consideration of respondents' proposed copyright defences
106 As already stated, the respondents sought leave to amend their amended defence, in part to introduce some positive defences. In written submissions, the respondents explained that they had not originally "apprehended the generality of paragraphs 32, 33 and 36" of the Statement of Claim, because they had understood these paragraphs to concern only "complaints relating to the reproduction of the applicants' logos on Paul's Warehouse brochures … specifically advertising the Infringing Board Shorts and the Infringing t-shirts". The respondents went on to say:
The realisation that paragraphs 32, 33 and 36 of the SOC were directed at the Respondents' advertising generally came during preparation for this application and was also prompted by the service on the Respondents' solicitors, of a Notice to Admit, on 17 January 2011, which attached copies of the brochures particularised in paragraphs 32, 33 and 36 of the SOC.
The Respondents' position, now expressed by paragraphs 31, 32, 33 and 36 of the SAD, is that where genuine goods are promoted by reference to the Applicants' logos, such use is not an infringement because there is an implied licence and/or because of the operation of section 44C(2). …
107 Pursuant to O 13 r 2 of the Federal Court Rules 1979 (Cth) (see now Rule 16.53 of the Federal Court Rules 2011), the Court has a wide discretion to permit amendments to pleadings in appropriate cases. I accept that, as the respondents contended, the circumstances in this case are different from those considered in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175: compare Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 273 ALR 147. Leave will not be given, however, if the proposed pleading is likely to be struck out (see O 11 r 16; and now Rule 16.21 of the Federal Court Rules 2011) or if the issue sought to be raised is unlikely to succeed: see Research in Motion Ltd v Samsung Electronics Australia Pty Ltd (2009) 255 ALR 508 at 512 [21]-[22]. The applicants argued that such was in fact the position with respect to the proposed positive defences.
108 As the respondents made clear, the opposed amendments sought to raise positive defences to the allegations in paragraphs 32, 33 and 36 of the Statement of Claim, which concern the reproduction of the Billabong Stylised Copyright Works, the DC Stylised Copyright Work and the Quiksilver Stylised Copyright Works. In particular, they raise two issues.
(a) whether, as the respondents contended, in respect of products bearing copyright works with the consent of the owner of the copyright, there is an implied licence in favour of the respondents:
(i) to use the relevant copyright works to advertise, promote and market those products; and
(ii) import, offer for sale and sell those products in Australia.
(b) where the first respondent has reproduced copyright works in its brochures in connection with genuine goods, whether, as the respondents contended, those brochures are non-infringing accessories for the purposes of s 44C of the Copyright Act 1968 (Cth) ("CA").
Implied licence proposed pleading
109 The first respondent seeks to introduce an implied licence defence at paragraphs 32, 33, 35 and 36 of its proposed second amended defence. Paragraph 32 of the proposed pleading reads as follows:
In answer to paragraph 37, the respondents say, subject to copyright being found to subsist in the Billabong Stylised Copyright Works and the Third Applicant being found to be the owner:
a) to the extent that the first respondent reproduced the Billabong Stylised Copyright Works for the purpose of advertising, promoting and marketing products to which the Billabong Stylised Copyright Works have been applied by or with the consent of the Third Applicant (Genuine Billabong Products):
i. The Billabong Stylised Copyright Works were reproduced with the license of the Third Applicant:
Particulars
(A) By permitting Genuine Billabong Products to be wholesaled to third parties without restriction, the Third Applicant implicitly licensed such third parties, including the First Respondent, to use the Billabong Stylised Copyright Works to advertise, promote and market such products, that being the purpose for which the said works were created;
(B) The Respondents refer to and rely on a letter from Corrs Chambers Westgarth Lawyers dated 18 January 2011
ii. Alternatively, the said reproductions were of non-infringing accessories to imported articles within the meaning of s 44C of the Copyright Act 1968 and therefore did not infringe copyright in the Billabong Stylised Copyright Works.
b) to the extent that the first respondent reproduced the Billabong Stylised Copyright Works for the purpose of advertising, promoting and marketing the Infringing Board-shorts, they admit that the First Respondent has infringed copyright in the said works but say that such infringement was innocent and refer to paragraph 37 below;
c) deny that the first respondent is continuing to infringe copyright in the Billabong Stylised Copyright Works;
d) Otherwise deny the allegations in paragraph 37.
110 Paragraphs 33, 35, and 36 of the proposed second amended defence are in similar terms. Besides the implied licence issue in paragraph 32(a), other paragraphs raise the applicability of s 44C, which is further discussed hereafter.
111 In Time-Life (1B IPR 253), the High Court considered the circumstances in which a licence might be implied. Time-Life related to books that were imported into Australia by the appellant, Interstate Parcel Express Co Pty Ltd. The books had been sourced from a company in the USA that had obtained them from the copyright owner's distributor. The books were genuine. The appellant argued that it had an implied licence to import the books into Australia by reason of the fact that they were genuine articles sold without restriction. In rejecting this argument, Jacobs J stated in Time-Life (at 268):
A positive licence to import for purposes of sale is not necessarily an express licence. A positive licence may in certain circumstances be implied, as for example where a copyright owner overseas sells copyright articles in commercial quantities to a purchaser in Australia. But that is very different from implying a licence to import into Australia for purposes of sale from the mere fact that the copyright owner made sales in his own country in commercial quantities to a purchaser in that country without expressly imposing a restriction on importation into Australia. It cannot be maintained that in such circumstances the copyright owner positively licensed the importation into Australia of the articles which he had sold on his own domestic market.
112 Stephen J, with whom Barwick CJ agreed, explained in more detail why the argument failed, stating (at 262-264):
The appellant seeks to make out the necessary licence from the circumstances which are assumed to have governed the original sale in the United States of the books by Time Incorporated to its United States distributor, Little, Brown & Company. Because, so it is said, the sale contained no term restrictive of the use to which the buyer might put the books, including their subsequent resale anywhere in the world, it involved the grant of a licence by the copyright owner, Time Incorporated, to its distributor to deal with the books as it saw fit without restriction as to locality of resale. Those claiming through that distributor, as does the appellant, are in a like position and thus have the consent of Time Incorporated, the owner of the copyright, to import books into and sell them in Australia, "licence" in the sections meaning no more than "consent", which was the word used in a like context in the Copyright Act 1911 (UK).
This implied licence or consent cannot be made out by the appellant as arising, as a matter of necessary implication, from any particular circumstances of the sale by Time Incorporated. No question of supplying business efficacy to that contract of sale would justify it, no officious bystander's question could be expected to have evoked the response by the parties that, of course, Little, Brown & Company was free to sell the books wherever it chose: the existence since 1961 of an exclusive licence granted by Time Incorporated to its affiliate, Time-Life, in respect of publication in the British Commonwealth other than Canada refutes it, as does the evidence that books intended for sale in the United States employ American units of weight and of measure and adopt American usage in the spelling of certain words whilst those intended for sale overseas by Time-Life do not. …
It is rather by recourse to the different concept of a term implied by law as inherent in the nature of the contract that the appellant must seek to establish the necessary licence. …
Thus the appellant relies upon the doctrine to be found in patent cases such as Betts v Wilmott (1871) LR 6 Ch App 239; Societe Anonyme des Manufactures de Glaces v Tilghman's Patent Sand Blast Co (1883) 25 Ch D 1 at 8-9 and National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 (HC); (1911) 12 CLR 15; [1911] AC 336 (PC). In my view the appellant's reliance upon these authorities is misconceived.
…
[These authorities] should, I think, be seen as confined to the quite special case of the sale by a patentee of patented goods and as turning upon the unique ability which the law confers upon patentees of imposing restrictions upon what use may after sale be made of those goods. If the patentee, having this ability, chooses not to exercise it and sells without imposing any such restrictions, the purchaser and any successors in title may then do as they will with the goods, for they are then in no different position from any purchaser of unpatented goods. But, to ensure that consequence despite the existence, albeit in the instance unexercised, of this power on the patentee's part, the law treats the sale without express restrictions as involving the grant of a licence from the patentee authorising such future use of the goods as the owner for the time being sees fit. The law does this because, without such a licence, any use or dealing with the goods would constitute an infringement of the patentee's monopoly in respect of the use, exercise and vending of the patent. … Absent that monopoly, peculiar to patents, there is no occasion for any licence. The buyer of monopoly-free goods, goods not the subject of patent rights, obtains by his purchase title to and possession of the goods and with it, of course, goes the ability, subject to the relevant laws of the jurisdiction in question, to use and deal with the goods as he sees fit. But this is only the consequence of chattel ownership and nothing in the nature of a licence is involved. The buyer of a book in which copyright exists is just such a buyer; the book, once bought by him, is not thereafter subject to any monopoly rights of the copyright owner but may be dealt with by the buyer entirely as he chooses. The copyright in the literary work of course remains with the copyright owner; the buyer has bought no part of it and remains as he was before his purchase, unable lawfully to enjoy any of those exclusive rights, reproduction, adaption or the like, which ownership of the copyright preserves exclusively for the copyright owner.
Because a copyright owner, unlike a patentee, has no monopoly in the use of or dealing in a book which he sells, there exists no general prohibition of such use or dealing calling for modification, as in the case of patented articles, by any implied grant of a licence. Instead, the buyer of such a book obtains just such rights, no more and no less, as does the buyer of any other chattel and those rights, which flow from his acquisition of ownership and possession, do not involve any licence.
See also Time-Life at 258-259 per Gibbs J. The same approach has been adopted in such cases as Computermate Products (Aust) Pty Ltd v Ozi Soft Pty Ltd (1988) 12 IPR 487 at 491-493; Broderbund (22 IPR 215 at 227-228); and Lorenzo (23 IPR 376 at 380-383).
113 The respondents accepted that Time-Life and Lorenzo were against their argument but they sought to distinguish Time-Life and Lorenzo arguing that:
(1) Time-Life was decided over 30 years ago and concerned the importation of books. The obstacles it presented in relation to books were negated by the introduction of CA, ss 44A and 112A.
(2) In Time-Life the copyright work was the sum of the product. By contrast, the copyright works contained in paragraphs 32, 33 and 36 of the proposed second amended defence were logos, not the garments. Their predominant purpose was to identify their source. When used to promote genuine goods, they were being used for this purpose. The TMA countenanced such use under s 123. In this regard, the respondents referred to Transport Tyre Sales Pty Ltd v Montana Tyres, Rims and Tubes Pty Ltd (1999) 93 FCR 421 ("Transport Tyre") at 440 [94]-[96].
(3) Time-Life was applied in Lorenzo but was not the primary factor in the Full Court's decision. Other factors included, in particular, health and safety and compliance issues arising from the goods being electronic products manufactured for Asian conditions. These factors were said to have "immeasurably strengthened" the appellant's case that a licence was not to be implied from the circumstances: see Lorenzo at 382.
(4) Acohs Pty Ltd v Ucorp Pty Ltd (2010) 86 IPR 492 ("Acohs") was a recent example of a licence to reproduce copyright works being implied in circumstances where there was no relationship between the copyright holder and the user.
114 The respondents further argued that there was additional scope for the development of the law around the implied licence issue and that argument at trial was warranted. I reject this submission. For the reasons stated below, these proposed amendments are unlikely to succeed at trial and should not be allowed.
115 First, as the copyright applicants noted, the respondents do not include in their proposed amendment a claim that the first respondent was the beneficiary of any express licence from a copyright applicant. Indeed, as noted above, the copyright applicants rely on evidence in the 6 December 2010 Perry affidavit and the 15 December 2010 Blanchard affidavit to the effect that the copyright applicants had not authorised either the respondents or their suppliers to deal with the copyright applicants' goods. As noted already, this was supported by Mr Dwyer's own evidence.
116 The proposed amendments identify only one fact as the basis for the claimed implied licence - that some goods bear the copyright works with the consent of the copyright owner. Time-Life and subsequent decisions indicate that such a licence will not be implied unless there is some additional evidential and factual basis to support such an implication.
117 Further, the factors that the respondents rely on to distinguish Time-Life and Lorenzo do not justify departing from these authorities. The principles stated in Time-Life were not confined to books and have been consistently applied by this Court in relation to various products. There has been no relevant legislative change.
118 The respondents refer to Acohs as an example of an implied licence in relation to copyright works. In Acohs, however, the regulatory environment relevant to the works in dispute (material safety data sheets) was a significant, if not the key, factor in the implication of the licence: see Acohs at 530 [118], 536-537 [132], [135], [136] and 539 [140]. The licence in that case was akin to a term implied by law. Indeed, Time-Life is not mentioned in Acohs and the respondents have not identified any factor equivalent to that in Acohs. There is no reason to doubt the applicability of the Time-Life principles in this case.