The sale of personal computers by PC Club with pre-installed software - the procedures put in place as explained by Mr Lee - the evidentiary basis for the respondents' case as to 'innocent infringement' under s 115(3) of the Copyright Act
155 Mr Lee explained next in his principal affidavit evidence that there have been two ways whereby PC Club pre-installed Microsoft Windows software onto personal computers which it then sold. That explanation purported to demonstrate the basis upon which PC Club asserted an absence of awareness, or of having reasonable grounds for suspecting that the acts constituting the infringement of copyright in XP Home and XP Pro were of that nature. The initial method was the 'DSP' to which I have earlier referred. Mr Lee testified that after 1 December 2003, PC Club adopted the methodology of selling 'COA only' versions of personal computers pre-installed with Windows XP Home and Windows XP Pro, and continued to do so until 13 July 2004 upon the execution of the Anton Piller process against PC Club. His asserted qualification to describe that methodology as applied by PC Club, critical to his refutation of the allegations made against him in these proceedings, was 'because I have carefully observed staff employed by PC Club uploading software in PC Club's build room and I have carefully observed precisely what tasks are performed in relation to each method', and because he was involved personally in the purchase of Windows operating systems software utilised in PC Club's so-called 'build room'. Hence his assertion as to personal involvement in both the acquisition of Windows operating systems software used in the DSP method, and in particular in the purchase of the COA labels used by PC Club in the so-called 'COA only' method.
156 Before detailing Mr Lee's evidence as to the two methods whereby PC Club pre-installed Windows XP Home and Windows XP Pro onto the hard-drives of personal computers which it then sold, it is necessary to briefly summarise the evidence of the applicants' witnesses as to its licensing of distribution of software in the OEM channel.
157 The applicants' evidence was that MLI, and subsequently MLGP, licensed those programs to be reproduced onto the hard-disk of a personal computer by computer system builders by only two possible means. The first method is that utilised by computer system builders that are 'royalty OEMs', or 'Named Accounts' (those expressions being synonymous with one another). The second method is for smaller system builders who must reproduce Windows XP Home and Pro in accordance with a Microsoft System Builder License.
158 Mr Kurt Kolb, who is Microsoft's General Manager of Worldwide System Builder Channel and License Compliance and had in the past worked in other areas of the OEM Business Group of Microsoft, detailed the difference between Microsoft's licensing requirements in the royalty OEM and system builder channels in an affidavit sworn 30 August 2004. Similar evidence was provided by Mr Walker of MPL. Royalty OEMs in the Asia-Pacific region are higher volume system builders who are in direct contractual relations with Microsoft's licensing subsidiary, formerly MLI but currently MLGP. Pursuant to those 'Royalty OEM Agreements', royalty OEMs, or Named Accounts, are licensed to distribute recovery CDs together with computer systems that they manufacture and pre-load with Microsoft software programs, which computer systems must bear a genuine Microsoft COA attached to their chassis. Those recovery CDs are obtained from Microsoft authorised replicators. Mr Kolb's evidence was further that only royalty OEMs are contractually entitled to distribute recovery CDs with computer systems. He also attested that none of the respondents nor either of Hyundai Digital (Aust) Pty Ltd or Hyundai MultiCAV Australia Limited were royalty OEMs. Mr Lee's evidence was to the effect that he was aware at all relevant times that PC Club was not a royalty OEM, however he also denied being aware of the 'definition or role' of a royalty OEM as such appeared in Mr Walker's affidavit.
159 In respect of the so-called 'system builder channel', Mr Kolb's evidence (which again was attested to in similar terms by Mr Walker) was that MLGP authorises the three Microsoft OEM distributors operating in Australia, being Ingram Micro Australia Pty Ltd, Synnex Australia Pty Ltd and Tech Pacific Australia Pty Limited, to distribute Microsoft OEM Programs, that is software packaged in multi-packs, to system builders. Those multi-packs are acquired by authorised distributors directly from Microsoft authorised replicators and are then distributed to system builders, sometimes by means of sub-distributors. Those system builders, of which PC Club was an example, assemble new or else refurbish second-hand personal computers which they then sell with operating system software such as Windows XP pre-installed. The only legitimate source of that software for system builders is software packaged in multi-packs. Upon opening a multi-pack of software, the system builder 'breaks the seal' and is deemed to have agreed to the terms of the OEM System Builder License contained therein. In accordance with that license, the system builder is licensed to pre-install one copy of the Microsoft OEM program on a personal computer supplied by that system builder on the condition that the system builder supplies that personal computer to its customers with all associated components for those programs, which include CDs, manuals and COAs.
160 Those components are contained in the packaging or 'software unit'. A multi-pack contains somewhere between 3 and 10 software units, depending on the program. Mr Kolb's and Mr Walker's evidence was further to the effect that those software units are comprised of a CD contained in a Jewel Case which are shrink wrapped together with a product manual or other product guide upon which is affixed the COA. This is the only way in which licensed copies of Microsoft OEM software are supplied to system builders for distribution. Each system builder is required to remove the COA label from the shrink-wrap packaging and to affix it to the chassis of the personal computer onto which it has installed the software. The system builder is then required to provide to the customer their PC including pre-installed software together with the original software program on CD in its Jewel Casing together with any associated manual. System builders are not entitled to distribute software to customers in any way other than this.
161 The Windows XP Home software pre-installed by PC Club onto the computers it assembled by way of the 'DSP method' was said by Mr Lee to have been bought in 'multi-packs' for an average price of about $120 per unit. Contained within that multi-pack, as marketed by Microsoft was apre-installed kit compact disk, together with three shrink wrapped packages each containing one such CD loaded with the relevant Microsoft Windows program, together with a Microsoft manual, a COAattached to the shrink wrap, and instructions of Microsoft as to the application of the COA label to the chassis of the computer described as 'OEM instructions' ('OEM' being as earlier recounted the abbreviation for original equipment manufacturer's instructions). I have earlier referred to Mr Kolb's and Mr Walker's evidence as to shrink wrapped bundles made available by Microsoft's authorised replicators and distributors to system builders. Mr Lee explained that PC Club would install the Microsoft Windows software onto the hard drive of a master computer, and the software would be deployed from the master computer onto each individual computer intended to be sold pre-installed with Microsoft software in accordance with those OEM Instructions contained within the multi-pack. Following the installation or uploading of the Microsoft Windows software on or to the individual computers ready to be sold, Mr Lee further explained that PC Club would use the so-called pre-installation kit CD provided with the multi-pack to seal the individual computer and thus to secure it. The COAlabel providedon the shrink wrapped package would then be fixed to the chassis of the computer. The manual would be placed in the box packaging in which the computer would be sold, the box packaging would be sealed, and the computer would then be ready for sale or delivery with the Microsoft Windows software pre-installed.
162 Mr Lee identified thus the function of installing the Windows XP Home or Windows XP Pro software on computer hardware, as undertaken by PC Club, to be that of a delivery service provider (abbreviated as earlier mentioned in these reasons as 'DSP'). PC Club's records or PC Club's accounting software thus referred to 'DSP Windows XP Home Edition' or 'DSP Windows XP Pro Edition', being references to computers sold by PC Club whereby the Microsoft Windows software was said by it to be pre-installed and thus utilised in the manner above outlined.
163 What had been thus far explained by PC Club generally reflected the normal process adopted by system builders such as PC Club purported to be. However of critical relevance to the present proceedings was Mr Lee's description of the source for PC Club's acquisition of COA labels as left-over stock from certain apparently large distributors, the suppliers of which surplus stock were identified and asserted by Mr Lee to have provided oral assurances to him as to the authenticity of the COA labels he started to purchase from them. I will later review the evidence concerning those suppliers of COA labels to PC Club.
164 Mr Lee next explained in his principal affidavit evidence the 'COA only' method being the recording process said by him to have been implemented by PC Club by way of fixing the COA label, acquired from third parties, to the chassis of a computer. That method further involved the recording of the serial number (called a 'product key') appearing on the COAlabel attached to each computer '… so that PC Club can identify each individual item of software on each individual PC sold by it', and further so that PC Club 'can track each individual computer by this number through PC Club's accounting software'. He further explained that once the serial number of the individual COAlabel on each computer had been entered into PC Club's accounting software, it became possible to obtain a report of each computer sold by PC Club with Windows XP Home or Windows XP Pro pre-installed listed by serial number. Mr Lee tendered a report of about 170 pages, marked and thereby identified in the parties' submission as 'DL2', titled 'SOP Documents dated from 1 January 2002 to 30 November 2003', the abbreviation 'SOP' connoting 'sales order processing' which was said to have been produced from PC Club's accounting software. That report listed all personal computers sold by PC Club from 1 January 2002 until 30 November 2003 having Windows XP Home pre-installed by PC Club using the DSP method. The first column of the report related to PC Club's product code for DSP Windows XP Home and the second column to the date of sale; the third column contained PC Club's invoice numbers and the fourth column contained PC Club's customer numbers; the fifth column listed each customer's name and the sixth column contained the serial number appearing on the COA label attached to the chassis to each personal computer when sold. Mr Lee further tendered as 'DL-3' a PC Club report of 8 pages titled 'SOP Documents dated 1 January 2002 to 30 November 2003', which listed the details and numbers of personal computers sold by PC Club during that period of time having the DSP Windows XP Pro edition pre-installed and using the DSPmethod. Upon the basis of the 170 page report DL-2, Mr Lee testified that during the period from 1 January 2002 until 30 November 2003, PC Club sold 9419 personal computers with Windows XP Home pre-installed by way of the DSPmethod. Upon the basis of the 8 page report DL-3, Mr Lee calculated that during the same period of time, PC Club sold 426 personal computers with Windows XP Pro pre-installed by the DSP method.
165 After affirming that the purpose of PC Club's accounting software was thus to enable identification to be made of the source of the XP Home and XP Pro software the subject of the said exhibits DL-2 and DL-3, Mr Lee explained that the PC Club purchase orders would be matched with the invoices respectively relating to those orders, and the relevant data therefrom would be entered onto PC Club's accounting software. As a result of that process, Mr Lee asserted that in the period from 1 January 2002 to 30 November 2003, the said quantity of 426 units of Windows XP Pro software were in fact purchased by PC Club from various suppliers, and during the that period, the 426 computers listed in the report were sold by PC Club with the DSP Windows XP Pro edition pre-installed by the DSPmethod. Mr Lee further asserted that during the same period of time, PC Club purchased in fact 9708 units of DSP Windows XP software from various suppliers, and sold the said quantity of 9419 computers with Windows XP Home software pre-installed by the DSPmethod. That left 289 remaining copies of the 9708 software parcel purchased but not pre-installed on the computers sold within the same period of time. Those 'various suppliers' will shortly be identified from the evidence tendered by the respondents in the proceedings.
166 Mr Lee next addressed in evidence the affidavit of Microsoft's legal officer Ms Brasier (affirmed on 11 August 2004), to the effect that during the period from 1 January 2002 to 30 June 2004, PC Club purchased 2581 copies of Microsoft Windows programs from Microsoft's authorised distributors. Mr Lee asserted that '[t]he remainder of the Microsoft Windows Programs sold pre-installed on the computers and referred to in exhibits DL-2 and DL-3 were obtained from sub-distributors and dealers who obtained the software from Microsoft authorised distributors for resale or distributions on their behalf', they being asserted to be the five Australian sub-distributors he identified by name and which I have already identified. He further asserted that '[c]opies of all invoices relating to the purchase by PC Club of Microsoft Windows software to be pre-installed onto computers sold by PC Club were seized from PC Club's premises on 13 July 2004', the latter date being that of execution of the Anton Piller order at the instance of Microsoft.
167 After referring to PC Club's continued provision of Microsoft Windows software, being either Windows XP Home or Pro, pre-installed on computers by the 'DSPmethod', after 1 December 2003 and until the seizure on 13 July 2004, Mr Lee testified as to a report, said to have been obtained by PC Club from its own accounting system (exhibit 'DL-5') in respect of the period from 1 December 2003 to 13 July 2004 for DSP Windows XP Home, which listed details of all computers sold by PC Club during that period of time having Windows XP Home software pre-installed by PC Club using the DSPmethod. Mr Lee's review of Ex DL-5 asserted that PC Club provided 2167 computers with Windows XP Home software pre-installed by the 'DSPmethod' in that period of time. Mr Lee testified to a further PC Club report (Ex DL-6) appearing upon accounting software headed 'SOP Documents dated from 1 December 2003 to 13 July 2004', for 'DSP Windows XP Pro Edition' sold during that period of time. From his review of that report, Mr Lee observed that PC Club sold 342 PCs from 1 December 2003 until 13 July 2004 with Windows XP Pro software pre-installed by PC Club using the 'DSPmethod'. The quantity of Windows XP software legitimately sold by PC Club using the 'DSP method' during the period 1 January 2002 to 13 July 2004 is of relevance to the calculation of damages for infringement of copyright in respect of what the applicants called the 'undetected sales'.
168 Mr Lee's affidavit testimony thereafter moved to PC Club's controversial communications with certain 'retailers' of Microsoft software, which had resulted in PC Club's acquisition of COAs, other than from the five sub-distributors above identified and with whom he had been previously dealing. What was said by Mr Lee to have led him to initiate such communications was a telephone conversation with Hyundai's chief executive officer, Mr Aron Jackson. According to Mr Lee's evidence, Mr Jackson had complained of PC Club's 'expensive' price for the supply of DSP Windows XP Home and DSP XP Pro software. PC Club had been engaged for some time in the assembly of three models of computers for Hyundai, to the chassis whereof PC Club had been attaching a COA label. The second was said by Mr Lee to have been an email from Mr Bradley of Silver Alien Consulting ('SAC'), which advertised for sale 'Win XP Home COA' for $79 and 'Win XP Pro COA' for $105. Upon telephoning Mr Bradley, Mr Lee claimed to have been assured that Mr Bradley had been able to purchase from International Business Machines Limited ('IBM') genuine authorised and licensed Microsoft COA labels out of IBM's 'excess stock' (so-called by the respondents) of COA labels that IBM wished to dispose of, and which Mr Bradley asserted to him to be 'genuine and authentic'. Mr Bradley was said to have further assured him in the course of that telephone conversation as follows:
'As the COA labels are authentic and licensed by Microsoft, by purchasing the COA labels you can upload Microsoft Windows XP Pro or XP Home from a master copy provided by Microsoft onto a hard drive and this software can then be deployed on to other computers. You can then create a restore CD from the hard drive which can be sold with the computer which will enable the purchaser to re-boot the computer in the event that the hard drive crashes or fails. You then need to affix the COA label to the chassis of the computer being sold. Once you enter the product key on the COA label I am giving you, you will see that the programme will operate and the license and software will register successfully with Microsoft online.'
As later became apparent during his cross-examination, Mr Lee was uncertain as to whether that specific assurance was given to him by Mr Bradley in person or over the telephone.
169 Mr Lee's alternative account of the steps he took, and the context in which they were taken, to allegedly assure himself that the COAs offered by SAC constituted a valid license from Microsoft, was as follows:
(i) on 17 November 2003, Mr Lee telephoned Mr Bradley of SAC in response to an e-mail Mr Lee had received from Mr Bradley, apparently having never met or dealt with Mr Bradley before, and they had a conversation to the following effect:
Mr Lee: 'You have very good prices on Windows, how did you source your products?'
Mr Bradley: 'I can't tell you over the phone where I sourced them from'.
Mr Lee: 'We better have a meeting at our premises.'
(ii) later that same day, Mr Bradley attended the Rhodes premises of PC Club, yet did not bring a sample of any COA with him, and Mr Bradley and Mr Lee had a conversation in the terms of Mr Lee's affidavit evidence as to the authenticity of SAC's excess stock of COAs, which I have already extracted above;
(iii) Mr Bradley was said to have informed Mr Lee that those COA labels were excess stock obtained from IBM, and assured him that the 'COA only' method, by then in contemplation by Mr Lee, was licensed by Microsoft, and that it allowed PC Club to;
(a) create its own 'restore CDs' with copies of Windows XP made on them from 'master copies' of Windows XP loaded onto PC Club's hard disk drives; and
(b) load a copy of Windows XP onto the hard disk of a computer to be sold by PC Club.
170 Mr Bradley did not testify in the proceedings as to those critical matters, or at all; Mr Lee sought to explain that shortcoming by reference to an alleged disputation between PC Club and SAC, though the respondents did not apparently seek to compel Mr Bradley's attendance by subpoena, nor provide any documentary material relating to that disputation, including any written communications (infra).
171 Mr Lee's evidence by affidavit continued to the effect that he then obtained a COA label from SAC's Mr Bradley for testing at PC Club's premises, but was not able to ascertain that it was counterfeit, asserting that it looked authentic on close visual inspection, and further that it looked identical to the COA labels provided on the shrink wrapped package in the multi-packs provided by Microsoft's authorised distributors. He observed from the affidavit evidence of Ms Brasier that special tools and methodology, available only to Microsoft employees, were required in order to determine if a COA label happened to be counterfeit. No such verification exercise however was undertaken by Mr Lee with Microsoft in respect of that sample COA.
172 Mr Lee next testified by his principal affidavit that on 17 November 2003 or shortly thereafter, he turned on a computer at PC Club's premises containing pre-installed but unregistered Microsoft software. He went to the Microsoft website into which he entered the product key on the COA label provided to him by SAC's Mr Bradley, for the purpose of registering the program online with Microsoft. He continued that once he entered the product key, that key registered successfully with Microsoft online, because an activation code had been provided, and he therefore assumed that the COA labels he had so acquired from SAC were authentic, and that 'this method was another way of selling personal computers with pre-installed Microsoft on them'. He testified further that '[b]ased on this and the representations from Mr Bradley, I was under the impression that PC Club could legitimately deal with Microsoft software in this way'. Further explanation of the activation process later appears in these reasons. Mr Lee testified also of his awareness by that time that Microsoft placed information on its website in relation to piracy, and further that he had thereupon reviewed that website located at www.microsoft.com/piracy/activation,which he described as 'related to product keys and the like', and formed the impression that provided the relevant product key on aCOAlabel successfully registered the computer with Microsoft online, the COAlabel would be authentic and that he could deal in Microsoft Windows software in the way he had so described. Mr Lee said he was able to point to the latest version of Microsoft's website, which was tendered in evidence, and from which excerpts are later reproduced in these reasons as being 'very similar' to the version he had earlier consulted as above.
173 In the course of her cross-examination, Ms Knox, MPL's system builder partner account manager since February 1997, accepted as correct the following statement, as cited to her by senior counsel for the respondents '… Product activation will help reduce total copying by ensuring that the copy of the software product being installed is legal and has been installed on a PC in [compliance] with the end user license agreement'. The case put forward by the respondents was that the belief which Mr Lee claimed to have formed as to the authenticity of the COA labels PC Club acquired, in the circumstances so described in these reasons for judgment, was 'entirely reasonable', and was supported by the tests and inquiries which he claimed to have made, and which I have above summarised.
174 It was common ground that the COA label comprises at least part of the Microsoft anti-piracy mechanism, containing as it does a unique 25 digit authorisation key known as a product key. Thus in order to activate the programme once it has been loaded onto the hard disk, it is necessary for any user of the computer to provide the product key to Microsoft, either 'on line', or 'on the telephone'. Thereupon, either over the internet or on the telephone, the person thus activating the software would get an activation code sent or given to them. As it was otherwise explained in the evidence, what appears on the COA is not itself the activation code, but is a key that is necessary to send to Microsoft, and to which Microsoft in response gives the user a special activation code, and the user must then type that activation code information into the computer when he or she is activating the program. Otherwise the user is unable to use the product properly, in the sense that the product might operate but not to its full capacity, and thus only for a limited number of times before it would 'cancel out', that is, cease to operate. More detail of the activation process later appears. Both of MLP's Ms Knox and Mr Walker testified to the effect that MPL's website accurately stated that users would be unable to install software updates until they had acquired genuine software and installed that software with a valid product key and activation code.
175 Mr Lee narrated further in his principal affidavit that he purchased on 1 December 2003 some 300 COA labels relating to Windows XP Home from SAC, and he attached the receipt he received for the purchase of those labels. He said that he then entered the individual product key from each COAlabel onto PC Club's accounting software, being the product key whereby PC Club was said by him to be able to track the relevant computer and identify the relevant software installed on each computer sold. From that information so provided, he claimed that PC Club was able to produce a 'Receiving Posting Log' which identified the product key on the relevant COA label. A copy of the log relating to the COA labels obtained pursuant to the invoice from SAC was tendered into evidence, the first column of which was asserted by Mr Lee to identify the serial number on the individual COA label.
176 Upon the basis of his foregoing narrative and explanations, Mr Lee claimed to have 'formed the impression' that provided the relevant product key on any COA label he had thus purchased from SAC successfully registered the program with Microsoft online, it would follow that the COA label was authentic. Mr Lee did not suggest that he verified the authenticity of any of the labels PC Club acquired from SAC by independent inquiry made of Microsoft. His withholding from so doing is a matter of significance to the credibility of his belief as to the authenticity of the exceedingly low-priced labels so received from SAC. An invoice of 12 December 2003 from SAC for 280 XP Home labels, featuring the product key contained on each COA label, was tendered by PC Club into evidence. The applicants did not in any event concede the authenticity of that invoice. No evidence otherwise of payment actually made by PC Club to SAC was tendered, or at least what would be described as primary evidence.
177 Mr Lee next testified that on or around January 2004, PC Club had been experiencing cash flow problems, and that he therefore requested Lifestyle Brilliance Australia Pty Ltd ('LBA') to purchase some further Windows XP Home and Pro forms of COAon PC Club's behalf from SAC. The explanation given for interposing LBA as purchaser from SAC was because LBA was then indebted to PC Club, and by that process, LBA's indebtedness to PC Club was thereby reduced. How LBA was able to fund that purchase from SAC at PC Club's initiative, instead of satisfying its financial obligations to PC Club itself to enable PC Club to fund the purchase from SAC, was not explained. Mr Lee tendered into evidence a tax invoice dated 5 January 2004 from LBA for the supply to PC Club of 398 Windows XP HomeCOAlabels and 90 Windows XP Pro COAlabels, together with a tax invoice from SAC to LBA relating to those two parcels of labels. No other business (including accounting) records of PC Club in relation to the above or other dealings concerning PC Club's acquisition of COAs, being for instance ledgers or journals or even supporting vouchers in relation to transactions relevantly involving LBA and PC Club, were tendered into evidence, other than an invoice bearing date 20 January 2004 for 500 COA labels for Windows XP Home, together with the corresponding tax invoice from SAC to LBA.
178 Mr Lee testified additionally as to PC Club's purchase from LBA of a further 460 COA labels for Windows XP Home on 10 February 2004, and a further 10 COA labels for Windows XP Home on the following day; once again the only related business record documentation tendered into evidence appears to have been invoices. The applicants did not concede the authenticity of those invoices, or any transactions involving the interposition of LBA. Again, no independent verification as to the authenticity of the transactions relevantly between PC Club and LBA, or between SAC and LBA was provided, whether by way of journals, ledgers or otherwise. No officer of SAC or LBA testified in the proceedings on subpoena from the respondents, or otherwise. Again there was no suggestion by PC Club that it caused any enquiry to be made directly with Microsoft as to the authenticity of any of the COA labels which PC Club acquired from LBA.
179 Mr Lee's ensuing testimony of his principal affidavit related to PC Club's acquisition of further COA labels from sources other than Microsoft's authorised distributors in the following circumstances:
(i) Hyundai's Mr Jackson was said by Mr Lee to have rung him in March 2004 and said 'I can obtain further COA Windows XP Home from Mr Gerry Holman from the company Introsys Limited in the United Kingdom' ('Introsys'); Mr Lee said that he then rang Mr Holman and a conversation ensued to the effect of Mr Holman saying 'Aron Jackson informs me that you are making computers for him; I can provide COA Windows XP Home to you for this purpose'; Mr Lee's response was said to be 'how many can you provide?' and Mr Holman's rejoinder was said to be 'how many do you want?';
(ii) Mr Lee testified that he thereupon made arrangements to purchase 990 COA labels in relation to Microsoft Windows XP Home from Introsys on behalf of Hyundai, and he annexed to his affidavit a copy of an email enclosing an invoice dated 6 April 2004 which he said he received from Mr Holman for the supply of 990 COAsfor Windows XP Home; it appears from his ongoing narrative however that those labels were never in fact provided.
Mr Jackson, who provided some four affidavits in the proceedings at the instance of Microsoft, denied ever suggesting to Mr Lee that he (Mr Jackson) could obtain COAs from Mr Holman for PC Club. Mr Holman was not called by the respondents as a witness in the proceedings, nor were any documentary records of Introsys subpoenaed and tendered into evidence. I would prefer Mr Jackson's denial to Mr Lee's account of what seems to me to have been an unusual proposed transaction. My observations and impressions of Mr Jackson was that of a young man who was well acquainted with matters associated directly and indirectly related to the issues in the proceedings with which he had some connection. He answered questions put to him orally, all promptly, clearly, and decisively or emphatically. I thought he was a credible witness.
180 It is expedient at this point that I interpose a passage from Mr Jackson's affidavit evidence, which assists to put into context what Mr Jackson testified as to certain of his basic arrangements with PC Club, and thus to unsteady the purported suggestions of reliance placed by the respondents on Mr Jackson's testimony:
'The arrangements between PC club and Hyundai for the shipping of computers assembled by PC Club for Hyundai were as follows:
(a) Hyundai placed a purchase order on PC club for the number of each model of computer to be built, setting out the components which were to be assembled together to produce that particular computer;
(b) Hyundai ordinarily instructed PC Club to ship a PC directly to a particular customer after assembly, and as a result Hyundai did not see the fully assembled computer before it was shipped to the customers; and
(c) on a few occasions, PC Club failed to meet delivery customer deadlines, and as a result, PCs were shipped to Hyundai's offices in South Australia for direct distribution by Hyundai. On these occasions PCs would arrive in Hyundai-branded cartons and they would not be opened by Hyundai.'
181 Mr Lee continued his narrative of his controversial acquisition of COAs from third parties contained in his principal affidavit to the effect that on or around 4 June 2004, he met with Mr John Lee of John & Crew Marketing Communications ('JCIMC') at the Computex trade show in Taipei. He narrated a conversation to the effect that Mr John Lee informed him that he could obtain for PC Club some authentic Microsoft COA labels for Windows XP Home and XP Pro from '[a] large manufacturer [who] had some excess stock', and that in response to his (ie Mr David Lee's) query of Mr John Lee as to whether the same were authentic and genuine, Mr John Lee was said by Mr Lee (ie David Lee the respondent):
'[t]he process is authorised by Microsoft. You need to obtain a master copy of XP Pro or XP Home. This can then be copied on to the hard drives of computers. You can then affix the COA label I am providing to the chassis of that computer. When a customer purchases that computer and enters the product key on the COA label, it will register successfully with Microsoft online. This is common when large manufacturers have excess stock of COA labels that they need to dump before their next month's commitment'.
The identity of the particular 'large-scale' manufacturer was not stated by Mr Lee in his evidence. Mr Lee testified that he thereby formed the view that it was common industry practice to acquire COA labels in the manner demonstrated by SAC, LBA and JCIMC, and to deal accordingly in Microsoft Windows software, '… particularly as the COA labels appeared to be authentic and did not look to be counterfeit even after examination and inspection by me'. Mr Lee further testified that 'the product keys on the COA labels were authentic and were not counterfeit', the basis for that statement apparently being the successful activation by Mr Lee of the product key on the sample COA provided to PC Club by SAC.
182 Mr John Lee also did not testify in the proceedings and accordingly the applicants objected to the admissibility of that evidence (as well as that tendered by the respondents concerning SAC and LBA). I allowed the evidence to be given in each case. Since the same comprised in each case a purported description of an oral transaction and the circumstances as to its alleged formation, irrespective of the unusual nature thereof, and the apparent absence of business records bearing upon or relating to the transactions that were allegedly consummated, or at least the absence of production thereof as to the Court. That is not to say of course that any admissibility of evidence requires conclusions as to the authenticity of the alleged transactions the subject thereof.
183 It was in that context that Mr Lee thus deposed in his principal affidavit that PC Club purchased on 16 June 2004 from JCIMC 100 COAlabels relating to Windows XP Home and 200 COAlabels relating to Windows XP Pro, and a copy of an invoice for $20,500, and PC Club's so-called 'receiving posting log', both of which were tendered in evidence in purported connection therewith. Subsequently on 30 June 2004, PC Club was said by Mr Lee to have purchased from JCIMC a further 150 COAlabels for Windows XP Home, and a further 150 COAlabels for XP Pro, and a copy of an invoice in purported relation thereto for $19,500 was also tendered in evidence (in each case of course by way of further attachment to Mr Lee's affidavit). Moreover PC Club documents (12 pages in number) tendered in evidence purportedly recorded individual unit quantities received, and dates of receipt, covering the period from 1 January 2002 to 13 July 2004. They were not of course in the nature of formal ledgers or journals of PC Club, nor were they established to be as such. Mr Lee observed in his principal affidavit in relation to that documentation that PC Club '… purchased 2198 COAlabels for Windows XP Home', and further 'purchased 440 COAonly labels in relation to Windows XP Pro'. As in the case of the COA labels obtained from SAC and LBA, PC Club made no independent enquiry of Microsoft in order to verify the authenticity of the COAs acquired from JCIMC.
184 A report said by Mr Lee to have been prepared by him from PC Club's accounting records, titled 'SOP Documents dated from 1 December 2003 until 13 July 2004 for COA Windows XP Home', was also produced in evidence by the respondents by way of attachment to Mr Lee's affidavit, which purported to list 'all computers sold by PC Club with Microsoft Windows XP Home pre-installed by the COA only method used by PC Club in that period'. Mr Lee testified by his principal affidavit in that context that 'PC Club sold 2181 computers with Windows XP Home software pre-installed by the COA only method from 1 December 2003 until 13 July 2004'. He further testified on the footing of thatinternal PC Club accounting software report that 'PC Club sold 203 computers with Windows XP pre-installed by the 'COAonly' method'.
185 It was on the purported basis of the documentation and circumstances I have summarised as to PC Club's acquisition of counterfeit COAs from SAC and JCIMC (and LBA indirectly), and subsequent disposal of computers to which the COAs were attached, that the respondents advanced the bold contention that PC Club, through Mr Lee, '… had no reason to suspect that the "COA only" method was not legitimate'; moreover as I have also recorded, PC Club purportedly asserted reliance on the content of the Microsoft website, being a reliance which I have found to be misplaced.
186 The respondents next tendered evidence as to what they contended to be the significance of their response to the Anton Piller order and its execution. After the execution of thatorder at PC Club's premises on 13 July 2004, Mr Lee sent an email dated 16 July 2004 to Mr Bradley at SAC in relation to the COA labels for Windows XP Home and Windows XP Pro which Mr Lee claimed to have purchased from SAC on behalf of PC Club; the text of that email was as follows:
'Hello Steven
Silver Alien Re: Microsoft products request for refund
We had [sic] been caught by Microsoft Australia in relation to your COA Windows XP Home and XP Pro license only.
As I had mentioned to you earlier on around December 2003 at our PC Club Office, I asked you many time [sic] about the license software legality.
You had convinced me that the products are genuine and we can sell them in Australia.
You guaranteed to me that if it does not work, you will return the money.
Now Microsoft ceased all Windows products at PC Club on about July 13, 2004.
We now request a full refund on the products that you had supplied.
Could you please organise a transfer to PC Club ASAP for the following invoices
History 290 INV 1/12/2003 $23,595.00 $0.0
200 300 533
History 293 INV 12/12/2003 $23,177.00 $0.0
200 300 533
Total amount = A$46,772.00
[PC Club's bank account details with National Australia Bank were then detailed]
I have lost so much time and effort for this particular issues [sic] and I do not wish to have more hassle from your company.
Could you please advise further your direction and reply to my email accordingly.
Thanks.
Should you require further assistance, Please feel free to call me on (02) 9736 2688.
David Lee
National Sales & Marketing'
A copy of that email was emailed to inter alia Mr Fang and Mrs Lee. No response was said by Mr Lee to have been received by PC Club to the above email, which in all the circumstances to date, and yet to be recorded, I would think to have been more probably than not merely self-serving. As I have already mentioned, Mr Bradley was not called by the respondents to testify, whether pursuant to a subpoena or otherwise. Nevertheless the respondents sought to gain support for their case from that email purportedly sent by Mr Lee to Mr Bradley, and to which Mr Bradley did not apparently respond.
187 A similar email was sent by PC Club on the same day addressed to John Lee of JCIMC, the invoice 'history' appearing therein, in relation to which PC Club demanded a refund, being particularised as follows:
'History LB930624 INV 16/06/2004 $20,500
112 498 16/06/2004
History LB930629 INV 30/06/2004 $19,500
30/6/2004
Total amount = A$40,000.00.'
Mr David Lee asserted that he thereafter received a response from Mr John Lee on 20 July 2004, reading (literally) as follows:
'Hi David
I am really regret to what did happen in ur company and your loss for the labels that sent from us. First of all, it's not my intention to make you suffer the loss or trying to deceive you by inlegal labels. I bought from my supplier, (dear David u tell me that u know what it is) and the supplier (Mr Che) tell me that he bought from some technology company.
I never said those label are sellable in Australia, and only advised that labels are genuine and not fake and you can register in pc, because the supplier avouch me that. As a matter of fact, you did prove the labels can be registered by several days after I sent to u, then u order again.
After my father's funeral I will keep push the supplier give the evidence to proof those product are not fake.
Best regards,
John'
It was at that point that Mr Lee's affidavit account of the circumstances involving PC Club's asserted acquisitions of COAs from SAC and JCIMC concluded. There was no evidence tendered as to the outcome of JCIMC's so-called 'push the supplier' for the provision of authenticated evidence. As I have earlier recorded, neither Mr Bradley nor Mr John Lee testified in the proceedings for the respondents or at all, nor for that matter did any representative of LBA, and none of those persons were apparently subpoenaed by the respondents to give evidence on their behalf.
188 I interpolate here to record the evidence of Ms Brasier of MPL at [12] of her third affidavit that upon execution of the Anton Piller order at the premises of PC Club on 13 July 2004, the following were uncovered:
(i) 17 counterfeit and 'loose' Windows XP Home COAs;
(ii) 226 counterfeit and 'loose' Windows XP Pro COAs;
(iii) 3 genuine but 'loose' Windows XP Home COAs;
(iv) 1 genuine Windows XP Home COA which had been re-applied to media and manuals;
(v) 4 counterfeit Windows XP Pro COAs, attached to full computer systems; and
(vi) 1 counterfeit Windows XP Home COA attached to the side panel of a computer.
Ms Brasier testified to the effect that those COAs were counterfeit on the basis of tests undertaken of those labels by MPL's representatives using specialised equipment. The applicants submitted correctly in my view that the presence of so many 'loose' COAs in the possession of a system builder invited the inference that those COAs were counterfeit and obtained without Microsoft's license. This is because on the applicants' evidence system builders were not licensed to accept supply of COAs unless affixed to the shrink-wrap packaging of software units contained in multi-packs. I observe however that the authenticity, or otherwise, of those COAs obtained and used by PC Club in pursuit of the 'COA only' method is not relevant to the question of infringement of copyright. The infringing conduct was of course the creation of unlicensed reproductions of Windows XP Home and Pro onto the hard disks of personal computers sold by PC Club and onto restore CDs.
189 In further support of their claim that neither PC club nor any of the other respondents were aware, or had reasonable grounds for believing, that the reproduction and distribution of Windows programs on computers per medium of the 'COA only' method amounted to an infringement of copyright in those programs, the respondents relied upon the contents of the anti-piracy page of the Microsoft website. That material was said by the respondents to 'make clear' that Microsoft's so-called product activation instruction, explicitly requiring the supply to Microsoft of the 25 digit product key appearing on the COA label in order to obtain a unique product activation code, indicated that Microsoft's software piracy protection technology is the product key on the COA label. The respondents pointed out in that regard that Microsoft's Ms Knox and Mr Walker confirmed that the following statements from the 'Software Piracy Protection page' on Microsoft's website were accurate and correct:
'Page 1
Microsoft Product Activation is an anti-piracy technology designed to verify that the product has been legitimately licensed.
All customers who purchased retail product or a new PC from an original equipment manufacturer (OEM) will be required to activate the software.
Page 2
Microsoft designed Product Activation as a simple way to verify the software license and thwart the spread of software piracy.
Product Activation will help reduce casual copying by ensuring that the copy of the software product being installed is legal and has been installed on a PC in compliance with an End User License Agreement.
Product Activation is a breakthrough technology in that it makes activation a natural part of setting up the software and avoids the pitfalls of anti-piracy methods used in the earlier days of the PC industry.
Page 3
Product Activation also helps prevent unsuspecting customers from purchasing counterfeit software.
Page 4
… a user may use a product for a certain amount of time without activating it. For the Office XP family the grace period is the first 50 launches… for Windows, it is 30 days from first boot or upgrade.
Application product will go into reduced functionality mode if the user does not activate before the end of the grace period.
Page 5
The product does check itself from time to time to see if it is activated and if it is still on the same PC on which it was originally activated.
Page 10
Product activation was and will continue to be significantly harder to crack than most people think.
Microsoft will introduce additional technological measures in Service Pack 1 for Windows XP aimed at ensuring legally licensed customers receive the full benefits of owning their valid licence. These changes include denying access to the Windows XP updates for PCs with knowing pirated… product key validation during activation.
They will be unable to install the updates until they have acquired genuine software and installed that software with a valid product key.'
Ms Knox accepted that '… product activation ensures that the product is legal'; that acceptance needs however to be read with the references above to the Microsoft website at pages 3 and 10 to product activation 'help[ing] prevent… [customers from] purchasing counterfeit software' and also being 'significantly harder to crack than most people think', being assertions or claims not made of course in absolute terms.
190 Ms Knox was cross-examined upon the text of that Microsoft's website material, and in particular upon the words on page 2 thereof above cited, namely 'Product activation will help reduce casual copying by ensuing that the copy of the software product being installed is legal and has been installed on a PC in compliance with an End User License Agreement'. It suffices to observe that the text of the website material, at least to the extent above extracted, does not support the unqualified contentions of the respondents that the website material represented that 'product activation ensures that the product is legal', and further that so much '… really should be the end of the matter'. Microsoft's official wording does not provide objectively the extent of unqualified assurance to users of COAs so submitted on behalf of the respondents. More will be included in these reasons as to the foregoing theme of this paragraph.
191 The respondents contended in any event that it was 'clear' that when Mr Lee tested the COA labels which PC Club had purchased from SAC and JCIMC, whereby 'the product successfully registered and activated', Mr Lee 'could rest assured that the software he was selling was legitimately licensed', and could do so particularly in the light of what was described as the Microsoft website assurances in relation to the product activation technology involving the product key on the COA label. The respondents also contended rhetorically 'how can it possibly be unreasonable, as must be the applicants' case, for someone to believe them?', particularly given that '[t]he applicants witnesses, Ms Knox and Mr Walker, confirmed that the statements were true, but if the respondents' defence of innocent infringement is to be rejected it will be necessary to find that David Lee believed they were false'. The respondents accepted that '[i]t now appears, upon production of copies of voluminous license agreements, that Microsoft's incredibly complicated licensing system does not result in a legitimate license by the "COA only" method, but who was to know?', so the respondents nevertheless asked rhetorically, and thereafter sought to answer in the same vein of overstatement to the effect '[c]ertainly not anyone who had read the web page and successfully activated using the activation key and the COA only method'. But of course the applicants did not shrink from the task of endeavouring to attribute adversely to Mr David Lee, not just dishonesty on his part but dishonesty on a substantial scale, in relation to which PC Club stood to be financially rewarded.
192 For the reasons I have already summarised, the applicants successfully demonstrated that the extent of reliance upon that website material by the respondents went well beyond what was reasonable, having regard to all the facts and circumstances here present and the text of the website. Also important as I have already pointed out, neither Mr John Lee of JCIMC, nor Mr Bradley of SAC, testified in the proceedings, nor did any representative of LBA, as to their sources of acquisition of the COAs purchased by PC Club. Nor was the Court placed in a position adequately to verify or corroborate Mr Lee's account of the assurances allegedly provided by those persons.
193 In any event, in pursuit of the theme of their foregoing submissions, the respondents contended that Hyundai's Mr Jackson for his part thought that the 'COA only' method was legitimate, and drew attention to the following passage in his cross-examination on behalf of the respondents, in the context of PC Club's asserted intention to make a Hyundai restore CD:
'And you know that COAs were going to be attached to the chassis of your computer by PC Club - Correct.'
However Mr Jackson eschewed emphatically any suggestion of anything other than genuine and authentic COAs being utilised in the course of Hyundai's operations, directly or indirectly. He offered the following explanation as to his encounter with restore disks apparently assembled by PC Club:
'In or about October 2003, Mr Chris Smoker, the Technical Services Manager at Hyundai received in the post from Mr Lee a sample of the Hyundai restore disk with [sic] Mr Lee had prepared for my approval…. Soon after receiving the Hyundai Restore CD, Mr Smoker showed it to me, and I did not object to it. To the best of my recollection Mr Smoker then spoke to Mr Lee and informed him that Hyundai approved the Hyundai Restore CD. On several occasions I visited PC Club's Rhodes premises and noted that there were various CDs, including copies of the Hyundai Restore CD, lying around the DC burner in PC Club's build room, or stacked on shelves.
At the time Hyundai received the Hyundai Restore CD, I thought that PC Club was entitled, pursuant to its licensing arrangements with Microsoft for the "COA only version", to reproduce Microsoft Windows XP Home onto the hard disk drive of a Hyundai Computer and onto a CD accompanying the computer and branded "Hyundai". I am now informed by Microsoft that PC Club was not authorised to reproduce Microsoft software on to the Hyundai Restore CD, and that the only way in which PC Club was authorised to distribute Microsoft Windows software pre-loaded on to a computer was in circumstances where a genuine Microsoft COA was affixed to the chassis of the computer, and the computer was accompanied by a CD originating from Microsoft.'
In other words, Mr Jackson testified to a belief on his part that PC Club was a 'Named Account' of Microsoft, that is, one of the so-called 'royalty OEMs', who as the evidence earlier extracted demonstrates, were legitimately provided with rolls of 'loose' COAs and pre-made recovery CDs from Microsoft authorised replicators pursuant to the wholly separate licensing agreements to which royalty OEMs were subject.
194 The respondents further sought to emphasise, in support of their case as to absence of reasonable grounds for suspicion within s 115(3) and in any event of any flagrancy of infringement within s 115(4), the unlikelihood of their being involved in 'anything untoward' in relation to their adoption of the 'COA only' method, in the light of the outcome to their previous litigious encounter, per medium of DAT Computers, with Microsoft, and thus of 'publicly and widely advertis[ing] what [PC Club] was doing'. That publicity was said to take several forms as follows:
(i) PC Club's email to its customers to the effect that it was using the so-called COA only method, by reason of the statement 'Windows XP Home COA license only - no media supplied';
(ii) PC Club's invoices and accounting records referred to receipts of the COA labels, and moreover, as the respondents emphasised, referred to sales by the 'DSP method' and the 'COA only' method, thereby not attempting to dissemble or hide its exploitation of the 'COA only' method;
(iii) PC Club mass produced recovery CDs bearing Hyundai's name, which further 'broadcast to the world' what PC Club was doing.
195 That publicity is a factor of course which I have borne in mind, though it is not of course a decisive factor in favour of the respondents. The respondents further asserted that their conduct involved in the 'COA only' method did not involve anything knowingly or suspiciously untoward on their part, and moreover that it would be reasonable to suppose that given their previous adverse litigious experience with Microsoft, it was to be all the more expected in the ordinary course that they would have sought the assurance of confirmation directly from Microsoft, particularly given the scale of their acquisitions from SAC and JCIMC, had the respondents not been otherwise convinced of the legality of their conduct. Particularly is that so, in the light of Mr Walker's evidence as to the frequency of Mr Lee's communications with MPL's employees as to experiences of difficulties with Microsoft's products. I have already made observations however upon the nature and extent of the respondents' seeking of assurances from Microsoft, which did not take the form of direct communication with Microsoft as to at least the nature, size and other circumstances of their acquisitions of COAs, and of the extent of detail of their proposed acquisitions, the identity of the proposed vendors, and the legality of manufacture of their own recovery CDs.
196 The respondents' case was of course that if infringement did occur, depending on whether the applicants first proved subsistence and ownership of copyright, the infringement was 'innocent', that is infringement falling within s 115(3), PC Club having established that at the time of the infringement, it was unaware, and had no reasonable grounds for suspecting, that its conduct, involving as it did 'the preloading of software using the "COA only" method', constituted an infringement of copyright. Upon that footing which I have sought to summarise, the respondents denied liability for any award of damages, irrespective of the outcome of the issue raised as to the applicants' alleged absence relevantly of entitlement to sue for infringement of copyright.
197 In subsequent submissions in rejoinder, the respondents repeated in outline much of their submissions in chief, sometimes with differing emphasis, by reference to other circumstances which had since come to light. To that end, the court's attention was drawn by the respondents to the following additional circumstances:
(i) the settlement of certain court proceedings effected in March 2004 between Microsoft and Mr Bradley of SAC relating to the supply by Mr Bradley of COA labels, which contained undertakings on his part to testify on behalf of Microsoft against other infringers; given that the applicants' did not adduce evidence from Mr Bradley in the subject proceedings, it was submitted that Jones v Dunkel references were open to be drawn adversely to the applicants; however what those inferences might precisely have been was not articulated; Microsoft's Ms Brasier for her part had testified in the present proceedings already that Microsoft had reached that settlement with Mr Bradley;
(ii) even close visual examination of the COA labels the subject of the present litigation would have presented the appearance of authenticity to any uninformed observer, given the absence of access to special tools, available only to Microsoft, necessary to detect hidden images proving absence of authenticity; moreover appearing on the counterfeit COAs were said to be repeated holographic images placed diagonally across the face of the label 'Genuine Microsoft'; (ii) large volume manufacturers were asserted not to be purchasers of 'flat packs' (such as exhibit DL-1), which were said to be distributed in Australia to system builders and small volume computer manufacturers, such as was asserted by the respondents to describe PC Club; those large-scale distributors of which IBM in at least some countries was one, make their own restore disks; what the latter were said (again by the respondents) to customarily purchase from Microsoft were vast quantities of COA labels from authorised replicators; I observe however that the emphatic evidence of the applicants' witnesses was that those large-scale manufacturers, or royalty OEMs, were actually also supplied with restore CDs by Microsoft authorised replicators.
198 Upon that general description of industry practices, the respondents submitted that, the belief asserted by Mr Lee that the subject COA labels were genuine 'left over' stock from IBM carried with it what the respondents described as the understandable belief, said to be claimed by Mr Lee, that Microsoft had already received payment of its license fees in relation to programs reproduced by the manufacturer. Of course, confirmation of that alleged factor could have nevertheless been sought by PC Club directly from Microsoft, but of course was not.
199 Nevertheless those contextual factors were contended by the respondents to provide support for the asserted understanding as to Mr Lee's professed belief, to the effect that he was not buying merely 'loose COA labels', but product that 'had already been paid for by IBM', to cite the precise words of Mr Lee's testimony cited by the applicants:
'In your mind what was that you were buying from…? --- I was under my [sic] impression that I bought the license from a large manufacturer which has a license with Microsoft and so we can use the Recovery CD.'
No enquiry was however purportedly made by Mr Lee to verify that asserted impression, whether from IBM or any of the other entities above referred to. It was truly a case of unsubstantiated speculation at best on Mr Lee's part in relation to what were very substantial acquisitions of COAs from two different suppliers (being SAC and JCIMC of course), the testimonial assistance of neither having been invoked by PC Club.
200 The respondents further submitted that the price differential did not carry the extent of significance asserted by the applicants, since it was '… the difference between a range of $118 to $125 on the one hand and a price of $79 (or possibly a range of $55 to $75) on the other. That was however a significant difference, bearing in mind in particular the very large number of COA's relevantly involved, the context of a product susceptible to large turnover in the hands of an operator such as PC Club, and the competitiveness of the market for OEM versions of Microsoft software programs. It was acknowledged by the respondents that PC Club paid $55 to $75 or $79 for what Mr Lee believed to be 'the COA label and the bare license', as his senior counsel so accepted; the submission continued to the effect that a buyer of the COA label, 'having thus paid his license fee, makes his own restore discs, whereas in the case of "system builder flat packs", what is bought is the physical product and the license', at a price of $118 to $125 as exemplified by exhibit 'DL-1'. The price difference therefore was said by the respondents to be reasonably explicable by the absence of a CD and other media when purchasing programs via the 'COA only' method. As the applicants persuasively rejoined, the notion that an experienced system builder, such as was Mr Lee, would believe that such a large price differential was explicable wholly by the absence of a CD and a few pieces of plastic and paper comprising the associated media and packaging is preposterous. It was of course never part of the respondents' case, nor sensibly could have been, that the price paid by PC Club for the contentious COAs gave PC Club other than a very profitable competitive advantage over its traditional established competitors.
201 The respondents then repeated their reference to the affidavit evidence of Microsoft's Ms Knox in relation to the operation of the COAs' 25 digit product key, and submitted that it was 'inconceivable' that any person, particularly if he or she had read the Microsoft anti-piracy website, and who had successfully performed that operation, would believe that the computer program successfully activated was not legitimate, and a fortiori where what had been undertaken by the operator was not a 'one off' activation, as Mr Lee seemingly testified to have been occurred. The respondents also again empahsised Mr Lee's asserted understanding that he was not just buying loose COA labels, but rather a license that had already been in effect paid for by IBM. I do not find that proposition to be plausible. The integrity of that understanding falls to be gauged in however in the light of the combination of the factors I have reviewed, including the significance of the extent of the price differential comprising the price range of $118 to $125 which generally prevailed at the material time for authentic transactions of Windows XP Home, and the range of $55 to $75 (or $79) applicable to PC Club's impugned purchasing transactions. That price differential was all the more significant, given the absence of adducement of evidence in the proceedings from PC Club's vendors (being Mr Bradley of SAC and Mr John Lee of JCIMC), and the absence of any endeavour on Mr Lee's part to verify the authenticity of PC Club's acquisitions and the 'COA only' method directly with Microsoft.
202 I have given close consideration to the nature and implications of the evidence adduced by the respondents, and by Mr David Lee of course in particular, as to his alleged experience with Microsoft's 25 digit product key, and also his explanations and assertions appearing at the material times on Microsoft's website. Assuming that such essentially uncorroborated evidence may be accepted as credible, and of course I have indicated my misgivings in any event as to the credibility of other aspects of Mr David Lee's testimony, the inference open to be drawn from the evidence otherwise in the proceedings was to the effect that the activation code was not necessarily 100% operative on every occasion of attempted activation on PC Club's part in relation to each and all of the very numerous COAs acquired by PC Club for the purchasers of its duly loaded computers. Various complaints were voiced by Hyundai's Mr Jackson at a meeting involving representatives of Hyundai, PC Club and United Electrical (infra) in relation to computers installed with Windows XP programs purchased from PC Club. (United Electrical was the firm to which customer support in respect of Hyundai PCs was outsourced). The experiences of other purchasers of equipment relevantly from PC Club must be a matter for speculation only. Mr Jackson's satisfaction with the legitimacy for the time being of the product which his company Hyundai was acquiring from PC Club does not advance the respondents' case the distance required to adequately enliven s 115(3) or to confront the case which the applicants propounded against the respondents as to the flagrancy factor under s 115(4).