Pontello v Giannotis

Federal Court of Australia|1997-05-16|Before: Lehane JJ, Burchett J

The appellant, the operator of a chain of retail stores, imported into Australia sometime in 1995 1,000 copies of a compact disc manufactured by Pilz Media Group of Germany. The compact discs, which contained recordings of songs by a popular singer known as Cher, were offered for sale in the appellant's stores, and some of them were actually sold. Among the recordings, were unauthorized copies of originals the copyright in which belonged to the first respondent, of which the second respondent was the exclusive licensee. They recovered damages, by the judgment under appeal,

for infringements of copyright under ss. 102 and 103 of the Copyright Act 1968. As only a small number of recordings had actually been sold, the compensatory damages (calculated on the conversion basis) amounted to a mere $275-00; but additional damages were awarded under s. 115(4) of the Act in the sum of $15,000-00. Two substantial questions are raised by the appeal: whether the actual or constructive knowledge of which ss. 102 and 103 speak was established; and whether the circumstances proved justified so comparatively large an award of additional damages. Sections 102 and 103 of the Copyright Act provide as follows: "102. Subject to section 112A [which is irrelevant to this appeal], a copyright subsisting by virtue of this Part is infringed by a person who, without the licence of the owner of the copyright, imports an article into Australia for the purpose of: (a) selling, letting for hire, or by way of trade offering or exposing for sale or hire, the article; (b) distributing the article: (i) for the purpose of trade; or (ii) for any other purpose to an extent that will affect prejudicially the owner of the copyright; or (c) by way of trade exhibiting the article in public; if the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright. 103. (1) Subject to section 112A, a copyright subsisting by virtue of this Part is infringed by a person who, in Australia, and without the licence of 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 or, in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright. (2) For the purposes of the last preceding sub-section, the distribution of any articles - (a) for the purpose of trade; or (b) for any other purpose to an extent that affects prejudicially the owner of the copyright concerned, shall be taken to be the sale of those articles."

It will be observed that each of these sections involves an element of actual or constructive knowledge. The alternative, "or ought reasonably to have known," was inserted into the sections by the Copyright Amendment Act 1991, which commenced on 23 December 1991. The amendment reflects an expression that had been inserted, in 1986, into s. 132, a section creating various copyright offences. In that section, Pontello v Giannotis (1989) 16 IPR 174, a decision of Sheppard J, treats the same words, in accordance with their literal effect, as setting up an objective test. The language in which, since 1991, the objective test stated in ss. 102 and 103 has been expressed quite closely parallels language which is also relatively new in ss. 22 and 23 of the Copyright, Designs and Patents Act 1988 of the United Kingdom. In s. 23, the expression is "which he knows or has reason to believe is, an infringing copy of the work". Nourse LJ said of these words, in L.A. Gear Inc. v Hi-Tec Sports plc [1992] 19 FSR 121 at 139: "Since the test is an objective one ... ." His Lordship regarded it as clear that it would be sufficient to show "the defendant had knowledge of facts from which a reasonable man would have believed [the item in question to be an infringing copy]". Staughton LJ and Sir Michael Kerr agreed. But, in my opinion, the expression used in the Australian Act does nevertheless allow regard to be had to the knowledge, capacity and circumstances of the particular defendant. An objective assessment is to be made as to whether he, not some other person, "ought reasonably to have known". I note that a similar qualification seems to have been intended to be conveyed by the drafting even of the United Kingdom provision: Laddie, Prescott and Vitoria on The Modern Law of Copyright and Designs, 2nd edition (1995), volume 1, section 10.3. I have thought it important to draw attention to these aspects of the construction of the alternative, permitting the respondents to rely on less than actual knowledge, because a number of the authorities in this area emphasize the higher requirement which applied before the 1991 amendments. See RCA Corporation v Custom Cleared Sales Pty Ltd (1978) 19 ALR 123 at 125-126; Apple Computer Inc v Computer Edge Pty Ltd (1984) 53 ALR 225 at 238 (a passage the authority of which is not affected by the reversal of the decision by the High Court in Computer Edge Proprietary Limited v Apple Computer, Inc (1986) 161 CLR 171, as all judges of the High Court made clear); and Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 at 257, and the authorities there collected. The change is perhaps not as great as might at first glance be thought, since the authorities I have cited gave a rather special meaning to knowledge in this context; but the express adoption by the legislature of the objective language in question requires a new weight to be attached to the circumstances of each case. In the circumstances of the present case, the trial Judge, who heard oral evidence on the subject of their knowledge from the appellant's directors, rejected that evidence, and reached a firm conclusion that they (as its directing minds) ought reasonably to have known the matters set out in ss. 102 and 103. His Honour discussed a number of considerations appearing in the evidence which led him to this view. Of particular significance was the fact that the appellant sought from the German manufacturer express confirmation "that all licence and copyright conditions have been met for sale and distribution in Australia and New Zealand", but received only a guarded and limited assurance. The reply from Pilz Media Group referred to payments to collecting societies concerned with the copyright in the musical work (in the rather odd jargon of this area of the law called "mechanical copyright"). His Honour held that the appellant knew of the distinction between the mechanical copyright and the copyright in sound recordings, generally owned by major record companies, and he could find in the evidence no credible explanation for the appellant's failure to pursue its enquiry with respect to sound recording copyright, following its receipt of a reply clearly limited to mechanical copyright. The appellant sought by various means to avoid the telling impact of this point, but in my opinion there is no ground to disturb the conclusion. It is, of course, supported by the judge's impression of the witnesses, whose explanations he heard and disbelieved. Other matters raised on behalf of the appellant were also rejected by findings of fact that were well open to his Honour, so that, in the end, the question of its directors' knowledge was determined by the clear inferences available from their choice to proceed with the importation of the recordings after receiving so unsatisfactory a reply to their request for an appropriate assurance. The judge considered that this situation evinced a blatant disregard for the rights of the copyright owner. In my opinion, he was justified in his conclusion. The circumstances entitled him to see the appellant's conduct as much more serious than a mere neglect to make all proper enquiries. Neglect, where a careful person might enquire, is one thing; abstention from pursuing a plain indication that a necessary licence has not been obtained is another thing altogether. I turn to the second issue in the appeal. 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; (ii) any benefit shown to have accrued to the defendant by reason of the infringement; and (iii) all other relevant matters; the court may, in assessing damages for the infringement, award such additional damages as it considers appropriate in the circumstances." I stated my understanding of the nature and purpose of this provision in Autodesk Inc v Yee (1996) 139 ALR 735 at 738-739, as follows: "An element of penalty is an accepted feature of copyright legislation. The infringer has been regarded, at least since the eighteenth century, as a 'pirate', who ought to be treated accordingly. In Millar v Taylor (1769) 4 Burr 2303; 98 ER 201 at Burr 2323; ER 212 reference was made to 'the whole jurisdiction exercised by the Court of Chancery since 1710, against pirates of copies'; and, in the same case (at Burr 2322; ER 211), it was said that the statute of Queen Anne of 1709, from which modern copyright law takes its origin, 'secures [the property of the copyright owner] by penalties'. The Copyright Act 1968 is entirely in keeping with traditional views of the matter when it makes provision, by s 115(4), for the award of 'additional damages' on grounds which include 'the flagrancy of the infringement'. In Australia, this means that damages may be given upon principles corresponding to those governing awards of aggravated and also exemplary damages at common law: see Laddie, Prescott and Vitoria, The Modern Law of Copyright and Designs, 2nd ed, 1995, vol 1 sec. 24.30; Bailey v Namol Pty Ltd (1994) 53 FCR 102 at 113-14; 125 ALR 228." 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. At all events, I agree with the judge when he held the appellant's blatant disregard, of a plain indication that only their obligations to the owner of the mechanical copyright had been met by Pilz Media Group, did justify him in concluding there was here a sufficient degree of flagrancy shown by the appellant to satisfy the subsection. In the present appeal, the appellant points to the lack of proportion between the small sum of damages awarded and the additional damages of $15,000-00. The point becomes less striking once it is appreciated that the respondents' claims involved, not merely the small number of recordings that had been sold, but also the much larger number of recordings offered for sale, the sale of which was prevented by the action. A claim in detinue under s. 116 succeeded in respect of 945 compact discs. But, in any case, the point made in Autodesk v Yee was that the Act has objectives other than compensation. This point has been emphasized under the corresponding provisions in the United Kingdom and in New Zealand. In Cala Homes (South) Limited v Alfred McAlpine Homes East Limited (No. 2) [1996] FSR 36 at 43, Laddie J referred to additional damages as being "a head of relief independent of and not dependent upon whatever form of financial relief the plaintiffs seek". Similarly, in International Credit Control Ltd v Axelsen [1974] 1 NZLR 695 at 703, Mahon J referred to the contrast between aggravated damages and "mere compensation to the plaintiff". As I have said, the evidence justifies the view that this case is not to be regarded as the consequence of a mistake or neglect (cf. Prior v Lansdowne Press Pty Ltd (1975) 12 ALR 685 at 690). It is, as the judge held, a case of flagrancy. In the light of all the circumstances (see Laddie Prescott and Vitoria op. cit. 24.31), it was open to his Honour to exercise a broad discretion in the making of an award of additional damages. Although I think the amount he adopted was at the upper limit of the range that was available to him, I do not regard it as beyond the range, and in my opinion the appeal should be dismissed.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Burchett. Associate: Date: 16 May 1997

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 792 of 1996 GENERAL DIVISION ) ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: RABEN FOOTWEAR PTY LIMITED Appellant AND: POLYGRAM RECORDS INC First Respondent POLYGRAM PTY LIMITED ACN 000 158 592 Second Respondent CORAM: BURCHETT, TAMBERLIN and LEHANE JJ PLACE: SYDNEY DATED: 16 MAY 1997 REASONS FOR JUDGMENT TAMBERLIN J: Introduction This appeal is from a decision of Foster J who awarded damages to the respondents ("Polygram") against the appellant ("Raben") for copyright infringement. The damages consisted of $275.00 by way of compensatory damages and $15,000.00 additional damages.

There is no challenge to the findings that: (i) the first respondent owns copyright in the sound recordings embodied in the relevant CDs; (ii) the second respondent has an exclusive licence in relation to the CDs for Australia; (iii) the CDs imported by Raben as products of Pilz Media Group of Germany ("Pilz") are copies of the sound recordings embodied in the Polygram CDs. Issues The principal question on appeal is whether, within the meaning of ss 102 and 103 of the Copyright Act 1968, Raben ought reasonably to have known that, if it had made the Pilz CD in Australia, such manufacture would have constituted an infringement of Polygram's copyright in the sound recording. Further issues are whether his Honour was justified in awarding any additional damages and whether, if such an award was warranted, the level was excessive. Background Polygram Records Inc. is the owner of copyright in the sound recordings of several songs by "Cher". Polygram Pty Limited, the second respondent, which is an Australian corporation, is the exclusive licensee of those recordings. Both respondents were parties to the action as required by s 120(1) of the Act. Raben is an Australian corporation which operates retail stores through Sydney selling mainly footwear. In 1995 it imported 1000 copies of a "Cher" CD from Pilz which it offered for sale at its stores. Eight of the recordings on the Pilz CDs have the same title as the Polygram recordings. Each of the Pilz recordings embodies a substantial part of each of the Polygram recordings. Polygram claimed that by importing and offering the Pilz CDs Raben committed infringements of ss 102 and 103 of the Act which are secondary infringement provisions. Those sections provide: "102.Subject to section 112A [not relevant for present purposes], a copyright subsisting by virtue of this Part is infringed by a person who, without the licence of the owner of the copyright, imports an article into Australia for the purpose of: (a) selling, letting for hire, or by way of trade offering or exposing for sale or hire, the article; (b) distributing the article: (i) for the purpose of trade; or (ii)for any other purpose to an extent that will affect prejudicially the owner of the copyright; or (c) by way of trade exhibiting the article in public; if the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright.

103.(1) Subject to section 112A, a copyright subsisting by virtue of this Part is infringed by a person who, in Australia, and without the licence of 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 ... in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright." (Emphasis added) It will be noted that s 102 is concerned with the importation of an article for the purpose of selling or offering for sale whilst s 103 deals with the actual sale of the article. It was admitted that Raben imported the Pilz CDs into Australia in or about June 1994 and shortly thereafter offered them for sale at its stores. Up to the period when the CDs were withdrawn from sale Raben sold 55 of the Pilz CDs. There is no dispute that each of the CDs constitutes an "article" for the purposes of ss 102 and 103 of the Act. It was not contested on appeal that, for the purposes of the section, the knowledge of the Lewy brothers as directors of Raben could be imputed to Raben either under general agency principles or because they are the "directing mind and will" of Raben: Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705; Tesco Supermarkets Ltd v Nattrass [1972] AC 153; Hamilton v Whitehead (1988) 166 CLR 121. At the outset of his consideration of the knowledge issue, his Honour commented on the credibility of the Lewy brothers in these terms: "In evaluating the evidence given by these witnesses, I have considered their credibility as evidenced by their demeanour in the witness box and their answers to the questions put to them. On the whole I do not find either of them to be satisfactory witnesses: they were and tended to be evasive in the witness box, rarely answering directly a question put to them in cross-examination. Nor did their demeanour encourage acceptance of their testimony." He found that Mr Ron Lewy's knowledge extended to an appreciation of the distinction between copyright in the underlying musical work ("mechanical copyright") and copyright in sound recordings and that he was aware that sound copyright was generally owned by major record companies at least for well-known artists such as "Cher". He also found, and this was not contested, that Mr Lewy was aware that if Raben wished to manufacture a CD embodying sound recordings in respect of which Raben did not hold the copyright, it would need the licence of the copyright owner to do so. Sections 102 and 103 Raben submits that the primary judge erred in law in his approach to the issue of knowledge when he said:

"As Raben knew that it held no licence to manufacture these CDs from whomever the owner of the copyright might be, then it would necessarily know that if it made them in Australia it would infringe the copyright. Accordingly, breaches of both ss102 and 103 by Raben are established. This result follows even if, as it asserts, Raben believed on reasonable grounds, that it held the copyright owner's permission to import the CDs into Australia for the purpose of sale." This reasoning is said to be not only novel but also contrary to authority. The prescribed test, it is submitted, calls for proof of knowledge that infringement would take place if the imported goods had been made in Australia. Such knowledge involves an awareness that the article would be contrary to an exclusive licence held by another or that it was an infringing article. Reference is made to Albert v S Hoffnung & Co Ltd (1921) 22 SR (NSW) 75 at 81; RCA Corporation v Custom Cleared Sales Pty Ltd (1978) 19 ALR 123 at 126-7; Apple Computer Inc. v Computer Edge Pty Ltd (1984) 2 IPR 1 at 14 and 40-41; Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 at 257. The approach of the primary judge, as set out in the above quotation, is said to be too wide. This is said to be because that approach would have the practical effect of imposing strict liability in circumstances where an importer does not have a licence to manufacture the article and is aware of the general proposition that a licence to import is not a licence to manufacture.

The correct approach is said to be that the claim against Raben must fail if the Court is satisfied that Raben, on reasonable grounds, believed that it held the copyright owner's permission to import the discs in Australia. Polygram must fail unless it can prove that Raben had actual or constructive knowledge that there was a rival claim for copyright which was adverse to the dealings Raben was conducting with Pilz. It is pointed out that the onus of proof is on the copyright owner: Avel Pty Ltd v Multicoin Amusement Pty Ltd (1990) 171 CLR 88 at 94-95. Among the reasonable grounds relied on by Raben are the alleged oral assurances from Pilz and the correspondence in early 1994. In support of its submission that his Honour misapplied the test, when evaluating the evidence, Raben refers to the High Court decision in Nintendo Co Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134, especially at 148-153. That case involved consideration of s 19(3) of the Circuit Layouts Act (Cth) 1989, which provides: "Subject to this Act, the EL right in an eligible layout, .... , is infringed by a person who, during the protection period .... without the licence of the owner, commercially exploits, or authorises the commercial exploitation of, the layout in Australia if the person knows or ought reasonably to know, that he or she is not licensed by the owner of that right to do so." (Emphasis added)

This provision uses the words "ought reasonably to know" but the required knowledge is not of "an infringement", but specifically whether "he or she is not licensed by the owner of that right to do so." In considering the meaning of the subsection, the High Court (at 150) had regard to the legislative policy underlying the subsection having regard to the other subsections of s 19. The High Court's preferred interpretation of the expression "the owner" in subs 19(3) was that it should be given a wide and non-specific interpretation. Such a construction requires that there must be an awareness, actual or constructive, by an alleged infringer that he or she was unauthorised to exploit the protected layout. There must be actual or constructive knowledge of the existence of the layout, of the rights in it and also of the fact that the infringer is not licensed by a person satisfying the description of "the owner" of those rights, whosoever that might be. The High Court said in that case: "Generally speaking, the Commonwealth intellectual property legislation in force at the time when the Act was enacted [1989] specified some significant requirement of actual or constructive knowledge as a condition of either infringement or liability in cases of alleged infringement by mere commercial dealing. Clearly enough, it was the legislative intent that s19(3)'s requirement of actual or constructive knowledge should provide a significant degree of protection of the alleged infringer in such cases. The specific designation construction of the requirement would go a long way towards defeating that legislative intent" (181 CLR at 150). Nintendo, therefore, confirms that an owner must prove that the alleged infringer ought reasonably to have known that the infringer was not licensed by any persons satisfying the description of "the owner of the right". However, it is not necessary to prove knowledge that a particular specified person is the owner. Stated this way, the approach is similar to that adopted by the Full Federal Court in relation to the Copyright Act in Golden Editions Pty Ltd v Polygram Pty Ltd (1995) 34 IPR 84 at 86. As I see it, although the Nintendo decision is relevant for consideration in the present case, it is not determinative of the construction of ss 102 and 103 of the Act because it turns on the particular and different wording of s 19(3). The subject matter and problems addressed by that legislation are different from those addressed by the legislation before this Court. The first element of an infringement of ss 102 and 103 is that there is no licence to import the goods into Australia or otherwise deal with them as specified by those sections. Once it is established that there is no licence to import, the focus of each section is on actual or constructive knowledge with respect to the making of the article, not the actual importation. This becomes the key issue for establishing infringement. The test is curious in that the knowledge in question is based on a statutory fiction, namely, the hypothesis that the goods have been made in Australia by the importer, whereas in fact they are not because they are imported. The knowledge required to establish infringement can be actual or constructive, in the sense that the infringer ought reasonably to have known, that there would be an infringement of copyright if the article had been made in Australia. Constructive knowledge was introduced to ss 102 and 103 by the Copyright Amendment Act 1991. Prior to the amendments actual knowledge was required: RCA Corporation v Custom Cleared Sales, supra. Actual knowledge can be inferred from the particular facts of the case, as stated by Harvey J in Albert v S Hoffnung & Co Ltd, supra, at 81: "Knowledge in the section cannot mean, in my opinion, any more than notice of facts such as would suggest to a reasonable man that a breach of the copyright was being committed". This test has been applied by the Federal Court: Apple Computer Inc v Computer Edge Pty Ltd, supra, at 14 and 40-41, Kalamazoo (Aust) Pty Ltd v Compact Business Systems Pty Ltd, supra, at 240. However, constructive knowledge goes beyond "notice of facts". As stated by Devlin J in Taylor's Central Garages (Exeter) Ltd v Roper [1951] WN 383 at 385 "merely neglecting to make such enquires as a reasonable and prudent person would make" may amount to constructive knowledge. Constructive knowledge focuses attention on the reasonableness of the conduct of the alleged infringer: ie whether acting reasonably the "infringer" ought to have made further enquires which would have resulted in it acquiring the requisite knowledge. The question is not simply whether there were reasonable grounds to suspect or believe, though this can be part of the exercise. In my view, the quotation from the judgment of the primary judge set out above adopts too stringent a formulation as to the requisite knowledge because it is necessary, at least, to establish constructive knowledge that the dealing is contrary to the copyright entitlement of another. However, the relevant dealing for this purpose is the hypothetical making of the article, not the importation. Once it is established that Raben did not have a licence to import, a reasonable belief that it held the copyright owner's permission to import the CDs into Australia is only relevant to the extent that it relates to whether it knew or ought reasonably to have known that the making of the article in Australia would have infringed the copyright of the owner. It is necessary to consider the judgment as a whole and to examine the reasoning which his Honour applied. April 1994 correspondence On 4 April 1994, about two months before the importation, Raben wrote to Mr J Krische of Pilz's Media Group in Munich as follows: "Attached hereto is our Amended Order which totals 67,150 peices (sic) being US Dollars 82,892.50. We have altered the quantities as shown on the following 8 pages of pro-forma invoice. Would you please re-issue your invoice and advise that these titles are available in stock. Upon receipt of confirmation we will forward 20% payment in advance. Would you also confirm that all licence and copyright conditions have been met for sale and distribution in Australia and New Zealand. Please also forward further copies of your catalogues and merchandising material, display stands, boxes, posters etc to be included in seal container as there will be available spare when order is completed." (Emphasis added) Although this letter was written under the name of Mr Garry Lewy, it was in fact signed by Mr Ron Lewy. However Mr Garry Lewy was aware of the terms of the correspondence. Indeed, he swore that he "believed, as a result of the correspondence ... that Pilz had all the necessary copyright licences to enable CD's supplied by it to be sold in Australia." The transcript also reveals that as regards Mr Garry Lewy, the above correspondence represents "hard copy" of discussions which he had with Pilz. On 5 April 1994, Mr Krische replied by fax which included: "Regarding copyrights and licenses, we can assure you that all necessary GEMA and MCPS licenses (sic) are paid for for distribution. As you have in Australia a similar institution which is called AMCOS you will have to notify them about how much mechanical copyrights you might have to pay in Australia." (Emphasis added) On 6 April Mr R Lewy replied to the fax of Mr Krische and said: "Thank you for your assistance and patience and the assurances regarding copyrights and licences." (Emphasis added) Raben submits that the letter of 4 April from Raben to Pilz requesting that Pilz: "... confirm that all licence and copyright conditions have been met for sale and distribution in Australia ..." (emphasis added) demonstrated the belief that Raben had the necessary assurances as to copyright and that it was concerned simply with compliance with conditions. In cross-examination Mr Ron Lewy, who signed the letter, agreed that he was aware that there were copyright implications involved in importing CDs for sale into Australia. He also agreed that his letter was intended to refer to all copyright issues. This evidence does not sit easily with the suggestion that Mr Lewy believed that all licences were in place and that the letter was only concerned with conditions of the licences and copyright. Whilst it is agreed by Raben that the reply of 5 April only referred to "mechanical copyright", it is said to be unrealistic to find that Pilz was seeking by such limited response to suppress the truth. However, the intention of Pilz is not relevant. What matters is the reasonableness of Raben's conduct upon receipt of the letter on a fair and reasonable construction of it. In my view, it was open to his Honour to find that the restricted response to the general question framed by Mr Lewy ought reasonably to have led Raben to pursue the matter in order to ascertain the true position. Given the importance of the matter and the conduct of the Lewy brothers it would have been reasonable to secure an explicit written assurance that the necessary licences were in place in relation to sound recordings, and perhaps to call for some documentary evidence to substantiate the position. It would have been a relatively simple matter to take steps to seek a prompt documentary clarification of the true position. It was further submitted that his Honour erred when he rejected Mr Ron Lewy's assertion that an oral assurance had at some time previously been given by someone from Pilz that: "the copyright licences are in place for Australia". His Honour gave two reasons for rejecting this assertion. The first was that he had reservations about the credit of each of the Lewy brothers. The second was that the reply of Pilz of 5 April was limited to "mechanical copyright" and on its face tended to indicate that there was no general oral assurance given by Pilz. Both these matters were open and available grounds on which his Honour could reach the conclusion that this conversation did not take place. His Honour's reasoning on this matter discloses no error. A further submission was that his Honour erred in relying on the fact that AMCOS was not notified. However, the fact is that Raben ignored the express request of Pilz in its letter of 5 April to notify AMCOS: "....you will have to notify them (AMCOS) about how much mechanical copyrights you might have to pay in Australia". Raben did not go to AMCOS and when AMCOS found out that Raben had imported the Pilz recordings it thereupon requested royalty payments from Raben. On the evidence it was open to his Honour to give such weight as he thought appropriate to this fact. It is said that his Honour did not refer to the "explanation" given by Mr Garry Lewy to the effect that he was in negotiations with GEMA with respect to royalty credits. However, it was well open to his Honour to form the view that the explanation proffered did not, on its face, satisfactorily explain why AMCOS was not approached, and therefore that no weight or significance should be allocated this "explanation". One further matter should be mentioned. Mr Garry Lewy stated that when visiting the Pilz premises in Germany, prior to April 1994, he was told that he could not sell certain other CDs because they were not "clear for Australia". From this it is sought to conclude that when Raben imported the subject CDs in June 1994, there was some form of justification for an inference of an implicit assurance that there had been a "clearance" for Australia. His Honour expressed doubt, but made no finding, as to whether the statement was in fact made. His reasons indicate however, that even if such a statement was made, it should be given little or no weight, because the letter of 5 April limited any representations to mechanical copyright and it was clearly his view that greater reliance should be placed on the letter, rather than on a vague inferential and implicit "assurance". Again, this finding was well open to his Honour on the evidence. Reasoning of the primary judge Briefly summarised, his Honour's reasoning on the knowledge question proceeded on the basis that Raben through its directors, was familiar with the relevant aspects of copyright law and practice. Raben, through its directors, appreciated that "mechanical copyright" was different from the sound recording copyright and the directors understood the nature and location of the mechanical copyright organisations, including AMCOS. The directors, in his Honour's view, also understood that the reply by Pilz on 5 April 1994 to their letter of inquiry of 4 April 1994 was limited to mechanical copyright. Yet there was no further inquiry made with respect to sound recording copyright. No credible explanation, in his Honour's view, was given for not making any further inquiries. Further, the directors failed to notify AMCOS of the importation of the Pilz CD's as directed by Pilz in its letter of 5 April. His Honour rejected the evidence of Mr Garry Lewy relating to oral assurances from Pilz as to the lawfulness of the importation. He referred to the submission concerning an implicit representation said to ground the assurance by Pilz. He considered that the effect of any such representation would have to be considered in the light of the limited reference to "mechanical copyright" in the Pilz letter of 5 April. His Honour noted the submission that Pilz was a major manufacturer and a reputable corporation, and that it was reasonable to accept its assurances. Balancing these considerations, his Honour found that Raben's impression of Pilz did not, when taken with other evidence, "absolve" Raben from making proper inquiries as to the ownership of the sound recording copyright. His Honour found that the directors being aware of the risk of infringement decided to take the risk hoping that any infringement would go unnoticed and that they would secure a substantial profit to which they were not entitled. In reaching this conclusion his Honour took into account the Lewys' general awareness of copyright matters; of parallel importing; and of the existence of sound recording copyright as a distinct area from mechanical copyright. He was satisfied that Raben had the requisite knowledge under ss 102 and 103 when read in the light of the relevant case law to which he not only adverted but from which he quoted. An examination of the judgment as a whole indicates that his Honour addressed the question whether the directors ought reasonably to have knowledge under the sections. This case was clearly not decided on any misapprehension that strict liability was sufficient. He was simply not satisfied that reasonable inquiries were made and therefore concluded Raben ought reasonably to have known of the infringement. It is implicit in such a finding that if proper inquiries had been pursued Raben would have obtained the requisite knowledge. Having been put on inquiry as a result of the matters referred to the requisite knowledge had, in his Honour's view, been established. This conclusion was open on the evidence and discloses no error of law in relation to the interpretation and application of the relevant principles with respect to the knowledge required under ss 102 and 103.

Browne v Dunn The submission in relation to this matter arises from evidence given by Mr Ron Lewy. He said that in early 1994 he spoke on a number of occasions by telephone with the Export Manager of Pilz in Germany, Mr Krische and Ms M Allen of the Pilz Sales Department. He said he was told in one of these conversations, of which there is no note, that: "The copyright licences are in place for Australia but you will be liable to pay mechanical copyright fees." He was unable to recall specifically when or by whom the statement was made. His Honour did not accept that the words, relating to copyright being in place in Australia, were said. He gave two reasons. These were based on his adverse view of Mr Lewy's credit and the significance which his Honour attributed to the letter of 5 April being limited to "mechanical copyright" on his construction. The submission made to this Court is that because it was not specifically and expressly put to Mr Ron Lewy, in cross-examination, that the statement was not made, the rule of professional practice enunciated in Browne v Dunn was breached and therefore the evidence should have been ignored or the matter reopened. The failure by his Honour to address the point was said to amount to procedural unfairness. Counsel referred to a number of decisions including Payless Super Barn (NSW) Pty Ltd v O'Gara (1990) 19 NSWLR 551 at 554-557. Ultimately, the rule in Browne v Dunn is one of procedural fairness. Whether his Honour should have taken any action in relation to the failure to put the disputed words called for the exercise of a discretionary judgment on his part. As Hunt J has pointed out, in Allied Pastoral Holdings Pty Ltd v The Commissioner of Taxation [1983] 1 NSWLR 1 at 26-27, the rule is designed to ensure fairness to the witness so as to enable the witness to deal with the disputed matter and perhaps to give further evidence in corroboration or to contradict any inference which may be sought to be drawn. See also Dolan v Australian and Overseas Telecommunications Corporation (1993) 42 FCR 206 at 207-208; Marelic v Comcare (1993) 121 ALR 114 at 119-120. It is common ground that it was not expressly put to Mr Ron Lewy that the words were not said. In commercial litigation (including intellectual property matters), where issues are clearly defined, there will often be no point in formally challenging every aspect of the evidence which is contested. There will often be a large number of matters in respect of which it will be apparent from the pleadings and particulars there is clearly a contest. Where this is the case the principle need not be applied in an unduly technical way. Mr Garry Lewy in his affidavit, bases his belief that Pilz had all the necessary copyright licences solely on the April correspondence. He makes no reference to any conversation with Pilz. It would have been curious in the extreme if he had not been informed by his brother of such an important assurance. In addition, there was no written record of the assurance. No attempt was made to proffer any evidence from Pilz to corroborate the statement. The unlimited assurance, allegedly furnished to Mr Ron Lewy, is to be contrasted with the limited statement in the letter of 5 April. Moreover, his Honour formed a strong adverse view as to the credibility of both Lewy brothers and was discouraged from acceptance of their testimony. In the light of these considerations I am not satisfied there was any procedural unfairness. The rule may be satisfied where the witness is on notice that the version given is disputed and such notice may come from pleadings, the opponent's evidence or opening, or from the general manner in which the case is conducted. In this case it must have been readily apparent to the Lewy brothers that any alleged assurance from Pilz as to copyright licences being in place was in dispute. Cf. Jagelman v Federal Commissioner of Taxation (1995) 31 ATR 467 at 472. Any assertion by Raben of an assurance from Pilz was obviously central to Raben's case and should reasonably have been expected to be contested. On the pleadings it was admitted by Raben that the importation was without the licence of Polygram but it was denied that Raben ought to have known at the time of importation that if copies had been made in Australia these would have been an infringement. The Browne v Dunn point would have been met by simple challenge which in turn would clearly have been denied. As a matter of practicality there would have been no useful purpose served by an express challenge on such an obvious matter. Therefore, there was no lack of fairness. Even if, contrary to the above view, there was found to be a breach of the rule that the making of the first part of the statement should have been accepted, nevertheless, his Honour was independently entitled, having regard to his views as to credibility and the effect of the letter of 5 April to give no significant weight to the assertion, in the same way as he treated other statements to the effect that all licences and copyright requirements were in order when considered in the light of the April correspondence. Additional damages - s115(4) By way of relief his Honour awarded $275.00 damages and $15,000 as additional damages.

In granting relief he said: "Evidence was put before me that 55 copies of the Pilz CD were sold by Raben at a price of $5.00 each, and I find that Raben is liable in conversion for those 55 copies. The other 945 copies are currently being stored by Raben pending the outcome of these proceedings, and I find that Raben is liable in detinue for those 945 copies. ..... In light of my findings above I am satisfied that the infringement was flagrant. I am quite satisfied that the Lewys were well aware of the risk they were taking in making the importation, and hoped that the infringement would pass unnoticed, leaving Raben with an undeserved but substantial profit. I award $15,000 by way of additional damages." The additional damages are challenged as excessive on the grounds that: • there was no evidence which would justify a finding of actual knowledge or a finding of flagrancy: • if additional damages are at all are payable, $15,000 is excessive because additional damages are typically awarded in the same order of magnitude as compensatory damages, examples of which are as follows: • Manfal Pty Ltd v Longuet (1986) 8 IPR 410: compensatory damages $250.00; additional damages $250.00; • Autodesk Australia Pty Ltd v Cheung (1990) AIPC 90-665: compensatory damages $15,000.00; additional damages $35,000,00; • Namol Pty Limited v A W Baulderstone Pty Limited (1993) AIPC 91-031; affirmed (1994) 53 FCR 102; compensatory damages $350,000.00; additional damages $150,000.00; • Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240; compensatory damages $120,000.00; additional damages $70,000.00 (approx); • Robert J Zupanovich Pty Ltd v B & N Beale Nominees Pty Ltd (1995) 32 IPR 339; compensatory damages $1,000.00; additional damages $1,500.00 (if damages had been claimed). As the above quotation indicates the infringement was regarded by his Honour as "flagrant" and he goes on to express the conclusion that the Lewy brothers knowingly took a risk on the basis that the infringement would escape notice and they would receive a substantial profit. The subsection is cast in the widest terms calculated to confer on the Court a discretion of the most extensive nature: Concrete Systems Pty Ltd v Devon Symonds Holdings Pty Ltd (1978) 20 SASR 79 at 85. As Ricketson observed in The Law of Intellectual Property, 1984 at 297 (when contrasting the position under the U.K. Copyright Act 1956 s 17(3)) s 115(4) is not subject to the requirement that effective relief would not otherwise be available and there is no restriction of the award of exemplary damages. Cf the limitations spelt out by Ungoed- Thomas J in Nora Beloff v Pressdram Pty Ltd (1973) RPC 765 at 791. This illustrates the width of the Australian provision by contrast. The subsection does not, of course, make it necessary to find flagrancy. Even if the infringement could not be described as "flagrant" it was open to the Court to find that additional damages are appropriate having regard to the benefit accruing from the infringement or any other matter which the Court considers relevant. If the Court is satisfied that any one or more of the circumstances set out in subs 4(b) are present, it has a discretion to award such damages as it considers appropriate. In ordinary usage "flagrancy" connotes conduct which could probably be described as "glaring, notorious, scandalous" or "blatant." See the New Shorter Oxford English Dictionary, 1993 at 965. Copinger and Skone-James on Copyright 13th edn 1991 at 344 state that: "Flagrancy implies scandalous conduct, deceit including deliberate and calculated infringement where a defendant reaps a pecuniary advantage in excess of the damages he would otherwise have to pay." In Prior v Lansdowne Press Pty Ltd [1977] VR 65, Gowans J, in considering a claim for additional damages under s 115(4) of the Act, said at 70: "I have come to the conclusion that the evidence as to the publication shows primarily a case of mistake and perhaps carelessness, but it does not show a case of flagrancy, or calculated disregard of the plaintiff's rights or cynical pursuit of benefit, or other matter justifying the award of additional damages beyond what is required for compensation." (Emphasis added) Whilst I do not consider that it is appropriate to describe the infringement in the present case as "flagrant", I consider that the award of additional damages should not be set aside or varied. It was open to the Court to award additional damages, in the present circumstances, where his Honour found that the Lewys were well aware that they were taking a risk in order to secure an undeserved but substantial profit. It is clear from a reading of the judgment as a whole that his Honour strongly disapproved of the conduct of the directors. A submission was made that because AMCOS did not appear to regard the infringements as extreme and proposed a compromise in the letter of 11 August 1994, the Court should not have treated the infringement and the conduct leading up to it as attracting strong censure. There are two observations on this argument. First, the letter concludes with a threat of civil action if the terms of the letter are not complied with and it is pointed out that "criminal sanctions" are available. Second, the importance to be attached to the attitude of AMCOS is a matter for the Court. The attitude of AMCOS, even if it were thought to be conciliatory, cannot control this discretion. It was also submitted for Raben that examination of the cases in which additional damages are awarded indicated that such damages are normally in an amount about equal to or less than the compensatory damages. The basis for this submission is presumably the principle that like cases should be treated in a like manner. However, the circumstances, giving rise to and surrounding copyright infringement, must always vary infinitely and, in my view, it is not desirable to adopt any principle which results in the broad general discretion carefully formulated in s 115(4) being fettered in any arithmetic or mechanical way. Even the cases cited for Raben do not support the proposition of arithmetic nexus. They rather indicate that there is no such general principle. The importance of preserving a broad unfettered discretion in relation to additional damages so far as quantum is concerned is illustrated by the decision in Williams v Settle [1960] 1 WLR 1072. That was an extremely strong case for an award of additional damages. In that case the Court of Appeal upheld an award by which compensatory damages of fifteen pounds were awarded and in addition an award of one thousand pounds by way of additional damages was made. It is also important to bear in mind in the present case that his Honour made a finding that in addition to the conversion damages in respect of the 55 CDs Raben was liable in detinue for 945 copies of the CDs stored by Raben. In the light of the foregoing I see no reason to disturb the additional damages award made below. Conclusion The appeal should be dismissed with costs. I certify that this and the preceding twenty-seven (27) pages are a true copy of the Reasons for Judgment herein of his Honour Justice Tamberlin. Associate: Date: 16 May 1997

IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No. NG 792 of 1996 GENERAL DIVISION ) ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

POLYGRAM PTY LIMITED (A.C.N. 000 158 592) Second Respondent CORAM: Burchett, Tamberlin and Lehane JJ PLACE: Sydney DATE: 16 May 1997 REASONS FOR JUDGMENT LEHANE J: I agree that the appeal should be dismissed with costs. I agree also with the reasons for that conclusion given by Burchett J, which I have had the advantage of reading. There is one aspect of the matter, however, on which I wish to add some comments. That matter relates to the knowledge, actual or constructive, to which ss 102 and 103 of the Copyright Act refer.

Under s 102 there is an infringement if an article is imported into Australia, without the licence of the copyright owner, for one of the specified purposes: if the importer knew, or ought reasonably to have known, that the making of the article would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright. Under s 103 there is an infringement if, without the licence of the owner of the copyright, an article is sold or let for hire (or by way of trade offered or exposed for either of those purposes) or is exhibited by way of trade in public, if the person doing one of those things: ... knew, or ought reasonably to have known, that the making of the article ..., in the case of an imported article, would, if the article had been made in Australia by the importer, have constituted an infringement of the copyright. In what counsel for the appellant described as a critical passage, the primary judge said: As Raben knew that it held no licence to manufacture these CDs from whomever the owner of the copyright might be, then it would necessarily know that if they had made them in Australia it would infringe the copyright. Accordingly breaches of both ss 102 and 103 by Raben are established. This result follows even if, as it asserts, Raben believed, on reasonable grounds, that it held the copyright owner's permission to import the CDs into Australia for the purpose of sale. It was submitted that that reasoning is novel and contrary to authority. It was suggested that it is well established that the provisions governing indirect infringement (ss 37, 38, 102, 103) require proof of knowledge that a breach of the Copyright Act was being committed, in the sense that the article in question is known to be an infringing article ("known" including, no doubt, constructive knowledge) or that its importation is known (no doubt in a similar sense) to be contrary to an exclusive licence held by another. Thus, it was said, the claim against Raben should fail if Raben proved that it believed on reasonable grounds that it held the copyright owner's permission to import the CDs into Australia for the purpose of sale. A combination of two elements results in an importation for one of the commercial purposes specified in s 102, or one of the commercial transactions referred to in s 103, amounting to an infringement of copyright. One of those elements is that the importation or transaction happens without the licence of the copyright owner (as to which see Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534 at 543, 544 and at 548-554). No question of knowledge, actual or constructive, arises at that point. The other element is that the importer (or seller, hirer etc) had actual or constructive knowledge that (in the case of an imported article) there would have been an infringement of copyright if the importer had made the article in Australia. The description by Harvey J of the knowledge relevant for the purpose of the particular statutory provision with which he was concerned (Albert v S Hoffnung & Co Ltd (1922) 22 SR (NSW) 75 at 81) does not, despite the approving repetition of his Honour's words in more recent cases, necessarily help in construing the indirect infringement provisions of the present Copyright Act. His Honour's reference to a "reasonable man" must now be taken as at least qualified by the insistence, in RCA Corporation v Custom Cleared Sales Pty Ltd (1978) 19 ALR 123, that the circumstances, including the state of knowledge, of the alleged indirect infringer be taken into account. And, in the present statutory context, the reference by Harvey J to knowledge that a breach of the copyright law was being committed must be read having regard to the fact that the sections in terms speak rather of knowledge that a hypothetical manufacture would have constituted an infringement. Recent authorities recognise that the provisions require the question to be tested by reference to hypothetical manufacture by the importer: see Milpurrurru v Indofurn Pty Ltd (1994) 54 FCR 240 at 257, 258 and Star Micronics Pty Ltd v Five Star Computers Pty Ltd (1990) 18 IPR 225 at 235, 236. In Apple Computer Inc. v Computer Edge Pty Ltd (1984) 2 IPR 1 Lockhart J, at 41, posed the question by reference to the hypothetical manufacture by the importer and I do not think that the judgment of Fox J at 12-14 should be read in a different sense. I do not think that RCA Corporation should be taken as deciding anything to the contrary. The question which the Court of Appeal posed for itself was whether either of two persons concerned in the management of the defendant (and thus the defendant itself) had knowledge that the defendant was engaged in selling infringing cassettes. The principal questions in the case had to do with the circumstances in which the requisite knowledge (the provision then required actual knowledge) might be inferred. It did not (and in the circumstances of the case did not need to) examine the question, of what precisely is knowledge required? There is, nevertheless, obvious force in the argument of counsel for the appellant that where what actually happens is an importation, not a making of the article in Australia, so that no licence permitting its making is needed or likely to be held, a literal construction of the provisions is likely to result in something close to a strict liability in all cases where, in fact, there is no licence to import (or, in the case of s 103, to sell, let on hire etc). It would be odd, in any event, to impose a liability by reference to knowledge of the circumstances of something (a making in Australia) which in fact did not take place, and if the provisions were read literally there would be an equally odd difference between the way in which they deal with imported articles and the way in which s 103 deals with sales etc of articles made in Australia. Additionally, it is true that though the cases recognise the test which the sections in terms pose, they treat knowledge of the circumstances surrounding the actual importation, in the case of imported articles, as relevant. It is not easy to see how the words of the provisions are to be easily reconciled with what one might expect, and what common understanding seems to assume, to be their substantial effect. Perhaps they are to be read as, in effect, deeming the actual importation to have been a making in Australia (such a making might have constituted an infringement, whereas but for s 102 an importation would not) so that the circumstances, knowledge of which is relevant, are, or at least include, those of the deemed making (actual importation). I have thought it appropriate to discuss this question because it arises from the "critical passage" in his Honour's judgment and was the subject of a substantial argument before us (though the argument did not go in detail to reconciling what both counsel took to be the substantial effect of the provisions with their express words). It is, however, unnecessary to pursue the matter further, because the trial judge made findings about knowledge both in relation to a hypothetical making of the CDs and in relation to the circumstances of their actual importation. Finally, I do not think that Nintendo Company Ltd v Centronics Systems Pty Ltd (1994) 181 CLR 134, on which the appellant placed some reliance, is of any great assistance in this context.. That case had to do with the construction of the expression "the owner" of the relevant right, and particularly whether that expression should be taken as referring to the actual owner specifically or, more generally, to the owner whoever the owner might be, in a provision to the effect that the relevant right was infringed by a person who, "without the licence of the owner, commercially exploits or authorises the commercial exploitation of, the layout in Australia if the person knows or ought reasonably to know that he or she is not licensed by the owner of that right to do so". The knowledge referred to there relates to the actual exploitation, not to anything analogous to the hypothetical manufacture to which the Copyright Act provisions refer. I certify that this and the preceding 5 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane. Associate: Dated: 16 May 1997 Heard: 10 February 1997 Place: Sydney Decision: 16 May 1997 Appearances: Mr I M Jackman of counsel instructed by Dickson Fisher Macansh, appeared for the appellant. Mr R Cobden of counsel instructed by Gilbert & Tobin appeared for the respondent.

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