a number of your customers are being offered and/or provided with Microsoft software without also receiving the original diskettes or CD ROM, Licence Agreement, Certificate of Authenticity and operating manual for each of the Microsoft software products provided. This practice is known as "hard loading" and it is illegal. We have also received information that suggests that you have been dealing in counterfeit copies of certain "Microsoft" products. Trade mark and copyright infringement Microsoft is the owner in Australia of the registered trade mark "Microsoft" and Microsoft Pty Limited is a registered user of that mark. It is an infringement of our trade mark rights for you to sell, offer to sell, supply, or offer to supply, any computer disk, diskette, CD-ROM, computer program, computer software, computer hardware, manual or documentation under or by reference to the mark "Microsoft", if those goods have not been manufactured and the mark applied by or with the licence of Microsoft. Microsoft is also the owner of the copyright subsisting in all computer programs distributed by reference to the "Microsoft" mark ("Microsoft Programs"). It is an infringement of copyright for you to sell, offer for sale, supply, or offer to supply or distribute, any copy of the whole or a substantial part of the Microsoft Programs, or to reproduce or authorise the reproduction of the whole or substantial part of any of the Microsoft Programs, without the licence of Microsoft.' 39 The letter ('Microsoft letter') went on to describe, in explicit detail, the distribution restrictions affecting Microsoft OEM and retail products and to name the authorised distributors. A copy of the Microsoft letter was annexed to Ms Hutley's affidavit. MPL also enclosed a deed of undertaking that was executed on behalf of Harmony and himself by Mr Davis on 7 April 2000 and returned to MPL. By that undertaking the respondents undertook not to infringe the rights asserted by Microsoft.

[30]

Microsoft Rental and Leasing Agreements for Microsoft Products preinstalled on Rental computers 40 Ms Hutley gave evidence that since 1999 Microsoft, MPL, Microsoft Licensing and Microsoft Operations Pty Limited, a Microsoft subsidiary responsible for Microsoft's Asia business for network service providers, ('together the Microsoft Companies') have issued Microsoft Rental Agreements for Microsoft Programs preinstalled on rental computers. When completed, the Rental Agreement allows a computer rental company ('rental company') to rent Microsoft software products to a customer, along with a rented personal computer. The Microsoft Companies maintain a searchable system of records that includes the details of people or companies that are, or have ever been, a party to a Rental Agreement for Microsoft software products stored on a rental computer. Ms Hutley gave evidence that she caused a search to be done of the Microsoft Companies' books and records and that the search did not reveal any of the respondents, or Harmony, as ever having entered into a Rental Agreement. 41 The terms of the Rental Agreement require the rental company to do certain things in order to ensure that the products they sell are properly licensed. The requirements include submission of certain records to Microsoft Operations. Ms Hutley gave evidence that she has no record of the respondents, or Harmony, submitting any the required records to Microsoft Operations, or any of the other Microsoft Companies. 42 Further, Ms Hutley's evidence states that, even if the Rental Agreement had been entered into by the respondents it would not authorise the reproduction of the Microsoft Programs from a single disk onto numerous personal computers that are rented to customers or provided to customers on a rent/buy basis, as the respondents are alleged to have done. There must be a licence purchased for 'each and every' computer system on which a Microsoft Program is installed, and the rental company is obliged to retain a copy of each licence.

[32]

Affidavit of Katrina Ellis-Davis 44 The question of Ms Davis' affidavit was raised when the matter was before me for directions some days before the hearing. The applicants had clearly indicated that it would require Ms Davis for cross-examination if her affidavit were to be read however Ms Davis resides in Perth and, according to Mr Davis, it was not possible for her to attend the Court in Brisbane. At that time I advised Mr Davis that it might be possible to arrange a video link with Perth however, if he wished to use this facility, he should advise the Court as soon as possible so that arrangements could be made. Mr Davis did not attempt to make those arrangements prior to the hearing but raised the matter on the first morning of the hearing. 45 Enquiries established that a video link could be set up at a convenient time on the second day of the hearing however, according to Mr Davis, the respondents were not able to bear the cost of the link and he requested that the Court do so. There are situations in which the Court itself bears the cost of a video link, usually where the necessity for it has arisen because of circumstances internal to the Court such as judges being in different locations to the parties. It may do so in other situations but, in my view, only where considerations of justice require this. When I invited Mr Davis to give me some indication of the importance of Ms Ellis-Davis' evidence for the respondents' defence, he was unable to point to anything other than that she had been involved in applications to Microsoft for a licence and would be able to testify that such applications were made. He did not contend, however, that her evidence would extend to a claim that any licence had been granted. Another difficulty was that the affidavit of Ms Ellis-Davis that had been filed by the respondents was largely inadmissible and, in part, scandalous. In the circumstances I was not satisfied that the Court itself should bear the cost of the video link. Mr Davis declined to pay for the link himself and because of Ms Ellis-Davis' consequent unavailability for cross-examination, Mr Davis was not permitted to read her affidavit.

[34]

Evidence of Mr Earl Davis 48 Mr Davis was permitted to read his affidavit of 22 March 2002 although not without challenge. Although Mr Cobden, counsel for the applicants, had provided Mr Davis with a list of his objections Mr Davis, understandably given his lack of legal training, was unable to make any cogent response. In the circumstances it was necessary for the Court to rule on the objections without assistance from the respondents with the result that Mr Davis was not permitted to read some parts of his affidavit. 49 In addition to specific objections to earlier parts of the affidavit, the respondents objected to paragraphs 22-40 on the ground of relevance. Those paragraphs related to financial difficulties allegedly experienced by Nathan Clamp and may have been intended to raise issues of credit. On cross-examination of Mr Clamp however no such issue was raised. In the absence of any submissions responsive to the applicants' objection I reserved my ruling on relevance. Having now had the opportunity to consider the matter I am satisfied that the respondents' objection should be upheld and paragraphs 22-41 of Mr Davis' affidavit should not be admitted. 50 Mr Davis' affidavit generally focused on the role played by Nathan Clamp in the Harmony business. He said that Mr Clamp's duties included the installation of hardware and software on the computers that had been acquired second-hand, removal of any confidential and private information of the previous owner and provision of technical assistance to clients. According to Mr Davis removing private information sometimes affected files on the computer and that if these files 'had not been reinstalled from Microsoft Operating System discs then the computers would have either ceased to function or would have functioned incorrectly'. He said it was a condition of Mr Clamp's contract with Harmony that he provide the tools (including software) necessary to carry out the task of hard loading the computers in preparation for sale and that, at the time, 'Harmony had no software or drivers library of its own'. He said that 'at no time during his time with Harmony' was Mr Clamp 'told, requested or implied' to reinstall any Microsoft product in its entirety. 51 On cross-examination by Mr Cobden, Mr Davis admitted that he was responsible for the day to day control of the Harmony business including acquiring stock, employing staff and engaging contractors although he said that, for a brief (unspecified) time, Mr Schocroft was acting, under contract, as manager. Despite this assertion Mr Davis admitted that he had overall control whether Mr Schocroft was there or not. 52 Contrary to his assertions in his affidavit, Mr Davis also admitted that he gave Mr Clamp instructions to load Microsoft Office and Microsoft Windows onto the computers, that there was a library of software in the storeroom of Harmony's premises and that the library included copies of Microsoft Windows 95, Microsoft Windows 95 B Release, Microsoft Windows 98, Microsoft Windows 98 Second Edition, Microsoft Windows 2000, Microsoft Office 95 Professional, Microsoft Office 97 Professional, Microsoft Office 2000 Professional and Microsoft Works. All of these except Microsoft Windows 95 B Release and Microsoft Office 95 Professional Works were copies that were on burnt or gold CD-ROMs. 53 Mr Davis asserted that all of this was licensed software being permitted backup copies of an authorised copy. He said that he had three authorised copies that were kept at his home to guard against the possibility of theft. Subsequently he admitted that as long as there were enough disks to load Microsoft Windows and Microsoft Office as required he was quite indifferent to the number of burnt disks. 54 When Mr Davis was asked to explain the process followed in the Harmony business when preparing a computer for a customer his evidence was confusing. At one point he maintained that new software packages were used and when the system was delivered to a customer a bundle of disks, manuals and software was delivered with it. At other times he maintained that he obtained licence keys from customers who had their own software. He also sought to rely on the Rental Agreement referred to in [47] above. Although the proceeding against him was commenced by the applicants in 2001, Mr Davis admitted that it was not until early 2003 that he sought to rely on this agreement. Mr Davis also admitted that he had not acted in accordance with the terms of the Rental Agreement, in particular by having rental customers execute a written contract containing certain acknowledgements or by sending reports to Microsoft as required by the Rental Agreement. 55 One of the most damning concession that Mr Davis made on cross-examination was to agree that the respondents could not have supplied computers at prices of $499 (see the evidence of Ms Tran-Nguyen at [28] above) or $1,000 (see the evidence of Mr Hollingsworth at [27] above) if licensed software had been included.

[35]

56 Computer programs and compilations of computer programs are literary works within the definition of that term in s 10 of the Copyright Act. It is an infringement of the copyright in a literary work for a person to reproduce or authorise the reproduction of a literary work in a material form without the licence of the copyright owner; Copyright Act ss 13, 14, 31 and 36. Section 38 of the Copyright Act provides that it is also an infringement of copyright if a person, without licence from the owner of the copyright: '(a) sells, lets for hire, or by way of trade offers or exposes for sale or hire, an article; or (b) by way of trade exhibits an article in public; if the person knew, or ought reasonably to have known, that the making of the article constituted an infringement of the copyright …' 57 Although less than precise in some aspects, the applicants' evidence created a reasonably coherent picture of the Harmony business. On cross-examination none of the applicants' witnesses resiled from the evidence given nor was any significant inconsistency revealed. The witnesses generally gave straightforward answers to Mr Davis' questions and, except where otherwise indicated, I accept their respective accounts as correct and honest. 58 Unfortunately, the same cannot be said of Mr Davis' evidence and I do not accept him as a witness of truth. As previously indicated, Mr Davis' evidence was concerned mainly with the evidence given by Mr Clamp. There was no direct rebuttal of the claims made by Mr Schocroft, Mr Quinn, Mr Hollingsworth, Ms Tran-Nguyen or Ms Hutley. On cross-examination Mr Davis showed a tendency to give self-serving answers - at times even contradicting answers he had given only moments before. He prevaricated when confronted with inconsistencies in his own evidence and responded frequently that it was just Mr Cobden's opinion. It was clear from admissions that he made on cross-examination that not only were parts of his affidavit false but that he knew this to be so when he made the affidavit. 59 Other aspects of Mr Davis' evidence were just not credible. For instance the suggestion that the library copies of software referred to in [53] above were merely backup copies of authorised software that he kept at home is risible given that this was the first mention of this explanation. Similarly, it is inconceivable that if he had entered into the Rental Agreement with Microsoft that he would have waited until early in 2003 to rely on it. Other factors that suggest no such agreement was ever made included there being no copy signed by Microsoft and the respondents not acting in accordance with the terms of the agreement; see [53] above. 60 Moreover, as the applicant submitted, even if the Rental Agreement had been entered into, on Mr Davis' own admission, the terms were not complied with and therefore it did not authorise the conduct that occurred. Under that licence, the licensee must purchase a licence for each computer on which the Microsoft software is installed. There is no evidence that this was done; rather the evidence is to the contrary. Clause IV of the Ownership and Licence Certificate at Exhibit C to the Rental Agreement document, requires the licensee to provide Microsoft Operations with details of all hardware and software that the licensee intends to be covered by the Rental Agreement within 30 days of its acquisition. There is no evidence of any such information being provided. 61 I am satisfied by Ms Hutley's evidence and, in particular, by her account of the applicants' licensing procedures and records, that the only licence held by the respondents was as a Microsoft System Builder. The features of such a licence are described in [34]-[36] above. They include the requirement that the licensee may install one copy only of a Microsoft OEM program on a computer system supplied by that builder and must supply all associated components of the Microsoft Program including CD-ROMs, manuals, certificates of authenticity and end user licence agreements with that computer. 62 The evidence of Ms Tran-Nguyen (see [28] above) and Mr Quinn (see [25]-[26] above) shows that the computers supplied to them in June 2001 were loaded with copies of Microsoft Windows 98 and Microsoft Office 97 and that no disks, certificates of authenticity, licence agreements or manuals were supplied with those computers. It is reasonable to infer that if the software had been loaded in accordance with the licence requirement that they would have been given to the purchasers. There would have been no reason for the respondents not to comply with the terms of the licence. I am satisfied that these two instances of actual primary infringement of Microsoft Windows and Microsoft Office by the first respondent have been made out. I am similarly satisfied by the evidence of Mr Hollingsworth that the software loaded onto the computer he purchased in July 2000 was an unauthorised copy. Mr Hollingsworth was not provided with any manuals, an end user licence agreement, a certificate of authenticity or the original CD-ROMs. 63 The respondents' conduct described in the preceding paragraphs is consistent with the conduct described by Mr Schocroft and Mr Clamp. That evidence provides a picture of Harmony's business activity both under Mr Davis as sole trader and subsequently, under his control, by Ezy Loans. I accept that Harmony had a library of unlicensed software that, under the direction of Mr Davis, was used to install Microsoft Programs on the second hand computers purchased by Mr Davis. I accept that those computers were sold without the supporting manuals, guides and CD-ROMs. The letter of 30 March 2000 (see [38] above) from Microsoft to the respondents is further support for this conclusion, at least for the period prior to that date. The fact that Mr Davis signed the undertaking attached to the Microsoft letter and returned it to Microsoft is not consistent with Harmony using licensed software prior to that time. 64 The evidence I have accepted also supports a finding of secondary infringement under s 38 of the Copyright Act by Ezy Loans and Mr Davis; see [57] above. In my view, the evidence establishes that the respondents knew, or at the very least had constructive knowledge, that the reproduction of the Microsoft Programs was not authorised by Microsoft.

[41]

Mr Davis' liability for the conduct of Ezy Loans 70 In addition to the claims made against Mr Davis as sole trader under the Harmony name, the applicants also claim that he is liable, (a) as the person who authorised Ezy Loans' infringement of Microsoft's copyright under s 36 of the Copyright Act; (b) as a joint tortfeasor with Ezy Loans in Ezy loans' copyright and trade mark infringement; and (c) as a 'person involved' in Ezy Loans' misleading and deceptive conduct with the meaning of s 75B of the Trade Practices Act. 71 In their Further Amended Defence, the respondents admit that at all material times Mr Davis was a director of Ezy Loans. Beyond that, however, the evidence clearly establishes that Mr Davis was personally and closely involved in the conduct of Ezy Loans' business. Much of this evidence came from Mr Schocroft who, by reason of the period he had worked with Mr Davis, was well placed to comment on Mr Davis' role in the Harmony business. Mr Schocroft's affidavit gave a coherent account of his experiences at Harmony. It is, as others have remarked, difficult to assess a witness where evidence is given by affidavit and, inevitably, not told in his or her own words. On cross-examination however, Mr Davis did not challenge Mr Schocroft's account of the role that Mr Davis played in the business. Rather, his cross-examination seemed to be directed to issues of profit and loss, presumably with the calculation of damages in mind. In any event Mr Schocroft was not shaken in his evidence and I have no reason not to accept his account of Mr Davis' role in the business. 72 While there was some suggestion that Mr Schocroft might, at some stage, have had a managerial role, it is clear, and was admitted by Mr Davis on cross-examination, that Mr Davis was the guiding mind and the controlling hand. The evidence of Mr Schocroft and Mr Quinn supports the view that Mr Davis was involved in sales as well as management. Mr Davis purchased the computers sold by Ezy Loans and he instructed employees and contractors of Ezy Loans to install unauthorised copies of Microsoft Programs on the hard drives of those computers and supervised this work. This role was a continuation of the role that he played in the Harmony business as a sole trader and was described in the affidavits of Mr Davis and Mr Schocroft. 73 Section 36 of the Copyright Act states that it is an infringement of the copyright in a literary work if a person who is not the owner of the copyright 'does' or 'authorises' in Australia an act comprised in the copyright. The concept of authorisation was considered by the High Court in University of New South Wales v Moorhouse (1975) 133 CLR 1 where Gibbs J, at 12, said that 'authorisation' had been held 'to have its dictionary meaning of "sanction, approve, countenance"' and that that it could also mean 'permit'. His Honour continued: 'A person cannot be said to authorize an infringement of copyright unless he has some power to prevent it. … Express or formal permission or sanction, or active conduct indicating approval, is not essential to constitute an authorization. … However, the word "authorize" connotes a mental element and it could not be inferred that a person had, by mere inactivity, authorized something to be done if he neither knew nor had reason to suspect that the act might be done.'

[42]

Jacobs J expressed similar views at 21. See also Gummow J's account of the history of the development of the law in relation to authorisation in WEA International Inc v Hanimex Corporation Ltd (1987) 17 FCR 274 ('WEA v Hanimex') at 282-87. His Honour's account was approved by the Full Federal Court in Australasian Performing Right Association Limited v Jain (1990) 26 FCR 53 at 57. 74 I am satisfied that Mr Davis' involvement in the infringing conduct of Ezy Loans is such that he can be said to have authorised this conduct. He was clearly in the position to prevent this conduct either by preventing the installation of Microsoft Programs or by ensuring that only licensed copies were used. Mr Davis did not directly challenge the witness statements that lead to this conclusion and did not provide any convincing alternative account. 75 In WEA v Hanimex at 283, Gummow J made the following comment: 'Where the infringer is a corporation questions frequently arise as to the degree of involvement on the part of directors necessary for them to be rendered personally liable. Those questions are not immediately answered by principles dealing with "authorisation" or joint tortfeasance. Rather, recourse is to be had to the body of authority which explains the circumstances in which an officer of a corporation is personally liable for the torts of the corporation.' 76 That body of authority was discussed by Lindgren J in Microsoft Corporation v Auschina Polaris Pty Ltd (1996) 71 FCR 231 ('Polaris') at 241-5. His Honour concluded that the appropriate test to determine if the director is liable for the tortious acts of the company is that adopted in Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1 where Lord Atkin said, at 14: 'Prima facie a managing director is not liable for tortious acts done by servants of the company unless he himself is privy to the acts, that is to say unless he ordered or procured the acts to be done.' 77 In Polaris Lindgren J said of this test at 243: 'The "procured or directed" test, sometimes referred to as the "authorised, procured or directed" test, focuses attention on the relationship between the director's intention and the particular corporate conduct which the law characterises as tortious. What seems to underlie this test is the notion that, necessarily, companies can engage in tortious conduct only through human beings, and, at least ordinarily, where a particular human being involved and responsible to an appropriate extent can be identified, he should, as a matter of policy, be liable. After all, even if the aggrieved party did not sue him, apparently he would be liable to indemnify the company in respect of its liability to the aggrieved party.'

[53]

Compensatory damages 88 The applicants seek compensatory damages pursuant to s 115(2) of the Copyright Act. One accepted means by which to measure compensatory damages is to apply a 'going royalty rate'. In this case there is evidence of such a rate and I propose to apply this test. 89 On 18 October and 13 November 2001 the applicants served on the respondents notices to admit to facts that were not disputed. It is therefore not in contention that from the period of 1 January 1998 to the date of commencement of these proceedings, Microsoft Licensing received net revenue of over $125.00 in respect of each licensed copy of Microsoft Windows distributed to or by OEM's in Australia and that Microsoft received net revenue of over $500 in respect of each licensed copy of Microsoft Office distributed by authorised distributors in Australia. 90 The evidence of Mr Clamp and Mr Schocroft provide a basis for estimating the number of copies of infringing software that were installed by the respondents in the relevant period. On the basis of that evidence the applicants estimated that: · During the period from July 1999 to March 2001 Mr Davis, as sole trader, reproduced 373 infringing copies of Microsoft Windows which he sold to customers; · During the period from July 1999 to March 2001 Mr Davis, as sole trader, reproduced 348 infringing copies of Microsoft Office which he sold to customers; · During the period from 21 June 2001 to May 2002 Ezy Loans reproduced 150 infringing copies of Microsoft Windows which it sold to customers; · On about 15 June 2001 Ezy Loans supplied infringing copies of Microsoft Windows 98 and Microsoft Office 97 Professional to Ms Tran-Nguyen; · On about 15 June 2001 Ezy Loans supplied infringing copies of Microsoft Windows 98 and Microsoft Office 97 to Mr Quinn. 91 The applicants submit that they are entitled by way of compensatory damages to the net amount that would have been received from licence fees for each copy of Microsoft Windows and Microsoft Office supplied. On the basis of the above estimates they claim the following amounts: Microsoft Windows: o Ezy Loans: $125.00 x 152, a sum of $19,000.00 o Mr Davis: $125 x 373, a sum of $46,625. Microsoft Office: o Ezy Loans: $500 x 2, a sum of $1000.00 (in respect of the computer supplied to Mr Hollingworth) o Mr Davis: $500 x 348, a sum of $174,000.00 The totals of the compensatory damages claimed, therefore is $220,625.00 for Mr Davis, and $20,000.00 for Mr Davis and Ezy Loans jointly and severally. The applicants explain that the reason for the significant difference is that Ezy Loans did not generally offer Microsoft Office after about July 2001. 92 I am satisfied that these amounts are reasonable in the circumstances and err, if at all, on the conservative side. The evidence supports the claim that the infringing conduct continued after both Mr Clamp and Mr Schocroft left the respondents' employ but, for reasons that I have already mentioned, there is no evidence in respect of subsequent periods. I see no reason not to accept these estimates and propose to order damages accordingly.

[54]

Additional damages 93 In addition to compensatory damages the applicants also seek additional damages under s 115(4) of the Copyright Act. Section 115(4) provides: 'Where, in an action under this section - (a) an infringement of copyright is established; and (b) the court is satisfied that it is proper to do so, having regard to: (i) the flagrancy of the infringement; and …. (iii) any benefit shown to have accrued to the defendant by reason of the infringement; and (iv) all other relevant matters; the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances.' 94 In Raben Footware Pty Ltd v Polygram Records Inc (1997) 75 FCR 88 at 93, Burchett J, having referred to his understanding of the element of penalty incorporated in s 115(4) said at 93, 'Although s 115(4) requires the court to "hav[e] regard to ... the flagrancy of the infringement", the question to be decided is whether "the court is satisfied that it is proper" to make the award of additional damages, having regard also to the other matters stated in the subsection. In this context, I think "the flagrancy of the infringement" must refer to the degree of flagrancy evinced by it, and glaring impropriety is not essential, depending on the presence or absence of other factors. Indeed, Laddie, Prescott and Vitoria (op. cit. sec. 24.31) suggests that the same phrase, in the corresponding United Kingdom provision, does not make flagrancy "an essential pre-requisite to the making of [an order for additional damages]". In my opinion, this is also true of the Australian provision.' 95 The discussion of compensatory damages in [89]-[93] above shows that the respondents derived considerable pecuniary benefit from their infringing conduct. For reasons set out above at [81] to [83] I am also satisfied, not only that the respondent's conduct was flagrant but that their approach to this proceeding demonstrates, 'a deliberate pattern of conduct by the respondents in which they recognised the illegality of the enterprise they were engaged in and actively sought to conceal it'; Goodview Electronics at [61]. In particular I refer to the total failure of the respondents to observe orders for discovery (including discovery of business records evidencing their dealings in Microsoft software) which, as the applicants submitted, means the applicants can never know the full extent of the infringements. It is important to more than the applicants that copyright infringers are not encouraged to think that by ignoring court proceedings they can escape the consequences of calculated infringement of the rights of others in the pursuit of profits. This is especially so in relation to infringement of copyright in computer software which is so easy to conceal; see Autodesk Australia Pty Ltd v Cheung (1990) 17 IPR 69 ('Autodesk') at 77-78. For these reasons I am satisfied that this is a case where substantial additional damages are warranted. 96 The Court has a broad discretion in relation to the quantum of additional damages. While I have considered the awards made in a number of previous cases including Autodesk, Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240, Goodview, Atifo and Microsoft Corporation v Glostar [2003] FCA 210 ultimately it is the facts of the instant case that must inform the decision. I regard this an extreme case and one in which the additional damages should send a clear signal of the Court's disapproval of the respondents' conduct; Bailey v Namol Pty Limited (1994) 53 FCR 102 at 113-114. I accept that both respondents should be subject to additional damages but Mr Davis personally must take the greater responsibility. I propose to order that additional damages in the amount of $50,000 be awarded against the respondents jointly and additional damages in the amount of $300,000 be awarded against Mr Davis personally. I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone.